October 7, 1978
Page 34491
Mr. JOHNSTON. Mr. President, I want to thank the distinguished majority leader and manager of the conference report for his usual effective leadership on this legislation. His unique skill and patience is no secret to those of us who have the opportunity to serve with him. I am particularly pleased that he has been able to retain Senate amendment No. 104 to the conference report, the "products entitlement" provision, which was added on August 9, 1978, during consideration of this legislation by the Senate.
The purpose of amendment No. 104 is to grant short term assistance to those portions of our Nation which are heavily dependent on imported residual fuel oil while encouraging the development of the additional domestic refinery capacity this Nation needs if we are to avoid heavy reliance on foreign refinery capacity in the future. This provision, which expires on June 30, 1979, increases the entitlement benefits which are presently received by eligible importers of residual fuel oil on the east coast from 30 percent of an entitlement to 50 percent of an entitlement and grants eligible importers in the State of Michigan 50 percent of an entitlement as well. I might add that had this provision been rejected by the Senate or rejected in conference, the Department of Energy could have completed its stated intention of making effective on August 26, 1978, a final rule granting 100 percent entitlement benefits to such importers.
Amendment No. 104 also eliminates, through June 30, 1979, the "reverse entitlements penalty" in present Department of Energy regulations. Under the "reverse entitlements penalty," all domestic refiners who wish to market residual fuel oil on the east coast lose 50 percent of their entitlements benefits on every barrel of residual fuel over 5,000 barrels per day which such refiners ship into or market in the east coast. Subsection (c) of amendment No. 104 eliminates this "reverse entitlements" penalty, for the period ending June 30, 1979, if the domestic refiner ships the residual fuel oil to the east coast in U.S.-flag tankers constructed in the United States.
This aspect of the legislation will encourage refiners located in the gulf coast, Virgin Islands and, perhaps, even the west coast to market their residual fuel oil on the east coast, thus decreasing the east coast's reliance on residual fuel oil imported from foreign refiners.
But perhaps most importantly, amendment No. 104 sets the stage for the development of legislation establishing a national refinery policy. Recently, our Nation's refinery problems have become clear. The east coast relies heavily on residual fuel oil, but the east coast must rely on residual fuel oil imported from foreign refineries because the east coast does not possess sufficient domestic refinery capacity to provide their residual fuel oil needs. There is a glut of heavy crude oil on the west coast which is high in sulphur content, or sour, but the west coast does not have sufficient refinery capacity to produce from that crude oil either light products, such as gasoline, middle distillates and jet fuel, or heavy products, such as residual fuel oil, which are sufficiently low in sulfur content to be used domestically. Finally, the world crude oil supply is shifting from light crude oil which is relatively low in sulfur content, or sweet, to heavy, sour crude oils. In order to produce useful residual fuel oil, heavy, sour crude oil must be desulfurized through a costly process or further refined through another costly process to produce lighter petroleum products such as gasoline, home heating fuel and jet fuel. Simply stated, our present national refinery capacity is inadequate to respond efficiently to this shift in the world crude oil supply.
In the last 10 years, only one major, grassroots refinery has been constructed in this country. The ECOL refinery was constructed in Garyville, La., to maximize the production of residual fuel oil, part of which was to be marketed on the east coast. When the Federal Energy Administration adopted the present 50 percent "reverse entitlement" penalty, the ECOL refinery could no longer operate economically as a heavy fuels refinery and was sold to an existing refiner which converted the ECOL facility to maximize the production of gasoline and other light products.
Today, several major new refinery projects are being considered, including, on the east coast, the Hampton Roads refinery in Virginia and the Eastport refinery in Maine and, on the west coast, the Alaska Petrochemical Co. or Alpetco refinery/petrochemical complex in Alaska. If these refineries and others are to be developed, we must provide a legislative and regulatory climate which will both encourage the development of appropriate domestic refinery capacity and create the certainty of Federal policy which is necessary if these capital intensive projects are to be financed.
I intend to work for this national refinery legislation during the next Congress. I am pleased that many of my colleagues also recognize the need for a national refinery policy and are committed to its timely development. Recently, many of our colleagues joined me in sending a letter to Secretary of Energy James Schlesinger encouraging the administration to join us in developing a firm national refinery policy. I am including a copy of that letter in the RECORD at this point and would encourage all of my colleagues to begin to focus on this critical, but as yet undeveloped, element of our national energy program.
The material follows:
U.S. SENATE, COMMITTEE ON NATURAL RESOURCES,
Washington, D.C.,
August 9, 1978.
Hon. JAMES R. SCHLESINGER,
Secretary, Department of Energy,
Washington, D.C.
DEAR MR. SECRETARY: As you know, a number of Senators representing several regions of the nation have been negotiating at length over a proposed amendment to the FY 1979 Department of Interior appropriations bill, concerning oil import regulations.
In the course of these deliberations we have discovered collectively what we have known individually for some time, that the United States needs a national policy for domestic refineries. We have agreed to the following general principles which we believe should be included in comprehensive legislation regarding this subject.
(a) A policy providing certainty over the long term is required.
(b) When new refinery capacity is constructed to serve the United States market, it should be constructed within the United States.
(c) Government policy should encourage construction of new independent refinery capacity.
(d) A program should be developed to encourage new and existing refineries to refine heavy, high sulphur oil.
(e) State and local governments should be encouraged to develop responsible refinery siting policies consistent with Federal clean air and water standards.
(f) The disadvantage faced by independent refiners in obtaining adequate supplies of crude oil at equitable prices should be taken into account in the policy.
We look forward to working with each other and with you to develop such legislation early in the next Congress.
Sincerely yours,
J. Bennett Johnston, Edward W. Brooke, John A. Durkin, Edward M. Kennedy, Edmund S. Muskie, James B. Pearson. John Melcher, Patrick J. Leahy, Thomas J McIntyre, Alan Cranston, Henry M. Jackson, Charles H. Percy, Lloyd Bentsen, Floyd K. Haskell, and Howard M. Metzenbaum.
Mike Gravel, Mark O. Hatfield, Wendell H. Ford, Jennings Randolph, Adlai Stevenson, Frank Church, Claiborne Pell, William D. Hathaway, H. John Heinz III, Spark M. Matsunaga, John Tower, Wendell R. Anderson, Abe Ribicoff, Charles McC. Mathias, Jr., Daniel K. Inouye, S. I. Hayakawa, Walter D. Huddleston.
Mr. MUSKIE. Mr. President, I ask unanimous consent that a statement by the distinguished Senator from Massachusetts (Mr. BROOKE) on the Interior appropriation conference report be printed in the RECORD at an appropriate place before passage.
The PRESIDING OFFICER. Without objection, it is so ordered.
STATEMENT OF SENATOR BROOKE
This Conference Report contains language on the residual oil entitlements program. It represents an agreement that I worked on with my distinguished colleague from Louisiana Senator Johnston and many of my colleagues from New England. It provides for an equalization of industrial oil prices between New England and the rest of the country, and thus puts a stop to injustices that were built in to the Energy Policy Conservation Act of 1975. As a result, New England will realize a $50 million price break on residual fuel oil. Half of that will go to Massachusetts. If the $25 million we will save compared to what industrial oil would otherwise have cost, $12.5 will be saved by electric utilities and will thus keep those onerous fuel adjustment charges down.
Nothing could be more welcome than this price break as another hard winter approaches.
However, the formula contained in this report is the first part of the package. The second part is Administration action to suspend the 63-cent import license fee scheduled to become effective this year. Secretary Schlesinger personally assured me of his intention to recommend such action to the President upon passage of this Conference Report. Kitty Shirmer of Stuart Eisenstadt's staff personally assured my office that Mr. Eisenstadt would support that recommendation. I would hope that these important steps would be initiated tomorrow morning.
Mr. MUSKIE. The passage of this carefully worked-out package represents a victory for many more Americans than just those in New England. It is a major reconciliation between energy-producing areas and energy-consuming areas showing that each recognizes the special needs and problems of the other. It is going to be on this basis of mutual cooperation and only on this basis, that a long-term national energy program can be built. I ask that the letter my colleagues from New England and Louisiana and I, as well as other Senators, wrote Secretary Schlesinger about our mutual concerns be printed in the RECORD following my remarks.
The letter follows:
WASHINGTON, D.C.,
August 9, 1978.
Hon. JAMES R. SCHLESINGER,
Secretary, Department of Energy,
Washington, D.C.
DEAR MR. SECRETARY: As you know, a number of Senators representing several regions of the nation have been negotiating at length over a proposed amendment to the FY 1979 Department of Interior appropriations bill. concerning oil import regulations.
In the course f these deliberations we have discovered collectively what we have known individually for some time, that the United States needs a national policy for domestic refineries. We have agreed to the following general principles which we believe should be included in comprehensive legislation regarding this subject:
(a) A policy providing certainty over the long term is required.
(b) When new refinery capacity is constructed to serve the United States market, it should be constructed within the United States.
(c) Government policy should encourage construction of new independent refinery capacity.
(d) A program should be developed to encourage new and existing refineries to refine heavy, high sulphur oil.
(e) State and local governments should be encouraged to develop responsible refinery siting policies consistent with Federal clean air and water standards.
(f) The disadvantage faced by independent refiners in obtaining adequate supplies of crude oil at equitable prices should be taken into account in the policy.
We look forward to working with each other and with you to develop such legislation early in the next Congress.
Sincerely yours,
J. Bennett Johnston, Edward W. Brooke, John A. Durkin, Edward M. Kennedy, Edmund S. Muskie, James B. Pearson, John Melcher, Patrick J. Leahy, Thomas J. McIntyre, Alan Cranston, Henry M. Jackson, Charles H. Percy, Lloyd Bentsen, Floyd K. Haskell, and Howard M. Metzenbaum.
Mike Gravel, Mark O. Hatfield, Wendell H. Ford, Jennings Randolph, Adlai Stevenson, Frank Church, Claiborne Pell, William D. Hathaway, H. John Heinz III, Spark M. Matsunaga, John Tower, Wendell R. Anderson, Abe Ribicoff, Charles McC. Mathias, Jr., Daniel K. Inouye, S. I. Hayakawa, and Walter D. Huddleston.