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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 natural gas supplier (marketer) that is a different company than the local natural gas utility.

If a natural gas consumer chooses to buy natural gas from a marketer, the marketer purchases the natural gas (from other sources) and arranges for its delivery to the consumer's natural gas utility, sometimes referred to as a local distribution company (LDC). The LDC charges the consumer (their customer) to deliver the natural gas to the customer's home or business. State utility or public service commissions do not allow an LDC to earn a profit on the sale of the delivered natural gas. Sales of natural gas by marketers are unregulated, and marketers may earn a profit on the sale of natural gas.

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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 to their customers. 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, while some limit choice to specific service areas or to a specific category or number of customers. Some states where customer choice is available may not have any or only a few participating marketers.

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As of December 2017, 23 states and the District of Columbia had residential natural gas customer choice programs.

A variety of 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 fixed rates for longer terms, some marketers offer introductory rates, rebates, budget plans, or capped rates. The potential to earn a profit on natural gas sales influences marketer participation.

Last updated: October 31, 2018