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Mr. KENNEY. I would like to make the request of Mr. Booth that he insert in the record the citation from the court of appeals that he referred to.
Mr. Booth. Yes, sir; Bronx Gas and Electric Company v. Maltbie, 271 New York, 364.
Mr. KENNEY. Mr. Booth, there was some discussion at the last hearing dealing with depreciation. You made some reference today to the life of a field. Has it been the practice to take into consideration the immediate source of supply or in considering depreciation have you thought of extending the pipe lines from fields that might be exhausted to other sources of supply?
Mr. BOOTH. Well, I am really sorry. I cannot answer that question, because my familiarity with depreciation and depletion, and the technical matters, like depletion of natural-gas fields, and depreciation of pipe lines, is of a rather limited character, and that would require an answer by a technical expert. I think it is usually limited to the first and the source that is immediately available and to the company which is engaged in the rendering of the service.
Mr. KENNEY. Do you know whether it has been determined what the average life of the field is?
Mr. Booth. Well, I think that they vary. I think the Texas fields vary, and then that is generally a matter of expert opinion which varies from one engineer to another and from one geologist to another.
Mr. KENNEY. Have you any idea as to how many years?
Mr. Booth. Well, I really am not in a position to intelligently respond to that question.
Mr. HALLECK. Mr. Chairman-
Mr. HALLECK. I would like to ask you whether or not the pipe-line company to which you refer as serving the Chicago area has a monopoly on that business or are there competing sources of supply for the business in that area?
Mr. Booth. It has a monopoly.
Mr. HALLECK. Is that situation of monopoly generally prevalent throughout the country in respect to the furnishing of natural gas from the source of supply?
Mr. Booth. I am not familiar with many cases where there are competing natural-gas lines. That is, there is no other pipe-line company that runs up to the northern part of the State of Illinois and that is serving Chicago. There is a pipe-line company that serves the central part of Illinois, the Panhandle group, and they have now gone up to Detroit; but I have never heard that there was any possibility that the Panhandle people would compete with the Natural Gas Pipeline Co. of America in the Chicago market. As a matter of fact, the Chicago companies have a 26-percent interest, stock interest, in the Natural Gas Pipeline Co. of America.
Mr. HALLECK. You referred a moment ago to a contract which I think you said had 15 years to run, or was a 15-year contract.
Mr. Booth. The original agreement between the Natural Gas Pipeline Co. of American and the Chicago District Pipeline Co., I believe, has a 15-year life, beginning with June 25, 1931, with an option upon the part of the Natural Gas Pipeline Co. of America to continue for 5 years.
Mr. HALLECK. Of course, it is your idea that if this bill should pass and the Commission be given the authority contemplated in this bill, that that contract could be superseded or invalidated insofar as attempt to fix the rates of charges is concerned ?
Mr. Booth. That certainly would be my position and we certainly would ask the Federal Power Commission promptly to consider the question as to whether or not the Natural Gas Pipeline Co. of America is earning an unfair return upon the fair value of its property.
Mr. MAPES. As I understood you at the beginning of your testimony, you said that 82 percent of the total consumption of gas in the State of Illinois was received from the Texas field.
Mr. Booth. Yes; I may have
Mr. MAPES (continuing). Is there any natural gas produced in the State of Illinois ?
Mr. Booth. There may be a little; I doubt it. There is one thing I would like to correct on that. I am not sure, I have forgotten whether the Panhandle Eastern Gas Pipeline Co. is selling only Panhandle gas or whether a part of its gas from Oklahoma. I think it gets all of its gas from Texas, but I would have to look up that point.
Mr. MAPES. In the State of Michigan they are producing now a great deal of natural gas. You stated a moment ago that the Panhandle Co. in Texas was transporting gas into the city of Detroit, Mich. This bill contains a new feature, as I understand it, which prohibits anyone going into a field that is already served without getting a certificate of convenience and necessity from the Commission. Suppose the supply of natural gas produced in Michigan was enough to meet the demands of the cities in that State, could this Panhandle Co. go into those cities, Detroit, for instance, without the consent of the State commission or any other commission and carry in competition with Michigan gas?
Mr. Booth. Could the Panhandle people bring a line there without a contract with the Detroit City Gas Co. and serve the territory served by the Detroit City Gas Co. without the consent of the Michigan Commission?
Mr. MAPES. Yes.
Mr. Booth. I am not fully familiar with the Michigan law; I am not certain. I should think that no company in Michigan should be able to compete with another public utility with existing facilities without the consent of the Commission. Of course the interstate company itself might just build its line to the State line and the State of Michigan would have no control over that; that is what we refer to.
Mr. MAPES. The Panhandle Co. is an interstate company, is it not? Mr. BOOTH. That is right.
Mr. MAPES. It can therefore run its line into the city of Detroit without any reference to the action of the State commission. Is that right?
Mr. Booth. I should think so; that is what the Natural Gas Pipeline Co. of America is doing. Now, gentlemen
Mr. MAPES (interposing). Do you think that it should be able or allowed to do that? I notice that the Crosser bill emphasizes the desirability of preventing monopoly. The provision in the Lea bill requiring a certificate of convenience and necessity from
the Commission assumes that the business is monopolistic; before putting in the pipe line would seem to increase monopoly; do you think that is desirable ?
Mr. Booth. Well, the Lea bill is predicated upon the philosophy that the public interest can best be served by a regulated monopoly, as far as the relationships between public utilities and the public is concerned. There is sometimes some question in my mind as to whether some competition is not necessary to supplement regulation.
Mr. Mapes. Do you think it is desirable to prevent more than one company furnishing gas, natural gas, to the people of the city of Chicago?
Mr. Booth. This law would not have that effect; it would merely
Mr. MAPES (interposing). It would have that effect unless the Commission agreed to it, would it not?
Mr. Booth. That is right. That is, it would merely give the Commission the discretionary and determinative power as to whether it should permit competitive lines to be built.
Mr. MAPES. Do you think that is desirable ?
Mr. Booth. Well, that depends upon the individual circumstances. Of course, as a practical matter, there is not much competition between utilities now.
Mr. MAPES. Do you think we should encourage the continuation of that condition by law! Mr. Booth. Why, I believe this law must be considered upon
the fundamental premise that the Federal Power Commission and the State commissions will effectively regulate these companies and thereby best serve the public interest.
Mr. MAPES. Suppose the Federal Power Commission should say it was desirable to have the Panhandle Co. run into the city of Detroit and the State commission should say that the Michigan supply of natural gas was ample to take care of the situation. How would you handle that?
Mr. Booth. You mean as to whether or not competing lines should be built, or whether or not the Panhandle people should be allowed to bring their lines into Detroit in the first place? I am not sure whether I understand the purport of your question.
Mr. MAPES. Well, suppose the Federal Power Commission would grant the Panhandle Co. the authority to build its lines into Detroit, and then the State commission should say that that was unnecessary and was not in the interests of the general welfare, because the State companies were furnishing an adequate supply of natural gas. How would you handle that situation ?
Mr. BOOTH. I think the State laws could be so written that the company engaged in the local distribution, before it undertook to render that service, would have to receive the authority of the local commission, and notwithstanding the fact that the Federal Power Commission might have the authority to authorize the Panhandle people to build an interstate line up to the city of Detroit and enter into a contract with the city of Detroit, as far as the rendering of local service by the Detroit City Gas Co. is concerned, I should think that the Detroit City Gas Co. would have the final say on that.
Mr. MAPES. In other words, is this your position, that the Panhandle Co. might transport gas to the city of Detroit, if it saw fit, but
it could not engage in the distribution of that gas after it got it there without the consent of the State commission.
Mr. Booth. I believe that the law ought to be that as far as the locality served is concerned that the State or local authorities ought to have, and I believe they do have, the power, in most cases, of determining the character of the service to be rendered by the local distributing company. And it seems to me that in such a case before the Panhandle Co. could build a line and enter into a contract with the Detroit City Gas Co. that the Detroit City Gas Co. could not enter into such an arrangement if the State or locality to be served was adequately supplied with gas.
Mr. MAPES. That would be your position?
The CHAIRMAN. Mr. Booth, we have two other witnesses who want to be heard.
Mr. BOOTH. Let me suggest this other amendment and then I am through.
The CHAIRMAN. Very well.
Mr. Booth. First I want to offer for the record a provision which would have the effect of authorizing the Federal Power Commission, under any temporary rate situation to fix temporary rates.
Mr. BULWINKLE. Fix temporary wholesale rates ?
Mr. Booth. Yes. The proposed temporary-rate provision would read as follows:
The Commission may, in any proceeding involving the rates of any naturalgas company brought either on its own motion or upon complaint, upon notice and after hearing, if it be of opinion that the public interest so requires, immediately fix, determine, and prescribe temporary rates to be charged by said company pending the final determination of said rate proceeding. Said temporary rates so fixed, determined, and prescribed shall be sufficient to provide a return of not less than 5 percent upon the original cost, less accrued depreciation, of the physical property of said company used and useful in the gas service, plus a reasonable amount for working capital, and if the duly verified reports of said company to the Commission do not show the original cost, less accrued depreciation, of said property, the Commission may estimate said cost less deprec ition and fix, determine, and prescribe rates as hereinbefore provided. In any such proceeding, whenever the annual depreciation expense is computed upon the sinking fund method, no depreciation shall be deducted from such original cost.
Temporary rates so fixed, determined, and prescribed under this section shall be effective until the rates to be charged, received, and collected by said company shall finally have been fixed, determined, and prescribed. The Commission is hereby authorized in any proceeding in which temporary rates are fixed, determined, and prescribed under this section, to consider the effect of such rates in fixing, determining, and prescribing rates to be thereafter charged and collected by said company on final determination of the rate proceeding.
The third amendment that might be made relates to that part of section 4 (e) which provides that the Commission may suspend increased rate schedules for a period not to exceed 5 months. I am of the opinion that 5 months is too short a period for an investigation of increased rate schedules for interstate natural-gas utilities. If the increased schedule goes into effect it will undoubtedly result in efforts by the local distributing company or companies affected thereby to obtain increases in rates to cover the additional cost of such gas. For that reason I believe it of considerable importance that, notwithstanding the bond provision, the Commission be given ample
opportunity to enter a final order in such a case. The 5-month period should, therefore, be changed to a period of from 9 to 12 months.
The first amendment which I had intended to offer would be covered by Mr. Benton's suggested amendment to subsection (b) of section 1, and amendment to subsection 5 of section 2, so that it would cover not merely the sale of such gas at wholesale, and all gas in interstate commerce for resale to the public, but all sales in interstate commerce at wholesale for resale; so that it would cover the transactions between the Natural Gas Pipeline Co. of America and the Chicago District Pipeline Co.
I appreciate the courtesy you have given me, Mr. Chairman, and I want to again reemphasize the fact that in my judgment the enactment of this law with appropriate amendments is absolutely vital in order that the consuming public of natural gas or mixed natural and artificial gas be fully protected.
I would like also to have permission to put in the record—and I thought I had it with me—à letter written by Chairman Slattery of our Commission to Chairman Lea of the committee, in which he endorses this bill.
The CHAIRMAN. It may be incorporated in the record.
Mr. BOREN. Mr. Chairman, I would like to make this observation for the record and as a challenge to the proponents of this bill : That subsection B of section 5 provides for a growth and for the extension of the influence of a Federal bureau, or commission, in a realm wherein this proposal submits on its own acknowledgment that the Federal authority and responsibility does not rightfully exist.
STATEMENT OF JOHN W. SMITH, NATIONAL CHAIRMAN, CITIES ALLIANCE, DETROIT, MICH., CHAIRMAN, NATURAL GAS COMMITTEE, UNITED STATES CONFERENCE OF MAYORS
Mr. SMITH. Mr. Chairman and gentlemen of the committee, I appear here as national chairman of the Cities Alliance, an association of midwestern cities formed some 2 years ago in an endeavor to collaborate and cooperate for the purpose of securing natural gas at proper rates. This organization, which was formed in Columbus, Ohio, is composed of midwestern cities and several State and municipal organizations. I was elected chairman of it, and we proceededed to study this entire picture of natural gas. In my city of Detroit, Mich., I had been working for 10 years to secure natural gas, and, along with some other cities in Michigan, we were told there was not a sufficient supply in that field. That field was studied by the State geologist and then the services of the geologists of the United States, together with them, and later on at the request of the Governor by the Bureau of Mines, and we were informed that there was not a sufficient supply of natural gas in Michigan; they still maintained there was no other source in the State. We were also told by the Detroit City Gas Co, that there was not any natural gas available, and while they did not believe there was much supply, they were surprised when Senator Nye here issued a statement