A Result Nobody Wanted

No issue has more clearly mirrored the ideological split between the Ford Administration and the Democratic Congress than the six-month tussle over energy policy. Last week all hope of compromise seemed to fade: Congress recessed for a month without enacting any legislation acceptable to the White House to replace present price controls on oil. That made all but inevitable a result neither side professed to want: an abrupt end to the controls on Labor Day, opening the way for price hikes on all petroleum products, from gasoline to heating oil. The hikes would siphon off billions in consumer buying power and possibly threaten the growing recovery.

Last Stab. Just two days before they left for vacation, the House scuttled, 228 to 189, President Ford's final compromise plan for the gradual removal of oil-price regulations. At present, "old" oil --crude pumped in amounts equal to what was lifted in 1972--accounts for about two-thirds of domestic production and is price-controlled at $5.25 per bbl.; "new" oil is uncontrolled and sells for about $12.50. Ford's plan would have lifted the controls on old oil over a 39-month period--postponing the biggest price boosts until after the 1976 elections --and set an initial ceiling of $11.50 on new oil. Congress then took one last stab at keeping the lid on prices by passing a simple six-month extension of present controls, which expire at midnight, Aug. 31. Administration aides immediately repeated earlier warnings that the President will veto it.

The White House has consistently maintained that the free market must be permitted to kick up oil prices gradually, thus forcing energy conservation, stimulating domestic production and reducing U.S. dependence on imported petroleum. Economic Adviser Alan Greenspan has said that even abrupt decontrol would be preferable to continuation of the present restraints. Democrats generally fear that large price boosts would be dangerously inflationary, unfair to the poor and unjustifiably rewarding to oil companies. Many simply would not vote to raise prices, even though they knew the alternative to gradual decontrol could be sudden decontrol.

Political calculations deepened the impasse. Some Democrats cling to the hope that Ford will not veto an extension of controls because he does not want to take the blame for the price surge that might follow "cold turkey" decontrol, but White House advisers hope to divert the blame to the Democrats by noting that Ford had urged a more gradual program. Congress could try to override a veto and revive the controls when it returns in September, but it is doubtful that Democrats could muster the two-thirds majority required.

Total decontrol would not necessarily bring an immediate leap in prices. Major oil companies that have large stocks of cheap domestic oil might well hold down prices temporarily in order to gain a competitive advantage over independents, such as Ashland and Amerada Hess, which must import expensive foreign oil. (The independents would suffer another penalty: the allocation program that forces the majors to share some domestic oil with them would expire along with the controls.) A delay in price boosts would be especially likely if Congress votes to tax away most of the "windfall" profits that oil companies would reap from the increases. President Ford proposed a windfall-profits tax as part of his program for gradual decontrol. Congress has not yet acted, but Al Ullman, Chairman of the House Ways and Means Committee, said last week that if all controls on oil prices lapse his panel would devote the first two weeks of September to writing a bill and bringing it to the floor.

Sharp Dispute. No one doubts that sooner or later prices would rise sharply. How much of a burden that would place on the economy is in sharp dispute. The Council of Economic Advisers figures that the end of price controls would drain away less than $10 billion of buying power by the fourth quarter of 1976; congressional estimates run at about $16 billion. Whatever the amount, it would be nearly equivalent in impact to a tax increase of the same size.

To soften the blow, the Administration intends to drop its $2 per bbl. tariff on imported oil. Congress is almost sure to extend through next year $9.4 billion in tax cuts enacted for 1975, and the Administration will have little choice but to go along. Still deeper tax cuts might be needed too. To get them enacted, the White House and Congress would have to muster a far greater willingness to compose their differences than is indicated by the long and sorry record of their wrangling over energy.

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