Are the nation’s energy policies a potent “issue” in this year’s presidential campaign and in other electoral struggles? More specifically, are the calls for some form of reorganization of the oil industry—voiced by no fewer than eight presidential candidates, including George Wallace—going to form an important or a merely ornamental part of each Democratic candidate’s vote-getting equipment? Is, indeed, the democratic process this year going to affect the energy policies of the United States in any way?
It is, after all, only three years since the embargo by oil-producing countries propelled such issues to the forefront of political debate. It is only two years since “Project Independence” proclaimed the government’s official policy to be one of freedom from foreign sources of oil. And during the last three years public indignation has swelled against the oil companies. Opinion polls have attested to the mood of cynicism and hostility; extensive self-serving campaigns by such companies as Mobil and Exxon have confirmed it. Belabored with accusations of profiteering, of complicity with the oil-producing countries, and indeed of either manufacturing or falsely compounding the “crisis,” the oil companies have recently been shaken once again by disclosures of their bribe-giving both at home and abroad.
The current status of Project Independence can be adduced from the news that this March, for the first time, imports of crude oil exceeded domestic production. Public indignation about energy matters—and the pronouncements of the candidates about them—varies in intensity. Even so, during the last few months the long campaign to break up the oil companies gained momentum and is now being seriously debated in the Congress. Legislation assailing the industry is proceeding in both the Senate and the House, where there are investigations of virtually every sector of the energy industry—including the production and distribution of coal and natural gas, control over uranium and coal, the institutions that finance the industry.
Not since the great battle to break up the public utility holding companies in the 1930s has there been such a confrontation. It is true that the oil industry has come under attack before. In the 1930s Senators Borah and Gillett argued for breaking up the industry, and their campaign gathered strength from the reports of the Temporary National Economic Committee set up by President Roosevelt. These reports showed that the major companies owned vast amounts of oil reserves and that indeed six companies controlled nearly half of basic refining capacity; also that the major companies had worked together to force the independents out of business by denying them access to the pipelines owned by the majors. The campaign by the two senators culminated in a case launched by the government before World War II to break up the industry.
During the early 1950s the Federal Trade Commission issued its famous report exposing the ways in which the international oil cartel conspired to control the rates of production of oil, first in Mesopotamia and then generally throughout the Middle East; also how world markets were divided up among the participants in the secret cartel. Subsequently the government sought to break up the cartel and attacked the structure of the industry in California. Both efforts were suffocated by consent decrees between government and the industry.
Now, once again, the attacks on the oil industry are moving toward some sort of resolution, which may indeed end up with the dull, anticlimactic thud familiar from twenty years ago. But in the meantime, of course, the oil industry has experienced explosive change. The nationalist movements in the Middle East—starting with Mussadegh’s takeover of the oil industry in Iran in the early 1950s and leading to the creation of OPEC in the early 1960s—threatened the inexpensive and stable supply of oil from that region and spurred the industry in its efforts to find other, stable sources of supply in different parts of the world. The search led to exploration in the Arctic, Southeast Asia, Africa, and in the North Sea. Perhaps most important, it caused the oil companies to take a fresh look at other fuel sources in the North American continent—coal and oil shale—and to take a growing interest in the nuclear power business.
Beginning in the middle 1960s the major oil companies expanded into the coal industry, through mergers or by leasing reserves. They stepped up research into the use of oil shale. They acquired uranium reserves, and in certain instances became involved in the actual fabrication and reprocessing of nuclear fuel, and the construction of power plants.
As much as anything else the industry’s plan for reorganization—scattered and even indistinct as it appeared at the time—led to the political and popular reaction now so visible. By the time of the OPEC embargo in 1973 the major oil companies were more than usually vulnerable to public attack. Even cursory investigation could show their dominance of the “vertical” process of fuel supply—from oil well to gas station—but also their rising power “horizontally,” as they gained increasing control of coal, nuclear power, and the like.
And indeed some of the recent investigations were more than cursory. Senator Frank Church’s Subcommittee on Multinational Corporations finally published a report in January 1975 which constituted the most thoroughgoing examination of the international cartel since the FTC report of 1952. The report fueled public suspicions that much of the energy crisis was a fake, that the oil companies had prospered before and after the embargo, and had indeed colluded with OPEC countries in apportioning production among the various members and in the distribution of the crude. While the Church subcommittee was engaged in its investigation Senator Henry Jackson also thundered his indignation at oil company executives for their gigantic profits. The consequent clamor stemming from these senatorial inquisitions threw the oil companies on the defensive, as did simple public outrage over increased gas prices.
The push to develop virgin coal in the West antagonized wealthy ranchers, environmentalists, and the Appalachian coal interests—including the United Mine Workers—all of whom for different reasons feared that the coal industry would be removed from Appalachia and re-established in a gigantic coal reservation on the eastern slopes of the Rockies. Moves to develop oil shale led to strong opposition both on environmental grounds and, within the Interior Department and in Congress, for economic reasons: the simple expense and the prospect of a giveaway to the energy companies.
But the crux of the battle was over natural gas. Oil companies dominate the natural gas business, which supplies one-third of the country’s energy requirements. It is the one fuel over which the government maintains a modicum of control, through the Federal Power Commission. The industry has long wanted to destroy this supervision: primarily it wants to raise prices, now held down on interstate sales of natural gas. More subtly, it needs total control of the natural gas sector so that it can begin to introduce large quantities of very expensive synthetic gas made from coal: higher natural gas prices will make synthetic gas more competitive and indeed a more attractive investment.
The Federal Power Commission, repeatedly reminded of its duties by the Supreme Court, has been a major impediment both to higher natural gas prices and to the introduction of synthetic gas. Popular opposition to deregulation has been actively expressed by consumer organizations and by the labor movement, fortified by recent studies showing that in the event of deregulation the cost of natural gas would rise sharply.1
Opposition to nuclear power, now becoming more conspicuous, is based on several factors. From the standpoint of the utility companies who are being urged to adopt nuclear power plants, nuclear power has always seemed extremely expensive, often more so than either oil or coal. At one time it was hoped that nuclear power plants would operate at 75-80 percent of capacity. Actually they have functioned at only 55 percent of capacity. At the same time construction costs have shot up. In 1967 the Atomic Energy Commission predicted that nuclear power would come into use in the early 1970s, at $134 per kilowatt of capacity. The actual figure turned out to be $300. And now utilities are anticipating per kilowatt costs in the early 1980s in excess of $1000. Furthermore, during the recession when demand for electricity tapered off, economic arguments for the wholesale adoption of nuclear power tended to lose even more ground.
Another facet of the problem of nuclear power emerged last year when Westinghouse announced that it could meet only 18 percent of its commitments to supply uranium. The company pleaded to be excused from honoring contracts to about twenty utilities, for reasons of “commercial impracticability.” Westinghouse had contracts to supply about eighty million pounds of uranium, but had secured only fifteen million pounds. The question of uranium supplies remains another imponderable, both because they are limited and because the price a has risen from seven to eight dollars a pound a few years ago to over thirty dollars a pound today.
The argument over nuclear power is reflected in political activity around the country, much of it concerned with the dangers of nuclear radiation and pollution once the plants are built. More than twenty state legislatures are considering antinuclear measures which include, as in the case of Vermont, a prohibition against the construction of nuclear power plants without legislative review. Organizers in sixteen states are trying to obtain signatures to present clear choices and initiatives on the ballot for the 1976 election. In California the nuclear safeguards initiative will be voted on in June.
Proponents of nuclear power do not lack vigor; a fair example of their case can be found in the January issue of Scientific American, where the Nobel Prize-winning physicist Hans Bethe argues that the problems of safety, radiation, and development are manageable. Other prominent scientists and engineers argue the contrary case with equal passion. The very intensity of the debate is itself an argument for those who favor a “moratorium” on nuclear development.
Thus in every part of its operations the oil industry has excited public opposition and hostility. Evidently the most easily chosen target for such odium is the group of international oil companies often referred to as “the Seven Sisters”—Exxon, Mobil, Gulf, Standard Oil of California, Texaco, British Petroleum, and Royal Dutch Shell. It was at some of the heads of these corporations that Senator Henry Jackson shouted indignantly about “obscene profits” in 1974. The Senate Multinational Subcommittee chaired by Senator Frank Church devoted much of its time to the Seven Sisters’ dealings with the oil-producing countries before and during the embargo. Subsequently a target of the same subcommittee’s investigation of overseas bribes was Gulf Oil. Other oil companies—such as Phillips—admitted to bribes, but the two most detailed accounts of the process came from Gulf and Exxon.
By agreement with the Securities and Exchange Commission Gulf was able to appoint none other than John J. McCloy, long influential in the oil industry, to chair an investigation of its covert payments at home and abroad. Exxon conducted a somewhat more cursory investigation for the benefit of its stockholders.2 Neither report was entirely satisfactory, but the relevant point here is that two of the components of “big oil” found it necessary to give some sort of account of themselves—reports which scarcely redounded to their credit or to the improvement of their “image.”
Public hostility has been most visible in Congress, but here it must be said that the response to the relations of US-based oil corporations with the OPEC countries has been somewhat diffuse. A bill introduced by Senator Church, among others, attempts to attack the system whereby the companies can offset payment of taxes to foreign countries or organizations against domestic tax payments. The future of this bill is very unclear. Relations between the oil companies and the producing countries are constantly changing, with the result that congressional initiatives are uncertain. There is, for example, no known strategy in Congress—or indeed in the executive branch—designed to supervise the acts of US oil companies in the event of another embargo by the oilexporting countries.
If Congress remains wary of interfering with the overseas deals of the big oil companies, it still is putting serious challenges to them in the US. At the moment the Senate Antitrust Subcommittee is writing legislation to break apart the oil companies into three major sectors—production, distribution, and refining. This sundering process is termed “vertical divestiture,” as opposed to “horizontal divestiture,” which would prevent companies active in one form of energy production—oil for example—from becoming involved in others, such as coal. The Senate Antitrust Subcommittee may well report out a “vertical divestiture” bill, which will then go before the full Judiciary Committee, where its fortunes are less certain. If it fails to pass the full committee then the divestiture forces led by Senators James Abourezk and Birch Bayh will seize an opportunity to offer divestiture as an amendment to a bill on the floor of the Senate.3
A few months ago, when Abourezk—without benefit of hearings—offered such an amendment he lost by barely ten votes. A shudder went through the oil industry and also through its Washington lobbyists. But the shudder was not a terminally convulsive one since some senators who voted for divestiture did so only because they felt that the bill would not pass. Thus, without undue risk, they could acquire virtue with the voters back home as sturdy trust-busters. At least one lobbyist later took the jovial view that the vote enabled him to convince his employer that his job and budget were more crucial than might previously have been supposed. Nonetheless the Abourezk-Bayh strategists believe that this time they can win on such an amendment.
The future of a divestiture bill is probably less certain in the House. But there too movement against the oil companies can be detected. Peter Rodino, chairman of the House Judiciary Committee, has swung that body’s antitrust unit into action in investigating the “joint venture” system. Under this system major companies which might ordinarily compete with one another for, say, an oil lease band together. They exchange pricing information, geological data, and bid as one unit. They may also go so far as to produce the oil as one unit. John Wilson, the former FPC economist who has investigated joint ventures, points out that ten out of the sixteen largest companies with interests in federal offshore leases own 80 percent or more of their offshore properties jointly with each other. Such an attack on joint ventures could easily become part of a more general move for divestiture in the House.4
There has also been some interest within Congress to have the federal government itself conduct exploration for oil and gas on the public domain territories, where substantial supplies of the nation’s untapped reserves are to be found. The public domain consists of millions of acres of western lands, rich in coal and uranium; also underwater lands along the outer continental shelf, rich in oil and natural gas. Estimates vary, but as much as one-third of all future supplies of oil and gas are believed to be located on the outer continental shelf. (There are also sizable gas deposits in the Rockies and oil in the Naval Reserve district in Alaska.) About one-half of all coal reserves are under federal control in the West, and these territories include about 85 percent of the strippable low sulphur coal deposits. Eighty percent of high-grade oil shale is controlled by the federal government. Half of all geothermal resources are in public lands.
All these reserves are in fact already “nationalized,” in the sense that they are in the public domain and under the jurisdiction of the Interior Department. Hitherto the government has leased its holdings to the industry, and hence given it a free hand. Now Senator Adlai Stevenson of Illinois, Congressman John Moss of California, and even Senator Henry Jackson are beginning to question whether the government should not itself develop and produce these resources. There has been serious debate about the creation of a Federal Oil and Gas Corporation for this purpose.
Senator Floyd Haskell of Colorado is uncomfortably sitting on an enormous compilation of data which, if made public, would further embarrass the industry and hasten these movements forward. The compilation takes the form of a detailed questionnaire sent out by a Senate Interior subcommittee (of which Haskell is the chairman) to eighty-nine oil companies, requesting the most intimate details of their financial and commercial lives: the directorates that link them; the banks and other institutions that finance them; the stock and debt holders; and their profits in every phase of their operations.
So far sixty-three companies have responded and eight of them—including Exxon, Mobil, Arco, Phillips, Amoco, and Getty—are begging the Interior Committee to keep the data secret. The full committee is angrily divided on the question of releasing the information, which in its impact could very well be a bombshell far more devastating to the industry than the previous TNEC or FTC investigations.
Paralleling such congressional assaults on the oil sector is the tremendous battle over natural gas. The struggle over the price of natural gas has gone on for twenty years. It was generally assumed that this year the industry would finally triumph and that Congress would mandate deregulation of natural gas prices. Since 1969 a small group of people has fought a delaying action against this prospect. Rebel economists within the Federal Power Commission have questioned the statistics used by companies and kindred spokesmen for deregulation to buttress their case. That case has always been simple enough: gas reserves are diminishing, and producers, deprived of suitable profits, lack the incentive to find more gas.
These economists within the FPC spotted discrepancies in the statistics prepared by the American Gas Association, the industry’s trade group. But their testimony was ignored until last year, when Congressman John Moss threw a team of investigators into the fight. They demonstrated that the industry had indeed understated the reserves of natural gas and that on the basis of government records the shortage was dubious.5 Still the proponents of deregulation seemed to have the upper hand. Legislation essentially achieving their objectives passed the Senate last year. In the House Robert Krueger, a freshman congressman from Texas, pushed deregulation on the floor, seemingly with every chance of success.
John Moss later told us that the lobbying by natural gas industry adherents was among the most vigorous he had ever experienced. He said that deregulation advocates went into members’ districts, contacted major gas customers, their stockholders, employees’ labor unions, urging all of them to lobby their congressmen. We have in addition seen literature mailed out with bills to consumers in South Dakota, urging them to pressure their senators and congressmen. Enclosed with the advertisements were maps of the state’s legislative districts.
Despite such pressures Congressmen Moss and Dingell pulled off a last-minute and surprising victory on the floor of the House. The deregulation forces were halted. On the climactic morning of the debate, February 5, The Washington Post reported that Krueger had received over $200,000 in campaign funds in the last half of 1975, much of it from oil and gas interests. In January 1975 Krueger arrived in Washington with a campaign debt of $208,000. By June of that year he had received only $11,936 to help pay off the debt. In July he introduced an amendment that would have phased out oil controls. From July 1 to September 30 contributions totaling $55,182.26 were received by the campaign fund. In September Krueger introduced legislation to deregulate natural gas prices. From October to December 31, 1975, the congressman raised a further $152,228.09. According to the congressman’s office, the Post said, $51,147.50 came from independent oil and gas producers. Nearly 60 percent of this money came from producers outside his district.
The upshot of Senate-House bargaining is still unclear, but Moss may well have succeeded in forestalling deregulation of gas for another year. He himself thinks that the “high point” in the industry’s strength was reached in the February vote.
The importance of this labyrinthine struggle should not be underestimated. The Senate bill for deregulation was one of the most significant pieces of legislation since the war. It affects millions of consumers, and beyond that plans for the reorganization of the energy industry.
Development of the synthetic fuels industry also came under attack in the Congress, from quite a different angle. The Congress has adopted—and President Ford has vetoed—a fairly strict strip mining bill which would limit development of coal in the West and thereby circumscribe the development of these synthetic fuels, most of which are derived from coal. Antagonists of strip mining will bring the legislation again to the floor later this year.
On nuclear power the situation is less clear. Those in Congress who are troubled about the cost and safety of nuclear power want, as we have noted, a nuclear moratorium, a suspension of nuclear development until such matters are clarified. Their efforts have been stymied within the Joint Committee on Atomic Energy, a notorious instrument for the promotion of nuclear energy. But painful flanking attacks on appropriations for the “fast breeder” reactor have picked up considerable support in both House and Senate. Masterminded by Ralph Nader, the efforts to stop nuclear power will grow in intensity. Here too they are likely—as in the case of divestiture—to manifest themselves in sudden-death amendments on the floor of Congress, such as the one sponsored by Moss and Dingell to stop natural gas deregulation.
Against such a background, what are we to make of the proclamations of the presidential candidates? As we remarked at the start, this year’s campaign has so far been characterized by the unfamiliar spectacle of the candidates (extant or already moribund) expressing their ardent or at least stated resolve to reform the industry. But what do such campaign statements really amount to?
In a textbook rendition of the processes of American government one might expect that so important a debate on energy policy would be reflected in distinctive positions adopted by the various contenders. Nothing could be further from the truth. Submersion in the various position papers, statements, pledges, and advertisements of the candidates is a depressing experience: distinction vanishes into nuance, nuance into ambiguity, ambiguity ultimately into triumphant contradiction of the position originally adopted. Take, for example, Jimmy Carter. Last summer, he was against the deregulation of natural gas. In the Iowa caucus in late January he appeared to reverse his position, saying that he was for deregulation of “new” gas for five years.
To those versed in the intricacies of the gas debate this new posture merely clarified the fact that Carter was both for and against deregulation. The question is how to define “new” gas. When the industry talks of “new” gas, it often means simply drilling a new well in an old field. A stricter interpretation would mean a new well in a new field. But generally, as the term is bandied about in Congress, it is a dodge for the deregulation of most natural gas.
Take, again, the example of Hubert Humphrey, leading non-declared candidate. Hubert Humphrey can proudly and indeed truthfully boast that the first person in Congress to introduce legislation in support of solar energy was himself. Enthusiasts might therefore conclude that he is a prime advocate of an alternative energy system, based on environmentally safe solar energy. But Humphrey is also a keen supporter of nuclear power. And indeed it was Humphrey who dashed to the floor of the Senate last year to support continued development of breeder reactors. On natural gas Humphrey voted against deregulation, but his staff expert cautioned us against reading too much into this since he added that the senator believed the price of gas should go up.
Such vexing contradictions might seem to vanish with the appearance of Morris Udall, the current receptacle of liberal hopes. Admirers constantly refer to his splendid record so far as environmental legislation has been concerned, a record which would seem to have the bracing purity of the desert zephyrs around his native city of Tucson. But there are problems. Udall, on the one hand, is all for energy conservation, solar power, and development of other such alternative sources. He voted against natural gas deregulation. But amid expressions of grave concern and perturbation, he also grudgingly concedes the inevitability of nuclear power and does not support the moratorium.
He is most renowned for his shepherding through Congress of the strip mining bill, twice vetoed by Gerald Ford. The bill would have limited strip mining in the West and, according to the coal companies, hindered the development of virgin coal fields in the mountain and northern plain states. As a consequence Udall is one of the patron saints of the environmental movement. But environmental lobbyists for the original strip mining bill have told us how time after time Udall attempted to gut the bill of its more vigorous clauses. Constant vigilance had to be exercised to keep him on the path of environmental rectitude.
Their charges revolve around battles obscure at the time and now almost forgotten. The basic opposition to strip mining in the West came not from environmentalists but from ranchers and farmers who lived on homestead land. Under the law, the rancher or farmer had the right to the surface, whereas rights to the underlying minerals were variously held by the federal or state government. When the recent coal rush got underway, companies would quietly obtain mineral leases for as little as twenty-five cents an acre from the Interior Department. Soon after, a rancher would awaken to the disturbing clatter of strip mine shovels moving menacingly across his fields, ripping up the terrain supplying water for his wells, tearing fences down, and generally ruining his livelihood. It was this specter that led to the creation of such anti-stripping groups as the Northern Plains Resource Council, which waged an aggressive counterstruggle. This was no placid contest. Ranchers exchanged shots with coal industry agents and attempted to shoot down the coal companies’ helicopters.
Thus one of the critical sections of the original strip mining bill stipulated that before any mining took place the operators must obtain written consent from the surface owner and that this owner had the right to recompense for the damage to his land. Udall began by opposing this section of the bill, and kept up a spirited opposition to it for several months until it became clear that he would not prevail. He then abandoned his opposition.
All such maneuverings are carried on within the club of Congress. Except for the participants in such deals and struggles, hardly anyone remembers such intricate contradictions and concessions. The saga of Udall’s vacillation on key parts of the strip mining bill symbolizes the dangers in trying to establish clear-cut “energy” profiles of the candidates. Life, both inside and outside Congress, is not so simple.
To understand what lies beneath the candidates’ statements, we have to bear in mind a fundamental shift in the economy. The economic base of the nation is shifting from oil to coal. Jimmy Carter put it this way: “We are beginning a transition to a coal-based economy. When there is a genuine need for synthetic fuels, coal will become the feedstock for making oil and gas. As oil and gas in their natural state become less available and more expensive, the high cost of producing synthetic will become worth the investment.”
Such a shift could well entail a reorganization of the coal industry away from the deep mines of Appalachia—saddled with increasing costs for health and safety—to the cheaper surface mines on the virgin western coal fields. From the industry’s point of view benefits of a shift from the East to the West would include not only lower ultimate costs but also the enormous advantage of a largely non-unionized labor force. What is envisioned is a chain of energy “parks” dotted across the West. Around the beating heart of the strip mine itself would sprout synthetic fuel plants, aluminum smelters, electricity power plants, skeins of high voltage transmission wires, coal slurry pipelines, oil shale refineries, and so forth.
Such a shift already has required some investment by private industry—in obtaining mineral leases and water rights, and also in waging legal battles. But success in the great enterprise will involve gigantic sums, and a large part of these sums will have to come from the federal government. Any evaluation of the candidates must take account of their views of what the role of the federal government should be regarding these vast new fields for investment.
As chairman of the Senate Interior Committee Henry Jackson has enormous leverage. Through his committee passes all significant legislation pertaining to the public domain territories of the United States, which—as noted above—hold enormous quantities of coal, oil, natural gas, oil shale, uranium, and lumber. Funds for research and development, the Alaskan pipeline, oil shale experiments, coal and water leasing, dam projects, hydroelectric schemes—anything of consequence in the energy field—go through Jackson’s office.
Jackson is proud of his record as an environmentalist. He sponsored the NEPA Act requiring energy developers to make estimates of environmental impact; he has protected the wilderness, helped create the Federal Energy Administration. And he has voted for strip mining legislation. But he also has been a major proponent of the “new” energy: backing the Alaskan pipeline, supporting creation of large government-financed research and development projects in alternative fuels, especially in synthetics. And of course he is one of the most effective proponents of nuclear power in Congress. In sum, Jackson is the major spokesman for a new energy industry based primarily on western coal.
Jimmy Carter, on the other hand, in his statements has come down more on the side of the deep mine industry in Appalachia and existing strip mines in the Middle West. His justification is that a shift to the West “could cause a massive shift in the distribution of capital, tax revenue, and job opportunities away from the industrial East and Midwest to the agricultural regions of the West.”
Udall has managed to straddle this issue, avoiding the regional clash. The strip mining bill that he put together would crimp the development of coal in the West, but not stop it. Humphrey has, characteristically, glided around the matter. Ford, like Jackson, is basically for the shift. Reagan, rising above the subtleties and specifics of energy planning, merely echoes whatever industry happens to want. And in this case there is no question that the major energy companies want to develop western coal and extract synthetic fuel from it. Reagan would have this happen without any effective public control over costs, prices, or environmental effects.
In fact no major candidate seems prepared in principle to have the government take a controlling part in energy production. Calls for divestiture, for a federal oil and gas corporation, for reorganization of leasing practices, for federal loan guarantees for alternative fuel development—all are aimed at encouraging more competition among private enterprises. But it can be surmised that Jackson, Humphrey, Udall, Ford, and Reagan essentially support the idea that the underpinnings for a new industry in the West should be financed by the central government. Carter, on the other hand, at least in his rhetoric, is cautious of central government over-riding state and local rights. He puts it this way:
The Ford energy policy, if it can be described as a policy, is designed to enrich the corporate interests at the expense of the American people. To prop up this program the administration has added another wrinkle—an Energy Independence Authority—which would make profound political and economic changes in the name of increased energy production. It would blur the lines between private and public capital, and centralize decisions about the geography of distribution of capital. It would serve to strip the states of much of the power and authority they now have to determine their own economic fortunes in the field of energy.
One has to remember, so far as Carter’s reservations about any blurrings of lines between public and private capital are concerned, that he favors injections of public money into private enterprise as an important way of alleviating unemployment. Still, he states the issue with some clarity. Furthermore, as a southerner who at least began his campaign by denouncing the power of “Washington,” he has not surprisingly stressed states’ rights. Plenty of politicians in Texas and Oklahoma arguing for the deregulation of natural gas prices insist that they are, in a way, victims of federal imperialism; that the sales of their natural resources to other states, particularly in the northeast, are held at an artificially low price which penalizes them, however much it may benefit consumers and industries in such areas as Massachusetts. Carter responded to this regional interest when he advocated some measure of decontrol.
In the end it is hard to see how Carter could avoid some form of “Energy Independence Agency,” although it might emerge in the guise of a collection of policies rather than a straightforward agency. Bolstering Appalachian coal production would in all probability require government subsidies. These subsidies might be in the form of tax incentives, research and development grants, or in guaranteed markets, and would be awarded to create adequate health and safety conditions to protect the miners working underground. As for western coal, the thrust into the virgin fields of the northern plains is so far advanced that it seems hard to believe any president could reverse the process, although he could conceivably slow it down. Thus, rhetoric not withstanding, all the candidates are fundamentally on the same side, accepting the growing role of coal, and agreeing on some form of public financing, with control remaining in the private sector.
In the Congress, as we have seen, there are several principal strands to the power struggle over energy. The boldest line of political attack is in fact defensive. It seeks to preserve the thin wedge of direct government intervention in the energy business, and in practical politics is fought out over natural gas and whether or not it should be regulated. Looked at from a geographical perspective this conflict is expressed in the stand-off between the consuming states in the northeastern and northern parts of the country, which wish to preserve regulation, and the producing states in the South and Southwest, which want to end it. Those who argue for the rise in political power of the “southern rim” have to recognize that on this particular terrain the northerners have so far held their own.
A second strand involves a continuing colloquy over the role of the federal government in organizing the public domain territories for the new energy industry; that is, whether and to what extent the government should, for example, build aqueduct systems to facilitate the private processing of oil shale and coal slurry or actual constructing of commercial synthetic fuel plants.
A third strand, rooted in a curious combination of conservative and populist ideology, concerns divestiture: it wants to eliminate all public participation in the oil industry and to substitute free enterprise for the twin beasts of monopoly and cartel. The vigorously competitive small businesses spawned by divestiture would—so the theory goes—thrive under the watchful gaze of antitrust watchdogs.
Thus no longer would one oil company control the production, transportation, refining, and marketing of its oil. The underlying system linking all the major companies in intricate internal trading patterns—joint ventures, bartering of oil by pipeline, swapping of supplies—would be ripped asunder. Instead, existing companies would be given the choice of which part of their operations they would choose to retain, and be forced to give up the others. The resulting small companies would thus battle each other at each phase of the business and, so the theory runs, the consumer would thus profit through lower prices under these competitive conditions. Horizontal divestiture would mean that companies now in the oil business could not own coal, uranium, or other energy sources.
This idea of divestiture has been the motor of most attacks on the energy business during the last fifteen years. It represents the belief that enforced competition is the instrument for shaping economic activity. Its roots are populist and its basic constituency a congeries of different groups—small business, the antitrust bar, and, increasingly, liberals, who find it the most congenial way to record their opposition to big business and big government. The fault with this particular mode of assault on late capitalism is that it bears no relationship to reality. As we have seen, huge amounts of future energy resources are now in the public domain, already “nationalized.” The problem with this nationalization is that the government, virtually a vessel of big business, has given over control of these resources to large corporations through a series of leases, laws, and regulations.
What is evidently necessary here is that government should exercise real and administrative control over the resources placed in its trust, not to substitute for surrender to large corporations a surrender to a multitude of smaller ones, whose exploitation of the lands would be subject to no serious control except their own estimates of profit. Environmentalists—for example the network of groups fighting for the strip mining bill, which include lobby groups such as the Environmental Policy Center and the Sierra Club—and consumer groups of the sort brought together by Ralph Nader are in many respects the most vigorous advocates of this sentimental voyage back to the nineteenth century. They place much faith in small business competition. They are at the same time left with the problem of supervising what would presumably be an ecologically damaging free-for-all among small corporations claiming they cannot absorb the costs of protecting the environment.
The big companies themselves, despite tremendous public bellowing, already have several expedients to deal with divestiture if it becomes a reality. Long-term lease deals would be likely, with the production unit of Company A leasing the refining capacity of Company B—or even its own refining capacity, spun off as a separate company to its stockholders. Beyond such expedients—and a more nonchalant threat of getting out of the energy business altogether (as a harbinger, see Mobil’s acquisition of Marcor)—industry representatives speak incredulously of the actual likelihood of a forced sale of a large amount of the $140 billion in assets held by the twenty largest companies.
Such problems with divestiture are in fact conceded by Congress. The chances of the passage of such a bill are fairly slim. But divestiture is just a conspicuous element in the active campaign against big oil we have noted. What has to be gauged is the political meaning of the whole campaign and its ultimate political significance.
Set in its harshest light the call for divestiture can be viewed as the postponement of a more serious reform: the intervention of government as an active administrator of public resources. The companies themselves sense the danger clearly. They bitterly and successfully resisted the proposal that government play a larger part in exploring and developing oil and gas reserves on the outer continental shelf.
The attack on the oil industry—impelled by many factors—is one of those rare occasions on which some mass sentiment has been mustered. But the sad fact is that such sentiment has been urged largely toward an inadequate solution. There is a different course, one which would not necessarily drop the aim of divestiture but would concentrate on the public domain lands, including those undersea along the outer continental shelf. These not only contain large amounts of mineral fuels, as we have noted, but have been deliberately set aside in trust for the public benefit. Hence, looked at one way, these resources are in effect already nationalized.
Arguments over effective control of these resources abound. Senator Stevenson, for example, has proposed the creation of a Federal Oil and Gas Corporation to act as a “yardstick” in producing oil and gas in competition with private industry. Senator Hollings has suggested a government agency to carry out exploratory operations in certain public domain territories, a function now largely left up to the industry. Senator Jackson and others freely discuss substantial changes:eliminating joint ventures, revising the bidding system, possibly even substituting service contracts or some form of profit sharing for actual leases.
In all such notions the political bent is toward shifting the cost of exploration and even production to the federal government, while leaving real control in the hands of the industry. That is, public funds would be used in the risky gambles of development and the costly business of production while distribution and, crucially, pricing would be left in private hands. (Socialization, if you will, of the means of production, but not of distribution or exchange.)
In our view a serious reform of the industry would mean exerting governmental control through Congress in the public domain territories. This in turn would involve the creation of a federal agency to explore, develop, and produce all sorts of energy resources. Such an organization probably would conduct much of the work on its own, but it could also deal with private industry through service contracts. Under such a program, the central government could create a context in which both small and large private companies could compete along with public enterprises to provide goods and services. Thus companies or public organizations could bid to do exploration, development and construction of drilling rigs, pipelines, etc. In this setting, with a vigorous government organization running the show, divestiture makes some sense, pushing forward real competition within the overall guidelines of a national plan. It goes without saying that this could only work if the government pursued an independent policy, backed up by an adequate staff of technicians, planners, and other experts, all of whom would help to ensure that government energy policy did not become a carbon copy of the existing industry.
Second, the means of transportation of energy—pipelines, electrical grid systems, etc.—have always been a crucial factor in the control of energy. Many of these instruments of transport are supposed to be “common carriers,” i.e., open to all potential users. The reverse of this term is true, at the moment. If the government owned and administered a 51 percent share in all major interstate energy transmission systems, it would also gain a means of control over energy pricing.
Such ideas remain hopes rather than immediate political realities. But they are not entirely utopian. Here and there can be found intimations of the political changes necessary for the government to gain a useful mastery of the industry. First of all, there is indeed a very general debate at every level of government in the US over the future of energy resources, although agitation is most intense in cities and counties where steadily rising electricity and natural gas prices have become a major issue. Within the last two years dozens of different citizens’ groups have sprung into action, working for utilities reform. Some, such as the group at Massena, New York—strongly backed by the unions—have successfully argued for public ownership, taking over its public utility. Others, as in Virginia and Maryland, are more narrowly concerned with reducing rates. In Vermont, in Massachusetts, in California, there has been lively interest in the so-called “lifeline” concept, whereby residents are guaranteed certain basic amounts of electricity at reduced prices.
In short, the movement to reform utilities could be the impetus for a new system, in which public control at both the local and federal level would be the main objective. This process would not be simple or clear-cut, and would develop piecemeal and probably slowly. But if it takes on a larger vision, a broad-based movement for publicly controlled utilities might well help to generate a national, political demand for energy that is reasonably priced and rationally developed. Only then could government begin to break free of the embrace of the industries that are serving the public so poorly.
Public control is the central issue—and indeed the pivot of all serious attacks on the industry. The basic case against the industry is that a small group of powerful companies has been able to determine the use of the world’s mineral fuels on its own, by a variety of means: the creation of the famous international petroleum cartel which dominated Middle Eastern oil from 1928 till well after the Second World War; the domination of pipelines in the United States by large companies at the expense of small ones; the failure to develop other fuels which normally might compete. The outcome is something that scarcely any one of the thousands of industry statisticians arguing for the virtues of “economies of scale” can dispute: an energy policy set by private companies with governmental participation or acquiescence which has created a society dominated by highways and automobiles and the consequent patterns of living. You can believe the Mobil ads if you wish, or you can roll up your car window and take a spin along the New Jersey Turnpike.
Once more the industry—again with the acquiescence of government—is taking the first steps in its new energy strategy. During the last three years Congress has attempted to muster a response, but as we have seen its successes are likely, at best, to be defensive ones. Nor is it at all clear how much difference a new president will actually make. But at least a debate over public control should be carried forward, since this is the only way in which the industry can be subdued.
April 15, 1976
A study by the Getty Oil Co. states that deregulation would result in an immediate 300 percent increase in the price of new natural gas from the current 52 cents per thousand cubic feet to $2.25 per mcf. The General Accounting Office concludes in a report that the average residential consumer of natural gas will pay $94 more a year for gas by 1980 in the event of deregulation. ↩
The report on Gulf has been republished by Chelsea House as The Great Oil Spill: The Inside Report, Gulf Oil’s Bribery and Political Chicanery, John J. McCloy et al. (295 pp., $2.25). The Exxon Corporation has issued its Determination and Report of the Special Committee on Litigation, Edward G. Harness, chairman (January 23, 1976). ↩
The Petroleum Industry (Vertical Integration, Part 1), Hearings before the Subcommittee on Antitrust and Monopoly, Senate Judiciary Committee, Part I, September/October 1975. ↩
The best current description of this hidden framework is contained in the investigations and hearings of the Subcommittee on Crude Oil Pricing of the Joint Committee on Public Domain of the California legislature, conducted in 1974. This investigation, led by then chairman Kenneth Cory, shows how in California the big companies work together through joint ventures, control pipelines, and refineries. It is the most far-reaching current investigation we have so far seen of oil in the US. ↩
Staff reports, Subcommittee on Oversight and Investigations, House Committee on Interstate and Foreign Commerce, including: Delays in Natural Gas Production by Cities Service Oil Company, July 18, 1975; Declining Deliverability at Garden City, La., October, 1975; Declining Deliverability at Bastian Bay Field, La., November, 1975; Mobil Oil Corporation: Failure to Deliver Natural Gas to the Interstate Market, February, 1976. ↩