The $10 Billion Jolt: Californias Energy Crisis (Practical Liberty)

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The rise of Rockefeller and Std.

One policy consequence was that Standard stayed out of production PL In [ap:Std. Standard's financial policies were the key to its success.

Since there was no price competition within the combination, the aggressive entrepreneurs who joined Rockefeller competed to reduce costs, improve quality, standardize products and processes, develop new refining methods, and raise profits. Duplicate, inefficient, or poorly located facilities were eliminated. Risks were spread over all the activities of the combination and funds flowed from one place or company or function to where they were needed. The most important financial policy was internal financing of all ventures and maintaining liquidity at all times PL As Rockefeller expressed it, "I think a concern so large as we are should have its own money and be independent of the 'Street'.

These policies gave Standard financial strengths that were unmatched by any competitor. And Standard used them. In its first decade Standard was an alliance of shareholders, most of whom were aggressively individualistic entrepreneurs who had founded their own companies and still ran them within the Standard fold PL For this reason and the [ Greene. Standard was not a single organization with geographical and functional subsidiaries.

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It was a confederation of formerly autonomous and competitive units. Long-term investments required planning; planning required information PL As the organization grew, the information required to make intelligent decisions grew apace. To gather, process, and analyze this information on costs, supplies, market conditions, and competitors, staffs were assembled in New York, Cleveland, and elsewhere PL Consultation and study on decisions took time. Standard reached decisions cautiously and carefully, but once they were reached, it used its financial strength and efficient organization to carry them out vigorously on a scale others could not match PL18 PL In Standard formed National Transit Company and by the next year it had built over miles of trunkline.

Standard was often not the leader in innovation, but it was a vigorous follower PL Once an innovation was proved, Standard was flexible enough to take decisions on as large a scale as it operated PL Rockefeller in at the end of Standard's first decade.

Briefings | The Economist

He is thought to be the greatest of the robber barons of the nineteenth century. Yet this reputation does not capture his genius. Had he been simply a ruthless competitor, which he may have been, Std. Rockefeller's genius was not just in his decisively different view of the petroleum industry. It lay in his ability to attract to his organization a number of able and aggressive entrepreneurs— founders, owners, men accustomed to running their own businesses as they pleased, the most independent spirits of the most individualistic period of U.

Rockefeller did not kill off his rivals. He converted them. One need not condone his nineteenth-century ethics and actions to pay tribute to the genius of his leadership, not only in bringing the pieces of Std. It would be nearly 50 years before Alfred P. Sloan performed a similar task at General Motors. In the world of business, no one had done such a thing before. Except for Sloan in the s and possibly Thomas Watson of IBM in the s, no one has been able to duplicate his accomplishment since.

In its second decade, it matured.

California Energy Crisis

There were fewer acquisitions. Operations were systematically studied. Waste and duplication were eliminated. Costs were reduced. In the area of management, it was a decade of consolidation PL This change in formal organization occurred in response to a suit won by the state of Pennsylvania upholding its right to tax all of the capital stock and dividends of a corporation operating within the state, not merely those derived from business within Pennsylvania.

It was imperative that Standard create separate corporations to hold its properties in each state, and a central legal entity to hold them. These legal difficulties arose in part because corporations were state chartered there are no nationally chartered corporations in the U.

Minority interests could be reduced by inducing minority shareholders to accept shares in a parent organization. The fdu form of organization was selected because it fulfilled these prerequisites and for another reason which was very important to Standard's management, the maintenance of a veil of secrecy over the operations of the combination PL When one of the nine original trustees chose not to move to New York, the trustees took advantage of a provision of their bylaws to permit the other eight to manage as the Executive Committee.

In practice, as before, the Executive Committee constituted the day to lay management. The concept of management by owners had evolved to the policy of management by an active inside board who met daily to determine what policies and decisions were in "the general interest" PL Cooperation was obtained through consultation, discussion, and compromise. Decisions of the committees took the form of requests, suggestions, and recommendations rather than orders to the operating managers of the companies.

But, in the main, the committee system served admirably to achieve consensus and support for "the general interest" while permitting the delegation of authority to operating managers to manage their businesses, subject to general policy guidance.

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There were three environmental changes in the s which required such action. Since Standard was already dominant in the gathering and storage of oil, in purchasing, and in refining, it is only natural that when nrg. It was familiar with ptpt technology from its gathering activities. Negotiating with the railroads had sometimes been difficult and had occasioned criticism. The opportunity to forge a stronger link in the chain was not to be missed. By the National Transit Company, Standard's trunk ptpt subsidiary, had four lines in operation [ Greene.

Another important ptpt policy, also characteristic of its other operations, was that Standard built for permanence PL07 where some of its rivals built cheaply and hastily. Like National Transit, the Tidewater Pipeline Company had to bury its pipe, when temperature changes caused exposed pipe to whipsaw. The completed gathering, storing, and transportation system deserves comment because it demonstrates the systematic rationality of Standard's management and the relation of Standard to the largely independent pmpers.

The data from the run would be wired to district headquarters where it was credited to the balance of the leaseholder. Royalties to the landowner were deducted and credited to the landowner. Three percent of the volume was deducted as an allowance for evaporation, leakage, and B.

An oil certificate was issued for each barrel lot and fractions were carried on the books as a credit balance.

The charge for pipage after was a flat 20c per barrel, regardless of distance piped. Storage was free for 30 days. After that the storage charge was 1. Monthly and annual reports of stocks on hand were publicly issued according to Pennsylvania law. Fire losses were assessed to all owners of credit balances according to the size of their balance.

For its accuracy and efficiency in extending gathering systems to new fields, Standard earned praise even from its critics. Standard purchased almost all of the nrg. In its rfneries consumed Its practice was to pay the average between the high and low price for superior quality nrg. On at least one occasion it paid a premium price to encourage drilling and [ Greene.

It sometimes paid higher prices in local areas to bid oil away from competitors, raising the cost of their raw material. It may come as a surprise that in so many instances Standard's policy was based on paying high rather than low prices PL Rockefeller argued that Standard should buy certificates in excess of consumption of nrg.

Surplus funds earning a low rate of interest should be put to work at his potentially profitable use. They might help to stabilize falling prices. Falling price of nrg. It discouraged exploration [nxd], antagonized pmpers, and endangered future supplies. Large purchasers of rfned products, Standard's principal customers, postponed purchases in hope of a lower price, adding to inventory problems. As a large owner of nrg.

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