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Energy - Federal Energy Administration: General (2)
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Energy - Federal Energy Administration: General (2)
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John O. Marsh Files (Ford Administration)
John Marsh's General Subject Files
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Federal Energy Administration. (06/27/1974 - 10/01/1977)
Legislation
Energy policy
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The original documents are located in Box 14, folder "Energy - Federal Energy
Administration: General (2)" of the John Marsh 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States of America his copyrights in all of his unpublished writings in National Archives collections.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.
Digitized from Box 14 of The John Marsh Files at the Gerald R. Ford Presidential Library
Mr. John O. Marsh, Jr.
SS Counsellor to the President
Federal Energy
Administration
FEDERAL
ENERGY
FEDERAL ENERGY ADMINISTRATION
WASHINGTON, D.C. 20461
ADMINISTRATION
OFFICE OF THE ADMINISTRATOR
September 17, 1975
MEMORANDUM FOR MEMBERS OF THE CABINET
FROM:
FRANK G. ZARB
Attached is a brief summary of the energy situation faced by
the Nation, with specific reference to various fuels. Also
attached is a review of the President's overall energy program
as proposed to Congress, and a status report on various
legislation pending in the House and Senate relating to the
several titles of the Energy Independence Act of 1975.
I hope that this information will be of use to you and your
Departments in preparing public presentations relating to the
energy situation and Administration energy policy.
Attachment
Digitized from Box 14 of The John Marsh Files at the Gerald R. Ford Presidential Library
BACKGROUND
Vulnerability
In 1970, the average American householder spent approximately
$45 for foreign oil; last year, the bill was about $360.
In the first six months of 1975 direct Arab OPEC crude imports
accounted for 30% of total crude imports (1, 125 thousand barrels
per day) compared with a 1974 average of 20% (or 743 thousand
barrels per day). Our dependence on Arab crude oil has
increased since the days of the oil embargo.
Imported petroleum accounted for 17% of total energy use in 1974,
compared to less than 11% in 1970.
Natural Gas
Natural gas production in the U.S. peaked in 1973 at 22. 5 Tcf
and then declined by almost 6% in 1974 to 21. 2 Tcf -- the
equivalent of a decline of over 230 million barrels of oil.
*
Last year 2. 0 trillion cubic feet (Tcf) of natural gas, or about
10% of total demand, was curtailed; this year a 45% increase
in curtailments is forecast, or about 2.9 Tcf of natural gas,
equalling about 15 percent of demand.
*
In North Carolina, for example, only 4 percent of industrial
natural gas requirements will be met.
Oil
Domestic oil production has been declining since 1970 (it is down
11 percent since early 1973) and has declined more than one-
half million barrels per day since last year.
Gasoline consumption has been about constant in the last two
years and would have been at least 500, 000 barrels per day
higher if it hadn't been for higher prices.
Billions of barrels of oil lie beneath the waters in the Atlantic,
Pacific, and Gulf of Alaska, but are as yet untapped.
Coal
Coal production is still at the levels of the 1920's.
We have more coal reserves than the Middle East has oil.
While coal is our most potentially abundant source of domestic
energy, coal output for domestic consumption fell in 1974 by 16
million tons, or almost 3 percent, compared to 1973 production.
-2-
Electric Power
*
Last year, about three-quarters of all planned nuclear plants
and over one-fourth of all coal plants scheduled to be built
were either postponed or cancelled.
*
Costs for nuclear power plants continue to increase significantly;
a 1000 Mwe plant ordered today for delivery in the early 1980's
will cost close to one billion dollars, or $1000 per kilowatt.
A few years ago, the cost was about half.
LEGISLATION
Comprehensive national energy policy
*
The President's State of the Union message to Congress, January
15, 1975, was the basis for the Energy Independence Act of
1975 submitted to Congress. (See Tab B for outline of the
Act's 13 titles)
*
Status report on Administration proposals in Congress (Tab C)
Decontrol
*
The House rejected the President's 39-month compromise plan
to decontrol old oil prices in July, just before its August recess.
*
Immediate decontrol of old oil prices took effect on September
1, 1975, upon the statutory expiration of the Emergency Petroleum
Allocation Act.
*
The President vetoed a six-month extension of the Emergency
Petroleum Allocation Act on September 9, 1975.
*
The Senate sustained the President's veto on September 10, 1975,
effectively leaving oil prices uncontrolled.
*
The President has indicated his willingness to accept a 45 to
60-day extension of price controls on oil, if there are reasonable
assurances that such an extension would result in a compromise
plan to decontrol oil prices which meets the objectives of the
original 39-month proposal.
*
The House passed a bill on September 11, 1975, extending oil
price controls until October 31, 1975.
*
Action is still pending in the Senate on extension of oil price
controls.
LIBRARY
-3-
Protection for gasoline dealers under immediate decontrol
*
The "Gasoline Dealers' Protection Act of 1975" proposed to
Congress by the President on September 10, 1975 would prevent
oil refiners and distributors from terminating service station
leases or franchises for other than good cause, and would provide
station owners and dealers standing to seek treble damages and
injunctive relief in Federal courts if violations occur. The Act
is similar to the Automobile Dealers Day in Court Act of 1956.
Protection for small and independent refiners under immediate decontrol
*
Secretary of the Treasury Simon has asked the Senate Finance
Committee and the House Ways and Means Committeee to extend
provisions of the Old Oil Entitlements Program under the Emergency
Petroleum Allocation Act for one year, phasing them out over three
years, to provide an effective subsidy to small refiners and to
equalize access to domestic and imported crude oil for refining.
Protection for farmers under immediate decontrol
*
Secretary Simon has asked for legislation to provide rebates to
farmers to offset their higher energy cost. A direct tax rebate
would be provided to farmers based on their purchases of gasoline
and diesel fuel. A maximum rebate limitation or a gross income
ceiling for eligibility could direct rebates to smaller farmers.
Windfall profits tax
*
Rebates to farmers and refiners, as well as to low- and middle-
income taxpayers, would be financed by a windfall profits tax on
oil company earnings resulting from decontrol. The tax proposed
would be similar to the one worked out by the Senate Finance
Committee in July.
Natural gas legislation
*
"The Natural Gas Emergency Standby Act of 1975" was proposed
to Congress by the President on September 10, 1975, to deal
with expected shortages of natural gas this winter. The act:
-- authorizes the Federal Power Commission to approve pur-
chases of natural gas by interstate pipelines at unregulated
free-market prices when those pipelines have had to curtail
their high-priority end-use customers. These sales excepted
from regulation would be limited to 180-days duration.
-4-
-- allows high-priority end-users of natural gas to purchase
natural gas in producing states at unregulated intrastate
prices, then contract with interstate pipelines as common
carriers to deliver the gas to the point-of-use. This
provision would clarify and give legislative force to an
existing FPC rulemaking.
-- extends FEA's authority to require electric utility and industrial
boiler conversions from natural gas or oil to coal, and provides
standby authority to require conversions from gas to oil where
coal is not feasible.
-- provides authority to allocate and establish price controls for
propane in order to assure equitable distribution and reasonable
prices as demand for propane increases with growing unavailability
of natural gas.
TAB A
are LIBRARI
.
CHART I
DOMESTIC PRODUCTION OF CRUDE OIL
10.00
9.75
9.50
9.4
MILLIONS OF BARRELS PER DAY
9.25
9.00
1.0
MILLION
B/D
8.75
8.50
8.4
8.25
QUOA,
8.00
J FMAMJJASONDJFMAMJJ A S O N D J F M A M J J A S O N D
1973
1974
1975
CHART II
IMPORTS OF CRUDE OIL AND PETROLEUM PRODUCTS
6.5
6.0
5.5
TOTAL IMPORTS
MILLIONS OF BARRELS PER DAY
5.0
4.5
4.0
IMPORTS FROM OPEC
3.5
3.0
2.5
OPEC % 49.7
OPEC : o 55.5
OPEC % 65.8
2.0
1st QTR 2nd QTR 3rd QTR 4th QTR
1st QTR 2nd QTR 3rd QTR 4th QTR
1st QTR 2nd QTR 3rd QTR 4th QTR
ARVUSIT
1973
1974
1975
CHART III
IMPORTS BY SOURCE 1960 — 1985
14
13
ARAB
12
CONTINUED
REGULATION
11
10
PRESIDENT'S
PROGRAM
9
8
MILLION B/D
7
6
5
4
3
2
GERALD
1
LIBERA
1960
1970
1974
1977
1980
1985
CHART IV
PETROLEUM IMPORTS
15
BASE
CASE
14
13
MILLIONS OF BARRELS PER DAY
12
11
10
9
8
PRESIDENT'S
7
PROGRAM
6
5
4
3
2
1
AMOUNT
1960
1965
1970
1975
1980
1985
CHART V
COST OF FUTURE EMBARGOS
120
NO PROGRAM
100
BILLIONS OF DOLLARS
80
60
40
NO PROGRAM
20
PRESIDENT'S
PRESIDENT'S
BERRED
PROGRAM
PROGRAM
1973/1974
1977
1985
LISBARY
CHART VI
IMPACT OF AN EMBARGO ON GNP
GNP
[$58]
PRESIDENT'S PROGRAM
1000
NO PROGRAM
500
1975
1976
1977
CHART VII
IMPACT OF AN EMBARGO
ON UNEMPLOYMENT
UNEMPLOYMENT RATE
10
NO PROGRAM
5
PRESIDENT'S PROGRAM
GERALS
0
AMERICA
1975
1976
1977
CHART VIII
25
23
BASE CASE DEMAND
DOMESTIC PETROLEUM SUPPLY & DEMAND
21
19
PRESIDENT'S
[MILLION BBL/D]
PROGRAM
17
DEMAND
15
PRESIDENT'S PROGRAM SUPPLY
13
11
BASE CASE SUPPLY
9
1975
1977
1979
1981
1983
1985
1848817
ENERGY INDEPENDENCE ACT OF 1975
TITLE I
- Naval Petroleum Reserves
TITLE II
- National Strategic Petroleum Reserve
(Civilian) Act of 1975
TITLE III
- New Natural Gas Deregulation
TITLE IV
- 1975 Legislative Proposals to Amend
the Energy Supply and Environmental
Coordination Act of 1975
TITLE V and VI
- 1975 Legislative Proposals to Amend the
Clean Air Act of 1970
TITLE VII
- Utilities Act of 1975
TITLE VIII
- Energy Facilities Planning and Development
Act of 1975
TITLE IX
- Energy Development Security Act of 1975
TITLE X
- Building Energy Conservation Standards
Act of 1975
TITLE XI
- Winterization Assistance Act of 1975
TITLE XII
- National Appliance and Motor Vehicle
Energy Labeling Act of 1975
TITLE XIII
- Standby Energy Authorities Act of 1975
FORD
LIBRAR
TITLE I of the Energy Independence Act of 1975 would authorize
the production of petroleum from the Naval Petroleum Reserves to
top off Defense Department storage tanks, with the remainder sold
at auction or exchanged for refined petroleum products used by the
military or used to fill a National Strategic Petroleum Reserve.
Revenues generated from the sale of oil produced from the Naval
Petroleum Reserves would be used to finance the further exploration,
development and production of the Reserves, including NPR #4 in
Alaska, as well as to create the National Strategic Petroleum Reserve.
At least 20%, or such other amount as determined by the President,
of the oil eventually produced from NPR #4 would be earmarked for
military needs and for the National Strategic Petroleum Reserve
and the remainder made available to the domestic economy. Although
the oil reserves contained in NPR #4 are largely unexplored and
significant production is not expected before 1982, it is anticipated that
NPR #4 will provide a minimum of 2 million barrels of oil per day by
1985. Title I would also grant the Department of the Navy authority
to acquire, construct, fill and maintain a military strategic petroleum
reserve of 300 million barrels as part of the National Strategic
Petroleum Reserve.
Title II would authorize the establishment of a civilian national
strategic petroleum reserve of up to 1 billion barrels of petroleum.
Once created, this strategic reserve, together with the exercise
of certain standby authorities provided for in Title XIII, will minimize
disruption from future embargoes or other energy emergencies. This
Title would authorize the Federal government to acquire, construct
and maintain petroleum storage facilities, to purchase petroleum or
require industrial set-asides for a strategic reserve, and to utilize
petroleum from the reserve to offset disruptions in foreign imports.
Most of the funds required to finance this program, as well as a
large amount of the oil to be stored would come from the production
of NPR #1 in Elk Hills, California. Within one year of enactment,
a report would be prepared and submitted to the Congress detailing
actions taken and proposed plans for developing a strategic petroleum
reserve system.
LIBRARY
Title III is designed to reverse the declining natural gas supply trend
as quickly as possible and to insure increased supplies of natural gas
at reasonable prices to the consumer. Under the proposal, wellhead
price controls over new natural gas sold in interstate commerce
would be removed. This action will enable interstate pipelines to compete
for new onshore gas and encourage drilling for gas onshore and in
offshore areas. In order to discourage further conversions to natural
gas and to encourage greater natural gas conservation, the President
is also proposing an excise tax of 37 cents per thousand cubic feet
on natural gas which is equivalent to the proposed $2 tax on oil.
Titles IV and V contain amendments to the Clean Air Act and the
Energy Supply and Environmental Coordination Act of 1974 (ESECA).
The amendments are needed to pursue a vigorous program, consistent
with appropriate environmental safeguards, to make greater use of domestic
coal, and thus to reduce the need for natural gas and imported oil.
The proposed amendments would serve to reduce the need for oil imports
by 100, 000 barrels per day in 1975 and 300, 000 barrels by 1977.
The amendments to ESECA would expand and extend the Federal
Energy Administration's authority to issue and enforce orders
prohibiting power plants and other major installations from burning
petroleum products and natural gas. One of the amendments to the
Clean Air Act would eliminate the regional requirement which prohibits
major fuel burning sources from burning coal where the violation of
health-related standards is caused by other sources. Another amendment
would permit certain isolated plants to use intermittent control systems
on an interim basis where they do not pose a threat to public health.
In addition, the amendments seek a better balance between automobile
fuel economy and air quality by stabilizing auto emission requirements
for five years at the level of California's 1975 standards for hydro-
carbons and carbon monoxide emissions, and holding at national 1975
standards for oxides of nitrogen.
Title VI would delete the "significant deterioration" requirement from
the Clean Air Act. There may be more appropriate ways to deal
with the issues associated with significant deterioration than through
the Clean Air Act, and Congress should undertake a prompt and
comprehensive review of this issue.
Title VII is designed to restore the financial health of public
utilities. It would eliminate undue regulatory lags involved in
approving proposed rate changes, assure that rates adequately
reflect the full cost of generating and transmitting electricity,
and remove prohibitions that now prevent lower prices from being
charged to consumers during off peak hours. Though many states
have already adopted similar programs, enactment of Title VII
will establish certain standard regulatory procedures across the
Nation, resulting in more equitable treatment of utilities.
Treasury Secretary Simon has presented to the House Ways and
Means Committee proposals for tax changes including increased
investment tax credits for public utilities. Presently only a 4%
tax credit is available to utilities while a 7% tax credit is available
to other industries. The proposed legislation would raise the tax
credit to a level of 12% for one year with the 12% rate being
retained for two additional years for all electric generating
facilities not fired by oil or gas. Utilities would also be allowed
to increase from 50% to 75% the portion of their 1975 tax liabilities
that can be offset by the investment tax credit. The percentage
would phase back down to 50% by 1980. Corporate tax deductions
would also be allowed for preferred stock dividends issued by utilities
and other industries. These legislative proposals would reduce the
cost of capital for needed utility expansions and stimulate equity
rather than debt financing.
Title VIII is designed to expedite the development of energy
facilities. The Federal Energy Administration would be required
to develop a National Energy Site and Facility Report with
appropriate Federal, State, industry and public input. Information
in this report would be utilized by the Federal government, the States
and industry in developing and implementing plans to insure that
needed energy facilities are sited, approved and constructed on a
timely basis. At the Federal level, FEA would be responsible for
coordinating and expediting the processing of applications to construct
energy facilities.
States would be required to develop management programs to
expedite the process by which energy facility applications are reviewed
and approved at the State level, to insure that adequate consideration
is given to national and regional energy requirements in the State's
siting and approval processes, and to provide that decisions of State
regulatory authorities on energy facility applications are not over-
ruled by actions of local governments. FEA would provide grants
and technical assistance to the States in developing their programs.
If a State does not develop an acceptable management program, FEA
would promulgate an appropriate management program for it. The
Federal Government would not be authorized to override any State
decision on a particular site of facility application.
Title IX would provide needed authority to prevent foreign oil
producing countries from undercutting U.S. efforts to develop
domestic petroleum energy resources or achieve energy
independence. The Federal Energy Administration would monitor
the effect of oil price fluctuations on the economic viability
of conventional petroleum development and production projects.
Upon the finding that this viability is being threatened, tariffs,
quotas, or variable import fees would be imposed.
Two other measures are being developed that will affect domestic
energy supplies. One proposal would assure more rapid siting and
licensing of nuclear facilities while retaining sufficient safeguards
to protect the environment and public health and safety. The
other proposal, to regulate surface mining, would provide the
appropriate balance between the urgent need to increase coal
production and the need to protect the environment.
DEMAND RESTRAINT MEASURES
Each of the demand restraint measures contained in Titles X-XII
is an essential element in achieving our overall goal of reducing
oil imports and lowering the demand for coal, natural gas and
electricity. These proposals will serve to reduce wasteful
energy use, create jobs, and lessen economic hardships, while
not impeding economic output.
Title X would establish mandatory thermal (heating and cooling)
efficiency standards for all new homes and commercial buildings.
It is anticipated that this program will save the equivalent of
500, 000 barrels of oil per day in 1985. The Secretary of Housing
and Urban Development in consultation with engineering,
architectural, consumer, labor and industry representatives
would be responsible for developing thermal efficiency standards.
Standards for residential dwellings would be promulgated and
implemented within one year, and performance standards for
commercial and other residential buildings developed and
implemented as soon thereafter as practicable. State and local
governments would assume primary responsibility for enforcing
standards through local building codes.
LIDRARY
Title XI would establish, within the Federal Energy Administration
a grant program for States to assist low income persons,
particularly the elderly, in winterizing their homes. Title
XI is modeled after a successful pilot project that was conducted
in the State of Maine during 1974. Annual appropriations of
$55 million would be authorized to fund the three year grant
program, and enable States to purchase winterization materials
for dwellings of low-income persons.
Title XII would authorize the President to require energy
efficiency labels on all new major appliances and motor vehicles.
This title would insure that consumers are fully apprised of the
efficiency of various appliances and motor vehicles and would
encourage the manufacture and greater utilization of more
efficient products.
EMERGENCY PREPAREDNESS PROGRAMS
In addition to taking measures to increase domestic supplies,
reduce demand and create a strategic reserve system, we must
be in a position to take immediate and decisive actions to
counteract any future energy emergency.
Title XIII would provide the President with certain standby
authorities to deal with future embargoes or other energy
emergencies and to carry out the International Energy Program
agreement, including provisions for international oil sharing,
mutual energy conservation programs, and international
cooperation on various energy initiatives. This title would include
authority to allocate and control the price of petroleum and
petroleum products, promulgate and enforce mandatory energy
conservation programs, ration petroleum products, order
increases in domestic oil production, and allocate critical
materials needed for the maintenance, construction and
operation of critical energy facilities. All or a portion of
these authorities would be invoked upon a determination that
emergency conditions exist.
LIBRARY
LIBRARY FORD
GERALD
is
LIBRARY
STATUS OF ONGOING ENERGY LEGISLATION PERTINENT TO PRESIDENT'S
PROGRAM
Title I
Naval Petroleum Reserves
S. 2173
(Cannon) authorizes production from Naval
Petroleum Reserves 1, 2, 3. Passed the
Senate, July 29, with Jackson amendment
establishing national strategic petroleum
reserve as in S. 677.
H.R. 49
(Melcher) Authorizes transfer of control of
military petroleum reserves to the Department
of Interior and production of Naval Petroleum
Reserves 1-3. Passed the House, July 8, by a
vote of 391-20. Conference on S. 2173 and
H.R. 49 expected among Senate and House
Interior and Armed Services Committees, and
House Commerce Committee.
Title II
National Strategic Petroleum
Reserve Act of 1975
S. 677
(Jackson) Establishes a civilian strategic
petroleum reserve. Passed the Senate on July
8 by a unanimous vote of 91-0.
H.R. 7014 (Dingell) As part of Omnibus Bill, authorizes
study of establishment of national strategic
petroleum reserve.
Title III
New Natural Gas Deregulation
S. 692
(Hollings, Stevenson) Now pending on the
Senate Calendar. It is unlikely that the
bill will survive as reported without extensive
modification in the direction of higher
prices. Substitute offered by Senator Pearson
represents acceptable Administration fall-
back from Title III.
The House Commerce Committee will act on
natural gas after the Senate completes action
on S. 692, but probably not before November.
The Administration has submitted emergency
legislation (S. 2330) to deal with expected
natural gas shortage for the next two winters.
A "one winter" emergency gas bill has been
introduced in the Senate (S. 2310) by Senators
Hollings, Glenn and Talmadge, and in the
House by Congressman Dingell (H.R. 9464).
Senate floor action is expected this week,
and House hearings will be held the 3rd week
in September.
- 2 -
Title IV
1975 Legislative Proposals to
Amend the Clean Air Act of 1970
S. 1996
(Randolph) Energy Supply and Environmental
Coordination Act Extension, which would
extend ESECA until December 31, 1975 is
pending in Senate Interior Committee.
S. 1777
(Randolph, Jackson) Coal Conversion. The
Senate Public Works and Senate Interior
Committees held hearings. Public Works has
prepared a committee print for markup purposes
in September. Senator Randolph is pushing for
final committee action by October 1.
Titles V & VI
1975 Legislative Proposals
to Amend the Clean Air Act of 1970
Hearings on the Clean Air Act Amendments have
been held by Senate Public Works, which began
a series of markups on June 18. The subcommittee
should complete markup early in September,
with a bill reaching the Senate floor by
November. House Commerce Subcommittee on
Health and Environment has scheduled further
markups of its draft bill for the entire
month of September.
Title VIII
Energy Facilities Planning and
Development Act of 1975
S. 984
(Jackson) Land use. Hearings were held
before the Environment and Land Resources
subcommittee of the Senate Interior Committee
(April 23, 24, 29, and May 2.) Full Committee
markup of the bill is anticipated to occur in
late September or early October.
Title IX
Energy Development Security Act of 1975
No action since introduction.
Title X
Building Energy Conservation Standards
Act of 1975
Energy Efficiency Standards for Buildings. On
September 8, House passed H.R. 8650 which
would facilitate but does not require, adoption
by State and local governments of energy
conservation standards for new buildings.
- 3 -
Title X cont'd.
Senate Commerce Committee has held hearings
on Senator Tunney's bills S. 1392 and S.
1908, and Title X of the President's energy
package. An August 4 committee print of S.
1908 will see markup sometime in September.
Senate Public Works has also scheduled hearings
on Title X.
Title XI
Winterization Assistance Act of 1975
H.R. 8650 would provide assistance to low
income persons to insulate their homes.
Title XII
National Appliance and Motor
Vehicle Energy Labeling Act of 1975
S. 1883
Mandatory Fuel Economy Standards for Motor
Vehicles. Passed the Senate or: July 15.
Similar provisions are included in H.R. 7014
(Dingell) and H. R. 6860 (Ullman) which
passed and is now being marked up by Senate
Finance.
S. 349
(Tunney) Motor Vehicle and Appliance Labeling.
Passed the Senate July 11.
H.R. 7014 Includes appliance labeling program administered
by the Department of Commerce. Floor action
pending.
Title XIII
Standby Energy Authorities
Act of 1975
S. 622
(Jackson) Standby Energy Authorities.
Passed the Senate April 10. Contains mandatory
conservation authorities which the Administration
opposes.
H.R. 7014 Contains a standby authorities title, under
which the President may order cutbacks in
energy use, direct production of oil fields
at MER, and institute gasoline rationing.
Requires multiple congressional approvals of
emergency actions.
OTHER PERTINENT LEGISLATION
Energy Conservation and Oil Policy Act.
H.R. 7014 (Dingell). The Dingell energy bill has
seen several days of debate on the House
floor but agreement has not yet been reached.
An amendment provides for ceilings of $5.25 a
barrel for old oil; $7.50 for new oil; and
$10 a barrel for high cost oil. Further
action has been slowed by the recent recess
and the decontrol fight.
Energy Conservation and Conversion Act
H.R. 6860 (Ullman). This bill passed the House on June
19 without a windfall profits tax provision.
The Senate Finance Committee has held hearings
and markups, but has not yet reported out the
bill. Before the recess it reported out a
windfall profits tax amendment which was
filibustered on the floor on August 1.
OCS Leasing
S. 521
(Jackson) Passed the Senate on July 30 by a
vote of 67-19.
H.R. 6218 (Murphy, N. Y.) Ad Hoc Committee on OCS will
hold final hearings in September and proceed
to markup in October. Chairman Murphy requested
that Speaker Albert have S. 521 referred to
the Ad Hoc Committee instead of using H.R.
6218 as a vehicle. There appears to be
general opposition on the committee to the
Bumpers Amendment on proprietary data, and to
earmarking federal OCS revenues for the
coastal states.
Nuclear Facility Licensing
S. 1717 and H.R. 7002. The Joint Committee on Atomic
Energy has begun hearings on this legislation,
which is intended to improve the licensing
process for nuclear facilities. The Administration
supports such legislation strongly.
Date: 10/9/75
Office of the Administratory 10 1975
To: Jack Marsh
For your information.
Frank
36
Federal Energy Administration
Room 3400
Ext. 6081
Highlight Report
Volume XV
Prepared for
THE FEA OFFICE OF
ENERGY CONSERVATION
AND ENVIRONMENT
Energy/Conservation
October, 1975
How The Public Views
The Nation's Dependence
On Oil Imports
A Possible Natural Gas
Shortage This Winter
The Overall Need
To Save Energy
The attitudes expressed in this study are especially significant in view
of the recent meeting in Vienna of the Organization of Petroleum
Exporting Countries (OPEC), as well as efforts in Washington to reach
a compromise on the decontrol of the price of oil and natural gas.
Public opposition to increased dependence on foreign oil is growing.
So is the fear of a natural gas shortage this winter. People at all levels of
society display a high degree of concern over the need to save energy.
The general implication is that the public seems not only ready, whether
it likes it or not, to accept the fact that the era of cheap energy is over,
but also recognizes the proposition that consumption of foreign oil
needs to be reduced and domestic resources developed.
The big question is whether or not leaders in both the public and private
sectors will make the hard choices necessary for the nation as a whole
to deal with the reality of the current energy situation, both at home
and abroad.
The need to conserve energy is recognized by an overwhelming majority
What is more, almost half of the public believe that it is just as important
of the American public.
now to save energy as it was a year ago. In fact, a substantial number
In fact, on balance, most segments of the population consider the need to save energy
think that the need to save energy is even greater today.
very serious.
Without pinpointing any single factor, those who believe that the need to save energy
has increased (38%) give many reasons for their opinion, ranging from inflation, to
increased consumption, to wasteful usage, to international politics, to lack of
overall action.
ATTITUDES TOWARD THE NEED TO SAVE ENERGY1
THE NEED TO SAVE ENERGY TODAY vs. A YEAR AGO1
Latest Survey
Not Serious
Somewhat
Very
Latest Survey
Remained
At All
Serious
Serious
Decreased
The Same
Increased
Total Public
10%
39%
49%
88%
Total Public
8%
49%
38%
87%
By Sex
By Sex
Men
13%
38%
46%
84%
Men
8%
51%
35%
86%
Women
7%
40%
52%
92%
Women
7%
48%
40%
88%
By Age
By Age
18-29
8%
45%
46%
91%
18-29
10%
42%
47%
89%
30-49
12%
40%
47%
87%
30-49
6%
56%
33%
89%
50 and over
11%
34%
51%
85%
50 and over
8%
49%
34%
83%
By Education
By Education
Less than high school complete
11%
35%
49%
84%
Less than high school complete
7%
50%
32%
82%
High school complete
11%
43%
45%
88%
High school complete
9%
47%
42%
89%
Some college
6%
39%
54%
93%
Some college
7%
51%
39%
90%
By Family Income
By Family Income
Under $10,000
11%
34%
51%
85%
Under $10,000
6%
45%
41%
86%
$10,000-$15,000
11%
48%
40%
88%
$10,000-$15,000
11%
55%
32%
87%
Over $15,000
7%
42%
50%
92%
Over $15,000
8%
55%
35%
90%
By Race
By Race
White
10%
41%
47%
88%
White
7%
51%
36%
87%
Nonwhite
11%
29%
58%
87%
Nonwhite
9%
35%
54%
89%
By Party Preference
By Party Preference
Democrat/Lean Democrat
9%
41%
50%
91%
Democrat/Lean Democrat
10%
49%
36%
85%
Republican/Lean Republican
10%
40%
46%
86%
Republican/Lean Republican
6%
53%
34%
87%
Independent
10%
39%
47%
86%
Independent
5%
48%
44%
92%
By Occupation
By Occupation
White collar
9%
43%
46%
89%
White collar
10%
48%
40%
88%
Blue collar
14%
40%
43%
83%
Blue collar
8%
51%
35%
86%
Not employed
9%
34%
54%
88%
Not employed
6%
50%
37%
87%
By Region
By Region
East
8%
37%
50%
87%
East
6%
47%
40%
87%
Midwest
13%
46%
41%
87%
Midwest
9%
52%
35%
87%
South
9%
38%
50%
88%
South
7%
48%
39%
87%
West
9%
34%
56%
90%
West
9%
50%
38%
88%
Environmental Activists
12%
31%
56%
87%
Environmental Activists
11%
49%
38%
87%
"No opinion" omitted
"Don't know" omitted
1"From what have you heard or read, how serious would you say the need is to save energy-would
1"Compared to what it was a year ago, would you say the need to save energy has increased,
you say it is very serious, somewhat serious, or not serious at all?"
decreased, or remained about the same?"
2
3
The likelihood of another oil embargo is considered
Overall, a majority of people now oppose increased
a distinct possibility by a majority of the public.
dependence on foreign oil-a dramatic change in
All segments of the population share this attitude,
attitudes from a year ago.
with very few (12%) discounting the possibility of
This view is shared almost equally by those of all political
another cutoff of oil imports.
persuasions, whether Democrats, Republicans, or
Independents, and by people in all parts of the country.
LIKELIHOOD OF AN OIL EMBARGO
"In 1973 the oil-exporting
Total Public
OPPOSITION TO INCREASING OIL IMPORTS FROM
countries cut off oil to
FOREIGN COUNTRIES
the U.S. How likely would
"There have been many
Total Public
you say it is that the
suggestions made for
oil-exporting countries
Very Likely
26%
improving the energy
will again cut off oil to the
situation. As I read these
57%
U.S. sometime within the
suggestions, please
September
Latest
next 12 months-would
Fairly Likely
31%
tell me if you strongly
19741
Survey
you say very likely,
favor it, mildly favor it,
fairly likely, not very
mildly oppose it, or
likely, or not likely at all?"
Not Very Likely
21%
strongly oppose it.
15%
More oil should be
33%
imported from foreign
Strongly
countries."
Favor
31%
Not Likely At All
12%
Latest
Survey
"Don't know" omitted
22%
A similar proportion also believe that another oil
embargo would lead to long gasoline lines-a view
Mildly
shared almost equally by people in all parts of the
Favor
23%
country.
23%
LIKELIHOOD OF LONG GASOLINE LINES
"At the time that the
Total Public
oil-exporting countries
Mildly
Oppose
12%
cut off oil to the U.S. there
were long gasoline lines.
57%
How likely would you say
Very Likely
27%
it is that this could
60%
38%
happen again within the
34%
next 12 months-would
Fairly Likely
33%
Strongly
you say very likely,
Oppose
26%
fairly likely, not very
likely, or not likely at all?"
Not Very Likely
22%
33%
No Opinion
8%
6%
Not Likely At All
11%
Latest
1In September, 1974, the introductory wording to the question was,
Survey
"There have been many suggestions made for solving or at least lessening
"Don't know" omitted
the energy shortage."
4
5
Attitudes toward the possibility of a natural gas
The fear of such a shortage is significant since
shortage have changed so that now a majority of the
natural gas is the fuel most widely used in the home,
public believe there is a likelihood of such a
according to the testimony of the public itself.
shortage this winter.
What is more, homes in all parts of the country are highly
Majorities of people in all parts of the country, except the
dependent on gas for one use or another. For example,
West, anticipate a shortage in their area. About half the
46% of those in the East say they use gas for home heating,
residents in all types of localities-rural, small towns,
with even more people reporting such use in other parts
suburbs, and cities alike-also foresee the possibility of
of the country: 74% in the Midwest; 52% in the South;
such a shortage.
and 70% in the West.
LIKELIHOOD OF A NATURAL GAS SHORTAGE THIS WINTER
FUELS USED IN HOUSEHOLDS
"How likely do you think
Total Public
"Which of these-
Total Public
it is that there will be a
gas, oil, or electricity-
Fuel Used To
shortage of natural gas
is used to heat your
in your area this winter
home, heat your water,
Heat
Heat
Run
-would you say very
October
Latest
run your stove?"
Home
Water1
Stove2
likely, fairly likely,
1974
Survey
not very likely, or
not at all likely?"
Very
Likely
22%
25%
49%
41%
Gas
60%
52%
58%
Fairly
Likely
19%
27%
Not Very
27%
Likely
6%
27%
Oil
21%
49%
Not At All
Likely
17%
32%
Electricity
13%
16%
Other
2%
1%
1%
Don't Know
15%
Don't Know
1%
2%
1%
8%
1Percentages do not total 100 because of computer rounding.
2Less than one-half percent use oil to run the stove.
6
7
Implications For Management
will cost more, whether it is gasoline or electri-
Attitudes revealed in this study and other ORC
city. People don't like the idea of higher prices
energy research indicate that the public seems
for energy. But they expect the costs to go up.
ready to recognize and accept the fact that the
And the majority expect the price of oil and gas
energy shortage is real and that the era of cheap
to have either a fair amount or great deal of im-
energy is over.
pact on inflation.
As data on pages two and three indicate, the over-
Also, the public appears more in a mood than
whelming majority of people not only acknowl-
many of its leaders may suspect to accept the de-
edge the need to save energy but also say that
regulation of oil prices if it will encourage U.S.
doing so is even more important than it was a
production. For example, 55% of the public have
year ago. Moreover, almost half (49%) of the pub-
said in the past six months that they favored such
lic also think that this need will extend far into
a proposition.
the future.
The public, however, has indicated that it wants
What is more, attitudes have changed signifi-
the Administration and Congress to put a lid on
cantly in regard to whether the energy situation is
any "windfall profits" or special advantages for
real or contrived. A year ago the public was di-
energy companies that might come about because
vided over the issue: 32% believed the energy
of deregulation of prices. As we have said before,
shortage to be real; 37% believed it to be con-
people also might more readily accept more strin-
trived; 25% felt it to be some of both. By the
gent controls over their own use of energy if they
middle of 1975, the bulk of Americans (45%) had
are assured that no one will profit from some-
concluded that the situation is real; 32% still
one else's sacrifice.
thought it contrived; 17% felt it to be some of
Views on deregulation of prices of natural gas
both.
have been much more mixed. In June, only 35%
The public also indicates that it firmly believes
of the public favored the idea, while 46% were
that the time has come to reduce our consumption
opposed. However, growing concern over a natu-
of foreign oil and to produce energy from our own
ral gas shortage this winter (see page six of this
resources.
report) could well lead to changes in this attitude.
Note the sharp shift in opinion (page 5) in regard
In sum, people give every indication of coming to
to increasing oil imports-with some degree of op-
the point of being fed up with those they think
position to imports now expressed by a majority
may be "playing politics" with energy, whether it
of the public. Equally important, Americans seem
is in the public or the private sector. From the
to recognize that the threat of the Organization
public standpoint, at least, it would seem that the
of Petroleum Exporting Countries (OPEC) is not
time for debate is over. The time is for action.
going to go away. What is more, the majority of
people believe that another oil embargo, such as
The public seems ready "to bite the bullet." Now
that imposed by the Arabs in 1973, is a real possi-
it wants those in positions of leadership to do the
bility.
same when it comes to making the hard, unpleas-
ant choices necessary to meet the nation's energy
On the other hand, the public, by large majorities,
needs and reduce the country's dependence on
has continued to support further offshore drilling
foreign oil.
and the development of more nuclear power facil-
ities. In fact, attitudes in this regard have changed
It may be going out on the proverbial limb to say
very little over the past year, with people backing
so. But those in corporate circles and in Washing-
the development of not just one but a variety of
ton who fear a political backlash as a result of
domestic energy sources.
rising fuel prices due to decontrol may be mis-
reading the current state of the public mind.
At the same time, the public has indicated that
it is far from ready to support the development
What may be more politically palatable in the
of domestic energy sources at the expense of the
next election year may be those candidates and
environment. However, the public also seems to
their supporters who candidly lay the issue on
have little doubt that a reasonable balance can be
the line, especially in this post-Watergate era of
struck by which we can meet our energy needs
mistrust of political "wheeler dealers" as well as
without seriously endangering the environment.
big corporations. As Frank G. Zarb, Federal En-
Considering its views overall, the public seems to
ergy Administrator, recently wrote in the Wall
to be far ahead of many of its leaders, such as
Street Journal:* "The entire premise of democratic
some key members of Congress, in accepting the
government is that the people can reason their
blunt fact that there simply is no easy way out of
way to the right decisions and make the hard
the energy dilemma.
choices that self-government requires. We must
tell the public the truth about the energy problem
Since ORC began measuring attitudes toward the
and its solutions and stop making political prom-
energy situation in depth, we have found that
ises of cheaper energy that cannot be delivered.
people as a whole blame themselves as much as
Let's have a frank discussion of the issues in-
the Administration or the Congress for failure to
volved in the energy situation, bring all the facts
take the necessary steps to solve the problem.
out into the open and let the people decide."
The public readily admits to its own wastefulness.
*"The Seven Truths of Energy," The Wall Street Journal,
The public also knows and expects that energy
September 10, 1975.
ABOUT THIS STUDY: Results in this report are based upon telephone interviews with a national probability sample of persons
age 18 and over. Latest public attitudes shown on pages two through five are drawn from a sample of 1,020 adults interviewed
between August 4 and August 29, 1975. Results on page six are based upon 516 interviews conducted between August 4 and
August 16, 1975. Data on page seven are drawn from a sample of 1,222 adults interviewed between May 31 and June 22, 1975.
Index Attitude Trend Data draw on previous samples of the adult general public.
Opinion Research Corporation an
Arthur
D.
Little
company
North Harrison Street, Princeton, New Jersey 08540, Telephone: 609/924-5900
80131
see Robunson
February 2, 1976
MEMORANDUM TO:
FRANK ZARB
FROM:
JACK MARSH
Congressman Kenneth Robinson has sent me the resume of a
constituent who has a background in the energy field. This
individual, Mr. C. Preston Locher is interested in a con-
sultant post at FEA, should you have need of his expertise.
If such is the case, I suggest you communicate directly with
Congressman Robinson or c. Preston Locher.
Many thanks.
JOM:cb
FORD LIBRARY is 07VER3
May 15, 1976
MEMORANDUM FOR: FRANK ZARB
FROM:
JACK MARSH
1 think this deserves special attention because of the California
trip.
ID#
1 would appreciate FEA's comments and Q&As for the President.
Many thanks.
JOM/dl
CTAY FORD LIBRARY
May 13, 1076
Dear Bill:
Thank you for your May 11 letter to the
President concerning Federal Energy
Administration regulations and their ef-
fect on the production of petroleus in
California.
se assured that 1 will bring your letter
and the anterial you enclosed to the atten-
tion of the Fresident without delay. Copies
will also be shared with the appropirate
advisers.
with kindest regards,
Sincerely,
Charles Leppert, Jr.
Deputy Assistant
to the President
FORD in LIBRARY GERALD
The Conorable Villiam R. fetchus
House of Representatives
Mashington, D.C. 20515
bec: w/inc to James Cannon - for further action
bee: w/inc to Bill Nicholson - FYI (The letter to the Fresident from
C. C. Albright, President of the California independent Producers
Association, regarding a possible visit to wilmington Oil Field
had not been received as of 5/13, per White house Mail Room.)
bee: w/ine to SIMEAUANZING FYI
bcc: w/inc to Jim Shuman - FYI
CL:JEB:V0:kir
WILLIAM M. KETCHUM
KCAN, INYO, TULARE AND
Los ANGELES COUNTIES
18TH DISTRICT, CALIFORNIA
DISTRICT OFFICES:
413 CANNON House OFFICE BUILDING
800 TRUXTUN AVENUE. # 302
WASHINGTO-. D.C. 20515
(202) 225-2915
Congress of the United States
BAKERSFIELD. CALIFORNIA 93301
(805) 323-8322
567 W. LANCASTER BOULEVARD
ADMINISTRATIVE ASSISTANT
CHRISTOPHER C. SEEGER
house of Representatives
LANCASTER, CALIFORNIA 93534
En
(805) 943-8116
DISTRICT REPRESENTATIVE
Mashington, D.C. 20515
192 B E. LINE STREET
MEL BAUGHMAN
BISHOP, CALIFORNIA 93514
(714) 873-7171
COMMITTEE ON WAYS AND MEANS
May 11, 1976
net
The President
The White House
evel
Washington, D.C. 20500
Dear Mr. President:
I am writing to you in an effort to correct a most serious
inequity in FEA regulations which will have serious conse-
quences for the production of petroleum in California.
This letter is necessitated by the stubborn refusal of
Mr. Zarb to recognize a gross mistake on the part of his
Department and to take the steps required to correct it.
For well over a year, those of us concerned with the decline
of domestic production have pointed to the gravity price dif-
ferential in California as a prime culprit. This sets a
controlled price for California lower tier crude oil at
$4.21 per barrel, as against a national average of $5.25 per
barrel. I honestly do not know how FEA can expect a producer
to drill when this is the price he is going to get- $1.04
below what producers in other states receive!
As you know, Mr. President, I happen to be opposed to all price
controls on oil and gas. But support of an end to the current
discrimination against California crude is not confined to
advocates of decontrol. As a matter of fact, the entire
California congressional delegation, the two houses of the
California Legislature, both California United States Senators,
the Governor, Lieutenant Governor and Controller of California
have all endorsed this position. One can hardly get more
non-partisan than that!
2.
Mr. President, this is a most important issue to California.
All we ask is to be treated equally, The only real argument
against us seems to be FEA's reluctance to admit it made a
mistake.
I respectfully ask you to look over the enclosed letter from
the California Independent Producers Association, and to take
personal action to grant us equity.
Thank you for your consideration.
Sincerely yours,
Bir Jafe
William M. Ketchum
Member of Congress
WMK : kobd
CIPRO
CALIFORNIA INDEPENDENT PRODUCERS ASSOCIATION
P. O. Box 7516, Long Beach, Calif. 90807 Phone (213) 427-7141
C. C. Albright
Lysle Snow
President
MAY@7 RECD
Secretary-Treasurer
Jerome J. O'Brien
James H. Woods
Vice President
Executive Vice President
April 30, 1976
Honorable William M. Ketchum
House of Representatives
Cannon Office Building
Washington, D. C.
20515
Dear Congressman Ketchum:
At the request of Ray Bradley, Berry Holding Company, enclosed is a draft of
the letter that will appear in the Oil Daily on May 10, 1976. The letter will also be
hand delivered to the President the same day, or the preceeding Friday.
I have highlighted the statistical information regarding lost barrels of oil
production. The information from our survey is approximate. I'll send you a copy
of the final report when it is completed.
Sincerely,
JamesH Woods
Woods
Executive Vice President
enc.
jhw/ks
cc: Ray Bradley
Ine White House
Bashington, D. C.
Dear Mr. President:
GERALD 78847 FORD
You are hereby cordially invited to be our guest for 'a tour of the
giant Wilmington Oil Field during one of your visits to California in the
near future.
In the best interest of the energy supply of the United States, I
believe that you should be personally aware of the impending disaster facin;
California lower tier oil production and future oil reserves from enhanced
recovery.
Lower tier crude oil producers in California are discriminated against
because the gravity price differential is "locked in" by the FEA at 6.2 cen
per gravity degree instead of 2 cents per gravity degree differential
existing in all other oil producing states except Alaska. Thus, California
lower tier crude oil prices average $4.21 per barrel instead of the $5.25
per barrel average of the Nation. This has caused many thousands of barrel
per day, and hundreds of millions of barrels of oil reserves to be facing
premature abandonment.
A classic example is the Wilmington oil field which produces 77,000
harrels per day and is the Nations second largest producing oil field under
expensive enhanced recovery by water flood. Facts obtained during a recent
tour of the field are as follows:
1. Throughout the field, ,428. wells capable of producing 300 barrel
per day are currently shut-in because they are uneconomic to produce or not
profitable to return to production after minor damage because the costs of
producing exceeds the $4.21 average price of the oil. In addition, 245-we
producing 794 harrels per day are currently at the economic limit and
subject to being shut-in in the near future.
2. In the old Wilmington part (.f the field which is currently produci
77,000 harrels a day, 36,000 barrels per day are marginal because of greatl
The White House
Washington, D. C.
Dear Mr. President:
GERALD 778,847 FORD
You are hereby cordially invited to be our guest for 'a tour of the
giant Wilmington Oil Field during one of your visits to California in the
near future.
In the best interest of the energy supply of the United States, I
believe that you should be personally aware of the impending disaster facin
California lower tier oil production and future oil reserves from enhanced
recovery.
Lower tier crude oil producers in California are discriminated against
because the gravity price differential is "locked in" by the FEA at 6.2 cen
per gravity degree instead of 2 cents per gravity degree differential
existing in all other oil producing states except Alaska. Thus, California
lower tier crude oil prices average $4.21 per barrel instead of the $5.25
per barrel average of the Nation. This has caused many thousands of barrel
per day, and hundreds of millions of barrels of oil reserves to be facing
premature abandonment.
A classic example is the Wilmington oil field which produces 177 000
harrels per day and is the Nations second largest producing oil field under
expensive enhanced recovery by water flood. Facts obtained during a recent
tour of the field are as follows:
1. Throughout the field, 428 wells apablex of producing 7x300 barrel
per day are currently shut-in because they are uneconomic to produce or not
profitable to return to production after minor damage because the costs of
producing exceeds the $4.21 average price of the oil. In addition, 241-wel
producing 6, 7.94 harrels per day are currently at the economic limit and
subject to being shut-in in the near future.
2. In the old Wilmington part (.f the field which is currently produci
77,000 harrels a day, 36,000 barrels per day are marginal because of greatl
for enhanced recovery, the secondary recovery oil reserves are estimated
be 250 million barrels, and the tertiary recovery oil reserves are estima
to be 600 million barrels. This means that the price of oil must stay ah
of the costs of producing it. Production costs have doubled since the pr
freeze in 1973 and are currently increasing at a rate of 15% a year under
curtailed operations. In this part of the field it is estimated that the
will he a lossio 32 million in 40 months.,under FEA price controls if pr
duction continues.
As neither the largest interest holders, the State of California, an
the City of Long Beach, nor the forty other participants, including thirt
five small Independent Oil Companies, can long continue to operate under
expensive enhanced recovery at an escalating loss, 36,000 barrels per day
oil production faces premature abandonment in the near future.
Therefore, with abandonment pending, approximately 000 employees
would lose their jobs, and the local economy would lose $65 million annua
Further redevelopment of this part of the field would be unrealistic beca
of the high value of the surface area. If this part of the field is
abandoned, it is estimated that the cost of redcvelopment would be $400
million. Also, if this part of the field is abandoned, 850 million barre
of oil reserves are lost to the Nation. This includes an estimated 250
million barrels of secondary recovery oil and an estimated 600 million be
of tertiary recovery oil in the future under higher prices.
3. As to the Long Beach Unit part of the field which is currently I
ducing 100,000 barrels per day also under expensive enhanced recovery by
water flooding, the lower tier price is $4.20 per barrel. Because of the
fact that in November 1975, the Federal Energy Administration denied the
petition of the State of California, the City of Long Beach and the Calil
Independent Producers Association for adjustment of the gravity different
which would have given California producers price parity with other parts
the country, operations have been sharply curtailed during the past seve)
months. Production stimulation, dri" ling, redrilling and injection well
to maintain production rates has practically ceased. Only one work over
is active in this great oil reserve. If this curtailment of operations
continues, an additional 33,000 barrels per day loss in production from
resulting rapid decline rate will be the inevitable result in 40 months.
22 million barrels of oil production will be lost.
Thus, by the end of the 40 months price control period under the FI
regulations, the total Wilmington field loss of production may be 36,000
barrels per day from the old part of the field, and 33,000 barrels per €
from the Long Beach Unit part of the field, for a total loss,of:69 000
barrels per day
The Governor of California, the Lieutenant Governor, the State Cont
the California Independent Producers, all California Congressmen, the ti
Senators, and all the California State Legislators have appealed to the
to correct this inequity. They have stated that, in the best interests
increased production and reserves, California crude oil prices should b.
allowed to reach parity with those prices existing in other oil producii
states. The FEA has stated that they will consider our Appeal during t
Third Stage Hearings later this month. A potential loss of $200 millio
annually to California's taxpayers is in the balance.
Oil production now being lost in California is heing replaced by $
per barrel imported O.P.E.C. oil. Hundreds of millions of barrels of t
Nations valuable oil reserves will be lost forever, if wells uneconomic
duce because of FEA regulations are abandoned in the near future in the
Wilmington Field, as well as in other oil areas of the State. This is
good for the California consumer, the economy, the job situation, or th
FORD
energy security of the Nation.
In addition, a rccent poll taken ofarcross-section of eighteen, En
pendent Oil Producers of lower tier oil throughout other parts of Calif
showed that if the cravity differential was adjusted to 2 cents by the
and California lower gravity oil was caised to parity prices, an additio
15,000 barrels per day, and 55 millin barrels 85 oil reserves would be
result of additional development, reworking and enhanced recovery by wat
flooding or steaming.
Therefore, as the Commander in Chief, you are invited to see the
Wilmington Oil Field, the principal battlefield in the conflict between
the FEA and the Independent Oil Producers, the City of Long Beach, and t
State of California. A trip to one of the offshore drilling islands by
boat or helicopter would be a highlight of the tour.
Very truly yours,
Seain C. C. Albright
President, California Independent
Producers Association
CCA:jp
GREAT FORD LIBRARY
MAY 2.1.1976
FEDERAL
FEDERAL ENERGY ADMINISTRATION
*
WASHINGTON, D.C. 20461
ADMINISTRATION ADMI
May 21, 1976
OFFICE OF THE ADMINISTRATOR
MEMORANDUM FOR JACK MARSH
FROM:
FRANK G. ZARB z
SUBJECT:
GRAVITY PRICE DIFFERENTIAL FOR CALIFORNIA
CRUDE OIL
Pursuant to your request, attached is the following
information:
(1) An historical summary of the actions taken by
the Federal Energy Administration with respect
to crude oil gravity pricing differentials;
(2) Questions and Answers for the President.
Attachments
FORD LIBRARY is OERALD
SUMMARY OF ACTIONS TAKEN BY
THE FEDERAL ENERGY ADMINISTRATION
CONCERNING
CRUDE OIL GRAVITY PRICE DIFFERENTIALS
BACKGROUND
Crude oil normally is and has been sold at prices that
reflect, among other factors affecting quality, differences
in "gravity", which is a measure of density or weight per
unit volume. The American Petroleum Institute (API) system
for measuring the density of crude oil is in degrees, with
oil at a gravity of ten degrees (10 API) equivalent to
the density of water, and with higher degree measurements
indicating lesser densities. Water at 10 API, for example,
weighs 351 pounds per barrel, while gasoline at 60 API
weighs 259 pounds per barrel. While the gravity of most
domestically produced crude oil falls within the 26 to 36
API range, crude oil produced in California is generally
heavier, most falling below 20 API.
Historically, since the lighter density crude oil
(with a higher API degree measurement) could more easily
be separated into products such as gasoline, diesel fuel,
and jet fuel, for which demand (and prices) was higher, and
since the heavier crude oils, on the other hand, generally
produced products such as residual fuel oil, for which demand
was considerably less, refiners generally have paid a premium
for higher degree (or lighter density) crude oils.
2
On May 15, 1973, gravity price differentials for crude
oil averaged between 2 and 2.5 cents per degree per barrel
nationally, while gravity price differentials in California,
however, averaged 6.2 cents per degree per barrel. Pursuant
to 10 CFR 212.73 which establishes for each grade of crude
oil in each field a ceiling price equal to the highest posted
price on May 15, 1973 plus $1.35 per barrel, "old" crude oil
prices continue to reflect the gravity price differentials
existing on May 15, 1973.
Thus, since most crude oil produced in California is
heavy, and reflects a 6.2 cents per degree gravity price
differential, the current average price for old crude oil in
California is $4.21 per barrel compared with the FEA-computed
national average price of $5.25 per barrel.
On July 1, 1975, the Federal Energy Administration (FEA)
gave notice (40 FR 28637, July 8, 1975) of a proposed rule-
making and public hearing to consider whether to amend
10 CFR 212.73 (ceiling price rule) to permit an adjustment
to the May 15, 1973 gravity price differential for heavy
California crude oil.
Comments were received from more than thirty-five
interested parties, predominantly California producers and
royalty owners, and State and local governments. A public
hearing was held on August 5, 1975, at which oral presentations
were received from thirteen interested parties.
3
The rulemaking proceeding was initiated in response to
suggestions that the historical, economic and technical
factors which had resulted in the gravity price differential
that existed for California crude oil on May 15, 1973 might
no longer be relevant. These were: first, since most
California crude oil is heavy and difficult to refine into
lighter products, it was used primarily to produce residual
fuel oil. Since residual fuel oil competed with natural gas,
available in abundant quantities at low prices as a fuel for
electric utilities, the price of residual oil was relatively
low. Second, although technology in the refinery industry
made possible the conversion of heavy crude oil into lighter
products, the higher costs of equipment necessary for this
process tended further to restrain prices of heavy crude oil
since recovery of these additional cost was possible only in
sales of lighter products refined from light crude oil.
The rulemaking sought to determine (1) whether an
amendment to the regulations would be in keeping with FEA's
commitment to stimulate domestic crude oil production by
increasing the incentives for and economic feasibility of
recovering a greater percentage of the proven reserves that
exist in the California heavy crude oil areas; (2) whether
the benefits consumers would realize from any resultant
increased production would more than offset the adverse
impact of the price increase that would result from a
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permitted adjustment in the gravity price differential;
and (3) whether any increased production resulting from
such an adjustment would help to reduce U.S. dependence
on higher priced foreign imports.
Based on the comments received, FEA decided that the
proposed regulatory amendment was not justified.
While the gravity price differential for heavy crude
was found in November 1975 to be less for "new" and "released"
crude oil produced in California than it was for crude oil
produced in May 1973, FEA concluded that narrowing of the
differential for upper tier controlled crude oil did not
necessariy reflect long term market changes. Instead, FEA
concluded the differential reflected the fact that FEA's
price regulation allowed a disproportionate amount of increased
crude costs to be reflected in residual fuel oil prices and
that refiners had tended prior to controls to price domestic
residual fuel oil at imported price levels. Thus, domestic
reiners of residual fuel oil were able to charge higher prices
for residual oil than for other domestic products such as
middle distillates relative to May 1973. This may have been
a significant reason for the relatively greater demand for
uncontrolled upper tier heavier crude oils and thus their
relatively higher prices in 1975 vis-a-vis the historical
level existing on May 1973. FEA has not yet been able to
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determine whether such values would continue to be reflected
in California crude oil prices absent the current regulatory
scheme.
FEA also was not convinced that the upward price
adjustment sought by California producers would be likely to
result in the recovery of significantly greater volumes of
the proven reserves that exist in the California heavy crude
oil areas than would be expected to be recovered from other
old oil fields outside California if similar price incentives
were applied. Although FEA fully recognized the necessity
for new price incentives to maintain old oil production at
or above current levels, it found no reason to believe that
greater incentives were needed in California than in the
rest of the nation, or that a particular inequity existed
with respect to the pricing of California crude oil because
production costs increased there more rapidly than elsewhere
in the United States. It should be also noted that the
$1.35 increment above May 15, 1973 prices which FEA allowed
in computing old oil prices had already had the effect of
raising the price of heavy California crude oil by a greater
percentage than that obtained by more expensive lighter
density crude oils. The $1.35 adjustment therefore had
reduced the relative differential between light and dense
old oil.
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CURRENT ACTION
The FEA has undertaken to implement the crude oil pricing
policy of the Energy Policy and Conservation Act ("EPCA",
P.L. 94-163) in three stages. On February 1, 1976, new
domestic crude oil price regulations were adopted to implement
the first stage ( 41 FR 4931, February 3, 1976). The regulations
established a two tier domestic crude oil pricing system, with
lower tier prices estimated to average approximately $5.25 per
barrel nationally and upper tier prices estimated to average
approximately $11.28 per barrel nationally.
It should be pointed out that, in the first stage rule-
making proceeding, FEA solicited comments on the extent, if
any, to which information not previously made available
(Subsequent to November 21, 1975) might tend to offset the
conclusions stated in FEA's prior decision not to permit
adjustments to May 15, 1973 price differentials. Inasmuch
as comments received in the prior proceeding indicated that
the considerations that obtained in California also obtained in
Alaska and perhaps elsewhere with respect to this issue,
FEA also considered whether to amend the regulations with
respect to crude oil produced in Alaska or elsewhere in the
same manner as was proposed initially with respect to crude
oil produced in California. In this regard, FEA solicited
data in support of the extent to which any adjustments were
permitted (and prices for old crude oil were permitted to
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increase) FEA would be required to make the statutory findings
of Section 8 (b) (2) of the EPCA, i.e. that an increase in old
oil price meets the following criteria necessary for more
expensive production or is necessary to maintain or increase
production. Accordingly, FEA indicated that comments should
address the extent, if any, to which an adjustment to May 15,
1973 differentials for heavy crude oil produced in California,
Alaska or elsewhere, (A) would give positive incentives for
(i) enhanced recovery techniques, or (ii) deep horizon develop-
ment for such properties; or (B) is necessary to take into
account declining production from such properties; and (C) is
likely to result in a level of production from such properties
beyond that which would otherwise occur if no such amendment
were made.
Only a small proportion of the total number of comments
received in the first stage rulemaking proceeding addressed
this issue. However, those in support of an adjustment to
gravity price differentials for California crude oil, while
submitting a large quantity of data, did not address (1) the
extent to which the regulations proposed in the January 6
notice would affect any of the economic forecasts developed by
California producers and royalty owners, which were based upon
the prior regulations, or (2) the extent, if any, to which the
statutory findings referred to above could be made.
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Accordingly, the resolution of this issue was deferred
for further consideration in connection with the resolution
of this third rulemaking stage.
On April 8, 1976, FEA adopted amendments to implement the
Second Stage of the EPCA (41 FR 15566, April 13, 1976). The
amendments provide for monthly upward adjustments in the
composite price, beginning in March 1976 to take into account
the effects of inflation and to provide additional production
incentives. In effect, these amendments provide for upward
monthly adjustments both to the lower and to the upper tier
domestic crude oil prices and for semi-annual reductions in
the base production control levels for "certain properties to
reflect the natural rate of production decline on those proper-
ties.
Comments were solicited in this second stage to afford as
much of an opportunity as possible to develop the required data
to amend the existing gravity price differentials.
On May 7, 1976, FEA published a notice of proposed rule-
making (41 FR 18873, May 7, 1976) to implement the third stage
of the crude oil pricing policy of the EPCA, in which the
FEA will consider whether additional incentives are needed to
maintain or increase production of crude oil and whether an
amendment to provide such additional incentives should be
adopted.
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FEA has requested comments on adjustments to the May 15,
1973, gravity price differentials for heavy crude oil. These
comments are scheduled in response to numerous California
producers and royalty owners as well as Federal, State, and
local government officials requests for reconsiderations of
FEA's earlier conclusion. (40 FR 54263, November 21, 1975).
More specifically, FEA has solicited additional comments that
will address those issues that were not directly addressed
during the first rulemaking stage:
(1) The effect of the old crude oil price increase
contemplated, and
(2) The extent to which the statutory requirements (EPCA,
8 (b) (2)) can be met.
In addition, FEA also is seeking specific data which will
demonstrate any expected loss of production that will occur
under the February regulations and under the stage two adjust-
ments.
Since the first and second stage regulations are designed
to provide incentives for increased production from all proper-
ties producing old crude oil, comments have also been requested
as to whether these incentives are adequate for California
production.
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The notice of proposed rulemaking also seeks data which
will identify any fields from which production is expected
to be lost.
Regional hearings on the third stage rulemaking will be
held in, inter alia, in Los Angeles on June 8, 1976 at 9:30 a.m.
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COMMENT
The oil gravity differentials which were "locked in"
effective May 15, 1973, for what is now termed lower
tier crude oil were set by free market forces on that
date. The FEA regulations have to date preserved
these gravity differentials; it did not create them.
The direct comparison of average California
crude oil prices to the national crude oil price
for lower tier crude oil implies that the oils are
of like quality and like value. This is not correct.
California crude oil averages approximately 15 degrees
lower API gravity and is higher in average sulphur
content than the average crude oil produced in the
rest of the country. A price differential would
therefore be expected between average California grade
crude oil and that produced elsewhere in the United
States.
The Wilmington oil field has been cited
repeatedly by California operators as an example
of a high-cost field, producing largely under
secondary (water flooding) operations which will
either lose production or fail to gain attainable
oil production because of low crude oil prices.
Excellent data have been supplied on this field to
the FEA and the following conclusions have been
tentatively reached:
SAND
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1.
The claims for the field have been exaggerated
o A major portion of "shut-in" production would
stay "shut-in" if requested crude oil lower tier
California price changes were made.
O A major portion of claimed production increases
that could be obtained given increased lower tier
oil prices can be justified economically at present
prices.
2. Administrative remedies are available to maintain produc-
tion. As each unit or property approaches non-economic
operating status the FEA can, upon appeal, grant the
operator the right to sell part of the production
at upper tier crude oil prices.
3. Production will not be "lost" from the Wilmington field,
and other like fields, as a result of deferred production
expenditures. It will largely be deferred until crude
oil prices increase with time. Crude oil production
"lost" in 1976-1979 will, presumably, be "gained in
1980-1983.
4. The claims for increased oil recovery via tertiary
recovery operations in the Wilmington oil field may be
immaterial to lower tier oil pricing. If satisfactory
national oil pricing regulations can be developed,
3)
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those parts of the field subjected to new oil recovery
methods would qualify, largely for increased oil prices.
CONCLUSION
1. FEA, as evidenced by the number of hearings held on
the subject, has provided ample opportunity for the
proponents to supply supporting evidence.
2. Claims that production will be significantly curtailed
have not been to date supported by specific data to
warrant a regulatory change.
3. FEA has provided additional incentives to crude pro-
ducers within the perameters of the .EPCA to increase
production and is seeking through the third stage
evidence as to what additional incentives are necessary.
4. If such incentives are in fact inadequate, producers
may request special consideration which will be granted
upon a showing of economic hardship or gross inequity.
To date, a general request by California producers has
been denied.
5. Any rule change must be supported by facts and be
warranted in light of other considerations such as
national production and the costs of new production.
The desire for individual economic largesse cannot
be a primary consideration.
LEVERAL
QUESTION
Why is the Federal Energy Administration refusing to grant
price increases for crude oil owned by the State of California?
These increases are necessary to treat this oil equitably with
other parts of the Nation and to increase oil production.
[Answer - see below]
BACKGROUND
California crude oil is primarily low gravity (low quality)
crude that has historically sold for less than higher gravity
(higher quality) crudes. The State of Alaska, some Texas
fields and Iran have a similar crude and hence, lower average
prices.
The current spread of $1.04 between the California crude and
the national average ($4.21 for California versus $5.25 for
old oil nationally) reflects the spread that existed prior to
controls - when the free market determined the prices of various
quality crudes.
The State of California has been trying to get FEA to raise the
price on this crude for over a year without success. The State
claims that fields are being shut in, production lost, and the
state denied revenues as a result of the FEA price rules and
FEA's refusal to grant relief.
FEA argues that the state has not presented sufficient evidence
to justify its claims according to the stringent requirements
laid down in the Energy Policy and Conservation Act (and its
predecessor, the Emergency Petroleum Allocation Act), and
that it cannot act until this evidence is provided. FEA cites
other cases where such relief has been granted on the basis of
evidence provided by the field operator. It also argues that
some old oil is selling for less today than the California
crude, and similar claims are not being made for those fields.
State officials recently agreed that adequate data had not been
presented and have asked for additional time to prepare the data.
FEA has granted this request. If FEA eventually grants relief,
other oil prices will have to be reduced elsewhere in the Nation to
maintain the composite average of $7.66 (now $7.67) required
by the EPCA.
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Frank Zarb has indicated that the California crude may be one
of those situations justifying an increase in the domestic
average price greater than the 10% allowed administratively by
the EPCA. A public hearing is being held on this now, and a
proposal may be sent to Congress this summer asking for a higher
escalator that includes California crude along with other
opportunities.
ANSWER
I am sympathetic with Californians and all other producers in
the country who have to sell their oil at controlled prices -
particularly those who have old oil. I was the one urging
decontrol all of last year, but the Congress was heavily opposed.
This opposition was expressed in the energy act that I reluctantly
signed last December, primarily because it was the best bill we
were going to get out of the Democratically controlled Congress.
Many Congressmen thought the prices in that bill were too high.
216 members of the House - including many of those in the
California delegation voted for a bill last summer (H.R. 7014)
that would have rolled back the California prices everyone is
now complaining about by $1.00 - from $4.21 to $3.21! Fortunately,
we did better than that.
Given my strong belief that higher prices are needed to encourage
greater domestic production, I have asked Frank Zarb to do
everything he can to raise prices as much as possible under the
energy act to increase domestic production, including California
production.
The criteria in the energy bill to do this are stringent, and
FEA must strictly adhere to the law. It should also be noted
that any increases given to California crude oil will have to
be offset by reductions in crude oil prices elsewhere unless
Congress agrees to raise prices.
FEA is currently gathering evidence regarding the need to raise
prices to increase domestic production. This project includes
a specific evaluation of the California crude situation. If
the data supports the need for higher prices, FEA will propose
an increase which will go into effect unless the Congress vetoes
it.
Called
8.30 dly
Date: 12/29
From: The Assistant Administrator
[1976]
For Operations, Regulations and Compliance
ORD
DONNA LARSON - -
1n
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BIT
ATTACHED IS THE
PROPOSED FEA MEMO ON
GASOLINE DECONTROL. UNLESS
WE HEAR DIFFERENTLY PRIOR
70 1:00 PM, THE FINAL
VERSION WILL REFLECT MR.
FRIEDERSDORF'S PREVIOUS VOTE
CI.E. FOR OPTION 1). IF ANY
QUESTIONS, PLEASE CALL RANDY
HARDY, 254-8505,
Ophen #1
FEDERAL ENERGY Sura, ADMINISTRATION
Rusty
ADHAND
FEDERAL ENERGY ADMINISTRATION
WASHINGTON, D.C. 20461
OFFICE OF THE ADMINISTRATOR
MEMORANDUM FOR THE PRESIDENT
FROM:
FRANK G. ZARB
ADMINISTRATOR
SUBJECT:
GASOLINE DECONTROL
Background
In accordance with the provisions of the Energy Policy and
Conservation Act (EPCA), the Federal Energy Administration
has proposed and the Congress has allowed price and alloca-
tion controls to be removed from residual fuel oil, middle
distillates, military jet fuel, and naphtha, gas oils, and
other products. Thus, about half of refiners' output in
the United States has been decontrolled, with gasoline,
natural gas liquids, commercial jet fuel, and aviation
gasoline being the most important products still controlled.
Each of these remaining products under control is being
considered and analyzed separately with respect to economic
and market structure impact.
FEA has now completed the required findings on the effects
of decontrolling motor gasoline from both price and alloca-
tion controls. These findings have already been the subject
of public comment and public hearings throughout the country.
The results indicate that motor gasoline can be decontrolled
without any price increases in addition to those that would
normally occur under controls. In addition, with decontrol
of motor gasoline, about 95 percent of U.S. refiners' output
would be decontrolled. Therefore, it is FEA's finding that
there exists sufficient justification on economic grounds
for your submitting a formal gasoline decontrol proposal to
the Congress immediately upon its return, should you choose
to do SO. Because Congress has only fifteen days to dis-
approve such a proposal, it must be submitted by January 4,
1977, to become effective during your Administration.
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While the decontrol of motor gasoline can be justified on
economic grounds, the political implications should be
considered. Five Senators-elect wrote to you on December 9,
1976, recommending that you do not submit such a proposal.
In addition, Representatives Dingell, Moss and Staggers have
communicated their desire to me that no such proposal be
submitted during early January as such an important decision
should be reviewed first by the new Administration. Further-
more, Representative Dingell, in his capacity as Chairman
of the House Interstate and Foreign Commerce Subcommittee
on Energy and Power, made it clear during testimony this
past year that he would oppose any gasoline decontrol pro-
posal until some form of dealer protection legislation is
enacted.
The latest Congressional proposal on this subject was
H. R. 13000, the "Petroleum Marketing Practices Act," which
was introduced by Representative Dingell and considered by
his Subcommittee, but mark-up did not occur before
adjournment.
Representative Dingell will probably re-introduce dealer
protection legislation early in the next Congress, but it
will not be enacted by the time the 15-day review period
is up should you submit a gasoline decontrol proposal on
January 4. This will be used as an argument against approval
of decontrol.
Finally, in any testimony regarding gasoline decontrol
during the 15-day review period, we will be questioned as
to FEA's ability to assure that dislocation in the market-
place will not occur as a result of decontrol. We intend
to propose such protective measures as the operation of a
price monitoring trigger and administrative mechanisms
for protecting independent marketers during the transition
to a decontrolled market for up to one year. In addition,
we intend to support quick enactment of appropriate dealer
protection legislation to meet Congressional concerns.
We propose to make decontrol effective March 1, which would
allow the incoming Administration adequate time to evaluate
and perhaps retain controls in effect if they SO choose.
Options
Four options are open to you with regard to the submission
of any gasoline decontrol proposal.
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Option 1
Transmit the gasoline decontrol proposal to the Congress on
January 4, 1977, without prior consultation with members of
the new Administration.
Pros:
Fulfills your commitment to phase out government
controls whenever they are found to have become
unnecessary.
Clearly illustrates the sincerity and commitment
of your Administration in decontrolling gasoline,
while specifically addressing Congressional con-
cerns regarding unwarranted price increases and
dealer protection.
Avoids the delays which would ensue while the
incoming Administration restudies the issue.
Cons:
May be disapproved by Congress as a first reaction,
since they will be in the formative stages of
getting organized and may not be able to give the
proposal the attention it requires.
Congress may reject the proposal on the basis that
it was not made in consultation with the incoming
Administration, rather than on the merits of the
issue.
Our perceived inability to deliver on the proposed
protective measures will be used as another argu-
ment that the proposal should be left for considera-
tion by the new Administration.
Option 2
Transmit gasoline decontrol proposal January 17, which
would extend Congressional consideration into the new
Administration.
Pros:
Fulfills your commitment to phase out unnecessary
gasoline decontrols.
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Forces immediate attention by the new
Administration on this important issue.
Counters arguments that the new Administration
is not involved in this important proposal.
Cons:
Any credit for obtaining gasoline decontrol would
be shared with the incoming Administration.
As incoming Administration would have only ten
days to act, it may decide not to meet the issue
on its merits and simply withdraw the proposal
or recommend disapproval.
Option 3
Transmit the gasoline decontrol proposal to the Congress
on January 4, 1977, after consultation with the new Adminis-
tration and obtaining their concurrence.
Pros:
If joint sponsorship can be obtained and this
fact communicated to the Congress, the likelihood
of passage of the proposal is greatly increased.
Such a move would help to de-politicize the issue,
allowing for more consideration on the merits of
the proposal.
Cons:
Any credit for attaining gasoline decontrol would
be shared with the incoming Administration.
Even with joint sponsorship, Congressional review
would have to occur while the new Congress is
getting organized.
It may not be possible to obtain the concurrence
of the new Administration.
Option 4
Do not submit the proposal in January, but provide all find-
ings to the new Administration for appropriate action.
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Pros:
Avoids forcing the new Congress to consider the
proposal during its own organization period, and
during the Executive transition period.
May minimize potential adverse reaction by the
Democratic Congress if and when the proposal is
ultimately submitted by a Democratic Administration.
Cons:
Does not fulfill your commitment to phase out
product controls on a timely basis.
Allows an important ingredient of your energy
program to be handled by the new Administration.
May delay potential submission of a gasoline
decontrol initiative, even though the facts
support its submission now.
Agency Coordination
Option Option Option Option
#1
#2
# 3
#4
Assistant to the President
for Legislative Affairs
Domestic Council
Office of Management
and Budget
Council of Economic
Advisors
Department of Commerce
Department of State
Environmental Protection
Agency
Federal Energy Administration
PRESIDENTIAL DECISION
Option 1
Option 2
Option 3
Option 4