Natural Gas Price Increases in Detroit

In response to a congressional request, GAO obtained information from a local distributor and its major suppliers in order to identify the factors responsible for a natural gas price increase in the Detroit, Michigan, area from January 1981 to January 1983.

GAO found that 66 percent of the increase was due to the cost of purchased gas, 20 percent was due to transmission costs, and 14 percent was due to distribution costs. Domestic gas production is subject to federal price controls, gas purchased from interstate pipelines is subject to other federal regulation, and imported gas prices are established pursuant to joint agreement between the United States and the importing country. GAO found that the increase in the cost of purchased gas was generally due to: (1) the depletion of old reserves and the addition of new reserves while new gas was permitted a higher price under federal regulations; and (2) the higher prices permitted for both old and new gas under federal regulations. Increases in operating and maintenance expenses, taxes, interest, and other factors contributed to the increases in transmission and distribution costs. In addition, lower sales contributed to higher distribution costs.