Beyond the question of concentration of ownership lie at least two other considerations which are often cited by the industry, and by some experts, as reasons why the petroleum industry must be permitted to buy into alternate fuels. These reasons both have to do with size-size of capital investment required, and size and complexity of technology.

Oil priced at the level of the OPEC cartel has given the oil companies an enormous fund of investment money. The pressure of the energy crisis has led the Government to establish subsidies to take development risks in several areas (especially in coal gasification), but there are funds for R&D on all the other alternate fuels and even for oil recovery techniques that the oil companies are presumed to be unable to pursue. These, along with money from the often interlocked commercial banks, constitute a major portion of the development dollars in the society. If the oil companies are presumed to have a monopoly on expertise, and known to have enormous investments not only in product R&D, but in refining, transportation and delivery systems, it is going to be next to impossible to get serious investors interested in taking risks with smaller companies, or companies which can't control significant proportions of the downstream delivery system.

Most of these dollars come directly from the consumers-their taxes pay the Federal R&D funds, and the high cost of fuels comes directly from their pockets. Once these dollars are siphoned off, the Nation has little additional capital to contribute to the development of its publicly-owned reserves. As long as there are no legislative protections, the oil industry's predictions will come true by default: There will be no capital for either public or private groups with different viewpoints to develop any of our resources. Furthermore, it is becoming more difficult, even for willing investors, to put money into non-oil developments. Almost all the publicly held coal companies have been acquired by oil companies in recent years.

It may help to clarify the problem of big financing and big technology if we take a look at big oil involvement in the coal industry. Of all our domestic hydrocarbons, coal is the most plentiful. The U.S. Geological Survey in its 1973 Report on Mineral Resources estimated that we possessed 750 billion tons in thick and intermediate seams within 1000 feet of the surface. This is equivalent to 3.2 trillion barrels of crude oil-compared to present proved crude oil reserves of 34 billion barrels. It's obvious that coal can provide us with a reliable and environmentally compatible source of energy in much greater proportions than it now does. What is required are mining and burning techniques which do not do irreparable harm to our land. If the oil companies begin to participate in the coal industry, will they have any incentive to develop this potential? It doesn't take much brillance to figure that if an oil company can make high profits on oil during a shortage period, its managers will not be enthusiastic about developing a lower cost competitor to replace part of that expensive oil's market share.

Or, depending on the situation of the oil company and its dominance over the coal industry, coal can be offered at the same price as oil. In fact, something of that sort is happening right now. Aubrey J. Wagner, chairman of the board of the TVA, the Nation's largest user of coal, recently stated:

"If the honest cost of producing coal justified these high prices, then perhaps there would be nothing to do but accept them, but I do not believe they do. Since 1970, the consumer's price index has gone up about 35%. During that same period, the prices paid for power plant coal has increased about 300% to 400%."

According to Alex Radin, general manager, American Public Power Association, from December 1973 to December 1974, the price of coal to utilities went up 95%. Certainly, it is incumbent on us to examine whether this staggering increase in cost is due to normal market forces or if it has been occasioned by oil company dominance of coal.

Finally, we are told that the technological expertise of the oil industry is essential to develop new sources to replace our diminishing supplies of oil and gas. The implication, again, is that even if antitrust problems do arise when oil companies buy into other resources, there is no alternative if we want to utilize those resources.

Certainly, the oil companies have done an impressive job, and have enormous technical expertise. But I do question whether they are the only people capable of R&D in the area of new techniques to utilize coal, uranium, geothermal, or solar. Bringing to fruition some of these possibilities, such as solar, may require a kind of thinking very different from that which informs the development of oil deposits. Furthermore, where innovation is called for in any of these cases, it is

57-567-76--2

not clear that massive bureaucracies which approach the problem from built-in biases toward bigness can achieve a solution that is decentralized, or will discover the most efficient solution. I also question whether the oil companies, if we decide we need these resources at high prices (and I believe this is a real question), have the interest to push full speed ahead on projects outside their traditional areas of interest.

Nearly half a century ago, the Federal Oil Conservation Board issued a report on alternative fuel sources-among them oil from shale, coal liquefaction, and methanol from agricultural waste. Each of these technologies had already reached pilot plant stage. But somewhere along the line, they all disappeared.

A third of a century ago, with World War II upon us, we got steamed up again on coal R&D. The Luftwaffe, we discovered, was flying on liquid fuels derived from coal. Again, projects undertaken fell out of sight once the emergency ceased. In each of these cases, much was made of the fact that technologies for these new fuels would not be feasible unless the price of oil went up. When the price of oil rose, of course, so did the projected costs of the synthetic fuels.

This Subcommittee was assured by the oil industry eight years ago that once the price of oil reached $5.00 per barrel, we'd have oil from shale running out our ears. Now-maybe-in eight years more we might get oil from shale if crude is still selling for $12 to $15. One gets the feeling that the approach of the oil industry to the issue of alternate fuels is promotional rather than developmental. For whatever reasons, it seems, the oil industry has not done a bang-up job of bringing us these new sources of energy. Their argument that they possess a unique capacity for development is thus less than compelling.

We have all become acutely aware of the need for an integrated national energy policy. Some fuels are in shorter supply than others; some can be used most efficiently for home heating while their use as a boiler fuel may cause unnecessary waste. The "energy package" we are all waiting for is not a tax, and not a higher price to encourage all-out non-stop exploration and production with no regard for the future, but a rational mix of oil, gas and coal allocation-with timetables for research into alternatives that would save as much of our cheap hydrocarbons as possible for their most useful purposes. It seems clear to me that ownership of potential substitute fuels by oil companies would ensure that decisions about energy were made in the context of overall planning for the corporate future, not for the needs of the people.

It is overwhelming to contemplate reversing the trend toward bigness in oil. But unless we determine to shoulder this responsibility, to resist the propaganda of the big companies and to restore diversity to our industrial base, we will not resolve the contradictions that are undermining the health of our economy. In fact, we will not even have the ability to inject national policy considerations into the search for answers to these problems.

We don't need another "Manhattan Project" to solve the energy crisis. The object of an energy program is not analogous to a bomb. The object is to make the American people, and ultimately the world's people, less dependent on a source of energy easily controlled by a small group of people which may use that control to the detriment of our society. The goal is to develop a variety of resources and a pattern of use that is less single source dependent. Isn't there more likelihood of arriving at this goal if the oil companies do not become the principal suppliers of all fuels and the arbiters of all energy planning?

Senator ABOUREZK. I'll ask that the bill, S. 489, be printed in the record.

[The bill follows:]

[S. 489, 94th Cong., 1st sess.]

A BILL To amend the Clayton Act, to preserve and promote competition among corporations in the production of oil, natural gas, coal, oil shale, tar sands, uranium, geothermal steam, and solar energy

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Interfuel Competition Act of 1975".

"SEC. 2. That the Act entitled "An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes", approved October 15, 1914 (15 U.S.C. 12ff), is amended by inserting after section 7 the following new section:

"SEC. 7A. (a) It shall be unlawful for any person engaged in the production and refining of petroleum or natural gas, or both

66

(1) to acquire any interest in the coal business, oil shale business, uranium business, nuclear reactor business, geothermal steam business, or solar energy business after the enactment of this section, or

"(2) to own or control any coal business, oil shale business, uranium business, nuclear reactor business, geothermal steam business, or solar energy business after the expiration of three years after the enactment of this section.

"(b) Each person who has any interest in, owns or controls any coal business, oil shale business, uranium business, nuclear reactor business, geothermal steam business, or solar energy business shall, within one hundred and twenty days after the enactment of this section, file with the Attorney General such reports concerning each such business as the Attorney General may by regulation require and it shall be the duty of the Attorney General to immediately examine such reports.

"(c) It shall be the duty of the Attorney General to commence a civil action for appropriate relief, including a permanent or temporary injunction, whenever any person violates subsection (a) or (b) of this section. Any action under this subsection may be brought in the district court of the United States for the district in which the defendant is located or resides or is doing business, and such court shall have jurisdiction to restrain such violation and to require compliance. "(d) Any person knowingly violating the provisions of subsection (a) of this section shall be fined not more than $100,000 or imprisoned for not more than ten years, or both. A violation by a corporation shall be deemed to be also a violation by the individual directors, officers, receivers, trustees, or agents of such corporation who shall have authorized, ordered, or done any of the acts constituting the violation in whole or in part.

"(e) For purposes of this section

"(1) 'person' means any individual, corporation, including any affiliate of such corporation, partnership, association, joint venture, consortium, or any entity organized for a common business purpose; wherever situated, domiciled or doing business, who directly or through any other person subject to their control do business in any part of the United States, its territories and possessions, or the District of Columbia ;

"(2) 'coal business' means any interest in, ownership of, or control over coal reserves, or any interest in, ownership of, or control over exploration for, mining of, production of, sale of, gasification of or liquefaction of coal;

66

(3) 'oil shale business' means any interest in, ownership of, or control over oil shale reserves, or any interest in, ownership of, or control over exploration for, mining of, production of, sale of, gasification of or liquefaction of oil shale;

"(4) 'uranium business' means any interest in, ownership of, or control over uranium reserves, or any interest in, ownership of or control over exploration for, mining of, milling of, conversion of, enrichment of, fabrication of, reprocessing of, production of or sale of uranium and uranium or plutonium fuel;

"(5) 'nuclear reactor business' means any interest in, ownership of, or control over the production and sale of nuclear reactors;

"(6) 'geothermal steam business' means any interest in, ownership of, or control over geothermal steam reserves, or any interest in, ownership of, or control over exploration for, mining of, production of, or sale of geothermal steam;

"(7) 'solar energy business' means any interest in, ownership of, or control over collection, production, or sale of solar energy;

"(8) 'acquisition' includes acquisition of control;

"(9) 'control' includes actual or legal power or influence over another person, whether direct or indirect, arising through direct or indirect ownership of capital stock, interlocking directorates or officers, contractual relations, agency agreements, or leasing arrangements; and

"(10) an affiliate of a corporation is any other corporation which (directly or indirectly) controls, is controlled by, or is under common control with such corporation.".

Senator ABOUREZK. Senator Bartlett, I would like to welcome you to the hearings this morning.

Senator BARTLETT. Thank you very much. Mr. Chairman, I have a very lengthy statement here of 18 pages. I will be cutting out significant parts of it, but I will keep you apprised. I have about 11 pages I will be reading.

Senator ABOUREZK. Yes. I was kind of surprised to see you here this morning. Nobody had told me you were coming in so we didn't set aside time, but we are happy to have you.

Senator BARTLETT. Were we not scheduled?

Senator ABOUREZK. NO.

Senator BARTLETT. Well, it is on my schedule. I was scheduled, as far as I was concerned.

Mr. CHUMBRIS. The misunderstanding is, Mr. Chairman, we thought today we would be at the Federal Trade Commission, and rather than have you and Senator Hansen come down to the Federal Trade Commission, it was moved to tomorrow, but yesterday we moved it back, and that was the understanding I had, that we would move it back to today.

Senator BARTLETT. I do not know whether I can come tomorrow, but I will be happy to either do it now or

Senator ABOUREZK. Please do. We will just make time, you know. The only thing is that it is kind of a surprise to us this morning. We are happy to have you here.

Senator BARTLETT. I hope it was a plesant surprise, Mr. Chairman. Senator ABOUREZK. Knowing your views on this issue, I am not sure. But we want to welcome you to the hearings.

Senator BARTLETT. Thank you.

STATEMENT OF DEWEY BARTLETT, A U.S. SENATOR FROM THE STATE OF OKLAHOMA

Senator BARTLETT. Mr. Chairman, I appreciate this opportunity to appear before this subcommittee and express my views on S. 489, the Interfuel Competition Act of 1975.

This bill would deny to any company which produces or refines crude oil or natural gas the opportunity to engage in other energy businesses such as oil shale, coal, synthetic natural gas or crude oil, uranium mining or processing, geothermal steam, and solar.

This is like preventing a wheat farmer from grazing cattle on his wheat in the winter and saying we are improving competition in cattle production.

The asserted purpose of this legislation is to promote competition in the energy industry and to encourage the development of energy supplies.

However, unfortunately, this bill would have just the opposite effects. It would reduce competition and available capital and would retard the future development of all energy sources.

If this bill is enacted, the public would pay higher prices for energy. There would be less domestic energy available.

High cost imports of oil would increase in amount and in price. We would be more dependent upon foreign production and more vulnerable to political blackmail.

Our national security would be further threatened. For these reasons, this subcommittee should reject it.

One of the primary reasons the bill would have effects opposite of those intended is, that its basic premise of anticompetitive practices by the oil industry is unsupported and untrue.

Regarding the large oil companies, the bill attempts to capitalize on the politically appealing theory that bigness is bad.

However, absent adequate data to substantiate this theory, there is no justification for a blanket measure which denies entry of an entire group of companies into potential fields of endeavor.

This bill, in itself, is anticompetitive and would, by its design, curtail entry into various energy businesses. It would tend to create monopolies.

As an example of the kind of biased and inconsistent data used to justify S. 489, I have attached to my statement two letters to Dr. H. Guyford Stever, Director of the National Science Foundation.1

Öne letter is from the distinguished Senator from New York, Mr. Buckley, and me; and the other, from the distinguished Senator from Colorado, Mr. Haskell.

The letters concern a study of the structure of the petroleum industry founded by the National Science Foundation which used data solicited from the oil companies by the Special Subcommittee on Integrated Oil Operations of the Interior Committee.

Some of the text and many of the tables accompanying and supporting S. 489 were developed because of this National Science Foundation study.

I now quote from Senator Haskell's letter.

In the Congressional Record of January 29, 1975, there appeared many of the charts proposed as part of the draft interim report. Some of these charts contained the previously mentioned "internal inconsistencies." Also, a part of the biased narrative was reproduced.

Mr. Chairman, it is significant that much of the data utilized as the rationale for S. 489 was characterized by one of my colleagues as being internally inconsistent and biased. This subcommittee should thoroughly evaluate the quality of the evidence before it recommends such discriminatory legislation as S. 489.

If the petroleum industry is noncompetitive, it is reasonable to assume that monopoly profits have been earned in the past because this is the objective of any monopoly.

In this regard, however, I quote from testimony by Professor Edward Erickson of North Carolina State University before the Special Subcommittee on Integrated Oil Operations.

Profitability is an important indicator of the existence and exercise of monopoly power. The record of long-run profitability in the petroleum industry indicates that the firms in this industry do not enjoy substantial, systematic market power. This index of effective competition yields positive results whether the comparison is to all U.S. manufacturing, Moody's 125 industrials, Moody's 24 public utlities, or a group of industrial firms known to possess market power.

Indeed, if the petroleum industry has colluded to reduce supplies and raise prices, it has been very ineffective at it.

Dramatic evidence of what results from actual collusion is provided by the OPEC cartel-it really practices collusion. I ask you to compare the remarkable record made by the American companies in providing petroleum supplies at reasonable prices with the recent record of the OPEC cartel.

1 See pp. 17 and 19.