ABSTRACT
The importance of the rate structure issue is reflected in the interest shown by the Environmental Defense Fund. In the course of the regulation-deregulation debate, arguments concerning the importance of presenting a correct "price signal" to consumers in order to encourage efficient use of natural gas have frequently been raised. Regardless of what happens to wellhead prices, the distribution of natural gas is a natural monopoly, and distribution utulity rates and rate structures will continue to be regulated in at least the foreseeable future. The pattern for pricing new sources of natural gas has generally been to roll in the costs of the new gas with the costs of the gas already flowing and to charge consumers an average price. Another way of establishing inverted rates is to provide each customer with a certain amount of gas at a cheap price and then charge a price close to the marginal cost for the gas used in excess of that amount.
