Lost and unaccounted-for gas: Challenges for public utility regulators

•Customers of gas utilities pay for more natural gas than they actually consume.•The explanation for this discrepancy is what gas utilities and state utility commissions call “lost and unaccounted-for” (LAUF) gas.•This article highlights the survey responses of 41 state utility commissions to 14 questions on their policies and practices relating to LAUF gas.•This article then discusses the challenges for commissions and identifies actions they can take to mitigate LAUF gas.•By giving stronger incentives, a commission can induce utilities to better manage their LAUF gas.

A central tenet of public utility regulation is to have utilities perform at high service levels. One area of performance for gas utilities is “lost and unaccounted-for” (LAUF) gas. Customers of gas utilities effectively pay for more natural gas than they actually consume. Reasons for this discrepancy vary across utilities. Detection and measurement hinder the definitive statistical analysis of LAUF gas. This article provides a background on the definition and causes of LAUF gas and challenges it poses for utilities and regulators. The article also highlights a qualitative survey of 41 U. S. state utility commissions regarding their policies and practices relating to LAUF gas. The article also examines the regulatory policies and tools related to LAUF gas. Evaluating levels of LAUF gas is a regulatory responsibility because of implications for prudence and cost recovery. In establishing performance benchmarks, however, commissions face the daunting task of separating the effects of external conditions, accounting and measurement error, and utility management on the level of LAUF.