Democrats: When the War Was Lost

Democrats: When the War Was Lost

It’s no surprise to learn that oil companies are underpaying royalties for drilling on public land, or projecting profits in the billions. The battle for energy regulation was lost a long time ago.


Here we are in early 2006, and the headlines are briefly given over to the disclosure that the oil companies could end up underpaying their royalties for drilling on American public lands by $7 billion.

There was a time, a generation ago, when people here in the United States thought and wrote about the underpinning of the US economy–the energy industry–in a serious way. In the mid-1970s the country was bustling with groups pushing for public control, for extending the regulatory powers of the Federal Trade Commission over natural gas prices, for breakup of the oil companies.

In came Carter, and up went the solar collectors on the White House roof. Aside from that, it was downhill all the way. The oil companies spent millions to winch themselves out of the PR debacle of the oil embargo of 1973-’74, in which the public rightly perceived them as eager co-conspirators with OPEC in price-gouging and profiteering.

By the time Carter surrendered the White House and its solar panels to Reagan (who swiftly tore them down; five years later they wound up at Unity College in Maine), the first decisive counterattacks had taken place. The FTC’s wings were clipped and the oil industry was positioning itself for the next great bonanza: in the Gulf of Mexico, the outer continental shelf off the California coast and Prudhoe Bay, which had just come on line. The trans-Alaska pipeline had been built and Alaska primed for the taking. In the interior West the oil shale deposits of the Rocky Mountain Front were awaiting the green light and the public subsidies.

For the oilmen the overarching political task was to get Congress to surrender all effective public control and concentrate on the simple business of handing out subsidies. On private lands the oilmen had the depletion allowance, one of the great wonders of the world. On public lands the equivalent would be to spare the oil companies the burden of paying any royalties on the oil they were taking out of the ground.

The Reagan years were spent clearing away any inconvenient regulatory underbrush. While the liberals cheered the downfall of Interior chief James Watt–and the Sierra Club raised royalty-free millions by putting his sour visage on their mailers–the oil industry patiently pushed ahead, prompting its champions in Congress to prepare the ground for the struggles ahead. The strike force was to be a Louisiana/Alaska axis.

In came the Clinton crowd, briefly flapping its banner of economic populism. By the summer of 1993 the banner was furled, populism in pell-mell retreat and the sustainability of the corporate bottom line dead center in the Clinton agenda.

In the summer of 1996 the President played host to a coven of oil company executives during his preconvention vacation in Jackson Hole, Wyoming. The executives were incandescent in the flush of a victory they had schemed for over the previous decade. Bennett Johnston and the Alaskans had scored one of the most significant victories for the oil industry in the twentieth century. The fruits of their triumph was called the Federal Oil and Gas Royalty Simplification and Fairness Act. Beyond this demure title were a series of provisions waiving all royalties due the American Treasury from the oil companies.

Finally approved by Congress in mid-August 1996, the law did four things: It placed a seven-year limit on the auditing of oil company books recording income from drilling on public lands; it turned over many of the auditing responsibilities for drilling on federal lands to the states; it permitted the oil companies to sue the federal government to collect interest on “overpayments”; and it allowed those very same companies to set the “market price” of the crude oil upon which the royalty payments to the federal government are based. In reality, the bill legalized a scam the big oil companies had been running for decades, underpaying royalties on crude oil extracted from federal lands, including the Alaskan oilfields.

Typically, Clinton cast the measure as simply a way of cutting government red tape and streamlining needless bureaucracy. Amid the cheers, the oil company executives laid out to the obedient President the next stages of their agenda. They wanted to open up the national reserve in Alaska, to expand drilling in the Gulf of Mexico and to overturn the twenty-three-year ban on the export of Alaskan crude oil, a provision deemed necessary decades earlier to win passage of the original pipeline bill.

The quid pro quo was a tidal wave of political contributions, Arco in the lead, into the Democratic Party treasury. Not long thereafter the chairman of Arco, Lodwrick Cook, was celebrating his birthday in the White House Rose Garden, with Clinton carrying in the cake. Twenty years after their nadir in the early 1970s, the oil companies had won it all.

By the mid-1990s the oil industry no longer had any effective foes arguing for public control. Senators like Abourezk and Metzenbaum had gone. The public interest groups were successfully unplugged during Clinton time, and the credibility of proposals for public control of the nation’s energy resources were undermined by years of neoliberal derision coming from groups like the Natural Resources Defense Council and the Environmental Defense Fund, which saw higher prices as the key to conservation and whose endorsement helped launch Enron on the world.

Today Exxon can schedule a net profit of nearly $100 billion for 2006 and it’s a three-day butt of the nightly talk shows. Meanwhile there are a few news snippets about a 3,600-mile pipeline scheduled to go from Prudhoe Bay, across Canada and down into the Midwest. There’s not a political ripple to be seen. The green groups are silent, even though the project is three and a half times the length of the original Alaska pipeline, whose scheduled construction in the early 1970s prompted a savage political battle.

And yes, there are also stories about the Democrats being short of ideas. The ideas got flushed down the drain in Carter time. These battles were lost long, long ago.

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Katrina vanden Heuvel
Editorial Director and Publisher, The Nation

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