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. The net profit per share of common stock for the Standard Oil Company of New Jersey showed a change from $9.56 in 1954 to $10.96 in 1955. The Gulf Oil Corp. showed a similar increase from $6.87 in 1954 to $8.19 in 1955. The Texas Co. boosted their net profit from $8.24 in 1954 to $9.57 in 1955. These profits were made based on a crude-oil price of $2.82 for 1954 and $2.82 for 1955. The spread between the crude price and the average price of four products increased from $0.91 in 1954 to $0.99 in 1955. This data was obtained from the 1956 National Petroleum News Factbook. It appears from the foregoing data that recent advances in crude oil prices cannot account for the extreme change in residual oil prices. Other factors affecting the price structure were investigated. The oil supplied to the city of Jacksonville weighs 350 pounds per barrel. The oil tanker rates are set up on price per ton. Thus in 1953 the average dirty tanker rate on North of Hatteras fixtures from the United States gulf was $2.05 per ton or $0.36 per barrel. This rate increaser to $0.37 per barrel in 1954. In 1955, the average rate was $0.49 per barrel. The average rate for 1956 was approximately $0.53 per barrel. Presently the rate for January 1957 is $0.98 per barrel. The present supplier of residual oil to the city of Jacksonville operate their own vessels. The 1956 requirements of the city of Jacksonville required the delivery of 200,000 barrels per month. Ëstimating 2 days to load, 5 days from Port Arthur, Tex., to Jacksonville, 2 days to unload and 5 days to make the return trip or a total of 14 days for the round trip, carrying a cargo of 100,000 barrels, it is apparent that 1 ship must be available throughout the month to serve the city of Jacksonville. This is shown by a study of the vessels bringing cargo oil here in the past 2 years. This information is brought out to show that the cost of delivering oil to the city of Jacksonville should not vary to the extremes indicated on spot voyages where tanker rates are made variable by the everchanging demand. Any increase in the Jacksonville Harbor price as established by our supplier should only reflect increases in his actual operating costs and should not be affected by the profiteering factors due to world tankage shortage. The city of Jacksonville's municipal electric system has an obligation to its customers to furnish electricity at reasonable rates and it has always done just that. Benefits of increased economy of operation due to the installation of larger and more efficient generating equipment coupled with rapid load growth which reduces unit costs, have been passed on to the consumer as shown by the 72-percent rate reduction made in 1951. To hold this rate line, the utility has already absorbed a 22.4 percent increase in cost of fuel oil since 1953. The recent unwarranted increases in fuel oil cost will impose an additional 22.8 percent direct production cost increase upon the city electric plants during the year of 1957. Figures provided by the production department indicate that this increase in expected cost of oil will amount to at least $1,082,132 in 1957. Fuel oil costs in 1953 90507-57-pt. 1- -21 were 75.4 percent of the total cost of production at the switchboard. In 1957, they are expected to exceed 85 percent of the total cost of production at the switchboard. It is self-evident that there is no practical way to absorb a million dollar increase in fuel costs. Efforts will be made to effect further economies at the plants but since no new or more efficient equipment is scheduled for operation in 1957, our designed economy limit has been reached. This inability to absorb additional costs leaves only one alternative. These fuel costs will have to be passed on to the consumer. It is the position of the city of Jacksonville that the Congress of the United States should invoke such price regulations as may be necessary to protect the people of our country from the evil effects of profiteering. We also humbly ask that all oil supply sources in the continental United States be required to increase production of residual fuel oil so as to prevent the destruction of the economy of sections of the country dependent upon residual oil for the generation of electricity. Senator DIRKSEN. Mr. Kennedy, I notice that on page 2 of your statement you say that, "When price controls were discontinued after 1946, the price of residual fuel zoomed up to a maximum of $2.98 per barrel in 1948." And your last quotation was what, $3.07? Mr. KENNEDY. $3.07. Senator DIRKSEN. So that price is roughly 9 cents a barrel higher than what you paid for fuel oil in 1948? Mr. KENNEDY. That is correct, sir. Senator DIRKSEN. Since you own a public utility, could you invoke the escalator clause like that referred to by Mr. Boyd? Mr. KENNEDY. Not on our domestic and residential, on residential or commercial consumers, we invoke an escalator clause only on industrial users, on our primary transmission customers, and they pay a fuel oil adjustment-such, for instance, as the United States Navy. We were advised before we left home by the press that the Navy-there was a statement that the Navy was going to be short some $66,000 in their allocation for the purchase of electricity between now and June 30, due to this increased cost in fuel. Senator DIRKSEN. Did you invoke on the rate increases in 1948 when your fuel oil was within 9 cents of Mr. KENNEDY. No, sir. Senator DIRKSEN. How did you make out on your rates? Mr. KENNEDY. Well, we made out just like we are making out now, we did the best we could, and tried to increase the efficiency the best we could to offset it. Senator DIRKSEN. You managed to offset it out of accumulated surplus, or what? Mr. KENNEDY. May I give you the fact on this matter? Mr. KENNEDY. This price of $2.98 only lasted for a very short while, and it dropped to $2.71, and in January it dropped to $2.46, and in February it dropped to $2.21, and then it went down to $2.01, and then to $1.96, and then finally in 1950, on March 9, it was down to $1.74. So oil went down all the time, sir. Senator DIRKSEN. So that $2.98 price just lasted for a very short time? Mr. KENNEDY. That is right. Senator DIRKSEN. Now, I notice that your cartage cost by way of tanker has gone up very considerably. Mr. KENNEDY. Yes. Senator DIRKSEN. Is your supplier an independent contractor? Mr. KENNEDY. No, sir; we have been burning oil in the city of Jacksonville-as a matter of fact, the city utilities has been in operation in Jacksonville since 1896. The station was converted to oil burning in 1906. And from 1906 until the present time, with two exceptions, I believe, the Gulf Oil Corp. has supplied the requirements of the city of Jacksonville, and we have a contract now that expires on December 31, 1957, with the Gulf Oil Corp. Senator DIRKSEN. When was that contract made? Mr. KENNEDY. That contract was enterd into on the 1st of January this year. As a matter of fact, we asked for bids about October of the preceding year for our requirements for the following year. Senator DIRKSEN. I see your tanker cost was 36 cents a barrel in 1953, and you say now that as of January 1957, your tanker cost is 98 cents a barrel. Mr. KENNEDY. That is not our cost. We were just quoting the cost of the Gulf Oil Corp. Senator DIRKSEN. What do you pay? Mr. KENNEDY. I beg your pordon, Senator? Mr. KENNEDY. What do we pay on transportation costs? Senator DIRKSEN. Yes. Mr. KENNEDY. The price to us is the cost of oil on the date of delivery f. o. b. Jacksonville Harbor. Senator DIRKSEN. So you don't know quite what the tanker rate is a barrel? Mr. KENNEDY. No, sir. Senator DIRKSEN. I was wondering why you put that in your statement-it is interesting, of course, and I thought perhaps that it had some bearing on your particular case. Now, I notice in the last paragraph-and that, of course, is the significant paragraph in your statement-you say, "It is the position of the city of Jacksonville that the Congress of the United States should invoke such price regulations as may be necessary to protect the people of our country from the evil effects of profiteering." Now, of course Congress does not invoke price regulation, Congress just supplies the authority under which an executive agency issues the regulations. May I deduce from that that you would favor price control? Mr. KENNEDY. I think it is the position of the city commission— and speaking for the city commission as the utilities commissioner— this matter is of such a serious nature that we feel that some temporary measure if we should call it price regulation-should be invoked to give us relief in Jacksonville and in the State of Florida. Senator DIRKSEN. Well, of course, we are searching for a very specific recommendation here. I would gather that what you are interested in particularly is profit control, is that right? You want profit control? Mr. KENNEDY. Yes. Senator DIRKSEN. Now, one other question. You say, "We also humbly ask that all oil supply sources in the continental United States be required to increase production of residual fuel oil so as to prevent the destruction of the economy of sections of the country dependent upon residual oil for the generation of electricity." Now, of course, the production of oil of all kinds is not under the jurisdiction of the United States, that is a matter that is handled entirely at the State level. When you say you humbly ask that these producers be required to increase production, did you envision there some kind of Federal requirement whereby we move in on the States? Mr. KENNEDY. I think the sense of that request, Senator, would be that you gentlemen use your best judgment. Senator DIRKSEN. Of course, you have the problem, and we have the problem also. But you see, you have to refine these problems, pinpoint them, in order to discover what kind of an approach to make to them. And so I am just foraging for any specific suggestion that you may have. Mr. KENNEDY. That is the way we feel about it in Jacksonville. Senator DIRKSEN. Thank you. Senator CARROLL. Mr. Chairman. Senator O'MAHONEY. Senator Carroll. Senator CARROLL. Mr. Kennedy, at this point where the fuel price zoomed upward to $2.98 per barrel, and then I think you have indicated in your testimony that there was a constant droppingMr. KENNEDY. Yes, sir. Senator CARROLL. Now, referring to your statement on page 2: 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. Will you just briefly give us some idea as to how those prices began their upward surge during that period? In other words, is there any comparison between that period and the conditions which exist today in your area? Mr. KENNEDY. Well, this statement was taken out of the ceiling price regulation of the Office of Price Stabilization; that is where that statement comes from, sir. Senator CARROLL. I notice that the ceiling price was established, according to your statement, on December 5, 1951, at $2.37 per barrel. What was the price situation at that time, prior to the price regulation? Mr. KENNEDY. It was $2.09. Then in 1952 it went up to $2.12 and in 1953 it dropped back to $1.99, went up to $2.09, to $2.21, to $2.46, down to $2.45, at different dates, and then on July 13, 1956, it went to $2.59 and on December 2, 1956, it went to $2.82. Senator CARROLL. What was it, for example, in January of 1951? Mr. KENNEDY. $1.99. Senator CARROLL. And in 1950, when the Korean war was on, what was the price of it then? Mr. KENNEDY. It went from $1.74 up to $1.99. Senator CARROLL. And what was its high just prior to the price regulation that was imposed, December 5, 1951? Mr. KENNEDY. $1.99. Senator CARROLL. That was its high? Mr. KENNEDY. Yes, sir. Senator CARROLL. That regulation said $2.37 per barrel. Mr. KENNEDY. I might say, Senator, it is a rather interesting fact that we were notified by the Gulf Oil Corp. on January 14, 1957, that the price of oil to the city of Jacksonville would be $3.17 per barrel effective January 21, 1957. A 7-day delay clause in our contract prevents the Gulf Oil Corp. from establishing an immediate price change. Between the notification on the 14th of January and the effective price change date of the 21st of January, the Gulf Oil Corp. advised us by letter they were passing on to us a reduction of 10 cents per barrel and instead of $3.17 price quoted in their first announcement, the Jacksonville Harbor price would only be $3.07 per barrel. That was the date between the 14th of January and the 21st of January. Senator CARROLL. So if I understand correctly, from the figures in your statement, all during the Korean war period and during the period up to and including August 22, 1955, you were really paying a price from $2.30 to $2.44 a barrel. Mr. KENNEDY. That is correct, sir. Senator CARROLL. So now the price per barrel is at the highest point in the history of your operation? Mr. KENNEDY. That is correct, sir. Senator CARROLL. Just one further figure that might be of some help for the record. What was the price that you were paying 6 months ago? Mr. KENNEDY. We would have to take July, Senator, the 13th, which would be $2.59. Senator CARROLL. $2.59. What were you paying in September? Mr. KENNEDY. Of that year? Senator CARROLL. That is right. Mr. KENNEDY. We were paying, still paying the $2.59, and we got a rise to $2.82 on December 2. Senator CARROLL. That is when it began to climb up? Mr. KENNEDY. The Jacksonville Harbor price remained stable from August 20, 1955, at $2.44 per barrel until July 13, 1956, when it was increased to $2.59 per barrel. On December 2, 1956, a further price increase of 23 cents per barrel brought the Jacksonville Harbor price to $2.82. Senator CARROLL. And then the next rise after that Mr. KENNEDY. The next rise that they notified us-on January 14 we would get a 35-cents-a-barrel rise, which was to be $3.17. And in the intervening time between January 14 to January 21 they notified us that instead of it being 35 cents it would be 25 cents. So we are now paying $3.07 f. o. b. Jacksonville Harbor for all tanker deliveries, which is supposed to be 10 cents a barrel below the barge price. Senator CARROLL. Percentagewise, what is the percentage price increase from July of 1956 until January 14, approximately? Mr. KENNEDY. About 60 percent, I think. Senator CARROLL. You went from $2.59, as I understand it- Senator CARROLL. $2.44? Mr. KENNEDY. Yes, sir. Senator CARROLL. Up to the present price of $3.07 ? Mr. KENNEDY. Yes, sir. |