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Mr. HALLECK. Practice so far has proven that competition has failed to bring down rates.
Mr. SCHEER. That is not true. Competition has brought down the rates. Until we brought in an independent pipe-line company to Detroit the best price for gas, which the local gas company was trying to make, and the best price that we could get until this pipe line was brought in, as was testified to before the common council of the city of Detroit, the best potential price they could get was 45 cents a thousand cubic feet. We cut that down 3312 percent, by contracting with this company.
Mr. HALLECK. Of course, you are referring to one specific instance, and I am referring generally to the situation as it has prevailed over the country. In other words, if competition in the industry had kept the rates down, or brought them down, to where they should have been, there would not be any use in passing this bili, would there? Competition has not done that. Mr. SCHEER. Competition has not done that because of the
political power of the industry, their control of the industry, and their ability to gradually squeeze out competition and there has not been sufficient protection to give competition a chance to reduce the rates.
Mr. HALLECK. I can well understand how that would be true.
The CHAIRMAN. I think anyone looking over the history of regulation in recent years could not help but reach the conclusion that the decided weight of opinion is, for modern regulation, in favor of a certificate of convenience and necessity. The only justification for regulating these utilities is that they do have what is in effect, a monopoly. In the absence of that monopoly it might be better to have no regulation so we could depend upon competition taking care of the needs of the consumer.
Now, you come here and you say we want regulation. We want a commission to depend upon, to give us reasonable rates, to fix maximum and minimum rates, but we are not satisfied with that. We want to play with loaded dice. We want regulatory control of the utility, but unrestrained competition for the consumers. If we can get an advantage through the lack of regulatory control over new competition coming into the field, we want that advantage.
We must eventually reach a conclusion one way or another, whether we trust the Commission. If we can trust the Commission, with the important duty of fixing our rates, why can we not trust them with the question of two lines or one? Is it necessary to add the power of unrestrained competition in order to give us just rates when that is the object of setting up a commission?
Mr. SCHEER. Mr. Chairman, I would answer this way: Let the Congress, or let the committee, first prove there is unrestrained competition today. It just does not exist. For example, today we have got competition in Detroit. Furthermore, this certainly applies to a company that seeks to compete. It does not place every company under the requirement of getting a certificate.
The CHAIRMAN. How many big cities do you suppose would want to be furnished by two sources of supply?
Mr. SCHEER. How many?
Mr. SCHEER. May I ask Mr. Reed to answer that question? He speaks for Cleveland. He represents 40 Ohio cities, and I would like to have him have a chance to express his views. He has been in this for some years.
The CHAIRMAN. How many local cities would deliberately choose two electric companies or two water companies?
Mr. SCHEER. Well, when the one company is not satisfactory, they choose to build a plant of their own. We cannot build a pipe line of our own, but we can ask for competition there so that we can choose between it.
You cannot look over the industry and say that there has been destructive competitive competition. You cannot show the need for this.
The CHAIRMAN. The question is whether you are going to have one or two. The power is given to the Commission to decide, under the circumstances, whether it will permit another company to go in there and compete or take over a certain territory instead of the old company.
Mr. SCHEER. Yes; and that
The CHAIRMAN. And the Commission must make that decision from the standpoint of public convenience and necessity.
If such competition is in their judgment justified, there is nothing in this bill which would preclude the communities from having it. If you want to enter into some competition that is unwarranted, then this bill would stand in the way of it, because we assume that the Commission would not give that authority.
If you have legitimate regulation, in the end your community will get better and cheaper rates than it will with too much competition.
The gas industry is in a separate position from other utilities. There is greater reason for this provision in the case of gas than electricity. Electricity is produced by permanently renewable sources of supply. Gas fields are limited, and it is only a matter of years when all are going to be exhausted. Communities are going to build up relying on gas and then have a hard time adjusting themselves to conditions to come. The investment of gas companies is more hazardous than that of other public utilities.
If there is any justification for a certificate of convenience and necessity, in my judgment, it is in the gas field.
Mr. SCHEER. Well, Mr. Chairman, our own answer is to point to the great growth of monopoly in the industry without requiring independent competition, independent action, or requiring them to get a certificate of convenience and necessity.
In our opinion, the only answer is that we have got a situation here in which our experience does not demonstrate that.
The CHAIRMAN. You have regulation established by law. The companies are regulated presumably in the interest of the public. That is what regulation is—monopoly controlled in the public interest.
Mr. SCHEER. Furthermore, regulation is devised to correct abuses, and there have been no abuses to correct in this instance; there have been no abuses.
The CHAIRMAN. Well, as long as the authorship-
The CHAIRMAN. As long as the authorship of that section has been brought up, I wanted to express those views.
You may proceed.
Mr. W ADSWORTH. Will you revert for a moment to your suggestion relating to gas reserves? As I recollect it, your association has an amendment on that.
Mr. SCHEER. Yes. I will be glad to read it.
It is an amendment to section no. 10, by adding a new subsection, to follow subsection (b) and to read as follows:
That is section 10.
(c) The Commission may, after hearing, determine the adequacy or inadequacy of the gas reserves held by any natural-gas company, or by anyone for it, including its owned or leased properties or royalty contracts, and the Commission may, after hearing, determine the reasonableness or propriety of the inclusion of all delay rentals or other forms of rental or compensation for unoperated lands and leases, in operating expenses, capital, or surplus.
It is purely to prevent those losses entering into the wholesale price structure, the cost of carrying more acreage than that company will ever need to supply the markets that it has under contract and which contract it has taken under its control for the purpose of keeping independent competition from getting a contract and building a line to cities that want gas.
Mr. WADSWORTH. I can see the objectives, and on its face it seems reasonable. However, it is putting a terrific task on the Commission to decide whether a company is holding too much gas, in view of the fact that it is exhaustible and no one can tell how soon.
Mr. SCHEER. But, there are competent authorities who can draw a line and say they certainly do not need this much in their set-up, there are certain excesses which can be determined without any trouble, and it is the basis of a lot of trouble in Ohio and the Cleveland case, for example. It is a big task, but, believe me, it is a necessary one from our standpoint.
Mr. WADSWORTH. It brings up the matter of the conservation of natural resources; your proposed amendment.
Mr. SCHEER. Yes.
Mr. WADSWORTH. I am not sure that would have a beneficial effect in the long-long run, in the matter of conservation. My mind goes to the Texas field, about which I have heard. I have never seen it, but in previous hearings a year or two ago, the committee was informed very dramatically of the enormous waste of gas going on there. There was no local market for it. And it was escaping into the air at the rate of—I do not know how many million cubic feet per minute, or seconds.
Mr. MAPES. Something over 87 percent of it wasted.
Mr. WADSWORTH. Yes. It is a great pity that it should go to waste. Some companies have come in perhaps since that time and are taking some of that gas and carrying it to market.
It is going to be pretty hard for the Commission to decide under your amendment how much gas should be held in reserve when it is being wasted at the rate of 90 percent.
Mr. SCHEER. I would answer that in this way, Mr. Wadsworth, that whenever there is the threat, this terrible threat, of new pipe lines which comes in from somewhere, that looms on the horizon, all of the big companies immediately send out their agents and make arrangements with the farmers and sign up their gas. Maybe they will pay 50 cents an acre for it; and they get possession of that land, but after the threat of competition fades out of the picture they will not pay those rentals any more, and the farmers get their land back and the pipe lines draw gas from their own wells, or wells that they have under lease, and drain the gas out from under the other lands.
Now, if it is possible for the Commission to know what company is getting gas for such a purpose, it cannot compel them to get rid of the gas, but it can keep them from adding the costs for acquiring that gas land upon the consumer and it will have a tendency to loosen their grip upon the available acreage and make it possible for new pipe lines to get started, and that is conservation, because the landowners say that if they are going to steal their gas, that they had might as well blow it into the air through a stripping plant or a carbon-black plant. We think that is conservation.
Mr. PETTENGILL. This does not require that they divest themselves of the title to the exces acreage.
Mr. SCHEER. No; it does not.
Mr. PETTENGILL. It simply says that they cannot use that in computing their charges upon the consumer. Is that not it?
Mr. SCHEER. That is right.
Mr. WADSWORTH. I can imagine a situation in which in the long run it would be a wise thing for the present generation to carry a part of that charge in order to protect future generations.
Mr. SCHEER. Well, Mr. Wadsworth, there is a certain logic in what you say; but there is another logic in another direction.
No man can say today that there will not be processes invented tomorrow whereby gas may be manufactured from coal and oil or other processes more cheaply than you can bring natural gas to the market over a long distance.
Now, conservation, just because you feel that there is need for it to be saved for tomorrow may be just like putting your money in a bank which closes. You do not get it out. Something comes along and your horse and buggy is not very good, or very valuable, because you can buy an automobile and get there very much quicker. Mr. WADSWORTH. Of course, you might use that same line of
argument with respect to oil and coal. Some substitute might be invented tomorrow or within 10 years from now that would take their place and there would be no further need for conservation of oil and coal, but I doubt if you could get away with that kind of an argument today. Mr. SCHEER. I do not mean to be an extremist either
you can be too much in favor of conservation as well as not enough in favor of it.
Mr. BOREN. After all, is not conservation particularly based on the wise use of our resources? The thing that I am interested in is to see the gas that is being wasted in the fields such as in my State and in my district, I am interested in any program that will permit the Nation utilizing that gas. We have small municipalities in my section of the country and under the present system they are not able to utilize the gas and it is simply being wasted. It could be used. I am interested in your amendment.
Mr. SCHEER. If further experience in the administration of this act proves that it is needed, we will certainly be one of those to support it, but all of the evidence is to the contrary, from our view.
Mr. BOREN. How much of the gas that you are referring to comes from Oklahoma? You keep referring to the pipe lines from the Panhandle, and I know something about those lines being laid from the northern Panhandle of Texas. How much of the gas for the cities that you represent comes from the State of Oklahoma ?
Mr. SCHEER. Well, I would say that none of the gas for the cities that I represent comes from Oklahoma, because most of your gas is sold within the State, and up in Kansas, Arkansas, and maybe some of it goes into Missouri. You are from Oklahoma.
Mr. BOREN. The reason I raised that point is this, is that partly due to the fact that the majority of the independent companies, the smaller companies, that are operating in Oklahoma are unable to deliver the gas in Oklahoma to these distant places under the present situation ?
Mr. SCHEER. Well, there again, there is your restraint, the natural restraint, which monopoly operates to keep the independents from coming in and developing. Then, you have got your political condition which keeps them from coming in. You have got their control of finances, and they have got dozens of ways in which they can have a check upon their rivals, and this 7 (c) just gives them another check, in our opinion.
Mr. HALLECK. Let me ask one question further: Have you in mind a specific case of companies holding large gas reserves and having that acreage charged to the sale price of the gas, unloading it on the consumers ?
Mr. SCHEER. This corporation that I have particularly in mindI would say that there are two-but I will speak only for one corporation which I have particularly in mind, which is the Columbia Gas & Electric Corporation, one of the big four, serving practically all of the State of Ohio except eastern Ohio, and they have carried that issue up to the Supreme Court, and I think that they did that, and I think that it is shown in the opinion, it was declared that the purpose of gathering excessive acreage frequently is to shut out competition and that it is added to the cost. I can get that decision. I think it is shown by the records of the company.
We can also show that in around 1930 and 1931 the Columbia Gas & Electric Corporation held about 8 million acres in that general area, and that 4 years later, due to the circumstances of the depression they had released some millions of acres and were still supplying their markets.
That is a concrete instance of that situation.
I would like to have Mr. Reed, of Cleveland, deal specifically on some of those things. He is chairman of the Ohio committee and that State needs this bill more than any other, but it needs the change that I have stated.