You should amend section 1 by saying this act is not being introduced in the public interest, but in the private interest of the pipe-line companies which desire at the time of the expansion of natural-gas usage, to reap undue and unreasonable rewards from this field; and the act should be amended to say, and the removal of the requirements of certificate is being included in the act so that the critical shortages that exist will not in any manner affect, the expansion of pipe-line companies to the detriment of all citizens throughout the United States. There are times when acts are written in language so technical that their implications are not felt until after the act becomes a law. This is rather a reversal of the old adage of locking the stable after the horse is stolen. Here the utility interests are asking Congress for a key to the stable so that they can take out the horse and take the public for a ride. And, I earnestly submit that in the interest of all of the municipalities throughout the United States who look to you for help in matters of this sort and in behalf of the United States Conference of Mayors and the National Institute of Municipal Law Officers, that this bill should be condemned and should be rejected and not enacted into law. With your permission, I should like to introduce the formal statement that we have prepared, plus copies of the telegrams from various municipalities who have sent them to us thus far. I would like to close by expressing my appreciation for your kindness in hearing us and by also requesting that additional time be given so that other cities who feel equally strongly and who know the subject even more clearly, may have an opportunity to come before you and show the dangers implicit in this legislation. The CHAIRMAN. What is being offered for the record? Miss ALPERN. In offering this and also a letter from Omaha, I would like to submit for the record. The CHAIRMAN. Miss Alpern, there will be no objection to the introduction of the papers and statements and telegrams that you have submitted, with the exception of this booklet which is entitled "Municipal Interest in the Work of the Federal Power Commission" by Charles S. Rhyne. This is not entirely on the subject that is before the committee. But, you may leave it as an exhibit which will be made a part of our record, but not a part of the printed record. Miss ALPERN. And you are accepting the statement that we have filed, Mr. Chairman? The CHAIRMAN. Yes. You might go through these papers and put them in the order in which you wish them to appear in the record. Mr. Clerk, will you mark this booklet as an exhibit? (The telegrams, letter, and prepared statement by Miss Alpern are as follows:) PAUL V. BETTERS, ST. LOUIS, Mo., April 15, 1947. Executive Director, United States Conference of Mayors, Washington, D. C.: City of St. Louis opposed to House bill 2185 amending Natural Gas Act. Letter outlining objections follows. May not be able to appear but appreciate notice of hearing when cities state their position. Please supply name of committee chairman. GEORGE L. STEMMLER, General Counsel, National Institute of Municipal Law Officers, Washington, D. C.: Replying your wire this day, Senator Proctor has also received telegram from Congressman Wolverton, chairman of committee, advising that hearings on H. R. 2185 will close this week and that we may file statement. Am writing Chairman Wolverton that our city will file statement next week for inclusion in record of hearing. Tell Miss Alpern to pull no punches. Regards. JEROME M. JOFFEE, Col. PAUL V. BETTERS, CITY OF OMAHA, Executive Director, the United States Conference of Mayors, Washington, D. C. DEAR COLONEL BETTERS: This will acknowledge receipt of your letter of April 9, concerning certain bills to amend the National Gas Act of 1938, which was sponsored by the Conference of Mayors. Since the passage of this act, it is estimated that the total rate reduction afforded the consumers amounts to $157,000,000. The reductions effective in this area alone on an annual basis amount to $2,297,000. The public has the right to expect from public utilities adequate service at reasonable rates. Some of these proposed amendments will restrict and limit the power of the Federal Power Commission in their task of safeguarding these fundamental rights. There is at the present time a great shortage of natural gas. It is believed that the Commission should be permitted to retain the power to see that the most urgent public needs are met first. It is further believed that the present mode of regulating rates under the prudent investment method should remain. Under this method the companies are permitted a reasonable compensation on the capital devoted to the service. This is a fair method. The proposed amendments which might permit speculative profits under certain conditions from the use of the fair field-price formula should be defeated. The present system of cost allocations have met with the approval of the Supreme Court of the United States and have proven most beneficial to the consumers. Under the circumstances, we feel that the proposed bills and amend ments should be defeated. Sincerely yours, CHARLES W. LEEMAN, Mayor. Federal Power Commission-Reductions effected in the rates of natural gas, Federal Power Commission-Reduction effected in the rates of natural gas, The part of this reduction of Interstate Natural Gas Co. applicable to sales to 3 pipeline companies is now being litigated. This reduction of United Gas Pipe Line Co. does not include an amount of $140,000 applicable to Memphis Natural Gas Co., immediately passed on by that company and included in (11) above. Mississippi River Fuel Corp. is litigating the rate reduction order. NOTE. The total cumulative reduction is estimated at $157,000,000 and has affected consumers numbered in the millions in practically every State in which natural gas is sold in interstate commerce. Source: From United States Conference of Mayors. STATEMENT BY ANNE X. ALPERN, CITY SOLICITOR, PITTSBURGH, PA., IN OPPOSITION TO H. R. 2185 Mr. Chairman and members of the committee, my name is Anne X. Alpern. I am city solicitor of Pittsburgh, Pa. I appear here as the official representative of the United States Conference of Mayors and the National Institute of Municipal Law Officers to express the opposition of those two organizations to H. R. 2185. I am vice chairman of the committee on electric and gas rates of the national institute, and have served on that committee for the past 3 years. The United States Conference of Mayors is composed of over 200 cities having a population in excess of 30,000. It is essentially the spokesman for the larger cities of the Nation. The National Institute of Municipal Law Officers is composed of 463 cities acting through their chief legal officer, who has various titles, ranging from city attorney to corporation counsel, and city solicitor. Both the United States Conference of Mayors and the National Institute of Municipal Law Officers are organizations of municipalities only. All of their funds are received from the tax funds of cities. These organizations represent no private interests whatever and their sole reason for existence is to enable cities to exchange information on their mutual experience as a guide for future action and to represent the interests of their city members on matters of concern to these members as a group. Members of the United States Conference of Mayors were among the most active sponsors of the Natural Gas Act at the time it was adopted in 1938. Since the adoption of the act members of both of the organizations which I here represent have been active in representing the interests of consumers before the Federal Power Commission in seeking rate reductions under the Natural Gas Act. The legal power of cities to represent the consumers residing within their corporate limits in utility cases is well established by many court decisions. It is in that capacity that I appear here today. Attached to this statement is a compiled list of annual rate reductions effected by the Federal Power Commission under the Natural Gas Act. It will be noted that these rate reductions aggregate approximately $35,000,000 per year, or a total of $157,000,000 to date. These reductions are now in effect as to an estimated 70,000,000 people. Perhaps the most noteworthy thing about these rate reductions is that most of them have been voluntarily agreed to by the companies affected, which indicates that they recognize that excessive rates were being charged. So far as I can learn, ours is the only voice yet to express opposition to these bills before the committee, and ours is the only voice raised in the interest of consumers. It is important to recognize at the outset that this bill is a pipe-line company bill. It is sponsored by utility interests, who are very active in support of its passage. Unlike many, if not most, public-utility regulatory acts, which had their inception in efforts to promote the public interest, this bill seeks to promote the private interests of certain companies. It emanates from a desire of certain pipe-line companies, in particular, to escape certain aspects of regulation. This is made clear by one rather amazing provision of the bill. The bill would give to regulated utilities-each company in fact-the option of choosing a field price or cost, based upon investment, to be allowed for the gas which enters the pipe line. Obviously, the method chosen in each instance will be the one which will result in the greater profits, with concomitant higher costs to consumers. This proposed legislation is obviously intended to benefit the natural gas industry-not the consuming public. A mere reading of the bills leads to this inescapable conclusion. It is for the sole and only purpose of increasing profits accruing from the operations of vast networks of interstate pipe line systems and the affiliated gas-producing organizations. This bill provides that the initial sale of natural gas to the interstate pipe line company shall be free from regulation by the Federal Power Commission (proposed sections 1 (b), 1 (a), 2 (6), 2 (10), 2 (11), 2 (13), 5%). Since such sales may be within the field in which the United States Supreme Court has said the States may not act, this sale shall be wholly free from regulation if this legisla tion is adopted. (P. U. C. v. Attleboro Steam & Elec. Co., 273 U. S. 83; United Fuel Gas Co. v. Hallanan, 257 U. S. 277; Eureka Pipe Line Co. v. Hallanan, 257 U. S. 265; U. S. v. Rock Royal Co-op., 307 U. S. 533.) But the bill does not stop there, it goes on to provide what the Commission shall allow to a natural gas company as an operating expense for the cost of gas purchased or produced by it. Subsection (a) (1) of section 51⁄2 provides that the Commission shall allow the actual prices paid for gas purchased by a natural gas company if the purchase is made from nonaffiliates and nonsubsidiaries. That adds nothing new. what the Commission has allowed in the past (Cleveland v. Hope Natural Gas Co., 3 F. P. C. 150, 180, 182; In the Matter of Canadian River Gas Company et al, 3 F. P. C. 32, 57, 58). It is However, subsection (a) (2) of section 51⁄2 does provide something entirely new-and different. This provision would permit the natural gas companiesand their stockholders-to enrich their coffers at the expense of the gas consumers. This subsection in itself justifies the previously expressed opinion that this legislation is designed-not in the public interet-but in the interest of the privately held natural gas companies. Let us examine this subsection a little more closely to see just what its effect will be on the operating expenses of the natural gas companies. If the current market price in the field or fields is higher than the actual expense incurred by the natural gas company in producing from its own reserves, the Commission must allow such higher current market price as a proper operating expense in rate-making proceedings. To the fictitious operating expense thus obtained the Commission must add another allowance as reasonable compensation for gathering gas produced by the natural gas company whose rates are being examined or purchased by a subsidiary or affiliate of such natural gas company, and for delivering to the transmission facilities. The bill is silent as to how the Commission shall determine the current market price, or fair and reasonable value of such gas, or reasonable compensation for gathering except to provide that value shall exclude a consideration of the producer's investment in and cost of properties from which such gas is produced. The sponsors of the bill argue that it is intended to define the undefined standards of the existing act, yet the bill adds still more undefined and unusual phrases to the act. I say unusual because the language of the present act contains what the United States Supreme Court in the Hope case (320 U. S. 591), called conventional standards for rate-making. These conventional standards have through the process of litigation in many cases become rather well defined and are generally understood by lawyers, commissions, and courts without difficulty. The bill (H. R. 2185) adds the above quoted new, unusual and unconventional standards. This means years of litigation to develop generally accepted interpretations of these new standards. This bill does not end confusion and public inconvenience-it brings confusion confounded into this field. And, of course, utilities thrive on confusion and the poor consumer pays the bill. If clarity is sought this bill does not import it into the natural gas field. If the above-mentioned provisions of the bill, i. e., current market price, fair and reasonable value of such gas, and reasonable compensation for gathering, do not assure an adequate profit to the natural-gas company, it may assure its profits by the exercise of the election permitted in the proviso contained in subsection (a) of section 52. This proviso allows the Commission-with the permission (election) of the company to include the natural-gas company's production and gathering facilities with the facilities used for the transportation of natural gas in interstate commerce in any determination by the Commission of the rates and charges of such company. In other words, the proviso allows the Commission to do what it has done in the past and which the United States Supreme Court has said was proper. But now it may do so only with the permission of the affected company. This section 51⁄2 is striking bold. There is no sham. It is designed to and will serve the private interests of the natural-gas companies-and wholly without regard to effect on the public interest. The cost of gas in the field is the basic point upon which consumer rates are ultimately fixed. (Cf. distribution rates of communities served with gas produced in the Appalachian area, against those supplied with gas from the Panhandle and Hugoton fields-even though the latter travels much farther through the transportation lines.) An arbitrary increase in the initial cost of gasbased upon fictitious expense to the natural-gas company-will inevitably lead to increased rates at the burner tip. If a company using 150,000,000 M cubic feet per year has an average production cost of 4%1⁄2 cents per M cubic feet but is allowed a fictional 61⁄2 cents per M cubic feet for this expense the increase amounts to $3,000,000. And this is to be paid by the consuming public for the benefit of the stockholders of the company. Do the consumers or the stockholders constitute the public interests which section 1 (a) states the act is intended to serve? At the time of enactment of this act the former were intended to be protected, but this bill serves only the latter. The proposed amendment to subsection (c) of section 7 of the bill would permit the natural-gas companies to make unlimited expansions for the purpose of maintaining continuity of service, or of supplying increased demands in its existing markets without the necessity of first obtaining a certificate therefor from the Commission. Existing markets, however, are not defined. There is no indication whether this means areas, territories, or communities. This amendment would seem to permit a company to expand without limit its sales of industrial gas without consideration of other preferred classes of consumers. It would permit a company to choose the most profitable areas for expansion-in complete disregard of its inherent obligations to serve without discrimination. This might lead to particularly vicious results in these times of steel and pipe shortages which restrict system development. We are confronted today with shortages on every large pipe-line system. Shortages which will continue for years because sufficient steel and steel pipe cannot be manufactured to permit the necessary enlargement of facilities. Pipe manufacturers have backlogs of orders which cannot be filled for 4 or 5 years. In the |