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Gas Price Update

Gas prices are causing working families significant financial hardship. Many Americans are being forced to make considerable sacrifices just to fill up their tanks. In addition to the record gasoline prices at the pump, we in Michigan and across much of the country have been facing high costs for natural gas and propane. While high home heating fuel prices can make heating your home expensive during winter months, high energy costs also affect farmers, manufacturers, and electrical utilities, among other industries.

While consumers are being forced to pay up to $3.00 a gallon for gasoline, oil companies continue to reap record profits. Last year, Exxon Mobil posted $36 billion in profits, the largest profit for any corporation in United States history. Moreover, over the past year, refineries have increased their prices 255 percent. As these profits increase, so does the potential for price gouging.

When talking about refinery profits, economists refer to the “crack spread,” which is the price difference between a barrel of crude oil and an equal amount of refined gasoline. Typically, a crack spread of $4-5 per barrel will cover a refinery’s costs. Anything over this amount is usually profit, although this can differ from one refinery to another. If a refinery has a crack spread of $8-9 per barrel, economists consider this spread as a good, consistent profit. It has been estimated that refineries’ current crack spreads are as much as $20 to $30 per barrel. Refinery companies are raking in these excessive profits at the expense of working Americans. This is price gouging, and Congress should give the Federal Trade Commission the tools to investigate these profits and prosecute those refineries that engage in unfair practices.

In September 2005, I introduced H.R. 3936, the Federal Response to Energy Emergencies (FREE) Act, to provide the Federal Trade Commission (FTC) with new authority to investigate and prosecute those who engage in predatory pricing, market manipulation, and other unfair practices, with an emphasis on those who profit most. My legislation would allow the FTC to prosecute price gouging on all petroleum based products, including gasoline, home heating oil, propane, and natural gas. The FREE Act has gained the support of over 115 cosponsors, and over 130 Members of Congress have signed a discharge petition to bring this bill to the floor.

After 8 months of demanding that the Republican Leadership bring my legislation to the floor to protect American consumers from price gouging, the Republicans finally proposed their own bill. On May 2, 2006, Rep. Heather Wilson (R-NM), introduced the Federal Energy Price Protection Act (H.R. 5253). This legislation was approved by the House of Representatives on May 3, 2006, and awaits Senate consideration.

My bill, the FREE Act, would specifically set out guidelines for the FTC to use to define price gouging, including provisions that would make unconscionable pricing, providing false pricing information, and market manipulation illegal. H.R. 5253 did not contain a these standards. The FREE Act also contains a provision that would promote price transparency, helping provide consumers with the information to determine if oil and gas prices are fair and reasonable. A transparency provision was not included in H.R. 5253. The FREE Act would also apply to natural gas and propane, while neither of these products were even mentioned in H.R. 5253.

Although the Republican proposal was not as strong as my legislation, I voted for H.R. 5253 because I did not believe that these differences should delay price gouging legislation any longer. I am pleased that Congress has finally agreed that price gouging is a problem, and I will work with the bill’s sponsors to improve this legislation as this bill moves forward.

In addition to price gouging legislation, I believe that the federal government also has a responsibility to investigate the effect that market speculators can have on gas prices.

Traditionally, trading of energy commodities such as crude oil, gasoline, diesel fuel, and natural gas has taken place on the New York Mercantile Exchange (NYMEX), with oversight by the Commodity Futures Trading Commission (CFTC). However, an increasing amount of trading does not occur on NYMEX but in off-market deals, known as “over-the-counter” (OTC) trading. It is estimated that up to 75 percent of all energy trades are over-the-counter, where speculation occurs without any regulation or oversight by the federal government. Without effective oversight, there is no way to know whether energy speculators are basing their trades on market realities, or are instead taking advantage of the system to make money at the expense of hard-working Americans.

Due to these concerns, I have introduced the Prevent Unfair Manipulation of Prices (PUMP) Act, HR 5248, to bring OTC trading under the oversight of the CFTC. This increased oversight and transparency will improve confidence in the market and help eliminate the unreasonable inflation of crude oil prices. The legislation would also increase penalties for speculators found to be unfairly manipulating the oil futures market. It is estimated that oversight over all futures trades would lower the price of a barrel of crude oil by as much as $20.

The Department of Energy says that gas costs are based directly on the price of a barrel of oil. Therefore, between my price gouging legislation, which would stop oil and refinery companies from raking in profits at the expense of the American consumer, and my legislation to bring oversight to over-the-counter trading, which will end abusive speculation and reduce the price of crude oil by as much as $20, Congress could reduce the cost of a gallon of gas significantly. I will continue to push the Republican Leadership in the House to move these bills.

To provide resources for increased home heating costs, it is important that Congress fund programs such as the Low-Income Home Energy Assistance Program (LIHEAP), to ensure that working families and the elderly are not forced to choose between turning on the heat or necessities such as food and medicine. I will also work to fund Weatherization Assistance, another important program that helps families better insulate their homes to reduce energy costs.

Last winter, I wrote to the Michigan Public Service Commission (PSC) and asked them to change the rules regarding security deposits charged by power companies. As a result, the PSC announced that utilities cannot require a deposit from customers unless they have been shutoff for nonpayment during the prior 12 months. Also, between Nov 1 and March 31, utilities will not be able to automatically charge a late fee or shut off service fee for customers with late payments, unless the bill results from a meter reading, not an estimate. I will continue to look at ways to protect our citizens during the winter months.

Ultimately, the United States needs to lessen our dependence on foreign energy sources. Congress made a good start when the House passed the Energy Policy Act of 2005, which became law on August 8, 2005. The bill included incentives for the production of advanced diesel, hybrid vehicles, renewable fuels, and alternative energy fuels. It is now a matter of developing alternative energy sources, curbing our consumption and developing refinery capacity.

I will continue to do all I can to provide short and long term answers to the country’s energy needs.

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