This is the front of the 1979 GAO report. Click for larger image.



U.S. GENERAL ACCOUNTING OFFICE

WASHINGTON, D.C. 20548

FOR RELEASE ON DELIVERY

Expected at 9:30 a.m.

Monday, March 26, 1979

STATEMENT OF

J. DEXTER PEACH

DIRECTOR, ENERGY AND MINERALS DIVISION

BEFORE THE

SUBCOMMITTEE ON ENERGY AND POWER

OF THE

HOUSE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE

ON STANDBY ENERGY CONSERVATION AND RATIONING PLANS

Mr. Chairman and Members of the Subcommittee:

We welcome the opportunity to be here today. Our testimony today is based on

--the results of GAO work over the last two to three years in the energy conservation area as summarized in our recent report to Congressional Committee and Subcommittee Chairmen having responsibilities over energy programs (EMD-79-34),

--some observations included in our recent report on the energy and economic effects of' the Iranian oil shortfall (EMD-79-38) and,

--the results of our initial analysis of the energy conservation contingency plans and gasoline rationing plan submitted to the Congress on March 1 by the Department of Energy (DOE).

LACK OF NATIONAL ENERGY CONSERVATION PROGRAM

Before discussing the conservation contingency and gasoline rationing plans, let me spend a few moments addressing the Nation's continuing reluctance to develop an effective energy conservation strategy. Our reliance on crude oil imports has increased substantially in recent years and could reach 12 or 13 million barrels per day (B/D) by 1985. The current Iranian oil situation, which once again has jarred our complacency, is still only one of a series of events which underscores the importance of moving forward in the energy conservation area.

The world is likely to continue to experience periods of tight supply and upward pressure on prices in the next few years. The time is approaching when crude oil production capabilities will peak. While we now are faced with the need for quick actions to meet the problems created by the Iranian oil shortfall, we also must face up to the reality that we cannot continue to rely on short-term crisis management in the energy area and that now is the time to get our energy conservation act together.

We believe a strong, coordinated national energy conservation program cannot only mitigate the adverse impacts of future Iranian-type situations, but more importantly it would reduce the likelihood of oil embargoes being used as a weapon against the United States. Further, a strong conservation program is also needed to allow an orderly transition to renewable resources. Our February 13, 1979, letter to the Chairmen of Energy-Related Committees and Subcommittees highlighted the following three overriding problems which, in our opinion, must be solved before the Nation will achieve any significant level of energy conservation:

--A lack of specific planning and direction from the Government in the energy conservation area. In our June 30, 1978 report (EMD-78-38), we concluded that the Federal Government had not developed an overall energy conservation strategy for the Nation. While DOE generally agreed with our position, no strategy has been forthcoming.

--The absence of an aggressive, coordinated effort by the Government to conserve energy in its own operations and facilities. We have issued a series of reports on various Federal in-house conservation programs which show the lack of commitment by the Administration to aggressively pursue energy conservation within the Federal Government.

--The failure to develop, and have approved by the Congress, emergency energy conservation and gasoline rationing plans. While the Administration submitted such plans earlier this month, it took over 3 years to develop them.

We are concerned with the Administration's apparent failure to place any level of priority on the development of the contingency plans. As we pointed out in our earlier Iranian report, while we may be able to manage with the loss of Iranian oil production, there is virtually no more slack left in the system. The loss of any other major oil supplies could be devastating, particularly in view of the state of our preparedness to deal with supply interruptions. Recent events regarding the Iranian situation illustrates this point.

The U.S. has commited itself to reduce oil consumption this year by five percent, or about one million barrels of oil per day, as part of the International Energy Agency's response to the Iranian oil situation. But, there was no plan in place to achieve such a reduction. At this point, a wide range of possible actions are being considered. We were not able to obtain, from DOE, information on the specific proposals being considered because they are under consideration by the White House. Thus, we cannot respond to your specific request to comment on how DOE will manage the five percent cutback.

In our earlier report, however, we did comment on a number of possible actions which may be implemented including voluntary energy conservation measures as well as a number of actions designed to substitute coal, natural gas, and nuclear power for crude oil. Based on the information which has been available, we have reservations about the likelihood of achieving the energy savings which DOE has estimated for voluntary energy conservation. In addition, the possible fuel substitution measures being considered will require that many institutional and administrative barriers be overcome, which likely would limit this contribution for the next 6 to 9 months. (Attachment I contains a more detailed discussion.)

While we certainly would not play down the efforts needed to meet this current contingency, the fact remains that there are no DOE plans which could be implemented quickly if this country or our allies should suffer further supply interruptions. While we must deal with the current crisis, over the longer term emergency planning efforts should be focusing on the question of "What actions could be undertaken to deal with various levels of supply shortfall such as a loss of Saudi Arabian oil, or a loss of all OPEC oil?" The Nation cannot afford to be ill-prepared in the face of these potential threats.

STANDBY ENERGY CONSERVATION AND RATIONING PLANS

The Energy Policy and Conservation Act (EPCA) required DOE to prepare, for the Congress' approval by June 1976, standby energy conservation plans and a standby gasoline rationing plan. Once approved by the Congress, these plans would be available for implementation during a severe energy supply disruption or to fulfill U.S. obligations under the International Energy Program whereby member nations have agreed to share the burden of a future embargo or shortage situation.

The standby conservation plans finally submitted by DOE to Congress on March 1 consist of the following three measures:

--Weekend gasoline sales restrictions.

--Building temperature restrictions.

--Advertising lighting restrictions.

DOE estimates the total oil savings from these three measures to be 610,000 B/D. To implement and enforce these measures for a 9-month period would cost the Government about $16.4 million.

Our analysis of these three proposed measures indicates that while the plans have the potential for helping manage a future petroleum shortage, the extent to which the plans are enforceable or will achieve the level of savings DOE predicts is unclear. Also, implementation of the plans likely would impact adversely on certain industries. (Detailed comments on these plans are included as Attachment II.)

Regarding the proposed gasoline rationing plan, DOE recognizes, and we concur, that rationing is a very expensive measure to be used only in an extreme gasoline shortage. There is no such thing as a "perfect" rationing plan, as tradeoffs must be made to balance off (1) equity and (2) administrative workability and costs of implementation. In essence, rationing would be a $2 billion program designed to reduce long waiting lines at gasoline stations. It would not result in any gasoline savings, but would simply allocate available supplies among end users.

In its development of the plan, DOE has, in several instances, decided on provisions which are easier and less costly to administer over alternatives which might result in more equitable distribution of ration allotments. DOE is relying on the "white market" to correct any imbalances that may occur. Two instances which stimulated a number of adverse comments during the public comment period pertain to

--making gasoline available for commercial use, and

--matching up ration allotments and physical supplies of gasoline in all States.

Changes DOE made from an earlier version of the plan will result in commercial firms as a whole receiving fewer ration allotments than under the previous version. Public comments received on the provision strongly opposed the change, and DOE recognizes that firms will end up purchasing over $12 billion of additional ration allotments on the "white market." However, DOE believes the plan will be significantly easier and cheaper to administer.

DOE is aiso relying on the "white market" to match up the physical supplies of gasoline with ration allotments in all States. Because DOE plans to issue ration allotments based on a nationwide average, but will initially distribute supplies of gasoline based on historical State usage, nine States will initially receive ration allotments 10 percent or more higher than their supplies of gasoline, while 10 States will receive initial supplies of gasoline 10 percent or more higher than their ration allotments.

The "white market", however, will be a costly program for drivers in certain States. Drivers in States with historically higher than average gasoline consumption will purchase excess ration allotments at $1.22 per gallon from drivers in States with lower than average consumption rates.

Questions of equity are raised here, since 11 States would each have to pay out $10 million a month or more to maintain their gasoline usage at 20 percent less than normal, while 10 States could cut their consumption by 20 percent and still be recipients of over $10 million a month from sales of excess allotments. DOE recognizes these potential imbalances, but believes that trying to correct them would place a much greater administrative burden on DOE and make the rationing plan more complicated and expensive.

Another provision in the plan pertains to the manner in which DOE will distribute ration coupons to the public. Earlier work by us revealed problems with DOE's plan to primarily rely on financial institutions for issuing coupons to the public. The current plan has little discussion of this very important aspect of the plan. (Detailed comments are included in Attachment III.)

Overall, we are concerned with the lack of priority DOE has attached to the completion of the standby conservation and rationing plans. While changes have been made in the rationing plan DOE inherited in January 1977 from the previous Administration, we question whether over 2 years were needed to accomplish the changes. The conservation plans have remained essentially unchanged since 1977, except for some additional energy and economic analyses accompanying the plans.

Once the rationing plan is approved by the Congress, at least 6 - 8 months more work will be needed for further development. DOE's past record of slippage does not speak well for the degree of priority we can expect to be awarded completion of work on the rationing plan if the Iranian situation should ease.

Mr. Chairman, this concludes our statement. We will be happy to answer any questions the Subcommittee miqht have.

Attachments I, II, and III are omitted, but can be reviewed on a PDF in the original document, found here.

One part of Attachment of III is of particular note. It is called

Alternatives to Rationing

DOE, in a section on alternatives to rationing in its regulatory analysis of the plan, briefly discussed the concept of a gasoline excise tax. The excise tax would raise the price of gasoline to the market-clearing level, thus balancing supply and demand. The proceeds from the tax would be rebated to consumers to offset the burden of the tax. According to DOE the excise tax could be achieved with much less administrative complexity than a rationing plan. As a result, an excise tax would be implemented more quickly, would cost less, and would require fewer personnel to administer.

DOE has not pursued the idea of an excise tax further because the EPCA explicitly precluded any plan from imposing a tax. (emphasis mine)