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No alternatives to this procedure have been suggested so far.
Feels the pricing problem "is completely out of our province."

Have used every safeguard to protect the United States from cartelization of oil companies.

After emergency would like to terminate the program as soon as possible. They have the power to terminate.

Force of economic events might flood United States markets with Middle East oil after the emergency.

They have no authority to control prices nor is it in their "province" to ask for voluntary agreements to keep prices down.

Could not comment as to whether price increase was justified in the public interest.

Have appealed to independents to increase production--not officially or individually.

Mr. Wormser has no evidence that big companies do not want independents to increase production, thus getting larger share of market. Does not know whether big companies or MEEC fix oil prices for world market. Knows nothing about their market policies.

They are leaving prices "severely alone" unless directed by Congress to do otherwise.

Does not contemplate asking Congress to do anything about price rises.

Asking companies to hold down prices would be "an interference with the free market." There is interference now, but they are still trying to preserve competition and prevent antitrust violations.

Even though the President has asked that prices be held down, they have done nothing to implement this request.

Doesn't know how much additional profits will be made as a result of the voluntary agreement.

Neither Mr. Wormser nor Mr. Stewart knew how much this price increase would cost consumers.

It will greatly increase the defense costs of Government, but they cannot interfere.

Secretary of the Interior would have to make a decision as to whether the President should be asked to appeal for voluntary controls.

Bureau of Mines figures are not used to allocate nor determine the States production-only to forecast "probable demands."

Allowables have sometimes been more, sometimes less, than these figures. Does not know if these figures are compiled for other industries. They have in the past brought in industry officials and made them Government officials to handle certain programs "but it involved quite a large bureaucracy."

If prices can't be held down voluntarily there is a "possibility" of invoking controls.

There is the power under title I of the Defense Production Act to set up a Government organization to handle a situation such as this.

No Federal office has anything to do with oil production. That is up to the States.

Mr. Stewart started an explanation of charts and maps showing oil flow and requirements.

Variations in shipping figures are caused by variations in tanker The overall total increase has not been very great, movements.

however.

The oil flow to Europe has, withall, been largely successful, although further efforts are needed.

It was recognized early in the crisis that taking certain steps would "essentially offset the closing of the Suez Canal," but would not offset pipeling stoppage.

Further efforts are needed to increase the supply of heavy fuels in Europe.

Part of NATO's requirements come from the United States, part from European refineries, many of which are owned and operated by MEEC members.

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1222223

Statement of Edwin G. Moline, Officer in Charge, Economic Organization
Section, Office of European Regional Affairs, Department of State
Introductory statement. Was petroleum attaché in London for 4 years
previous to May 1956.

Gasoline tax in Britain is now 49 cents per imperial gallon, but there is no import tax. Other European countries also have very high gasoline taxes.

Mr. Stewart resumed testimony; said the figure of 500,000 barrels of oil to be shipped to Europe "was not set up as a goal in the sense that we set up goals in our Government operation. It was an objective; it was a target at which we are shooting." Does not know what the daily average of shipments for month of January were, but "overall average has been about 475,000 barrels per day of all products, crude and all products."

There have been high shipments of gasoline to Europe. While some progress has been made, they have not yet reached their "full objective. The Interior Department has an office in New York City "which is in the same suite as the offices of the Middle East Emergency Committee." The expense of these offices are borne by the MEEC through voluntary contributions.

The man in charge of the Interior offices in New York is Ralph Fowler, director of the voluntary agreement. He sits in on all of the MEEC meetings and as many of the meetings of the subcommittees as he can. He has no vote, nor does anyone in the Department of the Interior.

MEEC transactions are not approved in advance by Interior, but "they are approved immediately thereafter, however, after the records are received as to the transaction."

"The postaudit is an opportunity for the plan of action review committee to scrutinize each action proposed or taken, and to do that at an early time, so that, if it is determined by the review that the action is not in conformity with the schedules," it can be stopped or assure its not being repeated.

Give background of himself and Mr. Fowler.

Before the Middle East emergency, we shipped about 50,000 barrels of petroleum products to Europe daily. Of the average of 475,000 barrels shipped daily now, about 235,000 barrels are crude oil.

The question of shipment of large quantities of gasoline instead of crude oil has been discussed in MEEC meetings. The companies say they have to take gasoline to get other oils. Even integrated companies must buy crude from other sources.

Mr. Stewart said it was his understanding the companies have been shipping gasoline they had purchased, not that produced in their own refineries. It does, however, take tanker space, which is a big problem. Doubts if the companies make more money on gasoline sold in Europe because it is a lower grade than that sold here and is more expensive to make. Feels the Department should not regulate tanker space, but they have tried to get companies to increase oil shipments voluntarily. "Since the Suez crisis the Office of European Economic Cooperation has undertaken to handle the European supply-demand problem," and it supplies the information on European needs.

Mr. Moline said: "As I understand the way the calculations are made, the estimates are produced in Europe by the OEEC's Petroleum Industry Emergency Group, which, in general, functions very similarly to the MEEC on this side of the Atlantic, and OPEG, as it is called, tells the OEEC, which is a 17-government committee, that there appears to be in prospect for the next 40 days-which is the period they work inso much oil in these various categories." The United States and Canada have associate memberships on ŎEEC.

OEEC was set up as a result of the Marshall plan, and is staffed by civil servants. OPEG, on the other hand, is "made up entirely of company-designated, company-employed individuals. Its members are men from British Petroleum Co., formerly known as Anglo-Iranian; from Royal Dutch Shell; and from Compagnie Français des Petroles." These companies also have observers on MEEC.

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OPEG does not determine European needs, but estimates availabilities. OPEG, composed of oil companies with interests in the Middle East, tells OEEC what oil is available from all sources including the United States, and MEEC tells OPEG what the availability is here.

Mr. Stewart said 7 of the 15 MEEC companies have observers on OPEG-OPEG has 3 observers here. Department of the Interior observers at MEEC meetings are representatives of the industry as a whole, not of a single company.

Europe's greatest need is for fuel oils.

There have been various estimates as to Europe's needs, Mr. Stewart said, but "in arriving at the 500,000-barrel figure as our objective from the United States" the supplies from other areas were taken into consideration. "Domestic production in this country has been increased approximately 300,000 barrels a day since the first of November, so that 300,000 barrels has been contributed to our domestic requirements."

Does not know how much costs have been increased because of longer hauls and tanker shortages, but knows tanker rates have "skyrocketed." There is a very large increase in dollar cost to Europe, Mr. Moline said, and "it falls disproportionately heavy on the United Kingdom." There is no current nor contemplated economic-aid program to help out the Western European countries.

Most of the increased tanker cost has been nondollar freight cost. The tanker rates almost doubled because, according to Mr. Stewart, the owners "took advantage of the war clauses of their charters. When a shooting war started at Suez, they canceled those charters, and then demanded from the shippers higher charter rates, and got it in most cases." MEEC has no control over that.

Mr. Wormser said there was no discussion of prices at MEEC meetings. However, the minutes of the meeting of September 19, 1956, indicated such discussion had taken place.

Senator Kefauver asked why he had not made an attempt at that time to protect domestic consumers. Mr. Wormser replied that this was "months before the crisis." Also, he has taken the position that they have "nothing to do with prices."

Mr. Moline outlined procedures that might be used for determining Western Europe's oil needs and the availability and sources. Thinks the European program is working very well.

Mr. Stewart thinks the MEEC has worked quite well.

Except for the MEEC minutes previously referred to, Mr. Wormser said there had been no other discussion of prices.

The Government has not interceded with the Texas Railroad Commission to try to have allowables increased, because it is felt there should be no interference with State sovereignty. American companies have asked the commission for hither nominations, however.

Memberships of the Foreign Petroleum Supply Committee as of July 11, 1955, and February 1, 1956, and the MEEC membership as of February 1, 1957, inserted at this point in the record.

THURSDAY, FEBRUARY 7, 1957

Statement of Hon. Spessard L. Holland, United States Senator from the
State of Florida

Senator Holland and Senator Smathers appear jointly because of their joint interest in the rapidly rising prices of fuel oil and gasoline, but particularly fuel oil.

Submitted for the record various communications pertaining to the problem.

Senator Holland pointed out that one letter showed that the fuel-oil increases will add $1.6 million to the operating costs of a power company. The price increases affect municipally owned power and light plants, REA's, and privately owned public utilities.

Statement of the Honorable James A. Haley, Representative in the United States Congress from the Seventh Congressional District of the State of Florida, inserted in the record at this point.

Statement of the Honorable Dante B. Fascell and the Honorable Robert L. F. Sikes, Representatives in the United States Congress from the State of Florida inserted in the record at this point.

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Senator Holland presented the witnesses from Florida who are to appear before the committee.

Statement of Hon. George A. Smathers, United States Senator from the
State of Florida

The State has suffered from hurricanes, but he believes "this sudden price increase of petroleum and oil has been the most severe economic hurricane that out State has suffered."

Senator Holland believes Florida to be more seriously affected by the price increases than any other State.

Statement of McGregor Smith, chairman of the board of the Florida Power & Light Co., accompanied by Charles Coones

Statement of introduction.

Florida Power & Light Co., was formerly a subsidiary of the Electric Bond & Share system. In 1950 the stock was distributed to stockholders of American Power & Light, "a subowner of Electric Bond & Share." Is an independent company.

The company serves "about 600,000 customers, all of whom, or about 99 plus some percent have automatic fuel clauses in the rates so that any increase in fuel oil will be passed directly on to our customers." Any reduction in price will not be for the benefit of the corporation or the stockholders but for the customers.

They have seldom been able to purchase fuel oil "on what we thought was a real competitive basis, and our fuel bill is now larger than our payroll. We are never able to make a contract for any given length of time for the purchase of fuel oil at a specified price. It must always be based on future daily quotations either at the gulf-coast refineries, the terminals in Florida, or the New York Harbor, or a combination of those quotations."

Florida is so dependent on fuel oil "the whole economy and future development of the State is at stake." Thinks the increase is unnecessary. Explained why he estimated the price increase of 75 cents per barrel of fuel oil.

Compared this price rise to what it would have meant in other industries.

Is not appearing "to recommend Government regulation or ownership of the petroleum industry" nor "to criticize the Interior Department or the President for their efforts."

Although he does not want Government ownership or regulation, “if it takes temporary controls to meet a crisis," he thinks they should be imposed.

Hopes the oil companies can be persuaded to roll back their prices.
Series of charts inserted at this point in the record.

Started

Part I of the series of charts shows the growth of the Nation. Parts II and III show the growth of Florida and increased prices. his commentary on them.

Believes we should "continue to get imports from Venezuela if we consumer States can benefit by it." Imports, instead of depleting our reserves, would help to conserve them.

He is negotiating with coal owners for possible use of coal instead of fuel oil, but the coal owners would not be able to service south Florida because of the freight rates.

They would have to install equipment, however, at considerable cost before they could use this competitive fuel.

The major oil companies have never solicited their fuel-oil business. Feels it would have been useless for him to ask the majors for their rationalization for the price increase.

221 Cited the dates on which price rises occurred.

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Has not discussed the price rise with the distributors from whom he buys because they could do nothing about it. They raise prices when their costs go up.

Some of the charts he used were prepared by Ebasco Services, some by Mr. Coones at Mr. Smith's direction.

90507-57-pt. 1- -2

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Although he questioned his qualifications for making any recommendations, Mr. Smith believes "the executive branch of our Government could persuade the oil people to make at least some temporary adjustments until the public could be convinced that this [price rise] is necessary." If persuasion does not succeed, "the answer is some temporary emergency control."

Excerpts from a message to the Texas Legislature by Gov. Price Daniel and records from the Texas Railroad Commission inserted at this point in the record.

Statement of Alan S. Boyd, chairman of the Florida Railroad and Public
Utilities Commission

Statement of identification.

Both utilities and industries in Florida rely heavily on fuel oil. "Based upon an estimated use of 40 million barrels of oil annually for 1957, the utility customers and such industries must bear increases of approximately $30 million annually." This figure applies only to fuel oil-not gasoline and other petroleum products.

Opposes governmental ownership or regulation. "Historically, Government regulation has come into place in those areas of industry where a large segment of the public becomes dependent upon a product or service which (a) is without effective competition, and (b) does not acknowledge its own responsibility to the public which depends upon it." "Notwithstanding my personal philosophy, it may become necessary that the oil industry be subjected to some remedial or corrective legislation having for its purpose such measures as will specifically avoid a repetition of the oil industry's present price-increase actions which are costing and will cost the consumers and citizens of Florida so many millions of dollars annually. Such remedial or corrective legislation is a matter for your review and the wisdom of Congress, to whom we all must look for relief." Florida Legislature can do nothing, because it is an industry operating in interstate commerce.

Floridians have asked why price of natural gas is regulated by the Federal Power Commission, but not fuel oil.

Whereas the major oil companies finance capital expenditures from retained earnings and depreciation reserves, the regulated utilities must raise capital from outside sources. "If regulated utilities were permitted to raise all their capital requirements from internal sources, as does the oil industry generally, the rates to produce funds from internal sources would be much higher-about 50 percent-than their present level."

Feels no industry should profit unduly at the expense of the population of the Nation. The people of Florida want relief from fuel-oil prices, and appropriate action should be taken by either the Executive or Congress whichever is appropriate. In any event, "the executive and legislative branches of our Government should immediately hold a joint conference with the representatives of the oil industry and seek a rollback of oil prices to at least pre-Suez levels."

Table showing the operating and financial data of 11 major oil companies from December 31, 1949, to December 31, 1955, inserted at this point in the record.

Mr. Boyd expressed the belief that "there is such a dependence by the people of every State on the oil industry that it is vested with a sufficient public interest that valid regulation could undoubtedly to put into effect."

Explained to the committee the workings of the fuel-adjustment clause of the utility companies.

Thinks the industry should receive fair warning before any definite action is taken. Senator Kefauver cited dates of newspaper articles indicating that the industry has been receiving notice of one kind and another for some months. Mr. Boyd then expressed the opinion that the time has run out as far as Florida is concerned.

Mr. Boyd has noticed no price competition among the companies supplying oil products to Florida.

Discussed the cost of the price increases to Florida power consumers.

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