EMERGENCY OIL LIFT PROGRAM AND RELATED OIL PROBLEMS WEDNESDAY, FEBRUARY 13, 1957 UNITED STATES SENATE, SUBCOMMITTEE ON ANTITRUST AND MONOPOLY, OF THE COMMITTEE ON THE JUDICIARY AND SUBCOMMITTEE ON PUBLIC LANDS, OF THE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, Washington, D. C. The subcommittees met, pursuant to recess, at 10:20 a. m., in the Caucus Room, Senate Office Building, Senator Joseph C. O'Mahoney presiding. Present: Senators Kefauver (chairman of the Subcommittee on Antitrust and Monopoly), O'Mahoney (presiding), and Dirksen, of the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary. Senator O'Mahoney (chairman of the Subcommittee on Public Lands), Barrett and Carroll, of the Subcommittee on Public Lands of the Committee on Interior and Insular Affairs. Committee and subcommittee staff members present: Donald P. McHugh, cocounsel, Antitrust; James De Maras, Jr., research consultant, Public Lands; Gareth Neville, assistant counsel, Antitrust; W. B. Watson Snyder, consultant, Antitrust; Peter Chumbris, counsel for minority, Antitrust; Carlile Bolton-Smith, counsel to Senator Wiley; Louis Rosenman, attorney, Antirust; Paul Banner, economist, Antitrust. Robert Murphy, professional staff member, Senate Interstate and Foreign Commerce Committee; and Stewart French, chief counsel, Committee on Interior and Insular Affairs. Senator O'MAHONEY. The committee will please come to order. Senator Wiley is detained at the meeting of the Joint Committee on Foreign Relations and Armed Services, considering the Middle East resolution. Senator Dirksen is undoubtedly on his way and will be here presently. Senator Langer is improving but still not in condition to be present. So we will proceed. I understand, Mr. Cozzens, that somebody on your staff will first read a statement into the record. Is that the program? Mr. COZZENS. The American Public Power Association wishes to read an introductory statement. Mr. McHUGH. The first witness was intended to be Mr. Alex Radin, general manager of the American Public Power Association. It was intended that he was to present his testimony yesterday. He was not able to stay over and in his place Mr. James L. Grahl, assistant general manager of the association, will present the statement on behalf of Mr. Radin. And then Mr. Cozzens will present his statement. Senator O'MAHONEY. You may proceed. STATEMENT OF ALEX RADIN, GENERAL MANAGER, AMERICAN PUBLIC POWER ASSOCIATION, PRESENTED BY JAMES L. GRAHL, ASSISTANT GENERAL MANAGER, AMERICAN PUBLIC POWER ASSOCIATION Mr. GRAHL. I am James L. Grahl and I will read the statement which Mr. Radin, our general manager, had intended to make. Mr. Radin asked me to convey to you his regret for not being able to be here but he has to go to Springfield, Mo., this morning, to attend some meetings that have been scheduled for several months. [Reading:] The American Public Power Association, a national trade association, represents more than 800 municipal and other local publicly owned electric utilities in the United States, Alaska, and Puerto Rico. With me are three representatives of member utilities and affiliated organiza. tions of the American Public Power Association. They are Mr. Bradley Cozzens, assistant chief electrical engineer of the Los Angeles, Calif., Department of Water and Power, the Nation's largest municipal electric utility; Mr. Leo H. Miller, superintendent of the Lenox Municipal Light Department of Lenox, Iowa, and also representing the Iowa Association of Municipal Utilities; and Mr. Thomas A. Walsh, manager of the Light and Power Department at Hudson, Mass. I shall make a brief statement of the association's position, and then these gentlemen will present specific examples of the adverse effects on local publicly owned electric utilities of recent increases in the price of fuel oil. In addition, this committee last week, on Thursday, February 7, heard testimony from J. Dillon Kennedy, commissioner of utilities for the city of Jacksonville, Fla. Mr. Kennedy, who is a director of the American Public Power Association, described the serious implications to his utility, one of the country's larger municipal electric systems, of increases in the price of residual fuel oil. Our association for some time has been concerned about the price and availability of fuel oil. The reason for our concern is that, according to Federal Power Commission statistics for the year 1954, the latest year for which such information is available, fuel expense constituted 68.5 percent of the total production expenses of the class A and B local publicly owned electric utilities (those with gross annual electric revenues in excess of $250,000 per annum). It is of interest to note that for class A and B privately owned utilities, fuel expense represented 72.7 percent of total production expenses. Because of the need of many member utilities of the American Public Power Association for adequate supplies of fuel oil at reasonable cost, our organization for several years has opposed repeated efforts to place limitations upon imports of residual fuel oil into this country. Most recently the association's president, William S. Peterson, general manager and chief engineer of the Los Angeles Department of Water and Power, and Mr. Walsh, who will testify before this committee, appeared at hearings held by the Office of Defense Mobilization to protest proposals for cutting back on our imports of fuel oil. I might interpolate there that we do not agree with the testimony, that is, the import of the testimony yesterday that there are adequate supplies of domestic fuel oil. Senator O'MAHONEY. May I ask you this question: whether as a representative of a trade association which speaks for 800 municipal and other publicly owned electric utilities in this country, Alaska, and Puerto Rico, you would prefer to have the oil brought in by major oil companies who are associated in their operations with foreign gov ernments abroad who do not represent the interests of small business, nor for that matter of any publicly owned power enterprise, rather than protect the production by unintegrated producers in the United States? Mr. GRAHL. Obviously, we do not look at it in quite that light, Senator O'Mahoney. Senator O'MAHONEY. You would just rather have the oil wherever it comes from-that is the point. If it is cheap foreign oil, you would like that, even though the independent domestic producer might suffer at the hands of the major worldwide operators? Mr. GRAHL. No, sir. I do not think that we would say that or subscribe to that, but the experience of some of our members has simply been that they cannot get the oil and, particularly, on the west coast during the past year, the system of the city of Los Angeles, a very large city, at one time about a year ago was down to 1 day's reserve of fuel oil in its tanks. It is this kind of problem that causes our association to oppose restrictions in imports. It is simply that there has been more than one occasion when the oil didn't seem to be available. I can assure you that it does not relate to any desire to favor the integrated companies over the independent companies. Senator O'MAHONEY. It is just an instance of the desire for a commodity rising over the ideology of the consumer. Senator DIRKSEN. The other way of stating it, of course, is that you are charged with running a utility serving a lot of consumers. Mr. GRAHL. Yes, sir. Senator DIRKSEN. And you want to keep your cost down as far as possible in the interests of lower consumption rates for energy; isn't that it? Mr. GRAHL. Yes, sir. Senator DIRKSEN. That is the economic equation that confronts you. Mr. GRAHL. I would like to ask Mr. Cozzens to comment, if this would be agreeable. I am sure Mr. Cozzens knows more about this problem than I do. Senator DIRKSEN. Of course, to show what the personal conflict can be, the coal producers and the petroleum producers in my State would uniformly be opposed to larger imports of residual oils. Mr. GRAHL. Yes. Senator DIRKSEN. On the ground that it affects their mining. Mr. GRAHL. Yes, sir. Senator DIRKSEN. But you are over on the other side of the coin so far as your interests are concerned? Mr. GRAHL. Yes; that has been true. Senator KEFAUVER. While he is interrupted, may I ask Mr. Grahl two questions? This imported oil, so far as the price is concerned, does it make any difference to your customers, that is, do you get the benefit of this lowcost oil from the Middle East or from Venezuela, or is it all priced on the same basis? Mr. GRAHL. Senator, may I ask Mr. Cozzens to comment on that? He is much more familiar with that. Senator KEFAUVER. I did not want to get into it in any extent. Senator O'MAHONEY. Suppose, Senator Kefauver, that we permit the present witness to continue reading Mr. Radin's paper, and then when Mr. Cozzens comes on the stand, you may address the question to him. Senator KEFAUVER. While you are talking about the percentage of fuel cost-68.5 percent as to publicly owned electric utilities, 72.7 as to privately owned utilities-can you give us a rough breakdown of the percentage of coal as against oil that may be used? Mr. GRAHL. The overall percentage for oil according to a report of October 1956 by the Federal Power Commission is very small. According to this report the energy produced by oil-electric energy, that is in the year 1955 amounted to 6.8 percent, but the important point is that in certain States the percentage was very high. And, therefore, the matter of oil supply is very important. In the State of Florida, 89.2 percent of all of the electric energy in the State was produced using oil as fuel. In the New England States the average was 30.5 percent of all industry. Senator KEFAUVER. I suppose in California it would be what? Mr. GRAHL. 27.4 percent in the State of California. It is important in selected States. In other States it is of relatively little importance, Senator KEFAUVER. Thank you very much. Senator CARROLL. I wonder if I might put a question with reference to the two positions taken here. I understood there was a third position, that is, the question of supply as you stated in California. You are concerned with the question of supply of oil Mr. GRAHL. Yes, sir. Senator CARROLL. In California. Outside of California there are other examples of the deficiency of supply; are there? Mr. GRAHL. I think this has occurred in all of the West Coast States, Senator Carroll. I do not have examples in addition to the west coast, however. Senator CARROLL. That is all at this time. Senator O'MAHONEY. Proceed. Mr. GRAHL [reading]: Following the announcements beginning January 3 of increases in the price of crude oil, the American Public Power Association began receiving reports of increases in the price of fuel oil to member electric utilities which burn oil to generate electricity. These reports came from municipal utilities in such States as Michigan, Ohio, New York, Illinois, Florida, Iowa, Massachusetts, Missouri, and California. J. Bryan Sims, superintendent of the Board of Public Works of Grand Haven, Mich., and a director of the American Public Power Association, estimates that increases since the first of the year in the prices of fuel oil will cost the Grand Haven municipal electric utility $47,000 during 1957. This represents an increase of more than 10 percent in fuel costs. C. P. Ketler, chief engineer of the Department of Public Works of Rockville Centre on Long Island, N. Y., and a former director of the association, states that a fuel-oil increase last month will cost his utility $20,000 during the year. This represents about a 7-percent increase, I would interpolate. Similar reports have been received from other municipal electric systems in several States. Commissioner Kennedy has testified that fuel-oil-price increases will cost the Jacksonville, Fla., municipal electric system more than $1 million this year. |