Senator MAGNUSON. Increase in natural gas reserve and deliverability requirements activity-those are two separate items and have nothing to do with what you are talking about here, the rate cases proper?

Mr. SwIDLER. They have nothing to do with the pipeline rate cases. Senator MAGNUSON. All right. I just wanted to get that straight. All right. Now, the Senator from Oklahoma has some questions.

SAVINGS TO PIPELINE COMPANIES

Senator MONRONEY. In the figures on page 12, since January 1, 1964, you say there are 30 pipeline companies, including 10 companies which are operating on cost of service tariffs; were these all pipeline cases?

Mr. SWIDLER. Yes, sir.

Senator MONRONEY. And all resulted in a saving to the pipeline, you say?

Mr. SWIDLER. Yes, sir; and to the consumer.

(NOTE. That portion of the reductions filed by the 30 companies pertaining to the flow through of savings due to the reduction in the Federal income tax rate from 52 to 50 percent does, in fact, reflect a savings to the pipeline. However, the remaining portion of the reductions filed by 9 of the 30 companies reflects excess earnings. The more appropriate statement would be that these reductions all resulted in a saving to the ultimate consumer.)

SAVINGS TO GAS PRODUCERS

Senator MONRONEY. What were your reductions or the settlement to your gas producers? Are they called independent producers in your terminology-even though they may be an integrated large company, but do not operate pipelines?

Mr. SWIDLER. Yes, sir.

Senator MONRONEY. They are so-called independent?

Mr. SWIDLER. In our terminology, the independents are simply the nonpipeline producers.

Senator MONRONEY. That is right; those who sell at contract to the pipeline?

Mr. SWIDLER. Yes, sir.

Senator MONRONEY. What reductions or how many settlements to those have you made? What is the degree of achievement?

Mr. SWIDLER. Well, we have settled out, I think, about a thousand producer rate cases.

(NOTE. During the period from July 1, 1961, to April 17, 1964, inclusive, the Commission accepted producer settlement proposals covering 973 rate dockets. During this same period of time, the Commission ordered producer refunds totaling $56.9 million and rate reductions totaling $25.1 million. The bulk of these refunds and rate reductions were ordered in settlement proceedings.) Senator MONRONEY. That is individual producers?

Mr. SWINDLER. Individual producer rate cases; yes, sir.
Senator MONRONEY. On so-called settlement?

Mr. SWINDLER. Yes sir. This has involved refunds. My recollection is about $57 million from the producers to the pipelines. Senator MONRONEY. For what period?

Mr. SWIDLER. That is to date.

POWER TO ADJUST INDEPENDENT PRODUCERS RATES

Senator MONRONEY. The last 2 years.

Now, your power under the Natural Gas Act as interpreted by the Supreme Court allows you to fix an independent producer's rate at what is just and reasonable. That is the power that you have? Mr. SWIDLER. Yes, sir.

Senator MONRONEY. Can you define what "just and reasonable” means? Have you defined it as a matter of the Commission's ruling? Mr. SWIDLER. It has been defined so far only in individual rate proceedings on what has virtually been a cost basis.

Senator MONRONEY. It is a dollar-and-cents definition?

AREA RATE METHOD DESIRED

Mr. SWIDLER. It is a dollar-and-cents definition. This is one conceivable way of fixing rates. Now, I think this committee is aware that hardly anyone thinks that this is the right way to fix producer rates. The Federal Power Commission is certainly of the mind, that individual producer rate proceedings are not well suited to the nature of the industry. We have been struggling, as this committee knows, in the last 21 years to develop and put into action the area rate method of fixing rates for these producers. This has never been done before. It is a new administrative device, a complex one, and we are in unplowed territory. The going has not been either smooth or fast. I can say that we have made progress but not nearly as fast as we had hoped for, sir. I am compelled to admit this. But I think we are moving steadily ahead and we hope within the next year to have really demonstrated that area rate regulation of producer prices is feasible and that we can determine just and reasonable rates on that basis.

Would you like for me to report the status of the various area rate proceedings, sir? Or are you familiar with it?

Senator MONRONEY. I am not familiar with it. Perhaps you can put it in the record or maybe brief it.

Mr. SWIDLER. It is in my statement on page 19.

Senator MAGNUSON. Well, the statement is in the record in full.

PROCEDURE DEPENDENT ON PERMIAN CASE OUTCOME

Mr. SWIDLER. We are plowing ahead and we think these proceedings are gradually acquiring form. The problems are being worked out. A great deal depends now on our ability to grapple with the problems in the Permian proceeding, which will be the first to come before us. We are expecting the examiner's report in this proceeding almost any time now. We shall, then, I am sure, receive exceptions and invite extensive oral argument in those proceedings, and then we start exercising our own responsibilities in deciding that case. We hope to set a pattern which will be followed in other proceedings on an expedited basis.

Senator MAGNUSON. The so-called milkshed pattern approach?
Mr. SWIDLER. Exactly so, sir.

Senator MAGNUSON. This will establish the precedent?

Mr. SWIDLER. Exactly.

Senator MONRONEY. It has been 10 years, I think, since the Supreme Court gave the Commission power to regulate rates and even now, in your area cases as well as in your individual cases, there has been no firm definition of your just and reasonable rates. Now, will there be such a determination so that a man will know exactly what his rate rights are, allowable return on rate value or whatever it becomes? I don't know. It certainly is a very indefinite thing today and after all these years, we have not had any interpretation which would give the industry any indication of what they can charge and not be forced to refund.

DETERMINATION OF EQUITABLE RATES

Mr. SWIDLER. Yes, sir; we expect to determine just and reasonable rates. Now, it is obvious that it will not be based upon each man's return on his own investment, because that would require an individual proceeding, which all of us are agreed, that this is not the right way to do the job. So that just and reasonable rates will be based upon what Senator Magnuson just called the milkshed principle.

Senator MONRONEY. Well, the milkshed principle is a little different from the production of gas, I think.

Senator MAGNUSON. That is just a term that is applied to it, indicating a gathering area. I don't know who coined that phrase, but it is pretty apt.

Mr. SWIDLER. I think so.

FEDERAL POWER COMMISSION QUESTIONNAIRE

Senator MONRONEY. The Federal Power Commission, I am informed, sent out these 428-page questionnaires weighing almost 10 pounds which some producers claim will require an estimated 17,000 man-hours and about $85,000 per company to complete. I have a photograph here maybe some of the Senators would like to see it. Senator ALLOTT. Mr. Chairman, would the Senator yield to me at just that point?

Senator MONRONEY. Yes, sir.

Senator ALLOTT. Mr. Chairman, I brought, and went to some pains to secure, the questionnaire which is required under this. Now, these are only required now of the top 114-do you mind?

Senator MONRONEY. No; go ahead.

Senator ALLOTT. I thought the graphic illustration of just what is involved in this would be helpful. This would only be required of the top 114 producers in the country; is that correct?

Mr. SwIDLER. It is required, sir, of all producers who sell more than 10 billion cubic feet a year. I think that works out roughly to 100 producers.

Senator ALLOTT. You said in your letter to me 100 producers. It actually works out to 114, to be accurate, as near as I can ascertain. Now, I have the questionnaires before me. They constitute a pile which is over 42 inches thick. It weighs 10 pounds. I brought them because it is impossible to describe this to anybody by a picture or

otherwise.

31-706-64-pt. 1-24

Senator MAGNUSON. Before you go on, I have some letters that describe this 10-pound questionnaire as unreasonable, burdensome, discriminatory, unnecessary, and some other adjectives I have not put in yet.

Senator ALLOTT. If you go through this and I have just wandered through the hodgepodge, because it would take me hours just to go through the questionnaire

Senator SALTONSTALL. That is to one company?

Senator ALLOTT. This is to one company in one basin area.
Senator SALTONSTALL. Could you hold that up?

Senator ALLOTT. Is this right?

Mr. SWIDLER. No, sir; that is not.

Senator SALTONSTALL. Could you hold that up? That is what one company has to write?

Mr. SwIDLER. Yes, sir; I would be glad to comment on that if you would permit me.

COMPLETION OF QUESTIONNAIRE

Senator ALLOTT. You go ahead and comment. We do not want to throttle you, but it is possible that one company would also have to make out more than one of these.

Mr. SWIDLER. No, sir.

Senator ALLOTT. If there were wells in a different area?

Mr. SWIDLER. This contemplates that-this is prepared for a company that operates throughout the country. It works the other way around a company that operates in only one area would fill out only a small part of that.

Senator ALLOTT. You go ahead and explain it. I don't think that anybody, any company could make one of these things out for a quarter of a million dollars and do an adequate job.

Senator SALTONSTALL. Would the Senator permit an inquiry?
Senator ALLOTT. Yes, Senator Monroney is-

Senator SALTONSTALL. Excuse me.

Senator MONRONEY. Go ahead.

Senator SALTONSTALL. How many man-hours, does the Senator know, go into making up one of those?

Senator ALLOTT. I do not.

Senator MONRONEY. That is what I think we want the Chairman to tell us.

PURPOSE OF QUESTIONNAIRE

Mr. SWIDLER. Let me explain-one of the reasons for the questionnaire here, which is a very big one-Senator Monroney was just saying, are you going to determine just and reasonable rates for all these gas producers? I said we would try to do that.

Senator Monroney, you cannot suck out those rates from your thumb. We have to have some facts. The producers make no comprehensive annual reports to the Commission, unlike the pipeline companies. If we are to obtain any facts we have to send out a questionnaire and ask for them.

I think if we ask for too many facts this is serious, but if we do not ask for enough it is even more serious, because you want a factual determination and so do we.

Senator MONRONEY. But every rate that is approved, or is requested to be approved, by the Federal Power Commission is accompanied by a vast amount of statistics and has been for 10 years, has it not, by the producer?

Mr. SWIDLER. No, sir; not as I understand it.

Senator MONRONEY. As I understand it from the statistics you publish, everything in the world you want to know about the gas industry is available to the Federal Power Commission. They must certainly receive these reports and tabulate them and use them.

Mr. SWIDLER. No, sir; we receive no comprehensive reports now in connection with filings by the producers as I understand the situation. We are entirely dependent for any detailed knowledge of the workings or the costs of the industry upon this questionnaire. As you pointed out, it is only going out to the giants of the industry. It is not sent to a fellow who has only a bookkeeper working at a desk facing him in his office.

TOTAL COMPANIES RECEIVING QUESTIONNAIRE

Senator MAGNUSON. What percentage of the total gas gathering would the 114 handle?

Mr. SWIDLER. I imagine that this would account for the great bulk of the gas-perhaps 80 percent.

Senator MAGNUSON. As compared to the small gatherers. You can put that in the record, the percentage, because I think that is important, what amount of the industry you are dealing with with this. Mr. SWIDLER. Yes, sir.

(The information requested follows:)

Volumes of gas produced by recipients of questionnaire as percentage of total gas

produced

Senator MAGNUSON. I don't want to interrupt.

Mr. SWIDLER. I think the first thing that I hope the committee will keep in mind in weighing us charitably on this question, sir, is that it did not go out to the 30,000 producers in the industry, it just went out to the very large ones.

Senator MONRONEY. You went out to small producers, but you said, did you not, you do not have to fill this out and send it in unless you want to, this smaller questionnaire?