Interstate transportation and exports of natural gas in 1935

[Prepared under the supervision of G. R. Hopkins, Assistant Chief Economist, Petroleum Economics

The CHAIRMAN. I believe then that that concludes the hearings of the committee on this bill, and the committee will adjourn to meet next Tuesday morning to begin hearings on a bill on aviation. (Thereupon, at 4:35 p. m., the committee adjourned.)

NATIONAL ASSOCIATION OF RAILROAD AND UTILITIES COMMISSIONERS,
Washington, D. C., March 29, 1937.

Hon. CLARENCE F. LEA,

Chairman, House Interstate and Foreign Commerce Committee,

Washington, D. C.

DEAR SIR: A joint meeting of the executive committee of this association and of the association's committee on legislation was held on March 26, 1937, for the consideration of legislative matters.

The provisions of H. R. 4008 were considered for the purpose of determining whether that bill will provide regulation of the character requested in the resolution heretofore adopted by this association, and presented at the hearing on March 24, 1936. Consideration was also given to the situation existing in Illinois, where the Illinois commission finds itself impeded by injunction proceedings in the Federal courts in its undertaking to discover what it costs the interstate pipe-line company to deliver gas in Illinois, although the commission is seeking that information only for the purpose of determining what the reasonable expenses of the local distributing company ought to be, and what price for gas sold in the Chicago area should be approved by the commission as just and reasonable. A resolution was unanimously adopted endorsing H. R. 4008, amended as requested on behalf of this association at the hearing on March 24. I attach a copy of the resolution hereto, and ask that it be printed as if presented at the hearing.

Yours very truly,

JOHN E. BENTON,
General Solicitor.

A resolution adopted by the executive committee of the National Association of Railroad and Utilities Commissioners on March 26, 1937

Resolved by the executive committee of the National Association of Railroad and Utilities Commissioners, That the position of said association declared by resolution at its forty-seventh annual convention, in favor of the enactment of Federal legislation providing for the regulation of the interstate transmission and sale of gas at wholesale for resale is hereby reaffirmed; and

Resolved further. That for the purpose of providing such regulations, said association endorses H. R. 4008, an act to regulate the transportation and sale of natural gas in interstate commerce, introduced by Congressman Lea, of California, with the amendments proposed thereto at the hearing before the House Interstate and Foreign Commerce Committee on behalf of the association on March 24, 1937; and

Resolved further, That the necessity for such regulation is increasingly imperative, and that the enactment of H. R. 4008, amended as proposed, at the present session of Congress is earnestly urged on behalf of said association.

NATIONAL ASSOCIATION OF RAILROAD AND UTILITIES COMMISSIONERS,
Washington, D. C., March 29, 1937.

Hon. CLARENCE F. LEA,
Chairman, House Interstate and Foreign Commerce Committee,

Washington, D. C.

DEAR MR. CHAIRMAN: At the hearing on H. R. 4008 on the 25th instant, Mr. Doherty presented certain amendments upon which I then asked leave to comment briefly. Time, however, did not then permit, and you kindly indicated that I might address this letter to you, to be printed as a part of the hearing. I do not care to comment upon all of Mr. Doherty's amendments. Those which I do comment upon I will set forth as the same were stated upon the typewritten sheet, copies of which were distributed by him prior to his statement, and I will follow each amendment so set forth with my comment thereon. "Page 2, line 13. Change period to comma and add ‘or for resale for industrial use only."

Comment. It may be that some amendment of section 1 (b) is desirable for the purpose of meeting the suggestion of one member of your committee that the bill is nothing more than legislation providing for regulation of the price of a commodity sold in interstate commerce, no different from a bill which

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might empower a commission to fix the price of steel or coal when sold in interstate commerce.

In fact, the bill provides for the regulation of the charge to be made for a utility service. That, I assume, is the sole ground upon which the enactment of the bill would be rested.

While a natural gas company, as defined in the act, is not by the act expressly declared to be a public utility, yet the character of the business which it does makes it a public utility, and section 4 of the act recognizes the character of the service rendered and prescribes that the charges therefor shall be just and reasonable and nondiscriminatory.

The public in the several municipalities of the several States are entitled to look to Government for regulation of the utility services which they require, and of the rates exacted for such services, so that they may be protected against extortionate exactions.

The public of Chicago or of any other municipality receiving natural gas for domestic and industrial uses from Texas or from any States other than those in which the service is consumed, are as much entitled to such full protection as are those living within the States in which the gas is taken from wells. They must, however, look both to the State and to the Federal Governments for this protection.

It was held in Pennsylvania Gas Company v. New York Public Service Commission (252 U. S. 23), that until Congress occupies the field, the rate to the consumer may be regulated by the authority of the State in which the gas is sold and delivered, even though the gas moves in interstate commerce from another State. In that case, however, the interstate pipe-line company was also the distributing company.

In Missouri v. Kansas Natural Gas Company (265 U. S. 298), the Court held that intercompany sales in wholesale quantities of gas purchased for resale to consumers were not within the reach of the local authorities of the State where the gas was distributed, but that the Federal authority is paramount, and is the only authority which can regulate.

Inasmuch as the price at which the local distributing company can sell gas is in very large part determined by the price it is required to pay for the same to the interstate pipe-line company, it is obvious that the public cannot be protected from exploitation in the prices charged for natural gas unless Government shall control not only the price of the company which delivers the gas to the consumer, but the prices of all companies which cooperate in bringing the gas from the wells in the State of production to the ultimate consumer, in the State of distributiov.

The interstate pipe-line company, selling at wholesale, being beyond the reach of the State where distribution is made, the Federal Government must regulate that company or the spectacle will exist of an industry which serves a large part of the public of the United States with a necessary utility service which is beyond the effective regulation of Government under our Constitution.

While the power of Congress to regulate these intercompany transactions has not been settled by an adjudication in which the wholesale price has been fixed, yet the court has made it clear that it understands that such wholesale transactions are subject to congressional regulation. In Missouri v. Kansas Natural Gas Company, just cited, the court, as a reason for holding the Federal power over such companies paramount and exclusive, said that a sale at wholesale for resale to the public required "uniformity of regulation even though it be the uniformity of governmental nonaction * ** * to preserve equality of opportunity and treatment among the various communities and States concerned." Again, in Public Utilities Commission v. Attleboro Company (273 U. S. 83), the court, holding an attempted regulation of a wholesale intercompany rate bya State commission invalid, said:

"The rate is therefore not subject to regulation by either of the two States in the guise of protection to their respective local interests; but, if such regulation is required it can only be attained by the exercise of the power vested in Congress."

In its provisions for regulation of the wholesale rate, H. R. 4008 applies exactly the same principle as the Federal Power Act of 1935, which limits the regulation provided under the Federal act to a "sale of electric energy to any person for resale" (sec. 201 (d) of the Federal Power Act, 1935).

In the place of the amendment proposed we would suggest that section 1 (b) page 2, lines 3-9 to the word "Provided" be made to read as follows:

"SEC. 1 (b) The provisions of this Act shall apply to the transportation of natural gas in interstate commerce, to the sale of such natural gas at wholesale

for resale for ultimate public consumption, for domestic, industrial, or any other use, and to natural gas companies engaged in such transportation or sale, but shall not apply to the local distribution of natural gas or the facilities used for such distribution or to the production or gathering of natural gas:

* * *

In this connection I point out that the exemption of industrial gas, as I understand your bill, is not for the purpose of exempting industrial gas from all regulation, but for the purpose of avoiding any possible claim that because some industrial user may be taking a very large quantity of gas service to him, on account of its wholesale character, should be considered subject to regulation by the Federal Commission.

Service to an industrial user is just as much a local service, and within State jurisdiction to regulate until Congress acts, as is a sale to a householder for domestic use. Until Congress occupies the field, a sale for industrial use is accordingly subject to State regulation under the rule laid down in Pennsylvania Gas Company v. New York Public Service Company, above cited.

Sales for industrial use ought not to be exempt from all regulation, for the result may very well be that unjustifiable discrimination will result, and there will be no commission to which complaint may be made. Sales for industrial uses plainly ought to be subject to regulation by the same Commission which regulates sales to other classes of consumers, so that just and reasonable rates, for the several classes of service, properly related to each other, may be established. Under the bill as drawn, all consumer sales are exempt from Federal regulation, and left to State regulation. The language of the suggested amendment just proposed leaves this purpose unaffected, and makes clear that the regulation of intercompany sales is designed for the protection of the consuming public, as a part of the complete regulation of the entire utility service.

Page 8, line 7: Add: "Such order shall not be made until after a finding of the fair value of the property of the natural-gas company used or useful in rendering the service covered by the schedule under consideration."

Comment. This amendment would be highly objectionable. Without the amendment the Power Commission will make a valuation whenever such valuation shall be necessary to enable the intelligent performance of its duty. The proposed amendment, however, ties the Commission's hands, and compels it to delay any fixing of rates till a valuation has been made, even though the company's books might supply everything the Commission might need to enable a just order to be issued without delay.

In Clark's Ferry Bridge Company v. Pennsylvania Public Service Commission (291 U. S. 231, 234) the Court said:

"It is not open to question that the reasonable cost of the bridge is good evidence of its value at the time of construction. And we have said that 'such actual cost will continue fairly well to measure the amount to be attributed to the physical elements of the property so long as there is no change in the level of applicable prices.'

The Commission, under section 5 (a), as it stands, must grant a hearing before it fixes rates; and any order made upon such hearing will be subject to judicial review. That is sufficient to protect the rights of companies. To tie the hands of the Commission, as proposed in the amendment offered, would operate to cause unnecessary delay when expeditious action might lawfully be taken.

Page 10, line 3: Change period to semicolon and add: "Provided, however, That facilities may be abandoned without obtaining such permission, approval, or finding, if service is not thereby impaired or if substitute facilities will be installed."

Comment. This seems to make the lawfulness of the abandonment of facilities depend upon the state of mind of the utility effecting the abandonment. If charged with unlawful abandonment, the utility will say "Substitute facilities will be installed." The amendment places no limit upon the time within which such installation must be made. Enforcement of the prohibition against abandonment will accordingly be difficult if the proposed amendment shall be incorporated. If any alteration of the language of the section as it now stands is thought desirable, the words "or if substitute facilities will be installed", as proposed, should not be incorporated.

Page 13, line 24: Insert after word "property” a comma and the words “subject only to State jurisdiction."

Comment. This proposed amendment is highly objectionable. It would altogether defeat the purpose of the inclusion of the language proposed to be amended. The concluding sentence of section 9 (a), which Mr. Doherty proposes to amend, is taken from the Federal Power Act, section 302 (a). The purpose of the provision is to prevent public-utility companies from doing ex