Tom C. Clark

“ Allocation of cost between oil and gas.-Much of the gas produced for interstate sale is 'associated gas,' i.e., it is produced along with oil and is known as casing-head gas. Fifty-seven percent of Phillips' gas production is associated gas but it accounted for only 13.42% of its combined revenue. In addition some wells produce condensate liquids and condensate gas which must be separated through gasoline plants. The question is how much of the expense of exploration, operation, etc., of wells should be chargeable to gas. ”

“ It can hardly be denied that the Commission's action will leave producers for a number of years-estimated by the Court of Appeals at up to 14-without effective regulation and will result in irreparable injury to the consumer of gas. The only brakes on spiraling producer prices are the 'guide prices' which the Commission attached to its SGP 61-1. These, rather than being legally established rates, are nonreviewable guides reflecting the highest certificated rate or weighted price. ”

“ The Commission argues that the contracts under attack here were all dated prior to 1954 and hence its order refusing to find them void should be upheld. This is, of course, a non sequitur. Nor is it understandable how the clauses become effective against the public interest and unacceptable in 1961 but the identical provisions are blessed with validity prior to that date. I cannot subscribe to such a doctrine. However, since the Court requires the producer to 'establish its lawfulness wholly apart from the (escalation) terms of the contract' I cannot become excited over it. ”

“ If the 'evil day' for the producer ever arrives where he must pay up, from where will the money come? It would bankrupt the average producer. The Commission would necessarily, in order to protect the service of interstate customers, be obliged to compromise or forgive them.↑ Four cases involving major producers have been decided by the Examiners and five investigations of other major producers have now been completed. These nine producers, with Phillips, handle 30% of all interstate gas. Still no major rate case has been decided since Phillips. Only two area cases are under investigation. ”

“ It would require Phillips to pay the pro-rata increase in rates due on percentage gas, but it recoups this plus a profit when that gas is sold. I submit, as the Examiner found, that the allowance of this million and a half in the cost basis is erroneous. Increases through automatic escalator clauses-which effect the same result-are not permitted because not based on any increase in cost of production. In approving this practice in percentage contracts the Commission creates a perfect loophole for these producers and invites more contracts of this nature. ”

“ In addition the Commission has abandoned its cost-of-service program of rate fixing and has embarked on an area basis regulation which is highly questionable. It has also promulgated, without any hearing, rates as guidelines that have no support in evidence as to their justness and reasonableness. Through this course of conduct the Commission's program of producer regulation-of which Phillips is the keystone has permitted the continued collection of untested, unreasonable, unjust, discriminatory and preferential rates. This situation under the present timetable will continue for years. ”

“ The Commission could then concentrate on the large producers (20 of them control over 50% of the interstate gas) without the pressures incident to the smaller ones. The integrated producer of large volume is inevitably going to be the low cost producer. Hence his rate will be an effective floor from which the small producer rates might well be adjusted. This would give the consumer rate protection over the overwhelming amount of interstate gas more quickly [9] and would give assurances to the small producer that he would be protected from confiscation. ”

“ It does not require a crystal ball to see what will happen regardless of the conclusion of the Commission. If it decides to make the rates suggested a floor, the respective independent producers will require individual cost proceedings; if the rates are made both a floor and a ceiling, thousands of old rates will be raised to the floor and the consumer will pay the bill. ”

“ No system has as yet been prescribed for producers. Moreover, the annual reports required from pipelines enable the Commission to promptly determine pipeline expense, returns, earnings, etc. This report for producers merely shows sales under each rate schedule. Finally, pipelines, when filing § 4 rate increases, must attach detailed cost justification. No such requirement is made of producers.↑ The situation is even more extreme in South Louisiana where 55% of the gas is now flowing at prices which exceed the Commission's 'initial price' ceiling ”

“ I regret that the Court has chosen this occasion to stand on technicality, compare Federal Trade Comm'n v. Henry Broch & Co., 368 U.S. 360, 363, 82 S.Ct. 431, 433, 7 L.Ed.2d 353 (1962) , when public interest stands the loss. ”

“ The dismissal of the § 4 (e) and § 5 (a) cases is the more unfortunate and indicates a disturbing disregard of the consumer interest. On the § 4 (e) cases the Court says 'most of Phillips' increased rates now in effect are the subject of pending § 4 (e) proceedings * * *.' At this very moment Phillips is making sales at nonrefundable rates as high as 23.5¢ per Mcf. which produce annual revenues more than $3,000,000 in excess of the Commission's SGP 61-1 price levels. [7] On this score in 1956 the Commission authorized a large number of § 7 high price sales without providing for any conditions. ”

“ The Commission has 22 more areas to go. Meanwhile all areas, including Phillips', have escaped regulation for the years 1954-1963, a total of nine years. If in 1960 the Commission had remanded the § 5 (a) proceeding it could long since have been decided, since the enormous increase in Phillips' revenue for 1960 ($45.6 million in 1954 to $90.8 million in 1960) would have definitely shown an excessive rate. The Examiner had found, contrary to the conclusion of the Court, that the 1956 cost of service was not 'significantly higher' than 1954. ”

“ First it comes too late; next, many of the consumers entitled to refunds cannot be found, etc. See Federal Power Comm'n v. Tennessee Gas Transmission Co., 371 U.S. 145, 154-155, 83 S.Ct. 211, 216-217, 9 L.Ed.2d 199 (1962) . An even more realistic consideration is that these refunds have been permitted to reach the astronomical figure of $158,000,000 a year, of which amount Phillips has been receiving some $74,000,000. ”

“ The patently discriminatory nature of the rate increases, resulting in rates varying from 5.5 to 17.5¢ per Mcf. cannot seriously be questioned. The Examiner found that on the date of the Phillips decision its prices ranged from 1.2¢ to a high of 15.7¢ per Mcf. ”