With respect to pipelines, the complaint charges that the eight companies have engaged in actions that abused and exploited the ownership and control of gathering and transporting crude oil and transporting petroleum products. Five years following the filing of the initial complaint, the proceedings are still mired down in procedural and discovery problems. Respondents have attacked the Commission's authority to consider pipeline issues in their proceedings.82 One observer testified on January 21, 1975 concerning the prospects for antitrust relief in general and specifically in reference to the Exxon case: Of course, even if antitrust action were begun, there is a long and arduous road before relief can be obtained. Look at the Federal Trade Commission action in the In re Exxon proceedings; after more than 18 months, initial discovery proceedings are just underway and will take many months; and then the actual trial will undoubtedly take years. It has been suggested by some people that the Founding Fathers were able to put together the proper structure of the United States in less than a year, but it is going to take the Federal Trade Commission more than a decade to find the proper structure of the oil industry.83 More recently, the FTC announced a narrowing of its discovery requests in order to expedite the proceeding. The Administrative Law Judge has approved the FTC's subpenas for material. What started out being an 1,800 page subpena has shriveled to 58 pages. Even with this narrowing, the FTC staff now believes it could obtain the documents covered by the subpena in 15 to 20 months. It is now estimated that all the FTC proceedings and ensuing appeals will not be concluded before the early 1990's.84 8. RESULTS OF ANTITRUST AGENCIES' EFFORTS The result of all these efforts is bleak. The Department has attempted several times to bring structural cases, each time terminating the effort in frustration with nothing to show for the efforts. The actions that were taken, the consent decree and its enforcement, have yielded little in the way of remedial relief to nonowners of pipelines. Investigations undertaken since 1962 have yielded little fruit, except perhaps the stifling of two projects that never were allowed to blossom on the vine. The rest is a history of study, and procrastination. Arthur Johnson, in his study of pipeline policy up until 1959 came to the following warranted conclusion: On balance it seems warranted to conclude that neither Federal regulation nor antitrust action between 1906 and 1959 substantially altered the development of the pipeline sector of the integrated oil industry. This conclusion appears to have been so: (1) because the concept of railroad regulation was not well suited to the realities of pipeline operation and (2) because regulation was incapable of achieving the antitrust goal that 82 Respondents' Motion to Strike Allegations re: Pipeline or to Stay This Proceeding re Pipelines. filed Apr. 20, 1978 in dkt. 8934. 93 Ind. Reorg., part 9 at 7-8. 84 The Wall Street Journal, Jan. 13, 1978, at 6. Congress seems to have had in mind in imposing it. Similarly, the consent decree as the outcome of proposed antitrust action proved more ineffectual than anticipated primarily because it sought to achieve an antitrust goal by regulatory means. Thus, the choice of public policy weapons seems to have been inappropriate for the ends sought, even if we disregard the appropriateness of the ends themselves.85 More recent observers have come to a similar desultory conclusion. Thus Kenneth Cory, former controller of the State of California has stated: ... On this record, I think it is fairly clear, that if we are to have a petroleum industry structured in a form to respond freely and competitively to our needs, within a reasonable time. It is up to Congress to take action. . . . If we are to restore a reasonable balance of [energy] costs within our economy, within the little time we have left, then legislative action is necessary to provide an industry structure that will perform in the free enterprise tradition. Certainly, at the very least, the business of transporting oil ought to be taken out of the hands of companies who are the most interested in using pipelines to control the price and marketing of oil than simply delivering oil. If only that were done, I believe that the fierce competitiveness of the independent oil companies would quickly respond and, in turn, compel even the major integrated companies to a more vigorous and independent concern with domestic supplies.86 In summing up the antitrust agencies experience, Senator Jackson perhaps has said it best: He [Senator Stevenson] referred to several pipeline cases [Explorer, Colonial, Olympic, Capline, TAPS] and it transcends all administrations. No action after 10 years, one went back to 1963, I believe. The case is still open. To tell a constituent we are going to get you relief through the Department of Justice is like waiting for the impossible.st Senator Jackson continued: We have the antitrust laws, we want to take vigorous action. Here is the record. Ten years and it is not even in the courts, it is still being investigated. Let's face it, this is what is making people mad. They feel they are being ripped off; they are furious and outraged. To say that we will turn it over to the Department of Justice for action does not mean anything. I think this is one of the problems we face in the administration of justice. It is particularly acute in the economic areas. We make progress in the criminal areas, but when we talk about the length of time involved, it looks to me that there is only one solution and that is to forget the Justice Department. We can only legislate, I think that is the only thing we are left with.88 $5 Johnson at 474. Ind. Reorg.. Part 9 at 8. il Price Decontrol at 220. VII. CONGRESSIONAL EFFORTS TO DEAL WITH PIPELINES SINCE 1940 Over the years Congress has established a commendable record for providing a public forum for the airing of industry problems; however, its record of accomplishments has been minimal. There is little doubt that by providing a forum for individuals and companies to voice their concerns, Congress has generated pressure on the industry to modify their practices; on the ICC to undertake investigations; and on the antitrust agencies to either take action or expedite their activities. The introduction of divestiture legislation has maintained pressure on the industry to correct the most egregious practices to ward off any congressional inclination to actually pass such legislation. The conduct of hearings has forced both the ICC and the antitrust agencies to do something about some of the problems aired at those hearings. But in the long run, Congress has done little to shape the overall direction of the industry. The industry has made accommodations; but also it has prevailed in its singleminded objectives of virtual control over the pipeline segment of the industry. The prior discussion has indicated some of the many congressional efforts to deal with oil company ownership and control of pipelines. This section merely will summarize and put in chronological order the major congressional investigations. It will not attempt to indicate those investigations that took place prior to 1940, since much has been written about those investigations.1 A. TNEC The TNEC hearings had their genesis in a request by President Roosevelt to authorize an investigation into the problem of monopoly in the economy. Congress quickly passed a resolution authorizing the Temporary National Economic Committee (TNEC) to study monopoly and the concentration of economic power. Although not a traditionally congressional investigation, since the Committee was composed of both congressional and executive branch personnel, its scope was broad and its impact important. It provided a forum for the exploration of many industry problems and gave the antitrust agencies an insight into the functioning of the oil industry that was instrumental in the formulation of the Mother Hubbard and Elkins Act cases.3 It also provided an opportunity for the publication of detailed monographs on the industry, with Roy C. Cook's "Control of the Petroleum Industry by Major Oil Companies" a prime example. This monograph explored the structure and behavior of the oil industry and 1 See generally, Johnson and PICA. 2 PICA at 103. 3 The American Petroleum Institute published a single volume containing all the oil industry related testimony before TNEC. It provides a useful single source for TNEC testimony. See, Petroleum Industry hearings before the Temporary National Economic Committee, American Petroleum Institute. New York, 1942. Cook, monograph No. 39, Senate Temporary National Economic Committee, 76th Cong., 2d Sess., 941. added to the existing literature on the subject. It provided a valuable source for the opponents of oil company ownership of pipelines, since Cook found that the oil companies' strongest control was in pipeline and tanker transportation, with the control exercised similar to that exercised by the former Standard Oil Trust.5 He recommended that pipelines may have to be regulated based on public utility principles. B. The Wherry Committee 6 In 1947, Senator Kenneth S. Wherry, chairing the Special Committee to Study Problems of American Small Business, opened hearings on the complaints voiced concerning a crude oil shortage. His committee issued two reports, an interim report and a final report, finding that there really was not any crude oil shortage. But at the same time he found many abuses in the oil industry and especially in the pipeline segment of the industry. With respect to crude pipelines, the committee found that such pipelines were principally owned by the majors and that the oil companies owning the pipelines purchased large quantities of crude in the field, with the majors winding up buying most of the crude. This control over pipelines enables the major oil companies to control crude oil at the source, and the further advantage of transportation costs which are lower than the rates charged independent refiners who ship by rail.s Thus the committee concluded that many independent refiners found it difficult to transport crude over pipelines owned, operated and controlled by majors, despite professions of being common carriers. They had trouble transporting or exchanging for crude. They wanted pipelines to be common carriers in fact as well as in name.10 The committee echoed the earlier finding of Walter Splawn, that pipelines owned by the major oil companies and operating under the cloak of common carriers were really plant facilities of oil companies. Thus the Committee found that the same evils that brought about the commodities clause of the Interstate Commerce Act for railroads were prevalent in the transportation of oil by pipeline, especially the transportation cost advantage gained through dividends or bookkeeping transactions.12 The Wherry Committee recommended divorcement of the pipelines from the ownership of oil companies. It came to the same conclusions regarding product pipelines.13 No action resulted from the hearings, the reports or the recommendations. 11 C. Petroleum Study In 1950, the House Interstate and Foreign Commerce Committee conducted hearings on a joint resolution that the FTC make a study and investigation of the production, transportation, refining and distribution of petroleum products. The hearings touched on many of Wherry, final at 10. 10 Id. at 10-11. 11 Id. at 20. 13 Id. at 23. the recurrent problems in the industry and the pipeline segment, raising many questions that, in the view of the participants, required detailed analysis and explanation. The hearings added little to the existing literature and produced no lasting results. D. The O'Mahoney Committee In 1957, the Senate Antitrust and Monopoly Subcommittee under the delegated direction of Senator Joseph C. O'Mahoney, conducted hearings and issued a report principally on the oil industry's response to the Suez crisis of 1957 and the closing of the Suez Canal. The subcommittee also heard testimony on proposed pipelines to the west coast and pipeline problems in general. As a result, the report contained recommendations regarding the pipeline segment of the oil industry. Its major pipeline recommendations were: In view of the charges of discrimination made before this subcommittee, and in view of the power possessed by major integrated oil companies through the ownership of more than 90 percent of pipeline capacity in the United States, it is recommended that the Department of Justice initiate an immediate investigation along the following lines: a. Monopolization of common-carrier pipeline transportation, including extent of interest in trucking companies. b. Use of controlled pipelines to deny independent producers a competitive market for crude oil. c. Use of controlled pipelines to restrict sources of oil to independent refineries. d. Crude oil price discrimination against producers. The hearings held by the subcommittee did elicit testimony that substantially embelished upon the problems then faced by the independent producers and developed in some detail the unconnected well problem as well as other access denial problems.16 At least one of them indicated that divorcement was the preferred solution.17 Apparently, the hearings and the report led to some Department of Justice activity, since in 1957, the Department issued its second report regarding the activities of the Interstate Oil Compact Commission with detailed comments regarding the problems of pipeline proration and the unconnected well problem. It appears that no, enforcement action was taken by the Department, but the exposure of these problems may have had a beneficial effect on industry practices.18 E. Distribution Practices Report Also in 1957, the House Select Committee on Small Business issued an interim report titled Distribution Practices in the Petroleum In 14 See, Hearings on H. Res. 107, H.R. 6047 and H.J. Res. 423, Petroleum Study, Before a Subcomm. of the House Comm. on Interstate & Foreign Commerce, 81st Cong., 2d Sess., 1950. 15 O'Mahoney report at 7. 18 Oil Lift hearings, testimony of W. A. Delaney, Jr., at 875 et seq.; Lester Clark, 934 et seq.; and Paul Schultz at 977 et seq. 17 Oil Lift hearings, Delaney testimony at 911. 18 2d AG report at 88-94 on pipeline prorationing and at 94-101 on the unconnected well problem. |