EXPLANATION OF CHART

There are three distinct and separate functions employed in the providing of natural gas to ultimate consumers. These functions are: (1) Production and gathering, (2) transportation, (3) distribution.

The facilities lying to the left of the point marked X, which represents the location of the compressor station of an interstate pipe line, portray gathering lines and wells in a producing field. The gathering lines and wells shown in red belong to the interstate trunk pipe line. Those shown in black belong to other producers.

Thus, there is shown a gathering system of the pipe line company serving some wells belonging to the pipe-line company and some belonging to other producers from whom the pipe line purchases. Gas from these wells is commingled and delivered to the inlet of the trunk pipe line at point X. Another indicated source of supply is the gathering lines and wells of a producer who operates his own gathering line and sells his gas to the pipe-line company at the inlet of the trunk transportation system. A third source is from the outlet of a gasoline plant which itself may have several gathering lines feeding gas (dry or casinghead) to its plant and, after extraction of gasoline, delivering the residue to the pipeline company at the inlet of the trunk pipe line.

These three types of facilities, with their wells and gathering lines, illustrate the production and gathering of gas, and are purely a local operation. Under the present act, the Federal Power Commission exercises jurisdiction over the producing and gathering facilities of the interstate trunk pipe line, indicated in red, and it is feared that it wll attempt to apply this jurisdiction to all other facilities employed in producing and gathering, indicated in black. Under the proposed bill the Commission would be denied jurisdic-. tion of any of the producing and gathering facilities indicated on the chart. Commencing at the point marked "X," the inlet of the interstate trunk pipe-line system, there is indicated in red a pipe-line system extending to points marked "Y." The system thus indicated consists of pipe lines, compressor stations, telephone lines, and other facilities by which the gas entering the trunk pipe line at point X is transported to consuming markets. The Natural Gas Act of 1938 gave jurisdiction to the Federal Power Commission over operations between points X and Y; the Commission, however, has assumed jurisdiction of matters before X and beyond Y. This bill will again confine the jurisdiction of the Commission to operations between points X and Y. It is not intended by the bill to eliminate any of the Commission's jurisdiction over the transportation of gas from the point marked "X" to the points marked "Y" or the price received by the pipe-line company from sales to any of the distributing companies taking gas from such lines.

As indicated on the right-hand portion of the chart, deliveries are made by the pipe-line company, in some instances at the city gate of a particular town or city (distributor A), in other instances into the transportation line of a distributing company serving one community which has constructed its own connection between its distribution system and the pipe line (distributor B), and in other instances to a distributing company serving several communities all in the same State which has connected its own distribution system with the trunk pipe line (distributor C).

The Federal Power Commission, under the present act, claims no jurisdiction over the distributing company (distributor A) obtaining its gas from the pipe line at the city gate but does claim regulatory jurisdiction over the distributing company (distributors B and C) servicing one or several cities which connects its distribution facilities with the trunk pipe line through a transmission line constructed by the distribution company. Under the proposed amendment the Commission will be denied jurisdiction over any of the types of distributing companies shown, all of such companies being subject to State regulation. There is also indicated on the chart a direct sale made by the pipe-line company to an industrial consumer. The Commission is given regulatory control over the transportation of that gas by the present act but has no authority to fix the price. It is not sought by the proposed bill to make any change with respect to the Commission's jurisdiction over that portion of gas transported.

The connections and deliveries indicated on the chart are typical examples. For a pipe line extending hundreds of miles through several States there would be many connections and deliveries comparable to those shown.

Representative RIZLEY. The first is that of producing and gathering in gas-producing States. This is purely a local operation comparable to the production of coal, the production of oil, or even the production of wheat. The gas is produced in the same manner without respect to whether it is subsequently to be sold for and utilized in local manufacturing operations, transported through intrastate pipe lines for intrastate consumption, or transported through interstate pipe lines for consumption in other States.

The next function in the furnishing of gas to the burner-tip consumer is that of transporting the gas from the areas of production to the areas of consumption. After the gas produced is gathered through gathering lines to central points it is then transported to areas of consumption through large pipe lines carrying gas at high pressure. The function is comparable to that of a railroad or barge transporting coal from the areas of production to the area of consumption. This function of transporting gas between the areas of production and the areas of consumption is obviously one to which the utility concept can properly be applied. If such transportation is wholly intrastate, it is appropriate for State regulation, and if it is of interstate character it is appropriate for Federal regulation.

The third function involved in the delivery of gas is that of distribution to the burner-tip consumers by local distribution companies who acquire their gas so distributed, from the pipe-line companies which bring it from the area of production.

Now, this chart that I have attempted to prepare here, we think,. presents a fairly good picture of the things that are largely involved in the thing that has brought about this confusion, and involved in the minds of a lot of people not only the gas-producing business and gastransporting business and gas-consuming business but presents questions which members of the committee in the House discussed when we were presenting the bill in the House.

The chart speaks for itself. It will be noted that we have attempted here to depict what we might call a master transportation line and out here we have a gathering system that the gas-transportation line gathers from its own wells.

We have also a gasoline plant where the gasoline plant then connects with the interstate trunk line and a gathering system and a pipe line from an independent producer, showing the wells and the gathering system as it connects with the main trunk line.

And it is my understanding, and has been my understanding always,. that until these rules and regulations and interpretations of the Court came about, promulgated by the Commission and interpretations of the Court, that what was originally intended by Congress was to control this industry from where it enters this main trunk line to where it leaves the main trunk line; and by reason of the encroachment on State. regulation, by reason of other interpretations, we think this bill is absolutely necessary to make that correction.

This difference in functions will clearly appear from a chart I have prepared and here call to the committee's attention. The function of producing and gathering gas from the many wells in the State of production is ended with the delivery of such gas into the inlet of the interstate trunk pipe line. The gas is ordinarily obtained from numerous sources. În some instances gas is purchased from producers at the well and transported from such well to the inlet of the trunk

pipe line through a gathering system operated and owned by the pipeline company, as shown by this chart here. The gathering line bringing the gas from the wells of such producers, will also in many instances, transport substantial quantities of gas from wells belonging to the owner of the pipe line. Over here, for instance, in red, on the chart-the wells belonging to the pipe-line company, are indicated by red circles and those belonging to other producers from which the pipe-line company purchases gas at the well, are indicated by black circles.

Some gathering systems, as indicated on the chart, may gather only gas from wells belonging to the company owning the pipe line, while other gathering systems may deliver gas only from wells belonging to producers from which the owner of the pipe line purchases gas at the wells.

In addition to the gathering lines of the company owning the pipe line, there may be, and frequently are, gathering lines of other companies who themselves either purchase or produce gas and, under contract of sale, deliver the gas so purchased or produced to the owner of the pipe line at an inlet of the trunk pipe-line system.

Another classification of gas which enters the trunk pipe line is gas either dry gas or gas produced with oil-which has been produced or purchased by other companies and processed for the extraction of gasoline. The gas remaining after such liquids have been extracted is either, through lines belonging to the owner of the pipe line or to the seller of such gas, delivered at the inlet of the interstate trunk pipe-line system.

Ordinarily after the gas from which gasoline has not already been extracted reaches a point near the trunk-line system, the gasoline content is extracted therefrom so that the gas may be transported with safey over long distances and at high pressures. In some instances it is more economical to extract these liquids at some point en route, but before the gas is suitable for long-distance pipe-line transaction and for use in the consuming markets, it is necessary that the gasoline content be extracted.

While the chart referred to fairly represents situations with respect to a particular interstate pipe line, it does not fully represent conditions which exist in many producing fields, due to the circumstances that in most fields, particularly the larger fields, there are numerous long-distance interstate pipe lines with gathering systems delivering gas to each, and in some instances, gathering systems delivering gas to more than one pipe line.

That is true in the great Hugoton field in which I live in the center. There are numerous pipe lines going from that field to markets all over the country.

In addition to deliveries to long-distance interstate lines, these gathering systems are, in many instances, also used for the accommodation of intrastate pipe lines and the delivery of gas to intrastate industrial users. These gathering lines are of various sizes and designs and frequently cross each other.

Through this long-distance pipe line carrying gas at high pressure commencing at point X, deliveries are made in other States to distribution companies which purchase gas for resale from the pipe line, and to industrial consumers to whom the pipe line may make direct sales. The various points of delivery are indicated by the letter Y.

In many instances the interstate pipe line delivers gas to a distributing company at the city gate. In other instances, where the distributing company is located at a point more remote from the trunk pipe line, it is found economical by the distributing company to construct a line connecting its facilities with those of the interstate pipe line. In other instances, a distributing company may be serving two or more communities in the same State and have a distribution system connecting those communities.

It is my contention that the operations of producing and gathering gas and extracting the liquids therefrom, as well as the selling of such gas and its delivery to the inlet of the trunk transportation pipe line at point X, constitute purely local operations which should not be regulated by any Federal agency. It is likewise my contention that when the title to gas passes at points Y from the pipe line to the distributing company purchasing such gas for purely local distribution, there should be no Federal regulation of the operations of the distributing company, whether the delivery is made at a point immediately adjacent to the town border, whether the distributing company constructs its lines to the trunk pipe-line system, or whether the distributing company serves several communities with gas after such gas is received by it from the trunk pipe line. These operations are purely local in nature and are, in most instances, under complete regulation by local regulatory commissions.

The method used by the Federal Power Commission in fixing the prices at which the sales at the outlet of the trunk pipe line are made has resulted in much criticism of the Commission, not only by members of the bil and gas industry but also by some of the members of our appellate courts. The gate rate at the outlet or distributing end of the pipe line is now arrived at by the Federal Power Commission substantially as follows:

The original cost of the pipe line and its facilities, et cetera, including its gas-producing properties, is determined, estimated depreciation is then deducted, and 612 percent on the balance is allowed as an earning. No credit is allowed the pipe-line company for the value of the gas it has produced and delivered into the line. Instead, a return on the depreciated original cost is applied to the entire property of the company-producing property and gathering facilities included.

Under present procedure, the Federal Power Commission allows, as an operating expense, the cost of administration, salaries, repairs, et cetera, and the cost of gas purchased from the neighbor independent producer. So the gate rate at the distributing end of the line is determined by adding 62 percent of the depreciated original cost of the total facilities and properties owned by the pipe-line company to the operating expense, and dividing that amount by the number of cubic feet of gas transmitted, which produces a gate rate of say, 20 cents per thousand cubic feet.

This means that the commodity value of the gas produced by the pipe-line company is totally disregarded.

The Commission admits in its staff report that the independent producers of both oil and gas are apprehensive and fearful that the Federal Power Commission jurisdiction will attach to them. This fear has been manifest for years-so pronounced that the Commission has issued several statements to allay the apprehension. However, in the recent interstate case the Commission took a position that

not only increased the fears of the industry, but put in doubt the spirit of the former statements by the Commission. This position, in short, was a claimed jurisdiction to the wellhead of the wells of the independents. The record before the House committee is full of instances where producers (especially oil producers) refuse to connect their gas with an interstate pipe line for fear of being declared a natural-gas company.

Producers of oil and gas in the field who sell to pipe-line companies do not want to be subjected to the jurisdiction of the Federal Power Commission.

The record is replete with instances of this type of complaint. Hines Baker, vice president of the Humble Oil Co., testified before the House committee that his company is a heavy producer of gas in several States and that it refuses to sell gas to an interstate pipe-line company for fear that the whole Humble Oil Co., engaged in a risk-taking business, would be declared a natural-gas company.

Maston Nixon, a large producer of oil and gas in Texas, testified that he cannot afford to take this chance and consequently does not sell gas to interstate pipe lines, although there is a daily demand upon him for large contracts for gas. His only alternative is to flare his gas to the air, or to withhold his gas from the market, which he is actually doing by shutting in his wells. That is his testimony before the House committee.

Col. E. O. Thompson, of the Texas Railroad Commission, who lives with these problems, in a detailed statement, verified these fears and apprehensions and asserted that large volumes of gas are being flared in the air for this very reason.

The witness, R. C. Wagner, of the Chicago Corp., made the same complaint. His company owns no interest of any kind in the interstate pipe lines, to which only a part of its residue gas is sold. Yet the Federal Power Commission has for many months had 14 investigators ransacking the books of his company for the avowed purpose of declaring it a natural-gas company. One of the chief investigators expecting a 2-year job at this undertaking has purchased a home in Corpus Christi. If it is declared a natural-gas company, it will be compelled, because of its other profitable activities, to give away its gas for no compensation.

What reason is there for this application of regulatory law, which by usurpation arbitrarily makes an interstate pipe line company out of an oil company if it sells to an interstate line. It is not organized as an interstate pipe line company; is engaged in no phase of the interstate pipe line business. Taking enormous risks in the oil and gas business, it finds itself faced with the capricious and arbitrary attitude of the Federal Power Commission which has indulged in a complete misinterpretation of the present Natural Gas Act's definition of a natural gas company, a technical interpretation which takes a man out of the business he thinks he is engaged in, and puts on him the responsibility of engaging in another.

The definition of a natural gas company proposed in the bill cures this situation to the last detail, and permits the producer to go about his business without the threat of Federal jurisdiction hanging over his head. I say it is the bounden duty of the Congress to correct so ridiculous a situation. It is in the public interest to clarify this matter, to let the Federal Power Commission know what jurisdiction it does