detailed information concerning the operation of competition in this industry. Mira has attempted to provide the Commission with the maximum help in this endeavor. Mira has requested Dr. Irston Barnes, formerly Chief of the Division of Economic Evidence and for many years a senior economist at this agency, to prepare for submission to the Commission an economic analysis of competition in the petroleum industry. This report discusses in detail the factors distorting competition in the industry and includes substantial supporting information in documentation of its analysis. We will submit this document during the course of these hearings, and I commend it to the attention of the Commission. I regret that the time aspect did not permit us to submit this earlier. But it will be completed, and we will lodge it with the Commission and its staff for their information. I think, Mr. Chairman, members of the Commission, that this statement will give a structure and an anatomy of this industry, both from the standpoint of historical development, and basic statistical information that reflect the current practices and I think establish the need for the type of procedure that this association is recommending. Also in oral testimony today, the president of Mira and the chief executives of two member companies will describe to the Commission different aspects of the problems of competition in gasoline marketing as seen from the point of view of the independent refiner. Since this is not a rulemaking proceeding, I do not intend to discuss in any detail Mira's proposals for relief. Since the filing of our petition, the Commission's decision in Borden Co. (docket 7129), which, in part, supported proposed rule C, was reversed by the fifth circuit. A petition for certiorari to review the ruling of the court of appeals has now been filed and the final resolution of the issues in this case is still in doubt. The Pure Oil proceeding, upon which rule E was formulated, was dismissed by the Commission to clear the way for this proceeding. Here, too, the issues have not been finally determined. Mira adheres to its original remedial proposals as effective instruments for the correction of unfair and unlawful marketing practices. These are not, however, the only rules that could serve to correct basic marketing problems in the industry. Members of Mira testifying here today will describe to the Commission, among other things, the impact of sales below cost by major companies. It is our intention to study the material that is presented to the Commission at this hearing, and, some time after its conclusion, ask leave to file an amended petition for Trade Regulation Rules. In this way, the Commission will have the benefit of Mira's proposals for Trade Regulation Rules revised in light of changed developments in the courts and before the Commission, and in light of the information presented at this hearing. I wish to make clear, however, the position of the midcontinent group that the problems that beset this industry cannot be solved. merely by hearings, conferences, and so-called industry statesmanship. The economic pressures that drive companies of this industry to practices that are destructive of competition are so strong that in our view they can be controlled only by a direct legal prohibition. 55-013-66-vol. 1-7 We have no doubt that the Commission has ample authority to correct the destructive practices in this industry, and, in due time, we will specify exactly the forms of relief that Mira would consider appropriate. Mira's membership is as follows: American Petrofina Co. of Texas, Dallas, Tex.; Consumers Cooperative Association, Kansas City, Mo.; Derby Refining Co., Wichita, Kans.; Farmers Union Central Exchange, Inc., St. Paul, Minn.; Vickers Petroleum Co., Inc., Denver, Colo. In conclusion, I would like to introduce Mr. Roland Rodman, chairman of the board of the Apco Oil Corp. He will detail for the Commission certain aspects of the marketing and refining problems of an independent entity in this industry. Chairman DIXON. Mr. Reilly? Commissioner REILLY. I just happen to notice in front of me published statements and articles on gasoline marketing conditions in the United States. Mr. PORTER. That is submitted, Mr. Reilly, by Mr. Murphy, who is the president of the association, and will testify. This is largely a compilation of statements made by industry leaders in trade publications and from other sources over a period of time, as to the distress conditions in the industry. We do not introduce it as admissions against interest, but merely for the Commission's background and information. Commissioner REILLY. I noticed also that you mentioned that during the past several months we have dismissed-when we announced this hearing-that we dismissed four oil cases and then additionally two. What was the other one? I am thinking of Sun. What was the other one? Mr. PORTER. Sun came back from the Supreme Court on remand and was dismissed. And the other one was the Humble case, I believe. Commissioner REILLY. By the examiner. The only other thing I wanted to question you about: I noted in your statement you said in the past several weeks there had been a marked improvement in the marketing practices in the industry. Will somebody talk to us about that? Mr. PORTER. Yes, I think Mr. Rodman, or Mr. Moore, president of Derby, can amplify that point. But I believe that while the industry, these conflicting competitive forces are at work, are under scrutiny, it has a certain salutary effect. But I do not propose that as a long-term remedy, for this Commission to sit in perpetuity, in order to bring about this illusion of stability. Chairman DIXON. Commissioner MacIntyre. Commissioner MACINTYRE. Mr. Porter, you have addressed yourself to what you think is a need for trade regulation rules. Why is it that you think that an announcement by the Commission, a simple announcement in the form of a guide or a trade practice rule, would not fill the need that you have in mind? Mr. PORTER. Well, I do not believe, Mr. MacIntyre, that those guidelines would have the same influence and effect on marketing practices that a codification of the Robinson-Patman, particularly 2(A), section 5 of the Federal Trade Commission Act because I think that would have the force and effect of a legal requirement in the marketing of gasoline. Now, that is not to say that any person accused of violation would not be in the position to assert their normal defenses under the statute. But it would make a presumption that if, in a particular proceeding, a violation was established, that remedial restraints could be imposed. I think merely an oratory admonition, as against a guideline, as contrasted with a trade regulation rule-the other, it seems to me, would be more respected in the industry, if you please. I once put it this way--that if a particular company-I do not think any of these companies knowingly wants to violate any of your the antitrust laws-but if any particular company has surplus gasoline and they want to maintain their customary price in their normal marketing area, but likewise want to get rid of this gasoline, if you have these trade regulation rules, which serve notice that if certain practices, discriminatory practices, are employed you are presumably in violation, unless you can prove your defense, somehow this might be referred to the Legal Department rather than the Marketing Department. I suppose if the lawyers got hold of some surplus, it probably would not move for a long time. But I do feel that the salutary effect of trade regulation rules is much more effective than your customary guidelines. Chairman DIXON. Mr. Porter, you predicate much of the projected testimony we are to hear on predatory or sales beneath cost, is that correct? Mr. PORTER. That is one part of it, yes. And I think that Mr. Rodman and Mr. Murphy particularly will have a statement that will clarify what the practices have been in recent years. Chairman DIXON. Are sales beneath cost violative of the antitrust laws, or the Federal Trade Commission Act? Mr. PORTER. If they are for the purpose, or have the effect of injuring competition. Chairman DIXON. So each one of those are separate factual situations. Mr. PORTER. Precisely. Chairman DIXON. So you think somebody is smart enough to write a rule that would include facts that you do not know about? Mr. PORTER. No. But I think the principle can be enunciated, and then the facts determined in a particular individual proceeding, Mr. Chairman. Chairman DIXON. We have sales beneath cost with those kind of results doesn't that violate the law now? Mr. PORTER. I think it does; yes. Chairman DIXON. What do we need a rule for? Mr. PORTER. Well, I think this rule would serve notice Chairman DIXON. That we intend to enforce the law. Mr. PORTER. Well, we have tried this case-by-case basis. I assume the Commission must have had some purpose, where you had probable cause Chairman DIXON. Do you know of any oil case the Commission charged anyone selling beneath cost? Mr. PORTER. I do not recall one. Chairman DIXON. I don't either. So we are going to hear something new today. Mr. PORTER. Well, you are not going to hear any specific charges brought against a particular company. What you will hear is certain statistical analyses that demonstrate in particular markets the product has necessarily been sold below cost. As a matter of fact Chairman DIXON. If we would use our powers perhaps we could find that exists-is that what you are saying? Mr. PORTER. Well, I certainly think-the exhibits that we annexed to our original petition, which I am sure the Chairman is familiar with, that showed the experience in the Oklahoma City market, I think you can reach only one conclusion. If the refinery net back is less than the cost of the crude, that goes into the gasoline, somebody is selling below cost. Chairman DIXON. Any more questions? Commissioner REILLY. Mr. Porter, you, of course, do not have any question about our authority to issue trade regulation rules. Mr. PORTER. No, sir; I do not. Chairman DIXON. All right. Mr. PORTER. Call Mr. Rodman. TESTIMONY OF ROLAND V. RODMAN, CHAIRMAN OF THE BOARD, APCO OIL CORP. Mr. RODMAN. Mr. Chairman, members of the Commission, my name is Roland V. Rodman. I am chairman of the board of the Apco Oil Corp., whose principal place of business is in Oklahoma City, Okla. I was formerly the president of Bay Petroleum Corp., of Denver, Colo.; later was president of the Anderson-Prichard Oil Corp., of Oklahoma City, Okla.; and I have served as president of the Apco Oil Corp. The Apco Oil Corp. is basically an independent refiner and marketer, operating two refineries with a combined capacity of approximately 30,000 barrels per day. Our products are marketed in the so-called midcontinent area. My experience in the independent segment of the oil industry covers a period of almost 30 years, and during that time I believe that I have become fully acquainted with the problems of the independent refiner and marketer. I appear here today both in behalf of the Apco Oil Corp. and as a member of the Mid-Continent Independent Refiners Association. During the last 5 years the conditions under which the independent refiner and marketer have operated have consistently deteriorated. In my judgment they are the worst I have seen in the 30 years I have been involved in the business. The integrated major companies have been able to offset much of their refined products price declines to a large extent by income from foreign operations or crude oil production. For example, the February 1965 issue of Fortune magazine points out that the Big Seven (five domestic companies plus two foreign) netted $1.4 billion on their Eastern Hemisphere operations in 1963, after giving effect to a probable loss of $300 million in refining and marketing operations. The president of the Mid-Continent Independent Refiners Association will present to this Commission a compilation of quotations from statements of top management of most of the larger domestic companies. These statements decry conditions in the marketplace as chaotic, unsound, ridiculous, disgraceful, and irresponsible. A recent comment comes from Carl Reistle, chairman of the board of Humble Oil & Refining Co., speaking before the National Petroleum Refiners Association at Houston, Tex., on April 1, 1965. Among other things, he said: The lack of self-discipline and regard for the health of the entire industry is evident in many of our decisions. We tend to live by the law of the jungle and forget our responsibilities as individual participants in a great industry. He also said: Even the most outspoken critics of Government control have been at fault in inviting control. And the funny thing is, some of those who cry loudest against Government control are the first to run to Washington seeking help in solving their problems. I suppose we could call these people the Samsons of our business; they will destroy not only themselves but the rest of us, too, if they persist in their practices. As remedies, Mr. Reistle suggested that oilmen have more respect for the quality of their products and generally more public respect, and that they try to operate so that each petroleum industry function-producing, refining, and marketing—makes a fair profit. The remarks of Mr. Reistle and others speaking for the major companies demonstrate an awareness by these companies of the perils of existing conditions. Further, these statements attest to the apparent inability or unwillingness to correct destructive and unfair methods of competition. The Government has been kind to our industry. And we have taken advantage of all available statutory depletion on foreign as well as domestic oil. We have expensed intangible drilling costs and dry holes, even though these expenditures were thought to provide the justification for depletion. We have taken full credit for foreign taxes paid even though in some instances we have treated as taxes payments that might properly be treated as royalties. Notwithstanding these benefits, we have in the marketing of our products apparently overstepped the bounds of the law so often that it has become impossible for the Federal Trade Commission to process the numerous charges against us on a case-by-case basis. As a result, in marketing, resort of the weak against the strong has been to the courts but the costs and delays of trials, appeals, and rehearings are so long and so great as to make resort to the courts by the independent refiner and marketer an exercise in futility. Under these conditions the industry, not having power to establish within itself guidelines of fair conduct, would do well to embrace the opportunity that has now been given by this Commission to discuss frankly the underlying causes of our troubles and secure the Commission's assistance in their resolution through the establishment of rules codifying and interpreting existing law as it applies in this area. While I realize that the members of this Commission are familiar with the growth and development of the oil industry over a period of more than 100 years, I beg the indulgence of the Commission for a brief description of the early development of the industry and the breakup of the so-called oil trust by action of the Federal courts in 1911. Reference is made to these background developments because if we understand the conditions of the past and the means by which |