Removal of remaining price controls on natural gas would mean a $22-billion boost to the economy, the Reagan Administration contended today, but state officials called the proposal a “rip-off” that would penalize consumers.
Appearing before the Federal Energy Regulatory Commission, Energy Secretary John Herrington said the Administration’s decontrol plan “would promote competition, increase production of old (currently controlled) gas, eliminate market distortions and lower prices.”
Herrington led off two days of hearings by the commission on the secretary’s proposal that the agency raise the several categories of controlled prices to the highest category--$2.56 per thousand cubic feet--well above the spot market price for uncontrolled gas.
40% at Controlled Prices
The secretary appeared on the same day he asked Congress to effectively eliminate the commission’s price-controlling authority by decontrolling, through legislation, the roughly 40% of natural gas still sold at controlled prices.
The proposed price ceiling changes would mean that costs to consumers would fall an average of about 20 cents per thousand cubic feet each year for the next decade, the Administration said. The residential price for natural gas is now an average $5.72 per thousand cubic feet.
The proposal also would make available about 33 trillion cubic feet of low-cost reserves that would never be produced under current regulations, Herrington said. This is almost two years’ worth of consumption.
Freeing price-controlled gas would lower costs because producers, to raise prices, would have to negotiate with their customers, the secretary said. But he predicted that customers would be unwilling to pay more than the market price and would put strong pressure on other suppliers of uncontrolled gas, thus bringing average prices down, Herrington said.
The Administration’s predictions were challenged by representatives of state regulatory bodies in New York, California and the District of Columbia.
Wesley Long, a member of the District of Columbia Public Service Commission, told the commission that the Energy Department proposal seemed “a straight rip-off” that was bound to mean windfall profits for producers of controlled gas, which, he said, are mainly major oil companies.
Michael Day, representing the Public Utilities Commission of California, said, “We believe the most likely result will be an immediate 18% increase in gas costs” in his state.