Deliberating on Oil Decontrol

Carter's aides favor freeing up prices but differ on how much, how soon

In spite of all the talk about the need for an energy policy, the U.S. remains maddeningly vulnerable to fuel cutoffs.

Last week brought yet more evidence of that depressing fact as new petroperils were turning up everywhere.

Continuing a rash of price-gouging moves by many oil nations, Nigeria, the fourth largest producer in the 13-nation OPEC cartel, indicated that it was planning to tack on an export surcharge of perhaps as much as 17%. That advance will add further pressure for a fresh round of inflationary increases early next week, when OPEC ministers plan to meet in Geneva. Indeed, by an ironic White House oversight, Carter is expected the same day to play host to the signing of the Egyptian-Israeli peace accords in Washington. Arab hardliners, such as Iraq, Algeria and Libya, could well be tempted to try to upstage the treaty signing by clamoring for huge new price increases, supply cutbacks or both.

The outlook seems bleak enough as matters stand now. Though most U.S. gasoline stations still have enough fuel on hand to meet the demands, oil company deliveries are rapidly being pared back to stretch dwindling inventories. Exxon's supplies are becoming so tight that last week the company had to impose an $8 limit on gas purchases at its stations along the heavily traveled New Jersey Turnpike. Exxon also said it would not renew crude-oil supply contracts with other companies, a step that is going to make it harder for the firms that have been cut off to meet their own commitments.

The authoritative petroleum industry weekly, the Lundberg Letter, offered a grim forecast of just how hard -and how quickly -the U.S. is likely to be hurt by the tightening oil squeeze. Using regular-sales tax data supplied by state governments, the letter warned that by the end of next week there would be a shockingly large shortfall of 8.9% in gasoline supplies. A rush by panicky motorists to gas up would virtually guarantee long, temper-fraying lines reminiscent of the 1973-74 Arab oil-embargo days. Hoarding would simply make the gas shortage worse and further drive up fuel prices.

If Washington had any quick-fix cures to offer, they were not apparent. In the Senate, a group of Administration critics led by Ohio Democrat Howard Metzenbaum seemed content simply to badger and goad Energy Secretary James Schlesinger, variously recommending that he either quit or be fired as ineffectual. One of Schlesinger's biggest embarrassments: DOE'S strategic petroleum reserve, which is supposed to be available in times of severe shortage but is years behind schedule and contains less than a week's worth of oil. Pumps to get the crude back out of the huge underground Louisiana and Texas salt domes, where it is stored, will not be installed until September, if then.

In another example of energy trouble and vulnerability, the Nuclear Energy Regulatory Commission ordered the immediate shutdown of five mid-Atlantic and New England nuclear power generators on the statistically improbable grounds that an earthquake might occur near by and cause them to pour out radioactive materials. U.S. oil consumption will quickly jump by 100,000 bbl. a day as the affected public utilities switch to increased production by oil-fired generators.

President Carter's energy policies were even attacked by a White House study group. The body, which was set up a year ago to monitor the inflationary impact of Government regulations as part of the Council on Wage and Price Stability, warned that rules designed to force firms that use oil and natural gas to switch to coal could actually work to boost oil consumption. The loophole concerns gas burning utilities, which cannot use gas after 1990 but will be allowed to switch to oil instead of coal before then; many will choose oil, partly because of the cost of environmental measures required with coal.

Through all the travail, the Administration continued to urge Americans to lower thermostats and to save fuel by driving at slower speeds. So far, the pleas have had no effect. Instead of declining, U.S. oil consumption by last week had risen to a record 21 million bbl. daily, of which nearly 45% must be imported. In his Senate testimony, Schlesinger cited the statistics to urge quick passage of the stand-by package of mandatory savings measures that Carter sent to Congress for approval three weeks ago. But it seemed doubtful that anything short of outright gasoline rationing -the toughest of the otherwise mild steps that Carter is asking Congress to allow him to take if necessary -could have much impact on consumption. For now, the White House seems set against rationing.

The White House desperately needs to regain the initiative on energy, and the most likely immediate step is a presidential address on the subject. For weeks, Schlesinger has been urging Carter to make one and has twice presented the President with policy proposals.

DOE officials are eager that Carter give a strong speech, and soon, preferably before next week's OPEC meeting. Energy policy is, of course, intimately connected with the whole economy, which is under severe inflationary strain. That alone kept the White House's top economic advisers busy for much of the week examining new anti-inflation measures during daily meetings at which Vice President Walter Mondale was present. Over the weekend at Camp David the President was scheduled to review a long list of options on both fronts. Carter was expected to narrow the choices further early this week in talks with the White House's top economic and energy advisers.

The President's most difficult task will be facing up to the need to scrap price controls on domestic crude oil. The labyrinthine structure is perhaps the most complex regulatory apparatus ever devised by the Federal Government, and just administering it costs billions of taxpayer dollars. Worse, the system stifles exploration and development in the U.S. by keeping domestic oil prices below the prevailing world level. The disparity has encouraged oil companies to search for crude in countries where they can get top dollar -that is, OPEC nations -and then sell the oil in markets where there are no price controls.

Getting rid of crude-oil price controls is crucial to any effective energy policy. Carter has the power to do this by Executive Order: he can simply refuse to renew the controls when they lapse at the end of May. Such a step would aggravate inflation, though no one can say for sure by how much. That itself is one reason why Carter has hesitated to take such action, but if domestic oil prices rose, consumption would decline, oil imports would subside, the dollar would strengthen and the whole economy would benefit.

Carter's advisers generally favor decontrol but are divided on how to go about it. His political aides, including Hamilton Jordan, want decontrol phased in over four years or so in order to minimize charges that Carter gave a windfall to the oil companies. But others, including Schlesinger, Treasury Secretary Michael Blumenthal and Chief Presidential Economist Charles Schultze, argue persuasively that decontrol should be done quickly so that domestic oil production will pick up more rapidly. They would couple decontrol with an excess profits tax on the oil industry: Congress would have to enact it. The revenues from such a tax could be used to help finance development of promising alternative sources of energy, such as shale oil, tar sands, coal gasification and solar power. The tax would also help bankroll research into renewable resources such as geothermal and even wind and wave power.

Two years ago, Carter sought congressional approval of a somewhat similar tax as part of his ill-fated National Energy Plan, which was shredded in successive House and Senate squabbles. One of the first casualties was the President's so called crude-oil equalization tax, but Congressmen may be more favorably disposed toward the idea now that shortages are again a real threat. Says House Majority Leader Jim Wright of Texas: "If he came forward with a bold, imaginative, inspiring energy policy to make the nation energy self-sufficient in a decade, we'd pass it. I hope he is bold enough and doesn't ask for too little. I wouldn't be timid or hesitant. I think a majority of Congress might pass whatever he asked for." Of course, first he has to ask. --

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