to, moving gas produced or purchased in a producing area into inlets of the trunk transmission lines used in interstate commerce.

(d) "Transportation of natural gas in interstate commerce" should by statute be limited to the operation of moving gas in interstate commerce through trunk transmission lines from pipe line compressor stations or other definite points where production and gathering (as properly defined and outlined) cease, and to extend to points in other states where local distribution takes place, where delivery is made to the trunk lines or distribution facilities of the person distributing the gas in local distribution.

(e) Jurisdiction of the Federal Power Commission should not attach to any of the local facilities of a distribution company, whether it purchases gas at a point in another state or in the state of distribution.

(f) "Local distribution" and "local distribution facilities" should be defined to conform to the foregoing recommendations so as to include as local distribution facilities all pipe lines and other facilities used by a local distributor for or incident to the distribution of natural gas to the public, including all pipe lines extending to the points of purchase of gas distributed locally.

(g) Field Price. A calculated value based on a natural gas company's investment in producing properties and facilities should by definite language be excluded from consideration in rate cases. the purpose of rate making, a natural gas company should be allowed the going field price at the well head for gas produced from its own properties and for gas purchased from subsidiaries or affiliates, and the original or historic cost formula abandoned. The going field price should be determined on the order of ordinary legal processes, under such criterions, taking into consideration all pertinent factors. To the value thus determined, there should be allowed a reasonable compensation for gathering all gas delivered into the trunk line or other trans-, portation facilities. An option, under specified conditions, should be permitted to a natural gas company to continue to have its production and gathering facilities included with all other facilities in the determination of the rate base if the option is exercised within a reasonable time after the enactment of the amendment.

Allocations of Earnings. Before the fixation of the rate base and the rates, it should be mandatory on the Commission to segregate and allocate the property, revenues and expenses of the natural gas company as between regulated and nonregulated sales.

Natural Gas Company. So that the statute may be clarified, the definition of natural gas company should limit the jurisdiction of the Federal Power Commission to the extent in which the company is actually engaged in transportation and sale for resale in interstate commerce as defined in the Act.

Natural Gas. Residue gas from whatever gaseous substance derived, after extraction of hydrocarbon liquids, should be included in the definition of "natural gas".

Sale of Gas for Resale. Sale of gas for resale, in view of recent decisions, should be limited by redefinition, to such sales as are made after the interstate transportation is completed.

Certificate Cases. In certificate cases in which no protest has been filed, after proper notice given by the Commission, the Commission should be required to issue the certificate promptly; and hearings on contested certificate cases should be required within a time specified in the Act.

Extensions of Service. For the purpose of extending, maintaining and enlarging facilities for service under an already-issued certificate, a natural gas company should have the statutory right to make extensions or enlargement of a facility or facilities without being required to secure a new or additional certificate for facilities for the purpose of maintaining, enlarging or extending such facilities in furtherance of its obligation to serve the area included in the original certificate; such provision would obviate delay and expense, and inure to the public benefit. Instances of abuse of the power would be rare, and easily correctible under the general powers of the Commission.

Direct Sales. Direct sales should remain excluded from the jurisdiction of the Commission and clarification of the meaning and extent of the clause in Section 7(e) empowering the Commission to attach conditions to certificates is necessary, so as to resolve any doubt or ambiguity and exclude the power to control direct sales or the end use of gas by attaching conditions to certificates.

SUGGESTED ADMINISTRATIVE POLICIES.

(a) We believe that the Administrative Procedure Act should be invoked in its full spirit by the Commission; procedure can thus be made more definite and speedy and the issues in cases made more specific, thus obviating repetitious and irrelevant evidence and issues.

(b) By rules of procedure, interventions should be confined closely to actual "competitors of a party to the proceeding" or those whose intervention is actually "in the public interest", excluding remote and speculative interventions. If the issue of the right of intervention were disposed of in advance of the hearing, by order of the Commission, hearing evidence would be shortened and the issues in the case clarified.

(c) "Deficiency letter" requests could easily be confined to data actually relevant and essential to the particular application.

(d) Service Areas. The speedy determination and designation of service areas would lighten the load of administrative work on the Commission, enable it to expedite its handling of certificate and rate cases, and in general to keep its docket up to date. Defined service areas would enable the industry to render a more satisfactory service to the consuming public. A preliminary determination of a minimum service area for each company covering areas already served should be given consideration.

The foregoing recommendations are respectfully submitted for the consideration of the Federal Power Commission in the belief that their adoption will work favorably toward conserving a valuable natural resource, stabilizing the industry, encouraging exploration and development, settling conflicts within the industry and with competitive interests. These results will serve the public interest.

Prepared by

Respectfully submitted,

NATURAL GAS INDUSTRY COMMITTEE.

WESLEY E. DISNEY, DON H. CULTON.

October 15, 1946

STATEMENT OF MID-CONTINENT OIL & GAS ASSOCIATION

Mid-Continent Oil & Gas Association, with general headquarters at Tulsa, Okla., is an oil trade association with approximately 3,000 members representing and serving all branches of the petroleum industry and related business, and in particular a majority of the oil and gas producers in the States of Kansas, Oklahoma, Texas, New Mexico, Arkansas, Louisiana, Mississippi, and Alabama in which area three-fourths of the Nation's natural gas and over two-thirds of the Nation's crude petroleum is produced.

Pursuant to the statement of Commissioner Smith at the closing hearing of the natural-gas investigation in Washington on August 2, 1946, this association filed notice within the time prescribed that it would on or before October 1, 1946, submit to the Commission a statement of its interest and position with respect to the matters covered by the investigation.

In the Columbian Fuel Corporation case, opinion No. 48, docket No. G-143, June 29, 1940, Mid-Continent Oil & Gas Association appeared amicus curiae to support the proposition that Federal jurisdiction had not directly or indirectly been extended to the activities of production or gathering of natural gas or the facilities used in connection therewith. We think the decision of the Commission in that case was a correct interpretation of the plain language of the statute. The problems now asserted to exist by the Commission, with respect to the interstate transportation and sale of natural gas for resale for ultimate public consumption for domestic, commercial, industrial, or any other use, find their origin in the fact that the Commission has receded from its holding in the Columbian Fuel Corporation case by assuming jurisdiction to regulate production and gathering activities and the facilities used in connection therewith through the medium of regulating the field price of gas and the adoption of the depreciated cost of producing properties of natural gas companies as an invariable factor for ratemaking purposes. In these matters the Commission and the courts have been guilty of administrative and judicial legislation.

The natural-gas investigation recently completed by the Commission has developed the incontrovertible facts that amazing progress is being made with respect to conservation of oil and gas by State regulatory bodies. State conservation laws are being improved as fast as science develops the basis for necessary changes and improvements. There would be no appreciable waste of natural gas if adequate prices prevailed and' if fear of the extension of Federal control to production activities were dispelled; fear that sales of flare or waste gas to interstate natural-gas pipe lines will subject the producer to Federal control is interfering with the marketing of this type of gas and causing waste; adequate prices will only result from expanding unrestricted markets; adequate prices will insure greater conservation and terminate the controversy concerning the end-use control of natural gas. It is a highly significant aspect of the record that not one producer, transporter, State regulatory body, or other State representative, municipal authority, or consumer, or any representative of consumers, appeared to urge upon the Commission any possible reason or necessity for Federal control of the activities of producing or gathering natural gas or the facilities used in connection therewith. State and municipal representatives urged the importance of gas to industrial development and efficiency, as well as its aid to the health, happiness, and general welfare of the public. The economic and social hazards of a restricted market were emphasized. Competitive fuel industries which suggested Federal regulation of the end-use of gas and thereby, in effect, asked for Federal protection for the maintenance of private monopolies, were shown to be deficient in necessary scientific research to protect their competitive positions. The oil and gas industry demonstrated that any competitive fuel industry, through vigilant scientific research, can protect, maintain, and advance its competitive position. It was pointed out by eminent scientists that centuries of energy supplies are domestically available which may, by scientific development, supersede the use of gas which it is now proposed should be saved for the future.

This statement is concerned with the application and administration of the Natural Gas Act insofar as it affects the production and gathering operations of producers who are primarily engaged in the production of oil and who produce natural gas and oil-well gas as an incident to and as a part of their primary business of producing crude petroleum.

The production of gas may be roughly classified into three categories: (a) Gas produced with oil;

(b) Gas produced from so-called natural gas wells which may or may not be impregnated with certain vapors which, by mechanical processes, may be captured as liquid hydrocarbons; and

(c) Gas produced from certain types of high-pressure gaseous reservoirs which, when subjected to lowered temperature and pressure, produces a water white hydrocarbon commonly known in the trade as distillate or condensate. Approximately 55 percent of the gas production in the United States is produced with oil and as an incident to the production of oil. In the case of gas produced from oil wells, it is important to understand that both the gas and oil are originally in the same liquid state in the reservoir, and as such are subject to the applicable rules and regulations of the respective State regulatory bodies. Likewise, the withdrawal of the oil and gas therefrom is subjected to State regulation for the prevention of waste and the protection of correlative rights. Gas produced from gas wells or distillate wells is subject to the same local jurisdiction.

The activity of gathering oil from the wellhead into lease or field storage tanks, for delivery to such common carrier pipe lines as the buyer may direct, is well recognized in the industry, by the regulatory authorities and the courts as an incident to and a necessary part of the activity of producing oil. Likewise, the gathering of gas from the wellhead for delivery to gas pipe lines, although the gas may in some cases pass through a processing plant or booster station, is well recognized in the industry, by the regulatory authorities and the courts as an incident to and a part of the activity of producing.

In the case of oil, the production may be run to lease or field storage and thereafter delivered to trunk pipe lines at the convenience of the owner producer. In the case of gas, it cannot feasibly or economically be stored and the prevailing universal practice is to deliver, as directly as possible, into trunk pipe lines for transportation to ultimate buyers and consumers. Intrastate transportation, distribution, and sale of gas to consumers have been subjected exclusively to State regulation by the respective States. The production of gas delivered to pipe lines for interstate transportation and resale to distributors for public consumpion, are likewise regulated by State authorities as a local activity for the prevention of waste and the protection of correlative rights. Local distribution of gas for public consumption is recognized as being affected with a public interest and is completely regulated by the respective States in which such distribution activities are conducted. The trunk-line movement of gas from one State to another and the sale thereof in wholesale quantities to distribuors is an interstate operation which the State regulatory authorities may not under the commerce clause of the Federal Constitution burden with local regulations. Thus, it will appear that the natural-gas business is divided roughly into three phases:

(1) The production and gathering of gas for sale and delivery to trunk pipe lines for transportation;

(2) The trunk-line movement of gas and the sale and delivery of such gas at wholesale to distributors for resale for public consumption; and

(3) The distribution and resale thereof to public consumers.

The first and third phases of the gas business have historically and properly been regulated by local authorities as local activities. The second, or middle stage of the operation, was by the terms of the Natural Gas Act of 1938 committed to Federal regulation in cases where the trunk-line movement and resale of the gas was in interstate commerce. Administration of the act was reposed in the Federal Power Commission.

In view of recent rulings of the Federal Power Commission, certain decisions of the United States Supreme Court, the Circuit Court of Appeals, and the Federal district courts, and in view of the testimony of some of the witnesses appearing in this investigation, his association, on behalf of its membership, feels that it is proper that its interest and position be made known with respect to three propositions:

1. THE NATURAL GAS ACT DOES NOT APPLY TO PRODUCTION OR GATHERING, OR SALES MADE INCIDENT TO SUCH ACTIVITIES

The language of the Natural Gas Act is so plain and the legislative history is such that it is clear beyond any reasonable doubt to the oil and gas industry that the act is expressly confined to the interstate trunk-line movement of gas and