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Regulatory Activities – Natural Gas

Natural gas is provided to customers in Maryland by three major utility suppliers of gas supply and service in Maryland – Baltimore Gas and Electric Company (BGE), Washington Gas Light Company (WGL) and Columbia Gas of Maryland (Columbia Gas).  There also are some smaller gas utilities including Chesapeake Utilities Corporation, Penn Fuel Gas, Inc., Elkton Gas Company, and the Easton Utilities Commission.

Maryland law permits competitive natural gas suppliers to offer gas supply to retail customers, including residential customers, in addition to the regulated gas utility.  The suppliers must have a license from the Maryland Public Service Commission MD (PSC) and comply with the law and MD PSC regulations.  Supplier prices are not subject to regulation.

The MD PSC regulates both the distribution rates (rate case) and the cost of the gas purchased by the utility. The purchased gas costs are reviewed in annual PGA/PGC proceedings, and in reviews of the major utilities’ gas purchase plans. Since gas supply is a major element of a gas utility’s costs, a major issue for gas utilities is to ensure that gas supply is purchased at the lowest reasonable cost by the utility.  The price of gas typically will reflect a combination of the cost of gas in storage (purchased and stored in the summer months), long term contracts (one year or greater) and gas purchased in the spot market.

One tool used by gas utilities to moderate prices and mitigate the cost of natural gas is referred to as hedging. Utilities in Maryland have been authorized to engage in contracts for both physical supply and storage of gas as well as financial instruments to lock in optimal prices for gas commodity. Actions such as hedging limit the volatility of prices of gas for customers. Additionally, BGE has a Market Based Performance (MBR) Rate, which allows BGE customers and shareholders to share the costs and benefits of its gas purchasing decisions.

In addition to the cost of gas, gas utilities are allowed to recover the cost of the utility pipeline that distributes the gas to customers in the distribution charge.  It is important that the utility recover sufficient funds to ensure the safe operation and maintenance of its system. However, issues may arise when a utility wants to expand the size of its service territory or incurs unexpected or unusual obstacles in the on-going maintenance of its distribution pipeline.

The retail cost of gas also is subject to the decisions made at the national level by the Federal Regulatory Energy Commission (FERC). FERC’s primary role is to regulate the price and safety of the national interstate pipelines which bring the gas commodity to the local utility distribution pipelines.  Many decisions of the FERC will determine the costs of transmission of natural gas and the rights and abilities of the Maryland utilities to storage assets and use of transmission often termed capacity rights. The local utility must always ensure that it has obtained sufficient interstate capacity so that at any time even under the coldest winter conditions it can continue to provide service to its customers.