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Municipal Government Intervention in a Natural Gas Delivery System  


Author:  Paul Hodges.; William Buchanan.; John Theis.


Source: Volume 21, Number 02, Summer 2000 , pp.13-24(12)




Municipal Finance Journal

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Abstract: 

Municipalities have used the deregulation of energy markets to gain benefits for their constituents and to encourage business location decisions. One approach tried in Texas was to take over the supply and transmission of interstate natural gas and resell the product to the local gas distribution company. Economics and finance professors Paul Hodges, William Buchanan, and John Theis examine the costs and benefits of such intervention, and demonstrate the need for a natural gas demand forecasting model. In 1997 the city of Odessa, Texas intervened in the natural gas market for the benefit of its citizens. While municipalities have long operated utilities, Odessa opted not to purchase or operate the local gas distributing company (LDC), but intervened in the market buying gas from producers and selling it to the LDC. This article focuses on the benefits and risks inherent in a municipality’s choice to intervene in the purchase and delivery of natural gas to its citizens. By examining one such city’s experience the municipality’s motivations for intervention become clear, as do the potential gains and pitfalls of the process.

Keywords: Federal Energy Regulatory Commission; FERC Orders No. 436 and No. 636; “open valve” imbalances; delivery nominations

Affiliations:  1: University of Texas Permian Basin; 2: Valdosta State University; 3: University of Texas Permian Basin.

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