Two independent oil refiners have asked Congress to perpetuate a special price advantage they have over the major oil companies.
In testimony Friday before Sen. Edward M. Kennedy's (D-Mass.) Senate Judiciary Subcommittee on Antitrust and Monopoly, these refiners said failure to continue the price advantage would drive small refineries out of business and would diminish competition in the oil industry.
The Carter administration's proposed energy package would, over three years, bring the price of domestic crude oil up to cureent world prices. In doing that, it would eliminate the "small refiner bias," part of a complicated entitlements program the Federal Energy Administration administers to equalize oil prices.
The price of domestic oil is controlled, with "old" oil, or oil from wells drilled before 1973, selling for about $5.25 a barrel and new oil at about $11. Because of the disparity, refiners with access to the old, cheaper oil, had a big price advantage, which was corrected by the entitlements program.
That program was designed to equalize prices by requiring refiners with a lot of old oil to compensate those who have to buy their supplies at the higher price, $11. But small refiners have an extra advantage or bias: if they have a lot of old oil, they do not have to pay as much in compensation as large refiners. Those who refine 10,000 barrels a day, for example, get a $2 a barrel break, compared to 90 cents for those refining 30,000 barrels and only 11 cents for those refining 100,000 a day.
The Carter energy plan proposes to substitute an equalization tax for the current price controls, with the difference between regulated and current world prices going to the government. But the elimination of the small refiner bias, said Harry Logan of the United Refining Company at Friday's hearing, means that major companies that produce as well as refine oil would be stronger competitively.
Logan said that because the major integrated oil companies have valuable reserves of crude oil they can subsidize their refining and marketing operations with profits from their production of oil. Therefore, he said it is "absolutely essential" that Congress provide some kind of protection for small refiners so they can continue to compete. He suggested a system of tax exemptions, adjustments or credits, as part of the equalization tax.
"What is needed now," said Elmer L. Winkler, president of the Rock Island Refining Corporation, "is a congressional directive that a plan to preserve the competition offered by the small, independent refiner he devised and implemented as the values of the entitlements program are decreased and ultimately terminated."
But Michael Gray, general counsel for the Federal Energy Administration, said later in a telephone interview that the small refiner bias is too high as it is and amounts to a "windfall" for small refiners.
"They realize this particular gravy train is about to come to an end, and they want something else," Gray said. "They have a politically appealing case.My guess is they'll end up with something, but it won't be as favorable as what they have now."
In other testimony before the subcommittee, which is holding periodic hearings on the competitive aspects of Carter's energy package, a leading insulation manufacturer said President Carter's proposed tax credit for home insulation is unnecessary because the demand is already high.
Donald E. Meads, chief executive of Certainteed Corp., one of the big three fiber glass manufacturers, said, "market forces themselves" are producing strong incentives to meet the demand. The tax credit, he said, would result in "either substantially higher prices for insulating materials or increased use of unsafe insulation, or both."