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Increases in the price of fuel oil were discussed by the American Public Power Association's executive committee at a meeting on January 19, and the committee unanimously adopted a resolution on these increases.

Since the resolution is not long and because it clearly states the association's position in this matter, I would like to insert it in the record at this point. The resolution is as follows:

"Whereas many of the member electric utilities of the American Public Power Association use large quantities of fuel oil to generate electric power in steam and/or internal combustion generating facilities; and

"Whereas this association on numerous previous occasions has expressed its continuing concern about the price and availability of fuel oil; and

"Whereas the association has received reports from member utilities in many parts of the country about recent substantial price increases in the cost of fuel oil; and

"Whereas these price increases are not compatible with President Eisenhower's expressed desire that price increases which would be inflationary should be avoided; and

"Whereas press reports have indicated that these price rises may be a result of collusion among oil producers; and

"Whereas it has also been reported in some quarters that the price rises are unnecessary and unreasonable and represent profiteering resulting from the Suez crisis: and

"Whereas these price increases will have a detrimental effect on the financial standing of many electric utilities, and may necessitate electric rate increases which would place undue burdens on household, commercial, rural, and industrial users; and

"Whereas the oil-price increases and the consequent increases in electric rates would seriously retard economic growth and have a particularly detrimental effect on some areas which are dependent upon fuel oil for their industrial development: Now, therefore, be it

"Resolved, that the executive committee of the American Public Power Association, in a meeting at Pittsburgh, Pa., on January 19, 1957, urges an immediate investigation by appropriate Federal Government agencies and committees of Congress of (a) the necessity and reasonableness of these recent price increase; (0) whether or not such increases represent collusion among the oil producers; and (c) whether price controls should be instituted, after a rollback in prices, if it is established that the aforesaid price increases are unwarranted and unreasonable: And be it further

"Resolved, That copies of this resolution should be sent to President Eisenhower, appropriate Federal agencies and committees of the Congress, and to the press."

As the resolution indicates, our concern with the price of fuel oil is that of consumers. Many local publicly owned electric systems, particularly municipal utilities, burn fuel oil to generate electricity.

In certain areas, where coal is not feasible for boiler fuel, fuel oil is used in steam-generating stations. In a number of areas, where natural gas is not available, fuel oil is the only possible fuel for the diesel engines used by many smaller municipal electric systems for generating their electricity.

It has been reported in the press that the municipal electric system at Tallahassee, Fla., has increased its electric rates by 3 percent as a result of higher fuel oil costs.

A privately owned electric utility, Florida Power & Light Co., has announced that it plans to raise its electric rates 542 percent to meet the increased cost of fuel oil.

Other utilities, in Florida and elsewhere in the Nation, will have to raise their electric rates if the price of fuel oil continues to climb.

Let me remind the committee that increases in electric rates are not merely a matter of higher electric bills for individual consumers. Modern techniques of production, manufacturing, and even merchandising require increasing amounts of electricity.

The cost of electricity is becoming a proportionately larger item in the cost of the goods and services we buy. If fuel-oil-price increases force higher rates for electricity, the consumer not only will pay higher electric bills but he also will pay for the higher cost of electricity in the increased prices he pays for goods and services. In short, a new inflationary spiral will be touched off.

President Eisenhower, in his messages to the Congress, has warned repeatedly of the potential peril to our prosperity in continued inflation. Last Wednesday, February 6, the President at his press conference was asked about the recent in creases in oil prices.

He said that price controls would have to be instituted if business and labor did not “discharge their responsibilities, and exercise their authority in conformity with the needs of the United States * * *"

The recent increases in the price of fuel oil are inflationary, not only because they raise the costs to consumers of fuel oil but also because, in many areas, they threaten to force electric rates higher.

We do not pretend to be experts in the oil industry. However, from various press reports we have seen, we can only conclude that the oil companies, in raising the price of fuel oil after the Suez crisis, did not, in the President's phrases, "discharge their responsibilities, and exercise their authority in conformity with the needs of the United States * *

Senator DIRKSEN. May I intrude there just a minute in the interest of accuracy?

I have understood that the President said that if labor and business did not do something, he said some controls of some kind would have to be instituted, but he did not say "price controls" and "wage controls." I do not know what controls he had in mind. But I do notice that yesterday morning the economic adviser to the President did clarify that somewhat.

Mr. GRAHL. I did not see that.

Senator Dirksen. He did not have price controls in mind. I think I am correct. But I am correct about the language that the President actually used in the press conference because it cropped up and I went back to verify, to see whether he had said that we would have to impose wage and price controls. He simply said "controls of some kind."

Mr. GRAHL. I am sorry that the statement is not accurate. I am sure it was inadvertent.

Senator DIRKSEN. I am sure, too.

Senator OʻMAHONEY. The allusion, however, was to the controls by the Government.

Senator DIRKSEN. That is right.
Senator O’MAHONEY. Proceed.
Mr. Grail (reading):

For example, we note that an article in the New York Times of January 11, 1957, stated as follows:

“Despite record production, this country has an excess, unused capacity of about 2 million barrels of oil a day. Inventories of crude oil and products are abnormally high.

"Hence, some contend that the rise in prices from the well to the 'gas' pump is not justified, particularly since earnings in the industry are at a record level.

“At first, crude oil inventories were drawn upon to meet most of the increased demand. But despite heavy withdrawals, these were not reduced to the level of a year earlier until the close of 1956, when they were about 260 million barrels, a level still believed by some in the industry to be too high. * * *

“The price rise may bring out more oil. At least, that is its alleged purpose. However, it takes months to build new pipelines, and that is where the bottleneck is said to be. Unless some oil was being held off the market intentionally, some believe, the present rise will not result in much greater supply--if a greater supply is needed."

Senator O’MAHONEY. It ought, perhaps, to be remarked at that point, that applications have been filed with the Office of Defense Mobilization for the building of pipelines. These applications, the recent ones of which I speak, have not been acted upon as yet.

Mr. GRAHL. I see. Senator O'MAHONEY. You may proceed. Mr. GRAHL (reading): A day after this article was published, the New York Times reported, as is well known by your subcommittee, that the Texas Railroad Commission has increased the flow of crude oil from Texas fields for February by 92,970 barrels a day to 3,543,672 barrels, a record high for Texas.

A producing pattern of 15 days was set for the short month compared with 17 days for January, the Times states. The newspaper article then added, significantly: “The increase was the smallest the commission could grant for February."

These newspaper articles and other reports have led us to believe that your joint subcommittee hearings should thoroughly explore the need for price controls on fuel oil.

We have no particular brief for price controls, per se, but this appears to be a situation of such vast importance to the economy that action by the Government is urgently required in order to protect the public interest.

If it is found necessary to establish price controls on fuel oil, they should, in our opinion, provide for a rolling back of fuel-oil prices to pre-Suez levels.

I would like to comment very briefly on a chart which was included in the testimony yesterday of Mr. W. M. Vaughey of the Independent Petroleum Association of America, showing that there was a close concurrence between the increase in the number of total oil wells drilled and the total value of petroleum production.

But the trouble with this graph is that different scales are used on different sides of the graph. And as a matter of fact, this close concurrence did not occur.

The value of the petroleum production increased about 200 percent in this 10-year period. And the number of wells drilled only increased 90 percent.

It seemed to me that this was a somewhat misleading representation.
Senator ('MAHONEY. Have you identified the chart?
Mr. Grahl. It is the chart following page 5.
Senator O’MAHONEY. Identify it, please, by the title.

Mr. GRAHL. The title of the chart is "Total Value of Petroleum Production Versus Total Wells Drilled 1946 to 1956.”

Senator OʻMAHONEY. This is in the testimony of Mr. Vaughey? Mr. GRAHL. Mr. W.M. Vaughey.

Senator O’MAHONEY. Yes. That will make it clear to anybody who reads the record to what chart you were referring.

Mr. GRAHL. Yes, sir. It was with a deep sense of gratification that we learned of the hearings of your subcommittees and we look forward with a great deal of anticipation to your report on the causes of these increases and the remedial action that should be taken promptly in the public interest.

Senator O'MAHONEY. Thank you very much.
Are there any further questions?

Senator DIRKSEN. I have only one question, but probably you can't answer it.

I was going to ask Mr. Radin what increases there have been in rates at Los Angeles over the period of, oh, let us say, 10 years.

Would you be familiar with that? Mr. GRAHL. Mr. Cozzens, the next witness, is the assistant chief electrical engineer and would be thoroughly familiar with that.

Senator DIRKSEN. Very well. Thank you.

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Senator O'MAHONEY. There being no further questions, we are very grateful to you, sir, for having presented Mr. Radin's paper, and for having so willingly answered the questions that have been addressed to you.

Mr. GRAHL. Thank you.

Senator O'MAHONEY. Before calling Mr. Cozzens, I want to read into the record a telegram which I received this morning from Mr. Hines H. Baker, president, Humble Oil & Refining Co. This is dated February 12.

Will be in Washington Friday, February 15, to deliver records in response to your committee's subpena. That would be a convenient time for me to give testimony before your committee and shall appreciate it if you will permit me to make my appearance while I am in Washington that day. Will you please advise by telegram whether or not this can be arranged? Signed, "Hines H. Baker, President, Humble Oil & Refining Co."

The first inquiry about the testimony of Mr. Baker, whom we had subpenaed for the presentation of certain records, came the night be. fore last. I had a letter from Mr. Walter Hallanan, the president of the National Petroleum Council. Senator Neeley, of West Virginia, also had an inquiry from Mr. Hallanan. Both of these suggested the desirability of hearing the testimony of Mr. Baker.

The committee itself wanted Mr. Baker to testify, but we had previously set up a schedule. This schedule included people like the forthcoming witness, Mr. Cozzens, who comes from Los Angeles. We had, also, arranged for the Secretary of Interior, to appear tomorrow.

We advised Mr. Baker and Mr. Hallanan and all who made these inquiries, immediately upon receipt of their inquiries, that it might be impossible for us to disrupt our program to hear him on Friday but that we would hear him, we wanted to hear him, but it probably would be likely that he could not appear to testify until next week,

I have no means of knowing how long the testimony of Secretary Seaton will take. I am sure that members of the committee will desire to afford the Secretary full opportunity to make a statement with respect to this voluntary program of which he is the Administrator.

And I am sure that many members of the committee will want to ask questions of Secretary Seaton who has given us, as I have said before, every evidence of a complete desire to cooperate with the committee.

I have personally advised Mr. Baker's representatives, who have been in Washington, what the situation is, but I feel that it ought to be made a matter of record so that there will be no suggestion of any kind that we are preventing Mr. Baker from explaining why the Humble Oil Co. raised oil prices.

The documents for which we entered the subpena will be received when they are presented, which will be on Friday. And, of course, documents of that kind have to be subjected to some study by members of the staff and by such committee members who have the time to look at them in advance.

Mr. Cozzens, we are ready to proceed with you.

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STATEMENT OF BRADLEY COZZENS, ASSISTANT CHIEF ELECTRICAL

ENGINEER OF THE DEPARTMENT OF WATER AND POWER, CITY OF LOS ANGELES

Mr. Cozzens. My name is Bradley Cozzens. I am appearing before you today on behalf of the Department of Water and Power of the City of Los Angeles in which organization I hold the position of assistant chief electrical engineer.

This department is a publicly owned municipal utility serving water and electric energy within the city of Los Angeles and to a limited area in the Owens Valley, which is a part of the watershed area supplying the Los Angeles aqueduct.

The power system of this department has the responsibility of serving the electrical requirements of the city's population of over 214 million persons and in addition, of meeting the rapidly growing demands for an ever-increasing industrial, commercial, and residential growth of this area.

I am appearing before you today in response to the verbal request to Mr. Alex Radin, general manager of the American Public Power Association, that members of that association be invited to present testimony regarding conditions pertaining to, and the effects of, the recent fuel oil price increases.

I would like to present to your honorable members a recital of conditions which have developed in connection with fuel supply in California and particularly with relation to the availability and price of fuel oil to this department of water and power.

Description of system and requirements: The department of water and power, as mentioned, serves the entire area within the city limits of Los Angeles with the exception of street railways which during the past year had a demand of approximately 20,000 kilowatts and utilized 52.874,000 kilowatt-hours.

The population of this area as released by the county regional planning commission was 2,298,000 as of January 1 of this year.

The demand for energy from the department's system to supply its own customer needs currently is 1,280,000 kilowatts and during the year 1956 required 6,256 million kilowatt-hours.

The sources of this energy include powerplants along the original aqueduct from the Owens Valley to the city of Los Angeles, recently constructed hydroelectric powerplants in the Owens Gorge, and our contractual obligations with the Federal Government for energy from the Hoover powerplant.

These hydro sources constitute 678,000 kilowatts of our total system capacity of 1,643,000 kilowatts. The remaining capacity is in 3 steamelectric generating plants, having a total capacity of 965,000 kilowatts.

These 965,000 kilowatts are in oil or gas fuel-fired steam generating facilities.

The department currently is installing at its Scattergood steam plant the initial two fuel-fired steam-electric generating units with a combined capacity of 312,000 kilowatts.

This plant is designed to accommodate additional units to provide a total capacity of over 1,200,000 kilowatts. An additional plant site is available and designs started for the development of over 1,300,000 kilowatts.

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