Natural Gas Giveaway
CELLA, ALEXANDER J.
Natural Gas Giveaway If producers succeed in gaining exemption from Federal regulation, consumers will pay from $200 million to $800 million more each year for natural gas By Alexander J....
...The inherent physical characteristics of the industry minimize effective competition...
...Accordingly, the same economic interests behind the offshore oil grab (whose political and financial power has been enhanced by beneficial oil depletion allowance provisions in our tax structure) are now actively embroiled in the natural gas struggle...
...The only ones who stand to benefit from exemption legislation are independent producers in the 7 Southwestern states (Arkansas, Kansas...
...of Philadelphia declared that, for every penny increase per thousand cubic feet in the field price of natural gas, approximately $2 billion would be added to the value of the present reserves owned by producers...
...Recently, Mayor Joseph S. Clark Jr...
...Thus far, the President has still to enunciate a position...
...the consumer is unable to choose between buying or refusing to buy from the one distributing company which services his area...
...Oklahoma and Texas), who produce 95 per cent of the gas produced by U.S...
...Industry spokesmen have contended that the latter part of this section specifically excludes the independents from Federal regulation...
...Under such circumstances, the FPC observed, it would have to decide "whether it can assume jurisdiction over arbitrary field prices under the present act or should report the facts to Congress" with appropriate recommendations...
...When the chips are down, Mr...
...By definition, an independent producer neither owns its own pipelines nor transports its own gas for ultimate resale and public consumption...
...Large advertisements decrying the "new interpretation" and outlining the industry's arguments have periodically appeared in newspapers and magazines throughout the nation, and local "monitoring teams" have been established to correct and counterbalance any unfavorable information...
...that regAlexander J. Cella is a teaching fellow in Government at Harvard...
...Owing to the geological fact that natural gas is frequently found commingled with oil, and historically was largely discovered as a by-product of the quest for oil, many of the largest oil companies today own the known reserves of natural gas...
...The nub of the legal controversy which has raged ever since hinges on the proper interpretation of Section 1 (B) of the Natural Gas Act of 1938...
...A few months ago, Senator Alexander Wiley (R.-Wis...
...Approximately nine trillion cubic feet are now sold annually...
...But, in the Senate, the Chairman of the Interstate and Foreign Commerce Committee is Senator Warren Magnuson (D.-Wash), who voted against the Kerr bill in 1950...
...that regulation will, in fact, lessen the supply of available gas...
...Basically, the industry contends that regulation heralds the abandonment of free enterprise and "vigorous competition" among the more than 4,000 independent producers...
...Consequently, their full impact on consumer prices, while it has yet to be felt, can readily be evaluated...
...We cannot destroy the plain language of the statute because the Commission, at one time, interpreted it narrowly...
...In any event, as the Court of Appeals for the District of Columbia once remarked of this line of argumentation...
...that the Federal Government, by "clamping bureaucratic controls" over production dampens the incentive for further risk-taking in the exploration and development of new wells...
...The natural gas industry's struggle to prevent Federal regulation of the independents was initiated in the wake of the Supreme Court's unanimous decision in the Interstate case in 1947...
...Finally, after several unsuccessful legislative bids, the Kerr-Harris bill was narrowly pushed through Congress in 1950, only to meet with a stinging veto from President Truman...
...Since the end of World War II, the natural gas industry has almost tripled its sales...
...Most of these contracts contain escalator clauses providing for automatic price increases, many to three or four times their original starting rates...
...Of all the natural gas produced in the U.S...
...in 1953, about 81 per cent was produced by the independents...
...Nevertheless, the President thus far has not been one to stand in the path of giveaway government, especially when the giveaway is to be accomplished in the name of free enterprise, private initiative, and states rights...
...Industry hopes received another boost when four of the five members of the FPC endorsed the anti-regulation viewpoint in a statement delivered before the House Commerce Committee by Jerome K. Kuykendall, the Eisenhower-appointed Chairman of the FPC...
...In opening hearings last month on the exemption of the independents, Magnuson argued that an overall appraisal of the Natural Gas Act was now necessary...
...He declared that his committee would also concern itself with a series of technical proposals for amending the act which had been advanced by the FPC in its last report...
...The industry was further incensed by the Supreme Court's conclusively adverse ruling in the 1954 test case of the Phillips' Petroleum Company, largest of the independents...
...And, while it is true that more than 4,000 independents are affected, it is also worth noting that less than 100 companies produce 85 per cent of the gas produced by the independents, with 7 companies providing 35 per cent of this total...
...Louisiana, Mississippi, New Mexico...
...ulation at the source will create a precedent for regulation of other commodities at the source, especially coal, copper and other minerals...
...Finally, industry declares that the field price of natural gas has risen much less rapidly than the general cost of living, and that it comprises only a small percentage of the total cost of gas to the consumer...
...Politically, the issue is a sectional one which cuts across party lines...
...Yet since 1938 the Supreme Court has never held that the FPC has no jurisdiction over the independents...
...that Federal regulation will not bring lower consumer rates, since less than 10 per cent of the consumer gas bill reflects the prices charged by independent producers and gatherers...
...Industry spokesmen make much of the charge of a "new interpretation...
...Eisenhower was still keeping his mind open...
...The Court ruled that the FPC does, indeed, possess regulatory authority over the independents under the existing terms of the Natural Gas Act...
...In fact, the Court has been gradually progressively inching its way towards the sweeping pronouncement in the Phillips' case last June that the FPC has authority over "all wholesales of natural gas in interstate commerce whether by a pipeline company or not and whether occurring before, during, or after transmission by an interstate pipeline company.' The "new interpretation" contention applies with greater cogency to the FPC, which at various times has been on all sides of this issue...
...But unresolved doubt as to the continued legality of the FPC's inaction, combined with uneasy suspicions as to the future intentions of some FPC members, spurred the industry's efforts to secure explicit exemption legislation...
...Moreover, they assert, this view was clearly intended by the proponents and framers of the legislation in 1938 and, until 1947, was manifestly recognized as correct by the Federal Power Commission, which consistently refused to regulate their operations...
...The industry's Natural Gas and Oil Resources Committee has embarked upon what it calls, "a king-sized publicity campaign" which, according to the Wall Street Journal, is expected to cost upwards of $1,500,000...
...Obviously, the FPC was not enunciating a rigid rule in the Columbian case...
...The controversy centers around a bill to exempt the so-called independent producer of natural gas from Federal regulation under the Natural Gas Act of 1938...
...Until this spring, industry prospects in the controversy appeared extremely bright...
...today, it meets almost one-fourth of the nation's needs...
...If and when regulation is debated on the floor of Congress, the influence of President Eisenhower is likely to be the decisive factor, especially in the Senate...
...But even here the charge is not fully justified...
...Now the industry and its strategically-positioned Congressional spokesmen have launched a frontal assault on the whole concept of Federal regulation...
...The outcome of this battle concerns the more than 60 million Americans who currently use natural gas, since it will substantially affect the prices they pay for their gas in the future...
...Late in February, a top-level Cabinet Committee on Fuel and Energy Resources, headed by Defense Mobilizer Arthur Fleming, reported to President Eisenhower and urged that "the Federal Government should not control the production, gathering, processing, or sale of natural gas prior to its entry into an interstate transmission line...
...The production and gathering phase of the natural gas industry is characterized today, as it was at the time of the Truman veto, by limited and restricted competition and by a large measure of concentrated ownership of the provable reserves...
...As for industry concern that Federal regulation will hamper further exploration and development, there is no inherent reason why regulation cannot proceed on the basis of a rate-formula and rate-schedule which gives the fullest sympathetic consideration to the peculiar risk-taking hazards legitimately involved...
...True, the House Commerce Committee, by a 16-15 vote, finally has reported out a modified anti-regulation bill...
...But, as the opposition began to testify, the balance turned the other way...
...In 1940, natural gas furnished slightly more than a tenth of the nation's energy requirements...
...and, finally, that all of these evils are to be unleashed because of a strained interpretation of the Natural Gas Act of 1938 directly contrary to the legislative intent of those who wrote the act...
...Instead, it was quite explicitly keeping an open mind on the question of the extent of its powers, reserving the right to re-examine the issue at a later dale...
...Moreover, the Courts are always open to appeal on the grounds that regulation is confiscatory...
...The Commission decision in that case contained a significant paragraph warning that further administration of the Natural Gas Act might eventually show that "through affiliation, field agreement, or dominant position in a field," a situation had been created where an "unreasonable price" prevailed...
...It is disingenuous to boast, as the Natural Gas and Oil Resources Committee did in a recent advertisement, that natural gas prices had remained reasonable during the past sixteen years "under free competition without Federal regulation," without mentioning the impending disastrous effects on consumer rates of such automatic price-increasing devices as escalator and most-favored-nation clauses...
...But industry spokesmen are unwilling to talk about the steadily increasing field prices since the end of the war and the even more rapid price inere??ses which will take place in the future under provisions of long-term con-tracts between the independents and the pipeline companies...
...It has been variously estimated that, if the present legislation is enacted, American consumers of natural gas will pay from $200 million to $800 million more each year than at the present time...
...If this proves so, whatever else future historians may say about this Administration, at least they can say that its natural-resources policies were thoroughly consistent...
...Today, many industry spokesmen believe that time is working against them...
...Natural Gas Giveaway If producers succeed in gaining exemption from Federal regulation, consumers will pay from $200 million to $800 million more each year for natural gas By Alexander J. Cella Behind the closed doors of executive sessions of the House Committee on Interstate and Foreign Commerce, Congressional battle lines have been drawn for what may become the bitterest struggle of the present legislative session...
...The pipeline company must invest large sums in the construction of immobile pipeline systems...
...The present natural gas controversy readily invites comparison with the tidelands oil giveaway in 1953...
...Mayors of more than 50 gas-consuming cities, representing a combined population of 30 million people, organized under the joint leadership of Mayors Robert F. Wagner of New York, Clark of Philadelphia and David Lawrence of Pittsburgh, began to publicize the consumer's side of the controversy...
...Eisenhower will very likely be found in the ranks of the industry behind the Fleming Committee and the FPC...
...was still optimistic that, despite the Fleming Committee report, Mr...
...independents...
...This is true even in the first case involving an independent to come before the FPC, the celebrated 1940 Columbian Fuel Corporation case which industry spokesmen cite as anti-regulation...
...Industry spokesmen regard Magnuson's action as an unofficial filibuster, designed to prevent an exemption bill from reaching the Senate floor in time for debate and a vote...
Vol. 38 • June 1955 • No. 25
