The Natural Gas Policy Act of 1978 (NGPA), is frequently accorded the dubious distinction of being the most complex, ambiguous, and internally inconsistent piece of legislation ever passed by Congress. This paper will take a brief look at the history of natural gas pricing policy, analyze the ways in which the NGPA fits into this historical perspective, discuss the achievements and shortcomings of that statute and speculate about the future of natural gas regulation. Few would disagree that from a standpoint of economic efficiency and public policy decontrol of at least new natural gas is warranted. The simple fact is that if the price level for natural gas is kept artificially low, there will be less natural gas produced than the demand for it. Despite what is coming to be an increasing perception that deregulation would be generally beneficial, the NGPA fell far short of the ultimate goal of deregulation. In order to understand why political reality has not kept pace with economic reality it would be helpful to briefly consider the history of natural gas regulation. In 1954 the Supreme Court extended FPC regulation to the wellhead price of natural gas sold for resale in interstate commerce.1/ During the seven years following the Phillips decision there was little indication of a disequilibrium in the supply and demand of natural gas. Indeed, during the 1950's the supply of natural gas continued to increase as it had since World War II and increase dramatically. During this period, natural gas was still largely a by-product of the exploration for and production of oil, so that the relative availability of gas was not dramatically affected by federal price controls. Although economists and the gas industry at times raised dire forewarnings of the longterm adverse effects of price control, the immediate, practical effect did not appear particularly severe.

There is general agreement that the natural gas industry currently faces serious problem. Historically, this is not surprising. Natural gas has long been the subject of regulatory and legislative adjusting, fixing and tinkering. The current public debate over natural gas, however, is distinguished by much disagreement as to just what problem's the Industry faces and, not surprisingly, what the appropriate remedies might be. This paper will attempt to identify and describe the problem curtly confronting the natural gas industry. The paper will comment on the legal and policy implications of these proposed remedies. policy implications of these proposed remedies. Finally, it will outline regulatory and legislative solutions now being considered by Congress. 1. Changing Perceptions and Reality During the past 18 months there has been a gradual change in the public' s perception of what is wrong in the natural gas industry. Until fairly recently, it was widely assumed that the gas industry would not face serious problems until early 1985, when substantial quantities of natural gas currently subject to regulation under the Natural Gas Policy Act of 1978 (the "NGPA") would be deregulated, thereby causing the price of gas to rise rapidly. It was predicted that this price spike would cause gas costs to escalate rapidly, thus spelling disaster for the customers of pipelines that had large quantities of deregulated gas under contract. There was agreement on the part of diverse interests that such a scenario was not only possible but probable and that something should be done. Although there was general agreement before mid-1982 concerning the nature of the problem, there was disagreement about the appropriate solutions. Sane authorities suggested that early deregulation would be cost appropriate because it would avert a sharp and unpredictable jump in prices in 1985. Others, principally traditional consumer advocates, argued in favor of reimposing price controls on currently deregulated gas or extending price regulation beyond 1985 as methods of softening the blow of decontrol. Before mid-1982 there were occasional references in the public debate to contracting practices common in the gas industry: take-or-pay provisions indefinite price escalators, most favored nation clauses, minimum bill requirements and long term contracts. For the most part, however, there was little speculation that a problem relating to take-or-pay clauses or indefinite price escalators would arise which less be widespread, prior to deregulation. During late 1982, concern shifted from the future to the present. Problems of price and marketability were no longer perceived as arising in the future as a consequence of deregulation. Rather, due to the economic recession and competition from other fuels some pipelines already had too much gas at prices that were higher than the market would bear. Evidence of the extremely soft market for gas is widespread. Pipelines have had increasing difficulty selling the gas that they have under contract. This has led some pipelines to attempt, sometimes successfully, to cut the price they paid for gas. Interstate pipelines began trying to make short term interruptable sales to new customers (so-called "off systems" sales), thereby encroaching on the traditional markets of intrastate pipelines. Some pipelines that have been unable either to cut their pipelines that have been unable either to cut their price sufficiently to retain markets or to sell excess price sufficiently to retain markets or to sell excess gas to new customers must now "pay" for volumes they are obligated to purchase but for which they have no market. The latter problem has attracted particular attention since it raises the spectre of gas consumers having to pay for gas they are not currently receiving. It had also been alleged that take-or-pay clauses are causing some pipelines to take relatively expansive gas in preference to cheaper gas in order to avoid having to take-or-pay for the more expensive gas. p. 163

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This paper discusses the significance and implications of the U.S. Supreme Court decision in the California v. Southland Royalty Co. case. Although the Natural Gas Policy Act of 1978 substantially limited the scope of the Southland decision, the case still has vitality in some limited circumstances. Introduction The subject of this paper is the decision rendered on May 31, 1978, by the U.S. Supreme Court in California v. Southland Royalty Co. This decision is perhaps the most significant Supreme Court decision perhaps the most significant Supreme Court decision concerning the jurisdiction of the Federal Power Commission (FPC) [now the Federal Energy Regulatory Commission (FERC)] since the 1954 decision in Wisconsin v. FPC, which held that the Natural Gas Act, passed in 1938 applied to interstate sales of gas by independent producers and, therefore, such sales were subject to regulation by the commission.Of particular interest is the almost immediate reaction the decision evoked from Congress, which then was considering the Natural Gas Policy Act, which became law Nov. 9, 1978. This pending legislation was amended to include provisions that explicitly limited the effect of the Supreme Court s decision in Southland.Unfortunately, Congress' efforts to solve the problems created by Southland were not enuciated problems created by Southland were not enuciated clearly. At least some of the problems created by the Supreme Court's decision remain, and there unquestionably will be further litigation with respect to the significance and applicability of the statutory provisions aimed at limiting that decision. provisions aimed at limiting that decision. To place things in perspective, this paper will review briefly the history of the Southland case. In 1925, Gulf Oil Corp. took an oil and gas lease in west Texas on the Waddell Ranch, which covered many thousands of acres. This lease did not, however, contain the usual habendum clause providing that the lease would remain in effect as tong as oil and gas were produced in paying quantities. Rather, the lease had a fixed term of 50 years. Needless to say, more than half the lease term had expired when Gulf contracted in 1951 to make an interstate sale of gas from the Waddell Ranch to El Paso Natural Gas Co., operator of a pipeline system extending from Texas to California.Gulf had delivered gas to El Paso Natural Gas for almost 24 years when the lease termination became imminent. A few months before the lease expired, El Paso Natural Gas petitioned what was then the FPC Paso Natural Gas petitioned what was then the FPC for a determination that the gas that belonged to Southland Royalty Co. upon expiration of the Gulf lease was dedicated to El Paso Natural Gas and, therefore, could not be sold in intrastate commerce without abandonment permission from the commission under Sec. 7b of the Natural Gas Act.A few days before the Gulf lease terminated, the FPC, not surprisingly, held that Southland's gas was dedicated to interstate commerce and that it could not make a sale of its gas to the intrastate pipeline with which Southland had contracted. JPT P. 728