# Transcript of Record — FPC v. Natural Gas Pipeline Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386402_0005%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Transcript of Record - **Published:** January 1, 1942 - **Citation:** 315 U.S. 575 ## Text VOLUME Il. P| GZweij Le f ee 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 r oe 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 a ~. ae pe 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 ; oe _ Petition fie ‘Review of lie Order of the Federal et / : Power Commission. y 44 V3 INDEX. 6 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 -& a _ 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: ; ee > 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 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 cr 28 36 78 79 85 . 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, 8 Be , 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. vi 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 4 - 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 | e 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. _ ze | 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 © © last half of 1929‘and all of 1930, and a few of them carried 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 3 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 5 654 "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 EY 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 ov 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 ' So @ — au am a ® wR to) = a) n. — Lec) -) =| i =) ic) — -) “3 se oo ax. = mac bb ° = et — 2 = o =) = | —s a | i ic) co ® S| @® | 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 in _ 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 © before the project was completed. For instance, at that 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. | ° © field, Iowa. We started the construction of the Muscatine, 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- P th 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 . ~ 2s 3 er ms mS Acs lata fal Sik tl Sa ah oo 5 ee ke ae oa 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. e 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., . vA \ 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. Ps 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. — 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 at es ° . 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 o ah 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 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- 2 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 Oo “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. ~ @ a) 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- ‘ © pliances in the homes and in other places where they hoped * 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 a 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- © sification. Tamnotanaccountant. — "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 A 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. 5 2 es 8 682 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 © of natural gas. Other times they would carry on publicity © 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 _ They also attempted fo Mlay upon the local sympathies © * .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 . ee 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 disabling of service. © pte. oat Fakes 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. m 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. a Direct Examination by Mr. Morgan Resumed.- Natural Gas Pipeline Company has negotiated 161 con- . tracts for the sale of gas. Five of these contracts had been © ’ 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.) / x f \ 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 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 # operation of the contracts between Natural Gas Pipeline © 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. o ” 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. . 5d a 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 years is 44,793,571,000 cubic feet. © g a ‘ a 2 a “ag r ‘3 - rs ' t 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, f / 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) 9 694. - | 3 Witness for Defendants. a al 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 ar 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 i \ 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 | a j Own." ae 696 ? Witness for Defendants. 1938 and my estimate of sales in-the future weré on a _ pressure base of 14.65, which [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386402_0005%3A02. Public record. Not legal advice.