By David Kurlander
The Colonial Pipeline came back online on Wednesday, six days after DarkSide, an Eastern European hacking group, conducted a massive ransomware attack on its computer networks. The Pipeline, which runs from Texas to New Jersey, transports almost half of all gasoline on the East Coast. The intrusion caused substantial gas shortages in North Carolina and Georgia and has led some panicked motorists to begin hoarding fuel. The centrality of the pipeline to the health of the country’s oil industry has long concerned legislators in Washington. In the early 1970s—amid rising concerns over the nation’s energy independence—a series of congressional hearings highlighted the potential negative economic impact of the pipeline and provided a telling foreshadow of the current crisis.
The Colonial Pipeline was a joint venture by nine of America’s largest oil companies built for $350 million beginning in 1961. The firms, which included Texaco and Sinclair Oil, feted the announcement of their self-proclaimed “largest single, privately financed construction project in the history of the United States.” Colonial signaled the maturation of the pipeline industry, which had grown during World War II to relieve packed trains transferring materiel.
From the start, however, the oil consortium had a vocal enemy: the already-maligned domestic oil tanker fleet. The pipeline’s construction was fueled in part by pay increases for tanker crews secured through a strike by the powerful National Maritime Union (NMU). The strike came at the end of a painful period for the industry; increases in foreign oil imports in the late 1950s had already laid up 19 tankers, with another dozen transitioning to carrying grain due to the dearth of oil cargo. One NMU official estimated that the pipeline would eliminate 50 tankers and would cost the shipping industry $1 billion.
As construction moved forward, tanker advocates began arguing that Colonial violated the Sherman Antitrust Act. In April 1962, NMU Vice President Edwin Altman wrote a 13-page letter to Attorney General Robert F. Kennedy alleging that the pipeline was a form of price-fixing between the nine oil companies. “Size itself is an earmark of monopoly power,” Altman claimed.
Colonial denied the charges. “We’re going to be competitive with railroads, tankers, barges, and other pipelines,” the concern’s president Ben “Tex” Leuty told Newsweek. “If we didn’t have competition, we’d still be in the horse and buggy.”
The Department of Justice ultimately agreed to open an investigation, but the Kennedy administration publicly praised the project. In June, Commerce Secretary Luther Hodges even attended a ceremonial groundbreaking near Atlanta, saying that the Pipeline was an example of “how an investment snowballs and makes its effect felt all through our economy.”
The antitrust issue faded into the background as construction on the pipeline intensified in 1963. Instead, Colonial battled a number of state injunctions to block the project’s path. The company would eventually be implicated on federal bribery charges for paying two Woodbridge, New Jersey officials to gain easements, but none of the imbroglios sunk the project’s construction. By 1965, the pipeline was moving 750,000 barrels a day.
As the decade progressed, however, growing inflation fears put Colonial’s supremacy over tankers and influence in oil pricing back in Washington’s consciousness. Massachusetts Representative Silvio Conte, a late-stage liberal Republican, had long been a critic of U.S. oil policy, railing against President Eisenhower’s quotas on foreign oil imports as a House freshman in 1960, and arguing against the oil depletion allowance, a tax loophole for big producers.
Conte was particularly concerned about the rising price of home heating oil. In 1969, he pleaded with President Nixon to adopt a rate freeze. Conte, already wary of Colonial’s power, became increasingly convinced that the consortium was withholding some of its heating oil supply to drive up the price.
Conte chaired the House Subcommittee on Special Small Business Practices and decided to orchestrate a hearing in June 1972 entitled “Anticompetitive Impact of Oil Company Ownership of Petroleum Products Pipelines.” “It is absolutely astonishing that nothing has been done to roll back prices in an industry that has been a pace-setter in the inflation sweepstakes,” Conte said at the outset.
The star witness was Beverly Moore, a staffer at consumer advocate Ralph Nader’s Corporate Accountability Research Group. Moore scathingly laid out the series of Kafkaesque bureaucratic dead ends that had plagued the decade-long DOJ antitrust investigation into Colonial. “It is a sad commentary that our Government has grown so timid, so frozen, so demoralized that it views as unthinkable the prospect of attacking problems that the Government itself has allowed,” Moore summated.
Conte also heard testimony from Hoyt Haddock, the Executive Director of another tanker-associated union, the AFL-CIO’s Maritime Committee. Haddock revealed that he had met with Attorney General Kennedy in 1963 to propose an investigation into the pipeline’s anticompetitive elements. “Kennedy said it was quite clear that [Colonial] was a monopoly, but that it was a political situation and too big for him to do anything about,” Haddock later said. He also detailed a similarly disheartening exchange with Kennedy’s successor, Nicholas Katzenbach.
And the subcommittee heard from D.W. Calvert, the Texan president of the independent Williams Companies. Calvert described the difficulty in retaining pipeline clients after the Explorer—another joint venture pipeline owned by many of the same oil companies as Colonial—opened on a similar route as the Williams tube, from Tulsa to Chicago.
Subcommittee staff studies presented at the hearing also strongly suggested that Colonial and its allies exercised price controls over much of the home heating oil market and had made nearly impossible the entry of independent oil companies and pipeline constructors into their domain.
Only as the Nixon administration crumbled in 1974 did the extent of DOJ interference in the Colonial antitrust case come to light. Newsday uncovered that Nixon Attorney General and Watergate mastermind John Mitchell had in 1969 removed his antitrust chief, Richard McLaren, from Nixon’s Cabinet Task Force on Oil Import Controls after McLaren tried to push forward the Colonial investigation and remove foreign oil quotas. William J. Lamont, who worked under McLaren, said, “It would be fair to say that after his removal from the task force, McLaren was loath to push any antitrust action against the oil industry.”
Mitchell also twice directly intervened to stop the issuance of civil subpoenas against the companies who controlled Colonial. After Mitchell’s first incursion in 1970, McLaren turned over his files on reciprocal agreements between the firms to the Federal Trade Commission, who subsequently filed an antitrust suit against most of Colonial’s owners. Newsday noted that Mitchell, who was simultaneously working on Nixon’s re-election campaign while serving as Attorney General, solicited $5,000,000 from oil companies for the notorious Committee to Re-Elect the President.
By 1975, political focus had largely shifted from Colonial to the controversial Trans-Alaska Pipeline, which triggered a whole new cycle of mostly fruitless antitrust investigations. The DOJ inquiry into Colonial faded away in the following years.
The Colonial Pipeline may be back online, but fears linger over the vulnerability of the energy grid and the longer-term damage at the pump. The centralization of the pipeline transportation market has once again triggered economic uncertainty and has brought the half-century-old concerns about Colonial’s singular power back to Washington.
For more on the relationship between regulators and pipelines, check out Robert Sherrill’s 1983 The Oil Follies of 1970-1980: How the Petroleum Industry Stole the Show (and Much More Besides). And for another story about John Mitchell’s war on antitrust legislation (and on Richard McLaren), check out the very first Time Machine piece.
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