of sacrifice that Mr. Simon has made. He is a man who gave up an enormously remumerative job to take this service and do this tremendous amount of work under great pressure. I think all of us owe him a great deal of thanks for what he is doing for his country. You are asking many of the same questions, not all but many of the questions I have raised. Mr. Simon, we welcome you here. Congressman Conable.

Representative CONABLE. Thank you, Mr. Chairman. I would like to say a word.

Mr. Simon, I would like to echo what the chairman has said about your services personally. I think many of us are most grateful for your willingness to take on this very difficult responsibility under extremely difficult circumstances. I am sure you are having to absorb a great deal of data and in fact generate a great deal of data in a very short time because of the pressure of public concern on this issue.

Those of us who know you have considerable confidence in your ability to handle the job and we are grateful that you are willing to do it.

Chairman PROXMIRE. Senator Javits.

Senator JAVITs. Mr. Chairman, I just wish to announce that I am here this morning because, one, I would like to associate myself with everything said by the chairman and the ranking member, Mr. Conable, about the issue and about the Administrator himself.

Secondly, I am here because my State and my own home city, New York City, seem to be suffering unduly in this crisis, especially noting the fact that the New York City region, with almost 10 percent of the population, consumes less energy than any comparable area in the United States for the various reasons, including mass transit, et cetera.

Under those circumstances, it seems especially hard on our people that they seem to be suffering the most in terms of gasoline lines, shortages, and extremely high prices for what they do get. I have notified Mr. Simon in advance that I shall be asking these questions as to why New York is taking it on the chin so heavily in this matter and what is to be done about it.

I wish to add at once that Oregon and Arizona are currently in the same position but with very much smaller populations and very much less pressure on them because of weather. Of the three, ours is the most severe problem.

Mr. Chairman, I also would like to state that I think it is most constructive that the Chair has called these hearings at this time notwithstanding the recess because I think that many uncoordinated efforts are going forward, and it is essential that the facts be gathered into a coordinated pattern and I believe that in the process of legislative oversight, we can both ride hard on those who are taking advantage of the emergency, and we can also help the Administrator to have a coordinated picture in terms of State activity and private activity which is the ultimate desire as far as we are concerned.

Thank you, Mr. Chairman.

Chairman PROXMIRE. Mr. Simon, please proceed.

STATEMENT OF HON. WILLIAM E. SIMON, DEPUTY SECRETARY OF THE TREASURY AND ADMINISTRATOR, FEDERAL ENERGY OFFICE, ACCOMPANIED BY JOHN SAWHILL, DEPUTY ADMINISTRATOR; WILLIAM WALKER, GENERAL COUNSEL; GERALD PARSKY, EXECUTIVE ASSISTANT; ERIC ZAUSNER, ASSISTANT ADMINISTRATOR FOR DATA ANALYSIS; AND CHARLES OWENS,

PRICE REGULATION

Mr. SIMON. Thank you, Mr. Chairman. I note your kind remarks. I would like to echo what Senator Javits just said. I think the important thing that we can do I congratulate you, Mr. Chairman, for calling these hearings because no one wants to get the facts before the American people about this energy problem more than I. I understand the great problem of credibility in the institution of Government today. This is a very complex subject and one which through dialog generated through these hearings, as the facts begin to surface, many of the misstatements, wrong impressions that people have, will be placed before the people in an orderly fashion and I look forward to participating in this dialog and will spend whatever time it takes, and my associates will do the same, to make sure that we attempt to get these facts before the people.

There is a tremendous misimpression that we are attempting to manage this shortage through the price mechanism when indeed, we really have very little control over the prices of imports which have skyrocketed, close to 400 percent in the past year. I will deal with that during the question and answer period, I am sure, in an attempt to deal with the specifics of the components of this industry and our petroleum consumption in this country and how the price of a gallon of gasoline, if you will, relates to the amount of oil that we bring in from abroad.

I would like to thank you for the opportunity to appear before you today to discuss our energy data requirements. The Arab embargo will reduce our petroleum supplies almost 14 percent below expected demand. Some have questioned the accuracy of these estimates. I welcome the opportunity to address the credibility of our estimates, the sources of the data which we use in making them, and our plans to improve our energy information capabilities.

While many doubt the accuracy of the data being provided by industry, there is no doubt in my mind that we do indeed have a serious shortage. Consumption this year is expected to be significantly above last year-a continuation of historic trends. Domestic production, on the other hand, has leveled off and commenced to decline. The result has been ever-increasing levels of imports and a growing dependence on Arab crude oil and products refined in third countries from Middle East oil. In October, a 100 percent U.S. embargo was announced and while the estimated impact varies depending on assumptions, the existence of a shortage simply cannot be denied.

In developing our estimates of the embargo, a worst but still realistic situation was used. Responsible national energy policy can

only be developed by planning for the worst. I would like to be surprised by more favorable events, but we cannot afford to have programs developed which are not adequate as the situation pro

gresses.

To a certain extent, the plain logic of a shortage has been confused by seemingly contradictory facts primarily our very favorable inventory position at yearend. However, this is due to unusually warm weather through the winter to date, the effect of conservation by the American people, and leakage of the Arab embargo. The result has been increased inventories. There is also one more important factor. We must remember that as Chairman of the Oil Policy Committee, in early and late winter we changed the mandatory oil import program and its effect was to create massive new numbers of importers in this country, new storage facilities that have never been reported in this country, and all of this has created greater inventories than normal.

As of December 20, the American Petroleum Institute reported we have only slightly over 30 days' supply of the major petroleum products. The shortage caused by a fully effective embargo will quickly reduce these to dangerously low levels unless we act quickly to reduce demand and equitably allocate the available supplies.

A comprehensive domestic and international data system is clearly needed and the FEO is now analyzing the best ways to structure and implement such a system. Such a system is of little use now in this time of petroleum shortage and, therefore, I would prefer to focus on our most crucial information needs now and how we intend to meet them.

CURRENT INFORMATION SOURCES

Let me say right at the outset that there has never been in existence an adequate energy data system. One was never needed or really ever desired until recently. Today and in the years ahead we need better data on everything from reserves to refinery operations to inventories. Nevertheless, we are in an emergency situation and we cannot wait for new systems before making many of the decisions which have to be made. We must and are using and modifying the systems we now have until new and better ones can be developed. Almost without exception I feel we need more accurate, timely, and comprehensive data, data that we can check, verify, and cross-check. We intend to get such data, but must rely on the existing data at least for the next several weeks.

Our current data system includes production of crude oil and closely related products, imports of both crude oil and refined products, refinery operations, and shipments of petroleum products by refineries. It also encompasses the transportation systems linking the oil fields, the refineries, and the bulk terminals. Finally, petroleum stocks or inventories held by terminal operators, refiners, and pipeline companies are also reported.

Data on the domestic petroleum supply system are gathered by the Bureau of Mines-BOM-and by the American Petroleum In

stitute API. The Bureau of Mines data are gathered primarily through a monthly report by refining companies, supplemented by monthly data gathered from terminal operators. Additional information on crude oil production is obtained from State agencies, and additional information on imports, primarily imports of refined products, is obtained through Census Bureau reports based on information gathered by the Bureau of Customs. The Bureau of Mines reporting system is voluntary, but there is a very high degree of cooperation by the petroleum companies, and the response rate is in fact higher than that achieved in many supposedly mandatory information reporting systems.

The API has a much less detailed reporting system than the Bureau of Mines, but it receives and publishes data on a weekly basis. For example, API collects refinery information from about 60 percent of the refiners which account for over 90 percent of domestic operations. These data include refinery crude runs, production and yields of all major refined products, and inventories of crude oils and finished products. Detailed information on imports are also compiled by the API.

We have already completed preliminary cross-checks of these reporting systems and have found them to be reasonably accurate and quite consistent over long periods of time, although on a weekto-week or month-to-month basis differences of up to several hundred thousand barrels per day can and indeed do occur. For example, during the first 10 months of 1973 API reports differed from the data published by the Bureau of Mines by less than one-half of 1 percent.

While these cross-checks indicate that the data appear sufficiently accurate for management decisions, there are still significant deficiencies in these systems. Let me briefly summarize the problems.

First, industry coverage by the API for the weekly statistics is not complete. Smaller refiners and importers are not included and the statistical techniques used to extrapolate the sample to industry totals may not be completely adequate in these times of shortage and rapid change.

The second major problem deals with secondary stocks—those petroleum inventories not held by refineries and major terminal operators and consumption. Particularly in times of shortage, information on all inventories and actual use rates are important, but our reporting systems are just inadequate. Information on reserves is also inadequate. While not critical in dealing with the embargo, accurate reserve data is needed if we are to develop sound public policy.

In contrast to the primary supply ssytem, where both the Bureau of Mines and the API provide comprehensive although not_completely adequate data, information about secondary stocks and consumption can be obtained only by considering a number of sources, but even the combination of all these data sources does not provide complete information. However, selected data are available. The

Federal Power Commission compiles data on the use of all fuels, including petroleum, for the generation of electricity.

The Civil Aeronautics Board collects data on the use of aviation fuels by certified carriers. The Bureau of Census collects data on fuels and electric energy consumed in manufacturing industries once every five years of manufacture, and estimates are provided in intervening years. From all of these data sources one can build only an incomplete picture.

There are two additional deficiencies in most of our current energy data: Lack of regional and seasonal differences in consumption. To make our allocation programs work properly, we must know where and when the different petroleum products are needed. Current needs must be determined in large part by reference to past consumption levels and trends, but data on past consumption patterns are not available by States and by month. Further breakdowns of consumption by industry or other users are not available. These kinds of data are not available primarily because they were never before needed for operation of programs typically within range of U.S. Government policies. But they are needed now.

Our final point must be made. All of our current sources of data are voluntary and for many of the programs we now must operate this is simply not enough. We now clearly need mandatory reporting systems and mechanisms to check and enforce their proper operation.

NEW REPORTING SYSTEMS

We have already instituted a number of new systems to collect better energy data data and to improve our management capabilities. We have instituted immediate daily reporting of tanker arrivals by the Bureau of Customs, so that petroleum imports data can be available and processed with a lag of only about 1 week instead of the month or two required for complete Census Bureau processing of all Customs imports data, including petroleum. This will provide a further check on imports as presently reported by the API.

The Navy has agreed to provide a forecast, using its worldwide capability for tracking ocean shipping, of tanker arrivals in the United States for up to 4 weeks in the future.

We are establishing a system for obtaining, on a sample basis, measures of actual consumption of home heating oil, adjusted for the weather. Data have been coming from New England for a month, through the cooperation of the New England Fuels Institute, its member dealers, and their computer service bureaus. Broader coverage will be achieved as additional companies or associations are brought into this program.

We have been working with the FPC to establish a rapid reporting and forecasting system for the consumption and stocks of all fuels, including petroleum, used to generate electricity.

I will be visiting the Texas Railroad Commission shortly and also other State regulatory agencies to see what can be done to get