Natural Gas Policy Act of 1978

(Conference report filed in Senate, S. Rept. 95-1126)

Natural Gas Policy Act - =Title I: Wellhead Pricing= - Directs the Federal Energy Regulatory Commission to compute and publish in the Federal Register each month the maximum lawful prices for natural gas produced in the United States and the monthly equivalent of the annual inflation adjustment factor for such month. Provides a formula for determining the annual inflation adjustment factor. Stipulates that such ceiling prices apply to the month of delivery, beginning on the first day of the first month following the date of enactment of this Act.

Provides that if natural gas qualifies under more than one price category, the provision that permits the seller to obtain the highest price applies.

States that the ceiling price for new natural gas and certain produced from the Outer Continental Shelf shall be $1.75 per million Btu's, beginning in April 1977. Provides that for each month following, the ceiling price shall be determined according to a specified formula which takes into account the annual inflation adjustment factor. Defines "new natural gas" for purposes of this Act. Exempts natural gas produced from the Prudhoe Bay Unit of Alaska from such ceiling prices for new natural gas.

Sets the ceiling price for natural gas produced from new, onshore production wells, at $1.75 per million Btu's beginning in April, 1977. Provides that for each month following, the ceiling price shall be determined by multiplying the previous month's ceiling price by the monthly equivalent of the annual inflation adjustment factor. Sets special prices, beginning in January 1985, for natural gas which was not committed or dedicated to interstate commerce on April 20, 1977, and which was produced from certain new onshore production wells. Exempts natural gas produced from the Prudhoe Bay Unit of Alaska from such ceiling prices.

Provides ceiling prices for natural gas committed or dedicated to interstate commerce on the day before the date of enactment of this Act and for which a just and reasonable rate under the Natural Gas Act was in effect. Allows the just and reasonable rates that were in effect on April 20, 1977, as converted, if necessary, to a million Btu basis, for such gas to be adjusted by multiplying such prices by the monthly equivalent of the annual inflation adjustment factor. Authorizes the Commission to increase such ceiling prices if such prices are just and reasonable.

Sets ceiling prices for first sales of natural gas under an existing intrastate contract or any successor to an existing intrastate contract. States that such ceiling prices shall depend on the contract price in effect on the date of enactment of this Act, and provides methods for determining ceiling prices on such basis, taking into consideration the monthly equivalent of the annual inflation adjustment factor. Provides that once the price under an existing intrastate contract equals the new gas price, the contract price may increase at a rate equal to the increase in the new gas price.

Limits the operation of indefinite price escalator clauses in existing contracts, effective January 1985. States that no alteration made after May 3, 1978, of any provision of an intrastate contract in effect as of such date shall be effective to alter the application on ceiling price limitations which would have prevailed had such alteration not occurred.

Provides that ceiling prices for sales under rollover contracts of natural gas which were committed or dedicated to interstate commerce on the day before the date of enactment of this Act shall be the higher of: (1) $.54 per million Btu's for April 1977, with each successive month's ceiling price escalated by the monthly equivalent of the annual inflation factor; or (2) the just and reasonable rate established by the Commission and applicable to the expired contract, escalated by the monthly equivalent of the annual inflation factor. Defines "rollover contract" to include any contract which would have been a rollover contract if the previous contract had not expired prior to the day before the date of enactment of this Act.

Provides that ceiling prices for sales under rollover contracts of natural gas which were not committed or dedicated to interstate commerce on the day before the date of enactment of this Act shall be the higher of: (1) $1.00 per million Btu's for April 1977, with each successive month's ceiling price escalated by the monthly equivalent of the annual inflation factor; or (2) the maximum price paid under the expiring contract, escalated each month by such inflation factor.

Provides a ceiling price equal to the new natural gas ceiling price for any first sale under an intrastate rollover contract for certain State or Indian tribe royalty shares of production.

Authorizes the Commission to increase ceiling prices for natural gas sales under rollover contracts if such prices are just and reasonable.

Provides that the ceiling price for high-cost natural gas produced from any well, the surface drilling of which began on or after February 19,1977, if such production is from any completion location which is located at a depth of more than 15,000, feet shall be equal to the new natural gas ceiling price. Defines "high-cost natural gas" for purposes of this Act. Authorizes the Commission to increase such ceiling prices in order to provide reasonable incentives for the production of such high-cost natural gas.

Provides that the ceiling price provisions for high-cost natural gas do not apply to natural gas for which any credit, exemption, deduction, or comparable adjustment to any Federal tax is specifically allowable if the producer elects to have such credit, exemption, deduction, or adjustment apply. Permits a producer to choose to have such ceiling prices apply instead, and requires that an election so indicating be filed with the Commission within a specified time limit.

States that the ceiling price for stripper well natural gas shall be $2.09 per million Btu's, beginning May 1978. Provides that for each month following, the ceiling price shall be determined according to a specified formula which takes into account the annual inflation adjustment factor. Defines "stripper well natural gas" as natural gas produced from a well which, for a 90 consecutive day period, produced nonassociated natural gas at a rate which did not exceed an average of 60 Mcf per day, when produced at its maximum efficient rate of flow and in accordance with recognized conservation practices. Directs the Commission to provide, by rule, that stripper wells retain their stripper well status even if production is increased to an average above 60 Mcf per day, if such increase is due to the application of recognized recovery techniques.

Sets ceiling prices for any natural gas not covered by the categories specified in this Act, including: (1) natural gas produced from any new well not otherwise qualifying for a higher ceiling price; (2) natural gas committed or dedicated to interstate commerce for which a just and reasonable rate was not in effect under the Natural Gas Act; (3) natural gas which was not committed or dedicated to interstate commerce and which was not subject to an existing contract; and (4) natural gas produced from the Prudhoe Bay Unit of Alaska and transported through the transportation system approved under the Alaska Natural Gas Transportation Act of 1976. States that such ceiling price shall be $1.45 per million Btu's beginning April 1977, and shall be increased monthly be multiplying the previous month's ceiling price by the monthly equivalent of the annual inflation adjustment factor. Authorizes the Commission to increase such ceiling prices if such increased prices are just and reasonable.

Provides that prices for first sales of natural gas may exceed the applicable ceiling prices to the extent necessary to recover (1) State severance tax attributable to the production of such natural gas and borne by the seller, and (2) certain production-related costs borne by the seller and allowed by the Commission.

Eliminates price controls, effective January 1, 1985, for: (1) new natural gas; (2) certain natural gas produced from new, onshore production wells producing from a completion location deeper than 5,000 feet; and (3) certain natural gas sold under an existing contract, any successor to an existing contract, or any rollover contract. Eliminates price control for certain high-cost natural gas on the effective date of the incremental pricing rule. Eliminate price controls, effective July 1, 1987, for certain natural gas produced from new, onshore production wells producing from a completion depth of 5,000 feet or less.

Authorizes the President and the Congress to reimpose price controls on all categories of natural gas subject to deregulation on January 1, 1985. Stipulates that such reimposition of price controls may not take effect earlier than July 1, 1985, nor later than June 30, 1987, and shall remain in effect for a single 18 month period. Sets maximum lawful prices for such period.

Directs the Department of Energy to report to the President and the Congress, by July 1, 1984, and by January 1, 1985, on natural gas prices, supplies, and demand, and the competitive conditions and market forces in the natural gas industry in the United States. Requires that such report include an evaluation of whether an equilibrium exists between supply and demand of natural gas. Directs the Department to provide an opportunity for public comment on such reports.

=Title II: Incremental Pricing= - Directs the Commission to prescribe and make effective a rule, within 12 months after the date of enactment of this Act, designed to provide that natural gas acquisition costs subject to incremental pricing passthrough are passed through to any industrial boiler fuel facility which uses natural gas as a boiler fuel. Requires the Commission to prescribe an amendment to such rule, within 18 months after the date of enactment of this Act, designed to provide that natural gas acquisition costs subject to incremental pricing passthrough are passed through to other industrial facilities using natural gas. Provides that such amendment shall take effect only if not disapproved by either House of the Congress within 30 calendar days of continuous session after it has been submitted.

Sets forth costs subject to such passthrough requirements for: (1) new natural gas; (2) natural gas under intrastate rollover contracts; (3) new, onshore production well gas; (4) liquefied natural gas imports; (5) natural gas imports (other than liquefied natural gas); (6) stripper well natural gas; (7) high-cost natural gas; (8) natural gas produced from the Prudhoe Bay Unit of Alaska and transported through the natural gas transportation system approved under the Alaska Natural Gas Transportation Act of 1976; (9) any increase in the aquisition cost of natural gas attributable to any increase in the amount of State severance taxes or other similar production taxes above levels enacted on or before December 1, 1977; (10) certain natural gas sales authorized by the Commission; and (11) surcharges paid by any interstate pipeline for natural gas acquired from another interstate pipeline. Provides that in cases where natural gas qualifies for two or more categories, the Commission shall prescribe the method for determining which sale price applies, based upon the classification of such natural gas for purposes of pricing under Title I of this Act.

Requires each interstate pipeline serving any industrial user of natural gas which is subject to such incremental pricing requirements to establish and maintain an incremental pricing account. Provides that costs subject to such passthrough requirements are to be credited to the account of such pipeline, and passed through by means of a surchange on volumes of natural gas delivered, directly or indirectly, to incrementally priced industrial facilities for ultimate industrial use.

States that such surcharge shall be based upon the dollar amount in such pipeline's account and the pipeline's total volume of natural gas delivered directly or indirectly to incrementally priced industrial facilities. Provides that such surcharge may be reduced if an unadjusted surcharge would result in rates and charges paid by any incrementally priced industrial facility that would exceed the appropriate alternative fuel cost, as determined by the Commission on a regional basis. Provides for methods by which the interstate pipeline involved may recover from certain incrementally priced industrial facilities the dollar amount which would have been so passed through if such reduction or elimination had not occurred.

States that amounts passed through by any interstate pipeline by means of such surcharges shall be deducted from such pipeline's account. Provides that in cases where the price paid by all incrementally priced users served by a local distribution company equals the alternative fuel price, the local distribution company shall receive only that portion of its pipeline's account necessary to maintain those users at the alternative fuel price.

Requires any surcharge paid by any local distribution company to be directly passed through to the incrementally priced industrial facilities it serves. Prohibits States from modifying or otherwise changing the method of allocating costs to the rates and charges of such local distribution companies in a manner that would have the effect of creating any offset for the surcharges required to be paid due to the operation of this Act.

Directs the Commission, within 18 months of the date of enactment of this Act, to prescribe and make effective rules providing exemptions from such incremental pricing rules for certain small industrial boiler fuel facilities and for agricultural facilities using natural gas. Provides interim exemptions until the effective date of such permanent exemptions. Exempts: (1) schools, hospitals and similar institutions; (2) the generation of electricity by any electric utility, and (3) to the extent provided by the Commission, any qualifying cogenerator (as defined by the Federal Power Act, as amended by the Public Utility Regulatory Policies Act of 1978), from such incremental pricing rules. Authorizes the Commission, subject to Congressional review, to provide for the exemption, in whole or in part, of any other incrementally priced industrial facility or category thereof from such incremental pricing rules.

Exempts from such incremental pricing rules certain liquid natural gas imports, and other natural gas imports if the volume of such other imports does not exceed the volume of natural gas imported into the United States during calendar year 1977.

Requires rolled in pricing for any portion of the first sale acquisition cost which is not required to be incrementally priced, and transportation costs, for gas produced from the Prudhoe Bay Unit of Alaska and transported through the natural gas transportation system approved under the Alaska Natural Gas Transportation Act of 1976.

=Title III: Additional Authorities and Requirements= - Authorizes the President to declare a natural gas supply emergency or extend a previously declared emergency if he finds that (1) a severe natural gas shortage exists or is imminent in the United States, and (2) the exercise of emergency purchase authority and emergency allocation authority is reasonably necessary, having exhausted other alternatives to the maximum extent practicable, to assist in meeting natural gas requirements for high-priority uses. Terminates such natural gas emergency declaration or extension (1) on the date on which the President finds that such shortage does not exist, or is not imminent, or (2) 120 days after the date of such declaration of extension.

Permits the President, during any such emergency, to authorize any interstate pipeline, or local distribution company served by any interstate pipeline, to contract for emergency supplies of natural gas. Provides that such contract may be with any producer of natural gas if such gas is not produced from the Outer Continental Shelf, and if it is not subject to a certificate under the Natural Gas Act; or with any intrastate pipeline, local distribution company, or other person (other than an interstate pipeline). Limits the duration of such contract to four months, but permits the President to authorize renewals. Authorizes the President to require any pipeline to transport such natural gas and to construct and operate such facilities for the transportation of natural gas as may be necessary to carry out such contracts. Requires the purchasing party to pay the costs of such required contruction.

Directs the Commission to require the purchaser to maintain and make available records concerning emergency gas purchases.

Authorizes the President to allocate supplies of natural gas to: (1) any interstate pipeline; (2) any local distribution company served by an interstate pipeline which is providing natural gas for only high-priority uses and which is in need of deliveries of natural gas to assist in meeting natural gas requirements for high-priority uses of natural gas; and (3) any person for meeting requirements of high-priority uses of natural gas. Requires that the emergency purchase authority provided by this Act be exhausted to the maximum extent practicable before such allocation authority may be exercised. Requires that allocation to a pipeline occur only after such pipeline has ordered the termination of all deliveries of natural gas for other than high-priority uses and terminated such deliveries to the maximum extent practicable.

Authorizes the President to order allocation of the natural gas freed from boilers pursuant to the Public Utility Regulatory Policies Act in order to protect high priority uses. Authorizes the President to allocate supplies of certificated natural gas from any interstate pipelines: (1) after natural gas freed from boilers has been allocated to the maximum extent practicable, and (2) if the President has been notified by a Governor of any State that further measures under State law are insufficient to protect high priority users. Authorizes the President to allocate supplies of user-owned gas, upon a finding that the allocation of such certificated natural gas from interstate pipelines has been utilized to the maximum extent practicable to assist in meeting natural gas requirements for high priority uses of natural gas. Authorizes the President to prescribe the amount of compensation to be paid for emergency deliveries and for any other expenses incurred in delivering or transporting such gas if the parties to any allocation order fail to agree upon the terms of compensation or transportation. Permits the President to direct that compensation may be in kind.

Directs the Commission to report to the Congress by June 1, 1979, regarding whether authority to allocate natural gas, which is not otherwise subject to such allocation, is likely to be necessary to meet high-priority uses.

Sets forth provisions contained in the Emergency Natural Gas Act of 1977, relating to obtaining information, administrative procedure, judicial review, enforcement, reporting, delegation of authorities, antitrust protection, effect on certain contractual obligations, and preemption.

Provides that the Commission may authorize: (1) interstate pipelines to transport natural gas on behalf of any intrastate pipeline, and any local distribution company; (2) intrastate pipelines to transport natural gas on behalf of any interstate pipeline, and any local distribution company served by an interstate pipeline; and (3) any intrastate pipeline to sell natural gas to any interstate pipeline, and to any local distribution company served by an interstate pipeline. Sets forth requirements for rates and charges for such transportation. Limits such sales to a two-year duration but authorizes the Commission to approve extensions.

States that such sales are subject to interruption to the extent that natural gas subject to such sale is required to enable the seller to render adequate service to its existing customers.

Sets forth procedural requirements for such sales. Authorizes the Commission to condition approval of such sales, transportation, or exchanges upon such specified terms and conditions as it deems appropriate. Requires the Commission to disapprove any application for authorization of a sale, or terminate any sale previously authorized, that would circumvent any provision of this Act.

Authorizes the Commission to allow any intrastate pipeline to assign without compensation the right to receive surplus natural gas to an interstate pipeline or local distribution company.

Limits the effect of prices paid for high-cost natural gas, authorized emergency purchases, and allocations ordered, in the application of indefinite price escalator clauses.

Declares contractual prohibitions on commingling of intrastate natural gas with interstate natural gas unenforceable with respect to sales of natural gas covered by this Act.

Authorizes the Commission to specify the minimum duration of certain contracts for the purchase of natural gas. Directs the Commission to provide for a right of first refusal for certain categories of natural gas production. Permits the Commission to require purchasers to file copies of all new contracts with the Commission for natural gas sales, and all ancillary agreements pertinent to those contracts.

=Title IV: Natural Gas Curtailment Policies= - Requires the Secretary of Energy, within 120 days of the enactment of this Act, to prescribe and make effective a rule which provides that, notwithstanding any other provision of law and to the maximum extent practicable, no curtailment plan of an interstate pipeline may provide for curtailment of deliveries of natural gas for any essential agricultural use unless such curtailment: (1) does not reduce the quantity of natural gas delivered for essential agricultural use, and (2) is necessary in order to meet the requirements of high-priority users. Provides that if the Commission, in consultation with the Secretary of Agriculture, determines that (1) the use of a fuel (other than natural gas) is economically practicable; and (2) such fuel is reasonably available as an alternative for any agricultural use of natural gas, such uses will not qualify for a curtailment priority.

Directs the Secretary of Agriculture to certify to the Secretary of Energy and the Commission the natural gas requirements for essential agricultural uses in order to meet the requirements of full food and fiber production. Authorizes the Secretary of Agriculture to intervene in any proceeding before the Commission which is conducted in connection with implementing such curtailment rules.

Defines " agricultural use" to include uses of natural gas for agricultural production, natural fiber production, natural fiber processing, food processing, food quality maintenance, irrigation pumping, crop drying, or as a process fuel or feedstock in the production of fertilizer, agricultural chemicals, animal feed, or food. Defines "high priority user" to include persons who use natural gas in a residence; in a commercial establishment in specified amounts; in schools, hospitals, or similar institutions, or in other uses the curtailment of which the Secretary of Energy determines would endanger life, health, or maintenance of physical property.

Directs the Secretary of Energy to prescribe and make effective a rule which provides that, notwithstanding any other provision of law and to the maximum extent practicable, no interstate pipeline may curtail deliveries of natural gas for any essential industrial process or feedstock use, unless such curtailment: (1) does not reduce the quantity of natural gas delivered for such use below essential industrial use requirements; (2) is necessary in order to meet the requirements of high-priority users, or (3) is necessary in order to meet the requirements for essential agricultural uses of natural gas. Stipulates that such rule shall apply with respect to any curtailment of deliveries for any essential industrial process or feedstock use only if the Commission determines that use of a fuel (other than natural gas) is not economically practicable and that no other fuel is reasonably available as an alternative for such use.

Directs the Secretary of Energy to determine and certify to the Commisssion the natural gas requirements of persons for essential industrial process and feedstock uses.

Prohibits the Commission, for ten years following the enactment of this Act, from revoking or amending any certificate of public convenience and necessity issued before January 1, 1969, for the transportation of natural gas owned by any electric utility except upon the application of the person to whom such certificate was issued. Stipulates that such prohibition shall not affect the authority of the Commission to enforce any curtailment of deliveries of natural gas under the Natural Gas Act.

=Title V: Administration, Enforcement, and Review= - Authorizes the Commission, or any other Federal officer or agency in which any function under this Act is vested or delegated, to perform any and all acts, and to prescribe, issue, amend, and rescind such rules and orders as it may find necessary or appropriate to carry out its functions under this Act. Authorizes the Commission to define terms used in this Act.

Provides that the rulemaking procedures of the Administrative Procedure Act shall apply to the promulgation of rules or orders issued under this Act having the applicability and effect of a rule. Requires that, to the maximum extent practicable, an opportunity for oral presentation of data, views, and arguments shall be afforded with respect to any such proposed rule or order. Provides for the exemptions from, or modifications of, such rules in the case of special hardship, inequity, or unfair distribution of burdens.

Authorizes Federal or State agencies having regulatory jurisdiction with respect to natural gas to make classification determinations required by Title I. Requires such agencies to provide timely notice of such determinations to the Commission. Authorizes the Commission to review and reverse such determinations, or remand the matter to the appropriate State or Federal agency. Provides for judicial review of Commission actions.

Permits a seller of natural gas which is produced from a new well to charge and collect the appropriate maximum lawful price for any first sale of such natural gas, pending a determination by the appropriate State or Federal agency. Directs the Commission to prescribe alternate methods of interim collection. Allows the seller to collect, after a determination by the appropriate State or Federal agency, the appropriate maximum lawful price under such determination.

Makes it unlawful for any person to sell natural gas at a first sale price in excess of any applicable maximum lawful price under this Act, or to otherwise violate any provision of this Act or any rule or order under this Act. Establishes procedures for civil enforcement of this Act. Sets forth civil penalties for knowing violations of the provisions this Act or of any rule or order under this Act up to $5,000 for any one violation, which the Commission may assess, or up to $25,000 in the case of a violation of emergency purchase orders or emergency allocation orders, which the President may assess.

Sets forth criminal penalties for the knowing and willful violation of the provisions of this Act: a fine of up to $5,000 or up to two years of imprisonment, or both. Provides for fines of up to $500 for each knowing and willful violation of any rule or order under this Act. Provides fines of up to $50,000 for each knowing or willful violation of emergency purchase orders or emergency allocation orders. Declares that each day of violation shall constitute a separate violation.

Authorizes the Secretary of Energy to intervene in any State agency proceeding relating to the prorationing of, or other limitations upon, natural gas production.

Provides for persons aggrieved by orders issued by the Commission in a proceeding under this Act to which such person is a party to obtain judicial review in the United States Court of Appeals for the District of Columbia circuit, or in the circuit where the person in located or has his principal place of business. Provides for judicial review of: (1) all civil cases and controversies arising from Presidential declarations of natural gas supply emergencies, Presidential emergency purchase authorizations, and Presidential emergency allocations, and (2) certain incremental pricing determinations.

Provides procedures for Congressional action required for the reimposition of certain price controls, amendments to incremental pricing passthrough rules, and certain exemptions to incremental pricing rules. Specifies the manner in which calendar days of continous congressional sessions are to be counted. Provides expedited procedures for insuring floor consideration of required resolutions.

Amends the Department of Energy Organization Act to grant certain powers and authority to the Commission.

=Title VI: Coordination with Natural Gas Act; Miscellaneous Provisions= - Exempts natural gas which was not committed or dedicated to interstate commerce as of the day before the date of enactment of this Act from the jurisdiction of the Commission, under the Natural Gas Act. Terminates the Commission's jurisdiction under such Act on the first day of the first month beginning after the date of enactment of this Act for: (1) certain high-cost natural gas; (2) certain new natural gas; and (3) certain natural gas produced from any new, onshore production well.

Exempts emergency sales, intrastate pipeline sales, and assignments authorized under this Act from the jurisdiction of the Commission under the Natural Gas Act. Stipulates that no person may be considered a "natural-gas company" under such Act, by reason of, or with respect to, emergency sales, intrastate pipeline sales, or assignments authorized under this Act.

Exempts certain transportation of natural gas, pursuant to emergency purchase orders or emergency allocation orders, or as authorized by the Commission under this Act, from the Commissions' jurisdiction under the Natural Gas Act. States that no person may be considered a " natural-gas company" under such Act, by reason of, or with respect to, such transportation.

Defines charges deemed "just and reasonable", according to the Natural Gas Act, with respect to: (1) first sales of natural gas; (2) emergency sales; (3) sales by interstate pipelines; (4) contract assignments (5) first sales between interstate pipelines and affiliates of such pipelines; (6) transportation, storage, delivery, or other services provided pursuant to an allocation order; and (7) transportation authorized by the Commission.

Provides that interstate pipelines may pass through costs of natural gas purchases if the price of the purchased natural gas does not exceed the ceiling price levels which are deemed "just and reasonable except in cases of fraud or abuse as determined by the Commission.

Provides that nothing in this Act shall affect the authority of any State to establish or enforce any maximum lawful price for the first sale of natural gas produced in such State which does not exceed the applicable maximum lawful price, if any, under Title I of this Act.