In the mid-1980s, customers threatened to bypass local gas distribution companies in favor of other suppliers and cheaper fuels. In response, states began to reform their natural gas regulatory policies to lower delivered prices to potential bypassers. In this Article, Professor Kelly argues that the most promising means of reform is to unbundle traditional local gas utility services, that is, to make gas transportation services available to customers separately from gas retail sales services. This Article provides a thorough analysis of the unbundling policies adopted by state regulators across the nation. Through this systematic review of intrastate regulatory policies, Professor Kelly outlines the best method of maintaining open access to markets, of retaining sufficient regulatory control over local utility companies, and of maximizing competition and minimizing the adverse effects of cost-shifting and stranded investment. Professor Kelly asserts that regulatory bodies must recognize the competitive character of unbundled gas retailing service and the monopolistic nature of both unbundled gas transportation services and the services that remain bundled, in order to promote most effectively the primary goal of unbundling: prevention of uneconomic bypass by providing market-priced natural gas to end users.

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