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1-bids; (B) designate trustees, registrars, and paying agents 2 in connection with obligations of the Corporation and the 3 issuance thereof; (C) arrange for audits of its accounts and 4 for reports concerning its financial condition and operations 5 by certified public accounting firms in addition to audits. 6 and reports required by the Government Corporation Con7 trol Act; (D) invest subject to any covenants contained in 8 any obligation contract, the proceeds of any obligations and 9 other funds under its control in any securities approved for 10 investment of National bank funds and deposit said proceeds 11 and other funds, subject to withdrawal by check or other12 wise, in any Federal Reserve bank or bank having mem13 bership in the Federal Reserve System; and (E) perform 14 such other acts not prohibited by law as it deems necessary 15 or desirable to accomplish the purposes of this section.

16

(2) Obligations of the Corporation issued under this 17 subsection shall contain a recital to that effect which shall 18 be conclusive evidence that the underlying obligation is in 19 compliance with the provisions of this section and valid. 20 Obligations of the Corporation issued under this subsection 21 shall be lawful investments and may be accepted as security 22 for all fiduciary, trust, and public funds, the investment or 23 deposit of which shall be under the authority or control of 24 any officer or agency of the United States and shall be ex25 empt securities within the meaning of laws administered by

29

1 the Securities and Exchange Commission. The limitations 2 and restrictions as to a National or State bank dealing in, 3 underwriting, or purchasing investment securities for its 4 own account, as provided in section 5136 of the Revised 5 Statutes (12 U.S.C. 24), and section 5 (c) of the Act of 6 June 16, 1933 (12 U.S.C. 335), shall not apply to obliga7 tions guaranteed under this subsection.

8

"(3) There are authorized to be appropriated to the 9 Secretary of the Treasury such sums as may be necessary to 10 pay the principal and interest on notes or obligations issued 11 by him as a consequence of any guarantee under this sub12 section.

13

"(4) In the event of any default on any guaranteed obli14 gation, and payment in accordance with a guarantee by the 15 United States, the Attorney General shall take appropriate 16 action to recover the amount of such payments, with interest, 17 from the Corporation or other persons liable therefor.

18

19

"(d) AUTHORIZATION FOR APPROPRIATION.-There are authorized to be appropriated to the Corporation for the 20 fiscal year ending June 30, 1975, and for each of the next 10 succeeding fiscal years, $50,000,000 for carrying out the 22 provisions of this section. All funds appropriated pursuant to

21

23 this section shall remain available until expended."

Senator STEVENSON. Our first witness is an advocate of the public interest, an articulate spokesman for the general as opposed to the special interests, and a leader of Common Cause.

I am very glad he could be here this morning. We have heard from many experts, and industry experts say one thing and the nonindustry experts say the reverse. We have a chance this morning to hear from one of the Nation's champions of the public interest, Mr. Jack Conway, president of Common Cause.

STATEMENT OF JACK MOSKOWITZ, ASSISTANT TO THE CHAIRMAN OF COMMON CAUSE; ACCOMPANIED BY WOODROW GINSBURG, CONSULTANT

Mr. MOSKOWITZ. Mr. Chairman, I am Jack Moskowitz, assistant to the chairman of Common Cause. Jack could not make it here this morning, because he is in California.

Senator STEVENSON. All those compliments apply to you as well. Mr. Moskowitz. Thank you, Mr. Chairman. Mr. Conway could not make it because of his plane connections from California. Common Cause is in an initiative battle in California and Mr. Conway went out there. He was supposed to come back to Washington and come directly here from the airport, but we heard that our testimony would be first and that he would therefore be unable to testify.

But I might say, (1), not only do Jack and Mr. Gardner have a specific interest in this piece of legislation, but we had a board meeting this Friday and Saturday and again the Consumer Energy Act was discussed by our board of some 60 members who are elected by all Common Cause members. Our position, and endorsement of the goals and principles of the Consumer Energy Act, was reaffirmed by the Common Cause board this past Friday and Saturday.

If I may, I would like to go ahead and read Mr. Conway's statement with your permission.

Senator STEVENSON. Please proceed.

Mr. MOSKOWITZ. I would like to introduce Woodrow Ginsburg, who is with me. He is a consultant to Common Cause in economic matters and has assisted in the preparation of this testimony. We are pleased to testify on the important legislation which the Senate Commerce Committee has developed to help meet the problems of supply, price, and competition in the oil and gas industry.

We at Common Cause wish to acknowledge with thanks the very favorable response of Committee Chairman Warren G. Magnuson, on March 7, to the Common Cause request that open markup sessions be held in the drafting of the Consumer Energy Act. I would like to add that we appreciate your support in open meetings here in the Senate.

As we noted in our letter requesting such sessions-March 6, 1974we consider that open sessions are essential so that the public can be well informed of the various provisions of the legislation, and so that greater political support can be assured as each of the various provisions of the act is debated and drafted.

There are two titles of the Consumer Energy Act which are currently being discussed: title I relating to regulatory reform of the oil and gas industry, and title III relating to the establishment of a Federal Oil and Gas Corporation. We have assessed the relative importance of those two titles within the context of the stated purposes of the act, which is:

Designed to distribute more fairly the burdens of the energy shortage, infuse new vitality and competition into the oil industry, and increase energy supplies to the consumer at reasonable prices.

If that purpose is to be fulfilled, then it is essential that the Federal Oil and Gas Corporation be established now. Without an active Federal Corporation, with the powers assigned to it under title III, it is unrealistic to exepct that the oil and gas industries will operate under truly competitive market conditions.

In the absence of the significant operations and responsibilities of the Federal Oil and Gas Corporation, the regulatory functions would merely consist of regulating administered prices set by a handful of powerful corporations who exercise dominant control at every stage of production and marketing processes. The price setting and other decisions of any commission would be made as currently on status quo without a sound yardstick and performance criteria.

As we have seen too clearly over recent years, and more particularly during the fuel crisis situation, the present structure of the petroleum and allied products industry militates against an effective competitive market for oil, gas, and other fuels.

In fact, the April 12th New York Times pointed out that production actually decreased despite the industries having been granted dramatically higher prices. The oil companies have amassed enormous financial and economic power as a result of their success in vertically integrating their operations from the exploration stage to the sale to the final consumer.

Besides vertical integration, other financial institutional arrangements reinforce their monopoly power. Such arrangements include joint ventures, interlocking directorates among the producing firms in the country, special tax privileges, undue influence domination of the Government regulatory agencies, all of which make a mockery out of any competitive market for oil, gas and related fuels.

Much of this was accomplished without any public accountability, but by secret dealings by the powerful in and out of Government.

It is against this background that we urge the creation of the Federal Oil and Gas Corporation now as the first priority. We strongly endorse and support the committee's legislative proposals for the establishment of such a corporation.

We suggest a number of modifications which we think could strengthen the operation of the Federal Oil and Gas Corporation and make it even more effective in its role of adding to our supply of fuel at reasonable prices, buttressing the independents and restoring some measure of competition into the fuel energy industries.

(1) Title III as now drafted extends to the Corporation the opportunity to obtain a maximum of 20 percent of the acreage of Federal lands offered for sale or lease for oil or gas development. In our view, with the 20 percent set as a ceiling figure, there is a danger

that the Corporation will not lay claim to that amount of acreage, but rather to a lower level. We would urge that the 20 percent of total acreage be considered as the minimum amount of total acreage which the Corporation would be authorized to select for development, in order to assure a significant role in the oil and gas industry for the Federal Corporation.

It has been estimated that substantial portions of the energy resources are publicly owned lands; 35 percent of oil and gas, 50 percent of coal, and 85 percent of oil shale. Also large amounts of uranium and geothermal steam resources are on publicly owned lands. "Exploring Energy Choices"-a preliminary report of the energy policy project, Ford Foundation, 1974, page 29.

(2) We support the objective of title III to strengthen the role of independents through giving preferential treatment to such producers at various stages of the production process. We would suggest a safeguard be added, so that independent producers would not be used as a front by a major integrated corporation which would seek to obtain the preferential treatment offered by the act through a joint venture with an independent producer.

Such a safeguard, we think, could prevent the undercutting of the important goal of maximizing competition in the industry through reinforcing the role of the independent.

(3) We also think it important for the legislation to set criteria by which costs of production could be more accurately measured. Those costs could then serve as a true yardstick for other oil and gas companies. More specific criteria in identifying actual costs and inputed costs are needed. The computation must take into account the highly desirable and socially oriented mandates for the Corporation relating to preferential treatment for independent producers, supplying States and political subdivisions with resources on a preferential basis, developing "environmentally sound methods" and other expenditures which private producers typically do not bear.

I might say that at our board meeting this issue was the one most discussed and there was unanimity of opinion that the corporation was a necessity as a yardstick. I think it is a reflection of our board that that just seemed to come through. We need something that will tell us what it really costs to develop energy resources.

(4) We favor the provision in the legislation which sets up an Advisory Commission and a paid staff. We think the Advisory Commission mechanism can play a valuable role in fostering the aims of the legislation, and the members of the Senate Commerce Committee should be complimented for including such a mechanism in the legislation, as well as recognizing the need to provide a competent technical staff for members of the Advisory Commission.

But we do seriously question the procedures for the selection of the members of the Advisory Commission-7 out of the 11 members of the Commission would be initially nominated by various special interest groups. This would have the effect of assigning the selection of membership to these special interest groups. This method sets up an insider-power-broker situation.

Common Cause urges the committee to amend the procedure to assure that the Advisory Commission will have some representation