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So you have to subtract that. This leaves, roughly, 60,000 barrels. The majors want this abolished and put into the crude program. Now, since 30,000 barrels a day of that is presently going under a finishedbearing in mind that this is a finished product quota-30,000, or half of the total amount after you subtract gas, is going into fuel oil.

So, if you put that whole thing over into crude, that will be against the need of the day, and that will diminish the supply of available fuel today by 30,000 barrels.

I hope you will look into that and prevent it from happening. We would suggest as an alternative that they abolish the program and reinstitute it and give it to the independents rather than the refiners. Thank you, sir.

Mr. SMITH. Thank you very much.

The committee will adjourn until 10 o'clock tomorrow morning. (Whereupon, at 2:30 p.m., October 7, 1970, the subcommittee recessed, to reconvene at 10 a.m., October 8.)

THE IMPACT OF THE ENERGY AND FUEL CRISIS ON

SMALL BUSINESS

THURSDAY, OCTOBER 8, 1970

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON SPECIAL SMALL BUSINESS PROBLEMS OF THE SELECT COMMITTEE ON SMALL BUSINESS, Washington, D.C. The subcommittee met, pursuant to recess, at 10 a.m., in room 2359, Rayburn House Office Building, Hon. Neal Smith presiding.

Present: Representatives Smith, Evins, Addabbo, Conte, and Horton.

Also present: Howard Greenberg, staff director; Charles E. O'Connor, general counsel; T. J. Oden, subcommittee counsel; Myrtle R. Foutch, clerk; and John M. Finn, assistant minority counsel.

Mr. SMITH. The meeting will come to order.

Senator Kennedy was to have been here this morning, but due to a death in Boston he will not be able to appear.

At his request, we will put Senator Kennedy's statement in the record at this point.

(Senator Kennedy's prepared statement follows:)

STATEMENT OF HON. EDWARD M. KENNEDY, A SENATOR FROM THE STATE OF MASSACHUSETTS, ON RESIDUAL OIL

I welcome this opportunity to submit a statement to the Select Committee on Small Business on the problems created in Massachusetts and New England by the shortage of residual fuel oil. I am delighted that the Committee is looking into this crucial area.

Last July 24th, I wrote President Nixon that oil shortages and soaring prices were reaching crisis proportions in Massachusetts. That crisis is now upon us. Many school districts in the state have so far been unable to secure oil for the coming winter. And those institutions and businesses which have obtained oil are paying unprecedented prices. The Boston Housing Authority estimates that its fuel costs have risen by $525,000 in the last 13 months, an increase of 83%. The U.S.M. Corporation of Beverly estimates that higher fuel costs have raised its operating expenses by $100,000 this year. Arlington, Massachusetts reports that its fuel costs have risen from $86,000 in 1969 to $160,000 in 1970.

These examples demonstrate that even if a shortage is averted this winter, New Englanders will still bear heavy economic burdens. Consumers will have to pay higher prices for manufactured goods and electricity. Taxpayers will have to meet higher school budgets. And all New Englanders will have to worry whether the same sad story will be repeated next year.

There have been some suggestions that New Englanders have no right to complain about the current situation, that we ourselves are at fault for relying on insecure foreign sources for our residual oil. But this ignores three crucial facts. First, it was the oil companies, not the New England consumer, which chose to rely on residual oil produced abroad. American refineries decided that they didn't want to produce any more residual oil because they could make more money on other products. The Oil Import Program, which raised the price of the crude oil they refined, pushed them even further in this direction.

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Second, we in New England have tried to guarantee that more residual oil would be produced in our home territory. For years, we have sought to build a refinery in a free trade zone which would be required to meet a substantial percentage of our fuel oil needs. The original site for this refinery may well have to be changed because of environmental factors, but the trade zone concept is a valuable one. Unfortunately, it has been fought tooth and nail by the oil industry and by the oil import bureaucrats downtown.

Third, the oil companies, which purport to engage in effective long-range planning, grossly underestimated the demand for the residual oil they produced abroad. We are now importing more residual oil than the oil companies predicted we would be importing in 1975.

Since the oil companies are abreast of developments in coal and natural gas, as well as in the environmental field, this miscalculation is inexcusable.

I am glad to be able to report that after considerable prodding the oil companies are beginning to recognize their responsibility to produce sufficient residual oil to forestall any shortages. On Tuesday, I announced the five major oil companiesGulf, Mobil, Texaco, Humble and Shell-had informed us that they would produce additional fuel oil. Since then I have learned that Phillips Petroleum is also planning to increase production of residual oil in its Kansas City, Kansas and Sweeny, Texas refineries.

This additional production should lead to price reductions. I note that the President of Asiatic Petroleum Corporation, a Shell subsidiary which is one of the nation's largest residual oil importers, has stated that the current price level of over $4 a barrel is "exceptionally high" and is not "the pattern of the future." The crucial question is whether the Administration will press for price reductions. The Administration likes to pretend that oil prices are set by the free market and that no governmental influence is possible. In fact, the price structure of the oil industry is largely set by the President himself through his management of the Oil Import Program. The President should use the power given him by the Oil Import Program to induce oil companies to produce more residual oil at reasonable prices. He should point out to the oil industry that it receives unparalled benefits from the Oil Import Program and that with these special benefits go_special responsibilities.

In the future, of course, we should not have to rely on this kind of "jawboning." We should devise a rational import policy which will not encourage oil companies to produce residual oil overseas rather than in the United States. We should insist on freer imports, combined with adequate storage facilities to cover shortterm emergencies. This would save the American consumer billions of dollars each year, and would end the perennial New England fear of a long, cold winter. Mr. SMITH. We have with us this morning at this meeting, the continuation of the hearings on this energy crisis, the Honorable George A. Lincoln, Director, Office of Emergency Preparedness.

Mr. LINCOLN. I have a statement, Mr. Chairman, and, if I may, I would like to read it.

Mr. SMITH. That will be fine. You may go right ahead.

TESTIMONY OF GEORGE A. LINCOLN, DIRECTOR, OFFICE OF EMERGENCY PREPAREDNESS; ACCOMPANIED BY ELMER BENNETT AND ANTHONY SMITH

Mr. LINCOLN. Mr. Chairman and other gentlemen of this committee. I am honored to be asked to appear before you this morning. I am George A. Lincoln, Director of the Office of Emergency Preparedness in the Executive Office of the President.

On February 20, 1970, the President changed the management system of the oil import program. He established, under my chairmanship, the Oil Policy Committee, which includes the Secretaries of State, the Treasury, Defense, the Interior, and Commerce; the Attorney General, and the Chairman of the Council of Economic Advisers. While most day-to-day administrative functions continue to be performed by the Oil Import Administration of the Department of

the Interior-which supports this program in detail-the policy direction, coordination, and surveillance of the program will be provided by the Director of the Office of Emergency Preparedness, according to President Nixon's direction, acting with the advice of the Oil Policy Committee.

I was also designated as Chairman of the Joint Board established by the President on September 29 to monitor the fuel supply and transportation situation during the coming heating season and to coordinate the efforts of Federal agencies in dealing with fuel supply and transportation for that heating season.

I know that this is the third day of hearings by your committee on the fuel and energy situation. Those of us in the executive branch concerned with that situation have certainly been following these hearings closely and are grateful for the information and suggestions they provide concerning both short term and longer term policies. These policies are being studied by a committee of the Domestic Council chaired by Dr. McCracken, Chairman of the Council of Economic Advisers.

You may not have obtained copies of the Presidential actions establishing the organization I have described. So, I would offer these papers for the record, and I will provide them:

(a) Presidential press statement of February 20, 1970, on oil policy; (b) Statement of August 6, 1970, on Domestic Council Energy Committee;

(c) Statement of September 29, 1970, by the Chairman of the Council of Economic Advisers and the Director of the Office of Emergency Preparedness on the energy situation.

(The documents referred to follow:)

STATEMENT OF GEORGE A. LINCOLN, DIRECTOR, OFFICE OF EMERGENCY

PREPAREDNESS

Mr. Chairman and other gentlemen of this committee, I am honored to be asked to appear before you this morning. I am George A. Lincoln, Director of the Office of Emergency Preparedness in the Executive Office of the President.

On February 20, 1970, the President changed the management system of the Oil Import Program. He established, under my chairmanship, the Oil Policy Committee, which includes the Secretaries of State, the Treasury, Defense, the Interior, and Commerce; the Attorney General; and the Chairman of the Council of Economic Advisers. While most day-to-day administrative functions continue to be performed by the Oil Import Administration of the Department of the Interior, the policy direction, coordination, and surveillance of the program will be provided by the Director of the Office of Emergency Preparedness, acting with the advice of the Oil Policy Committee. I was also designated as Chairman of the Joint Board established by the President on September 29 to monitor the fuel supply and transportation situation during the coming heating season and to coordinate the efforts of Federal agencies in dealing with fuel supply and transportation for that heating season.

I know that this is the third day of hearings by your Committee on the fuel and energy situation. Those of us in the executive branch concerned with that situation have certainly been following these hearings closely and are grateful for the information and suggestions they provide concerning both short-term actions and longer-term policies. These policies are being studied by a committee of the Domestic Council chaired by Dr. McCracken, Chairman of the Council of Economic Advisers.

You may not have obtained copies of the Presidential actions establishing the organization I have described. So I here offer for your information:

a. Presidential press statement of February 20, 1970, on oil policy b. Statement of August 6, 1970, of Domestic Council Energy Committee c. Statement of September 29, 1970, by the Chairman of CEA and the Director of OEP on the energy situation.

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