low and falling real fuel and power prices in the United States and the little bit of economic work done to date has necessarily been constrained by data cast within this historical setting of abundance and low costs. Clearly much work is needed in this area for facing up to public policy questions.

Then, finally, there is the ever-present question of the utility or futility of energy projections. I do believe that an ongoing and systematic effort at short- and long-term forecasting would be most desirable. These kinds of projections should embody the best explicit demand and supply response to price that can be developed.

On the supply side, particularly, this would quickly expose problems connected with the systematic development and standardization of reserve and resource concepts-statistics which Mr. Freeman has alluded to.

I will be glad, Mr. Chairman, to get into other questions that may be of interest to the subcommittee later on. Thank you.

Chairman PROXMIRE. Thank you very much.

Mr. Allvine, please proceed.

STATEMENT OF FRED ALLVINE, ENERGY CONSULTANT

Mr. ALLVINE. I would like to talk about my general reactions to what I heard this morning and, I think, some real salient questions that need to be considered.

First of all, I think that Energy Czar Simon and Consumer Advocate Ralph Nadar asked more questions than they answered, and I think many of us, me included, are getting bogged down in a quagmire of industry statistics. I don't really know how short we are and I think that is one of the real reasons for additional information.

I endorse generally the nature of the statistics that were suggested by William Simon. I would point out, however, that industry has historically fought every effort to provide the Government with the type of statistics which are being asked for today. This was to keep the Government from becoming too involved in industry activities leading to perhaps to more control.

I had calls from Government agencies within the last year asking me if I couldn't do something to get industry to cooperate more in the statistical area.

With that setting I would like to point out though that I don't think too much should be made of statistics because statistics will not solve any problems and we can be misled and direct our attentions in the wrong way. There are some real significant questions we need to get into.

For example, this past week an oil company released information about the condition of inventories. This information was almost meaningless. It didn't really help the public to understand and comprehend anything. You don't sell from fundamentally inventory, you sell from production. If they told the public what they planned to produce in February, March, and April, then the public would have some idea where we really stand with regard to shortage. So I think the public can be misled by the presentation of a great deal of mumbo-jumbo statistics which don't lead to any direction.

I would like to move on to what I think is really the issue before Congress, and the issue before Congress is that we don't fundamentally have any petroleum policy in the United States. You have along with other Senators delegated some responsibilities and now are considering an energy bill to delegate more responsibilities to the White House to make decisions that I think are your responsibilities and I would like to be more specific about the areas where I think Congress needs to look very carefully where we have come from and where we want to go in the future. I don't think necessarily that today the interest of the international oil companies with great influence at the White House are necessarily those that coincide with the general public interests.

Let's take one thing, for example. The foreign tax credit. The foreign tax credit as I understand it is working out today is robbing the Treasury. It has resulted in international countries swooping in and taking the tax dollars that these international organizations would otherwise be paying to our Treasury from investments in the United States. This is going over to the Middle East. What we are doing with the foreign tax credit as it exists, they were subsidizing the Middle Eastern development of oil and that oil is being embargoed against the United States. I think if the public recognized what this tax policy was doing there would be a public outcry. So I hope you and others will look at tax policy and particularly the foreign tax credit. Once when foreign oil was low there was justification. It is contrary to our own national interest. And while you are looking at that, look at the depletion allowance. Already there has been break in the dike. Atlantic Richfield has come forward and advocated it be eliminated, prices be allowed to increase and it would be a natural way to cut back on some of the demand. No longer are energy resources cheap. What we need to do is let the prices go naturally, quit subsidizing the price of the petroleum and other fuels, let the price rise and let that curtail demand.

Let me move on to one other area where I hope that you will commence to look in terms of broader energy policy, not just a question of information but energy policy, petroleum policy. Right now it is your interest to get on with the job of developing indigenous petroleum reserves. We need to improve our resource base in this country, particularly in crude oil and natural gas. If we look at the policy coming out of the White House now delegated to them we can look at the leasing of offshore land for development. That is where our future lies, as Bill Simon told us this morning, and what policy is being advocated? We have a bonus bidding system which is driving up the cost, increasing the prices and really discouraging exploration and development in the United States. Furthermore, it is a policy that has been advocated by some of the giants of the petroleum industry to keep the little smaller producers out of this vast new recourse. What we need to do is have an energy policy which is set up which is uniquely American which will get on with the job of developing our own petroleum resources. And the bidding system is not one to drive up the cost, it is forcing the twotier price structure to occur in the United States and reducing the profitability and necessitating increased cost, and I think this is another aspect of policy that has to be looked into.

Then we go into some other things. This morning Bill Simon was telling you that we have price controls. That is so much malarkey. We don't have price controls in the country. Only at least 50 percent of the production. That is a smoke screen. I don't care what anyone says. We have to come up with a two-tier price structure. The best thing the Government got out of the price control, two-tiering, all of this business with regard to trying to regulate petroleum prices. I think what we need to do is let the prices go and use some sort of tax base for seeing that unfair return is not brought to the industry, but I think everyone has to recognize industry needs. It may be wrong for me to say increase profitability to get on with the job.

It comes to the final question you raised this morning, what do you advocate? You advocate a policy nationalism, you advocate a policy of public utility approach, or do you advocate a policy of free enterprise or antitrust enforcement? I think I side with you, Senator. Maybe I am ideal but what I would like to see is more competition in the industry. With government interference, look what happens when government becomes involved in policy. It is subverted to the interest of the powerful few, and what I would like to see is a change made in the industry which will help to restore the competitive process so that profits are used to develop the U.S. resource base.

Thank you.

Chairman PROXMIRE. Thank you, Mr. Allvine. These are certainly stimulating viewpoints.

This morning Mr. Simon stressed the inevitability of a fuel price rise. He feels apparently there is a limit on what the Government can do to limit price increases, and Mr. Allvine certainly underlined that with his observation that we have just heard, even though the Economic Stabilization Act provides a very broad price control authority.

I would like to get your reaction to the following point. First, what is the price increase needed in the long run in order to bring forth fuel supplies from new sources such as shale oil or coal gasification?

Mr. Simon has zeroed in on $7 per barrel of crude oil, yet he also indicated that it may be possible to produce oil from shale cheaper than that.

Do we have the data necessary to know what the various types of new production might cost us?

Mr. FREEMAN. No, sir, we don't. My testimony this afternoon represents just my personal views on these matters.

I happen to believe that we need a rollback of prices rather than further increases. The price of new crude oil in the United States is $10 a barrel. It is too high in my opinion, much too high, and I happen to believe that consumers of this country are paying much too much for oil today. The price increases that have been allowed in the last couple of months bear no relationship to the cost as far as I have been able to find out. A dollar a barrel increase on crude oil that was authorized, in fact suggested by the White House just before Christmas, amounts to approximately

$3 billion a year in my gasoline bill and your gasoline bill and everyone else's. This is on crude oil that has been discovered long ago, and as far as I know the price of producing that oil didn't go up a penny over the Christmas holidays.

Chairman PROXMIRE. Mr. Simon argued secondary and tertiary development might be influenced by an increased price at the established wells.

Mr. FREEMAN. It is my judgment if you want to get secondary and tertiary recovery that you don't have to pay the $7-$8 a barrel on all of the oil that is already flowing. Let's develop a very sharp tax incentive, a depletion allowance that would apply to the secondary and tertiary recovery in an amount needed to make up the difference in cost. The idea of permitting a very high price on all of the oil flowing just to get another 5 or 10 percent strikes me as a very bad bargain for the consumer. I would like to know what the costs are so that we can have prices that will permit a generous return, not an extraordinary return. This is a multibilliondollar issue for the American people that needs to be debated and not decided on the basis of ignorance about what the facts are.

As far as what price is needed to encourage the development of aletrnatives, I don't believe there is anyone in this country that knows for sure today because most of the questionmarks about the shale, for example, are about the environmental impacts. We have to build a demonstration plant, in my opinion, and get some hard data to find out.

I worked in the White House Office of Science and Technology for years evaluating these new technologies. They all looked fairly attractive on paper, but without exception they become much more expensive and very difficult when you try to implement them, I don't think that fixing today's prices for oil and gas discovered years ago on the basis of some guess as to what the market might require for bringing in new alternative sources is a very good bargain for the American consumer.

Chairman PROXMIRE. Mr. Allvine, you came down hard on the side of relying on the market to do the job and competition to do it. Do you feel that we can dispense with price controls now or we need a short-term transition at least while we

Mr. ALLVINE. I think all we are maintaining, Senator, is a facade of price control. I don't think we have price control.

Chairman PROXMIRE. You said we have price controls on 50 percent and not on the other 50 percent.

Mr. ALLVINE. On the other 50 percent they boost that to whatever is needed to make up the difference. They have a passthrough so they can take their transportation differences and now make one

Chairman PROXMIRE. Are you arguing the best policy would be to eliminate the price controls?

Mr. ALLVINE. I truthfully think the more and longer the Government fiddles with measures like this the worse the situation is going to be. I would be very much opposed to the suggestion of Mr. Freeman and Ralph Nader, we roll back prices. We will have a hell of a shortage in the United States. Maybe we should go to the excess profit tax if we get to playing around with the price

mechanism and you have to realize that I am opposed to how we got into the shortage to begin with. I don't think it was a natural phenomenon. I think it was encouraged in part by business and Government oversight.

Chairman PROXMIRE. What would happen to prices if we followed your advice and took off price control entirely?

Mr. ALLVINE. I would really be surprised if we took off price controls on the other 50 percent to see much happen to prices. The rate of return might go up. I would be surprised to see the overall average price of crude oil go up any higher than it will anyway. It is going to happen. Whatever is needed to accomplish the goals of increased exploration of producing to give the petroleum companies the capital flows necessary for them to restructure their industy is going to take place, we don't have any control.

Chairman PROXMIRE. The point Mr. Nader and the point that seems to have validity is that a strong element of competition did help hold down prices, and that was from the independents, the independent marketers, independent refiners. They have been squeezed out. To a considerable extent they are pretty much at the mercy of the majors for the crude in the case of refiners and for their products in the case of the marketers.

You really feel under present circumstances with the limitation on imports that we have, because of the embargo, if you took off price controls now that prices wouldn't go much higher?

Mr. ALLVINE. Senator, as you know, I am very concerned about the position of the independent refiners and marketers and their being squeezed and many are being murdered at this particular point in time. We also have the other problem here of improving our domestic energy base and we have to have adequate incentive to accomplish. One thing I don't want to do is destroy another. What I would do in your information bill and what I had in my statement and forgot to mention, one bit of information should be forced out, I doubt it will come forward, and that is rate of return on down stream refining and marketing operations. That is how they squeeze the independent. They are subsidizing this end of the competition to squeeze the major source of private competition. I would hope one thing in the information bill, it would have to break out the super secret information about how they subsidized downstream refiners and artificially squeeze by administering the

Chairman PROXMIRE. Do you think the information can do it or do you think we have to reduce the integrated power. Congressman Conable pointed out this morning if we eliminated integration there might be an increase in cost. But, on the other hand, if you eliminate integration you would have a greater degree of strengths on the part of the independent refiners, you wouldn't be at the mercy of the situation. As I understand it, the way the oil companies operate they can charge themselves whatever price they wish, of course, so they charge themselves a nice high price for the product they sell to their refinery that increases the value of their depletion allowance, also discourages any refinery competition, and narrows the margin for the refiners. As long as you have vertical integration they will have the power and incentive to do this.