12 - Natural gas: the consequences of scarcity

Summary

The political and economic consequences of natural gas shortages went far beyond the purview of conventional rate regulation. While the Federal Power Commission struggled to adopt procedural reforms, Congress haltingly reassessed and eventually amended the Natural Gas Act of 1938. Its nine-year effort to do so was more complicated and intensely fought, even than the issue of oil pricing. Meanwhile, market pressures and the cost-basis of regulation encouraged the industry to pursue high-cost sources of gas to supplement depleting domestic reserves. Development of these sources – synthetic gas, liquefied natural gas, Alaskan gas, and imported gas – raised complicated issues of public policy that required administrative supervision by the Executive branch of government.

For the first time since the 1950's managers of the gas industry got involved in political activities beyond adjudication. They did not fare well. Intrafuel conflict compromised the industry's political effectiveness while politicization of pricing and the rhetoric of equity undercut its legitimacy. Over the course of the 1970's, the means of business-government interaction in managing natural gas policy seemed to get less, rather than more, effective.

The high-cost supplements

Shortly before leaving the Federal Power Commission in 1970, Carl Bagge drew an interesting parallel between the intrastate gas market and commercial development of high-cost, supplemental sources of gas. Both represented “breaches” by market forces in the “dike” of cost-based rate regulation.