Natural Gas Prices

Testimony was given concerning a series of case studies which GAO conducted to determine why natural gas prices have increased in five cities around the country. GAO discussed the extent of increases in natural gas prices, the distribution of gross revenues from end-user sales to the various segments of the natural gas industry, the reasons for the price increases, and recent consumption patterns. Natural gas prices have been rising for many years. Nationally, end-user prices vary widely, both from one type of consumer to another and from one city to another. The average national end-user price increased by a compounded growth of 22 percent a year from 1974 through 1981. Residential users paid the highest average price. However, residential users experienced a lower rate of increase. Two private studies have shown that, between 1971 and 1981, the distributors' share of gas revenue was reduced by more than one-half, the pipelines' share was reduced by a smaller proportion, and the share for producers approximately doubled. Recent pipeline price increases have been attributed to: (1) regular increases in the the ceiling prices paid for various gas categories; (2) the Natural Gas Policy Act's incentive prices for high-cost gas; (3) depletion of old gas reserves; and (4) imported gas. Reduced consumption by end-users can result in pipeline and distribution facilities' spreading fixed expenses over a smaller volume of natural gas sales, resulting in a higher price per unit, but overall natural gas consumption varies from year to year. From 1981 to 1982, residential use of gas increased 3 percent while commercial, electric utility, and industrial use all fell.