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Reagan readies first step to deregulate natural gas

By Ron SchererBusiness correspondent of The Christian Science Monitor / September 23, 1981



New York

By next week President Reagan is expected to make the first move on accelerating natural-gas price deregulation. This sensitive subject, industry sources maintain, will be broached soon by the President's Cabinet Council on Natural Resources and the Environment. Then, the President will issue a general statement of principle while Congress tackles the legislation.

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According to David H. Foster, president of the Natural Gas Supply Association , representing both major and independent supply organizations, the Senate will take up the issue despite the lack of enthusiasm by Sen. James A. McClure (R) of Idaho, chairman of the Energy and Natural Resources Committee. The legislation is expected to pass by a margin of 60-40, overcoming an anticipated filibuster by Sen. Howard Metzenbaum (D) of Ohio.

Getting House approval will prove to be a lot more difficult. Rep. John D. Dingell (D) of Michigan, head of the Energy and Commerce Committee, opposes it and could sit on the legislation. However, Mr. Foster maintains that the oil and gas industry has the votes to get the bill out of committee. At the moment, though, the industry reckons it doesn't have the votes to get it through the House. Mr. Foster says he is still optimistic and figures that by late March or early April of next year, assuming the Senate and House bills are relatively similar, the bills will be passed. If the President signed the bill on July 4, 1982, a possibility, phased accelerated deregulation of natural gas through 1985 would begin next summer.

Timing is crucial. If the bills languish, there is little chance Congress will take them up before the fall elections. Passage of them in the spring will mean consumers won't feel the bite until 1983.

If the President does decide to push for gas deregulation, it will relieve a lot of oilmen. They have found themselves in a bit of a ticklish position. According to John Bookout, the chairman of Shell Oil, the President's political advisers have been telling the President that natural-gas price decontrol would hurt the Republicans in the fall elections. Since the industry would like to support the President, they find themselves caught in the middle.

One appealing aspect of natural-gas deregulation to the President's advisers is the possibility of placing a windfall profits tax on it. According to Mr. Foster, the President has gone on the record in opposing such a tax, indicating he would veto it. However, such a windfall profits tax, his advisers point out, would go a long way toward balancing the budget.

If Congress does decide to place a windfall profits tax on gas, Herb Schmertz , vice-president, public affairs of Mobil Corporation, says he hopes they don't put the tax on newly discovered gas "since the whole idea is to encourage new exploration." Two years ago, he notes, Congress placed a windfall profits tax on new oil and in the last tax bill reduced it.

Remember the windfall profits tax?

This was the tax, President Carter told Americans, that would be levied on the oil companies in return for the deregulation of oil prices.

The tax revenues, the President said, would be placed in a series of trust funds to be used for mass transit and conservation (15 percent of revenues), helping low income families meet higher energy bills (25 percent) and for general tax cuts (60 percent).

In this fiscal year (ending Sept. 30), the government expects to collect $23. 5 billion in windfall profits taxes. None of this will go into any trust funds.

According to one government source in the Treasury department, the idea for the trust funds was scrapped along the way by the Senate when it finally passed the legislation. Instead, Congress decided the money should flow into the general treasury.

However, Congress also authorized the Treasury Department to set up a separate account, called account No. 0154, to keep track of the revenues. As of July 31 some $12.1 billion had been deposited in the account by the Internal Revenue Service. On a gross basis, the Treasury expects to see another $11.4 billion deposited for this fiscal year.

Because the amount actually deposited in the account appeared to be lower than expected, Rep. Benjamin S. Rosenthal (D) of New York decided to hold a hearing to find out if the Treasury was being cheated.

What they found was that there is a considerable time lag between imposition of the tax and the payment of it. According to a Treasury tax analyst, the actual funds deposited represent 2 1/2 quarters of tax receipts. However, Congressman Rosenthal's committee also found that the oil companies have paid more money than the Treasury expected, probably because of their cautious nature. On a net basis -- that is, after deductions for taxes paid on oil owned by the federal government -- the Treasury expects to collect $19 billion from the windfall profits tax this year.

According to one Treasury source, who attempted to abolish any delusions, there is no formal earmarking for the funds. However, he does point out that the 1981 budget provides $5.4 billion for energy conservation and mass transportation, $2.9 billion for low income assistance for energy bills, and $11 .9 billion for income tax reductions, totaling about $20 billion. Thus, actual spending in these categories is slightly higher thantax receipts from the windfall profits tax. (However, appropriations for transportation totaled $26 billion in the 1982 budget, making the total for these categories $46 billion.)