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Regulatory Activities – Natural Gas – Current Issues

 Marcellus Shale

There has been a lot of discussion in the media about “Marcellus shale” and a process known as “fracking.” The Marcellus shale can be found in the Appalachian Basin, including Western Maryland, from which natural gas can be extracted through a process known as hydraulic fracturing. Recent advances in technology, together with other developments, have produced a dramatic growth in the use of this technology to produce natural gas. Numerous studies have shown a tremendous potential in the availability of this gas.

The projected availability of this gas from the Marcellus Shale has major implications for both gas purchasing practices and prices for gas customers. In fact, the availability already has placed downward pressure on gas prices and gas futures. In addition, the availability of this gas has had a significant impact on issues related to construction of electric generating facilities and planning to meet our electricity needs. It also may have cost-effectiveness implications for renewable energy facilities.

In addition, questions have been raised at the federal and state levels about possible environmental and health impacts related to the exploration for and production of natural gas from the Marcellus shale. These impacts include possible contamination of ground water and surface water. Since the Marcellus shale formation underlies portions of western Maryland, these concerns have a direct impact for Maryland. Governor O’Malley has issued an Executive Order, “The Marcellus shale Safe Drilling Initiative,” EO 01.01.2011.11, to establish an advisory committee to conduct a study on the extraction and address short-term and long-term effects, as a prelude to any exploration and production in Maryland. The first Report is due August 1, 2012.

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Purchased Gas Adjustment (PGA) and Gas Purchase Proceedings (GPP)

Each of the regulated natural gas companies purchases gas supply to serve its residential customers. While residential customers may purchase gas supply from competitive suppliers, see Retail Gas Suppliers, most residential customers continue to get their gas supply from the regulated utility.

The PSC regulates the rates and services provided by the utilities, and review the gas purchasing practices of the gas companies to make sure that the resulting costs of the gas supply are reasonable. These reviews take place in annual PGA (or PGC) proceedings conducted by PSC Hearing Examiners. OPC is a party in each of these cases. When appropriate, OPC retains expert consultants to review the purchasing practices of the prior year, who may file testimony recommending certain cost disallowances. If accepted, these disallowances can result in a credit for gas customers in future years. In addition, WGL submits annual purchasing plans to theCommission, which are subject to review by OPC and other parties.

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