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The CHAIRMAN. As long as the authorship of that section has been brought up, I wanted to express those views.
You may proceed.
Mr. WADSWORTH. 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 canno: 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 excess 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
I 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.
Mr. KENNEY. Mr. Chairman-
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.
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
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 3812 cents per thousand cubic feet. In other words, that price jumps from 20 to 1381/2 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. ChairmanThe 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 3812 cents. The gas that we produce in Ohio, or purchase, is produced at about 20 cents, and the transportation cost ist very little from there to Cleveland.
Mr. CROSSER. I wonder if I had not better correct you. The city of Cleveland buys from the East Ohio Co., does it not? Mr. REED. That is right. Pardon me.
. Mr. CROSSER. East Ohio originally gets it from Hope. Mr. REED. That is right.