Power Politics
How one company’s wheeling and dealing brought the energy crisis into your life.
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Some of his former employees, looking back on their days with Coastal States, shake their heads and wonder how they survived. Most say they would never do it again, that the drain on their physical resources was too great; but all agree that working for Wyatt was an unforgettable experience. A former Coastal vice-president tried to explain how he felt: “In most big corporations, the only time you see the chairman of the board is on the cover of the annual report. If you work for Coastal States Gas, the chairman of the board will be in to see you. He wants to know if you’re his kind of person—quick, ambitious, self-starting, willing to take a risk. The air is really electric around there, knowing that he might come through that door any minute.” He paused for a minute, then added, “That’s a lot of pressure.”
Wyatt departed from traditional patterns in the political sphere, just as he did in the business world. He was somewhat unpopular for a time in financial circles for espousing liberal economic theories, but as usual he was ahead of his time, one of the few businessmen in the Fifties who understood how inflation worked to his advantage. Coastal was a growth company, short of capital and surviving on borrowed funds; he recognized that inflation enabled him to pay off loans with cheaper money. His first political ventures were on the liberal side in Corpus Christi; at one point in the early Sixties he was so popular he was urged to run for mayor. By 1964 he was known as a big liberal contributor on a statewide level, and during the U.S. Senate campaign that year he was cochairman of a Ralph Yarborough appreciation dinner. But his liberalism stopped at the plant gate. When Coastal bought the old Sinclair refinery in Corpus Christi in 1962, Wyatt spent heavily (and successfully) to beat an effort to unionize the plant.
An unusual aspect of Wyatt’s political involvement is his interest in the judiciary, a branch of government often ignored by businessmen. He has contributed heavily to opponents of judges who have ruled against him, and is generally credited with the defeat of a Mission district judge named William Rogers Blalock in 1960. (Blalock, who now lives in Houston, says he was warned by a friendly lawyer after the trial that “ruling against Oscar Wyatt is serious business.” Blalock’s decision was later upheld by the Texas Supreme Court.) Wyatt is known to have entertained a number of state district judges lavishly at his South Texas ranches. Information collected by the Securities and Exchange Commission, which has been investigating Coastal States off and on for two years, confirms Wyatt’s involvement in judicial politics.
By 1960 Coastal had reached a plateau, just as Wymore had in 1954 when Oscar Wyatt flew over the Orange Grove Oil Field. In less than five years, Coastal had increased its assets from $3.3 million to more than $48 million, and had carved out a strong foothold for itself in the gas industry. It had a somewhat unsavory reputation in the industry, and was decidedly unpopular among its competitors, but it was here to stay nevertheless. Coastal had carried Wyatt’s original gas-gathering idea about as far as it would go; now Wyatt had to decide whether to continue to grow, or to slow down and consolidate his successes. The decision was inevitable from the beginning; growth it would be.
If the old idea had spent its force, then it was time for a new idea. Wyatt’s first choice was a cross-state pipeline to supply El Paso Natural Gas, but that faded quickly under the threat of Federal Power Commission intervention. Then, just as Wyatt and Coastal were casting about for new markets, a series of fateful decisions in three Texas cities opened the way for Coastal to supply four million Texans with natural gas. The gas broker was about to become, at least in name, a public utility.
Too Good To Be True
Most of the great success stories of American business involve a piece of luck, and the rise of Coastal States is no exception. Oscar Wyatt’s good fortune was that long-term gas contracts in three large Texas cities—Corpus Christi, Austin, San Antonio—were up for bids between 1960 and 1962, which was perfect timing for Coastal States. The company was old enough to have a firm financial base, but young enough to remain innovative, daring, and above all, hungry. If the contracts had lapsed even three years earlier, Coastal would have been in no position to make a move; a few years later the supply of gas was becoming so scarce that competition for new markets would have been virtually impossible.
Circumstances in all three cities were different—San Antonio owned both its gas and electric utilities; Austin controlled only its electric system; Corpus Christi owned the three gas distribution systems which served its residents—but in one essential way all three cities were alike. They all wanted cheap gas. Each was lured by the promise of low prices; each believed that gas would be available forever. The few spokesmen for restraint went unheard; the low bids were too attractive to pass up. In the end the cities bought twenty-year gas supplies with little more caution than if they were buying two years’ worth of ball-point pens. The cities in the early Sixties did exactly what they later accused Coastal of doing in the early Seventies: they went after the quick dollar, the short-term gain, and ignored the long-range consequences. This is their story:
Corpus Christi, 1960. Everybody involved in local politics knew that Oscar Wyatt was a brash upstart, but this time he had gone too far. The city’s gas advisory committee had just negotiated a twenty-year contract with Houston Natural Gas, which had supplied the main city distribution system since 1952; all that remained to make the contract effective was perfunctory approval by the city council and the voters. Then, with the election only six weeks away, here came a letter from Wyatt, questioning whether the proposed contract was the best one obtainable, and asking for a hearing before the committee.
Wyatt had a point. The old contract required the city to pay only 8.5¢ per mcf; the new agreement averaged 26.5¢ per mcf for eight years, with the remaining twelve years at cost-plus. But the advisory committee ignored him, and Wyatt vowed to fight. His attorneys questioned the legality of a negotiated contract, arguing that the city was required to take bids. Wyatt accused Mayor Ellroy King of playing political footsie with Houston Natural and trailed King and other supporters of the negotiated contract as they made the civic club circuit; whenever and wherever King spoke, Wyatt was present, monopolizing a microphone on the floor, turning a question-and-answer session into a debate. After four weeks of relentless pressure, Wyatt forced King to agree to a televised confrontation. It was no contest. The best argument King could muster was that the city had already come up with the best obtainable contract. Wyatt exploded that by offering to bid fifteen per cent lower than the Houston Natural price. He wasn’t asking for Coastal States to get the contract, Wyatt kept saying, just for the chance to bid.
When he wasn’t debating King, Wyatt was appearing at black churches, courting Mexican-Americans, and visiting union halls—putting together a potent political coalition of minority groups, labor, and white liberals. They were his natural allies, not because he was carrying the liberal banner—the gas contract fight had nothing to do with liberal-conservative issues—but because he was taking on the entrenched establishment, represented by King and the majority of the city council. Despite his business success and his contributions to the city (two downtown buildings and a third one planned, a payroll of $1.5 million, $10 million spent annually by Coastal in Corpus Christi), Wyatt was considered a pariah by the local establishment. They found him brash, cocky, and pushy, a young man in too much of a hurry; they hadn’t accepted him by 1960 and they never did. But they were no match for him in open combat. Despite the relative obscurity of the gas contract issue, Wyatt’s coalition turned out a record vote for a special election, and the Houston Natural contract was rejected by a 2–1 margin.
The city then drew up specifications for both a twenty-year contract and a short-term contract which the council could award without approval from the voters. Wyatt angrily charged that the specifications favored Houston Natural (one of the conditions could only be met by a company which was already supplying gas to the city), and promised another fight. Coastal was low bidder for the twenty-year period, but Houston Natural reduced its previous offer substantially to become low bidder for the five-year, short-term contract. To no one’s surprise, a Houston engineering firm hired as the city’s consultant recommended a short-term agreement with Houston Natural. The city council awarded the contract over Wyatt’s protests that his twenty-year offer was a better deal. Wyatt promptly retaliated by filing suit as a taxpayer in state district court. When the trial judge found “fatal defects” in the contract and declared it void, it looked like Coastal might win after all; but an appellate court, without ruling on the validity of the contract, declared that Wyatt could not contest the procedure as a taxpayer, since no tax funds were involved. For a few days Wyatt blustered about appealing to the Texas Supreme Court, but eventually he accepted the adverse ruling. He had, after all, accomplished a great deal: through sheer force of personality, he had sliced fifteen years—and 3¢ per mcf—off Houston Natural’s contract. What’s more, the political coalition he forged had meanwhile grown into the Progress Party, which ousted the establishment-backed Action Party in the 1961 city elections. Coastal’s president had proved himself a force to be reckoned with in local politics.
The point was not lost on Houston Natural. When the new city council asked for bids in 1962 on a twenty-year contract to become effective when the short-term Houston Natural contract expired in 1966, HNG didn’t even enter a bid. In 1953, at the high water mark of its influence in Corpus Christi, Houston Natural had almost purchased the main city-owned gas system; it already owned a distribution system serving the fast-growing southeast area of the city near the Naval Air Station. Now, less than a decade later, it reluctantly prepared to withdraw from the lucrative Corpus Christi market. Houston Natural even sold its own distribution facilities to the city, retaining only an option to continue supplying the southeast area through 1977. The Corpus Christi gas market was wide open.
The immediate beneficiary, however, was not Coastal States, but a little-known Houston outfit called Lumar Gas Company. Coastal bid substantially lower than it had in 1960, but Lumar’s offer, city officials said, was “a much lower figure than expected.” Indeed, it was 6¢ per mcf lower than the existing HNG contract, an astounding bid of only 18.5 cents. Newspaper reports indicate that the city could hardly believe its good fortune; why, it was almost too good to be true! Not even Coastal States could match that price, and Lumar got the contract even though it was only two years old, had no major supply contracts, and had no guaranteed reserves.
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