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to help ease the January shortfalls finally was put into place, we have found greater shortages, more hardships, more anger at the poor serv: ice station owner, and more frustration with the lack of supplies and the constantly escalating prices for the supplies that do exist.
All of the these things I have seen around the State.
Today, we want to hear from consumers and from independent dealers and jobbers about some of their special problems. We want to hear from Governor Sargent and Attorney General Quinn who have been trying to cope with the situation. I have been working with them in trying to squeeze more supplies and a more equitable allocation system out of the Federal Energy Office. And we want to hear from the representatives of the Federal Energy Office itself.
We have been talking with William Simon and John Sawhill along with the entire Massachusetts delegation. We have argued the case for more gasoline for Massachusetts and the unfair burden of the current system.
The 2 percent increase of gasoline announced this week in response is only a partial answer. Yesterday, a U.S. district court found that Maryland—which had been in a similar position to Massachusettshad been treated inequitably under the allocation formula and ordered more gas to Maryland. The only acceptable answer is a revised formula, a formula that is based on the Government's independent statistics and not on the oil companies' figures. The answer is a formula that recognized differences in population, differences in urban density, and differences in driving habits between urban and rural States and regions. The answer is a formula that is policed not once a month, but every week by special teams that can recognize special State needs and order increased set-asides to meet those specific needs.
Without challenging in any way the desire of the administrators of the current gasoline allocation system to find the best system they could put together, the reality of the matter is that they failed.
It is particularly difficult to understand how the law can be satisfied when virtually every State is receiving a different percentage of its 1972 supply. It is particularly disturbing when virtually all are receiving more than 10 percent less than in 1972, yet the Nation's stockpile of 219 million barrels of gasoline is only 10 percent shy of 1972. In the same way, the emergency allocation announced last night, which we all appreciate, is only a partial answer. It may alleviate our immediate problems this month if it is directed to our hardest hit areas. It indicates at long last that there is a recognition that the State has been suffering more than most from the current allocation formula. I would hope that in the months ahead a more equitable system will be developed to insure that we do not have to wait until the closing days of the month to obtain an equitable share.
John Sawhill, Deputy Administrator of the Federal Energy Office acknowledged the inequities Thursday, particularly in New England, at a meeting with New England Senators.
He said, "It is clear to me that we do have worse shortages in New England than we do in the rest of the country.”
In fact, we have a system in which more people are spending more time waiting for less gas at higher prices than at any other time in our history.
The AAA survey only 2 days ago in Massachusetts found once again that our supplies were lower than the national average, that stations were limiting purchases to $2 and $3, that most were only open a few hours a day and that some were not expecting to make it until the end of the month. There also were those who had already run out of fuel and had closed their doors.
In virtually every category used by the AAA, whether in stations open after 7 p.m., in stations open only a few hours a day, in stations limiting purchases by gallons or amount and by stations out of fuelMassachusetts and New England do far worse than the national average.
The first reason for this failure is that the system rests on oil company statistics, on oil company determinations of how much of their inventories they want to use each month, and on oil company determinations of how much they need for priority customers.
The special teams that were sent to the State a week ago must become permanent adjuncts of the allocation system. But they must do more in the way of auditing the figures that the company supplies.
Thus the teams sent out a week ago already have discovered:
Some of the original allocation percentages were wide of the mark and had to be corrected.
Some companies were giving stations in different parts of the State and country different levels of supply from the allocation percentage they had originally stated they would provide.
In Massachusetts, at least one supplier had included in his Massachusetts total, gasoline that was destined for another State.
In Massachusetts, as elsewhere, the oil companies still had not finished filling out their forms as to how much they were providing priority customers, so that a determination could be made as to how much was available for retail stations.
A second reason is that the allocation program has been put into place incredibly slowly. It was nearly a year ago that New England and Midwest Senators first pointed to the major oil companies pulling out of various regions of the country or denying supplies to traditional customers. It was in June that the Senate passed a Mandatory Allocation bill, including amendments and provisions from the allocation legislation I introduced in May. Unfortunately, the administration blocked that measure in the Congress until November.
Even when it was signed into law on November 27, we have seen a continuing delay in putting regulations, forms, and monitoring programs into place. It really was not until February 1, that the gasoline allocation system actually began to operate.
The entire delaying process has meant that even well-meaning administrators have not had sufficient time to get all of the kinks out of the program.
A third reason is that the formula does not take account of the urban-rural traffic habits. The Massachusetts Port Authority reports that there has been a reduction of only 5.2 percent in the use of urban exits off the Massachusetts Turnpike based on turnpike tolls—compared to a 23.6 percent reduction in the use of rural turnpike exits.
Clearly, the higher density and the critical need of commuters to get to work means that urban area residents cannot easily cut down on their driving in and around the city. But they can reduce their travels to the rural areas.
This may well be a reason for States with a larger rural population to have experienced lessened burdens from the current shortage; although even in those States, certain metropolitan areas show serious problems.
Other reasons include the failure to effectively police oil companies which originally withdrew from Massachusetts and other States to insure that they are putting back into the State, and into the same areas within the State, the quantity of oil they were supplying in the corresponding month of 1972. In Massachusetts, Phillips virtually ended its supply relationship since 1972.
Phillips stated to my office it is supplying 75 percent allocations to 6 former jobbers. But it is providing no fuel to a seventh, and no fuel to 35 former stations. The result is 1,018,020 fewer gallons in Massachusetts this month, not counting 680,111 gallons less because of Phillips cutback to jobbers.
Other companies also have reduced their role in Massachusetts since 1972. Yet, very little in the way of policing those companies to assure that their supplies are returning has been done.
Also, the formula does not account for the level of priority customers in each State which must come off the top of the State's allocation, meaning that there may be a substantial variation in the actual percentage allocation available to the local service station.
Reversing these flaws in the current gasoline allocation system are essential if we are to see a more equitable system developed for Massachusetts and the Nation.
Thus, the basic changes needed are:
First, to provide for an independent data base so that the Government knows at least as much as the oil companies about their supplies, their demands and their costs.
Second, to insure that the allocation formula reflects differences related to population, to urban-rural divergences and to varying priority needs within each State.
Third, to direct monitoring teams to be in the State to update allocations on a weekly basis and to direct the increased allocations or to have the State direct those allocations to the areas of the State where there is the greatest need.
Obviously these changes in the allocation system must be coupled with continued conservation.
One other aspect to the supply picture is the need for the FEO to direct refineries to switch to the production of the scarcest fuel, when it feels the time has arrived, instead of relying on the voluntary and traditionally delayed action of the refineries to do the job.
The price we pay for our gasoline is another matter of serious con
The cost of fuel oil went up another 12 percent last month, and gasoline jumped 6 percent. In Boston alone, fuel costs have gone up 57 percent in the last year.
Massachusetts, according to Oil Daily statistics has seen even major oil company wholesale prices jump by more than 60 percent in the past 2 years. Those figures do not account for the even larger jump in the prices of independents. For instance, one large independent has had to pay 58 cents a gallon for gasoline. Even blending it with his domestic supplies, his gasoline is priced to the retail dealer at 67.9 cents a gallon.
Even though relatively little gasoline is imported, Massachusetts seems to be more dependent on both imported gasoline and on refineries which have had to rely on foreign crude than many other States.
Just as in home heating oil and residual oil, the prices that Massachusetts citizens are having to pay for their gasoline seems to reflect a failure by the FEO to find a way to meet the allocation law's requirement for “equitable prices among all regions."
The most recent pricing decision taken by the FEO also defies understanding. By setting a flat 85 percent allocation level to determine whether a gasoline station receives the right to add a penny per gallon to its price, there is a clear incentive for stations to ask their suppliers to hold their supplies to 84.9 percent. It is a disincentive to increasing the overall supply of gasoline.
With regard to prices, I believe the only answer is to roll back crude oil prices. The administration has blocked the emergency energy bill since Christmas—first because it contained an excess profits provision, and then because it contained a price rollback and price control system.
When some crude oil is selling for over $10 a barrel, it can only be concern for oil company profits that justifies opposition to price rollbacks. I believe the conference report which the Senate finally passed this week—despite administration opposition—is a first step toward introducing some reason into petroleum prices. But it is only a first step. It will mean $20 million less being paid by U.S. consumers when it goes into effect.
The one dollar increase in "old" crude oil prices to $5.25 per barrel granted on December 19 also should be rolled back. It neither served to directly stimulate new production nor to stimulate exploration. It served merely to add to the already bloated profits of the oil companies.
Virtually every study on how to maximize self-sufficiency in oil production, even industry studies as recent as December 1973 show that crude oil prices in the $4.25 a barrel range are more than sufficient. Those prices would provide a 20 percent rate of return, according to the National Petroleum Council.
Any price level above that mark for "old" oil can only be interpreted as a price that directs windfall profits to the oil companies.
Massachusetts citizens are outraged at the present allocation system, at the lines it has produced, and at the price they have to pay at the end of those lines.
Finally, putting the current fuel emergency in the context of the overall national economic crisis now facing the country, I believe that both Congress and the administration owe the people a wiser and more positive program to bring America's economy back to health.
Specifically, because the danger signals are now so obvious that we are entering another nationwide recession-America's sixth recession since the end of World War II—it is clear that Congress and the President should be taking immediate steps to spur the economy forward and to alleviate the impact of rising unemployment.
To me, the most effective medicine at this time for our sick economy is a combination of beefed-up unemployment benefits and a substantial across-the-board tax cut, achieved by reducing the bite of withholding taxes and by raising the personal income tax exemption from its present level $750. By these steps, which ought to be taken nownot next month or next summer—we can help those who have lost their jobs because of the present crisis, and we can also put new money into the hands of millions of consumers already hard-hit by the heavy burden of rising prices, especially in food and fuel.
Why do we have to wait until the recession really takes hold before we act? Why do we always wait until the economy starts to bleed to death before we give it the transfusion that is needed ?
These steps do not necessarily mean unbalancing the Federal budget or increasing overall Government spending, since we can pay for these programs by the sort of comprehensive tax reform that Americans from Massachusetts to California are demanding—an end to the proliferating profusion of tax loopholes, especially the gaping loopħoles now available to the oil industry, and the many other special preferences that dot virtually every page of the Internal Revenue Code and that are costing the Federal Treasury billions of dollars in unjust benefits every year.
In sum, we already have the tools we need to meet the economic crisis, if only we use them wisely. I would hope that this hearing will provide an opportunity for Massachusetts citizens and officials to place their views and concerns on the public record. At the same time, I hope it will provide an opportunity for the Federal Energy Office to consider those concerns and to respond effectively to them.
Our first witnesses are residents of Massachusetts who can perhaps best describe from their own personal experiences, the concerns that are being felt throughout the State.
Henry Lasch is a Vietnam veteran and also a university student. Raymond Walton of Merrimac, Mass., works at the Western Electric Co.
Mr. Walton, you may begin. Please give us your name, address and occupation for the record.
PANEL OF CONSUMERS: RAYMOND WALTON AND HENRY LASCH
STATEMENT OF RAYMOND WALTON, CONSUMER
Mr. WALTON. My name is Raymond R. Walton and I live at 3 West Main street in Merrimac, a small town about 50 miles north of here. I work for Western Electric as an information systems engineer.
I think that from conversations that I have had with fellow employees, and other people, my experiences are more or less typical. I could spend hours and hours relating different things that have happened to us since the advent of the gas shortage, and particularly, during the last month.
I think, up to about 2 weeks ago, we handled the thing in a more casual fashion. My wife doesn't work, we have two cars, and I was able to send her out on gasoline hunts during the day so
Senator KENNEDY. What do you mean by that?