    [House Hearing, 106 Congress]
    [From the U.S. Government Publishing Office]

                      OPEC AND THE NORTHEAST ENERGY CRISIS

    =======================================================================

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                            INTERNATIONAL RELATIONS
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED SIXTH CONGRESS

                                 SECOND SESSION

                                   __________

                               FEBRUARY 10, 2000

                                   __________

                               Serial No. 106-131

                                   __________

        Printed for the use of the Committee on International Relations

     Available via the World Wide Web: http://www.house.gov/international
                                   relations

                                     ______

                       U.S. GOVERNMENT PRINTING OFFICE
    66-028 CC                  WASHINGTON : 2000

                      COMMITTEE ON INTERNATIONAL RELATIONS

                     BENJAMIN A. GILMAN, New York, Chairman
    WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
    JAMES A. LEACH, Iowa                 TOM LANTOS, California
    HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
    DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
    CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American
    DAN BURTON, Indiana                      Samoa
    ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
    ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
    CASS BALLENGER, North Carolina       ROBERT MENENDEZ, New Jersey
    DANA ROHRABACHER, California         SHERROD BROWN, Ohio
    DONALD A. MANZULLO, Illinois         CYNTHIA A. McKINNEY, Georgia
    EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
    PETER T. KING, New York              PAT DANNER, Missouri
    STEVE CHABOT, Ohio                   EARL F. HILLIARD, Alabama
    MARSHALL ``MARK'' SANFORD, South     BRAD SHERMAN, California
        Carolina                         ROBERT WEXLER, Florida
    MATT SALMON, Arizona                 STEVEN R. ROTHMAN, New Jersey
    AMO HOUGHTON, New York               JIM DAVIS, Florida
    TOM CAMPBELL, California             EARL POMEROY, North Dakota
    JOHN M. McHUGH, New York             WILLIAM D. DELAHUNT, Massachusetts
    KEVIN BRADY, Texas                   GREGORY W. MEEKS, New York
    RICHARD BURR, North Carolina         BARBARA LEE, California
    PAUL E. GILLMOR, Ohio                JOSEPH CROWLEY, New York
    GEORGE RADANOVICH, California        JOSEPH M. HOEFFEL, Pennsylvania
    JOHN COOKSEY, Louisiana
    THOMAS G. TANCREDO, Colorado
                        Richard J. Garon, Chief of Staff
              Kathleen Bertelsen Moazed, Democratic Chief of Staff
              Francis C. Record, Senior Professional Staff Member
                        Marilyn C. Owen, Staff Associate
                                C O N T E N T S

                                  ----------

                                   WITNESSES

                                                                       Page

    The Honorable David L. Goldwyn, Assistant Secretary for
      International Affairs, U.S. Department of Energy...............    14
    Peter Bass, Deputy Assistant Secretary for Energy, Sanctions and
      Commodities, Bureau of Economic and Business Affairs, U.S.
      Department of State............................................    17
    F. William Valentino, President, New York State Energy Research
      and Development Authority......................................    31
    John J. Huber, Vice President and Chief Counsel, Petroleum
      Marketers Association of America...............................    33
    Robert Costello, Chief Economist, American Trucking Associations.    35

                                    APPENDIX

    Prepared Members' Statements:

    The Honorable Benjamin A. Gilman, a Representative in Congress
      from New York and Chairman, Committee on International
      Relations......................................................    44
    The Honorable Sam Gejdenson, a Representative in Congress from
      Connecticut....................................................    48
    The Honorable Christopher H. Smith. a Representative in Congress
      from New Jersey................................................    50
    The Honorable Robert Menendez, a Representative in Congress from
      New Jersey.....................................................    52
    The Honorable John M. McHugh, a Representative in Congress from
      New York.......................................................    55
    The Honorable Joseph Crowley, a Representative in Congress from
      New York.......................................................    56

    Prepared Witness Statements:

    David L. Goldwyn, U.S. Department of Energy......................    57
    Peter E. Bass, Department of State...............................    65
    John Huber, Petroleum Marketers Association of America...........    71
    F. William Valentino, New York State Energy Research and
      Development Authority..........................................    74
    Bob Costello, American Trucking Associations.....................    90

    Additional statements and materials submitted for the record:

    Testimony of the American Petroleum Institute....................    97
    Letter to Secretary of State dated February 4, 2000 from The
      Honorable Sam Gejdenson........................................   102
    Letter to Secretary Energy dated February 8, 2000 from The
      Honorable Sam Gejdenson........................................   103
    Letter to The President dated January 21, 2000 from George E.
      Pataki, Governor, New York, concerning release of emergency
      LIHEAP funds...................................................   104
    Additional letter dated January 21, 2000 from Governor Pataki to
      President Clinton..............................................   105
    Letter to Secretary of Energy dated January 21, 2000 from
      Governor Pataki................................................   106
    Letter to Governor George E. Pataki (New York) dated February 19,
      2000 from New York State Legislature (Assemblyman Paul D. Tonko
      and State Senator Richard A. Dollinger)........................   107
    Testimony of Senator John J. Bonacic, New York State Senate......   109
    Statement of Senator William J. Larkin, Jr., New York Senate.....   111
    Statement of Howard D. Mills, New York State Assembly............   112
    Statement of Nancy Calhoun, New York State Assembly..............   113
    Testimony of Jacob Gunther, New York State Assembly..............   115
    Letter of Joseph G. Rampe, County Executive, Orange Co., NY,
      dated February 9, 2000.........................................   116
    Letter of Joseph A. Berti, of Speed Motor Express, Buffalo, NY,
      dated February 9, 2000 with related charts on Diesel Prices....   117
    Letter of Richard E. Jamieson, of Rich's 24 Hour Towing Service,
      Spring Valley, NY, dated February 9, 2000......................   120
    Letter of Carl D. Morse,of E. A. Morse & Co., Inc., Middletown,
      NY, dated February 9, 2000.....................................   121
    Letter of Rodney A. Kaufmann, of Kaufmann's Servicenter,
      Montgomery, NY, dated February, 2000...........................   122
    Letter of Joseph Pillitteri, of Triple Petroleum, Inc., Pine
      Bush, NY.......................................................   124
    Two letters of Christopher Sardo, Thames Valley Council for
      Community Action, Inc., dated February 9, 2000.................   126

                      OPEC AND THE NORTHEAST ENERGY CRISIS

                                  ----------

                          Thursday, February 10, 2000

                      House of Representatives,
                  Committee on International Relations,
                                                       Washington, D.C.
        The Committee met, pursuant to call, at 10:30 a.m., in Room
    2154, Rayburn House Office Building, Hon. Benjamin A. Gilman
    [Chairman of the Committee] presiding.
        Chairman Gilman. The Committee will come to order. We are
    pleased to convene this hearing on OPEC and the energy crisis.
    We are joined this morning by two international energy policy
    experts from the Department of Energy and the Department of
    State, and by three witnesses representing the New York Energy
    Authority, the Petroleum Marketers Association, and the
    American Trucking Association.
        Our two panels are going to be able to provide Committee
    Members with a comprehensive overview of the impact in the
    Northeast and throughout our Nation of the production cutbacks
    by the Organization of Petroleum Exporting Countries, OPEC, and
    the origins of the energy crisis affecting thousands of
    households and hundreds of businesses across the State of New
    York and New England.
        With the price of home heating tripling over the past year,
    many of our low-income consumers and many of our small
    businesses in our districts and our states are hard-pressed to
    heat their homes and to keep their shops and their factories
    running. Hundreds of letters and calls have poured into our
    district offices and Washington offices describing the crisis
    from their own perspective, where to a large extent they are
    fighting a losing battle in trying to stay warm without going
    broke in the process.
        Today we will try to find some answers from these witnesses
    who are here with us, and we are demanding to know how all of
    this happened and what our local, state and Federal
    policymakers are doing to ensure that it is going to be
    corrected as early as possible and does not recur. Many of us
    who have been around a while recall this happening many years
    ago when OPEC decided to do the very same thing in the past,
    cutting back on production and impacting upon our Nation.
        We will also get firsthand reports from our witnesses today
    on the extent of the problem and a review of what our States
    are doing to try to meet this emergency, and how the Federal
    Government can and must do much more to help low-income
    families put at risk by the frigid temperatures across the
    Northeast, and to keep icebreaking tugboats in operation so
    that our ports and rivers remain open to barge traffic.
        There are no simple answers on why or how we got into this
    crisis, but there can be little doubt that dramatically higher
    energy prices will boost inflation and could ultimately force
    the Federal Reserve to consider additional interest rate hikes.
        Oil prices are higher today than at any time since the
    Iraqi invasion of Kuwait a decade ago. Production cutbacks
    decreed by the producer cartel, the Organization of Petroleum
    Exporting Countries, have caused worldwide stocks, including
    those in our Nation, to be drawn down to very low levels. This
    imbalance has resulted in the sharp climb in crude oil prices
    over the past year.
        Late last year, OPEC was indicating that it might relax its
    production quotas if stock reached 1996 levels. But in early
    January of this year, the member states of OPEC reversed course
    and indicated they fully intended to maintain their cutbacks of
    about six percent of worldwide production, at least through
    March of this year, and possibly through June or later.
        As our dependency on foreign oil has increased over the
    past decade, the Administration has regrettably fallen short in
    its efforts to persuade OPEC and non-OPEC nations alike to
    moderate their aggressive policies designed to punish oil-
    importing nations.
        Together with the very cold weather this year and
    transportation bottlenecks, OPEC cartel-like operations have
    sent the price of heating oil surging throughout New England
    and New York. The price of oil reached $30 per barrel briefly
    during the week of January 21st, compared to about $12 a barrel
    of oil in the summer months of last year.
        Yesterday I talked with a civil service employee in one of
    my counties who told me that his cost for heating oil has
    doubled from December of last year to January of this year;
    that he can only afford to replenish his supply of heating oil
    to the 150-gallon mark of his 300-gallon tank. In yesterday's
    edition one of our local papers, the ``Times Herald Record,'' a
    prominent newspaper in my district, described the plight of
    many of our elderly low-income consumers who are being forced
    to turn up their thermostats in the face of sharply higher home
    heating costs.
        That article describes the plight of 74-year-old Virginia
    Jump of Mount Hope, who has been forced to keep her oil furnace
    set at 80 degrees so that her thermostat can stay at 68, and
    that doesn't even keep the drafts at bay in her chilly two-
    bedroom home. She lives on a monthly Social Security income of
    $734, with no phone or running water because she can't afford
    those kinds of services.
        Last week she paid $268 for fuel oil, double the price she
    paid just two months ago, and she is far from alone in that
    situation. Seniors on fixed incomes have been hard-hit by the
    dramatic increase in energy costs. According to Christine Noble
    of the Ulster County Office for the Aging, I quote, ``It's
    affecting a lot of people. Seniors don't like to ask for help,
    but this year they don't have any choice.''
        So, in trying to address a domestic solution to the growing
    energy crisis, I think the Administration has been a day late
    and a dollar short with inadequate efforts to boost stocks of
    heating oil around the country and to find a proposal for our
    low-income consumers.
        In its latest allocation of funding, our U.S. Department of
    Health and Human Services released $45 million in additional
    funding to the low-income Home Energy Assistance Program to the
    ten states of the Northeast and to Alaska, but my State of New
    York got less than its fair share, receiving $2.6 million for
    some 1.4 million low-income households, while New Hampshire
    received $5.4 million for just 47,000 low-income households. We
    have to make certain that there is more equity in the
    distribution of these funds.
        I am hoping that someone in the Administration can let us
    know how we should explain the problem to our folks who are
    being hard-pressed.
        Before turning to Mr. Gejdenson for his opening remarks, I
    would like to ask that the record be kept open for a period of
    five days for incorporation of additional relevant material
    related to our hearing, including statements by our witnesses,
    Joe Berti, Director of Operations of Speed Motor Express, a
    family-owned transportation business in Buffalo, New York; New
    York State Senator John Bonacic, Chairman of Senate Committee
    on Housing Construction and Community Development; Richard
    Jamieson of Rich's Towing, a small towing business in Spring
    Valley, New York; New York State Assemblyman, Howard Mills, of
    Goshen, New York; and New York State Assemblywoman, Nancy
    Calhoun, of Blooming Grove; and New York State Senator Bill
    Larkin, Steering Committee Chairman; Joseph Rampey, County
    Executive of Orange County, New York; Carl Morse of E.A. Morse
    and Company, a delivery company, Middletown, New York; and
    Rodney Kaufmann of Kaufmann Service Center, Gulf Service
    Station, Montgomery, New York.
        [The information appears in the appendix.]
        Chairman Gilman. I am pleased to turn to our Ranking
    Minority Member, Mr. Gejdenson, for his opening statement.
        Mr. Gejdenson. Thank you, Mr. Chairman.
        In watching the Administration's response, I almost thought
    I was back in the Reagan and Bush years rather than the Clinton
    years. Frankly, I do not know whether it has been a function of
    the great success that we have had in almost every other
    sector, but the reaction from the Administration in this area
    has been difficult to discern.
        We look at any other energy sector in this country, and we
    have a strategy to deal with supply and demand. If you are a
    natural gas supplier, you have to make sure that you can
    adequately take care of your home heating reserves, and you
    have interruptible contracts with industrial users to make sure
    if there is a crisis that home residential people are not left
    without a supply.
        What we find is those kinds of actions taken in the area of
    natural gas actually exacerbate the situation when it comes to
    home heating oil because, as industrial users are pushed away
    from natural gas, they go to number two. They go to fuel oil,
    increasing demand at a time when there is the lowest supply.
        So what we essentially had here was a case where the gas
    companies managed load by getting rid of industrial users.
    Industrial users moved to fuel oil, putting additional pressure
    on those individuals who heated their home with number two.
        Additionally, sitting on the strategic petroleum reserve
    like it was some ancient artifact that we ought to hang onto is
    irrational. For one thing, you get a lot of money for it if you
    sell it today.
        Now, I understand there is a lag in this, but if the
    present supply problems exist in heating oil, you know what is
    going to happen when we come to summer drive time. We are going
    to have the same kind of pressures on the gasoline price.
        We have seen some of this, and people do have an ability to
    reduce driving a lot more than they have an ability to reduce
    the heat in their homes. It seems to me, it does not take an
    energy genius to figure out what will happen if there is a
    short supply of fuel oil. We may see some of these pressures in
    the summer, and if we want to tell OPEC that they can
    manipulate our economy and supply, then we ought to sit on our
    hands. If we want to tell them it is a bad idea to do this,
    it's a great time to sell off some SPRO. You will make a little
    profit. When the oil price goes down, you can buy it back and
    actually make a profit for the Government, rather than just
    leaving the citizens to be victims of these countries that we
    have rescued so often.
        The Chairman and I, we all have the same set of
    experiences. I know of a woman in Putnam, Connecticut, paying
    $2.66 a gallon. I think the Government ought to establish a
    program where not only is there a Northeast regional supply,
    but wholesalers ought to be required to have an adequate supply
    in place.
        When you look at the fact in this year that we found
    ourselves below the 5-year average, I think something like 32
    percent below the 5-year average, it does not take a genius to
    say at some point, we would have a couple of cold days in the
    winter, and people watching these energy supplies, which I
    imagine somebody must have, should have recognized there would
    be a problem.
        So I think one of the things we have to do is tell the
    wholesale suppliers who operate in these regions that they
    cannot walk into a year with such an inadequate supply that
    even an average winter would give you trouble, never mind about
    a bad month or two in the winter. So I think one of the things
    you have got to take back to your agencies is make sure that
    wholesale suppliers have an adequate supply.
        Home heating oil and diesel fuel stocks nationwide are down
    2 billion gallons, 47 million barrels. Again, I do not know why
    we have a Department of Energy. The Republicans wanted to get
    rid of all of these departments. Maybe they were right if the
    only thing they do is collect statistics and leave consumers
    out there to OPEC's kind of actions. Then maybe they are right.
    Maybe we ought to get rid of these departments.
        In one county in my district, New London County, we have
    4,000 families applying for LIHEAP. That is a thousand more
    families than last year already. Now, some LIHEAP dollars are
    very nice for them, but inadequate in every one of our
    districts for the real need, and middle-class families are also
    getting killed. So it seems to me whether you have been a
    trucker trying to make your living driving diesel fuel or
    whether you are somebody heating your home or running a
    business, we have had a Government that basically said we are
    going to take American assets in the 1990's and American lives
    to protect Saudi Arabia and Kuwait from the terrible people in
    Iraq; and then, when Saudi Arabia and Kuwait got together to
    have a damaging effect on our economy, we did not hear
    anything. We hear nothing frankly from the Administration in
    this area, and the thing that we do have is use the Strategic
    Petroleum Reserve. But there is always a reason not to dip into
    it.
        If we are not going to ever dip into it, then maybe we
    ought to get rid of it. I mean, it is just sitting there in the
    ground. Now would be a good time to get rid of it again
    because, on average, the barrels you would sell would bring you
    a higher price than it would cost you to put them back in
    there.
        I think that when you look at the things we need to do, a
    regional reserve obviously makes sense. The commercial guys
    ought to have an adequate reserve at the beginning of a heating
    season. We would not let an electric company reduce its
    generating capacity, recognizing that if we had an average
    summer there would be brownouts across the country. If the
    electric utilities came to the Energy Department, and said,
    ``We are going to close 14 plants on the East Coast because, if
    everything is cool and the temperature does not get above 70 in
    August, everything is going to be fine,'' I assume the Energy
    Department might say this is a bad idea.
        On the other hand, when we see OPEC reducing production,
    refined oil reserves dropping to a level that would endanger
    people in an average month, and we see no action, one has to
    wonder why we pay these salaries in these various departments.
        Mr. Chairman, I am frustrated, as I think many Members are.
    I would like to put into the record two letters from the Thames
    Valley Community Council for Community Action, together with my
    prepared statement.
        It may be too late to help people with heating oil, but the
    answer then is we still need to make sure we do not end up with
    a gas crisis coming into the spring and summer, and also you
    have got to send a message to OPEC.
        The Gulf producers cannot just pick up the phone and say,
    ``Gee, the terrible Iraqis are doing something. We need help,''
    and then they get to manipulate our economy every time they
    have a desire to enrich themselves. If they want to do that,
    fine. If we have SPRO, we ought to be using it to protect
    ourselves, to make sure we drive down the price of crude, even
    if it has no impact today. We ought to start doing this. It
    will bring us higher prices for the oil that is in SPRO. It
    will allow us then to rebuy that oil when the prices dip, and
    it will tell people the next time they want to mess with us,
    there will be a price.
        If not, if I were OPEC, I would cut the production by
    another five percent with the response I have seen from the
    Administration.
        I can understand why they sent guys who did not necessarily
    have the rank to answer all of these questions.
        Thank you.
        Chairman Gilman. Thank you, Mr. Gejdenson.
        Without objection, your request to enter into the record
    will be agreed to.
        [The information appears in the appendix.]
        Chairman Gilman. Mr. Rohrabacher?
        Mr. Rohrabacher. Thank you very much, Mr. Chairman.
        Mr. Ackerman. Just recall, Mr. Rohrabacher, that is the
    side of the room you defend the Administration from.
        Mr. Rohrabacher. Uh-oh.
        Mr. Gejdenson's remarks reminded me of the story that, I
    might add, Ronald Reagan used to tell about a time during the
    blitz when some firemen noticed that in one of the burned-out
    buildings from the German bombings that there was a noise
    coming. They went into the building, and there, after going
    through the rubble, they found there was an older lady who was
    trapped there in the rubble, but still alive. As they tried to
    pull the rubble off of her, one of them found in the rubble
    also a bottle of whiskey which he immediately brought over to
    the elderly woman who was still trapped and said, ``Here, why
    don't you have a drink of this.'' She said, ``Hold on, now.
    That's just for emergencies.''
        When we are talking about our oil reserve, perhaps whether
    or not we are going to use it as a tool in times like this or
    whether this is an emergency or not, I think this is a very
    important discussion of what is the purpose of us having all of
    that oil if we are not going to protect the American consumer
    in times like this. I am not necessarily sure what the answer
    to that question is.
        I would like to say that the issue that we are discussing
    today seems far removed from some of the policies that I
    believe directly impact on this issue and on oil prices and on
    the availability of fuel to the United States and the American
    consumer. Some of the policies of this Administration, however,
    have led directly to this situation, and not necessarily
    policies by the Department of Energy.
        I will, for example, point out that today, because of
    policies of this Administration, we have a repressive anti-
    Western regime that harbors terrorists in Afghanistan, and I
    believe this can be tied directly to the policies of the
    Administration.
        Because we have that hostile regime in Afghanistan, there
    have been no pipelines built through Afghanistan that would
    permit the oil that is in Central Asia to flow into the world
    market. These things seem far removed, but they directly impact
    on what we are talking about today.
        If Central Asia's oil had been brought into the world
    market, it would have been impossible for OPEC to try to
    control prices and manipulate prices the way we are talking
    about.
        I have been trying to get to the bottom of what our policy
    is in Afghanistan for several year, and I appreciate Mr.
    Ackerman, who has been supporting my legitimate call for the
    documents that are necessary to find out what American policy
    has been in Afghanistan.
        Let me just report today to my colleagues and to the press
    and to whoever else is listening that the Administration is
    again stonewalling the efforts that I have made to try to
    determine whether or not there has been a covert policy by this
    Administration of supporting the Taliban in Afghanistan, and
    that I have been denied the documents that are in the time
    period that I have been requesting for two years.
        There is some reason why the Administration does not want
    to give me those documents. Perhaps they are hiding something.
    I do not know what it is, but there is a reason. I called on
    the State Department today to fulfill their obligation from
    requests made by Chairman Gilman and myself, backed up by Mr.
    Ackerman, that they provide us the documents necessary to find
    out what American policy has been in Afghanistan. Again, this
    may seem far removed from the fact that our people are
    suffering in the Northeast right now, but if you look very
    closely, it has everything to do with it. The fact that Central
    Asia is still isolated has something to do with the fact that
    oil pipelines have not been able to be put through Afghanistan,
    and without those oil pipelines in Afghanistan, OPEC rules the
    day.
        So, with that, Mr. Chairman, I thank you for giving me this
    opportunity for an opening statement. I am interested in the
    testimony.
        Chairman Gilman. Thank you, Mr. Rohrabacher.
        Mr. Menendez?
        Mr. Menendez. Thank you, Mr. Chairman.
        I want to ask unanimous consent to have my entire statement
    in the record.
        Chairman Gilman. Without objection.
        Mr. Menendez. There is no doubt that an energy crisis
    exists in the Northeast. If you are from other parts of the
    country, you may not have felt a pinch, but certainly we have.
    In New Jersey, we are clearly at crisis levels.
        Imagine your residential energy costs doubling in a matter
    of weeks. That is what we are facing. I do not know many
    families who have planned for this type of fluctuation in their
    monthly bills, but I can tell you there are not many.
        We see the cost for home heating oil has more than doubled
    just since the middle of January. That means that the price of
    home heating oil has risen from about $1 per gallon to $2 per
    gallon in just a matter of weeks. To put this in perspective,
    home heating oil prices have not averaged more than $1 a gallon
    since the winter of 1991.
        If average consumption remains constant and the cost for
    home heating oil this winter remains on the path we have seen
    so far, this could mean that a typical household could spend an
    additional $350 or $400 more in home heating cost this winter.
        Many factors have contributed to the high cost of home
    heating oil in the Northeast, not the least of which is recent
    action taken by OPEC to control oil supply and thus increase
    the price for crude oil. However, the impact of these OPEC
    actions has been exacerbated by the increase in domestic crude
    oil prices. These price increases have prompted many refiners
    and marketers to draw from their existing stocks of lower-cost
    crude rather than buying today's higher-priced supply.
        In this draw-down of domestic supply, it has left the
    United States particularly vulnerable to the additional
    stresses created by recent winter storms and colder weather, as
    well as interruptions in the delivery of home heating oil.
        With OPEC's control of over 40 percent of the world's oil
    production and 77 percent of reserves, action by the cartel to
    control prices by controlling supply has obviously played a
    significant role in today's energy crisis. They have
    accomplished their goals. Not only did they achieve their goal
    of $21 a barrel, but prices have continued to increase to more
    than $25 per barrel.
        So I hope that Secretary Richardson, who I understand will
    be meeting with OPEC Ministers before their March rendezvous,
    will be strong, will be clear and will be sending a very strong
    message about what we are willing to do. At the same time, I
    believe there is much more that we can do here at home to
    alleviate the overwhelming burden on consumers of home heating
    oil prices.
        I support the Administration's decision to increase supply
    by deferring the purchase of five million barrels of crude for
    the Strategic Petroleum Reserve until the end of the heating
    season. However, I do not believe that, by any stretch of the
    imagination, is enough.
        I have been actively, along with many of my other
    colleagues, encouraging the Administration to go even further
    and implement a draw-down of the Strategic Petroleum Reserve
    either through a sale or a swap of oil now to be replaced with
    interest by a date certain.
        I cannot understand why the Strategic Petroleum Reserve was
    drawn down during the Gulf War under prices which were far, far
    below today's prices, why it is not being drawn now.
        Winter weather does not wait for Government decisions. Our
    constituents in the Northeast cannot afford to wait any longer,
    and we look forward, Mr. Chairman, to the testimony, but more
    importantly the actions that will be take to give us some
    relief.
        [The statement of Mr. Menendez appears in the appendix.]
        Chairman Gilman. Thank you, Mr. Menendez.
        Mr. Smith?
        Mr. Smith. Thank you very much, Mr. Chairman.
        I do have a lengthy opening statement which I will not
    read, but ask that it be made a part of the record.
        Chairman Gilman. Without objection, the full statement will
    be a part of the record.
        Mr. Smith. I want to thank you for convening this very
    important hearing, notwithstanding some abatement in the
    weather which could obviously change in a day or two. We never
    know which way that is going to go.
        It is very important that the fundamental gauging that is
    going on by OPEC and by all those in the pipeline be fully
    revealed and hopefully very aggressively fought against.
        You fight fire with fire, Mr. Chairman, and you fight oil
    supply with oil supply. As my good friend, Mr. Menendez, just
    pointed out a moment ago, even during the Gulf War, we were
    paying less for home heating oil in New Jersey than we are
    right now. As a matter of fact, it was about 50 cents less per
    gallon than it is today.
        I talked to one of the providers of home heating oil in my
    area, and he pointed out that in just one weekend the price had
    jumped 22 cents from Friday to Monday. That is outrageous. I
    smell a rat. We should all smell a rat, and hopefully, the
    Administration will be much more aggressive. Certainly draw-
    downs on the Strategic Petroleum Reserve will help resolve or
    at least be part of the solution, because we all know that
    supply dictates market price. If the supply goes up, the price
    will come down.
        [The statement of Mr. Smith appears in the appendix.]
        Chairman Gilman. Thank you, Mr. Smith.
        Mr. Ackerman?
        Mr. Ackerman. Thank you, Mr. Chairman. Let me thank you
    first for calling this timely meeting of our Committee.
        I was delighted when I came into the room to see the new
    seating arrangement. I do not know if it was just something to
    make us reminiscent of the past or if it is a harbinger of
    things yet to be, but nonetheless we are happy to be back here
    on this side.
        I, too, have a rather lengthy, but nonetheless brilliant
    statement that someone wrote, and I will spare us all today by
    asking unanimous consent to place it in the record, if there is
    no objection, Mr. Chairman.
        Chairman Gilman. Without objection.
        Mr. Ackerman. I would like to make a point or two. First,
    this is kind of unusual. Usually, this is not the kind of cold
    war that we discuss in this Committee, but it certainly has
    international causes and international ramifications. So I
    thank the Chairman for holding this, albeit hastily, much-
    needed hearing.
        It seems to me we have an opportunity to ameliorate the
    problem that exists. We have a strategic petroleum reserve.
    What is it for? I hope that our panel will address that because
    it seems to me that at least a major part of our country, the
    part that uses much of this oil--my State alone, I believe uses
    20 percent of the home heating oil of the entire country, and
    our region accounts for even more than that.
        It makes good economic sense, as the Ranking Member, the
    gentleman from Connecticut, pointed out. You have bought low.
    This is your opportunity to sell high. It will be low again,
    and you will have the opportunity to replenish the Strategic
    Reserve and yet gain a profit for the Government, not that that
    is the purpose. But you lose nothing by this and you will not
    be running the reserve into the ground. Instead, you will be
    providing a much-needed service to a region of the country that
    is suffering deeply.
        I know there is a concern about doing this because there is
    an OPEC meeting on the 27th of next month, and there is a
    concern that perhaps a strategy such as releasing some of the
    reserve will cause some kind of retaliation on the part of some
    members of OPEC, or OPEC overall.
        I would think that they have already reacted. They have
    preemptively reacted. They have made a decision to do exactly
    what they are doing, and if our Strategic Petroleum Reserve is
    there for some strategic purpose, I would like to know what the
    strategy is, if not to use it, to try to control this kind of
    preemptive strike by the oil producers.
        That being said, I will yield back the balance of the my
    time.
        [The statement of Mr. Ackerman was not available.]
        Chairman Gilman. Thank you, Mr. Ackerman.
        Mr. Delahunt?
        Mr. Delahunt. Thank you, Mr. Chairman.
        I would just echo what others have said. I come from a
    State that has been particularly hard hit. I have not had a
    chance to read your testimony, Mr. Secretary, but what I would
    like to hear today is whether the Energy Department feels that
    there needs to be additional statutory authority to draw down
    from the Strategic Petroleum Reserve. I'd like to have an
    answer to that particular question.
        I would like to express my own concern that was clearly
    articulated yesterday at a meeting that Members from the
    Northeast and New York and other States particularly impacted,
    with Secretary Richardson, about the need to take immediate
    action. There is no way that we can wait until March 27th, and
    I think from that meeting, there was a consensus from Members
    of Congress--and I should underscore on a bipartisan basis--
    that much of the crisis is now being driven by speculation.
        There was a consensus that clearly the preferable approach
    to pierce, if you will, that speculative bubble is to engage in
    a draw-down, because history is very instructive in this regard
    when President Bush, as I am sure you are aware, drew down in
    the midst of the Gulf War. In a single day, the price plummeted
    by $10 per barrel, and I would pick up on the observation by
    Mr. Ackerman.
        I think at this point in time, we are in very hard
    negotiations with OPEC, and I would suggest that is the best
    course of action on behalf of the people whom we represent
    because we know that sooner or later the prices are going to go
    back to a more reasonable level. So I would conclude and yield
    back by just making those observations.
        Thank you, Mr. Chairman.
        Chairman Gilman. Thank you, Mr. Delahunt.
        Mr. Salmon?
        Mr. Salmon. Thank you, Mr. Chairman.
        I congratulate you on this hearing. I think it is very,
    very timely.
        Let me read a letter that I wrote to you back in April of
    last year. ``Dear Mr. Chairman: Since March 1st, the price of
    gas in certain Arizona markets has increased by about 50 cents,
    considerably more than the prices have increased nationally.
    Gas prices now average about $1.40 in Phoenix and Scottsdale.
    In fact, a recent AAA survey found that the Arizona price for
    self-serve unleaded ranked as fourth highest in the country.
    While I understand there may be legitimate reasons for this
    increase, including refinery fires in California and, indeed,
    prices in States dependent on California gas have risen more
    than other regions of the country, there may be another factor,
    namely OPEC's recent agreement to fix prices. Accordingly, I
    write to request the International Relations Committee hold a
    hearing to explore the action that the Administration has taken
    or could have taken to prevent OPEC from fixing prices and the
    measures it is pursing to break the cartel's anti-competitive
    maneuver. I am gravely concerned that the Administration has
    neglected this matter, resulting in higher gas prices for
    millions of American drivers. Therefore, I believe it is
    imperative for your Committee, as it has done so on many
    occasions in the past, to provide guidance to the Clinton
    Administration on how to counter the OPEC cartel.'' That is
    what I wrote clear back in April of last year.
        I am pleased now--I guess misery loves company. The fact
    that now the Northeast is suffering as well has caused Congress
    to take a very serious look at this. I think there are some
    real irregularities that have been going on for a very, very
    long time, and I feel like kind of the voice in the wilderness.
    I am tired of my constituents being molested by these oil
    prices, and now that it has hit Northeastern America, maybe we
    can get something done about this and fix the problem.
        Thank you.
        Chairman Gilman. Thank you, Mr. Salmon.
        Mr. Sanders?
        Mr. Sanders. Mr. Chairman, thank you very much for allowing
    me to join you today, and I really do congratulate you for
    calling attention to what is a crisis in Vermont and the
    Northeast and in many parts of the country.
        Let me be very brief and tell you what I think of some of
    the things that the Government might be doing and tell you that
    I share the disappointment of others in terms of the meeting we
    had yesterday with Secretary Richardson. I think that there is
    not an understanding of the kind of urgency that exists in this
    country and the need for bold action on the part of the
    Administration. So let me very briefly talk about a number of
    steps that I think we should take.
        First, the President should immediately release oil from
    the Strategic Petroleum Reserve. The fact is that in 1990, as I
    understand it, President Bush released a small amount of that
    oil, and the immediate impact was to lower the price per barrel
    of oil by $10. It seems to me that when prices are escalating
    as they are right now, it is appropriate for the United States
    Government to use the resources that it has to drive prices
    down, and I am disturbed that the President has not yet done
    that.
        Second, I think it is appropriate that the Administration
    press OPEC and our other major foreign suppliers to increase
    their production of both crude oil and home heating oil
    exported to the United States. I think that there is something
    wrong when allies in the Middle East, for whom American
    soldiers lost their lives defending, are taking action which is
    having an enormously disruptive impact on millions of American
    families.
        Third, I think that there has got to be a significant
    increase in terms of releasing the emergency LIHEAP funding for
    low-income Americans. A couple of weeks ago, the President
    released $45 million, but many of us fought to make sure that
    there would be at least $300 million in emergency LIHEAP
    funding. We are in a crisis situation. Fewer people are able to
    get LIHEAP resources, and we think that the President should
    now release all or almost all of that emergency funding.
        Fourth, I think we need an immediate investigation of the
    alleged price-gauging by the oil industry. I do not want to go
    into that in great length, but I think there are people in the
    business and many consumers, people in Government, who are
    concerned about possible illegal activities that might be
    taking place, and it would be appropriate for the Attorney
    General of the United States to take a hard look at that.
        Also, Mr. Chairman, yesterday, with a number of cosponsors,
    Democrats and Republicans, I introduced the heating legislation
    which would establish a home heating oil base reserve in New
    York Harbor. It seems to me that one of the tools that we have
    in order to prevent this kind of crisis from occurring again is
    to have established a home heating oil reserve so that when
    heating oil prices go up, we can release that oil into the
    market and lower prices. We have many, many cosponsors on that
    legislation. I am happy to say that Secretary Richardson
    indicated that his Department would be taking a serious look at
    it.
        The bottom line is, Mr. Chairman, congratulations for
    holding this hearing. In my view, the Administration is not
    doing enough to respond to this crisis. There are a number of
    things that can be done immediately, and we should do them.
        Thank you, Mr. Chairman.
        Chairman Gilman. Thank you, Mr. Sanders.
        Mr. McHugh?
        Mr. McHugh. Just briefly, Mr. Chairman. I do have a full
    statement that I would ask to enter its entirety.
        Chairman Gilman. Without objection.
        Mr. McHugh. I just want to associate myself with the
    comments of all of my colleagues, particularly those from the
    Northeast. Let me say to my friend from Arizona, I am glad we
    are able to help, although I wish we could find other areas in
    which to cooperate, as I am sure he does, too.
        I just want to underscore the very serious nature of this,
    and I am sure witnesses are beginning to get a flavor of our
    deep, deep concern. The fact of the matter is, in the
    Northeast, there are about 7.5 million households that use home
    heating fuel as a way to drive heat and hot water to their
    homes. About 75 percent, as I understand it, of the entire
    Nation's households that use that kind of fuel.
        I was in a beautiful little community, about 2\1/2\ weeks
    ago, called Saranac Lake in my district. I stepped out of the
    car and I looked at the bank sign, and it was minus 27 degrees
    Fahrenheit. That was without wind chill. The wind chill brought
    it to about 80 degrees below zero. I think you can tell that
    this is not a question of frivolity. This is a question of
    literally life and death.
        In my district, we have not seen and enjoyed the benefits
    of this great economic boom we hear about. Unfortunately, too
    many of my counties have double digit on unemployment, and 8
    percent is considered a good unemployment rate at the present
    time in my district. That equates to a lot of people who are
    really struggling hard to keep their heads above water. When
    you have the kinds of increases to home heating fuel that have
    occurred in my part of the world, a 90-cents-a-gallon increase
    in just 3 weeks, for example, this becomes an issue of crisis
    proportion.
        I understand the Administration now has concerns about
    their legal authority to release stockpiles out of the
    Strategic Petroleum Reserve. I wish we would have heard that a
    few weeks ago. I am surprised it took them that long to
    discover this little technicality. I do not happen to agree
    that that legal problem exists, and I would like to see us try
    to work through it. However, it seems to me if that is the only
    barrier, we could act pretty quickly in this Congress, or
    certainly I would hope so, to take the steps necessary to
    provide the Administration the authority that they need.
        So, Mr. Chairman, let me add my words of thanks again to
    you. This is a question of, as I said, life and death, and I am
    just delighted that you have decided to take this very, very
    necessary step, and I would yield back.
        Chairman Gilman. Thank you, Mr. McHugh.
        [The statement of Mr. McHugh appears in the appendix.]
        Mr. Sherman?
        Mr. Sherman. Thank you, Mr. Chairman.
        I cannot join the colleague who just spoke in a concern for
    wind-chill factor, but I do commend the Chair for holding these
    hearings, and I represent an area that is as dependent upon the
    automobile as other districts are on home heating oil.
        The Members of this Committee have often heard me describe
    America's foreign policy as that we would like the honor of
    defending other countries for free, and in return for that
    honor, we would like to make major trade concessions. Nothing
    perhaps illustrates this to a greater extent than the Gulf War
    and the preceding Desert Shield, where we had the honor of
    defending not only Kuwait, but also, let's face it, Saudi
    Arabia and all the Gulf states that would have been under
    Saddam Hussein. The ruling classes in those countries would
    have been liquidated or exiled, probably would have fled for
    their lives; and yet, we never even thought at that point to
    negotiate, for saving the existence of these ruling classes,
    perhaps some modification in OPEC approaches would be part of
    that bargain.
        As a result, the very countries that we saved in last
    decade are blatantly getting together in what in this country
    we would call a conspiracy in constraint of trade to gauge us
    on the price of oil.
        California has had its own unique problem here. We have in
    effect a separate market for gasoline because it is specially
    formulated to deal with our clean air standards. The price of
    gasoline, especially in Southern California, as my colleague
    from Southern California well knows, has often been 10 or even
    15 percent higher than the rest of the country, and, of course,
    with OPEC, the rest of the country is paying a lot as well.
        I would hope that the Justice Department would further
    study the possible antitrust implications of the high cost of
    gasoline unique to California, and at the same time our foreign
    policy not simply be to accept as fait accompli the idea that
    our friends would get together to try to raise the price of a
    commodity on which we are so dependent.
        Finally, I do want to agree with my colleagues who have
    suggested that the strategic oil reserve be tapped at times
    like this, but we also ought to take advantage of low oil
    prices which we experienced, I believe, just a couple years ago
    to build and replenish that reserve. I do not want to see that
    reserve permanently decline each time we have a price crisis.
        So I want to join my colleagues in concern for this issue
    and yield back the balance of my time.
        Chairman Gilman. Thank you very much, Mr. Sherman.
        Are there any other Members seeking recognition? If not, we
    will proceed with our witnesses.
        We are pleased to have with us today David Goldwyn,
    Assistant Secretary for International Affairs at the Department
    of Energy, and Deputy Assistant Secretary for Energy, Sanctions
    and Commodities, for the Bureau of Economic and Business
    Affairs at the Department of State, Peter Bass.
        President Clinton nominated David Goldwyn to serve as
    Assistant Secretary of International Affairs at the Department
    of Energy in April of 1999. Prior to that appointment, Mr.
    Goldwyn served as a counselor to the Secretary of Energy, as
    senior advisor and counsel to the Ambassador to the United
    Nations, during which tenure he also sat on the Deputies
    Committee of the National Security Council, and has served
    under both Presidents Bush and Clinton at the Department of
    State. He has extensive private sector experience in
    international business through his long association with a New
    York law firm.
        We welcome you today, Secretary Goldwyn.
        We also have appearing on our first panel, Peter Bass, who
    served as a career civil servant with extensive experience in
    international economic and security affairs. He began his
    career with the U.S. Court of Appeals, then joined the State
    Department as attorney-advisor in the Office of Legal Advisor.
    Mr. Bass has served as special assistant to the Under Secretary
    of State for Political Affairs at the State Department. He
    served in the Office of the United States Trade Representative,
    and has served on the staff of the Secretary of State, Warren
    Christopher.
        Mr. Bass has served on the staff of the National Security
    Advisor at the White House, and most recently was the chief of
    staff to Under Secretary of State, Stuart Eisenstadt.
        We welcome you today, Mr. Bass.
        Gentlemen, please proceed. You may put your full statement
    in the record and summarize, whichever you deem appropriate.
    Please proceed.

        STATEMENTS OF DAVID L. GOLDWYN, ASSISTANT SECRETARY FOR
            INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF ENERGY

        Mr. Goldwyn. Thank you, Mr. Chairman and Members of the
    Committee. Let me apologize for my rasp. I have got a little
    touch of laryngitis, which will help me keep my statement
    brief.
        Let me say at the outset that Secretary Richardson and the
    other members of the Administration do take this crisis very
    seriously; that this is not just a matter of geopolitics, that
    they understand this affects people at home and in a severe
    manner. It is a matter of urgency that we are taking steps to
    address, steps which I will outline in my statement later this
    morning.
        What I hope to do today is to talk a little bit about the
    current state of the oil market and the concerns we have over
    recent developments in the market, particularly on heating oil
    in the Northeast, and to talk about the actions the
    Administration has taken to address these concerns and also
    Secretary Richardson's energy diplomacy and the steps that he
    will take in the coming weeks.
        As we all know, oil prices have more than doubled in the
    past year. Prices have increased from near historically low
    levels, around $11 in December 1998, to recent levels not seen
    since the Gulf crisis. This rise in price is largely attributed
    to the actions taken by OPEC to restrict supplies to the
    market.
        Recently, the already tight supply situation in the market
    has been exacerbated by cold weather here in the United States,
    which has resulted in soaring heating oil prices. Beginning in
    March 1998, OPEC instituted three tiers of production cost
    which have actually totalled 4.3 million barrels per day.
        OPEC member compliance with a third cut, which is effective
    in April of 1999, has created an increasingly tight market as
    crude oil inventories have been drawn down over the course of
    the past year. Overall, OPEC compliance with its quota has been
    running between 75 and 90 percent, which is quite high.
        Largely as a result of production cutbacks by OPEC and its
    allies, in 1999 the shortfall in crude oil worldwide averaged
    over 1 million barrels per day. If OPEC keeps production in the
    year 2000 at the levels seen in the fourth quarter of 1999, our
    EIA estimates the shortfall in 2000 at between one and two
    million barrels per day.
        Before last month's cold snap, the oil market was already
    tightly drawn. Inventories were low, and prices were already
    relatively high. The late January heating oil and diesel fuel
    price surges in the Northeast resulted from a combination of
    low inventories, weather, and supply problems.
        At the beginning of January, load stocks on the East Coast
    were running almost 15 million barrels, or 21 percent below
    their 5-year average value for that time of year, and these
    load stocks as we have found leave little cushion to absorb
    sudden changes in supply or demand and increased the
    possibility of price spikes.
        During the week ending January 21, weather in New England
    was nearly 21 percent below normal for this time of year. The
    cold weather not only increased demand, but also caused supply
    problems which are unique to the Northeast, with frozen rivers
    and high winds hindering the arrival of new supply. The region
    has continued to struggle since then to bring in new supply as
    strong demand continues. We believe that the combination of
    actions that we are taking over the short term, barring
    additional weather disasters, will correct the market imbalance
    promptly.
        Over the past few weeks as the heating oil situation has
    worsened, the Department and Administration have taken a
    comprehensive look at ways to ease the situation. We have taken
    a number of actions. One is to enhance market monitoring of
    home heating oil markets in order to provide prompt information
    to the market. The second is the low-income home energy
    assistance emergency funds, which many of you have discussed
    this morning in directing Department of Health and Human
    Services to release to those funds to many of your States.
    Another is the waiver of carrier driving hours. The Department
    of Transportation has been approving requests for waivers,
    which accelerates the delivery of supply to markets badly in
    need of it. Another is to clear shipping lanes. The Department
    of Transportation also directed Coast Guard ice-breakers to
    help with clearing shipping lanes in the New York Harbor area.
    The Northeast is unique in having a predominant amount of the
    heating oil supply by barge traffic, and the clog in the New
    York Harbor is part of what has impeded supply to that area.
        Yesterday afternoon, as the Congressman mentioned, the
    Secretary convened a meeting of the parties most involved in
    this crisis, State governments, utility representatives, fuel
    distributors, refiners, and transporters, to discuss the
    situation and identify what measures can be taken both now and
    in the future.
        A number of the ideas are under active consideration, and
    by active consideration, I mean after that meeting broke up--
    and I think there were 10 or 12 suggestions made by the people
    at that meeting--the Secretary convened not only a task force
    within the Department, but working inter-agency to act on a
    number of those recommendations. We expect to make some
    announcements drawing from some of those suggestions very
    promptly, hopefully today or tomorrow.
        The Secretary is holding a Home Heating Oil Summit in
    Boston on February 16th to meet with refiners, distributors,
    Government officials, and consumers to discuss the reasons for
    the recent problems and to develop ways the Government and
    industry can work together to better meet consumer needs.
        Let's talk a little bit about the Secretary's energy
    diplomacy. The Department and other Departments regularly talk
    to both OPEC and non-OPEC member countries about marketing
    conditions and their impact. This sharing of information is a
    critical part of the effective functioning of the oil markets.
    It lets us identify whether we, and especially the major
    producers, have the same understanding of market conditions,
    stocks of inventories.
        Over the past couple of months as stocks have decreased and
    prices have risen, the Department has had a number of
    discussions with various members of OPEC and with Mexico and
    with Norway. Secretary Richardson met with Minister Tellez of
    Mexico and Mr. Arnstad of Norway last week. He had met with
    Saudi Minister Ali Naimi and Kuwaiti Minister Saud Nasir Al
    Sabah in December, and he will meet with both Ministers again
    later this month, I think actually leaving next weekend when he
    travels to the Middle East.
        In these conversations, what he has talked about is, first,
    our information analysis of the current state-of-the-oil market
    and our views of its impacts, especially the impacts these have
    on a world oil market with growing demand.
        We have provided the best information obviously that we
    have on stock levels and near-term future trends. The bottom
    line we have told them, which is immanently clear to all of
    you, is that crude oil stocks in the U.S. are at their lowest
    levels in years and getting lower. Distillate and gasoline
    stocks on a week-to-week basis are lower than they have been in
    years. The point that we have made to OPEC and non-OPEC member
    countries based on this data is that they have already achieved
    their previously stated goal of reducing surplus oil stocks.
    The market is now extremely tight, so tight that any
    unfortunate event we have seen, like a cold snap, can generate
    price spikes in our market that need additional supply. I can
    repeat, this is the message which we are conveying both OPEC
    and non-OPEC members that we believe is the solution to these
    problems is that market forces need to operate freely, and this
    growing demand needs additional supply.
        In conversations with producers, we have also talked about
    the impact of the actions they have taken to reduce oil
    supplies. First, we tell them as we have for many years that
    the free market should govern the forces of supply, demand, and
    price without the interference of organized groups of producers
    and without the interference of organized groups of consumers.
        Second, we have told them that artificial supply
    constraints placed on the market are ultimately self-defeating
    even for OPEC. OPEC needs only to look at its own history for
    proof. Its efforts in the early 1980's restricting supply to
    support artificially high price goals led to a boom in non-OPEC
    production and a loss of OPEC market share.
        OPEC asserts that price stability is its goal, but supply
    constraints exacerbate volatility in the market and lead to
    boom-and-bust tendencies, global instability, and an uncertain
    energy investment environment.
        Third, we had expressed our concern that high oil prices
    inflict economic damage. This impact can fall on both the
    developed and the developing world. Many of the economies which
    OPEC and non-OPEC members rely on for their trade are
    struggling to recover from recession and will be greatly
    challenged by these high oil prices. If these economies
    flounder, everyone in the developing world will be hurt.
        Fourth, we have cautioned these countries that restricting
    supply in a market that sorely needs additional oil does
    serious damage to the efforts that some in OPEC have made to
    demonstrate that they represent a reliable source of supply.
    When a supplier will not give you the supply you need, it is
    only natural that you would seek other sources of supply. So it
    will have long-term effects on the market.
        In recent days, the public statements of many oil ministers
    have suggested that they do take our concerns about
    inflationary impact in the U.S. economy and the recessionary
    impact on other economies seriously. They have indicated they
    will take these considerations into account at their next
    meeting and act responsibly. This is by no means a guarantee or
    predictor of their action, but they are hearing what we have
    been telling them.
        Secretary Richardson will carry this message to Kuwait and
    Saudi Arabia--he is leaving I think next weekend--to make sure
    that they understand what our position is. I spoke to the
    Secretary this morning, and he said he would be pleased to
    brief the Committee upon his return from that trip to discuss
    these issues with you.
        That concludes my prepared testimony, and I would be
    pleased to answer any questions.
        [The statement of Mr. Goldwyn appears in the appendix.]
        Chairman Gilman. Thank you, Mr. Goldwyn.
        Mr. Bass?

    STATEMENT OF PETER BASS, DEPUTY ASSISTANT SECRETARY FOR ENERGY,
      SANCTIONS AND COMMODITIES, BUREAU OF ECONOMIC AND BUSINESS
                   AFFAIRS, U.S. DEPARTMENT OF STATE

        Mr. Bass. Thank you, Mr. Chairman and Members of the
    Committee, for the opportunity to testify here today on recent
    developments in the oil market, especially in view of the
    difficulties encountered in the heating oil market in the
    Northeast.
        Let me just say that Secretary Albright and senior
    officials of the Department are also acutely aware of the
    difficulties that your constituents are experiencing and have
    asked me to brief them regularly.
        Chairman Gilman. Mr. Bass, would you put the microphone a
    little closer to you? Just bring it closer to you.
        Mr. Bass. Okay. Does that work?
        Chairman Gilman. Thank you. That is better.
        Mr. Bass. As I was saying, Secretary Albright and other
    senior officials in the Department are acutely aware of the
    difficulties that your constituents are experiencing now and
    have asked me and other officials at the Department to keep
    them fully briefed on the oil market conditions.
        The Department of Energy can and indeed has provided a much
    better analysis than I can of the various factors that came
    together this winter to cause a run-up in heating oil prices,
    but one of the factors in the heating oil price increase was
    the increase in world crude prices, and I wanted to review with
    you briefly the approach this Administration and previous
    administrations have taken to handling oil issues since the oil
    shocks of the '70s and to review the role of major OPEC
    producers in the market.
        Ensuring access to sufficient quantities of oil remains a
    critical and indeed strategic aspect of U.S. foreign policy.
    While oil's role in the U.S. economy has declined, the
    efficient availability of oil and other sources of energy
    remains vital to our economy and those of our key trading
    partners and allies. Energy disruption anywhere in the world
    can affect our economy directly through its impact on energy
    prices and indirectly through its impact on our major markets.
        Disruptions can also increase the risk of political
    instability in areas of strategic importance to the United
    States and can increase the ability of certain states to pursue
    policies that threaten U.S. interests.
        The U.S. policy toward domestic and global energy markets
    has helped foster a two-decade trend of greater choices and
    lower real prices for consumers as well as lower production
    costs for energy producers. However, there have been and will
    continue to be price swings in the U.S. and global energy
    market as countless consumers, producers, and marketers
    interact in a very flexible and competitive energy market.
        Regional problems with refineries or transportation systems
    can create acute localized problems, reflected in difficulties
    with access to supplies and sharply higher prices. While crude
    oil prices are generally not the predominant factor in these
    regional supply problems, changes in global crude production
    and prices can be a complicating and exacerbating factor.
        That brings me to the central topic of this hearing, OPEC
    crude oil production decisions and U.S. policy toward OPEC.
    First, let me say the U.S. Government has always had regular
    consultations with both OPEC and non-OPEC countries. These
    routine discussions continue to take place as they did before
    crude oil prices fell considerably in 1998 and early 1999 and
    when crude prices began increasing about a year ago.
        At international fora attended by many energy producing and
    consuming countries, crude oil production and price levels also
    come up regularly, especially when prices are viewed as
    extremely low or extremely high. Our consistent position in
    these fora, regardless of where prices are at the moment, has
    been that we do not believe cartels should be coordinating
    production levels among producers to set prices. It is for that
    reason that the United States does not maintain a dialogue with
    OPEC as an institution, but bilaterally with key OPEC and non-
    OPEC producers. We believe markets should determine prices by
    reacting to the full range of individual decisions made by
    virtually infinite numbers of consumers and producers in the
    global energy market.
        OPEC producers, as well as some non-OPEC producers, do not
    share our view that oil producers should not coordinate
    production levels to set prices. However, major oil producers
    recognize their strong interest in maintaining long-term demand
    for oil and ensuring that oil continues to be the fuel of
    choice for much of the world.
        Oil producers recognize the importance of maintaining their
    reputations as reliable suppliers. Obviously, any problems with
    heating oil supply or prices that would encourage consumers to
    switch to non-oil alternatives would not be a welcome
    development for anyone in the oil business.
        Mr. Chairman, assuring access to imported oil for the U.S.
    and our major allies and trading partners is and will remain a
    continuing critical objective for U.S. foreign and economic
    policy for the foreseeable future. At the same time, we need to
    view current market conditions in a historical perspective. It
    was 25 years ago that the energy consuming countries believed
    we were facing a bleak future of ever-rising energy prices,
    diminishing reserves, and the increased vulnerability of our
    economies to oil-based price shocks. The intervening years have
    been far less bleak than expected, and we are better off on all
    these fronts than two decades ago.
        In contrast to the 1970's, when national oil companies rose
    to prominence, governments around the world are increasingly
    open to the benefits of foreign investment, privatization, and
    deregulation. Global-proven oil reserves have actually
    increased 50 percent over the last 25 years, while consumption
    is only slightly higher than in the late 1970's, despite a
    doubling of the size of the U.S. economy. Both production
    techniques and oil markets have become highly efficient, and
    active futures market results in almost instantaneous price
    responses to perceived changes in supply.
        As a result of all these factors, oil prices when adjusted
    for inflation remain well below the real price levels of 1974
    to 1985. Despite almost three decades since the U.S. consumer
    suffered, having to wait in long gas lines, something that I
    personally remember as does everyone I think in this room, the
    memory of that acute vulnerability still casts a long shadow
    over the oil market. The price jolts of the 1970's put a number
    of forces in motion with considerable influence on today's
    market. Higher prices had a major impact on oil demand and
    resulted in slower economic growth in the industrialized
    countries, and also intensified efforts to advance energy
    efficiency and conservation.
        In addition, the oil price hikes of the 1970's encouraged
    the search for oil in new countries and regions and accelerated
    new production and consumption technologies and brought new
    alternatives to the dependence on oil.
        A consistent U.S. Government approach since the early
    1980's has reinforced the effectiveness of the market. One of
    the steps in the '80s was to deregulate domestic energy
    markets. That initial action set the tone for policy over the
    past two decades. Meanwhile, there was a concerted effort to
    reduce the Government role in the energy sector.
        We have also let the benefits of generally lower oil prices
    flow through to end users, thereby increasing the economic
    benefits of lower oil prices and increasing market
    opportunities for energy producers.
        We have strongly supported the free-flow of international
    capital. As these flows have come to be determined by market
    forces, they have helped to foster more efficient and
    productive allocation of investment. Downstream integration of
    major oil producers adds to stability in the oil market by
    increasing the commonality of interest between consumers and
    producers.
        Producers have shown an increased understanding of new
    mechanisms for disseminating information and establishing
    prices, such as the futures market. They have also recognized
    both the importance of ensuring supply reliability and the need
    to avoid taking actions which harm oil's long-term
    competitiveness. On a global basis, the United States seeks
    good relations with oil producers around the world, recognizing
    that global economic growth depends on the availability of
    increasing volumes of oil.
        In order to expand the availability of oil, we promote
    international efforts to remove barriers to energy, trade, and
    investment, as well as increased access for U.S. energy firms
    around the world.
        I think this hearing today can have a useful role in
    illuminating some of the problems that occurred this winter,
    and I welcome the Committee's effort to shine a spotlight on
    the problem. I would be happy to answer any questions you may
    have.
        [The statement of Mr. Bass appears in the appendix.]
        Chairman Gilman. Thank you, Mr. Bass and Mr. Goldwyn.
        We will now proceed with questioning our Administration
    witnesses.
        As we look over this problem, it is apparent to all of us
    that the problem has been the supply by the OPEC nations, as
    they are restricting the supply. You talk about ice-breakers.
    You talk about reserves. It is a matter of trying to get the
    OPEC nations to turn on a spigot and allow the market prices to
    determine what the price should be.
        I do not think any of the agencies, either State Department
    or Commerce Department or Energy Department, have done what we
    should be doing, and that is to convince the OPEC nations that
    if they were here as a citizen of our country, or a corporation
    in our Nation doing what they are doing, we would have them in
    court for conspiracy in driving up the prices. I do not think
    just sitting and talking with them is sufficient.
        In looking over this chart that I have before me, we find
    that six of these nations, OPEC nations--and Mexico is an
    associate with them, making it seven--are dependent upon
    getting some assistance or military sales from our Nation. Now
    they are turning around and impacting upon our economy. What
    more can we or should we be doing than just sitting and talking
    with them or having Richardson go on over and talk to the
    Saudis? The Saudis can do a lot more in opening the spigot.
        I resent, and I am sure my colleagues resent, the kind of
    attitude the OPEC nations have been taking because they want to
    get richer in a shorter period of time and forget about our
    people, who are being impacted by all of this.
        Are you satisfied with what we are doing by just conferring
    with them?
        Mr. Goldwyn. If I can address just the part about the
    energy diplomacy and then defer to Mr. Bass on other actions
    that you mentioned, I think neither the Secretary nor the
    Administration is satisfied with what has happened so far. I do
    not underestimate our ability to motivate both OPEC and non-
    OPEC members to understand that the situation created right now
    is a market out of balance, that additional supply needs to be
    provided and quickly, and that it is in both their interests
    and our interests to do it.
        With respect to the other actions, I will let Mr. Bass
    answer.
        Chairman Gilman. Let me ask you this. Suppose this
    Committee were to recommend that we impose sanctions against
    those nations that are impacting our Nation with this reduced
    supply. What is your response to that?
        Mr. Bass. First, let me echo Mr. Goldwyn's remarks about
    the seriousness with which we take this problem.
        On the specific issue of sanctions, I am not sure that any
    trade restrictions or sanctions are going to address the issue
    of ensuring a free flow of oil determined by the market.
        Chairman Gilman. We are certainly not getting a free flow
    by just sitting and talking to them. What more can we do?
        Mr. Bass. I think it is very important for OPEC countries,
    including Saudi Arabia, to understand the market conditions in
    the United States. They, too, have an interest over the long
    term in ensuring themselves as a reliable supplier of oil, and
    they also have a direct interest in the continued robust
    economic activity of consumer countries, including the United
    States.
        Chairman Gilman. You just told us in your testimony that
    they had agreed to, I guess, a six-percent increase and they
    met that increase; and in January, they met again and they
    decided to continue because they were not satisfied with their
    overall return. That does not seem to make sense to us.
        Mr. Bass. We hope through our mutual conversations which
    are quite serious and quite thorough about the state of the
    market, including the issues that Mr. Goldwyn referred to, they
    will understand the potential problems that artificial
    restrictions on supply can cause. I am sure this will be a
    topic that Secretary Richardson will take with him when he goes
    to Saudi Arabia next month.
        Chairman Gilman. Is there any Administration activity and
    inter-agency report on the origins of the surge in energy costs
    and how we can better meet these challenges now and for the
    future, and is there anyone preparing such a report?
        Mr. Goldwyn. Are you referring to the home heating oil
    crisis right now?
        Chairman Gilman. To all of the energy prices. It is home
    heating; it is gasoline; it is diesel fuel. We are hearing it
    from all aspects; kerosene.
        Mr. Goldwyn. In terms of analysis of the market, why these
    things have occurred and how they occur on a regular basis, our
    Energy Information Agency regularly studies the market. That is
    the primary thing that they do.
        The causes of the rise in prices over the last year are at
    this point pretty well known, and those are largely because of
    OPEC's decision to restrict supply and to eliminate what was a
    year ago----
        Chairman Gilman. Essentially, OPEC is causing our problem,
    is it not?
        Mr. Goldwyn. OPEC's production cuts were the primary factor
    in reduction of supply in the market. The increase in prices
    over this winter, though, as I mentioned in my testimony, are
    really from a combination of factors. It is not just the rise
    in crude oil supplies, although crude oil supplies are
    obviously a dominant factor.
        Mr. Gejdenson. A decrease?
        Mr. Goldwyn. Decrease, yes. Thank you, Congressman.
        But also, it is low inventories, as Congressman Gejdenson
    mentioned, low inventories which did not anticipate a cold
    winter, the bad weather which not only caused an increase in
    demand, but unusual restrictions in supply which caused price
    spikes as well. So it was a combination of factors.
        Chairman Gilman. If we had supply, the higher temperatures
    would not impact upon the prices as much as having a sufficient
    supply out there.
        What we are asking you is what is the Administration going
    to do to turn OPEC around at this point.
        Mr. Goldwyn. I think the answer is, short term, we are
    taking measures to provide relief to the Northeast, and we are
    talking to OPEC before they are about to make another decision
    about the situation in the market on why an adjustment in the
    production quotas is necessary and appropriate.
        I have to say that while there have been no indications
    about what their decision is going to be, there has certainly
    been a change in rhetoric in the papers from many ministers. I
    am quoting from Minister Tellez's speech yesterday that he gave
    to the Cambridge Energy Research Associates.
        Chairman Gilman. The minister of which country?
        Mr. Goldwyn. Tellez of Mexico.
        He said the recent run-up in oil prices has led some market
    participants to voice concern that the prices are too high,
    that inflationary pressures are now becoming significant, and
    that world economic growth may be adversely affected.
        Chairman Gilman. Is Mexico reducing its price?
        Mr. Goldwyn. I think I speak for all of us when I say these
    concerns are legitimate and should not be dismissed lightly.
        He said that in terms of working with their colleagues,
    they will make decisions which will be responsible with the
    objectives of prime producers and consumers for sustained
    market growth through price stability, in place of an uncertain
    and harmful cycle of price spikes and collapses.
        Chairman Gilman. Yet, Mexico went along with OPEC, did they
    not?
        Mr. Goldwyn. The question is what happens next and what do
    we do next and will there be a change.
        Chairman Gilman. What do we do next if they refuse to
    reverse their situation on prices? What do we do next? What do
    you recommend? We would like to hear the Administration
    recommend some significant steps to ease the burdens of the
    Northeast.
        Mr. Goldwyn. The short-term steps for the Northeast that I
    mentioned, and in the medium term, the investments that the
    Department makes in alternative sources of supply, not only
    energy supply in other parts of the world, is one area. Our
    work in the Caspian and Africa and Latin America to create
    other sources of supply is a way to provide diversity and
    better energy security. Technology provides a way to reduce
    costs also of producing energy, and energy efficiency and
    renewables provide alternatives as well. All those things are
    important to pursue.
        Chairman Gilman. Mr. Gejdenson?
        Mr. Gejdenson. Thank you.
        It seems to me if I am OPEC, I would look at this and it is
    working. The reason they reduced supply is they wanted to get
    more money for their oil. So, simply going to OPEC and saying,
    ``Gee, this is causing a problem here,'' I am sure their hearts
    are going to ring sadly for us, but their treasuries are
    obviously doing better.
        So the question is not what OPEC is going to do because
    they represent other countries. The question is what are we
    going to do, you guys and us, because we represent the people
    in this country. If we just sit here and wait for the goodness
    of Saudi Arabia and Kuwait and Qatar and all of these wonderful
    countries to get around to the point where they want to help us
    out, it is going to be a very cold winter. So what are you
    going to do?
        I have not heard anything here that makes me feel better
    today. You guys do not have the pay grade to come up with a new
    policy, but I suggest you go back and tell your bosses that in
    Congress, on a bipartisan basis, there is a feeling that the
    Administration is not getting the issue, and it is going to
    happen again this summer. It is just going to happen in a
    different product.
        So it seems to me that, again, unless OPEC has some
    downside impact from its reduced production, it is going to
    continue to do it. Why wouldn't they? They make more money
    selling fewer barrels of oil. It does not take a genius to
    figure out that it is good for their treasuries. So they are
    going to continue to create a short supply.
        What you have to do is make sure that the resources we have
    guarantee that the supply that is here is not being manipulated
    against the consumer. That is one.
        The second thing is you want to increase the supply of
    crude because, unless there is an increased supply of crude,
    the price is going to continue to stay up there. They may
    switch to another product. They may go after gasoline in the
    summer and not short supply heating oil again until next fall
    or winter, but the end impact on the consumer is going to be
    the same.
        The next thing you have to do in the free market that we
    generally live in, if in electricity and in natural gas there
    is a control mechanism to prevent short supply problems and the
    only elastic area is the demand on number-two fuel oil, you can
    be damn sure every time there is a cold spell, companies are
    going to be pushed off natural gas to number two, home heating
    demand goes up, corporate demand goes up, and you are going to
    have a short supply problem.
        So the Government ought to make sure the wholesalers, or
    the Government in combination, have an adequate reserve. Do you
    presently monitor the supplies that are sitting there, Mr.
    Goldwyn?
        Mr. Goldwyn. Yes. I believe we do, yes.
        Mr. Gejdenson. So when did you know that we were running 47
    million barrels below last year in home heating oil and diesel
    fuel?
        Mr. Cook. We have been tracking it on a weekly basis for
    months.
        Mr. Gejdenson. Do you want to come up here and identify
    yourself? We will not get you in trouble.
        Mr. Goldwyn. He tracks home heating oil supplies on a
    weekly basis. I think they have been publishing them only on a
    biweekly or monthly basis.
        Mr. Gejdenson. So didn't somebody who sat there say even if
    we get an average month in the end of January and February, we
    would have trouble? Did somebody see that coming?
        Mr. Cook. We have put reports out to that extent, yes.
        Mr. Gejdenson. What action, then, did you take?
        Mr. Cook. My group just puts out the statistics.
        Mr. Gejdenson. The numbers. So now we are back to you and
    the guys above you.
        It seems to me that collecting this information is nothing
    but a nice academic exercise, unless the response is that there
    is a policy change. So the policy change has to be either to
    demand that we switch production from gasoline to number two,
    or that we release crude trying to affect worldwide market
    availability of crude. If we do not do that, we are going to
    continue to get manipulated.
        It seems to me the Secretary of State can take some action
    in our dealings with these countries; but it does come down to
    the immediate action by the Secretary of Energy, and the
    Secretary of Energy, I think--again, sees a little heat from
    the Northeast at the moment. You are going to see heat from
    across the country when gasoline prices this summer are up
    around $2 a gallon. So what we need to make sure is that we do
    not end up in that situation.
        I did not get the sense from what Mr. Richardson said
    yesterday that he understands that. I think he is a very smart
    fellow. I have served with him. So you tell him, his friends in
    Congress understand he can figure this out, and that there is
    no reason to be sitting on that Strategic Petroleum Reserve
    now.
        I am going to repeat myself again. You can make money
    selling the stuff, and you affect the world supply. We expect
    to see some response here.
        This Administration understands that in a free market, at
    some point OPEC can control the price unless we do something
    besides go over there and beg them to recognize our needs. If
    we dump crude on the market from our reserve, that is going to
    have an impact on supplies.
        So I certainly hope we are going to see a more responsive
    Administration in the weeks to come. Again, I do not blame the
    two of you. I think that people above you, though, have to
    initiate a policy that is going to give people protection.
        It is one thing to be sitting there in the top one percent
    and see home fuel oil go to $2.66 or two bucks-plus a gallon.
    It is another thing when you are a senior citizen on a fixed
    income, a family with a kid in school. These people are being
    wiped out by this. The great American boom has left a lot of
    people still living at the very edge, and when this kind of
    stuff happens, those people are devastated. That is why we are
    in Government. We are not just here to watch the rosy scenarios
    and make reports.
        Thank you very much.
        Mr. Rohrabacher. [Presiding.] Thank you very much, Mr.
    Gejdenson. I will move forward now, and the Chairman will be
    returning after he votes. Then I will go and vote.
        Let me just note that I have not really heard a policy.
    Again, I am echoing what my friends have said here. From what
    you have said, I just get the idea that you are following this
    very closely. You have your experts looking at all the
    statistics and all the figures, but I have not heard a policy
    yet of how we deal with obviously an international price-fixing
    arrangement by people in countries and governments. This is a
    conspiracy against the American consumer.
        With that in mind, how much money has this cost, this
    price-fixing effort by OPEC? How much has it cost the average
    American so far, and how much do we expect it to cost in the
    time ahead?
        Mr. Goldwyn. I do not have that statistic at my fingertips
    in terms of over the last year from a particular baseline, what
    the additional cost has been, but we can try to provide that to
    the Committee.
        Mr. Rohrabacher. How much is it costing those people in the
    Northeast now, per family? Are we talking about crude oil
    prices? Are we talking about $500? Are we talking about $1,000?
    What is the expense to the average American family by this
    price-fixing conspiracy?
        Mr. Goldwyn. The situation in the Northeast is obviously
    different than it is in the rest of the country. Prices have
    not spiked up nearly as high in other parts of the country
    where there are higher inventories, where there is easier
    ability to deliver the supply, than it has in the Northeast,
    but we have seen extreme volatility in the heating oil crisis
    from $1 to $2.
        Mr. Rohrabacher. You have been following this very closely.
    Obviously, you have not done anything about it, but you have
    been following the statistics very closely, supposedly. How
    much is it costing the average family in the Northeast because
    of this international price-fixing conspiracy?
        Mr. Goldwyn. That is a number that we can provide you, but
    not one that I have at my fingertips, Congressman.
        Mr. Rohrabacher. What was that?
        Mr. Goldwyn. That is a number that we can provide you, but
    not one that I have at my fingertips.
        Mr. Rohrabacher. All right. I will have to say that this is
    a hearing specifically on this issue; and I am disappointed
    that we have representatives of the executive branch who come
    here to testify on this issue and are not prepared enough to
    tell us how much it is costing the people of the Northeast,
    because that is what this hearing was supposedly called about.
        You are the Government officials who are supposedly
    watching the numbers. If you are not making the policy, we
    should at least know the numbers.
        Please tell my friend, Mr. Richardson, that there are
    people overseas who are taking helpless Americans and American
    families and stealing hundreds of dollars out of their pockets,
    and the average American family who is being hurt cannot afford
    this.
        I believe in market. I am a free-market guy. This is not a
    product of a free market. This is a product of a controlled
    market that is manipulated by a price-fixing conspiracy. Bill
    Richardson, who is a good man and cares about people--because
    we served with Bill--should not be just sitting back looking at
    the figures and analyzing what the effect of this should be and
    trying to convince people that in the long run their price-
    fixing is not going to hurt them. I would expect that there
    would be something that would be proposed where we would be
    punching people in the nose for hurting our people.
        We have people who are hurting American citizens and
    damaging, causing great pain to the standard of living and
    well-being of average Americans, honest people. Those honest
    people depend on our Government to watch out for them when they
    are unfairly affected by a manipulation of the market, and that
    is what is happening here today.
        Mr. Ackerman. Mr. Chairman?
        Mr. Rohrabacher. Yes.
        Mr. Ackerman. If I may have a minute, I just wanted to say
    that I do not know that we really have a reasonable expectation
    to have exact numbers or even estimates right now, because we
    do not know what the average American suffering through this
    crisis is doing with their thermostat, whether they are pushing
    it ahead or whether they are just suffering in the cold or what
    the temperature is going to be later tonight. So that seems to
    be a moving target, and I guess we are going to have to have a
    little patience to get the real numbers.
        A quick question: one of our colleagues alluded to maybe
    there being some kind of conspiracy on the part of those within
    the industry here in our own country. Do you have any evidence
    to support that?
        Mr. Goldwyn. We do not have any evidence. In 1996, the same
    issue was raised when prices spiked at that time, and the study
    at that time indicated there was not manipulation by the big
    traders. In fact, they more or less broke even and there was
    not an economic incentive for them to do that. So it is not an
    area where you have jurisdiction.
        Mr. Rohrabacher. For my colleague's sake, let me just note
    that the price-fixing conspiracy that I was talking about there
    was the International Organization of Oil-Producing States,
    OPEC.
        Mr. Ackerman. I meant our colleague on the right, Mr.
    Sanders.
        Mr. Rohrabacher. By manipulating supply, they are trying to
    manipulate price, obviously.
        Let me just say if a group of countries, especially
    countries that we have defended in the Gulf, are involved with
    trying to hurt average Americans, our Government should have a
    policy that retaliates against that. There should be another
    shoe falling rather than simply just analyzing the figures.
        I am deeply disappointed that we have not had that. Let me
    just give an example. We could suggest that we are going to
    withdraw certain support, defense support for that area.
        The Venezuelans, for example, I understand are involved
    with driving this up. Perhaps we could tell the Venezuelans if
    they continue to be involved in a conspiracy to do damage to
    the American people that we will see that they do not get
    certain credits or that anyone investing in their country will
    not do so with Export-Import Bank backing. There are things
    that can be done to put pressure on countries like this that
    are trying to hurt our citizens. That is our job, to prevent
    our citizens from being hurt by artificial manipulations of the
    market. The market has to work. I agree with you, and I think
    the Administration is committed to that, but when we have
    people who are robbing people through this type of price-
    fixing, we expect more than what we have heard today.
        I am going to have to put this in recess until I go and
    vote. We are in recess for ten minutes. Thank you.
        [Recess.]
        Chairman Gilman. [Presiding.] The Committee will come to
    order.
        Mr. Delahunt?
        Mr. Delahunt. Thank you, Mr. Chairman.
        I wonder, Mr. Secretary, could you respond to the question
    that I posed during my opening remarks. Is it the position of
    the Department that you need additional statutory authority to
    draw down under current conditions from the SPR, or do you
    believe you have that authority now?
        Mr. Goldwyn. No, sir. We do not believe that we require
    additional authority to make draw-downs under the SPR. The
    Administration's position is that under current conditions, in
    the current context, we should not draw down the SPR because
    the situation that we are in right now, while serious and
    requiring response, is not the kind of national emergency for
    supply disruption which the SPR legislation contemplated, and
    that there are other measures, better measures with which to
    respond----
        Mr. Delahunt. But you are confusing me. Do you believe that
    given the current conditions, however you interpret them, that
    you have the statutory authority to draw down from the SPR?
        Mr. Goldwyn. I am trying to be direct and be clear at the
    same time.
        Mr. Delahunt. Right.
        Mr. Goldwyn. The question about whether the current
    situation is an emergency or not is a judgment call.
        Mr. Delahunt. Right.
        Mr. Goldwyn. It is a judgment call that the President
    makes, and the Administration's position is that these current
    conditions do not constitute that kind of emergency.
        Mr. Delahunt. So what you are saying is it is the position
    of the Administration that the existing situation as of today
    is not an emergency that would warrant a draw-down?
        Mr. Goldwyn. That is correct. It is not the kind of
    emergency that would require or warrant a draw-down, and that
    other measures, a number of measures, some of which I have
    outlined this morning in trying to put additional supply in the
    market through energy diplomacy, are better alternatives.
        Mr. Bass. If I might add, that is because the statute
    refers to a major market supply disruption.
        Mr. Delahunt. What I am trying to get clear, Mr. Bass, if
    there is the need, if the Administration should feel it is
    appropriate--let's not call it an emergency, but it would be
    timely to draw down, do you have the statutory authority?
    Secretary Goldwyn indicated that he does feel that under the
    current conditions the statutory language authorizes a draw-
    down, but it is the position of the Administration that it is
    not an emergency. Do you disagree at all with his----
        Mr. Bass. No.
        Mr. Delahunt. Because I think it is really important, you
    have heard from Members of Congress. Again, I think it is
    important to note, that it is at least from the Members you
    have heard and from those who were present yesterday with
    Secretary Richardson, that this is an emergency. So we have a
    disagreement as to the judgment of whether an emergency exists.
        I think that it has been alluded to, but I think we should
    speak directly to the reality, which is this particular
    crisis--let's call it a crisis rather than an emergency--this
    particular crisis has the potential to undermine the current
    economic prosperity if it continues to exist. Would you agree
    with that?
        Mr. Goldwyn. I am not an economist, but I think----
        Mr. Delahunt. Neither am I, I can assure you, but let me
    ask you this. Has anyone in the Department made an assessment
    as to the impact on the economy if the status quo remains, and
    at what point in time, if you have done any economic modeling,
    does it undermine the prosperity that we have been enjoying now
    for some period of time? Either you or Mr. Bass are free to----
        Mr. Goldwyn. Let me take a try at the first two parts.
    There is no question that we are telling both OPEC and non-OPEC
    members that continuation of the status quo and, indeed, if
    they do not increase supply will put additional inflationary
    pressure, we believe, on the U.S. economy and threaten
    recession in other countries.
        Mr. Delahunt. Do we have any time frames, though? Has the
    Department internally done an analysis of when those
    inflationary pressures would substantially kick in and threaten
    our national economy?
        Mr. Goldwyn. It is more in the province of the Council of
    Economic Advisors to do that kind of analysis.
        Mr. Delahunt. Have they done anything that you are aware
    of?
        Mr. Goldwyn. Not to my knowledge. I am not aware of----
        Mr. Delahunt. Mr. Bass, has the Department of State done
    anything?
        Mr. Bass. The State Department has not, but there are, I
    think--certainly among the private market experts, there are
    agreed assumptions--I do not have them at my disposal--about
    what a given price increase does to GDP and inflation and so
    forth. So these figures are----
        Mr. Delahunt. It would be nice if either one of you
    gentlemen could contact the appropriate agency and bring that
    forward, because this is more than just a home heating crisis,
    more than a potential gasoline crisis. This could put at very
    risk the success that this Administration has had over the
    course of the last nine years. That is why I suggest the
    frustration that you have been hearing is that time is of the
    essence here, and I dare say waiting until March 27th carries
    some risk. I am confident that Secretary Richardson will be
    consulting and having discussions with the appropriate oil
    ministers; but from February 10th to March 27th, we may get
    past the home heating crisis because the temperature obviously
    will get warmer, but we have the economy at risk here. That is
    why I cannot overstate the need for immediate action.
        I know that he has trips scheduled. I really want to
    compliment the Chair because he is hearing from Members of
    Congress, but more importantly, the OPEC Ministers ought to be
    hearing the frustration from Congress. If there is not action
    by the Administration and an appropriate response by the oil
    producers, there will be action from this institution, albeit
    slow and cumbersome as is any legislative action, but there
    will be clearly a move to secure alternatives to oil in terms
    of energy sources.
        We should have been doing this since the last crisis and
    have let our guard down, but this does not accrue to the
    benefit of the OPEC and major oil producers. I really hope that
    the oil ministers and those that are responsible in other
    countries for production and restricting supply are hearing
    this. Both parties are united not only on a regional basis and
    not only in the appropriate Committees of jurisdiction. Action
    is necessary now, or there will be proposals that I am sure
    they will not want to hear about. But there will be some call
    for retaliation.
        You heard the Chairman. You heard the Ranking Member. There
    is great frustration.
        Now, in these consultations that we have had with these
    various countries, can you indicate to us what their response
    has been?
        Mr. Goldwyn. Let me say a couple things. First, we will get
    back to you with the economic information, and while there may
    be a disagreement that this is a SPRO emergency, there is no
    disagreement that we have a crisis and that prompt action is
    required.
        I guess I would prefer not to comment on the private
    conversations the Secretary has had with a number of these
    countries, especially on the verge of another trip back out to
    Middle East countries.
        Mr. Delahunt. I can respect that, but I think at the next
    hearing we are going to anticipate and expect to hear the
    position of the individual countries that comprise the cartel,
    as well as other major oil companies. We in this particular
    Committee and elsewhere will want to know their specific
    response to the Secretary's message.
        I am not going to, probe any further, but I think that
    those nations and their ambassadors ought to be put on notice
    that this institution in Congress will be awaiting an
    appropriate response. Clearly, in the long term, it is
    detrimental to their best interests. But we can't wait. We
    simply cannot wait, and action has to be taken now.
        So, again, I want to thank you, Mr. Chairman, for calling
    this meeting, and I hope that the oil-producing countries are
    hearing this message very loudly and clearly. I would recommend
    that they expend the money simply to secure transcripts of the
    Members' comments here today, because I think it will bring
    home that message.
        I thank you.
        Chairman Gilman. Thank you, Mr. Delahunt, and thank you for
    your comments with regard to the OPEC nations. I hope that our
    Administration witnesses are going to take that message to
    where it counts, because, otherwise, the Committee will be
    forced to take some other action.
        Let me just ask one or two questions, and then we will go
    on to the next panel.
        Is the Administration considering release of the remaining
    $255 million in emergency funding for the Low-Income Home
    Energy Program?
        Mr. Goldwyn. I believe a number of measures are under
    consideration, some that came up at the meeting yesterday the
    Secretary held. But I think those are under continuing
    consideration, so I have no answer for you.
        Chairman Gilman. Will you have an early decision on that?
        Mr. Goldwyn. We are hoping for one.
        Chairman Gilman. And can you let our Committee know?
        Mr. Goldwyn. Absolutely.
        Chairman Gilman. And I hope it will be fairly allocated
    when you do make some decision with regard to that.
        In your testimony, Mr. Goldwyn, you note that the
    Department of Transportation has directed its Coast Guard
    icebreakers to help clear up the shipping lanes in the New York
    harbor. Is that being undertaken at the present time?
        Mr. Goldwyn. Actually, it has. It is a question of actual
    prioritization of which traffic gets through in order to make
    sure that those supplying home heating oil have priority. I
    understand the first step in that was for the Energy Department
    to request the Coast Guard to do this, and that has taken
    place.
        With respect to what the Coast Guard has actually done to
    implement that, I am not certain.
        Chairman Gilman. Will there be funding available to pay for
    these icebreakers?
        Mr. Goldwyn. I was not aware that funding was an issue.
        Chairman Gilman. I gather it is, and I would hope you would
    explore that to see if there is any funding needed.
        Mr. Goldwyn. I will look into that, Mr. Chairman.
        Chairman Gilman. I want to thank our panelists for being
    here. We appreciate your patience, and we hope you will take
    back our message. There is a great deal of concern in the
    Congress about this, and we would not like to act peremptorily.
    We welcome your response to our Committee as to what the
    situation is with regard to OPEC before we act further.
        Thank you very much, gentlemen.
        Mr. Goldwyn. Thank you, Mr. Chairman.
        Chairman Gilman. We will proceed to the second panel: Mr.
    Valentino, Mr. Huber, and Mr. Costello.
        Our second panel is led by William Valentino, President of
    the New York State Energy Research and Development Authority.
    As president, Mr. Valentino is responsible for oversight of
    programs in energy, environmental research, hazardous waste
    management, energy efficiency analysis, and tax-exempt bond
    financing for the state. It sounds like you have got a full
    plate, Mr. Valentino. We welcome you.
        Our second witness on this panel is John Huber, Vice
    President and Chief Counsel of the Petroleum Marketers
    Association of America. We thank you for being with us today,
    Mr. Huber.
        We are joined also by Bob Costello, Chief Economist for the
    American Trucking Associations. We thank you, too, for being
    with us, Mr. Costello.
        I think we have a good second panel. Gentlemen, you may
    summarize your statements or read your statements as you see
    fit, and your full statement will be made part of the record if
    you care to summarize.
        Please proceed, Mr. Valentino.

     STATEMENT OF F. WILLIAM VALENTINO, PRESIDENT, NEW YORK STATE
               ENERGY RESEARCH AND DEVELOPMENT AUTHORITY

        Mr. Valentino. Thank you, sir. Distinguished Committee
    Members, I appreciate the opportunity to testify on behalf of
    Governor Pataki and the people of the State of New York. I am
    going to truncate my testimony even greater than I was before,
    because a lot of the data I was going to talk about has already
    been entered into the record.
        Chairman Gilman. Without objection, your full statement
    will be made part of the record.
        Mr. Valentino. Thank you.
        Some data I would like to add, however, is that 40 percent
    of New York's households use oil for space heating, so New York
    State residential customers bear the brunt of any increase in
    home heating oil.
        We have talked about price. Over the last week, the price
    has increased by about 75 cents a gallon, and as a matter of
    comparison, last year the price of home heating oil in New York
    was about .91 cents. Obviously, the people have been talking
    about prices in the $2.50, $2.60 range.
        The reasons for this have already been mentioned.
    Obviously, we are concerned about OPEC. There have been other
    contributing factors that I would like to mention. One of the
    factors that hasn't been mentioned is that it's our
    understanding that the petroleum industry, like other
    industries, has adopted a ``just in time'' resupply of
    inventory, and New York's heating oil bulk storage capacity has
    declined by about 20 percent over the last five years.
        New York does not have refineries within its state. We
    depend on national efforts and refineries in other states, and
    we understand national refinery utilization rates have dropped.
    We understand that on the East Coast heating oil production was
    down 46 percent from a year ago.
        By the third week in January, heating oil reserves had
    shrunk to 50 percent less than a year ago and below any
    comparable level of the past seven years.
        Obviously, we were hit by the weather. I won't talk about
    the weather, but all things hit almost simultaneously, driving
    the prices through the roof, and obviously caught in the
    crossfire are the consumers.
        Needless to say, Governor Pataki is concerned about the
    economic consequences of this unprecedented rise in prices and
    the effect on New York's citizens, particularly our elderly,
    our working poor, and our low-income consumers.
        I want to just mention for the record, Mr. Chairman, some
    of the things we have done in New York and, by comparison, some
    of the things we are incapable of doing as a state. But faced
    with this immediate crisis, we did a number of things. We
    established emergency provisions for shelter and heating. We
    are in constant contact with our county energy emergency
    coordinators across the state, with the Coast Guard on
    icebreaking activities in the Hudson River and New York harbor,
    and with all the dealers and suppliers to assess the current
    situation.
        Governor Pataki directed the Public Service Commission to
    voluntarily have utility customers who could switch be kept on
    natural gas rather than fuel oil. Our Department of Tax issued
    temporary certificates to heating oil distributors and trucking
    companies to allow them to buy heating oil from other states.
    Our Department of Environmental Conservation granted a one-week
    waiver to New York City municipal facilities to use slightly
    higher sulfur oil to meet their heating needs.
        All these actions were directed at ensuring that nobody was
    cut off from heating oil, but there was very little we could do
    about the price.
        On a national level, Governor Pataki has written the
    Clinton Administration asking for an immediate investigation
    into the factors that have driven those price increases and
    supply shortages.
        But there are some other things, and we believe the Federal
    Government can take other actions. I am probably piling on, but
    I feel it is my responsibility to also say that we believe on
    the international side, which is clearly your domain and not
    ours, we believe we need to use our influence with OPEC, and
    also a lot of non-OPEC cartel producers who have never been a
    factor before. We believe that cartel control of production not
    only has reduced supply but created the perception of a
    shortage, which may have done as much as anything else to drive
    these prices through the roof. I do want to add that, one of
    the questions that came up earlier in the panel and wasn't
    answered, was we believe in New York State that the average
    homeowner will probably be paying somewhere between $250 and
    $350 a year in additional home heating oil purchases. That
    probably will equate to about an additional $92 million in the
    state this year.
        Beyond OPEC, I know New York State is in the process of
    urging the U.S. Department of Health and Human Services to more
    equitably allocate additional LIHEAP funds. We also had the
    same experience that was relayed by a couple of the Members,
    but in the latest release of $45 million in emergency LIHEAP to
    ten Northeastern States and Alaska, for some reason New York
    did very poorly in the allocation. For example, while New
    Hampshire was mentioned, Maine was our comparison, and Maine
    received an additional $208 for each LIHEAP-eligible
    individual, while New York LIHEAP recipients received $37.68 on
    the same allocation.
        Besides, I would like to go a little bit beyond LIHEAP. The
    heating oil problem has extended beyond LIHEAP-eligible people
    to working families and small commercial customers who can't
    meet their high-cost oil obligation. This is causing, in New
    York at least, a ripple effect among dealers who are not
    receiving full payment for deliveries. All this is creating
    cash flow and bank line of credit problems and a high risk of
    personal and company bankruptcies that could weaken the oil
    distribution system. A quick means to make funds available to
    those in need but not eligible for LIHEAP is needed.
        Another important step the Federal Government can take is
    to ensure that there is adequate funding for the Coast Guard
    icebreakers. Without those five icebreakers in New York harbor
    and on the Hudson River, we would not have the product that we
    need.
        We are hearing rumors that Coast Guard services--we have, I
    think, two 140-footers and three 65-footers--and we understand
    that they have considered funding cuts for those three 65-
    footers.
        Chairman Gilman. These are Coast Guard icebreakers?
        Mr. Valentino. Yes, sir.
        Chairman Gilman. Have they been funded properly in the
    past?
        Mr. Valentino. They have been. We have just heard rumors
    that within the Coast Guard budget there wasn't funding this
    year for those 65-footers, but they did find some funds for it.
        Chairman Gilman. Thank you.
        Mr. Valentino. Finally, I guess the last comment, I would
    be somewhat remiss if I didn't say that we believe energy
    efficiency is the most cost-effective way to reduce our
    dependency on foreign oil, and we should do a little bit more
    in that regard.
        I want to thank you for the opportunity to testify, and I
    will be glad to answer any questions you may have.
        [The statement of Mr. Valentino appears in the appendix.]
        Chairman Gilman. Thank you, Mr. Valentino.
        Mr. Huber?

     STATEMENT OF JOHN J. HUBER, VICE PRESIDENT AND CHIEF COUNSEL,
               PETROLEUM MARKETERS ASSOCIATION OF AMERICA

        Mr. Huber. Thank you, Mr. Chairman. I apologize for not
    having a written statement available, and I will make one
    available in the next two days.
        I will primarily focus on the domestic situation. PMAA is a
    national association of petroleum marketers, and we represent
    residential heating oil retailers, 90 percent of which are
    small businesses.
        Before beginning, I would like to join the Chairman in
    expressing concern for consumers. The high prices and cold
    weather of the last weeks will affect many of the working poor
    and middle class who lack excess disposable income. My members
    have discussed this problem with thousands of customers and, as
    this crisis eases, will turn their attention to easing the
    financial burden on those consumers.
        Unfortunately, for the past three weeks their sole
    attention has been on making sure your constituents have
    product. They recognize the impact of the financial drain, but
    it is critical that all steps be taken to ensure that product
    is available.
        It should also be noted, as Mr. Valentino noted, that this
    is creating a crisis for the small businesses I represent.
    Their cash flow and credit lines have been stretched beyond
    breaking points, and many undoubtedly will be filing for
    bankruptcy at the end of the season.
        The Committee is interested in why this happened and why so
    severely in the heating oil sector. There are two words that I
    think explain a lot of it. OPEC is a critical component of it
    and has led to the modest but strong and continued upward
    pressure on prices. The second is inventories and the
    backwardization in the market.
        Backwardization is considered by industry leaders to be the
    most important factor. That is a market signal that the prices
    of crude product prices will fall over time. As a result, the
    industry is unwilling and cannot afford to hold inventory. As
    we found out with this last three-week period, inventories are
    critical to being able to absorb price increases. Now, we are
    setting prices on a daily and hourly basis. As to whether a
    barge can get into New York harbor or whether it is delayed by
    high winds on the high seas, all affect daily pricing. That is
    an unacceptable situation for the industry and for consumers.
        This volatility, as we know, is very bad for the industry
    and very bad for consumers. The price should be much lower and
    should be in the 70- to 80-cent price per gallon range for
    wholesale based on OPEC. But OPEC is one of the people that
    creates that volatility and the misperceptions in the market.
    As noted in the DOE testimony, indications that supplies were
    going to increase in January, which were not founded, led the
    industry to continue to be lean through the winter. If there is
    an anticipation that prices will fall as supplies become more
    available, everybody hesitates to take in inventory.
        These types of false signals to the market need to be
    stopped. As the Committee has focused on us, we have
    governments making policy decisions that affect consumers in
    the U.S. that do it without repercussions, that do it in a
    coherent, conspiratorial fashion. We need to control that to
    the best of our ability.
        I want to mention some bright spots. There are very few,
    but I will mention them.
        Customers did receive oil during this crisis. Everybody
    worked together--the states, the industry--to ensure that oil
    did flow to consumers.
        LIHEAP funds did become available. The hours of service
    were relaxed by government. Government was responding. The
    Coast Guard was keeping the waterways open. That is critical.
        The other thing that has been a bright spot, as Mr.
    Valentino mentioned, is efficiency of equipment has increased
    over the years. Consumers are using half the amount of oil they
    were using 20 years ago. That is a critical part of the impact
    on the end consumer. Unfortunately, our Government has not
    sought to fund that type of research and development to
    continue that trend, something the PMAA has to work for
    vigorously every year. We would hope the Department of Energy
    will be willing to change its position and support movements to
    ensure residential research continues.
        A couple of the other problems that we think need to be
    addressed: We think that there needs to be better information
    on international stocks of oil. Traditionally, stocks of
    heating oil have flowed back and forth between Europe and the
    U.S., depending on demand, and I think there was anticipation
    that more flow from Europe would come this year. However, they
    did continue to consume all the oil that was sent over there
    earlier in the year.
        The industry needs to be better apprised of what the
    international stocks of distillate are. Interruptibles, which
    have been mentioned by many Members of the Committee, have
    raised some interesting issues. They have been typically termed
    ``industrial users,'' but those industrial users are actually
    hospitals, schools, nursing homes. It has been critical that
    the heating oil industry has stood up and made sure that those
    customers did get oil. We believe that the suppliers of those
    interruptibles need to bear some of the burden of making sure
    that supplies are available for those consumers throughout the
    winter. We think, and have suggested it many times, that
    interruptible consumers also have supplies of heating oil on
    hand so that they don't jump into our market and immediately
    send the price of oil spiking.
        We intend PMAA to work with the states, the National
    Association of Energy Officials, and the Department of Energy
    to try to educate consumers to these problems and try to
    develop systems within the industry and within private
    consumers that will allow them to mitigate future problems. We
    will invest a lot of time and effort into that over the coming
    months.
        Finally, we do think that inventory, as I mentioned
    earlier, is critical. Many Members of the Committee have
    mentioned the regional product reserve. PMAA members have never
    supported that. However, we do feel that Government must start
    helping us develop the incentives to have inventory in place.
    It has been the policy of this Government to discourage
    inventories through environmental regulations for many, many
    years; and, therefore, we are starting to bear the burden of
    those shortages and tightness of supplies. We need to all work
    together to make sure these types of spikes don't happen again.
        Thank you, Mr. Chairman.
        [The statement of Mr. Huber appears in the appendix.]
        Chairman Gilman. Thank you, Mr. Huber.
        Mr. Costello?

        STATEMENT OF ROBERT COSTELLO, CHIEF ECONOMIST, AMERICAN
                         TRUCKING ASSOCIATIONS

        Mr. Costello. Thank you, Mr. Chairman. I am Bob Costello,
    Chief Economist of the American Trucking Associations. We
    appreciate this opportunity to testify before this Committee on
    the diesel fuel crisis that is devastating our industry.
        In order to meet the freight needs of the country,
    thousands of motor carriers who are ATA members need Government
    action now. As the Nation enjoys the benefits from this record-
    long economic expansion, an expansion of which the trucking
    industry has played an integral part, I fear that the rise in
    oil prices and the rapid surge in diesel fuel could bring all
    that to an end.
        The trucking industry is the backbone of this new economy.
    As more and more consumers simply point and click to buy a vast
    array of merchandise on the Internet, they depend on an
    efficient and productive trucking industry to deliver those
    goods in a timely manner.
        But trucks deliver far more than just goods bought on the
    Web. They transport nearly every commodity consumed. In fact,
    81 cents out of every dollar spent on freight transportation
    goes to trucking. The Nation's 3 million truck drivers haul 6.7
    billion tons of goods annually. Furthermore, over 70 percent of
    communities in the U.S. rely exclusively on trucks to deliver
    the freight they consume. This is clearly a vital industry that
    comprises nearly five percent of GDP and employs 9.6 million
    people nationwide.
        Trucking is only becoming more and more important to the
    U.S. economy because of its reliability and flexibility. As
    increasingly more businesses reduce costly inventory, they
    depend on trucks to bring them the goods and supplies they need
    exactly on time. This ability of trucking to keep down costs
    for further industries has been fundamental in suppressing
    inflation in recent years. But I fear all this could come to an
    end with the recent surge in diesel fuel prices. Instead of
    propelling the economy, trucking could be a significant drag if
    the industry does not receive relief soon.
        Diesel fuel is often the second highest expense for
    truckers and comprises up to 20 percent of their operating
    budget, especially for smaller companies. In addition, the
    trucking industry consumes nearly 30 billion gallons of diesel
    fuel each year. So as the national average price of diesel fuel
    rose from 96 cents a gallon a year ago to $1.30 by the end of
    1999, as published by the U.S. Department of Energy, we were
    somewhat concerned. But it was not until the recent spike that
    our industry has spoken out.
        Since January 1st of this year, the average price per
    gallon has shot up 17 cents, or 12 percent, but that is not the
    worst of it. On the East Coast, the situation is grim.
        Since the beginning of the year, the East Coast average
    price per gallon has increased 25 percent to $1.63.
    Specifically in the Central Atlantic States and New England,
    the price has risen an astounding 43 percent and 55 percent,
    respectively, in only six weeks. In the Central Atlantic area,
    the average price per gallon is just under $2, with the New
    England price at $2.12.
        Our members have told us of a considerable number of
    ridiculous price increases in an extremely short period of
    time. For instance, some areas of New York State witnessed 30-
    cent increases or more in only a few days.
        Then there was a trucker that pulled into a New York State
    truck stop one night to sleep. When he awoke eight hours later
    to fill up his truck, the price had jumped nearly 15 cents from
    the night before.
        Before the recent spike, trucking companies had profit
    margins of only two to four percent on average. Now many small-
    and medium-size companies are actually losing money on every
    single haul.
        While there are some pretty big carriers out there, over 70
    percent of the Nation's 400,000 trucking companies operate six
    or fewer trucks. So as all trucking companies are feeling the
    crunch, it is these 280,000 companies that are being pummeled.
        Let me try to put this current fuel crisis in context. The
    trucking industry is now operating at near capacity limits due
    to a booming economy and an acute driver shortage. If the
    industry does not get some fuel relief soon, it is likely that
    a significant number of small and medium-size companies will be
    forced to close their doors and park their trucks; and at least
    in the short run, the larger trucking companies will not be
    able to pick up the slack. This will cause a significant number
    of bottlenecks in the supply chain, and freight will start to
    pile up at docks. This situation will slow the economy much
    faster than any interest rate hikes from the Federal Reserve.
        Other modes of transportation will not be able to fill the
    void. First of all, they are also being severely impacted by
    fuel prices. Second, only trucks can deliver goods to grocery
    stores, malls, hospitals, and schools, to name a few. In our
    letter to President Clinton, a copy of which is attached to
    this testimony, we are asking the Government to get involved in
    a few ways.
        First, we believe it is necessary to release oil from the
    Strategic Petroleum Reserve. The 9.6 million taxpayers that
    work in trucking-related jobs have helped to buy that oil, and
    we are now asking that some of it be released. This will have
    an immediate impact and should provide a substantial amount of
    relief.
        Second, we are asking that the Government enter into
    immediate talks with OPEC and try to convince them to start
    producing more oil. We should remind them of the assistance we
    provided only a decade ago, keeping them at arm's length from
    an Iraqi dictator. It would also be helpful if the Small
    Business Administration would provide loans for companies
    trying to survive in this difficult time, as Energy Secretary
    Richardson suggested yesterday.
        In conclusion, just imagine any type of company trying to
    survive when the second highest expense is escalating as fast
    as diesel fuel apparently is. It is nearly impossible. The
    growth of both the trucking industry and the aggregate economy
    relies on a quick solution to this problem. I truly believe our
    economic stability depends on it.
        I thank you for your time, and I would be happy to
    entertain any questions.
        [The statement of Mr. Costello appears in the appendix.]
        Chairman Gilman. Thank you, Mr. Costello, and I thank our
    panelists for their testimony.
        Mr. Valentino, what steps is Governor Pataki taking to help
    home heating oil distributors overcome their resupply problems
    around the State?
        Mr. Valentino. Sir, beyond my testimony, what we have tried
    to do is get as much supply from other states as we can. We
    have done that through licensing and making it easier for our
    truckers to go out of state. Some of the other things we have
    done is try to reduce the sulfur content, but pretty clearly,
    the number of things we have available to us are limited.
        We look to the future, however, and there is a number of
    things we probably will try to do. We will probably try to
    increase gas pipelines into the State of New York, particularly
    for interruptible customers. We are probably going to encourage
    our people to lock in a fixed rate contract at the beginning of
    the season, and we are going to try to look at bulk purchasing
    for low-income people because, generally, lower-income people
    pay at the highest rate--to see if we can help them out a
    little bit.
        Chairman Gilman. To all of our panelists, you have been
    looking at this shortage. What conclusions have you drawn with
    regard to the cause of the shortage?
        Mr. Huber. It, certainly, Mr. Chairman, has been a number
    of factors--as I indicated, the low inventories being the most
    important. There have been several years of warm weather in the
    industry; and this was a strong and severe cold for an extended
    period of time that really made the inventories, which were
    tight as they were, go even farther down, which made us ride on
    a spot market where price wasn't really even a factor in
    getting supply. Getting supply itself was the critical factor,
    which spikes prices in those settings.
        Chairman Gilman. Mr. Costello?
        Mr. Costello. On average, it costs $150 more to fill up a
    truck now than it did a year ago. This is an industry with well
    over a million trucks. It is a substantial increase that could
    be upwards of at least $100 million.
        Chairman Gilman. Mr. Valentino, do you care to comment?
        Mr. Valentino. Not much more than what I said earlier in my
    testimony, sir, but I think that as we look at the standard
    price differential between the wholesale price of home heating
    oil and crude oil, it is generally 52 cents a gallon. In the
    last couple of weeks, this differential went up to about 83
    cents a gallon--to a wholesale price of $1.35 a gallon. So the
    standard differential now is up to about 83 cents, and
    generally it should track the OPEC prices. The OPEC price is
    going up.
        There is a lot of data that we have to collect, and it is
    probably going to take us a couple of months to sort all this
    stuff out.
        Chairman Gilman. Has New York been shortchanged in the
    allocation of funds in the LIHEAP Program?
        Mr. Valentino. That is a good question, and actually we are
    working with Human Service people trying to understand the
    allocation formula. But in this latest allocation of emergency
    LIHEAP funds, if we do a per capita comparison with the other
    states looking at the eligible clients, in some cases it is
    three and four-fold for the other states as compared with New
    York. So we have asked for a clarification as to how the
    allocation----
        Chairman Gilman. Who have you addressed that to?
        Mr. Valentino. We have worked within the State of New York
    and our Office of Temporary Disability and Assistance, which
    work with HHS. So we have directed it back through state
    channels to the Federal Government.
        Chairman Gilman. We would welcome it if you would let us
    know when you get an appropriate response to your inquiry.
        Mr. Valentino. Yes, sir, we will.
        Chairman Gilman. If you would forward that to the
    Committee, we will make it part of this record.
        Chairman Gilman. Gentlemen, all of the panelists, should
    the DOE release oil from the Nation's Strategic Petroleum
    Reserve to help us with this problem?
        Mr. Costello. Absolutely. I think that we are in a critical
    situation with the trucking industry. As I stated in my
    testimony, many, many, literally thousands of carriers are
    losing money on each and every haul because of this rapid
    increase in prices.
        I think we have come to a point where if the price doesn't
    lower, we could have significant bottlenecks because trucking
    companies simply will have to park their trucks.
        Chairman Gilman. Mr. Huber?
        Mr. Huber. We are hesitant to have the Government play a
    major role in the markets. We think that it would have been
    critical several weeks ago for a major statement and some
    jawboning to get some of the OPEC--SPR oil released as a way to
    break some of the market psychology that was letting oil drift
    up and rise so rapidly.
        Chairman Gilman. Mr. Valentino?
        Mr. Valentino. We are also hesitant--obviously, we would
    like some more supply. I think to activate a drawdown from the
    SPRO it would take probably a number of weeks. Some people have
    said six to ten weeks to draw down the crude oil, transport it
    to refineries, and deliver a refined product. In all
    likelihood, the current price spike will have passed. I leave
    it up to the experts on the Federal level to decide what
    constitutes an emergency.
        I think we are somewhat hesitant as well about releasing
    the SPRO.
        Chairman Gilman. Gentlemen, do you have any recommendations
    for any policies we ought to put in place, local, state, or
    Federal, to ensure we don't have a repeat of the ongoing energy
    crisis?
        Mr. Huber. I will make a couple quick comments. We are
    looking at a change in the refinery capacity in this country
    that is significant. We are going to have ever sharper and more
    stringent requirements for the fuels that we use, both for
    diesel and gasoline, which leads to reduced production, makes
    us less of an international player in buying fuel, and which
    makes the U.S. a segregated market. All those create
    difficulties long term. We need to be much more cautious in
    making environmental changes that have those secondary
    implications.
        Second, we also have fuel locked-in in the U.S., so that we
    are not producing. We again need to be more careful in allowing
    fuel to be produced in the United States, which is one of the
    few major free market suppliers of oil in the world. We have to
    encourage production because we are always going to be subject
    to OPEC and countries restricting supply. We need to be much
    more cautious on that in the future.
        Chairman Gilman. Do you think, gentlemen, we should
    establish a fuel oil reserve in the Northeast? Comments?
        Mr. Huber. We do not think that a regional product reserve
    is appropriate at this time. There are lots of storage in the
    U.S. and in the Northeast. It has to be encouraged to be
    filled. It needs to be handled by the private sector. People
    need to be doing more forward purchasing. Whether it is the
    trucking industry, the heating oil consumers, state
    governments, the airlines, we need to ensure that they have
    supplies available for the long term. We need to recognize that
    we are dealing with a volatile product and ensure that people
    are forward purchasing so we don't run into tight inventories.
        Chairman Gilman. Any other comments by Mr. Costello?
        Mr. Costello. Yes, I would definitely say that we would
    probably encourage something like that. There are many, many
    small trucking companies out there that simply can't afford to
    have big reserves set aside for when there are supply problems.
    It is these companies that haul a significant amount of
    freight, so anything that could help in making sure there is
    enough supply we would encourage.
        Chairman Gilman. Mr. Valentino, do you want to comment?
        Mr. Valentino. Yes, there are a couple of concerns we would
    have about that, and we haven't studied it in detail. But I
    believe it would be a great deal of expense to maintain these
    reserves, and as I understand the technology, it isn't like
    maintaining crude. I think you have to have additives, churn it
    around. It is a pretty expensive proposition, and, obviously,
    that would be passed along to the consumer and one would have
    to really judge whether the cost/benefit was there.
        I worry that companies would reduce their stocks by a like
    amount if they believe Government is in the storage business,
    and then in New York, I would probably have responsibility for
    releasing it. I often wonder, what would be the direction--when
    would we consider it an emergency? When the price goes up 25
    percent? When the price goes up 50 percent? We would be
    interfering with the markets. But those are just my preliminary
    thoughts.
        I would like to clarify one thing, Mr. Chairman. I had said
    that we had requested LIHEAP assistance through our health and
    human services organizations within the state. One of my
    colleagues just gave me a letter from Governor Pataki to
    Secretary Richardson requesting it directly that way.
        Chairman Gilman. Thank you. One last question. What steps
    should the Administration here in Washington take to meet your
    trucking crisis?
        Mr. Costello. I think definitely selling off some of the
    Strategic Petroleum Reserve would help.
        Chairman Gilman. As Mr. Valentino mentioned, it could take
    six weeks before you get the benefit of that.
        Mr. Costello. I also think the market would react to that,
    and as I said, back during the Gulf War time, the prices
    dropped substantially, immediately. I think that would help in
    relaxing the market and perhaps, I think, would drop prices.
        Chairman Gilman. Just the decision to release would help.
        Mr. Costello. Yes.
        Chairman Gilman. Any other last thoughts that any of our
    good panelists have? We can't thank you enough for being here.
    Any last thoughts you would like to leave with the Committee.
        Mr. Huber. We just want to express our thanks for the
    Committee's consideration of this critical issue. Your concern,
    I think, does help the industry move forward and makes us look
    more closely to solutions, and hopefully we can revisit with
    the Committee and other Members as better developed solutions
    emerge that will protect us in the long term.
        Chairman Gilman. Thank you, Mr. Huber.
        I would like to encourage the panelists, if you have any
    further thoughts you would like to add for the record, don't
    hesitate to send them on within the next few days to our
    Committee, and we will make them part of the record.
        Again, our thanks to you for being here today and offering
    your comments.
        The Committee stands adjourned.
        [Whereupon, at 12:50 p.m., the Committee was adjourned.]

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                                A P P E N D I X

                               February 10, 2000

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