"The only thing it (H. R. 6586) proposes is to attempt to regulate the price at which natural gas shall be sold at wholesale."

With respect to the fear which some Members of Congress had that there might be room in this legislation for an extension of Federal power by misconstruction of the intent of the Congress, we call attention to the statement of Senator Connally, the Senator from Texas, on this point (Congressional Record, Aug. 19, 1937, p. 9313):

"Is it not also true, even though the utility commissioners advocate it (H. R. 6586), that whenever a Federal agency takes over an activity such as this the State authorities begin to shift or lose their responsibility? If we turn this over to the Interstate Commerce Commission, essentially what they do will be reflected all over the country, because the interstate rates will be superimposed on the State commissions and they must necessarily be governed by them. Did not that happen to the railroads?"

In answer to this expression of apprehension by Senator Connally, Senator Wheeler replied:

"Mr. WHEELER. There is no doubt about that, but this is an entirely different situation.

"Mr. CONNALLY. Yes; one involves the railroads and the other involves gas. "Mr. WHEELER. No. * * * It applies only as to interstate commerce and only to the wholesale price of gas."

We request that particular attention be paid to the use of the word "price" as used by Senator Wheeler in the above declaration. What is the "wholesale price" of gas? The "wholesale price" of gas could mean only one thing, namely, the price paid by distributors for gas delivered to them in wholesale. There is no other meaning possible under the language of the bill as clearly interpreted by the Members of Congress at the time it was enacted into law. Any other construction must necessarily be strained and is to read something into the statute that is not there, and must as a result defeat the plain unequivocal intent and purpose of the Congress in passing the legislation.

Also, further in the debate the intent and purpose of the legislation is further clarified by the following (Congressional Record, August 19, 1937, p. 9315): "Mr. BULKLEY. The city of Cleveland uses gas imported from West Virginia; and the company which distributes the gas buys it in West Virginia from another corporation that is owned by the same people. How can we get around that?"

"Mr. WHEELER. Simply because of the fact that under the bill, if the gas is shipped in interstate commerce, the Federal Power Commission has the right to investigate 'and say whether or not the company which ships it charges a fair rate for the wholesale gas which it is selling to the city of Columbus or the city of Cleveland. At present, that cannot be done. No one can say whether the price charged is a fair price, or whether it is a high price, or whether the city of Cleveland or the city of Columbus is being robbed. When efforts are made to get that information they are blocked by injunctions in the lower Federal courts because it is said that the city has no authority over interstate commerce."

Is there any possible room in this explanation of the bill by the chairman of the Interstate Commerce Committee of the Senate that would warrant the construction that sales of gas by an individual producer at the well-head, on the lease, in the field or area where produced, is brought within the jurisdiction of the Federal Power Commission? On the contrary, is it not equally obvious that the words "sale for resale for public consumption" as written into the statute by the Congress, had reference solely to wholesale deliveries of gas by interstate transporters to local distributors; for example, the sales made to the Cleveland city distributor by the natural-gas pipe line company engaged in transporting the gas from West Virginia to Ohio, referred to by Senator Bulkley. We reiterate that a sale of natural gas by an individual producer to a trunk pipe line is a sale for transportation and not for distribution. As a simple physical matter the only sale that can be made for resale for public consumption is a sale made to a distributor that resells to consumers. The legislative history in connection with the writing of this legislation and its passage by both branches of Congress is so definite, clear, and convincing on this point that we do not believe it is possible to construe the act otherwise without doing violence to the plain letter of the law. We submit that no language can be found in the statute or in its stated purpose by the congressional committees that prepared the legislation or any Member of the Congress that enacted it into law for overriding the plain command of section 1 (b) excluding the production or gathering of gas from regulation under the act. The language of the statute could not have been more carefully chosen to accomplish a complete exemption of production or gathering from the purview of the law. The exclusion of production and gathering from the operation of the

statute is complete and without qualifying condition of any character whatsoever. The legislative history is unanimous in declaring the intent and purpose of the law.

To disregard the command of the law is to usurp the powers otherwise reserved to the States contrary to the words and purpose of the act and results in government by bureaucracy not only without the authority of the Congress but in direct contravention to the clear intent of Congress.

II. THE COMMISSION DOES NOT HAVE JURISDICTION TO REGULATE END USE OF GAS The Commission has said, in connection with the application of the Tennessee Gas & Transmission Co. for certificate of convenience and necessity (docket G-230, opinion 93A, adopted September 24, 1943), that the Natural Gas Act does not vest the Commission with complete and comprehensive authority which would permit it to act as arbiter over the end use of natural gas. The insistent urgings of competitive fuel industries, however, that the Commission should take into consideration and give weight to the factor of "superior" and "inferior" uses of natural gas in granting certificates of convenience and necessity for the construction of interstate natural-gas pipe-lines and the importance that this theory assumed in the natural-gas investigation just completed, cause the producers of oil and gas to be apprehensive that end use control of gas may become an established practice of the Commission through indirection, by requiring what it deems to be a "superior" use of the gas as a condition precedent to the granting of certificates of convenience and necessity.

The large amounts of gas that have been discovered incidentally in prospecting for oil, have flooded the market, resulting in prices in some areas below the cost incident to producing, gathering, and delivering the gas into high-pressure lines. Since more than half of the natural-gas production of the United States is produced with, and as a part of, oil production, and since the oil may not be produced without at the same time producing the gas, and since returning the gas to the producing horizon in many cases is not economically feasible, gas has become a drug on the market in many fields, and as a result of such conditions Mr. E. DeGolyer testified during the gas investigation on hearings (XXIII-3589) that approximately a billion to billion and a half feet of gas is being flared daily in the State of Texas. It seems obvious that any attempt to conserve through restrictions against socalled inferior uses fails miserably as an attempt at conservation. No use of gas can be inferior to its burning in an oil field flare, which, of course, is no use of the gas at all. To further restrict the market for natural gas by placing limited or specified conditions upon the use of it, is to encourage the further waste of existing surplus gas rather than to conserve it. The problem is one of encouraging the use of gas and the finding of new uses rather than to restrict its use. One of the most difficult problems confronting oil producers in the midcontinent area at the present time is the disposal of gas produced with oil. Any rule or regulation of the Federal Power Commission, or any other agency, that would result in or have a tendency to reduce the amount of gas being consumed would emphasize the problem and make its solution more difficult.

The oil industry in recent years has made great progress in the conservation of gas produced with oil through the installation of equipment for returning the gas to the producing horizon for the purpose of maintaining reservoir pressure, thus prolonging the flowing life of oil fields and using the reservoir incidentally for the storage of gas which may be produced and used at some future time. The record of the gas investigation just completed is replete with instances of this character of installations. The witness, George Fancher (XXVI-4056) pointed out that waste in Texas has dropped from 37 percent, or a total of 380,000,000,000 feet in 1934, to 4.57 percent in 1944, or a total in that year of 111,000,000,000 feet. Much of this 111,000,000,000 feet is casinghead gas which has been processed for natural gasoline. The oil industry is continuing its study of this problem seriously and with the determined objective of reducing the waste of oil-well gas to a minimum. Increased uses for gas and expanding markets would be of inestimable assistance. The witness, DeGolyer (XXIII-3588), observed:

"Conservation of oil-field gas is largely a matter of the price at which the gas can be sold. Gas can be collected, processed, and sold only when the net cost of so doing is less than the price which is to be received therefor."

Restrictions upon or control of the use of gas would result in shrinking the market for gas and thereby further widen the breach between the present oversupply

and demand. Supply and demand have always been the immutable economic law by which prices were controlled. No industry is in more need of greater demand to balance its supply than the natural-gas industry.

The great quantity of gas available from the oil and gas fields of the midcontinent area and the comparatively few interstate pipe lines serving the area have made it physically impossible as well as economically impractical for these pipe lines to connect with and take gas ratably as between fields or even between separately owned properties within the same source of supply. Thus, the protection of correlative rights has been a serious problem of the State regulatory bodies and the industry. To further depress or minimize the market by imposing restrictions of use upon the gas being transported and sold in interstate commerce is to enhance and emphasize this difficult problem to the detriment of the producers and thousands of individual owners of the mineral and royalty interests.

We submit that the Natural Gas Act does not confer any such implied powers or jurisdiction upon the Commission. It seems clear that the language of the statute "sale for resale for ultimate public consumption for domestic, commercial, industrial, or any other use”—excludes the possibility that the Commission has power or jurisdiction to determine the manner in which the gas might ultimately be used. It seems obvious that if the Commission assumes jurisdiction to control the transportation or sale of natural gas for specific uses that it is, in effect, controlling distributors and consumers who are not within the purview of the statute. Although the Commission was delegated authority to regulate interstate sales for resale for ultimate public consumption for domestic, commercial, industrial, or any other use, the nature or character of the use is not a subject for determination by the Commission.

It is true that by amendment of section 7 of the act, approved February 7, 1942, Congress provided:

"The Commission shall have the power to attach to the issuance of the certificate and to the exercise of the rights granted thereunder such reasonable terms and conditions as the public convenience and necessity may require."

We urge, however, that an administration of the act in such manner as to assert controls and limitations which directly affect persons and activities not within the scope of the law is an unreasonable interpretation of any inference that may be drawn from the above-quoted language. Certainly any restriction or regulation that would control the end use of gas is a restriction and control of the distributor and the consumer as well as the interstate wholesaler. By the same token, such controls and restrictions reach back to the producer and gatherer.

The standards set forth in section 7 of the National Gas Act, as amended, contain no language that can reasonably be interpreted as requiring the Commission to exercise control over end-use of gas by indirection through its power to grant or deny certificates of convenience and necessity.

The production of natural gas, for the prevention of waste and the protection of correlative rights, and its intrastate transportation and sale to local consumers are clearly within the regulatory jurisdiction of the State. Certainly the scope of Federal jurisdiction does not extend to the regulation of the use for which gas may be transported from Texas gas fields and sold to Texas consumers, nor may the State of Texas prohibit or interfere with interstate transportation and sale of natural gas to the citizens of Missouri (Pennsylvania Gas Co. v. P. S. C., 252 U. S. 23, 40 Sup. Ct. 279, 64 L. ed. 434 (1920); Okla. v. Kan. Natural Gas Co. (221 U. S. 229, 31 Sup. Ct. 564, 55 L. ed. 716 (1911)).

Thus, under the application of the regulated end use of gas in interstate commerce, the citizens of Texas and other gas-producing States, with complete immunity, are privileged to use gas free of all Federal restrictions, while the citizens of Missouri and other nonproducing gas States, by Federal regulation, are denied the same privileges and immunities.

Section 2, article 4, of the Federal Constitution expressly provides: "The citizens of each State shall be entitled to all privileges and immunities of the citizens in the several States."

There can be no economic reasons involved. The economic situation with respect to the use of gas for specific purposes in Texas is no different than in Missouri. We are, therefore, brought to the conclusion that the regulation or end-use control of gas moved and sold in interstate commerce is viewed by the Commission as a social problem. End-use control would be enforced as a conservation measure for the future benefit of that portion of the Nation's citizenry dependent upon interstate commerce for a supply of natural gas. Such however

is a policy matter and the Congress is the policy-making body under our form of government. Federal commissions or Federal bureaus may not make national policy. The "social" welfare of the users of gas is not a concern of the Federal Power Commission. The regulation of the transportation and sale of natural gas in interstate commerce "for resale for ultimate public consumption for domestic, commercial, industrial or any other use" is the sole and total extent of the powers delegated to the Commission by the Congress.

If natural gas transported and sold in interstate commerce is to be restricted or controlled for specified uses, then certainly such policy is a matter for the determination of the Congress. If and when Congress determines the advisability of such policy and satisfies itself as to the constitutional ability of the Federal Government to enforce such policy, the necessary machinery, by statutory action, must be set up for such purpose. We submit that to date no such policy has been adopted by the Congress and that no enforcement machinery has been created, either under the Natural Gas Act or any other Federal statute.

A great deal can be said with respect to the inadvisability of any such policy and the results to which it would inevitably lead. It would be as logical to contend that the Federal Government might prevent the movement or transportation of refrigeration or air-cooling facilities into the cooler climates of the United States while allowing transportation of such equipment into the warmer parts of the country, thus favoring one group of its citizens as against another group because of their geographical location.

Lead and zinc are produced in the State of Missouri. Lead and zinc are exhaustible natural resources. What would be the public's reaction to a national policy that prohibited interstate movement of lead and zinc from Missouri into other States except for specified or controlled uses? The same analogy may be readily drawn with respect to coal, oil, iron, copper or any other natural resource. If the uses of natural gas may be controlled or specified, then the theory may be as consistently extended to all articles of commerce. If the Federal Government possesses the power to impose specified uses of articles of commerce moving between the States, then it can destroy one area for the benefit of another. The social, economic and political aspects of such power are fearful to contemplate. The commerce clause of the Constitution was intended to protect and preserve the operation of all legitimate aspects of interstate commerce and not to prohibit it. The exercise of Federal authority under the commerce clause "in reverse" is to build an economic wall around the States and create thereby a divided nationalism. It would, at the same time, bring into play the power to nationalize all industry and destroy traditional private enterprise that has so admirably supplied the conveniences and necessities of the American people.

A national policy of regulating the use of natural gas, or any other natural resource or article of commerce, is to kill the incentive of the scientist, the inventor and the industrialist. The theory is entirely foreign to our form of government and amounts to a change of our constitutional form of government without the consent of the people. Stability in government has been the moving force that has made Americans the wealthiest and happiest people on earth. During our brief national history, France had three empires, three republics and since then Petain, DeGaulle and the present government--a total of nine different governments in a hundred years. Under such conditions, could it be expected that French businessmen could have built as great a country as we have under our Constitution?

The arbitrary determination that gas may not be transported into and used for industrial purposes because it competes with coal, or some other fuel that is produced in the area, results in the giving of a monopoly to one industry while denying the freedom of competitive enterprise to another. If such is to be the national policy, then it follows that the industry which is guaranteed a monopoly must pay the price of a regulated monopoly, the net result being that another industry is nationalized and the rights, freedoms, and liberties of the people have been proportionately reduced.

Free competition and the profit system are the best arbiters of efficiency and price.

III.

INVARIABLE FORMULA OF HISTORICAL DEPRECIATED COST FOR RATE-MAKING PURPOSES IS WRONG IN PRINCIPLE. LEADS TO DISCRIMINATION AND RESULTS IN REGULATING PRODUCTION AND GATHERING CONTRARY TO THE TERMS OF THE STATUTE In the interest of continued exploration for new sources of oil and gas, and the further developments of known reserves of oil and gas, it is the position of our association that the application of the "restricted earning rule" by the Federal Power Commission to producing properties of interstate natural-gas companies, should be discontinued. The application of this rule which, in effect, limits the earning capacity of such producing properties to a fixed percentage based on the depreciated historical cost has placed the exploration and development phase of the natural-gas industry in jeopardy. It has depressed the price of gas produced from both natural gas fields and gas produced with and as an incident to oil production, and encouraged the waste of this valuable natural resource. This is true for the reason that if natural gas companies are limited to the "restricted earning rule" with respect to gas produced from their own properties, the natural and inevitable result is a tendency to lower the field price for gas purchased from independent producers to a comparable level in order to compensate for the loss thus sustained in connection with its own properties. As suggested by Mr. E. DeGolyer at the Houston hearing of the natural gas investigation of the Commission, "value so arbitrarily and unrealistically determined in the case of oil and gas properties could and do present the future ridiculous paradox of widely different values for apparently identical properties" (XXIII-3586). In pointing out the discrimination thus brought about by the application of the Commission's rule, the witness DeGolyer had this further comment (XXIII-3587):

"Surely the paradox of gas produced from a well at a price of less than 2 cents per thousand cubic feet while that from an offset well may sell for a price of 3 to 5 cents per thousand cubic feet cannot endure forever."

The formula adopted by the Commission, with respect to the producing properties of natural gas companies, for rate-making purposes, is obviously wrong in principle, leads to gross inequities, and results in burdening the activity of production and gathering with Federal regulation contrary to the intent of Congress and the terms of the Natural Gas Act. It is the legal obligation of the Commission to apply the act in such manner as not to impose controls upon production or gathering activities or the facilities used in connection therewith. The Commission has done this in connection with natural gas purchased from independent producers by allowing the purchase price of the gas as an expense of doing business. There is no reason why the same result may not be accomplished with respect to the producing properties of a natural-gas company. lt is a specious argument for the Commission to say that the regulation of gathering and production is a necessary incident to the exercise of its proper legislative power to regulate interstate rates of natural-gas companies.

The evaluation of the many complex factors entering into the determination of the worth of an oil or gas property is, in the final analysis, a matter that is wholly within the judgment of the appraiser. The Commission could not adopt any hard and fast formula that would be infallible. The Congress long ago recognized this truth with regard to the valuation of oil and gas properties for income-tax purposes. Percentage depletion has been universally accepted simply because of the inability of the Congress, the administrative officials or the industry to devise any standard formula by which the value of producing oil and gas leases may be determined with any degree of exactness.

It is admitted by all that regulated rates for natural gas to be just and reason. able must produce results which will equal the cost of service, including a profitable and reasonable return on the property used. The problem has always been in determining what constitutes cost of service. Certainly, the major factors or elements of cost of service may be said to be a reasonable return on the property used and the cost or value to be placed on the supplies of gas received into the transportation facilities of the natural gas company.

The Commission's stated objective to regulate the transmission and sale of natural gas for resale so as to produce the lowest possible price to the consumer,