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Natural Gas Overview

Natural gas is the energy source most Ohioans use to heat their homes. Several separate and­­ distinct industries produce, transport, and distribute gas throughout Ohio. These segments are production companies, transmission companies, distribution companies, and marketers. The PUCO has regulatory authority over distribution companies and has some responsibility for marketers, but does not directly oversee other aspects of the industry.

Production

Natural gas is an abundant fossil fuel that is found in deposits around the world. About 90 percent of the gas used in Ohio comes from the Gulf of Mexico region and approximately 10 percent comes from private wells within the state. Production companies or producers erect wells and drill for natural gas. The point at which the gas is extracted from the earth is called the “well head.” Once a company has successfully removed the gas from the earth, it is sold as a commodity in the marketplace.

Although gas production is not regulated by the PUCO, local gas companies, on behalf of their customers, have purchased this commodity and arranged for its transport to their distribution facilities since the 1930s.

Transportation

Transmission companies transport natural gas from wells through interstate pipelines. There are more than 285,000 miles of pipeline that link major production areas to consumers throughout the United States. Local gas companies contract with these transmission companies to reserve space in these pipelines, so that the gas they purchase on behalf of their customers can be transported to the area where it will be used.

Distribution

Whether withdrawn from storage or sent straight from the well or processing plant, natural gas eventually arrives at the city gate – the physical location where gas is delivered by a pipeline to a local distribution company. The gas passes through a metering system that measures the quantity delivered to the local gas company, then enters a pressure control station that reduces the gas pressure to a level appropriate for the lines used by the local distribution company. For safety reasons, the distribution company also adds the familiar odor that identifies natural gas, since natural gas is odorless.

Regulating Natural Gas Today

Traditionally, users of natural gas have paid a local distribution company to purchase the commodity from producers, ensure it was transported through interstate pipelines to the local gas company, and then deliver it directly to homes and businesses. However, beginning in the 1970s, industrial customers were given the opportunity to purchase the commodity directly from suppliers.

In 1997, this choice was extended to certain residential and small commercial customers throughout the state in programs like the Columbia Gas of Ohio Customer Choice program, the Dominion Gas Energy Choice program, the Duke Customer Choice program and the Vectren Energy Delivery of Ohio Choice Advantage program. Today, customers in these areas can choose their commodity supply from the offerings of gas marketers, while the local distribution company continues to guarantee delivery.

Gas Pipeline Safety

The PUCO administers a gas pipeline safety program for natural gas delivery in Ohio. PUCO investigators inspect pipeline systems and review records and procedures implemented by local distribution companies. When violations are detected, the PUCO orders corrective action to ensure that Ohio’s pipeline systems continue to deliver natural gas safely and reliably.

Marketers

Natural gas marketers offer a commodity choice to residential and small commercial natural gas customers in Ohio. The number of marketers providing natural gas choice to Ohio customers can fluctuate. These marketers are able to participate in the choice programs in Ohio upon PUCO certification of their financial, technical, and managerial capabilities. The PUCO does not regulate the rates that marketers charge, but the PUCO does enforce various consumer protections and hear and resolve consumer complaints against marketers.

The Cost of Natural Gas Service

The cost of natural gas on a typical bill comprises about 80 percent of the total. The cost of transportation and delivery makes up the rest. The PUCO reviews the gas purchasing activities of local distribution companies since they purchase supplies on behalf of their customers. Each distribution company must submit a regular filing to the PUCO. The information contained in the filing explains the expected cost of gas for the upcoming quarter. The PUCO reviews the information to ensure that the distribution company does not make a profit on the purchase of natural gas. Companies are only allowed to profit from the transportation and distribution of the natural gas.