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 distribution'.

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

actly what Mr. Doherty in his statement indicated that companies will do if his amendment shall be adopted. The purpose of the provision is to prevent companies from contending that by the passage of Federal legislation State commissions have been deprived of the power to inquire into the true depreciation of utility properties for the service of which the State commissions are fixing rates. A given utility property may be used partly in interstate and partly in intrastate service. In any rate case, whether before a Federal or a State tribunal the Commission fixing the rates involved must have the power to determine the extent of depreciation actually involved.

It was only by determining the actual depreciation accruing in the Chicago Telephone case that the Illinois Commission was enabled to make the reduction in rates which was sustained by the United States Supreme Court in Lindheimer v. Illinois Bell Telephone Company (292 U. S. 150). In that case the telephone company accounted for its excessive depreciation in accordance with an accounting order fixed by the Interstate Commerce Commission, but the actual depreciation incurred was greatly less than the amount claimed. And in that case the United States Supreme ('ourt sustained the order of the Commission. Yours very truly,


General Solicitor.


Washington, D. C., March 29, 1937. DEAR CONGRESSMAN LEA: There has been introduced by you and is pending before the Interstate and Foreign Commerce Committee (H. R. 4008) a bill “To regulate the transportation and sale of natural gas in interstate commerce, and for other purposes.” It is our understanding that the purpose of this bill is to regulate those natural-gas companies now unregulated who are in the business of transporting and selling natural gas for ultimate distribution to the public.

This company is not concerned with the policy of the bill nor its merits. It does desire, however, to point out a possible result affecting this company which undoubtedly was not intended by the framers of the bill.

The Washington Gas Light Co. manufactures gas and it purchases from a natural-gas company; namely, the Atlantic Seaboard Corporation, natural gas which it uses in conjunction with the manufactured gas and which combined product is retailed to consuiners in the District of Columbia. There is, however, a territory adjacent to the District of Columbia in both Maryland and Virginia, such as Chevy Chase, Md., Rockville, Rosslyn, Aanacostia, and Alexandria, where consumers use gas. To meet this demand, Maryland and Virginia retail utilities companies purchase at wholesale, gas from the Washington Gas Light Co., and retail to such consumers. It would seem, therefore, that the definition of “natural-gas company” as set forth in section 2, paragraph (5) on page 3, lines 1 to 4, of the bill reading

“(5) 'Natural-gas company' means a person engaged in the transportation of natural gas in interstate commerce, or the sale of such gas for resale to the public whether or not such gas is mixed with artificial gas." would bring the Washington Gas Light Co. within the category of a naturalgas company where in fact it is merely a purchaser of natural gas for use in manufacturing its own product for sale, the natural gas comprising but approximately one-third of the product, except approximately 1.4 percent of natural gas which is sold from its own pipe line to the Washington Suburban Gas Co., serving Hyattsville and adjoinin towns, which gas is used in conjunction with the manufactured gas of the latter company for retail sale.

It should be borne in mind that the Washington Gas Light Co. operates under charter powers granted by acts of Congress and is under the close supervision of a regulatory body created by Congress, the Public Utilities Commission of the District of Columbia.

The powers granted to the Commission and the duty placed upon it by law with respect to rates and charges, schedules, valuation, discrimination, accounts, records, hearings, rates of depreciation, complaints, investigations, etc., are parallel to those enumerated in the proposed bill and in some instances are broader and more exact. (See section 8 of the act approved March 4, 1913, as amended, 37 U. S. Stats., p. 974.) Therefore, if the proposed bill should become law in its present form it would result in this company being under

the jurisdiction of two different Federal supervisory authorities with substan. tially the same powers, resulting in possible conflicts and possible heavy burdens on the company. It is hoped that since it is apparently not the intention of the hill to create such a situation that the definition may be so amended as to eliminate any question. In this connection, it is suggested that the following amendment be made:

(5) "Natural-gas company” means a person engaged in the transportation of natural gas in interstate commerce or the sale in interstate commerce of such gas or a mixture of such gas and artificial gas for resale to the public (whether or not such gas is mixed with artificial gas) except that this term does not mean a gas utility company."

(6) A "gas utility company" means any person who owns or operates facilities used for the production, manufacture, transmission, or distribution of natural gas or a mixture of natural and artificial gas and whose principal business is the supplying of services directly to the public for light, heat, or power and such person is subject to the jurisdiction of a State commission' although a part of such gas may be sold to any other person for resale provided the principal business of such other person is the supplying of services directly to the public for light, heat, or power, and such person is subject to the jurisdiction of a State commission. Changing the numbering of the present paragraphs (6), (7), and (8) to (7), (8), and (9) respectively.

The words in italics in (5) are new-the words in parentheses are to be eliminated, all of (6) being new. Very truly yours,


House of Representatives, Washington, D), C.



House of Representatives, Washington, D. C. GENTLEMEN : When I appeared before your honorable body on March 18, 1937, in support of H. R. 4008, which was referred to your joint committee, I requested permission to file with your committee a written report of matters that I discussed on that day. This permission was granted, and I am forwarding to you a brief ontline of the conditions existing in Portsmouth, Ohio, and involving the question of interstate commerce in gas.

In the year of 1932, the city of Portsmouth passed a rate ordinance, fixing the rates to be charged for gas distributed in the city of Portsmouth at 45 cents per thousand, gross, or 40 cents net. The net price was the price which the consumer would pay if bills were paid within a certain time. The Portsmouth Gas Co. appealed from said ordinance to the Utilities Commission of Ohio.

The Portsmouth Gas (o. purchases its gas from the United Fuel Gas Co. under a written contract, paying therefor 37 cents per thousand cubic feet. The United Fuel Gas Co. crosses the Ohio River a short distance east of Portsmouth and again at Portsmouth and claims to be exempt from the jurisdiction of the Ohio Utilities Commission by reason of distributing an interstate commodity from West Virginia and Kentucky into Ohio. This gate rate charge of 37 cents forces the city of Portsmouth to pay to the Portsmouth Gas Co. 85 cents for the first thousand cubic feet of gas and 60 cents for the remainder of gas distributed. Both of these figures are subject to a 5-cent discount if paid within a certain specified time.

Later we had passed by the Legislature of Ohio legislation placing all gas companies supplying natural gas to other gas companies for distribution under the jurisdiction of the Utilities Commission of Ohio. The Utilities Commission of Ohio, under authority given by this legislation, ordered the United Fuel Gas Co. to show the reasonableness of its gate rate at the city of Portsmouth. From this decision the United Fuel Gas Co. appealed to the United States district

i The bill defines “State commission" to mean “the regulatory body of the State or municipality having jurisdiction to regulate rates and charges for the sale of natural gas to consumers within the State or municipality.”

court, where it is now pending, on the question of jurisdiction of the Ohio Utilities Commission over companies claiming to be engaged only in interstate commerce.

The United Fuel Gas Co. distributes to the city of New Boston, which is surrounded by Portsmouth, charging for gas 40 cents per thousand cubic feet. They also distribute at Ironton, 35 miles east, at the same rate, and distribute to cities across the Ohio River–Huntington, Ashland, and Russell—at a rate of 29 or 30 cents.

When the Columbus (Ohio) rate case was heard, the cost of gas at the Ohio River was fixed from 18 to 24 cents per thousand. They obtained jurisdiction over these companies by reason of them being associated with distributing companies and were not dealing at arm's length.

Our present Federal laws exclude pipe lines engaged in interstate commerce carrying gas from the jurisdiction of the Interstate Commerce Commission. This is made specific in legislation or laws governing other utilities engaged in interstate commerce, and if they are not within the jurisdiction of State laws through which they operate, they are not subject to any regulation, either State or National. It is for these reasons that we are heartily in favor of the passage of bill H. R. 4008.

Our objection to (c) of section 7 of this bill was due to the fact that naturalgas companies already established and operating in a certain community could go before the Interstate Commerce Commission in an attempt to keep out any other pipe line when it attempted to secure a certificate of necessity, require the political subdivision that it was serving to engage in what would practically be a rate case before the Commission. This would involve a great deal of time and much delay in securing gas from other companies, and in a measure would eliminate competition.

However, we are very much in need of this bill and will not interpose any further objections, leaving the matter to the good judgment of your committee, and hopeful that the bill will be reported out favorably and passed as soon as possible by Congress.

Thanking you for your consideration when I appeared before the committee, and hoping that this communication explains our position in this matter, I am, Yours respectfully,

W. L. DICKEY, Director of Law.



Mr. Chairman and gentlemen, I concur in the statements made by the mayor of Cleveland, Mr. Burton, my colleague, Mr. Smith, and the other city officials, who for years have been endeavoring to secure Federal legislation to correct the abuse of pipe-line monopolists.

The staggering difference in gate rates for natural gas in the country plainly indicates that the only solution to the consuming public is through Federal legislation. We favor, of course, the Lee bill with amendments submitted by the Cities' Alliance. These amendments have the approval of the Federal Trade Commission and the Federal Power Commission. We earnestly trust this committee will promptly and favorably report out this bill, so that the local communities, their local representatives, may have the protection that this great industry needs.




New York, March 30, 1937. Hon. CLARENCE F. LEA, Chairman, Interstate and Foreign Commerce Committee,

House of Representatives, Washington, D. O. DEAR MR. CHAIRMAN: Enclosed you will please find a copy of the amendments we suggest should be made t to H. R. 4008.

I have tried to limit the changes to essential points. I am thoroughly convinced that any attempt to mix Federal and State functions is unwise and will

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