Natural gas contracts in an emerging competitive market

Natural gas is being viewed by many as the fuel of the 1990s and beyond because of its environmental qualities, relatively low cost and significant domestic resource base. However, in the Fall of 1991, a group of electric utility executives met with then Deputy Secretary of Energy Henson Moore and asserted that an inability to obtain long term gas contracts meant that supplies are unreliable and construction of gas-fueled generating stations is being discouraged. This study was requested by the Deputy Secretary to address the issues surrounding long-term gas contracts and supply reliability. The relationship between supply reliability and contracts is explained in terms of the number of buyers and sellers in a market. With the appropriate state regulatory policies, utilities can contract for gas and obtain reliable supplies at competitive market prices. Public utility commissioners are encouraged to permit utilities a free choice in signing gas contracts, but to allow only competitive market prices to be reflected in allowable fuel costs.