THE ENERGY DEPARTMENT brought a suit on Friday against nine big oil companies, asserting that they had overcharged their customers by $1 billion. Does it mean that the government has uncovered a monstrous plot to pillage the poor consumer? Actually, it's a good deal less dramatic than that. Ever since the present price controls were imposed five years ago, the government and the companies have been quarreling over the precise application of the rules. With this suit, the lawyers now grope their way into the grayest of gray areas.
The issue begins with natural gas liquids -- compounds, such as butane and propane, that come up a gas well's pipe mixed in with the gas. Gas prices are controlled under one set of federal laws, oil prices under another. Since the natural gas liquids are produced like gas but behave like oil, how do the two sets of controls mesh together? That's one question for the judge. But keep it in mind that, in the period covered here, the federal price controls applied only to gas that crossed state lines; intrastate sales were uncontrolled. The ceiling price of the liquids is based on the price of the original gas-liquid mixture out of the wells -- but from controlled or uncontrolled wells? Keep it in mind also that the first sale of natural gas liquids is typically from one subsidiary of a big oil company to another. How valid are these internal transfer prices? That's another question for the judge.
The companies claim that this whole suit is an attempt at retroactive legislation. For part of this period, there were no specific regulations for these liquids and, the companies argue, when the regulations appeared, they were obscure and ambiguous. The government, in contrast, finds the law perfectly clear. That's a third question for the judge.
It's worth noting that the government is not claiming fraud, or willful misconduct. The companies have reported in great and, apparently, accurate detail what they've been doing. The facts are not in dispute. The case is similar to a tax suit in which a company has filed an accurate return but is fighting with the government over an interpretation of the code. The whole industry has followed roughly the same practices; these nine defendants are merely the most prominent among the many companies in it. The accusatory overtone of the suit is unfortunate, since the complexity of the price rules leaves plenty of room for reasonable disagreement.
But this billion-dollar disagreement has been brought to the right spot. A federal courtroom is the place to go for an authoritative, once-and-for-all statement of the meaning of these tangled regulations. There are people in the oil industry who resent this suit as harassment. That's wrong. The dispute is real, and it involves amounts of money that, you'd have to say, are serious. No administration could ignore this kind of issue without inciting another wave of suspicion that it had caved in to Big Oil. That's unhealthy for the country and, as Big Oil should know by now, it's particularly unhealthy for the oil industry. That's the paradox of regulation. Public fear of an industry's power leads to excessive regulation of it. If price controls are ever to be lifted from oil, it is necessary for the government to demonstrate both the ability and the will to enforce those controls as long as they are the law.
Why did the Energy Department choose to sue nine defendants, rather than eight, or seven? The defendants darkly suspect that it wanted to run the amount at issue up to $1 billion -- a ripe, round number that attracts attention and fits well into headlines. Why not? It's essential that the government not only enforce the law, but also be seen by everyone to be enforcing it.