FUEL INVESTIGATION THURSDAY, FEBRUARY 12, 1948 HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D. C. The committee met at 10 a. m., in room 1334, New House Office Building, pursuant to adjournment, Hon. Robert Hale presiding. Mr. HALE. The committee will come to order. The committee is informed that Mr. James V. O'Connor, Chief, Division of Gas Certificates, Federal Power Commission is here this morning and prepared to testify. Mr. O'Connor. STATEMENT OF JAMES V. O'CONNOR, CHIEF, DIVISION OF GAS CERTIFICATES, FEDERAL POWER COMMISSION, WASHINGTON, D. C. Mr. O'CONNOR. Mr. Chairman. Mr. HALE. The committee will be glad to hear you, Mr. O'Connor. Mr. O'CONNOR. When Mr. Stevenson, of the committee staff asked me last Thursday to be prepared to talk about the gas shortage, I had the impression that we were to talk about the shortage throughout the entire United States, and threw some material together rather hurriedly, but I did not get any prepared statement ready, so I will have to talk extemporaneously. Now, I have been in the hearing room and we have talked about Detroit and Michigan for the past 2 days. I will be glad to talk about that phase of it, but I think that the committee, before we get through, should have a general picture of the gas shortage throughout the United States. Am I right, Mr. Chairman? Mr. HALE. There is no information about fuel shortage which the committee will scorn, but this particular hearing relates to the Detroit situation and the committee is very anxious to do something about the Detroit situation immediately, if that is possible. So that this morning, I think that you might do well to confine your testimony to Detroit. Mr. CROSSER. Mr. Chairman, may I ask the witness to give his name and his official position, so that we may be sure of it for the record? Mr. O'CONNOR. My name is James V. O'Connor. I am Chief of the Division of Gas Certificates of the Federal Power Commission, and in that position I am responsible for the engineering work on applications for certificates of public convenience and necessity to construct and operate pipelines and also handle matters of adequacies and inadequacies of gas supplies, market demand and related infor mation. If we are going to limit ourselves to the Detroit situation, perhaps I could start off by briefly going back and indicating something regarding the nature of the Panhandle Eastern Pipe Line Co.'s operations, just briefly. The company's pipe line originates in the Panhandle field of Texas and the Hugoton field of Texas, Oklahoma and Kansas, and extends across Texas, Oklahoma, Kansas, Missouri, Illinois, Indiana, into Michigan, and across a corner of Ohio. The company serves about 62 utility customers. Practically all of the utility customers served in Illinois and west of Illinois are served under contracts which provide that Panhandle will supply the entire requirements of the distributing utility; the entire natural gas requirements. With respect to utilities in Indiana, Ohio, and Michigan served by the company, the contract provides that it will supply either the entire requirements of the customer up to a certain maximum daily amount or that it will merely serve a certain volume of gas per day which may be a small part of the customers' total requirements. The Panhandle Co. also serves a few direct industrial customers, practically all of whom are served on an interruptible basis. In the State of Michigan, Panhandle serves Michigan Consolidated, delivering gas to that company for the Detroit area under a contract which has a limitation of 125,000,000 cubic feet per day as a top figure. Panhandle also delivers gas to Michigan Consolidated for distribution in Ann Arbor and adjacent communities. Panhandle sells gas to the Michigan Gas Storage Co., which was formed about 2 years ago and which company serves the Consumers Power Co. Panhandle also delivers gas to the Battle Creek Gas Co.; the Albion Gas Light Co.; the Citizens Gas Fuel Co., serving Adrian, Mich.; and the National Utilities Co., serving Monroe. Panhandle also serves two direct industrial customers in the State of Michigan, the Albion Malleable Iron Co. at Albion, Mich., and the Michigan Seamless Tube Co., at South Lyon, Mich. Like practically all other pipe-line companies in the United States, since the end of the war and with removal of wartime restrictions on the use of gas, and with the removal of wartime restrictions on the manufacture of gas-consuming appliances, Panhandle has experienced a rapid growth in the demand on its system. The company first began to have some difficulties in the winter of 1945-46. At that time the company began to exercise the legal right that was in its contracts to interrupt service of interruptible industrial customers. They had been unaccustomed to that sort of treatment, because before the war the gas business was not in such favorable circumstances, and there was always plenty of capacity and not anywhere near the demand; so, despite the interruptible feature of the contract, the service was practically uninterrupted. The people who were affected by these curtailments communicated with the Commission and we attempted to take care of the situation. on a day-to-day basis. It was quite evident that the load on the Panhandle system was going to continue to increase, and in the summer of 1946, there were a number of conferences conducted by the Commission, at which representatives of the Panhandle's customers and the State commis sions in the areas which it served conferred with our Commission for the purpose of working out arrangements whereby the load on the Panhandle system would be curtailed at various times as the temperature went down and the load went up, so that it exceeded the capacity of the system. These conferences resulted finally in a voluntary agreement among the customers of Panhandle, in Chicago, I believe it was, in December 1946, under which a so-called curtailment schedule was agreed to. That curtailment schedule or order remained in effect until April 30, 1947. Upon the urging of representatives of some of the State commissions, the Commission extended that order without further hearings to carry it on through the summer for the purpose of providing some means of controlling the load. I might say that during those conferences in 1946 it became quite evident to everyone there that some means of controlling this load had to be put into effect. One of the things that everyone thought of was some provision for controlling the addition of new house heating installations. It seems as though practically every new home being built in the country wants to have some sort of automatic heat and most of them want gas, because it is a little bit cheaper than oil. There were some difficulties in getting any such controls in. The Federal Power Commission has no authority over such matters. It urged the State commissions to take action. Some of the commissions were quite active and apparently they have statutory authority which permits them to take prompt action and they either ordered strict limitations on new house heating jobs or they got the utilities to file new rules which allowed the utilities to refuse to serve new house-heating jobs. That was particularly true in Illinois and Indiana and Michigan. Some of the eastern States were a little bit slower in getting around to a realization of what tremendous increases in load this house-heating business was putting on their systems, and when one of the eastern companies in Ohio finally did attempt to stop new house-heating installations, one of its customers took them into court and the Ohio courts ruled that the company could not prevent this new househeating business from going into effect. It was also realized that not only was it necessary to control house heating, it was also necessary to control growth industrial gas sales. Panhandle Eastern has, in some measure, the means of controlling the growth of large industrial business on its system. That is with the respect to the attachment of new large industrial customers, because under its rate schedules filed with the Federal Power Commission it must approve or agree to the attachment of any such new large customers, and since about the end of the war it has refused to approve any such attachments. However, existing industrial customers continue to increase their consumption, as production of their products increased. Mr. SADOWSKI. When they increase their capacity, that is, these industrial users which are already tied in on the line, does the pipe line company have to come to you for permission to give them this increased load? Mr. O'CONNOR. No, sir. Mr. SADOWSKI. Not if they are old established customers? And, one Michigan company has taken what I consider probably the most severe position with respect to control of this industrial business and probably the most effective way. That is the Consumers Power Co. It got an order from the Michigan Public Service Commission last October which gave the company the right to refuse to serve any new commercial or industrial customer who used more than 25,000 cubic feet a month, and which prohibited existing commercial and industrial customers from increasing their consumption by more than 25,000 cubic feet a month above what they used in the corresponding month in the previous year. In that way total demand or load on the company's system can be held pretty well in check until such time as an increased supply can be made available. Mr. SADOWSKI. They can restrict then the use of commercial users? Mr. O'CONNOR. They now have restrictions on house heating which they have had in effect since 1946, and in 1947 they began to restrict commercial and industrial sales, so they now have restrictions on every use on the Consumers Power Co. system. Mr. SADOWSKI. Restrictions on home use were put on ahead of the commercial use? Mr. O'CONNOR. Yes, sir; so far as house heating is concerned. There are no restrictions on use of gas for Mr. SADOWSKI. For cooking? Mr. O'CONNOR. For cooking, water heating, and refrigeration, the loads which do not put much of a demand on the gas company. They are pretty regular, run pretty uniform throughout the year. The Commission conducted further conferences in 1947 for the purpose of determining rules for the curtailment of the load on the Panhandle Eastern Pipe Line Co.'s system for this current winter. Those conferences began in Chicago on about May 4th, at which time all of the utility customers of Panhandle were invited and all of the State commissions in the Middle West. The Commission's first thought was that we could again work out through a cooperative procedure a voluntary arrangement under which these curtailment systems would be provided. There were numerous conferences on the subject, but the gas was getting tighter and everybody was getting a little bit more selfish as it got tighter. We finally had to have hearings on the matter and we finally had to issue an order after the conference and voluntary procedure method failed. Some of the utilities during all of these conferences felt that the cooperative method in which the utilities worked out their own problem and presented a plan to this Commission was the best and they tried hard to get that method worked out. I might say that the company which serves Detroit and which is in distress now is the one which exhibited some of the least cooperative spirit in connection with this voluntary method. Mr. HALE. Will you repeat that? I did not hear that. Mr. O'CONNOR. They exhibited about the least cooperative spirit toward this voluntary method of working out this problem. Mr. HALE. Who do you mean, the Panhandle? Mr. O'CONNOR. No; the Michigan Consolidated Gas Co. It walked out of the first conference we had after a rather heated pas sionate statement by their attorney and they never would participate in any of these other conferences. They had observers, but they would never participate. Now, all of these conferences and hearings resulted in the Commission issuing its Opinion No. 161, in dockets G-200, G-207 and an order dated November 25, 1947, which now controls the delivery of gas from the Panhandle system until June 1, 1948. It tells how much the various customers have to curtail their use of gas as the load goes up, particularly these industrial customers. It tells how much the various utilities must curtail their demand on Panhandle and with respect to the Michigan Consolidated at Detroit it provides that under certain conditions, well, first provides that they shall receive 125,000,000 cubic feet per day. That is the contract quantity. And then under certain conditions of difficulty on the Panhandle system, namely, under so-called steps 3 and 4, Panhandle shall deliver less than 125,000,000 cubic feet per day. Mr. SADOWSKI. I do not quite understand that. Under steps 3 and 4 Panhandle shall deliver less than 125,000,000 cubic feet per day? Mr. O'CONNOR. Yes, sir. Mr. SADOWSKI. What does that mean? Mr. O'CONNOR. Well it would mean that Michigan Consolidated Gas Co. would either have to curtail industrial use or if it had the facilities available it would have to make up the reduction in delivery from the Panhandle system by increasing production of manufactured gas in Detroit. Mr. SADOWSKI. Well, it is not the Michigan Consolidated that we are interested in. We are interested in the people of Detroit who need this gas. That would mean curtailment upon the users of gas? Mr. O'CONNOR. That is right, sir. Mr. HALE. What is this docket from which your are reading? Mr. HALE. Can you give us the page that that appears on? Mr. O'CONNOR. I am going to have to find that in here myself. It is on page 2 of appendix C to exhibit 1, sheet 1 of 2, about the second to the last page in this document. It shows that when step 4 curtailment on the Panhandle system is in effect, Panhandle Eastern is to deliver to Detroit 118,102,000 cubic feet. Now, when step 3 is in effect there is to be delivered, according to exhibit 1, sheet 2, 121,551,000 cubic feet. Perhaps I should state what these various curtailment steps are. I believe other witnesses have mentioned them, but to make sure we all understand, for the purpose of these hearings, the requirement of the rules that the Commission made places Panhandle's utility customers in two classes; one called the full requirements class. Those are the utilities which have agreed to buy all of their gas from Panhandle. Then the second group are the partial requirements customers. Those are the customers who have agreed to buy part of their gas requirements from Panhandle. With respect to this curtailment, the first step and the second step of curtailment's effect only the full requirements customers. In the |