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able price and at rates this company is distributing it to other cities around Portsmouth. And I might say that the United Fuel Gas Co. distributed gas to Sciotoville, which lately came into the city of Portsmouth, and is only divided now by streets, and since Sciotoville came into the city of Portsmouth the United Fuel Gas Co. has sold its holdings to the Associated Gas & Electric Co., which is the Portsmouth company, in order to evade the jurisdiction of the Utility Commission of Ohio.
Now, sometime ago, a year or so ago, when I was here in your city, I wasc given the opportunity of writing a sentence or a clause into H. R. 12680, which was a bill to place the utilities under the jurisdiction or protection of the Interstate Commerce Commission. 'And I might say here that the natural-gas companies, as far as I am able to discover, are the only utilities that were not included in national or State legislation for the purpose of regulating interstate com
I do not know how that happened, but, nevertheless, they were not regulated by the Interstate Commerce Commission. And we are attempting to regulate them in Ohio through the utilities commission, and that is why we are in the United States court.
The CHAIRMAN. Before you leave that. Do I understand that the pipe line comes through the city of Portsmouth and goes on up into the State ?
Mr. DICKEY. No; they dead-end into Portsmouth, but the line crosses the river east and comes into Ohio.
The CHAIRMAN. What is the length of that dead-end?
Mr. DICKEY. The dead-end from the source of supply or from the Ohio River ?
The CHAIRMAN. The main line.
Mr. DICKEY. Well, that is the main line. There are two main lines; one crosses the river about 15 miles east of Portsmouth.
The CHAIRMAN. The point I had in mind was how far the gas was transported from the point of production to your city. That was what I was really trying to find out.
Mr. DICKEY. That would be 55 or 60 miles. Both lines; the one comes on the south side of the river and the other comes on the north side of the river.
The CHAIRMAN. Do they contend there is any distinction which justifies these different rates for different communitites?
Mr. DICKEY. I do not think so, Mr. Chairman. They have a very large consumer of gas with the Wheeling Steel Corporation; they have New Boston; they have Portsmouth and other consumers of gas in the immediate vicinity of Portsmouth and New Boston which runs very high.
Now, we have endeavored through the negotiations with different finance companies and different people that had distress gas to obtain and get additional gas into the city of Portsmouth. We have failed on numerous occasions through the fact that when these people look into it, as to whether they are going to be able to finance it or not, in some way, they are unable to do so; there is plenty of gas to supply us, but through lack of finance, or through interference, or for some other reason, it is not transported into that field.
Now, there have been some questions raised here as to section 7 (c) which was discussed rather extensively this morning. But, if any
company coming to the city of Portsmouth attempted to deliver us gas they would be forced to come before your committee, or come here to obtain the permission to bring that gas line into the city. My contention in this matter is that if they were forced today before they could get that done, they would be financially embarrassed from sources that work from the bottom, or in some way or place and is able to know about those things.
That is the one objection that I do have to section 7 (c). It would, in my opinion, place that company in a position where it would be practically forced into a rate case before they could even get in. Now, as an illustration, suppose a company makes an application to get a permit or certificate of convenience, the commission or the committee would be forced to go into the question of finances to see whether they would be capable, which would probably be a good thing. But then they would also be forced to go into the source of supply of the company and also go into the question of the cost of transportation because all of those things together make up the rate
I am afraid we would have the trouble of a rate case before they could get a certificate of convenience and necessity. And, Mr. Chairman that is one of the reasons why we object to section 7 (c).
Now, under the conditions there, people across the street
Mr. MARTIN (interposing). Before you go on from there I want to ask you a question.
Mr. DICKEY. Yes.
Mr. MARTIN. May I ask you where the ownership of this United Co. that supplies Portsmouth is? Where is the ownership and control? Is that an independent company?
Mr. DICKEY. No; that is a subsidiary of the Columbia Gas & Electric Co.
Mr. MARTIN. And is that an independent company, or is that a subsidiary?
Mr. DICKEY. Well, the Columbia Gas & Electric Co. is the parent company of the United and several other companies; they supply them gas which comes into Ohio and goes north, and also goes east from there. That is a very large company with headquarters, I believe, in New York.
Mr. MARTIN. Thank you.
Mr. PETTENGILL. Going back to section 7 (c): Among other things, do you not think that is with the idea of controlling the situation where others might want to go into a field that is already occupied ?
Mr. DICKEY. Yes.
Mr. PETTENGILL. So they certainly could not finance themselves until they got a certificate of convenience, showing public necessity.
Mr. DICKEY. That is right.
Mr. PETTENGILL. And when they come down here asking for permission to do that they will be required to show where the money comes from?
Mr. DICKEY. Yes.
Mr. PETTENGILL. And will have to make a showing one way or another of their financial ability and the need for the service.
Mr. Dickey. They probably would, due to the fact that if the finances were available at that time they could come down here and attempt to show the necessity of putting in additional lines, but they
would be in the position of being forced to obtain the finances and put the money on the table before they came here to obtain the permit.
Mr. PETTENGILL. Thank you.
Mr. PETTENGILL. Of course, if it were an old-established company going into the field, it would be different.
Mr. DICKEY. Yes.
Mr. PETTENGILL. You are dealing now with new ones; but if you are dealing with old companies, already occupying the field, the financial problem might not be of great significance. But a new company, organized for the purpose of developing a new field and building new transmission pipe lines into the territory, it seems to me, would find itself under very great difficulty from the practical standpoint.
Mr. DICKEY. Yes; it would.
There is one phase of that matter that you called my attention to, and I am very glad that you raised the question. It seems as though the well-established companies would not come in due to the fact that they must have some sort of a working arrangement with this established company that is there, so we are unable to obtain any competition from them.
Mr. PETTENGILL. It seems to me that the established company gets sufficient protection because of the close contact in the money market; it is fully protected, it seems to me.
Mr. DICKEY. Well, I think so. Now, the situation in our State, as well as other places I am familiar with, is somewhat the same, and that is as long as the established company does not have any competition they are pretty hard to deal with. They just say—they have the usual phrase-that gas usually flows in lines where the higher market is offered. Of course, in the East here, where in a good many cases they have had artificial gas, the outlet here is more inducive than it would be locally. But here we are, gentlemen, within a half hour to 2 hours' ride to the gas field, and even from the southeastern section of Ohio some gas is produced, and yet we are forced to pay 37 cents a thousand at the gate when right across the street they are charging 40 cents at the burner tips. We are operating there without even a contract; we are operating there under this plan without a contract.
Now, those are some of the conditions that exist, and I wanted particularly to call the attention of the members of this committee to them, because I know when people draft laws and when they recommend laws they are interested in the application of those laws and interested, of course, in the results of the application. As I said, I simply wanted to point out to you gentlemen the situation there and the interest we have in the proposition now pending in the United States district court, where we have a gas line coming across the river and tying into the distributing company, where they charge that distributing company only 3 cents less than they retail it just across the street. That makes it embarrassing for the people of the city of Portsmouth down there, and then we do not think it is right. We have no regulation, so far as it stands at present, unless the United States district court holds that the Utilities Commission of Ohio can take jurisdiction over them. If it does not, then we can only rely upon the Federal laws and control of them through Federal legislation.
Mr. MARTIN. When you pay 37 cents for gas at the gate, what does the consumer pay in Portsmouth, Ohio?
Mr. DICKEY. We are paying 85 cents for the first thousand and 68 cents for the remainder, less 5-percent discount if paid within 15 days.
Mr. PETTENGILL. What do you think of the question which I asked before with reference to section 7 (c) of an established company that is already in the field, and the investments in the business were made long before this bill became a law or was thought of, as to any moral obligation that we might owe to the established company, if we attempted to impose by law control on the source of supply; that is, if we put that new hazard on the business, we are under some obligation to protect them from unnecessary and ruinous competition.
Mr. DICKEY. In answering that I would say this: That I do not believe we have much moral obligation toward these people that could have helped themselves a long while before they ever did anything, since they have been charging 37 cents to us, and at the same time they have been charging the Wheeling Steel Corporation 25 cents, and distributing gas some 40 or 50 miles away at Ironton and other places where the charge is lower and they have been getting by with it simply because there was no jurisdiction in the State, and no Federal jurisdiction, so I do not believe we owe them much moral obligation. I believe they could have helped themselves a long while ago and could have helped us if they would.
Mr. PETTENGILL. Well, the property investment of these companies is pretty heavy, if you look at the income on the invested capital, and so forth. But, the point I am trying to make is the ordinary operating expenses, depletion, and things of that kind; that is what I would like to think of in passing upon the investment and the hazards in the business, depreciation, depletion, which falls upon the operation of the business.
Mr. DICKEY. Well, I do think they are making more than a fair return on the amount invested.
Mr. PETTENGILL. What do your engineers set up as reserve against depletion in a natural-gas field? That would depend entirely upon the facts, I assume?
Mr. DICKEY. Upon the local facts and other things that are taken into account.
Now, these reports, I will say, come from their own auditors and it is pretty hard for us to answer that question definitely. We have not yet had the opportunity of going into their books and auditing them. But I will say this, that they buy gas from the individual producers over there as low, I am told, as 7 cents; and I have some rather authentic reports in my investigation, that it runs up to 9, 11, and 12, wherever they can get it, and they sell it for 37 cents with only 60 miles transportation expense. That is undoubtedly a nice sum of money for that charge, and it looks to us like it would be a pretty good investment. Now I do not know whether I have answered your question but it is pretty hard for me to give you anything definite due to the fact that we have not been able to go into the records of the United Fuel Gas Co., and therefore we cannot say.
Mr. PETTENGILL. It is a big problem; the fundamental problem is free competition rather than trying to regulate monopoly.
Mr. DICKEY. Yes; now, I do not want to be misunderstood on this matter. Corporations are essential and have their rights; they are usually financed by the individual's money and they should not be trampled and hampered. We must deal fairly with them. But I do think that if they want to be fair with the individual, with the stockholders, and with the public as well they ought to be willing and should be willing to place their cards upon the table and go along with us, which they have absolutely refused to do.
Now, Mr. Chairman, there is one thing further, if you will give me permission, I would like to give you a brief résumé in writing of the situation in Portsmouth in order that you may have it for your records. With your permission, I will submit that.
The CHAIRMAN. You will be permitted to place that in the record.
Mr. DICKEY. All right. That will be very fine. Are there any further questions you gentlemen want to ask? If not, I thank you for this opportunity.
The CHAIRMAN. Thank you, Mr. Dickey.
STATEMENT OF ROBERT D. GARVER, DIRECTOR, KANSAS CITY GAS
CO., KANSAS CITY, MO.
Mr. GARVER. Mr. Chairman and gentlemen of the committee, my name is Robert D. Garver. I am a director in the Kansas City Gas Co., and for the past 12 years I have been vice president and general counsel for the Gas Service Co., of Kansas City, Mo., and operating natural-gas distributing systems in some 200 towns and communities in Kansas, Missouri, Oklahoma, and Nebraska.
During that period of time I have handled all of the rate hearings for the distributing companies as well as the pipe-line companies serving all of them.
I am not appearing here as a proponent or as an opponent of this bill. I am appearing here merely to correct the record which we believe would be an injustice to us if it goes unchallenged, and it possibly might happen that our silence might be construed as a consent to the statements made.
The statements I refer to are those made by Mr. Smith yesterday and by Mr. Scheer this morning. They stated that the gate rate at Detroit, Mich., is 33 cents, whereas at Kansas City it is 43 cents, notwithstanding the fact that Detroit is three times as far away from the gas supply.
That statement is not correct and is misleading. In the first place, I think it is necessary to understand the situation. Detroit is perhaps three times further away from the gas supply than Kansas City, but it has one pipe line and extends from the Texas and Hugoton field to Detroit.
Kansas City gets its gas from practically the same location in the Texas Panhandle but it has three pipe lines connecting it with that field as well as some 30 other fields, so that the investment in serving Kansas City and guaranteeing service to it is, I should say, three times as great as at Detroit.