REGULATORY REFORM-1974

FRIDAY, NOVEMBER 22, 1974

U.S. SENATE,

.COMMITTEE ON GOVERNMENT OPERATIONS,

Washington, D.C. The committee met, pursuant to notice, at 9:35 a.m., in room 3302, Dirksen Senate Office Building, Senator Lee Metcalf, presiding. Present: Senator Metcalf.

Also present: Vic Reinemer, staff director, E. Winslow Turner, chief counsel, and Jack Chesson, counsel, Subcommittee on Budgeting, Management, and Expenditures, and Stuart M. Statler, chief counsel to the minority, Permanent Subcommittee on Investigations.

Senator METCALF. The committee will be in order.

This is a continuation of hearings that began yesterday with witnesses who are testifying as to the creation of a new committee on the Commission of the Regulatory Agencies. I have a statement that I should have placed in the record yesterday but I was engaged in other activities.

OPENING STATEMENT OF SENATOR LEE METCALF

It seems that every time a new President comes on the scene, there is created, or recommended, yet another commission to study independent regulatory agencies. We have had the TNEC, two Hoover Commission reports, the Landis report, and indeed Mr. Ash's own Advisory Council's report entitled "A New Regulatory Framework," issued in January 1971.

Now, here we are again, being told that we need another commission. to tell us what should be done. My inclination is we don't need it. Regulatory agencies are arms of Congress. Congressional committees. already have the jurisdiction, the experience, and the information to deal with them.

What we need from the new White House is not yet another study, but some positive support for the reform ideas that are already working their way through the legislative process, however slowly.

There is an old saying around here: When you don't want to do anything, set up a study commission. Then, it looks like you are doing something. Well, I don't think we should be taken in by this route once again, unless the administration can give positive proof that something new and progressive can be forthcoming from this specific study.

The economy is going in all directions: inflation; unemployment; shortages; strikes; price gouging; extremes of wealth and poverty. These are all symptoms of a dangerous sickness which could lead to violent readjustments in our free and open democratic society.

Instead of looking around for scapegoats-and laying the blame on our regulatory agencies-we should be looking at the larger issue: That is, simply, is the free enterprise system in this country really free; and to what extent are those areas not presently under any real regulation-automobiles; steels; oil; coal; banking; insurance-the real culprits in the economy.

We have the incredible paradox of inflation and recession, with prices going up while demand is falling, a phenomenon due in large part to the concentration of economic power in these and other basic industries.

We seem to be mesmerized by this concept of deregulation-constantly being told by the administration and certain economic and regulatory experts that the economic goal should be toward a free market in major goods and services as a solution to our economic unbalances.

Rather than deregulation, perhaps we should be focusing our inquiry on more effective economic regulation of these concentrated basic industries. When a huge industry, such as the energy industry, can engineer a shortage and arbitrarily raise prices to take advantage of the public and make windfall profits through its concentrated power of the market, are we to stand by and shrug our shoulders and say, "Well, I guess that's the way the system operates"? Or should we look to new methods of economic regulation to restore competition, or at least curtail such abuses.

We are hearing over and over from witnesses that we can rely on the good old antitrust laws and the Federal Trade Commission to protect our free enterprise system from abuse. That is a myth, and it is time we recognized it. The record of the Department of Justice during the past three administrations has been abysmal in attacking and breaking up concentrated monopoly power. And even if the Department wanted to be effective, it couldn't by the very nature of its plodding case-by-case approach to problems of monopoly power. The IBM case is just now going to trial after 6 years, and it may take 4 more years to settle it. The A.T. & T.-Western Electric case, recently initiated by my good friend and former colleague, Attorney General Saxbe, could take a decade because of unending litigation maneuvers. The Federal Trade Commission's staff on the big oil company case has informed the Commission that it may take 10 years to unravel that one.

Neither the Department of Justice nor the FTC has the manpower, the money or the muscle to take on any broad scale program to solve the present problems of economic market imbalance in this country. If we are looking for a study commission, let's get one to investigate the future role of the antitrust laws as protectors of the people against big business.

The commission bills before us would seem to just dance around the periphery of the problem of economic regulation, not go to the jugular, and thus to establish just another commission as they envisage would in fact be inflationary-spending a few more millions to learn what we already know.

But there are other bills considered here which are ready for immediate action. Here are things we can do positively, and now- -or next year. These bills have come up the legislative route: Hearings, markups, redrafting.

S. 704

For example, S. 704 provides for concurrent submission of independent regulatory commissions' budget requests and legislative recommendations to the Congress and OMB. It also permits commissions, in their discretion, to conduct their own litigation.

The initial version of this legislation was introduced in the 91st Congress. We held extensive hearings, before the Intergovernmental Relations Subcommittee, in the 92d Congress. In this Congress the Subcommittee on Budgeting, Management, and Expenditures has published a compendium on S. 704 which includes detailed commission comments and suggestions. Committee Print No. 1 of S. 704 has been modified to accord with suggestions from commissions.

S. 770

Another bill, S. 770, has also been the subject of extensive hearings, in the 91st and 92d Congresses, and consequent revision. S. 770 would require regulated companies to report specified information regarding capitalization, control, management, and operations. It provides for matching grants to State and local governments for representation of the interests of consumers of regulated services. And it establishes an independent office to represent the public before Federal and State regulatory agencies. However, and I emphasize this, the commissions could without legislation, without a study, collect, and make conveniently and quickly available the information items mentioned in title II of S. 770.

STATE REGULATION

I want to stress the importance of Federal and federally assisted participation in State regulatory proceedings. The Federal Government has intervened in State proceedings for a quarter of a century. However, to the extent that it intervenes, through the General Services Administration and Department of Defense, it represents the Government as the largest consumer of electricity, gas and communications services. Therefore, it traditionally argues alongside large industries before State commissions for a rate structure that benefits industrial users and the Federal Government, at the expense of residential and small commercial users. Consequently the Federal Government appears in opposition to a more equal rate structure and the curbing of demand through increased unit costs to large customers. When we look at the prices and rates subject to regulation which are part of the typical family budget, we find that most of these escalating costs are subject to State, rather than Federal regulation. I am talking about the insurance payment, the electric bill, the phone bill, the gas bill. A recent Library of Congress study, which I shall ask to have included in the hearing record, shows that the industries in the four categories I just mentioned, part of almost every family's budget, receive about $150 billion in revenue annually. Almost 90 percent of those revenues are subject to State, rather than Federal regulation. I emphasize this point because Congress, the regulatory study commissions, the academic community and the press tend to flock, scratch and cluck at the independent Federal regulatory commissions. Meanwhile the plucking goes on before the State commis

sions, which are no match for the hundreds of huge companies they are supposed to regulate.

As we listen and talk with witnesses, and subsequently decide what to do after the hearings, I believe it would be helpful to consider two categories of regulatory reform, each of which I shall mention briefly. First, I believe we should identify and act on legislation where we now have a consensus, and where further study would only delay reform. I put S. 704, the Regulatory Commissions' Independence Act, in that category. The ranking minority member of this Committee, Senator Percy, is a co-sponsor of this legislation. The ranking minority member of the Intergovernmental Relations Subcommittee, Senator Gurney, was of great assistance in developing the case for this legislation during our hearings on its predecessor, S. 448, in the 92d Congress. Secondly, we should identify those regulatory shortcomings where neither legislation nor study is necessary, but where either may but provide further procastration by commissions in doing jobs assigned them long ago by the Congress. Then we should encourage the commissions to get going.

We had some good examples this year, before Senator Muskie's and my subcommittees, of commission use of existing powers to improve the regulatory process. This was during our hearings on corporate disclosure. The chairmen of commission after commission came up and said that after review of the statutes they administer, and the pursuant regulations, they could and would collect basic information which they had not been obtaining, regarding ownership and control of the corporations these commissions regulate.

On this point, let the record show that the only independent regulatory commission which would be abolished under S. 3604-the Interstate Commerce Commission-has significantly improved its information program in several important respects. Perhaps the improvement results from the suggested abolition of the agency. Whatever the stimulus, the ICC has done more this year to improve its collection of data on corporate ownership and control than any other commission. Furthermore, the ICC had 1973 financial data for railroads available on microfilm by the end of August. In contrast, at least one commission hasn't published 1972 statistical data yet.

Information is the currency of power in Washington, as Ralph Nader noted in testimony in this hearing room a few years ago. That is why it is so important that the commissions themselves, without more delaying study, without new statutes, use the vast powers which Congress gave them long ago-including as necessary sanctions and subpoena power-and forthwith improve the accuracy, timeliness and convenient availability of information which they collect from regulated firms.

As a corollary issue, I would hope that each commission will reconsider its own policy regarding advance public notice of its agenda, and public access to commission proceedings. Chairman Ervin pointed out when he announced these hearings that in too many cases the industry regulated the agency, rather than the other way around. If the commissions wish to reject that subservient image, I know of no better way than by opening doors, so the public can walk in and see and hear what is going on, as the public may now do at many congressional mark-up sessions and Senate-House conferences.