September 27, 1978
Page 31840
Mr. MUSKIE. Mr. President, I support the conference report on the natural gas bill, and urge my colleagues to do the same.
For several weeks now, I have carefully examined the provisions of this legislation. And I have concluded that there is a compelling case for its adoption. I find it to be sound energy policy and good economic policy — both at home and abroad.
The conference report offers the Congress an opportunity to live up to America's promise of energy responsibility. Many are betting that we will not be able to set aside parochial differences long enough to keep that promise.
The stakes are enormous.
Over the course of this very long debate on natural gas pricing policy, fundamental questions have been raised about the course we should pursue. These questions have been asked of the dozens of different policy alternatives that have been considered — and they are now asked of the conference report as well. They are questions that must be answered before we can proceed.
Will the new pricing policy increase natural gas supplies?
Will such policy treat all consumers of natural gas fairly?
Is it workable?
And most importantly, how will it affect our economy here at home and our role as the leader of the international economic community?
Some of my colleagues have concluded that the conference report cannot pass the test of fairness and workability and responsibility which these questions pose. But I am convinced that each of these questions can be answered in the positive where the conference report is concerned.
First, it is clear that the conference report will increase supplies of natural gas.
The Congressional Budget Office estimates that by 1985, production will increase under this legislation by 0.7 trillion cubic feet. That is enough to heat 7 million homes for a year, and reduce payments to foreign oil producers by $2.6 billion per year, in 1985 dollars.
This estimate is based on a careful analysis of the conference report and agrees with the most conservative estimate made by the conference committee, which projected an increase of 0.7 to 1.4 trillion cubic feet by 1985. Other responsible estimates go even higher — to as much as 2 trillion cubic feet in increased production per year.
The conference report essentially creates a national market for natural gas, eliminating almost all distinctions between gas sold on the interstate market and gas produced and consumed in the same State. This means that the current surplus in the intrastate market — estimated by DOE to be as much as 1 trillion cubic feet per year — could be available to the interstate market.
It should also be noted that the conference report will encourage the construction of the Alaska natural gas pipeline, a facility that would bring an estimated 0.8 trillion cubic feet of additional supplies to consumers by 1985.
The conference report will help this project to move ahead immediately, without further delay, for two main reasons. First, it will establish a price certain for Alaska natural gas. And, second, it will insure that a market exists for that gas by excluding most of that established price from the incremental pricing provision.
Without the specific provisions included in the conference report, the pace of construction will inevitably be slowed. The Federal Energy Regulatory Commission will be obligated to convene a rate proceeding that in all likelihood will take months to complete. And, upon completion, the price established by that procedure will be subject to the uncertainties and delays that must come with any judicial review based on the "just and reasonable" standard of the Natural Gas Act.
The Department of Energy estimates that project costs of the Alaska pipeline are escalating at a rate of more than $50 million per month. Such an increase can only add to ultimate costs to consumers and, in the long run, seriously jeopardize the future of this project.
The second question is whether or not the proposed pricing policies are fair. I believe they are. Indeed they make good sense for all consumers of natural gas.
Residential consumers would be protected against precipitous price increases through an incremental pricing mechanism. The positive effects of this mechanism can be clearly seen in a few simple comparisons.
If current law were to be maintained — if the Federal Energy Regulatory Commission allowed gas prices to rise no faster than the rate of inflation — residential consumers would be paying only 9 cents less per million Btu's than they would pay under the provisions of the conference report — $3.22 compared with $3.31.
Under current law — if gas rose at the same rate as inflation between now and 1985 — an increase of only $0.25 in the regulated price of new natural gas could result in a 1985 price to residential consumers higher than that of the conference report. And let us not forget that just 2 years ago, under the current law, prices for gas jumped $0.90 because of one FPC regulatory decision.
Industrial consumers will also fare well under the conference agreement. In 1985, average industrial gas prices under this proposal will be significantly less than the price of alternate fuels. And in no area of the Nation will the price of gas exceed the price of alternate fuels.
Furthermore, industrial prices in 1985, under the conference report, will be less than under the Senate-passed bill, with or without the rather confusing incremental pricing provisions that were included in that measure.
It is clear that both the House and the Senate intended to deflect some of the cost of new natural gas onto large industrial users and away from homeowners. The provisions of the conference report achieve this important goal, and achieve it in a manner both reasonable and fair.
The third question that has been raised is whether this compromise is workable. Here again, the legislation meets the test. In fact, in spite of all that's been said, the conference report will actually reduce the current regulatory burden on the oil and gas industry.
It is true, of course, that the gas bill is a complex and intricately structured document. But it does not necessarily follow that such complexities will lead to abuse or make legal challenges more likely than the existing regulatory scheme. Potential administrative problems did exist in early drafts of the bill, but those problems were identified and addressed in the version the conferees reported.
The essential facts are these: The bill would establish three basic categories for gas from new wells and a set of understandable guidelines for existing gas contracts.
The conference agreement eliminates the unnecessary regulations that now apply to all sales in interstate commerce from acreage that is now dedicated to interstate commerce, as well as from all new on- and offshore gas.
As a result, the producer who sells such gas to an interstate pipeline will no longer be required to obtain a certificate from the Federal Energy Regulatory Commission, make regular rate increase filings, obtain abandonment authorization, or wait for 2 or 3 years to learn what price can be charged for the gas.
The final and most important question, Mr. President, concerns the economic impact of the proposed policy.
In the first place, the Congressional Budget Office has determined that the direct macroeconomic effect of the conference report will be very small, when considered in the context of a $2 trillion economy.
CBO estimates that by 1985 the legislation will cost all consumers between 5 to 8 percent more than current policy — assuming that gas prices increase at the rate of inflation. Even with this increase, natural gas will remain substantially less expensive than alternative fuels.
Furthermore, CBO estimates that this bill, despite charges to the contrary, will have virtually no effect on the rate of inflation — at most, an increase of one-tenth of 1 percent a year.
Against these relatively minor macroeconomic effects must be weighed the positive benefits to our domestic economy. We will have less unemployment and fewer reductions in output — both of which result from gas curtailments. We will have a potentially lower Federal deficit, and an elimination of the inefficiencies which result from a dual market for gas.
The importance of this conclusion cannot be underestimated in our deliberations.
A fundamental responsibility of Government, in setting national policy of any kind, is to provide an atmosphere of certainty and stability in which decisions can be made. Where energy policy is involved, such certainty and stability are of overriding concern.
Whatever energy pricing policy we adopt will affect the daily decisions of citizens all across the land, and I am not just speaking of the president of Exxon. Farmers, small businessmen, families, one and all need to be able to plan ahead.
They deserve to be able to do so with the expectation that the choices they make today will not be made meaningless tomorrow by constantly shifting Federal policies — or even worse, by confusion and uncertainty because we in Government find it impossible to agree on any policy at all.
In no other area of Federal policy is this need for certainty more apparent — or the lack of it more troublesome. Decision makers in the private sector — corporate executives and housewives alike — are whipsawed by the energy news which changes from day to day.
Where should a company build a new plant to insure adequate energy supplies? Should that facility use oil, gas, or coal to meet its energy needs?
What about the family that wants to take a vacation or buy a new house? Will they be able to plan reliably for the cost of energy they will need?
Without a stable energy pricing policy, the answers to these questions are in doubt. And the resulting uncertainty places an immeasurable drain on the vitality of our economy here at home.
Abroad, the consequences of this uncertainty are even worse. We are bombarded daily with new reports of the dollar's shrinking value. As the London Financial Times put it on August 17: The dollar's decline is fast becoming a crisis of political leadership as far as the foreign exchange markets are concerned.
These expectations led to massive sales of dollars and a sharp depreciation of nearly 4 percent after the summit of August 15.
And this most recent decline does not tell the whole story. In all, the value of the dollar abroad has eroded about 10 percent between August 1977 and August1978. This decline has increased inflation by about 1 percent. This means that American consumers and businesses will end up paying $15 to $20 billion more in a single year for what they buy. That is more than the conference agreement would add to the cost of their natural gas purchases over 7 years.
Both the falling dollar and the resulting inflation force the Federal Reserve into more restrictive monetary policies, raising interest rates and threatening economic recovery.
And whether we like it or not, our failure so far to come to grips with an energy policy is at the heart of this crippling dilemma.
The dollar's value on the international market is in one sense a measure of the confidence the international community has in the dollar's long term value. That judgment is based on perceptions of American economic policy.
The international community is less concerned with day-to-day economic events than it is with the long term trend. Other nations must be convinced that America is indeed committed to an energy policy and to controlling inflation. If they remain unconvinced, they will continue to bet against the dollar, forcing it to fall even further. We must begin to prove them wrong.
If we do not, we face at least the possibility of more inflation; more restrictive interest rates and slower economic growth; an increase in the price of foreign oil; and loss of control over our own economic destiny.
And the consequences could be much worse.
Under these circumstances, the natural gas compromise assumes tremendous importance. It has become a symbol abroad of America's capacity to enact a constructive energy policy. Its passage will represent a solid step in maintaining confidence in the dollar and responding to international concern.
Mr. President, of all the many important considerations in this debate, this is, I believe, the most important of all. We can talk about the cost of decontrol all we want. That cost pales in comparison to the unmeasurable cost of a continually depreciating dollar — a prospect which will grow more likely if we fail to act favorably on this compromise bill.
The cost of not acting will be more than the declining confidence among our allies.
It will be more than the extra dollars American tourists have to pay when they go abroad.
It will be more than the cost we all have to pay for imported manufactured goods.
It will go to the very heart of our national economic health. The OPEC nations hold large amounts of U.S. dollars. The less value those dollars have, the more likely the OPEC nations will be to raise the price of imported petroleum on which we depend.
On the domestic front, congressional failure to shore up the dollar will reduce the tools we have to defend our currency. It will throw even more of the burden of defending the dollar on the Federal Reserve, which would have to tighten monetary policy and raise interest rates even higher than they are today.
I suggest that this is a course of some danger to our economy. Many economists believe that further increases in interest rates pose a serious threat to the continuation of our economic expansion.
I also suggest that placing so much of the burden for supporting the dollar on monetary policy is not a balanced way to conduct economic policy of such importance to the Nation.
That brings me to the final point I want to make here today, Mr. President. In this conference report, we are talking about a compromise bill — one agreed upon only with great difficulty, and seemingly endless delay. The result is a bill which does not give any of the players everything he would like.
The compromise does not give industry all the financial incentives it claims to need — although the industry has an appetite I doubt we could ever possibly satisfy.
And the compromise will cost consumers more for gas — although they will pay more regardless of whether we adopt this bill.
But in this most complex of policy areas, we could never hope to please all sides. And frankly, I do not think we can afford to try. It is very late in the game, and the stakes are increasingly high. We have heard all the arguments, time and time again.
The conference report before us is not a careless document. It represents the only middle ground between legitimate but conflicting needs. It is time to move ahead with it — it is the best course that we have. On this point, above all, I urge my colleagues to reflect. Our only alternative at this time is to do nothing — and that is not an acceptable choice.
The conference report may not give all sides what they want — but it does give them something they need.
It can send a signal to our neighbors in the world, that we both understand and appreciate their concerns — and that we are serious about taking the action necessary to respond.
Most important of all, it offers the prospect of an orderly policy — and with it, a certainty against which we all can plan. And it does so in a way which is both gradual and fair — thereby insuring that our economy can adapt.
This is no small accomplishment.