This paper discusses briefly the role of the Railroad Commission of Texas (hereinafter RRC) in the category determination process under the Natural Gas Policy Act of 1978. The category determination Policy Act of 1978. The category determination process ultimately determines the ceiling price at which process ultimately determines the ceiling price at which first sales of natural gas can be made. It was not possible to relate the paper solely to the Cotton possible to relate the paper solely to the Cotton Valley. However, special emphasis has been placed on Section 107 (tight sand) gas because it is anticipated that at least portions of the Cotton Valley formation will qualify for incentive pricing under that section.

A. Legislative History

On April 11, 1977, President Carter proposed a comprehensive National Energy Plan which called for, among other things, raising the national base rate for interstate natural gas to $1.75 per mcf from $1.45 per mcf and extending wellhead price regulation to the intrastate market. The Carter administration had determined that changes in natural gas price regulation were necessary (1) because the intrastate-interstate price differential made it difficult for interstate pipelines to purchase gas, and (2) to increase exploration.

After several close votes by the House Commerce Committee, the full House voted 227-199 to reject a deregulation bill sponsored by Bob Krueger of Texas and to accept a slightly weakened version of President Carter's proposal. The Senate rejected the House Bill in favor of a Pearson-Bentsen version of decontrol. The Pearson-Bentsen version phased out federal control on new onshore and new offshore gas by 1979 and 1983, respectively, and did not extend controls to the intrastate market.

Because of differences in the House and Senate versions, a conference committee was appointed. The committee spent one year ironing out their differences. The result was the Natural Gas Policy Act of 1978 (hereinafter NGPA). Nineteen months passed between Carter's initial proposal and the passage of the NGPA in November 1978. The resulting complexity of the legislation has caused confusion and problems for the responsible government agencies and the regulated producers. The following discussion will concern the wellhead pricing provisions of the NGPA under which the prices of various categories of natural gas are regulated.

Congress named the Federal Energy Regulatory Commission (hereinafter FERC) as the federal agency responsible for implementation of the Act. The FERC was authorized to promulgate regulations for implementation and to allocate certain price determination responsibilities to jurisdictional agencies. State agencies specified by the FERC could assume responsibility for state and private lands and the U.S. Geological Survey assumed responsibility for federal lands.

B. Railroad Commission of Texas as Jurisdictional Agency

The RRC was designated as the jurisdictional agency for the state of Texas, and it assumed its responsibilities with the effective date of the NGPA, December 1, 1978. The RRC perceived certain benefits to the state in assuming this responsibility although no federal funds were provided for the undertaking. The RRC felt that state input into the NGPA regulations and the handling of application review would be beneficial to the state. In addition, the retroactive collection provisions of the NGPA permitting collection of the higher price back to permitting collection of the higher price back to December 1, 1978, for all applications filed prior to March 1, 1979, (later changed to April 1, 1979) were effective only where the state jurisdictional agency assumed its responsibilities. The state benefited from additional revenues through increased royalties from state and university lands and increased severance tax payments to the state.

The Texas legislature provided funds to the RRC for its NGPA responsibilities in March 1979.

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