the next six to eighteen months to assist the industry and the public in adjusting to the phased removal of wellhead price controls in accordance with existing Congressional mandate. Among the issues which are likely to come before the Commission are the question of the appropriate role for minimum commodity bills, the impacts of gas-to-gas competition, and the financial condition of regulated pipelines.

Under the NGPA, large volumes of natural gas production will be price decontrolled effective January 1, 1985. Decontrol will allow producer-pipeline contracts to operate according to their terms. Absent renegotiation, the price as determined under many of these decontrolled contracts is likely to be in excess of prevailing prices. But since a surplus of natural gas is projected and fuel oil prices are likely to remain highly competitive, the extent to which pipelines will actually pay these higher prices for decontrolled gas is very uncertain. Under these circumstances, pipelines may seek to release the gas and offer transportation services to make it available to other markets, as some pipelines have already begun doing. The decisions by pipeline company managements concerning the release of certain gas, the purchase of other gas, and the payment of particular prices for decontrolled gas will in all likelihood be challenged as imprudent in some, perhaps many, instances. In addition, any resulting supply shifts among pipelines will present important matters for Commission consideration in FY 1985.

Irrespective of what action, if any, the Commission takes on any or all of these issues, we need to avoid precipitous action that might only make matters worse. Regulatory predictability is critically important, not only to the regulated companies but to their lenders, suppliers, and customers as well. At the same time, the Commission must balance that concern against the fact that it may need to take some positive steps in some areas. With so much uncertainty surrounding what in fact will happen in the

natural gas markets after January 1, 1985, we must do the utmost to hold regulatory uncertainty to a minimum.

We are requesting a total of $48,636,000 for the Natural Gas Regulation Program in FY 1985.

In summary, the primary focus will be the implementation of the existing Congressional mandate which progressively decontrols additional gas supplies beginning January 1, 1985. In view of the current pressures on the industry, FY 1985 stands to be the most critical period in the NGPA schedule. It is imperative that

the Commission be able to respond to those pressures. For that

reason, we will require the same level of staff as in FY 1984 to manage this transition effectively.

Hydropower Regulation

Hydropower regulation is a matter of particular concern to

many members of this Committee.

Over the past four months, I

have spent many hours reviewing the Commission's procedures for issuing hydroelectric permits, licenses, and exemptions. The staff has furnished me data detailing how many filings the Commission has received in each of these areas, and of these, how

many projects have been approved, how many are under

construction, and how many are actually on-line and generating

power.

As part of this effort, we have prepared an analysis of exemption applications between the eastern and western regions of This analysis shows that the exemption process authorized by the Congress in 1980 is not meeting Congressional

the country.

expectations in terms of expediting the construction and

completion of qualifying hydro projects.

Two distinct problem areas emerge, both involving applications for sites in the western United States. The first problem area is in issuing exemptions for sites in the west.

The bulk of the exemptions sought in western states will make use of natural water features which generally require some new construction before they can be used for hydropower generation. This need for new construction has in turn raised the question of whether cumulative environmental impact studies must be performed pursuant to National Environmental Policy Act and applicable court cases for various river basins prior to the Commission approving an exemption or issuing a license. No exemptions or licenses have been issued on the river basins in question for about a year, pending resolution of this issue.

Since becoming Chairman, I have given careful consideration to this question. As a result, I can assure you that within the next four to five weeks I will bring this issue to the Commissioners for a decision on how to proceed. Any decision reached is likely to be contested and, accordingly, must be carefully prepared so as to pass the test of judicial review. Because the issue is raised in pending adjudicatory matters, it would not be appropriate for me to discuss the merits of the question at this time. But I reiterate my commitment to bring this matter to my colleagues for their formal consideration and

decision.

The second problem area arises after issuance of the

exemption by the Commission, particularly for sites on federal lands.

unlike a license

-

Issuance of an exemption does not provide the power of eminent domain. Nor does it confer water rights necessary for the project. Consequently, only 30 percent of the exemption holders in the western states have commenced construction, as opposed to 60 percent of the exemption holders in the east. These problems are not within the Commission's power to remedy however.

In FY 1985 the Commission expects to complete 1,336 hydropower licensing workload items and 2,036 dam safety inspections. To process this anticipated workload, I will strive to improve staff productivity and streamline the licensing process. These efforts will contribute to limiting the increase in pending actions, while increasing our efforts to process actions on critical new capacity hydroelectric projects.

With respect to the Dam Safety Program, the Commission's responsibilities, as specified by the Federal Power Act, have increased significantly as a result of the large number of licenses issued for new capacity hydroelectric projects in recent years. For example, between FY 1981 and FY 1983 the number of licenses issued increased 89 percent. This trend is continuing, and in FY 1985 the Commission plans to conduct more than 2,000 dam safety inspections, almost 30 percent more than were completed in FY 1983.

Our budget request in the Hydropower Regulation Program

totals $26,120,000 in FY 1985.

We are anticipating that the total number of filings in the hydro area will decline next year, primarily due to a continuing decline in the number of preliminary permit and exemption filings. However, the total workload will increase as many of the permit holders apply for a license. The resources requested for FY 1985 will enable the Commission to meet its responsibilities in both the hydropower licensing and dam safety areas.

Oil Pipeline Regulation

Responsibilities extend to approximately 150 common carrier oil pipelines and include the establishment of transportation rates that are fair to shippers and consumers and that also supply adequate incentives for the expansion of oil pipeline systems. We expect to complete 2,084 workload items in FY 1985. Pending workload will decline to 267 items, a 4 percent reduction from the FY 1983 level. The Commission's request totals $5,825,000 in the Oil Pipeline Regulation Program.

Electric Power Regulation

Accordingly, I

During the last several years, there has been continuing concern about delay in deciding wholesale electric rate cases. Some steps have been taken by my predecessors to expedite these cases and I am committed to pursuing this goal. have directed staff to review the decisional process for electric rate cases. In this context, I have already directed staff to proceed with proposals to determine generically the rate of return allowed utilities in rate cases and the allowance made in rates for cash working capital. These matters will be presented to the Commission for consideration within the next four months. In the coming months, I will be making recommendations to my colleagues concerning other possible actions to expedite these

cases.

In another area, the Commission has approved a two-year program known as the "bulk power market experiment" involving a group of public and private utilities in which certain types of power will be bought and sold on a competitive basis. Transportation, or "wheeling", of the power will be offered automatically to all participants on standard terms. The experiment is designed to determine the extent to which such flexibility will enable the participating utilities to pursue a least-cost purchase strategy, in some cases on an hour-to-hour basis, and to test the desirability of changing the way FERC regulates certain types of wholesale transactions. Ultimately, a