Economic Report of the President

taining to these industries should accompany the deregulation process.At the same time, however, it is important to avoid misusing theantitrust laws to maintain inappropriate types of regulation.ENERGY POLICYThe pricing and allocation of energy resources was a frequentfocus of public policies over the last decade. Many of these policiesreduced the long-run supply of these important resources. In the lastfew years, several measures have been taken to remove the inefficienciesand uncertainty caused by these policies.STEPS TOWARD A MARKET-ORIENTED OIL POLICYIn January 1981, President Reagan ended the petroleum price andallocation controls that were previously scheduled to expire in September1981. Oil prices were first directly controlled as part of thegeneral system of wage and price guidelines imposed in 1971. Thedata on subsequent production, drilling, consumption, imports, andthe energy/gross national product (GNP) ratio suggest that oil pricederegulation has had many beneficial effects.Despite the disincentives provided by the "windfall profits"(excise) tax on crude oil, the data suggest that decontrol has reversedthe steady decline in production (exclusive of Alaska) observedduring the period of price controls. As of October 1982, there wereseven consecutive monthly production increases over year-earlierlevels, a series of increases not observed in the United States for 10years. Reported oil well completions in 1982 were 49 percent higherthan in 1980, despite the recent decline in real oil prices.Since full decontrol, U.S. consumption has decreased by almost 11percent. While part of this decline is due to the recession, a majorcause is the continuing adjustment to the price increases of the1970s. Since decontrol, the energy/GNP ratio has declined by over 5percent and imports (net of additions to the Strategic Petroleum Reserve)have declined by about 34 percent. The elimination of the regulatoryframework for petroleum prices removed the artificial incentivesto import crude oil and residual fuel oil. The weakening of oilprices has contributed to a stronger dollar and, thus, to lower priceson all imported products.NATURAL GAS PRICING AND ALLOCATIONFollowing the 1954 Supreme Court decision in Phillips Petroleum Co.v. Wisconsin, the wellhead prices of natural gas sold in interstate commercewere regulated by the Federal Power Commission (FPC). Sinceintrastate gas prices were not subject to regulation, a two-market102