A gas-pricing compromise

Congress has set the stage for passage early next year of a natural gas pricing compromise that could provide consumer price relief while ensuring future supply.

During the closing days of this year's session, the Senate overwhelmingly rejected a bill that would have ended all federal controls on old gas and set up a complicated federally mandated transportation regulatory system. It also defeated by an almost identical margin a bill to impose controls on new gas. In the same vein the House Energy Committee voted down several complex proposals. The rejection of these extreme proposals demonstrates a growing recognition in Congress that a simplified legislative approach is needed. The American Gas Association (AGA) believes that four essential elements could be utilized to achieve a workable and effective compromise:

* Temporarily limiting take-or-pay requirements -- the contract made by a pipeline to take a minimum amount of oil and gas but requiring it to pay whether that amount is taken or not -- in producer-pipeline gas purchase contracts for the next three years. These requirements have been an important factor in increases in consumer gas bills.

* Permanently banning "favored nation" price escalator clauses in gas purchase contracts. These clauses will trigger increases in contract prices for gas based on prices in other contracts.

* Removing the federal statutory restraints on the sale of natural gas to industrial users.

* Repudiating any effort to put more regulatory burdens and controls on the gas transportation system through mandatory carriage -- the federal government forcing pipelines to carry gas for others -- for gas pipelines and, instead, endorsing regulatory steps by the Federal Energy Regulatory Commission to encourage voluntary contract carriage by gas pipelines. The FERC, however, should have the authority to mandate carriage where abuse and discrimination can be shown.

Two highly controversial issues -- old gas and mandated-contract for gas pipelines -- have so far blocked efforts in Congress to pass gas-pricing legislation. The gas industry does not need more regulation in an area such as mandatory carriage, which would be almost impossible to administer effectively and fairly.

Mandatory carriage would supplant voluntary carriage -- transportation arrangements negotiated between pipelines and gas shippers -- with a complex, cumbersome federal regulatory program that most federal and state commissioners (who have to implement it) view with apprehension. If the responsibility for day-to-day operational decisions of the gas transportation system were removed from individual pipeline and distribution companies and placed with the commission, chaos would result. Capacity, storage, priority, and timing of service to hundreds of new buyers at diverse points on the nation's million-mile gas transportation network and other transportation-related decisions cannot be made effectively by federal or state government.

The vast national pipeline and distribution system was financed through a combination of service obligations of sellers of gas and long-term gas supply contracts to serve all Americans. Mandatory carriage endangers these service obligations as well as the present market for gas supplies under long-term contracts.

Mandatory carriage, advocates claim, will increase industrial demand, fill the pipeline system, and reduce overall rates by spreading fixed costs. But, as system customers become carriage customers, pipeline volumes would merely be shifted, not increased, as more industrial customers purchased their own gas. Take-or-pay problems -- the need for relief of which already has a consensus in Congress -- would become worse for pipelines and their local distributors, eventually resulting in higher prices, particularly to residential and small-business consumers.

As mandatory carriage preempts pipeline capacity in this period of low demand , the ability of pipelines to work their way out of take-or-pay obligations, as demand increases, would be blocked.

Mandatory carriage would be a quantum leap toward more federal controls displacing new FERC voluntary transportation reforms even before they have had a chance to work. Interstate pipelines already transport large amounts of natural gas for independent shippers under voluntary contract carriage arrangements. New FERC regulations clear the way for even greater future volumes.

If Congress lays aside the intractable old-gas and mandatory-common-carriage issues, it will be able to enact concise, effective legislation.

The nation's natural gas consumers need and deserve price relief. Sound national energy policy goals need an orderly transition to complete deregulation of new gas on schedule for Jan. 1, 1985. Congress, by rejecting the complicated and unworkable proposals, should now take advantage of the opportunity to create a new energy era by making it possible for natural gas to make a larger congribution to the nation's energy future.

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