Brent E. Zepke
Energy Secretary Jennifer Granholm was ridiculed by many, including yours truly, for her use of “hilarious” in denying her power to increase American oil production.
Perhaps this humiliation caused her to discuss her “limited tool box.” However, the secretary using the word “limited” only caused the term “hilarious” to be applied to herself. What tools does she claim to need?
Ms. Granholm does not need a “tool box” but only to undo the actions that from April 28, 2020 to April 28, 2021, contributed to the price of Brent Crude, the international standard, increasing by 335% from $15,60 to $67.73 by switching the U.S. from exporting oil to importing Brent Crude. In the U.S., the national average for a gallon of gas rose $1.29 from $2.13 to $3.42.
Of course, in California, gas is quickly approaching $5 a gallon, including 40 cents a gallon for Environmental Fees. Ironically, the increased costs are regressive as the tax breaks the wealthy receive for buying expensive EVs enables them to buy less gas. Why not just undo the changes?
The answer is politics.
Ms. Granholm serves under a president who prioritizes climate change. Her predecessor, Secretary Rick Perry, served under a president who prioritized the mission of the Energy Department “To ensure America’s security and prosperity”: President Donald Trump.
What about a “tool box?”
The most important “tools” leaders bring are their skills. Ms. Granholm’s skills were using her law degree as a political analyst for CNN after being governor of Michigan. Her deputy David Turk’s skills were giving U.S. companies technology to other countries for climate change.
Mr. Perry’s skills were using his engineering degree to govern the oil-producing Texas for 15 years. His deputy, Daniel Simmons, brought extensive experience at the Institute of Energy Research to apply to his responsibilities for “Energy Efficiency and Renewables.”
To anticipate potential “tools,” the Biden-Granholm administration might use, besides the obligatory blaming Trump, it is helpful to review the tools previously used by the Federal Energy Administration and then the Department of Energy when energy prices spiked under President Jimmy Carter. These seven examples are a small part of 144 bills introduced in just one year in congress, besides numerous regulatory actions, that I encountered as a counsel for Gulf Oil.
Congressional leaders investigated price fixing by the energy companies. This effort created a lot of publicity but, like the “Mueller” one, never had any substance. I remember Rep. Al Gore’s speech opening his hearings, which he repeated at the close even though it was contrary to the hearings that Rep. Gore did not even attend a single day. Indeed, price fixing could not happen since no oil company had more than an 8% market share.
Companies were required to calculate the ratio of their “new” oil to that of their “old” oil, which resulted in companies that previously had found oil, such as Gulf Oil, having a smaller ratio that required it one year to send $100 million to Hess Oil Co., who had not previously drilled. The political contacts Hess had in New Jersey sponsored the law that was nicknamed the “Hess Protection Act” and the saying “The best place to drill for oil is in Congress.”
A law limiting how much each owner could markup the cost of a barrel of oil during each step of the process, caused more owners but no reduction in retail prices. For example, while Brent Crude was on a ship sailing from Africa to the U.S., owner one would mark it up and sell it owner two via teletype, owner two would do the same to sell it to owner three, and so forth. In one of my cases this was repeated eight times, with the same person owning it three different times.
I laughingly related it to an expensive version of the childhood game musical chairs where the loser was the one who owned the crude when the ship reached port. You see, the markup permitted by refiners made that process not profitable.
Sen. Ted Kennedy’s law requiring companies to have a regional price for their “dealer tank wagon” for gasoline delivered to their service stations required, for example, Gulf to charge the same for gas delivered to a Massachusetts service station as it did to stations near its Philadelphia refinery. Simultaneously the politicians blocked Gulf’s efforts to build a refinery in New England.
Controlling the DTW prices caused Gulf, and others, to either absorb higher delivery costs for low volume stations, or take an action it did not want: close them and put their employees out of work.
“Dealer Protection” laws were enacted by the feds and many states to protect those threatened by the regional pricing requirement. Humorously the first application in Maryland was to McDonald’s. I was proud of my testimony before the Virginia Commerce Department arguing that their regulations should parallel the federal ones: That change was adopted.
Some states limited the amount of rental increases oil companies could charge their dealers. For example, on upscale Long Island, N.Y., Gulf had kept the rents far below a fair market value for the stations it built and owned in order to sell more gas. When regulators limited the price it could charge for gas, Gulf sought rents that would at least cover the ever-increasing property taxes. My assignment of addressing this problem for Long Island were blocked by the state.
These seven examples illustrate the type of “tools” that failed to increase the supply of American oil that would “ensure America’s security and prosperity.” Political agendas will prevent the one solution that actually worked: the one used by President Trump and Secretary Perry.
Hopefully the Energy Department remembers the motto Google expressed, but not always follows: “First do no harm.”
Brent E. Zepke is an attorney, arbitrator and author who lives in Santa Barbara. Formerly he taught at six universities and numerous professional conferences. He is the author of six books: “One Heart-Two Lives,” “Legal Guide to Human Resources,” “Business Statistics,” “Labor Law,” “Products and the Consumer” and “Law for Non-Lawyers.”
The author lives in Santa Barbara.