CONNALLY HOT OIL ACT AMENDMENT TUESDAY, APRIL 19, 1966. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMUNICATIONS AND POWER AND FOREIGN COMMERCE, Washington, D.C. The subcommittee met at 10 a.m., pursuant to call, in room 2218, Rayburn House Office Building, Hon. Walter Rogers (chairman of the subcommittee) presiding. Mr. ROGERS of Texas. The Subcommittee on Power and Communications will come to order for the consideration of pending business, which appears to be bill H.R. 10860, which I introduced last year, and which would amend the Connally Hot Oil Act to redefine contraband oil to exclude petroleum or any of its constituent parts, title to which has been acquired by States pursuant to its laws. The purpose of this legislation is to permit disposal of contraband oil which has been confiscated by a State and otherwise would be ineligible for interstate or foreign commerce under the Connally Act. The record will include a copy of the bill together with the reports from the Department of the Interior and the Bureau of the Budget. As I understand it, the Justice Department was requested to make a report but they had no recommendation on it. (The bill, H.R. 10860, and reports thereon follow :) [H.R. 10860, 89th Cong., 1st sess.] A BILL To promote the general welfare, public policy, and security of the United States Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the definitions of the Connally Hot Oil Act (Acts, February 22, 1935, chapter 18, sec. 1, 49 Stat. 30, being United States Code, title 15, chapter 15A, sec. 715a) be amended by adding the following to subsection (1) thereof: "Except petroleum or any of its constituent parts, title to which has been acquired by a State pursuant to its laws." EXECUTIVE OFFICE OF THE PRESIDENT, BUREAU OF THE BUDGET, Washington, D.C., March 28, 1966. Hon. HARLEY O. STAGGERS, Chairman, Committee on Interstate and Foreign Commerce, DEAR MR. CHAIRMAN: This will acknowledge Chairman Harris' letter of September 9, 1965, requesting the views of the Bureau of the Budget regarding H.R. 10860, to promote the general welfare, public policy, and security of the United States. The bill would amend the Connally Hot Oil Act definition of contraband oil to exclude petroleum or any of its constituent parts, title to which has been acquired by a State pursuant to its laws. The Department of the Interior, in a separate report to your committee, indicates that the apparent purpose of this legislation is to permit disposal of contraband oil confiscated by the State of Texas which would otherwise be ineligible for interstate or foreign commerce under the Connally Act. The Department does not believe that the relatively small amount of oil which would be affected if this bill were enacted would adversely affect the purposes stated in the Connally Act. For the reasons set forth in the Interior report, the Bureau of the Budget would have no objection to enactment of H. R. 10860. Chairman, Committee on Interstate and Foreign Commerce, DEAR MR. STAGGERS: Your committee has requested a report on H. R. 10860, a bill to promote the general welfare, public policy, and security of the United States. We have no objection to the enactment of the bill. This bill would amend the Connally Hot Oil Act (15 U.S.C. 715a(1)) to exclude from the definition of the term "contraband oil" illegally produced petroleum or any of its constituent parts the title to which has been acquired by a State under its laws. The Connally Hot Oil Act prohibits "the shipment or transportation in interstate commerce from any State of contraband oil produced in such State" (15 U.S.C. 715b). The apparent purpose of the bill is to permit the shipment in interstate commerce of oil produced in excess of State laws and regulations after title to the oil has been acquired by a State under its confiscation or other laws. Such legislation is required to permit the interstate transportation of oil in such circumstances because of the decision of the U.S. Court of Appeals for the Fifth Circuit in Hurley v. Federal Tender Board No. 1, 108 F. 2d 574 (1939) which held that under the Connally Act contraband oil which had been forfeited to the State of Texas and confiscated by the State and sold remained "contraband" oil and ineligible for interstate or foreign commerce. At the time the Connally Act was enacted, there were a substantial number of markets exclusively within a State where oil could be sold for strictly intrastate distribution. Changing conditions, however, have rendered it almost impossible to sell oil within a State with the refined products used exclusively within the boundaries of the State. Under today's marketing system, it is virtually impossible for oil shipped by pipeline not to enter into interstate commerce either as crude oil itself, constituent parts thereof, or the products manufactured therefrom. Progressively, interstate pipelines have been built to facilitate the movement of crude and refined products to large markets often at great distances from the State where it was produced. It is highly unlikely, therefore, that an exclusively intrastate market for crude oil could be obtained today. Unless illegally produced oil acquired by a State under its confiscation or other laws is permitted to be transported in interstate commerce almost invariably such oil will have to remain in storage, where it is subject to deterioration or loss from tank breakage or fire. It would appear that it would be in the interest of conservation that such oil be put to a useful purpose. Enactment of the bill would solve a long-standing difficulty, especially in Texas where we understand some contraband oil has been in storage for many years. We do not believe that the relatively small amount of oil which would be affected if this bill were enacted would adversely affect interstate or foreign commerce contrary to the purposes stated in the Connally Act. The Bureau of the Budget has advised that there is no objection to the presentation of this report from the standpoint of the administration's program. Sincerely yours, GLIN A. COWAN, Jr., Under Secretary of the Interior. Mr. ROGERS of Texas. Mr. Younger, did you have anything? Mr. YOUNGER. No, sir, but those reports; are they favorable? I have not read them. Mr. ROGERS of Texas. Actually the reports are "no objection" reports. There is a witness here from the Department of the Interior who will testify today and the Bureau of the Budget has no objection. Our first witness this morning is Mr. George M. Paulus, Assistant to the Director of the Conservation Division and Geological Survey of the Department of the Interior. Mr. Paulus, if you will come forward you will be recognized. ASSISTANT TO THE STATEMENT OF GEORGE M. PAULUS, Mr. PAULUS. Mr. Chairman and Mr. Younger, my name is George M. Paulus. I am Assistant to the Chief of the Conservation Division of the Geological Survey, Department of the Interior. I am here in behalf of the Department of the Interior in response to a request I understand was made by the committee to have someone present to answer questions, if necessary. The Department of the Interior has made its formal report, as you mentioned, on the bill on March 18, I believe, in which they reported no objection to enactment. In addition I have a short statement which I believe covers the matters requested by the committee. I will be glad to read it. Mr. ROGERS of Texas. I think it will be well if you did, it is short and I think pretty much to the point. Mr. PAULUS. From time to time during the past 15 years the office of the attorney general of the State of Texas and legal counsel for the Railroad Commission of Texas, have requested the Federal Government, through the Federal Petroleum Board (now branch of Connally Act compliance) to authorize the sale and movement in interstate commerce of illegally produced crude oil seized and confiscated by the State pursuant to its confiscation statutes. The States authorities have contended that there is no suitable intrastate market for the oil, and that unless it can be sold into interstate commerce, the State is unable to utilize its confiscation authority in a reasonable way by selling the oil at fair market price. Some confiscated oil has been used in the past for inferior purposes, such as road oil. The answer given by the Interior Department to the State of Texas requests has always been the same, that is, that the Interior Department is without authority to certify or approve the movement of confiscated oil in interstate commerce. Such movement is prohibited by section 3 of the Connally Hot Oil Act, as held applicable to confiscated oil in the case of Hurley v. Federal Tender Board No. 1, 108 F. 2d 574 (1939). H.R. 10860 would remove the prohibition. The most recent inquiry or request from the State authorities was in 1963. Interior's reply of October 4, 1963, through then Assistant Secretary John M. Kelly, reiterated Interior's lack of authority to acquiesce in the interstate movement of confiscated oil. Mr. Kelly further suggested that the State bring the problem up for discussion in the Interstate Oil Compact Commission and explore with the Commission the possibility of recommending amendatory legislation to the Congress. We do not know whether that suggestion was followed, but assume that the present bill, H.R. 10860, results from views of the State of Texas authorities that a legislative solution of their confiscated oil problem is needed. I will correct that last sentence since we do now know that the State did take the matter to the legal committee of the Interstate Oil Compact Commission, and, as I understand, met with no objection. Interior's files do not reflect that the problem of movement of confiscated oil has come up in any State other than Texas. We are not aware that any other State has made any extensive use of confiscation as a means of enforcing oil conservation laws. Interior does not have up-to-date data on the amount of confiscated oil, or oil subject to confiscation by Texas, that would be affected by enactment of H. R. 10860. We understand that the State has knowledge of approximately 135,000 to 140,000 barrels reportable as confiscatable oil but that it has not completed its study or survey. Now, the following is on the Connally Act administration. Do you want me to read that? Mr. ROGERS of Texas. Yes, sir, I think it is quite important. Mr. PAULUS. A brief history of administration of the Connally Hot Oil Act has been in three phases. The first phase covered the early years after enactment in 1935. The full powers of the act were used by means of establishment of Federal tender boards for issuance of "certificates of clearance." No oil could move in interstate commerce from the principal fields of the Southwest until cleared for movement by the Federal Government. The second phase dates from 1942, when the Federal tender system was abolished. The field organization for administration was reduced to an investigative staff, and active enforcement was limited to a "designated area," consisting of southeast New Mexico, most of Texas, and all of Louisiana. During the past 10 years (fiscal 1956 through 1965) successful prosecutions have averaged about seven per year. Fines imposed by the Federal courts during that period have averaged about $53,700 per year with a high of $120,576 in fiscal 1958. The third phase of Connally Act administration dates from January 29, 1965, when the Secretary of the Interior limited active enforcement by revoking the designation of the specific areas in which special enforcement procedures had been applicable. Phasing out of the work has taken place during the past year, and the branch of Connally Act compliance will be terminated June 30, 1966. The termination action, as the amending order noted, was taken as a result of the increased capability of the States to enforce their own conservation regulations. Mr. ROGERS of Texas. Thank you, Mr. Paulus. |