Natural-gas companies are not required to deliver gas produced by them to interstate markets. They have the same right as other producers to sell their gas for local intrastate utilization. If they are permitted to receive at the point of production only a fraction of the value of their gas while other producers are permitted to obtain commodity values, the eventual result will be that the natural-gas companies will either sell their gas-producing properties or utilize their produced gas in local operations. In either of such events they will, of course, purchase all their requirements for interstate markets from other producers just as is done by practically all newly constructed pipe lines. It is sought by the first section of the bill and the definitions contained in sections 3 and 4 to provide an adequate basis for separating both the production and gathering function and the distribution function from the transportation function, and thereby authorize the Commission to regulate only the transportation function. At the hearings there has been some criticism of the inclusion of the extraction of liquid hydrocarbons as a part of production and gathering. However, even the Federal Power Commission in its classification of accounts characterizes the extraction facilities as production facilities and not as transportation facilities. Most of the gas which now moves in interstate commerce is gas from which the liquid hydrocarbons have been removed. It is necessary to remove them before the gas is suitable for long-distance high-pressure transportation. Most sale contracts now being made and providing for substantial volumes of gas contemplate the extraction of such liquids by the producer before delivery. Since it is generally recognized in the industry that the extraction of such liquids is a production operation, this provision in the proposed amendments is nothing new. In the proposed amendments it is also sought to make it clear that the Commission shall have no jurisdiction over any of the properties of a local distributing company even though such company may connect its distribution facilities to the pipe line of a natural-gas company. The Commission should not be permitted to exercise any character of jurisdiction over such local distributing company. The provision in section 5 of the proposed amendments fixing a formula which the Commission is required to follow in its regulation of rates and charges of a natural gas company is clear, explicit, and reasonable. It requires an allowance of the actual price paid for purchased gas; the market value, or in its absence the fair value, of gas produced by the company itself; and a reasonable charge for gathering such gas. Through this formula the Commission will determine the allowance to be made for the gas entering the trunk pipe line and to that price it will add an appropriate charge for transportation and thus obtain the price which the natural gas company will be permitted to charge · its customers. This is the way all other prices are determined; namely, the value at the point of production plus cost of transportation. The Commission should have little difficulty in following this formula. The term "market price" is a term having a well-defined legal meaning and if there is no market value, fair value can be determined as fair value of other commodities is legally determined. There should be no objection to subsection (b) of section 5 which requires the Commission to make proper allocation between activities subject to its jurisdiction and activities withheld from its jurisdiction. None of one activity should bear any of the charges which properly should be borne by the other. In section 6 of the proposed amendments provision is made for a more prompt hearing of applications for certificates. It also authorizes the construction of additional facilities to enable a natural-gas company to supply increased demands in its existing markets without obtaining additional certificates. This provision does not, as asserted by some, require the issuance of a certificate in noncontested cases. It merely gives the Commission the discretion to do so if it thinks such an issuance is appropriate on the showing made in the applications. The Commission remains free to hold a hearing in any case. The authorization for an increase in facilities without an additional certificate is applicable only where a certificate has previously been issued authorizing the service of the markets involved. As demands in those market increase, why should not the increased demands be serviceable under the original certificates? This provision is comparable to the one contained in the Motor Carrier Act. THE QUESTION OF PRICE "RIGGING" During the hearing some inquiry was made as to whether or not an interstate pipe line can influence or "rig" the field prices of gas to hamper adequate regulation of burner tip rates. Those suggesting this possibility overlook the fact that the market value of gas, or its fair value, will be determined primarily by the local competitive conditions. There are now competitive demands in many of the fields for local purposes-for intrastate pipe lines use, for smelter and other industrial use, for carbon black purposes, for ammonia, etc. In addition, numerous pipe lines bidding for gas and seeking contracts enter into the competitive picture. It must be kept in mind, as evidence in this hearing has shown, that only approximately 11 percent of the total gas reserves are owned by pipe-line companies, with 89 percent being owned by other producers. Of the total gas produced in 1946, 82.6 percent was produced by oil and gas producers other than pipe-line companies, and 17.4 percent by 89 of the largest gas companies. This shows that the production of gas is very substantially in the hands of the non-pipe-line producers. It must be also remembered that in the various major gas fields no one company can exercise a dominant influence on the price of gas. In the Texas Panhandle field there are 10 large pipe-line companies. In the Hugoton field of Oklahoma and Kansas there are four large pipe-line companies. In the Carthage field of Texas there are five major pipe-line companies, all in the process of making contracts for gas. These are three of the largest individual fields in the United States and are illustrative of the general situation. During 1946 Lone Star Gas Company purchased approximately 78 percent of its total requirements from non-affiliated interests; United States Pipe Line Company purchased approximately 80 percent; Tennessee Gas & Transmission Company, 100 percent; the Northern Natural Gas Company, 83 percent; the Consolidated Gas Utility Company, 55 percent; and the Panhandle Eastern Pipe Line Company, 60 percent. It is clear, therefore, that in view of the competitive outlets for gas in the field, both for local utilization and for interstate transportation, real competitive field prices will result and make it impossible for any pipe-line company to "rig" the price and thereby hamper adequate regulation of burner-tip rates. It is obvious that the. Commission in fixing the value of gas in the field will be governed by competitive prices and not by fictitious prices which might be paid by some individual company or companies for the purpose of establishing an unreasonably higher price. There has been some reference during the hearing to sales made directly by the pipe-line company to industrial consumers. The evidence shows that in order for long-distance pipe-line companies to render service to the public at reasonable rates they must maintain a high load factor through sales of large quantities of gas for industrial purposes frequently subject to interruption in periods of peak demand by domestic consumers. Such companies must have a constant market for gas which will permit them to utilize their facilities at a high capacity rate in order to reduce the unit cost of the gas transported. The only way they can maintain a high load factor is to sell such industrial gas at rates which will compete with oil, coal, and electricity in the consuming areas. It was recognized by the Congress in 1938 that these direct sales to industrial consumers should not be subject to the Commission's regulation. No direct sales purchaser has complained of the lack of regulation. It is obvious that the pipe line company must be in a position where it can control the amounts of gas delivered under these interruptible contracts and interrupt deliveries at a moment's notice. The ordinary utility principles are not applicable to these direct sales. There is nothing to show that the judgment of the Congress in 1938 in this respect should be revised. The CHAIRMAN. We appreciate your willingness to assist the committee in coming to a closing of the hearings this afternoon. Mr. RIZLEY. Thank you very much, Mr. Chairman. Very briefly now, if I may summarize as best I can some of the things that have been brought out in the testimony by those opposing this legislation, I would like to do so. First I think we should take a look, briefly, at the opposition to this proposed legislation. First we have the gentlemen who are represent ing the coal interests of this country. I am certainly not falling out with them for being here to do anything that they may think is necessary to protect the interests of coal. They consider natural gas a competitive fuel, and naturally we would expect them to be here presenting the views as to why legislation such as this, which has for its purpose a freer flow of natural gas to the consuming public, which will in some respects have some impact on the coal industry—but I think the testimony shows that the extent to which it would cause any impact on the coal industry is so minimized that no one need to be too alarmed by that. Then we have the railroad interests, not to any alarming extent, but in a limited way, who are opposing the legislation probably for the same reason they seem to think that if we get too much natural gas flowing through pipe lines to the consuming public in the industrial East, and in the heavy-populated centers of the East, that maybe they will have less coal, or maybe less oil to transport, and so I think we can properly weigh their testimony in view of that." Then we have another group which were represented here in a limited way by an association of counselors who are representing some of the cities, and express some fear that perhaps this legislation might increase the cost of gas to the consuming public. I said in my original statement-I think most of the witnesses stated that even if these new definitions that we are asking for in this bill became the law, that the increased cost of gas to the consumer would be nominal, if any at all. I might say that, while the counselors representing Cleveland, Ohio, Kansas City, Mo., and three or four other cities in the country, were here opposing this legislation, that there are in the record statements from mayors, from chambers of commerce, from representatives of other city counselors, that were filed at the beginning of this hearing, some 30 or 40, in which they are requesting the enactment of this legislation, thinking it will be beneficial to their communities. I refer briefly to the city of Fairbury, Nebr.; St. Paul, Minn.; Albert Lea, Minn.; Faribault, Minn.; Faribault Association of Faribault, Minn.; Omaha Manufacturers Association, Omaha, Nebr.; city of Lincoln, Nebr.; State Land Commission of New Mexico: Akron Chamber of Commerce, Akron, Ohio; city of Gulfport, Miss.; city of Carlsbad, N. Mex.; city of Pensacola, Fla.; City of Chattanooga, Tenn.; city of Bradford, Pa.; city of Austin, Minn.; Lincoln Chamber of Commerce, Lincoln, Nebr.; and I can go on and on. Those I have just mentioned appeared by statements at this hearing. In addition when hearings were being conducted by the Federal Power Commission over the country on docket 580 other organizations, city chambers of commerce, etc., appeared. Here is a list of names consisting of a full page, and whose names I shall submit for the record, who testified and expressed opinions in connection with the advisability of such legislation as we are offered in the hearings in docket 580. Now we finally get down to the Federal Power Commission. The CHAIRMAN. The list to which you have referred will be made a part of the record. Mr. RIZLEY. Thank you, very much. (The list is as follows:) To: House Interstate and Foreign Commerce Committee. I wish to call the attention of the committee to a number of cities and towns, and civic organizations endorsing this bill, among them are the following: Department of Utilities, city of Fair- Minnesota Resources Commission, St. City of Albert Lea, Minn. City of Faribault, Minn. City of Austin, Minn. The Lincoln Chamber of Commerce, City of Roachdale, Ind. St. Paul Association of Commerce, The Better Faribault Association, Fari-City of Owatoona, Minn. In addition when the question of natural gas was being discussed in docket G-580 before the Federal Power Commission, two hearings were held particularly for consumers' interests, and in the record of these hearings to wit: Chicago, Ill., and Charleston, W. Va., the policies embraced in this legislation were endorsed by personal appearances and resolutions by the following cities and civic associations. City of Lecenter, Minn. City of Jordan, Minn. Iowa Development Commission Louisville Industrial Foundation Lieutenant Governor, State of Michigan. City of Lansing, Mich. City of Grand Rapids, Mich. Mayor of Dearborn, Mich. Mayor of Flint, Mich. Mayor of Battle Creek, Mich. City of Saginaw, Mich. Mayor of Jackson, Mich. City manager, St. Joseph, Mich. City of Ypsilanti, Mich. City manager, Royal Oak, Mich. Minneapolis Civic and Commerce Com- Research engineer, Minneapolis, Minn. Public utilities engineer, St. Paul, Minn City of New Ulm, Minn. Chamber of Commerce, Mankato, Minn. Mayor, Rochester, Minn. President, Niagara Frontier Builders' Industrial engineer, Dunkirk, N. Y. Ohio Development and Publicity Com- City of Wauwatosa, Wis. Common Council, Milwaukee, Wis. City of Racine, Wis. Wisconsin State Chamber of Commerce Superintendent, Municipal Works, Ypsi- City of Oshkosh, Wis. lanti, Mich. City manager, Pontiac, Mich. City attorney, Ferndale, Mich. City of Sheboygan, Wis. Wisconsin Council of Agriculture Mr. RIZLEY. I was interested very much in the able presentation made by the Chairman of the Federal Power Commission, Mr. Smith, in support of its opposition to these proposed amendments. If I may be just a little facetious, it reminded me somewhat of the time I was 61167-47- -46 |