Third Year of Natural Gas Policy Act Continues To Pose Producer Problems
Authors: Holland Charles J. 
Published: December 2007

The Natural Gas Policy Act of 1978 (NGPA) expanded price regulations to all gas. Its goals were to solve gas supply inadequacies, protect consumers, and prepare for price deregulation to market-clearing levels in 1985. Now, in the third year of the act, unresolved problems impede producer supply efforts and the 1985 goal appears unattainable. Regulatory and legislative changes are recommended.

Introduction

Dec. 1, 1980, marked the beginning of the third year of the NGPA. Called the natural gas deregulation act, the NGPA placed all natural gas under federal regulations. of the six chapter titles, Title I(A), covering wellhead price controls, had the most immediate impact on the producer.This paper briefly discusses the history preceding the act and the price controls placed into effect by Title 1. The principal purpose, however, is to identify and describe the major problems plaguing producers. With the inauguration of the Reagan administration, producers can look forward to new directions for the producers can look forward to new directions for the nation's energy policy that should expedite resolutions of these problems already 3 years old:1. Top priority for resolution is the area rate controversy. The Federal Energy Regulatory Commission (FERC) implementation regulations permit third-party protests to contract permit third-party protests to contract interpretations. This has brought about a series of formal complaints against about 10,000 gas sales contracts. Conceivably, more than $1 billion of past and future producer revenues are at stake.2. From the point of view that the act proposes to price the entire heat content of gas delivered, most price the entire heat content of gas delivered, most interstate pipelines have been paying the producers 1.8% under ceiling - i.e., they are paying for Btu's on "wet" basis.3. Since Dec. 1, 1978, existing low-price contracts have been precluded from the incentive necessary for reserve maintenance. Last November, the FERC released helpful rules applicable only to intrastate contracts.4. Congress had provided in Sec. 107 for the FERC to furnish incentive pricing for high-cost gas, but the commission has been slow to act. Special price allowance for tight gas formations just became price allowance for tight gas formations just became effective, and rule-making proposals now are being considered for gas in the deeper waters offshore.5. Whereas the act provided in Sec. 110 for "add- on" to the ceiling prices for certain services performed by producers, the implementation performed by producers, the implementation regulations have been overly restrictive - almost to the point of nullifying the intent of the act.6. The regulations have given rise to unprecedented accounting and paper-handling problems. Three years of experience should have, but problems. Three years of experience should have, but have not, brought about major reductions in filing and notice requirements.7. Apparently a lost purpose is the act's intent to bring about price parity of gas with other fuels by 1985 and 1987. This is partly attributable to restrictive language of the act but also to overly cautious rules of the FERC.Unless changes are introduced quickly in the act and/or implementation regulations, the prospects are that (1) the increased activities in gas exploration and development experienced in 1979 and 1980 will not continue as producers find their revenue is unsure, (2) gas reserves will be drained off to low-priority uses because of unrealistically low prices, and (3) the 1985 price gap between natural gas and alternative fuels may derail deregulation plans provided for in the act.

JPT

P. 1844