The Federal Energy Regulatory Commission voted yesterday to allow natural-gas producers to charge substantially higher prices for about 45 percent of the nation's gas supply.
The commission, which must take a final vote on the issue, eliminated a variety of prices for different categories of "old" gas, or natural gas discovered before 1977, allowing them to rise from an average $1.55 per million British thermal units to a maximum of $2.57 per million British thermal units. A British thermal unit is a commonly used measure of energy in gas.
Under the Natural Gas Policy Act, passed in 1978, gas discovered after 1977 was decontrolled, and prices were allow to rise according to the demands of the market as a way to encourage development of more costly natural-gas fields. Old gas remained controlled and was far less expensive. The commission effectively approved most provisions of a Department of Energy proposal to allow the price of old gas to rise.
D.C. Public Service Commissioner Wesley H. Long objected to the proposal during hearings on the plan last month.
"The result of DOE's fanciful proposal would be a massive economic windfall for major producers of old gas -- at the expense of consumers," Long said then. Long estimates each residential consumer in the District will pay $30 more a year for natural gas.
The DOE argued that the higher price for old gas will encourage producers to reopen wells that had been shut because of artificially low prices. Ultimately, additional gas brought into the marketplace would exert downward pressure on all gas prices, it argued.
The DOE estimates that the ruling could result in several trillion cubic feet of additional old-gas production and could benefit the American economy by more than $22 billion in higher gas consumption, more jobs and lower oil imports during the next decade.
"American consumers will pay about 20 cents less per mcf thousand cubic feet on average each year for the next 10 years if our rule goes into effect," Energy Secretary John S. Herrington testified before FERC last month.
Ed Rothschild, assistant director at the Citizen Labor/Energy Coalition, a Washington consumer group, called the FERC ruling "capricious and arbitrary." The ruling "hurts consumers who will see gas prices rise," he charged.
"FERC chose a price that bears no resemblance to the current market price of gas," but instead has boosted the profits of major oil and gas companies that have no incentive to lower the price of high-priced gas, he said.
Washington Gas Light Co., which serves the metropolitan Washington area, said it could not estimate how rates might rise under the ruling.
"The scenario is that the ruling could, in fact, increase prices," said Cate Barnett, a spokeswoman for the utility. "The lifting or raising of old-gas prices without other relief results in higher prices to consumers. Therefore, the company has been against it."
Mike Baly, vice president for government relations at the American Gas Association, which represents utilities and pipeline companies, said gas prices are expected to rise, but will not rise to the ceiling set by FERC because of falling oil and natural gas prices. The average market price for natural gas is about $2.20 per mcf, which is roughly equivalent to a million British thermal units of gas, he said.
Baly criticized FERC for creating a situation where "all old-gas contracts can rise . . . but only about one-third of [high-priced] new-gas contracts can be allowed to drop" because of contracts with producers that lock in prices.
Under the FERC preliminary ruling, producers can bring old-gas contracts to the table for renegotiation with pipelines to raise those prices. According to FERC, a pipeline company could ask to lower the price of gas discovered after 1977 only in situations where a producer is renegotiating a contract that includes old and new gas.
Once the program gets final approval, it will take several months to implement. Meanwhile, legislation submitted by DOE to totally decontrol the price of old gas is pending before Congress.