Page Statement of John E. Kasch, vice president of Standard Oil Co. (Indiana) 373 Mr. Kasch begins by summarizing his statement: S. 489 "may delay the contribution of shale oil to our Nation's economy for perhaps decades"- 373-74 Mr. Kasch discusses the development of oil shale_ Mr. Kasch discusses the probable impact of S. 489: Forced divestiture 374-77 376-77 377-78 Listing supplied by Mr. Kasch of major private firms with oil shale interests 378-79 Senator Abourezk and Mr. Chumbris question Mr. Kasch about his statement 379-85 385 Oral statement of Mr. Norman G. Kurland, Washington counsel of the Mr. Kurland's employer is an organization launched by Louis Kelso. The Employee Stock Ownership Plan (ESOP) is "a radically new mode [Prepared statement of Mr. Kurland] 386 386-87 387-90 Mr. Kurland describes ESOP in more detail than he did in his oral statement. He includes charts showing the differences between conventional debt financing and ESOP financing-- 394 He gives a Kelsonian perspective on the monopoly problem_ 397-400 He gives precedents for ESOP financing as a new approach to divestitures 401-02 He discusses "pure credit" and "two-factor economics". 405-09 410-11 Mr. Vaughn questions Mr. Kurland__. 412-17 HENRY COHEN, Legislative Attorney. INTERFUEL COMPETITION ACT OF 1975 TUESDAY, JUNE 17, 1975 U.S. SENATE, SUBCOMMITTEE ON ANTITRUST AND MONOPOLY The subcommittee met at 9:30 a.m., in room S207, the Capitol, Hon. James Abourezk presiding. Present: Senator Abourezk. Also present: Charles E. Bangert, general counsel; Henry M. Banta, assistant counsel; Walter S. Measday, chief economist; Patricia Y. Bario, professional staff member; Catherine M. McCarthy, chief clerk; and Peter N. Chumbris, minority chief counsel. Senator ABOUREZK. The subcommittee hearings will come to order. OPENING STATEMENT BY JAMES ABOUREZK, A U.S. SENATOR FROM THE STATE OF SOUTH DAKOTA Senator ABOUREZK. We open hearings today on S. 489, a bill to amend the Clayton Act. This bill would prohibit persons engaged in the production and refining of petroleum or natural gas from owning any interest in the coal, oil shale, uranium, nuclear reactor, geothermal steam, or solar energy business. The bill embodies the belief that a free and open marketplace acts as the best allocator of resources. Control of public energy resources by the very companies which control the production and distribution of oil works against the creation of such a marketplace. There is no free market in energy at this time. Eight oil companies— Exxon, Texaco, Mobil, Gulf, Standard Oil of California, Standard of Indiana, Atlantic Richfield, and Shell-control two-thirds of U.S. industries' assets and earn three-fourths of oil industry profits. Of the eight, all but Shell are American owned. The oil companies have succeeded in achieving this level of concentration despite years of antitrust rhetoric by the Government. In 1955, according to FTC, the 8 largest oil companies produced 36 percent of our domestic crude oil and the 20 largest produced 56 percent. In 1973, according to the Census Bureau's first "Annual Survey of Oil and Gas," the 8 largest accounted for 54 percent of domestic crude production, about the same as the 20 largest in 1955, while in 1973, the 20 largest had more than 75 percent of total production. In a matter of months, since the 1973 embargo, oil companies outstripped the usual giants of our economy and imposed on the public an energy tax in the form of $12 per barrel oil. Fortune's list of 500 largest industrial corporations shows all 5 American-based members of the multinational oil cartel as among the 8 most-profitable corporations in the United States. They and 15 other companies already plan the development of over 75 percent of our oil, and nearly as much natural gas. There is no incentive to compete or to enhance profits through production efficiencies if prices can be continually revised upward with no fear that anyone exists to undersell them. The managers of these corporations are accountable only to their shareholders for the decisions that structure the whole country's present economy and delimit its future, even though the resources they command are increasingly located on public lands and are public property. To allow these companies to extend their control to our remaining fossil fuels and to new sources of energy, is to acquiesce in the structuring of an enormous proportion of our economy according to the goals and needs of a few colossal corporations-corporations which have already demonstrated that their interests are not the interests of the people of this country. Now, oil companies have begun to extend their control to other forms of energy, and that means to a greater degree over the economy as a whole. Some people cite the threat of an energy shortage as a reason to ignore the monopoly effects of increased concentration and cooperative planning among the oil companies. Some people argue that greater concentration and new entry barriers are the price we must now pay for our energy supplies, and while the oil companies and the administration demand deregulation and decontrol and an end to the allocation program in the name of a return to the free market, they object strenuously to the antitrust measures that would be required in order for anything resembling a free market to come about. Through advertising, and other forms of opposition to such legislation as the bill before us today, they demand the right to add the would-be substitute fuels to their free market at what has come to be known as BTU- equivalent prices. Instead of competition between various fuels controlled and planned by many separate companies, we will have "energy companies" characterized by joint ventures, multiple resource ownership, interlocks, and subsidiary relationships controlling the whole spectrum of fuels from oil through uranium to solar. Some of the critics of this legislation argue that economic concentration in the energy industry group is not unusually high. But the fact is that ownership of competing resources is already significant and has been increasing very rapidly. In coal, for instance, before 1960, oil companies owned minimal amounts of coal. Today about 10 oil companies, and these are the Nation's largest, produce roughly 20 percent of the country's coal. We have all become acutely aware of the need for an integrated national energy policy. The energy package we are all waiting for is not a tax and not a higher price to encourage all-out, nonstop exploration and production with no regard for the future, but a rational mix of oil, gas, and coal allocation, with timetables for research into alternatives that would save as much of our cheap hydrocarbons as possible for their most efficient use. It seems clear to me that ownership of potential substitute fuels by oil companies would insure that decisions about energy were made in the context of overall planning for the corporate future. Coal production levels would become a function of oil and uranium planning, for example. It is overwhelming to contemplate reversing the trend toward bigness in oil, but unless we determine to shoulder this responsibility to resist the propaganda of the big companies, and to restore diversity to our industrial base, we will not resolve the contradictions that are undermining the health of our economy. In fact, we will not even have the ability to inject national policy considerations into the search for answers to these problems. We do not need another Manhattan project to solve the energy crisis. The object of an energy program is not analogous to a bomb. The object is to make the American people, and ultimately the world's people, less dependent on a source of energy easily controlled by a small group of people which may use that control to the detriment of our society. The goal is to develop a variety of resources and a pattern of use that is less single-source dependent. Let us look at whether there is more likelihood of arriving at this goal if the oil companies do not become the principal suppliers of all fuels and the arbiters of all energy planning. [The complete prepared statement of Senator Abourezk and the bill, S. 489 follows. Testimony resumes on p. 8.] PREPARED STATEMENT OF JAMES ABOUREZK, A U.S. SENATOR FROM THE STATE OF SOUTH DAKOTA We open hearings today on S. 489, a bill to amend the Clayton Act. This bill would prohibit persons engaged in the production and refining of petroleum or natural gas from owning any interest in the coal, oil shale, uranium, nuclear reactor, geothermal steam or solar energy business. The bill embodies the belief that a free and open marketplace acts as the best allocator of resources. Control of public energy resources by the very companies which control the production and distribution of oil works against the creation of such a marketplace. There is no free market in energy at this time. Eight oil companies-Exxon, Texaco, Mobil, Gulf, Standard Oil of California, Standard of Indiana, Atlantic Richfield and Shell-control two-thirds of U.S. industries' assets and earn threefourths of oil industry profits. Of the eight, all but Shell are American owned. The oil companies have succeeded in achieving this level of concentration despite years of antitrust rhetoric by the Government. In 1955, according to the FTC, the eight largest oil companies produced 36 percent of our domestic crude oil and the twenty largest produced 56 percent. In 1973, according to the Census Bureau's first Annual Survey of Oil and Gas, the eight largest accounted for 54 percent of domestic crude production (about the same as the twenty largest in 1955) while in 1973, the twenty largest had more than 75 percent of total production. In a matter of months, since the 1973 embargo, oil companies outstripped the usual giants of our economy and imposed on the public an energy tax in the form of $12 per barrel oil. Fortune's list of 500 largest industrial corporations shows all five American-based members of the multinational oil cartel as among the eight most profitable corporations in the U.S. They and 15 other companies already plan the development of over 75% of our oil, and nearly as much natural gas. There is no incentive to compete or to enhance profits through production efficiencies if prices can be continually revised upwards with no fear that anyone exists to undersell them. The managers of these corporations are accountable only to their shareholders for the decisions that structure the whole country's present economy and delimit its future, even though the resources they command are increasingly located on public lands and are public property. To allow these companies to extend their control to our remaining fossil fuels and to new sources of energy, is to acquiesce in the structuring of an enormous proportion of our economy according to the goals and needs of a few colossal corporations-corporations which have already demonstrated that their interests are not the interests of the people of this country. Petroleum is central to the economy of the twentieth century, because of their tremendous wealth and power, scope of operations, integrated structure, and privacy, petroleum firms influence our entire economy and have the capacity to gravely distort it. The principal motivation of these companies, naturally, is to accumulate capital. To that end, they exercise increasing amounts of power. They need stability in all sectors of the economy, and their wealth and selfinterest depend on their ability to anticipate and plan for the future. They can do this best by controlling ever larger portions of the economy, directly and indirectly. When the economy is composed of many small companies all operating with such motives, I would argue that the public interest can emerge, and be served through the mechanisms of market. But when 5, or 8, or 20 huge companies dominate, the public interest is no longer represented. The public has no concerted strength to counterbalance the strength of the companies. Furthermore, this planning by the private entity is not planning in the public interest. At best, it is planning to protect and enlarge the stockholders' shares. At worst, it is planning for the maximum return on all assets and products, regardless of the social value of that production. The manipulation of price by manipulating supplies and the consequent creation of imbalances between indusries contributes to severe economic dislocation in which, among other things, more and more people lose their jobs. Oil companies have already begun to extend their control to other forms of energy. Some people cite the threat of an "energy shortage" as a reason to ignore the monopoly effects of increased concentration and cooperative planning among the oil companies. Some people argue that greater concentration and new entry barriers are the price we must pay for new energy supplies. And while the oil companies and the administration demand deregulation and decontrol and an end to the allocation program in the name of a return to the free market, they object strenuously to the antitrust measures that would be required in order for anything resembling a free market to come about. Through advertising, and other forms of opposition to such legislation as the bill before us today, they demand the right to add the would-be substitute fuels to their "free market" at what has come to be known as "BTU equivalent" prices. Instead of competition between various fuels controlled and planned by many separate companies, we will have "energy companies" characterized by joint ventures, multiple resource ownership, interlocks, and subsidiary relationships controlling the whole spectrum of fuels from oil through uranium to solar. Some of the critics of this bill argue that economic concentration in the energy industry group is not unusually high. But the fact is that ownership of competing resources is already significant and has been increasing rapidly. Take coal, for instance. Before 1960, oil companies owned minimal amounts of coal, uranium and shale deposits, and no solar or geothermal holdings. Today, about ten oil companies (and these are among the 20 largest) produce roughly 20 percent of the country's coal. The definitive industry reference, Standard and Poor's, no longer has a separate listing for coal-its index refers the reader to the oil and steel industry for coal production figures. Without legislation such as we are examining today, oil industry ownership of coal reserves and share of production is likely to jump in the near future. Several oil-coal negotiations are underway at present and Standard of California for example, has just announced that it will take a 20 percent equity position in AMAX-one of the eight largest coal producers. Take uranium. Last January, William Slick of Exxon, told this subcommittee that oil companies produced 28 percent of the United States uranium. The Ford Foundation's energy policy project report states that in 1966 the oil industry owned 30 percent of our uranium reserves-by 1974, according to Slick, the oil industry held between 50 and 55 percent. Add to this the oil company involvement in milling and enrichment of uranium, and the pervasive presence of joint ventures, and the picture of oil company incursion appears quite serious. Oil companies hold the leases for nearly all the oil shale and geothermal land that has been put up for bid. I am submitting for the record a document containing the most up-to-date figures on concentration in these areas. |