Cooking With Gas

LAST SEPTEMBER the entire population of a puny but spunky south Texas town had the guts to do what most of us just fantasize about. After experiencing a 600-per-cent increase in its gas bill over the past five years, Crystal City up and decided it couldn't and wouldn't take it any more, and its 8000 residents defied the gas king of south and central Texas, LoVaca Gathering Company. They said no to exorbitant rates, and have borne the consequences. Crystal City has been without natural gas since September.

For those who think gas deregulation would result in unchanged or even lower prices--be warned. From 1972 to 1977 the cost of gas per 1000 cubic feet (mcf) for LoVaca's 400 clients, including both industries and cities, soared from 36 cents to $2.05. In Crystal City where the average annual per capita income is $1600, the cost of a hot shower, a warm house, and gas-cooked food was just too high.

In Texas and other producing states like Louisiana and Oklahoma native politicians ritually trip over each other in a race to carry the corporate banner of the oil and gas companies, and to win the resultant prize--an enormous campaign treasure chest. The 1978 Texas Senate race is a classic example of this phenomenon. In all likelihood the contest will be between Congressman Bob Kreuger who led the deregulation fight in the House of Representatives and nearly won, and incumbent Republican Senator John Tower, one of the industry's oldest and most faithful friends.

Because of the excessive power of the oil and gas lobby in Texas, the price of natural gas has gone virtually uncontrolled. The energy conglomerates have been able to evade federal regulation of interstate gas prices by producing and selling gas completely within a state's boundaries. The result is that Texans, living in the richest oil-producing state in the union, pay more than twice as much for gas as the nation as a whole.

Texas also exemplifies the other half of the interstate/intrastate gas rate dilemma. Oil and gas giants, lured by the prospects of higher prices and profits, tend to concentrate in the unregulated markets. This contributes to shortages of gas for residential use in non-producing states.

Last year President Carter introduced legislation providing for price regulation of all gas, intrastate and interstate, to be balanced by incentives designed to encourage private exploration. Though he defended the proposal with stirring populist rhetoric, it was clearly no radical departure from the status quo. Price regulation is as American as synthetic potato chips. Like the chip, it tries to achieve the effects of more fundamental reform with an unconvincing substitute. And the incentives, doubtless inserted to placate industry, are par for the course as well.

The oil and gas companies know that further howling about the stupidity of this proposal can only win them a better deal. So despite the generosity of the president's plan, Carter hit the bull's eye when he predicted that "still they want more." Perhaps if he had threatened the companies with something more drastic they would have been more willing to compromise on price regulation. However, as events have developed, both the House and Senate versions of Carter's proposal are even more lenient than the original bill. Both give the Federal Energy Regulatory Commission (FERC, which sounds like several obscene words, all misspelled) the authority to regulate the price of all gas. Both allow the price of newly discovered gas to increase annually from $1.75 per mcf by the rate of inflation plus three-and-a-half to four-and-a-half per cent, meaning the price will shoot up to around $2.50 per mcf by 1985. Finally both proposals would remove controls in the '80s while leaving the authority to reimpose them with FERC if prices shoot up, although in the Senate version this power would be surrendered after two years. Over the next seven years, the Senate compromise would effectively mean that the price of new gas would be allowed to increase by a monumental 62 per cent, not even including the inflation escalator. And why the controls should ever be removed if there is general agreement that they are needed to begin with remains in the dark--sinister and obscure.

HOWEVER, the House and Senate bills clash on the definition of new natural gas. Put bluntly, this debate involves how much of the taxpayers' cash will disappear into the hip pockets of industry. The professed reason for allowing the energy conglomerates to sell newly discovered gas at higher prices is to encourage exploration that would not take place otherwise.

At the outset, it is questionable that any incentives will significantly increase exploration for gas. There are no provisions in the bill requiring that the profits made from the looser definition of "new gas" be reinvested in exploration. And also, these corporations, making enormous profits now, and more in the future, have little need for incentives. In 1976 they made $9.2 billion in profit, a 93-per-cent improvement over 1972, and they achieved an average return on their investments of 14.6 per cent--substantially higher than most other industries. Carter's question was again to the point: "Who will profit from these prices and to what degree?"

With regard to a specific definition of new gas, the so-called Christmas Bill, developed in the House, more successfully keeps the original purpose of incentives in mind. To receive the higher price, a gas company would have to drill a well on the Outer Continental Shelf (OCS) at least two-and-a-half miles away from, or 1000 feet deeper, than an existing well. The House energy conferees recommended an intermediate price increase for gas from wells drilled between one-and two-and-a-half miles from an existing well. But going on the assumption that gas producers will probably explore areas they have already leased, the House refused to give the higher rate to wells drilled within a one-mile radius of existing wells.

TO INDULGE in a little hyperbole, the voracious corporate wolves have gotten to the Senate on this issue. Congressman Bob Eckhardt (D-Tex.), having just emerged from a meeting in which House members had discussed their reactions to and interpretations of the Senate "compromise," estimates that their bill would unjustifiably cost the consumer an additional $3.5 billion. Eckhardt attributed this "bonanza" for the gas industry to "more generous treatment in connection with drilling in closer proximity to existing wells," and to the fact that the Senate would allow new reservoirs found on old OCS leases to qualify for higher prices.

Although the Senate proposal, if passed, would be an improvement over the present system because it would limit, at least to some degree, the level of prices, and because it would also virtually eliminate differences in interstate and intrastate rates. However, the words spoken five months ago by President Carter have an even more ominous ring now,"... there is potential war profiteering in the impending energy crisis. This could develop with the passing months as the biggest ripoff in history." Perhaps when considering this issue it would be wise to keep the independence cry of modern-day Texans in mind. "Remember Crystal City!"