Mr. SHELBY. Mr. Secretary, in view of the Iranian crisis and our obvious inability to react positively; in other words, that is the opinion of a lot of people, how much damage has been done to us and a nation such as Saudi Arabia in looking to their own security and the security of the Persian Gulf?

Secretary SCHLESINGER. You are, of course, addressing the political side, the geopolitical side.

Mr. SHELBY. Isn't it tied in?

Secretary SCHLESINGER. Yes, sir; I think there is no question that, in my judgment, the geopolitical issues are far more important than the energy issues, important as the latter are. Unquestionably an event of this magnitude which changes the political balance within the Persian Gulf and surrounding the Persian Gulf has major political repercussions throughout the area. I think that it is indispensable that the United States be seen to be stalwart and steadfast and to shore up those regimes that are friendly. Otherwise, the reckoning will be very large.

Mr. SHELBY. Mr. Secretary, what are we going to do-and I know you are not Secretary of Defense right now, but you are involved in a lot of this-what are we going to do to reassure Saudi Arabia, who obviously has been so close to us as far as energy is concerned, strategically, and so what can we do to reassure that regime of our continuing help? And although it might have internal problems, what are we going to do?

Secretary SCHLESINGER. I think that it would be premature to give a list of specifics. As you know, Secretary Brown is now in the region. He just went through Saudi Arabia. He discussed with the Saudis certain potential programs for cooperation. He indicated a willingness on the part of the U.S. Government to provide military equipment to North Yemen and to the Sudan. I think that this represents part of a response. I don't think it represents the totality of the response. Of course, we will be having further negotiations with the Saudis in the future.

I should mention that the Crown Prince will be coming to the United States in March and that the close relationships, indeed, the mutual interest between the Kingdom and the United States should be pursued in the light of these changed circumstances. Mr. SHELBY. Is the administration prepared to protect our strategic interests in that area, the Persian Gulf?

Secretary SCHLESINGER. I think that on the order of generality that you have raised the question, the answer must be yes.

Mr. SHELBY. Thank you.

Mr. DINGELL. The Chair thanks the gentleman.

Mr. Secretary, the committee has kept you for a long time. We are indeed grateful to you for your assistance. As always, it is a pleasure to see you here. We are certainly in debt for your kindness.

Secretary SCHLESINGER. Thank you, Mr. Chairman.

Mr. DINGELL. The committee will stand adjourned until tomorrow morning when the subcommittee will meet at 9:30.

[Whereupon, at 1:45 p.m., the subcommittee adjourned, to reconvene at 9:30 a.m., Wednesday, February 14, 1979.]

ENERGY

DEPARTMENT OF ENERGY

AUTHORIZATIONS

(FISCAL YEARS 1979 AND 1980) AND ENERGY EMERGENCY PREPAREDNESS

WEDNESDAY, FEBRUARY 14, 1979

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ENERGY AND POWER,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C.

The subcommittee met at 10 a.m., pursuant to notice, in room 2123, Rayburn House Office Building, Hon. John D. Dingell, chairman, presiding.

Mr. DINGELL. The subcommittee will come to order.

Today the subcommittee continues its oversight of the Department of Energy's emergency preparedness program and legislative hearings concerning the Department's authorizations for fiscal years 1979 and 1980.

The severe winter of 1977, combined with reduced supplies in interstate pipelines, created a natural gas shortage in several parts of the country. In 1978, a coal strike created a threat to power supplies in the Midwest. The next year, the shutdown of Iranian oil production presents a threat to the security of oil supplies for the world and the Nation.

There can be little doubt that our country needs better and more comprehensive plans for dealing with energy emergencies. Each year this subcommittee has found inadequate preparation for energy emergencies. Last November, we conducted hearings that demonstrated that the Department activities, such as its emergency planning guide, had been of little or no value, but very costly. The following month, the subcommittee uncovered substantial mismanagement in our strategic petroleum reserve program, which has resulted in large cost overruns and oil which probably cannot be presently retrieved. Now the Department wants to reprogram over $700 million in appropriations earmarked for purchase of oil for the reserve to pay for these overruns and related matters. In December 1975, Congress mandated that the President prepare and submit to Congress energy conservation contingency plans to reduce energy consumption and a gasoline rationing plan aimed at conserving energy supplies and allocating gasoline equitably and fairly. These plans were submitted on the last day of the Ford administration and later withdrawn by the Carter administration. The former Federal Energy Administration and now the Energy Department were assigned the responsibility to review and revise these plans.

As the staff has observed in other Energy Department programs, much of the work in developing these contingency plans since 1975 has been performed by contractors. In the case of the conservation contingency plans, over $1.6 million has been spent on contracts, while in the case of gasoline rationing, contracts totalled over $3 million. The Chair is concerned that the plans may be too greatly influenced by the consultants and that they do not represent the work and views of officials and staff of the Department. Our review of the Department's files reveals little evidence of significant involvement by the Department's hierarchy or by staff personnel in the formulation of these plans. Even more significant is the fact that recent publication of the plans, particularly the conservation plans shows that little change has resulted from the review of the plans by the Department. They appear to be virtual carbon copies of the 1977 plans.

The subcommittee understands, however, that the Department, at least, intends that the plans will be submitted to Congress later this month. The Chair thinks that is appropriate. Clearly, those plans should be considered before a crisis actually arrives so that if changes are needed they can be made.

Also, I am concerned that, in the case of rationing at least, it may take 1 year or more to implement, even after approval by Congress. Also, I am particularly skeptical about the realism of oil savings projected for each of these plans. Our hearings today will examine these matters and the actions of the Department over the past year. We will also seek to review some of the issues that have been raised concerning these plans and obtain the Department's comments on how it plans to cope with the many problem areas before they are submitted.

Gasoline rationing is an expensive proposition-not unlike the strategic petroleum reserve-and the Chair is concerned that any such plan be well designed before the Congress authorizes large expenditures for it. The DOE budget for 1980, and its supplemental request for 1979, includes $15 million for ration coupon production. This is only the beginning. The ultimate costs will be far greater. These funds are to be spent serializing existing coupons and buying new presses for the Bureau of Engraving and Printing. I am not certain that all of these expenditures are necessary, and we will be hearing testimony on this subject from the Director of the Bureau of Engraving and Printing.

Assistant Secretary Bergold is here today to provide us additional information on the world oil supply situation and to describe the work of the International Energy Agency.

When the United States signed the International Energy Agreement, I assumed that the consuming nations were taking steps to monitor and control the movements of oil during a supply disruption. However, it appears that to date neither our Government nor the IEA has much control or knowledge concerning world oil movements. I fear that international oil companies may be allocating oil among nations with no supervision by the IEA. My belief is strengthened by the fact that the IEA has turned over the operation of the oil sharing agreements to the oil companies participating in voluntary agreements. Although I thought that the meetings of such companies would be conducted in the open, all meetings

have been closed and transcripts have been classified. Even a recent report of the Federal Trade Commission to Congress was sanitized before its submission.

The antitrust immunity for companies participating in voluntary agreements and the other provisions of EPCA concerning these agreements expires in June. In deciding whether to extend this immunity, the subcommittee will consider whether the law should be amended to open these meetings to public scrutiny.

The hearing today is intended to obtain more information concerning the IEA program. The legislation will be amended later. We want, however, to delve into many of these issues today.

We are very pleased that we have with us the Honorable Harry E. Bergold, Jr., Assistant Secretary for International Affairs; the Honorable David J. Bardin, Administrator, Economic Regulatory Administration; and Mr. Seymour Berry, Director of the Bureau of Engraving and Printing. We are honored to have you with us. We thank you for your presence.

If you will identify yourselves for purposes of the record, we will be most pleased to receive your testimony. Before you do, I would ask, do you have any associates with you, Mr. Berry?

Mr. BERRY. Yes, sir.

Mr. DINGELL. Then feel free to invite them up.

Gentlemen, if you would each identify yourselves for purposes of the record and also your associates, then we will recognize you for the presentation of your statements in such order as you might choose.

Mr. BERGOLD. Thank you, Mr. Chairman. I am Harry Bergold, Assistant Secretary of Energy for International Affairs. I have with me Mr. Robert Goodwin, who is Assistant General Counsel for International Trade and Emergency Preparedness.

Mr. BARDIN. Mr. Chairman, I am David J. Bardin, Administrator of the Economic Regulatory Administration. I am accompanied by Douglas G. Robinson, the Assistant Administrator for Regulations and Emergency Planning.

Mr. BERRY. Mr. Chairman, I am Seymour Berry, the Director of the Bureau of Engraving and Printing. I have with me on my immediate right, Mr. Peter Daly, who is on my immediate staff, and on his right, Mr. William Holland, who is the Head of Production and Scheduling for the Bureau.

Mr. DINGELL. Gentlemen, the committee thanks you for being with us. We recognize you.

Mr. Bergold, if you would like to go first, we shall be glad to hear from you.

STATEMENT OF HON. HARRY E. BERGOLD, JR., ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS, DEPARTMENT OF ENERGY, ACCOMPANIED BY ROBERT GOODWIN, ASSISTANT GENERAL COUNSEL FOR INTERNATIONAL TRADE AND EMERGENCY PREPAREDNESS

Mr. BERGOLD. Thank you, Mr. Chairman.

I have a prepared statement in two parts. The first deals with emergency preparedness and the activities of the International Energy Agency which are of critical importance, given the recent developments in Iran. In addition, I would like to touch briefly on

the budget request of the Office of International Affairs for fiscal year 1980.

I know that your committee is especially interested in the activities of the International Energy Agency. In discussing them, I will address particularly the activities of the Governing Board, and the Standing Groups on the Oil Market and on Emergency Questions. These are the groups most closely involved in the current oil supply situation.

The IEA Governing Board will continue on March 1-2, 1979, to review the impact of the Iranian situation and to discuss appropriate policy responses designed to reduce consumption, increase production, encourage fuel switching, and insure equitable allocation of available production.

The Standing Group on the Oil Market met in late January to appraise the current oil supply situation. After it reviewed the supply situation of each member country, it consulted separately with Texaco and British Petroleum, two major oil suppliers each differently affected by the Iranian supply interruption; the Group concluded that the supply situation was serious, but not critical. The consensus was that the Governing Board meeting, scheduled for the first week in March, would be an appropriate time for consideration of appropriate IEA actions.

IEA's January analysis coincided almost exactly with our own. Subsequent developments have reinforced our conclusion that plans for coping with lower oil supplies must be made ready for possible implementation at an early date. These conclusions were conveyed to you yesterday by Secretary Schlesinger.

The Standing Group on Emergency Questions has been responsible for the design and functioning of IEA's emergency supply allocation program. That program is in place and has undergone two major tests. The most recent test, in April and May 1978, involved the full support of the industry advisory groups. It tested the program's information and allocation functions as well as the interface of IEA's program with the domestic emergency procedures of the member nations.

What of the current situation? It does not now appear that the emergency oil supply program will be fully implemented. Supplies available to the IEA, in aggregate, have not fallen to the triggering level; that is, 7 percent below consumption in the base period. This period is currently the year which ended September 30, 1978. It is a rolling base period. A limited sharing program could be triggered if oil supplies to any single member nation fell 7 percent below its base period consumption.

Three or four nations are possible candidates for such selective triggering; the eventual outcome will depend on how the oil industry adjusts its distribution of available supplies to accommodate those more vulnerable countries. However, if an individual country did trigger the Agreement it would be required to absorb the first 7 percent of the shortfall itself. Thus, there is no incentive for a country to trigger unless its shortfall meaningfully exceeds 7 per

cent.

A voluntary commercial redirection of oil supplies, similar to that anticipated under phase I of the IEA program, is, as you know, already underway.