September 10, 1975
Page 28480
Mr. PHILIP A. HART. Mr. President, it is no secret that often votes around here catch some of us ill-prepared. Maybe we have not done our homework. Maybe the facts are not available. Maybe there is no "right" vote. So we cross our fingers and hope that the majority view is correct.
None of us could claim to be in such an "iffy" situation today.
If we vote to sustain President Ford's veto of the 6-month extension of the Emergency Petroleum Allocation Act of 1973, we should know that our votes would wipe out most, if not all, of the little competition remaining in the petroleum industry. We would not only be voting for immediate oil price increases, but also for putting hundreds of thousands of independent refiners and retailers and producers out of business, and for ending competition which could discourage price increases in the future.
This is so. We know it is. We know it not because I say so, for granted, after 12 years as chairman of the Antitrust Subcommittee, I may be suspect as seeing anti-competitive ghosts everywhere. Nor do we have to believe it because the independent businessmen say so. It is not unknown for businessmen to overstate the harm a proposed legislative action may bring to them.
Rather, we know it is so because Congress in 1973 enacted the original statute in order to protect independent businessmen and consumers from the economic power of the major oil companies.
But, as you will recall, at first the FEA simply allocated crude oil supplies without implementing the section of the act requiring "equitable prices."
As a result, by summer of 1974, the independent gasoline retailers who had not been put out of business by a cutoff of crude before enactment of the statute, were being forced to strangle themselves by selling gasoline at up to 10 cents a gallon more than major brand stations, because the only crude the majors would sell independents was high-priced foreign oil.
In fact, the situation was so bad that on July 30 last year, 27 colleagues joined me in calling on FEA head John Sawhill to hurriedly begin equitable allocation of the low-priced domestic crude to independent refiners.
Mr. President, today we are asked to believe that somehow over the past 14 months this situation has changed, that the majors do not have the economic power to hold down the price of their gas while independents are forced to raise theirs to cover higher crude costs. If that happens — and ironically the majors can do this by complying with the President's wishes — the result will be to drive independents out of business.
The irony is that administration officials, who are saying this is a competitive industry that should be decontrolled, apparently do not believe it either.
If they did, why would they float promises that "something will be done" to protect independent refiners under decontrol and "something will be done" to protect independent retailers?
If this were a competitive industry, such "somethings" would not be necessary.
But the administration is right about one thing: Without these "somethings," these independent businessmen would be out of business, because there is no competition out there to protect them — or their customers.
Mr. President, we do have the "somethings" in the way of protection for the independents in the act Congress voted to extend. It is not perfect, but it does have the advantage of being in place and of having bad many kinks already ironed out.
It makes sense then to keep that which protects both independent businessmen, competition and consumers until we have a replacement in fact rather than in rhetoric. In my book, the something better is not more regulation — but more competition. Therefore, let us vote to continue the protection we have for another 6 months, and see if we find ways to interject the protection of competition into this industry.
Mr. President, I ask unanimous consent that the letter I mentioned, signed by 28 Senators, and an ad on the subject by independent refiners, be printed in the RECORD.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
FROM THE OFFICE OF SENATE ANTITRUST AND MONOPOLY SUBCOMMITTEE
Twenty-eight Senators, led by Senator Philip A. Hart (D-Mich) have called on the Federal Energy Administration to give independent refiners a crack at some low-price oil now generally in the hands of the major oil companies.
In a letter to John Sawhill, administrator of FEA, the Senators explained that there is enough "price-controlled" oil to handle about 40 percent of the needs of all domestic refiners. The price-controlled oil costs about$5 to $7 a barrel less than the non-controlled oil.
"Refiners have access to this controlled oil in varying degrees, but it is largely in the hands of major oil companies,"they wrote. "Independent refiners' feedstocks consist disproportionately of non-price-controlled oil, ranging as high as almost 100% in some Northern Tier areas dependent upon Canadian crude.
"Because of this disparity, independents are finding it necessary to charge five to ten cents more per gallon for gasoline than major oil companies."
Hart and the other Senators proposed allocating the low-cost oil through a ticket allocation plan — which would guarantee each refiner — independent and major — about 40% of his run in low-cost oil.
The allocation tickets — or "entitlements" — could be bought and sold by refiners, much like oil import quota tickets used to be.
The Senators pointed out to Sawhill that in passing the Emergency Petroleum Allocation Act of 1973, Congress specifically stated that any allocation program was to:
"preserve the competitive viability of independent refiners, small refiners, and non-branded and branded independent marketers."
This requirement has not been met, the Senators told Sawhill.
JULY 30, 1974.
Mr. JOHN C. SAWHILL,
Administrator,
Federal Energy Administration,
Washington, D.C.
DEAR MR. SAWHILL: Several months ago, when petroleum products were in short supply, the issue of competitive pricing for these products was largely overshadowed by the issue of supply itself. Consumers, experiencing hardships in obtaining products, were willing to pay almost any price for them. Now that petroleum products are more readily available, consumers are once again making purchases on the basis of price considerations. Unfortunately, however, a disparity in crude oil prices, resulting from the Federal Energy Administration's policy of two-tiered pricing, is placing independent refiners and marketers at a distinct disadvantage as respects their major oil company competitors. Because of this disparity, independents are finding it necessary to charge five to ten cents more per gallon for gasoline than that charged by major oil companies. Obviously, this injures their competitive position in the marketplace.
In enacting the Emergency Petroleum Allocation Act of 1973, Congress specifically stated its intention that the regulations "provide for equitable distribution of crude oil and refined petroleum products at equitable prices among all regions and areas of the United States and sectors of the petroleum industry." The regulations were also "to preserve the competitive viability of independent refiners, small refiners, and non-branded and branded independent marketers." In permitting the situation described above to continue, FEA is not fulfilling its responsibilities regarding this clear Congressional mandate to insure competitiveness in the oil industry.
The FEA reports that over 40% of total crude oil inputs to domestic refineries is price-controlled at a level averaging approximately $5.25/bbl., which is some $5-$7/bbl. lower than the cost of the remaining non-controlled foreign and domestic crude. Refiners have access to this controlled oil in varying degrees, but it is largely in the hands of major oil companies. Independent refiners' feedstocks consist disproportionately of non-price-controlled oil, ranging as high as almost 100% in some Northern Tier areas dependent upon Canadian crude. Obviously, some form of crude cost equalization is required to protect their competitive performance and insure equitable prices for all areas as required by the Emergency Petroleum Allocation Act.
Several proposals have been advanced to reduce this disparity of crude cost between independent refiners and major oil companies. Any workable proposal must equitably distribute the benefits of price-controlled oil with minimal disruption of supplier/purchaser relationships, and with little additional Federal involvement. A crude oil entitlements program such as was informally advanced by FEA seems to meet these requirements.
Through the device of entitlements, all refiners, regardless of size, would be given the opportunity to utilize a specified percentage of price-controlled "old oil." An adjustment favoring smaller refiners could be utilized to insure that they would be granted entitlements proportionately greater than the specified percentage. This adjustment would assist in limiting the number of small and independent refiners actually having to purchase entitlements.
Refiners who have a high proportion of non-price-controlled crude oil to their total refining input would be able to sell their entitlements in order to reduce their weighted average composite crude costs. Conversely, refiners who have a high proportion of price-controlled crude oil would be obligated to purchase these entitlements in order to continue to process these feedstocks. The price at which entitlements would be sold would be based upon the difference between the uncontrolled oil price (including imported crude) and the controlled price. The net effect of these transactions would be to equalize crude oil prices among all domestic refiners and restore independent refiners and marketers to a price-competitive position.
We commend this proposal to your immediate attention, not only for the reason that it carries out the legislative purpose embodied in the Energy Petroleum Allocation Act, but also because of its basic simplicity. The attractiveness of this proposal is enhanced by the fact that it does not involve actual transfers of crude oil supplies, and therefore does not disrupt traditional supplier/ purchaser relationships. In addition, this plan would involve little modification of the present crude oil allocation program currently administered by the FEA.
Sincerely,
Philip A. Hart, James S. Abourezk, Birch Bayh, Joseph R. Biden, Edward W. Brooke, Quentin N. Burdick, Clifford P. Case, Dick Clark, Marlow W. Cook, Robert P. Griffin, Floyd K. Haskell, Mark O. Hatfield, Walter D. Huddleston, Harold E. Hughes, Hubert H. Humphrey, Edward M. Kennedy, Thomas J. McIntyre, Warren G. Magnuson, Mike Mansfield, Charles McC. Mathias, Jr., Lee Metcalf, George McGovern, Walter F. Mondale, Frank E. Moss, Edmund S. Muskie, John O. Pastore, John V. Tunney, Harrison A. Williams.