duced by the Senator, but I dread the thought of having to follow him, because I know anything I have to say will seem pale in comparison. Senator MCINTYRE. The committee welcomes you here this morning, Mr. DeBlois. Mr. DEBLOIS. Thank you. I certainly appreciate the invitation extended to us. I am Robert E. DeBlois, president of the New England Fuel Institute and representing that organization this morning. The New England Fuel Institute is an association embracing the regional area with 1,100 retail home heating oil dealers-distributors as members. These members sell about 72 percent of all of the home heating oil sold in New England. No. 2 home heating oil, also known as light fuel oil, is the major source of home heating energy for the entire six-state region. New England's population is somewhat above 10 million people. Of these, over 8 million receive winter heat and comfort in dwellings that are heated by 2,129,755 individual oil burners. Against this, there are about 67,000 central gas heating customers and at most about 3,000 to 4,000 private homes heated by electricity. It is immediately apparent that home heating oil carries the prime burden of the New England home heating load. Four billion gallons of No. 2 home heating oil are consumed annually in this process. About 3,800 independent dealerdistributors, small businessmen, distribute the overwhelming majority of this gallonage. Senator MUSKIE. I assume there is no more coal heating anymore? Mr. DEBLOIS. It is almost almost nonexistent now, Senator. An adequate, reasonably priced supply of home heating oil is therefore vital to the health and comfort of 8 million of New England's 10 million population. The economics involving such a large retail market in relation to prices have a sharp impact. Each addition of a single penny to the price of home heating oil has cost the New England oil heating consumers $40 million per year. A consistent, adequate supply of such oil is therefore vital to the health and comfort of more than 8 million people. The need for such supply is overwhelming. Unfortunately, an adequate supply has not always been the case. During the 1966-67 and 1967-68 winters, independent and major oil company deepwater terminals were without supplies of No. 2 home heating oil on numerous occasions. The severity of such supply dislocations and their potential to wreak havoc with the health and comfort of millions of New England consumers was acknowledged by the U.S. Government. The Oil Import Appeals Board, in an unprecedented series of actions over the past 2 years, acknowledged the severity of the supply crises by granting emergency import allocations for No. 2 home heating oil. However, this potentially disastrous situation should Senator MCINTYRE. When you say the past 2 years, do you mean the winter of 1969-70 and the winter of 1968–69 ? Mr. DEBLOIS. The 1967-68 and the 1968-69 winters. We sometimes consider ourselves in the 1969-70 winter. There were, of course, emergency awards from the Appeals Board in February 1970, too. Senator MCINTYRE. Thank you. Mr. DEBLOIS. This potentially disastrous situation should not be allowed to continue and a prompt and effective solution to the prob lem could be quickly and equitably achieved by the elimination of the oil import restrictions. New refinery techniques which enable refiners to extract higher percentage yields of higher priced products such as jet fuel and gasoline further contribute to the short supply potential and problems for No. 2 home heating oil. The New England Fuel Institute in accord with the will of its dealer-distributor members and, in view of their experience and that of the independent terminal operators during the last three winters stands unalterably opposed to the oil import quota program especially as it is applicable to No. 2 home heating oil. The import quota system as it severely limits and controls the flow of distillate No. 2 oil from foreign sources acts directly to the detriment of the New England consumer, the independent deepwater terminal operator and the independent retail fuel oil dealer-distributor. It does this essentially by restricting supply and free competition. Based on an historical, anachronistic quota system geared to the past and not to present ever-changing market needs and requirement, it favors the major oil company and others and restricts those who have not been historically so placed. Therefore, it penalizes independent deepwater terminal operators and suppliers and thereby their customers, the dealer-distributors, through an inequitable, impractical historical approach. Competition which should be free in the wholesale home heating oil marketplace is restricted and controlled. The Import Controls System does this and thereby visits a discriminatory inequity upon the entire New England home heating oil economy. Import quotas in view of such monumental, long standing supply problems still facing New England now assume an air of irrationality as well as political favoritism or compromise. The imposition and continuation of quotas on top of the supply problems already facing the area can only serve to augment the economic and moral evils that are being perpetrated on the region. Essentially import quotas are basically inefficient, violate equity and are inimical to fair competition thereby acting directly to the detriment of the consumer. Even in the area of internal market competition between forms of energy in local areas the present quota system is grossly unfair to home heating oil distributors. Natural gas, a strong competitive factor used by public and privately owned utilities to compete with home heating oil, is completely free of the quota system. Already one eastern Massachusetts utility has imported two 4,000-ton shipments of liquified natural gas-methane-on which there are no import restrictions. This gas imported from Algeria is being used to directly compete with retail home heating oil distributors in that market area. Yet adequate supplies, at reasonable prices, of No. 2 home heating oil are denied by the system to the New England fuel oil industry. A blatant restriction of fair competition, denial of free access to the law of supply and demand, this situation visits maximum hardship on the independent retail and wholesale home heating oil industry in New England. Consider further that New England with slightly more than 5 percent of the Nation's population consumes 20.9 percent of the Nation's home heating oil and the enormity of the inequity becomes clearly emphasized. The intrinsic inequity and economic incompatibility with free enterprise, affects every component of the area's fuel oil economy and surrounds it with a competitive environment that is controlled, unfair, restricted, and extremely costly to the retail distributor and consumer. Specific instances point this up. For example: Home heating oil from the Caribbean area enters Canadian ports, there being no import quota restrictions in this case. The economics of the retail price structure because of the lack of import quota restrictions results in a 3 cents per gallon price reduction at retail for the Montreal consumer. The Petroleum Industry Research Foundation is the source of these figures. Translating this overcharge of 3 cents per gallon because of import restrictions, New England which consumes 4 billion gallons yearly. pays $120 million more per year than its Canadian neighbor. How can any area be so penalized by import restrictions? It defies the bounds of reason. What case can there be for limiting the supply of home heating oil to the region in face of an economic penalty such as this. There is no doubt in face of such a gross economic inequity that New England is entitled to fair treatment. New England consumers are discriminated against to the tune of $120 million per year on home heating oil alone. This situation is further aggravated by conditions that compounded the deleterious effects of the quota system. These affect the independent deepwater terminal operator and include: (1) A decrease in the number of American flag marine bottoms available to independents; (2) Loss of customers at wholesale because of supply apprehensions and uncertainties: (3) A decrease in long-term supply contracts: (4) Increased major oil company competition at the retail level: (5) Inequitable competitive supply situations at wholesale; (6) Increasing necessity of independent terminal operators purchasing emergency wholesale supplies at high prices in the open market: (7) Open competition between independents and refiners for customers at wholesale, while independents are not favored by historical supply quotas and instead are restricted, and; (8) A further restriction in competitive open buying on the part of the retail dealer-distributor because of independent wholesale terminal operators acquired by the major oil companies. This latter point of acquisitions demands some amplification. Prior to the Presidential proclamation putting the oil import quota system into effect in 1959, the wholesale terminal operating business was essentially stable. Independents were content to continue their businesses as wholesalers. With the advent of the quota system a nervous uncertainty pervaded this segment of the New England fuel oil industry. The results of the quota system and its negative effect on the stability of the wholesale segment gradually became evident. What was this evidence? It was the sale of independent wholesale terminal operations to the refiners. In New England this assumed major proportions. The following wholesale operations have been passed over to refining oil companies since 1959 and those listed are far from all. They are: 1. Buckley Brothers in Connecticut. 2. Hoffman Brothers in Connecticut. 4. Curran & Burton in Rhode Island. 7. Ford Bros. in Connecticut. 8. Red Wing Oil Co. in Connecticut. 9. Crown Petroleum in Connecticut. 10. Radcliffe in Connecticut. 11. Hartol in Massachusetts. 12. Jenny in Massachusetts. 13. State Fuel in Massachusetts. 14. C. H. Sprague in Massachusetts. 15. Petroleum Heat and Power in Rhode Island. 16. Atlantic Terminal Sales in New Hampshire, and 17. Kay Petroleum in Connecticut. These serve as an example of the insidious attrition to broad free competition that has taken place in the New England wholesale oil market place as a result of the economic climate fostered by the oil import quota system. These acquisitions further concentrated buying power and tickets in the hands of the major oil companies. Further concern of the impact of the quota system is developing today on the part of the retail and wholesale home heating oil industry in New England. The evils of the system are now further catalyzed by the newer hydro-cracking refinery methods that make it easier to increase or decrease proportionate yields of fininshed products per barrel of crude. This was covered earlier in this statement. The supply crisis would be significantly eased if 100 to 150,000 b/d of No. 2 fuel imports were allocated for the east coast, district I. Such allocations should be given to independent marketers to strengthen their competitive position and to assure the survival of the independent segment of the fuel oil market in the face of the growing competitive problems. Such an allocation should be given immediately, beginning July 1, 1970, so that we, in the Northeast, may be assured of an adequate competitive supply of home heating oil in the winter of 1970-71. We consider this an interim position, and in view of the foregoing data and statements, the basic position of the New England Fuel Institute and its 1.100 independent retail dealer-distributors in one of opposition to any and all import quota restrictions or the extension of any such restrictions; and we favor an uninterrupted supply of home heating oil from all free world sources independent of allocations or quota system, as a major and decisive step in eliminating the restriction of economic competition and moral inequities visited on the home heating oil consumers and their suppliers, the independent retail distributors. Thank you very much, Mr. Chairman. Senator MCINTYRE. Now because of your close-hand knowledge of this whole competitive business out there, I think you may be helpful to me if I may talk about the shortage situation. As you know, the task force assigned to Dr. Leonard W. Weiss of the University of Wisconsin the ancilliary question, as far as the task force was concerned, of where there is a shortage of No. 2 fuel oil in the Northeast. And Dr. Weiss apparently comes to the conclusion that, at least to the extent that he investigated it, there really has been no shortage. But there are references in his report to the question of price. Your competition, as I understand it, the competition that is really hurting you, comes from what I call the vertically integrated big companies. These companies produce and also sell at the retail level. Mr. DEBLOIS. That is correct to a degree. The integrated major oil company competes with us mostly to the extent that they would compete with the independent deepwater terminal operators. In a tight supply situation the people that are hurt most are the independent deepwater terminal operators. They must buy from the large integrated companies. In turn you have to realize that in the oil marketplace the independent terminal operators have always held a leveling influence; they have always, when the supply situation is normal, been able to purchase product, No. 2 home heating oil, at open competition and have thereby maintained a leveling influence in the entire home heating oil picture. Does that answer your question? Senator MCINTYRE. Well, I am going to pursue it a little further. Am I correct in understanding that the independent terminal operator, who I will have to call the wholesaler in layman's terms, that his competition comes from a subsidiary of the producer-refiner, the big company? Mr. DEBLOIS. It is not even a subsidiary. It comes from the refining companies. The independent terminal operator's competition, the bulk of it, comes from the refining companies. So he is buying, in effect, from his competition; that is the point that is being made here. Senator MCINTYRE. He is buying from his own competition? Mr. DEBLOIS. He is put in a position of buying from someone that he is competing with. Senator MCINTYRE. What does Professor Weiss mean when he says there are no shortages, but then he imples there may be some shortages because of the question of price? In other words, a terminal operator says, "I need some more oil supply, but I will be darned if I will pay that price." Would you address yourself to that? Mr. DEBLOIS. Yes. Let's get a couple of things straight. First, this past winter, 1969-70 to the best of my knowledge in New England no deep water terminals were without some supply of home heating oil for an extended period of time. But that was not the case, I want to emphasize, that was not the case in the 1966-67 winter or in the 196768 winter. Those are only a year or two ago. During those winters on several occasions, not only ourselves, but other dealer-distributors such as ourselves, on numerous occasions would have our tank trucks pull into a deepwater terminal and be advised that that particular terminal was without No. 2 home-heating oil. |