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The Midwestern Case: Canadian Gas and the Federal Power Commission

Published online by Cambridge University Press:  07 November 2014

Hugh G. J. Aitken
Hugh G. J. Aitken*
Affiliation:
University of California, Riverside
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Extract

The historian of the future, in attempting to interpret developments in the middle years of the twentieth century, may well be appalled by the mass of documentary evidence that confronts him. Particularly is this likely to be the case if he is foolhardy enough to explore the decisions of governmental regulatory agencies and the processes by which such organizations undertook to define the public interest. These public bureaucracies, exposed to strong political pressures and staffed largely by lawyers, characteristically accumulate very large masses of testimony, oral and written, in the course of their hearings. Partly for reasons of expense, this testimony is seldom published, and the lay inquirer, if he delves into the morass, is more than likely to find himself confused rather than enlightened by the unfamiliar phraseology and by the sheer bulk of the record.

Nevertheless, such agencies have come to play a very significant role in determining the rate and direction of economic development in the United States and Canada, and it is important that we should understand the kind of reasoning that underlies their decisions. The present inquiry stemmed initially from an interest in the Canadian natural gas industry, and from curiosity about the impediments that seemed to be delaying the export of Canadian gas to the United States.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 25 , Issue 2 , May 1959 , pp. 129 - 143
Copyright
Copyright © Canadian Political Science Association 1959

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References

1 No attempt is made in this paper to discuss the earlier case involving the attempt of the Westcoast Transmission Company to export Canadian gas to the Pacific Northwest. One significant difference between the two cases may be noted, however. In the Westcoast case the F.P.C. refused to grant an import licence partly because the proposal originally submitted implied that Canadian gas would be the sole source of supply for the market area affected. When the proposal was later modified so that Canada became a supplementary source of supply (supplementing gas from the San Juan basin) an import licence was granted. In the Midwestern case dependence on Canadian gas as the sole source of supply was not contemplated; Canadian gas figured throughout as a supplementary source only.

2 The material that follows is based on analysis of the decisions of the Presiding Examiner and of the Commission in connection with the following dockets: American Louisiana Pipe Line Company, docket G-2306; Michigan Wisconsin Pipe Line Company, dockets G-2327 and G-9850; Northern Natural Gas Company, dockets G-2399, G-2460, G-4259, G-4260, G-4261, and G-12241; El Paso Natural Gas Company docket G-12135; Permian Basin Pipeline Company, docket G-12242; Iron Ranges Natural Gas Company, dockets G-9648, G-12223, and G-12217; Midwestern Gas Transmission Company, dockets G-9451, G-9452, and G-9453; Tennessee Gas Transmission Company, dockets G-9454 and G-11107; and Natural Gas Pipeline Company of America, docket G-9966. The final ruling of the Commission is Opinion 316 (Oct. 31, 1958). It did not prove necessary, for this paper, to examine the very many written briefs submitted to the Commission, nor the transcript of oral testimony. The transcript, amounting to 21,091 pages, is available in the Washington offices of the Commission, along with some 789 exhibits and other items. This evidence is available to those with the courage and pertinacity to grapple with it. For present purposes the decisions of the Presiding Examiner and of the Commission (which are distributed to interested parties in mimeographed form and include extensive discussion of the issues as well as the actual decisions) provided a more than adequate source of information.

3 The Bowdoin and Cedar Creek (Baker) fields in eastern Montana are classed as major sources of gas supply by the F.P.C., but gas from these fields currently travels no farther east than Bismarck, North Dakota.

4 Ashbacker Radio Corporation v. F.C.C., 326 U.S. 327 (1945). This decision requires a comparative hearing of mutually exclusive applications for authorization to render conflicting service.

5 The advantages of underground storage reservoirs as means of meeting peak loads are well known. Gas pipeline companies, which must have sufficient capacity to meet winter peaks in northern markets, have excess capacity in the summer. Lacking underground storage facilities, a gas supplier must, in off-peak periods, make interruptible “dump” sales to industrial users. Such sales bring in relatively little revenue but improve the load factor in the pipeline system and enable the supplier to dispose of gas which he is obliged to accept on a year-round basis at the gas field. Northern claimed that its Redfield reservoir had a total gas-holding capacity of 54.2 MMcf. This, the company argued, was more than enough to make possible a sustained withdrawal rate of 50,000 Mcf per day for 120 days–ample to take care of the peak load for winter heating. Thus use of the reservoir would smooth out the seasonal peaks without enforcing reliance on low-revenue sales for “inferior” industrial uses.

6 New applications were in fact promptly submitted by Midwestern and Tennessee, embodying proposals to serve the Chicago-Gary area with gas from the southwest only. Preliminary hearings were held on these applications on December 17-19, 1958, and further hearings were scheduled to begin on February 16, 1959.

7 Considerations of price did not play an important part in the Commission's decision in this case; the availability of dedicated reserves was the critical factor. Actually Midwestern's agreement with Trans-Canada provided for a commodity charge of 20 cents per Mcf throughout the 25-year period of the contract and a monthly demand charge of $2.20 for the first 5-year period. The rate was to be increased by 1 cent per Mcf if Midwestern failed to obtain a certificate by November 1, 1958. Purchases by Midwestern from Tennessee were to be under a rate schedule already approved by the F.P.C, providing for a commodity charge of 19.4 cents per Mcf and a monthly demand charge of $2.00. There seems to be some question about the Commission's authority to regulate prices paid for imports of gas at the border. It has been legally established that, as far as the Natural Gas Act is concerned, “interstate commerce” does not include “foreign commerce” (Borden Pipe Line Co. v. F.P.C., 84 AppDC 142, 171 F(2d) 149). Executive Order 10485 (18 Fed. Reg. 5397) gives the F.P.C. jurisdiction over the construction, operation, maintenance, and connection of facilities for the exporting or importing of gas at the borders of the United States, but does not mention the regulation of rates, beyond giving the Commission authority to attach to any gas import or export permit “such conditions as the public interest may in its judgment require.”

8 Trans-Canada estimated its proven reserves under contract at 4,387,712 MMcf and its probable reserves under contract at 767,390 MMcf; estimates of average daily deliverability from the proven reserves under contract rose from 413,773 Mcf per day in 1958-9 to 717,860 Mcf per day in 1962-3. The Commissioners pointed out that these estimates of daily deliverability assumed that contracts could be renegotiated and new export authority secured from the province. More significant, however, was their refusal to accept Trans-Canada's estimate of Canadian market requirements. The Commission's view was that Trans-Canada's contracted reserves would probably not prove sufficient even to meet the maximum demands of its Canadian customers, far less provide a surplus for export.

9 See, e.g., Federal Power Commission, Thirty-Eighth Annual Report (Washington, D.C., 1959)Google Scholar for complaints of inadequate staff and huge accumulations of work remaining unfinished at the end of the fiscal year. During the first sixteen years after the passing of the Natural Gas Act the Commission docketed some 2,400 gas cases; during the next four years (until June 30, 1958), another 13,000 were added, or more than five times the total of the preceding sixteen years. The work load has been increased very substantially by the Supreme Court's historic Phillips decision of June 7, 1954, which brought under F.P.C. regulation the independent gas producers who sell in interstate commerce.