1st Session

No. 709

INTERSTATE TRANSPORTATION AND SALE OF NATURAL

GAS

APRIL 28, 1937.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed

Mr. LEA, from the Committee on Interstate and Foreign Commerce, submitted the following

REPORT

[To accompany H. R. 6586]

The Committee on Interstate and Foreign Commerce, to whom was referred the bill (H. R. 6586) to regulate the transportation and sale of natural gas in interstate commerce, and for other purposes, having considered the same, report thereon with a recommendation that it

pass.

It was originally introduced as H. R. 4008.

GENERAL PURPOSES OF THE BILL

The bill is substantially identical with H. R. 12680 which, as amended, was reported by the Committee on Interstate and Foreign Commerce of the Seventy-fourth Congress, second session, with a recommendation that it pass. If enacted, the present bill would for the first time provide for the regulation of natural-gas companies transporting and selling natural gas in interstate commerce. It confers jurisdiction upon the Federal Power Commission over the transportation of natural gas in interstate commerce, and the sale in interstate commerce of natural gas for resale for ultimate public consumption for domestic, commercial, industrial, or any other use. The States have, of course, for many years regulated sales of natural gas to consumers in intrastate transactions. The States have also been able to regulate sales to consumers even though such sales are in interstate commerce, such sales being considered local in character and in the absence of congressional prohibition subject to State regulation. (See Pennsylvania Gas Co. v. Public Service Commission (1920), 252 U. S. 23.) There is no intention in enacting the present legislation to disturb the States in their exercise of such jurisdiction. However, in the

case of sales for resale, or so-called wholesale sales, in interstate commerce (for example, sales by producing companies to distributing companies) the legal situation is different. Such transactions have been considered to be not local in character and, even in the absence of Congressional action, not subject to State regulation. (See Missouri v. Kansas Gas Co. (1924), 265 U. S. 298, and Public Service Commission v. Attleboro Steam & Electric Co. (1927) 273 U. S. 83.) The basic purpose of the present legislation is to occupy this field in which the Supreme Court has held that the States may not act.

In 1934, 24 States produced natural gas, and 35 States consumed it. The annual sale of natural gas in that year amounted to 1,764,988,000,000 cubic feet. The sale of this gas brought a revenue of $394,000,000. Of this amount, about $260,000,000 was in payment for gas transported in interstate commerce. During 1935 there was some increase in the pipe-line mileage and in the transportation of natural gas in interstate commerce.

The average price per thousand cubic feet for domestic use was 74.6 cents; for commercial use, 49.6 cents; and for all other industrial uses, 16.9 cents. This gas was consumed by 7,600,000 customers.

There are today substantially in excess of 50,000 miles of gas pipe lines in the United States. While natural gas has been in use for 50 years or more in this country, and while there was some transportation in interstate commerce prior to 1926, the substantial development in the industry has occurred since that year.

The bill provides for regulation of the exportation and importation of natural gas and authorizes the Commission to ascertain the cost of property used in rendering service; to direct extension or improvement of transportation facilities, and require the interconnection of facilities; to regulate the abandonment of service; to prescribe a uniform system of accounts; to determine proper depreciation rates; to fix rates and charges for natural gas sold for resale for ultimate public consumption; to investigate compacts between the States; to compile information relative to the effect and operation of any compacts between the States; and to make investigations and report to Congress respecting the natural-gas industry. The bill takes not authority from State commissions, and is so drawn as to complement and in no manner usurp State regulatory authority, and contains provisions for cooperative action with State regulatory bodies. Mr. John E. Benton, general solicitor of the National Association of Railroad and Utilities Commissioners, and other representatives of State commissions and municipalities, appeared at the hearing before the committee in support of the bill.

The general attitude of the State regulatory commissions was indicated in a communication from Mr. Benton to the chairman, House Interstate and Foreign Commerce Committee, under date of March 29, 1937, enclosing a copy of a resolution adopted by the executive committee of the National Association of Railroad and Utilities Commissioners on March 26, 1937, as follows:

NATIONAL ASSOCIATION OF RAILROAD AND UTILITIES COMMISSIONERS, Washington, D. C., March 29, 1937. Hon. CLARENCE F. LEA,

Chairman, House Interstate and Foreign Commerce Committee,

Washington, D. C.

DEAR SIR: A joint meeting of the executive committee of this association and of the association's committee on legislation was held on March 26, 1937, for the consideration of legislative matters.

The provisions of H. R. 4008 were considered for the purpose of determining whether that bill will provide regulation of the character requested in the resolution heretofore adopted by this association, and presented at the hearing on March 24, 1936. Consideration was also given to the situation existing in Illinois, where the Illinois Commission finds itself impeded by injunction proceedings in the Federal courts in its undertaking to discover what it costs the interstate pipe-line company to deliver gas in Illinois, although the commission is seeking that information only for the purpose of determining what the reasonable expenses of the local distributing company ought to be, and what price for gas sold in the Chicago areas should be approved by the commission as just and reasonable. A resolution was unanimously adopted endorsing H. R. 4008, amended as requested on behalf of this association at the hearing on March 24. I attach a copy of the resolution hereto, and ask that it be printed as if presented at the hearing.

Yours very truly,

JOHN E. BENTON,

General Solicitor.

RESOLUTION ADOPTED BY THE EXECUTIVE COMMITTEE OF THE NATIONAL ASSOCIATION OF RAILROAD AND UTILITIES COMMISSIONERS ON MARCH 26, 1937 Resolved by the executive committee of the National Association of Railroad and Utilities Commissioners, That the position of said association declared by resolution at its forty-seventh annual convention, in favor of the enactment of Federal legislation providing for the regulation of the interstate transmission and sale of gas at wholesale for resale is hereby reaffirmed; and

Resolved further, That for the purpose of providing such regulations said association endorses H. R. 4008, an act to regulate the transportation and sale of natural gas in interstate commerce, introduced by Congressman Lea, of California, with the amendments proposed thereto at the hearing before the House Interstate and Foreign Commerce Committee on behalf of the association on March 24, 1937; and

Resolved further, That the necessity for such regulation is increasingly imperative, and that the enactment of H. R. 4008, amended as proposed, at the present session of Congress is earnestly urged on behalf of said association.

The bill provides for regulation along recognized and more or less standardized lines. There is nothing novel in its provisions, and it is believed that no constitutional question is presented.

Your committee believes that this legislation is highly desirable to fill the gap in regulation that now exists by reason of the lack of authority of the State commissions.

In view of the importance of section 1 (b), which states the scope of the act, it seems advisable to comment on certain provisions appearing therein. It will be noted that this subsection of the bill, after affirmatively stating the matters to which the act is to apply, contains a provision specifying what the act is not to apply to, as follows:

but shall not apply to any other transportation or sale of natural gas or to the local distribution of natural gas or to the facilities used for such distribution or to the production or gathering of natural gas.

The quoted words are not actually necessary, as the matters specified therein could not be said fairly to be covered by the language affirmatively stating the jurisdiction of the Commission, but similar language was in previous bills, and, rather than invite the contention, however unfounded, that the elimination of the negative language would broaden the scope of the act, the committee has included it in this bill. That part of the negative declaration stating that the act shall not apply to "the local distribution of natural gas" is surplusage by reason of the fact that distribution is made only to consumers in connection with sales, and since no jurisdiction is given to the Commission to regulate sales to consumers the Commission would have no authority over distribution, whether or not local in character.

H. Repts., 75-1, vol. 2———4

It was urged in connection with earlier bills that there should be inserted at the end of this subsection a proviso as follows:

Provided, That nothing in this Act shall be construed to authorize the Commission to fix the rates or charges to the public for the sale of natural gas distributed locally.

In order to avoid misunderstanding the committee thought it necessary to omit this proviso from the present bill for the following reasons, even though there is entire agreement with the intended policy which would have prompted its inclusion: First, it would have been surplusage if interpreted as it was intended to be interpreted, and, second, it would have been, in all likelihood, a source of confusion if interpreted in any other way. For example, it was felt that in the effort to find a reason for its inclusion it might have been argued that it exempted sales to a publicly owned distributing company, and such an exemption is not, of course, intended. It is believed that the purposes of this proviso, assuming the need for any such provision, are fully covered in the present provision by the languagesales of natural gas.

but shall not apply to any other

SECTIONAL ANALYSIS OF THE BILL

SECTION 1. NECESSITY FOR REGULATION OF NATURAL-GAS COMPANIES

Subsection (a) contains a declaration of policy, states the necessity for Federal regulation, and defines the scope of that regulation. The subsection declares that the business of transporting and selling natural gas in interstate and foreign commerce for ultimate distribution to the public is affected with a public interest.

Subsection (b) confers jurisdiction upon the Commission over the transportation of natural gas in interstate commerce and the sale in interstate commerce of natural gas for resale for ultimate public consumption for domestic, commercial, industrial, or any other use.

SECTION 2. DEFINITIONS

This section contains definitions of (1) "person", (2) "corporation", (3) "municipality", (4) "State", (5) "natural gas", (6) "natural-gas company", (7) "interstate commerce", (8) "State commission", and (9) "Commission" and "Commissioner". The definitions as they appear are self-explanatory and necessary to the proper administration of the bill.

SECTION 3. EXPORTATION OR IMPORTATION OF NATURAL GAS

This section provides that after 6 months from the date of enactment no person may export or import natural gas without express approval of the Commission, such approval to be granted unless such exportation or importation will not be consistent with the public in

terest.

SECTION 4. RATES AND CHARGES; SCHEDULES; SUSPENSIONS OF NEW

RATES

Subsection (a) inposes upon natural-gas companies the duty of charging just and reasonable rates; and, under the provisions of subsection (b), undue preferences or advantages are prohibited.

Subsection (c) requires the filing of schedules and contracts relating to all rates and charges subject to the jurisdiction of the Commission; and, under the provisions of subsection (d), no change may be made in such rates except after 30 days' notice.

Subsection (e) authorizes the Commission to hold hearings concerning the lawfulness of any proposed change in rates, and to suspend such rates for not over 5 months, pending such hearing. If the Commission investigation has not been completed before the rates go into effect, the Commission may require the natural-gas company to make refunds if the increase is not approved; and it is provided that · adequate bond be furnished to that end. The burden of proof is placed upon the natural-gas company to justify any increase in rates, and the hearing and decision of such matters is given preference over other matters pending before the Commission.

SECTION 5. FIXING RATES AND CHARGES; DETERMINATION OF COST OF PRODUCTION OR TRANSPORTATION

Subsection (a) authorizes the Commission, after a hearing initiated by it, or upon complaint, to fix charges and reasonable rates for any transportation or sale subject to its jurisdiction.

Subsection (b) authorizes the Commission upon its own motion, or upon the request of a State commission, to investigate and determine the cost of production or transportation of natural gas in cases where the Commission has no authority to establish a rate governing the transportation or sale of such natural gas. This subsection applies only to cases involving transportation of natural gas in interstate commerce and will greatly aid State commissions in their rate-making proceedings.

SECTION 6. ASCERTAINMENT OF COST OF PROPERTY

Subsection (a) authorizes the Commission to investigate and ascertain the actual legitimate cost of property, depreciation, and other necessary facts for rate-making purposes.

Subsection (b) requires every natural-gas company upon request to file with the Commission an inventory of its property, and a statement of the original cost thereof, and to keep the Commission informed regarding additions, betterments, extensions, and new construction.

SECTION 7. EXTENSION OF FACILITIES; ABANDONMENT OF SERVICE

Subsection (a) authorizes the Commission to direct a natural-gas company to extend or improve its facilities, and to establish physical connection and sell natural gas to any person or municipality engaged, or legally authorized to engage, in the local distribution of natural or artificial gas to the public, upon a finding that such an action is necessary or desirable in the public interest, but does not give the Commission authority to compel such extension or establishment of physi cal connection when to do so would impair the ability of the naturalgas company to render adequate service to its existing customers or involve the enlargement of transportation facilities.

Subsection (b) requires approval of the Commission by any natural gas company desirous of abandoning any or all of its facilities subject to the jurisdiction of the Commission. The Commission is authorized to approve such abandonment if it finds that the available supply of