A committee hearing is often a bill's first step on its way
to passage. Before the bill can be considered by the full Senate,
the bill must be reported out by the committee(s) of jurisdiction.
The text of Wyden's prepared testimony follows.
Mr. Chairman, gasoline prices have soared to the highest levels
ever and the response of the Federal government has been to do
nothing.
As bad as the situation is today,
prices are expected to go even higher. I believe gasoline consumers
are about to be hit
by a perfect storm – a combination of high OPEC prices,
refinery cutbacks and anti-competitive practices that siphon
competition out of the marketplace. That perfect storm is going
to soak consumers for even more money at the pump unless Congress
takes action to protect our citizens.
I asked to testify today because I believe that inaction in
the face of spiraling gas prices is the worst possible response
Congress and the Administration could have at this time.
Chairman DeWine, you clearly share that view because you have
introduced legislation to take head on the role of OPEC in gouging
U.S. consumers. By extending our anti-cartel laws to reach OPEC
member countries when they are essentially acting not as countries
but as giant petroleum companies, your legislation would provide
a new approach to combat OPEC's role in the current high gas
prices. I support your effort.
But OPEC isn't the only problem.
According to an analysis by the Consumer Federation of America's
director of research, oil companies' refinery margins are taking
three times as big a bite out of consumers' pockets as the actions
of the OPEC cartel. Taking action against the OPEC cartel will
help U.S. consumers some, but it won't provide full relief if
Congress looks the other way when it comes to anti-competitive
and anti-consumer practices that are going on in our own gasoline
markets.
Just as the "NOPEC" bill introduced by Chairman DeWine
and others on the Committee would give the Federal government
a new tool to use against the anti-competitive practices of the
OPEC cartel, Congress needs to provide comparable new tools to
use against anti-competitive actions that raise prices in U.S.
gasoline markets. I have introduced a bill, "The Gasoline
Free Market Competition Act," (S. 1737) that provides the
new powers needed to attack the problems in our own markets.
Today, I would like to discuss a textbook case of anti-competitive
action that's going on right now in our own markets that will
raise gasoline prices for U.S. consumers. Shell Oil is currently
in the process of shutting down its refinery in Bakersfield,
California. This is a 70,000-barrel-per-day refinery that is
critical for gasoline supplies for the entire West Coast.
In my testimony today, I will briefly describe how the deliberate
shutdown of not only the Bakersfield refinery but refineries
all around the country is one of the biggest problems that gasoline
consumers are now facing. I will also describe how the current
law is inadequate to deal with this problem and what my bill
would do to change the law.
Mr. Chairman, as a Senator from Ohio, you may be wondering what
impact the shutdown of a refinery in California will have on
your state. The short answer is the Bakersfield shutdown won't
hurt Ohio consumers directly, but inaction by the Federal Trade
Commission (FTC) on the growing problem of refinery shutdowns
can and will affect consumers all around the country. What happened
in Bakersfield exemplifies how refinery shutdowns are allowed
to happen because the FTC can't or won't take action.
I documented this problem in a report
I released in 2001. My 2001 report included a number of internal
oil company documents
that revealed a deliberate strategy to reduce refining capacity
as a strategy to boost oil company profits. These efforts included
working 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. Because of the much larger
capacity of the 70,000 barrels-per-day Bakersfield refinery,
Shell's shutdown of this refinery could have an even larger impact
on prices at the pump.
My report also identified 24 refineries that closed between
1995 and 2001 with a combined capacity of more than 800,000 barrels
per day, including several in the Midwest (Illinois, Indiana,
Michigan and Kansas) as well as refineries in the South and West
Coast.
This loss of refinery capacity means
less supply is available in U.S. gasoline markets and that,
in turn, means higher prices
for consumers at the pump and higher profits for the oil companies.
That's not just my opinion – the oil company documents
I revealed in 2001 made clear this was part of a deliberate strategy
to boost refinery margins and profits.
Now, Shell is deliberately shutting
down its Bakersfield refinery. As Yogi Berra once said, it's "déjà vu
all over again."
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.
Another reason to question Shell's claim about the availability
of crude oil is the fact that Shell is currently the subject
of an investigation for misstating its crude oil reserves.
Shell has also claimed its decision
to shut the refinery 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?
What makes Shell's decision to close its Bakersfield refinery
especially curious is the company never even tried to find a
buyer.
But to date, the FTC has done nothing to stop 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. That's not acceptable.
The law needs to be changed to give the FTC additional tools
to do its job. That's where my bill, S. 1737, come in.
Under my bill, there would be three changes from current law.
First, the FTC would be empowered to issue cease and desist orders
to prevent individual companies from gouging consumers.
Second, under my bill, Congress would stipulate that certain
anti-competitive practices, like redlining and zone pricing,
are per se anti-competitive in highly concentrated markets. When
oil companies engaging in anti-competitive practices that manipulate
supply or limit competition in these concentrated market, they
would have to prove these practices do not hurt consumers. The
FTC could also put the burden on oil companies to show that other
practices, such as the Bakersfield refinery shutdown, that reduce
supply or drive up prices are not harming consumers in any concentrated
market.
Finally, highly concentrated gasoline
markets would be designated "consumer
watch zones." In these consumer watch zones, there would
be greater monitoring of anti-competitive activities by the FTC.
Mr. Chairman, the major players in
the gasoline industry don't need to get together in a smoke-filled
room in order to engage
in anti-competitive actions. They can get away with anti-competitive
practices that reduce supply and drive up prices because in scores
of communities, including those in my home state, there are 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 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. They go out of business – and the
oil companies widen their net to grab consumers' cash.
The FTC isn't taking action to address these problems now because
they say the agency can only take action in cases of collusion.
If the FTC can't or won't take action to protect consumers at
the pump, there is a vehicle today, S. 1737, through which Congress
can give the agency the power now to address the problem of skyrocketing
gasoline prices.
In a case like Shell's Bakersfield refinery, the FTC could issue
a cease and desist order to halt shutdown of the refinery. Because
California is a highly concentrated market, Shell could be required
to show that closure of the refinery would not have anti-competitive
impacts by reducing supply or increasing the price of gasoline.
If Shell can show that it will be increasing its production at
the company's other West Coast refineries to make up for the
lost production at Bakersfield, the closure could still be allowed
to go forward. But my legislation would protect consumers where
an oil company was closing its refinery as part of a deliberate
effort to reduce supply and drive up prices.
Congress needs to act to protect gasoline consumers because
both the industry and the Bush Administration agree that gasoline
price spikes are going to be a continuing problem.
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."
Mr. Chairman, I urge the Committee to consider my legislation,
S. 1737, as one of the actions that Congress can take now to
protect consumers from skyrocketing gasoline prices. But if you
don't agree that the approach in my legislation is the best way
to address anti-competitive practices in U.S. gasoline markets,
I urge the Committee to come up with your own plan for improving
competition in gasoline markets.
Mr. Chairman, your OPEC legislation is a strong first step toward
protecting gasoline consumers from getting soaked at the pump,
but it won't provide full protection from the perfect storm now
threatening our citizens unless Congress also addresses the anti-competitive
actions that are occurring here in our own gas markets. To fully
shelter consumers, the Committee needs to build on the efforts
to address offshore forces with a new wall of protection against
the anti-competitive forces buffeting markets here at home.
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