AMENDMENTS TO THE NATURAL GAS ACT

THURSDAY, MAY 29, 1947

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

WASHINGTON, D. C.

The committee met at 10 a. m., pursuant to adjournment, in room 1334, New House Office Building, Hon. Charles A. Wolverton (chairman) presiding.

The CHAIRMAN. The committee will come to order.

I wish to call to the attention of the witnesses today that there is a considerable number of witnesses to be heard, owing to the fact that it was impossible to hold a session of the committee yesterday afternoon. I call this to your attention so that some arrangements may be made between yourselves as to the amount of time that will be consumed by each witness.

It is the desire of the committee to finish these hearings today. Therefore, if we should get to the close of the day without everyone having an opportunity to be heard, it would be necessary for them to file their statements. So, I am anxious that you all take due notice of the fact we have a considerable number of witnesses and that it is the desire of the committee to complete its hearings today.

-There are two or three witnesses who should have been heard yesterday, but we could not hear them because of the necessity of being on the floor of the House.

The first witness this morning will be Judge Robert M. Morgan, assistant director of law of Cleveland, Ohio.

STATEMENT OF ROBERT M. MORGAN, ASSISTANT DIRECTOR OF LAW, CLEVELAND, OHIO

Mr. MORGAN. Mr. Chairman and gentlemen of the Committee. The CHAIRMAN. Mr. Morgan. About how long will your statement take, Mr. Morgan?

Mr. MORGAN. Mr. Chairman, I think I can be through in 10 minutes with a summary of my printed statement filed with your committee. The CHAIRMAN. That is fine. That is provided the Committee does not unduly prolong your questioning.

Mr. MORGAN. My name is Robert M. Morgan, I am assistant director of law, city of Cleveland, Ohio, in charge of rate matters at present, and I am appearing here at the request of the mayor and in opposition to this bill, H. R. 2185.

I am also a member of the committee on electric and gas rates of the National Institute of Municipal Law Officers.

Cleveland was somewhat instrumental in pushing the original Natural Gas Act. We were then in the middle of the Hope case litigation. We were very much interested.

As we understand it, the companies are very much interested in the passage of this bill. Now, why? As we understand it there is no interstate gas pipe-line company that before it has made its investment does not control its own supply, either under contract or ownership, lease, or otherwise, at a price. In other words, they know what their supply is going to cost them before they make their investment.

Now, what this bill proposes is that, if the companies are producers as well as purchasers of gas, field gas, they want to carry as a cost factor in determining the wholesale price the end of their interstate operations, not their cost of production or contract cost of purchased gas but a so-called field price of gas, generally dictated by themselves. Then, they would have no incentive at all in purchasing any part of their supply, as cheap as they can, if they can pass any extra cost on to the ultimate consumer.

They would have a selfish incentive of getting as much for the supply that they produce themselves as they can, if they can add that to the wholesale price at the other end of the line.

If I have sized up this bill right, they could advance-and I will contend that they would control or make their own field price-they could advance the so-called field price on purchased gas 50 percent and add 50 percent to their own production and pass the whole thing on to the ultimate consumer.

The CHAIRMAN. Judge, may I make an inquiry at this point?

I have before me a statement that is prepared by you and I note that you are speaking without regard to the statement other than that you may be emphasizing points in it. Is it your intention to have the statement made a part of the record?

Mr. MORGAN. Yes, sir.

The CHAIRMAN. And what you are saying is to be in addition?
Mr. MORGAN. No, I was summarizing it.

The CHAIRMAN. Very well, if that shortens it, that will be very helpful to us, whatever is done in view of the circumstances that I set forth.

Mr. MORGAN. Now, the gas in the ground is made markefable by the pipe line. What the pipe line does is to take the gas in the ground and use its facilities for transporting it, and getting those units of the commodity to the ultimate consumer.

The analogy is not perfect, but it is not very materially different from electricity production where a power company takes coal, water, electrical equipment, produces units of power and passes them on to the ultimate consumer.

This bill would permit the companies to control the field price; through their affiliates, subsidiaries and contracts with each other, for they make the field price. They want to pass all that cost, no matter whether the field price is low or high, on to the ultimate

consumer.

As we size up this business, of course, it is obvious that the company's principal interest is to get that gas to market as quickly as they can. It is to the public interest and the consumer's interest that that gas be marketed in an orderly way so that there will be a continuity of service as long as the supply lasts.

This bill would permit them to divert the supply from one consuming market to another and from one class of consumer to another. We think that ought to be under public regulation.

Now, I refer in my statement to the fact that the oil lines were finally classed as common carriers and that the railroads were finally required to divorce themselves from the ownership of the commodity that they carried as in the case of coal.

Eventually in the handling of this gas business, Congress may determine-may have to determine that the pipe-line companies are common carriers or should not be transporting their own commodity. I do not believe that that should be the law. But they should not be able through their control of a so-called market price to determine the principal cost factor in fixing the wholesale rates.

Now, going over the bill, it seems to us that the whole purpose in the mind of the draftsman of it was to get away from the principles, enunciated in the Colorado-Canadian case and in the Interstate Gas case down in Louisiana. In those cases the companies presented every argument that will be presented here to the Commission and to the courts, that reviewed those cases, as to the requirement, to do justice to their position, of consideration of the field price as a measure of cost for the supply. Every argument was presented there.

The sole purpose of the Commission in such cases was to arrive at a just and reasonable wholesale rate and the sole purpose of the court in each case was to see that the Commission had determined a just and reasonable rate. All that was done and the companies with all of their facilities for producing evidence before the courts and the Commission-producing the real facts necessary to protect their interests could not persuade those tribunals that their interests were not fully protected, and yet they now are asking Congress to insure them, or give them an opportunity of getting more money for their gas than was considered fair in those cases or would be considered fair in future cases under the same principles.

They simply want more money.

In our opinion this bill would emasculate the Natural Gas Act. It would destroy the very basis for effective regulation.

Every criticism that has been made of the present law and every argument that has been made in favor of this bill, we believe, can be worked out by the intelligent administration of the Gas Act as it stands, and it is because there has been intelligent administration of that act that the companies claim that they have been unfairly treated. It has been intelligently administered. The public interest has been protected and been protected so successfully that the companies under the provisions of this act feel that they have not had a chance to make as much money as they want to make out of their gas supplies. Now, that is a summary of the statement filed with you of the views of the city of Cleveland on this bill.

The CHAIRMAN. Are there any questions?

Mr. CARSON. Mr. Chairman.

The CHAIRMAN. Mr. Carson.

Mr. CARSON. Judge Morgan, the East Ohio Gas Co., furnishes the gas in your city?

Mr. MORGAN. Yes, sir.

Mr. CARSON. As well as the immediate vicinity?

Mr. MORGAN. Yes, sir.

Mr. CARSON. You, of course, are interested in the price; are you? Mr. MORGAN. Absolutely.

Mr. CARSON. All right. For the record I want to give you a comparison of prices in your city, Cleveland, from the East-Ohio Gas Co., from 1930 to 1938, at the time that the Natural Gas Act was enacted. The cost of gas in Cleveland in 1930 to 1938 was 67 cents for 2,000 feet to the consumer. Since the Natural Gas Act was passed, the cost in your city is now 50 cents for 2,000 feet and has been for that price since 1938.

Now, this difficulty we are having is due to the fact that the Federal Power Commission has ordered this company, as well as many other purely State companies, to file reports; to keep their accounts in accordance with the Commission's system and to make application to the Commission for extension, and so forth.

You knew that such an order had been made.

Mr. MORGAN. Yes.

Mr. CARSON. Now, this is certainly, to my mind-and I want to ask if it is not your opinion, that this is a duplication of what the companies have to do under the State regulatory bodies-the public utility comissions of the States.

Mr. MORGAN. I think not.

Mr. CARSON. Well, they have to file reports with the Utility Commission of Ohio; do they not?

Mr. MORGAN. Yes.

Mr. CARSON. Well, then, to ask them to file the same reports with the Federal Power Commission is a duplication; it it not?

Mr. MORGAN. Well, they have to anyhow.

Mr. CARSON. NO; they do not do it now, but they are asked to do that and they are trying to compel them to do that at the present time. Mr. MORGAN. They file even a more elaborate statement with the Federal Power Commission than they are asked to do here.

Mr. CARSON. I just want to quote from Mr. Robinson's statement before this committee several weeks ago. This is what he said:

I can say that the additional expense of this dual regulation if it were made fully effective to our company in Ohio would cost the consumers one and a half to two million dollars.

That is going to affect you and it is going to affect me in Canton. Mr. MORGAN. Well, Mr. Congressman, you are mixed up on some things, I think. The quarrel between the East Ohio and the Commission is that it does not want to make an original cost study as required by the Federal Power Commission. So far as their current costs, current reports are concerned, they make them both to the State and the Federal Power Commission and it is a mere accounting matter involving little expenditure of money; but when you talk about 1,000,000 or 2.000,000 dollars, for an original cost study-that has been a bugaboo that they have been shooting at us for some time; but I think, if practical men got together they could arrive at the original cost studies for a small fraction of that amount of money, if it is required for Federal Power Commission regulation.

Mr. CARSON. Whatever the cost of that study is, it is going to be you who is going to bear it in Cleveland, and I am going to bear it in Canton; are we not-because the consumer is going to pay for that.