Transcript of Record — FPC v. Natural Gas Pipeline Co.

Supreme Court brief1942

Ask Donna

What actually matters in this document.

Text

VOLUME Il.

GZweij

Le f

TRANSCRIPT OF RECORD ae

SUPREME COURT OF THE UNITED ices

OcrowER TERM, 1941 ae

No. 265

FEDERAL POWER COMMISSION AND ILLINOIS ©

: COMMERCE COMMISSION, PETITIONERS

vs. soy .

NATURAL GAS PIPELINE COMPANY OF AMERICA

. AND TEXOMA NATURAL GAS GOMPANY

. No. 268 |

NATURAL GAS PIPELINE COMPANY OF AMERICA

AND TEXOMA NATURAL GAS COMPANY, PETI- —

‘“TIONERS .

vs. -

FEDERAL POWER COMMISSION AND ILLINOIS

COMMERCE COMMISSION

ON Ww RITS OF CERTIORARI TO THE UNITED STATES CIRCU IT

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

— eh — “~r

‘Pe titions for certiorari. filed July 12, 1941, July ie 1941

Ce rtiorari sane ai October 13, 1941

rey OO ee ati t

Sina Me

raed

Ber the Seventh Circuit

a 7454

NATURAL GAS PIPELINE COMPANY OF AMERICA |

_axp TEXOMA NATURAL GAS COMPANY, . _

"Petitioners,

vs. e od : ; » j

_ FEDERAL POWER COMMISSION snp ILLINOIS ©

COMMERCE COMMISSION, / :

* rt Respéndents.

> Q ad ;

_ Petition fie ‘Review of lie Order of the Federal

et / : Power Commission.

y 44 V3

INDEX.

Petition of the Illinois Commerce Commission, filed

with the Federal Power Commission, September 23, :

eee ee ee eeaten Seer F PSR pore 5 Y

Sas at URS SPOT ERO ENT AT ET PT Pe

oh Ri heey let MRE TAI a lacie ea daa

PR EER RRR S GI :

ued . 6s

, Order of Federal Power Commission instituting In-

- vestigation, entered October 14, 1938.............. 6

_ Answer of Natural Gas Pipeline Company of America

—_— a and Fpxoma Natural Gas Company to Petition, filed

ef DOWUINI UI BON oo 5 bo. habe cc cane teenage eeres 9

_ Order fixing date of hearing, entered April 14, 19M, « 13

2 7 : er | a

4 PROCEEDINGS AT hiaiive :

_ Statement by Examiner...... De iuetiews denies Bit = 15

Statement by Mr. ed ek AG athe ndeye oes pieces 16

_- ga Colloguy~...... Seaunaaess dcuMens iveebes beets 25, 33, 64

+ Statement by Mr. Booth......... eis bv iseseucketas 28

a ‘Statement by Mr. May........... Pood fers ee Stee oa ae

: ABSTRACT OF. TESTIMONY.”

Pereitices For FEDERAL ones Commission.

Testimony of: | : . ae

4 - Brown, et... erorer ©

49; .. Knapp, Charles W., Jr...:.......... . 2004, 2103, 2588

- Smith, Charles ie eeoeue ier «++ 2041, 2222, 2632 .

_ /.O teks ae ae : V4 }: a

Wiryesses For, Intinois ComMMERCE Commission...

- Testimony of: eee oe a re

2 NN MUN SS idians os parsrcesd cts 2075, 2382.

ea | Ostrander, E. Di.......... Peeper eee '.1977, 2277 -

/ Woodford, John Meigs... aap pevedeee ees. 57, 293 «

. TREMOR a eee Be

_ e

Witnesses ror DEFENDANTS.

Telineny of:

Biddison, P. “McDonald. eas sive deqspene sMOME, 1806

/ Brainard, W. F.....0:... saheey eee EGY Y cee

MOP, PU. Chis oes sc bce eeeescuapen 491, 1311, 1636

ia Bulla, W. Wiki vtd chaes-ed nae ue pebeeteyasenwenes 987

______._Bussard; BM 715, 854, 1056

«. Opppeell, 6. ©... 2.55.20... WO, 1398, 2554, 2637

, Cee, Bene A. ooo fii see es a 1446, 1909, 2616, 2669

Cottingham, V. E..2 Pcs vc ilek pe Sea een . 187

- Davidson G. Mu. .3....... _.. +. ..1013, 1040, 1068, 1142

2 es WE TD os cus is Ss a ben ese Pibaxccal 815

7 Delafield, Robert’ H......... y... 1415, 1753, 2558, 2657

: Diiewen, f> Gun. ccs wee cechov Ol, 876, 1879.

i eS eee eS ‘ 1512, 1636, 1788, 1965, 2527

Eastman, H. oR ee a? OEIC SRK as erate: 1210

oe oe eer ee 1324, 1451, 1638, 1690, 1927

wee SLM cae pans oder ont 1110

Galloup, -Chares I......;....°..5-..0553.- aad kis 453 ©

ty Gill,. he io es fst 1024.

oe a, MON is koa h ha deny cone -

PEM Ce Cer rye 1471, 1678, 1702, 1867, 2469, 2600, 2671 |

ea ues Hamiltsn, fe RR ey crak saph's pate ee

Hammerschmidt, i PRE : ; Pe rare 465

_ Hughes, C..Don...... ou rib os eR ABUL ee

* Kesinger, E. V....... ep Ne Sie ih ‘. 4 647, 2596

" Mile, BG ie esi een cs Sidhe uc EO 1988

Palyi,' Melchoir ...... Liteds POE TX | Ser ee fee | Be

ees | ea Biifeishoviziaaveeoiemaee

an. Oe

Powers; B./Ty. 55.04: ecw ite ows if arwas Sela. ed

Thaw, Sea ol os” tr 2001) Wot, vi, pp. 9033 to aa17: ;

> Testimony of: .

ee Oe ES Re eating og aan peere arr 1119

. ‘Solow, E. gk eel ian Uae pemecae ae .1167, 1859.

& Stoddart, Frank W..:.......... Sua shetex ares: 1259 |

_ Strong, R. G...... Ce eek es mr erres oe 6 O08.

Taubman, Herman P.,:...:.......-..- awe 1148, 1190 .

- ‘Thompson, J. D., i Sa ee 5 dkamewtine te 275

— ie ee NESTERTEEELET TTT

i) WI So hig ch occ ss Sie Nin ape eases? ceveeka 5

% Zwiener, K. V.. {00.0000 0et eee ee serene 1367

a es ae

3 EXHIBITS: |

ne ; si

8. Production and B.T.U. by Fields Texoma Com-

pany for year ending June 20, 1938 (F. P. C.)..2673

- 4 Gas sold or delivered, Texoma Company for year —

ending June 30, 1938 (FP. P. C.)...2.-.--2+-++-- 2674

<i 5 Texoma Company. Consolidated - Operating An-

oe alysis, ete. (P,P. C.)oeseecevessee elec e ts OTS

6 Texoma Company earnings analysis, 1934 to 1938,

Be Shc PUR Oe pemppepeaan ee anor

«cae Natural Gas Company gas sold or delivered by

‘ companies for year ending June 30,°1938 (F.

gs Gee Bien RSet OT Ta |

8 Natural Gas Company report of purchased gas

ya 8 and cost, 1934 to 1938, inc. (F. P. €.).<........+ 2679

‘9 Natural Gas Company consolidated operating

> analysis of gas purchases and ah 1934 to, 1938,

| ae occ) Lee ee Seeebaeee |

10 Natural Gas/‘Company Sales and Revenue, 1934:

to 1938, ine. {FE err TT PEE TER Pees 7, eee

11. Natura] Gas Company Sales Agreements on file

with Federal Power Commission (F.P.C.)...... 2685

ee ae Dp. 1311 to 1978;

ora Wal. ve ty volv DB, 3083 to 3417;

. 7)

say J } eh iv

pCR ras | Exhibits.

14 Map showing delivery: foints and aperal Gas

. 96

Transmission Lines (F. P. C:)........... rere /2687 -

Natural Gas Company and’ Texoma Compariy:.

Barnings Statements, Calendar Years to Decem- am

We SA FINON 1-0: Oi ic ecccteses: 2689 —

Natural Gas Reserves -—- Texas Panhandle —

(Defts.)- Le ee LE LERLETE ET i

Natdfal Gas Reserves -—— Texas . ’ Panhandle -

WN eee

atural Gas Reserves — Texas Panhandle ,

CID saves puAREE ERAT Acahdices dos siauer see

’ Explanation of Reserve Cdidiatiaies (Defts.) :. . 2760

Details of Reserve Estimate Marginal Gas Acre-- | ae

age—Texas Panhandle Field (Defts.).......... 2767

-Errata—Exhibit No. 15 (1. C. C.)...... ee yee 2771

Natural Gas Company and ‘Texoma Compdny

Balance Sheets, December 31, 1934 to ,1938, ine. :

SG 68 2 4 SGEr aaa PAE TY OG ERY FLT TE gm ee 2771 |

Picture showing assembly of two 18-inch gas ;

lines upon a suspension bridge across Big Blue

River in Moore County, Texas (Defts.)... yee F

_Twe- photographs: Canadian River crossing in

- Hutchinson County, Texas, and typical manifold ”

# for submerged river crossing ae 2785

‘Map showing distances of Panhandle, Michiaan

and Illinois Fields from/ Chicago eet) 6c. 3 2787

Photographs of. Scenes at Pipeline Break’ near ~~ .

Sheffield, TWinois (Defts. Pissethecensth Gunes 2789

Statement of Open Flows and Rock, Pressures on

"Date Wells were abandoned. rado-& Au.

gusta Fields—Butler County, Kansas (Defts.) . . 2801.

ok Vit, pp, 3419 to 3000;

pp. 1 to 646; €47 to 1310; Vol. 76;

Wol. EV, Pp. PP. O17 to aera. ° mie? Th Soon seem v ot. Vi, pp. 9093 to 3417:

pp. to aos. .

‘ e

. Mile

133

134

136

137,

, Exhibits. |

Picture of Compressor Station No. 1 (Deft. FP 2803

. Regulatory Expense ‘(Defts.)....--.+-0++++++5 2805 e

- General Expense, Taxes, New Business Expense

(Deftd.) .....cccceevnccohogececcctenseosseone 2806

Summary of Additional Capital eects

,and Operation and Maintenance (Defts.).-.....2819

~ Salvage Value as ¢ of December 31, 1954 (Defts.). 2841

Non Salvageable Property not listed in Ex-

hibit 122 _ eas.

- Pieture Showing Interior of Fritch’ Station .and

12 Engines (Defts.)

Errata Sheets for Exhibit 122 (Defts.)-. -

- Volumes I and I of Valuation (Portions of) .

(Defts. Shoat

. (Defts. )

~ Cost of Attaching Business tk Sern "2943

Market Valve of Leases (Summary Sheet)

(Defts. ) ;

° Quotations and Yields of U. S. Treasury Notes

and Bonds at Close of Market og August 15, 1939

(Defts. ) 8 66k COR ew ERE OEE CUE CRS *

Average Yield obtainable from Investments in.

U. S. Notes and Bonds (Defts.)............+-5 2958

Explanation of Method ‘Used in Determining

serves as of 8/1/31, on Acreage owned by, Tex-

a LTR SE OURS. ai Souk hed c bake aereden 2955

Earnings Statements for Calendar Years.1932 to

-'1988, inclusive (Defts.) .....§....:. 6.0 sceeep esos 2958 —

Balance Sheets and Statements of Plant and °

Equipment December 31, 1931 to December 31,

1938, inclusive (Defts. } a fajeievastin f van . 2989

Vol. 4 to

Vol. tv.” gg

aL Viz, pp. 3419. to 38

Sia.

647 to 3 1910; Vol. ‘

oer ior? to ye, ; TH BP. 1312 44 1976;

;

_ 154 Article by Paul Ryan, ‘‘The Natural Gas Indus-

ae a ae ae ve.

No. = ee "xb dits. ae

138 «Statement of: Operating Reyenue and Expenses, )

ete. ‘(Detts.) sun eiektbke 2a klbeanyeveroees . 8003

140 Earnings Statement covering entire life of Proj- .

OE CEs bias ko wv A cs cobs Sateen 3021

‘141. Earnings Statement silt on Book Cost as of

January 1, 1939 (Defts.)..... Se agai eae teh 3025

___142_Earnings Statement based on Reproduction Cost

_ snew less existing depr A ee of June 1, 1939

| OOTRRD: . 5 sccwd’ ce fapole pene caeysondesentes , 8029

145 Reconciliation of Statement Included i in Exhibits.

sae aid 15 (Dette.). . see 5 nk on vive decees + 80385

Texoma Natural Gas Company Summary of Mar- _

ket Value of Leases (Defts.).-....... oueean es 3069

Natural Gas. Co. and ‘Pexonza Co. Data eoneern-.

ing Rate of Return, Obs TER iii isn ph 3071

Natural Gas Co. and Texoma Ca.Data coacern-

ing ‘Rate of Return—Year 1938 (Defts.). ¢. : 38079

(149 Estimated Earnings. oi: Account of Increased

Capacity. and_ Delitery of Natural Gax when

operating at Higher Pipe Stresses (Defts.). . + »-3105

150 Natural Gas Co. and-Texoma Co. Data concern- ~_

ang: Rate of Return (Defts.)..... poeta nY rer .. 13106"

151 Photostat of Investment Treatises (Defts.). . . «alee

152° Natural: Gas Co. and Texoma Company Date 3

concerning Rate of Return (Defts.)....+.....3141

try an Expanding Service” (F. P.C.).:...... » 3305.

155 Facing Sheet and Pages 4 and 3 from Ist amend- i

ment to Registration Statement of Public Service ~

Co. of. Colorado, file? with S. E. C. 12/10/38 °

(BLP. Bc. aN fas eae Xs + +:++ 1880, 3314

oy Vol. I, pp. 1. to 646; Vol. It, pp. 647 en 1310; SES 1311 | to 1975;

vor. =V. pp. P1977 to 2672: Vol. ve 30315 oa. asad ye 3417;

Pegs Ie ter note Saree 5 cs

cpt rete © 2 NG ay Silene hg» bee oy. oe Lng fy bess aie 322 :

ea Eh

- ee - ~

Say ams

“No. £3 Exhibits. = ral -s

156 | Certified copy of Gallagher’ s Exhibits. 2 and 2

. éovering estimate of Investment arid Anticipated

Average Annual Net Earnings relative Docket: .

21170 before Illinois Co ree Commission (L.

¢. c.)" ss gtaseag waren’ Ord cencebsenatatepesces 3320

_ Exhibit 2—Estimate. tahoe, in Facili-_. 3

ties for Production of Natural Gas in .

Wee OE. i 55x ce kcinscuaests ee

Exhibit 2A—- Revised page 1 of Exhibit 2.. 3333 |

157 Certif: ed copy of Gallagher’ s testimony. béfore

Illinois Commerce Commission in connection with -

Exhibit 2 of Commerce Commission and covering

Pages 12 to 99, ine. of record in case No. 21170

ee ee ot ote ie ae...

158 ‘Facing Sheet and Page 62 tiem Ist. amendment — a

to Registration Statement of Public Service Co. :

of Colorado filed with $s. E. C. 12/19;

159 Facing Sheet and Pages 5 and 6 oe m Registra-

: ae Statement of Public Service Company of

Colorado filed with S. E. C. 8/30/39 (F. P. C.).. .3379

10 Fain Sheet and Page 57. of Registration State-

ment of. Public Service Company: of Colorado

filed with S. E. C. 8/30/39 (F. P. U.).......- + /-3385 -

161 Release No. 1667 of S. E. C, under Holding Com-

pany Act containing findings and opinion re

Northern Natural Gas Co. (F. P. C.)......1884, 3390

162 ‘Letter of Ralph £. Davis, Ine. to Northern Natu-* / é

~~ ral Gas Co. dated 6/1/39 re Natural Gas Reserves

(Be P. O).-/eveeveesteeetedeeeedeeeets 1885, 3401

Vol. Z, pp. 1 to 646; Vol. Pp. 647 to, 1810; Vol. ey

| WoL. Fv. 1977 to 2672; Vol. ; 2673 to 3031; Vol, ‘ t /

ol. Viz, pp. 3419 to 3902; Vol. Vili, pp. FH a |

vill

covering « Ralph E Davis’ Ie: deta Property

_ and Gas Reserves (IC. ©.)........2..0+.045: ', 3408 °

- 167. Exhibit 49 in case of Chgo. District Pipeline Co.

_- -v. Lindheimer, et al., comparing present market

Es price of » ‘issuance of Natural Gas, Bonds. (F.

P.C.) : oN 06 ele wea See e em ewe eee tee ee eee neces 3413

; ve he s- Public Utility Volume 1939—Pages 164-

; inclusive (F. P. 2 ee SS De > epee 3419

169 Pages add tora6l, inclusive of Moody’s Manual of .

> ‘Investments 1939 (F. Pits oe cose rer 3428

. 170 Page 250 ‘ftom ‘American Gas Association

-. Monthly, Augist, 1939, ‘‘ Expanding Markets for

- Gas Industry Make Investments Sound,”’ by P.S..

Young OF Be sigs Fivcevess een Derrek vig h08

- Pages 19- es 37 from ‘*Gas’ —July, 1939, article

by Perey S. Young entitled ‘‘The Investment | ”,

, Attributes of Gas Utility Seaurities”’ (FoF. th). 5460. 7

1 2 "Pages 951-255 of American. Gas Association

‘Monthly issue of July-August, 1939, article, ‘A

- Banker Analyzes Natural Gas. Industry. Invest-

| ment Values,’* by Frank R. Denton (F..P..C.) ..3468

173 Pages 37, 38, 43,of ‘‘Gas,’* May, 4939, issue, arti- |

_° © ele, ‘A Stock Broker Analyzes the Natural Gas

Tndustry,’” ‘by John Nickerson IT. (F..P.C. ).- 3471

174 Pages 56-61, inel. from 1939 Autumn . issue of °

‘The Index’’ article,” “The Gas Industry’’

(F. P. C.) 6: “ee eeeee he Sea ot Rill teat ‘ epee taeeee tees BATT

Vol. 7, 1 to 646; IX, pp. 647 to 1310: Vol. 1311. to 1976;

Vol. Fv. oe? drt eo sere: ¥ Vol. Vv 2673 to 3031; Vol. VE, up. 5053 to anit,

Vol. VIz, pp. 3419 to 3902; Vol. Pp. 3903 to 4023.

Nos: domi? eve ae

| 1% Pages 253- 255, ‘incl. from issue of July-August,

1939, of American Gas Association Monthly arti-

ele, ‘‘The Fifth Big Job,” by Charles R. Bel- :

lamy (F. P. C.)..~.8.-+6: aeene cs thdokh eee ++ 3486

178 Pages 54.33 from January, 1939, issue of “Gas”

article, “““The Natural Gas ‘Industry. Provides.

Opportunities for Investment, "by J ames S. Car-

TO (B.P.. 6.) yc... 00-- ree ase UE ey ete Sg

Statistical Bulletin No. 37 of American. Gas

sociation dated October, 1939, entitled ‘‘Annual -

Statistics of the Natural Gas Industry in 1938”

Ba ME. PB. isiven EE RISA Se TEE 3496

' 180 ‘Trends of: Interest Rates and Bond Yields (.°

no eee + 8023

4 ~- 181 Summaries of Recent Financing by ‘Natural Gas

= - . Syste (I. C. C.).... Sores ett enee teen nee *, 8535

182 Compu tions in Regard. to the Sinking Fund

Method of Amortization and Rate of Return on

Net Investment (LC. _< A TA eae Naam PEA «00S

183 » Money Market Factors (I. C. C.)..2........... +8559

184 Exhibit 20, entitled ‘‘Details of Itemis of Expense

in Operation of a Single Pipe Line from Texas to ©

Joliet, “Ilincis and:-.certain misc. data,’”? in Peo-

ples Case’ before III: Comm. Com. No. 21170.

eS OE: 8 PR eRe ae i ae See eee O0OU

185 Rate of Return Study—Part I (F. P.C.)...2¢. +2576 :

186. Rate of Return Study—Part II (B®. P. G.)....... 3724

187 -Cemparative Statement of Combined Profit and .

Loss for 8 months ended August 31, 1939 and

} 1938 (1. C. C.).. ESBS SEPT ind hy 5 gray Sree MP paged ere 3784

wt I, pp. 1 to, 648: Volo II, pp. @a? to 1310; Vol. Pp. 1811 to 1978;

2673 to 3031; Vol. 3033 to 3417;

oe, Vea Ee: Se Se Se We, VER es SE Se | oo

x =a psy,“

ee ‘ . Exhibite. Cia vere

188 Proferme Comparative Balance Sheets Annually :

“at Dec. 31 from, 1939 to 1954 and after liquida- | ~*

a kt A 3? Seer ore ero tr eee 3785

191 Revision of Chart 8 and ecanitias Schedule No.’ .

12 in Exhibit 185 Seer a eel sss pss vixwesaawe 3841

192 - Revision of Chart 10 and eappor tng Schedule:

No. 14 in Exhibit 185-(F..P.C.)...2.2........ 2% . 3849

193 Revision of Chart 11 and Sapporting Schedule

No. 15 in Exhibit 185°(F. P. C.)...:.... ious wees 3855

195 Revision of Chart No. 12 of Exhibit {es (Defts.) .3859 -

"196 Revision of Chart No. 14 of Exhibit 185 (Defts.) .3863_

' 197 Study of Yields at Market Prices of Electric Op- _

erating Utility Preferred Stock and number ,of

.times dividend and prior requirements are

“4 earned, Based on Market. Prices for week ended

Nov. 17, 1939—Income for latest 12 months

UE RAs ca Curiepeee cise eh cue ues Ate eae 3867

198 Karnings—Price Ratios of Electric Operating

_Utility Common Stocks-and Per Cent of Gross

Income available for common stocks, market ~

prices for week ended Nov. 17, 1939, annual in-

come from latest quarterly reports (F. P. C.)....3869

201 Photostat of Voucher 55810 (6/21/38) $5105.15 to

Ralpir E. Davis, Inc. (F. P.C.).:........... oes

202 Data 6n Sales, Revenue and Custimérs—Peoples

Gas Lt. and Coke Co. (Defts.).............. .. 38877

203 Residential Electric Service in United States

GEER urcac ou tc rat itcerweiees pittirs area 3885

204 Commonwealth Edison (Co. (Customers, Con-

? sumption, Revenue, and Rate) ( Defts.)....... . 3885

| PRE R

Vee ©) ' SOS? oo

- »* xi

2 No. ea ee Exhibits. ye RNR

= 205 All Mickgies Bonds of Domestic Electric ‘ind

: Gas Utility Companies traded on New York Curb

~ 206 Alls Preferred Stocks of Domestic Electric and

‘ 7 Gas Operating Utilities paying full dividends

a! Listed N.. Y. Curb (Bent. 15, 1939, Prices)

2 Cee eG i 3888

ss 207 Gross Operating Revenue and Total Net Avail-. |

4 .. able for Fixed Charges After. Depreciation of the %

os Gas Departments of the Three Utilities Distribut.

3 _ . ing Gas in the Chicago Area (Defts. Fixjcess tice

208 - Gas, Electric and Telephone Utility Companies

| serving City of Chicago CUMING Sv ea xe os 3893

209° Bonds, Debentures’ and Notes of Natural Gas

= 210 Revision of Rage One in Exhibit No. 141 -

211 ‘ Revision of -Page. One in Exhibit No. 142

Motion for Interim ered ies rates, filed Novem-

[MRT Uae Ge eu cbeey oct et ee ee 3903

aa Defendants’ Pleas to Jurisdiction and Reply to motion ~

| Conditional Answer to. motion for paler Order, etc.,

~ Motion for stay of order of July 23, 1940, filed August

7% OM, © 28, Val Be. to ;

2673 to 3031; Vol. 7;

ay roy VE pp. 9053 to 3417;

September. 36, JOOP CONF 5 5G bs os kee tin 3886 ° .

Companies holdings by public (Defts.)...... Jes . 3895. .

LY sade eee eee ee es 3901

(Defts.). ...... ee side A cputnent

‘for Interim Order filed December 18, 1939.......... 3914"

| BReekung deck, aad ne 3920

~ Memorandum Opinion, filed July 23, 1800... . 8925 -

A Order reducing rates, entered July 23, 1940. aia aes 70d? *

AOU ccicerscnpsinorscnsenasisss Serre ye Sas 3947

° a

Order granting in part and denying in part motion for

“stay of order of -July~-23; -1940,-entered “August 8,

sR UREA TS aba 60 C00 ees Cates Eee meda es cee 3960

Application for ‘Rehearing, filed August 16, 1940. ee | ae

Order denying Rehearing, entered wei Sens 6, 1940. . 3993

Certificate to Meme 5 iota. PERI EE om te 3994" |

PAPERS FILED IX U.S. COURT OF APPEALS.

Petition for. Review, filed September $4; TO os 3997

Miata ai PW 6 i eS es is . . 4009

. Stipulation as to, Printing... 2.0.5.3... 60cscicescden 4020

Supplemental rar area as to Printing oie neaeaaes 4022

Gav Aen a

Orde r staying order of ¢ ‘ommission—- wanna nn on nian i ceeen en eenn nnn Bons

Opinion, Evans, Sea ae 2S se A nonin we amewnnncirntento pond

Judgment .~ .---------- Sie RO ESE wae-------22---- 2 ---2-- —pamumrese

Clerk's certifiedte_...---..----+-4---------- sonnwwnrarnnrennonneor= on

Orders aHowing certiorari Se AES PSR: ant ----- ia------------ — 4042

s | ca

s xe

Vol. I, pp. 1 to 646; Vol. Pp. 647 to 1310; Vol. Pp. 1311 to 1976;

Vol. IV,'py 1977 to ae7a; Wor'y 2673 to 2031 vol. vi, 3033 to 3417;

Vol. Vii, pp. 3419 to 3902/ Vol. Wii, pp. 3903 te 40a, ”

a Testimowof E. V. Kesinger. . 647

471 E. V. KESINGER, a witness for defendants, testified

—_—_—_—_—————

_. Direct Examination by Mr. Morgan.

(July 24; 1939.) -° 3 ce

My name is E. V. Kesinger. I live in Highland Park,

Illinois. I am general superintendent of Natural Gas Pipe-

line Company of America and Texoma Natural Gas Com-

any. | Pe a

‘ T graduates from Kansas State College witl? a B.S. de- _

- gret in electrical engineering in 1917.0 pai

In June_of 1917-I-was employed by the Empire -Com-

panies of Bartlesville, Oklahoma. My first job was in a.

repair crew of a gas compressor. station at Big Heart,

Oklahoma. With the exception of the time that I was in.

the army, I remained with the Empire Companies until I

- joined the Continental Construction Corporation, the prede-

_ eessor Of the two companies with which I am now employed,

in June of 1930. = -* : . si

While in the army, I was in the.infantry for a few

months, following which I went into the artillery officers’

training camp and was commissioned as second lieutenant.

My army service extended from October, 1917, until May

of 1919. Following ‘my discharge from the army I returned

to the general engineering department of the Empire Com-

‘panies at Bartlesville, Oklahoma, in July of 1919.

The Empire Companies of Bartlesville, Oklahoma, op-

erated a-general engineering department that performed

and designed engineering and constrnction.work for a num--

ber of affiliated Empire Companies. During the latter half

. of 1919 and the year 1920, I was in this general engineer-.

ing department, during which time I was doing general

clerical and engineering work. : : ar

In the year 1921 I was made resident engineer in charge

of construction and oil refinery thatthe ‘Empire had at

Ponca City, Oklahoma. While at Ponéa City I also super-

vised the construction of-an oil pump station at Arkansas.

City, Kansas. - \ ‘ :

In the beginning of 1922 I returned to the general éngi-. °

neering office of the Empire’ Companies at Bartlesville.

About the middle of 1922 I was a member ‘of a part)Jof .

_ three engineers delegated to investigate and make a valua- —

tion of some refinery and other properties owned by the

‘ New England Oil & Refining Company, Fall River, Massa- -

chusetts. When this.work was completed I returned to the

general engineering department of the Empire Companies

: os) i

ite

ws Desa

648 #©° Witness for fendants. te

at Bartlesville. I spent-the-rem ining portion of 1922 and, -

bes ag 1923 in the Bartlesville office, concerning myself

with the design of various facilities pertaining to refineries, ~

+o stations, gas compressor stations, and oil pine

ines. ; = CF3

472. Inthe year 1924 I was resident engineer in charge of

construction work at refinery that the Cities Serv-

ice Company had purchased at Fall River, Mass. This work

consisted of rearranging 4 number of sore peng al E

and’ the installation of two cracking units.— t was the

same property that I- n assigned to examine’ and‘

value a couple of yeafs before. Following our valuation

the negotiations to purchase consumed considerable time,

, and when Cities Service finally bought the property I was

delegated as the eygineer in charge to rearrange the facil-

- -ities and install the cracking units and start the plant: up.

_ That work requifed the year 1924, and upon its completion .

I returned io the general engineering + arto tar of the

Empire Companies at Bartlesville. 7

~ During the years 1925, 1926 and 1927, I remained in this

general engingering department, during. which time I was

occupied with the development of design and the super-

' Vision of construction of various facilities and properties.

for the Empire Companies. This work ‘involved oil refin-

eries, gas compressor stations, gas pipe lines, oil pipe lines,

and oil pump stations. ' ape tale

The main project on gas properties that was carried out |

“in 1927 was the construction of 250 miles of 20 inch gas pipe

line from°Pampa, Texas, to Wichita, Kansas, and as 1 re- ‘

call, there were about three compressor stations on the line,

There was also involved the construction of a edmplete field « /

gathering system to go with the project. That gathering 7%,

syste s down in the Texas Panhandle, and it is now the | -

gathering system operated ‘by the Cities Service Gas‘Com- ~~

y- This 20 inch line from Pampa, Texas, to Wichita, .

ansas, was later extended to Ottawa, Kansas, by the\¢on-.: _

struction of 122 miles of 20 inch pipeline. I\supervised the

development of the design and supervised the construction

‘*g. of the extension, the same as I had the original line from

~ Wichita to Pampa, Texas. ae ,

During the years 1928 and the early part of 1929, a large.

rt of my time was used in, investigations in regard to the

‘- focation of a refinery and the development of the designs

to be used and employed during the construction of thi |

refinery. This plant is now in operation by the Cities Serv-

ice Oil Compauy at East-Chicago, Indiana.” a

During the period that I was concerned with gas and oil

SRM Tae

}

ae “

en ee BARES SEP oh Se

paket eV aS SEE EES A pice ac

’ .

——=

Testimony of E. V. Kesinge:. 649

| ee running from 1923 to 1929, 1. supervised, the

‘design or supervised the construction of over 1800 niiles of

gil and gas pipelines. eae hare

"+; About the middle of 1929 I was relieved of my routine

duties that I was carrying on for the various Empire Com-

_panies, and told to prepare myself for the construction of

a major gas pipeline. We'had various matters that-we

canted to investigate: before we built another project. of

that type. I understéod in general at that time that this.

- was to be a pipe line constructed under the guidance of

Henry L. Doherty, and that it would run from the ‘Texas

Panhandle to the Chieago area,

_ ‘As the result of a large umionnt of cil sit gas pipeline

work that I had been ‘supervising for the Empire Com-

.. | panies, there were a number of facilities that we wanted

_ 473 to improve before we launched another project of this —

' -*° type. Consequently I concentrated my time on the in-

_.vestigation of some of these problems and I also supple-

mented my own efforts with a corps of engineers.

-. A few of the things we Wished to investigate were that _

we wanted to perfect a better gate valve for use in gas pipe-

lines.. We were not satisfied with the et and the type

| pipe lines, and we wanted to improve this facility. We also

- wanted to work out the fabricating designs for the construc-

- tion of river headers and drips and other i igge that

involve the use of fabricated pipe in gas pipeline projects.

the procedures available for the use of electric welding and

| acetylene welding and: applying these two methods for the

\ construction of gas pipe lines in the field. We wanted to .

a \ investigate tlie properties of some of the coatings that were: _

: - then on the market and supposed to have the property of _

3 / \ protecting underground pipe lines. We also wanted: to |

perfect means of standardizing ahd controlling the applica.

ticn of these coatings to olitain better results with them.

Above all, we wanted to press for a better quality pipe. .

that would be commercially available and would. have uni-

‘form. dimensions, uniform, properties, so that we could

_ build a more reliable.gas pipe line. . .

. We also invéstigated various compressor stgtions that —

-had been constructed in the Midcontinent field by other gas _

pipeline companies. "This. cémpressor station work was —

done by other engineers under my supervision. 3

«I pet ary A visited many of the midcontinent pipe lines

and-some of the gus pipe lines on the west coast for the pur- |

of couplings that were then on the market for use. in gas eS

We were not at all satisfied with the control\methods and. ~

650 | : Witness for Defendants.

pose of learning of any developments in-regard to, the de-

ae sign or the laying of the gas pipe lines that might have been

brought about by these other companies. Mae

: We’ also carried on and continued our efforts to find out,

or understand the peculiar phenomena ‘that caused the for-

mation of solids in gas pipe lines under certain pressure

conditions. These solids ‘are now known as gas hydrates

‘and that is the same phenomenon that Mr. Hammerschmidt

_ testified about here, and also Mr. F. C. Brown. ‘Mr: Ham-

merschmidt was. one of the engineers-involved in that in-

vestigation work while we were. on the properties of the |

Empire Companies ; but it was not until after Texoma Natu- -

ral Gas Company: had been formed and Mr. Hammer-

_ schmidt transferred to thet company that we finally devel-

oped the theory that disclosed to us the real phenomena that

brought" about the formation of these solids and enabled us :

to handle them in better fashion. = 8 £#« ~ ;

... - When I was assigned to this work I have. just. been out-

lining, I do.not recall. that anything was said ,to me about

- the pressures at which this contemplated line would be op- -_

erated; but we had been working for years trying to get

into a position of utilizing steel at higher stresses and,

474 of course, one way of accomplishing that-would be to

operate the ‘pipe line at higher. pressures, and I had .

been amember of the group of engineers that had been dis-

cussing this phase of the matter for some time. -As a mat- ~

ter of fact, late-in 1929 or early in.1930, we constructed :

about ten miles of 24 inch gas pipe line in which we incor-

porated some of the theories and principles that we had:

_ been, developing simply. to check where we were with the

development: work, trying out in practice the principles

which we. thought we had evolved from the theoretical .

standpoint... ~

We had\different kinds of pipe in that line. “We wanted

'- to find out‘ what problems there were in welding, how it

would act afver it was welded, how it would handle in the

field, and varjous things about it-that we wanted to know

- as to how it would be from a practical viewpoint in addi- —

tion to a theoretical viewpoint. —. een ee cd

‘ Ihave said that we Wanted to improve the quality of the

ipe that was being used in the operation of gas pipe lines. |

We had been using lap welded pipe in the construction of

gas pipe lines. This pipe came in short lengths. We

wanted, if. possible, ta obtain pipe in longer lengths in

order to eliminate field joints and decrease the cost’ of

the completed line. We also wanted a pipe that was more

° oe

. .

torah 8 OT RE .

. . yon Pee

. :

cag bas gs Padua a NR Le ee

Testimony of E. V. Kesinger. Nee ~ 651

DP eat

iniform in its dimensions. ‘Lap weld pipe has a-tendehcy |

.- to run overweight or underweight, or it will be thick at one.

~ end and thin at the other end. The main defect in the lap

~~ welded pipe was the erratic-nature and inefficiency of the

longitudinal seam that runs through this pipe.

_ Also we were constantly pressing the. pipe manufacturers

for pipe of larger diameter, and due to the particular way

this pipe is made they were handicapped in manufacturing

the wall thickness that we wanted-as the diameter increased.

The tendency was to supply us with pipe of heavier’ wall |

than we wanted. ety eae re

The objection to having the heavy wall pipe or a thick

es wall pipe from the standpoint of oné who is contemplating

the building of a pipe line’ is that we warited to work the

steel in this pipe at a safe stress, but we wanted to be able

- to work it uniformly at that stress.and we did not want any

— weight in the pipe unless it was accomplishing some

- The objection to that was that this pipe was costing us

in the neighborhood of $100 or $103 a ton. Besides the cost

of the -pipé you have the extra‘cost of handling it in the

field, and you have the extra cost of welding it. To illus-

| . trate, if the wall thickness was running 25% heavier than.

_ it need be froma stress standpoint, the final cost of the line

. was affected materially by the extra weight that was in

the wall cf the pipe, both by extra tonnage and by extra

cost of handling in the laying of the pipe line.

_T had a corps of engineers under me varying)\in number, |

~ . but oceasionally running up in the heighborhogd of. fifty,

and we were concentrating on’ these various problems the ©

3 ~~ into 1931, and the hydrate followed even later than

475 ‘- Questions by the Examiner,

. 2 - :

. ~ At this time I was not stationed at any one place. T was -

_in New York occasionally during that period. Between

the middle of 1929 a middle of 1930 I was in New

York a number of, times. _I was working during that year

out of the Bartlesville, Oklahoma, office and out. of the.

New. York office. I was actually spending an awful lot of

time in aeroplanés and on-trains, and I had engineers at :

various points working at different things. het»

The Examiner states that there has been some sugges-

tion of studies and reports made and submitted at this time,

and inquires whether I am familiar with that- I kiow

| 652. ae Witness for Defendants.

about those matters in-general. AsI recall ‘the. testimony,

. it pertained to reports that started in°1926: This matter

of building a gas pipe line from the: Texas Panhandle to

Chicago was suggested by Mr. Henry L. Doherty back there

sometime.. From 1926 on. the Empire Companies: had a

group of engineérs that did make analyses’ geological stud-

ies, and calculations that were directed toward determining

whether or not this project was feasible. I was not a mnem-

ber of that engineering group or that particular. body of |

_ men. .During fhose years I was quite busy spending money,

rather than pushing a pencil, and the engineers that made

those earlier estimates were a separate group that.were

used ‘almost entirely for investigating the feasibility of

- various projects, not only the line to-Chicago, but there

- were many studies made back through those days based on

various size lines and various pressures and all kinds of

“combinations for both oil and gas lines... ah ae

As to whether there would be a number of groups study-:

‘ing different problems and each group. would do its own |

calculating, as d recall, the men who were making these

studies varied in number from four to twelve, and: they

were usually working on some oil pipe. line project, and

_ . when they that report done there woy:ld be some other -

suggestion, ‘‘let’s investigate this pipe line project,’’ and

this next tinle it might be three or four weeks’ work or-it

might be a month’s work at some refinery...

. . Take, far. instance, this location of the Cities. Service Oil -

Company refinery out here at East Chicago.» That plant °

had ahead of it many reports. There was a group of engi- ©

_ hReers that investigated the freight structure, breaking

points and freight rates, etc., and there was another group |

_ of engineers that investigated the market outlets. By that

+ I-mean what market outlets Cities-‘Service might be able to

rae

acquire or control. Those theoretical things were carried

on by other engineers. By that I mean a coordinating group

of engineers who called on the other groups for certain re-

: suits. -

In’ the case of the refinery problem, part of the refinery .

staff of the.Empire Companies was in Tulsa, Oklahoma.

The engine¢ritig part of.that staff was in Bartlesville, Okla-

, homa. As far as markets were concerned, the information

~ would have to be compiled in Tulsa and come up to the en-

gineers in Bartlesville, who were dealing with freight rates

or -déaling with costs of pipe lines or matters of that

476 kind. I was not involved in that problem until they had

' reached the point that they had concluded that there

2 ‘

™ 4; + ‘

Testimony of E.V.Kesinger. _~ 653

was‘an economic possibility of locating an oil refinery in —

one of these northern areas and building an oil pipe line

up here. oP ng piece yee cS Sak ee

— 7 feel quite sure there is no tendency to keep a library of

~*~ - such studies. I know we do not do it even in our-current |

~. work. We make the study to get the answer, and having _

= obtained the-answer, we usually do something about it and

then we have the property, and I personally do not keep

5 Ss for. any very long‘ period theoretical analyses of things of

7 Pe that kind that are done for me. I either tse them or-dis- _

card them, and if I use them I do no longer need them.

_ Direct Examination by Mr. Morgan Resumed.«

We started constructing the line ‘in August, 1930, and by

that tinie we had some of these things perfected and some

- of them were not perfected. Iwas made chief engineer of

— Continental Construction Corporation in June of 1930. - In.

that position I was to report direct to Mr. Floyd C. Brown,

who was to be vice president and general manager of the

’ corporation, and I was to have charge af the selection of .

securing-of bids, the contracting of the construction of the

property, the development of the design, and the drawings

~ that might be necessary in the purchase of: materials. I

* . was to have charge of the inspection of the materials-‘as |

:. they were manufactured, to have charge. of the field con-

-structién work, inspection of that construction work, and I

was to have charge of the cleaning and the purging and

testing of the line. . fhe ot eee gens

My title at that time was chief éngineer. I continued as -

chief-engineer in charge of construction for the Continental

Construction Corporation. until January 1, 1932. In the

meautime, the name of Continental Construction Corpora-

tion had been changed: to Natural Gas Pipeline Company

of America on December 10, 1931. Texoma Natural ¢

Company was organizéd May 26, 1930, and-I -was fade |

chief engineer of that company when it was organize ie |

contigued as chief engineer of both of these comp Bi s

during the period of construction until January 1, 989”

At the time I was made chief engineer of these companies

connection with the planning, designing. and construction

_ of this pipeline and its various properties, it was not known

_ to me that I would become general superintendent of these

OEE

oe ie

the personnel, the development of the field’ surveys, the~ -

’ and charged with the several duties I have mentioned in | te

* . sketched

Ria

654 "Witness for Defendants. :

two companies: The original di cussion was confined. to

‘the design and construction of. the line, and nothing was

said to me as to whether or not‘I would be involved in its

operation or who would operate it... ©... >

. ‘I have referred to field surveys, the designing of mate-

. Tials and other work of.design, the making of specifications,

etc. We had constructed a line from Pampa, Texas, to

Wichita, Kansas, and.had some knowledge’ of the Panhan-

dle field due to our’experiénce down there in 1926 and 1927:

___ ‘We were also fairly familiar with the general territory.

477 in the. Texas Panhandle, the Panhandle of the State of

- Oklahoma, and the State of Kansas, but these field sur-

_Veys were necessary in order to secure detailed information

on certain control points, such as river crossings, or any--

thing else that might result in difficulties during construc-.

tion or. might: result in ~heavy maintenance “after the line.

was constructed, or might prevent the restoring of service

promptly.after it was constructed. ©

* These field surveys were sometimes made by civil engi-

‘ neers and sometimes by pipe liné engineers or operating.

‘men. It. depended on the nature of. the problem.. We went

to the points we suspected as being dangerous or difficult:

_ to handle and collected whatever information we needed to

‘ guide us a& to whether. or’ not we wanted to cross there, or

wanted to try to cross there; or whether we wanted to look

for’ some other place. That problem had to do with the

general location of the line, the general course of the rout-

- ing, and that work was done under my supervision.

The field surveys were made by men under. my direction,

these being \pipe line men or civil, engineers that_I had

known or had used in other jobs. After the general scout-

-ing of some of these control points was completed, we went:

to work the United Statés topography maps. We

fio general voursé of the line on these maps and

-made avery careful study of the difficulties that would be

encountered, judging the situation from contours, :

After the generai contours had been worked out on these

topography maps, we then had aerial surveys made of the

more important points on the line, particularly the ‘Mis-

souri River and the Mississippi River, and_the Oanadian-

River, and featuros of this kind. We had separate aerial

‘surveys made of quite a stretch up and down the’ rivers.

. After these aerial surveys were in we were able to study

the question more completely and make a more definite lo- |

Pi e

. i s Ps bea Be . ; - s \

——— . a sts eas DADRA ia SS eS RES SY 5 ,

Ravan oe Ue eg

Testimony of E. V. Kesinger. ; 655

| cation as to where we would want to cross some. of. these

hazards.

sure that the various control points were worked out with

‘a degree of nicety, we, then proceeded and had an aerial —

survey made. of the entire suggested location. We wanted

this aé¢rial survey to check our judgment as to the location

of the line in total, and we also: wanted to use the aerial

, Survey as the base map in our various construction activ-

ities, such as contraéts, ete. I worked out this field survey

and made the final recommendation to Mr. Brown and the

management as to the final location of the line.

Wheh we started cout to determine upon the location of i

the line, we had in mind tliat we were starting to serve a

major market that would be approximately ‘900 miles from.

‘the field or the source of supply of the gas, and consequently

continuity of service was always emphasized and stressed. -

ar. ye.wanted the'location to be such that we would have

cheapest line not only from the standpoint of its orig-

inal cost but ‘from that of the over-all cost, including the

operation and so gory of the line, and we were careful

in locating the line to so locate it that it could be go. main-

‘tained.

The pi dine was built along the line which selected

478 and recommended to-the general.manager. with cer-

tain mino changes i in the location in areas and certain

little variations in some: detail. We frequently found it.

necessary%o change the general course of the line maybe a

. tnile or half a)mile, or some such matter as that, in order

to miss farms ‘where we were unable to purchase rights of

way. Those were just minor changes that were made from

time to time to take care of those local features or handi- _

caps that we were unable to overcome. ,

Afert having made my recommendations-as to the loca-.

tion of the line, it became necessary to me, as chief engi-

_ Neer of the’ project, to assemble an organization to carry -

out these functions. Obviously, I did not perform all of

them myself. The.thing we had to get dati®was to develop

designs and drawings where theywere nefessary for the

securing: of bids for the furnishing of material. When

these matters were ready they were submitted to the vari-

ous manufacturers in order to secure competitive bids for -

furnishing the quantity of material and the quality that we .

required. | et ee

The thajor items included in the material would . cover

Having the general location of the line ‘and having made ae

\ j a

x. f a

, / 4

. om ‘Witness for Defendants. ae al 3

such things as 24 inch-pipe, 18 paar pipe, 16.inch Pipe, pipe |

of smaller diameters, the coating for that pipe, 24 inch

main line gate valves, couplings for: the 24 inch line, build- .

ings for the salés’ meters and for the various functions in

the gas confpressor st s,.the main-compressor units to.

be installed in the corpréssor stations, the auxiliary gas |

éngine driven electric generators to furnish electricity for ~

light and power-for the compressor stations, various ma- — -

chine shop equipment to be used in the stations, ete.. That.

is not ene-hundredth of them, but those are the niain ones.

All oft those.things and other material that went int no

.construction of this pipe line were purchased on spe@fica- —

_ tions.“ We did not just go to the manufacturer of pipe and

tell him we wanféd so many feet and so many tous of pipe

of a certain dimension. It depended on what the niaterial

was, but in many cases we not only prepared specifications

but we made drawings or designs, and along with these ,

drawings we wrote specifications, and when these—-were as- a

sembled we submitted them to various manufa¢turers and

asked them for their prices. This would apply to such

things as fabrivated river headers, drips, fabricated Piping

to be used around stations, ete. - =

Fabricated materials, in the way thateI use that: term,

‘refers to the taking of one of more materials as they come

in their natural state from the original manufacturer and

by cutting or assembling you make these materials “into a”

unit of ‘a different kind. For instance, in the fabrication

‘of a river header yon would obtain pipe of two or three

different dizes and various lengths and you. cut this mate-

-. tial into the proper lengths. You would obtain welding .

-heads, welding, pipe saddles, nipples, valves; ete., and by

assembling these various pieces in the proper + Pnainner you

would eventually fabricate a river’ header.

_ We had other things to do in addition to designing the ©

material of the various units of pipe, machinéry, ete., which

was to be utilized before,we could construct a pipe line.

479 We had to obtain the rights of way upon which to con- :

struct the pipeline. .We pushed this right of way pur- - ;\~

chase activity along as fast as we possibly could: We Thad if

te purchase or make arrangements for purchase of all ‘of.

the materials, some of which I have named. We had to

prepare sp&ifications, contract forms for obtaining bids

from contractors for assembling these materials in the

field. We had to inspect the manufacture of the materials.

we had to arrange for the delivery of the materials to the -

: Testimony of E. V. Kesinger. , 657

various contractors at the points where and|when they were.

needed, and we had to inspect the execution of the assem-

a4 of these materials, the performing ‘of the work in the

>. eae tineaage : Kigae ec Rs r.

_. ° All-of this work was coordinated. Naturally, some of:

| the things preceded the other, and as fast as varioys phases

_ of the work would clear up and the necessary it@ins were

coordinated, we would release the contracts. ae ose

: I neyer did.count the number of different contractors ©

& with whom we had contractual relations. The number of. .

__ contractors bidding en the various kinds of work to be perv

‘formed was quite large. Occasionally some of the w

_was sub-contraeted. We controlled this feature of the con- -

tracts, and some of the work was sub-contracted and some

«, of it was not. For instance, hauling was ‘generally sub-

‘ eontracted., In some cases we permitted the sub-contract-.

- ing of welding, and there may have been other .sub-con-

tracts, but I have not refreshed my mind on these recently.

‘In those instances where our contractors let a part of

their work to sub-contractors we were not relieved of our

pel tets

igre

—

to)

—

Lec)

ic)

—

“3

ax.

mac

bb °

— 2

= |

—s

a |

ic)

@®

ews

We found it necessary to do some work in determining’

with whoni we ought to make ¢pntraets before letting these

_ contracts.. When this project was announced we were

flooded with requests from contractors all over the United

States that wanted to build pipe lines er build compressor

‘stations or build the telephone line for us, and we soon’ © +

found. that it was going to be necessary for us to use ex- |

treme caution in the way we awarded these contracts. All e

of the contracts -were to be aWarded on competitive bid-. -

ding, and,we exercised the prerogative. of submitting bid-

, ding specifications to contractors that we felt were qualified

to build the pipe line proper, for instance, and we were

careful to give bidding forms to contractors capable of

building compressor stations when we were asking for bids

on stations. The same principle was applied ‘in the: cot-

. tages and the telephone, and in the case of some rivers we

guarded against the inclusion of contractors that were not |

qualified through experience and did not have the equip- -

eed

ON I

< .

€:

. ; |

. ° / |

‘ . . 3 : ; |

. ‘

658 é Witness los Defendants.

ment or. persiunel to perform the work that 6 echeduled

in the. contract. .

‘We also concerned ourselves with the financial ability of

the contractor to perform th 1g size of contract that we were

‘contemplating awarding. In‘other words, i in so far as pos-

sible we wanted contractors bidding on the pipe line proper

that had the personnel and the equipment. suitable for

- 480 executing ‘the work that was to be performed under >

_ that contract, and the same thing applied for the con-

tractors bidding on the compressor stations or the tele-

‘phone line or the cottage, or things of that kind.

‘I do not recall that there was any advertising of bidding

oe except by word of mouth. . The fact that this work was go-

. of the field work, particularly

ing.on seemed to spread like wildfire, and the contractors

were always crowding us to let them have the specifica

tions. ° .

However, after submitting the bidding forms to the con-

‘tractors and receiving their bids for performing.the work,

we analyzed the bids to determine which contractor had

submitted the lowest bid, and then we.made a final check’as

to what work this contractor was performing for other com:

panies and what equipment and personnel he had available.

If the situation looked sound we submitted the data to Mr.

Floyd C. Brown with our recommendation as to who should:

receive the contract.

‘(Statement by Commission counsel that testimony purely

repetitions of Mr. Floyd C. Brown’s and suggesting that

Mr. Brown’s testimony be adopted with reference to-the

above matters. Examiner permitted testimony to proceed.) -

. The specifications for material, for the construction of |

the line, and for-the compressor stations and other proper-

ties were very detailed. They were very specific and very

severe, The specifications pertaining to the construction

fy the main 24 inch trunk pipe

line, were considered so severe by at least one of the par-

| ticipating companies that they were fearful that the cor-

tractors would not accept the contract to operate - under

thos® specifications.

It has been ated that this pipeline construction work °

was let by sections to different contractors who contracted

to build 80 or 100 or 120 miles of pipe line; but that does

- not mean that the contractors who obtained the contract to

build a certain sectiort of€p et would build everything 2

on the pipe line within that Section. —

: “;

. e , 4 } .-

r . ’ ®

i J 2 . é ree

Testimony of E. V.Kesinger. 659 ’

We divided the main 24 inch transmission system into

séctions of various lengths; and then when We awarded the

contract for the onstruction of a section, that contract

-: would be confined to the construction of the 24 inch pipe

line proper. If that section happened to'include a, co

pressor station, that would not be in the contract award¢

to the pipe line contractor but would be in a-‘sepfratecé

- .tract awarded to another contractor to construct gom- -

+. pressor station. The dividing of the line into sections, and

dividing the other facilities up into smaller units, énabled

us to keep-the size of those jobs such that we had ample

competition in. the competitive’ bidding} We guarded:

against having a pending contract that would involve sums.

of money that might restrict the, bidding) to. one er two

large contractors. ie ‘ US a! ,

It also enabled us to prepare specifications that covered .

in detail and more specifically the contract work to be

performed under that contract. For instance, 100 miles of

the main 24 inch pipe line might contain no river. The

next 80 niile section might contain two rivers: The gpecifi- .

cafious for the 100 mile section of pipe line gpould treat

with the problems and features to be constructed in that

. section, and “that same thing is true of the other sec-

tions. ; : ’ aces

eee Questions by the Examiner.

As to whether we let the river crossings separately or

as part of our sections, the river crossings that were of

sufficient sizé and required highly specialized equipment

were separated-out and awarded under separate contracts.

That applies for the Missguri Rivér and the. Mississippi

River. For the rivers that we crossed on the south efd

of the line, the type of work té be performed and the equip-

ment required was. not particularly different from what the -

usual pipe line contractor has, nor was it out of the drdi-

nary line of work that he had been doing but in the case

of the Missouri River and the Mississippi River the equip-

ment required was entirely different. Those are submerged

crossings. The only suspension crossing we have is the

line across the Big Blue River in the Texas Panhandle.

660 Witness for Deféndants. ie Sg ae :;

Direct ‘Examination Resumed Lby Mr. Morgan.

- As tliese various. contractors started executing the field ©

‘construction work under the various contracts, we at-

tempted to supervise the execution of this .work by placing

inspectors in the field at thé points where this work. was.

being performed. These inspectors were men selected for 1

this particular’ duty and trained .in the. requirements of -

the specifications and the‘type of- construction that we re-

quired. These inspectors’ were working under. my super-

vision and direction.

We had rejections in the various plants over the country

where this material was manufactured. As.I recall, in gate .— -

valves we rejected about 43%, of the compression cylinder

heads about 12%, on 24 inch pipe the rejects ran quite . -

heavy, particularly from Gary, Indiana, and McKeesport,

. Pennsylvania. At one time we had at least fifty miles of

24 inch pipe piled up in those yards rejected as not qualify- . ae

ing under our specifications. é

The inspedtion. of the field work was quite severe. The:

effective inspection was rather a-heavy burden or all of

. the contractors, heavier than most of them expgcted. The“

result was that the work. cost them, more money than they

anticipated. Three of the main pipe line contractors

claignfd that they lost large sums of money as a result of

our inspection. One of the. three sued us for about a

million doMars.

I have stated that the actual constr iietiots of the pipeline

was commenced in August, 1930.. It was completed in

August, 1931. By that I mean that we had the pipe in.

the ground, the pipe covered, and wete up to the point of

cJeaning, purging and testing the line, and we had some of

the station work fully completed and we had other station

work yet to execute. —

By cleaning, purging and testing the “line I mean that

regardless of the care ‘that is used in laying a line, when.

it is finished it is advisable.- to free it of all foreign ma-

terials .and remove the air, and to test the line te some

elevated pressiires. These materials that are in the line

after it is completed are mill scale, sand, rabbits, dinner -

buckets and other items. The air and the foreign materials

“are remov ed by permitting gas to enter the pipe and allow-

ing the gas toe rush through a ten or twenty mile séc- *

482 tion of the —_ carrying these foreign materials and .. _

* the air out. Sie ve

. Testimong o EV. Kesinger. .

_ pense

- 661

After this is finished, you can apply pressure tests to

that particular section or proceed to the next section and

clean and purge that section and allow the pressure test

to follaw. As we completed the line it was tested at a

pressure of 800 pounds.. That high pressure was applied

to this-line in order to locate any structural weaknesses or-

_ defects and to enable us to operate the line more safely at

the elevated pressure that we had in.mind. :

The compressor stations were being constructed as the

' pipeline was being constructed, We carried all of these

-. operations on together, attempting to finish them in a

coordinated manner; but at the time the pipeline was fin-,

ished and we were testing the pipeliné, the station work

at some points was lagging materially, particularly at-Sta-

tion 1. That is the station owned and- operated by Texoma

Natural Gas Company at Fritch, Texas, ane. =

- It was necessary to utilize these corftpressor stations in

testing the pipeline under pressure.. We did not need the |

compressor stations for the purpose of cleaning and purg-

ing the lines, but we did need them, or at least some of the —

engines in the stations, in order to supply the 800 pound .

gas with which wé wished to test the line: ~ ~ | ,

The compressor stations, of course, had to be cleaned ©

of foreign materials and the air removed ‘in the same-

manner as the pipeline, and we did this when the station

work permitted, as we brought the pipeline pressure test-

ing along. We also put pressure tests om all of the piping

and facilities in the .compressor station, and liaving ar- .

-rived at this stage we were then confronted with the neces-

sity of operating the main compressor units for the pur-

pose of adjusting and balancing those units for the pur-

pose of getting them in condition to carry their full rated

horse power. Bee #

As a result of this testing of the pipeline and compressor

stations we found some defects before the pipeline was put

‘into permanent operation. In the case of the pipeline

proper, we found a considerable number of-minor defects.

We also found one.major defect. We had a point near

Ford, Kansas, where the 24 inch pipeline failed, -a joint

_ of 24 inch pipe left the ditch, tore into several pieces, at a

‘time when we had a gas pressure of 800 pounds on that _

* section of the line. pas: ne

The testing of*the stations brought out a few. minor de-

fects and two defects that might be termed major. We.

662 : } ~ Witness. for Defendants. *

operated these units as much as we could and as soon as

we could in conjunction with the ‘testing of the line, but

we did not accumulate mariy operating hours oyer any one

main: compressor unit before we learned that thé gaskets

in the exhaust valves were entirely -unsuitable for the

-duty that they were to perform, and a- little later we dis-

covered that the design of the pistons in the power eylin-

ders of these compressor units was faulty and the pistons

started cracking on us after tit from 90 to 600 oper-

ating hours.

The first piston failed, as I recall, about December 5,

1931, and it appeared to us at that time that this was

483 a major defect, rather than just an accidental break *

of one piston. Consequently, we immediately con-

tacted the manufactuger of the equipment and went into a

lengthy investigation to determine the defect in the de-

sign we were using and how this defect could be corrected.

It was about April of 1932 before we had the new design

ready, and we then started obtaining new pistons from the .

manufacturer and proceeded to replace all of the pistons

that were originally installed in the main units. We com- °

pleted this piston replacement work on September 27, 1932.

We had the main 24 inch pipe line tested from. Station. Now

1 at Fritch, Texas, to Joliet, Illinois, by August 28, 1931.

There was other. work of that character which had to be

done before we could put the pipeline into operation, after

we got the line tested and purged through to Joliet, Illi-

“nois. . The Chicago District Pipeline Company had con-

structed approximately 100 miles of 24 inch pipeline from

Joliet into two points of delivery in Chicago. It was riec-

- essary to clean and purge this pipeline system. It was also

necessary ts fill certain holders with natural gas in, this

area. It was necessary to*adjust certain appliances in the

plants where this natural gas was going to be mixed with

coke over gas or mantifactured gas, as the case may be.

We delivered gas.to the Chicago ‘District Pipeline Com-

s purging and testing operation from August ©

24, 1931. We delivered them some gas later, -

on SeptemHer 24, 1931; at which time they completed their

pressure fests. We then started making ‘small deliveries .

hieago District Pipeline Company for the purpose

of tuning up our systeny and their system, on October 5,

1931... tM :

In the satiation we experienced some difficulties. From

Testimony of E. V. Kesinger. , 663°

October 5 to October 15, 1931, we were making small deliv-

eries‘of natural gas to Chicago District Pipeline Company.

On October 10, 1931, we experienced a heavy rain in Bu-

reau County, Hlinois, in.an area crossed by our main 24

- inch pipeline. As a result of this rain,-the back fill washed

__ off the line. The pipe floated in the ditch, pulled out of the

***coupling, and we were faced with our first major failure

-. of the pipeline transmission system. —

not completed. We had enough facilities eompleted that

-- we could deliver gas, but we had many other things to do

time we had only eight wells delivering gas into the gath-

- ering system of Texoma Natural Gas Company. We were

~ constructing lateral lines to the other wells to be con- —.

- hected, and finished this work on November ‘14, 1931. °

‘ We had a number of other things to.do, such as install-

* ing repeaters on the telephone system, build pipe racks

‘along the pipe line and store pipe, couplings and sleeves at

these pipe racks for the purpose of making emergency re-

pairs. We had to install highway markers where the pipe-

line-crossed the various highways. We were erecting

484 anchor warning signs on the major rivers. We had a ~

* large amount ef riprap work to do on the river banks

and other points where we had made heavy excavations.

' We were constructing drainage ditches and cross drains —

~ in order to take care of cross drainage, surface drainage,

_. aeross the pipeline. We were also doing various work, -

such as finishing roads, walks, landscaping, water treating

plants, and items of this kind around the compressor sta-

SSMS 8 SS ne uae

We were continuing with the work of getting the main

compressor units into.condition so that they would operate. -

As I have previously mentioned, this consisted largely of

tion of the unit in order to adjust the.timing of the mixing

valves to the various power cylinders. | °

7 “*towa, sales meter on October 31, 1931. We finished the |

- sales meter at W i, Illinois, late in. October, and we

were building the Joliet sales meter at Joliet, Mlinois,

the replacement of the pistons and in the necessary opera- -

We were building sales meters at Knoxville and Green- 7 |

664. «¢: Witness for Defendants. ay

We were delivering yas to Chicago District Pipeline

Company before we had the Joliet sales meter constructed

because we encountered delay. in the construetion of this

meter setting Cue to difficulty in, reaching an agreement

og.

. “ dit F

VURSmPaR NTS Ca, ee” arene ay Ste

REL eh TOR Ta Faas ee iN eee late

with the Chicago District Pipeline Company as to the a

design of the meter station. Consequently we constructed.

a 16 inch by-pass line around the particular site. that. this

meter station was to occupy, installed a 16 inch, pair of.

metering flanges over this line, and metered the gas that

lwas delivered to the Chicago District Pipeline through this.

by-pass ling, while. the main Joliet metering station was -

being constructed. We finished this’ meter, station on De-

cember 10, 1931. © ,

We were delivering gas through this line before we had |

it fully, completed. because we expected the Chicago load

to come on slewly the first few months, and it facilitated‘.

the operations that we. had to perform around the com-

pressor stations if this system was operated and if ‘it was

delivering rather small quantities. Obviously, we. could.

not adjust the*engines without operating them, and the’

delivery of a small volume facilitated this work. .

_ Also, the back. fill over thé entire pipeline system was

new and fresh, and we were constantly patrolling this line

and taking whatever corrgctive measures were necessary

at various points to keep the back fill in place and to get

* the back fill settled as promptly as possible. :

We were also continuing with our work on the river

banks. Some of this work could be done up to a certain

-. point and then it was necessary to wait until further s¢ttle-

ment occurred before we could complete the riprap-

my . . Neds esha os

485 . The replacemént of these pistons carried on until

September 27, 1982 The adjustment of the main ecom-

pressor units carried over until July, 1932. In other words,

it was not until that date that we felt we had all of the - :

compressor units: properly adjusted so that they would

earry their full rated load with any degree of satisfac-

ign. ‘As,a date for the, purpose. of setting up the com-

e-date to use for completion construction. -. ;

On October 16, 1931, when we age the first delivery of

gas under our firm contract with the Chicago, District

Pipeline Company, ‘the defendarits had on: their payroils

a total of 737 men. We had 127 men carried on the pay- 4

rik a

ny books, we arbitrarily ‘selected January 1, 1932, as

Acs lata fal Sik tl Sa ah oo

ke ae

Testimony of E.V.Kesinger. — , . 665°

roll as operators and a part of the 127 were on stations,

‘and, of course, some of their’time was involved in this

. work of removing defective pistons and installing new pis-

tons. The men earried.as exclusively on construction:work.’

were 610. va 7 ; @ PA ga Oh cs 6

i During the period beginning Octeber 16th and continu-

»., ing fox sometime thereafter we were engaged in ‘building

_. up our Operating organization.” Some of the men who.were

— to operate this pipeline system were selected from ‘the:

>’ personnel that had supervised the, design and construction ~

- of the entire project. Of course, only the men who were

quatified from an operating viewpoint were selected as —

_ operators, and those men who were not qualified were later

' released.» A part of the. operators had been selected by

this time. me hie gS Rees fe res Fea:

: On January 1, 1932, we had 273 operators and 242 men

~ earried on the\payroll for construction duties. There was

_ ‘vork in the nature of consteyctjon work to be finished up

- ‘after January 1}, 1932. Some of the men who were carried .

on the payroll as operating personnel on that date were.

devoting their time in part to finishing up ‘the. construction

' of the pipeline. A large part of the time of the men who

werf carried on the operating payroll ‘in connection with

the compressor stations was utilized on construction duties,

particularly in connection with these exhaust valve gas-

kets and the piston replacement work. The same °thing °

- ‘was-true to some extent with the pipeline operating per-

_ sonnel, but not to the same extent. ae eae

-. Gn January 1, 1932, when {, became* general superin-

}> tendent of the two companies there was a change in the

scope of niy duties incident to/the\change of my title from --

chief engineer to general supe pote ee to this -

date my duties pad been confined t the design and con-

_ struction of this project, and I jiad also assisted in some

of the preliminary selection of a few of. the operators. :

However, when I ‘was. made general superintendent of. thé’:

two companies, my duties expanded, and became more

' executive and supervisory in nature,’ and included such °

items as ‘selecting the remaining operating personnel, the’ -

organizing of this personnel into the se depute

departments, and the supervision of these departments.

Later‘on, in 1932, I assuméd some responsibility in con-

nection with the administering of the affairs pertaining to

ai 2 : ” ‘ * : \ :

4 ° per

~ . . . . : } eo

- : a Pes

; ’ ait \

3 ° 2 . . \

= «

os “ 8 \

> |

. 4%

a Witness for ‘Defendants.

Texoma’s acreage. Prior to January 1, 1932, Mr..J. G.

486*Dickinson, who was in charge of Texoma’ S acreage,

y~had reported directly.to Mr. Floyd. C. Brown. - Im-

mediately after I became general superintendent’ Mr. Dick-

inson reported to me, and I gradually became involved in

Texoma’s acreage problenis. This work had io do with

the planning of Texoma’s future drilling and development

program, acreage trades, consolidation 6f leases, ‘the ex-

pansion of the gathering system, and the expansion of: the

operating organization to handle the additional working .

and ‘operating functions.

I also became involved in the development of facts per-

taining to the Panhandle: field as a whole, as a result of

‘ the heavy burden of litigation tliat Texoma has carried

since it has been in operation in Texas. It was necessary

to develop facts’ pertaining to Texoma’s’ properties. and

ithe properties of other producers, facts pertaining to-the .

Panhandle field as a wholes.to‘the sour gas area, the sweet .

gas area, to, geological conditions, and. to see thatt hese.

facts were properly presented to the court.

also assumed supervision. of the company’s sales or-

ganiaztion or sales department and supervised the market °

‘ negotiations that this. department garried on after January

1, 1932. It was the duty of this department to sectire new- —

contracts for the sale of domestic gas, new contracts for.

the sale of industrial gas, and to develop load building .

programs to increase the use of natural gas in the domestic e

-. markets.that were then under contract..

As a matter of fact, as general superintendent I cover in

the scope of my ties practically all of the executive rami-

. fications .of both’ of these, companies, always, of course,

under the direction of Mr. Brown, € general manager. I

have been under Mr. Brown’ '8 SuperVision since 1919.. I

-have been under his supervision on this one project since.

1930 and have learned to know his policies fairly well. -We

_ confer in developing basic policies: and I sometimes make

decisions, all of which, of course, are sand to- Mr.

Brown’ 8 approv al. Mr. Brown still says yes.and

Questions by the Bromine’.

As to what these. sales’ programs were, when we secure

‘a contract with a utility to distribute natural gas in-a

given town, we find that the consumption of that town is

: quite low, due to the type of market dev — that the

Testimony of E. V. Kesinger. ——* 667.

* - utility management has employed in the past.when they

: were distributing manafactured gas. In order.to develop.

the market to the extent feasible and possible with natural

gas, it is necessary to’carry out promotional campaigns in

order to increrse .the domestic consumption. This in- |

volves the use of moré gas for commercial utilization, hotel

cooking, restaurant’ cooking, sumwer hot water heating |

and more general automatic hot, water heating, and also

the use of natural gas to a-greater extent in the heating

ef homes. It involvés an aan sules program in one

phase of it, but that is not whaf it is directed at.

It is necessary for.the utifty\to solicit. this business.

The business does not come-to it. ‘It obtains this businéss

only through advertising and direct solicitation and by -

487 thé establishment of promotional rates that-will entice -

a . the business, by the advertising of.appliances that will

~~‘ aeecmplish the results, and by the necessary sales endeavor

' to bring about an increased consumption of natural gas.

_ For instance, usually when you take a town that has bgen

using manufactured gas, the consumption per meterwill .

run in the neighborhood of 15,000 cubic feét per year, but

in a developmént, program yoy, can increase that con-

sumption up to.some higher figure, depending. on thé type

of territory-and the wealth in that town. Sometimes these

consumers’.meters get up to the point of 50,000 cubic feet

per meter for domestic utilization, not including heuse

a 5 OR . Ves ,

TI ee! PR TIME = ii)

CNEL SN leila

Direct Examination by Mr. Morgan Resumed;

As to what-was done with all of the drawings, specifica-

’ tions, bids, awards, cgntracts, ete, that were made up in

connection with the construction of this pipeline, we have.

‘ in the company files all-of the construction contracts and

- specifications that go with those contracts. We have all

* of the drawings. We have all of the vouchers making the .

| - payments under those contracts. We have. all of :the pur-.

* chase vouchers covering the materials. We have all of ©

the drawings pertaining to the fabrication of those ma-.

- terials or articles. In fact, I think we have every paper

that forms the basis of the development: of this project

cand the expenditure.of the -money that brought it into ex-

istence. bee ed oa ee

We havé kept similar drawings, specifications, bids, etc., .

668 Witness for Defendants.

for additions to the pipeline and”for replacements and

other things of that kind, where it was’ necessary to have

those’ specifications, ete. All of the contracts, specifica-

‘tions or drawings that have been prepared since the orig- .

inal project was constructed are also in our files. Those -

files ‘are available to the engineers of the Federal Power

‘. Commission and the Illinois ‘Commerce Commission in

case they desire to see them in connection with this liti-

gation, -« ° ay Peter ey

_ Wehave not kept-the old preliminary reports that, were

'. worked out in.a preliminary way as studies. We-have had

no need for the preliminary reports that led up to what

_ *designs- we were going to use or what materials we were

going to use. We have kept the design that we purchased

' or wé have kept.the drawing that was used in assembling —

the material. We .havé kept the purchase record of the’

Famine and we have kept the contracts that assembled

e project. . ayes wer

When I went out to California to inspect pipe lines out:

there or went up to Milwaukee -to inspect the pipe miils of

Smith Brothers, or to: Gary to inspect the pipe mills’ by _

which our seamless pipe was manufactured, as the records

. hére show, I did:not make a written report of all_of those

. things to anyone), I made these investigations to inform

myself and as.a-hasis of my own judgment, and having.

_made the investigations I discussed, my conclusions with

Mr. Floyd C. Brown, but I do not. recall that I made any .

formal report on any of those investigations.. aa tan

The results of all of those preliminary studies are re-_.

flected in the thing that was finally adopted and which _

-488 | was evidenced in the drawings, specifications and-other

/ | records whieh have been kept as permanent records* -

of the company and which are now available to-the engi-

neers of the two commissions involved in, this litigation.

_ EF have mentioned litigation in- which Texoma has béen

involved with the Texas Railroad Commissién and the fact

that it was necessary for me to make fome intensive study

-, concerning the physical facts obtainthg in the,Texas Pan-

‘ \handle. This litigation developéd out of a determined

effort on the part of certain ititerests to obtain, through. .

jegislation or orders of the Texas Railroad Commission,

‘a\market for all producers of natural gas in the Panhandle

fidld..:They were attempting to obtain this market from

the\various pipeline eoinpaniés, including Texoma.

Testimony of E. V. Kesinger. - _ 669 :

Texoma had fortified itself with the necessary gas re-

serves and as the result of the. conservation policy: that

- was being followed in the.field. Texoma’s gas reserves were,

‘being drained. Texoma was unable to protect itself against

- this drainage because of its*limited market outlet.. For

’ Texoma to purchase gas under these conditions would in, *

~~ effect inerease the drainage from its properties, and, at

+ least.in some instances, would result in Texoma’s purchas-

- ing-its own gas from the wells of others. — <

... As a result of this situation Texoma has been involved

in five major lawsuits around this particular question.

Because of the importance of these lawsuits, it became my

_ duty to see that the full facts pertaining to Texoma’s situ-

'. ation, the situation of other producers, the full facts per-

taining to the Panhandle field as a whole, and the geolog-

ical facts pertaining to thesfield, were developed and prop-

» erly presented to the court at-the time the litigation oc+

* curred. — cae. : i“ . 3 ero

Those studies made under my direction in-‘connection |

with that litigation involved the estimation of reserves,

the observation of pressure conditions, the ascertainment ©

of facts concerning drainage, and the relationship of sour” |

gas to sweet gas, of oil to the gas, etc., in that field. This are

work also resulted in.my being informed in regard to the

entire field to a greater extent than I might otherwise be

if we had been concerned with Texoma’s properties only,

‘and it had the same effect on other members of the com- —

') pany’s organization, particularly Messrs. Dickinson -and

. .Peterson. eect Fes ie 2 |

~ (July 25, 1939) ees ot teak er

', It was not my thought at the time I took over my duties

» as general superintendent on Jannary 1, 1932, that: the

+. capital outlays of this pipeline. project bad all been made

>and cémpleted. Due to qur experience with cther pipeline

projects,.we knew that projects-of this kind required cap-

ital for various purposes during the.years of its life... |

Tn the case of this project, of course, we knew that

Texoma was faced with a lotig acreage development pro-

gram and that the drilling of additional wells would mean

7 the building of additional lateral, lines and meters... We

. knew that booster stations for these wells would be

489 needéd ‘in the later years of the field. We knew that.

capital would be required for other items, such as

° .

670 ae Witness for Defendants.

water wells, cottages, future work on rivers, and items of

this kind.

. It becanie one of my early duties to ‘conter with the

operating heads, the ¢hief engineer and other members of

the organization, to mMhimize thesé capital expenditures AS °

far as possible and to seé that, they were made’in sufficient

time to.maintain the efficiency and capacity of the system

and to protect the continuity’of service. That has been a

eonstant duty throughout the years that I have been gen-.

eral superintendent of these two companies. We have

from time to time worked on various facilities in order to °

- improve their efficiency or improve-the capacity. We have

diligently studied the Texéma acreage situation in order

to minimize the amount of drilling required for the acre-

age and,items of. this kind. In spite of our constant en-

deav¥ors in this direction, the two companies have. experi-

enced ‘heavy capital expenditures each year of their ex- g

istence.

T have the figures as to the amount of additional capital

outlay expended or invested on the part of these pipelines

beginning with the year 1932. Tlie’ combined expenditures

of the two companies, by vears, have been:

CEES ARES CORR $558,435.46

ee Ea eer: $ 325,321.67 -

UN ee er sgt -.$ 309,872.53

ON idee: cow Sea meaoel : .$1,327,080.20

OO ert ee $1,131,145.58

WO 5 osecec: “ee .2..$ 709,818.95: -

ERE OE ORIG is $1,041,394.86

“This is a grand total of $5,403, 069. 25, or or an’ average

annual expenditure of $771,867.03.

_ Those are gross expenditures. I might say in this con-

nection that these expenditures are in the years in which

they were made and are not exactly coordinated with the

vears in which they were placed on, the books’ of account.

Subsequent adjustments might have been made back.

The. number of men on the payroll of these. two eom-

panies varies throughout the year. For the year 1938 it’

varied from 600 to:1,000 men. This variation’ is, brought

abont by the different departments in the company, the*

different work that each of those departments performs,

and, the way the seasons affect different departments. I

would say. that 400: ‘men are added for seasonal activities.

\ > ‘ 2 ; Jae

Mee eer

feat

Testimony of E.V. Kesinfér. 67.

Questions by the Examiner.

.The summer months, particularly: July, August and Sep-

tember, are usually our biggest months. They. are not

necessarily always the biggést months, but -usually they

are. That is because in the other months of the year we.

are carrying such heavy loads on the pipeline and the com-" —

pressor station equipment that. we are able tq carry out

only a limited amount af-maintenance then. .

490 The number of operators, strictly operators, does

nat vary particularly over.the year. When we come

intathe summer months, the operators being constant, the

‘ maintenance crews expand, because of the amount of main-—

- tenance work that we must perform on week ends, when,

. the load is off,and matters of that kind, and then we also

- have various rgency jobs, or w may be\ termied

emergency Jobs, that we perform in the summer time. We

will pick out the 4th of July to do some thin?s*that are

done simply to guard service. We will pick out week ends

or holidays, such as the 4th of July or Labor Day, to per-

‘form certain jobs that require shut-out of the line, and

naturally those forces must he expanded -considerably to

handle. that work promptly. : :

Direct Examination by Mr. Morgan Resumed: . .

The departments of the two companies may be described

briefly by enumerating ime Aneta office of -the Texoma ©

Natural Gas Company, which is in charge of Mr. J. -G. °

Dickinson. This office is generally referted to as the pro-

duction department. -However, in this office we have a

_ number of divisions, such as the accounting division, which

- handles the books of account pertaining to the amount of

gas produced, royalty to be paid, the production tax to be

paid, and accounts of this kind. ey,

Mr. Dickinson also has the land and lease division, which

_is headed by Mr.’C. C. Kuhne. This department has to do

with the keeping of the leases; observing the rental dates

‘that occur in those leases, observing the obligations that

accrue to Texoma under those leases, and has to do with

<r trades, acreage consolidations and matters of that

wn - : % . . 7

_ Mr. Dickinsan also has the division that is known as

geological. This division contains Mr. C. J. Peterson,

672 Witness for Defendants.

chief geologistsof Texoma, and Mr. W. F. Brainard, tis

assistant. . They also have other personnel, such as drafts-

_ men, stenographer, ete, This department is concerned_with

the location of Texoma’s wells, field records, geological

records, and development of geological facts in connection

- with Texoma’s litigation. — : ee

Mr. Dickinson also has a production division, which is

headed by Mr. Charles Galloup. It is the function of this

division to supervise. the drilling of a well, to see that-it is

properly cemented, properly cased, and properly completed, -

and this department also has supervision of the wells dur-

ing their operating life.- By that I mean tHat it is the duty

of.Mr. Galloup. to ascertain when any work is needed on ©

these wells and what should be done to keep the wells in

the -best producing ¢ondition. — ee 3

Some of the divisions I have just given are Geld divi-

. sions. For example, Mr. Galloup’s is a field division re- -

porting into the Amarillo office. . The divisions that have

_been described up to now are all under Mr. J. G. Dickin-

son’s supervision in the general production department. _

IT am now coming to a description. of the propertysorig-.

inating in Texas and coming on north to-Ghieago, describ-

ing the departments that handle°’that property ‘and the

operation of the property.. That is what I meant by field

diyisions., I did not ‘mean the gas field. © have com-.

-- pileted only the production phase of the gas field. I

- 491 have not mentioned. the gg#hering system or the Fritch

station or the booster stations or any of those features. 4

At Fritch, Texas, we have of first main line compressor _

station and gasoline plant. This. station is’ under. the

supervision of Mr. R. T. Powers. Mr. Powers is superin-—

_ tendent_of the Fritch compressor station and reports direct —

_ to Mr. G. M. Davidson, chief engineer and superintendent of

operations in the Chicago offige. Mr. Powers is supervisor

of that entire plant, which consists of a compressor station

and a. gasoline plant, and in this gasoline plant is installed

the equipment that performs the dehydration. In :general”

the words ‘‘dehydration plant’? and ‘‘refrireration plant’’

refer to the.same thing, except that I feel’ that the word

‘*dehydration’’ is more accurate and descriptive, and the .

words ‘‘refrigeration’’ is more indicative of how the de-

~ hydration is accomplished. The way they have been used .

in this récord those expressions mean the -same..

Coming to the compressor statioris of Natural Gas Pipe-

aun 2 ho | es NS daa a

Testimony of E. V. Kesinger. 673

line Company of Americag which number from 2 to 10, con-

secutively, these stations are under the superyision of Mr.

W. H. Davidson, superintendent of compressor stations »

for the Natural Gas Pipeline Company. Mr. Davidson is

located in the Chicago office. ‘ 7

Returning now to the Texas end of the system, we have

the gathering system and we have the main 24 inch trunk

extending from Fritch, Texas, to Joliet,.Illinois. This is

sometimes referred to in general as a transmission system,

and this property is under the supervision of Mr: R. G.

Strong, superintendent of pipeline opevation for Texoma.

- Natural Gas Company and Natural Gas.Pipeline Company .

of America: Mr. Strong has general supervision of the

‘present gathering system and booster stations and will have

charge of the operation of the future facilities that are in-

stalled to expand the present gathering system and booster

stations. His depaftiment has charge of all the field meters

and all of the sales metérs along the pipeline system.

The other divisibn@f the property is the telephone and

pressure dispatching department. We have-a_ privately

owned telephone system, extending from Fritch, Texas, to»

Chicago. .The system has various branches on it, connect-

ing it to the Amarillo office, various points in the field, all

of the compressor stations, and.the regulating station and

metering station at Joliet.. This department is supervised

by Mr. W. T. Bulla, who is located in,the Chicago office.

In the Chicago office we have Mr. G. M.. Davidson, chief

engitieer and superintendent of operations, to whom the

various operating heads report, namely, Messrs. Powers, .

Strong, W. H. Davidson and Bulla. Mr. G. M. Davidson

also has under his supervision the engineering department, -

made up of engineers, for preparing estimates for designs,

for special problems, and he has under his supervision the _

drafting room. ~ as ;

The special problems division of the engineering depart-

’ ment.is headed by Mr. R. M. Bussard, and we supplant Mr.

Bussard’s efforts by supplying him with additional person- _ |

nel. from the company or with consultant from the outside

‘when this is necessary. Mr. Bussard sometimes re-

492 ports to Mr. G. M. Davidson and sorfttimes he reports

to mé, depending.upon who has given'him the assign- .

ment with- which he is confronted at that time.. Rode

The Chicago office also contains another department

_ known as the accounting department. This is under the

supervision of Mr. S. E, Campbell, the Secretary and treas-

o X-

674 ' Witness for Defendants.

~ urer ‘of the two ompanies. Of céurse, this department has —

to do witht theJpooks of accounts and. records of the com-

tion 2,.and also of. the present booster station. Mr. Strong © —

has other superintendents up the line. .He has -three in

Mr. Hugh Smith, located at Great Bend, Kansas. Mr. Smith

has the immediate supervision of the 24 inch pipeline sys-

_ tem extending front Station 2 to the ‘Missouri River. He

has. Mr. KE. D. Warren, located at Station 9, which is near _

Harper, Iowa, and Mr. Warren has immediate supervision -

‘of the 24 inch trunk pipeline system extending from the

Missouri River to Joliet. ” i ak

Mr. W. H. Davidson, who supervises the operation of the

. compressor stations ofthe Natural Gas Pipeline Company

' system, has a superintendent in charge of each of the nine

stations under his supervision. This same general'type of

- organization is carried out in: gach of the other depargnents. °

_. Mr. Powers has supervision of his department. Mr. Ham-

merschmidt, who has testified. here, is in charge of our

Fritch laboratory, which is part of the Fritch station; and

Mr. Hammerschmidt reports direct to Mr. Powers unless

he is withdrawn from his regular assignments to investi-

gate some special matter. tae 2 ee

_ I have mentioned our ‘special problems department,

headed by Mr. Bussard..We assign to this department prob-

lems pertaining to the company business, but not imme-

diately. connected with the operation functions that are>be-

ing performed from day to day. These are problems that

we wish to have solved in order to gyide us in some future

capital expenditures or to guide us in some operating pol-

icy. The engineers in the engineering department are ust-

ally interrupted so frequently with requests from the vari-

2 in i an a —————————————

° ; . 5

’ : i : “

> : Testimony of E. “é Kesinger. : 675 ‘

_ ous s operating heads. that we find that we can make better.

progress with the solving of special problems by assigning

* to thém a group of men that are not interrupted.- Mr. Bus-,

sard’s efforts are supplemented by any additional per-

' 493 sonnel that may. be needed, and if we are unable to ob-

tain this personnel from the system we obtain consult-

ing engineers from the outside. —«

> We also have a new business department. This new busi-

_ ness department came under my supervision as of January

1, 1932, and it has been the function of this department to .

secure additional contracts for the sale of domestic gas, ad-

_ ditional contracts for the sale of industrial gas, and to de-

_ velop the market outlet under thesé two different kinds of

contracts. This department is in charge of Mr. H. O. Loe-

bell. Mr.-Loebell is a man that has had many years of ex- .

perience in the development “of.markets for natural gas,

particularly in his association with the Cities Service Com-

pany, and he is also a national authority on the combustion.

of natural gas. Thjs department has varied from twelve to

two men, depending a the amount. of negotiation work be- .

‘ing earried on. Wa have two men in that department now,

* one of them on part time.

As of January 1, 1932, when I became general superin-

tendent, our daily deliveries of gas were fluctuating between -

sixty- five million and eighty million cubic feet. Part of the

delivery was temporary. The firm portion of the delivery

was approximately fifty-five million cubic feet. As of that

_ time, that-left an unused capacity of 95 million. The total

capacity of the line as it was originally constructed was 175.

million cubic feet per day. —

* Down to that time Hatgral Gas Pipeline Company had

the July 25, 1931, contract with Chicago District pipeline

prises re and we had contracts for the sale of gas to four

small towns located adjacent to our pipeline. Those con-,

tracts were not closed trangactions so far as the activities”

of the pipeline were concerned. All that had been accom-

plished was the securing of the contract ‘and in most cases

natural gas service had been established, but there had been

no ‘market development take place either in the domestic

phase of the business or in the industrial phase of the busi-

ness.

‘From the stendpoitit of Natural Gas Pipeline Company

in connection with these contracts it was necessary, in.order

to utilize or realize the full potentialities of the market,,to

encourage and assist the — management in charge of

“the various properties in the development of their market

~—~Our new business department had to do with these- fur-

’ is necessary to conduct negotiations for the purpose of re- .

‘ a proper basis and keep their property earning its maxi-

, additional contracts and in the renewal of additional con-

676 ; Witness for. Defendants.

territory. These endeavors took the form of guiding them

into sale of natural gas for house heating and into the sale

of natural gas for industrial utilization at special rates.

ther promotional activities under existing contracts, and_

it also had to do with going out and getting new coritracts.

The promotional activities that we carried on under the con-

tracts then-secured were only.a part of the function of this

department.. We went forward in a very aggressive man-

ner, endeavoring to secure additional contracts for domestic

utilization and industrial utilization with other utility op--

erators that were operating gas properties in towns adja-

cent to our pipeline. This was one of this department’s

very major functions. pws : :

Although the pipeline system is now loaded approxi-

494 mately to its full capacity, it is still necessary to main-

_tain this new business department. It is not only neces-

sary to load a pipeline, but in the case of this line-a part

of this load was secured under temporary contracts, and it

newing the contracts’from time to time—in other words, to

‘maintain the full load condition. We also find that it is

necessary to have a départment of this type for the purpose

of. rendering what might be called service. Some. o '

utility operators, having had no previous experience with

natural gas, are confused at times as to what is the best -

licy to pursue, and due to the occasional industrial

hanges that take place in their property, they need guid-

ance as to what they should do to keep their own service on

mum. Consequently, in recent years, outside of the negotia-

tions for renewal of the expiring contracts, we have used ~~

this department largely for servicing the contracts already =

secured. | ries ies a

The line has been substantially loaded since the begin-

ning of 1936. The market negotiations directed at the load-' |

ing of the line were carried out under my supervision and... |

extended from January 1, 1932, until the beginning of 1936.

Since that time there have been negotiations resulting- in

tracts, but the majority. of the loading of the line, or the

negotiatioris that resulted in loading the line, occurred from

1932 to 1935, with the-exception of the negotiations that pre-

Testimony*of E. V. Kesinger.. Ct

- ceded the former date that resulted in the five contracts I

have previously mentioned. :

The building of this load involved cost to the pipeline

company in addition to the salaries and office expenses of

those engaged as operators in the new business department.

I have already referred to the amount of volume that we

- ‘were handling as of January 1, 1932, and in spite of strenu-

-- ous efforts on our part the sales volume realized in 1933 was

- less than it was in 1932., The depression was getting pro-

-. gressively Worse and we were faced with a very critical

situation. Consequently, it was necessary for. us to take -

. many steps in order to overcome the difficulties: and handi-

- eaps facing.us. In other words, to expedite the attach-

» encourage the development of the markets, we made cash

- eontributions to the new business activities on the part of

these utility operators that had signed contracts with us._

This expenditure totaled in the-neighborhood of $1,500,000.

‘These expenditures were cash contributions to the utility

companies and equaled a million and a half dollars. ©

We also made contributions to. those load building .cam-.

} paigns by furnishing natural gas under special contracts ©

-for limited periods of time at concession prices. These con- °

tracts of this type enabled the utility companies,.through

' concessions in price on the-industriak gas, to amortize the.

_ aditional capital that was required to make the natural gas

_ available to the industrial ‘consumer nd to amortize the

- eapital required,for the yard piping, the burners,:and the

_ ‘furnace. changes in the plants of the various industrial con-

Sumers. _ Bes nce ‘

Cross-Examination Interposed by Mr. Slaf.

‘It is not completely corréct to say. that those concession

prices allowed the consumer to amortize the additional

tt tl a i i th ~

There are two prices in the chain, our price and the

price of the utility to the customer. By making a conces-

‘sion price on our’part, the utility management was able to

make ‘a concession price to the consiimey, so-in those two:

divisions is the amortization of the capital expenditures on’

the part of the consumer and the capital expenditures on _—/

. the P sage of the utility that made the natural gas available. .

to the plant.. When I refer:to the utility management or

the utility amortizing the capital, I am referring to the

Pete

- ment of these markets at a more rapid rate and in order'to ~

495 cost involved to him. You can start at either end.

~ @

678. | Witness for Defendants.

utilities that signed contracts with Natural Gas Pipeline

Company of. America for the purchase of natural gas to be

resold for domestic consumption and that signed contracts

for the purchase of natural gas to be resold for industrial

- consumption ; in other words, our purchasers. '

Direct Examination Resumed by Mr. Morgan.

Theoriginal capacity provided for in our system was 175

_ million cubic feet a day. That capacity was increased :«lur-

ing the period from the beginning of 1932 to the end of.

1935. We increased the capacity, of the system.in various |

steps. We did this by making certain ¢hanges in the com- ~

pressor station equipment and by raising the intake pres-.

sure and the discharge pressure imposed upon the compres-

' some of the compressor stations in order to realize this in- .

ased capacity. I do not have the dates at hand as to just

when those steps were taken, but they were taken prior

to 1936. It was during the interval from the time I began

functioning as general superintendent on January 1, 1932,

and the end of 1935. ‘de |

— Questions by the Examiner, |

None of those concession contracts is still in effect. I have

not. refreshed my mind recently on the exact form that the

contractual relationship took that covered the payment of.

these cash contributions, but I can describe them in general.

We would approach the utility management operating *

the gas distribution property in a given town and by dis-

cussion and negotiations with’ the. management develop

that that particular town should have a market development

pertaining to house heating up to a certain point, or, at

least, to a certain degree. We would then attempt’to deter- ©

mine the cost of the campaign. that would. bring about _the

utilization of natural gas in this town to the extent that we

had discussed. In the total cost of the campaign would be in-

cluded such items as newspaper advertising, direct mail

Saul of the We also installed additional equipment in’:

—

advertising, direct solicitation, advertising of appliances, °'

and the establishment of*sales policies pertaining to the

sale of equipment on time payments, and many other costs.

a £0 \

ad -

=_ .

- no Ren

Testimony of E.V.Kesinger; 679

Direct Examination Resumed by Mr. Morgan.

That would include the demonstration of gas burning ap- ‘

* to sell gas] if those features weré incorporated in the sales

campaign.\|,The campaigns-were not always the same for

different towns. The campaigns were designed: to ‘fit the

particular town in which the campaign was to be conducted,

“4 - and in some cases it was necessary to set up demonstrating

=*% units in some public place where the utilization of natural

“= gas could be demonstrated in a moder cooking range or in

‘an automatic water heater or in an automatic gas fired fur- -

nace. . : 4 ; ene

“= - Having reached a general agreement as to the extent

> 496 of the campaign and the objectives to be realized and

= the cost of the campaign, we would then decide on what

portion of: this total cost we would bear. We made these

payments to the utilities in cash in various manners. One

common form that the payments took was this: We said

-— that for each additional house heating customer that you. -

*2 secure we will pay you:'X dollars: Also, we will consider as

“% an equivalent of a house heating customer the'sale of so

many space heating cireulating heaters, or the sale of so °

many radiant heaters. The attachment of any: additional

4 _ business, be it house heating through central heating plants.

yr heating through auxiliary equipment, was converted into

the equivalent units of house heating central heating

: plants. We then made our payment to the. utility based

upon the number of additional customers secured ahd the

extent to. which they carried out the campaign. That was

one very:common form of cash contribution. 4

Cross-Examination Interposed by Mr. Slaff.

>. ‘These new business expenses I have spoken of’ were-en-

* tered in our books of account; but I am not sure of the clas-

"Direct Examination Resumed by Mr. Morgan. .

I referred to increasing the capacity of the stalled “en /

| changes in the compressor stations. ,We insta addi-

tignal power or.compressing units-in the Fritch station,

' also in Stations 2, 3 and 9. We installed unloaders on the:

é °. ¢ .

680 , Witness for Defendants. ;

. compressor end of those compressing. units in al] of the —

stations of Natural Gas Pipeline Company’s system and'on —

‘a part of the units of the Fritch station of Texoma Natural —

as Company. . < >

An unloader in the sense I am using the term in connec. ~

tion with this property is an additiok to the compressor end ~

of the main compressing unit that miay\be used to vary the ~

’ amount of clearance in the compressor dylinder. *This per-

mits the operation of the compressor unit over a wider and 4

different range,of pressures than you could have operated - ~

it without overloading the main power end\of the unit with. 7

out the unloader. Saree en : -

We also raised the intake -and dischar e.

- the compressor stations, and I am not certain) but I'think we ~ ©

enlarged the dehydrating equipment in the gasoline plant. @

There may have been a few other minor changes I do not ~

think of atthe moment. - o Sy hea ae —

- I have been asked why we designed And constructed our ~

pipelfne’ with a capacity to handle 175‘million cubic feet of @

gas daily from the beginning, when we had a firm market « ~

for only about 55 million a day and a.spasmodie or tem-_ |

perary market for some twenty or. twenty-five million in? —

excess of that, instead‘of building it with Bs a to =

handle the gas that we had sales ‘for at the time we built it |

The volumes of sales [ refer to as existing January 1, 1932,

namely, 55 million firm and 80 million in total, including =

the interruptible, were -the volumes that the market then —

\. Tequired prior to the market development-and prior to the —

. connection of additional towris. “We, through investigation, |

‘had determined that the natural gas requirements of these =

rkets would be at least 175. million, if not more. *There- «|

, we attempted to select the most economical size of “=

: at could be constructed at that time to perform the ©

servicd that was expected and that would provide adequate ~~

' gas for\this area. _To have constructed a smaller ling ~

ene more in keeping: with the size of the load that |

497 would eome on originally, and later coRstruct a second . ”

' “\Jine and\a third line, and so on and so forth, would |

havé resulted in a cost far in excess of that which we had ~~

with ‘the single\jine andthe venture would not have been © |

feasible. . : | a, we: a

It certainly would havé been a bandicap to-our —— ‘=

up our load-if we had to go-out an® sell gas and theri-build 7

the pipeline to start delivering it. It has been our ex-, ~

perience that you have difficulty in negotiating contracts «|

pressures at —

2 ne Testimony of E. if Kesinger. Pa 681

for the sale of gas unless you can show that you. have the

gas to seil and show that you. have the financial ability: to

make it available. Having constructed this line and having

the gas in the field: and having a system that was oper-

ating, we were in position to talk about the sale of some-

| thing that we were.ready to deliver immediately.

We thought the economies to be accomplished by. building

this gapacity in advance and the advantages of our having

the capacity at all times available as we built the load would -

more than offset the interest and the maintenance and the

- operation and depreciation on the unused portion of our

-lme during that period of load building. We did not ex-

pect, howev er, that-it would require the length of time to.

load ‘this line ‘that it did require. We were wrong on the .

depression. ° f Cn canes :

Negotiation of all of theseAontracts consumed consider-

able time, some contracts fore than others. I would say

that. negotiations semetinfes extended over a period of

months and sometimes ovgr a period of two or three years.

The difficulty we encountered was that it was necessary for |

us to convince the management of these utilities that the —

introduction of natural gas into their property and the

-. changing of their service from manufactured gas, to mixed

gas or straight natural gas would prove to be easible rom

their viewpoint.

‘It cost money to ¢ ange over from artificial gas to ane:

. ural gas. The utilities in introducing natural gas have

_ what is called the change-over expense. . This involves the

“expense of adjusting all their customers’ appliarices to |

consume the natural gas rather than thé gas that had been

distributed fortherly. They also had certain capital ex-

penditures. In some cases the utility laid lateral lines to

_. the city in order to take the straight natural gas from the -

| — of delivery on our system into their distribution plant.

ometimes it had capita) expenses forthe installation of

equipment in order to odorize the natural gas before it was

distributed.’ Sometimes they had expenses to their equip--

- ment if they were going to distribute mixed gas, a blend of.

natural and manufactured or a blend of natural and coke

oven gas. - The utilities had various expenses of. that kind

und they also had the problem of working out the new rates

with their regulatory bodies. Usually these negotiations re- ._

Ited in the rates to the consumer being reduced, with the

result that the pees economy of the utility’ —

was a apes

__ would be resold to the consumer, we still had opposition.

682 Ny Witness for Defendants. —

Cross-Examination Interposed by Mr. Slaf.

I can give you a list subsequently of those instances in ‘4

which rates to the consumers were reduced. _ | ee,

498 | Direct Ezai. ination Resumed by Mr. Morgan.

We met with other sales resistancé in addition to that —

coming from the natural aversion on the part of-those with —

“ whom we were negotiating to spend additional money and to ~

go to all of the expense and trouble incident to making the ~

changeover. There were other elements of resistance en-

countered'in our efforts ta develop'these markets. . Even

after we had th? utility: management ‘convinced that the

venture wag feasible, and even after an agreement had been

reached in’regard to the rates at which the natural gas

This opposition came from a different source, usually from

those interests that were financially affected by the intro- ¢

duction of natural gas, namely, the railroads, the coal pro- ~~

ducers, cdal dealers, and some. labor unions. These fac ~

tions sometimes took an aggressive position early in nego |

tiations and sometimes later. They occasionally appeared %

before regulatory bodies trying to prevent the introduction ©

campaigns designed to create uneasiness in the minds of |

the public. ae . gs

‘By alleging that natural gas contained dangerous sulphur ||

compounds and was injurious to the health of the consumer, 4%

and by alieging that natural gas would darken the pots and &

pans and the silverware of the housewife, they attempted

- to emphasize that the utilization-of natural gas in the home %

was extremely dangerous, and whenever they could locate - |

some instance where a catastrophe had occurred in connec- |

tion with natural gas they gave this incident wide publicity. 7

* .of the public by pointing out tothe delivery trucks and the 4%

local coal dealérs how it would affect their business. These 7

efforts on the part of the various interests were not always

the samé in every locality. Sometimes in some places they ~

were more aggressive than others. Railroads even went to |

the extent. of establishing special freight. rates on coal to =

towns where it was proposed natural gas he intraduced. = 7

In.the case of the jodesteial consumers, these.consumers, ~

were concerned with the cost of the yard piping, cost of —

1 fo?

‘Testimony of E. V. Kesinger. — 683 «C.

burners, cost of furnace changes, if any were necessary, -

and they were also concerned With the utilization of natural

gas and how the use of this fuel in their plant would affect

their product.. The industrial consumer was not interested

- in taking these chances unless he could see that. his addi-

tional capital for the lateral line and burners could be

amortized and he-could also realize some saving to himself:

in his fuel cost. | ES ane ee

‘The element of interrupted service was one of the dif-

- fieulties we had to deal with in: our effort to dispose of in- -

| dustrial gas. The coal interests, in an endeavor to hold the

industrial consumers of coal; would point: out to the pros- ,

) pectiye industrial customer that this gas was coming from

. the “tate of Texas, that its service might not be reliable, . -

and that a shortage of fuél might be extremely expensive,

and this hdzard was particularly emphasized in the case of

- the glass customers. The nature of this particular process —

| is sueh that a sudden interruption of a fuel supply would

result in loss of a considerable amount of product and might

) even spoil some of the furnaces. . Sera eee

499 “In negotiating these contracts for the sale of gas -

| to be used as industrial fuel, we were not able to assure

the purchaser, and our purchaser was unable to assure his

purehaser, that he could get this gas continuously from day

to day, from the first of the. year to the last of the year.

We did not attempt to sell the industrial gas on that basis.

The contracts covering the-sale of natural gas for domestic

utilization gave the purchasers of gas ander these contracts

prior rights to a supply of gas, and our obligations in re-

gard to the class of service to be’ rendered under . the

domestic contracts were different than the obligations that |

we assumed under the industrial contracts. It was neces- _

' sary to give ‘these domestic demafids prior call on our

--eapacity; otherwise they would ‘not ‘be interested in the

contract at all. i Oi

+ Gas used for domestic purposes is subject to:a fluctuat-

ing demand in different seasons ofthe year. We were

able, with a capacity of 175 million, to protect the domestic

““Ysers who relied upon our system as, the source of their gas.

So that they would at all times have their full needs: for

eng requifements, whether it be cold or hot or whether

_ they wanted to .céok a big meal or.a little one. I explain |

that in thisway: | Sees pee

, The carrying of the two classes of service on a pipeline

, facilitates the rendering of the preferred class of service.

etd

\ iy

3? :

"684. —. Witness for Defendants.

By that I mean having contracts for supplying natural gas

‘to doméstic markets and also having contracts for supplying’

natural gas for industrial markets enables us to render a

more reliable and a more cerfain service to the domestie

gas being transpor through the system, because of the

“increased amount of gas packed in the pipeline system, and

‘~ because the Consumption to the industrial-consyzfer can be

interrupted to meet the peak requirements of the domestic

utilization. aoe gi

Therefore, regardless of the weather -and the calls upon

our system for gas for such purposes as cooking #hd house

heating and other domestic usage, we are alw able to

supply those requirements because t é well below the

total capacity of our line,. except, of course, when we may

be confronted with some catastrophe such as a complete

If the domestic load during the winter months or some

season of blizzard reaches a point where we are not able to

sell thé quantity of gas that we have“been selling previ-,-

ously to our industrial customers, the operation of the vari-

ous classes of contracts is such,that the first delivery is to

the domestic contract and the domestic consumer. Conse-

quently, the entire requirements for this market are met,

and then if there is any additional gas remaining it is sold

. to the class of ingustrial consumers: that have purchased

- preferred service in the industrial classification. In other

words, when we have not the gas available after supplying

our domestic demand, some industry has to be cut off until

that domestic demand goes down to where we have the gas.

available. That happens frequently.

500 Questions by the Examiner.

Natural Gas Pipeline Company of America has approxi-

mately seven direct contracts with industrial consumers. I-

am not certain of the exact number. When I referred to

industrial contracts, in my previous testimony, I was not

confining the term to the industrial contracts that we hold

directly with the industrial consumers. I-was also includ-_

ing all the contracts that we have with the utilities to cover

sumption. ‘Our ‘obligation to deliver gas under our indus-

trial contracts with thelutilities is contingent upon the util-

ities following a certaif schedule in their delivery of nat-

strial-con-

‘Testimony of E. V. Kesinger.. _- 685

ural gas to their industrial customers. That is-not a part

of the agrcement of J uly 25, 1931. gs .

By requiring the utilities to’ curtail delivery in a certain

order-in our industrial contracts with the utilities, we auto- ,

Pies ~——ynatieally assure that the service to the domestic market will —--

not be interrupted. The utilities, in turn,, take certain ~

steps in their contracts with the industrial consumers to

enable them to carry out the proper program, but the

clauses in these contracts between the utility and the in- ~

dustrial consumer are not.uniform in language or in prin-~

ciple. We do not require that the utility submit.to us for-

Mace | eas ussiaieect cpntract.

Direct Examination by Mr. Morgan Resumed.-

Natural Gas Pipeline Company has negotiated 161 con-

’ negotiated and signed by January 1,°1932, at the time I

took over the supervision of the new business department.

Howevér; I have been concerned with these contracts since

they were executed, particularly with those phases that- .

pertain to market development under these contracts. With -

all of the other contracts included in the:161, I have super-.

ised the negotiations that led up*to the execution of the

~ eontracts. -I have participated in the negotiations inca

great. many instances. .

Of these 161 contracts, 47 are still in effect. Of those 47

contracts, 20 cover a supply of natural gas to be resold for

domestic utilization.’ These 20 contracts: are ordinarily re-

ferred to as firm contracts. Our obligation to deliver under

each of those 20 contract: is a firm obligation as opposed

to interruptible. — : : a9

These 20 contracts continue in effect for a definite time,

7 a but not all for the same length of time. One of these con-

tracts expires in 1939, eight in 1941, and eleven in 1946.

Included in the eleven is the July 25, 1931, contract with the

Chicago District Pipeline Company, which may be extended

, fora period of five years beyond 1946 at our option.

~. That leaves 27 of the 47 contracts for other than domestic’

'’- purposes. Two of the 27 are Texoma contracts, covering

the sale of. natural gas at the mouth of the well. to other —

contracts between Natural Gas Pipeline Company and in- ,

| dustrial consumers direct. There are approximately seven

————_$______—_

686 | Witness for Defendants.

of those. Iam not certain as to the exact number. The

501 remaining contracts in that ‘group are industrial con-

tracts with utility companies covering a supply of nat-

' - ural gas to be resold for industrial utilization. -

Tre oaas ene “The two contracts of Texoma to which I referred are with —

*-other pipeline interests, and are in addition to its contract

with Natural Gas Pipeline Company of America. Texoma

- has tyo contracts covering the sale of natural gas at the

mouth of the well to other pipelirie interests. One covers

the sale of nafural gas from Texoma wells located in

‘Wheeler County, and this contract is with the Lone Star:

.Gas Company. - The contract is subject to cancellation by

either party on sixty or ninety days notice—I .am not cer-

tain which. ‘The other contract id for the sale of natural

‘gas from certain Texoma wells located in Gray County and

is with th® Coltexo Corporation, I believe theré are five.

- ..wells involved in the Lone Star contract and- rae wells

involved in the Coltexo contract.

~ As-to why we sell gas when we need it caions some

of these wells are located in Wheeler County and some in

_ Gray County, and when we constructed the gathering sys-

tem we deferred extending it sufficiently to permit those

wells to produce into our own pipeline ‘sysfem. ‘Farther-

more, the wells in Wheeler County were then connected to .

the Lone Star Gas Company and we were receiving revenue

from. the sale of the gas. All of those wells were already

on the original blocks of acreage that we acquired.

These wells are so remotely situated with reference to

our pipeline system that we cannot deliver the gas from

them into the pipe line and we do not deem it economic to

build to them in the light of the fact. that we have more

. gas than we can sell to the west of there. We had the

choige between selling gas from the wells to those interests

tha{ were willing to buy it or to make the necessary capital

expkepditures to connect the welis into our. own system. Due

to the development situation on the acerage adjacent to

‘the paso constructed, we have not needed. the gas from

these wells and have continued to sell it. If it is not sold,

it wili be drained away from Texoma’s properties, and we

_are selling it and putting the revenue into our general

‘Fevenue.

= {Request-by—counsel_to- the two vommissions. for- data

\. underlying the economic problem ‘outlined in ‘the foregoing _

paragraph objected to by counsel for the company.. The

. Examiger t took te request under advisement.)

\ Testimony of E. V. K estuger.. 687

As a matter of fact, under the conditions in that field,

Texoma would not be able to produce any more gas into its

system during the life of ‘the field if it had those Coltexo-

and Lone Star wells connected to its pipeline system. The

"have been drained away from Texgma’s properties, and if

we were taking a part of our load from those wells in

Wheeler and eastern Gray County that drainage would

have been increased somewhere else to offset it.

: - ‘The 25 industrial contracts, whether they be directly with |

the industrial consumer or with purchasers who in turn re-

sell to the industrial coisumers, are not permanent con- _

‘tracts? They are relatively short in length. Fifteen expire

. in 1939. Three expire in 1940; four in 1941; one in 1942;

and one-in 1946, and one contract runs. until cancelled by ;

either party 5 on thirty days’ notice.

. 502 It is my experience that when it is necessary to re-.

new these contracts a certain amount of negotiation i is

< required. The. amount is not always the same in each in-

stance, but the utility with which these negotiations might

be conducted often has changes that it desires to make in

the contract, and:sometimes the negotiations pertaining to

these changes consume considerable time.

These contracts do not all provide for the same price.

The price in these industrial contracts is the result of |

negotiations, and the difference.in price is accounted for by

' the difference in the service to be rendered by.us in deliver-._

i - jing gas under the contracts. We naturally negotiate for:

the highest price we can obtain on these contracts. The

“difference in price is due to the class of service that ‘will be

rendered. undér the different price classes. I. mean that

the higher priced industrial contract:enjoys a class of

service superior to a lower priced industrial contract. I

am speaking of the industrial contracts between ourselves

pnd the utility which resells the gas to the industrial con-

sumer. The utility in reselling the gas to the. industrial-

consumer makes priée classi fications based upon the class

_ of service rendered also.

| By the class of service I mean that the lowest priced in-

dustrial contract is the service. that is interrupted first

-. » when there is a shortage of natural gas.. Following that

= ——the-next Jowest priced-service_is-interrupted- if _thereis—

: still a deficiency of. supply of natural gas. In other words,

if we have a heavy call on our capacity for domestic gas

due to cold weather or some other consideration, aud it is

record already ghows that tremendons quantities of gas ~~

* > 688 - Witness for Defendants.

necessary fo cut off temporarily a part of our > industzial

~ load, we cut off the fuel on the one that is paying the least

for it first,

That happens because the total annie of gas available,

of course, limits the amount that can can be resold, and the

Company and the various utilities is such that it requires

_ the utility to eurtail or discontinue service to those cus-

tomers in the lower priced utilization. .These customers:

are sometimes grouped into general classifications, namely,

boiley fuel customers, steel customers, glass. customers.

The general scheme of the operation of the: contracts is

that the customers paying the highest price for the. in-

dustrial gas are interrupted. last, and, in turn, our’ obli-

gation to deliver the gas for the, highest priced industrial -

consumer follows immediately after our obligation to de-

_ liver the doniestic gas and before we deliver any gas for

any lower priced industrial contract.

In conducting these negotiations we find: that the man

whois to be interrupted last and who may have a good ~~

chance at continuous service is: willing to pay more money

_ in order to be placed in that position.

As a practical matter, that limitation which we place

“upon our purchaser in our contract for the sale of indus-

trial gas imposes the same limitation upon our.purchaser .. —

when he restlls it to other customers. I have already stated

that our industrial contracts with thé utility companies

require that the utilities carry out this scheme of curtail-

ment to the lower priced industrial customer before they’

curtail deliveries to any higher priced industrial customer.

_: This is done by stating that our obligation to deliver

503 anv quantity of industrial gas is ae — their

following the said schedule. cee

- Questions by the Examiner.

‘Ve do not have a.similar provision in our July 25, 1931,

_ eontract, with Chicago District Pipeline Company. That

- edntract covered a supply of gas that was to be a firm

supply, with the exception that it did cover for a-short .

_period an additional supply of natural gas which was not

firm and which-was-to-be_resold_for-cortain-specific_uses————

Ine-that case we had only one contract involving two classes

of serv ice and only one pee involved in the interruptible a

, a Testimony of E. V. Kesinger. | 689

clasis' ene service. ' Later we negotiated industrial ‘ieatonsie:

- with the. Chicago District. By that I mean contracts cover-.-

ing a supply of natural gas to be resold for industrial util-

ization. These contracts ‘came into existence in a certain

order. ms

_ In the first contract there waz a supply of natural gas to

_ be resold.as boiler fuel. Later there was another contract »

for a supply of natural gas to be resold to steel companies.

There was also a contract covering a supply of natural gas

‘to be resold to glass companies..: ‘In these three industrial .

contracts, with different prices, different service require-

ments were imposed upon the utility.

In order that the service to the highest priced industrial |

class of customer be satisfactory, and.in order that those

‘ eustomers be retained, it was essential that the service to

those customers be not disturbed at the time when service

was being rendered to industrial customers paying a ‘lower

price: Consequently, the arrangement and provisions of

the industrial contracts that operated separate from the”

July 25, 1931, contract was such as to require the utility to

» make delivery to the highest priced industrial customer -

and then to the next priced industrial customer, and that

in the event of a deficiency in the total amount of natural

gas available, the lowest priced industrial customer would

be interrupted prior to any other priced class. of customer.

”

Direct Examination by Mr. Morgan Resumed.

‘The industrial customer is not bound to consume ‘any .

quantity of natural gas. In‘effect, these contracts are. op-

- tions on his part as to the amount of natural gas that he

_ takes delivery on_and consumes.’ The contract serves the

purpose only of stating the price that is to be applied for

_ the amount that he does take and consume, if he takes it.

In addition, in some cases there was incladed in the con-

tracts between the utility and the industrial consumer cer- |

tain minimum monthly charges for the purpose’ of amortiz-

ing the capital in the ‘industrial meter that the utility -pro-

vided for meté@ring the gas to the consumer, but, in general, |

the contract between the utility and the industrial consumer

3 is in effect an option on the part bf the consumer, and. he

> ean take the gas-and consume -it-or_he-ean leave it. Our

purchaser has that. same option with reference to te gas

going to ‘oat kind sal a customer.

690 | "Witness for Defendants.

This element of uncertainty 0 erates to vary the de- -

_ 904 mand for industrial gas from time to time. It is not .

only the element of uncertainty, but the particular busi-

_ness conditions affecting the industry and the particular

policy that that industry is following 1 in-regard to the num- ~ 3

ber of days per week that it operates, and items of this

kind affect the demand for industrial gas. If the industry °

is shut down or curtailed as a result of adverse business

situations, the deliveries under the indusfrial contracts go

down the same as the consumption of the customers goes |

dewn. This is-brought about not only by business condi-

tions, but is affected to seme extent by weather conditions.

This runs into subst: ntial money. For instance, between

’ the year of 1937 and the year-of 1938, the volumes of nat-

ural gas délivered for industrial consumption declined from

29,118,904,000 eubie feet in 1937 to ‘24,304,875,000 cubic feet

_ in 1938. The revenues deélined from $3, 775, 215.64 in 193%

to $3,069,485.53,.a difference’ of approximately $706,000.00.

o Cross-Examination by. Mr. Booth Interposed.

We have participated in negotiations between the utility.

and the prospective industrial consumer in many instances.

When I use the term ‘‘utility’? I am referring to all the |

utilities that purchase gas from us.

In recent yéars I do not recall thaf any prospective in-

dustrial customer has applied directly to us fur service ex- _

cept customers located immediately adjacent té our line or

customers located outside of corporafe limits. In the early

days, back ‘in 1932 and: during that period, there were in-

stancey where the industrial customer applied to us for

| service.

Direct Examination by Mr. Morgan Resumed.

As a matter of fact, the pressure is generally from us to

the.utility and from the utility to the prospective customer

in order te acquire and attach this business.

. Questions by the Examiner. . «

We ‘do not ‘sign the contracts between the: utility and the

industrial consumers in any Way as guarantor of the agree-

ment. Our industrial. contracts with the utilities’ require.

that those Cyntracts be sumitted to us; but we are not a

‘ Testimony of E..V. Kesinger. ;, i :3:)

party in any way to that agreement so far as signatures are .

neerned. ~ , :

I have been asked as to the protestion of the’ firm load

_ against the operation of the industrial contracts.” The July

"25, 1931, contract between = anes gr Company

of America and Chicago District Pipeline Company pro-

vides. for a firm supply of natural gas, and Natural Gas

- - Pipeline Company is efitled’ under that contract in all

events except in the case of force majeure, The pipe-

905 line company has no option about delivering the quan--

tity required under that contract. The pipeline com-

pany delivers additional quantities of natural gas to Chi-

_eago District Pipeline Company under otlier contracts

_ Which are termed industrial contracts in general and which

provide for an interruptible supply and these contracts con-

_ tain.a provision that in effect protect the quantity of nat-

ural gas required to be delivered under the July 25, 1931,

contract. '

The: Chicago District Pipeline Company is. required to

submit copies of the contract that they or the local utility

executes with the industrial consumer, after the contract is

_ exeeuted—that is, the contract between the Chicago Dis-

trict or the local, utilities and the industrial consumer. They:

- are submitted to us after they are executed.’ ‘It. is not re-

quired that we approve those contracts. It is required that

they file them with us after they are executed in order that

we -be informed a he situation and to facilitate our

preparation of the gas bill at the end of the month.

I recall only one instance where we sat in the negotia-

tions between our purchaser and the prospective industrial .

7 consumer. In that instance we were’ present.in order to

. stimulate the interest of the prospective customer in the

use of natural gas and to determine whether or not we

could be helpful in explaining to the prospective customer

how he could use natural gas in the proposed: utilization.

As stated, the pipeline was loaded.from early in 1936.

‘ _ The volumes of natural gas sold by Natural Gas Pipeline

__- -. Company -of- iea- -

' tracts for each of the years have been as follows: 1936,

' » 44,568,561,000 cubie feet; 1937, 45,357,989,000 cubic feet;

1938,-44,454;164,000 cubic feet. The average of these three

a ‘

a 2

“ag r

‘3 -

rs '

al e .

. aes . es are -- .

. me . . . ~e Se Rae rts a ME, MOR Re ee eh 45 eott is ee oT

a A a fa ae naa yar easy: ie) aces rae BS esa . , ;

° oe = . -

4 . £ . .

692 | Witness for Defendants.

Thé volumes of gas sold by the company during the same

period under its interruptible_ industrial contracts have |.

been as follows: 1936,.25,046, 776,000 cubie feet; 1937, 29,-

875,000 cubic fect. The

Ga 118,904,000 cubie feet; 1938, 5 2 7

- and equipment have been in an efficient o

average for the three year ‘period: is 26,156, 852,008 cubic

— feet,

The seusbined: viele for domestic and. industrial sales

for each of the three years have been: , 1936, 69,615,337,000

cubic feet; 1937, 74,476,893,000 cubie feet; 1938, 68 759,-

039,000 cubie feet. The average for the three year period =

~ is 70,950; 5423,000 cubic feet.

Based on my experience through the entire operating ve

. of this pipeline company .in negotiating the varioys

tracts under whieh-Natural Gas Pipeline Company has sold

' and '‘délivered gag, and my. knowledge of. the conditions un-

_ der which we are now marketing and will ‘market natural

gas in the future, I have an opinion as to the volume of

gas we will probably be able to sell and Goliver over. the -

_hext ten or fifteen years.

Assuming tliat the natural gas’ is available par ean be

economically produced, which will not be for a period of

_. fifteen years, my judgment is that the average annual vol-

ume that Natural Gas Pipeline Company can expect to sell

~ yvear-after year in those years when the gas is available

506 is an average of the three year period, 1936 to 1938 in-

clusive. This average volume is 70, 950, 423,000 cubic

grat ee

Date tie. period of 1936 te 1938 icp, the systenr

We have operated this system at capacity, in fact on many

days in each of those years the main compressor units have

been operated at loads in excess of their normal.rating.

In arriving at this average sales volame for the future,

which | expect to be the maximum average sales volume per |

vear that this company can expect to realize, I have not /

only considered the condition of the equipment and the wa

it has been operated, but*I have also considered the load.

conditions that ave Kave experienced, the seasenal i

ences on these loads at various points, and I conside

| ee of the past three year. period a good meastire of

W e may. have octasional. years when'we will exceed this

‘average sales volume, but we will also have years in which

we will not realize the average sales volume, as we did in

1936 and 1938.

rating condition. *

ty,

pee

Testimony of E. V.K esinger. — 698

I have said that we will not be able to sel] and deliver

these volumes over the next fifteen years because we would. ~

_ not have the gas available. As.to the:period over which I

think we will have gas which can be economically produced oe

’ and made available for sale.in such volume, I will say that,

assuming that we continue to make the capital expenditures, -

necessary to carry out an adequate development program™

on Texoma’s acreage and that the nécessary capital is pro-

vided for the lateral lines, meter stations and booster sta-

tions that will be needed later in order to produce these

wells into Texoma’s system, and assuming.also that proper

operating and maintenance expenses are incurred to keep

the system in efficient operating condition, and that Texama

_ does not lose any gas wells connected to its system, I think

' . we might be able to produce the necessary volumes from

Texoma’s property to market the volume stated from. the ~

_. system of Natural Gas Pipeline Company until the end of

‘1951 or early in 1952.

- However, by this time the’ rock pressure of Texoma’s.

welly4re going to have declined and will range between 75

pounds and: 135. pounds, depending upon the particular

part of the field in which they are located. Also, in my

judgment, ‘Texoma. will have lost a large number of wells

due to salt water, due to changes in the producing forma-

tion, and due to mechanical defects.

Afready in the Panhandle field there have been some 80

or 90 wells abandoned at pressures in excess of 100 pounds.’

Texoma itself has plugged eight wells. I know that Tex- |

* oma is going to lose at least six additional wells in the next

two or three years. We are also currently finding it neces-

sary to blow Texoma wells in order to free the-well bore of -

_eavings, and water, and in order to clean the producing

formation.

‘ We are:able to keep the present Texoma wells i in an

507 efficient, producing condition, now by this blowing oper-

ation, except in occasional instances where it has: been

necessary to move-in clean-out, tools and carry on rather

- extensive clean-out operations in order to restore the well!

to proper producing conditions. This method of condition-

ing wells is particularly effective now because of the pres-

-Stires that exist in-the formation, being pressures sufficient -

to flush the formation and to prevent it from clogging.

However, in later years, after the pressure has declined,

_ the method of blowing wells for the purpose of cleaning

* r)

694. - | 3 Witness for Defendants. a

the producing’ fortaation will not be as effective a ry is ‘at

- higher pressures.

I feel certain that Texoma will lose a eee aN num-

.ber of wells due to the clogging of the formation, die to —

mechanical changes in. ‘the casing, and due to changes in the

formation; and, in my opinion, the lowest .safe pressute

condition that. Texoma. can expect ‘to-have all of its wells\

perform at is in the neighborhood of 100 pounds. °

I am not able.‘to predict the number .of wells that Tex- >

“oma is going to lose, nor am I able to predict the time that

it will lose ‘them. I am certain that déclining reservoir

- pressures and other.changes in the field will dggravate the -

"problem of keeping thesg wells in good producing condition.

I have in mind:also that in the later years Texoma will

be producing its wells at a higher per cent of their open -

flow than the average condition that now exists on Tex-

oma’s wells. -In general, we are now operating at from .

eight to ten per cent of the open flow of the wells. We have,

however, in. times past-operated some of our wells.in ex-

cess of twenty. per eent of the open flow of the well, and we ~~

have found that this operating condition increases the gp-

erating difficulties of keeping the well in proper producing .

condition, because it accelerated the clogging of the forma-

tion and. it seems to accelerate the intrusion of water into

the well bore. .

By 1951 the majority of Texoma’ s wells will be produc.

ing at.25% of the open flow of the wells, or some time prior

to that time, depending upon the-number of wells that Tex-

oma loses, and depending upon the amount of drilling that

4s carried on, and matters of this kind. I am convinced

that, as a practical. matter, the situation associated with

: Texoma’s wells will bring about_a shortage of open flow

two or three years prior to 1951 -to the extent that Texoma

‘will not be able to furnish the necegsary_yolumes to enable

the pipeline company to realize-the sales“volumes, the -av-

‘ erage sales volumes, that I have redicted and that con-

‘templates the development of oma’s l¢aseholds to the

maxifnum extent that we believe i is economitally advisable.

» TP

When the time comes that we cannot deliver the full vol- « ,

__ume of gas w hich T have stated, namely, the average. vol-

ume which the pipeline has sold —

years 1936 to 1938 inclusive, whether that be in 1951, 1950,

1949 or 1948, we will then discontinue the delivery of nat- ;

ural gas under the interruptible industrial contracts that

carry the lowest ‘price. This operation will be continued

ae Ry eee tte eae

Testimony of E.V.K esinger. 695

2 - bas: \-° oo. - : -

' from the. lowest price\to the ‘next highest price contract

until we reach a sales volume that is so’small that it will

not be advisable to operate a system of this magnitude.

it will no longer be economically feasible to operat® Aid

the’ pipeline, because I do not know when or in what yefr °

__we will be forced to curtail our sales volume due to lack of

: pier wy open flow, nor do I-know the abandonment pres-

‘sure that Texoma will evéntually be forced to discontinue

operations upon. The best that I can do is to indicate that

~ necessary production for this pipeline sales volume, it will

- bé not more than three years before Texoma’s rock pres-

sures‘will have declined to a:pressure of approximately 25

pounds. I mean three years from 1951.

’ tion is arrived at by careful analysis that has carried into

\an investigation of Various matters connected with the Pan-

handle field, and I will describe this analysis in more detail

later. My statement of three years from 1951-is based on

the assumption that.we will be able to go on with our full: ..

volume to that year. i ee eae ae

_If by reason of circumstances or contingencies which |

have pointed out we reach the point prior to 1951 when

we will no longer be able to deliver the full volume and

‘we have to start curtailing our volume by cutting off the

lower priced gas, then as to how long-I think it will be

- from that time before the pressures will be pulled down

« to 25 pounds, if we are able to go that low, I will state

that the analysis that was made 4o determine the period of

-~ declining sales volume that we might experience was made

‘- by assuming that-Texoma would have sufficient open flow

unti! 1951 and would be able to produce its wells down to

~~ §08 Ido not know when-we-will arrive at the point when

following the time when Texoma is unable to supply the” __

This determina-

25 pounds. However, 1 indicated that as a practical matter 4’ —

I do not believe that Texoma is going to be able to keep *

all. of its wells in- producing condition, and that when the —

reservoir pressures decline to a pressure inthe negihbor-

o hood of 150 pounds and the rate of production approaches

25% of the open flow of the well, the abandonments will

inerease and the rate of deeline in the open flow will be

‘accelerated because of changes in the producing forma-

tion brought-about-by-salt water-and_the clogging of the

‘formation. Consequently, it may be as much as two or

three years prior to 1951 when Texoma’s leaseholds will

not be able to supply the necessary gas.

The figures ‘I have given for the sales in 1936, 1937 and |

Own." ae

696 ? Witness for Defendants.

1938 and my estimate of sales in-the future weré on a

_ pressure base of 14.65, which is the pressure base employed

in billing the gas. _

4ne revenue received from the sale of natural gas b

Natural Gas Pipeline Company for 1936 was $13,732,517.01;

for 1937, $14,576,817.42; and for 1938, $13,769,434.41. The q

_ average for-the three years is $14,026,256.28. - ase = &

Breaking those figures down into the amounts reteivéd .

from the sale of firm gas ‘and industrial gas for each of

the three years and the average over the same period, ‘the

amounts are as follows: pore

. In the year 1936, the firm revenue was $10,650,340.52, °

909 and the industrial revenue, $3,082,176.49. )

In the year 1937,.the firm revenue was $10,801,601.78, _ ;

and the industrial revenue, $3,775,215.64. Ye 3

,in the year 1938,.the firm revenue was $10,699,948.88, 4

and the industrial revenue, $3,069,485.53.. : iseelerae

The average firm revenue’ was $10,717,297.06, and the

“average industrial revenue was -$3,308,959.22. ‘pa

- Ihave an opinion as to the amount of revenue to be q

received by Natural Gas Pipeling Company during future a.

_years. My judgment as to the average annual revenue f

that the company can expect to receive from: the sale of

natural gas in those years when it has sufficient gas avail- ;

ablé is an average of the total revenue from sales for the " #

past three years of 1936 to 1938 inclusive, or $14,026,256.28.

That is the average for those three years. RE

My opinion is based upon the capacity of the present

system and its efficiency and ability to deliver gas, upou

the effects upon that equipment when it delivers the neces- .

sary volumes to produce this revenue, and upon my: knowl.

edgé of the markets that I have gained as the result of a .

number of years of market negotiations with the utilities

. that are now purchasing this gas in the territory. which

we serve. I am certain thatthe capacity of the’ present

system and the position now occupied by the utilities that.

purchase from us preclude this ipeline company from

realizing larger annual revenues than the average of the

past three years. - . °

When we get to the point where we will not be able to

as our

. annual outlet, the annual revenue will decline as the sales

volumes decline. “As I mentioned previously, the lowest

_ Priced gas will be the sales that will be curtailed first. ..Con-

sequently, the ratio between declining sales. volume and

Testimony of E. V. Kesinger. | CF

declining revenues will not have a direct relationship, but

will be the résult of. delivering less volume of low priced.

__ gas than had been delivered in the past.

In stating the average figures for the period during

whieh we can sell-and deliver the total volume estimated,

will exeGed that revenue. I am talking about the average.

annual. revenue that this pipeline company can realize. .

We may have years in which the annual revenue will exceed

the average, as we had-in 1937; but we will also have years

‘ when the annual revenue will not equal the average, as we

hid in 1936 and 1938.

- As between the gross revenues’ received from gas sold

for domestic use and: that sold for industrial uses, my

judgment is that the average of the past three years repre-

sents an accurate division of the revenue between firm

domestic contracts and industrial contracts. I do not see

' any opportunity to increase the sales for domestic use,

910: which carries a higher price, and a corresponding de- -

crease in the gas sold for industrial yses. There will

be.variation$ in the volumes consumed by the domestic

‘market; but the result of these variations will approximate .

the average of the past three years. We have, through .

‘intensive efforts, arrived at a point in the development of

these markets which I feel represents the ultimate develop-.

ment that we can expect to realize in this territory.

I see no opportunity in the future to increase the volumes

of gas sold for industrial uses at the higher prices, with

a corresponding reduction in the gas sold for lower prices.

The average of the revenue received from industrial sales -

during the past three years, in my judgment, represents

the annual revenue that we can expect.to realize year ‘after

year in the future from the sale of industrial gas. The

reason this is true is-that the capacity of the present system’

limits the total amount of gas that is available, and since -

the domestic markets have first call on the total quantity |

that is available, the only amount that can be sold in the in-“

dystrial markets is the difference. The amount of natural

‘gas that has been sold in the industrial markets at higher

prices is, in my opinion, the maximum amount that should

trial Customers. will be jeopardized and the entire situation

come demoralized. _ > ; kee.

It is possible that prices for industrial gas will decrease.

It is also possible that the prices to the customers may

Snes ibe s ?

— | —E

698 - Witnes for Defendants.

increase; but I am talkigg about the revenue that we can

expect to receive from tl sale of these industrial volumes

rather than the revenue fhat our purchaser receives in re-

selling this gas to the in

1 feel sure that we will fbe unable to. raise our prices, and

I think. there is consideffable question as te our ability to

maintain the present cofftract price schedule.

I made a statement t@ the effect that if we undertook to

increase the volume of. Fas sold in the higher brackets for

industrial uses, we: Ww

strial consumer. In other words,

ld endanger the quality of our:

. service and might bringfon a chaotic condition. I can illus-

The total pipeline cayfacity available, after we serve the

markets enroute to Clificago, is 185 million cubic feet per

day. Our obligation fo deliver under our ‘firm domestic

contracts with the Chifago District totals 126 million. This

_leaves a margi of 5%million pipeline capacity available to

trate that by describing the-situation in the Chicago area. -

the Chicago area fhat can be resold in the industrial |

markets. In the industrial markets the contract negotia-

tions and the sales efforts of our purchasers has resulted

-in the sale of this industrial gas to industries operating

in the glass’ industry, industries: operating in the steel

industry, industries operating boiler plants, industries op-

erating in the ceramic fields,.and the price at which the

industrial consumers in each of these industries purchase

natural gas is related té the priority ‘of service to which —

the highest price and the boiler fuel eustomer pays the-

lowesf price. In the event of a shortage of natural gas the

boiler fuel customer is interrupted rather than the glass

customer.

The total requirements of the glass and steel cus-

511 tomers, and all other industrial customers other than

boiler fuel customers in the Chicago area, frequently

range from 55 million to. 62 million cubic feet per day.

Therefore, if you contract to sell and .deliver. another

’ 10 million cubic feet of gas per day to the glass customers

or the steel customers, the total requirements of those

customers willbe in excess of the 59 million cubic feet. of.

pipeline eapacity that is available. Consequently, the

service to some of those customers in that price class will

be unsatisfactory and they would not be interested in pay-

ing the.prices they are now paying if the servic¢ was going

to be of.an intérruptible nature or become of a nature

_ that the service is to the boiler fuel customers. The price

‘ they are entitled. For instance, the glass industry pays |

Testimony of E.V. Kesinger.*. 699

would either decline or the customer would not accept deliv-

ery of the service. — fax “.

There has been an increase in the price at which we have

sold gas in the past and the price at which we are now

selling gas for industrial purposes; but the fact that we

now have higher prices for industrial gas than we had_ in

earlier years js not indicative of an increase in the price

trend. As I mentioned earlier, we ‘have had prices for

industrial gas that were concession prices and were made .

for limited periods of time for: specific reasons. They were |

the result of long prolonged negotiations, and in these —

negotiations were involved capital expenditures on the part

of the utility company and capital expenditures om the

part of the industrial consumer. We have now passed

out of the period when the special prices were made as

concessions or made as inducements to accelerate the at- ~°

‘tachment of the industrial market, and my judgment as”

to the future revenue ‘to be received from the sale of

industrial gas is based upon the assu tion that the pres-

ent contract prices for industrial gas will: continue in effect.

This may be difficult to accomplish since we have pending

the renewal of fifteen of these industrial contracts in 1939.

Some of these renewals are with the, Chicago District Pipe-

line Company, and I sense from my contracts with them

that we may have difficulty. in maintaining the present

prices. * : £ by .

_ The industrial contracts that expire in 1939 are fifteen

in’number, and the last expiration date ‘in:the group is—

December 31, 1939. We will endeavor to renew these con-

tracts at the first opportunity, but up to now have given

. preference to the preparation of the presentation of the

evidence. in this hearing. In other words, we are running

behind schedule. on negotiations. ao a

I have referred to the decline in pressures in the Pan--

handle gas field and some of the problems that attend these

declines. The effect of this is that as the rock pressure

of a well declines, the open flow or the ability of that well

to produce gas also declines. They do not decline at the

‘same rate. Wells in different fields vary or. have differ-

ent characteristics, and wells in the same field vary. How-

ever, in the: Panhandle field the open flow or producing

cipacity of a well declines more rapidly than the rock —

pressure. By that I- mean, starting with any given rock

‘pressure and open flow for a particular well,-when 10% ,

_ of the rock pressure is gone, more than 10% of the open

v —_———___—

700 - : , “ Witness for. Defendants.

‘flow is gone. That is true of the entire field, so far as I

know. I do not believe there are any exceptions in the

Panhandle field. ae

512 ~=—It is possible for those in the engineering profession .

to predict with reasonable accuracy the future course

of the pressure decline and the potential producing capac-

ity.of the wells in the future, provided it is done prop-

erly. In the case of Texoma’s wells this problem is com-

plicated because of. the drainage that Texoma has experi-

enced in the past and is continuing to experience. Conse-

quently, the rock pressure decline is not due to its own

production alone. The Bureau—of—Mines—has—

what is known as ‘the back pressure Anethod of ‘testing a

gas well. ‘This method or princi when properly used

MY, give the open flow that can be expected of any. well

at/any future rock pressure. The principle is perfectly Me

sdund, but is based on certain theoretical: assumptions, —

particularly that there be no change in the producing for- .

mation and that there be no change in the drainage area

of the well. Consequently, in actual practice any deter-

mination in regard to the-open flow or the producing |

capacity ofa well in the future is less than the calculated

amount as determined by fhe black pressure inethod if any

’ .of the assumptions on which the method-6r principle is

As to.the potential producing capacity at future pres-

_ e~xsure levels indicated by these pressare decline tests, and

whether or not it is more or less than that which is actu, »

ally calculated to be realized in view of the assumptions

that must be indulged in figuring these back pressure,

curves or making these back pressure tests, in actual prac-_

tice it usually happens that“the actual open flow realized

flow by the back pressure pfethod.. This may occur very

early in the life of a wéll or it may occur lgter; but

Texoma has observed on some of its wells already that the

ability of these wells to produce is less than previous back

pressure tests indicated it would be at the rock pressures

that now exist. . .— eee asin

An intrusion, of salt water resulting,in a salting up of.

at some later daté is less wath indicated open —

the formation, or a eaving in of the producing formation, |

or a bridging of the producing formation, operates to re-

duce the potential open flow at a given future pressure

below that whith is indicated by the pressure decline, test.’ ,

——————~ oe mg, eR te oy

;

‘

ou ? .

EFS iS ' . oa , OQ ar ee .

- E e - :

- Testimony of E. v. Kesinger. aaa fs

As I previously stated, the calculated open flow as deter-

mined by the back pressure method will be realized only

when there is: no change in the producing formation, no

change in the ‘mechanical condition of the well, and no

change in the drainage area of the well. eG :

_ Counsel assumes that the number of wells be increased

to where a welKwhich is now draining an area for a mile

around it has a well drilled within a mile of its location,

- and inquires as to the -effect on the future potential pro- .

_-ducing eapacity, in comparison with pressure, as indicated

by the pressure decline curve, the drilling of that addi-—

‘tional well will have: If there is no change. in the rate of

| producing the first well before the drilling of the second

and no change, after the drilling of the second, and if the’

ea second well is produced at a sufficient rate, then it is to

| be expected that it would affect the producing area of the

first well by having the first -well decline in open flow at

a more rapid rate than would have been the case had the

| second well not been drilled. Se he ack, | ree

-] have caused an investigation to be made through

which I have sought to arrive at the future pressures

of Texoma’s wells and the capacity of those wells to.

produce gas over the period of the next ten, or fifteen

513 years. aie Recta el

|. ° [ mentioned previously the amount of work that

pelt and others in this organization have done in regard

o the development of facts pertaining. to the Panhandle

field if connection with the five major lawsuits in which |

Texoma has been involved in the State of Texas. In.con-

nection with some of this workewe were concerned with

rock pressure conditions and-open flow conditions and the

trends into the future. This work was handled .between

1932 and 1936, or possibly later. Also, from {ime to time

Mr. Floyd C. Brown has discussed with me and urged that

I undertake to determine the: full and complete future de-

velopment program of Texoma Natura! Gas Company and

to determine the future capital needs of both of these

- companies, not only for dev} lopment but for all | other

purposes, to tnvestigate what capital would be refyuired

for replacement, and to study the trend of future operat-

‘ing and maintenance expenses. 3 e

- - Sinee Texoma’s development program was such a large

: part of the total future capital that was, going to be re-

- .quired, I attempted to solve this problem with the assist- .

702° . -Witness for, Defendants.

ance of geolog

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.