A Balk on Decontrol

For seven months, the White House and leading congressional Democrats have fought a bitter and seemingly endless battle over the future of energy policy in the U.S. Spurred on by Senator Henry M. Jackson and other presidential hopefuls, the Democrats sought to lower oil and gas costs by legislating a rollback of prices to levels far below those set by the Organization of Petroleum Exporting Countries. For his part, President Ford believed that only an eventual decontrol of prices--which would mean higher consumer costs--would encourage energy conservation, provide an adequate incentive for increased domestic oil production and ultimately render the U.S. less dependent on foreign oil supplies.

After Congress in July rejected the White House proposal for phased decontrol the President vowed to veto a congressional bill that provided for a six-month extension of present price controls, due to expire on Aug. 31. That action would have plunged the nation into abrupt decontrol, with definite inflationary dangers. Faced with that prospect, late last week both the Administration and its Democratic opponents abruptly pulled back from the brink.

Price Surge. After eleventh-hour talks with Senate Majority Leader Mike Mansfield and House Speaker Carl Albert, Ford agreed to give Mansfield time to investigate support in the Senate for compromise legislation that would eventually phase out restrictions. Ford promised that if prospects for phased decontrol still seem promising this week, he will agree to a further extension of controls for 30 days or more to allow time for legislation to be prepared.

For months the Administration, which strongly advocated phased decontrol, had played down the possible impact of rising petroleum prices. But then came the resurgence of inflation in July, sending consumer prices soaring upward at an annual rate of 15.4%. That deeply impressed some of Ford's White House advisers, who were fully aware that rising petroleum costs were a prime cause of the price surge. The advisers also became increasingly worried that the looming shortages of natural gas, which supplies a third of the nation's energy needs, might trigger a stampede of industries to switch to oil, adding to upward pressures on its price.

All along, the Democrats had been making especially gloomy predictions about the impact of decontrol on prices. Arthur Okun, a member of TIME'S Board of Economists, warned that decontrol would add one point to the inflation rate and that the price rise OPEC is expected to announce soon may add another. Last week the pessimists drew some support from an unexpected source: a major oil company. In a widely noted letter to congressmen, Mobil Chairman Rawleigh Warner Jr. said that sudden decontrol might be "a shock" to the recovery and could slash consumer buying power by as much as $8 billion--well above the Administration's estimate of $5.3 billion.

If the Administration and the congressional Democrats fail to agree on a gradual phaseout of controls this time around, the nation could be in for a possibly painful test of just how sharp the shock of immediate decontrol could be.

Sixteen Governors trooped into the White House last week to discuss another energy problem area--this time natural gas. Confirming their worst fears, the President presented the latest Federal Energy Administration forecasts. They predict severe gas shortages beginning in November, notably in Ohio, West Virginia, Kentucky and the skein of Mid-Atlantic states stretching from New York to South Carolina. The most vulnerable state is North Carolina, whose pipeline company has only limited supplies of natural gas, which is essential in textile processing. Said Governor James Holshouser: "If we have an average winter, we will be able to meet only 4% of our manufacturing needs."

The problem is shrinking reserves coupled with a bad regulatory situation: federal controls hold down the price of gas piped across state lines, so gas companies prefer to sell to intrastate customers at much higher rates. As a long-term remedy, the Governors supported a plan proposed by Oklahoma's David Boren; he suggested that as an incentive for increased drilling, all "new" gas from deposits that are discovered during the next five years be forever exempted from controls. The President promised to consider the Boren plan. But as an emergency measure for the coming winter, he explained, the Federal Power Commission will permit industrial users to make deals with suppliers in other states for natural gas at uncontrolled intrastate rates and then have the gas transmitted through interstate pipelines. That will mean paying three times the controlled interstate rate, but at least the companies will be able to stay open rather than being forced to close down for lack of fuel.

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