U.S. Plans to Change Natural Gas Marketing : Regulators Propose to End Pipeline Monopolies

The Federal Energy Regulatory Commission announced Thursday that it intends to vote final approval next Wednesday on a long-awaited set of rules reversing the way natural gas--a fuel that provides one-fourth the nation’s energy--is marketed.

The current arrangement has been in place for nearly 50 years.

The proposed rules, aimed at breaking up pipeline monopolies and revising their purchasing practices, were approved unanimously by the agency in draft form last May in what one then-commissioner, Oliver Richard, called the “Magna Charta of the natural gas industry.”

Consumer groups contend that the measure could reduce the winter heating bills of up to 45 million American families by 10% to 15%.

Most of the nation’s 10,000 gas producers and some Wall Street analysts counter that the estimated $4 billion to $5 billion in consumer savings will stymie drilling for new gas supplies. Within as little as three years, according to one analysis by Merrill Lynch, the nation could be facing a repetition of the 1977 and 1978 winter shortages that closed down factories and schools in the Midwest.

“That loss, whether it be $4 billion or $5 billion, represents about half of the $10 billion that producers spent last year on exploring and developing new supplies,” said Nicholas Bush, president of the industry’s Natural Gas Supply Assn.

“With the nation’s gas reserves at a record low and current production outpacing their replacement, now is not the time to be taking money away from producers,” he argued.

Producer Concerns

In response to producer concerns, the Senate Energy Committee voted 13 to 4 last week to attach a measure by Sen. Don Nickles (R-Okla.) to federal budget legislation forbidding the commission from adopting most of the new regulations.

A bipartisan coalition of nine senators, all from consuming states in the Northeast and Midwest, jumped into the fray Thursday, vowing to overturn the Energy Committee’s action when the budget measure reaches the Senate floor early next week. But by the time it gets there, the commission may already have acted.

“The issue is a simple one,” said Sen. Bill Bradley (D-N.J.), who plans to lead the fight against the Nickles measure. “It’s whether that $5 billion should be in the hands of producers or the hands of consumers. It has nothing to do with the budget except for the budgets of homeowners and small businesses who use natural gas.”

Sen. John Heinz (R-Pa.), like Bradley a dissenting member of the Energy Committee, said the action by its industry-supporting majority would “strip from federal regulators their consumer protection ability.”

The most controversial element of the new regulations would outlaw the current practice of the nation’s 30 or so major interstate pipeline companies to “roll in,” or combine into one bill, so-called old cheap gas with much higher-priced newer supplies.

The “old” gas, now about half the nation’s supply, is from fields drilled before 1978 and still under federal controls that limit its wellhead price to an average of $1.50 per 1,000 cubic feet. “New” gas drilled after 1978 is now commanding an average price of about $3.50, and some supplies from deep wells are selling for as much as $6 per 1,000 cubic feet currently.