Cato Institute

 (p 394)

Charles Koch cofounded and continued to support, operated with annual revenue of $23.7 million in 2008, up from $17.6 million in 2001, $31 million in 2020.

Push to stop renewable energy at state levels

(p 478)

Then, starting around 2011, [Kansas Senator Moxley] watched Koch Industries transform everything. A central focus of Koch’s efforts was beating back the mandates to support renewable energy.

(p 480) 

Koch’s efforts in Kansas were part of a multistate campaign to push back renewable-energy subsidies. Koch’s primary targets were so-called renewable energy standards that required states to buy wind and solar power. Koch characterized these mandates as a form of crony capitalism. The Heartland Institute, which Koch funded, helped write a bill to repeal such standards. The bill was then taken up by ALEC, the Koch-funded conference of state legislators, and then introduced in more than a dozen states between 2013 and 2014.

ALEC’s efforts bore fruit. Ohio repealed its renewable standard, as did West Virginia. In Kansas, the fight lasted for years. [Kansas Senator] Moxley repeatedly voted against the bill to repeal the renewable-energy mandates, as did a handful of other Republicans and many Democrats. But the financial power behind the bill was too strong to resist. In 2015, a version of the bill finally passed, removing the mandates and making the renewable-energy standards voluntary.

Pine Bend refinery: its history and significance to Koch Industries

  The crown jewel, according to one former Koch Industries insider, was the Pine Bend Refinery, than called the Great Northern Oil Company, in Rosemont, Minnesota, not far from Minneapolis. In 1959, Fred Koch bought a one-third interest in the concern 

In 1969, two years after Charles Koch took the company's helm, Koch Industries acquired the majority share in the refinery. Charles later described the purchase as "one of the most significant events in the evolution of our company."

Pine Bend was a gold mine because it was uniquely well situated geographically to buy inexpensive, heavy, "garbage" crude oil from Canada. [Ed. note: otherwise known as bitumen] After refining the cheap muck, the company could sell it at the same price as other gasoline. Because the heavy crude oil was so cheap, Pine Bend's profit margin was superior to that of most other refineries. And because of a host of environmental regulations, it became increasingly difficult for rivals to build new refineries in the area to compete. 

... In 2012, [wrote David Sassoon of InsideClimate News], "This single Koch refinery is now responsible for an estimated 25 percent of the 1.2 million barrels of oil the U.S. imports each day from Canada's tar sands territories." (60)

Pine Bend refinery: its secret source of profits

 But the Pine Bend refinery, as everyone called it, had a secret source of profits. And this source of profits could be traced to exactly the kind of government intervention that Hayek hated most. In the 1950s, President Dwight Eisenhower capped the amount of oil that could be imported into the United States, in one of the federal government’s many ploys to protect domestic oil drillers. (Imported oil was often cheaper than domestic oil, so US drillers wanted it kept out.) 

But there was a loophole in that law that allowed unlimited imports from Canada. As it happened, Canada was the primary source of oil processed at the Pine Bend refinery. Pine Bend was one of only four refineries in the nation that was able to buy cheaper imported oil in unlimited quantities, giving it a huge advantage over firms that were forced to buy mostly domestic oil. The four companies who benefited from this loophole received a second advantage from the government. Thanks to a complex voucher system for oil imports, companies like Koch were able to “double dip” and exchange their voucher tickets for domestic oil in a scheme that gave them a subsidy of $1.25 per barrel. This loophole boosted profits, and Fred Koch had been happy to remain a minority shareholder and enjoy the windfall. (p 49)

Koch Oil convicted of oil theft from Indian tribes and federal lands over 5 state area for years

(p 130)

 The government threat intensified in May of 1989, when the Senate Select Committee on Indian Affairs held a series of daylong public hearings in Washington, DC. The hearings presented the evidence of oil theft collected by the Senate investigator Ken Ballen and FBI special agent James Elroy, who had surveilled Koch employees.

The issue of oil theft was the subject of one hearing, and that hearing focused exclusively on Koch Industries. The reasons for this were simple. Evidence in the case pointed to Koch Industries as the primary culprit in the oil theft.

(p 135)

One of the primary victims of Koch’s theft was the Osage tribe in Oklahoma...Koch sent a team of auditors to review receipts from oil leases owned by the Osage tribe...These receipts were compared against Koch’s internal figures to determine if Koch had indeed been underpaying the Osage, as alleged by the US Senate. Tillman said the tribe had little capacity to double-check Koch’s work. The tribe didn’t have an army of accountants at its disposal. The tribal members simply got checks in the mail for their oil leases and trusted the numbers....

When Koch Industries completed its audit, the company came back to Tillman with surprising news: Koch Industries had not been underpaying for oil. The company told him that it had, in fact, been overpaying the tribe. The audit showed that the tribe actually owed Koch Industries about $22,000...[This was later refuted.]

(p 137)

Charles Koch understood now that he needed a political operation in Washington...Koch Industries deepened its relationship with Kansas senator Bob Dole....Dole helped Koch delegitimize the issue of oil theft.

(p 138)

Jones and Elroy [the head lawyer and FBI agent on the case] had zeroed in on one particular set of Koch’s internal documents they felt would show how the oil theft was directed from Koch’s senior leadership. 

[James and Elroy both gave up on the case for personal reasons, after working very hard for months in the face of great resistance from Koch Industries, including the destruction of evidence.]

(p 144)

...new evidence would emerge that Koch employees had indeed stolen oil, even if FBI agents in Oklahoma and Texas failed to prove it. This new evidence was revealed thanks to the efforts of Bill Koch.

After [the FBI] dropped the case in 1992, Bill Koch bankrolled a massive civil suit against Koch Industries, filed in federal court, using an obscure law that lets citizens file lawsuits on behalf of the US government. Bill Koch was essentially acting as a whistle-blower...

He had tracked down Jim Elroy [the original FBI agent on the case] and hired him to investigate Koch’s oil gathering business around the country. Elroy spent months combing small towns in rural America, visiting oil gaugers in their homes and collecting their stories. Bill Koch’s interviews were more successful than the FBI’s in digging up damning testimony. 

The case went to trial in Tulsa in late 1999. The testimony was devastating for Koch Industries. During the trial, Koch officials admitted that they earned roughly $10 million in profits each year by taking oil without paying for it. Witness after witness described the Koch method of stealing oil. [This basically amounted to entering a false record of how much oil was measured when transferred from ground tanks to trucks.]...Tales of theft were told by Koch’s own employees from Kansas, Texas, Oklahoma, North Dakota, and New Mexico....

The jury found Koch Industries guilty of stealing oil between 1981 and 1985 from federal land and Indian reservations, and of falsifying roughly twenty-five thousand documents in order to underreport how much oil the company was taking. The fines for Koch could have been enormous. The judge could have levied a $214 million fine just for falsifying the oil sale receipts. But Koch’s lawyers were able to settle the case before it went to the penalty phase, paying an undisclosed amount.

How Koch Industries broke the union at Pine Bend

 (p 50)

There was, however, one significant obstacle standing in the path of Charles Koch’s plan. It was a labor union. Workers at the Pine Bend refinery had been organized in a union since the 1950s. The union was deeply entrenched and powerful. No sooner had Charles Koch purchased the Pine Bend refinery than he learned that he could not control it. Charles Koch had almost total authority over Koch Industries, but his authority was hemmed in at the Pine Bend refinery. The union set the rules in Pine Bend, and the union set the wages....

In the late 1960s, most CEOs considered powerful unions to be a fact of life...challenge. Most companies chose to accommodate organized labor...

(p 51)

Charles Koch faced this same choice, and he chose to fight. The battle against organized labor at Pine Bend was the first to test Charles Koch’s resolve. His first move was to find the right commander for the conflict. Charles Koch found his man in the spring of 1971, when he attended an industry conference in California and met an oil industry engineer named Bernard Paulson...situation. One of Paulson’s heroes was General George S. Patton, the military hero who was best known for his rousing speeches that gave soldiers the courage they needed to head into battle...

In 1971, Paulson joined Koch Industries. He was transferred immediately to Pine Bend, where he took control as manager of the refinery. He immediately began, in his words, “to straighten it out.”

(p 55)

Employees at Pine Bend were organized under the auspices of a powerful labor union called the Oil, Chemical and Atomic Workers Union—or the OCAW, for short. They belonged to a local chapter called the OCAW Local 6-662.

(p 58)

Charles Koch...had seen the union operate firsthand. For at least one summer when he was younger, Charles Koch had worked at Pine Bend and must have seen the near impunity enjoyed by union bosses...

(p 60)

In the late fall and early winter of 1972, it was time for Koch Refining Company and the OCAW to negotiate a new labor contract....During his first meeting with the OCAW team, Paulson sat down in the meeting room, flanked by his company lawyers...Koch would unilaterally rewrite all the work rules inside the refinery. The seniority system the union enjoyed would be gone. The rules that barred employees from doing work in different “trades” would be gone. The employee shuttle truck? Gone. The rule about a bonus payment for overtime without two hours’ notice? Gone. And then Paulson showed the union men that there would be precious little room for negotiation. These were the new rules. This was how things would work at the refinery. End of story.

In the eyes of the OCAW men, there was no choice as to what to do next. On January 9, 1973, at four in the afternoon, the entire unionized workforce left their stations and walked off the property grounds.

The refinery employees took scheduled shifts to picket at the refinery’s three main gates to ensure that the picket line was staffed around the clock...Guys lounged and played cards outside the trailer. Others showed up to get picket signs that they would hold during their shift, signs bearing slogans like: “Koch For Slavery” and “OCAW LOCAL 6-662—ON STRIKE.”

(p 63)

The picket line was a barricade designed to stop any truck traffic going in or out of the refinery—a barricade that would effectively shut the refinery down. A huge proportion of products made at the refinery were shipped out by big tanker trucks that took heating oil to nearby school buildings or gasoline to nearby service stations. If the trucks couldn’t come and go, Koch couldn’t sell its products. The OCAW aimed to starve the company out, forcing it back to the negotiating table in a weakened position.

The tanker truck drivers—and even the cops who patrolled the road outside the refinery—belonged

(p 64)

belonged to the Teamsters union, which meant that crossing the picket line was akin to violating their own sacred oath of solidarity. The picket line worked. On a typical day at the refinery, about two hundred tanker trucks passed through the gates to pick up fuel and ship it out. That number dropped to near zero after Quinn helped get the OCAW picketers organized and standing in shifts. 

The union had cut off the oxygen supply of cash to Koch’s refinery. They knew that the owner, Charles Koch, was losing enormous amounts of money for every minute the OCAW was on strike. It seemed certain that Charles Koch would have no choice but to fold. He might hold out for a week or two to save face, but there was no way Koch could hold out for long. 

These union men clearly had no idea who they were dealing with....

Bernard Paulson was prepared. He had set up a cot in his office, a cot where he would sleep for most of the next nine months, rarely leaving the refinery, rarely leaving his post...

Shortly after the picket line was erected outside the refinery gates, Paulson arranged for helicopters to fly these workers into the refinery. The helicopters swooped in low over the refinery fences and landed on the refinery grounds to drop off his new workers from Texas and Oklahoma and other states where unions were not only rare but widely hated. Inside the main office building, Paulson converted a large room in the basement into a barracks for the new workers. 

On the picket line, the OCAW men watched as the helicopters passed over them, hovered, and landed inside, delivering the workers who would replace them. The picket line was becoming symbolic.

(p 65)

An atmosphere of lawlessness began to surround the picket line. When scab drivers edged closer to the gates, the union men jumped up on the running boards of the trucks and pounded on the windows. When that didn’t stop the trucks, they grew more violent. “We had some pretty tough guys working there. They would open the doors and pull out drivers,” recalled Lowell Payton, a unionized worker who picketed outside the gates...

(p 67)

As the third week passed and then the fourth week, the reality of the strike began to sink in...They saw how easy it might be to lose their home, lose their car, endanger the economic future of their kids. And they knew who was responsible for this danger. They blamed Bernard Paulson. Many of the men began to hate Paulson and his Texas cowboy boots and his superior bearing. The men gathered at the Coates bar and drank and talked about what they might do. And their anger boiled over...

Whenever Paulson needed encouragement, he picked up the phone and called Wichita. “I worked directly for Charles, and we consulted several times a day. It was with his backing,” Paulson recalled. “He knew exactly what I was doing and why I was doing it.”

(p 68)

A set of railroad tracks ran along the west side of the refinery. The tracks carried tanker cars of crude oil and ran right into the middle of the refinery complex where the trains could load and unload fuel...In the dark hours just after midnight on March 15, someone snuck between the train cars and engines near the refinery. The saboteur jumped up to the doorway of one of the diesel engines and climbed inside...The diesel engine picked up momentum as it traveled down the track. The cab was empty, and there were no employees at the depot to spot the engine as it headed over empty cropland and gathered speed. At roughly one in the morning, the train was speeding directly toward the refinery.

(p 70)

Bernard Paulson woke up in his office to the phone ringing. He answered it and heard an employee shouting on the other end. Paulson was half asleep and trying to make sense of what he was hearing. There had been some kind of accident. A train crash...Then he saw a surreal thing. A diesel engine, lying on its side, in the middle of the refinery grounds. The giant train engine was still running.

When the train engine came hurtling through the refinery, it had been heading straight toward a large refining tower. But there were mechanisms set into the train tracks, called derailers, that acted as a safety stop to prevent damage from runaway trains. The engine hit the derailers at a high speed and the mechanisms did their job, flipping the steel engine onto its side and off the track, sending it skidding over the refinery grounds.

If the derailers had not been in place, if the train had kept going, it would have crashed directly into a series of gasoline lines, pumps and pipes. It is likely that an inferno would have engulfed the refinery and killed many of the men who were working there. Paulson could have been burned alive in his office. The wreck was roughly two hundred feet from where he’d been sleeping.

(p 71)

After the crash, Bernard Paulson went back to the negotiating table with the OCAW. His position had not softened, but the union’s had...

Roughly one week after the diesel train sabotage, Kujawa and Paulson began a bargaining session, overseen by a Minnesota judge who acted as a mediator...

(p 73)

At noon on March 26 [1973], the talks ended with no agreement...The kernel of the dispute still remained the work rules at the refinery. It was a fight over control, and neither side would budge.

Koch Refining Company offered a $25,000 reward for information leading to the arrest of whoever had sent the diesel train crashing into the plant. But the money never induced anyone to come forth with information about the diesel engine sabotage. The reward was never collected, and an arrest was never made.

But Bernard Paulson and Charles Koch seemed to understand something intuitively. They understood that solidarity had its limits. The OCAW’s cohesion was unbreakable. But the OCAW would be weaker if it stood alone. In fact, it was doubtful if the OCAW would be able to stand at all if it was alone. Isolating the union would prove to be the only way to beat it. During the summer and fall of 1973, that’s exactly what happened...

(p 76)

As August turned to September, Kujawa [the union president] began pressing his union to end the strike...By September 15, Kujawa had helped the union come to a tentative agreement with Koch. The agreement caved to many of Koch’s demands, but the union leaders argued that it was the best deal the members could get after nine months of being on strike....

On the evening of September 17, the OCAW workers gathered in a junior high school near the oil refinery...The members voted to reject the contract, 149 to 103....

After the vote, Paulson gave the Teamsters an ultimatum: “Either you guys start coming across [the picket line], or we are going to go nonunion with all of our deliveries. Even after this strike is over,” he remembers telling them. The Teamsters came around to Paulson’s rationale. In mid-September they drove across the picket line. In doing so, they broke the back of the OCAW....

On the evening of September 23, the OCAW gathered again at the junior high school to vote on the contract. They voted this time to accept the contract, by at least 140 to 100.I The contract would last sixteen months, only seven months longer than the strike itself.

...

How the most profitable operation in Koch Industries is based on government subsidies and loopholes

 (p 50)

But the Pine Bend refinery, as everyone called it, had a secret source of profits. And this source of profits could be traced to exactly the kind of government intervention that Hayek [famous conservative economist] hated most.

In the 1950s, President Dwight Eisenhower capped the amount of oil that could be imported into the United States, in one of the federal government’s many ploys to protect domestic oil drillers. (Imported oil was often cheaper than domestic oil, so US drillers wanted it kept out.) But there was a loophole in that law that allowed unlimited imports from Canada.

As it happened, Canada was the primary source of oil processed at the Pine Bend refinery. Pine Bend was one of only four refineries in the nation that was able to buy cheaper imported oil in unlimited quantities, giving it a huge advantage over firms that were forced to buy mostly domestic oil. The four companies who benefited from this loophole received a second advantage from the government. Thanks to a complex voucher system for oil imports, companies like Koch were able to “double dip” and exchange their voucher tickets for domestic oil in a scheme that gave them a subsidy of $1.25 per barrel. This loophole boosted profits, and Fred Koch had been happy to remain a minority shareholder and enjoy the windfall.

In 1969, Charles Koch executed a secret plan that would increase those profits beyond anything Fred Koch could imagine...By the end of the year, Koch Industries was the sole owner of the Pine Bend refinery.