CHAPTER II. SMALL BUSINESS AND THE
ENERGY CRISIS

Your committee has a long history of being concerned with basic petroleum and energy matters. In its Annual Report for 1972, the committee recognized that the country was entering an "energy crisis." One indication of this was an 11.7 percent reduction in the national inventory of distillate fuels, such as No. 2 heating oil, between October, 1971, and October, 1972.1

The committee cited press accounts pointing out that while the population of the United States had doubled in the past five decades, energy use had grown four-fold, and electricity use ten-fold.2 Authorities were predicting that energy needs were expected to double for every decade in the future and that U.S. production accounted for approximately two-thirds of its current needs. As a result, industry experts had been predicting for some time that the percentage of imported oil used in the U.S. would rise to about one-third of U.S. demand by the end of 1973 and about 57 percent by 1985.3

A. COMMITTEE CASE WORK ON OIL IMPORTS

Early in 1973, the committee was contacted by several associations and individual oil marketing and distributing businesses regarding the unavailability of gasoline supplies.

An eample was the Herbst Oil Company of Las Vegas, Nevada, an independent retailer of gasoline products with 94 service stations in California, Oregon, Washington, Nevada, and Arizona. The firm was a family enterprise which has been in business for two generations, employing about 550 persons.

The firm advised the committee in mid-January, 1973, that it was experiencing a "major supply emergency" because of the lack of supply of refined gasoline available to the company. The Herbst Company estimated its potential 1973 sales at about 132 million gallons, or 3.142,857 barrels. It had available to it approximately 60 million gallons, or 1,428,571 barrels. These data were presented in a petition to the Oil Import Appeals Board, citing the deficit of 72 million gallons, or 1.7 million barrels, for the company for 1973 in requesting a hardship import allocation to make up the difference.

In the hearings before the Board on February 14, the President of the company, Mr. Jerry Herbst, testified that five of his stations had already closed, 12 were expected to be closed by March 1, 1973, and

1 "Twenty-Third Annual Report of the Select Committee on Small Business." United States Senate. for the Ninety-Second Congress. Second Session, S. Rept. 357, 93d Cong., 1st Sess. (1973), pp. 126–128.

Thomas O'Toole, "Energy Starved U.S. Seeks Sustenance," Washington Post, Nov. 26, 1972. p. A1:1.

a National Petroleum Council, "U.S. Energy Outlook-An Initial Appraisal-1971-85," July, 1971, Table 5, p. 28.

30 more service stations were threatened with closure if the petition were not granted.

The Chairman of your committee supported this petition with a letter calling attention to the desirability of independent businessmen continuing as a factor in the oil industry, and this letter was read into the record of the Board's proceedings. On February 16, the Board acted to award the Herbst Company an interim import license providing for 700 barrels per day of refined gasoline products (compared to a request of 4,696 barrels per day). The committee was advised early in 1974 that, despite strenuous efforts by Mr. Herbst to find a source of gasoline which could be imported to fill his needs pursuant to the import license, he was unable to make arrangements to import any of this product. The company cited a cost of delivery to the dock in the U.S. which was higher than the prevailing retail cost at the pump. This price level, in the judgment of the company, made it uneconomical to import such gasoline as may have been available.

As a result, at the end of 1973, about 50 of the Herbst company's service stations were closed, a nearly exact fulfillment of the company's prediction.

Other companies in different parts of the United States came to the committee in the early months of 1973 with similar stories of extreme hardship because of what was, for them, a "critical shortage" of gasoline.

This led the Chairman of your committee to inquire further during the spring of 1973 to the Secretary of Interior about the total volume of requests before the Oil Import Appeals Board, which was the only avenue for distributors to obtain relief as a consequence of the shortage of domestic gasoline. The committee was subsequently informed that the following amounts of products were set-aside as available for the Board's use in making awards to petitioners during 1972, but that no specific quantities had been set-aside for use during 1973. Amounts available to the Oil Import Appeals Board, 1972

Crude and unfinished oil and oil products: 40,000 b/d
Residual fuel oil: 79,235 b/d

On March 5, 1973, there were 191 petitions pending before the Board requesting the following:

Crude and unfinished oil and oil products: 719,881 b/d

Residual fuel oil: 44,101 b/d

By March 30, the requests had grown even further to 244 petitions as follows:

Crude and unfinished oil and oil products: 985,669 b/d

Residual fuel oil: 86,824 b/d

As of March 30 the Board had made awards to 135 petitioners for a total amount of 75,023 b/d of oil and gasoline and 685 b/d of residual oil. It would thus appear that relief was being granted at the rate of less than 10 percent of the gasoline requested and less than 1 percent of the request for residual oil.

In response to these developments, the Administration did amend the oil import regulations on March 9, 1973, which finally made a specific total set-aside of 60,000 b/d, a figure less than 10 percent of the applications then pending.

Further action seemed clearly to be required, and on March 22, 1973, the President took action to permit the Board to make awards without regard to limitations.*

The Department of Interior further informed the committee that the Oil Import Appeals Board was being reorganized:

so that it can be more effective and responsive in granting relief under the Oil Policy Committee's guidelines (and) Simultaneously, the Board will act as a barometer for supply and demand problems for the Oil Policy Committee."

It was felt in retrospect at the end of 1973 that the "barometer" was registering extreme turbulence in the U.S. oil industry among independent distributors and marketers and that the remedies offered by the executive branch of the Government were impractical and inadequate as to smaller businesses in this industry.

The proceedings before the Board, particularly upon the initiative of small independent businessmen in the petroleum industry, were also warnings of a severe storm of petroleum and energy shortages to follow in the future. Whether these storm signals are being heeded by the executive branch seems most questionable.

B. INQUIRY BY SUBCOMMITTEE ON ENVIRONMENTAL, RURAL
AND URBAN ECONOMIC DEVELOPMENT

During 1973, the Arab oil embargo brought this gathering energy problem to the point of crisis. The chronology shows that military attacks were launched by Arab countries in early October, 1973, and that the boycott began in mid-December.

The U.S. Government action in the fuel area, which was announced in three parts in October, was the Mandatory Allocation Program for propane and middle-distillate fuels.

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These events raised questions about the magnitude of the energy shortage and how it would affect small businesses and their owners and employees. This led to further questions about how the impact upon small business would be felt by the consumer and the economy as a whole.

To explore these and other questions of current importance, the Chairman of the Subcommittee on Environmental, Rural and Urban Economic Development, Senator Sam Nunn, called an informal working session of the subcommittee on November 1, 1973.

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Eighteen organizations attended this meeing in the U.S. Capitol and engaged the subcommittee members in a wide-ranging discussion of the pressing economic and governmental problems of small business. Participants were asked to address specifically what the subcommittee might and should do about these problems.

See press release: "Proclamation by the President of the U.S., Modifying Proc. No. 3279 Relating to Imports of Petroleum and Petroleum Products," Mar. 23, 1973.

Letter to Senate Select Committee on Small Business from James M. Day, Director, Office of Hearings and Appeals, Department of Interior. April 3. 1973. (Letter and Exhibit A thereto reprinted in this Report as Appendix E.)

For propane fuels, Oct. 2, 1973. Chap. XIII to Title 32A. Code of Federal Regulations, EPO Reg. 3 (38 FR 27397) Oct. 3, 1973. For middle distillate fuels, Oct. 12, 1973, EPO Reg. 1 (38 FR 28660) Oct. 16, 1973. For procedures, Chap. XIII, Title 32A, Code of Federal Regulations, EPO Reg. 7 (38 FR 29299), Oct. 24, 1973.

The list of the organizations in attendance is included in this report as Appendix F.

As a result of such information from these small business representatives and from the press, the subcommittee decided to hold public hearings on small business energy problems on November 27-29, 1973. In announcing the hearings, Senator Nunn declared that:

Unless Congress and the Administration cooperate in getting the facts and particularly addressing the varied probblems of the small business community, the lights will be turned out permanently in thousands of firms. This can only result in the strength of our economy being severely damaged. By the time the hearings were convened at the end of November, the subcommittee found one of the most far-reaching, complex and swiftly developing problems that has faced the small business community and the economy. In its hearings and in continuing studies since, the subcommittee is attempting to gain an understanding of these matters in order to be of maximum assistance to the small business community. A few statistics illustrate the problem:

-with about 6 percent of the world's population, the U.S. consumes about 1/3 of its energy;

-approximately 70 percent of U.S. energy is utilized for industry and business-related purposes; and

-small businesses furnish more than one-half of all the jobs in the American economy and nearly 40 percent of the gross national product.

The committee has long been aware of the vital role of the nation's 81% million small businessmen.

The energy crisis has demonstrated dramatically specific junctures of our economy at which the goods and services of small businessmen are essential. For instance, when the shortage first struck and there was an urgent necessity to increase coal production for reconversion by the utilities, production increases were held up because small items-fastenings for supports in mine shafts-were in short supply. Likewise, construction and transport vehicles, often owned by small contractors, were running short of diesel fuel in coal districts and elsewhere. The strike of independent truckers and the efforts of independent service station owners were to be developments of early 1974. However, these and a myriad of similar happenings illustrate anew that the interdependent American economy is vitally dependent on small business.

In an effort to gain more information about this dependence, the Chairman of your committee requested the Small Business Administration to develop information about such "bottle necks" where inattention to small business could cripple the economy and also the "ripple effects" which could affect large numbers of small and other businesses extending from the impact of the energy shortage on major industries such as construction and automobiles."

The subcommittee soon learned the extent to which energy, and particularly petroleum, is a foundation of our national industry and com

S Congressional Record, daily edition, Nov. 9, 1973, p. S20183 (remarks of Senator Nunn on "Notice of Hearings on Small Business Problems under the Mandatory Fuel Allocation Programs").

Letter to Senator Alan Bible from Hon. Thomas S. Kleppe, Administrator. Small Business Administration. Jan. 3, 1974. See also Morgan Guaranty Survey, Morgan Guaranty National Bank of New York, December 1973.