REMEMBER WHEN the sugar cane crop was bountiful? Sugar prices came down. The same thing happened to coffee prices when coffee beans were plentiful. Now there's a surplus of natural gas -- but utility bills just keep going up.
That's because consumers can't shop around for the cheapest natural gas at their local market the way they can for coffee or sugar. There's only one gas utility, and it often has only one or two pipeline suppliers.
Unfortunately, President Reagan doesn't seem to understand the difference. He urges that gas producers be free to charge whatever they can get. But there is a difference.
The critical difference is competition. Sugar prices and coffee prices come down because farmers compete. Natural gas prices don't come down because gas producers don't compete. Gas pipelines use their status as legal, regulated monopolies to pass on ever- escalating prices to their customers. And large gas producers -- primarily the major oil companies -- use their market power to raise their prices whether there is a glut or a shortage.
Just about everybody says that gas prices are too high -- from the president and the major oil companies to groups representing those who pay the bills. But there is sharp disagreement over why prices are so high and what should be done about it.
The Reagan administration and the oil industry argue that federal price ceilings are responsible for rising prices. They favor faster and broader decontrol.
Consumer groups, many members of Congress, and local gas utilities believe prices are soaring because the decontrol process already allows producers to charge too much. They favor more effective price ceilings and steps to limit the worst manifestations of the producers' market power.
The president pins his hope for lowering gas prices on gas producers competing with each other by lowering their prices. Consumer groups are certain this is a false hope because the industry is not competitive. Small producers who might be willing to sell their gas for less cannot do so because pipelines have a monopoly in carrying the gas and are committed to carrying gas for the large producers.
The Natural Gas Policy Act (NGPA) is the law governing gas prices. The NGPA was enacted in 1978 to encourage natural gas exploration and production by raising gas prices by loosening controls that had been in place for 25 years. It provided for total decontrol of half the nation's gas supply by 1985. Since it was passed, the NGPA has allowed producers to triple their prices, driving heating bills up more than 100 percent.
Each month, the NGPA raises the maximum price at which gas can be sold. And each month producers bump their prices up to the new ceiling. These ceilings were originally imposed on natural gas prices during the 1950s when the Supreme Court ruled that gas consumers needed to be protected from the producers' market power.
When gas bills rise, consumers must pay the bill or freeze; consumers cannot shop around for a gas utility charging cheaper rates because utilities are legal monopolies.
The situation is not that much different for the utility. Utilities depend on pipelines to buy gas from producers and transport it to them. Only a few pipelines serve a given geographic area. So in most northern cities, one or two pipelines supply 100 percent of the gas delivered to the local utility. Here in Washington, Washington Gas Light gets virtually all of its gas from just two pipelines -- Columbia and Transcontinental.
Although there are thousands of gas producers, the largest oil companies and the large pipelines with gas- producing affiliates account for more than 75 percent of the gas delivered to northern states through interstate pipelines.
Pipelines rarely bargain for the best price for consumers because many buy gas from themselves. They are almost always allowed to pass their costs on automatically to utilities, who can automatically pass the extra costs on to consumers. For example, Columbia Gas pipeline buys expensive gas from its producing affiliate and the costs are automatically passed on to area gas customers.
The pipelines are locked into buying this new, expensive, gas by long- term contracts that require high annual purchases regardless of demand. These contracts also provide for future price increases to be specified by the producers. In a competitive market, each pipeline would pay about the same price for their gas. But in fact, some pipelines pay more than twice as much as others. This fact, as well as the types of contracts pipelines have agreed to, are evidence of the market power producers have over pipelines and their customers.
The Federal Energy Regulatory Commission (FERC) has greatly compounded these problems by consistently stretching the NGPA as far as it can to raise prices, and by ignoring its responsibility to police producer-pipeline behavior. In January, in the midst of acute concern over rising gas bills, FERC allowed producers to increase their prices by $9.6 billion over the next four years. None of this is surprising, since FERC's chairman has been an outspoken advocate of decontrol. Indeed, many observers, including Wall Street analysts and the General Accounting Office, expect that accelerated decontrol will boost gas costs by 40 percent to 80 percent.
These are some of the reasons that in most northern cities gas customers and utilities alike oppose decontrol. In the House and Senate, a broad bipartisan coalition believes that soaring gas prices can be brought under control if Congress enacts comprehensive legislation that addresses the underlying causes of gas price increases. Such legislation would:
* Roll back the prices gas producers can charge. Current ceiling prices would beerolled back to before this winter's enormous increases. The 1985 decontrol date for half the nation's gas supply would be postponed until 1987, protecting consumers from immediate, exorbitant and unjustified price increases.
* Force pipelines to purchase the least expensive gas available. Abusive and anticompetitive contracting practices would be outlawed, and pipelines would not be allowed to automatically pass on costs unless they could demonstrate that their contracting practices are prudent.
* Rein in FERC. FERC's authority to raise prices would be severely limited.
The choices before Congress are clear: decontrol -- either as scheduled or accelerated through the Reagan plan -- or passage of comprehensive legislation that rolls back prices. It is the choice between continuing the gas price spiral or breaking it.