Faced with almost certain defeat of a $754 million Central Utah Project spending bill, Utah's congressional delegation and CUP supporters have slashed this year's proposal almost in half - and still face major opposition.

The state's congressional delegation is backing a request for $370 million to complete municipal and industrial water supply portions of the project, plus features to mitigate effects of the project on fish and wildlife, said Rep. Wayne Owens, D-Utah.However, the scaled-down bill, presented Wednesday to the House Interior Subcommittee on Water and Power, is still drawing opposition from the Reagan administration and public power groups, and only heavily qualified support, if that, from conservation groups.

In fact, some municipal power witnesses said they'd almost prefer that the $754 million authorization be retained, instead of making certain changes that might affect them.

That astonished Owens and Rep. George Miller, D-Calif., the subcommittee's chairman.

"We ought to have you guys drug tested," Miller told the public power witnesses.

All five members of the Utah delegation have been working for weeks on a complex bill designed to answer critics of the project. No final form of the measure was ready Wednesday, but witnesses commented on a draft written after the April 18 hearing on the project in Salt Lake City.

The latest version of the CUP funding bill would put the Diamond Fork Power Plant and irrigation features of the project in the hands of the Central Utah Conservancy District, to be built with private funds. If the bill is approved by Congress as now planned, the municipal water supplied would meet the terms of the repayment contract approved by water district voters just over two years ago, according to Robert Hilbert, conservancy district board chairman.

Rep. Howard Nielson, R-Utah, in whose district most of the project is located, said promises must be kept to his constituents in the Uintah Basin including Indians and non-Indians.

Under the proposals made Wednesday, the conservancy district would build the Diamond Fork power plant and use its revenues to construct irrigation and drainage facilities. Robert Weidner, aide to Sen. Jake Garn, R-Utah, estimated that by building those facilities itself, the district could save at least 25 percent of the cost of Bureau of Reclamation construction.

Bonds would be issued to construct the irrigation portion, and profits from the power plant would pay them off, Hilbert said.

The key to making that proposal work would be sale of the power to the Colorado River Storage Project power network at a price higher than the current average cost of federal power in the area.

Public power groups at Wednesday's hearing opposed that notion, arguing that it would impose a tax on power customers - and represent a precedent that could revolutionize the nature of public power in the West.

Deborah Sliz, director of government relations for the American Public Power Association, said her group would prefer a straight expansion of CUP authorizations by $754 million, as originally proposed by Utah's congressmen last fall.

Thaine Michie, representing the Colorado River Energy Distributor Association, argued that assigning a Diamond Fork power license to the Central Utah Water Conservancy District would be a giveaway of power that should belong to public preference customers, such as municipalities.

Those were the comments that surprised Owens and Miller.

"It is impossible to pass a $754 million bill," Owens said. "It is fiscally and environmentally unsound."

Owens said parts of the original CUP proposal included a "Rube Goldstein idea of maintaining stream flows by pumping the same water back upstream over and over again."

Rep. Jay Rhodes, R-Ariz., a subcommittee member, was equally astonished at Owens.

"If it was so preposterous, why did you come to me and ask me to co-sponsor your bill last fall?" he asked.

Support from Rhodes and other Colorado River basin states is considered another key to passage of the CUP reauthorization.

"Did CRSP volunteer to pay for the (wildlife) portions of the project?" Rhodes asked. "It looks to me as though this bill revises the entire fabric of Western reclamation law. It is far more significant than I thought for the future of the West."

Miller, who said there was "no chance at all on the House floor for the original bill," told the witnesses that public power agencies and utilities have to recognize that circumstances have changed since the project was first authorized in 1956.

Assistant Interior Secretary James W. Ziglar, speaking for the Reagan administration, said he was at a disadvantage because of last-minute changes in the bill, but objected to portions of the proposal, including rehabilitation of the Farnsworth Canal.

The Interior Department will oppose construction of $108 million in environmental features he said "exceed the requirements of the national Environmental Policy Act" and that would be paid for by the taxpayers. Interior also opposes creation of a fish and wildlife commission to oversee construction of features to mitigate the CUP's impact on the environment.

The wildlife commission, which would be given $15 million a year in power revenue money, was warmly supported by conservation groups and opposed by the public power witnesses.

Lynn A. Greenawalt, representing the National Wildlife Federation, excoriated the Bureau of Reclamation for its "manipulations" of calculations of repayment responsibilities on CUP and its "distorted allocations of costs to fish and wildlife features."

Greenawalt said there is "no need to rush an inadequate bill toward enactment."

He said the federation supports creation of a wildlife refuge at Utah Lake and non-federal financing for the power plant and for the fish and wildlife commission.