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Energy Attorney Warns of Congressional Call to Reregulate Gas Wellhead Prices

With natural gas consumers across much of the U.S. facing potentially steep increases in their natural gas bills this winter, an energy attorney and former FERC general counsel, last Wednesday predicted that "at some point soon we will see somebody in Congress call for the reregulation of natural gas wellhead prices."

William Scherman, a partner with Skadden Arps, said "it's just a question of not if -- it's a question of when and whom." He made his remarks in an appearance before a conference sponsored by Edison Electric Institute (EEI) and the Energy Daily.

"That would be a tragedy," Scherman said. "It would be an overreaction." He said the natural gas markets "are reacting exactly the way you would expect efficient markets to operate under these supply and demand conditions. The problem is that policymakers tend to like competitive markets when prices are low and don't like competitive markets when prices are high. And that's why we're into some of these problems in New England, for example. Why we have some of these problems in California with the shortage of generation."

The energy attorney said "I wish I could tell you what Congress will do. What I'd like to tell you is I hope Congress won't do much because I think that would be a terrible mistake in the long run, when we're trying to build back the infrastructure in the Gulf, and we're trying to encourage new development in LNG."

Even if Congress "seriously debates reimposition of wellhead prices, but doesn't do it, that would send a very bad investment signal in an area where we need to continue to attract capital," Scherman said.

"I could easily see Congress also doing things like short-term emergency curtailment plans and giving the FERC that authority again," he added. "That's another option I know some people have already started talking about. It's not like it's not already written."

Scherman pointed out that "at one point, every natural gas pipeline and gas distribution company had a very detailed curtailment plan that was approved by either the FERC or the state commission."

As for FERC, the attorney said that the federal agency "really doesn't have a lot of authority to do much about gas prices anytime soon." FERC "has very little jurisdiction left over natural gas markets. Through the repeal of the NGPA and the ultimate implementation of the wellhead decontrol act...the FERC has very little direct authority to deal with high natural gas prices."

At the same time, Scherman praised FERC for "taking some immediate steps to deal with, for example, in the Discovery order last week, the rerouting of some gas supplies to deal with some dislocation in the South." He also noted that FERC Chairman Joseph Kelliher has moved quickly to implement new market manipulation provisions included in the Energy Policy Act of 2005.

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