129 



aged from undertaking researcli by the regu- 

 latory accounting treatment of research ex- 

 penditures prescribed by the. Federal Power 

 Commission. 



Wlien research is successful, resulting in 

 useful plant or equipment as a part of a 

 specific pipeline project, it is clear that trans- 

 mission companies can capitalize the cost. 

 However, if the research is not successful 

 or is of a general nature, the accounting 

 treatment of the cost is not as clearly de- 

 fined. In some cases the expenditure can be 

 capitalized, or in many other cases, allowed 

 as an expense. But several transmission com- 

 panies have indicated that the uncertainty 

 as to which treatment will prevail inhibits 

 research expenditures. These companies also 

 have indicated concern that certain large, 

 general research activities not resulting in 

 clearly identifiable improvements might be 

 disallowed in determining the maximum 

 permitted return on investment. This con- 

 cern makes such expenditures difficult to 

 justify, as the risk cannot be equated with a 

 potential for increased profit because the 

 benefits of successful projects now are passed 

 largely to the customer or, in some cases, to 

 the producer. The net result is an extremely 

 low research and development expenditure 

 in the industry and a reluctance to under- 

 take the large, uncertain expenditures neces- 

 sary for technological advance. 



To account for research and development 

 expenditures after the fact in terms of success 

 or failure appears to be an accounting prac- 

 tice inconsistent with the basic premise of re- 

 search itself. Even if initially anticipated 

 results are not achieved, the research has 

 eliminated one option and provided much use- 

 ful information in the process. Consideration 

 of this principle could resolve the lack of 

 agreement between the gas transmission in- 

 dustry and the FPC concerning accounting 

 treatment for research expenditures. 



The Commission recommends that in 

 order to encourage innovative research 

 and development activities, the Federal 

 Power Commission review its accounting 

 regulations relating to research and de- 

 velopment to determine whether such 

 regulations are consistent with the legiti- 

 mate need of the gas transmission indus- 

 try for clear and realistic guidelines. 



With appropriate encouragement, the gas 

 transmission industry could foster new tech- 

 nology tiiat would increase the economic 

 feasibility of gas production and transmis- 

 sion farther offshore and in deeper waters 

 and contribute to the overall ability to work 

 in the ocean. For example, improved tech- 

 niques for laying large-diameter pipelines in 

 deeper waters may well dejsart from the con- 

 cept of the traditional pipelaying barge and 

 introduce totally new seafloor construction 

 techniques. 



Planning 



Recognizing the vital role of the offshore 

 areas as a soui'ce of natural gas, the FPC has 

 recently undertaken to encourage industry 

 planning to achieve greater efficiency in the 

 construction and use of facilities to transport 

 natural gas from offshore areas. Although in 

 1967 a major proposal submitted by an in- 

 dustry consortium for sliaring offshore pipe- 

 lines was turned down by the FPC, recent 

 FPC policy statements indicate that FPC 

 will require joint industry planning of off- 

 shore pipelines. It is hoped that cooperation 

 of producers, pipeline companies, and the 

 FPC will : 



• Expedite tlie planning and processing of 

 joint-use proposals 



• Contribute to the more orderly develop- 

 ment of offshore areas 



• Encourage exploration 



