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Findings of Fact

The evidence, as a whole, shows that plaintiff entered into the new arrangement primarily because of its desire to retain the steel company as its customer. If it had not assumed the contract made between the pipeline company and the steel company, plaintiff would have lost the Lone Star Steel Company as a customer and would not have been able to acquire the gas reserves in the Harleton Field. At the same time, plaintiff derived other advantages from the threeparty agreement. All of the gas was to be supplied directly from the Harleton Field, which had adequate reserves for that purpose, and the gas could be transmitted without any expenses of compression. The Lone Star Steel Company agreed to use the gas in its natural state, whereas gas which is taken into the main line of plaintiff's system must be processed for the removal of impurities and the dehydration of any water contained therein. Also, the steel company agreed to use a large volume of gas for an original term of 10 years and could not terminate the agreement unless its lease arrangement with the Defense Plant Corporation was cancelled. The steel company obligated itself to pay plaintiff a net minimum of $1,000 per month for the gas consumed by it with the understanding, however, that during the first 24 months of the contract term, the steel company would not be obliged to make the minimum payments when its operations ceased or were interrupted for a period or periods of longer than one month.

When plaintiff's contract with the steel company ended, plaintiff was able to utilize the reserves of gas in the Harleton Field in its main-line transmission system by extending the pipeline to that system and by processing the gas to meet its main-line requirements.

29. Although it is theoretically possible for plaintiff to determine the cost of serving any particular customer, it is not practicable to do so. For that reason, plaintiff's rates to its several types of customers are generally set forth in separate schedules for each class of consumers provided for in the orders of the regulatory commissions in the three states which have jurisdiction over plaintiff. These classifications are based upon the principal characteristics of gas service which each group of customers will require.

154 Ct. Cl.

Findings of Fact

The two principal elements which determine plaintiff's cost of serving a customer are, first, the demand or capacity costs and, second, the commodity costs. Capacity costs relate to the company's physical system, including the gathering system, the pipelines, the compressor stations, and the various facilities needed to deliver the gas. The capacity costs consist of the expenses of operating and maintaining these physical facilities, plus a return on the investment in such facilities, plus income taxes on that return. Commodity costs include the actual cost of the gas itself, plus the variable costs of transporting a unit of gas to the place where the customer requires the service. During most of the period from 1942 to 1950, plaintiff's capacity costs and the variable commodity costs of moving the gas from the field to the consumer exerted greater influence on the rates charged than the cost of the gas. However, in 1946, the price of gas in the area began to increase and the increase was reflected in plaintiff's contracts beginning sometime in the year 1948.

30. The characteristics or conditions of service that affect the rates charged to plaintiff's customers consist of the following:

(1) The quantity or volume of gas used.

(2) The consistency of use or the high level at which the volume of gas is consumed by the customer from day to day and from month to month throughout the year in relation to the facilities which plaintiff has constructed or made available to serve him. The measure of consistency of use is generally referred to as the “load factor" of the customer, a term which may be defined as the ratio of the average load over a designated period of time to the peak load occurring in that period. The customer with a high load factor is of particular benefit to the plaintiff, because its system is operating the maximum capacity during the winter season, whereas in the summer and during the warmer months of the year, the volume of gas required by many customers, such as residential and commercial customers, decreases considerably. It is more burdensome and more expensive for plaintiff to service the customer whose requirements for gas fluctuate, particularly if his consumption is high in winter and low in summer, because plaintiff's capacity costs remain


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Findings of Fact about the same from day to day regardless of whether the facilities are consistently utilized for the delivery of a high volume of gas or for a volume which fluctuates from low to high by seasons.

(3) The distance the gas is transported. The distance which plaintiff has to transport gas to supply service affects plaintiff's costs and rates. The cost is lower for the customer who resides at or near the wells from which the gas is obtained.

(4) The continuity with which the service must be rendered, i.e., whether firm gas must be supplied at all times, or whether plaintiff has the discretion to curtail or interrupt the volume of gas supplied when its system is under unusually heavy demand.

(5) The state in which the service is rendered.

(6) The type of gas required. It is cheaper for plaintiff to supply a customer with untreated gas directly from the producing field than from its main line. In the main line, it is impossible to segregate gas which may go to a residential consumer from that which is used by an industrial consumer. To be suitable for main-line consumption, gas must be compressed to required pressures and must be processed to remove water and reduce excessive sulphur content.

31. Volume of gas consumed. During the period from 1942 to 1950, the five Government plants consumed a total of 13,688,076 M.C.F. of gas. This figure covers interruptible gas only at the Shumaker Naval Ordnance Plant, the Pine Bluff Arsenal, and the Louisiana Ordnance Plant, but includes both interruptible and non-interruptible gas at the Lone Star Shell Loading Plant and the Red River Ordnance Depot.

During the same period of time, the six Arkansas oil refineries consumed 43,520,575 M.C.F. One of these, the Pan American Southern Corporation used 17,042,844 M.C.F. or more than the combined total for the Government installations.

While the record does not reflect the amount of gas consumed by other private industrial customers of plaintiff, the evidence does show that in this respect the Government installations would have been comparable to the Arkansas 154 Ct. Cl. Findings of Fact industrial customers operating under the 3-B rate, if the Government installations had used gas at or near the maximum quantities plaintiff was obligated to supply. Howover, at the Shumaker Naval Ordnance Plant, the percentage of the actual daily consumption of interruptible gas to the daily maximum stated in the contract varied from a high of 6 percent in 1947 to a low of 3 percent in 1950. This plant was not completed until November 1945, after the end of the war, and never consumed gas at the level which was anticipated at the time of construction. At the Pine Bluff Arsenal, the range was from a high of 47 percent in 1943 to a low of 4 percent in 1946.

Records for the Lone Star Shell Loading Plant and the Red River Ordnance Depot necessarily include both interruptible and non-interruptible gas. At the shell loading plant, the percentage of actual to maximum anticipated consumption varied from a high of 30 percent in 1944 to a low of 6 percent in 1949, and at the Red River Ordnance Depot from a high of 17 percent in 1942 to a low of 3 percent in 1946.

At the Louisiana Ordnance Plant, the percentage of actual use to the requirements anticipated by the contract varied from a high of 37 percent in 1944 to a low of 9 percent in 1950.

32. Consistency of use. Records showing the consistency of consumption of plaintiff's gas throughout each of the pertinent years are contained in plaintiff's exhibit 14 with respect to the Government installations and in plaintiff's exhibit 15 with respect to the Arkansas oil refineries. The percentage of use during the lowest off-peak month to the high winter month for the Government installations as a group was 47 percent and for the Arkansas oil refineries as a group was 81 percent during the period involved here. The percentage of consumption during the off-peak season (May-October) to the consumption during the six months' heating season (November-April) was 60 percent for the Government's plants and 90 percent for the Arkansas oil refineries.

These figures represent the load factor for each of the two groups of customers, but the records for the individual


Findings of Fact

plants show that the Pine Bluff Arsenal, which had the highest load factor of any Government installation, made a better showing than the Lion Oil Refining Company, the refinery with the lowest load factor in its group. At the arsenal, the percentage of gas used during the lowest off-peak month to the highest winter month was 64 percent and the percentage during the slack season to the heating season was 73 percent; comparable records for the Lion Oil Refining Company were 40 and 70 percent respectively.

The evidence shows that as a group the Arkansas refineries used gas at a high and near-constant rate at all seasons of the year and that they had an unusually high load factor. The gas was used for the processing of crude oil, and the refineries operated 24 hours per day at a high level of consumption.

33. The distance the gas is transported. The rates provided for in the contract covering the Louisiana Ordnance Plant were the lowest rates available to any of plaintiff's customers in Louisiana; they were lower than he rates charged to the other Government installations and lower than the rates made available to plaintiff's industrial customers in Arkansas, with the exception of the oil refineries. The Louisiana Ordnance Plant is located on a 20-inch pipeline in an area adjoining a number of producing gas wells. .

The Arkansas oil refineries were all located in oil fields which also produced considerable quantities of gas from 1942 until a short time prior to 1950. The refineries were much nearer the source of supply of gas than the Government plants and other industrial consumers in Arkansas.

The rates charged to the Louisiana Ordnance Plant would have been lower than those charged to the Arkansas refineries if the ordnance plant had consumed the maximum volume of gas which plaintiff was obligated to deliver. A comparison of the contract rates for the Louisiana Ordnance Plant with the contract rates for the Arkansas refineries shows:

(a) the rate for the first 3,500 M.C.F. per month at the ordnance plant was lower than the refinery rate;

(b) the refinery rate for the next 138,000 M.C.F. per month was lower than the ordnance plant rate, and

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