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THE GASOLINE AND FUEL OIL SHORTAGE
HEARINGS
BEFORE THE
SUBCOMMITTEE ON CONSUMER ECONOMICS
OF THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
NINETY-THIRD CONGRESS
FIRST SESSION
MAY 1, 2, AND JUNE 2, 1973
Printed for the use of the Joint Economic Committee
U.S. GOVERNMENT PRINTING OFFICE
99-740 O
WASHINGTON : 1973
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 - Price $2
Stock Number 5270-01999
JOINT ECONOMIC COMMITTEE
(Created pursuant to sec. 5(a ) of Public Law 304, 79th Cong.)
W RIGHT PATMAN, Texas, Chairman
W ILLIAM PROXMIRB, Wisconsin, Vice Chairman
SENATE
HOUSE OF REPRESENTATIVES
RICHARD BOLLING, Missouri
HENRY S. REUSS, Wisconsin
MARTHA W . GRIFFITHS, Michigan
W ILLIAM S. MOORHEAD, Pennsylvania
HUGH L. CAREY, New York
W ILLIAM B. WIDNALL, New Jersey
BARBER B. CONABLE, JR., New York
CLARENCE J. BROWN, Ohio
BEN B. BLACKBURN, Georgia
JOHN SPARKMAN, Alabama
J. W. FULBRIGHT, Arkansas
ABRAHAM RIBICOFF, Connecticut
HUBERT H. HUMPHREY, Minnesota
LLOYD M. BENTSEN, Jr., Texas
JACOB K. JAVITS, New York
CHARLES H. PERCY, Illinois
JAMES B. PEARSON, Kansas
RICHARD S. SCHWEIKER, Pennsylvania
J o h n R . S t a r k , Executive Director
L o u g h l i n F . M c H u g h , Senior Economist
E c o n o m is t s
L u c y A. F a l c o n e
W i l l i a m A. Cox
J o h n R. K a r l i k
J e r r y J. J a s i n o w s k i
L . D o u g l a s L ee
R ic h a r d F . K a u f m a n
Co u r t e n a y M . S later
M in o r it y
L e s l i e J. B a n d e r
G eorge D. K r u m b h a a r , Jr. (Counsel)
W a l t e r B . L a e s s i g (Counsel)
S u b co m m ittee o n C o n su m e r E con o m ics
HUBERT H. HUMPHREY, Minnesota, Chairman
HOUSE OF REPRESENTATIVES
SENATE
W ILLIAM PROXMIRE, Wisconsin
ABRAHAM RIBICOFF, Connecticut
JACOB K. JAVITS, New York
CHARLES H. PERCY, Illinois
W ILLIAM S. MOORHEAD, Pennsylvania
MARTHA W. GRIFFITHS, Michigan
HENRY S. REUSS, Wisconsin
HUGH L. CAREY, New York
W ILLIAM B. WIDNALL, New Jersey
CLARENCE J. BROWN, Ohio
(II)
CONTENTS
WITNESSES AND STATEMENTS
T uesday, M ay 1, 1973
Page
Humphrey, Hon. Hubert H., chairman of the Subcommittee on Consumer
Economics: Opening statement_____________________________________
Card, Annon M., senior vice president, Texaco, Inc., accompanied by
William WeitzeL counsel; and James H. Pipkin, executive vice president.
Millard, Walter H., Jr., president, Transit Oil Co., Inc., accompanied by
William H. Bode, counsel_______________ ________ _______ ___________
Walcutt, Dean, executive vice president, Certified Oil Co., accompanied by
Carlyle Baker, president___________________________________________
Erchul, F. James, director, Civil Defense Division, Department of Public
Safety, State of Minnesota_______ ________ ______________ ________ 52
Anderson, Wayne S., Chairman, Subpanel on Research and Development
for Fuel Economy of the Transportation-Energy Panel, Department of
Transportation______ _____________ _______ ____________ ___________
1
12
39
41
59
W ednesday, May 2, 1973
Humphrey, Hon. Hubert H., chairman of the Subcommittee on Consumer
Economics: Opening statement_____________________________________
Simon, Hon. William E., Deputy Secretary of the Treasury and Chairman
of the Oil Policy Committee, accompanied by Duke Ligon, Herbert
Ashman, and William Johnson_____________________________________
Allvine, Fred C., associate professor of marketing, College of Industrial
Management, Georgia Institute of Technology, accompanied by Fred A.
Tarpley, Jr., professor of economics______ __________________ _____ 98
77
79
Saturday, June 2, 1973
Humphrey, Hon. Hubert H., chairman of the Subcommittee on Consumer
Economics: Opening statement______________ ______________________
Fraser, Hon. Donald MacKay, a U.S. Representative in Congress from the
Fifth Congressional District of the State of Minnesota: Opening state
ment_____________________________________________________________
Frenzel, Hon. Bill, a U.S. Representative in Congress from the Third
Congressional District of the State of Minnesota: Opening statement__
Quie, Hon. Albert Harold, a U.S. Representative in Congress from the First
Congressional District of the State of Minnesota: Opening statement
presented by Roger Johnson, District Representative for Representative
Quie______________________________________________________________
Erchul, F. James, director, Civil Defense Division, Minnesota Department
of Public Safety_____________________ ______ _____________ _________
Carpenter, Cy, president, Minnesota Farmers Union, St. Paul, Minn___
Shoemaker, Kent P., assistant vice president for operations, Soo Line
Railroad Co., Minneapolis, Minn---------------- ------- ---------------------------Olsen, Louis B., assistant general manager, Twin Cities Area Metro
politan Transit Commission, Minneapolis, Minn_____________________
Thorfinnson, Ross L., president and chairman of the board, National Car
Rental System, Inc., Minneapolis, Minn____________________________
Bowar, C. L., editor, the Minnesota Motorist, Minnesota State Automo
bile Association, Burnsville, Minn__________________________________
111
116
122
125
137
153
159
164
170
185
AFTERNOON SESSION
Denn, James N., general manager, Minnesota Motor Transport Association,
St, Paul, Minn______________________________ _________ ____________
Emison, James W., principal equity owner, Oskey Gasoline and Oil Co.,
Minneapolis, Minn_________________________ _____________ _________
(n i)
197
203
IV
Page
Sampson, Sigved, president, Midland Cooperatives, Inc., Minneapolis,
Minn------------ --------- ---------------------------------------------------------------------Everett, Jerry, executive director, Northwest Petroleum Association,
Minneapolis, Minn________________________________________________
Haglund, Gordon, chairman, Fuel Oil Committee, Northwest Petroleum
Association, Minneapolis, Minn------------------------------------------------------Comstock, Wayne, treasurer, Minnesota Association of Petroleum Re
tailers, Minneapolis, Minn.---------- --------- ----------------------------------------Reed, Hon. J. Lisle, Deputy Director, Office of Oil and Gas, Department
of the Interior_____________________________________________________
Peterson, Daryl, independent service station operator, North St. Paul,
Minn_____________________________________________________________
Richards, Myron, president, Richards Oil Co., Savage, Minn__________
Kjera, John, president, Local 662, Oil, Chemical and Atomic Workers,
Pine Bend, Minn__________________________________________________
Hillmann, Arnold, vice president, United Van Bus Delivery, Minneapolis,
Minn_____________________________________________________________
Hron, Tom, vice president, Minnesota Aviation Trades Association, St.
Cloud, Minn______________________________________________________
208
214
217
223
229
245
247
251
252
256
SUBMISSIONS FOR THE RECORD
T uesday, M ay 1, 1973
Anderson, Wayne S.:
Study entitled “ Summary of R. & D. for Fuel Economy in Automotive
Propulsion or Background Support for: A 40-Mile-Per-Gallon Car” .
Card, Annon M., et al.:
“ Energy and the Need for Tax Incentives,” booklet prepared by
Texaco, Inc____ _______________________ _____ ______ ___________
Humphrey. Hon. Hubert H.:
“ The Near-Term Outlook for Gasoline and Its Impact on Independent
Marketers,” study by the Petroleum Industry Research Foundation,
I n c . . ______________________ _____ _________ __________________
61
24
4
W ednesday, M ay 2, 1973
Simon, Hon. William E., et al.:
Prepared statement__ ______ _______________________ _____________
92
Saturday, June 2, 1973
Bowar, C. L.:
188
Prepared statement____________ _______ __________________________
Carpenter, Cy:
Prepared statement________________ _______ ____________ _______ 157
Erchul, F. James:
Prepared statement__ _______ ________ ___________________________
142
Fraser, Hon. Donald MacKay:
A series of letters from various companies and organizations regarding
the fuel crisis___________ ____________________________ _________
117
Frenzel, Hon. Bill:
Prepared statement-____ ______________________ _______ __________
124
Humphrey, Hon. Hubert H.:
Telegram to Chairman Humphrey from R. R. Manion, vice president,
Operations and Maintenance Department, Association of American
Railroads, concerning fuel supplies and shortage problems_______
112
Prepared statement of—
Hon. Walter F. Mondale, a U.S. Senator from the State of
Minnesota.............................................. ......................................
127
Hon. John A. Blatnik, a U.S. Representative in Congress from
the Eighth Congressional District of the State of Minnesota..
129
Hon. Joseph E. Karth, a U.S. Representative in Congress from
the Fourth Congressional District of the State of Minnesota..
130
Hon. William S. Moorhead, a U.S. Representative in Congress
from the 14th Congressional District of the State of Pennsyl
vania___________________ ________________________________
132
Hon. John M. Zwach, a U.S. Representative in Congress from the
Sixth Congressional District of the State of Minnesota..........
135
V
Quie, Hon. Albert H .:
Prepared statement--------------------------------------------------------------------Shoemaker, Kent P .:
Prepared statement____ ________________________________________
Thorfinnson, Ross L .:
Prepared material regarding the gasoline and oil shortage in the car
and truck rental business________________ _____________________
Pa&e
126
161
171
AFTERNOON SESSION
Emison, James W.:
Prepared statement---------- -------------- --------- ------- -------------------------Humphrey, Hon. Hubert H .:
News release entitled “ Humphrey Urges Savings in Diesel Fuel” ___
Reed, Hon. J. Lisle:
Prepared statement_____________________________________________
Letter to Chairman Humphrey from Hon. Duke R. Ligon, Director,
Office of Oil and Gas, dated June 11, 1973, in response to various
questions asked of Mr. Reed___________________________________
Sampson, Sigved:
Prepared statement________________________________________ _____
206
201
231
237
209
APPENDIX
“ The Sweeping Impact of the Energy Crisis,” by Alvin L. Hoffman,
president, Construction Inspection Services, Inc., Silver Spring, Md.,
and publisher of Construction Economics, from the Congressional
Record, February 15, 1973_________________________________________
Prepared statement of Hon. Charles A. Vanik, a U.S. Representative in
Congress from the 22d Congressional District of the State of Ohio____
Letters and statements from various individuals and organizations regard
ing the fuel crisis__________________________________________________
259
260
268
THE GASOLINE AND FUEL OIL SHORTAGE
TUESDAY, M A Y 1, 1973
C ongress of the U nited S tates,
S ubcommittee on C onsumer E conomics
of the J oint E conomic C ommittee ,
Washington, D.O.
The subcommittee met, pursuant to notice, at 1:40 p.m., in room S407, the Capitol Building, Hon. Hubert H. Humphrey (chairman of
the subcommittee) presiding.
Present: Senator Humphrey; and Representatives Eeuss and
Widnall.
Also present: Loughlin F. McHugh, senior economist; William A.
Cox and Jerry J. Jasinowski, professional staff members; Michael J.
Eunde, administrative assistant; and Walter B. Laessig, minority
counsel.
O pening S tatement
of
C h airm an H umphrey
Chairman H umphrey . The meeting of the Subcommittee on Con
sumer Economics of the Joint Economic Committee will please come
to order.
I have called these hearings because, speaking for myself, and I am
sure for other Members of Congress, we are concerned about what is
going on with gasoline; indeed, the entire problem of energy and
what is termed the fuel crisis. Gas prices are already increasing
sharply and, according to what we hear, they may go much higher,
because contrary to what many people think, the majority of gas sta
tions, even brand-name stations, are not under price controls. Only
23 major oil companies are covered by the mandatory controls, but
9 out of 10 filling stations are not actually owned by these companies.
In some areas, you might have to burn a whole tank of gas to get to a
price-controlled station.
I am equally concerned by the fact that thousands of small business
men—namely, the independent terminal, tank truck, and gas station
operators—are either being ruined or facing the possibility of it due
to the action of several major oil companies to cut off their supplies
of gasoline and their more than 100,000 employees are being rendered
unemployed. Might I say to my colleagues that are here today, that
I have just returned from the Easter recess period in my home State,
as all of us have, and the local newspapers carried the story in Minne
sota that over 100 gas stations have closed their doors in the last month
with prospects of an additional 200 doing likewise. Six to seven major
motor transport companies are facing curtailment of service due to
inadequate supplies of fuel. I met with the Minnesota Motor Trans
port Association, and the members of that association expressed their
concern, in fact, their deep concern, over the prospects of having an
(l)
2
inadequate supply of diesel fuel and gasoline. So what we see is hap
pening on a large scale.
Not only does this action by the major oil companies of cutting off
gasoline supplies deprive many people of their livelihoods, but also
certain parts of the country depend very heavily on the independent
gasoline distribution network. I refer, for instance, to a company in
Austin, Minn., known as the Champion Oil Co., that serves 184 farm
outlets. This company has been there since the 1930’s and receives its
gas supply from a company in Texas known as the Champlin Co.,
which now has served notice that, as of July 1, there will be no gaso
line, no fuel oil, no petroleum products.
The same situation prevails in many other parts of our State. Just
yesterday I sent a letter to Sun Oil Co. as a result of a request from a
constituent who faces the prospect of his station being closed. I have
also had the opportunity to talk personally with one of the officers of
the Sun Oil Co. about their D X stations which are found in the Mid
west. So what I am saying is true in my part of the country. I under
stand it is also true in New England and parts of Florida and other
places not close to major transport and industrial hubs. I should add,
parenthetically, that Texaco, which is represented before us today by
Mr. Card, its senior vice president, has not had regular, direct dealings
with minor-brand independents for a number of years. Congressman
Reuss may have something to say about that later.
I have received an interesting study done by the Petroleum Industry
Research Foundation, Inc., of New York, which sheds a curious light
on this situation. We will look at that report in today’s hearings. It
estimates the shortfall of gasoline supply east of the Rocky Moun
tains this summer at only 2 percent of demand, rising to about 5 per
cent in 1975. In other words, there is only 2 percent less than the de
mand. It indicates that such a shortage will draw down inventories to
the level at which some bona fide shortages will appear. But this small
shortfall does not seem to necessitate any broad-scale withdrawal of
supplies from the independent distribution network. Meanwhile, far
from contracting their own operations because of the shortage, the big
companies are opening new stations of their own and competing to
expand as fiercely as ever.
This is happening at a time when the profits of the major oil com
panies for the first quarter of 1973 are up by very large margins over
a year ago. Of the companies that have reported, the figures are: Oc
cidental Oil, up 70 percent; Sohio, up 48 percent; Exxon, up 43 per
cent; Amerada Hess, up 25 percent; Phillips, up 22 percent; Getty,
21 percent; Gulf, 19 percent; Texaco, 15 percent; and Continental,
12 percent.
I have introduced a joint resolution of Congress providing for an
Emergency Fuel Allocation Board to be estabished in the Executive
Offices to assure fair allocation of petroleum products to all parts of
the country and to prevent anticompetitive practices in the industry.
I hope it will not be necessary to keep such a board in operation be
yond about 3 years, because the shortage is expected, according to some
reports, to be relieved by 1976 through the construction of new U.S.
refining capacity. However, I think this expectation may prove overly
optimistic. There are reasons to believe that the pressure on the fuel
supply will be with us for a longer period of time and may get worse
3
before it gets better. Other legislation is also under consideration to
deal with the allocation probem. I hope also that the Justice Depart
ment will expedite its own look into this situation and take appro
priate legal action, if any is indicated under the antitrust laws. Also,
I might add that the Federal Trade Commission could look into the
situation, and I would hope that it would do so promptly.
Now, the other side of this supply problem is, of course, demand.
The demand for gasoline—and we are concentrating today primarily
on gasoline, not fuel oil and diesel oil—the demand for gasoline has
increased more rapidly than expected this year because of a bumper
crop of new automobiles with unbelievable large horsepower, which
I doubt is necessary to move us across town, and somewhat reduce
gas economy. Various avenues exist to improve gas mileage, but Detroit
has not invested much in them, because it apparently has concluded
in the past that such an investment would not pay for itself in more
auto sales. We have been doing very well building more and more
bigger and bigger cars with more and more horsepower, consuming
more and more fuel, only to find ourselves with an environmental
crisis, plus an energy crisis.
Gas mileage is no longer tp be regarded as just a business decision
of the auto companies. Today it is a public problem, and some Govern
ment action to encourage fuel economy may be needed if all else fails.
Today we shall hear testimony on feasible means to improve gas econ
omy and shall inquire into how to get those recommendations im
plemented.
Finally, let me note the important fact that the supply of gasoline
is intertwined with the supplies of truck and tractor fuel, heating
oil, and aviation and jet fuel, because all of these products come from
the same barrel of crude. Partly because of the crash effort to refine
gasoline last summer, we ran short of oil to heat our schools and
factories in many parts of the country last winter, particularly in
Minnesota, and our hopes for a good grain crop next fall are now
riding on emergency measures to keep farmers and truckers supplied
with diesel fuel. We were saved from a catastrophe in the Midwest—
Wisconsin, Iowa, and Minnesota—and in other parts of the country,
by the forces of nature and divine providence. We had one of the
mildest winters in the past 25 years, and had it not been for the un
usually warm weather, we would have had to close schools and fac
tories, we would have had to shut down railroads, and we would have
had to limit our use of electrical power. In fact, we were in an emer
gency situation declared by the Governor of our State in the first week
of January.
Now, we cannot depend in the coming year upon the compassionate
hand of the Lord, nor can we depend upon just good luck. We are faced
with a major problem of short supplies of fuel oil in the winter and
gasoline in winter and summer. As I say, we were saved from catas
trophe by unusually moderate weather. The problem we face now is
preparing adequately for the coming fall and winter.
The President’s energy proposals failed to meet our need on three
points. There are many constructive parts to his proposals, but three
areas I think are inadequate. They fail to deal with the emergency
situation we are facing, and they do not deal adequately with the ques
tion of fuel conservation. Finally, I do not believe that the President’s
4
proposals provide for adequate support for research to facilitate the
use of presently available fuels and to develop new ones. I hope our
hearings today and tomorrow will shed some light on how the short
age and its ill effects may be countered by Government, industry, and
the public. At this time I wish to insert into the hearing record the
study mentioned earlier by the Petroleum Industry Research Founda
tion. It provides a good background of facts and figures for the public
and for students of this matter.
[The above referred to study follows:]
T h e N e a r -T e r m
Outlook
for
G a s o l in e a n d I t s I m p a c t
M arketers
on
I ndependent
(By the Petroleum Industry Research Foundation, Inc.)
INTRODUCTION
This study has been undertaken at the request of the Independent Oil Men's
Association of New England whose members are independent marketers of
branded and unbranded gasoline in the six New England states. The study
includes therefore special references to the New England gasoline market,
where appropriate. But, as explained below, this market can only be analyzed
as part of the larger U.S. gasoline market. Our report is therefore primarily
concerned with the entire gasoline market east of the Rocky Mountains.
t h e sc o p e o f t h e m a r k e t
The U.S. gasoline market east of the Rocky Mountains (PAD I-IV ) must
be viewed as a single integrated interdependent unit. The principal reason
for this lies in the fact that historically U.S. refining capacity has been heavily
concentrated in the Southwest (PAD III), principally the U.S. Gulf Coast.
Currently Gulf Coast and other PAD III refineries account for 49% o f total
refining capacity in PAD I-IV and their gasoline output supplies 48% of total
gasoline production in the four PAD’s. The location of these refineries was of
course determined by access to local crude oil rather than to local markets.
Consequently, the bulk of their output is exported by pipeline, tanker and barge
to other parts of the country. Thus, in 1972 67% of the East Coast’s (PAD I)
gasoline supply came from refineries in PAD III. While the East Coast has
local refineries, the principal growth in gasoline supplies in this market has
come from PAD III refineries, primarily those located on the Gulf Coast.
This is clearly shown in the table below.
TABLE 1.— PAD I GASOLINE SUPPLIES
[Thousand barrels per day]
1972
Local production........................................................... .........................
........................
Net movements from PAD II I............................................ .......................
Other1.....
........ .................................................. ........................
Total................................................................. ........................
1965
712
68
1,442
(-6 1 )
664
25
1,031
(-1 4 2 )
2,161
1,578
1 Includes movements to and from other districts as well as stock changes.
In addition PAD III supplies approximately 10% of PAD II’s 1972 gasoline
demand and could potentially supply a considerably larger share, particularly if
crude oil remains tight for inland refiners in the Midwest.
The need for all major markets to rely on the same supply .source for part of
their gasoline requirements underlies the above mentioned interdependency of
this market. The long-term restriction on the importation of gasoline has further
unified the market by insulating it from foreign market influences.
It is therefore not possible to analyze the economics of any one segment of
the U.S. gasoline market separately, without reference to the market as a whole.
Thus, this report will deal primarily with the existing and projected supply-
5
demand situation in PAD I-IV as a whole, for the availability of gasoline
throughout the entire market is the principal determinant of its availability in
submarkets such as New England
Nevertheless, some statistics to indicate the magnitude of the New England
gasoline market and, therefore, the magnitude of the supply problem it faces
may be in order by way of introduction.
THE NEW ENGLAND GASOLINE MARKET
For the 6-year period 1965-71, New England gasoline consumption grew at an
average annual rate of 4.7% approximately matching the rate of growth for
PAD I-IV as a whole. In 1972, on the basis of partial information, the growth
rate rose sharply—to 5.8% to reach a total volume of 5.2 billion gallons (339,000
b /d ). The same exceptional demand increase last year was registered throughout
the four PAD Districts. In PAD I-IV demand in 1972 reached 83 billion gallons
(5,439,000 b /d ). Thus, New England accounted last year for about 6.25% of
total gasoline djemand east of the Rocky Mountains. Our short term projection
assumes that between 1972 and 1975 both the total PAD I-IV market and the
New England market will grow faster than at their recent historic rates. We
estimate conservatively an average annual growth of 5.3% for both markets.
This would put New England gasoline consumption for 1975 at 6.1 billion gallons.
The distribution of gasoline in New England by type of marketers was as
follows in 1969, according to a study made by the Independent Oil Men’s Asso
ciation of New England.
TABLE 2.— NEW ENGLAND GASOLINE SALES, 1969
Gallons
(thousands)
Percent
Branded gasoline:
Refiner distributors.......
Independent distributors.
Unbranded gasoline...........
3,169,401
868,554
424,074
71.0
19.5
9.5
Total.....................
4,462,029
M O
No comparable figures are available for subsequent years. But a sampling of
tax receipts in November 1972 indicates that the total “independent” segment of
the market (independent distributors of both branded and unbranded gasoline)
may have grown to 33-35%, compared to 29% in 1969. According to all indica
tions, the growth occurred primarily in the unbranded gasoline sector which
may currently account for as much as 15% of the total market.
No comparable figures are available for Districts I-IV as a whole. However,
based on discussions with industry representatives we would estimate that the
“independent” segment (again both branded and unbranded) would account for
at least 30% of the gasoline market. This segment would be divided almost
equally between the branded independent and the unbranded independent.
RECENT TRENDS IN THE GASOLINE MARKET IN PAD I-IV
In the last several years gasoline demand has regularly risen at a markedly
faster rate than the output of refineries. As the table below shows, from 1968
through 1972 gasoline demand rose at an annual rate of 5.0% while refinery
runs (the volume of crude oil processed by refineries) rose by 3.0%. In part,
this reflects the fact that gasoline demand rose more rapidly than that of middle
distillates.
TABLE 3.— PAD I-IV
Motor gasoline demand.
Refinery crude oil runs.
Thousand barrels per day
—-------------------------------1968
1972
Average
annual
increase
(percent)
5,439
9,845
5
3
6
In order to meet this divergent demand pattern between gasoline and the other
products, refiners steadily increased the gasoline yield per barrel of crude oil—
from 43.8% in 1968 to 46.9% in 1972. This method of tailoring gasoline output
to market demand is of course only possible as long as the output of the other
refined products is also in line with market demand. Through 1971 this was
approximately the case. In 1972 however, an unusually sharp increase in the
demand for distillate fuel oil greatly limited the refiners’ ability to meet the
rise in gasoline demand through yield increases of that product. In consequence
a temporary shortage of gasoline developed in the summer and early fall of 1972.
However, since U.S. refineries still had excess producing capacity throughout
1972, the shortage was largely overcome in the fourth quarter by increasing crude
runs by 6.2% above the comparable quarter of the previous year.
THE OUTLOOK FOB 1073
*
As a result of the exceptionally cold weather in the fourth quarter of 1972,
distillate fuel oil stocks at the end of that quarter were considerably below their
normal level. Thus, in order to avoid a possible heating oil shortage in the first
quarter of 1973, refiners in PAD I-IV increased their yield of this product to
the record level of 28%,1 according to preliminary figures. However, in order
to do this, gasoline yields had to be reduced to 44%,2 a drop of 2.4 percentage
points over a year ago. Assuming refinery runs at 91% of capacity, this would
mean an increase in gasoline output of about 2% above the first quarter of 1972.
This is clearly less than the expected demand increase. Consequently, we must
assume a decline in gasoline stocks in the first quarter to around 190 million
barrels, compared to more than 210 million barrels in recent previous years. We
will therefore enter the main gasoline consuming season (the 2nd and 3rd quarter)
with inadequate stocks. If we assume a 5.6% increase in gasoline demand for
1973 (slightly less than last year’s 5.7%) and a record average gasoline yield
of 48% in the last three quarters of the year, and no appreciable increase in
imports above last year we should be faced with a very tight gasoline supply
situation in the second and third quarter, as is shown by the derived inventories
at the end of each of these quarters in the table below.
TABLE 4.— GASOLINE SUPPLY AND DEMAND, PAD l-IV, 1973»
1st
quarter
2d
quarter
3d
quarter
4th
quarter
Year
Total new supplies (thousand barrels per day)............
Demand (thousand barrels per day).................... .......
5,354
5,350
5,791
5,895
5,945
6,060
5,893
5,819
5,751
5,783
Stocks end of quarter..................................
Million barrels..................................... .......
191
-1 0 4
181.4
170.8
177.6 ...
32.4
38.1
42.0
29.9
31.4
35.2
29.4
32.7
36.0
35.7
31.7 .
35.6
39.2
39.6
Days supply (million barrels):*
1973.........................................................
1972.........................................................
1971.........................................................
1970.........................................................
i Includes aviation gasoline.
3 Defined as end-of-quarter stocks divided by the average of the next quarter demand.
In terms of the number of days of supply, these inventories will be significantly
lower than last summer and fall. Yet, we know that last year’s inventories were
abnormally low. We estimate the shortage at about 125,000 b/d for the second
and third quarter, or about 2% of total gasoline demand.
The tightness cannot be alleviated by increasing crude oil runs, since under
our assumption refineries by mid-year will be operating at above 92% of their
rated capacity which is believed to be their maximum sustained operating ability.
Thus, the shortage can only be avoided by one of two actions or a combination
of both: An increase in imports or a further increase in the gasoline yield. The
second alternative is technically possible—refiners could increase gasoline yields
by perhaps another 3 percentage points, with each point representing about
100,000 b/d of gasoline—but it would of course result in a corresponding decline
1 Distillates here includes kerosene.
2 Includes aviation gasoline.
7
in kerosene and distillate fuel oil output. Since the demand for these latter
products is expected to be strong, any decline in the kerosene-distillate yield
would lead to a shortage of that product, unless offset by substantial additional
imports. In other words, the only real choice available to the industry if a short
age is to be avoided is between increased imports of gasoline and increased im
ports of distillate fuel oil.
Table 5 below shows the gasoline supply and demand position by quarters for
1973, based on the assumed minimum stock levels required to avoid a shortage.
It can be seen that import requirements in the second and third quarter would
be in excess of 200,000 barrels daily, or about three times the volumes imported
in the comparable period of the previous year.
TABLE 5.— PAD l-IV, 1973
{Thousand barrels per day]
1973
1st quarter
2d quarter
3d quarter 4th quarter
Year
Refinery runs (crude plus unfinished)............ .
Aviation-gasoline yields..............................
Refinery output........................................
NGL.....................................................
10,375
44.0
4,565
789
10,474
48.0
5,027
749
10,613
48.5
5,147
772
Refinery output— Total.......................
Imports.................................................
Net to V................................................
5,354
75
-75
5,776
221
-7 0
5,919
211
-5 9
5,866
70
-5 8
5,731
144
-6 5
Supply..................................................
Demand................................................
Stock change (million barrels)......................
Stocks, end of quarter (million barrels)...........
Days supply,11973....................................
5,354
5,350
5,927
5,895
+ 2 .9
193.9
32.0
6,071
6,060
+ 1 .0
194.9
33.5
5,878
5,819
+ 5 .4
199.3
35.6
5,810
5,783
+ 9 .8
AVIATION GASOLINE
191
32.4
10,520
10,613
47.5 ,
5,041 .........4,"947
784
825
1 End quarter stocks divided by next quarter demand.
We consider it unlikely that the levels of gasoline imports shown in table 5
can be obtained on a sustained basis over the next four to six-months. The ques
tion of foreign gasoline availability will be discussed in more detail in a later
section of this report but the point should be made here that foreign supplies
are currently very tight and prices very high. Hence, it should be assumed that
only part of the deficit immediately facing the industry can be met through
increased imports.
The deficit could probably be eliminated if in addition to higher imports,
gasoline yields of domestic refiners could be raised by about 1-1 ^ percentage
points above the 48% level assumed in our analysis of the supply and demand
position for 1973. As pointed out, such an increase would require a correspond
ingly higher level of distillate fuel oil imports. Given the fact that middle dis
tillate yields in foreign refineries are generally about twice as high as gasoline
yields, it may be somewhat easier to import an additional 100,000 b/d of middle
distillates during the remainder of this year than the same quantity of gasoline.
It should be pointed out, however, that currently both foreign gasoline supplies
and foreign distillate fuel oil supplies are in relatively short supply.
THE OUTLOOK BEYOND 197 3
For the year 1974 and 1975 our supply-demand forecast is shown in table 6,
together with the actual situation in 1972 and the projected outlook for the
current year. For both years we have made two forecasts: Forecast (A) is
moderately more optimistic on domestic refinery capacity and output than fore
cast (B) ; all other numbers—except imports which is the balancing item to
match supply and demand—are the same in both forecasts. Forecast (A) may be
achieved if refinery down time is kept to an absolute minimum, and if capacity
can be increased in 1975 through efficiency improvements; Forecast (B) makes
a slightly larger allowance for down time and assumes no further capacity
increase after 1974. Gasoline yields in both years are 48%, about one percentage
point higher than in 1972 and 1973. The required stocks are kept at a level equal
to 34.8 days of actual demand for both 1974 and 1975. This was the actual stock
8
level attained at the end of 1972 when a near-shortage was registered. We know
that in previous years comparable stock levels generally fluctuated between 38
and 40 days of demand. Since it cannot be assumed that the industry persist
ently kept higher stock levels than required for smooth operating purposes,
last year’s 34.8 day level is probably the lowest level at which operations can be
carried on without threat of interruptions.
Table 6 shows that we will require 237,000-265,000 b/d of imports in 1974 and
478,000-572,000 b/d in 1975. As will be pointed out below, we consider an import
level of 300,000 b/d the maximum that can be realistically expected for the year
1975. Thus, a physical shortage of 3% to 5% of total demand in PAD I-IV is
likely in 1975. While the price mechanism, if allowed to operate freely, would
probably greatly reduce the shortage, the very low price elasticity of gasoline
demand would require a very sharp increase in price—to balance supply and
demand. Given the essentiality of gasoline for most Americans, such an increase
may generate considerable political resistance. The only alternative would be
voluntary or compulsory rationing which is also not exactly in favor among the
public.
TABLE 6 - P A D l-IV: GASOLINE SUPPLY AND DEMAND, 1972-75
[In thousand barrels per day]
Refinery capacity..........................................
Runs.......................................................
Percent....................................................
Unfinished........................ ........................
Refinery input (excludes natural gas liquids)..
Gasoline yields............................................
Gasoline:
Refinery output.....................................
Natural gas liquids..................................
Total refinery output............................
Imports....................................................
Net flow to and from PAD V............................
Demand....................................................
Change in stocks (million barrels).......................
Stocks end of year (million barrels)..................
Days supply1..............................................
1972
1973
1974(A)
1974 (B)
1975(A)
11,200
1975 (B)
11,350
11,500
11,500
11,650
11,500
9,845
(87.9)
102
10,410
(91.7)
110
10,638
(92.5)
110
10,580
(92.0)
110
10,776
(92.5)
110
10,580
(29.0)
110
9,947
10,520
10,748
10,690
10,886
10,690
46.9
47.0
48.0
48.0
48.0
48.0
4,665
789
4,947
784
5,159
780
5,131
780
5,225
780
5,131
780
6,005
478
(-6 4 )
6,419
6,390
(+ 1 0 .7 ).
222.4
34.81
5,911
572
(-6 4 )
6,419
6,390
5.454
68
(-6 7 )
5.455
5,473
190.5
34.81
5,731
145
( -6 4 )
5,813
5,783
(+ 1 0 .8 )
201.3
34.81
5,939
237
(-6 4 )
6,112
6,083
(+ 1 0 .4 )
211.7
34.81
5,911
265
(-6 4 )
6,112
6,083
(+ 1 0 .4 )
211.7
34.81
222.4
34.81
1 End of period stocks divided by average demand for year. 1972 ratio of 34.81 days supply was held constant in 1973-75
period. See table below:
Days supply
IMPORT CAPABILITY OF GASOLINE
Gasoline imports have historically played a very minor role in supplying the
U.S. market. In 1971, the last year in which domestic supplies were considered
adequate, total gasoline imports—all of it going to the East Coast—amounted to
59,337 b/d, equal to about 1% of total demand in PAD I-IV. Of the imports 94%
came from Puerto Rico, the rest primarily from the Virgin Islands. Virtually all
shipments from Puerto Rico were accounted for by two refiners there—Common
wealth Oil Refining and Phillips Petroleum—who together hold special import
quotas for 58,000 b/d of finished products into the U.S. mainland. All shipments
from the Virgin Islands came from Amerada-Hess.
In 1972 imports from Puerto Rico remained unchanged but there was a four
fold increase in shipments from the Virgin Islands and other overseas sources to
a record of 13,000 b/d. Total gasoline imports last year amounted to 68,000 b/d.
Thus, for practical purposes, the U.S. has not been an importer of gasoline in
significant quantities from outside U.S. territory until this year. The principal
reasons were of course the quantitative import restrictions on gasoline, combined
with the high import duty (1.25^/gallon) on this product.1
1 There is no import duty on gasoline shipments from Puerto Rico or from the Virgin
Islands except for shipments brought in under Amerada-Hess* 15,000 b /d special import
quota.
9
The imports required in 1973, particularly in the second and third quarter, will
be of such magnitude that they cannot be satisfied from the two U.S. offshore
islands. The U.S. will therefore for the first time be in a position of having to
depend on a relatively significant volume of gasoline from foreign sources to
meet its domestic requirements. Unfortunately, this development coincides with a
world-wide crude oil shortage which is preventing many foreign refineries from
operating at desired levels of capacity. The crude oil shortage is considered to be
of temporary duration. It is reported to be due primarily to lack of storage,
pipeline and tanker berthing facilities in Saudi Arabia, the world’s largest
exporter and principal source of the incremental volumes required to maintain
the growth in world oil demand. The crude shortage began to be felt late in 1972
and has continued throughout the first quarter of this year. According to some
sources, the shortage will be alleviated by mid-year; others feel it may well last
into late fall.
One major effect of the shortage has been a very sharp increase in gasoline and
other oil products prices. For instance, European prices for regular gasoline
(91 octane) are currently $50/ton f.o.b. Italy and $54 f.o.b. Rotterdam, compared
to $22 and $24 respectively a year ago—an increase of over 120%.
Given current freight rates, the Italian gasoline would lay down at the U.S.
East Coast at about 17^/gallon, duty paid. The price for gasoline from Rotterdam
would be slightly higher. This compares with a posted New York harbor contract
price of 13.75/gallon for U.S. regular gasoline (94 octane). This latter gasoline
is of course currently not available in the market except for contract sales which
are in most cases quantity-restricted.
Since foreign gasoline prices usually rise seasonally during spring and early
summer, the European gasoline export price can be expected to increase further
in the near future, unless the crude oil .shortage eases up considerably in which
case a slight decline might be expected.
Aside from the high price, there is also the problem of a physical availability.
The crude oil limitations on most refineries outside the U.S. have had the effect
of paralyzing the often considerable excess producing capacity of these refineries.
Thus, western Europe currently ha,s approximately 1 million barrels daily of
excess refining capacity. On a smaller scale, the same is true for Caribbean plants.
If sufficient crude oil were available, a part of this excess could be brought into
operation to meet U.S. import requirements. Currently, this is not possible. As of
thi,s writing, it would therefore seem that available foreign gasoline supplies
will not be sufficient to meet the requirements for the second-third quarter of
1973 foreseen in our table 5.
For the longer term—the period to 1975—we assume no crude oil supply re
strictions. During this period about 1 million barrels daily of new refining capacity
will come on stream in eastern Canada and the Caribbean. However, not all of
this new capacity will be built for export purposes and not all of it will have
gasoline producing facilities. We are assuming that new export refining capa
city with gasoline facilities will be 600,000 barrels daily by 1975. These refineries
will be able to supply about 100,000 barrels daily of gasoline to the U.S. European
excess refining capacity is likely to decline over the next 3 years. For 1975 we
expect the volume of gasoline which can be exported from Europe to the U.S.
without creating supply problems in the exporting countries to be about 100,000
barrels daily. Another 100,000 barrels daily may be obtained from refineries in
Puerto Rico and the Virgin Islands which last year accounted for the bulk of
our total imports of 68,000 barrels daily.
Thus, altogether, an optimistic but still realistic forecast of U.S. access» to
imported gasoline in 1975 would be on the order of 300,000 barrels daily. As we
saw in our supply and demand table, import requirements in that year will be
478,000 barrels daily—572,000 barrels daily, depending on our assumption. Thus,
a small but perceptible shortage is likely in that year. Possibly the shortage
could be met by an increase in the domestic gasoline yield above the 48% as
sumed in our forecast. However, as pointed out earlier, this would require
very substantial increases in distillate fuel oil imports. It is not certain that these
increases will be available.
THE IMPACT OF THE GASOLINE SHORTAGE ON THE INDEPENDENT MARKETERS
As pointed out earlier, the independent segment of the U.S. gasoline market
account for slightly more than 30% of the total, according to industry estimates.
This share is made up of both “private brand” marketers and independent dis
tributors of “branded” gasoline.
10
In a situation of insufficient overall gasoline supply, it is reasonable to assume
that gasoline refiners will want to give preference to their directly owned or con
trolled market outlet. Thus, the independent gasoline marketer who buys his
product at arms length from a refiner is likely to feel the impact of the shortage
more and earlier than the integrated market segment. In fact, evidence of this
development can already be seen throughout PAD I-IV.
The impact has been especially severe for private brand marketers. They
are the buyers and distributors of much of the refining industry’s excess gaso
line, that is the gasoline which a refiner can produce in excess of the volume
needed to satisfy his integrated or other branded distribution channels. When
there is excess refining capacity, as has generally been the case for the past
25 years, the existence of a private brand market enables the refiner to operate
his plant at a more efficient rate without the need to expend capital to develop
additional marketing outlets or the need to reduce the price for his branded
product. However, in case of a sustained tightness of gasoline, as will be the case
for the next several years, the integrated refiner can be expected to give priority
to his own or controlled outlets in allocating gasoline supplies. Many un
branded gasoline distributors have already felt the impact of this allocation.
Similarly, when the gasoline shortage begins to affect the availability of
branded gasoline, the refiner can be expected to reduce first his branded sup
plies to non-integrated outlets. Thus, a number of independent branded gasoline
distributors have already been informed that their contractual volume this
year will be either the same or less than last year. Since spot gasoline cargoes
are currently not economically available, some of these distributors will have
to curtail their operations.
To what extent the independent market segment will be affected by the short
age over the next three years depends of course on the scenario chosen. It is
clear, however, that if the independents must increasingly rely on imports
and if the cost of imports remains higher than domestic gasoline prices, the inde
pendents must raise their prices relative to those of the integrated distributors.
This will cause them to lose market shares to integrated companies. While the
extent of this loss is subject to speculation, one possible scenario is to assign
all the growth in the market to the integrated refiners (the “ majors” ) while
maintaining the volume of the independent segment at its level of 1972. Needless
to say, this is not a recommended scenario but it provides the opportunity to
analyze the supply situation of the independents under a no-growth assumption
until 1975. Assuming a 30% market share for the independents, the comparable
figures for 1972 and 1975 will look as follows:
Table 7.—Total Motor Gasoline Demand
(000 b/d)
I-IV
1972
1975
Growth Rate
Independents ------------------------------------------- 1,632
1,632
0.0%
Integrated Refiners------------------------------------ 3,807
4,724
7.5%
5, 439
6,356
5.3%
Under Case (A )—the most optimistic supply case—in our table 6 (p. 12) we
forecast that refiners in 1975 would produce 5,971,00o1 barrels daily of which
64.000 b/d would be shipped to PAD V. After meeting the entire demand of the
integrated companies this would leave 1,183,000 b/d for the independents or
449.000 b/d less than they will require even under our no-growth assumption for
this group. Thus, in order to maintain their existing level of operations they
would have to import about 450,000 b/d in 1975. Additional imports of 29,000
b/d will be required to maintain stock levels at the 1972 ratio of 34.8 days of
supply, making for total imports of 478,000 b/d.
As discussed in the previous section, these import requirements could well fall
150,000-200,000 b/d short of available foreign supplies. If the entire shortfall has
to be borne by the independent segment, it could reduce their actual volume in
1975 by at least 10% below last year’s. This would reduce their market share over
the next 3 years from 30% to 23%.
1 Excludes an estimated 34,000 b/d of aviation gasoline.
11
POLICY RECOMMENDATIONS
If a domestic gasoline shortage is to be minimized or averted, two courses
of action are required: (1) short-term maximization of finished products im
ports and (2) the creation of incentives for domestic refinery expansion.
The two courses of action may seem contradictory on the face, since import
liberalization may be considered a disincentive to domestic refinery construction.
Nevertheless, unless 'both courses are adopted, the shortage over the next three
years will either grow to the point where it could become unmanageable or we
will become permanently dependent on foreign gasoline supplies for a large and
growing share of our market which would be undesirable from the point of view
of security—commercial as well as political—or balance of payments.
Specifically, the following actions would seem required in the present situation:
(1) For the next two years imports of all finished products should be allowed
to come in freely and without source-of-origin restriction. During this period
no new grass root refinery or major refinery expansion can be completed and
available foreign supplies will not be sufficient to force a reduction in domestic
refinery operations from present maximum levels, even if a decline occurs in
foreign prices. Hence, unlimited imports during this period is not likely to have
a negative effect on domestic refinery operations.
(2) In view of the lower yield of gasoline than middle distillates in most
foreign refineries and the resulting relatively lesser availability of foreign gas
oline supplies, a) U.S. refiners should be encouraged to maximize gasoline yields,
perhaps by permitting an increase in gasoline prices (this would also have a
minor dampening effect in demand) ; and b) imports of gasoline should be
limited to qualified independent marketers of this product who should be given
the right to exchange such imports in order to minimize inland freight costs.
(3) The construction of domestic refineries should be encouraged by means of
a modest protective tariff on finished oil products. However, since it takes several
years to build additional refining capacity the tariff should be postponed until
there is evidence of sufficient new domestic refinery construction or expansion,
as defined in advance by the government. The reason why no protective tariff
on finished products should be imposed at this time is that such action would
further raise the price of imports and thus keep out some of the otherwise avail
able foreign supplies, particularly in view of the existing domestic price re
strictions on the oil products sold by the major integrated refiners.
(4) The domestic price of gasoline should be allowed to rise freely, in order to
encourage the maximum importation of gasoline.
(5) A more reasonable and balanced environmental approach towards the con
struction of new refineries is required on the part of the public. If there had been
no environmental opposition to the construction of new refineries on the East
Coast, at least three new plants would currently be in operation, two of which
would be located in New England. The output of these three plants would have
been enough to avoid a gasoline shortage in the U.S. at least for the current year.
Chairman H u m ph r e y . We shall now proceed with our first wit
ness. I am going to ask our witnesses to confine their remarks if pos
sible within the period of approximately 10 minutes.
The first witness is Mr. Card, vice president of Texaco, Inc.
Representative W idn all . Mr. Chairman, would you yield to me for
a moment?
Chairman H u m p h r e y . Of course, Congressman.
Representative W id n all . First of all, I would like to compliment
you on your opening statement. I think you have clearly and succinctly
put into the record the situation as we find it today. I would like to
confirm from my own contacts, from my own experience, my own
knowledge of the area that I happen to live in, the eastern part of the
United States, that what you have stated is true. It is up to date. Some
aspects of the situation are rather scandalous. I believe, as you have
stated so well, that the big companies are using this as an opportunity
to grind the smaller companies out of business. It seems just terrible
to me that at the same time they are saying there is such a shortage,
99-740 O— 73------- 2
12
they are greedily looking for new business, new locations, developing
further outlets that are completely controlled by the large companies.
I am very pleased that the subcommittee is going into this. I am sure
that there is a lot of grist that can be brought to the mill and that we
can be helpful in a situation that demands action soon.
Chairman H um phrey . Congressman Widnall, I want to thank you
very much.
For the benefit of our audience, Congressman Widnall, of course, is
from New Jersey. He is a senior member of the Joint Economic
Committee.
Congressman Reuss is with us from Milwaukee, Wis.
Congressman, did you wish to say something ?
Representative R euss. Nothing other than pining with Bill Wid
nall in commending you for having these hearings. I think we should
get right on with it.
Chairman H u m phrey . Thank you, Congressman.
Mr. Card, we welcome you to the subcommittee and we thank you
for your cooperation.
STATEMENT OE ANNON M. CARD, SENIOR VICE PRESIDENT,
TEXACO, INC., ACCOMPANIED BY WILLIAM WEITZEL, COUNSEL;
AND JAMES H. PIPKIN, EXECUTIVE VICE PRESIDENT
Mr. C ard. Mr. Chairman, members of the subcommittee, my name is
Annon M. Card. I am a senior vice president of Texaco, Inc., in charge
of strategic planning. I have been with Texaco for more than 25 years,
primarily in marketing and planning assignments both in the United
States and abroad.
I appreciate this opportunity to present to the Joint Economic
Committee Texaco’s views regarding the shortage of gasoline supply.
I will describe the problem as we see it and tell you what Texaco
believes can be done to help overcome this situation on both a short
and long-term basis.
s u p p l y -d e m a n d
There are many reasons for the shortage of gasoline supply in this
country. Basically, it has been caused by leveling off and now declin
ing U.S. crude oil production while demand is growing faster than
the normal historical growth. In Texaco’s view, restrictions on free
market action, both in the past and present, constitute the primary
reason for the shortages that exist today. These restraints are reflected
in many ways and I shall review a few:
First, import policies in the past have made it difficult to import,
adequate supplies of crude oil and gasoline from abroad.
Second, taxing policies have taken away capital resources required
to carry out the exploration program necessary to provide additional
crude oil supplies.
Third, environmental laws and regulations—
a. Have delayed and discouraged construction of new refining ca
pacity necessary to alleviate the present situation.
b. Have caused automobile manufacturers to require lowlead gaso
lines to help meet air quality standards; new cars get fewer miles per
gallon, thus adding to gasoline demand.
13
c. Have limited the sulfur content of coal and residual fuels, which
caused increased usage of distillate fuel oils and resulted in low
gasoline inventory at the start of this gasoline season.
Finally, price control, which effectively prevents the recovery of
higher costs, is another constraint to adequate gasoline supply.
DEVELOPING PROBLEMS
Texaco has taken every reasonable action to provide additional
gasoline supplies. Texaco refineries are operating at available capacity
for gasoline and have been doing so since early spring. Yet, it is
expected that Texaco’s supplies of this product in 1973 will be about
the same as they were in 1972, Therefore, it may not be possible to
supply all the gasoline that the customer may desire when he »wants it.
We do not believe that the tight supply situation in the industry can
be overcome completely during the peak driving season. It is expected
that various companies in various locations will experience gasoline
“run-outs” during the summer season. It is anticipated, however, that
such “run-outs” will be primarily local in character and of relatively
short duration.
Texaco will endeavor to distribute its available supplies to our vari
ous customers on a basis as fair and equitable as possible, having due
regard to contractual commitments, and in the light of all the circum
stances that may exist at that time.
SHORT-TERM IMPROVEM ENT
Historically, most of the gasoline consumed in this country has been
produced domestically. With today’s supply-demand situation, there is
a growing dependence on imports.
Gasoline supplies outside the United States are limited but to the
extent they are available, the removal of import controls by the Presi
dent last month will assist in supplying more gasoline if prices are ade
quate to encourage such importation. We are faced with the fact, how
ever, that motor gasoline meeting specifications for American-made
cars is presently available in only limited quantities from foreign
sources. With regard to these possible imports of gasoline, it is impor
tant to note that the east coast delivered price is higher than most com
panies can recover under price control.
To attract such supplies, the industry must be permitted to recover
the additional costs of imported products. In addition, whether on
domestically produced or imported supplies, prices must be adequate to
justify the many costly actions required to help alleviate the gasoline
shortage and, under the present system of price control, gasoline prices
are not adequate.
Relaxation of environmental standards relating to various fuels and
specifications that reduce the production of gasoline would assist in
overcoming the current shortage.
For example, the removal of lead from gasoline substantially reduces
the volume of gasoline produced from a given quantity of crude oil
and, moreover, produces a lower octane gasoline that gives the motorist
fewer miles per gallon.
A national gasoline conservation program and more efficient use of
14
available supply would assist in overcoming the current problem. Such
a program which could be implemented this summer might include
such items as car pools, tuneup programs, reduced highway speed, stag
gered working hours and increased use of mass transit.
The era of cheap and plentiful supplies of energy is over, and all of
us must realize that the next 5 years, and perhaps longer, must be an
era of energy conservation. We must seek a total commitment on the
part of all Americans to conserve energy and to use available supplies
efficiently.
Texaco plans to emphasize in its advertising the necessity for con
servation programs and the need to make our available supplies of
energy perform more efficiently and without waste.
In the long term, the development of new refining capacity in the
United States must be achieved in order to provide for additional
supplies.
Because of the inadequacies of the former oil import program, en
vironmental restrictions, and difficulty in earning an adequate rate of
return, there are no new refineries under construction in the United
States at this time. Although several refinery expansions have been
announced since the President’s message, substantial additional capac
ity is a necessity.
Price controls on petroleum products have done much to create the
present shortage situation, and these controls should be removed.
Prices must be established in a free market and at adequate levels for
U.S. petroleum companies both to buy gasoline stocks in the highly
competitive world market and to provide the incentive for building
new refining capacity in the United States. Adequate prices are
necessary to encourage additional supplies of crude oil and products,
and generate sufficient capital resources.
The President’s long-awaited message to Congress calling for a
national energy policy was very welcome. However, this policy is not
the complete solution for our short-term energy needs. Rather, it is a
strategy to develop needed energy resources as quickly as possible to
insure that the present tightening of energy supplies is checked and
that adequate supplies are available in the future.
The President also called for an investigation of the cost effective
ness of the air quality standards imposed by the Clean Air Act. It
has been estimated that substantial quantities of gasoline used by new
automobiles could be saved by very modest changes in the targets for
air quality imposed by this act.
While the President’s actions have recognized the need for additional
refining capacity, we would hope the evolving national energy policy
would also recognize the need for prompt action to facilitate the loca
tion of new refining capacity in this country. The approval of proper
sites has been slowed down by a variety of overlapping regulations. It
is also evident that we need a method to coordinate the actions of Fed
eral, State, and local authorities who are responsible for the various
types of permits and licenses involved.
Texaco believes that fair and equitable distribution of available
petroleum supplies can best be handled by the company owning such
supplies without control or regulation by another party.
Restrictions on supplies being considered by various governmental
authorities would reduce flexibility for the quick, decisive action
15
needed to mitigate shortages and if supplies were reserved in any
one area this could cause more widespread shortages elsewhere.
The Cost of Living Council’s price limitations and procedures are
definite deterrents to augmenting supplies of gasoline. If controls are
continued, the prenotification procedure should be changed to retro
active notification.
In summary, there is widespread evidence that a gasoline supply
shortage exists in this country. The short-term solutions are relaxation
of price restraints, easing of environmental regulations, and the intro
duction of conservation measures. The long-term solution involves
prompt and favorable congressional action on the principal points
in the President’s energy message.
It is very difficult at this time to determine the precise shortfall
of gasoline supply in the balance of this year. Some have estimated
that the supply will be 5 percent short of demand. Putting it another
way, the 1973 supply may be about the same as the 1972 gasoline sup
ply. The extent and duration of the shortage will depend directly upon
the increase in demand and the actions that are taken to correct those
factors that have caused the shortage.
It is quite clear that a shortage of energy exists in the United States
today. At best, the situation will remain acute because of the long
positive action on the part of Federal, State, and local governments
is necessary. This immediate action, together with full cooperation
on the part of Government and industry, will enable this Nation to
take the first step toward regaining energy self-sufficiency.
This is, indeed, a matter involving the national security of the United
States.
Gentlemen, this concludes my statement.
Chairman H umphrey . Would you like to identify your associates,
Mr. Card ?
Mr. C ard. I would be happy to. On my right is Mr. Jim Pipkin,
our executive vice president here in Washington. On my left is Mr.
Bill Weitzel, counsel in our legal department.
Chairman H umphrey . Very good.
I want to thank you for coming to us today. You have responded to
our request and it is appreciated. You have offered some very con
structive suggestions. Just a point about allocation of supplies. There
seems to be some little difference between your figures and the figures
of the Petroleum Research Foundation study on the shortfall. You
estimate about 5 percent this year or 1973. I think they estimated 2
percent and 5 percent by 1975. The exact figure is perhaps not of major
consequence, even though that shortfall does have an impact.
Let me ask you this. Does Texaco supply independent dealers?
Mr. C ard. Are you talking about what we call branded or privatebrand dealers?
Chairman H umphrey . Both. I know you have some independent
operators that have the Texaco brand, Fire Chief insignia, right?
Those are independent dealers under your franchise, right? Is that
the way it operates?
Mr. C ard. Texaco branded dealers, yes, sir.
Chairman H umphrey . Do you have pther independent dealers that
you supply from Texaco Co. gasoline supplies ?
16
Mr. C ard. It is not and has not been the Texaco Co.’s policy over the
years to supply gasoline for resale under private brand. We have fol
lowed that policy with one exception, which amounts to a very, very
small amount related to the total. This one exception is a customer of
long standing.
Chairman H um phrey . In the allocation of your available supplies
from your refineries, do you have an allocation system that will take
care of your independent outlets as well as company-owned outlets?
Mr. C ard. Yes, sir. As I mentioned, we have about the same supply—
we expect to have about the same supply of gasoline in 1973 as we
had in 1972. The amount of gasoline to the various customers of
Texaco that we have will be offered to them on the basis of this supply
which we expect to be about the same as they got in 1972.
Chairman H um phrey . Have you served notification on any of your
independent outlets carrying Texaco name brand that their supplies
will be terminated, let us say, July 1 or January or December 31, or
any date in the foreseeable—in the near future ?
Mr. Card. Let me explain this. We are talking about different types
of customers—well, wholesalers, retailers, and so forth, under the Tex
aco brand name.
Chairman H um phrey . Yes.
Mr. C ard. We must realize that, all through any year, there are
terminations of sales agreements that many times originate on the
part of the customer. So there are terminations and cancellations foi
various reasons. They cancel the company or vice versa. There are
terminations that take place. But insofar as any termination because
of fuel supply, this has not been done. We are, of course, following the
normal program that we had historically, had changes of account,
so to speak.
Chairman H um phrey . Yes.
Mr. C ard. But we do expect to offer these people the same amount
of gasoline that they got in 1972.
Chairman H um phrey . Are you pulling out of any section of the
country?
Mr. C ard. N o, sir.
Chairman H um phrey . For example, such as Gulf is pulling out of
our State, and Sun Oil ?
Mr. C ard. N o, sir, we are not doing that. As you know, we operate
throughout the 50 States, and we have no plans for any mass with
drawal from any section of the country.
Chairman H um phrey . Would you think a program of voluntary
allocation of gasoline supply among the majors, in which there was
some Government coordination, would be feasible?
Let me explain. There are two ways of getting that allocation. One
is under authority of rule and regulation in which the Government
would simply see that the allocations were made under force of law.
The other would be where you could establish a board that would
work with the private majors, with the major companies, and bring
about, hopefully through voluntary means, a more equitable alloca
tion of supplies to all parts of the country. Do you think this would
work?
Mr. Card. Well, Mr. Chairman, I have given an awful lot of thought
to what you describe and to other plans, and I have had extensive
17
experience in marketing in this country and outside. I can assure you
that the matter of distribtuion is extremely complex. The systems that
we are following, we feel, are the best way to handle distribution of
available supplies. The necessity for flexibility, for quick action, is
extremely important, because in this vast network of supply and
distribution in this country, it is necessary to make hourly decisions,
literally hourly decisions, on how you would supply. As of this very
moment, somewhere in the United States, we perhaps, as well as others,
have major distribution points, terminals, that are out of some product
at this very moment. Now, the flexibility that we have under our system
permits us to crosshaul, to draw on other points, perhaps from a
different section of the country and from a distant point, to bridge
this emergency gap in order to supply the customers in that area so
that they will not run out.
Chairman H umphrey . Yes.
Mr. C ard. S o the mechanism is vast; it is complex. It requires im
mediate decisions and actions utilizing all transportation means, if
possible, to handle these situations. Therefore, I say and have said
in my statement that, in my judgment, a company itself can best
determine how to distribute its available supplies, and I am of the
firm opinion that this is the system that works best in our own case.
Chairman H umphrey . Well, how do we assure people in inland
America, for example of adequate supplies? We in our part of the
country are on the trickle end of the pipeline, you see, from east
coast, west coast, or gulf. Our Canadian friends want to have some
restrictions on the amount of oil, crude oil, that they are willing to
export or that they are willing to send down into the States. They
are concerned about their own resources. But we have small inde
pendent refineries in our area that aren’t getting crude oil. Also, how
are we going to be assured of the supply not only of gasoline, which
we are concerned about primarily here, out also of necessary fuel oil ?
It gets cold in my part of the country in the winter.
I was with an industry at Winsted, Minn., just 1 week ago today,
and the manager of that industry, which employs 600 people, told
me he had been within iy 2 days of being out of all heating oil last
winter. They already had closed off the natural gas and there was
no more propane available. He was down to iy 2 days of fuel oil when
the cold spell that had gripped us in December broke and they were
able, through emergency measures taken by the Governor and the
Civil Defense Agency of our State, in cooperation with the oil indus
try, to bring in fuel oil by truck from Calgary, in Alberta, down
through Saskatchewan into Minnesota, to relieve a critical fuel oil
situation. And last year turned into a very mild winter. Now, how are
we going to get enough gasoline or fuel oil in the coming winter even
if we have temperatures that are 10 degrees above what we ordinarily
have ? Have you been around our part of the country in winter ?
Mr. Card. Yes, indeed.
Chairman H umphrey . Y ou know it can be darned cold there in
the winter.
Mr. C ard. Let me say this, sir. I am relating this first to gasoline,
but other products, too.
Chairman H umphrey . Let me get it straight technologically. When
you produce more gasoline, you produce less fuel oil, is that the case?
18
Mr. Card. A percentage, yes. When you run a refinery to maximum
capacity on one product, it does limit what you make with the rest
of it.
Chairman H um phrey . So you are producing more gasoline in the
summer generally and less of the fuel oil ?
Mr. C ard. Yes, sir; this is true.
Chairman H um phrey . Then you try to tail it off, I mean trim it
off, the other way in the fall and the winter ?
Mr. C ard. Yes, sir. There is a point at which you would change to
maximum running of fuel oil, for example, in the heating season, and
gasoline in the summer season, in the peak driving period.
Chairman H um phrey . Address yourself, then, to my problem.
Mr. C ard. Yes, sir.
With regard to the system which I mentioned, fair and equitable
distribution of your available supplies, now, this is the underlying
basis which we follow. We keep in mind that there is a certain amount
available, and we operate throughout the country, and we endeavor
to distribute this to the customers in Minnesota on the same basis as
we distribute on the gulf coast or in New England or any other part
of the country, on the basis of what Texaco sold to its customers in
the prior year. This, we think, is the fair way to do it.
Chairman H um phrey . I agree that that is the fair way to do it.
Mr. Card. All right. Now, the problem is in getting more supply,
and the items which I have enumerated here for the short-term solu
tion, we think, are a way to have perhaps some additional supply and,
at the same time, to curtail this faster-tnan-normal growth rate in de
mand. This, we think, would be the logical approach to it.
Chairman H um phrey . Y ou mentioned, for example, taking off all
price controls, even though, as I indicated in my earlier statement,
price controls do not apply all the way across the industry. In fact,
insofar as the retail pricing is concerned, many of the gas stations, or
most of them, do not have a mandatory price control on them. You
said that we ought to take off those controls; is that correct ?
Mr. C ard. Yes, sir, I said that we had to have the opportunity to
have adequate prices in order to encourage greater supplies of gaso
line.
Chairman H um phrey . N ow, let us assume that we took off the con
trols this year. How long does it take to build a refinery ?
Mr. C ard. Well, I am not relating it, really, to building a refinery,
although that is a part of it. Now, the leadtime on building a refinery
today really depends on how long it takes to get the permits and the
impact statement.
Chairman H um phrey . Let us assume you get a permit, I thought
your suggestions on permits made lots of sense—I mean the necessity
of breaking through that legal network or jungle of restrictions and
license problems on location. Let us assume that you have a permit
now. A site permit.
Mr. C ard. I f you have the permit on location, it takes about 3 years.
Chairman H um phrey . About 3 years before a refinery could be
completed ?
Mr. Card. Yes, sir. This depends on things going pretty well.
Chairman H um phrey . N ow , is there a shortage of capital for con
struction of refineries?
19
Mr. C ard. The capital available for the petroleum industry, as you
know, much of it is acquired from outside, from borrowing, and it is
not coming from internally generated funds. Studies have shown that
about 75 percent is generated internally, and perhaps less now, and
the balance of it has to be provided from the financial institutions
available over the world. So this is true, and this is a very important
factor in obtaining the capital resources for all of the different activi
ties that go on in the petroleum industry. You mentioned the earn
ings figures. I would like to point out, sir, that you are looking at
figures on percentage increases over a low base in 1972. And this
really is not a proper gage of the well-being of the petroleum industry.
Also, consider the assets. What is the return on assets ? I have not
analyzed them yet, but I daresay if we look at the assets and the re
turn on these assets, you will find a far different picture from what
might appear on the surface from these increases.
Chairman H umphrey . Y ou get a 7^-percent investment tax credit
when you build a refinery, do you not ?
Mr. Card. The investment tax credit on refineries—I would have
to look at that to make sure it applies.
Chairman H u m p h r e y . That is the law, is it not? Seven and a half
or eight percent invesetment tax credit. Seven and a half percent.
Mr. C ard. I would have to look at it to make sure it applies.
Chairman H umphrey . Well, it applies. Also, you get fast writeoff
amortization, rapid amortization ?
Mr. C ard. The problem is not specifically related to building re
fineries, if we are permitted to build, to get the permits, and if we
have a source of crude oil to run them with, an assured source of
crude oil. And mind you, the former import control program did not
assure you of adequate supplies of crude oil. We are not really making
a point here of the capital requirements. That is a very important
point, mind you, and you have to have the prices adequate to justify
these investments. But today, as I have said in my statement, we need
to have a way to get the permits. Instead of spending iy 2 years to file
an impact statement and then not knowing whether you are going to
get the permit, we need a way to get them quickly. Some companies
have announced plans already to build refineries, and we are study
ing our situation. But today, we still have to go through this longdrawn-out procedure to get the permit.
The other important thing that I related to price controls had to
do with the importation of gasoline. I would just like to make this
point about the importation of gasoline today in the United States.
First of all, there is not a great amount available because of the fact
that overseas refineries are built to run a small percentage of gasoline.
In Europe, in fact, gasoline is less than 20 percent.
The next factor is the limitation on the fuel specifications for Amer
ican-made cars. And a third factor is that today, in Rotterdam, the
price of gasoline is considerably higher than can be recovered on
the U.S. east coast; in fact, it is somewhere between 5 and 10 cents
a gallon higher there than can be recovered under price controls on
the east coast of the United States.
Chairman H umphrey . The price of gasoline, as I recall—that is,
the price from the refinery to the wholesaler and to the retail outlet,
exclusive of the taxes which have been levied at State, local, and Fed
20
eral level—that price has been rather steady, has it not, over the
years, rather stable?
Mr. C ard. Mr. Chairman, it has fluctuated. It has fluctuated quite
a bit over the years. But there is one point that I must emphasize.
Gasoline, as well as other petroleum products in this country, has
been at bargain rates, and the American people simply must become
accustomed to the fact that this cheap energy is gone and it is not
going to return. This is the thing that I am insisting that the citizens
in his country must be brought to recognize. Because any way you look
at it, the era of these bargain rates on energy, particularly petroleum
energy, is gone.
Chairman H um phrey . Well, you are not trying to tell me that dur
ing this period that we got such a good deal on petroleum, the gas
companies and the petroleum companies were losing money, are you ?
It seems to me that they have had about as large an accumulation of
wealth and profits as any of the corporate structures that we have.
Mr. C ard. But the thing I am talking about, though, is the fact
that the availability, the abundant supply that we have had in the
past, has made low-cost energy possible. But today, the abundant
supply is gone and the cost factors in making supplies available to
meet the demand in this country, these cost factors are what is driving
prices up.
Chairman H um phrey . Are you referring, in other words, to the cost
increases of imported crude?
Mr. C ard. Cost increases in crude oil and cost increases in refinery
construction, cost increases in salaries and wages—every factor that
affects the economy inflationwise affects the cost of a gallon of gasoline.
Chairman H um phrey . Congressman Reuss.
Representative R euss. Thank you, Mr. Chairman.
Welcome, Mr. Card.
Mr. Card, in your testimony, you pointed out that there would be a
gasoline shortage in the summer, and you state: “Texaco will en
deavor to distribute its available supplies to our various customers on a
basis as fair and equitable as possible.”
Well, this weekend, I was talking to a fellow named Pete Rasmus
sen, who runs the Texaco station in the town of Marton, Waukesha
County, Wis., at the junction of Highway 74 and Highway 88, who
told me that the day before, he had received notice from his Texaco
distributor in Germantown—that is Washington County, Wis.—that
he was being cut back to his 1972 level. But his 1972 level was a
bankruptcy level for him, because he was sick that summer and could
not pump any gas, so that he used almost none during the three
heaviest selling months of the year. In the interest of fairness and
equitability, what can you do for Pete?
Mr. C ard. All right, sir. I will be glad to talk to him.
Chairman H um phrey . By the way, I should interrupt to say this
is the kind of information we Senators and Congressmen get when
we are home. None of this general stuff, you know.
Mr. C ard. W e get some of that, too.
I will be glad to comment on this. First of all, Texaco has a con
siderable number of branded Texaco distributors.
Representative R euss. He was not your own outlet. He was an
independent branded distributor.
21
Mr. Card. Texaco supplies this branded distributor. Our working
arrangement is with that distributor, who has been told that his
supply will be equal to his 1972 supply.
Representative R euss. But, surely, you could exercise some lever
age on him to see that he tempers justice with mercy.
Mr. C ard. N o, sir, we cannot. We would not undertake to. This
is his business. We have a sales arrangement with him and we have
told him what his supply would be—I am not speaking of that par
ticular distributor. Our policy with regard to distributor supplies,
and this has gone out, is to supply them the same quantity that they
received last year.
Now, we expect to do the same thing, though, with directly sup
plied Texaco retailers. So I know what you are talking about, and
there are some situations that will require looking at the overall
supply and how it can be equitably handled. There could be cases
where distributors will wish to look at that, just as everyone will
have to look at any peculiar or particular situation.
Representative R euss. Well, do I understand that with your own
Texaco dealers—that is to say, not independent dealers, but your
own----Mr. C ard. Yes, sir.
Representative R euss. That in a case like this, you would put him
out of business, you would not take account of the fact that he had
been sick all the summer of 1972 ?
Mr. C ard. Well, you speak of independent dealers. All of our re
tailers are independent service station operators, branded—you are
speaking of the branded ones ?
Representative R euss. Yes.
Mr. C ard. They are expecting to get, and our program will call
for them to have the amount in 1973 that they had in 1972. Now,
month by month----Representative R euss. Are you going to apply that so as to put out
of business someone whose only sin was that he happened to be sick
in the summer of 1972 ?
Mr. C ard. It will not put him out of business.
Representative R euss. If he does not get any gasoline, it sure will
put him out of business.
Mr. Card. A s I have said, we will distribute on a fair and equitable
basis in these particular individual circumstances, just the same as a
sensitive account—for example, a fire department, an ambulance serv
ice or any customer of this kind—we are very sensitive to supplying
those. This is in fair and due consideration of the public welfare. Cer
tainly, our policy calls for supplying those and we certainly intend
to. And we will look at every individual hardship case as we have done
in the past heating season, and we have gone through this----Representative R euss. But in a case such as I have put, where a man,
due to his illness last summer, was unable to operate his business as
normal, and hence in 1972 had a very low base-period sales level, do
you consider it fair and equitable to bankrupt him by not delivering
the gasoline which his normal pattern would have required ?
Mr. Card. Well, let me explain. Our policy is to handle this on a
fair and equitable basis.
Representative R euss. I am trying to define what that means.
22
Mr. C ard. When we have those kinds of cases, we will certainly be
glad to consider the individual circumstances and then determine
what the extent of the emergency is and then come up with a system
that will treat our retailers fair and equitably.
Now, what the distributor does, it will be his judgment of what is
fair and equitable in his case. We cannot tell him what is fair and
equitable in his case.
Representative R euss. So what you are saying is that while your
own retail distributors will be treated fairly and equitably, those who
receive their Texaco supplies through an independent wholesale dis
tributor will have no such guarantee from Texaco to fairness and
equitability of distribution?
Mr. C ard. We will distribute to that distributor----Representative R euss. I wish you would just give me a straight
answer to that.
Mr. C ard. We cannot guarantee what will be the situation with
regard to that retailer served by that distributor, because that relation
ship, sir, is between that retailer and that distributor. Their contrac
tual relationship is between them, not with the retailer to Texaco.
Representative R euss. Leaving aside the witty diversities of the
law of contract, can you not tell your distributor that, if he fails
consistently to behave in a manner that is fair and equitable, you
will get yourself a different distributor who will ?
Mr. C ard. Sir; this is a matter that we have looked at very care
fully, and our relations with our distributors are very clear cut.
We handle them in line with a contractual arrangement, and we do
not violate what is permitted. We realize that these are businessmen
who make their own determinations, and it must be that way.
Representative R euss. Your answer, in short, is no ?
Mr. C ard. N o, sir, we cannot dictate to that distributor how he will
carry on his business with his retailer.
Representative R euss. Turning briefly to another subject, you list
the various reason in your statement for the current shortage of
gasoline.
Mr. C ard. Yes, sir.
Representative R euss. Y ou say, second, taxing policies have taken
away capital resources required to carry out the exploration programs
necessary to provide additional crude oil supplies.
Now, is it not a fact, as the Internal Revenue Service informs me,
that Texaco, in the last year for which we have figures, 1971, paid into
the Treasury only 2.3 percent of its before-tax profits in U.S. income
taxes, whereas the average corporation paid some 40 percent, about
20 times as much ?
Mr. C ard. Well----Representative R euss. Just let us get the facts straight, first. Is
that not a correct statement on my part ?
Mr. C ard. This is a complex and broad field.
Representative R euss. Perhaps counsel can refresh your recollec
tion.
Mr. C ard. Let me give you the complete picture.
Representative R euss. Just give me the 1971 figures. What were
your profits before taxes, and what percentage did you pay to the
Federal Government in income taxes ?
23
Mr. C ard. These are—you have to look at the total picture. The tax
burden of Texaco accounts for the bulk of its net income before
taxes; and the direct taxes on operation, excluding income taxes, in
1971 amounted to $1,187 million. And income taxes, $938 million.
In 1971, the net income after taxes was $904 million, and the income
taxes were $938 million. This is the tax burden of Texaco.
The direct taxes and income taxes amounted to 70.2 percent, and
the net income was $904 million in 1971.
Representative R euss. Y ou keep bringing in direct taxes.
Mr. Card. Y ou have to look at the whole picture, sir.
Representative R euss. I am all for looking at the whole picture,
but my question had to do with your Federal income tax.
Let us let it go this way: If you find that my assertion, which de
rives from the Internal Revenue Service figures, that in 1971, Tex
aco paid only 2.3 percent of its before-tax profits in U.S. income
taxes, if you find that this is incorrect, please set forth wherein it is
incorrect when you correct your testimony ?
Mr. C ard. Sir, we have the whole picture, and I have a booklet
prepared on this that is very enlightening. I would be glad to leave
a copy for you or for the record.
Representative R euss. I appreciate that and also, as I say, when
you corrct your testimony, if you find that you paid more than 2.3
percent of your before-tax profits in income taxes, indicate how you
did that.
[The above referred to information follows:]
24
Energy and the Need for Tax Incentives
Energy is takenfor granted until it begins
to run short
oday available energy resources are running
short of foreseeable demand in the United
States. This shortage is expected to worsen.
Vet with singular untimeliness many persons in and
dut of government are urging the removal or reduc
tion of tax incentives that are vital to supplying
energy demand.
Proposed changes in the tax laws would handicap
the petroleum industry in its efforts to check the de
cline in available oil and gas reserves and to reverse
the trend. These proposals would eliminate or mate
rially reduce tax incentives that are vitally important
—not only to the oil industry but equally to the sus
tained economic growth and national security of the
United States.
The purpose of this booklet is to explain the key
tax incentives and to review the role they have played
—and hopefully will continue to play—in the dis
covery and development of petroleum supplies and,
indeed, in our nation’s well-being.
T
An overview
or over half a century our tax laws have pro
vided special incentives to encourage the dis
covery and development of oil and gas reserves.
The percentage depletion deduction is designed to
permit the discoverer of an oil or gas deposit to re
cover, tax-free, an amount representing the capital
value of each barrel of oil or cubic foot of gas taken
out of the ground, since his irreplaceable oil or gas
reserves ar? being depleted. It applies only to pro
ducing operations.
In addition, the oilman is permitted to write off
most of the expenses incurred in drilling an oil or gas
well through the current expensing of intangible
drilling and development costs.
Both of these provisions have facilitated the internal
generation of the bulk of the vast amounts of money
needed to finance the continued exploration for and
the development of new oil and gas reserves.
F
Moreover, our tax laws have long contained pro
visions designed to preclude the double taxation—at
home and abroad—of income earned abroad by
United States citizens or enterprises. These provisions
apply to all taxpayers, not only to the oil industry.
Without such provisions, it would not be possible for
U.S. oil companies to compete abroad with foreigncontrolled businesses in finding and developing
petroleum reserves.
More recently, U.S. tax laws have provided for
accelerated depreciation of new plant and equipment
and for an investment tax credit as to certain of these
facilities. These provisions encourage the moderniza
tion and expansion of our domestic industrial plant.
They also make capital cost recovery allowances in
the United States more competitive with those of
other nations.
All of these incentives have helped the petroleum
industry provide our country with more than three
fourths of its total energy requirements.
Present tax incentives
Percentage depletion is an income tax deduction ex
plicitly provided for in the law. It recognizes that
an oilman's barrel of oil is his capital and merchan
dise rolled into one. When he sells it, he sells away
part of his capital. His ordinary income is taxable
like anyone’s. But if his capital also were taxed, he
would soon be out of business. Percentage depletion
prevents his capital from being taxed.
It is important to remember that percentage de
pletion does not apply to all of an oilman’s incom eonly to income from production. Income from re
fining or product sales is not affected.
Percentage depletion permits an oilman, in the cal
culation of his income tax, to deduct 22 percent of the
gross income from each producing property, but not
in excess of 50 percent of the net income from the
property. Similar deductions of 22 percent are allowed
for the production of sulphur, uranium, and 39 other
specified minerals, while still other minerals with
lower exploration and development costs have rates
of 15,14,10, 7.5, and 5 percent. Congress, in enacting
25
these provisions, recognized that the barrel of oil or
other mineral in the ground represents the producer’s
capital and that, when he sells it, he is selling a part
Of his capital.
In 1969, Congress reduced the depletion rate for
oil and gas from 27.5 percent to 22 percent. It also
added a 10-percent “minimum tax” on so-called tax
preference items that include the percentage deple
tion deduction. This minimum tax provision further
reduces the effective oil depletion rate to approxi
mately 18 percent and is a {/«incentive to investment
in the petroleum industry.
Intangible drilling and development costs are expenses
incurred in drilling oil and gas wells and can be de
ducted currently by the oilman for tax purposes.
They represent primarily wages and, in addition,
fuel, repairs, supplies, and hauling necessary in the
drilling of a well, none of which has any salvage
value. These expenses constitute approximately 75
percent of the cost of a well. The remaining 25 per
cent, representing tangible costs, are treated as capi
tal investments and are recovered through annual
depreciation charges for tax purposes.
The foreign tax credit provisions were adopted more
than half a century ago and apply not only to the
petroleum industry but to all taxpayers with foreign
income. These provisions permit U.S. taxpayers to
reduce their U.S. income taxes otherwise payable
on income earned abroad by the amount of foreign
taxes paid to the host governments on the same in
come. Since the U.S. government taxes the world
wide income of its citizens, the purpose of Congress
in enacting the foreign tax credit provisions was to
avoid subjecting the same income to double taxation
—first in the foreign country where the income was
earned and again in the U.S.
Capital cost recovery allowances, usually called de
preciation, were recently liberalized and now provide
important tax incentives not just for the petroleum
industry but for all industry. Under these provisions,
taxpayers may recover an asset’s cost over a shorter
economic life, thus permitting faster internal genera
tion of cash for replacement of assets.
The investment tax credit allows taxpayers up to 7
percent of the cost of machinery and equipment as a
credit against U.S. income tax liability. This provi
sion generates cash flow and encourages businesses
to modernize and expand plant and equipment.
How these incentives have worked
in practice
Ior some 50 years percentage depletion and the
intangible drilling deduction have acted as in
centives in encouraging the exploration for and
development of our oil and gas reserves.
At present, more than 75 percent of our nation’s
energy comes from oil and natural gas. It is no co
incidence that our personal mobility and our indus
trial strength are unmatched anywhere. All this has
been achieved largely because of the success that oil
men have had in their search for petroleum re
serves. It has been a search full of risk, and one of
the important aspects of our tax policy is the encour
agement it gives oilmen to keep up their search
despite the risks.
Oil is a business and every oilman hopes to make a
reasonable profit. But it is a high-risk business involv
ing huge investments. No one has yet found a way to
make looking for oil anything like a sure thing.
When a wildcatter drills a well hoping to discover a
new field, his chance of finding any oil or gas at all is
only one in ten. His chance of finding a new field
large enough to be considered a commercial success
is about one in 60.
Those wildcatters who have made fortunes in oil—
just as individuals have made fortunes in other in
dustries—did not become wealthy because of per
centage depletion and the intangible drilling deduc
tion. They did so because, risking their own capital
and facing great odds, they discovered valuable
oil resources.
About 18,000 fewer wells were drilled in the United
States in 1971 than in 1962, a drop of more than 40
percent (see Chart 1 on following page). One of the
major factors that influenced this decline was the
growing cost of exploration and development—a
F
26
Chart 1
Total Wells Drilled in U.S.
Are Declining
(Wildcat and development wells, excluding service wells)
50.000_______________________________________________
1962
-64
'66
’6«
*69 .
’70
'71
Source: American Petroleum Institute
American-owned oil companies also have substan
tial investments in oil operations in other countries,
which are becoming increasingly important because
of our impending energy shortage. Today, Americanowned companies produce approximately 17 million
barrels a day of petroleum liquids abroad, compared
with total U.S. production of 11.3 million barrels a
day. At present this production abroad is mainly
transported to other countries, where it is refined and
marketed in U.S.-owned refineries and distribution
facilities. Some of this production abroad is also
imported into the U.S. to make up the shortages in
our domestic production. Currently crude oil and
product imports amount to about 4.6 million barrels
a day, or 29 percent of the total U.S. demand of 16
million barrels a day.
U.S. tax policies so far have enabled the privately
owned American petroleum companies to develop
foreign oil reserves and to compete in world markets
with foreign-owned companies—some of which are
controlled, wholly or partially, by foreign govemChart 2
cost that now runs at about $5 billion annually. Further
more, the 1969 Tax Reform Act contributed to this
decline by adding more than $600 million to the oil
industry’s 1970 tax bill.
Proved oil reserves in the United States, which
amounted in 1962 to 12.8 times annual production,
had declined by 1971 to only 8.9 times annual produc
tion, excluding reserves on the North Slope of Alaska
that a^e not yet accessible (see Chart 2). Even if these
reserves on the North Slope were included, the ratio
would have been only 11.3 in 1971.
Besides encouraging the exploration for and de
velopment of new reserves, our present domestic
tax policy plays an important role in developing
presently known reserves because of the incentive
it provides for the use of secondary recovery tech
niques to recover more oil from existing wells. These
methods — such as injecting gas, water, or sol
vent into producing reservoirs —are of tremen
dous importance in obtaining maximum recovery of
known reserves.
Ratio of U.S. Reserves to Production
Is Declining
(Crude oil and natural gas liquids)
S 3 North Slope of Alaska
■ I Excluding North Slope of Alaska
1962
*63
’64
’65
’66
’67
’68
’69
*70
*71
Source: American Petroleum Institute and American Gas Association
27
Chart 3
Domestic Sources Are Expected
To Supply a Smaller Percentage o!
U.S. Petroleum Demand
(Million barrels par day)
1970
1975
1980
1985
Source: National Petroleum C ouncil--U.S. Energy Outlook, Nov. 1971
ments. The investment abroad by American petro
leum companies is a major contributor to the U.S.
balance of payments. In 1970, the inflow from over
seas petroleum investments exceeded direct invest
ment outflow by S1.3 billion.
The increased use of energy in this country has
been the hallmark of our rising standard of living.
The automobiles we drive, the trucks and buses nec
essary for our daily life, and indeed all forms of
transportation developed since the horse-and-buggy
days are dependent on energy resources. One of the
largest uses of energy is in generating electricity to
provide light, heat, and power for our homes, offi
ces, and factories. An abundant supply of energy,
particularly petroleum, has proved essential to our
national security.
But soaring demand is outstripping our domestic
energy resources. The per-capita use of energy has
increased almost 50 percent in the past 15 years. The
best estimates are that it will increase at an even more
rapid rate in the next 15 years.
99-740 0 — 73-
-3
By 1985, U.S. petroleum demand is expected to
reach 26 million barrels per day, a sharp increase of
62 percent over the 1972 level. Assuming no change
in present tax and energy policies, oil imports are
expected to supply over half the projected U.S. de
mand in 1985 (see Chart 3).
American dependence on imports of oil from
abroad for such a large proportion of our vital petro
leum demand raises serious questions concerning
our economic strength and indeed our national
security. The United States must not become unduly
dependent on foreign oil.
Providing our future energy requirements will
necessitate enormous amounts of capital. The Chase
Manhattan Bank estimates that, just to maintain the
present ratio of domestic production to domestic
demand, it would be necessary during the period
1970*1985 to spend $140 billion in the search for and
development of oil and gas supplies within the United
States. This projected expenditure is twice the amount
that was spent in the previous 15 years. It does not
take into account any inflation.
For the U.S. oil industry to meet the great chal
lenge of maintaining adequate supplies of domestic
petroleum, our Government must adopt a sound
energy policy. This policy should include tax pro
visions that will provide continuing incentives for
the development of our natural resources.
Some misconceptions
he true situation regarding the necessity for
tax incentives in the oil industry is some
times clouded by inaccurate or misleading
statements as to the amount of taxes paid by the oil
industry and as to the amount of profits earned by
the industry.
T
The Oil Industry's Tax Burden: With the tax incen
tives and capital cost recovery allowances provided
under the Federal tax laws, does the domestic pe
troleum industry bear its fair share of our nation’s
tax burdens?
The answer is an unqualified yes. The petroleum
industry paid about S3.5 billion in Federal, state, and
28
Chart 4
The Petroleum Industry
Bears a Fair Tax Bürden
Total Taxes
(including Sales & Excise Taxes)
(Year 1969)
20 cents
per dollar of
gross revenue
JS
Direct Taxes
(Years 1960-1969)
Source: Petroleum Industry Research Foundation, Inc.
local taxes in 1970 (the most recent year for which
complete data are available). These direct payments
do not include sales or excise taxes on petroleum
products. According to the Petroleum Industry
Research Foundation, Inc., the oil industry pays in
taxes, excludingsalesandexcise taxes, a higher percentage
of its gross revenue than the average for all other
U.S. business corporations (see Chart 4). This state
ment is true for the average of the most recent ten
years (1960-1969) for which comparable data are avail
able, with the petroleum industry paying 5.4 cents per
dollar of gross revenue compared with 4.6 cents per
dollar for all other business corporations. This state
ment is equally true for every year during this tenyear period.
If excise and sales taxes were included in the petro
leum industry’stax bill, the total taxes paid to domestic
governments would be 20 cents per dollar of gross
revenue, or over three times more than the total
tax burden of U.S. corporate businesses as a whole.
A financial analysis by The Chase Manhattan Bank
of 30 oil companies, constituting the major proportion
of the petroleum industry in the free world, shows
that the industry’s worldwide taxes are rising much
faster than its net income. In the past three years,
annual taxes of these ?9 companies increased by
$5.6 billion, or 76 percent. In the same period profits
rose by littlemore than $500million, or only 9 percent.
It must be remembered that oil company opera
tions are not limited to the U.S. Most of the American
companies are international in scope and they pay
taxes wherever they operate. Misleading data inserted
into the Congressional Record on October 27,1971, in
dicated that 19 large oil companies paid only 8.7 per
cent of their net income in Federal income taxes in
1970.'Similar statements have been made at other
times in various publications.
Such statements are grossly misleading, since
they relate U.S. income taxes to worldwide income
without regard to the foreign income taxes paid on
foreign income. When properly related, the 1970 tax
data of 18 major oil companies (including 17 of the
19 cited in this statement), as compiled by Price,
Waterhouse & Co., show that U.S. and foreign income
taxes for the year in question together amounted to
46 percent of worldwide net income before such taxes.
The U.S. income tax alone, as a percentage of U.S.
net income, amounted to 21.8 percent, or two and a
half times the indicated 8.7 percent rate.
Texaco's Tax Burden: Texaco’s tax burden follows the
same essential pattern as the industry’s. Either
directly or through subsidiaries and affiliates, Texaco
conducts operations in every state of the United
States and in virtually every country in the free world.
It pays taxes in all of these jurisdictions. Direct taxes
—all taxes charged against worldwide gross income in
arriving at net profit—paid by Texaco and its subsid
iaries, including its equity share of taxes paid by affili
ates, during the past two years are shown on Chart 5.
As indicated in the chart, Texaco’s net income
after taxes was $822 million in 1970 and $904 million
in 1971. These figures amounted to 33.4 percent and
29.8 percent, respectively, of net income before taxes.
29
In other words, all direct taxes amounted to 66.6
percent in 1970 and a staggering 70.2 percent in 1971
of worldwide net income before such taxes. These
taxes, which include Texaco’s equity in affiliates, in
cluded 582 million in Federal income taxes in 1970
and $38 million in 1971, but such Federal income
taxes constituted just one part of the total tax burden
on the Company.
These direct taxes were exclusive of products
taxes collected from consumers and paid to govern
ments. Such products taxes amounted to $1.4 bil
lion in 1970 and $1.7 billion in 1971.
If both direct and products taxes are combined,
Texaco’s worldwide operations, including its sub
sidiaries and its equity in affiliates, generated total
revenues of $3.1 billion and $3.8 billion in 1970 and
1971, respectively, for all governments.
In 1971 alone, the huge tax burden of $3.8 bil
lion was four times Texaco’s net income for the same
year; or more than four times the amount of wages
and benefits paid to employes; or nearly nine times
Chart 5
Texaco’s Tax Burden
Accounts for the Bulk of
Its Net Income Before Taxes
(Millions of dollars)
the total dividends paid to Texaco stockholders.
Moreover, this amount does not include the income
taxes paid by Texaco’s stockholders on dividends of
$436 million distributed during that year.
It is obvious that Texaco as a leading worldwide
producer, refiner, and marketer of petroleum and its
products bears a heavy tax burden—more than 70
percent of net income before direct taxes in 1971.
Contrary to the common misconception that oil in
dustry taxes paid to certain foreign governments
are merely royalties, there is a clear-cut distinction
between royalties and taxes. Royalties are normally
paid by petroleum producers in this country to the
landowner, whether the owner is a government or an
individual, on the basis of oil produced. It is common
practice to require similar payments in most parts
of the world. Texaco’s tax payments to governments
do not include oil and gas royalties paid to govern
ments and individuals, both at home and abroad. In
the years 1970 and 1971, including subsidiaries and
equity in affiliates, Texaco paid royalties in accord
ance with lease terms or concession agreements
amounting to $366 million and $425 million, respec
tively, in addition to its tax payments.
Furthermore, Texaco’s tax and royalty payments
do not include bonus payments to governments and
other landowners to obtain oil and gas leases, such as
the substantial sums paid in recent years to Federal
and State Governments in lease sales in the Gulf of
Mexico and other areas.
The Oil Industry’s Profits: Contrary to popular belief,
the oil industry’s profits are not excessive. The
true measure of any company’s profits is its rate of
return on investment. The petroleum industry’s
average rate of return on net assets for the ten-year
period 1962-1971 was only 11.8 percent, compared with
an average of 12.2 percent for all manufacturing in
dustries, according to statistics compiled by the First
National City Bank of New York. Furthermore, in
seven of the most recent ten years, the rate of return
for the petroleum industry has been lower than that
for all manufacturing (see Chart 6 on following page).
The petroleum industry must maintain a rate of
30
Chart 6
Rate of Return in Petroleum Industry
Has Lagged Behind All Manufacturing
in Seven Out of Last Ten Years
16%__________________
All Manufacturing
1962 ’63
’64
’65
’66
’67
'68
Source: First National City Bank of New York
'69
’70
’71
ieiura llta't compares favorably with business gener
ally, if it is to generate and attract the vast sums of
investment capital needed to find and develop oil
and gas reserves. Our nation’s sharply escalating de
mand for petroleum products must be met without
undue reliance on foreign sources of supply. As in
any other business, direct or indirect increases in
taxes would constitute an added cost of doing busi
ness. Any such increases in petroleum taxes would
adversely affect the industry’s rate of return.
Such increases would impair the industry’s ability
to generate and attract the capital needed for petro
leum exploration and development, and would
undermine the industry’s capacity to meet our nation’s
energy requirements.
Why tax incentives are necessary
—a summation
After some 50 years, the percentage depletion deduction, the expensing of intangible drillJL J L ing costs, and the foreign income tax credit
provisions are basic to the economic viability of the
petroleum industry. They bear so directly on the
industry’s ability to provide necessary products for
its customers (who include virtually all other in
dustries) that any significant change in their basic
structure would cause serious economic disruptions
in the United States. Likewise, any significant change
in the more recent provisions for capital cost recov
ery and investment tax credit would adversely affect
the industry’s ability to finance its necessary capital
investments.
The industry experienced a serious setback follow
ing the Tax Reform Act of 1969. That Act, by reduc
ing percentage depletion, imposing an additional
10-percent “minimum tax” on depletion deductions,
and eliminating the investment credit, added $600
million to the petroleum industry’s 1970 tax burden.
This drain on the industry’s available capital, which
has since been mitigated somewhat by reinstatement
oftheinvestmentcredit,contributed to the precipitous
20-percent drop in the number of oil and gas wells
drilled in 1971 as compared with 1969.
In the years ahead, vast amounts of c?.pit?J will be
needed to find and develop the reserves required to
satisfy mounting energy demands. Existing tax in
centives, capital recovery provisions, and profit
margins will permit only the partial internal genera
tion of these funds. The external capital markets will
provide the additional sums needed at reasonable
rates only if prices and profitability are at satisfactory
levels. Disincentives to investment in the petroleum
industry that were added by the 1969 Tax Reform
Act—particularly the treatment of the depletion de
duction as a tax preference item subject to the 10percent “minimum tax” —should be removed.
What are needed are enhanced tax and other economic
incentives in order that the petroleum industry may gen
erate and attract the investment capital that will be re
quired to satisfy our nation’s vital energy demands.
31
Representative R euss. Let me turn now to another reason you give
for the gasoline shortage: “First, import policies in the past have
made it difficult to import adequate supplies of crude oil and gasoline
from abroad.”
Mr. C ard. Right.
Representative R euss. I s it not a fact that Texaco supported those
import policies?
Mr. C ard. N o, sir.
Representative R euss. Did you object to the import quota system ?
Mr. C ard. Yes, sir, we have consistently and continuously objected
to the sliding scale import program that we had in the past. This is a
factor, this is a very important factor, in building refinery capacity
without assurances of the supply of crude oil. It is still a factor, in
fact.
You must have a supply of crude oil before you invest in a refinery.
You must know where you will get the crude oil. This has been a fac
tor that has brought about the situation that we are in today, the
former import control policy.
Representative R euss. Y ou objected to any and all controls on
imports, not just the sliding scale import control program?
Mr. C ard. We particularly objected to the sliding scale.
Representative R euss. Did you object to other forms of import
controls?
Mr. C ard. In former years, the import control program served a
useful purpose, in our judgment, there is no question about that. As
such, we felt for many years that an import control program was
needed. However, the way that it was administered and the so-called
regulation as it affected the import controls and the amount to be
imported, and they way it was handled, we objected to that.
Representative R euss. When did you start objecting to that phase
of the import control question ?
Mr. C ard. T o this phase ?
Representative R euss. Yes, sir.
Mr. C ard. Almost from the very beginning.
Representative R euss. When did it begin ?
Mr. C ard. In 1959. But as far as the import control program itself
was concerned, we felt that an import control program was needed in
former years.
Representative R euss. D o you think it is needed now ?
Mr. C ard. No, sir.
Representative R euss. When did you start concluding that it was no
longer needed ?
Mr. C ard. A s the tight supply situation developed. The availability
of crude oil in this country, you see, has decreased and the produc
tion has peaked out and is now declining. There is an entirely different
set of circumstances today as compared with those that existed in
former years.
Representative R euss. In what year did Texaco change its policy
of generally approving import quotas to disapproving them?
Mr. C ard. Well, as we saw the production change in this country,
the implications for future production, the necessity to import more
from abroad to supply the needs in this country. I would say that
this probably came about in, probably 1972.
32
Representative R euss. Thank you very much, Mr. Chairman.
Chairman H um phrey . Mr. Card, just a couple more questions.
Mr. C ard. Yes, sir.
Chairman H um phrey . It has been stated that the demand and
supply of gasoline are rather inflexible. I mean that they do not
fluctuate with great peaks and valleys. There is at best or worst a
slight change one way or another. That is especially so in the short
run, let us say over a period of 1 to 2 years, a short period of time.
You have indicated that to take off controls is one way of alleviating
the shortage. You have put emphasis on that because you feel that
presently the price structure does not encourage expansion of re
fineries.
Mr. C ard. Importation of products, importation of gasoline.
Chairman H um phrey . H ow high do you think the price would have
to go?
Mr. C ard. Sir, I ----Chairman H um phrey . In order to encourage the importation of
gasoline and as one factor in the encouragement of refinery con
struction ?
Mr. C ard. Well, first, I would not predict what prices will do. But
then, as I say that, I would also go back to my statement on the
prices of gasoline in Rotterdam as compared with the prices delivered
on the east coast of the United States and the resale prices allowed
under the controls. Now, this today is—it depends on the grade of
gasoline and other factors—but it is a minimum of 5 cents’ differ
ence, and it is probably somewhere between 5 and 10 cents’ difference.
Now, as to what it will take, certainly I do not think that many
people would be encouraged to buy gasoline in Rotterdam and import
it to the east coast of the United States, in order to recover, because
of price controls, 5 cents or more a gallon less than what they paid
for it. In fact, you would go broke doing that. This is something
that many companies in this country would not even think of.
So what I am saying is that I do not think, under price control
as we have it today, that importation of gasoline will be encouraged.
Chairman H um phrey . H ow much gasoline could you import if you
took off all controls?
Mr. Card. Well, this is another factor. It is limited. It is difficult
to say how much there is: we are in the process of evaluating this
now, and so, I am sure, are many other people. But we do know that
refineries outside of the United States are constructed to run a different
yield of gasoline. As I mentioned, in Europe, they produce under 20percent gasoline, whereas in this country we get over 40 percent.
Chairman H um phrey . Yes.
Mr. C ard. And their demand is growing abroad, too. So we know
that the amount that can be imported under the best of conditions is
small.
Then you have this specification problem, and we are not sure how
fast they can change their capability to meet U.S. automobile specifica
tions. This is a factor we do not know at the moment.
Then the other thing is that we do not know how to foresee the
price fluctuations in Europe. Today we know it is higher, substantially
higher.
33
So I cannot tell you. I would not want to give you a number because
there are so many things that really have to be very carefully analyzed
before we will know how much can be imported.
I do not think, though, it is going to be a great amount.
Chairman H umphrey . In other words, it would not be an amount
that would significantly affect the supply situation in the States?
Mr. C ard. It will help. It will definitely help, and we need every
little bit of help we can get.
Chairman H um phrey . Is it not a fact that the major American
oil companies are primarily responsible for the price of gasoline in
Europe?
Mr. C ard. Sir, the price of gasoline in Europe is controlled to a
great extent there.
Chairman H umphrey . By whom ?
Mr. C ard. It is controlled by the governments. In many countries
in Europe, it is controlled by the governments.
Chairman H um phrey . Let me put it another way, then. Can you re
fine gasoline in Europe as cheaply as you can in the United States ?
Mr. C ard. The refining cost ?
Chairman H um phrey . Yes.
Mr. C ard. It is comparable.
Chairman H um phrey . It ought to be. Labor costs are less.
Mr. C ard. This is changing, sir.
Chairman H um phrey . I know, but it is still less. I always hear one
of the reasons things are higher is because of labor costs. Labor costs
are not as high, for example, in Italy ?
Mr. C ard. It is changing and has changed in the last 2 years. In
flation has been substantial in those countries.
Chairman Humphrey. I s it not a fact in all fairness that labor
costs are considerably less in some countries?
Mr. C ard. I think they are in some countries. However, in Scan
dinavia, for example, the situation is different.
Chairman Humphrey. I s it not a fact also that the oil most Euro
pean countries get is imported oil from the same source as ours, the
Middle East?
Mr. C ard. The Middle East supplies substantial amounts of it. Of
course, some of the North Sea production will be coming on.
Chairman H umphrey . But most of it is Middle East.
Mr. C ard. A big part of it is Middle East.
Chairman H um phrey . And is it not a fact that the price they pay is
the same price we pay, per barrel ?
Mr. C ard. Well, you are getting into a whole area of economics that
would have to be analyzed. The fact of the matter is that in Rotterdam
the prices are higher regardless of the economics, and we do not con
trol those. The price today is what it is, and it is a fact of life. There
is no way that this can be changed, that we can change it. We have to
reckon with it. This is the price that the owners of that gasoline ask,
and I can tell you it would not be our gasoline, it would be gasoline
that we would have to buy. Just as we bought over 6 million barrels
of No. 2 heating oil. It was not our heating oil that we imported from
Europe during the January and February period. We bought this
heating oil from other people who had it available and imported it
to the east coast of the United States and sold it for substantially less
34
than we paid for it. This was done in that case in order to meet a
shortfall. You mentioned Minnesota. We have many places on the
east coast that had similar situations.
Chairman H um phrey . Yes, sir.
Mr. Card. So we did everything in our power to help alleviate the
situation and intend to do so in the case of gasoline.
Chairman H um phrey . H ow high do you think gasoline prices will
go?
Mr. Card. Sir, I would not predict.
Chairman H um phrey . What is your estimate ?
Mr. C ard. I would not predict what the price will be.
Chairman H um phrey . Are they going up ?
Mr. C ard. I would think there would have to be adequate levels to
justify those actions required to make it available. Now, I realize this
is indefinite, but I will not predict what the price of gasoline will
be—I cannot, in fact, because there are so many factors. Price controls,
for one thing.
Chairman H um phrey . Let us take your argument, price controls
off. What do you think will happen to the price of gasoline if we
follow your formula? And I am being very serious with you. You
know, there is always merit to every man’s argument. You would
not make the argument if you did not believe it.
Mr. Card. That is true.
Chairman H um phrey . I certainly do not reject your argument out
of hand. I would just like to know what you estimate the price of
gasoline will be for the average car owner in the United States that
uses regular gas, not super but just the regular gasoline I use in my
LeSabre Buick. I got a plug in there for Buick.
Mr. C ard. I do not think it will be quite as high as I see in the
various publications. However, I have said already that the price of
gasoline purchased in Europe for importation into the United States
is between 5 and 10 cents a gallon higher than we can recover on the
east coast of the United States today. So that is just the comparison
of the cost. It does not include expenses associated with bringing that
to the customer. You have other factors to add onto that. So, as to
what these all amount to, I think you can draw the conclusion that it
would certainly be something above what I have indicated to you
here on this increment of gasoline.
Chairman H um phrey . I did not understand what you indicated. I
want to tell you, Mr. Card, you are pretty good. I have not been able
to pin you down yet.
Mr. C ard. I indicated between 5 and 10 cents a gallon differential
m the landed cost.
Chairman H um phrey . Yes, sir. Then we still have transportation.
Mr. Card. Than you have transportation, marketing expenses, and
other costs associated with it. I am really not an accountant. I do not
have all those at my fingertips here.
Chairman H um phrey . Y ou are doing well not to give me a slight
headache here on the price business.
Mr. C ard. But to tell you what they would be, in all honesty it would
not be fair or proper for me to indicate to you on behalf of my com
pany what I think these prices would be. I have tried to lay out some
of the complicating factors and some of the facts that we are facing,
35
and certainly, we are interested and dedicated to doing everything we
can. This is a very serious situation. We want to do everything we can.
Chairman H u m p h r e y . All right, now, we take off all the controls.
For a minute let us just asume that. Would that meet the demand
situation?
Mr. C ard. N o, sir, it would not.
Chairman H u m p h r e y . And if we took them off, price would go up?
Mr. C ard. In all likelihood, the price of gasoline would go up. In
fact, I think that it would have to go up to justify all of the actions
required to make the supply available.
Chairman H um phrey . N ow , we come back to just a quick one on this
matter of refinery capacity.
Mr. C ard. Yes, sir.
Chairman H um phrey . Y ou said 75 percent internal financing of
investment.
Mr. Card. That is an estimate.
Chairman H um phrey . That leaves you picking up 25 percent capital
elsewhere.
Mr. C ard. On long-term borrowing.
Chairman H u m p h r e y . Is that not a remarkably good ratio for an in
dustry, to have 75 percent internal financing ?
Mr. C ard. This is what it was some years back. I have not seen the
1972 figures yet. Now, the Chase Manhattan Bank in New York, as you
know, compiles these figures annually and I have not seen them yet.
But this amount, Mr. Chairman, is increasing each year—the amount
that is required to be financed from outside.
No, I do not think it is a good record.
Chairman H um phrey . I think it is pretty good. I do not mean to
direct my questions strictly toward the Texaco Co.
Mr. C ard. I appreciate that.
Chairman H u m p h r e y . Because as I said in my statement, I think
you have been trying to handle your distribution problem on alloca
tion in a fair and responsible manner and I appreciate it very, very
much.
Mr. C ard. Thank you.
Chairman H um phrey . I have heard this from our own people, by the
way, in my home State, and I have been investigating around, I want
you to know. I have been stopping to talk to filling station operators,
people that are the distributors, and so forth.
Mr. C ard. Yes, sir.
Chairman H um phrey . I understand that oil companies already can
write off almost all expenses of drilling in the year incurred instead
of depreciating them in the normal way as an investment. They can
also write off up to half of the total profit under the depletion allow
ance. Now the President proposes that you be granted a tax credit
for all exploratory and drilling expenses.
My question, does not this amount to permitting the oil companies
to write off their expenses not only one time but many times over and
then to deduct them again from any remaining taxes when other busi
nessmen, including oil distributors, get to depreciate their investments
only once?
Mr. C ard. N o, sir. You are getting into the area where we need a
36
tax counsel here. I was mainly prepared to deal with the shortage of
gasoline.
Chairman H um phrey . Yes.
Mr. C ard. I can tell you, though, that in spite of all the accusations
you have heard, including whoever prepared this statement, this
unjust accusation of the tax-favored treatment of the petroleum in
dustry simply is not true. You are talking about the whole tax struc
ture and the depletion allowance, which was reduced several years ago.
Incidentally, the depletion allowance applies only to production, and
this is a very important part of the industry’s structure to take the
risk, and these risks are great. They are not going to be taken unless
there is justification. I think all we have to do is to see what happened
when the depletion allowance was reduced in the reduction in drilling
activity. This is a part of the cause of the situation we are in today.
I do not have the rig count with me at hand.
Chairman H umphrey . I am familiar with that.
Mr. C ard. Then you know what happened.
Chairman H um phrey . I am also familiar with the fact that it was
easier to go overseas to get oil, just like what happened in northern
Minnesota. We gave favorable tax treatment to the steel industry there,
but they were still going on over to Africa and Venezuela because it
was cheaper there.
I think, in all fairness—I am not going to argue the tax question
here today because that is something for the full committee—but I
think in all fairness, while the depletion allowance may have had some
effect, and I think that is open for honest debate and discussion, the
real truth is that it was cheaper to import the crude, just to go over
after it.
Mr. C ard. Let me say this, that it is true that the companies have
looked for oil anywhere in the world. This is true of our own company.
And thank goodness they have, because if oil had not been found
and made available from elsewhere in the world, I think this country,
instead of being in the situation we are today, would be in a far, far
more critical situation than it is. But as far as finding it overseas, out
side the United States, and bringing it in is concerned, I must remind
the group that we still had import controls and it was not possible to
bring in unlimited amounts of crude oil that was found abroad.
Chairman H um phrey . I realize that.
Mr. C ard. It was highly limited, in fact.
Chairman H um phrey . Just another question or two. Have you pro
posed to build refineries and been blocked by environmental considera
tions, and if so, how many and where ?
Mr. C ard. Mr. Chairman, in that regard, we do have under considera
tion at the present time additional refining capacity. We must have it.
As far as announcing where it will be and what this capacity will be,
I would be divulging proprietary information at this point, because
there are a number of items under negotiation at this very moment
that do depend on whether or not we can get this capacity. But we are
definitely planning it.
Chairman H um phrey . Are you having trouble with environmental
impact studies holding up your decisions ?
Mr. C ard. At this moment, we do not have an application pending,
but we expect to have in short time and hopefully, it will be approved
at the time it is requested.
37
Chairman H um phrey . Getting back to this licensing business or the
approval of a site, how long does it generally take to work that through
the processes of State and local government and the Federal Environ
mental Impact Agency ?
Mr. Card. It is about a minimum of a year and a half under the rules
that we have had. Now, with the President’s message and his interest
in finding a way to shorten this, we are highly hopeful that it can be
reduced substantially. And actually, as you have probably seen, some
companies have tried and tried, and there have been cases where they
have finally just given up and have not 'been able to get permits to build
capacity----Chairman H umphrey . Is it necessary to have all these refineries
right up on the ocean, on the seaboard ? Many of these refineries ?
Mr. C ard. Well, they are are not all on the seaboard, as you know.
Chairman H um phrey . But the Gulf—most of your refinery capacity
is in the Gulf States or the eastern seaboard.
Mr. C ard. Well, we have 12 in Texaco, and while some are in the
coastal areas, there are also many inland. I believe there are about six
and six, about evenly divided—six inland as well as six on the coast.
Chairman H um phrey . But for the industry as a whole, am I not
correct that the major amount of refinery capacity is in the Gulf States
area and not on the eastern seaboard ?
Mr. C ard. I do not have a breakdown of it, but I would say this:
There are many reasons for locating a refinery on the coast, of course.
Being able to move products in large tankers—we have not gotten into
this, but this is another important consideration. This is certainly the
logical way to bring in crude oil to handle it by the most economical
means.
Chairman H um phrey . I have many questions I would like to ask
of you but we have other witnesses. Mr. Card, you have been a coopera
tive witness. One of the things that is very disturbing to me, just as
a citizen as well as a Senator, is the fact that we just let this thing
come upon us without the planning that was necessary. I do not even
see the planning yet.
I read the President’s message. As I said, I thought there were
many constructive features in it. But surely, it was no secret that we
were going to have environmental controls on automobiles. I remem
ber being in Detroit in 1966, when one of the large motor companies
told me they needed at least 5 years, and in 5 years they could do it.
Then comes 1973, and the same company says we need more time. In
the meantime, they make bigger and bigger automobiles, and, by the
way, engines without environmental protection devices that were
wasteful in the fuel consumption. Right in this room a month ago,
there was a full report made, a highly classified report, as a result of
a 2-year in-depth study on the fuel needs of this country, the energy
crisis. I might say that had the public heard that report, and I hope
they will—I have been encouraging the Joint Committee on Atomic
Energy to publish their report—there would be some real concern in
this country far and above what there is.
But the automobile has become a wasteful user of the petroleum
products that you and your companies and other companies sell. The
automobile of the 1950’s was the most economical user of petroleum
products. Then they started getting them bigger and f aster and also
38
put more gadgets on them. All this to drive shorter distances with
more stop signs and greater traffic congestion; 375 and 400 horsepower
just to get across town. You have to be a lunatic to let this happen to
you.
You go up to New York and take a look at what is happening.
Take a look at Philadelphia. Go to Washington, D.C. See what we
do in terms of the use of petroleum products. Surely we must have
known we were going to have problems.
When I say “we,” I do not mean just Government. I do not think
it is fair to put it on Government, because Government is not sup
posed to be tliat smart. We are reminded every day that we are not
that smart. But there are some people who are supposed to be intel
ligent, like bankers, business managers, scientists. They are supposed
to be smarter than we in Government, according to everything I have
read all my life. And we end up with an industry really unable to
serve the public’s need. And it is going to get worse, is not it, before
it gets better?
Mr. C ard. This is what I said in my statement, that it will become
worse because of the long leadtimes required.
Chairman H um phrey . That is what I am getting at, that long leadtime, because we just did not face up to it.
Well, it will not do any good to scold, but it seems to me rather in
credible that we could not fashion in our minds some idea of what was
happening to us.
Mr. C ard. Mr. Chairman, I would like to make three more points
quickly. One is, I think I should clarify that in the United States
Texaco is producing all the crude oil that it can.
Chairman H um phrey . Refining all you can, is that right?
Mr. C ard. Refining all we can. We are endeavoring to purchase crude
oil in the United States to keep our refineries running at full capacity.
Another point you mentioned, that I estimated a 5-percent shortfall.
In my text, I said that some had estimated 5 percent, supply would be
5 percent short of demand. It was not necessarily my estimate, but
there are sources, reliable sources, who have estimated up to 5 percent.
Chairman H um phrey . I have seen that figure as well.
Mr. C ard. Then the final thing relating to your comments. I would
like to say that certainly Texaco, and I believe this is true to some
extent of the industry as a whole, could and did foresee some of the
acute results of some actions that were taken in 1970, particularly the
1970 Clean Air Act. We were not consulted. We tried desperately to
get some of these messages across. While no one can foresee what will
be the exact circumstances in the future, we knew very well where we
were headed with regard to increased oil consumption because of the
restrictions, the specifications; and as you know, on July 1,1974, the
service stations in this country must have one grade of no-lead gasoline
in 60 percent or more of the stations and all of them doing over 200,000
gallons a year or more. Nothing has been done in that regard yet.
While there has been a year’s delay with regard to the automobile
manufacturers’ meeting these specifications, nothing has been done
with regard to the petroleum industry’s having to meet the specifica
tion that has been outlined to it. This is going to take increasing
amounts of a product that is in short supply.
Chairman H um phrey . Well, your testimony is very informative and
39
forceful and we thank you very much, Mr. Card. Just keep that gas
oline flowing out there and that fuel oil. We really need it.
Thank you very much and thank your associates.
Mr. C ard. Thank you.
Chairman H u m p h r e y . The next witness is Mr. Millard. I under
stand that Mr. Millard and Mr. Baker want to appear together.
Mr. Millard, I understand that you will testify first, is that correct?
Mr. M illard. Yes, sir.
Chairman H u m p h r e y . Thank you. We have Mr. Millard, Mr. Baker,
Mr. Walcutt, and Mr. Bode.
Mr. Millard, proceed, will you?
STATEMENT OF WALTER H. MILLARD, JR., PRESIDENT, TRANSIT
OIL CO., INC., ACCOMPANIED BY WILLIAM H. BODE, COUNSEL
Mr. M illard. Thank you.
My name is Walter H. Millard, Jr. I am president of Transit Oil
Co., Inc., of Louisville, Ky. I am also a director of the Independent
Terminal Operators Association.
I have been in the oil business for 35 years, and I can state cate
gorically that I have never seen the supply situation as bad as it is at
the present time.
My company is a relatively small wholesale terminal operator and
retail marketer. We have almost 9 million gallons of storage capacity
at our terminal on the Ohio River at Louisville, and we operate about
35 retail service stations. Traditionally, we have been the principal
wholesale supplier to about 50 independent service stations.
In the aggregate, both wholesale and retail, we should be selling
between 40 million and 50 million gallons of gasoline in 1973. However,
because of the supply conditions, our volume this year will be so sub
stantially reduced that our ability to compete may disappear forever.
Traditionally, we have purchased gasoline from seven or eight
suppliers. However, this year, we have been able to purchase gasoline
from only one of them. All of our regular suppliers and other refiners
who logically could supply us have either refused to sell to us al
together, or severely limited the volume of our purchases, or raised
the price to a point where we cannot afford to buy.
Perhaps I should state at the outset that we are an “independent.”
We buy and sell for a living. We perform a vital economic function
in the distribution of petroleum products. We do so efficiently and
offer more service to our customers than the integrated oil companies.
But, we are being squeezed out of business because we do not control
any supply.
Like many other terminal operators, our storage tanks have been
dry from time to time this year. Like many other private brand, re
tail marketers, our service stations and those of our independent
accounts have been forced into various reactions: some stations have
been closed, some have operated on shorter hours, and some have
posted prices equal to or higher than the major oil companies. These
reactions are absolutely contrary to the tradition of private brand,
price-discount marketing by independents.
Independent marketers are the price competitors in gasoline market
ing. They have kept the majors honest for years. They are also the
40
innovators of marketing methods. They have invented nearly every
marketing concept that has been accepted by the public. The inde
pendent companies are the ones that give the consumer a real choice
and a fair shake. The selling costs by independents are 5 cents to 7
cents a gallon less than the selling costs normally experienced by major
oil companies. It is the overall economic efficiency of the independent
that is of benefit to consumers. Yet, the effect of the supply situation
is a threat to the survival of the independent.
In my view, the task of survival is beyond the powers of any trade
association or any group of companies. The power and authority of
Government must intervene if independents are to be saved.
Let me explain how the threat works.
The refiners of America will naturally sell their product to their
own in-house marketing outlets. If anyone gets cut off, it is the in
dependent buyer-reseller. The independent is, therefore, bearing the
burden of the current supply crisis to a disproportionate degree. This
burden is so great and so widespread that the independent marketing
sector in its entirety may suffer such attrition in the next 6 months as
to render it unable to perform its traditional economic function. If
the independent sector dies, the consumer will be at the mercy of the
majors, and competition among the majors is a matter of each trying
to imitate the other, rather than compete in price and service with the
others.
As I stated before, it is my view that the authority of Government
must be utilized to control the distribution of available petroleum
products so as to avoid a radical and undesirable change in the com
petitive structure of the oil industry. Let me cite one way in which this
might be done.
The operation of the Oil Import Appeals Board should be primarily
directed toward the distribution of foreign finished products through
independent marketers. Refiners should not be allowed to import
finished products. Indeed, they should be encouraged to build refineries
here at home, rather than to import foreign gasoline.
I submit that if it were announced as a matter of national policy
that independent marketers are the only authorized importers of gaso
line, an element of orderliness would be injected into a presently
chaotic foreign market. Foreign manufacturers of gasoline are aware
of shortages in the United States. They are taking advantage of that
fact. Their prices have been increased so substantially that independ
ents are almost precluded from buying abroad. This fact is aggra
vated when integrated American refiners are competing with in
dependent American marketers. Integrated buyers tend to pay more
for foreign gasoline, and they are not as firm in bargaining as the
independent. America should send out its toughest bargainers into the
foreign product market for the duration of the supply crisis; that is,
until we can build new refineries here at home.
Gentlemen, the prospective regulations and guidelines to implement
the Presidential proclamation reforming the oil import control pro
gram should establish the proposition that independent marketers are
the chosen importers of finished products as a matter of national
policy.
The assistance of this committee in establishing this proposition
would be deeply appreciated.
41
Chairman H um phrey . Thank you.
I think we will go on to hear from Mr. Walcutt and then go on to
questioning.
Mr. Walcutt, identify yourself for the record.
STATEMENT OP BEAN WALCUTT, EXECUTIVE VICE PRESIDENT,
CERTIFIED OIL CO., ACCOMPANIED BY CARLYLE BAKER,
PRESIDENT
Mr. W alcutt . I am Dean Walcutt and I am executive vice presi
dent of Certified Oil Co. We operate in Ohio, Kentucky, West Vir
ginia, Indiana, and Pennsylvania.
I am also one of the founders of the new Independent Gasoline Mar
keters Council and I am appearing here today on behalf of that
council.
Perhaps I should state at the outset that the council consists of 19
of the leading independent gasoline marketers in America, doing busi
ness from coast to coast. Collectively, they operate over 3,500 retail
service stations and employ over 12,000 people. Their aggregate gross
sales are about 4y2 percent of all gasoline sold in the United States.
The council represents 20 to 30 percent of the entire independent
marketing segment of the gasoline industry.
The supply problem facing the independent marketer is deadly.
The loss of employment and the financial hardships endured by in
dividuals and small companies are not realistically reflected in the
broad statistical picture. Nevertheless, let me give you the best figures
the council is able to produce concerning the shortage.
The shortage of gasoline experienced by the members of the council
at the present time is estimated at 1,480 million gallons. This is about
49 percent of last year’s requirements for the same group of com
panies. This means that the independent sector, as a whole, is short
about 6 billion gallons of gasoline. How does this come about?
The United States simply does not have enough refining capacity.
Therefore, the integrated manufacturers of gasoline react by cutting
back or cutting off their sales to independent marketers. The refiners
prefer to reserve their limited supplies for their own integrated mar
keting outlets. Hence, the independent marketer is unable to buy the
quantity of gasoline he requires.
In contrast, the integrated marketer is being supplied as fully as
his in-house refiner can supply him. For example, it was announced a
few days ago that Sun Oil Co., identified as the 10th largest oil com
pany in America, has been obliged to ration its sales to its jobbers and
dealers. The essence of the announcement was that Sun Oil Co. would
have to limit deliveries to about 90 percent of normal. Indeed, it was
stated by a representative of Sun that its retail dealers would prob
ably not run out of gasoline, unless the independents in the neighbor
hood were completely out of gasoline, thus forcing the public to do
business with Sun exclusively.
My purpose here is not to criticize Sun Oil Co. My purpose is to
illustrate the problem. It is natural that the integrated refiner would
cut off 9ales to outsiders. But, when this natural behavior occurs
throughout the entire oil industry, the result is that the independent
marketer is forced out of business.
42
We see no way in which this peril can be regarded as self-correct
ing. The time required to construct new refining capacity is 3 years
or more, and no independent marketer can survive on half rations or
less for 3 years.
It is our view that the authority of Government must be utilized to
correct the situation and to achieve an equitable distribution of all fin
ished products throughout the country for the duration of the short
age, which may mean for the next 5 years or more.
In our view, the most recent period of time in which so-called nor
mal conditions prevailed was the year from July 1, 1971, through
June 30,1972. If that year is regarded as normal, then we submit that
sales of all finished products by each refiner should be made in a pro
rata basis to all its historical customers during that base period. In
stead of cutting out independents altogether, independents should get
their fair share.
We realize that the definition and administration of such a program
raises a number of technical problems. However, we submit that un
less those problems are met head on, the Nation will lose the entire in
dependent sector of the oil industry. There will be a radical change in
the competitive structure of the industry. A giant step toward domina
tion by the large, fully integrated oil companies will have been taken.
And, the public will pay the price. It is not pure fantasy to anticipate
that gasoline may cost a dollar a gallon in the absence of price com
petition from the independent marketer, even if there were no shortage.
May I conclude by saying a word about my own company. Certified
Oil Co. operates about 265 stations in 5 States; namely, Kentucky,
Indiana, Ohio, Pennsylvania, and West Virginia. I must say, however,
that as of last week, as a result of gasoline shortages, we were forced to
shut down 40 of our company-operated service stations. We have
sharply reduced operating hours at the majority of our stations that
remain open. I might add our annual sales are about 140 million gallons.
Never before have we asked the Government for anything. We have
no tax advantages, such as percentage depletion or foreign tax credits,
and we have no control over our supplies, such as our integrated mar
keters enjoy by having under the same corporate roof refining capacity
and crude oil production.
For 34 years, as an independent, we have competed with the inte
grated marketer and have done very well, regardless of the tax and
other advantages available to him. We have steadily increased our
share of the market. We have grown because of our efficiency and be
cause we offer the public the best possible bargain.
Only now, with more than half of our supplies in jeopardy, do we
appeal to the Government, to the Congress, and to this committee. We
submit that a way must be found to share the shortage.
Chairman H um phrey . Thank you very much, Mr. Walcutt.
Mr. W alcutt . Senator Humphrey. I have two or three other com
ments that came up as I was sitting here, if I may have another couple
of minutes.
Chairman H um phrey . Indeed you can. Are we going to hear from
Mr. Baker, too, and Mr. Bode ?
Mr. B ode. I have no prepared statement.
Chairman H um phrey . Y ou are just here to answer questions?
Mr. B aker . Yes, sir.
43
Chairman H u m p h r e y . I understand, Mr. Walcutt, that you spoke
for Mr. Baker as well ?
Mr. W alcutt. That is correct.
Chairman H u m p h r e y . Go ahead.
Mr. W alcutt. In the last year, we have had increases in the cost of
our product of as much as 7 cents a gallon at the cost level. That is not
overwhelmingly the case, but that is the trend.
Chairman H u m p h r e y . That is not including the tax ?
Mr. W alcutt. N o, I am just speaking of increase of price in gasoline,
excluding the taxes. Seven-cents increase. That is certainly not an
average, or we would have been broke a long time ago, but the trend
is there, that our increase in cost is eating us up.
I also feel that the sharing of the shortage that I mentioned, that is, to
see that they allocate the supplies to the same type marketers as before,
would also cure the problem of the cities. Like Detroit, now, does not
have any product to run its vehicles. If the same suppliers, whoever
they might be, that supplied them in the base period mentioned above
were to go back to that, Detroit might not have all it needs, but it would
probably have 95 percent, and so would we.
One other point that I think is real important is that the large oil
companies—let us take the Big Eight—most of them to some degree
or another supply independent oil companies, but in addition to that,
they sell a large or a substantial amount of product through brokers.
Chairman H u m p h r e y . Yes.
Mr. W alcutt. These brokers then supply the independent, but this
relieves the large companies and allows them to make the misstatement
that they do not supply independents. Now, they do not supply inde
pendents directly in most cases, but a large segment of their product,
and I do not know the percentage, but 5,10, or 20 percent from differ
ent companies gets into the independent market. That is what keeps
the price to the consumer down, that we have had adequate supplies. If
they say they are willing to go back and supply the same amount to
independents that they historically supplied, but they never supplied
any, but yet they did supply the brokers that supplied the independ
ents, this should be considered, too.
I might mention that allocation on a fair basis, about which we
heard from the previous witness, I think needs full disclosure of his
torical rates of supply to customers and policing of these allocations,
if this is to be the system adopted.
Chairman H u m p h r e y . That was the point that I was tr y in g to ad
dress myself to in terms of some kind of allocation board.
Mr. W alcutt. I know.
Chairman H u m p h r e y . Whether it had power of law or whether it
was in a supervisory capacity to see whether voluntary agreements or
understandings were lived up to.
Your statements, both from Mr. Millard and you, Mr. Walcutt, indi
cate that you do believe that there is a definite fuel shortage, is that
correct?
Mr. W alcutt. Yes, absolutely.
Mr. M illard. Certainly.
Chairman H u m p h r e y . Worldwide, marketwide, in the United
States?
Mr. W alcutt. Yes, sir, worldwide.
99-740 0 — 73------- 4
44
Mr. M illard. Absolutely.
Chairman H um phrey . Am I interpreted correctly that the thrust of
your statement is that while this shortage is a fact, the shortage is be
ing used by majors to eliminate independents?
Mr. W alcutt. Absolutely.
Mr. B aker. Yes.
Chairman H um phrey . And you document that with the information
that you have given us in terms of the availability of supply?
Mr. W alcutt. Yes, sir, and it can be documented in a thousand other
ways. I can touch on a couple, but I do not have all the stuff here that
I would need to go into it.
We have a great increase in earnings by the major oil companies
and, at the same time, the independent supply has been sharply cur
tailed, especially in the west coast areas of our country. Now the price
support to the dealers of the major oil companies, which causes price
wars as a whole, or which sustains price wars, has been totally elimi
nated nationwide by virtually every company in the last 6 months, dur
ing the same time the independent supply has been curtailed.
Now, I am not telling you it is a conspiracy; I am telling you that
there is a shortage, and that the automatic thing to do is to keep your
own stations open, meaning the major companies, and sell what you
have left into the independent segment of the market, and since there
is less left, our share of shortage goes up, disproportionately to the
majors.
To follow that point, if there is a 5-percent shortage in product in
the Nation and you take that 5 percent from the independent sector
that sells 20 percent of the total volume, then that sector is a fourth
short, and that is about what is happening right now.
Chairman Humphrey. D o you have any indication, any evidence,
that the majors are opening more outlets for their own controlled, inte
grated operation?
Mr. W alcutt . I was in Phoenix, Ariz., yesterday, and I saw two
brand spanking new ones opened within the last month or two, one by
each of the two largest, I believe, or two or the three largest oil com
panies in the world.
Chairman H um phrey . Mr. Millard.
Mr. M illard. I might add that I am not trying to contradict what
Mr. Card of Texaco has said, but in the fall of 19711 bought a barge
of fuel from the Texaco Co. They had solicited my business for a
number of years, having done business with me for several years prior
to that many years ago—there was a lapse of many years. They did
solicit me, and I bought a bargeload. Then in December of 1971 I
bought another bargeload. It was supposed to hit my dock like Decem
ber 17. On December 14, they announced that they would not ship it.
And, of course, it was fuel oil, which is desperately needed. You are
from Minnesota, but I will tell you that homes in Kentucky get just
as cold as they do in Minnesota. I was bom in North Dakota, too.
Chairman H um phrey . What do you estimate the price of gasoline
will go to if your independents are eliminated ?
Mr. M illard. I f I might say so----Chairman H um phrey . Well, let us not say eliminated. I f the present
process that is underway continues.
45
Mr. M il l ar d . I appreciate Mr. Card’s feeling on that particular line,
too, but basically, if they brought in all of the gasoline that they
needed—I am not speaking of Texaco, I am speaking of the major
oil companies—if they brought it in and then resold not just that par
ticular gasoline, but sold us the proportionate share of it which we
have been enjoying for many years, the average price would be raised
practically nothing. Because if you throw it in with the billions of
gallons they have, it really does not raise their overall cost but doggone
little, averaging in their imports.
Chairman H u m p h r e y . In other words, the amounts that come in
would be of such small----Mr. M illar d . It means nothing to them. To us it is dear. To them,
it is nothing, really.
Chairman H u m p h r e y . What do you think will happen to the price
of gasoline under the present situation? What is going to happen,
gentlemen?
Mr. M illard. W ell, we know our costs— he was relating it to his
costs. I am a barge buyer, which is just a little bit different.
Chairman H u m p h r e y . Do you want to explain that for the record
here?
Mr. M illar d . Well, a barge buyer is someone who is—well, it de
pends on the time. Currently, I would say it is not so advantageous to
own a terminal. But I happen to own a terminal. There are some 11
of us, I think, on inland waterways, Mr. Chairman. That is all that is
left. There used to be many of them. Today, our price is up 3% cents
a gallon over what it was a year ago January. So in 15 months, we are
up 3y8 cents. This has never been heard of before.
Chairman H u m p h r e y . That is just your price at the wholesale level ?
Mr. M illard . Yes, sir; and our retail prices have not really gone
up any, because the tank wagon—I remember you asked also about
the taiik wagon price—there has been hardly any change in the tank
wagon price, I believe, since 1970, throughout the United States.
Chairman H u m p h r e y . Any comment, Mr. Walcutt, on your part?
The public is very much concerned about this, you know.
Mr. W a l c u t t . Senator, I honestly feel that the price of gasoline
has to go up, because there is just no incentive for drilling new wells,
building new refineries, and things of this nature. But it should go up
in proportion to the costs, and they have gone up.
Now, the other side of the coin is that if the independent would be
eliminated from the market, then I think you would have a more sharp
increase, because we are a definite factor in holding the price down to
consumers. We market on a much more economical basis. I think all
companies, large and small, would indicate that the independent is
the innovator of the new marketing policies, the reducing of cost per
gallon in getting it into a car.
Chairman H u m p h r e y . I am going to ask the staff here in your pres
ence to work with the councils and the other organizations of the inde
pendent oil dealers, whether they are independent refineries, independ
ent wholesalers, or independent filling station operators, to get us some
more solid statistical evidence as to the effect of the independent oper
ator on the price structure in the gasoline and fuel oil market. I just
think that this record needs more positive, all-encompassing evidence
than really what you can present today. This is not to be critical of
46
your presentation, but I would like more evidence from a larger spec
trum of the market.
Mr. B aker . Senator Humphrey, there has been a great deal done
on this already. Senator Saxbe has presented a bill that will take care
of our problems.
Chairman H u m phrey . Tell me about that bill.
Mr. B aker . His bill says, and I do not have it exactly in front of
me, but it operates to the effect that you will sell historically to the
people that you sold to before and that you will sell at price increases
that are in direct proportion to any price increases that you charge
your own dealers. I think if we have that, it will settle most of our
problems.
Chairman H um phrey . Very good. I introduced a little measure—
you know, every author of a bill is like father of a child, or a mother,
in that it is the cutest one, you know, in town. Mine is Senate Joint
Resolution 98.1 gave you a very subjective judgment of my proposed
legislation, and I will say that, as an experienced legislator, I have
always understood that when you introduce a bill, it is primarily to
get something before the legislative assembly to work its will—to
get hearings, to get the testimony, to make the adjustments, the refine
ments that are necessary. I am sure that my friend and associate,
Senator Saxbe, would feel exactly the same way.
This bill is a Senate joint resolution. Just let me read it a little bit
to you:
“ (a) That the President shall, after public hearing, conducted with
such notice, under such regulations, and subject to review as the
exigencies of the case may, in his judgment, make appropriate, provide
for the establishment of priorities of use and for systematic allocation
of supplies of petroleum products, including crude oil, in order to
meet the essential needs of various sections of the Nation and to pre
vent anticompetitive effects resulting from shortages of such products.
“ (&) To expedite the implementatiion of the directives by the
President, as authorized by this resolution, there shall be created in
the Executive Office of the President an Emergency Fuels Allocation
Board (hereinafter referred to as the “Board” ). The Board shall be
composed of five members who shall be appointed by the President
by and with the advice and consent of the Senate. The members of the
Board shall serve through the duration of authorities provided for
under this resolution. The President shall designate one of the mem
bers of the Board to serve as Chairman. The members shall be repre
sentative of the production, transportation, marketing, and use of all
fuel resources, and of executive departments and agencies having a
significant responsibility in these respective areas.”
Then we go on down here on the members and tell what they shall do.
The purpose of this resolution is to carry out the proper allocation.
We also have in this legislation a base period, which is to be agreed
upon, and the time frame which the witness suggested, 1971 to 1972,
seems a logical base period, a normal one.
To provide that certain specific movements of oil take place, the
resolution stipulates here, for example, the importation of crude oil
in sufficient amounts to meet the input requirements of coastal refiner
ies; the importation of No. 2 fuel oil in amounts sufficient to build up
stocks; the importation of finished gasoline to insure that adequate
47
domestic product, which would otherwise be distributed in east and
gulf-coast markets, is channeled for delivery to inland shortage areas;
the allocation of sufficient supplies of diesel and other fuels to rail
roads and electric utilities and motor transporters to provide essen
tial services, and so on. Under my policy or practice of allocations by
refiners to marketers, any reduction of supplies by a refiner to any
customer whom he has supplied regulatory over a reasonable past
period shall be in line with quotas established by the board utilizing
this base period in which regional supplies and demands were in ap
proximate balance, and the same percentages and reductions shall be
applied to all customers of such a refiner, regardless of whether such
customers market under the refiner’s brand name or other brand
names.
Mr. B aker. Let us get it done.
Chairman H umphrey . I gather this is much the same thing as Sen
ator Saxby’s measure.
Mr. W alcutt. It is much the same thing. He also mentioned price
in his thing, that price shall be in proportion.
Chairman H umphrey . I think that is essential.
Mr. W alcutt. The two together are very compatible is what I am
saying. They say virtually the like thing.
Chairman H umphrey . What I am trying to get at in that lan
guage—Senator Eagleton, as you know, has been involved in this, a
number of Senators. We all talk about it and come in at the same time
with our legislative proposals. What I am really asking is, do you
think it is necessary to have some governmental authority to assure
compliance with whatever kind of allocation may be arrived at ?
Mr. W alcutt. Absolutely.
Mr. B aker. Absolutely.
Mr. M illard. That is the only way. It is the only thing.
Chairman H umphrey . I would like very much to ask your counsel,
any of you, in fact all of you, to take a look at these respective bills.
Do not worry about who is the author at all. Just take a look at what
you think ought to be the pertinent or relevant features of a bill and
what power such a board ought to have and how it ought to operate.
For example, the reference to price, I think, is very good. We do not
have that in our resolution here.
Mr. M illard. Mr. Humphrey, I think in the President’s Proclama
tion 4210, his heart was in real good condition at the time, but he gave
the major oil companies some $880 million at that time in that action.
Chairman H umphrey . Yes, sir.
Mr. M illard. In reduction of the import tariffs. That is about what
it amounts to.
Chairman H umphrey . Just explain that a little bit. I do not think
the general public understands that. I saw an editorial or two on it,
but I would like to----Mr. M illard. Well, it is by the new fee system for bringing in oil
from abroad; they are exempt from the fees that would otherwise be
paid over the next 7 years. It is down proportionately.
Chairman H umphrey . Would you not think that that should be
passed along to the consumer ?
Mr. M illard. Well, it will not be passed along to us, I am sure, and
we cannot pass it along to the consumer. If we share in it and if they
will just give us the proportion of the products that we have been
48
buying over lo, these many years and prorate their cost increases to
use based on all of their product and not just their foreign products,
we will still give the public a fair shake.
Chairman H um phrey . Let me ask you now, do you serve a lot of
rural areas?
Mr. M illard. Yes, we all have a lot of rural stations out in the
areas.
Chairman H u m phrey . The farm population ?
Mr. M illard. We do not service tank-wagonwise. You do not, do
you, Mr. Walcutt ?
Mr. W alcutt. N o, we have a lot of stations in rural small towns
of 500 or a thousand people. We sell gas in drums to farmers but we
do not have rural delivery routes to farmers.
Chairman H u m phrey . One of the problems we are running into,
as you know, is availability of proper types of fuel for tractors in the
planting season. I am worried, as the flood recedes in the south area
along the Mississippi River, that we are going to have serious prob
lems. And there is every indication from the information that I have
received thus far that it could be very, very serious.
Mr. M illard. I am sure that it will.
Chairman H um phrey . Which in turn affects, might I say, the pro
duction program or the production estimates, crop estimates, that the
Department of Agriculture has projected.
I might just toss in here, it is not just a fuel shortage that we are
facing. This fuel shortage, if I might expand it to even natural gas
and propane, could wreak havoc, literally havoc, upon the food sup
plies of this country. The soybean, the com, the feed grain people use,
as you know, forms of fuel—there are many different forms—for
purposes of drying, and the difference between drying and not drying
sometimes ruins as much as 10 and 15 percent of the crop. Since I
am also chairman of a committee that has been hearing evidence for
weeks and weeks on the possibilities of our production—which, by
the way, very little attention seems to be paid to, but people will wake
up about November when they are short of it—I can tell you that a
5-percent shortfall on the crop estimate in this country, a 10-percent
shortfall would be catastrophic—catastrophic. Prices will go right
out through the roof. Supplies will just not be there, there will just
absolutely not be enough feed supply around here to take care of our
animal industry and the price of beef that we are getting now will
look like a donation to the Little Sisters of the Poor.
So we are involved, believe it or not, with the energy crisis. The fuel
shortage relates to food production—fertilizer, tractor fuel, and fuel
for purposes of drying crops. That is the difference between agriculture
in this country and in many other countries, those factors—fertilizer,
transport, and drying capacity and storage. Because you cannot store
it without drying, you know, so it is all tied together.
I just came from one committee this morning, called the Committee
on Agriculture, and it is like you are talking about two different
rooms in the same house, all tied together. Because if you men cannot
service through your industry the agricultural population in its
needs, just forget it. You will not be worrying about whether you
can drive a car, you will be worrying about whether or not you are
going to pay $5 a pound or $4 a pound for beefsteak. And people do
like steak around here.
49
I have a question here that I want to toss out to you, Mr. Millard.
So long as the majors are under the current price controls, you
independents will be the only ones who can afford to import gasoline,
if Mr. Card’s remarks about the prices of imports are true, isn’t this
right?
Mr. M illard. I do not know where he got that statement, but that is
impossible. We cannot import gasoline and sell it at the going prices
that the majors are being held under. I think the majors have to have
relief, sure. There is no way—we cannot buy gasoline overseas, or
offshore as it is called, and pay—and I think he was entirely correct
in his statement, saying that it is 5 to 10 cents a gallon higher than it is
in this country. I had some offered to me, delivered in Detroit, no less
than Thursday, and it was a way that I could actually get it exchanged
and picked up in Louisville ana it was going to lay down in Louisville
at 36^ cents, including taxes. Well, gee, 37 cents is retail in Louisville.
So you cannot very well buy gasoline like that, you know.
On top of that, excuse me, other people told me I should have bought
it.
Chairman H umphrey . D o you have any indication that other
countries, for example, are buying up large supplies of fuel? For
example, I happen to know one country that is buying a lot of food
supplies right now, paying exorbitant prices to get certain types of
feed grains, far above the world market price, and far above any
published quotation. Do you see any indication of that, hoarding, so
to speak? The country that I am speaking of in the food area is Japan.
They are paying way above market prices for certain types of food,
knowing—I think they are sharp buyers. I think they know what is
going to happen. Do you have indication of that on storage of
gasoline or fuel oil in other countries ?
Mr. M illard. I do not know that. I would think the gentleman
ahead of us would probably be more familiar than we.
Chairman H umphrey . Mr. Baker, here is a question
that was pre
pared after looking over some testimony. Under what conditions
did you normally buy gasoline from the majors in the past?
Let me rephrase the question. How much did you buy in the socalled spot market?
Mr. B aker. We have always operated pretty much under contract
with the major companies and we have been operating with these
same companies for a good many years. Right now, we are on alloca
tions from 90 percent, 80 percent, depending upon the company. At
the same period of time, our sales have gone up. The allocation is
based on last year and our sales have gone up maybe 30 percent. So
instead of looking at maybe a 20-percent lack of product, we are looking
at almost a 50-percent lack of product.
Chairman H umphrey . Have you traditionally bought at, above or
below the prices paid for gasoline by franchise and company-owned
stations?
Mr. B aker. The independent market was always somewhat less than
the franchise stations.
Chairman H umphrey . Are you able to pass that along to the con
sumer ?
Mr. B aker. Yes; we operate at normally 3 to 5 cents below the
franchise.
50
Chairman H u m p h r e y . I think your argument about the importance
of the independent marketer to the consumer is vital and the more
testimony we can get 011 this, if it can be verified, it will certainly be
helpful to the committee.
Are all independents down to half rations or is there a selective or
regional pattern to the cutoff ?
Mr. B a k e r . I think a lot of it depends upon how much crude the
selling company has. If you are a crude-rich company, you are in
pretty good shape. If you are a buyer of crude, as a refiner company,
you are not in as good shape.
Mr. W a l c u t t . There are some independents, though, that are closed
entirely, their entire chain of stations. I am not talking about those
that operate on a 20-State basis. I am talking about those that have
20 stations in one area and their one supplier has cut them off. They
are closed. I know of one man that operates about 300 stations that
may close 75 percent of them in the next 3 weeks.
Chairman H u m p h r e y . I understand that in one or two cases, inde
pendent distributors have obtained relief from the supply shortage
through the courts. Are any of you considering this route ?
M r . M il l a r d . That is sort of a last resort, but we would consider
it, certainly.
Mr. B a k e r . We have always had very favorable relationships with
our people and the people we are buying from now are doing a mar
velous job for us. They are giving us a percentage of what they have.
But we are speaking also for the council and some of these people do
not have that favorable situation.
Chairman H u m p h r e y . Y ou know, I noticed this figure here that
I quoted from the Petroleum Industry Research Foundation—are you
familiar with that foundation ?
Mr. B a k e r . No.
Chairman H u m p h r e y . This is a study of the outlook for gasoline
and its impact on the independent marketers. The report was made in
March 1973. I will have to ask the staff, which was given this report.
Do you have any more information as to who the supporters are of this
report ?
It is a foundation with broad support in the industry, both majors
and independents, I have been assured.
The point raised here is that there is about a 2-percent shortfall.
Mr. Card thought that it might be up to 5—that is the figure that
he had heard. I guess we have all heard from 2 to 5 percent shortfall.
And the independents are 30 percent of the market, is that correct ?
Mr. B a k e r . Yes, about 20 to 30.
Mr. W a l c u t t . About 25, possibly.
Chairman H u m p h r e y . Then how do you explain the serious damage
already being done to the independents if there is only a shortfall of
about 2 percent ?
M r . M il l a r d . We get it all. We get the whole shortage. Or we have
gotten it.
Mr. W a l c u t t . I think the 2 percent is somewhat underestimated.
Let us say it is 5.
Chairman H u m p h r e y . Let us say it is 3i/£>or even 5.
Mr. W a l c u t t . I f 5 percent of the whole industry is short, that means
95 percent of the product is available. But the 95 percent is going to 80
percent of the stations, and the other 20 percent are standing the whole
51
5-percent shortage, which is a fourth of their supply. So we as a seg
ment are presently about a fourth short on supply.
•To give you an idea, we have in our own company already closed 40
stations, curtailed the operations of 70 more, and have gone to the maxi
mum price at which we can possibly stay in business and still give any
advantage to the motoring public.
Chairman H umphrey . Does the President’s energy program that he
announced for easing imports restrictions and providing production
incentives, contain anything that will aid you in your current
situation?
Mr. Millard, Mr. Walcutt, Mr. Baker, and Mr. Bode.
Mr. M illard. Well, I think under the proclamation, he did give to
the east coast terminal operators allocations of 50,000 barrels a day,
which does help them in this same feedback that I was talking about a
moment ago, that the major oil companies were enjoying. But we as
independent terminal operators in the Middle West, which takes in
your area, do not get anything.
I do not think that basically it is going to help us at all.
Mr. B aker . With the price controls on the major companies, even if
we bought gasoline, it would cost us 10 cents a gallon more. How could
we sell it?
Mr. W alcutt. We would be priced at the retail level or above that.
So any allocation we get of the product, it is 22 cents in New York, 2
cents to get it into Ohio is 24 and 10 cents tax is 34, and you have not
even marketed it yet. You have not gotten it out of your terminal sta
tion in Ohio. So it is going backward. No, it does not help.
Mr. M illard. If you are going to keep the controls on the major oil
companies as such, then you have to find some way to keep controls on
our costs if we are going to stay in business. As I mentioned a moment
ago, I think that could be done if the major oil companies are permitted
to bring in the foreign products. At least if they prorate it to us on
the same basis that they do to their stations and to their franchise out
lets and at an average price, including their products made in this
country. And it certainly will not be any nickel a gallon.
Chairman H umphrey . Have you made any presentation of this type
of argument to the Cost of Living Council ?
Mr. M illard. N o, sir. I have appeared here over the last 2 years
complaining about the shortage, Senator. I am surprised that you have
not heard of it.
Chairman H umphrey . Well, I have heard about it. Do not misunder
stand me.
Mr. M illard. But for better than 2 years, I have been up here
several times.
Mr. B aker. About 2 weeks ago, there was a conference at the
Treasury Building, and a gentleman from the Cost of Living Coun
cil was there and I told him the same thing.
Chairman H umphrey . Very good.
Gentlemen, I could keep you here much longer, because I have a
lot of questions, but you have something else to do and we have an
other witness. I want to accommodate that witness now. Unless you
have something further that you would like to add----Mr. M illard. No, sir. Just help us out.
52
Chairman H um phrey . May I express our thanks. We are going to
do everything we can. We would appreciate through your council,
your offices, any evaluations of proposals that are before the Congress
so we can pass it on to the appropriate committee.
Mr. W alcutt . Mr. Bode is with our attorney firm here, and I am
sure he will be in contact with you.
Chairman H um phrey . Mr. Bode will work with our committee
staff.
Our next witness here today is Mr. James Erchul. Mr. Erchul is
the director of civil defense 01 the State of Minnesota.
Mr. Erchul, I am sure that you have been plagued by telephone
calls from my office from time to time. We are deeply appreciative,
may I say, for your cooperation in testifying at this session. I want
to commend you for the splendid job that you have been doing in our
State to meet the fuel oil needs and the gasoline needs of our people.
We welcome your testimony, and I want you to proceed.
STATEMENT OF F. JAMES ERCHUL, BIRECTOR, CIVIL BEFENSE BI
VISION, BEPARTMENT OF PUBLIC SAFETY, STATE OF MINNESOTA
Mr. E rchul . Thank you, Mr. Chairman. I appreciate the oppor
tunity of being here with you today.
My name is James Erchul. I am director of the Civil Defense Divi
sion of the Department of Public Safety, State of Minnesota. It has
been our job during this past few months to coordinate the State’s
responsibilities in reacting to the shortage of petroleum products as it
began to appear. We first got active in this in the early part of Decem
ber, when it was heating fuels we were talking about, not transporta
tion fuels. At that time, Governor Anderson directed us to take a
survey, to look into just exactly what was beginning to happen. It
was obvious to us that the shortage was already upon us and that
we needed to take some drastic action.
Shortly after that, Governor Anderson declared an emergency in
the State of Minnesota and began looking into the posibilities of
allocating fuels and some even more drastic measures. He made a pub
lic appeal to the general populace of the State, asking them to take
whatever conservation measures they could to reduce the consumption
of fuel products.
Shortly after that, Governor Anderson requested that the President
of the United States declare a disaster for the State of Minnesota due
to the shortage and asked help from the Federal Government in solv
ing the problem. The Office of Emergency Preparedness came into Min
nesota, reviewed the situation, and decided it was not quite as bad as
we thought it was.
Governor Anderson then asked the State Legislature to form a
joint committee and investigate the fuel problem, and they have been
doing that right along, since about the end of January.
The supply of transportation fuels in Minnesota continues to
dwindle. As we approach the time of year when gasoline and diesel fuel
consumption will reach its peak, we find that the supply of these
products to the independent dealers is a mere trickle compared to what
it was.
Minnesota’s plight in the fuel shortage is somewhat unique in that we
are experiencing all of the factors contributing to the nationwide
53
petroleum supply problems such as inadequate refining capacity, the
need for further offshore drilling, and a cumbersome system of import
quotas. In addition, however, two major suppliers, Gulf and Sun, have
stated that they intend to discontinue marketing in Minnesota. Bell
oil and Triangle Refineries have already discontinued their independ
ent operations. The Koch Refinery of Pine Bend has been operated by
supervisory personnel for several months while their usual work
force is out on strike. The Koch Refinery produces about 100,000 bar
rels per day under normal circumstances and is down to about 60 per
cent of that at this time.
Petroleum supplies ordinarily provided by the cooperatives have
been drastically reduced because they have not been able to get the
crude oil necessary to operate their refineries at anywhere near ca
pacity. Midland Cooperatives, for instance, only recently reopened
their refinery at Cushing, Okla. They had closed it just after the
first of the year due to the lack of crude oil. At present, they are able
to operate at only 60 percent of capacity. In Minnesota, the cooperatives
account for about 60 percent of the fuel supplies sold to farmers.
Unfortunately, the landlocked refineries such as Midland’s have no
access to foreign crude. Prior to the lifting of import quotas, they
were able to get domestic crude by trading their import tickets. Now
with no quotas involved, their tickets are not tradable. In the in
stance of most inland refineries, they would not be able to use the
kind of crude oil that is available on the foreign market today. Most
available foreign crude is apparently of the “sour” variety and not
compatible with the refining capability of these inland refineries.
Some people insist there is no shortage and that it is only a figment
of imagination. But it can happen, and it is happening in Minnesota
right now. In recent weeks, we have received the following reports,
as examples:
(1) Metro 500 has been forced to close all of its gasoline stations
and to lay off over 200 workers. No gasoline.
(2) Planned expansion at Duluth International Airport is threat
ened because the major charter airlines planning stops there are un
able to secure contracts for 12 to 14 million gallons of jet fuel.
(3) It is reported that Advance United, Werner Continental,
Briggs, and Glendenning, all major freight truckers, are unable to
renew contracts for gasoline and diesel fuel. Some of those contracts
expired yesterday.
(4) In Glencoe, the municipal electric plant is unable to secure a
diesel fuel contract to operate its generators.
(5) The State of Minnesota is able to get contracts for fuel only
on a short-term basis, 30 days.
The fuel shortage is more than just the requirements of one State.
It is a part of the worldwide energy crisis now facing us. The short
term explanation for why the shortage is occurring is this: Our short
age is due to a combination of factors that have suddenly converged—
ecology, technology, and economics—each playing an important role.
Industry spokesmen cite the need for the Alaskan pipeline, further
offshore drilling, and the lack of refining capacity as major reasons
for the shortage. In addition to these reasons, the fact remains that
we, first as a nation and ultimately as a planet, are just plain running
out of oil. Where the petroleum industry used to be able to tap gushers
54
of crude easily, they now get only a trickle. There is enough crude oil
underground to supply the world for perhaps another hundred years.
Unfortunately, it is located in the wrong place as far as the United
States is concerned.
National demand for oil at this time is for about 15 million barrels
per day. The best our domestic oil fields can produce is about 11.5
million. Thus we must turn to imports for the balance. It has been
estimated that imported oil will account for some 30 percent of our
total supply by 1975. The world oil market is somewhat unstable, and
there is very little happening that would indicate improvement in the
near future. The overall foreign trade picture demands that we limit
the purchase of foreign oil. Overybuying of oil could very well increase
our trade deficit to endanger the dollar in the world monetary market.
For security reasons, we must avoid too great a dependence on foreign
oil. We cannot place ourselves in a position where the oil-rich nations
can maneuver us to suit their desires or ambitions; already a group of
the oil-rich nations have gotten together to successfully manipulate
prices. What is to stop them from next demanding arms or political
concessions?
We in Minnesota have monitored the situation carefully. In recent
weeks, it has been deteriorating rapidly. For the most part, the prob
lem is out of our hands. Minnesota is not in a position to take unilateral
action. All of our fuel must come from outside the State.
If the nationwide shortage is going to be as harsh as what is in
dicated for Minnesota, one of the immediate needs is for a plan that
will apportion an appropriate share of the supply available to each
State. If a State could be assured of, say, 90 percent of the amount
used the previous year, there would at least be a basis from which to
)lan allocations and establish priorities. If industry is allowed to estabish its own allocations it will be profit oriented rather than based on
a balanced share.
In some instances industry has begun programs of conservation. I
believe very strongly that Government and industry should get to
gether in a unified appeal to the public, asking everyone to take sug
gested steps in conserving fuel. Such things as lower driving speeds,
using public transportation, and organizing car pools could actually
have a marked effect on fuel usage if the general public were ap
proached properly. The most effective way of launching such a cam
paign would be for the President to take a leadership role with a pub
lic appeal for appropriate conservation.
Alaskan oil, offshore drilling, and new refineries are 5 to 7 years
away. In order to avert a disaster we must take these short-term steps
now.
In summary, Mr. Chairman, I would like to indicate that some of
the figures we have kicked around here today are most pertinent as far
as we are concerned in Minnesota. We have heard of a 2-percent short
fall, a 5-percent shortfall, perhaps, and like the independent dealers,
we look at it as a single State. We do not feel that we are going to
experience just a 2- or 5-percent shortfall in Minnesota; our peculiar
position geographically puts us on the far end of the pipeline, so to
speak, with all kinds of leaks in that pipeline from the source to where
it finally reaches us. We foresee at least a 10-percent shortfall in Min
nesota, which would certainly be disastrous.
{
55
We foresee that shortfall at a time when we are talking about ex
panding agricultural production by 11 percent. We see projected in
creases in the use of gasoline of some 7 percent on a statewide basis,
perhaps even higher than that. Now these people are telling us in Min
nesota that they are going to abandon the market completely.
So if individual companies allocate to us even at 98 percent, we are
still going to be very short in Minnesota. Consequently, we have to ap
peal for some kind of an allocation that will give to each State as such
a proportionate share of what it got in previous years, whatever the
base year would be. So that these people who are telling us that they are
going to leave our State entirely, to quit marketing there, will at least
wait for a while, until adjustments can be made, until this new re
finery capacity can perhaps be generated, until the offshore drilling
can be completed, so that we will be able to balance this thing.
I would like to read a portion of a letter that the Sun Oil Co., one
of those companies that are abandoning Minnesota as a marketing
area, has sent to its dealers. It points out very clearly that the prob
lem is going to be much greater than what is indicated on a nationwide
basis. They say here:
Your business is located in an area where the Company has found it unsafe to
market economically. It is our desire to withdraw from the marketing of gaso
line, diesel fuels, and heating oils in your area. The Company is reluctant to take
this course of action and is doing so only after a thorough review of all the
facts. We are certain you as a businessman can appreciate our position. There
fore, since the company will be unable to renew its present agreement at its
expiration, please consider this your notice that effective June 1, 1973, Sun Oil
Company of Pennsylvania is terminating the jobber franchise agreement dated
June 25, 1957.
This is true throughout the whole jobber sector in Minnesota by the
Sun people and it is a similar story with Gulf. So if other majors are
going to supply at only 100 percent of what they are selling before, or
less than 100 as has been indicated today, we have a much greater prob
lem on our hands than has the Nation as a whole. We need at least
some idea of how much is really going to be available so we can do the
emergency planning necessary to get us through this critical period.
Chairman H u m p h r e y . Mr. Erchul, I want your office to take a look
at some of the proposed legislation before the committees of Con
gress. There are a number of bills, as you know. Some of them go
into what are considered anticompetitive practices; that is, possibili
ties of action by the Justice Department under antitrust laws. There
are other proposals that relate to fuel allocation.
I introduced on the 18th day of April Senate Joint Resolution 98
relating to nationwide gasoline and oil shortages. To be very blunt
about it, I introduced it after consultation with Mr. Gartner in my
office and others in your office and with members of the legislature at
home and after consulting other reports that we were getting from
around the country. I had the staff here of the Joint Economic Com
mittee to give me some valuable assistance in the preparation of this
resoltuion. And I noted what you said here. I said that, because Mid
west States are at the end of the pipeline, they have been the first to
feel the pinch and continue to be especially hard hit by the scarcity of
fuel in the light of evidence that has been available from some of the
States such as Minnesota, Iowa, Wisconsin, and other States in that
area. The question that I would like to pose to you is how serious do
56
you consider—well, let me put it this way before I get to the seriousness
of the situation.
There have been recommendations made, as you said here, about
the Alaska pipeline, about offshore drilling, about new refineries, and
even about a trans-Canada pipeline. Is it not true that practically all
of those measures are 3,5,8 years down the road ?
Mr. E r c h u l . Mr. Chairman, we think in our State that these things
are all 5 to 7 years down the road, that they are not an immediate
answer. The President’s energy message was excellent in the longrange view, but it fell far short of supplying our needs for this sum
mer and next winter.
Chairman H u m p h r e y . I have been trying now since about the 18th
day of April to get some interest in this little bill here. I do not say
it is the only one. I have read all about the President’s message, all
about the Alaskan pipeline, all about the trans-Canada pipeline. Just
to put it bluntly, we will freeze to death before that stuff gets here.
I have been saying so since I have been out home.
I was out talking to the chamber of commerce at Wayzata. I spoke
to the Minneapolis Grain Exchange about the problems of fuel and
their food crisis. I have introduced this legislation. Quite honestly,
it has been almost impossible to get any public notice. People do not
even know there is legislation before this Congress.
Were you aware of this bill ?
Mr. E r c h u l . Not that particular bill, no.
Chairman H u m p h r e y . Very interesting. But you were aware of
the fact that we have been discussing the trans-Canada and the
Alaskan pipeline ?
Mr. E r c h u l . Yes, sir.
Chairman H u m p h r e y . Which will do about as much good in the
next few years as blowing smoke up through an igloo.
Mr. E r c h u l . Yes, sir. It is not the answer in the short term and
we need something like your bill to get us over the interim period.
No question about it, we are in dire straits right now until something
like the Alaskan pipeline can happen. All of this gets fine publicity
and is nice reading. However, it is not the answer. If people are
allowed to quit selling in an area, it is just going to complicate matters
that much more as far as we are concerned.
Chairman H u m p h r e y . We have to have some system of fair allo
cation, is that not what it boils down to ?
Mr. E r c h u l . Yes, Mr. Chairman, that is exactly it. We do need
some kind of a regulated allocation, at least for the short term while
we can plan.
Chairman H u m p h r e y . That is what I am talking about, at least
for the next year, 2 years, until we can get hold of something here.
Mr. E r c i i u l . Yes, that is correct.
Chairman H u m p h r e y . Every bit of testimony I have read, and I
now have somebody, fortunately, on my staff, who is with us here
today as a congressional fellow, working specifically in this area of
energy, and I have been here in this room, as I have said before,
ffoing through in-depth briefings on the energy crisis that the Joint
Committee on Atomic Energy has prepared, as well as the Joint
Economic Committee, and everything tells us just one thing. If you
are a real optimist. I mean if you are just a little loony and a real
57
optimist, 3 years will give you some relief. But if you are a pragmatist,
a practical person, you are really talking 5 years. Is that about right ?
Mr. E r c h u l . Yes, sir, that is what it seems every indication is.
Chairman H u m p h r e y . D o you have any indication that the weather
is going to get better in Minnesota in the next 5 years ?
Mr. E r c h u l . Mr. Chairman, it is most unusual, as you have already
stated, that we had the mild winter that we did. We cannot depend
on that. We are going to be in trouble next year.
Chairman H u m p h r e y . And I read from the automobile industry
that they intend to sell about 11 or 12 million more automobiles next
year and that they will take from the road approximately three to
four, so there will be a net gain of automobiles of anywhere from 8 to 9
million on the roads consuming more gasoline. We will have our share
in Minnesota, is that not right ?
Mr. E r c h u l . Yes, that is absolutely correct. Given the amount of
gasoline we have, I am afraid we are not going to be driving those
automobiles, but rather, looking at them.
Chairman H u m p h r e y . Does the Minnesota Civil Defense Office, of
which you are the director, have plans to conserve or ration gasoline or
other fuel in the State ?
Mr. E r c h u l . Mr. Chairman, we have no absolute ration plans.
Chairman H u m p h r e y . I did not mean a stamp rationing system, but
I mean an allocation system.
Mr. E r c h u l . We have talked about an allocation system based on
priorities, giving top priorities to emergency services—hospitals, po
lice, things of that sort—and ending up with luxury driving, tourism,
and so forth. But, you see, one thing we are most concerned about at
this time is that we are entering into the season for what is one of our
greatest industries, the tourism business. The last thing we want to do
is take action as a single State that will drive away the tourist.
If people in Illinois and Iowa get word that Minnesota is leaning
toward rationing gasoline, they will be frightened away and go some
place else this year. The tourist industry has been calling that to our
attention regularly. We do not feel that a single State could success
fully perform an allocation on its own by itself.
Chairman H u m p h r e y . I would think that would be most unfair and
most likely unworkable.
Mr. E r c h u l . Yes, mostly unworkable. It just cannot be done accord
ing to everything we have tried to work out.
Chairman H u m p h r e y . Am I correctly informed that sometime,
either in December or January of last year, your office in cooperation
with the trucking companies and the petroleum industry got some
emergency fuel oil in from Canada ?
Mr. E r c h u l . Yes, sir, Mr. Chairman. It was a very difficult alterna
tive in that it was awfully expensive. We were able to make contact
with people in Canada who were willing to sell it. However, the price
was very high and the cost of transporting it, which at that time had
to be by truck, was just about prohibitive. However, we were faced
with the bus authority, for instance, in the Twin Cities just about run
ning out. Their contract had been canceled upon expiration. Conse
quently, they were one that had to go to Canada and get that oil.
The same was true with Midland Cooperatives, who were forced to
close down their refinery. They are not as profit-oriented as some other
58
businesses are, so they were willing to absorb the cost of going to Can
ada to get the fuel oil there, and the diesel oil. But it has happened
and there are people continuing now to get it. There is no gasoline
available there, however.
Chairman H um phrey . I took a survey at home this last week and I
found that the three issues that the people of Minnesota were talking
about were Watergate, gasoline—that is, fuel—and prices generally.
These are the three things. One of them was obviously the immediate
impact of what is so evident in the press and the media today of the
concern over the so-called Watergate situation. But when you really
got that out of the way and disposed of it the way most people were
disposing it, in the sense of disgust, they come right down and say:
“What are you going to do about this fuel situation?” I was in my
office and I want to say I had one person after another—the motor
transport people, the bus people, the agriculture people, the Midland
co-op people, everyone you can think of—just pouring in there talking
to me about the energy problem—I mean the fuel problem that we are
going to face. Not only that we do face but that we are going to face
this fall and this winter. Do you find this situation to be characteristic
of other States ? Do you have contact with your associates in, let us
say, the Dakotas, Nebraska, Iowa, and Wisconsin? Do you find any
comparable situation ?
Mr. E rchul . Well, Mr. Chairman, we talked with our counterparts,
in all neighboring States anyway. Nowhere has it gotten as bad as
it has in Minnesota for any length of time, but others, too, felt the
same shortage through the winter and are now talking about it in
gasoline. Wisconsin in particular is telling us the very same story that
we are telling them, that independents are going out of business. Inde
pendents in Iowa are going out of business. In Minnesota alone the
past month, there have been well over a 100 of these small stations,
independents, usually cut-price stations, that have just closed down,
locked the door and called it quits. They are not getting 50 percent,
they are getting zero percent. It is a very difficult situation.
Chairman H um ph rey . Have we not had stations that are closing
down part of the week and shortened their hours of business ?
Mr. E rchul . Oh, yes, there are another 200 that are doing that,
operating only daylight hours, giving only 10 gallons at a time. That
is not widespread yet, but it seems that, within the industry, that is
what they are talking about as their next move, to cut the amount they
will sell to any one person.
Chairman Humphrey. A s I said earlier today, the Minnesota Motor
Transport Association came to meet with me, outlining what they
considered the critical situation they face. They said they want to
know honestly from me what we are going to do about it. I said,
look, brothers, it is going to get worse before it gets better. I had to
tell them what appeared to me to be the truth.
The only answer I can see is some system of allocation. Do you
think it can be done effectively by private voluntary means?
Mr. E rchul . Mr. Chairman, I have thought about that since it was
suggested here this afternoon, and I am sure that the industry people
should be part of an allocation system. Their suggestions should be
listened to and adhered to, perhaps, to some extent. However, I do not
think that they alone have a broad enough interpretation of what
59
really is necessary. I feel that their orientation toward profit would
be such that they could not really do an effective job. I think it needs
a combination, Government and industry together.
Chairman H u m p h r e y . Do you expect imports to the east coast
terminal centers, the big deep water ports and all, to permit adequate
diversion of domestic crude and gasoline to the Midwest?
Mr. E r c h u l . Mr. Chairman, on the contrary, we do not see that
happening. There was a big move to import fuel oil early in the spring
and it did not increase our supply markedly at all.
The big problem is that the lifting of quota systems seems to have
worked in reverse on the situation of some of our people that refine
for Minnesota in that it keeps them from getting the oil they were
getting before rather than helping them.
Chairman H u m p h r e y . Because they could trade in their tickets
before?
Mr. E r c h u l . Yes. Before, their tickets were worth something. Now
they are worthless.
Chairman H u m p h r e y . Well, I want to thank you very much, Mr.
Erchul, for coming today. We compliment you on your leadership
out in the Midwest. I personally again want to thank you for your
cooperation with our office. It has been exceedingly helpful. I wish
you could come down and take a look at the mail that we have on the
fuel situation. That is one of the reasons this hearing is being held.
I actually have given up on knowing what to tell people, except to
tell them what we are doing legislatively and hopefully bring some
pressure to bear on the majors to make available this fuel on a fair
and equitable basis.
Mr. E r c h u l . Thank you, Mr. Chairman. We will do what we can
right along with you and hope we can get some solution for this interim
period.
Chairman H u m p h r e y . Thank you very much.
Our next witness is Mr. Anderson.
I am sorry to keep you so late. Mr. Anderson, would you come
forward ?
Mr. Anderson, you are chairman of the Subpanel on Research and
Development for Fuel Economy of the Transportation and Energy
Panel, is that correct, of the Department of Transportation ?
Mr. A n d e r s o n . Yes, sir.
Chairman H u m p h r e y . Well, the work of your Panel has been
stressed here today on the matter of fuel economy and conservation
and we will surely appreciate any testimony that you can give us
today.
Proceed.
STATEMENT OF WAYNE S. ANDERSON, CHAIRMAN, SUBPANEL ON
RESEARCH AND DEVELOPMENT FOR FUEL ECONOMY OF THE
TRANSPORTATION-ENERGY PANEL, DEPARTMENT OF TRANS
PORTATION
Mr. A n d e r s o n . Mr. Chairman, my name is Wayne Anderson. I am
permanently assigned at the U.S. Army Tank-Automotive Command
in Warren, Mich. During the past 15 years my position has been that
of director of the Propulsion Systems Laboratory, which deals pri99-740— 73------- 5
60
marily with engines, transmissions, and drive lines for military vehi
cles. This experience has caused a very close association with the auto
motive industry at large. Because of that experience, I was loaned
to the Department of Transportation to assist in their studies. One of
the activities within the Transportation Panel dealt particularly with
R. & D. to effect fuel economy m vehicles as they now exist. It focused
on the coming 5-year period.
The technique we used to address this problem was to assemble 15
experts, automotive experts, and arrive at a consensus of their experi
ence and judgment as to what could be done with the machines in
service today to reduce their demand for fuel. So I speak to you as
an engine engineer today, not as a representative of an institution or
an organization, but as part of the study 1 that was sponsored by the
Department of Transportation. May I share with you in digest form
the six statements that I have and then I would point out certain
illustrations in the backup material that may be of particular interest.
Chairman H u m p h r e y . Yes, indeed. We would like to make this—
this will all be made a part of our record, the entire testimony.
Mr. A n d e r s o n . Very fine, sir.
In summary, then, these experts may be identified by affiliation.
They represented the three major car companies in this country; they
represented universities that are particularly active in engine re
search. They also represented the independent research institutes such
as Southwest Research Institute, and agencies of the Federal Gov
ernment. That was the cross-section of the group. They concluded
as a matter of consensus:
(1) That technology is available to apply to the car and the truck
to save energy in the future.
(2) That a realistic cumulative potential energy savings is 30 per
cent—that is in this zero 5-year time frame.
(3) That energy-conserving changes will result in higher initial
costs to consumers even though life costs more likely will be less.
(4) That, due to other cost increases stemming from Government
standards, the consumer is less likely to be receptive to additional cost
for energy conservation.
(5) That providing the consumer with factual information concern
ing fuel savings potential, coupled with the building of demonstrator
cars and trucks, is expected to reinforce consumer demand to the
threshold level for “free enterprise” to take over and supply energyconserving vehicles. For this procedure, timing is uncertain.
(6) That stimulation and acceleration of the transition referenced
in 5 above is the key to the early achievement of fuel savings and ap
pears to be vested in sectors other than technological.
Next, I would like to call your attention to selected references. The
first one is identified as viewgraph No. 8.1 If that is handy to you, sir,
it shows the main approaches that were examined in rather complete
detail. This is what could be done. I call your attention to the lefthand
column, the first item under “A” , tire design. This particular innova
tion can be applied now and will result in a minimum of a 10-percent
energy savings across the fleet if production capacity exists in this
country to produce the necessary steel-belted radial tires.
1 See study, beginning on p. 61.
61
The other main thrust was what change could be made in new pro
duction. That is on the righthand side.
Then I would ask you to move on to viewgraph No. 12,1 where the
group quantified the expected savings in energy for each of those new
production features. You will note that the small car is not innovation.
That trend is already established and is occurring. The other changes
require a number oi people to do a number of things: Relief from
planned emission controls, for example. The Clean Air Act of 1970 is
directly influencing the use of energy to the extent of a 20- to 25-per
cent penalty from the 1968 to the 1976 model car.
I would then call your attention to the last statement on viewgraph
No. 13,1where it is restated that “in any event, the largest contribution
to save fuel in early time frame would be the introduction of a tire
with reduced rolling resistance, which in turn could lead conservatively
to a 10-percent reduction in fuel consumed.”
Now, on that particular feature I would like to make one more com
ment. It is a very simple one technologically, there is no limit to its
use. You can put it on your car. Trucks in particular have a very
great advantage. Some of our controlled experiments have provided
data indicating a 28-percent savings in fuel for intracity trucking,
where speed is low and the primary power demand is to overcome
rolling resistance, not air resistance.
Finally? I would like also to go beyond the group’s conclusions and
refer to viewgraph No. 15.1This now comes as an observation of one
engineer, yours truly. It was not a consensus of the group, but it is
one engineer’s opinion. That is that if we concentrate substantial re
sources on our engines, we could in a reasonable period of time achieve
compliance with the clean air requirements with milefe per gallon as
shown. Leading the list would be the introduction of a special kind of
diesel engine into the passenger car, with expected mileage of 21 mile«
per gallon as compared to what we foresee now in the 1975-76 period
for the conventional controlled auto at 10 miles per gallon. That is an
array of a technical preference that evolved from the study. It is not
supported by all of the experts. It is one engine engineer’s opinion only.
With that, Mr. Chairman, I will complete my statement at that
time and see if there are questions I could attempt to address.
[The attached study to Mr. Anderson’s statement follows:]
Su m m a r y
of
R. & D.
F u e l E c o n o m y tn A u t o m o t iv e P r o p u l s io n
Support f o r : A 4 0 - M i l e - P e r - G a l l o n C a r
fo r
ground
or
Back
ORAL PRESENTATION: SAE NATIONAL MEETING, JANUARY 1 9 73, DETROIT, MICH., AND
TRANSPORTATION AND ENERGY SESSION, JANUARY 9, 1973
(By Wayne S. Anderson, U.S. Army Tank-Automotive Command, Warren,
Mich.)
Thank you Professor McGowan. As always it is a pleasure to share experiences
with fellow SAE members. This morning I will address background for a
hypothesis: “A 40-Mile-Per-Gallon Car” As many of you know, the Office of
Science and Technology has supported studies to develop future demand vs.
availability information concerning the energy situation that faces our country
and to identify R&D goals to provide relief. One of 10 major panels addressing
transportation facets of the energy problem, was called the TransportatioiiEnergy Panel. I had the pleasure of serving as a member of this panel and in
particular to serve on one of eight working groups conducted by that panel. The
name of that group was R&D For Fuel Economy in Automotive Propulsion. The
1 See study, beginning on this page.
62
approach was to assemble a well informed cross section of automotive engineers
from industry, universities and government agencies with a goal to pool their
experiences and to project what changes in the typical car and truck could result
in substantial energy savings at the earliest possible time. Major concentration
was placed on next five years, and secondary emphasis on the five-to-ten-year
period. This work session was conducted in May of 1972. We had 15 members
who shared their personal and institutional experiences. This morning I will
share those composite experiences with you. At the completion of my presenta
tion of record of this event I will also share my personal forecast of the tech
nological limits to achieve the goal of a “40 Mile-Per-Gallon Car”.
First lets put the transportation and particularly the highway vehicle demand
on energy into perspective.
Viewgraph 1
This illustration depicts the total US energy use broken up into two major
categories: residential industrial and commercial vs transportation.
You will note that the basic reference is for 1969 and the projection is forward
to year 2020. Units for this energy are in BTU’s X 10*5. Note that total energy
use is projected to increase to 182 from the 1969 reference of 53. Also significant
for our future consideration is the fact that 28% of total energy in 1969 is
consumed by transportation and will continue at the 27° level in the forward
year of 2020. Examination of the transportation demand in more detailed break
out is shown on the next slide.
Vi etcgraph 2
In this case we will look at the demand for transportation only. That trans
portation demand is subdivided into four categories; bus-rail- & ship, truck, air
and auto. Note that the auto demand in 1969 is 52% of the total transportation
demand. Air in the 1969 reference is only 14%. The forward projection to 2020
shows a significant shift to air at 36% with both trucks and autos declining,
auto’s to the 36% level.
Viewgraph 3
We are looking in particular at the oil portion of the energy situation. Now
we have the U.S. total oil demand and the transportation oil demand shown. I
call your attention in particular to the U.S. production rate, the lower trace
on curve, as compared to world production of oil (upper curve). You will also
note that U.S. production in 1969 was about equal to the U.S. transportation oil
demand. To meet the total U.S. oil demand still required some 25% import.
Although I am obliged to defer further analysis and forecast of the future oil
market to experts in that field, a safe conclusion is that with regard to oil, the
situation is to become acute in the foreseeable future. Now that we have agreed
that transportation energy and in particular the demand for oil is significant
lets go back and look at typical performance maps of the two types of vehicles
which will consume most of the oil—the passenger car and the truck.
Viewgraph 4
On this viewgraph is shown a typical sedan weighting about 4000 pounds with
a performance at 1970 level. For convenience of illustration a four-speed stick
transmission is shown which provides a simplified presentation wtih N/V ratios,
dependent. Power requirements are shown starting with 0% up to a 10% grade.
I call your attention to the power required to move the car. At 80 miles per
¿our up a 6% slope, air horsepower is the dominant requirement, grade horse
power is second and the rolling horsepower is third. The upper boundaries of the
saw' tooth curve represents gross flywheel horsepower and the third or lower
boundary represents net power available to wheels. The upper area is fan and
accessories losses and next transmission and drive line losses, and the larger
area below the two saw toothed areas and above the 0% grade line is an indica
tion of driveability or driver option power. Your attention is invited to what
might be called excess power since this vehicle can negotiate a 10% grade at
about 80 mph in high gear.
Viewgraph 5
With this array or power requirements in mind lets look at viewgraph 5 which
depicts a similar map for a 25,000 pound truck. For simplicity the transmission
shown is a five-speed stick. Now I call your attention to the power required at
42 mph. You will note that for this vehicle to negotiate a 3% grade has required
a shift from 5th back to 4th speed and this will provide about 45 mph. maximum
63
speed. When the grade increases to 6% it is necessary to shift back to 3rd speed
with about 27 mph. speed achievable.
You will also note that at the first referenced 42 mph. speed of the grade horse
power required now is No. 1, rolling power is No. 2 and air resistance power is
No. 3.
Viewgraph 6
On viewgraph 6 is depicted an island curve of a gasoline engine which might
be installed in that 25,000 pound truck. Now let’s examine more closely how the*,
engine matched with drive line ratios permits the operator to match his engibe*
and vehicle to achieve a minimum fuel consumption. Note the dotted 1% grade
line and the point adjacent at 47 mph.
At that particular speed-load condition, fuel consumption is about .63. That
power is also available at lower engine speed (visualize horizontal projection to
the left to intersect the dotted green line), and better fuel consumption which is
about .54. That particular transition could be accomplished by a ratio change
of approximately 1.42 to 1. Such an overdrive speed would then provide the
equivalent vehicle performance delivering the same power but at a more efficient
engine speed-load. Hence the fuel advantage is a reduction of .08 over .63 or
approximately 13%. This is typical of the advantage of “load-factor” or driveline matching. It could be achieved by several means, one of which is to offer
more ratios or steps in the transmission. Such an action generally results in a
premium cost for the drive-line elements.
Hence for a 25,000 pound GVW truck we expect that load-factor adjustment
could provide about 13% energy savings at a cruise condition. Due to the higher
power-to-weight ratio, the car expectation is greater and could approach 20-25%.
Applying this kind of modification, our workshop estimated that 10-15% energy
savings would be realistically achievable over a duty cycle.
Viewgraph 7
Similar consideration was applied to 11 approaches and the resulting consensus
judgements of the group are shown here in terms of benefits in percent of energy
savings. These 11 approaches were divided into “now” and “later” categories,
then ranked and reexamined for production readiness time. Then we made ele
mental estimates of cost to consumer and adjusted the ranking of the 6 surviving
near-term potential innovations. There follows a set of 4 slides to illustrate
such a manipulation.
Viewgraph 8
The group emphasized that short-term energy savings could best be achieved
by changes introduced now to the 100 million vehicles on the road. Any change
applied to new production would be limited to the 10 million new vehicles
produced annually and hence full energy benefit would accrue after 10 years.
Viewgraph 9
The radial tire advantage is outstanding in potential because of the pos
sible early application to many of the 100 million vehicles in use today. The
lower portion of the slide represents future production changes with full value
of energy savings on each vehicle built and introduced to service.
Viewgraph 10
Reexamining and concentrating on two future production time periods of
0-5 years and 5-10 years forward, we noted that all but item 5—the lean
fuel/air (stratified charge or Diesel) engine—could be available in the 0-5 year
category based on a known technology. With reasonable development efforts
the lean fuel/air engine is expected in the 5-10 year period.
Viewgraph 11
Now the less attractive side of the coin—what is the expected change in
acquisition cost to the consumer? Would it be more or less, and high or low
in each category? Our group loosely defined low as about $100-200 and high
as $300-500. For example item 7—small base engine (6 cyl. with turbo vs 8
cyl. naturally aspirated)—is expected to cost the consumer slightly (around
$100) more, due primarily to the cost of the turbo charger and controls which
exceeds the differential between the 6 cyl. and the 8 cyl. engine.
64
Viewgraph 12
Here is shown a reranking based on elemental cost-benefit considerations.
Note that the group displaced the lean air/fuel engine to number 5 position.
This list represents composite experiences and judgments of a 15-man jury
about May 1972. By either changing membership of the group or time and
place of the meeting I would expect some variation of opinion.
However, this particular output of May 1972 is basis for a hypothesis as
described in following conclusions and recommendations.
Viewgraph 13
Conclusions.
Viewgraph 14
Recommendations: In closing I would like to share with you my personal
prediction of how various engine types rank to provide most energy conserva
tion for the car. “The Car” is the family sedan weighing 4300 pounds, and units
of conservation are miles-per-gallon over the Federal Driving Cycle. The more
I have thought about the workshop consensus which I just reported the more
I have been attracted to the virtue of the Diesel.
Some of these subtle inherent advantages are: excellent SFC, absence of
pumping loop, amenability to turbo charging and fuel trim of torgue rise, and a
healthy appetite for rather wide band of fuels not requiring high octane or
lead additives.
Some associated limitations are startability, noise, and odor. I am prepared
to rank car engine choices to be faced in the 5-year and perhaps even the 10-year
forward periods. My “guesses” are shown on this final slide.
Viewgraph 15
Assuming there are about 100 people in the audience I don’t expect more than
100 different opinions unless you talk me into changing my mind.
Based on the foregoing I predict that the most energy-conserving family sedan
weighing about 4300 pounds and achieving 1970 acceleration and performance
levels, but complying with 1975-76 Emissions Requirements, would be one with
a Diesel engine with precisely matched drive-line. Such a vehicle should ap
proach 21 miles per gallon.
To achieve another step toward “40 mpg” would require a smaller car ap
proaching 3000 pounds with frontal area reduced to 75% and Aero Drag (Cd)
reduced to 50% of present models. Such a set of boundaries support the tech
nological forecast of about 25 mpg. This would require application of a systems
engineering optimization of the 6 factors in the base report, including the use of
radial tires.
Unfortunately the “price” to the consumer to buy the energy-conserving car
would most likely be at least $500 more, if the Otto cycle engine were rematched,
since the engine after “treatment” is expected to be similar to present plans.
I suggest that the more ambitious goal (the lightweight Diesel) could reduce
the acquisition cost premium and offer a potential energy savings as high as 50%.
Thank you for allowing me to share with you one memorable occasion of my
engineering career, i.e., my recollections of Workshop #8, which included 14
members of the automotive “intelligencia” and one Pennsylvania Dutchman—
Anderson.
I also thank you for allowing me to voice a personal forecast via my last slide.
Please remember that it is my forecast and does not represent a considered
opinion of the 14 experts.
I would be happy to try to answer your question.
Thank you.
65
BTU'S X 10
VIE WGBAPH 1
U.S. ENERGY • END USE
V lE W G R AP H 2
50 48
BUS RAIL SHIP 1 2 %
40 -
TRUCK 1 6 %
30
18
1BUS RAiL
}
TRUCK 2 3 %
Ì
10
It
ÌTm j B ì
AUTO 5 2 %
AUTO 3 6 %
n
»
REFERENCE
1969
PROJECTION 2020
U.S. TRANSPORTATION ENERGY DEMAND ON OIL
66
PRODUCTION
BILLION BARRELS PER YEAR
VlEWGRAPH 3
1969
2020
OIL MARKET
VlEWGRAPH 4
POWER AVAILABLE AT WHEELS • HP
y— FAN & ACC
VEHICLE S P E E D . MPH
PREFERENCE AUTO" POWER - SPEED MAP
67
VlEWQBAPH 5
VEHICLE SPEED • MPH
"REFERENCE TRUCK" POWER • SPEED MAP
68
V ie w g r a p h
160 -
6
REFERENCE TRUCK-*
2 1/2T ARMY, 2 5 0 0 0 GVW. 361 CU. IN. ENG
140 -
-
•100
■
POWER
AVAILABLE
AT WHEELS
• HP
12 0
8060-
40 -
1000
3000
2000
TRANSMISSION
Y ie w g r a p h
4000
DRIVELINE MATCH
7
Rm v List of Topics for Further Examination
Benefit
(percent)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Load factor____________________________________________________________ 10-15
Relief from planned emissions controls------------------------------------------------ 20-25
Liquefied gas fuels_____________________________________________________ _____
Small car-----------------------------------------------------------------------------30
Lean fuel/air engines------------------------------------- ------------— --------------------20
Extend analysis of highway— vehicle— passenger systems----------- ------- 35-85
Small base engine with boost------ .— ----- --------------------------------------------15
Reduce aerodynamics drag_______________________ ____________________
5
Tire design to conserve energy------ ----------------------------------------------10
Fuel— engine match___
—
----------------------------------------------- unknown
Idle shutoff_______________ — ____ _________________________________ unknown
Y ie w g r a p h
8
Topics by Categories Based on Application
A. IM M ED IATE APPLICATION
B. EFFECTIVE IN
1. Tire design.
2. Liquefied gas fuel.
1. Load factor.
2. Relief from planned emissions con
trols.
3. Small car.
4. Lean fuel/air engine.
5. Small base engine with boost.
6. Reduced aero drag.
7. Fuel— Engine match— further study
required.
8. Idle shut-off— further study required.
3. Systems studies
N E W PRODUCTION
69
Y
ie w g r a p h
9
Ranked List of A ( “Now” ) Category
Energy benefit ( percent)
1. Systems studies---------------------------------------------------------------------------- 35-85
2. Tires____________________________________________________________
10
3. Liquefied gas fuels________________ ___________________________ negligible
Ranked List of B (“Later” ) Category
1.
2.
3.
4.
5.
6.
Energy bene
fit ( percent )
Small car________________________________________________________
30
Relief from planned emissions controls_____________________________ 20-25
Lean fuel/air engine______________________________________________
20
15
Small base engine with boost______________________________________
Load factor---------------------------------------------------------------------------------- 10-15
5
Aerodynamic drag------------------------------------------------------------------------Y
ie w g r a p h
10
PRODUCTION READINESS EXPECTATION OF RANKED B (“ LATER” ) CATEGORY
5 to 10
years
0 to 5 years
1.
2.
3.
4.
5.
6.
Small car................... ...................................................
Relief from planned emissions controls...................................
Lean fuel/air engine................................................... ......
Small-base engine............................................................
Loan factor.....................................................................
Aero drag......................................................................
Y ie w g r a p h
Yes..
Yes
No
Yes
Yes
Yes
Yes.
....... Yes.
Yes.
....... Yes.
....... Yes.
....... Yes.
11
CHANGES OF IN ITIAL COST TO CONSUMER
Less
More
High
1.
2.
3.
4.
5.
6.
Low
Small car................ ......................................................
Relief from planned emissions controls......... .........................
Lean fuel/air engine.................................................. X
Small-base engine .
- ................................. ..... .. __....... X
Loan factor___ _ _
..................................... ............. ........ x
Aero drag......................................................................
e>-
High
Low
X
X
......
i Negligible.
Y ie w g r a p h
12
Adjusted Ranking Based on Elemental Cost—Benefit Consideration
Energy bene
fit ( percent)
1.
2.
3.
4.
5.
6.
Small car________________________________________________________
30
Relief from planned emissions controls____________________________ 20-25
Load factor----------------------------------------------------------------------------------- 10-15
Small base engine with boost__ .___________________________________
15
Lean air/fuel engine______________________________________________
20
Aerodynamic drag------------------------------------------------------------------------5
N ote .— Primarily cost, but to some extent time of production, readiness were considera
tions in displacing lean air/fu el engine from 3 to 5 position. Also simplicity and early
availability, and absence of fuel octane increase considerations were reasons for load factor
to precede small base engine in final ranking.
70
V
ie w g r a p h
1 3 .— C o n c l u s i o n s
1. Technology is available to apply to the car and truck to save energy in
the future.
2. A realistic cumulative potential energy savings is 30%.
3. Preoccupation with achievement of regulatory requirements, in particular,
the 1976 levels of emissions controls are heading for energy extravagant solu
tions with fuel penalty of 20-25%.
4. Technology is available to offset this 20-25% penalty by application of re
sources toward production readiness of the energy savings technologies. Energy
consumption could be held status quo even though emissions cost would be
20-25%.
5. Energy conservative changes will result in higher initial cost to consumer
even though life costs most likely will be less.
6. Faced with the cumulative regulatory effect on initial cost by emissions
control, damage limiting design, and safety, the consumer is not likely to be
receptive to additional cost for energy conservation.
7. Although “free enterprise” application of energy saving changes is con
sidered best, it is unlikely to happen in the current economic environment.
8. Motivation (consumer pressure) is the key to rapid progress to achieve
energy conservative measures for which technology is available.
9. Means to activate energy conservative measures should be addressed en
compassing the whole spectrum of alternatives including socioeconomic, regula
tory, legislative as well as the limited consideration of technological leverage.
10. In any event the largest contribution to save fuel in the earliest time frame
would be the introduction of a tire with reduced rolling resistance which, in
turn, could lead conservatively to a 10% reduction of fuel consumed.
Y
ie w g r a p h
1 4 .— R
e c o m m e n d a t io n s
1. That available tire design information and experimental data be re-examined
to verify the expected reduction in fuel consumption of at least 10%, and that a
knowledgeable study group, involving at least Government and car, truck and
tire industries, be assembled to address means to accelerate availability of such
improved tires.
2. That factual information be made available to the consumer through various
educational media, concerning conservation of energy and individual consumer
operating expenses for cars and trucks which could be expected from alternatives
such as those discussed in thi,s report.
3. That Government agencies and automotive and truck companies re-optimize
their vehicle design alternatives and identify energy conservative vehicles which
could be made available to respond to the expected consumer demand. (Consumer
demand is expected to be triggered by increasing cost of energy.)
4. That the proper Government agencies examine regulatory or taxation alter
natives on energy use to accelerate an earlier stabilization of the energy market.
5. That middle time-frame highway vehicle planning use the assumption that
natural or synthetic petroelum will be the abundant fuel through about 1985.
6. That fuel cost growth expectation by 1985 be assumed at 2.0X1970 cost to
accelerate earlier stabilization of the energy consumption in highway vehicles.
7. That the Government should sponsor an R&D Program to identify more
clearly engine concepts for highway vehicles with a tolerance to operate on the
promising alternate fuels being addressed by the energy industries. (Such a
basic study would provide centralized visibility and insight to improve structure
of longer range engine R&D plans and programs to optimize utilization of limited
dollar and talent resources.)
V ie w g r a p h
15
Engine selection— Contribution to fuel savcings
Miles per
Engine type:
gallon 1
21
Diesel (lightweight)______________________________________________
Stratified charge-------------------------------------------------------------------------- 15-17
Brayton (adv gas turbine)______________________________________13-15
Precontrolled otto------------------------------------------------------------------------14
Rotary otto (wankel)____________________________________________ 10-11
Controlled otto___________________________________________________
10
1 MPG, normalized to a family sedan weighing 4,300 pounds on the 1975/76 driving cycle.
Note.— 6
backup illustrations regarding viewgraph 15 follow :
Power
(Z
of
Rated)
71
0
25
50
SPEED
a
75
of
Rated)
PtìwER
il
o? Rated)
GASOLINE ENGINE PART.LOAD PERFORMANCE
DIESEL ENGINE PART LOAD PERF081ANCE
¿00
(Z of Rated)
72
Power
JLevel Road Power
Demand
SPEED
(2
of
t o )
HYBRID ENGINE PART LOAD PERFORMANCE
Le v e l Roaj> Power
Dskand
TURBINE ENGINE PART LOAD PERFORMANCE
73
WANKEL ENGINE PART UOAD PERFORMANCE
IOO-Í
75vu
O
ÌHS
50-
te,
IÜ
'S
C
¿2
25-
*25“
§5
7§
S p e e d (Z
I3o
of
Ra t e d )
ENGINE PART LOAD PERFORMANCE
(Best I sland at Constant SFO
74
Chairman H u m p h r e y . First of all, Mr. Anderson, we do want to
thank you, particularly because the information that you have given
to us here for purposes of this subcommittee is based upon consider
able research and apparently has scientific evidence to support it.
It appears that—well, one interim solution that has been suggested
for the shortage of gasoline would be for the automobile manufac
turers to make standard on automobiles an economy rear axle ratio
which is now offered as an option. What do you think about that ?
Mr. A n d e r so n . That is a good alternative. It is one of the alterna
tives the group addressed. It is under a generic title of engine load
factor or the matching of the engine to the need of the vehicle on the
road. A two-speed axle is one way to do it. Perhaps an example most
people will remember is the overdrive option that was with us in the
mid-1950’s; I think Borg-Warner might have been the only manufac
turer. It was commonly called the Borg-Warner overdrive.
Chairman H u m p h r e y . Yes.
Mr. A n d e r so n . It is an excellent alternative.
Chairman H u m p h r e y . Does it give good performance—I mean in
terms of car control ?
Mr. A n d e r so n . Yes; there was complete control. There was nothing
that was unsafe. But on the other hand, as you optimize your trans
mission, you are getting more transmission, and the whole scheme is to
go to a smaller engine as you suggested in your opening statement.
Chairman H u m p h r e y . Yes.
Mr. A n d e r so n . Then you go to a bigger and more complex trans
mission. Every time you do that, although it is optimized for economy,
it can be abused by the driver’s intent on abusing it, because he has
more selection of speeds and more control and he can use every feature
that was designed to save fuel for hot rodding and very high usage
of fuel.
Chairman H u m p h r e y . Yes.
You indicate that the technology is available to offset the 20- to
25-percent fuel penalty being paid for emission controls. Would you
clarify again just what innovations you have in mind and what order
of priority you would introduce them in?
Mr. A n d e r so n . The order of priority would be based on what we
could do first, which would be the tire and the load match, including
a reoptimization of the drive line. Then right at the end of that 5-year
period, and maybe out into the 5- to 10-year period, would be the trend
toward the “lean air-fuel” engine, which is a generic name our group
assigned. This includes a “stratified charge” engine and diesel in the
same generic category. This engine has been sponsored by my home
base within the Army, for their own purposes. It is this type of engine
that first passed the public test and disclosure requirements for new
1975-76 vehicles, requirements that the President referred to about 2
years ago.
Chairman H u m p h r e y . You seem to indicate that the lightweight
diesel engine is one of the better answers to conservation of fuel. Is this
engine now at a stage of development at which the Federal Govern
ment should try to encourage its earlier adoption or production ?
Mr. A n d e r so n . N o , sir, this engine does not exist today. It is a
combination of existing technologies.
75
Much of the technology was in fact sponsored by the Army for their
purposes for the lightweight diesel, but it was m the higher power
range. What needs to be done is take that technology, that type of
technology, and scale it to the size for the passenger car and in accord
ance with passenger car engine mass production practices, using major
development programs, sir.
Chairman H u m p h r e y . Yes, sir. Just how rapidly can we convert
our automobile stock to these easy rolling steel-belted radial tires and
how many can we make, let us say, by 1975 ?
Mr. A nderson . I am not expert in the production capacity of the
tire industry. The only major car company that has announced their
intention to have all new car production include the steel-belted radial
has been Ford and they are announcing that their expectation is in the
1975 to 1976 time frame. I do not know it exactly. The tire industry
is working very hard to change over their production base, but it is
limited. But as far as the individual car is concerned, there are certain
supplies available and you can enjoy the benefit of the 10-percent sav
ings as quick as you can change the set of tires on your car, sir.
Chairman H u m p h r e y . Very g oo d .
Mr. Anderson, we had a chance to review your prepared documenta
tion and I want to compliment you on it. Why have these readily avail
able ideals for fuel economy which you have presented, why have they
not been more enthusiastically adopted by the auto industry ?
I said here a while ago, you may recall, to the petroleum people,
I said, do you people not talk to each other? Is there not any com
munication ?
Mr. A nd er so n . I do not know. I have an opinion. I think it relates
to what happened to the Borg-Warner overdrive. I would answer the
question with what happened to the hydramatic transmission of the
early 1940’s. Apparently, you and I as buyer convinced the seller that
he ought to make a little more sophisticated machine that would be
smoother, would have less noise associated with it, and I as driver
would have to do less. They just lost, they were lost in the marketplace.
They did not sell.
In the years of the available and cheap gasoline, it was less expensive
to make the big engine and the little transmission, and it was smoother
and it was a quieter sort or set of power machinery and the buyer
was well satisfied.
Chairman H u m p h r e y . I remember talking to one of the leading
automobile distributors in the Midwest and I remember this gentle
man saying to me with a kind of sadness and anger at the same time,
he said, “ You know, the designers and the engineers, they never talk
to those of us who sell the car. They just make it and say, this is it,
and go sell it.”
Now, maybe that is an exaggerated statement, but the man who told
me is a man who has been in business for over 50 years and one of
the largest distributors of a General Motors products in the Midwest.
He is an honorable man. And I met with some of his people. I could
not quite believe that and he said, this is literally true. He said the
engineers—you ask questions, why did they put this in there. First of
all, it turns out that something is not safe and that the customer really
does not like it and that the retailer has to go and explain it and try
99-740— 73------- 6
76
to make it look better than it is and the average fellow who can come
in out of the rain knows it just is not what he really ought to have.
So you ask the simple question, why did this happen?
He will say very honestly, well, nobody ever asked us. The engineer
ing industry and the automobile industry apparently is done by people
who are like artists. They are moody. They like to take a look at what
they like, rather than what the public may indicate that it wants.
Mr. A n d e r s o n . I am in no position to speak to that.
Chairman H u m p h r e y . It is sort of like women’s shoes, you know.
Mr. A n d e r s o n . A s I say, I am in no position to speak for the indus
try, but on the other hand, I do work with them on a daily and weekly
basis and I can assure you that they are sensitized to the buyer’s and
driver’s needs.
Chairman H u m p h r e y . When they put that fender on there that
stabbed everybody—do you remember a few years ago ? I mean it was
a spear. My God, it was a threat to life and limb and property, that
big “pizzazz” that came out in the back, that flash fender. Now, who
ever thought that one up?
Mr. A n d e r s o n . I think perhaps I am falling into the vernacular
here. I call that man a styler or a designer, and the engineers and the
stylists never have gotten along, and I am not so sure they will, Mr.
Chairman.
Chairman H u m p h r e y . OK. Well, listen, we are going to let you go.
I have a visit with the Chancellor of the Federal Republic of Germany
in another building, and I had better get there.
In the meantime, on behalf of the subcommittee and the committee,
I want to thank you for the time you have taken in the preparation
of your testimony and for the material that you have given to us,
which will be very helpful in the writing of our observations and
report. Thank you very much.
Mr. A n d e r s o n . Thank you.
Chairman H u m p h r e y . The subcommittee is recessed until tomorrow
at 1 p.m.
[Whereupon, at 4:30 p.m., the subcommittee recessed, to recon
vene at 1 p.m., Wednesday, May 2, 1973.]
THE GASOLINE AND FUEL OIL SHORTAGE
W EDNESDAY, M A Y 2, 1973
C ongress of t h e U n it e d S t a t e s ,
S u b c o m m it t e e o n C o n s u m e r E c o n o m ic s
of t h e J o in t E c o n o m ic C o m m it t e e ,
,
Washington D.O.
The subcommittee met, pursuant to recess, at 1:20 p.m., in room
;S-407, the Capitol Building, Hon. Hubert H. Humphrey (chairman of
the subcommittee) presiding.
Present: Senators Humphrey and Ribicoff; and Representative
Carey.
Also present: Loughlin F. McHugh, senior economist; William A.
Cox, Jerry J. Jasinowski, John R. Karlik, L. Douglas Lee, and
»Courtenay M. Slater, professional staff members; Michael J. Runde,
administrative assistant; and Walter B. Laessig, minority counsel.
O p e n in g S t a t e m e n t
of
C h a ir m a n H
umphrey
Chairman H u m p h r e y . We will proceed, and I am sure that you
know, Mr. Secretary, that we have a vote today on a couple of things,
as well as a conference, and our schedule for the day has been chopped
up without any way to do much about it.
I want to welcome you to the subcommittee and thank you for your
cooperation.
Yesterday we heard testimony from an integrated oil company—
Texaco—two independent gasoline dealers, and the director of Minne
sota Civil Defense, who is trying to prevent fuel shortages in Minne
sota from becoming a full-scale disaster. We also heard from an expert
on automotive fuel economy.
Their testimony and other available estimates indicate that there
will be a gasoline shortage this summer of between 2 and 5 percent
nationwide, and 10 percent or more in certain hard-hit areas like the
upper Midwest. Supplies to independent dealers, however, are down
already by an average of 25 percent, with complete shutdowns in some
places, and they presumably will deteriorate further unless some
thing is done to prevent it.
This shortage derives from a tight supply of crude oil and from a
shortage of refinery capacity. It is expected to worsen somewhat
through at least 1975 or 1976, and will continue to be felt for at least 5
to 7 years. Present indications are that it could be resolved toward the
end of this decade, provided that new crude supplies are developed and
that transport and refining facilities are expanded vigorously during
this time, but this may not be easily accomplished.
(77)
78
Company spokesmen, including the independent dealer, stated yes
terday that prices of gasoline would have to rise by from 5 to 10 cents
per gallon in the near future to cover the cost of importing supplies
from Europe, where the price is presently very high. An outside report
suggests, however, that it would be more economical to turn up gaso
line output at domestic refineries as much as possible at the expense
of heating oil and diesel fuel production, and to import these latter
products of which there is a more, elastic supply abroad. The most
hopeful testimony heard yesterday was that on possibilities for im
proved automobile fuel economy. The witness stated that the change
over to steel-belted radial tires would save about 10 percent on gaso
line consumption, and that inclusion of a now optional economy year
axle ratio as standard equipment on automobiles might save another
10 percent within several years.
Today we have the pleasure of hearing the administration’s view
point on this situation, from Mr. William Simon, Chairman of the
administration’s Oil Policy Committee. I hope that Mr. Simon will
expand considerably on the statement on energy issued by the President
on April 18. Although that statement contains numerous proposals
worthy of consideration by way of longrun measures to resolve this
situation, it contains nothing on ways to deal with the immediate
crisis of this summer and next winter. Mr. Simon, I hope that either
in your statement or subsequently, you will address the question of
how to assure adequate fuel supplies to areas from which commercial
suppliers are withdrawing, as some have done in my State.
I have just left a meeting of Senators from all of the Midwestern
States, and the situation in States like Illinois, Iowa, Missouri, and
Wisconsin is not only difficult but is approaching crisis proportions.
One hour ago—in fact, 12:30 today—I was on the telephone with
the Skelly Co. We already have had notification in the State of Min
nesota that—as of May 1, yesterday—that all propane for all indus
tries is out. That means for our farmers, and may I say in the presence
of my distinguished colleague from Connecticut, that, if we don’t
have propane in the Midwest for soybeans and com, the prices of these
Droduets and their derivatives will go through the roof. That could
happen from a 10- to 20-percent reduction in crop. We can’t let it hap
pen ; and the danger is for this fall, it isn’t 2 years from now. I am not
worried »about 1985. In the long run, we are all dead. In the meantime,
we have some living to do, and the situation on natural gas and propane
for agriculture is now of critical proportions; it is Absolutely basic
if we are going to have the food supply that we need; and for industry,
of course, it is aiso critical.
On the gasoline shortage, again I had a report this morning from my
home State. More stations are closing their doors. Senator Adlai
Stevenson just spoke to me a few minutes aw and reminded me of the
testimony he has taken in the State of Illinois, where hundreds of
independent dealers are closing their doors, unable to serve their cus
tomers. It is to this I wish you would address yourself.
Senator Ribicoff, do you wish to make any remarks?
Senator R ib ic o f f . Thank you, Mr. Chairman.
First, Mr. Chairman, I think we are fortunate in having with ns
Secretary William Simon who hag major responsibilities in this field.
When the creation of his Oil Policy Committee and related changes
79
came before the Congress, it first came to my Subcommittee on Ex
ecutive Reorganization. At that hearing, Mr. Simon made some prom
ises, and to my knowledge he has carried them out. I told him then
that I thought he had one of the toughest jobs in this country, and I
wished him luck. I still wish him luck.
Mr. Chairman, we have to vote at 2 o’clock, and there is a long pre
pared statement. I am wondering if the statement couldn’t go m the
hearing record. I have two specific questions affecting fuel shortages in
Connecticut, as you have in Minnesota, and I wouldn’t like the hour of
2 to go by without having the opportunity to ask these two questions.
Chairman H u m p h r e y . We will, of course, incorporate the full text
of your prepared statement in the record, and I am confident that in
your questions you will be able to give us good senatorial answers in
which you address yourself to the question and toss in a little some
thing else from your statement in terms of summary.
TESTIMONY OF HON. WILLIAM E. SIMON, DEPUTY SECRETARY OF
THE TREASURY AND CHAIRMAN OF THE OIL POLICY COMMIT
TEE, ACCOMPANIED BY DUKE IIGON, HERBERT ASHMAN, AND
WILLIAM JOHNSON
Mr. S i m o n . I will try to be as responsive as I can. I apologize pro
fusely at the outset for not having had this prepared statement here
hours ago. I have testified or have to testify 4 days this week on four
different subjects. I try to do these things personally. I have had the
help of some very qualified people in the preparation process, and I
hope you get a chance to read it.
Chairman H u m p h r e y . Thank you. The staff, I am happy to tell you,
has gone through the prepared statement rather quickly, and we will
be able to be relevant and direct our remarks accordingly.
Senator, why don’t you proceed ?
Senator R i b i c o f f . Just by coincidence, similar to Senator Hum
phrey’s this morning, I had a visit from an independent fuel oil com
pany and a letter from an independent gasoline station operator. Let
me read you a memorandum of one situation, and I would like your
comment and help.
The Lehigh Petroleum Co. is an independent oil dealer in Norwich,
Conn. For 37 years, it bought all of its home heating supplies from
Esso. In 1971, Lehigh could not meet the summer fill requirements
Esso demanded—that was to make 35 percent of its purchases in the
summertime, because of lack of adequate terminal facilities. So Lehigh
had to seek other sources for No. 2 heating oil. Wyatt, a major inde
pendent terminal operator, and Texaco sought out this new business
and assured Lehigh of doing business for many years to come. Texaco,
on April 26, 1973, said they would sell Lehigh no more supplies for
the 1973-74 heating season, and that Lehigh should go back to their
historical supplier, Esso, now Exxon. But Exxon says it has no obli
gation to supply Lehigh, and Wyatt, as an independent, will have its
own problems since Wyatt buys from Exxon. Now, Lehigh supplies
70 percent of the homes in the Norwich area, about 8,000 customers,
including hospitals, convalescent homes, schools, and the Municipal
Electric Power Co. in Norwich. Without Lehigh supplying this oil,
this entire community will come to a grinding halt. The people, the
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hospitals, and the schools won’t be able to heat their homes and have
electricity this coming winter.
Now, what can we do for the people of Norwich, Conn. ?
Mr. S i m o n . Well, if I may, Senator, please, have a copy of that
letter. I will respond to you after I have had an opportunity to talk to
Exxon and Texaco to get a full story. Let’s see if we can’t make sure
that those supplies aren’t cut off.
Senator R i b i c o f f . Don’t you believe that the major oil companies do
have a responsibility to supply the needs of local communities through
out the Nation, who have historically been principally supplied by the
independents in their own hometown ?
Mr. S i m o n . I most certainly do.
Senator R i b i c o f f . Can I expect the active help of your office with
the majors like Texaco and Exxon, to see that between them they work
out a supply formula so Norwich will not be deprived of their fuel
needs this coming winter ?
Mr. S i m o n . I will promise I will do the absolute best I can and do
it immediately. I ’ll call you back within a day.
Senator R i b i c o f f . That would be just great, and I appreciate it.
I have another letter here from a Mr. Raymond Hill. It came in to
my office today from the Hill Oil Co. of Kensington, Conn. He points
out that he has been an independent marketer for many years. He has
had to close 12 stations and lay off 45 persons from work. His volume
has been cut by 50 percent. He isn’t receiving his normal share of gaso
line. What can we do for a small business like the Hill Oil Co. o f
Kensington ?
Mr. S i m o n . Y o u have a big problem with the independent segment,
Senator and Mr. Chairman, as you well know. The independent seg
ment of the petroleum industry grew at a time when there was great
oversupply. At that time, they could receive ample supplies from the.
integrated companies and the independent refiners. Now the situation
has changed completely. We now have a worldwide shortage of sweet
crude. The supply of gasoline available at the market is dried up. Un
fortunately, literally thousands of gasoline stations were built on this
oversupply. These independents used to go out and make spot pur
chases at the cheapest price possible. They provided a very useful
competitive force in this industry, but they relied on the oversupply.
Being on the margin, economically speaking, as they are, they would
be the first to go during a period of shortage, which we have right at
the present.
What are we doing about it? I think that that was probably the
thorniest issue that we faced in the readjustment and change in the
oil import policy, because of the problems that I have just outlined.
The new policy creates a small value to the oil import tickets where
heretofore there was no value. Small refiners receive license-fee free
allocations based on the 1973 levels established. A system called a “ slid
ing scale” gives them more proportionately, as you are familiar with,
than a major oil company gets.
The Oil Import ApDeals Board is probably our most purposeful
weapon right at this point.
By way of background, the Oil Import Appeals Board used to receive
a small kittv of tickets from the Oil Policy Committee in January of
each year. This was the old annual allocation system that probably
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helped get us into a lot of these problems we have right now. The
board would then receive hardship pleas from the various sectors of
the country and the various components of the industry and by Sep
tember or October they would allocate the small supply they bad to
meet a portion o f these requests. This really seemed to us was closing
the barn door after the horses were out.
In January of this year we changed that. The Oil Import Appeals
Board in 3 weeks granted their full year’s supply. Then in March the
President signed a proclamation allowing the Oil Import Appeals
Board, under my direction, an unlimited amount o f tickets for hard
ship cases. Now, this is purely for the independent sector of the mar
ket. These are license fee free tickets which gives the independent
component the ability to make long term contracts and long term
shipping contracts. They are going to have to learn over the next few
years, and hopefully faster than that, to go out and get their product
from different sources. Since the change in the program, we have had
several phone calls. People are going to start refineries and start in
dependent world purchases. They are going to go out as entrepreneur
types because the domestic supply is unfortunately not available to
this independent area.
We also have available royalty oil which comes from oil leases on
Federal lands. We are presently issuing 60,000 barrels a day of royalty
oil to the independent sector. We are going to issue an additional 80,000
to 100,000, which is all we have, to this sector.
I have set up six committees, which Senator Ribicoff is aware of,
representing the five districts of this country, and the critical Northeast
area, not that all areas aren’t critical, but they have special problems,
let’s say. We have been meeting with them and next week we are
meeting again with each of the six committees to define the specific
problems in their area in an attempt to be as responsive as we can and
begin to move on the distribution. The distribution system in this
country is inadequate to meet the problem and, Mr. Chairman, that is
one of the problems we have got in your area of the country.
We are also studying possible ways of getting States to temporarily
relax the high sulphur regulations, and that is New Jersey. New York,
and Pennsylvania. Now, these refineries can refine sour crude but they
are refining only sweet because of these restrictions. I f we could relax
these regulations we could free up enough sweet crude to take care of
many if not all of the present shortage problems. We are dealing now
with State regulations. All we can do is suggest. Whether it will be
done or not I don’t know, but I think, Senator Ribicoff, you could be
helpful in that area.
Senator R i b i c o f f . Thank you. And may I say to you, Mr. Chairman,
I believe that you showed a great deal of statesmanship in intro
ducing your S.J. Res. 98 to set up an emergency Fuels Allocation
Board. I would like the privilege of being a cosponsor with you on that
resolution.
Mr. S im o n . Don’t misunderstand me, this is no panacea. W e are
touching all the bases. I have no home runs to hit.
Chairman H u m p h r e y . The energy bill—the Emergency Petroleum
Allocation Act, bill S. 1570—is up next week and we hope that we
might bring S.J. Res. 98 up as an amendment. I will work with you on
that, Senator Ribicoff.
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Senator K i b i c o f f . Thank you, very much, Mr. Chairman.
Chairman H u m p h r e y . I have a few questions here and I gather
the questions will lead into your prepared statement, too. I glanced
hastily through what you say about the independents, Mr. Simon, and
I want to come back to that, if I may, because it, of course, is of great
concern to us.
You say in the beginning there is a general feeling amongst a
number of independents that they are in a squeeze, so to speak, where
they are being eliminated by the majors.
As I said, I just left a meeting of a number of Senators, all of
whom believe that the Justice Department should activate itself and
take a strong position on examining possible violations of the anti
trust laws.
Now, I have no way to know whether this is based upon sufficient
evidence or fact, but we have had testimony that is very disturbing,
and Senators who have been in their home States talking with distribu
tors and wholesalers as well as with small refiners and retailers are
pretty much of the opinion that the majors are putting the pressure
on to eliminate competition while at the same time opening up new sta
tions of their own. I think this is a matter which surely ought to be
looked into by the Justice Department and the Federal Trade Commis
sion. I would hope so even in the instance of your own office.
You state in your prepared statement that you would not hesitate
to use petroleum rationing or allocation authority if the country faced
major hardships because of gasoline shortages.
Could you elaborate on this statement ?
Mr. S i m o n . Well, yesterday we received through the Eagleton
Amendment allocatiton authority. Under this the President has powei;
to designate a person or people in the Government to handle alloca
tion of fuel supplies. This was brought up at this morning’s meeting of
the Council on Economic Policy. It will be done by the end of the week.
We have not only to define where the responsibility will be and who will
implement the allocation, what department, but also to work on the
guidelines which are extremely difficult, as you can imagine. We must
identify the supply. Even more critical than identifying the supply
is how you get it where it’s needed. We don’t want to move shortages
from one side of the country to the other. All of these have to be
identified and identified very quickly.
Chairman H u m p h r e y . We would hope to help you legislatively on
that by establishing a base period from which you would operate and
by taking into consideratiton allocation by State or region and also
the problem of supply availability, which we recognize is related to
jDrice.
Do you believe in the share-the-shortage concept and would the Fed
eral Government accept this as a standard of rationing and alloca
tion; particularly, would you expect the major refineries to cut back
independents only to the extent that such majors cut back deliveries and
sales through their own marketing outlets?
Mr. S i m o n . Well, I think the majors have already demonstrated to
us that they just don’t have as much as they used to. Maybe they could
be doing a lot better and sacrificing themselves at the same time while
making other people sacrifice, and I am in the process, when I finish
testifying this week, of speaking to each one of them personally. I will
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be talking to the chief executive officer of each company, and explaining
this responsibility I believe he has, which you expressed a few minutes
ago, in this very critical time.
Chairman H umphrey . Let’s say that there is a 3- or 5-percent short
fall, or whatever the figure may be. There is a lack of definite informa
tion on this. The point of my question is that the majors are letting
most of that shortfall fall on their independent outlets and are taking
care of the requirements of their own company-owned outlets.
If you have an allocation program, would you be of the mind that
the allocation ought to be on an equitable basis; in other words, if a
company is going to have to cut back, that it cut back equally across
the board to its own outlets on the same basis that it does to inde
pendents or vice versa ?
Mr. Simon. We must make sure that one small component of the
petroleum industry doesn’t bear the brunt of this shortage. I believe
that would answer your question. We are studying the method of
allocation right now.
Chairman H umphrey . So we can expect a policy decision on fchat
matter very shortly ?
Mr. S im on . Certainly, It is No. 1 on the agenda.
Chairman H u m p h r e y . What length of time do you think is going
to be required to arrive at some kind of decision on that ?
Mr. S im on . I have only been in Washington for 5 months. When
people used to ask me that a few months ago, I would say I would
have it done next week or by tomorrow. I have learned the hard way
it doesn’t work that way.
Chairman H umphrey . Would you like to give us a “guesstimate” ?
Mr. S im on . I would hope within a week.
Senator E i b i c o f f . I hope that doesn’t apply with Lehigh, Exxon,
and Texaco.
Mr. S i m o n . That I have direct control over, as far as dialing the
telephone is concerned.
Senator E ibicoff. Thank you.
Chairman H umphrey . I thought we might go through part of your
prepared statement as it relates to the independents. You listed some
of the efforts that are being made to answer the problems of the in
dependent oil companies, and you say as follows: “ Perhaps the major
benefit of the new program is the flexibility that it provides to
importers.”
Are you talking about importers of crude or importers of refined
products?
Mr. S imon . Well, both.
Chairman H umphrey . Both ?
Mr. S im on . Yes, sir. Heretofore under the old mandatory oil import
policy it was a quota system. Each year the Government sat down at
the beginning of the year and estimated what we would need. Like all
estimates and forecasts, they are dangerous and they were usually
wrong. Then it would be adjusted on a month-to-month basis. This
lack of stability in a program is one of the reasons, just one of them,
that we don’t have new refineries constructed in this country. We
didn’t give the industry the ability to plan. Now we have removed all
volumemetric quotas. We have in effect, freezed free allocations at the
1973 allocation level. We removed the old 101^-cent and 52-cent
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tariffs. Then we issued license fees in the same general scale but
going up gradually to 21 cents and 63 cents 2y2 years from now. We
are in effect bringing in a great deal of tariff-free oil and gasoline this
year which should be a boon to the independents, assuming they can
find that much. They will have problems, of course, because gasoline
is difficult to find overseas.
You speak of the potential fuel oil problem next winter. Well, the
fuel oil distillate inventories today are higher than last year. That is
good, because that means the refineries can turn their screws, so to
speak, and produce gasoline not only to a greater percentage than
before but for a longer period of time.
Chairman H u m p h r e y . If this is true, then why when I met with the
county officials—I met with the executive director of the National
Council of County Governments last night—why are they unable to
get contracts for fuel oil ? My home State of Minnesota is unable, the
State government, to get a contract beyond 30 days for fuel oil. If we
have got distillate, then what are these companies doing with it?
Mr. S i m o n . I am telling you these are the programs we put in place
only in the last 2 weeks and----Chairman H u m p h r e y . But I am talking about the Director of our
Civil Defense, who was here yesterday afternoon, and we absolutely
cannot, our school districts have not been able to get contracts for fuel
oil, and we have got to have fuel oil. The University of Minnesota is
unable to get contracts for fuel oil.
M r . S i m o n . Has Interior done a study— is it the distribution
study----Mr. L ig o n . I think probably there are two problems we are looking
at. First of all, of course, is the level of supply.
Chairman H u m p h r e y . Yes.
Mr. L ig o n . This is what we are discussing. And then an entirely
different problem is the distribution system and how to get it where
it should be.
Chairman H u m p h r e y . We never had any trouble about that before.
We have erot more trucks now and more roads than we had a year ago,
and we don’t have that much more population, that much more in
dustry. The University has fewer students. I don’t understand this.
Mr. L ig o n . Mr. Chairman, your part of the country and all of the
Midwest is an area that has been served traditionally by independent
refiners.
C h a irm an H u m p h r e y . Eight.
Mr. L ig o n . And for years and years these independent refineries
have been supplied by crude oil that has been produced in that par
ticular area. For the first time now, we have a situation of a shoH crude
situation. These refineries have for years been able to supply through
their distribution system the type of products you are talking about,
the distillate and specifically the diesel oil----C h airm an H u m p h r e y . Fuel oil No. 2.
Mr. L ig o n . Yes, sir, to the farmers in the Midwest and so forth,
these are the refineries in our country that are having problems today
supplying that area simply because of the lack of supply of sweet
crude oil that is available to them. The distribution system from the
Gulf and other areas has not been placed so as to have a pipeline
system going into that area to supply those refiners because they have
85
never needed it in the past. This is the first time that these refineries
on a wide scale basis in the Midwest have had real problems by not be
ing able to receive this supply of crude oil. Herein lies the problems of
the distribution or at least it certainly is responsible for a great deal of
it at the present time.
Chairman H u m p h r e y . Are we going to have to confess that our
distribution system in this country is incapable of moving the normal
amounts of distillate? We are not asking for excess, we can get along
with what we had in 1971 and 1972. We feel that that is a reasonable
base period. I am not just talking about diesel or No. 2 or kerosene
but gasoline as well. All at once it hit us, although with the war wind
ing down we obviously are not using as much jet fuel as we once used;
with the temperatures we had last winter, which were very mild, we
should have been able to pick up a little bit.
Mr. S im o n . I think one of the other main reasons is uncertainty in
the industry. They have difficulty as far as signing of a contract of
long duration. They iare worried about being able to fulfill contracts
right at this point.
Chairman H u m p h r e y . I thought I understood you to say, Mr.
Simon, there was a larger supply than usual of distillate.
Mr. S im o n . It is well within the normal range and larger than last
year right iat this point, according to our figures. I think it is a dis
tribution problem. They are worried about what are they going to
need next winter ? They don’t know, so they are not willing to make
a long-term commitment on it.
Chairman H u m p h r e y . Last year at this time we had no problem in
the month of May of signing up contracts, I can assure you, and if
there is a larger amount of distillates this year in 1973 than there was
in May of 1972, I just don’t think there ought to be any problem.
Somebody ought to be looking into this. That is what the Government
is for. You can’t expect some of the school districts out there to take
a look at it. Senator Ribicoff comes here with letters, and I have them
and every other Senator has, every single one of us. Seventeen of us
met here and we all have these same problems and I think there is
something wrong.
Senator R i b i c o f f . I think many experts in this field feel that there
really isn’t any crisis, but it is a situation that has been blown up by
the majors to squeeze out the independents. This is what bothers Sen
ators like the chairman and myself, whether there is any basis to this.
This concerns me especially when you say that we have got a larger
supply of distillates today than we had last year and no one was rais
ing the problem last year.
Mr. S im o n . Most of your problem at this point is in the gasoline
area, not in the distillate area.
Chairman H u m p h r e y . They will not sign contracts for fuel oil and
we have to sign those contracts now, Mr. Simon.
Mr. S im o n . Yes, sir.
Chairman H u m p h r e y . We cannot afford to approach the fall and
winter season in our parts of the country, or in Connecticut, or in any
of the northern stretches of the country, without having some assured
supply.
I just had a company with 600 employees come through today,
May 2. We have one after another. This is one of the major little
86
companies that, by the way, is producing in an industry vital for the
Government itself, for the defense industries. Now, that was in pro
pane. That doesn’t relate, of course, to this particular problem.
Mr. S i m o n . Bill Johnson wants to add something.
Mr. J o h n s o n . I think that some clarification of what the higher
stocks of No. 2 fuel oil mean, is in order.
The problem varies from one section of the country to another. For
this reason, it is impossible to generalize about the fuel oil and gasoline
or crude oil difficulties that the country faces at the present time. W h a t
Mr. Ligon was saying about the Midwest really does not apply to
other parts of the country.
The problem in the Midwest, in Minnesota especially, is that this
is an area that has traditionally been served by independent refineries.
There does not exist a pipeline or distribution system to carry in the
finished products from outside the region into the Midwest. The solu
tion to the problem of the Midwest is to get the sweet crude oil, that is
low sulfur crude oil, to the independent refiners of that area.
Chairman H u m p h r e y . We were always able to get on by trading in
the tickets.
Mr. J o h n s o n . That is right, but it is not that easy now for several
reasons. One is that many major refineries, particularly on the east
coast of the United States, are presently being forced to consume sweet
crude, which is in very scarce supply. They are forced to consume
sweet crude, even though these refineries are designed to consume
high sulfur crude oil, or sour crude. They have to do it because of
their air quality standards that have been established and are being
adhered to by the States in this region.
There are other factors that are at work also. The price of sweet
crude, which tends to be the type of crude produced in the United
States, has remained relatively stable, while the price of foreign sour
crude oil has risen. This is because of several factors. The increased
royalties demanded by the producing countries and two devaluations
of the dollar have distorted price relationships. We have not allowed
the price of sweet crude in the United States to rise as rapidly as it
might, and if it were to rise, this would probably have the effect of
helping to get the sweet crude to the independent refiners of Minne
sota.
The price regulations have had an effect.
Chairman H u m p h r e y . I don’t want to make it appear it is just one
State, because yesterday we had people from Wisconsin, the two Sen
ators from Iowa with me this noon, and the Senator from Illinois, Mr.
Stevenson. But I am obviously more familiar with the area that I
represent. We heard yesterday, by the way, that the gasoline supplies
overseas at Rotterdam, for example, bear prices about 5 cents a gallon
higher than here and that by the time you got it into the United States,
even without any distribution or marketing costs, it would be about 10
cents higher.
Mr. S i m o n . That is a little bit high. The last delivery was 10 million
gallons at 20 cents a gallon to be resold at 14.
Chairman H u m p h r e y . I didn’t get that.
Mr. S i m o n . Paid 20 cents a gallon, which is about 6 cents over.
Chairman H u m p h r e y . About 6 cents. By the time of distribution in
the United States, by the time they put it in their distribution system,
how much would you think this total cost would be to retailer ?
87
Mr. S im on . Well, these people sold it for competitive reasons. They
sold this gas at the going rate at 14 or 15 cents.
Chairman H umphrey . H ow does that fit in to your price control
program?
Mr. S imon . Well----Chairman H umphrey . We were told yesterday by the people that
were in the business end of it that it just did not work; the price con
trol program was keeping out these products.
Mr. S imon . Well, I don’t know that I could make that statement 100
percent. Obviously there is a problem with any controls. I am a free
market man and could go on at some length about that and the dis
tortions that are created and the inequities we are discussing today. I
am sure that our economic stabilization program has its impact in this
area, but I could not say it is completely at fault.
These companies have the power to raise prices within 1 percent of
the weighted average basis, that is all of their commodities that----- Chairman H umphrey . All commodities ?
Mr. S imon . All of them, which gives them a lot of room. They can
go up on a cost justified basis by 1% percent.
Now, on August 15, 1971, when the freeze came on, fuel oil prices
were at a----Mr. L igon. Gasoline prices were up.
Chairman H u m p h r e y . August?
Mr. L igon. A s a result, using that base period, there are many com
panies who haven’t even gotten to their base period, and as far as price
is concerned, it has been a competitive factor that has kept the price
down:
Now, if this man brought in 20-cent gasoline and wished to sell it at
20 cents or 21 cents or whatever the Cost of Living Council permits
on an incremental basis, just washing it through, he would have to
abide by the profit margin limitation. The profits are pretty good so
they would prefer to maintain their flexibility in pricing other prod
ucts and just sell this gasoline at the lower level. They are not going
to do that too often and that is the place where I agree with you.
Chairman H u m p h r e y . Well, you know, this kind of economic
gamesmanship, which I heard about yesterday also, doesn’t add up to
our immediate needs. We were told by a very big company and very
responsible people yesterday that our effort to obtain the refined prod
uct from overseas refineries would be of little consequence because of
price factors. What you are saying is that----Mr. S imon . They don’t make this much gasoline over there. And in
this country we literally produce all but 1 or 2 percent of what we
consume in the gasoline area.
Chairman H u m p h r e y [continuing]. Every little bit counts.
Mr. S imon . Y ou are darn right, and we are bringing in more than
just a little bit.
Chairman H u m p h r e y . Let me pin this down. Are you saying to me
that it is your judgment under the Cost of Living Council formula
that the importers of overseas refined petroleum products, gasoline in
particular, that those importers can bring it in and still maintain a
reasonable price structure within the price ceilings and make a good
profit?
Mr. S imon . Well, I couldn’t answer that question because it would
vary with the company. Some companies may prefer not to abide by
88
the profit margin limitation. The deep water terminal operators in
Senator Ribicoff ?s area would indeed have to pay more, yes, and that is
probably one of the problems. The independent marketer of products
in particular has always been able to sell a couple of pennies under the
major and that is the rub. They cannot really sell at a competitive
price at this point.
Chairman H u m p h r e y . I wish we could get some simple answers that
I could write to somebody and tell him what is going on.
Mr. S i m o n . I a m going to tell you, Mr. Chairman. I agree with you.
This whole cost-of-living formula and everything is enough to boggle
anybody’s mind.
Chairman H u m p h r e y . I f somebody could just tell me what, they
can do and what they can’t do and how we are going to get the supply.
I can understand about refineries. I can understand if you don’t have
a pipeline. By the way, we are not completely devoid of pipeline in
the Midwest; we have some coming up in Duluth-Superior, you know.
But I can understand those problems. But I can’t understand all of
these shenanigans about profits and prices when I see that, as I read
yesterday, the profits of these companies increased by 40 percent, 30
percent, one of them by 70 percent. They say they don’t have any
money. What a way to be poor.
Mr. J o h n s o n . May I try to address the question of what the cost
of Living Council rules say, although I can’t say that I am an expert
on these rules, nor do I understand their implications fully. They are
very complex. But it is my understanding that an independent com
pany that is forced to import gasoline, let us say, at a higher price has
the ability and the right to pass through the higher cost of his im
ported gasoline to his customer. It is a legitimate cost increase.
Chairman H u m p h r e y . That is my understanding.
Mr. J o h n s o n . What is restricting the ability of the company to do
this is, at the same time, there are 23 major oil companies in the
United States who are subject to the regulations of the Cost of Living
Council and, whether or not these regulations are as stringent as the
major companies may perceive, at least they are keeping their prices
in check because of these regulations. Let us suppose that we are talk
ing about a terminal operator in New England who can buy abroad
and legitimately charge a higher price. He is restricted from doing so
because of competition in the market. He knows that his controlled
domestic counterpart, who is selling controlled, domestically produced
product, is going to be able to undersell him and indeed would be
forced to undersell him under the terms of the price controls. That is
where the rub is.
Chairman H u m p h r e y . Are you men meeting with the cost-of-living
experts over there so they get a little communication ?
Mr. J o h n s o n . Daily.
Mr. L i g o n . We certainly are.
Chairman H u m p h r e y . Are they slow learners ?
Mr. J o h n s o n . I am an economist, not an educator.
Chairman H u m p h r e y . Maybe we had better crossbreed you.
I have another question for Mr. Simon. You mentioned today that
the independent petroleum marketers could depend on fee-exempt im
port licenses from the Oil Import Appeals Board thereby giving them
some competitive advantage.
89
Mr. S im o n . Yes, sir.
Chairman H u m p h r e y . T o see them through, you said, to see them
through the worst of this squeeze.
Of course it’s a maxim that many of these importer independents
have very little experience with either importing or with the Board.
As has been indicated, they have been buying most of their supply
from the majors.
Today, however, the Federal Register announces a limit of 60,000
barrels per day overall on imports of petroleum licensed by the Board.
Did I understand you to say you are raising that ?
Mr. J o h n s o n . Yes; that has come to our attention and that is an
error that will be corrected.
Chairman H u m p h r e y . And what is the amount that they will be
able to----Mr. J o h n s o n . The Oil Import Appeals Board, since March 23 of
this year, has been authorized unlimited allocations for distribution
to the independents.
Chairman H u m p h r e y . That is what I understood.
Mr. S im o n . They will still be able to go through the swap mecha
nism with the major companies as the major companies use up their
tickets.
Chairman H u m p h r e y . These are old tickets ?
Mr. S im o n . Even the new ones through the Oil Import Appeals
Board. But as the majors use up their tickets that were allocated to
them in January of 1973 they come to the Oil Import Appeals Board.
Unless they have demonstrated that they have cleaned the market of
the tickets of these independents on a swap, then they won’t get it.
Chairman H u m p h r e y . N o w , I can bring you two independent re
finers in the Minneapolis-St. Paul area that haven’t been able to trade
a ticket for months; no one will take the tickets; they are as useless as
a $3 Confederate bill. They really are. Isn’t that a true statement ?
Mr. S im o n . They have been up until the new program, and as I
say the new----Chairman H u m p h r e y . Maybe it was last week; I wasn’t home since ;
has it changed since then ?
Mr. S im o n . That is when it was announced in the President’s energy
message.
Chairman H u m p h r e y . I was home after the President’s energy mes
sage. Ashland Oil Co. You are familiar with Ashland Oil ?
Mr. S im o n . Yes, sir.
Chairman H u m p h r e y . Great Northern Refinery and Northwest Re
finery out in the Twin City area. They haven’t been able to trade.
Mr. J o h n s o n . Under the old program prior to the 18th of April the
independents had no value whatsoever to their import tickets. There
was a time several years ago when tickets did have a value. It was
based on a number of things. Most important was the fact that im
ported oil was cheaper than domestic oil and, for that reason, the
major oil companies were willing to go to the independents and say we
would like to exchange some of our domestically produced oil for your
right to import oil, and this was a very good system for the inde
pendents.
The thing that has destroyed this system has not been the mandatory
oil import program. It is, simply, the fact that the oil-producing coun
90
tries have begun to charge more for their oil. We have also devalued the
dollar twice and these factors, plus the fact that sweet crude, as I in
dicated earlier, is so much more valuable now and so much more es
sential in various parts of the country, all have had the effect of making
the value of the independent’s tickets fall to zero. That was the situa
tion that existed on the 18th of last month.
Mr. S im on . Virtually all the crude we bring in is sour crude from
the Mideast.
Chairman H um phrey . I understand that.
Mr. S im o n . In talking to people like Ashland Oil, they tell me they
are considering very seriously building a refinery and going out and
contracting on a long-term basis to bring their own in.
Chairman H um phrey . But that is a 3- to 4-year program.
Mr. S im o n . Yes. This is no instant success. It can’t be. We can’t
create a barrel of oil.
Senator R ibicoff. A s I listened to the colloquy between the chairman
and you gentlemen I noticed you are against allocation. What al
ternative would there be other than allocations if we are going to get
the proper distribution throughout the Nation, if you are going to
make sure that the independents continue to exist, because the inde
pendents have absolutely no future and no way to turn in view of what
has developed unless there is an allocation assuring these independents
of their share of the market.
Mr. S im on . The independents have two things. One, as I said, all
volumemetric quotas were lifted so everybody can bring in whatever
they want.
Chairman H um phrey . They can’t refine it. It doesn’t do any good to
bring the crude in. The independent doesn’t own the pipelines, they
don’t own the tankers.
Mr. S im o n . That is the combination of problems we spoke of before
where on the east coast they are refining the sweet crude and it could
free up 600,000 barrels a day if they could lift the restriction tem
porarily and be able to go back and burn sour again.
Chairman H um phrey . Well, that isn’t going to happen, is it?
Mr. S im o n . Well, I don’t know, Mr. Chairman, whether its going to
happen, but we are going to certainly continue to go back at them and
talk to them.
Chairman Humphrey. I s that EP A you are having to talk with ?
Mr. S im on . Yes, sir.
Mr. J ohnson . I think there is a problem. First, I think it is a mis
take to assume that we are against all forms of allocation. I wouldn’t
say that. I don’t think Secretary Simon would. But, when you are
talking about the allocation of sweet crude, if you take sweet crude
away from the major refineries on the east coast and redistribute it to
midcontinent refineries, then it is quite likely you are distributing the
shortage to the major refineries on the east coast and that there is still
not going to be much of an increase in utilization of refinery capacity.
The problem is that sweet crude is in very scarce supply at the present
time. It is going to take time to increase that supply and one of the
things we can do, at least the States can do, to help release certain
amounts of sweet crude from use, where they are not absolutely essen
tial in the short run, is to relax the air quality standards. These stand
ards are forcing eastern refineries to use sweet crude or nothing.
91
Mr. S i m o n . On the east coast those refineries are presently producing
only 24 percent of the demand. If you ship it out we are going to have
problems. You will be moving the shortage from one area to the other
unless they are allowed to use the alternative which is the sour crude.
Chairman H u m p h r e y . Such a maze.
Mr. S i m o n . Yes, sir.
Chairman H u m p h r e y . Let me ask a simple question. Will the licenses
continue to be unlimited ?
Mr. S i m o n . The Oil Import Appeal Board has unlimited authority to
issue for hardship cases, yes, sir.
Chairman H u m p h r e y . Well now, I have dealt with that Oil Import
Appeals Board for years. I want to tell you, that is the hardship right
there. I say that most respectfully. Who is the gentleman that was the
Chairman over there ?
Mr. S i m o n . Can I assure you that has changed ?
Chairman H u m p h r e y . Well, you had one man over there that was
quite helpful but two others that weren’t, every time we needed some
help.
Senator R ib ic o f f . What impressed me most about Mr. Simon during
the reorganization hearings we had is that he gave us an answer and
then the next day followed it through. You find very, very few people
in Government that have the courage to make a promise on their own
without first getting a lot of clearances. I personally would put a lot
of faith in Mr. Simon’s assurances to you, Mr. Chairman, because he has
proven himself. It was just a matter of days, during the hearings in
the reorganization plan. For years New England was trying to get
somebody to listen to their special energy problems. He said he would
appoint a New England committee and it was done immediately, and
he has already met with its members. So I take Mr. Simon’s word on its
face value. I appreciate you can’t often do that when dealing with a
complicated bureaucracy.
Chairman H u m p h r e y . What kind of word can you give me for my
constituents? I want them to believe, I want to be a believer.
Mr. S i m o n . I d o n ’t blam e you.
Chairman H u m p h r e y . Norwich is coming through OK. I want to
know what is going to happen up my way.
Mr. S i m o n . I hope you don’t think I am making all sorts of promises
that I can’t deliver.
Chairman H u m p h r e y . No, no.
Mr. S i m o n . All I will do is just do my best with a hell of a bad
situation where we have got shortages in particular areas of this coun
try and we are working as best we can to solve it.
Chairman H u m p h r e y . May I make a suggestion. Maybe you have
done it. You mentioned the States and the problems of the air stand
ards >and so on. Could you call in from each of the States one repre
sentative of the Governor’s office to sit down with you, and in these
areas at least where there seem to be shortages, to get the story directly
from you as to what the problem is, how you think it can be remedied,
or what emergency actions can be taken ?
Mr. S i m o n . Absolutely.
Chairman H u m p h r e y . I would really appreciate it if you could,
because with people now knowing that we have this subcommittee
and with other Senators being so involved, we are getting unlimited
99-740— 73-------7
92
numbers of requests for information which neither I and my staff
nor the committee staff are unable to provide. I strongly recommend
that you call and manage a meeting of the people at the State level
that have some responsibility for working with legislators, Governors,
or commissioners there and explain to them what your new program
is and what you hope to be able to do.
Mr. S im o n . I will do that if you in the interim can supply us with
information on where these contracts used to be that aren’t being
signed right now. Let’s see if we can do something about that. If you
give me the specifics, we can deal with them. When everybody says
“My plant is shut down,” we look for the plants and we can’t find
them. It’s like the kerosene shortage in Maine last year. We never
found that and we heard all about it. You will be very helpful to us.
We will try to be responsive to you.
Senator R i b i c o f f . Y ou say there are 23 majors. It shouldn’t be
hard for you to bring together the representatives of 23 majors in
Washington and sit down with them and say, “Look, gentlemen, this
is a problem, what are you going to do about it?” In other words, when
the chairman says can’t we get a simple answer, it would seem to me
it should be possible to make policy when you only have 23 major
companies.
Mr. S im on . I am doing that now.
Chairman H um phrey . We will have to leave you now to vote; I
want to say to the other witnesses that are here that the staff will
inform you as to our return. Mr. Simon, I believe that we should let
you go to your other work. I don’t believe there are any other questions
right now.
Mr. S im o n . Thank you.
Chairman H umphrey . If you will follow through, we shall follow
through on the suggestions that you made and, Mr. Simon, I want
to thank you very much.
[A short recess was taken.]
[The prepared statement of Mr. Simon follows:]
P repared S t a t e m e n t
of
H
on.
W
il l ia m
E.
Sim o n
Mr. Chairman and members of the committee, I am delighted to appear before
you today to discuss the outlook for the supply and price of gasoline. There
is a widespread concern that prices are going up and that many gasoline stations
are going out of business because supplies are short. Let me outline the
of the problem and the potential solutions that we see.
the
grow th
of d e m a n d
fo r
g a s o l in e
Demand for gasoline in the United States has been growing faster in the
past several years than at any other time in recent history. Since 1968, gasoline
demand has risen at an annual rate of about 5 percent. During the past 2 years
the rate of increase has been about 6 percent per ypar. Part of this rise m demand
can be explained by growth in the population, growth in the economy, and the
increasing number of cars on the road.
But demand has also risen significantly because of the many power-using
devices added to cars. These include automatic transmissions, air conditioning,
various safety features, and the changes made in automobiles since 1970 in
compliance with EPA regulations issued under the mandate of the Clean Air Act.
Producers’ compliance with these regulations has led to substantially reduced
engine efficiency. As more vehicles come on the road equipped with safety,
emission control and physical comfort devices, average mileage per gallon will
decrease further. An automobile that once got 14 miles per gallon, now gets 8 or
9 miles, and it may get only 6 or 7 miles per gallon if present trends continue.
93
Because new automobiles are not getting the gasoline mileage obtained by
their counterparts 5 and 10 years ago, and because we are driving more,
gasoline consumption has risen. We are using 300,000 barrels per day more of
gasoline this year than last year.
FAILURE TO BUILD REFINERIES
While gasoline demand has been growing at about 6 percent per year, the
volume of crude oil processed by refiners has risen only 3 percent per year.
We are now extremely short of refinery capacity and, at the time of the Presi
dent’s energy message, which announced the new oil import program, no new
refineries were under construction. Furthermore, expansion of existing refineries
had ceased. Growth in the capacity of the industry had come to an end because
the industry found that it was more profitable to invest abroad than in the
United States.
One reason for this is that it has become increasingly difficult, to find {Acceptable
sites for new refineries in this country. Because of resistance to refinery siting,
it may take three years to obtain site approvals today, in addition to the three
years required for construction. Yet, modem refineries can be designed so that
they do not significantly pollute the environment. In this regard, let me men
tion a recent trip by Senator McIntyre and Representative Conte to inspect a
new refinery in the State of Washington. Both were amazed by the cleanliness
of this refinery and, as Representative Conte put it. one had to ask whether
the refinery was operating to learn that it was, in fact, operating at full
capacity.
Another reason why the industry has located new refineries abroad is that
United States oil import restrictions, in the past, created uncertainty as to
whether new domestic refineries could obtain sufficient imported supplies of
crude oil. As long as the Government set import quotas on a year-to-year and,
in some cases, on a month-to-month basis, no company was assured of the stabil
ity of supply necessary to encourage domestic refinery construction. This impedi
ment ended on April 18 when we terminated volumetric quotas on oil imports.
Finally, the tax and other ecomonic benefits available to refiners in the Carib
bean and in Canada have been more lucrative than similar provisions available
in the United States. For all these reasons. U.S. refinery construction has been
standing still while United States demand for refinery products has been
growing.
To meet the growing demand for gasoline, refiners have been changing their
mix of products to increase their yield of gasoline. The average yield of gaso
line per barrel of crude oil rose from 43.8 percent in 1988 to 4(19 percent in
1972. This means, of course, that the yield of other products, such as fuel oil,
has been reduced. It is also a short-term expedient at best. Whatever the prod
uct mix, it will be necessary to increase substantially our overall imports of
refinery products to avert both a gasoline shortage this summer and a fuel oil
shortage next winter.
Our growing lack of refinery products was driven home to the public late in
1972 with shortage of distillates and other heating fuels in various parts of the
country. Refineries had to increase their percentage of distillate production and,
correspondingly, reduce gasoline production. As a result, we are now coming
into the summer season with low gasoline stocks. As of April 20, we had only
204 million barrels of gasoline in storage. This is down 10 percent from last year,
while demand is up 6 percent. Furthermore, domestic production, even today,
is not keeping pace with demand. We are using, on average, 47 million barrels
of gasoline weekly, and producing only 43 million barrels. For this reason, we
are faced with the prospect of serious limitations on gasoline supply.
Let me point out some of the implications of the potential gasoline shortage.
In the first place, it will tend to be concentrated in certain geographic areas and
will impact on some consumers more than on others. Some areas of the country
close to pipelines and refineries and served by the retail outlets of the major
oil companies will not feel the pinch as much as others. Other areas, relatively
distant from pipelines and not well-served by the major oil companies, may feel
it rather sharply.
Recognizing the serious nature of the gasoline and fuel oil shortage, and that
there are regional differences in the intensity of the problem, we have established
6 regional subgroups of the Oil Policy Committee, of which I am Chairman. These
groups consist of representatives of the independent segment of the industry
serving particular areas of the country. We are meeting with these groups to
94
identify regional problems and to deal expeditiously with them. These meetings
are helping us to maintain flexibility in the administration of the new oil import
program and to be responsive to the special problems of particular areas of the
country.
THE PROBLEMS OF THE INDEPENDENT OIL COMPANIES
We are greatly concerned about the independent companies. The independent
segment of the oil industry—the independent refiners and the independent
marketers—are faced with related but distinct problems. The refiners face crude
oil shortages; the marketers, gasoline shortages. Most major integrated oil com
panies will be able to make their own internal allocations and will not run out of
crude and gasoline supplies.
Until the early 1970’s, we had surplus crude oil production capacity in the
United States. This enabled independent refiners to buy crude oil and build
refineries to supply, among others, independent jobbers, marketers, and other
wholesale customers. There was also a surplus of gasoline and other products
being produced by the major oil companies. Independent marketers took ad
vantage of this surplus and opened thousands of gasoline stations to sell gaso
line purchased in the spot market. By efficient servicing of consumers, these mar
keters were able to sell gasoline for a few cents a gallon less than the major oil
companies. I believe that these independents had a healthy influence on the pe
troleum industry by giving consumers a greater choice between price and service.
They made it possible for consumers to buy gasoline at lower prices.
The gasoline shortage has hit these independents hardest. In the first place,
independent refineries can on longer get adequate supplies of crude oil. They
used to obtain domestic crude oil by exchanging their import licenses with the
major oil companies. The major companies used the import licenses to import
cheaper foreign crude for their own use, while providing the independent re
finers with domestic crude oil. In addition, the so-called “ Sliding Scale” method
of allocating import licenses under the old system gave smaller refineries more
than a proportionate share of the licenses.
All this has changed during the last two years. Quoted prices of foreign crude
oil are now equal to or higher than prices of American crude sold in the same
markets. There is a worldwide shortage of low-sulfur or “ sweet” crude. As a
result, major oil companies have had no economic incentive to trade their do
mestic sweet crude production for imported crude obtained by means of inde
pendents’ import tickets. The majors now need all the low-sulfur crude they can
get for their own refineries. In some cases they must utilize low-sulfur crude
because of local air quality standards, even though their plants are designed
for refining high-sulfur crude. Consequently, the major companies are terminat
ing long-standing arrangements to supply independent refineries. For all these
reasons, the independent refineries cannot get the crude oil they need and are
operating at less than full capacity.
Independent gasoline marketers are also in a difficult position. The wholesale
market for gasoline is drying up. Many of the independents find it impossible to
purchase gasoline wholesale. Hundreds of independent gasoline stations across
the conutry are closing down. Those that can obtain gasoline abroad, find it
available only at much higher prices. This hurts them competitively, since their
main selling point with the public is that they can underprice the major oil
companies.
The problems of the independent segment of the industry were given con
siderable attention in designing the new oil import program. Indeed, had it
not been for the independents, the changes in the program might have been
announced much sooner than they were. Our basic objective was to balance the
need to preserve the independent segment of the petroleum industry with the
desire to create a vigorous domestic industry through incentives for construc
tion of new refineries in the United States and for exploration for new reserves
of crude oil. We also wanted to eliminate the many exceptions built into the old
import program and to assure a reasonable stability of prices.
We know that the new program has not solved all of the problems of the
independent segment of the industry. We did not intend that it would, nor that
it would be a panacea for every interest group. There is no way that the import
program can create a barrel of oil. We have, however, tried to confront as many
problems as we could in an effort to help the independent segment as much as
possible to adjust to the new economics of the oil industry.
Perhaps the major benefit of the new program is the flexibility that it pro
vides to importers. Marketers will be able to shop for supplies of oil anywhere
95
in the world. They will no longer be dependent entirely on their traditional
sources of supply. Moreover, through the availability of fee-exempt licenses
issued by the Oil Import Appeals Board, independent marketers should have
access to products at lower cost than their major competitors for the remainder
of this decade. This should provide the time required by the independent mar
keters to make the changes necessary to protect their market position.
Another benefit of the new program is the incentive it creates for additional
output. fThe independent marketers have depended for their economic well-being
on the excess refinery capacity of the major oil companies. Excess refinery
capacity no longer exists, largely because we, as a Nation, have discouraged
refinery expansion and construction. The greatest hope for the independent
marketers, in the long run, will be the incentives provided both independent and
major refiners to produce additional supplies of crude oil and products. This,
in the end, is the only real solution to the problems the independent marketers
now face.
THE EFFECT OF THE NEW IMPORT PROGRAM ON THE INDEPENDENT OIL COMPANIES
Let me discuss at greater length some of the steps we have taken to protect
the independents. In the past, the Oil Import Appeals Board (OIAB) would
not distribute import licenses in cases of hardships until September. These li
censes were, by and large, distributed to the independent refiners and marketers.
Early this year, the OIAB began to allocate tickets immediately upon appli
cation. It had soon disbursed its entire 1973 allocation. Then, on March 23,
1973, the President issued a Proclamation granting unlimited allocations to the
Oil Import Appeals Board in an effort to make more crude oil and product avail
able to both the independents and the Nation. Finally, on April 18, in another
Proclamation, the President removed volumetric controls altogether.
The new program does several things to strengthen the short-term position of
the independent refiners and marketers, enabling them to establish themselves
on a more enduring basis.
1. Outstanding import licenses will be honored free of license fee. Since the
independents hold a large share of these licenses because of the sliding scale
and past OIAB allocations, this provides value to their tickets where none
existed previously. Independent marketers will be able to import oil at lower
cost than the majors. As a result, the majors should now have greater incentive
to trade with the independents.
2. To provide greater value to the independents’ tickets, we have suspended
existing tariffs. Had we not done this, the independents* ticket value would have
been lower. The only other way to create value under the new program was
to have the consumer pay substantially higher prices.
3. The Oil Import Appeals Board has been given the specific responsibility
for helping the independent refiners and marketers by issuing fee-exempt tickets.
Major oil companies may also appeal to the Oil Import Appeals Board, but they
must demonstrate their inability to obtain import licenses by exchanging with
independents or their willingness to supply established independent marketers
and refiners with the same proportion of crude oil or products supplied in 1972.
4. The government has begun to allocate its “ royalty oil” to independent re
fineries in need. Under the terms of relatively recent lease sales, the government
can collect some of its royalties in cash or in a share of the oil produced on
lease lands. In choosing the latter, it is, in effect, diverting crude oil from the
major to the independent refineries. To date, about 60,000 barrels per day have
been allocated in this manner to the independents. There is a possibility for an
additional sharing of royalty oil of up to 140,000 barrels per day under this
program.
SOLUTIONS TO THE GASOLINE SHORTAGE
We have encouraged domestic refineries to shift their proportions to maximize
gasoline yield. This will help in the short run.
What about the long run? What is being done to solve the gasoline shortage
for the rest of this decade?
1.
We have established a license fee program for crude oil and product imports.
This program removes all volumetric quotas on gasoline and allows free importa
tion subject to a fee of 63 cents a barrel or iy 2 cents per gallon after 2% yearn
This is a long-run system which is designed to spur the construction of refineries
in the United States. It does this by removing obstacles to acquiring an assured
supply of crude oil and by instituting a price differential between crude and
96
products sufficient to guarantee an adequate profit from domestic refining. I am
happy to report that, since the President’s energy Message on April 18, a number
of companies, including Shell, Ashland, The Pittston Corporation and Standard
Oil of California have announced that they now plan to build or expand re
fineries in the United States as long as sites are available. Others have indicated
to us that they are seriously considering building refineries here but have not
yet made their plans public. In addition, several independent marketers have
stated their intention to develop their own U.S. refinery capability, a necessary
step if the independent marketers are to become a fully viable entity in the
industry.
2.
We are also taking actions to solve the domestic crude oil shortage by
a proposal we are making to the Congress for an exploratory drilling investment
credit. This gives a 7 percent tax credit for new drilling, plus a supplementary
credit of 5 percent for successful wells. We are confident that this program, if
enacted by the Congress, will stimulate crude oil production and have a signifi
cant impact on gasoline supplies.
Production from new refineries and increased domestic crude oil output is at
least 3 years away. During this time, the pressure on gasoline prices will be
greatest. This brings me back to our basic concern today; gasoline prices and
what will happen to them.
GASOLINE PRICES
Gasoline prices are controlled by the Cost of Living Council. The oil companies
have had an incentive under the economic stabilization program to curtail their
wholesale distribution in favor of retail sales. This is one reason why independent
oil marketers and fleet purchasers have been hardest hit by the oil shortages.
Energy conservation can play an important role in stretching gasoline supplies.
To this end, we will need the cooperation of the government, industry, and the
public. For example, the public is being encouraged to minimize its use of
automobiles this summer. According to the Automobile Manufacturers Associa
tion, about 56 percent of the cars on the road contain only the driver. This under
utilization of cars can be reduced in many cases, especially in metropolitan
areas. Car pools and public transportation should be substituted, where possible,
for single occupant cars. Use of smaller cars, with better gasoline mileage per
formance, is another measure the public might take to conserve gasoline. Other
measures include reducing the use of the automobile air conditioner, keeping
tires properly inflated, cutting off motors when stalled in traffic, and avoiding
excessive speeds on the highway.
Some have expressed concern that the price of gasoline will rise to astronomi
cal levels. This concern is unfounded. There has been a substantial rise in
foreign crude oil prices in the last three years, and we will probably experience
additional price increases in the future. But crude oil costs account for only a
small fraction of gasoline prices. For instance, if the crude oil price were
doubled, this would increase the price of gasoline by only 8 cents a gallon.
One of the largest components of the price of gasoline is represented by
federal and state taxes. The breakdown in the retail price of a gallon of gasoline
costing 39 cents is as follows: crude oil—8.1 cents; transportation to refinery
and refining—5.3 cents; wholesaling and retailing—13.9 cents; state taxes—
7.7 cents; and federal tax— 4 cents.
It is interesting to note that in England, the retail price of regular gas is 64%
cents a gallon; in Germany 79% cents; in France 91% cents; and, in Italy, a
dollar. With prices like these, it is no wonder that European drivers prefer
smaller cars. Why are European gasoline prices so high? The answer is pri
marily the higher taxes paid by motorists in these countries. In Europe, taxes
account for up to 75 percent of the retail price. By comparison, taxes represent
only 30 percent of the price in the United States.
Gasoline prices will probably increase over time. This would provide certain
benefits to the nation’s refiners and
1. It will help to save some independent gasoline dealers and refiners who
are otherwise going to go out of business.
2. It will encourage Americans to conserve gasoline.
3. It would also help to provide the economic incentives needed to speed up
the construction and expansion of badly needed domestic refinery capacity.
97
ALLOCATION AUTHORITY
Many groups are now suggesting that we need allocation authority, and the
Administration has given this a great deal of thought. The Economic Stabiliza
tion Act authorizes this authority for petroleum and petroleum products.
I am basically opposed, as I am sure are most of the members of this Com
mittee, to the needless injection of government regulation and control into any
industry, particularly where there is every evidence of intense and healthy
competition. I do not want to take any step which would discourage private
initiative.
At the same time, in the short-run, I think we may be in a situation in which
we may need to make decisions on priorities. We cannot afford to let crops go
unplanted or unharvested for lack of diesel fuel for our tractors. We cannot
let our vital industries close down. We cannot endanger public health or safety.
And, finally, we should not let the independent segment of the oil industry,
which provides competition in the marketplace, be forced to shut down.
In attempting to direct the allocation of supplies such as gasoline, I would
prefer to work, as we have up to now, through various incentives. It is better
to encourage oil companies to move in a desired direction by their own choice
rather than to try to force them to move against their will.
In any event, I would not hesitate to exercise this authority if it were necessary
to prevent undue concentration of hardship on particular segments of the popu
lation. However, I would want to look closely at the impact of this authority
on the economic incentives we have created for new investment in the industry.
I think we all have seen from the experience in the old Oil Import Program that
continued use of allocations, rather than reliance on the marketplace, could
lead to artificial difficulties that are at total variance with our basic nationl
purposes.
Thank you.
Chairman H u m p h r e y . Professor Allvine, please come forward.
Mr. A l l v i n e . Yes, sir.
Chairman H u m p h r e y . Am I correct in that pronunciation ?
Mr. A l l v i n e . Yes, sir.
Chairman H u m p h r e y . We want to thank you very much for taking
time to come to us. I see you are from the Georgia Institute of Tech
nology.
Mr. A l l v i n e . That is correct.
Chairman H u m p h r e y . And I am privileged to say that I serve on
a committee with the distinguished senior Senator from Georgia who
speaks with great pride of the Georgia Institute.
You are accompanied by Professor Tarpley; is that correct ?
Mr. T a r p l e y . That is correct.
Chairman H u m p h r e y . Also of Georgia Tech?
Mr. T a r p l e y . Yes, sir.
Chairman H u m p h r e y . Well, as long as I can remember I was hear
ing about Georgia Tech, so I ’m glad to see that someone is here to help
on this rather difficult and complex matter of the fuel industry as it
relates to the consumer and the supply and distribution system.
Professor, why don’t you just proceed. We can do it one of two ways.
We are a bit pressed today on time. I have a conference that we are
supposed to be attending. I f you would like to review your prepared
statement for us, then maybe we can ask you some questions. We will
include the full text in the record.
Mr. A l l v i n e . A l l right, Senator. I f it is appropriate, I think in 5
minutes I can read through the prepared statement.
Chairman H u m p h r e y . Go right ahead then.
98
STATEMENT OF FRED C. ALLVINE, ASSOCIATE PROFESSOR OF MAR
KETING, COLLEGE OF INDUSTRIAL MANAGEMENT, GEORGIA IN
STITUTE OF TECHNOLOGY, ACCOMPANIED BY FRED A.
TARPLEY, JR., PROFESSOR OF ECONOMICS
Mr. A l l v i n e . T o begin with, I would like to make one observation
about the hearings so far. Over the last 4 years I have probably sat
in or participated in 10 to 12 hearings and I would very much like to
compliment the Senator on the perceptive nature of your questions.
If the rest of Congress continues to probe into the industry and shows
the same comprehension of the problems, I think perhaps we may find
some solutions before it is too late for everyone.
Chairman H u m p h r e y . Thank you.
Mr. A l l v i n e . So I want to congratulate you for what you have done
so far.
I will continue with my prepared statement and I think in about 5
minutes I can read that. Do you have about 20 minutes ?
Chairman H u m p h r e y . Yes, sir.
Mr. A l l v i n e . The shortage of gasoline has already had an adverse
impact on competition in the gasoline industry. As the gasoline short
age situation intensifies over te next 2 or 3 years, it could seriously
injure and possibly destroy a very significant competitive force in the
sell i n . of gasoline to the public.
Independent private brand marketers, the major source of price
competition in the gasoline industry, have severely suffered as a result
of the supply shortage. This situation is extremely unfortunate for
consumers since such independents are specialists in efficient techniques
of selling gasoline which result in substantial savings for the public.
Already several independent private brand marketers have been
forced out of business because of supply shortages. Unless conditions
change fairly soon many more independents face the same prospect
over the next year or two. If this is allowed to happen competition in
the gasoline industry will suffer a major setback.
For the mst several years, and until very recently, independent dis
count gasoline marketers have sold gasoline at much lower prices than
their major brand competitors largely because of their relative effi
ciency.
The marketing cost including profit for many independents is about
5 to 7 cents per gallon. This would be in contrast to the cost of maior
brand marketing ranging from 10 to 12 cents or more per gallon. The
independents are more efficient because of their discount, mass-mer
chandising method of marketing private-brand gasoline on a highvolume, high-turnover, low-cost and low-price basis. This is in contrast
to the high priced method of selling major-brand gasoline. In the latter
case, the costs of selling are much greater because of brand-name
advertising, distribution of gasoline through large numbers of service
stations, high priced locations, very elaborate facilities and costly sales
promotion efforts including credit cards, trading stamps, games, and
premiums.
The private-brand discount gasoline marketer accounted for an
estimated 12-15 percent of the 70.5 billion gallons sold to the public
99
through retail outlets during 1972. At a savings of around 4 cents per
gallon, which is a major oil company estimate, the independent private
branders directly saved the public around $375 million last year.
Furthermore, when price reductions by the majors in response to the
independents are included, the savings attributed to the independent
discount gasoline marketers run well over half a billion dollars per
year.
Prior to the last 6 to 9 months, the independent discount method of
selling gasoline was actually forcing a revolution in the major brand
methods of gasoline marketing. Through their pioneering efforts with
self service, the independents over the last 4 years had actually reduced
their costs while the costs of selling major brand gasoline were either
constant, or had increased. The improved efficiency of the independents
led to their acquiring an increasing market share at the expense of
the major brand marketers. As a result of the intense competitive pres
sures of the independents, the costly major brand method of marketing
was starting to crumble. The consumer savings from more efficient
methods of marketing would have been substantial. Now, however,
with the extraordinary developments in the gasoline industry, the
competitive pressures of the efficient independent discount gasoline
marketers are no longer being felt.
Ironically the efficient discount gasoline marketer, the primary force
against inflation in the gasoline industry, is facing the realistic pos
sibility of extinction. The critical problem confronting the independent
discount gasoline marketers is obtaining economical supplies of gaso
line to sell to their customers. As crude oil and refined products have
grown exceptionally tight some refineries have taken advantage of the
situation. They have diverted crude oil and refined products from in
dependent refineries and discount marketers to their direct controlled
operations. Many of the independents having supplies substantially
reduced have been forced to increase their prices, reduce hours of op
eration, and to lay off employees in order to try and hold their opera
tions together. Those that have been particularly hard hit by severe
cutbacks in supply have ceased to operate.
The net effect of diverting products from the independents and re
ducing their supply has been to neutralize the independent price mar
keter as a viable competitive force in the marketplace. The meaning
to the public of the supply squeeze exerted on the independent can in
part be observed from studying the weekly prices of majors and inde
pendent private branders in Los Angeles, Portland, Seattle, and Phoe
nix for the last few years as shown in figures 1-4.1 think if the Senator
will glance at these charts he will see the dramatic change in the nature
of prices that occurred as of April 15,1972, a very significant date, and
I think the Senator might well keep this in mind. All of the figures
show that around mid-August 1972, week “33/72”, that price competi
tion suddenly stopped, and many markets became uncannily stables
overnight.
[Figures 1-4, referred to above, follow:]
F ig u r e
1.— Average weekly prices for major and private brands gasoline in Los Angeles from 1909 to April 22,1973
101
17 7 1
m
i
19 73
fifsIsslIfsJIIfi
F i g u r e 2. —Average
F ig u r e
weekly prices f o r major and private brands gasoline
Portland, Oreg., from 1971 to 1973
in
3.—Average weekly prices for major and private brands gasoline in
Seattle, Wash., from 1971 to April 1973
102
F i g u r e 4. —Average
weekly prices for major and private brands gasoline in
Phoenix, Ariz., from 1969 to April 22,1973
Mr. A l l v i n e . With gasoline supplies being reduced to the discount
marketers the major oil companies no longer had to concern themselves
with the competitive threat of the efficient independent discount
marketer. Control over supply and its diversion from the independ
ents has proven to be a very effective tool to regulate and destroy
price marketing. Since supply has been regulated to the independent
price marketers, the price paid by consumers for gasoline skyrocketed.
For the past 37 weeks—through April 22, 1973—in comparison to
the prior 37 weeks, the average price of major brand gasoline in
creased by 3.5 cents per gallon in Los Angeles, 2.4 cents in Portland,
3.9 cents in Seattle, and 2.4 cents in Phoenix.
Price increases of the magnitude shown for four primary western
cities have been fairly general throughout the country. For example,
the price of gasoline to major brand dealers for 100 cities has in
creased by approximately 2.i cents per gallon for 1973 in comparison
to the same period for 1972. This in turn means pump price increases
of around 30 per gallon. The general stabilization of wholesale
•prices to dealers also occurred around mid-August 1972. With the
magnitude of the price increases, the additional cost to the public for
gasoline runs close to $2 billion per year.
If competition is to be preserved in the gasoline industry, then the
gasoline supply crisis should not be used by some suppliers to wage a
war of annihilation on the independent discount gasoline marketers.
Action is needed on the part of the Federal Government to see that
scarce product that historically has been sold directly or indirectly
to the independent discount gasoline marketers is not diverted to
major oil company operations. A base period for determining his
torical supply relationships might be the first 6 months of 1972, just
prior to the development of severe product shortages in the United
States.
As a matter of fact, as an offhand comment, gasoline was running
out of the ears of some suppliers a year ago at this particular time.
Suppliers would be required to continue to sell refined products
103
to customers in the same proportions that existed during the base
period. The price of product would remain competitive for the class
of customer.
Clearly these are extraordinary times in the gasoline industry,
and unfortunately Government involvement is necessary to preserve
competition until more normal supply conditions return. Over the
years many laws have been passed that have directly benefited the
giant integrated oil companies, such as the Connally Hot Oil Act, de
mand prorationing, the depletion allowance, and the expensing of
intangible drilling costs. Now the Federal Government has the op
portunity to take the necessary steps to see that competition is pre
served during this period of extreme product tightness.
Thank you.
Chairman H u m p h r e y . Well, I want to thank you very much, pro
fessor. That is a powerful statement. It is succinct and informative
and I think of very great value to the subcommittee. I will see that
every member of the full committee gets a copy of your statement.
Let me ask you a question. Do you see any evidence of antitrust
violations in this situation that you have described ?
Mr. A l l v i n e . I would rather ask Professor Tarpley if he would
comment on that question.
Chairman H u m p h r e y . Professor Tarpley.
Mr. T a r p l e y . Well, I do see a problem, Senator, in that we now
see consistently in the four markets we have talked about, and it
does extend for the country as a whole, a great deal of price stability
in markets that have been characterized by lack of price stability. We
do see some things happening around August 15, 1972. There may be
some other possible explanations but one scenario that has been sug
gested is that the word was passed that there was going to be a price
freeze. August 15 was the first anniversary of the President’s wage and
price freeze. The scenario has been suggested that the majors said
get your prices up because they will be frozen, and when they got
them up there are some indications that price protection was with
drawn.
This was done by 20 different firms and there is a question of whether
it was coincidence or not. I don’t know.
Chairman H u m p h r e y . The pattern that disturbs members of the
subcommittee and many Members of Congress that I have mentioned
earlier in today’s testimony is the pattern of cutting off the inde
pendent dealer or wholesaler, which in turn results in the independent
retail outlet either going on short hours, limiting amounts of gaso
line, or having to close up entirely.
At the present time some evidence has come to us of the majors
opening new outlets of their own integrated operations.
Have you had any pattern, either one of you, have you sensed any
such pattern?
Mr. A l l v t n e . Senator Humphrey, you really do not have to have
the opening of a large number of major brand stations to divert sup
plies from the independents to the major system. Like Exxon and
some of the other companies have said, we have two or three or more
times as many stations as are needed, so you don’t have to open more
stations to divert the product from the independents to the major
system. I think that perhaps there are still some options some pro-
104
motions, some efforts by the major oil companies to expand their
marketing operations, but that is not necessary as part of the process
of really eliminating the independents as a viable competitive force.
I think that the solutions that you heard about earlier from Mr.
Simon are long ranged. However, as you underscored, the problem is
urgent, it’s immediate, it’s today. The solutions of the Government are
going to help 2 to 3 years down the road. I think this is exactly the
case and most of the independent brand discount marketers will not
be around to see the time of relief. If there is not some action on the
part of the Government perhaps by the end of the summer or early
tail, we will see the major crisis in the independent sector of the
industry.
And another thing you asked or alluded to was why did this situa
tion occur all of a sudden ? There are environmental problems delaying
pipeline and refinery construction and there is no doubt about this,
but I was told more than 2y2 years ago by a major oil company’s
chief executive officer, that in the not too distant future the independ
ent marketers were going to have a real difficult time obtaining sup
plies. At that time the statement didn’t really have any meaning to
me. But today with the calls and the pleas that I have had from many
independents, I really understand the meaning of the conversation of
a few years ago. I don’t think supplies have just all of a sudden gotten
tight.
Furthermore, you were told earlier that the independents operate
on marginal, spot gasoline. That is only partially true. I would say.
and I can’t know exactly, that perhaps only 25 percent of the inde
pendents have been obtaining their gasoline in the spot market. Most
of the gasoline has been obtained on long-term historical supply rela
tionships. The biggest of the independent marketers buys only a very
small percentage of his supplies in the spot markets. T believe you
would be misled to think that independents are marginal operators
who have leached on the market and have bought distressed products
at low prices. I think that is very misleading to develop that kind of
interpretation.
Chairman H u m p h r e y . We have one independent marketer that I
referred to here the other day from my home State that has been in
business since 1937. I believe it is, and has been doing business with
the same company, and he has noticed now that as of July 1, he
will be out. So he hasn’t been any spot buyer. He has had a long-term
contract, years and years and years, and many of them are in exactly
the same situation.
I am on the telephone every day in a rescue operation, with very
little success I might add trying to rescue some wholesaler, some in
dependent. operator that may have 6 stations, 20 stations, or be servic
ing a number of outlets, particularly in rural areas. The farmer that
uses gasoline and diesel fuel is finding it difficult to obtain supplies
from his old suppliers, people with whom he has done business for
years and years. Many of these farmers have accounts with these in
dependent outlets; that independent keeps him on the books, as we
say out home, for a long time until he gets his advance payment on his
crop loan or until he markets some of his product. Those people are
being cut off today, and its going to have a very serious impact upon
the production of food, and, of course, upon the costs of production
105
because they are having to pay any price that is asked now to get
supplies.
Also, have you noticed that most of the outlets are not under price
control?
Mr. A llvine . That is correct. The major-brand dealers which I
would imagine sell perhaps 90 percent of the major-brand gasoline,
they are franchised dealers and are not under price controls.
Chairman Humphrey. So the opportunity for them to take advan
tage of the market 011 price at the retail outlet is there, particularly
in a tight supply situation, isn’t it ?
Mr. A llvine . It certainly is.
Chairman H um phrey . Let me ask you, is there any solution that
you see to the plight of the independents except some form of move
toward enforced allocation ?
Mr. A llv in e . Senator, if I felt there was any way short of Gov
ernment intervention to save and to preserve what I consider the most
important competitive sector of the gasoline industry, I would like
to suggest it to you. I do not see any way short of something along
the lines of sharing the shortage in some proportional and equitable
way to save the independent gasoline marketer. That is what was
suggested to you. The Oil Policy Committee spokesman suggested to
you that they have given great relief to the independents as a result
of the new energy policy of the President. I believe that you will find
if you talk to most of the independents that any relief from the new
old policy is down the road 2 to 3 years. Import tickets are a hunting
license to import gasoline that costs A ery near retail price. This is
no relief, it’s slow death as opposed to sudden death for the independ
ents.
Chairman H um phrey . What about the financial and technical
ability of the independents to import not only the refined product
but more basically the crude ?
Mr. A llvine . I have somewhat more faith in the ability of some
of the larger independent refineries to import crude oil than the
smaller midcontinent ones. Companies that you mentioned like
Ashland, and Tenneco, and others that are international operators
are in better position to find the crude and to import it. I think such
refineries are going to increasingly import crude oil and be a source
of supply of gasoline to the independent discount gasoline marketer.
Chairman H um phrey . But in order for them really to utilize this
wide open import policy now they have to expand their refinery
capacity, don’t they ?
Mr. A llvine . Eight, and it will take 2% to 3 years at least to bring
any relief.
Chairman H um phrey . If they can get clearance, for example, after
the environmental impact studies that have to be made, for licensing
of the site. We had evidence here yesterday that it takes a year, to a
year and a half, or sometimes even longer to get site approval to locate
a refinery, and then you wait for your State and Federal environmental
impact assessment. So not only do you have the problems that come
with the building, which takes time for one of these complicated and
very costly refineries, but you run into some legal difficulties, do you
not?
106
Mr. A llvine . The most optimistic estimate, it is 2 % to 3 years. I f you
take into account other considerations, it will be 4 to 5 years. We are
looking at a long-term tightness of supply in this country at least
for the next 2 to 3 years, as far as I see the situation.
Chairman H um phrey . At best.
I f we are going to get any relief ait all that will be meaningful now,
that will preserve a competitive industry, No. 1, keeping the inde
pendents as a competitive force and, secondly, to have any kind of
relief that will take care of the consumer, it has to be done on an
emergency basis now, is that correct ?
Mr. A llvine . I don’t think there is any question about that, Senator.
Chairman H um phrey . Have you had a chance to review any of
the legislative proposals that have been advanced on ways and means
of more equitable distribution of supply ?
Mr. A llvine . I have read some of them, Senator.
Chairman H um phrey . I have a resolution, Joint Resolution 98. I
wish that you could take a look at it if you have some time. It is not
necessary to do it right now. It is on an allocation board; it calls on
the President to establish such a board, defines the composition of the
board and outlines some of its duties. I f you could do that we will
see that you get a copy of the resolution, and if you could send back
to me your commentary I would greatly appreciate it, and, Mr.
Tarpley, if you would do the same thing, between you together you
might share your thoughts.
Congressman Carey.
Representative Carey. I think yon are due on the floor for a vote
and I don’t want to prolong the session.
Chairman H um phrey . I might leave here and let you proceed with
the hearing if you would care to do it.
Representative C arey. This is the last witness ?
Chairman H um phrey . That is correct.
Representative Carey . I would like to make an inquiry and get
some advice from, quite evidently, an expert on the economics of
the distribution industry in petroleum.
Don’t you think, Professor Allvine, that we ought to require a little
more effort from this industry, which continues to be the recipient of
an even greater schedule of benefits, such as a benefit for drilling and
exploration, the 7-percent investment credit, the benefit of the deple
tion allowance, as well as the benefit of an unlimited demand and
decreasing supply, which makes for unquestionably a high ratio of
profits to investment ?
For all of these benefits, don’t you think we should at least require
that they build an expanded storage capacity to alleviate and avoid
these shortages and depletions that cause the imbalance in the market?
Don’t you think if they could move at peak production levels and full
capacity and fill new storage facilities we could avert, in the future,
some of this unfortunate shortage situation we are now experiencing?
Couldn’t we require them to build this storage capacity with their
own funds in return for import licenses ?
Mr. A llvine . I made that proposition 6 to 9 months ago when I was
advocating that the import restrictions be raised. Companies would
be free to import products as long as they were willing to make the
investment in an emergency reserve of perhaps 60 to 90 days. They
107
might be able to get some tax incentive to help them defray the cost
of building emergency stocks like the European countries have.
Representative C arey. They can get a 7 -percent investment credit on
building the storage facilities which they can then depreciate. They
have all of the advantages in the world. I don’t want to give them one
more nickel’s worth of incentive to become bigger millionaires. They
are in the best possible position: There is short supply, big demand,
and they possess unlimited capacity in technology to operate effec
tively. We ought to make them do something.
Again, how about making them build storage capacities as well as
increased refinery capacity? For example, today Exxon decreased its
price on residual by 11 cents a barrel. Why? Because they wanted to
make less money? JSTo. Because when they make gasoline, they have
to make residual and they want to move the residual, get money for it
now and have someone else put it in storage for next winter. The poor
marketer is going to have to buy it, admittedly at a favorable price,
but tying up his money now and hold the fuel for next winter. It will
then be off of Exxon’s books and out of its inventory. I think Exxon
ought to build the inventory and use the 11 cents a barrel to build
more storage capacity.
Mr. A llvine. It is very interesting if you look at who has expanded
refining capacity since the beginning of the import controls in 1959.
Of the major oil companies, the largest—Exxon—has built most of
their capacity abroad and has not kept up in terms of their onshore
capacity relative to the rest of the industry. I think it amounts to
somewhere in the neighborhood of 400,000 to 600,000 barrels. I f they
cared about this country, they would have put it here; instead they
built in overseas.
Representative Carey. I think we ought to look at what is happening
because of investment incentives, credits, deferral of income, overseas
tax advantages, and find out how patriotic some of these international
oil companies are behaving in terms of bringing the crude back to
this country. I understand that it’s going elsewhere because prices are
more attractive or currencies are more attractive, and they’re building
up new international companies in Spain and other places. Production
is not coming home to Uncle Sam despite all of the inducements we
are giving them. That is a problem.
Mr. A llvine. I concur with you.
Chairman H umphrey . If you will stay to discuss further, I would
like to have you do it. I must go down and cast a vote. But before I
do it, how much do you estimate it will cost the consumer if private
brand marketers are eliminated in the next year and cut-rate gas dis
appears ?
Mr. A llvine. I would say in a direct sense it is going to cost the
public somewhere in the neighborhood of half a billion per year, which
will continue on into the future. If the independents are eliminated,
given the nature of this industry, they are not going to spring back.
In addition, the public will lose more since the competitive response of
the majors to the independents will no longer exist.
Chairman H umphrey . In other words, I think you had a figure of
something like $3 billion which was the saving because of the competi
tive response of the whole industry to the competitive practices of the
private independent marketer.
99-740— 73------- 8
108
Mr. A l l v i n e . Since the independents have been constrained in the
last 6 to 9 months, there has been an increased cost on an annual basis
in the neighborhood of $2 billion to the public.
Chairman H u m p h r e y . We are paying some price!
Congressman, would you care to continue ?
Representative C a r e y . Just for a few points.
Chairman H u m p h r e y . I am going to excuse myself and express my
thanks to you, and I want to assure you that every member of our com
mittee will receive a copy of your testimony.
Mr. A l l v in e . Thank you.
Representative C a r e y . Thank you, Mr. Chairman. If I could just
continue for a few minutes to see what you think we can legitimately
demand of this industry in return for what I think is a plentiful supply
of benefits.
I mentioned additional storage capacity. Do you think that as a
requisite for getting an import license, which will be continued with
out fee or without tariff, we could logically exact any more targets,
goals, or requirements of the industry?
Mr. A l l v in e . Congressman, I am a little bit concerned as to where
the burden of these additional requirements may actually come to
rest. I am afraid that the burden may be harder on the independent
refineries and not the integrated refineries with the crude oil. You have
to be cautious about what is going on today. The integrated oil com
panies would like to solve their problems by increasing the price of
crude oil by 50 to 75 cents a barrel while holding wholesale and retail
prices close to where they are today. This would be very beneficial to
the integrated oil companies because it would allow them to subsidize
their refining and marketing and hurt the independent refineries and
marketers.
Representative C a r e y . Just hesitate there. I am told that most mar
keting and distributing functions of these integrated companies con
sistently lose money and they balance this off by their profits on crude
production and the balance sheet then looks all right.
Mr. A l l v in e . I would say if you were able to get at the books of any
of the giants and look at their profits from refining and marketing for
1971 and the first half of 1972, you would find that you are pretty close
to being right. Refining and marketing earned little, if any, return,
while most of the return comes from the crude oil end of the business.
Crude oil has always been the tail that wagged the dog. Today, with
crude oil prices frozen, and the high cost of bonus bidding, I would say
refining and marketing, for the first time in the last 20 years, for any
significant period, is making a fairly nice rate of return. However,
they would like to change that. As soon as they are able to get the crude
oil prices up, then they will commence to squeeze down on marketing
and refining. The tax benefits are thereto do it.
If you look at the nature of this industry since the turn of the cen
tury they have always captured at one levei of the industry dispropor
tionately high profits and have used this to squeeze people at the other
levels. Today the problem facing the ¿riant integrated international oil
companies is how do you breathe profit back into refining and market
ing. Considering first the international situation, the foreign coun
tries are taking over the crude oil operations. The integrated oil com
panies no longer have incentive in the foreign countries to take profit
109
back to crude oil because they are going to have to share it with the
sheiks. Therefore, they now have to find some way to make profit in
refining and marketing. For the first time in many years we see Europe
becoming profitable- In the United States the integrated oil companies
face much the same problem. I f you look at the situation from the big
picture how do you get profit back in the refining and marketing? The
only way to do this is to delicately balance supply and demand. If you
can delicately balance these two, then you can see that product does
not move in the hands of the independents that have not existed on
subsidies. That would in a literal sense “set up” the majors. Now that
they have to make money in refining, they would have to increase their
prices. The unsubsidized independent sector of the industry would
grow and more deeply penetrate the market. The supply shortage to
day is very unfortunate for the independent companies.
Representative C a r e t . Tell me, what could Government do within
its own resources to help alleviate this situation? The Government is
a major customer, is it not, of this industry, a major buyer of the
products across the board, especially Navy, Air Force, and other Gov
ernment installations. Offhand, what percentage of the market does
the Government supply ? What could be done by the Government as a
consumer in this field to perhaps alleviate the shortage? Could the
Government trade off some of the Navy oil reserves, for example, in
return for product and get the Government out of the competition in
the marketplace?
Mr. A l l v in e . That is sort of a new request. I would rather reserve
my comment until I have a chance to think about it.
Representative C a r e y . Could we use the Government buying power
and Government oil reserves and Government position ? The U.S. Gov
ernment is a major holder of reserves, as well as a major buyer of
product, right? Could we adopt a system of Government practices
that would alleviate, for example, the jet fuel shortage or the consumer
shortage in gasoline for motor vehicles? Perhaps we wouldn^t need to
run as many Cadillacs.
Mr. A l l v i n e . I would rather reserve my comments. But if those re
serves can be made available to the independent refining sector of the
industry during a period of shortage that would certainly help. If the
Government would act to bring in Alaskan crude oil, that would also
help alleviate the crude oil shortage.
Representative C a r e y . N o w you are coming to a point I would like
to pursue for just a minute. Are we doing everything in an organiza
tional way that we should be doing to meet this problem of current
imbalance in a proper way? OEP is out of business now. They used to
deal with this problem. Now its functions are fragmented be
tween Treasury, Interior, Atomic Energy Commission, Bureau of
Mines, and other various parts of Government, all with separate
responsibilities.
Do you think that we are lacking something by not having a central
office of energy control or energy coordination ?
Mr. A l l v i n e . That has certainly been one of the problems—the
many diverse departments involved in the energy question. You forget
to mention the Federal Power Commission as another one. Each one
going its own separate way without any sort of coordinated energy
110
policy has contributed in some part to the nature of the problem we
have today.
Representative C a r e t . Internationally, in this hemisphere, don’t
you think that we ought to try to be a little more cooperative and reach
out to our neighbor to the North, Canada, and our neighbor to the
South, Mexico, and begin to talk to them and work with them on a
common approach viewing the energy problem as a North American
problem ? They have some supplies right now without excess demand.
We have excess demand without supplies. I know of no effort being
made to try to work with Canada and Mexico on a resolution of this
crisis despite the fact that they have everything to gain by our excess
demand, while we have everything to gain in terms of cooperation in
view of their excess supply. Do you know of anything that is being
done to discuss this as a common problem with Canada and Mexico ?
Mr. A l l v i n e . I think something along the line of a hemisphere al
liance as you are suggesting is very appropriate. The only thing I
think you would have to realize is in each of these countries you are
going to be working with the four or five giants of the industry because
their penetration in----Representative C a r e t . Not if we deal on a nation-to-nation basis.
I think you have a nationalized industry in Mexico, do you not? I
believe they nationalized the petroleum industry a long time ago. In
that case you wouldn’t run into this. In Canada we would have a dif
ferent situation. Certainly this is going to become a common problem
in this hemisphere. I f they want to develop and increase capacity,
they could use some technology from us. In turn, they could help us
resolve our pipeline question through negotiation, not necessarily a
first pipeline but the second or the third pipeline.
I think these are the kinds of things we should be talking about with
our neighbors.
Mr. A l l v i n e . Particularly in the case of Canada, if they could see
some possibility of relief, if they got themselves in a critical situation,
I believe they would be more willing to release some crude oil supplies
to the United States now. However, they are becoming concerned
about what happens if they get themselves into a crude oil bind, and
so they are building their own reserves. If we would share the reserve
problem then more product could be made available today during the
period of severe product shortage.
Representative C a r e t . Well, if they read headlines saying that
there is a gas holiday in the United States with rationing and so forth,
they are not going to want to do very much business with us, are they ?
In other words, if we are in a situation where we are getting into all
kinds of trouble such as having travelers on Memorial Day or July
Fourth go out in the country and not be able to get home because they
can’t purchase gasoline they are going to stay far away from that
kind of situation, are they not ?
Mr. A l l v i n e . I think that would be one they would want to keep
their hands off.
Representative C a r e t . I would hope the administration would get
to talk to Canada and Mexico before Memorial Day.
Thank you very much. The subcommittee is adjourned.
[Whereupon, at 3 :15 p.m., the subcommittee adjourned, subject to
the call of the Chair.]
THE GASOLINE AND FUEL OIL SHORTAGE
SATURDAY, JUNE 2, 1973
C ongress of t h e U n it e d S t a t e s ,
S u b c o m m it t e e o n C o n s u m e r E c o n o m ic s ,
o f t h e J o in t E c o n o m ic C o m m it t e e ,
,
Washington D.C.
The subcommittee met, pursuant to notice, at 10 a.m., ¡the President
Wilson Room, the Leamington Hotel, Minneapolis, Minn., Hon. Hu
bert H. Humphrey (chairman of the subcommittee) presiding.
Present: Senator Humphrey.
Also present: William A. Cox and Jerry J. Jasinowski, profes
sional staff members.
O p e n in g S t a t e m e n t
of
C h a ir m a n H
umphrey
Chairman H u m p h r e y . This is an official meeting of the subcom
mittee of the Joint Economic Committee of the Congress of the United
States. The subcommittee is known as the Subcommittee on Con
sumer Economics. It is my privilege to serve as the chairman of the
subcommittee. For the benefit of our audience, this committee or this
joint committee has been established by public law, the Employment
Act of 1946. Its jurisdiction ranges over the total economy and all
developments within the economy. Its powers are of recommendation.
We are very fortunate to have with us this morning two of the Mem
bers of the Minnesota congressional delegation, Congressman Fraser
and Congressman Frenzel. We will have Congressman Karth with us
later on today. I am privileged also to have the statements of other
Members of our delegation, and those statements will be made a part
of the record. For example, I shall include in the record as the first
statement following the opening of this hearing, the statement of
Senator Walter E. Mondale to the Joint Economic Committee. Sec
ondly, the testimony of John Blatnik. Mr. Blatnik’s representative,
Mr. Daniels, is here with us this morning. Thirdly, the statement of
Mr. Karth, Joseph Karth. As I said, Congressman Karth will be
with us later on. The statement of Congressman John F. Zwach of the
Sixth District will also be included, and a statement of a member of
this subcommittee, a gentleman who had hoped to be with us today,
Congressman William Moorhead of the State of Pennsylvania. Con
gressman Moorhead is a man of considerable ability and talent, and
has worked very closely with the Joint Economic Committee over the
years.
I also want to have included in the record at the appropriate point
a telegram that we received from the Association of American Rail
roads. The telegram speaks for itself. It notes, for example, that any
(111)
112
significant shortages of diesel fuel for railroad locomotives will have
a definite adverse impact on the movement of grain and agricultural
products from the grain-producing areas, from grain-producing and
agricultural areas. Service for these products is inseparable from rail
road service generally. Since the first signs of diesel fuel problems, in
creased prices for oil for railroad purposes have ranged from 50 per
cent to 100 percent. Increased prices, 50 percent to 100 percent. Little,
if anything, further can be done by the railroads to conserve diesel fuel
without adversely affecting their customers in the public interest.
Massive further reductions in horsepower and speed, even if effective in
conserving fuel, will create problems of terminal congestion and car
distribution and supply which cannot be met in view of the high levels
of traffic in already strained freight car and locomotive supply. This
is from Mr. R. R. Manion, vice president, operations maintenance de
partment, Association of American Railroads.
[The telegram referred to above follows :]
[Telegram]
W a s h in g t o n , D.C., May 81,1973.
Hon. H u b e r t H . H u m p h r e y ,
Senator,
Minneapolis, Minn.
This telegram is sent in behalf of the Association of American Railroads repre
senting 97 percent of railroad mileage and revenues in the United States. Rail
roads of the Nation are vitally concerned about fuel supplies and ¿shortage prob
lems. Since December 1972 railroads have suffered periodic shortages of diesel
fuel to run locomotives. Commitments as well as deliveries in various parts of the
country have intermittently been withdrawn, curtailed, or limited. Upon termi
nation of existing contracts, many railroads are unable to secure new commit
ments and are able to meet requirements only by buying cargoes from brokers on
the spot market. This is unreliable and assures no continuing supply.
National railroad service is vital to the public and national interest, and
without it very serious adverse impacts on other segments of the economy will
result. Shortages in diesel fuel supply for providing essential railroad service
will result in closed factories, unemployment, and spoiled crops. Voluntary con
trols have not been in effect long enough to assess their effectiveness. Importantly,
however, such voluntary controls specifically recognize railroad freight and pas
senger service as vital and essential public transportation services entitled to
priority allocations. It seems clear now that mandatory production controls are
necessary at this time to assure adequate production of distillates. A large prob
lem last year was the failure to produce adequate supplies of distillate with con
sequent shortages for such essential users as public transportation (including
railroads) and heating, while supplies of refined gasoline for pleasure automo
biles was plentiful.
Railroads are carrying the highest volume of ton-miles of traffic in their long
history, and intensive demands are being made currently for service from all
areas of the economy. This is particularly true for the movement of grain where
volumes have far exceeded last year’s high levels. Numerous spotty shortages of
fuel oil have been suffered by railroads around the country and many in the
grain-producing areas since the beginning of the diesel fuel shortage. Any sig
nificant shortages of diesel fuel oil for railroad locomotives will have a definite
adverse impact on the movement of grain and agricultural products from the
grain-producing and agricultural areas. Services for these products is inseparable
from railroad service generally.
Since the first signs of diesel fuel problems, increased prices for oil for rail
road purposes have ranged from 50 percent to 100 percent. Little, if anything,
further can be done by railroads to conserve diesel fuel oil without adversely
affecting their customers and the public interest. Massive further reductions in
horsepower and speeds even if effective in conserving fuel would create prob
113
lems of terminal congestion and car distribution and supply, which cannot be
countenanced in view of the high levels of traffic and the already strained
freight car and locomotive supply.
R. R. M a n io n ,
Vice President,
Operations and Maintenance Department, Association of American R.R.
Chairman H u m p h r e y . It is my duty and privilege as chairman to
open these hearings. I wanted to bring the subcommittee officially with
its staff members that are here with us to listen to you. We want to
tell you in the opening what we are attempting to do. I don’t think
I need to belabor the fact that what has been done this far has been
inadequate, in that we find ourselves now in not only a difficult posi
tion but a precarious position.
In the weeks that we have had, or months I should say, since the
opening of the first session of the 93d Congress, we have had a num
ber of hearings and studies made by different committees of the Con
gress. A little over a month ago, the Subcommittee on Consumer Eco
nomics, of which I am privileged to be chairman, held a series of hear
ings in Washington on the nationwide gasoline shortage and the pros
pects for softening its consequences. I might add that we have not
only studied the gasoline shortage problem but the shortage that af
fects all areas of petroleum products. Fuel oil, which is critical here
in the Midwest, diesel, and, of course, other petroleum products such
as propane and natural gas, all of which appear to be in short supply.
At that series of hearings that we held in Washington, we were in
formed that this summer’s gasoline shortage would be limited to some
2- to 5-percent nationwide—that's what they call the shortfall—but
that it would increase by perhaps 5-percent per year for several years,
every year about 5 percent for several years, unless greatly expanded
imports of gasoline or expanded imports of crude with the building of
new refineries or energetic conservation measures take place very soon.
I think this audience knows that it takes a minimum of 3 years to
construct a reasonably good refinery, and sometimes under the new laws
that we have for environmental impact and the difficulties we have on
site location for refineries in local communities the time is extended to
even 5 years. There have been very few refineries under construction—
in fact, there are no new refineries that I know of coming into use this
year, save one, I believe, in Illinois.
Here in the Upper Midwest, however, we are already living in the
future in the unfortunate sense that the fuel shortage here, especially in
diesel fuels and fuel oil, has reached levels now that are not foreseen
in most other parts of the Nation for another year or two. This region
shares the problems of others but has some extraordinary ones of its
own, such as exceptional growth in fuel demand from the agricultural
sector and related industries and exceptional cutbacks of fuel supplies
to this area by refiners. To put it simply and directly, this is the bread
basket and many people do not seem to understand that the agricul
tural sector of our economy uses more petroleum products than any
other segment of the American economy. And, therefore, any shortage
of any of the petroleum products has an adverse effect upon agricul
tural production and distribution.
114
I can just tell you that in our State here, for example, we need large
amounts of either propane, natural gas, or fuel oil for the purpose of
drying corn and soy beans. Our soy bean and corn crop is not just what
comes out of the field, it is what is available for delivery, and this
relates to storage, transportation, and drying. If we have a shortage
on fuel, our drying capacity is thereby diminished and we could lose
anywhere from 10 to 15 percent up to 20 percent of! the crop because of
inadequate fuel supplies.
I f remedial action is not effected soon, the Upper Midwest may pro
vide a spectacle to the Nation of the economic and social chaos that can
be wrought by a fuel shortage of only 10 to 20 percent. Indeed, the rest
of the country would not emerge unscathed, because the Midwest pro
vides to the country important products and services, not the least of
which are its agricultural commodities. For the sake of people both here
and elsewhere, therefore, the shortage must not be allowed to worsen.
And if there is a shortage—and we will discuss that here today, as to
its dimension or degree—we must make sure that there is equitable al
location of! what supplies are available.
Some remedial measures already are being taken. As you know, the
President has promulgated a set of guidelines for sharing the short
age through voluntary allocations of supplies by the major oil com
panies to all customers of record during 1972, using 1972 as a base pe
riod. Moreover, the U.S. Senate has before it at this very time legisla
tion to require a similar scheme of sharing available supplies under law
with mandatory powers or mandatory allocations.
We are here today to gather some further information that may be
necessary to make these regulations more fair and effective. I want
to emphasize that the Assistant Secretary of the Treasury, William
Simon, who is chairman of the Oil Policy Committee of the executive
branch, and also Mr. Duke Ligon, Director of the Office of Oil and
Gas for the Department of the Interior, which is administering the
voluntary program, have been very forthright in helping to correct
some situations that needed emergency correcting. But I must say
that we are approaching a situation where just putting the finger in
the dike each and every time is not going to answer the problem, or
to use a better metaphor, to come in with a bucket of oil from time to
time to sort of help us out is not going to remedy the situation. In fact,
Mr. Ligon was of great help during the past week in obtaining as
surance, I believe it was from the Standard Oil Company, that the
Minneapolis Metropolitan Transit Commission will have enough fuel
to run all of its regular bus services for the next 12 months, although
this fuel will cost a full 25 percent more than before. I belive the
company is Amoco, if I am not mistaken.
Despite these efforts, it is my view that inequities and problems in
fuel distribution are far too prevalent to handle on a case-bv-case
basis. My office worked with the Sun Oil Co. for example, to try to
help with the D X stations here in Minnesota and we got good coopera
tion from Sun Oil, but, again, this is where you depend on a Senator
or a Congressman or somebody to come in and try to ¿rive immediate
relief when in fact there is going to be a time when that is not adequate.
Despite these efforts, it is my view that the inequities and problems
in fuel distribution are far too prevalent nation-wide, far too prevalent
115
here in the Midwest, to handle oil a case-by-case basis. Only the wheel
that squeaks the loudest will get attention under those conditions.
Therefore, we need a mandatory allocation system for the period of
the shortage.
This brings me again to the bill now under consideration on the
floor of the Senate. Briefly, this bill provides for immediate mandatory
allocations by all sizable refiners to jobbers and distributors of supply
quotas based on the period July 1971 through June 1972. It also pro
vides that the President shall issue guidelines such that all refineries
receive enough crude oil to run at full capacity. Furthermore, it obliges
the President to fix mandatory guidelines within 60 days for supplies
to be made available to priority users of petroleum fuels, including
farmers, transporters, and public health and safety services. That
would include your schools, for example, your bus and your transit
systems your motor transport, your railroads, and, of course as I have
said your agrciultural economy, and others.
In the Senate debate, I am offering the following amendments: an
amendment to reduce the 60 day period for preparation of the priority
guidelines to only 30 days. I don’t think we can wait 60 days. Secondly,
an amendment to provide guidelines to insure that the antitrust laws
are vigorously applied to the petroleum industry, while protecting
firms from antitrust suits stemming from actions to comply with this
act, so long as these actions are authorized and monitored by the
Government.
My amendment will also provide that within 6 months the Federal
Trade Commission must give a complete report on the overall struc
ture of the oil industry and how it functions in order to provide a bet
ter understanding as to the flow of product from crude, domestic, or
imported, through the process of refining and through the pipeline
out to the wholesalers, the jobbers, the retail distributors. We feel that
there needs to be a ventilation of this subject.
I am pleased to welcome, as I said, the participation of other mem
bers of the Minnesota congressional delegation at this hearing. We
have here with opening statements Congressman Fraser and Con
gressman Frenzel, and the other statements will be incorporated.
My colleague, Senator Mondale, calls attention to the irony that
the major oil companies are reporting record profits at a time when
the independent sector of the petroleum industry is being throttled
and farmers and vital services are unable to get adequate fuel. He calls
for mandatory fuel allocation now, which is exactly the bill that Sena
tor Jackson and I are working on along with other Senators in the
Senate at this particular time. A statement by Congressman John
Zwach emphasizes the relationship between the fuel shortages we face
and the inadequacy of transportation facilities for moving agricul
tural products to market. Congressman Joseph Karth expresses con
cern over the way in which major oil companies have pulled out of
Minnesota, and he goes on to state that “ There are enough disturb
ing facts concerning the marketing and production practices of the
major oil companies to warrant an investigation of possible improper
and illegal activities by the Antitrust Division of the Department of
Justice and the Federal Trade Commission’s Bureau of Competition.”
It is to that point that the amendment that I have introduced along
with Senator Jackson to the bill now pending in the Senate is directed.
116
Congressman William Moorhead of Pennsylvania, a member of the
Consumer Economic Subcommittee, has sent a very intelligent state
ment on the overall dimensions of the energy problem, including its
foreign policy aspects, the need for additional funds for research, and
the necessity for environmental controls, balanced off with necessary
production.
And, now, let me turn the microphone over to Congressman Fraser
who is here with us, and I want to thank him for joining us. He has an
opening statement and then we will proceed to Congressman Frenzel.
Then we will come to the witnesses, and our first witness, so you will
know, is Mr. James Erchul, director of the Office of Civil Defense,
Minnesota Department of Public Safety.
Go ahead, Don.
O p e n in g S t a t e m e n t
of
R epr esen tative F raser
Representative F r aser . Thank you very much, Senator Humphrey.
I want to express my appreciation for being able to join the subcom
mittee hearing along with my colleague, Congressman Frenzel.
On May 10, the administration announced that a voluntary oil allo
cation system was being established nationally in response to a worsen
ing fuel shortage. The Economic Stabilization Act lias just passed,
giving President Nixon authority to allocate scarce petroleum supplies.
The President chose to give this newly legislated authority to the oil
industry itself. In doing so, he sanctioned a market-sharing agreement
among the major oil companies, an arrangement that appears to be in
direct violation of the antitrust statutes.
This is a cruel hoax. A voluntary agreement cannot work and is not
working.
In Minnesota, we have been particularly hard hit by the oil shortage.
Since January, 160 gas stations in the State have shut down, roughly
one-fifth of all the gas station closings in the United States during
this time period.
If an allocation system were working, no independent station would
have to close. Clearly, we need an aloeation system with teeth in it, one
that can meet this problem. And we need an effective regulatory mecha
nism for an industry on which so much of this Nation’s well-being de
pends. Evidence is mounting that the shortage has been engineered by
the oil companies for their own ends. I realize that this is a serious
charge but I find it difficult to avoid reaching this conclusion after
viewing the events of the last year.
During the first quarter of 1973, earnings for the five biggest oil
companies increased by 26 percent over the first quarter of 1972. Earn
ings for the biggest company, Exxon, jumped by 43 percent. And cou
pled with these statistics, we see that the 18 major oil companies pay an
average annual Federal income tax of 8.3 percent of their total net
income. This is about one-third the average rate for other United
States industries.
Minnesotans are already feeling the impact of the oil shortage in
their pocketbooks, and next winter we will feel it in our bones unless
corrective action is taken.
I am convinced, along with Senator Humphrey and others, that
the time has come for Congress to set up a mandatory system to allo
cate scarce oil products equitably and on a priority basis. This system
117
must provide machinery that will protect the independent companies
and consumers from the monopolistic practices of the major companies.
Mr. Chairman, I have a series of letters which have been directed to
me from people here in Minnesota and if it is possible, I would like
to have the letters inserted in the record.
Chairman H u m p h r e y . Every one w ill be made a part of your state
ment.
Representative F raser . They include letters from the Century
Motor Freight Co., from the Columbia Heights DFL, the Twin Cities
Area Metropolitan Transit Commission, several letters from the Minnesota-Wisconsin Truck Line, the Minnesota Motor Transport Asso
ciation, the National Car Rental System, the Yellow Taxi Co.
I want to again express my appreciation to y ou , Mr. Chairman,
Senator Humphrey, for allowing us to join you today. I have given
my views on the matter at this moment but we are really here to listen
and learn from those who are directly concerned.
Thank you very much.
[The series of letters referred to above follow:]
C e n t u r y M otor F r e i g h t , I n c .,
Minneapolis, Minn., May 29,1973.
Hon. D o n a l d M . F r a s e r ,
Longworth House Office Building,
Washington, B.C.
D e a r M r . F r a s e r : I need not tell you of the desperate need that we Minnesota
Motor Carriers find ourselves in as it relates to diesel and gasoline fuel supplies.
Our own company has no gasoline contracts; we have no commitments for
gasoline deliveries with or without contracts; we have no contracts on diesel
fuel that comes anywhere near our needs, and in fact the “Contract” has a ten
day Cancellation Clause if fuel can’t be supplied, and in effect this is no contract.
We serve many points which have no service but our service.
I
understand that there is a Bill, S. 1570, as amended which would provide
for mandatory allocations. Minnesota is at the end of the supply line, so to
speak, and thus we request that you strongly support such legislation.
It is a very, very strong possibility that we could be forced to make strong
curtailments in our service, or at best pay such a premium for fuel that actions
of a prudent man would force us to put in voluntary curtailments.
The situation is now bordering on the critical.
Sincerely,
M
a r io
J. B onello,
President.
C o l u m b ia H
H on. D
onald
e ig h t s ,
M i n n .,
May 24,1973.
F raser,
Longworth Office Building,
Washington, D.C.
Subject: Gasoline Rationing
D e a r C o n g r e s s m a n F r a s e r : At
D . F . L. May 10,1973 the following
the regular meeting of the Columbia Heights
resolution was passed.
“Be it resolved the Columbia Heights D. F. L. goes on record as supporting
a federally sponsored National gasoline rationing system to eliminate the possi
bility black market situation developing in the energy field”.
It is hoped immediate action can be taken on this issue.
Sincerely yours,
J o s e p h in e G r in e s k i,
Secretary.
A r l ie M e i m e i ,
President.
118
Tw
in
C i t i e s A r e a M e t r o p o l it a n T r a n s i t C o m m i s s i o n ,
Saint Pault Minn., May 15,1973.
Hon. D o n a l d M . F r a s e r ,
U.S. Representativef Longworth Office Building,
Washington, D.G.
D e a r R e p r e s e n t a t i v e F r a s e r : We would like to develop your awareness of
the problem in our metropolitan area of securing an adequate supply of diesel
fuel for the public transit system and to request your assistance in solving that
problem.
The Metropolitan Transit Commission recently received only one bid in re
sponse to a solicitation for providing a supply of diesel fuel for the next year.
The bidder, American Oil Co., indicated that they would be able to supply only
3.8 million gallons of diesel fuel. Our annual requirement is estimated to be
between 5 and 6 million. We will need to secure in some manner an additional
2 million gallons in the coming year. If the demand for bus service is increased
because of the shortage of gasoline for personal automobiles, that need could
increase even more.
We respectfully solicit your cooperation in taking necessary legislative or
administrative actions to give priority to public transit systems for diesel fuel.
The buses can provide greater transportation service at a much lower per pas
senger energy consumption than other forms of personal transportation. Just
as importantly, many low income people or persons otherwise limited in their
choice rely almost exclusively on the public transit system for transportation.
It is most urgent that we continue the operations of the buses in our area
in the coming year.
Sincerely,
Ca m il l e D A
ndre,
Executive Director.
Tw
in
C i t i e s A r e a M e t r o p o l it a n T r a n s i t C o m m i s s i o n
RESOLUTION NO. 7 3 - 2 4 RESOLUTION DECLARING THAT A N EMERGENCY EXISTS
IN THE PROCUREMENT OF DIESEL AND GASOLINE FUELS
Whereas the Commission properly advertised for bids to furnish the require
ments of the Commission of diesel and gasoline fuels, and
Whereas on bid opening on May 1, 1973, only one conditional bid for furnish
ing the requirements of diesel fuel was received, wherein the minimum require
ments for diesel fuel of the Commission would not be furnished and the pro
posed contract would be subject to revision in amounts and prices on ten days
notice by the seller, and normal force majeure clauses including lack of crude
excusing performance, and no bid for gasoline was received: Be it therefore
Resolved, That an emergency in the procurement of adequate supplies of
diesel and gasoline fuels is hereby declared.
*
*
*
*
*
*
*
Moved by Commissioner Saxum: Seconded by Commissioner Fenner.
Roll call vote: Yea: Commissioners Fenner, Hjermstad, Holland, Hyde, Nawrocki, Olson, Saxum, Staples, and Chairman Kelm Nay: none. Absent at the
time: none.
Adopted: May 2,1973.
M in n e s o t a -W
is c o n s in
T r u c k L i n e s , I n c .,
April 0 ,1978.
Hon. D o n a l d M . F r a s e r ,
Longworth House Office Building,
Washington, D.O.
D e a r C o n g r e s s m a n F r a s e r : We write you regarding the fuel crisis which
seems to have a particular impact in our particular part of the country, both from
the standpoint of volume and price.
It appears this will be a long range problem. While the level of our service has
not been drastically affected at this point, we had an illustration of a warning
from major fuel sources earlier this winter imposing a cutback which was never
fully implemented and later released.
As a regular route common carrier serving portions of the area that you
represent, we would appreciate any efforts on your part to assure fuel avail
119
ability so that carriers might not find themselves in a position of having to re
duce service because of fuel shortages.
We appreciate all your efforts in our behalf and feel this is a problem in which
we have a substantial and mutual interest.
Very truly yours,
H . N . V o te l ,
Vice President.
M in n e s o t a -W
is c o n s in
T r u c k L i n e s , I n c .,
May 8,1973.
Hon. D o n a l d M. F r a s e r ,
Longworth House Office Building,
Washington, B.C.
D e a r C o n g r e s s m a n F r a s e r : Thank you for your memo and note on your re
marks in the Congressional Record of April 30th, and a copy of your letter to
the President of April 24th, concerning the establishment of priorities of use for
petroleum products including crude oil.
Your remarks are very much to the point, as is your letter, and from what we
know, it is entirely correct.
At an informal meeting with Secretary Brinegar on April 26th, in the Twin
Cities, we were told how bad the situation is nationally and also that we were
somewhat worse off because of our location at the end of the pipeline. We were
also generally informed that there was no immediate relief in sight—that re
fineries were lacking and took at least two years to get on line from this date.
We were also told that the President had taken some actions to import crude
oil and since crude oil is the basis for the diesel fuel, that this might help that
particular supply, eventually.
For your own information, companies like ours use probably a ratio of four
gallons of diesel fuel to one of gasoline for the reason that most highway equip
ment today is diesel.
We were generally notified that the gasoline crisis would probably get more
critical because of the impact of summer use from all sources and that the diesel
fuel situation would be much more of a problem toward Fall when the heating
systems require large demands.
We do support your allocation system and while it probably leaves something
to be desired, at least it is the best alternative.
We realize that we will have to pay more for fuel as the result of this
“crunch” of our peculiarly bad location, but we believe that any restraints that
can be exercised upon the producers to keep this in line will be helpful. Our
alternative to any major increase in fuel costs will simply have to be to pass
it on, which hits the ultimate consumer in the final analysis.
We are trying to get our industry efforts together and will probably be making
a more direct contact with your office. We thank you for your efforts to date,
because we feel that we are only in the entering phase in what will be a long
range difficult problem that may force us to reduce our services, or worse.
Very truly yours,
H e n r y N. V o t e l ,
Vice President.
M e tr o 500, I n c .,
Minneapolis, Minn., March 13,1978.
R e p r e s e n t a t iv e D
onald
F raser,
House of Representatives,
Washington, B.C.
D e a r R e p r e s e n t a t iv e F r a s e r : Thank you for your letter of March 12, 1973,
regarding the gasoline supply problem. As for further developments in our supply
situation, we have been unable to secure any product at all, thereby forcing the
close of our remaining ten stations.
Your efforts have been appreciated, thank you very much.
Very truly yours,
P a u l R . Ca s t o n g u a y ,
President.
120
M
in n e s o t a
M otor T r a n s p o r t A
s s o c ia t io n ,
May 1, 1973.
Hon. D o n a l d M . F r a s e r ,
Longworth House Office Building,
Washintgon, D.C.
D e a r R e p r e s e n t a t i v e F r a s e r : The Motor carriers of Minnesota are presently
experiencing a shortage in fuel supplies which we understand will worsen before
any improvement is seen. We have been advised by industry experts that this
condition will prevail for at least the next 5 years. Last week our office conducted
a survey of 25 member carriers of Minnesota Motor Transport Association. Each
of these carriers has a problem of securing supplies now or anticipates such a
problem in the near future.
The trucking industry is Minnesota’s second largets industry employing a total
of 189,000 workers and provides materials and products needed by all people
in every community in Minnesota. A sufficient supply of petroleum products is
essential in order to maintain operation and service.
We recognize the overall needs of energy in our area, particularly during the
winter months. We encourage you to initiate or support federal legislation to
insure that petroleum products are made available in the state of Minnesota
on an equitable basis with other states with regard to relative usage. It is our
belief that unless such legislation is promptly enacted, Minnesota will suffer
abnormally harsh shortages of petroleum products which in turn will result in
unemployment, curtailment in services and other adverse consequences for the
people of our state.
Sincerely,
Ja m e s
N.
D enna,
General Manager.
N a t io n a l C a r R e n t a l
S y s t e m , I n c .,
Minneapolis, Minn., April 16, 1973.
Representative D o n a l d M. F r a s e r ,
Longworth House Office Building,
Washington, D.C.
Re: Energy Crisis and the Car Rental Business.
D e a r S ir : A matter of primary concern to businessmen and citizens through
out the United States today is the existing and rapidly accelerating energy
crisis. Our entire industry is fully dependent on available petroleum fuel supplies
for its very existence. This fact, as well as our concern for the future of our
country, is behind our writing you at this time urging immediate action to take
the most effective steps possible to minimize the energy crisis.
We believe that in the long run, it is absolutely essential that our domstic
producers develop the capability of supplying our petroleum fuel needs from
domestic sources. That deregulation of artificial price controls at well head be
accomplished in order to encourage oil producers to accelerate domestic supplies.
Our import oil policies have presumably been designed to achieve this goal.
In spite of this, however, it is readily apparent that very little capital has been
invested domestically in expanding our crude oil supplies. In addition, serious
opposition from ecologists have retarded efforts to utilize available off-shore and
Alaskan oil supplies.
Although we subscribe to the above long-range objectives, until such time as
they become more viable, we believe it is in the best interests of our country, as
well as our own selfish interests in surviving as an industry, that immediate steps
be taken to lift the oil import restrictions and to permit sufficient residual fuel
oils and petroleum products to be imported so that the present energy crisis
can be minimized. Effective steps should be taken to insure that our domestic
sources will be developed as soon as their development is economically and ecologi
cally feasible.
In order to acquaint you with the needs of our industry, we believe it would
be helpful to provide you with some basic facts about the car and truck rental
and leasing industry.
The car and truck rental and leasing industry provides commerce, industry
and the traveling public economical trustworthy mobility unequaled in any
society. With the advent of the jet aircraft, the interstate system and our urban
society, as well as the diminishing capabilities of the railway industry which
121
is currently so widely reported in the public press these days, the car, truck and
one-way rental has become a way of life. With more than half of the U.S. popu
lation licensed drivers and the rental industry growing at better than 20% per
year, petroleum is crucial.
CAB BEN TAX. FACTS
1. About 85% of the car rental business is transacted on airport locations, to
businessmen for business reasons and to tourists flying to their vacation desti
nation and renting automobiles there to avoid driving from their homes to
ultimate destination locations.
2. Car Rental is high-quality, flexible and economical.
3. Car Rental conserves energy, since renting is for essential business and
fly/drive vacation use.
4. Car Rental provides additional mobility for emergency, alternate, or sub
stitute transportation.
5. Our urban society demands rent-it-here/leave-it-there flexibility so neces
sary in today’s changing attitudes.
TRUCK RENTAL AND LEASING
1. Truck Rental provides industry and the consumer economical direct service.
2. Industry figures support a better than 20% yearly growth.
3. Since rail service is being deleted in many communities, trucks are abso
lutely essential.
4. Population and migration statistics indicate sudden and dramatic changes
in our society. Truck and trailer rentals meet this need.
5. Trucks accounted for 430 billion ton miles in 1971, 22.3% of total registered
ton miles by all forms of transportation. (American Trucking Association).
It is our firm conviction that unless positive action is taken now to assure
that recently relaxed restrictions on oil imports will be a continuing policy as
well as affirmative action to accelerate domestic production, then we as a nation
will be in very serious difficulty this year.
Respectfully yours,
Ross L . T h o r f i n n s o n ,
Chairman of the Board and President.
V in c e A
bram son,
Vice President, Government Relations.
Y
ellow
T a x i C o.
of
M in n e a p o l is ,
Minneapolis, Minn., April 10,1978.
Hon. D o n a l d M . F r a s e r ,
Longworth House Office Building,
Washington, B.C.
D e a r C o n g r e s s m a n F r a s e r : I believe you should be aware of the problem of
all cab companies are having with the major petroleum suppliers. I am enclosing
a copy of a letter which spells out the problem on a national scale.
In Minneapolis, the Shell Oil Company indicated they were going to stop de
livering gasoline to this company, even though the contract does not expire until
September 30, 1973. They stated that with limited supplies they prefer to deliver
the gasoline to their own customers. I assume they make a greater profit and
protect their own investments by this method.
You probably are aware that most of our customers are the poor and elderly,
who do not have other means of transportation. This could cause a very serious
inconvenience in the City of Minneapolis in the event we are not able to obtain
gasoline. This trend could also substantially increase the cost of cab rides.
I would hope you would accept this letter as more than a typical form pro
test. We are very concerned about the future of our company and its 600
employees.
We would appreciate your immediate attention.
Very truly yours,
J a c k F . D a l y , J r .,
Executive Vice President.
122
I n t e r n a t io n a l T a x ic a b A
s s o c ia t i o n ,
Lake Forest, III., April 6,1973.
To the Officers and Directors:
L a d ie s a n d G e n t l e m e n : I have just returned from Washington, D.C. where
our legal counsel and I engaged in a three and a half hour, heated discussion
with the Cost of Living Council concerning the arbitrary and unfair practices
of the petroleum industry against taxicab operations.
Within a week of sending out our questionnaire, we received 237 replies in
which 138 companies, or 58% reported an increase in their gasoline prices,
averaging 2.340 per gallon. An additional 10% of the companies reported con
siderable increases expected in the immediate future. Thirty companies have
contracts that are being terminated and 25 companies reported that they were
unable to obtain future bids.
The average base price of gasoline is now 14.02# per gallon. This means that
the average increase was 2.34^ per gallon, increasing the base price by 16.7%.
Sounds simple enough, but three of the four officials that I talked to at the Cost
of Living Council seemed unable to grasp the significance of the increase. We
covered every possible economic factor, including our miles per gallon consump
tion, current prices, inability to get bids, etc.
I presented them with the names of 120 cities where taxicab companies have
received price increases of 2^ or more.
The Cost of Living Council is confused and I think it is up to us to straighten
them out. Taking on the petroleum industry is a very substantial project but in
view of the blatant, opportunistic actions of the petroleum companies, I feel
that we can force government intervention.
My proposal to the Board of Director is to undertake a campaign of informing
representatives and senators, as well as all major administration personnel from
the President on down, that would have a say on the subject. I will be talking
with your president and senior vice president next week on the procedures and
would appreciate any views that you might have, as directors of the association.
Sincerely yours,
R i c h a r d V. G a l l a g h e r ,
Executive Director.
Chairman H u m p h r e y . Thank you very, very much. I might state at
this point that we have a communication here from Aiple Towing Co.
from Stillwater, Minn. This is a bargeline, and Mr. Frank E. Aiple
brings to our attention the dangers that are in the present situation
where the bargelines have no assurance of supply regardless of price.
He says that:
A solution would be that the oil companies must be urged to make a contract
with a reasonable increase and a firm price, say, for 12 months, so the bargelines
will know their cost of operation for a short period of time. Some bargelines do
have contracts of this nature, but the oil companies will not give them to all
bargelines. If this would be put into effect for all bargelines, it would have a
terrific impact of stabilizing the soaring price spiral in all water transporta
tion industry.
I think it should be noted that practically every bit of correspond
ence received rests its case pretty much on the indefiniteness of any con
tract. No one knows whether he will have any oil next month or not,
regardless of price. There is no assurance of continuity of flow.
Congressman Frenzel, we welcome you and thank you for coming.
O p e n in g S t a t e m e n t
of
R epr e se n t a tiv e F r e n z e l
Representative F r e n z e l . Thank you very much, Mr. Chairman. I
have been trying to get on the Joint Economic Committee for 3 years,
so this is a marvelous opportunity for me to be here to be able to insert
my statement into the record.^ Unfortunately, I won’t be able to hear
all of the testimony, but we will have it available in the record, and it
123
will be a matter of close review for me and my staff. I am grateful to you
for bringing the committee out here. I think it is terribly important to
us in Minnesota. We are at the end of the distribution network, and
whenever we have a supply crunch, Minnesota is always going to be the
first place where we have to holler “ Ouch.”
In my judgment, too, the administration’s response to the growing
crisis has, until May 10, been less than vigorous. The restrictions on
the importation of fuel have been removed, but on the whole, the
response of the administration has been disappointing in this area. We
have been treating it as a matter or urgent crisis as though it were
some vague future problem; however, a couple of weeks ago, when
Deputy Secretary Simon was placed in charge of the White House
Oil Policy Committee, things began to improve. The voluntary sys
tem put into effect on May 10 was better than nothing. I think prob
ably testimony that we will receive today, and testimony which the
Oil Policy Committee will receive beginning on June 11, will probably
show us that the voluntary system is not adequate in all areas, al
though it may be in some places, and probably is not adequate in Min
nesota. And my guess would be that whether the Congress can respond
fast enough or not, I would expect after those Oil Policy Committee
hearings, that we will have some kind of mandatory system.
If Congress can respond, that will be well and good, but I look for
the Oil Policy Committee to respond quickly.
They have also—that is, the Oil Policy Committee—clone some en
couragement of the construction of refineries, which I think is ab
solutely essential. They expect to move forward in the encouragement
of distribution and storage facilities, which is probably more im
portant for us in this area, because we are, of course, the kind of
market that is not probably going to get refinery facilities, at least
in the immediate future.
I hope, too, that we talk about the supply situation from the stand
point of the trans-Canada pipeline. Most of us in this area, selfishly,
I suppose, are strong supporters of this potential means for increas
ing our local supplies. I think also, and I hope, that we will discuss
today some of the suggestions for reducing fuel consumption, whether
they be national speed limits, whether they be an additional tax on
overweighted automobiles, or even we might discuss the unspeakable
or unthinkable aspect that is raised reglarly now about increasing gas
oline tax. But all of these things will be considered, and I hope that you
will help us today by your testimony to assemble the information that
is necessary for us to make the right kind of decisions. We need a
comprehensive approach. As Senator Humphrey has correctly stated,
we can no longer treat the emergency in a piecemeal sort of way. We
have to establish a plan both near, intermediate, and long term to
bring this crisis under control.
Again, I am grateful to the Senator for bringing the committee bore,
in addition to the Members of Congress that he has indicated will be
presenting statements for the record.
Congressman A1 Quie will be putting a statement in the record, and
and he is represented today by Roger Johnson from his staff, who I
believe will make a statement in his behalf.
Again, Senator, thank you very much.
[The prepared statement of Representative Frenzel follows:]
99-740— 7T-------9
124
P rep a red S ta te m e n t o f H on . B i l l F r e n z e l, a
F r o m t h e T h ir d C o n g r e s s io n a l D is t r ic t
U.S.
of
R e p r e s e n ta tiv e in C o n g re ss
S t a t e o f M in n e s o t a
the
I am extremely grateful to Senator Hubert Humphrey for bringing this dis
tinguished Committee to our state to get a first hand understanding of the
severe energy problems facing this area. Minnesota happens to be at the end
of the fuel distribution network, and, without government intervention, our
experience has been that we are one of the first areas to be cut back in any
supply crunch such as that which we are presently experiencing.
Until recently, the Administration’s response to the growing crisis has been
less than vigorous. Restrictions on the importation of fuel have been removed
but on the whole the response has been rather disappointing. We had been treat
ing an immediate crisis as though it were a vague future problem.
Until the last few weeks, however, since Deputy Secretary of the Treasury
Simon has been placed in charge of the White House Oil Policy Committee,
things have begun to move.
On May 10th, Mr. Simon put into effect a voluntary program of fuel oil alloca
tion designed to put product back into the hands of independent dealers. A
workable allocation system is critically important to states like Minnesota which
are on the “end” of the pipeline.
The voluntary system of allocation is not working as well as hoped. The Oil
Policy Committee has scheduled hearings for June 11 on the effectiveness of the
voluntary system, and I look for imposition of some mandatory controls under
the new Stabilization Act shortly thereafter.
We also need to encourage the construction of new refinery capacity in this
country. I am pleased to see that a number of refiners have announced plans to
expand their facilities. This development needs to be encouraged, as does better
distribution and storage facilities.
I am also a strong advocate of the trans-Canada pipeline. It makes more sense
to me to bring this new supply of crude oil into the Midwest which is an oildeficient area rather than into the Pacific Northwest which appears to be in a far
more favorable position. Unfortunately the Canadian government has expressed
little interest in the plan and the prospects for such a pipeline are not parti
cularly bright at the moment.
While we are working on the supply problem, we should also be prepared to re
duce fuel consumption in a fair and rational manner. I have urged both the
Treasury and the Department of Transportation to carefully consider the advis
ability of adopting a temporary mandatory reduction in speed limits and the pos
sibility of using the tax mechanism as a means of encouraging the purchase of
smaller cars. Unless the supply situation becomes more critical than presently
anticipated, gas rationing should be considered only as a last resort.
Taken together, even this kind of a comprehensive approach to the oil energy
shortage will require some belt tightening and sacrifice on the part of all of us
for the next few months and years. But if we can increase supplies, insure equita
ble distribution of that supply and encourage reduced consumption, the chances
of riding out the current crisis are good. Concurrently, of course, we must give
a strong priority to developing alternate energy sources. I expect that this hearing
will help bring us closer to these goals.
Chairman H u m p h r e y . Thank you very much, Congressman Frenzel.
You will be interested to know, of course, that most of us, I think, from
the Midwest are sponsors of amendments or legislation relating to the
trans-Canada pipeline. Senator Mondale and myself in the Senate
along with others are on that amendment. We have the belief that this
is necessary. It is not an effort to block other developments but an ef
fort to get our fair share. Roger Johnson is here. Roger Johnson repre
sents Congressman Quie.
Mr. Johnson, would you like to just come forth, and I know you
would like to make a brief statement.
125
O p e n in g S t a t e m e n t of R e p r e se n t a t iv e Q u i e , P r esen ted b y R oger
J o h n s o n , D ist r ic t R e p r e se n t a t iv e for R e p r e se n t a tiv e Q u ie
Mr. J o h n s o n . Mr. Chairman, rather than reading the entire pre
pared statement, I think perhaps I could just read the last couple of
pages which summarizes it quite well, I think.
Chairman H u m p h r e y . Thank you.
Mr. J o h n s o n . I would like to express Congressman Quie’s appreci
ation first of all for this opportunity, and the Congressman hopes that
when the Oil Policy Committee conducts its reviews of the voluntary
fuel allocation program early this month, that the mandatory pro
gram be substituted for the voluntary program.
To move on, he also expresses concern about the situation of farmers
and he says the No. 1 preference that has been given to farmers and
others involved in food production under the voluntary fuel allocation
program should be continued.
He also applauds the administration’s steps to provide a system for
reporting farm shortages of gasoline and diesel fuel with accompany
ing procedures to alleviate such shortages. Plagued already with heavy
spring rains and delayed planting, farmers can ill-afford any further
delays due to fuel shortages. They should not hesitate to report any
such shortages to their local agricultural and stabilization conserva
tion service officers. Farmers can help a great deal in combating cur
rent shortages also by using voluntary fuel conserving measures with
tractors, trucks, and other machine-driven equipment.
Finally, I should like to turn to the subject of the Alaskan pipeline
to tap the immense supplies of crude oil on the North Slope. The De
partment of Interior contends that construction of a pipeline across
Canada to the Midwest would take longer to build, have similar en
vironmental dangers and create problems with our Canadian neigh
bors ; however, Secretary Morton also said within a short time, rapidly
increasing demands for oil from Canada’s western provinces will soon
equal or exceed Canadian production. That could mean an early end to
Canadian exports of oil to the oil-starved Midwest. It is Mr. Quie’s
belief that the Midwest is in dire need of oil supplies now and he
favors a pipeline across Canada.
An arrangement should be made for us to secure additional sup
plies from them while the pipeline is being constructed and their oil
needs could be partially met from Alaskan sources after it has been
constructed if expected increased demands in that country should
materialize.
Also important are the environmental considerations. We cannot
afford to haggle in the courts or in Congress much longer. We do have
the safeguards of the Environmental Policy Act, which will be fol
lowed in the construction process.
Again, Mr. Chairman, let me thank the subcommittee for the
opportunity to submit this testimony and I will submit the balance of
the statement for the record.
Chairman H u m p h r e y . Thank you .
[The prepared statement of Representative Quie follows:]
126
P r e p a r e d S t a t e m e n t o f H on . A l b e r t H. Q u i e , a U .S . R e p r e s e n t a t i v e i n C o n g r e s s
F r o m t h e F ir s t C o n g r e s s io n a l D is t r ic t o f t h e S t a t e o f M in n e s o t a
Mr. Chairman, it is highly appropriate that this hearing by your distinguished
Subcommittee be held here in the heart of the Upper Midwest for no other area
of the country is as hard hit by the current energy shortages as is Minnesota.
I appreciate very much the oppoortunity to submit a few brief observations.
We have a way in this nation of expecting science and technology to imme
diately alleviate any crisis that exists; however, again our foresight has been
proven faulty and the signs were not adequately read about the forthcoming
energy crisis. We must do everything we can to alleviate the crisis as soon as
possible. Unfortunately, most of the solutions put forth are for the long range.
It is plain that the nation needs more refinery capacity. I am told that not a
single new refinery has been constructed during the past three years. Existing
refineries are working overtime to increase fuel supplies; however, demand
sharply stimulated by the introduction of anti-pollution devices on automobile
engines is increasing faster. Although the President acted properly in suspending
mandatory oil import quotas, this will have little impact if the refineries are
unable to turn out more product. Also, it is interesting to note that the price of
Mid-East oil has climbed sharply since the American crisis became known, leaving
little downward pressure on domestic fuel prices.
Also, increased oil imports at coastal ports do little to help Midwestern states
like Minnesota where we are so heavily dependent upon Canadian crude oil,
supplemented by limited North Dakota supplies.
The real danger right now is that customers will order beyond their needs and
try to hoard gasoline against the threat of rationing. It has been said by one
major oil company spokesman that if everyone reduced his use of gasoline by
30%, the crisis could be avoided and there would be no need for any system
of rationing.
I believe we need right now a strong, government-encouraged program of public
education to encourage motorist cooperation in reducing gasoline usage. Secre
tary of the Interior, Rogers C. B. Morton recently recommended nine steps that
could produce large savings in gasoline without seriously disrupting family plans.
He pointed out that 70% of all gasoline is used by automobiles. Here are his
suggestions:
1. Plan vacations and camping trips closer to home;
2. Use trains, buses or airplanes on long trips rather than automobiles;
3. Use automobiles only for necessary trips;
4. Limit the use of auto airconditioners and other fuel consuming acces
sories ;
5. Drive 10 miles below the speed limit on all super highways;
6. Place greater reliance on small cars, particularly by two-car families;
7. Use mass transit systems more extensively;
8. Walk or ride bicycles on short trips;
9. Keep automobile engines properly tuned and tires properly inflated.
Speeding and “jack rabbit” starts are two of the most wasteful, but com
monly observed practices that are contributing to this shortage. If these sug
gestions were followed, the result would be to save money for the motorist,
promote highway safety, and assist in cleaning up the environment. I notice also
that teenagers seem to be continuing their cruising around city streets while
farmers, contractors, schools, and other businesses and institutions are faced
with inadequate fuel supplies. It seems to me that parents could assume some
responsibility by restricting their children’s use of the family car. Another
recommendation would be for the states to reduce the speed limit on all their
highways.
I would hate to see this nation undertake a program of gasoline rationing
with all the hoarding and Black Market conditions that always accompany such
a step. With just a modest amount of motorist cooperation, we can get by the
current seasonal crisis and buy time for longer range solutions, such as the
construction of the Alaskan pipeline and new refineries.
I was glad to see the Administration move to utilize the authority Congress
has given the President to establish a system of priorities for allocating petro
leum products in short supply. The voluntary fuel allocation program recently
announced by the U.S. Office of Oil and Gas, Department of the Interior, now
is operative; however, it comes too late for several hundred independent dealers
127
that already have been put out of business in Minnesota and elsewhere. The
damage has been done and the scant amount of competition that exists in the
oil industry as a result of these independents has been sharply curtailed. The
danger of the nation being dependent upon 14 or 18 major companies for its
fuel supplies is apparent.
When the Oil Policy Committee conducts its review of the voluntary fuel
allocation program early this month, I hope and I would recommend strongly
that a mandatory program be substituted. Such a program should make specific
provision for supplying independent gasoline dealers and retailers and permit
those who have been forced to close their doors to go back into business.
The Number One preference that has been given to farmers and others involved
in food production under the voluntary fuel allocation program should be con
tinued. I also applaud the Administration’s steps to provide a system for report
ing farm shortages of gasoline and diesel fuel with accompanying procedures
to alleviate such shortages. Plagued already with heavy spring rains and delayed
planting, farmers can ill afford any further delays due to fuel shortages. They
should not hesitate to report any such shortages to their local Agricultural and
Stabilization Conservation Service (ASCS) offices. Farmers can help a great
deal in combating current shortages also by using voluntary fuel-conserving
measures with tractors, trucks and other machine-driven equipment.
Finally, I should like to turn to the subject of the Alaskan pipeline to tap
the immense supplies of crude oil on the North Slope. The Department of the
Interior contends that construction of a pipeline across Canada to the Midwest
would take longer to build, have similar environmental dangers and create
problems with our Canadian neighbors; however, Secretary Morton also said
that within a short time rapidly increasing demand for oil from Canada’s western
provinces will soon equal or exceed Canadian production. That could mean an
early end to Canadian exports of oil to the oil-starved Midwest. It is my belief
that the Midwest is in dire need of oil supplies now and I favor a pipeline across
Canada. An arrangement should be made for us to secure additional supplies
from them while the pipeline is being constructed and their oil needs could be
partially met from Alaskan sources after it has been constructed if expected
increases in demand in that country should materialize. Important as are the
environmental considerations, we cannot afford to haggle in the courts or in
Congress much longer. We do have the safeguards of the Environmental Policy
Act which will be followed in the construction process.
Again, Mr. Chairman, let me thank the Subcommittee for the opportunity
to submit this testimony.
Chairman H u m p h r e y . The full text of the statements referred to in
my opening statement will be included in the record at this point.
[The statements follow:]
P repared St a t e m e n t
of
H
on.
W alter F . M ondale,
S ta t e of M in n e s o t a
a
U.S.
Senator F rom
th e
Mr. Chairman, in the three weeks since the President announced a voluntary
allocation plan for gasoline and other petroleum products, we have all hoped that
this plan would produce quick results. In spite of the grave reservations which I
and others have held regarding the anti-competitive nature of such a voluntary
plan, we felt a strong need to get adequate supplies to refiners and dealers and
others facing supply problems. We have given this voluntary plan a decent in
terval during which to prove its worth.
Unfortunately, there are many indications that the voluntary plan simply is
not working. In our state, over 150 independent service stations have closed, and
the number that have been able to reopen since the voluntary plan went into
effect has been small. A significant number of major Minnesota trucking firms
have been told that their fuel supply contracts have been terminated, and some
of them have been unable to negotiate new contracts. Major oil suppliers, in
cluding Gulf and Sun Oil have indicated their desire to pull out of the Minne
sota market, and are now staying in the state on only a temporary basis.
But perhaps most damaging, farmers in Minnesota—and elsewhere throughout
the Midwest—simply are not getting the fuel supplies they will need throughout
the summer and fall if we are to avert major price increases in food supplies.
Just last week, I received a telegram from the President of Midland Coopera
tives. Midland owns a refinery in Cushing, Oklahoma, which has a crude oil
128
refining capacity of about 19,000 barrels per day. Yet this refinery for months has
been unable to operate at full capacity because of their inability to obtain crude
oil. They expected that the voluntary allocation system would help, but thus far
it has produced no results.
If the voluntary allocation system is to work at all, it should be working for
Midland Cooperatives. Here is a supplier of farm families—which, according to
the allocation guidelines should be getting top priority—which for three weeks
has been unable to translate public assurances of support into firm commitments.
This is a situation which must not be allowed to continue. We cannot have
farmers, municipal governments and transit and trucking companies unable to
obtain the vital fuels they need to continue operation in our state and other
states experiencing supply difficulties.
This problem, of course, is not a new one. As long ago as last September, I
wrote to the Office of Emergency Preparedness warning of a shortage in fuel oil
during the 1972-73 winter. Their response, as has continually been the case,
was to downplay the importance of the situation. Additional letters and tele
grams in December and January produced no results. On February 15th I sent
a telegram to President Nixon, requesting him in the most urgent terms possi
ble to use the allocation powers which I believe he possesses under the Defense
Production Act.
The response to this telegram was perfunctory. As many people predicted, the
fuel oil crisis of this past winter quickly began to change into a gasoline crisis
this spring. Still, government and industry officials continued to tell us that
there would be no major problems over the course of the spring and summer.
Once again, they have been proven wrong. Once again, we have seen the in
dependent segment of the petroleum industry hit hardest—just as they were
last winter. And once again, we should ask why this is being allowed to happen.
As occurred this past winter, the major oil companies have continued to use
the shortage situations which they themselves have helped create as the excuse
to force the independent segment of the industry to its knees. As the Federal
Trade Commission recently stated, there is the strong possibility “that major
oil company control of refinery capacity and pipelines has contributed in a
major way” to the shortage of gasoline we are now experiencing. To those in
the industry, this should come as no great surprise.
In addition, there have been indications in recent weeks that the Adminis
tration is preparing to relax still further the price controls ostensibly put on
the industry in March. Under these controls, oil companies are permitted to
raise prices up to an average of 1.5 perecnt if the increases can be justified on
the basis of increased costs.
Yet, under this seemingly stringent guideline, prices for fuel products have
soared—and so have oil company profits. In April, wholesale prices for gasoline
jumped an incredible 13.8 percent, a yearly rate increase of 165.6 percent. Also,
retail prices of gasoline and motor products rose at an unadjusted rate of 1.5
percent or an annual increase of 18 percent.
And while these price increases are occurring, oil company profits are soaring
Even before the huge price increases of April, oil industry profits for the first
quarter rose by almost 30 percent. Some of the individual increases ranged as
high as 49 percent and 52 percent.
So the situation we find ourselves in in Minnesota is one in which the inde
pendent segment of the industry is being choked, farmers and governmental units
are unable to get adequate fuel, and the major oil companies are reporting record
profits.
Just yesterday, we began debate in the Senate on legislation to impose a man
datory allocation system. I believe that the time to plan for this type of system
has come, and that only strong measures will work to ensure that farmers, gov
ernments and other consumers have adequate supplies over the coming months
and that prices for fuel products are kept down.
In this regard. I wish to praise the leadership which you have given in this
area, Mr. Chairman, and the work which you have done in heightening public
awareness of the severity of the current situation and the need for quick remedial
action.
We need this action now at the Federal level—and I am confident that we will
get it.
129
P r e p a r e d S t a t e m e n t o p H o n . J o h n A. B l a t n i k , a U.S. R e p r e s e n t a t i v e
C o n g r e s s F r o m t h e E i g h t h C o n g r e s s i o n a l D i s t r i c t o f t h e iS t a t e
M in n e s o t a
in
of
I appreciate the opoprtunity to be with you today to talk about a problem of
major consequence to those of us in the Midwest, the fuel crisis.
There are those who say “ crisis” is not a good word, who point out forecasts
of shortages in the 1920’s, the 1930’s, and again after World War II which
turned out to be alarmist cries of public speechmakers.
However, it has become apparent in recent months that, based on the world
oil situation, the startling changes in prediction and experience in the last 3
years and the circumstances of this last winter, that we are not facing a tem
porary fuel shortage which can be resolved simply or quickly. The Midwest was
particularly hard hit by the fuel shortage which became apparent with the
November freeze and increased in severity as the winter progressed. Other
warmer parts of the country suffered some discomfiture which could be remedied
by donning a thick sweater, but in northern Minnesota, temperatures plunged
below zero for days while homes and schools were without heat.
Now we face an extension of the problem as summer approaches and the de
mand for gasoline increases. Rationing has already become a common practice
across the State and predictions are being made that many vacationers will be
forced to stay home because gasoline is either unavailable or too expensive.
Owners and operators of recreational facilities are beginning to worry about the
peak vacation season this year and the implications of the gasoline shortage for
the summers ahead.
The President’s long-awaited energy message issued on April 18 offered only
crumbs to an energy-hungry Nation. He removed the quotas on oil imports and
suspended the direct control over the quantity of oil which can be imported, a
move taken too late after the need had become critical. He also proposed that new
sources of natural gas not be subject to price regulations—an action which was
also long overdue. In the crucial areas of research and conservation, only a small
increase of $130 million over 1973 was requested with an emphasis on voluntary
participation by industry and the public. The President did not act to resolve
the energy shortage, he reacted to a situation whose symptoms had been visible
for a number of years.
We realize now that, to a large degree, the energy crisis is largely a result
of the Government’s failure to plan ahead, to admit the reality of the facts as it
became apparent, and to take the necessary steps to alleviate the shortages as
they began to occur.
We cannot ignore this year’s energy shortage on the theory that it is a quirk
of weather and circumstances which will be taken care of by next year. The oil
crisis is a reality that compels urgent action.
And if we started today to increase our supply, there is no realistic way that
we could make the situation substantially better in less than 4 years. Any major
action taken today to find new sources of energy at home or to import more from
abroad involved either complicated problems or at least 4 years to complete.
A domestic refinery takes 5 years from construction to operation and no domes
tic refineries are now under construction.
The Alaska Pipeline, if started today, would take at least 3 Y2 years to build,
would provide only 25 percent of our reserve, and would be exhausted in 4 years.
We currently obtain about 30 percent of our oil from unstable Middle Eastern
countries which continue to manifest increasing anti-Americanism. Even if we
could solve the intricate problems of international relations, the United States
doesn’t have enough tankers or deep water ports to accommodate a large supply
of oil.
Scientists estimate we are at least 12 years from effective use of nuclear energy
and 25 years from development of both solar and geothermal energy.
The passage of the clean air amendments and strip mine regulations effectively
prohibits the full use of our richest resource, coal, until new methods of use can
be developed. This means we know the situation can only get worse in the next
several years. Currently, the indications are in Minnesota that the gasoline sup
plies will be about 10 percent short of anticipated needs by the end of 1973,
approximately 227 million gallons less than the anticipated demand. But even
this is assuming Minnesota will be given its fair share of the fuel available.
130
Can we realistically assume as the vacation time reaches fever pitch and the
pinch tightens for the available gasoline that Minnesota at the end of the pipe
line can expect to receive its fair share? I think not.
One hundred and sixty independent service stations have closed in Minnesota
as a result of the shortage, and by yesterday, all major companies in the State
had started to allocate 10 gallons per auto. Tractors sit idle in the field and
Government agencies and emergency facilities are facing shortages which threaten
curtailment of vital public services.
Prices have already begun to edge upward with competition limited and sup
plies short. The best current estimate is that gasoline prices will double in 2
years and triple in 5 years. Several independent petroleum dealers testifying
before a Senate subcommittee hearing this week said that gasoline is indeed
available to them—at exorbitant prices through a developing black market.
President Nixon, on May 11, asked the oil industry to regulate itself by fair
apportionment of gasoline. Since that time, Minnesota has been waiting in good
faith at the end of the pipeline for its fair share.
Obviously, the system isn’t working.
Right now, motorists are beginning to experience minor inconveniences as
their neighborhood stations close, are forced to curtail hours of operation or ra
tion gasoline until a new supply of gasoline arrives. But wait until fourth of July
weekend when families pack kids, picnic baskets, and fishing poles in the car
and head for the nearest lake or woods only to find they get no further than the
closest empty gas station.
In addition, it is highly likely that Nixon’s voluntary controls are causing a
violation of the antitrust laws which were established to preserve competition.
There is evidence that the controls are working to the disadvantage of the in
dependent dealers and, in fact, are driving out the competition.
Several measures can be taken immediately to lessen the pressure for our
existing energy resources.
The President could use the authority which was given to him by Congress in
the Economic Stabilization Act to immediately impose a system of mandatory
alloca tion of gasoline.
Just yesterday, the Senate began consideration of a bill with the leadership
of our own two Senators which would strengthen the President’s authority to
impose rationing in case of dislocations in the allocation of fuel.
Although this won’t increase the available supply, it will make certain that
Minnesota gets its fair share of the shortage.
In addition, we should heed the advice of the State director of civil defense,
James Erchul, who points out we can save up to 15 percent in gasoline usage in
the State this year through four conservation measures—driving slower, using
public transit, car pooling, and foregoing unnecessary trips. This, in fact, is the
only way to immediately increase the supply of fuel in Minnesota.
In February, when the critical nature of the energy shortage became evident.
I set up an energy subcommittee of my Public Works Committee. We have
scheduled hearings for 3 days in June on specific legislation dealing with the
construction of offshore bulk cargo transshipment facilities and plan to hold
hearings throughout the summer on the supply and demand situation which is
having such an immediate impact on Minnesota.
It’s long past time that we faced facts and took the appropriate policy actions
to insure an adequate source of energy in the years ahead.
P r e p a r e d S t a t e m e n t o f H o n . J o s e p h E. K a r t h , a U.S. R e p r e s e n t a t i v e
C o n g r ess F r o m t h e F o u r t h C o n g r e s s io n a l D is t r ic t of t h e S t a t e
M in n e s o t a
in
of
Mr. Chairman, I appreciate the opportunity to participate in today’s hearings
on the national energy crisis since no setting could be more appropriate. The
fact is that no one area of the country is more aware of the petroleum shortage
than our own state of Minnesota. I recall very well that many Minnesota repre
sentatives in Congress have called for “immediate withdrawal” in the past.
Frankly, I had no idea that it would be Sun Oil Company and Gulf Oil Company
that would heed our plea. Fortunately their plans to leave the state seem tem
porarily halted by the voluntary allocation plan which raises the possibility for
Minnesota achieving “peace with honor” with the major oil companies.
131
Not only have oil companys’ marketing policies had a drastic effect on Minne
sota, but the very nature of the state leaves us in a position to be severely dam
aged by an energy shortage. With Minnesota’s diversity of agriculture and
industry, rural and urban, reliance upon transportation due to the geographic
situation (and I might add long and cold winters) every problem associated
with the energy crisis is well known right here.
These hearings today are vital in understanding the background and scope
of the problem all American’s face today and I am pleased to be a part of them.
It seems clear to me that a good portion of the blame for the shortage facing
the petroleum consumer today can be attributed to a four-year record of inaction
by the Nixon Administration. I also believe there are enough disturbing facts
concerning the marketing and production practices of the major domestic oil
companies to warrant the investigation for possible improper and illegal activi
ties by the Anti-trust Division of the Department of Justice and the Federal
Trade Commission’s Bureau of Competition.
I am pleased to report that in response to my requests on the subject both
Justice and the FTC have expressed extreme interest in questionable oil company
practices.
While the possibility of remedial legal action against the oil companies has
been suggested, it is no answer to the shortage we face today.
For years many of us in both the House and the Senate have called for
increased crude oil imports (particularly from Canada) in our respective bodies,
and in meetings with Administration advisers.
The fact is that this shortage should be no surpries to the Administration
since I and others have repeatedly warned them of the consequences of their
import policy and lack of action.
For the past four years I have conferred on several occasions with General
George Lincoln (then head of the President’s oil import policy group). Mr.
Eugene Erickson of the independent Northwestern Refinery in St. Paul Park
has participated in some of the discussions.
We have pleaded for a change in policy to avert what we viewed as the serious
possibility of a shortage. While it was my judgment that General Lincoln and
others from his policy group appeared to agree with our analysis and predic
tions for the future; they were unable to act expeditiously and on a timely
basis because the Administration’s policy seemed to dictate inaction.
In fact, four years of discussion prompted no action—only the shortage we
predicted.
As I mentioned earlier the major oil companies must share a portion of the
blame for the present shortage. How else can one explain the fact that while
independents are being forced out of business, the major oil companies are
opening up their own “independent” gas stations.
In addition, the plea that the shortage is due to a nationwide shortage of
refinery capacity just doesn’t wash when the Office of Emergency Preparedness
says that refinery operation “plunged” the last weeks of March and the first
week of April.
OEP points out that refining levels were at the lowest point of any period
since early December, 1972—while the oil companies claim to be at peak
production.
While we can call for unlimited allocations of oil imports, OEP points out
that it dosen't do one bit of good if the oil companies refuse to increase produc
tion to a level closer to operation capacities. And 88.7 percent of capacity,
which was the case the first week of April, raises a lot of serious questions about
peak production.
Looking at the existing stop-gap voluntary allocation plan it seems clear
that a detailed analysis would be premature. Of obvious importance in any
discussion is not only the fairness of the plan, but the reaction of the major
oil companies in voluntarily complying with the plan. The first responses are
encouraging due to the “club in the closet” aspect of the plan.
I must however caution this group and the Administration from assigning
too strictly drawn, rigid priorities of allocations to any plan.
Certainly we are not going to sit around watching the commuter speed
down the highway while our police cars are halted due to a lack of gasoline.
Likewise, no reasonable man relishes the prospects of watching our farm crops
rot in the field while combines and harvesters stand idle due to a fuel shut-off.
It is clear, very clear, that we are all in this together.
132
We must, I repeat, must avoid any tendency to pit one gasoline consumer group
against another in this crisis.
Certainly we cannot expect consumers to purchase agricultural products if
they do not have the gasoline to get to their job or get to the market. Likewise,
a perfectly harvested crop serves no purpose if the tracks to get the crop to
market don’t have the fuel to operate.
I do not think my fears in this area are unfounded. I catch the hint of a “meflrstism” in the air—the kind of reaction that is found when any needed good is
in short supply. The crisis we face today could be made worse if we are forced
into an adversary situation by various groups over limited fuel supplies. No
purpose could be served by a priority list that leaves no percentage of petroleum
products for non-priority items.
I most earnestly urge this group to avoid the pitfalls of a rigid allocation
system that would create far more problems than it would solve and would
turn our attention away from the sources of energy crisis by creating factional
.bickering.
That would create far more problems than it would solve.
Thank you, Mr. Chairman.
P r e p a r e d S t a t e m e n t o f H o n . W i l l i a m S . M o o r h e a d , a U.S. R e p r e s e n t a t i v e
Co n gress F rom t h e 1 4 t h
Co n g r e s s io n a l D is t r ic t of t h e
St a t e
P e n n s y l v a n ia
in
of
Mr. Chairman, I wish to thank this committee for the opportunity to present
this statement today.
The energy issue is of paramount concern to this country. For the past decade
we have been consuming energy faster than it has been produced. This of course,
is not news. What is “news” is the characterization of the current state of affairs
as an “energy crisis.”
Perhaps we are approaching a crisis and perhaps we are not. It depends on
how we view the importance or necessity of various energy sources.
For example, it is generally agreed that the total world energy resources of all
kinds are sufficient for present and projected world needs for the indefinite future.
Y et,there are shortages of certain types of energy producing materials and there
are geographic dislocations of supply. The most immediate example of the supply
dislocation is the vast oil reserve in the Middle East. In terms of specific short
ages I need only refer to the present gasoline shortage. However, this shortage
is not the result of a lack of petroleum. It is the result of poor allocation of
refinery capability and should not be viewed as a direct result of an energy
resource snortage.
I do not have all the answers to these problems; nor am I conversant with
all the questions. I do, however, want to pose some broad thoughts for your con
sideration.
Basically, we must confront a short range energy problem, a medium range
energy problem and a long range energy problem. In the short range we have
a gasoline shortage may be and we faced with shortages in fuel oil, natural gas
and heating oils. We will not run out of these fuels in the short range, nor will
the shortages be felt in all areas or at the same time. The reason for the short
range problems basically stem from the misallocation of fuel resources and
lack of foresight on the part of the government. The recent decision to lift
the quotas on imports of foreign oil will relieve that shortage of the basic oil.
Better planning by the domestic refinerys will relieve the shortages of various
petroleum products such as gasoline. These are only short range solutions to
the short range problems however. Another short range energy problem is an
electric power shortage. These shortages result from poor planning of power
plant capacity, problems involving the placement—or siting—of nuclear power
plants, and inadequate reactions to the necessity for environmental controls.
The problem of electric shortages will take much more time and money to
solve.
The medium range problem centers primarily on the imported oil questions.
At the present time, the United States is importing vast amounts of oil from
the Middle Bast. The known oil reserves in the Middle East are sufficient to
supply the U.S., Europe, and Japan for many years. However, many people
are concerned about our reliance on this Middle East oil. This concern in based
on political and economic considerations. Some feel that the Middle Eastern oil
producing countries can withhold their oil for purposes of political blackmail in
133
order to force the U.S. to change some of its foreign policy positions, especially
our position on Israel. Thus far, however, the Middle Eastern oil producing
countries have shown no tendency to couple the supply of oil with other foreign
policy considerations, and it must be recognized that the major oil producing
countries, Saudi Arabia and Kuwait, have carefully avoided the Israeli con
flict for the past twenty years. A third major oil producing country, Iran, has
generally been very friendly with the U.S. and does not consider itself a part
of the Arab block. The only oil producing country which could conceivably
attempt to pressure U.S. policy by withholding supplies in Libya, but thus far
their pumping capacity is low and their policy has been one of using the pay
ments received for the oil to finance various revolutionary activities. Thus, even
Libya should be shipping their oil for the near future.
The real problem with imported oil is economic. The vast expenditure for
this oil seriously harms the U.S. balance of payments. At present, we have an
agreement with the Organization of Petroleum Exporting Countries (OPEC)
which runs until 1976. Thus, for the next three years we are fairly certain about
prices for this oil. However, when the current agreement runs out, we may be
faced with substantially higher prices, or other economic demands such as local
ownership of the middle eastern refinerys.
We should use this three years period to develop a comprehensive energy policy
for the U.S.
In this regard, I feel we should take serious note of the recent OPEC attempts
to breach the current agreements. This should be a clear signal to move
quickly toward a comprehensive policy.
In the meantime we should use in the imported oil so long as it is relatively
cheap, and not be stampeded into uncontrolled development of the remaining
domestic reserves until we have developed an adequate policy for controlling
the use of these reserves.
We must also recognize that U.S. coal supplies are now considered adequate
for 400 years of use.
The main problem, however, is that eventually the U.S. will be faced with
a serious energy shortage crisis. This crisis can be averted if the government
acts now.
There are three major considerations. The first is price. This country needs
adequate supplies of energy at prices it can afford. The second is environmental.
We need an adequate supply of energy which can be used in a manner that does
not pollute the environment and which can be extracted from the ground in a
manner which does not destroy the environment. The third is of course supply.
We need an adequate supply of energy of all types. In terms of pollution, we must
strive to reduce the amount of energy pollution to the lowest possible level. How
ever, when we do this we must realize that reducing pollution increases cost. As
we have seen, the pollution control measures for automobiles are expected to
raise prices from $100 to $200 per automobile. The same is true for pollution con
trol measures on furnaces steel plants, power generating stations, etc. There may
have to be some trade offs in this area, as it is estimated that while it is possible
to cut 90-95% of the current pollution at a reasonable price, the cost to end
totally all environmental pollution from energy production will be prohibitive.
Thus, we must decide if it is worthwhile to spend excess amounts of money to
reduce the final five to ten percent of the residual pollution.
Adequate supply takes on three asects. The first is to develop in the most con
trolled manner the existing and future sources of energy. The second is to develop
the best methods to conserve the use of energy. The third is to allocate the vari
ous types of energy in the most useful manner.
In terms of developing the existing and future sources of energy it will probably
be necessary to allow expanded exploration and drilling for oil on the continental
shelf. The energy message delivered by President Nixon emphasizes this point.
However, the President’s program for drilling at sea does not include sufficient
funds for controlling pollution and policing the safety measures necessary for
this exploration. The oil spill in the Santa Barbara channel in California shows
the absolute necessity for such precautionary measures before the drilling is al
lowed to expand. We should also look carefully at the prospects of developing
the oil shale deposits in the West. At the present time, it appears that drawing
the oil from these shale deposits is too expensive, but the oil industry is research
ing this problem. The President’s message also encourages the development of this
oil shale. However, there is nothing in the message which describes the controls
necessary to insure that the oil produced on this government owned land will
134
not result in windfall profits for the oil companies. Thus, while I agree with the
basic thrust of the President’s energy message, I oppose the action he wants to
take until the controls on profit and pollution are added.
We must of course continue ot develop alternative forms of energy such as nu
clear plants for the production of electricity. Solar energy and geothermal
energy are additional possible sources of power. These sources can be developed if
enough money is available for the required research. At the present time only
.015% of our gross national product is devoted to energy research. I think it is a
gross misallocation of resources. We should be spending far more for this basic
research so as not to be forever tied to the use of fossil fuels which will eventually
be depleted.
We must also conserve the supply of energy we already have and will develop.
This conservation of energy does not only mean turning off unneeded light or
driving economy cars to conserve gas, it also means designing office buildings
and factories so as to cut the amount of energy needed to heat and cool them.
For instance many new office buildings are constructed with exteriors that are
almost all glass. This generates enormous amounts of heat into the building in
the summer, causing the need for high power air conditioning units which need
considerable supplies of electric energy. We should be considering building
design which cuts the need for this inefficient system whereby the structure is
designed to generate heat causing the need for airconditioning. By the same
token, we should make use of the best available insulating materials so as to
conserve the interior heat during the winter months that is lost through insuffi
cient insulation of these same buildings. At present there are insulation materials
in limited use which will keep a thermos of coffee hot for 50 years. These
materials were designed for the space program, yet no one has yet tried to
use these developments in the building industry.
Finally, we must allocate the existing resources in the best possible manner.
Natural gas is a clean burning fuel. It should be restricted to use in homes
and small businesses. The reason for this restriction is that the home and small
business owner are least able to afford the pollution controls necessary for
the clean burning of other fuels such as coal and oil. At present, however,
many large industries and electric generating plants are using natural gas. thus
diverting it from the smaller markets. I feel that these large users are better
able to afford the equipment necessary to clean the residual pollutants from
“dirtier” fuels such as coal and oil, and thus should be restricted from using
natural gas in large amounts.
While large oil fields have been discovered in the North Slope of Alaska,
development of these fields has been curtailed due to arguments over the advis
ability of constructing a pipeline to deliver the oil. I am persuaded that we must
explore alternative methods to this pipeline for environmental reasons.
A study done for the Department of Transportation shows that the Alaskan
Railway can be expanded to carry this oil thus obviating the need for the
pipeline. This solution to the Alaskan oil problem should be fully explored, as
using the existing and expanded rail facilities would cause minimal environ
mental problems and could transport the oil at a reasonable cost. It is esti
mated that expansion of the existing rail facilities would cost about $2.4 billion
and the annual operating costs are estimated to be $174 million.
These costs compare favorably w^ith existing pipeline proposals. The basic
rail system is already in use, and the extension of the line to the North Slone is
entirely practicable. In the event that oil production from the Alaskan fields
exceeds current estimates, a parallel rail line can be constructed on the present
right of way for a relatively minimal increase in funds.
Such a rail system can of course be used for the transportation of personnel
and other commodities. The pipeline, by its very nature, is a single use trans
portation network, and as a resource will diminish at the same rate as the oil
it pumps. In other w^ords, when the North Slope field is fully expended, the
pipeline will remain as a useless transportation network, while a rail line will
at least have a residual value.
I hope that the Committee will give serious consideration to the extension of
the Alaskan Railway as a viable solution to the problem of transporting the
much needed oil from the newly explored reserves.
135
P rep ared S ta te m e n t o f H on .
C ongress F rom t h e Six t h
M in n e s o t a
J o h n M. Z w a c h , a U.S.
C o n g r e s s io n a l D is t r ic t
R e p r e s e n ta tiv e
of
the
State
in
of
Mr. Chairman and members of the committee, the Sixth District of Minnesota
which I represent, is about as far on the end of the petroleum supply line as it
is possible to be.
As a result of our disadvantageous location, we are the first to feel the pinch
of a short supply, and we have the added dubious distinction of paying prices
that are generally above the average of the rest of the country.
In addition, we are one of the most agricultural Congressional Districts in the
entire Nation so we have a great need for fuel for our farm tractors, crop driers,
and other production-related machinery.
Right now our area is feeling the pinch of the fuel shortage. Our office in Wash
ington receives telephone calls almost every day from dealers or consumers who
are out of fuel.
I have introduced legislation and I am pushing hard for an oil pipeline from the
Alaska north slope along the Mackenzie river through Canada and terminating
in the upper midwest Such a route would put this new oil where it is most badly
needed.
To ship it to the West Coast would create a surplus there and make it vulnerable
to outbidding by oil-hungry and prosperous Japan.
A voluntary system of allocation, giving top priority to agriculture, has been
established by the Administration and this is a move in the right direction. How
ever, I would rest much more easily and so would my farm constituents, if this
priority program is made compulsory.
I would like to insert into the Record of these proceedings a few of the repre
sentative letters we have received in our Washington office in regard to the
growing fuel shortage in our Minnesota Sixth Congressional District.
E s s e l m a n O i l C o ., St. Cloud, Minn.
Congressman J o h n M . Z w a c h .
D e a r J o h n : The Esselman Oil Company has been supplying Sinclair Oil
products to homes and farms in the St. Cloud area for over 35 years. (Note
attached picture). But as of May 31, 1973 our new franchise agreement contract
with Sinclair will be canceled. (Note attached letter). As of now we service about
1,000 farm and consumer accounts in the Benton and Stearns Counties area.
About 85% of our summer business is farm gasoline 50,000 gallons a month and
diesel tractor fuel 25,000 gallons a month.
I would like to ask the help of your office in obtaining a supply of gasoline
and diesel farm fuel so we can supply our farm customers.
Your urgent attention to this request would be appreciated.
Very truly yours,
W
ayne
E
sselm an .
S in c l a ir ,
P a s c o M a r k e t i n g , I n c .,
Omaha, Nebr., April 5,1973.
E
sselm an
O i l C o ., I n c .,
St. Cloud, Minn.
(Attention: Mr. Henry J. Esselman).
D e a r M r . E s s e l m a n : On February 9,1973, you entered into a Distributor Sales
Contract with PASCO MARKETING, INC.
Under Paragraph 5 of the contract, either party is entitled to terminate the
contract at the end of any monthly period upon 30 days advance written notice
to the other party. Pursuant to Paragraph 5 PASCO MARKETING, INC. hereby
gives you notice of termination of the contract effective May 31, 1973.
Very truly yours,
C . A. C a l e r .
136
May 11,1973.
T
he
P r e s id e n t ,
The White House,
Washington, D.C.
D e a r M r . P r e s i d e n t : Tens of thousands of independent distributors and deal
ers are facing drastic cutbacks from major oil companies as a result of the fuel
shortage.
Some of these dealers in our predominantly rural Sixth Congressional Dis
trict of Minnesota, are completely out of fuel and their farm customers, who are
in the process of planting record-breaking acreage, as a result of Department of
Agriculture rulings, are running out of fuel for their tractors.
This is a very serious situation that could have disastrous results throughout
our agricultural area.
I most respectfully urge you to take immediate steps to increase our available
fuel supplies and to further provide that independent dealers will have fuel
available to them in the same proportion that they received it in the past.
I cannot impress on you too strongly the urgency of this situation.
Sincerely,
Joh n M . Z w
ach
,
Member of Congress.
D
w ir e ,
I n c .,
Marshall, Minn., May 28,1973.
Representative J o h n
Washington, D.C.
Zw
ach
,
D e a r M r . Z w a c h : Our Company is a medium-sized outfit that employs be
tween 55 and 65 people during the summer with a carry-over crew of about 12.
Our people usually make pretty good money; seasonal employees make from
$8,000 to $14,000 a year with permanent help making about $20,000 a year. All
these people, or at least a part of them will have to be laid off if we cannot get
any more fuel commitments from the companies that supply us. We have always
paid our bills promptly at the time they are billed. This doesn’t seem to make
any difference any more.
These companies have just told us they will NOT supply us with diesel fuel.
We used a half a million gallons of diesel fuel last year and it was a relatively
wet year. We are expecting a dry summer this year by looking ahead on future
weather charts and the early start we got this spring. Our fuel needs for this
year are anticipated at 600,000 gallons. Right now we have commitments for
about 285,000 gallons of diesel fuel from Mobil Oil and Double O Co-op. Last
year we bought in excess of 100,000 gallons from Standard Oil Company. They
have told us they will not supply us one gallon this year. We bought about 70,000
gallons from Phillips 66 last year and they have told us the same. We are in the
process now of sending letters to our employees telling them that if this fuel
situation does not ease up, we will probably be experiencing a cutback of 10
hours a week. It is possible we will have to lay off some of these employees later
in the summer in July or August. We have told them accordingly not to go out
and spend a lot of money and expect a big year. As you can see, this will affect
the consumer market considerably.
I understand the problems with the Trans-Alaska Pipeline System, but it is
very important that this pipeline gets pushed through the Legislature. I think
it is time Congress got on the ball and got something done. The environmentalists
can protest all they want to, but if we don’t have the fuel to run this country
we will be in worse shape than worrying about the right-of-way for the pipeline
being 50 feet or 300 feet. Please do what you can do to help ease this situation,
Sincerely,
J a m e s A . D w ir e ,
President.
K
rebsbach
M
o to r
C o ., I n c .,
St. Joseph, Minn., May 26,1978.
Congressman J o h n Z w a c h ,
Longworth Building,
Washington, D.C.
D e a r M r . Z w a c h : We are urgently requesting your prompt attention to the
problems that we as a jobber are having concerning the gas shortage. Our sup
plier is Phillips Petroleum Products, 215 So. 11th Str., Minneapolis, Minnesota.
137
We have in the past years provided one hundred thirty farmers with their gas
to plant and harvest crops. This year because Phillips Petroleum put us on al
location and have since cut us ten percent, we will not be able to fulfill these
needs. Surrounded by a farming area, we feel this is most important for the
farmers’ livelihood. The fact that 35% of our gas business goes for farm use,
proves that this hard working class of people should not be overlooked. It would
be a disappointment for us and the St. Joseph area to see these crops not har
vested because we could not supply them with the proper amount of gas needed.
We have spoken to Mrs. Ruth Knevel at the District Office and to Mr. Roy
Aune from the State Civil Defense Office and are now urging you to take im
mediate action to protect the small farmer in this current situation.
Sincerely,
R aym ond H . K
eebsbach .
Chairman H u m p h r e y . Might I say now to our witnesses, I know
most of you have prepared statements. We are trying to keep these
statements at a reasonable length so we can have wide participation.
I f you feel during your testimony that you didn’t include something
in the prepared statement that you want to talk about—because this is
wide open—we welcome, we need your guidance, frankly, from the
practical standpoint of where you live and where your work is. You
can talk to us openly, frankly, about the problems that you see with
the majors, the major oil companies, if any; any problems that you
have as independent operators, problems that you may have as users
of petroleum supplies as well as suppliers of petroleum products. Give
us your views on anything from the proposed increase in tax on
gasoline to the conservation measures, the antitrust laws. We want
guidance, and this is the most timely hearing that we could have,
because the Congress in the next week, at least in the Senate, will act
on programs relating to the petroleum situation, mandatory alloca
tions, the whole overall supply situation, the Alaska pipeline. And it
will move very quickly in the House. There are all kinds of actions
coming up in the Congress in the month of June.
With that, Mr. Erchul, we welcome you to the witness table.
Mr. James Erchul is the director of the Office of Civil Defense,
Minnesota Department of Public Safety.
May I just take a minute to compliment this man on the marvelous
work that he’s done on behalf of the people of this State. We have
been in very close cooperation, all of us on our delegation in this State,
Minnesota, and he has been sort of the frontline fighter out here for
the users and suppliers in the State of Minnesota and, Mr. Erchul,
we want to commend you and to thank you for your services.
STATEMENT OF F. JAMES ERCHUL, DIRECTOR, CIVIL DEFENSE
DIVISION, MINNESOTA DEPARTMENT OF PUBLIC SAFETY
Mr. E rchul ,. Thank you ever so much, Mr. Chairman.
Mr. Chairman and members of the committee: My name is James
Erchul. I am the director of the Civil Defense Division of Minnesota’s
Department of Public Safety. I am here today representing Governor
Wendell R. Anderson, who is unable to participate in this hearing
personally.
I would like to ask, Mr. Chairman, that my prepared statement be
entered in the record in its entirety and I will just paraphrase the
situation.
Chairman H u m p h r e y . It will be so done, put in the record.
138
Mr. E rc h u l . Thank you. The Civil Defense Division has been
charged with the responsibility of coordinating the State government’s
activity in responding to the present emergency of a statewide fuel
shortage. As director of the Civil Defense Division, I have had a con
tinuing association with this shortage since the middle of December.
When the shortage first came to our attention, Governor Anderson
quickly responded by directing our division to survey the situation,
determine exactly what is was all about, and recommend action that
needed to be taken. As a result of the survey, State Civil Defense met
with the fuel and energy task force, ’which has been set up some years
prior to that. After that meeting, the State emergency operating center
was activiated for the purpose of handling inquiries and putting to
gether people who were experiencing a shortage with those who might
have a surplus. This is the system we used then in handling the heat
ing shortage as it came upon us through the winter.
Our difficulties really were compounded substantially when certain
companies began leaving Minnesota as far as the marketing area as
they could no longer continue to serve. We had first of all Bell Oil,
who stopped marketing here, and Triangle Refineries discontinued en
tirely and dismantled their marketing operations. In addition to that,
Gulf Oil and Sun Oil announced that they would be leaving January 1,
next year.
To compound that, we had a strike at the Koch Refinery; and the
Midland Refinery, that was supplying cooperatives here in the State
was finding itself out of crude oil and had to close down about mid
winter ; so we had, going into the spring situation of transportation
fuels, quite a bit of background in having gone through all of this
with the heating fuels.
Now, I would like to confine my remarks at this point to the alloca
tion system as it is and what we see as a result of the system being
put into being.
Chairman H u m p h r e y . You are speaking now of the Federal volun
tary allocation system ?
Mr. E rc h u l . Yes, Mr. Chairman, the voluntary system as it is
now operating. This system, of course, came into being, as was previ
ously stated, on May 10, when Mr. Simon testified before the Senate
Committee on Banking, Housing, and Urban Affairs and unveiled
what he called the voluntary system.
He further stated that the general policy direction would be vested
in the Oil Policy Committee and that the day-to-day operation or
administration of the program was going to be handled by the Office
of Oil and Gas in the Department of the Interior.
We met with Mr. Simon and with the people from Interior who were
going to implement this, talked about it with them at length, talked
about our experiences in reporting to the Federal Government and
getting action during the heating season. Our associations at that
time were with the Office of Emergency Preparedness. Unfortunately,
the President has seen fit to dismantle that operation so it appears
they are not being called into this. They have a certain practiced
expertise which I think would be helpful but so far we are finding
them left out of the implementation of the allocation program.
Upon receipt of the information concerning the allocation program,
I met with these people in the Office of Oil and Gas on May 21. My
139
purpose in talking to them at that time was to determine first of all
what role, if any, the individual States would be playing in this allo
cation system. I found that none had been designed; that the Federal
Government was going to handle the whole thing. Now, for most
States, I understand that is perfectly acceptable but for here in Min
nesota, with the experience we have put together in the past few
months and with the lines of communication that have been estab
lished with our congressional delegation and with our State legisla
tors, the system that had evolved meant that a local jobber or distrib
utor had just naturally called upon the person he thought was repre
senting him, his legislator perhaps or he would perhaps in some cases
write to his Congressman or Senator. These people then were charging
those questions to us. The Governor, too, was getting many questions
as he’s recognized as the head of the State, so to speak, so he was the
man that was being called upon.
So we established a system whereby we could respond to those in
quiries, many of which were of a local nature and could be handled
right at the local level without having to go even to St. Paul and, in
many cases, certainly not to Washington. This served to keep from
flooding the system so that we didn’t have a jammed system of com
munication.
Now, I cite this only to show you that, in relation to that, the Office
of Oil and Gas has chosen to try to field all inquiries from a single
office in Washington. Our experience in dealing with OEP during the
heating situation was that we were working through their regional
offices. The regional office for this area is in Chicago. And even then,
it was a burdensome thing that took a lot of time. We didn’t always
get the answers that we wanted immediately, some answers that had
to be gotten in a day or even hours. At this time, that kind of system
doesn’t exist. The allocation guidelines indicate that they will go to
field offices if the situation warrants it. We were wondering how long
it would take for the situation to warrant it. As soon as the guidelines
were announced, we immediately began phoning a few of the inquiries
we had to Washington just to see if it was going to work, not really
flooding them with all that we had but a few select ones that we
thought would give them a thought to exercise the system.
We received no response at all until yesterday when they finally
were able to get back to us and tell us they were working on it. At
that time, we gave them a few more to work on and they told us they
were going to move their office apparently to more spacious headquar
ters ; no allusion to going into the regional offices out in the field, which
they hadn’t even or had not established, as far as we know. They do
have some regional offices for the Department of the Interior in some
of the regions. Our region is one which does have an office but the office
is totally understaffed with only one man and a secretary, not able to
handle all of this.
They told us in discussing it with the Department of Interior that
they already had a backlog of some 900 inquiries that they were un
able to handle. It was just jamming their system and nothing is hap
pening right at this time, apparently. We have had a little bit of luck.
I think it is due largely to external forces rather than their own man
agement of the situation, however.
99-740— 73------- 10
140
Mr. Chairman, you cited two of the main ones a few minutes ago in
talking about Sun Oil and Gulf and we are particularly happy about
the 1 million gallons of diesel fuel that Gulf made available for use in
our agricultural area. This has already got moving in some areas, it
is being used already at this time. That certainly isn’t the answer,
though; 1 million gallons sounds like a lot to the average bystander
but it really doesn’t go too far in the agricultural community.
On May 23, the guidelines we had been waiting for had been printed
in the Federal Register and became public inf ormation. For the bene
fit of our people here today, I might say I have copies of the guidelines
that are available. I brought them with me. If someone would like a
copy, he is certainly welcome to take one.
Chairman H u m p h r e y . Those guidelines are to be printed for 30
days, isn’t that correct, subject to response from parties affected
thereby.
Mr. E r c h u l . That is my understanding, Mr. Chairman.
Chairman H u m p h r e y . And then they can, if need be, be revised;
but there is a period of time for observation, for study, and for any
rejoinder that anyone might want to make.
Mr. E r c h u l . That is the understanding I have, yes.
Chairman H u m p h r e y . I think it is important for suppliers and
users to take a look at those guidelines right quickly, and if you have
any commentary that you would like to offer, you can either send them
to Mr. Erchul who in turn can present them to the Department of In
terior, I believe, or is that the Oil Policy Committee ?
Mr. E r c h u l . The Office o f Oil and Gas and Interior.
Chairman H u m p h r e y . The Office of Oil and Gas in Interior, or you
can send them in to any member of your congressional delegation and
we can see that they get to the proper place.
Mr. E r c h u l . I would like to cite a couple of examples just to illus
trate the kind of thing we are getting in terms of inquiry or a ques
tion about the system.
First of all, one of the outstanding things that has come about in
the past 2 weeks is several airports around the State are reporting
cancellation of their gasoline supply, aviation gasoline. In some cases,
the person supplying the gasoline is the only supplier to the small
airports. In a couple of other cases, there are a couple of other supliers and it is not a total situation. But they are reporting that they
ave been cancelled and the company is not going to continue to
supply any longer. We have contacted the company and get mixed
answers as to whether they are or are not going to supply. Some say
that they are changing, the allocation program is going to make them
go back to supplying; other of their executives say they know of no
such idea and they are cancelling as far as they are concerned.
Yesterday, it came to our attention that a taconite operation in the
northern part of the State has been cut in its diesel fuel supply. This
immediately forced them to lay off 28 people yesterday and with indi
cations they are going to have continued layoffs next week that will
cripple their operation to some extent, if not totally. Their problem
is directly related to the allocation program and, here, Mr. Chairman,
is one of the pitfalls that we are going to experience, whether it be
mandatory or other.
In that particular plant, they experienced 7 weeks’ strike during the
base period that the guidelines allow. Therefore, during that 7-week
E
141
period, last summer, they did not use the usual amount of diesel fuel.
Now their supplier is unable to obtain that amount that they need
this year as he has no base history from last year of obtaining that
particular amount of fuel oil. So he is unable to fulfill his obligations
to them in supplying their needs for this particular period. That is
the reason he has been forced to cut them back and they, in turn, have
had to lay off some of their help at the taconite plant.
The State of Minnesota, itself, has been having difficulty in getting
suppliers to submit bids and I have here in my prepared statement a
letter from our department of procurement in the State outlining some
of the problems that they have. They advertised for bids. They got no
bids first of all. Then they got some bids in a re-advertisement for
30 days as opposed to a usual 6 month or full year. So they have a
documented story about how they are unable to get satisfactory bids
in almost all cases, no bids in many cases, and bids at a much higher
price than what it used to be in many other cases.
The end of this week we took a survey of as many suppliers of
petroleum products that we could in order to document the last minute
attitudes and problems that they were having in managing the situa
tion at this time. The week’s survey included American Oil, KerrMcGee, Bell Oil and Gas, whom we talked about earlier as having quit
marketing in Minnesota, who still have not indicated they can come
back because they do not have enough of a supply to get back into
the State. The same is true with Triangle Refineries, who have left
and are unable to come back. Trying to mandate an allocation program
on them is certainly not going to work if they don’t have it and, of
course, the program will go to a higher level in the structure whereby
a refinery would be directed to give them some.
In the meantime, however, we here are not getting the products that
would normally have been supplied by them. Others that we talk to
are Mobil Oil, Shell Oil, Skelly, Phillips, Union 76, Murphy Oil, one
of what we claim is almost our own refineries because it is there in
Superior, Wis. and is right close by, Northwestern Oil Co., which is a
refinery here in Minnesota, Koch Refinery, the one I mentioned earlier,
which is still out on strike from last winter, Gulf Oil, Farmers Union,
Erickson Oil Co., APCO Oil Co. There were others we were not able
to communicate with at the last minute yesterday, many of them being
in meetings and things of that sort. We have talked with them in the
past, however, and they reflect pretty much the same thing.
The idea we get in talking with these people is they are allocating
at a percentage much lower than what the national figure seems to
indicate is supposed to be available. They are in some cases down to
only 80 percent of last year’s supply being allocated. We are talking
about the need for at least 107 percent, so we are a long ways from the
2 or 3 percent that they talk about in Washington.
Chairman H u m p h r e y . I think I should say that the 2 to 5 percent
that is mentioned at the Washington level is the national average of
shortfall. That’s what they estimate. I don’t know whether we can
document that at all, but on a regional basis we know it is much higher
here in the Midwest, and what did you say it was, Mr. Erchul ?
Mr. E r c h u l . We have been looking at between 10 and 15 percent
and we feel that that is a conservative figure, Mr. Chairman.
Chairman H u m p h r e y . Yes; our committee study indicates in the
Midwest somewhere between 10 and 20 percent. See, the problems that
142
we have here are much different from what they are either on the East
Coast, or the West Coast, where the refineries are located, where the
major pipelines are much more available. We are at the end of the
pipeline and greatly dependent upon domestic oil production in this
area.
Mr. E r c h u l . Yes, sir, that is absolutely it.
Earlier this week Secretary of Agriculture, Earl Butz, held a meet
ing in Des Moines, Iowa, where they discussed the fuel shortage, and
there it was stated that the fuel supply is running just 1 to 2 percent
behind the projected demand for this year. Now, sometimes when we
use the percentage, we don’t know what the base is. Ordinarily, people
talk about last year’s use but here he is talking about demand, which
we consider to be 107 percent of last year. Only 1 to 2 percent would
almost indicate he doesn’t have the picture clearly in his mind, for
the Midwest anyway; but if that is so, the allocation program certainly
has not begun to work here. In Minnesota, the shortage is sometimes
greater than that.
Now, the allocation thing is supposed to spread the shortage equally
among all; but some areas are only 1 percent short and we are 10
to 20 percent short. The equality is just not there.
So, Mr. Chairman, I would like to express my thanks to you for
bringing your hearing here to Minnesota. There are many people who
want to be heard here who really don’t have access to hearings in
Washington. I am sure that what you hear from the people who are
actually involved in this right here in Minnesota will be an enlighten
ing story and you can take it back with you to Washington and it will
be most meaningful in your discussions in the coming weeks.
Thank you once again.
[The prepared statement of Mr. Erchul follows:]
P repared S t a t e m e n t
op
F . Ja m e s E r c h u l
Mr. Chairman and members of the committee, my name is James Erchul.
I am the director of the Civil Defense Division of Minnesota’s Department of Pub
lic Safety. I am here today representing Governor Wendell R. Anderson, who is
unable to participate in this hearing personally.
The Civil Defense Division has been charged with the responsibility of co
ordinating the State Government’s activities in responding to the present emer
gency of a statewide fuel shortage. As Director of Civil Defense I have had a con
tinuing association with the shortage since the middle of December, 1972.
When the shortage was first called to his attention last December, Governor
Anderson responded immediately by directing State Civil Defense to survey the
situation to determine just how bad it was. As a result of the survey State Civil
Defense met with the Fuel and Energy Task Force. After that meeting the State
Emergency Operating Center was activated to handle inquiries and to serve as a
clearinghouse putting together people who were short of product with those
having extra supply. The situation continued to deteriorate. Governor Anderson
then called the National Director of the Office of Emergency Preparedness to
inquire about the kind of help the Federal Government might be able to con
tribute. Shortly thereafter the Governor declared a state of emergency. He then
wrote to the President requesting Federal aid under Public Law 91-606. The Fed
eral Government responded by sending a team of experts to survey the situation
in Minnesota and to determine what could be done. The team was able to get
the fuel suppliers to return their allocations to normal. They also located some
additional product that could be purchased in Canada.
Our difficulties were compounded when Bell Oil and Triangle Refineries an
nounced that they were going to discontinue marketing in Minnesota imme
diately. Shortly thereafter Midland Cooperatives, a big supplier to rural Min
nesota, was forced to shutdown its refinery in Cushing, Okla., due to an inability
143
to obtain crude oil. At approximately the same time, two major brand companies,
Gulf and Sun, announced that they intended to discontinue marketing in Minne
sota by January 1, 1974, and Clark Oil decided to discontinue the marketing of
fuel oil. To compound the matter even further, the Koch Refinery at Pine Bend,
Minn., was crippled by a strike of its employees.
In order to reduce the severity of the shortage, Governor Anderson directed
all State agencies to institute conservation measures. The Governor then issued
several brief public service messages asking the general public to cooperate by
reducing their usage of energy. He suggested lowering thermostats a few degrees,
closing off unused rooms, and reducing electrical consumption, as several means
of conserving energy.
Now we are faced with the same kind of a problem in transportation fuels.
This time the Federal Government is viewing it as a nationwide problem. On
May 10, 1973, in testimony before the Senate Committee on Banking. Housing
and Urban Affairs, Deputy Secretary of the Treasury William E. Simon un
veiled the present voluntary program for allocation of crude oil and refinery
products to be backed up by guidelines established by the Federal Government.
He further stated that general policy direction would be vested in the Oil Policy
Committee and that day-to-day administration of the program shall be handled
by the office of oil and gas.
Upon receipt of that information I made an appointment to visit the Office of
Oil and Gas on May 21. My purpose in talking with them was first, to determine
what role, if any, the individual States would play in the petroleum allocation
program and secondly, what system of communication would be followed for
reporting. At that point I got the idea that the States would not have an active
role in administering the allocation program and that people wishing to report
violations or make inquiries could call the Office of Oil and Gas in Washington.
Later on, if the load got too big to handle, reporting would be to regional offices.
Our experience in reporting to the Office of Emergency Preparedness during
last winter’s shortage had taught us that reporting to a regional office gave us a
slow response but this idea of all States reporting to a single office in Washing
ton would be totally unmanageable.
At any rate, even without an assigned role, we felt that our involvement in
the fuel shortage thus far mandated a continued activity on the part of State
Government.
On May 23 the anticipated guidelines were printed in the Federal Register and
became public information. If there is anyone here who wishes a copy of those
guidelines, I have some here with me today. Since the publication of the guide
lines we have been monitoring the situation here in Minnesota in an effort to
determine the net effect. People have continued to register their problems with
our office and we in turn have passed many of them on to the Office of Oil and Gas.
We also surveyed the major suppliers in an attempt to determine their action in
respect to the allocation guidelines. Here are some examples of the kinds of prob
lems that have come to our attention in the past few days:
Several airports around the State reported that their supplies of aviation gaso
line from Union 76 were going to be halted.
A taconite processing operation on the iron range has had to cut back on pro
duction and begin laying off employees—28 yesterday—due to a reduced supply of
diesel fuel. Their problem is related to the allocation program in that during
the base period under the guidelines their plant experienced a 7 week strike.
Therefore, during those 7 weeks they did not use their usual amount of diesel fuel.
Now their supplier is telling them that he cannot fill their needs for that related
7 week period. Union 76 is their supplier.
The State of Minnesota has been having difficulty in getting suppliers to sub
mit bids as evidenced in the following letter:
M a t 3 1 , 1973.
Mr. C h a r l e s A. B y r l e y ,
Director,
Council of State Governments,
National Governors’ Conference,
Washington, D.C.
D e a r M r . B y r l e y : Minnesota’s experience in bidding for gasoline and fuel oil
seems to compare with what we have heard and read of other governments at
tempts in obtaining fuel supplies.
144
Bulk Gasoline: A bid for an estimated annual requirement for 263 locations—
6,280,000 gallons—Firm Price. We received and awarded contracts for furnish
ing 198 locations:
Gallons
1,500,000
Annual Basis.
850,000
Quarterly___
50,000
30 Days-------Prices were up from average 210 per gallon to average 290 per gallon.
We are currently out for rebid on the balance 3.8 million gallons allowing for
price escalation at time of delivery based on allocation of 80% of last years pur
chase.
Diesel Fuel: Bid for estimated annual requirements for 181 locations—650,000
gallons. We received and awarded bids for only 35 locations for a very small part
of total requirement. Prices were up from average .145 to average .205-.06 per
gallon.
Heavy Fuel Oil—# 5 - # 6 : We have been fairly successful here but prices have
advanced as much as .04 per gallon—Prices Firm. We will have to rebid several
locations and allow escalation prices date of delivery.
Light Fuel Oil— # 2 : Bids for light fuel oil seem to be our biggest problem. We
have been able to obtain quotes for furnishing some of our smaller users but
bids for large quantities have been unsuccessful, especially so where natural gas
is the primary fuel and fuel oil standby.
As you know Minnesota also has contracts with various filling stations around
the State—selling gasoline for use in State vehicles at a cents discount from
posted pump prices. A large share of the “Independent” stations have cancelled
their contracts but the “Major” suppliers are still honoring their contracts as
established.
Yours truly,
V. S. B b u c e ,
Director, Division of Procurement.
Difficulty is also being experienced by some of the food distribution services in
obtaining adequate fuel for transportation of processed food. It also appears that
an acute shortage may develop in the propane and natural gas area about the
middle of August when crop drying operations get underway.
As an example, K and T Gas Co. of 2216 Bast Avenue, Worthington, Minn.,
was advised by City Service, their major supplier, that they would no longer be
receiving product from them. This means a loss of 1 million gallons to the
K and T Gas Co. K and T also purchased propane from Phillips, Shell, and
Skelly Oil Cos. This totals approximately 1 million gallons annually. Phillips
has increased their allocation by 10 percent, Shell decreased by 50 percent, and
Skelly decreased by 15 percent. This means that K and T Gas Co., is cut to
about one-third of their normal requirement. The company has indicated that
they have a storage capacity of 54,000 gallons and have these full at the present
time. This should carry them through the next couple of months with what
allocation they receive from Phillips, Shell, and Skelly. However, by the middle of
August and first of September, the crop drying operations will get underway,
and we have been advised that approximately 50 percent of their annual con
sumption occurs between the middle of August and the middle of November
when crop drying operations are in progress.
This week’s survey of the major supplies indicated as follows:
American Oil—Ardie Iverson
Allocating 80% of last years sales—no stations out of business.
Kerr-McGee—Sid Kraker
Will follow guidelines, but getting product is a problem.
Vickers Petroleum Corp.— (Bell Oil and Gas Go.)—Mr. Gottschak
P.O. Box 2240,
Wichita, Kansas 67201
No program of distribution arrived at, they are studying guidelines. If prod
uct is available, they will supply again in Minnesota, but lack of product is a
real problem.
145
Triangle Refineries Inc,-—Larry McAlli&tor
P.O. Box 3367
2600 Nottingham
Houston, Texas 77001
Triangle will come back to Minnesota if they can get their suppliers to furnish
them product. Some of their suppliers state they will not give them product
unless it is mandatory to do so. They refuse under the volunteer program. He
suggests that a letter be written them requesting them to again supply in
Minnesota.
MoUl Oil—Mr. Richardson
Allocation is 100% of last year’s sales. If additional information is wanted,
contact Mr. Jaeckel in Chicago Office (312) 647-9644.
Shell Oil Co.—Jerry Johnson
Allocation is 100% of last year sales. Has not received information from Main
Office on any other allocation plan.
STcelly Oil Go.—Mr. Newald
If any information is wanted on company policy, contact main office in Tulsa.
Contact is Mr. Charles Smith or Public Relations Office (918) 584-2311.
Phillips Petroleum—Mr. M. H. Richmond
Phillips Petroleum is allocating gasoline on 89% of last year’s volume for the
month of June. Mr. Richmond indicated this was nationwide for Phillips Petro
leum. Mr. Richmond indicated propane gas will be in extremely short supply
through the balance of the summer and fall months. He had no explanation for the
propane situation. He further indicated that company retail outlets are allocating
to automobiles.
Union 76—Don Hays
Union 76 is continuing to provide product, gas and diesel, to all accounts. Ac
counts that had been closed will be reopened and resupplied unless credit is
a problem. No further information is available on the aviation fuel situation.
(Have been unable to contact anyone in authority in the Chicago Office. Everyone
seems to be at a meeting for the day.)
Murphy Oil—Jim Rollins
Murphy is completely out of gasoline at the Rochester and Mankato terminals.
None is available from the Superior refinery. Allocation has been set up on an
80% basis of last year, both company and independent jobbers. Mr. Rollins
explained that this part of the problem is due to the fact that during the fuel
shortage last winter, Murphy traded with other suppliers to make additional
product available in northern Minnesota. They are now being forced to repay
in like kind Murphy has been unable to stockpile any fuel oil for this winter.
For all practicable purposes have no inventory at the present time.
'Northwestern Oil Company—Mr. Robert Piculell
Northwestern Refinery is operating at near capacity (80%). Fuel oil situation
for fall and winter looks extremely bad. Mr. Piculell predicts that residuals will
also be in very short supply.
Koch Refinery—Mr. R. Carthaus
Mr. Carthaus indicated no change in the situation at the Koch Refinery due to
the strike. Because of this he was unable to make any projections as to how
Koch would be able to meet their allocations.
Gulf Oil Company—Mr. Luther Moore
Gulf is continuing to dispose of their physical plant (bulk stations and retail
outlets) throughout the State of Minnesota. However, are continuing to supply
their distributors and jobbers at 1972 levels on a one-year basis. Mr. Moore
indicated it may be necessary to institute a reduced allocation if the situation
continues at its present level.
Farmers Union—Bob Ovens on Gasoline and Diesel
Farmers Union is allocating on a 92% of last year’s consumption for the month
of June. Diesel is being allocated at 108% of last year’s June consumption. Mr.
Ovens further stated that projections for July and that balance of summer
are as follows: Gasoline—110%. Diesel and Heating Fuel—108%.
146
Farmers Union—Bob Freeberg on Propane Gas
It appears that supply of propane may be adequate to meet summer demands.
Fall and winter supplies including crop drying operations will fall 25% short
of last year’s consumption.
Erickson Oil Company—Mr. Harold Paskey
Erickson Company has closed all stations during the night shift. As of this
date they have not placed their stations on an allocated basis: rather, have re
stricted their hours of operation.
Apco Oil Company—Mr. Buck Robertson, Oklahoma City
Apco Oil Company is allocating at 85% of last year’s consumption. This is
due to loss of purchase product, and covers both gas and diesel. Mr. Robertson
reported that starting last year Apco dropped a number of distributors who,
because of past credit problems, were on a COD basis. Several in Minnesota
have been dropped for this reason. He stated that they have been advised by
their attorneys that accounts of this type are not covered under the Federal
Voluntary Fuel Allocation Program, and that they would not be re-establishing
these distributors.
At this time I am told the Department of the Interior is jammed with a back
log of 900 inquiries. They do not have the physical plant, the expertise, nor
the personnel to handle this problem. On June 11, according to the guidelines,
they will begin to hold public hearings to determine whether or not the alloca
tion program should become mandatory. Will the Taconite plant I described
earlier have to be closed until after the hearings effect a solution? Will the State
of Minnesota go without fuel bids this year?
No, Mr. Chairman, we cannot meet the needs of our people with this procedure.
It must be speeded up immediately.
Earlier this week. Secretary of Agriculture Earl Butz held a meeting in Des
Moines, Iowa, to discuss the fuel shortage. It was stated there that the fuel
supply is running just 1 to 2 percent behind the projected demand for the year.
If that is so, the allocation program has not begun to work. In Minnesota, the
shortage is 10 time greater than that.
Mr. Chairman, I want to express my sincere thanks to you for bringing this
hearing here to Minnesota where the people who are faced with the problems
will have a chance to tell their stories. Thank you once again.
Chairman H u m p h r e y . Congressman Fraser, do you wish to ask
Mr. Erchul any questions?
Representative F raser . First, I want to reiterate what Senator Hum
phrey said, the amount of cooperation and the amount of information
you have been able to supply has been reallv outstanding in your efforts
on behalf of the State. At ieast from the Washington end, it has been
first rate. It has been enormously useful to those of us trying to under
stand how severe the problem is.
I just have one principal question. My understanding is that the
refineries have a limited set of options with respect to whether thev
are producing heating fuel or gasoline; that is, that they can shift
the mix within a limited range but they can’t turn from one to the
other. It is a question of proportion. With respect to the gasoline
shortage that appears to be evolving, do you have any notion or knowl
edge of the extent of the seriousness, how severe the shortage may be
next winter on heating oil ? We had a short fall this winter but my
impression is that we must be looking: to a far more severe winter
coming ahead. I wonder if you would have any projections on that.
Mr. E r c h u l . Mr. Chairman, Congressman, we have looked at that
very carefully and our opinion at this time is that the refineries are
being pressured to produce gasoline at such a rate that I don’t believe
they are building up the kind of reserves that are going to be neces
sary. Of course, this is rather early but if we were to get an early
147
cold spell, like we got last year, I think we would be in a very difficult
situation, probably much worse than we were last year.
Representative F raser. Thank you.
Chairman H u m p h r e y . Could you indicate what the normal reserves
in fuel oil are ? Do you have any information, for example, from the
oil industry that indicates what they would like to carry as a normal
reserve, let’s say, in fuel oil going into the fall and the winter?
Mr. E rchul . No, Mr. Chairman, I don’t have that in terms of num
bers. We do have some refineries that are going to speak a little later.
Chairman H u m p h r e y . Yes.
Mr. E rchul . I am sure they could provide better figures than I could.
Chairman H u m p h r e y . Do you have any indication as to what the
reserves are at the present time in fuel oil ?
Mr. E rchul . The indication so far, the only figures we have that
are really available to us, and they don’t talk too much in terms of
reserves when they talk with us but we do have a record in the tax
department of what has been shipped in this year and in terms of fuel
oil, it is down at least 20 percent.
Now, whether that is something that is held in reserve or where it
goes, we haven’t really been able to determine but we do have that fig
ure and that is what we are basing some of our judgment on at this
time.
Chairman H u m p h r e y . Congressman Frenzel.
Representative F renzel . Yes. Mr. Erchul, with the demise of OEP,
are you now reporting your status and taking your problems to the
Division of Oil and Gas in the Interior ?
Mr. E rchul . Yes, we are reporting directly to the Washington
office of Oil and Gas.
Representative F r e n z e l . With the impending crisis particularly
this winter in fuel oil, I know that the State of Minnesota had a legis
lative commission concerned with this problem. Has the State ever
considered creating or asking for powers of allocation that might
go beyond that which the Federal Government might establish?
Mr. E rchul . We gave very serious consideration to that during the
previous legislative session. We had some bills in there that would
give the Governor the power to make these allocations. It was deter
mined that this isn’t what the legislature wanted to do. The power
does exist in time of dire emergency in the executive council. They
can take that upon themselves, so we have it.
Representative F renzel . Thank you. Thank you, Senator.
Senator H u m p h r e y . Just to wind up your presentation. Mr. Erchul,
has anything really improved since the voluntary allocation program
went in ?
Mr. E rchul . Mr. Chairman, we see no improvement here. It has
continued to deteriorate. I guess perhaps maybe it was the fact that
people were aware of the allocation program that gave us a picture
that it has deteriorated. I think it is pretty much the same really. It is
just that people realized that there was some place they could report
some of these things, so we have gotten many more reports of problems
than we had before. For instance, we have never before had a difficulty
in the taconite industry and now we see them talking about laying off
people in one of those plants. I don’t know if this is going to be wide
148
spread or not. We have made no determination. This just came to us
late yesterday.
We also have additional jobbers that are talking to us about non
allocation. They have been down to zero and, of course, the same inde
pendent people in gasoline stations that have been forced out of busi
ness still are out and have been calling us and writing us asking what
can be done now to get them back into business. It looks like it has
certainly not improved to any extent at all.
Chairman H u m p h r e y . I think in some of the letters that I had re
ceived, Mr. Erchul—for example, here is a letter from Minneapolis:
We had been 41 years in the gas business for Standard Oil Co. Wouldn’t you
say that is loyalty? On May 1, 1973, we were informed by registered letter that
our lease was canceled as of May 31, 1973. We have been in northeast Minneap
olis doing business since 1932—
and so on. They said:
Having just secured an SBA loan in January of 1973, we are most concerned
how we will make our payments as the filUng station is one-third of our income.
We have another one here:
My husband has been an operator of an independent service station for over
20 years and is being forced to close because of his inability to purchase gasoline.
The mayor of the city of St. Cloud—this is one of the airports that
has had difficulty.
Mr. E r c h u l . Yes, sir.
Chairman H u m p h r e y . Well, frankly, they haven’t been able to get
a contract yet; no stable contract for supply of gas or for fuel, jet fuel
or gasoline fuel.
We have another one here from out in Willmar, Minn. “ Then to
add to our problems, my distributor contract has been canceled as
of June 30,1973, and will be issued on a month-to-month basis.” This
is a gentleman that has been in business out in that area of the State
for many years. A copy of the letter was sent to me by the State
representative, John Lindstrom.
We have a letter here from a professor of industrial management
at Georgia Tech relating to some of the complaints that he’s received
in the southeastern part of the country.
The Minnesota Motor Transport Association, to which you referred,
Congressman Fraser—I met with them, by the way, and I guess
representatives of that association are here today. Here is a letter from
Mid-Continent Freight Lines, one of their members, to Mr. Carl McCullen of Phillips Petroleum. “We have had several long-distance
telephone conversations with you and other Phillips Petroleum per
sonnel in your Bartlesville office because of the fact that we were
notified by Wayne Anderson of your Minneapolis office that we would
no longer be supplied with diesel fuel and gasoline commencing
May 1.”
The village of Ellsworth, by the way, has been unable to get the
kind of contract that it needs to take care of its fuel needs.
Here is another one from Minot, N. Dak., that came to my attention,
the same problem of cancellation, the American Public Power Associa
tion deeply concerned over the fact that there is the inadequate alloca
tions for municipal electric plants.
Wadena, Minn., which has been in operation since 1931 has had its
contract with Kerr-McGee canceled as of June 1973.
149
Here is another letter from a gentleman in Minneapolis. He says
“I sincerely believe but could now be mistaken that these shortages
are agreed upon by all major oil companies to force independent
dealers out of business and raise prices on all products.”
These letters and others received by my office will be inserted into
the appendix of the hearings record.
By the way, our hearings in the Joint Economic Committee have
brought a good deal of evidence to the forefront that majors which
have supplied independents as well as their own name-brand dealers
in the past were cutting off the name-brand dealers that were independ
ent and cutting off the off-brand operators and opening up new com
pany-owned stations. This, of course, was further documented by
Senator Adlai Stevenson in his hearings in Illinois.
By the way, Mr. Erchul, are you convinced of the figures offered by
Mr. Simon and Mr. Ligon on the size of the shortage. Mr. Ligon said
that the fuel shortage nationwide is only 1 or 2 percent. Now, for
our record here, Mr. Erchul, what is your estimate of the fuel short
age, gasoline, diesel, and heating oils, in the Midwest or in Minnesota?
Mr. E rch ul . Our estimate at this time, at least for Minnesota,
is that the shortage is now between 10 and 15 percent and it doesn’t
look like it is going to improve unless some drastic action is taken by
someone to level off this. If we see 1 and 2 percent in most cases in
the country and 10 to 20 here, we surely need some kind of equitable
apportionment.
Chairman H u m p h r e y . Are you familiar with the bill that is before
the Senate now, S. 1570, the mandatory allocation bill ?
Mr. E rch ul . Yes, I am, Mr. Chairman. That is the kind of thing
that we feel is most necessary if we are going to get equality.
Chairman H u m ph r e y . Mr. Simon of the Oil Policy Committee
has proposed that States in which environmental standards on elec
trical utilities exceed the stringency of the Federal standards relax
their rules to permit burning of fuels with higher sulfur content.
Do any States of the Upper Midwest that you know of fit this cate
gory ? For example, does Minnesota ? And how do you feel about pro
posals to alleviate fuel shortages by relaxing some of the new environ
mental protection measures ?
Mr. E rch ul . At this point, we don’t have any great problem with
environmentalists as far as fuel use is concerned. They have been will
ing to allow the use of heavy oils and coal and we don’t see that as
a great problem.
Chairman H u m p h r e y . What about our utilities here in Minnesota,
do thev have the kind of system where you can shift from gas to oil
to coal ?
Mr. E rchul . Not back to coal, Mr. Chairman. They do go from
gas to oil, and one of the big problems is they are using a great deal of
oil to generate electricity. We think there are some changes that could
be made there. Of course, they are being held up because of environ
mental problems to some extent there, but that is the only area where
we see it.
Chairman H u m ph r e y . Have you read the story of the Federal Power
Commission’s authorized increase of 73 percent on natural gas at the
wellhead ?
Mr. E rcttttl. Yes, sir. I am familiar with that.
150
Chairman H u m p h r e y . What is your judgment of that ?
Mr. E rc h u l . It is very hard to make adjudgment as the stories are
so conflicting. When we talk to industry people, each one seems to
have his idea based on his own industry and it is very hard to make
a judgment. I would think, the way it seems to me after weighing all
of the stories I have heard is that natural gas has been improperly
subsidized with an unusually low price and that, has made it different
from the other fuels; consequently, some of our problems result from
the fact that the natural gas was too attractive; and then we have these
interruptable customers who are forced off of natural gas when it gets
a little cold in the winter time, and it certainly compounded our prob
lem last fall when they had to go on their secondary fuel—namely oil.
Their storage of secondary fuel was almost nonexistent in some cases
and they were unable to obtain their secondary fuel because it was
being used up in the usual market.
Chairman H u m p h r e y . What do you think about the proposed 5percent increase in the gasoline tax or have you arrived at any opinion
on that ?
Mr. E r c h u l . Well, I have nothing really conclusive. My initial
reaction would be that it is going to be somewhat discriminatory as far
as the working man is concerned. I guess that is what it is designed to
do, to force him out of his car. It seems to be somewhat regressive. It
is probably a single line sales tax added onto already high prices of
gasoline. I don’t think that it is going to help us. It will achieve the
necessary goal all right but it might put the common man on the street
walking. If that is what is intended, I think it will go in that direction.
Chairman H u m p h r e y . I understand the 5 percent increase in tax is
designed as a fuel conservation measure primarily, not so much a
revenue measure, even though it will raise about $1 million dollars;
they tell me that it is essentially a fuel conservation program.
Are there not other ways that we can conserve fuel and fuel transport
rather than by an increase in the tax ?
Mr. E r c h u l . I would certainly believe we could do other things
rather than put such a burden on people dollarwise. I don’t believe
people would quit driving. I think they would pay the tax in many
instances, at least as long as they could. Our habits are such that we do
that. Now, there are those that would go into carpools necessarily after
a few weeks of that expense, and there are those that would attempt to
use mass transit, which, of course, is not always available. But I think
if we did other things than put a new price on gasoline we would come
out as well, and we certainly wouldn’t hurt the public image of con
servation as much by doing so.
Chairman H u m p h r e y . The price of gasoline for the motor car oper
ator has gone up appreciably already, has it not ?
Mr. E r c h u l . Yes; it has already gone up at least the amount they are
talking about in tax and it looks like it is going to continue to rise, so
adding that to it would really be a big burden on a person that does
much driving. For those people that have enough money to go ahead
and pay it, that is fine, but the average man can’t dedicate that much
of his budget to driving his car. He would be forced out of the gas
market and that would, I suppose, make that much supply available,
but I think the price would be too high.
151
Chairman H u m p h r e y . There are means of carpooling. Some of us
have even suggested that the proper use of computers could make
available information for carpooling for purposes of fuel conserva
tion ; that this could alleviate some of the problems.
Mr. E r c h u l . Yes, Mr. Chairman. Governor Anderson has come
forth with a statement urging the public to do that. Not trying to make
anything like that mandatory but just setting some examples of what
could be done. Carpooling is certainly a very important way and it
could be----Chairman H u m p h r e y . And it could be done plant-by-plant, could
it not----Mr. E r c h u l . Absolutely.
Chairman H u m p h r e y [continuing]. By the cooperation of manage
ment and organized labor, working by the way with local officials—
like in your office, which has a very good line of communication out
to all the local areas of the State. Here is where State and local leader
ship and organizations working with the private sector could do a
great deal in terms of fuel conservation.
Mr. E r c h u l . Yes, sir, Mr. Chairman, that’s the one place where we
could really make hay and get something done. Industry could, for
instance, give certain parking incentives to people who come in a carpool, give them free parking or give them perhaps some other type of
incentive. In some places, they have gone to allowing half price for bus
tokens for those people in their employ who would take a bus. Those
are the kinds of things that would not be painful, and would surely
solve the problem to some extent.
Chairman H u m p h r e y . I think the public ought to be aware of the
fact that the Government is now considering whether you are going
to have mandatory allocations of oil, which will give you an equitable,
fair share of the available supply as a means of really providing the
fuel and the gasoline that is necessary; or whether you are going to
have a system of selective discriminatory allocation on the basis of
raising the tax.
Mr. E r c h u l . That seems what it looks like.
Chairman H u m p h r e y . That is what it is boiling down to. I don’t
want to make an outright condemnation of the 5-cent tax because
I think we have to study this very carefully, but I think it is quite
obvious now that the choices that are being talked about within the
Government are the continuation of a voluntary program, which is not
working too well, doesn’t seem to be at least, or to toughen it up to make
that program more “workable” as they would say, or to put a 5-cent tax
on to force a fellow that has to drive his car 20 miles to go to his job
every morning to pay that extra 5 cents a gallon. With the automobile
today with its pollution controls on it, and with stop-and-go driving,
that is going to mean about another 50 or 60 cents a day for a man that
drives his automobile.
It is a selective type of sales tax and I think the public ought to be
aware. I want this audience and those who may be interested in this
testimony to take a good hard look at it, because if the purpose of the
tax is to conserve fuel, and this is what it is said to be, we ought to
take a look before we put 5 cents more tax on gasoline. The price of
gasoline, by the way, is basically tax anyway—by the time you get it,
152
you are paying mainly tax. The question is whether or not you want
5 cents more tax or whether there aren’t other ways that we can have
an equitable allocation and distribution of the available fuel supply.
1 really believe that what you are seeing here is a situation where the
majors are going to decide who gets the oil under the voluntary pro
gram—they are running it—and, second, if it doesn’t work too well,
then we are going to tax you so you won’t drive your car.
Mr. E r c h u l . That seems to me the way they are looking at it right
now, Mr. Chairman.
Chairman H u m p h r e y . I might add that for motor transport, this
also adds to the cost of everything that is transported because you can
not drive these big trucks, run this high-powered equipment without
fuel, and it won’t be just a tax on gasoline. When we start putting on
these taxes and looking around for ways and means of raising revenue
and conserving fuel, you mark my words, if they start out at 5 cents
on gasoline, pretty soon it will be 3 cents on diesel and then it will be
2 cents on fuel oil, and then it will be something else; and by the way,
jet fuel will obviously have to be involved because gasoline, diesel fuel,
jet fuel, kerosene, fuel oil No. 2, No. 6, all of these are products of
the same thing, crude oil. They all come out of the same refinery. And
so the 5-cent gas tax is not going to be a gas tax alone; it is going to
hit products all the way down the line and that means that every home
owner, every car driver, every single farmer, every single truck driver,
every single bus, every one of them ultimately is going to be caught up
in a larger and larger tax payment. Now, I think the question before
the Congress and before the public is whether there is any other way
that is more equitable to share in the available supplies or are we going
to let the Federal Government tax us into submission and the private
oil companies determine who is going to get the gas. That is what it is
all about.
Mr. E r c h u l . That is the big question before us right now, Mr. Chair
man.
Chairman H u m p h r e y . That is why we are holding these hearings.
All right, thank you very much, Mr. Erchul.
Mr. E r c h u l . Thank you , once again.
Chairman H u m p h r e y . Next we have a panel of witnesses. This
is a panel representing the petroleum users. First, Mr. Cy Carpenter,
president of Minnesota Farmers Union; then Mr. Kent Shoemaker, as
sistant vice president, operations, the Soo Line Eailroad Co. I would
like to have Mr. Ross Thorfinnson from the National Oar Rental Sys
tem come in this group too. We will maybe need some extra chairs. Why
don’t you just sit right on the end there, Mr. Thorfinnson. Also we
have Mr. Louis B. Olsen, assistant general manager of the Minneapo
lis Metropolitan Transit Commission; James Denn of the Motor Trans
port Association, general manager of the Motor Transport Association.
A V o ic e . He had to leave for just a few minutes but he will be back
shortly.
Chairman H u m p h r e y . That is fine. He will be coming back and we
will bring him in then. In addition, we have Mr. C. L. Bowar, director
of public affairs, Minnesota State Automobile Association, editor of
The Minnesota Motorist, Lisle Reed, Deputy Director, Office of Oil and
Gas, U.S. Department of the Interior. Mr. Reed, if you don’t mind—
where is Mr. Reed ?
153
Mr. R e e d . Right here, sir.
Chairman H u m p h r e y . We will just hold you until after the panel.
You might observe what the panel has to say and you might want
to make some response. You might be very helpful to us as a source
of information.
Mr. R eed. That is quite all right, sir.
Chairman H u m ph r e y . Gentlemen, it will be very helpful now if you
will file with us your full statements, if you have prepared state
ments. We will accept it as part of the verbatim testimony of the
committee.
Second, after that, after having filed it, we would be grateful if you
can keep your oral statements relatively brief, because we have a panel
here. Just cite for us your experience and also any recommendations
that you have. Just lay it on the line.
We will open up, according to the way we called the witnesses, with
Mr. Carpenter. Cy, you just feel free to take off here and give us your
observations.
STATEMENT OP CY CARPENTER, PRESIDENT, MINNESOTA FARMERS
UNION, ST. PAXIL, MINN.
Mr. C arpenter . Thank you, Mr. Chairman, Congressmen Fraser
and Frenzel. I am president of the Minnesota Farmers Union. I am
obviously speaking on behalf of our members and farmers. We think
it is particularly appropriate that this hearing is being held here to
develop a better understanding and hopefully a better solution for a
condition we consider very serious and one which, if left unchecked,
might do serious and irreparable damage to many citizens throughout
the State and the Nation. It is particularly appropriate that it is held
here where farming and agribusiness is of major importance, because
if this condition is allowed to worsen, one of the most serious disrup
tions for all of the citizens of the country will be the disruption of
agriculture.
When I prepared this statement, Mr. Chairman, as of that date I
Iwas not aware of any actual farmwork stoppages due to deficient
fuel. Nonetheless, the shortage was very real; they were down to a 1or 2-day supply in many instances, and we knew where they were
borrowing or shifting and where they were paying a premium which
seriously verges on black market, but we were not aware of actual
farm shortages.
This condition has changed. Yesterday, I received calls from farmers
saying they did not have fuel to operate their equipment. And in
checking with the cooperative that was supplying them, I learned
that it had been out of fuel for 3 days, completely out, unable to meet
their needs. The manager indicated that a number of these farmers
were borrowing from each other or wherever they could to keep their
equipment running, and apparently this condition is more widespread
than we were aware of at this particular time.
I did ask the manager of this oil cooperative whether he was aware
of any corrective or emergency action he might take and he was not.
He frankly said “I don’t even know who to turn to even to report this.”
I say this knowing very well of Mr. Erchul’s activity but pointing
154
that the agricultural and rural communities are often not involved
in the situation. Without going into----Chairman H u m p h r e y . Could we interrupt there just a minute, Cy, to
say, to anyone in the audience and anyone that may hear about these
hearings will know, that there are two places particularly where rural
people, the farmers, can report: their ASC committee office, that is in
their county, or, second, Mr. Erchul’s office, the Minnesota State civil
defense office; and I am sure also, Cy, any of your members could re
port directly to you. And, finally, you always can report to your Con*
gressman or your Senator, and I might add that we, as a delegation,
are working very closely together on this. I mean if you are short on
gas, it doesn’t make any difference if you are a Democrat or Republi
can, you just don’t move around, you know. We try to answer the
needs of the people.
Go ahead.
Mr. C a r p e n t e r . In addition to that shortage, when we prepared the
statement, we were already aware of actual shortages that were occur
ring with respect to the movement of farm commodities. We checked
with some grain haulers trying to move grain from local elevators and
from farms, and we got reports where as many as 20 percent of their
trucks were inoperative because of inadequate fuel, and this was on
the main route going into the Duluth port which is, of course, ex
tremely important to farmers consumers, haulers, and all of those
involved. In addition, with the amount of grain that we have waiting
for movement at the present time, and with totally inadequate service
being provided by the railroads for the rural communities, and with
our crop coming up at a rate which indicates this new crop will be
ready for harvest before the local elevators can move the last harvest
out, we face a problem that is snowballing as far as the movement of
this commodity is concerned, particularly if this kind of fuel shortage
is allowed to continue.
And I might indicate that in many instances, the only way this
grain can be moved from some elevators is by grain transport.
Chairman H u m p h r e y . Yesterday or Thursday, I believe it was, the
Secretary of Agriculture indicated at Des Moines that the problem was
so serious that a number of the country elevators were no longer re
ceiving financing from terminal elevators in order to purchase crops,
particularly where there was no storage, and that storage might very
well be in short supply.
This means that where your transport system is already overworked,
you are further jeopardized by a lack of fuel. Then you are going to
jfind complicating factors such as lack of elevator space, lack of financ
ing from terminals to country elevators, lack of hopper cars and box
cars to move it. And then all of these wonderful feelings that we have
about a good crop that we hope and pray for may end up in being a
small, and not even a small, but a major disaster.
Now, I wrote a letter yesterday to the Secretary of Agriculture ask
ing for two or three things to be done. One was to review immediately
the total storage capacity; secondly, to take immediate action to get
a greater movement of hopper and boxcars; and thirdly, to look out
into some of the competitive practices we see on the market presently,
but that is beyond this particular hearing—we will also look into this
with this committee.
155
Mr. C arpenter . Additionally 011 that point. Mr. Chairman, the
farmer is now starting to pay interest 011 the grain that he has under
loan that he is unable to move even though he wants to do so. He has
110 alternative but to hold this grain on his farm and pay interest 011
this loan simply because he cannot deliver.
I11 addition, Senator, one thing we think needs to be brought to the
attention of all of those dealing with this problem is that the farmer
cannot live with the straitjacket of fuel allotments and allocations, be
cause weather and other conditions make it impossible to determine
how many gallons you use to produce so many bushels of grain or farm
so many acres. A farmer may have to work that land twice if the
weather is unfavorable, if weeds or other things warrant it. Because
of an early season, he may require twice the fuel to dry grain or a
commodity, and he can’t predict this even days in advance, and his fuel
cannot be interrupted. If the farmer is drying corn and his fuel sup
ply is shut off, even for a matter of a couple of days, he may well lose
his entire crop. Similarly, if his agribusiness services, his co-op ele
vator and the rest of them are similarly disrupted, the same kind of
consequence will develop, and in this connection most of the drying
firms are interruptible customers. They are low priority on gas and if
this condition worsens they will be cut off without notice, perhaps in
the midst of drying, and will face a very serious situation which will
affect them, the farmer, and the consumer.
And, of course, it goes without saying that this necessity for unin
terrupted service is at least as important with livestock and dairy. We
can’t leave milk without picking it up for a period of 2 or 3 days.
I f these trucks can’t get the gas to go out and pick up the milk, if the
drying plant has to stop—agriculture simply cannot operate either on
a straight allocation or on an interruptible condition. And I mention
this because, when we are talking about allocations, this is fine and
good; the farmer will share in it as far as he can. But his need for fuel
in many instances is such that he has no control over it if he is about to
operate in a practical and effective manner.
Chairman H u m p h r e y . The allocations that are being spoken of,
Mr. Carpenter, are those to the wholesaler and the retailer, and then
there is flexibility within that, what they have for----Mr. C a rp e n te r. But they reflect very directly 011 the farmer and
particularly in the cases of many suppliers whose principal customer is
the farmer. And, therefore, if there is an allocation—a reduction or
even the same as last year—many of the counties here in Minnesota
used less fuel last year because they couldn’t get their crops in. Now,
if their supplier is held to the same allocation this year, they are in
very serious trouble.
Chairman H u m p h r e y . That is particularly true when the Govern
ment has asked the farmers to open up 45 million more acres----Mr. C arpenter . That’s right.
Chairman H u m p h r e y [continuing]. For tractor and plow, for
harvest. I think this is a point, by the way, that we are bringing up in
reference to the bill that is before us in the Senate, and I am pleased
that you have emphasized it because it will be very helpful to us Mon
day when we take up the amendments on this.
Mr. C arpenter . There is one further point I would like to make that
I think is of particular importance and appears to have been unnoticed
99-740— 73------- 11
156
or at least not noticed to tlie degree we consider necessary, and that is
I think we are sitting on a fuel shortage time bomb here with respect
to agriculture in this part of the country. I mentioned that I checked
with this cooperative and he was short or out of fuel, but many of
these local suppliers had been drawing on their allocations 1 month in
advance. This fellow had an allocation for June of 50,000 gallons. He's
already sold and delivered 20,000 gallons of his June allocation, and
when this catches up to us we are in a very serious situation.
There is another factor and that is that many of these farmers were
made aware of the impending shortage and filled their tanks; you fill
200 and 300 and 1,000-gallon tanks throughout the country and you
have a substantial reserve. This reserve has been drained and it is not
being replenished, so actually that reserve is being eliminated, and that
too will catch up to us about harvest time. We will find ourselves where
they cannot continue to draw on their allocation for the month ahead
and they do not have the on-farm reserve, and we will be in a very
serious situation in my opinion.
One further point on that same situation and this involves not just
farming but our rural communities. Out there, many of the institu
tions, churches, schools, State agencies, and others, let their contracts
out on bid, and it is either given to the low bidder or rotated.
Now, many of these local suppliers tell us that their entire alloca
tion will go to the individuals and they will not bid, and when we get
cold weather you will find many schools that will not be getting any
takers on their bids. Therefore this allocation is a part of the disap
pearing supply or the time bomb that is developing, because it is going
and it clouds or hides the shortage that is really out. there. We think
this is a very serious situation and one that will catch up to us when
the cold weather sets in.
In view of these conditions and the things that we arc experiencing,
we think the voluntary situation to date is totally inadequate and in
effective and does not provide either planning or direction. We, of
course, applaud the efforts of the Congress in trying to develop a pro
gram that will give better clarity and understanding and mandatory
direction, and we think the stalling and stumbling1to date is a very
serious condition that must be corrected and that Congress must take
the initiative.
One other thing. We think in looking to the long-range—well, first
to the immediate—we think that one recommendation in addition to
the need for mandatory direction, we believe there is room for the cur
tailment of the use of fuels that are not absolutely necessary. For ex
ample, we believe that the National Guard and reserve training flights
could be very severely restricted. We can go anyplace in this country
and look up and see contrails. Where I live there are four-motored
planes going out nearly every night on practice flights. The Guard is
now going out on summer camp. I believe all of this can be severely
restricted in the interest of making the limited supply of fuel avail
able to more important causes in the interest of our total public.
And then in looking toward the long range, we think if we are
really going to resolve this, our efforts should be toward developing
energy sources in the interest of the country rather than in the inter
est of the present producers of energy, and if we need the initiative of
157
space age activity, we believe it should be for harnessing the energy of
the sun rather than flying to the moon.
I believe that’s all I would have to say other than to express again
our appreciation for the opportunity to speak here and to call atten
tion to what we think is a very serious problem, facing first agricul
ture but secondly the consumer and the whole public.
[The prepared statement of Mr. Carpenter follows:]
P repared
Statem ent
of
Cy
Carpenter
Mr. Chairman, members of the committee, my name is Cy Carpenter. I am
President of Minnesota Farmers Union. On behalf of our members and farmers
throughout this area, we wish to express our appreciation to Senator Humphrey
and this committee for calling this hearing to develop better understanding and
hopefully some corrective direction for a situation that is already serious and one
which if left unchecked, might do serious and irreparable damage to many citi
zens of this state and nation.
It is particularly appropriate that this hearing is being held in a farm and agri
business setting because if this condition worsens, one of the most serious dam
ages to be felt by the citizens of this country would result from the disruption of
agriculture. In this statement, we will not attempt to deal with the forces causing
or contributing to the problem of a petroleum shortage, except to state that we
consider it inexcusable to allow conditions to develop wherein the lives and busi
nesses of nearly every citizen threaten to be seriously disrupted without the plan
ning that could have prevented such a situation, or even foretelling those to be
afflicted that such a threat would be upon them.
As to the conditions facing agriculture in Minnesota at the present time, I am
not aware of any farmers who have actually had to curtail their operations or
been denied fuel supplies to date. I have been advised that a number of suppliers
have been down to a one or two day supply before new supplies arrived, and that
in many instances, supplies were shifted or borrowed to keep farmers operating.
I have also been advised that a number of suppliers have paid a substantial pre
mium to secure petroleum products to meet the needs of their regular customers
when an adequate supply was not available through their regular source. While
this condition does not appear to be a black market type operation as yet, it does
appear such a situation would develop very rapidly if a serious shortage con
tinued for a length of time, and we attempted to rely on voluntary regulation.
While farmers may still be able to secure the necessary supply of petroleum
fuels to meet their needs, those hauling their grain to market can not. We have
received a number of reports of grain haulers that have been unable to get enough
fuel to keep their trucks running and others who have found it impossible to buy
fuel in areas that they did not regularly travel and thus are unable to serve
farmers or elevators who are not on their regular route or where the movement
of their grain involves a portion of the year of operation and thus the service
stations in the area do not recognize these truckers as regular customers. Some
of these truckers have informed us that their suppliers have warned them that
conditions will worsen in July and August. Since that is the time of heavy demand
by agriculture, we are fearful that these warnings might spell trouble for both
farmers and truckers.
With the huge volume of grain still to be moved from farms and elevators and
the totally inadequate service provided to many rural communities by railroads,
it is doubtful if this grain can be moved in time for the coming harvest under the
best of conditions. With grain transports restricted by a lack of fuel, the problem
is magnified for trucker, elevator, and farmer, all three. In addition to an inade
quate supply of fuel, many grain truckers relate an increase in cost of fuel of
approximately 30% within the past year, and the price is continuing to move
upward.
If farmers are to complete a 1973 crop to meet the food needs of this nation and
our commitment around the world, several factors need to be given immediate
consideration and resulting action. First, most farm suppliers have been placed
on an allocation system by their regional or refinery supplier allowing them ap
proximately the same volume that they handled in the past year in an effort to
distribute petroleum products equitably. Farmers simply can not operate effec
tively if they are restricted to a strait jacket of allotments. Weather, crop condi
tions, seasonal variation, and other factors will cause a wide variation in the
158
amount of fuel required to produce a given number of bushels of grain, the tillage
of cropland, harvest and hay, and other farm operations. These variations cannot
be predicted even days in advance.
Second, the farmers’ demand for fuel must be met whenever that demand
arises. His supply can not be by the week, month, or year, but must be available
at all times. If he were to run short of fuel for even a matter of days during
haying, harvest, lifting of sugar beets, or any other time, there is no way that
delay could be made up.
Third, those businesses supporting farming must have the same availability
to fuel supply. The elevator drying his grain, the creamery or dairy plant handling
his dairy products must be able to operate uninterrupted. Any disruption with
these operations would result in very substantial losses, not only to the farmer
or his elevator or dairy plant, but to the consumer as wrell. With farmers
operating on the narrowest of margins, the loss of a crop that could not be
harvested or dried or properly handled, might well cause many farmers to go
out of business.
Of course it should be noted that livestock and poultry operations are at
least as dependent upon a constant supply of fuel and that their losses that
could result from a fuel shortage would be at least as devastating.
Now we would like to call your attention to a situation that we believe
deserves your most serious consideration because it appears to have been yet
unnoticed and could well be a fuel shortage time bomb that might explode
this fall. Earlier we mentioned that many local suppliers were receiving their
fuel on an allocation basis. It now appears that a number of these distributors
are selling their allocation for the month ahead as soon as they receive it in
an effort to meet the needs of their customers and in the hope that the fuel
shortage will lessen and the demand will not increase.
If the supply is further reduced or the demand increased, the suppliers will
be unable to operate on next month’s allocation, and serious conditions will
rapidly develop.
Another condition which it appears might have even greater impact is the
withdrawal by local suppliers from participation in winter fuel needs. In mostrural communities, the schools, churches, courthouses, and many other institu
tions arranged to have several local suppliers bid on their fuel needs, and either
let the contract to the lowest bidder or arrange for a rotation or sharing of
their market. We now know that a number of these local suppliers will use
all of the fuel available to them to meet the needs of their individual patrons
and do not intend to participate in any bidding this fall and winter. When
this happens, many of our local and rural schools and other institutions might
lind themselves completely without a source of fuel to operate their plant. Should
such conditions develop, we are deeply concerned that adjustments and transfer
of fuel could not be made rapidly enough to avoid severe disruption for these
ilocal Institutions and those charged with the responsibility of operating them.
In view of the conditions which have already developed and are a part of
the -problem that w'e face today, and facing a situation which our observations
lead us to believe is worsening, it appears obvious to us that the voluntary
/measures suggested by the administration and the lack of any cohesive planning
/or (direction behind which the public might really provide support are totally
iinadequate and lacking in effectiveness. Further if corrective action is to be
taken before the increasing demand from a fall harvest and the colder weather
add to the problem, such action must be initiated at once. Therefore, we would
recommend that the Congress establish an energy commission that can imme
diately begin an impartial evaluation of our petroleum supply and needs, and
with the authority to require cooperation at every level to properly distribute
our available supply to the most urgent needs for the immediate future and to
take the necessary action to correct the situation for the future.
It is obvious that the problem that we face with respect to the entire petroleum
situation is indeed serious and will need competent leadership and direction as
well as good citizen support. It is equally clear that we have stalled and stumbled
far too long in coming to grips with this problem that must be resolved. While
resolving the problem will certainly require numerous actions on many fronts,
we would like to suggest as one corrective action that could have prompt and
substantial results would be the immediate curtailment of all National Guard
and Reserve training flights that were not absolutely necessary. We would fur
ther suggest that National Guard travel and field activities be severely restricted
throughout the summer in the interest of saving fuel and to encourage similar
restrain from travel and excessive use by individual citizens.
159
Toward the solution of the long range problem of meeting our energy needs,
we believe all space age activities should be directed toward harnessing the
energy of the sun. rather than flying to a dead moon or passing a Venus or Mars
that cannot provide any contribution to the well being of the people on earth.
While we recognize the severity and the size of this problem, wTe have absolutely
no doubt of this nation’s ability to meet its energy needs if given the proper direc
tion. When such direction is demonstrated, we also believe that most citizens will
quickly demonstrate their willingness to cooperate and contribute to the solution.
I can assure you that the farmers will be the first to cooperate. We thank you
for the opportunity to be heard before this committee.
Chairman H u m p h r e y . Mr. Carpenter, you may be interested in
knowing that it’s been estimated that if the Government would cease
its intense bombing of Cambodia with B-52's for 1 week, that the
highest estimated fuel shortages in agriculture could be fully met for
the balance of the year. Now, that’s not an item that has been given a
great deal of publicity but it is a firm estimate; because of the JP jet
fuel that is used in the B-52’s our farmers face all these problems.
Those planes consume it like gluttons, you know—after all, a B-52 is
nothing more than a flying fuel tank with a rack of bombs. That is
really what it boils down to. It has a small crew. One week’s cessation,
total cessation, of the use of B-52’s in Indochina will meet all of the
highest estimated fuel needs of the agricultural economy. Just that
one sector.
Now, if we would stop it for good, I think even our trucks would
most likely have enough. When I spoke of the agricultural economy,
I meant to include the trucks, the dryers, of all of the people that are
involved in agribusiness, because you cannot speak of agriculture and
fuel and just talk about the farmer and the tractor. You have got to
include the elevator, you have got to talk about the dryer, you have
got to talk about the transport system. Otherwise, it doesn’t add up.
Mr. C a r p e n t e r . That’s right.
Chairman H u m p h r e y . I believe our next witness is Mr. Shoemaker,
assistant vice president, operations, Soo Line Railroad. Mr. Shoemaker,
we thank you very much.
Mr. S h o e m a k e r . Thank you, Mr. Chairman, Congressman Fraser.
I, too, have a prepared statement to enter into the record, but in the
interest of time and the people that want to be heard, I will be just
paraphrasing a few pertinent parts of the prepared statement and let
the record speak for itself.
Chairman H u m p h r e y . Thank you.
STATEMENT OF KENT P. SHOEMAKER, ASSISTANT VICE PRESI
DENT FOR OPERATIONS, SOO LINE RAILROAD CO., MINNEAPOLIS,
MINN.
Mr. S h o e m a k e r . My name is Kent Shoemaker. I am assistant vice
president for operations of the Soo Line Railroad Co. Mr. T. R.
Klingel, Soo Line vice president, intended to testify this morning but
a death in his family precluded this. He assisted in the preparation of
this prepared statement, and it has his specific approval.
In 1972 our railroad handled in excess of 50,000 carloads of grain,
79,000 carloads of lumber, and 27,000 carloads of potash, which, as
most of you will recognize, is an essential ingredient of fertilizer for
farm usage; as well as large quantities of pulpwood and woodpulp for
the paper industry in Minnesota and Wisconsin.
160
In 1972, the Soo Line also handled 741,000 tons of Canadian liquified
petroleum gas, an important source of heat for drying grain and for
heating homes in rural areas, as well as for industrial purposes.
In the 12-month period, May 1,1972, to April 30,1973, the Soo Line
used approximately 34.7 million gallons of diesel fuel oil as well as
additional quantities approaching 700,000 gallons of heavy No. 6B oil
and heating oil. The Soo Line basically contracts for fuel on a yearly
basis or has done so in the past for the period of June 1 through May 31
of each year.
I have a list of specific suppliers and delivery points in my prepared
statement which I won’t belabor here. The important thing is that the
total of these quantities supplies our railroad with approximately 32
million gallons of diesel fuel annually.
That is based upon last year’s activity. For the next year, which be
gan this June 1, we only have firm commitments for 15.8 million gal
lons roundly, although there are verbal commitments which we think
will be honored and which will go beyond that.
The point is this shows how tight the situation is, because we are
already into what we consider our next contract year and haven’t
even had firm commitments for one-half of our fuel oil.
We have oil quotations from American Oil for 14.6 million gallons
to be delivered at 11 points. Over and above these committed contracts
and within the last 3 days, American Oil has indicated orally that it
will probably supply an additional 3 to 6 million gallons, depending
upon the application of a formula Amoco is now developing, which
we understand is partially based on the allocation program ad
ministered by the Department of Interior; thus, assuming Amoco
enters into binding agreements as to all diesel fuel contracts now being
negotiated with that company, the Soo Line will have commitments
for approximately 35 million gallons. With this and an additional 1.5
million gallons that we hope to obtain from local sources, we have
some hope of covering our expected requirements.
Of course, all of these basic fuel oil supplies contracted for or locally
purchased assume the basic availability of oil, and the contracts so
state; so they are not contracts in a binding sense.
Chairman H u m p h r e y . And about one-half of those at this stage,
as I understand it from your testimony, are now oral.
Mr. S h o e m a k e r . That’s correct.
Chairman H u m p h r e y . Y ou consider them to be reliable but these
as of yet have not been finalized; is that correct ?
Mr. S h o e m a k e r . That is correct. It is our best estimate that in the
period of June 1,1973, to May 31,1974, we will need at least 37 mil
lion gallons of No. 2 diesel oil, which is an increase of about 7 percent
over the previous year’s usage, which interestingly fits in with the
figures that have generally been talked about for the economy of this
area.
We have storage facilities for only a 25-day supply, but during the
threatened shortage last winter our company’s inventory fell to a 10day supply, and at certain points the Soo ran out of fuel altogether,
but fortunately we were able to secure emergency supplies from local
suppliers. Because our locomotive horsepower is kept at a minimum,
fuel shortages will require service cuts in areas where traffic density
is the lightest. Unfortunately, this is the case on many branch lines
161
where the only possible cut in service would require temporary re
moval of trains. Rural, lightly populated areas would be seriously
affected because service cuts cause inefficient use of our car supply.
It will also be necessary to cut switching service to conserve fuel, and
industry will be adversely affected.
Chairman H u m p h r e y . That would affect your boxcar movement as
well?
Mr. S hoem aker . Very much so, sir. As a result of curtailed railroad
service, employees’ earnings would be adversely affected and sustained
shortage would result in furloughed employees.
I would also like to point out that the threatened fuel shortage and
reliance on Canadian oil supplies, which is a part of the contracts
in which the Soo is dealing with local suppliers, will greatly increase
our fuel costs, decrease our net income and restrict our ability to in
crease our car and locomotive fleet and maintain and rebuild our road
facilities. We anticipate that our fuel costs may increase by 25 to 30
percent. This reflects a lesser percentage than stated in the communica
tion you received from Mr. Manion. The reason for that is that the Soo
is comparing prices to the contract year just completed, and what has
really happened is that we have already incurred substantial increases
in fuel prices from local purchasers during the past year, and that is
the reason for the difference in the figures. Otherwise, they come out
close to the 50 percent that Mr. Manion indicated as the national figure.
Our position with respect to the voluntary programs is that, if they
fail to protect our fuel supplies, compulsory controls should be adopted.
That in summary is what I had to say this morning and I appreciate
the opportunity to be here and your thoughtfulness in hearing our
storv.
[The prepared statement of Mr. Shoemaker follows:]
P repared
St a t e m e n t
of
K
ent
P.
Sh oem aker
My name is Kent P. Shoemaker. I am Assistant Vice President, Operations, of
the Soo Line Railroad Company and have been employed by the company since
1965. Mr. T. R. Klingel, Soo Line Executive Vice President intended to testify
but his mother-in-law’s funeral is being held today. He assisted in the prepara
tion of this statement, and it has his specific approval.
My offices are in the Soo Line Building at Minneapolis, Minnesota. I have
general supervision, under Mr. Klingel, of Soo Line’s transportation operations.
I am familiar with the transportation requirements of our territory, our locomo
tive fuel requirements and with problems which have arisen in connection with
threatened oil shortages.
Our Company operates approximately 4700 miles of railroad reaching from
Eastern Montana throughout the Dakotas and Minnesota to the grain markets
in the Twin Cities and Duluth-Superior. Our lines also extend from Duluth and
the Twin Cities easterly to Sault Ste. Marie, Michigan and southerly to Mani
towoc and Milwaukee, Wisconsin and to Chicago, Illinois. Approximately 2500
miles of our railroad are largely devoted to the transportation of grains to
terminal elevators and beyond. In 1972 the Soo Line had approximately 5100
employees and a payroll of $65,420,000.
In 1972 we handled 50,279 carloads of grain, 79,000 carloads of lumber, 27,000
carloads of potash (an essential ingredient of fertilizer for farms) and large
quantities of pulpwood, wood pulp and paper for the important paper industry
of Minnesota and Wisconsin. In 1972 the Soo Line also handled 741,132 tons of
Canadian liquified petroleum gas, an important source of heat for drying grain
and heating homes in rural areas and for industrial purposes.
The Soo Line has a fleet of 216 diesel electric locomotives with eight more on
order. It is our policy to be as economical as possible in assigning horsepower
to trains, and locomotive unts per train are kept at an absolute minimum, with
resulting efficient use of fuel oil.
162
It has also been our policy to obtain delivery of fuel at various points on our
system. Threatened fuel shortages at particular points tend to defeat efficient
distribution because oil must be moved from system areas where it is available
to points of threatened shortage.
In the twelve month period between May 1, 1972 and April 30, 1973 the Soo
Line used approximately 34,695,000 gallons of diesel fuel oil. Also, approximately
700,000 gallons of heavy number 6B oil and heating oil were used during the
1972-1973 season.
It has been the Soo Line’s practice to enter into fuel oil contracts each year
to cover the period from June 1st to the following May 31st. Oil company quota
tions are generally subject to reservations that quantities to be delivered are
subject to change in the event of crude oil shortages, interference of civil au
thority, compliance with orders, requests or recommendations of governmental
authorities or other causes beyond the suppliers’ control.
For the period between June 1, 1972 and May 31. 1973, Soo Line’s fuel oil
“contracts” covered 31,820,000 gallons of diesel oil. The major suppliers were as
follows:
Location
Schiller Park, Waukesha...................... ...
North Fondulac, Neenah, Stevens Point
...
Gladstone........................................ ...
Marquette............................. ........ ...
Soo Yard......................................... _
Superior......................................... ...
Bismarck, Hankinson.......................... ..
Enderlin, Portal, Rhinelander................ ...
CF Yard, Glenwood, TR Falls................. ._
Shoreham....................................... ...
Ashland............................................
Vendor and location
American Oil, Whiting, Ind...................................
American Oil, Whiting, In d ..................................
American Oil, Escanaba, Mich...............................
American Oil, Escanaba, Mich...............................
American Oil, Sault Ste. Marie, Mich.......................
American Oil, Superior, Wis..................................
American Oil, Mandan, N. Dak..............................
American Oil, Mandan, N. Dak..............................
Koch Refining, Roseport, Minn...............................
Conoco Oil, Minneapolis, Minn.. ............................
Murphy Oil, Superior Wis.....................................
Gallons
per year
6.050.000
4.885.000
1, 560,000
800,000
560.000
1.750.000
110.000
3.155.000
5.090.000
7.160.000
700,000
31,820,000
Total.....................................
In addition, in the same period we purchased 2,800,000 gallons from local
sources at various points.
As to our diesel fuel requirements for the year ending May 31, 1974, we only
have firm contracts described below :
Location
Marquette...................................... ...
Superior, CF Yard, Stevens Point........ ...
Ashland, Shoreham, Glenwood, Harvey
...
Minot, Portal................................... ._
Shoreham...................................... ..
Total....................................
Vendor and location
Murphy Oil, Marquette, Mich...............................
Murphy Oil, Superior, Wis...................................
Koch Refining Co., Roseport, Minn..........................
Westland Oil, Williston, N. Dak.............................
Conoco Oil, Minneapolis, Minn.............................. ..._
Gallons
per year
690.000
.2,020,000
5,040,000
886.000
7,160,000
15,796,000
We have oral quotations from American Oil Company (Amoco) for 14.598,000
gallons to be delivered at eleven points. Within the last three days Amoco has
orally indicated it will probably supply an additional three to six million gallons
depending upon the application of a formula Amoco is now developing which we
understand is partially based upon the voluntary allocation program administered
by the Department of Interior. Thus, assuming Amoco enters into binding agree
ments as to all diesel fuel contracts now being negotiated with that Company,
the Soo Line will have commitments for approximately 35 million gallons; this
with approximately 1,500,000 gallons we hope to obtain locally would cover our
expected requirements.
I would like to point out that Soo Line’s supplier, the Koch Refining Company
of Roseport, Minnesota relies heavily on Canadian crude oil. This source may be
cut off at any time because of increasing Canadian government reluctance to
increase exports of crude oil and refined products to the United States; and the
Soo Line’s oil supply would be decreased by 5,040,000 gallons, assuming all other
suppliers fulfill their “contract” commitments.
163
Our Purchasing Department has also been negotiating with the Imperial Oil
Company of Regina, Canada for approximately 5,100,000 gallons of diesel oil for
delivery at Hankinson, North Dakota and Thief River Falls, Minnesota. At this
time we have no assurance that this supplier will give us a quotation; and, as
stated above, the supply of Canadian oil may not be dependable.
It is our best estimate that in the period June 1,1973 to May 31, 1974, we will
need at least 37,000,000 gallons of # 2 diesel oil, wrhich is an increase of about
7% over the previous year’s usage.
We have storage facilities for a 25 day supply of fuel, but during the threat
ened shortage last winter our Company’s inventory fell to a 10 day supply. At
given points the Soo Line ran out of fuel altogether but fortunately we were
able to secure emergency supplies from local suppliers.
Because our locomotive horsepower use is kept at a minimum, fuel shortages
will require service cuts in areas where traffic density is the lightest. Unfortu
nately, this is the case on many branch lines where the only possible cut in
service would require temporary removal of trains. Rural, lightly populated areas
would be seriously affected because service cuts cause inefficient use of our car
supply. It will also be necessary to cut switching service to conserve fuel, and
industry will be adversely affected. As a further result of curtailed railroad
service, employees’ earnings would be adversely affected and sustained shortage
would result in furloughed employees.
In the past year or more, reduced grain rates have been in effect in North
Dakota and Minnesota. These reductions were made possible by tariff rules
which require rapid loading and unloading of grain cars. The tariff’s purpose
was to increase car supply by making rapid turn-a-round possible. If fuel short
ages develop which deprive the railroads in our territory of the ability to move
cars immediately when loaded or empty, the beneficial arrangement which per
mits reduced rates and improved car utilization will be defeated.
I would also like to point out that the threatened fuel shortage and reliance
on Canadian oil supplies will greatly increase our fuel costs, decrease our net
income and restrict our ability to increase our car and locomotive fleet and
maintain and rebuild our road facilities. We anticipate that our fuel costs may
increase by 25 to 30%.
The fuel used in railroad diesel-electric locomotives is type #2, a type widely
used for farm tractors, motor trucks and home heating. As a result, the rail
roads must compete for fuel with other groups, and a sound program is essential
to assure the railroads the fuel necessary to operate. The railroad industry is
one of the most efficient users of fuel, and it is in the best interests of conserva
tion and the public that the railroads acquire the highest priority to assure full
use of their inherent efficiencies and advantages.
If voluntary programs fail to protect our fuel requirements, it is the position
of our Company that compulsory controls should be adopted.
Thank you. I appreciate the opportunity to appear here today and to advise
you of the effects of fuel oil shortages on the operation of our railroad.
Chairman H u m p h r e y . The Soo Line has a vast service network in
the rural areas, doesn’t it ?
Mr. S h o e m a k e r . Yes, we are really a rural railroad and really a
“granger-built” railroad, so the Soo is very vitally concerned with the
agricultural business, particularly in western Minnesota and North
and South Dakota. This is part of our concern with respect to the
fuel shortage. If, on a day-to-day basis, fuel supply shortages result
in our actually curtailing operations, there is only one thing we can
really do. We have got to move the maximum amount of tonnage and
hurt the fewest people possible. This results not necessarily in a good
economic decision but in a choice that restricts the branch lines be
cause we just don’t have any other choice.
Chairman H u m p h r e y . Yes. I think something is wrong with many
of our calculations, and I just want you to think about this for a
minute. As I see it, our gross national product on a real basis— after
the inflation is taken out—is growing. The volume of goods and serv
ices is expanding this year, fortunately, as is shown by Government
revenues. In the agricultural sector, as I said to Mr. Carpenter awhile
164
ago, we are opening up a lot of acreage, 45 million acres, 6 million
more acres of soybeans, largely in Minnesota and IowTa, needless to
say, this belt down through the Midwest.
This is very important, and we are also in the northern part of our
State and, of course, in the Dakotas, opening up hundreds of thou
sands more acres of wheatland. The whole idea now has been to in
crease production, because we think there is a great export demand.
Now, if you have got export demand, you have to move it. You have
got to get it to the ports, and I am afraid that the fuel estimates
that have been made have not given adequate consideration to the
additional production that will come from the expanded production
capacity, particularly in the agricultural sector. I guess it is 45 mil
lion more acres of feed grains, of wheat and soybeans and corn. That
is a lot of acreage, and if we should happen to get anywhere near a
good crop, knowing already that we are not able to move much of
what we presently have, a line like the Soo Line without adequate
fuel would just be in one real tough fix, wouldn’t it ?
Mr. S hoem aker . Very much so. Another aspect of the situation
railroads operating solely in this area, like the Soo, is that we do not
have the variety of alternatives for bringing fuel in from other parts
of the country. And it is a very serious situation. Our sources of supply
are basically Chicago, through the Twin Cities, Superior, and North
Dakota points.
Chairman H u m p h r e y . Eight.
Mr. C arpenter . One quick point on that, Senator, those 45 million
acres are also disproportionately heavily located in the upper Midwest.
Chairman H u m p h r e y . Right.
Mr. C arpenter . That is not distributed around the Nation. Most
of that will be right here in the upper Midwest States.
Chairman H u m p h r e y . Mr. Olsen is our next witness. Mr. Olsen is
the assistant general manager of the Minneapolis Metropolitan Transit
Commission.
STATEMENT OP LOUIS B. OLSEN, ASSISTANT GENERAL MANAGER,
TWIN CITIES AREA METROPOLITAN TRANSIT COMMISSION,
MINNEAPOLIS, MINN.
Mr. O l s e n . A s you know, Mr. Chairman, Congressmen, the Metro
politan Transit Commission operates the publicly owned transit system
here in the Twin Cities area. We currently operate 710 buses, 698 of
which are diesel fueled, and 12 of which are propane fueled. We
currently have a route system of 921 miles of regularly scheduled
service. We project to operate in excess of 19 million bus-miles during
the calendar year of 1973 and to provide 60 million passenger trips
during calendar 1973, or approximately 1.15 million passenger trips
per week.
Chairman H u m p h r e y . Y ou know, Mr. Olsen, when I first heard
that figure, I insisted to a member of my staff that he was totally
misinformed. I said, “Look, we have got enough trouble around here
without you coming and feeding me a lot of that stuff.” But by golly,
he was right. I take it from you. I had a big family argument in
Washington yesterday about this.
165
Mr. O l s e n . Mr. Chairman, since 1959, the Standard Oil Division of
American Oil Co., had supplied diesel fuel to the Twin City Lines,
Inc., which was a private company, and in 1970 when the metropoli
tan transit commission acquired the private company, Standard con
tinued to supply fuel by bid and contract arrangement.
The 1-year contracts with Standard Oil begin June 1 and expire
May 31, as I have heard at the table here this morning is the case
in other instances, too, apparently. In 1971 the metropolitan transit
commission received five bids for diesel fuel ranging in price from
11.6 cents per gallon to 14.3 cents per gallon. In 1972, there were but
two bidders, Standard Oil at 11.88 cents per gallon, which was the
low bidder.
Throughout the past years, diesel fuel supplies were never in doubt.
However, on January 5, 1973, Standard advised us, the metropolitan
transit commission, that due to an extreme shortage of No. 1 grade
diesel fuel, beginning immediately, they would be supplying the com
mission with Amoco premier diesel fuel, which is a mixture of No. 1
and No. 2 diesel fuel.
The very next day, on January 6, 1973, Standard advised the com
mission that until further notice they would be delivering to the com
mission only 75 percent of a month’s portion of the current annual
contract amount. The contract provided for the delivery of 4,676,000
gallons annually. One-twelfth of that amount would be 389,666 gal
lons, and 75 percent of that monthly quantity amounted to 292,000
gallons, or a shortage of 97,000 gallons per month.
Realizing that the commission would face a shortage of approxi
mately 100,000 gallons during the month of January and that such
shortages would be likely to persist, a thorough search of the local
market was made in an effort to find a source of at least that amount.
This search yielded but 7,000 gallons from one local supplier. During
the days that followed, contacts were made with State and Federal
officials and with officials of the major transit industry group, the
American Transit Association, and a thorough search was made in
various market areas throughout the United States in an effort to
obtain commitments for the necessary quantities of fuel.
It is interesting, if not ironic, that during this period of our search
for diesel fuel, preparatory to shutting the bus system down, a gas
war was in full swing in the Richfield suburban area of the Twin
Cities.
Chairman H u m p h r e y . We can always find resources to fight, can’t
we?
Mr. O lsen . While this search yielded no tangible results, working
with Minnesota Governor Wendell Anderson’s office, and I might add
Mr. Erchul’s office, we were able to locate a supplier in Canada and
on January 18, 1973, purchased 270,000 gallons of No. 1 Canadian
diesel fuel at 16.75 cents per gallon. By the way, our contract price
at that time was 11.88, excluding transportation.
Since the fuel purchase was f.o.b. the refinery located at Regina,
Saskatchewan, Canada, it involved transporting the fuel by tanker
truck from Regina to Winnipeg via the Trans-Canada Highway and
from Winnipeg to the Twin Cities, thereby raising the actual cost of
the diesel fuel to the metropolitan transit commission to 30.78 cents
per gallon.
166
The first deliveries of the Canadian fuel took place on January 20,
1973, and they continued until February 12,1973.
Chairman H u m p h r e y . I have got to interrupt you. Just the other
day, the radio station up at Retina, Saskatchewan, called my office
and wanted me to do a half-hour interview with them. I thought, why
should I be interested in doing a half-hour interview up there in
Saskatchewan. I was waiting for a Minnesota radio station to call me.
And I told one of my people in the office, you tell them if they will
promise us this winter in case we are in another jam on fuel, that
they will see to it that they have a reserve supply—because I knew you
had been up there a year ago—I will do the half-hour broadcast. They
called back and said they would cooperate, so I want you to know we
have got a little plug in there in case you need it. No votes in
Saskatchewan, though.
Mr. O lsen . On January 23, the metropolitan transit commission
purchased an additional 100,000 gallons of No. 2 diesel fuel at 16.55
cents per gallon and made arrangements to store the fuel locally at
a cost of three-quarters cents per gallon for loading and unloading
the fuel and storage and for the first month. Fees for storage after
the first month are charged at the rate of one-quarter cent per gallon
per month.
The 270,000 gallons purchased and transported from Canada to
gether with the 100,000 gallons purchased locally created an addi
tional cost to the metropolitan transit commission, and I might add the
taxpayers of Minnesota, of $57,994 for the 370,000 gallons.
In late April, the metropolitan transit commission solicited bids
from all major and independent supplier's for diesel fuel and petroleum
products for the new contract year beginning June 1,1973. The solici
tation elicited no bids for the 24,000 gallons of gasoline needed, and
only one bid for diesel fuel, that from the metropolitan transit com
mission's present supplier, Standard Oil, who bid but 3,738,000 gallons
of the 5 million asked for in the bid specifications. In addition, the
bid was for Amoco premier diesel, a mixture of No. 1 and No. 2
diesel, not No. 1 diesel as asked for in the specifications. The price
rose from 11.88 cents per gallon under the 1972-73 contract to 14.9
cents, a 25-percent increase, and the bid contained the following
clause:
The prices and/or quantities set forth herein are subject to revision by seller,
at its option, at any time or times, on 10 days written notice to buyer of each
subject revision.
Standard’s diesel fuel bid of 3.7 million gallons amounted to 70
percent of the metropolitan transit commission’s requirement for
the 1-year period beginning on June 1, 1973. On May 9, 1973, we
were advised by Standard Oil that beginning immediately, all of
Standard’s customers, including the metropolitan transit commis
sion, would be placed on a monthly allocation basis; that is, they
would receive one-twelfth of the 1-year contract amount each month,
instead of delivering fuel on a keep-full basis as has been the practice
in the past.
Since the contract amount was more than a million gallons short of
consumption, the metropolitan transit commission would be forced
to locate, transport, and store additional fuel each month.
167
In addition to the 25 percent increase in diesel fuel costs, bids for
petroleum products resulted in the following cost increases: heavyduty motor oil, a 40 percent increase; hydraulic transmission fluid, a
20 percent increase; lithium grease, a 28 percent increase; and gear
lubricant, a 13.1 percent increase.
Chairman H u m p h r e y . D o you get those items from Standard ?
Mr. O l s e n . N o , we do not, Mr. Chairman.
Chairman H u m p h r e y . Who is the major supplier for those oils?
Mr. O l s e n . Continental Oil Co. was the low bidder.
Chairman H u m p h r e y . Continental Oil.
Mr. O l s e n . Immediately after the opening of the bids for diesel
fuel and petroleum products, a local and national search was again
initiated in an effort to locate the 1.3 million gallons of diesel fuel
required to operate the bus system for the 1-year period beginning
June 1973.
We were unable to find any local suppliers that could meet our needs
for the coming year. However, we were able to obtain 22,000 gallons
of No. 2 diesel fuel at 15.5 cents per gallon from one local supplier,
and 7,000 gallons of No. 1 diesel fuel from another local supplier at
19.3 cents per gallon.
We also contacted fuel suppliers in other market areas, each with
its own peculiar problems of transportation. Our experience with the
Canadian fuel in January and February had made us highly conscious
of the major role of transportation expense in the actual cost of fuel
from alternate sources. Accordingly, we initially concentrated our
efforts in market areas accessible by river barge.
However, delivery of any substantial quantity of fuel presents yet
another problem, that of storage. Lacking massive storage facilities
of its own—the Metropolitan Transit Commission, by the way, has
a total storage for 68,000 gallons or slightly less than 4 days’ supply—
the Metropolitan Transit Commission would still be required to obtain
the use of large tanks if the supply and transportation problems had
been overcome. Storage would have added yet another element to the
cost, as was the case with the 100,000 gallons of No. 2 fuel purchased
in January.
Mindful of these complexities, our experience in these distant mar
ket areas was as follows:
MOBILE, NEW ORLEANS, HOUSTON, AND GALVESTON
Unable to locate diesel fuel in any one of these markets, brokers
advised that No. 2 diesel fuel is available in very large quantities (4-5
million gallons).
Prices quoted in these areas range from 16 cents to 17 cents per
gallon plus transportation from the point of purchase to the twin
cities.
River barges for hauling fuel are in short supply having been
leased well in advance and the Mississippi River just reopened after
having been closed for 4 weeks by flooding downstream.
Storage for any large quantities of fuel continued to be a very seri
ous problem.
168
ST. LOUIS AND JOLIET
No fuel identified or apparently available at this time.
Latest price quoted for fuel in these areas was 16.8 cents per gallon
plus transportation.
Storage problem.
TULSA, OKLAHOMA CITY, WICHITA, DALLAS, AND FORT WORTH
No fuel identified or apparently available at this time.
The latest price quoted was 16 cents to 18 cents per gallon plus
transportation.
Same problem of storage.
CANADIAN SOURCES
No fuel identified or apparently available at this time.
Latest price quoted was 18 cents per gallon. West Canada, and 19
cents per gallon, East Canada, plus transportation (We paid 16.5 cents
per gallon plus transportation for fuel purchased in Canada during
the month of January, 1973).
Chairman H u m p h r e y . I notice that from Canadian sources and your
Oklahoma and Texas sources, you are running 16 to 18 cents per gal
lon plus transportation, and in Canada 18 cents per gallon from West
Canada, 19 cents per gallon from East Canada, plus transportation.
Mr. O l s e n . That is correct.
Chairman H u m p h r e y . As compared to a year ago of what ?
Mr. O l s e n . I think we paid 16.75 in Canada when we purchased
the fuel from Imperial Oil.
Chairman H u m p h r e y . And what were you paying in Wichita, Okla
homa City, Dallas, Fort Worth ?
Mr. O l s e n . O f course, Mr. Chairman, we had Standard as our
supplier at 11.88.
Chairman H u m p h r e y . 11.88.
Mr. O l s e n . At this same time, a contingency plan for service cuts
was being prepared in anticipation of the possibility that we would
be unable to locate adequate fuel supplies. It appeared that we would
only be able to operate full service through the third week in July. If
fuel was not found by the end of June, we had the alternative, how
ever, of making service cuts the first of July in order to operate essen
tial rush hour service through that entire month. Two plans were de
veloped, both of which involved elimination of service on Saturdays,
Sundays, evenings after 6:15 p.m., and some mid-day service on
weekdays.
During the week of May 20, 1973, Senator Humphrey’s office was
contacted for assistance in connection with the voluntary system of
fuel allocations, and this past Wednesday morning, May 30, Senator
Humphrey or his office advised the Metropolitan Transit Commission
that his office, together with the Office of Oil and Gas in the TJ.S. De
partment of Interior, had obtained an agreement from Standard Oil to
provide the Metropolitan Transit Commission with its full needs for
the coming contract year.
Aside from providing for the continued full service operation, the
agreement with Standard obtained by Senator Humphrey’s office
169
and the Office of Oil & Gas resulted in an annual savings of at least
$255,000 for the 1-year period, based on our estimate that diesel fuel
would, in all likelihood, have a cost of 30 cents or more per gallon, if
in fact we were able to locate a supplier, transport it, and make ade
quate storage arrangements.
The commitment of the Metropolitan Transit Commission to the
purchase and transportation of 270,000 gallons of diesel fuel in early
January 1973 was obviously a vital step to the continuation of transit
services at levels required to meet the needs of metropolitan area
residents.
Any curtailment of transit service would have had several tragic
effects. It would have created enormous hardships for passengers hav
ing no alternative means of travel. It would have increased auto usage,
thus further increasing gasoline shortages. Perhaps most importantly,
it would have greatly undermined the Metropolitan Transit Com
mission’s successful efforts of the past 2% years to increase transit
ridership, which had been on the decline for more than two decades.
For these reasons, it was inconceivable that the transit needs of a
metropolitan area of more than 1.5 million people should not be
served for lack of adequate fuel supplies.
Our efforts over the past month to locate diesel fuel have convinced
me that, for whatever reason, there is presently an extreme shortage
of petroleum fuel supplies in this as well as other areas of the United
States.
Chairman H u m p h r e y . Is this the kind of information that you are
getting from others with whom you visit and talk in the trade, so to
speak ? I mean in your work ?
Mr. O l s e n . It is indeed, Mr. Chairman. As a matter of fact, I think
there was an article in the St. Paul newspaper here just the other night
that explained that 30 transit systems around the United States had
not received bids and that 2 were seriously considering substantial
curtailment of service.
In my discussions with fuel suppliers, I have been led to believe that
there will be even greater shortages in this coming winter. If this is
true, these shortages will, in all likelihood, have an adverse effect on
those industries and service agencies most essential to the well-being
of the general public.
With this in mind, I would urge an immediate and thorough anal
ysis of the effectiveness of the voluntary system of fuel allocations,
especially as that system relates to established priorities.
I would further urge, if at any time it appears that the voluntary
approach is not achieving results consistent with the best interests
of the public, that these priorities be made mandatory.
Chairman H u m p h r e y . Thank you very much, Mr. Olsen. That is a
very helpful statement. The information you have given on other
transit systems is extremely helpful right now because we Senators
are beginning to get the same kind of documentation in our respec
tive offices. I noticed the other day that some of my colleagues from
Ohio were getting the same kind 'of information that you presented
here with reference to their transit systems.
Now, we are going to kind of give a little variety here. Mr. Thorfinnson, you are with the National Car Rental ?
170
Mr. T h o r f in n s o n . That is correct.
Chairman H u m p h r e y . And you and I have been together before. I
thought this would kind of give us a little broader dimension of the
problem, and maybe you can take a few minutes here, and any state
ment you have prepared well include in the record.
STATEMENT OF ROSS L. THORFINNSON, PRESIDENT AND CHAIR
MAN OF THE BOARD, NATIONAL CAR RENTAL SYSTEM, INC.,
MINNEAPOLIS, MINN.
Mr. T h o r f in n s o n . Thank you. Senator Humphrey, Congressman
Fraser, I am chairman of the board and president of National Car
Rental System. I also happen to be a national director of CATRALA,
which is our association for the car and truck rental and leasing
industry.
The National Car Rental System has already written you, Senator
Humphrey, and other Senators and Congressmen urging action to
alleviate the fuel energy crisis. In that letter we explained the public
nature of the transportation services provided by our industry and
the importance of fuel to our industry and it/s very survival.
My purpose today is to explain briefly the current impact of the
fuel energy crisis on our industry as a result of the events of the past
G weeks. The specific experiences of National Car Rental are typical
of those the industry is facing. This impact has been primarily an
economic one, since I know of no instance yet where weVe been unable
to rent or lease a car or truck because of lack of fuel.
The economic impact has resulted from increases ranging generally
between 30 percent and 50 percent in the price of our bulk fuel pur
chases. In some cities no major oil company has been willing to bid on
our fuel needs. In those situations we are buying on an individual lot
basis from independent bulk suppliers at prices that add as much as
TOpercent to our fuel costs. In situations of extreme shortage we sup
ply a quarter of a tank of gas to rental customers in our automobiles
and ask them to buy gas at the first available retail station.
In virtually every city, when our present fuel contracts expired our
present suppliers have refused to bid on a renewal of the contract.
Other major oil companies, if they submit bids, substantially increase
the price virtually to the retail pump price level and require escalation
clauses for any upward fluctuation in the bulk oil market price. These
excessive increases in fuel costs coupled with the substantial increase
in consumption of fuel by the 1973 model automobiles will produce,
major cost increases for our industry.
When, we talk about allocations, whether mandatory or voluntary,
we are faced with the very unique problem that. No. 1, our company at
least has been growing very rapidly. Our needs are expanding every
year. Rut our needs for fuel have been compounded this year bv
the emission control devices that are being put on the cars, so that as
we try to operate current model cars to provide quality transportation
service to customers, we’re needing 17 to 20 percent more gas this year
just to operate the same number of miles that we operated last year*.
This is true even supplying smaller cars in our fleet than was custom
ary in prior years.
171
We urge that Congress take every appropriate step to minimize the
fuel energy crisis, to insure long range development of fuel resources
and, very importantly, to prevent the oil industry from profiteering at
the expense of the American public and other American industry dur
ing the present emergency.
Now, in the prepared material that I will give you in connection
with the short remarks that I made, there is a detailed analysis of a
survey that we’ve made, city by city, of our operations—what is hap
pening in our attempts to renew contracts, which companies are re
fusing to bid, what is happening on the bids we do get, so that you will
have that detail. If you desire more, we have the individual work
paper’s that back up the summaries that are in here and we will make
those available.
Chairman H u m ph r e y . That will be very helpful and we appreciate
it and it will be incorporated as part of our record at this point.
[The information referred to above follows:]
N a t io n a l C ar R e n t a l B
u l l e t in ,
April 2, 1973.
Subject: National Car Rental—Energy Crisis, Fuel Shortage.
The reality of a fuel shortage during the coming months is cause for real
concern. There are many opinions and ideas about why? what to do? who should
do it?, etc.; therefore, this letter of clarification.
At the outset, permit, me to state that the problem is real and will not improve
unless ice, you and I, do something about it. I have enclosed a sample of the letter
we have directed to our Senators and Congressmen.
Presently we are importing 20% to 30% of our fuel needs. Increased demand
is mainly due to more miles traveled and this is increasing dramatically. The
total mileage rolled up by U.S. motorists in 1070 is one trillion, 125 billion miles—
the equivalent of more than two million trips to the moon and back. (Source—
Auto Dealers Traffic Safety Council). We suggest that you make contact with
your State and Federal legislators and give them your personal views on
the problem.
Someone has said that: No king has ever commanded as much power as a
nickle pencil in the hands of a citizen of the U.S.A. when he writes his congress
man.”
Write, in your own words, tell them of your concern for fuel shortage, the
necessity of lifting import quotas, how you feel personally. All I c>m tell you
is you can do more as individuals than we can as a company, so write.
Should you require help, call or write Vince Abramson, Vice President, Gov
ernment Relations.
V in c e A b r a m so n .
P.S.—When the shortage or rationing is implemented, don’t say you were not
aware of the seriousness of the problem !
N a t i o n a l C a r R e n t a l S y s t e m , I n c .,
Minneapolis, Minn., April 2,1973.
Re Energy Crisis and the Car Rental Business.
Hon. C l a u d e S. B r in e g a r ,
Secretary of Transportation,
Washington, B.C.
D e a r Sir : A matter of primary concern to businessmen and citizens throughout
the United States today is the existing and rapidly accelerating energy crisis.
Our entire industry is fully dependent on available petroleum fuel supplies for
its very existence. This fact, as wTell as our concern for the future of our country,
is behind our writing you at this time urging immediate action to take the most
effective steps possible to minimize the energy crisis.
We believe that in the long run, it is absolutely essential that our domestic
producers develop the capability of supplying our petroleum fuel needs from
domestic sources. That deregulation of artificial price controls at well head be
99-740— 73------- 12
accomplished in order to encourage oil producers to accelerate domestic supplies.
Our import oil policies have presumably been designed to achieve this goal. In
spite of this, however, it is readily apparent that very little capital has been
invested domestically in exapnding our crude oil supplies. In addition, serious
opposition from ecologists has retarded efforts to utilize available off-shore and
Alaskan oil supplies.
Although we subscribe to the above long-range objectives, until such time as
they become more viable, we believe it is in the best interests of our country, as
well as our own selfish interests in surviving as an industry, that immediate
steps be taken to lift the oil import restrictions and to permit sufficient residual
fuel oils and petroleum products to be imported so that the present energy crisis
can be minimized. Effective steps should be taken to insure that our domestic
sources will be developed as soon as their development is economically and
ecologically feasible.
In order to acquaint you with the needs of our industry, we believe it would
be helpful to provide you with some basic facts about the car and truck rental
and leasing industry.
The car and truck rental and leasing industry provides commerce, industry
and the traveling public economical, trustworthy mobility unequaled in any
society. With the advent of the jet aircraft, the interstate system and our urban
society, as well as the diminishing capabilities of the railway industry which is
currently so widely reported in the public press these days, the car, truck and
one-way rental has become a way of life. With more than half of the U.S. popula
tion licensed drivers and the rental industry growing at better than 20% per
year, petroleum is crucial.
CAR RENTAL FACTS
1. About 85% of the car rental business is transacted on airport locations, to
businessmen for business reasons and to tourists flying to their vacation destina
tion and renting automobiles there to avoid driving from their homes to ultimate
destination locations.
2. Car Rental is high-quality, flexible and economical.
3. Car Rental conserves energy, since renting is for essential business and
fly/drive vacation use.
4. Car Rental provides additional mobility for emergency, alternate, or sub
stitute transportation.
5. Our urban society demands rent-it-here/leave-it-there flexibility so necessary
in today’s changing attitudes.
truck
rental and
l e a s in g
1. Truck Rental provides industry and the consumer economical direct service.
2. Industry figures support a better than 20% yearly growth.
3. Since rail service is being deleted in many communities, trucks are abso
lutely essential.
4. Population and migration statistics indicate sudden and dramatic changes
in our society. Truck and trailer rentals meet this need.
5. Trucks accounted for 430 billion ton miles in 1971, 22.3% of total registered
ton miles by all forms of transportation. (American Trucking Association)
It is our firm conviction that unless positive action is taken now to assure that
recently relaxed restrictions on oil imports will be a continuing policy as well
as affirmative action to accelerate domestic production, then we as a nation will
be in very serious difficulty this year.
Respectfully yours,
Ross L. T h o r f i n n s o n ,
Chairman of the Board and President.
V in c e A
bram son,
Vice President, Government Relations.
S t a t e m e n t o f C a r a n d T r u c k R e n t i n g a n d L e a s i n g A s s o c i a t i o n , B e fo r e
S e n a t e I n t e r io r a n d I n s u l a r A f f a ir s C o m m i t t e e , M a y 9, 1973
the
Mr. Chairman and Members of the Committee : My name is Rex Denkmann. I
am Assistant General Counsel of the Car and Truck Renting and Leasing Asso
ciation. We are grateful for this opportunity to submit a statement on the energy
crisis and its present and possible future effects on our industry.
173
The Car and Truck Renting and Leasing Association is an association of those
firms and persons who are engaged in the rental and lease of cars and trucks in
the United States, the District of Columbia, Puerto Rico and Canada. We have in
excess 2000 members with the vast majority being small businessmen.
In submitting these comments we wish to convey the growing concern of our
industry with the existing and rapidly accelerating energy crisis. The scope oi
the problem touches all segments of our economy and manifests itself in a variety
of ways. Its very complexity belies any simple solution and we do not presume to
offer one here today. It is our sincere hope, however, that the Congress not only
collect information as to the nature and extent of the crisis as called for in
S. Res. 45, but appreciate the need to answer the conclusions made by its own
commissions through firm and positive action.
The Car and Truck Rental and Leasing industry provides commerce, indus
try and the traveling public with an economical and trustworthy mode of trans
portation. About 35% of the car rental business is transacted on airport
locations to businessmen for business reasons as well as to tourists flying to their
vacation destination and renting automobiles there to avoid driving from their
homes to ultimate destination locations. This provides a high quality, flexible
and economical transportation service which is demanded by your highly mobile
and urban society. Truck rental and leasing is conducted in a variety of ways
with a not small segment furnishing light and medium size vans and trucks for
the one-way movement of household goods and belongings and under lease ar<
rangements, larger units to serve the needs of industry. While industry statistics
are not available, information gathered by the American Trucking Association
reveals that trucks accounted for 430 billion ton miles in 1971, 22.3% of total
registered ton miles by all forms of transportation. Since rail service has been
reduced or terminated in many communities, a highly mobile over the road
transportation service is absolutely essential to our growing economy.
Because the service which we offer is mobility, our concern is with the impact
of possible shortages of gasoline and other petroleum products. With the advent
of the jet aircraft, the interstate system and our urban society, as well as the
diminishing capabilities of the railway industry, which is currently so widely
reported in the public press these days, the cars, truck and one-way rental has
become a way of life. With more than half of the United States population
licensed to drive and the rental industry growing at better than 20% a year,
petroleum is crucial. As an industry, we are one of the country’s largest con
sumers of petroleum products. We therefore are vitally concerned that ways
be found to insure the continued supply of gasoline and diesel fuel to all segments
of the transportation industry and at prices that are within the reach of even
the smallest consumer.
According to government figures, the demand for gasoline rose at an annual
rate of 5% during the period from 1968 to 1970 and increased at the rate of 7%
during the years 1971-1972. At the same time refinery capacity rmeained rela
tively constant. Common sense points to continued increasing demand in the
future. We have been encouraged with the announcement of the administration’s
new oil import program and are hopeful it will have a stimulating effect on the
construction of new refineries and expansion of existing facilities. In the long
run, however, certainly more incentive needs to be given to encourage the ex
ploration and production of domestic crude oil. In this context the long overdue
laying of the Alaskan pipeline and use of the oil shale deposits in the far west
are but two examples of vast energy resources which have yet to be developed.
We are not unmindful of the efforts which have been made by members of
this committee and the Congres to grapple with our energy shortages. According
to “A Review of Energy Policy Activities of the 92nd Congress” , prepared at
the request of Senator Jackson, pursuant to S. Res. 45, nearly 350 bills and 30
resolutions were introduced during the 92nd Congress covering a wide range of
fuel and energy policy issues. Subject areas included congressional studies of
fuels and energy policies, oil shale development, antitrust and monopoly consid
erations, tax matters and many more. According to the Energy Policy Activities
report, however, no positive action was taken on these proposals.
Surely the evidence gathered by this committee as a result of its extensive
hearings into the present and long range energy requirements of the United
States must support that conclusive action be taken one way or another. For our
part, we urge that immediately steps be taken to stimulate the development of
existing oil deposits within the United States and that further long range pro
grams be implemented which will insure the continued supply of petroleum prod
ucts to all users at a reasonable price.
174
E n e r g y C r is is
M ay
21, 1973.
It. L. T i i o r f i n n s o n
R. W, B ir d
It’s here—the much heralded “gas crunch” !
On Tuesday, May 8, our Atlanta gas supplier, BP, advised us they could furnish
us no more gas (also claimed they were cancelling all other commercial users
except government agencies).
We had 2,000 gallons in our bulk tanks. Immediately we began filling our cars
with only *4 tank of gas, with a note to customers advising them of the situation
and urging them to get a fill-up at retail at earliest possible stop (at our expense,
of course). Since then we have been able to get 9,000 gallons on “black market”
(9^/gal. more). As of May 21, .1973, we still had about % of this and we’re on
the lookout for more. Continue to fill tanks only % full.
Supplier at Las Vegas refused to renew our expired contract. Seven of eight
other major suppliers refused to bid—one bid with an increase of 4$ per gallon,
and already has been unable to fill our first order.
Other reported and anticipated increases and supply shortages as of May 1
are mentioned in attached report of A. O. Bingenheimer.
F uel Supply
May
1, 1973.
V, O.
A bram son
A . O . B in g e n h e im e r
The fuel supply situation for National Car Rental is quickly becoming critical.
What began as isolated circumstances of contract cancellations and slight up
ward price raises bid by the oil companies has suddenly taken on greater signifi
cance as oil company after oil company indicate their inability or unwillingness
to supply refined products in sufficient quantities under present price structures.
The initial situation appeared to be confined to certain companies in certain
geographic locales. Although complete information is not available in every single
city some representative market situations are:
Jacksonville, Florida, contract expiring May 1973. A price increase of 5 to 7
cents per gallon (present price 11.95 cents) is anticipated. No supply problem is
anticipated in this area by supplier Mobil.
Orlando, Florida, is at present operating on a 30 day extension of last years
contract. A price increase of 4 to 5 cents per gallon over the present 19.32 cents
is anticipated if Texaco can supply quantities of fuel necessary.
Seattle, Washington, is presently obtaining fuel without a contract on an agree
ment basis with Shell. They have had a 1.36 cent per gallon price increase over
the past year. They are anticipating additional price increases of 3.4 cents per
gallon but not supply problems.
Las Vegas, Nevada, contracts have expired. Five oil companies and suppliers
were soliciated for bids, three refused to bid, two offered bids with an increase of
6 cents per gallon, quantities to be limited.
San Jose, California, contracts are based on market performance and have in
creased one cent per gallon since January. Additional price increases in the neigh
borhood of 5 cents per gallon are anticipated between now and the Fall months.
Cincinnati, Ohio, has had a 4 cent per gallon increase since January of this
year. Supply quotations were scolicited from several companies. All but one was
unable to offer a quotation. The present supply agreement allows for price increase
after a 30 day notice to National and further increases in the neighborhood of
3 to 4 cents per gallon are anticipated over the Summer months.
Dayton, Ohio, has had a price increase of 3 cents per gallon last week and is
anticipating additional increases by year end of 5 to 7 cents per gallon. They are
not however, anticipating any supply problems.
Washington, D.C., has been advised by American Oil Company that their con
tract expiring in August will not be renewed.
Baltimore, Maryland, has also been advised by American Oil Company that
their contract which expires in August will not be renewed. No official refusals
have been made from suppliers from these locations since solicitations are not yet
complete.
Philadelphia’s contract with American Oil Company expires May 21 and
.AMOCO declines to bid on a new contract. Only one other bid has been obtained
by us in the area with a price increase of 5.45 cents per gallon.
175
Winston-Salem, Greensboro, N.C., contracts have expired. Texaco continues to
supply fuel as available but a price increase of 5 to 7 cents per gallon is
anticipated.
Syracuse, New York’s contract expires May 1. Gulf Oil will supply fuel at a 5
cent per gallon increase in an open agreement allowing upward fluctuation in
accord with the bulk market.
New York, New York’s contract expired April 18, Gulf has proposed a five cent
per gallon increase with upward fluctuations allowed in accord with bulk markets.
No quantity supply problem is anticipated in either of these areas.
I do not presently have complete and factual information for all other areas but
certain conclusions can be inferred from information we do have. In essence, we
can anticipate price increases generally in the range of 6 to 8 cents per gallon
depending upon the ready availability of refined products. Those areas which have
available to them good or surplus supplies of refined products can expect continu
ing supplies of fuel at lower costs. Those areas to which products must be trans
ported by more expensive means are going to have supply problems and can exl*eet higher supply increases. In all areas which have contracts being renewed
are having to agree to price structures based upon price fluctuation of the bulk
refined product market. This of course is not reflected in presently anticipated
price increases. It is possible that increases will amount to more than 10 cents
jx'r gallon by year end i f the dire predictions of supply shortages become true.
This would represent an average increase in cost per gallon of over 70 percent.
In addition to this direct cost increase we have experienced a substantial in
crease in consumption (14 to 20 percent) of fuel by the 1973 model vehicles. This
increase in fuel consumption is generally attributed to engine design and sys
tems modified for pollution control devices installed on the newTmodel cars.
Many locations are taking measures to reduce consumption and usage because
supplies in certain areas will'be curtailed to some extent. Minneapolis is one city
in this category. In summation, it is predictable that fuel costs, if conditions in
the fuel market continue their present trend, it will be roughly
to y2 more by
year end.
It is doubtful that our operating cities can absorb the predicted price increase
under the present rate structures. At this point there is, from an individual city
basis, no apparent means of relief. Almost all offers we have made to oil com
panies for exclusive price control contracts have been rebuffed.
If you wish further conversation on this please feel free to call me. I will advise
from time to time as changes in the situation occur or additional facts become
available.
M o b il O i l C orp .,
Los Angeles, Calif., April 18,1973.
N a t io n a l Ca b R e n t a l ,
Las Vegas, Nev.
G e n t l e m e n : According to our records, our present commitment to supply your
fuel requirements will soon expire. Because of current conditions in your area,
we find that we no longer will be in a position to supply your needs when the
commitment expires.
We sincerely appreciate your past business, regret having to take this action,
and take this means to give you advance notice so that you can begin looking for
an alternative source of supply.
Yours very truly,
O . W. C h a n d l e r ,
Western Division Commercial Manager.
S h e l l O i l C o .,
Downey, Calif., April 18,1973.
N a t i o n a l C a r R e n t a l S y s t e m I n c .,
Las Vegas, Nev.
(Attention of Gary L. Smith).
G e n t l e m e n : We regret we must submit a “No bid” for your gasoline require
ments for the year beginning May 1,1973.
Please retain our name on your bidders list for your future requirements.
Yours very truly,
E. D . D r o n b e r g e r ,
Manager.
176
U n i o n O i l C o.
of
Ca l if o r n ia ,
San Diego, Calif., April 19,1973.
N a t i o n a l C a r R e n t a l S y s t e m , I n c .,
Las Vegas, Nev.
(Attention of Mr. Gary L. Smith, City Manager).
G e n t l e m e n : We are in receipt of your request for quotation, and thank you
for this consideration.
We regret that we will be unable to offer a quotation at this time, but request
you keep our firm’s name on your Bid Invitation List for receipt of future invita
tions.
Very truly yours,
P. T. v a n B e r k h o u t ,
Manager, Operations and Services.
N a t i o n a l C a r R e n t a l S y s t e m , I n c .,
Las Vegas, Nev., April 12, 1973.
M r. J i m M
cF a d d e n ,
Texaco, Inc.,
Las Vegas, Nev.
D e a r S i r : We are now accepting gasoline bids for our fleet usage requirements.
Requirements: Regular gasoline only—Annual minimum, 144,000 Gallons; an
nual maximum, 400,000 Gallons.
Length of contract: One year commencing May 1,1973.
Please submit your bid to the above address, prior to April 27, 1973, so that a
decision can be made.
Thanking you in advance, I remain
Very truly yours,
G a r y L. S m i t h ,
City Manager.
N a t i o n a l C a r R e n t a l S y s t e m , I n c .,
Las Vegas, Nev., April 12,1973.
S tan d ar d O il C o m p a n y
of
C a l if .
Western Operations, Inc.
Wholesale Distributors, Las Vegas, Nev.
D e a r S i r : We are now accepting gasoline bids for our fleet usage requirements.
Requirements: Regular gasoline only.—Annual minimum, 144,000 Gallons;
annual maximum, 400,000 Gallons.
Length of contract: One year commencing May 1, 1973.
Please submit your bid to the above address prior to April 27, 1973, so that a
decision can be made.
Thanking you in advance, I remain
Very truly yours,
G a r y L. S m i t h ,
City Manager.
N a t i o n a l C a r R e n t a l S y s t e m , I n c .,
Las Vegas, Nev., April 12,1973.
H
um ble
O i l & R e f i n i n g C o .,
Marketing Department,
Las Vegas, Nev.
D e a r S i r : We are now accepting gasoline bids for our fleet usage requirements
Requirements: Regular gasoline only.—Annual minimum, 144,000 Gallons;
annual maximum, 400,000 Gallons.
Length of contract: Two years commencing May 1,1973.
Please submit your bid to the above address prior to April 27, 1973, so that a
decision can be made.
Thanking you in advance, I remain
Very truly yours,
G a r y L. S m i t h ,
City Manager.
N a t io n a l C ar R e n t a l
Sy st e m ,
May 17, 1973.
Urgent
Gas is our lifeblood, and we’re hemorrhaging!
But we intend to fight for our life with every weapon at our disposal—manage
ment planning—business negotiation—political pressure—and if necessary, legal
action.
To do this we need FACTS !
The tool to give us these facts is the attached survey. The most important task
you have right now is to fill in the form and return it as indicated. If we get it
back in time, we have the opportunity to put it to use in a way which may di
rectly produce favorable results in the near future.
Two copies are enclosed. Fill in one, Xerox a copy for your file, and send it in.
Keep the other blank copy. Whenever there is a change in the information as
submitted, fill in a new one with the changed information and send it in, but al
ways keep at least one blank copy for future use in the case of further changes.
If you do not send in changes, we will assume the info you have sent in remains
current.
Thanks for your help in this most vital effort.
P. L . R i l e y .
Enclosure.
G a s o l in e / F
uel
Supply
Survey
May, 1973
CITY NUMBER --------- REGION --------CITY NAME --------------------------------------01. Are fuel storage/dispensing facilities located any place other than your
normal service locations?
01:01---------Yes*
01:02---------No
*If you answer “ Yes” (01:01), please indicate the address of location where
facilities are located.
02. How many storage tanks do you have for :
02:01---------Regular grade gasoline
02:02---------Premium grade gasoline
02:03 --------- 2 Diesel fuel
02:04---------Other fuels
03. What is your total storage capacity fo r :
03:01---------gals.—Regular grade gasoline
03:02-------- gals.—Premium grade gasoline
03:03---------gals.— # 2 Diesel fuel
03:04-------- gals.—Other fuels
04. What is the number of dispensing pumps fo r :
04:01---------Regular grade gasoline
04:02---------Premium grade gasoline
04:03---------# 2 Diesel fuel
04:04---------Other fuels
05. What is the yearly quantity of products used or to be used:
regular
g a s o l in e
05:01
05:02
05:03
05:04
05:05
1971
-----gals.
1972 — ---- gals.
1973 — ---- gals, (to date)
1973---- ---- gals, (for remainder of year—estimated)
1974 — ---- gals, (estimated)
05:06
05:07
05:08
05:09
05:10
1971
— gals.
1972
— gals.
1973 -----— gals, (to date)
1973
— gals, (for remainder of year—estimated)
1974 ----- — gals, (estimated)
p r e m iu m
g a s o l in e
178
NO. 2 DIESEL FUEL
05:11
05:12
05:13
05:14
05:15
1971
1972
1973
1973
1974
------------------------------------
gals.
gals.
gals, (to date)
gals, (for remainder of year—estimaied)
gals, (estimated)
OTHER FUELS
05:16 1971 --------05:17 1972 -------05:18 1973 -------05:19 1973 -------05:20 1974 --------06. What is the price
date (NOTE: Exclude
gals.
gals.
gals, (to date)
gals, (for remainder of year—estimated)
gals, (estimated)
you paid per gallon for delivered product on the
all taxes in the computation of price).
REGULAR GASOLINE
06:01
06:02
06:03
06:04
On
On
On
On
05/01/71
05/02/72
01/01/73
05/01/73
------------------------------
per
per
per
per
gal.
gal.
gal.
gal.
06:05
06:06
06:07
06:08
On
On
On
On
05/01/71
05/02/72
01/01/73
05/01/73
------------------------------
06:09
06:10
06:11
06:12
On
On
On
On
05/01/71
05/02/72
01/01/73
05/01/73
--------- per gal.
-------- per gal.
--------- per gal.
--------- per gal.
PREMIUM GASOLINE
per
per
per
per
gal.
gal.
gal.
gal.
NO. 2 DIESEL FUEL
OTHER FUELS
06:13 On 05/01/71 --------- per gal.
06:14 On 05/02/72 -------- per gal.
06:15 On 01/01/73 --------- per gal.
06:16 On 05/01/73 -------- per gal.
07. Has your supplier FORMALLY notified you of a price increase to be in
effect at any time in the next 6 months for :
REGULAR GASOLINE
07:01 -------- Yes*
07:02 --------- No
---------4 per gal. effective date--------PREMIUM GASOLINE
07:03 --------- Yes*
07:04 --------- No
---------4 per gal. effective date--------NO. 2 DIESEL FUEL
07:05------Yes*
07:06------No
---------4 per gal. effective date--------OTHER FUELS
07:07---------Yes*
07:08---------No
---------4 per gal. effective date--------♦If the answer to any part is “ Yes,” please forward a copy of the notification.
08. Has your supplier INFORMALLY notified you of any anticipated price
increase in the next 6 months for:
179
BEGULAB GASOLINE
08:01-------- Yes**
08:02---------No
---------4 per gal. effective date--------PBEMIUM GASOLINE
08:03-------- Yes**
08:04-------- No
---------<£per gal. effective date--------NO. 2 DIESEL FUEL
08:05-------- Yes**
08:06---------No
---------4 per gal. effective date--------OTHEB FUELS
08:07-------- Yes**
08:08-------- No
---------4 per gal. effective date--------**If the answer to any part is “ Yes,” indicate the following:
08:09 the person’s name--------08:10 the person’s title and/or position--------Briefly describe the method of notification (i.e., letter, oral, telephone, in
person, etc.) and the date and place of notification:
08:11 ________________________________________________________________
Note: The term “jobber” as used in Question No. 09 refers to an independent
businessman who is purchasing petroleum products from a major branded or
unbranded refiner and reselling them independently of the major company, either
under a major brand or as unbranded products. The term “ refiner/marketer” as
used in Question No. 09 refers to a company which refines and markets products
through company controlled locations. Refiners may also sell to “jobbers” but
generally do not control jobbers other than selling or consigning refined products
to the jobber.
09. If you purchased gasoline or fuel under the terms of, or subject to the terms
of a contract or agreement since January 1, 1971, please indicate on the appro
priate sheet all data which applies; The columns are explained as follows:
Column 1. Name of supplier—indicate the brand name your supplier uses.
Column 2. Class of supplier—The class will be “refiner/marketer”—code
RM—or “jobber”—code JM
Column 3. Start date—The date the contract became effective
Column 4. End date—The termination date of contract
Column 5. Price firm?—yes or no
Column 6. Price subject to change? If “Yes” in Column 5: How? i.e., market
price, oil gram, quantity conditions, etc.
GASOLINE
Name of supplier
Class of
supplier Start date
End date
Why price is subject to
Firm price to change
NO. 2 DIESEL FUEL
Name of supplier
Class of
supplier Start date
End date
Why price is subject to
Firm price to change
OTHER FUELS
Name of supplier
Class of
supplier Start date
End date
Why price is subject to
Firm price to change
10.
Are you presently purchasing gasoline or fuel under the terms of, or sub
ject to an agreement or contract :
10:01-------- Yes**
10:02---------No*
*If you answered “No” (10:02) skip to Question No. 11.
**If you answered “Yes” (10:01), please answer the following and furnish
a clear, complete and legible copy of the contract (if necessary forward the
original and copies will be made and the original returned).
180
During the term of the contract or agreement is the supplier required to
furnish a certain minimum amount of products ?
10:03--------- Yes
10 :04---------No
If the answer is “No” (10:04), is it because their contract has an “escape
clause” in case of limited supply?
10:05--------- Yes
10:06---------No
11. Do you anticipate any difficulty in obtaining sufficient quantities of gaso
line or fuel during the remainder of the year 1973?
g a s o l in e
:
11:01--------- Yes
1 1 :0 2 ---------No
FU E L»:
1 1 :03---------Yes
1 1 :04---------No
12. If Question No. 11 is answered “ Yes” (11:01 and 11:03) will you be able
to obtain sufficient quantities from another source?
12:01---------Yes
12:02---------No
13. If you answered “Yes” (12:01) to Question No. 12, have you established
a source of supply?
13:01---------Yes
1 3 :02---------No
If “Yes” (13:01), what is the additional cost per gallon anticipated to be?
13:03---------4 per gal.
14. If you answered Question No. 13 as “ Yes” (13:01) please elaborate on
your supply (i.e., who you contracted, did you ask for a contract?, did you get
one?, if not, why? Can you obtain sufficient supplies without a contract?, at
reasonable prices?, unreasonable prices?, who told you what, why, etc.,?
14:01__________________________________________________ ______________
15. Additional Comments:
15:01 --------------------------------------------------------------------------------------------------
C o p ie s o f S e le c t e d Q u e s t i o n s
QUESTION 1. WHAT IS THE YEARLY QUANTITY OF PRODUCTS USED OR TO BE USED?
[In gallons]
1971.......................................... ...................
1972.......................................... ...................
1973 (through April). ..................... ...................
1973 (remainder)........................... ...................
1974 (estimated)............................ ...................
Regular
Premium
No. 2
diesel
Other fuels
13,247,000
14,989,000
6,888,000
11, 745,000
20,154,000
269,000
266,000
0
172,000
309,000
2,278,000
2,321,000
962,000
1,974, 000
3, 046, 000
2,000
2,000
1,000
1,000
3,000
QUESTION 2. WHAT IS THE PRICE YOU PAID PER GALLON FOR DELIVERED PRODUCT ON THE INDICATED DATES?
(NOTE: EXCLUDE ALL TAXES IN THE COMPUTATION OF PRICE)
Regular
May 1,1971
Less than 10.0.................. 0
10.1 to 12.0......................
12.1 to 14.0......................
14.1 to 16.0......................
16.1 to 18.0......................
18.1 to 20.0......................
More than 20.0..................
Number
0
18
22
11
3
7
15
76
May 2,1972
Percent
0
23.7
28.9
14.5
4.0
9.2
19.7
100.0
Number
0
22
25
8
5
5
16
81
January 1, 1973
Percent
0
27.2
30.9
9.9
6.2
6.2
19.8
100.0
Number
0
20
30
7
4
5
16
82
May 1,1973
Percent
0
24.4
36.6
8.5
4.9
6.1
19.5
100.0
Number
0
13
21
8
10
9
19
80
Percent
16.3
26.3
10.0
12.5
11.3
23.8
100.0
181
QUESTION 3. HAS YOUR SUPPLIER FORMALLY NOTIFIED YOU FOR A PRICE INCREASE TO BE IN EFFECT AT ANY
TIME IN THE NEXT 6 MONTHS F O R Regular
Diesel
Premium
Number
Percent
Number
Percent
Number
Percent
..........
No................................ ..........
12
74
14.0
86.0
1
82
1.2
98.8
4
81
4.7
95.3
Total..................... ..........
86
100.0
83
100.0
85
100.0
10
2
83.3
6.7
If "Yes,” when?
June........................ ..........
July......................... ..........
August____
September.
October___
November»
Not known..
Total____
2
.
100.0 .
12
50.0
25.0
25.Ö
100.0
100.0
QUESTION 4. HAS YOUR SUPPLIER INFORMALLY NOTIFIED YOU OF ANY ANTICIPATED PRICE INCREASES IN THE
NEXT 6 MONTHS FOR—
Regular
Premium
--------------------------- -----------------------------Number
Percent
Number
Percent
Yes..........................................................................................
No...........................................................
84
100
Total................................................
84
100
6
78
Diesel
(percent)
7.1 ...............
92.9
84
84
100.0
Question 5. a. What kind of a supplier do you have?
Refiner/Marketer___________________________________________________
Jobber_____________________________________________________________
Other______ _______________________________________________________
100
64
4
3
T o ta l________________________________________________________
71
b. Name of supplier?
Percent
American Oil_______________________________________________________
9.5
British Petroleum___________________________________________________
1.2
Chevron _________________________________________________________________
G u lf_______________________________________________________________ 14.3
M obil______________________________________________________________ 15.5
Phillips____________________________________________________________
3.6
Shell ______________________________________________________________
8.3
Sunoco___________________________________________________________________
Standard __________________________________________________________
8.3
Texaco ____________________________________________________________ 10.7
Union 76_________________________________________________________________
Other______________________________________________________________ 11. 9
No response________________________________________________________ 16.7
T o ta l______________ __________________________________________100.0
C. DO YOU HAVE A FIRM PRICE FOR THE CONTRACT FOR GASOLINE?
Number
Percent
Yes...........
No............
37
31
54.4
45.6
Total.
68
100.0
182
D. WHY PRICE IS SUBJECT TO CHANGE?
Predetermine! escalator.............. ......................... .............................
Supplier option......................................................... ................. .....
Tank wagon market..........................................................................
Oil grams.......................................................................................
Total......................................................................................
Number
Percent
0
24
9
2
0
68.6
25.7
5.7
35
100.0
QUESTION 6. DO YOU ANTICIPATE ANY DIFFICULTY IN 03TAINING SUFFICIENT QUANTITIES OF GASOLINE OR
FUEL DURING THE REMAINDER OF THE YEAR 1973?
Gasoline
Yes...............................................................
No...............................................................
Total....................................................
Fuels
Number
Percent
Number
Percent
32
47
40.5
59.5
5
28
15.2
84.8
79
100.0
33
100.0
QUESTION 7. IF QUESTION 6 IS ANSWERED “Y E S" WILL YOU BE ABLE TO OBTAIN SUFFICIENT QUANTITIES FROM
ANOTHER SOURCE?
Yes.................... ...........................................................
No...............................................................
Total....................................................................................
Number
Percent
6
22
21.4
78.6
28
100.0
QUESTION 8. IF YOU ANSWERED “Y E S " TO QUESTION 7, HAVE YOU ESTABLISHED A SOURCE OF SUPPLY?
Number
Percent
Yes..................................................................
6
100
Total................................................. ......
6
100
Number
Percent
IF “Y E S " WHAT IS THE ADDITIONAL COST PER GALLON?
Less than 0.02..............................................
0.021 to 0.04..........
..........................
0.041 to 0.06.........
..................
0.061 to 0.08....................
70.08.............................................................
Total.......... ........
..................
1
3
3
.......................
...................
............................... .
14.3
42.8
42.8
7
100.0
N a t io n a l C ar R e n t a l S y s t e m ,
June 1,1973.
To bring you up to date on exactly what has happened in San Francisco on the
above subject, Shell Oil Company has advised us that when our contract expires
July 31st, they will be unable to furnish us with any gas after that date.
Bob McHugh has also advised that New York City has been put on rationing,
based upon last year’s usage. In other words, they will not be allowed to pur
chase any gas over the quantity they purchased from Gulf in the calendar year
1972.
I will keep you informed of any changes.
B e m is s R
olfs.
183
Mr. T ii o r f ix x s o n . There’s one other thing I’d like to comment on
by stepping out of the role that I’m appearing here in and talking as a
member of a school board, because here again we’re seeing an eco
nomic impact. In our school board district, we have made the decision
to----Representative F raser . What school board ?
Mr. T h o r f ix x s o n . Orono Independent School District, which I
think the Senator is familiar with.
Chairman H u m p h r e y . That’s the grandchildren. Let’s take care of
that school district now. It beats all how a fellow gets interested all of
a sudden.
Mr. T i i o r f i n n s o x . We have made the decision that we are going to
invest in additional storage tanks, in free heating equipment, and in
the conversion equipment so that we’ll be able to burn No. 5 and No.
6 oil as our standby fuel for this coming season, because we have not
been able to get any bids at all from our prior suppliers on No. 2 fuel
oil for the coming season as standby fuel for us. Unless we take these
steps, if and when we’re cut off on the gas, we would just have to shut
down the schools.
Representative F raser . Were you cut off last winter ?
Mr. T iio r f in n s o x . There were only 2 days last winter where we
weren’t able to operate at full temperature and at no time did we have
to shut the schools down.
Representative F raser . Did you have to go off gas ?
Mr. T iio r f in n s o x . We were off of gas on I think seven occasions,
but for no longer than probably 3 days at any one time.
Chairman H u m p h r e y . O f course, you had the warmest winter last
year that we have had for some 30 years.
Mr. T iio r f in n s o x . That’s right. Our major problems occurred in
December, not after the early part of January, because of that.
Chairman H u m p h r e y . I think the Lord gave us 365 days to come to
our senses and I think He’s probably getting a little impatient with
us now.
Mr. T iio r f in n s o x . One thing that obviously will help, I ’ll have to
assume, is what is being done on the natural gas supply, and if that min
imizes the interruption of service it will help alleviate that shortage
of fuel oil.
Chairman H u m p h r e y . It’s interesting to note these price ranges that
we’re hearing here, and this is part of the genuine jurisdiction of the
Joint Economic Committee, because we do deal with the whole subject
of the controls. The Economic Stabilization Act, as you know, the
Council of Economic Advisers—these are our areas.
Mr. T h o r f in x s o x . It’s interesting to note the pattern. Where one
major was a supplier in one city, they refuse to bid now, but they turn
up as a bidder in another city at a very high price, and the previous
supplier there won’t bid.
Chairman H u m p h r e y . And you have that documented in your
report ?
Mr. T h o r f in n s o x . Yes.
Chairman H u m p h r e y . N o w , the 23 majors remained under manda
tory price controls as in phase II when we went to the so-called phase
III. Those controls provide for a 1y2 percent overall price increase
averaged over all petroleum products, so they give a lot of discretion
184
to the companies, but these price increases that we’re hearing today as
well as what we’ve got down in Illinois and what we heard about in
Ohio are outlandish.
You know this committee and different Senators are going into
their respective States and holding hearings as a part of building a
national record instead of just staying in Washington and having peo
ple come there. We’re coming out here so that we can hear from more
and more people. We’re getting more of just what you’re saying, that
contracts are not being renewed by original contractors in a particular
city and yet in another community that same company will be enter
ing into an entirely new contract with a new customer at a much
higher price. These patterns are very disturbing.
I hesitate to make blanket charges because I don’t believe in that
unless we have documentation, but one of the amendments that we’re
offering—and I hope will be adopted, I think it will on Monday of
this coming week—is to instruct the Federal Trade Commission and
the Justice Department’s Antitrust Division to take a good look at
these marketing practices to see what’s going on here, because there's
some going on that’s over and beyond just the shortage of fuel.
For example, the number of aircraft flights the military is using
is way down compared to a year ago despite the bombings in Cambodia,
and any of you that have been in the Air Force or know anything at
all about aircraft know that these jet bombers and jet fighters just
gulp it up. They’re like hungry alligators, just chewing up that fuel,
and the Defense Department’s requirements for JP, I forget the num
ber, but j et fuel is way down.
Last year I caught the Defense Department—at the very time that
we out here were just struggling to get fuel oil, they were buying up
8 million barrels of jet fuel in the same market with demand delivery
by April 1 . Well, I want to tell you, that s one battle the Defense
Department lost. I felt like Horatius at the bridge. I took them on.
I said, “What are you doing? I mean, it gets cclcl in Minnesota and
after all that jet fuel is kerosene, so to speak, and it’s similar, it has
an interrelationship with our No. 2 fuel oil.”
So we had a choice as to whether we were going to fill up 8 million
barrels of jet fuel for the Defense Department to have in reserve—
I guess they thought they were going to have another war the next
day or something—or whether we were going to have some fuel out
here in Minnesota and all through the Midwest. By the way, they
applied it to diesel; all of this is out of the same barrel of crude.
I think I should note here also, by the way, if representatives of the
majors are here, we welcome your testimony. We’re not conducting
any vendetta or anything like that. We asked the majors to testify
out here in this hearing and as yet they have not chosen to do so,
and I would welcome them if they’re here and give them an opportunty to present their case. We’re having trouble getting this, and in
the meantime the majors are locking up these markets, and I don’t
like it. I want to tell you we intend to do something about it.
All right. Now, we come to Mr. Denn. Mr. Denn, where did I lose
you ?
U n id e n t if ie d V o ice . He hasn’t returned yet. He’s got a statement
all prepared and the secretary lost the most important page.
Chairman H u m p h r e y . I almost had the same thing happen to me
this morning.
185
Mr. Bowar, am I right in pronunciation ?
Mr. B o w a r . Yes.
Chairman H u m p h r e y . Mr. Bowar is with the Minnesota State
Automobile Association, editor of the Minnesota Motorist. I want to
compliment you on your publication. I read it regularly. It’s one of
the best tourist pieces we’ve got in Minnesota. The Governor ought
to pay you a little extra for that. Go ahead, sir.
STATEMENT OF C. L. BOWAR, EDITOR, THE MINNESOTA MOTORIST,
MINNESOTA STATE AUTOMOBILE ASSOCIATION, BURNSVILLE,
MINN.
Mr. B o w a r . Mr. Chairman and Congressman Fraser, I want to di
gress from my prepared statement which you have copies of for the
record.
Chairman H u m p h r e y . Again, we’ll make those available for the
record.
Mr. B o w a r . A s you know, Mr. Chairman, I represent a motoring
organization in this State. We are the American Automobile Associa
tion affiliate, with almost 400,000 members. Our concern in this
»petroleum situation is not only from the standpoint of people taking
vacation trips, but more importantly, I think for most of our mem
bers and the public generally, the automobile is an absolute necessity
in making a livelihood. So, I would like to address my remarks to you
first on what we as an organization of motorists are trying to do to
get a handle on how serious the situation is; second, on what we are
advising the motoring public to do to conserve the available supply;
and finally at the tail end, perhaps a few observations on some of the
thoughts at the Federal level on a gas tax increase, 50 mile-an-hour
speed limits, and so on.
Chairman H u m p h r e y . Thank you.
Mr. B o w a r . N o w , we are one of 62 American Automobile Association
offices in the country that currently are engaged in what we call a Fuel
Gauge Report. Essentially what this involves is a weekly check by
telephone with our contract stations at key spots around Minnesota.
For example, we start up in the iron range and go through western
Minnesota and down through the south, so we get a good spread. May
I suggest also that once this whole thing is in form—it just started
this past week—both you, Mr. Chairman, and Congressman Fraser
I think will get a handle on how Minnesota and the Midwest are com
paring on fuel supply as far as motorists are concerned with the rest
of the Nation.
Representative F raser . Who are you actually checking with ?
Mr. B o w a r . We are checking with our own AAA contract stations.
We are talking directly to the operator about his problems and the
problems we are having with the motorist specifically. For example,
in our survey just this past week—and I have a copy, an example that
I can leave with the committee—this is what we found. First of all,
that there is no critical shortage on the one hand, but that there is a
definite and spotty shortage depending on circumstances. For example,
company owned and operated stations seem to have little or no prob
lem getting adequate fuel supply. Most other stations, however, are
now on an allocation basis, as you probably know, getting as much but
186
no more fuel than they purchased last year. Some station operators
do not regard this as an allocation system. They say. “Well, I’m getting
the same as I got last year." Some are being cut back to 90 percent of
last year, some back to 85.
Now. the hardest hit by the situation, according again to this sur
vey, seem to be the independent brands ; then the independently owned
stations of major brands; and finally those stations which, for any
reason are experiencing a substantial increase in volume of business
over last year. A specific example ; a station which last year had the
street all torn up in front of his place of business and did a very low
volume; this year the street is all repaired and he cannot by any
stretch of the imagination get an adequate supply to take care of his
customers. Now. what are the stations doing about this? Many of
them are staying open shorter hours. There are very few 24-hour sta
tions any more.
Chairman H u m p h r e y . Ill say that’s the case. Where you start run
ning short of gas on the highway, you are in trouble.
Mr. B o w a r . N o w , some of them, of course, are closing for a full
day, and maybe it is a convenience to take a Sunday off to enjoy fish
ing in Minnesota. A few of them are already limiting gallonage to
individual patrons to $2 per customer or $3 or 10 gallons, whatever
it may be, and some are now starting to limit sales to trucks to 25
gallons. Maybe Mr. Denn will talk more about that later.
How about the price per gallon ? Our survey showed, in general, that
there has been an increase of 2 cents per gallon during the last 2
months. In communities where the price per gallon has been depressed,
so-called gas wars, St. Cloud, Little Falls, the increase has been as
much as 7 and 8 cents per gallon. There is no such thing as a gas
war any more. Those beautiful days are gone forever.
Now, how do stations feel about this gasoline shortage? We asked
them this question. Many of the station operators are rather happy
about it. Those which have been engaged in a price war, of course,
have suddenly found out that they can command the full price per
gallon and are doing so. Other stations are finding out that the re
duced hours which they’ve been able to put into effect allow them to
stay open only during the best hours of the day when traffic is heaviest,
when the repair business is best. In other words, they feel that they
are operating close to their maximum profit potential. That’s the good
news.
Now, what is the outlook for next week? We asked them that and
we will continue to do so in these surveys. No change according to
most of the men we interviewed. They say their gas supply will still
be limited and several of them noted that they expect their diesel
fuel supply to be drastically limited in the near future, by at least
25 percent. As for motorists running out of gas, we can find no evi
dence that anv motorist doesn’t get enough to keep going.
This is a difficult situation. People call us and say, “ Should we re
duce our travel plans?” and we say, “Well, no, but let us give you
some tips on how you as an individual can contribute toward helping
and alleviating this shortage.” We issued a news release on that, for
example—a copy of that, Senator, is with my prepared statement—
and in this we point out such things as that even the tire pressure of
your automobile makes a difference; if it calls for 28 pounds of pres
187
sure, pump them up to 30. You actually will be saving gas. Most im
portant of all, even more important than the speed reduction, is having
your car tuned up.
Now, this we found out very dramatically, and it is more than coin
cidence. Our current publication which just came off the press deals
with this situation, and the particular story is entitled, “How to save
$100 a year on gasoline.” It was based on a controlled test with a 1970
Chevrolet which we took out and drove around the Twin City area
using not-too-eonservative driving habits, admittably gunning it when
we went on the freeway, jack rabbit starts at stop signs and right up
to the top speed limit. The car had not been tuned up. We brought it
in. We gave it a complete tune up: spark plugs, points, condenser, so
on, air filter; and we did a lot of these other things like pumping up
the tires, and then we adopted conservative driving habits. For ex
ample, 50 miles an hour on the freeway, no gunning on the ramps and
so on, and we found out that the gasoline mileage on that 1970 Chevro
let went from 12.5 miles per gallon to 16.1 miles per gallon. That’s
an increase of 28.8 percent according to the guy who wrote this story.
But also, interpreting it another way, if the motorists would just
adopt these two things—first of all getting their cars tuned up and
secondly conservative driving habits—the increase in gasoline mile
age would be 22.5 percent. And I submit that this could be a very
sizable factor in the problem.
Chairman H u m p h r e y . I think that?s a very constructive suggestion.
Of course, this all depends upon the motorist's self discipline and
upon mass education. Here’s where the popular media, the electronic
media, can be of great help. A concentrated campaign, and I don’t
mean just by taking the automobile association news release, important
as that is. I want to commend you for what is obviously a relatively
scientific survey that you macte. Now if we could have continuous
reminders to the American public on how we can conserve on gasoline
it would do a great deal because, you know, no one likes to meet these
mandatory programs. You just don’t like them.
First of all, when you run them out on the Nation’s capital, they tend
to get sticky. If you break them up in the districts and States that
tends to introduce such variability that people say, “Why can’t I do it
like they do it over there ?” If you are in Government you find out that
everybody is really on your back. They really don’t like anything that’s
going on. That’s about where you start. From there on out it gets worse.
So, I mean, you know, having been around the circuit a (bit I just know
what happens with that sort of thing. Therefore, this kind of voluntary
action on the part of the citizenry, if we could really encourage it,
though it may not do whatever you had to do under that control
test, let’s say if you get a 5-percent or 6-percent saving on gasoline,
that would be excellent. It would be a tremendous help.
I think the point needs to be made here in reference to the testimony
that you’ve given, Mr. Bowar, that now in the summer the refineries
are working at capacity on gasoline, and that is why, you know, there
really is a place that you can always get some gasoline. Now, on the
eastern seaboard they’ve had these 10-percent cuts I guess and they’ve
limited the hours the stations stay open, and certain name brands
operations have cut back. But what I worry about in Minnesota is not
so much that we’re going to be short of gasoline this summer, because
99-740— 73-------13
18.8
I think the gasoline we’ll maybe be able to find; you know, if you
are ingenious you’ll get it someplace. But fuel oil, diesel fuel that re
lates to our food production and our mass transportation and to our
Soo Line friend here and the railroad system and our trucks; that
relates to the whole movement of gas and services across this country.
This could be a catastrophe because of what they’re doing now. You
see, gasoline prices are going up, but again I don’t think there’s half
as much complaint about that as some people would assume. I think
that everybody knows there may have to be an adjustment, and it’s just
a question of what kind of practices are involved here, whether these
adjustments need to be 6 cents or only 2 cents or 1 cent or whatever
they are. But what alarms me is that we ought to be building up some
reserves of fuel oil in the summer.
I looked at the pattern over the years and it’s in the summer months
in the years past that, while we produced the gasoline that was neces
sary for the motorists, we built up the fuel oil and the other supplies;
so that when the heavy crunch came on in the fall and the winter for
these fuel-oil supplies we had them in the tanks and reserves ready to
go. But today there’s really very little accurate information as to
whether or not there are any reserves at all worthy of being called
reserves for the railroads, for the trucks, for the schools, for the
home, for home heating.
In the meantime conservation measures of all kinds are needed. I
mean, whether it’s fuel oil, whatever it is, we just need to remember
that it isn’t here and we don’t have unlimited supplies no matter how
we look at the situation. Some people feel the majors are over-em
phasizing the shortage. Let’s just assume that the shortage isn’t as
bad as it appears to be, even though I think there is a shortage. There
is nonetheless a need for conservation and a great need for it and we
have to take these steps. Now, did Mr. Denn get back?
U nidentified V oice. Apparently not.
Chairman H u m p h r e y . He represents a very important group here. I
hope nobody’s told him he ought not to be here.
Mr. B owar . May I offer one concluding remark?
Chairman H u m p h r e y . Yes.
Mr. B ow ar . We applaud your clear thinking on a proposal to in
crease the Federal gasoline tax, but I would like to add that our
organization doubts very sincerely that just increasing the Federal
gasoline tax is going to give us a more adequate petroleum supply.
We doubt sincerely for some of the reasons you just stated, the hu
man element of people using their cars. They will continue to use them,
and we don’t see how such a measure will actually accomplish a greater
supply.
[The prepared statement of Mr. Bowar follows:]
P repared S t a t e m e n t
op
C. L.
B ow ar
Senator Humphrey and members of the Committee . „ My name is C. L.
Bowar and I am appearing here today in behalf of the Minnesota State Auto
mobile Association, the AAA affiliate in Minnesota. We are an organization
of motorists in this state, almost 400,000 strong and the gasoline shortage,
whether it is a real shortage or a contrived one, is of primary importance to our
members, particularly those who intend to take a trip by automobile of any
distance in the months ahead.
In fact, this issue which your committee is probing this morning was also
on the agenda of our Executive Committee which met yesterday.
189
We are keeping a constant watch on what is happening so we can properly
.advise our members. We are also advising our members and the motoring public
generally that there are certain things which they, as motorists, can do to save
on gasoline. Here, for example, is a copy of a news release which suggests ways
in which they can do that.
Last month we ran controlled tests on a 1970 model automobile in a beforeand-after performance type of test, specifically aimed at getting maximum gaso
line mileage out of this particular car. The result of that test is a story which
appears in this month’s issue of the Minnesota AAA Motorist, entitled, “How to
Save $100 a Year on Gasoline.” It was our feeling that this appeal to the pocketbook might make a lot of sense to motorists.
Finally, we are one of a number of AAA clubs around the nation which is now
engaged in a weekly reporting system on the gasoline shortage. We call this
AAA’s Fuel Gauge report. What it involves is a telephone survey of service
stations at various geographical locations in the state, with questions directly
to the operators of these stations. I have a copy of this week’s report to leave
with the subcommittee and I can conclude my remarks by giving you a brief
rundown on what this week’s survey told us:
(1) There is no critical shortage of gasoline on the one hand
but there is
a moderate, spotty shortage depending on circumstances.
For example, company owned and operated stations seem to have little or
no problem. Most other stations, however, are now on an allocation basis, getting
as much but no more fuel than they purchased last year. A few stations have
been cut to 90% of last year’s volume and one has been cut to 85%. Other
stations are saying that, while they are not under any allocation system as
such, they must be content with buying in smaller lots.
(2) The hardest hit by the situation seem to be the independent brands, then
the independently owned stations of major brands, and finally those stations
which, for any reason, are experiencing a substantial increase in volume of
business over last year.
(3) What are the stations doing about it? Many are keeping open shorter
hours; others are closing for a full day (such as Sundays or holidays) ; and a
few are limiting gallonage to individual patrons. For example, some stations
are now limiting gasoline sales to $2.00 for out-of-state visitors, some are limit
ing to a flat amount for all customers (such as 10 gallons per customer or $3.00
per customer) and a few are starting now to limit sales to trucks to 25 gallons.
(4) How about price per gallon? Our survey showed that, in general, there
has been an increase of 24 per gallon during the last two months. In communities
where the price of gasoline has been depressed (so-called gas wars) the increase
has been as much as 74 and 84 per gallon.
(5) How do most stations feel about the gasoline shortage? Many of them
are quite happy about it. Stations which have been engaged in a price war found
that they can suddenly command the full price per gallon and are doing so.
In short, there is no such thing as a gas war anymore. Other stations are finding
out that the reduced hours allow them to stay open only during the best hours of
the day when traflic is heaviest and the repair business is .best. In other words,
they feel that they are operating close to their maximum profit potential.
(6) What is the outlook for next week? No change, according to most of the
men we interviewed. Gasoline will still be in limited supply. A few expect their
diesel fuel supply to be limited in the near future.
(7) As for motorists running out of gas because of the gasoline shortage
no! In no case did we find evidence of running out of gasoline because there was
none available.
However, the shorter hours being adopted by many stations, plus the complete
closing for a day or two by others, may very well mean that motorists will have
some difficulty in finding help in an emergency
particularly at night and on
weekends.
Our survey also showed that the shortage is forcing some stations out of
business, either independent brands or independently owned stations. During
this past week, for example, 5 of our AAA contract stations (that we know of)
went out of business, 3 of them solely because of the gas shortage.
As to whether or not people will be curtailing summer travel plans, our only
gauge on this is the number of trip routing requests we receive. By that yardstick,
the answer is no, people are not curtailing travel plans. They may be taking
shorter trips, but they are still vacationing .by automobile. Admittedly, this sit
uation may very well change as we get into the peak summer travel season.
190
Finally, a news release this week notes that Secretary of Treasury, George P.
Schultz, admits that the administration “is considering an increase in the federal
tax on gasoline from 1$ to 10^ per gallon.” We see no way that such an increase
would increase the supply of gasoline and thus relieve the shortage. Instead,
it would only add to the heavy tax burden already on motorists.
Attachment.
[From the Minnesota State Automobile Association News Release]
AAA
O ffe r s
G a s -S a v i n g
T ip s
B u r n s v i l l e , M i n n . —Rumored
gasoline shortages for this summer should not
deter motorists from planning vacation trips, according to the Minnesota State
Automobile Association (AAA). If shortages occur, the Auto Club says, they
are expected to be only local in nature and should not strand motorists for lack
of fuel.
However, the AAA urges that all motorists take steps to reduce their car’s
gasoline consumption to insure a plentiful gasoline supply throughout the state.
And with gas prices on the upswing, motorists can minimize their travel expenses
by making sure their car is getting the best possible mileage.
AAA officials offer the following tips to help you get the most out of your
gasoline dollar:
♦Make sure your car’s ignition system is working at peak efficiency by checking
spark plugs, points and timing. Be certain the air filter is clean and that the
automatic choke is opening completely after warmup.
♦See that tire pressure complies with the manufacturer’s specifications. For
highway travel, a pressure 4-5 pounds over the recommended pressure for a
given load will improve mileage and stability.
♦Travel light. Weight is a significant factor in determining mileage.
♦Travel at steady, moderate speeds. Gasoline consumption increases rapidly
for speeds over 55 m.p.h. Avoid “jack rabbit” starts and full-throttle passing
when possible— they waste gas.
♦Cut down on the use of accessories such as air conditioning by traveling early
in the day and pulling off the road during the hottest hours.
These tips should help you to save money on your motoring vacation this
summer, the motoring organization says. But the same principles applied to
your everyday driving can save you money and go a long way to head off sig
nificant fuel shortages in the immediate future.
Chairman H u m p h r e y . I wish somebody was a good enough engineer
around here to tell us whether or not these fuel-saving devices and
engineering techniques that were talked about over the years could
not be—whether or not, No. 1 , they are really available from a tech
nology point of view and. No. 2, what the automobile industry is
doing about it. You know, for years there’s been the feeling that there
were devices made, there was a kind of engine available, there was
the technology to make the modern automobile conserve fuel. But
there’s argument that the majors have always stopped that from going
into the cars, that the oil and the automobile companies wouldn’t use
that kind of equipment. I ’ve been getting a flood of mail to this al
ready. Immediately when you get a crisis, when you’ve got a problem
like we have now, why people come in with this.
Again, you know, we build awfully big cars in this country. I ’ve
often wondered if we really need 400-horsepower cars to transport
people across town. I forget the percentage, but better than 50 percent
of all transportation in the automobile is in what we call an immediate
encircled environment of about 50 miles from home, and it seems
questionable to me whether I really needed those 400 horsepowers just
to get me from my home to the Senate Office Building. I ’ve never been
quite sure that that’s what I need and that’s why there is now a move
ment to buy small cars. I understand small cars are at a premium now.
Mr. B o w a r . And this particular situation, Senator, I am sure is going
to accelerate that trend toward smaller cars, compacts.
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Chairman H u m p h r e y . Y ou know, the Japanese took over the small
television because the American manufacturers of TV’s thought every
body ought to have a console, a piece of furniture twice as big as that
lectern with a screen on it. So, the Japanese came in with Sony; they
just cleaned us out, you know, with this small TV operation. Now we
let the Europeans and the Japanese come in and take the small-c-ar
market because we had engineers and automobile companies that were
determined that you are going to buy a big car, and if they get an en
gineer that builds a small one, next year they’ve got it bigger. So,
every time they get a small car they just can’t wait to put on some
more steel and make that car bigger. Now, maybe we’re going to get
down to a point where people understand that you really can get
from your mother-in-law’s home to your uncle’s home in a car that
hasn’t an 8-cylinder engine with 475 horses under the hood. I opened
up a hood under a car the other day and I said, “Man, you can go to
the Moon on this thing. There are more contraptions on that engine
than there are on an Apollo spacecraft,” and no wonder 110 one can
repair them. You have to be Einstein to figure them out. I have a great
respect for any repairman that could even get the hood open to repair
the car.
Well, those are some of my prejudices which I always like to toss into
these meetings. You don’t really have to be impressed by them. Some
body said, “ Should we break a half hour for lunch?” I suppose we
will, but we can always eat. We’ll have a couple more questions here.
Mr. Carpenter, let’s go back to you. You said something about how
we are sitting on a time bomb: that is, that the fuel shortage may sort
of be accumulating and may culminate to produce economic chaos, par
ticularly in the agribusiness area. Do you foresee a situation in which
we simply may not be able fully to harvest and market this summer’s
crop because of a breakdown in the fuel supply system thereby affect
ing, of course, transportation as well ?
Mr. C a r p e n t e r . Senator, I think that’s a very real possibility. As a
specific illustration, the distributor that I’ve referred to, where the
farmers were actually out at the present time and who has sold about
two-fifths of his June allocation, tells me he cannot draw on his July
allocation. He expects to be out of fuel if things are not changed about
the middle of June or early in July when the harvest could catch up
to us. If this is true and if the farmers’ reserves in their individual
tanks are reduced as we expect them to be, we see the possibility of a
very real shortage, unavailability in July and August.
Chairman H u m p h r e y . So you see the problem peaking about the
period of time, July and August ?
Mr. C a r p e n t e r . Well, I ’m not sure if it will peak then or if it
will peak when the cold weather causes competition for diesel fuel
as heating fuel. In many instances there is competition out in the
rural area; the fuel can be used either way and I think the harvest
of corn and soy beans and the fall plowing and the beginning of the
heating would probably be the peak.
Chairman H u m p h r e y . Yes, most people back East don’t understand
about drying, you know\ One of our real problems on agriculture is
getting anybody to know" what it’s all about. We got people now so
they can spell farmer, and agriculture is advanced education when
you get, you know, to understand that. That’s a real true story. I mean,
192
I visit with my friends with the media back East and they kind of get
that glassy-eyed look when you start talking about drying and the
marketing problems of agriculture. The only thing they know is that
beef steaks are high, and other than that, from there on out it’s
zilch.
By the way, that’s the product of some of our over-education in
universities and colleges where they know little or northing about
agricultural economics. It’s a singular tragedy. Even the Government
itself is without agricultural economists almost in every department.
You go to the Federal Trade Commission, the Justice Department;
you go into any of the regulatory agencies. If you ever find anybody
that has any closer relationship to a farm than his great-grandmother,
you are very lucky. I served on a committee on agriculture and I ’m
a bit of a tempestuous fellow around there, because I ’m fed up with
people who are highly educated at these great universities and who
think everything comes out of General Motors. Even though I like
General Motors, just once in awhile somebody ought to know that
milk does not come in cartons. It comes out of cows.
Mr. C a r p e n t e r . Senator, we’re extremely pleased that you are on
that agriculture committee for just the reasons 7/ou eluded to. There
are any number of ways we could illustrate this, but if we start to
dry corn and----Chairman H u m p h r e y . Let’s say if you can’t dry corn, what happens
to the crop output, I mean the crop estimates, for example ?
Mr. C a r p e n t e r . Well, if we can’t dry it, of course, the corn will im
mediately start to spoil if the weather is such that it isn’t frozen,
therefore retarding the rapid decomposition. But even if we start to
dry it and the drying is interrupted, that corn will immediately start
to spoil, and it can spoil to a degree where it’s almost useless as a food
in a matter of a couple days and in many instances this is irreparable.
When that corn is damaged, there is no way you can restore it. You
can’t start that dryer up 2 days later and bring the quality of that corn
back, and the same thing with dairy products and the rest of it. You
can’t interrupt even for a matter of a day or two.
Chairman H u m p h r e y . See, this relates again to what the housewife
is going to pay in that supermarket. This is why your transportation
problem is critical, Mr. Shoemaker, in serving the rural areas, in serv
ing the farmer out there who needs the fuel for his tractor and for his
harvest, who needs it for drying—and you have the big drying plants
around our part of the country. If any of this breaks down under the
present conditions with no reserves, it is a calamity. We have no food
reserves anymore; I mean, you just take a look, the cupboard is bare.
Once 5 years ago when I was in Government, why all we talked
about were surpluses. Every time you’d come home somebody would
grab you by the lapel and say, “What are you going to do about those
surpluses?” Now they say, “What are you going to do about the price
of beef ?” I tell them, “When you can get a steer ready for slaughter in
80 days, we’ll do something about it.” But it takes 21 days just to hatch
an egg no matter how hot the hen. It takes a certain period of time to
get a steer ready for market, and you just can’t milk calves. There’s
just certain things you’ve got to do. You’ve got to wait, and any in
terruption in the production process is catastrophic in our time because
there are no reserves of feed grains. There are no reserves of dairy
193
products. As a matter of fact, I want to say to this audience, they’re
selling off their dairy cattle by the thousands because the price of feed
for dairy cattle is high. The price of milk is not that good and the price
of beef encourages selling off the cattle, so you got real problems and
if you louse it up by a shortage of fuel, well, I tell you I’m going to
turn all the complaints over to Congressman Fraser. It’s his fault from
there on out.
Mr. Olsen, do you have any calculations on the effect of higher fuel
costs on MTC finances or bus fares ?
Mr. O l s e n . Mr. Chairman, Congressmen, I think I mentioned ear
lier in my statement that just off the top of my head it looked like for
the coming year, had we not found fuel, it would have ranged some
where in the neighborhood of one-third of a million dollars. Now, the
State has provided for a fare stabilization plan so that the fares would
have remained stable, but still that money comes out of the tax fund
of the State of Minnesota, so it’s passed on to the taxpayers of
Minnesota.
Chairman H u m p h r e y . So it’s in the form of a subsidy that’s paid
out b}r the taxpayers, out of the revenues from the taxpayers ?
Mr. Olsen. That’s correct.
Chairman H u m p h r e y . So as these costs go u p , the subsidy must go
up?
Mr. O l s e n . That’s correct.
Chairman H u m p h r e y . In other words, you’d have to raise your
rates, is that correct ?
Mr. O l s e n . Well, eventually, of course, if this went on. In order to
keep the-fare at its present level, obviously the tax yield would have
to increase.
Chairman H u m p h r e y . That’s what I mean, the amount o f the share
that’s paid publicly would have to increase ?
Mr. O l s e n . That’s right.
Chairman H u m p h r e y . Just another question on that. You noted
that curtailment of bus service would force people to turn more to
automobiles, taxis, et cetera. How does MTC’s fuel consumption per
passenger mile compare with that by private automobile ?
Mr. O l s e n . Well, our buses range about 4 miles, 4 miles to the gal
lon diesel fuel, but bear in mind that the overwhelming preponder
ance of those buses have substantially more passengers than is car
ried by the automobile. For example, in the morning rush it is not
uncommon to have buses on the more heavily traveled routes that
would have 80, 90, or 100 passengers, so we may make half as much in
terms of miles per gallon of fuel versus the automobile, but during
the peak hours of the morning our vehicles may average as many as
60 or 70 times as many passengers.
Chairman H u m p h r e y . So as we’ve said, the proper use of the public
transportation system, the mass transit system or the mass transporta
tion system is a fuel conservation measure, is it not ?
Mr. O l s e n . I don’t think there’s any question of that.
Chairman H u m p h r e y . Therefore, any limitation of your service
merely pushes the problem back onto the individual automobile owner
who’s going to have to scramble for a short supply of gasoline?
Mr. O l s e n . Yes; that’s correct. It’s going a step further. We’re
offering an experimental express service between the downtown area
194
of Minneapolis and as far south as Apple Valley, and on-board
surveys at the peaks on those buses have shown that about 60 percent
of those passengers are choice customers. That is to simply say that
they have an automobile available to make the trip but they have
chosen to use the bus in the morning, and curtailment of that kind of
service in terms of the congestion on the highway today, particularly
on I-35W, could create just massive problems of congestion.
Chairman H u m p h r e y . Mr. Shoemaker, your rolling stock capacity,
as you’ve indicated, is already very heavily used due to larger com
mercial and farm output. If you have to slow down the trains—that’s
one of the things that people have talked about to conserve fuel—you
reduce your hauling capacity, because it takes longer to make the
trip, and in the instance of agriculture you would just back up the
grain shipments even more, isn’t that a fact ?
Mr. S h o e m a k e r . Very m uch so.
Chairman H u m p h r e y . In other words, there would be a slowdown
in the movement of grain from the country elevator to the terminal,
from the terminal to the port?
Mr. S h o e m a k e r . Yes; as you are well aware, we’re facing a national
car shortage of tremendous dimension. This area has a very serious
car shortage affecting all agricultural interests, and the basic result
could be not to serve areas either as frequently as desirable, which'
will slow down the turn around of equipment.
Chairman H u m p h r e y . And switching operations, if you had to cut
those out that could be very serious ?
Mr. S h o e m a k e r . Very m uch so.
Representative F raser . I don’t understand how you can reduce
switching operations. Aren’t they an integral part of train move
ments ? Can you still run trains and not do switching ?
Mr. S h o e m a k e r . Yes; we would reduce the frequency. With this
tremendous amount of agricultural movement, given destination
elevators are not just served once a day. They may be served two, three,
four or five times a day to handle the sort of volumes that are now
characteristic of this tremendous grain movement, and accordingly,
particularity in the terminal areas, we don’t have enough fuel to go
around. We would have to curtail the amount of service to individual
customers.
Representative F raser . You’d space out the number of stops ?
Mr. S h o e m a k e r . Sure, and maybe the frequency in how many days
a week.
Chairman H u m p h r e y . You’d still run the same number of trains,
but you wouldn’t necessarily stop at each place as often ?
Mr. S h o e m a k e r . We sure would on the main line, because we’re
loaded up anyway, but we might liave to reduce an area of the rail
road that was receiving service five times a week to three times or
from three times to two times. This is the basic impact.
Representative F raser . I f I understand it this diesel No. 2 that you
use is essentially the same as heating fuel, isn’t it ?
Mr. S h o e m a k e r . Essentially the same as heating fuel. It has a little
tighter sulfur specification and some additive specifications to pre
vent damage to diesel locomotives, which are sensitive pieces of equip
ment, but basically it is the same type oil.
Representative F raser . Your supply now in some sense is in com
petition against the production of gasoline from the refineries ?
195
Mr. S h o e m a k e r . T o the extent that it all comes out of crude, you
bet, and in that respect it is the same sort of end product that is used
for farm tractors, the same sort of product that is used for grain
drying, and used by the trucking industry.
Representative F raser . The fact that you are having trouble sug
gests that there are no reserves being built up for next winter, I
suppose ? I assume that's what’s being demonstrated ?
Mr. S h o e m a k e r . Either that or a great concern by the oil people
about the availability of supplies for next winter, because neither
supply nor price is firm any more.
Chairman H u m p h r e y . Well, Mr. Denn, do you know what I'm going
to do with you? It’s a quarter to 1 o’clock. How about you buying
me lunch or something like that?
Mr. D e n n . I ’ll agree to that.
Chairman H u m p h r e y . We’ll ju st knock off for lunch.
Oh, I wanted to ask this one general question here. It’s been indi
cated earlier that the major oil companies are under mandatory price
controls limiting them to an average of I think it’s 1 y2 percent price
increase overall for their products in 1973. Now, some of you, in fact
several of you here have mentioned some rather large price increases
on some products which you buy. Have you observed any price declines
to offset these price increases on other products? Have you seen any
price declines?
Mr. T h o r f in n s o n . I think what we reported to you would reflect
price increases across the board on items that we received bids on.
Whether it’s diesel fuel or regular or premium gasoline or the lube
oils or all of the products that they supply us, I don’t know.
Chairman H u m p h r e y . And you have a wide use, isn’t that right,
Mr. Thorfinnson ?
Mr. T h o r f in n s o n . That’s right.
Chairman H u m p h r e y . Any of you observe any price declines on any
of the products that you use ?
Mr. C ar p e n t e r . We’re not aware of any price decline that I can
speak to in any of the petroleum products commonly used by farmers.
Chairman H u m p h r e y . This therefore poses a question that we
must place before the Cost of Living Council, because the overall limit
for each of the 23 majors, giving them some flexibility in the different
products, as you understand, was iy2 percent price increases, and it’s
perfectly obvious from what we’re getting in testimony all across
the country that there have been no declines in price on products
that are produced or that are furnished by the major oil companies.
Residua] fuel, is that the one? We’ll have to look into that. But it may
well be that the 1 y2 percent limit is inoperative, I mean, that it
can’t work; that’s a possibility.
Mr. S h o e m a k e r . Some of the major oil companies that have con
tracts with the Soo Line for next year have indicated that, due to the
wage price guidelines, the contract starting price, which is the wav
contracts are now written, may decline just to meet the Federal profit
ceilings.
Chairman H u m p h r e y . We’re going to watch that very carefully.
You’ve helped us with this kind of information. Again, I don’t want
to draw positive conclusions until we get much more evidence, but
there’s something here that makes you wonder whether this price
196
control system is really operative or really working, or whether there's
an open violation or a lack of proper enforcement.
Anybody else here on this panel have anything he’d like to offer ?
Now, the gentleman in the back had a question. We generally don’t
take questions, but we’d like to hear what you wish to say.
U n id e n t if ie d V oice . While you were a Vice President, Mr. John
son stopped a pipeline coming from Fairbanks. I was in Fairbanks,
Alaska, á few years ago and there were millions of dollars wasted. I
wish they could have brought that down to Anchorage and put in tanks
or ships to Seattle. Now, a gentleman here spoke about drying.
Chairman H u m p h r e y . Bv the way, we didn’t get your name. May we
just get your name ? We want your name for our record.
U n id e n t if ie d V oice . Why should I have a name? I don’t have one.
Chairman H u m p h r e y . Yes, we need it for the record.
U n id e n t if ie d V oice . My name is Borrows.
Chairman H u m p h r e y . Mr. Borrows, where are you from ?.
Mr. B orrows . Well, from here.
Chairman H u m p h r e y . Minneapolis ?
Mr. B orrows. Yes. And I ’m happy to be a Democrat, but you’re driv
ing me to become a Eepublican. Now, while I was there I started to
inquire. Johnson stopped the pipeline for ecology reasons. That was
a bunch of bunk. When you put a pipeline, you need a path only 25
feet wide. These arguments should have been thrown over long ago.
Now, coming back now to the gentleman that said he had a grain
dryer; he was talking about oil, but he doesn’t need oil, all he needs is
electricity. That will do just as good.
Now, Great Britain is only one-third larger than the State of
Minnesota and yet we don’t have one atomic energy plant. Why ? Our
engineers arc as good as theirs. It is the question of politics going on.
I could give you a lot more. I ’ve got about 20 questions here.
Chairman H u m p h r e y * Well, thank you very much, Mr. Borrows.
We welcome open hearings. I believe in openness in government and I
think that people in government ought to be worked over occasionally. I
want you to know that I ’ve had my fair share. We will return at 2
o’clock, and, by the way. we have some very ¿rood witnesses this after
noon. I want to thank all of you for your patience. Believe me, you’ve
been helpful. This will all be abstracted and made available to the
Senate and the House. Let me see if we have the afternoon witnesses
here before we break up. Is Mr. Emison of Oskey Gas & Oil here ?
Mr. E m is o n . Y es.
Chairman H u m p h r e y . Mr. Sampson of Midland Cooperatives ?
Mr. S a m p s o n . Here.
Chairman H u m p h r e y . Mr. Everett of the Northwest Petroleum
Association ?
Mr. E ver ett . Here.
Chairman H u m p h r e y . And Mr. Haglund of the Northwest Petro
leum Association ?
Mr. H a g l a n d . Yes.
Chairman H u m p h r e y . And, Mr. Eeed, I hope you won’t mind if
we bring you in last as a Government witness, just to kind of tie
this thing together, and maybe you can answer some questions. I want
to say for the Office of Oil and Gas in the presence of Mr. Eeed here,
that we had good cooperation from them in our efforts as individual
197
Congressmen and Senators, and we are not here to give them a rough
time, just to educate them and myself. Thank you very much.
[Thereupon, a recess was taken for the lunch hour.]
AFTERNOON SESSION
Chairman H u m p h r e y . We’ll reconvene. Congressman Fraser will
most likely return, but he’s away at the moment, so we will open up
with Mr. Denn, who’s the general manager of the Minnesota Motor
Transport Association. Mr. Denn was to be part of the users’ panel
this morning, but he was not available at that time. Following Mr.
Denn, as I said, we’ll have the suppliers’ panel. Is Mr. Comstock here ?
Mr. C o m s t o c k . Yes, sir.
Chairman H u m p h r e y . Mr. Comstock, you also will be a part of our
next group. Let me just ask for planning purposes, since both Con
gressman Fraser and I have to catch a plane to get back to Wash
ington in the early evening, what other witnesses do we have ? I have
John Kjera?
Mr. K j e r a . Kjera.
Chairman H u m p h r e y . That’s a pretty good name, John, of the oil,
chemical, and atomic workers, is that right?
Mr. K je r a . That’s right.
Chairman H u m p h r e y . And do we have any others now? Well, yes,
Mr. Eeed, of course, is here.
U n id e n t if ie d V o ic e . I would like to say a few words, if I could. I ’m
an independent owner.
Chairman H u m p h r e y . What’s your name?
U n id e n t if ie d V oic e . Lee Nakken.
Mr. E r ic k s o n . I represent the Minnesota Aviation Trade Associa
tion, an organization of airport operators in Minnesota.
Chairman H u m p h r e y . Y ou are Mr. ?
Mr. E r ic k s o n . Erickson.
Chairman H u m p h r e y . Oh, yes. All right. We’ll try to get you all
in, and we’ll move right along.
Mr. H e l l m a n . I ’m Mr. Heilman.
Chairman H u m p h r e y . Yes.
Mr. E ic h a r d s . I ’m Myron Eichards, president of Eichards Oil Co.,
Savage, Minn.
Chairman H u m p h r e y . Mr. Eichards. Now, we’re going to move
along. As you can see, we have quite a few, and we want to be able
to accomplish this in the next couple hours, so let’s move right on. Mr.
Denn, please proceed.
STATEMENT OF JAMES N. DENN, GENERAL MANAGER, MINNESOTA
MOTOR TRANSIT ASSOCIATION, ST. PAUL, MINN.
Mr. D e n n . My name is James Denn. I am general manager of the
Minnesota Motor Transport Association, which is a trade association
representing 125 motor carriers including common carriers, bulk,
specialized, over-the-road, long-haul, intrastate and interstate car
riers, those for hire as well as private carriers. I am most appreciative
of the opportunity to appear before this hearing and participate in the
discussions of the fuel shortage as it affects truck transportation in
Minnesota aind in general.
198
Our experience over the past several months can leave no doubt that
there is a very serious shortage of petroleum fuel products in the
United States and specifically in Minnesota. This is cause for particu
lar concern in our State, where over 470 Minnesota communities de
pend solely on truck transportation for the movement of goods and
services, with the balance of the communities in Minnesota also
largely dependent upon the flexibility and services offered by truck
transportation. According to the Minnesota Department of Economic
Development, Minnesota constitutes the third largest trucking cen
ter in the United States. Trucking is the second largest employer in
Minnesota, providing over 189,000 jobs, including 60,000 teamsters
employed in trucking operations. Our exposure to the fuel shortage
began in earnest about mid-December of 1972.
At that point in time, the abnormally cold fall and early winter
created a severe shortage in No. 1 and No. 2 diesel fuels. This shortage
was reflected to the motor carrier in nonrenewal of contracts and in the
reduction of supplies made available to them by oil distributors.
Historically, truck operators have received their primary fuel sup
plies through contractual arrangements with either major petroleum
companies or independent fuel distributors who, in turn, depend on the
major petroleum companies as a source of supply. Many of these con
tracts have expired since last December and have not been renewed.
In many other instances, suppliers, both major and independent, have
notified our members of their inability to continue to supply fuel at all
or that they must allocate fuel, cutting availability to as little as 50
percent of last year’s purchases. This situation has forced trucking
firms to seek fuel from sources other than their traditional suppliers,
at appreciably higher prices.
It should be noted here that, although the motor carrier industry is
critically dependent upon adequate fuel supplies, it is not an aggres
sively large consumer of these fuels. For example, our best estimates
indicate that 30 to 35 million gallons of diesel fuel will meet the needs
of the 30 major carriers operating in Minnesota. The competition for
the type of fuel used by trucks has increased significantly over the past
several years. Conservative estimates indicate that from 150 to 200
million gallons of such fuels were consumed in our State during the
past year by a relative handful of heavy volume users, such as utility
companies like Northern States Power, and institutional complexes
such as the University of Minnesota and the State of Minnesota.
The impact of the shortage has been somewhat reversed by one major
oil company’s recent decision to supply 80 percent of last year’s pur
chases to customers of record. This has been particularly noticeable
in Minnesota because so many motor carriers are dependent on this
supplier, Standard Oil. However, even this amount falls far short of
that needed, in light of the increased demands that have been placed
on the trucking industry. Motor carriers anticipate increased service
demands in the future of up to 20 percent above current levels.
The increased demand for services coupled with the cutbacks in fuel
has indeed reflected heavily on the ability of the trucking industry to
serve the public in the most economical way possible. Although the
abnormally warm late winter and early spring also worked to ease
the crisis foreshadowed by the earlier shortages, the situation is still
very pressing. This is manifested in various ways such as in cutbacks
199
of fuel supplies, nonrenewal of contracts, special shortnotice contract
provisions for either unilateral price increases or contract termination
by the supplier, and price increases of almost 50 percent for diesel fuel
and gasoline. It is apparent that the major difference between the
present fuel shortage and that of last December is that, in the current
situation, both diesel and gasoline are affected, whereas last December
the shortages were confined to the diesel fuels.
As anyone who has followed the problem realizes, there are dynamic
aspects to the fuel shortage. In an effort to maintain a current under
standing of the situation, Minnesota Motor Transport Association has
made it a practice to conduct a continuing survey of its member firms.
Most recent reports are based on a population of 27 major carriers.
The severity of the problem has risen to a point where price is a
secondary consideration and where the major concern is one of finding
a supplier with fuel available. Notwithstanding this turn of events,
the pricing situation is indeed serious. Based on reports we have re
ceived, the price increase is approximately in the range of about 4 cents
a gallon for diesel and over 5 cents a gallon for gasoline. This, of
course, is in a case where a major oil supplier is the source. Fuel pur
chased from independent suppliers has been recorded at prices up to
10 cents a gallon over that previously paid the majors and, of course,
fuel from truck stops is typically purchased at even higher prices.
In attempting to meet service demands, Minnesota Motor Carriers
have not only sought new fuel supplies but also have implemented a
number of fuel conservation practices. These include, but are not
limited to, more frequent maintenance checks, maximum utilization of
load capacities, operation at optimum speeds, strenuous route manage
ment, driver training programs, and other similar techniques.
In searching for solutions, we have been confronted at times with
some rather disturbing occurrences. On one occasion, we were advised
by Secretary of Transportation Brinegar that we should pursue
“ price allocation” in order to avoid fuel shortages. We are disturbed
and confused also by the ICC’s decision to disallow short-route emer
gency runs which would cut miles off intercity transportation and
effectively conserve on fuel. We are confused moreover by recent pro
posals to increase the Federal tax on fuels which in our opinion would
not serve to diminish the demand for fuel but would only serve to
aggravate further an already unstable and adverse cost situation. Such
proposals and actions appear inconsistent with all the indications we
have that the fuel shortage is very real and present.
The overall impact of the energy crisis on the trucking industry
is somewhat difficult to assess. In terms of specific hardship to the
public, it must be pointed out that, to the best of our knowledge, serv
ices provided by the trucking industry have been maintained without
curtailment, albeit at higher costs. The uncertainties and pressures of
the current situation are sufficient, however, to cloud the future pros
pects for individual motor carriers. Continuation of the shortage will
bring ever new pressures to bear on the trucking industry. Unless an
adequate fuel supply can be assured, it can also be forecast that the
cost of trucking services will rise and that many of the services now
provided by the industry will, of necessity, be curtailed.
This prospect looms ever present because of the uncertainty sur
rounding the fuel supply available to truckers. This uncertainty it
200
self can lead to the curtailment of services in anticipation of future
shortages. It is also true that a worsening of the fuel supply situation
could cause a large-scale cutback in truck service inasmuch as most
trucking firms have relatively small fuel reserve capacities in the form
of underground storage tanks and the like, and shortages are almost
immediately reflected in operations.
The basic shortage of fuel in Minnesota and the Midwest, regard
less of cause, should be rectified immediately. This can be accomplished
only through conservation efforts by consumers and stronger govern
mental controls or mandatory priorities. In our opinion, this should
include a reexamination of environmental controls under the Clean
Air Act of 1970 and of State environmental controls and regulations
with the aim, as stated by Treasury Secretary Shultz, “to achieve a
compatibility between energy needs and environmental standards.”
We are, indeed, vitally concerned about the impact of fuel shortage
in Minnesota and, in particular, as it affects our vital motor carrier in
dustry. Accordingly, we urge support of all constructive suggestions
which may contribute to the eventual solution of this serious problem.
Chairman H u m p h r e y . Let me ask you, Mr. Denn, has your organi
zation been concerned at all about the so-called “gateway” require
ment under ICC regulations ?
Mr. Denn. Well, to the extent that gateways will require a longer
route ?
Chairman H u m p h r e y . Yes.
Mr. D e n n . Yes, we have been, and we have, as I indicated, made
application. Many of the carrier firms had made application to use
emergency shortrun routes and these have, to the best of my knowl
edge, all been disallowed in the past couple of weeks.
Chairman H u m p h r e y . I think we have information on about 50
carriers that have been turned down in their request to the ICC for
the suspension of gateway requirements. I wrote a letter to President
Nixon on the 25th day of May in which I said:
Dear Mr. President: As a result of our subcommittee hearings on the present
shortage of petroleum products, it has come to my attention that the route
regulations of the Interstate Commerce Commission require some common car
rier truckers to pass through so-called gateways at a cost of much unnecessary
extra mileage.
I ’m told, for example, that a firm authorized to run trucks between
New York City and the west coast may well have to use routes 400 to
600 miles longer than the most direct route.
Continuing my letter “These regulations compel the waste of motor
fuel at a time when a fuel shortage has threatened serious economic
damage and other hardships to people in many parts of the country.
It is estimated that the gateway requirements consume at least 5 per
cent of the fuel used by the trucking firms involved and probably
waste at least a million and a half gallons per month,” et cetera. I
haven’t heard anything from the President as yet. It’s a rather long
letter. I ’m going to include in the testimony at this point a copy of
my news release with the attached letter of May 25 in reference
to the gateway requirements and the impact of the so-called gateway
doctrine on the use of diesel fuels.
[The news reléase with the attached letter, referred to above,
follows:]
201
N e w s R e l e a s e of S e n a t o r H u b e b t H . H u m p h r e y
H u m p h r e y U r g e s S a v in g s i n D i e s e l F u e l
WASHINGTON, D.C., May 25, 1973—Senator Hubert H. Humphrey today
urged the President to seek Interstate Commerce Commission suspension of
“gateway” requirements for truckers in order to save scarce diesel fuel.
Such action, Senator Humphrey said, would save at least 1% million gallons
of fuel a month, which is now wasted. Long-standing ICC requirements cause
many trucking firms to use other than the most direct routes to their destinations.
The text of Senator Humphrey’s letter to President Nixon follows:
“Dear Mr. President:
“As a result of my subcommittee hearings on the present shortage of petroleum
products, it has come to my attention that route regulations of the Interstate
Commerce Commission require some common-carrier truckers to pass through
so-called gateways at a cost of much unnecessary extra mileage.
“I am told, for example, that a firm authorized to run trucks between New York
City and the West Coast may well have to use routes 400 to 600 miles longer
than the most direct route.
“ These regulations compel the waste of motor fuel when fuel shortages threaten
serious economic damage and other hardships to people in many parts of the
country. It is estimated that gateway requirements consume at least five percent
of the fuel used by the trucking firms involved and probably waste at least iy 2
million gallons per month.
“I understand that, after granting temporary exemptions from gateway
requirements earlier this year, the ICC now refuses to extend the exemptions on
the grounds, among others, that the fuel shortage is insufficient cause.
“Many believe this to be an ill-informed and short-sighted view. Filling stations
in various areas now limit fuel purchases for trucks and cars. Major suppliers of
fuel to trucking firms are refusing to renew contracts altogether or will only
renew them subject to termination on 30 days notice. Moreover, diesel fuel used
by trucks is similar to No. 2 heating oil, which is expected to be in very short sup
ply next winter. Of course, shortages in any one of our energy sources are inter
related with the other sources, and so it is important to conserve on every front.
“I understand, moreover, that the Oil Policy Committee may recommend cut
ting highway speed limits to save fuel. Speed reductions applied to trucks dur
ing the present period of high economic activity probably will cause new shortages
of hauling capacity. This would make even more severe the potentially serious
shortage of hauling capacity for agricultural products and fertilizer which we
face in our rural areas. The suspension of ICC gateway requirements might help
to counteract this problem.
“May I urge, therefore, that Administration encourage the ICC to extend socalled ‘emergency temporary authority’ to suspend gateway requirements with
out delay and that immediate consideration be given to full suspension for the
duration of the fuel shortage.
“While this is only one aspect of the comprehensive action needed to alleviate
our energy problems, I believe it deserves immediate attention.
“ Sincerely,
H u b e r t H . H u m p h r e y , U.S. Senator.”
Chairman H u m p h r e y . I realize there’s some argument about this
whole subject. It isn’t as if it’s a clear-cut case. There’s a reason for
gateway requirements under normal conditions, but we’re not quite
facing normal conditions.
Congressman Fraser.
Representative F r aser . In your statement you say that, “ On one
occasion we were advised by Secretary of Transportation Brinegar
that we should pursue ‘price allocation’ in order to avoid fuel short
ages.” Maybe you covered this, but I don’t understand this statement.
Mr. D e n n . Well, Congressman Fraser, it was a meeting that was
held perhaps a month and a half ago in Minnesota. We met with the
Secretary and explained to him our problem. His recommended course
of action for us to follow was to bid higher prices for those fuels on
the pipeline. He indicated that since Minnesota lies at the eiid of the
202
distribution network, if people along the way bid the same price as
we do, then there would be an incentive not to transport the fuel this
far. The reason that I say we were confused by that is that, if this
were the case, it would indicate that there wasn't a real shortage. We
really do feel that there is and we don’t think that this bidding higher
prices is going to solve the shortage overall.
Chairman H u m p h r e y . What it really boils down to is that he rec
ommends a system of allocation on the basis, if you pay more than the
fellow down the street, or down the pipeline, so to speak, you’ll maybe
get the fuel?
Mr. D enn. That’s what he said; yes, sir.
Representative F raser . Where does that end if there’s a shortage ?
Mr. D enn. If there is a shortage it doesn't solve anything, because
if we answer Minnesota’s problem it may occur someplace else in the
Nation.
Chairman H u m p h r e y . It’s an incredible doctrine I might add. It‘s
really incredible that the Secretary, a departmental head, recom
mended that all you do is outbid the other fellow on the line regard
less of any price controls and allocation guidelines and then you'll
get your gas. It’s a form of officially authorized blackmarketing, that’s
about right, isn’t it? Isn’t that about what it amounts to?
Mr. D enn. It’s a term used in the industry: yes, sir. It seems that
if this were the way to go about it, it would look like a scheme to raise
prices, but in all my contacts and investigations it’s more the case of,
as I can see it, just poor advice, because I really do believe there's a
shortage and price allocation is not going to be an effective measure.
Representative F raser . I notice that you make the comparison be
tween the present situation and last winter when the fuels that you
used were the ones that were in short supply but we didn’t have so
much difficulty with gasoline. Now we got problems on both sides.
Have you some ideas as to what the future holds ? What about next
winter ? Do you foresee any slackening or worsening of the problem I
Mr. Denn. Well, we know, Congressman, that our best situation is
one where the carrier is getting 80 percent of last year’s purchases
from a supplier and that he is now forced to go to independent sources
or even ship in from out of State to make up the 20 percent he is miss
ing just to meet the past year’s demand. This year’s demand is already
over that and, as I indicated, we’re projecting a 20-percent increase.
And last winter was an extremely mild one. As long as there is such
a great dependence upon the fuels that we use for driving trucks;
namely No. 1 or No. 2 diesel fuels or their equivalents, as long as there
is such dependence on them also for heating homes—and we know
that’s very important—and possibly also for emergency centers, fire,
police and the schools and so on, we know that there’s going to be a
terrific drain. And the priorities are going to dictate that the truck
ing industry will suffer unless steps can be taken to insure that there’s
adequate supply. We predict that with a normal Minnesota winter we
will very likely have to curtail service and this will be reflected in
shutdown of equipment and layoff of people, very simply.
Representative F r a s e r . Thank y o u .
Chairman H u m p h r e y . You’ll be interested to know that y esterd ay ,
in the Senate, in my discussion with Senator Jackson of our b ill S.
1570,1 brought up the subject of priorities under the allocations fo r
certain segments of the economy. This is section 102 of the bill, I th in k .
203
I outlined the priorities, including motor transport and bus systems,
private and public bus systems, but particularly the trucking opera
tions of the country. Under our bill you will be given what we con
sider a very high priority; trucks, buses, railroads, and mass transit
will have priority call on fuel.
Mr. D e n n . I noticed that.
Chairman H u m p h r e y . We discussed this so that there’s a good
legislative history on it; it is recognized not only in the law but by
what we call legislative history in the perfecting of legislation.
All right. Mr. Denn, we thank you. I ’ve had the privilege of meet
ing with Mr. Denn before and working with the Minnesota Motor
Transport Association. I want to assure you of our cooperation and, if
you have pressing emergency problems, we’re available; the telephone
number is 225-3244, area code 202.
Mr. D e n n . I’ve got it.
Chairman H u m p h r e y . I knew y ou had it. Thank you .
Mr. D e n n . Thank you very much. I appreciate the opportunity.
Chairman H u m p h r e y . N o w , we have the panel. I believe we have
sufficient chairs here. Mr. Emison, Mr. Sampson, Mr. Everett, Mr.
Haglund, Mr. Comstock, just pull up here. This is a panel represent
ing petroleum suppliers in our part of the country. We will list for the
record the following parties at this hearing: Mr. James W, Emison,
the Oskey Gasoline & Oil Co., Inc.; Mr. Sigved Sampson, president
of Midland Cooperatives; Mr. Jerry Everett, executive secretary,
Northwest Petroleum Association; Gordon Haglund, chairman of Fuel
Oil Committee, Northwest Petroleum Association; and Mr. Wayne
Comstock, treasurer of Minnesota Association of Petroleum Retailers.
These are the five gentlemen that we have here, and might I suggest
now for our purposes here that you make available your prepared
statements for publication in the record and just summarize them, be
cause of the time element here. Just hit the high points, just the high
points. Believe it or not, we do study this record very carefully and we
have staff people that abstract it for us, so that we get what we want
out of the record. So you just bang away with what you consider infor
mation that’s especially valuable to us. We don’t need background
information. We need the information that’s right on target. We will
open up with Mr. Emison, Oskey Gasoline & Oil Co. Mr. Emison,
please proceed.
STATEMENT OF JAMES W. EMISON, PRINCIPAL EQUITY OWNER,
OSKEY GASOLINE & OIL CO., MINNEAPOLIS, MINN.
Mr. E m is o n . Thank you. Mr. Chairman, Congressmen, my name
is James W. Emison. I am a principal equity owner in Oskey Gasoline
& Oil Co., a 12-State independent marketing company head
quartered in Minneapolis, Minn. Other than for attendance at
college and service in the Marine Corps I’ve been in the oil business
since I was 15 years old. I am a member of the American Petroleum
Institute and the National Petroleum Council as well as a number of
other industry groups. As I understand it, one of the questions you
are submitting to members of the oil industry and other interested
parties is plainly, “ Should the recently announced voluntary fuels
99-740— 73------- 14
204
allocation program be made mandatory as opposed to voluntary
and if so, to what extent and how ?”
Before addressing myself directly to these questions, let me make
a statement of a general nature. It is with a considerable degree of
shame and chagrin that I have to recognize that both my industry and
my country even have to consider fuel allocation, whether it be volun
tary or mandatory. My customers are made up of independent busi
nessmen who have survived and profited by their wits, instinct, and
hard work.
It is an anathema to us that the Federal Government or any gov
ernment interfere or intercede in our affairs. However, because of
past sins of omission and commission worked upon our industry by
both Federal Government and various local government subdivisions,
environmentalists and others, our industry has literally been brought
to its knees. My industry is no longer able to perform 100 percent of
its normal function in the domestic or world energy economy. As a
result, during this period of energy scarcity the companies that will
suffer most or for that matter will be entirely destroyed will be those
companies which are the smaller economic entities, or those which are
not fully integrated with respect to strong raw material and manu
facturing base.
If as apparently has been determined by the Federal Government,
it shall be a matter of national policy to save the independent segment
of the oil industry, then it is without question that controls for the
purpose of fuel allocation will be required and that such allocations
will have to be made m andatory upon the entire industry. There is no
doubt but what the administration of such allocations will be difficult
but the problems we face are enormous ones affecting literally tens
upon tens of millions of people. Any problem of this magnitude can
not be dealt with in simple terms. The question is not whether it can
be dealt with ; it must be dealt with !
As I think about all the ramifications of a mandatory allocation
system, my thoughts go back some 2, 3, or 4 years when—if we had
built the Alaskan pipeline, and if the Federal Government had al
lowed a 1 -cent-per-gallon increase in crude oil prices, and if the FPC
had allowed the price of natural gas to rise by 30 or 40 cents per
thousand cubic feet, we would not be seated here today with a virtual
tragedy on our hands.
Mr. Chairman, there are several points that I feel are required to
implement what I would consider to be a fair and effective mandatory
fuels allocation program. (1 ) Within the scope of such a program the
oil companies should be allowed substantial latitude to deal fairly with
the spirit of the program. The Office of Oil and Gas should be en
couraged to set flexible rules to administer the program. (2) The
present energy situation is not manageable in a framework that will
save independents without the imposition of mandatory controls. (3 )
Adequate provision should be made within any mandatory program
for the purpose of supplying the needs of nonpriority customers
who did not have a base period supplier with a supply obligation to
such a customer. (4) There must be adequate legal safeguards given
to the industry to protect it against needless antitrust or contract
litigation.
205
Chairman H u m p h r e y . By the way, my amendment will do just that,
the one that we referred to earlier this morning. On the one hand, it
would prevent noncompetitive actions by the industry, and on the
other hand it would make sure that any rules and regulations that
the Government establishes by which the industry is required to sup
ply are not interpreted by antitrust lawyers to be in violation of the
antitrust laws. Go ahead.
Mr. E m is o n . (5 ) Such a mandatory program should not be placed
in effect in a time period of much less than 4 or 5 weeks simply be
cause of the logistical movement of material that will be required.
(6) It is further my view that, unless the present administration uses
the proper vehicle to impose mandatory allocation, the Congress will
do so but may do so in such a way as to further hamstring and confuse
the industry and create a situation that is not acceptable to the con
suming public, national policy, or the oil industry. And last, many of
the supply disparities m the oil industry are currently, related to
price—the price of foreign products, the price of domestic products,
and the location of those products.
Phases 3 and 3A have created a number of price anomalies that
frequently prevent the movement of products in proper directions,
simply as a result of price considerations.
The Economic Stabilization Act has provided that the Cost of
Living Council may grant price control exemptions for those indus
tries that are otherwise regulated on the subject of price by agencies
of the Federal Government such as FPC, ICC, CAB, and others.
I suggest that a similar position be adopted for the oil industry
by using the Oil Policy Committee as an agency to monitor or over
view its pricing.
Finally, Mr. Chairman, I ’d like to just make one statement about
what is going to happen to the heating oil and diesel fuel situation
this winter. That is, right now we are destroying the normal gas-oil
proportions of the petroleum barrel in order to manufacture this gas
oline in adequate quantities to take care of the requirements as they
presently exist. By destroying the gas-oil fraction this summer in
order to manufacture gasoline, that gas-oil fraction will not be avail
able to manufacture fuel oil or diesel fuel or jet fuel or products of
those fractions. We won’t have a proper inventory, and you are flatly
not going to have adequate supplies of fuel oil either domestically or
internationally to supply this country this winter if gasoline use
continues at its present rate. So something is going to have to be done
to artificially restrain demand, and it’s going to have to be something
pretty severe like a national speed limit of 55 miles an hour or arbi
trary gasoline rationing. In connection with my work on the National
Petroleum Council, I have learned that there is just a worldwide
shortage of all kinds of light fuel products. It’s not a matter of what
price you are willing to pay.
The stuff is just flatly not available, so that you must have flexible
mandatory controls. We must artificially restrain demand and we must
provide some monitoring authority such as the Oil Policy Committee
to monitor the oil industry as it prices its products.
One additional statement I would like to make is that it appears to
me today that the major oil companies have come off looking rather
bad. They’re my natural enemies; I fight them everyday iii the market
206
place; but believe me this shortage was not contrived. The oil com
panies are working very hard to solve the problem. The leadtime re
quired, as you observed, Senator, are enormous, and it's going to take
a monumental effort 011 the part of the citizenry of this country, the
Congress, and the people in our industry to solve this problem. That's
all I have to say.
Thank you.
[The prepared statement of Mr. Emison follows:]
P repared S t a t e m e n t
of
Ja m e s W . E m is o n
Mr. Chairman and Congressman, my name is James W. Emison. I am a prin
cipal equity owner in Oskey Gasoline and Oil Company, Inc., a twelve-state in
dependent marketing company headquartered in Minneapolis, Minn. Other than
for attendance at college and service in the Marine Corps, I have been in the
oil business since I was fifteen years old.
I am a member of the American Petroleum Institute, the National Petroleum
Council, as well as a number of other oil industry groups. As I understand it, one
of the questions you are submitting to members of the oil industry and other
interested parties is plainly—should the recently announced Voluntary Fuels
Allocation Program be made mandatory as opposed to voluntary and, if so, to
what extent and how? Before addressing myself directly to these questions let
me make a statement of a general nature. It is with considerable degree of shame
and chagrin that I have to recognize that both my industry and my country have
had to even consider fuel allocation whether it be voluntary or mandatory. My
customers are made up of independent business men who have survived and
profited by their wits, instinct, and hard work. It is anathema to us that the
Federal Government, or any government, interfere or intercede in our affairs.
However, because of past sins and omission and commission worked upon our
industry by the Federal Government and various local government subdivisions,
environmentalists, and others, our industry has literally been brought to its
knees. My industry is no longer able to perform 100% of its normal function in
the domestic or world energy economy. As a result, during this period of energy
scarcity the companies that will suffer most, or for that matter will be entirely
destroyed, will be those companies which are the smaller economic entities or
those which are not fully integrated with respect to a strong raw material and
manufacturing base.
If, as apparently has been determined by the Federal Government, it shall be
a matter of national policy to save the independent segment of the oil industry,
then it is without question that controls for the purpose of fuels allocation
will be required and that such allocations will have to be made mandatory
upon the entire industry. There is no doubt but what the administration of such
a program will be difficult, but the problem we face is an enormous one affecting
literally tens upon tens of millions of people. Any problem of this magnitude can
not be dealt with in simple terms. The question is not whether it can be dealt
with, but that it must be dealt with.
As I think about all the ramifications involved in a mandatory allocation sys
tem my thoughts go back to two, three or four years ago when—if we had built the
Alaskan Pipe Line; and when if the Federal Government had allowed a one-cent
per gallon increase in crude oil prices and when if the FPC had allowed the price
of natural gas to rise by 30 to 40 cents per 1000 cubic feet—we would not be seated
here with a virtual tragedy on our hands!
Mr. Chairman, there are several points that I feel are required to implement
what I would consider to be a fair and effective mandatory fuels allocation
program.
(1) Within the scope of such a program companies should be allowed substan
tial latitude to deal fairly with the spirit of the program and that the Office
of Oil and Gas should be encouraged to set flexible rules to administer the pro
gram.
(2) The present energy situation is not manageable in a framework that will
save independents without the imposition of manadtory controls.
(3) Adequate provisions should be made in any mandatory program for atten
tion to the supply needs of non-priority customers who do not have a base period
supplier with a supply obligation to such a customer.
207
(4) There must be adequate legal safeguards given to the oil industry to
protect it against needless anti-trust or contract litigation.
(5) Such a mandatory program should not be placed in effect in a time period
of much less than four to five weeks simply because of the logistical movement of
refined materials that will be required.
(6) It is further my view, that unless the present administration uses a proper
vehicle to impose mandatory allocation that the Congress will do so, tout may do
so in a such a way as to further hamstring and confuse the industry and create a
situation that is not acceptale to the consuming public, national policy or the oil
industry.
(7) Many of the supply disparities in the oil industry are related to price—
the price of foreign products, the price of domestic products and the location of
the products.
Phases III or IIIA have created a number of price anomalies that prevent or
frequently prevent the movement of product in proper directions—simply as a
result of price considerations.
The Economic Stabilization Act has provided Cost of Living Council price con
trol exemptions to those industries that are otherwise regulated on the subject
of price by Agencies of the Federal Government such as the F.P.C., I.C.C., C.A.B.
and others.
I suggest that a similar position be adopted for the oil industry, with the
Oil Policy Committee being given authority to overview and monitor prices
within the oil industry. The Cost of Living Council can hardly be expected to
monitor an industry that is not only in terrible trouble, but is some five times
larger than any other industrial activity in the United States.
Mr. Chairman, let me add a few additional comments related to the testimony
of prior witnesses who were speaking of the problems we can expect with
respect to the heating oil situation this coming winter. At the rate our industry
is presently running and using gasoline and thereby destroying the gas-oil
fraction of the barrel— (The gas-oil feedstock fraction can be used to manu
facture substantial quantities of heating fuels—diesel fuel—for use now and
subsequently preparing inventories for the coming heating season). We must,
absolutely must, do something to restrain current gasoline demand now—whether
by World War II style rationing or by setting a national speed limit something
on the order of 50 miles per hour. Without artificial restraint of gasoline demand
now we will suffer a heating oil catastrophe this winter.
Secondly, Mr. Chairman, it occurs to me that the major oil companies have
come off looking rather badly today—I do NOT think this is fair! This current
shortage was NOT managed or contrived, and all of the large oil companies are
working just as hard as they know how to overcome the problems that have
been created as a result of the inattention the energy problem has received.
The big companies are just as concerned about the problem as all of us here
today are!
Thirdly, any mandatory system invoked or imposed has to have, as an absolute
pre-requisite, a great deal of flexibility or we will simply create more problems
than we solve. Thank you.
Chairman H u m p h r e y . Mr. Emison, I ’m grateful for your testi
mony. I tend to find in it considerable merit, at least from my point
of view. I think what you had to say is right on target: I think the
present situation does represent, as you properly indicate, a gross
lack of foresight and planning on the part of the Government and,
I might even say, on the part of industry. We had a long struggle,
as you know, on import quotas in the Government. The theory was
at one time that, after all, we ought to have our own—I think we
ought to develop our own resources here and have our own domestic
oil industry. Today—well, let’s put it this way: 17 years ago in the
Middle East crisis of 195fi, we were able to supply our needs and
Western Europe’s out of the expanded production of the American
oil fields: today American oil fields are on the downhill grade, so to
speak, until we get the Alaskan North Slope opened up and the Alas
208
kan pipeline. I.happen to think we are going to have to do that, and
I have for a long time.
I haven’t*been dragging my feet as a Senator on the pipeline, even
though I realize that the trans-Canadian pipeline is what we need
here, and it’s a pitiful shame that we haven’t negotiated a long time
ago with our Canadian brothers and neighbors on the subject of the
trans-Canadian line. But rather than to get into an argument as to
whether it ought to be trans-Canada or trans-Alaska, I ’m of the opin
ion we are going to need both, and that is just ridiculous to be fighting
each otlier. What’s really needed is a hurry-up program in botn areas
because these resources are desperately needed. Likewise, the develop
ment of oil shale. There are lots of things we need. We’re just behind,
that’s all. I guess it’s a typical old American way of doing things.
We never really get at it until the crunch is on, and now the crunch is
on* I think you put your finger on it. I think the crunch is on a lot
more even than we’re saying here today, and I’m particularly con
cerned about the fuel oil situation for the coming months.
Well, the next witness is Mr. Sampson, president of Midland
Cooperatives.
STATEMENT OP SIGVED SAMPSON, PRESIDENT, MIDLAND COOPERA
TIVES, INC., MINNEAPOLIS, MINN.
Mr. S a m p s o n . Senator Humphrey, Congressman Fraser, we have
submitted a prepared statement so that I’ll just condense what we have
in the prepared statement. We’re a regional cooperative supply orga
nization serving about 600 member cooperatives in the States of
Minnesota, Wisconsin, the Upper Peninsula of Michigan, northern
Iowa, and eastern North Dakota. We have a wholly owned refinery
at Cushing, Okla., and a shared refinery at McPherson, Kans.
Up until the last quarter of 1972, we had no trouble getting crude
oil for the refinery and to supply our members in this area that I ’ve
outlined to you. But in the last quarter of 1972, the oil import quota
system we had in existence since 1959 began to break down, and we
were no longer able to trade off import tickets and get the necessary
crude oil to run the refinery. Beginning on January 1, 1973, we had
to cut back our refinery operation to about 50 percent of capacity;
and on February 15, we shut down entirely. We were down for a
period of about 7 weeks during which time we accumulated some
inventories, and we opened up again in the first part of April, running
only about half capacity.
Now, the thing that has saved us is that we have been able to buy
on both the domestic and the foreign markets, fuel oils and gasoline
in sufficient quantity to keep us going. We have been allocating to our
members, giving them about 100 percent of last year’s withdrawals.
This is not sufficient, however. Our membership is primarily agri
culturally oriented and, as you heard from Mr. Carpenter this morn
ing, agriculture with the increased acreages, with the lack of fall
work done last year, can’t get by on 100 percent. As a matter of fact,
our estimates are that from 125 to 150 percent are needed this year
as compared to last year. Thank you.
[The prepared statement of Mr. Sampson follows:]
209
P re p a b e d S t a t e m e n t
op
S ig v e d S a m p s o n
Midland Cooperatives, Incorporated, is a regional cooperative supply organi
zation owned and controlled by 600 locally owned and controlled community
cooperatives in the States of Minnesota, Wisconsin, the Upper Peninsula of
Michigan, Northern Iowa and Eastern North Dakota. Midland was organized
in 1926 for the purpose of supplying petroleum and other products to its mem
bers and to refine, manufacture and/or purchase such supplies as dictated by its
member cooperatives. Of the 600 members, 100 are located in the State of
Minnesota. We estimate that we serve 100,000 farmers in the State of Minnesota.
To assure a constant supply of petroleum products, Midlands acquired a re
finery in Cushing, Oklahoma, presently rated at 19,500 barrels per day, and
together with other cooperative regionals acquired an additional refinery in
McPherson, Kansas. Both of these acquisitions took place in 1943. Some crude
oil reserve acquisition, as well as drilling, has taken place over the years but
on a very liimted basis because of the ready availability of crude oil and the
extremely high capital requirements needed to develop basic crude oil reserves.
We are now experiencing great difficulty in obtaining enough crude oil to
operate our refinery at Cushing, which is our main source of supply. The rapid
increase in demand for refined products, coupled with a declining rate of do
mestic crude oil production and inflexibility of the import oil program, has caused
a shortage of crude oil supplies and the smaller independent refiners, such as
Midland, who have depended on purchasing their crude oil to operate, are now
unable to obtain a sufficient supply.
We have been able to operate our refineries at a steady rate of capacity through
out the thirty years of ownership and we have been a constant and reliable source
of supply of burner fuels, diesel fuels and gasolines for our member cooperatives.
But since October of 1972 our operations have been declining because of our
inability to acquire crude oil.
Since 1959 the Federal Government has been controlling the importation of
foreign crude oil. In order that this foreign crude would be distributed equitably,
an import quota system was devised. Under this system, all refineries throughout
the country were entitled to their proportionate share based on a predetermined
formula. This system worked well until the last quarter of 1972. Because of
increased demand, smaller quantities of domestic crude oil, and higher prices
for foreign crude oil, the import quota system broke down. As a result, many
interior refineries have been operating under capacity during all of 1973. Since
January 1, we have been shut down for a period of seven weeks. During the time
we have operated, our crude runs have been at about 50% of capacity. In order
to serve our members with their needs, it is imperative that we operate at 100%
of capacity;
During 1973, we have had no alternative but to secure finished gasoline, diesel
fuel and fuel oil from both foreign and domestic suppliers at substantial premium
prices. We could serve our members much more efficiently and economically if
we could secure the crude oil, refine it in our own plants and distribute it to our
members in our historic manner.
On May 10,1973, William Simon, Deputy Secretary of the Treasury, announced
a voluntary allocation program to be effective as of May 10. The principal provi
sions of this program called for all historical suppliers to provide product to
their historical customers on the same basis as provided during the established
base period of October 1, 1971 through September 30, 1972. This program, when
announced, gave us encouragement. We have contacted our historical suppliers
in writing and through personal contact. While they have not indicated any
intention of not complying with the program, neither have they given us any in
dication of supplying us with these historical quantities. Unless action is imme
diately forthcoming, our ability to continue to supply our members with their
needs will be severely impaired. Had we not been able to obtain finished products
from the above-named sources, we would have been out of products by this time.
The warm Winter weather and the late Spring has delayed what would otherwise
have been a period of severe shortage of power and heating fuels. These condi
tions cannot he expected to bail us out for any extended period of time in the
future.
Unless the industry is willing to cooperate with the Federal Government in its
voluntary program, we see no alternative to mandatory allocations. While manda
210
tory allocations will not necessarily increase the amount of product available, it
will at least funnel these products through traditional distribution channels. With
this possibility, it will cause the least disruption in the industry generally and
at the same time provide more efficient and equitable distribution of products in
short supply.
Chairman H u m p h r e y . I wish you’d wire that into the Secretary.
Now. I ’ve been having a running battle with the Department of Agri
culture. They keep talking about this 1- and 2-percent shortfall. I think
it’s ridiculous to talk that way particularily when we’re calling on
agriculture, as I said earlier today, not to work 45 million more acres.
That’s an awful lot of land. All of that’s got to be plowed. All of it’s
got to be planted, all of it’s got to be harvested, all of the output has
to be transported and much of it has to be dried. To say that you only
have a difference of 1 and 2 percent over last year, it just doesn’t make
any sense.
Mr. S am pson . Well, I attended the meeting in Des Moines on Thurs
day and there was quite a crowd there, and I think he got the message.
There was for a period of time when the Department of Agriculture
was of the impression that we were crying wolf on this. I was 1 of some
12 people who have been in Washington several times, several presi
dents of the regional cooperatives throughout the country, to bring
this to the attention of the Department of Interior and to the Depart
ment of Agriculture. I think they are coming to realize now that these
are the facts, and we were assured on Thursday that agriculture
was going to get high priority. Now, they did not spell out how this
was to be implemented, however. I might say right here that Mr.
Simon, who has recently been appointed as Under Secretary of the
Treasury and has as much to do with energy has probably been one of
the most effective men we have worked with.
Chairman H u m p h r e y . We agree with that. He’s been excellent. I ’ve
had marvelous work with him. I ’m on that telephone with him prac
tically every day and he’s cooperated as much as any man I ’ve ever seen
in Government.
Mr. S a m p s o n . N o w , to our knowledge, none of our farm members
have run out of products so far this year, but we’ve been saved by one
thing and that’s the weather. We’ve got a very wet spring in the Mid
west. Those 45 million acres—we are in great danger that they will not
l>e planted, and if they are not planted, then we are in further danger
that our inventories of feed grains and proteins are going to fall below
security levels. It’s a very serious situation and so agriculture has high
priority or we’ve seen nothing yet as far as food prices are concerned.
Chairman H u m p h r e y . I noted the Ohio Farm Bureau. I read into
the Congressional Record yesterday the Ohio Farm Bureau statement
to the effect that they were now reaching the critical point.
Mr. S a m p s o n . Yes.
Chairman H u m p h r e y . Just as you are indicating here, u p to now
we’ve been able by moving back and forth, borrowing and drawing on
allocations, to get by: but they’re now reaching the critical point where
those shortages could really prevent the proper planting of the crop.
Mr. S a m p s o n . This is right. It was generally agreed at the meeting
on Thursday that we may get the crop in, but we are extremely ap
prehensive that we won’t "get the crop harvested. Just this week I had
a telegram from the Governor of the State of Oklahoma begging for
us to give him fuel oil and diesel fuel so that they could harvest the
211
wheat crop down there, and we don’t even have any distribution in that
State. They’re looking all over for fuel to harvest, and this is the biggest
danger right now.
Chairman H u m p h r e y . Our harvest is coming out of Texas and
Oklahoma right now.
Mr. S a m p s o n . Texas and Oklahoma are in harvest, and in 3 weeks
Kansas will be harvesting.
Chairman H u m p h r e y . Y ou add to that the transportation problem ,
the storage problem----Mr. S a m p s o n . The d ry in g problem.
Chairman H u m p h r e y . The drying problem and the financing.
Mr. S a m p s o n . And up here we haven’t got it planted yet. So we got
lots of problems. Now, we were greatly encouraged by the program
that was announced by Mr. Simon of the oil policy committee for
voluntary allocation. We contacted all of our historic suppliers. We’ve
had interesting conversations, but we have yet to see wet barrel No. 1
in our plant. Now, this doesn’t mean—this thing changes so fast from
day to day that it doesn’t mean that we may not have oil next week.
We’re like the dice roller, we live in anticipation.
Chairman H u m p h r e y . My experience with that game has not been
very profitable.
Mr. S a m p s o n . Likewise. That’s why I ’m sitting here. But we have
to be optimistic that something is going to happen and keep us going.
Now, there are a number of things that we do believe should and
need to be considered. One is that, while there’s a possibility that
voluntary allocation may work for the short term, we are extremely
apprehensive that on the long-term pull voluntary allocations will
not work and therefore we will face mandatory allocations or some
other mechanism by which to achieve our objectives, and we don’t
think this is a short-term problem. We think it is a very long-term
problem.
Chairman H u m p h r e y . I agree with that. I think the point has been
made here before that there’s no quick catchup on this. It takes time
to build pipelines. For example, one of our problems with the big
tankers is the kind of port facilities we have. We don’t have enough
up-to-date modern deep port facilities to handle these huge tankers,
when you’re talking about the foreign imports. We obviously don’t
have enough refineries, and I don’t care who you are, you build as fast
as you want to, but 2% to 3 years, that’s about what it takes for a
modern refinery of any capacity; and that's providing that the local
people will give you a site, that you can meet the zoning requirements,
that you can meet the environmental impact requirements. It’s a major
problem and the financing of a refinery is not exactly, you know, an
afternoon experience. They’re costly.
Mr. S a m p s o n . Well, there are some statistics that I think are very
interesting and significant. There’s the fact that we are using in excess
of 17 million barrels of oil a day in this country. We have refining
capacity, running at 100 percent, of about 13 million barrels. We have
domestic crude oil production of between 9 and 10 million barrels. So
you can See the tremendous shortage. But making this even more per
plexing is the fact that we’re not using all of the refining capacity we
have in this country, because our crude oil is dislocated. We’re ship
ping crude oil out of Oklahoma into areas where they could bring
in foreign crude and leaving refineries in Oklahoma without crude oil.
212
In and around the midcontinent area at this time right now, the latest
figures I saw showed we had in excess of 300,000 barrels of unused re
fining capacity.
Chairman H u m p h r e y . Yes, I ’ve heard that.
Mr. S a m p s o n . And this to us is a sad situation, particularly in the
breadbasket. Now, there’s another thing that we think needs to be
done and that is we think we need to establish a Federal crude oil
reserve, which is owned and controlled by the U.S. Government. It
may be financed by gas taxes. I don’t know how it would need to be
financed, but we think we need the reserve.
Chairman H u m p h r e y . Senator Jackson addressed himself to that
matter yesterday in our discussion. We are contemplating—and this
is, of course, just discussion at present—a 6-month reserve for national
security reasons. We’re depending on everybody’s loving us and we’re
also depending upon reasonable price stability. I see where OPEC
yesterday, what did they get, was it 1 1 percent price increase?
Mr. S a m p s o n . Eleven percent increase.
Chairman H u m p h r e y . In crude. Well, at least that gives some sta
bility for a year, doesn’t it? What was that, for a year’s period of
time ?
Mr. S a m p s o n . Yes.
U n id e n t if ie d V oice . Until further devaluation of the dollar.
Chairman H u m p h r e y . That was related to devaluation.
Mr. S a m p s o n . Third, we think that we need to discontinue the use
of fuel oil and natural gas for boiler fuels. We have adequate quanti
ties of coal in this country to be used for boiler fuels. Once you take
a barrel of crude oil out of the ground, you don’t replace it. It’s gone
forever, and we have large amounts of coal that can be used for boiler
fuels.
Next we think that we need to establish priorities of use. We heard
about the transportation situation here this afternoon. We heard about
the agricultural situation both this morning and this afternoon. These
kind of industries are critical to the welfare of our country and there
fore they need a critical product like fuel long before a man who uses
that same product in his motorboat on a Sunday afternoon. That
doesn’t make us popular with that fellow that’s running the motor
boat, but we face a very serious situation.
Then we think that there has to be a real search for new sources
of energy; nuclear energy, to exploit that; to develop geothermal
energy and solar energy; to drill for oil in the Outer Continental Shelf;
to make ourselves more secure in this whole field of energy, because
with 6 percent of the world population in this country, we use almost
35 percent of the world’s energy.
Chairman H u m p h r e y . And it’s going up this year.
Mr. S a m p s o n . It’s going up fast. We thank you for the privilege
to address you.
Chairman H u m p h r e y . I should say at this point, on the matter of
development of alternative fuels, I sat with the specialists of the Joint
Atomic Energy Committee of the Congress, and I ’m sorry that we
don’t have that report with us. In fact, might I suggest to most of you
here that are in the suppliers’ situation that you might want to call on
that committee to come out and make a presentation of how they en
vision future energy demand and supply and what they look for over
213
the next 10 or 15 years. I spent about 3 hours with them in a session and
they have developed some building blocks, so to speak, so that you can
see diagramatieally what the fuel situation is.
When you take, for example, if this were the block, the total block
of energy that we know of—like solar, geothermal, hydroelectric, oil,
nuclear, coal, whatever it may be—when you get right down to it, most
of it boils down to fossil fuels. The one hope that we have is that we
can get into what we call fusion, development of fusion which would
be the nonpolluting type of nuclear energy. That could give us, they
estimate, around 25 percent or so of our energy needs.
Even if you were to conserve on, let’s say, insulating every home in
America with the best insulation; and if you were going to turn out an
awful lot of lights around that are used primarily for cosmetic pur
poses—not your street lights but for lighting up buildings at night,
and so forth; and if you were to do a lot of the things that we’re talk
ing about here, even then the impact of that total amount of conser
vation on this graph of fuel use might maybe be about like that at the
top—that insignificant. It would be about an inch out of the line that’s
let’s say 12 inches high.
If you convert them into their equivalent in barrels of oil or what
ever unit you wish to use, the geothermal possibilities appear modest.
Oil shale—the big problem there is you have to excavate so much
shale. I f you dammed up the Grand Canyon and tried to get addi
tional hydroelectric, it would have another maybe half-inch effect
upon the total supply of electrical energy that you have in this country.
One of our real problems is that the transfer of fossil fuels or any
other kind of energy into electricity is a terrible waste. I mean, you
get about a 35-percent conversion of actual energy units once you
put it into electricity.
I also saw the report on automobiles, that our modern automobile,
the automobile of the 1960'S and the early 1970’s, is much less efficient
in terms of mileage and power per gallon of gasoline. The automobiles
of the 1950’s were the best. You got the very best out of those automo
biles and every year now it goes down and, of course, with the environ
mental units that we’re putting on, they’ve gone way down. We’ve
added, you know, more things, more gadgets and air conditioners, and
we’ve had tires with lower pressure and all this busineiss, so that now
we kind of float around in the air and everybody has a button he can
push. You get fewer miles, a lower conversion of the gasoline into
power and into mileage every year out of your automobile. They look
prettier. They’re bigger. They’re so blame big you can’t find a place
to park them anymore. Well, enough of that. I had quite an experi
ence on that.
You might want to call them out here some time, the Atomic Energy
Committee, and I think we can get them out here to talk to you. You’ve
got some of the best experts in the country working for vou. Needless
to say, some of our hopes for nuclear energy have never been realized.
When you talk about planning, 10 years ago the plan was 20 percent
by the year 1975, 20 percent of the entire energy of the United States
would be furnished by nuclear power. What is it, less?
Mr. S am pson . Less.
Chairman H u m p h r e y . Wav down. They considered 10 years ago
that we’d be able to build a nuclear plant in approximately a period
214
of 2 to 3 years. Now it's 8. That is because you got all kinds of other
,problems. And we only have one breeder reactor being planned
presently for experimental purposes, so we got a lot of problems
ahead of us. The Japanese claim they can do it in 4, but it takes us 8,
I guess. Well, the reason is that the Japanese just go ahead and build
them, whether they might be next door to your house or garden, but
they put them up. They had to make a cold choice. They don’t have
any coal or hydropower.
They either closed down Japan or they put up nuclear plants, so to
the environmentalists they say, “ Good bye,” and they put the plant
up. But over here we have a little different system, you know. In case
you don’t like it you can get a court order and you can get an in junc
tion and you can have a hearing and you can call your Congressman,
you can call your Senator, you can vote out your Governor, you can
vote out your Senator. We all know about these things.
Mr. Everett, please proceed.
STATEMENT OF JERRY EVERETT, EXECUTIVE DIRECTOR, NORTH
WEST PETROLEUM ASSOCIATION. MINNEAPOLIS, MINN.
Mr. E ver ett . Mr. Chairman, members o f the Committee, please
do not be frightened by the volume of paper. I shall give them to Mr.
Cox.
Chairman H u m p h r e y . What are those ?
Mr. E ver ett . These are surveys of over 200 jobbers that will be in
troduced at a Cost of Living Council hearing next week. They are
2 0 0 jobbers in the State of Minnesota who either are running out of
products now or will be out of products by the end of the year or are
very short. It’s documentation that we truly have a problem in the
State of Minnesota; I think one of our major problems has been to
convince people that it even exists, particularly the people in Wash
ington early last fall.
Chairman H u m p h r e y . We have a little trouble with some fo lk s in
Washington. Once they get west of Buffalo they get k in d of lost. I
mean, Buffalo, N.Y
Mr. E v e r e t t . Yes, we discovered that.
Chairman H u m p h r e y . Go ahead.
Mr. E v er ett . My name is Jerry Everett and I’m executive director
of the Northwest Petroleum Association. We represent the small
business segment of the oil industry. Generally you know us as the
distributors. We are all small independent businessmen. We own our
own businesses and we buy the products we sell like any other busi
ness. Our members are both branded and unbranded and this is an
other difficult matter to get across.
What is the definition of an independent business man ? As
independent businessmen we were the very first ones to feel the
pinch of the energy crisis. We have no control over high-level policies
and systems and, yes, let’s say the word blunders; yet we have every
thing we own plus a lifetime of hard work that are all now in jeopardy
for us. Our members are very happy to salute this committee for hear
ings of this nature, for coming out to ascertain the facts from the
grassroots.
We have delved into the problem since last summer and we have
arrived at many conclusions as to the causes of our particular dilem-
215
mas today. One of them is the fact that there has been considerable
garbage fed into some of our Federal systems and we can’t expect
much more than garbage to come out. We won’t go into that any
further.
Chairman H u m p h r e y . I wish you would.
Mr. E verett . Well, sir, you are now following the same footsteps
that we have before—if you wish me to I shall give you a particular
instance.
Chairman H u m p h r e y . Please do.
Mr. E verett . A statement made by the Director of the Office of
Emergency Preparedness on September 19, 1972, that said they had
been assured by the major refineries that there was sufficient refining
capacity and that we would not have a shortage last winter. Two
weeks iater the Skelly jobbers started to call me; they were out of
products. They were on allocation. Two weeks after this statement
had been made by the gentleman in charge of the Office of Emer
gency Preparedness, and at the same time our other sources of product
dried up. We had no place to go. That was 2 weeks after this state
ment was made.
Chairman H u m p h r e y . Well, undoubtedly that’s General Lincoln
to which you must be referring?
Mr. E verett . Yes, sir.
Chairman H u m p h r e y . He was undoubtedly assured that there was
such supply as some of the rest were.
Mr. E verett . But somebody put garbage into the system; that is
what we’re trying to say. We are the little guy in the small town
and hamlet in Minnesota, and as such we are responsible for the
majority of the products delivered to the farms, to the small business
establishments and transportation companies that keep rural areas
humming. Needless to say, if we dry up for lack of products to de
liver, the lifeblood of our small communities is going to dry up
with us.
Chairman H u m p h r e y . Let me just interrupt you. My staff member
just called to my attention this statement from Senator Jackson in
the Senate yesterday. He said and we know for example, that Texaco’s
chairman of the board wrote General Lincoln—that’s the gentleman
you referred to, then the Director of the Office of Emergency Pre
paredness—last July, about a year ago, objecting to the granting of
more import quotas for finished products and stating that there’s
sufficient refining capacity available in the United States to meet
anticipated demand for clean fuels over the balance of this year.
We know also that the president of Humble Oil, now Exxon, as
sured General Lincoln in September that the Humble Oil Co. could not
speak for the remainder of the industry but felt that in a tight situa
tion the industry would do its best, including going beyond its contract
commitments if it were capable of doing so, and so on and so on. Senator
Jackson and I and others yesterday presented a number of these
statments that we have been able to check over the past year in which
we were assured again and again, “ Don’t worry, gentlemen, we’re going
to take care of this. We’ve got plenty of capacity and we’ll meet the
needs.”
Mr. E verett . That’s what hurts us jobbers. If we d ry up for lack of
products to deliver, the lifeblood of our small communities will dry
216
up with us. Our products are the one resource without which every
thing else will become useless, and only you can prevent that very hap
pening. Some types of control must be made and they must be initiated.
I bring to you today documentation for what I am saying. There are
over 200 surveys right here, straight from the horse’s mouth. It’s not
doctored information. It’s not manipulated to show you what we want
you to hear. They are cold, hard statements of fact from the small
businessman that’s living this nightmare every minute of the day and
the night. I include night because, as you can guess for yourselves, we
haven’t slept very well for quite a while.
Because of the time-consuming volume of material in this pile, I
will quote from just a few, and please understand they were sent
out before the present allocation program was announced a few weeks
ago.
From Wadena, “ Our company has been in business since 1931. Our
supplier has canceled our contract as of June 1,1973. After that date
we have 4 dealers, 400 fuel oil customers and 150 gasoline customers
that we can no longer supply.”
From Kent, Minn., “This is the worst condition we have ever been
in. It wasn’t this bad during the war. I hope we can keep the business
going. If this keeps up the small businessman is finished. We haul
gasoline and diesel fuel to 112 farmers that farm around 70 sections of
land. They grow wheat, barley, corn, soybeans, sugar beets, and sun
flowers. We will need around 60,000 gallons of diesel fuel and we will
need 250,000 gallons of gasoline.
From Hibbing, Minn., “As an independent jobber, I have no con
tract with Wood River Oil & Refining Co., and as yet I have not re
ceived an allocation for 1973-74 heating season.”
From St. Martin, Minn., “ I have been a jobber since March 6, 1956,
and have been asked to sign a mutual contract cancellation. The rea
son given to me was that my operation does not show enough net as I
do not sell TBA. I have not signed this, as they did not approach me
until 2 weeks before the contract automatic renewal date. I have not
been able to locate another supplier. No. 1 , what will happen to my
farm and fuel accounts as I am the only supplier out of this village?
No. 2, what will happen to my bulk plant that I’ve worked for all
these years if I’m phased out?”
From Cloquet, Minn., “ I am mostly concerned now with the com
plete cancellation effective June 30, 1973. They worked hard to get
us to sign with them a year ago and at the time we switched two sta
tions to them. Now they want to pull out and leave us without gaso
line or fuel oil. We think this is wrong for them to leave us now. This
leaves us without approximately 500,000 gallons of gasoline and 100,000 gallons of fuel oil that we badly need and counted on. Can you
help us?”
From these and dozen of pleas we can’t cover here, you can readily
determine the urgency of the problem. They are available for your
examination if you so desire. I brought them because I believe they
are the main source of information to establish the fact that there
will soon be great hardship. Handicap and chaos are not far away for
Minnesota, and out of this chaos are going to come suffering and eco
nomic problems that may cripple our great State and cripple our great
Nation.
217
I was asked to discuss the effectiveness of the present price-control
program. Quickly, it is not working and it will not work! I’m going
to defer further comment on this to Mr. Haglund.
Before concluding, I would like to take a minute for a quick sum
mary of what we believe is necessary to survive. We believe because
of the urgency of our problem, the immediacy of our problem, that the
present voluntary allocation should be given a fair chance to work.
We say this only because we already have invested a few weeks in the
program. We’re trying to make it work, but we also ask that a bill to
make compliance mandatory, if the voluntary does not work, should
be passed. It should be ready. It should be waiting. It should be on the
shelf. We can’t afford another year of waiting if this one doesn’t work.
It will go a long way toward making the existing voluntary program
work.
Companies that have left the State or are in the process must be
either replaced or returned immediately without fail. One of the
worst problems we face today as jobbers is the lack of the gallons
that they furnished us previously and then left us without.
Finally, plans and implementation of programs designed to solve
the problem on a long term and lasting basis must get out of the talk
ing stage and into reality as soon as possible. New refining capacity,
new sources of crude, and new technology to provide for future de
mand cannot be delayed any further. New thinking must be injected
into the ecological programs. Somehow a more balanced effort must be
made so as not to destroy one set of values for the sake of another set
of values. Conservation of energy in every way possible must be pro
moted, or possibly even forced, to help us over this gap period.
We are grateful to you for giving us the time to express our views
and we are also very appreciative of the fact that our State has in
Washington a fighting group of Congressmen, and at this time I would
like to digress for one moment and bring a personal thanks for Senator
Humphrey from the Sun Oil jobbers in the State of Minnesota for
saving their lives. The Senator did it personally. We worked with him
on it and they sent their thanks, Senator.
In closing, I wish to give you my answer to a question that is asked
dozens of times wherever I go. They all want to know whether an
energy crisis really exists, and my standard answer has been, “ You
would know a crisis exists if you’d be sitting in my chair for the past
6 months and heard the pleas for help I get from my members.” Gen
tlemen, I ’m here to pass those pleas on to you. Thank you for the time.
Chairman H u m p h r e y . Thank you very much. We’ll come back, I
have a question, but I thought maybe we’d go to Mr. Haglund first.
Mr. Haglund, please proceed.
STATEMENT OF GORDON HAGLUND, CHAIRMAN, FUEL OIL COMMIT
TEE, NORTHWEST PETROLEUM ASSOCIATION, MINNEAPOLIS,
MINN.
Mr. H a g l u n d . Thank you, Mr. Chairman. I would first of all indi
cate—I ’d like to clarify my position. I am a jobber, an independentj
Union 76 branded jobber in St. Cloud, Minn. I also am speaking today
on behalf of Northwest Petroleum as their fuel oil chairman.
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Much of what I would say has already been said. I think I’ve been
accused of being an alarmist for a year now about what you heard
today. I don’t think that anyone can be too much of an alarmist. I think
we recognize after these discussions that the problem is really here. I
would like to make a comment, perhaps, in defense of the president of
Texaco and others when they indicated to General Lincoln that they
expected more products, even though it’s not my business to defend
majors, because they are my adversaries too at times. We have to re
member that we had a 9-percent demand increase for distillates last
winter and in light of the mild winter no one could really anticipate
this.
Chairman H u m p h r e y . To what do you attribute that ? How did that
happen ?
Mr. H a g l u n d . The biggest single reason, Senator, was in my opinion
the shifts among types of fuel. Northern States Power used 100 million
gallons of No. 2 distillate or distillate fuel oil last year. A few years
ago they used very little. Northern States Power had no choice. They
had to produce electricity. They built peaking plants all over the State
for the purpose of satisfying peak period demands, but they couldn’t
get their large centrally located plants approved for one reason or the
other, largely because of the pull back from coal. They had to use
their peaking plants to satisfy their base load and, as the gentleman
from the transportation industry said, too many people are competing
for that gallon right now. That’s where we’re at and it is serious; we
can, you know, we can be so critical of people doing this wrong and
that wrong, but I think we have to get down to the fundamentals of
what caused it.
Chairman H u m p h r e y . I think that’s a very fair statement and, by
the way, I’ve talked with the Texaco people and they’ve been very
cooperative in testifying and visiting with us, and I don’t want my
comments to be an affront upon them, because they really have tried
to cooperate. But let me say this: I think what happened here is char
acteristic of our problem; when we put in the Environmental Pro
tection Agency with the environmental protection laws, nobody in the
Government talked to, you know, the Department of Interior people
and the Office of Emergency Preparedness; it’s like they were off in
Afghanistan, you know; and here was the Environmental Protection
Agency coming in with enforcement action and tough standards com
pelling people to get off the coal and other high-sulphur fuels and to
move into natural gas, fuel oil, and so on. There just wasn’t any coor
dination and, believe it or not, up until the last week we’ve had the
same problem with the Department of Defense. I ’ve been on their
back. I said, “Here you are a major user.” It kind of makes other users
look like a peanut shop, and weVe had top officials in the Government
say, “Look, are you coordinating these allocation programs and all
of this fuel oil policy with the Department of Defense?”
One of the answers was, “Well, that’s not in my jurisdiction.” I
said—I shouldn’t say for the stenotypist here what I told him. I
said, “Well, you know, it’s like these agencies are small separate mem
bers of the United Nations rather than parts of a government.” I
agree with you, I think this has been one of our real weaknesses. You
know, like everything, we should have done something about it. We
just passed a bill now that sets up an Energy Council that will take
219
60 agencies of the Government—mind you there are 60 agencies all
messing around in this—and try to bring them together so at least
they’ll shake hands once a year. I think that’s a good thing; then
maybe they’d start communicating with each other. So, I think you
touched on something here.
Mr. H a g l u n d . I agree. Here too, you know, our way of doing things
is that we apparently need a crisis before we move; and there’s no
kidding anyone. The public still doesn’t really believe we have a crisis.
Chairman H u m p h r e y . N o, they don't. Let me give you an example
of that. I introduced this Senate Joint Resolution 98 in April, and
afterward I sat down in my office and thought to myself, “I see my
friends are almost gone.”
I thought this was a major piece of legislation because it laid out
exactly what you gentlemen are talking about, including the lack of
coordination in the Federal Government, It set up a system. It set up a
major board as well as a coordinating mechanism. I want to tell you
something. The only person I introduced it to was myself and the
Presiding Officer of the Senate. I used to come out here and I ’d go to
meetings and tell people, “ I wish you’d get interested in this.” I really
have no complaints in life, but it was sort of like whistling in the dark.
Now all at once it becomes important. Now, you know, the way Con
gress does things is that everybody gets on it about the same time and
we pull all this together into one bill in the appropriate committee. So,
we have S. 1570 which represents about 10 different efforts that are
being made. You are right, we finally come to when the crunch is on,
and I want to tell you it’s going to be on a lot more this winter.
Mr. H a g l u n d . Well, I think one of the things that has to be done
here, again, is to get it into the .public awareness, and that’s beginning
to happen; but golly, you know, it’s awfully hard to convince the
public that it’s serious. We go about business as usual. You know
we’re still building the cars.
Chairman H u m p h r e y . That’s right, 13 million of them.
Mr. H a g l u x d . There’s still no energy study of new buildings going
up. Literally nothing is being done in the conservation field, and
until that begins to show I don’t think we’re going to really convince
anyone, but we better start planning.
A couple things, one that Jerry mentioned and asked me to touch
on: that is the mandatory price controls. I think it is important to
know that they are causing some real disturbance. Things are happen
ing that just make no sense at all. In our market one major can be
selling at as much as 2 to 3 cents difference from another major at
the wholesale level because he’s got more foreign input than the other
one. There’s got to be some mechanism to differentiate between foreign
and domestic oil. This, of course, is damaging to supply. It’s always
economically damaging to people depending on where they’re at. We
have as much as 10 cents per gallon difference on the same product.
So. this is one of the problems that is a result of controls and this
is the danger of controls. You know, we’re talking now about manda
tory controls. We frankly don’t see any way out of them. I wish
to heck we could. I don’t like this.
Chairman H u m p h r e y . No, I agree with that. I predict that we’ll
have a lot of trouble under it.
99-740— 73------- 15
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Mr. H a g l u n d . We’re going to see more inequities there than I think
we have even now. So, I would hope maybe to address a little bit
some things I see in this mandatory system that hopefully would be
taken into consideration when and if they are imposed.
First of all, the first thing to talk about is who’s going to handle
them. I think Jim Erchul; I was at a meeting with Jim 'and Mr.
Simon when this was talked about, and Mr. Simon was discussing
the possibility of the present voluntary controls becoming mandatory,
and both Mr. Erchul and I made the point that the States need to
be involved. They know the local situation. They know where the
crunch is ¡and where some priorities may be different in their States
from another or one community from another. I would hope that
somehow some flexibility can be developed in there to get the States
involved. Now, some States throw up their hands and want nothing
to do with it. I f they had the problems and had been involved in
this as Mr. Erchul has been, I think the}^’d be much more interested
in getting involved.
Hopefully any mandatory controls—and here again you have al
luded to this, Senator—need to be part of the overall national energy
policy. What you do on one side affects the other and policies have to
be coordinated, including price controls, conservation, foreign policies,
and certainly balance-of-payments policy, and you know them all. Co
ordination is the thing I ’d like to emphasize.
Jerry Everett touched on the question of how you bring back under
mandatory controls the people that have gone out of business; you
know, they’re gone. These people are no longer in business and that’s
a very serious thing that has to be spoken to.
I am a little uneasy about mandatory controls also because how do
you honor legal contracts ? I suspect that you are now proposing that
they would be disbanded. I see some inequities here. I personally hap
pen to believe that there is a difference between people that buy on
the spot market and people that have bought under contract. People
that bought on the spot market have operated on low margin and
have developed big volume on lower margins. Others that have been
on contract over a long period of time have not had that advantage,
and if you are going to allocate on the basis of what was brought in a
base period and then apply the same percentage cutback to every one,
I suggest that the fellow that had the big volume during that base
period is going to have a tremendous advantage and I don’t quite
know how to rectify that.
One thing that I have never heard anyone talk about when talking
about an allocation program is allocating all energies and taking into
account everything. All I have heard talked about is liquid fuels. That’s
been the only concern. However, what happens to liquid fuels affects
natural gas and electricity and vice-versa. I think if we have to allo
cate we have to get involved in all enegries and find a way to coordi
nate all of them because, for instance, if the utilities cut off the standby
business even more than they have, they’re going to have less gas avail
able for that class of trade than last winter. So, there needs to be some
coordination there.
Along that line I ’d like to report what’s happening in St. Cloud a
little bit. We really felt this thing, perhaps more so than any part of
Minnesota. Minnesota’s kind of a problem for the Nation. St. Cloud
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happened to be the problem in Minnesota in our opinion. We were
being subjected to a one-third withdrawal of products from the town
by people going out of business and by the announced withdrawals
of Gulf and Sun. Through the efforts of Senator Humphrey and I
think through the voluntary controls and the fact that the situation is
different now from what it was when some of these people announced
their withdrawal, we see some relief. So, it’s not as critical as it was,
but in anticipation of the fact that we will have more problems, our
mayor appointed an energy study committee. In addition to me, it
involves Northern States Power’s division manager, Mr. Lew Crain;
it involves industry with Mr. Bill Ball of Digurik Corp. and Mr. Bob
Wick from St. Cloud representing State College and the public. Here's
a group that’s trying to do something about a local situation and
getting into conservation. We will have a conservation symposium or
meeting for industry next month suggesting ways to save; we're not
waiting until November or December when it would be too late to take
corrective action.
We have a public awareness program developing to indicate to the
public some of the things they can do. There’s been a lot of programs
along this line. I think this is positive. We think that local communities
have to get involved and do something to protect themselves.
Mr. Sampson mentioned that in the long term we need mandatory
controls. My observation is anything mandatory over a long term
has to break down. I’m concerned about them now, but I think in
the longer run w7e really have to find ways to conserve and find ways
to increase the supply. I ’m very much in favor of the Alaskan pipe
line or the pipeline from the North Slope coming down through
Canada. You indicated it had to come both ways. I don't disagree
with that, but I ’m afraid of what actually will happen. If it goes
the other way, we’re going to wait a long time before it ever comes this
way. I have made a thorough study of the Mackenzie Valley Pipe
line, which you are aware of, and this document indicates that that
line could go both wrays. The pipelines are already in existence going
from Edmundton to Puget Sound on the West Coast and right into
Minnesota and North Dakota. What we hear constantly from those
that oppose a line coming this way really breaks down into three
issues.
No. 1 , it will cost way too much. No. 2, it would take too much
time, and No. 3, Canada doesn’t want it. And a lot of this the In
terior Department has taken a very tough stand on. Thev want it
to go the other way and they say it must go the other way. To support
their position they say it would cost $10 million and it would take 10
years to build the Mackenzie Valley system. This study proposes that
the line can be built in Edmundton in 3 years and, incidentally, it’s
interesting to note that this report was made by a consortium oi oil
companies. This is by Mackenzie Valley Pipeline Research Ltd. and
it has made a very detailed study.
Chairman H u m p h r e y . Could I have a co p y of that ?
Mr. H a g l u n d . Yes; Senator Mondale is very involved in it and I’ve
also been involved in the House of Representatives with John Ander
son. So it’s being pushed and I was also very interested to hear just
yesterday that a Midwest caucus group is developing in Congress.
Chairman H u m p h r e y . We have that active group.
222
Mr. H a g l u n d . And it’s going to meet on this, not on necessarily this,
but on our Midwest situation.
Chairman H u m p h r e y . We used to meet every Wednesday noon.
Mr. H a g l u n d . That isn’t true in the House, is it ?
Chairman H u m p h r e y . Not yet, but we have a Midwest Senators’
group.
Mr. H a g l u n d . And they go into some of these things and we think
that’s very positive. We need to look at it from our point of view and
also the national interest, and in my testimony before the House 2
weeks ago I tried to make a case that it was in the national interest
that the North Slope oil should come this way. I ’m convinced that not
1 gallon of oil that goes to the west coast ever will get here and
it could easily go to Japan.
Chairman H u m p h r e y . I think it should be known also that the
Japanese produce a lot of steel, and I know that when I was in Japan
a couple of years ago that they were telling me how they were looking
forward to the opening of those oilfields, because that was going to
be their source of supply for low-sulfur type of oil. They have a
serious problem with the sulfur in their oil because they’ve been
getting so much of it from Indonesia, which has a high sulfur con
tent, and their environmental problems make ours look like we got
clean air in Los Angeles.
Mr. H a g l u n d . The one objection I haven’t seen anyone answer is
that of the Canadian postion. It’s unfortunate we havn’t been negotiat
ing long ago. As you are aware, I ’m sure, the Minister of Energy—
I believe his name is McDonald—has indicated a preference for the
pipeline to come through Canada, but he does not necessarily speak
for the Canadian Government. We have no high level way to know.
So. I think that needs to be determined.
Chairman H u m p h r e y . I don't think we have ever tried to find out.
Mr. H a g l u n d . But Senator Mondale’s bill would require that and
so would Congressman Anderson’s bill. I ’m not saying that’s the
way it’s got to go, but that this matter is so important and will have
such a far-reaching impact for the next 50 years that, even if it is
delayed 6 months, that delay is worth it to find out which route is
better. So, I would ask that that be reexamined and hopefully some
real serious consideration will be given to Senator Mondale’s bill.
Chairman H u m p h r e y . Well, I’m a cosponsor with the Senator on
that and, needless to say, we have a large number of the Midwestern
Senators.
Mr. H a g l u n d . Incidentally, you might be interested in knowing that
the National Oil Jobber Council which represents us at the national
level—it represents 13,000 independent branded and unbranded job
bers throughout the United States—passed a resolution establishing
the position of the national group supporting a line to come through
Canada, which is the kind of thing I think has to happen. It has to
have national support, not just Midwest support. Well, these are some
of my thoughts. I thank you very much.
Chairman H u m p h r e y . Mr. Comstock, please proceed.
223
STATEMENT OF WAYNE COMSTOCK, TREASURER, MINNESOTA
ASSOCIATION OF PETROLEUM RETAILERS, MINNEAPOLIS, MINN.
Mr. C o m s t o c k . Senator Humphrey and gentlemen of the panel, my
name is Wayne Comstock and I own a major brand service station in
Mankato, Minn. We’ve been in the service station business continuously
for 35 years in Mankato. I ’m here today representing the Minnesota
Association of Petroleum Retailers, which is the only service station
dealer association in Minnesota, and I believe I will begin by giving
you a brief background of our association and how it came into being.
Six or seven years ago many of our major branded dealers were
receiving excessive pressure from their oil companies to buy tires and
accessories from the same company at noncompetitive prices. We knew
this to be illegal at the time, but yet as individual dealers we had little
power to oppose our landlords. A small group of dealers formed the
MAPR, Minnesota Association of Petroleum Retailers, and hired
legal counsel. Since then we have grown statewide and our basic func
tion has been to preserve dealer independence and protect dealers’
rights.
Gentlemen, we believe crucial changes have occurred in the past few
months in the refining and marketing of gasoline which we believe will
have a profound effect on the consumer motorist. The effect will be
higher and higher prices at fewer and fewer service stations as com
petition at retail levels eventually comes under the complete control
of the major oil companies.
In past years the refineries’ level of production or the value of what
is sometimes referred to as “the incremental barrel/’ governed the
pricing practices of the major oil companies. As production increased
and the tanks filled, oil companies would dump more and more gaso
line on the open market. Price discrimination ran rampant. Oil com
panies would price high to one dealer and low to another, which re
sulted in massive unfair competition at the marketplace. Oil com
panies building construction, as you have witnessed, also ran rampant.
Pnneeded service stations were built on every corner. Real estate pro
moters had literally a heyday. Oil companies were always good for an
extra $25,000. At the same time our major oil dealer turnover was
in excess of 30 percent annually. Unbelievable.
Chairman H u m p h r e y . Higher than school dropouts.
M r . C o m s t o c k . Yes, sir. Incremental barrel economics is now dead.
Major refineries are moving downstream into retailing as a source
of profit rather than seeking their profits primarily at the crude pro
duction and refining level. This change in concept is producing an
upheaval in the marketing of gasoline.
Among other things it means the following: First, the independ
ent nonbranded distributor and dealer is no longer needed as he was
in the past as a place to dump the cheap incremental barrels from
refineries. Second, the jobbers, agents, and gasoline brokers, both
branded and unbranded, are now expendable. Third, we believe re
finers will integrate forward into the retail market with new brands
and self operation of their choice locations. The result, of course, will
224
be complete control of gasoline from wellhead to nozzle. Once the
majors take over the retailing function, price competition for all prac
tical purposes, insofar as the consumer motorist is concerned, will be
at an end.
As dealers we have never been concerned about competition between
ourselves and independent dealers, but rather that the independents
have often received gasoline from the same suppliers at a much lower
price than it was sold to the branded dealers, hence price discrimina
tion. Frankly up to now many branded dealers are not unhappy at the
curtailment of gasoline deliveries to the independents, but we feel that
the weapon used to destroy independents and many jobbers can just
as easily be turned upon our own dealers tomorrow. Many dealers are
presently being required to enter allocation agreements. The power to
allocate is the power to discipline and control competition. If gasoline
must be allocated, then that allocation must not be left in the hands
of the refineries themselves. To do so is to insure that retail competition
is a thing of the past in the marketing of gasoline. We believe gasoline
should be available to all retailers, independents, and branded alike.
However, price discrimination among the jobbers, dealers, and inde
pendents should cease and the allocation of the gasoline should be
left—should be on historical basis only.
As much as I disfavor the intrusion of the Government into the
competitive arena, if the oil companies will not provide for fair com
petition I believe this is an instance where Government intrusion is
needed to preserve the integrity of competition. Problems we are at
tempting to solve now were predicted in congressional hearings and
other places years ago and yet no one would listen, and Government
continued to follow policies favoring big oil companies at the expense
of the consumers. We now have a policy, gentlemen, of too little, too
damn late. If we are to solve this problem we must prohibit oil com
panies from further monopolizing the retailing of gasoline no matter
what subterfuge or device they utilize to do so, gasoline shortage in
cluded. If the service station dealer, independents, are not preserved,
I believe gasoline retail competition will disappear and once again
we will have done too little, too late.
Gentlemen, what we are asking for is not new to anyone in this coun
try. We want the right of free enterprise to prevail in the retailing of
gasoline. We don’t believe our landlords, whether they be major oil
companies or not, should have the right to dictate what brand or
brands, mind you, of gasoline we should sell. We don’t believe our land
lords should be allowed to force their tenants to pay higher prices for
gasoline which they sell to independents for less. We believe the major
oil companies should be prevented from entering into the retailing of
gasoline. The developing practice of using new brand names as a mask
for this would eventually drive out all free enterprise and competition
at the gasoline pump. We believe that to allow 10 percent of the total
product to be sold to independents and 90 percent to the majors would
create more problems than it solves. You would then have 10 percent
free enterprise and 90 percent monopoly. What the country needs,
gentlemen, is 100 percent free enterprise at the retail level. Let’s get all
gasoline into the open market where it belongs without price discrimi
nation, and if allocation is necessary that power should not be put
into the hands of the refineries.
225
We urge you not to procrastinate, gentlemen. The time is now. Too
little, too late this time could be fatal to the interests of the consumer.
If the majors are allowed to cancel leases after 40 years of service, as
Senator Humphrey read this morning, and are thereby allowed to
monopolize the retailing of gasoline and are given the power of alloca
tion, the consumer is in for one of the biggest business rip-offs of all
times.
Chairman H u m p h r e y . Thank you for giving the full text of your
statement. That’s a powerful statement. Let me see if I understand.
You represent the Minnesota Association of Petroleum Retailers,
right?
Mr. C o m s t o c k . Gasoline dealers, yes, sir.
Chairman H u m p h r e y . Are you aware of the amendment that we
adopted yesterday in the Senate ?
Mr. C o m s t o c k . No, I ’m not, sir.
Chairman H u m p h r e y . Well, some of us joined together in an amend
ment. This was just an open amendment. Senator Moss of Utah was
the prime mover and the rest of us were cosponsors on it.
It does two things. No. 1 , it assures, for example, what we called pro
tection of dealers :
A petroleum refinery or a petroleum distributor shall not deliver or tender for
delivery in any quarter to any petroleum distributor or petroleum retailer a
smaller quantity of petroleum products than the quantity o f such products deliv
ered by him or his predecessor or predecessors during the course of any quarter
in the base period, unless he delivers to each petroleum distributor and petroleum
retailer, to each business and enterprise, the same percentage of the total amount
as is delivered to all such distributors or retailers.
In other words, you can’t discriminate between the name-branders
and non-name-brand stations, so to speak, in the volume you deliver.
I mean, you have a base period. You are going to get a fair allocation
in your base period.
Mr. C o m s t o c k . Our concern has always been not so much the allo
cation. It’s the pricing.
Chairman H u m p h r e y . The next one is on price :
A petroleum refiner or petroleum distributor shall not sell petroleum products
to a non-franchised petroleum distributor or petroleum retailer at a price during
any calendar month which is greater than the price at which the same petroleum
products are sold to franchised petroelum distributor, or vice-versa.
In other words, the price structure must not be discriminatory, and
we adopted that amendment by a rollcall vote. So, it’s in the bill and
I'm glad to hear what you say, because I ’m going to take your testi
mony back and put it up against the language of this amendment to
make sure that we have locked in this reference to what you have had
to say about it.
Again, I want to tell you that in my amendment that will be coming
up with Senator Jackson as my cosponsor—an amendment on the
Federal Trade Commission and the Justice Department—we are ask
ing within 6 months a full report on the whole structure of the produc
tion, the refining and the distribution from crude oil, whether it’s
imported or domestic, up to the retailer. The whole pattern is to be
given to the Congress of the United States so that we have something
to work with rather than these old fashioned ideas. The last study of
the petroleum industry was in the 1930’s. We haven’t had a major
study made by the Government of the petroleum industry since then.
226
Secondly, we want to make sure that there are not monopolistic prac
tices, or practices that lend themselves to vertical integration.
Mr. C o m s t o c k . They have existed for many, many years.
Chairman H u m p h r e y . Yes; they may have existed, but what we
worry about is that there is now, under the shortage, the environment
for a greater spread of this practice. None of these amendments, you
know, are a remedy. All they are really is a way to put a check on and
monitor what’s going on, and hopefully to alert you in the private
sector as well as people in the Government to take a look at what we've
got and what we ought to have.
Mr. C o m s t o c k . There is one other concern that I have had person
ally, and I didn’t mention it today. Here in Minnesota there has been
some action on it. As of July of next year, I believe, we are to indicate
the octane ratings of gasoline in Minnesota, to post them on our pumps,
and I believe this is a step in the ri.crht direction, because in the past
for the consumer to determine the ability or the quality of a gasoline
by its brand name was totally ridiculous. Just absolutely impossible.
But, Senator, I believe we need a better performance rating than
octane. I mean, octane is a little bit like a man going to a shoe store
and saying, “I ’d like to buy a pair of shoes,” and the shoe store man
would say, “Well, what quality shoe would you like?” And the man
would sav, “Well, 101/£>D.” Octane doesn’t mean that much. It’s a ¿rood
piece of legislation, but I think the consumer is wising up out there.
Thoy expect to have—they want to know what’s in the box.
How do you know when you buv a oralIon of gas from a major
brand station—possibly you are paying 2 or 3 cents more for it—how
do you know the quality of that gasoline dictates 2 or 3 cents more?
I think the consumer deserves to know this and I believe the Govern
ment could possibly come up with a ¿rood performance rating. Mobil
attempted to do this some years back. They called it a megatane rating,
but the majors have been frightened to post their octanes and their
performance ratings on the pumps because evidently they had some
thing to hide. The Federal Trade Commission attempted to pass this
ruling and I don’t know who quashed it. Somebody stepped on that
one.
Chairman H u m p h r e y . Let me just say on my experience over the
years with some of the refineries out here to i?et allocations for our
domestic refineries in Minnesota, no matter which administration was
in, whether it was Kennedy or Johnson or Nixon, I ’ve been very ac
tive to try to help our refineries, as some of you know, to get their im
port tickets. It has been a major monumental task with that oil im
ports committee or board that we used to have over there; I alwavs
figured they were just dead set against us. I didn’t care who was in
there. I ’d always really have to <ro to the President to ever get any
thing done. They just seemed to he locked into the majors to a point
where we couldn’t move them. Time after time our refineries, from
u p in Superior clear on down to Oklahoma, would be literally without
the tickets that they needed, you know, for the trade with the majors
to get the crude, and it’s been a constant battle.
Quite honestly the refineries have had to go to their Congressmen
and Senators, no matter what State it was, to get some help, and it
shouldn’t have to be that way. You shouldn’t really have to talk to us.
That’s a fact. It should work so that it’s all your enterprise. It’s done
227
businesswise, but when you get the Government in, I have to be frank
with you; if we get mandatory allocations we’re going to have severe
regulatory problems. I support mandatory allocations not because I
like them. I think it’s the lesser of the two evils right at the moment.
Again, the thoughtfulness that you’ve given here—I should say the
suggestions—can be helpful. My resolution, for example, goes into a
much more elaborate description of who should serve on a board, for
example. I f we set up a board on mandatory allocations, I want to be
sure that men like yourselves—some of your organizations—are rep
resented there. I don’t want somebody on the board that just graduated
from Dartmouth Law School and decided he’s got a new idea. You
know, I ’ve been down there too long. These 30-year-old wonders are
great. I ’d like to be 30 myself, but I know a little more about some
things than I did when I was 30. I ’m not sure about everything, but
some things I do.
Mr. C o m s t o c k . Senator, do you think there’s any hope in the future
that you could drive into a service station and possibly buy more than
one brand of gasoline, like in a supermarket or franchise store? He
may have a franchise but he can buy two or three different brands of
milk or bread, but have you ever noticed when you drive into a service
station that you only get one brand? Could that possibly be a
monopoly ?
Chairman H u m p h r e y . There is as you know now legislation di
rected toward this, toward the whole system of franchising. There is
the possibility that I ’ve heard about that you still preserve in some
places the franchise station, but also if another individual wished to
buy a franchise brand and he had, you know, a minor brand, he could
have both. In other words, there could be two or three different
brands, two or three different kinds of pumps. That’s been talked
about. I think it’s too early yet to make any conclusion as to what can
happen because there is a kind of rule of law that has developed over
a long period of time on what we call the franchise, the right to de
velop a name brand, to develop a trademark, and you have the vested
interest in the trademark and so forth. I personally think that most
of the vested interest ought to be related to being able to protect your
name brand, being able to protect what you develop as through your
advertising and so forth. If you get this vertical kind of structure
where you own something from the top to the bottom, that’s what’s
going to be your trouble.
Mr. C o m s t o c k . Minnesota has just passed a franchise bill that I
think is a tremendous step in the right direction. I was just thrilled
to hear about it. It will protect many dealers and jobbers leases. Un
just lease cancellations in Minnesota are now somewhat protected. We
do have an instrument to use.
Chairman H u m p h r e y . A couple o f quick questions. Mr. Everett, of
the almost 900 stations said by the Office of Emergency Preparedness
to be closed in the United States, now fully 20 percent seem to be in
the State of Minnesota ?
Mr. E ver ett . Yes, sir.
Chairman H u m p h r e y . Yet we’re only 1 State in 50 with about 2
percent of the population ?
Mr. E ver ett . Yes, sir.
228
Chairman H u m p h r e y . Why have our people been singled out for
this treatment? What kind of water do we drink up here that causes
this to happen ?
Mr. E ver ett . The majority of the stations that have closed, Senator,
were the independent stations to start out with and, as we said, their
suppliers withdrew from Minnesota completely—the Triangles and
the Bells. This is the majority of the places that closed. Now, that fig
ure is a little light. We’ve been working on it this week and it’s pretty
close to 200 stations closed. But that’s our reason in Minnesota. It was
the end of the line. The suppliers pulled out and left them high and
dry and you didn’t have anything like this in any other State in the
Nation.
Chairman H u m p h r e y . I know. When I’m down in Washington
talking about this, why some of my colleagues say, “Well, here comes
the Minnesota problem again.”
Mr. E ver ett . I can understand that.
Chairman H u m p h r e y . A question came up. How many stations
have been stranded by other companies other than the ones that you
indicated, Triangle and—what was the other one? Bell?
Mr. E ver ett . I don’t have a figure, Senator. There are some where a
major oil company has canceled a jobber’s contract, like Luverne, for
example, but I don’t have an accurate figure on that.
Chairman H u m p h r e y . This is where actually a station has a name
brand, a franchise ?
Mr. E verett . Yes, sir, and they have been abolished in the same
way, not to the same degree by a long ways. Of course if it goes on like
it is, many of the jobbers I ’m talking about finding themselves without
products between now and the end of the year are branded. Some of
them have as many as 16 or 17 stations, and if we don’t get the product
they’re just plain going to be closed.
Chairman H u m p h r e y . Mr. Comstock, do you have any information
on the number, if any, of new stations opened by the majors, includ
ing cut rate brands in the last year ?
Mr. C o m st o c k . N o ; I don’t. I have a personal thing that happened.
At the very time that Gulf was thinking of pulling out of Minnesota,
they were constructing a new service station right next door to mine.
It’s unbelievable. There was a statement made here earlier that Gen
eral Lincoln was assured by Texaco there was ample product available:
I find this not inconsistent with the past performance of major oil
companies. They have a history of unbelievably poor management.
They haven’t had to be managers. They just keep the pump going. If
they got extra gasoline, they’d dump it; they’d burn it; they’d spill
it. Don’t worry about expenses, they’ll handle it. If you want a corner,
buy it. If you want an extra $25,000, take it. They weren’t good busi
ness managers. We’ve always had to have our belts tight. They can’t
play that game any more so they want to change the rules, and I think
the mask of the oil company has started to slip a little bit and the
consumer is seeing what we in the industry have known for years. It’s
just drooping a little. I think we should pluck that mask off and take
a good look at it.
Chairman H u m p h r e y . See how they look when they wake u p in the
morning you mean ?
Mr. C o m s t o c k . Yes, let’s take a good look at this industry.
229
Chairman H u m p h r e y . All right. Fine. Thank you, gentlemen.
You’ve been very helpful. Mr. Richards, would you like to come for
ward ? Oh, let me see. Before Mr. Richards, I ’ve been keeping Mr. Reed
all day. By the way, some of you may want copies of Mr. Reed’s state
ment. We have some extras and I want you to put them over there
because Mr. Reed represents the Office of Oil and Gas and any of
you that want one, we’ll pass them out amongst you.
Mr. Reed, I know that you understand our situation here. Why don’t
you just kind of hit—we’ll put the entire testimony in the record, just
pick off a few of the things that you heard here and address yourself
to them today, will you ?
STATEMENT OP HON. J. LISLE REED, DEPUTY DIRECTOR, OFFICE OP
OIL AND GAS, DEPARTMENT OP THE INTERIOR
Mr. R eed . Yes, sir. Thank you. Mr. Chairman, I appreciate the op
portunity to appear before you today to discuss the voluntary alloca
tion program and relate to you other matters of importance in the
energy area. The prepared statement is divided into four general
categories, but in order to confine myself to the approximately 10
minutes as your guidelines indicated, I’ll only discuss part of the first
three items verbally; namely, circumstances leading to our present
energy situation; the operation and administration of the new volun
tary oil allocation program; and then a short discussion of the prob
lems reported in Minnesota. I made a check in the office just before I
left just to see what the status was.
The first thing to understand is that the demand for petroleum
has grown rapidly over the past several years. At the same time, re
finery construction in the United States has lagged far behind demand
and crude oil and natural gas reserves have faded along with the in
centives to bring them forth. Years of unwise pricing policies for
natural gas have culminated in an aggravation of the present energy
supply and demand balance. If the natural gas curtailments are im
posed due to lack of supply, oil is required for replacement of the gas
and this only worsens an already unpleasant situation.
The situation we are facing in energy is complex and care has to be
taken in making simple statements to explain it, but with this warn
ing I would like to mention what, in my opinion, is the primary reason
that independents are having great difficulty in obtaining supplies.
This country no longer has adequate or surplus crude oil producing
capacity or refinery capacity. I don’t see an intentional effort on the
part of the major oil companies to drive the independents out of busi
ness. Simply stated, the oil companies can utilize in their own opera
tions practically all the crude oil they produce and the products they
manufacture. This is because their demand has increased, but their
ability to produce has not. But nevertheless we do have a problem be
cause of the relative distance from pipelines and the predominant role
of the small independent companies in the area; the Midwest United
States is a principal concern. Our mutual concern is magnified due
to the concentration of agricultural interests in the Midwest area and
the potential consequences to the Nation if supplies should be criti
cally short.
230
Recognizing the serious nature of the gasoline and fuel shortage,
we have taken action. The thrust of our efforts has been directed to
ward the independent refiners and marketers who have served isolated
areas of the Midwest. Independent refiners can no longer get adequate
supplies of crude oil. Independent gasoline marketers are in a differ
ent position. The wholesale market for gasoline is drying up. Inde
pendent gasoline stations around the country are threatened with
closing down.
The voluntary allocation program seeks to assure distribution of
adequate supplies of refinery products to independent marketers and
adequate supplies of crude oil to independent refiners. The voluntary
allocation program was announced on May 10, 1973, by the chairman
of the Oil Policy Committee, being administered by the Office of Oil
and Gas. A set of guidelines was drafted and published in the Federal
Register on May 23, 1973. Since the announcement of the program on
May 10, over 2,000 letters and telegrams have been sent to the Office
of Oil and Gas by the industry and other interested parties.
Chairman H u m p h r e y . What are they saying ?
Mr. R eed . About 668 of them complained of a problem of getting
supplies. The others were just comments more or less on the program
and on the idea that they supported it, they knew people were having
trouble and they were glad to see some action taken.
Chairman H u m p h r e y . Would it be possible for the Joint Economic
Committee staff members to review those communications?
Mr. R eed . Yes, certainly.
Chairman H u m p h r e y . Thank you very much.
Mr. R eed . Let's see, I won’t bother going through how the pro
gram works. I think everybody understands it. It’s the allocation
program. Reactions to the voluntary allocation program have gener
ally been favorable. A number of the major suppliers have been con
tacted and their cooperation was assured. While the problems are
complex and the difficulties diverse, we feel the program can work
with full cooperation of all parties, but this is a very important part.
The voluntary allocation program is not a cure-all for the supply
problems of the major or independent oil companies. The program
cannot create a barrel of oil. We can get the most successful allocation
program in the world and we’re still going to have people short of
supplies. As I mentioned earlier, since the program became effective
over 2,000 telegrams and letters, as well as hundreds of phone calls
have, been received.
Chairman H u m p h r e y . We got that information here about the
different success stories, thank goodness, and I thought you might
want to turn over to where we come to that action to increase supply.
We’re grateful for the Oil and Gas Office and what cooperation is
extended, and I want you to thank Mr. Ligon for us on that. If you
could move to where you talk about increasing supply.
Mr. R eed . OK. I w as g o in g to ju st skip th a t section o f the prepared
statem ent and touch on the su m m ary o f the situation in M innesota.
Chairman H u m p h r e y . Well, we got that this morning from Mr.
Erchul. I ’m not trying to cut you off here, but I want to get to where
we’re going to get that supply.
Sfr. R eed . OK.
[The prepared statement of Mr. Reed follows:]
231
P repared S t a t e m e n t
of
H
on.
J . L i s l e R e ed
Mr. Chairman, I appreciate the opportunity to appear before you today to
discuss the voluntary allocation program and relate to you other matters of
importance in the energy area. I would like to emphasize the relation of specific
policies to agriculture and actions we have taken to alleviate recent problems.
My comments are divided into four general categories:
1) Circumstances leading to our present energy situation;
2) The operation and administration of the new voluntary oil allocation
program;
3) Discussion of the problems reported in Minnesota; and
4) Actions by the Administration to facilitate the supply of oil to the inde
pendent operator and consumer.
The first thing to understand is that the demand for petroleum has grown
rapidly over the past several years. At the same time, refinery construction in
the U.S. has lagged far behind demand and crude oil and natural gas reserves
have faded along with the incentives to bring them forth. Years of unwise pricing
policies on natural gas have culminated in an aggravation of the present energy
supply/demand balance. As natural gas curtailments are imposed due to lack
of supply, oil is required for replacement of the gas and this only worsens an
already unpleasant situation.
The situation we are facing in energy is complex and care has to be taken in
making simple statements to explain it, but with this warning I would like to
mention what, in my opinion, is the primary reason that independents are having
great difficulty in obtaining supplies. This country no longer has adequate or
surplus crude oil producing capacity or refinery capacity. I don’t see an inten
tional effort on the part of the major oil companies to drive the independent out
of business. Simply stated, the oil companies can utilize in their own operations
practically all the crude oil they produce and the products they manufacture.
This is because their demand has increased but their ability to produce has not.
Because of the relative distance from pipelines and the predominant role of
small, independent companies in the area, the Midwest United States is of prin
cipal concern. Our mutual concern is magnified due to the concentration of agri
cultural interests in the Midwest area, and the potential consequences to the
Nation if supplies should be critically short.
Our projections indicate that stocks of diesel fuel for agricultural consumption
should be adequate, due to the contra-seasonal nature of the agricultural demand
pattern. In addition, there should be sufficient supplies of natural gas for the
manufacture of fertilizers.
Propane supplies, however, could be a problem because propane requirements
for crop drying could overlap into peak demand for heating fuels. In a normal
winter situation, however, crop drying should be complete before cold weather
occurs. In this case, propane for crop drying may be adequate.
Recognizing the serious nature of the gasoline and fuel shortage, we have
taken action. The thrust of our efforts has been directed toward the independent
refiners and marketers who have served isolated areas of the Midwest. The gaso
line shortage has hit these independents hardest. Independent refiners can no
longer get adequate supplies of crude oil. Independent gasoline marketers are
also in a different position. The wholesale market for gasoline is drying up.
Hundreds of independent gasoline stations around the country are closing down.
The voluntary allocation program seeks to assure distribution of adequate
supplies of refinery products to independent marketers and adequate supplies of
crude oil to independent refiners. The voluntary allocation program was an
nounced on May 10, 1973, by the Chairman of the Oil Policy Committee. It is
being administered by the Office of Oil and Gas. A set of guidelines was drafted
and published in the Federal Register on May 23, 1973. Since the announcement
of the program on May 10, over 2,000 letters and telegrams have been sent to
the Office of Oil and Gas by the industry and other interested parties.
Under the program, each producer, refiner, marketer, jobber, and distributor
is being asked to make available in each State to each of its customers (includ
ing those purchasers in the spot market) the same percentage of its total supply
of crude oil and products that it provided during a base period. The base period
is the last quarter of 1971 and the first three quarters of 1972. Also, on the basis
of demonstrated need, the Office of Oil and Gas may assign an allocation, not
232
exceeding 10 percent of any supplier’s total sales of crude oil and products, to
priority users unable to secure adequate supplies. Among these priority activities
are farming, food processing, and health and emergency services. Prices charged
for petroleum products shall not exceed normal refinery or terminal rack prices
or normal delivered domestic contract barge or cargo prices charged by major
companies in that specific area to that specific class of customer.
Reactions to the voluntary allocation program have generally been favorable.
A number of the major suppliers have been contacted and their cooperation was
assured. While the problems are complex and the difficulties diverse, we feel the
program can work with the full cooperation of all parties.
But, the voluntary allocation program is not a cure-all for the supply problems
of major and independent oil companies. The program cannot create a barrel
of oil.
As I mentioned earlier, since the program became effective, over 2,000 telegrams
and letters, as well as hundreds and hundreds of phone calls, have been received.
Many people have reported an inability to obtain supplies and we are doing our
best to respond to their immediate needs. Most of the major oil companies are
cooperating with us to assure compliance with the guidelines, but I’ll have to
admit we are having the problems common to the initiation of any program of
this magnitude. Although some cases remain unresolved, our office and regional
field offices around the country are pleased by specific successes.
The Department of Agriculture has loaned staff to our office. These specialists
are aware of the effect of critical shortages on the farming industry and are
helping us to try to fill priority needs. We now have access to a computer terminal
to aid in the processing of complaints. All complaints have been entered on the
computer program. In addition, our staff is being augmented by personnel from
other agencies within Interior. This will enable us to utilize a vast amount of
field offices throughout the country and, in short, cover a lot of territory.
Let me describe two instances wThere the program has led to a needed redistribu
tion of oil and oil products.
One involves the Northeast Petroleum Company, in Massachusetts, which
had been supplied gasoline by Standard Oil of California and fuel oil by Sun
Oil. Both of these companies terminated supplies to Northeast. When North
east contacted them again, after the voluntary program was announced, Stand
ard of California assured them that they were restoring supplies and Sun Oil
promised to make every effort to comply.
In another instance, a contract between a farmer’s cooperative in Oregon and
Texaco expired on April 30. The Office of Oil and Gas, when contacted by the
cooperative, asked them to call Texaco, inform them of the voluntary allocation
program, and request their cooperation. The Office of Oil and Gas received a call
the following day from the cooperative saying that Texaco had agreed to supply
them.
In the State of Minnesota, we are encouraged by the cooperative spirit of
major oil companies. Gulf Oil Company has recently released 2.3 million gallons
of diesel fuel in the Midwest area. The Minnesota Civil Defense Department
channeled over a million gallons of this total amount to Minnesota. The fuel
is being used to relieve shortages.
The Minneapolis-St. Paul Transit System notified the Office of Oil and Gas
that their gasoline supply had been cut back. It was felt that a reduction in
transit service was inconsistent with energy conservation efforts. We contacted
Amoco and, as a result, the full volume of supplies was restored.
In addition to these particular cases, our computer program indicates that
13 complaints have been received. The complaints are primarily from interstate
trucking companies. They seem to be concentrated in two major problem areas.
The supplier of diesel fuel for some of the cases reported signed a contract to
supply diesel fuel to a power company and allowed his contracts with trans
portation firms to expire. The power company was previously consuming coal,
but switched to oil. In another case, contracts for motor fuel were allowed
to expire and trucking companies are now having to pay retail prices. In this
latter case, there is not an actual shortage problem but a dissatisfaction with'
price. These specific cases are listed on the attached table.
Companies’ adherence to the guidelines will be monitored and, if voluntary
compliance fails, more stringent measures may be taken by the Administra
tion. We are also going to hold public hearings on June 11-13, 1973, to evaluate
the operation of the program and to determine whether all or part of the program
should be made mandatory. We hope and expect, however, that this will not be
233
necessary. If it is necessary, we would not hesitate to take additional steps
to assure that priority needs for oil are met.
ACTIONS TO INCREASE THE SUPPLY OF OIL AND PROTECT INDEPENDENTS
Let me discuss at this point some of the steps we have taken to increase the
supply of oil to the consumer. These programs also help strengthen the short
term position of the independent refiners and marketers, enabling them to estab
lish themselves on a more enduring basis.
1. Recent changes in the Mandatory Oil Import Program provide that those
holding import licenses under the old quota system will be allowed to import
that oil without paying a tariff or a license fee. Additional oil may be imported
if fees are paid. Because independents hold a large share of the “ Quota Licenses,”
these independents will benefit directly from the new program, and to a greater
extent than the majors. As a result, the independents should not have an improved
competitive position in world markets.
2. On March 23, 1973, the President issued a Proclamation granting unlimited
allocations to the Oil Import Appeals Board in an effort to make more crude
oil and product available to both the independents and the Nation. On April 18,
1973, the President, by Proclamation, removed volumetric import controls to make
more crude oil and product available to independents and the Nation. Thus,
the industry, both large and small, as well as the consumer have access to world
supplies of crude oil and products.
3. Oil Import Appeals Board policies have been changed to make more crude
oil and products available to independents. The Board has been provided with
unlimited authority to issue fee-exempt import licenses, charged with specific
responsibility for assisting independent refiners and marketers, and directed to
require any major oil company requesting assistance to demonstrate inability
to obtain import licenses through exchange agreements with independents or
a willingness to supply established independent marketers and refiners with the
same proportion or crude oil or products supplied in 1972.
4. Royalty oil from Federal lands is being allocated to crude-short independent
refineries. Normally, the Government would collect royalty payments in cash.
However, the option to take the royalty in kind exists, and this option has been
used to channel approximately 65,000 barrels per day to independents. Another
100,000 barrels per day may be available under this program.
5. Perhaps the most critical short-range problem, however, is the supply of
low-sulfur or sweet crude oil to independent refiners. There is, at present, a gen
eral shortage of low-sulfur crude oil brought on, in part, by the requirements
of several States and municipalities that refineries use sweet crude oil to meet
air quality standards, even though these refineries are designed to take sour or
high-sulfur crude oil. This has diverted sweet crude to the East Coast refineries
of major oil companies and away from inland independent refineries, many of
whom are unable to obtain or to handle high-sulfur crude oil.
At the same time, the major oil companies have had little incentive to exchange
crude oil because the price of domestic oil is now equal to our lower than the
landed price of foreign oil.
We are concerned about the distribution of supplies for priority needs. We
are concerned about independent operators who supply essential needs, and
provide a vigorous and competitive service for the consumer. We are concerned
when these independents suddenly, and often with very little notice, are closed
off from supply. Therefore, we took action. We think the programs implemented
are justified and we believe that they will produce favorable results.
LONG-RANGE SOLUTION
While striving to solve these very important short-range problems, let’s not
lose sight of the root of the problem, and that is the erosion of our ability to
meet our own crude oil needs and the lack of domestic refinery capacity.
The President, in his second Energy Message, proposed several items that
will provide a long-range and lasting solution to many of our energy problems.
I strongly urge that you support President Nixon’s proposals:
1. Encouraging the exploration and development of crude oil and natural gas
in the U.S.
2. Advocating approval and construction of the Alaskan pipeline.
234
8. Calling for energy conservation by all segments of the country, Government,
industry, and the individual consumer.
4. Sponsoring research into means of better using our coal resources and de
veloping nuclear energy.
5. Exploring the possibility of oil shale development.
6. Studying the potential of geothermal energy.
7. Enactment of appropriate land use planning.
8. Legislation to accommodate electric power plants.
Mr. Chairman, that concludes my statement. I thank you very much.
Company
City
... St. Paul.........
Briggs Transportation Co
Briggs Transfer Co............. ........... do..........
Landy Packing Co.............. ........... do..........
Century Motor Co.............. ___ Minneapolis____
Giendenning Motorways____ ........... do...........
St. Paul..........
Indianhead Trucklines........
Weiner Continental............ ........... do..
___ ___ do..........
Dean-Winty Transfer Co
St. Cloud Aviation..............
St. Cloud_____ ..
Problem
Diesel and gasoline supplies curtailed as of Apr. 30,1973.
Effective Apr. 30, 1973, at termination of contract, no fuel will
be available. Reason is that Northern States Power Co. recently
converted to No. 2 diesel.
Tanks are empty because of price increase. Contract not renewed
as of Apr. 1 ,1973. Company was spending 11.5 to 11.725 cents
per gallon. Now having to buy on the road at 30.9 cents per
gallon.
Amoco terminated contract as of Apr. 30. 1973. No fuel will be
available. The reason is that the Northern States Power Co.
recently converted from ccal to No. 2 diesel.
Do.
Do.
Do
Has been buying gas at retail for 31 cents. Previous wholesale
cost was 23 cents. Supplier will not renew his contract and w'til
not furnish any fuel.
Airport has a 2-week supply of 100-octane aviation fuel and a
1-month supply of 80-octane aviation fuel. Their primary
supplier cut them off several months ago and alternate supplier
cut off their supplies last week.
Mr. R e e d . Aside from the allocations program, there have b o o n
several other actions taken in recent months b y Mr. Simon to make
more oil supply aA^ailable to the independents as well as the consumer.
One action is the recent change in the mandatory oil import program
whereby the tariff was done away with. The import licenses that now
exist, will not have any license fee placed on them. So, since the inde
pendents hold more licenses in proportion to their size than the majors
this will give them a little advant age.
Chairman H u m p h r e y . N ow , some of the independents here—T hear
from the independents that this doesn’t work at all. I’ve heard from
some of the independent wholesalers, distributors and refiners—I
should say refineries in particular—that these tickets, these licenses
that you are talking about, the import licenses of which you say inde
pendents hold a large share, and from which you say these independents
will benefit directly; I ’ve heard that this is really only theoretical and
from a practical point of viw it doesn’t work because the tickets don't
amount to anything anymore. They just don’t make the crude
available.
Mr. R eed. Senator, it’s relative to what they had before this action
was taken. Before the action was taken the tickets were worth nothing.
Now the tickets, because of the absence of the tariff, are worth at least
ID1/? cents a barrel.
Chairman H u m p h r e y . But does that get them the barrel ?
Mr. R eed. Not necessarilv.
Chairman H u m p h r e y , Yeah, well, in other words, it’s a 10iA-cenf
bonus so to speak if you can get the- barrel ?
235
Mr. R e e d . The only way to increase it more would be to raise the
license fee, and this, of course, places an additional burden on the
consumer.
Chairman H u m p h r e y . But again even if the price—and I ’m just
trying to pin it down, to see who’s telling me what can be substantiated
by evidence.
Mr. R eed . They still cannot trade their tickets.
Chairman H u m p h r e y . That’s what I hear, despite the fact that,
theoretically, it is as you say here; because independents hold a large
share of the fee-exempt quota, licenses, these independents will beneiit
directly from the new program and to a greater proportional extent
even than to the majors. However, that is only if there is crude oil
available that the majors are willing to release.
Mr. R eed. Yes, sir, but relative to where they were before that ac
tion wTas taken they’re better off.
Chairman H u m p h r e y . Yeah, relative to where they were ju st a few
months before the action was taken?
Mr. R eed . Yes.
Mr. S a m p s o n . I don’t know if we can interject here.
Chairman H u m p h r e y . What is your name ?
Mr- S a m p s o n . Sampson.
Chairman H u m p h r e y . Yes, g o ahead.
Mr. S a m p s o n . I would certainly take issue with the gentleman here
based on our experience. The import tickets at one time had real value.
We not only were able to trade them for wet barrels at the interior re
fineries, but we were offered a premium in addition. At the present time
we’d like to know where you can get even 10y2 cents a barrel for them.
Right now they are worthless to us and as far as getting crude oil into
the interior refineries is concerned, they are not serving that objective,
which we understand it is supposed to be the objective of the program.
Chairman H u m p h r e y . That’s the point.
Mr. S a m p s o n . And it is a very unfortunate situation, as I mentioned
earlier, that we have 300,000 barrels of unused refining capacity in
the midcontinent area while at the same time we’re shipping midcontinent crude oil to the coastal areas where they could bring in for
eign crude. This is an absolute dislocation of product.
Chairman H u m p h r e y . I wasn’t looking for confrontation and I
know, Mr. Reed, that you are here to help us. The reason I posed the
question is that it comes to me all the time from the refiners in this
whole area, in what we call mid-America. There was a time, let’s say a
year ago, when those—when we had the import quotas and our local
refiners were able to get import tickets; those tickets actually had a
premium value not only in money but in obtaining a wet barrel, in
other words, the barrel of crude oil. Today, it’s sort of like Confederate
money, you know. It’s money but it doesn’t—nobody takes it.
Mr. R eed . Senator, the situation has changed considerably from a
year and 2 years ago. They got their oil then because there was surplus
crude oil production in this country. There was enough oil to go
around. The situation has changed dramatically. Foreign oil used to be
iW-740— 73-------16
236
much lower priced than domestic oil and therefore those import rights
were worth quite a bit then. That’s not true now.
Chairman H u m p h r e y . That’s what I was saying, I think your line
here indicates the agency position here; namely, that things have im
proved considerably and that the independents, as you say, will bene
fit directly from the new program. My point is I don’t think they
benefit directly at all. I think they benefit only theoretically from the
new program.
Mr. R e e d . They have a lO^-cent a barrel advantage beyond what
they had before the action was taken.
Chairman H u m p h r e y . But here’s a man, this man, for example,
from Midland Cooperatives, an old established firm.
Mr. R eed . Yes, I ’m familiar with the company.
Chairman H u m p h r e y . And he says they can’t get the oil and that
there isn’t a 10%-cent advantage. Now, between the two of you, you
ought to settle this.
Mr. R e ed . Yes, they were trading their tickets before the action.
Chairman H u m p h r e y . N o .
Mr. S a m p s o n . We have been trading tickets ever since 1959.
Mr. R eed . Have you traded this year’s tickets ?
Mr. S a m p s o n . We have yet to trade ticket No. 1 .
Chairman H u m p h r e y . Why ?
M r. S a m p so n . N o one will trade with us.
Chairman H u m p h r e y . That’s exactly what I hear from the re
fineries. I just want you to report that back to Mr. Ligon.
Mr. R eed . Mr. Chairman, we were under the old system fo r the first
4 months o f this year.
Chairman H u m p h r e y . This is going into the sixth month.
Mr. R eed . But, under the old system, they said they could trade
their tickets.
Chairman H u m p h r e y . Well, they could trade their tickets—up till
about January you were able to trade them ?
Mr. S a m p s o n . Until January 1 .
Chairman H u m p h r e y . And all at once somebody turned a new
chapiter. I mean, this scarcity became very obvious just about the first
of the year, just like a lot of other things happened about the first of
the year. Honest to goodness, it really bothers me. Now, Midland Co
operative is a responsible, respectable concern. They say they can’t
trade those tickets in and get the oil, even if they could get lO^-cent
advantage. When you leave here this afternoon, you will do this coun
try a great favor ii you can get them producing at maximum capacity
again.
"Mr. R eed . We would like very much to get them producing to maxi
mum capacity.
Mr. S a m p s o n . And we would be willing to sacrifice the 10y2 cents.
Chairman H u m p h r e y . All right. We’d like to have from the Office
of Gas and Oil any information that you have of any refineries in
midcontinent America, the Midwest area, that have been able to trade
in their tickets with a lO^-cent advantage to get the crude oil, plus
the 101/2 cents. We’d like to have you present that for the record.
237
Mr. R eed . OK. I don’t have it w ith m e.
Chairman H u m p h r e y . I understand that, but that’s a formal re
quest from the committee.
[The following information was subsequently supplied for the
record:]
U.S.
D
epartm ent
of
O f f ic e
th e
of
I n t e r io r ,
O il a n d G a s ,
Washington, D.G., June 11, 1973.
H on. H
ubert
H. H
umphrey,
U.S. Senate,
Washington, D.C.
D e a r S e n a t o r H u m p h r e y : In the recent hearing of the subcommittee on
consumer economics, which you conducted in Minneapolis, Minnesota on June 2,
1973, you requested from D r . J. Lisle Reed of this office information on the follow
ing three items:
(1) How many exchanges of crude oil have been made as a result of the im
posed value of 10%0/Bbl?
(2) How many people have been helped by receiving allocations of free licenses
from the Oil Import Appeals Board pursuant to the new guidelines?
(3) What is the status of the twenty cases that Mr. Erchul (Director of the
Civil Defense Administration for Minnesota) claimed had never been entered
into the Office of Oil and Gas program?
In answer to item 1 we must admit that we can not tell from our records for
what reason the companies exchange oil. However, the exchange incentive of
10%^/Bbl has been in effect since May 1, 1973, thus all exchanges since that
date were on the basis of a lO^cf/Bbl ticket value. The attached list of companies
have reported exchanging oil since May 1,1973. Of the exchanges made, 9 of them
were by companies who had not exchanged any oil so far this year. In addition,
we feel obligated to point out that out of the 115 companies normally making
exchanges only 59 of them have exchanged oil to date. Naturally, we expect the
new voluntary allocation program to facilitate the remaining exchanges that
need to be made.
In response to item 2 the following information is documented in our office.
There have been 49,161,880 barrels of allocations made to 339 companies for
finished products, mostly gasoline and some diesel fuel. There have been 47,839,265
barrels of offshore crude and unfinished oil made to 16 companies and 14,798,739
barrels of Canadian crude and unfinished oil allocations to 7 companies.
The imports for April and May of this year are not recorded at this time so
we are not able to evaluate the quantity of oil actually being imported as a result
of the new guidelines given the Oil Import Appeals Board. However, 751,457
barrels of finished products had been imported through the month of March.
We presume that the companies seeking allocations intend to utilize the imported
oil either by exchanging it or by using it directly.
Our review of the comment by Mr. Erchul (item 3) reveals that we originally
received 14 comments from him. At the time the cases were submitted, an op
erations center was not completely set up, so the complaints were not entered on
our computer. However, our staff was working to resolve them. On Friday, June 1,
1973, Mr. Erchul contacted the operations center to resubmit eight cases. The
other six cases had been resolved by Mr. Erchul. The eight remaining problems
have been recorded on the computer and are being studied by our staff and the
Congressional Representative, Mr. Lewis Jennings (202-343-7693). He will con
tact you as they are resolved.
Mr. Erchul further commented that he preferred to work directly with the
OEP regional office in Chicago. It has been our practice and intent, since the
allocation guidelines were published, to have complaints entered through the
field offices. The OEP field offices are coordinated with our Washington office
now and we encourage Mr. Erchul and all others experiencing supply problems
to contact the field office in their particular region.
Sincerely yours,
D u k e R. L ig o n , Director.
Attachment.
238
REFINERY EXCHANGE AGREEMENTS
Date
May
3,1973
May
9,1973
May
21,1973
May
1,1973
Apr. 25 and
May
23,1973
May
22,1973
May
23,1973
May
May
May
May
May
3,727,616 11,783,770
8,061,154
270,000
270.000
Cities Service Oil Co___
407,340
Sun Oil Co. ..............
207,079
Gulf Oil C o rp ........... 5,324,029 5,632, 234
478,362
Triangle Refineries____
478,362
M. & A. Petroleum C o ...
296,605
___ do.....................
___ do.....................
Mobil (revises 3,650,000). 1,070,000
216.000
Cities Service Co.........
21.1973 Crystal Oil Co............
8,1973 Dorchester Gas Corp____
24.1973 National Cooperative Re
fining Association.
11.1973
-207,395
American Oil Co.........
Triangle Refineries......
Western Crude Oil.......
115,265
497,495
58,012
Atlantic Richfield Co___
550,000
North American Petro Atlantic Richfield Co
leum Corp.
8.1973 Quaker State Oil Refining ___ do......................
Corp.
4.1973 Superior Oil Co________ Amoco Oil C o..........
17,1973 Total Petroleum (N.A.) Mobil (revises 1,655,110).
Ltd.
1.1973
434,550
497,495
64,133
0
608.012 1,117, 512 3,900,283
2,782,771
700,000
370,417
497,495
700,000
724, 525
24,525
522,238 2,335,758
2,404,620
68,862
149,927
830,153
152,205
152,205
0
-824,957
2,830,153
3,882,140
1,051,987
Clark Oil & Refining 1,000,000 1,000,000 2,141,455
Corp.
428,420
Union Pacific Corp_____ Standard Oi! Co. (Calif.)
......do..................... 5,248,060
1,141,455
1,1973 VGS Corp..................
15,1973
Subtotal............
May
428,975
0
0
427,203
Allied Materials Corp...
Anchor Gasoline Corp...
Charter Co___________
Claiborne Gasoline Co...
Continental Oil Co.......
Subtotal............
May
698,975
407,340
5,632,234
905, 565
Exchangee
Subtotal............
May
Balance
u «ex
changed
total
barrels
Imparter-exchanger
Subtotal............
May
May
Apr.
Allocation
total
barrels
Current
month’s Exchanges
to date
exchanges
total
total
barrels
barrels
1,1973 Witco Chemical Corp___
5,676,480
5,676,480
5,676,480
0
Standard Oil Co. (Calif.).. 1,424,530
1,424,530
2, 599, 530
1,175,000
Chairman H u m p h r e y . In the meantime, if you could help my
friend over here from the cooperative movement, I’d appreciate it very
much, because they’ve been keeping the Post Office alive by writing
me letters, plus the fact that they came to see me just about Christmas
time. Didn’t we have our first go around about then ?
Mr. S a m p s o n . That’s right.
Chairman H u m p h r e y . And I thought I was going to be Santa
Claus, but I didn’t deliver a thing. I couldn’t do a thing about it. I
thought we had it made there for awhile and then they dropped the
man from that Oil Import Appeals Board that was going to help
you, remember ?
Mr. S a m p s o n . Yes.
Chairman H u m p h r e y . That was right after January. Now, go
ahead, Mr. Reed, please tell us more here now.
Mr. R eed . Well, along the line of these actions ?
Chairman H u m p h r e y . Yes.
Mr. R eed . The volumetric controls on oil imports were abolished
and the license-fee system was substituted. This will allow the con
sumer as well as the oil companies to have access to world supplies
of oil, thereby making more available in our country than was avail
able under the volumetric controls.
There, the policies of the Oil Import Appeals Board have been
changed to make crude oil and products available to independents. The
239
Board has been provided with unlimited authority to issue fee-exempt
import licenses, charged with specific responsibility for assisting in
dependent refiners and marketers, directed to require any major oil
company requesting assistance to demonstrate the inability to obtain
import licenses through exchange agreements with independents and a
willingness to supply established independent marketers or refiners
with the same proportion of crude oil or products supplied in 1972.
Chairman H u m p h r e y . N o w , could you supply for us the names of
the refiners—now we’re talking about independent refiners and mar
keters who have been assisted under this provision—the names—of
the concerns the degree of help and the number; because it is generally
perceived by those of us who have been involved in these matters thus
far that this is essentially boilerplate and hasn’t yet had any affect.
Mr. R e e d . That’s entirely wrong. I don’t have the number of com
panies right now, but I know that approximately 180 companies have
received oil import licenses for gasoline.
Chairman H u m p h r e y . Oh, I know, but how much have they been
able to get?
Mr. R eed . Well, they’ve only been at it for a month.
Chairman H u m p h r e y . Then I ’d like to know if they’ve been able
to get the licenses and if supplies are available. I want to know why
they’re not getting their supplies. We just got to find out why these
people are complaining. They’re all around here complaining and ap
parently with great sincerity.
Mr. R eed . Yes, they have problems. The price of gasoline in Rotter
dam, Europe, is higher than in the United States.
Chairman H u m p h r e y . Yes. So to have a license to import that under
the cost-of-living controls doesn’t do much good, does it ?
Mr. R eed . The high foreign price hurts, yes.
Chairman H u m p h r e y . Well, in other words, the system is out o f
position. I mean, you know, this is a numbers game.
Mr. R eed . Well, the prices charged b y the independents aren’t
limited b y the Cost of Living Council.
Chairman H u m p h r e y . N o ; but do they have tankers? Do they
have pipeline use ? Do they have the resources to make those purchases ?
Mr. R eed . Well, Senator, no one has asked them to import the oil.
They have requested the right to import the oil and have been given
the right, so I presume they think they have a use for it.
Chairman H u m p h r e y . Hasn’t the system in the past, however, been
based upon the majors doing the importing and then making available
the crude; basically the majors doing the importing and making avail
able the crude once it’s at portside ?
Mr. R eed . The mandatory oil import program allowed very little
finished product. It was almost all crude.
Chairman H u m p h r e y . Yes; but who brought in the crude?
Mr. R eed . I see what you are driving at. What a company like Mid
land usually would have done would be to buy some major’s oil. They
would be the importer of record. They never saw the tanker.
Chairman H u m p h r e y . N o w , the problem today is that when the
major brings in the crude he just isn’t making it available for the
smaller refinery. That’s the problem, and the other problem is on the
refined product; as you well say, the Rotterdam price of gasoline is
higher than the U.S. price that is fixed by the Cost of Living Council.
240
So you’ve got to be out of your marbles, you know, to be importing
gasoline at a higher price than you can sell it for at home unless you are
running the New York Welfare Department. So, these are the prac
tical problems, you see, folks, that we have to deal with. I mean, this is
business talk, and you and I got to work it out.
Mr. R eed . Can I read item 5 from the prepared statement?
Chairman H u m p h r e y . G o right ahead.
Mr. R eed . Perhaps the most critical shortage problem, however,
is the supply of low-sulfur sweet crude oil to independent refiners.
There is, at present, a general shortage of low-sulfur crude oil brought
on, in part, by the requirements of several States and municipalities
that refineries use sweet crude oil to meet air quality standards, even
though these refineries are designed to take sour or high-sulfur crude
oil. This has diverted sweet crude to the east coast refineries of major
oil companies and away from the inland independent refiners, many
of whom iare unable to handle high-sulfur crude oil.
At the same time the major oil companies have had little incentive
to exchange crude oil because the price of domestic oil is now equal to or
lower than that of the landed price of foreign oil.
Chairman H u m p h r e y . That’s it. That’s the kicker right there. The
main thing many of these fellows are in business for—and that’s a
legitimate reason to be in business—is they’d like to make a little
profit, they’re not about to exchange commodities if they lose money
on it.
Mr. R eed . Yes.
Chairman H u m p h r e y . N o w , what’s our long-range picture ?
Mr. R eed . Well, that’s dealt with by the items in the President's
energy message that reflect on the supply of energy.
Chairman H u m p h r e y . And at the back of your prepared statement
you have some of the instances of companies that have been assisted
here, is that correct ?
Mr. R eed . No; these are the ones that are still unresolved at the
present time. Now, this is perhaps a mistake on my part. We hear
about the ones that aren’t resolved and no one ever hears about the
ones that are resolved. These are the ones we had outstanding in our
computer program before I came up and I got them yesterday
evening.
Chairman H u m p h r e y . So these are the major ones you have from
our part of the country ?
Mr. R eed . Yes; I might point out that a lot of the trouble for some
of them is the fact that a supplier took on a new contract with a power
company who switched from coal to diesel fuel. The supplier allowed
his other contracts to terminate on diesel fuel. So he has a new con
tract with the power company to supply diesel fuel and the old con
tracts expired. He allowed them to expire. So, if we pull oil away from
him, we pull it away from the powerplant. I don’t know the facts
behind the powerplant, but if it’s an environmental constraint it looks
like an unwise one.
Chairman H u m p h r e y . We have a good deal of problem with this
so-called sour and sweet crude. Again, may I say, this is a product of
a failure that is not your fault or even my fault, although I suppose
we could both accept our share of it; but 01 the failure of the Environ
mental Protection Agency. It is the failure of the environmental pro
241
tection law to be related to what are the real facts of refining and the
need for fuel product, because it’s really turned the thing upside down,
is what it’s done. In other words, the area where we have the refinery
that can’t take the high sulphur oil is offered that grade of oil; the refin
eries that are capable of taking crude with high degree of sulfur in it
and have the facilities to clean it up are getting the sweet crude. On
the east coast they get first choice, you know; let’s face it, they can
pick. You know, like when you grow strawberries, you can pick the
ones you like first before you sell them to the folks, and out here in
our part of the country where our refineries are basically designed
for sweet crude, they’re trying to sell us the sour crude. This is like
the Army, with the bakers running the trucks and the truckers run
ning the bakeries.
Now, another thing here that I was concerned about, and you
expressed your concern too, is where you said that the voluntary
allocation program is working because complaints are fed into a na
tionwide computer system. You say that Minnesota has sent 13 com
plaints of his office sent to the Office of Oil and Gas were not recorded
working as well as the picture you present. According to earlier testi
mony here, Mr. Erchul has informed us that about 20 of the com
plaints of his office sent to the Office of Oil and Gas were not recorded
on the computer and in fact have been lost. Do you really believe that
this computer list of 13 complaints actually reflects the problems here
in Minnesota, or do you think Mr. Erchul doesn’t know what he’s
talking about ?
Mr. R eed . I think there’s a misunderstanding. The 13 complaints
are the complaints unresolved. We’ve had over 100 complaints from
Minnesota, but the bulk of them were resolved. These are the ones
that are outstanding yet.
Chairman H u m p h r e y . Mr. Erchul says he had 20 that were mailed
to the Office of Oil and Gas and were not even recorded in the com
puter. In fact, they seem to have been lost. Are you aware of that ?
Mr. R eed . No, sir, I wasn’t.
Chairman H u m p h r e y . Will you look into that for us ?
Mr. R eed . Yes, I w ill.
Chairman H u m p h r e y . H e provided it to the committee and I ’m
going to suggest that we have Mr. Erchul write to Mr. Reed and give
you that so we don’t lose this. We’ll see that Mr. Erchul writes to you
so that you have a formal note on it. Is Mr. Erchul here ?
Mr. E r c h u l . Yes, sir.
Chairman H u m p h r e y . Jim, will you take care o f that?
Mr. E r c h u l . Yes, sir, I will.
Chairman H u m p h r e y . N o w , you say, Mr. Reed, there is no inten
tional effort on the part of the major oil companies to drive out the
independents, and we’re hopeful that you are right: but somebody
said to me going down the steps here as we went to lunch, “There’s
a lot of funny things going on here, Senator,” Let me ask this ques
tion : Why are so many majors pulling out of our market—out of one
market and going into another? Why are the majors profits shooting
up while the independents are going out of business ? Why arc the
prices of majors going up more than the 1 %-percent rule under the
Economic Stabilization Act ?
Mr. R eed . Well, can we take one question at a time ?
242
Chairman H u m p h r e y . Yes, sir. Why are so many majors pulling out
of one market and going into another ?
Mr. R eed . I’d like to see the specific cases.
Chairman H u m p h r e y . Right here in Minnesota.
Mr. R eed . Quite possibly those particular majors don’t have refin
eries here and they’re pulling back to marketing areas closer to their
refineries, because they’re out at the end of their capacity limit. I don’t
know if that’s the answer. That’s just my hypothesis on it, based on the
limited amount of data and facts I have.
Chairman H u m p h r e y . D o you think this is something that the Oil
and Gas Oil Office ought to look into? Why is Gulf pulling out of
here, for example ?
Mr. R eed . Well, they probably haven’t had success in marketing.
Chairman H u m p h r e y . Well, fortunately Sun did not pull out its
DX stations. D X has been marketing in here a long time. I’ve been
using D X since I was old enough to drive.
U n id e n t if ie d V oic e . I’ve got a Gulf station, and after 20 years
my contract is up and they say, “No gas. You are done.” You can’t
get anybody else to take the station. What are you going to do with it ?
The taxes are $220 a month. I can’t even give it away. You work all
your life to get something like this and then all of a sudden, bingo,
you’ve got everything pulled out from under you and there you are.
U n id e n t if ie d V oic e . A more specific example is Bell Oil. Bell
is out in Oklahoma, the same as Midland Co-op. Midland is more than
happy to do business in this area, but Bell Oil & Gas Co. saw no
reason to continue. They’re an arm of Swift & Co.; they were bought
by Swift & Co. and all of a sudden they said that this is an area
in which they can no longer afford to operate profitably. They oper
ated profitably since Bell was formed as an independent company,
just like Northwest was initially, and then bought out; then all of a
sudden they decide they no longer can market here. I questioned why
they can no longer market here profitably when Midland Co-op can
operate; you know, is more than happy to market in this area. They
were my basic supplier, my onlv source of supply. I’m able to obtain
products now, you know, but the price I’m paying is like going to
Amsterdam.
Chairman H u m p h r e y . What’s your name, sir ?
U n id e n t if ie d V oic e . Daryl Peterson.
Chairman H u m p h r e y . Where are you from ?
Mr. P e t er so n . North St. Paul.
Chairman H u m p h r e y . What business do you operate ?
Mr. P et er so n . I have an independent service station.
Chairman H u m p h r e y . And you, sir?
Mr. N a k k e n . My name is Lee Nakken. My service station lease is
with Gulf and I ’m sitting there the 1 st of July without any product.
I agree with you; I can see no reason why Gulf comes up here willing
to give you the world at the time they sign a contract and then, bingo,
tliev will pull the rug out from under you and leave you high and dry.
Chairman H u m p h r e y . I ordinarily wouldn’t permit this colloquy,
but this is at the end of the day. Mr. Reed, I don’t want us to get into
a defensive position. You’re working for the Government, and I am,
but really we’re working for the people. You and I don’t owe the Gov
ernment a thing; everything we got we owe to 1 hese people out here. I
243
didn’t even know these people were going to speak up here, but I want
you to hear what I hear; we are on the same side, you know.
Mr. H eed . Yes, sir.
Chairman H u m p h re y . A s far as I ’m concerned, I ’m interested in
giving service to these people out here, and that’s the purpose of the
Oil and Gas Office. I know that’s the way it is but sometimes when we
get into these situations, you know, we get a little defensive about
whether we’re doing* our job. The fact is we got a job to do and I want
you to hear about this. One of the reasons I held you for this long today
is not to be unkind or impolite, because I happen to think most men
in Government work pretty hard. You are trying to do a good job. I
just want you to hear what I get in my mail; I just sometimes want to
climb up the walls, because everything I got or ever hoped to have, I
got because the people in Minnesota were good to me, and I have a
job to serve them. The simple fact is we have a heck of a time and
we’re trying to get some answers here which we’re not able to get, and
that’s why I asked that question. Now, the next one that we had here is,
why are the majors profits shooting up while the independents are
going out of business ?
Mr. R eed . Well, I’m probably not in a position to talk about specific
businesses or anything, but I think that too has a fairly simple answer.
The bulk of the'industry, the major oil companies, are running at near
peak capacity. They’ve got all their plants filled up. They’ve got crude
oil running out of the ground at maximum rates. These were facilities
that were built 5, maybe 10 years ago, so they ought to be at about peak
profit. In other words, they have facilities that were built a few years
ago running full. Their profit structure shuold be in pretty good
shape. Now, on the other hand, since the majors are running at maxi
mum capacity and producing what they can handle through their own
sales outlets, they’ve naturally withdrawing sales of gasoline from the
wholesale markets and that puts the independents in a very precarious
situation.
Chairman H u m p h r e y . I think what the independents are worrying
about is that just a year ago these majors were saying, “Why don’t you
take our gas? We’ve got some extra here. We’ll give you a good price/1
That meant that some of the guys that were under the franchise were
complaining because there was price discrimination. But now, all at
once the doors have closed to the independents and that’s what I think
we have to look into. I want the Oil and Gas Office, along with this
committee, without drawing any premature conclusions, to just take a
look at these questions. These are questions that came not from me but
from witnesses here. We have received widespread evidence. It is more
or less conclusive that the petroleum product prices are being increased
much more than V/2 percent, even if you average them out across the
board and in many cases by much as 40 percent. Has the administra
tion made any investigation of these price increases and the develop
ment of black markets? Has your office been in cooperation with the
Cost of Living Council on this ?
Mr. Reed. No, sir, our office hasn’t been involved in it. It’s another
side of government.
Chairman H u m p h r e y . Well, I want to say that I think your office
should and I’d like to indicate my interest in it, because you are on the
supply side now; really you are a supplier. That’s really what it boils
244
down to. You are a superduper controller of supply, at least you try
to influence allocations; isn’t that right ? So what you do and what you
don’t do is going to have a great deal to do with the flow of the avail
able supply. It’s going to have a great deal to do as to whether or not
there’s any real kind of black market operation, you know. So it does
get into the price thing. If your voluntary program doesn’t work or
it doesn’t work equitably then there’s going to be cheating on it. People
are going to have to pay bigger prices and there’s going to be price
discrimination. Here’s the problem—the fact that you have a clear-cut
line of authority and over there’s the Cost of Living Council with an
other line of authority and never shall the twain meet. You just don’t
talk to each other about it. I want you to examine this when we get this
record transcribed for your office to see, and I ’m going to see that Mr.
Dunlop gets it over at the Cost of Living Council. You take a look and
see what’s happening on this.
Mr. R eed . On the communication between the Cost of Living Coun
cil, we talk to the Cost of Living Council a lot. We haven’t had any
discussions about charges that people have exceeded the 1 % -percent
limit.
Chairman H u m p h r e y . I want to tell you somebody sure juggled the
mathematics. My gosh, really, what you heard here today, these peo
ple aren’t lying. These are people that are right out here in the field.
Mr. R eed . Look at the numbers I brought you there on the last page
of the prepared statement.
Chairman H u m p h r e y . All right. Do you think this voluntary system
is going to work ?
Mr. R eed . I would hate to prejudge it, Senator. We’re going to
have hearings, you know, June 1 1 through 13 and we’re going to see
how well it’s working.
Chairman H u m p h r e y . Y ou haven’t excluded the possibility, have
you, of a mandatory system ?
Mr. R eed . N o , sir; we haven’t.
Chairman H u m p h r e y . The authority is there under the Economic
Stabilization Act.
Mr. R eed . It is there, but we’ve been in operation under this pro
gram I guess for approximately 3 weeks. We think some people are a
little impatient. We’re trying to make it work. We’re putting a heck of
a lot of effort into it and we think now we have enough data to have a
hearing that’s appropriate and proper. We’ll take whatever action after
that hearing we think is appropriate.
Chairman H u m p h r e y . Who are you going to have testify at that
hearing ?
Mr. R eed . I haven’t been in charge of rounding it up, but we have
a lot of people that have requested to participate. We have people from
all segments of the country.
Chairman H u m p h r e y . We out here are having about the toughest
problem of all; I think the facts indicate the problems prevailing here
in this part of the country, in Minnesota and possibly the Dakotas and
parts of Wisconsin. I think it would be very well if you would give
some time to some witnesses from here; for example, Mr. Everett of the
Northwest Petroleum Association, who spoke to us here; Mr. Samp
son. I just mentioned two here. Surely Mr. Comstock, a man from the
retailers. I hope that you’ll get people, if not from Minnesota, at least
245
some other midcontinent areas. We’ve got a problem here, a unique
one. And don’t forget the panel this morning. I know you’ll have some
agriculture people; don’t just have those departmental people in
either, because really—I know they’re sincere, but they just haven’t
gotten out enough to see what ’s really going on out here.
Mr. R e e d . Senator, we’re trying to let everybody in the country,
every segment have a representation.
Chairman H u m p h r e y . And you get ready out here because I ’m
going to ask—is it Mr. Ligon that will be in charge of those ?
Mr. R eed . Ligon.
Chairman H u m p h r e y . Ligon.
Mr. R eed . I guess actually it’s Bill Simon.
Chairman H u m p h r e y . We’ll talk to both o f these men.
Mr. R eed . Our office has taken care of the procedure, details,
scheduling and the setting aside of a room and getting people listed.
Chairman H u m p h r e y . Mr. Simon is in charge of inviting the
witnesses?
Mr. R eed . No, sir, I guess he gives the final approval on who’s
invited.
Chairman H u m p h r e y . Well, we’ll see. Fine. Now, do you have
anything further that you might say to make my people go home a
little happier so they can enjoy the Sabbath ?
Mr. R eed . Let me make one remark here. I’ve already more or less
intimated this, but the companies’ adherence to this allocation pro
gram will be monitored and, if the voluntary compliance fails, more
stringent measures may be taken by the administration. We are also
going to hold public hearings 011 June 11 through 13 of this year to
evaluate the operation of the program and to determine whether all or
part of the program should be made mandatory. We hope and expect,
however, that this will not be necessary. I f it is necessary, we would
not hesitate to take additional steps to assure that priority needs for
oil are met. Senator, once again, it’s 10 days till we have those hearings.
Chairman H u m p h r e y . Thank you very much and we’ll look for
ward to those hearings and Mr. Simon, your superior----Mr. R eed . Ligon.
Chairman H u m p h r e y . I shall tell Mr. Lisron of your attendance and
of your cooperation. Now, we’ve got a few extra public witnesses
around here. I believe that we’ve already taken care of Mr. Nakken, is
that right ?
Mr. N a k k e n . Thank you very much.
Chairman H u m p h r e y . Y ou were very good and I ’m sorry to hear
the report, but you gave us some good information. You, sir, were Mr.
Peterson ?
STATEMENT OF DARYL PETERSON, INDEPENDENT SERVICE
STATION OPERATOR, NORTH ST. PATH, MINN.
Mr. P eter so n . Yes, I had a comment with respect to your question
as to—you were wondering why the majors’ profits have escalated to
such a degree. I might enlighten you a little on that area from my
limited knowledge.
Basically the biggest problem from what I have seen in the petro
leum industry is the differential in price between the branded dealer
as a leasee and the unbranded dealer as an independent. I myself am
in the latter category. My buying price on gasoline, being my own
transporter, was far belowVhat the branded dealers price was. I’m not
saying this is right or wrong, but this is where the basic problem came
in, and the major oil companies are now a tte m p tin g to wash this out
or, you know, remove it.
Now, the unbranded dealer’s price—the highest I have ever paid for
gasoline was about a quarter and I would buy as low as say 23 cents,
in that range. OK. A major-brand dealer would pay around 29.5 or
30.5. In this he received the buildings for which he pays a half cent
a gallon rent and so forth and so forth, but his gasoline is delivered and
he receives the benefits of national advertising.
This is part of the business. But the basic difference was the price
differential between my price and his price was far and away too large.
Consequently you would have price wars all the time. So what the
majors did to retaliate against this situation was to come in with what
they call “price support.”
I f you would have a man and a corner and you wanted to put some
thing in there to sell petroleum products for you, you say, “Well,
here, this dealer tank-wagon is 30 cents a gallon. On this you have to
pay a half a cent or 2 a gallon rent on the station,” or whatever, you
know, is determined by what they had to pay for the station, what is
invested in it. Okay. And what it’s worth to them, this is part of it.
Now, when a gas war came along people would be selling gas for 27
cents a gallon.There’s this poor guy sitting there as a branded dealer.
He can’t support his family. The major comes along and says, “All
right. We’re going to give you price support.”
This is the way it has been. If you are going to take a station, your
normal dealer tank-wagon price will he such and such a figure. Okay.
If a price war comes in. Standard Oil usually says. “We can go down
25 percent with you down the line. We’ll split the decline in the retail
price of gasoline 25 percent down the line. We’ll absorb part of the cost
of fighting off your adversaries down the street.” Okay. This is where
the basic problem came in. The guy down the street and Standard Oil
or any of the companies—Gulf or Texaco—would all come right down
the line and support, and this was part of what Texaco told me. Ini
tially 7 vears ago or 7y2 years ago I had a Texaco station. They said,
“ Your dealer tank-wagon price will be 30.5 cents and we’ll give you a
rental modification of half a cent.” Normally it would be two cents if
vou are successful and are able to put food in your mouth. I would sav,
“ Okay. But what happens if the guy down the street is selling for 27
cents ?” “Then we’ll come down and we’ll stick with you. So if you have
to ¿rive it away for a nickel, we’ll only charge you a penny a gallon.”
This is what they’re trying to do—rub out the competition, and
they’re doing a tremendous job of it. Also they’re drying up the sur
plus supplies, whether it be through rejecting trades of oil import
tickets from various other companies like Triangle and Bell or other
wise. When they eliminated that, the dealer tank-wagon price went up.
Stations can’t start a gas war any more because they have no chance
of price protection. Consequently they’re moving: into the difference
between what they were selling their gasoline for, their supposedly
surplus gasoline, to people like myself—the difference between that
and what I was retailing for and what their man was retailing for,
247
which constitutes anywhere from 3 or 4 cents in some areas to as high
as 1 1 , 12, or 14 cents in some other areas. They’re moving into this gap.
This is where the majors have suddenly blossomed. They have money
coming out of their ears. They have a hard time trying to cover it up
in the books. Really, a person should have sudh an undesirable fix!
All the major oil companies are, especially in this area right now.
There’s no such thing as price protection right now. You don’t
compete.
I believe in free democracy and I believe the country was founded on
it, but we’re not playing it right now. We have a serious problem.
Go in and try to start a station and compete fairly with major oil com
panies. Even if you took one of their own stations, they’ll say to you
your bathrooms are dirty, you didn’t cut the grass; this is the problem.
This is no free market right now.
You know, people used to complain about gas. The price was down
and they would say, “ Oh, God, there’s always a gas war out there.”
I fell for the major’s deal, and people don’t believe that I ever sold gas
for less than cost. I did it because I competed and I had a free and
equal chance to compete; but I don’t have that chance right now.
I voted for you, too.
Chairman H u m p h r e y . Well, you have had some hard luck then.
I understand what you are talking about.
Mr. P eter son . This is the basic reason I ’m here: to see if there's
something that can be done to somewhat ease the petroleum situation
so that people like me, who were in the business and have been totally
eliminated, can survive. I foresee it being dark. What concerns me
more than that is that the free enterprise will be rubbed out in the
long run. The right to compete should be there.
There’s a book around about this. I haven’t had a chance to get
a hold of it yet. I haven’t been able to find out who to send to get it,
but I wTill. I guess it had something to do with the Rockefeller people
once upon a time. You probably would know more about it.
Chairman H u m p h r e y . I think we’ll go to Mr. Richards over here.
Mr. Richards, you’re sort of the daddy here of this group.
STATEMENT OF MYRON RICHARDS, PRESIDENT, RICHARDS OIL CO.,
SAVAGE, MINN.
Mr. R toitards. I ’m president of the Richards Oil Co. I ’ve been
associated with this business for 30 years in Minnesota. I ’m a third
generation Minnesotan—118 years. My father served in the U.S.
Weather Bureau for 00 years, so I ’m an expert in weather, and I’m
quite knowledgeable in the past 30 years in distributing half a billion
gallons of oil to industries and institutions. There are a few items
that—I think there are some things that I can present to you that are
entirely novel and new that would be helpful to this hearing.
Chairman H u m p h r e y . N o w , you are speaking as an independent
distributor?
Mr. R ic h a r d s . Yes, I am.
Chairman H u m p h r e y . I think your firm is one of the older ones ?
Mr. R ic h ar d s . I am the founder of the Richards Oil Co. at
Savage. We have 8 ,million gallons of oil in storage and I want to
thank Congressman Fraser for the help he gave us last fall. We are
248
now the owners of our own towing organization; without his help
and his letter of introduction to the Maritime Commission, we wouldn’t
be able to have this towing facility. It will enable us to bring 4 million
gallons of oil up the river starting in September. We found that
we’ve been able to keep priorities, but in some cases the refinery says,
“ Come and get it,” and if you don’t have the towing or transportation
facilities, you don’t have the oil. But the thing that I want to bring
up here----Chairman H u m p h r e y . I ’ll make sure that our good friend the
Congressman hears this. It’s nice to get a compliment once in awhile.
You appreciate it.
Mr. R ic h a r d s . Well, you mentioned conservation in Minnesota. We
use approximately between 15 and 20 million gallons of cut-back
asphalts for paving highways and streets in Minnesota. Cut-back
asphalt contains anywhere from 10 to 40 percent distillates, which
means naphtha for rapid cure asphalt, kerosene for medium cure
asphalt and No. 2 fuel oil for slow cure asphalt. Thus we’re pouring
between 4 to 5 million gallons of these products on the roads
and streets of Minnesota and because the State highway department
requests it and the county engineers are using it. This is a total waste
of a vital natural resource. In addition to that, it’s air and water
pollution.
Now, other States, the State of California and the State of Kansas,
have abolished the use of these products and are using emulsified
asphalt. Emulsified asphalt contains some harmless chemicals and it’s
30 percent water. Now, we like to sell water. It’s more profitable.
We’ve got plenty of water in Minnesota and I think it is very possible
for us to follow suit. Now, this year at the public letting at the State
highway department, the price of emulsified asphalts was the same
or less than that of cut-back asphalts. So, here’s an opportunity for
us to save 4 or 5 million gallons of vital resources of No. 1 and No. 2,
naphtha and kerosene, especially during this busy agriculture season.
That’s No. 1 .
Now, two, I ’ve been very vitally concerned about fuel for winter.
How much natural gas are we going to have available this winter and
how cold is the winter going to be ? I know that you’ve been around
here a long time. Perhaps you remember the winter of 1936. You
perhaps were at the university at the time.
Chairman H u m p h r e y . I was in South Dakota.
Mr. R ic h a r d s . Okay. Well, I was at the university.
Chairman H u m p h r e y . I was supposed to have been there.
Mr. R ic h a r d s . In 1936 we had 30 consecutive days below zero. The
temperature never rose above zero. If we have a winter like that next
winter, God help everyone in this room and God pitty us, because
you’ll be chopping ice out of the factories and the schools and the
hospitals and the industries in Minnesota.
Now, let’s get back to some other things here now that we’ve got
government involved. Do you know that the Veterans hospital here
has only 3 days of standby fuel supply ? They use natural gas, but they
only have 3 days’ standby fuel supply. That’s how our veterans are
being protected from the ravages of winter with its 30, 40 or 50 below
zero wind chill. Also we have the State capital with less than 10 days’
fuel supplies. Here we have the IDS furnishing steam and heat to
about 20 downtown Minneapolis buildings with only 15 to 20 days’
249
supply. The Pick Nicollet, 3 days’ supply. Now, the Federal Power
Commission is regulating the natural gas distributors such as Minne
sota Valley, Minnegasco and Northern States, and they had recom
mended 15 days’ supply. Well, you need to realize that when these in
dustries need fuels in bad times, they’re going to take it away from
someone, whether it’s the trucking industry or the railroad. No. 2 and
No. 1 fuel oil are quite similar to diesel fuel, so we’re robbing some of
the vital ones. Even the home users have only 15 to 30 days’ supply.
Now, industry gets a break on natural gas. They’ve been buying
natural gas for about half the price of the home user, and they have
more oil storage. The natural gas distributors are recommending 30
days’ supply. I think that the Federal Power Commission should set
up some regulations with the natural gas people and insist that they
either have 30 days’ standlby supply on their own premises or in bonded
warehouse receipts somewhere else. Now, referring to storage, I heard
you mention 1936. In 1936, fortunately, we were able to take care of
Western Europe.
Chairman H u m p h r e y . 1956 ?
Mr. R ic h ar d s . Yeah, 1956. We’re no longer in that position to do that.
Now, you know, what’s happened? They’ve built tremendous storage
capacities over in Europe to take care of this eventuality. Now, we have
in this United States here, we’ve had Government grain storage. I feel
that we need some Government oil storage here. I think the city of Min
neapolis should go ahead and build 5 or 10 million gallons of storage
and we should have fuels that are on standby reserve for civilian de
fense to see that we avoid a catastrophe because we lack fuel. You know,
life isn’t so simple that you can get along with a big barrel of corn cobs
or wood in the back yard for your winter and we don’t want to be
burning com cobs. This storage is a vital thing.
Now, I find out on this voluntary allocation system—we’re short 6
million gallons right now. Continental Oil has failed to renew their
contract with us. Well, that’s one of your good friends there; I think
you know the old Minnesotan, Bill Burnat. Now, I think a little whis
per in his ear would be very helpful.
Chairman H u m p h r e y . Why don’t you send me one of those delayed
postal notes. We’ll get to you right afterwards. We’ll get the name
and business.
Mr. R ic h ar d s . But I feel that I think that we’ve got to restore this
5 percent cut in the depletion allowance for the oil companies. You’ve
got to make this hazardous business of the local drilling industry profit
able. I feel that the Federal Power Commission’s got to take the hand
cuffs off the gas producers. We have an unrealistic and unfair selling
price on that natural gas when gas in unregulated intrastate com
merce can sell for 50 or 52 cents and here they’re only allowed to
charge 25 cents in interstate trade.
Also I think Mr. Sampson here had very good advice that we need
to bring back the coal pile for the very largest consumers. You know,
they kicked the coal pile out at Commonwealth 5 years ago, Southern
Illinois Coal. Now they’re using 400 million gallons of residual fuel to
generate electricity. Now you want to realize that a ton of coal is worth
160 gallons of oil. The very large industries and powerplants here can
use coal and they can mix it to lower the sulfur content. They can take
the low-sulfur coal from Wyoming and Montana and mix it with the
250
high-sulfur coals. Now, these things could be very helpful in solving
some of our fuel problems. Not only that, but we have even a little
surplus of asphalts here in this area, because we have three refineries
in this area refining asphalts. They can very easily reduce that instead
of exporting asphalt out of this territory which they are now doing.
They can convert some of that into heavy fuel oil, and heavy fuel oil
has 7 percent more heat value than No. 1 and No. 2. So, you can transfer
that.
Back about 10 years ago we had over 200 schools in the State of
Minnesota that were using No. 5 and 6 fuel oil. They’ve all gone to No.
2 fuel oil.
Chairman H u m p h r e y . Is that because it’s cleaner ?
Mr. R ic h a r d s . Yes; that’s right and because usually they have parttime engineers and they want to operate the school boiler plants with
a part-time bus driver or a janitor, and some of them are as ineffectual
as my wife in maintaining an oil burner. This is difficult.
Chairman H u m p h r e y . Keep that out of the official record. I don’t
want you getting in any trouble there.
Your knowledge of this industry is really a very rich, a very rich
one, and we welcome the observations that you are making here. Thev
are very valuable ones, On this asphalt business, we’re going to look
into this and Mr. Erchul is back there listening. I’m so pleased that
he is, because we really ought to look into that one.
Mr. R ic h a r d s . Also coke production; you know, we have one major
refinery that processes 50.000 barrels of oil a day, our largest oil re
finery. Coke’s half of their bottom of the barrel. Now, I don’t know
exactly how officially that’s being distributed or how effectively, but
there is a potential alternate there. More industrial fuel oil could be
made, which in turn could replace No. 2, which in turn could go to
the users other than major industry and, well, now that’s the difficulty.
You take an industry like Waldorf Paper using 12 million gallons
of fuels, 200 thousand gallons a day of heavy fuel, and they only have
2 days’ storage. This is ridiculous with our 2-day weekends and our
4-day work weeks and all that, and this indirectly affects the total
supply of product in this area. Thank you very much.
Chairman H u m p h r e y . Well, Mr. Richards, I want to thank you.
You are kind enough to come to me today and say you’d be willing to
visit with us. You know an awful lot of the oil and fuel industry in
this area and you can be very helpful to us. I think you’ve given us
a couple of idea« that we ought to act on. I’m going to see that we
follow through and, by the way, you heard from Mr. Reed today, and
if you have any suggestions for the oil and gas office out of your
experience, it would be very helpful.
Mr. R ic h a r d s . I certainly hope that this voluntary program works
and, if it seems like it’s faulty, I hope they can put the pressure more
on the voluntary side. During World War II, I experienced the ration
ing program and I saw the inequities and the difficulties of managing
it, and I certainly hope that we’ll find a reasonable solution to our
problem.
Chairman H u m p h r e y . Thank you very much. Now, there was just
one other. I think we had one other witness here and that’s John
Kjera. John, I just can’t believe that that’s a Polish name,
M r . K j e r a . That’s a Polish name.
Chairman H u m p h r e y . Bom in Finland ?
251
STATEMENT OF JOHN KJERA, PRESIDENT, LOCAL 662,
CHEMICAL & ATOMIC WORKERS, PINE BEND, MINN.
OIL,
Mr. K j e r a . No; I ’m half Irish too. Mr. Chairman, I ’d like to thank
you for the opportunity. My name is John Kjera and I ’m the president
of the local union that represents the employees that are currently on
strike against the Koch refinery.
Chairman H u m p h r e y . Your union again, for the record?
Mr. K j e r a . Oil, Chemical, & Atomic Workers, Local 662. We’ve
been on strike since the 9th of January and, incidentally, I don’t want
to bore you with the issues, but when the company took the action
it did, the company spokesman acknowledged that we had no other
choice than to go on strike. I ’m not going into the issues, but I know
Mr. Erchul’s office has contacted the company and me and numerous
other people trying to determine what the refinery currently is produc
ing. The company maintains they’re running full capacity. Now, our
local also represents North Star Chemical who supplies them with the
acid and reposes of spin acid in one of their processes. Knowing how
much acid they’re using and what they’re reposing and what they’re
shipping by rail, by barge, by truck, and to some extent the pipeline,
we think the refinery is running at two-thirds capacity. It has a little
over 100,000 barrels a day capacity and there are 42 gallons in a barrel,
so if they’re running in the area of 70,000 you’re talking a decrease of
1 to iy 2 million gallons of petroleum products a day, although not all
in this immediate area. They pipe some down to Wisconsin and some to
Iowa. But that certainly has to be a substantial supply cutback.
Now, the negotiations have been on and we’ve resolved some of the
problems. We’ve got some real big ones to go yet. But the conduct
of the negotiations has been such that we feel that probably the
bargaining table isn’t really the solution to it; we think this strike
is a part of the process of driving the independent dealer out of
business and possibly the independent refinery. I think Midland
Cooperatives could be a part of the total picture.
I think also that we’ve heard a lot of testimony from witnesses today
that the oil producers are after a lot of economic advantages through
the oil depletion allowance, through the importation of crude and
finished products, and so on. With respect to imports, I would hope
that, whatever decision is made, any finished products will be limited
to supplying an immediate need and on the long-term basis the im
ports would be limited to crude oil. That has a bearing also on other
problems, such as the balance of payments, unemployment, and the
taxes paid both to Federal and local governments.
Chairman H u m p h r e y . Isn’t it a fact, I think, that the refineries in
recent years have been built overseas rather than being built here at
home.
Mr. K j e r a . That’s correct and that’s another part of the problem.
I think it’s also significant in our negotiations, which have been going
on since early December or late November, that the first significant
progress was made after some of the independent gas station operators
began to close up shop. It could be a coincidence; I don’t know. But
it certainly gives us something to think about. It was also very strange
that in the middle of the fuel oil shortage during the wintertime that
Koch’s refiner had several million gallons of fuel oil stored in the ter99-740— 73------- 17
252
minal at the river near the campus of the university. They never
started moving that oil out in any significant quantity till the fuel oil
crisis started to rise.
Another thing that certainly has a bearing on the total problem—
we certainly shouldn’t lose sight of the environmental problems in re
fining and such. Now, we’ve had one employee of the refinery die of
emphysema; that was a work-connected death. Also we have a member
who was employed by the refinery on a long-term disability, and the
doctor suspected it’s from excessive exposure to sulfur dioxide levels
that were too much over the years, but they can’t really prove it. There
are so many variables in it, but the doctors have significant reasons to
suspect it. This is the problem. So, you’ve got two sides to the prob
lems, but certainly we don’t want to lose sight of the environmental.
In respect to the other witness that testified about posting the octane
rating, I agree that it really isn’t too significant. It’s a step in the right
direction, but I think the only practical solution to this problem
would be to have realistic minimal requirements to meet in selling your
gasoline. There are so many things: your vapor pressure, the gum con
tent in your gasoline and other petroleum products. Incidentally, there
are two or three different octane ratings and that’s what Mobile tried
to get at. I guess it was a megatane rating.
As far as the strike situation is concerned, we’ve had numerous meet
ings with the company and we tried various ways to get some move
ment under the company. We’re going to continue to make any effort
we can to bring about a quick and peaceful solution of the problem.
It’s a very serious one and we’re well aware we’re probably disrupting
the community to some extent, including our members and families of
members and also of the supervisors who are working in there.
Chairman H u m p h r e y . Thank you very much. I ’m pleased that we
had a representative of the union here today. We like to keep these
meetings balanced and I’m regretful that we didn’t have one of the
majors.
Mr. K j e r a . I don’t think they like to show up. Every place we
show up they never come and I don’t think they have a good story
to tell. This is the only conclusion I can come to.
Chairman H u m p h r e y . Thank you very much. Mr. Hillmann, you’re
the final witness I believe, and I ’ve got to catch an airplane anyway.
STATEMENT OF ARNOLD HILLMANN, VICE PRESIDENT, UNITED
VAN BUS DELIVERY, MINNEAPOLIS, MINN.
Mr. H j l l m a n n . Well, we’ll make it brief. The table1 which I just
gave you is one that I ’ve given to your staff member, Mr. Cox, earlier.
My name is Arnold Hillmann. I’m vice president of United Van
Bus Delivery, which is a company located here. It’s home base is
here in the Twin Cities. We are not members of the Minnesota Motor
Transport Association which testified here earlier in that we’re in a
different type of business. We confine our business and operation
primarily to the Minneapolis-St. Paul area. We have 200 trucks op
erating in this area, which is a significant number, and I think some
of the effects that I ’m going to speak about here will be of assistance
to you and your staff.
1 See table 1 at end of Mr. Hillmann’s statement.
253
The gallonage chart that I submitted is really to indicate to you
something of which you spoke this morning: the degree of uncer
tainty. You can see that our supplier with whom we contracted for
12 years changed his mind 10 times since last October.
Chairman H u m p h r e y . Have you got another copy of that ? Do you
have an extra one there?
Mr. H il l m a n n . Sure. H e changed his mind 10 times since last
October. Now, I am not here to make any critical suggestions with
respect to our supplier because, as much as I can determine at this
point in time, he’s treating us on an equal basis with his other cus
tomers in competition with us. But I just wanted to demonstrate
to you the uncertainty that we’ve gone through. As a side line to
that, I think there are some economic impacts here in the community
that have to be recognized and that could become nationwide.
From this gallonage availability chart I ’ve shared with you, we find
that we have 80 percent of our previous year’s purchases. Now, in
the meantime I’ve gone out and increased our business by 27 percent
in the last 6 months, so a 20-percent reduction in fuel means I’m only
going to have fuel for 58 percent of our present operations. As I
said, I understand my supplier’s part of my problem, because I feel
he’s treating me relatively fairly. Yet in this situation I have no
incentive to go out and improve my business or to go out and be
competitive in the marketplace, and business needs some incentive to
keep growing.
We have recently hired several new employees. We went on a cam
paign specifically to hire Vietnam veterans and, if I have to lay off
from the seniority list, I ’m going to have to cut the Vietnam veterans
off the bottom of the list. This will be a disappointment to these
people. I don’t know how to address myself to that problem except
that I ’m going to very actively seek other methods of securing fuels.
I’ve also attached for you a company table1 which shows you what
has happened to my fuel prices since last November. For what it’s
worth, you can review it, I can document it, should you desire. As a
result of those increased costs, which reflect a 46-percent increase
in the cost of gasoline since last October, this week I have imposed on
my customers a 1 .1 -percent fuel surcharge which is listed at the
bottom of their freight bill as a separate and distinct item. I want
mv customers to be aware of what the rate increase is for and that
it’s not an overall increase.
As we approach new suppliers or potential new suppliers, we haven’t
found them too warm at this point to talk to us. They’re saying that,
because of the controls, the voluntary controls that they’ve been asked
to comply with, they really have nothing that they can share. They
have to take care of their previous customers.
So, the dog is starting to chase its tail now. I told you about our
problems. I have some suggestions here. I heartily concur with the
gentleman from the Farmers Union, and I had the same thought
in my notes prepared yesterday. Let’s take a very careful look; does
the National Guard or the Army Reserve really have to go to camp
Soe table 2 at end of Mr. Hillm.ann’s statement.
254
this year and spend all that fuel and expense in getting there and in
their exercises? Maybe the Air National Guard can fly every other
weekend and still be as sharp. Maybe there should be some serious
consideration to allowing immediately—I ’m talking about some short
term solutions now—to immediately allowing the over-the-road
truckers to load their trucks 10 percent heavier than they are today.
I understand that business, because I have been in the trucking busi
ness in some manner since 1948. Most States regulate the amount of
tonnage you can put in. Now, you can’t add to it in every truck, be
cause a lot of them are full by virtue of cube already, but maybe you
can add 10 percent or 5 percent to the load of half of them. That will
take a few trucks off the road, but it’s going to conserve some fuel.
Also, take another very hard look at the ICC decision with respect to
the gateway situation.
I ’m leading up to a significant point here. With about 200 trucks
running in the city like I have every day, we have one problem. I think
the municipalities around the country should be encouraged to loosen
up on their truck-route restrictions in the city. We can’t take our trucks
down even some very main arterial streets because they’re restricted
against truck traffic/With 200 trucks a day, if I can save 5 miles per
truckl will save enough fuel to keep 76 automobiles on the road in the
next year. Now, you know, small numbers really create big numbers
here. One gallon per day per truck doesn’t sound like a lot, but that’s
all I ’m suggesting that I could save if I were allowed to use any streets
that I wanted to bring my trucks home. But the compounding effects
of what happens in small operations like mine what could be achieved
by relaxing gateway operations and by some additional ways in inter
state highway operations could make a tremendous amount of fuel
available to the public.
I say that last matter only as an item for some provocative thinking.
Maybe the Government ought to think of going into the refinery busi
ness itself. Maybe some of the majors would be a little shook up by that.
I pose three questions to which I ’m not looking for answers, but
merely trying to provoke thinking on the part of your committee. Now
that I ’ve been reduced to 80 percent of my previous years’ purchases,
I am not sure and haven’t been able to find out where that other 20
percent is going. I don’t mean specifically by customer. Nobody can
satisfy me as to what the distribution of that 20 percent is, and I think
this needs looking at. Second, are the price increases justified? We
bought gas for the prices indicated on the chart for many, many years.
I know that there was an Economic Stabilization Act that came into
affect on August 15, 1971. I can’t understand how the refinery com
panies have gone up 46 percent in that period of time. Lastly, let’s take
a very serious look at the environmental situation. I won’t dwell on
that; you recognize it; you’ve spoken of it.
I thank you for your time and your interest. I really would like to
save a gallon per day per truck in this country. We can help a lot of
people that way.
[The tables referred to in Mr. Hillmann’s statement follow:]
255
TABLE 1.— GALLONAGE AVAILABILITY
Gasoline
......................
.
Diesel
Heating
OK
0
14.000
21.000
35,000
250.000
107.000
73.000
80.000
0
0
0
0
0
0
28,000
October 1972
No known problems.............
November 1972.......................
renewal).
OK................................
December 1972....................... ........................ (Approximate Dec. 18 UVB
advised
“ no
contract
renewal”).
January 1973..........................
24,000; 1 mo. only..............
16,000; 1 mo. only
February 1973.........................
48,000: 2 mo. only
March and April......................
225,000; for 1973
Mar. 27,1973..........................
May 2,1973........................... ........................ 193,000; for 1973
May 15,1973 (approximate)........
200,000; for 1973...............
May 24,1973,....................... ........................ 200,000; for 1973...............
.
...................
................... .
....................
....................
...................
..........
...........
............
............
TABLE 2.— PRICE PATTERN
Cost per gallon t
Gasoline
Diesel
November 1972........................
December 1972.........................
January 1973...........................
February 1973..........................
March 1973.............................
April 1973...............................
May 1973................................
0.11500
.11500
.12740
.12740
.15270
.16790
.16790
0.11250
.11250
.11880
.11880
.14200
.14200
. 14200
Increase (percent).....................
46
26
i Add 4 cents Federal tax and 7 cents State tax.
Chairman H u m p h r e y . This is the way we get these suggestions, by
going out in the field. Because no matter how good anybody is in
any one office, there’s a certain limit to his experience and imagination,
and I think we’ve heard several good suggestions here today from
the Minnesota Automobile Association, from you, sir, and from others
that testified here. We want to thank you very, very much. The staff
here has been taking notes of certain problem areas. Some of this will
be transmitted hopefully into our analysis of pending legislation to
see whether we can modify proposed laws in light of this experience
and testimony. Some of this we will follow up with individual contacts
with companies and with the officers of the Government. We hope
that this session today has been meaningful to you as witnesses and
as observers. I know it’s been educational for me. I wanted to come
here rather than asking you to come to Washington. It’s cheaper that
way, believe it or not, and I learned more.
Mr. H il l m a n . I was in Washington 2 weeks ago and I was afraid
I was going to fall in a hole where they’re putting in your new
subway.
Chairman H u m p h r e y . N o t mine. Thank you very much.
U n id e n t if ie d V oice . I think you overlooked someone.
Chairman H u m p h r e y . Oh, yes, Mr. Erickson.
256
STATEMENT OE TOM HRON, VICE PRESIDENT, MINNESOTA AVIA
TION TRADES ASSOCIATION, ST. CLOUD, MINN.
Mr. H r o n . Mr. Erickson had to leave because of a pressing business
matter, so I ’m going to speak for him. My name is Mr, Tom Hron
from St. Cloud, Minn., and I ’m vice president of the Minnesota
Aviation Trade Association. Quite briefly, I represent about 100 Min
nesota airports which are grouped together in this organization, and
all of us are experiencing a problem with aviation fuel. Of course,
with the shortage of fuel for the airports we’re concerned with air
transportation and such things as the air ambulance and agricultural
operations. This time of year it’s a big thing in the Midwest to keep
our airplanes going for spraying operations; we just can’t do it now.
Of course, the fight concerns the veteran programs and what have
you. This problem seems to be caused, of course, by the things that
have been mentioned here today already.
We have specific examples of price increase. It isn’t hard to prove
a 10-percent abrupt increase in price to us. There is a lot of action by
the major fuel companies to remove one rated fuel from the market;
that is the 80-octane fuel used by a majority of light aircraft and
agricultural airplanes. It’s just simply being removed from the market.
The situation is caused primarly by, it seems, Union 76, Gulf, and
Sun Oil Co. and, of course, as you probably have already
learned today, it’s a little bit difficult to learn just why the shortage
exists, why different companies are withdrawing from the market.
We’re concerned in this respect and we’d like to see some immediate
action to prevent, of course, the hazards to safety, the unemployment
caused by a loss of aviation, and the agricultural problems with
spraying, which is a pretty big thing, especially in the western part
of the State. Of course, you have a tremendous sum of Federal and
State funds which are not going to be too well used if the airports go
out, then you have serious economic hardships.
I guess briefly that the feeling by the association is that we reluc
tantly agree to some allocation program. We don’t feel Federal par
ticipation in independent business of any sort is desirable, but in this
case we feel that it’s pretty necessary. Also such things as the elimi
nation of the big car drain, the bombing.
Chairman H u m p h r e y . First of all, your association represents
how many airports?
Mr. H r o n . Over 100.
Chairman H u m p h r e y . H o w many of these airports have had prob
lems of contract for fuel ?
Mr. H r o n . We felt today that we were kind of party crashing. We
didn’t hear anything whatsoever about this meeting or your coming
to town. We picked it up through the grapevine and we just decided to
put together what we had and come. We picked up what examples
we could by the letters from different airports, such as Buffalo, Minn.,
which is out of fuel. I, myself, from St. Cloud, am on your record
there as at that time having 1 month’s fuel left; that was 2 weeks ago,
so I ’m in a different situation now.
I guess by now you know the feeling of the organization of airport
operators. Just my own personal feeling, Senator, is that, while a lot
of these fellows have been coming up here and saying they’ve been
257
in business 30 years, I ’d like to be in business 30 years, but it doesn’t
look like I ’m ever going to make it. I don’t know.
Chairman H u m p h r e y . We want to keep this record open for addi
tional papers, statements, and information. I f your association, sir,
despite the fact we did not get to inform you of this meeting—by the
way, it’s impossible to inform everybody—if you wish to submit any
further material we would welcome it. The fact of your presence here
is noted and I’m glad you are here, because we want to get a good
cross section of the fuel users. You are one of the fuel users. So you
feel free to forward your material to me or Senator Mondale. I’m
chairing this subcommittee, so you forward it to me and I will get it
into the record. You have mentioned St. Cloud and Buffalo. There may
be other airports?
Mr. H r o n . Holman.
Chairman H u m p h r e y . Holman ?
Mr. H r o n . I have a number of letters. Other examples would be up
in Cloquet, Brainerd; here we have one from Owatonna, one from
Flying Cloud over in the western part of the State; and Buffalo. Then
there’s the gentleman behind me from St. Cloud which you have a
record of.
Chairman H u m p h r e y . If you give me those letters, I ’ll give them
back to you. I ’ll get a xerox and send them back if you need them.
I ’d like to have them for the record. Then we’ll insert those in the
appendix to the record. Will you get those, Mr. Cox ?
Mr. H r o n . We’ll have a letter drawn up and send them to you.
Chairman H u m p h r e y . D o you want to do that ? OK, have a letter
drawn up and submit it all at the same time.
Mr. H r o n . Yes.
Chairman H u m p h r e y . Thank you. The subcommittee stands ad
journed.
[Whereupon, at 5 :30 p.m., the subcommittee adjourned, subject to
the call of the Chair.]
APPENDIX
[From the Congressional Record, Feb. 1 5,1973]
T h e S w e e p in g I m p a c t of t h e E n e rg y C r is is
(By Alvin
Jj. Hoffman, President, Construction Inspection Services, Inc., Silver
Spring, Maryland, and Publisher of Construction Economics)
Some of the dimensions of the growing energy crisis in the United States began
to appear in the headlines as the winter took a real grip on much of the nation.
Homes and schools in scattered locations began to get colder, and many fac
tories either shut down or curtailed their operations. But the real dimensions of
the crisis are only dimly perceived by most citizens. The effect on all industries,
on the nation’s position in the world, and on its ability to protect itself econom
ically and physically, has been voiced by only a few spokesmen. The average
citizen, his furnace humming and car operating has not been significantly
affected.
The effects, however, have become noticable in the construction industry. The
most visible manifestation is that housing starts figures have dropped. A paucity
of sewage treatment facilities and poor weather conditions have contributed to
the decline, but so has a lack of natural gas in many metropolitan areas for
heating, cooling, and cooking. Factory and industrial building is expected to
drop in the coming year, also as a direct result of shortage of acceptable fuel for
heating, cooling, and power.
In addition, a true energy crisis will affect highway construction, if highway
travel is reduced because of higher prices of gasoline and diesel fuel. Dwindling
supplies of asphalt could be a concomitant factor.
As a result of the “ environmental” drive of the past few years, which is an
integral part of the energy crisis, other areas of construction have been affected.
Cost of petroleum-based machine parts and building components have risen;
construction of thermal and nuelear-fueled powerplants has been at a virtual
standstill; and other construction—including major housing developments—has
been either delayed or halted.
On a larger scale there was cause for grave concern. It can be said that modern
nations attain their international economic rankings in proportion to the energy
that is available to drive their machines, manufacture their goods, and increase
their peoples’ standard of living. Ample supply of energy, it is now becoming clear,
is one of the major keys to the growth and influence of the United States, and
its position is being threatened.
It is ironic that this should be happening while the U.S. sits on some of the
largest deposits of fossil fuels on earth and has been a leader in the development
of peaceful uses of nuclear power. The vast deposits of coal, oilshales, and off
shore oil and gas fields are estimated to contain enough fuel to supply energy
for the nation for many hundreds of years, without dependence on any foreign
sources.
The estimated 500-year reserve of coal has been rendered virtually unusable by
a myriad of “environmental” considerations, including emissions, particulates,
and other factors. The only hope is that some acceptable (and probably ex
pensive) means will be found to convert the coal to gas. In addition, development
of known oil reserves offshore and in Alaska has been stopped dead by conserva
tionists’ objections. Even nuclear power development has been halted by fear
(259)
99-740— 73------- IS
260
of “ thermal pollution” through water used to cool generators and possible
harmful emissions, plus difficulties of disposing of wastes.
But the mathematics of the shortage—though it involves astronomical figures—
is simple enough: The United States now has “proven” oil reserves (areas where
oil has been found and is producible) amounting to almost 30 billion barrels
within the continental U.S., and perhaps another 10-15 billion barrels under the
frozen waters of Alaska’s North Slope. Moreover, gas reserves amount to about
252 trillion cubic feet. However, according to the petroleum-gas industry, very
little has been added to these known reserves since about 1969 because of in«
creases in exploration costs and other restrictions.
Meanwhile, Americans are consuming 16 million barrels of oil a day, and per
haps 23 trillion cubic feet of gas a year.1 Moreover, this consumption is rising at
the rate of 1 million barrels of oil every day, despite the claim of oilmen that
existing wells are already producing at near capacity. Gas usage has been rising
just as spectacularly. With this situation in mind, the U.S. government recently
authorized substantial imports of liquid natural gas (LNG) to supplement the
available supply, probably at considerable addition cost to the consumer. The
enormous consumption is not solely in terms of heating. It includes power to
turn electric-generating turbines; refinement of gasoline and other products; a
vast petrochemical industry which depends on petroleum or natural gas as its
basic feedstock; and highway construction, since asphalt is a by-product of
gasoline and other refining processes.
The reasons are many and complex, aside from “environmental” restrictions.
Oilmen are prone to blame government regulation—at both federal and state
levels—for many of their ills, arguing that artificial holddowns of prices have
forced them to absorb increasing costs to the point where exploration for new
sources has become prohibitively costly.
It must also be noted that the energy industry has had a hand in compounding
its own problems. Restrictions on foreign imports, for example, are the result of
industry demand for government protection. Also, aggressive sales campaigns
promoting the use of more and more appliances in homes, offices and factories
have been extremely successful.
The only remedies that have been proffered are either conservation of energy
use—through lowered heating-cooling levels, better insulation and construction,
and curtailment of auto use—or further dependence on foreign governments for
oil and oil products. Conservation will have a very gradual effect on the energy
crisis, and will depend on broad and insistent education of the public, which
must be willing to give up the optimum in comfort and convenience. The long
transportation lines needed to bring in foreign oil pose their own dangers in
terms of possible spillage, the need for “super ports” to handle larger tankers,
and other factors.
The prospect of a boom in construction seems favorable indeed, if and when
politicians are willing to face environmental restrictions and strike a sensible
balance between the needs of humans and the needs of the environment. When
such a breakthrough comes, there will be immediate need for construction work:
new refineries, ports for super-tankers, pipelines and power plants. The question
is, how much longer can we wait before the nation experiences an irreparable
economic set back?
Prepared S t a t e m e n t o f H o n . C h a r l e s A. V a n ik , a U.S. R e p r e s e n ta tiv e in
C o n gre ss F rom t h e 2 2 d C o n g r e s s io n a l D i s t r i c t o f t h e S t a t e o f O h io
Mr. Chairman and members of the Subcommittee on Consumer Economics of
the Joint Economic Committee, I appreciate this opportunity to present my views
on a vital factor of our energy dilemma—conservation—which has received all
to little national attention. I see this failure as part of a wider pattern of under
representation of consumer interests in this “ crisis” now before us.
1 Rising annually.
261
In short, I am concerned that the energy crisis will become merely a pretext
to gouge the consumer and provide windfall profits to the energy industry.
In the months ahead a gasoline shortage threatens to cripple the country.
Gas rationing, while not yet begun, is certainly being contemplated by the Ad
ministration. For his part, the consumer has been manipulated into a situation
over which he has little control. As gasoline prices accelerate and shortages
become more widespread, the ordinary citizen will have little choice but to
buckle under to the pressure.
The automobile has become an important American institution. Direct gaso
line consumption by cars represents 13% of our total energy budget.
In 1970 more than 95% of urban passenger traffic and 85% of intercity traffic
was carried by the automobile. The auto has become the major cause of the con
gestion which chokes our cities. At the same time it is responsible for almost
one half of the emissions by weight which pollute our air. Between 1950 and
1970 automobile travel increased three-fold to 900 billion vehicle miles. During
the same period per capita auto travel increased by 85%. And there is no indi
cation to show these trends slowing in the future: Detroit is now predicting an
output of 934,800 units for May, the largest monthly total in history.
Unfortunately, the auto industry should have seen long ago that the national
interest would best be served by a cleaner safer, more efficient automobile. But
the industry is slow to move without a stimulus. A case in point is the auto
makers’ reluctance to assume responsibility for the pollution their product con
tributes to our air. On the well-publicized effort of the auto companies to meet
the requirements of emission control in the Clean Air Act, the National Academy
of Sciences commented,
. it is unfortunate that the automobile industry did not seriously undertake
such a program on its own volition until it was subjected to governmental pres
sure. A relatively modest investment, over the past decade, in developmental
programs related to emissions control could have precluded this crisis that now
prevails in the industry and the nation.
Only now, as a response largely to foreign competition, the automakers are
beginning to realize that economy in automaking is a marketable commodity.
But the trend toward smaller cars began several years ago. In 1969, the V-8
engines were equipped in 88.8% of new car sales; in 1971 this figure dropped to
78.8%. Again, however, the industry has been painfully slow in responding ade
quately to national needs.
THE HIGH COST OF GASOLINE SHORTAGES TO THE CONSUMER
Mr. Chairman, if there is one safe prediction in our present crisis, it is this:
the combination of gas-gulping automobiles and a shrinking supply of gasoline
will combine in the months and years ahead to multiply the cost of running an
automobile. To determine the magnitude of this increased cost, my staff and I
have compiled a chart correlating fuel economy with gasoline prices. My calcula
tions are based on the assumption that the average passenger car travels 10,000
miles each year. (Data compiled by the Motor Vehicles Manufacturers Associa
tion show this assumption to be accurate. An increase in that distance would
tend to increase the difference between the low and high efficiency vehicle, while
an annual distance of less than 10,000 would tend to narrow the difference.)
COST OF DRIVING A CAR FOR 1 YEAR (ASSUME 10,000 MILES)
Miles per gallon
Price per galion
30
28
26
24
22
20
18
16
14
12
10
8
6
$115.62
118.75
121.88
125.00
128.13
131.25
134.38
137.50
140.63
143.75
156.25
187.50
$123.32
126.65
129.99
132.32
136.65
139.99
143.32
146.65
149.99
153.32
166.65
199.98
$132.13
135.70
139.27
142.84
146.41
149.98
153.55
157.12
160.70
164.27
178.55
214.26
$142.30
146.15
149.99
153.84
157.67
161.53
165.30
169.22
173.07
176.92
192.30
230.76
$154.18
158.35
162.51
166.68
170.85
175.01
179.18
183.35
187.52
191.68
208.35
250.02
$168.17
172.71
177.26
181.80
186.35
190.89
195.44
199.98
204.53
209.07
227.25
272.70
$185
190
195
200
205
210
215
220
225
230
250
300
$205.57
211.13
216.68
222.24
227.80
233.35
238.71
244.46
250.02
255.58
277.80
333.36
$231.25
237.50
243.75
250.00
256.25
262.50
268.75
275.00
281.25
287. 50
312.50
375.00
$264.37
271.43
278.58
285.72
292.86
300.01
307.15
314.29
321.44
328.58
357.15
428.58
$308.32
316.65
324.99
333.32
341.65
349.99
358.32
366.65
374.99
383.32
416.65
499.98
$370
380
390
400
410
420
430
440
450
460
500
600
$462.50
275.00
487.50
500.00
512.50
525.00
537.50
550.00
562.50
575.00
625.00
750.00
$616.68
633.35
650.01
666.68
683.35
700.01
716.62
733.35
750.02
766.68
833.35
1, 000.02
262
$9.37................................
$0.38................................
$0.39...............................
$0.40...............................
$0.41...............................
$0.42...............................
$0.43...............................
$0.44. ...........................
$0.45 „
$ 0 . 4 6 . ...........................
$0.50. .
$0.60.
32
263
Some interesting conclusions can be made from this chart. In a choice between a
large luxury car with a fuel economy of 8 miles per gallon and a smaller economy
car, the difference in gasoline costs over the year can be considerable.
Annual fuel costs
Economy car—24 miles per gallon, regular gas at $.42/gallon----------------$175.01
Luxury car—8 miles per gallon, premium gas at $.44/gallon---------------- $550. 00
Assuming the same distance of ten thousand miles driven over the year the
difference in cost to the owner is about $375. Over the life of the car—siay, five
years—the difference in fuel costs ranges to $1875. It is likely the costs will be
even higher, however, because fuel costs themselves are almost certain to rise.
From the above table the consumer can calculate his fuel costs for the various
choices he has before him. As fuel costs rise, the differences between the low
efficiency automobile and the high efficiency automobile will grow. Taking the
example above with a fuel cost for both cars of 60 cents a gallon, the difference
between the two in annual fuel costs zooms to $500.
An entire range of factors—rising gasoline prices, spot shortages, an over
reliance on foreign production, a growing concern for the problems of pollution
and congestion—have converged to make the large gas-consuming automobile
extinct in its own time. Our nation simply cannot afford to keep on manufacturing
cars which guzzle gasoline at a rate of under ten miles per gallon. We must
recognize this fact, for the only person who really suffers from a gasoline shortage
is the American consumer.
The American people must become aware of the vast costs involved—to him
self, to his neighbors, to the entire nation— in buying an over-sized, inefficient
automobile. I have introduced legislation which, I hope, will begin to move us
in this direction. My bill will impose a Fuel Economy Excise Tax based on the
fuel consumption characteristics of each new post-1976 model car, as measured
by the Environmental Protection Agency.
There are three important features of the tax scheme I am proposing. The key
factor in the tax is its timing. The initial rate structure will not go into effect
until July 1, 1976, which will be in time for the 1977 model year. There will be
ample time for automakers to assess the impact of this tax on their design,
manufacturing, and marketing strategies. I want to stress that this tax is not
intended to hammer-lock the industry. It instead provides an essential incentive
to manufacture a more efficient automobile—for the benefit of the American
consumer.
The second important characteristic of this proposal is that the excise tax is
graduated. Those cars Which are more inefficient pay more tax. Under this legisla
tion an interim rate structure will be in effect for a period of five years. Any car
with over 20 miles per gallon, as determined by the EPA, will be (assessed no tax.
After five years the tax schedule shifts to increase further the burden on the
inefficient automobile. With the Committee’s permission, I would like to submit
a copy of this legislation with my statement.
A BILL T o amend the Internal Revenue Code of 1954 to provide for a tax on every new
automobile with respect to its fuel consumption rate, to provide for public disclosure of
the fuel consumption rate of every new automobile, and for other purposes
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That (a) the Congress finds that-----(1) the Nation is facing a serious shortage of finished petroleum products,
and a national policy of energy conservation is vital to reduce the wasteful
use of irreplacebale fossil fuels;
(2) a shortage of domestic refinery capacity and a conflicting pattern of
Federal policies have hampered the production of gasoline supplies and
have made such supplies inadequate to meet the rapidly expanding national
demand;
(3) passenger cars and other motor vehicles which use internal combus
tion engines are a major example of the inefficient consumption of gasoline;
and
(4) the efficiency with which motor vehicles consume gasoline has declined
11 percent during the last twenty years.
(b)
It is, therefore, the purpose of this Act to encourage the development
and manufacture of automobiles which efficiently consume gasoline.
264
Sec. 2. (a) Part I of subchapter A of chapter 36 of the Internal Revenue Code
of 1954 (relating to motor vehicle excise taxes) is amended by adding at the end
thereof the following new section:
“ SEC. 4 0 6 4 . AUTOMOBILE FUEL CONSUMPTION TAX
“ (a) Imposition of Tax.—There is hereby imposed upon every new automobile
manufactured, produced, or imported a tax at whichever of the following rates
is applicable with respect to the fuel consumption rate (as determined under
subsection ( b ) ) of such automobile:
“ (1) for the period beginning July 1,1976, and ending June 30, 1981:
‘‘If the consumption rate (in miles per gallon) is:
The tax is:
Over 20.0__________________________________________________________
$0.00
Over 19.0 but not over 20.0----------------------------------------------------------------1. 00
Over 18.0 but not over 19.0__________________________________________
1. 50
Over 17.0 but not over 18.0__________________________________________
2.00
Over 16.0 but not over 17.0___________________________________________
3. 00
Over 15.5 but not over 16.0___________________________________________
4. 00
Over 15.0 but not over 15.5__________________________________________
6.00
8. 00
Over 14.5 but not over 15.0__________________________________________
Over 14.0 but not over 14.5_________________________________________ _
12.00
Over 13.5 but not over 14.0___________________________________________
16. 00
Over 13.0 but not over 13.5__________________________________________
24. 00
Over 12.5 but not over 13.0__________________________________________
32. 00
Over 12.0 but not over 12.5__________________________________________
40.00
Over 11.5 but not over 12.0__________________________________________
48. 00
Over 11.0 but not over 11.5___________________________________________
56.00
Over 10.5 but not over 11.0__________________________________________
64. 00
80. 00
Over 10.0 but not over 10.5__________________________________________
Over 9.5 but not over 10.0__________________________________________
96. 00
Over 9.0 but not over 9.5____________________________________________
114. 00
Over 8.5 but not over 9.0______________________________________ _______ 128. 00
160. 00
Over 8.0 but not over 8.5___ _________________________________________
Over 7.5 but not over 8.0____________________________________________
192. 00
Over 7.0 but not over 7.5_____________________________________________ 224. 00
Not over 7.0______________________________________________________
256. 00
“ (2) for the period beginning July 1, 1981:
“ If the consumption rate (in miles per gallon) is :
The tax i s :
Over 20.0_________________________________________________________
$0.00
Over 19.0 but not over 20.0_________________________________________
8. 00
Over 18.0 but not over 19.0_________________________________________
12. 00
Over 17.0 but not over 18.0_________________________________________
16. 00
24.00
Over 16.0 but not over 17.0_________________________________________
Over 15.5 but not over 16.0_________________________________________
32. 00
Over 15.0 but not over 15.5_________________________________________
40. 00
Over 14.5 but not over 15.0_________________________________________
48. 00
Over 14.0 but not over 14.5_________________________________________
56.00
Over 13.5 but not over 14.0--------------------------------------------------------------64. 00
80.00
Over 13.0 but not over 13.5_________________________________________
Over 12.5 but not over 13.0_________________________________________
96. 00
Over 12.0 but not over 12.5_________________________________________
114. 00
Over 11.5 but not over 12.0_________________________________________
128.00
Over 11.0 but not over 11.5_________________________________________
160. 00
Over 10.5 but not over 11.0_________________________________________
192. 00
Over 10.0 but not over 10.5_________________________________________
224.00
Over 9.5 but not over 10.0_________________________________________
256. 00
Over 9.0 but not over 9.5_________________________________________
320. 00
Over 8.5 but not over 9.0_________________________________________
384. 00
448. 00
Over 8.0 but not over 8.5_________________________________________
Over 7.5 but not over 8.0--------------------------------------------------------------512. 00
Over 7.0 but not over 7.5--------------------------------------------------------------640. 00
Not over 7.0_______________________________________________________
768.00
265
"‘ (b) Determination of Fuel Consumption Rate.—The fuel consumption rate
of new automobiles taxable under subsection (a) shall be determined solely on
the basis of the Automobile Fuel Consumption Schedule prepared by the Ad
ministrator of the Environmental Protection Agency.
“ (c) Liability for Payment.—The tax imposed by this section shall be paid
by the manufacturer, producer, or importer at such time and in such manner as
the Secretary shall prescribe.
“ (d) Definitions.—For the purposes of this section—
(1) the term “new automobile” means every gasoline-powered vehicle
designed for use on the highway which has never been transferred to the
ultimate purchaser, and
(2) the term “ultimate purchasers” means, with respect to any new auto
mobile, the first person who in good faith purchases such automobile for
purposes other than resale.
(b) The table of sections for such part I is amended by adding at the end
thereof the following new item:
“ SEC. 4 0 6 4 . AUTOMOBILE FUEL CONSUMPTION TAX
(c) The amendments made by this section shall take effect on July 1, 1976.
Sec. 3. (a) The Administrator of the Environmental Protection Agency shall,
from time to time, study and investigate the fuel consumption rates of auto
mobiles which are subject, or may be subject, to the tax imposed by section 4064
of the Internal Revenue Code of 1954 (relating to automobile fuel consumption
taxes).
(b) The studies and investigations conducted under subsection (a) shall
include tests—
(1) of each automobile model subject to such tax equipped—
(A) with each available engine sizes (measured by horsepower),, and
(B) with each, and combinations of each, type of optional accessory
available which is determined by the Administrator to have a significant
effect on fuel consumption economy; and
(2) which shall be conducted—
(A) under driving conditions representative of an average composite
of urban and nonurban driving speeds and circumstances,
(R) with the fuel used being of the quality normally recommended
for use in such automobile, and
(C) with such automobile carrying the average weight load for which
it was designed.
(c) Based upon the studies and investigations conducted under subsection (b),
the Administrator shall determine the fuel consumption rate of each such auto
mobile model with and without fuel consumption effective accessories and with
each available engine size. The Administrator shall, not later than June 1, 1976,
and each year thereafter, prepare and transmit to the Secretary of the Treasury
a schedule of all such rates to be known as the Automobile Fuel Consumption
Schedule (interim revisions of which are to be made by the Administrator as he
deems appropriate). The Automobile Fuel Consumption Schedule shall be made
available for sale as a public document.
S e c . 4. Section 3 of the Automobile Information Disclosure Act (15 U.S.C.
1232) is amended by inserting “ ( a ) ” after “ Sec. 3.” and by adding at the end
thereof the following:
“ (b) Every label required to be affixed under subsection (a) shall include,
in the case of any automobile on which a tax was imposed by section 4064 of
the Internal Revenue Code of 1954 (relating to automobile fuel economy
taxes)—
“ (1) the fuel consumption rate determined to be applicable for such auto
mobile, and
“ (2) the tax paid under such section 4064.”
fuel
econom y: w h at
is
it
:
Many factors have an impact on the rate at which an automobile consumes
fuel. But EPA has found that the weight of the vehicle is the primary deter
minant of fuel consumption. Put quite simply, a five thousand pound car con
sumes twice as much gas as a vehicle half its weight.
266
However, there are other characteristics which effect the fuel economy of a
vehicle. The most publicized has been the controversial emission control systems
manufacturers have had to install in order to comply with the Clean Air Act of
1970. The EPA has found that these devices depress the full economy of the
average car by only about 8 percent. I say “ only” because, for example, air
conditioning will decrease the efficiency of the automobile by about 9 percent.
Automatic transmissions represent a fuel penalty of 5-6%. And according to Dr.
David Rose of MIT, the use of radial tires may increase the fuel efficiency of the
automobile by as much as 10% through the reduction of road friction. It appears
that the impact of emission controls on fuel consumption has been distorted by
the manufacturers.
There are also more subjective factors affecting fuel economy. A “hard”
driver—one who accelerates quickly and drives above recommended limits—will
consume more gas than a driver who is more careful. Vehicle design also con
tributes to the efficiency with which a vehicle consumes gas.
All these factors—vehicle weight, accessories, design, driving habits—must be
considered in defining the fuel economy of a vehicle. Under my legislation, the
Administrator of the EPA is instructed to establish a standard procedure for
testing fuel economy. Important work in this direction has already been done
by the Society of Automotive Engineers, and it should be no problem to devise
such a procedure.
With a standard procedure in hand, the EPA will test each manufacturer’s
proposed line of vehicles for the coming model year. The EPA will rate each
vehicle and include in its calculations the following factors: the weight of the
vehicle with a standard load, the impact of accessories such as air conditioning
and automatic transmission, the recommended gasoline and the difference in an
urban and a highway driving cycle. Once the testing procedure is completed, the
EPA will compile the results, and it will be on this basis that the Secretary of
the Treasury will impose the excise tax. In addition, the EPA’s report will be
made available to consumers through the Government Printing Office.
Smaller cars have been popular in Europe for many years. This popularity does
not grow from European fascination with the small car. Rather, there are in
Europe serious restraints to the large car: the highways are neither as wide
nor as well designed as our super highway system; fuel costs are high—as ours
will soon become— and there is usually a heavy tax imposed on the weight of
the vehicle. In short, Europeans have very pragmatic reasons for buying smaller,
more efficient automobiles.
GASOLINE SHORTAGES AND NEW POLICY DIRECTIONS
Mr. Chairman, I am disappointed with the Administration’s approach to our
impending gasoline shortage. Mr. Darrell Trent, Acting Director of the Office
of Emergency Preparedness has warned, “Inadequate supplies of gasoline could
cause local shortages this spring and summer.” Indeed, these shortages have
already begun; independent marketers who rely on the major integrated com
panies for their supply of gasoline are being forced to close down some of their
outlets and curtail operations in others.
It appears to me that the Administration’s resort to “voluntarism” in energy
conservation is merely an excuse for inaction. Congrestion, pollution, and petro
leum shortages have combined to create a transportation crisis in this country.
Any meaningful solution to this crisis must deal with two critical issues. First,
we must begin to reverse the trend to bigger, more powerful, and more ineffi
cient automobiles. If urban automobiles carried an average of two passengers
rather than 1.4 and obtained 20 mpg, rather than the average of 11.4, a total of
25 billion gallons of gasoline would have been saved in 1970, the equivalent of
59% of the urban passenger transportation budget. Secondly, we must begin to
consider seriously plans to move people by means more efficient than the auto
mobile. For example, if 40% of the 1970 urban auto traffic had been carried by
mass transit and an additional 10% by bicycle 13 billion gallons of gasoline
would be saved, a 31% reduction in urban passenger transportation energy
consumption.
Mr. Chairman, the gasoline shortages this summer will be followed almost
certainly by fuel shortages next winter. We are now facing the harsh truth
behind the mismanagement of our energy resources. Our nation can no longer
afford to drift carelessly along wTith a tattered patchwork of energy policies.
We must begin to assess our real needs for energy and balance them against
267
our capability of providing* energy without unreasonable risks to our environ
ment. We must not be confused—the public trust does not lie with the interests
of the major oil companies or the big four automakers. We risk falling once
again into the mentality that what is good for GM—or Exxon or Ford or
Mobil—is good for the country. History has taught us that the public welfare
demands more. We must not allow our energy shortages to become a pretext to
manipulate the vital interests of the American consumer.
Q . A G a s o l in e S h o r ta g e ?
A . Y e s . S a d b u t 'T r u e .
Q. Is it critical?
A. Not yet, but it can become so. Certainly it’s serious. WThat seems likeliest is
occassional shortages. It all depends on just how much demand increases.
Q. Can 1 get all the gasoline I need this summer?
A. Probably. But service stations here and there may run for a few hours
now and then, and some may operate on shorter hours. Unlikely, though, that all
stations in a neighborhood will run out at the same time for very long.
Q. Crazy. II ow ’d this happen?
A. Crazy’s right. Not enough crude oil available, and not enough refining ca
pacity in this country to meet demand. Gasoline consumption is rising much
faster than anyone anticipated a couple of years ago—partly because of pollution-control devices new cars, partly because more cars are equipped with airconditioners. and other power take-off devices.
Q. Why haven't oil companies built more refineries here?
A. Mainly environmental and financial constraints. While the vast majority
of consumers are unaware of it, legislation and litigation arising from exagger
a ted environmental fears have effectively prevented oil companies from obtain
ing satisfactory sites for new refineries. And the whole sale prices we get for
gasoline and other products do not recover the increased cost of building
refineries.
Q. What does one cost?
A. Over a quarter of a billion—that’s 250 million—dollars for a 160.000-barrela-day refinery now. This is about the minimum economic size. But by the time
you could get a new one built, starting from scratch today, it would cost a lot
more.
Q. How many new refineries does the U.S. needt
A. An average of four or five new 160,000-barrels-a-day refineries in each of the
next seven years, at least.
Q. How many of this size under construction now?
A. None.
Q. How's that again?
A. None.
Q. [How long does it talcc to build a new one?
A. If you started today, at least three years for a 160,000-barrel-a-day plant.
Q. Will building more refineries in the U.S. solve the problem?
A. Not entirely. U.S. crude oil production is declining. Many U.S. refineries
can’t get all the crude oil they could refine now.
Q. Ho w come tee aren't producing more crude oil?
A. The “ lower 48” states are the most heavily explored region in the world,
and we’re using more oil than we can find here. Almost all of the older fields are
now at maximum production, with the industry producing every barrel it can.
And for environmental and other reasons, oil companies haven’t been able to
obtain access to oil discovered on the North Slope of Alaska or to the unexplored
areas off the East and West Coasts.
O. Can't we obtain all the foreign crude oil we need?
A. No. Supplies are tight everywhere. Most overseas producing areas are at
maximum producing levels, and some of the world’s major producing countries
have actually curtailed their crude oil production.
Q. Why not import more gasoline?
A. Same reason. Some gasoline is being imported. But supplies overseas are
very tight, because of high demand and tight crude oil supplies. The U.S. has to
compete with other countries for these tight supplies.
Q. Can't we all n*e gasoline more efficiently?
A. Certainly. The improved public transportation Mobil has been urging could
save some gasoline. So would good driving habits and a well-tuned engine—things
we’ve promoted for years. But all this would have little immediate impact. Even
with the best conservation, consumption is going to increase.
268
Q. Any way out of all thist
A. Sure. Use all energy more efficiently. Control automotive emissions in a
way that won’t waste so much gasoline. Build the Alaskan pipeline. Deregulate
the price of at least new supplies of natural gas. Explore offshore. Permit the
financial incentives to build more refineries—where they’re needed. Go all-out in
research and development on coal and oil shale and nuclear power, to make these
energy sources economic and environmentally safe.
Q. This risky t
A. Riskier not to. What we have to do is develop socially and economically
acceptable balances. There is no automatic conflict between a cleaner environment
and greater supplies of energy. The most unacceptable risk of all is to fail to
develop adequate and secure supplies of energy so America can continue to
prosper.
N
a t io n a l
O i l J obbers Co u n c il ,
Washington, D.C., May 4,1978.
Hon. H
ubert
H. H
um phrey,
Chairman, Subcommittee on Consumer Economics of the Joint Economic Com
mittee, U.S. Senate, Washington, D.C.
D e a r M r . C h a i r m a n : Thank you for allowing me to file this statement before
the Subcommittee on Consumer Economics on behalf of the National Oil Jobbers
Council.
The National Oil Jobbers Council is a federation of 38 state and regional
associations, covering 46 states, of oil jobbers in the business of marketing
motor fuels, heating oils and boiler fuels at wholesale and retail. NOJC thus
represents 13,000 marketers of petroleum products; they sell roughly 25% of
all the automotive gasoline and three-quarters of all the heating oil consumed in
the nation.
The National Oil Jobbers Council exists to preserve the private enterprise
risk-reward system; to prevent undue economic concentration; to insure a
favorable competitive climate in petroleum distribution and to encourage ade
quate supply of petroleum products; all to the end of best serving the ultimate
consumer. This is the official statement of our purpose, as adopted by NOJC’s
Board of Directors. We note, Mr. Chairman, that our purpose coincides with that
of your Subcommittee.
At the present time, this purpose is undergoing heavy attack from a severe
shortage of gasoline, diesel fuel and heating oil products in every section
of the country. Almost every one of our members is either cut off, severely
cut back, or on heavy restriction called allocation. Yet, while they are restrict
ing supply to our members, several major oil companies in many areas of the
country, Nebraska for example and New England, are opening new retail outlets
they themselves own, such as combination car washes and gasoline stations.
Further, a number of major oil companies have raised the price of their gasoline
to jobbers while keeping the price at the pumps of their own gasoline stations
even, thus squeezing the jobbers’ working margin.
Under these conditions, the competition in both service and price which
the jobbers traditionally offered the major oil companies and each other
is about to fade away. Yet, it was this inter-company competition in the market
place which was the surest source of benefits to the consumer. If indeed there
is or will be a physical shortage of petroleum products in every region of the
country, despite the pieces of evidence in some regions indicating otherwise,
this shortage should be shared equitably; that is, in such a way that the ele
ments on which the competition in the marketplace has been founded may con
tinue to exist through this parlous time until a time of plenty allowing full
competitiveness arrives once more. We thus favor your suggestion, Mr. Chair
man, for the establishment of a board to allocate petroleum products among all
the elements of competition.
The best insurance that such a board will stay true to its course, when battered
by all the cross-winds which its task of equitable apportionment will inevitably
bring upon it, is to have as members at least a representative of consumers, of
state and local government, and of the nations jobbers. Likewise, the staff of
such a board should have similar representation among its highest ranking
members.
Thank you again, Mr. Chairman, for allowing me to present this statement.
I call your attention to the attached letter from your constituents, the North
269
west Petroleum Association, regarding their views on your fine suggestion and
that it too be made part of the record of these hearings.
Sincerely,
G regg P o t v i n ,
Executive Vice President.
Enclosure.
N o r t h w e st P etroleum A
s s o c ia t i o n .
Minneapolis, Minn., May i, 1973.
H o n . H ubert H . H
um phrey,
U.S. Senate,
Washington, D.C.
D e a r S e n a t o r H u m p h r e y : We are deeply concerned that the small independent
oilman (both branded and unbranded) be given input into any program aimed
at product allocation.
All jobbers must be given the opportunity to receive equal treatment and the
right to compete on an equal basis.
Advantages such as exemption of agricultural cooperatives over another
businessman competing with the same products for the same customers must
be avoided.
Advantageous positioning of major oil company influence on such an alloca
tion board is a distinct threat. Safeguards must be built in to protect the small
businessman.
Our spokesman in Washington is Mr. Gregg Potvin of the National Oil Jobbers
Council. Please allow him the opportunity of presenting our views and beliefs.
It is our desire to send representation from Minnesota on behalf of our members
when you feel the time is appropriate.
We are very appreciative of your great efforts to help us survive—both now and
in the past.
Best personal regards.
J e r r y W. E v e r e t t ,
Executive Director.
C o n g r e ss of t h e U n it e d S t a t e s ,
H o u s e of R e p r e s e n t a t iv e s ,
Washington, D.C., May 10,1973.
M r. W
il l ia m
Co x ,
Subcommittee on Consumers Economics,
Joint Committee on Economics,
0-133, NSBO.
D e a r Mr. C o x : Attached is a statement of the Allen Oil Company of Union,
New Jersey, which I would appreciate your making a part of the testimony of
the hearings concluded by the subcommittee on May 3rd on the critical gasoline
situation.
Thank you.
Sincerely,
R o ber t A. R o e ,
Member of Congress.
Statem en t
of
th e
A
llen
O il C o m p a n y ,
2115
R t.
#22W,
U
n io n ,
N e w J ersey
Allen Oil Company is primarily an independent wholesaler and retailer of
gasoline with its marketing area in northern and central New Jersey. Gasoline
sales comprise approximately 90 percent of our sales in terms of dollar volume.
Some revenue is derived from sales of diesel oil and fuel oil and from the opera
tion of three car washes. Approximately 70 percent of gasoline sales are at
the retail level; the remainder are at wholesale. Allen Oil Company owns or
leases 22 branded Mobil stations and 10 unbranded Save stations. An additional
20 stations owned by small independent retailers are also supplied by our
company.
Sales of gasoline by Allen Oil during 1972 amounted to approximately 20
million gallons. However, the number of branded Mobil stations owned or
leased by our company increased during 1972 and gasoline sales were expected
to reach 26 million gallons during 1973.
Allen Oil Company’s primary gasoline suppliers are Mobil, Tenneco and Crown
Central. These companies supplied most of the 6.8 million gallons of gasoline
270
purchased by our company through March 31, 1973. Effective April 15, 1973
Crown no longer supplied gasoline to our company. Tenneco has allocated
Allen Oil to 68 percent for the month of April 1973 and 70% for May 1973.
Mobil, Allen Oil Company’s largest supplier, cut off our company completely
at the end of March 1973. Following this action by Mobil, Allen Oil Company
received temporary relief through a court injunction which requires Mobil to
furnish all gasoline needs until a final disposition is heard by the court.
With these reductions by its major suppliers, less than 2.8 million gallons
of gasoline will be available to Allen Oil through the remainder of 1973.
Accordingly, Allen Oil Company will be 17.2 million gallons below its 1973
requirements.
Allen Oil Company has contacted every reasonable source of g&soline: major
suppliers, independent wholesalers and brokers. No additional product can be
found. Unless some relief is granted by rationing or availability or reasonably
priced product Allen Oil Company will be unable to maintain its wholesale
operation and will be forced to close its retail outlets.
On April 11, 1973 our company received an import quota of 109,500 barrels of
gasoline, or 4,600,000 gallons, for 1973. Although “ tickets” were received, the
price of product available from Canada or overseas is prohibitive. Our latest
quote on May 3, 1973 was 25.6^ per gallon for regular gasoline delivered into
the New York harbor. After adding the tax and tliruput and financing charges,
this product would cost our company approximately forty (40) cents per gallon.
It is impossible to comprehend that our company can pay this price and com
pete with “major brand” stations that are retailing at prices of 32.9^ to 36.9^
per gallon for regular grade gasoline.
As a matter of comparison our company sold 3,350,000 gallons of gasoline
in March 1973. During April 1973 our gallonage sales dropped to 1.300,000
gallons. This reduction of 2,000,000 gallons resulted in decreased sales of 250,000
gallons on our Mobil service stations; 153,000 gallons on our private brand
owned stations and 1,600,000 gallons on our “wholesale” supply.
Additionally, three service stations were closed and the balance of our private
brand stations were put on a twelve (12) hour day, six day a w7eek basis with
one man on a shift. Since April 1, 1973, including all service stations under
our control, we have curtailed employment of approximately twenty five (25)
men with the possibility of more layoffs in the immediate future.
C e n t r a l A u t o E l e c t r ic C o ., I n c ,
Minneapolis, Minn., May 14,1973.
Hon. H u b e r t H . H u m p h r e y ,
D e a r Sir: We have been 41 years in the gas business for Standard Oil Co.
Wouldn’t you say that’s loyalty?
On May 1. 1973, we were informed by registered letter that our lease was can
celed as of May 31,1973.
We have been in Northeast Minneapolis doing business since 1932! 29 years
at 1800 Central ave. NE. and 12 years at 1227 Central ave. NE. running a repair
garage and filling station
Having just secured an SBA loan in January 1973 we are most concerned how
we will make our payments as the filling station is % of our income here.
Onr thoughts were to have a trainee program for repair work on cars and
trucks.
Is this really the end of the small business man? Everywhere we go, small shops
of all kinds are closing. Maybe we will all have to work for big business in order
to have the right to work.
Give our regards to Mrs. Humphrey, love you both.
Mr. and Mrs. B u r t o n H. S c h u v e n .
C it y
of
St. Cloud,
St. Cloud, Minn., May 10,1973.
t l t o n C. B oerger ,
B d B Oil Co.,
St. Cloud, Minn.
D e a r M r . B oerger : As Mayor of the City of St. Cloud, I hereby formally re
quest your immediate attention and assistance in providing aviation fuel for the
St. Cloud Municipal Airport.
M r. M
271
Since you are undoubtedly aware of the growing need for energy and energy
conservation, I need not tell you of all of the details which have preceded this
request. The St. Cloud Municipal Airport is a new, ultra-modern facility destined
to grow as the city and the surrounding area grows. Projections call for a 4t>%
increase in area population by 1985. Similarly, industrial and commercial devel
opment can and will continue in the St. Cloud area during the next decade. Al
ready a significant number of large corporations are expanding and developing in
vital outstate growth centers, and St. Cloud is leading in this regard.
Presently the St. Cloud Municipal Airport is involved with a wide variety of
transportation services to the area. These include charter flying and training for
the general public, flight stopover service for corporations, the military and
government officials, and an extensive program of flight training for St. Cloud
State College.
Aircraft, like other modes of transportation, need fuel to operate. The follow
ing indicates the fuel consumption at the St. Cloud Municipal Airport for last
year and the current year:
[In gallons)
.................................
100 octane..................................................................................
JP-4 jet fuel............................................... ...............................
1972
1973 (through
April)
64,521
51,490
24,659
19,544
11,100
8,516
The figures indicate a projected demand for 1973 of approximately 120,000
gallons of non-jet fuel. The jet fuel (JP4) demand generates principally from
service to the U.S. Army and the National Guard. The remainder of the jet
fuel is consumed by large charters used by a growing number of area corpora
tions and local enterprises.
The operator of the St. Cloud Municipal Airport, Mr. Thomas Hron, is fully
cognizant of the need to conserve on fuel and has taken pains to encourage and
limit flying to business purposes only. A prime consideration is being given to
flying several concerns in lieu of traveling by automobile. As the St. Cloud
industrial and commercial base grows and as highways become more crowded,
one is sure to see an even greater reliance on flying as opposed to the use of
automobile.
When one looks at the total investment already made by the Federal, State,
and Local governments as well as the private enterprises involved, one can
readily see the concern I have that we have adequate fuel at the airport. The
City of St. Cloud has assumed bonded indebtedness of some $990,000 to help
construct the airport. The Federal government has invested in excess of $388,000 in grants and just recently the State of Minnesota, recognizing the growth
and need for the St. Cloud Municipal Airport, entered into agreement to install
a runway approach lighting system at the airport.
I mention these items to point out the deep commitment made to aviation in
the St. Cloud area. In addition, St. Cloud Aviation, a private concern located at
the airport, had gross sales of $351,500 last year. This represents employment
for 10 full-time residents and a significant contribution to our local economy.
St. Cloud Aviation has property assets at the airport of $158,000—another exam
ple of deep involvement in aviation.
In summary, then, we need to have a viable airport, hence, we need an ade
quate supply of fuel. St. Cloud is a city on the move and, as such, cannot be
abandoned nor closed off from air travel. Industry, government, and education
require a mixed-modal system of transportation. Indeed our economy demands
it. I pledge that I will do everything to maintain that system and ask that you
convey my personal concern to your suppliers that St. Cloud be provided
adequate aviation fuel.
Sincerely,
A l c u i n G. L o e h r , Mayor.
Senator H u b e r t H u m p h r e y ,
Capitol Hill, D.C.:
Request your attention to the shortage of aviation gasoline to support the col
lege flying training aviation education program. The local aviation St Cloud
Aviation Inc. indicates 1 more week of flying before on hand fuel expended. No
272
further shipments are available from Consolidated Oil Co., Smith Distributing
Co. and B. & B. Oil Co. Our flying training request 2,500 gallons per month.
C l a ir e W
esley,
Faculty Advisor State College Arrow Club.
The H
oles- W e b w a y
C o .,
St. Cloud, Minn., April 19, 1973.
Senator H u b e r t H u m p h r e y ,
Senate Office Building,
Washington, D.C.
D e a r S e n a t o r H u m p h r e y : While I know that you will have heard from many
others on this subject, I wish to lend my note of concern for the fact that S t.
Cloud citizens are going to have a great deal of difficulty obtaining oil next year
to heat our homes and businesses.
Frankly, I don’t have any more answers to this problem than does anybody
else, but I do want you to know that there is very little that is more important to
the people of this area than this problem.
As I said, I just wanted you to know my concern.
Sincerely yours,
W
il l ia m
W. H
oles,
President.
State
H
M in n e so t a ,
R e p r e s e n t a t iv e s ,
of
o u se of
May 18,1973.
Hon. H u b e r t H . H u m p h r e y ,
U.S. Senate, Old Senate Office Building,
Washington, D.C.
D e a r S e n a t o r H u m p h r e y : I appreciate your concern and interest over the
present energy crisis facing our country. Several of my constituents have ex
pressed their concern to me over this matter and, in particular, the shortage of
fuel and gasoline and the rising prices for these products.
I am enclosing herewith a copy of a letter which I have received from Mr.
Miff Larson of the Consumer Oil Company in Willmar, showing what has hap
pened to his business in recent months. In addition to the rising gasoline prices,
Mr. Larson has also been informed that his franchise will be terminated by his
distributor in the near future unless a new source of supply is discovered.
With best wishes, I remain,
Very truly yours,
J o h n C. L i n d s t r o m ,
State Representative.
C o n su m e r O il Co m p a n y ,
Willmar, Minn.
: The following are the prices of gasoline from Pine Bend and
fuel oil from the Marshall Pipelines:
J o h n L in d s t r o m
Gas
January 16, 1973___________________________________________________ 14. 353
February 1, 1973___________________________________________________ 14. 400
February 10, 1973__________________________________________________ 15.000
March 24, 1973_____________________________________________________ 15. 750
April 21, 1973____________________ - _________________________________17. 750
Fuel Oil No. 2
January 16, 1973___________________________________________________ 11.230
January 17, 1973___________________________________________________ 13.210
February 10, 1973__________________________________________________ 13. 600
March 24, 1973_____________________________________________________ 14.350
April 24, 1973______________________________________________________ 16. 350
May 1, 1973-------------------------------------------------------------------------------------- 17.100
You can see that from the present time compared to prices as of the first
of the year we have gone up to 3.397 per gallon on gas and 5.700 on No. 2 fuel oil.
273
To these prices the freight must be added, which is 1.483 on gas from Pine Bend—
1.365 freight on fuel oil from Marshall, so that gives us a total price of 19.233
on gas laid in here and 18.465 total price on fuel compared to a laid in buying
price of Phillips on gas 15.450—3.783 less than Sinclair—fuel oil 13.190—5.275
less than Sinclair. Texaco has a laid in price of 13.740 on fuel oil—4.725 less
than Sinclair so you can see the inequalities of the pricing.
Then to add to our problems, my Distributor Contract has been cancelled as
of June 30th, 1973 and will be issued on a month to month basis. Also attached
is a copy of a bulletin I received from the Omaha office which added a problem
of looking around for another supplier after next April 30,1974.
M if f L ar so n .
L u vern e Oil Co m p a n y ,
Luverne, Minn., May 18,191S.
H on. H
ubert
H. H
um phrey,
U.S. Senate,
Senate Office Building,
Washington, D.C.
D e a r S e n a t o r H u m p h r e y : It is with great pleasure that I am writing to
thank you for all your efforts and the success received thus far pertaining to
the gasoline shortage.
Our family has been in the distributing business of gasoline, fuels of all
nature, lubricants, tires and accessories since 1917. Our family started the first
bulk plant in this city and county. We have been with D -X and Firestone since
1925 and have served this area with their products. I certainly have great
appreciation for your concern in this business as the farmers must be supplied
with petroleum products when needed if our United States is to play the im
portant role of feeding the hungry world.
I saw you for just a moment yesterday at the Radisson South as you were
registering for the Mortgage Guaranty Insurance Corporation meeting and would
have liked to have found you to thank you and present my story to you verbally,
but was unsuccessful as you were gone far too quickly.
In closing, I want you to know without any doubt that we are thankful to
have the concern of a Senator like Hubert Humphrey and we may need con
tinuing help from you.
Sincerely yours,
R a y m o n d R. F r i c k ,
Owner.
P. S.—Mr. Vernon Cornish, manager of Luverne Oil Company, also wishes to
send and convey his sincere appreciation for your efforts.
V ernon C o r n is h .
S u n . O i l C o .,
Hon. H u b e r t H . H u m p h r e y ,
U.S. Senate,
Washington, D.C.
Philadelphia, Pa., May 15,1973.
D e a r S e n a t o r H u m p h r e y : Please accept my apologies for not replying sooner
to your letter of May 1 regarding Mr. Harlan Waldner, our bulk agent in Huron,
S .D . I have been out of the office for ten days and did not return until today.
Two things happened last week that affected our supply arrangements with
Mr. Waldner. First, on May 9, Sun Oil Company announced that it would con
tinue to supply its customers in our “divestment area” through the coming
winter. Mr. Waldner is included in this area. We did this because of the dif
ficulty these people have been having in finding new suppliers. We noted that we
would be allocating our supplies to this area, as we are throughout our 34-state
marketing territory.
Second, on the following day, May 10, the Administration announced its pro
gram for allocation of petroleum products and crude oil. We immediately sent
a telegram to Mr. William Simon, who had made the announcement, stating that
we supported the program and were taking immediate steps to comply with it.
We are now studying this federal allocation program in detail. There are
many points that need clarification, and an implementation plan for it is urgently
needed.
These two announcements—one by Sun, the other by the Administration—
have insured that Mr. Waldner will continue to receive petroleum products on a
274
temporary allocation basis from Sun Oil Company. However, this does not mean
we have changed our intention of terminating our supply contracts in our
stated divestment area after the supply crunch has passed and government
allocation is lifted. Our original withdrawal decision was made because this mar
ket was not profitable for us. We decided to voluntarily continue supply only
because our customers could not find new sources of supply. The government
program followed this decision, and we will of course comply with it.
Please call on me if I can be of any further help.
Very truly yours,
T. A. B u r t i s .
M
id l a n d
C o o p e r a t iv e s , I n c .,
May 25, 1973.
H on. H
ubert
H. H
um ph rey,
U.S. Senate,
Washington, D.C.
D ear Senator H u m p h r e y : First of all, on behalf of the agricultural members
of our organization, I want to express appreciation for your efforts in obtain
ing additional quantities of diesel fuel from the Gulf Oil Company. Mr. Erchul,
Director of the Department of Civil Defense of the State of Minnesota, has
worked with us in distributing this vitally needed product. We are presently in
the process of arranging for its distribution.
On May 10, Mr. William E. Simon announced a voluntary allocation program
for all kinds of petroleum products. He also set up a list of priority uses. Both
of these actions gave us hope that a more equitable system of distribution of
scarce petroleum products would be effected. Unfortunately to date, while some
of the major oil companies have given lip service to the program, we have seen
very little or no evidence that they intend to cooperate in the implementation
of it. We have sent the following telegram to our historic suppliers of crude oil
for our refinery at Cushing, Oklahoma:
“In accordance with the Voluntary Allocation Program announced May 10th
we request a statement from ---------on the amount of crude oil we may expect
to receive. Our records indicate during the base period of October 1, 1971 through
September 30, 1972, you supplied Midland---------barrels or an average o f --------BPD. We are in short supply of crude oil and will be forced to shut our refinery
down in early June. We will appreciate receiving a reply on our requests as
soon as possible.”
This telegram was sent to the following companies: Kerr-McGee Corporation,
Oklahoma City, Okla.; Sun Oil Company, Philadelphia, Pa.; Mobil Oil Corpora
tion, Dallas, Texas; and Continental Oil Company, Houston, Texas.
To date there has been no response in the way of “wet barrels” in the Cushing
refinery. We have been getting considerable conversation but no indication that
these companies will honor the program.
Earlier this Spring the Department of Interior announced that Federal Govern
ment Royalty oil would be made available to small interior refineries. We filed
an application on March 15,1973, for our proportionate share of 11,400 barrels a
day with the Department of Interior. There has been one delay after another as
far as positive action on this award is concerned. We would appreciate it if you
would contact Mr. Stephen Wakefield, Undersecretary, Department of Interior,
to encourage him to take action on this application. We know that he is under
much pressure but, by the same token, if our refinery is forced to close because
of a lack of crude oil, we will be unable to furnish our members with their
petroleum product needs this Summer and Fall.
We appreciate the many efforts you have made in our behalf. We hope the
situation will soon materialize in such a way that we will not have to call upon
you so often.
Sincerely,
S ig ve d S a m p s o n ,
Presiden t and General Manager.
A
Hon. H u b e r t H . H u m p h r e y ,
U.S. Senate,
Washington, D.C.
tlanta,
G a .,
May 8,1973.
D e a r S e n a t o r H u m p h r e y : The purpose of this letter and accompanying state
ment is to focus Congressional attention upon the serious anticompetitive situa
275
tion that has developed in the gasoline industry. One of the most important
competitive elements in that industry is about to be destroyed.
During the last six months, several independent discount gasoline marketers
have been forced out of business. Many more find their existence in jeopardy. If
conditions remain as they are, the major source of price competition in gasoline
marketing will soon be eliminated. The independent discount gasoline marketers
saved the public more than half a billion dollars in 1972. In addition, until re
cently, they were leading a revolution in lower cost methods of gasoline marketing.
Price marketers are efficient competitors. They pass on their savings to the
public in the form of lower prices for gasoline. But, notwithstanding these vir
tues, the independent price marketers are facing extinction.
Several of the integrated oil companies who historically supplied independent
marketers, either directly or indirectly, are now refusing to continue to supply
them. These integrated oil companies are taking unfair advantage of the extreme
shortage of petroleum products. Petroleum products are being diverted to sub
sidiaries and marketing outlets that are owned or controlled by them.
The accompanying paper explains the unfairness of what is happening and
recommends short-run and long-run steps that might be taken to preserve com
petition in the industry and to improve the overall social performance of the
industry.
Over the past six to nine months, many price marketers have contacted me
about their severe supply problems. They often ask the difficult question “What
should we do?” During the past thirty days, the problem has intensified and
large numbers of independents have been compelled to close stations, shorten
hours, and discharge employees. Accordingly, I feel compelled to offer a comment
on the public interest aspects of the problem. I voluntarily offer the statement,
and no one retained me to prepare it.
I am a marketing professor at the College of Industrial Management at
Georgia Institute of Technology and was previously a marketing professor at
Northwestern University. For several years, the subject of gasoline marketing
has been my major area of research and analysis.
Most sincerely,
F red C. A l l v i n e .
Se b a s t ia n , F
la.
Senator H e r m a n T a l m a d g e ,
Capitol Hill, D.C.
D e a r S e n a t o r T a l m a d g e : I am seeking your assistance concerning the gaso
line crisis.
As of June 1, 1973, Texaco will cut me from 47,400 gallons to 14.000 gallons of
gas. I will not be able to maintain my business under these conditions.
My customers are composed as follows:
65 percent are commercial fisherman, cattlemen, farmers and citrus people.
Twenty-five percent are town trade. Ten percent are road trade. In order to meet
summer needs, I must have at least 60.000 gallons of gasoline.
Since my business hours are 7 a.m .-ll p.m. every day, I am unable to close
my gasoline service without closing my grocery store.
I therefore ask your immediate assistance with this urgent matter.
Very truly yours,
W i l l i e M. P o o l e .
M in n e s o t a
H. H u m p h r e y ,
Old Senate Office Building,
Washington, D.C.
H on. H
M
otor
T ransport A
s s o c ia t io n ,
May 2, 1913.
ubert
D e a r S e n a t o r H u m p h r e y : The motor carriers of Minnesota are presently ex
periencing a shortage in fuel supplies which we understand will worsen before
any improvement is seen. We have been advised by industry experts that this
condition will prevail for at least the next 5 years. Last week our office con
ducted a survey of 25 member carriers of Minnesota Motor Transport Associa
tion. Each of these carriers has a problem of security supplies now or anticipates
such a problem in the near future.
The trucking industry is Minnesota’s second largest industry employing a total
of 189,000 workers and provides materials and products needed by all people
99-740— 73------- 19
276
in every community in Minnesota. A sufficient supply of petroleum products is
essential in order to maintain operation and service.
We recognize the overall needs of energy in our area, particularly during the
winter months. We encourage you to initiate or support federal legislation to
insure that petroleum products are made available in the state of Minnesota on
an equitable basis with other states with regarg to relative usage. It is our be
lief that unless such legislation is promptly enacted, Minnesota will suffer ab
normally harsh shortages of petroleum products which in turn will result in
unemployment, curtailment in services and other adverse consequences for the
people of our state.
Sincerely,
Ja m e s N . D e n n ,
General Manager.
M id -C o n t i n e n t F r e ig h t L i n e s , I n c .,
St. Paul, Minn., May 18,1973.
M r. C ar l M cCu l l e n ,
Phillips Petroleum Co., Phillips Building Annex,
Bartlesville, Okla.
D e a r M r . M c C u l l e n : We have had several long distance telephone conversa
tions with you and other Phillips Petroleum personnel in your Bartlesville office
because of the fact that we were notified by Wayne Anderson of your Minneap
olis office that we would no longer be supplied with diesel fuel and gasoline com
mencing May 1, 1973.
No fuel has been allowed us since that date by your company, and while we
appreciate the fuel shortage problem throughout America, we are not able to
understand why an account such as ours should be completely eliminated, par
ticularly since we have been a purchaser of your products since 1965 in Kansas
City, Missouri; St. Paul, Minnesota; and Tulsa, Oklahoma. While we appreciate
this was without contract, we had never been offered a contract and we under
stand that because of the no-contract situation we and others of that nature are
the first to be completely removed from fuel supplies. We do not feel that this
action is at all responsible and we are asking that your company reconsider
its action with regard to restoring our monthly consumption of gasoline and
diesel fuel the same as in the past.
Very truly yours,
H. E. N o r i n ,
President.
F l e e t l i n e , I n c .,
West Saint Paul, Minn., May 15,1973.
Senator H u b e r t H u m p h r e y ,
Washington, D.C.
D e a r S e n a t o r H u m p h r e y : In view of the fact that your Honorable Senator
is at this time proposing a bill to equally distribute the amount of fuel available,
I am enclosing this letter which would be of interest to you stating that my
supply is being curtailed as of June 1st.
After dealing with Mobil Oil Company for twenty-five years, with a yearly
consumption of 150,000 gallons of diesel truck fuel, you can see from the evi
dence of this letter I have been notified that I am no longer getting anymore
fuel.
I am a food stuff-common carrier between St. Paul and Chicago and handle
an average amount of 80,000,000 pounds per year. A business of thirty years will
be closed out along with thirty-five employees.
I would appreciate any help you can give me on this matter. If there is any
further information I can give you, please feel free to contact me.
Yours truly,
D
el
Shoem aker,
President.
277
M
O i l C o r p o r a t io n ,
o b il
Milwaukee, Wis., May 10,1973.
Attention: Purchasing Agent, Prices Expire May 31,1973.
F l e e t u n e I n c .,
Inver Grove Heights, Minn.
G e n t l e m e n : According to our records, our present commitment to supply your
fuel requirements will soon expire. Because of current conditions in your area,
we find that we no longer will be in a position to supply your needs when the
commitment expires.
We sincerely appreciate your past business, regret having to take this action,
and take this means to give you advance notice so that you can begin looking
for an alternative source of supply.
Very truly yours,
R . C. L e a o h ,
Commercial Office Manager.
U n i t e d V a n Bus D e l i v e r y ,
Minneapolis, Minn., May 3,1973.
Hon. H u b e r t H u m p h r e y ,
Senate Office Building,
Washington, D.C.
D e a r S e n a t o r H u m p h r e y : We wrote to you on January 9,1973 indicating the
current problems with respect to fuel oil shortage. Since that time our major fuel
oil supplier for the past 12 years Standard Oil Company has put us on an allo
cation basis equal to 70% of our consumption during the period from May 1,
1973 through April 30,1974. In other words we will enjoy only 70% of the amount
of fuel for the next 12 months that we used in the previous mentioned period.
We need whatever influences you and your fellow congressmen can generate to
cause some relief to the fuel shortage in this Upper Midwest region in order that
companies like ourselves can continue to operate and serve the purpose of de
livering goods to the consuming public. In addition to the problems of short
age, we have experienced cost increases up to 46% already from our supplier
and for whatever little fuel we have been successful in purchasing from other
suppliers, we have had to pay premium money even in excess of the previous
mention 46% figure.
If we do not find some relief in immediate sight, we will have no alternative
other than to curtail our operation to the extent of laying off approximately 125
of our existing 250 company employees. The reason for this being a 30% re
duction in available fuel, plus within recent months we have increased our sales
volume by an additional 20 to 25%. The multiples of these two figures and their
compounding effects are very evident. We certainly want to avoid any reduction
whatsoever and would like to continue the appreciable growth rate we have en
joyed in the past recent months and we feel that the hardships caused by such
a massive layoff would be very extensive and would serve as a catalyst to ap
preciable unemployment in the area because of the related snowballing effects
that unemployment creates.
In addition to the above mentioned problems on fuel just to operate our trucks,
we have also been advised by our supplier that we will not be supplied any fuel
oil whatsoever for heating for the Winter of 1973-1974. Our normal consumption
for heating runs approximately 90,000 gallons.
Your influence and assistance are critically needed and we would appreciate
any information that you can offer us in terms of updating, which would allow
us to formulate management direction within our company on a general basis.
Thank you for your time and attention.
Sincerely,
A
r n ie
H
il l m a n n
,
Vice President.
278
B ud g et R e n t
a
Cab,
Minneapolis/St. Paul, Minn., May 23, 1973.
Hon. H u b e r t H . H u m p h r e y ,
Senate Office Building,
Washington, D.O.
D ear Senator H u m p h r e y : The petroleum trade papers and news media have
reported that Deputy Treasury Secretary William E. Simon is in charge of the
Administrations Program regarding voluntary compliance of a plan guaran
teeing a supply of gasoline to consumers based on amounts used by customers
over a twelve month period from October, 1971 through September, 1972.
While Mr. Simon is in charge of the over-all program, it has further been stated
that the Interior Department’s Office of Oil and Gas is assigned to receive com
plaints from anyone who feels that they are not receiving a proper allocation of
supplies.
Enclosed is a copy of our May 16th letter to Texaco. Mr. C. D. Close, the dis
trict sales manager for Texaco in Minneapolis, acknowledged receipt of our
letter; however, they refused to deliver gasoline in accordance with our request
and further state that they are “referring it to their Chicago regional office for
advisement.”
We would like to ask that someone in your office deliver the extra copy of this
letter to the proper person in the Office of Oil and Gas at the Interior Depart
ment, along with the request that action be expedited in our behalf, which hope
fully will result in our being able to purchase a supply of gasoline that is pro
portionate to our usage during the above stated base period.
Thanks for your cooperation.
Very truly yours,
Ja m e s
J. B r o o k s b a n k ,
President.
B udget R e n t
a
Car,
Minneapolis/St. Paul, Minn., May 16,1973.
R e: Allocations of Petroleum Products As Outlined By the Office of Oil and
Gas Under the Authority of the Eagleton Amendment to the Economic
Stabilization Act.
T e x a c o , I n c .,
Minneapolis, Minn.
G e n t l e m e n : A s you know, we have been unsuccessful in securing a source
of supply for gasoline to be used at our various locations in the Minneapolis/
St. Paul marketing area. We understand that we should be entitled to a percent
age of your total supply in this market and that we further qualify under
two of the eight priority groups (number 5 as used by public transportation for
automobile rentals from the Minneapolis/St. Paul International Airport; and
number 8 as being in a state not well served by major oil companies as evi
denced by the number of major companies pulling out of this market).
Attached is a tabulation of our deliveries during the base period, and we
would request that you use this letter as authorization to deliver 8,000 gallons
to the Budget service center located at the Minneapolis/St. Paul International
Airport as soon as possible.
In addition, we would ask that you indicate the gallonage that we can an
ticipate receiving, which would be in accordance with your allocation.
We further ask that you notify us within the next few days as it does affect our
over-all planning and procedures.
Thanks for your cooperation.
Very truly yours,
J. J. B r o o k s b a n k ,
President.
279
T
exaco
R
ecap
B
udget
P
urch ases,
M
ay
15, 1973
Date and Total Gallonage
October, 1971------------------------------------------------------November, 1971------------------ --------------------------------December, 1971----------------------------------------------------January, 1972------------------------------------------------------February, 1927----------------------------------------------------March, 1972_____________________________________
April, 1972______________________________________
May, 1927------------------------------------------------------------June, 1972----------------------------------------------------------July, 1927----------------------------------------------------------August, 1972-------------------------------------------------------September, 1972---------------------------------------------------
101, 848
94,054
156, 241
113, 647
74, 799
58, 344
48, 799
90,299
57, 667
89, 771
145, 608
137, 744
T o t a l____________________________________________________ 1,168,821
V il l a g e
of
E llsw orth ,
Ellsworth, Mirm., May 10, 191$.
In the last week we have been faced with a real emergency due to fuel
shortage—with the closing of Skelly Oil Company in Ellsworth. We are ex
periencing an acute gas and fuel shortage in our community. There are at least
50 farmers without supplies of gasoline and they will probably have enough
fuel to get their corn in, but not their beans and other crops. No other firm
can supply their needs because of the cutback in their allocations to supply
only their own customers.
Now as the Council of Ellsworth we think this is very critical because the
two suppliers in Ellsworth as of their quotas will not be able to keep up with
the demand for the month of May. We the Village Council think there is
something that can be done to eliminate this situation, not entirely, but
something to insure the community that crops are important and with the pro
duction needed as now, we need this fuel and think it’s a main concern of the
State of Minnesota to begin thinking of the welfare of the whole state, not
just a few. They should try to get enough fuel into Ellsworth to take care of
this production of crops in the community and insure them a fair share in
the welfare of the country, state, and community.
K e n n e t h H u c k i n g , Mayor.
R oyce B ecker,
L ow ell E. Colw ell,
Pa t D oherty,
W e n d e ll L o v r a in ,
Counoilmen.
T
Hon. H u b e r t H. H u m p h r e y ,
U.S. Senate,
Washington, D.O.
h u n d e r b ir d
P e t r o l e u m s , I n c .,
Minot, N. Dale., May 9, 1973.
M y D e a r S e n a t o r H u m p h r e y : The President’s proclamation of April 18
pertaining to changes in the oil import program has caused such severe reper
cussions to our company’s operations and economic status that we have prepared
a “ Position Paper” which is submitted herewith for your valued consideration.
Some immediate relief must be afforded the small independent refiner to thus
enable his continued operation in these distressed times of petroleum product
needs.
280
We additionally request your assistance in furthering with State govern
ments, the President’s recommendation to modify current State EPA standards
to embody a relaxation permitting the return to use of high sulfur residual oils
as a source of energy.
We earnestly solicit your review of our proposals and further, your direct
intervention with the Office of Oil and Gas and its functional custodians, by
prompt contact endorsing our position and needs.
Very truly yours,
J. L. O l v e y ,
Vice President.
A
m e r ic a n
P u b l ic P o w e r A
s s o c ia t io n ,
Washington, D.G., April 27,1973.
Hon. H u b e r t H u m p h r e y ,
U.S. Senate,
Washington, D.G.
D e a r S e n a t o r H u m p h r e y : I noted with keen interest your introduction of
S . J. Res. 98 “to establish a system on an emergency basis for the equitable allo
cation of scarce petroleum products to assure that all areas of the Nation obtain
a fair share of available petroleum supplies and to prevent anti-competitive prac
tices in the petroleum industry.”
Of particular significance to the American Public Power Association, which, as
you know, represents some 1,400 local publicly-owned power systems in 48 States,
is the inclusion in the objectives of S.J. Res. 98 of allocation of fuels to permit
electric utilities to continue to provide essential public services.
I am enclosing a memorandum which describes recent fuel availability prob
lem's experienced by municipal electric utilities in 11 States, including Minnesota.
It seems to me that the difficulties outlined clearly indicate the need for action
such as you have proposed in S.J. Res. 98.
In comments on the President’s energy message which APPA released on April
19,1 pointed out that:
“ One of the most serious deficiencies of the message is that it makes no pro
vision for a fair method of allocating fuels that are in short supply, despite the
fact that the message acknowledges that we must face up to the possibility of
occasional energy shortages.
“Based on press accounts and reports by members of our organization, the
short-term situation appears to be considerably more serious than that indicated
in the President’s message. A number of municipal electric utilities—‘small and
large—already are experiencing severe difficulties in obtaining oil, and press ac
counts report that several major cities are unable to secure contracts to supply
fuel for municipal purposes such as police cars, buses, fire engines, ambulances,
etc.
“The fact of the matter is that an industry do-it-yourself allocation program is
already in effect, but there are no known guidelines as to how this program is
being administered, or whether due consideration is being given to essential pub
lic services.
“The Federal government should at the very least provide guidelines for a vol
untary allocation program, and should be making contingency plans for a Govemment-administered allocation program if the voluntary guidelines are not ef
fective, or do not serve the public interest. Unfortunately, neither alternative is
mentioned in the President’s message.”
Sincerely,
A
P e te rso n , Tupper
lex
R a d in .
& S m ith ,
Walker, Minn., May U, 1973.
Hon. H u b e r t H . H u m p h r e y ,
Senator, State of Minnesota,
Washington, D.C.
D e a r S e n a t o r H u m p h r e y : I am enclosing a copy of a letter sent to Mr. Frank
Orton of Orton Oil Co. from the Kerr-McGee Corporation. You will note the letter
of April 13, 1973, indicates that Kerr-McGee will cancel their distributor sales
agreement with the Orton Oil Company in Walker.
This cancellation means that the Walker area will not receive almost the total
of 1,000,000 gallons of gas and fuel oil. Since none of the other oil companies
281
have surplus supplies to see to the Orton Oil Company, this will have a sub
stantial impact on this area.
This is a prime resort area and tourism is the financial backbone of this part
of the State. Cancelling a distributor sales agreement at the commencement of
summer will compound the problems of tourists obtaining gas in this area, both
for their automobiles and boats.
I am not sure what can be done to assist Mr. Orton but we would greatly ap
preciate any help that you could give him or any suggestions that you could
give us.
Yours very truly,
K e n t P. Tupper.
K e rr -M c G e e Corp.,
Oklahoma City, Okla., April 13,1973.
M r. F r a n k O rton ,
Orton Oil Company,
Walker , Minn.
"*D e a r M r. O rto n : Under the provisions of Paragraph 4 of the Distributor
Sales Agreement dated June 14, 1972 between Kerr-McGee Corporation and
Orton Oil Company, Kerr-McGee Corporation chooses to cancel this Agreement
effective June 30, 1973.
As stated in Paragraph 4, either party shall notify the other in writing at
least sixty (60) days prior to the expiration of the primary term, or of any suc
ceeding one-year period, of its desire to terminate at the end of the yearly period
in which the notice is given.
If our District Wholesale Manager has not already explained the reason for
this letter and our new program, please get in touch with our Regional Office for
a complete explanation.
Sincerely,
W, N. P r i t c h e t t ,
General Manager.
H o l m e n Oil C o m p a n y ,
W hite Bear Lake, Minn., M ay 15 , 1973.
D e a r S e n a to r H u m p h rey We are a distributor of Gulf Oil Products here
in White Bear Lake, with primary emphasis on retail home heating oil sales.
We serve approximately 500 homes, plus a few churches and a nursing home.
We are deeply troubled by the prospect of being left without a supply of fuel.
At the moment Gulf is backing us into a corner. They own the bulk plant
which we use: they desire to sell it to us and we desire to buy it. They have
told us that unless we pay a “good price” for the bulk plant, they will terminate
our supply immediately. There are no other apparent sources available at the
moment for the fuel we need to supply our customers.
It is our hope that swift federal action will come that will help control this
very difficult situation and assure us of fuel for the coming heating season in
Minnesota.
With sincere thanks,
J o h n A. H o lm e n .
Ja cobson O i l Com pany,
Wadena, Minn., M ay 15, 1973.
Senator H u b e r t H . H u m p h rey ,
Washington, D.C.
D e a r S e n a to r : We are one of the Minnesota oil Jobbers who are being put out
of business by the gas and oil shortage. Our supplier, Kerr McGee Corp., has
canceled our contract effective June 1,1973.
Our company has been in business since 1931. We handle, along with gas and
fuel oil (which is 60% of our sales), Ford Tractors and Implements and other
lines of farm machinery and sporting goods. We have 11 employees and serve
400 fuel oil and 150 farm gasoline accounts who are having trouble finding
a new supplier.
We also serve 4 other dealers in Clarissa, Sebeka, Parkers Praire and New
York Mills who employ 6 people and who are going to have to close after June
1st when our supply from Kerr McGee is cut off.
282
After June 1st, we can purchase 30,000 gallons of gasoline a month (our
needs are 125,000) with which wre should be able to operate our station in
Wadena on a reduced hour basis.
We desperably need government help.
Enclosed are copies of our gasoline and fuel oil accounts.
Yours truly,
D onald S c h m i t h ,
Owner.
W adena, M in n .
Senator H u b e r t H . H u m p h r e y ,
Capitol Hill, B .C .:
Jacobson Oil Company, Wadena Minnesota in operation since 1931 has had its
contract with Kerr McGee Corporation cancelled as of June 1, 1973. Because we
cannot find a new supply of gas and fuel oil our four dealers Waynes Service
Clarissa, Sarkela Garage, Sebeka, Warks Service Parkers Prairie and Mills Serv
ice Center, New York Mills with a total of nine people will be forced to close and
our 400 fuel oil and 150 farm gas customers will have to look for a new sup
plier. We wTill be able to purchase 30,000 gallons of gas per month (needs are 125,000) to keep our station in Wadena open on a reduced hour basis. We desperately
need Government help.
L ee P o tt e r C orp oratio n ,
Minneapolis, Minn., M ay 11, 1973.
Senator H u b e r t H . H u m p h r e y ,
U.S. Senate Office Building,
UY*.S‘h ington, D.C
D e a r H u b e r t : I have not written you for a long time, but now that the oil
companies are putting the pressure on the shortage of gas, fuel oil, etc., I wanted
to give you my views on the possible cause.
As you probably wTell remember, I wras in the oil business for some years in the
1920’s and 30\s as Vice President of Barnsdall Refineries of Tulsa, Oklahoma. In
the 30’s the oil companies were indicted after being investigated by the Justice
Department for collusion on setting up prices, etc., and finally pied nolo con
tendere in a Madison, Wisconsin trial.
I sincerely believe, but could now be mistaken that these shortages are agreed
upon by all the major oil companies to force individual dealers out of business
and raise prices on all products. And, possibly to cause public opinion to he on the
side of the side of the Alaska pipeline, which I believe is okay.
As you are Chairman of the Senate Investigating Committee of the reason for
oil shortages. I am sure you can determine if all our refining capacity is being
used and if there now is a shortage of crude oil.
It has been some years since I have been in the oil business, hut I do know
of the many meetings of oil executives in past years.
My very kindest regards.
Sincerely,
L. A. P o tt e r .
Shamla O i l Co.,
Silver Lake, Minn., May 25,1973.
Senator H u b e r t H . H u m p h re y ,
U.S. Senate,
Washington , B.C.
D e a r Si r : We, the Shamla Oil Co. Inc., have furnished aviation fuel to the
Silver Lake, Minn. Airport for the past 26 years. Our supplier was the Union 76
of Minneapolis and now they have cut off all aviation fuel.
Ben Klima, owner of the Silver Lake, Minn. Airport, McLeod County, has
planes that do crop spraying and now they are unable to do this.
Could you help us get some supplier so they can get these crops sprayed?
We would appreciate any help you could give us.
Yours truly,
F r a s k H. S h a m la , President.
283
W ood C it y A ero Service , I n c .,
Cloquet, Minn.
C urt E r ic k so n ,
Minneapolis, Minn.
D e a r C u r t : Here at Cloquet the fuel situation hit us hard as we were a Union
76 dealer and they are out of aircraft gas business.
Fortunately we were able to get set up with Phillips 66 at a higher cost per
gallon of course.
At this time we are unable to obtain 80 oct fuel which we have a great demand
for.
Sincerely,
A rnold R . O degaard .
A irm o tiv e E n te r p r is e s , In c .,
Braincrd, Minn., M ay 24, 1973.
Re Our fuel status.
M r. C urt E r ic k s o n ,
Minneapolis , Minn.
D e a r M r. E r ic k s o n : We have been advised by our Phillips Supplier here in
town that we will not receive any more 80 Octane until further notice. In the
meantime, he says he is trying to borrow from Union Oil in Minneapolis.
He assures us, as of this writing, that there is no shortage of 100 Octane or
Jet Fuel.
Thanks for your interest as President of MATA in this matter. Please keep us
posted as to the various changes in this situation as they occur.
Sincerely,
John C R
ie d l .
S o u th e r n M in n e s o t a A v ia t io n S ervice , I n c .,
Owatonna, Minn., M ay 26,1973.
Re : Aviation Fuel.
M r. C urt E r ic k s o n ,
President, Minnesota Aviation Trades Association,
Minneapolis, Minn.
D e a r C u r t : Responding to the MATA bulletin of this week, we have been ad
vised by our supplier that 80/87 will no longer be available.
Further, we are advised that we can expect “to he taken care of” on 100.
Our supplier is Phillips.
Best regards and many thanks for your concern,
Sincerely,
G le n n J. D egn er.
F l ig h t T r a in i n g C en ter , I n c .,
Eden Prairie , Minn., M ay 25,1973.
C urt E r ic k s o n ,
President, Minnesota Aviation Trades Association,
Minneapolis, Minn.
D e a r C u r t : I am writing in response to Sherm Booen’s letter concerning the
aviation fuel situation. We handle Mobil products on FC-M and to date have ex
perienced no significant problems. Today, however, I spoke with a Mobil rep
resentative about some minor repairs on our gas pumps and he indicated that
wre could be encountering significant changes in policy from Mobil within the near
future.
The shortage of 80/87 octane on the airport seems to be rather acute for the
other dealers at present.
Please advise us if we can be of assistance to you in any way.
Kind regards,
A l L an g e,
General Manager.
284
B u ffalo M u n ic ip a l A irport ,
Buffalo, Minn., M ay 80,1978.
M r. C urt E r ic k s o n ,
President, Minnesota Aviation Trades Association, Inc.,
Minneapolis, Minn.
D e a r S ir : We are out of 80/87 aviation fuel at our Buffalo Municipal Airport.
We have carried Union 76 since we built the airport seven years ago. There is
some 100/130 fuel available that could be used in an emergency. We would expect
engine trouble if it was used consistently. The Continental Motor Corporation
states that in their smaller aircraft engine, the higher octane rating should be
only used in an emergency.
We will support any action to help alleviate this situation and we also would
appreciate any help you could give us in obtaining any fuel.
Very truly yours,
W endell
S etterberg ,
President.
D w a y n e A. P u ff e r ,
Secretary.
C ertified O il C o m p a n y ,
Columbus, Ohio, April 25,1973.
Senator H u b e r t H u m p h r e y ,
U.S. Senate Office Building,
Washington, D.C.
D e a r S e n a to r H u m p h r e y : We operated 265 independent gasoline stations until
last Friday. Friday, we had to close 40 of them because of the shortage of supply.
I
certainly appreciate your resolution to provide authority to the President to
do something to help us in this time of need.
As an independent, w e do not have refineries and we are one-hundred percent
dependent on major oil companies. I think with support such as yours, the major
companies will think a long time before they tend to cut us off completely.
All we want is a fair shake.
Sincerely,
C a r l y l e M. B a k e r ,
President.
T h e A ssociated G eneral C ontractors of A m e r ic a ,
Washington, D.C., M ay 15,1973.
Hon. H ubert H . H u m p h r e y ,
U.S. Senate,
Washington, D.C.
D e a r S e n a to r H u m p h r e y : The enclosed is short and self-explanatory. Identical
letters have been sent to the Senate and House Public Works Committee
Chairmen.
In 1972 the construction industry accounted for more than 11 per cent of our
Gross National Product. Construction, the largest industry in this nation, em
ploying more than 4.5 million workers, is faced with the very real possibility of a
precipitous stoppage. The effects wTould be felt in every county of the entire
United States in a matter of days.
We urge you to give this matter your closest personal attention.
Sincerely,
N ello L. T eer , J r .,
President.
Enclosure: Letter, May 14,1973, to Chairman, Senate Public Works Committee.
T h e A ssociated G en er al C ontractors of A m e r ic a , I n c .,
Washington, D.C., M ay 1 4 , 1973.
H on. J e n n in g s R a n d o l p h ,
Chairman, Senate Public W orks Committee,
Dirksen Building, Washington, D .C .
D e a r S e n a to r R a n d o lp h : The energy crisis is here today, and escalating
Tapidly.
Often a bellwether of economic conditions, the construction industry has been
hit already by the energy crisis that most industries still see only as a potential
future problem.
285
Increasing numbers of construction firms are being flatly rejected as they
request fuel commitments for jobs scheduled to start in the next 30 to 90 days.
Literally hundreds of their construction programs will be stopped, before they
start, for lack of fuel to move the scrapers, bulldozers, dump trucks, and paving
machines necessary to this work.
An immediate “ripple” effect on the entire U.S. economy is inevitable as tens
of thousands of workers are laid off.
We urge the Public Works Committees of the Congress to hold hearings as
soon as possible to examine the dimensions of this urgent problem and to seek
solutions to it before the consequences reach disastrous proportions throughout
the nation.
Sincerely,
N ello
L. T eer , J r.,
President.
S t a t e m e n t of t h e N a t io n a l C o u n c il o f F a r m e r C o o p e r a t iv e s
C r i s i s F a c in g A m e r ic a ’s F a r m e r C o o p e r a t iv e s a n d T h e i r
th e F uel
M em bers
on
America’s farmer-owned cooperatives are major suppliers of power fuels
throughout Rural America. More than half of all farmers’ power fuel require
ments in key Midwestern agricultural areas are supplied by these cooperative
organizations. They are currently responsible for more than 26 percent of the
nation’s total farm fuel needs.
The National Council of Farmer Cooperatives represents twelve cooperative
organizations with extensive fuel refining and distribution facilities. These
cooperatives service 1.5 million farmers, providing $4.5 billion annually in goods
and services. It is the responsibility of these cooperatives to supply their farmer
members’ fuel needs, so that farming operations can be conducted in the most
efficient and productive manner.
As supplies of power fuels tightened during the past year, trends developed
in rural areas whereby major oil companies closed hundreds of stations and dis
tribution outlets. Especially hard hit is the upper Midwest. The result has been
a shifting of fuel supply and distribution responsibility to those few remaining
sources in the affected areas. Farmer cooperatives, in many cases, have found
themselves to be that only remaining source of power fuels for rural residents.
Such trends have greatly increased the already heavy burden upon cooperatives’
fuel distribution networks.
Farm fuel needs have never been greater in Rural America. Abnormally wet
weather last fall forced delays in harvest, and prevented normal fall plowing.
An extremely wet spring, coupled with severe flooding in low-lying areas, pre
vented early spring field work. As a result, a farm fuel crunch was delayed in
coming, in 1973, but it’s now here. The fact is: there is a severe shortage of
gasoline, diesel fuel, and propane gas in many major agricultural areas.
In the face of a fast-growing demand for farm power fuels, a most absurd
situation has existed at farmer cooperative refineries. These refineries have been
forced to operate far below their refining capacity due to severe shortages of
crude oil. While farm fuel needs were increasing around them, America’s coop
erative refineries have been operating at levels approaching 70-75 percent of
their normal capacity. At least one major cooperative refinery was forced to close
during the peak refining cycle because no crude oil was available to supply it.
Most of our cooperative refineries remain short of crude oil, because their
historical suppliers— the major oil companies— ceased “trading tickets” with
them in late December, 1972. This traditional ticket trading has been essential to
the effective operation of independent refineries for more than 14 years. In brief,
land-locked inland refineries, such as the bulk of our cooperative refineries, trade
their Government-issued import quota tickets for domestic crude oil from the
major oil companies. These majors then use the import tickets to bring more
foreign crude oil into their coastal refineries. This process ceased in late 1972,
after rising prices of foreign oil made it more economical for the majors to refine
domestic crude oil. Our inland cooperative refineries, located hundreds of miles
from port facilities, suddenly found themselves with mounting inventories of im
port tickets— and dwindling supplies of crude oil.
The National Council sensed a potentially serious fuel shortage problem arising
in farm areas as early as mid-January, 1973. Because we have the advantge of
being close to the refining and supply portion of the petroleum industry— while
being well versed on farmers’ needs— we could fairly accurately predict a crisis
situation months in advance of its happening at the farm level.
286
Farmer cooperatives took their story to the Administration in a series of toplevel meetings, beginning on February 9, 1973. We met with Under Secretary of
Agriculture J. Phil Campbell, Deputy Secretary of the Treasury William E.
Simon, now Director of the Office of Oil and Gas Duke R. Ligon, pius officials of
the White House Domestic Council, Department of the Interior, and the Cost of
Living Council. Over a period of two weeks, we touched every base available to
us. We were met with skeptism and disbelief. We received some encouragement,
but little concrete action. As the situation at members’ refineries deteriorated, we
increased our pleas to these officials and others. We moved to Capitol Hill. Our
reception was better there, but Congress could do little except apply pressure
back to the Executive Branch.
The National Council months ago pleaded for Administration action to estab
lish a mandatory fuel allocation program between the major oil companies and
their historical independent customers. We asked for top priority for agricul
ture’s needs. We were told that no legislation then existed to make this possible.
W e received no relief.
APRIL 6 SITUATION
We were then told to provide the Administration wTith specifiics. On April 6,
1973, we conducted a survey of each of our twelve cooperative refineries. Shortages
were recorded in barrels per day, and were reported to the Administration as
follows:
1973 F A R M F U E L S U R V E Y ( S U R V E Y C O N D U C T E D ON APR. 6,1973, O F 12 F A R M E R -O W N E D C O O P E R A T IV E S T H A T
S U P P L Y P E T R O L E U M A N D P E T R O L E U M P R O D U C T S TO T H E IR F A R M E R M E M B E R S )
[Barrels per day]
Cooperative
M id land Cooperatives, Inc.
Indiana Farm B ureau Cooperative,
Inc.
Texas City Refining, Inc.
Agw ay, In c _____________________
Southern States Cooperati ve, 1ne.
Landm ark, In c _________________ ._
Farm ers Union Central Exchange,
Inc.
M F A Oil C o _____________
Farm land Industries, Inc.
F S Se rvices In c ___________________
National Cooperative Refinery A s s o
ciation.
Land O 'L a ke s, Inc.
S e r v ic e area
Demand
Su p p ly
Shortage
Minnesota, W isconsin, uDper M ic h
igan, Iowa, North Dakota.
In d ian a.
19,000
4, 500
15, 000
11, 500
3,5 00
K entucky to M aine (provides 2
major cooperatives with petro
leum).
Northeastern United States.
Southeastern United States.
O h io _____________________________
M innesota, North Dakota, South
Dakota,
Montana,
Wyoming,
Idaho,
W ashington,
Oregon,
N ebraska, W isconsin.
M isso u ri___ __ _ ______________
North
Dakota, South
Dakota,
Nebraska, Kansas, Oklahoma,
Texas, Minnesota, Iowa, M is
souri, Arkansas, Illinois, T en
nessee, N ew Mexico, Colorado,
Wyom ing, Montana, Wisconsin,
Utah.
Illinois, Iowa, W iscon sin _________
Kansas, Nebraska, South Dakota,
North Dakota, Minnesota, W is
consin, Illinois, Iowa, Missouri.
Iowa, Nebraska, southern M in n e
sota.
80,000
57, 600
2 2 ,400
0)
0)
0)
14, 500
0)
0)
900
5, 000, 000
0)
6. 000
30, 860
5,100
8, 000
60, 000
5,000
43, 500
3,0 00
16, 000
22, 030
26, 400
50, 000 46, 000-50, 000
4,3 70
0-2, 000
2 83, 592,000
2 63, 813,000
219, 779, 000
1 Included in Te xas City report.
2 Gallons annually.
Because cooperatives have a deep obligation to serve the needs of their farmer
members, wide-ranging efforts were made to secure supplies of refined products
to feed into the distribution pipelines. Our cooperatives began purchasing
gasoline on the open market at inflated prices to meet farmer-members* needs.
Premiums of five cents per gallon over previous wholesale prices were the
norm. One National Council member cooperative lost more than $1 million in
April/May gasoline sales to keep farmers operating. '‘We just couldn’t patss
those high prices along to our members,” was one official’s reason. “We were
caught in the middle.”
M A Y 4 SITUATION
The farm fuel situation deteriorated more as fields dried out. and farmers
moved into Spring work. Again, the National Council was asked to substantiate
287
its pleas on fuel shortages— and again, it answered through its Kansas Citybased Farmland Industries, Inc. We submit the following letter dated May 4,
1973, to Secretary of Agriculture Earl L. Butz :
May 4, 1973.
D e a r S e c r e ta r y B u tz : Available gasoline supplies have reached critical levels
in the midwest, and severe shortages will be experienced by June 1973. National
goals for agricultural production and food prices may not be met this year.
Midwest gasoline inventories on April 20, 1973, were 18.2 million barrels,
which is approximately 6.5 million barrels below prior year levels and is only
2.2 million barrels above minimum working stock levels. Thus, present gasoline
inventories in the midwest are critically lowr.
The first chart attached shows projections of gasoline inventories in the
midwest for the period May through December 1973 based on the anticipated
gasoline supply and demand for that period. This shows a very alarming
situation.
United States gasoline inventories are also far below previous years. The
national inventory on April 20, 1973 was 204 million barrels, which is more
than 23 million barrels below the inventory one year earlier.
Assuming that the national gasoline inventory declines during the high
demand summer months as it did in 1972, the inventory on September 1, 1973,
would be approximately 175 million barrels. This is 15 million barrels below
the estimated minimum working stock level for the United States of 190 million
barrels. See attached chart on U.S. gasoline inventory.
Gasoline inventories of Farmland Industries, Inc. are depicted on the final
chart attached. Farmland Industries wTill be short of gasoline and unable to
meet demands of farmers.
Farmhand Industries provide over 40% of the gasoline volume for agricul
tural use in Kansas and Nebraska and supplies a substantial portion of the
agricultural gasoline requirements throughout the remainder of the midwest.
The total impact of such a shortage is far reaching since the midwest provided
a major portion of the total United States production of many food and fiber
crops.
As is the case with most inland independent refiners, Farmland is critically
short of crude oil. Refinery crude oil processing rates were first reduced during
the fourth quarter of 1972 due to the crude oil supply situation. The supply
position has further deteriorated since the first of 1973.
Additional sweet crude oil is needed to permit the operation of independent
refineries at capacity. Estimated idle capacity is 323,000 barrels per day. This
is a national tragedy in such a time of extreme need. Ways must, be found
immediately to get more crude oil to these refineries to forestall a national
emergency.
The U.S. government must help solve this problem. Efforts to date have not
been successful.
Enclosed are two copies of “The Critical Gasoline Situation Facing Midwest
Agriculture.” This brief explains in more detail the crisis facing our nation’s
agriculture and food production.
We respectfully solicit your continuing support and assistance.
Sincerely,
F a r m l a n d I n d u str ie s , I n c .
Accompanying this twTo-page letter to Secretary Butz was a series of three
charts specially prepared by Farmland Industries’ economists. They illustrate,
using the best information available to them on May 4, that.
(a) Total U.S. Gasoline inventories by September 1, 1973, would be
reduced to 175 million barrels— 15 million barrels below the estimated mini
mum working stock level. Industry estimates are that the U.S. needs an
inventory of 190 million barrels to meet demand.
(b) Gasoline inventories in the Midwest will decline to critical levels by
mid-June, 1973. Indeed, at this time— or soon after— gasoline inventories
and supplies will not be available to adequately service the Midwest.
(c) Farmland Industries, Inc., prime supplier to over 40 percent of the
farm fuel needs of Kansas and Nebraska (plus a substantial portion of farm
fuel needs through the Midwest) may be unable to supply the fuel needs of its
farmer customers after mid-June.
Bv early May, the U.S. Department of Agriculture began a monitoring system
of farm fuel supplies throughout the U.S. Our cooperative refineries shared in
288
this reporting system, along with other independent refineries, and state and local
governments. Much of the specific data gathered was personal and confidential
in nature. But we can glean out some specific conclusions, as reported to the
highest levels of the Administration:
(a) Land O’Lakes projects the following fuel demand increases this Spring
over that of a year ago: Gasoline up 15-20 percent; diesel up 20-30 percent.
(&) Midland Cooperative’s refinery at Cushing, Oklahoma, is now operat
ing at 50 percent of capacity due to a shortage of crude oil.
(c) Suppliers have reduced Michigan Farm Bureau Cooperative’s fuel
allotment to 66 percent of last year’s purchases.
(d) A Major oil company has cut off supplies to 600 farmers in Delaware.
Farmers asked Southern States Cooperative to supply their needs. The
cooperative cannot.
( e ) Landmark Cooperative estimates that it will be 20 percent short of
fuel needed to supply Ohio Farmers after June 1.
(/) Cooperatives serving the Midwest fear a severe fuel crisis in early
June. Wet weather has simply postponed the crisis.
The documented evidence goes on page after page. Providing reams of paper
and thousands of words of proof won’t solve the farmers’ present and prospective
farm power fuel crisis. But neither will Government statements and so-called
“voluntary” allocation programs.
It is time that Americans and their Government in Washington, D.C. face up
to the fact that the fuel crisis is everyone's problem. Without fuel this Spring
and Summer, our farmers won’t simply suffer reduced farm income because of
smaller harvests. The problem goes much deeper than that. Our Government is
calling for the largest production of food in the nation’s history. Over 50 million
additional crop acres have been released from set-aside programs to help increase
food supplies— and keep prices at low levels. If 1973 agricultural production
fails to meet national goals, if a lack of adequate supplies of grain reduce
farm exports, and if discontent runs rampant through Farm areas every Amer
ican will suffer through vastly higher food prices, a worsening balance of pay
ments situation, and an accelerated loss of farms and farmers.
The National Council of Farmer Cooperatives and its member cooperatives
remain optimistic. We cannot agree with the small Illinois oil company, that
after 53 years of business, was forced to close last month because of the fuel
shortage, and told its customers: “
This is our swan song, we wish to thank
you for your business. We feel wTe have given you service, and a price, the
likes of which you will never see again— and anyhow, maybe 53 years is long
enough V*
Farmer Cooperatives will continue their obligation to serve American agri
culture with efficiency and sacrifice. Much cooperative sacrifice has already
helped keep the farm fuel crisis from becoming even more serious. We shall
continue to strive. But we need help from both Government and industry. In
this regard, we respectfully request immediate implementation of the following
proposals:
1. Inland refineries serving agricultural areas must be assured of ade
quate crude oil, so that they can operate at full capacity;
2. Refined gasoline, diesel fuel, and propane must be allocated to inland
areas for the immediate use of farmers and agricultural suppliers;
3. Government transportation and distribution facilities must be made
available to assist farmer cooperatives and other farm supply organizations
in meeting farm fuel needs.
We have long passed the time for rhetoric. Rural America has a serious fuel
crisis, and prospects point to a worsening crisis as harvest approaches this fall.
Government and industry must mobilize immediately to permit inland inde
pendent refiners and distributors to again operate at full capacity. The nation’s
farmer cooperatives stand ready to carry their share of the responsibility— but
as has been painfully apparent since January— we cannot do it alone.
Action must come now— and fast
289
JAN
FE8
MAR
APR
MAY
JUN
JU l
AUG
SEP
OCT
NOV
•M IN IM U M V O LU M E REQ UIRED TO R R EFINE RY O PERATION S. PIPELINE FILI., AND STO RAC E TANK ÜO TTO M S.
DEC
(T H O U S A N D S O i- i : A n r . L l. o )
tl
1972
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