A federal agency split the burden of rising natural gas prices yesterday in such a way that industrial users may end up paying less -- and homeowners more -- than many members of Congress intended.
The pricing regulations were issued by the Federal Energy Regulatory Commission (FERC).
Congress, when it deregulated natural gas prices at President Carter's behest last year, included a so-called incremental pricing rule intended to protect homeowners. It said that, as far as possible, the higher prices should be borne by industry.
But gas companies had been pressing FERC to go easy on this issue. They do not want to drive profitable industrial customers away.
And yesterday FERC came up with a compromise.
Although final prices have yet to be worked out under the new regulations, industrial boiler gas users will be paying about $2.75 per thousand cubic feet -- which is comparable to the price of high sulfur residual oil -- instead of up to $3.75. That is what they would have paid if the five-member commission had pegged gas prices to the price of premium heating oil, another alternative.
And since industrial users will be paying less than they otherwise might, residential users will pay more.
In an explanatory paper issued yesterday, the five-member regulatory commission said, "The proposed rule was an effort . . . to maximize the incremental charge that would be recovered from large industrial users, while at the same time ensuring that such users would not switch off of gas and onto fuel oil."
The point: if it set the price so high as to scare away all industrial users, then homeowners would have to bear the entire burden of future price increases; there would be no other users.
The commission did say yesterday that it may increase industrial gas prices further in future years if this year's rule does not work out. Also, the new rule is subject to veto by either house of Congress.
The gas companies' concern over loss of industrial customers is ironic in light of recent energy history. A few winters ago the concern was not too few customers, but too little gas. For several winters in a row, there were natural gas shortages.
President Carter, in the original energy plan he sent to Congress two and a half years ago, said one objective was to discourage use of increasingly scarce natural gas. That was one of the reasons why he proposed increasing its price.
In the months that followed, however, an important change occurred.
First, erratic supplies and the prospect of higher prices led many industrial gas users to switch to other fuels. Instead of shortages, there were suddenly ample supplies -- even surpluses.
At the same time, the Carter administration was changing its rationale for deregulation of gas prices. The new emphasis was that higher prices would stimulate increased production. There would be more gas, and this gas could be used instead of foreign oil. Less dependence on foreign oil is the administration's main objective.
The administration thus began to encourage gas consumption -- to urge oil users to switch to gas, just as the gas companies now do.
To some extent, the incremental pricing policy to which it had agreed on the Hill thus became an impediment.
In the months just after the natural gas bill was signed, as FERC was beginning to draft its proposed regulations, then-Secretary of Energy James R. Schlesinger was urging FERC not to set industrial prices too high.
Other administration rationales for the gas bill were that deregulation would strengthen the dollar, by reducing oil imports, and that it would increase exploration for gas.But there has been trouble on these fronts, too.
Last year Treasury Secretary G. William Miller, then head of the Federal Reserve Board, urged wavering congressmen to vote for the gas bill to "save the dollar." But the other day Charles Curtis, the FERC chairman, noted wryly: "Obviously confidence in the dollar is not great today."
Prospects for the promised sharp increase in drilling activity are initially disappointing.
David Foster, of the Natural Gas Supply Association, an organization of large oil producers that also market gas, says, "Thus far we just haven't seen it. We don't need to see a slight upturn, but a dramatic upturn in drilling activity."
According to data collected by the American Petroleum Institute, as of midsummer 783 exploratory gas wells had been drilled, compared with 778 during a comparable period last year.
But many industry executives say it is too early to know whether deregulation has stimulated exploration activity.
Foster says, "We still hope there will be an actual upswing," and he remains optimistic.
No matter what happens with incremental pricing, the gas deregulation law will have only a gradual effect on the home heating bills of gas users. There are two reasons for this.
First, not all gas can rise immediately to the free market price. Some gas, particularly that gas already flowing under existing contracts, will stay at its old price, at least for now. Deregulation will be phased.
Second, two thirds of the price most homeowners pay for gas is the cost of piping it up from the producing sections of the country; this is the mortgage payment on the pipeline. Only a third of the homeowners' bill is for the gas itself.