Mr. SETH. The farther east in Texas you go, the higher the posted price is. Then there is some variation in the kind of oil. Of course, it is all based on the gravity of the oil.

Senator REED. And when you get over into east Texas

Mr. SETH. That is higher, and there is more of it.

Senator REED. Did you have a truck-regulating law in New Mexico?

Mr. SETH. Yes, sir; it is now largely superseded by the Federal law, of course.

Senator REED. But you do have your State laws for your intrastate business?

Mr. SETH. Yes.

Senator REED. Or, if related to interstate business, the law still applies?

Mr. SETH. Yes, sir.

Senator REED. I presume that, like other States-Kansas, for example in the Truck Act of 1935, the movement by the farmer of his own production to market is exempted from the regulatory restrictions or from any kind of laws?

Mr. SETH. Yes; that is right.

Senator REED. But when that farmer's product moves from his market, by railroad or by truck, then the regulatory laws become effective?

Mr. SETH. That is right.

Senator REED. I am trying to make a slight distinction between what I termed a moment ago, in talking to Governor Holloway, of Oklahoma, gathering lines, which would correspond to the farmer's trucking his own product to hs nearest market, and the trunk pipe lines.

Mr. SETH. Senator, our State courts have held, within the last month-the lower court-that for the purpose of taxation and all, the entire movement of oil from the well through the gathering line, if you may call it that, and through the trunk line is one interstate transportation, right from the well.

Senator REED. Of course, in any pool where you have more than one well-and I presume both in northeast and southeast New Mexico you have more than one well?

Mr. SETH. Yes, sir; oh, in southeast we have 2,000.

Senator REED. Yes; and you have to have a gathering system to bring them to one central point?

Mr. SETH. Yes.

Senator REED. And it is that gathering line that you have in mind in particular, do you not?

Mr. SETH. No, sir; we have a large number of new pools. There has been a large amount of geophysical development in new fields; and what the Governor has in mind is the development of new pools 50 or 100 miles away from our pipe lines. That is our real trouble. There has been geophysical work done over a third of the State. Senator JOHNSON of Colorado. Well, thank you, Judge Seth. Senator JOHNSON of Colorado (chairman of the subcommittee). Mr Wallace, do you care to testify now?

Mr. WALLACE. I am glad to do so, sir.

Senator JOHNSON of Colorado. We want to give you folks who have traveled a long way an opportunity to testify early.

241706-40-6

STATEMENT OF WILLIAM R. WALLACE, SENIOR VICE PRESIDENT, THE UTAH OIL REFINING CO., SALT LAKE CITY, UTAH Senator JOHNSON of Colorado. Mr. Wallace, will you give the reporter your name and will you state whom you represent?

Mr. WALLACE. I am senior vice president of the Utah Oil Refining Co. However, I am a retired businessman, devoting most of my time to State affairs, without compensation.

Senator REED. Where is the Utah Oil Refining Co. located?
Mr. WALLACE. At Salt Lake City.

Senator REED. What is the capacity?

Mr. WALLACE. Eight thousand barrels.

Senator REED. Where do you get your supply of crude oil?

Mr. WALLACE. I am just going to tell you, Senator, in a moment. Senator REED. All right.

Mr. WALLACE. In November 1939, this company completed an 8-inch pipe line from the oil fields of Wyoming to Salt Lake City-a distance of 442 miles. This line was built and put in operation in a period of 90 days.

This refinery must be operated at capacity in order to keep down overhead costs and thus reduce production costs to a minimum.

In the summer of 1939 we were in distress because of the following conditions: First, competition from refineries having lower crude oil costs because of low pipe-line transportation cost was threatening so to reduce our sales volume as to increase our production costs because of not reducible overhead costs.

Second, partial exhaustion of the nearest oil fields necessitated our going to more distant oil fields for our crude-oil supply; third, railway rates on crude oil were so high from the more distant fields that we could earn little if any profit from crude oil obtained therefrom.

Fourth, if competition had taken away our large customers we could not have remained in business. Contracts for large volume sales are long-time contracts.

Fifth, and last, conditions were such that the most prompt and drastic action was necessary.

We persuaded our stockholders to subscribe to and pay for additional stock, and thereby increased our borrowing capacity so that we were able to finance the pipe line.

The route of this pipe line is over the Continental Divide; it traverses the Wyoming plateau at an elevation of more than 7,000 feet. These conditions made it imperative that the line be completed before the falling of the deep winter snows and the coming of the extremely low winter temperatures.

To state the conditions is to show conclusively that had we been forced to hold hearings before authorities of two States and the representatives of a dozen counties-with all the opposition that divergent interests could arouse-it would not have been possible to have built our pipe line in time to save our company from very serious embarrassment and loss.

We recognize that an industry can survive only by efficient service to the public and the main factor in that efficient service is a fair competitive consumers' price. Handicaps by legislation forcing increased costs should not occur.

It is a pleasure to testify that our pipe-line operations are a success; we have retained our business. We have passed over to our customers a large part of the savings in cost of gasoline as brought about thereby. We have carefully examined our records and find that our average selling price of gasoline has been reduced more than 10 percent.

Our obligation to the railways is great. Everything possible should be done to insure their profitable operation in those fields of transportation in which they can efficiently compete. The operations of the Utah Oil Refining Co. now over a larger area, made possible through the construction of our pipe line, insure a large and profitable tonnage to the railways.

Senator REED. May I inquire what is your average selling price of gasoline?

Mr. WALLACE. At this time?

Senator REED. Yes, sir.

Mr. WALLACE. The average selling price is about 7 cents.

Senator REED. That is, at the refinery?

Mr. WALLACE. At the refinery.

Senator REED. In what field do you distribute your gasoline?

Mr. WALLACE. Throughout Utah, southern Idaho, and southwestern Wyoming.

Senator REED. With whom is your principal competition in gasoline? Mr. WALLACE. Well, we have all the major companies-the Texas Co., Shell, Standard of California, Sinclair.

Senator REED. Where are their refineries located?

Mr. WALLACE. The California companies' refineries are in California, as you know. The nearest other refineries are at Parco, in Wyoming. The Continental's refinery is at Denver.

Senator REED. How do they get their gasoline?

Mr. WALLACE. They trade with us largely.

Senator REED. Would you be good enough to explain what you mean by trading?

Mr. WALLACE. We are able to produce gasoline, by reason of the fact that we have a pipe line, at less cost than they could get it by railroad and pay their own costs. In other words, through this arrangement, they are able to obtain gasoline at a lower price than they could get it to their own refineries by railroads.

Senator JOHNSON of Colorado. In that circumstance, why wouldn't this bill be in your interest? In other words, you now have that field? Mr. WALLACE. We have no field. We buy our crude oil.

Senator JOHNSON of Colorado. Yes; but you now have your own field.

Mr. WALLACE. I assumed that you meant ownership.

Senator JOHNSON of Colorado. No; I mean your distribution field. Mr. WALLACE. Yes.

Senator JOHNSON of Colorado. This bill will be directly in your interest; because if any other company desired to come into that field, that company would have to get a certificate of convenience and necessity before it could come in, and you would have an opportunity to oppose that certificate.

Mr. WALLACE. Yes. As a matter of fact, our pipe line is a public utility; and they are permitted to come into our field now, if they want to do so. As a matter of fact, we transport through our pipe line now the crude oil of a competitive refinery in our own district.

Senator JOHNSON of Colorado. Then how will this bill hurt you?
Mr. WALLACE. How will this bill hurt us?

Senator JOHNSON of Colorado. Yes; how will it hurt you?
Mr. WALLACE. How will it hurt us?

Senator JOHNSON of Colorado. Yes.

Mr. WALLACE. The only way that it could hurt us is to prevent us in going into additional fields when the present field is exhausted. We hope to continue in the business for a good many years; and if our present source of supply is exhausted, we shall have to expand farther.

Senator REED. Are there any laws in Utah regulating the building of pipe lines?

Mr. WALLACE. Pipe lines? No, sir.

Senator REED. Do you have the right of eminent domain?

Mr. WALLACE. Yes, sir.

Senator REED. How did you get it?

Mr. WALLACE. In the usual way.

Senator REED. Do you mean to say that under the law of Utah you have the right of eminent domain?

Mr. WALLACE. So far as that is concerned, I would have to ask my attorney. Not being an attorney, I cannot explain that. Senator REED. Is your attorney here?

Mr. WALLACE. No; we have no attorney here.

Senator REED. Perhaps Mr. Dow could tell us.

Mr. Dow. As to Utah, I cannot answer that question.

Senator REED. In order to build a trunk pipe line you almost have to have the right of eminent domain, do you not?

Mr. WALLACE. Yes, indeed, you have. We have to get permission. We have to obtain our permission from the United States.

Senator REED. And to the extent that you have to get permissionto obtain this necessary thing of eminent domain, whereby you could condemn private land or cross public property-to that extent you are now subject to some kind of law or regulation, are you not?

Mr. WALLACE. I presume that is true.

Senator REED. Very well; I think that is all.

Mr. WALLACE. Of course, the position I take in the matter is that anything that forces the increased cost of gasoline or any other commodity is not in the public interest; and from our point of view, it is ridiculous to assume that a reduction of cost is not reflected in the cost to the consumer. It certainly has been reflected in the cost to the consumer, in our case.

Senator REED. That may be true in your case; but there has been ample testimony that it is not true in many cases.

Mr. WALLACE. However, although that might be true for a brief time, somewhere, in no instance in my 65 years of experience have I found a reduction of cost that did not result in affecting the cost to the consumer. And that is quite a long experience, Senator.

Senator JOHNSON of Colorado (chairman of the subcommittee). Thank you very much.

Mr. Dow. Mr. Chairman, I think that the others would be glad if I were to state the outlines of the case.

Senator JOHNSON of Colorado (chairman of the subcommittee). Very well; go ahead, Mr. Dow.

STATEMENT OF FAYETTE B. DOW, ATTORNEY AT LAW, WASHINGTON, D. C.; GENERAL COUNSEL, PENNSYLVANIA GRADE CRUDE OIL ASSOCIATION; WASHINGTON REPRESENTATIVE, WESTERN PETROLEUM REFINERS' ASSOCIATION; AND SPEAKING FOR INTERSTATE PIPE LINES REPORTING TO THE INTERSTATE COMMERCE COMMISSION

Mr. Dow. Mr. Chairman and gentlemen of the committee, my name is Fayette B. Dow. I live in Washington, D. C., and am practicing law here. I am addressing your committee in behalf of three groups of interests. I am speaking for the interstate pipe lines which report to the Interstate Commerce Commission. I am and have been for a considerable number of years general counsel of the Pennsylvania Grade Crude Oil Association, which has in its membership the greater part of the producers and refiners of that grade of crude oil which is produced in the Appalachian region, western New York, western Pennsylvania, West Virginia, and southeastern Ohio. I am also Washington representative of the Western Petroleum Refiners' Association, which has its principal office at Tulsa, Okla., and I have been their representative here for more than 20 years. I received a communication this morning from Mr. John C. Day, who is the executive secretary of that Association, in which he asked me to express the opposition of the association to this bill.

Senator REED. Who are the members of that group?

Mr. Dow. Excuse me; I should have stated that. The Western Petroleum Refiners' Association has in its membership the greater part of the independent refiners located in Kansas, Oklahoma, and north Texas-what we know as the Midcontinent field-in addition to a number of the larger oil companies. It is the second oldest trade association in the oil industry and has represented that group of refiners for a considerable period of years.

Senator REED. Would it disturb you, Mr. Dow, if I ask you a question?

Mr. Dow. Not at all, sir.

Senator REED. Where do you draw the line or make the distinction between the so-called independent oil men and whoever might not be independent oil men?

Mr. Dow. Well, drawing the line at any one time, at any one point of time, Senator, is a fallacy.

Senator REED. I thought so.

Mr. Dow. Some of the independent refiners of the days that you speak of, when you were counsel in the big rate case involving railroad rates from group 3 to the Indiana territory, are today classed among the larger companies, because in the competitive struggle they have grown larger.

Senator REED. That is, Skelly and Phillips?

Mr. Dow. That is right.

Senator REED. And companies of that kind used to be considered independent?

Mr. Dow. They were then the smaller companies in the Midcontinent field, whose plants were located, in the main, where the crude oil was produced; and in the competitive battle which goes on in the oil industry, those companies have grown. Today some of them are classed among the larger companies.