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Natural gas explained Natural gas customer choice programs

How customer choice programs work

Natural gas customer choice programs give consumers the option of purchasing natural gas from a different company (marketer) than the local natural gas utility.

If a natural gas customer chooses to buy natural gas from a marketer, the marketer purchases the natural gas (from other sources) and arranges its delivery to the customer's natural gas utility, which is sometimes called a local distribution company (LDC). The LDC charges its customer to deliver the natural gas from the marketer to the customer's home or business. State utility or public service commissions do not allow an LDC to earn a profit on the delivered natural gas. Natural gas sales by marketers are unregulated, and marketers can earn a profit on natural gas sales.

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Large commercial and industrial consumers have had the option to purchase natural gas separately from other natural gas services for many years.

Most natural gas customer choice programs began in the 1990s to promote more competition in local energy markets. Traditionally, LDCs provide natural gas to their customers as part of a bundled service that includes both the cost of the natural gas (sometimes called sales service) and the cost for distributing the natural gas. In customer choice programs, the volume and price of natural gas purchases may be listed on a customer's bill separately from distribution and other delivery-related services and costs.

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The availability and characteristics of existing customer choice programs vary widely. Some states allow all natural gas customers to choose a natural gas supplier, but some states limit choice to specific service areas or to a specific category or number of customers. In addition, some states where customer choice is available, may have few, if any, participating marketers.

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As of December 2022, the District of Columbia and 23 states had residential natural gas customer choice programs.

Many factors affect customer participation, such as the customer's potential to save money and the terms of service. In addition to month-to-month variable rates or long-term fixed rates, some marketers offer introductory rates, rebates, budget plans, or capped rates. The potential to earn a profit on natural gas sales is an incentive for marketer participation.

1 Data source: U.S. Energy Information Administration, Natural Gas Annual, September 2023

Last updated: January 22 2024.