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New U.S. Rules Might Lead to Gas Price Cuts : Consumers Could Save Billions Over 10 Years

October 10, 1985|DENISE GELLENE | Times Staff Writer

The Federal Energy Regulatory Commission on Wednesday approved long-awaited regulations that dramatically change the way natural gas--a fuel that supplies one-fourth of the nation's energy--is marketed.

The commission's action forces natural gas pipelines to carry gas for almost anyone, a change that could save Americans between $1.9 billion and $4.9 billion over the next 10 years, according to Energy Department estimates.

However, the commission postponed for six months any action on a controversial proposal that would change the way pipelines charge their customers for gas. The provision had been expected to significantly lower gas prices and was staunchly opposed by natural gas producers, who said they stood to lose $5 billion in revenue.

Southern California Gas said this "block billing" provision would have lowered its gas costs by as much as $200,000 a year. "Naturally, we're disappointed the commission didn't implement the new billing procedures," said Lee A. Harrington, the gas company vice president who oversees natural gas acquisition.

Proposal May Stall

Some doubted Wednesday that the commission would be able to resurrect the block billing provision. By Oct. 20, there will be three vacancies on the five-member commission. President Reagan's nominations are expected to trigger a debate between senators of gas producing and consuming states.

The regulations approved by the commission Wednesday would effectively force the nation's 30 major interstate gas pipelines to abandon their middleman role as wholesalers who buy gas from drillers and resell it to industrial plants and local utilities.

Instead, the pipelines over a transition period of several years would come more to resemble carriers--transporting gas from producers to users for a fee--much like railroads, truckers and air freight companies.

While not requiring pipelines to transport gas that they don't own, the new regulations provide such strong financial incentives for it that any pipeline that refuses to do so would risk being crushed by competitors, analysts said.

One immediate result of the provision is to give utilities and large industrial customers access to cheap, non-contract or "spot" gas. A number of utilities, such as Iowa Gas in Des Moines, had lined up supplies of cheap gas, only to have their pipelines refuse to transport it.

The Energy Department recently estimated that 3 trillion to 4 trillion cubic feet of gas--about 20% of the nation's annual production capacity--wasn't being produced because pipelines refused to ship it. "There were willing buyers for this gas, but the pipelines wouldn't transport it because it would cut into their market share," said Glen Sweenten, the chief Energy Department analyst.

The new regulation is expected to have less effect in California, however, since the state's two major utilities, Southern California Gas and Pacific Gas & Electric, already have transportation agreements with their pipeline suppliers. Since July, Southern California Gas has purchased up to 50% of its daily supply on the spot market at a savings of $45 million.

"We really have all the access that we need," said Harrington, the gas company vice president.

The postponed block billing proposal had drawn intense debate recently. Sen. Don Nickles (R-Okla.), tacked a measure onto an Energy Committee budget bill that would have blocked most of the commission's actions. A group of senators from large energy-consuming states in the Northeast and Midwest vowed to fight it.

'Buckled Under Pressure'

However, Nickles said Wednesday that he may withdraw the amendment, since the commission postponed the block billing vote, which he said would cost Oklahoma gas producers $800 million in lost revenue.

Sen. Bill Bradley (D-N.J.), who is leading the opposition from consuming states, Wednesday charged that the commission had "buckled under the pressure from special interests of producers." He said the commission's failure to act would cost consumers $5 billion a year.

Exactly what the savings would be has been disputed. The Energy Department has estimated that block billing would save consumers up to $2.2 billion "if the savings were passed onto consumers. We tend to think the savings would never reach the consumer," Sweenten said.

The commission said it would schedule for sometime in December more hearings on block billing. Commissioner Charles Stalon, chief architect of the block billing scheme, reluctantly agreed that there were still several questions that needed to be answered. "I see block billing as an integral part of the proposal, but some of the concerns raised recently do deserve to be addressed by the commission," he said.

The block billing regulations would end the industry practice of "rolling in" or averaging prices of cheap gas and high-priced gas into one bill.

Instead, so-called old gas from wells drilled before 1978 and still under government price controls--about half of the nation's current supply--would be reserved for existing pipeline customers, mainly utilities. That gas is half the price of so-called new gas.

The current "rolled in" pricing--instead of directing the advantages of cheap gas to consumers--has cushioned the pressure on producers to cut prices deeper on some of their newer high-cost supplies. Analysts said block billing would have forced the producers to lower the price of new gas.

The Natural Gas Supply Assn., an organization of the nation's largest producers, said gas would become so cheap that producers would halt most exploration activity. An exploration slowdown would eventually result in supply shortages, the association warned.

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