Boost for Gas

In a 24,000-word decision last week, the Federal Power Commission made its most important natural-gas ruling in ten years. It changed the method for calculating the value of any gas a pipeline company itself produces. In a case brought by Panhandle Eastern Pipe Line Co., biggest in the U.S., FPC ruled that rates will no longer be based on how much money the pipeline company spent trying to find gas. Instead, rates will now be based on the price natural gas is bringing on the market.

What FPC's 4-1 decision means is that permanent gas rates will go up May 1 for Panhandle's dealers in Michigan, Illinois, Ohio, Missouri, Indiana and Kansas, and that the dealers may pass the cost on to the consumers.

For Panhandle (which produces about 25% of the gas it pipes), the increase will be $12.7 million a year; for the average Detroiter, the increase may be 25-c- a month. (Since Panhandle asked for an increase of $21.4 million, and has for 26 months been collecting temporary rates on that basis, dealers and some consumers will get refunds.)

Reasonable Profit. The gas argument goes back to 1938, when Congress passed the Natural Gas Act to bring interstate pipelines under Government control. At that time, FPC, following the practice of setting utility rates to return a reasonable profit on the company's investment, valued gas produced by the pipeline companies according to the cost of drilling wells and taking out the gas. As a result, the price of gas produced by Panhandle was valued at only 85-c- a thousand cubic feet, about one-tenth of the market price.

Thus penalized for producing their own gas, the pipeline companies found it unprofitable to develop their own wells, instead bought from independent producers, free of FPC regulation.

The injustice of the Federal Power Commission's rate-making method was spotted by the U.S. Supreme Court ten years ago in the Hope Natural Gas Co.

case (TIME, Jan. 17, 1944), when the question of the valuation of pipeline-produced gas was first raised. The Court held that the commission was not legally forbidden to use the cost-of-drilling system to set rates, but questioned the wisdom of the practice.

Unfinished Debate. But even with FPC's new decision, the gas debate is not over. A fortnight ago Michigan's Republican Senator Homer Ferguson and Detroit's Republican Congressman Charles G. Oakman, whose constituents will be hit by the price increase, introduced bills to outlaw the new field-rate system and keep the old base rate. To help them, Senate Interstate & Foreign Commerce Committee Chairman John W. Bricker, whose Ohio constituents are also affected, demanded an FPC opinion on the Ferguson bill. FPC replied that it would give no view on legislation dealing with an issue before the commission.

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