Mr. WALLIN. I certainly had not thought of this in terms of a subsidy. I was trying to reflect, based on the outlook today, what might be an average increase in cost per therm to the consumer. In response to the question that was asked me, I don't, frankly, follow the subsidy idea that you advance. That certainly is not our thinking. It represents an increase, a probable, an estimated increase in average cost. And when I say estimated, if I may, counsel, it could be higher than that. But my judgment is that it might be at that level. Mr. D'AMICO. The need for the mixed gas is primarily to satisfy some of the industrial needs. If it weren't for the industrial needs, the residents could be using the gas that is now being used by the industry, so that when we mingle gas and produce it for the benefit primarily of industry, but jack the price up across the board both for the residential user and the industrial user by 10 or 15 percent, aren't we in effect asking the residential user to assume a subsidy of industry by this 10 or 15 percent? Do I make my question clear? Mr. WALLIN. You make it clear. I don't think I follow the logic. I said, in response to the question do we have a priority system and so forth, that we had formulated one which is not yet approved, and I outlined some of its main elements. By this very nature, should allocations be necessary, it is residential customers that would be served first and would get the benefits of any increments from the SNG plant, not industrial customers. Mr. D'AMICO. This happens only after the industrial companies have been completely interrupted? Mr. WALLIN. If I may finish my statement, please. Mr. D'AMICO. Yes, sir. Mr. WALLIN. Therefore, it is hard to see, if the industrial customers are going to be the first ones curtailed, how residential customers would be subsidizing their consumption of gas, because they, the industrial customers, might not get all of the gas that they want. So I do understand your observation, but I can't agree with the conclusion that has been drawn. Mr. D'AMICO. Are you in effect saying that the residential customer will not be obliged to pay an increase of 10 or 15 percent of a rolled-in price unless that rolled-in price is to buy gas that is exclusively for his use? Mr. WALLIN. I am not sure that I understand that. When I offered that observation of the 10 or 15 percent, it was in response to a question-what did I think the increase in the rolled-in cost would be as a result of an SNG plant coming onstream 2 or 3 years from now? You know, counsel, our rate structure provides for service typically for residential, commercial, and industrial customers. And depending upon the classification of service and the quantities of therms consumed, the price structure was developed and approved by our Commission accordingly. So I have a little difficulty responding to that question insofar assupposing gas curtailments were necessary beyond what we have now. The residential customer, having the primary position, we would con tinue to serve, and we would continue to serve them under the applicable filed rates. I do not see where one group of customers would be subsidizing another group. That is clearly not the intention. We would be serving them because a curtailment forced us to adopt priorities and allocations. And in that connection residential customers come up first. There is no intended discrimination, no intended subsidizing of one group over another. The problem is that there is a good deal more demand than supply. Because of the shortfall, somebody will have it-somebody will be served and somebody will not be served. I must say that the subsidy notion escapes me. Mr. D'AMICO. Let me just make a comment. I didn't mean at all to imply any kind of discriminatory action on your part or on any industry's part that might be in the same position. It was an exploratory kind of question. Perhaps an answer might have been, yes, that might be true, but we are coerced into that kind of action because of the physical difficulties in being able to allocate costs. I don't know. We are exploring the problem and looking to be enlightened. May I ask you this, sir. You indicate that economic factors have centered around the cost of gas. "Artificially low prices for gas at the wellhead, regulated by the Federal Power Commission, have done two things." And so forth. May I ask your basis for saying that the prices are "artificially low"? Mr. WALLIN. We think that, in a market where the free forces of demand and supply are at work, price would have been higher than that set by the FPC, as witness the general level of prices in the intrastate market in which, without regulation, there is, as you know-this has resulted in a substantial differential between prices. In the regulated sector, of course, the prices at the wellhead have been substantially lower than those in the intrastate market, because of the controls imposed. We think there is an artificially low level of prices, artificially low in the sense that it is not reflective of the relationships between supply and demand. Had the forces of supply and demand been allowed to work without the present administered pricing mechanism, the price would have been higher at the wellhead. It was in that sense that we think of the wellhead prices as being artificial and not really being reflective of the true forces of supply and demand in the marketplace. Mr. D'AMICO. Thank you. You indicate that "In addition to these steps, NI-Gas has permission from the Illinois Commerce Commission to completely curtail seasonal offpeak gas in 1972 to approximately 200 industrial and boiler fuel users." I am directing your attention to the word "completely," and I ask you this-what would be the impact of that? Mr. WALLIN. Since that curtailment is in process, I believe your question is what is the impact. Mr. D'AMICO. All right, what is the impact? Mr. WALLIN. We did this with considerable reluctance. These 200 users are our customers. So this was a move that was undertaken after a good deal of contemplation and reflection and, indeed, discussions with them. Now, they had the option, which many have elected, as a result of this curtailment, to be placed on a waiting list, so that when gas becomes available they could be served on what we called a firm yearround basis. In other words, we could serve them. They do have that option. I mentioned that several have elected to do that. Therefore, we are serving them. We are meeting their needs. That means that they are both an offpeak and peak customer, a firm year-round customer. We know, at this point in time, of no serious hardship that has been imposed on any of these customers as a result of this. This action was only permitted by our regulatory body after extended proceedings, during which time some of these customers, anticipating what might be the outcome, did install alternative equipment in an attempt to minimize or soften the effects of this curtailment. I think I will stick with my statement that the impact upon these customers and their business has been rather minimal. Mr. D'AMICO. Have you lost industries as a result? Mr. WALLIN. Did industry move out of our service territory? Mr. D'AMICO. Yes, sir. Mr. WALLIN. Well, I have no present knowledge that any industry left the territory as a result of this move. Mr. D'AMICO. Were there any layoffs as a result of this move? Mr. D'AMICO. Was there any changing of the shifts or time of the year in which different companies did their business? Mr. WALLIN. This is speculation on my part, but for those customers whose businesses were heavily concentrated during the off peak period, which is from May 1 through October 31 in our particular service territory, it is possible that they attempted to diversify somewhat that concentration pattern, if it was possible, to diffuse the volume of their business so that it would cover a longer time span, extend it over other months. I think if I were in that position I would attempt to do the same thing. I don't know that they did this, but you are asking me a hypothetical-and I suspect that some of them may have done that. Mr. D'AMICO. Mr. Wallin, if you should come up with any specific examples of that, would you be so kind as to send them to us? Mr. WALLIN. Yes, sir; I will. Mr. D'AMICO. Thank you. Mr. HOWARD. The gentleman from Ohio, Mr. Miller. Mr. MILLER. Thank you, Mr. Chairman. Mr. Wallin, I notice that you indicate that your company has committed about $40 million to exploring. And I am wondering how that compares with past performance with your company. Mr. WALLIN. Past performance in the sense of these kind of capital commitments for exploration? Mr. MILLER. That is correct. Mr. WALLIN. The company has had a supply exploration subsidiary since 1956. Capital commitments in any of those years, 1956 through 1970, as far as exploration ventures, was at a lesser level. But I think we have all heard testimony that the supply shortage, as we now know it today, is of rather recent vintage. To answer your question, this does represent an increased commitment which we believe is responsive to the increased need for exploration. We think it is in keeping with the need and the times, just as those expenditures in prior periods were more appropriate to that time frame. Mr. MILLER. We have heard a great deal about the tax structure and the possibility that companies would not be exploring because of it. You say you are spending more and have a larger capit 1 expenditure for exploring. Now, you have another point. Since July of 1971, you have purchased propane on a firm basis for injection into your distribution system. Is there available propane? Is there ample propane? Is the volume available to you so that you can have or come up with additional gas? Mr. WALLIN. To respond to your question really requires some technical knowledge, which I do not have. In order to maintain burner characteristics and the related heating level. what we call the Bt.u. level-this is not a question of economics, but of the technical performance of the product. I understand that there are some limitations. I would be glad to supply you with further information on that, Congressman, but I would need some technical consultation to be able to give you the kind of answer you deserve. Mr. MILLER. Mr. Chairman, I would ask that this be included in the record. The main purpose of the question is to determine if you would have available additional propane; if so, this means he would have an additional gas supply. Thank you. Mr. HOWARD. Without objection, that will be made part of the record when it is received. Mr. Wallin, I wish to thank you very much for coming here, to take the time to testify before the subcommittee. We appreciate your testimony and we look forward to the additional information that you will be sending to the subcommittee as a result of Mr. Miller's question. Mr. WALLIN. Thank you, Mr. Chairman. We will be glad to comply and to help in any way we can. (The following was received for the record :) [From D. E. Wallin, Vice President in Charge of Marketing, Northern Illinois Gas Co.] NI-Gas has actively been searching for additional supplies of gas. All alternatives have been exp'ored and specific emphasis has been given to additional supplies of natural gas and the construction of a supplemental natural gas (SNG) plant. These two sources promise to provide the greatest overall benefits to our customers. NI-Gas, however, has also been actively seeking propane. In 1970, NI-Gas was able to contract for a firm supply of propane which provided the equivalent of about four million therms in 1971. This firm contract expires in 1973. NI-Gas has been seeking other sources of propane. Our experience indicates that propane for long-term utility use is not readily available. Present supplies of propane appear to be dedicated to existing markets and we see no indication of increased propane production. As a result of our extensive negotiations for new gas supplies, we feel there is a possibility that we may be able to obtain, on a seven year contract, approximately 5,000 barrels of propane per day which is the equivalent of approximately 19 million cubic feet of natural gas per day. While we are continuing our search for additional supplies of propane, we see no signs to indicate that propane will significantly affect the present imbalance between natural gas supply and demand. Mr. MILLER. Mr. Chairman, may I ask one more question? How many meters do you represent? How many customers do you have? Mr. WALLIN. 1,200,000 customers. Mr. MILLER. Thank you. Mr. HOWARD. Thank you, Mr. Wallin. Our final witness for today, Mr. S. Orlofsky, senior vice president of Columbia Gas System Service Corp. Mr. Orlofsky, I wish to welcome you before the subcommittee this afternoon. We thank you for your patience. You were scheduled for this morning along with the others. Would you please introduce the gentleman who is accompaning you? STATEMENT BY S. ORLOFSKY, SENIOR VICE PRESIDENT, COLUMBIA GAS SYSTEM SERVICE CORP.; ACCOMPANIED BY R. A. ROSAN, SENIOR VICE PRESIDENT AND COUNSEL, COLUMBIA GAS SYSTEM SERVICE CORP. Mr. ORLOFSKY. Mr. Chairman, we welcome the opportunity to testify at your most important hearings. The gentleman to my right, Richard A. Rosan, is a senior vice president and counsel with the Columbia Gas System Service Corp. I would just like to briefly give you my background. My background is engineering and construction. Within the last year and a half I have had the responsibility to acquire new gas supplies for the Columbia Gas System. There are certain matters, particularly in the regulatory area, that I may have to confer on with Mr. Rosan. We have introduced our testimony. I don't propose to read the statement. I would prefer to take the time to specifically concentrate on certain critical gas supply problem areas. Mr. HOWARD. First, without objection, your prepared statement, will be made a part of the record at this point. (The statement referred follows:) STATEMENT OF S. ORLOFSKY, SENIOR VICE PRESIDENT OF COLUMBIA GAS SYSTEM SERVICE CORP.1 I am a Senior Vice President and Director of Columbia Gas System Service Corporation and I am the President and a Director of three subsidiaries of the parent corporation primarily engaged in and charged with obtaining gas supply for the Columbia Gas System. I am also an officer of another subsidiary of the Columbia Gas System, charged with finding the necessary coal supply and the supervision of research and development efforts looking toward a supply of gas from a process of coal gasification. This Nation is faced with a severe energy crisis with increasing shortages of all forms of energy. Recent experiences of power shortages are merely one measure of the problem. Projections indicate that by 1985, one-half of the oil require 1 Attached as app. A is a detailed description of the Columbia Gas System and its seven State and District of Columbia service areas. |