The above and other major lines constructed during this period are shown in red on the map opposite this page. As disclosed by the tabulation next above approximately two-thirds in miles of these main transmission systems built from 1925 to 1935 were placed in operation during the depression years. The beneficial results of these large construction projects were made possible and financed in the main by the electric, oil, and other holding companies.

Property and customers. In terms of physical property the natural-gas industry at the present time comprises approximately 75,000 miles of gathering lines and transmission lines, and about 90,000 miles of local distribution mains, which, together with other property essential to the production and distribution of natural gas, represent an investment of approximately 21⁄2 billion dollars. More than 1,200 companies are engaged in the business of furnishing natural gas to approximately 5,000 communities. Gas is produced in part by the natural-gas companies themselves, but, in addition, is produced and sold in the fields by thousands of other companies and individuals to the natural-gas companies. During the year 1933 (1934 figures not available) a total of 7,166,000 domestic and commercial customers were supplied with natural gas (as contrasted with approximately 3,500,000 in 1925), of which 1,961,000 were consumers of mixed gas. In the 10-year interval from 1923 to 1933, manufactured gas has been replaced by natural gas or mixed natural and manufactured gas in communities with a population of nearly 15,000,000 people, and approximately 2,824,000 customers have been benefited by the change. During this same period natural gas has been made available to over 1,730,000 customers who had not previously been served with any gas fuel. Natural-gas service in 1933 was being supplied in 38 States, as contrasted with 23 States in 1925. Manufactured gas service has been entirely displaced by natural-gas service in California, Kansas, New Mexico, Louisiana, Oklahoma, Wyoming, and Texas. Over 90 percent of the gas consumers in Arizona, Ohio, West Virginia, Kentucky, Utah, Mississippi, Arkansas, Colorado, and Montana are served with straight natural gas. These economic and social benefits would not have been realized had this Public Utility Holding Company Act of 1935 been law during the period beginning in 1925. The 10 States that now have no natural-gas service are the 6 New England States, North Carolina, South Carolina, Nevada, and Idaho. PHYSICAL CHARACTERISTICS AND FUNCTIONS OF THE NATURAL-GAS BUSINESS The natural-gas industry performs three principal functions, namely, production, transmission, and distribution of natural gas.

The property necessary to supply natural-gas service consists of producing acreage, gas wells, and gas acreage held in reserve to insure the continuity of supply and fulfillment of obligations, gathering lines to take the gas from the gas wells to the transmission system, equipment to treat the gas where treatment is necessary, compressor stations located in the fields to supplement the well pressures, transmission lines extending to the markets served with compressor stations to maintain pressures, and distribution lines with pressure regulating and measuring equipment to deliver gas to the premises of each consumer and there measure the gas as it is consumed.

Production and gathering.-Natural gas from any group of wells in a given area is piped through gathering lines to points of delivery into main transmission systems. While main transmission lines are permanent, the gathering lines must continuously be taken up and relaid in other parts of the field to connect new wells, as older wells to which they are connected become exhausted, and must be moved to other fields when the field itself becomes exhausted.

Transmission. After natural gas is gathered it is transmitted through large pipe lines to the markets. While the initial pressure of gas wells may vary from a few hundred to many hundred pounds, this pressure declines with production and becomes so low that gas will not flow through the long transmission lines to the markets without being pumped, that is, having the pressure raised in what are commonly termed "compressor stations" in the fields. Even with the higher initial pressures in the fields, main line compressor stations are required to transport the gas long distances. While there is no fixed rule as to the spacing of these stations, they are usually from 50 to 100 miles apart. The pressure at the outlet of these stations may vary from 300 to 600 pounds and on the inlet from a few pounds to as high as 400 pounds. Along these transmission lines and in all the fields are telephone or telegraph systems which really are the nerves of the entire business. By this means well attendants, pressure regulators,

Not printed. On file with the committee.

compressor station operators, and others are kept informed and instructed as to procedure in accordance with the varying market requirements.

Distribution. When gas is brought to a center of population it passes through a regulating station where the pressure is reduced from that in the main line to s lower pressure for transmission through the intermediate system of a distribution plant. At various points on this intermediate system gas is again passed through low-pressure regulators which reduce it to substantially those pressures at which it is used in the various home appliances. In order to keep this pressure uniform throughout a large distribution center it is quite apparent that a net-work of intermediate-and low-pressure lines is essential.

There are numerous incidental operations involved in the natural-gas business, one of the most important being the conditioning of the gas and extraction of gasoline therefrom. It is necessary to install plants for the purpose of removing salt or fresh water, heavy hydrocarbons (which may be very light oils), sulphur, sand, and other impurities in order to eliminate transportation difficulties and commercialize the natural gas in quality.

Essential requirements of system. In the majority of instances the gas fields are located at considerable distances from the markets, so that the building and equipping of a transmission system requires the expenditure of large sums of money. This investment cannot be justified unless the company is assured of an adequate supply of gas to meet the requirements of the markets for a period of years and unless the company is assured of a volume of sales under long-term contracts at satisfactory load factors to keep the production, transmission, and distribution facilities operating with reasonable uniformity. Having obtained these assurances, the company designs a complete unit. In this design the market requirements become the controlling factor. Production must be had, backed up with reserves for the future, adequate to meet the market requirements; the gathering lines, transmission system, the compressor stations and other facilities must be designed to move the required volume of gas to the markets as and when needed, and the distribution facilities within and adjacent to the communities served must be constructed and equipped to deliver the gas to the burner tips in the householp, store, and factory so that an adequate supply will be available instantaneously as and when needed.

Continuity of operation required.—The natural-gas business is one of supplying fuel to the consuming public in an instantaneous and uninterrupted service. To carry on this business, natural gas must be produced, transported, and distributed in one continuous operation and to the extent required by the markets served. These three steps are not separable but are continuous and successive in the order named. This is true regardless of whether the facilities used for producing, transporting, and distributing natural gas are owned and operated by the same person or by separate persons. Though a project may be conceived only to construct transportation facilities, such facilities are not independent as though they were public vehicles intended and available to transport gas for hire but must become part of a natural-gas system with gas reserves at one end and markets at the other Such a project shares the obligations imposed by the markets, regardless of the condition of ownership. A natural-gas project, whether a complete system involving the ownership and control of gas reserves in the field, and the production, transportation, and distribution of the gas to the markets, or only one of these major elements, cannot be carried out successfully without the existence and close cooperation of all the others.

Considering that natural gas cannot be stored and that it must be produced and delivered as required by the consumer, the simultaneous use of all major divisions of a natural-gas system, namely, production, transmission, and distribution, cannot be separated but must be operated as a whole and no one of the several steps can be interruped without destroying the fundamental value of the whole system. Instantaneous and continuous service is essential.

WHY ARE THE OIL COMPANIES ACTIVE IN THE NATURAL-GAS BUSINESS? All important gas reserves discovered in search for oil. Since the Fredonia well in 1825, all of the important natural-gas reserves thus far developed have been discovered in the search for oil. Early in the history of the oil industry it was found that oil, gas, and water occupy spaces in porous rock or sand, and, naturally. since oil is lighter than water, it will rise in the subsurface formation above the water, and for the same reason the gas will accumulate above the oil. The three are usually, although not invariably, found in any reservoir which produces oil or gas. In the early days when drilling for oil was based upon surface geology,

as well as in these days when it is in search of structures located by geophysics, the method of drilling for the one was and is the same as for the other and only the completion of the well determines whether either gas or oil, or both, or neither will be produced. If a well is completed in the top of a porous rock or sand containing gas, the gas will flow out; and if there is a deposit of oil below the gas, oil will follow. As a consequence, in the early days when there was no market for the gas or any conservation law to prevent, gas was allowed to blow into the air in exercising its natural lifting force to bring the oil above ground with the result that the gas was wasted. This was necessarily so because gas may not be economically stored above ground, and, as a consequence, to be utilized must be moved continuously from the subsurface reservoir to the point of utilization, and in the early days there was little if any provision made for taking the gas to market.

In present-day operations, under the best of practice, the proper oil-gas ratio is maintained so that both are produced gradually in such a way as to conserve the gas and to realize the maximum recovery of oil. Failing this scientific plan of withdrawal, a large percentage of the oil deposited in the subsurface formations is left there with no presently devised economic method of extraction.

It has been but natural, therefore, that the oil producers were pioneers in the discovery and production of natural gas. In some instances where the field is primarily a natural-gas field containing little if any oil, the subsequent developments have shifted largely from the oil companies to the natural-gas companies, although even in those instances the oil companies have retained active participation either through their oil-producing companies or through natural-gas operating subsidiaries.

Marketing of gas by oil companies necessary to prevent loss.-As natural gas is of value (varying with the market demand therefor and particularly with the miles of transportation required to take the gas to market) the oil companies have in self-interest endeavored to market the gas or to induce others to build pipe lines for that purpose. They have known more, as a rule, than anyone else as to the nature and extent of the gas reserves available in the fields in which they operate, and, as a consequence, have been better qualified than anyone else to determine the dollars which could be safely invested in transportation facilities to take the gas to market. This investment must be amortized before the gas supply is exhausted, otherwise there is a loss of investment in the pipe line and other facilities. From the standpoint of development and production the oil companies have likewise been the logical field operators, inasmuch as the drilling for and production of oil and gas go hand in hand and may be handled by the same organization with the minimum of expense.

Some of the early major developments in marketing natural gas consisted of pipe lines financed and built by the oil companies to take their own natural gas to their own refineries for use there in large volume for boiler fuel and refinery processing. Of late years they have joined with others, particularly with the holding companies in the electric and manufactured gas industries (the subsidiaries of which were already operating in the markets), in the financing and construction of long-distance pipe lines to take the gas from the fields to the markets.

Oil companies can't avoid being in gas business. It is but natural, therefore, that the oil companies are engaged in the natural-gas business. It will always be so. If they were to sell all of their natural-gas holdings, they would be back in the gas business to some extent the following day. It would be contrary to the public interest to have it otherwise.

WHY THE UTILITY COMPANIES ARE IN THE NATURAL-GAS BUSINESS Utilities came into this gas business naturally because of ownership of distribution facilities.-There is as much economic justification for the community of interest between natural-gas and electric operations as has been shown above to exist between natural-gas and oil operations, although the reasons for the one differ from those for the other. In the case of the oil companies, as has been shown, they perform an essential function in connection with the production of natural gas and in the movement of it to the markets. The electric companies make their contribution from the standpoint of distribution rather than of production, although they share with the oil companies in the function of moving the gas from the field to the markets. These functions are natural and logical outgrowths of the development of the natural-gas industry and in no sense evidence a desire upon the part of the electric companies to engage in extraneous

and unrelated businesses. As has been made clear, the wide-spread distribution of natural gas has come about during the past 10 years. A review of these developments illustrates clearly the logical and invaluable functions which have been performed by the electric companies as well as by the oil companies.

Displacement of manufactured gas.-Manufactured gas has now been displaced in all communities where natural gas has been introduced except in a limited number of large centers of population located far distant from the sources of supply, where it has not been economically feasible to build the transmission facilities of sufficient capacity to carry the maximum requirements for house heating of the entire community on a cold day and where, as a consequence, the natural-gas service is supplemented by the manufactured-gas facilities and a mixed-gas service is supplied, partly natural gas and partly manufactured gas. Many of those communities which are now served with natural gas had no manufactured-gas service at all. In most instances, however, the community was already supplied with electric service. Where manufactured-gas plants were in operation they were in the main owned by or affiliated with the electric company (particularly in the smaller communities) because of the obvious economies from the standpoint of the cost of gas service which result from common ownership, management, and operation of gas and electric properties. In many instances existing gas-distribution facilities could be revamped to provide facilities for the distribution of natural gas. Substantial expenditures were required for this purpose, however, due to the fact that natural gas is dry, while manufactured gas is wet, and the former is moved under higher pressure than the latter, resulting in enormous leakage unless substantial expenditures were made to tighten the joints. Again it would have been contrary to the public interest to build & natural-gas distribution system in duplication of and in competition with the manufactured-gas distribution system. As a consequence of these conditions, the electric companies have naturally been interested in the introduction of natural-gas service.

THE PLACE OF THE HOLDING COMPANY IN FINANCING AND DEVELOPING NATURALGAS SYSTEMS

Financing for natural-gas operations different from that for utility business generally. Since, as has been pointed out, 75 percent of the natural-gas business is selling fuel for industrial purposes in competition with other fuels, and is based upon an exhaustible natural resource, it follows that the financing of a natural-gas system that is, production, transmission, and distribution-differs fundamentally from public-utility financing, as that term is generally understood. As the known major natural-gas reserves are located in most cases at great distances from the markets, large investments are required for pipe-line facilities and these must be so amortized as to return the capital prior to the exhaustion of the initial gas reserves and of such additional reserves as may be developed. Recurring finaneing is also required from year to year in the exploration, discovery, and development of additional gas reserves, which are essential for the assurance of a continuous supply to protect the consumers. Funds for these developments, particularly when required in large amounts as is the case in a major natural-gas project, may not be secured through the ordinary channels of finance available to utility companies.

Restricted market for natural-gas securities. The large institutional investors (insurance companies and others) have heretofore regarded natural-gas securities as too speculative for their portfolios, and, as a result, this major source of investment funds has not been available to the natural-gas industry. Those investors who are willing to purchase natural-gas bonds very naturally and properly insist upon a wider margin of safety in the form of equity protection than is required for utility bonds. Those who make the equity investments realize that it takes a period of years to attach and develop the business on a profitable basis, that the income must be reinvested in substantial amounts in additional gas reserves and otherwise from year to year, and, accordingly, that they must wait for several years at least before they receive a return on their investments.

As a result, individual investors of large means are not disposed to invest substantial amounts in natural-gas securities. The only satisfactory sources thus far available from which these equity funds could be obtained are the holding companies which have the funds on hand or are able to raise them because of their diversified interests and sources of income. In the natural-gas industry the funds available for the major expansion which has been made during the past 10 years have come principally from the utility, oil, and other holding companies

which, for the reasons previously stated, have been interested in the development of the industry.

Such natural-gas systems as the United Gas, the Lone Star, Cities Service, Columbia Gas, and the East Ohio-Hope-Peoples could not have been built up except through the holding companies, and many hundreds of towns and cities in the territories served would still be without gas service and many industries which have begun operation in those territories because of the availability of gas for fuel would not now be in operation.

Long-distance pipe lines.—The holding company has been even more important in the construction of the long-distance interstate pipe lines in the West. To make natural gas available to localities in Nebraska, Iowa, Minnesota, and Illinois complete cooperation between the existing manufactured gas and electric distributing companies and those having sources of supply and funds for the construction of pipe lines was necessary. The holding companies controlling those factors did so cooperate and now own securities of these long-distance pipe lines such as the Northern Natural Gas Co. to Minneapolis and St. Paul, The Natural Gas Pipe Line Co. of America to Chicago, and the Colorado Interstate Gas Co. to Pueblo and Denver. The cities and villages now served by those lines, including many small communities en route, would today be without natural gas were it not for the holding company.

Future need of holding company. The holding company has by no means outlived its usefulness. The natural-gas business is still in a development era, and there are many territories to which natural-gas service will be extended in the next few years if holding companies are permitted to function in the future as effectively as they have functioned in the past.

No natural gas company is able to earn a sufficient amount over and above its operating expenses, the interest on bonds and other funded indebtedness, and sinking-fund requirements to construct major extensions, and it is necessary that holding companies be continued in existence if progress is to be made in the expansion of natural-gas service to communities and industries not now served. If holding companies are legislated out of the industry and financing is sought to be done by the natural gas companies direct through investment channels, even if funds could be secured, the restrictive provisions of the mortgages or loan agreements because of the need for rapid retirement of such debt, will prevent or seriously impede any further expansion until these loans are repaid.

Receiverships now being prevented by holding companies. Many natural-gas systems are still unable to secure from outside sources financial assistance necessary to continue to expand and extend their facilities, and in some cases to even continue the operation of their present facilities on account of the trying times through which we are passing and the fact that the market for gas in their territories cannot be fully developed. A great many of these natural-gas systems would today be in receivership if it were not for their holding companies advancing funds, frequently taking stock or securities far behind the senior position, with the possibility that it may be years before these funds are repaid or any return is secured therefrom.

Effect of dissolution of holding companies on operating companies.-Dissolution of the existing holding companies engaged in interstate natural-gas business within the space of a few years would throw into the market in some manner all, or large blocks, of the common stock of the operating companies. It would similarly throw into the market substantial blocks of their senior securities and make due and payable many millions of operating-company notes now held by holding companies and banks.

To provide for the senior security holders of holding companies, a tremendous aggregate of operating-company securities would be required to be sold, presumable in most cases for cash.

Even if part of the claims of holding-company securities were met by distribution of operating-company securities instead of by cash, many of these distributed securities would come into the market. The attitude toward natural gas investments, under the conditions which would then exist, would be such as to make certain a mad scramble to unload. Some discriminating investors might hold some of the stronger securities, but the amount so held would be insufficient to forestall an utter collapse of the general market for natural gas operating comany securities

SCOPE OF THE BILL

Definitions of bill bring in many companies not actually “public utility” holding companies. Although the title is "Public Utility Holding Company Act of 1935", there are included within its terms many companies that are not public utility