INDEPENDENT OFFICES AND DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT APPROPRIATIONS FOR FISCAL YEAR 1968 MONDAY, JULY 24, 1967 U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, D.C. The subcommittee met at 11:05 a.m., in room S-128, the Capitol, Hon. Warren G. Magnuson (Chairman) presiding. Present: Senators Magnuson, Ellender, Allott, and Case. FEDERAL POWER COMMISSION STATEMENT OF LEE C. WHITE, CHAIRMAN; ACCOMPANIED BY JOHN A. CARVER, JR., VICE CHAIRMAN; RICHARD C. JOHNSON, ASSISTANT EXECUTIVE DIRECTOR; MARSH H. MOY, COMPTROLLER; JULIUS M. KLEIZO, BUDGET OFFICER; F. STEWART BROWN, CHIEF, BUREAU OF POWER; ARTHUR L. LITKE, CHIEF ACCOUNTANT; JOHN C. MASON, DEPUTY GENERAL COUNSEL; DAVID J. BARDIN, ASSISTANT GENERAL COUNSEL; JOHN F. O'LEARY, CHIEF, BUREAU OF NATURAL GAS; HASKELL P. WALD, CHIEF ECONOMIST; WILLIAM N. CAMPBELL, DIRECTOR, OFFICE OF PERSONNEL PROGRAMS BUDGET REQUEST, HOUSE ALLOWANCE, AND AMENDMENT Senator MAGNUSON. The subcommittee will come to order. This morning we have the Federal Power Commission. For the purposes of the record, the fiscal year 1967 appropriation was $14,220,000; the budget estimate for fiscal year 1968, with the budget amendment of $300,000 for the gas survey Mr. WHITE. Right. Senator MAGNUSON. IS $14,830,000. But the House allowed the same amount as last year, $14,220,000. Mr. WHITE. Yes, sir. Senator MAGNUSON. Which is $610,000 under the budget estimates, but that includes the $300,000 budget amendment, does it? Mr. WHITE. No, sir; because that particular item request from the President in the supplemental request went to the House too late for them to consider it, so they did not act on that. They have not yet acted on that. Senator MAGNUSON. So the $610,000 would bring you up to the regular budget estimate, is that correct? Mr. WHITE. No. $310,000 would to the normal estimate. Senator MAGNUSON. $31,000, plus the $300,000. Mr. WHITE. Right. Senator MAGNUSON. $610,000 would lower both items, is that correct? Mr. WHITE. Yes, sir. APPEAL LETTER, PREPARED STATEMENT, AND JUSTIFICATIONS Senator MAGNUSON. We will place your letter and statement in the record in full along with the justifications. (The letter, statement, and justifications follow:) APPEAL LETTER Hon. WARREN G. MAGNUSON, FEDERAL POWER COMMISSION, Chairman, Subcommittee in Charge of the Independent Offices and Department of Housing and Urban Development Bill for 1968, Committee on Appropriations, Washington, D.C. DEAR MR. CHAIRMAN: This responds to your letter of May 12, 1967 requesting that we advise you of changes in the 1968 House Appropriations bill that are required in the public interest. The House Appropriations bill for 1968 provides $14,220,000 for the Commission. This reduction of $310,000 below the original budget request of $14,530,000 will not support the additional staff activities needed to process the increased and more complex workload anticipated for the year. We therefore request restoration of the full amount. Subsequent to the transmission of the original budget request to the Congress. on April 28, 1967 the President transmitted appropriation amendment for 1968 which raised the amount requested for the Federal Power Commission by $300,000 to $14,830,000. The House Report released on May 12, 1967 stated the budget request for the Commission as $14,530,000. For this reason, we believe that the $300,000 amendment was not acted on by the House. The purpose of the $300,000 amendment transmitted by the President was to provide funds for initiating a National Gas Survey. With the rapid and accelerating growth of the natural gas industry, the need for a National Gas Survey is becoming increasingly important, if not indispensable, to the charting of the policies basic to the immediate and long-range public interest. We ask that this $300,000 be included in our appropriation. Accordingly, the amount stated in line 7 of page 8 of the House bill under "Federal Power Commission, Salaries and Expenses" should be revised from "$14,220,000" to "$14,830,000." We appreciate the opportunity to appear before your Subcommittee on June 21, 1967, at 10:00 a.m., to testify in support of the budget request. Sincerely yours, LEE C. WHITE, Chairman. STATEMENT OF CHAIRMAN WHITE Mr. Chairman, I am delighted to appear before you today in support of the Federal Power Commission's revised budget estimate of funds for Fiscal Year 1968, including a request for restoration of the $310,000 reduction made by the House in the original estimate. GENERAL At the outset, let me emphasize that the Federal Power Commission adheres to Congressional standards, not only in our substantive regulatory efforts delegated us by Congress through the Federal Power and Natural Gas Acts, but also in internal and housekeeping functions. We are making every effort to increase production, streamline procedures and expedite work processes in furtherance of Congressional and Administration programs of economy and efficiency in Government. We are convinced that the total amount requested in the revised budget for FPC is the minimum with which we can effectively perform the natural gas and electric power activities under your mandate in protecting the public interest. If the House reduction stands, we will be unable to carry out our responsibilities with full effectiveness; to the contrary we will have to make significant reductions in the level of our effort. A request for funds is included in the Fiscal Year 1968 Budget to support the first year effort of a proposed National Gas Survey which will provide, for the first time, a truly comprehensive view of the natural gas industry as it is today, as well as of the significant problems it faces as one of the nation's suppliers of energy to a nation whose appetite for energy grows at an almost alarming rate. I will discuss the Survey in greater detail in a moment. SUMMARY OF REQUEST The Commission needs $14,830,000 in 1968, of which $300,000 is for the National Gas Survey, in order to continue our regulatory programs so vital to the consuming public and the industries we regulate. The redutcion proposed by the House could seriously hamper these efforts. Our 1968 revised request is an increase of $610,000 over our fiscal year 1967 appropriation. This will permit us to add 43 positions over our 1967 staff, 25 to initiate the National Gas Survey, 15 for workload increases in our natural gas program, and 3 for our increasing electric power work. The budget justification and revision for the Gas Survey which we have submitted to you provide facts and figures in support of our request. I will of course be glad to elaborate on any part of it for you. First, however, I would like to place the figures in perspective by discussing some of the problems facing the Commission and our programs for meeting them. NATURAL GAS-GENERAL Natural gas regulation occupies the largest part of our staff and accounts for most of the proposed position increases. The FPC regulates two of the three basic sectors of this huge industry. First, we regulate the natural gas producers with respect to the prices and terms of their sales for resale in interstate commerce. In addition, we regulate the interstate transportation of natural gas by pipelines and their sales for resale to local distributors. Regulation of the local distribution of gas is the responsibility of state utility commissions. We have come a long way in solving the difficult problems of natural gas regulation. Consumer gas costs, which had increased almost twice as fast as the general cost-of-living index between 1955 and 1961, have risen only one index point since 1961, while the price of all consumer items rose, on the average, almost nine points, obviously, we do not claim all the credit for this, but there can be no doubt that the work of the Commission has made a substantial contribution to these results. The Commission has also virtually eliminated the huge pipeline rate backlog which existed at the beginning of the decade, reducing $1 billion of retained pipeline funds subject to refund in 1962 to $18 million by 1966. Additionally, pipeline customers were refunded $570 million with future rate reductions amounting to $126 million annually. The financial stability of the natural gas industry has not suffered by this action, as demonstrated by its continuing impressive growth. We could not have achieved this success without your assistance and encouragement during the annual appropriation review. And while we feel a certain pride in our record, we recognize that future appropriations cannot be justified on past successes. You may wonder why we find it necessary, despite our progress, to request staff increases in the immediate future. I can assure you there are good reasons. NATIONAL GAS SURVEY This year the Commission will certificate new facilities with a value of approximately $1.5 billion for the transmission of natural gas. Our certification decisions, made on a case-by-case basis, rest on evidence before us in specific proceedings. Thus our perspective is limited by the procedural requirements placed upon the Commission. Further, the regulatory framework under which pipeline companies conduct their investment planning is conditioned heavily by past individual decisions of the Commission. The results of this case-by-case approach have, we believe, proven to be effective and beneficial to the nation. Natnral gas is now distributed to consumers representing 75 percent of the U.S. population, and market coverage continues to expand. The price of gas to householders and other consumers continues to be reasonable. By these tests, our nearly thirty years of experience with natural gas regulation can be regarded as successful. The natural gas industry is, however, now entering a new phase in its development. In region after region of the United States, competition from other energy sources is challenging the market growth prospects for natural gas and there is a discernible and increasing trend towards competition among pipelines for new or expanded business. In these changing circumstances, and particularly in light of the massive investments in pipelines and related facilities that will be made in the next few years (perhaps $20 billion in the next decade), it is essential in our view that the Commission develop an effective means of seeing beyond the narrow confines of individual cases and obtaining an oversight of the prospective course of the markets and supplies necessary to meet them. In the course of this inquiry, we must be willing to examine our own practices to assure that regulation does not inadvertently defeat its objectives, and I am confident we are capable of recognizing this if there is any problem in this direction. The National Power Survey completed in 1964, and now being updated, performed a comparable service for the electric power sector of the economy. It provided, for the first time, an overall assessment of the existing status of the electric power industry, including regulatory attitudes, and provided guidelines for future development. In the case of the Power Survey, the actual work was accomplished in the setting of a close working relationship between the Commission and the affected industries. The result has been improved regulation, more sensitive to the changing requirements of the nation, than could otherwise have been achieved. We intend to establish the same sort of close industry-FPC relationship in the development and conduct of the National Gas Survey. Among the issues we would expect the Survey to focus on are adequacy of supply, efficiency, supply-market-price relationships, interfuel competition, technological advances, and export-import policies. A comprehensive National Gas Survey could help put these issues in proper perspective, perhaps stimulate more creative and effective industry planning, encourage more knowledgeable investment, better economic decisions, and better designed legislative proposals. It could also guide Federal, state and local governments in identifying and attacking their long-range resource problems. The House did not consider the survey in their hearings since the President's supplemental budget request of $300,000 for the survey was not received in time to permit consideration. We believe this is a most significant recommendation that merits the support of the Congress and particularly this Subcommittee. Regulatory agencies are frequently critcized by Congress and others for their inability or unwillingness to look to the future and to explore the basic factors influencing the industries they regulate. The proposed National Gas Survey which requires twenty-five new positions to initiate can make a meaningful contribution to the nation's economic growth and we earnestly urge its approval. NATURAL GAS REGULATION Fifteen new positions were requested for our increased work effort in the natural gas industry activity. The need has been created mainly through the new workloads arising from the setting of producer rates on an area basis. The alternative of fixing producer rates on an individual company basis is simply not feasible in terms of workload, manpower and timing. Delay in FPC decisions that would result from manpower limitations on an area-rate program would be very costly to the consumers of natural gas. The producers would also suffer from the effect of continued uncertainty and its adverse impact on industry growth. PRODUCER Three of these new positions are for the temporary surge during 1968 of workload anticipated by the submission of over eleven thousand quality statements and area pricing compliance filings consistent with Commission issued opinions and orders. Five of these positions will be required for the formal FPC and court proceedings involved in the setting of producer rates. During 1968, the Commission and its staff will concentrate on resolving five area rate cases which account for about 90 percent of all interstate producer sales. The present staff will not be able to cope with the overwhelming complexities of these cases. The recent decision in the Permian Basin case by the Tenth Circuit Court of Appeals, which the Commission has asked the Supreme Court to review, has imposed additional demands on the staff. Application of area-rate principles to the remaining cases, and the second round of area-rate review to follow, cannot be handled with the present staff. If the Commission is to set a pattern of producer regulation for the future on a basis that will serve the public interest and stand up under judicial review, it must have necessary staff resources. Without these eight additional positions, there is serious doubt whether the Commission can mount the necessary drive to complete this program successfully within a reasonable period of time. PIPELINE I would now like to turn to a discussion of our pipeline work. Seven new positions are needed for our pipeline operations. Even though we have eliminated the pipeline rate backlog and improved the processing of noncontested applications, new and different dimensions of pipeline regulation are adding to the staff workload. While rate cases are on the increase, competitive certificate proceedings are the principal source of demand for added staff. Pipeline expansion in past years has channeled today's competition to areas which already have natural gas service. These cases represent a dimension of natural gas regulation which will be with us from now on and for which we must plan accordingly. During the past fiscal year, we disposed of eleven such competitive proceedings, and nine are still in process. These cases are extremely complex and time-consuming. They involve numerous parties with varying and often conflicting interests-some stand to gain from mere delay. We are trying to expedite these proceedings within the limits of administrative due process, and I am confident that much can be done. It would be wrong, however, to predict any major procedural breakthrough. A portion of the additional positions requested for 1968 will enable the Commission to make progress toward conducting this work on a current basis. Denial of these positions may result in backlogging of certain cases with costly consequences to the consumer, the pipeline company, and the economy. The creation of such a backlog today would require added staffing in the future to recover lost ground. Much more could be said about our natural gas activities, but I would like to move to the electric power side of our ledger where we are requesting an aggre |