Natural Gas Rate Design: A Neglected Issue

The theses of this Article are: (1) the present method of allocating natural gas costs among consumers produces significant allocative inefficiency that has contributed to the present problems in the natural gas market and is certain to create even greater problems in the future; (2) the new rate designs suggested over the past years in regulatory and congressional debates would do little to eliminate the allocative inefficiency inherent in present rate designs and would introduce unnecessary collateral problems; (3) several approaches to the rate design issue potentially could eliminate or greatly reduce allocative inefficiency at a tolerable cost; and (4) the economically preferable solution to the wellhead pricing problem follows logically from the implementation of new methods of pricing gas at the wholesale and retail levels.