tion of the Special Subcommittee, and the information contained therein was utilized to support the introduction of a bill by Senator Abourezk.

At a meeting today with Dr. Wilson and others I learned that the draft interim report had been circulated among other senatorial offices and to members of the public.

Under these circumstances I am recommending to the Chairman of the full Committee, Senator Henry M. Jackson, and to the Ranking Minority Member of the full Committee, Senator Paul J. Fannin, both of whom signed the contract on behalf of the Committee, that they direct that no further work be done pursuant to the contract and that no further unauthorized release of information be made until a clarification of the current situation has been reached.

Yesterday I talked by telephone to Dr. Duane Chapman of Cornell University in an effort to determine the extent to which the information obtained by the Subcommittee questionnaire had been put on the Cornell computer. My talk with Dr. Chapman indicated that one-half to three-fourths of the information had been put on the computer, including the most significant information. It occurs to me that a great deal of useful information has been obtained from the questionnaire which could be most useful. Obviously the work should be continued. I believe it can be continued without the participation of Dr. Wilson, who, as a result of our meeting this morning, has offered to resign. I would suggest that it might be helpful if you or your designee, Dr. Chapman, members of the Interior Committee staff, and any interested Senator on the Subcommittee and myself might meet early next week to determine whether the project can proceed as I have envisaged. I would also like to involve Mr. Hughes of the General Accounting Office, who met early with Dr. Wilson, members of my staff and myself, who agreed to sample the data editing and coding and check the steps along the way, but who never was contacted by Dr. Wilson. I look forward to hearing from you.

Sincerely,

FLOYD K. HASKELL, Chairman, Ad Hoc Subcommittee on Integrated Oil Operations.

Senator BARTLETT. Mr. Chairman, I would like to submit this for the record. This is data on concentration. In petroleum production: 4 firms constitute 27 percent of the industry, 8 firms 43 percent. Natural gas: 4 firms 25 percent, 8 firms 43 percent. Refining: 4 firms 33 percent; 8 firms, I believe it is 57 percent; 20 firms 84 percent. Marketing: 4 firms 30 percent, 8 firms 53 percent, and 20 firms 77 percent. Does it not appear from this information that the power concentration of industry in the oil industry is less than many of the major industries of this country?

Source: Hearings, Subcommittee on Integrated Oil Operations, "Market Performance and Competition in the Petroleum Industry," part 1, p. 90.

MANUFACTURING INDUSTRIES IN WHICH 4-FIRM CONCENTRATION RATIOS EXCEEDED 50 PERCENT IN 1966

Source: Hearings, Subcommittee on Integrated Oil Operations, "Market Performance and Competition in the Petroleum Industry," pt. 1, p. 103.

57-567-76- 3

U.S. patents granted firms in area of synthetic gas and oil from coal, 1964-October

your

Senator ABOUREZK. Senator Bartlett, thank you very much for statement. I do not agree with any of it. [Laughter.] But I once again want to thank you for coming to the subcommittee and offering us your testimony.

Senator BARTLETT. Mr. Chairman, I am sure that those people engaged in the energy businesses that your bill deals with-particularly oil and gas-would be very happy to explain their operations to you and other members of the committee. I think you might find this very fascinating.

Senator ABOUREZK. Thank you very much.

Senator BARTLETT. You're welcome, sir.

Senator ABOUREZK. The next witness will be Mr. Peter Max.

Mr. Max, the staff has advised each witness-I am sure that you have been advised-about a maximum 20-minute time limit on your prepared testimony so that there will be time for extensive questioning following the testimony, if that is agreeable to you?

Mr. MAX. It certainly is, Senator, I am unaccompanied today by one of my colleagues, Mr. Harry Perry, a senior consultant in my firm, National Economic Research Associates.

Mr. Perry has submitted prepared remarks which we would like entered into the record, and sends his regrets that he cannot be here in person. He is in Sao Paulo this morning trying to solve that country's energy problems.

Senator ABOUREZK. We will accept the statement for the record, and regret the fact that he is not here.

[The prepared statement of Mr. Perry follows. Testimony resumes on p. 26.]

PREPARED STATEMENT OF HARRY PERRY, SENIOR CONSULTANT, NATIONAL ECONOMIC RESEARCH ASSOCIATES, INC.

In May of 1970 three NERA witnesses appeared at the invitation of this committee and testified on the then existing degree of competition and economic concentration in the energy industries, describing what appeared to be trends toward further concentration and emphasizing the anticompetitive nature of such developments. The NERA witnesses submitted a statement entitled "Competition in the Energy Markets," which was the first systematic attempt to quantify the growing involvement of major petroleum companies, already heavily committed to natural gas production, in coal, uranium, geothermal and oil shale resources; and first called attention to the problem of the "energy company."

At that time it was becoming increasingly obvious that unless remedial actions were taken the nation was heading for a serious energy crisis. Until 1970 the shortages that had occurred were largely local, but the combined effects of greatly increased environmental constraints on the production and utilization of fuels, along with the anticipated decline in domestic oil and gas production, telegraphed the advent of the much greater shortages yet to come.

Against this background of still impending energy crisis we examined the impacts of the growing concentration of the different fuel resources into the hands of a relatively few major oil companies. It was apparent that mergers of companies producing different fuel resources could reduce competition because of the then developing high degree of substitutability among the fuels. This had always been true for the generation of electricity, but it was becoming increasingly true also for space heating and certain industrial applications, where coal, oil, gas and electricity can all be used effectively. The mergers that resulted in the large oil companies' gaining control of other energy companies gave the oil companies an additional competitive advantage because of their vertical integration. Finally, because of their diverse energy holdings, there was concern that the development of new technologies for the different fuels, through R&D programs, would occur at a less than optimum pace.

Five years ago we were also concerned about the effects of competition within the regulated electrical utility industry. The growing demand for electrical energy, with the associated potential for savings from economies of scale and with improved technology for the generation and transmission of electricity, required changes in regulatory and antitrust philosophies if the public were to capture the benefits of these developments. At that time we did not see these differing philosophies being reconciled.

These and other concerns about potential anticompetitive developments voiced by NEPA and others at the subcommittee hearings, were made at a time when both national and international energy markets were basically still following the traditional paths of development that had been continuing for many years. For the United States, energy had always been abundant and low cost. The chief characteristic of the United States energy industries had been the orderly shift from one fuel to another-from wood to coal, from coal to oil, from oil to gas and finally the shift to nuclear fuels. These changes in the form in which fuel was used were the result of a desire to shift to cleaner and more convenient fuel forms. The changes were accomplished with little economic impact since all fuels were low cost.

The availability of what appeared to be an endless supply of low cost energy inevitably led to a society which was heavily dependent on energy for its existence. Low cost energy allowed for widespread mechanization of mining, manufacturing and other work activities with an ever increasing growth in productivity. The affluence that the higher productivity produced was translated into more goods and services, all of which took ever increasing quantities of energy to make. Moreover, many of the new goods were themselves large consumers of energy.

In the world of 1970 the anticompetitive problems were relatively straightforward. One had to be satisfied that the large oil and gas companies did not increase their share of the energy markets to the point where interfuel competition was adversely affected. At that time there was little to worry about in connection with concentration within the coal industry, but the acquisition of some of these companies by the oil industry was of growing interest to those concerned with antitrust matters. Moreover, it was possible to examine anticompetitive activities and take remedial action with the full knowledge that it would almost certainly have no impact on the availability of total fuel supplies.

The uncomplicated halcyon days of 1970 have vanished-possibly forever. The prices of fuels, which had experienced a steady decline in real prices in two previous decades, have suddenly increased by a factor of three or four. The direct cause was the successful operation of the OPEC cartel that enabled it to collectively raise world oil prices to unprecedented levels. These price rises culminated in an oil embargo in November 1973 that demonstrated conclusively the power of OPEC to control world oil prices and to influence world economic developments.

At the time of the embargo the United States was only slightly dependent on Middle East oil, subsequently this dependence, in spite of the millions of words about the need for a secure supply of energy for the United States, has increased greatly. Although total oil imports actually decreased from 6,864 million barrels per day in November 1973 to 6,485 million barrels per day in the fourth quarter of 1974, the percentage of total imports coming from the Middle East increased from 15.9 percent to 19.5 percent. Thus, in addition to greatly increased prices paid for oil fuels, the nation now must seek a way to be assured of a secure supply of energy-a problem that was of only minor importance five years ago. Another important factor that has contributed, at least temporarily, to energy shortages and has increased energy prices has been the adoption of a national policy to enhance the quality of the environment. This national resolve took the form of the enactment of the National Environmental Policy Act of 1969 (NEPA). Unfortunately, the energy cycle, from production to end use, is a major contributor to pollution-air, water, land, solid wastes and radiation. To control the adverse environmental effects of the fuel cycle has required massive changes in how we extract, upgrade, convert and utilize fuel resources. As these costs of pollution controls are internalized the prices paid for fuels must increase.

More importantly, NEPA caused temporary energy supply dislocations, disqualifying many Eastern coals from use because of their sulfur content and causing a massive shift to the use of oil to meet sulfur oxide regulations. Since domestic oil production was in the process of peaking, this new oil demand could only be supplied by imported oil, thus further increasing our dependency on oil imports.

These alterations in the energy situation in the United States are only illustrative of a very large number of other major changes that have occurred in this period. It will not be possible to discuss each in turn but it would be useful to summarize what the implications of these changes mean in terms of national policies. At the least, we need to take actions which will:

1. Reduce our import dependence.

2. Reduce total demand without reducing economic growth.

3. Expand domestic production capacity.

4. At the same time protect environmental values.

Reduction in oil imports is thought to be necessary in order to attain a satisfactory degree of national security. Other important considerations relating to oil import levels are balance of payments problems and the impact on United States foreign policies with respect to both oil producing and consuming nations. This committee as well as other committees of the Congress has periodically examined the operations of the international oil companies to determine if they were engaging in anticompetitive practices. Reduction in oil imports could lead to changes in how these companies operate, but it is more probable that other factors would be more important is determining their market behavior. Therefore, the changed relationship between the United States national oil companies and the host governments should be carefully analyzed from the viewpoint of its impact on competition.

The second action needed, that of reducing demand, or as it is more widely expressed "practicing conservation," is directed at lowering the total energy requirements that will be needed in the future. If conservation is defined as "avoiding waste" it appears to have different meanings for different people. If on the other hand, reduction in demand is to be achieved by the price mechanism, then it no longer can be properly termed "conservation." Two general approaches appear possible for reducing demand by increasing prices. Allow energy prices to reach their market clearing level or encourage more efficient use of energy by taxes that penalize less efficient energy consuming devices, processes and facilities.

Either of these two methods of reducing demand could raise new antitrust and monopoly issues. Allowing the market clearing mechanism to operate will almost certainly result in, at least for the short term, windfall profits that would