CONFLICT OF INTEREST, EMERGENCY GAS SALES, AND OTHER INTERNAL PROCEDURES OF THE FPC

WEDNESDAY, SEPTEMBER 25, 1974

HOUSE OF REPRESENTATIVES,

SPECIAL SUBCOMMITTEE ON INVESTIGATIONS,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The subcommittee met, pursuant to notice, at 1:30 p.m., in room 2123, Rayburn House Office Building, Hon. Harley O. Staggers (chairman) presiding.

The CHAIRMAN. You wonder perhaps why we are not starting. We have a program on the floor in which most of the members were interested. We did not know it was going to take this long. I thought it would be over in about 30 minutes, but it looks like it is taking a little longer than we anticipated, so we will have to bear with it until we get another member before we can get started.

The committee will come to order.

We will start the hearings, although we only have the two of us. The others will be here shortly because the program is still in session on the floor, but we will get started.

With today's hearing, the Special Subcommittee on Investigations begins a broad legislative oversight inquiry into the practices and procedures of the Federal Power Commission.

Under rule 11 of the House of Representatives, the Committee on Interstate and Foreign Commerce is responsible for the adequacy and effectiveness of the laws administered by the Federal Power Commission.

We are also required by that rule to maintain a continuing review of how the Commission fulfills its responsibilities under those laws. The witnesses at this hearing have been supplied with a copy of the relevant portions of rule 11 as well as House Resolution 182, from which this subcommittee derives its investigative authority.

Unless there is objection, and in the interest of saving time, I will direct that the relevant portions of rule XI and House Resolution 182 be inserted in the record at this point.

[The information referred to follows:]

SELECTED PROVISIONS OF THE RULES OF THE HOUSE OF REPRESENTATIVES APPLICABLE TO SUBCOMMITTEE ACTIVITIES

RULE XI. POWERS AND DUTIES OF COMMITTEES

All proposed legislation, messages, petitions, memorials, and other matters relating to the subject listed under the standing committees named below shall be referred to such committees respectively:

(1)

SEC. 2. (a) For the purpose of making such investigations and studies, the committee or any subcommittee thereof is authorized to sit and act, subject to clause 31 of rule XI of the Rules of the House of Representatives, during the present Congress at such times and places within or without the United States, whether the House is meeting, has recessed, or has adjourned, and to hold such hearings and require, by subpena or otherwise, the attendance and testimony of such witnesses and the production of such books, records, correspondence, memorandums, papers, and documents, as it deems necessary. Subpenas may be issued over the signature of the chairman of the committee or any member designated by him and may be served by any person designated by such chairman or member. The chairman of the committee, or any member designated by him, may administer oaths to any witness.

(b) Pursuant to clause 28 of rule XI of the Rules of the House of Representatives, the committee shall submit to the House, not later than January 2, 1975, a report on the activities of that committee during the Congress ending at noon on January 3, 1975.

SEC. 3. (a) Funds authorized are for expenses incurred in the committee's activities within the United States; however, local currencies owned by the United States shall be made available to the Committeee on Interstate and Foreign Commerce of the House of Representatives and employees engaged in carrying out their official duties for the purposes of carrying out the committee's authority, as set forth in this resolution, to travel outside the United States. In addition to any other condition that may be applicable with respect to the use of local currencies owned by the United States by members and employees of the committee, the following conditions shall apply with respect to their use of such currencies:

(1) No member or employee of such committee shall receive or expend local currencies for subsistence in any country at a rate in excess of the maximum per diem rate set forth in section 502 (b) of the Mutual Security Act of 1954 (22 U.S.C. 1754).

(2) No member or employee of such committee shall receive or expend an amount of local currencies for transportation in excess of actual transportation costs.

(3) No appropriated funds shall be expended for the purpose of defraying expenses of members of such committee or its employees in any country where local currencies are available for this purpose.

(4) Each member or employee of such committee shall make to the chairman of such committee an itemized report showing the number of days visited in each country whose local currencies were spent, the amount of per diem furnished, and the cost of transportation if furnished by public carrier, or if such transportation is furnished by an agency of the United States Government, the cost of such transportation, and the identification of the agency. All such individual reports shall be filed by the chairman with the Committee on House Administration and shall be open to public inspection.

(b) Amounts of per diem shall not be furnished for a period of time in any country if per diem has been furnished for the same period of time in any other country, irrespective of differences in time zones.

The CHAIRMAN. On September 13, 1974, in response to a request from Representative John Moss, a member of the Commerce Committee, the General Accounting Office issued a report on FPC practices and procedures.

That report is highly critical of the Commission. It shows a clear need for improving the regulation of the natural gas industry and the Commission's management of its internal operations.

The GAO found that the Commission improperly granted certain exemptions from the Natural Gas Act. The agency was confronted with a possible nationwide shortage of natural gas, but the GAO found the agency's actions were taken without complete data, and without proper followup to insure its emergency authority was not abused.

The report also highlighted the lack of concern by Commission personnel for the agency's standards of conduct. Those standards were intended to prevent conflicts of interest.

At today's hearing, we will not have time to examine all the issues raised in the GAO report. We will, however, focus on the issues concerning the standards of conduct.

The subcommittee's consideration of the issue in this report will not end with today's hearing. We intend to explore the impact of Commission actions upon the prices paid by consumers of natural gas and the manner in which the Commission took those actions. We also intend to examine the Commission's internal operations and management as a whole.

According to its standards of conduct, the Federal Power Commission recognizes that the maintenance of high standards of honesty, integrity, impartiality, and conduct by Commissioners and Commission employees is essential to assure the proper performance of Commission business and the maintenance of confidence by citizens in the integrity of their Government.

To me this means that the Commission and its employees must avoid conflicts of interest; and they must also avoid the appearance of such conflicts.

The standards of conduct require Commission employees to report their stockholdings, and prohibits them from owning stock in companies regulated by the Commission.

But the GAO report says that of the 111 officials required to report in 1972, only 12 did so.

Furthermore, at the time of the GAO review, at least 19 Commission officials owned stock in prohibited companies, and the holdings were not trivial.

If we consider the highs that these various stocks reached over the past year, the total for these 19 officials and judges of the Federal Power Commission substantially exceeded a quarter of a million. dollars.

This represents a serious breakdown in the internal administration of the agency. It suggests that other important regulations may also be ignored.

The Commission has been indifferent to its own regulations when they apply to the agency itself. We have to wonder how the Commission enforces the rules which apply to those it regulates.

One of the purposes of today's hearing is to determine where the breakdown in enforcing the standards of conduct began, how serious that breakdown was, and what action is being taken to prevent

recurrences.

But we are not only concerned over questions of conflict of interest. We are concerned with all of the issues raised in the GAO report. We are concerned at findings that the Commission has granted improper exemptions from its regulations in the pricing of natural gas, and that it has granted improper extensions of those exemptions. We are concerned at findings that the Commission has failed to maintain proper files, and that it has failed to provide itself with proper information to allow it to perform its assigned tasks.

We are concerned when we hear that the Secretary of the Commission failed-for a period of a year-to keep official minutes of Commission meetings.

We are going to examine these and all the findings of the report. I would also like to state that the results of the subcommittee's inquiry into this matter, together with all of its background files, will be made available to our esteemed colleague from Massachusetts, Hon. Torbert Macdonald.

Congressman Macdonald is chairman of our Subcommittee on Communications and Power, and I am sure that this inquiry will be helpful to him and to his distinguished subcommittee.

I must say that I am disturbed at the pattern of investment in some of these securities by the various officials and administrative law judges at the Federal Power Commission.

The public should be assured that there has been no questionable stock trading on insider information, or other wrongful activity.

I am, therefore, going to request the Securities and Exchange Commission to examine the trading activity of these Government officials to rule out the possibility that any substantive violations of law have taken place.

As is usual in all our subcommittee hearings, our witnesses today will be sworn.

Our first witness is our esteemed colleague and chairman of our Subcommittee on Finance and Commerce, Hon. John Moss of California.

I want to publicly commend him for his initiative in this matter. It was in response to questions originally raised by Congresman Moss that the General Accounting Office performed this very valuable study of the Federal Power Commission.

We are very happy to have this report, and we are also very happy to have our colleague with us today to be our first witness.

John, would you please step forward and be sworn. As you know, this has been our practice consistently, and we have sworn others among our colleagues and our own staff when they have appeared before the subcommittee.

Do you solemnly swear or affirm that the testimony you are about to give to this subcommittee is the truth, the whole truth, and nothing but the truth, so help you God?

Mr. Moss. I do.

The CHAIRMAN. You may have a seat.

Mr. CARNEY. May I ask a question for the record?

John, every Congressman takes the oath of office when he is about to do his job. Why is it necessary to take another oath?

The CHAIRMAN. It has always been the custom.

Mr. Moss. For the purpose of the record, I am John Emerson Moss, a Representative in the Congress from the Third District of California and my office address is 2354 Rayburn Building, Washington, D.C. The CHAIRMAN. You may proceed.

STATEMENT OF HON. JOHN E. MOSS, A REPRESENTATIVE IN THE CONGRESS FROM THE STATE OF CALIFORNIA, ACCOMPANIED BY FRANK SILBEY

Mr. Moss. I am accompanied by a member of my staff, Mr. Frank Silbey, for purposes of consultation and not for purposes of having him testify.