Gas Prices Become Political Hot Potato in DC
Recognizing that energy consumers are likely to experience price
shocks for natural gas, electricity and heating oil this winter,
Senate and House lawmakers last week began calling on Congress and
the Clinton administration to work cooperatively to open up more
public lands to exploration and drilling, provide tax incentives
for producers (especially marginal well operators) and to consider
options that would make a broader mix of fuels (other than natural
gas) attractive to the electric generation market.
Much of the rhetoric had the look and feel of last minute
electioneering. Congress only has about a week left before it
adjourns for the year, so the odds of any real action are slim.
Still, the Senate GOP thinks the time may be right to try to push
through a package of energy initiatives, sponsored by Sen. Frank
Murkowski (R-AK). Even if Capitol Hill were to act, the effect of
its measures wouldn't be felt in time for this winter. It does
provide some indication, however, of directions a new Congress
might take, particularly if the dire warnings come true by the time
it convenes in mid-January.
Offering lawmakers some real-world advice, FERC Chairman James
J. Hoecker proposed several measures to "ameliorate" the effects of
natural gas price volatility this winter. He called on LDCs to
accent hedging techniques and long-term contracts, on state
regulators to make greater use of rate design and stabilization
tools and to closely oversee LDC purchasing practices, and on
federal and state governments to support energy assistance and
weatherization programs to aid low-income customers.
He cited some long-term solutions as well, such as a gas
pipeline from Alaska and energy efficiency measures, but these
aren't going to "heat people's houses and.....cook their food" this
winter, Hoecker told the House Energy and Power Subcommittee during
a hearing last Thursday.
"The prospect of higher prices this winter for natural gas is a
matter of serious concern for businesses and consumers. I do not
minimize the consequences for our citizens of today's price and
deliverability issues, especially if our winter weather is
extreme," he said. However, he cautioned that regulatory and policy
responses to the situation should be "measured and balanced in
recognition of the fact that the fundamental structure of
interstate natural gas markets is sound."
Within the boundaries of its jurisdiction, "the Commission is
working hard to ensure that there is adequate pipeline
infrastructure available at fair prices," Hoecker said, adding that
FERC has authorized 6,000 miles of new pipeline facilities over the
past three years.
Congressional policies have created a "transportation platform
for [a] well-functioning commodity market." This has resulted in
"significant benefits" for gas consumers over the past years, some
of which "have come at the cost of [a] downturn in drilling." The
fact that gas producers already have stepped up exploration and
drilling efforts in response to higher gas prices "is evidence of
a functioning market," Hoecker assured lawmakers.
But Chairman Murkowski of the Senate Energy and Natural
Resources Committee didn't see gas as a well-functioning market,
especially as consumers face the prospect of 50% higher bills this
winter. The "pressure's going to be on natural gas [this
winter].....That's where the next train wreck is coming," he said
during a committee oversight hearing on the winter fuel outlook
"We're already too late" to be much help to gas consumers this
winter, Murkowski said. He estimated about 50% of the households in
the United States use gas as a home-heating fuel, and about 14% of
utilities depend on gas to generate electricity. This stepped-up
demand is squeezing supply. "We're using now for the first time our
gas reserves faster than we're finding new reserves."
Alluding to President Clinton's release of crude oil from the
Strategic Petroleum Reserve (SPR) to mitigate heating oil prices
this winter, Murkowski asked Energy Secretary Bill Richardson
whether the administration had anything up its sleeve to rein in
natural gas prices as the industry enters the winter heating
season. "There's no SPR for natural gas," he reminded Richardson.
Sen. Pete Domenici (R-NM) predicted the "next crisis for America
unequivocally will be [that] we don't have enough natural gas," and
it will likely occur this year - if it hasn't begun already. The
gas industry has assured consumers, however, that supply will be
sufficient to meet demand this winter. Domenici warned gas
consumers to "hold onto your pocketbooks because [you] ain't seen
nothing yet" with respect to gas prices, which he believes will go
"through the roof."
He blamed Department of Interior (DOI) policies that restrict
exploration and drilling on public lands, and Environmental
Protection Agency (EPA) rules and regulations that favor gas over
coal in electric generation for contributing to the supply
imbalance affecting natural gas.
Contrary to popular belief, the "energy policy of the United
States is made by [the] Interior Department" rather than the
Department of Energy (DOE) "because they determine what lands can
be entered for drilling for oil and gas," Domenici said. The EPA
also is "greatly involved" in the development of energy policy.
Currently, there are no Interior policies that are
"pro-development" of oil and gas, Domenici said, adding that 60%
more federal lands are off-limits to producers today compared to
1983. Also, EPA emissions rules have made it nearly impossible to
construct generation facilities that aren't fueled by natural gas,
he noted, adding that it's been 10-20 years since a new coal-fired
facility was built.
So "we are hell-bent to use natural gas.....We're limiting
America to that kind of energy [gas]" rather than a broad-based mix
of sources, Domenici noted. He and other lawmakers believe that
restricting much of the electric generation market to a single fuel
(gas) is a dangerous policy, and that action should be taken to
reverse this trend.
Texas Railroad Commissioner Charles R. Matthews warned against
over-reaction. "I do not believe we should change the demand side
of the equation with price controls or other governmental
intervention." Instead, "we need to make changes to [the] supply
side" by formulating polices that favor tax incentives for
producers, reopening training programs for oilfield workers and
developing new recovery technologies. "We [in Texas] have a record
of proving.....that tax incentives do work."
But Byron Lee Harris, deputy director of the West Virginia
Consumer Advocate Division of the Public Service Commission,
supports rate controls. "As the result of the rate caps that we
have in place, approximately 85% of natural gas customers [in West
Virginia] will not experience an increase in their rates this
winter, which has been estimated to be an $82 million savings."
But given the high level of natural gas prices now, he advised
other state regulators not to pursue "absolute" rate freezes as a
way to protect consumers this winter. As an alternative,
"commissions could opt for [a] modified cap that protects
[customers] against price increases, but is flexible enough to
capture potential price declines."
There was a lot of finger-pointing during the Senate and House
hearings as to who was at fault for the "energy supply train
wreck.....on the horizon," as Murkowski called it. He accused the
Clinton administration of being "asleep" at the wheel. The fact the
administration had to tap the SPR this early "clearly" sends the
message to the U.S. public that "we're in trouble. We're now having
to go into our savings accounts."
Specifically, Senate and House Republicans rapped administration
policies that ban or severely restrict drilling on public lands,
and favor strict emissions rules that are making certain fuels
(other than natural gas) prohibitively expensive to use in the
electric generation market. The also cited the administration's
failure to develop a national energy policy.
Democrat lawmakers, as well as Richardson, countered with their
own laundry list of energy shortcomings of the congressional
Republican majority. Topping the list was the failure to pass
electricity restructuring legislation and the administration's
package of tax incentives for marginal oil and gas
production/renewable energy sources, and reauthorization of the
Sen. Tim Johnson (D-SD) summed it up: "I, for one, don't believe
either political party has particularly distinguished itself on
energy strategy for a long, long time."