at Federal public utility control of the interstate pipe-lines must not be permitted to destroy the vitality and financial soundness of the producers of gas.

The course of the Federal Power Commission under its program of extending its jurisdiction improperly into the production and gathering of gas is having this dangerous effect. It is inevitable that in the end not only will the producer suffer but that the consumer will be denied the availability of this highly desired fuel.

With the advent of a wider use of natural gas and an increasing demand from the consuming areas the commodity value of gas has increased and its importance to the local and State communities likewise has increased. Despite this increasing demand the consumers of natural gas have not been faced with higher rates. Unlike most other fuels which have increased through the years, natural-gas rates to the consumer have remained about the same or as in most instances have decreased.

As a result of the increasing demand for natural gas the producing States initiated programs for the conservation of this valuable natural resource. During the intervening years increasing emphasis has been put upon conservation and such programs have resulted in a rapidly growing accumulation of developed reserves of natural gas. Despite greater consumption year after year our known reserves have increased even more rapidly than consumption.

The following will show how rapid and emphatic has been the trend in increased reserves:

In 1920 we had 17 trillions of cubic feet of proven reserves; in 1930 it had risen to 46 trillions of cubic feet of proven reserves; in 1940 it had risen to 85 trillions; and at present it is 174 trillions.

Although during 1948 production and consumption

Senator REED. What is the rate of consumption now, Major Hardy?

Mr. HARDEY. Rate of consumption now? Our national consumption is about 7 trillion feet a year, Senator.

Senator REED. Expressed in trillions?

Mr. HARDEY. Yes.

Although during 1948 production and consumption were at an alltime high, new reserves added were even far greater. During the year production totaled about 6 trillion cubic feet-I was a trillion feet off, Senator and added new reserves totaled about 14 trillion cubic feet which shows that we are adding to reserves twice as fast as it is being drawn upon. Since we have the ability to find more gas than we use. it is extremely important to the national economy that its availability to the consuming public be encouraged and that all restrictions thereto be removed.

The most important aspect of this problem and the one that I hope to emphasize and leave with this committee is the fact that the gasproducing industry by its very nature should not be regulated as a public utility. Government control of business enterprise is inconsistent with our form of government unless peculiar circumstances exist and demand it. No such circumstances exist in the production and gathering of gas.

The producing branch of the industry has none of the protection of a public utility, and the risks involved are so great and so different from those of a public utility that it cannot survive and be regulated

a public utility. The search for and development of natural-gas serves is a hazardous endeavor. It usually involves many failures -fore a success. Today the availability of gas is being curtailed ecause of the widespread fear among producers and gatherers of gas being placed under public-utility regulation by the Federal Power ommission. This fear must be removed if the healthy trend in deeloping national reserves of gas is to be continued.

At the same time that the Federal Power Commission's activities re retarding availability of gas for the consuming areas, it is also rcing the wasting of a large quantity of this valuable commodity. - recent survey in Texas and Louisiana alone shows that over 000,000,000 cubic feet per day is being wasted through flaring, a rge part of which is brought about because of the fears on the part the producers of being subjected to Federal Power Commission ulation.

We who are in the industry and have been active in the State conervation programs and those consuming areas in the Nation which re in need of this fuel, feel that it is highly important that the Natural Gas Act be amended in such clear terms that there will be no question hat the production of gas will not be threatened by regulation as a ublic utility.

Although I am fully convinced the Congress was wise in 1938 in nacting the Natural Gas Act so as to provide a proper control over he interstate transportation of gas, through my experience in the ndustry and as a State conservation officer, I am equally convinced hat any attempt to regulate the local activity of producing and gatherng of gas by a Federal agency on a public-utility basis would have a most drastic deterrent effect upon the producing industry and, in ur, upon the supply that is available for the consuming public.

The results of a recent survey to determine the availability of a supply of gas for a contemplated major pipe line has come to my attention. This project is to serve an area in the United States which s now without the benefits of the use of natural gas although there is strong demand for it. This survey shows that although the reserves of gas are available there is a strong unwillingness on the part of the owners to firmly commit their gas for interstate marketing because of this fear of the Federal Power Commission.

This fear is also evidenced by the general practice of producers in making recent contracts covering sales to interstate pipe lines to confine them to very short terms and to include cancellation privileges and escape clauses to be effective in event they are threatened by Federal Power Commission regulation. It is important to keep in mind that much of the natural gas available for market is associated with oil and that the two are so intermingled that the regulation of one would inevitably have the effect of regulation of the other. As a result in the area surveyed, enormous quantities of gas, much of which must be produced with the oil and for which there is a strong demand and otherwise would be marketed, are now being wasted.

In my opinion this situation can be remedied by a simple amendment to the Natural Gas Act along the lines proposed in the KerrThomas bill. It is my further opinion that both the producing and consuming interests and the public interest in general will be best erved by a clarification of the Natural Gas Act. I consider a continuation of the forward progress of the natural gas industry to be

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dependent upon early action by the Congress to correct this situation that now confronts the natural-gas industry with depressing effects. Senator JOHNSON. Thank you, Major Hardey. Are there any questions, Senator McFarland? Senator MCFARLAND. No questions.

Senator JOHNSON. Senator Reed?
Senator REED. No questions.

Senator JOHNSON. Senator Kerr?

Senator KERR. No questions.

Senator JOHNSON. At this point in the record we will insert the chart entitled "The Natural Gas Dollar for Household Use."

(The chart referred to appears on the opposite page.)

Senator JOHNSON. Let me see if I have this information correct: The Natural Gas Act was passed in 1938?

Mr. HARDEY. Yes.

Senator JOHNSON. The act has been in operation now for 11 years. To this moment, no authority, no actual authority, has been exercised by the Commission over the production and gathering and arm'slength sales of independent producers and gatherers? That is true, is it not?

Mr. HARDEY. Certainly not until the Interstate decision, Senator. Senator JOHNSON. Has the FPC exercised any authority since then? Have they attempted to exercise their authority or have they said they want to keep the authority?

Mr. HARDEY. I think the principal thing, Senator, is the threat is there.

Senator JOHNSON. The threat is there, but the point I am making is that the Commission has not exercised the authority.

Now, the events that have taken place, the gas reserves, the price picture throughout the 11 years, are the result of no regulation on the part of the Commission.

Mr. HARDEY. That is right, sir.

Senator JOHNSON. Even though they contend now that they do have the authority?

Mr. HARDEY. That is right.

Senator JOHNSON. They do not contend that they plan to exercise any authority in connection with the functions of production and gathering, but they say they should have this authority in order to be able, if in their judgment it is necessary, to fix a price that the producer gets when he sells his gas. That is what the majority of the Power Commission now contends, is that right?

Mr. HARDEY. I think the implication is very strong that they will, Senator, in Commissioner Olds' statement before the House committee last month. I think that the next step is that they will, and they are simply waiting for the legislation to get out of the way so that they can exercise this jurisdiction.

Senator JOHNSON. All right. Now, it gets down to this. We are talking about one thing: Whether three members of a power commission shall have congressional authority to fix the price a producer gets for his gas.

Mr. HARDEY. That is right, sir.

Senator JOHNSON. That is all we are talking about, is it not?

Senator KERR. If I might interrupt, Senator, I would like to call attention to the fact that their power goes far beyond that.

Based on figures for year 1947 from the US. Bureau of Mines. Consuming states included in lower chart include Ala, Ariz, Colo, Ga, III, Ind, lowa, Mich, Minn, Mo, Nebr, and Tenn. supplied with gas from Ark, Kans, La, Miss, N. Mex, Okla, and Texas

Prepared by the Independent Petroleum Association of America, May 1949

Senator JOHNSON. Oh, yes.

Senator KERR. The moment that independent producer or any other producer makes any kind of a sale of gas in interstate commerce he becomes a natural-gas company under the act, and becomes subject to utility regulation.

Senator JOHNSON. That is right. We have heard all the require ments Mr. Head gave us yesterday afternoon that the producers would have to comply with.

Senator KERR. Yes.

Senator JOHNSON. But, Commissioner Olds, joined by two other Commissioners, said to the House committee that the reason we ought to have this authority, that we may or may not use, is that finally if in our superior judgments it is necessary we can say to John Doe that he cannot sell his gas except for X cents.

Now, that is what it gets down to, is it not?

Mr. HARDEY. Yes.

Senator JOHNSON. That means that three men sitting here in Washington can look over the gas wells of this Nation and determine how much the owner of each well in each instance can get for his product. Mr. HARDEY. And they can set their own pattern of determining that value.

Senator JOHNSON. The value of that commodity will vary depending upon their judgment as to what they want to allow for it from each well in the country, would it not?

Mr. HARDEY. Here is a big fear.

Senator JOHNSON. Let us assume that is justified; let us follow their reasoning for just a moment. Let us assume that in order to protect the consumer of gas you are not interested in anybody in this country except the consumer of gas. You are not interested in the farmer whose land the gas well is on, the royalty owner, the State school funds which get the taxes, the company that may produce the gas. Let's assume we have no interest in these people; let us just say that we have an interest only in the consumer.

Therefore, in order to protect the consumer and give him something we think he ought to be entitled to, we will take away something from somebody else in order to give that to the consumer. So, we are going to allow three men to "protect" the consumer's price. Now, is that done with respect to any other commodity in this country? Mr. HARDEY. None that I can think of, Senator.

Senator JOHNSON. Well, now, let's assume we are really interested in the consumer and want to do a job for him. He is the only one we are going to be concerned with. We are going to put him in a special class and say, "Anything that will benefit you and reduce your price, we favor, so we are going to set up a commission to take care of you. Why should we not apply that sort of regulation where it will really mean something to the consumer, say in gasoline, say in fuel oil, say in

coal

Senator KERR. Food.

Senator JOHNSON. Even get it down in my country to cordwood. We do not have natural gas, but we have to go out there and buy that wood, and it comes in a pretty heavy load. We used to get it for $1.50 a load; now it costs $15 a load.

Senator MCFARLAND. And it is pretty hard to cut after you get it. too. [Laughter.]