The Supreme Court will determine whether operators of certain natural gas wells should be free to choose whether the gas should be priced according to low market prices or higher regulated prices.
Opponents argue that this discretion will allow gas producers to escape competition by charging regulated ceiling prices assigned before the Reagan administration's sweeping deregulation of the natural gas industry.The justices agreed Monday to hear appeals by the Federal Energy Regulatory Commission, New York state and various gas pipelines and distributors of a Tenth U.S. Circuit Court of Appeals decision in favor of the producers.
Under deregulation, certain types of natural gas wells were allowed to keep minimum prices. The categories used to describe different kinds of wells sometimes overlap, making it ambiguous whether regulated or deregulated prices apply.
The appellate court ruled that producers of this gas have the right under the Natural Gas Policy Act of 1978 to chose whether to price their gas under regulated ceiling prices or unregulated market prices, depending on which is higher.
The Federal Energy Regulatory Commission had ruled that gas falling in both categories is deregulated and cannot be protected by regulated price ceilings.
The provision of the law in question is that which says the gas may be priced according to the method which could result in the highest price . . ."
The commission says the law was aimed at providing short-term incentives to encourage exploration and production of reserves that are harder to develop. But it also holds that the law requires a gradual substitution of market pricing, to be phased in both in 1985 and 1987.
The court of appeals' decision is erroneous. It creates a bizarre system of natural gas regulation permitting repeated transfers of natural gas in and out of regulation that is contrary to the language, structure and overall aims of the act, the Justice Department, speaking for the commission, told the Supreme Court.
The commission had reasoned that the fact that some of this gas also qualifies for another gas category does not alter the congressional mandate stating that price controls for certain gas should end on Jan. 1, 1985.
But the court of appeals rejected that view, saying that the law permits producers to choose the highest price for which such gas is eligible.
The commission argued that market prices always carry the possibility of higher prices, but the court of appeals said the law refers to actual contracts and actual prices and not potential prices.