Bruce Kauffmann How natural gas utilities make money

I hear it at parties, at neighborhood get-togethers, at dinners with friends – all of whom know I work for an association that represents natural gas utilities.  “Bruce, I just got my natural gas bill and I almost fell over. With natural gas prices so high your members must be making money hand over fist.”

They then try to hit me up for a loan.

To set the record straight, by law natural gas utilities don’t make a penny of profit on the commodity price of natural gas.  What they pay for the gas they buy from the supplier is what they charge for the gas they supply to the customer. The problem is that, in today’s high energy price environment, the commodity portion of the monthly natural gas bill is now about 70 percent of the total monthly bill, which explains why my friends and neighbors are complaining.

So how do utilities make their money?  They charge their customers monthly delivery and service fees – fees that reflect their cost to deliver natural gas by pipeline to those customers, their cost to operate their business – including the salaries they pay their employees – plus a reasonable return on investment that they pay their shareholders, without whom they could not stay in business.  Oh, and state government regulatory authorities – better known as public utility commissions – must approve all the rates that utilities can charge.

“Hand over fist?”  The fact is that high prices for natural gas hurt natural gas utilities as well as their customers.  Higher monthly gas bills, driven by the higher commodity cost of the product, means more families are struggling to pay those bills, and in this uncertain economy more and more families are losing the struggle.   And remember, utilities deliver their product to the customer first, and then ask for payment a month later.   When the customer can’t pay, that hurts the utility’s bottom line as well.

For these reasons and many more, today many natural gas utilities are actually working to help their customers use less natural gas by showing customers how to conserve energy and use it more efficiently.   In other words, natural gas utilities are far more likely to “‘lend a helping hand” than to make money “hand over fist.”

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