The supply obligation: A central responsibility of natural gas suppliers

In our ever-evolving energy landscape, it is important not to lose sight of the fundamental principles of our industry. AGA recently published a new report, The current status of the guidelines for the extension of natural gas supply pipelineswhich looks at the historical and legal framework underlying one of the most important but often overlooked obligations: the obligation to supply. Below is the first entry in a two-part series exploring the report’s key findings, focusing on the importance of this obligation and its impact on equitable access to and affordable energy supplies.

Natural gas suppliers are subject to a strict legal framework that requires them to offer their services to potential customers as far as practical and economically feasible. This means that suppliers are obliged to serve their customers in a non-discriminatory manner, even when it would be more profitable not to do so, as long as supplying these customers does not lead to long-term subsidies from other customers.

The report highlights that this obligation is not a new development. It is deeply rooted in legal and policy decisions dating back to the 19th century.^th Century decisions that defined utilities’ responsibilities to their customers as regulated monopolies. For example, in 1876 the Supreme Court explicitly permitted government regulation of public goods “when necessary in the public interest.” This comprehensive legal precedent ensures that all customers have access to essential natural gas services, thereby promoting a fair and equitable energy system.

The supply obligation, supported by thoughtful line expansion policies, requires natural gas utilities to carefully consider the practical feasibility of extending supply to new customers. This assessment takes into account the broader benefits of equal energy supply, but ignores utility profitability. Essentially, natural gas utilities have a duty to serve all communities on a non-discriminatory basis, provided that existing customers are not subject to subsidies for their supply. However, the report also warns that eliminating or limiting these allowances could result in higher upfront costs for new customers by forcing them to unfairly subsidize existing customers’ rates in the future.

The Commitment to Supply is more than a legal requirement; it is a commitment to equitable and inclusive access to energy. In the next part of this series, we will explore how evolving public policy and climate change considerations are impacting these long-standing commitments and what this means for the future of natural gas supply. Stay tuned for Part 2!