The Great Energy Gouge

The great energy gouge has replaced the contrived energy shortage of last winter just as predicted by a number of close observers of the oil industry. Now, however, the hordes of reporters who daily covered William Simon and his Federal Energy Office have gone back to other duties. Gouges are not as exciting to report as crises — including the long gas station lines earlier this year.

Recently we made an inventory of what Simon’s successor, John Sawhill, and the Federal Energy Administration (FEA) was doing. Here is a summary:

1. John Sawhill, dispite wide public criticism, continues to hire former oil industry executives for key policy positions. Exxon paid one of his latest recruits, Melvin A. Conant, $90,000 in a lump sum just before he took the FEA job (he has to be confirmed by the Senate) as compensation to ease the hardship of his $36,000 government salary. The “Houston -to-Washington” oil industry shuttle continues to control energy policy.

2. Although the former Cost of Living Council’s own documents show that there was no production cost justification (more)for the CLC’s notorious decision last December to raise the permitted price of domestic “old oil” from $4.25 to $5.25, John Sawhill won’t reverse this $2-billion-plus raid on the consumer. Those same CLC documents also show no evidence that this price rise would stimulate more production nor reduce demand.

3. Mr. Sawhill frequently preaches conservation of energy and wears a tieless shirt without jacket at work to show how lighter summer wear can reduce the need for heavy air conditioning. But his agency is reluctant to press for mandatory auto fuel economy standards for new cars, among numerous other ways to speed up energy savings in the design of consumer products. What is most astonishing is how the FEA has avoided highlighting the early results of its modest federal energy management program.

If we are to believe FEA’ compilation, in the nine months ending June 30, 1974, federal agencies reduced their anticipated energy demand by almost 25 percent with a saving equivalent to 75 million barrels of oil worth $600 million. Why is this record of achievement not highly publicized?

4. One possible answer is that if waste prevention were really pushed in the private sector by the FEA, it would place the utilities in a difficult financial situation. Waste of electricity is essential to keep revenues up, as millions of consumers learned recently when they were informed that the reward for their conserving last winter was higher rates. Sawhill instead takes the corporate way out by vigorously pushing the state utility agencies to approve higher rates faster and to permit operating cost increases and automatic passthroughs like the fuel adjustment clause. He has even hinted that federal subsidies may be necessary to prop up these mismanaged, waste-promoting utilities. It seems that the average citizen, already paying higher rates by far than large industrial users, is going to be taken both as a consumer and as a taxpayer.

5. There are thousands of “independent” oil producers in this country ready to increase their production but they cannot obtain enough well casing and drilling pipes. Guess who is hoarding this tubular steel? The giant oil majors — Exxon, Texaco, Mobil, Gulf and others. Although trade journals were pointing out the advent of tubular steel shortages back in October, 1973, the FEA restricts its efforts largely to mild jawboning and avoids asking Congress for mandatory allocationauthority. The FEA’s survey in January showed that 8 major oil companies held the bulk of the nation’s inventory of these steel goods, with sharp increases in inventory leading to continuous charges by the “independents” of hoarding. Once again, big business prevails over small business.

6. As an economist, Sawhill knows of the concentrated power of a few large corporations over the natural gas industry — a power not restricted to production shares and pipeline dominance. Yet he advocates deregulation of natural gas prices by the Federal Power Commission which in recent months itself has granted very substantial price increases.

Sawhill’s deregulation preference would triple the price of natural gas within a year and, because of a non-competitive industry structure, would not insure higher production. Besides, preventing waste of natural gas use is a much wiser and more efficient pathway. But then again, if Sawhill really went to town on this waste, the gas companies’ revenues would go down.

Pick an issue and Sawhill is on the side of big business. Nuclear power? Sawhill is all for faster licensing of this frightfully dangerous and capital-hungry energy source. The exposed diffusion of nuclear plants throughout the country isworrying some of its most steadfast advocates. Control of strip mining? Sawhill opposed even the compromise version of the House of Representatives strip mining bill and exaggerated the projected loss of coal production.

When the FEA’s consumer affairs director, Lee Richardson, resigned last month in protest over the agency’s indifference to consumer interests, Sawhill announced that he was going to strengthen the consumer affairs office. I have asked Mr. Sawhill whether, at the least, he would grant the new director, Hazel Rollins, a charter to publicly object or challenge FEA’s policies which harm consumer interests. If he declines to go that small way toward consumer protection, it will show in a big way that his performance can’t be attributed entirely to a nice, sensitive fellow who is obliged to follow the corporate line in a big business administration.

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