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Darth Vader & ARCO's Empire strike back at Rebels
originally published May 12, 1996
"And now it's time for another Mobil Fable. Once upon a time, there lived seven hard-working squirrels. These squirrels gathered the nuts for all the other squirrels in the forest. From time to time, there was a nut shortage in the forest, and the nut-producing squirrels would be forced to raise their prices, even if they caused the shortage in the first place. This would infuriate the nut-consumers, so they would tell their leaders to take away the profits of the producers. Fortunately, the producers had a very big lobby, so the leaders did little, and nut prices went up again! By the end of the year, the seven hard-working squirrels had tripled their earnings and made billions in profits. What's the moral of our little story? Don't screw around with the oil companies."
--- Doonesbury by Garry Trudeau
August, 1980A few years ago, a cowboy candidate for Texas governor likened the weather to rape. "If there's nothing you can do about it, might as well lay back and enjoy it," said he. Fortunately, Ann Richards whipped his butt.
Unfortunately, I've lately seen commentators from all points on the political spectrum apply the same boneheaded thinking to the current pillage at the gas pump. I am especially offended by those who compare the price of gas today to an inflation adjusted price from the 1950s. Using that analysis, gas may indeed be cheaper today than 40 years ago. But such calculations stand on sand.
Ever since John D. Rockefeller originated monopoly marketing of oil, the price has been rigged far higher than a true free market would have made it. Oil is plentiful. Net proven reserves stand today at twice what they were in the 1970s.
Twenty year-old oil company ads thus look quite quaint. Remember the ones with the cartoon dinosaur which lamented something like "too bad he had such a small family." They tried to sell the idea that oil was in short supply because dinosaurs didn't procreate enough critters to morph into more fuel for our Belchfire V-8s. Cute, but wrong. Exactly what pimples Mother Earth with pressurized oceans of slimegushers is still a matter of scientific inquiry, but short supply is not an issue.
The oil cartel and the diamond cartel have very efficiently controlled the supply and marketing of their products, achieving ridiculous price levels in the process. At a quarter a gallon in the 1950s, black gold goo was still overpriced and obscenely profitable. The major oil companies have caused wars, overthrown governments and foisted tremendous hardships on billions of people throughout this century.
When the latest profit gouge recedes into history, they will continue to launch legions of lawyers, killing forests of trees, generating mountains of paper, printing dollars for politicians to further their pillage. So what can you and I, the great unwashed, do about it? Here are some humble suggestions.
SUPPORT A NATIONAL DIVORCEMENT LAW. Monopoly price gouging becomes easy when one or a very few companies control all aspects of the distribution of a product. (When a few companies control most of the industry, it's called oilogopoly.)
West coast oil prices recently skyrocketed, even though 93% of our oil supply comes from domestic sources (58% from Alaska, 35% from California). All gasoline to Reno or Las Vegas comes through a single California pipeline into each city. Brand competition is largely a marketing myth created in the distant past. The big boys have long worked together to keep prices up and freeze out independent distributors.
A Las Vegas gas retailer named John Arfuso had the guts to go against Big Oil at the Nevada legislature last year. The empire was striking back, once again trying to nuke consumer protection by devastating the divorcement law. Darth Vader and the Emperor (megajuice lobbyist Harvey Whittemore and Sen. Randolph Townsend, R-Reno) were the principal pawns of the dark side of the force.
Here's part of what Mr. Arfuso told Townsend's senate committee: "I have heard ARCO representatives clearly state 'ARCO is not a market leader,' that in contrast, ARCO is a 'market follower.' As a gasoline retailer for the past 11 years, I directly oppose that assertion. As both an Exxon and Texaco retailer, we were told by our suppliers that ARCO was not a factor in establishing our wholesale price...If ARCO increases their price, a price increase from our supplier will result within 24 hours. On the converse, if ARCO's price decreases, we have to initiate several phone calls to our suppliers to invoke a decrease. The major oil companies are willing to follow ARCO in its upward trends, but are reluctant to do so in its downward ones...I contend there is a direct correlation between our supplier's pricing strategy and ARCO's reported price...We constantly follow ARCO," Arfuso told the senators.
"ARCO contends that they do not have a fair playing field. We would like to remind this committee that one of every three gallons pumped in Nevada are ARCO gallons," he noted. Arfuso concluded by noting the profit gouging that goes on in isolated areas where competition has been driven out, such as Boulder City and at Lake Mead marinas, where "their fuel sells for an excess of $2.00 per gallon." (Remember, Mr. Arfuso testified one year ago.)
State legislatures are the easiest political entities to buy. No major oil producing state has a "divorcement" law keeping oil refiners from selling their products at the consumer level. Only seven jurisdictions have divorcement laws, and only two of them, Maryland and Washington, DC, bar all refiner retailing. The other five, including Nevada, still allow refiners to own some stations.
The power of the oil companies has once again been demonstrated by the current phony shortage. Only national legislation can do what the states will not. Repeal of the federal gas tax is pure political season cosmetics. (The chairman of ARCO is a co-chair of Bob Dole's presidential campaign.)
KEEP NEVADA'S DIVORCEMENT LAW. Northern Nevada is perhaps a little better off than Las Vegas. When our "partial divorcement" law was passed in 1987, ARCO was allowed to keep 15 stations statewide. They chose to keep 15 in Las Vegas and the results have been devastating to retailers in Gomorrah South.
Which made Darth Vader's comments to the Emperor's committee all the more hilarious last year. "Is it your testimony to the committee that your client...has not been able to grow in this state?" Sen. Joe Neal (D-North Las Vegas), asked ARCO lobbyist and attorney Whittemore.
"Their market share with respect to the gasoline it sells has risen along with the growth that has taken place in the state," Lord Vader said. "With respect to part of your question, the answer is yes. With respect to another part, the answer is no." Major litigation (see below) now pending in U.S. District Court in Las Vegas established that ARCO now controls 54% of the Las Vegas self-serve market and 44% of the overall market. (ARCO's LV market share in 1982 was a mere six percent.) Dark Harvey told the truth for once. ARCO's market share really is growing about as fast as the state. Maybe faster.
"By the time Mr. Harvey Whitamore (sic) spreads his B.S., he'll have us believing Mark Furman did it," quipped Las Vegas Texaco retailer Frank Shearer. "Mr. Whitamore is an expert on over 50 issues up here at Carson City, a real hired gun...We look to you members and representatives of our state government to serve and protect us, not Harvey and his kind...If you can't vote in favor of your constituent's concerns, why don't we all get on a bus and go home, including the governor, and let King Harvey and corporate America decide what's best for all of us," Shearer said.
The state senate committee did not respond to Mr. Shearer's plea. Reno chairman Townsend, along with fellow Republicans Ann O'Connell, Kathy Augustine and Sue Lowden, and Democrats Jack Regan and Ray Shaffer (all of Las Vegas), voted with the monopolists. Only Joe Neal stood with consumers, Han Solo against the Empire.
PUSH PRO-OIL POLITICIANS TO THE PRO-CONSUMER SIDE. On the senate floor, five of the six petroleum pawns above were joined by Democrats Ernie Adler of Carson City and Bernice Mathews of Reno, plus Republicans Mike McGinness (Fallon), Dean Rhoads (northeastern Nevada), Maurice Washington (Sparks), and Las Vegans Ray Rawson and Mark James. Sen. Regan, who voted for the bill in committee, voted against it on the floor. (To paraphrase Winston Churchill, Mr. Regan is quite acrobatic. He can straddle the fence while keeping one ear to the ground.) Senate majority leader Bill Raggio (R-Reno) did not vote.
Voting against the bill were Las Vegas Democrats Neal, O.C. Lee, Bob Coffin and Dina Titus. They were joined by Republicans Jake Jacobsen (Minden), and Las Vegans William O'Donnell, Jon Porter and Regan. Fortunately, when the legislation got to the Nevada Assembly, it died in the commerce committee.
ROOT FOR THE LAS VEGAS REBELS. In 1990, little Rebel Oil Company of Las Vegas sued mighty ARCO for all the predatory practices I've described over the past three Sundays. That case is still in court. Rebel has a very difficult task. It must prove it was damaged because of ARCO's role as leader of the pack. Essentially, Rebel must prove in court what Mr. Arfuso's charged at last year's legislative hearing. ARCO leads prices up, but the big boys are reluctant to follow it down. The net result is that small independents are squeezed out of business with ARCO acting as hatchet man and loss leader.
Dissidents, including some of ARCO's own brave retailers, accuse the company of using undeserved tax deductions in the early 1980s to finance their zone pricing monopoly scheme. ARCO was busted by the IRS for $1.1 billion for undervaluing its Alaska North Slope crude "in order to finance its plan to squeeze the independents from the market," alleges Best Oil Co., a Pittsburgh-based refiner and one of the earliest to complain about ARCO pricing tactics in 1982. The Reagan administration killed a justice department anti-trust probe into the issue.
Rebel Oil has shown that it costs about a penny a gallon to transport gas from L.A. to L.V. But gas sells in southern California for about four to 19 cents per gallon less. Eerily echoing Mr. Arfuso, the Ninth U.S. Circuit Court of Appeals stated "Rebel explains that any retail dealers who attempt to challenge ARCO's high prices are prevented from doing so because refiner-suppliers are oligopolists who will raise their wholesale prices whenever ARCO raises its retail prices."
Las Vegas District Judge Philip Pro recently handed ARCO a major victory. He ruled that ARCO did not have to provide maps of its actual price zones, the mechanism by which critics say ARCO determines cut throat pricing to drive out independent dealers.
ARCO's accusers say major brand competitors will let ARCO dominate a market as long as it serves their mutual benefit in forcing out little guys. After independents are no more, the oligopoly will be able to permanently maintain its inflated prices. This would explain the curious pricing conduct described to lawmakers by Mr. Arfuso. Perhaps more important, Judge Pro has refused to compel ARCO to divulge the cost of its Alaskan crude oil. Without that cost baseline, Rebel will be hard pressed to prove that ARCO is selling below-cost gas in order to drive out competitors. If you have an extra three hours and would like to read more about it, go to the law library and look up Rebel Oil Co. vs Atlantic Richfield, 51 F.3d 1421 (9th Cir. 1995)
"Rebel produced evidence that ARCO's market share actually increased during the period when it was charging allegedly supracompetitive prices," the Ninth Circuit Court wrote. "Rebel contends that this evidence indicates that ARCO's existing competitors in the retail gasoline market have been 'disciplined' by ARCO's pattern of below-cost predatory pricing, and are unwilling to risk price competition with ARCO. Rebel argues that this is evidence that ARCO has achieved the market power to enforce a classic disciplined oligopoly," the court stated, overturning a dismissal and sending the case back to Las Vegas for further proceedings.
The bottom line is that through legal and illegal machinations over the past 14 years, the oil companies can now twist any development into an excuse to gouge profits. With ARCO as the leader, and with politicians like those in the Nevada senate, oil companies are increasingly in a position to call instant replays of the current gasoline fiasco anytime they want. John D. Rockefeller would be proud.
NEVADA TRADITIONS: Wenching and lynching are both well-established traditions here in the Outback of the American Dream. Which is why I read with some amusement congressional candidate Jessi Winchester's comment about not wanting to get too close to the water at a scheduled pool party at this weekend's Democratic state convention in Las Vegas. "I might end up floating in it," said the retired hooking grandmother. She was more historically correct that she knew. About 15 years ago, a Las Vegas lady of the evening was found face down in the pool of an Elko motel. She had been in town to attend the Democratic state convention.
Be well. Raise hell.
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Andrew Barbano is a member of Communications Workers of America Local 9413 and editor of U-News, where the past four years of columns may be accessed. Barbwire by Barbano has originated in the Daily Sparks Tribune since 1988.
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