Four weeks ago the Federal Energy Regulatory Commission quietly reversed itself and handed down a decision that could allow price increases ranging from 10 to 60 percent on a third of this country's natural gas.
The regulatory agency's reversal was immediately appealed to the U.S. Court of Appeals here by a variety of groups, including the public service commissions of two states, Minnesota and South Dakota, and a trade association representing Washington Gas Light Co. and utilities supplying gas to such other East Coast urban areas as Baltimore, Boston and Brooklyn.
Most of the major oil companies -- Exxon, Mobil, Texaco, Gulf, Shell and several others -- quickly filed opposite motions of their own with the federal appeals court in New Orleans to have the FERC decision upheld.
The amount of money at stake is enormous.Some of the major oil companies would have as much as 60 percent of their production affected. Pennzoil, one of the companies that went to court in New Orleans, said in its filing: "Billions of dollars in potential revenues are thrust into uncertainty until the validity of the commission's (decision) is resolved."
FERC's final decision, called Order 23, came after more than six months of lobbying, not only by the oil companies but by the Energy Department, which also has urged the price increases.
At issue is whether, in passing last year's natural gas price deregulation act, Congress freed from old contracts -- and old price levels -- gas that was already flowing in interstate commerce.
Most of these old contracts specified that prices could rise only if allowed to by the Federal Power Commission, which then regulated gas prices, or by the FPC's "successor agency."
Question: did Congress become such a successor agency when it deregulated gas prices? The producers say yes, the distributing companies and consumer groups say no. The deregulation act itself, though it goes so far as to set up 22 categories of natural gas, with a formula for fixing the price of each, is unaccountably silent on this important succession question. Some industry sources now say the act was left silent so as not to alarm opponents who were resisting the higher gas prices.
FERC first held in a "proposed rule-making" last Feb. 13 that Congress did not constitute a successor agency, and therefore that the flowing gas had to stay under old prices for the life of the old contracts. On Aug. 15, however, in a final ruling on the issue, the five-member commission did an 180-degree turn and came out on the industry's side.
Most of the gas under old contracts is sold at $1.54 per thousand cubic feet, a maximum set by the old Federal Power Commission, FERC's predecessor.
The producing companies contend that Congress intended them to get instead from $1.73 to $2.42 per thousand -- the maximum prices set in the gas deregulation act.
That is what FERC now says is permissible.
The Energy Department, under then-secretary James R. Schlesinger, urged FERC to reverse itself and allow the higher prices. The Carter administration supported deregulation and higher prices as ways of deterring consumption while encouraging domestic production, and thereby lessening the need for costly energy imports.
Schlesinger's staff was not alone in supporting the producers' view. Sen. Pete Domenici (R-N.M.) and William Demarest, majority counsel for Chairman John D. Dingell's (D-Mich.) House Commerce subcommittee on energy and power, expressed similar arguments to the commission.
David Foster, head of the Natural Gas Supply Association, the oil industry's gas lobbying arm, says, "The FERC did about as much as they could have to help out the producers by clarifying the intent of the Congress."
Sen. Howard Metzenbaum (D-Ohio), a conferee and persistent critic of the Carter administration's gas bill, calls the commission's decision "truly sad."
Metzenbaum says, "The FERC could have at least sent a letter of inquiry to find out what the Congress' intent was" rather than relying on DOE. As for Schlesinger's DOE filing in favor of the industry, the Ohio senator says, "I find difficulty understanding what Schlesinger ever knew about Congress' intent."
Reflecting on the recent decision, FERC Chairman Charles Curtis now says, "The prices do not violate the NGPA. The only question is whether there is contractual authority, and that is a matter of contract law." In addition, Curtis says, "We have also provided a protest procedure."
Daniel Guttman, an attorney representing the Minnesota and South Dakota Public Service commissions, disagrees. He says, "The commission is just giving away money without any suggestion that there will be benefits to the consumer. It's arbitrary and contrary to basic contract law."
The oil companies went to court in New Orleans because that Fifth Circuit is said to be pro-producer. The gas distribution companies and consumer groups filed in the District of Columbia court because it is said to favor their interests. Which court will hear the suit remains to be settled.
A price increase for gas producers would not translate into an equal increase in home heating bills. That is because the gas itself makes up only about a third of the bill of the average homeowner. The other two thirds is transportation costs -- the homeowner's share of the mortgage payments on the pipelines that bring the gas north and east from producing states.