If I am wrong in this interpretation of the bill, I hope that I may be corrected now. But if I have properly construed the bill, then if this high-pressure main line goes directly by 25 manufacturing plants, there is nothing to provide for any regulation of the price that may be charged for this gas, as gas for industrial use is exempted from the bill. If there were some domestic consumers along the line not subjected to State or city regulation, I presume the price of natural gas to them would come within the provisions of this bill, and if there were governmental buildings, such as hospitals, Army posts, etc., located along the pipe line not subject to city or State control, I presume the price to those institutions under this bill could be regulated.

Now let us determine who uses natural gas. According to the United States Bureau of Mines-and I wish to put this statement of the Bureau in the record if it has not already been placed there by others-31 percent of the natural gas. is used for field purposes, 16 percent by domestic consumers, 5 percent by commercial consumers, 13 percent by carbon-black manufacturers; 7 percent by electric public-utility power plants, 5 percent by petroleum refineries, 2 percent by cement plants, and 21 percent for other purposes. The other purposes are not defined, but I presume they include blast furnaces, glass works, Government buildings, hospitals, barracks, etc., brick and clay burning, general hospitals, hotels, and small manufacturing plants not otherwise described.

To analyze further these figures of the Bureau of Mines: 31 percent used in field production, as I construe the bill, would not be subject to any regulation; 53 percent would not be subject to regulation, as it is for industrial use. I cannot distinguish between industrial and commercial use. This leaves only 16 percent used for domestic consumers, and if I understand the general operation of the industry, by far the greater portion of this 16 percent would be distributed locally by local plants and not subject to this bill. Therefore I repeat what I said at the outset ; under the very provisions of the bill itself there is practically nothing left to regulate when the exceptions are taken into consideration.

The figures from the Bureau of Mines are for the year 1934 and are found in their mineral market report, no. M. M. S. 414, dated October 29, 1935. This same report points out that there has been a large increase in the production and use of natural gas in recent years and states that the major portion of the recovery in total distribution in 1934 was due to a material gain in demand for industrial purposes. The report likewise shows a large increase in the number of domestic and commercial consumers 1934 over the previous year.

Attention is called to the fact that the average value at wells per thousand cubic feet in 1934 was 6 cents, and the average value at point of consumption per thousand cubic feet was 22.3 cents. I take it from this report that this covers all of the gas, and I particularly call your attention to the fact that for domestic, including commercial distribution, which would account for only 21 percent of the total, the average value at point of consumption was 68.6 cents per thousand cubic feet. So it would seem that the domestic consumer is paying a very high price for gas and industrial users are paying very low prices.

Natural gas has displaced millions of tons of bituminous coal throughout the Nation. It is our opinion that natural gas is being sold for industrial purposes at prices that are reasonably low, while at the same time the domestic and household users are paying prices that are several times greater than those for industrial users. Our industry is interested in this phase of the business, that is, the industrial use of natural gas, as it comes in direct competition with coal and by practices that we question. We feel that the competition is unfair. It is reported to me that it is not an uncommon practice for the manufacturers of natural gas to call on an industrial plant and offer to furnish heat or power at 10 percent less than thel are paying at the time without even ascertaining what the fuel bill is. I submit that this kind of competition is unfair and cannot be met on any sound business principle.

There are only about 50,000 employees in the natural-gas industry throughout the country, according to the Bureau of Mines report for 1934. The bituminous-coal industry employs around 500,000 men directly in the mines and as many more indirectly in transportation, distribution, and sales forces. Thus there are several million people entirely dependent for a livelihood on the bituminous-coal industry and your attention is directed to the fact that some 60 to 65 cents out of every dollar paid for the mining of coal goes direct to labor. We do not know the labor cost in connection with natural gas, but it must be very small compared with coal. About 50 cents out of every dollar taken in by the railroads goes direct to the payment of wages. By far the greater portion of coal moves by rail transportation. Taking into consideration those employed directly in the mining industry and those industries allied

or associated with it, it is estimated that for each ton of coal displaced by some other fuel or form of energy, a person either directly or indirectly employed in the coal industry loses a day's work.

It is our information that gas is being sold to some industrial concerns in the city of Chicago for 122 cents per thousand cubic feet, whereas the household rate is about five times greater, and in this connection it must be borne in mind that natural gas has a higher B. t. u. value than manufactured gas. There are certain special rates, we understand, in effect in Chicago from March 1 to December 1 which will average about 18 cents per thousand cubic feet.

The Government buys a considerable quantity of gas, the last report indicating that it purchased 2,385,389 cubic feet in 1930. There has been a tremendous increase in the use of natural gas by the Government since 1930 but figures are not available. It is noted that at some of its Army posts, in sections far removed from the gas fields, it is sold as low as 20 cents per thousand cubic feet. In some buildings in Alabama the rate is as low as 16 cents; in Iowa, 14 cents; and in West Virginia, 15 cents. Even at Fort Sam Houston, Tex., where the price is 21 cents for industrial use, the domestic rate is 55 cents. In some instances there are sliding scales, the larger the quantity the lower the rate. These instances are, called to the attention of the committee merely to emphasize the fact that this is a competition that we feel is altogether unfair. Therefore, I say to you that if you are going to regulate the natural-gas industry, why exempt the one class of business that destroys labor? Why exempt the industrial gas? Why take a chance on adding to the cost of gas for domestic use and leave industrial users free to buy at any price? Therefore I repeat that the bill as drawn will accomplish very little good for any one.

The history of all regulation of business is, I believe, that the ultimate cost of the commodity involved is increased. There may be and probably are instances where that is desirable. But I raise the question: Is it desirable to increase the cost to one class of users and leave the larger class of users free to practice methods which, as a competitor, we feel are unfair in many instances, wasteful and generally speaking not helpful towards recovery? Specifically, gentlemen, I have to suggest that in the interest of fair play, insofar as it may be possible in this measure, that you strike out the following words in line 12 on page 2: "or for the sale of natural gas for industrial use only."

Mr. EICHER. Mr. Gandy, for my information, what is a captive mine as distinguished from a commercial mine?

Mr. GANDY. Well, there are two lines of thought, technically, as to what a captive mine is, but in general a captive mine is a mine that produces coal which the owner of the mine consumes. Now, there are two thoughts about this, one being that it has to be the same legal entity that produces and consumes the coal. The other is that where the mining company is a wholly owned subsidiary of or is controlled through stock ownership by the company consuming the coal, then that, too, is captive coal. But, essentially, it is a mine where the coal is consumed by the one who produces it.

Mr. EICHER. And not sold?

Mr. GANDY. That is right.

STATEMENT OF W. A. DOUGHERTY, NEW YORK, N. Y.

1

The CHAIRMAN. We will hear Mr. Dougherty.

Mr. DOUGHERTY. Mr. Chairman and gentlemen of the committee, my name is William A. Dougherty. I am an attorney. My address is 30 Rockefeller Plaza, New York City. I am connected with the management of some natural-gas pipe lines, one of which is the Colorado Interstate Gas Co., which runs through Mr. Martin's territory. Another is the Mississippi River Fuel Corporation. That takes gas from northern Louisiana to St. Louis, Mo., East St. Louis, Ill., and Alton, Ill.

A third is the Interstate Natural Gas Co., which operates from northern Louisiana into Mississippi and then again into Louisiana,

entering at Baton Rouge and connecting there with a nonaffiliated pipe line that extends on to New Orleans.

Also a company called the New York State Natural Gas Co., that produces gas in the northern part of Pennsylvania and transmits it by pipe line into New York State, selling it wholesale to the Syracuse Lighting Co. and to some other distributing companies that serve consumers in Ithaca, Portland, and Geneva, and other communities in that area.

I merely wish to suggest certain amendments that have been, some of them, suggested to me by other people in the natural-gas business. None of them change the purpose or underlying theory of this law. They clarify and in some respects change some provisions that we think should be changed. I have had them typed, and will pass them around to you, and I will refer to them in the order that they are on the paper.

(The proposed amendments above referred to are as follows:)

Page 2, line 13: Change period to comma and add "or for resale for industrial use only."

Page 4, line 24: Change period to semicolon and add "provided that in making its rates or charges consideration may be given to the quantity taken, the time when used, the purpose for which used, and other relevant factors."

Page 7, line 19: The word "Restoration" should be "Transportation."

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."

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."

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

Page 26, line 8: Substitute for lines 8, 9, and 10 the following: "The filing of an application for rehearing under subsection (a) of this section shall operate as a stay of the Commission's order pending action of the Commission on such application."

Page 28, line 12: Strike out the words "rule, regulation, restriction, condition, or".

The first one is on page 2, line 13. I have suggested that there be added these words: "Or for resale for industrial use only".

And the purpose of those words, the addition of those words, is simply this: The bill as drawn applies to the sale of natural gas for resale and then contains a provision that excludes the fixing of rates for the sale of natural gas for industrial use only.

Gas sold for industrial use is sold in two ways: First, by the pipe line itself direct to the industrial customer without the intervention of a distributing company, and, secondly, the gas is sold by the distributing company, which gas is purchased by the distributing company from the pipe line company.

That gas is sold under a separate agreement or a separate rate schedule than applies to the gas that is sold for general use and therefore is a separate transaction.

There is a question in the minds of some of the people in the industry as to whether or not the language as it is now in lines 12 and 13 applies only to the sale of gas that is made by the pipe line directly to the industry and does not include in the exclusions the gas that the pipe line sells to a distributing company for resale for industrial purposes, and the purpose of the addition of these words is to make clear that all gas that ultimately goes to industrial customers, purchased under the separate rate or a separate contract, for that purpose is not within the provisions of his legislation.

Mr. MARTIN. Is there a considerable volume of that character of resale?

Mr. DOUGHERTY. Oh, yes, sir; most of it, Mr. Martin, that is sold is sold in that way. For instance, the Colorado Interstate Gas Co. sells direct to the Colorado Fuel & Iron Co. Of course, that is a tremendously large consumer. But, in Denver, all of the industries are sold gas by the local company, the gas being purchased from the pipe-line company. The same is true of Colorado Springs.

Most of the pipe-line companies do sell gas, as I have indicated, although some of them sell to a number of industrial consumers direct. The second change I have suggested is on page 4, in line 24, the addition of some words which some of the people in the industry think are proper; that is, to change the period to a semicolon and add:

Provided. That in making its rates or charges consideration may be given to the quantity taken, the time when used, the purpose for which used, and other relevant factors.

That is in respect to section 4 (b), which prohibits any undue preference or advantage and requires the maintenance of no unreasonable difference in rates and facilities. These words which I propose merely state some of the things that a company may take into consideration in fixing rates at different places, namely, the quantity and the time when used, which has a lot to do with the load factor on the line, the purpose for which used, and any other relevant factors that may exist.

It may be said that this is addition of words that are not absolutely necessary and I rather agree with that-but it is felt it would be helpful, even though the Commission, under subsection (b) as it now reads, could take those things into consideration.

On page 7, the typographical error in line 19, the use of the word "restoration" has already been called to your attention.

I would like to suggest that instead of using the word "transmission" the word "transportation" be used, as it has already been used through the bill, and that is the terminology of the industry rather than transmission, which, I think, is used more in the electrical industry than in the gas industry.

On page 8, line 7, we have suggested a sentence that probably does conflict with the idea of a temporary rate being put into effect before a complete finding on the value of the property of the company has been made.

(The amendment referred to is as follows:)

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.

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Mr. DOUGHERTY. But without the temporary rate provision containing the saving clause that any deficiency shall be made up in the final rate, we felt it advisable and fair to the companies.

Mr. COLE. Mr. Chairman——

The CHAIRMAN. Mr. Cole.

Mr. COLE. Would that requirement delay the establishment of the temporary rate very long?

Mr. DOUGHERTY. Yes; that would, Mr. Cole.

When we decided to suggest the language that we do suggest for page 8, there was no provision respecting temporary rates in the bill, and, as you know, railroad rates are fixed most of the time without any hearing on value, contrary to the practice that is followed in other types of public service.

And we were hopeful that that method of fixing rates by naming them and then later attempting to justify them would not be followed here, and so we have suggested that the rate which the commission may fix under the authority of section 5 (a) be not fixed until the finding of the fair value of the property has been bade. Mr. COLE. Has the value of most of the properties, especially the fields-sources of supply-been determined by the State commissions? For instance, in the Panhandle field, has that been appraised by the Texas commission?

Mr. DOUGHERTY. I think not.

Mr. MARTIN. Did you hear Mr. Maltbie's testimony?

Mr. DOUGHERTY. Yes, sir.

Mr. MARTIN. A litle bit ago?

Mr. DOUGHERTY. Yes, sir.

Mr. MARTIN. It seems to me that he discussed the fixing of temporary rates and the elements of cost that were taken into consideration in the first instance, and how it might be rectified later if it were unfair and carried into the permanent rates. Would "fair value" taken into consideration the elements that Mr. Maltbie said were excluded by the New York Commission in fixing the temporary rates?

Mr. DOUGHERTY. I think it would.

Mr. MARTIN. I think he said that he took into consideration only the original cost and depreciation.

Mr. DOUGHERTY. That is right.

Mr. MARTIN. And that there is a great deal more work involved to determine all of the elements which might be required in "fair value", so that there would be a considerable delay and make it much more burdensome in the fixing of temporary rates.

Mr. DOUGHERTY. Well, that is true, Mr. Martin. The provisions. here in section 5 (a) do not relate to any power of fixing temporary rates, with a later obligation to correct the injustices that are done, but it has to do with a final rate that is fixed by the Commission and that is why we are suggesting this language, that such final rates shall not be fixed until after hearing has been had in which the fair value has been determined, so that a rate will not be fixed except after that investigation has been made.

I think this is perfectly consistent, if it is applied here to the final rate, even though you do decide to add another section having to do with the temporary rate..