Yardstick for Gas

Ever since the Federal Power Commission set out eleven years ago to regulate the nation's 3,000-odd independent natural gas producing companies (those not owning their own pipelines), a battle has raged over the question: What is a fair profit for independents? Last week the FPC finally had an answer. In a test case involving the Phillips Petroleum Co. of Bartlesville, Okla., FPC Presiding Examiner Joseph Zwerdling recommended that Phillips be permitted a 9.25% return on its investment. The rate was a compromise between the 18% return asked by Phillips and the 6% return that FPC has been allowing integrated pipeline companies which own their own wells.

While the decision was by no means as generous as many natural gas companies would have liked, it still came as an overdue relief. The original Phillips Petroleum rate-making action was begun by FPC in 1948, dropped when FPC decided it had no jurisdiction, started again when the U.S. Supreme Court said that it had.

For the natural gas industry, the Phillips decision set up a new list of "thou shalt nots" in fixing rate bases for independent gas producers. While Phillips will be permitted to raise its overall rates by $14 million, Examiner Zwindler rejected firmly a flock of hypothetical costs totaling $35 million, which Phillips wanted included in its rate base. Chief among these was an item of $11 million for federal income taxes that Phillips does not have to pay because of the 27 1/2% oil and gas depletion allowance. Phillips argued that it still should be allowed to charge customers for the nonexistent tax.

Although the examiner's report must still be passed on by FPC, it may well set a tough new pattern whereby FPC will rule on pending rate raises requested by 2,140 other companies, leading to a substantial scaling down of $92.2 million in requested increases.

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