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unwilling even to raise the issue. They said price is no consideration to them.
Mr. Boyd. I am sorry to say yesterday I was flying around, Senator, trying to get into Washington, and I haven't
a chance to read the paper. So I don't even know what transpired.
Senator KEFAUVER. That was the astonishing testimony that we had from the men who are representing the Government in the Department of the Interior on this Middle East Emergency Committee. So I think it completely negatives the pleas of the President.
I agree with you that if sometime back they had all gotten together and put their foot down on these unjustified increases, they could have, perhaps, been effective in holding them down. It is going to take joint action of the strongest kind to do anything about it now.
You say if there is real competition, maybe that is connected to higher price increases. Have you ever seen any real competition in the furnishing of oil to Texas? Aren't all the prices about the same!
Mr. Boyd. The only experience that I have had-
Mr. Boyd. The prices are all the same, and just as the prices of gasoline are all the same, with the exception of independents
Senator KEFAUVER. They are about the same amount, up and down, all the companies, all along together.
Mr. Boyd. That is my impression; yes, sir.
Mr. Boyd. I am sure it is, Senator. But, frankly, I haven't looked into it, except from newspaper articles.
Senator KEFAUVER. It shows that either they are working in concert, or that when one makes a price increase they all follow suit.
Referring to your exhibit here in which you list some of the large companies, Mr. Boyd, you have got Standard Oil of Indiana, Standard Oil of New Jersey, Standard of California. They were all part of the same oil trust broken up, but they still don't compete with one another.
Then you have got Standard of New Jersey, which wholly owns Humble Oil & Refining Co. You know that, don't you, Mr. Boyd?
Mr. Boyd. Yes, sir; I understand that to be the case.
Senator KEFAUVER. That is an unusual situation, that you let a wholly owned subsidiary make a price rise, and then the parent companies, those associated with it, follow along the same line.
Mr. Boyd. Well, it is pretty nice, Senator, if you can get somebody else to do the dirty work.
Senator KEFAUVER. You get the little fellow to make the price increase and then the owners of the company and those associated follow along and say, “Humble did it; we have to go along, too." But the fact is that Standard Oil of New Jersey, which owns it has control of the offspring which made the increase.
Here is another one, Creole Petroleum. That is a wholly owned Standard of New Jersey subsidiary.
Mr. Boyd. I believe it is owned by one of the Standard companies.
Senator KEFAUVER. I refer you to your chart there. This Humble Oil Co., which raised the price and started the chain reaction which all of them are glad to follow, 1954 to 1955–
Mr. BOYD. That is 1950 to 1955.
Senator KEFAUVER. I know. But 1954 had 11.7 percent profit. Is that return on total assets less plant reserves? Then, in 1955, it is up to 13.2.
Mr. Boyd. Yes, sir.
Senator KEFAUVER. You said a few minutes ago that you allowed a percentage rate to the utilities based upon net worth, did you?
Mr. Boyd. Yes; that is true. But I would like to say, in all fairness, you can't compare a producing oil company with a utility because the mode of operation is so completely different.
Senator KEFAUVER. In any event, if these profits here were based on net worth, they would be considerably higher than they are here.
Mr. Boyd. That, I think, is correct, because I have just asked for a cursory examination on this matter by our staff and they tell me, with the utilities we regulate, if that return, if their rate of return were based on the same standard as that, it would probably be about 372 percent.
Senator KEFAUVER. Instead of 612 percent?
Senator KEFAUVER. That is right. It would be, in the case of utilities, twice as much based upon net worth. Well, for your information, figuring out some of these, it is about 65 percent higher than these profits when based upon net worth in the oil industry.
For instance, Standard of New Jersey in 1952 had a 10.3 profit. It would have been 16.4 based upon net worth. In 1951, 11.2-percent prost, and 18.9 if based upon net worth.
Over on the left here, you have a note: "Stocks, books, etc., not included.” Do you mean stock dividends not included ? Mr. Boyd. Yes, sir.
Senator KEFAUVER. You mean the dividends they pay, the stock dividends?
Mr. Boyd. That is my understanding; that those were not included.
Senator KEFAUVER. I don't know what that means. Mr. Boyd, have you investigated how much the oil industry as a whole increased its net profit in 1956 over 1955 ?
Mr. Boyd. No, sir. I have not had an opportunity to do that, but I understand that the profits were up from this squib that I read in Time magazine, that their profits were up in 1956 over 1955.
Senator KEFAUVER. The figure I have, 1954 to 1956, is a $385 million increase, 10.7 percent. Now, would you think that Humble Oil, making a 13.2 profit on assets, which would be over 20 percent on net worth,
was in such a depleted financial condition that it had to raise prices?
Mr. Boyd. Well, I would like to say, Senator, that the main thing that I concluded from that study was that, if I had the money, I would go out and buy some oil stock this afternoon because it looks like a darn good investment to me.
Senator KEFAUVER. You asked what the Government could do. Of course, the Government does regulate a lot of industries as you sayFederal Power Commission, Civil Aeronautics Authority, Federal Communications Commission. The Government can put on price controls, can't it? Then, of course, I know you have been trying to do something about nuclear energy down there in Florida. This undoubtedly will accentuate your efforts in that regard, to have an alternative power supply, won't it!
Mr. Boyd. Well, that is true. Of course, we are in the position of a supplicant. We have to come to Washington on everything. We can't do anything of any magnitude on nuclear power without the help of Washington, either.
Senator KEFAUVER. Thank you very much, Mr. Boyd.
Senator DIRKSEN. Mr. Boyd, just one question, if you know. What would be the average consumer's monthly bill for electrical energy in Florida? Would it be $8 a month, $10 a month, $12, or what?
Mr. Boyd. Senator Dirksen, I think that I am an average consumer and I have a 2-bedroom house, television, electric stove, refrigerator, washing machine, hot-water heater, radios, and my electrical bill runs on an average of $10 a month.
Senator DIRKSEN. $10 a month.
Senator DIRKSEN. Now, I am curious as to what this increase in the price of fuel oil would mean in the monthly bill of the average consumer like yourself. Can you calculate that and indicate how much would be added to your $10 per month?
Mr. Boyd. No, sir; I am afraid I can't. I would like to request that you defer that question to ask Mr. Smith when he reappears.
Senator DIRKSEN. I will ask Mr. Smith right now. He is here. Mr. Smith, can you tell us if the average consumer uses $10 worth of electrical energy for all purposes in a month, what difference will there now be in his monthly bill as a result of this price increase in fuel oil?
Mr. SMITH. The typical residential bill of $10, it would be 55 cents added. That is 512 percent.
Senator DIRKSEN. Instead of $10 a month, he would pay $10.55?
Mr. SMITH. That is correct, and to that would be added the taxes that many municipalities levy on the sales of electricity. Some of them run as high as 10 percent.
Senator DIRKSEN. Of course, that tax you Florida folks levy yourselves?
Mr. SMITH. No, sir; the city levies it. We collect it for the city. In other words, the city on that $6.60 would collect another 66 cents if the tax was the maximum permitted under the laws of Florida. I would say the taxes down there would average about 7 percent throughout all the municipalities.
Senator DIRKSEN. So, to the average consumer this will amount to about 55 cents a month?
Mr. Boyd. Yes, sir.
Senator CARROLL. At this point in the record, I would like to ask Mr. Smith or Mr. Boyd just 1 question, about this 55 cents per month. Is that what you meant in your testimony when you said it would add about $6 million to the electric bills for approximately 600,000 customers!
Mr. SMITH. That is correct.
Mr. Smith. Our base revenue upon which this 512 percent would apply would be about $105 milloin, so it would be about $6 million added to the total.
Mr. Boyd. I would like to say that that figure pertains only to the customers of Florida Power & Light Co. and not the other electrical utilities in Florida, which together would aggregate about the same number of residential customers as Florida Power & Light has.
Senator CARROLL. To put it another way, would there be an additional $6 million, then, to the other customers?
Mr. BOYD. Yes, sir.
Senator CARROLL. Actually, it would be a total increase to the consumers of Florida of approximately $12 million, as a result of this increase in fuel-oil prices!
Mr. Boyd. Yes, sir; and that is purely through electrical energy. That has nothing to do with our freight rates, and all of our railroads are dieselized in Florida, and the price increase also affects them.
Senator CARROLL. Are there some estimates on that? Mr. Boyd. No, sir; other than as appears in the resolution of our commission which I think sets forth some figures on that.
Senator CARROLL. Thank you.
Senator OʻMAHONEY. Mr. Kennedy, you may proceed, sir. Please identify yourself for the record. STATEMENT OF J. DILLON KENNEDY, COMMISSIONER, PUBLIC
UTILITIES, JACKSONVILLE, FLA. Mr. KENNEDY. Mr. Chairman and gentlemen, I am the commissioner of utilities, representing the city commission of the city of Jacksonville, Fla. The city commission is the administrative body charged with the responsibility for the operation of the electric and water utilities of the city of Jacksonville. I am here at the request of counsel for the committee; I presume in reply to the President on this matter on January 17, 1957.
Senator O'MAHONEY. You may proceed.
Mr. KENNEDY. The city of Jacksonville, Fla., owns and operates its own municipal electric system. The system serves 115,331 customers in an area encompassing all of Duval (County and a portion of Clay County including the towns of Orange Park, Green Cove Springs, ai the naval berthing area.
To serve the electrical demand in this area required the generation of 1,181,252,500 kilowatt-hours of electricity in 1956. This electricity was generated by three generating stations—the Talleyrand station, the Southside station, and the floating powerplant Inductance.
The fuel used to generate steam to produce this power has always been, because of economic considerations, Bunker residual fuel oil. To meet the gross electricity generated in 1956 required 2,220,592 barrels of residual fuel oil.
Although the Southside and Talleyrand station boilers are designed to burn powdered coal, natural gas, or residual oil, a substantial capital investment would have to be made to install coal handling and coal storage facilities. Natural gas is unavailable in the Jacksonville area at the present time. It is therefore the unfortunate circumstance, due to geography and economic hardship, to be required to produce electricity without the benefits to be gained from competition in types and pricing of fuel.
The city of Jacksonville issues an annual call for bids for its fueloil requirements and accepts the lowest and best bid conforming to the specifications.
The available records show that prior to World War II, the city of Jacksonville was favored with proposals from three or more oil companies every year. The pricing policy in effect by all companies at that time guaranteed a firm maximum price per barrel and also gave the city the benefit of any price decline occurring during the period of the contract.
During World War II, price controls were in effect and the city received oil at fairly stable prices but without any price limitation. All oil purchased since 1951 has been sold based on price in effect on date of delivery.
When price controls were discontinued after 1946, the price of residual fuel zoomed upward to a maximum of $2.98 per barrel in 1948.
The rapidity with which the inflationary pressures incident to the outbreak of war in Korea and the announced stepped-up rearmament program were being reflected in price increases throughout the economy during the latter part of 1950 required immediate action in the field of direct controls. Accordingly, a general ceiling price regulation was issued on January 26, 1951, to stop the mounting inflation. Specific price-control regulations covering the products of the petroleum industry were formulated.
The ceiling price for bunker C residual fuel oils established for the Jacksonville Harbor was set at $2.18 per barrel. The ceiling price was raised effective December 5, 1951, to $2.37 per barrel. The ceiling prices were not exceeded until August 22, 1955, although the office of Price Stabilization was terminated on April 30, 1953. It was on this date that the Jacksonville Harbor price for residual fuel oil was raised from $2.30 per barrel to $2.44 per barrel.
The recent increase in fuel price to $3.07 per barrel on January 21, 1957, when compared with July 28, 1955, price of $2.30 per barrel, represents a 33.4 percent increase in 17 months. During this same period, the Wholesale Commodity Index, as published by the Department of Labor, only increased 5.3 percent.
Further evidence of the arbitrary and inconsistent position of the fuel-oil pricing structure can be seen in a comparison of the January, 1953 Jacksonville Harbor price of $1.82 per barrel with the recent January 21, 1957 price of $3.07 per barrel. This difference in cost of $1.25 per barrel represents a 68.6 percent increase since price regulations were lifted. Again the glaring inconsistency stands out when it is known that the Wholesale Commodity Index changed only from 109.9 to 116.2 or 6.3 percent.
To throw further light on the pricing policy, crude oil prices were investigated. The average United States wholesale price of crude oil (8 areas), as reported by the National Petroleum News, was $2.73 for 1953. Recent advances of crude oil prices have established a price of $3 per barrel.
Thus, crude oil prices have increased only 9.8 percent as compared to a rise of 68.6 percent for residual fuel.
The net profit statements for 20 large oil companies for 1955, as shown in the National Petroleum News Factbook for 1956, gives an average net profit increase over 1954 of 16.7 percent.