dustry. The subcommittee that heard testimony on these practices concentrated its efforts primarily on the complaints from retailers and jobbers regarding the current practices of the oil companies which in one fashion or another were adversely affecting their ability to compete and remain in business. The report was issued as a means to report on these activities. Incidental to its investigation, the subcommittee examined oil company operations on the west coast and the oil shortages in that region. As a result, it received testimony concerning the efforts to build a west coast pipeline by the West Coast Pipeline Corp. Although the Office of Defense Mobilization refused to grant a certificate of essentiality under the Defense Production Act of 1950 and thereby blocked the company in efforts to obtain the required pipe for the project, the Subcommittee found that such a project would alleviate the shortages of crude oil in the area and "would be an aid to competition and helpful to small-business men in petroleum marketing." 19 It also recommended against enactment of H.R. 426, that would divorce producers of petroleum products who sell at wholesale from selling at retail, or from owning, operating, or leasing any retail outlet.20

F. Consent Decree Report and Hearings

In September, 1957, Congressman Celler announced hearings into consent decree enforcement efforts of the Department of Justice with particular focus on the decrees entered in the oil pipeline and A.T. & T. matters. As indicated earlier, this led the Department of Justice to take action to enforce the pipeline consent decree and led to the decision upholding the industry's practice of including both equity and debt in the 7-percent limitation on dividends.21

The hearings were extensive and the ensuing report comprehensive. They added substantially to the knowledge surrounding the entering of the consent decree as well as to the industry practice concerning pipelines. The committee found that the consent decree provided no antitrust relief.22 Moreover, the lack of any enforcement by the Department of Justice vitiated any limited effectiveness the decree might have had.23

The committee concluded that in 1958 the oil companies enjoyed the same discriminatory advantages in their ownership of oil pipelines as they derived from such ownership in 1940 prior to the entry of the decree. It commented that "the history of the oil industry, from the standpoint of monopolization and restraints on trade, essentially consists of a recital of the efforts to assure equal treatment in, and equal access to, transportation," 25 however, at the same time it noted the failure of the Hepburn and Elkins Acts to provide access relief to nonowners. In the committee's view, the majors remained the major owners and users of the pipelines; rate reductions did not eliminate

19 Staff of Subcomm. No. 5 on Distribution Problems of the Select House Comm. on Small Business, Distribution Practices in the Petroleum Industry, H.R. Rept. 1157, 85th Cong., 1st sess., 1957, at 13.

20 Id. at 18.

21 See section. IV.B.4 supra.

22 Consent Decree report at 294.

23 Id.

24 Id.

transportation cost advantages; and despite the Hepburn and Elkins Act and the consent decree, "pipeline transportation in the oil industry in 1958 continues to be discriminatory and to be susceptible for use ast an instrument to monopolize the industry." 26

The committee recommended eliminating all dividends as means of eliminating the cost advantages.27 It recommended changes in the consent decree negotiating procedures; it commended the Department of Justice for its belated efforts to clear up the confusion caused by the consent decree; and it recommended changes in the way the ICC regulated pipelines.2

28

Although the Department of Justice was forced to act with respect to the consent decree, little else resulted from the hearings, other than some changes at the ICC and the Department of Justice on their internal procedures.

G. Marketing Practices Hearings

In 1971-72, the Senate Subcommittee on Antitrust and Monopoly held hearings concerning marketing practices in the gasoline industry.29 These hearings developed testimony from several pipeline companies, both independent and oil company owned, regarding the physical operation of these pipelines. They are instructive concerning the differences in operation of the pipelines and have added to the literature concerning the salutory aspects of independent ownership and operation of pipelines.30

H. Small Business Hearings and Report

In June 1972, the House Small Business Committee held hearings. into the competitive impact of oil company ownership of oil company ownership of joint venture product pipelines. The hearings were instructive in that they provided a forum for the airing of the accumulated learning of the Department of Justice and other Federal agencies concerning the antitrust consequences of joint venture product lines owned by the oil companies. Also, they provided a forum for the airing of complaints by individuals and companies adversely affected by such ownership.

In its report following the hearings, the committee found that oil company ownership of joint venture product pipelines was anticompetitive. It criticized Federal agency inaction and especially the continuing failure of the ICC and the Department of Justice to take any effective action.32 Finally, it recommended that a commodities clause approach be applied to pipelines in order to correct the problems it found.33 Despite the comprehensive nature of its findings, no con

30 Id. at 295–96.

Id. at 296.

28 Id. at 294–305.

29 Marketing Practices, Parts 1-3.

30 Marketing Practices, Part 2, testimony of D. W. Calvert, executive vice president Williams Companies at 629 et seq.; Marketing Practices, Part 3, testimony of Fred F. Steingraber, president of Colonial Pipeline at 1-24; testimony of Richard C. Hulbert, president of Kaneb Pipeline Company at 25-34; and testimony of Walter B. Mackenzie, president of Plantation Pipeline Company at 246-277.

31 Small Business report at 29.

#2 Id. at 31.

23 Id. at 33.

gressional action ensued from these recommendations. Little discernible Department of Justice activity resulted.

1. Consumer Energy Act Hearings

In 1973-74, the Senate Commerce Committee held a series of hearings concerning legislative proposals to deregulate the wellhead price of natural gas industry; and to inquire into the gas and oil shortages resulting from the Arab boycott ensuing as a result of the Yom Kippur War in the Middle East. The major piece of legislation under consideration, S. 2506, that would deregulate most of the wellhead regulation of natural gas prices, also proposed the Oil Transportation Act of 1973 which would transfer certain functions from the ICC to the FPC and give the FPC the power to require certificates of public convenience and necessity for the construction of oil pipelines. Also it would give the FPC power over extensions, abandonments, storage facilities and requests by nonowners for such facilities.34

The hearings contain a great deal of useful information concerning pipelines, both from critics, supporters and Government agencies. As with prior hearings, no recommendations were acted upon.

J. Market Performance Hearings

Starting in late 1973 and extending into 1974, the Senate Committee on Interior and Insular Affairs conducted a series of hearings under the Chairmanship of Senator Haskell in direct response to the "energy crisis" engendered as a result of the Yom Kippur War. It was Senator Haskell's intention as Chairman of the Special Subcommittee on Integrated Oil Operations to hold the hearings for "the purpose of delineating the conduct and the operations of this industry in order to formulate a factual basis upon which new and effective public policies may be formulated." 35

These hearings substantially added to the literature on the oil industry and particularly on oil industry ownership of pipelines, but no action resulted from the hearings.

K. Industrial Reorganization Act Hearings

In August 1974 and January 1975, the Senate Antitrust and Monop oly Subcommittee hell hearings on S.1167, the Industrial Reorganization Act and specifically on the energy industry. Senator Hart indicated that the basic purpose of the hearings was to accumulate further information on the crude oil producing and pipeline transportation sectors of the oil industry, considered the most important segments from the viewpoint of the majors' control over the industry. Senator Hart indicat dat the start of these hearings, "that the problems of this industry will not be solved until we restructure it in order to allow competition to operate." 36

48 2506 fully reproduced in Consumer Energy Act, Part 3 at 902-932; with amdts. at 933-997. Market Performance, Part 1 at 1.

Ind. Reorg., Part 8 at 5911.

The thrust of the proposed legislation was to break up the oil industry into component parts in order to introduce more competition. As Senator Hart indicated, "unfortunately, to date a majority of Congress has not agreed" with this approach.37

The hearings were useful, adding substantially to the wealth of information already on the record concerning the industry; however, no substantive action resulted.

L. Petroleum Industry Competition Act of 1976, Report and Hearings

In 1975 and 1976, the Senate Antitrust and Monopoly subcommittee held hearings on S. 2387, the Petroleum Industry Competition Act, introduced by Senators Bayh, Abourezk, Hart, Packwood and Tunney, to prohibit vertical integration in the oil industry by prohibiting common ownership among the producing, refining, marketing and transportation sectors of the industry. The view of these Senators was that the industry was controlled by the majors and the only way to introduce competition into the industry was to restructure it. As a result hearings were held which elicited a great deal of information concerning all the segments of the oil industry and a report was issued by the Senate Judiciary Committee that concluded:

First, a handful of large integrated companies have effectively monopolized the supply of domestic crude oil. With their control over crude, these firms have been able to restrict entry into refining and limit the competitiveness of independent refiners. This, in turn, has enabled them to force on the consuming public a wasteful, inefficient, and extremely costly system of marketing. It has also permitted the callous exploitation of large numbers of people who operate service stations under franchise agreements.

A second conclusion is that 70 years of experience have proven Senator Henry Cabot Lodge, Sr. was right when he argued that pipelines should be treated like other common carriers and that shipper ownership of the pipelines should be prohibited. There is an inherent conflict of interest between a company as owner of a common carrier pipeline and the same company as a shipper on the pipeline. Decades of experience with the Hepburn Act have demonstrated that the conflict cannot be cured by regulation. The third conclusion is that both logic and experience demonstrate that it is inherent in the nature of the integrated international companies to exchange guaranteed access to their downstream facilities and markets for the right to remain the preferred marketers of the OPEC nations crude oil. This bargain, while of great benefit to the individual firms, is a substantial fact or in insulating OPEC from the usual pressures that alliet cartels. The cost to the consuming nations of the world has been

enormous.

Fourth, we conclude that there is no economic advantage for society as a whole from vertical integration.

It is impossible to avoid the conclusion that the industry as presently structured is beyond the ability of the Government to regulate effectively, if at all. We must either reform its structure or abandon completely the concept of a free market for the industry.

The idea that the industry can be restructured, much less controlled, through antitrust enforcement is totally devoid of foundation in reality. Mr. Kauper's narration of the Antitrust Division's handling of the Colonial Pipeline case alone is sufficient to dispel and misplaced confidence in the antitrust enforcement system.3 The ultimate conclusion of the report was that divestiture is the remedy that ought to be tried in order to bring competition back to the industry.

38

The hearings and the proposed legislation created a great deal of tumult and discussion in the industry; however, in the end, the industry had its way and nothing was done to implement the legislation.

38 PICA at 147-149.