At the end of the 6 months, if FPC has not entered its final order on the application, the producer, after filing a notice of change in rates with FPC, can charge the rates specified in the contract until FPC acts on the application.

Through March 5, 1974, the average time required for FPC to process applications under this procedure was about 8 months.

As a consequence, customers have been charged higher rates than the applicable area rate while awaiting FPC action.

FPC records showed that FPC had not acted on 17 applications within 6 months, and the producers received the contract price for gas before final FPC action on the application.

Of these 17, 1 was denied, 7 were still pending final resolution as of March 5, 1974, while the rest were approved.

In the one case denied, the producer received about $828.000 more than the area rate before his application was denied by FPC. Under FPC regulations, the $828,000 is not refundable.

Mr. Chairman, we just received a lengthy piece of information from FPC just yesterday afternoon, and I would like to mention something from it about the $828,000.

The information indicates that a rehearing was ordered in this case. because the producer apparently was not eligible to use the optional procedure inasmuch as the gas was already dedicated to interstate market. A settlement between the producer and the purchaser apparently is in the offing.

As of March 5, 1974, the cost of gas sold under the seven applications pending final FPC action was about $1.4 million more than the amount that would have been charged under the prevailing area rate. Two of the seven applications had received initial decisions by FPC ALJ's: both applications were denied.

Though all seven applications may ultimately be approved by FPC, some may be denied. If an application is denied, the contract price being charged by the producer may not be just or reasonable, thereby resulting in an overcharge to the gas customers.

On August 8, 1974, FPC issued a notice of proposed rulemaking that would extend from 6 to 9 months the period in which the area rate must apply before the producer can charge the contract price.

If adopted. this change will be an improvement over the previous regulation. However, without other improvement in the internal processing of applications, the proposed regulation can only be partially effective.

While the average processing time of applications was 8 months, some took longer-in fact up to about 15 months. For the regulations to be fully effective all applications will have to be processed in 9 months. FPC was unable to do this previously.

As of yesterday we have been informed by FPC that in line with our recommendation, priority treatment would be given to applications that provide for sales to begin before final FPC action on a producer's application.

This, too, should improve the situation. FPC indicated it will be able to act on applications within a proposed nine-month period.

BREAKDOWN IN SAFEGUARDS TO PREVENT CONFLICT OF INTEREST

Turning to another topic that has stirred considerable interest, our review found that there has been widespread noncompliance by FPC officials with the agency's standards of conduct regulations resulting from a breakdown in the reporting system intended to disclose financial holdings of officials that were actual or potential conflicts of interest.

Most FPC officials had failed to file required financial disclosure forms for several years, including the officials responsible for obtaining and reviewing the disclosure forms.

When officials made the required disclosures, no review was made to safeguard the agency and the officials from conflict of interest. allegations.

Only about half of the 125 officials required to make a financial disclosure at the time of initial employment with FPC did so.

Moreover, the content of the disclosures were never reviewed. Had the filings been examined it would have shown that some officials held securities that were potential conflicts of interest.

For the years 1971 through 1973 only a handful of FPC officials made the required annual financial disclosures at the time our review began: 31 of 125 in 1973; 12 of 111 in 1972; 10 of 101 in 1971.

When the required 1973 disclosures were obtained and reviewed, 19 FPC officials were directed to divest themselves of securities found to be prohibited by FPC regulations.

We view this situation as a serious breakdown in the system intended to protect the agency and officials involved from allegations of conflict of interest.

A number of steps have been taken by FPC in line with the recommendations in our report to strengthen the financial disclosure system.

Other topics covered by the report include: Public statements of FPC Commissioners: FPC pricing policies and their effect on gas supply and price; FPC cooperation with the Federal Trade Commission during its investigation of the natural gas industry.

That concludes my statement, Mr. Chairman, and we will be pleased to respond to any questions you may have.

Mr. PICKLE. Is it your statement with respect to disclosure the Federal Power Commission has corrected the failure to disclosure which had been existent in that agency?

Mr. Lowe. We received a lengthy document from the Federal Power Commission yesterday afternoon and based on our reading of that document plus the knowledge of the staff of what has taken place in that agency, we believe the chairman has taken care of the mechanical situation of reviewing and acting at the right time.

Mr. PICKLE. As far as GAO knows at this time, compliance is being met by the FPC with respect to disclosure?

Mr. Lowe. Yes, sir.

Mr. PICKLE. On page 12 of your statement you say had the filings been examined it would have shown that some officials held securities that were potential conflicts of interest. That is an inference there were conflicts of interest and some wrongdoing.

Would you elaborate on that statement?

Mr. Lowe. Mr. Chairman, I think as Congressman Moss pointed out, the agency maintains a list of securities which its employees are prohibited from holding. I think just a casual review of some of the statements that were filed would have disclosed some of the employees of the FPC did in fact hold securities that were on a prohibited list.

I think we all have to assume they are on the prohibited list because they do tend to imply a conflict of interest. Whether or not an actual conflict of interest occurs, I do not know.

Mr. PICKLE. Do you have any indication that a conflict of interest did exist and that it was injuring to anyone's benefit other than the public interest?

Mr. Lowe. No, Mr. Chairman. I have to clarify our role a little bit here. Essentially, we are a fact finding agency of the Congress but we do not make findings of fact as to whether or not a conflict of interest has occurred.

If I understand it correctly, that is a criminal matter and any such determination would have to be made by the Department of Justice after due investigation.

Mr. PICKLE. Then it is not your statement that you make any indication of any criminal violations, that you do not know that? Mr. Lowe. No, sir.

Mr. PICKLE. You said yours is a fact finding agency. I read your report and it is a rather opiniated factfinding statement.

Mr. Lowe. That is correct. When we ascertain what the facts are, we also feel it is our duty to draw a conclusion based on those facts.

Mr. PICKLE. Can you tell me if other agencies in Government, other regulatory agencies such as the Federal Trade Commission, for example, the FCC, if they have a conflict of statutes regarding their operation?

Have they complied? Is there any question about their operation, or do you know?

Mr. Lowe. Mr. Chairman, I am sure every agency in Government has some sort of regulation similar to the one the Federal Power Commission has. We have one in our own agency. I am not knowledgeable as to whether or not the other agencies are in compliance with their own regulations and the Executive Order under which it was drawn.

I might say that last week the Comptroller General received a request from Mr. Moss asking to take a look at the conflict-of-interest regulations and how well they were being carried out in a long laundry list of agencies. Whether he will be able to physically do all of those. I am not sure.

Mr. PICKLE. For my own information, who looks after your disclosure in GAO?

Mr. Lowe. I can speak for the division that I happen to head up today. All of the people above a certain grade in our agency are required to file annually.

I personally am responsible for seeing to it that every member of my staff who is supposed to file does file, and I review those statements. If there is any question whatsoever, we have a procedure of referring it to someone in our general counsel's office. My own personal statement is sent to the Comptroller General himself.

Mr. PICKLE. We may or may not want to see your records just for my own information.

If I understood you correctly, you indicated that you do not know whether disclosure is being met by the Federal Trade Commission or the FCC in the same manner as this report has indicated.

Mr. Lowe. No, sir, we have not looked in those agencies.

Mr. PICKLE. And Mr. Moss has asked you to look into a long list of agencies.

Mr. LowE. Yes, sir, a very long list.

Mr. PICKLE. Is there any responsibility on your part at GAO to know whether disclosure is being made unless you are called upon to look at it? Why in months past did you not go over and look into the FPC?

Mr. Lowe. That is a little difficult to answer. Primarily it is the responsibility of the Civil Service Commission. In the second place, the General Accounting Office normally does not involve itself in personnel files except for purposes of doing such things as payroll audits and that sort of thing.

These statements are given in confidence to the appropriate authorities in each agency. For example, in the Federal Power Commission, the only way we could obtain access to these records was through the express order of the Chairman of the Federal Power Commission himself.

I might say he acted immediately on our request and gave us immediate access to these records.

Mr. PICKLE. Is the situation at the FPC one primarily of improper, sloppy bookkeeping or accounting more than substantive error? Mr. Lowe. I think on the procedures designed to prevent conflicts of interest, it goes beyond mere bookkeeping types of things.

I guess what it amounts to is that the Chairman is a very busy man and he delegated the responsibility for carrying out these functions to someone else in his shop.

I am sure these people are very busy, too. Somehow over the years it fell into disuse and neglect. I think it is more serious than a bookkeeping matter.

Mr. PICKLE. The FPC has given you full cooperation as you have looked into this matter.

Mr. Lowe. Yes, sir.

Mr. PICKLE. I have other questions, but I want to say to you in line with what I think is the intent of the Chairman that we will try to cover as much as possible of the conflict of interest aspect here today. We may wish to call you back or have you here when we talk in terms of pricing or whether 60 days or 120 days and so on are involved. I would alert you, you may be called back for that.

Mr. Lent, do you have any questions at this point?

Mr. LENT. I have a few, Mr. Chairman.

Mr. Lowe, you had an opportunity to listen and perhaps read Representative Moss' statement before the committee.

I wonder whether you agree with some of the charges that he makes in his report? For example, he indicates that your report, and I must confess I have not had an opportunity to read it all yet, but that report shows the Commission to be dominated by apointees with strong industry orientation at the top and that the Commission's thinking

and actions were more responsive to private rather than public interest.

That is in the middle of page 2.

Does that statement by Mr. Moss comport with your understanding of what your report contains?

Mr. LowE. May I respond to that in more than just a one-word answer?

We were asked by Chairman Moss to report to him on the previous association with the oil and gas industry of the Commissioners of the Federal Power Commission. That information is contained in short summary form on pages 40, 41, and 42 of our report.

How Congressman Moss characterizes that information and how he characterizes in effect the gist of our report I really can't comment on.

Mr. LENT. We politicians and public officials do use rather colorful and strong language but is there anything in your report without me wading through it in which you say "the Commission's actions were more responsive to the private rather than the public interest?" You do not level that charge?

Mr. Lowe. No, sir, we never made that statement.

Mr. LENT. Is there anything in your report which says in words or substance that millions and perhaps tens of millions of dollars were extracted from an unsuspecting public as a consequence?

Mr. LowE. That statement is not in our report. I think a reading of the facts depends on the color glasses you have on. I do think we question some of the actions they took.

Mr. LENT. On page 3, Representative Moss' statement contains at statement in paragraph 3 that GAO's conclusions reveal not poor bookkeeping but "virtually total collapse of the regulatory process."

Is there anything again in your report per se which charges a total collapse of the regulatory process?

Mr. Lowe. I think our report does point out a fairly total collapse of the procedures used to report and review possible conflicts of interest.

I really cannot characterize the reader's reaction to the rest of the report about the regulatory function itself.

I think that has to be a person's own conclusion.

Mr. LENT. While your report does point out these failings on the part of the disclosure reporting, your report did not charge that there was a collapse in the regulatory process?

As a matter of fact, I think you said earlier most of the deficiencies in the regulatory process had been largely cleared up to your satisfaction.

Mr. Lowe. The particular ones we raised an issue on I think the Commission in instituting new orders just recently has taken care of the particular problems we raised except for one question we still leave hanging, which is, now that they have issued those particular orders, do they still maintain they can waive those or ignore them?

Mr. LENT. So, if there had been a collapse, that collapse at least now to a substantial degree has been rectified by the actions of the FPC in the last few weeks?

Mr. Lowe. At least on those particular issues we raised, yes.

Mr. LENT. Perhaps this is outside the boundaries of where the GAO should intrude, but in Chairman Moss' statement he says that the