[House Hearing, 106 Congress]
[From the U.S. Government Printing Office]
THE IMPACT OF FUEL PRICES ON
SUBCOMMITTEE ON REGULATORY REFORM AND PAPERWORK REDUCTION
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
APRIL 18, 2000
Serial No. 106-53
Printed for the use of the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
67-558 CC WASHINGTON : 2000
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON SMALL BUSINESS
JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
DONALD A. MANZULLO, Illinois California
ROSCOE G. BARTLETT, Maryland DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey CAROLYN McCARTHY, New York
SUE W. KELLY, New York BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania DONNA M. CHRISTIAN-CHRISTENSEN,
DAVID M. McINTOSH, Indiana Virgin Islands
RICK HILL, Montana ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania TOM UDALL, New Mexico
JOHN E. SWEENEY, New York DENNIS MOORE, Kansas
PATRICK J. TOOMEY, Pennsylvania STEPHANIE TUBBS JONES, Ohio
JIM DeMINT, South Carolina CHARLES A. GONZALEZ, Texas
EDWARD PEASE, Indiana DAVID D. PHELPS, Illinois
JOHN THUNE, South Dakota GRACE F. NAPOLITANO, California
MARY BONO, California BRIAN BAIRD, Washington
MARK UDALL, Colorado
SHELLEY BERKLEY, Nevada
Harry Katrichis, Chief Counsel
Michael Day, Minority Staff Director
Subcommittee on Regulatory Reform and Paperwork Reduction
SUE W. KELLY, New York, Chairwoman
LARRY COMBEST, Texas BILL PASCRELL, New Jersey
DAVID M. McINTOSH, Indiana ROBERT A. BRADY, Pennsylvania
JOHN E. SWEENEY, New York DENNIS MOORE, Kansas
JOHN THUNE, South Dakota
Meredith Matty, Professional Staff Member
C O N T E N T S
Hearing held on April 18, 2000................................... 1
Gee, Robert, Assistant Secretary for Fossil Energy, Department of
Hulbert, Tim, President and CEO, Rensselaer County Chamber of
O'Connell, Dan, Center Director, Small Business Administration... 10
DeGuzman, Dantaid, Owner, Pioneer Fuels, Inc..................... 18
Stevens, Marshall, Assistant Manager, Warren County Airport...... 22
LeGrand, Tom, Owner, LeGrand Construction........................ 26
Czub, Jim, National Corn Growers Association..................... 28
Buhrmaster, James, Empire State Petroleum Association, Inc....... 30
THE IMPACT OF FUEL PRICES ON SMALL BUSINESS
TUESDAY, APRIL 18, 2000
House of Representatives,
Subcommittee on Regulatory Reform and
Committee on Small Business,
The Subcommittee met, pursuant to call, at 3 p.m., at the
Schodack Town Hall, 1777 Columbia Turnpike, Castleton, New
York, Hon. John Sweeney presiding.
Chairman Sweeney. I will gavel in the proceedings. We'll
begin a little bit out of regular order by first saying thank
you to Schodack Town Supervisor Eileen Natoli for all of the
accommodations you've made here. Eileen would like to say a few
Ms. Natoli. I would just like to say welcome, ladies and
gentlemen and especially to Congresswoman Sue Kelly, who I'm
delighted to meet for the first time. Welcome to Schodack. Sue
is from the 19th Congressional District, Columbia County. Sue
is the chairwoman of the Regulatory Reform and Paperwork
Subcommittee and on the Small Business Committee.
Our other guest today needs no introduction, John Sweeney.
I think all of us remember him from around these parts, from
DWI and Rensselaer County to Commissioner of Labor to the
Governor's Deputy Secretary and now, for the first time in his
life, a real honest job, Member of Congress. John, we're so
happy to have you.
Chairman Sweeney. Thank you. Eileen. Thank you. Welcome
everyone. I want to thank the crowd, you folks, for coming out
and participating today. I will make a brief opening statement
and then turn it over to Mrs. Kelly for her opening statement.
And what I'm going to do is give you an abridged version of my
opening statement and submit to the record the full statement.
As Mrs. Natoli pointed out, Sue Kelly is an important
member of the Small Business Committee as the Chairwoman of the
Subcommittee on Regulatory Reform and Paperwork Reduction. And
I've had the privilege of serving the last year and a half with
her in Congress. And this morning we were in Mount Pleasant, in
Westchester County, conducting a similar hearing to this.
As we all know, we're going to hear today testimony
relating to how fuel prices have impacted small business
throughout New York State. We've had a winter of economic
discontent and hardship and as was the case for so many in the
Northeast, Spring comes with little promise of lower fuel
In this past winter, we've witnessed skyrocketing heating
bill prices and now we're faced with high gasoline prices. I've
been following this problem very closely, have been in touch
with a number of my constituents who have called my office. And
as far back as last December, I have been urging the Clinton
Administration to release low income heating funds and consider
releasing from the Strategic Petroleum Reserves into the
It's this Congressman's opinion that the Administration's
initial response has been woefully inadequate. In fact, I term
it benign neglect in some instances.
We have asked the White House on a number of occasions, as
I have mentioned, to release oil from the SPR. In January, Mrs.
Kelly myself, and a bipartisan delegation of Representatives
from the Northeast met with Secretary Richardson and asked
again that he do that. We have been, thus far, fairly ignored
in our pleas.
We've watched the Secretary travel throughout the world
with his hat in hand asking OPEC to increase oil production.
Many of these same OPEC nations, just a few short years ago, we
went to war in order to protect. Now we are subjected to what I
call economic terrorism on their part. During this time, the
last seven years, U.S. oil production has fallen by nearly 20
percent while oil consumption has continued to rise.
During the 25 years since the last oil crisis, our reliance
on foreign oil has increased from 37 percent to 57 percent
today. I believe we have no or a very failed energy policy, and
I'm hoping that in today's testimony we can begin to work in a
bipartisan and cooperative and a reasonable way to try to
change some of that.
On a positive note, I want to note that last Wednesday in
the House, we authorized the Strategic Petroleum Reserves with
a bipartisan vote of 416 to 8. And I'm proud that my suggestion
for a regional heating pool reserve was included in that bill.
This reserve will help protect us from skyrocketing heating
fuel prices in the future, I believe.
There are a number of other proposals and ideas floating
around, and I want to get to the testimony of our witnesses,
but let me point out that 90 percent of all employment in the
22nd Congressional District that I represent derives from small
businesses. We thought it very important that we, specifically
today, address the affects on the small business community so
that we could be better prepared to understand what needs to be
done in the future in order to rectify the situation.
And with that, I will turn over now to Mrs. Kelly for her
Mrs. Kelly. Thank you very much. Good afternoon, everyone.
It's a pleasure to be here. I'd also like to thank Congressman
Sweeney for inviting me here this afternoon. And I thank him
for joining me earlier for the morning hearing that we held in
Valhalla, New York, where we held a hearing on the same topic.
This afternoon I'm very happy to be able to turn over the
gavel to him for this hearing. Near tripling of the price of
crude oil since March of 1999 to the first months of the year
2000, coupled with other developments, initially brought about
sharp increases in the price of home heating oil and diesel
fuel. As you all know, the Northeast has been hit the hardest
by these rising energy costs. We've made it through the winter,
but we have to insure that we avoid another home heating oil
crisis. Nevertheless, the Northeast and the nation has turned
its attention to a new crisis, the price of fuel. And,
moreover, the possibility of a sharp increase in electric rates
is becoming more and more of a reality.
I would like to insert into the record, Mr. Sweeney, a copy
from the Wall Street Journal. It's from the Wall Street Journal
of March 20th. The headline of this article reads, ``Northeast
Faces Electricity Price Surge.'' Now, it's--the second thing
says ``Costly oil fired plants may drive up summer rates.''
That's what I'm talking about.
The possibility of this sharp increase in electric rates is
becoming more and more of a reality. And I think that New York
is at a major disadvantage because it doesn't have any
refineries here. We don't have a major gas pipe that's coming
up here. New York is dependent upon just oil for our heat and
our gas. This fact, coupled with themarket forces and the
President's inability to compel OPEC to reach a production agreement
until just two weeks ago and his continued reluctance to release oil
from the Strategic Petroleum Reserve forced us to examine the problem
in a deeper way.
Caught up in all of these issues are the consumers, all of
you, all of us, people who drive up to the gas pump every day
and have to fill their tank because they're going to work,
because they're doing a volunteer job. These are the people who
are being hit by these gas prices. Add to that the truckers who
are facing fuel prices that are close to $2 a gallon of gas for
diesel fuel in my area. Some people are paying $2.25 for diesel
The spillover effect of that is enormous. It's catching all
of us. It's raising our prices. And I believe that the
Administration has got to keep its guard up because we are
likely to see rising electricity rates on top of these high oil
prices. The price of oil has decreased a little bit now. We
hope the crisis part is over, but the Energy Information
Administration indicated on April 6th that it believed that
gasoline prices may not have peaked and the national average
price during this summer may exceed about 1.5--1.51 or $1.51 a
gallon of gas. That's unfortunate. The EIA added that the
Northeast might see spikes to a higher level.
For small businesses that are producing, distributing and
consuming oil, the crisis has really just begun. And it's for
this reason that I think Congress has to continue to debate the
possible long-term and short-term courses of action. That's
really why we're here today. We want to take the debate away
from Washington, D.C., and bring it here so we can listen and
hear and take back to Washington and enact into, we hope, good
We also are--I'm excited that we have the, we have the
Assistant Secretary of Fossil Fuels from the Department of
Energy, Mr. Robert W. Gee, here with us today to discuss the
Administration's most recent actions regarding oil production.
And Mr. Gee, I hope, will take back our issues and our concerns
from this area back to Washington.
With that, I thank you all for being here and I thank you,
Mr. Sweeney, for allowing me to be with you today. I look
forward to everybody's testimony.
Chairman Sweeney. Thank you, Congresswoman Kelly.
We have two panels today that we will be taking testimony
from. And I'll go to the second panel first.
This arose this morning in Westchester County. It was a
reference made to Alan Jackson, the country singer, in his song
``Remember the Little Man.'' That second panel will be made up
of a number of small business folks from the 22nd Congressional
District who will provide us with their insight and give us a
real firsthand account of what the effect of the past year's
events have been.
Our first panel, I guess, are the big guys. They're the
government and the business community representatives.
Robert Gee, is, as Mrs. Kelly pointed out, the Assistant
Secretary for Fossil Energy with the Department of Energy.
I thank you, Mr. Gee, for being here. I know this hasn't
been exactly easy for many people in the Department to appear
and testify, but your testimony this morning was very
forthright and I look forward to your testimony here.
With us as well is Daniel O'Connell, Center Director for
the Small Business Administration in Albany, New York. Mr.
O'Connell does extensive work with my office. And I thank you,
Dan, for being here.
And last, but not least, Tim Hulbert, the President and CEO
of the Rensselaer County Chamber of Commerce.
I will point out that Mr. Hulbert and I are long time
friends and acquaintances. In fact, I bought my first life
insurance policy off him. And I thank him for being here today.
With that I will turn it over to you, Assistant Secretary
STATEMENT OF ROBERT GEE, ASSISTANT SECRETARY FOR FOSSIL ENERGY,
DEPARTMENT OF ENERGY
Mr. Gee. Thank you very much, Mr. Chairman, and thank you
again for the opportunity to participate in this hearing here
in Castleton, New York.
As you know, I've already submitted a formal statement for
the record and I will just take this opportunity to summarize
The Department, primarily through its Energy Information
Administration, maintains data on the general patterns of fuel
supply and demand within the U.S. economy. Our data, however,
do not always reflect the individual impacts on specific
business sectors. We know clearly, however, that small
businesses, especially those whose profit margins are
influenced significantly by the cost of fuel have experienced
difficult times in recent weeks and months.
My testimony today will focus on several actions the
Administration's taking to address this situation. Our goal has
been not to try to set an artificial price for petroleum;
rather, our goal is to lessen volatility in the market,
volatility that can make business decisions especially
difficult, particularly for small energy intensive businesses.
The recent announcement by OPEC and others that enough oil
will be flowing in the global market is good news for
consumers. It will build oil inventories and, as we've already
seen in the past couple of weeks, it will lower prices.
But the recent price spike reminds us that every American
can still be affected by actions and decisions that occur well
outside our borders.
The recent volatility in all markets is yet another in a
series of cycles, this one perhaps more extreme in its roller
coaster effect than others in the past. It's a cycle that
actually began in 1997 when OPEC substantially increased
production at just about the time when the economic downturn in
Asia began to sharply reduce global oil demand.
This led to unprecedented low oil prices, the lowest in 50
years, and much of our domestic industry, that is, the
producing industry, suffered as a result.
The most recent price spike came as a result of a series of
production cuts as both OPEC and non-OPEC producing countries
attempted to compensate for the plunge in prices.
Unfortunately, these cuts came at the same time the Asian
economy began to rebound. The supply and demand imbalance
quickly swung the other way and suppliers began drawing on
petroleum stocks. Inventories were driven to extremely low
levels and the price of crude oil and refined products shot up.
It is important to note that the dramatic swings in prices
have largely resulted from an imbalance of less than three
percent in world oil supply and demand. Today, the world
consumes 75 million barrels of crude oil per day. A two-million
barrel supply overhang led to the price plunge in 1998. A two-
million barrel supply shortfall contributed to the price hike
of this year.
That is the nature of the global oil market that affects
every American. Today, 52 percent of the oil consumed in the
United States originates from outside of our borders. That is
not only due to declining domestic production, but from a
continuing rise in U.S. demands. Our petroleum appetite has
increased more than 20 percent since 1985.
There are some short-term global actions that can help.
We've diversified our international sources of oil supply. Last
year we imported oil from 40 different countries. We can engage
in global diplomacy, and I believe Secretary Richardson
deserves a considerable amount of credit for the diplomatic
efforts he has made in recent weeks.
But in the longer run, we must continue to take actions
that strengthen our own domestic energy security and protect
those Americans that can be harmed most by sharp price
fluctuations. That is what the President and the Department of
Energy have been doing over the last several months.
To ease the problems faced by low-income persons, this past
winter, the President released nearly $300 million from the Low
Income Home Energy Assistance Program. In the pending
supplemental appropriations bill, he has asked Congress for
another $600 million for this program, plus additional funding
for weatherizing the homes of low-income families.
The Administration took action to insure the availability
of SBA loans for heating oil distributors who needed better
cash flow to meet contractual obligations and make deliveries.
In all, I've cited 15 separate actions on pages three and
four of my formal statement that the Administration took
following this winter's run up in distillate fuel prices.
Within the last month, the President has proposed
additional measures. In his March 18th radio address to the
nation, he called on Congress to enact legislation authorizing
a regional heating oil reserve in the Northeast.
This would be a two-million barrel emergency supply of
heating oil that could be released when supply shortages
threaten economic harm to consumers. We are currently working
on plans for this reserve and we are prepared to work with
members to pass legislation that would establish clear
authorities for its creation and use.
The President has also called on Congress to extend the
Energy Policy and Conservation Act, the legislation that
provides organic authorities for the Strategic Petroleum
Reserve. Despite the recent visibility and concern expressed
over our nation's oil situation and our energy security, the
legislative authorities for our most important energy emergency
response tool have been allowed to lapse. They expired on March
We were encouraged last week when the House passed an
extension of the Act through fiscal year 2003, and included
provisions for heating oil reserve. That legislation has now
been returned to the Senate which had previously passed a
It is critical that Congress act soon to extend this
legislation to ensure that the President maintains the ability
to use all available tools to respond to future energy needs.
There are also opportunities to reduce our economy's
appetite for petroleum and to supply a greater proportion of
our oil from domestic sources.
In his radio address, the President announced several new
tax incentives to support domestic oil exploration and
production, as well as reiterating his support for tax credits
that would encourage greater use of renewable fuels and
improved energy efficiency.
For the longer term, we are strong believers in the
potential of new technology, both to make our economy more
energy efficient and to enhance our nation's ability to produce
more fuels from its own domestic resources.
One of our key energy efficiency initiatives is to develop
a prototype full-size automobile by 2004 that would get 80
miles per gallon. By the same year, we also want to improve
light truck fuel efficiencies by 35 percent while, at the same
time, ensuring that these vehicles meet new air quality
regulations. These efforts will not only benefit millions of
individual automobile owners, but also the hundreds of
thousands of businesses that rely on delivery trucks and
freight haulers to move their products to market.
Finally, Mr. Chairman, let me make a final point that often
goes overlooked in a discussion about small businesses. We
correctly focus much of our attention on the small companies
and family-owned businesses that consume petroleum and other
fuels, and rightly so. I would also point out that,
increasingly, the companies that produce those fuels in our
country are also small businesses.
Today's petroleum industry is not the same industry that
existed in the 1950s, '60s or '70s. For the most part, large
oil companies that had been here have turned their attention to
more lucrative prospects overseas.
Today, 85 percent of the new oil and gas wells drilled in
our country are drilled by the smaller, independent companies.
They account for nearly half of the crude oil produced in the
lower 48 states. They are responsible for two-thirds of the
nation's natural gas supply today. Nearly 80 percent of the
more than 8,000 companies that now make up the U.S. oil
industry have less than 20 employees.
The extreme price volatility we witnessed recently is good
for neither the oil consumer nor the oil producer. They are
both small businesses.
Consequently, Mr. Chairman, we believe a truly
comprehensive national energy strategy must address both ends
of the fuel spectrum, the producer in the field as well as the
consumer in the home or business.
There are remarkable opportunities at both ends of this
spectrum. If we can sustain a partnership between government
and industry in developing new energy consuming technologies
and new energy producing technologies, we can look forward to a
day when the roller coaster rise of prices comes to a halt.
Our goal is a future in which the United States is
producing the full potential of its domestic resource and
consuming those resources in the most efficient manner
possible. The more we drive toward that goal, the greater the
likelihood that the cost of a barrel of oil in the future will
be dictated by markets and not by cartels.
This concludes my opening statement, Mr. Chairman. And I'll
certainly be glad to answer any questions you may have.
Chairman Sweeney. Thank you, Mr. Gee.
We'll go to Mr. Hulbert.
STATEMENT OF TIM HULBERT, PRESIDENT AND CEO, RENSSELAER COUNTY
CHAMBER OF COMMERCE
Mr. Hulbert. Good afternoon, Madam Chairwoman and Mr.
As John has pointed out, I've known him since he had an
honest job. I'm very proud to have known him when he worked
assisting many of our citizens with developmental disabilities,
with the Rensselaer County Association for Retarded Citizens.
That's when I first met him. And that was an honest job and it
was a great job. And you did as good a job there as you're
doing here. It's an honor to have you here.
I wanted to point out in my remarks that, when it gets
close to August 1st and you're rushing to the summer recess and
trying to get all those things done, just think about this nice
warm weather we're having here today in beautiful Upstate New
My name is Timothy Hulbert. I live about 10 or 15 miles due
north of here, the way the crow flies, but something less of
than a dollar fifty a gallon of gasoline would get me here from
my home. I work for the Rensselaer County Regional Chamber of
Commerce. And I thank you for having me.
Our Chamber's been around for a hundred years. We have a
thousand members. We are very proud of our heritage. We are
very proud of the heritage of this community.
Let me get to the business at hand.
Just a week ago, crude oil prices reported in The New York
Times listed that the Saudi Arabian Light, the benchmark
commodity, was selling in the spot market for $22 a barrel.
Now, that's pretty good news, because a month ago, as you
noted, it was selling for about $34 a barrel. However, for that
same barrel getting delivered in May, the price has risen to
$24. That's the energy future.
The International Energy Agency reported in last
Wednesday's New York Times, ``they've warned of possible
shortages unless OPEC lifts output more than expected.''
As you know, as has been noted here, there's been a steady
rise upward until the last month in the price of a barrel of
oil. There's been some volatility over the last month and, to
the great extent, it has come down, but what goes down can come
up. It's the reverse of Newton's Law.
Over the past year, the Organization of Petroleum Exporting
Countries has once again demonstrated that they can dictate
either world-wide economic disruption or stability. The cartel
has once again shown us just how vulnerable our economic
prosperity really is.
Just what has this price runup done to us?
Every time OPEC strangles production or raises the price of
petroleum, ultimately, everything we buy as businesses and
consumers costs more. When OPEC raises its price, rest assured
that Texas oil, Alaskan oil, natural gas and all heating fuels,
ultimately track that price and rise, too.
So much for economics. What does this mean to businesses
Virtually every American product and service gets delivered
over the highways. When the price of gasoline rises, business
costs and the costs to all consumers rise.
Just take a look at groceries.
We are fortunate to be just a few miles from Hannaford
Brothers Company's New York regional office and distribution
center. They have a half a million square feet under a roof.
They have 400 people working there. And from that facility they
supply 23 of the finest supermarkets in Upstate New York and
even more in neighboring Vermont and Massachusetts.
Company-wide, Hannaford's distribution costs have risen by
more than $50,000 a month. For the Schodack-based portion of
the company, that means somewhere between 15 and $20,000 each
month in increased costs that's going to find its way into
their products. That's a steep increase that requires a steep
challenge by the management to manage that.
If there's any good news for this industry it's that all
grocers move their products over the highway. So, whether it's
Golub, Wegmans, Hannaford or whatever, they're all distributing
over the highway and they're all dependent upon gasoline. That
means they, unfortunately, are simply conduits of the OPEC tax,
and that conduit from OPEC directly to us as consumers. I know
the Hannaford management team quite well. Their vice president
Beth Nuance Campbell and other vice president Ron Spear are
here in the room. And I know that they will do whatever it
takes to keep the price advantage in the marketplace. They'll
do whatever it takes to keep any advantage in the marketplace.
And so will their competitors. But rest assured that much of
the later OPEC tax, it's going to find its way into cereal,
ketchup, dog food and everything else that we buy, be it at
Price Chopper, Wegmans or Hannaford.
Other businesses that face these costs face a little bit
Again, a few miles from here, Hudson Valley Coffee Company
is located in Schodack. It's owned by a woman, Lisa Topaltzas.
She, too, gets her products, coffee, to the market over the
Coffee is very much like petroleum, and I'm not speaking of
the coffee that I make every morning. But Lisa pointed out to
me that coffee and petroleum are perhaps the two most traded
commodities in the world marketplace. There's really no arguing
with her there.
The world-wide coffee market, however, is very different
than the petroleum market. Price and supply are not set by an
international governmental cartel. For the most part, and maybe
some of you will disagree with this, coffee trades openly and
freely around the world and it seeks its own level. When it's
affordable, we buy it. When it gets too pricy, we drink tea, we
drink soda, but we don't drink coffee. Unless, of course,
you're dependent like I am.
Lisa's company has one basic product. They have a variety
of variations on that, but they have one basic product, coffee.
The several hundred dollars that she and her company face every
month really can't be covered because of the nature of that
marketplace right now, so she eats that tax. She eats that and,
you know, less salaries for her employees, less other things
for her company.
There's another business that I know fairly well, and
that's R.J. Giles, a very good friend of ours, unfortunately
moved his company over to Albany temporarily. He'll be back in
Brunswick at some point.
He started his business about 15 years ago out of his
living room and in the back of a Dodge station wagon. Today, he
has over 30 men and women working for him.
His company, which competes with all the regional and
national office supply companies, is paying about $600 a month
additional in increased gasoline costs.
Now, he's a little bit like Hannaford and a little bit like
Lisa. He can move some of that, some of that product, that
price increase into his products. Not too much, though. He has
to eat the rest. He loses profitability. That hurts a local
Ultimately, these things find their way to consumers. As I
said here in my remarks, I guess I'm pleased, if you will, to
share this bad news with you. What I don't have for you is some
type of silver bullet that would be a remedy. I think it's a
problem of markets. I don't know that there is a remedy. And I
am speaking as a recovering energy bureaucrat. I spent five
glorious years with the now former New York State Energy
John, in his previous capacity, was successful in
eliminating that alma mater of mine.
Don't laugh. He's got his eyes on you.
Anyway, our Chamber members do not call me up and say,
``Tim, what are we going to do about this?'' I think they call
their congressman and congresswoman.
I don't know that price controls, fuel allocations and
those types of mechanisms will work. I am very doubtful about
what the release of the Strategic Petroleum Reserve will do. I
think they're more theater.
Having said that, I am a veteran of the '79 energy crisis,
or so-called energy crisis. And during that crazy time, odd/
even did work. And I'm not saying that we should do odd/even
but, if there is a point where that does occur, odd/even can
work for a period of days. One of the things that we do in
government is we manage emergencies quite well. What we don't
do in government is we recognize when the emergency is over. So
if you are driven to do this this summer or some time in the
future, remember you have to remove the rationing.
I do think we need to do some of the things that the
Assistant Secretary has said, which is to create the
incentives, tax incentives for the market, introduction of
competing fuel forms and energy efficiency.
There was an article in yesterday's Record in Troy about
the Honda Insight--I can't help notice it was Honda and not
Chevrolet--that now has a hybrid product that you can buy in
beautiful downtown Brunswick that gets 60 to 70 miles a gallon,
and maybe even drive it to Cape Cod.
Finally, a word about OPEC.
You know, in our little corner of the world here, we might
not be completely up on all the nuances of the geo-political
machinations. But, you know, without a score card, it's pretty
tough to keep current on these things, but I don't know.
Is Kuwait on our side these days or are they back on the
same side as Iraq?
Where are our buddies, the Saudis, Abu Dhabil or the United
These questions, of course, are rhetorical, but Americans
certainly can remember that less than 10 years ago our men and
women were fighting to protect these nations as well as our own
strategic interests in the Persian Gulf.
Maybe these nations could use a gentle reminder that their
long-term strategic and economic interests are better served by
our American economic success. Maybe if President Clinton
appointed former Secretary of State James Baker as a special
ambassador to go visit our, quote unquote, friends around the
Gulf, maybe they would see the friendly face and rethink their
openly hostile economic policies that are currently in place.
I know it's not that simple, but feel free to pass that
last suggestion along.
Again, thank you for coming here. And it's great to see you
Chairman Sweeney. Thank you Mr. Hulbert.
Our next witness, Dan O'Connell, is the manager of the
Capital Business Resource Center, which is an SBA, Small
Business Administration, sponsored business information center.
STATEMENT OF DAN O'CONNELL, CENTER DIRECTOR, SMALL BUSINESS
Mr. O'Connell. Thank you, Congressman.
Welcome, Congresswoman Kelly. Thank you for coming up to
I live on the other side of the river, still in the 22nd
District, I might add, in Clifton Park. I guess we're neighbors
So far, from the other two people that are contributing,
we've heard about part of the cause of the problem. We've heard
about OPEC. And, certainly, OPEC had a great effect on the
price bites that we saw this past winter.
OPEC production restrictions finally began to diminish what
had been a glut on the market. And, as the Assistant Secretary
said, we were at a low price in the cost of oil historically.
However, in September, the supply of the product was
sufficient in the Northeast to meet the anticipated demands of
this winter. Of course, the decision to restrict all production
caused an international increase in crude oil per barrel and
that was something that affected us in the Northeast,
particularly. But there was, were two other factors involved.
One was we had a cold snap that began January 13th. And it
lasted for approximately three weeks. That cold snap caused the
utilities, the gas companies, if you will, the natural gas
companies, to invoke their interruptible clause in their gas
contracts. The interruptible clause is for big businesses, for
big users, for hospitals, federal buildings, electricity
generation plants. They are required that, when demand for
natural gas becomes high, that they convert back to another
type of fuel or they would pay a significant penalty for their
continued use of gas, of natural gas. This interruptible clause
put an unprecedented demand upon the supply that was already
limited in this area.
During the three-week cold snap, interruptible customers
required four million gallons of fuel oil per day in the
Northeast. And, for example, four million gallons of fuel oil
would heat, one day of what the gas interruptibles used would
heat 4,000 homes for one year.
The demand triggered by these interruptible customers had a
net effect of increasing oil prices by 50 to 60 cents per
gallon. The oil dealers that I talked to identified this as the
single largest problem that they faced this winter.
At the same time, the cold snap caused the river to freeze.
No surprise there. The river freezes every year. However, when
the river froze, it lengthened the time to get a barge of oil
from the Port of New York to the Port of Albany from 16 hours
to approximately 36 hours, which increased the cost of
transportation. Also, because of the ice on the river, they
required, the tugs required having, the barges required having
an ice breaker to lead them up the river at a cost of
approximately $800 per hour. So this also had a tremendous
effect on the price increase for a barrel of oil, for a gallon
of oil, rather.
These factors resulted in a rapidly increasing price. Many
occasions the price went up more once in one day and the fuel
oil dealers had a terrible time trying to stay abreast of the
prices. In many cases, they could not get a quote on a barge
load of oil from the Port of New York because, by the time it
got here, it was significantly higher. It was worth more when
it got here.
We ran into some product shortages. Unlike Western and
Central New York, we're not available to pipeline. We're water
dependent for supply.
While the price of oil was high in Western New York and in
Central New York, it was not as high as it was here. And they
had access to the pipelines.
One of the oil dealers I talked to said that they were
sending tractor trailers to Toledo, Ohio, to get product,
because they could get it cheaper than bringing it up from the
Port of New York, even with the cost of fuel involved.
What's the solution?
Part--of course, part of the solution is what we talked
about, what's already been said, the Strategic Oil Reserves.
Most of the dealers I talked to said that we really ought
to keep the Strategic Oil Reserves for a real emergency,
catastrophe, a disaster, a time of war, but we should have a
special supply reserve, perhaps with, the figure that was
thrown at me was two and a half million gallons, that would be
stored somewhere in the Northeast and be available for just
such supply shortages, not for critical. We didn't want to
touch--they didn't want to touch the strategic reserves that
would be there for in case of real physical or disaster
measures. But they thought we should have some access to
relieve the demand when the gas interruptibles clicked in and
when the river froze.
In addition, they thought that it would be a good idea if
the gas interruptible customers were required to store a five-
day oil supply that they could buy in the spring or in the
fall, store for the winter and, if they were required to use
it, they would have it. If they weren't required to use it,
they could shut down their gas supply for five days and burn
off the oil and then replace it the following season.
Right now, they can buy contracts from their oil dealers to
meet their interruptible supply. But that doesn't help the
supply, because the contract is just that, it's a promise to
buy from, promise to deliver.
Certainly, what the oil dealers were faced with, beside the
lack of product, was a cash-flow crunch. And this was what most
of our small businesses were faced with. The oil dealers had it
first. They were faced with a cashflow crunch because the price
was going up so quickly, that they were buying increasingly
more expensive product while waiting for accounts receivables,
that were already of lesser value, to come in. HEAP was a great
help, but it took a while to get that money.
One of the things, the small businesses, once again, rose
to the occasion. Of all the oil dealers I spoke with in the
last few weeks, all of them made it a point to say nobody went
without heat, whether they could pay or not, whether they would
be paid in a timely basis or not. If they got the call at two
o'clock in the morning, they went out and delivered,
regardless. They just made it a policy that nobody was going to
be cold. And I think that says a lot for the small businesses.
In addition, they honored their contracts. The companies
that sold contract prices for their oil customers at a
guaranteed price at the beginning of the season, they honored
those contracts and they didn't walk away from them. They all
talked about one guy in New Hampshire that walked away from
them. I was just happy it was in New Hampshire and not here.
The SBA was given a million dollars in supplemental funds
to provide guarantees for oil dealers that were hurt by this
shortage. That allowed us to guarantee $86 million worth of
loans. In Central New York, in the Syracuse district, which
this area is part of, we did not make one loan to an oil dealer
for this purpose.
Now, why, why was that the case?
Certainly, part of it's our fault. Maybe we didn't market
it correctly. Most of the oil dealers I talked to knew about
the program, they said that they were experiencing very
difficult cashflow situation, but they were able to handle it
with their banks. They borrowed from friends, they borrowed
from relatives, they borrowed from banks to get through this
situation. They didn't think that the SBA would respond quick
We have some programs today, thanks to the small business
community, that allows us to respond quickly. We can get an
answer and actually get the money in somebody's hands within 36
hours. I don't think we've done a proper job in marketing. And
that's something that we certainly want to make clear to all
the businesses in our area and we have been making a
concentrated effort to get that information out.
We expect that, come later on in the spring, when the oil
dealers find just how badly they've been affected by their
situation--a lot of them don't know yet just how bad it is. One
fellow told me he didn't want to know until he got back from
vacation because he didn't want to worry about it. Once we find
out just how bad this is, then they will be able to avail
themselves of SBA products to do some refinancing. We can term
out some of their credit lines and provide them with the
capital that they need.
In my written testimony, I gave you some figures as to how
many loans that the SBA's made in both the 19th and the 22nd
Districts over the last two years. We had been, in the 22nd
District, significantly behind last year. And, overall, in the
Syracuse district of the SBA, we had been significantly behind
last year. However, in March, we had a record month, and we
believe that it was due primarily to the energy crunch. So we
anticipate seeing that go forward in April, May and June and we
probably will catch up by providing some capital to businesses
that are dependent.
That concludes my testimony. I'll be glad to take any
Chairman Sweeney. Thank you, Dan.
We'll go to questions now, and what I'll do is direct my
first round of questions to the Assistant Secretary and then
turn it over to Mrs. Kelly for her round of questions.
I noticed, Mr. Gee, that some adjustments, or I sensed some
adjustments from your testimony this morning. And I appreciate
that you flushed out some of the President's proposals, because
it does, indeed, provide us some opportunity to develop some
focus. But I must say, I am skeptical and, at a minimum,
unclear still in terms of what and how the Administration is
viewing its policy decision making. And I want to point to a
little bit of the history and then ask you a very specific
And as I look at the history, I'm not sure if the
Administration is a proponent or a supporter of the notion that
we need to increase domestic production. You had pointed out
that domestic production's defined.
When you consider in 1995 that the President vetoed a bill
which would have opened up as much as 16 billion barrels, 30
years' worth of Saudi Arabian imports in Alaska. When you
consider that, I think it's the policy of this Administration
to not believe that hydropower is renewable, in light of the
fact that the Secretary of Interior has essentially launched an
all-out assault against our domestic energy by keeping
regulations, raising royalties, closing vast expanses of the
U.S. to natural gas and oil exploration. I mean, the
Secretary's actually bragged that he was going to be the first
secretary to tear down a hydroelectric dam in his term. When
you consider the Administration shut off the entire Rocky
Mountain front to energy exploration, foregoing enormous
quantities of clean American natural gas. When you consider the
Administration has embraced the Kyoto protocol, which could
impose staggering economic costs on the United States, in my
opinion, the protocol requires the U.S. to vastly reduce its
use of fossil fuels, like oil and natural gas and coal, to a
cheap (inaudible) initially carbon dioxide. I'm a principle
sponsor of acid rain legislation in Congress. I am sensitive to
the needs to balance environmental policy. But it seems to me
that the Administration has tilted substantially in one
direction while not--while foregoing many opportunities that we
might have in developing alternate sources and in improving and
wisely managing our domestic supply.
So, if you could tell me what is DOE's sense of priorities.
Is it domestic production first or is it alternate fuel sources
as the principle priority to moving forward and ensuring that
we don't have a repeat of this kind of crisis?
Mr. Gee. Let me try to--as I understand your question, let
me try to answer it this way. Rather than either or, I don't
think it's domestic versus alternate, it's actually both. Our
policy priorities are to diversify, as best we can, all forms
of energy, whether it's fossil based, whether it's renewables
in the form of solar or wind, whether it's continued use,
continued use of nuclear power, which, in many quarters, is
unpopular, but we recognize that it still contributes some 20
percent in electric power generation, energy efficiency and,
certainly, the concerns you've addressed with respect to hydro,
I think those are challenges that are going to have to, on a
continued basis, simply because you have a lot of license
authority that are now being--that are now expired or about to
expire. And the question then becomes whether you relicense a
lot of that capacity, given our surge in energy demand.
With respect to oil and gas production, let me tackle that
first, since you brought that up.
This Administration is, indeed, as you point out, opposed
to opening up the Alaska Natural, Alaska Natural Wildlife
Reserve for oil and gas production. However, I don't think it
is correct to say that we are adamantly opposed to continue
domestic production of new fields. ThisAdministration decided
to open up the NPRA in Alaska, the National Petroleum Reserve of
Alaska. It did so with the understanding that new technologies have
been fashioned that would allow the beneficial, environmentally
beneficial, environmentally sensitive production of new green fields
development in Alaska. And, in fact, our Department's worked very
closely with the Department of Interior, the head of the Department of
Interior to release those and, in fact, they are now ready to open
those additional new oil and gas fields in Alaska.
We've also passed the Deep Water Royalty Relief Act in 1995
which afforded a lot more oil and gas development in the Gulf
Coast of the United States, and that has led to higher rates of
oil and gas production off the OCS.
We're working closely, as a department, with the Department
of Interior to look to the Rocky Mountain area to find out how
we can best inventory all of the properties that are currently
being utilized for exploration, and even those that are off
limits, and seeing whether there could be, whether there could
be some opportunity for continued exploration in the Rocky
So I want to emphasize, Congressman, I think your question,
as I understand it, what's this Administration doing to promote
domestic production, in fact, we're opening up new area----
Chairman Sweeney. Please tell me and tell the panel what
are the quantified goals, what is your goal and your plan to
attain those goals in increasing domestic production, and by
what time period are we talking?
Mr. Gee. In 1998, our Department released the President's
Comprehensive National Energy Strategy, and one of its goals
was to slow down the decline in domestic production to a point,
hopefully, by 19--excuse me--2005 we would stabilize the level
of domestic production.
Let me give you a few facts, Mr. Congressman.
The problem in the United States today is that many of our
fields, most of our fields have already been well explored,
unlike other parts of the world. So it becomes increasingly
difficult to realize higher rates of recovery. The number of
barrels that you produce per well is shrinking, simply because
we're going back into the same fields, and that's just a matter
of geology. You can't fight that. Okay?
What we can do is to try to find ways, through tax
incentives, through lowering of cost production, to keep margin
of wells productive. And perhaps with that, in addition to the
increase in the new areas that we are permitted to explore, try
to find ways to slow down the slide in domestic production and
perhaps arrest it over a period of time. And that is one of our
Chairman Sweeney. I'm a supporter of ethanol and biodiesel
alternative fuels. And I happen to be fortunate in that I
represent a number of people who work for a fantastic company
called Plug Power, that is in the area, that's----
Mr. Gee. Very good company. Very familiar with them.
Chairman Sweeney. So you know what they've done.
Now, I'm wondering, what is DOE--is DOE using this latest
crisis to expand alternate fuel research and what are the
expectations that you have in that area?
Mr. Gee. That is a different part of our department, for
which I am not directly responsible. Let me go ahead and share
with you what I do know.
We do have a big biofuels program as part of our
department's research and development program, and they also
are big into ethanol research as well.
In my own office, we have a program which, hopefully, will
take coal and coal waste and petroleum and natural gas and
hopefully convert that into liquid transportation fuel. That,
in conjunction with our renewable biomass ethanol program,
would hopefully lead to diversification of these fuel resources
to liquid transportation fuels. That is a big part of our
program. In fact, I think--I don't know what the budget figures
are. I do know that we are asking in our next, in the current
2001 budget request for an increase, I know, in some of these R
and D technologies.
Let me also add, the Plug Power, the fuel cell technology,
my office is very heavily invested in new fuel cell
technologies. We think that is one way where we can continue
using, for example, natural gas in a way in which boosts
efficiency way beyond what anybody would ordinarily expect and
also do it in a way which is environmentally benign, because
all you emit is, basically, water and minimal amounts of
I was in New York City at a ribbon cutting of a fuel cell
that was put together by the New York Power Authority along the
Hudson, a fuel cell developer, and it was a marvelous fuel cell
that they have there in the substation right in the midst of
Central Park. Excellent example of distributing generation in a
heavily urbanized area.
Chairman Sweeney. Thank you.
Mrs. Kelly. Thank you.
Mr. Gee, when this whole crisis started, Governor Pataki
asked the Administration for an immediate investigation into
the factors that are driving these fuel prices and its
shortages and so on. And on January 27th, the Ranking Chairman,
the Ranking Member of Transportation asked for a similar study.
Can you tell us what the status of those investigations are
at this point?
Mr. Gee. I believe, if you're referring to investigations
into potential anti-competitive conduct, if that's what the
thrust--I'm not familiar with the specific inquiry. I do know
that questions have been asked about why prices seem to fly up
so rapidly and whether there were some anti-competitive actions
being taken by various parties.
I do know that the Federal Trade Commission and the
Department of Justice are looking into competitive questions,
if that's what your question refers to.
Mrs. Kelly. Well, some of those questions I asked Secretary
Richardson myself when I met with him early in this problem,
and we asked if there was, in fact, price gouging, whether
there was a deliberate attempt to withhold oil from the
Northeast, which would drive up our prices. Given what we know
about the regional nature of oil pricing and so forth, I know
that the Governor also was concerned about the way, the impact
of that, in terms of price increases, and also he was, I
believe, asking about the supply shortages. And I just
wondered, I know that those questions----
Mr. Gee. I think we're talking about the same thing. I
believe, as I understand it, the Department of Justice and FTC
are looking into these matters that you referred to.
Mrs. Kelly. Those questions were asked January 27th.
Perhaps you could take a recommendation back to the
Mr. Gee. I'll be happy to take that back.
Mrs. Kelly [continuing]. And respond?
Mr. Gee. I'll ask our Department what they know of your
inquiry and see what other agencies are doing as well in
response to that. I'll be happy to do that.
Mrs. Kelly. Thank you very much.
In the interest of time, are you going to hold the hearing
open and then I will submit some----
Chairman Sweeney. I was just going to make a motion. We
will hold the hearing open for an additional 14 days so that
additional questions can be submitted.
Mrs. Kelly. May I just state one thing?
I know that you've been talking about the Arab nations. I
happen to have had some relationship with the Country of Qatar
and the Minister of Energy of Qatar is the Chairman of OPEC.
When he was in my office talking with me about something that
his nation needed, I turned to him and said, ``Sir, I need
something from you. We, in the Northeast, need something from
you.'' I want to make it clear, put it on the record, that at
the time I was speaking with him, I was talking with him about
the impact in the Northeast of the problem with oil prices
going up, my concern about price gouging, my concern that they
have made, they made an effort to shrink the amount of oil that
they were pumping and making available to us and what that
impact is. And I think we've heard today, and we'll hear some
more, about the impact on individual people's lives. He does--
they do know that, OPEC. The question is: Are they going to pay
attention to us? And I hope that the Department of Energy and
Secretary Richardson, in particular, will drive that message
home when he is talking with them, because he's not the only
one speaking to them.
Chairman Sweeney. Okay. With that, I have a number of
questions for both Mr. O'Connell and Mr. Hulbert but I'll
submit them in writing to you.
I want to thank the panel for its great testimony, very
insightful, very forthright, and I appreciate it.
We will stand in recess for about 10 minutes as we call up
the second panel. We will resume promptly at 10 minutes after
Chairman Sweeney. Okay. I'll gavel back in the proceedings,
and we'll now move to our second panel.
And I welcome the panelists and I'll begin by introducing
each of them.
Dantaida DeGuzman is co-owner of Pioneer Fuels along with
her husband. The DeGuzmans went into business in July of 1997
by advertising their business door to door. They currently
serve over 1,000 customers, which I think will provide
important insight into this crisis.
Also joining us is Marshall Stevens, welcome, the assistant
airport manager for the Floyd Bennett Memorial Airport, which
is the Warren County Airport. Mr. Stevens is fairly new to the
region. He's been with the Floyd Bennett Memorial Airport since
December of 1999, and I'm sure he's excited that the airport is
going to receive the additional $150,000 in federal funding
from the Air 21 Bill that we passed earlier this year. Being
the Vice Chairman of the Aviation Committee, Marshall, welcome
and I know you and I will do a lot of work together.
Tom LeGrand is the owner of LeGrand Construction. Mr.
LeGrand is a businessman from northern Dutchess County, whom
I've known for a couple of years and who I know is a real doer
and a real pro in the construction industry. And I'm anxious to
hear from Mr. LeGrand on the effects of increased fuel costs in
the construction industry and in the southern end of my
Jim Czub is representing the National Corn Growers
Association. Mr. Czub is a resident of Rensselaer County. Jim
brings a very local perspective on the impact on local farming
but he also brings us a national perspective as well as one of
the real strong voices in the agricultural community. Thank you
for coming today.
And Jim Buhrmaster is representing the Empire State
Petroleum Association. Mr. Buhrmaster, thank you for being
here. Mr. Buhrmaster is president of J.H. Buhrmaster Company,
Incorporated. He is currently the director of the Petroleum
Marketers Association of America and is past chairman of the
Empire Petroleum Association Board of Directors. He will, no
doubt, provide us, the committee, with firsthand knowledge of
how these costs have affected their members.
I said in the earlier introduction that you were really
representative of the little people, which you really are the
representative of the most important part of our job, as
members of the House of Representatives. You represent a wide
group of constituents who have been affected here. And I'm
eager to hear your testimony. And thank you all for being here
And Dantaida, we'll begin with you.
STATEMENT OF DANTAIDA C. DeGUZMAN, OWNER, PIONEER FUELS, INC.
Ms. DeGuzman. Thank you.
Chairman Sweeney, Miss Kelly, good afternoon.
First, I'd like to make sure that everybody understands
that we are a very, very small company. We have just started in
1997, making our first delivery October of 1997, after doing
thousands of fliers the week before. And due to lack of funds
in advertising or marketing and even buying our first load of
product, which had to come from my paycheck, that's how we got
established. Through hard work, we were able to have 400
customers in the end of 1998, the first season. And, as of last
year, we had over 1000 customers in our data base that was
continuous in ordering fuel from us.
Our plans to grow was kind of stunted this year because of
the oil prices. We purchased a second truck last year to meet
the high demands of the deliveries so that we can market more.
Unfortunately, the second truck and the first truck only
provided us deliveries or as much gallonage as it did last year
due to the fact that consumers were ordering lesser amounts of
fuel oil than they did last year. So our personnel increased,
our gas increased, our phone calls increased but the money, no,
we made a lot less money than we did last year with two trucks.
Again, due to the age of the company, one of the things
that kind of hurt us and why we couldn't take a lot of the
customers is because we were not as established in the field of
the fuel industry.
Thank God that Apex Oil, which is our main distributor, had
given us a line of credit last year of $10,000 and increased it
to $15,000 in February after much begging and pleading from me,
because I was constantly going to the bank everyday, making
deposits from our customers, waiting for those checks to clear,
which has a clearance rate of three to five days, getting a
cashier's check to bring it to Apex just so that my trucks can
pick up product again the next day.
So that was a hardship personally for me, because I have a
job, a full-time job with the State of New York. So lunch hours
were spent going to the bank and going to Apex.
The next dilemma that we encountered with the high fuel is
the lack of kerosene product in the Capital District. Again, we
were only dealing primarily with Apex Oil. And Apex Oil had run
out of kerosene product for approximately three to four weeks.
When we asked them why they had stopped buying kerosene, there
was a couple of reasons: One, again, because of the barges, as
I think it was Mr. O'Connell who stated that; and, two, they
were, they were at a fear of buying the product and then the
market going down. When they buy gallons of fuel, they're
buying millions of gallons, and if the price of the product
decreases that night or that day 25, 30 cents, then they're apt
to lose millions of dollars in the deal. So they stopped, all
together, buying kerosene. Luckily, Polsinello Fuels helped us
get some fuel product. And, again, that was hard on our drivers
because what they were doing is we weren't--they were getting
it fromone of their dealers that they were established with,
filling their trucks, their trucks were filling our trucks right at the
Port of Albany. So we were buying it--so they're filling their trucks,
they're putting it in our trucks, then we're delivering it to our
customers. Not a good business move for us, because we were trying to
be as inexpensive in the fuel market as we can, but trying to at least
make some pennies so that we can pay our bills.
So that was our next dilemma. But the worst dilemma, I
guess I could say, is the effect that it had on the personnel
and the consumers, on both of us.
The main anxiety for all the personnel of Pioneer was that
it worried about their customers and their ability to keep
I'm located in Petersburg, New York. It's not the most
affluent neighborhood. It's very repressed. It's a lot of
farms. It's a lot of people that are not high income that does
not want to live in the city, so they move out there so that
their kids can grow in an environment that's kind of open.
Constant calls by our customers that were made to us were
yelling, screaming, crying. They couldn't understand why it was
high, that at first, initially, they put a lot of the blame on
the fuel companies. ``You guys are out to get, to make money.
OPEC's making money,'' you know. And what do you do? How can
you explain to the customers when they're crying and yelling
and screaming and their kids are cold, how can you say, ``Okay.
We're not going to deliver to you''? ``We'll be right there.
We'll be there even if you're yelling and screaming.''.
Again, that increased our costs because, what used to take
three to five minutes to take an order from a customer of a
fuel delivery, is now taking 15 to 20 minutes because we still
want to offer the best customer service that we possibly can to
maintain our customers.
We've--we also during that time dropped our minimum gallons
from 125 gallons to 100 gallons per drop. So let's say we were
making 10 cents per gallon, at 125 gallons we'd be making
$12.50 per gallon. At a drop of a hundred, now we're only
making $10 per drop. You add all those gallons, it's a
considerable amount of money to a small company like us.
So, for the first time in its history, where, every time
the phone rang, we'd jumped to answer it, now every time it
rang we'd look at each other and say, ``Do we want to answer
it? You take the call. No, you take the call.'' It became very
difficult because it caused a lot of anxiety. I mean, you don't
want to get yelled at by a customer or have somebody crying.
There were a lot of times we also delivered only 25
gallons. I mean, if somebody called us and said, ``All we have
is $40, would you deliver to us?'' And at first you say no,
this is not a good business move. Unfortunately, we're not the
best business people. We're also human. So we delivered to them
at a loss to us.
Compared to last year, Pioneer Fuels has always tried to
maintain an average gross profit of 23 cents to 28 cents per
gallon. There was a period of time during this past heating
season where Pioneer made not a single penny and probably lost
money delivering products.
How? Well, let's assume that on any given day the cost of
product for Pioneer to purchase is a dollar a gallon. Customers
calling on that day for delivery the next day would range at
$1.25. What started happening is, that same night, after we'd
given these prices to our customers, the price of fuel would go
up 25 cents to 30 cents per gallon. When we delivered that
product the next day, we're actually delivering that product at
our cost. We let that happen for a few days until we finally
said, ``Geez, we keep letting this happen, we're going to go
bankrupt and we don't want that to happen.'' So we sat down and
discussed an alternative of making sure that every customer was
called to insure that, geez, you know, I'm sorry, the price of
your fuel that we promised you at $1.25 yesterday is now a
$1.50 and do you still want the delivery. And it wasn't just
one night. There was, I remember, one day during January where
it increased three times during one day. So we called that same
customer three times.
Also, because of the fuel prices were so low from 1997 to
1999, not many people signed up for our budget plan, which was
79 cents a gallon. Because of this, we didn't really get
involved with the futures market. We didn't buy at a lower rate
last year. Still, we did get some people to sign up for their
budget and prepaid plans, so when the price of fuel at our cost
was at $1.80 per gallon, we were still selling it at 79 cents a
gallon. We did this not only because there's a contract but
also for the goodwill of our customers.
Mr. O'Connell stated that there was one person in New
Hampshire that reneged on their contracts. For January and
February the news was rampant around our community that there
were a couple of small fuel companies that did renege in their
contracts. And I've never verified that, but there was a lot of
talk that they did do that.
The concern for the consumers forced Pioneer Fuels to call
the HEAP Department and also call the Governor's Office during
this time. Unlimited calls, many calls were made to the HEAP
Department, because we have a lot of HEAP customers, advising
HEAP that the usual grant of six, $700 that lasted a customer
all year long was only going to last them for a few months, a
couple of weeks and that they'll be freezing within the next
two or three months. And, luckily, they did double their
Unfortunately, for the people that were elderly and are on
fixed income, that are on pensions, that do not qualify for
HEAP just because they do not meet that income level, they
really hurt. My neighbor, older couple, one person had a
stroke, and she actually comes in to help baby-sit my kids in
the morning, they used probably 275 gallons to 400 gallons of
fuel a month. Last year, it probably cost them $600 to fill up
their tanks all year because of the low fuel prices. This year,
they couldn't meet it. So what were we doing? Every time we had
a few gallons, we would give it to them just because, you know,
they're our neighbors, we're not going to let them freeze. So
another not a good business sense for us.
If the market of the heating oil products remains as it has
during this past year, we would have to consider increasing or
gross profit per gallon. We would have no choice if we wanted
to continue to stay in business. And the reason for these are
increased personnel in the office to maximize talk time to
offer customer service; offset the amount of bad checks we got
this year. We got plenty of those. And people writing bad
checks. And you know what? I can't even blame them. You're
cold, give the fuel guy a bad check. And most of them have
worked it out with us where they're making payments. There are
some hard cases out there that I will probably have to collect
on; higher diesel prices to run trucks; minimum drops made to
consistently remain at a hundred gallons per drop; increased
personnel and trucks to meet the high volume of drops and
deliveries compared to last year.
Unfortunately, the increase of the amount of the gross
profit per gallon will offset the above expenses. We'll be
fine. The unfortunate thing is the consumers will have to eat
this. I mean, did we eat it also? Absolutely.
As Mr. Sweeney knows, my husband is my partner in this
business. We haven't cashed one of his paychecks since
November. We've been living solely on my paycheck, and thank
God I've got a State job and I got promoted in the State and,
luckily, that's what's keeping us, our family, surviving.
Chairman Sweeney. Thank you, Mrs. DeGuzman. I have to say,
I want to applaud you on all of your efforts to make sure that
your customers were heated. And I'm actually very proud to
Ms. DeGuzman. Thank you.
Chairman Sweeney. I'm very thankful that you came here with
your testimony. I'm hoping that we can find a way to ensure
that you don't have to go through that again.
Ms. DeGuzman. I hope not either, sir.
Chairman Sweeney. Marshall Stevens.
STATEMENT OF MARSHALL STEVENS, ASSISTANT MANAGER, WARREN COUNTY
Mr. Stevens. Thank you, Congressman Sweeney, Congresswoman
And, also, before I start, I wanted to thank both of you,
especially Congressman Sweeney, for your efforts with the Air
21 legislation. That package is a tremendous help to airports
throughout the country. And the topic we're talking about here
today is also related to that, and I will come back to that a
little at the end of my testimony.
Congressman Sweeney said we were representing the little
guy today, which, personally, I've never been called the little
guy, but that was very flattering.
But, in some ways, I'm representing the little guy for a
lot of different people, because at Floyd Bennett Airport, I'm
talking about primarily general aviation. When people are
thinking about aviation, they usually think about big airports
and commercial airline service. But that, as far as number of
airports, is the smallest segment of the aviation community.
And general aviation is the largest as far as number of
airports and areas served.
The definition of general aviation is anything that is not
involved in scheduled air carrier cargo or military service.
Some representative examples of general aviation include
corporate use of aircraft, charter flights, air taxi type
service, air ambulance, flight instruction and training,
recreational flying, areal application, including crop dusting
and fire fighting, and private business flying.
These activities serve approximately 18,000 airports in the
United States, including privately-owned airports. Of the
18,000 airports in the United States, only about 538 airports
have scheduled commercial service. So this kind of gives you an
idea of what their impact is on general aviation.
Earlier, Mr. Hulbert had said that the coffee business and
the shopping business were very closely linked to the fuel
business. General aviation is a slave to that business because
there is no part of general aviation that does not rely on
fuel, with the possible exception of people who throw
themselves off of cliffs on hang gliders.
According to the National Business Aircraft Association,
general aviation consumes approximately 930 million gallons of
fuel in a year, but that is only five percent of the total fuel
consumed in non-military aviation. And this is why that the
commercial airlines get most of the attention.
However, the impacts of fuel price increases on the
commercial airlines are fairly direct. They increase the ticket
prices and pass that along to the millions and millions of
passengers that they serve every year. General aviation does
not always have that luxury.
I've prepared a brief list of my testimony, which I will
summarize here today, of the different impacts that that has,
including on the small businesses and on other parts of the
community that people may not think of.
The first item on that list is the fixed based operators,
the businesses at the airport which pump the fuel into the
airplanes, provide the air charter and the flight instruction
services to the customers. These are the people most directly
impacted by the fuel price increases. Balance for these
businesses is the direct passage of the fuel price increases
through to their customers versus the potential loss of
business that will occur, especially in the recreational flying
market, which we have quite a bit of up in Warren County. This
market is very volatile based on price increases. And an
increase in price will result in a decrease in demand for
flying. As a result, fixed base operators, including the one in
Warren County, don't always increase the fuel prices by the
amount that their own costs increase.
From February '99 to February of 2000, the average fuel
cost to the FBO increased 55 percent, but the price that they
increased their fuel that they were charging their customers
increased only eight percent over the same period. That cuts
into their profitability, cuts into their business and even, in
some cases, can create a loss. Fortunately, it's better off
than they were last year, only because last year at this time,
as many people know, we didn't have any fuel at all. We were in
the process of changing over our tanks.
As I am new to the airport, also the fixed based operator
is fairly new to the airport, so we don't have any real picture
of what the long-term impact would be. We're just looking at
the short term. A year from now, we'll have a better handle on
the long-term impacts.
Another point of note is that the fixed based operator in
Warren County, as is true in many places, fuel sales represent
the majority of their business, as is the case with Empire East
Aviation, which is 53 percent of total revenues per year in
fuel sales. It's a substantial impact when they can't charge as
Rising fuel costs also affect the other activities of the
fixed based operator, the flight training, aircraft rental and
aircraft charter. Fuel expenses are the largest single
operating expense for aircraft. One operator estimated that the
cost of fuel is 40 to 50 percent of an aircraft's operating
costs; therefore, any increase in fuel also affects this
business. And, again, the same balancing act occurs: Do you
pass that cost along to the customer or eat it yourself or a
portion of it in order to keep competitive?
Again, the fixed base operator in Warren County chose to
keep their prices the same. The flight training costs, the
flight charter costs did not increase at the same time that
their fuel costs did. Again, cutting into the bottom line of
the business and hurting them.
The second impact category is the impact to business
aviation. This impact is typically longer term than the direct
impacts that I spoke of to the fixed based operators. Fuel is
also the single greatest operational expense to these business
aircraft. But in this case, the cost of that is typically
passed along to the customers. In the case of a corporation
that operates a business aircraft, again, that can be spread
out over several periods of time. That aircraft may not be
related even to the product. It may be a product that they
produce that's not aviation related. And the cost is passed
along there, ultimately as part of the operating expense of the
company. But it is still an increase, ultimately, passed to the
Other products, and I know Mr. Czub will probably talk a
little bit about that, but areal application is a business
flying expense; people who are out crop dusting. Again, those
prices ultimately get reflected in the price of the commodity.
Over the short term, that's usually what happens. Over the
longer term, if the price stays up, then alternate means of
either pest controlor transportation for the businesses are
sought. Again, this ends up hurting the fixed based operator at the
airport, because in the case of a corporate aircraft, one fixed based
operator may sell hundreds of gallons or even thousands of gallons of
fuel to a single aircraft. Loss of that sale is a tremendous impact on
There's impact to medical flights as well. Air ambulance
itself does not cease based on rising fuel prices. These are
medically necessary flights, the helicopters that you see, and
they continue. But the cost associated with those flights go
up. I don't have any data on this, but I know, just from
looking at my health insurance policy, that they cover those
things under health insurance. The costs of those are going up.
The cost of health insurance is going up as well. It's not the
only thing that contributes to rising health costs, but it does
The other part of medical flights are what's known as mercy
flights, and these are more drastically impacted by rising fuel
prices. These are typically flights which transport patients
from one area to another for specialized treatments. And, in
most cases, these flights are performed free of charge to the
patient because they generally cannot afford the transport.
These flights are flown by volunteers and use donations to
provide their operating costs. Any increase in these operating
costs, i.e., fuel prices, results in either fewer flights that
can be made or an increase in donations that can be made. This
is a vital service that is drastically impacted.
Another impact that's not as obvious is the impact to
airport maintenance. At Floyd Bennett Airport, we have 20
different fuel-powered vehicles that we use for airport
maintenance; snow plowing, grass mowing, cleaning the runways.
We can't stop doing any of those things. They are safety
related. We are in the business of keeping the airport open for
our users, and so we must plow the snow, we must keep the
runways clear of debris, we must keep the grass down to reduce
wildlife hazards. So the cost of rising fuel prices have
impacted us as well.
Our impacts were fairly drastic, as far as the short term.
We saw a spike from February '99 to February 2000 for unleaded
fuel of 193 percent increase. We are buying in the bulk
wholesale level, because I'm a county employee, but it was
still a substantial increase. And the cost of diesel fuel,
which most of our vehicles run, rose 110 percent. At the
moment, those seem to have come back down a little bit. But, as
recently as a month ago, all department heads received memos
from the County Superintendent saying, ``You shall look at your
budget and find ways that we may cut back.'' What this
ultimately may mean is a lesser ability to fund capital
projects or to provide training for our employees, which,
again, hurts the airport in terms of operational reliability
The last impact category I'm talking about is airport
capital improvements. These, obviously, are very dependent on
fossil fuels. Most capital improvements I'm talking about are
construction. Typical paving job will have as many as 30
vehicles on the site doing various operations plus a fleet of
dump trucks hauling back and forth. Unfortunately, the cost of
increased fuel get passed along to the airport as the sponsor
and to the federal, state and state grant programs that fund
There are a couple of things that happen when the fuel
prices go up.
Because the budgets for these projects are typically set
six months, even a year, in advance, when the cost of rising
fuel are not known, the impacts can include an increase in the
total project cost, a reduction in the scope of the project, or
even cancellation of the project, which impacts the safety and
reliability of the airport.
This summer, we have one anticipated construction project,
which is the rehabilitation of a portion of our parking apron
and one of our taxiways. Again, this budget has not quite been
set, but a portion of it has been estimated in advance, so we
do not know what the impact of it will be.
In conclusion, rising fuel costs have a tremendous impact
on the aviation industry. These costs impact every portion of
general aviation and have potential to create economic damage
to airport-related businesses. The impact of these costs also
extends into capital improvement projects and into other
industries. Reduction of operational costs, including fuel
costs, is essential for the continued success of general
One remedy to higher fuel costs that should not be
considered, in our opinion, is the reduction of the tax on
aviation fuels that funds the Aviation Trust Fund.
Again, I thanked you earlier for that increase that we have
seen through the Air 21 Bill, but any reduction to the revenue
portion of that fund will, obviously, bring us back to the
state we were before or even before that. As you well know,
that fund is vital to the success of airports and, therefore,
although we are hoping to see remedies, we certainly hope this
is not one of the remedies considered.
I thank you for your time today.
Chairman Sweeney. Thank you, Mr. Stevens.
Let me just say that one of my top priorities is to better
connect the citizens, both for leisure purposes and business
purposes, in my district and our region of the state to the
rest of the world. And the Floyd Bennett Memorial Airport is a
key, key player and component in that.
And I welcome you and thank you for that very thorough
Tom LeGrand will now provide us some testimony regarding
the effects on the construction industry.
I will point out to the panelists that your statements in
full will be entered into the record. And, as we are going to
run out of time, given the size of our panel, if we can get
through them a little more succinctly, that will be appreciated
so we can go to some questions.
STATEMENT OF TOM LeGRAND, OWNER, LeGRAND CONSTRUCTION
Mr. LeGrand. Thank you, Mr. Sweeney.
It's an honor to be here today with the Congressman and
I would like to take a moment and thank you, both of you,
for recognizing the importance of small business in your
In some of my civic duties, I served as the chairman of the
Dutchess County Economic Development Corporation from 1992 to
1995 after the IBM downsizing in this region lost 12,000 jobs
from the IBM Corporation and a tremendous spin-off of other
businesses that went down with the loss of those jobs, small
business held up and it did fill the building. It's still
filling the building, making up for the loss of those jobs.
I'm going to talk today a little bit about costs in the
construction industry and also a little bit in the real estate
industry, because those industries are really one in the same.
A couple of comments. I'd like to think of--my office is an
extremely busy place, as Congressman Sweeney knows, because
he's been there many times, and I like to think that I do get a
good slice of life in and out of my office doors. So we really
get a good feel on things.
In my businesses, I employ five veterans from the U.S.
Services, and one thing they all say is, ``What we've done to
keep Kuwait in the oil business and what we've done to protect
the Saudi Arabians, what's wrong with this picture?'' It's a
disgrace that they're holding a gun to our headwith these oil
prices. You know, we supply them with military hardware. They sleep
well at night because our planes are keeping surveillance of their
territory. And there's something wrong when they're holding a gun to
our head with these type of fuel increases.
I disagree--one of the earlier presenters said, you know,
as far as he knew, companies we're honoring their contracts. I
know, down in Dutchess County, we heard that several companies
were not honoring their fuel contracts. And there was people
that did go without oil. I think two groups of people that were
impacted the hardest were the elderly and the poor. And poorer
people do not have the luxury to call a big-name oil company
and sign up for automatic delivery. The poor residents in this
county, they buy their oil on the spot market, meaning that
they pick up their local paper and they see fuel oil so many
cents a gallon, M and G Oil, B and G Oil, and they call those
Here was the problem. Those oil companies depend on another
company to buy. They cannot buy oil direct, so they buy oil
from the bigger named companies and the big name companies were
not supplying them. So a lot of low income people could not get
oil. So what did they have to do? They had to go to kerosene
heaters, they had to go to electric heaters and things like
that. I don't have the statistics in front of me, but I'm sure
that the rate of fire damage and loss of life in the area, in
the Northeast, was probably one of the highest it's ever been.
And I think that's something that should be looked at.
Also, with--the gentleman from the Department of Energy
said that they're looking into a program about insulation, the
program to increase insulation. In both of your districts, the
majority of the low-income people are renters, not homeowners,
so I don't know what the insulation program is going to do for
them. Not much.
Okay. As far as the construction industry goes, we are, in
all of Mr. Sweeney's district and in a good portion of Miss
Kelly's district, we're in a rural community, so if you want to
have a house built, you need a road built. The materials, the
gravel, the sand, the concrete products, have to be trucked
from miles and miles away with heavy trucks that use a lot of
Last winter, when one night we were hauling snow in one of
the villages during a large snow storm, and I had to pull up to
the pump--I was driving myself that night, my employees thought
that was interesting--I paid $2.29 for diesel fuel. $2.29.
I believe that this will certainly have a big impact on my
business this year. In most small construction companies, you
can figure an average budget of five percent of your gross for
cost of fuel throughout a year. This year I'm figuring it's
going to be between nine and 10 percent. For instance, in my
construction division, I spend around--last year I spent
$18,000 for fuel. I will probably spend this year between 30
The reality is, if you're in a competitive market, like
we're in in this area, you really can't pass that onto the
customers. That is absorbed by the small business owner. The
big companies, if you hire something from a large company or
buy something from a large company, they can put a surcharge, a
fuel surcharge on your bill. Small businesses can't do that
because the guy down the street isn't going to do it and he'll
have your accounts.
I want to get into a little bit and just talk briefly about
long-term effects because I think a couple of things that have
to be looked at.
We are a bedroom community. And there's two things--I've
been in business 26 years this year. And two things that took
the bottom out of the construction and the real estate
industry: One was the fuel problems that we had in the '70s,
and--I believe in the early '70s and the late '70s we had it
again, fuel shortages and the stock market crash, and they were
both disastrous. We depend on tourism. And a lot of the people
that are in business in these areas don't realize how much of
their dollar they derive from tourism, but it's a tremendous
amount. And I know in Dutchess County it's the second largest
employer in the county. And I believe that higher gasoline
prices, everybody talks about $2 a gallon for gasoline prices
this summer, is strictly going to--it's going to definitely
diminish the amount of tourists that are coming into our area.
And that's going to have a very large and long lingering
And it's also going to have an effect on the real estate
market because, like where we are in northern Dutchess County,
probably 35 percent of our buyers are second home buyers. That
will diminish. And, by the same token, 35 percent of those
buyers, that supplies 35 percent of the independent
construction jobs, because those people, they usually are
affluent, they buy homes, they renovate them, they fix them up,
they build new houses and it supplies a lot of the local trades
with business. Big impact. You have to understand that.
And just to wrap up, as far as some solutions. The people
I've talked to, and my own personal position is I would
really--I don't know if we should tap the Strategic Reserve or
not because, you know, when you really need that for an
emergency. But I do believe that the Saudis should be put on
record that we are going to solve this problem with them or
without them. And I think at the same time that we should have
a comprehensive energy policy that looks towards fuel
efficiency, research dollars, maybe go back and take another
look at nuclear energy, things that make sense. But I think we
have to do something and we have to do it now.
Chairman Sweeney. Thank you. Let me say that we are privy
to what you've provided in your testimony. As you mentioned, we
were in Dutchess County performing miracles at a very critical
time. I appreciate your insight.
Mr. LeGrand. Thank you for having me.
Chairman Sweeney. Jim Czub will be next.
STATEMENT OF JIM CZUB, NATIONAL CORN GROWERS ASSOCIATION
Mr. Czub. Thank you, Congresswoman Kelly and Congressman
Sweeney, for inviting me to testify here today on the impact of
the dramatic increase in fuel prices.
My name is Jim Czub, from WestWind Farms in Schaghticoke,
New York. My father, brother and I grow 1800 acres of field
crops in the Hudson Valley. I also serve as the Chairman of the
New York Corn Growers Association and serve on the national
board for the National Corn Growers Association.
I hope to touch on all the impacts of New York and the U.S.
agriculture, but more specifically myself today.
The current energy crisis raises serious concerns for my
family business in both the long and short term. This product
year, diesel fuel and other energy products will cost us about
40 percent more than last year. If the energy crunch had come
at a time of our major fuel usage here in the spring, it would
have been more about 70 percent. This, translated into dollar
figures, will raise my costs an additional $12,000. It amazes
me that when I fuel my tractor at the end of an average work
day, it will cost me $90 more than last year. Typically, we
expect and plan for increases in input costs at the rate of
inflation. When any one input exceeds normal rates of increase,
it causes havoc with our budget.
The fuel crisis comes at a time of extremely depressed
agricultural commodity prices. Corn prices are 50 percent lower
than in 1996. When doing our cashflow budgets this winter, we
find that we need a 30 percent increase in price to make the
budgets work. If we excluded family living expenses, we are
able to operate the business and pay our bills. We may be
working forfree this year. Multiply this by the thousands of
farms and millions of acres of cropland in the U.S. and you can see
that the overall impact is not dramatic, it is perverse.
This is not a rosy picture. My larger concern is the impact
of these high energy prices on next year's inputs. I can be
self-assured that my fertilizer, herbicide, insecticide and
seed costs will be significantly higher in 2001, as Mr.
Marshall indicated. But will the price of commodities? Farmers
have a way of passing their costs through to U.S. consumers,
who happen to have the lowest food prices in the world. We
survive by becoming more efficient, raising our yields and
lowering our costs. Many of us don't survive.
The 1959 Federal Census showed that farm land, all uses, in
New York to be 13,480,000 acres. The New York State Department
of Agriculture and Markets in 1997 statistics show this number
to be 7,700,000. Thousands of farming operations in this State
have gone out of business. This is a dangerous trend, not only
for farm economy, but the rural economy as well.
Efforts must be made to reserve this trend and help
agriculture secure new and untraditional markets. Incentives to
produce value-added products will help farmers transition and
capture more of the commodity value.
A recent value-added study sponsored by the New York State
Energy Research Development Authority, in which I participated,
demonstrated that corn for ethanol production in New York State
is feasible. A 29-million-gallon-a-year plant would create 100
direct jobs, support 250 farm-related jobs and create a market
for 100,000 acres of corn production. The necessary investment
in such a plant is $30 million, but operation of the plant
would support 500 million in on-farm investment and $1 billion
in land investment. These are significant numbers, and the
benefits go far beyond this. New York residents would gain by
reducing our dependence on foreign oil, building new in-state
businesses and the environmental benefits of open space and a
cleaner burning motor fuel.
Congresswoman Kelly and Congressman Sweeney, I hope I have
shed some light on the current fuel price crisis as well as a
few other issues confronting my agricultural business.
In the short term, our farming operation will be under
great financial pressure from the dramatic increase in fuel
prices. Measures to provide immediate relief from this
escalating input cost must be secured as soon as possible. And
regarding the long term, I ask for your assistance in two ways:
One, in monitoring the cost of petroleum-based agricultural
inputs over the next several years to determine the other
indirect and unforeseen impact of these high energy prices on
overall production costs; and, two, in creating incentives to
help the farmer-owned small business capture new and emerging
value-added markets to receive a better price for his
Thank you, and I would be happy to answer any questions.
Chairman Sweeney. Thank you Mr. Czub. Great testimony.
I, as you know, am a strong supporter of ethanol, so I am
looking forward to working with you in the future.
Let me just say, Mrs. Kelly has to leave at five o'clock
because she has to head back down to Westchester County for
another engagement. So if she gets up to leave, Mr. Buhrmaster,
it's no reflection on your testimony. I'm going to stay. James
STATEMENT OF JAMES BUHRMASTER, EMPIRE STATE PETROLEUM
Mr. Buhrmaster. Thank you very much, Congressman and
Congresswoman. I appreciate the opportunity to speak on behalf
of the petroleum industry. And I've heard the comments of small
marketers and large marketers, and I think, since the time is
so short and you will be leaving in five minutes, my testimony
is here, anybody can read it at their leisure.
I've got a couple quick comments that I'll just pass on
that I think may be the highlights.
I perceive there were three reasons why we had trouble this
winter. The first was low inventories, and that was clearly
what the OPEC nations did. Second, we, in the industry, had
something called a backwardization, and that was where prices
in the future months cost less than what they did in the month
we were buying the product. So it didn't make it very
profitable for any of us to buy product in the future and store
it because it's--we're going to get less for it when we put it
away and sell it the following month. And third, and I think
maybe the most critical one for those of us in the Northeast,
was the interruptible situation. It was an absolute disaster,
it's a travesty and I know here in New York we've been working
very, very hard for the last four or five years to try and
solve this problem. We knew it was coming. It happened four
years ago and we've had bills on the hoppers in both the Senate
and Assembly in New York, we've addressed it down in Washington
and nobody has stood up and really helped us solve the problem,
but it's serious.
We've done an awful lot throughout the Northeast,
particularly, our backyard, in resolving storage and switching
people over to natural gas, and we all know that we've got to
have a cross section of goods and services to make this system
run, to make it run properly.
What happened this year was the gravest situation of all:
Shortage of product, problems with the mercantile exchange and
the backwardization and then, ultimately, the natural gas
In our own company, we had a small situation where one of
our customers who had experienced a problem four years ago went
and put in a 10,000-gallon tank, it was actually a local
college, and felt that that would take care of them if anything
On the 13th of January, I think it was a Thursday, I got a
call at noontime, and they said, ``As of tomorrow, we're going
to be requiring tractor trailer load of product each day to
take care of us. And, unfortunately, our tank's above ground
and outside, so it's not going to be fuel oil, it's going to
have to be kerosene also to keep it from freezing and gelling
if the weather gets as cold as they're promising. So, all of a
sudden, 9,000 gallons a day was taken away from our homeowners,
our small commercial customers that had to have it every day.
Compound that by all of the other people around the Northeast
that had the same experience, and we believe it was between
four and six million gallons a day, barrels a day were taken
out of the New York Harbor for these interrutibles.
And I think if there's anything that you can do to help,
not only in Washington, but in the local, here in New York, for
instance, to find a way to solve the interruptible problem.
Some of the things that I have in my testimony that I would
like to have you take a look at: One, we do have a bill that's
been passed in the House last year, passed this year in the
Senate, and we're now having it considered by the two houses
together, the National Oil Heat Research Alliance. That's
Senate 348 and HR-380. And we really wish you would take a long
hard look at it and help us get that passed to stabilize what's
happening in the industry.
Second, the oil heat industry gets just a minuscule amount
of money for oil heat research and development to help
consumers do a better job at conserving.
The Department of Energy puts in their bill, or has in the
past, about a million dollars for oil heat research and
development. There is nothing in the 2001 budget. We would like
you to takea look at that. I think that would be a big help to
our industry, and it's right here, selfishly, in New York State. It's
done at Brookhaven out in Long Island.
Chairman Sweeney. If I can interrupt. Something you just
said is very important. There is nothing in the federal budget,
after having gone through what we just went through. I think
that speaks volumes about some of the priorities that exist.
Mr. Buhrmaster. I clearly agree. Certainly, we won't make
it political, but the buck always has to stop somewhere, and it
goes to the top. We need some direction.
Thirdly, storage incentives. We have gone all up throughout
the Northeast in being environmentally conscious, in removing
storage tanks, but we've done nothing for incentives for people
to store product. And I think that could be very, very helpful.
And, fourth, as I mentioned earlier, interruptible gas. I
would like to see you address interruptible gas to the best of
your ability on a regional and a statewide and Northeast region
I do thank you very much for the regional reserve. I think
that the jury is still out on it. I do have a little bit of a
concern that may be taken as a disincentive to our suppliers to
bring product and store it, if there is a reasonable reserve
that they can tap off. But, again, we are behind you. We will
work with you as an industry.
And, finally, I'll leave with you, and it was mentioned
twice by two of the earlier speakers, I'm absolutely appalled
that we are still held hostage. OPEC said they were going to do
it, did it and we paid the price here in the Northeast for
their fixing the prices. If we did it, you'd have us in jail.
They fixed the prices of crude oil around the country, move it
from $10 a barrel. They said they wanted 18 to $21 a barrel a
year ago. What they got was 25, 30--we got up to $36 a barrel
this year, which has impacted on everybody in this room and
particularly us in the Northeast. And I would like someone in
government, in Washington, to address the situation where the
OPEC countries were able to openly say, ``We're going to fix
prices and control what's going on and you American consumers
will pay the price.''.
Thank you very much for your time.
Chairman Sweeney. Thank you, Mr. Buhrmaster, for your
I know Mrs. Kelly has to leave. I want to give her one
crack at asking questions, if she'd like that.
Mrs. Kelly. I simply want to thank you for being here. I've
found your testimony really compelling. And, Mr. Buhrmaster, I
want you to know that pussyfooting around, when we're dealing
with OPEC, I don't think proved a thing this year. I think that
it was very important for us to take a stand, which we did not
take, and, when we finally did take a stand, it was too late. I
would hope that we can work with you to try to find some
Mr. Czub, I hope, too, that we're able to work something
out maybe with ethanol. Certainly, the MTVE problem is
indicating that there may be some issue there that we need to
address, and ethanol may very well be one of the things we
should take a look at.
Mr. LeGrand, my husband is a general contractor. I know
what you're talking about.
Mr. Stevens, I appreciated hearing from you because I think
that I, too--well, you probably know--I, too, sit on the
National Aviation--I did sit on Aviation, but I am on the
Transportation and Infrastructure Committee. And we work very
And Mrs. DeGuzman, I really was--I really enjoyed your
testimony, having been a woman who started my own businesses a
couple of times.
I want to say that, despite the joking about that I've
heard here today about your congressman, Congressman Sweeney,
he is a superb addition to Congress. He knows what he's talking
about. He works exceptionally hard to represent this district
and he is a good friend to you, he is a good friend to New
York. And I'm glad he's my friend, too, and I'm very happy to
be able to be here with him today and with all of you.
Thank you very much for allowing me to be here and sharing
And with that, I'm going to turn it back to you, John.
Chairman Sweeney. Thank you, Mrs. Kelly. I need to say,
before you leave, thank you for this idea and this hearing and
coming all the way up here. And I thank you for your leadership
in the House and on the Small Business Committee as well as the
Sue Kelly and I sit next to one another at most of the
hearings in Washington on the Small Business Committee, and I
can tell you that she is a principle leader of that committee
and for the interest of small businesses.
So thank you for your time.
I only have a few questions that I'd like to get to on the
record and I will be submitting some written questions to you
I'll start with Ms. DeGuzman. I heard from a number of your
colleagues, a complaint that, it was related to the HEAP funds
and the delay in receiving HEAP funds and how it caused such
great concern and pain out there.
Do you have similar experiences? Did you have similar
Ms. DeGuzman. Certainly.
Actually, the bulk of our second HEAP awards has just been
granted the last two or three weeks. What good is that going to
do our customers when it's getting warmer?
What we did do, because there are--again, it's a small
community. They're not just our customers, they're our
neighbors. We dropped them the 25, 50 gallons. And some of
these folks, if they don't pay us, we'll mark it off as, okay,
bad business sense. A lot of them will come and stop to the
office and pay $5 every week.
We don't want anybody to freeze. I wish that HEAP was
granted, I wish when this first came up that people took it
seriously and that they had acted quicker because it was needed
January, February and not now.
Chairman Sweeney. I'd like you to think about, and I don't
necessarily need it today, but I'd like you to think about
improvements that we could bring about or suggestions that you
might have in the HEAP process so that we can try to ensure
that that doesn't happen again.
Jim Czub, you know, I know the tight margin you operate on,
and $12,000 in energy costs, I don't know how you're surviving.
What sort of price increase--I want to be an optimist about
this. What sort of price increase will this mean for an acre of
corn, corn and farmers, if we are able to move forward on the
Mr. Czub. Typically, the USDA says for every 100 million
bushels of corn demand, additional corn demand, the price of
corn comes up a nickel. And, obviously, you know, corn is a
commodity, but the current prices or the lack, the trend that
we've been in, has been down. We--as I said in my testimony,
our current price is about 30 percent, which is going to be to
me about 60 cents a bushel. Now, whether we pull that out of
the market or develop new markets to help use that demand and
create that price differential, you know, that's about where we
I think what's more important, and I tried to allude to
that in my testimony, is that farmers need to start
participating in value-added, in other words, we need to be
company owners or stockholders of companies that produce corn
value-added products. And I think that's what's critical to try
to move the industry in that direction.
Chairman Sweeney. Thank you for that.
Mr. Stevens, I heard you allude to it, but the sense I got
was you don't know yet whether construction of the aircraft
parking apron and the taxiway project are going to be delayed.
Is that correct?
Mr. Stevens. At this point, we don't know. We're in the
design of the project right now. We are still--we've had a
verbal commitment that federal funds would be available for
that. Because of the funding bill, we have not had anything in
Chairman Sweeney. I want to help you on that. I know how
important it is. So let's stay in touch on it because it is
Mr. Buhrmaster, I'd also like to work with you on the
interruptible issue because I heard it as well pretty
substantially. And if we could get together and maybe devise
some planning in terms of a resolution of some sort, I'm very
I will not hold this panel any longer. You've already gone
over your time.
I want to thank you all.
Tom LeGrand, thank you for your great testimony. You did
such a good job, I didn't have a question for you. I actually
do. I'll give them to you later.
I appreciate this. I think it's important that we get the
message out of the effects. I think we need to look
perspectively at avoiding this kind of a problem in the future
and I think we need to get the attention of the decision makers
in Washington. And the best way to do that, I think, was to
bring them here, to home, and you did a superb job of that.
With that, I'll conclude this hearing and thank you.
[Whereupon, at 5:07 p.m., the subcommittee was adjourned.]