FEDERAL POWER COMMISSION

TUESDAY, MARCH 4, 1969

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMUNICATIONS AND POWER, HOUSE INTERSTATE AND FOREIGN COMMERCE COMMITTEE,

Washington, D.C.

The subcommittee met at 10 a.m., pursuant to notice, in room 2322, Rayburn House Office Building, Hon. Torbert H. Macdonald (chairman of the subcommittee) presiding.

Mr. MACDONALD. The hearing will be in order.

We have with us today the chairman and members and principal staff personnel of the Federal Power Commission.

It is our purpose to hear from the Commission with respect to its jurisdiction, activities, organization, and personnel, any major administrative problems before the Commission, and whatever legislative recommendations it may wish to propose to us.

This hearing is being held in accordance with section 136 of the Legislative Reorganization Act of 1946, which charges the committee to maintain constant watchfulness over the administration of the laws that fall within its jurisdiction.

During the 90th Congress, the Subcommittee on Communications and Power acted on the so-called recapture bill relating to the relicensing or recapture of hydroelectric projects whose licenses expire. This became Public Law 90-451. We should expect to hear how this legislation is working out.

In this connection, perhaps the subcommittee would like to inquire into the Commission's net investment rule which established a formula for calculating the cost of a hydroelectric project for the purposes of licensing to another licensee or takeover by the Federal Government.

In addition, although the Natural Gas Pipeline Safety Act of 1968 is administered by the Department of Transportation, the FPC has numerous responsibilities with respect to natural gas pipelines that affect the public safety.

We would be pleased to know of the arrangements which have been worked out between the Office of Pipeline Safety, the Department of Transportation, and the Commission under the Natural Gas Pipeline Safety Act.

Power outages continue to be a serious problem particularly in cerparts of the United States. In the last Congress, one of the principal legislative recommendations of the FPC was enactment of a power reliability bill. The Commission is studying modifications of that bill, and I think we would like to hear the results of that study

and what the Commission is likely to propose in the field of power reliability.

Mr. Chairman, we would be delighted to have you proceed. STATEMENT OF HON. LEE C. WHITE, CHAIRMAN, FEDERAL POWER COMMISSION; ACCOMPANIED BY CARL E. BAGGE, VICE CHAIRMAN, AND COMMISSIONERS LAWRENCE J. O'CONNOR, JR., JOHN A. CARVER, JR., AND ALBERT B. BROOKE, JR.; ARTHUR L. LITKE, CHIEF ACCOUNTANT, OFFICE OF ACCOUNTING AND FINANCE; MARSH H. MOY, COMPTROLLER AND ASSISTANT EXECUTIVE DIRECTOR; AND KEY STAFF MEMBERS

Mr. WHITE. Thank you, Mr. Chairman. We are, of course, delighted for this opportunity at the beginning of the 91st Congress to come here and to meet with you.

I would like to introduce the other members of the Commission and our principal staff officers who are here in the room to give us moral support and more importantly to answer any difficult technical questions which may arise in our discussions.

Sitting to my left is the Vice-Chairman, Carl Bagge, of Illinois, a Republican; to my right is Commissioner Lawrence J. O'Connor, Jr. of Texas, a Democrat; to his right is Commissioner John A. Carver, Jr. of Idaho, a Democrat, and to my far left, Commissioner Albert B. Brooke, Jr., of Maryland, a Republican.

We are a bipartisan group by statute.

Seated in the first row to your left is Mr. F. Stewart Brown, who is the Chief Engineer of the Commission and the head of our Bureau of Power. Next to him is Mr. Joseph J. Curry, who is the Acting Chief of the Bureau of Natural Gas. Next is Mr. Arthur L. Litke, our Chief Accountant and the head of our Office of Accounting and Finance.

Next is Mr. Haskell P. Wald, who is our Chief Economist. Next is Mr. Marsh H. Moy, who is our Comptroller and Assistant Executive Director. Next to him is Mr. William L. Webb, Director of our Office of Public Information.

In the first row on your right here, the first individual is Mr. Richard A. Solomon, our General Counsel. Next to him is Mr. Peter H. Schiff, who is the Solicitor of the Commission and argues the Commission's position in appellate courts.

If there are others, I do not see them. These are, I think, our principal officers and those who will be in a position to give us any technical or legal guidance or information we may desire.

If it is satisfactory now, Mr. Chairman, I have a prepared statement. which is relatively brief, and I think it might be useful if I just proceed, although if you would prefer to stop at any time for any questions obviously we would be delighted to proceed in any way that is satisfactory.

The Federal Power Commission is an agency of the Congress, performing delegated functions in the regulation of the electric power and natural gas industries and the licensing of hydroelectric and related water resources.

The Commission consists of five members appointed by the Presi dent with the advice and consent of the Senate. The Chairman is

designated by the President. The Vice Chairman is elected annually by the members of the Commission.

The law requires that no more than three Commissioners be of the same political party. The statutory term of office is for 5 years, and one term ends on June 22 of each year. The law provides for an incumbent Commissioner to hold over in office if an appointment has not been made by the end of his term.

With me today are my four fellow Commissioners whom I have introduced to the committee.

We have provided for each member of the subcommittee a kit which includes relevant information about the Commission, including biographies of the Commissioners, and organization chart, and related information. The kit includes a short pamphlet entitled "An Informal Explanation of the Organization and Work and the Federal Power Commission." I found it a helpful introduction to the Federal Power Commission when I first ran across it, and I commend it to you. It is brief; it is written in a direct style; and I think it is quite informative. The kit also includes the Commission's annual report for fiscal year 1968, submitted to the Congress on January 3, 1969, a list of Commission publications, a descriptive statement of organization as published in 18 CFR 3.1-3.7, and a map of natural gas pipelines.

HISTORY OF THE FEDERAL POWER COMMISSION

The Federal Power Commission was created by Congress in 1920 to administer the Federal Water Power Act. Its early activities were. confined almost entirely to the issuance of licenses for non-Federal hydroelectric projects for terms defined by the statute as not to exceed 50 years. The Federal Power Commission originally was composed of the Secretaries of War, Interior, and Agriculture, but in 1930 it was reorganized as an independent agency with five full-time commissioners appointed by the President with the advice and consent of the Senate.

We are pretty nearly at the end of our own 50-year period. I have not heard any suggestion that the Federal Power Commission should be recaptured or taken over by the Federal Government. Our license is not expiring, but we are at the point where we are somewhat reflective about what the Commission's responsibilities have been in the past, and how they change as times themselves change in this country.

In 1935, the Commission's jurisdiction was extended by passage of the Public Utility Act which added parts II and III of the Federal Power Act. The Commission now has authority-other than licensing or certificate authority-over the interstate transmission of electric energy and the rates for its sale at wholesale in interstate commerce. It also regulates some securities and mergers, consolidations, acquisitions, and accounts of companies subject to its jurisdiction.

To assure an abundant supply of electric energy throughout the United States with the greatest possible economy and with regard to the proper utilization and conservation of natural resources, the Federal Power Commission is empowered and directed to encourage the voluntary interconnection and coordination of facilities for the generation, transmission, and sale of electric energy. This is a provision of the 1935 act, and we are constantly impressed by the fore

sight of Congress in 1935 to have envisioned how this industry would develop and evolve.

The Natural Gas Act was enacted in 1938 and expanded substantially in 1942. It gave the Commission jurisdiction over the interstate transportation of natural gas and sale of natural gas for resale. Thi statute provides for regulation of the interstate operations of natural gas companies, including jurisdiction over rates and accounts and certificate regulation of new sales and new construction.

In 1954, the U.S. Supreme Court ruled that under the Natural Gas Act the rates and sales of independent producers selling natural gas in interstate commerce were subject to Federal Power Commission jurisdiction.

In 1968, the committee reported out and the Congress enacted Public Law 90-451 (82 Stat. 616) the bill referred to in the chairman's opening statement clarifying the relicensing or recapture procedures to be followed upon expiration of hydroelectric licenses. The Commission, on December 19, 1968, gave public notice of proposed implementing regulations in docket No. R-355; comments on the proposed rules are due by March 20, 1969.

The Federal Power Commission's activities have been enlarged over the years under various other congressional acts and Executive orders. Among other things, the Commission is responsible for ap proving the rates for power generated at certain Government-owned hydroelectric projects and for recommending installation of facilities for the generation of electric power at dams constructed by the Corps of Engineers.

The Commission is a member of the Water Resources Council. created in 1965 by statute, and participates actively in the work. Under Reorganization Plan No. 9 of 1950, the Commission's Chairman is designated by the President and is responsible for the executive and administrative functions of the agency subject to the authority of the full Commission on substantive policy matters. on approval of the Chairman's staff appointments to head major administrative units and on approval of budget estimates and distribution of funds according to major programs.

THE ELECTRIC AND GAS INDUSTRIES

The electric and gas industries are the largest and sixth largest in the country in terms of assets. Our responsibilities include licensing, rate regulation, and investigations.

I think the electric utility industry must be somewhere on the order of a $90 billion investment and the gas industry somewhere over $30 billion.

The electric industry is divided into four segments. The largest segment is investor-owned, serves over three-quarters of the customers. and owns over three-quarters of the generating capacity. The other segments consist of federally owned systems, municipal and Stateowned systems, and rural electric cooperative systems.

The gas industry is predominantly divided into three functional segments: Producers, pipeline companies, and distribution companies. In some instances, a single company performs two or three of these functions, but that is unusual rather than normal. The gas industry is generally investor-owned, although there are a number of munici pally owned distribution systems.

PRINCIPAL FUNCTIONS OF THE FPC

Hydroelectric licensing cases involve considerations of economics and power supply, of esthetics and recreation, of fish and wildlife. conservation, of water pollution abatement, of irrigation, and navigation. When we consider a dam site we try to figure out how it can best be used to satisfy the entire broad spectrum of public needs. The work combines the talents of civil and electrical engineers, naturalists, accountants, lawyers, and economists. We also work closely with other agencies of the States and Federal Government, such as the Interior Department's Fish and Wildlife Service, and others.

Last year, the Commission held that it would consider thermal pollution matters in the course of exercising its hydroelectric jurisdiction. Arkansas Power & Light Co., 40 FPC-, project No. 271. In the recent Northfield Mountain case (Western Massachusetts Electric Co., 40 FPC-, opinion No. 541, now on appeal), the Commission considered questions raised as to competitive access to power supply and opportunity for participation in regional power supply planning. Additionally, in our proposed new rules governing applications for new as well as renewed licenses for hydroelectric projects, we have proposed a new exhibit in which the applicant would detail how he planned to coordinate the power output of the project with other systems and the nature of his consultation with other systems in reaching these plans. In regulating wholesale electric rates, we act to prevent unjust rate levels or unduly discriminatory rate structures. The coordination function poses a particularly vital challenge in view of the more than 3,000 separately owned utility systems of varying sizes and ownership types which comprise the electric utility industry. The Commission and its staff seek to influence these numerous systems to coordinate their activities so as to provide the most efficient and reliable power supply without regard to idelogical differences or differences in corporate or organizational structure. One aspect of this work is our promotion of voluntary coordination. An outstanding example is the National Power Survey program which brings together all segments of the industry in matters of common concern.

In limited cases, the Commission may require an interconnection between two utilities.

In reviewing those merger applications that come before us, the resources of the Commission are available to assist the parties to achieve the most meaningful public coordination of power supply facilities. These areas of our work with the electric utility industry call for the talents of engineers, accountants, economists, financial analysts, public utility rate specialists, and lawyers. In the Gainesville case last year (City of Gainesville v. Florida Power Corp., 40 FPC — Opinion Nos. 550 and 550-A, now on appeal), the Commission laid down substantive guidelines for exercise of its responsibilities regarding compulsory interconnections, sales and exchanges of power.

Our natural gas work includes review of the prices which producers charge pipeline companies and which pipeline companies charge distributors and other pipeline companies to prevent unjust rate levels or unduly discriminatory rate structures. We are authorized to suspend increased rate proposals.

Gas certificate regulation includes study of the adequacy of a company's gas supply; competition between two or more companies

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