12. RELATIONSHIP WITH THE

FEDERAL POWER COMMISSION

When I use a word, Humpty-Dumpty said, it means just what I choose it to mean neither more nor less.

- Lewis Carroll

Policy takes many forms, beginning with the structure of government. The Bonneville Project Act is an organic law because it creates a new agency and serves as its basic charter. The Act then defines the structural relationships with the FPC and the Corps of Engineers. Other relationships would evolve administratively notably with agencies making up the Federal Power Program. Structure and structural relationships constitute policies.

The 1937 Act came in against a congressional background of 50 years' experience debating electric power issues, conducting investigations, and enacting power laws. By 1937 the Congress had assigned power responsibilities to six agencies, in order of age: Army Corps of Engineers, Bureau of Reclamation, Federal Power Commission, Tennessee Valley Authority, Securities and Exchange Commission, and Rural Electrification Administration. BPA would soon have relationships with all six, and with others such as the U.S. Forest Service, Bureau of Land Mangement, GSA, GAO, Departments of Justice and Treasury, and AEC (ERDA/DOE). For 40 years, BPA was part of the Department of the Interior before transfer to the Department of Energy in 1977. Since each agency's policies and viewpoints can influence other agencies, such relationships often become a policy source. This chapter illustrates this broad area, using the FPC relations as an example.

The Federal Power Commission's involvement with Bonneville power marketing began in 1935, well before BPA originated. The FPC played an important role in the 1935-38 period to help BPA establish a viable organization. Through the cost allocation process the FPC has influenced the interest rate, repayment period, and allocation of project investment to power.

The FPC pulled a surprise in 1974 by asserting more authority over BPA wholesale electric rate schedules than previously exercised. In fact, it claimed authority which it long had insisted it did not have. In 1974 FPC sought to enter into questions regarding the form of BPA wholesale rates. BPA contended that FPC should confine its review of BPA to the clear wording of the laws, both the 1937 and 1974 Acts, namely, to approve or disapprove the level of

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rates in order to insure repayment of the Federal investment. In such a controversy a review of the legislative history may provide a useful perspective.

The FPC had little authority until 1935. Under the Federal Water Power Act of 1920, the FPC had a perfunctory role limited to licensing hydroelectric projects.

On August 26, 1935, President Roosevelt signed the Public Utility Act, which consisted of two laws. Title I was the Public Utility Holding Company Act which the Securities and Exchange Commission has administered. Title II was the updated three-part Federal Power Act, which included two entirely new parts: Part I strengthened and reenacted the previous Act but eliminated the old title. Part II declared electric companies to be public utilities affected with the public interest. It authorized the FPC to regulate electric utility companies engaged in interstate commerce. It included section 202 on interconnections and coordination. Part III, concerned proper accounting procedures, requirements as to records, reports, FPC rules and regulations, court review, and enforcement authority, including fines and forfeitures. The Act empowered the FPC to be a strong regulatory commission.

Meanwhile, S. 3330, the so-called Army-FPC bill introduced July 29, 1935, would have enabled the Corps to operate Bonneville dam and one or two trunk lines and market the power. It authorized the FPC to make cost allocations, fix wholesale rates, set resale rates, approve sales contracts, advise the Corps on when to install additional generators, approve contracts for power exchanges, provide a uniform accounting system, and determine reserves needed for replacements. S. 3330 would have given the FPC a major role in policy making and management of the power marketing function at Bonneville Dam. The compromise bill, S. 4695 and H.R. 12873, introduced in 1936, would have strengthened the FPC's role, but would have authorized the Corps to sign power sales contracts. A House Committee amendment placed responsibility for cost allocations on the Comptroller General of the United States. It was still the Army-FPC bill.

The Pacific Northwest Regional Planning Commission did not endorse the Army-FPC bills. The December 28, 1935 staff report on the Columbia Basin Study suggested using only FPC depreciation rules and FPC advice on rates and contracts. The staff proposed to give FPC only a minor role, and suggested a separate board allocate costs, and the annual audit be made by a commercial auditing firm instead of the U.S. General Accounting Office. The National Resources Committee supported the PNWRPC recom

mendations that the FPC serve as an advisor on rates and contracts and the FPC accounting methods be used. It suggested that FPC perform the audit.

The Committee on National Power Policy, which included FPC Chairman Frank R. McNinch, recommended setting up a Bonneville Advisory Board with one member representing FPC. It called for FPC approval of rates and use of the FPC accounting system. It was silent on cost allocations.

S. 2092, introduced April 5, 1937, would have required the FPC to make cost allocations, approve rates, and serve on the advisory board. Other bills offered alternatives on handling cost allocations. H.R. 92 of January 5 specified that the Comptroller General allocate costs, and H.R. 6387 of April 14 that the Administrator allocate costs, subject to the FPC's approval.

The FPC wrote similar letters to the House Committee on Rivers and Harbors May 3 on the House bills, and May 10 to the Senate Committee on Commerce on S. 2092. The letters concerned division of the responsibility between the Administrator and the FPC for setting electric rates. The FPC objected in its May 10 letter to S. 2092 authorizing the Administrator to prepare the proposed wholesale rate schedules, and FPC to approve them, and added:

"Further, the bill gives the Federal Power Commission no authority to modify rate schedules submitted by the Administrator but only a veto power over the rate schedules submitted. This places the Commission in an impossible position as a regulatory agency over rates." The letter recommended that the FPC:

"...either be relieved from any responsibility in connection with rates charged, or that its control over rates be made adequate, effective, and complete if, in the opinion of Congress, it should be charged with this responsibility."

Secretary Ickes testifying on the House side May 10 noted the FPC's objections and proposed an amendment to strengthen the FPC's authority. The last sentence of the Ickes Amendment read (p. 144):

"If any rate schedule submitted by the Administrator is not approved by the Federal Power Commission, the Federal Power Commission may revise such schedule in conformity with the standards prescribed by this Act, and as so revised such schedule shall become effective."

Secretary Ickes said this would give the Administrator the responsibility for initiating the rate schedule and the final authority to the FPC.

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H.R. 7642, introduced June 23 as a clean bill, included the Ickes Amendment. It was passed by the House on July 26 (Congressional Record, July 26, 1937, 7613 and 7624).

Had the Ickes Amendment become part of the Act, it would have raised substantial questions because it provided for the rate schedules to be initiated only by the Administrator, and would have enabled FPC to change them in accordance with standards prescribed by the Act.

Despite the FPC's strong letter, Congress did not modify S. 2092 with respect to wholesale rates or cost allocations. Senator McNary included the FPC letter verbatim in the Senate Commerce Committee Report (No. 919, 75th Congress, 1st Session, July 22) in recommending that S. 2092 be passed. The section of the bill concerning wholesale rates, which the FPC had disputed, was enacted unchanged as part of the Bonneville Project Act.

On August 9 the Senate substituted the language of S. 2092 for the House-passed H.R. 7642, thus striking the Ickes Amendment. The Senate passed S. 2092 and requested a conference with the House. The Conference Committee adopted the Senate version, and added two minor amendments. The House and Senate each adopted the Committee Report August 12. As approved, the Act provided a drastically reduced, minimal role for FPC compared to expectations in the Army-FPC bills of 1935 and 1936.

Coincidentally, Congressman Pierce was scheduled to make an extensive speech in the House on May 12. But he was ill. Congressman John Rankin obtained unanimous consent for printing the Pierce speech in the Congressional Record (p. 4431-4443).

Pierce claimed the bills before Congress generally were based on President Roosevelt's February 24 message calling for the Bonneville Project Act. But, he said various witnesses had proposed amendments to weaken the bills. In contrast, he pointed out that his bill, H.R. 6387, offered stronger protection to the public.

He said:

"It gives this Administrator the power to fix rates subject to the approval of the Federal Power Commission, which should, in my opinion, be solely regulatory in its relation to Bonneville."

This quotation was notable in that he favored the rates being subject to FPC approval, confining the FPC to a regulatory role, and leaving the Administrator the power to fix rates.

Pierce asked:

"Who is to fix the rates, the Administrator or the Federal Power Commission? My belief is that the rates must be initiated by the man on the job who is charged with the responsibility of marketing power. This man is the Administrator. He and his staff will be entirely familiar with the whole situation and devote their entire time to its study. Those rates, before becoming effective, should be approved by the Federal Power Commission, by law a quasi-judicial and not an administrative authority. It would seem improper for the Federal Power Commission to have administrative authority over initiation of rates of Bonneville when they are exercising judicial authority over interstate private power companies."

In view of his strong opinions, it is interesting to note his bill actually would have given more authority to the FPC than that finally provided by the Bonneville Project Act. The Pierce bill contained this sentence, "From time to time the Administrator may, and upon the request of the Federal Power Commission shall, prepare and submit revised or modified rate schedules to the Federal Power Commission; and such rate schedules shall become effective as approved by the Federal Power Commission."

Congress did not specify the FPC's exact function in reviewing BPA rates. But an inference can be drawn from what happened concerning cost allocations. H.R. 7642 authorized the Administrator to allocate Bonneville Dam costs among power, irrigation, and navigation, subject to FPC approval. As enacted, the law placed the full responsibility on the FPC.

Thus, it appears Congress wanted the FPC to allocate costs at the dam and determine the power investment BPA should repay. It is understandable that Congress wanted the FPC to be its watchdog because in 1937 cost allocating for multiple-purpose dams was a new and controversial practice. TVA had broken the ice, but Federal agencies did not agree on a common cost allocation method until the early 1950s.

Bonneville Project Act language was virtually repeated in the Fort Peck Act of 1938, with the FPC assigned the responsibility for allocating costs. The same was true for the River and Harbor Act of 1945, with respect to McNary Dam and the four lower Snake River dams.

Although the Flood Control Act of 1944 specified the FPC review wholesale rates for power from Corps of Engineers projects, it did not designate the FPC to allocate costs.

The Special Committee to Study Civil Works of the