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Wyden Calls for Immediate
Action by FTC, Congress to Fight Gas Price Spikes
Senator's legislation would force Federal
Trade Commission
to act to protect consumers from anti-competitive
practices
March 22, 2004
Washington, DC – Citing
a coming "perfect storm" in gasoline markets that will
push prices past today's near-record highs, U.S. Senator Ron
Wyden today called for immediate action by Congress on the Gasoline
Free Market Competition Act (S. 1737), his legislation pushing
the Federal Trade Commission (FTC) to protect American consumers
from anti-competitive practices at the pump. Wyden cited the
FTC's inaction to stop gas price spikes, Shell Oil's planned
closure of a 70,000-barrel-per-day refinery in Bakersfield, California,
and OPEC's planned cuts in production as contributing factors
to the ongoing price increases that are shellacking consumers.
Wyden also called on FTC Chairman Tim Muris to either support
the Wyden legislation for passage or offer the FTC's own plan
to stem rising gasoline costs. Senator Wyden's prepared remarks
and additional closing remarks follow.
U.S. Senator Ron Wyden –
Remarks Calling for Federal Action to Combat Rising Gasoline
Prices
Mr. President, once again, gasoline prices are soaring up to
the highest levels ever and, once again, the response of the
Federal government is to do nothing. M. President, I have come
to the floor because inaction on spiraling gas prices is the
worst possible response Congress and the Administration could
have at this time. Higher oil and gasoline prices act like a
tax on consumers, causing them to defer discretionary spending
to pay for their gasoline. Right now, consumer spending is the
only thing driving our economy. If consumer spending declines,
economic recovery will be delayed and the chances of the economy
sliding further back into recession increase.
These concerns are timelier
than ever before. Gasoline prices are as high as they've ever
been. And I believe there's a perfect
storm coming that could drive gas prices higher than ever before.
It combines a tightening of supply through refineries, movement
of oil into the Strategic Petroleum Reserve with no plan to protect
consumers from resulting shortages, and OPEC's recent announcement
that they will cut production, now possibly in June, the beginning
of the travel season. That perfect storm will soak consumers
for even more money at the pump – and the prices are high
enough already.
According to the American Automobile Association, the national
average price of gasoline is $1.72 per gallon. That's just two
cents short of the all-time high set last August, and it's not
even peak driving season yet. California prices have topped $2
per gallon. In Oregon, prices have already hit $1.80 per gallon.
But M. President, as
I've said, it's likely to get even worse. One major oil company – Shell – has
announced it is deliberately shutting down its 70,000 barrel-per-day
Bakersfield,
California refinery, which is critical for the entire West Coast
market. Shell's action will permanently constrict gasoline supplies
and drive up prices all along the West Coast.
Earlier this month, at a Senate Energy Committee hearing, I
asked the Administrator of the Energy Information Administration
whether the closing of Shell's Bakersfield refinery could drive
up the already sky-high West Coast gasoline prices even higher,
and he agreed that could be the result of the refinery shutdown.
And still the Federal government is doing nothing.
Shell's announcement
of its decision to close the Bakersfield refinery claimed that "there was simply not enough crude
supply to ensure the viability of the refinery in the long-term." But
recent news articles have reported that both Chevron Texaco and
State of California officials estimate that the San Joaquin Valley
where the Bakersfield refinery is located has a 20-25 year supply
of crude oil remaining.
In fact, The Bakersfield
Californian reported on January 8, 2004, that Chevron Texaco
plans on drilling more than 800 new
wells in the San Joaquin Valley this year which is "300
more new wells than last year." The fact that Texaco, Shell's
former partner in the Bakersfield refinery, is increasing its
drilling in the area calls into question Shell's claim that a
lack of available oil supply is the real reason for closing its
Bakersfield refinery.
Shell also claimed its
decision was not made to drive up profits, but the company
admitted to The Wall Street Journal that "There
will be an impact on the market." That impact will be to
drive up prices even higher. The question is "by how much"?
In 2001, I revealed internal oil company documents showing that
major oil companies pursued efforts to curtail refinery capacity
as a strategy for stifling competition and boosting their profits.
These documents raised significant questions about whether America=s
oil companies tried to pull off a financial triple play. They
were boosting profits by reducing refinery capacity, tagging
consumers with higher pump prices, and then arguing for environmental
rollbacks and additional financial incentives. I charge that
these practices are still ongoing today, as gas prices rise even
higher and consumers suffer more.
In memos detailed in my report, oil companies articulated a
desire to reduce oil and gasoline supply. One document from Texaco
reads, quote, ASignificant events need to occur to assist in
reducing supplies and/or increasing the demand for gasoline in
order to increase prices and grow profit margins.@ Oil company
competitors also discussed, with each other, mutual opportunities
to control oil and gasoline supply, thus keeping markets tight.
In this case, they were
trying specifically to prevent the restart of the closed Powerine
refinery in Southern California. One company
document revealed that if the Powerine refinery was restarted,
the additional gasoline supply on the market could bring down
gas prices and refinery profits by two to three cents per gallon
and called for a "full court press" to keep the refinery
down. The Powerine refinery's capacity was 20,000 barrels per
day.
Now: the Bakersfield refinery Shell wants to shut down now has
a capacity of 70,000 barrels a day. If oil companies in the mid-90's
thought that a much smaller shutdown would raise the price of
gas by two or three cents, you can't tell me the shutdown of
a refinery with three and half times the capacity won't have
an even larger impact on prices at the pump.
What makes Shell's decision to close its Bakersfield refinery
especially curious is the company has done little proactively
to find a buyer.
But to date, the Federal Trade Commission (FTC) has made no
effort to stop or even slow plans for Shell's refinery closure.
The FTC argues that they can only prosecute if they find out
and out, blatant collusion, setting out a standard that is almost
impossible to prove against savvy oil interests. But in this
case, the FTC has the authority to act because the agency allowed
two mega-mergers to go through that directly affected the refinery
Shell now plans to shut down.
The FTC had a chance to act when it allowed Shell to acquire
full ownership of the Bakersfield refinery in 2001 from a Shell-Texaco
partnership. The FTC had another chance to act when it allowed
Shell to acquire Pennzoil-Quaker State in 2002. And the last
November, when Shell announced it was closing the Bakersfield
refinery, FTC had a third chance to act using its continuing
authority to reexamine these earlier mergers.
It's time to get the FTC off the sidelines and on the side of
consumers. Today, I am calling on the FTC to exercise its continuing
authority over these past mergers and to either block the shutdown
of Shell's Bakersfield refinery or to otherwise keep refineries
in that area viable.
The Energy Department also should be doing more to address the
problem of high gasoline prices. But, at a minimum, the Energy
Department should not be making the problem worse.
When Secretary Abraham
was asked recently about the problem of rising gasoline prices,
he told reporters he was "extremely
concerned" but did not specify what could be done about
them. One thing he could do right now that would help address
the problem is to stop making the current supply situation worse
by taking oil from the tight U.S. market to fill the Strategic
Petroleum Reserve.
On February 12, as crude
and gasoline prices were spiking up, the Bush Administration
awarded five new long-term contracts
to fill the SPR. These new contracts will run from April through
the summer – the very time period when prices typically
climb upward. If the Bush Administration was concerned about
high gasoline prices, the Energy Department could have either
delayed awarding these long-term contracts or arranged to defer
the delivery of oil to the Strategic Reserve as was done last
winter to minimize the impact on the market and consumer prices.
But the Administration is taking oil off the market and moving
it into the Strategic Petroleum Reserve, with no concrete plan
in place to protect consumers from the higher prices this action
will cause. Earlier this month, Guy Caruso of the Energy Information
Agency told me that OPEC would be making up the difference in
supply for oil that's being moved into America's Strategic Petroleum
Reserve.
But now OPEC tells us that they're going to cut production by
one million barrels a day. This morning we hear that they might
hold off until June, instead of making the cuts in April. But
even if they do that, the production cut will come at the beginning
of the summer travel season.
Now, OPEC is engaged is some double talk. For some time, they
haven't kept their promise to hold oil prices within their own
target price range. In fact, some members of OPEC just want the
price range increased.
Some in OPEC say that
they're concerned that prices are too high, yet this cartel
is taking oil off the market. So others
are saying that they see a glut of oil on the market, justifying
the production cut. These are mixed signals, but the message
is clear. OPEC's plans have to do with what's best for OPEC – not
for American consumers.
And here's my bottom line: the federal government can't stop
OPEC from cutting production, but it can make sure there's real
competition in gasoline markets so that consumers aren't getting
ripped off at the pump.
Today, I am also calling for Congress to take action on a concrete
package of pro-competitive initiatives to help consumers at the
nation's gas pumps.
First, Congress needs to direct that government regulators act
to eliminate anti-competitive practices that currently siphon
competition out of the gasoline markets.
Scores of communities
including those in my home state have few if any choices for
gasoline consumers. Nationwide, the gasoline
markets in Oregon and at least 27 other states are now considered
to be "tight oligopolies" with 4 companies controlling
more than 60 percent of the gasoline supplies. In California,
where Shell's Bakersfield refinery is located, four oil companies
control 70 percent of the market.
In these tightly concentrated
markets, numerous studies have found oil company practices
have driven independent wholesalers
and dealers out of the market. One practice they employ called "redlining" limits
where independent distributors can sell their gasoline. As a
result, independent stations must buy their gasoline directly
from the oil company, usually at a higher price than the company's
own brand-name stations pay. With these higher costs, the independent
stations can't compete.
Last year, I sponsored
legislation, S. 1737, which would give the Federal Trade Commission
additional tools to promote competition
in quasi-monopolistic gasoline markets. Under my bill, these
highly concentrated markets be designated "consumer watch
zones." In these consumer watch zones, there would be greater
monitoring of anti-competitive activities by the FTC. The FTC
would also be empowered to issue cease and desist orders to prevent
companies from gouging consumers. And Congress would stipulate
that certain anti-competitive practices, like redlining and zone
pricing, are per se anti-competitive and oil companies engaging
in anti-competitive practices that manipulate supply or limit
competition would have to prove these practices do not hurt consumers.
There is a vehicle today, S. 1737, through which Congress can
act now to address the problem of skyrocketing gasoline prices.
The oil companies admit the market won't solve the problem on
its own. Last August, a report by the Rand Corporation revealed
that even oil industry officials are predicting more price volatility
in the future. That means consumers can expect more frequent
and larger price spikes in the next few years.
Last November, the Energy
Information Administration also issued its report on the causes
of last summer's record high gasoline
prices. The EIA report also found "there is continuing vulnerability
to future gasoline prices spikes."
The industry and the Bush Administration both agree that gasoline
price spikes are going to be a continuing problem. But neither
is doing anything about the problem.
The Congress needs to act now before gasoline rises to $3 per
gallon as oil industry analysts are now predicting.
And the reasons Congress
must act are two-fold. Aside from the obvious cost to consumers
at the pump, there are other, hidden
costs to this price manipulation. There is a huge economic impact
that will only worsen as prices rise. Simply put, when gasoline
costs more, businesses' transport costs go up. Their profits
go down. That means one of two things: either the prices of the
goods they sell to consumers has to go up or the number of people
they employ must plummet. So higher gas prices either mean bigger
costs for consumer goods – or fewer jobs in an economy
that can't afford to lose any more.
Folks, this isn't high
economic theory – this is basic
math. Just this month the New York Times quoted a truck driver
from Wisconsin saying that eventually, the added costs of transporting
household goods and snacks and other items is going to come back
to the customer.
So you have a double
whammy here – consumers get socked
at the pump in person, and then they get hit again with higher
prices for other goods they buy. That's not acceptable to me.
And I don't believe it's acceptable to the American people. It
is time to stand up to the status quo in the oil industry. I
have no illusions about the difficulty of that – it's a
hard row to hoe.
When I first made this proposal last fall, various oil interests
and Bush Administration officials voiced great consternation
and argued vociferously that these proposals were unacceptable
to them. I still believe that the proposals I put forward would
promote competition and freer markets for the consumers.
But to those who disagree, I issue a challenge. If they think
they have a better approach to bring competition to gasoline,
then let's hear it. Unless they are prepared to say that record
high gasoline prices are not a problem for the consumer, I believe
that those who disagree with my proposals to promote competition
in gasoline markets need to put another alternative on the table.
Congress also needs to address the growing gap between consumer
demand for gasoline and what oil companies can produce. When
supplies are tight and there is no spare gasoline in inventories,
consumers are especially vulnerable to supply shortages and price
spikes. That frequently causes severe price spikes when refineries
shut down unexpectedly or a pipeline breaks as happened last
summer. Congress should ensure consumers are not left stalled
by the side of the road or fuming at the pump by taking steps
to keep supplies available in emergencies. One option would be
to require major oil companies to maintain minimum inventories
to address unexpected supply crunches.
Alternatively, the Federal
government could create a "strategic
gasoline reserve" to provide supplies during refinery or
pipeline shutdowns. This approach would build on the strategic
reserves that already exist for petroleum and heating oil supplies.
The American people deserve better than the Federal government
staying AWOL. With a new Energy Bill expect to come before the
Senate in the next several weeks, there's a new opportunity to
put the government on the side of American consumers filling
their tanks at pumps across the land.
M. President, I want to conclude, again, by commenting on the
role of the Federal Trade Commission. This is the agency that
is charged by the Congress with promoting competition and free
markets. Again and again in the energy field, they have either
sat on the sidelines or simply looked the other way in the face
of this critical sector of our economy. With gasoline prices
already soaring, it seems to me it is absolutely critical for
the Federal Trade Commission to reverse its present course, get
on the side of the consumers, and promote marketplace forces
and competition in the gasoline business. I intend to use my
seat on the Senate Commerce Committee at every possible opportunity
to force the Federal Trade Commission to do the job it's been
charged by the Congress to do.
It ought to start looking seriously into the shutdown in Bakersfield,
which in my view is going to have calamitous consequences for
the entire West Coast gasoline market, but it should also include
a broader look at the implications of concentration in the gasoline
business. I'm hopeful that ultimately the Federal Trade Commission
will support my legislation, S. 1737, which would promote more
competition in the gasoline business. And if they disagree with
it, then the head of that agency, Mr. Muris, ought to propose
his own alternative. M. President, I yield the floor.
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