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




                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION


                             JUNE 28, 2000


                           Serial No. 106-240


       Printed for the use of the Committee on Government Reform

  Available via the World Wide Web: http://www.gpo.gov/congress/house


73-069                     WASHINGTON : 2001

 For sale by the Superintendent of Documents, U.S. Government Printing 
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                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
HELEN CHENOWETH-HAGE, Idaho              (Independent)

                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                    Lisa Smith Arafune, Chief Clerk
                 Phil Schiliro, Minority Staff Director

                            C O N T E N T S

Hearing held on June 28, 2000....................................     1
Statement of:
    Richardson, Bill, Secretary, Department of Energy; Carol 
      Browner, Administrator, Environmental Protection Agency; 
      and Robert Pitofsky, Chairman, Federal Trade Commission....   131
    Schneider, Scott, vice president of sales, Mister Ice of 
      Indianapolis, Inc., Indianapolis, IN; Mark Hrobuchak, CEO, 
      president of MPH, Transportation and Logistics, Scranton, 
      PA; Charles Bailey, Jefferson, OH; Elaine Oberweis, CEO, 
      Oberweis Dairy, Inc., Chicago, IL; and Doug Wilson, 
      Gridley, IL................................................    47
Letters, statements, etc., submitted for the record by:
    Bailey, Charles,Jefferson, OH, prepared statement of.........    62
    Burton, Hon. Dan, a Representative in Congress from the State 
      of Indiana, prepared statement of..........................     5
    Chenoweth-Hage, Hon. Helen, a Representative in Congress from 
      the State of Idaho:
        Prepared statement of....................................    35
        Report of the Attorney General's Advisory Committee on 
          Gasoline Pricing.......................................   185
    Gilman, Hon. Benjamin A., a Representative in Congress from 
      the State of New York, prepared statement of...............   273
    Hrobuchak, Mark,CEO, president of MPH, Transportation and 
      Logistics, Scranton, PA, prepared statement of.............    52
    Kanjorski, Hon. Paul E., a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........    86
    LaTourette, Hon. Steven C., a Representative in Congress from 
      the State of Ohio, prepared statements of Mr. Cavaney and 
      Mr. Vaughn.................................................   246
    McIntosh, Hon. David M., a Representative in Congress from 
      the State of Indiana, prepared statement of................    40
    Morella, Hon. Constance A., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    25
    Oberweis, Elaine,CEO, Oberweis Dairy, Inc., Chicago, IL, 
      prepared statement of......................................    67
    Richardson, Bill, Secretary, Department of Energy; Carol 
      Browner, Administrator, Environmental Protection Agency; 
      and Robert Pitofsky, Chairman, Federal Trade Commission, 
      prepared statements of.....................................   132
    Ryan, Hon. Paul, a Representative in Congress from the State 
      of Wisconsin:
        Memo dated June 5, 2000..................................   229
        Prepared statement of....................................   161
    Sanders, Hon. Bernard, a Representative in Congress from the 
      State of Vermont, prepared statement of....................   172
    Schneider, Scott, vice president of sales, Mister Ice of 
      Indianapolis, Inc., Indianapolis, IN, prepared statement of    49
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, prepared statement of............   268
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California:
        CRS Report...............................................    11
        Prepared statement of....................................   270
    Wilson, Doug,Gridley, IL, prepared statement of..............    74



                        WEDNESDAY, JUNE 28, 2000

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:30 a.m., in 
room 2154, Rayburn House Office Building, Hon. Dan Burton 
(chairman of the committee) presiding.
    Present: Representatives Burton, Gilman, Morella, McHugh, 
Horn, McIntosh, Souder, LaTourette, Barr, Terry, Biggert, Ose, 
Ryan, Chenoweth-Hage, Waxman, Kanjorski, Maloney, Cummings, 
Kucinich, Tierney, Ford, and Schakowsky.
    Staff present: Kevin Binger, staff director; Daniel R. 
Moll, deputy staff director; David A. Kass, deputy counsel and 
parliamentarian; Mark Corallo, director of communications; 
Caroline Katzen and Nicole Petrosino, professional staff 
members; Kimberly A. Reed, investigative counsel; Lisa Smith 
Arafune, chief clerk; Robert A. Briggs, clerk; Robin Butler, 
office manager; Michael Canty, legislative assistant; Leneal 
Scott, computer systems manager; John Sare, staff assistant; 
Corinne Zaccagnini, systems administrator; Phil Schiliro, 
minority staff director; Phil Barnett, minority chief counsel; 
Kristin Amerling, minority deputy chief counsel; Ellen Rayner, 
minority chief clerk; and Jean Gosa and Earley Green, minority 
assistant clerks.
    Mr. Burton. Good afternoon. A quorum being present, the 
Committee on Government Reform will come to order.
    The ranking minority member, Mr. Waxman, is on his way. He 
intends to make an opening statement, but since we are under 
severe time constraints because of floor action, we need to get 
started. We anticipate that within 2 hours we will probably 
have another vote or a series of votes, and I want to make sure 
we get as much done as possible.
    I ask unanimous consent that all Members' and witnesses' 
written opening statements be included in the record, and 
without objection, so ordered.
    I ask unanimous consent that all articles, exhibits, and 
extraneous or tabular material referred to be included in the 
record, and without objection, so ordered.
    I ask unanimous consent that questioning in this matter 
proceed under clause 2(j)(ii) of House rule 11 and committee 
rule 14, in which the chairman and ranking minority member 
allocate time to members of the committee as they deem 
appropriate for extended questioning not to exceed 60 minutes 
equally divided between the majority and the minority, and 
without objection, so ordered.
    I am not going to make a long opening statement today 
because of the time constraints. We all know what the problems 
are, so I don't think we need to speak at length.
    The price of gasoline has gone through the roof this year. 
The entire country has been hit hard, but nobody has been hit 
as hard as the Midwest. In Chicago, the price of gasoline has 
reached $2.30 a gallon. In Milwaukee, the price reached $2.20 a 
gallon. Other parts of the Midwest have been hit almost as 
hard. In my hometown of Indianapolis, we have been paying over 
$1.70 a gallon.
    We haven't seen anything like this since the oil crisis of 
the 1970's. In fact, it wasn't that long ago that people in 
most areas of the country were barely paying $1 a gallon. This 
problem has an impact on the entire economy. The cost of fuel 
is factored into almost everything we buy and sell: bread, 
food, meat, potatoes, ice. We have a person here from the ice 
industry. Every product that we sell is affected by the 
gasoline prices.
    But it goes beyond that. When gas prices skyrocket, it can 
be devastating for families as well as small businesses. We are 
going to hear from some of those people in our first panel.
    We are going to hear from a small businessman from my 
hometown of Indianapolis. We are going to hear from an 
electrician from Ohio. We are going to hear from a man who runs 
a trucking company in Pennsylvania, and we will hear from a 
woman who runs a dairy farm near Chicago. We will hear from a 
farmer from Illinois as well.
    The questions before us are pretty simple: Why did this 
happen? Could anything have been done to prevent it? What is 
being done to get prices back down to a rational level? And 
what can be done to prevent something like this from happening 
again in the future?
    Lots of explanations have been offered: OPEC cutbacks, 
rising demand, reformulated gasoline, and transportation 
bottlenecks. I think it is fair to say that this sudden 
eruption caught everyone asleep at the switch. I think it is 
also fair to say that this administration has not had an 
effective energy policy.
    For instance, I have real questions about the way we have 
handled OPEC, the oil-producing countries, over the last 
several years. When oil prices were at an all-time low last 
year, Secretary Richardson went over to the Middle East. 
According to media reports, he encouraged OPEC nations to start 
raising prices. There is apparently some dispute over exactly 
what he said at those meetings, but I will read to you what the 
Saudi Arabian Oil Minister said; He said that Secretary 
Richardson had ``saved the oil industry'' during that visit 
because his intervention had persuaded the Saudis to change 
policy by raising prices. So we will ask the Secretary about 
that today.
    Raising prices is exactly what they did. In the last year, 
they raised prices from $10 a barrel to $34 a barrel. I don't 
understand why it is in our interest to encourage OPEC nations 
to raise prices.
    I read Secretary Richardson's opening statement from 
yesterday's hearing. He says that free market forces are the 
foundation of the Clinton administration's energy policy. Now, 
I don't see how encouraging OPEC to artificially restrict 
supply and raise prices is a free market policy. It is 
certainly not a pro-consumer policy.
    When OPEC's cutbacks got completely out of hand and gas 
prices went soaring this spring, Secretary Richardson was sent 
back to the Middle East to try to get them to bring prices back 
down by increasing production. Judging by the prices at the 
pump, this trip was not nearly as successful as the one that 
raised prices.
    My question is: How much leverage do we have with OPEC? We 
were there in the Persian Gulf war when the Gulf nations needed 
us. Now where are they now?
    These are all issues that we are going to discuss with 
Secretary Richardson. I know that he is making the rounds from 
one committee to the next this week, and I appreciate that he 
has carved out a little time for us to be with us here today.
    We are going to talk a great deal about reformulated 
gasoline today. Is reformulated gas behind the price spikes and 
supply disruptions in Chicago and Milwaukee? According to the 
EPA, the phase 2 requirements for reformulated gasoline add 
about 5 to 8 cents to the cost of a gallon of gas. However, 
according to the Congressional Research Service, that figure is 
more like 25 cents in Chicago and Milwaukee. So where did the 
extra 17 cents come from?
    How much has reformulated gasoline added to the problems in 
the Midwest? We will be going over that issue at length with 
Carol Browner from the Environmental Protection Agency during 
the second panel. I know several of our members from the 
Midwest are eager to discuss the reformulated gas issue with 
her, and we appreciate the fact that she will be with us today.
    We are also going to hear from the chairman of the Federal 
Trade Commission, Mr. Robert Pitofsky. The FTC has started an 
investigation into the gasoline price increases, and we look 
forward to hearing his testimony as well.
    In our third panel, we will hear from Mr. Red Cavaney from 
the American Petroleum Institute and Mr. Eric Vaughn from the 
Renewable Fuels Association. We appreciate their being here as 
    Now, there is one point that I want to touch on briefly, 
and I hope my colleagues on the Democrat and Republican side 
listen to this because I think it is very important, and that 
is the issue of natural gas. We have an abundant supply of 
natural gas in this country, approximately a 500-year supply. 
It is inexpensive, it is clean-burning. So why is it we can't 
get people to convert to natural gas automobiles? There are a 
number of countries around the world where natural gas vehicles 
are very popular: Argentina, Germany, Italy. In those 
countries, you can find natural gas at gas stations all over 
the country.
    Since 1990, many gas stations in California have carried 
natural gas, but in this country, outside of California, you 
can't find it anywhere. There is a system that lets you refuel 
a natural gas car right at your own home. There is a special 
system of nozzles that you can attach to the natural gas supply 
in your home and refuel your car overnight while you sleep, and 
the cost is about one-third of the cost per gallon of gas.
    Natural gas costs, as I said, are about one-third of the 
cost of gasoline. It pollutes less and we have an abundant 
supply. So I don't know why we don't take advantage of that. Of 
course, it makes a lot of sense, so it probably won't ever 
    Let me just say a couple of things in closing. These 
problems that we are experiencing aren't going to go away by 
themselves. We need to have a comprehensive energy policy, or 
these problems are only going to get worse. We don't have a 
comprehensive energy policy right now, and the administration 
needs to address that.
    I have had a chance to review Secretary Richardson's 
schedule for most of this year. It looks like to me he is 
traveling all the time. I see a lot of political events on his 
schedule. I tried to get a meeting with him 2 weeks ago to talk 
about the situation regarding the espionage or alleged 
espionage at Los Alamos, and I couldn't get a meeting because 
he was traveling. He couldn't testify before the Senate 
Intelligence Committee because of his travel schedule.
    I think we need to ask some tough questions about who is 
minding the shop. I think we need to completely re-evaluate our 
approach to dealing with the OPEC countries. I think we need to 
completely re-evaluate our approach to reformulated gasoline. I 
think the complexity of all these different formulas of 
gasoline is just overwhelming to our distribution system. I 
also think that we need to get serious about using natural gas 
as an alternative gasoline in our cars, like they do in many 
other countries.
    I think we are obviously going to have some disagreement on 
some of these issues. I am sure we won't resolve many of them 
today. But if we don't accomplish anything else today, I would 
like to get an answer to this simple question. Fall is right 
around the corner. What is being done by this administration to 
make sure we don't have a repeat of this calamity during the 
home heating fuel season? And what is being done to make sure 
that we don't have a repeat of this crisis situation next 
    And, with that, Mr. Waxman, I will be happy to yield to you 
for an opening statement.
    [The prepared statement of Hon. Dan Burton follows:]

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    Mr. Waxman. Today's hearing addresses an important topic: 
Why are gasoline prices so high, especially in the Midwest? 
There are some things we know about this issue and many that we 
don't. I hope this hearing will shed light on some of the 
unanswered questions.
    But let me begin by reviewing what we know. First, I think 
it is clear that environmental requirements are not the cause 
of high gasoline prices. The chairman and other Republican 
leaders have tried to blame the Clean Air Act and the 
Environmental Protection Agency for high gas prices. They say 
that reformulated gasoline is a lot more costly to make than 
conventional gasoline, forcing fuel prices up. But they are 
simply wrong.
    I know something about the reformulated gasoline provisions 
of the Clean Air Act because I was one of the principal authors 
of those provisions. The record shows that the reformulated 
gasoline provisions of the 1990 act have been an enormous 
success. Since 1990, emissions of volatile organic compounds, 
the main source of urban smog, have decreased by 20 percent. 
Average levels of urban smog have dropped by 9 percent. At the 
same time, the Clean Air Act is responsible for reducing 
emissions of hazardous air pollutants by over 800,000 tons 
    One of the single most important factors in achieving these 
reductions has been reformulated gasoline. As a result of 
reformulated gasoline, emissions of smog-forming pollutants 
have been reduced by 105,000 tons annually, and emissions of 
toxic air pollutants have been reduced by 24,000 tons annually. 
The levels of benzene, a known human carcinogen, declined by 38 
percent in urban areas that introduced reformulated gasoline in 
1995. And these reductions have been achieved at an extremely 
low cost.
    Republican leaders are saying that reformulated gasoline is 
causing high gas prices, but the fact is that across most of 
the Nation, the average retail price of a gallon of 
reformulated gasoline is less than the average retail price of 
a gallon of conventional gas.
    Let me repeat this point because it is something that 
people ought to take note of. The retail price of reformulated 
gasoline is often less than the retail price of conventional 
gasoline. If the Republicans were right, this would be 
impossible. Reformulated gasoline would be much more expensive 
than conventional gasoline, but the fact is reformulated 
gasoline costs most motorists less than conventional gasoline.
    There are other essential facts that are often overlooked 
in this debate. We will hear today that reformulated gasoline 
is different in Chicago and Milwaukee than in many other parts 
of the country. In other parts of the country, reformulated 
gasoline is made with MTBE. In Chicago and Milwaukee, it is 
made with ethanol. We will hear today that it is the ethanol 
requirement that is driving up Midwest gasoline prices. Part of 
this is true. Reformulated gasoline in Chicago and Milwaukee 
does use ethanol. But it is not true that the Clean Air Act or 
any other Federal law requires the use of ethanol in 
reformulated gasoline in Chicago and Milwaukee. In these areas, 
under Federal law it is perfectly legal for the oil companies 
to seek to use reformulated gasoline that uses other oxygenates 
if they wanted to.
    Now, why do the oil companies use ethanol in reformulated 
gasoline in Illinois and other Midwestern States? They do this 
because these States grow a lot of corn. These States have 
passed State laws that give tax breaks and other incentives 
that encourage the use of the ethanol in fuel. So it can't 
possibly be Federal ethanol requirements that are responsible 
for high prices in Chicago and Milwaukee since there aren't 
any. There aren't any Federal laws that require the gas to be 
changed in those two areas when they do their reformulated 
gasoline. It is State laws to satisfy the corn growers that 
require the ethanol to be used.
    Moreover, it is doubtful that ethanol is the cause of high 
prices. Detroit uses conventional gasoline, not reformulated 
gasoline. But this week the price of conventional gasoline in 
Detroit was $1.93 per gallon, 7 cents more than a gallon of 
reformulated gasoline in Milwaukee. Republicans have said that 
Congressional Research has found that reformulated gasoline is 
the cause of high prices. Well, the CRS has a new report out 
today, and I want to share this report with my colleagues and 
to read about what it says.
    As of June 19, RFG--reformulated gasoline--prices in 
Chicago and Milwaukee, which are determined not only by cost of 
production but more directly by the supply of and demand for 
gasoline locally, were 50 to 58 cents above reformulated 
gasoline prices elsewhere. Not all of this difference can be 
attributed to the RFG requirements or the use of ethanol. In 
fact, non-reformulated gasoline sold in areas near Chicago and 
Milwaukee is priced well above comparable gas sold elsewhere. 
More recently, the RFG price differential in the area appears 
to be diminishing significantly.
    That is part of what CRS said, and then they also went on 
to say the RFG program by itself has caused only limited price 
increases in other markets on the order of 2 to 8 cents per 
gallon, which is the range currently in effect as the prices in 
the Midwest decline.
    [The information referred to follows:]

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    Mr. Waxman. If reformulated gasoline is not the cause of 
high gas prices, what is? Well, one cause that has been 
mentioned is the temporary shutdown of explorer pipeline in 
March. This is a possible cause. But as we will hear from 
Federal officials today, it does not seem likely that the 
pipeline is a major cause of high prices. In fact, I understand 
that the pipeline has unused capacity and could ship more 
reformulated gasoline to the Midwest if the oil companies asked 
it to do so.
    Another possible cause is price gouging by the oil 
companies. It is clear that the high prices of fuel in the 
Midwest mean millions more in oil company profits. But the fact 
that oil companies are earning record profits does not 
necessarily mean they are violating the law. If the shortage of 
gasoline in the Midwest is due to a legitimate cause or causes, 
oil companies' profiteering may be improper, but it would not 
be illegal.
    I requested that the chairman invite the CEOs of the major 
oil companies to testify today so that we could get answers to 
these questions, but they have refused to attend, and the 
chairman has refused to subpoena them, even though on this 
committee the chairman could issue a subpoena, and they would 
have to show up. But he didn't choose to issue subpoenas to the 
CEOs of the oil companies. He wanted to make sure he got Bill 
Richardson here to beat up on him. But what about the CEOs of 
the oil companies?
    Some on the Republican side have criticized the 
administration for seeking a Federal Trade Commission 
investigation into oil company behavior, but this is exactly 
what is needed. There is clearly much more that we need to 
learn about why prices spiked up in the Midwest. The Federal 
Trade Commission has the expertise and experience needed to 
provide answers. And so you wonder why they would criticize the 
administration for asking the FTC to look at this issue.
    There is one final point I wanted to address. It is 
Congress' role and responsibility in this matter. 
Unfortunately, energy policy is an area where we simply haven't 
done our job. And I don't say that in a partisan way. Congress 
hasn't done its job. The Democrats and Republicans have not 
done the job. The administration has proposed numerous 
initiatives that would have increased energy efficiency and 
reduced our reliance on imported oil. These initiatives include 
tax breaks to promote the purchase of fuel-efficient vehicles, 
the creation of heating oil reserves, and research partnerships 
with the auto industry.
    But Congress has repeatedly blocked these initiatives. In 
fact, we have even let the President's authority to deploy the 
Strategic Petroleum Reserve expire. So the President can't act 
on his own because Congress took away his authority to have 
that reserve of oil now made available in this crisis of high 
oil prices.
    The leadership in Congress is good at pointing fingers, but 
they rarely seem to accept responsibility for their mistakes. 
In this case, however, Congress would serve the public better 
if we did less blaming and more legislating.
    Mr. Chairman, that completes my statement. I look forward 
to hearing from the witnesses. I want to explain to the 
witnesses that what we have going on today in the House is a 
three-ring circus. On the floor is an important legislative 
fight on prescription drug benefits for Medicare where, again, 
we are not even talking about how we can resolve our 
differences and pass a bill. We are only pointing to the 
differences and fighting over what the American people want us 
to stop fighting about and start legislating. And so some of us 
have to be on the House floor. There are other committee 
meetings as well. So I apologize to the witnesses if I am not 
here when they make their oral presentation. But we are going 
to have the whole transcript and record, and I hope the 
chairman will even let us ask further questions for the record 
so we can have this hearing record as complete as possible.
    I say a three-ring circus. Ironically enough, we have three 
rings in the circus on this issue because the Commerce 
Committee of which I am a member has held a hearing, this 
committee is holding a hearing, and the Judiciary Committee of 
the House is holding a hearing.
    I guess the American people are concerned about this 
problem, but so far all three committees are holding hearings 
trying to blame somebody. Let's take responsibility. Let's 
understand the facts. Let's act. And let's act in a bipartisan 
way to do something to help people who are suffering from these 
high oil prices.
    Thank you.
    Mr. Burton. I would like to correct one thing. We do not 
have people from the major oil companies here today, but like 
Chairman Gilman, chairman of the International Operations 
Committee, we will probably have another set of hearings, and 
we will ask the people from the oil industry to come in.
    We do have some of the representatives of the oil industry 
here, however, but the people from the major oil companies will 
be asked to testify in the not too distant future.
    Mr. Gilman. Mr. Chairman, I will reserve my opening for 
Secretary Richardson.
    Mr. Burton. Chairman Gilman reserves his time.
    We are going to recognize members for opening statements. 
What is the order we have here? I thought we were going to go 
with Mrs. Morella. Is Mrs. Morella here? Since everybody 
arrived at the same time----
    Mrs. Morella. Mr. Chairman, I do have an opening statement. 
I hope to learn from this committee and the panels that we have 
assembled. But I am going to ask unanimous consent to have the 
opening statement put into the record since so many Members are 
interested and it would take too long to hear all the opening 
    [The prepared statement of Hon. Constance A. Morella 



    Mr. Burton. I thank the gentle lady.
    Mr. Ryan, I understand, has to go to a markup, so we will--
oh, excuse me. We will go to you right after we go to the 
Democrat side. Do you have an opening statement, Mr. Tierney?
    Mr. Tierney. No, Mr. Chairman. Thank you.
    Mr. Burton. Mr. Ryan.
    Mr. Ryan. Thank you, Mr. Chairman. Thank you for 
considering my markup.
    As Mr. Waxman said, we do have a lot going on today. I 
would like to make an opening statement because I represent 
southeastern Wisconsin. We are right smack dab in the middle of 
the Milwaukee-Chicago area, so I would like to talk about this 
issue a little bit, if you don't mind.
    Half of the district I represent is in the EPA designated 
ozone non-attainment area. The other half is not. Reformulated 
gasoline is the most important issue to my constituents in 
southeastern Wisconsin at this time, and it has been that way 
for over a month. And they want to know why they are paying 
gasoline prices that on average are 40 cents a gallon more than 
anybody else is paying in the United States.
    Now, along with Jim Sensenbrenner and I, we commissioned a 
report from the CRS, the nonpartisan research branch of 
Congress, which has been widely cited today, and I think there 
is a copy floating around, and this report goes into the issue 
of why we are paying these his gas prices. Nowhere in this 
report is collusion and price gouging listed as an underlying 
cause for high gas prices.
    Now, I think it would be shortsighted for anyone on this 
panel to suggest that it is not happening. That is the whole 
purpose of an FTC investigation, one that I, along with all 
members of the Wisconsin delegation, asked for. And I think Mr. 
Pitofsky is coming here to talk about that. So I think it is 
shortsighted for anybody here to allege with authority, with 
knowledge, that price gouging is occurring. But on the same 
point, you can't say it is not occurring. So let's put that one 
aside and hear from the FTC when they come up here.
    But, also, I have an internal EPA document dated June 5th 
of this year which was written by a policy director to Deputy 
Secretary Glauthier, and please forgive me if I have 
mispronounced his last name. This memorandum summarized the 
rapidly increasing gas prices in the Milwaukee area as a supply 
problem: ``high consumer demand and low inventories.''
    The EPA memo then gets more specific. ``The Milwaukee and 
Chicago area supply situation is further affected by, one, an 
RFG formulation specific to the area that is more difficult to 
produce; two, higher regional demand; three, higher regional 
refinery utilization rates; four, limited alternative supply 
sources, limited transportation links; and, seven, lower 
gasoline inventories relative to the rest of the country.'' A 
supply problem, an RFG problem, an ethanol problem, a 
convergence of many factors that the EPA in their own memo 
cites on June 5th.
    Now, again, nowhere in this EPA's memo is their explanation 
for Wisconsin's gas prices is collusion for price gouging. That 
is what the FTC is investigating.
    But many members who have been following this issue, 
especially those of us from Illinois and Wisconsin, know that 
Wisconsin and Illinois use ethanol instead of MTBE, which makes 
the phase 2 RFG blend relatively more expensive than the rest 
of the country. This is because refiners must make the vapor 
pressure lower, and as well, according to the EPA document, 
``remove a greater quantity of the high volatility gasoline 
blend stocks that was removed for Phase 1 RFG.'' The effect is 
that RFG-2 gasoline production processes will yield less 
gasoline overall than RFG-1 processes.
    It goes on and on. I will summarize what the EPA memo says. 
Basically they saw this coming. They know that we had a unique 
problem in the upper Midwest. They know we used ethanol. They 
know we had all of these converging market forces coming to 
bear, and we moved forward with this RFG mandate.
    On May 23rd, the petroleum marketers petitioned for a 
waiver from this mandate in the upper Midwest. I, along with 
Senator Herb Kohl, Senator Russ Feingold, and Jim 
Sensenbrenner, also on that date petitioned the EPA for a 
waiver from this mandate, foreseeing that these factors would 
occur. The EPA's own internal documents suggested this would 
occur. We had a unique situation in Wisconsin and in Illinois 
that we thought would lead to a very high spike in gas prices. 
The EPA in turn said no. The only shot that is going to occur 
with RFG is a 5 to 8-cent-a-gallon gasoline increase. That 
didn't happen; 40 cents a gallon increase.
    So what I would like to know is, A, why, when you had this 
internal documentation, which was then followed up with this 
most recent CRS report, did you continue on with the RFG 
mandate when you suggested that it was going to be a 5 to 8-
cents-a-gallon increase, when it was actually about a 40-cents-
a-gallon increase? Why, when we had this knowledge within the 
EPA, within the other branches of our Federal Government, did 
we move forward with this? And why were our requests for 
waivers, until we could get a handle on this situation, denied? 
That is what I would like to know today.
    This isn't finger pointing. This isn't blame shifting. This 
is simply a review of the facts that took place over the last 2 
months, and I think that really speaks to the heart of the 
issue, and that is what the constituents that I represent in 
southeastern Wisconsin want an answer to. And I hope that we 
can dig into that in this hearing.
    Mr. Burton. I understand, Mr. Ryan, you have to go to 
another markup, but if you can get back here, perhaps you can 
put those questions to the head of the FTC.
    Mr. Ryan. I would like to do that.
    Mr. Burton. Thank you.
    Mr. Kanjorski.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    Mr. Chairman, I want to thank you for having this hearing, 
because I think if nothing else, we will have an opportunity to 
look at what are the potential causes of some of the problems 
in the energy field today, but they just have not happened in 
this last month, and they have been going on in the country for 
about 6 months. I know that the northeast portion of the 
country suffered from the same problem with heating oil and 
diesel fuel in the late winter of this year.
    And I have been trying to look around and see where is the 
problem and where is the fault that can be laid? And I conclude 
that there isn't any one single individual or group that can be 
identified, and I am not sure even if the word ``fault'' is the 
correct word. It is the system that is working.
    And I think my friend from Wisconsin put his hand on it. He 
talked about his CRS study, and he laid out that there is a 
shortage of supply, and of course, there is an increased demand 
in the summer. And if we go back to our basic economics, we 
know that supply and demand usually fix price, and short of 
rationing or some other methodology to reduce demand, price is 
used to contain demand. And as the price--if you have 90 
percent supply for 100 percent demand, that 10 percent spread 
exacerbates the price sometimes by as much as 50 or 100 
percent, because the marketplace will raise the price until the 
demand decreases consistent with the amount of supply 
available. That would mean that oil companies significantly 
could raise their profits from, say, 10 percent to as much as 
30 or 40 percent, and legitimately argue that it is the 
marketplace, supply and demand, and they are correct.
    Our problem is: does that constitute gouging, and are we as 
a Congress and the American people going to accept the 
responsibility for this tremendous deficit in supply and the 
ever-increasing demand that is out there without some of the 
concomitant investments that are necessary in refining 
capacity, new sources of field, encouragement in the field. But 
nevertheless, if we leave it as a free-market system, you could 
end up with a $3 or $4 a gallon gasoline, whose price would be 
driven by a limited supply, and overwhelming demand, 
particularly in summer months or areas of excessive use.
    So we have to, as a Congress, be looking at long-term 
policy increased in all the new fuel sources, and potentially 
excess profits, because that price, although it is a free-
market-arrived-at price, will exacerbate profits to 
extraordinary proportions. And I think some of the testimony 
today is going to reflect that some of the oil companies in the 
United States have shown 300, 400, 500 percent increase in 
profits. It is not because they invested any more money. It is 
not because they did anything other than the fact that they had 
a limited supply for an overwhelming demand, and price reaches 
its own level, and as a result, their profits go up 
    Now, I do not think it would be fair for any of us to 
condemn the petroleum and gas industry of the United States. I 
think to be rational, to a large extent, we have had cheap 
gasoline as a matter of national policy for a long time. We 
should try and keep gasoline and diesel fuel at a reasonable 
rate, because it does fuel what has been the world's most 
successful economy.
    But on the other hand, I agree with the ranking member of 
the committee, Mr. Waxman. We in the Congress know that in 
prosperity there are more cars sold, more homes built, and more 
use of energy, and for the last 20 years in this country we 
have totally neglected a structured national policy to either 
provide a larger supply or make more efficient the use of the 
supply that we have so we can bring the demand down that it is 
affordable to the average person or to the small businessman. I 
think that is what the direction of this hearing should be 
about. That is why I commend the chairman.
    I just want to raise one other question, and that is, if we 
think we have problems today with gasoline and diesel fuel 
prices, whether it is in the Middle East or anywhere else, we 
ain't seen nothing yet until we get to electricity and the 
overwhelming demand and increase of demand for electricity in 
this country and the limited supply that is out there. Everyone 
I have talked to in the field project brown-outs this summer. 
As we find deregulation of the energy field and electricity 
occurring across this country, again, price is going to be 
arrived at by the forces of supply and demand, and that means 
very high price, and in some people's vernacular, that could 
constitute gouging for excessive profits. And I think if we 
can't arrive at an energy policy, at least we ought to arrive 
at a policy that we don't reward people getting excessive 
profits because of the flotation of price as a result of 
limited supply and excess demand. And if we can keep our eyes 
focused on that effort, I think we can do some good by coming 
up with some new policy. If we try and find fault and point 
fingers, as we traditionally have done in these last several 
Congresses, we will not have done the people's business. Thank 
    Mr. Burton. Thank you, Mr. Kanjorski. I understand Mrs. 
Biggert has to go to a mark-up as well, so we will ask Mrs. 
Biggert to make her statement real quickly.
    And I understand you are going to do some of the 
questioning, Mrs. Biggert, so will you be able to be back? OK, 
Mrs. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman. I represent a 
suburban Chicago district, and as we all know, the Chicago area 
now faces the highest gas prices in the Nation, and this is not 
a distinction of which we are proud or happy. Chicago area 
residents have heard all about the numerous and complex factors 
that influence what we pay at the pump for a gallon of 
gasoline. They have heard about petroleum industry 
consolidation, pipeline distribution, the Unocal patent, retail 
competition, State and local taxes, government regulation and 
    What they have not heard is why they in particular are 
paying the highest pump prices in the 48 contiguous United 
States. Any and all of these factors may be contributing to the 
high price of gasoline today, but as members of this committee, 
it is our primary responsibility to focus on the issues of 
Federal responsibility. In particular, we want to know what 
role the Federal Government has played through its actions or 
through its inaction, precipitating the increase in gas prices 
in the Midwest and throughout the Nation. I want to be assured 
that it is not Federal regulation or Federal interference in 
the market that has forced the price of gasoline sky high in 
the Midwest. I want to hear that our Federal agencies have done 
everything possible to insure that no Federal program, no 
agency, bureau or office, and no bureaucrat has precipitated 
the spike in the price of gasoline in my home State. I don't 
believe the administration witnesses here today can give us 
these assurances, but I challenge them to try.
    Immediate action is what is needed. Individuals are 
struggling with the burden of high gas prices, as are 
businesses like Oberweis Dairy, an independent dairy processor 
that delivers its wonderful ice cream products to consumers 
throughout Illinois. I am very thankful that the CEO of 
Oberweis Dairy, Elaine Oberweis, is here today to share with 
this Congress the hardship her business faces under the added 
burden of high gas price.
    I hate to say it, but we saw this coming, and the 
administration should have seen it coming too. For the past 
year the Illinois delegation has been warning EPA that the new 
regulations for the second phase of the RFG Program would 
seriously impact the price of gasoline in Illinois. We held 
hearings in Illinois. We had meetings in Washington, DC. We 
offered solutions to avoid the situation. And still the EPA did 
nothing. Everything would be fine, we were told. Well, things 
are not fine, and we are not happy.
    And as the non-partisan Congressional Research Service 
Report indicated last week, we now know that our warnings, 
unfortunately, were right on the mark. CRS reported that at 
least 25 cents of the increase in the price of gasoline in the 
Chicago area is directly attributable to these new RFG programs 
and regulations, and still there is no action from the EPA. 
Last week Administrator Browner was quick to assert that the 
wholesale price of gasoline dropped on the same day the FTC 
announced a formal investigation into collusion on the part of 
the Nation's oil refiners. Yet there was no comparable quick-
fire assertion made by EPA when the price of gasoline began to 
rise with the implementation of phase II of the Reformulated 
Gas Program on June 1st. What is especially disappointing about 
the EPA's inaction is that it could result in an erosion of 
support of the RFG Program, which has successfully improved the 
quality of Chicago's air. The EPA and the Clinton 
administration can point fingers at the oil companies, but at 
some point they had better look in the mirror. Too many 
government regulations affect the price of gasoline, which is 
why the actions of the DOE and EPA must be scrutinized. There 
are Governors and State legislatures, like mine in Illinois, 
that are right now going back for special sessions, all for the 
purpose of providing relief to gas customers by way of a 
moratorium on their State gas taxes. They are forced to take 
this extraordinary action of sacrificing badly needed road 
improvement funds in order to give consumers at the pumps an 
extra 10 or 20 cents per gallon relief. These extraordinary 
actions would not have been necessary. These sacrifices would 
not have to be made. These road improvement funds would not be 
foregone if only agencies like the EPA had heeded the warnings 
and done their job.
    I want to thank all the witnesses for being here today. It 
is about time that we put on record what kind of adverse impact 
these high gas prices are having on individuals and small 
business owners across America. Thank you, Mr. Chairman.
    Mr. Burton. Thank you, Mrs. Biggert. I believe Mr. Kucinich 
was the next one. Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman, for 
holding this hearing, and glad we have so many Members of 
Congress here, and thanks to the panelists.
    I think the public knows intuitively what is going on. You 
don't have to be an economist. You don't have to be a Member of 
Congress. You don't have to work at a gas station. People know 
when prices go up 25, 30, 40 cents within a few days, that 
someone is taking advantage of them. There is no shortage of 
gasoline, the supply of gasoline. We know the oil companies had 
made substantial profits from 1999 to year 2000, the first 
quarter. The public understands this. And the average person, 
who is just trying to make ends meet, trying to support a 
family, who relies on a car in this automobile culture, who is 
stuck with primarily one source of fuel for their cars, 
understands they are a captive right now of the oil industry, 
and that this government has a responsibility to challenge the 
private sector's pricing practices, to examine where the laws 
of supply and demand have gone awry, to ferret out all areas 
where the public has been cheated in the last few weeks, and to 
make sure that there is some remedy brought forward, such as a 
windfall profits tax.
    But that is not going to be enough. We need to encourage 
the development of new technologies which are energy efficient, 
so we are not back here year after year at committee rooms, 
talking about what we are going to do about rising oil prices. 
We need ultra efficient engine technologies and ultra efficient 
fuels which will enable people to have alternatives, so we are 
not captive of the oil companies, and so this country can move 
toward sustainability and not be captive to foreign oil.
    But does anyone in America doubt that the oil companies 
have taken advantage of the American people? Perhaps only the 
oil companies doubt that. But the American people know what 
happened. They know, and particularly in the Midwest, and in 
Cleveland where I come from, they know they are being cheated, 
and they want their government to do something about it. And to 
the FTC, who is on the second panel, I am not satisfied with 
the conduct of the FTC approving merger after merger after 
merger, and pretending that is not going to have an effect on 
the marketplace.
    So I am looking forward to the discussion here today, but 
people in my district already know what this is about, and they 
expect the government to be a little bit more active in 
surveillance of the pricing practices of the oil company, and 
they expect their government to stand up to protect consumers 
so that we are not at the mercy of oil companies, who will take 
advantage of anything in the marketplace to sock it to the 
consumers. Thank you.
    Mr. Burton. Thank you, Mr. Kucinich. Before you leave, 
could I talk to you just a second, Mr. Kucinich?
    Mr. Kucinich. Yes, sir.
    Mr. Burton. Mr. McHugh.
    Mr. McHugh. Mr. Chairman, I am going to follow the lead of 
the gentle lady from the great State of Maryland and withhold 
my statement for the moment. I always appreciate hearing from 
my colleagues, but frankly, we are going to be around here 
where I can hear that any time. I would like to hear from these 
good folks, so I will yield back.
    Mr. Burton. Do we have any other members on the Democrat 
side? Who was next, Ms. Schakowsky or--OK, Danny, go ahead.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman, 
and let me commend you for holding this hearing to examine the 
causes for the rise in gasoline prices and generalize the 
impact of the high gasoline prices on the U.S. economy. I also 
want to thank the witnesses for coming to share their knowledge 
and expertise.
    Mr. Chairman, the current gasoline prices in the Midwest 
especially are totally unacceptable. The good and hard-working 
people of Chicago are paying $2.50 per gallon in some areas, 
and about a year ago, gasoline prices in Chicago averaged about 
half that much, a little bit more, and I think that this is way 
beyond the pale.
    With the current high prices of gasoline, we need to better 
our relationship with oil-producing countries, insure research 
funding for alternative energy development, and to strengthen 
our antitrust law provisions, and to investigate the practices 
of the big oil companies.
    First of all, relationships with major oil-producing 
countries are critical factors for maintaining reasonable 
gasoline prices. The United States need to renegotiate with 
these nations, and we also need to look at the oil-producing 
companies, the oil-distribution companies, the companies that 
get the product to the consumer.
    Second, Mr. Chairman, with the current high price in 
gasoline, I believe that the time to act is now. We need to 
approve additional research funding for alternative energy 
programs, and energy sources. We need to allocate more money in 
renewable energy research, for example, research in renewable 
ethanol as a fuel alternative. We need to find better ways to 
make ethanol and other products like it more reasonably 
accessible to the consumer, and I believe with our track record 
of technology advancement, of improvement, that we can actually 
do that.
    And, finally, Mr. Chairman, I certainly welcome the FTC as 
it looks into the practices of the companies. I am not sure 
that I believe that there is any one answer or that anybody's 
got a panacea to what is causing the problem to exist, but I do 
believe that by putting forth a concentrated effort, looking at 
all of the factors that are in fact involved, that we can come 
up with a strategy and a program and a direction that will get 
prices down to the point where consumers can reasonably expect 
to make use of them.
    And so I thank you, Mr. Chairman, and yield back the 
balance of my time.
    Mr. Burton. Thank you very much. Mr. Horn.
    Mr. Horn. Thank you, Mr. Chairman. I did not intend to say 
anything, but I am going to say one sentence, and then I will 
turn back a lot of my time to the gentlewoman from Idaho, and 
then I hope we get to the panel who has been long suffering.
    But we in transportation in this Congress on both the 
Senate and House side, often in annual bills we purchase diesel 
buses and diesel school buses and all this kind of thing. It 
seems to me Congress could say, ``Hey, let us start in trying 
to get the cleanest type of fuels,'' and there is no question 
we have got to invest in batteries in this country. That is one 
of the major things we have not been able to do. It needs it 
both for military purposes, as well as civilian transportation 
purposes, and natural gas is the type of bus we ought to do. 
That is clean fuel, and frankly, I get tired of the diesel 
smoke in my face as I am driving behind buses and trucks and 
all the rest of it. So I think we ought to think in those 
    And I now yield the rest of my time to the gentlewoman from 
    Mrs. Chenoweth-Hage. I thank the gentleman from California, 
and I will just summarize my opening statements by asking the 
question: how much does this administration's environmental 
policies impact the price of oil and gasoline?
    I found it interesting yesterday, Mr. Chairman, in the 
Washington Times, that it was quoted inside the Beltway that 
Paul R. Ehrlich and Anne Ehrlich, who wrote a book entitled 
``The Population Explosion'' and published it in 1990, on page 
219, is quoted as saying in the book: ``The United States could 
start by gradually imposing a higher gasoline tax, hiking it by 
1 or 2 cents per month until gasoline costs $2.50 to $3.00 per 
gallon, compared to prices in Europe and Japan.'' And then on 
the dust cover, on the inside of that book, was a statement 
written by our now Vice President Al Gore, who is quoted as 
saying, ``The time for action is due and past. Ehrlich has 
written the prescription.''
    And, Mr. Chairman, I am wondering how much the 
environmental policies of this administration is the 
prescription. We can sit here and point fingers at each other, 
but there is a major problem with this administration's 
environmental policies. We are now 56 percent dependent on the 
unstable OPEC nations for our oil resources, and we are sitting 
on top of great resources in this country at ANWR and multiple-
capped oil companies, that because of the environmental 
policies, we are not able to develop.
    So that will end my oil statement, Mr. Chairman, but I 
would like to ask permission that my entire statement be 
entered into the record.
    Mr. Burton. Without objection. Thank you, Mrs. Chenoweth 
and Mr. Horn.
    [The prepared statement of Hon. Helen Chenoweth-Hage 



    Mr. Burton. Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman. I appreciate the 
patience of the panel.
    We have been suffering in Chicago from some of the highest 
gasoline prices, and I just wanted to briefly tell you my take 
on this, because I have really been puzzling over why our 
prices in Chicago and Milwaukee have been so much higher than 
everywhere else.
    We had a hearing in Chicago that was convened by 
Congressman Bobby Rush last week, and at that time, what we 
were hearing from the oil companies--there was a lot of finger 
pointing going on, but we heard about how high the taxes are 
relative to other places around the country. And that is true, 
in Illinois we pay higher taxes. And then they were talking 
about ethanol, and that the problem really is that we have to 
use ethanol. We heard about--then we came to Washington and met 
with some of the oil executives and we heard about supplies, 
and we heard about problems with pipelines, and of course, we 
saw a lot of finger pointing at the EPA and the environmental 
    Well, let us look at all the facts, peel away the rhetoric, 
and look at what we have. And what we see is that the cost of 
reformulated gasoline in all of the places around the country 
except Chicago and Milwaukee areas was always about the same 
price as conventional gasoline. We are talking about the fees 
to RFG. In Chicago, for example, these are old numbers, but 
June 12th, $1.62 for conventional gasoline, $1.63 for 
reformulated in places other than Chicago and Milwaukee; $2.04 
in Chicago and Milwaukee, a full 60-cent per gallon difference.
    Well, when the FTC began its investigation, 
coincidentally--and I don't think it really was--we began to 
see this precipitous drop in the wholesale cost of reformulated 
gasoline with ethanol in the Chicago area, and we have seen 
that drop now from, it was at about $1.60 a gallon to now, as 
of 2 days ago, $1.22 a gallon. So what could it be? We have not 
changed the taxes. The supplies have been the same. The 
pipeline, which was a problem, was the same fix on the 15th and 
the 14th as it is today. The EPA regulations haven't changed 
any. It seems to me that if prices can fall so far and so fast, 
that it was within the power of the oil companies to drop those 
prices, and the only explanation then that makes sense to me is 
that Chicago and Milwaukee, the two areas that use ethanol the 
most, were being punished for their use of ethanol, a corn-
based product that the oil companies don't make any money off 
of. That is the only thing that distinguishes Chicago and 
Milwaukee from the other places around the country, is our use 
of ethanol. And it seems to me that that is where the problem 
lies, that the oil companies, who have seen up to 500 percent 
profits this year, this quarter this year over last year, have 
seen fit to use the environmental regulations as a fig leaf to 
disguise their attack on ethanol and to punish those of us in 
the areas that most heavily rely on ethanol.
    I hope now that we are going to continue to see a decline 
in the wholesale price, that we will see it reflected at the 
price in the pump, which of course for our consumers is the 
bottom line, and that this hearing will shed further light on 
the subject. I appreciate the witnesses' indulgence, and I 
thank you, Mr. Chairman.
    Mr. Burton. Thank you, Ms. Schakowsky. Mr. McIntosh.
    Mr. McIntosh. Thank you, Mr. Chairman.
    I have a prepared statement that I would like to put into 
the record, and just make a couple minutes' remarks.
    Mr. Burton. Without objection.
    Mr. McIntosh. And let me focus on the Midwest, because that 
is where I think the key problem is, at least where I am 
familiar with it, and let me remind everyone on the committee 
that the Chicago market also includes parts of Indiana, 
particularly Lake County.
    And I was up there recently, and noticed that on the Lake 
County side of the border, you are paying $2.18 a gallon. You 
drive 2 miles south and you are paying $1.78 a gallon, whether 
or not in that non-attainment zone and don't have to use 
reformulated gas. So there is a price difference, and unlike 
the East Coast or the West Coast, it costs a lot more to use 
this reformulated gas.
    I think what we need to keep in mind is that an economic 
analysis of this explains what is going on pretty simply, that 
the demand curve for gasoline is very inelastic. Put into 
English, that means people are willing to pay a lot more for 
the same amount of gas, because they need to fill up in order 
to drive to work and buy groceries and use it in their car. 
Therefore, when the supply goes down and the demand is still 
high, you get a spike up in the price. That is what has 
happened here. That is what is referred to by some of the 
members as gouging.
    The solution to that is one of two things. People use less 
gas so you reduce the demand, or suppliers find alternative 
supply and increase the supply, and that will then cause a 
decrease in the price.
    When you break down according to the CRS study, which is 
confirmed by the memo that Mr. Ryan introduced today from EPA, 
and frankly, confirmed by the subsequent CRS study that Mr. 
Waxman mentioned, you look at the price of gas in the Midwest, 
in the Chicago area, as well as the broader Midwest, it was $1 
a gallon roughly a year ago. It has been increased by about 50 
cents a gallon which can be attributed to the restriction of 
supply by OPEC and the oil-producing countries. That gets you 
to about $1.50 range. That is what people on the East Coast and 
the West Coast are paying for gas, both reformulated and non-
reformulated. The restrictions in supply due to the pipelines 
and the fact that there are no refineries supplying the 
Midwest, adds about another 25 cents to the gallon, and then 
the fact that Chicago and Milwaukee and Lake County, Indiana 
use reformulated gasoline with ethanol adds another 25 cents to 
the gallon.
    And it isn't 25 cents more expensive to produce that gas, 
the problem is that the blend when you blend with ethanol is 
different than the base ingredient for other reformulated gas 
using MTBE or an oil-based product.
    So, in California or New York they have a fairly large 
supply of the base material, they add the oxygenate and get 
reformulated gas. But in these two cities and Lake County, IN, 
the EPA regulations require them to produce a special blend and 
the supply problem comes about because of that requirement that 
there be a special blend that you mix with ethanol. That is 
what spiked up the price by another 25 percent according to the 
CRS study.
    Now, when people say that the regulations are causing the 
increase in the cost, that is one way to look at it. And I can 
understand why some of my colleagues say that can't really be. 
The oil companies are only required to spend so much money to 
produce that. The rest of it is they are charging extra money 
for the product that they are selling.
    But if you look at it the other way that you have got this 
dislocation between demand and supply and the demand curve 
essentially is what causes the spike in prices; people are 
willing to pay more in order to get a gallon of gas when there 
are fewer of them around. The regulations are causing a 
dislocation in the market so that the suppliers cannot bring in 
alternatives to sell at a cheaper price. And, so, the low 
supply causes the high price, the EPA regulation prevents 
anybody else coming in and supplying an alternative in Chicago, 
Milwaukee, and Lake County.
    And that is how the government regulations have caused this 
temporary crisis in the Midwest cities by not allowing the 
market forces to work to bring in alternatives to that 
reformulated phase II gasoline. That is what this committee 
should look at. That is, frankly, what the Governors in 
Illinois and Wisconsin requested EPA to grant a waiver, to say, 
let's get through the summer, where we can open up the market 
place, and you can have a different form of reformulated gas 
come in, supply the need, and we will see the price come back 
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. David M. McIntosh follows:]

    [GRAPHIC] [TIFF OMITTED] T3069.020
    [GRAPHIC] [TIFF OMITTED] T3069.021
    Mr. Burton. Thank you, Mr. McIntosh.
    Mr. Ford.
    Mr. Ford. Thank you, Mr. Chairman.
    I look forward to hearing from the panel so I am not going 
to speak very long. I would say that we have all become experts 
here, at least we believe we have become experts on the 
environment and how these emissions may affect our environment 
and how you can mix these things. I don't claim to be that 
bright and I am amazed at the intellect and the wisdom that 
poured on this side regarding how EPA does its job and how the 
big oil companies are conducting themselves.
    I will note again for the record that I know we have a 
third panel where we will have a representative from the 
American Petroleum Institute, and I think the Renewable Fuels 
Association but I do hope that the chairman will show the same 
vigor and relentlessness in bringing the CEOs of some of the 
large oil companies before this committee too as he did Cheryl 
Mills who have been subpoenaed before this committee.
    I would have to think that this issue affects more 
Americans than whether or not e-mails might have been lost at 
the White House, but that might be a difference of opinion on 
sides of the aisle.
    With that being said, I look forward to hearing from the 
panelists. They have taken time out of their very, very busy 
schedule to be with us today and I do apologize that more of my 
colleagues could not be here. This is an extremely busy day as 
we debate prescription drug benefits for seniors in America. 
And with that I yield back the balance of my time and hope that 
we can get on with this panel as well as the other panel.
    And I would say one additional time, I know Mr. Waxman has 
said it. I hope to hear from the heads of the oil companies, 
perhaps they can explain what clearly so many on the other side 
of the aisle now understand in terms of what EPA, the Clean Air 
Act, has required these oil companies to do. I would like for 
them to explain to me how it is they are enjoying a 500 percent 
profit--nothing against it, I am a capitalist also, I think the 
people ought to make all the money they possibly can--but we 
ought to be very careful in casting aspersions on laws that 
have made our air cleaner and our water safer to drink and at 
the same time oil companies are enjoying record profits.
    I would also add that over the last 8 years, and as we 
criticize environmental regulations, our economy is growing 
like it has never grown. We are all making forecasts about 
surpluses we are going to enjoy in this Nation and we are all 
now, both sides of the aisle, trying to determine how we are 
going to spend the taxpayer's money. So, I would caution my 
friends on the other side, who suggest that somehow or another 
the EPA has slowed the growth of this economy. We are growing 
like we have never grown before.
    We face a particular crisis here, and instead of the 
demagoguing that goes on, on both sides, we ought to call all 
of those before us who could perhaps provide some insight and 
guidance as to what, we, as policymakers ought to consider and 
ought to be doing to help to bring some relief to working 
mothers in my district in Memphis, in the Ninth District in 
Tennessee, certainly in California, where my friend, Mr. Ose, 
is from and Indiana, where Mr. McIntosh and where Mr. Burton is 
from. I would hope that my colleague from Indiana, Chairman 
Burton will not hold too much against Mr. Ose, since he is from 
California and I saw you don those glasses on the floor, Mr. 
Chairman, saying that the Indiana Pacers would defeat the 
Lakers. That didn't happen. I hope that you would not hold that 
against Mr. Ose in his efforts to bring relief to the residents 
of California.
    With that, I yield back my time.
    Mr. Burton. I wasn't going to until now.
    Let me just say since we cannot run cars on missing e-
mails, we will have the people from the oil company before us.
    Who is next on our side?
    Mr. La Tourette.
    Mr. La Tourette. Thank you, Mr. Chairman.
    I will try to be mercifully brief. I want to thank you for 
holding this hearing today and for inviting not only the 
consumers that I think are going to be the most important 
panel, but also the Federal agencies and representatives of the 
oil industry and also alternative fuels. I am also encouraged 
by the opening statements today that it has not devolved into 
the rhetoric, the silly rhetoric that punctuated some of the 
press conferences that occurred on Capitol Hill at the end of 
last week.
    My personal favorite, not only at the press conference but 
also at a meeting that I was at with the EPA Administrator, was 
somehow a letter sent by the Administrator of the EPA and the 
Energy Secretary caused the wholesale prices in Chicago to 
plummet that very day. Apparently they sent the letter and it 
scared the beJesus out of the oil companies and oil prices 
dropped 27 percent on the wholesale market in Chicago.
    That is a ludicrous and ridiculous observation, but it got 
me to thinking because a couple of days earlier Congressman 
Kucinich had sent a letter to the FTC to the chairman, as a 
matter of fact, 3 days earlier than the Energy Secretary's 
letter, and the EPA Administrator's letter. We got a letter 
back from Chairman Pitofsky that said that he was going to 
launch an investigation in the Midwest. So, it occurred to me 
that maybe Congressman Kucinich and I could have a press 
conference and take credit for tumbling gas prices in the 
Midwest but that would be, I think, just as silly.
    It would appear from the meetings that Speaker Hastert had 
over the last couple of weeks that there have been a number of 
unhappy circumstances that have come together about the same 
time in the Midwest and they have left drivers and consumers 
really scratching their heads in my State. We have heard from 
some of our colleagues from Illinois and Wisconsin, they have a 
pretty good handle on it. At least they had new regulations 
that went into effect on June 1st for RFG-2. I would say that 
we have 4 out of every 10 gallons of fuel sold in Ohio is 
already ethanol made with corn and, so, I don't suspect any 
vast right-wing corn conspiracy going on at least in the State 
of Ohio.
    But I would tell you that we don't understand what happened 
to us in Ohio on June 8th. I got a call from a guy who lives in 
Geneva, OH. His wife filled up at a gas station that morning 
before she went to work and the gas was a $1.57. He comes home, 
5 hours later, and he fills up at the same gas station, same 
pump, apparently the same gas in the tank that was there at the 
beginning of the day was $1.99. There is no war, no national 
disaster. He couldn't think of anything that caused it to go up 
so much and he is asking, well, OK, we understand what happened 
to our friends in Chicago, we understand what happened to the 
folks in Milwaukee, but what is going on in Geneva, OH?
    And I want to welcome Charles Bailey from Jefferson, next 
door, who has experienced some of the same things from 
Jefferson, OH, to talk a little bit about what he experienced. 
I think it is easy to cast blame. I think it if you don't like 
the Environmental Protection Agency you can blame their 
regulations and say that they have caused the problem. If you 
don't like the Clinton administration you can say that they 
don't have a fuel policy and energy policy to follow. If you 
don't like the big oil companies you can accuse them of price 
gouging. If you don't like the Republicans you can say, as some 
have suggested, that the Republicans are in the pocket of the 
big oil companies and we don't want to look at them.
    I would hope that rather than fanning out and hunkering 
down into foxholes or, in this case, oil wells, that at today's 
hearing the committee really, everybody who comes before the 
committee sits back and says, maybe in this crisis I could have 
done something better.
    For instance, we are aware that the EPA granted, they 
didn't grant a waiver but they granted enforcement discretion 
to St. Louis, Missouri, which is a fine city but also the 
Energy Department took a look at fuel supplies, saw they were 
low, as they did for Chicago and Milwaukee, and decided not to 
issue enforce discretion. Well, why?
    Maybe the EPA could have done better. Maybe the Energy 
Department could have done better. And the oil industry, I 
think what happened in Ohio is that the pipelines broke. We had 
some problems, shortages were low, a 15-year low. But if I am 
an oil company and I can sell gasoline in Chicago for $2.20, as 
Mr. Kanjorski was talking about, supply and demand, why the 
hell would I sell it in Ohio for a $1.60? I am going to take it 
up to Chicago and sell it.
    And my suspicion is that they perhaps were a little 
greedier in the supply and demand situation than they needed to 
be. Maybe we need to look at our PAD system that was put into 
place after World War II to develop oil distribution in this 
country and come up with a better way to do it.
    And in the spirit of cooperativeness, and doing something 
constructive, the Transportation Committee is already looking 
at the Explorer Pipeline and we are talking about pipeline 
safety. Mr. Waxman, I think, talked about the Explorer 
Pipeline. It is now operating at, my understanding is, 80 
percent pressure, 90 percent capacity. And rather than saying 
well, you know, darn somebody, we are looking to work with the 
Department of Transportation how to get them up to 100 percent 
so Chicago could have more gasoline than they know what to do 
    I thank you, Mr. Chairman, and yield back my time.
    Mr. Burton. Thank you, Mr. La Tourette.
    Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman.
    First of all, Mr. Chairman, I really want to sincerely 
thank you for calling this hearing because I think it is 
tremendously important to customers and it is a very important 
issue. Recently I have been very alarmed by the incredible 
growth in gasoline prices across the Nation and in my own State 
of New York. And these prices have grown even though the oil 
supply has remained constant over the past year. As we know, on 
Wednesday, June 21st, OPEC agreed to raise their oil production 
by 700,000 barrels a day or 3 percent.
    But what really astonishes me is the oil industry's 
pathetic excuses for the increases that they have seen and the 
cost of gasoline has become record highs. The oil industry 
profits have increased from 200 to 500 percent over the last 
year. And I think that it is no accident that when the Federal 
Trade Commission announced that it would launch an 
investigation into whether the oil companies were engaged in 
price gouging the price and the cost of a gallon of gas 
actually dropped in the Midwest.
    But what I would like to get to is--and I would like to 
stress that this is standard practice for some of the oil 
companies. Back in 1996, Chairman Horn and I, in part of our 
effort to oversee the collection of Government debt, issued a 
report on what was owed to the Federal Government on 
uncollected oil royalties for oil that is extracted from land 
that is owned by the taxpayer, federally owned land. And what I 
found in my studies is that there was a consistent effort to 
cheat taxpayers and the Government out of millions of dollars 
that are owed in royalties and this money that comes in, in 
royalties goes to education and to many important areas.
    We had a series of hearings and there were subsequent 
investigations by GAO and others that really came to the 
conclusion that many of the major oil companies were paying 
royalties based on what they called posted prices but the price 
was much lower than the market price. And we merely worked, 
many of us, to encourage a law or a rule that is very simple, 
that the oil companies should pay the Government and the 
taxpayers the same amount that they pay each other.
    And because of the lawsuits that came out of these 
investigations that we had in your hearings and other places, 
the oil industry paid the Federal Government more than $300 
million and overall the oil companies were forced to pay over 
$5 billion to the Federal Government, States and Indian Tribes. 
And there were many suits against the oil companies and they 
settled over their underpayment. And recently the Office of 
Minerals and Management Services re-wrote the rule that merely 
states that the oil companies should pay to the Federal 
Government what they paid each other which is market price and 
that will provide an additional $66 million each year to the 
Federal Treasury.
    So, I think that is important but the reason I bring up 
this history of hearings and work that many of us on this 
committee did on the underpayment of oil royalties shows a 
behavior of trying to really rip off the American consumers and 
rip off the fair and just payment.
    And I can say that I am looking forward to the report that 
will come from the Federal Trade Commission on how we jumped to 
500 percent increases in profits, while the supply was 
basically the same in this country.
    Thank you.
    Mr. Burton. Does the gentlelady yield back her time?
    Mrs. Maloney. If anyone would like to comment on that, I 
would be glad to hear their comments.
    Mr. Burton. Well, we are not to the questioning phase of 
the hearing yet, Mrs. Maloney.
    Mrs. Maloney. OK.
    Well, I was at another meeting and just got here. So, I 
yield back. I didn't realize it was opening statements. I 
thought we were at questions.
    Mr. Burton. OK. Thank you very much.
    Mrs. Maloney. Thanks.
    Mr. Burton. Mr. Barr.
    Mr. Barr. I look forward to the testimony and questions, 
Mr. Chairman.
    Mr. Burton. Mr. Terry.
    Mr. Terry. I will associate myself my remarks with Mr. 
    Mr. Burton. So noted.
    Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman.
    Before I associate my remarks with Mr. Barr, I want to 
remind the chairman that I am from Sacramento and a supporter 
of the Sacramento Kings, not the Los Angeles Lakers.
    Mr. Burton. Well, I would hope that in the finalists you 
were rooting for the Indiana Pacers even though they were not 
    Mr. Ose. Does Indiana have a team?
    Mr. Burton. Never mind, never mind. [Laughter.]
    Would the--first of all, before we have you sworn in, I 
want to thank you all for your patience. Would you all rise so 
I can swear you in, please?
    [Witnesses sworn.]
    Mr. Burton. Be seated.
    Our panel consists of Scott Schneider, from Indianapolis; 
Mark Hrobuchak. Where are you from, Mr. Hrobuchak?
    Mr. Hrobuchak. Northeastern Pennsylvania.
    Mr. Burton. Charles Bailey from Jefferson, OH; Elaine 
    Ms. Oberweis. From Aurora, IL, represented by Mr. Dennis 
    Mr. Burton. Speaker Hastert. Well, we better treat you 
right then. And Doug Wilson. Where are you from, Doug?
    Mr. Wilson. North central Illinois in Congressman Tom 
Ewing's District.
    Mr. Burton. Very good.
    I think we will just go right down the line. Mr. Schneider 
is a member of the city county council of Indianapolis and also 
I guess runs the Mister Ice Co., with his father, who is a good 
friend of mine.
    Mr. Schneider.


    Mr. Schneider. Thank you, Mr. Chairman and members of the 
committee. I would like to thank the committee for giving me 
this opportunity and in particular my Congressman, Chairman 
Burton, and Mr. McIntosh is also a delegate of my State. In 
1964, my father realized the American dream of owning his own 
business. Starting in his garage he formed a small business 
supplying packaged ice to local businesses for resale. Now, 
over 36 years later, much hard work and sacrifice, 12 
employees, and the help of his father and those employees, the 
business has grown to a very successful and well-respected 
distributor of commercial ice machines, and restaurant 
    Our family has about 7 trucks, traveling at 60 mile radius 
of Indianapolis, performing service and sales functions for our 
customers. Needless to say, gas prices, obviously, have a huge 
impact on our business.
    As gas prices go up, quite simply, our profits go down. Gas 
prices directly affect our bottom line. But it affects much 
different than if there were an increase in merchandise for 
resale or things of that nature. Those prices can generally be 
passed on in the form of a price increase of our own.
    But it affects our company differently than normal fixed 
costs that every business has. The recent volatility of gas 
prices especially in the Midwest has affected us and there is 
no way really to recover those in the business that we are in. 
So, we would have to absorb them.
    Our company has two customer segments. We have a retail 
segment and a wholesale segment. The retail segment, most of 
our customers have a long-term contract and as a short-term 
spike in gas prices go up, our long-term prices cannot be 
changed. So, therefore, that affects directly to the bottom 
    For our wholesale customers most of those customers receive 
products that we ship out by freight carrier and the freight 
industry is showing a lot of increase in gas surcharges and our 
prices have been going up. Those prices usually are included in 
our discount structure, therefore, when freight prices go up 
our margin also goes down and it is a thin margin to begin 
    And, consequently we are trying to order more shipments, 
more items per shipment, fewer shipments, which obviously then 
puts a strain on our inventory levels and strains our cash-
flow. Now, fortunately, and Lord willing, we can get through 
this. We are a strong company and I believe we will be able to 
get through a short spike in gas prices. But given the long-
term continued prices at these levels, we would possibly be 
faced with cut backs and lower margins.
    The question now to me seems to be how do we correct this? 
And I would like to emphasize quite, quite, obviously, that I 
am in no way advocating any sort of Federal price control on 
gasoline. But what I am advocating actually is that this body 
take at least some sort of action that it has the power and the 
control to take. I have identified two areas that I believe 
have an immediate and direct impact on gas prices. That would 
be No. 1 to lift EPA regulations; and No. 2, suspend or even 
cut the Federal gas tax.
    And, if I could, Mr. Chairman, I would like to interject, I 
know that I have got, continue on with my prepared remarks, but 
as I was listening to the opening remarks of the panel, the 
committee, it occurred to me that really what we are looking at 
in my opinion is a much larger picture and a bigger question 
and that is a general question of government regulation, in 
particular, here, the EPA; and in general, for businesses 
everywhere. General Government regulation that hinders us all.
    And we, as a business, are forced to deal with all kinds of 
Government regulation. And it almost seems at times that in 
order to succeed in business we do that in spite of the 
Government regulations from any, every different type of 
department, both local, State and national.
    I am from the Midwest so I will use the analogy of a 
tractor pull. It is very similar to a tractor pull where 
business is the tractor and Government is the weight upon the 
sled in which we pull. And as the weight of Government 
regulations gets greater and greater we have to work harder and 
harder and spinning our tires more often just to stay, just to 
sustain the pace that we are at now.
    And I firmly believe that if something does not happen to 
Government regulation in general that businesses small and 
large alike are going to stall out under the weight of 
Government regulation.
    The question was this committee, was the rising fuel prices 
and the appropriate Federal response. In my opinion, that 
Federal response and this committee's response can be summed up 
in some simple language and that is please, get Government off 
the backs of small business and, in particular, for this 
committee, pull the reins on the EPA. They are over-regulating 
business and in this particular case, there is identifiable 
areas where the gas prices have gone up simply because of non-
attainment and those types of things.
    There is an article in a northern Indiana newspaper and Mr. 
McIntosh was right on line when several of the counties in 
Indiana lie in the non-attainment zone and some do not. And the 
headline is, Drivers Bolt for County Lines To Fill Up Gas 
Tanks, because the gas on the other side of the county line is 
30 cents cheaper. And, again, you all mentioned that there is 
no change in supply, there is no change in anything other than 
Government regulation by the EPA. And those effects or those 
regulations took effect in my State on June 1.
    So, as I was talking to some of my peers and my colleagues 
telling them that I was going to appear before the committee, I 
was given some marching orders by several of them. And that is 
to plead with you to pull the reins on the EPA and to pull back 
on Government regulation in general.
    Thank you very much.
    [The prepared statement of Mr. Schneider follows:]

    [GRAPHIC] [TIFF OMITTED] T3069.022
    Mr. Burton. Thank you, Mr. Schneider, and be sure to give 
your mom and dad my regards.
    Mr. Hrobuchak.
    Mr. Hrobuchak. Mr. Chairman, and members of the committee, 
I would like to thank you for appearing today in front of you. 
I have a lot to say in a short period of time so I am going to 
be real quick about it. I have been in the transportation 
business, trucking business for 22 years, OK? As a refrigerated 
carrier, I was third in command of the 10th largest 
refrigerated trucking company in the United States at one time.
    And we are located in northeastern Pennsylvania in the 11th 
Congressional District and due to Mr. Paul Kanjorski I have to 
thank him, Congressman, for being here. He has supported me all 
the way.
    You know, we heavily rely on fuel. And, you know, this is 
not a problem that just happened a couple of weeks ago in the 
Midwest. This problem happened 8 months ago. And the trucking 
industry was struggling since then and we were promised an 
investigation then and we have not seen anything. They have 
held hearings, March 9, 2000. As a matter of fact, I was 
recommended to testify at those hearings, and it was actually 
the Energy of Power and Subcommittee hearing, chaired by 
Congressman Barton of Texas. And it was on oil market price 
    I have not heard a thing. I was promised that there would 
be something done. I will go further. This is not just about 
fuel. This is about jobs. OK? I have over 150 employees that 
work for me, owner-operators, company drivers, mechanics, 
office staff and administrative staff. OK? I started in 1995. I 
left the 10th largest refrigerated trucking company and went on 
my own. OK?
    I started with nothing. By the year's end I did $3.4 
million. At the end of this year I will have done $15 million 
in gross revenue and sales. And it was not an easy hike and 
it's not getting any easier.
    The fuel is choking the transportation industry by the 
throat. And this is just by coincidence yesterday. A gentleman 
from the Travel Port Centers of America stopped in my office 
and it's a big chain of places where trucks can stop and get 
fuel and guys get showers and stuff like that. And he actually 
told me the reason the shortage as he experienced and why fuel 
was so expensive up in the New England area was because they 
have actually rerouted the pipeline up into the New England 
area and made him ship his trucks over to Kentucky when he was 
based in Richmond, VA, just to get the fuel he needed to 
support his truck stops. And all that fuel went up to the New 
England States.
    So, I don't believe there was a shortage there. Let me 
hurry on with this.
    I will address the fuel issue now. Our fuel price rose 78 
percent in the 10-day period. MPH sustained losses during this 
period while our gross revenues increased 26 percent in the 
first quarter of 2000, OK, in comparison to the 1999 first 
quarter, OK? But our profits fell in 2000 98 percent in 
comparison to 1999 because of direct cause of the fuel 
shortage, so-called.
    And all that's really happened in my opinion is that the 
trucking industry has gotten off the back of Congress and 
subcommittees and lowered the fuel enough to where now they 
raise the gas prices. And it's raising everybody's attention.
    And they are seeing where they can get away with it. And, 
you know, I have several responses to that. And I contacted 
everybody. I started with Mr. Kanjorski, in the 11th 
Congressional District. I contacted Senator Sherwood, Holden, 
Specter, and Santorum, Energy Secretary Richardson, 
Pennsylvania State Senator Mellow, Pennsylvania Attorney 
General Fisher, Governor Ridge. I also contacted President 
Clinton and Al Gore, OK?
    And I contacted everybody. I have been working on this 
since the very beginning and I work hard and I have actually 
ignored my business in spite of everything that has happened. 
And I take this serious. This is my livelihood. And I have 
independent owner-operators that work for me which, you know, 
tried to be self-employed independents and want to be the 
American entrepreneur with their own little truck running 
around the country.
    I want you to know that 80,000 trucks were returned from 
one corporation in the United States that had 35 percent of the 
market share, OK, was given back by the American owner-operator 
who pulled freight. So, what I am trying to say there is that 
in my company during the fuel shortage for the first quarter is 
that 20 of my employees, owner-operators had, went bankrupt, 
they lost their homes, they lost their houses, they lost their 
cars, they lost everything because they just couldn't live up 
to the fuel prices.
    And we need to take immediate action. I mean immediate. We 
need to do something this time. We can't say we are going to 
try to do something, OK? We need to make those parties 
responsible, OK, impose taxes, OK? Not only the parties 
responsible but the executives of those companies responsible 
and hold them.
    And I don't agree with a peeling away with the Federal and 
State taxes. I just want you to put a moratorium on them. Just 
a moratorium on them so the trucking industry can get a grip 
and get back in line where it needs to be so their bottom line 
can get back on track with its profits.
    OK? That is all I have to say. Thank you very much.
    [The prepared statement of Mr. Hrobuchak follows:]

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    Mr. Burton. Thank you very much, and we will get back to 
you in the question-and-answer period.
    Mr. Bailey, if you could, you might keep your eye on that 
little clock there. When it gets to ``sum up,'' you have about 
1 minute left. If you could stay within that timeframe, it 
would help us.
    Thank you.
    Mr. Bailey. Good afternoon, Mr. Chairman and members of the 
committee. My name is Charles Bailey. I live in Jefferson, OH, 
the county seat of Ashtabula. It is part of the Ohio's 19th 
Congressional District.
    Let me begin my testimony by saying I am honored to be here 
on behalf of northeast Ohio. I thank Chairman Burton for 
holding this hearing and Congressman LaTourette for inviting me 
to testify.
    I am a foster parent, I am an adoptive parent. I am 
probably the closest thing you are going to see to a typical 
American family here. I work as an electrician. My wife is a 
stay-at-home mom. I drive 880 miles a week to and from work. I 
work at an outfit in North Canton called Schaub Electric as a 
union electrician.
    The price of gasoline has cut into my family's budget, as 
it has with everybody else in this country. We no longer have 
any luxuries in life, and barely have enough money to buy 
groceries. There will be no fairs or festivals in my children's 
lives this summer, no amusement parks, and because we have 
chosen to move closer to work and save on gas, there won't even 
be many trips to grandma's house.
    I have been chosen to tell my story about how this has 
affected me and my family. But in truth, I am telling the story 
of millions. Every person in this country feels the effect of 
the rising price of gasoline. It has doubled in a matter of a 
few months and has made the cost of living increase in more 
ways than just at the pumps. Our grocery prices have gone up, 
due to the rising cost of delivery. We live close to Lake Erie, 
and the Great Lakes, and I have seen this effect at marinas, as 
far as fishing charters, anything that has to do with the Great 
    There isn't any part of our lives or the local economy this 
hasn't affected. Our country has grown to rely on 
transportation that uses gasoline, which means, in reality, 
that not only has this affected us at home, but it has affected 
everything in this country. There are many people who have it 
much worse than my family: people who have to travel for a 
living, people who have loved ones in the hospital and need to 
be visited, people who are barely making it on what they were 
being paid before the hike in gasoline and now can't pay their 
bills at all. And what about those individuals on fixed 
incomes? Social Security, the people that need to make it to 
the doctors or the pharmacy, are they going to be able to pick 
up their prescriptions after paying for gas?
    As a Nation, this has hit everyone's pocket, and there 
doesn't seem to be any relief in sight. How are our children 
supposed to become well-rounded when they can't even play 
extracurricular activities because there is no money to pay for 
it; when they are not allowed to take the trip in sixth grade 
to Washington, DC, because mom and dad won't have the money to 
get back and forth to work if they take that extra money and 
use it for the field trip. What is this world coming to when 
your children can't even take a field trip?
    In the past year, we have been able to do very little. The 
cost of gasoline is so high that we can barely make it to the 
grocery store. Our grocery budget has been cut almost in half. 
With six children and two adults, we have five children--and I 
also have a 15-year-old niece staying with us over summer 
break--that doesn't leave a whole lot for us to choose from. 
The days of big dinners are over for us at this point.
    We try to make sure that the kids have everything that they 
need before we even concern ourselves with any needs we may 
have. There have been many evenings in this last year that 
either myself or my wife have gone without a meal so that the 
children can have seconds. We feel it is more important to let 
them have a second helping for their growing bodies. I never 
want any of my children to go to sleep hungry. This is an issue 
for many people in our area. We have others who are getting 
public assistance because they can't work and support their 
family. However, there is no assistance for those of us who go 
out and work every day and still don't earn enough to simply 
feed their family, let alone try and supply them with all of 
the other basic necessities of life.
    I am fortunate to have a good enough job. But I drive 88 
miles one way to work, so I can have hospitalization for my 
children. Like many families, we have two car payments. We have 
nothing new. We have two 1992s. My Jeep has 160,000 miles on 
it, and it will probably be wore out before I ever have it paid 
    As for any trips to the amusement park or the zoo, we just 
don't have it in the budget to go anywhere. With the cost of 
the tickets, food and, of course, the added expense of gasoline 
for a family, it is just impossible to go anywhere. We had 
hopes of taking our children to Disney World before they get 
too old, but I don't ever think that will ever happen. I now 
spend $400 a month for gasoline just to go to work and back.
    After local media did a story about me coming to 
Washington, I received e-mails. In a matter of 3 days, I have a 
folder here 1-inch thick from Northeast Ohio people reaching 
out and telling me their stories. I have read every one of 
these e-mails, and I have responded.
    And I wish for my Federal Government to take the steps that 
are necessary to bring our gas prices back down, so the local 
families can have the things in life that this Nation has 
promised us and that is here for us. That is the reason we are 
    Thank you.
    [The prepared statement of Mr. Bailey follows:]

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    Mr. Burton. Thank you very much, Mr. Bailey. And those e-
mails that you have, if you would like to share those with the 
committee, we would be happy to have those, and we will review 
    Ms. Oberweis.
    Ms. Oberweis. Thank you for inviting me here today. I am 
indeed honored to be asked to testify in front of this 
distinguished committee, and I would especially like to thank 
Representative Biggert for extending the invitation.
    I am Elaine Oberweis. I am president and CEO of Oberweis 
Dairy, the processor of the finest milk and the most delicious 
ice cream on the planet. We utilize three means of 
distribution: direct home delivery, company-owned retail 
stores, and wholesale distribution to both single-store and 
chain-store grocery stores. Our service area covers most of 
Illinois and the St. Louis, MO, area. Milk is brought in from 
Illinois and Wisconsin and processed in our North Aurora 
facility and then distributed either directly to homes, our 
stores or our wholesale accounts. We utilize approximately 75 
trucks to accomplish these deliveries.
    It is troubling that our fuel costs have increased more 
than 40 percent from May 1999 until June 2000. This translates 
to an additional $15,000 per month for fuel. While this number 
does not sound huge in governmental budgetary terms, the 
increased cost on an annual basis represents 16 percent of our 
1999 pre-tax net income; dollars that could have been spent to 
expand our business and better serve our customers.
    We have also been assessed fuel surcharges of up to 4 
percent by most of the trucking companies serving our own 
suppliers. Thus, the cost of our farm milk, raw materials and 
resale items, such as butter and eggs, have also increased.
    High gas prices have hidden costs as well. Our employees 
receive the IRS-mandated $.31 per mile for business use of 
their personal vehicles. This is a national standard. Thus, the 
Chicago area employee is penalized by the higher price of fuel. 
Our employees are also paying much more just to get to and from 
work each day, as Mr. Bailey has testified, so their paycheck 
is effectively shrinking.
    We have an extremely difficult time attracting employees to 
the Chicago job market. The national media coverage of the cost 
of fuel in Chicago is fanning the flame of fear about the high 
cost of living in the area. Recruiting in an already very tough 
job market is only becoming more difficult.
    What does this mean in the long run? The convenience of 
Oberweis home delivery that we provide to our customers may 
become an unaffordable luxury. It will be increasingly more 
difficult to hire new employees. As a result, our ability to 
grow our business will be restricted, if not stopped all 
    Mr. Chairman, Government involvement in fuel formulation 
affecting the economics of fuel pricing has created today's 
environment. The inequalities that exist between Chicago's 
price of fuel and that of the rest of the United States is the 
direct result, at least in part, of a bureaucratic execution of 
a plan. On its own merits, reducing emissions through the 
change in gasoline formulations may be worth doing--however, 
not at the expense of job creation or product quality.
    The EPA has set standards for air quality that would result 
in required changes to gasoline formulations. The EPA, oil 
industry and local Governments were aware of Chicago's need to 
implement these new formulations. The EPA and the oil industry 
should have been working together to forecast the changes in 
demand based on new regions being required to use reformulated 
fuels. Thus, the adjusted cost of fuel should not have been a 
surprise. And the increased cost of the EPA-mandated 
formulations could have been softened by an increased supply, 
allowing the basic price of fuel to fall during the 
implementation period. The new formulation could have been 
introduced with little fanfare.
    But also affecting supply are OPEC's monopolistic 
restrictions on supply. Also, it is my understanding that a 
supply issue in the ``pipeline'' is affecting the oil 
industry's ability to deliver fuels to market. Combined, these 
two issues are seriously depleting supplies. Thus, rather than 
an increased supply at the moment of implementation of the new 
formulation, we experienced a decreased supply and higher 
prices at the pump. It is my claim that only the Government 
would behave as it has in continuing to mandate the 
reformulated fuels during a crisis.
    As a businessperson, I can testify this is an unworkable 
strategy. No business would force or implement a plan that is 
no longer viable. When business conditions change, businesses 
alter their plans to allow them to continue to be successful. 
In any major business undertaking of which I have been part, at 
the time of the plan's implementation, we reassess the 
environment to assure ourselves the underlying assumptions are 
still true. The existing supply of required fuel is one 
assumption the EPA had a responsibility to check, and it didn't 
check its plan for viability.
    Now the Congress has a chance to say to Chicago and the 
Upper Midwest, ``We can wait until all of our ducks are in a 
row before we make this important change.'' Congress can remove 
the requirement for reformulated fuels mandated by the EPA or, 
at a minimum, delay such action until both the oil industry and 
the EPA can assure increased supplies. Or, best of all, in lieu 
of mandating reformulated fuel usage, Congress can increase the 
tax on the current formulation of fuel and reduce the tax on 
reformulated fuel nationwide. The market would then be allowed 
to solve the problem, as it should.
    Mr. Chairman, I thank you again for this opportunity to 
present my views, and I am more than happy to answer questions.
    [The prepared statement of Ms. Oberweis follows:]

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    Mr. Burton. Thank you, Ms. Oberweis.
    Mr. Wilson.
    Mr. Wilson. Thank you, Mr. Chairman and members of the 
Committee, for this opportunity to discuss the rising price of 
gas for farmers and our perspective of what the right solution 
could be for what I see is a preventable problem.
    My name is Doug Wilson, and I am a farmer in north central 
Illinois, and I am also the immediate past president of the 
Illinois Corn Growers Association. I am testifying today on 
behalf of the NCGA and the more than 30,000 farmers they 
represent in the 48 States.
    Let me make one thing perfectly clear right off the bat. No 
group suffers more from skyrocketing fuel prices than farmers. 
This year, the typical corn farmer will pay a whopping $5,000 
more for fuel and other inputs than he did last year. For many 
of us, especially family farmers like myself, that is a giant 
chunk out of our wallets, and it will have a devastating impact 
on our ability to make ends meet.
    Why has this occurred? Because fuel prices have increased 
phenomenally since last year's harvest. I called my local 
petroleum distributor yesterday in Livingston County. I asked 
him for a comparison of what the price of gasoline, diesel fuel 
and other products I use were 1 year ago and what they were 
today. The price of gasoline has jumped 64 percent, and the 
price of diesel fuel is up 73 percent for the off-road price 
that I pay for the diesel. That is none of the Federal tax. 
Last year I was able to contract my fuel needs for 69.9 cents a 
gallon. Today, that price is $1.209.
    Most of our equipment runs on diesel. In fact, U.S. 
agriculture uses almost 4 billion gallons of diesel every year. 
Consequently, American farmers will be spending approximately 
$2 billion more to plant and harvest this year's crop. And if 
these higher prices persist, we are going to be looking at 
higher costs for agricultural chemicals, and farm fuels and 
supplies as well. For instance, the cost of anhydrous ammonia, 
one of the most-used fertilizers for corn, is up $50 per ton in 
my area just in the last 5 weeks. This is because of the 
increasing demand for natural gas, from which it is made.
    Farmers are paying through the nose, despite a record in 
energy conservation that we have implemented. By switching to 
more fuel-efficient machinery, adopting conservation practices, 
reducing tillage and becoming smarter about pest management, 
farmers' energy consumption has declined by nearly 30 percent 
since 1978. At the same time, corn yields have increased by 
more than 22 percent. We are doing everything we can, and then 
some, to be environmentally responsible and hold down our 
costs, while maximizing our productivity.
    So let me repeat: There is no one out there with a greater 
stake in reducing energy costs than American farmers, which is 
why we want to be doubly and triply sure that any action that 
Congress takes to address the issue really addresses the real 
    Let me start with what I believe is not one of the 
problems, and that is the Clean Air Reformulated Act program, 
the RFG program that so many of you have been mentioning today. 
Big Oil would have you believe that consumers have been paying 
$2.30 a gallon or more for gasoline in the Midwest because of 
costs of complying with more stringent phase 2 Clean Air 
guidelines that took effect earlier this year, particularly in 
areas of Chicago and Milwaukee where corn-based ethanol is used 
to make cleaner-burning RFG.
    During the summer months, refiners must use a lower 
volatility gas to blend with ethanol to make RFG 2, yes, but 
the lower volatility gasoline costs only slightly more than the 
U.S. Environmental Protection Agency has repeatedly emphasized 
that it should be no more than 5 to 8 cents, as some of the 
opening comments said earlier.
    On the other hand, consider the fact that a gallon of 
ethanol delivered to Chicago-Milwaukee market is currently 
selling for $1.28 to $1.32 a gallon. That is well below the 
current price of gasoline. This means that blending less-
expensive ethanol into gasoline actually reduces the cost of 
finished gasoline. If we were not using ethanol in RFG in 
places like Chicago and Milwaukee, gasoline prices could be 
even higher than they are today.
    But despite the economic and environmental benefits of 
using ethanol in RFG, the EPA hasn't helped us either. Despite 
repeated urgings from ourselves and many others, including the 
Illinois delegation, the agency has failed to make appropriate 
regulatory changes that could reduce the cost of producing 
phase 2 RFG.
    Current EPA rules fail to give ethanol credit for 
significant carbon monoxide reduction benefits. If these 
environmental benefits were fully accounted for, refiners could 
blend ethanol into their RFG much more cheaply and easily. But 
as the rules now stand, there is actually a disincentive to use 
ethanol in RFG.
    Corn growers and ethanol manufacturers long ago geared up 
to meet the demands of the new phase 2 RFG. With 58 facilities 
in 19 States, producers are making ethanol at a rate that 
exceeds 1.6 billion gallons per year. This means the United 
States is using 1.6 billion gallons less of gasoline than we 
otherwise would have, and we could easily make more.
    So from both a price and supply standpoint, you reach the 
inescapable conclusion, ethanol is not the problem, it is the 
    So why have gasoline prices gone so high? No one seems to 
know the answer. But one thing that we do know for sure, 
something smells in the barnyard. And that is why we asked the 
Federal Trade Commission to investigate, and we applaud your 
committee's action of looking into the problem, but the facts 
just don't add up.
    Crude oil prices have leveled off, so they cannot account 
for the recent price rise. The supply of crude is plentiful, at 
least if you believe ExxonMobil's recent statement that the 
company has exceeded 100-percent replacement of its oil and gas 
reserves for the 6th year in a row.
    Meanwhile, oil companies have allowed gasoline inventories 
to drop to alarmingly low levels in many areas. And despite 
having 5 years to prepare for phase 2, refiners failed to build 
adequate supplies of low-volatility gasoline to blend with 
    Ethanol-blended gasoline should be selling for less than 
conventional gasoline. But since April, both RFG and 
conventional gasoline prices have risen at close to the same 
rate, 34 percent and 29 percent respectively.
    So are we looking at price gouging by the oil industry or 
is it a cleverly orchestrated attempt to eliminate RFG 
requirements? I will openly say Big Oil has never liked the RFG 
program and has not been very happy to work with it. My hope is 
that your good work and that of the FTC will get to the bottom 
of the matter.
    Now, I would also hope you use this occasion as a unique 
opportunity to craft a more rational national energy policy, 
one that expands the use of reformulated fuels, such as 
ethanol, and domestic energy sources, such as oil, coal and 
natural gas. By reducing our dangerous dependence on foreign 
oil, we can benefit the environment, while increasing our 
energy security.
    Mr. Chairman and members of the committee, I hope you will 
heed what has been said by the panel today and those that 
follow. I hope you will recognize that ethanol remains the 
answer. It is the only fuel that is made from all-American 
resources, 100-percent renewable, it is clean burning and it 
improves our air quality. And as not mentioned by those 
supportive of MTBE, it does not pollute groundwater. And so I 
hope that all of this will help to improve our national energy 
security, our environment and our economy.
    I thank you for your time, and I would also be pleased to 
answer any questions.
    [The prepared statement of Mr. Wilson follows:]

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    Mr. Burton. Thank you very much, Mr. Wilson. Let me just 
ask a couple of questions. I know you have been here a long 
time, and I really appreciate your patience.
    Let me start with you, Mr. Schneider. Since the gas prices 
have increased, how much more is your company spending for 
transportation per month of all kinds? And you can give me a 
percentage, if you would like, or a dollar amount, either one.
    Mr. Schneider. I don't have a particular number because it 
is sort of a recent phenomenon in Indianapolis that gas prices 
have gone up so high--as of yesterday, $1.84. But I would say 
the simple math, a year ago I believe a newspaper article said 
that we were at 89 to 90 cents a gallon 1 year ago in 
Indianapolis. So if you look at just another dollar per gallon, 
you can look at the math there.
    Mr. Burton. So you are looking at almost double your fuel 
costs right now.
    Mr. Schneider. Absolutely.
    Mr. Burton. You talked about getting fuel surcharges when 
you received shipments. Can you give me an example of how that 
has kicked up the cost of your products.
    Mr. Schneider. Our freight carriers, we use an LTL carrier, 
which means that we don't contract a full truck body out. We 
use one or two skids go out per shipment to different areas. As 
the base rates have also gone up over the last few years, the 
fuel surcharge has gone up, and that has gone up an average of 
10 to 12 percent, which is a direct drop to any profit that we 
have in those----
    Mr. Burton. So it affects the bottom line substantially.
    Mr. Schneider. Absolutely.
    Mr. Burton. Yes.
    How about the rest of you? We will start with you, and go 
right down the line. What kind of an increase have you seen in 
the spending, as far as your transportation costs are per 
    Mr. Hrobuchak. Currently, for the last 2 months, since fuel 
came down 50 cents a gallon, it is approximately up 52 percent. 
But at one time it was up 125 percent in comparison to this 
time last year.
    Mr. Burton. And then when you have that kind of an increase 
and it starts biting into your profits, do you have to consider 
laying off people and that sort of thing?
    Mr. Hrobuchak. Well, no, I have been in the business long 
enough. We aggressively pursue surcharges, like he was saying. 
So our customers, we pursue surcharges several percent, which 
does not nearly accommodate our fuel costs. But what we do is 
redirect our trucks in different fashions, to where we can 
compensate and make money in other areas, something that we 
don't specialize in doing. We just figure out the math in 
different areas.
    Mr. Burton. So you eat part of the costs yourself, and the 
rest you try to pass on to your consumers.
    Mr. Hrobuchak. Right.
    Mr. Burton. Let us say, for instance, it was a person that 
used flour and you were transporting that, and they were making 
bread, the cost of bread naturally would go up, and it would be 
passed on to the consumer.
    Mr. Hrobuchak. Right.
    Mr. Burton. So they can only eat part of the loss 
themselves and the rest is borne through inflationary trends in 
the country.
    Mr. Hrobuchak. Well, out of the 50-percent increase in 
costs, they would be paying roughly 7 percent of that.
    Mr. Burton. How about you?
    Mr. Bailey. I am going to address that in two ways: First, 
in my home, right now we are experiencing about a $200-per-
month increase in fuel use compared to last year, which, you 
know, your house payment, your utilities, those things are set. 
You can't change that. So, basically, you take away from 
necessities, as far as groceries or any sort of entertainment 
or anything like that you might do with the children.
    And the other I wanted to address it is I notice this at my 
work. We use on the average of 3,500 gallons of gas per month. 
The National Electrical Contractors national average is 1.8-
percent profit before taxes, after all expenses. So when you're 
talking on an average of $4,000 more per month and you have to 
recoup that at 1.8 percent before taxes, that is an awful lot 
more work that you have to get and make a profit on just to 
recoup that small amount of money.
    Mr. Burton. Ms. Oberweis.
    Ms. Oberweis. It has cost us about $15,000 a month, and if 
you annualize that out in terms of our net income, that 
represents about 16 percent of our 1999 net. So that is, for 
us, a huge number.
    Mr. Burton. Mr. Wilson.
    Mr. Wilson. My list is a little bit longer than just 
gasoline or diesel fuel. In addition to diesel fuel, which is 
the No. 1 way that I power my equipment, I also use gasoline in 
trucks, and sprayers and things like that. I also use liquid 
propane [LP], a natural gas product, which has gone up about 30 
percent so far. Also, which I mentioned earlier in my 
testimony, anhydrous ammonia is up about $50 a ton, also a 
product of natural gas. And DAP, a dry fertilizer that contains 
nitrogen, is up about $15 a ton. I have a feeling that that is 
going to go substantially higher.
    What I have seen is the energies follow each other. And as 
we have seen higher prices in one particular sector, the others 
seem to follow. And so I am afraid that we are going to see, 
going into the fall and winter season, a lot harder situation.
    Mr. Burton. Thank you. Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman, and I want to thank 
the panel. In deference to trying to get to your statements, I 
forewent an opening statement. So bear with me as I probably 
talk a little more than I question at the moment.
    It took some pains to listen to what you said, and I don't 
dispute anything that any of you said in terms of the impact 
that it is having on you. It is happening in our district. It 
may be a little less extreme to what is happening in the 
Midwest, but we also felt a similar impact with the home 
heating fuel situation last winter and anticipate more problems 
this winter.
    But I looked through the CRS report, and I note that there 
are five reasons for costs going up, according to them: One is 
that 25 cents of the increase is allocated to the pipeline 
difficulties. One pipeline had a leak and one pipeline went on 
fire. Now, certainly the Government and the EPA didn't have 
anything to do with those incidents, and those are costly. Yet 
I don't see those industries taking any of the hit on that. 
Neither of those pipelines and their owners are asking to lower 
their prices or are taking a hit on their profits, but they are 
the ones that caused 25 percent, either through bad operation 
or bad maintenance or maybe it was just bad luck.
    Forty-eight percent of it is because of supply. Crude oil 
costs have increased because supply is down. Again, the 
industry apparently did not do what they should have done in 
anticipation of the situation we are in. Again, they are not 
taking a hit on their profit margin. You all and everybody else 
is taking a hit.
    Two cents to 8 cents is on the EPA regulations, and 
although I know it's fashionable among some to all want to pile 
onto the EPA on this, I think Mr. Wilson has it right when he 
says that, you know, 2 cents to 8 cents is not our problem 
here. It may--and I guess we can talk a little about this, Mr. 
Wilson, as to whether or not ethanol and the fact that it has 
gone up, they say, 25 to 34 cents higher in certain areas like 
Milwaukee and Chicago because they use ethanol as opposed to 
MTBE or something else, and that's a local decision of the 
refiners. It is not government, it's not the EPA that requires 
that, it is the refiners. And, again, they are doing it to 
appease the corn growers, and they are not taking any hit on 
their profits or anything like that. They are passing it along 
to all of you.
    The last category, of course, then is the higher profits. 
The fact that with the supply lower than it is and demand being 
greater, they have jacked up their prices. They are having a 
great time for themselves, and again they are not taking a hit, 
they are passing it along to you.
    So I go back to Mr. Hrobuchak's comment and Mr. Schneider's 
comments, who said, ``Yeah, we need relief and we need it 
now.'' Maybe one suggestion on that is that the States whose 
taxes on gasoline are generally higher than the Federal 
Government, and the Federal Government, each temporarily have a 
moratorium on some of their taxes, and maybe we do something 
about having the companies that are responsible take some 
relief from some of the excess profits that they have got in an 
interim basis, and we spread it around instead of trying to all 
jump on the EPA for what amounts to about 2 to 8 cents. And 
then we can focus on keeping our environment where it ought to 
be and getting some relief here while the FCC--the FCC has some 
impact in taking a look and investigating what is going on with 
these companies that all of a sudden are making miraculous 
profits from everybody else's misfortune, and apparently, their 
ineptitude in a number of different areas.
    Mr. Wilson, just before my time is up, let me ask you: do 
you think the use of ethanol based gasoline is responsible for 
the recent price increases in the Midwest?
    Mr. Wilson. I don't think the production and the usage of 
adding ethanol to the gasoline is at all in the fault. If I 
were to speculate, and I guess let me clarify, as president of 
the Illinois Corn Growers last year, this little farm boy from 
Pike Township found himself in a lot of doorways I never 
thought I would be, all the way from the White House to a lot 
of these types of chambers, to the Chicago City Council, to 
Springfield, to too many hallways in the EPA.
    If I am going to speculate on the situation, we have a 
situation that EPA could have been more responsive to earlier 
on as they implemented phase II. And, the oil companies had 
issues with supply and other things happening. However, let us 
look at the situation we have. The Reformulated Gasoline 
Program is a nationwide program. However, in almost every other 
area, people are screaming to get rid of MTBE, the other oxygen 
additive, because of groundwater contamination. In Chicago, we 
have lowered carbon monoxide levels by 25 percent and we 
haven't polluted 1 gallon of water. And guess what? It is not 
an oil product.
    Is there something going on here that means we have been 
targeted? Is indeed there a problem that has been tried to turn 
into an opportunity to break RFG's back? I am mad at the EPA. I 
am mad at the oil companies, and there is probably some of you 
on the panel I don't agree with either, because the bottom line 
is, a lot of us, everyone sitting on this panel, is feeling the 
pinch, and I think there is enough blame to go around. But 
there is a situation here that, as I said earlier, something 
smells in the barnyard.
    Mr. Tierney. I think it coincides with remarks that I made. 
I think we can point our finger at where some investigation 
needs to be done. And, you know, the companies certainly should 
have anticipated it. EPA should have anticipated it. The 
companies should have anticipated it. And EPA doesn't control 
the supply and what they keep on in their inventories, and that 
is the point that I want to make clear. Those companies knew 
damn well that they were going to have this situation. They 
could have done it at a reasonable price. They had the time to 
put that in here, and instead, they work around and try to jack 
all of you up so you can all get mad at the EPA, when in fact, 
they could have had the supplies on hand, they could have 
prepared for this, and they could have moderated the prices 
down on that, and they could have done a better job in a lot of 
those areas.
    So I want to thank you all for your testimony here today 
and let you know that we should do something about this, but we 
should not direct our attention and our anger in the wrong 
direction, and we should understand that as much as this is a 
free market out there, some people are taking extreme advantage 
of this free market at your expense. Thank you.
    Mr. Burton. Thank you, Mr. Tierney. Mr. Souder.
    Mr. Souder. I thank the chairman, and I wanted to continue 
a little bit with Mr. Wilson on the ethanol question.
    You heard in the opening statement of our distinguished 
ranking minority member, a direct attack on ethanol, which is 
kind of a bipartisan southern California attack on ethanol, 
because it is certainly happening on the Republican side as 
well. And in the CRS report that we were given, part of its 
argument is that the low volatility oxygenate blending is more 
expensive because it is harder to manufacture. Do you know any 
data on that, and is that true?
    Mr. Wilson. Well, now you are getting past where a farmer's 
knowledge is into the situation, although I do have a lot of 
folks that have been helping and assisting keeping me informed.
    From everything that I have been able to see and read, and 
a lot of the same sources that you have had access to, I cannot 
believe that the ethanol is the No. 1 issue. Could the EPA have 
made some adjustments that would have made life easier for the 
oil refineries? Absolutely. They brought phase II gasoline in 
at the maximum level. We encourage them to look at ways--and as 
a matter of fact, the Illinois delegation has offered 
solutions. Illinois EPA Director Skinner has led with some 
alternatives available. Those were refused. And so I think I am 
back to the assessment that ethanol isn't the problem. The two 
or three different choices of how to move forward with 
implementing the next phase of the Clean Air Act has been the 
    Mr. Souder. It is important, if you can communicate too to 
your association, that those of us who are strong supporters of 
ethanol for both energy independence and the question of 
environmental, and happen to also represent agricultural areas, 
which I am sure is just happenstance. But it does. The energy 
independence is ultimately one of our major goals. Those of us 
who are conservatives are concerned that we haven't adequate 
drilling in our country, that we haven't given adequate 
incentives in addition to ethanol. And once you become 
dependent, then you become vulnerable.
    But as we move forward in the ethanol argument, we have to 
be prepared to address this question. In other words, if--I 
understood you to argue that the actual cost of ethanol is less 
than the others, but if its blending adds above that, we kind 
of need to know where that ultimate cost is, because to be able 
to advocate on behalf of ethanol, that is going to be one 
question of this, and part of my understanding from this would 
be is, that is an argument that EPA should have factored in and 
phased in if indeed there wasn't enough production capacity to 
meet that. They could have even done a phase in. It doesn't 
mean the policy was bad, because we are actually trying to 
extend that policy, but it has to be a logical implementation 
status, and we need to know what the cost is so it doesn't have 
these big jumps and will set the whole ethanol campaign 
    The second thing is, as we start to look at this on a 
broader scale, is how do we deal with questions of drought and 
of the cyclical variations in the corn crop, because as we 
become more dependent--could you kind of address that question 
in a broader energy way, and what that could do to prices if we 
become more dependent on ethanol?
    Mr. Wilson. Well, I think what you have to look at is that 
corn-based ethanol is what got us to the dance, but if we are 
going to continue, we are going to have to look at biomass and 
all types of other alternatives, whether it is methane-based or 
other types of biomass ethanol, we need to look at gathering 
more and more alternative sources. Alternative energy sources 
have to be a component of the national energy policy, and I 
firmly believe we need a national energy policy. If you refer 
back to the 1970's when we were 35 percent dependent on foreign 
oil, we are now over 50 percent dependent, and I am not going 
to project how many years it will be, given the current course 
we are running, to where we are going to be close to 60 percent 
dependent. That is not good sense for any of us here.
    Now, we can increase our domestic energy sources, and in my 
testimony I talked about oil and coal and natural gas. Folks 
that, at different times, we have been at each other's throats, 
but the bottom line is we need renewables, we need to lessen 
our foreign dependency, and we need to get on it now, because 
we are on our second run, and I am afraid to think what will 
happen to the next run.
    Mr. Souder. And just as a matter of parochial interest, 
which all of us politicians do, Ms. Oberweis, I do need to say 
that I represent the largest ice cream factory in the United 
States, Edy's, as well as No. 3, Good Humor, which is based out 
of Huntington, Edy's out of Fort Wayne, and so I am sure your 
ice cream is delicious, but we have delicious ice cream as 
    Ms. Oberweis. It is good.
    Mr. Burton. These commercials. Mr. Kanjorski.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    The testimony I have heard so far allows us to jump to the 
conclusion that EPA and their regulation is somewhat 
responsible, and I think I agree with Mr. Wilson that is a 
minimal amount. But in order to extract that from the problem, 
I think, Mr. Hrobuchak, if you could tell a story of when we 
first got together in January and February, EPA regulations at 
the price of diesel and heating oil, had no effect on that, did 
    Mr. Hrobuchak. Absolutely none at all.
    Mr. Kanjorski. Tell this committee and the record what 
happened in January and February, and how the companies spiked 
the prices in the northeastern United States and New England.
    Mr. Hrobuchak. The reason why I am here is because a 
portion of my fleet runs up into the New England area. I do a 
lot of local delivery. Well, that is a local, regional haul for 
me. I do the West Coast. I do the southern. I do the Midwest. I 
am subject to the prices in Chicago as well. And I would come 
to work for--it is in my testimony--about a 10-day period, and 
1 day I came to work, it was up 40 cents a gallon, diesel fuel, 
and I just--over the course of 10 days it was up 78 percent. It 
was actually at $2.25 a gallon, so that was actually a 125 
percent increase. In New England it was as high as $3 a gallon. 
I absolutely forbidded my trucks to buy fuel in New England, 
and would not even go to New England. That is how bad the 
crisis was. And it is more serious than you think.
    I want to just say one more thing that I didn't say before. 
An average driver that owns his own truck makes about $43,000 a 
year, which is 35 cents a mile, OK? Since he is paying 50 
percent more or 52 percent more in operating costs due to fuel, 
that brings his yearly annual income down to $20,000, which is 
16.8 cents a mile that man has to drive. OK? How do you support 
a family on that type of money? And you know, once you are 
accustomed to a lifestyle.
    Mr. Kanjorski. Did we ever get an explanation from the oil 
companies as to what happened in January and February and the 
spikes of those prices?
    Mr. Hrobuchak. I will tell you what, not one gas company, 
not one fueling company, not one refinery, not one pipeline in 
my area ever went dry or closed up or couldn't pump a gallon of 
gas. And I kept track of prices starting in February on 
    Mr. Kanjorski. And I have made a request that FTC do a 
study on that, and we are still awaiting the results in the 
next several weeks, but that is 6 months later. Of course, they 
indicated to me that they are overcome with the merger 
examinations that are a priority to them and because of the cut 
in finances, I dare say. And this isn't political, Mr. 
Chairman. Because we have cut back the amount of money the FTC 
has, they are not able to do the investigations with the speed 
and accuracy that they would like to do.
    But the other problem in your earlier testimony you gave, 
and I am not sure the committee understood what you were 
talking about, in that crisis in January and February, one of 
your competitors had to drive his trucks to Kentucky to get 
them fueled, because the people in Richmond, VA were shipping 
their oil to New England so they could get $3 a gallon.
    Mr. Hrobuchak. The oil parties that were responsible for 
the Mid-Atlantic area at the time were pipelining their oil and 
their fuel up into the New England area because it was such a 
lucrative market. Therefore, the independent truck stops, where 
the truckers go to fuel and take showers and stuff like that, 
these companies had to send their trucks 300 or 400 miles away 
to a different State in order to purchase fuel just to support 
their truck stop.
    Mr. Kanjorski. So, Mr. Chairman, the point I am trying to 
make is that it isn't all or the EPA isn't completely removed 
from some responsibility. We haven't had the testimony of the 
oil and gas companies, and I think they are going to give us 
answers for why they do this and how prices are used to make 
profits, and that is our system, supply and demand driving the 
price to wherever it can go.
    The problem that I see exacerbated by all five witnesses 
here today is that they seem to lean on the side of not 
desiring the Federal Government to get involved in their lives 
any more than they are. And I am just wondering whether or not 
you have all given it some thought. If we don't do anything, 
the market is setting what is happening in chicago and what 
happened in New England in January. One of my colleagues said 
we have the capacity to increase the supply or the capacity to 
reduce the demand. And I don't know how that is done in the 
United States with the economy as strong as it is, how we are 
going to encourage people to drive less. We have a third 
alternative. And that is we can discourage spiking, as some 
people define as gouging, by making the oil companies pay a 
windfall or excess profit tax. They don't have to go for the 
$1.50 profit a gallon. But that takes governmental action. And 
Mr. Schneider, I go to you because I listened to your 
testimony. If you really don't want us involved, we probably 
shouldn't have had you come all this distance, because the 
government is not in the business of providing oil or 
petroleum. We deregulated, to a large extent over the last 10, 
15 years, what regulation and capacity we did have to affect 
the marketplace. I don't think any of us want to assume it any 
more. But I do have to be honest with you. We probably, 
philosophically, disagree to an extent, but there is a role 
sometime for government in our society, when individuals such 
as yourself, or Mr. Bailey who has to spend $90 a week for 
fuel, you have nowhere else to look, and if you say you don't 
want government regulation and you want us totally off your 
back and you want free market operation, then you are voting 
for what happened in Chicago, and you are voting for what 
happened in New England in January. And unless we find a 
balance--and I think the answer is a balance, is Mr. Wilson's 
answer--and you are talking about alternative fuels, new 
supplies, more efficient cars.
    I will point one thing out for the committee, Mr. Chairman. 
I have been working in the fuel cell business for several years 
now and encouraging that. It is a tremendous alternative. But, 
you know, so that the committee is alert, and when it happens 
we don't act like we were blind, deaf or dumb, the oil and 
petroleum industry today in the United States is instrumentally 
working very hard to be certain that the fuel used and the fuel 
cell in this country is only a petroleum product so that they 
will not lose their market or their profit.
    And I think that is what Mr. Wilson was talking about. The 
reason they spiked Chicago is they were going to do two things: 
make more money, but discourage the ethanol use because they 
don't control ethanol from corn. They wanted the gasoline to be 
refrained with the product that they controlled and gained a 
profit on. Is that what you were saying, Mr. Wilson?
    Mr. Wilson. That is one of the scenarios that could be 
painted, yes.
    Mr. Burton. Thank you, Mr. Kanjorski.
    Mr. Kanjorski. Mr. Chairman, just--I didn't make my formal 
opening statement, so I ask unanimous consent that it be 
entered in the record. I know Mr. Hrobuchak has a file that he 
has prepared that is quite extensive, and I would ask unanimous 
consent that his file be made part of the record.
    Mr. Burton. Without objection, so ordered.
    [The prepared statement of Hon. Paul E. Kanjorski follows:]

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    Mr. Schneider. Mr. Chairman, if I could just respond to 
what the Congressman was saying. I guess in your previous 
remark, if I remember it correctly, I am here because I 
advocate a free market economy, and I advocate the least amount 
of government control as possible, and I make no bones about 
that. That is why I am here, and I appreciate the chairman for 
asking me to address you all.
    All things being equal, your statement would be correct, 
but if you are going to have a free market, and you are going 
to have the market forces dictate price, it can be a one-sided 
deal where you have government interfering in environmental 
policy and regulations which affect from the top down, all the 
way to the job or to the convenience store, or to the guy that 
pumps the gas. All things being equal, yeah, you are probably 
right, but we are not--the prices are--especially in Indiana, 
when you have one county that is in the ozone non-attainment 
area and one county that is not, and the prices are 30 cents 
higher, there is only one explanation in my mind.
    Mr. Kanjorski. No, no. And I am glad you brought it up. 
There is another explanation. Mr. Schneider--and I think Mr. 
Wilson may have referred to it. Look, we can pay now or we can 
pay later. We can do away with any guide as to what kind of 
gasoline or what kind of pollution pours into the air or goes 
into our water. I happen to agree with my friend from Indiana 
and his side, I think ethanol is a very smart choice to add to 
gasoline instead of the chemical they are adding. The things I 
am reading about the additive, we are going to have clean air, 
but we are going to have awful damn dirty water, and spend a 
fortune somewhere down the road when we start finding out how 
many cancers get caused by whatever that pollutant will be in 
the water.
    So, you know, we are not magical. We use jurisdictional 
lines that are false, but if you are living in a containment 
area, and if we don't try to bring that into a reasonable 
ability to breathe oxygen, we are going to pay the expense out 
in medical care in the future, in limited capacity to produce 
in the future, in all kinds of things that we can't even 
    Mr. Burton. The gentleman's time has expired, and we could 
get into a long discussion about this, and I might even be 
tempted to get involved myself, but we will let that pass right 
    Mr. LaTourette.
    Mr. LaTourette. Mr. Chairman, I don't have any questions of 
this panel other than to thank them for----
    Mr. Burton. Would the gentleman yield to me for just a 
    Mr. LaTourette. Be happy to yield.
    Mr. Burton. One of the things that we have not talked about 
and I mentioned in my opening statement was we have a 500-year 
supply of natural gas, and with a attachment to our gas line at 
home and a chance in our cars, we could fill up our cars right 
out of our own gas line at night for about one-third the cost 
of gasoline. The problem is we have a petroleum monopoly in 
this country, and we ought to look at these alternative 
sources. And I think Democrats and Republicans alike ought to 
look at natural gas as a possibility of being used for motor 
transportation in this country, because all of these people 
right here, if they use natural gas, could cut their costs, all 
things being equal, by probably at least half, and maybe more 
than that. And so we need to look at natural gas an alternative 
to the regular gasoline that we use.
    Mr. LaTourette. If I can reclaim my time, then I am going 
to yield it to Mrs. Morella. But when we were briefed by the 
Energy Information Administration, they indicated that the 
price of natural gas is going up, and one of the problems that 
we are going to have is that now the refiners are going to have 
to make a choice between RFG, regular gasoline, making 
distillate fuels or building up stocks for the home heating oil 
season, or we are going to have a repeat of exactly what we had 
last summer that Mr. Hrobuchak was talking about again. And so 
this is a big mess that needs a fix. I promised Mrs. Morella.
    Mr. Burton. Before you yield, let me just say this: the 
natural gas though has so few contaminants to the environment, 
that you wouldn't run the risk of the things you are talking 
about if we used that more.
    Mr. Kanjorski. Mr. Chairman, could I add----
    Mr. LaTourette. I promised Mrs. Morella. If she has a few 
seconds, she can give it to my good friend from Pennsylvania.
    Mrs. Morella. If the good friend from Pennsylvania only 
needs maybe a half a minute?
    Mr. Kanjorski. I think the chairman said something very 
important that may make us more sensible----
    Mrs. Morella. I yield to you, sir.
    Mr. Kanjorski. I would like to join the chairman, and make 
sure that the future fuels of America and the world are not 
monopolized, and I think give these alternatives. And I think 
you are coming close to the solutions, one of the solutions 
that Mr. Wilson. So as a Democrat, I will join you, Mr. Burton.
    Mrs. Morella. Splendid, and I thank Mr. LaTourette for 
yielding time to me, because I really want to thank you for 
being here. You have waited a long time, you have traveled a 
distance. You all have personal experiences that you shared 
with us.
    Now, when you go back, you are probably going to be asked 
about what happened in Congress with those members, what did 
they ask you? What is it you want us to remember from what you 
said? We want to learn from you. We are going to have the 
Secretary of Energy appearing after you, and we are going to 
have the EPA Director. Maybe something you want us to ask them, 
or is there one thing you would like us as Members of Congress 
to remember, and maybe we could do that kind of quickly, 
starting with Mr. Schneider.
    Mr. Schneider. Thank you very much. I did touch on this in 
my opening statement, but if business--and I am sure Mr. 
Kanjorski would disagree with me, but if business is given the 
opportunity to operate without regulation and restriction, I 
believe that you would see an economy that would boom even 
faster than what it is now. And if there is one thing that I 
could ask you to say, would be just to ease off on the 
regulations, give us an opportunity to freely exercise our 
talents and make a profit, because there is nothing wrong with 
profit and there is nothing wrong with a profit motive. Thank 
    Mrs. Morella. Thank you.
    Mr. Hrobuchak. Thank you. I still want to make one point 
very clear. I am concerned about jobs, and I am concerned about 
my people and our State making money and then the United States 
making money. And at the present rate, because of the fuel 
situation, people cannot survive on a $20,000 income and work 
80 hours a week. OK? And I just need to know that--or let Mr. 
Richardson to know that people that were making 40,000 to 
$43,000 last year are making $20,000 this year and still 
working just as hard.
    Mrs. Morella. That he should step up to it and do something 
in terms of whether it is a concerted energy policy, strategic 
petroleum reserve, OPEC nations responding, laying off 
regulations. Have you, your employees, been able to see any 
significant benefits at the pump from the recent decrease in 
wholesale gasoline prices over the past week?
    Mr. Hrobuchak. No. Our costs are still up 52 percent. Like 
I said, they were up 125 percent initially in January, and you 
know, I don't care if Mr. Richardson pulls it out of his hat. 
You know, we need to get the oil from somewhere, because 
without the trucking industry in America, a lot of things won't 
happen in this country, and that is, No. 1, putting food on our 
tables, and that is what I do best.
    Mrs. Morella. Thank you. Mr. Bailey.
    Mr. Bailey. Just need to remember that this fuel cost is 
affecting the foundation of America, and that is us citizens, 
and for every person out there like myself and my family, there 
is 1,000 more that aren't speaking up, that maybe you are not 
hearing, but we are, and that just goes to show by the contacts 
that I have had----
    Mrs. Morella. That something needs to be done is what you 
are saying.
    Mr. Bailey. Absolutely.
    Mrs. Morella. Ms. Oberweis.
    Ms. Oberweis. I am very intrigued by a lot of the long-
range thoughts and ideas that have been shared in terms of 
alternative fuels, but I think that what we are dealing with 
right now is a crisis, and a crisis doesn't need a long-term 
solution, it needs a solution immediately.
    The one thing that I guess I would like to have you go away 
with is if there is an implementation of any sort of program 
that causes total chaos, back off. Allow the chaos to settle 
down. You can reimplement at a later date. But when I see an 
implementation, and from my view the EPA's implementation has 
affected gas prices, that has contributed certainly to total 
chaos, and we can't control--government can't control the oil 
industry, but they certainly can control our own organizations, 
and that is when I would ask back off, allow it to settle, and 
then let us look at it again.
    Mrs. Morella. And finally Mr. Wilson.
    Mr. Wilson. A couple of points. One thing that I would like 
to point out, when I said 5 to 8 cents more for using ethanol-
blended reformulated gasoline, that includes the ethanol 
component. So that does not, in my mind, add to the other cost.
    We talk about the RFG program. I live in a nonattainment 
area. Yet as I look at my gasoline prices for bulk delivery, 
I'm looking at $1.95 for unleaded, I am looking at $1.94 for 
unleaded with ethanol, and I am looking at $2.09 delivered to 
my farm for premium gasoline. I already talked to you about the 
rise we have seen in diesel fuel prices. RFG is what is taking 
the brunt because that is where it seems to be the most out of 
whack, and indeed it is.
    There is a bigger issue here, and the gentleman from 
Pennsylvania and Ohio said that they did not share the same 
problems, but yet they suffer the same situation. And so I 
think we need to look long and hard at what is going on. I am 
tired, not only from the fuel and energy crisis, I am tired 
from regulatory efforts that I am polluting the water, and 
other issues I can't even begin to go into. It seems like we 
farmers have been under attack for a long time. The bottom line 
is we produce food, we produce energy, we produce it better and 
cheaper than anyone else in the world. We have been able to 
lower your share of what you spend on food from 17 percent down 
to about 12 percent.
    And quite honestly, I am getting tired of getting kicked 
around on every issue that comes up. That something we produce 
is renewable, and positive and helpful to this economy--in 
Illinois, where agriculture is our No. 1 industry, and I think 
that everyone needs to stop and think about what is happening. 
It should not be taken for granted because if you want it grown 
in South America, if you want it grown in the European Union, 
you are not too many steps away from taking a lot more farmers 
out with situations like this.
    Mrs. Morella. Thank you, Mr. Wilson; thank you, panel; 
thank you Mr. LaTourette; thank you, Mr. Chairman. It was an 
excess of time I took.
    Mr. Burton. That is all right. Thank you.
    Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman. I really want to 
thank the panel very much, the Illinois representatives. I 
appreciate it. Mr. Wilson, I really appreciate your testimony, 
the contributions that your products have made to helping clean 
our air, and hopefully the rest of the Nation as well.
    I welcome the suggestion of the chairman, that Democrats 
and Republicans work together to find alternative fuels that 
can provide a reliable source of energy, and hopefully cleaner 
energy. And we would just like to point out to Mr. Schneider 
that that kind of suggestion is the kind of ways that 
Government can work in a very positive way. I am really 
disturbed by that image of yours of having to drag along the 
business, and enterprise has to drag along Government 
regulations. And I am sure that there are some things in your 
business that Government has provided that actually help you, I 
am sure, if you looked hard enough, even the roads that you 
drive on.
    I, also, just wanted to tell you, as the mother of a son 
that has had breathing problems, I really appreciate 
regulations that help him breathe easier, and just as an aside, 
the oil companies have opposed waiving the phase 2 regulations 
at this point and feel that it would add to the chaos, if that 
is even an appropriate word; that it would make things more 
difficult if, at this point, the phase 2 regulations were 
    But most of all, I just want to thank you for your 
testimony, your contribution to this debate and for coming here 
today and being so patient.
    Thank you.
    Mr. Burton. Thank you, Ms. Schakowsky.
    Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman. I have a statement I 
would like to have entered in the record.
    Mr. Burton. Without objection, so ordered.
    Mr. Walden. Mr. Wilson, I wanted to followup on something 
you said. I come from a very rural agrarian district out in 
Oregon. Our gas prices in the West Coast did this blip months 
ahead of the rest of the country, and we have had serious 
concerns. But the comment I wanted to followup earlier today, I 
was in a hearing involving the EPA and USDA on TMDLs, which I 
know are certainly an issue that farmers must be facing, and I 
am sympathetic to the, as a small business owner myself, 
problems that we face from overzealous regulation. It is not 
common-sense regulation, it is the overzealous regulation I 
think you were referring to, wasn't it?
    Mr. Wilson. Yes. If you look at my bio, I have a very 
diverse background. I have been involved in environmental 
projects. I am currently the president of the Illinois Council 
on Best Management Practices. I have been involved in the 
Mackinaw River projects, Vermillion River project and other 
    I am the first point--my family is the first point of 
exposure to what I do on my farm. I do not want to contaminate 
anyone. However, there is a balance between environmental 
concern and economic understanding. And I think the old saying, 
I had a friend that said a pendulum never stops in the middle, 
it swings from one extreme to the other. And I think part of 
what has caused some of our problems is the pendulum swinging 
to where we have lost the ability to do more with domestic 
energy. And I think that goes ways, from the development of 
renewables to further implementing more of the energy that we 
have available to us, that perhaps hasn't been as readily 
available as it could have been. We have been willing to move 
it to other countries, and we have been willing to subsidize 
that dependency, both in dollars and in lives to defend an area 
that supplies us a lot of our energy.
    Mr. Walden. As we meet here today, there is a forum going 
on elsewhere in this very building on renewable energy 
alternatives that are out there.
    Congressman Mark Udall and I chair the Renewable Energy 
Caucus. And I think what we need to do is make these renewable 
energy opportunities, whether it is wind or geothermal or 
natural gas or, well, the other ones, the fuel cells, things of 
that nature far more a part of a comprehensive energy plan for 
this country. And it seems like I think we all share a little 
blame in getting complacent in between energy crises. We kind 
of get over the hump, the prices go down, we think we have 
resolved it. And it is unfortunate that we wait until we are 
all caught in a squeeze again, where family budgets are 
dramatically impacted, small businesses are hit hard, farmers 
and ranchers are really crunched, before we take a look at a 
comprehensive policy.
    I know the Secretary of Energy even said, is quoted as 
saying the administration has been asleep at the wheel on this 
one. And I am not being critical of him. I think he is right. 
But I think perhaps we all share in that, to the extent that we 
can have a positive step forward here to say, ``OK. How do we 
deal with the emergency that is before us, as it affects our 
economy?'' I think we need to be much tougher on the OPEC 
nations if we are going to spill blood to defend some of them. 
I think we need to figure out why we are unable to use the WTO 
process to get at price fixing. That is what they do, and that 
is not right.
    So I appreciate all of your testimony, and I am very 
sympathetic with what you have brought with us today, and 
hopefully we can be of help.
    Thank you, Mr. Chairman.
    Mr. Burton. Mrs. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman. I, too, would like 
to thank everyone for their testimony. It is a lot longer panel 
or questioning than we thought because you have such 
interesting testimony.
    I would like to ask just one question of Mr. Wilson. And I 
know ethanol is so important to the State of Illinois. In fact, 
I think it is about 15 percent of our corn production goes to 
ethanol, and certainly that has been very important. But I am 
concerned about something that you said. It made it seem like 
ethanol, the reformulated phase 2, was a question of just 5 to 
8 cents, and that is an estimate by the EPA.
    But the CRS Report, which is really a bipartisan study, it 
is an independent study, says that it can be roughly estimated 
that about 48 percent of the current price is due to the higher 
crude oil costs in the region of Chicago-Milwaukee. Another 25 
cents of the regional cost is due to transportation 
difficulties, and that was the breakdown of a couple of the 
pipelines, the cost of actually putting a reformulated gas into 
the pipeline because of the difference. You know, in Illinois, 
we have 12 or 16 different types of gasoline coming to 
different areas, four zones where there are different costs. 
And then another 25 cents could be due to the unique RFG 
    I don't think, and I would like to know if you agree with 
me, but that the cost of ethanol is not the problem. It is the 
cost of the uniqueness of the blend that we have to put in 
because of the RFG phase 2. It is much more costly. And there 
is also a patent from Unocal that really can make most of that 
gas, and a lot of the refiners would like to go around that 
patent so that they have to make a very expensive blend.
    So I don't know. I would hate to have it just that it is 5 
to 8 cents, when somebody else has said that it is 25 cents. 
And I think that we have asked, the Illinois delegation, has 
asked the EPA to really take a look at this and then report 
back to us by yesterday. And we have not heard anything back 
from them, and so I intend to ask them about that today.
    Mr. Wilson. One thing I would point out about the report, I 
have read it as well, in the beginning of their report they 
talk about that this is an estimation. They did not have time 
to study the problem and do analysis. In the past year, I have 
talked with USDA, Department of Energy, the U.S. EPA and others 
along that line. They have taken more time to do an analysis. I 
would tend to feel that their analysis is a little bit more 
accurate than the analysis done here. I am not discrediting 
those folks. There are problems in how the prices have spiked.
    But if I go on the basis of who has had time to analyze it, 
because a lot of these agencies have been looking at the 
problem for over a year, they perhaps maybe have a better 
handle, and as you are very much aware, as is the rest of the 
Illinois delegation. We have all been at their doorstep.
    Mrs. Biggert. Well, we have asked them for a year, and 
actually had a hearing in Springfield last year to request that 
this be done. And the Illinois EPA actually recommended that 
study. So I am not sure that that study has been done.
    Mr. Wilson. Right.
    Mrs. Biggert. And that is why we recommended that there 
either be the waiver, because they had not come up with whether 
we could have a carbon monoxide credit, which then would have 
solved some of this problem and not had that definite spike on 
June 1st. But I just wanted to clarify that.
    Mr. Wilson. In my opinion, EPA knew they were taking a risk 
by pushing the way that they did. The oil companies knew they 
had a problem, but they also were taking a risk. I used the 
analogy over a year ago in March, they are rolling the dice 
with our economic future and----
    Mrs. Biggert. Well, how could the refineries make that 
product until June 1st, when they had to, since it is more 
expensive to do? Wouldn't they want to keep the RFG phase 1 
until June 1st, and then they have to provide for it. But to do 
it ahead of time and store it I don't think was a good idea.
    Mr. Wilson. I think there have been supply issues. I think 
the pipeline has added dramatically to that. I flew out of St. 
Louis this morning. When I drove into town last night, that is 
an RFG city, it was $1.54.
    Mrs. Biggert. And that is because they have had a waiver 
from the EPA.
    Mr. Wilson. I think the waiver expired June 12th, unless it 
was extended, though. I think there is a knot in the system, 
and I am hoping that supplies will improve. The last thing I 
will reiterate is that the reformulated gasoline program has 
helped improve air quality, and it has done it in a way that 
has not been dramatically costly until now.
    Mrs. Biggert. Absolutely. It is has been very good for 
    Mr. Wilson. And I think there are several ways to look at a 
    Mrs. Biggert. Thank you.
    Thank you, Mr. Chairman.
    Mr. Burton. Well, as you can hear from all of these buzzes, 
that we have at least one vote, and probably a series of votes, 
on the floor. I don't believe, Mrs. Maloney, do you have any 
other questions or anything?
    Mrs. Maloney. No, I don't.
    Mr. Burton. We are going to go vote right now. And then 
when we return, after the series of votes, we will go with our 
second panel.
    I want to thank all of you very much. You have put a human 
face on the problems, and I can assure you that we are going to 
do everything we can to help resolve them. Thank you very much.
    We stand in recess until the fall of the gavel.
    Mr. Burton. The committee will reconvene. And if we could 
get our guests to come to the table, we will try to get 
    Here is the way we are going to work this because of the 
time constraints. The guests, witnesses will be sworn. Then we 
will go, according to the rules that were established earlier 
today, the majority has 30 minutes on our side.
    Mrs. Biggert will be recognized for 10 minutes, then Mr. 
Ryan will be recognized for 10 minutes, and then Mr. LaTourette 
will be recognized for 10 minutes, and then we will go to the 
minority. And we may be able to expedite this in a quick way if 
we get to the questions and get them answered.
    So with that, would the three of you please stand and raise 
your right hands.
    [Witnesses sworn.]


    Mr. Burton. Please be seated. And I ask unanimous consent 
that your statements be submitted for the record. And I would 
also like to ask you, if we send you written questions, if you 
can respond to those if we don't get to them tonight. Thank 
    [The prepared statements of Mr. Richardson, Ms. Browner and 
Mr. Pitofsky follow:]























    Mr. Burton. Mrs. Biggert, you are recognized for 10 
    Mrs. Biggert. Thank you, Mr. Chairman. I guess we probably 
picked the worst day in the last month or something with this 
commotion. So we are really sorry to keep you waiting and that 
we don't really get to hear your testimony.
    But first of all, I have a question for Mr. Pitofsky. The 
FTC has launched a formal investigation into the retail prices 
in Chicago and Milwaukee. And I am from Illinois, so I have a 
lot of concern about what is happening in the nonattainment 
area that I am in. So certainly the gasoline prices have 
surpassed the $2-per-gallon.
    Am I correct in understanding that your investigation will 
focus on the allegations of collusion or price fixing involving 
the oil and gas products?
    Mr. Pitofsky. Yes.
    Mrs. Biggert. And I also understand that the FTC's Bureau 
of Competition already has been conducting a long-term probe 
into price-fixing by California refiners.
    Mr. Pitofsky. We have looked at California gas prices, yes.
    Mrs. Biggert. What events instigated that probe in 
    Mr. Pitofsky. In California, it really grew out of our 
investigation of some mergers that had an impact on the West 
Coast market.
    Second, we were aware of the fact that prices on the West 
Coast were higher at that time than in any other part of the 
country. That's no longer true, but that was true at that time. 
And then there were some----
    Mrs. Biggert. Yes. I guess, we--excuse me. Go ahead.
    Mr. Pitofsky. And then there were some practices that were 
called to our attention that we thought deserved to be 
    Mrs. Biggert. What is the status of the California 
    Mr. Pitofsky. It is ongoing.
    Mrs. Biggert. Are there differences between that 
investigation and the investigation that will be conducted in 
the Midwest?
    Mr. Pitofsky. I think so. The reason we are looking at the 
Midwest is because of a very substantial sharp spike in prices. 
That is a specific event that we are examining, and we will try 
to find out why it is happening.
    In California, or not just California, but the West Coast, 
you have had a long-term elevated level of gasoline prices 
that, in many ways, is more complicated and more difficult to 
    Mrs. Biggert. How does your investigation then differ from 
the EPA or the DOE or groups like the Congressional Research 
    Mr. Pitofsky. I think there's a great deal of overlap in 
what we would examine, but we're doing it with compulsory 
process, subpoenas, and we are focusing on whether or not a 
possible explanation for this price spike is illegal behavior 
under the antitrust laws.
    Mrs. Biggert. Are you able to share information obtained in 
your investigation with the EPA or with the DOE?
    Mr. Pitofsky. Yes, we will be able to share information.
    Mrs. Biggert. And are they sharing information with you?
    Mr. Pitofsky. They certainly have been.
    Mrs. Biggert. If there is evidence of price gouging or 
collusion or if that was happening, why would an industry raise 
such a dramatic amount rather than maybe saying 2 cents across 
the Nation, which might go a little bit less unnoticed than 50 
cents a gallon in the Midwest, which has caused such a 
    Mr. Pitofsky. I don't know why anyone would do that.
    Mrs. Biggert. I hope you find out.
    Mr. Pitofsky. And I hope we can find out promptly as well.
    Mrs. Biggert. In your testimony, or in the record now that 
you put into the record, you state that one of the possible 
causes for high gas prices in Chicago-Milwaukee is that the 
ethanol-based RFG use in those cities is supposedly the most 
difficult to make.
    Mr. Pitofsky. People have said that. I don't know that that 
is true, but we will look at that question.
    Mrs. Biggert. OK. So you haven't found that to be true or 
gotten that far yet.
    Mr. Pitofsky. We are very early in this investigation.
    Mrs. Biggert. You said people have said that. What is the 
source of that information?
    Mr. Pitofsky. Mostly published reports from people who 
speak for the industry have talked about the difficulty of 
including this ingredient in the reformulated gasoline.
    Mrs. Biggert. And then in St. Louis and Louisville, who 
also use ethanol in the RFG, from what I understand, the prices 
are not as high in those cities. How would you account for the 
    Mr. Pitofsky. Well, it's a very important aspect of any 
investigation to compare one area to another. I am not going to 
try to account for the difference today. What we are going to 
ask is for the companies to try to help us understand why it 
should be that prices are 30, 40, and 50 cents higher in 
Chicago and Milwaukee and not in these other places.
    Mrs. Biggert. How long do you expect your investigation to 
    Mr. Pitofsky. I don't know. What I have committed to is an 
interim report, a status report, before the end of July. I 
doubt very much that in that short period of time, we can come 
up with all of the answers to all of these questions. But we 
will be able to report on what we found to that point. And I 
think then we can perhaps make a commitment as to how long the 
investigation will take.
    Mrs. Biggert. Well, so much of the concern in the Chicago-
Milwaukee area is immediate. Will your investigation be able to 
address these problems and have then a long-lasting impact on 
the current price of gasoline?
    Mr. Pitofsky. Let me repeat what I have said to several 
delegations. Antitrust is not a quick fix. We don't have the 
authority to roll back prices. We don't have the authority to 
take steps that would immediately adjust these problems. We 
will investigate, we will try to do it in a thorough, fair and 
objective way. I don't think--well, you know, one consequence 
of the investigation is, perhaps coincidentally, prices have 
begun to come down. I am not saying that's the reason.
    But as far as a final judgment as to why this is happening, 
which is what we're about, we're going to do it thoroughly, and 
carefully. I realize people want an answer quickly. But I think 
a rush to judgment on an issue as complicated as this would not 
be a good idea.
    Mrs. Biggert. Thank you.
    Ms. Browner, have you formally denied the Illinois and 
Wisconsin waivers from the RFG program?
    Ms. Browner. We have not made any decision on the waiver 
requests. There are two different requests, as I am sure you 
are aware. Your Governor has requested that you go back to the 
phase I RFG Program. There is none of that currently being 
produced. Governor Thompson has asked to go to conventional 
gasoline. We have left all options on the table. As I shared 
with you in the Illinois delegation meeting, there are concerns 
at this point in time that you could cause disruptions in the 
conventional gas market.
    And while we are seeing the wholesale price, very dramatic 
drop in wholesale price in Chicago and Milwaukee in the cleaner 
gasoline, I think the real question right now is. why is it not 
being immediately passed on to the consumers, and that is 
certainly the question that we think the oil companies should 
answer, and that is why we welcome the FTC investigation.
    Mrs. Biggert. Twenty members of the Illinois delegation 
sent you a letter at the beginning of--I think it was June 6th, 
and we requested a response from you by June 27th, and that was 
    Ms. Browner. OK.
    Mrs. Biggert. And I have still not seen your response to 
the Illinois delegation. This was about the situation in 
Illinois. And I would like to know why the EPA formally has not 
responded to the----
    Ms. Browner. We will certainly get you a response, and I 
apologize if we have been tardy. We will certainly get you a 
response. You are entitled to a response, absolutely.
    Mrs. Biggert. And you have an answer for the questions that 
we have asked?
    Ms. Browner. We will answer your questions to the best of 
our ability.
    Mrs. Biggert. OK. Just to go back to the waivers and the 
tax credit, which I think is--I'm sorry--the credit came from 
    Ms. Browner. OK.
    Mrs. Biggert. The role of ethanol in the phase II and work 
on the carbon monoxide credit, you know, the Illinois 
delegation did have meetings and has been concerned for the 
past year that the new regulations would severely impact the 
price of gasoline in Illinois. When did you start looking into 
this situation?
    Ms. Browner. Well, the issue of the carbon monoxide credit 
or the RVP, the read-vapor pressure adjustment, is something 
that we--as I think you are well aware--have been working on 
for a while. The National Academy of Sciences has also looked 
at the issue. As far as your own State environmental agency has 
provided us with several proposals and thoughts on it. We have 
always indicated that we would make a proposal on a read-vapor 
pressure adjustment, RVP adjustment, once we have been able to 
take into account all of that information. Illinois' 
information did come in somewhat later in the process in the 
National Academy of Sciences, but here I think that the point 
that I would ask you to be aware of, within the next several 
days, certainly by early next week, we will issue that 
proposal. We will then begin a public comment period. No one 
has ever suggested that an adjustment in this pressure, given 
the constituencies of ethanol would have a price impact beyond 
a penny. It may not even be that much, but we certainly 
recognize that ethanol brings with it environmental benefit 
that does have a lower toxic, that has lower carbon monoxide, 
and therefore, that some amount of adjustment to the read-vapor 
pressure may be appropriate, and we do intend to issue a 
proposal in the next several days and take comment on that.
    Mr. Burton. Mrs. Biggert, can we come back to you?
    Mrs. Biggert. Yes.
    Mr. Burton. We need to yield to Mr. LaTourette now for his 
10 minutes.
    Mrs. Biggert. Thank you.
    Mr. LaTourette. Thank you, Mr. Chairman.
    Chairman Pitofsky, if I could start with you for a few 
minutes, there has been a good deal of discussion about how it 
is that this antitrust, anti-competitive pricing thing came to 
your attention. Do you recall who it is that first requested 
that you look into the issue of price gouging relative to the 
major oil companies in the United States and the Midwest?
    Mr. Pitofsky. It first came to our attention because we 
read the newspaper just like everybody else, and we see what is 
going on. My recollection is that the first request for an 
investigation came from Chairman Hyde.
    Mr. LaTourette. And was that also Mr. Sensenbrenner, was he 
associated with that as well?
    Mr. Pitofsky. Yes, it was a joint request.
    Mr. LaTourette. And that would have been maybe 3 weeks ago 
Friday more or less?
    Mr. Pitofsky. It would have been, yes, the 7th of this 
month, as I recall.
    Mr. LaTourette. OK. Now, as you go down the path of 
collecting information and determining whether or not there is 
gouging or a violation of the antitrust laws, would you maybe 
just enlighten the committee in terms of what the difference is 
in terms of your understanding between price gouging and 
perhaps a company taking advantage of a supply and demand 
    Mr. Pitofsky. Yes, I would like to do that, because 
actually, we bypassed that issue several times during the day. 
Conspiracy, agreement, collusion, to fix prices or curtain 
output is illegal behavior. It is a violation of the antitrust 
laws, and it opens up companies to all sorts of fairly tough 
remedies. Price gouging, as to which there is really no precise 
definition of it in the law, but I take it to mean taking 
advantage, being opportunistic, perhaps overreaching on behalf 
of the seller. That may be very unattractive behavior, but I do 
not take that to be a violation of law. I do think, however, in 
a situation like this, that people who are paying these higher 
prices have a right to know whether or not there is either 
collusion or price gouging, and we will look into both.
    Mr. LaTourette. I agree with you, and I made the 
observation--you weren't here during my opening remarks--you 
may find price gouging, but we couldn't figure out in Ohio how 
come our prices went up, and we don't have this RFG-2 
requirement, and the speculation is that the people that are in 
the oil business could sell it for $2.20 in Chicago and $1.60 
in Ohio, and they took it all to Chicago because they could 
make 60 cents more per gallon. And I guess that some people 
call it the American way, some people would call it something 
else I suppose.
    Secretary Richardson, welcome to you. We had a briefing, 
the Ohio delegation, from the Energy Information 
Administration, which is part of your department, and I want to 
commend you on their work, and you should give them all a 
raise, because they really did a great job of bringing a number 
of us up to speed on what to many of us was a foreign issue.
    But I would like to ask you and Administrator Browner a 
couple questions about two situations in the Midwest, St. 
Louis, and then the Chicago/Wisconsin situation. And it is my 
understanding--and Madam Administrator, I will start with you--
that I think you have testified before that perhaps you don't 
have the ability to offer a waiver of the Clean Air Act, but 
you do have the ability to offer enforcement discretion on a 
limited basis.
    Ms. Browner. No, actually, the rules that were adopted in 
1993 as part of the Reformulated Gas Program, the negotiated 
rulemaking, does include provisions for a waiver. It lays out 
standards for a waiver.
    Mr. LaTourette. It is my understanding that you didn't 
grant a waiver for St. Louis; you granted something called 
enforcement discretion relief though; is that right?
    Ms. Browner. I am happy to explain what we did in St. Louis 
if you would like.
    Mr. LaTourette. I would be happy to hear it.
    Ms. Browner. The situation in St. Louis arose when they 
had, I think, three of their six tanks or terminals that supply 
the city, literally go empty. And in essence, what we did there 
was allow them to delay the start of the program, of the clean 
gas program, I think by 5 or 6 days. The mechanism we used, 
because it is, for that particular situation, being the best, 
was enforcement discretion. That was because the pipeline that 
serves St. Louis had had a problem in it. St. Louis gets about 
70 percent of their fuel from that pipeline. Chicago, Milwaukee 
get something like 15 to 17 percent of their fuel from the 
pipeline. It is a very, very different situation. But we do 
have both enforcement discretion, and we do lay out in the 
rules a waiver provision.
    Mr. LaTourette. That was my understanding, and in the St. 
Louis situation there was a pipeline difficulty with the 
Explorer Pipeline, one. But, two, I also understood that your 
agency relied on Secretary Richardson's agency to determine 
what gas stocks and inventories might be available in an area 
based upon what was going on with pipelines and other factors. 
Is that also accurate?
    Ms. Browner. We looked both to the Department of Energy, we 
worked with the State. I think--did we have inspectors in the 
field? We do have inspectors that can visit these facilities. 
We may have used our own inspectors. We certainly have used 
them in the Chicago/Milwaukee situation. I would be happy to 
explain to you all of the resources we used in making that 
    Mr. LaTourette. Whatever resources were used though, a 
decision was made that there was going to be a problem in St. 
Louis about April 1st, I guess, was the date that things were 
supposed to kick in, and for whatever reasons, due to low 
supply and pipeline problems, this enforcement discretion 
relief was granted on a short basis; is that fair?
    Ms. Browner. That is correct. I think it was--again, it 
delayed the startup of the clean gasoline program by, I think--
was it 5 days--6 days, while they could address the pipeline 
problems and other issues. We never had this situation in 
Chicago or Milwaukee. We didn't have tanks going dry the way we 
did in St. Louis.
    Mr. LaTourette. Oh, that is correct, but what we did have 
in other parts of the Midwest, I think--and I am referring to a 
memorandum written to the Secretary, Secretary Richardson, on 
June 5th from Melanie Kenderdein, I guess, that talks about the 
situation that existed in terms of low inventories, and also 
the EIA, when they came to talk to us, I think said that they 
were at 15-year lows, the lowest since 1981. Is that your 
recollection, Mr. Secretary?
    Mr. Richardson. Yes, Congressman. We found that there could 
be physical shortages at a number of RFG terminals in St. 
Louis, and as you know, Congressman--and thank you for the 
compliment about the Energy Information Agency. They are 
sitting right here. They're all chuckling. I will consider 
giving them a raise.
    But I will, for the record, state they're a statistical 
independent agency at the Department of Energy. They don't 
always predict what I want them to. What we do, Congressman, is 
we do supply assessments. We provide that to EPA. And did you 
want me to say anything more?
    Mr. LaTourette. Well, that was my understanding, that you 
do give them supply assessments, and you were asked to give, or 
you gave a supply assessment for Chicago/Milwaukee as well, did 
you not?
    Mr. Richardson. Right, right. And what we found, 
Congressman, is that in the Midwest, crude oil prices, 
obviously remain high. That is a factor. There is higher demand 
in the Midwest than the national average, 3 percent compared to 
1.6 percent. Inventories, gasoline inventories in the Midwest 
were low going into the summer driving season, about 15 percent 
lower than last year, and RFG-2 was introduced--this is 
ethanol, not the MTBE--was introduced into the Milwaukee/
Chicago market. And then you had the pipeline problem, the 
Explorer Pipeline, in the Chicago/Milwaukee area, we estimated 
it affected about 6 million barrels.
    What we then did, is because we had all these factors, and 
you still couldn't explain the 40-cent differential, that's 
when Administrator Browner and I, like several Members of 
Congress and yourself, sent a letter to the chairman here to 
look at the rationale why there is such a broad and large price 
    Mr. LaTourette. All right. I think I am going back, before 
we ask Mr. Pitofsky to jump in, and I guess what I'm trying to 
get at, is I believe from what I've reviewed, and talking to 
the EIA, talking to the refiners, that there were some warning 
signs, that because the price was jacked up by the OPEC 
countries, because we had a pipeline problem--we also had a 
problem with the Wolverine Pipeline later on--because of the 
tolerances where some refineries have now gone from 8 blends of 
gasoline to 16 to 18 blends of gasoline, that it was sort of 
ripe for a problem not only in St. Louis, but also in Chicago 
and Milwaukee. And I'm wondering why in the days leading up to 
June 1st, which sort of is the trigger date for the new 
requirements, that there wasn't the same consideration given to 
Chicago and Milwaukee as there was to Wisconsin? And because, 
again, your excellent folks at the EIA, who I hope do get the 
raise, indicated to us that the area--and I'm talking now about 
the area of Chicago and Milwaukee--is functioning with no room 
for error, and basically indicating that if one more bad thing 
happens, you're going to have the whole market thrown into 
chaos, and it does appear to me, at least, that the market was 
thrown into chaos.
    I gave a speech in Cleveland, and you know, I'm not an EPA 
basher, and I said, you know, my information is that this RFG 
program maybe adds 5 to 8 cents--and you may disagree with 
that, Madam Administrator--and in the summer driving season, 
historically we've gone up 3\1/2\ cents, 4 cents a gallon 
because there's greater demand. So none of those things explain 
what happened. But what I think can partially be led to explain 
is that we had historically low inventories, we had some 
changes coming in, EPA changes, supply difficulties, and so 
forth and so on, and maybe Energy, maybe EPA, maybe the oil 
companies, maybe everybody could have done a better job than we 
did in the Midwest, and we've all contributed to the problem 
that has now jacked up the oil prices. And if anybody disagrees 
or agrees, I'd be more than happy to let you say so.
    Mr. Burton. The gentleman's 10 minutes has expired. If you 
care to comment on what he just said, that would be fine. No 
    Mr. Ryan, you're recognized for 10 minutes.
    Mr. Ryan. Thank you, Mr. Chairman. Glad we finally got to 
this point. Thank you for waiting.
    I suppose the three of you have probably been here all day 
long, haven't you, going to different chairs? I appreciate you 
spending all the time with us today.
    I, unfortunately, just arrived, so I was unable to hear 
your opening testimony, but----
    Mr. Pitofsky. You didn't miss a thing. We didn't have any.
    Ms. Browner. We didn't do it.
    Mr. Ryan. Oh, you didn't do one, OK. Well, then let me just 
go on----
    Mr. Burton. Submitted for the record.
    Mr. Ryan. Well, Mr. Chairman, I would like unanimous 
consent to add my opening statement into the record as well.
    Mr. Burton. Without objection, so ordered.
    [The prepared statement of Hon. Paul Ryan follows:]

    [GRAPHIC] [TIFF OMITTED] T3069.102
    [GRAPHIC] [TIFF OMITTED] T3069.103
    [GRAPHIC] [TIFF OMITTED] T3069.104
    Mr. Ryan. I represent southeastern Wisconsin. Half of the 
district I represent is in the RFG area, half of the district I 
represent is outside of the RFG area. Now, if you recall, Ms. 
Browner, we sent you, myself, Mr. Sensenbrenner, Senator Kohl, 
Senator Feingold, sent you a waiver request on May 23rd. On May 
26th you responded, saying it would be denied.
    Then, Secretary Richardson, we have a memo, which I believe 
you were just talking about, dated June 5th, where you went 
through--your agency went through and showed that there were 
severe supply shocks that were occurring. Basically you went 
through and outlined six factors that were basically a 
convergence of factors, culminating in the fact that we had 
supply shocks, we had a unique RFG blend, we had a Unocal 
patent, we had a lot of problems specifically with respect to 
the upper Midwest.
    We then asked for another waiver from you, Ms. Browner, 
which we were denied again.
    Mr. Sensenbrenner asked the CRS to study whether or not the 
RFG mandate itself was a part of the problem or why were we 
having these price increases? The report basically concurred 
with the DOE's analysis, a convergence of several factors. So I 
don't think one can point a finger at just one source. I don't 
think those of us in this aisle can point to the EPA and say 
it's your fault. I don't think the EPA can point to the oil 
producers and say it's their fault. I mean, that's what the FTC 
is about to figure out. And I think for any of us to say with 
certainty that it's because of price gouging is just 
inaccurate, and that's what--you know, Mr. Pitofsky, that's 
what your investigation will do, so I think it's foolhardy for 
a member of the administration or a politician to suggest they 
know that price gouging is occurring.
    But there are some things we do know, and the things we do 
know, because of the DOE's report, because of the CRS's report, 
is that this RFG mandate in the upper Midwest, specifically in 
the Milwaukee and Chicago area, has contributed, by the CRS's 
estimate, 25 to 34 cents a gallon. Why, when you knew this, did 
we not receive a waiver? And if the answer is we didn't receive 
a waiver because there was a short supply of conventional gas 
in the area, the short supply of conventional gas in the area 
is because of the EPA's banning of conventional gas in the 
area. So our constituents are really caught between a rock and 
a hard place. They're looking for answer. I don't think putting 
it off to saying it's price gouging and the FTC will confirm 
this in 6 weeks, that's not good enough. We're in the middle of 
the summer months. You know, we do a lot of driving at this 
time. Our consumers in the Milwaukee area are paying something 
like $2.30 a gallon of gas. It's gone down recently, but what 
is the answer other than price gouging? And let me start with 
you, Mr. Richardson, and, Ms. Browner, if I could go to you 
    Mr. Richardson. Well, I think the assessment that we made--
and by the way, Melanie Kenderdein is right here--EPA and DOE 
have sent teams to the area. The Administrator and I felt that 
we needed people on the ground in your region and in the 
Congressman's region to get firsthand assessments. And 
basically they came back with a multiplicity of problems. You 
mentioned the supply issue. There is the pipeline problem. 
There is refinery problems, RFG coming into the market. There 
were other factors.
    Another thing, Congressman that really is out there, is 
there is unusually high demand in the country, and it's the 
driving season, the economy is in good shape, everybody is out 
there spending money, and that's good. We also have, because of 
the international situation, regrettably, a lot of low stocks, 
low stocks of crude, low stocks of gasoline, both nationally 
and internationally.
    So I think what the Administrator and I felt after we got 
our reports, is that nonetheless, despite all these factors, 
why is there such a high differential, why 40 cents, why 38 
cents if it costs 3 to 4 cents for RFG-2. And so I think this 
compelled us to write Chairman Pitofsky to see--and the 
explanations we were getting from the oil companies were not 
adequate, and not, by the way, as eloquent as you two did, the 
three of you. It was, well, it was just OPEC or some other 
reason. So this is why we've asked for this probe.
    Mr. Ryan. Well, Mr. Richardson, if I could mention, I 
believe, Mr. Pitofsky, the original FTC investigation was 
instigated by Chairman Henry Hyde and Jim Sensenbrenner on June 
7th; is that correct?
    Mr. Pitofsky. It was the first or one of the first requests 
that we received.
    Mr. Ryan. And then I believe the Wisconsin delegation 
followed up, where we met in Senator Kohl's office, before the 
two administration officials asked for that. But, Mr. 
Richardson, what I'm getting at is it sounds like you already 
knew these factors were out there. It sounds like you knew 
there was something unique in the upper Midwest, and yet you 
proceeded with this RFG mandate. And given that you knew these 
factors were out there, that you knew something unique was in 
the Midwest, we had a different blend, we used ethanol, we had 
these problems--we knew we had an Explorer Pipeline problem, we 
knew we had supply shocks, you still went ahead with the 
mandate. Then we find out we're paying 40 cents more a gallon 
of gas, and now we're pointing fingers and we're trying to get 
the FTC to give us an answer in 6 weeks. Meanwhile, Wisconsin 
and Illinois consumers pay an average of 40 cents more a gallon 
of gas for the summer months.
    Couldn't we have not placed the mandate, given the 
information you had in your hands at the time, found out what 
was going on, then worked on this mandate?
    Ms. Browner, let me ask you to----
    Ms. Browner. I'm happy to answer the question. I think that 
it is important that there was broad support for the FTC 
    Mr. Ryan. I support it as well.
    Ms. Browner. One of the reasons that EPA and DOE asked for 
it is that we did send our own investigators out into the 
field, and based on the answers they came back with, based on 
the evidence they came back with, we did not see an answer to 
the question, and thus, we felt the FTC investigation was 
    The second point I would like to make is that the issues 
that are presented particularly to Chicago or Milwaukee or both 
of them, while they certainly are issues in those areas, they 
are not necessarily unique to those areas, so they don't 
explain why you have a price spike in Chicago and Milwaukee. 
The example I'll give you is that ethanol is used in St. Louis. 
About 50 percent of the Louisville gasoline is an ethanol 
blend, and yet you don't see the same kind of high prices. If 
the problem is ethanol, if the problem is that putting ethanol 
into cleaner gasoline is costing money, then you should see a 
price differential in other areas that use it.
    Second, if the problem is the Explorer Pipeline, then you 
should see a price problem in other areas serviced by the 
Explorer Pipeline. And I said this before you came in: St. 
Louis gets 70 percent of its product from Explorer. I think 
Milwaukee, Chicago----
    Mr. Ryan. They received a waiver though, didn't they?
    Ms. Browner. They were affected by the pipeline break. They 
had three tanks go dry. They requested a delay in the startup 
of the program. Congressman LaTourette and I discussed this 
previously. It was an enforcement discretion. There are waiver 
    But the point I would like to make is that all of the facts 
and all of the issues that we have all been looking at, the 
pipeline, the issue of is it more difficult to make ethanol-
blended gasoline--we don't believe it is, but some people have 
put that on the table. When you take all of those issues 
together, nothing has changed with respect to any of those 
issues in the last month. In fact, nothing has changed with 
respect to any of those issues in the last several months. And 
yet, what you are suddenly seeing is a precipitous drop in 
wholesale prices. You cannot point to why wholesale prices are 
suddenly coming down, because none of--if those are the 
reasons, if it's because of the pipeline, if it's because 
ethanol is harder to use--I don't believe that--but if those 
are the reasons, then why suddenly, with no change in the 
recipe for ethanol, with no change in the pipeline capacity, do 
you see a drop in price? And that's what we're asking the FTC 
to look at.
    Mr. Ryan. So you're suggesting that once Mr. Pitofsky got 
started, prices went down?
    Ms. Browner. I certainly think it is fair to note that on 
the date that the FTC, which I think was the day after the 
administration's letter, which followed after our investigation 
and other letters, prices did drop. That is a fact. They did 
begin dropping, and we can show you----
    Mr. Ryan. Isn't it true that the spot price started 
declining much sooner than that though? Didn't the spot price 
start going down, I think, June 7, and between June 7 and June 
21 it went down about 40, 45 cents?
    Ms. Browner. The price that we have been----
    Mr. Ryan. Before the FTC?
    Ms. Browner. The price that we have been watching is the 
price that is posted on OPIS, the Oil Price Information 
Service. That is a privately owned service that monitors the 
price of what the trucker pays when he or she pulls up to the 
tank farm to put the product in their truck and drive it to the 
pump. That is the price that is changing on a daily basis. That 
is the price where the vast majority of this product is moved 
around, and that is the wholesale price that we have been 
referencing that has dropped now on the order of 40 cents a 
gallon wholesale.
    And it's not being passed onto the consumer, which I think 
is a question we all have. Why is the consumer not getting the 
benefit of this dramatic drop in wholesale prices? And why, 
with no change in any factor--and you and I may disagree on all 
the factors--but it is true there's been no change in any 
external factor--did you suddenly see this rapid decline in 
wholesale price. Those are questions we should all get an 
answer to.
    Mr. Burton. Excuse me. Mr. Ryan, our time has expired on 
this side. We have to yield to the minority for their 30 
minutes, and if you can, we'll have you back.
    Mr. Ryan. Second round?
    Mr. Burton. Yes, second around.
    The minority, who is going to control your time on your 
side? Will you control it?
    Mr. Tierney. I'll control it.
    Mr. Burton. Mr. Tierney, you're recognized for 30 minutes.
    Mr. Tierney. Thank you. Thank you all for joining us today, 
and for lasting through the delays.
    I want to cover some of this ground quickly, and then move 
on to some areas particular to my district, but if companies 
fail to keep their inventories up--and Mr. LaTourette suggested 
that the EPA and Department of Energy and the companies all 
might take some, or might have taken some participatory action 
on that, but to my knowledge, DOE doesn't have any authority to 
force a company to keep its inventories up. Does it, Mr. 
    Mr. Richardson. No, that's correct.
    Mr. Tierney. And the EPA doesn't have any authority to do 
    Ms. Browner. No.
    Mr. Tierney. So I don't know why we're here talking about 
why everybody has to share the blame. If there's enough oil out 
there, and they choose to keep their inventories down and then 
create more of a demand so they can jack their prices up, why 
should we share the blame with them? And you have a pipeline 
problem, if in fact there were one, one was a fire and one was 
a leak, Mr. Secretary, do you have any control over the 
    Mr. Richardson. No, it's the Secretary of Transportation, 
and we wouldn't----
    Mr. Tierney. But he wouldn't have any control either.
    Mr. Richardson. Right.
    Mr. Tierney. And neither the EPA. And so there they are, 
that's either bad operation or bad maintenance. And of course, 
it doesn't affect their bottom line, they're just going to pass 
their costs along and get it, but they'd like to share the 
blame with you.
    And the last thing, I guess, is like if 2 cents to 8 cents 
is what the EPA regulations were going to put in for the 
gasoline on that situation, holding off on June 1st wasn't 
going to make a hell of an impact on that, was it?
    Ms. Browner. If I might just say something, this recipe for 
cleaner gasoline was agreed to with the oil companies in 1993. 
They had 7 years notice of what would be required.
    Mr. Tierney. But even if putting that aside, and assuming 
they're as bad there as they were with their inventories and 
with their pipeline maintenance, it was a 2 to 8-cent increase, 
and that was that.
    Ms. Browner. Right.
    Mr. Tierney. So then I think we're chasing around a lot of 
phantom people around here, and we ought to think of where this 
situation really lies as those prices go up and those 
situations get created.
    Mr. Secretary, can I just ask you a couple of questions 
about home heating fuel? You know, we had experience last year 
in New England with a low supply and high demand for home 
heating fuels. And what's your anticipated forecast for this 
coming winter?
    Mr. Richardson. Well, we are concerned, Congressman, we are 
very concerned about the supply situation, and this is why I 
think it is so important, the leadership that many in this 
committee have shown, you and Congressman Sanders, for the 
Northeast heating oil reserve that we need, because what we 
need to establish is a reserve that doesn't deal with prices, 
that deals with emergency supply situations. What we are 
looking at is 2 million barrels, have it ready in the event, 
have a trigger similar to the Strategic Petroleum Reserve based 
on emergency supply situation.
    We are concerned with the level of natural gas, with home 
heating oil. We are concerned that unless we prepare now, there 
may be some emergencies that we will not be ready for. And we 
don't want to repeat what happened last winter with the 
unusually cold January and some transportation problems that we 
had in your region, as you remember. The Coast Guard had to 
come in. We don't want to have the situation where the truckers 
and many others, the home heating oil operators, are in an 
emergency situation.
    Mr. Tierney. Well, we know Mr. Sanders had a bill to set up 
that Petroleum Reserve, Strategic Petroleum Reserve for the 
Northeast area, and it lost by two votes. But, fortunately, and 
miraculously, I guess, there was a swivel of opinion on that, 
and the other night it was passed with some pretty good 
support. But we haven't funded it yet, and it is not on the 
President's desk. So I ask you, assuming that it hasn't moved 
at the speed we want it to move, do you have authority to do 
that unilaterally?
    Mr. Richardson. We need full authority--this is a whole 
issue involving the entire Strategic Petroleum Reserve. The 
House has passed, but it has languished still, the 
authorization for me to have authority with the Strategic 
Petroleum Reserve, my lawyers are telling me we need the full 
authority. So I would just urge as a national priority that 
every effort be made to pass that and to move it forward so we 
have that authority to use in an emergency.
    Mr. Tierney. So you are saying basically without the 
legislative action, you are not going to have authority within 
your own position to take action?
    Mr. Richardson. Well, you know, you don't want to make a 
conclusion like that, but certainly we need the full authority, 
Congressman, for a variety of activities regarding the 
Strategic Petroleum Reserve. I was able--my lawyers said to me 
that I could use it--I used it last week--a swap. There was a 
dry dock problem in Louisiana, and we were able to exchange 
some Strategic Petroleum Reserve oil with Citgo and other 
companies, 500,000 barrels. This was an emergency. We had the 
authority to move ahead.
    But it is just very murky, and I would urge you, whatever 
it takes, to get that authority fully passed. It should be 
bipartisan, but it is somehow held up. I think it is just part 
of the delays.
    Mr. Tierney. I am going to ask you something that is the 
flip side. On the one hand, we have people in their homes who 
probably ought to know that they might be able to get a fixed-
price contract with their deliverers. Is there anything that 
the Department is doing to give people that knowledge that that 
might be an option for them, to at least help some people cap 
what might be escalating prices?
    Mr. Richardson. Well, we think that these fixed prices 
protect consumers, and we have what are called consumer-
friendly information that we disseminate to consumers that we 
do have. Through the Energy Information Administration, which 
has been praised roundly by this committee, we are able to make 
some of these forecasts, and through their public information 
system, their Web sites, they can forecast energy supplies that 
help consumers make good fuel purchase decisions.
    Mr. Tierney. On the flip side of that, I have my dealers, 
my folks that go out and deliver, and their concern is that the 
companies are trying to lock them into some pretty significant 
fixed-price contracts, and their concern is that those prices 
might go down--they have two concerns: one is that there won't 
be anything for them to deliver, and the other is that if they 
set into a fixed price now and prices go down, they are going 
to have unreasonably high costs.
    Can you give them any comfort on the first?
    Mr. Richardson. Well, I think your small home heating oil 
operators should contact us, because I think we'd be ready to 
work with them on how we can provide more consumer-friendly, 
small business-friendly information on fuel purchases, on 
heating oil supplies, or other factors that might be needed.
    Mr. Tierney. Let's have them do that, and I thank you.
    I am going to give 5 minutes to Mr. Sanders now.
    Mr. Sanders. Thank you, John.
    Let me begin by thanking Administrator Carol Browner for 
your work on the environment. As we enter the 21st century, 
there is no reason why millions of people should suffer 
respiratory problems and other illnesses because of filthy air. 
There is no excuse for that. And I applaud you for the work 
that you are doing.
    Secretary Richardson, thank you for the help that you are 
giving us on the home heating oil reserve. I think you share 
our feeling that we want to not see next year a huge spike in 
home heating oil. The reserve makes sense.
    As John just mentioned, we had significant bipartisan 
support in the House the other night for it, but we are still 
going to need the estimated $10 million to get the funding to 
set up that reserve, and we would very much appreciate any help 
that the administration could give us to make sure that that 
    Let me ask Mr. Pitofsky a question. I support the 
investigation of price gouging in the Middle West, but as you 
know, many of us in New England were asked last March to 
investigate the increases in home heating oil that we 
experienced. I think you received a letter from many, many 
Members of Congress on that issue, and as of now, we have not 
yet received a reply from the FTC.
    Can you give me some assurance that we are going to be 
getting some response in the very near future?
    Mr. Pitofsky. Yes. The very near future.
    Mr. Sanders. OK. I appreciate that. That is a brief answer, 
and it is the answer I wanted to hear. Thank you.
    Mr. Pitofsky, let me ask you another question, not talked 
about as much, I think, as it should. In the last number of 
years, we have seen significant mergers within the oil 
industry, as you know. Major oil companies are merging with 
other major oil companies. There are some people, including 
myself, who believe that that is going to result in less 
competition and the consumers getting less of a fair shake.
    Is this something that the FTC is looking at? What impact 
on mergers and less competition in the industry having on 
driving prices up?
    Mr. Pitofsky. It is a very interesting question, and it 
deserves to be addressed.
    As you may know, I and my colleagues are very concerned 
about the move toward concentration in the oil industry. In the 
last 4 years, we have reviewed four, what I think can fairly be 
described as mega-mergers. We have not let any of them go 
through without restructuring. On the last of these mergers, 
BP/ARCO, we went to court and required restructuring.
    I am generally concerned about where we are going in this 
particular industry. However, as far as the Midwest was 
concerned, which is the focus of our present investigation, 
Midwest and West Coast, I took a look, and the fact of the 
matter is that I don't think any of these mergers involve firms 
that have much of an overlap in the Midwest. So there are 
plenty of explanations, but I don't think the merger wave is 
one of them.
    Mr. Sanders. OK. At some other point, I would like to 
pursue the issue of mergers in general with you.
    Let me just ask perhaps you, Mr. Pitofsky, or anybody else 
on the panel who wants to respond: I am not a great fan of many 
aspects of globalization. I must be honest with you. It seems, 
though, very clear to me that OPEC, by definition, is a cartel 
whose goal is to limit production. I don't think there is any 
debate about that. If we had the head of OPEC here, that is 
what he would tell you the reason for existence of that 
organization is. Correct? That is not a great debate.
    What I don't understand--and I know this is not necessarily 
your area as opposed to our trade people--why hasn't somebody 
gone to the World Trade Organization and said, excuse me, OPEC 
is violating every concept of free trade in terms of the 
production and distribution of oil? Does anyone want to comment 
on that? I mean, it seems so very obvious, and I am not a great 
fan of WTO. Does anyone want to comment on that; Bill; Carol?
    Mr. Richardson. Not really, Congressman.
    Mr. Sanders. Am I missing something, or is this an 
organization designed to limit free trade in a world which is 
supposedly moving toward free trade? Mr. Pitofsky, what am I 
missing here?
    Mr. Pitofsky. I don't know that you're missing anything. 
Let me break this down. As a matter of law, it is a cartel, 
except that it is being run by nation-states.
    Mr. Sanders. Right.
    Mr. Pitofsky. And, therefore, as a matter of law, it would 
be difficult, if not impossible, to get at it.
    As a matter of negotiation and diplomacy, you are asking 
why don't we challenge OPEC in some other way, but it is not 
part of the role of an agency like mine to address that. It is 
really a State Department issue.
    Mr. Sanders. Well, I think it is a USTR issue, probably, 
and I share the concern of many Americans that we went to war 
defending Kuwait and Saudi Arabia, and I think we deserve a 
little bit fairer shake.
    I yield back the balance of my time.
    [The prepared statement of Hon. Bernard Sanders follows:]

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    Mr. Tierney. Thank you. I yield 5 minutes to Mr Kanjorski.
    Mr. Kanjorski. Thank you very much. I know all of you seem 
to be unwilling to postulate why the price is what it is, but 
let me ask you some simple questions to start with.
    Mr. Secretary, do you directly impact on the price of a 
gallon of gasoline sold in the Midwest?
    Mr. Richardson. No.
    Mr. Kanjorski. You don't set the price?
    Mr. Richardson. No. No, we don't, Congressman.
    Mr. Kanjorski. It seems to me we are talking about 40, 50, 
60, 70, 80 cents here, and we have been talking during the day 
the question of supply and demand.
    Just some things I may be conscious of, the world market 
for a price of a barrel of oil was about $32 a barrel in 
February. It is $31 or $32 a barrel today. The processing 
plants, to my knowledge, refineries, etc., have not made any 
investments in that last 6-month period for a recapture of 
capital. There is no further investment there.
    What explains the fact that in February, with relatively 
the same supply, or a little less, and with a little higher 
demand today, the actual or real cost of gasoline as opposed to 
the price of gasoline, what explains that differential? Who 
made the determination of what to charge?
    Mr. Richardson. Congressman, if you recall--you were right 
about your February statistic. In March, OPEC met and, as you 
recall, we worked with OPEC to have their production increase.
    What then happened was oil went from 34 to 23 in a short 
period, but then it started coming back up. The reason is very 
simple: Demand has outstripped supply, and demand growth, the 
second quarter, worldwide demand growth has increased by 2.1 
percent, which is a record, almost unprecedented demand growth. 
And this is international, and a lot of it has been fueled by 
    But since that time, Congressman, February, there are 3.5 
million more barrels per day out there in the international 
market. But you still have a low stock problem. You still have 
unprecedented demand. And that is also accounting for low 
gasoline stocks.
    Mr. Kanjorski. But the real reality is that it doesn't cost 
any more today to make a gallon of gasoline to put into a tank 
in the Midwest than it did probably in February. So somebody 
sets a differential price there, and the price, it seems to me, 
is supply and demand and what you can get for it. It is a form 
of rationing. You are going to push the price up until people 
stop buying at a certain price so that you can provide the 
demand out there. Isn't that the concept of price?
    Mr. Richardson. Yes, that's accurate.
    Mr. Kanjorski. So these people are wondering, you know, who 
charged more. The oil companies could have maintained the same 
income level they were making in February or March by keeping 
the gasoline the same price in the Midwest as it was selling in 
February or March.
    There was a selection to set a higher price, whether it was 
for purposes of discouraging purchases and demand, or for 
whatever reason. But, nevertheless, does anybody there really 
believe that they are not going to show an inordinate amount of 
profit with that 40, 50, or 60 percent increase?
    And what I am really wondering about is why are we so 
fancily stepping around the issue. The Government doesn't set 
the price. Let's tell the American people. That is what my 
friends on the other side of the aisle have been arguing about 
for 20 years. They want a supply and-demand free market. Well, 
they have got it. If they want to charge $3 a gallon in the 
Midwest, there is nothing we can really do about it, or $4, 
whatever the consumers will pay. And I think we should send 
that message to the American people. It is not what Ms. Browner 
in EPA--2 to 8 cents, that didn't do a damn thing. It is not 
the fact that you didn't get them to give us another billion--
or a million barrels a day in the negotiations. The fact of the 
matter is a private organization organized for profit, saw an 
opportunity to charge a higher price and make a greater profit.
    We had earlier testimony from a trucker today that in 
February and March he had that price with diesel fuel. Diesel 
fuel in New England was selling for $3 a gallon. It was just 
absolutely unreasonable. It would go up at the rate of 40, 50 
cents a day. And his price went up 125 percent.
    Now, the question is--you know, I think we should send the 
message. It hasn't changed since the diesel fuel increase. It 
is not changing now. The fact of the matter is what we do have 
to watch is what you were saying, Mr. Pitofsky. If we don't get 
competition out there and if we have people who control or 
monopolize markets, they can literally set the price for energy 
at any price they want. And I think the second thing we have to 
worry about is in other energy fields, such as electricity, as 
we deregulated electricity in this country, the electrical 
companies will be able to set the price of supply and demand at 
any price they wish, and the American people have to pay it. Is 
that correct?
    Mr. Pitofsky. Yes, it is--the price will respond to 
competitive pressures, and if you have a monopoly or something 
approaching a monopoly, then the sellers can set the price 
anywhere they want.
    But, you know, in the Midwest, where we are looking at this 
tremendous price spike, there are seven independent refineries 
that are operating, and two or three outside the area that ship 
into the area. So you would have expected that competition 
would not allow price to spike up that way, especially because 
you can't attribute a price spike in the Middle West to OPEC. 
OPEC is as guilty of raising prices on the East Coast and the 
West Coast as in the Middle West. That's what's tricky and 
that's what's challenging about this investigation.
    Mr. Kanjorski. Thank you very much. I yield back.
    Mr. Tierney. Ms. Schakowsky, 5 minutes.
    Ms. Schakowsky. Thank you.
    First, I would like to thank all three of you for being so 
available to us in Chicago when we have had hearings and your 
top staff have been wonderful. We really appreciate your 
answering all of our questions. A special thank you also to 
Administrator Browner. I want to make it clear that people in 
Chicago are quite literally breathing easier because of the 
clean air standards, and I think that in all of this, we have 
to keep that clearly in mind.
    I wanted to ask Secretary Richardson if he would react to a 
bill that I am going to introduce that I hope will help us head 
off some future problems. It would require the Department of 
Energy to not only monitor petroleum inventories and refinery 
production nationally and regionally, which I believe you do, 
but when production rates or supplies indicate that a shortage 
and subsequent price spike may occur, the Department of Energy 
would have the responsibility and the authority to sound the 
alarm and notify Congress and to offer suggestions for 
appropriate ways that Congress could respond.
    I wanted to ask you what you think of that.
    Mr. Richardson. Congresswoman, it sounds like a good bill. 
We support it. I think it makes sense.
    The Energy Information Agency, which we have some 
representatives here, which is a statistical independent 
agency, does a lot of that tracking. But I think we need to 
have better tracking of domestic and international petroleum 
    One of the big problems we have right now is low stocks, 
and what has happened in the international and national 
community is oil data--if we could just have one oil data 
statistics that we all believe in, oil companies and 
governments, we'd be a lot better off.
    There are a lot of different data there, so I would be 
interested in working with you to find ways that we can do 
this, tracking distillates, tracking inventories. So I think 
the bureaucratic answer would be that we will work with you. I 
will say that we will support your bill in principle if we work 
    I would ask, though--and since there is quite a bit of 
support for the Energy Information Administration--which is 
independent, by the way. They don't report what I tell them to. 
I wish they would sometimes. But they have some funding 
problems in the conference right now, so any help you could 
give us to give them the budget that they need--they do 
excellent work. They work all night. They are all these 
academic statistical types that crank these things up. But I 
think if we can strengthen them, but also incorporate your 
bill, I think we would have something that would be valuable 
for the country and for the international community.
    So I like your bill and in principle we can support it.
    Ms. Schakowsky. I appreciate that. I look forward to 
working with you on both issues, the appropriate funding and 
the language of this.
    I wanted to give the Administrator an opportunity to, I 
think, correct some misunderstanding--I see Representative 
isn't here. Oh, are you there? I am sorry.
    Mr. Ryan [presiding]. It is Chairman Ryan.
    Ms. Schakowsky. Excuse me, Chairman Ryan. [Laughter.]
    The CRS report that I think you were looking at that 
attributed 25 cents to the RFG that we were using----
    Mr. Ryan. The unique RFG situation.
    Ms. Schakowsky [continuing]. I believe was updated, and I 
wondered if you could explain that.
    Ms. Browner. Yes. We have seen--I want to make sure we have 
all our facts right here. Mr. Chairman, Congressman Ryan, as I 
understand it, you are referring to a June 16th memorandum from 
CRS that didn't look at the production cost, what it actually 
cost the refiner to make RFG, but simply looked at the consumer 
price--which is important--looked at the consumer price in both 
Milwaukee and Chicago, and it found exactly what we found, 
which is that the RFG in those two cities was selling 40 to 50 
cents more than the RFG ethanol fuels in other cities. I mean, 
that is all they did. They went out and looked at current 
consumer price issues. They didn't go to the refiners and say: 
How much does it actually cost to make cleaner gasoline? Is 
there any cost differential if you make that cleaner gasoline 
with ethanol?
    The CRS report that is being released today actually looks 
at the cost for the refiner of making the cleaner gasoline 
either with ethanol or one of the other additives, and it is 
very, very much in keeping with what EPA itself said in 1993 
when we reached this agreement for cleaner gasoline, which is 
it would be approximately 3 to 7 cents, for the non-ethanol-
blended cleaner gasoline 4 to 8 cents, and I'll actually read 
from the report. This is a quote from the CRS report of today 
saying, ``The RFG program by itself has caused only limited 
price increases on the order of 2 to 8 cents per gallon,'' 
which is precisely what we predicted.
    And I think, Chairman Ryan, not to dispute what CRS said 
previously, but they were looking at a different type of 
number. They were simply looking at how much was an ethanol 
blend selling for in, I don't know, Louisville or St. Louis 
versus how much was it selling for in Chicago and Milwaukee, 
and those are very different issues than how much does it 
actually cost you to make ethanol-blended cleaner gasoline.
    Thank you.
    Mr. Tierney. Thank you.
    Mr. Ford, 5 minutes.
    Mr. Ford. I know the witnesses have been here some time. I 
appreciate them staying. I wanted to personally say to both Ms. 
Browner and Secretary Richardson--I might add, Chairman 
Pitofsky, my cousin, who is in the room, was a student of 
yours, I believe, at Georgetown and he commented--you wouldn't 
remember him for anything, but I said, hey, I am on the panel, 
he may at least pretend like he remembered you. [Laughter.]
    He is sitting there in the back, but I would love for him 
to have an opportunity to meet you. But I want to thank the 
three of you for your patience today and certainly say to 
Secretary Richardson you have a full plate at this point, and I 
am one Member that appreciates your leadership and your 
persistence. And I am quite confident that if you say you are 
going to resolve the issues, all the matters that are on your 
plate now at the Department of Energy, I am willing to wait and 
see and willing to give you the benefit of the doubt.
    I say to Ms. Browner thank you for clarifying some of these 
issues for us with regard--it is amazing. Before you got here, 
I listened to some of my colleagues on the other side, and all 
of us now are experts on how ethanol mixes with all of this 
stuff. I don't profess to be one, but in the last few days, the 
amount of wisdom, scientific wisdom that somehow has befallen 
my colleagues on that side of the aisle is nothing short of 
remarkable. So I thank you for clarifying some of these issues 
for us, and I don't look forward to seeing you before this 
committee again dealing with this issue. I hope we let you get 
back to work and get these doggone gas prices lowered for all 
of us across the country.
    Again, thank you for coming, and always excited to see 
Chairman Ryan in the chair.
    With that I yield back to Mrs. Maloney.
    Mr. Tierney. Thank you.
    Mrs. Maloney. Thank you.
    I would like to particularly welcome Secretary Richardson. 
Good to see you again, one of my former colleagues. Do you 
agree--as a former Member of Congress, I would like to see how 
you rate Congress. Do you agree that two essential components 
of a coherent energy strategy are diversification of energy 
sources and the reduction in the use of inefficient energy? And 
how would you rate Congress' consideration of these two goals 
so far?
    Mr. Richardson. Well, the answer on the first is yes, and I 
think, Congresswoman, the key here is--what has been outlined 
is a number of problems that we have as a country. We need a 
diversified energy policy that is a balance.
    And let me just say that in administration we've have 7 
years of unprecedented economic growth, but at the same time, 
in Ms. Browner's area, sulphur emissions have declined 
considerably. So I think it shows that as a Nation we have 
balanced properly.
    What we need is a number of initiatives that we have 
proposed that the Congress hopefully will pass. We need tax 
credits for energy efficiency. We need the Strategic Petroleum 
Reserve reauthorized. We need funding for alternative sources 
of energy--solar, wind, biomass. We need tax credits for energy 
efficiency. We need renewable energy. We need the Northeast 
reserve. We need a number of, I think, other measures that have 
been brought up and that are still languishing. The Congress 
has to legislate and appropriate many of the initiatives that 
we feel are needed.
    So I think the main message here is that we need to work 
together to get soon many of these measures enacted, because, 
otherwise, we won't have this diversified energy supply. 
Otherwise, we will not be able to keep addressing some of the 
problems that have come up. You can't just blame one entity or 
one movement. We have a multiplicity of factors that have to be 
dealt with.
    Mrs. Maloney. I would like to ask anyone on the panel to 
comment on the Unocal lawsuit.
    Some people have alleged that it may have had some impact 
on the raising of prices. Would you give us an overview if you 
believe that is true or not, and if not, why?
    Ms. Browner. I would be happy to share with you what the 
oil industry, oil companies, have told us that they are 
managing with the Unocal patent that they are able to work 
around it. We specifically asked them--Bob Perciaseppe and 
George Lawrence, who are here from my office, who participated 
in our investigations and the meetings we had with the oil 
companies--this question, and the sense that was conveyed to us 
is that it was not an issue.
    I would certainly hope that it would be part of Chairman 
Pitofsky's investigation.
    Mr. Pitofsky. We will take a look at it.
    If the threat of paying royalties to Unocal has had an 
effect here, it would have been a limited and modest effect, I 
    Mrs. Maloney. Could I just in a general sense say, what has 
changed in the last recent history that could have caused these 
prices to go up? Is there any change that you see? I would like 
to ask any of the panelists to comment on that.
    Ms. Browner. I would actually suggest it is--and then I 
will defer to my colleague, but there is another way, maybe, to 
think about it, with all due respect, which is what has changed 
that caused them to come down. Nothing. Nothing caused them----
    Mrs. Maloney. Well, what caused it to go up, and what 
caused it to come down? I would like to ask all three panelists 
if you have any insight on this, what caused it to go up and 
what caused it to come down.
    Ms. Browner. I think, unfortunately, everything we went out 
and looked at could not find a factor or a group of factors 
that you could directly tie a 40-cent-per-gallon wholesale 
price increase. We could not find something, and that is why we 
wrote to the FTC.
    Mr. Pitofsky. And I think our role in life is not to try to 
guess or speculate, as attractive as that activity is, but to 
try to get an answer to the question that you raised.
    Mr. Richardson. Congresswoman, I would just say in general 
what has been in the last 20 years: No. 1, the return of OPEC 
as a major entity; second, dramatically increased demand. 
However, domestic oil production and domestic refinery capacity 
has not kept up with that demand. So that is what is 
characteristic, I would say, of the last 20 years, and as the 
world becomes more globalized, you have got basically producer 
and consumer countries recognizing that what is best for all is 
not a high price of oil, but a stable stability in oil markets, 
less volatility, and this is the point that we have been 
making, that if we let the market, the international market, 
dictate these prices and not artificially set prices, that we 
will have that stability. What has been happening is there have 
been production cuts. There have been other types of 
international disruptions. I think if we just let the market be 
the dominant factor, not have these other entities that have 
been playing in this field--this is why we have had these 
international dislocations.
    It is like the international community is in the same boat. 
You have got the producer and consuming countries. The United 
States is a producer and consuming country.
    Mrs. Maloney. Well, my time is up. Thank you very much.
    Mr. Tierney. I yield back the balance of my time.
    Mr. Burton. OK. Well, you had about 30-some seconds left. 
That is fine. That is amazing.
    Well, I will take 5 minutes now, since I have not asked any 
questions. One thing I would like to start off with is we have 
a 500-year estimated natural gas supply, and automobiles run 
cleaner. The environment is better protected if you use natural 
    I have been told that you can buy some kind of a device to 
hook onto your house where you can actually back your car up to 
it and fill it up with natural gas overnight and have a gas 
supply, and the cost would be somewhere around a third to half 
of the current gasoline cost.
    All I would like to say to you, all three of you, is that I 
wish this administration would look into that. I think that 
would be a real service to the country if we could start moving 
toward a supply that is almost limitless right now, that is 
clean-burning, that is going to help the environment, and is 
going to cost less than half of what the current gas that you 
are buying at the pump costs.
    Once you started doing that, you could fill up at your 
house, and if you did not have natural gas, once the gas 
companies and the oil service stations around the country saw 
that that was a growing thing, they would start supplying it. I 
think it would help the whole economy and help with the 
environment as well.
    So I wish you would look into that.
    Ms. Browner.
    Ms. Browner. I just want to say that we are very, very big 
supporters of that. In fact, the EPA fleet includes a number of 
compressed natural gas vehicles, and----
    Mr. Burton. Well, I understand that, and I----
    Ms. Browner. You can buy it at gas stations now. That is a 
great thing.
    Mr. Burton. I applaud you for that. Probably 60, 70 percent 
of the homes in this country have natural gas piped in. If we 
could encourage the use of this, encourage people to buy cars 
and the manufacturers to manufacture them, to have that, I 
think it will be a real service for the country and the 
    Mr. Richardson. I will be very brief.
    I am delighted you are interested in this. We have at the 
Department of Energy a program, Compressed Natural Gas, that 
deals with engines, that deals with vehicles, that deals with 
on-board fuel storage, infrastructure, and we need some support 
to get that more off the ground. We have started it, but the 
administrator, I know, is very committed to this.
    I think you have a--do you ride in a natural gas now?
    Ms. Browner. Yes, we have it. Yes.
    The problem with home use is they are going to need 
compressors. It is compressed natural gas.
    Mr. Burton. I understand.
    Ms. Browner. That is what we have to figure out together.
    Mr. Burton. I understand. Congressman Kucinich and I and I 
think Congressman Kanjorski has consented to start the wheels 
rolling toward looking into this. I am sure the oil companies 
will view that with a jaundiced eye, but that is something we 
want to look into.
    I would like to ask you, Secretary Richardson, in February 
1999, did you have a meeting in Saudi Arabia with Mr. Yamani, 
the oil minister, over there?
    Mr. Richardson. No.
    Mr. Burton. You did not?
    Mr. Richardson. No.
    Mr. Burton. Did you meet with anybody in Saudi Arabia in 
1999 about oil?
    Mr. Richardson. Yes. You will recall, Congressman, Yamani 
used to be an energy minister. He is not now. He used to be.
    Mr. Burton. With whom did you meet in 1999?
    Mr. Richardson. Well, I met with the Crown Prince of Saudi 
Arabia. I met with the energy minister, the foreign minister.
    Mr. Burton. Did you talk with them at all about the price 
of oil?
    Mr. Richardson. No, but I know what you are going to ask.
    Mr. Burton. I know it is funny, but they always talk about 
    Mr. Richardson. There was a false report that I had 
advocated production cuts. I did not even talk to Yamani at the 
time, Congressman, and you know, if anything, I have been an 
advocate for production increases to the consternation of many 
of these OPEC countries.
    What I was there for at the time in February 1999 was Saudi 
Arabia had said they were ready to talk to American companies 
about upstream investment, and I went there to pursue this.
    Mr. Burton. Mr. Secretary, with all due respect, I have 
only got 5 minutes, and I do not want to go into--I mean, what 
I want to find out is did you talk to anybody about production 
of oil from the OPEC countries or Saudi Arabia----
    Mr. Richardson. No.
    Mr. Burton [continuing]. Or anybody.
    Mr. Richardson. No. In that visit, no.
    Mr. Burton. Or any visit.
    Mr. Richardson. Oh, yes. Of course.
    Mr. Burton. When did you talk to them?
    Mr. Richardson. Well, I--just this year, I went to several 
of--in fact, almost every OPEC country advocating production 
    Mr. Burton. Let me ask you. Did you at any time during the 
last 2 years talk to anybody about oil production cuts?
    Mr. Richardson. No.
    Mr. Burton. Anybody?
    Mr. Richardson. No. That was a false report that I----
    Mr. Burton. You did not talk to any country or any oil 
    Mr. Richardson. None whatsoever.
    Mr. Burton. So the report that was in the paper was totally 
    Mr. Richardson. Yes, it was wrong. I have not even met 
    Mr. Tierney. I am shocked, Mr. Chairman, that the papers 
would be wrong.
    Mr. Burton. I am just checking. I am just checking. He is 
under oath. If that is what he says, then we will live with it.
    Mr. Tierney. Put the journalist under oath. That would be 
    Mr. Burton. There it is. That is what we ought to do. 
Unfortunately, the first amendment would not allow us to do 
    Let me go into another issue, then, and that is the 
situation that we had at Los Alamos.
    I am running out of time. I will catch this the next round. 
Who has time on your side? Do you have any questions on your 
side? We will go to Mrs. Chenoweth. She did not participate.
    Mrs. Chenoweth, you have been waiting a long time.
    Mrs. Chenoweth-Hage. Thank you, Mr. Chairman.
    Mr. Chairman, in December 1999, the Idaho Attorney 
General's Office issued a report on gasoline prices.
    Actually, Idaho was one of the first to feel the increase 
in prices, and the only possible reason that I could wish what 
we had early on, on the Midwestern States, was that we finally 
got everybody's attention. We are so small out in Idaho. We 
could not get the attention, but I would like to ask unanimous 
consent to insert this report into the record.
    Mr. Burton. Without objection.
    [The information referred to follows:]

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    Mrs. Chenoweth-Hage. Thank you.
    Mr. Richardson, it is nice to see you again. After these 
last few weeks, I think probably the Resources Committee looks 
like angel food cake, doesn't it?
    Mr. Richardson. Yes, it does.
    Mrs. Chenoweth-Hage. I will not ask you to answer that, but 
it was good to work with you then.
    Mr. Richardson, I understand that the cost of ethanol 
delivered to Chicago is 70 cents a gallon, and the cost for 
gasoline is $1.30 in Chicago. I just had my staff check on 
    So how is it that when you blend 70-cent ethanol delivered 
to Chicago, $1.30 gasoline delivered to Chicago, that we get 
$2.30-a-gallon blended?
    Ms. Browner.
    Ms. Browner. I am not sure I followed the numbers you were 
using. I will tell you----
    Mrs. Chenoweth-Hage. The price.
    Ms. Browner [continuing]. That today the wholesale price 
for the cleaner gasoline with ethanol and conventional gasoline 
in surrounding Chicago areas, the wholesale price is the same. 
It is $1.17 a gallon wholesale for the ethanol-blended cleaner 
gasoline and $1.17 a gallon wholesale for what we refer to as 
conventional gasoline. The prices are the same.
    There has been a price differential, and that is why I 
think all of us agree the FTC needs to conduct an investigation 
of price differential that has not been explained, and then 
specifically the question is why is it that the ethanol-blended 
gasoline in Chicago and Milwaukee is significantly higher than 
the ethanol-blended gasoline in all the other parts of the 
    Mrs. Chenoweth-Hage. And that is your testimony?
    Ms. Browner. That is a question which we have investigated, 
and we have not found an answer to that we think is acceptable. 
Therefore, we have asked the Federal Trade Commission to look 
at whether or not there may be inappropriate pricing activities 
on the part of the oil company--companies, I should say.
    Mrs. Chenoweth-Hage. Ms. Browner, do you believe that by 
opening up more drilling in Alaska, we could better control the 
cost of oil nationwide?
    Ms. Browner. I do not believe that the answer to our energy 
prices--and I agree we all need to be about dealing with those 
issues across the board, not because of cleaner gasoline, but 
because of all of the issues that the Secretary has testified. 
I do not believe the answer is opening up pristine areas of 
Alaska. I think there are other solutions.
    Mrs. Chenoweth-Hage. So then is it your testimony that we 
are already at near maximum production here in the United 
States, so we are dependent on foreign companies subsidizing us 
and producing more oil would not help us?
    Ms. Browner. I am happy to share with you my personal 
opinion. In my professional job, I am not responsible for the 
decisions in terms of oil production. That is not something 
that falls within EPA's responsibility.
    Now, I do accept responsibility for that portion of the 
gasoline programs that are designed to reduce air pollution in 
the dirtiest cities for the proposals that we have put forward 
to take sulfur out of diesel fuel and to reduce fine particles 
which yet another scientific study has found contributes to 
respiratory illness, premature death.
    I am happy to speak to the EPA responsibility for cleaner 
gasoline and less air pollution.
    Mrs. Chenoweth-Hage. I think, just very briefly, I would 
like to ask Mr. Richardson with regards to an administration 
energy policy.
    I do remember in 1975 and 1976 when Jimmy Carter was our 
President. We really engaged in a really sound energy policy. 
We instituted and made a reality, the strategic petroleum 
reserves. We had a policy that encouraged the production of 
electricity, like Mr. Kanjorski early on mentioned that we may 
be facing an electricity shortage very soon.
    Carter instituted the Public Utility Regulatory Policy Act, 
which opened up the whole market system to the plethora of 
ideas for energy. The Supreme Court ruled on his policy in a 
case entitled Mississippi v. FERC and AEP v. FERC, and in both 
of those Supreme Court decisions, the Supreme Court ruled that 
it is within the public interest and it is our national policy 
to become energy-independent. Those decisions, of course, were 
in 1982, both of them--1982 and 1983. Since then, we have 
become more dependent on the unstable OPEC nations.
    Mr. Richardson, I know you have kind of inherited this job, 
but I keep being asked why can't we see an energy policy.
    I remember living through the Carter energy policy, and it 
really was sound and it responded right away to the crisis. So, 
Mr. Richardson.
    Mr. Richardson. Congresswoman, thank you for asking the 
question so constructively.
    I think something that we need to do that is fundamental is 
to boost our domestic production, and we have--the 
administration recently submitted--I know in your part of the 
country and mine it is important--a tax credit package for 
marginal wells, for G&G expensing, for delayed rentals, tax 
credits for some of these independents that everyone thinks 
they are making loads of money, but you know just as I do that 
they were hurt bad when oil was at $10 a barrel.
    We also have about $4 billion out there in tax cuts for 
energy efficiency. This Congress has already passed $128 
billion in tax cuts, but we have yet to deal with these tax 
cuts for energy efficiency. We need more investment in domestic 
production, alternative sources of energy, domestic sources, 
energy renewables, as I said, energy efficiency.
    This program that we have for more fuel-efficient 
vehicles--I know Congressman Burton is interested in this--with 
Detroit where we worked to create more fuel-efficient engines 
for cars, sedans, and trucks by a date certain, distributed 
power generation.
    You mentioned electricity. You know, as westerners, I am 
worked about the Southwest, the Pacific Northwest. In 
California, especially right now, there could be some serious 
power outages. We need to revamp and modernize our electricity 
    You mentioned the strategic petroleum reserve. It is not 
fully reauthorized. We need to do that.
    So I think there are a number of steps that we need to take 
together to be able to say that we are dealing with energy 
self-sufficiency, that we are not overly dependent on imported 
oil, and this has happened through a number of administrations. 
It keeps moving up. I think we need to move it in the other 
    Mrs. Chenoweth-Hage. Thank you, Mr. Richardson.
    Thank you, Mr. Chairman.
    In closing, I would just like to say I would really 
appreciate seeing a decentralization of production.
    Thank you very much.
    Mr. Burton. Thank you, Mr. Chenoweth.
    Mr. Tierney.
    Mr. Tierney. Thank you.
    Mr. Burton. Should I yield to you?
    Mr. Tierney. If I were truly partisan, which I do not want 
to go down that path here today, we would talk about the next 
12 years after Mr. Carter who established the policy and where 
it went and in what direction in terms of energy, but I do not 
think we have to go there because I think history reflects what 
happened in the downward spiral that we went for 12 years 
succeeding the Carter administration on that.
    I think the other thing is since 1994, I do not remember 
anything in the so-called Contract on America dealing with 
these very serious issues, if they really were that important, 
but this Congress has to take some responsibility for giving 
the administration the tools, in giving your respective 
Departments the tools to move this country in the right 
direction, and I think some people in the country have----
    Mr. Burton. I am glad you did not go down that path.
    Mr. Tierney. I am glad I did not, too. [Laughter.]
    I think that Congress has to take some--and the people of 
this country have to take some responsibility about conserving 
fuel and looking at the way we consume.
    With that, I will yield the balance of my time to Mr. 
    Mr. Sanders. Let me agree, as I very, very rarely do, with 
the chairman. We do not agree on much.
    He gave the example of natural gas not being fully 
utilized. Let me just throw in something else. We have millions 
of Americans driving cars today. They get 20, 22 miles a 
gallon, which my guess is this is not a hell of a lot different 
than we had 20 years ago.
    We are looking at an explosion of technology in every 
conceivable area. They just mapped our gene code and so forth. 
Why is it that there has not been revolutionary breakthroughs 
in terms of energy efficiency in this country?
    Mr. Richardson. Well, Congressman, we are close to it. We 
have a number of investments in fuel cell vehicles, in hybrid 
vehicles. We work with Detroit on this partnership for new 
generation of vehicles which, by the way, the funding was cut 
last week in the house, which we needed back, because what we 
are doing is saying--working with Detroit to develop those 40-
mile-per-gallon, 80-mile-per-gallon fuel-efficient engines in 
sedans and SUVs.
    So what we are saying to the American people is you can 
have the SUVs, and we can make them more fuel-efficient.
    Mr. Sanders. Mr. Secretary, I myself do not know that we 
need taxpayer money to help Detroit develop these things. The 
technology is--I have to believe that the technology is close 
to at hand.
    Ms. Browner.
    Ms. Browner. I think you are right. Actually, starting last 
month, you were able to buy here in the Northeast, the Mid-
Atlantic States, the hybrid cars.
    Mr. Sanders. Right.
    Ms. Browner. They bring with is a tremendous opportunity 
for fuel efficiency, for much lower tail-pipe emissions, less 
air pollution.
    Mr. Sanders. Right.
    Ms. Browner. We are seeing these.
    I think the work the administration has done is incredibly 
important because it almost leap-frogs that.
    I would just say from our perspective at EPA, in addition 
to the work we do on the fuel side with the automotive industry 
with DOE, we also have a very aggressive program on simply 
reducing energy use, on energy efficiency. Every time you use a 
computer and that computer goes to sleep, the screen goes to 
sleep when you walk away, that is an EPA industry invention to 
save electricity.
    We just reached an agreement with buildings like the World 
Trade Center, the Sears Tower, the Nasdaq, huge, huge buildings 
where we were able to show them that it was cost-effective to 
reduce their energies, if they put in a better heating and 
cooling systems, if they changed their windows, if they changed 
their lighting systems.
    What happened is the technology for energy efficiency has 
advanced dramatically, and yet, we have found it all very, very 
difficult to get the public to understand the opportunities 
that exist for these efficiencies.
    One of the things that Congress certainly can do, and many 
of you have done this, is support these outreach programs where 
we actually go out and show the business community that they 
can do their part for less pollution, less energy use, and save 
money, incredibly successful.
    Mr. Sanders. I agree with you. Let me just ask you this. In 
your judgment, has the automobile industry been as aggressive 
as they might? I think the car that you are referring to is, 
what, a Toyota?
    Ms. Browner. There are several of them coming out. Toyota 
and Honda are the first two to market.
    Mr. Sanders. Has our automobile industry been as aggressive 
as they might in your judgment?
    Ms. Browner. I think that for a variety of reasons, the 
investments necessary to get to the next generation, the 80-, 
90-mile-per-gallon cars, was not, unfortunately, made early 
enough, and that is why I do think Government participation, 
which this administration has been leading, is very, very 
important in these programs.
    We do a lot of the research in our own EPA labs that lead 
to these kind of cars. I think we would all agree we would like 
to have seen it happen more quickly than it has happened, but 
we are on the verge of having these vehicles.
    Mr. Sanders. When I was mayor of Burlington, we pushed 
light bulbs that were much more energy efficient. Has this 
country done as good a job in that respect? There are light 
bulbs out there that are very----
    Ms. Browner. Yes. Unfortunately, we are not getting as much 
conversion to these energy-efficient light bulbs.
    It is hard. It is very hard because you go to the store and 
there is the 67-cent light bulb that will run out in a couple 
of weeks if you use it all the time, a couple of months 
perhaps. Then there is the $5 or $6 light bulb which will burn 
for 5 or 6 years. Convincing people to make that kind of an 
investment has been something of a struggle, and it is 
something that we are trying to do at EPA, but we all need to 
work on doing. There are real energy efficiencies, savings, to 
be had. The technology is there. It is getting people to use 
    Mr. Sanders. My last question, because I think you have 
raised an important point, does EPA or another Government 
agency have money for outreach efforts to try to explain to the 
public about the advantages of moving in that direction?
    Ms. Browner. We do get some money. The Congress has not 
been willing to fully fund the administration's request for our 
energy efficiency programs; for example, EPA's Energy Star 
program which is some of the programs I have been talking 
about. I think each and every year, the request is probably cut 
on the order of 30, 40, maybe as much as 50 percent in some 
years, and I think right now in the appropriations process, we 
are looking at a similar lack of funding.
    We think these programs are hugely, hugely successful. They 
do take a modest investment of Government resources, but the 
returns, less pollution, less dependence on foreign oil, good 
technology. It is a win-win.
    Mr. Sanders. The technology is there.
    Ms. Browner. Yes.
    Mr. Sanders. It is a shame that it has not been utilized.
    Ms. Browner. The energy-efficiency technologies are there. 
American companies have led the way to create them, and what we 
need to do is create the consumer demand and educate the 
consumer on why it is in his or her interest to use it.
    Mr. Sanders. Thank you.
    Mr. Burton. The gentleman's time has expired.
    Mr. LaTourette.
    Mr. LaTourette. Thank you, Mr. Chairman. I just have what I 
hope are three short questions to clean up where I was before. 
I saw the administrator's stomach growling.
    Ms. Browner. Sorry.
    Mr. LaTourette. So I will try to be as quick as I can.
    At the end of my 10 minutes the last time, I think I was 
making the observation that perhaps there were things that 
everybody could have done better now that we have the 20/20 
hindsight to look back at what happened in the Midwest, and the 
ever non-partisan/bipartisan Mr. Tierney then suggested since 
you did not answer my question either yes or no that perhaps 
there was no responsibility on the part of either of the 
agencies that you proudly represent.
    I do not know how that goes in Massachusetts, but in Ohio, 
they would like an answer, I guess. So I would ask you again, 
and this time, if the chairman will not give the option of 
saying yes or no, knowing what we do today, is there anything, 
Madam Administrator or Mr. Secretary, as you look at what 
happened in the Midwest that your agency could have done better 
than it did? And if it is no, that is fine with me, but if it 
is yes, I would like to know what it is.
    Ms. Browner. Congressman LaTourette, we were monitoring 
this situation back in the spring, and the reason we were doing 
that was because a new cleaner gasoline program was coming 
online. We had been working with the oil industry for 7 years. 
We had written the recipe 7 years ago. We did send people out 
into the field to visit the tanks. We got questions.
    I will honestly tell you that we were looking at 
everything, and we could not see any individual thing that 
would lead to this situation.
    I will also tell you since the situation occurred, we have 
not been able to point to any individual thing or any string of 
things. I wish there was a different answer. I wish this had 
not happened. I wish that we had seen something in the field 
that would have allowed us to correct this in advance.
    We went to the oil companies repeatedly. We asked were they 
going to experiment problems. They did not anticipate problems. 
The tanks, the terminals were required to have the cleaner 
gasoline on May 1st. They had it on May 1st. Everything was 
moving along, and then, suddenly, in just two cities, boom, the 
price went up.
    Mr. LaTourette. The only thing that did not fit with what I 
had been told is I had thought that the folks that are going to 
be on the next panel notified the EPA in June 1999, that they 
expected this kind of problem. Is that your recollection?
    Ms. Browner. My recollection of what we were told--I did 
not meet with them. Other people in the agency met with them, 
but they obviously shared it with me--is that generally 
supplies were tight. They were tight in the conventional gas 
market. They were tight in what is referred to as RBOB, which 
is the blend that ethanol is added to, but that they were 
adequate; that you did not have situations of terminals going 
dry. You did not have the situation of a pipeline being dry. 
You did have a pipeline that in March had come down for a few 
days, but it was back up at 90-percent capacity.
    You had trucks moving the product in. So all of the factors 
we looked at and what we understood from the Department of 
Energy--and I do not think we misunderstood something--is that 
yes, the situation was tight, but that it was adequate. The 
fact of the matter is for June, what we have been told and what 
we ourselves have seen, is that you actually have an increase 
in the amount of gasoline product in the Chicago-Milwaukee area 
compared to last June. You actually have--what is it--650,000 
more barrels in that market.
    Now, as the Secretary said, you have more demand, but 
everything we were looking at indicated that a smooth 
transition was certainly in the offing, and there should be no 
reasons for price spikes.
    Mr. LaTourette. So the short answer to my question was no.
    Ms. Browner. I wish it were different.
    Mr. LaTourette. Mr. Secretary, anything you can think of 
that maybe Energy could have done better?
    Mr. Richardson. Congressman, I feel very satisfied that our 
team collected data. They were impartial. We work well together 
as agencies, and we responded effectively. I give you credit 
for asking for this FTC effort, also.
    Mr. LaTourette. Thank you.
    The yellow light is on, and I will take your answer as no, 
    Somebody asked earlier about why when the wholesale price 
came down, you cannot understand why it is not at the pump. 
Again, the guys that I think deserve the raise gave me the 
observation that once the region begins to recover, there is 
going to be some delay before the wholesale price improvements 
are seen at the retail level, and I assume you agree with that, 
    Two, my dad said I need to ask you this question, Mr. 
Secretary. In Desert Storm, we went over and defended Kuwait's 
oil fields. We sent young men and women over there to basically 
protect their property. We were told again by your agency that 
they have excess capacity.
    Why the heck, since we now can travel the world through 
your eyes--why the heck isn't this country repaying its debt to 
the United States of America for what we did for them during 
Desert Storm and helping us out of this situation?
    Mr. Richardson. Congressman, right now, Kuwait does not 
have excess capacity. They are a major producer.
    By the way, they have just had a serious explosion there 
that may affect some of their production. We hope that is not 
the case.
    I will say to you this, Congressman. When we went to Kuwait 
and Saudi Arabia and said it is important for the international 
community, for the United States, that they increase 
production, they did.
    Mr. LaTourette. Not enough to--I mean, you deserve a great 
credit, with the chairman's indulgence. You deserve a great 
credit because even though we are short, we are getting more 
oil out of there than we ever did before because the demand is 
higher. So you deserve credit for doing that, but the fact of 
the matter is they have not increased it enough to make the 
difference that we need not only in this country, but in the 
world. Isn't that right? And they could do it. If Kuwait could 
do it, Saudi Arabia could do it, could they not?
    Mr. Richardson. Saudi Arabia right now, Congressman, is the 
country with the most potential for increased capacity, but I 
will say Kuwait right now does not. It is not there.
    The Saudis, who have taken a leadership role in increasing 
production, have the capacity to increase, but within OPEC, 
they have taken the leadership position.
    Mr. LaTourette. Thank you very much.
    Mr. Burton. Mr. Kanjorski.
    Mr. Kanjorski. Thank you very much, Mr. Chairman.
    Several months ago at a meeting at the White House, Mr. 
Secretary, I think you were there, and after an hour or two, 
several of us and the President were talking about fuel cells 
and nanotechnology. I do not know if that jogs your mind, but 
we came up with the recognition that, one, fuel cell work in 
this country is being directed back to the petroleum industry 
as a fuel source as opposed to going to hydrogen, and I think 
that could be a very serious mistake in terms of the volume of 
material that would be available for energy production, not 
only in this country, but in the world.
    Second, some of the movement in nanotechnology could really 
affect the composite industry and the manufacture of new 
vehicles and all sorts of new processes, and the President that 
night asked us to try and put together a summit, if you may 
    Mr. Richardson. Yes.
    Mr. Kanjorski. I do not think we have done anything on it. 
So I am taking this opportunity to say, look, I am waiting for 
your call, or do you want me to call you?
    Mr. Richardson. You are right. No, I think you should call 
me. I have been a little busy lately.
    Mr. Kanjorski. Right.
    Mr. Richardson. You are right. I remember that commitment 
for White House Summit on energy, on fuels. You are right.
    Mr. Kanjorski. Shall we get together in the next week?
    Mr. Richardson. Yes.
    Mr. Kanjorski. Because I have been dealing with a lot of 
the national laboratories, and I do find something--I mean, I 
know the difficulty you had with some of them recently, but I 
understand why you had that difficulty. They do not seem to be 
in any way coordinated together in any respect.
    I am running across laboratories that are working on fuel 
cells and spending an awful lot of time and money, and another 
laboratory in the same system has solved the problem and they 
do not seem to be cross-pollenizing the ideas that they have 
and the breakthroughs that they have.
    So that, if we could in some way in the executive branch 
and on the congressional branch bring some of these people in 
for a couple of days, I think we could move the process along 
    I think we talked about it that night reducing it from 5 to 
3 years to get to the hybrid car.
    Mr. Richardson. We should do that, Congressman.
    Ms. Browner. And we would obviously like to participate. I 
think we can be helpful.
    Mr. Kanjorski. Very good.
    Mr. Burton. Are you finished, Mr. Kanjorski?
    Mr. Kanjorski. Yes, Mr. Chairman.
    Mr. Burton. OK. Mr. Ryan.
    Mr. Ryan. Thank you, Mr. Chairman.
    Ms. Browner, let me just say I appreciate and admire your 
commitment to your convictions. I know we may disagree on some 
things, but I appreciate all three of you spending the time you 
have. I know you are doing this in various committees. I know 
it is getting late, but I would like to revisit the RFG issue. 
I know that the conversation has gone beyond that.
    I, too, read the CRS report that you cited, which you 
accurately said 2 to 8 cents specifically to the production of 
this RFG, and I cannot contest that, but three sentences 
earlier in this report, it says that the unique RFG situation 
in Milwaukee and Chicago could contribute to 25 to 34 cents on 
a gallon of case.
    So, yes, you can say 2 to 8 cents on this particular blend 
and production, but what the CRS report says, possibly 25 to 34 
cents. I am not asking for a comment. I am just making a 
    I just want to ask you, briefly, do you rely on data and 
information from the DOE and specifically the EIA?
    Ms. Browner. Yes, we do.
    Mr. Ryan. You do in promulgating the regulations?
    Ms. Browner. Absolutely, absolutely. In fact, they were 
very important to us in the work we did in 1993.
    Mr. Ryan. Right.
    Ms. Browner. Then, more recently, the work we did which 
will not take effect for several years, but to remove sulfur 
from the conventional gasoline, yes.
    Mr. Ryan. Secretary Richardson, it is adequate to say that 
Ms. Kenderdine, who is sitting behind you, was the author of 
the memo here, the Acting Director of Office of Policy?
    Mr. Richardson. Yes.
    Mr. Ryan. I assume you rely on her and her memoranda for 
the information.
    Mr. Richardson. Yes, I do.
    Mr. Ryan. I would like to ask unanimous consent, Mr. 
Chairman, to include Melanie Kenderdine's memo dated June 5, 
    Mr. Burton. Without objection.
    [The information referred to follows:]

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    Mr. Ryan. In this memo--and we all seem to be saying--we do 
not know why these prices are going so high, we do not know 
what is happening in Milwaukee and Chicago. There is no 
explanation. We need to get the FTC to investigate price 
gouging, but I must say the answer may be underneath our noses. 
If the EPA relies on the DOE and the DOE relies on their own 
personnel to investigate the unique problems and we have a 
memorandum here which says that supply is short in Milwaukee 
and Chicago and that the Milwaukee and Chicago area supply 
situation is further affected by--and then it goes on to list 
six factors, six pretty unique factors, and it is a convergence 
of those six factors, not all just RFG, but other factors, 
supply factors, none of which have to do with price gouging, 
which may or may not be occurring. I await your report, Mr. 
Pitofsky, but this is June 5th.
    We have had repeated denials for requests for waivers. 
However, the DOE, Ms. Kenderdine's memo, which I hope and 
assume was sent on to the EPA, shows you an explanation for the 
unique problem in the RFG situation in Milwaukee and in 
Chicago. The CRC report says there is a unique situation in 
Milwaukee and Chicago, could be contributed to 25 to 34 cents a 
gallon of gas. The point is you had the information. There was 
a unique problem in this area. The DOE--you have a memo 
yourself suggesting that this problem is occurring, and there 
is a convergence of factors.
    Mr. Richardson, did you share this information with the EPA 
after Ms. Kenderdine wrote her memo?
    Mr. Richardson. Yes. The EPA and DOE on these Chicago/
Milwaukee problems have had a totally joint effort.
    Congressman, since Ms. Kenderdine is here, if you would 
like to hear from her, I do rely on her for this policy advice.
    My point is what she gave to me and what we shared together 
is totally consistent with a policy that we have sought. The 
price differential still cannot be explained, and this is why 
we have gone to Chairman Pitofsky, but do you want to hear from 
her or you would rather not?
    Mr. Ryan. I would be happy to. I do not know if we are 
going to have much time. I would be happy to do that, actually, 
if she could come up, but the point is she has identified six 
factors, and the convergence of these factors is a significant 
contributor to this phenomenon, this unique RFG situation. It 
seems to me that that could have played a much more significant 
role in the determination of whether or not we had a real 
problem in Milwaukee and Chicago and whether or not we should 
have addressed that with a waiver to find out what was actually 
happening before we continued to push on the RFG mandate to try 
and make sure that the supply shocks were answered, Unocal, 
whatever these problems were, were settled. Yet, these waivers 
were denied. So I would be happy to----
    Mr. Burton. Mr. Ryan, do you want her to testify?
    Mr. Ryan. Yes. I would defer to the chairman.
    Mr. Burton. Do you swear to tell the whole truth, nothing 
but the truth, so help you God?
    Ms. Kenderdine. Yes, sir.
    Mr. LaTourette. I would ask Ms. Kenderdine to get the raise 
first before she testifies. Get the raise.
    Mr. Ryan. Let me just say I think it is a very thorough 
memo, and you should be commended for a very thorough memo. I 
would be happy to get your take. I am not trying to play 
    Ms. Kenderdine. Would you put in a plug for the policy 
office budget as well?
    Mr. Ryan. OK. The point is not to try and play ``gotcha.'' 
I simply want to get the truth. I would simply want to find 
some answers to the questions before 6 weeks, when the FTC 
comes up to us with answers. I have got to assume there are 
some other answers in addition to possible gouging that is 
    Ms. Kenderdine. Let me start off by saying that the 
Department of Energy does not look specifically at price. Our 
job is to do supply assessments, and that is what this document 
is. We work with EPA and the EIA policy office, our emergency 
office. It is a physical contacting of the people out there to 
assess supply, and so we do not look specifically at price. As 
you have noted, we have identified factors that may contribute 
to price.
    What I would say--and we have talked about that a lot here 
today--is that the cost differential between RFG and 
conventional gasoline is 5 to 8 cents, and I think the point 
that you are making is that cost is not price. There is a whole 
distribution chain that is involved that adds to the price, and 
there were a convergence of factors in the Midwest. It is a 
transportation-constrained market.
    On the East Coast, you have alternative means of getting 
your product. You are pipeline-limited in the Midwest. You can 
barge. You can truck. That is more expensive, OK? So cost is 
not price.
    We cannot assess the price value of any of these factors 
because the differential was so large, the decision was made to 
refer it to the FTC.
    Mr. Ryan. Would you characterize this market as a 
balkanized market, given all of these factors?
    Ms. Kenderdine. It is a unique market in that both 
Milwaukee and Chicago are ethanol RFG exclusively. 
``Balkanize'' is not necessarily a word I would use.
    I mean, California has a unique market as well.
    Mr. Ryan. True.
    Ms. Kenderdine. It has its own unique gasoline blends. It 
is transportation-constrained as well. So there are several 
unique markets.
    Mr. Burton. The gentleman's time has expired.
    Mr. Ryan. Thank you. I appreciate it.
    I notice that Ms. Browner wanted to respond.
    Ms. Browner. Yes, I do, if I might, Mr. Chairman, with 
leave of the Chair.
    Mr. Burton. Sure.
    Ms. Browner. I am sure everybody knows this, but I do think 
it is worth remembering why Chicago and Milwaukee are in the 
cleaner gasoline program. That was a product of the 1990 
amendments to the Clean Air Act, which is a very unique 
    Two things happened in the 1990 amendments to the Clean Air 
Act which have really never been replicated in any other 
environmental statute. First, while EPA was required to work to 
develop the recipe, part of the recipe, Congress mandated an 
oxygenate, a 2-percent oxygenate. That was done by Congress. 
Illinois and Wisconsin made their own State decisions to limit 
that oxygenate to ethanol.
    The second thing that happened in the 1990 amendments--and 
again, this was Congress, not EPA--is Congress said that those 
areas with the worst air pollution problems--and they used a 
definition--would be required to sell this cleaner gasoline, 
and Chicago and Milwaukee both fall within that definition.
    I think it is important to note these things because what 
you have is a lot of advance warning, 10 years in some 
instances, 7 I think it is fair to say when the recipe got 
written, that these areas would have to go to this cleaner 
gasoline. Many, many areas in the country have gone to it. 
About a third of the gasoline now in the United States is this 
cleaner gasoline, and we are not seeing these kind of issues.
    I am not an expert on energy transportation and pipelines 
or anything, and I would not want to pretend to be. That is not 
our jurisdiction.
    It may well be, as you suggest, Mr. Ryan, that here you 
have a certain set of transportation limitations that may not 
exist in other parts of the country, but the point I want to 
make sure we all see is that the requirement for cleaner 
gasoline in these two cities is not related to transportation. 
That is a separate issue. That is an issue regardless of what 
gasoline you sell in these areas.
    Some of the other issues that were raised in this memo, we 
certainly agree with, but they are not issues unique to cleaner 
gasoline. When we look at the price spike in cleaner gasoline 
in these two cities, we can find the exact same factors listed 
here in other cities, and yet, we do not get the price spoke.
    Mr. Ryan. Or they are unique to these two cities.
    I mean, I think you touched on----
    Ms. Browner. The pipeline issue--no, St. Louis actually 
gets 70 percent of their fuel that comes off the Explorer 
pipeline. Only 12 to 17 percent of the Chicago/Milwaukee fuel 
comes off the Explorer pipeline. So you cannot say it is the 
Explorer pipeline when St. Louis ethanol blend is much, much 
cheaper than Chicago and Milwaukee. This is why we need this 
FTC investigation. Clearly, something is amiss. Something does 
not quite add up, and that is what their job is to figure it 
out for us.
    Mr. Ryan. I see that my time has expired. I thank the 
    I think the ozone transport issue is a whole other issue I 
hope that 1 day we can get into----
    Ms. Browner. We would love to.
    Mr. Ryan [continuing]. Which we in Wisconsin feel like we 
are paying for somebody else's pollution, quite honestly 
speaking, and I hope that next time this comes around that the 
EPA will look at this on a regional basis as well, look at the 
regions that are being affected, look at the uniqueness of the 
situations in regions before moving through with these 
    I yield my time.
    Ms. Browner. Congress put the cities in the statute, with 
all due respect, Mr. Chairman, not EPA. It was Congress. And we 
would be happy to work with you to rewrite that portion of the 
Clean Air Act. In fact, we had sent up legislative principles.
    Mr. Ryan. Waivers----
    Mr. Burton. Mr. Ryan, your time has expired.
    Mrs. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman.
    I think where we were when I last asked a question--I do 
not know how long ago it was, and I will be quick--we were 
talking about the carbon monoxide credit.
    Ms. Browner. Yes.
    Mrs. Biggert. In the letter that we are seeking an answer 
to, you were going to look at that.
    Ms. Browner. Yes.
    Mrs. Biggert. What you said, just as we ended, was that you 
would put this out for comment. Now, why can't we do this under 
a direct final rulemaking which would shorten the process as 
long as there is no one that objects to that?
    Ms. Browner. Well, there will be people who would object. 
This is an issue with some amount of--how do I put this 
diplomatically--a range of views, shall I say. For example, 
your own State of Illinois has a particular point of view. It 
is outside the scope of what the National Academy of Sciences 
looked at. They did not accept it. They did not reject it, but 
it is outside the scope of what they actually looked at.
    Therefore, I would simply say to you, for all of us who 
care about preserving the opportunities for ethanol, this 
administration has been at the forefront of ethanol as part of 
a clean fuels program. The best way to make this adjustment--
and we believe an adjustment will be warranted--is to do it 
through the appropriate notice and comment rulemaking so that 
we can defend whatever final decision we make. This will not be 
without its opponents, and we want to do it in the way that 
allows us to make it based on a record with full comment, with 
full information, so that whatever ultimate decision we make, 
we can defend it.
    Mrs. Biggert. We have been seeking that for quite a while 
now. In fact, I think that after the NAS put that out, it was a 
recommendation from the Illinois EPA that we proceed with that, 
and that has been a year now.
    Ms. Browner. With all due respect, what the Illinois State 
EPA--it is not part of us. It is a separate entity. What they 
are recommending is not in keeping with what the National 
Academy of Sciences reported on to us. It is different. 
However, we believe that there is enough there that it should 
be part of what we take comment on, and much of the delay in 
getting this proposal out was an effort to accommodate your own 
State's thinking on this.
    We had to go back and rewrite the document to take the 
Illinois thoughts and recommendations, if you will, and 
incorporate them. They did come to us late in the process. They 
came to us after the Academy had finished their work.
    Mrs. Biggert. So how long will the rulemaking take?
    Ms. Browner. We are going to use a shortened comment 
period. I am sure that will have its detractors. We are going 
to go to a 60-day. We normally do a 90. Occasionally, we do a 
120. We will do a 60-day, depending on the volume of comments 
we receive, and we will be happy to report to you at the close 
of the 60-day, the volume of comments. In some instances, it 
can take several months.
    I think the real trick here and in the commitment that we 
are trying to make to everybody is to make sure--remember, this 
is a summer fuels program. That is when smog is a problem. That 
is when air pollution is the worst. So what we need to do is 
make sure that any adjustment that we finally adopt is 
available to both the ethanol industry and the petroleum 
industry in time for its next summer's program. I think the 
summer programs are required to start on June 1st.
    Mrs. Biggert. How many companies produce the phase-one RFG 
for the Chicago-Milwaukee area?
    Ms. Browner. No one is making phase-one RFG anymore 
according to our inspections.
    Mrs. Biggert. How many did produce that when it was----
    Ms. Browner. There were seven refineries that serviced the 
Chicago area. I want to make sure that all of them in fact made 
phase one, and we may need to answer that for the record. We 
are not sure.
    Eleven refineries are making the phase-two cleaner 
gasoline. Whether or not all of them made the phase one is a 
question I would like to answer for the record. There is reason 
to think it is probably the same group, but there may have been 
some adjustments.
    Obviously, outside of the large Chicago area, you have 
refiners providing conventional gasoline.
    Mrs. Biggert. So my figure of seven is not correct for 
phase one and then four for phase two?
    Ms. Browner. I am sorry. Ask the question again. I 
apologize. They were trying to give me the answer while you 
were asking the question.
    Mrs. Biggert. How many companies produced phase one, and 
how many now produce phase two in the Chicago-Milwaukee area?
    Ms. Browner. I think there is----
    Mrs. Biggert. Markets, I should say.
    Ms. Browner. I may have made a mistake because I may have 
misunderstood your question.
    There are the refiners in your area, and there are the 
refiners that service your area that come up, the pipelines 
that come over from other parts of that country. It is my 
understanding that the total number of refiners selling cleaner 
gasoline into the Chicago-Milwaukee area is seven.
    In terms of how many refiners participated in the phase-one 
cleaner gasoline program, if I might answer that for the 
record, and we would be happy to give you lists and names and 
all of that.
    Mrs. Biggert. Thank you.
    Mr. Chairman, if I might just have 1 minute?
    Mr. Burton. Mrs. Biggert, for you, anything.
    Mrs. Biggert. Thank you.
    Secretary Richardson, we were talking about the auto 
industry and the public-private partnership. I was very 
disappointed when the PNGB funding was withdrawn from that 
    I think that when it was on the House floor that there were 
a very few Congressmen and women that really knew what that 
program did and how it really does fit into an energy policy. 
So I am hopeful that it will be put back in because I think it 
is a very important thing.
    I think just for comment, we really need to have more of an 
active public awareness of what our policies are not only to 
the public, but also to what is going on here for those of us 
that serve on the Science Committee and are involved with the 
national laboratories. What is really a very important public 
and private policy needs to be addressed before we get to the 
final appropriations bill so that we are not making major 
errors in this area.
    Mr. Richardson. Congresswoman, I agree with you, and I know 
you have one of our national labs in your district.
    Yes. The answer is more public awareness. This is an 
excellent program, and hopefully, that floor amendment will be 
reversed as we move through the process because this program is 
really working. I have seen it firsthand. It is exciting. 
Industry is committed to it. The Government is committed to it.
    To Congressman Sanders, what this is, is a partnership. It 
is not, OK, you guys in the Government pay for it. It is a 
shared effort.
    We want these vehicles eventually on the market. You can do 
all the research and technology, which we are doing, but 
eventually we want them in the market. You have got to show a 
financial commitment, and this is what we are doing with 
Detroit. We really hope this program is restored.
    I agree with Congressman Kanjorski. We need to bring these 
labs closer together. They do share a lot, but, Congresswoman, 
you are right. They get very competitive with each other, and 
there are ways that we can channel their efforts closer 
    Mrs. Biggert. Thank you.
    Thank you, Mr. Chairman.
    Mr. Burton. I am not sure, but I believe I am going to be 
the last questioner. I am not sure you saved the best for last, 
but, nevertheless, I am going to hopefully wrap this up.
    Let me, first of all, say that the energy problems and the 
gasoline prices are not restricted to the areas that have been 
discussed. All across the country, gas prices are higher than 
they ought to be.
    In Indianapolis, where we do not have the problems that we 
have talked about, my son-in-law went to get gas for his SUV 
the other day. It normally cost him about $28 or $30, and it 
cost him almost $50 to fill up his tank. So the hue and cry 
that you hear is not just coming from Chicago or Wisconsin or 
from those other areas. It is coming from all over the place, 
and there needs to be a very thorough review of all of this, 
not just because of the ethanol issue, but because of the 
exorbitant prices that are being charged for gasoline across 
the Nation right now and we need to check that out.
    I want to talk to you, Secretary Richardson, about another 
issue, a year ago. I am not here to try to beat up on you. I 
have seen some of your television interviewers, and I have 
watched you undergo some difficult times. So it is not my 
purpose to do that, but I do want to go over a few things with 
you about Los Alamos.
    A year ago this week, you were in my office and we talked 
about the previous espionage that took place and whether or not 
the Chinese had certain secrets that we believe they have and 
how that investigation was going on. You urged me not to hold 
hearings about certain parts of that because you were concerned 
that we might be giving away national security information if 
we did that. You assured me, and assured others, that we were 
not going to have any more problems, that you were going to go 
in there and clean that up.
    I got to tell you, the thing that concerns me is the 
Chinese have the largest standing army in the world. They are 
buying submarines. They are buying everything that you can 
think of in the area of military equipment, from the Soviets 
and every place else, and I think they are going to be a major 
threat to the United States at some point. I really believe 
that. Now they have stolen a lot of our nuclear secrets, maybe 
all of them. They now have the ability to have a mobile-
launched ICBM with 10 W-88 warheads, and we could not even use 
the term ``W-88'' a year ago because it was so top secret. I 
worry about my kids and my grandkids and your kids and your 
grandkids, and I am sure you share that.
    But the thing that I am concerned about is that we still 
have lax security at Los Alamos. Now, I cannot go into some of 
the details that I have learned from the FBI today about how 
those hard drives were obtained and why the security was so 
lax, but what I wanted to ask you is--there is the bell. What I 
wanted to ask you is why in the world did that happen and what 
is going to be done to make sure that this never happens again 
because you assured us a year ago that that was going to be 
stopped, and there were not proper procedures at Los Alamos 
where those hard drives were.
    Mrs. Biggert. Yes.
    Mr. Richardson. Congressman, first, I appreciate the very 
constructive way you have framed the issue in the question.
    I am going to get to the bottom of this. What obviously 
happened at Los Alamos after 21 massive security improvements 
and 36 counter-intelligence improvements, including polygraphs 
and more guards at Los Alamos and gates and making sure that 
cyber security, computer security, you could not transfer, and 
just stand down. I stood down all those labs. In other words, 
you cannot do anything except undertake security training. That 
we had this problem, it is inexcusable. It is wrong. I am 
getting to the bottom of it.
    You mentioned that the FBI right now is undertaking an 
investigation. The good news is that the hard drives were 
found. Their----
    Mr. Burton. Let me interrupt you there. I cannot go into 
the details about what was on those hard drives, and you cannot 
either in a public forum, but the fact of the matter is it was 
a real--it is a real problem for our national security. Those 
hard drives and the way they got them out of there--and I am 
not going to go into it, but you and I know the security 
measures were taken. For somebody to take those out of there, 
they had to do it for a reason. They just did not do it for 
their health. And then to find them behind a copy machine would 
indicate that they were trying to get them back as hastily as 
possible. How do we have assurances that they were not copied 
and given to the Chinese or to some other entity?
    Mr. Richardson. Congressman, at this stage, I can 
categorically state to you--and this is based on FBI 
information--there is no evidence of espionage. There is no 
evidence that they left that----
    Mr. Burton. Is there any evidence that it was not 
    Mr. Richardson. I think what is happening right now is 
polygraphing. There is a focus on a few members of that team 
that have made contradictory statements. You and I cannot go 
into it here.
    I will assure you that I will get to the bottom of this; 
that we will take disciplinary action. We have already taken 
additional procedures since then on encryption, on logging, 
that should have happened before. I am reviewing the contract 
of Los Alamos.
    Mr. Burton. Mr. Secretary, Bill, my fellow Member, I had a 
hearing in California. We had a Soviet former KGB and a GRU 
agent in that said that there were nuclear devices that were 
buried--possibly buried in the United States and 100 other 
sites around the world--possibly. There have been two sites 
that have been uncovered where equipment of the type they 
talked about was buried in Europe, and they said that there 
were numerous sites in the United States. One of the agents 
said he surveyed a site in the Shenandoah Mountains.
    The reason I am bringing that up is the information that 
was at Los Alamos--and I am not going to go into what it was, 
but the information could be detrimental to our national 
security if nuclear devices have been buried and it has not 
been proven that they are not buried here in the United States 
right now.
    The point I am trying to make is that is something that is 
intolerable. The other things you did are great. The other 
security improvements you made are great, but this is one that 
was missed or overlooked. For what reason, I know not. We do 
not have any evidence whatsoever that it was not taken by a 
foreign entity.
    So all I am saying is what steps are you taking now to make 
sure this does not happen again if we do have any more secrets.
    Mr. Richardson. I mentioned several measures. One, we are 
encrypting this data so that this cannot occur again. Second, 
some of those logging procedures have been established. We have 
taken--you know, one of the problems, Congressman, is that I 
put all these hugely tough measures, like polygraphing, and 
civil libertarians, Asian-American groups, a lot of Members of 
Congress, some of the scientists that I supervise went against 
    Now, we are doing them, and it is happening, but I think, 
if anything, one of the things that I wish I had done more, 
despite all of these security experts and measures and 
directives, is to deal with a culture. We are also changing the 
combination to vaults. We are staffing the vaults. We are 
putting alarm on vaults. We are putting serial numbers on 
sensitive materials.
    As you know, Congressman, you cannot change a security 
classification of a document or a drive without making sure 
there is inter-agency approval, and we are working on that, 
too, but we are massively ordering increased security measures 
for some of these encyclopedia data bases. We are going to get 
to the bottom of this.
    Mr. Burton. I know you have been involved in the political 
realm over the past few months, and I can understand that, but 
because of the significance of the threat to our national 
security, are you going to devote all of your time to 
correcting this measure?
    Mr. Richardson. I have said publicly that my time right 
now, this Los Alamos issue, oil prices, that is going to be a 
large part, a majority part, full time.
    Mr. Burton. I cannot tell you what to do. You were 
appointed by the President of the United States, and I 
understand the politics that are involved and I understand what 
your commitments are, but I would just say this is of such 
import that I would hope that you would devote more than just 
the majority of your time. I would hope that you would devote 
all of your time that is possible to making sure this is 
cleared up.
    Mr. Richardson. I will do that.
    Mr. Burton. I will tell you, the people in the other body 
and this body are really upset about the problems that have 
occurred, and if you made that kind of a commitment, I think it 
would take a lot of pressure off of you, rather than being out 
there campaigning. I understand you want to do that, and you 
can do that, but this is something of major significance and 
should be given priority.
    Mr. Richardson. Congressman, I made a pledge, and you saw 
some of those news shows. My time will be focussed entirely on 
these two issues.
    Mr. Burton. All right. Without any further questions--do 
you have any?
    Mr. LaTourette. I do not have any further questions of this 
panel, but if I have a unanimous consent request relative to 
the third panel, if the Chair would entertain that.
    Mr. Burton. I will entertain a unanimous consent request.
    Mr. LaTourette. Mr. Chairman, the third panel has been 
sitting here all day, specifically Mr. Red Cavaney and Mr. Eric 
Vaughn, one from the American Petroleum Institute, the other 
one from the Renewable Fuels Association. I would first ask 
unanimous consent that the record reflect that they have been 
here and are prepared to testify, and it is our schedule that 
keeps them from doing that.
    Mr. Burton. One of them has an anniversary today. Yes.
    Mr. LaTourette. Then the second unanimous consent request 
that I would make is any statement that they wish to have 
before the committee in the record be accepted into the record 
and that the committee in the future consider whether or not we 
should have another hearing and invite them back to give their 
views on what has been said today.
    Mr. Burton. We will consider that.
    [The prepared statements of Mr. Cavaney and Mr. Vaughn 






















    Mr. LaTourette. Thank you.
    Mr. Burton. We stand adjourned. Thank you very much.
    [Whereupon, at 8:12 p.m., the committee was adjourned.]
    [The prepared statements of Hon. Christopher Shays, Hon. 
Henry A. Waxman, Hon. Benjamin A. Gilman, and additional 
information submitted for the hearing record follow:]