Washington-area consumers will be paying 20 to 25 percent more for natural gas over the next six months because the major pipeline company that supplies the area has a huge surplus of expensive gas and has shut down 20,000 small wells in Appalachia that were selling fuel for one-third the price.
While large amounts of inexpensive gas are being burned off or vented into the air in places such as Ohio, officials at Washington Gas Light Co. say the average homeowner's bill here will jump from $800 to $976 a year.
This $354-million price increase took effect yesterday over the objections of Washington Gas officials, who called it "unjust and unreasonable." Baltimore Gas and Electric Co. is airing television commercials asking viewers not to blame the company for the increases. Although these and other utilities complained to the Federal Energy Regulatory Commission, the agency failed to block the increases.
Thousands of owners of small gas wells in Ohio and other Appalachian states are willing to sell their natural gas reserves for $2.50 to $3 a unit, one of the cheapest prices in the country. Utilities throughout the northeast, including Washington Gas, are anxious to buy that cheaper gas to supply more than 4 million customers in seven states.
But Columbia Gas Transmission Corp., whose pipelines carry fuel throughout the northeast, has refused to transport the gas.
Columbia has shut down 7,000 small gas wells in Ohio alone, from June to November, because it is stuck with a massive surplus of the more expensive natural gas.
Nowhere is the impact more dramatic than in Spencer, Ohio, a small farming community southwest of Cleveland. Fred Brown, one of many farmers there with sizable amounts of gas beneath his property, has been blowing it into the air from a large storage tank behind his farmhouse.
"We've blown enough gas in this neighborhood to heat several towns," Brown said. "It's a hell of a waste. Some of the experts say we have a shortage, and here Columbia is forcing us to waste it."
Many of the gas wells in Spencer have been idle for months. Some landowners, such as Brown, are venting their gas so they can produce the oil in the same deposits.
Brown says the company that leases his well vented $51,000 worth of gas in just five weeks after finding that it couldn't extract any oil without tapping the gas as well. The oil can be trucked away, but the large volumes of gas can only be pumped into a pipeline, and Columbia controls all the pipelines in the area.
At the same time, Columbia has been locked into several long-term contracts to buy large amounts of natural gas from Louisiana and Texas for as much as $8 to $9 per thousand cubic feet. These contracts have iron-clad guarantees that require the company to pay for 90 to 95 percent of the gas, whether it is used or not. In addition, about 8 percent of the southwestern gas comes from Columbia's own subsidiaries.
In 1978, after Congress voted to begin deregulating the price of natural gas, the company plunged into a bidding war for new supplies. Columbia officials say they feared a repeat of the 1976-77 shortages, when schools and factories shut down for lack of fuel.
"Given that set of circumstances, we had to go out and contract for those gas supplies," said Ben Polis, a Columbia Gas spokesman. "You can always judge us on 20-20 hindsight, which is the best kind of vision there is."
The company's expensive new contracts in the southwest were for so-called "deep" gas more than 15,000 feet below ground, whose price is no longer regulated. But, with the nation hit by a recession, Columbia had overestimated the demand.
"The current recession has drastically cut industrial gas use," Polis said. "We are left with a surplus. We are trying to manage it the best way we can."
Still, Columbia is bound by the strict "take or pay" provisions in its new southwestern contracts. But while Fred Brown's gas is just $2.41 a thousand cubic feet, Columbia's contracts with small wells such as Brown's either have no such guarantees or require the firm to pay for only 65 to 75 percent of the gas.
Polis said the firm also is trying to reduce the gas it uses from large southwestern gas fields and that this is only a small portion of its total supply. But the General Accounting Office found that Columbia paid among the highest prices for gas of six major pipelines surveyed and that the more expensive gas accounted for 26 percent of Columbia's gas costs in the second half of 1981.
Several critics say Columbia took a big gamble by committing itself to the higher-priced gas and that small producers and consumers are being asked to pay for management's mistake.
"Columbia hasn't let my well run since June," said Suzanne Giar, who once received $3,000 a month in royalties for a 2,500-foot well that now sits silent in the tall weeds. "But what makes me most disgusted is that they're bringing in the higher-priced gas from other states and charging the consumer more."
Mike Syring, a small independent producer who operates 160 wells in Ohio, including Giar's, said he is venting about 400,000 cubic feet of gas a day from 12 of the wells he runs in Spencer.
"It's an unadulterated sin to waste this gas," the burly oilman said. "It makes me sick. I'd give it away to the orphanages if they could transport it."
Syring said he may be forced to lay off a third of his 26-person staff while his firm, Leslie Oil and Gas, prepares a class-action lawsuit against Columbia. "There's more companies going broke out here than I've ever seen in 14 years in the business," he said. "They can stick it to us because we're small and can't make a big fuss."
At the eastern end of the state, dozens of landowners are burning their gas, which is technically illegal under state law.
"You drive around the county and you can see the flames," said Dale Hendershot, who is flaring gas at his two oil-and-gas wells near Marietta.
"Columbia is far and above the biggest energy problem in this state," said Ohio Attorney General William J. Brown. "An industrial state like Ohio uses a lot of gas for glass, steel, rubber and ceramics. These companies are having to pay for high-priced gas and they can't compete. Then you begin to lose jobs."
Twelve local oil companies notified Brown's office last month that they have filed for bankruptcy, and many more, including equipment suppliers, are said to be in trouble. Columbia Gas of Ohio, meanwhile, has disconnected 60,000 customers for failing to pay their bills.
Columbia allowed some Appalachian well owners to operate their wells at half-speed for twice the shutdown period, but many found that impractical.
Columbia is buying much of the southwestern gas from the major oil companies. Polis acknowledged that the price increases also have boosted the value of the gas Columbia is buying from its own subsidiary, but said it was too small an amount to have an impact on Columbia's profits, which topped $195 million last year.
Polis also said that Columbia doesn't make a profit on this higher-priced gas, but merely passes along the added cost to consumers.
Despite legal challenges, the Federal Energy Regulatory Commission so far has not ruled on several of Columbia's rate increases for higher-priced gas, which totaled nearly $1 billion over the last two years. While the increases are subject to refund if Columbia ultimately loses the case, a long line of customers is angry.
Washington Gas, which gets 85 percent of its gas from Columbia, along with Baltimore Gas & Electric and other utilities have filed legal petitions with FERC to block Columbia's proposed price increase.
Brian Lederer, D.C. People's Counsel, told the FERC that pipelines such as Columbia are "monopolistic" giants that "have been shielded from the anticompetitive consequences of their contracting practices."
Baltimore Gas spokesman Charles Franklin said, "Columbia bought whatever they could, whenever they could, wherever they could. Now they've got all this gas they can't sell and they're looking to pass the increases on to their customers."