Senator Moss. So, their concern is not making a profit at the retailing end; it's simply to have an outlet?

Mr. BERMAN. Their concern has been, in the past, primarily, controlling volume.

Now, with the shortage of product, they don't have to be as concerned about that, and you are also going to see a great deal of greater concentration on direct marketing, because majors are going to start selling gasoline on the self-serve basis. That basis recognizes gasoline as a commodity.

They don't have to pay a lot of service people to hang around. They just have to pay a little girl as a cashier, and they're going to get into that business with a vengeance.

Senator Moss. Do you feel that the dealer-jobber day-in-court legislation would prevent arbitrary termination? Aren't there too many short-term leases to really have that effect?

Mr. BERMAN. Well, Senator, I listened to your question before, and I think the kind of dealer day-in-court and jobber day-in-court legislation that we envisage is legislation that would prevent termination. regardless of the term of the lease or the franchise agreement. That is, once you put a dealer in, once you sign up an American Motors dealer or a Chevrolet dealer, once you put them in there, just because he's got a 1-year lease, you can't kick him out at the end of 1 year because the year is over. When you kick him out, you've got to have¦ good cause. Obviously, if the fellow's doing a sloppy job, or if you are changing your mode of distribution in a lawful manner, those are adequate causes.

But what we have got to do something about is you cannot expect a man to make independent business decisions if his business life depends on it. You take a man, Senator, who is 50 or 60 years old. He's been in a location for 15 or 20 years. He's worked 70 hours a week. He only has the goodwill of his location.

When his supplier wants him to do something-he's got a shortterm lease-it's unreal to think he's not going to do what the supplier wants.

You don't have to accept my assertion of that being true. All you have to do is look at the purchase records of these dealers. They have been purchasing tires, batteries, and accessories for years from their suppliers. When they could have gotten that product cheaper from somebody else. Businessmen don't act that way when they don't have to.

Senator Moss. In your testimony, you suggested that there ought to be a requirement that 25 percent of the refined products be sold to independents. Wouldn't it be better just to have the requirement that anybody who backed up to the dock could buy the product at the regu lar price?

Mr. BERMAN. No. Senator. If you do that, 1. I think it's unrealistic in terms of the pattern of distribution in the industry: and. No. 2, it's not assuring that the product's going to be available. that they're not going to be selling that product, themselves, directly to their own units.

I mean, it doesn't do any good to be able to buy products at the same price as everybody else if the product's not available to be sold.

1

That's what's got to stop. I want to be very clear. I think that you're hearing conversation about dollar gasoline. That may be an exaggeration, but 60 to 70 cents a gallon for gasoline is not an exaggeration.

You remove price controls, and you'll see that, and you're going to see, I would assume, that 90 to 95 percent of the gasoline sold in this country is going to be sold under the control of major oil companies, unless you do something about it.

Senator Moss. I was looking at the Ottertail Power Co. case recently.

Mr. BERMAN. Right.

Senator Moss. The Supreme Court said. on electric power, that a company was required to sell at the same rate to anybody who came to buy the power.

Mr. BERMAN. All right. But the problem there. Senator, is the Ottertail can't go into the town and sell it directly itself. They can't go up to the homes and hitch it up.

If you require set prices at the refinery to anybody that comes along, and you don't require them to sell a product, you don't make them allocate a certain portion of their refining capacity for sale, what good does it do? It doesn't do any good if you can buy gasoline at the same price but you don't get any gasoline.

Senator Moss. You mention in your statement a number of ways in which the major oil companies are given tax relief and other tax benefits. It seems clear enough that the oil industry does receive special treatment.

Do you feel that this gives the Government any justification for more closely regulating its activities?

Mr. BERMAN. Senator, if you would permit me, I'd like to read some statistics to you. I think it's the kind of thing that people don't hear enough of.

"In 1971, Gulf Oil Corp. had a before-tax profit of $1.3 million. The percentage of tax, U.S."

Mr. OWENS. Billion.

Senator Moss. Yes. It's billion.

Mr. BERMAN. I meant billion, $1.3 billion.

The percentage tax paid by Gulf was not 10 percent, not 5 percent. They paid 2.3 percent in Federal taxes.

Now, in that year, Senator, a common, ordinary dealer supporting a wife and child and making $5,000 a year, not $1.3 billion, had to pay 20 percent.

The total loss of revenues to the U.S. Government from 1962 through 1971, and the loss determined by the percentage of profit that the major oil companies paid, as compared to what any other business, such as GM, would have had to pay, was $16.6 billion.

I don't see how the Congress can go around this country and talk about economizing and cutting back the budget and tax burdens on people who are fighting for their very lives to buy a pound of hamburger, and let these companies get away with this stuff.

I think this is one of the great scandals of our society.

Senator Moss. I guess we all feel the same way. We better not demonstrate here.

93-785-73- 5

Mr. BERMAN. Senator, I know one man can't do it, and one Senator and one Congressman, but Congress can do it.

Senator Moss. There obviously are some very wide loopholes, and you are pointing to some of them.

Do you think that it might be well for Congress to try to regulate the oil companies as public utilities?

Mr. BERMAN. Senator, I don't have much faith, frankly, in that. If you really want to know, I don't favor Government regulation of industry.

We are in the largest nation in the world, and we started out regulating trains in about 1880, and we've been regulating maritime industry, and we're regulating the air industry.

Now, here we are, the largest, most prosperous nation in the world, and we don't have much of a railroad industry. We certainly don't have any passenger industry left. We have no merchant marine, and if we keep it up, our airline industry doesn't look to me like it is in the greatest shape.

I'm not overjoyed with the idea of Federal regulation of industry. I'm imbued with letting people compete.

I think a few laws to force competition to work in the industry would give the American public decent prices. They would get adequate supplies at decent prices.

Senator Moss. What do you think would be the short-term and the long-term effect on the consumer if the oil import quotas were either abolished or sufficiently relaxed?

Mr. BERMAN. It would help, really.

Senator Moss. There's an article that appeared in the Wall Street Journal yesterday. It has a rather chilling note to it.

I'd like to read just the first paragraph and then I'm going to ask that the whole article be put in the record.1

First of all, the headline says, "The Rise in Number of Autos, Drop in Miles-Per-Gallon, Push Demand Above Supply, and the Gas Wars Are Over".

But it says:

Gasoline prices might go up and up and up.

The marketing vice president of one big oil company predicts the price for a gallon of regular gas will hit 50 cents or so within a few years, an increase of about 33% from the current nationwide average of 37 cents. Others in the industry say he is far too conservative. Some see prices of $1 a gallon in five to 10 years-or sooner.

Do you think that's possible?

Mr. BERMAN. Senator, the price of gasoline in New York City today is 50.9 cents per gallon, and that is a city in which you have almost virtually, total control of distribution by major oil companies.

So, you say, "Is it possible?" It's here.

Senator Moss. This underlines, of course, the extreme seriousness of the inquiry that we have begun and we are going to get into.

You certainly have been most helpful and very knowledgeable in this field from the experience and practice that you've had.

We appreciate greatly your coming and testifying for us. Mr. Berman.

1 See p. 36.

!

As I indicated, this Wall Street Journal article is going in the record.

Mr. BERMAN. Thank you, Senator.

Senator Moss. Our next witness will be Mr. Donald Holbrook, an attorney who is representing the co-ops.

I know they've had some problems in the field that we're inquiring about today.

STATEMENT OF DONALD B. HOLBROOK

Mr. HOLBROOK. Thank you very much, Senator.

My name is Donald B. Holbrook. I am a resident of Salt Lake City, Utah, and a partner in the law firm of Jones, Waldo, Holbrook & McDonough in the same city. As a lawyer, I have long represented the clients who have had to take haven in the antitrust laws against the entrenched power of the major petroleum companies. I have also maintained a personal interest in farm and consumer cooperatives and in the administration and enforcement of the antitrust laws because of my philsosophy that the man in the street, the consumer, must and does rely, whether consciously or unconsciously, upon competition provided by independents and by the enforcement of the antitrust laws to maintain his economic, if not political, freedom in the pursuit of his personal objectives and goals in life. Without the protection of the antitrust laws and independent competition, the consumer and the small businessman would be, and unfortunately in many ways are becoming, the serf of giant organizations who tax them, without representation, by means of monopoly. Nowhere is the threat and the tendency toward aggrandizement of power greater than in the petroleum industry today.

The powers of abuse inherent in our great capitalistic system caused General Sherman, nearly a century ago, to inspire Congress to enact what amounts to a Federal constitution for business activity-the Sherman Antitrust Act. With Sherman, the petroleum industry was the central core of potential abuse. So it is today, as the energy shortage mounts a new crisis, much more complex and more volatile than the crisis involving Sherman's oil barons.

The antitrust laws in the tradition of our Constitution must be interpreted to meet this monopolistic challenge.

Likewise, in their traditional role, our consumer cooperatives should have the capability to be the price yardstick in the market place.

In a real sense, however, we should recognize that our petroleum industry has been a marvel of the success of our capitalistic society, not to be discouraged or demeaned, only its excesses controlled.

Accordingly, the threat today is to the very existence of such small independent businessmen as cooperatives, jobbers, retail gasoline dealers, and farmers whose fuel supplies are being cut off. Unless steps are taken in the very near future, independent retail dealers, including cooperatives, unbranded gasoline marketers, and petroleum product jobbers will be out of business. The obvious and inevitable effect will be increases in the price of gasoline, to the consumer, with virtually no hope that sufficient competitive forces will remain to ever reduce the price again. A further consequence of the present policies of the major petroleum companies will lead to further increases in

the price of food products. Fuel supplies to farmers are being cut back, and as a consequence, farmers will not be able to grow the quantities of foodstuffs necessary to stabilize the price of food.

There are two major causes for the present situation. The first cause is the Government's policy with respect to the importation of foreign crude supplies. At the present time, the major oil companies as they choose, are permitted to import essentially all the crude oil they want. As a consequence, they are no longer interested in paying a bonus for the inland refineries' import licenses and in continuing to meet the inland refineries' domestic crude oil requirements. The attitude of the majors is, "Why should we sell domestic crude to the inland refineries which we can use to better advantage in our own! refineries?"

In short, the majors, with governmental acquiescence, have put the squeeze on independent refiners and are causing refined fuel shortages where the supply comes from the independent refiners.

Take as an example the large farm co-op, Farmland Industries, Inc. Its refinery runs for January and February 1973 are 10 million gallons a month less than their runs for the comparable period for last year. The expectation is that their runs for March will be substantially worse by comparison with last year and that there will be no significant change for the month of April.

Farmland and other Midwest independent refineries, including Midland Cooperative Refinery at Cushing, Okla., have ample crude oil import licenses. However, they have no way of bringing the crude inland to the use points at Coffeyville, Kans.; McPherson, Kans.; Scottsbluff, Nebr.; or Phillipsburg, Kans. This situation affects drastically at least one of the major local farm co-ops. One of those co-ops has been able to purchase gasoline from Farmland through an exchange agreement with a petroleum company that has an exchange agreement with Farmland. With the reduction in Farmland's refinery runs, the local co-op may be threatened with a cut back in its supplies. It has been unable to substitute for that loss of supply by purchases from any major oil company.

Obviously, if farmers come up short of requirements to power their tractors, agricultural production must fail to meet national goals. The consequence can be disaster for the consumer. The impending, socalled "shortage" of farm fuels comes at the same time that the demand for fuels is expected to increase 25 percent as a result of Government programs that call for an increase in total planting of about 460 million acres and a wet fall which prevented fall plowing and planting in many areas.

It is absolutely incredible, but true, that there is unused refinery capacity available today to overcome the product supply problem, if the majors could be forced to relinquish their chokehold on crude supplies for the benefit of the public at large.

One should not, however, assume that the so-called "shortage" extends to the majors themselves. To be sure, that claim is made, but there is room for substantial doubt. There is strong indication that to some extent, at least, the majors may be using the so-called "shortage" as a means for exterminating large numbers of independent jobbers, both branded and independent, and in the process to kill off the un