Chairman and Members of the Committee on Interstate and Foreign Commerce: Subject: Proposed amendments to the Natural Gas Act, with specific reference to proposed bill, H. R. 2185.

The Michigan Public Service Commission is primarily interested in the proposed amendments to the Natural Gas Act on behalf of the consuming public of natural gas in Michigan. In 1946 nearly 40 billion cubic feet of natural gas was imported through the Panhandle Eastern Pipe Line Co. for service in whole or in part to Michigan communities having a population of over 24 million people. In addition, over 22 billion cubic feet of Michigan-produced gas was consumed and, from present indications, this will shortly have to be replaced with imported gas, due to depletion of local fields.

Estimates made by utilities presently distributing natural gas in Michigan show that their existing markets, having a population in excess of 3 million people, will shortly require from 135 to 150 billion cubic feet annually if they are to be adequately served. It is for this reason that the regulation of interstate pipe lines is of vital importance to Michigan.

In regard to the proposed amendments which deal with the production and gathering of natural gas, it is the position of the Michigan Public Service Commission now, as it has been in the past, that its sole interest lies in the adequate and continuing supply of natural gas at a reasonable price. We are satisfied to leave the discussion of such amendments to those who are familiar with the problems surrounding such production and gathering and its relationship to the pipe-line companies which connect the production fields with the Michigan market.

Our comments and suggestions will be confined to that portion of the proposed amendments directly related to the interests of the ultimate customers and, for convenience, reference will be made to the Rizley bill, H. R. 2185.

Page 2, paragraph (c), lines 17-23, when taken in conjunction with paragraph (b) on page 1 and paragraph (b), page 7, beginning with line 23 and continuing on page 8 through line 21, would appear to take away any existing direct or indirect jurisdiction by Federal Power Commission over direct sales made by the pipe line. We believe that the interest of the general public is much greater than the interest of a few large industries buying gas directly from the pipe line. Therefore, if this section of the bill is approved, we ask that the amendment further specifically read that "jurisdiction over direct sales shall reside in the proper State regulatory commission in the State in which the sale is made." A "no man's land" in which neither State nor Federal jurisdiction exists must be avoided. It may be argued that, if the Federal Government disclaims jurisdiction, it will automatically reside in the State. If so, it does no harm to expressly say so and thus avoid long and expensive litigation.

Paragraph (12) on page 4, particularly that portion beginning with line 2 on page 5 and extending through line 15, as well as all of paragraph (14) on pages 5 and 6, appear to define and limit the jurisdiction of the Federal Power Commission over distributing utilities. We favor this, as we know of no useful purpose served by such jurisdiction, and it results in confusion and expense because of its duplication of authority already residing in and exercised by the State regulatory commission.

In addition to the above specific proposed amendments, we cannot refrain from urging and emphasizing the broad interests of the great number of ultimate customers who desire and should have adequate natural gas service. At the present time, adequacy of service to a market served by an existing pipe line is, among other things, dependent on the ability and willingness of both the distributing utility and the pipe line to negotiate a mutually satisfactory agreement covering the requirements. If this agreement cannot be reached, the public suffers. We, therefore, believe that a pipe line should be required to provide and maintain adequate service, and that the Federal Power Commission should have authority to enforce such an obligation, if necessary. This conclusion largely rests on our belief that the business of an interstate pipe line selling gas wholesale, for resale to the general public, assumes and cannot avoid a public responsibility commensurate with its privileges under its certificate of public convenience and necessity. Sale of gas for resale to the general public should aways have priority over any other business done by the pipe line.

In conclusion, we as a State regulatory body feel that we have an appreciation of the duties and responsibilities of similar regulatory commission on the Federal level. During the past 2 years the Michigan Public Service Commission along

with the commissions and utilities of several States, have participated in an over-all investigation by the Federal Power Commission to gain a more comprehensive knowledge of all phases of the natural gas industry. The first phase of this investigation has been completed, but the analysis of the vast amount of testimony and the final report have not been completed. We would recommend that your honorable committee and the Congress have the benefit of this report before making final disposition of bill H. R. 2185.

By SCHUYLER L. MARSHALL,
Commissioner

(For the Michigan Public Service Commission.)

INDEPENDENT NATURAL GAS ASSOCIATION OF AMERICA

Resolution adopted at the annual membership meeting of the Independent Natural Gas Association of America, January 28, 1946, Houston, Tex., and reaffirmed with addition at board of directors meeting held in Tulsa, Okla., April 1, 1947.

The president presented a statement of "Principles, policy, and objectives" for the association for consideration by the membership. After discussion, a motion was duly made, seconded, and carried that the following "Declaration of principles, policy, and objectives" be approved and adopted:

"A DECLARATION OF PRINCIPLES, POLICY, AND OBJECTIVES BY THE INDEPENDENT NATURAL GAS ASSOCIATION OF AMERICA

"The natural gas industry by individual initiative and effort under our traditional system of free, competitive, private enterprise has earned á major position in the domestic economy of America.

"Supplying 40,000,000 users with a clean, efficient, economic fuel, it pays bonuses, rentals and royalties to hundreds of thousands of land and royalty owners, provides gainful employment to many thousands of its employees, and contributes substantially to local, State, and Federal revenues.

"Meeting ever-increasing demands and uses with continually improving techniques and new discoveries until reserves have now reached an all-time high, the natural gas industry is at the threshold of an era of expansion and service. "To promote the welfare and advance the progress of the industry in order that it may improve and expand its service to the ultimate public benefit, the Independent Natural Gas Association of America pledges its support to achieve through all proper and appropriate methods the following fundamental objectives: "1. Preserve the time-tested democratic principles of private ownership, individual initiative, and competitive enterprise free from Government competition or proprietorship in any form.

"2. Promote scientific research to continue improvements in the exploration, production, conservation, transportation, and utilization of natural gas.

"3. Provide more adequate markets for independent producers and royalty owners, maintain discovery rates, further conservation, and make natural gas more widely available for public use by necessary expansion of pipe lines.

"4. Maintain as the exclusive function of the producing States the regulation of the production, gathering, and conservation of natural gas and support the enactment and administration of sound waste-prevention measures by the States to assure orderly development, to require ratable taking on an equitable basis, to preserve correlative rights and prevent improper withdrawals, to establish proper gas/oil ratios, to encourage cycling and repressuring wherever warranted, and to provide markets for reasonably accessible oil-solution gas.

"5. Limit the jurisdiction of Federal agencies to the reasonable regulation of the interstate transportation of natural gas and its sale in interstate commerce for resale, specifically excluding such agencies from any regulation whatsoever of production, gathering, processing, compressing or fixing the price of natural gas prior to its entry into interstate commerce for resale. "6. Safeguard the benefits of free competition among fuels, allow the sale of natural gas competitively with coal and other fuels for industrial use, and prohibit any regulation of the regional or functional end use of natural gas either directly or indirectly by any Federal agency.

"7. Retain the option of expensing intangible drilling costs and the percentage depletion allowance provisions of the income tax laws to prevent dis

ruption of stabilized industry economy. Remove the threat of double taxation, as separate business entities, to voluntary unitization operations desirable for the efficient conservation of natural gas."

The above resolution again considered by the board of directors, and it was the unanimous opinion of the board that House bills 2185, 2235, 2292, and Senate bill 734 introduced in the first session of the Eightieth Congress will carry into effect the principles herein endorsed.

Copy of resolution adopted on the dates and the places above shown as appears in the records of the Independent Natural Gas Association of America, April 1, 1947.

JOHN A. FERGUSON.

Executive Director.

In re the Rizley bill hearing

To the Honorable CHAIRMAN, HOUSE COMMITTEE ON
INTERSTATE AND FOREIGN COMMERCE, WASHINGTON, D. C.

DEAR SIRS: The writer of this letter offers this evidence as one who does so without retainer, and without expectation of financial reward for doing so. In my opinion the Rizley bill, if passed, would accomplish the economic lynching of the southwest.

The supporters of the Rizley bill are on sound ground when they assert that it is unreasonable to expect a producer of gas who has run the high risks incident to discovering gas to be limited in his earnings by the Federal Power Commission, or by anyone else, to a return of 61⁄2 percent on his investment, and as to this I have no quarrel with them, but as a citizen I am vitally concerned with the provisions of this bill which would remove from the jurisdiction of the Federal Power Commission, any consideration of the end use to which applicants for interstate gas pipeline certificates intend to put the gas. I would not be on sound ground if I undertook to advise you as to what the gas reserves of this country are, but I would be on as good ground as the gentleman from Dallas, who earlier this week undertook to estimate the undiscovered gas reserves. I can only point out that there are a hundred thousand oil and gas wells in Texas, most of them oil wells. Thousands of exhausted wells have been abandoned. Tens of thousands were dry holes. view of the intensive drilling which has been going on in Texas for the past several decades, the only reasonable assumption is that there is that much less ground to explore geologically, and that areas available for discovery are not as extensive as they were 25 years ago.

In

In attempting to get some idea of how long natural gas will last in the Southwest, a salient fact is the explosive rapidity with which pipe lines are being authorized by the Federal Power Commission. The attached schedule is based on official figures of the Federal Power Commission:

SCHEDULE A.-Daily capacity in thousands of cubic feet of natural-gas pipe-ling transmission facilities used for exportation of gas out of Texas

TO OTHER STATES
[Data compiled as of Jan. 1, 1947]

Pipe-line design capacity

Operating company

Additional capacity
of future projects

Present, authorized and pend

Jan. 1, 1945 Jan. 1, 1946 Jan. 1, 1947 Authorized Pending ing total

SCHEDULE A.--Daily capacity in thousands of cubic feet of natural-gas pipe-line transmission facilities used for exportation of gas out of Texas-Continued

TO MEXICO

[Data compiled as of Jan. 1, 1947]

Operating company

Pipe-line design capacity

Additional capacity
of future projects

Present. authorized and pend

Jan. 1, 1945 Jan. 1, 1946 Jan. 1, 1947 Authorized Pending ing total

The latest data on the schedule sheet is January 1, 1947. They take no account of several important developments since then, such as an application of Trunk Line Gas Co. to build a 30-inch line from the Texas Gulf coast area to supply great industrial regions, and of the plans of the Big Inch and Little Inch lines, which, when compressors are installed, will deliver over 400,000,000 cuble feet of gas a day, nor do their figures include the action on April 10 of this year by the Federal Power Commission authorizing the Northern Natural Gas Co. to construct a line from Texas, which will increase the system of that company from 325,000,000 cubic feet, daily, to 407,000,000 cubic feet daily.

Another great fallacy in considering the life of gas reserves available to the Southwest is to assume that because they are in the ground that they are available. This overlooks the fact that the reserves are bought up by each interstate pipe line for as many years in the future as possible. Such reserves, though in the ground, are committed for export. In a brilliant brief before the Federal Power Commission, the city of Houston, Tex., took up field by field the reserves to which it must look, and showed the quantities of reserves that were already contracted for by interstate pipe lines. The conclusion was expressed in that analysis that it was altogether possible that babies then in arms would not be out of the high schools of Houston before the gas in such fields would have been exhausted. Except for the reserves already dedicated to the interstate pipe lines, even taking the most optimistic estimates as to our future gas supply, we have, in any event, only a few decades of supply at the present rate of consumption.

BUT WHAT DOES GAS MEAN TO TEXAS AND THE NATION?

In a recent speech before my bar association the speaker said: "Natural gas is one of the fundemental foundations of the new chemical industry of the hydrocarbons, which reached its peak development during World War II. The momentous importance of the chemical industry cannot be underestimated. It is as significant to the economic history of the twentieth century as the steam engine was to the eighteenth, and the discovery of the Bessemer steel-making process was to the nineteenth century. It is significant because it provides for a large portion of modern industry new, cheaper, and in many cases, qualitatively superior raw materials than these industries previously enjoyed. It is significant because it will revolutionize the foundations of modern industry.

"Some of the raw materials supplied by the chemical industry are rayon, cellophane, cellulose, acetate, nylon, plastic leather, as well as synthetic rubber previously mentioned. Other raw materials are solvents, dyes, synthetic protective floor coverings, finishes, and fertilizers (which last occasioned the recent calamity at Texas City).

"Mr. Elmer Johnson, the industrial geographer of the University of Texas, has stated: 'One of the features of this industry is the simple, but astounding fact that it has already risen to be one of the big three or four of the great industries of the world.'

"It is the kind of industry that can affect every phase of our economy: Agriculture, through scientific farming achieved through the proper chemical fer

tilizers; light and heavy industries, through chemical processes in conjunction with the production of lightweight alloys and steels; fuel, through new cracking and refining processes; manufactured goods, through the use of a host of plastic products and synthetics materials previously mentioned.

"All these remarkable vertical and horizontal penetrations into every facet of our American economic life are possible because of the hydrocarbons found in natural gas as well as petroleum. During the war, natural gas was proven superior to every other base material for chemical development. Other base materials such as coal tar are limited as to their chemical derivatives. This is not true of natural gas. A distinguished chemist has estimated that over a million new organic compounds, capable of being constructed into an innumerable number of raw materials, will be produced from natural gas.

"It will thus be seen that for the Southwest, natural gas occupies a uniquely diversified and strategic function in the development of manufacturing industries, in the production of modern fuels, in the conservation of oil and gas itself, in the production of lightweight metals, and in the chemical creation of a host of raw materials which can be used in the manufacture of an extraordinarily diversified number of products. It is no exaggeration to say, therefore, that the industrial future of the entire Southwest hinges upon our control of this resource and the usage to which it will be put. With natural gas, the Southwest will ultimately have to cope with economic problems of the most critical character."

The reason for the strategic character of natural gas, far beyond the signiffcance of its actual dollar value, is not difficult to find when an analysis of its various usages is made. Natural gas is first of all the Southwest's only commercially important low-cost industrial fuel. If we are to have manufacturing industries which will create large-scale industrial employment in this part of the country, we must guarantee a supply of natural gas for a sufficient number of years to make the necessary risk of capital an attractive one. Furthermore, natural gas is at once the domestic fuel of the Southwest and the source of power for the generating of most of our electricity.

The South and the Southwest face their gravest moments since the Civil War. We are going through a period of agricultural mechanization which could potentially produce profound problems of unemployment, displacement, racial discord, and political instability. The cotton farms, with their flame cultivators, mechanical pickers and airplane dusters are displacing scores of families at a time. Mechanical equipment on a sugar cane plantation can now eliminate 9 men out of every 10. New combines are now being worked on the rice farms with 2 men instead of 25. Flame weeders will do the work of 24 men with hoes in cotton cultivation. Everywhere the story is the same.

This impact of technological progress upon the farm worker is of such scope, that the United States Department of Agriculture predicts that the South will have to find nonagricultural jobs for 5,000,000 additional men by the year 1956. I want to emphasize that the solution to this problem is a matter of national interest. If the South is unable to absorb these workers in industries of its own, the mass migration of tenant farmer, sharecroppers, and Negroes, which will result is bound to have serious social and economic consequences to the rest of the Nation. Nor is it to the national interest to dismiss this problem as a purely local one; for the prosperity of the rest of the country depends upon a prosperous South. The economy of no part of this country can withstand the depressing influence of 5,000,000 unemployed people in any other single section of the country.

It is essential to the national defense that industry be well spread out and distributed geographically. Dispersal of industry is Russia's only defense against the bomb, and it is our only defense. To take away from the Southwest the fuel that will enable it to sustain industry and use that fuel for the support of industries that are at the door-step of many centuries of coal supply is to ignore the national interest. In our system of economy, industry cannot be expected to develop in a region that is being stripped of its fuel at the rapid rate that would soon exist if the Rizley bill were enacted into the law. The leaving of adequate fuel reserves in the Southwest is essential to the national defense because it will enable this region to pull its weight in event of another war.

We do not lack for well-established legal doctrines and precedents for controlling the issuance of pipe-line certificates. In the first place, in the case of an exhausing, nonreplaceable resource we have long recognized the right of government to prevent the use of that resource for an inferior use. For example, it is against the law in Texas to use sweet gas for the purpose of