Some small manufacturing capacity is kept to level off the peaks on these natural gas systems, but very little is made otherwise. Senator SALTONSTALL. Thank you, Mr. Chairman. PAYMENT TO TREASURY FOR COLUMBIA RIVER HEADWATER BENEFITS Senator MAGNUSON. Put in the record how much of the payback is downstream benefits coming out of the Columbia River. What is the total? Mr. SWIDLER. Roughly a million dollars, sir, about 40 percent. Mr. SWIDLER. $212 million. Senator MAGNUSON. About half of it, isn't it? Mr. SWIDLER. About 40 percent. Senator MAGNUSON. Put that in the record, please. (The material referred to follows:) In the Columbia River Basin, actual payments to the United States for headwater benefits totaled $2,454,500 during fiscal year 1963. This included an advance payment of $1,100,000. During fiscal year 1964 an actual payment of $254,500 has been received and an additional payment of $635,700 is scheduled to be made during June. The latter is to cover the balance of payments due for the years 1952 through 1956 the 2-year total of payments to the Treasury for the Columbia River Basin is $3,344,700. Payments during fiscal year 1965 will include about $1,350,000 due for that year plus an amount, as yet undetermined, for the years 1957 through 1961. COMMITTEE PROCEDURE Senator ALLOTT. Mr. Chairman, we have a very short time and I was hoping we could get over to these rate cases, because I have a few questions on that, because it involves partially the employees. If I could go into that, I would like to do it. Senator MAGNUSON. For the record, it is understood, of course, we are having these hearings early so that we shall not get into the situation, we hope, that we got in last year. The House is through with their hearings and Congressman Thomas-I am giving you this information so you can adjust yourself-told me he hoped to have the House bill passed and on the floor by May 10 or in that vicinity. That would mean that, after the House bill is passed, we would come back again and go into some other matters and be more specific about them. That will save your time and our time and we hope we can get this done by the end of the fiscal year. I have a lot of questions, too, that we cannot ask this morning; but let's go over to the rate case. We will put your whole statement in the record in full, regardless. Mr. SWIDLER. I assume that you are talking about the natural gas material beginning on page 8. Senator MAGNUSON. Here we are, beginning on page 8. BACKLOG OF PIPELINE RATE CASES Do you want to read that portion of your statement, and then we will know what we are doing? Mr. SWIDLER. Yes, sir. The Commission's major success in the past 22 years was to clear up the enormous backlog of pipeline rate cases. In so doing we have reversed the upward trend of natural gas prices which has plagued gas consumers and the industry in recent years. The backlog of pipeline rate increases which reached a cumulative total of $1.6 billion is now down to a working inventory of about $90 million. Over $550 million have been ordered in pipeline refunds. In these 212 years the city-gate price of natural gas has been reduced by a net amount of over $124 million annually, a reduction in the cost of living which consumers receive every year. A necessary part of the Commission's program to stabilize runaway natural gas prices has been in the interim price ceilings for new sales by gas producers. The Commission has adhered to these ceilings and adjusted them downward in some areas in which existing ceiling prices were out of line. The stabilizing of prices in the field, coupled with pipeline refunds and rate reductions, has renewed public confidence in natural gas as a low-cost fuel. The refunds and rate reductions we have ordered speak for themselves as to the benefits to natural gas consumers. Wiping out the Commission's backlog of pipeline rate cases has also been of large benefit to the natural gas industry. For the first time in years the financial status of pipeline companies is not clouded by contingent refund obligations so large as to make it difficult to appraise the financial status of the companies. Pipeline securities can now be valued on a firm financial basis in the light of the industry growth to supply the ever-increasing demand for natural gas by both industrial and domestic consumers. The lower rates are big factors in enabling the industry to meet the stiffening competition from other energy sources. COMMISSIONER'S PIPELINE RATE SETTLEMENT PROGRAM To my mind, the Commission's pipeline rates settlement program is a demonstration of the administrative process at its best. To rely entirely on formal rate cases, with all their porcedural inelasticity and complexities, as the sole tool of regulation, invites backlogs and a breakdown of regulation, but settlements carried on without adequate information and safeguards can be equally dangerous by failing to assure consumer protection. It is only an administrative agency such as the Federal Power Commission, with a competent staff to make the elaborate studies required as a foundation for settlement negotiations, participate in the negotiations, and carry to litigation those cases in which settlement negotiations do not proceed satisfactorily, that can utilize the settlement procedure with full basis for confidence that the results are in the public interest. We are not asking for any increase in our staff for pipeline rate work because we believe that with our new procedures and emphasis on increased productivity we can keep current. To do so will require a maximum effort from the full number of positions now available for this activity. CURRENCY OF PIPELINE RATE WORK When I speak of keeping current in our pipeline rate work, I refer particularly to the company-by-company investigation which constitutes our major workload at present and not to formal rate increase cases. The number of formal pipeline rate cases estimated for 1965 represents only a small measure of the projected workload of 31-706-64-pt. 1-23 the pipeline rate staff. It is necessary to scrutinize the earnings level of the major pipeline systems each year to insure that their rates remain just and reasonable under changing circumstances. The recently enacted reduction in Federal income taxes is an illustration. It represents a reduction in the expenses of the pipeline companies and requires studies of each company to insure that excess earnings resulting from the tax reduction are passed along to consumers. With the stabilization of producer prices, these and other large reductions in pipeline unit costs such as may result from increased sales at higher load factor operation, should be reflected in lower rates. I am happy to be able to advise the committee that the pipeline industry is rapidly putting such reductions into effect. Our staff is heavily involved in investigations and negotiations to pass along these cost reductions. REDUCTION IN PIPELINE RATES Since January 1, 1964, 30 pipeline companies, including 10 companies which are operating on cost-of-service tariffs, have reduced their rates as a result of this program of the Commission by amounts which total $28 million annually. These are reductions which consumers will receive every year. The staff is engaged in conferences with other companies, and 10 other pipelines have already agreed to file reductions. A table listing all of these rate reductions is attached as appendix B. The staff work required in such investigations is comparable to the effort required to prepare for a rate case, although this effort does not show up in our rate case statistics. We believe that settlements rather than formal hearings are the most expeditious and effective means of implementing the results of these investigations. Our estimate of a reduced number of rate cases in 1965 reflects our belief that many of our investigations will result in voluntary settlements rather than formal rate cases. Senator MAGNUSON. All right. Now, below that is certificates. (Mr. Swidler's prepared statement follows:) STATEMENT OF JOSEPH C. SWIDLER, CHAIRMAN, FEDERAL POWER COMMISSION Mr. Chairman and members of the committee, this is the third year in which it has been my privilege to appear before you on behalf of the new appointees of the Federal Power Commission. We believe that funds appropriated to the Federal Power Commission during this period have paid large dividends to the consumers of gas and electricity. It is on the basis of our past performance that we support our appropriations request for fiscal 1965. The President in his budget message to the Congress requested a total appropriation of $13,335,000 for the Federal Power Commission during the coming year. The request is an increase of $1,485,000 over the $11,850,000 appropriated for fiscal 1964. It will provide funds for a total of 1,234 positions in fiscal 1965. an increase of 86 over the 1,148 maximum positions in 1964. A summary is attached as appendix A. The major portion of the increase is for our electric power work, "to enable the Federal Power Commission to step up its examination of interstate wholesale electric rates" as the President stated in his budget message. The urgent need for increased staff for our electric rate work is emphasized by the unanimous opinion of the U.S. Supreme Court on March 2, 1964, in the City of Colton case, removing any doubt as to the Commission's jurisdiction over all sales at wholesale in interstate commerce by public utilities. The staff requested for natural gas work is only 664 positions, an increase of 26 positions over 1964 but a reduction of 13 from the 677 positions in natural gas which Congress made available to the Commission in 1963. The Commission's appropriation for 1964 of $11,850,000 which became available in December 1963, required us to reduce the level of our staff. The number of permanent FPC employees actually on the payroll will not exceed 1,100 during the last 6 months of fiscal 1964. It has also been necessary to defer certain important work, such as data processing, for area rate proceedings, and printing current opinions. We are now operating with far fewer people than we need. The increase of $1,485,000 requested for 1965 consists of the following: To provide a full year's salary for 48 positions filled in the 1st half of 1964 but unfilled in the 2d half due to force reduction_‒‒‒‒ To cover the pay raise effective in January 1964 and in-grade promo- For increased cost of rent, supplies, etc.-. Total____ $219, 000 373,000 383, 000 510, 000 1, 485, 000 In reviewing our budget request and specifically our need for increased manpower, Mr. Chairman and members of the Appropriations Committee, I hope you will keep in mind that the Federal Power Commission regulates two of the largest and fastest growing industries in the Nation. In calendar year 1963, the Commission issued certificates for $812.6 million of new gas pipeline construction, the second highest total in history. Over a billion dollars in proposed natural gas pipeline projects are now pending before the Commission. Some of the applications are for overlapping projects not all of which can be granted, but even so the failure to provide funds for sufficient FPC staff will result in delays in processing projects which when approved will inject hundreds of millions of dollars into our economy. The same can be said about the licensing of some $434 million in proposed hydroelectric power projects and indeed for all of our activities which affect the pace of progress in the Nation's two basic energy industries. Perhaps the best evidence that consumers have benefited from FPC regulation is the impact of the natural gas rate reductions we have ordered on the Bureau of Labor Statistics overall cost-of-living index. Two excerpts from the press tell the story: "COST OF LIVING DIPS, DUE TO FUEL PRICES "The cost of living, as measured by the Government, dropped last month for the first time since December 1962. "The Labor Department reported yesterday the decline was one-tenth of 1 percent, putting the Consumer Price Index at 107.6. "The Bureau of Labor Statistics said the major factor in the decline was gas service refunds ordered by the Federal Power Commission and voluntary gas price reductions following the recent Federal tax cut. "The February index of 107.6 means that it cost $10.76 to purchase the goods that cost $10 in the base period of 1957-59. "Arnold Chase, Assistant Commissioner of the Bureau of Labor Statistics, said the reductions and refunds in residential gas service accounted for twothirds of the price index decline from January. On a nationwide basis the gas reductions averaged 3.5 percent. There will be a further drop as more gas companies make refunds later, he said" (New York Herald Tribune, Apr. 1, 1964). "That often forgotten man, the American consumer, last week received some welcome news: the Government's cost-of-living index finally slipped a notch. The decline, to be sure, was a modest 0.1 percentage point and promises to be short lived. Nonetheless, it marked the first downturn in the index since December 1962. A key factor was the reduction in natural gas rates in certain sections of the country where utilities passed on to customers the benefit of lower wholesale costs ordered by the Federal Power Commission and approved recently by the U.S. Supreme Court" (Barron's, Apr. 13, 1964). Our efforts to reduce rates is not confined to natural gas. In 1962 electric rates reversed their upward trend of a decade and rate reductions are now the order of the day. The Federal Power Commission is seeking to stimulate this trend insofar as interstate sales at wholesale are concerned. We have made good progress in increasing the productivity of our staff. Streamlined procedures for processing natural gas rate and certificate applications for both pipelines and gas producers have been perfected. As a result, we have cleared up the backlog of natural gas pipeline rate cases which existed 2 years ago and the backlog of certificate cases has been greatly reduced. We are now handling new cases in an expeditious manner that should prevent another backlog from accumulating. For example, in 1963 three large natural gas pipeline certificate applications, involving $195 million, $56 million, and $49 million, respectively, were each processed and approved in less than 6 months from the dates they were filed. This would not have been possible, of course, if they had been contested by competitors or involved in comparative hearings or alternative projects. The Commission has an active program for electric rate regulation which needs strengthening. The Supreme Court in March in the Colton case made it crystal clear that the FPC has a responsibility to insure that the thousands of cooperatives, municipalities, and private companies which constitute the present and future market for power at wholesale in interstate commerce can obtain electricity for their consumers at reasonable rates and on fair terms. The FPC, by the fulfillment of its responsibilities for the assurance of such supply, will in many instances make it unnecessary for these small power entities to build uneconomic sources of power and will instead make available low-cost electric power from economical sources. Effective Commission regulation can be a substitute for large investments in plants of relatively low efficiency. Small generating plants may be essential where better sources of power supply are not available, but otherwise they are justified only in the absence of effective wholesale rate regulation. The Commission has also shown marked improvement in its activities which bring revenues into the Federal Treasury. In 1963 we collected over $2,800,000 from owners of downstream hydroelectric projects for the benefits they received from upstream Federal projects, a sum which is five times the aggregate amount collected in the previous history of the Federal Power Act. We are also increasing the fees charged hydroelectric project licensees, other than those exempted by statute, to compensate the Government for all of the costs of administering part I of the act, with the possibile exception of licensees under certain old licenses in which the Commission's authority to require additional fees is uncertain. The problem under these old licenses involves only a few percent of the total fees. We estimate total payments to the Treasury of about $5,800,000 in fiscal 1965. The net cost of the Commission's work to the U.S. Treasury in fiscal 1965, considering as an offset the increased payments to the Federal Treasury by licensees and for headwater benefits, will be about $7,500,000, which is not much more than in earlier years when the Commission staff and productivity were both far smaller, and when salary scales and other expense levels were much lower. Let me discuss now in more detail our record and our needs in both our natural gas and electric power work. NATURAL GAS PIPELINES The Commission's major success in the past 22 years was to clear up the enormous backlog of pipeline rate cases. In so doing we have reversed the upward trend of natural gas prices which has plagued gas consumers and the industry in recent years. The backlog of pipeline rate increases which reached a cumulative total of $1.6 billion is now down to a working inventory of about $90 million. Over $550 million have been ordered in pipeline refunds. In these 2 years the city gate price of natural gas has been reduced by a net amount of over $124 million annually, a reduction in the cost of living which consumers receive every year. A necessary part of the Commission's program to stabilize runaway natural gas prices has been the interim price ceilings for new sales by gas producers. The Commission has adhered to these ceilings and adjusted them downward in some areas in which the existing ceiling prices were out of line. The stabilizing of prices in the field, coupled with pipeline refunds and rate reductions, has renewed public confidence in natural gas as a low-cost fuel. The refunds and rate reductions we have ordered speak for themselves as to the benefits to natural gas consumers. Wiping out the Commission's backlog of pipeline rate cases has also been of large benefit to the natural gas industry. For the first time in years the financial status of pipeline companies is not |