[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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