THE NATURAL GAS EMERGENCY ACT OF 1975 MONDAY, SEPTEMBER 15, 1975 U.S. SENATE, Washington, D.C. The committee met at 11 a.m. in room 1318 of the Dirksen Senate Office Building; Hon. Ernest F. Hollings, presiding. OPENING STATEMENT BY SENATOR HOLLINGS Senator HOLLINGS. The committee will come to order. From all available evidence, supplies of natural gas will be critically short in many areas of the Nation this winter. In the absence of prompt remedial action, we may be faced with the loss of thousands of jobs resulting from the unavailability of natural gas to essential industrial users. But these jobs can be saved. Plants need not close this winter due to lack of natural gas. But we must assure that essential users are able to obtain new natural gas supplies. And those users who are now burning natural gas but could use alternative fuels must be encouraged to do so. Legislative actions to achieve these ends should not be viewed with alarm by those regions of the Nation that are not now suffering natural gas curtailments. Any powerplant that loses natural gas under the legislation we are considering today would be fully compensated for any aditional costs resulting from using higher price fuels. Producers in the intrastate market will not be required to roll back their prices in order to sell to high-priority intrastate customers. Pipelines that have ample supplies of natural gas will not be penalized. But we must act, and act quickly if we are to avert the drastic economic disruptions and unemployment that will result unless additional supplies of natural gas are made to those few pipelines in real trouble. Both the administration and the FPC recognize the need for urgent action. Both have submitted legislation, which together with S. 2310, is the subject of these hearings. S. 2310 as introduced may be summarized as follows: First, the FPC is to designate those interstate pipelines that are in deep curtailment. These are pipelines that are unable to meet the requirements of customers who cannot use alternative fuel, and whose supply requirements of natural gas must be met in order to avoid substantial unemployment. Such "priority" interstate purchasers would be able to compete with the intrastate buyers for the onshore production of new natural gas. No purchaser, in interstate or intrastate commerce, may pay a price for new onshore natural gas that exceeds the current market price in that production area for intrastate contracts. Staff members assigned to this hearing: David Freeman and Henry Lippek. Second, in the case of natural gas produced on the Outer Continental Shelf, priority interstate purchasers are provided special assistance in obtaining new natural gas supplies. Third, essential agricultural users would have special priority in obtaining new natural gas supplies to assure that food production is not curtailed due to natural gas shortages. Fourth, where electric powerplants can convert to oil or coal, they would be required to do so in order to make additional supplies of natural gas available to essential users. Such users receiving natural gas would pay the powerplants any additional costs for burning alternative fuels. Fifth, the Secretary of the Interior is required to order the production from designated natural gas fields at the maximum efficient rate or at temporary emergency production levels in order to increase supplies of natural gas to priority interstate purchasers. I believe prompt action is necessary on emergency natural gas legislation. For this reason, when we introduced S. 2310, we had it placed directly on the Senate calendar ready for immediate consideration. The purpose of these hearings is to carefully examine the bill and assist in the preparation of any amendments prior to the time that this matter is taken up by the Senate. Because the Senate Interior Committee has certain jurisdictional interests in this bill, we invited members of that committee to these hearings. [The bills follows:] [S. 2244 94th Cong., 1st Sess.] A BILL To amend the Natural Gas Act Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. The Congress hereby determines that— (a) domestic supplies of natural gas available for interstate commerce are not sufficient to meet present and anticipated national and regional needs; (b) shortages of natural gas have created and are likely, in the near future, to continue to create severe economic dislocations and hardships; (c) such shortages have jeopardized the normal flow of commerce and constitute a supply crisis which is a threat to the public health, safety, and welfare; and (d) such shortages can, in part, be alleviated by granting the Federal Power Commission emergency authority to exempt temporarily certain activities and operations relating to the sale, transportation, transfer, or exchange in interstate commerce of natural gas or of commingled natural gas and synthetic nautral gas, from the provisions of the Natural Gas Act. SEC. 2. That section 7(c) of the Natural Gas Act is amended by adding at the end of such section the following: "Provided further, That within fifteen days after the passage of this amendment, the Commission may by regulation exempt from the provisions of this Act any activities or operations relating to the transportation, sale, transfer, or exchange of natural gas, or of commingled natural and synthetic natural gas, or of liquefied natural gas, from any source other than Federal domain areas, by a producer, an interstate pipeline, intrastate pipeline or distributor, to or with an interstate natural gas pipeline company which does not have a sufficient supply of natural gas to fulfill its firm contractual requirements or interruptible requirements for residential, commercial, or industrial needs for plant protection, feedstock, or process uses for which no alternate fuel is available, and which is curtailing deliveries pursuant to a curtailment plan on file with the Commission, or to or with any purchaser or consumer of natural gas which has been purchased from such a pipeline, directly or indirectly. No exemption granted under this proviso shall exceed one hundred and eighty days in duration.". [S. 2310, 94th Cong., 1st sess.] A BILL To assure the availability of adequate supplies of natural gas during the period ending June 30, 1976 Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Natural Gas Emergency Act of 1975". PURPOSES SEC. 2. The purposes of this Act are to establish temporary emergency authorities for minimizing the detrimental effects on employment, food production, and public health, safety, and welfare caused by natural gas supply shortages. SEC. 3. As used in this Act DEFINITIONS (1) The term "Administrator" means the Administrator of the Federal Energy Administration. (2) The term "Commission" means the Federal Power Commission; (3) The term "essential user" means a user or class of user who satisfies criteria to be established by the Commission, by rule, as indicative of a user for which no alternative fuel is reasonably available and whose supply requirements must be met in order to avoid substantial unemployment or impairment of food production or the public health, safety, or welfare. (4) The term "Federal lands" means any land or subsurface area within the United States which is owned or controlled by the Federal Government or with respect to which the Federal Government has authority, directly or indirectly, to explore for, develop, and produce natural gas, including any land or subsurface area located on the Outer Continental Shelf. (5) The term "intrastate commerce" means commerce between points within the same State not through any place outside thereof. (6) The term "interstate commerce" has the same meaning as such term has in section 2 (7) of the Natural Gas Act (15 U.S.C. 717a (7)). (7) The term "Outer Continental Shelf" has the same meaning as such term has in section 2(a) of the Outer Continental Shelf Lands Act (43 U.S.C. 1331 (a)). (8) The term "new natural gas" means natural gas which was not, prior to September 9, 1975, committed by contract to interstate or intrastate commerce and any natural gas committed by contract to intrastate commerce which contract, on or after September 9, 1975, terminates and is not renewed. (9) The term "person" includes any governmental entity. (10) The term "pipeline" means a person engaged in the transportation by pipeline of natural gas. (11) The term "priority interstate purchaser" means any interstate pipeline (or a person acting on behalf of an interstate pipeline) which the Commission, taking into account any existing curtailment plan of such pipeline and the natural gas supplies available to such pipeline, determines is, to a significant extent, unlikely to obtain supplies of natural gas adequate to meet the requirements of essential users under any agreement (without regard to whether such agreement is for interruptible or firm service) to supply natural gas to such user by: (A) such pipeline; or (B) a person to which such pipeline supplies natural gas for purposes of resale. (12) The term "supply emergency period" means the period, or any part thereof, which begins on the date of enactment of this Act and ends on July 1, 1976. ACCESS BY PRIORITY INTERSTATE PURCHASERS TO NATURAL GAS SEC. 4. (a) (1) The Commission shall, not later that the end of the fifteen-day period which begins on the date of enactment of this Act, and shall as necessary throughout the supply emergency period, upon petition or upon its own motion, designate priority interstate purchasers. (b) The Commission shall, by rule, not later than the end of the fifteen-day period which begins on the date of enactment of this Act, establish an area ceiling price applicable to any first sale of new natural gas (except first sales of new natural gas produced from lands located on the Outer Continental Shelf) for each area in the United States in which natural gas is produced. The Commission shall designate areas to which ceiling prices shall apply. Such ceiling price shall, to the maximum extent practicable, approximate the average sales price, as determined by the Commission, for contracts entered into or renewed during the period from August 1, 1975, through August 31, 1975, for natural gas produced in the area and sold in intrastate commerce. (c) No producer may charge and no purchaser may pay a price for the first sale of new natural gas occurring after September 8, 1975, which price exceeds the applicable area ceiling price established by the Commission. (d) Any new natural gas produced from lands located on the Outer Continental Shelf shall be sold in interstate commerce. (e) (1) No new natural gas produced from lands located on the Outer Continental Shelf may be sold in interstate commerce unless― (A) the purchaser has been designated by the Commission as a priority interstate puchaser; or (B) the producer has filed a notice of a proposal to sell new natural gas (whether in the form of an offer to sell or proposed contract to sell such gas) with the Commission at least fifteen days prior to sale. (2) The Commission shall, by rule, prohibit the sale in interstate commerce from lands located on the Outer Continental Shelf of any new natural gas to any person other than a priority interstate purchaser if, within the fifteen-day period specified in paragraph (1)(B), a priority interstate purchaser offers to purchase such new natural gas under terms and conditions which the Commission determines are substantially similar to or identical with the terms or conditions of such proposal to sell to which the notice prescribed by subparagraph (B) pertains. (3) Paragraph (2) of this subsection shall not apply to sales of new natural gas by a producer to a pipeline in the case of an advance payment financing arrangement between such producer and such pipeline entered into prior to September 9, 1975, whereby such pipeline has been granted a right of first refusal, option or other priority claim to natural gas produced from a property as consideration for advance payments made to such producer to finance exploration or development. (f) (1) Any priority interstate purchaser may purchase new natural gas produced from lands located other than on the Outer Continental Shelf, provided the price of the first sale of such new natural gas does not exceed the applicable area ceiling price established by the Commission pursuant to subsection (b) of this section. Any such first sale price shall be deemed just and reasonable for purposes of section 4 of the Natural Gas Act and any such sale to a priority interstate purchaser shall not require certification under section 7 of such Act. (g) If the Commission determines that natural gas could have been produced or sold, or both, but was not purchased or sold, or both, during the period that this Act is in effect, such natural gas may not at any time thereafter be sold at a price above that permitted under this Act. (h) A priority interstate purchaser shall obtain priority only to the extent necessary to meet the requirements of essential users and the Commission shall take such steps as are within its authority under the Natural Gas Act to assure that any additional supplies of new natural gas obtained by a priority interstate purchaser are made available to essential users. (i) The Commission shall encourage voluntary agreements that are not inconsistent with this Act to sell or exchange natural gas or other arrangements that increase the supply of natural gas available to priority interstate purchasers. AVAILABILITY OF GAS FOR AGRICULTURAL USERS SEC. 5. (a) (1) Notwithstanding any other provision of law or of any natural gas allocation or curtailment plan in effect under existing law, the Commission shall, by rule, upon petition or upon its own motion prohibit any interruption or curtailment of natural gas supplies, and take such other actions under authority of the National Gas Act and this Act as the Commission determines to be necessary and appropriate, to assure to the maximum extent practicable the availability of sufficient quantities of natural gas for use for any essential agricultural, food processing, or food packaging purposes as determined by the Secretary of Agriculture, for which natural gas is necessary, as determined by the Secretary of Agriculture including, but not limited to, irrigation pumping, crop drying, and use as a feedstock or process fuel in the production of fertilizer and essential agricultural chemicals in existing plants (for present or expanded capacity) and in new plants. (2) No prohibition pursuant to paragraph (1) of this subsection may be inconsistent with the goals of substantially minimizing unemployment attributable to interruption of natural gas supplies or with maintaining natural gas supplies to residential users, to small users, to hospitals, or for products and services vital to public health and safety. (b) For purposes of this section, the Secretary of Agriculture shall not determine any use of natural gas to be necessary if such gas is to be used as a boiler fuel to serve (1) expended capacity of existing facilities, (2) an existing facility for which natural gas supply contracts have expired, or (3) new facilities. The Secretary of Agriculture shall certify to the Commission the volumes and identify the users, of natural gas determined to be necessary for essential agricultural, food processing, or food packaging purposes. PROHIBITION OF USE OF NATURAL GAS AS BOILER FUEL SEC. 6. (a) The Administrator shall, by rule, prohibit any powerplant from burning natural gas if he determines that (1) such powerplant had, on September 1, 1975 (or at any time thereafter), the capability and necessary plant equipment to burn petroleum products; (2) the burning of petroleum products by such plant in lieu of natural gas is practicable; (3) petroleum products will be available during the period the order is in effect; and (4) natural gas made available as the result of such prohibition could be available, directly or indirectly, to a priority interstate purchaser. A rule under this subsection shall not take effect (A) until a date which the Administrator of the Environmental Protection Agency certifies is the earliest date on which such plant can burn, in compliance with the Clean Air Act (including any applicable implementation plan) and with applicable State environmental protection laws, petroleum products which the Administrator determines, under paragraph (3), are available, or (B) if the Commission certifies to the Administrator that the prohibition under this paragraph will impair the reliability of service in the area served by the plant. (b) (1) The Administrator shall, by rule, prohibit the use of natural gas by any powerplant if the Administrator determines (A) that alternative supplies of electric power are available to the electric power system of which such powerplant is a part; (B) that the generation of such alternative supply of electric power will not result in an overall increase in consumption of natural gas; and (C) natural gas made available as the result of such prohibition could be made available, directly or indirectly, to a priority interstate purchaser. (2) A rule under this subsection shall not take effect if the Commission certifies to the Administrator that the prohibition would impair the reliability of service in any area served by those affected electric power systems. (c) (1) The Administrator shall exempt from any rule under this section the burning of natural gas for the necessary processes of ignition, startup, testing, and flame stabilization by powerplants. (2) Subject to paragraph (1) of this section the Administrator may make a rule under subsection (a) or (b) of this section apply to all natural gas burned by the powerplant to which such rule applies or may specify the periods and amounts of natural gas to which such rule shall apply. (d) Nothing in this section, shall impair any State or Federal requirement relating to health, safety, or environmental protection. (e) The Administrator shall, by rule, prohibit the sale, directly or indirectly, to any person other than a priority interstate purchaser of natural gas made available as a result of rules under subsections (a) and (b) of this section. (f) (1) If the application of a rule under this section results in a sale of transferred gas by a curtailed user or a supplier of a curtailed user to a person other than such curtailed user or a supplier of such user, such seller may not charge an amount for such transferred gas which exceeds the amount he would have charged such user or supplier (as the case may be). In addition, the person to whom such sale is made shall compensate the curtailed user, and any supplier of such curtailed user, in an amount which is equal to any net increase in such user's reasonable costs for replacement fuel or replacement power, and any net increase in such supplier's reasonable costs and any other losses which are incurred by such supplier, as a result of the application of the order issued under this section. Such compensation shall be in an amount agreed upon by the par |