Mr. KENNEY. Mr. Chairman The CHAIRMAN. Mr. Kenney. Mr. KENNEY. I understand you claim that the cost of holding reserve acreage enters into the costs of the rates paid to these pipe-line companies? Mr. SCHEER. Well, it is something that we suspect and we believe most certainly is occurring, but we cannot tell and we do not believe the State commission can tell. Mr. KENNEY. Well, assuming that to be so. Would that be offset by the depreciation charges that each company is allowed to write off? Mr. SCHEER. Well, if they divest themselves of a certain amount of acreage they get money for divesting themselves of that, because it has a value, and control over it has a value, and there is a market for that land. I think it is offset by the return they get. They get their money back. Mr. KENNEY. When they increase their acreage, though, the reserve should offset depreciation so that the depreciation should be so much less, should it not? Mr. SCHEER. Yes; in point of dollars. You are getting into quite a technical angle of this that I am not competent to go into. Mr. KENNEY. All right. Mr. SCHEER. I am expressing the sentiments that I know exist rather than the technical information which an engineer can give you. If I may, Mr. Chairman, I would like to have Mr. Reed say a few words. He has been at this for a long time and he can answer questions that I cannot answer. Unless there are other questions you desire to ask me, I would like for you to hear him. The CHAIRMAN. We thank you, Mr. Scheer. Mr. SCHEER. Thank you. The CHAIRMAN. We will hear Mr. Reed. STATEMENT OF WILLIAM C. REED, NATIONAL TREASURER AND CHAIRMAN OF THE OHIO COMMITTEE OF THE CITIES ALLIANCE, CLEVELAND, OHIO Mr. REED. Mr. Chairman and gentlemen of the committee. First for the purpose of the record The CHAIRMAN. Will you tell us your position, Mr. Reed, and whom you represent. Mr. REED. I am the national treasurer and the chairman of the Ohio Committee of the Cities Alliance, a member of the United States Conference of Mayors' Committees on Natural Gas, and chairman of the public utilities committee, of the city of Cleveland. I would like to show, if I may, just why there is a lack of interest in some States in the distress of other cities. I speak from the standpoint, or regarding, rather, the situation in Ohio as it concerns the city of Cleveland, and we buy gas from the Eastern Ohio Gas Co., which in turn buys gas from the Hope Gas Co., of West Virginia, both under control of the Standard Oil of New Jersey. Hope sells over 50 percent of its product to east Ohio. In 1935, 57.60 percent. Within the last 5 years, each year being considerably over 50 percent of their production, which they buy and which they produce. Of that other 50 percent, they sell considerable to the city of Pittsburgh and various other cities outside of the State of West Virginia, so you can readily see the lack of interest so far as West Virginia is concerned in the distress of Ohio, because with the remaining amounts. of their production which is bought or produced, a great deal of that is sold at reasonable rates in the cities of West Virginia. So there is no complaint in West Virginia. Cleveland buys about 70 percent of its gas from the Hope Co. of West Virginia, and we buy about 30 percent of our gas, or use about 30 percent of the gas which is produced in Ohio by the East Ohio Gas Co. Those figures are as follows-but, first, let me say to you that in 1922 the Hope Gas Co. sold 72 percent of its gas used by the East Ohio Co., and the East Ohio Gas Co. either produced or purchased some 27 percent. That figure changes just a little bit in 1935 and we are now buying 60 percent from Hope and we are producing or purchasing 37 percent in Ohio. I want to speak just a few moments about the average cost of gas purchases that is, the average cost of the gas purchased by the Hope people in West Virginia-which is approximately 20 cents per thousand cubic feet, and the average cost for gas produced is just a little bit in excess of 20 cents. That gas is gathered in West Virginia and transported to the Ohio River, a distance much shorter than from the Ohio River to Cleveland, and along the route from where it is gathered or produced, charges are made which bring that gas to the gate, to the river, of 382 cents. per thousand cubic feet. In other words, that price jumps from 20 to 382 cents from their points of production, a distance of probably 100 miles to the river. From the river to the city of Cleveland-and I think that we are in agreement with these figures-the price of transporting that gas for approximately the same distance is less than 5. cents. Now, we cannot examine the figures of the Hope people in West Virginia. We have no authority to go down there with our engineers. We think that it is absolutely necessary to have a Federal regulation in this matter because we think you have to be equipped with almost police powers in order to get the information necessary in the setting up of reasonable rates. Mr. MARTIN. Mr. Chairman The CHAIRMAN. Mr. Martin. Mr. MARTIN. What does that gas sell for at Cleveland? Mr. REED. The gas comes to Cleveland, and you understand that is about 75 percent of this gas that we purchase from Hope is purchased at the price of 382 cents. The gas that we produce in Ohio, or purchase, is produced at about 20 cents, and the transportation cost is very little from there to Cleveland. Mr. CROSSER. I wonder if I had not better correct you. The city of Mr. CROSSER. East Ohio originally gets it from Hope. Mr. MARTIN. I thought you said that you got it in Cleveland for about 33. You have stated that it is about 3812 cents to the river and 5 cents more to Cleveland, and that would run it up to over 40 cents at Cleveland. Mr. REED. That is right; it is over 40 cents. That is gas which is purchased by the East Ohio from the Hope people. But by mixing that 70 percent that gas with 30 percent of Ohio gas, which is about 20 cents-we have a gate rate, so to speak, at the city of Cleveland now of about 38 cents, because now we do not allow the Hope people 3812 cents at the river, through the decision of the Ohio Utilities Commission in our last rate fight, when the commission said that 37.1 was adequate and would produce a fair and reasonable return to the Hope people. Mr. MARTIN. Then you do not get your gas for 33 cents, do you? Mr. REED. No; I am speaking of Cleveland. I think that you have reference to Detroit. Mr. MARTIN. Pardon me; you are correct. Mr. REED. But a rather odd situation arises in that connection and is a question which should be answered as to just why gas coming to the city of Cleveland comes there now at a gate price of between 38 and 39 cents and the gas company is now asking over 40 cents for gas coming approximately 250 miles, when gas coming through four States, 1,200 miles from Texas, is delivered at the gate of Detroit for 33 cents. Mr. MARTIN. I got the two cities mixed up. The CHAIRMAN. Let me see if I understand your situation. Assuming that the price at the river is just, how much do you pay in excess of what you estimate would be a justifiable cost? Mr. REED. You mean our gate price? The CHAIRMAN. Yes; and finally the delivered price. I understand that you start out with the assumption that the river price would be 20 cents. Mr. REED. No; that is the production price and the purchase price from independent concerns. The CHAIRMAN. Well, what was the conclusion you reached as to the amount you pay in excess of what you should pay based on the legitimate river price? Mr. REED. Well, we feel this way-that the United Fuel & Gas Co., which are immediately adjacent to the fields of the Hope people in West Virginia, produce and sell gas at the river at the Ohio River that is the line which comes up the western part of the State of Ohio—and that gas is sold at 26 cents at the river. And we feel that that is a proper guide for the price for the gas at the river and which would probably make a total gate price at the city of Cleveland of about 28 cents. The CHAIRMAN. About how much? Mr. REED. About 28 cents. The CHAIRMAN. And you are paying approximately 38 cents? Mr. REED. Thirty-eight cents now, and the gas company is contending for a higher figure. The CHAIRMAN. So that it is about 10 cents higher than you estimate it should be. Is that correct? Mr. REED. That is correct. The CHAIRMAN. I am simply trying to understand your figures. Mr. REED. That is right. Mr. MAPES. Mr. Chairman- Mr. MAPES. What does that excess price of 10 cents at the river over what you think it ought to be mean to the consumer in Cleveland who we will say has a monthly gas bill of $8? Mr. REED. Well, a 1 cent in the rate means in dollars and cents about $147,000, so that the reduction of 10 cents would mean about $1,500,000. Mr. MAPES. Will you break that down a little more. How much does that mean that the average householder would have to pay over what you think is reasonable, on the basis of an $8 a month gas bill? Mr. REED. A reduction of 10 cents? Mr. MAPES. If you only had to pay the Hope people 27 cents instead of 38 cents. Mr. REED. It would be about a dollar and a half on an $8 bill, approximately. The CHAIRMAN. Mr. Reed, what is the general basis for your estimate that there is an excess charge? Is that based on the figures of the State commission? I do not care anything about the details, but just the source of your conclusion as to the excess charge. Mr. REED. You mean this excess of 10 cents which we contend? The CHAIRMAN. Yes. Mr. REED. The Hope people, if we are to accept their statement literally, contend that they are doing business in a very mountainous sort of a region and that their costs are considerably higher. In spite of their contentions, they have in recent years gone farther south in a still farther mountainous country and made extensive investments, which if their statement is to be taken to be the fact has kept the price up in order for them to obtain the proper yield on their investment. Now, they have only produced about an average of 12 percent of their requirements over the period of the last 5 years. In other words, they have held back a terrific reserve of gas in their wells in West Virginia, some 3,000 wells. They claim they are justified in holding back this reserve because of the possibility of some extremely cold weather that may come on us suddenly at some time. In addition however, to holding back this reserve they buy the greater percentage of the gas which they sell from independent concerns at about 20 cents. They are capable of producing about 39,000,000 cubic feet of gas per day and they produce a very small percentage of that-less than half. It is our contention that if they, even if they continued to buy gas from independents, if they would, in extremely cold weather, utilize the maximum part of their contract-in other words, purchase their maximum part of their contract from independent concerns and turn their own gas jets on with the supply that they have so that they would furnish, say, half their own requirements from their own wells, that their gas instead of being produced from their own wells at a figure beyond 20 cents would be produced probably for 10 or 12 cents. The CHAIRMAN. That total difference in your estimates, between you and the company is not accounted for by the reserve alone, is it? Mr. REED. No. The CHAIRMAN. That is the cost of carrying what you regard as excessive reserves? Mr. REED. No; we have never been able to determine just where this price jumps from 20 to 382 cents at the river; just what is involved in that 1812 cents. We have never been able to make the proper investigation in West Virginia and even if we were inclined to do so it would take considerable money for us to do that and then we would not really have any authority. The CHAIRMAN. So that you feel that if the authority proposed to be given to the Commission here to investigate those costs and charges existed in the Federal Government, that it would aid you in securing a just rate for your gas? Mr. REED. That is right. Now, there are affiliated companies and with the affiliate companies of the Hope people, which is, as I say, controlled by the Standard Oil, their price is higher to their affiliate companies than it is to their nonaffiliates. Nonaffiliated gas companies in Fayette County in 1935—the average price of the gas sold was 3112 cents. Now, to affiliate companies such as the East Ohio Gas Co., it was 382 cents at the river and mind you, we have to transport that gas just as far as they transport it to get it to the East Ohio Co. at the river. The East Ohio Gas has to transport that gas the same distance to get it to Cleveland, but the price that the affiliated company, the East Ohio Co., pays, was 3812 cents in 1935, and in 1931 it was 41.8 cents to the Peoples Natural Gas; also an affiliated company, 3812 cents and the River Gas Co., 38 cents. Now, then too, mind you, they have their own distribution plants in various cities in West Virginia. For instance in Clarksburg their rate to the burner tip in Clarksburg is 28.36. Now, then, they contend that in the city of Clarksburg that is about the distribution rate. In other words, a large ctiy where they have a tremendous number of users, they claim the distribution rate is around 23 to 26 cents and here they are selling gas in a small community for that price, and the costs involved are higher to distribute it to 10 people than to 100 people in the same area. The CHAIRMAN. Does that gas which is sold at those various prices come from the same source? Mr. REED. That came from the same source; yes. And, at Salem it is 33 cents. In one other city in West Virginia, Sistersville, they have the lowest rate, at 27.99 cents. Now, then, with our rate of 3812 cents that we have, the Hope sells to the East Ohio at the river. They are now asking for a rate somewhere around 41 cents. In other words, the gas that they now purchase under our contract is purchased by virtue of a decision handed down by the utilities commission 5 years ago. I might say to you, however, we are operating without franchises. We have not had a franchise since last July. We are operating under stop-gas legislation of the city council. Various other cities in Ohio have no franchise at the present time, but this gas at 382 cents at the Ohio River is transported, as I say, to Cleveland and it then becomes about 39-cent at the gate of Cleveland. It is claimed that this contract is the flat contract at the gate, regardless of the amount of gas consumed at the city of Cleveland, and there are 61 cities along this east Ohio gas line, yet in spite of |