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The price increase on electricity to the Florida consumers, referred to previously, was an increase of $6 million to the customers of Florida Power & Light. The total increase in the cost of electric energy to consumers all over the State would be in the neighborhood of $12 million. There are other price increases on other products. Statement of J. Dillon Kennedy, commissioner, public utilities and radio,

Jacksonville, Fla. Statement of identification. The three generating stations of the municipally owned electric system use Bunker C residual fuel oil. Although two of these stations “are designed to burn powdered coal, natural gas, or residual oil, a substantial capital investment would have to be made to install coal-handling and coal-storage facilities. Natural gas is unavailable in the Jacksonville area at the present time.” Therefore, there is no competitive fuel to fuel oil.

Fuel oil prices have risen much higher percentagewise than the wholesale commodity index.

In his opinion, “recent advances in crude-oil prices cannot account for the extreme change in residual-oil prices.” Because of the municipal system's obligation to furnish electricity at reasonable rates, it has absorbed 22.4 percent of the increased cost of fuel oil since 1953. “The recent unwarranted increases in fuel-oil cost will impose an additional 22.8 percent direct production cost increase upon the city electric plants during the year of 1957.” This increase will amount to at least $1,082,132.

Because they can effect no more economies nor can they absorb additional costs, this price increase will have to be passed on to the consumer. "It is the position of the city of Jacksonville that the Congress of the United States should invoke such price regulations as may be necessary to protect the people of our country from the evil effects of profiteering. We also humbly ask that all oil-supply sources in the continental United States be required to increase production of residual fuel oil so as to prevent the destruction of the economy of sections of the country dependent upon residual oil for the generation of electricity.”

They can invoke the adjustment clause only on industrial users. There has been a statement that the Navy will be $66,000 short in the allocation for purchase of electricity by June 30 due to the increased cost in fuel.

The tanker costs have also increased considerably.
Statement of William C. Shelton, manager of the Business Research De-

partment of the Florida Development Commission

Statement of identification. Discussed the increase in the State in the consumption of all petroleum products.

They have done a considerable amount of research for justification of this cost increase, but are not satisfied with the things we have found so far."

There is a high degree of concentration of ownership of oil companies, but not as great as some other industries. “But the same thing is not true as regards concentration of control. One State, Texas, produces more than 40 percent of the domestic output, and 4 more States produce another 40 percent. The Texas Railroad Commission has effective control over a large enough share of crude output to balance supply and demand, at least over short periods, and it does not hesitate to use this power

* * *." Imports formerly "offered some relief from this control," but now "consuming States can no longer count on this recourse.”

In his belief, "if State regulatory bodies are going to use the authority granted to them by the Federal Government to support the oil industry in a major price increase for which there is no apparent justification, then it is time to reconsider the question of whether they should have this authority at all, or whether this authority should not be restricted."

"The oil industry by itself is probably not a strong enough monopoly to establish and maintain artificially high prices for crude oil and petroleum products. But, now that it is supported by State and Federal agencies, it has taken advantage of a temporary situation * * * to raise oil prices across the board in an amount for which we have not been able to find adequate justification.”

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They at the State level can do nothing about the problem and feel "that the Federal Government offers the only recourse. Senator O'Mahoney pointed out that the major integrated companies

operate not only within the United States but throughout the world, which creates a different problem. Mr. Shelton said the thing they find "disquieting is the fact that production is cut back and prices are going up at the same time. Now, it is not the same people doing it, but you know from the testimony of the gentlemen from the Department of the Interior that most of the people in these regulatory agencies are people who have been in the oil industry. They, of course, attempt to take the public point of view when they accept public jobs, but they don't always succeed." Statement of David Payne, city manager, accompanied by Dan McIntosh,

assistant superintendent of the Water & Light Co., city of Lakeland,

Fla. Statement of identification. Since July 1, 1956, there has been a total price increase of 60 cents per barrel of fuel oil, which necessitates the city's increasing power rates to the consumers.

They urge Congress to help in any way possible “to bring about a fair price for fuel oil."

Letter to Representative Matthews from John R. Kelly, director of public utilities of Gainesville, Fla., and a statement of Hon. William C. Cramer, Representative in the United States Congress from the First Congressional District of the State of Florida inserted in the record at this point.

Telegram from Mr. Abe Aronovitz, immediate past mayor of the city of Miami inserted in the record at this point.

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TUESDAY, FEBRUARY 12, 1957
Statement of Rear Adm. 0. P. Lattu, Executive Director, Military Petroleum

Supply Agency, Supply Corps., Department of the Navy; accompanied
by Comdr. H. H. Blackman, Mr. J. Collins, and Mr. R. Schattman,

Department of the Navy
Statement of introduction.

Admiral Lattu was "requested to appear before this subcommittee to give information regarding the effect of recent price increases on the future expenditures of the military services for petroleum products.”

If the volume of petroleum products procured in fiscal 1956 were procured at present price levels, it "would result in additional costs to the military services of approximately $85 million during the next 12 months."

Examination of commercially posted prices" of aviation gasoline indicates an increase of 4.46 percent. Their experience, however, “indicates that these postings are not realistic and that aviation gasoline will cost the military services approximately 6 percent more than in fiscal year 1956.

"Jet fuels represent another one-third of our expenditures. The commercially posted prices for jet fuel have increased approximately 13.1 percent. We have estimated that the cost to the military services will increase approximately 7.8 percent * **.".

Commercial postings for motor gasoline indicate price increase of about 5 percent; indicated price increase to the military is about 2 percent. Commercial postings on diesel fuel show increase of about 14.3 percent; estimated increase to the military is 11.5 percent.

“Commercial postings for heavy fuel oils comparable to those purchased by us have increased approximately 23 percent. Vavy special fuel oil, the basic fuel for naval vessels and characterized as a heavy fuel oil, has increased approximately 22 percent while other heavy fuel oils used by the military services have increased approximately 19 percent."

Page 287 Commercial prices for lubricating oils and packaged products have

risen about 8 percent while military prices have gone up only 2 percent.

His agency has exerted every effort to try to obtain cooperation in holding down prices to the military, and feels they have been, “to a certain extent, successful."

There has been unification among the services in procurement of

petroleum products. 288 In instances where petroleum products are purchased by negotiation,

they can get lower prices by arguing with the companies.

If attempts were made to decrease oil prices to domestic and foreign consumers, Admiral Lattu would hope it could be done through voluntary negotiation.

Discussed procurement practices in his agency.

In their invitations for bids they indicate they prefer “firm bids, but some companies will come in with the escalation clause rather than a

firm bid.” 322 Heavy fuel oils increased, in California, 20.75 percent from October

30, 1956, to February 1, 1957. Gulf of Mexico prices increased 30.95

percent during this same period. 323 They pay gulf posted prices for oil products obtained in the eastern

Mediterranean area, but that does not include transportation from
United States.

The NATO forces handle their own procurement. Admiral Lattu does not know how much their prices have risen, but assumes they “have increased considerably.”

Although General Services Administration procurement would be small in comparison to the military procurement, it would still be

substantial in amount. 325 Usually, the military pay lower prices corresponding with the increase

in bulk. They have purchased petroleum on a competitive bid basis

since the price increase; jet fuel has increased 7.87 percent. 326 About 1949 the United States entered into an arrangement with the

Trans-Arabian Pipe Line Co. which gave the United States an option to obtain certain petroleum products at reduced cost. Admiral Lattu said he believed we had not taken advantage of the option. Did not

know why. 327 Mr. McHugh submitted for the record three complaints of the United

States against oil companies for alleged overcharging on sales of crude oil abroad. Many of these companies are members of the MEEC.

Tabies showing bid prices for jet fuel inserted at this point. 330 The increased cost for petroleum products procured by the military

is not reflected in the President's budget. The services will have to
absorb the increase in some way.
State ment of Russell B. Brown, general counsel, Independent Petroleum

Association of America; accompanied by W. N. laughey, chairman

of the executive committee 331 Statement of introduction.

Of a total of about 12,000 members in his organization, 10 or 15 are integrated companies. None of the members are on the MEEC.

His association represents 30 to 40 percent of the production. The major companies produce about 60 percent of the oil in the United States.

Petroleum if more important in the "energy economy” of the United States than in that of European countries.

"At the time the Middle East Emergency Committee was formed, our association took the position that the program of supplying oil to Europe, resulting from the Suez crisis, involved a problem of our Government in international relations and, therefore, should be left to the Government

officials responsible for such matters.” 334 "Our primary concern with respect to the MEEC was that the few

individual companies comprising this committee not be given any authority, with antitrust immunity, to take any actions with respect to or which would adversely affect the petroleum industry within the United States.

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"It was our feeling that MEEC members, which are companies extensively engaged in international trade and have very substantial interests in foreign operations, should not be selected apart from the entire domestic industry to determine programs or take actions that would have an impact upon or in any way affect the domestic petroleum industry.”

They had been assured by Dr. Flemming of ODM that MEEC "will not be authorized to take actions with respect to, or that have impacts upon, domestic industry operations."

As a result of this understanding with Dr. Flemming, the association “has never taken the position that the domestic independent producing industry should be represented on MEEC.”

Although they were “apprehensive” about an amendment to the plan of action announced on December 12, 1956, they still felt Dr. Flemming's assurances "were still effective and controlling over these amendments.

Additional schedules under which MEEC operates--schedules 3 and 4 were announced February 1. Schedule 4 appeared to give clearance to MEEC companies to take actions in the United States.

It is Mr. Brown's understanding that actions by MEEC under schedule 4 have been suspended, but thinks “it would be helpful to an understanding of this whole problem if the committee would inquire as to who proposed this schedule 4, and as to why it has been suspended."'.

Almost all of the MEEC members own both tankers and pipelines.

If they had known that MEEC would be in a position to affect domestic production or distribution or transportation, the association "would have asked the Government, as we did attempt to do, to set up an organization where we would fit into it more appropriately.” Believes an organization should have been set up on which all segments of the petroleum industry would have had representatives.

Believes there should be provision for challenging programing of the MEEC. At present “there is no means of challenging what they propose to do until it is already done.”

Believes the National Petroleum Council could have presented to the Government a more effective plan than the one now in operation, and one which would not have required the granting of antitrust immunity.

It is their belief that schedule 4 "should be permanently terminated.” They have been “particularly conscious” of what they believe to be "deficiencies or failures in the operation of MEEC,” because of criticism "that has been directed against domestic independent producers in connection with the European emergency problem. This criticism has charged that independent producers are responsible for the failure of European oil supply program. We feel that this blame is misplaced. We further feel a careful analysis of the facts will show that the failures primarily lie with the members of MEEC.”

Listed 4 “specific failures on the part of MEEC, and the individual companies thereof."

Gave what he believed to be the reasons for the MEEC companies continuing imports of Venezuelan oil instead of diverting these shipments to Europe.

“The companies which comprise MEEC account for almost 80 percent of the crude oil that is imported into the United States from Venezuela. They account for 40 percent of petroleum product imports. Instead of diverting these imports to Europe, these companies have actually increased Venezuelan imports into the United States since the Suez crisis. * * *

Tables giving detailed information on imports into the United States inserted at this point in the record.

The failure of MEEC companies to divert oil to Europe “involves the national security of the United States."

Although petroleum imports are supposed to be geared to the 1954 ratio, "today imports exceed the 1954 relationship. Crude oil imports alone not considering products-currently continue at a rate of 100,000 barrels daily or more over the 1954 relationship."

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Page 352 “The national security being involved, and in the absence of voluntary

action on the part of MEEC members, the question is presented as to whether or not the Government has authority to curtail imports and thereby divert them to Europe. It is our opinion that the Government has ample authority under section 7 of the Trade Agreements Extension Act of 1955 to take action which would compel the diversion of Caribbean oil to the European shortage area.

In view of ODM Director Flemming's testimony, believes "he would now be willing to invoke the authority of section 7. It further suggests that other members of the President's Advisory Committee which has continued to perform as an advisory group to the Director of ODM, are resisting the exercise of such authority.” Is their belief the President should invoke section 7 authority. They have also filed a request with Dr. Flemming that he invoke this authority, in which they were joined by 18 other associations.

Knows of no opposition to this point of view among domestic producers. 353 Submitted figures tending to disprove the allegation that domestic

producers and State governments have connived to cut back production and to withhold oil from the European market * * *.”

Petroleum supplies in Europe are not in as short supply as had been anticipated when Suez was blocked.

Contradictory figures have been presented to the public and committees regarding the success of meeting the oil emergency in Europe.

Tables showing comparative oil inventory positions inserted at this

point in record. 357 *** * * our crude oil stocks as of September were 22 million barrels

higher than they were September a year ago. And now they are 1,200,000 less than they were on February 1 a year ago. That is 4 million barrels of crude less. But the other) figure * * * shows that our stocks of the four principal products made from the crude have increased until they are 33 million barrels on February 1 more than they were a year ago."

These increased stocks of petroleum products are not caused by

decreased American consumption--consumption is increasing. 353 It is his opinion that majors try to blame independents for the problem

because “they think their position is improved if they can discourage confidence in the domestic industry because then they can say we need to import oil because the domestic industry cannot meet it.” Believes the Government could have avoided this situation.

Understanding the members of MEEC and other importers necessitated an examination of “the makeup of the members of MEEC and the interrelationship of the importing companies, which determine the

economic forces that guide their actions." 363, 364 Charts showing these interrelationships inserted at this point in the

record.

The American companies which are affiliated with foreign governments constitute the main bulk of OPEG, adjunct of OEEC, which supplies European governments with information on availability of oil. OPEG and MEEC have observers at each other's meetings.

Suez crisis has emphasized "the present inadequacy of domestic oil pipeline facilities for the movement of crude oil within the United States and particularly to tidewater.” This is not only a temporary problem but "involves the long-range security of the Nation and health of the domestic petroleum industry.” Imports have held down expansion of

transportation facilities. 369 Chart showing petroleum imports, 1928–56 inserted at this point in

record. 370 Preservation of their access to oil was reason for British and French

attack on Egypt. 371 We have about an 11-year supply of oil. “We have had about 10 to 12

years' supply for the last 30 years, to my knowledge. Every year we find a little more oil than we consume.”'

If we should run short of natural petroleum we have shale oil reserves which could be utilized.

It is Mr. Brown's contention that the majors' domination of the refining industry and the domestic pipeline transportation system shows "where the primary blame lies for such failures as have developed.”

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