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Administration Gas Decontrol Bill Still Searching For Industry Support

April 2, 1986

WASHINGTON (AP) _ The natural gas decontrol bill about to emerge from the Reagan administration ’s drafting table will need industry-wide backing to get anywhere in Congress, government and industry officials say, but it doesn’t seem to have that yet.

Jerome McGrath, president of the Interstate Natural Gas Association, a pipeline trade group, said he was disappointed because under provisions of the bill, as he understood them, pipelines ″wouldn’t really have much to trade.″

And, McGrath said, ″We have been told more than once on (Capitol) Hill that unless they had a consensus among the players don’t even bother.″

Pushing the bill would be useless ″unless they get agreement from the industry, for (the administration) to go ahead,″ said a staff member of the House Energy and Commerce Committee, which would have jurisdiction over any bill. The source spoke on condition of anonymity.

Both spoke Tuesday after Energy Secretary John Herrington outlined provisions of the bill at the Gas Roundtable, a monthly luncheon organized by the American Gas Association.

Herrington has said he thought he could get the industry behind a proposal, but in his speech he said only ″it is my hope″ that industry will support him.

About 40 percent of the nation’s natural gas - gas discovered before 1978 - is still under price controls. Controls on the rest were removed on Jan. 1, 1985.

When the administration last tried to win decontrol, in 1983, Congress shunned the effort.

″Everyone remembers the bloodletting in 1978,″ said the committee source in explaining congressional reluctance to move. That year, after an 18-month effort, Congress passed a comprehensive bill that, among other things, scheduled price freedom in 1985 for gas discovered after 1978.

The 1985 decontrol, covering about 60 percent of the nation’s gas, came amid many predictions of a price ″fly-up.″ Instead, prices have declined, and the decline has turned into a rout on the spot market in the last three months as oil prices have gone into free fall.

Herrington said the 1985 experience and the price collapse made this ″an unusual opportunity to act.″

The administration bill, he said, could coax as much as three trillion cubic feet of low-cost, shut-in or undrilled gas to market each year. That is about two months’ worth of current production.

The bill also would repeal the Fuel Use Act of 1978, which restricts the ability of factories and electric utilities to burn gas under their boilers, he said.

Chief Energy Department lobbyist Ted Garrish told reporters after the speech the bill would not affect existing contracts. New and renewed contracts signed after enactment simply would not be subject to any of the ″maximum lawful prices″ set by the Federal Energy Regulatory Commission, and FERC’s authority to set those prices would expire on April 1, 1987.

The bill also will give the commission powers to require pipelines to transport gas they do not own from producing fields to ultimate customers, who have become energetic shoppers as spot market prices have fallen.

Contracts between producers and pipelines would generally remain intact under the measure, Garrish said.

McGrath said the draft of the bill he saw two weeks ago ″does nothing to encourage negotiations″ because it does nothing about ″take or pay″ contract clauses that some pipelines signed in the late 1970s when gas shortages were widely feared. These clauses require pipelines to pay high prices for gas even if they don’t take it, and industry analysts have estimated that $7 billion in unpaid take-or-pay charges is outstanding.

A requirement that pipelines carry anybody’s gas leaves producers in the driver’s seat and the pipelines ″wouldn’t really have much leverage,″ he said.

The American Gas Association, the chief trade group for distribution companies, said officials who could comment were not in the office. A spokesman for the Natural Gas Supply Association, a trade organizations for producers, did not immediately return a telephone call.

Garrish said the bill would be introduced April 8, 9 or 10.

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