September 10, 1975
Page 28475
Mr. MUSKIE. Mr. President, today we face the moment of truth in the year long struggle between Congress and the President on energy prices in America.
A majority of Congress wants to control domestic petroleum prices. The President wants to cut those prices loose. The Senate must override the President's veto if the American people are to be spared unnecessary and unfair increases in petroleum prices and indeed for virtually everything they buy.
We have heard the arguments that we do not need to block the President's plan to decontrol oil. Supporters of high energy prices argue that if we support the veto of our bill to continue price controls on oil, the President will support a 45-day price control bill followed by a 39-month plan to gradually increase oil costs to Arab price levels.
But what is the President really saying? This congressional bill he vetoed would have held oil prices near their present level for 6 more months while we complete our work on an energy policy. The President offers us an extension of only 45 days. With 6 months, I believe we can develop a policy which meets our energy needs at a much lower cost to every American than the sky's-the-limit oil price policy the President advocates. If we show weakness in this vote today, we will be telling the President he can have his way on his wrongheaded plans for a rapid escalation of oil prices.
The people from my part of the country have earned the reputation of "Yankee traders" because they know how to make a bargain, and they recognize the costs of a bad one. We will not have a strong bargaining position to protect the American consumer from the President's energy policy if we lose this vote today. We need to show the administration that Congress is not willing to accept the administration's decontrol plans.
We do need a new national energy policy, but we need it on terms which protect the American consumer. The President does not offer such a policy. Congress should reject his veto of price controls. The outlines of a reasonable energy plan are emerging in the Congress. But that plan will never be enacted if we do not send the White House a message that we mean to hold the line on energy costs and energy company profits.
Mr. President, I ask unanimous consent to have printed in the RECORD a white paper on the consequences of decontrol.
There being no objection, the paper was ordered to be printed in the RECORD, as follows:
WHITE PAPER: IMPACT OF VETO OF PRICE CONTROL AND ALLOCATION AUTHORITY
LEGISLATIVE SITUATION
The Congress sent S. 1849 to the President on August 28, 1975. This legislation, which extends the petroleum price control and allocation authority embodied in the Emergency Petroleum Allocation Act of 1973, passed the Senate by a vote of 62-29 and the House by 303-117. The price control and allocation authority of the Allocation Act expired on August 31, 1975. The President has repeatedly announced his intention to veto any extension of the Allocation Act unless the Congress accepts an oil policy which involves elimination or drastic reduction in Federal regulation of the oil industry and an end to price controls over some definite time period.
If he wishes to do so, the President must transmit to the Congress his veto of S. 1849 on or before midnight, Tuesday, September 9. A vote in the Senate to override the veto of the President is expected to be the first order of business following receipt of such a veto message.
The Administration is still hopeful that an agreement can be obtained with the Congress on oil decontrol. However, independent of the form of the agreement which finally emerges, compelling arguments exist for the continuation, at least temporarily, of the fundamental price control and allocation authority embodied in the Allocation Act. It is now clear that the only way that this authority can be retained is by overriding the President's veto of S. 1849.
OIL PRICE IMPACT
If Mr. Ford's veto of the Emergency Petroleum Allocation Act is sustained, its direct effect will be to increase the average price of gasoline, fuel oil and other petroleum products about 7 cents per gallon.
Temporary market conditions and "jawboning" in the Administration — together with, perhaps, collusion by the major oil companies to reduce the political impact of decontrol — may postpone its full price impact on consumers for a period of time. Notwithstanding any such "restraint", however, the higher prices of crude oil will inexorably be translated into higher retail prices. If crude oil cost increases are tilted more heavily towards gasoline prices — as has been the case in the past — gasoline price increases of from 10 to 12 cents per gallon are very likely.
With the expiration of price controls, domestic oil will cost U.S. consumers at least $16 billion more annually than if controls are retained — an increase equivalent to the rise in the cost of all domestic fuels during 1974.
A secondary effect of sharply rising domestic oil prices will be to pull up the prices of coal and that natural gas which are not subject to price controls, because oil is the only practical alternative for industrial consumers of these fuels, which are in short supply. These higher prices for fossil fuels will be passed through to consumers in their electric rates and in the prices of every product or service that depends upon fuels for energy or industrial raw materials.
A major price increase will worsen unemployment and undermine financial stability in industries that are already disproportionately distressed, like automobiles and the airlines, resulting in lost production, lost income for workers and higher costs for the support of the unemployed.
ANALYSES OF ECONOMIC IMPACT
The Bankers Trust Company of New York has estimated that "coupled with a moderate rise in the foreign price of oil, the sudden decontrol of old oil prices would next year transfer about $35 billion per annum away from consumers to energy producers, the Federal government and OPEC nations"
A study prepared by the Library of Congress found that energy price increases could trigger a $40 billion inflationary contribution to the domestic economy next year, triggering an increase of 2.7 percentage points in the general price level and adding 1.5 percentage points to the rate of unemployment. This would mean a job loss of over one million.
Using macroeconomic models developed by Chase Econometrics, the staff of the Subcommittee on Energy and Power of the HouseCommerce Committee has estimated that sudden decontrol coupled with an OPEC price increase implemented this fall — an increase which nearly all analysts expect to materialize — will, by the end of 1976 —
Reduce real GNP by $28 billion ($51 billion in current dollars);
Add 640,000 to the ranks of the unemployed;
Increase the Consumer Price Index by 2.7 points; and
Reduce housing starts by 280,000 units and automobile sales by 950,000 units.
The House Commerce Committee study further delineates substantial shifts in profitability among industries. Profitability in the mining sector — which includes crude oil production — is drastically increased at the expense of nearly all other segments of the economy. Some of the largest losses in profitability are projected for the—
Primary metals;
Manufacturing;
Textiles;
Papers;
Transportation; and
Commercial sectors of the economy.
The net result of these impacts will be an increase in inflation — perhaps to double digits — rising unemployment — to over nine percent — a larger Federal deficit, and effective cancellation of the stimulus provided by the Tax Reduction Act of 1975.
COMPETITIVE IMPACT
By putting independent refiners and distributors at a disadvantage amounting to several dollars per barrel relative to the integrated major oil companies for the crude oil upon which their products are based, decontrol will cause a permanent structural change in the industry — in the direction of increased market concentration. Rising crude oil costs and consumer resistance to higher product prices will tighten the squeeze on refining and marketing margins. The major integrated companies, unlike the independents, will be able, however, to offset any reduced margins in "downstream" operations with higher profits on crude oil production. The end result would be a serious blow to the competitive position of the independent sector.
The squeeze between crude oil prices and the market will also lead the majors to pressure their independent branded dealers. To this end station rents will be increased, other contract terms will be revised to the disadvantage of the dealers, and thousands of distributors who cannot move more product at a lower marketing cost per gallon will be put out of business.
MANAGING POTENTIAL SHORTAGES AND PRICE IMPACTS
The only existing authority to prevent or mitigate the adverse impacts of raising oil prices and to allocate scarce supplies has been the Emergency Petroleum Allocation Act. Overriding the veto is the only immediate, practical way to restore this authority. The severe shortages of natural gas which are projected for this winter will place enormous pressure on the supply and price of substitutes for natural gas: fuel oil and propane. Substantial increases in propane prices accompanied by shortages are almost certain to occur, and without the Allocation Act, no Federal authority will exist to prevent, for example, rural residential consumers of propane and farmers from suffering severe hardship.
Meanwhile enormous profits will accrue to the major integrated oil companies. No mechanism is in place for taxing and returning these enormous windfall profits to consumers. Once controls have definitively been ended by Congress' failure to override a veto of the Allocation Act, the enthusiasm of pro-industry members of Congress and of a pro-industry Administration for such a tax will greatly diminish or disappear altogether. The prognosis for enactment of an effective windfall profits tax will therefore become very uncertain.
Regardless of any "understanding" between the Administration and the Congressional leadership for subsequent reimposition of controls (which would then be phased out) failure to override the veto would (a) weaken or remove the support of industry and pro-industry Members for any compromise, and (b) severely undermine Congress' bargaining stance in writing such a compromise.
ADMINISTRATION OPTIONS
The Allocation Act currently grants the President ample authority to raise the price of old oil, or to formulate regulations phasing out the old oil price category entirely without any requirement of Congressional assent. But the Administration's own guidelines for preparation of inflation impact statements require an analysis justifying such moves. Administration representative have admitted that such an analysis cannot be made. Because of this, the Administration is presently insisting upon all or nothing — Congressional collaboration on gradual decontrol, or total immediate decontrol. It is clear that the Administration cannot utilize the Allocation Act to raise old oil prices and provide a justification that satisfies its own guidelines. Because of this the Congress is being asked to let the Act expire and, at the same time, to acquiesce to total imposition of an oil policy which benefits only the largest integrated oil firms.
Existing regulations under the Allocation Act already provide for an automatic increase in crude oil prices, as domestic supplies of "old" oil at $5.25 per barrel are depleted and replaced by higher price new oil and imported oil. Under these regulations the average price of crude oil to U.S. refiners would move up toward the new oil price, a rate of about 6 percent per year — even if there were no OPEC price increase and no scheduled decontrol, and even if the illegal import fee is removed. Over the last 2 years crude oil prices have increased by more than 2½ times. A further 6 percent annual increase in the average price of crude oil is the most our economy can safely absorb. Total immediate decontrol will mean an average price increase of well over 25 percent — four times as high over one, two or three months and prices will thereafter rise in perfect synchronization with any OPEC price increase. Instead of seeking collaboration with the Congress to establish a reasonable pricing policy within the framework of the legislative process, the Administration has chosen to present a series of decontrol plans which must be accepted or rejected without amendment. These plans have been rightly rejected because they are inadequate and unwise. Because of the Administration's tactics, the consumers of the country are now faced with the worst of all possible options — immediate decontrol. Only the prevention by the Congress of the implementation of this option will preserve an opportunity for an orderly development of policy in which both the Executive branch and the Congress contribute on equal footing.
SUMMARY
The Administration is proposing that the Congress ratify a situation in which a rising rate of inflation is rekindled; economic recovery is severely threatened; a substantial concentration of economic and financial power in the largest integrated oil companies is virtually certain.
U.S. energy prices will be set not by a free market but by a cartel of foreign governments;
Domestic production will not be substantially increased, domestic oil consumption will be only marginally curtailed (other than as a result of the economic slump) and, therefore, no progress towards greater energy independence will result at all commensurate with the damage that will be done; and any realistic opportunity for the Congress to collaborate with the Administration in the enactment of a rational and equitable oil pricing policy will be lost through Congressional default.