Footing the Bill for Natural Gas Leaks: Why States Should Limit Cost Recovery of Lost and Unaccounted for Gas

Abstract

State statutes prohibit unjust or unreasonable natural gas utility rates. Public Utility Commissions (“PUCs”) administer these state laws and permit gas distribution companies to recover natural gas commodity costs related to lost and unaccounted for gas from customers through “purchased gas adjustment clauses.” In most of those states, PUCs permit "total recovery" of all lost and unaccounted for gas costs via these clauses using periodic rate adjustments. A small number of PUCs have reformed purchase gas adjustment clauses in order to incentivize gas distribution companies to reduce lost and unaccounted for gas. This Note advocates for all state public utility commissions regulating natural gas distribution companies to reform purchased gas adjustment clause design in order to incentivize local gas distribution companies to reduce lost and unaccounted for gas. This Note also argues that the method used by the New York State Public Service Commission, limiting gas cost recovery to the historical average of actual lost gas, most closely aligns with the statutory purposes underlying laws that prohibit unjust and unreasonable rates, while avoiding Constitutional takings concerns.