Natural Gas Producers Relieved With Federal Delay Of Billing Change With AM-Natural Gas
MIAMI (AP) _ Natural gas producers said Wednesday that they were relieved that the Federal Energy Regulatory Commission had postponed a decision on a controversial pricing formula that they claim would cost them up to $5 billion a year.
Earlier Wednesday, the commission said it needed to hold more public hearings on the matter and delayed a decision on its ″block billing″ proposal for six months.
″We’re pleased,″ said Nicholas J. Bush, president of the Washington, D.C.-based Natural Gas Supply Association, which is meeting in Miami.
The NGSA, with about 80 members, represents producers who last year supplied 90 percent of the 23 trillion cubic feet of gas consumed in the United States.
The proposal would end the industry’s practice of averaging their purchases of cheap and high-priced gas supplies into one bill, a move advocates believe would reduce the typical residential natural gas bill by about $75 a year.
But the industry said it would discourage exploration, eventually leading to gas shortages and pushing up consumer prices.
″It simply was a bad idea,″ Bush said of the proposal. Block billing is a ″radical proposal. Evidence will show it is flawed in its conception and in the false promise of consumer benefits.″
Block billing was the most controversial of several FERC proposals for the nation’s $50-billion-a-year natural gas industry.
Under the proposal being considered, cheaper ″old gas″ from wells drilled before 1978 and earmarked for interstate commerce, would go mostly to residential and other smaller gas customers.
Industrial customers, with the capability of shifting quickly from gas to oil, already have negotiated lower prices.
The old gas is under government price controls and costs about $1.45 per thousand cubic feet at the well. The price for new gas, which comes from wells drilled since 1978, is about $3.50 per thousand cubic feet.
The average residential price for gas was a record $6.89 in June, according to the latest government figure available.
″Block pricing ... would cause a run on the old gas supplies,″ said Don Duncan, a Washington lobbyist for Phillips Petroleum Co. Producers earning slim profits on old gas could no longer afford gas exploration, he said.
That would eventually translate to lessened gas supplies and higher prices to consumers, Duncan said.
Another fear is that contracts for supplying new gas would be lost in the rush for contracts for old gas, said Bill Anderson, a vice president with the Independent Petroleum Association of America.
″We’re happy that it’s been postponed in that it’s a troublesome concept,″ Anderson said. ″It would take massive money transfers away from the industry.″
The NGSA estimated the gas industry would lose up to $5 billion annually through the pricing change.
A Harvard University study predicted that profits lost to producers who had to drop new gas prices would benefit consumers, with some $3.3 billion savings to people in 15 Northeastern states. But producers say the savings would be only short term.