The threat of major financial problems that might affect the investment climate in particular countries does not appear to be serious.

Government investment policies will largely determine the direction and size of capital flows, as well as the types of investment vehicles and areas.

Companies with sound investment plans and a need for added capital may be able to negotiate attractive joint ventures with producing country governments or private capital sources in such countries.

Industrial nations, especially the U.S. should take a realistic business attitude toward attracting oil producing investments. Sufficient safeguards can be structured to deflect investments away from security related industries. Additional funds may ease the credit crunch being predicted because of heavy government borrowing in 1975–76.

The Monday Morning Letter is intended to maintain a weekly dialogue between your company and COA. Please let us hear from you on subject matter, analysis and issues you want discussed.

Sincerely,

Senator JOHNSTON. Mr. Embersits.

CHARLES R. OWENS, President.

STATEMENT OF JOHN F. EMBERSITS, DIRECTOR OF UNIVERSITY OPERATIONS, YALE UNIVERSITY, NEW HAVEN, CONN.

Mr. EMBERSITS. Thank you, Mr. Chairman.

First, let me say that I am John F. Embersits, director of university operations, Yale University. As a matter of correction to the witness list, I am not an employee or assistant director of the American Council on Education.

On January 15, 1975, in his state of the Union message, President Ford outlined programs designed to strengthen the economy and to reduce national energy consumption. College and universities will be subjected to hardships unintended by those who have authored these programs; hardships which will place an excessive financial burden on nonprofit institutions without stimulating further conservation activities. It is the purpose of this brief memorandum to outline the major areas of financial and energy discrimination which impact educational institutions and to suggest actions which can aid colleges and universities in working toward the President's national goal of energy independence. The serious nature of the financial pressures plaguing colleges and universities cannot be exaggerated, nor aggravated by otherwise constructive attempts to stabilize the Nation's economic and energy posture.

This document will illustrate the magnitude and scope of the cost. impact of the $3 crude oil import fee upon educational institutions, emphasizing the absence of revenue redistribution afforded other sectors of the economy in the President's program and the lack of exemptions traditionally given to nonprofit educational institutions. The failure of the current program to stimulate further energy economies in educational institutions will be highlighted as a major shortcoming. The petroleum product pricing policies as developed by the Federal Energy Administration (FEA) and executed by the major oil companies have resulted in a pattern of discrimination against residual oil consumers, a major energy source for nonprofit institutions. Finally, the report makes recommendations for relief to colleges and universities in ways which will reduce consumption while avoiding the financial burdens which are explicit in the current administration

An accurate composite of the financial impact for all educational institutions is impossible to assemble in a short time. For that reason, the energy costs experienced by Yale University are highlighted as an attempt to represent those with which other institutions must contend. Yale is a complex private educational institution, with resident graduate and undergraduate degree programs, a full range of federallysponsored research, and a medical center engaged in the delivery of health care at the research, teaching, and clinical levels. As such, it represents, in microcosm, the problems facing educational institutions involved in one or more of the above-mentioned activities.

I. FINANCIAL IMPACT OF THE $3 IMPORT FEE

A new $3 per barrel import fee passed on to residual oil will have a significant impact on many nonprofit educational institutions. Brown. University estimates an increase of $420,000 should the cost of residual oil increase by $3, while Princeton predicts an increase of $600,000. Similarly, the University of California at Berkeley is burning fuel oil which costs $15.95 per barrel, thus any increase would pose serious financial problems. Even a relatively smaller secondary institution such as the Lawrenceville School estimates an energy cost increase of over $60,000 as a result of the import fee proposals. In Yale's case, this increase would cause energy bills to rise by an additional $1.700,000 to $900,000 for fuel oil and $800,000 for electricity. None of these increased energy expenditures result in improvement to an institution's educational or research output.

Prior to the proposed $3 import fee, Yale's annual energy bill had risen $6,300,000, from $2,400,000 in 1969-70 to $8,700,000 in 1974-75. While a rebate system for imported refined products is proposed to offset the full impact of the import fee, it is unclear that such a system will provide relief for many institutions-especially those burning domestically refined residual oil.

Many nonprofit institutions rely either solely or heavily upon residual fuel as a primary fuel for the generation of steam and electricity, and many sectors of the country will be increasingly dependent on residual fuel oil as an energy source due to the trend of curtailments in natural gas. Dramatic cost increases may be expected as a result of the switch from gas to oil; some institutions' energy budgets will nearly double. Those institutions fortunate enough to still receive natural gas service will be severely impacted by the imposition of the 37 cents per Mcf excise tax on this commodity.

II. FEDERAL PRICING POLICY DESCRIMINATION-RESIDUAL OIL

Government pricing regulations explicitly discriminate against institutional users of residual oil. This discrimination is manifest in two distinct policy positions expressed in the FEA pricing regulations: 1. Gasoline, 2-D diesel fuel and No. 2 heating oil are artificially subsidized. FEA pricing formulae prohibit the passing of full cost increases to these special products.

2. Major oil companies have the flexibility to allocate to residual

ucts. As a consequence, residual fuel oil prices have grown nearly 200 percent under FEA pricing regulations, or at twice the rate of the special products which have been protected from full cost absorption.

The new proposed Federal Energy Administration regulations (Federal Register, Vol. 40, No. 15) do not eliminate the discriminatory policy of the past year by limiting the proportion of increased product costs that can be passed through and reflected in prices charged for the group of products, taken in the aggregate, consisting of all covered products other than No. 2 oils, gasoline and crude oil. However, the proposed regulations do not address the problem of past discriminatory pricing policy, and they still allow a refiner a great deal of discretion within the category of general refinery products:

In apportioning the total amount of increased product costs allocable to general refinery products (i.e., all products other than gasoline, No. 2 fuel oils and 2-D diesel fuel), a refiner may apportion amounts of increased product costs to a particular general refinery product in whatever amounts it deems appropriate. In sum, residual fuel oil will continue to absorb a disproportionate share of refinery costs which otherwise would have been absorbed by such general refinery products as lubricants, kerosene, naptha, and aviation fuel; a situation which aggravates the discriminatory cost absorption to which this product has been exposed during the past

year.

III. CONSUMPTION REDUCTION

A fundamental test of the proposed energy program's effectiveness is its ability to stimulate conservation activity. Increasing the price of residual fuel oil will not measurably reduce its consumption nor the amount of crude oil which the Nation requires. Residual fuel oil represents less than 7 percent of refinery output nationally. The nondiscretionary demand for this product by utilities, nonprofit institutions, and geographic sections of our Nation impedes efforts for significant shortterm consumption reductions.

This is particularly true for educational institutions which rely on residual fuel oil as the basic source for lighting, space heating, research activity, health care delivery, and food processing. As such, the consumption of residual fuel oil is not discretionary; it is a usage which sustains the express purposes for which educational institutions have been chartered.

Most nonprofit institutions have implemented energy conservation programs which have reduced fuel consumption to optimum levels. An increase in the price of energy will not stimulate such institutions to reduce further; it merely increases cost.

For example, Yale University will consume less residual fuel oil in 1974-75 than that used in 1965-66 and less electricity than that used in 1968-69, in spite of new building additions during this period totaling 1 million square feet and a loss in combustion efficiency of 9 percent due to the use of low sulfur oil as required by the State of Connecticut. It is unlikely that similar consumption reduction performance can be projected for the future, regardless of the increased price of fuel. Further consumption reduction will be effected by withdrawal of basic services to the institutions.

IV. EXCLUSION OF NONPROFIT EDUCATIONAL INSTITUTIONS

FROM REVENUE REDISTRIBUTION

The President's program calls for a redistribution of energy fees and tax revenues to various sectors of the economy through a complex mechanism of tax refunds, investment credits, reduced corporate business taxes, and incentives for directed utility expansion. The exclusion of educational institutions from sharing in this redistribution of energy surcharges and investment incentives is highlighted by the following factors:

1. No portion of the $30 billion revenue from higher energy surcharges will be refunded to nonprofit institutions, even though they must pay the inflated energy costs.

2. An investment tax credit program and a reduction in the corporate tax rate from 48 percent to 42 percent will have no effect on nonprofit institutions.

3. Capital support or other financial incentives designed to encourage energy conservation are not offered to nonprofit institutions. either for past projects or future plans.

4. Federal appropriations for sponsored research have been leveled. Increased energy costs and the consequent rise in indirect expenses will continue to reduce funds available for the conduct of scientific research, thereby further diluting the output of the scientific community throughout the Nation. This human resource is one which the country can ill afford to waste.

V. POSITIVE PROGRAM FOR ENERGY REDUCTION WITH MINIMUM

FINANCIAL HARDSHIP

Traditionally, nonprofit educational organizations which are exempt from income tax under section 501 (a) of the Internal Revenue Code, have also been exempt from excise taxes imposed by Congress and from import tariffs and fees imposed pursuant to Executive orders. The special problems which the President's energy proposals will create for nonprofit educational institutions would be eliminated if this traditional tax-exempt status were to be applied to excise taxes on domestic crude oil and import fees on imported crude oil and refined products.

Should the Congress and the President elect not to exempt nonprofit educational institutions from the import fee, they should recognize that these institutions will be severely penalized. Most nonprofit institutions, unlike utilities and many business firms, cannot pass on their energy price increases directly to customers. In the case of educational institutions, "customers" are students who already suffer heavy financial pressures due to rising tuition, and research activities with limited funds which are unable to absorb increased costs of energy.

In the absence of tax-exempt status and with a recognition of the precarious financial condition of many nonprofit educational institutions, a series of recommendations is offered to relieve such institutions of increased financial burdens due to high energy costs and to stimulate the search for new energy economies:

1. Residual fuel oil, as an essential nondiscretionary source of energy, should be afforded the same pricing treatment as No. 2 home

2. An institutional import fee and excise tax waiver for demonstrable energy economies utilizing a specific time designation, perhaps 2 years, as a measuring period.

3. An increase to existing federally sponsored research grants and contracts to cover the rising costs of energy to those institutions which have demonstrated consistent annual energy efficiencies.

4. Special relief to those federally sponsored grants and contracts for projects which incur direct energy costs as a result of energyintensive research.

5. New research programs and incentives for capital investments which reduce energy consumption or which afford conversion to more desirable energy forms.

6. A mechanism to recognize in financial terms the efficiency of the centralized production of energy for heat, electricity, and food processing typical within colleges and universities.

7. Design and construction support for the developerment of new buildings with innovative energy support systems which otherwise might be built with conventional but less efficient energy systems.

8. Relief for those institutions which, under local and State environmental regulations, have expended capital to convert central steam, electrical, and chilled water plants to "cleaner" fuels. Many previous conversions will have to be reversed in order to return to energy sources more compatible with emerging national energy policy.

9. The establishment of a joint Federal/nonprofit institutional panel for the review and approval of institutional energy conservation programs and performance.

10. The formation of a joint Federal and nonprofit institutional committee to aid smaller institutions which lack technical expertise in energy conservation, and to disseminate and coordinate energy conservation activities.

Senator HANSEN. We appreciate very much your appearance here this afternoon. I regret that I was not able to hear all of your testimony, but I can say as a former trustee of the University of Wyoming, I am not unfamiliar with the impact that this type of cost can have on an educational institution.

I think your testimony will be very helpful in enabling this committee to arrive at the kind of decision that it would seem to warrant in order to do the very best that can be done.

Mr. EMBERSITS. It is not just the impact of the cost. It is the failure to stimulate further energy conservation and the failure to recycle and redistribute the revenues taken out of these economies back to the nonprofit institutions.

Senator HANSEN. I want to assure you I will read your entire testimony.

One of my criticisms of part of the President's program is that it would put the windfall profits on the economy which would be a clear disincentive to the economy in order to have more and not less energy supplies.

Again, thank you very much for your appearance.

The hearing will now be recessed at the call of the Chair.

[Whereupon, at 4:15 p.m., the committee was adjourned, subject to