result would be distortions in the interstate gas supply situation that would affect adversely not only those uses with a lower priority, but residential and small commercial services as well.

Another concern with a legislated agricultural curtailment priority is the strong likelihood that other classes of gas consumers, seeing that Congress has intervened directly in favor of one group, will press for similar treatment on their own behalf. It may be that some of these claims will be equal in merit to those advanced by the agricultural sector, but in any case it seems that the Nation's approach to the curtailment situation should not rest upon judgments based primarily on the needs of particular groups considered in isolation. The gas supply crisis is a nationwide problem that affects virtually every segment of our society, and I recommend that the Commission be allowed to make its decisions on curtailment priorities based on the demonstrated needs of all gas consumers, not just those of a particular class or classes, I therefore oppose the enactment of legislation that would impose an automatic curtailment priority in favor of agricultural uses.

Section 6 of the Emergency Act provides for prohibition on the use of natural gas by power plants as boiler fuel upon certain determinations made by the Administrator of the Federal Energy Administration. The purpose of this section is primarily to encourage the substitution of petroleum products as powerplant boiler fuel for natural gas when feasible and practicable. I endorse this concept.

In summary Section 6 directs the Administrator of FEA to prohibit any power plant from burning natural gas if on September 1, 1975, or later, it had the capability and necessary plant equipment to burn petroleum products, if such burning in lieu of natural gas is practicable, if petroleum products will be available during the period the order is in effect, and if the natural gas released as a result of such a prohibition could be available, directly or indirectly, to a priority interstate purchaser. However, the prohibition order would not be effective until a date which the EPA Administrator certifies is the earliest at which petroleum burning can comply with the Clean Air Act and all applicable State environmental protection laws, and would not be effective if the Federal Power Commission certifies that the prohibition would impair the reliability of service in the area served by the plant.

Also, the Administrator of FEA is to prohibit the burning of natural gas by any power plant if alternative supplies of electric power are available to the electric power system of which such power plant is a part and the generation of such alternative electric power supply would not increase the overall consumption of natural gas, provided the natural gas released could be made available to a priority interstate purchaser and the FPC certifies that electric reliability is not impaired.

I favor the language in Section 6 which requires the Commission to certificate to FEA that a prohibition order would not impair the reliability of service in any area served by an affected electric power system. I also agree with the provisions of Section 6 that would make the released natural gas available to priority interstate pipelines and that such pipelines must compensate affected utilities that suffer increased costs due to a prohibition order.

Although Section 6 recognizes the potential for replacement of gas by electric energy transfers, it has no provision for abrogating existing transmission contracts or forcing other electric utilities to burn down their coal stockpiles to send electric energy to gas burning utilities. Such a provision would strengthen the overall affect of this section.

I believe the Committee should place this boiler conversion authority under the regulatory jurisdiction of the FPC. Such authority would be compatible with our public interest duties under both the Federal Power Act and the Natural Gas Act.

Section 7 of the Emergency Act would authorize the Secretary of the Interior to order the production of natural gas at maximum efficient rates and, in certain instances, at temporary emergency production rates. The result of Section 7 would be: (1) an indeterminate additional amount of natural gas could be made available on a temporary basis to help deal with the natural gas shortage and (2) the Nation's natural gas supply would be depleted at a rate faster than would otherwise occur. A memorandum dated September 12, 1975, to me from the Commission's Bureau of Natural Gas, which I have attached as Appendix C hereto, discusses the implications of Section 7 in greater detail.

I favor the pipeline interconnection authority that would be delegated to this agency upon enactment of Section 8 of the Emergency Act. This new authority would facilitate the Commission in its attempt to assure that adequate volumes of gas are made available to essential end-users.

FPC LEGISLATIVE PROPOSALS

The Commission bill, introduced as H.R. 9409 and 9424 in the House and S. in the Senate, would codify our policy statement adopted in Order No. 533 and discussed, supra. This bill, which authorizes Commission certification (when appropriate) of the transportation of natural gas by curtailing pipelines where such gas is purchased by a high priority consumer directly from an independent producer, would merely be declaratory of present Commission authority under the Natural Gas Act. Legislative enactment, however, will very likely expedite the attainment in the shortest amount of time, of the similar goals sought in this bill and in Order No. 533.

The above proposal is directed at high priority customers of curtailing pipelines and distribution companies. In the alternative, the Commission has sent a bill to Congress, introduced as H.R. 9334, H.R. 9410 and H.R. 9423 in the House and S. 2244 in the Senate, which would provide immediate relief to jurisdictional pipelines undergoing curtailment. Under the bill's terms, the Commission could grant exemptions from the provisions of the Natural Gas Act, not to exceed one hundred and eighty days in duration, to activities and operations relating to certain transportation, sales, transfers or exchanges of natural gas in interstate commerce. Exemptions could be granted for transactions between producers, interstate or intrastate pipelines, or distributors, to or with an interstate pipeline which does not have a sufficient supply of natural gas to fulfill its firm contractual requirements or interruptible requirements for residential, commercial or industrial needs for plant protection, feedstock and process uses for which no alternate fuel is available, and which is curtailing deliveries pursuant to a curtailment plan on file with the Commission.

Enactment of S. 2244 would give interstate pipelines in curtailment a better opportunity to compete effectively for gas supplies not currently dedicated to the interstate market, thereby increasing the likelihood that the severity of nearterm gas supply shortages can be reduced on a nationwide basis. Expansion of the interstate gas supply would further the objectives of full employment by preventing industrial shutdowns and commercial interruptions resulting from temporarily insufficient gas supplies, and would also reduce the growing dependence of industrial and commercial users upon high-priced supplemental and alternate fuels, which has had a significant inflationary impact.

I would like to reemphasize my view that Section 4 of the Natural Gas Emergency Act of 1975 and our two legislative proposals seek to attain the same goal: an increased supply of natural gas to the critical interstate market to avoid unemployment and serve the national welfare. Viewed as temporary emergency relief measures, any of these proposals would alleviate in the near term natural gas shortages now faced by the Nation.

FEA LEGISLATIVE PROPOSAL

The Federal Energy Administration has introduced in the Senate as S. 2330 its legislative proposal, entitled the "Natural Gas Emergency Standby Act." Titles II and III of this multifaceted bill are basically the same in substance as the Commission's two legislative proposals. I favor enactment of these

measures.

I recognize the possible impact on prices that might be caused by concurrent enactment of both FEA titles (or both of the Commission's bills). That is, enactment of both proposals would place interstate pipelines and high priority consumers in a competitive bargaining position against one another in some field markets for the same intrastate gas. This could result in a higher end-price for the ultimate natural gas user or consumer. Overriding this possibility, however, is the fact that more gas should be committed to the interstate market if both proposals are enacted since industrial users may be able to compete for natural gas supplies with the intrastate market under circumstances where the interstate pipelines could not since they would be subject to an ultimate review of the purchased gas price in the Commission's determination of a just and reasonable rate. If, however, Title II (the 180-day bill) or S. 2244 (the FPC bill) were to clearly

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provide that the purchased gas cost of a natural gas pipeline shall not be subject to the provisions of Section 4, 5, and 7 of the Natural Gas Act, the competitive position of the pipelines in securing commitments for their overall needs would be considerably enhanced.

I would like to discuss briefly Title IV (boiler fuel conversion) and Title V (propane allocation) of the FEA bill. As you know, the Commission has encouraged the phasing out of boiler fuel use of natural gas by electric powerplants when feasible and practicable. It is imperative that one standard for ordering natural gas boiler fuel conversion to petroleum products or coal be a finding by the FPC that reliability and adequacy of electric service will not be impaired. The Commission is already charged with this duty under Section 202 of the Federal Power Act. The same responsibility should be delegated to the Commission if specific natural gas boiler fuel conversion legislation is enacted. Section 6 of the Energy Act recognizes this point, the FEA bill does not.

Title V of S. 2330 delegates propane pricing and allocation authority to the President. This authority may be exercised upon a finding by the President or his delegatee that shortages of natural gas exist or are imminent and that such shortages or potential shotrages constitute a threat to the public health, safety or welfare. This Commission has a developed expertise in the analysis and treatment of natural gas shortages. I believe it would be in the public interest to delegate the "finding" responsibility under Title V directly in the Commission. Since propane is generally substitutable with natural gas, is largely the product of the economic regulation of natural gas, is necessary for peakshaving to assure reliable service to consumers in the severest part of the winter, and must be considered in determining emergency allocations of natural gas to fulfill the critical need of high priority natural gas users, it seems to me that propane pricing and allocation authority should be the responsibility of the FPC as an important adjunct to its developed expertise and regulatory responsibilities in regulating natural gas.

I believe Congress should place all responsibilities listed in Titles IV and V of S. 2330 under FPC regulatory authority. Such delegation would be consistent with our public interest duties under both the Natural Gas Act and Federal Power Act and would avoid further regulatory fragmentation, delay and confusion.

CONCLUSION

Since 1969, the Commission has taken numerous actions in an attempt to create an appropriate economic and operational climate to elicit adequate and reliable natural gas supplies at reasonable prices to consumers. These actions include the establishment through rulemaking proceedings of a nationwide rate for new gas to replace the complex area rate structure. These procedures will enable prompt Commission response to changing costs and conditions and should increase the capital commitment to exploration and development of natural gas to serve the requirements of the interstate market at reasonable prices to consumers. The ratemaking methodology has been adjusted and refined with the goal of insuring that producer can earn fully the allowed rate of return-a step essential to capital attraction. An optional procedure for certificating high cost projects has been provided. Limited-term sales are granted where it is established that the gas is available to the interstate market only for the term and at the price requested. Other short-term procedures have been utilized to give the interstate pipelines in curtailment an opportunity to compete with the aggressive intrastate markets for gas. Small producers have been relieved of the burdens of the sale certification process. Through these actions and others, the Commission has fully used the powers delegated to it by Congress, but these actions, while constructive and helpful, have not resulted in a reversal of the deepening gas shortage.

The burden is now upon Congress to enact legislation that will adequately cope with the natural gas crisis. Interim emergency relief is a temporary solution to a long-term problem. It will assist but it will not resolve. Measures must be passed in the none-too-distant future that stimulate natural gas exploration and development and produce an increase in natural gas supply. It is my opinion that we require a return to an economic environment in which the impersonal forces of a competitive market, appropriately monitored as to price trends, will determine the supply-demand relationships of gas and other primary energy sources in a competitive energy market.

Hon. JOHN D. DINGELL,

APPENDIX A

FEDERAL POWER COMMISSION, Washington, D.C., August 28, 1975.

Chairman, Subcommittee on Energy and Power, Committee on Interstate and Foreign Commerce, U.S. House of Representatives, Room 1430, Longworth House Office Building, Washington, D.C.

DEAR MR. CHAIRMAN: I am writing in response to your letter of August 19, 1975 in which you have requested certain natural gas pricing analyses formulated by the Commission's Bureau of Natural Gas (BNG) and Office of Economics (OEC). Your letter also stated that "the FPC is empowered to charge higher rates than it is presently doing.” In addition you “would appreciate knowing (my) reaction to this opinion and being advised when the Commission decides what action it is going to take on this matter.'

With respect to the BNG and OEC analyses that you have requested, I am enclosing a copy of the Commission's August 4, 1975 Order issued in our Rulemaking Docket No. RM75-14, "Order Issuing Staff Rate Recommendations and Prescribing Further Procedures", 40 Fed. Reg. 33998. Docket No. RM75–14 involves our biennial review of the Commission's national rate for sales for resale of new natural gas subject to our jurisdiction. The national rate for new natural gas was established upon issuance of Commission Opinion No. 699-H on December 4, 1974, Docket No. R-389-B, 39 Fed. Reg. 43199. It is the Commission's intent in Docket RM75-14 to prescribe rules and regulations for establishing just and reasonable rates for jurisdictional sales of natural gas dedicated to interstate commerce on or after January 1, 1973 for the biennium from January 1, 1975 to and including December 31, 1976.

Our August 4, 1975 Order in Docket No. RM75-14 issued the comments of BNG (Appendix A) and OEC (Appendix B) regarding the cost of finding and producing new supplies of natural gas for sale in interstate commerce for resale. The appendices contained in the August 4 order also include BNG and OEC's "supporting information upon which these analyses were performed."

As this rulemaking docket is still before the Commission, I am not permitted to discuss the merits of the proceeding.

However, I would note that our August 4, 1975 order requests public comments on the BNG and OEC analyses which comments must be filed with the Secretary of the Commission on or before September 5, 1975. You are certainly at liberty to file such comments on these analyses or any other facets of Docket RM75-14 as you deem appropriate. Any comments which you might file will be placed in the Commission's public files and will be available for inspection by the public. In addition, your letter of August 19, 1975 will be placed in the public file.

In the third paragraph of your August 19, 1975 letter you have stated:

"I might add for the record, that my reading of the Phillips Petroleum case has been consistently that the FPC is empowered to charge higher rates than it is presently doing. I gather that the recent decision in the Court of Appeals for the District of Columbia appears to support this point of view."

You have solicited my reaction to your opinion and have requested to be advised when the Commission decides what action it is going to take on this matter.

Your letter does not indicate the grounds upon which the Commission is empowered to charge higher rates than it is presently doing except for reference to the Phillips Petroleum case1 and a recent decision by the D. C. Circuit Court of Appeals. I will assume that this latter D. C. Circuit Court opinion to which you refer is that Court's holding in Public Service Commission for the State of New York v. Federal Power Commission, 516 F.2d 746 (D.C. Cir. 1975).

I am enclosing for your review a Memorandum dated April 18, 1975 transmitted from Drexel Journey, the Commission's General Counsel, to me. This andum is a detailed analysis of court interpretations of FPC Natural ng Authority under the Natural Gas Act, 15 U.S.C. 717 et seq. The im concludes that:

v Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672 (1954), in which the t held that the FPC had jurisdiction over wellhead sales of natural gas by roducers.

"In summary, the courts have consistently adopted the view that . . . (FPC) regulation of prices without cost support would be inconsistent with the Natural Gas Act and contrary to law. (April 1 Memorandum at 10).”

It is precisely this scheme of cost-based natural gas pricing which has resulted in the great disparity in prices between intrastate and interstate natural gas sold in interstate commerce for resale that is subject to this agency's rate jurisdiction. This natural gas sold in the interstate market for resale, is sold at substantially lower prices than producer sales in the unregulated intrastate market.

The Commission does believe that some non-cost criteria may be taken into account in our determination of just and reasonable rates for jurisdictional natural gas. But the reliance, to a certain extent, on non-cost criteria (i.e. factors other than the concept of a utility's cost of service plus a reasonable rate of return) in establishing jurisdictional rates must be accompanied by a record indicating extensive reliance upon cost supporting evidence. The Supreme Court arrived at this determination in its holding in Mobil Oil Corporation v. F.P.C., 417 U.S. 283 (1974). The attached April 18 Memorandum from Mr. Journey discusses the Supreme Court's decision in Mobil:

"The Court (in Mobil). approved consideration of non-cost incentives to encourage additional gas exploration and development but in the context of employing prices functionally for such purposes only where their rates are within the zone of reasonableness. Significantly, the Court did not suggest that the rate need not be cost based nor did it suggest the rate could stray from the zone of reasonableness in meeting non-cost considerations. Most emphatically it did not suggest that the FPC may regulate in accordance with market clearing levels or that it could deregulate altogether. (April 18 Memorandum at 3 and 4)”. The recent D. C. Circuit Court holding in Public Service Commission of New York v. E.P.C., supra, which I believe you are referring to in your letter, follows the Mobil doctrine. In fact, the D.C. Circuit's recent decision was a decision on remand from the Supreme Court in light of the latter Court's determination in Mobil. Thus, Judge Leventhal in his July 24, 1975 opinion for the D.C. Circuit Court states:

An increase in the base rate made in order to encourage exploration by producers in a time of extreme supply shortages may be valid, assuming the ultimate rate is within the zone of cost data, even though the amount of increased supply available to the rate increase cannot be precisely quantified (Public Service Commission of New York v. F.P.C. supra, at 749).

The Commission believes that an allowance for higher than present prices for gas dedicated to the interstate market and subject to our jurisdiction would greatly assist in alleviating the deepening and pervasive natural gas supply crisis being experienced by jurisdictional pipelines and their customers. As far back as September of 1971 at hearings before the Subcommittee on Communications and Power, I supported departure from strict reliance on cost factors. However, as my previous discussion indicates, the Commission is severely bound by established case law precedent in determining just and reasonable rates for jurisdictional gas sales.

The Commission has attempted in the past to use novel approaches to assist in resolving the natural gas supply emergency that is being experienced in the interstate market. Pursuant to its interpretation of its authority under Section 7(c) of the Natural Gas Act, to exempt "temporary acts or operations" from the certificate requirements of the Act "in the public interest", the Commission for purposes of alleviating critical gas shortages in the 1973-74 winter heating season adopted certain amendments to its regulations. By order No. 491-B (38 F.R. 31289), the Commission extended from 60 to 180 days the allowable duration of temporary emergency sales of natural gas without Commission certification to jurisdictional pipelines operating under filed curtailment plans. This policy resulted in the introduction of 200 billion cubic feet of gas into the interstate gas stream. However, the U.S. Court of Appeals for the District of Columbia, by its March 13, 1975 decision in the case of Consumer Federation of America, et al. v. F.P.C. (No. 73-2009), held that the Commission had exceeded its statutory authority by allowing 180-day emergency sales without certification. Another significant problem is posed by the recent holding of the U.S. Court of Appeals for the District of Columbia in the case of John E. Moss, et al. v. F.P.C., 502 F.2d 461 (1974), that the Commission may not authorize abandonment of certain producer gas sales at the time it certifies the sales. Although the Commission has received permission from the Solicitor General to seek a writ of certiorari in the Consumer Federation case, and the U.S. Supreme Court has