The Minister has received a letter on the above-mentioned subject, dated June 28, from the Minister of Trade and Commerce, the text of which is quoted below. Your comments on Mr. Howe's letter would be appreciated. It would be useful if you could discuss the subject with Mr. N.R. Chappell (D.D.P. Washington) but you should not (repeat not) of course raise it in any way with United States officials. We have not yet been able to give any consideration to this matter and consequently are not able to let you have even preliminary views.

2. An acknowledgment of the letter will be sent immediately stating only that we are studying the questions Mr. Howe has raised and are seeking your advice. We would hope, however, to let Mr. Howe know very soon what action might appropriately be taken pursuant to his suggestions.

3. Text of the letter follows:

Ottawa, June 28, 1954

My dear Colleague:

No doubt your officers have considered Opinion No. 271 of the Federal Power Commission denying the application of Westcoast Transmission Company for permission to deliver gas into Washington and Oregon. In my judgment, this Opinion No. 271 contains implications that should be brought officially to the attention of the State Department.

The finding itself is found on page 9, as follows:

". . . It is for these reasons and others, including the feasibility of the projects hereinafter discussed, that we conclude that the applications of Pacific and Colorado Interstate should be granted.

"Since the areas to be served by Pacific in the State of Washington and at Portland, Oregon, would be largely duplicated by Westcoast Inc. and Trans-Northwest, these applications are mutually exclusive and the applications of Westcoast Inc. and Trans-Northwest must be denied."

While the finding is disappointing in itself, it calls for no comment from me. However, the reasons given for the finding must be challenged. I quote from pages 24 and 25, as follows:

"Such protection would not be afforded to any segment of the American people if its sole source of essential natural gas were through importation from a foreign country without some intergovernmental agreement assuring the continued adequacy of its supply. Otherwise, all control over the production, allocation and transportation to our border of such natural gas would be in the hands of agencies of foreign governments, whose primary interest would of necessity always be in the needs and advantages of their own people, and whose judgments and actions would be essentially dependent upon public opinion within that country, rather than upon the interests of American consumers. Regardless of any long and cherished friendly relations with any neighbour nation able to supply such area with natural gas, it would not be in the public interest to permit the importation of its gas as the sole source for the consumers in need of an uninterruptible supply at a reasonable price, which should always be assured by this Commission to the full extent of its powers.

"In this Pacific Northwestern section of our country there are potential industrial consumers of natural gas whose needs will be great and who may well be supplied with imported gas on a supplementary or interruptible basis. In any area which is receiving from an American source a supply of gas sufficient for its firm needs, it is conceivable that there might be imported to it from a neighbour country upon satisfactory terms and conditions a supplementary supply of gas for its interruptible needs. We do not consider it to be in the public interest, however, to authorize a most important new project to serve a major area - involving a large and important segment of the American economy - which from the outset will be completely tied to and wholly dependent upon an exclusive source of supply entirely beyond the control of agencies of the United States."

These paragraphs imply that foreign relations are being handled by a commission of the United States Government, rather than by appropriately constituted U.S. authorities. The argument against importation from foreign sources indicates that the Federal Power Commission has placed an embargo against the importation of Canadian gas into the U.S. on any firm basis. This is in effect tantamount to a complete embargo, as it would be impossible for any company to finance a gas supply from Canada to the U.S. solely on an interruptible basis. Therefore, the F.P.C. has laid down a general ruling that the U.S. cannot import natural gas from Canada.

It is worth noting that in the "orders" section of the Opinion, letters (F) and (G), page 33, the Commission dismisses without prejudice the rival applications of Northwest Natural, Glacier, and Northern Natural, while at the same time denying the application of Northwest Transmission. Surely all applications based upon gas supply from Canada should have been denied or all of them dismissed without prejudice, to maintain legal consistency.

It is also worth noting that during the Korean build-up this Department received some pressure from the Director of Defence Mobilization to make Canadian gas available to the Pacific Northwest. In particular, the Department received a very urgent request from the Director of Defence Mobilization to export gas to supply the Anaconda smelter, in Montana, and the Government responded by arranging a permit for the required export and by helping to expedite the building of a connecting pipeline. This export certainly was not on an interruptible basis. Incidentally, we recently received an application, sent on by the province of Alberta, to increase this export substantially, which application I had intended to recommend but which, in light of the recent F.P.C. ruling, must be denied.

It may be well to remind the State Department that Canada has been exporting electrical energy to the U.S. under firm contracts for the past forty years and that these contracts have always been carried out, regardless of the fact that the power exported was from time to time urgently needed in Canada, particularly during two war periods. Our legislation governing the export of electrical energy is the same legislation that governs our export of natural gas.

I do not know of any incident associated with the export of energy from Canada which would justify the finding of the F.P.C. Therefore, I believe that the State Department should be informed of the situation. However, this is a matter for your judgment. ¹⁴⁹

Yours sincerely,
C.D. HOWE