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Philip W. Buchen Files
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The original documents are located in Box 16, folder "Federal Energy Administration - Oil
Price Decontrol (2)" of the Philip Buchen Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Some items in this folder were not digitized because it contains copyrighted
materials. Please contact the Gerald R. Ford Presidential Library for access to
these materials.
Digitized from Box 16 of the Philip Buchen Files at the Gerald R. Ford Presidential Library
WALL STREET JOURNAL, MONDAY, AUGUST 4, 1975
REVIEW & OUTLOOK
Nabbing the Pink Panther
Like Inspector Clouseau, who but only $5.25 during August, there
fumbles his way to solution of a is bound to be a brief and over
crime, the Democratic Congress
whelming incentive to hold back d
and Republican President have been
mestic production. Before the Fe
bungling and stumbling on energy
eral Energy Administration bureau-
legislation for months, yet in the end
crats knew what hit them, there
the perfect solution-oil-price decon- would be a sufficient shortfall in
trol-seems to have been dropped in crude supply to drive up retail
-
TAB A
FORD LIBRARY
FEDERAL
ENERGY
FEDERAL ENERGY ADMINISTRATION
WASHINGTON, D.C. 20461
SECURITY
MATION
OFFICE OF THE ADMINISTRATOR
August 6, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
FRANK G. ZARB
21
THROUGH:
ROGERS C.B. MORTON
SUBJECT:
STRATEGY ON DECONTROL
BACKGROUND
Before the recess, the House passed the Staggers pricing
amendment to H.R. 7014. This provision rolls back the
price of new and released oil to $7.50 per barrel, but pro-
vides that "high cost" oil can sell for as much as $10.00
per barrel. Old oil prices will remain at $5.25 per barrel
for ten years or more.
The House then defeated your 39-month decontrol compromise
program and passed S.1849, a simple 6-month extension of
the price control provisions. Senator Mansfield has
indicated that this legislation will not be delivered until
the end of August so Congress can act quickly on the veto
override. If you choose not to sign the extension, the EPAA
will expire on Sunday, August 31, 1975. Congress will not
be able to act on the veto until it returns at noon, Wednesday,
September 3.
In addition to these events, OPEC meetings on pricing
policies are scheduled for September 4 and 24, and in all
likelihood will result in an announced price increase of
$1.00 to $2.00 per barrel by October 1.
The vote on overriding the veto will be very close and is
hard to predict. There are several actions which you can
take to improve the chances of sustaining the veto. This
memorandum requests several key decisions on these actions
and the thrust and timing of, public announcements on the
subject.
FORD is LIBRARI
- 2 -
DECONTROL ALTERNATIVES
This section presents your alternatives on decontrol, both
on the veto and actions, to mitigate its effects.
Option 1. Veto simple 6-month extension.
PROS: - Will be major action to stimulate supply and cut
energy demand.
- Will remove a complex and counterproductive regula-
tory system.
CONS: - Will result in difficult political problems with
respect to price increases and with special
interest groups such as airlines, farmers, etc.
- Will leave us temporarily without minimally needed
authorities to deal with the natural gas shortages
or special petroleum problems such as propane.
Recommendation: Veto the 6-month extension.
Presidential Decision:
Agree
X
Disagree
Option 2: Remove the $2.00 and $.60 per barrel import fees
on crude and products respectively effective if
the veto is sustained.
Removal of the import fees coupled with immediate
decontrol and the other supply and demand actions
of your original program will reduce imports by
approximately 1.4 million barrels per day in 1977.
This compares with 1.2 million barrels per day if
your 39-month decontrol compromise was accepted.
These import savings remain below the 2 million
barrels per day of your original program announced
in January
BERALD FORD VIBRARY
- 3 -
PROS: - Will substantially cushion if not eliminate the
economic impact of sudden decontrol.
- Will increase Congressional support for sustaining
your veto of the simple extension of the EPAA.
CONS: - Will lower the conservation savings.
- Will reduce Federal revenues, but also decreases
?
windfalls to petroleum industry.
- Comes increases. at an inopportune time vis-a-vis OPEC price
Recommendation: Remove both the crude and product import
fees effective when the veto is sustained.
Presidential Decision:
Agree
x
Disagree
Option 3. Support rapid enactment of a windfall profits tax
and energy tax rebates to consumers.
The Senate Finance Committee has already voted out
a windfall profits tax effective with immediate
decontrol which is similar to the Administration's
proposal and which allows for consumer rebates.
PROS: - Tax will remove windfalls and help cushion economy
from effects of decontrol.
- Support will help sustain the veto.
- Administration support of this bill will help
Chairman Long and will increase the likelihood of
rapid enactment.
CONS: - The tax is probably somewhat more harsh than the
Administration would propose.
Recommendation: Support the Finance Committee legislation in
concept and basic provisions and indicate that
rebates should not exceed revenues generated from
the tax.
GERMLO n. FORD LIBRARY
- 4 -
Presidential Decision:
Agree
x
Disagree
Option 4. Jawbone industry to ease transition during the
few months following immediate decontrol.
PROS: - Such action would make the transition to full
decontrol easier in terms of supplier-purchaser
relationships, regional problems, etc.
- Would reduce adverse political backlash if the
veto is sustained.
- Could be viewed publicly as the President taking
action to assure oil companies act responsibly.
CONS: - Could prove to be ineffective if industry doesn't
respond accordingly.
- Could be interpreted as major Administration con-
cern on the problems with immediate decontrol.
- Might appear as industry/Administration collusion.
Recommendation: Begin early but quiet jawboning for
voluntary cooperation.
Presidential Decision:
Agree
X
Disagree
Option 5. New Legislative Initiatives
There are four basic legislative suboptions which
could be proposed either before or after the veto
vote to provide needed authorities and allay fears
about the impact of decontrol.
Suboption A. Propose legislation which would merely convert
the EPAA from a mandatory to a standby basis.
FORD & 0ERALD LIBRARY
- 5 -
PROS: - A relatively simple proposal which would diffuse
any fight over the specifics of allocation
authorities.
- Would help to convince interest groups with
identified problems that FEA still has authority
to allocate if necessary.
CONS: - Would hurt chances of sustaining the veto since
such a proposal is so similar to a simple extension
of the EPAA.
Suboption B. Request limited new authorities to deal only
with identified problems such as propane or
independent marketers.
PROS: - Deals specifically with problem areas caused by
immediate decontrol and would thus help to sustain
your veto.
- It is significantly different from a simple con-
tinuation of the EPAA in either a mandatory or
standby form.
CONS: - It could be easily "Christmas treed" by special
interest groups.
- May only serve to heighten concerns about letting
controls lapse.
- Special interest groups which are not included
will fight for veto override.
Suboption C. Integrate selected petroleum authorities
with the Natural Gas Emergency Standby Act of
1975, which we are proposing to deal with the
natural gas shortage.
PROS: - Such a proposal is significantly different from a
simple extension of the EPAA and should not hurt
sustaining the veto.
- Standby emergency authorities are needed in any
event to deal with the projected natural gas
shortage, this winter and this would be an effective
mechanism in which to get selected petroleum
authorities.
FURD.
CONS: - It will not be possible to cast all needed GERAGO petroleum
authorities as natural gas related.
BRARY
- 6 -
Suboption D. Propose legislation to implement the 39-month
decontrol plan in addition to one of the above
options.
PROS: - Places the blame back on Congress for allowing
immediate petroleum price increases.
- It is a gradual decontrol program, with slight
economic impacts.
CONS: - Will lead to some confusion as to the Administration's
true position because you are now supporting
immediate decontrol.
- Since the 39-month administrative decontrol plan
was not accepted by the House, the chance of
acceptance is slim and would require even further
compromise.
- Under the administrative option, only a yes or
no vote could be cast. This plan- could and would
be greatly modified on the floor.
Recommendation: Suboption C - integrate selected petroleum
authorities with standby authorities needed to
deal with the natural gas shortage. Do not resubmit
the 39-month decontrol plan.
Presidential Decision:
Agree
X-
Disagree
In the event your veto is overridden, there are several
administrative options to choose from to continue moving
toward decontrol without submitting another plan to Congress.
These specific options are being developed now and will be
submitted to you later this month.
TIMING AND FOCUS OF PRESIDENTIAL STATEMENT
S.1849 will not reach your desk until late in August. There
are several possibilities for a public statement prior to the
reconvening of the Congress on September 3 which are outlined
below.
- 7 -
Option 1. Public statement just covering the decontrol issue
and the rescinding of the import fees on crude
and products this week.
PROS: - The timing for this message is very good as you
present your case to the people and the press early
in August.
- It allows you to speak forcefully on the issue
during your public engagements throughout the rest
of August.
- An early address and specific removal of fees will
allow Administration spokesmen the time during
August to present your case on the positive energy
effects and minimal economic impacts to the Nation.
CONS: - Will lose the opportunity to compromise on the $2
import fee just before Congress reconvenes which
may lose impact on Congress to sustain the veto.
- There is not adequate staff time to adequately
brief all interest groups or prepare specific
options for your decision on windfall profit taxes,
rebates, or the form of your legislative proposals.
- By giving up the fees now, you will lose your
opportunity to give them up later when OPEC raises
world prices.
Option 2. Presidential message to be given during your
vacation either at Vail or at one of your public
speaking engagements during mid-August.
PROS: - Gives you and Administration officials more time
to prepare for a speech.
- Still leaves adequate time for Administration
spokesmen to reinforce message during August.
CONS: - Neither Vail nor any one of your other public
engagements. is the best setting since they involve
either your vacation or political fund raising
events.
- Delay until mid-August may give the impression of
indecision on your part.
GERALD FORD LIBRARY
- 8 -
Option 3. A broad Presidential message after you return
from Vail after August 25 but before September 3
when Congress reconvenes. Such an energy policy
speech would include your position on decontrol
but could also include the following major policy
issues now under review in ERC and scheduled for
your decision prior to the end of August.
- The Energy Resources Finance Corporation (ERFCO)
- Implementation of the synthetic fuels goal
announced in your State of the Union Message.
- A much expanded voluntary energy conservation
effort.
- A comprehensive plan for dealing with the winter
natural gas shortage.
Recommendation: A broad Presidential television message
after your return from Vail and before the Congress
reconvenes on September 3. Have Frank Zarb and
Alan Greenspan inform the press of your decision to
veto the simple extension and if the veto is
sustained to immediately remove the $2 import fees.
This will allow Presidential spokesmen and yourself
to speak forceably during August while still
getting maximum press impact in early September
with a major energy policy speech.
Presidential Decision:
Agree
Disagree
FORD is 938839 LIBRARY
TAB B
LIBRARY GERALD ? FORD
FEDERAL ENERGY
FEDERAL ENERGY ADMINISTRATION
WASHINGTON, D.C. 20461
ADMINISTRATION
OFFICE OF THE ADMINISTRATOR
August 6, 1975
MEMORANDUM FOR THE PRESIDENT
THRU:
Rogers C. B. Morton
FROM:
Frank G. Zarb 21
SUBJECT: Natural Gas Shortages
BACKGROUND
At your direction, the Energy Resources Council formed
an interagency task force, directed by the Federal
Energy Administration, to assess the magnitude of
the upcoming natural gas shortage, its potential
and likely economic impacts, and to recommend action
to mitigate the problem.
This is a vital issue which affects our entire economy
and we will continue to improve our analyses of the
shortage and impacts, as well as provide further
policy recommendations throughout the summer and
fall.
The remainder of this memorandum summarizes our
findings and recommendations. The attachment pro-
vides more details on the shortage, its economic
impact and the policy recommendations.
LIBRARY GERALD ? FORD
-2-
THE SHORTAGE
- The natural gas shortage has been growing rapidly.
In 1970, curtailments were 0.1 Tcf or less than 1
percent of consumption. Last year curtailments were
up to 2.0 Tcf or 10% of total demand (see Figure 1).
For 1975 they are forecast to increase by 45% to 2.9
Tcf (about 15 percent of demand).
- The shortage is most severe in the winter.
This winter curtailments will be 1.3 Tcf, up from
1.0 Tcf last winter. This lower than expected increase
is due to the lag in demand growth as the economy
begins its upswing.
A very cold winter (once every 10 years) would raise
the shortage to about 1.45 Tcf.
- Even with natural gas deregulation, which is our primary
long term policy objective, shortages can be expected
to grow in each succeeding winter for several years and
could approach 1.9 Tcf in the 1976/1977 heating season.
ECONOMIC IMPACT THIS WINTER
- Because of the economic slowdown and much higher
prices, no shortage and possibly a surplus exists
in the intrastate markets, primarily Louisiana, Texas,
and Oklahoma.
- Economic impacts last winter were very scattered and
not significant nationwide. This was due to:
Alternate fuels were available and many gas consumers
switched to propane and oil.
The economic slowdown and mild weather reduced demand.
Conservation programs were implemented in some local
areas.
Some emergency natural gas deliveries were allowed
under existing FPC authorities.
:
FORD
GERALD
LIBRARY
--3-
NATURAL GAS INTERSTATE GAS CURTAILMENTS
FIRM AND INTERRUPTIBLE
EMBARGO
4.0
EQUIVALENT
[AVERAGE
RATE)
3.0
3.4
3.0
TRILLION CUBIC FEET
1.94
2.0
1.35
1.0
0.65
0.29
0.02
1970
1971
1972
1973
1974
1975
PRELIMINARY ESTIMATES FOR WINTER SEASON OF 1975-1976 INDICATE SHORTAGES
AT AN ANNUAL RATE OF 15-25% [3-5 TCF]
R
1040
GERALD
LIBRARY
-4-
- To the extent there were economic impacts, they
were localized mainly in eastern and midwestern
states.
- This coming winter the shortage will increase by
about 0.3 Tcf and this is probably the most accurate
measure of economic impact.
- This shortage is likely to be focused in about 15
states on the mid-Atlantic coast (from New York to
Georgia) and the Midwest (including Ohio, Missouri,
Indiana, and the farm belt), along with California.
Table 1 shows the potential economic impact in the
most affected states. As indicated in this Table,
the shortage in these ten states accounts for more
than half the national total.
Local communities within these states are likely
to feel an even greater impact where a factory,
which is a major employer, may be forced to shut
down or reduce output
- The economic impact could be magnified many fold by
a concurrent Arab embargo, as alternate fuels would
be unavailable.
POLICY GUIDELINES
-
Policy recommendations should at least cover the
incremental shortage. However, because it will
be growing in successive years and given the
uncertain rate of economic recovery, the weather
or Congressional response, actions to deal with
the total shortage should be proposed.
-
Recommending a comprehensive program will:
Put the President in the most desirable public
position, even if we can scrape through with less
than is requested of the Congress.
Take account of long legislative lead times for
succeeding winters.
Reduce downside problems in the event of a
simultaneous embargo.
FORD
GERALD
LIBRARY
-5-
- Specific policy recommendations should:
Reduce demand and increase supply by national
actions to alleviate the shortage to the extent
practicable.
Avoid a nationwide Federal allocation program, except
in the event of an oil embargo.
Take national action to assure that available
supplies can move among customers and from
intrastate to interstate markets.
Set up effective Federal/State mechanisms to deal
with the local problems --- primarily by State and
local officials.
POLICY RECOMMENDATIONS
There are no decisions required at this time since your
advisers agree on the broad administrative, legislative
and tax initiatives we should take. Their impact is
summarized in the table below.
Impact of Recommended Program
Savings
Winter
1975/76
(Bcf)
Administrative
210
Legislative
375
Tax
600
Total
1185
- At your direction the executive branch agencies will
implement the following administrative actions:
Action
Agency
Establish an intensive and immediate
FEA
energy conservation public education
program to reduce inefficient uses of
natural gas.
GERALD
LIBRARY
-6-
Action
Agency
Complete hearings and approval process
FPC
for new pipelines. to transport inter-
state gas.
Exhort gas producers to increase
FEA
production from shut-in wells.
Alter practices and priorities of
FPC; FEA
natural gas use in utilities.
Increased emergency use of stored
FPC
gas as a result of FPC hearing
conclusions.
- We are now drafting a Natural Gas Emergency Standby Act
of 1975 to be submitted to the Congress upon its return
containing the following provisions:
Titles
Agency
Permit interstate pipelines to purchase
FPC
gas from the intrastate market on an
emergency 180 day basis at current
market prices.
Allow end-user purchases of uncommitted
FPC
gas from the intrastate market at
current market prices.
Provide temporary standby authority
FEA; FPC.
to allocate natural gas between
interstate pipelines as well as
intrastate pipelines in the event
of an embargo or similar emergency.
Provide temporary authority to place
FEA; FPC
a Federal moratorium, if needed, on
all new residential, commercial, and
utility connections of natural gas.
Provide temporary authority to mandate
FEA
electric utility and industrial boiler
use conversion from gas to oil or coal.
FORD R. 07V839 LIBRARY
-7-
Titles
Agency
Provide temporary authority to ban
FEA
use of natural gas for ornamental
lighting.
Provide authority to permit cur-
FPC
tailed gas customers to purchase
gas from uncurtailed gas customers
at uncontrolled prices.
- In addition, FEA will continue as the lead agency to deal
with natural gas contingency planning and, along with the
Federal Power Commission, will convene a meeting with the
Governors and key energy advisors in the most affected
states in late August. At this meeting with the Governors,
the magnitude of the problem, and potential Federal and
local actions to mitigate the impacts will be discussed.
- The Administration will continue to press for an excise
tax on natural gas use and insulation tax credits that
were previously proposed in your State of the Union
Message.
FORD & 034870 LIBRARY
TABLE 1
ECONOMIC IMPACT IN MOST AFFECTED STATES
% of State
Reduction
Employment
Total Gas Using
1974/75
1975/76
1975/76
As % of 1973
In Natural
State Industry
Deliveries
Reduction
Reduction
Industrial Gas
Gas Using
Employment
State
(Bcf)
(Bcf)
(%)
Consumption
Industries
(In Thousands)
New Jersey
263
32
12%
41%
32%
717
Maryland
171
33
19
60
20
202
Virginia
134
27
20
50
9
116
North Carolina
134
39
29
41
33
552
South Carolina
123
17
14
20
29
227
Pennsylvania
723
60
8
17
23
854
Ohio
1072
98
9
22
29
996
-8-
New York
603
(4)
(1)
(3)
21
1249
Missouri
375
37
10
31
18
249
Iowa
169
29
17
22
14
101
Total (10 States)
3767
368
% of U.S.
33%
54%
GERALD
FORD A.
LIBRARY
TAB 1
NATURAL GAS ASSESSMENT
SHORTAGE
The natural gas shortage. has been growing at an alarming rate
in recent years. Demand for natural gas has steadily increased
because of its clean-burning properties, low-cost, and until
recently, accessibility. It is consumed by over 40 million
residences, 3.4 million commercial establishments, and over
200,000 industrial users. While demand has increased, proved
reserves have declined since 1967 and production peaked in 1973.
The decline in production of 1.3 Tcf in 1974 is equivalent to
over 230 million barrels of oil. Further, the regulated price
in the interstate market (51 cents per thousand cubic feet) has
resulted in a growing market share for the intrastate market
where prices are unregulated (market share has shifted about
5 percent since 1970).
As demand increased and supply declined, shortages began to
develop. In 1970, for the first time, interstate pipelines
curtailed some of their customers. Curtailments (generally
defined as requirements less deliveries) grew from 0.1 trillion
cubic feet (Tcf) in the 1970/71 season (April-March) to 2.0
Tcf in 1974/75, as shown below:
TABLE 1
CURTAILMENT TRENDS
Year
Annual Firm 1/
(April-March)
Heating Season (Nov.-Mar.)
Curtailments (Tcf)
Curtailments (Tcf)
1970/71
0.1
0.1
1971/72
0.5
0.2
1972/73
1.1
0.5
1973/74
1.6
0.6
1974/75
2.0
1.0
1975/76 (expected)
2.9
1.3
1976/77 (forecast) about 4.0
about 1.9
Even with natural gas deregulation, shortages are expected to
grow in each succeeding winter for the next several years, although
at a much slower rate than without deregulation.
The shortage was also felt in the intrastate market and curtail-
ments were experienced in several producing states (e.g., Louisiana).
In the last year, however, the increase in intrastate prices,
economic slowdown, reduced refinery runs (many refineries use
natural gas as fuel) and conservation have relieved the intrastate
shortage and resulted in a temporary surplus. The major producing
Kansas. states are Texas, Louisiana, Oklahoma, California, New Mexico, and
1/ Pipeline to pipeline curtailments not included in 1974-1976 data.
-2-
While curtailments are normally used to measure the shortage,
the most appropriate and consistent measure of the problem
we face this year is the reduction in deliveries this year over
last year, plus any increase in demand. Deliveries are expected
to decline this winter by about 350 billion cubic feet (Bcf), but
demand is also expected to decline. Even assuming a normal winter
the economic recovery will not be rapid enough to increase natural
gas demand over last winter. With a normal winter, demand will
be about 125 Bcf less than last winter; with a cold winter, it
will be about level. Thus, the incremental shortage in this
heating season over last year will be almost 250 Bcf.
ECONOMIC IMPACT
Natural gas shortages are distributed unevenly. Within one
region or state, some areas may have adequate supplies while
other areas are being severely curtailed, because the shortage
depends upon a particular pipeline's supply situation.
Although the average interstate pipeline reports curtailments
of 19 percent of demand, some pipelines will have to curtail
almost half their requirements. National macroeconomic esti-
mates of the impacts of the shortage tend to understate its
severity. Thus, rather than try to predict impacts on a national
level, the task force has concentrated on the local areas most
likely to be affected.
Last year, very little unemployment or plant shutdowns occurred
as a result of natural gas unavailability. Most plant closings
occurred because of the recession and many shutdowns were avoided
by availability of alternate fuels (propane, butane, distillate
or residual oil), emergency diversion of natural gas, mild weather
or conservation. There were scattered examples of plant closings
during the heating season. in Virginia, North Carolina, New
Jersey and other states, but in general, almost everybody was
able to squeak through.
As a result of the analysis of last year's impacts, it is
apparent that the major policy actions should concentrate on
reducing the additional shortage expected in this heating
season, maintaining the availability of alternate fuels, and
preparing for even greater shortages next year.
The areas likely to experience the greatest economic impact
this winter are the mid-Atlantic states stretching from Southern
New York to Georgia and several midwestern states, such as Ohio,
is
,
GERALD
LIBRARY
-3-
West Virginia, Kentucky, Missouri, Illinois, Iowa, and Nebraska.
California, which used over 1.5 Tcf last year could also
experience substantial impacts.
In North Carolina, which is probably the most severely
impacted state and is served primarily by the heavily
curtailed Transcontinental Pipeline Co. (Transco), it is
estimated that about two-thirds of the industrial customers.
will be cut off from natural gas. Most of these firms --
primarily textile, chemical, and glass --- do not have alternate
fuel capability. In New Jersey, which is also heavily cur-
tailed by Transco, the northern part of the state is relatively
free of curtailments, while Southern New Jersey's chemical™
industries may be affected. Ohio's industrial curtailments
could reach 60 percent, but most impacts will be experienced
by smaller stone, clay, and glass industries in the central
part of the state. Even in states that are not as short of
gas, such as Indiana, a utility serving 50 small towns each
with only one industry may have to shut down one-third of these
plants.
In some communities the impacts could be especially severe. In
Danville, Virginia last year, concerted action by local govern-
ment officials, industry, and residential gas users avoided
the shutdown of four major manufacturing plants (Dan River
Textiles, Corning Glass Works, Goodyear Tire and Rubber's
largest truck and airplane tire facility, and U.S. Gypsum)
employing over 10,000 of the area's 50,000 residents. A massive
public education media campaign and conversions to alternate
fuels by a local hospital saved almost 15 percent of the city's
heating requirements in about half the winter.
Since residential and commercial users receive first priority
under Federal Power Commission guidelines, natural gas cur-
tailments generally affect industry most. In particular,
industries which cannot switch to alternate fuels or are not
prepared to switch (such as chemicals, motor vehicle parts,
textiles, fertilizer, and glass) may experience
considerable impacts. Even when alternate fuels are available,
their use will increase costs and will put some companies at a
competitive disadvantage with companies in other states that
are not experiencing curtailments.
As indicated in Table 2, more than half the reductions in
deliveries will occur in ten states. In some of these states,
the reduction in deliveries will be more than half the 1973
industrial gas consumption. Also, in some states, about one-
third of industrial employment is in industries that use natural
gas. Nevertheless, it should be recognized that availabilisty
of alternate fuels can substantially reduce the unemployment
effects, but the accompanying higher priced fuel may result in
economic problems.
LIBRARY
TABLE 2
ECONOMIC IMPACT IN MOST AFFECTED STATES
% of State
Reduction
Employment
Total Gas Using
1974/75
1975/76
1975/76
As % of 1973
In Natural
State Industry
Deliveries
Reduction
Reduction
Industrial Gas
Gas Using
Employment
State
(Bcf)
(Bcf)
(8)
Consumption
Industries
(In Thousands)
New Jersey
263
32
12%
41%
32%
717
Maryland
171
33
19
60
20
202
Virginia
134
27
20
50
9
116
North Carolina
134
39
29
41
33
552
South Carolina
123
17
14
20
29
227
Pennsylvania
723
60
8
17
23
854
I
Ohio
1072
98
9
22
29
996
New York
603
(4)
(1)
(3)
21
1249
Missouri
375
37
10
31
18
249
Iowa
169
29
17
22
14
101
Total (10 States)
3767
368
% of U.S.
33%
54%
GERALD
FORD FOND
- 5 -
POLICY RECOMMENDATIONS
A wide range of potential Federal and local government policy
actions has been reviewed. Every conceivable alternative
was evaluated for its feasibility, possible energy and economic
impact, ease of implementation, legislative requirements, and
timing of effects.
The policy options have been evaluated with the following basic
guidelines:
- The intrastate market is likely to be saturated
and some surplus gas may be available.
- The major problems to be solved now are a national
shortage of 250-400 Bcf above last winter
and several localized situations.
- Policy recommendations- should try to accomplish
more than the incremental shortage over last year,
since weather could be severe, economic récovery could
be more rapid than expected, and implementing these
actions may take some time.
- There are a number of actions that must be taken to
begin solving next year's growing problem.
- Federal policies should attempt to bring the national
shortage to a manageable level, while providing assis-
tance to state and local governments in / solving their
particular problems.
- We should ask for more than is really needed to manage
the problem so that the Executive Branch can be postured
as dealing fully with the shortage and to prepare for
any unexpected events, such as an oil embargo.
- Recommend all actions that are good public policy
even if they have greater impact than required,
then proceed to add measures that are needed to
deal with local problems.
- Natural gas allocation programs should be avoided
except in the event of an oil embargo.
- 6 are
The recommended administrative and legislative policies shown
in Table 3. can reduce this year's shortage by about 1.2 Tcf if
the 37¢/mcf excise tax were enacted and by about 0.6 Tcf without
the excise tax. The administrative actions save slightly less
(about 210 Bcf) than the incremental shortage over last winter,
but augmented by the legislative actions could relieve almost
the entire shortage. These are Federal policy actions which
make sense to initiate, can be implemented this year, and can
reduce the shortage to a level below that of last year. These
measures allow the marketplace to allocate supply to the
maximum extent possible and contain few negative features.
Consumer groups, however, are likely to claim that purchase of
gas in the intrastate market for shipment via interstate pipe-
lines is a backhand way of achieving deregulation of gas prices.
Some of the legislative authorities are needed on a
standby basis or to cope. with an even larger shortage next
year. These actions involve a larger use of regulatory powers
to conserve or allocate natural gas supplies. The greatest
potential relief of the natural gas problem in the next few
years could be achieved through forced conversions of power-
plant and industrial boiler use of natural gas. About one-third
of gas consumption continues to be used in the generation of
steam (about 6 Tcf), mostly in the Southwest. With gas more
plentiful in these areas because of higher prices, there have
been few curtailments and little incentive to switch to oil or
coal. Further, environmental restrictions and the capital cost
to convert have deterred such shifts. Although mandatory con-
versions and moratoriums on new residential or commercial
connections may be desirable public policy, it should be
recognized that these actions will have considerable cost and
would represent Federal intrusion into private decisions at
the local level.
The allocation of natural gas has considerable allure on the
surface. By allocating about 330 Bcf, the curtailment on
almost every pipeline could be reduced to 25 percent. However,
allocation presents several problems:
&
FORD
GERALD
LIBRARY
- 7 -
TABLE 3
POLICY RECOMMENDATIONS
THIS WINTER'S
EXPECTED GAS
ACTION
AGENCY
SAVINGS (Bcf)
ADMINISTRATIVE:
Expedite new pipelines
FPC
40
Intensive public education program
FEA
65
to reduce inefficient gas use
Exhort production from shut-in
FEA
5
wells
Alter utility practices
FPC/FEA
50
Increased emergency use of
FPC
50
stored gas
LEGISLATIVE:
Stimulate and allocate propane
FEA
50
Allow end-user gas purchases
FPC
75
Allow 180 day emergency pipeline
FPC
250
gas
Standby allocation authorities
FPC
Permit swaps among end-users
FPC
Mandatory boiler use conversions
FEA
Minimal
Moratorium on new residential,
FPC
Minimal
commercial, and utility gas
connections
Ban on ornamental lighting
FEA
Minimal
PREVIOUSLY RECOMMENDED:
Natural gas deregulation
FPC
Minimal
Insulation tax credits
Treasury
Minimal
Excise tax on natural gas.use
Treasury
600
FORD i LIBRARY BERALD
- 8 =
- It represents a bail-out for poor planning in some
areas and involves taking away gas from some pipelines
which have previously managed to avoid substantial
curtailments
- By removing gas from an area that had not experienced
curtailments, economic problems could be created
since users who would now be curtailed may not be at
all prepared for such shortages and may not be able to
secure or use alternate fuels. These problems may be
larger than those being solved in the areas receiving
allocated gas.
- Once the framework for an allocation system is in place,
there is tremendous pressure to utilize it and special
interests are built-up.
- The data base needed to allocate effectively is not
yet available.
- Pipeline interconnections to support reallocations may
not always be readily available.
Despite the cautions about allocation, such authorities may be
desirable to deal with local emergencies and may be needed in the
event of an oil embargo. If an embargo were to occur, the alter-
nate fuels would be in extremely short supply, and the available
gas will need to be allocated.
Some of the actions being proposed for next year could have an
impact before the end of this year's heating season. Anything
that can stimulate purchase and installation of insulation can
reduce heating requirements and make more gas available for
essential industrial use. Further, although most supply
enhancement activities will take time to implement, some
could pay off in 1976-1977.
The uneven distribution of natural gas shortages means that
some states or local areas will experience adverse economic
impacts while others will have no problem if these Federal
actions are implemented. Rather than a Federal regulatory
approach to solve these problems, it is suggested that local
governments receive Federal guidance, but try to help them-
selves. It is recommended that the governors of the most severely
impacted states and their energy advisers be invited to Washington
FORD is LIBRARY 938870
- 9 -
to meet with FEA and FPC and be given a thorough briefing of
the expected problem and that a discussion of policies be
carried out. A number of suggested local actions could be
discussed at this meeting, including:
- The Federal government will provide each state
with its entire data base. concerning expected
shortages and their impacts; monitor changes
in supply, demand, and alternate fuels; and
provide technical assistance to the states to
help manage the problem.
- Intensive conservation programs for boiler use of natural
gas, residential, and commercial users, including case
histories of residential-industry cooperation. Boiler
fuel use represents over 1/3 of the natural gas market.
- Use of surcharges for consumption above a certain
base level used last year, along with rebates for
consumption much less than last year. For example,
there could be a 100 percent surcharge for consump-
tion above 90 percent of last year's residential
use; with some rebates for consumption below 80
percent of last year.
- Application of a voluntary "buy-back" procedure,
in which pipelines buy back gas from users with
alternate fuel capability at a price equal to the
price of the alternate fuel (over $2.00 per mcf.)
and then sell the gas at the higher price to users
without alternate fuel capability. This could be
implemented by a state public utility commission.
- Greater use of peak load pricing to reduce peak
consumption of electricity, which is often
generated by natural gas.
In considering these recommended policy actions, a number of
other alternatives were examined and rejected for a variety of
reasons. A list of these options is given in Table 4.
TIMING OF ACTIONS
It is recommended that the following sequence of events take place
by the time the Congress returns:
- Announce immediate implementation of administrative
actions.
- Designate FEA as the lead Federal agency to deal
&
FORD
with natural gas contingency planning and imple-
mentation.
LIBRARY
- 10 -
TABLE 4
OPTIONS ELIMINATED FROM CONSIDERATION
Options
Reason for Elimination
Increase LNG imports from Algeria
There are no actions which can
be taken by the government to
increase LNG imports for the
75-76 winter heating season.
Negotiate increased imports from
There is little potential for
Mexico and Canada
increased imports from these
countries.
Accept payment in-kind for pro-
Most royalty gas is presently
duction from federal lands and
sold to pipelines experiencing
allocate to interstate pipelines
curtailments
most in need
Increase production from offshore
There is no way to significantly
shut-in wells
increase production from shut.
in wells for the 75-76 winter
through a regulatory approach.
Increase LNG imports from Alaska
Potential is too small (3-6 Bef;
in comparison to the expected
opposition of the required
legislation
Increase domestic production
Small potential per added
through in-field drilling in
drilling rig, and extreme
the Blanco-Mesaverde gas fields
difficulties in obtaining
required drilling rigs
Increase production of the Hugoton
Lead times for new compressors
gas field through override of
are too long, even if override
Kansas gas production rules
of Kansas production rules
could be obtained
Define and prohibit non-essential
Safe elimination of pilot
uses of natural gas consumed on-
lights would require excessive
site by end-users in the resi-
lead times and requires further
dential and commercial sectors
analysis
LIBRARY GERALD R. FORD
- 11 - (
- Invite Governors of most impacted states to a White
House meeting in early September to discuss expected
shortages and possible local measures to reduce its
impacts.
- Submit legislative package to the Congress in early
September containing immediate, standby, and longer-
term measures.
The recommended actions, both immediate and standby could
substantially reduce the impact of shortages and would be
supplemented by existing emergency relief procedures.
FORD & LIBRARY 078830
FEDERAL ENERGY ADMINISTRATION
-
Office of the General Counsel
THE WHITE HOUSE
WASHINGTON
AUG 08 1975
TO: PHILIP BUCHEN
for your
MIKE DUVAL
FROM: ROBERT E. MONTGOMERY, JR. Rsm
I o'clock
Attached is the draft Issue Paper
on the "jaw-boning" question that
I promised you.
mtg.
GERALD : FORD
Attachment
FORDS : LIBRARY napung
VOLUNTARY INDUSTRY COOPERATION
TO ACHIEVE PHASED DECONTROL
ISSUE
Assuming that the President intends to veto S. 1849, should
he--either personally or through FEA--attempt to obtain the
industry's voluntary cooperation with regard to: (1) a
gradual phase-in of crude oil price increases; and/or (2)
the exercise of restraint in taking certain other marketing
actions which might appear immediately attractive--particularly
to the major integrated companies--in an uncontrolled situa-
tion.
DISCUSSION
Objectives:
Depending upon its thrust and manner of implementation, such
a "jaw-boning" strategy might be adopted with either or both
of the following objectives in mind:
I.
To cushion the impact of decontrol:
A. --
on the economy as a whole, by preventing
an immediate and significant upward
surge in the price of gasoline and other
petroleum products.
B. --
on particularly vulnerable sectors of
the industry (e.g., independent marketers)
or consuming public (e.g., small propane
users), by persuading the industry to
insure that these sectors are adequately
supplied at reasonable prices.
II. To improve our chances of sustaining the veto:
A. --
by convincing the public, the media and
the Congress that the Administration had
obtained a reliable voluntary commitment
033ALD FORD LIBRARY
- 2 -
from the industry to increase prices
only on a gradual basis--thus, rendering
the extension of controls unnecessary.
B. --
by encouraging the major integrated
companies that to do everything in their
power between now and the date Congress
votes on the question to reassure those
groups most likely to lobby vigorously
for an extension of controls (i.e.,
their major customers, their independent
marketers, and their smaller competitors)
that the termination of controls will
not lead to major supplier actions which
would endanger the financial security or
market position of any such group.
Problems:
The potential problems with such a "jaw-boning" effort are
these:
1.
To be effective, any restraint on prices would
have to be imposed on crude oil sales at the well-
head. Any attempt to restrain prices only down-
stream at the refinery or marketing levels would
produce an unacceptable squeeze on some refiners
and marketers. While the majors probably control
more than half of our domestic production of old
oil, a substantial volume is produced and sold by
thousands of independent producers. No effort to
"jaw-bone" the industry as regards crude prices,
therefore, could be more than partially successful--
even if the majors cooperated fully. In addition,
the majors would themselves be seriously inhibited
in giving their support to a price restraint
effort by their possible financial liability to
royalty owners, other parties having interests in
fields which they operate or from which they
purchase, and perhaps their own stockholders.
2.
To the extent that some form of voluntary price
restraint could actually be achieved, a two-tier
crude price system would be maintained; yet because
of the expiration of the allocation act, FEA would
&
tune
GERALD
LIBRARY
- 3 -
lack the authority to continue its entitlements
program. The result would be a scramble among
refiners for the lower priced crude, with the
winners in a position to choose between exploiting
their cost advantage to achieve wider markets, or
collecting windfall profits at the refinery or
marketing levels through sales of product at the
higher prices being charged by those refiners
running high-cost crude.
3.
Any attempt by the President to obtain voluntary
industry cooperation with a specific decontrol
schedule would be vigorously opposed by the guard-
ians of the antitrust laws, and probably resisted
by the industry on grounds that its participation
would expose it to unacceptable liabilities in
civil antitrust lawsuits initiated by private
parties. In this regard, the maximum assurance we
could give the industry is that the Department of
Justice, and perhaps the Federal Trade Commission,
would refrain from prosecuting--we could not
confer immunity from private actions. (See attached
memoranda by Rod Hills and Tom Kauper.)
4.
If the initiative were made by the President
himself or otherwise achieved significant visibility
in the media, it could be cited as evidence that
the Administration considers the problems associated
with decontrol to be much more severe than it is
willing to admit--thus actually lessening our
chances of sustaining the veto.
5. Furthermore, if such a visible "jaw-boning" ini
tiative were undertaken, and the veto were sustained,
we would have created expectations regarding the
rate at which retail petroleum prices would increase
which--given the substantial time period involved
and the many uncertainties such as OPEC's plans--
might well prove to be unwarranted. The Adminis-
tration's reliance upon a voluntary approach would
then be subject to continuing ridicule by our
political opponents as being--at best--naive,
and--at worst--consciously deceptive.
FORD LIBRAN,
- 4 -
Conclusions:
The problems associated with any effort to achieve phased
decontrol through the industry's voluntary cooperation are
substantial, and these problems increase as the "jaw-boning"
initiative becomes more specific and more highly visible.
On balance, it seems likely that any Presidential initiative
along these lines would prove counter-productive, both in
terms of the veto override vote and the President's subsequent
political vulnerability. On the other hand, the importance
of preventing unnecessary rapid price increases and other
disruptive marketing actions, and the fact that voluntary
restraint in these areas is clearly in the industry's own
interest; strongly suggest that a low-key, minimum public
visibility effort should be made to obtain industry coopera-
tion. If such an initiative were couched in general terms
and focused primarily on non-price issues, it would minimize
antitrust risks, would not create unreasonable expectations
for price stability over the long term, and would not open
the door to the charge that we were actually more concerned
about the impact of decontrol than we had publicly admitted.
RECOMMENDATION
We therefore recommend that a low-visibility effort be made
to obtain voluntary industry cooperation in exercising
restraint with regard to the transition to an uncontrolled
situation. This approach can best be handled by FEA, should
be undertaken immediately, and should focus on the following
specific points:
1.
Moderation of immediate increases in crude oil
and product prices.
2.
Reasonable continuity in maintaining traditional
supply arrangements.
3.
Sensitivity to the special supply and marketing
problems of independent refiners and marketers.
4.
Particular caution to avoid speculative brokering
or diversion to non-traditional users of large
quantities of potentially scarce products such
as propane.
Attachments
& FORD
ASSISTANT ATTORNEY GENERAL
ANTITRUST DIVISION
Department of Justice
Washington, D.C. 20530
AUG 1 1975
MEMORANDUM FOR: Rod Hills
Counsel to the President
SUBJECT: Antitrust Implications of Presidential
Meeting with Representatives of Various
Oil Companies
If existing price controls on oil should be allowed to
lapse, it is contemplated that the President may want to meet
with representatives of various oil companies to urge them to
exercise restraint in their pricing decisions. You have asked
me to briefly appraise you of the potential antitrust implica-
tions of any such meetings.
Should any meeting with various oil company representatives
result in an agreement among the oil companies not to change
their prices or to limit their price increases in any speci-
fied manner, such agreements would constitute clear violations
of the antitrust laws. Potential antitrust liability, however,
is not limited solely to situations in which the oil companies
might explicitly agree on prices at the urging of the President.
Should representatives of the oil companies discuss oil price
changes at such a meeting and subsequently adopt uniform pricing
decisions, there is existing case law which would allow a jury
to infer that the subsequent uniform pricing action was the
result of an implicit agreement based upon the prior price
discussions. See e.g., Esco Corp. V. United States, 340 F.2d
100 (9th Cir. 1965).
The President could confer antitrust immunity by promoting
a voluntary agreement among the oil companies pursuant to the
provisions of the Defense Production Act of 1950, which requires
a Presidential finding that such an agreement is in the public
interest as contributing to the national defense. However,
unless he utilizes the procedures of the Defense Production
Act we are unaware of any manner by which the President could
confer an antitrust exemption covering pricing agreements
among the oil companies.
FORD
LIBRARY
The litigation involving the voluntary steel import reduc-
tions indicates that there is some question as to whether the
President can exempt parties from the application of the antitrust
laws when he is attempting to exercise his diplomatic or foreign
affairs powers. Consumers Union V. Rogers, 352 F. Supp. 1319
(D.D.C. 1973), vacated in part and affirmed in part, 506 F.2d
136 (D.C. Cir. 1974) ; cert. denied, 43 U.S.L.W. 3636 (June 3,
1975). There is no case which directly considers the President's
power to confer an antitrust exemption, without statutory authori-
zation, in order to achieve a goal serving the domestic public
interest. However, in United States V. Socony-Vacuum Oil Co.
310 U.S. 150 at 225-227 (1940) the Supreme Court held that the
fact that the defendants may have been encouraged to engage in
price stabilization activities by officials in the executive
branch of the government was insufficient to exempt the defen-
dants from the antitrust laws. The Court held that since Congress
had created the prohibitions contained in the antitrust laws,
an exemption could be obtained only pursuant to statutory pro-
cedures provided by Congress. The Supreme Court's reasoning
seems applicable to the situation under consideration.
In conclusion, it is important to note that even if the
Department of Justice utilized its prosecutorial discretion
and refrained from bringing suit against concerted pricing
engaged in at the behest of the President, Congress has provided
a private right of action to enforce the antitrust laws. As
a result, any oil companies which participated in concerted
pricing decisions at the behest of the President would be
subject to private treble damage suits by consumers of their
products.
Thomas THOMAS E. E. Zaupe
Assistant Attorney General
Antitrust Division
FORD
LIG.
Dear
The President would appreciate it if you could attend
a meeting at the White House on
,
1975 at
A.M.
At that time he proposes to discuss with the Chief Executive
Officers of various oil companies the potential economic
and social implications of the termination of price controls
on petroleum products.
Let me assure you that the President is aware of the
restrictions placed upon concerted pricing decisions by the
antitrust laws. He is also cognizant of the fact that
discussion of prices by competitors may be deemed evidence
from which an agreement violative of the antitrust laws may
be inferred. Consequently, it is not contemplated that there
will be any discussion at the meeting by oil company representatives
of price levels or changes. Nor is it contemplated that any
subsequent joint discussions be engaged in by the oil companies
as to pricing changes. Rather, the President intends to urge
each of the oil companies, in making their unilateral decisions,
FORD
to consider the various national interest ramifications of
their company's pricing decisions.
We hope that you will be able to attend this meeting
relating to a matter of such national importance.
Sincerely,
FORD LIGREDA
Dear
The President would appreciate it if you could meet
with him at the White House on
, 1975 at
a.m. He wishes to discuss with you personally the
potential economic and social implications of the ter-
mination of price controls on petroleum products. It is
the President's intention to discuss these matters on an
individual basis with a number of the Chief Executive
Officers of the major petroleum companies.
The President is aware of the restrictions placed
upon concerted pricing decisions by the antitrust laws.
Therefore, you can be assured that he will not urge,
or even suggest, that your company agree, or even discuss
its petroleum pricing decisions, with any competitor.
Rather, the President intends to urge each of the oil
companies, in making their unilateral decisions, to consider
the various national interest ramifications of their
company's pricing decisions.
We hope that you will be able to meet with the
President on this matter of significant national importance.
Sincerely,
&
FORD
BERALD
LIBRARY
THE WHITE HOUSE
WASHINGTON
August 1, 1975
MEMORANDUM FOR:
PHILIP BUCHEN
FROM:
RODERICK HILLS R. It
SUBJECT:
Proposed Meeting Between the
President and Representatives
of the Oil Industry
A meeting between the President and oil industry representatives
raises issues which must be dealt with before the meeting occurs.
Simply stated, they are:
(1) Who is to be invited? Presumably, the proposal
is to invite the chief executive officers of the so-called major
oil companies. Such companies have a dual role as owners
of controlled oil and refineries. As owners of controlled oil
they can be "jawboned" not to raise the prices of the controlled
oil. However, as owners of refineries, they cannot be asked
after controls end to agree not to pay higher prices for oil
from other sellers. An agreement between owners of refineries
to not buy de-controlled oil except at a low price is just as
violative of the antitrust laws as an agreement to sell it at a
higher price.
(2) What is to be discussed? Any discussion at a
meeting between the President and the major oil company
representatives could expose the companies to antitrust prob-
lems. If, for example, the President were to say that (a)
great restraint should be exercised in raising the price of
de-controlled oil, and (b) ask them to voluntarily phase in the
increase over a period of 39 months, and (c) if there were any
ensuing discussion which indicated a consensus on these points,
there would essentially be an agreement between the majors
that they will raise their prices over 39 months and there are,
of course, plenty of plaintiffs willing to sue the oil companies
LIBRARY
-2-
for such an agreement. If the meeting were private, there
would be all the more chance of misunderstanding the nature
of the discussion.
The alternatives to a meeting between the President and
representatives of the major oil companies are:
(1) A public meeting between the President and
representatives of all the companies;
(2) Individual meetings between the President
and each of the oil companies; and
(3) A strong letter to each company (Tab A)
followed by individual meetings between these
representatives and the President or Frank Zarb.
On balance, given the risks of a joint meeting in private and
the disagreeable aspects of a joint meeting in public, I suggest
that options (2) and (3) are preferable. The invitation to
private meetings to each of the oil companies should be made
public. The letter should state that the purpose of the meeting
is to attempt to persuade each of the companies that they
should voluntarily refrain from raising the prices on de-
controlled oil any faster than 39 months. The letter would,
of course, emphasize the point that they should take all steps
possible to keep the prices down, but to the extent that they
do rise, it should be no greater than the formula set forth
in his proposed legislation recently defeated. See Tab A.
These individual meetings with the major oil companies could
be supplemented by personal letters to the larger independent
producers throughout the country.
There is, of course, one further alternative: to avoid any
meetings between the President and the oil companies, but
instead to write a personal letter to each of them.
If either option 2 or 3 is chosen, there should also be a strong
Presidential statement, perhaps on television, making the
same plea to all producers of oil that is now controlled.
FORD
GERALD
LIBRARY
SAMPLE LETTER
Dear Mr. Bradshaw:
On
,
I proposed to the Congress a compromise
solution to phased de-control of old domestic oil. I suggested that
such oil be subject to a price cap of $11. 50 and that existing prices
be phased into that cap no faster than a 39 month period. The
Congress has defeated this proposal and I am now left with no
option but to permit full de-control of such oil as of August 1, 1975.
There are obvious possibilities of economic disruption by moving
so swiftly from a controlled price to a de-controlled price.
There is an equal obvious potential of great harm to our fight
against inflation if there is any major increase in price in the
near future. For that reason, I am strongly urging each owner
of oil that is about to be de-controlled to exercise the greatest
restraint in raising prices. I am particularly concerne anxious that each
such company under no circumstances raise the price at a
greater rate than that proposed in the recently defeated legis-
lation. Obviously, any price restraint greater than that in the
legislation is also desirable.
In order that I may make my point on this matter in the best
fashion, I am asking that you meet with me during the week
of
.
I am inviting each of the chief
executives of the oil companies to similar meetings and I shall
be making a public statement to the same effect to all producers.
I look forward to meeting with you.
Sincerely,
Mr. T. F. Bradshaw
President
Atlantic Richfield Company
515 South Flower Street
FORD
Los Angeles, California 90071
GERALD
LIBRARY
CLEARANCE FORM FOR PRESIDENTIAL SPEE IH MATERIAL
TO:
THE PRESIDENT
VIA:
ROBERT HARTMANN
FROM:
PAUL A. THEIS
SUBJECT:
Veto Statement on S. 1849 (oil decontrol)
TIME, DATE AND PLACE OF PRESIDENTIAL USE:
First of next week
SPEECHWRITER: FEA/Pullen
EDITED BY:
Theis
BASIC RESEARCH/SPEECH MATERIAL SUPPLIED BY:
FEA
CLEARED BY (Please initial):
(x) OPERATIONS (Rumsfeld)
(x) CONGRESSIONAL/PUBLIC LIAISON (Marsh)
(X) PRESS (Nessen)
(x) LEGAL (Buchen) T.W.B.
(X) ECONOMIC POLICY BOARD (Seidman)
(x) OFFICE OF MANAGEMENT AND BUDGET (Lynn)
(X) DOMESTIC COUNCIL (Cannon)
(X) NATIONAL SECURITY COUNCIL (Scowcroft)
(x) RESEARCH (Waldron)
(Xi MARGITA WHITE (FYI)
(x) NERGY RESOURCES COUNCIL (Zarb)
! X COUNCIL OF ECONOMIC ADVISERS (Greenspan)
LIBRARY GERALD P. FORD
( )
OFFICE OF PUBLIC LIAISON (Baroody)
(
(FEA/Pullen) PT
September 8, 1975
FourthDraft
PROPOSED PRESIDENTIAL VETO STATEMENT ON OIL PRICE CONTROLS
(S. 1849)
I am today vetoing S. 1849, which extends price controls on domestic
oil another six months. I am taking this action because:
1. An extension of price controls would further our dangerous and
growing reliance on imported oil.
2. It would retard conservation of energy.
3. It would postpone the badly needed development and production
of new domestic energy.
4. It would increase the outflow of money and jobs from our economy.
5. It would jeopardize our future economic stability and national
security.
6. It would negate the possibility of long range compromise on this
problem because of Congressional reluctance to tackle the issue of higher
oil prices in an election year.
FORD & LIBRARY GERALD
- 2 -
Since the 1973 embargo, America's bill for imported oil has climbed
from just over $3 billion to $25 billion today -- an 800 percent increase.
These dollars represent one million jobs lost to American workers. The
job security of one million more Americans across the Nation would be the
cost of another embargo. We cannot delay longer.
Eight months ago in my State of the Union message, I proposed to the
Congress a comprehensive energy program to make the United States independent
of foreign oil producers by 1985.
The need for such a program increases with each passing day. The
United States is dependent on foreign oil for almost 40 percent of its current
needs. If we do not act now to reverse this trend, within 10 years we will
import more than 50 percent of the oil we need at prices dictated by others.
The more oil we import, the more dollars and the jobs we lose from
our economy. And as American jobs and dollars flow out of the country, so
in a sense does our economic and national security.
FORD is LIBRARY GERALD
- 3 -
The 1973 embargo cost more than $15 billion in Gross National
Product and threw hundreds of thousands of persons out of work. It
dramatically showed our vulnerability. Another disruption would be even
more costly in dollars and jobs.
The detailed legislative program I sent to the Congress last winter
involved tough measures to put us immediately on the road to energy
independence. It would have conserved energy we now use and accelerated
development and production of energy here at home.
Because this program would have increased the immediate cost
of energy until new supplies were developed, I also proposed tax legislation
to prevent undue profit-taking by oil companies and to ensure the return of
every dollar collected to the American consumer.
(more)
FORD & GERALD LIBRARY
- 4 -
Since I could not gamble with our Nation's security while waiting
for the Congress to act on my comprehensive program, I raised the
import fees on each barrel of crude oil in February as an interim measure
to reduce imports by inducing conservation and stimulating domestic
production.
The Congress still\has not acted. Throughout these months, I have
compromised again and again to accommodate Congressional requests
for more time.
I delayed the second dollar fee on imported oil for 90 days, finally
imposing it June 1. I delayed the third dollar indefinitely. Still, we have
seen no Congressional action -- on short-term energy proposals.
In my State of the Union last January, I announced a decision to
remove the ceiling on price-controlled domestic oil April 1, permitting
it to rise from $5.25 per barrel to the free market price. This action would
have immediately stimulated production and development of needed Fiditional
& GERALD LIBRARY
- 5 -
energy supplies and also encouraged conservation. At the request of
Congressional leaders, I postponed such action to give them time to work
out a different solution.
After nearly six months without Congressional action on decontrol
of any other energy legislation, I proposed in early July a compromise
30-month phased oil decontrol plan. This program represented an effort
to meet the concerns raised by many members of Congress and showed
the Administration's willingness to compromise. The Congress rejected
this plan.
I made another effort to reach a solution before the August Congressional
recess. I submitted another decontrol plan, which would have gradually
phased out price controls over a 39-month period and placed a price ceiling
of $11.50 per barrel on domestic oil.
I believe this final decontrol plan went more than halfway to meet
concerns raised by the Congress. Although it would a hieve energy
FORD is GERALD LIBRARY
- 6 -
conservation objectives more slowly than warranted, I offered it in the
spirit of compromise, because action was desperately needed.
Instead, the Congress rejected this attempt at compromise and
passed a bill which would simply extend the pricing and allocation
authorities for another six months. This proposed action would only ensure
the continued growth of our dependence on foreign oil.
I cannot approve six months of delay delay which would cost needed
jobs and dollars and compound our energy and economic problems.
From my experience in the Congress, I am well aware that it
will be easier to pass the tough legislation needed to begin solving the
energy problem this year rather than the 1976 election year. The
six-month price controls extension contained in the bill I am vetoing would
postpone possible action until at least the Spring of 1976 and could delay
indefinitely a start on solving this problem.
FORD i GERALD LIBRARY
- 7 -
Despite the last minute attempts by the Democratic leadership,
their effort to achieve a compromise in the Congress has failed. It is
clear the Congress has not come to grips with the decontrol issue much
less the overall energy problem.
We must confront the energy problem before it becomes a national
emergency. Our time to act instead of react grows shorter with each
delay and each day.
Without price controls on domestic oil, we can reduce dependence
upon imported oil by more than 700, 000 barrels per day within two years
and increase domestic production by nearly one and one-half million
barrels per day by 1985. By continuing controls, imports will increase
without any incentives to spur domestic production and the energy problem
will worsen.
If my veto is sustained and my efforts at further compromise fail,
I will take the following actions to ensure an orderly transition from govern-
ment COI trols to the free market:
FORD i 076839 LIBRARY
- 8 -
-- I will remove the previously imposed $2 per barrel import fees.
- - I will again press the Congress to enact a windfall profits tax.
with plow back provisions and to return the money collected to the American
consumer.
-- I will propose standby legislation to provide a gradual transition
from price controls for small and independent refiners.
-- I will propose legislation to provide authority to allocate liquified
petroleum gases, such as propane, to supply these important fuels at
reasonable prices to farmers, rural households and curtailed natural gas
users.
-- I will seek authority to provide retail service station dealers
legal remedies to protect their interests.
The time for debate on oil pricing is over. We have talked and delayed
too long. We must act now to protect not only ourselves, but future generations
of Americans. I urge the Congress to sustain my veto.
###
THE WHITE HOUSE
WASHINGTON
September 8, 1975
MEMORANDUM FOR:
PHIL BUCHEN
FROM:
PAUL A. THEIS at
Attached is the revised draft of the proposed veto message on
decontrol of oil prices.
Would you let us have your comments and suggestions as soon
as possible?
Thanks.
Attachment