EXCERPT FROM THE NATURAL GAS POLICY ACT OF 1978 CONFERENCE REPORT JOINT EXPLANATORY STATEMENT OF THE COMMITTEE ON CONFERENCE The managers on the part of the House and the Senate at the conference on the disagreeing votes of the two Houses on the amendment of the House to the amendment of the Senate numbered 8 to the bill (H.R. 5289) for the relief of Joe Cortina of Tampa, Florida, and for other purposes, submit the following joint statement to the House and the Senate in explanation of the effect of the action agreed upon by the managers and recommended in the accompanying conference report: The Senate amendment numbered 8 to the text added the text of S. 2104, as amended, and Part 4 (Natural Gas) of H.R. 8444, the National Energy Act. The House agreed to the Senate amendment, and further amended H.R. 5289 by striking out the text of the Senate amendment and inserting in lieu thereof the text of Title I of H.R. 8444 as passed by the House. The House recedes from its disagreement to the amendment of the Senate with an amendment which is a substitute for the House bill and the Senate amendment. The Senate recedes from its disagreement to the House amendment to the Senate amendment. The differences between the House bill, the Senate amendment, and the substitute agreed to in conference are noted below. The managers note that a Concurrent Resolution pertaining to this legislation is intended to be presented to the House and the Senate for consideration. It will remove the portions of this legislation pertaining to Mr. Cortina, for whom a relief bill has already passed. It will also make technical corrections and any changes necessary to conform this legislation to the other portions of the National Energy Act which may pass this year. INTRODUCTION The natural gas pricing policy passed by the House as Part 4 of H.R. 8444, the National Energy Act, established a single uniform price policy for natural gas produced in the United States. It imposed Federal price controls on the intrastate market for the first time. All price controls were permanent. It defined "new natural gas" and established a Federal ceiling price for such gas which was related to the average refiner acquisition cost of domestically produced crude oil. The initial price was guaranteed to be a minimum of $1.75 per million Btu's. Increases in the initial price were tied to increases in crude oil costs. It also established a comprehensive pattern of Federal ceiling prices for other categories of natural gas production. The House passed bill provided an incremental pricing mechanism for passing on natural gas price increases experienced by both interstate and intrastate pipeline companies. It would have required these increases to be paid by low-priority users until the delivered price of (67) natural gas to these users reached equivalency with the cost of substitute fuels at the burner-tip. The House passed bill also extended certain provisions of the Emergency Natural Gas Act of 1977, which has now expired, and amended the Natural Gas Act to alter the regulatory burdens imposed upon natural gas producers. The natural gas pricing policy legislation passed by the Senate was an amended version of S. 2104, the Natural Gas Policy Act. The Senate bill was a substitute for S. 2104 as reported from Committee which was adopted on the floor of the Senate. The Senate passed bill embodied a significantly different approach to the natural gas pricing policy issue than that adopted by the House. The Senate bill eliminated Federal price controls on new natural gas produced onshore in two years. Different price controls for new natural gas produced from the offshore Federal domain lands were established. Those price controls expired in five years. Pending the elimination of price controls, interim price ceilings were established in each case. The interim price ceiling for new natural gas production onshore was tied to the current cost of No. 2 fuel oil landed in New York City. The interim price ceiling for offshore new natural gas production was set at a national ceiling price to be established pursuant to criteria specified in the legislation. Existing Federal regulation of flowing interstate natural gas was continued; flowing intrastate natural gas was not regulated by the Federal Government. The Senate passed bill directed the Federal Power Commission (now the Federal Energy Regulatory Commission) to implement incremental pricing through its regulatory authority over the rates and charges for interstate pipelines. It also extended certain provisions of the Emergency Natural Gas Act of 1977, and amended the Natural Gas Act to limit the regulatory authority of the Commission. The conference agreement reconciles these two very different bills by redefining what natural gas production qualifies as "new natural gas" and lengthening the period of time prior to the deregulation of most categories of natural gas. The initial price for new natural gas is comparable to the one provided in the House passed bill, though it increases over time according to a new schedule specified in the conference agreement. The difference between the definitions of new natural gas qualifying for new natural gas price treatment is reconciled. by expanding the House definition of new natural gas, and by providing an additional category of natural gas, new onshore production wells. The ceiling price for production from this category increases at a slower rate than the ceiling price for most of the gas that would have qualified as new natural gas under the Senate passed bill, but which does not qualify under the conference agreement. The conference agreement provides an incremental pricing mechanism for passing through to end users some of the increased prices for natural gas and implements incremental pricing for industrial users in two steps. The direct application of the incremental pricing section is patterned after the Senate passed bill by being limited to consumers served directly or indirectly by interstate pipeline companies. The operation of the incremental pricing mechanism for pass ing through increased costs is patterned after the House passed bill which utilized a burner-tip passthrough requirement. The conference agreement extends authority for emergency allocation of natural gas and provides authority for natural gas sales from unregulated intrastate pipelines, and local distribution companies. A detailed summary of the conference agreement follows. SHORT TITLE Section 1. The conferees agreed to the short title, "Natural Gas Policy Act of 1978". SECTION 2. DEFINITIONS The conference agreement provides definitions for several terms. The conferees have provided the Commission authority to define additional terms as necessary for the purpose of implementing this Act under the authority provided in sec. 501 (b). The conferees also provide the Commission authority to refine definitions of terms provided in the Act in a manner that is consistent with the definitions provided. The definitions provided in the Act are generally self-explanatory, except as noted. Natural gas The definition of natural gas is identical to the definition of natural gas provided in the Natural Gas Act. It is not intended to extend the provisions of the Act to facilities for the production of synthetic natural gas, or facilities for methane gas generated by the decomposition of organic waste. The conference agreement declares clauses prohibiting commingling unenforceable in sec. 314. The definition of natural gas is not intended to be used to impose regulations, or price controls, under this Act on the sale of synthetic natural gas which is commingled with natural gas meeting the requirements of the definition. Marker well The concept of a marker well is intended by the conferees to be used for the purpose of delineating those wells from which distance and depth are to be measured for the purpose of determining whether natural gas qualifies under the definition of new natural gas. A marker well is any well from which natural gas was produced in commercial quantities at any time after January 1, 1970 and before April 20, 1977. A well first producing natural gas on or after April 20, 1977 does not qualify as a marker well. If a well has been increased in depth by means of drilling on or after February 19, 1977 to a completion location which is at least 1,000 feet below the deepest completion location which produced natural gas before February 19, 1977, that well qualifies as a new well and as a marker well. However, a well the surface drilling of which began on or after February 19, 1977, and as such qualifies as a new well does not qualify as a marker well under this definition, regardless of whether it produced in commercial quantities before April 20, 1977. A well which qualifies as a new well because the surface 36-956-79-30 drilling of it began on or after February 19, 1977, which also produced natural gas in commercial quantities prior to April 20, 1977, is not a marker well under this definition. Such a construction would make it impossible for all other new wells within 2.5 miles to qualify for new gas price treatment under the definition of new natural gas. Reservoir The conferees intend that two separate producible accumulations of natural gas within the same formation, but separated by a permeability restriction, or water barrier, which prevents pressure communication are to be considered to be separate reservoirs. Rollover contract An existing contract which expires at the end of a fixed term qualifies as a rollover contract. An existing contract may have a specified term of five years which will be extended by operation of the contract for one or more years unless the producer gives notice of his intention to terminate the contract within a specified period of time in advance. Such a contract will qualify as a rollover contract at the end of the fixed five year term without regard to the extensions occurring after the date of enactment. An existing contract may also have a specified term of five years unless the price of natural gas subject to it is deregulated during that given year period whereupon the price to be paid under the terms of the contract will be renegotiated by the parties to the contract. Such a contract will not qualify as a rollover contract by operation of the renegotiation provision until the end of the five year term. The contract resulting from the operation of the renegotiation provision qualifies instead as a successor to an existing contract. Existing contract The conferees intend the term "existing contract" to cover any contract in existence on the day before the date of enactment. It is intended that the operative terms of an existing contract be determined by the terms of the contract in effect as of the date of enactment of this Act. Successor to an existing contract The conferees intend any successor to an existing contract which does not qualify as a rollover contract, or a new contract, to be a successor to an existing contract. Identity of parties or terms is not necessary to qualify under this definition. Interstate pipeline The definition of an interstate pipeline does not include so-called Hinshaw pipelines which are those pipelines that are exempt from the jurisdiction of the Commission by sec. 1(c) of the Natural Gas Act. Hinshaw pipelines are subject to incremental pricing, however, as local distribution companies. Hinshaw pipelines are not subject to allocation under this Act. Intrastate pipeline The definition of the term intrastate pipeline is intended to include any pipeline which transports natural gas under a limited claim of |