FEDERAL ENERGY REGULATORY COMMISSION STATEMENT OF ANTHONY G. SOUSA, ACTING CHAIRMAN ACCOMPANIED BY: WILLIAM G. MCDONALD, EXECUTIVE DIRECTOR Chairman HATFIELD. Now, we welcome the Acting Chairman, Anthony G. Sousa of the Federal Energy Regulatory Commission. He is accompanied by Mr. William G. McDonald and Mr. William H. Satterfield. I believe, Mr. Chairman, this is your first appearance before the committee. Mr. SOUSA. That is correct, Mr. Chairman. Chairman HATFIELD. I am delighted to help break you into this process. Mr. SOUSA. Thank you. Chairman HATFIELD. You have a friendly court here. We will include your full statement in the record and ask you to highlight or summarize it as you wish. Mr. SOUSA. Thank you, Mr. Chairman. I do have a summary. INTRODUCTION OF ASSOCIATES Mr. Chairman and members of the subcommittee, I appreciate this opportunity to discuss with you today the Federal Energy Regulatory Commission fiscal year 1987 budget request. I am accompanied by Mr. William G. McDonald, the Commission's Executive Director on my left, and Mr. William H. Satterfield, the Commission's General Counsel on my right, and by the Directors of the Commission's program offices, who will be available to assist me in answering your questions. BUDGET OVERVIEW The Commission's fiscal year 1987 budget request, which meets the deficit reduction targets under the Balanced Budget and Emergency Deficit Control Act of 1985, otherwise known as Gramm-RudmanHollings, is $99,079,000 and 1,659 full-time employees. Of this, $78,754,000 would be offset by revenues from fees and charges. For fiscal year 1986, the Commission received an appropriation, including transfer from DOE, of $98,852,000. So the 1987 budget request represents an increase of only $227,000 over fiscal year 1986. However, our fiscal year 1986 appropriation was reduced by $4,109,000, effective March 1, 1986, pursuant to Gramm-Rudman-Hollings. The Commission has reduced staffing levels and associated expenses in fiscal year 1986 to accommodate this $4,109,000 reduction. The Commission is in the midst of a vastly changing energy environment and is using two approaches to manage this change. First, we are adapting the regulatory framework to changing energy markets to ensure the public the continuation of an adequate and reliable supply of energy at the lowest reasonable rates; and second, we are improving the internal operations of the Commission to be more responsive and timely. NATURAL GAS REGULATION Over the past 2 years, the Commission has been confronted with an evolving competitive market in the commodity of natural gas. Most natural gas supplies, as a result of the Natural Gas Policy Act, are no longer subject to Federal regulation as to market entry, exit, and price. However, the integrated transportation network, which is monopolistic in some markets and competitive in others, is still generally subject to Federal regulation. Accordingly, in October 1985, the Commission issued Order No. 436 which retains and revises utility-type regulation over the interstate transportation function, while allowing the commodity market for natural gas to continue to develop in a competitive fashion. The Commission has also established a procedural schedule to receive comments on the Secretary of Energy's proposed revisions in the way old gas is regulated. In his proposal, the Secretary suggests that flowing old gas prices be set at a single level equal to the highest ceiling price available at the time. The Commission's schedule calls for initial comments by February 25, at which time more than 200 comments were received; reply comments by March 27, and a public conference on April 10 and 11. The Commission has embarked on an ambitious natural gas program and will require $45.2 million in fiscal year 1987 to stay abreast of the rapidly changing conditions and reduce pending workload by more than 33 percent from fiscal year 1985. HYDROPOWER REGULATION Major changes have also occurred in the Commission's hydropower program. These changes, which are primarily the result of court decisions, have necessitated a complete reconsideration of many long-held principles underlying the program, especially in the area of environmental review. In response to what amounted to a judicial redefinition of our role, the Commission, after much study and voluminous public comments, implemented on a trial basis a new procedure, the Cluster Impact Assessment Procedure, otherwise known as CIAP, for evaluating environmental impacts on river basins with multiple proposed hydropower projects. In April 1985, the Commission approved the commencement of the CIAP in the Salmon, Snohomish, and Owens River basins. We have completed the first two phases of each of these studies and are proceeding on schedule. We are also currently evaluating the effectiveness of this approach. As we look at future planning for the hydropower program, the Commission will be faced with a growing workload due, in part, to legislation that has stimulated development as well as the issue of relicensing. We will need $29.4 million for this program in fiscal year 1987 to process our workload in an expeditious manner. We intend to pare the pending workload by approximately 15 percent. OIL PIPELINE REGULATION In the area of oil pipeline regulation, the Commission has adopted a new approach necessitated by the Court's remand of the Williams I opinion that will require a more lengthy and complex review process. This will result in more formal rate cases and in a projected doubling of pending workload in oil pipeline regulation by the end of fiscal year 1987. Accordingly, we will need $4,139,000 in this area. ELECTRIC POWER REGULATION The electric utility industry that the Commission regulates also is expériencing changes to which we are attempting to respond. Last year, we continued to pursue a generic approach to the rate of return issue in order to expedite cases. Also, we initiated a broad, two-phase notice of inquiry into the way we regulate that industry. Our concern is that regulation encourage, and not impede, the efficient generation, transmission, and distribution of electricity. The first phase addresses our regulation of coordination transactions and transmission service; the second phase addresses our regulation of requirements transactions. Many complex issues affecting the electric utility industry will have to be addressed in fiscal year 1987, such as least cost supply, pricing, and the efficiency in the bulk power markets. We will need $20.4 million for this program so that we may adequately address and resolve these and other issues that are so vital to the future health of the industry and consumers. MANAGEMENT IMPROVEMENTS Now, I would like to turn to the management of the FERC itself. Last year, we were able to report that staff productivity increased by 20 percent. This past year we continued to improve our productivity by achieving an additional 7-percent increase and we have established a 5 percent average annual target for fiscal years 1986 and 1987. It is important to consider these numbers in light of the fact that private sector annual productivity improvement rates are in the neighborhood of 1 to 2 percent. Through these productivity gains we have been able to substantially reduce the number of backlogged cases while actually reducing the size of the staff over the past 3 years. Productivity improvement is one factor which contributes to the efficient operation of the FERC. Another is the continued pursuit of administrative savings. This budget request includes a $1.8 million reduction in administrative costs which served to offset the cost of inflation and most of the costs of increased environmental studies. FEES AND CHARGES Another factor is increased revenues which, in effect, reduces the FERC's net cost to the taxpayers. In May 1985, the Commission sent to Congress increased fee and annual charges legislation which could result not only in a total offset to the FERC appropriation but, more important, contribute an additional $50 million annually to reducing the deficit. I would also like to note that the U.S. Court of Appeals for the Tenth Circuit recently upheld certain Commission fees rules. These rules cover fees for gas producers and pipeline rates, fees applicable to the NGPA, and fees for general activities. The court affirmed the Commission's authority to impose and the manner in which the Commission established the fees. EQUAL ACCESS TO JUSTICE ACT Finally, there is an administrative matter arising under the Equal Access to Justice Act that I would like to bring to your attention. Two U.S. courts of appeals have awarded attorneys' fees and expenses to intervenors in two cases, Washington Urban League v. FERC and Papago Tribal Utility Authority v. FERC. However, sections 305 and 502 of our appropriations acts of fiscal year 1984, fiscal year 1985, and fiscal year 1986 prohibit the use of appropriated funds to pay the expenses of or otherwise compensate parties intervening in Commission proceedings. Therefore, we are seeking special permission to pay the two court awards from our appropriations. This payment problem may also arise in other proceedings that are currently pending before the courts. SUMMARY In summary, Mr. Chairman and members of the subcommittee, the Commission's goal is to bring order to a rapidly changing energy environment while contributing our fair share to meeting the deficit reduction targets of the administration and the Congress. The Commission's fiscal year 1987 budget request of $99.1 million is our commitment to this difficult task. My staff and I are available to answer any questions you may have. Thank you, Mr. Chairman and members of the subcommittee. [The statement follows:] STATEMENT OF ANTHONY G. SOUSA MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE: I appreciate this opportunity to discuss the Federal Energy Regulatory Commission (FERC) fiscal year 1987 budget request with you today. I am accompanied by Mr. William G. McDonald, the Commission's Executive Director, and by the Directors of the Commission's offices who will be available to assist me in answering your questions. BUDGET OVERVIEW The FERC's FY 1987 budget request, which meets the deficit reduction targets for the year under the Balanced Budget and Emergency Deficit Control Act of 1985 (Gramm-Rudman-Hollings), is $99,079,000 and 1,659 FTE's. Of this, $78,754,000 would be offset by revenues from fees and charges. For FY 1986, the Commission received an appropriation (including transfer from DOE) of $98,852,000. So the 1987 budget request represents an increase of only $227,000 over FY 1986. However, our FY 1986 appropriation was reduced by $4,109,000, effective March 1, 1986, pursuant to "Gramm-Rudman-Hollings." The Commission has reduced staffing levels and associated expenses in FY 1986 to accommodate this $4,109,000 reduction. MANAGING CHANGE IN THE REGULATORY ENVIRONMENT During the last two years, the FERC has been involved in a vastly changing energy environment. Our objective has been to recognize the need for greater managerial and operational flexibility to deal with those changes in a way that comports with our statutory responsibilities. To that end, the Commission has focused on two approaches to managing change: first, adapting the regulatory framework to changing energy markets to ensure the public the continuation of adequate and reliable supplies of energy at the lowest reasonable rates; and second, improving the internal operations of the Commission to be more responsive and timely. |