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            SOME REACTIONS TO THE SE2 CONFERENCE - 6/80

     These views are, I think, in general accordance with the consensus
of the conference.  However, I haven't hesitated to raise some issues
that weren't discussed or to readjust emphasis.

     1.  The conference was timely and useful, both to the participants 
and to potential readers of the papers.  It has enhanced the influence
of SE2 in industry and among energy advocates.

     2.  The problem posed in the call for the conference - what to do
in case of an oil cutoff - was inadequately addressed by the speakers.
It was often confused with the even more important question of what to
do now to minimize the impact of a cutoff.

     3.  Present actions to minimize the impact of a cutoff are largely
doing faster what should be done anyway - reduce America's and our
allies' dependence on imported oil.  Besides that we need to avoid
losing industrial capacity, such as the Westinghouse ability to make
barge-mounted reactors.  There is also the strategic petroleum reserve.

     4.  The presentation of possible emergency actions was inhibited
by not assuming the kind of priorities that energy production should 
and probably would get in an emergency.  This opinion could be checked
by adding up the manpower and money that each speaker would suppose
spent in his industry in a cutoff and comparing the total with the
World War II diversion of effort to war production.  My guess is that
five to ten times as large a fraction of national effort was diverted 
during World War II as our speakers have assumed will be diverted.

     The reason is perhaps partly difficulty in imagining the circum-
stances, partly that the available data makes quite different assump-
tions, and partly reluctance to exhibit wishful thinking about working
with high priorities, i.e., glamorously.

     Perhaps it doesn't matter very much, since the crisis would change
people's states of mind quickly enough, but there is a disadvantage of 
making a contingency plan that would not make its full claim on national
resources.

     I don't think the assumed crisis is severe enough.  I believe we
would need to help our allies more than the IAE agreement calls for or
some of them might be forced to surrender, and the IEA agreement omits 
France, Issrael, Taiwan, South Korea, Singapore, and other countries 
that are allies in fact.

     5.  It isn't expressed very clearly in the recommendations but 
the environmental and other non-economic constraints on energy production
need to be lifted beyond the extent of the shortfall.  Not all industries
will meet their targets, and the diversion of (say) the home heating
market between (say) gas and electricity should be determined by market
competition rather than by Government quotas.

     6.  The problem of financing electric generation facilities and         				
other regulated capital investments is of key importance.  The utilities
can't be left to plead their own case.  The alternatives seem to be

     (l)  An accounting system that will permit a return on constant
dollars invested.

     (2)  Separation of generation from distribution and deregulation
of generation.  It can be argued that modern transmission technology
has removed electric generation from the class of natural monopolies
even though electric distribution is still a natural monopoly.  This
change would put the electric industry in the position of the gas
industry, which, while it has its troubles with rate setters, manages
to pass through the costs of the gas it buys.  The changeover would
be traumatic, but it might be more acceptable to liberals than a solution 
that involved raising the rates.  Moreover, it might be accomplished
by the Federal Government solely by suitable interpretation of the
anti-trust laws.

     (3)  The third alternative is government ownership of generation
facilities.  This is undesirable nor is it likely under conceivable 
political conditions.

     The next step should be an ad hoc committee to make a contingency
plan involving industry and hopefully government.  While SE2 should 
proceed further if there is a continued vacuum, it seems likely that 
the U.S. Chamber of Commerce undertaking should be supported instead.

     In that case SE2 should retire to the role of kibbitzer and 
should argue to be sure that

     (l)  the plan covers deep and long enough crises and makes proper 
assumptions about the probable need to help allies.

     (2)  the plan calls for an adequate mobilization of resources.

     (3)  the plan is strong enough in calling for present measures 
to replace the use of oil.

     (4)  the plan welcomes foreign participation.

     SE2 might also help support whatever plan is devised.