September 19, 2006

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

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 PricesMr. 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.