# Appendix — United Gas Improvement Co. v. Callery Properties, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386411_0193%3A01 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1965 - **Citation:** 382 U.S. 223 ## Text _—————— acetate p___________ IN THE United States Court of Appeals For Tae Firrs Crmcvurir Nos. 20872, 20885, 20890, 20891, 20892, 20967, 20989, 21028 Cattery Properties, Inc.; Toe Superior Om Company; Canotrine Hunt Sanps anp Loyp B. Sanps; Piacm On. Company; Marcaret Hunt Huw, Trustee ror Hassiz Hunt Trust; J. Ray McDermorr & ©o., Inc.; Oczan Dremuimne & Expioration Company, ino.; J. R. FRANKEL, ET AL., Petitioners, Vv. Frperat Powzr Commission, Respondent. On Petitions to Review and Set Aside Orders of the Federal Power Commission JOINT APPENDIX Press or Byron S. Avams, Wasxincton, D.C. =>, TABLE OF CONTENTS Gas Sales Contract between J. R. Frankel, et al., and Transcon- tinental Gas Pipe Line Cor- WOUUTIE. Se cicveceessctsoeic Be gp of J. R. Frankel, et al., for certificate of public con- venience and necessity filed August 30, 1957, Docket No. GaRee a binds heed dase wseere Opinion No. 315, issued Septem- ber Be 1958, Docket No. G-12143, Cf PRES POR OP eee ee Order denying applications for rehearing, Docket No. G-13143, et al., issued October 31, 1958. . Gas Purchase Contract between Superior and Transcontinental covering Fields 76 and 71 .... Letter, approved by Commission October 22, 1958, from the Sec- retary to Vice President of Su- perior authorizing sale of gas, Docket No. G-16380 .......... Order issuing certificates of pub- lic convenience and necessity, etc., Docket Nos. G-16380 and G-16387, issued August 10, 1959 Gas Purchase Contract dated No- vember 14, 1958, between J. Ray McDermott & Co., Inc., et al., Seller, and Hope Natural Gas Company, Buyer ........ Application for certificate of pub- lic convenience and necessity, received December 24, 1958, Docket No. G-17337, from J. Ray McDermott & Co., Inc. ... Transcript Pages A3430-A3447 A7258-A7264 A10342-A10372 A10474-A10479 B164-B188 B284 B331-B335 C2333-C2363 C3955-C3962 Appendix Pages 2-4 5-11 12-30 31-39 39-48 49-50 50-57 57-81 Application for certificate of pub- he convenience and necessity from Callery Properties, Inc., Docket No. G-17340, received December 24, 1958 ........... Application for certificate of pub- le convenience and necessity from Callery Properties, Inc., Docket No. G-17341, received December 24, 1958 Notice of Applications and Con- solidation of Proceedings, is. sued February 9, 1959, Docket Nos. G-17335, et al. Order Denying Rehearing, Dock- et Nos. G-17335, et al., issued WRI S, TAR os Gi ks es Opinion and Order Issuing Cer- tificates of Public Convenience and Necessity, Docket Nos. G-17335, et al., issued August 10, 1959 Petition for Rehearing and Re- consideration of Opinion No. 327, Docket Nos. G-17335, et al., received September 8, 1959 from The Public Service Com- mission of the State of New York = eoeereeeoe eee eee eesene Application of The Superior Oil Company for certificate of pub- lic convenience and necessity, filed September 23, 1958, Dock- et No. G-16388 (Exhibit B) ... Order issuing certificates of pub- lic convenience and necessity, etc., Docket No. G-16108, et ai., issued August 10, 1959 4 Contents Continued Transcript Pages C3977-C3985 C3989-C3997 C4264-C4270 C4282-C4283 C4724-C4739 C4747-C4758 D200-D239 Appendix Pages 97-104 105-113 113-116 116-141 142-152 153-192 193-199 Excerpts from Transcript of Hearing held June 18-21, 1962, Placid Oil Co., et al., Docket Nos. G-13183, et al. ......---- Witnesses: Dr. J. Rhoads Foster .... Gaston C. Jones ........ Exhibit X-2: Prepared testimony» of Robert M. Weddle ........ Exhibit X-6: Placid, 1960 Sum- mary of Oil & Gas Operations, Schedules 1, 2,and3........- Exhibit X-8: Placid, 1960 South Louisiane Area, Venture Ac- counting Cost cf Service, Schedule 1 .........eeeeeees Exhibit X-13: Testimony of Har- man Bass, Hassie Hunt Trust G-14109, Caroline Hunt Sands G-17398, Placid G-13183-4 .... Exhibit X-14: Testimony of Joseph E. Saar ......------- Exhibit X-15: Hassie Hunt Trust, 1960 Venture Account- ing Cost of Service Using Btu Content Allocations ......... Exhibit X-16: Hassie Hunt Trust, 1957 Cost of Service Using Btu Content Allocations Exhibit X-17: Hassie Hunt Trust, 1960 Venture Account- ing Cost of Service Using Res- ervoir Space and Relative Cost Allocations .......+-++.++++: Exhibit X-18: Hassie Hunt Trust, 1957 Cost of Service Using Reservoir Space and Relative Cost Allocations .... Contents Continued Transcript Pages 95-577 216-300 417-433 719-721 801-803 859-897 899-919 930 951 973 255-256 257-259 260-261 262-266 266-267 270 271 Exhibit X-19: Hassie Hunt Trust, 1960 Venture Account- ing Cost of Service Using Rela- tive Cost and Modified Btu Al- eo ae Mig ee yeaa Exhibit X-20: Hassie Hunt Trust, Operator, et al., 1960 Summary of Oil and Gas Pro- duction wutieme 6.66050... Exhibit X-22: Hassie Hunt Trust Comparison of 1957 and 1960 Gas Prices and Cost .... Exhibit X-24: Caroline Hunt Sands, 1960 Venture Account- ing Cost of Service Using Btu Content Allocations ......... Exhibit X-25: Caroline Hunt Sands, 1960 Venture Account- ing Cost of Service Using Res- ervoir Space and Relative Cost BT a Exhibit X-26: Caroline Hunt Sands, 1960 Venture Account- ing Cost of Service Using Rela- tive Cost and Modified Btu Al- WO. Soro ce Soe ki ve ceecews Exhibit X-27: Caroline Hunt Sands, 1960 Summary of Oil and Gas Production Operations Exhibit X-29: Caroline Hunt Sands, Summary of 1960 Cost of Gas Service .............. Exhibit X-40: Prepared Testi- mony of J. Rhoads Foster, Docket Nos, G-13169, et al. ... Exhibit X-42: Market Price, Cost & Related Information. Bear- ing on the Question of Price for South Louisiana Supplies, Docket Nos. G-13169, et al. ... Contents Continued Transcript Pages 1019 1041 1043 1049 1069 1090 1110 1112 1181-1206 1260-1273 Appendix Pages 272 273 274 275 276 277 279 280 281-285 286-299 Exhibit X-43: Affidavit and Pre- pared Testimony of J. Phillip Sherwood, and one-page Ex- hibit entitled ‘‘United Gas Im- provement Company, Philadel- phia Gas Works Division, Fi- nancial Results of Operations, 1950-191? occ ce cececvinws’s Exhibit X-61: Synopsis of Ap- plicants and Certificate Dockets ....cscccecccesesccs Exhibit X-62: Callery, Summary of the Results of Cost of Serv- ice Studies, ete. .........+--- Exhibit X-66: Callery, Southern Louisiana Area, Excess (De- ficiency) of Investment and Finding Costs Over Present Value of Estimated Future Net Revenue and Drilling Results for Years 1954 to 1959, In- MG 5 vk ine sdes vane pena ens Exhibit X-67: That portion of Witness Gaston C. Jones’ Tes- timony described by the Pre- siding Examiner on page R-414 Exhibit X-68: That portion of Witness Gaston C. Jones’ Tes- timony described by the Pre- siding Examiner on page R-415 Exhibit X-70: Prepared Testi- mony of M. Paul LeBlanc, Jr., together with attached exhibits Exhibit X-72: Prepared Testi- mony of Armand F. Quere, to- gether with attached exhibit .. Exhibit X-73: Prepared Testi- mony of Jack W. McNutt, to- gether with attached exhibit .. Contents Continued Transcript Pages 1277-1296 2114 2115 2131-2132 2133-2138 2139-2152 2175-2228 2306-2310 2339-2343 Appendix 300-319 320 321 322-323 325-330 330-343 343-351 352-355 356-360 vi Contents Continued Exhibit X-75: Prepared Testi- mony of W. E. Strain, together with attached exhibit ........ Exhibit X-76: Prepared Testi- mony of C. A. Noble, together with attached exhibit ......... Exhibit X-77: Prepared Testi- mony of Don W. Prescott, to- gether with attached exhibits. . Exhibit X-79: Prepared Testi- mony of James L. Norman, to- gether with attached exhibits. . Exhibit X-80: Prepared Testi- mony of Pat F. Timmons, to- gether with attached exhibits. . Exhibit X-81: Prepared Testi- mony of Robert L. Conkling, together with attached exhibits United Gas Affidavit that facili- ties authorized have been com- pleted, G-16556, received No- vember 30, 1959 ............. Callery Properties, Inc. Motion to amend certificate of public convenience and necessity, at received April 11, Order Amending Certificates of Public Convenience and Neces- mf etc., issued January 13, Callery Motion to amend certifi- cate of public convenience and necessity, G-17340, received pg Se Se errr CA9 Decree in UGI v. FPC, No. 16692 filed October 31, 1960 ... Transcript Pages 2352-2373 2381-2390 2397-2417 2487-2496 2500-2513 2518-2557 2662-2663 3000-3001 362-363 363 364-365 365-366 366-367 370-371 371 372-374 374-375 375 Order Instituting Rate Proceed- ing for the Southern Louisiana Area, etc., Docket Nos. AR61-2, et al., issued May 10, 1961 .... Letter of June 5, 1961 from FPC to Superior issuing temporary authorization, etc., Docket No. GBT ies dike eekbb ic Cheers Telegram dated July 10, 1961, from FPC to Superior stating deliveries should be resumed, etc., Docket No. G-16380 ...... Telegram dated and received July 11, 1961, from Superior to FPC, Docket No. G-16380, stat- ing deliveries will be resumed, CA5 Judgment and Opinion in UGI v. FPC, No. 18113, dated February 22, 1961 ........... FPC Letter dated August 2, 1961, to Superior, Docket No. G-16380, authorizing contin- uance of sale, etc. ............ Superior letter dated August 4, 1961, to FPC regarding au- thorizations as to Blocks 71 and 4 etc., received August 7, WOME We snic sc teesccueie FPC letter dated August 16, to Superior, Docket No. G-16380, in response to letter SG TG seco cei Nedeen ces Berkshire Motion to Amend Ap- plications for and Certificates of public convenience and ne- cessity, Docket Nos. G-4011, et al., received September 6, 1961 Contents Continued Transcript Pages 3047-3052 3376 3640A 3640B 3640C 3641-3643 376-384 384-385 385-386 389-390 390-391 392-394 Viii Contents Continued Order Denying Motions, Dis- missing Petitioner, and Issuing Notice of Refund Obligations, Docket Nos, G-13169, et al., is- sued January 10, 1962 ........ Callery Petition to amend cer- tificate of public convenience and necessity, G-17340, re- ceived February 5, 1962 ...... . Order Denying Rehearing, Sever- “ing and Consclidutine Pro- ~ ceedings, and Providing Fur- ther Procedures, Docket Nos. G-13169, et al., issued March 7, 1962, together with Errata No- tice issued March 16, 1962 .... Notice of Extension of Time and Postponement of Hearing, Docket Nos. G-13169, et al., is- sued March 27, 1962 ......... Order Convening Settlement Conference, Docket No. G- Lg et al., issued April 13, Notice of further extension of time and denial of postpone- ment of hearing, Docket Nos. G-13169, et al., issued April 30, pA Scere eee pe reren Chief Hearing Examiner’s Rul- ing on Procedural Suggestions, Docket Nos. G-13169, et al., filed May 14, 1962 ............ Continental Motion for contin- uance of hearing, G-13758, et al., received May 15, 1962 . Notice of Severance, ‘Getenhinn of Time and Postponement of Hearing, Docket Nos. ep et al., issued May 16, 1962 . a Transcript Pages 3742-3749 3848-3850 4311-4329 4601-4603 4695 4733-4734 4737-4738 4792 Appendix Pages 395-405 409-422 423-424 424-426 427-428 428-430 430-432 433-434 Notice of Severance, Extension of Time and Postponement of Hearing, Docket Nos. G-13169, et al., issued May 17, 1962 .... Notice of Denial of Requests for Further Extension of Time, Docket Nos. G-13169, et al., issued May 17, 1962 ......... Notice of Severance, Extension of Time and Postponement of Hearing, Docket No. G-17336, issued May 18, 1962 .......... Staff Memorandum of Position, G-13169, et al., filed May 18, SOU CUMMIUNED Coch siscccasese Sunray DX Oil Co. Motion for Severance or in the Alterna- tive, for a Continuance and Postponement of Hearing Date, G-13169, et al., received ge rt re Notice of Severance, Extension of Time, and Postponement of Hearing, Docket No. G-14753, issued May 22, 1962 ......... Motion for Continuance, Docket G-13183 et al. ....... teats é Notice Setting Forth Consoli- dated Dockets; New Lead Doc- ket Number of Consolidated Proceedings, etc., Docket Nos. es et al., issued May 24, Notice of Postponement of Hear- ing and Extension of Time to File Data, Docket Nos. G-13183, et al., issued May 25, 1962 .... Contents Continued Transcript Pages 4798 4799 4810 5047-5050 5121-5124 5134 5135 5136-5138 5149 435-436 437-438 439-441 422-444 445 447-451 x Contents Continued Berkshire Motion for Severance, Docket Nos. G-13169, et al., received May 25, 1962 ....... Notice of Severance, Extension of Time and Postponement of Hearing, Docket Nos. G-13183, et al., issued June 4, 1962 .... Staff Answer in Opposition to Motion for Severance ........ Presiding Examiner’s Notice with respect to procedure for June 18 session, Docket Nos. ae et al., issued June 8, Presiding Examiner’s Supple- mental Notice, Docket Nos. ar et al., issued June 11, WO a5 oes eos os ents hee Notice of Severance and Post- ponement of Hearing, Docket Nos. G-13183, et al., issued Be. EE ee Notice of Severance and Post- ponement of Hearing, Docket Nos. G-13183, et al, issued Fame 16, TOG vkvicdscccccccess Notice of Severance and Post- ponement of Hearing, Docket Nos. G-13183, et al., issued SUE BO, LID koe ccecsccdieres Superior Answer to petition of un for issuance of order ap- proving offer of settlement and reissuance of certificates, G-13183, et al., received Sep- tember 26, 1962 ............. Transcript Pages 5208 5211 §213-5214 5222 5269 5272-373 5277 5314-5315 Appendix 459-460 461 462 463-464 466-467 Mississippi River Petition for order reissuing permanent cer- tificate of public cenvenience and necessity in accordane with application as modified by set- tlement offer, and request for shortened procedures, G-17413, received October 1, 1962 ...... Sun Amended Offer of Settle- ment, G-13710, et al., received October 15, 1962 ....) ‘There exe no pipelines, other than gathering lines, in icent's sytem to be utilized in the service. (c} Ce to Hope Natural Gas Company. D REGARD {a} | le Will be no delivery of gas to Applicant's facilities. — Senieeee Sete Ore Se OY ties at wholesale or 455, rete.il. UGE ae —— (t) Applicent vill not sell gas to main line industrial uivind - customers. mS ges spe) wer Loerrenson) QACADIAM& = + ge SB & a f w= * isPaViLLe ASCENSIO P™ shi ev Bavis 2 % MARTIN , 4 “= =z b ———— sae he ° Gm ae ae he ae” ¥ : “ 2A bon ame (TRG cw im VY ian = te Year| = oe ‘cn wnt by ad ~ uw av r 7 : a cattle eh ns _ NN £ On Shai “eg f a ” 1 ‘Ts ; 4 7; sat ans a. * ac : . Jans Atte TEAARES Pe Chr “5 my - » 7. ea & n te an:0 | & es =A aa wast sonenee SE . ‘Om = Bo) : aa => ae : BCC et ee cast cawenon is Fite + LJ an et | ~ waeamiien ar euecne mane Ae INDEX MAP = OIL AND GAS FIELDS UPPER GULF COAST Ee TEXAS AND LOUISIANA rick dsege OL FIELO = scace m wites Re am = = » +5 6 . ry 96 (C3989) C3989 BEFORE THE FEDERAL POWER COMMISSION Docket No. G-17341 In the Matter of CauLLery Properties, Inc., et al. Appiication for Certificate of Public Convenience and Necessity Comes now Callery Properties, Inc. (‘‘Applicant’’) and hereby makes application, pursuant to and in accordance with the Federal Power Commission’s Regulations under the Natural Gas Act, and Section 7 of the Natural Gas Act, as amended, for a Certificate of Public Convenience and Necessity covering the sale of natural gas as herein- after particularly described. Applicant specifically reserves the right to pursue any and all remedies which it may have relating to the asserted jurisdiction by the Federal Power Commission and this application is filed without prejudice to such rights. In support of its application, Applicant respectfully shows as follows: I Description of Applicant The exact legal name of Applicant herein is Callery Properties, Inc., a corporation organized under the laws of the State of Delaware, having its principal place of business in Houston, Texas. 97 (C3990) Applicant is authorized to do business in the States of Delaware, Texas and Louisiana. II Person on Whom Papers Are to be Served The name, title and post office address of the person to whom correspondence or communications in regard to this application are to be addressed are: John W. Martin, Vice-President Callery Properties, Inc. 400 Bank of the Southwest Building Houston, Texas and May, Shannon & Morley 1700 K Street, N.W. Washington 6, D. C. Il Service to be Certificated Applicant proposes to sell natural gas to Hope Natural Gas Company (Hope), pursuant to that certain contract between Callery Properties, Inc., et al, as Seller, and Hope Natural Gas Company, as Buyer, dated as of December 16, 1958. Applicant is advised and, therefore, alleges that such gas will be transported in interstate commerce, for the account of Hope, through pipelines owned and oper- ated by Texas Gas Transmission Corporation and Texas Eastern Transmission Corporation for delivery into the facilities of, and C3991 for resale by, Hope or Hope’s affiliates. Applicant is fur- ther advised that Texas Gas and Texas Eastern are filing 98 — (C3992) applications concurrently herewith seeking authority to render such transportation service. IV Sources of Gas All of the gas sold and delivered to Hope Natural Gas Company will be produced from acreage controlled by Applicant in the West Rayne Field, which is located in Acadia Parish, Louisiana. None of the gas involved will be purchased by Applicant from third parties. The location of the West Rayne Field and the point of delivery to Hope Natural Gas Company are shown on Exhibit A, attached hereto. V Routes of Pipelines There are no pipelines of the Applicant subject to the jurisdiction of the Commission over which the sale of nat- ural gas to Hope Natural Gas Company will be accom- plished. VI Communities Served Applicant proposes to serve no communities, either at wholesale or at retail. C3992 VII Main Line Industrial Customers Applicant proposes no sales to ‘‘Main Line Industrial Customers’’. 99 Vill Major Appurtenances Applicant will not own and operate any major appur- tenances in rendering service to Hope Natural Gas Com- pany as described hereinabove. Ix Ownership F. A. Callery, Inc. is the Operator of the property de- scribed herein. The ownership of the property under this contract is as follows: Percentum of Ownership Before After Name Payout * Payout * David G. Baird 72331 48221 G. T. Baker - 96441 64294 George L. Callery — 31138 Callery & Jones — 10.62169 William D. Dana 1.08496 .72331 John Fell .72331 48221 Samuel Goldwyn 3.61655 2.41103 Robert Hamill 1.08497 72331 Gerald Hochschild . 72331 48221 Pauline Ickelheimer .72331 48221 Philip Isles .72331 48221 Grant Judge — 1.66072 Herman Kahn .96441 64294 Mrs. Miles Kimball 86798 57865 Herbert Lehman 1.44662 .96441 Robert Lehman 1.44662 .96441 Maurice Levin 1.44662 .96441 Marvin Levy .72331 48221 (C3993) C3993 Percentum of Ownership Before After Name ~- Payout * Payout * Ted Leyhe .86798 57865 Paul Manheim 72331 48221 Morton J. May .72331 48221 Paul Mazur .72331 48221 Maurine Morse 1.44662 .96441 Henry L. Moses .60276 40184 Lucy G. Moses .60276 40184 Morris Natelson 48221 32147 Nicholas H. Noyes 1.44662 96441 M. Peter Schweitzer 1.80827 1.20551 William P. Schweitzer 1.80827 1.20551 Sydney M. Schoenberg 3.61655 2.41103 Edwin J. Spiegel .72331 48221 Stone Oil Trust — 1.24554 Donald S. Stralem .72331 48221 Joseph Thomas .72331 48221 Kilroy Properties, Inc. 41.51800 41.51800 Pioneer Oil & Gas Company 3.12500 3.12500 United Producing Company, Inc. 21.07210 18.66107 TOTAL 100.00000 100.00000 * The co-owners who provide the funds for payment of all property, drill- ing, and completion costs through the first well are entitled to recover such costs out of the net revenues from the production of such well before the carried interests participate in the revenues from the production or bear their share of the cost of operating the well. 101 (C3993) x Exhibits Exhibit A—Map There is attached hereto a general map of Applicant’s facilities relating to the proposed sale of gas as described hereinabove, showing: (a) The location of the gas field from which gas will be produced by Applicant; C3994 (b) There are no pipelines, other than gathering lines in Applicant’s system to be utilized in t’se service hereinabove described ; (c) The point of interconnection where Applicant will deliver gas to Hope Natural Gas Company; (d) There will be no delivery of gas to Applicant’s facilities ; (e) Applicant will not serve any communities at wholesale or at retail; (f) Applicant will not sell gas to any main line in- dustrial customers. Exhibit B—Service Contract The contract between Callery Properties, Inc., et al and Hope dated December 16, 1958 is contained in Exhibit H to the Application of Texas Gas Transmission Corpvra- tion which is being filed concurrently herewith. Such con- tract is incorporated herein by reference. Wuenrerore, Applicant respectfully requests: (1) that the Commission issue to it a Certificate of Pub- lic Convenience and Necessity authorizing it to render the 102 (C3995) service described in this application and to operate those facilities required to render the services which are sub- ject to the jurisdiction of the Commission; and (2) that this application be disposed of in accordance with the shortened procedure provided for in Rule 1.32 of the Commission’s General Rules of Practice and Proce- dure, and, in that connection, Applicant requests that the intermediate decision procedure be omitted and waives oral hearings and opportunity for filing exceptions to the deci- sion of the Commission; and C3995 (3) such other and further relief as appears warranted in the premises. CALLERY PROPERTIES, INC. Respectfully submitted, By Jonn W. Martin Vice-President (C3997) C3997 vernon Pees oes NZ WYTON 2, + Cc. ot . s (a) a (>) B £; (c) 3) (e) Ps ont eos “ss | RAPIDES AvVoYET Les Explanatory Statement We st Rayne Field, Acadia Parish, Louisiana The “ocation of the gas field from which gas will be prodiced by Applicant. . Ther: are no pipelines, other than gathering lines, in Applicant's system to be utilized in the proposed service. ry The >oints of interconnection where Applicant will deliver . gas + Hope Natural Gas . : te Ther: will be no delivery of gas to Applicant's facilities. g== __ -/ Appl icant will not serve any communities at wholesale or as at r>tail. ’ Applicant will not sell gas to main line industrial cust mers. SCALE tm MILES AF eed verr i a” ee ao ea : ax ee 62 4.= 2 = wae” m= EF ergs toh BAVIS | an MA arity SS it ee et a ef 2] » ae * ‘a “ v4 bers seed : . —— — = en =|" ay Fo Be a el 4 4, Q We cA Mye no Ny verti Lion a4t. / % \ a, oo a Py — ee an ae 208 beet s Ne , “ ase wot Wile ete De x . ; 2 7 sel call bh cts * Or ss =" . . orsreix - os é em ame = al - = = oo Ph} : 5 : ; “Ts a 4 Sc “2 = = : o a =U Hee A: | ss &CrTrTTte tatat Tt tatet ttt te LL eel iS } le HF ttt fel : uf as visie wast cauceon oe “sa ‘a ~ ~ ~ aT =EEI see Ce Eee ast caucron caminion ; g te monee INDEX MAP OIL AND GAS FIELDS UPPER GULF COAST ¢edne TEXAS AND LOUISIANA ae . eas Fierce ___- 104 UNITED STATES OF AMERICA FEDERAL POWER COMMISSION In the Matters of Docket No. G-17335 Texas Gas TRANSMISSION CORPORATION Docket No. G-17420 Texas EASTERN TRANSMISSION CORPORATION Docket No. G-17565 Hore Naturat Gas ComMPANy Docket No. G-17336 Texas Gas EXPLORATION CORPORATION Docket No. G-17337 J. Ray McDermort & Co., Inc. Docket No. G-17338 KILROY PROPERTIES INCORPORATED, et al. Docket No. G-17339 THe CaLirorNIA CoMPANY Docket Nos. G-17340 and G-17341 CaLLERY Properties, INc. Docket Nos. G-17342 and G-17343 Ocean Driuing & Expioration CoMPANY Docket No. G-17391 Humsie Om & Rermnine Company Docket Nos. G-17393 and G-17407 AMERADA PETROLEUM CORPORATION Docket No. G-17396 Kerr-McGee Om Inpustriss, Inc. 105 (C4264) Docket No. G-17397 Bet On. CORPORATION Docket No. G-17398 CAROLINE Hunt Sanps aNnp Loyp B. Sanps Docket No. G-17399 Ricuarpson & Bass (Louisiana Account), Operator Docket No. G-17401 Maaenouia Petroteum Company Docket No. G-17402 Becx On. Company, et al. Docket No. G-17405 Puituies PETROLEUM CoMPANY Docket No. G-17413 Mississipr1 River Furi Corporation Docket No. G-17457 Union Om Company or CALIFORNIA Docket Nos. G-17463, G-17474, G-17475 and G-17483 TmewaTeR Or CoMPANY Docket Nos. G-17554 and G-17566 CoNTINENTAL Om CoMPANY Docket No. G-17560 Suet, Om, Company Docket No. G-17574 Pan AMERICAN PETROLEUM CORPORATION Notice of Applications and Consolidation of Proceedings (February 9, 1959) Take notice that each of the above designated parties has filed an application, in the respective dockets listed, for a 106 (C4265) certificate of public convenience and necessity, pursuant to Section 7(c) of the Natural Gas Act, authorizing the re- spective acts and services described below, subject to the jurisdiction of the Commission, all as more fully repre- sented in the applications which are on file with the Com- mission and open to public inspection. C4265 Docket No. G-17335 On December 24, 1958, Texas Gas Transmission Corpora- tion (Texas Gas), a Delaware Corporation with its princi- pal place of business in Owensboro, Kentucky, filed an application for a certificate of public convenience and neces- sity, pursuant to Section 7 of the Natural Gas Act, au- thorizing the construction, installation and operation of certain facilities and the transportation of natural gas, as hereinafter described, subject to the jurisdiction of the Commission, all as more fully described in the application which is on file with the Commission and open to public inspection. Texas Gas proposes to gather and transport through its pipeline system up to 100,000 Mcf? of natural gas per day, on a firm basis, for the account of Hope Natural Gas Company (Hope). Such gas will be purchased or produced by Hope from fields located within, and off- shore from, the State of Louisiana. Delivery will be made to Texas Gas in the fields and Texas Gas will transport the gas through its system for delivery to, or for the account of, Hope at the existing interconnection of the facilities of Texas Gas and Texas Eastern Trans- mission Corporation (Texas Eastern) near Lebanon, Ohio. The facilities for which Texas Gas is requesting author- ization are as follows: 1 All volumes are stated herein at a pressure base of 15.025 psia. 107 (C4265) (1) Approximately 164.63 miles of 30-inch loop line and approximately 80.92 miles of 26-inch loop line in the States of Louisiana, Arkansas, Mississippi, Tennessee, Kentucky, Indiana and Ohio. (2) One 26-inch river crossing in the State of Kentucky. (3) Approximately 103.64 miles of supply lines rang- ing in size from 2 % inch to 12% inch pipe in the State of Louisiana and adjacent off-shore areas. (4) Seven additional compressor units, totaling 14,000 horsepower, in existing compressor stations. (5) An additional 1,760 horsepower compressor station near Lafayette, Louisiana. (6) Twelve meter stations, one check meter station and miscellaneous appurtenant equipment in the State of Louisiana and adjacent offshore areas. The above proposed facilities will increase the design daily delivery capacity of Texas Gas’ pipeline system by 100,000 Mcf. The entire increase in capacity will be used to transport gas for Hope. C4266 Texas Gas proposes to finance the facilities, which are estimated to cost $39,600,000, through the issuance of $30,000,000 of first mortgage pipeline bonds, the sale of common stock and the use of retained earnings. Docket No. G-17420 On January 5, 1959, Texas Eastern, a Delaware cor- poration with its principal place of business in Shreve- port, Louisiana, filed an application for a certificate of public convenience and necessity, pursuant to Section 7 of the Natural Gas Act, authorizing the construction and operation of certain facilities and the transportation of 108 (C4266) natural gas, as hereinafter described, subject to the juris- diction of the Commission, all as more fully described in the application which is on file with the Commission and open to public inspection. Texas Eastern proposes to accept delivery from Texas Gas for the account of Hope at the existing interconnection of the facilities of Texas Eastern and Texas Gas near Lebanon, Ohio and to transport and deliver to Hope, or for the account of Hope to Hope’s affiliates in the Con- solidated Natural Gas System, at the points of delivery presently existing within Texas Eastern’s existing Zone C, such volumes of natural gas as are tendered for trans- portation for Hope up to a maximum daily quantity of 100,000 Mef. In order to render such service, Texas Eastern seeks authorization to place in gas service and operate the fol- lowing existing facilities :? (1) Approximately 189 miles of existing 20-inch pipe- line extending from Compressor Station No. 16 near Mid- dletown, Ohio to a point of interconnection on Texas East- ern’s system near Moundsville, West Virginia; and (2) Two 2,000 horsepower, two 1,750 horsepower and four 1,250 horsepower electric compressor units at exist- ing compressor stations. Texas Eastern also seeks authority to construct and operate approximately 3,100 additional horsepower at existing compressor stations. The estimated total construction cost of the proposed facilities (excluding the depreciated original cost of $6,617,007.81 attributable to the existing facilities to be re-activated) is approximately $2,284,000. Texas Eastern 2 These are part of the facilities which the Commission authorized Texas Eastern to abandon from gas service in Docket No. G-2503. 109 (C4266) proposes to finance the cost of the proposed facilities from funds on hand. C4267 Docket No. G-17565 On January 19, 1959, Hope, a West Virginia Corpora- tion with its principal office in Clarksburg, West Virginia, filed an application for a certificate of public convenience and necessity, pursuant to Section 7 of the Natural Gas Act, authorizing the establishment of new delivery points to certain of its affiliated customers in the Consolidated Natural Gas System, all as more fully described in the application which is on file with the Commission and open to public inspection. The gas which will be delivered by Hope to such cus- tomers will be purchased and produced by Hope from fields in the State of Louisiana and adjacent offshore areas and will be transported by Texas Gas and Texas Eastern to, or for the account of, Hope. The points of delivery proposed by Hope are existing delivery points presently utilized by Texas Eastern for the delivery of gas to Hope’s affiliated customers. No new facilities are required by Hope in order to establish such delivery points. The respective applicants listed in the table below filed applications on the dates shown for certificates of public convenience and necessity, pursuant to Section 7 of the Natural Gas Act, authorizing the sale of natural gas to Hope from the fields listed opposite the name of each applicant. Docket No. Applicant G-17336 G-17337 G-17338 G-17339 G-17340 G-17341 G-17342 G-17343 G-17391 G-17393 G-17407 G-17396 @-17397 Texas Gas loration Gorpuiadivas tecuae J. Ray MeDermott & Co fon, Operator Kilroy Properties Ineorporated, et al. The California Company Callery Properties, Ine. Callery Properties, Ine., et al. Ocean and Exploration pany Ocean and Exploration Company Humble Oil & Refining Company Amerada Petroleum Corporation Amerada Petroleum Corporation Kerr-McGee Oil Industries, Inc. Bel Oil Corporation Houston, Texas (C4268) Date Parish & State Field Perry, Vermilion 12/24/58 h, Louisiana Block 33, offshore 12/24/58 West Cameron Area, Louisiana Bayou Pigeon 12/24/58 Iberia Parish, Louisiana South Boseo, 12/24/58 Acadia Parish Louisiana Bayou Pigeon, 12/24/58 Iberia Parish, Louisiana West Rayne, 12/24/58 Acadia Parish, Louisiana New Orleans, Block 4, offshore 12/24/58 East Cameron Louisiana 111 Area, Louisiana Bayou Figen, 12/24/58 Iberia and St. Martin Parishes, Louisiana Bayou Pigeon, 12/29/58 Iberia Parish, Louisiana Pe Vermilion 12/29/58 Parish, Louisiana North Abbeville, 12/29/58 Vermilion Parish, Louisiana Block 33, offshore 12/29/58 West Cameron Area, Louisiana South Thornwell, 12/24/58 Jefferson Davis and Cameron Parishes, Louisiana (C4268) Location of Field Date Docket No. Applicant Address Parish & State Field G-17398 Caroline Hunt Sands Dallas, South Thornwell, 12/24/58 and Loyd B, Sands Texas Jefferson Davis and Cameron Parishes, Louisiana C4269 G-17399 Richardson & Bass Fort Abbeville, Jeffer- 12/29/58 ty Account), Worth, son Island, South rator Texas Rayne, Woodlawn and Maxie Fields, Vermilion, Iberia, Acadia, Jefferson Davis and Lafayette Parishes, Louisiana G-17401 Magnolia Petroleum Dallas, Block 4, offshore 12/29/58 Company Texas East Cameron Area, Louisiana G-17402 Beck Oil Company, Houston, Perry, Vermilion 12/29/58 et al. Texas Parish, Louisiana G-17405 Phillips Petroleum Bartles- Block 33, offshore 12/29/58 Company ville, West Cameron Oklahoma Area, Louisiana G-17413 Mississippi River Fuel St. Louis, Block 4, offshore 12/31/58 Co: East Cam Missouri eron Area, Louisiana G-17457 Union Oil Company Los Angeles, Bayou nD 1/5/59 of California California Thera Pais, : uisiana G-17463 Tidewater Oil Company Los Angeles, Perry, Vermilion 1/5/59 California Parish, Louisiana G-17474 Tidewater Oil Company Los Angeles, South Bosco, 1/8/59 California Acadia and Lafayette Parishes Louisiana G-17475 Tidewater Oil Company Los Angeles, West Rayne, 1/8/59 California Acadia Parish, Louisiana G-17483 Tidewater Oil Company Los Angeles, Jefferson Island, 1/9/59 California | Vermilion, Iberia and Lafayette Parishes, Louisiana (C4682) C4270 Location of Field Date Docket No. Applicant Address Parish & State Field G-17554 Continental Oil Houston, Bayou Pigeon, 1/18/59 Company Texas Tberia Parish, Louisiana G-17566 Continental Oil Houston, West Rayne 1/19/59 Company Texas Acadia Parish, | Louisiana G-17560 Shell Oil Com New York, Bayou Pigeon, 1/16/59 ts: New York Iberia Parish, Louisiana G-17574 Pan American Tulsa, Jefferson Island, 1/20/59 Petroleum Corporation Oklahoma Iberia and Vermilion Parishes, Louisiana These related matters should be heard on a consolidated record and disposed of as promptly as possible under the applicable rules and regulations, and to that end the above matters are hereby consolidated. Protests or petitions to intervene may be filed with the Federal Power Commission, Washington 25, D. C., in accordance with the Rules of Practice and Procedure (18 CFR 1.8 or 1.10) on or before March 4, 1959. MicuarL J. FarreLt, Acting Secretary C4682 UNITED STATES OF AMERICA FEDERAL POWER COMMISSION Before Commissioners: Jerome K. Kuykendall, Chair- man; Frederick Stueck, William R. Connolo, Arthur Kline and John B. Hussey. 113 In the Matters of Docket No. G-17335 Texas Gas TRANSMISSION CORPORATION Docket No. G-17420 Texas Eastern TRANSMISSION CORPORATION Docket No. G-17565 Horr Narurat Gas Company Docket No. G-17336 Texas Gas Expioration CorPoRATION Docket No. G-17337 J. Ray McDermorr & Co., Inc. Docket No. G-17338 Kitroy Properties INcorporatep, et al. Docket No. G-17339 THe CaLarornia ComPaNy Docket Nos. G-17340 and G-17341 CaLLery Properties, Inc. Docket Nos. G-17342 and G-17343 Ocean Drituine & Expioration ComPpANy Docket No. G-17391 Houmsie Ow & Rerinine Company Docket Nos. G-17393 and G-17407 AMERADA PETROLEUM CORPORATION Docket No. G-17396 Kerr-McGee On. Invusreis, Inc. Docket No. G-17397 Bet Om Corporation Docket No. G-17398 Carotinge Hunt Sanps anp Loyp B. Sanps 114 (C4682) Docket No. G-17399 Ricnarpson & Bass (Louisiana Account), Operator Docket No. G-17401 Maaenoua Perroteum Company Docket No. G-17402 Beck Om Company, et al. Docket No. G-17405 Puituirs PerroLEum ComMPANy Docket No. G-17413 MississiprP1 River Fue. Corporation Docket No. G-17457 Union Om Company oF CALIFORNIA Docket Nos. G-17463, G-17474, G-17475 and G-17483 TrwewaTeR Om ComMPANYy Docket Nos. G-17554 and G-17566 CONTINENTAL Or. CoMPANY Docket No. G-17560 SHet, Om Company Docket No. @-17574 Pan AMERICAN PETROLEUM CORPORATION Order Denying Rehearing (Issued July 2, 1959) On June 9, 1959, Tennessee Gas Transmission Company (Tennessee) filed an application for rehearing of our order issued May 29, 1959, in the above-entitled proceed- ings denying Tennessee’s petition to intervene and grant- ing limited participation by Tennessee in said proceedings. 115 (C4683) The Commission finds: The assignments of error and grounds for rehearing in the application for rehearing present no new facts or principles of law which were not fully considered by the Commission when it issued its order of May 29, 1959, or which having now been considered warrant any change or modification of said order. The Commission orders: The application filed by Tennessee on June vy, 1959, for rehearing of the Commission’s order of May 29, 1959, is hereby denied. By the Commission. JosepH H. Gurnrinz, Secretary. C4724 UNITED STATES OF AMERICA FEDERAL POWER COMMISSION * Before Commissioners: Jerome K. Kuykendall, Chair- man; Frederick Stueck, Arthur Kline and John B. Hussey. In the Matters of Docket No. G-17335 Texas Gas TRANSMISSION CORPORATION Docket No. G-17420 Texas EasTeRN TRANSMISSION CORPORATION Docket No. G-17565 Hore Natura, Gas Company Docket No. G-17336 Texas Gas “xprorRaTION CORPORATION 116 (C4724) Docket No. G-17337 J. Ray McDermort & Co., Inc. Docket No. G-17338 Kitroy Properties INCORPORATED, ef al. Docket No. G-17339 THe Cauirorn1a CoMPANY Docket Nos. G-17340 and G-17341 Cattery Properties, Inc. Docket Nos. G-17342 and G-17343 Ocean Drittinc & ExpLoration Company Docket No. G-17391 Humsie On, & Rerintina Company Docket Nos. G-17393 and G-17407 AMERADA PETROLEUM CORPORATION Docket No. G-17396 Kerr-McGre Ow Inpusrries, Inc. Docket No. G-17397 Bet Ou. CorPorRaTION Docket No. G-17398 CaRoLINE Hunt Sanps anp Loyp B. Sanps Docket No. G-17399 Ricnarpson & Bass (Louisiana Account), Operator Docket No. G-17401 Maenouia PerrotEum ComMPANY Docket No. G-17402 Beck Om Company, et al. Docket No. G-17405 Puiturrs PerroLEuMmM CoMPANY 117 Docket No. G-17413 Mississipr1 River Furet Corporation Docket No. G-17457 Union Om Company or CALirorNIA Docket Nos. G-17463, G-17474, G-17475 and G-17483 TiwEewatTeR Om, CoMPANY Docket Nos. G-17554 and G-17566 CoNTINENTAL Om CoMPANY Docket No. G-17560 SHet, On, Company Docket No. G-17574 Pan AMERICAN PETROLEUM CoRPORATION Opinion No. 327—Opinion and Order Issuing Certificates of Public Convenience and Necessity (Issued August 10, 1959) These consolidated proceedings involve a proposal where- by Hope Natural Gas Company would purchase and pro- duce natural gas from 11 fields in southern Louisiana and have such gas gathered, transported, and delivered through the facilities of the Texas Gas Transmission Cor- C4725 poration, and Texas Eastern Transmission Corporation to its own system or to various member companies of the Consolidated Natural Gas System for its account. Thirty- one related applications were filed by 24 companies, each for a certificate of public convenience and necessity for the distribution or sale of natural gas in interstate com- merce, or the construction of facilities or establishment of delivery points therefor, pursuant to Section 7(c) of the Natural Gas Act. After hearings, the exchange of briefs, 118 (C4725) waiver of intermediate decision procedure and oral argu- ment, the applications and the issues raised by them are before us for decision. Upon such conditions as we believe to be necessary in the public interest, we are granting the applications as set forth below. Tue APPLICATIONS The facilities which Texas Gas in Docket No. G-17335 proposes to construct for gathering the gas in southern and offshore Louisiana and transporting and delivering it to an existing interconnection of the facilities of Texas Gas and Texas Eastern near Lebanon, Ohio are as follows: 1. Approximately 164.63 miles of 30-inch loop line and approximately 80.92 miles of 26-inch loop line in the States of Louisiana, Arkansas, Mississippi, Tennessee, Indiana, and Ohio; 2. One 26-inch river crossing in the State of Kentucky; 3. Approximately 103.64 miles of supply lines ranging in size from 2 % inch to 12 % inch pipe in the State of Louisiana and adjacent offshore areas; . Seven additional compressor units, totaling 14,000 horsepower at existing compressor stations; . An additional 1760 horsepower compressor station near Lafayette, Louisiana; and . Twelve meter stations, one check meter station and miscellaneous appurtenant equipment in the State of Louisiana and adjacent offshore areas. The above-proposed facilities will increase the design daily delivery capacity of Texas Gas’ main pipeline system by 100,000 Mcf. The entire increase in capacity will be used to transport gas for Hope. The additional facilities will cost approximately $39,600,000 which Texas Gas proposes 119 (C4725) to finance through the issuance of $30,000,000 of first mort- gage pipeline bonds, the sale of equity securities and the use of retained earnings. C4726 Texas Eastern in Docket No. G-17420, in order to trans- port such gas from near Lebanon and deliver it to Hope or for Hope’s account, seeks authorization to place in gas service and operate the following existing facilities: 1, Approximately 189 miles of existing 20-inch pipeline extending from Compressor Station No. 16 near Leba- non, Ohio to a point of interconnection on Texas East- ern’s system near Moundsville, West Virginia; and 2. Two 2000 horsepower, two 1750 horsepower and four 1250 horsepower electric compressor units at existing compressor stations. Texas Eastern also seeks authority to construct and operate approximately 3100 additional horsepower at existing com- pressor stations. The estimated cost of the facilities pro- posed by Texas Eastern (excluding $6,670,000 which repre- sents the depreciated value of the facilities it is reactivat- ing) is approximately $2,230,000. Texas Eastern proposes to finance the cost of the proposed facilities from funds on hand. Hope, by its application in Docket No. G-17565, seeks authorization to establish new delivery points to affiliated customers on the Consolidated Natural Gas System to deliver and sell up to 100,000 Mcf per day of natural gas (15.025 psia) to be purchased from the producer applicants and produced by Hope from various fields in the southern Louisiana and adjacent offshore areas. No new facilities are required or proposed by Hope in order to establish the new delivery points to its affiliated customers, since these necessary delivery points are existing interconnections be- 120 (C4727) tween Texas Eastern and Hope and its affiliated customers.’ The remaining applications are by independent pro- ducers who seek authorization to sell natural gas to Hope from fields in southern Louisiana and adjacent offshore areas. ProcepuRAL STEPS Notice of these related applications and consolidation thereof for hearing was issued by the Commission on Feb- ruary 9, 1959, and published in the Federal Register on February 14, 1959 (2. *R 1166). The following parties filed petitions for leave to intervene which were granted by the Commission in its order of May 29, 1959: The Ohio Fuel Gas Company; Memphis Light, Gas and Water Divi- sion; Mississippi Valley Gas Company; MidSouth Gas Company; and The Manufacturers Light and Heat Com- pany. The New York Public Service Commission filed a Notice of Intervention and was also permitted to intervene C4727 by the same order. A Petition to Intervene filed by the City of Memphis, Tennessee was denied by the above order because it was not filed within the time provided for in the notice of February 9, 1959. By separate order of the same date, the Petition to Intervene filed by the Tennessee Gas Transmission Company was denied, and Tennessee was permitted to participate for the limited purpose of showing to what extent, if any, its marketing of gas to Consolidated Natural Gas System companies would be affected in the event certificates should be issued to the applicants. On June 9, 1959, Tennessee filed an application for rehearing 1 These customers include all of Hope’s operating affiliates except Lake Shore Pipeline Company, as follows: The East Ohio Gas Company, New York State Natural Gas Corporation, The Peoples Natural Gas Company, and The River Gas Company. These companies constitute the Consolidated Natural Gas System. 121 (C4727) of this order, which was denied by the Commission in its order of July 2, 1959. Pursuant to notice of date of hear- ing dated April 29, 1959, these proceedings came on for hearing on June 10, 1959, and the hearing was concluded on June 25, 1959. At the conclusion of the hearing, counsel for Hope moved for omission of the intermediate decision procedure. The Commission, in its order issued July 2, 1959 waived intermediate decision procedure, fixed July 16, 1959 as the date for filing initial briefs, directed that any parties wish- ing to file reply briefs do so by July 20, 1959, and on July 21, 1959, oral argument was held. Tue Issues Generally, the issues presented im this case may be reduced to the questions of whether the various applicants should be granted certificates for their proposals and whether it will be necessary to attach conditions to any certificates which we may find to be required by the public convenience and necessity. To determine these issues, it will be necessary to determine the more specific issues of (1) are the reserves of Hope sufficient to support the pro- posed construction by Texas Gas and Texas Eastern, (2) the propriety of the rates proposed by Texas Gas, (3) the system design and proposed rates of Texas Eastern, and (4) have the sales of the independent producers at the pro- posed rates been shown to be consistent with the public interest. While each application is, in effect, dependent upon the other applications, for the purposes of convenience in our discussion we will deal separately with each proposal except those of the producers, which will be considered together. (C4728) Tue Horr ProposaL The application of Hope involves no new facilities and is simply an indirect extension to south Louisiana of Hope’s facilities to enable it to produce or purchase directly as CA728 much gas as can be obtained in such manner for the Consoli- dated System consistent with its past practice This is not the type of transportation arrangement to which we objected in our Opinion No. 315-A, for here there is no proposal to make non-jurisdictional purchases and reserve a portion of a pipeline’s capacity for an inferior end use. The entire project is subject to our jurisdiction and the additional gas will be distributed by Hope throughout the Consolidated System for the same type services which the System has rendered for over half a century. The need of the Consolidated System for this additional gas was unquestioned at the hearing and detailed evidence was pre- sented showing through past experience and future esti- mates that there will be a definite deficiency in the Corsoli- dated System’s gas supplies if additional gas is not obtained at once. (Exhibit 13). Our staff has raised the point that there may be some question as to the adequacy of Hope’s newly obtained gas supplies to justify the expansion of the Texas Gas and Texas Eastern systems. If Hope takes delivery of its full 100,000 Mcf per day, the evidence shows that there will be a reserve life index of approximately 16 years and a deliverability life of over 12 years. If Hope is unable to take 100,000 Mef per day for 365 days per year, as the evidence indicates may be the situation, these figures will 2 Between 1898 and 1943, Hope produced or purchased directly all of its gas from wells in the Appalachian area and the entire Consolidated System received its gas from this source. At present, about 27% of the System’s gas supply is 80 obtained, 123 (C4728) be increased up to two years both as to reserve and as to the deliverability. In addition to this, Hope’s claimed reserves include only those reserves available from 7,000 acres of the 35,000 dedicated under the producer contracts. This additional acreage is in a highly productive area where further development will undoubtedly result in increasing Hope’s available supplies. _ In our Opinion No. 321, issued May 22, 1959, we granted authorization to Trunkline Gas Company to expand its system upon a showing of 11.5 to 13 years deliverability life. On May 12, 1959, in Opinion No. 320, we permitted Tennessee Gas Transmission Company to expand its system on a showing of a deliverability life of 11 years. While we consider these figures to be the minimum we can permit, we also consider that for established companies with a proven ability to attach new sources, such as is the case here, this minimum will support an expansion program. Hope will require no financing for its proposal and does not seek a change in its presently effective rates. Accord- ingly, insofar as Hope is concerned, certification may be granted as requested. C4729 Tue Texas Gas ProposaL The facilities which Texas Gas proposes to construct and operate appear adequate to enable it to render the proposed transportation service to Hope without impairing in any way its ability to maintain adequate service to its existing customers. The main line facilities, consisting of loop lines and added compression facilities, were designed to add 100,000 Mcf per day capacity from Eunice, Louisiana to Lebanon, Ohio. The supply facilities, consisting of branch lines and feeder lines from Hope’s supply areas to Texas Gas’ existing lines, are designed to carry 125% of 124 (C4729) the supply contract quantities in order to provide the flexibility allowed by Hope’s supply contracts. Although these supply facilities will actually deliver approximately 150,000 Mcf per day to the main line station at Eunice, Louisiana, we conclude that the design is reasonable in that it will permit Texas Gas to transport the 100,000 Mef per day regardless of the various supply areas from which any given day’s requirement is scheduled. Texas Gas estimates the cost of all the proposed facilities will be approximately $39,600,000, and we find this estimate to be both adequate and reasonable. No issue has been raised as to Texas Gas’ ability to finance its project. Texas Gas proposes to finance the new construction by the sale of $30,000,000 of 20-year first mortgage bonds and the issuance of $10,000,000 of equity securities. Arrangements for permanent financing have not been completed but are expected to be arranged in the latter part of 1959 or early 1960. Pending arrangements for permanent financing, Texas Gas has obtained an outstanding line of bank credit in the amount of $40,000,000, available for use for construc- tion at the prime rate at the time of borrowing. Texas Gas’ over-all debt-equity capitalization ratio will remain within the standards employed by the Commission. We conclude that Texas Gas will be able properly to finance the proposed project. The Texas Gas-Hope contract provides for two, two-part rates for the transportation service. These consist of a “gathering rate” of $0.50 demand and 1.7¢ commodity and a “transportation rate” of $2.00 demand and 7.4¢ com- modity. In support thereof, Texas Gas presented two cost allocation studies, (1) a facilities allocation, and (2) a zone allocation of estimated costs on Texas Gas’ line from Eunice, Louisiana, to Lebanon, Ohio, allocated on a rolled- in system-wide basis and with incremental “gathering 125 (C4729) costs” south of Eunice charged solely to Hope. The rate of return used for these studies was 6 4%. The primary issue raised with respect to the proposed rates of Texas Gas is the cost treatment of the supply facilities to be constructed south of Eunice, Louisiana. Hope, Texas Gas and the intervenors, Memphis Light, Gas and Water Division, MidSouth Gas Company, Mississippi Valley Gas Company, The Manufacturers Light and Heat Company, and The Ohio Fuel Gas Company, unanimously contend that since these facilities will be, for the present at least, used only to transport gas belonging to Hope, C4730 the costs incurred in connection therewith should be borne by Hope. On the other hand, the staff contends that these facilities should be “rolled in” as a part of the costs of operating an integrated system for the benefit of all cus- tomers served by that system. The staff argues that the proposed facilities actually will extend the range of Texas Gas’ gathering system into new areas of supply and, in addition, contain excess capacity within the framework of the transportation contract which is always available to Texas Gas for transporting its own gas, so that Texas Gas could, if it desired, under a budget type certificate attach additional supplies of gas and transport it over these lines without any additional expansion or further authoriza- tion from the Commission. While we are concerned lest our action in this case be interpreted as a general departure from our policy of “rolling in” the cost of new supply facilities with over-all system costs, we feel that the circumstances in this case permit, for the time being, a rate which requires Hope to bear the full costs incurred by Texas Gas in connection with these facilities. Accordingly, we shall permit the direct facilities cost treatment used in the design of the 126 (C4730) transportation rate with the proviso that should Texas Gas in the future utilize any of these supply lines for trans- porting its own supplies of gas, then at such time all of the supply facilities herein authorized shall be “rolled in” with system-wide costs for the purpose of determining proper rates; and further that Texas Gas shall not attach any of its own supplies of gas to these supply lines without obtaining the specific approval of this Commission. Be- cause of our continuing jurisdiction over the rates and operations of Texas Gas, with changes continually occur- ring, we may in the future take such action as a proper record may require in connection with any future rate or certificate proceeding instituted by or against Texas Gas, without regard to the occurrence of the utilization of the facilities in the manner discussed above. The staff has raised further issues regarding Texas Gas’ method for computing the proposed rate. These are (1) the use of a 644% rate of return which the staff contends should be no more than 6%, (2) the failure of Texas Gas to credit working capital with Federal income tax accruals which the staff contends should have been credited with 50% of such taxes as being the average amount available for use by Texas Gas, (3) the charging of production costs 50% to demand and 50% to commodity, which the staff contends should be charged 100% to commodity, and (4) the use of a separate “gathering rate” and “transportation rate” which the staff contends should be combined into a single “transportation rate.” Texas Gas has indicated in its brief that it would have no objection to the use of a single rate and we conclude that a single rate would more properly reflect the single transportation service proposed. We agree with the staff that if a departure from the 6% rate of return previously allowed Texas Gas is to be made, it should be done only after a proper record in a rate 127 (C4730) proceeding where all the factors involved could be properly evaluated. Our language in Opinion No. 315 (20 FPC 264) is equally applicable here: C4731 . . . without some more convincing showing than that heretofore made, the rate of return on the storage facilities should not exceed 6%. Fransco’s present rates are fixed on the basis of a 6% rate of return and it would be illogical to provide for a different rate on this portion of its facilities. The policy of offsetting working capital requirements by the average amount of income tax accruals and classifica- tion of production expense 100% to commodity are so well established and have been so constantly followed by this Commission that we deem it unnecessary to comment upon them at this time except to state that we find nothing in this record which would justify treating those two items in any other manner. Accordingly, we conclude that the certificate herein issued to Texas Gas should be conditioned upon the filing of a rate schedule computed in the manner hereinbefore discussed. The cost studies presented in this proceeding result in rates substantially the same when computed without the proposed adjustments. Since, absent the “rolled in” cost treatment of supply facilities issue, no serious objection was made by any party to the allocation method used by Texas Gas in its Exhibit 11, we conclude that the rates of Texas Gas may be based on the study made in that exhibit; provided, however, that a single transportation rate con- sisting of a demand charge and commodity charge and computed on the basis of a 6% rate of return, the crediting of working capital requirements with 50% of Federal income tax related to such return and with production 128 (C4732) expense classified 100% to commodity shall be filed. The use of Exhibit 11 for the purpose of computing the proper rate for Hope in this proceeding does not constitute approval of the allocation method or study used in that exhibit for determination of rates on the Texas Gas system in any pending or future rate or certificate proceeding. These initial rates of Texas Gas shall be filed with the understanding that Texas Gas may file rate changes, as it is entitled to do under Section 4 of the Natural Gas Act. Tue Texas Eastern Proposau Texas Eastern proposes to reactivate 189 miles of the 20-inch “Little Inch” pipeline lying between Lebanon, Ohio and Moundsville, West Virginia. This is a portion of the Little Inch Line which Texas Eastern was authorized to abandon in Docket No. G-2503. In addition, Texas Eastern proposes to reactivate or construct certain compressor facilities on the Little Inch Line and on its existing 24-inch and 26-inch lines which parallel the Little Inch. All these lines and compressors will be operated as an integrated pipeline system, being interconnected at each of the com- pressor stations on the lines. With the exception of the specific compressor facilities discussed below, we find that the facilities which Texas Eastern proposes to reactivate C4732 or construct are adequate to render the proposed trans- portation service and that their construction and operation are required by the public convenience and necessity. Texas Eastern proposes to reactivate or construct certain compression facilities which are clearly in excess of facili- ties necessary to provide additional capacity of 100,000 Mef per day over its existing capacity. These excess facili- ties are as follows: 129 (C4732) Station 17 1—2000 horsepower unit S:ation 18 1—1100 horsepower unit Station 19 2—1250 horsepower units The record does not show that the public convenience and necessity requires the installation of these excess com- pressor facilities. Examination of the flow diagrams sub- mitted by Texas Eastern reveals that excess horsepower will exist at each of the stations, 17, 18 and 19, even with- out the installation of the compressor units listed above. The general statements of Texas Eastern’s design witness regarding the need for flexibility in this portion of the line is not supported by any concrete showing of the need therefor. Accordingly, authorization to install and operate these facilities should be denied on the basis of the record. Should Texas Eastern, in a future application, desire to present a more complete showing of the need for these facilities, we will again consider the necessity for their installation. The total cost of reactivating and constructing all of the facilities proposed~s estimated by Texas Eastern to be $2,230,000 which the evidence shows Texas Eastern can finance from funds on hand. Texas Eastern assigns a de- preciated original cost of $6,670,000 to the facilities to be reactivated. We conclude that Texas Eastern can ade- quately finance the proposed project. However, since we are authorizing construction or reactivation of only a por- tion of the facilities proposed, appropriate adjustments should be made to the accounting entries proposed by Texas Eastern. Accordingly, we shall condition the cer- tificate to require Texas Eastern to file adjusted accounting entries satisfactory to the Commission reflecting the depre- ciated original cost of only such of the facilities as are herein authorized to be reactivated. There is no conclusive or substantial evidence in the record to support the rate of, 4 Yo¢ per Mecf which Texas 30" (C4733) Eastern proposes to charge Hope for transporting its gas. Examination of the purported incremental cost study pre- sented by Texas Eastern reveals that it includes even those excess compressor facilities which we have determined should not be certificated, and that it has no relationship to the cost of the proposed transportation service. Such a study is of no assistance to the Commission in determining whether or not the contract price provides a proper rate. C4733 In view of this situation, we will condition the certificate issued to Texas Eastern so as to require Texas Eastern to file a rate schedule satisfactory to the Commission, fully supported by proper cost data. Such data shall include a system-wide cost of service, and proper allocation thereof between the various services rendered by Texas Eastern, including the proposed transportation service. THE Propucer APPLICATIONS Hope will itself produce about 4% of the gas supply obtained for this project, and the remainder will be pur- chased from 21 independent producers under 26 contracts. These contracts call for initial prices of 21¢ per Mef for about 5% of the volumes dedicated and 21.5¢ per Mef for the remaining 95%. These prices are exclusive of reim- bursement of the Louisiana severance tax. The contracts also call for periodic increases of 1¢ every four years and for price redeterminations after eight years in some cases and after 12 years in others. There are no favored-nation clauses in the contracts, and the evidence clearly discloses that they were made after a long period of arm’s-length bargaining. Such contracts with their relatively firm price provisions will not result in any immediate increase in Hope’s prices to its customers, and they give Hope the advantage of having fixed purchase prices over a fairly long period of time. 131 (C4733) The evidence also shows that the prices in the proposed producer sales will have no adverse effect on any other purchasers in southern Louisiana. The prices to be paid by Hope will set no new plateaus either offshore or in the onshore fields. In fact, numerous unconditioned sales are already being made at and above the proposed prices and many of the contracts therefor call for 2¢ increases every four years and contain favored-nation and redetermination clauses.’ These are the first purchases by Hope in this area and no favored-nation clauses will be triggered, either to Hope or to other purchasers. The evidence shows that C4734 these sales will only be sufficient to cover normal require- ments and additional customers of the Consolidated System for about one year. After 1961, Hope and its affiliates will need even more additional gas supplies to continue to render adequate service. The only parties to these proceedings who have ques- tioned the producer prices were the Public Service Com- mission of the State of New York and, quite properly, our own staff. Both insist that these producer sales must be considered in the light of the recent Supreme Court (CATCO) decision in The Atlantic Refining Company, et al., v. Public Service Commission of New York, et al., 79 Sup. Ct. 1249 (decided June 22, 1959), which sets forth 3 Our staff’s Exhibit No. 32 in this case shows that as of January 1, 1959 there were 61 interstate sales accepted from southern Louisiana at prices ranging from 22.0¢ to 22.9¢ per Mef, including tax, and 41 at prices between 23.0¢ and 23.9¢, including tax. In the specific parishes in which the sales proposed herein will be made, we have certificated 16 sales at base prices equal to or higher than Hope will pay. Also see, In the Matters of Trunkline Gas Company, et al. Opinion No. 321, ........ WO Silivies , issued May 22, 1959; and In the Matters of Transcontinental Gas Pipeline Corporation, et al., Opinion No, 815, 20 FPC 264, issued September 4, 1958, affirmed as United Gas Im- provement Company, et al. v. FPC, ........ i O6 wwin , 3rA Cireuit, decided August 4, 1959. 132 (C4734) certain elements which should be fully considered in deter- mining whether proposed initial prices for producer sales are in the public interest. We are in complete accord with the view of the New York Commission and our staff that the prices at which the producers’ sales are to be made should be carefully con- sidered and examined in the light of the CATCO decision, and in determining that the producer sales herein proposed should be neither denied nor conditioned we have con- sicered every element required or indicated by the Court. As we understand the CATCO decision, the Supreme Court held, in essence, that the producer’s proposed initial price must be supported by substantial evidence establish- ing that the price is required by the public convenience and necessity and is in the public interest; that although the Commission should consider all the factors and has broad discretion in determining whether an initial price is so sup- ported, price is an element of prime importance and the Commission should scrutinize the price closely with a view to protecting the consumer and holding the line against price rises. The Court further held that the Commission ean attach such price conditions as it believes necessary when the proposed price is out of line, when it might result in a triggering of general price rises by reason of favored- nation clauses, or when its approval might result in a gen- eral increase in applicant’s existing rates. The Court did not attempt to prescribe rigidly the quantum of evidence which must be adduced in every case, but indicated what kind of evidence was insufficient; what kind of evidence might or should have appropriately been adduced in consideration of the record there; and thereby, what kind of evidence might or should be adduced in other cases, depending on the factual circumstances present in such cases. Thus, the Court held that evidence of the con- tract, with little more, is not sufficient to support the issu- ance of a producer certificate. Evidence which the Court 133 (C4734) indicated would have probative value in a given case, even though the necessity for such evidence might depend on the facts of the particular case, includes evidence of com- parisons with the weighted average cost of gas to the purchaser; evidence of whether the proposed producer price would lead to an increase in the rates of the pur- chaser, and evidence in the record of a public need C4735 for the gas. In addition, it appears from the Court’s opin- ion that producer certificate proceedings need not assume the character of rate proceedings under Sections 4 or 5 of the Act. From our foregoing analysis of the evidence adduced to support the producer prices in this case and the Supreme Court’s CATCO decision, it appears that the producer applicants have sustained their burden of showing that the prices are required by the public convenience and necessity, and that there is no adequate basis or reason for denying or conditioning the producer certificates herein sought. As the record shows, the prices are the same or lower than numerous other certificated sales in this area. The New York Public Service Commission vigorously urges that the effect of the CATCO decision is to require us to deny cr condition any producer certificate application for a sale in southern Louisiana in which the price exceeds 18¢ including tax, which price it calls the “pre-Catco” level of price. We do not so interpret the decision of the Supreme Court. As we have stated, our view is that the CATCO case held that we should consider in each case all of the elements of public convenience and necessity, giving particularly careful attention to the element of price, and in the exercise of our sound discretion, decide whether the public interest requires a certificate to issue at the proposed price in such case. We do not read into the opinion any such interpreta- tion as is suggested. 134 (C4736) We also disagree with the statement that 18¢ was the “pre-Catco” level of prices in southern Louisiana. True, the majority of the sales in that area were made at prices at or below 18¢, but there were many sales at higher prices. In early 1953 before we took jurisdiction over producer prices, this Commission certificated the Gulf Interstate Gas Company with the knowledge that it was paying producers in southern Louisiana an initial price of 20¢ with fixed escalations each year.‘ In 1954, we certificated producers supplying American Louisiana at 20¢ per Mcf and in October 1955, we certificated producers supplying gas to Texas Gas, one of the parties herein, at a price of 20¢ per Mef.’ We have earlier called attention to staff Exhibit 32 in this case, which sets forth other sales made in this area and certificated by us under contracts executed prior to our CATCO decision of June 24, 1957, which were at prices equal to or higher than those applied for herein. in comparing 1953 and 1954 prices with present prices, we must bear in mind that the natural gas production busi- C4736 ness, like other businesses, has been subject to inflation and increased labor and material costs.* Thus, if there has heen 4In the Matter of Gulf Interstate Gas Company, Docket No. G-2058, 12 FPC 116. 5In the Matter of Atlantic Refining Company, et al., Docket No. G-8809. All of the producer prices mentioned with respect to sales to these three pipe- lines are exclusive of tax. 6The U. S. Bureau of Labor Statistics in its report ‘‘Employment and Earnings’’ shows that in 1954 the average hourly wage of production workers in the Crude Petroleum and Natural Gas Production Industries was $2.27 and in May 1959 was $2.80, an increase of 23.3%. The Bureau’s report on ‘‘ Whole- sale Prices and Price Index’’ shows that the wholesale price of finished steel products has risen from 142.8 in 1954 to 186.7 in June 1959, an increase of 30.7%, and the wholesale price of oil field machinery and tools has risen from 129.5 in 1954 to 154.1 in June 1959, an increase of 19%. In computing whole- sale prices, the 1947-1949 average was used as a basis of 100. 135 an increase for natural gas producers in the cost of doing business of 20% between 1954 and 1959, a price of 20¢ in 1954 is comparable to a price of 24¢ in 1959. In making this comparison, we wish to make it clear that we are doing so only for the purpose of showing that a price of 21.5¢ per Mef, under the circumstances here existing, is not out of line with previously certificated prices when the effects of inflation are considered. We shall consider any new application based upon a price in éxcess of any price we have heretofore certificated to be “out of line” and shall require conclusive proof from the applicant that the public convenience and necessity requires certification at that price. In considering whether or not the proposed price is out of line with other prices in the south Louisiana area, we have also taken into consideration the fact that most of the gas here involved is produced either offshore or in the bayous which are almost inaccessible, and where drilling operations are much more expensive than on dry land. We have also taken note of the fact that this gas is obtained from deep horizons which are located at depths of 10,000 to 13,000 feet. We find nothing in the evidence that signals the existence of a situation which would indicate that the issuance of a permanent certificate is not in the public interest. The proposed price is not out of line with other prices cur- rently being charged in Louisiana, nor, as we have shown, is it out of line with the pre-Catco prices, particularly when we consider the increase in the costs of producing /- gas, the location of the fields here involved and the depth of the sands from which the gas is produced. Certification at these prices will not result in any triggering, there will be no increase in Hope’s existing rates to its customers, nor will there be any increase in the weighted average cost of Hope’s gas. 136 (C4737) On the contrary, considering the need of Hope for this gas, the fact that it has been unsuccessful in locating gas for its customers in its own exploration activities in south Louisiana and has been unable to purchase any at a lesser price than it is here paying, that the prices will be relatively firm for at least 8, and sometimes for 12 years, that none of its customers have raised any question as to the producer prices and the fact that every other aspect of the public convenience and necessity has been met, we conclude that the public convenience and necessity requires the issuance of the producer applications at the proposed prices. To deny these supplies to Hope would be a disservice to all of the consumers dependent upon it for their gas. C4737 The Commission further finds: (1) Hope, Texas Gas and Texas Eastern are natural gas companies as heretofore found by the Commission and each producer applicant is, or will be, upon the commencement of the service authorized herein, a natural gas company within the meaning of the Natural Gas Act. (2) The facilities described above and more fully de- scribed in the applications of Texas Gas in Docket No. G-17335 and Texas Eastern in Docket No. G-17420 will be used for the transportation of natural gas in interstate commerce for resale as integral parts of the pipeline systems of their respective owners, and their construction or reactivation and operation are subject to the require- ments of subsections (c) and (e) of Section 7 of the Natural Gas Act. (3) The delivery points proposed to be established on the Texas Eastern system by Hope will be used for the transportation and sale of natural gas in interstate com- merce by Hope and their operation in this manner by Hope 137 (C4737) and the sales effectuated thereby are subject to the require- ments of subsections (c) and (e) of Section 7 of the Natural Gas Act. (4) The sales of natural gas by the producer applicants as hereinbefore described, and as more fully described in the applications, will be made in interstate commerce, sub- ject to the jurisdiction of the Commission, and such sales hy the producer applicants, together with the construction and operation of any facilities subject to the jurisdiction of the Commission necessary therefor, are subject to the requirements of subsections (c) and (e) of Section 7 of the Natural Gas Act. (5) Hope, Texas Gas, Texas Eastern and the producer applicants are able and willing properly to do the acts and perform the service proposed and to conform to the provi- sions of the Natural Gas Act and the Rules and Regulations of the Commission thereunder. (6) The sales by the producer applicants, the transporta- tion by Texas Gas and Texas Eastern, the sales by Hope and the establishment of delivery points therefor, together with the reactivation or construction and operation of the facilities necessary therefor, are required by the public convenience and necessity and certificates therefor should be issued as hereinafter ordered and conditioned. (7) The excess compressor facilities, as hereinbefore de- scribed, proposed to be reactivated or constructed by Texas Eastern are not shown to be required by the public con- venience and necessity and, accordingly, authorization therefor should be denied. (8) Public convenience and necessity and the orderly administration of the Natural Gas Act requires that the certificates issued herein to Texas Eastern and Texas Gas 138 (C4738) C4738 be conditioned to require the filing of proper rates satis- factory to the Commission as hereinbefore discussed and as hereinafter ordered. (9) It is appropriate and in the public interest in carry- ing out the provisions of the Natural Gas Act that the cer- tificate herein issued to Texas Eastern be conditioned to require the filing of proper accounting entries satisfactory to the Commission as hereinbefore discussed. The Commission orders: (A) Certificates of public convenience and necessity are hereby issued to Texas Gas and Texas Eastern to construct or reactivate, as the case may be, and operate the facilities described above and more fully described in the applica- tions in Docket Nos. G-17335 and G-17420 and to transport up to 100,000 Mcf per day of natural gas for Hope, subject to the jurisdiction of the Commission, upon the terms and conditions of this order. (B) A certificate of public convenience ax4 necessity is hereby issued to Hope to establish delivery points and sell natural gas to its affiliates as hereinbefore described, sub- ject to the jurisdiction of the Commission, upon the terms and conditions of this order. (C) Certificates of public convenience and necessity are hereby issued upon the terms and conditions of this order, authorizing the sales by the producer applicants of natural gas in interstate commerce for resale, together with the construction and operation of any facilities, subject to the jurisdiction of the Commission, used for the sale of natural gas in interstate commerce, as hereinbefore described and as more fully described in the applications and exhibits in these consolidated proceedings. 139 (C4738) (D) The general terms and conditions set forth in para- graphs (a), (b), (c), and (e) of Section 157.20 of the Commission’s regulations under the Natural Gas Act shall attach to the issuance of the certificates granted in para- graph (A) hereof and to the exercise of the rights granted thereunder. (E) The time within which the facilities hereby au- thorized shall be constructed or reactivated and placed in actual operation as provided in paragraph (b) of Section 157.20 of the Commission’s Regulations is hereby fixed at six months from the date on which this order issues. (F) The certificate issued tc Texas Eastern in para- graph (A) hereof shall not be construed to authorize the construction, reactivation or operation of the excess com- pressor facilities hereinbefore described and authoriza- tion to construct or reactivate, and operate those facilities is hereby denied. C4739 (G) The certificate issued to Texas Eastern in para- graph (A) hereof is further conditioned to require Texas Eastern to file a rate schedule applicable to the proposed transportation service satisfactory to the Commission. Such rate schedule shall be filed not less than 90 days prior to commencing service. The company’s filing shall be accompanied by satisfactory system data with cost and allocation thereof, supporting the rates for the proposed transportation service, including Mcf-mile study, and based on a rate of return not in excess of 6%, crediting of 50% of applicable Federal income taxes to working capital and a proper classification of costs. (H) The certificate is further conditioned to require Texas Eastern to file appropriate accounting entries satis- factory to the Commission reflecting the depreciated 140 (C4739) original cost of only such of the facilities as are herein authorized to be reactivated. (I) The certificate issued to Texas Gas in paragraph (A) hereof is further conditioned upon the filing of a proper rate and rate schedule satisfactory to the Commission, to be computed in the manner utilized in hearing Exhibit 11, with the following adjustments thereto: (1) A 6% rate of return shall be used in lieu of (44%, (2) A credit to the working capital requirement by an amount equal to 50% of Federal income tax related to the return, (3) Production expense shall be classified 100% to commodity ; and is further conditioned to require that Texas Gas shall not attach any of its own supplies of gas to the authorized gathering facilities without first obtaining the specific ap- proval of this Commission. By the Commission JosePpH H. GurTrive, Secretary. 141 BEFORE THE C4747 FEDERAL POWER COMMISSION Received September 8, 1959 In the Matters of Texas Gas Transmission Corporation Texas Eastern Transmission Corporation Hope Natural Gas Company Texas Gas Exploration Corporation J. Ray McDermitt & Co., Inc. bags Properties Incorporated, et. al. The California Company Callery Properties, Inc. Ocean Drilling & Exploration Company Humble Oil & Refining Company Amerada Petroleum Corporation Kerr-MecGee Oil Industries, Inc. Bel Oil Corporation Caroline Hunt Sands and Loyd B. Sands Richardson & Bass (Louisiana Account), Operator Magnolia Petroleum Company Beck Oil Company, e?. al. Phillips Petroleum Company Mississippi River Fuel Corporation Union Oil Company of California Tidewater Oil Company Continental Oil Company Shell Oil Company Pan American Petroleum Corporation Docket Nos. G-17335 G-17420 G-17565 G-17336 G-17337 G-17338 G-17339 G-17340 G-17342 G-17391 G-17393 G-17396 G-17397 G-17398 G-17399 G-17401 G-17402 G-17405 G-17413 G-17457 and G-17341 and G-17343 and G-17407 G-17463, G-17474, G-17475 and G-17483 G-17554 and G-17566 G-17560 G-17574 Opinion No. 327 The Public Service Commission of the State of New York respectfully requests rehearing and reconsideration of the Commission’s Opinion No. 327, issued herein on August 10, 1959. Therein, the Commission authorized the issuance of cer- tificates of public convenience and necessity, unconditioned as C4748 to price, to 21 producer-applicants. Thereby, it approved 26 more sales of natural gas in Southern Louisiana at initial prices ranging from 23.05¢ to 23.55¢ per Mef.* We raise no objection to any other aspect of the proposals considered in Opinion No. 327. We raise no objection to the certification of the sales per se. We object only to the Com- mission’s doing so without limiting or conditioning the initial price at a level per se no higher than that demon- strated to be required by the public convenience and neces- sity. Pormr I THe Commission’s Determination Is Nor 1x Accornp Wrrn Tue Supreme Courr’s CATCO Decision. Ir Unper- MINEs Ir. CATCO** went to the Supreme Court for one reason and one reason only—to prevent the second, major, post- Phillips elevation of the Southern Louisiana initial price level from 18¢ to 22.4¢ unless such was demonstrated, by preponderant proof, to be required by the public conven- 143 (C4748) ience and necessity. It was not so demonstrated in that case. It was not in any C4749 of those CATCO engendered—the June 1957 to June 1959 halcyon ‘‘automatic-prima-facie-case’’ days. It has not been here. In CATCO, the Supreme Court noted with critical dis- approval that the CATCO certifications would and in fact had {without justification) become the floor for alli future contract negotiations, and certifications as well, in Southern Louisiana. The case is to be remanded for rectification of the latter unfortunate circumstance. The ‘‘line’’ the Court adjured must be held—barring preponderant demonstra- tion of the necessity for elevating it—was the pre-CATCO line—not the CATCO line itself or that established by any of its equally deficient progeny. That the Commission is now aware that it is supposed to hold to some line, it has demonstrated in Opinion No. 327: ‘‘We shall consider any new application based upon a price in excess of any price we have heretofore cer- tificated to be ‘out of line’ and shall require conclusive proof from the applicant that the public convenience and necessity requires certification at that price.”’ Mimeo ed., p. 13. That’s fine. But the Commission has been advised by the Supreme Court that it will in due course be in receipt of an order of that Court, which will adjure it to ‘‘require con- clusive proof from the applicant that the public convenience and necessity requires certification’’ at any price, and par- * The ‘‘base prices’’ range from 21¢ to 21.5¢ per Mcf. However, totally unobserved by the Commission, the contracts obligate Hope, the purchaser, to pay 2.05¢ more to the producers for every Mcf acquired, representing the producer’s Louisiana severance taxes. ** Atlantic Refining Company, et al. v. PSC of New York, et al., 360 U.S. 378 (1959). 144 (C4750) ticularly at any in excess of 18¢—the pre-CATCO going rate. Accordingly, the Commission’s newly (above) dis- covered and espoused policy C4750 starts precisely 6¢ too high (24 minus 18).* Port II Tue Demonstration THat Pusiic ConvENIENCE AND NEcEs- stry Require CERTIFICATION oF THEsz Sates At THE Inrrm4L Prick Proposep 1s Wuotity Inapequate. In Majsor Part, rt 1s Imaginary aND ToTaLLy UNsUPPORTED BY E\vIDENCE oF REcorD. The proof produced of record in support of these appli- cations demonstrates not one whit more of substance than was the case in CATCO and the case in every single certifi- cation proceeding since 1954. Not a single one of them measures up to the Supreme Court’s CATCO standards for the demonstration of public convenience and necessity which would warrant an 18¢-plus certification. *In Opinion No. 327 the Commission presumes to contradict the Supreme Court in its depiction of 17-18¢ as the pre-CATO level. That was certainly Tennessee ’s pre-CATCO level. That was certainly Transcontinental’s pre- CATOO level. That was certainly Texas Eastern’s pre-CATCO level. That was certainly the predominant level for the overwhelming majority of con- tracts and certific tions negotiated and issued immediately prior to CATCO. It requires no ex ended belaboring to demonstrate that the Commission’s three cited instaness of higher (20¢), pre-CATCO certifications (Mimeo., p. 12)—i.e. Gulf Interstate, American Louisiana and Texas Gas—were the exceptions; sui generis ; erroneous, by any standard; and, by reason thereof, not even influential in the negotiations for the great majority of sales in the pre-CATCO market. Of them, the Supreme Court was aware when it took note of the predominant, going, 17-18¢ pre-CATCO price level. It ill behooves the Commission now to cite these three instances of even more drastic deviation from the requirements of the Natural Gas Act than was its action in CATCO, as the basis for its ‘‘disagreement’’ with the Supreme Court in this respect. 145 (C4751) C4751 1. Factors other than initial price. In Opinion No. 327 the Commission first takes note that the contracts were negotiated at ‘‘arm’s length’’. This is, of course, a pre- requisite of any certification. It is not justification therefor. It is then noted that there are no favored nations clauses in the contracts and that the provisions for periodic price escalations and redeterminations—to ensue later, in the words the Commission frequently uses, ‘‘only with Com- mission approval’’—are less drastic per se than others cus- tomarily encountered. That is encouraging too—but it is the matter of initial price which is here of ‘‘prime impor- tance’’ and ‘‘crucial’’ (in the words of the Supreme Court). 2. The effects of unconditional certification. Next, we are advised by Opinion No. 327 that since there have been many unconditional certifications already extended in Southern Louisiana, in the 23¢ price range, these 26 more cannot adversely affect other purchasers—no new price plateau is established thereby. True, too true. But the Commission has now been advised by the Supreme Court that the basis for those certifications was entirely lacking (Point I, supra). Further repetition of that error in the face of that advice mere serves to compound the error. Next, we are advised that the impact of these acquisitions upon Hope, the purchaser, will not be deleterious since (a) they will not ‘‘trigger’’ any other Hope contracts, (b) they will not increase Hope’s weighted average cost of gas and (c) therefore, C4752 there will be no ‘‘immediate”’ increase in Hope’s charges to its customers. 146 (C4753) The Commission was advised by its staff ‘‘that the cost of transportation gas that is proposed in this proceeding far exceeds the prices presently being paid by Hope for any of its purchased gas supplies from unaffiliated companies.’’ (Staff Brief, p. 78) Starting with the 23¢ purchase price and adding the transportation costs here involved, we get the gas to Hope at its delivery points in the Northeast at a cost of some 45¢ (Item EE). At these points the cost to Hope of the other pipeline gas Hope delivers approximates 36¢ (R. 1559). Hope now sells to its customers at 48-50¢ (R. 1549) and one of its witnesses presumes to testify that it proposes to continue to do so! That these purchases do not serve to increase Hope’s average cost of gas and that there will be no increases in Hope’s price are both, perforce, fanciful illusions and self-refuting. In any event, there is absolutely no reliable record support for the assertions. 3. The initial prices per se. The Commission faces up to the 23¢ directly in three respects only, each of which is totally unsupported of record. Opinion No. 327 states in part: ‘In comparing 1953 and 1954 prices with present prices, we must bear in mind that the natural gas pro- duction business, like other businesses, has been subject to inflation and C4753 ‘increased labor and material costs.* Thus, if there has been an increase for natural gas producers in the cost of doing business of 20% between 1954 and 1959, a price of 20¢ in 1954 is comparable to a price of 24¢ in 1959. In making this comparison, we wish to make it clear that we are doing so only for the purpose of showing that a price of 21.5¢ per Mcf, under the circumstances here existing, is not out of line with previously certifi- 147 (C4753) cated prices when the effects of inflation are considered. Mimeo. ed., p. 12, et seq. 6 The U.S. Bureau of Labor Statistics in its report ‘‘Employment and Earnings’’ shows that in 1954 the average hourly wage of production workers in the Crude Petroleum and Natural Gas Production Indus- tries was $2.27 and in May 1959 was $2.80, an increase of 23.3%. The Bureau’s report on ‘‘Wholesale Prices and Price Index’’ shows that the wholesale price of finished steel products has risen from 142.8 in 1954 to 186.7 in June 1959, an increase of 30.7%, and the wholesale price of oil field machinery and tools has risen from 129.5 in 1954 to 154.1 in June 1959, an increase of 19%. In computing wholesale prices, the 1947-1949 average was used as a basis of 100.’’ This trending of prices utilized by the Commission is a creation of its own imagination. None of the parties to the proceeding offered any evidence on the subject, utilized or even mentioned such a method to justify price. Apart there- from, the C4754 approach itself is faulty. The Commission starts with a 20- cent price per Mcf in 1954—a price which was the exception rather than the rule, pre-CATCO; one which has never been justified as required by the public convenience and necessity in accordance with the CATCO principles; and one which certainly has never been justified as a ‘‘just and reason- able’’ rate—and trends that price upward because of infla- tion. The result is to perpetuate to the same extent the inequities and infirmities that were reflected by the 20-cent charge, first made in isolated sales in 1954. We think that the 20% inflationary experience might possibly be trended against 1954’s predominantly going rate of 8-10¢ in South- ern Louisiana. That might prove something. The Commis- sion’s comparison, however, is merely ‘‘bootstrapism’’ with a vengeance. The Commission also states: ‘In considering whether or not the proposed price is out of line with other prices in the south Louisiana 148 (C4755) area, we have also taken into consideration the fact that most of the gas here involved is produced either off shore or in the bayous which are almost inaccessible, and where drilling operations are much more expensive than on dry land. We have also taken note of the fact that this gas is obtained from deep horizons which are located at depths of 10,000 to 13,000 feet.’’ Mimeo ed., p. 13. There is no evidence in the record as to the comparative cost of drilling on-shore or off-shore or at depths of 10,000 to 13,000 feet. More importantly, however, there is no evidence in the record to indicate the relationship of such factors to the C4755 proposed prices or any others charged in Southern Louisi- ana, or whether these factors played any part in the deter- mination of the prices here proposed. Needless to say, it is also improper to isolate single factors which might justify portions of the prices, in terms of cost, without justifying the total amount being charged in the same terms. Neither is it readily apparent why evidence of the depths at which drilling will take place becomes significant in this proceeding, for the first time. The only other case, to our knowledge, in which this factor was deemed of materiality was Transwestern Pipeline Co., et al., Docket Nos. G-14871, et al. In Opinion No. 328 (Transwestern), issued coinci- dentally with Opinion No. 327, it would appear from Com- missioner Hussey’s dissent, that the majority of the Com- mission apparently does not believe that, by itself, evi- dence of the depth at which drilling is to take place is of particular significance. We do not think it is either except in connection with a complete (actual) not partial (theoreti- cal) examination of the producer’s cost of service. (Mimeo. ed., Dissent, p. 2.) 149 (C4755) 4. The conclusory rationale. The Commission concludes with observations which would appear to comprise the real bases for its refusal to exercise its price limiting and con- ditioning powers in the manner the Supreme Court assured might be done upon a record such as this (in lieu of the out-right denial otherwise required). C4756 ‘*On the contrary, considering the need of Hope for this gas, the fact that it has been unsuccessful in locat- ing gas for its customers in its own exploration activi- ties in South Louisiana and has been unable to purchase any at a lesser price than it is here paying, that the prices will be relatively firm for at least 8, and some- times for 12 years, that none of its customers have raised any question as to the |g tepaan prices and the fact that every other aspect of the public convenience and necessity has been met, we conclude that the public convenience and necessity requires the issuance of the producer applications at the proposed prices. To deny these supplies to Hope would be a disservice to all the ornare dependent upon it for their gas.’’ Mimeo ed., p. 13. Of course Hope ‘‘needs’’ the gas—i.e., needs it to permit of its sale of larger quantities to satisfy the Consolidated System’s legitimate desire to distribute more gas to more people. Every gas purchaser, such as Hope, has such needs or it would not appear before the Commission in a pro- ceeding such as this. Neither we nor anyone else insists that it should not be permitted to acquire more supplies for this purpose—at prices which will not further anchor the totally unsupported (to date) 24¢ price level more firmly into the Southern Louisiana market. Of course Hope was unable to purchase (i.e., negotiate contracts for) gas at a lesser price than it is here com- mitted to pay. The Commission’s now discredited (by the Supreme Court) certification practices of the recent past 150 (C4757) has brought this about. It is this state of affairs that the Court indicated must be rectified. The going negotiated price level is not to continue to be compelling of the going certificated price level as has been the case far too long. C4757 Neither is it surprising that none of Hope’s customers has raised any question as to the producer prices here in- volved. In the first place, each and every one of them is a sister Consolidated Natural System confrere of Hope’s. In the second place, they are also in the business of selling gas and properly wish to do so and continue to expand. They too recoup their costs of gas acquisitions from ever-increas- ing rates. And those that have reacted responsibly in the past to repeated, unjustified producer price spirals in pro- ceedings before the Commission, have received little by way of reward for their efforts. Banging one’s head against a stone wall becomes monotonous in time. Then finally we reach the clincher. ‘‘To deny these sup- plies to Hope would be a disservice to all of the consumers dependent upon it for gas.’’ Though unsupported of record, that may be conceded. But upon what record evidence or factual basis does the Commission reach the conclusion that it must ‘‘deny these supplies’’ to Hope, as the only alter- native to an unconditional grant of the applications as pre- sented? Gas flowed in large quantities to the interstate mar- ket at 10¢ in 1954. It flowed in even greater quantities at 17- 18¢ in 1957. Had the Commission then (e.g., in CATCO) held the line, that gas, and we and the Supreme Court are quite certain, additional gas supplies would have continued to flow to that market. Pursuit of the Commission’s price conditioning powers consistently, in the manner CATCO contemplates, will not ‘‘deny’’ supplies. At the very least, the Commission might better prove rather than assume the 151 (C4758) C4758 contrary before declining to administer the Natural Gas Act in the manner the Supreme Court has made abundantly clear is required. ConcLusIon Under CATCO, the Commission has two and only two alternatives in the discharge of its statutory obligations in these proceedings. (1) It may issue conditional certificates to the producers, approving of the sale of the gas here in- volved at a price no higher than that demonstrated to be required by the public convenience and necessity; or (2) it must deny the applications for lack of proof. We urge the Commission to reconsider its Opinion No. 327 and there- upon to pursue course No. 1. Respectfully submitted, Pusuic Service Commission or THE State or New York /s/ By Kent H. Brown Kent H. Brown Counsel 55 Elk Street Albany 1, New York Dated : September 4, 1959 Lawrence M. DeVore Of Counsel (D200) D199 GAS PURCHASE CONTRACT BETWEEN THE SUPERIOR OIL COMPANY SELLER AND UNITED GAS PIPE LINE COMPANY BUYER Terrebonne Parish, Louisiana Exursrr ‘‘ 2’? D200 Gas Purchase Contract Tuis Contract made and entered into as of the 8th day of September, 1958, by and between THE SUPERIOR OIL COMPANY, a corporation, hereinafter designated as Seller, and UNITED GAS PIPE LINE COMPANY, a corporation, hereinafter designated as Buyer; WITNESSETH: Wuenreas, Seller is the owner of certain leaseholds and/or interests in leaseholds in the Bayou Penchant, Palmetto Bayou and Four Isle Dome Fields, Terrebonne Parish, Louisiana, and has, or will have, a supply of gas available for sale which is produced from such leaseholds and/or interests in leaseholds, hereinafter called leaseholds; and WHEREAS, Buyer operates a gas pipe line system serving various markets and Buyer desires to purchase gas from Seller to supply a portion of Buyer’s gas requirements; 153 (D200) Now, THeRreForz, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: I. Subject to all of the terms, conditions and limitations hereinafter set forth, Seller hereby sells and agrees to sell and deliver to Buyer, and Buyer hereby agrees to purchase and receive from Seller in the usual conduct of Buyer’s business, at the hereinafter described delivery points, mer- chantable gas in the quantities hereinafter set forth, pro- duced from all leaseholds now owned by Seller in the Bayou Penchant, D201 Four Isle Dome and Palmetto Bayou Fields, Terrebonne Parish, Louisiana, as such fields now exist or as they may hereafter be extended or enlarged during the term of this contract, but only from those formations or reservoirs located between the surface of the ground and the base of the deepest productive reservoir heretofore discovered in the respective fields above mentiond. The deepest productive reservoirs heretofore discovered in the respective fields are identified as follows: (1) Bayou Penchant Field—The reservoir as found on the electrical log of Seller’s No. A-9 La Terre Well in Section 11, Township 19 South, Range 13 East, Terrebonne Parish, Louisiana, between 14,890 feet and 14,914 feet. (2) Four Isle Dome Field—The reservoir as found on the electrical log of Seller’s No. 1 Terrebonne Parish School Board Well in Section 16, Township 21 South, Range 16 East, Terrebonne Parish, Louisiana, between 16,730 feet and 16,866 feet. (3) Palmetto Bayou Field—The reservoir as found on the electrical log of Seller’s No. B-1 La Terre Well 154 (D202) in Section 6, Township 19 South, Range 13 East, Terre- bonne Parish, Lovisiana, between 14,286 feet and 14,304 feet. so that all formations and reservoirs in a respective field below the base of the applicable reservoir above identified are hereby excluded from this contract and not committed hereunder. The obligation of Seller to sell and deliver such gas is subject, however, to the reservation by Seller of sufficient gas for: (1) The development and operation of Seller’s lease- holds in the above mentioned fields, including gas for pressure maintenance or repressuring of oil or conden- sate producing horizons underlying Seller’s leaseholds covered hereby in order to increase the ultimate re- covery of oil or condensate; (2) The operation of any gasoline or dehydration plant D202 or compressor station operated by or on behalf of Seller on its leaseholds in the above mentioned fields; (3) The supplying to Seller’s lessors of gas to which such lessors are entitled under the terms of Seller’s leases in said fields which cover leaseholds covered hereby; and (4) The performance of its obligations under that certain contract with Tennessee Gas Transmission Company dated April 6, 1955, as such is affected by the reserve determination agreement dated April 1, 1958, accepted April 10, 1958, copy of each of which has been exhibited by Seller to Buyer, it being further agreed that Seller shall not be obligated to deliver to Buyer any gas from reservoirs or portions thereof dis- covered on or before October 9, 1957, which underlie the respective areas outlined in red on Exhibits ‘‘A’’ and ‘‘B’’ of said agreement of April 1, 1958, which such reservoirs or such portions thereof, to the extent 155 (D202) that such reservoirs or such portions thereof are lo- cated within the respective areas outlined in red on Exhibits ‘‘A’’ and ‘‘B’’, Seller reserves for the per- formance of the contract with Tennessee Gas Transmis- sion Company. If such reservoirs or portions thereof within the area outlined in red on Exhibits ‘‘A’’ and ‘*B”’ of said agreement of April 1, 1958, be insufficient to enable Seller to perform its contract with Tennessee Gas Transmission Company to the extent that the gas from other reservoirs be required for its performance, Seller shall have the right to use and deliver gas from any reservoir herein committed to Buyer for the per- formance of its contract with Tennessee Gas Transmis- sion Company. Seller shall have the right to operate its properties free from any and all control by Buyer in such a manner as Seller in its sole discretion may deem advisable, including, without limitation, to the right to drill new wells, to repair and rework old wells, renew or extend in whole or in part any leases covered hereby, and to abandon any well or sur- render any lease, in whole or in part. Seller shall have the right, at its option, at any time and from time to time during the term of this contract, to include under the terms and provisions of this contract any leaseholds or formations and reservoirs not presently cov- ered hereby which are located in any of the above described fields. In such event, Seller shall deliver and Buyer shall receive the gas deliverable from such leaseholds or formations and reservoirs throughout the then remaining portion of the term covered by this contract in accordance with all of the terms and provisions hereof, except Buyer shall be allowed the period of time which is required to construct the necessary facilities to receive such gas before Buyer shall be obligated to take or pay for such gas under the provisions hereof. 156 (D204) Seller also reserves the right to pool and combine all or any part of the leases subject hereto with other properties owned by Seller or others, inclpding the right to reform units; in which event this contrat shall extend and apply to the interest of Seller in the newly formed unit to the extent that such interest is derived from the leaseholds cov- ered hereby. IL. It is recognized that Seller shall deliver gas to Buyer hereunder from various nonrelated fields, and that such gas shall be received by Buyer at separate delivery points located in each of said fields. It is expressly agreed between Seller and Buyer that, under the provisions hereinafter set forth in this Article II, Seller’s obligation to deliver and Buyer’s obligation to receive gas hereunder shall be deter- mined separately for each of the fields covered hereby so that there will be a separate Annual Minimum Quantity in effect for Seller’s leaseholds in each of such fields, and no excesses or deficiencies in Seller’s delivery or Buyer’s re- ceipt of gas from any one field covered hereby shall be con- sidered in determining the parties’ respective obligations for delivery and receipt of gas from any of the other D204 fields covered hereby. Buyer shall take from Seller hereunder or pay Seller for, whether taken or not, during each ‘‘contract year,’’ as same is hereinafter defined, quantities of gas which are at least equal to the Annual Minimum Quantity during such contract year, provided that Seller is able to make deliveries of such Annual Minimum Quantity in accordance with the pro- visions hereof, and further, Buyer shall take from Seller, or pay Seller for whether taken or not, during each month throughout each contract year, a quantity of gas which is 157 (D204) not less than one-twenty-fourth (1/24) of the Annual Mini- mum Quantity in effect for such contract year. For the purposes hereof the term ‘‘Annual Minimum Quantity’’ shall mean a quantity of gas equal to forty-five million, six hundred twenty-five thousand (45,625,000) cubic feet of gas per contract year for each billion cubic feet of Seller’s Gas Reserves. The term ‘‘Gas Reserves’’ as used herein shall mean the estimated total quantity of recoverable gas owned by Seller and contained in the various gas-bearing forma- tions or reservoirs underlying Seller’s leaseholds which are subject to the terms of this agreement, less the Gas Reserves which Seller has reserved under Article I hereof and are excepted from this contract. Such Gas Reserves shall be determined in accordance with the provisions of Article IV of this agreement. Seller agrees that it will develop and maintain sufficient delivery capacity to enable it to deliver to Buyer hereunder, on each day throughout each contract year, a quantity of gas which is equal to one and one half (112) times the daily average of the Annual Minimum Quantity in effect for such contract year. In the event that Seller should, at any time during any contract year, fail or be unable to develop, or having developed, to maintain, sufficient delivery capacity to enable it to deliver to Buyer hereunder the daily quantity of gas provided for in this paragraph; then the Annual Minimum Quantity for the remainder of such contract year shall be reduced by the ratio that the smallest quantity of delivery capacity maintained by Seller during such contract year bears to the quantity of delivery capacity required to enable Seller to deliver, on any day, one and one half (114) times the daily average of the Annual Minimum Quantity then in effect; provided that in the event Seller’s delivery capacity shall be insufficient and the Annual Minimum 158 (D206) Quantity shall as a result be subject to reduction and Seller, by further development or other operations during such contract year increases its delivery capacity, then for such contract year the Annual Minimum Quantity shall be com- puted on a pro rata basis using the various quantities of delivery capacity that were available during such contract year. In the event of any such reduction of the Annual Minimum Quantity for any contract year, Buyer shall take from Seller, or pay Seller for whether taken or not, during each month of such contract year, a quantity of gas which is not less than one-twenty-fourth (1/24) of such reduced Annual Minimum Quantity. It is expressly understood that Buyer shall have the right and option to purchase at any time and from time to time, such daily quantity of gas as it desires up to one and one half (142) times the daily average of the Annual Minimum Quantity then in effect, and in addition, such daily quan- tities of gas, if any, in excess of one and one half (1%) times the daily average of the Annual Minimum Quantity which in Seller’s judgment ean be produced and delivered from Seller’s wells efficiently and in accordance with good operating practices. It is recognized that Seller is not obligated to provide process- ing facilities for quantities of gas in excess of one and one half (142) times the daily average of the Annual Minimum Quantity in effect from time to time, and therefore any additional gas which Buyer may elect to receive under this paragraph, which is in excess of the capacity of Seller’s processing facilities as then installed shall be by-passed by Seller around such facilities and the quality specifications of Article VIII shall not apply to such excess quantity which is so by-passed. In the event Seller has developed its leaseholds covered 159 (D206) hereby to the extent permitted by the rules and regulations of the regulatory body having jurisdiction, and Buyer’s withdrawals of gas hereunder, over periods of reasonable duration, are insufficient to provide Seller with a ratable share of the total withdrawals by all producers in any field covered hereby, then Seller may call upon Buyer to increase its withdrawals herennder from such field to the extent necessary to enable Seller to produce its current ratable proportion of the total withdrawals of gas from such field, and in addition thereto, such quantities of gas as may be necessary to enable Seller to produce, over a reasonable period of time, any accumulated net deficiencies which may have occurred, since the date that Seller had such delivery capacity available, in Buyer’s prior withdrawals of gas from Seller hereunder from such field. In the event that Buyer, after receipt of such request from Seller, does not increase its withdrawals hereunder in such field to the ex- tent necessary to enable Seller to produce such current ratable quantities of gas, and, over a reasonable period of time, any such accumu- D207 lated net deficiency which may exist, then Buyer shall, upon request from Seller, release from this contract suf- ficient gas reserves in such field to enable Seller to take steps to correct such situation. It is recognized that neither Seller nor Buyer desires to construct the necessary facilities to enable Seller to deliver and Buyer to receive the gas deliverable hereunder from the Four Isle Dome Field at the delivery point provided in Article III hereof until Seller has had an opportunity to determine whether Seller can develop in said field for delivery hereunder Gas Reserves which equal or exceed fifty (50) billion cubic feet. Accordingly, it is agreed be- tween Seller and Buyer that, (i) until Seller and Buyer have 160 (D208) completed the construction of the necessary facilities to enable Seller to deliver and Buyer to receive gas from the Four Isle Dome Field at the delivery point provided in said Article III or (ii) the leaseholds covered hereby which are located in said field are released from this contract, whichever (i) or (ii) occurs under the provisions herein- after set forth in this paragraph, Buyer shall take, or pay for if not taken, from reservoirs wholly owned by Seller in the Bayou Penchant and Palmetto Bayou Fields, in addi- tion to the quantities of gas hereinabove provided for in this Article II, additional quantities of gas which are at least equal to the quantities of gas which Buyer would otherwise be obligated to take, or pay for if not taken, in accordance with the foregoing provisions of this Article IT if deliveries of gas were being made by Seller to Buyer from the Four Isle Dome Field. It is expressly agreed that Buyer’s obligation to take, or pay for if not taken, such additional quantities of gas from reservoirs wholly owned by Seller in the Bayou Penchant and Pal- metto Bayou Fields is subject to Seller’s ability to deliver one and one half (142) times the daily average of such additional quantities of gas on each day throughout each contract year this paragraph is in effect, and the provisions hereinabove set forth in this Article II relating to the de- termination of Seller’s delivery capacity and Buyer’s obli- gation to take, or pay for if not taken, the Annual Minimum Quantity shall apply in determining Seller’s delivery capac- ity and Buyer’s obligation with regard to such additional quantities of gas. Should Seller develop for delivery here- under in the Four Isle Dome Field Gas Reserves which equal or exceed fifty (50) billion cubic feet within three (3) years from the date deliveries of gas commence under this contract, then Seller and Buyer shall proceed with reason- 161 (D208) able diligence in obtaining the necessary certificates from the Federal Power Commission in accordance with the pro- visions of Article III and thereafter construct the neces- sary facilities to enable Seller to deliver and Buyer to re- ceive gas from the Four Isle Dome Field at the delivery point provided in Article III. On the other hand, if Seller has not developed for delivery hereunder in the Four Isle Dome Field Gas Reserves which equal or exceed fifty (50) billion eubie feet within said three (3) year period, then Buyer may, at its option, elect to construct the necessary facilities to receive gas from Seller from the Four Isle Dome Field at the delivery point provided in Article III. If Buyer so elects, Seller and Buyer shall proceed with reasonable diligence in obtaining the necessary certificates from the Federal Power Commission in accordance with the provisions of Article III and thereafter construct the necessary facilities to enable Seller to deliver and Buyer to receive gas from the Four Isle Dome Field at the delivery point provided in Article III, but if Buyer does not elect to construct such facilities, then Buyer shall release from this contract those leaseholds covered hereby which are located in the Four Isle Dome Field. If during any contract year Buyer pays for gas which is not taken in accordance with the provisions hereof, Buyer shall have the right during the next succeeding contract year to make up such deficiency in takings by crediting such excess payments against quantities of gas taken during such succeeding contract year and which are in excess of the Annual Minimum Quantity for such succeeding contract year, but in making up such deficiencies Buyer shall be required to pay to Seller any difference in the price pre- vailing for the contract year in which the deficiency is 162 (D210) made up and the price paid for gas not taken during the contract year when the deficiency occurred. ITI. Seller agrees to deliver and Buyer agrees to receive the gas deliverable hereunder at one mutually agreeable central point in each of the fields covered hereby, which such points shall constitute the delivery D210 points for all gas deliverable hereunder. Seller agrees to construct, operate and maintain, at its expense, the neces- sary facilities from Seller’s wells to said delivery points. Buyer agrees to construct, at its expense, the necessary pipe lines from its existing pipe line system to said delivery points, which said pipe lines may also be used by Buyer to transport gas received from other parties and other sources. It is expressly understood and agreed, however, that Sell- er’s obligation to deliver and Buyer’s obligation to receive gas at the delivery point provided for in the Four Isle Dome Field is subject to the provisions hereinabove set forth in Article IT hereof. It is recognized that it shall be necessary for Seller to obtain Certificates of Public Convenience and Necessity from the Federal Power Commission for each field covered hereby prior to the commencement of deliveries of gas hereunder from such fields. It is further recognized that it shall be necessary for Buyer to obtain a Certificate of Public Convenience and Necessity from the Federal Power Com- mission for the Four Isle Dome Field prior to the receipt by Buyer of gas from Seller hereunder from said field. Seller will, as soon as practicable after the execution of this contract, file and prosecute diligently its application or ap- plications for Certificates of Public Convenience and Neces- sity authorizing Seller to initiate and continue the sale of 163 (D210) gas hereunder from the Palmetto Bayou and Bayou Pen- chant Fields. Seller and Buyer will, when it is determined as hereinabove provided in Article II whether Seller shall deliver and Buyer shall receive gas from the Four Isle Dome Field, file Dail and prosecute diligently their respective applications for Certificates of Public Convenience and Necessity which, in the case of Seller, shall authorize it to initiate and continue the sale of gas hereunder from the Four Isle Dome Field, and which, in the case of Buyer, shall authorize it to con- struct and operate the facilities required to receive and transport said quantities of gas from the Four Isle Dome Field. Notwithstanding the foregoing provisions hereof, neither Seller nor Buyer shall be obligated to accept any Certificate of Public Convenience and Necessity authorizing the sale or purchase of gas hereunder in any field covered hereby, which certificate contains conditions that are not acceptable to the party to whom such certificate is issued. In the event Seller has not obtained and accepted the Certificates of Public Convenience and Necessity which would authorize Seller to sell gas under the provisions of this contract in the Palmetto Bayou and Bayou Penchant Fields within twelve (12) months from the date Seller files for its respec- tive Certificates of Public Convenience and Necessity for such fields, then Seller shall have the right, at any time prior to the receipt of an acceptable certificate, to cancel this contract insofar as this contract relates to the appli- cable field for which Seller has not obtained and accepted such [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_IA40386411_0193%3A01. Public record. Not legal advice.