President Reagan today will propose legislation to decontrol all natural gas prices over the next three years, according to administration officials and members of Congress.
The measure, agreed to this week by federal energy officials, the White House and key Republicans in Congress, would allow natural gas producers and pipeline companies, immediately after passage of the legislation, to negotiate new contracts or renegotiate old ones without being subject to government price ceilings.
On Jan. 1, 1985, the producers and pipelines would be allowed to break their old contracts unilaterally and search the market for the best prices. The present array of price controls for all natural gas would be lifted on that date and replaced by a nationally averaged cap on prices for those companies unable to negotiate new contracts. That cap would be in effect until 1986.
The bill also would prohibit the industry, unless it obtained federal approval, from passing along to consumers any additional purchase costs beyond the rate of inflation.
The fate of the measure in Congress is uncertain. Virtually every senator's and representative's office has been flooded in recent months with constituent complaints that costs of natural gas are rising despite an abundant supply and modest demand.
But a major fight looms between those who say that decontrol eventually will bring the prices down and those who maintain that even more government regulation is needed.
In the Republican-controlled Senate, James A. McClure (R-Idaho), chairman of the Energy and Natural Resources Committee, reacted "positively" to the proposal, according to an aide, and said he would begin hearings on the issue March 9.
His counterpart in the House, Rep. Philip R. Sharp (D-Ind.), chairman of the Energy and Commerce subcommittee on fossil and synthetic fuels, declined to comment on the proposal, but is said to be cool to several of its provisions. He said his panel will begin hearings on all natural gas bills in mid-March.
The estimates of how much the cost to consumers will increase under decontrol range from 5 percent, according to supporters of the measure, to more than 60 percent, according to some consumer activist groups.
Backers of the administration bill argue that it provides strict consumer protection provisions. Some consumer groups are skeptical.
Robert M. Brandon, executive director of the Citizen-Labor Energy Coalition, said it was "absurd" to think that government oversight of the pass-through costs to consumers by the Federal Energy Regulatory Commission will be effective.
"That's the same agency that has overseen billion-dollar increases already and made rules to raise it more," he said.
Under current law there are no price controls on the 5 to 10 percent of the nation's natural gas supply that is 15,000 feet or more underground and thus the most expensive to produce. An additional 45 percent of the supply will be removed from price controls in 1985 even if the Reagan plan to decontrol all natural gas is not enacted.
"What this legislation does is provide for a smooth transitional period on the way to decontrol," said an aide to Energy Secretary Donald P. Hodel, whose office crafted the measure and spent the last two weeks selling it to the White House and Republican leaders in Congress. "We think that the market forces will eventually bring prices down, and it has enough protection for the consumer to ensure that there are no ripoffs."
Michael Boland, counsel for the Republicans on the House Energy and Commerce Committee, said rough drafts of the proposal, particularly the provisions that would stop the industry from automatically passing purchase adjustments along to consumers, were "a big hit" with several factions in Congress.
"It has been a hit with three important constituencies that might not go for some other decontrol measures," Boland said. "We've gotten positive reports from nervous midwestern Republicans, the oil-state Democrats and some moderates from consumer states of both parties. It is too early in the process for people to start signing on. The votes haven't been lined up yet. We don't have 200 votes in the House or anything. But we are in the ballpark."
Rep. John D. Dingell (D-Mich.), chairman of the Energy and Commerce Committee and one of the most influential members of Congress, has been sharply critical of the federal regulators of natural gas in the Reagan administration, and was once quoted as saying that decontrol would be enacted "over my dead body."