[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
           RISING DIESEL FUEL COSTS IN THE TRUCKING INDUSTRY

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

                               (110-124)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                          HIGHWAYS AND TRANSIT

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 6, 2008

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure


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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                 JAMES L. OBERSTAR, Minnesota, Chairman

NICK J. RAHALL, II, West Virginia,   JOHN L. MICA, Florida
Vice Chair                           DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon             THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois          HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of   JOHN J. DUNCAN, Jr., Tennessee
Columbia                             WAYNE T. GILCHREST, Maryland
JERROLD NADLER, New York             VERNON J. EHLERS, Michigan
CORRINE BROWN, Florida               STEVEN C. LaTOURETTE, Ohio
BOB FILNER, California               FRANK A. LoBIONDO, New Jersey
EDDIE BERNICE JOHNSON, Texas         JERRY MORAN, Kansas
GENE TAYLOR, Mississippi             GARY G. MILLER, California
ELIJAH E. CUMMINGS, Maryland         ROBIN HAYES, North Carolina
ELLEN O. TAUSCHER, California        HENRY E. BROWN, Jr., South 
LEONARD L. BOSWELL, Iowa             Carolina
TIM HOLDEN, Pennsylvania             TIMOTHY V. JOHNSON, Illinois
BRIAN BAIRD, Washington              TODD RUSSELL PLATTS, Pennsylvania
RICK LARSEN, Washington              SAM GRAVES, Missouri
MICHAEL E. CAPUANO, Massachusetts    BILL SHUSTER, Pennsylvania
TIMOTHY H. BISHOP, New York          JOHN BOOZMAN, Arkansas
MICHAEL H. MICHAUD, Maine            SHELLEY MOORE CAPITO, West 
BRIAN HIGGINS, New York              Virginia
RUSS CARNAHAN, Missouri              JIM GERLACH, Pennsylvania
JOHN T. SALAZAR, Colorado            MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California      CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois            TED POE, Texas
DORIS O. MATSUI, California          DAVID G. REICHERT, Washington
NICK LAMPSON, Texas                  CONNIE MACK, Florida
ZACHARY T. SPACE, Ohio               JOHN R. `RANDY' KUHL, Jr., New 
MAZIE K. HIRONO, Hawaii              York
BRUCE L. BRALEY, Iowa                LYNN A WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          CHARLES W. BOUSTANY, Jr., 
TIMOTHY J. WALZ, Minnesota           Louisiana
HEATH SHULER, North Carolina         JEAN SCHMIDT, Ohio
MICHAEL A. ARCURI, New York          CANDICE S. MILLER, Michigan
HARRY E. MITCHELL, Arizona           THELMA D. DRAKE, Virginia
CHRISTOPHER P. CARNEY, Pennsylvania  MARY FALLIN, Oklahoma
JOHN J. HALL, New York               VERN BUCHANAN, Florida
STEVE KAGEN, Wisconsin               ROBERT E. LATTA, Ohio
STEVE COHEN, Tennessee
JERRY McNERNEY, California
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey

                                  (ii)

?

                  SUBCOMMITTEE ON HIGHWAYS AND TRANSIT

                   PETER A. DeFAZIO, Oregon, Chairman

NICK J. RAHALL II, West Virginia     JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York             DON YOUNG, Alaska
ELLEN O. TAUSCHER, California        THOMAS E. PETRI, Wisconsin
TIM HOLDEN, Pennsylvania             HOWARD COBLE, North Carolina
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
TIMOTHY H. BISHOP, New York          ROBIN HAYES, North Carolina
MICHAEL H. MICHAUD, Maine            HENRY E. BROWN, Jr., South 
BRIAN HIGGINS, New York              Carolina
GRACE F. NAPOLITANO, California      TIMOTHY V. JOHNSON, Illinois
MAZIE K. HIRONO, Hawaii              TODD RUSSELL PLATTS, Pennsylvania
JASON ALTMIRE, Pennsylvania          JOHN BOOZMAN, Arkansas
TIMOTHY J. WALZ, Minnesota           SHELLEY MOORE CAPITO, West 
HEATH SHULER, North Carolina         Virginia
MICHAEL A. ARCURI, New York          JIM GERLACH, Pennsylvania
CHRISTOPHER P. CARNEY, Pennsylvania  MARIO DIAZ-BALART, Florida
JERRY McNERNEY, California           CHARLES W. DENT, Pennsylvania
BOB FILNER, California               TED POE, Texas
ELIJAH E. CUMMINGS, Maryland         DAVID G. REICHERT, Washington
BRIAN BAIRD, Washington              CHARLES W. BOUSTANY, Jr., 
DANIEL LIPINSKI, Illinois            Louisiana
DORIS O. MATSUI, California          JEAN SCHMIDT, Ohio
STEVE COHEN, Tennessee               CANDICE S. MILLER, Michigan
ZACHARY T. SPACE, Ohio               THELMA D. DRAKE, Virginia
BRUCE L. BRALEY, Iowa, Vice Chair    MARY FALLIN, Oklahoma
HARRY E. MITCHELL, Arizona           VERN BUCHANAN, Florida
LAURA A. RICHARDSON, California      ROBERT E. LATTA, Ohio
ALBIO SIRES, New Jersey              JOHN L. MICA, Florida
JAMES L. OBERSTAR, Minnesota           (Ex Officio)
  (Ex Officio)

                                 (iii)

                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    vi

                               TESTIMONY

Card, Mike, President, Combined Transport........................    38
Felmy, John, Economist, API......................................     4
Johnson, Wayne, Director of Logistics, American Gypsum Company...    38
Slocum, Tyson, Director, Public Citizen's Energy Program.........     4
Spencer, Todd, Executive Vice President, Owner-Operator 
  Independent Drivers Association................................    38
Te Beau, Suzanne M., Chief Counsel, Federal Motor Carrier Safety 
  Administration, U.S. Department of Transportation..............    38
Todd, Ryan, Integrated Oils Analyst, Deutsche Bank AG............     4
Voltmann, Robert A., President and CEO, Transportation 
  Intermediaries Association.....................................    38

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Altmire, Hon. Jason, of Pennsylvania.............................    62
Bishop, Hon. Timothy H., of New York.............................    63
Carney, Hon. Christopher P., of Pennsylvania.....................    64
Cummings, Hon. Elijah E., of Maryland............................    67
Latta, Hon. Robert E., of Ohio...................................    75
Mitchell, Hon. Harry E., of Arizona..............................    76
Oberstar, Hon. James L., of Minnesota............................    77
Richardson, Hon. Laura A., of California.........................    80

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Card, Mike.......................................................    84
Felmy, John......................................................    93
Johnson, Wayne...................................................    97
Slocum, Tyson....................................................   104
Spencer, Todd....................................................   124
Te Beau, Suzanne M...............................................   129
Todd, Ryan.......................................................   133
Voltmann, Robert A...............................................   149

                       SUBMISSIONS FOR THE RECORD

Voltmann, Robert A., President and CEO, Transportation 
  Intermediaries Association, responses to questions from the 
  Subcommittee...................................................   163

                        ADDITIONS TO THE RECORD

The Associated General Contractors of America, written statement.   168
Auto Research Center, Mike Camosy, General Manager, written 
  statement......................................................   173
NATSO, Inc., written statement...................................   179

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[GRAPHIC] [TIFF OMITTED] T2306.007



      HEARING ON RISING DIESEL FUEL COSTS IN THE TRUCKING INDUSTRY

                              ----------                              


                          Tuesday, May 6, 2008

                   House of Representatives
    Committee on Transportation and Infrastructure,
                      Subcommittee on Highways and Transit,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:04 a.m., in 
Room 2167, Rayburn House Office Building, the Honorable Peter 
A. DeFazio [Chairman of the Subcommittee] presiding.
    Mr. DeFazio. The hearing will come to order. The 
Subcommittee on Highways and Transit is in session today for a 
hearing on rising diesel fuel costs, the impact on the trucking 
industry, and the spillover into other aspects of the economy.
    We will hear from two panels, the first will delve into the 
murky question of high gas prices. We will hear some 
interesting and, I think, very contrasting testimony there. And 
then the second panel, where we will look at the impacts of the 
high fuel prices, where and how they may be charged to 
shippers, and where and how the money that shippers might pay 
for additional fuel costs are either distributed to those who 
actually provide the transportation or not.
    There are some interesting submissions in the testimony and 
there is a lot of talk about free markets and those sorts of 
things, but I think we are going to find today that we aren't 
looking totally at just supply and demand and free markets that 
are transparent in Adam Smith's traditional view of the world.
    I did study economics and I will be interested to see 
people defend having essentially what I see in the brokerage 
companies as an oligopsony, where there are a few brokers that 
dominate the industry dealing with a large diversity of small 
providers who really have very little or no market power, and 
they have no information. So how can it be a free market when 
they lack information? And I hope that that is addressed here 
today.
    And then in terms of pure supply and demand in terms of 
high diesels prices, I think that some of the testimony 
received today will point to some of the issues that have been 
raised here in Congress, the issue of the speculative market 
that was created at the behest of Enron, which, according to 
the former CEO of ExxonMobil--and he should know, he had a nice 
little $400 million retirement he is buying oil fields with--
but he said, when oil was $60 a barrel, that $20 a barrel was 
purely speculative, and he thought that was good thing because 
ExxonMobil was engaged in making money not only with supply but 
in speculating on supply, and the conventional wisdom is this 
provides liquidity in the market.
    But when you have a huge entry by those who have absolutely 
no intention of ever taking delivery and those who do not 
utilize the product but merely are engaged in the market, in a 
totally opaque, unregulated market, and speculating and self-
dealing and/or dealing in ways that would violate other laws if 
they were dealing in other commodities, driving up the price 
unnecessarily, I would hope that we can address that a bit too.
    The bottom line is we are seeing a huge number of small and 
independent trucking companies go out of business. The records, 
unfortunately, cut off at five or more, but we do know that we 
are seeing a dramatic number of people lose their trucks, lose 
their livelihoods, and go out of business. We are also seeing a 
large run-up in the cost of shipping. And we have got to do 
what we can to mitigate these things here in Congress and I 
don't believe we should just throw up our hands and say 
everything is the way it is, and that is the way it is going to 
be. I think we are going to find that there are some places 
where an appropriate action by Congress might help mitigate 
these problems.
    We need to change our ways in this Country. We need to 
become more fuel efficient. We need to become more energy 
independent. We need to develop new technologies, new fuels. 
But on the way to that future, which, unfortunately, is some 
time yet off, we don't need to be price-gouged on the way 
there. We don't need to see unnecessary loss of people's 
livelihoods on the way there, and I think we can take some 
steps to prevent that.
    With that, I turn to my colleague, Mr. Duncan.
    Mr. Duncan. Thank you, Mr. Chairman, for holding this 
hearing on rising diesel fuel costs in the trucking industry. I 
would also like to thank the witnesses for attending this 
important hearing.
    We have all seen the headlines about escalating fuel prices 
and their impact on our economy. Specifically, diesel fuel has 
set record highs over the past year, hitting more than $4.00 
per gallon. These prices have been rising steadily, as everyone 
knows, over the past couple of years. Statistics from the 
Energy Information Administration show the retail price of a 
gallon of diesel fuel rose 48 percent in the last year and 166 
percent in the last five years.
    Rising fuel costs have had a major impact on the trucking 
industry. The trucking industry spent more than $112 billion on 
fuel in 2007 and forecasts a record high of more than $140 
billion for 2008. The trucking industry is facing unparalleled 
operating cost increases due to rising fuel costs. Just a one 
cent increase in diesel prices costs the trucking industry an 
additional $391 million per year. Because 84 percent of all the 
goods we use and consume get to us on goods, they are essential 
to our economy and daily life. Rising fuel costs have the 
potential to increase the cost of everything Americans consume 
that travels by truck.
    What to do about oil? Robert Samuelson, a Washington Post 
columnist, a few days said this. He said, What to do about oil? 
First, it went from $60 to $80 a barrel, then from $80 to $100, 
and now to $120. Perhaps we can persuade OPEC to raise 
production as some senders suggest, but this seems unlikely.
    The truth is that we are almost powerless to influence 
today's prices. We are because we didn't take sensible actions 
10 or 20 years ago. If we persist, we will be even worse off in 
a decade or two. The first thing to do, start drilling.
    Robert Samuelson is no conservative saying that.
    Years ago we heard people say, well, we don't need to 
increase our domestic energy production because it won't help 
the problem immediately. Some of us said then it might not help 
it immediately, but it would help a few years down the road. 
Unfortunately, we didn't do that. We put 85 percent of our 
offshore oil resources off limits. We refused to drill in ANWR, 
in a 19.8 million acre reserve, which is 36 or 37 times the 
size of the Great Smokey Mountains National Park. And we want 
to drill on about 2,000 or 3,000 acres more up there, but we 
won't do that. No country in the history of this world has put 
as much of its natural resources off limits to production.
    We don't have to produce all of our domestic energy needs, 
but we must produce a little more, or we are going to become 
even more vulnerable to OPEC and foreign energy producers. That 
is the only hope that we have. If we don't do that, then we are 
going to see these prices escalate even more.
    There are some groups that are primarily made up of very 
wealthy people who want gas prices to go even higher, but a lot 
of poor and lower income and working people in this Country are 
being hurt even at the prices that prices are at now. So we can 
do these things in environmentally safe ways that we couldn't 
do back in the 1920s or even the 1950s or 1960s. I think some 
people have the idea still in the 1920s, where they have to put 
oil wells up every 25 or 50 yards. But today you can put one 
oil well up and go down several miles or out several miles and 
the footprint above ground is negligible. So we don't need to 
be afraid to produce more, and if we don't, then we are going 
to see these prices go even higher, and even more poorer and 
lower income and working people will be hurt.
    Thank you, Mr. Chairman.
    Mr. DeFazio. I thank the gentleman.
    Chairman Oberstar wanted me to convey his regrets. He is in 
the process of returning from Europe, where he was addressing 
the EU on transportation issues. He, in particular, in his 
statement wanted to be certain to point out that although 
some--notably Senator McCain and Senator Clinton--had proposed 
suspending the gas tax, albeit in slightly different ways--one 
theoretically to be paid for, the other just suspended--and 
this is something I have said a number of times: in 1993, the 
gas tax was 18.3 cents yet gas was a buck a gallon; diesel was 
less. Today, Federal gas tax is 18.3 cents; gas in my home 
State is about $3.75 a gallon and diesel is well over $4.00, 
and the Federal tax hasn't gone up. So, he, in particular, 
wanted to make that point. He had other concerns that he wanted 
to raise, and we will place his statement in the record.
    With that, we will proceed.
    Oh, sorry. Mr. Mica.
    Mr. Mica. Thank you, Chairman DeFazio. Thank you also for 
holding this very topical hearing on the rising fuel costs in 
the trucking industry.
    Truckers across the Nation are absolutely struggling. This 
is not only a personal disaster for independent truckers, but a 
disaster right now for the trucking industry and for all 
Americans. Most of our goods are delivered and our foodstuffs 
by truck. If you haven't been to the grocery store lately, you 
need to get there, because you join American families in seeing 
sticker shock and a lot of the cost that is now incurred by our 
truckers is being passed on in the cost of higher food.
    You know, it is nice to talk about windmills and solar 
panels and alternative energy sources, but, in reality--and you 
have to face reality--it is going to be a decade and a half 
before any of that makes a substantial impact. In the meantime, 
we have got to find a solution to bring costs under control. 
And if you are facing double-digit increases in fuel costs, 
percentage increased just over a matter of months, and you are 
in the trucking industry, you have got a very critical 
situation on your hands.
    You need a long-term policy, but we also need a short-term 
policy. The short-term policy can only evolve around increasing 
the supply. You don't need to be a Harvard PhD in economics to 
figure this out, but we need an increase in supply of diesel 
and gasoline fuel in the short-term, and to do that we are 
going to have to tap some of our domestic resources wherever 
they be. I don't know if it is going to take $4.50, $5.00, 
$5.50, $6.00.
    I don't know what the magic price per gallon is going to be 
for those driving a car or a truck, but at some point the 
people are going to come up the steps of the Capitol and shake 
Members of Congress, physically shake them, I think, and say 
that we have got to do something about these staggering 
increases in costs; and the only solution, period, is going to 
be to increase some of the domestic supply, rather than make it 
more difficult to access, more costly to obtain and prohibitive 
to get on the market. Those are not the solutions.
    This is a good opportunity to hear from some of those that 
have been affected in a disastrous fashion by this situation. 
Appreciate your calling this timely hearing. But we have got to 
look at increasing the supply period if we are going to see any 
decrease in cost or any relief to these truckers.
    Thank you and I yield back.
    Mr. DeFazio. Thank you, Chairman--Mr. Ranking Member. 
Sorry.
    Mr. Mica. I like Chairman.
    Mr. DeFazio. Well, with the Chairman in absentia, if you 
can do that speech in four different languages, we will make 
you Chairman for the day.
    With that, we would turn to Mr. Tyson Slocum, Director of 
the Public Citizen's Energy Program.
    Mr. Slocum. Five minutes.

 TESTIMONY OF TYSON SLOCUM, DIRECTOR, PUBLIC CITIZEN'S ENERGY 
PROGRAM; RYAN TODD, INTEGRATED OILS ANALYST, DEUTSCHE BANK AG; 
                 AND JOHN FELMY, ECONOMIST, API

    Mr. Slocum. Thank you very much, Mr. Chairman, Members of 
the Committee. On behalf of Public Citizen's 100,000 members 
nationwide, I thank you for this opportunity to testify here 
today. Public Citizen is one of America's largest consumer 
advocacy organizations, and, as Director of the Energy Program, 
we have been dedicated to solving problems in America's energy 
markets and make sure that consumers have access to affordable, 
reliable, and clean sources of energy.
    Now, there is no question that the American economy has 
slowed, possibly in a recession, partly due to rising energy 
prices. Now, there are some segments of the economy, however, 
that remain immune from this slowdown, and that would be the 
energy sector, particularly oil and gas companies, and many of 
the financial companies that are wreaking havoc on under-
regulated futures markets. And it is those two issues that I 
would like to focus on in my five minutes today, because while 
there are several variables that influence energy prices--
supply and demand and things like that--there is no question 
that Congress can take some easy action to address these two 
variables: investment decisions by the oil industry, increase 
market concentration among oil companies, and under-regulation 
of futures markets that encourage harmful speculation. 
Addressing these issues, I believe, would provide consumers 
with better access to adequately competitive markets and fair 
energy prices.
    Now, everyone talks about oil company profits. ExxonMobil, 
as the industry leader, just since January of 2007, $51.5 
billion in profits. But that is not all. In addition, by far, 
their largest expenditure was buying back their stock--$40 
billion in stock repurchases since January 2007, compared to 
only $4.3 billion of capital and exploration investment in the 
United States.
    What this indicates to me is that large, vertically 
integrated oil companies are not reinvesting these record 
earnings, fueled by high market prices, back into the kinds of 
investments that are going to provide consumers with the kind 
of long-term relief that they need. In all, the largest five 
oil companies operating in America have spent $170 billion 
buying back stock since 2005, and that is more than they have 
spent investing in U.S. oil infrastructure.
    And the profit margins on their operations have been very 
robust. The return on capital employed, which is the 
measurement that the oil industry uses, have been very healthy. 
Exxon, the industry leader, a 32 percent return on capital 
employed for its global operations and a 65 percent return on 
capital employed on its U.S. refining business. And that is why 
they are not building new refineries. Because their profit 
margins are so high with tight refining capacity helped by a 
number of mergers in the last few years that reduced 
competition in this sector, they don't want this gravy train to 
end.
    Now, consumers have been doing their part. Gasoline 
consumption slowed last year. We have got excess supplies of 
crude oil. But, yet, the speculators on Wall Street continue to 
drive the price up. And most analysts, including us at Public 
Citizen, believe that there is a huge disconnect between 
supply-demand fundamentals and the current record-high market 
prices for oil, and that has to do with the rise of harmful 
speculation driven mainly by relatively new players, such as 
hedge funds and some old standbys such as large investment 
banks like Goldman Sachs and a few of the large oil companies.
    Because Congress de-regulated these energy trading 
exchanges in the year 2000, much of the operations of these 
energy traders are below the radar screen of an effective 
police force of Federal regulators. Lacking that kind of 
transparency, lacking the kind of basic disclosure, these 
players are potentially engaging in harmful anti-competitive 
practices on these futures markets that are driving prices up. 
Re-regulating these exchanges is key to restoring sanity to our 
futures markets and to reduce the level of harmful speculation.
    Additionally, the rise of these financial players in 
acquiring and controlling physical energy infrastructure 
assets, such as Goldman Sachs' acquisition in 2006 of 40,000 
miles of petroleum product pipeline in their acquisition of 
Kinder Morgan, has clearly given them an insider's peek to 
allow them better access to push prices up.
    So restoring some sanity to these futures markets would 
bring prices down to consumers.
    Thank you very much for your time.
    Mr. DeFazio. Thank you, and thanks for sticking close to 
your appointed time.
    Mr. Ryan Todd, Integrated Oils Analyst, Deutsche Bank AG 
will be next.
    And you can depart from your prepared testimony if you 
wish. I always like it if members of the panel begin to enter 
into a little bit more of an interaction where they disagree, 
but go right ahead with however you wish to proceed with your 
five minutes, Mr. Todd.
    Mr. Todd. Thank you, Mr. Chairman.
    I would like to begin by touching on crude oil prices, as 
that is really at the root of the comments here today and the 
root of high gasoline and high diesel prices. As a little 
preface to that, I would like to say that in a previous life, 
prior to working at Deutsche Bank, I was actually an upstream 
engineer involved in the exploration and production of oil and 
gas supplies. So I have sat on both sides of the table, and one 
thing I can say from sitting on both sides of the table----
    Mr. DeFazio. For clarification, what is an upstream 
engineer? I assume that means you are not working on getting it 
out of the ground, you are somewhere further up in the process?
    Mr. Todd. No, it is exploration and production activities, 
as opposed to refining activities, which would be downstream.
    Mr. DeFazio. Okay. All right, so upstream. Okay, good. 
Thank you. We will credit you that 15 seconds. Go ahead.
    Mr. Todd. Thank you.
    As I was saying, one thing that I think is clear from my 
time on both sides of the table is that both the oil industry 
and Wall Street has done a terrible job at forecasting oil 
prices for various reasons, and one of the things--with an 
economics background, Mr. Chairman, one of the things that I 
think has been very interesting--outside of the straightforward 
supply-demand issues involved--is the fact that we have seen 
that higher prices have actually lowered supply in many ways 
and actually increased demand.
    Now, when I say that, it seems a little backward 
economically, but what we have seen is that as prices have 
risen globally, the international oil companies--due to 
resource nationalism, increasing government fiscal takes abroad 
and sometimes here at home, and an incredibly tight service and 
construction industry--have provided incredible constraints on 
the industry's ability to ramp up supply. At the same time, 
demand has been surprisingly robust here in the United States 
up until just recently, and certainly demand growth 
internationally has been very, very strong. Demand growth in 
oil producing nations especially, we have seen that higher oil 
prices have actually driven rapid demographic and GDP growth in 
oil producing nations who are flushed with cash and can afford 
to subsidize energy prices, which actually make demand even 
stronger as prices go higher.
    So the markets look at this, they see that spare capacity 
is incredibly tight globally, and even though they see that 
potentially on forecasts there could be a loosening in the 
balance in coming months, they look ahead and they worry that 
geologic constraints and the constraints in growing supply that 
I mentioned above will limit the industry's ability to generate 
enough supply to meet growing demand.
    Now, economically speaking, the one way to get around this 
is to drive up prices to a high enough level that there is a 
demand destruction, restoring balance to the supply-demand 
balance globally.
    With this in mind, we look at gasoline prices. The number 
one prices with gasoline prices is crude oil prices. A year ago 
we testified before the Senate that higher gasoline prices 
would eventually create higher gasoline prices. Not a very 
pleasant thing to say, but certainly we have seen that to a 
certain extent. A year ago, if you were to look, crude oil 
prices in terms of dollars per gallon, were essentially $1.60 a 
gallon. If you were to throw on refining the marketing margin 
on top of that, maybe an additional $0.80. Some retail and tax 
on top of that and you basically get to your $3.00 a gallon. 
Today we see that just in terms of crude cost per gallon it 
stands at about $2.85 a gallon. If you put that close to $0.60 
of retail and tax margin on top of that, you are approaching a 
price of almost $3.50 a gallon, assuming you can make gasoline 
for free, assuming refining makes no profit whatsoever. Now, 
this we have actually seen in the first quarter of this year. 
Most refiners are actually losing money. Refining margins have 
actually been negative for many weeks in the first quarter of 
this year, partially due to the fact, again, of high crude 
prices and falling demand here in the United States.
    So that brings us to diesel. Now, diesel prices have risen 
more quickly than gasoline prices. There is no surprise there. 
Historically, diesel was at a discount to gasoline. Essentially 
what we have seen is a demand or a premium in the market. The 
dieselization of the European auto fleets has European demand 
up 2.5 percent year-on-year on average over the past few years 
versus gasoline demand that was down 2 percent a year over that 
same time frame. International demand has been strong, both 
transportation and industry-oriented, and U.S. diesel demand in 
the last three months is up almost 10 percent year-on-year 
versus gasoline demand, which is down almost 1 percent year-on-
year over the same time period. Again, I think some of this 
will probably come out. The diesel demand is probably less 
discretionary; it is very industrial-oriented. So strong demand 
and tight U.S. refining capacity, which has been built to 
maximize gasoline production, not diesel production, has driven 
diesel prices to record levels.
    Now, the best thing, from our recommendation, is to allow 
the markets to allocate capital to the places which are tight, 
in this case diesel capacity, which is happening here in the 
United States as it is expanding, but it is something that does 
take time and capital.
    Mr. DeFazio. Thank you. Very good.
    We now turn to Mr. John Felmy, Economist for the American 
Petroleum Institute. Mr. Felmy.
    Mr. Felmy. Thank you, Mr. Chairman and Ranking Member 
Duncan.
    I am John Felmy, Chief Economist of API, the national trade 
association of U.S. oil and natural gas industry. API 
represents nearly 400 companies involved in all aspects of oil 
and natural gas industry, including exploration and production, 
refining, marketing, transportation, as well as service 
companies that support our industry.
    I would like to talk about petroleum markets today and why 
prices have been rising. Higher prices are a burden on families 
and businesses, particularly those in the transportation sector 
such as trucking and the airlines. Being able to understand why 
the increases have happened is the first step to being able to 
do something about them.
    The biggest factor in the price increases? It is higher 
crude prices, as mentioned earlier. Throughout the first four 
months of the year, average crude oil prices were up about 
$1.00 per gallon, $42.00 per barrel higher than the same period 
a year ago. A similar comparison shows that gasoline prices are 
up $0.71 a gallon and diesel up $1.03. Gasoline prices have 
risen more slowly because of weakening demand, record 
production, strong imports, and ample inventories.
    Crude oil, the raw material for all petroleum fuels, is the 
biggest cost component of gasoline and diesel. Crude oil is 
bought and sold on international markets, and most of what we 
need we import.
    This week, refiners were paying as much as $2.86 per gallon 
of crude oil they need to make a gallon of gasoline or diesel 
and other products. That is most of the price at the pump. When 
you add about $0.47 in gasoline taxes (or almost $0.54 cents in 
diesel taxes) to each gallon, you have accounted for the vast 
majority of what people are paying.
    Crude oil prices have been rising because of strong 
worldwide demand, even as U.S. overall petroleum demand, 
including demand for gasoline, has flattened. However, in the 
U.S., demand for diesel has remained strong. This follows a 
long-term trend here and around the world. Over the past five 
years, U.S. demand for highway diesel has been rising at triple 
the rate of gasoline. In Europe, demand has also been rising, 
reflecting growth in diesel vehicles, spurred in part by lower 
taxes on diesel.
    Continuing strong U.S. demand for diesel versus weakening 
demand for gasoline is a key factor why diesel prices have been 
higher here than gasoline prices. Demand for diesel has 
remained strong in the face of higher prices at the pump in 
large part because its use is less discretionary. Consumption 
is mostly business-related. Fuel is an indispensable cost 
component and just one of the costs in the manufacturing-
distribution chain. Also, keep in mind that, unlike Europe, 
taxes on diesel in the U.S. are higher than on gasoline, and 
the new ultra-low sulfur diesel formulations cost more to 
produce, too.
    U.S. refiners have been working hard to meet demand, 
churning out record amounts of both gasoline and distillate, 
which includes heating oil and gasoline, nearly 9 million 
barrels of gasoline and more than 4 million barrels per day of 
distillate during the first four months of this year. At the 
same time, they continue to invest heavily in environmental 
improvements, including billions of dollars for cleaner burning 
gasolines and diesel fuels. Recently, despite healthy industry 
earnings, refiner and retail margins have tightened.
    Industry earnings are strong, but don't be deceived by the 
big numbers. The size of gross earnings is largely a function 
of the size of the industry, which is massive because of the 
magnitude of the job the industry has to do. Both taxes paid 
and investments made to keep supplies coming in years ahead are 
also massive, which is why earnings on each dollar of sales 
last year aren't as remarkable as the rhetoric and accusations 
might suggest. In 2007, earnings per dollar of sales were just 
over $0.08, about a penny above the all-industry manufacturing 
average and a good bit lower than the rates of some other 
prominent industries. And I might add that for the companies 
that reported so far for the first quarter, the profit rate of 
the industry was 7.5 cents on a dollar, and for refiners it was 
about one-half a cent, with some refining companies losing 
money.
    Siphoning away earnings from the industry through new tax 
schemes won't help address the current market situation. It 
won't increase investments, it won't produce more supply, and 
it won't help consumers. It will hurt oil and natural gas 
company owners, 98.5 percent of which have no connection with 
the oil industry other than through pensions they receive 
invested in oil company stock or through their 401(k)s, IRAs, 
and other stock holdings. Price gouging laws, another term for 
price controls, also won't work. They would discourage 
investment in new supplies and could lead to allocation 
controls and gasoline lines.
    There is no magic wand to fix this situation, nor is there 
a silver bullet. It comes down to increasing supply and 
reducing demand. There are a lot of ways to work on both ends 
of that equation, including developing other forms of energy 
and conserving. However, one strategy we can't overlook is 
expanding access to more of the Nation's petroleum reserves, 
much of which government policies have put off limits. Energy 
independence is a slogan, not good policy, but we can produce 
more and ease global market tightness. That, along with more 
conservation, is how to put downward pressure on crude oil 
prices.
    That concludes my remarks. I would be happy to answer your 
questions.
    Mr. DeFazio. Thank you, Mr. Felmy.
    I thank all the witnesses for being so succinct. We will 
now proceed to the questioning.
    Mr. Slocum, you touched on something which neither of the 
second two witnesses mentioned, and I am going to ask them 
about that, which is the issue of what is commonly called the 
Enron loophole, which dealt with commodities trading, the 
commodities modernization act, and regulation of derivatives 
and over-the-counter trade blossoming in energy. What would you 
say is the premium for those speculative activities on a gallon 
of gas?
    Mr. Slocum. Roughly $0.70 per gallon of regular gasoline, 
which is about $30.00 per barrel of crude oil. And that is a 
fairly conservative estimate of the role of pure speculation in 
these futures markets.
    Mr. DeFazio. But don't economists say, well, it is not just 
speculative, that creates liquidity and it is guarding against 
risk? I mean, surely, it is the producers and/or the consumers 
in these markets, right?
    Mr. Slocum. No, not necessarily. It is absolutely true that 
a certain amount of speculation or hedging is essential, but we 
have got a type of financial bubble that is being created, much 
like we just went through in a very painful way, and will 
continue to go through in a painful way, in the housing market, 
where the lack of adequate regulation over this market has 
encouraged a high level of speculative activity by financial 
firms, many of whom have no direct connection to the physical 
delivery or production of the product. The vast majority of 
trades, more than 95 percent, on these markets do not result in 
the physical delivery of crude oil or other petroleum products, 
and it is that level of speculation that has been driving these 
prices up.
    Mr. DeFazio. So your position is a return to at least the 
status quo in terms of regulation? I understand they have 
established an exchange in London now. How can you control 
speculation in worldwide markets? But, anyway, your position is 
about $0.70 of what people are paying at the pump today is a 
windfall for speculators one way or another.
    Mr. Slocum. That is correct.
    Mr. DeFazio. And, by the way, Goldman Sachs did predict 
today that oil would go to $200 a barrel within the next two 
years.
    Mr. Slocum. And that itself has created a feeding frenzy, 
because speculators have been driving the price up this morning 
because now the ceiling has been set far higher. So it isn't 
necessarily unrest in Nigeria or other issues, but, rather, 
predictions by large commodity dealers that the sky is the 
limit.
    Mr. DeFazio. Okay, so, Mr. Todd, Mr. Felmy, do you think 
there is any credibility to the idea that some of this is 
speculative fluff; we are paying more than we need to because 
people are trading off the books in a very opaque way, may well 
be self-dealing, but none of that violates any laws because the 
laws don't apply? Should we take some steps to reimpose at 
least what existed previously in terms of the level of 
regulation of these markets? Since Enron no longer exists, we 
know they are not going to come to the Hill and lobby. Well, 
they exist, but in a different form, shall we say.
    Mr. Todd?
    Mr. Todd. I would disagree. Certainly, I am not a 
commodities trader, so----
    Mr. DeFazio. So you don't think there is any impact by 
speculators on the market?
    Mr. Todd. I certainly think that the speculation can--it 
does not create trends; it can exaggerate trends sometimes. It 
can create short-term volatility at times.
    Mr. DeFazio. Would you say $200 would be an exaggerated 
trend, if we are headed there, and Goldman, who deals in these 
kinds of exchanges, is predicting that? And maybe before they 
predicted that, yesterday they went long?
    Mr. Todd. I think, in general, the effects of speculation 
on the market is speculation. Most of the serious studies that 
I have seen on the effects of speculation have generally 
disagreed with Mr. Slocum's analysis. I believe----
    Mr. DeFazio. What about what Lee Raymond said, it was $20 
on a $60 barrel? I mean, he was a pretty smart guy, wasn't he? 
Didn't you work for them, ExxonMobil?
    Mr. Todd. I did previously work for ExxonMobil.
    Mr. DeFazio. Was he exaggerating?
    Mr. Todd. He was a pretty smart guy.
    There is a certain amount of fear volatility in premium 
which is built into the market, and I certainly would agree 
with that, and I think Mr. Raymond and----
    Mr. DeFazio. Okay, so you don't think we should re-
regulate; everything is just fine the way it is and it is all 
just being driven by pure market forces, except for some----
    Mr. Todd. I think that increased visibility in the futures 
trading market probably would not do undue damage. At the same 
time, I think that with increased visibility and increased 
transparency you would see that essentially the supply-demand 
fundamentals, which are incredibly tight when the market looks 
ahead and they say, you know what, we don't believe--every year 
we forecast----
    Mr. DeFazio. That was a good answer. So you are saying it 
wouldn't cause undue harm; i.e., we could try it and then we 
would see that really there isn't a lot of speculation. That 
would be great. Then you wouldn't be here and I wouldn't be 
here next year saying, well, we can take care of part of this 
problem, at least, in the short-term by reigning in the 
speculation. So that would be great.
    Mr. Felmy?
    Mr. Felmy. Mr. Chairman, the whole area of speculation is 
highly complex, and I have been to conferences where I have 
seen very thoughtful, very intelligent people come down on both 
sides of it. What I see internationally is tight market 
conditions, as Mr. Todd mentioned. We see strong continued 
demand growth in China, even though the U.S. has slowed----
    Mr. DeFazio. Right. We have covered this ground. But the 
question is do you believe, as Mr. Todd just said, that if we 
were just to--you know, since Enron caused my part of the 
Country to pay about 30 percent more for electricity because of 
a bankrupt company that was manipulating the market. And we can 
say there was a deal of speculation going on there, so if we 
changed the rules to accommodate them. They are gone. Could we 
just do away with the Enron loophole, go back to the way things 
were and not cause undue harm, would you agree? And then we 
could get to the bottom of this, whether speculation is or is 
not a culprit in the big run-up?
    Mr. Felmy. Well, I personally----
    Mr. DeFazio. I mean, what would it hurt to have these 
trades at least no longer opaque and no longer off the books? 
What would it hurt to have the trading in just--we are not 
going to set prices, we are just going to say we want to know 
what is going on here with the trading and who----
    Mr. Felmy. Well, I would rely on the views of the 
Commodities Futures Trading Commission, which is the regulator, 
in terms of what they feel they need in terms of regulation. 
But I think in terms----
    Mr. DeFazio. Well, come on, in the Bush Administration? 
They don't believe in regulation. They have contempt for 
government and they hate regulation. So do you----
    Mr. Felmy. Mr. Chairman, I think it comes down to 
fundamentals.
    Mr. DeFazio. Do you, Mr. Felmy, do you or do you not 
support what Mr. Todd said? I mean, you disagree, but would it 
hurt if we just provided that information in some modicum of 
regulation of the market? Would that hurt your----
    Mr. Felmy. Well, I would have to see the nature of the 
regulation.
    Mr. DeFazio. Okay, thank you.
    Mr. Felmy. But I would also share that----
    Mr. DeFazio. Thank you. Mr. Felmy, thank you. I don't want 
to take up so much time, so I want to ask another question. 
Let's go to the profits. It is interesting that you report 
profits one way when you talk to us, both Mr. Todd and Mr. 
Felmy--they are really not making much money if you look at the 
profits versus their gross, and it is really pretty small 
compared to other industries--but the funny thing is, in the 
ExxonMobil financial and operating review, they don't use that 
measure. So if that is the most appropriate measure, why don't 
they report it that way to their stockholders? To their 
stockholders, they talk about fabulous returns, great rate of 
return on the share, you know, all those sorts of things they 
talk about here. They don't say, aw, gee, we are really not 
doing too good. In fact, I did see the head of ExxonMobil 
bemoaning the fact that they only had the second largest 
quarterly profit in the history of the world, slightly less 
than the first largest, which was theirs last year, in the 
first quarter of this year.
    So I guess why is it you come to us and say they are really 
not making much money, and they report to the world and their 
stockholders that they are making bucket loads of money? Why do 
you use this measure that they don't use in their own report?
    Mr. Felmy. Because, Mr. Chairman, we are asked to explain 
how much of that price is earnings, and that is the only way 
you can do it, to basically take net income divided by sales to 
get 7.5 cents for the first quarter.
    Mr. DeFazio. Why is it not in their financial report?
    Mr. Felmy. But in terms of their financials, Mr. Chairman, 
it is a case that they are explaining the return on the capital 
that they used, the return on the equity, and that is their 
business function, so that is their appropriate way.
    Mr. DeFazio. Good. Okay, one last question. Now, Mr. Todd 
said that we should let the markets determine where the capital 
would go and maybe we could deal with our diesel refining 
shortage or other refinery shortages or exploration, you know, 
sort of a paucity of investment there, although he mentioned 
other constraints, to be fair. But last year, when ExxonMobil 
bought back $40 billion worth of stock and their capital 
investment was 10 percent of that, that is market forces, 
right? Because they were driving up their stock value; they 
were buying back their stock. So when are they going to start 
using some of these fabulous profits for diesel refining 
capacity? My understanding is they say they have no intention 
of building a new refinery or they are going to use it more 
robustly for exploration or, God forbid, maybe looking at 
alternative fuels or technologies.
    Mr. Felmy. Mr. Chairman, the companies are working for the 
benefit of their shareholders, which are the millions of 
retirees and other Americans that have invested in these oil 
companies.
    Mr. DeFazio. Yes, yes, I have heard that before.
    Mr. Felmy. It is a difficult challenge to be able to decide 
how much you are going to be able to invest, which, 
incidentally, the industry invested $175 billion last year, 
compared to $155 billion of net income. They also make 
decisions in terms of things like share buy-backs, which I am 
stunned that people criticize that because they are supporting 
their shareholders; they pay dividends and they keep money for 
a rainy day.
    Mr. DeFazio. Okay, thank you.
    Mr. Felmy. These are all decisions they need to make.
    Mr. DeFazio. Mr. Slocum, would you like to respond to that?
    Mr. Slocum. I would.
    Mr. DeFazio. And this will be the last.
    Mr. Slocum. Absolutely, a CEO of an oil company that did 
not do things to return value to shareholders should be fired, 
and it is true that I don't think any of the CEOs of any of the 
major oil companies are going to be fired any time soon. The 
question is, though, what government policies are promoting 
this. It is not the job of the government to look after the 
shareholders all the time of these corporations; that is the 
job of the energy company CEOs. And when I see billions of 
dollars in subsidies that are provided courtesy of the American 
taxpayer, when I see below market or non-payment of royalties 
for the privilege of extracting valuable energy commodities 
from land owned by the American people, I see an opportunity 
for reform. I think that oil companies should have slightly 
higher tax liability by revoking all of these valuable 
subsidies so that we can increase investments where the oil 
companies are unwilling to do, in things that will actually get 
us off of our addiction to oil by heavily investing in mass 
transit, providing bigger financial incentives to American 
families, to buy more super-fuel efficient vehicles and install 
solar panels on their home----
    Mr. DeFazio. Okay, we are getting a little off the subject 
here, but----
    Mr. Slocum. Sorry.
    Mr. DeFazio. Appreciate your global view of how we might do 
it, but thank you. With that, I will turn to Mr. Duncan.
    Mr. Duncan. Well, thank you, Mr. Chairman. I expressed my 
views in my statement, so I want to yield my time at this time 
to Mr. Coble.
    Mr. Coble. I thank you, Mr. Duncan.
    Thank you, Mr. Chairman.
    The gentleman from Tennessee, in his opening statement, 
indicated that this issue is essential to our economy and our 
daily lives. Mr. Chairman, if anybody doubts that, you check 
with truckers and farmers and nurses and teachers who have to 
use their automobiles in their daily work. It clearly does, Mr. 
Duncan, impact us negatively, the soaring price, that is.
    Mr. Chairman, pardon my modesty, but two decades ago I 
indicated that we needed to explore, drill, refine, and it 
could be done, I am confident, without damaging the 
environment, and many others joined me when I said that; and 
those words were prophetic at the time I think prophetic now.
    Gentlemen, good to have you all with us. Let me put this 
question to either of you. It may have been touched on, but I 
want to revisit it. Diesel prices have traditionally been lower 
than gasoline prices. In recent times, however, diesel has 
consistently been higher than gasoline. What has caused the 
reversal, A, and is this likely to change in the foreseeable 
future? Either of you. Fire away, Mr. Todd.
    Mr. Todd. I will speak to that. In general, there are a few 
things at play, which I touched on briefly in my testimony. 
Primarily, diesel demand is growing much more quickly, both 
here in the United States and internationally, versus gasoline 
demand. That stretching of the diesel production capacity is 
what has driven up prices. It can't be ignored, as well, that 
diesel is more expensive to produce now due to additional 
regulation, ultra-low sulfur diesel. There is additional cost 
of supply, but it is primarily demand driven.
    Mr. Coble. Anybody want to weigh in further?
    Mr. Felmy. Well, I would add, Congressman, that, in 
addition, the industry has been doing a lot in terms of 
producing record amounts of distillate product. We have also 
seen imports decline as continued demand worldwide for diesel 
limits available supply. So it is a combination of those 
factors too.
    Mr. Coble. Well, when I indicated that I called, two 
decades ago, for exploring, I am sure that we could explore 
without exploiting. I am not promoting dirty air or dirty 
water; it can be done safely, I am convinced of that. Now, 
having said that, new refineries have not been built in 
America, I am thinking, for two, perhaps in excess of two 
decades. Has there been any increase in refining capacity in 
the United States? And, if so, how much has capacity grown and 
how has this been accomplished without building new refineries?
    Mr. Felmy. Congressman, if you look back over the lasts 10 
to 12 years, we have seen capacity of the refineries within the 
existing fences expand by roughly around 200,000 barrels a day. 
That is within the existing fences and that is the equivalent 
of a new 200,000 barrel a day refinery every year for that same 
period.
    Mr. Coble. Yes, you want to weigh in, Mr. Slocum?
    Mr. Slocum. Yes. It is true that the industry has been 
conducting recent refining expansions and does have plans for 
more, but it is not at a rate that is going to keep up with 
projected demand; and we have seen that the industry lagged 
behind on providing excess capacity for diesel. And I don't 
have access to the latest numbers, probably my esteemed 
colleague at Deutsche Bank may, but I believe that refining 
margins for diesel have probably been far stronger in recent 
months and recent years compared to in the past. So the profit 
incentive is there but, again, I haven't seen the corresponding 
level of financial commitment by the industry to reinvest those 
record earnings and take those price signals and invest it in 
the infrastructure that our economy desperately needs.
    Mr. Coble. Thank you.
    Mr. Felmy, in your written testimony you indicate that 
crude oil is the biggest component of diesel. You furthermore 
state that the United States imports most of what we need. How 
much of an impact does the weak dollar have on the price of 
diesel and would increasing the domestic supply of oil 
potentially reduce costs of diesel?
    Mr. Felmy. Well, first, there is no question that 
increasing supply and reducing demand can help the prices of 
oil commodities, including crude oil, which then can be 
manufactured to diesel. In terms of the share, what we have 
seen is a continued increase in the cost of crude oil such as 
it has gone up by $1.00 a gallon and diesel has been up $1.03. 
So it is very easy to see how much of the cost increases have 
been going up due to the higher crude costs.
    Mr. Coble. Mr. Todd, your body language tells me you want 
to say something.
    Mr. Todd. Regarding the question on the dollar, I would say 
that it is very clear that the Federal policy, which is--and 
slowing economy, which has contributed to weaken our dollar to 
record levels, has had a very strong impact on crude oil prices 
and, thus, gasoline and diesel prices. The two have marched, 
since January of 2007, more or less hand-in-hand, crude price 
and the devaluation of the dollar. Many people look at buying 
crude as a hedge against the dollar devaluation, so very strong 
correlation.
    Mr. Coble. Thank you, gentlemen, for being with us.
    Mr. Slocum?
    Mr. Slocum. Yes. And I do think there is a certain chick 
and egg phenomenon with the weakening dollar and rising crude 
oil prices that it is unclear at this point which variable is 
chasing the other; and it could be a situation where the 
speculators that are driving up the price of a barrel of crude 
are helping contribute to the further erosion of the value of 
the dollar.
    Mr. Coble. Thank you, gentlemen.
    Thank you, Mr. Chairman.
    Mr. DeFazio. Thank you, Mr. Coble.
    We will go in the order in which Members appeared. Mr. 
Sires?
    Mr. Sires. Thank you, Mr. Chairman. And I want to thank you 
for being here today, trying to make sense of all this that is 
happening.
    I just have a couple of questions. As you know, there are a 
number of proposals before Congress that would require fuel 
surcharges to be collected by the motor carrier or the broker 
and to be passed through to the drivers bearing the cost of the 
fuel. How do you see this regulation affecting the trucking 
industry, this surcharge pass-through? Anyone. Because I am 
very concerned about the transparency of it, how it affects, 
you know, just the entire industry.
    Mr. Felmy. Congressman, we don't have a position on that 
issue at this point, so I am afraid I can't help you in that 
regard.
    Mr. Sires. Do you see a better way? Can you think of a 
better way than passing on a surcharge? Do you have a position 
on that?
    Mr. Felmy. We have not addressed this issue.
    Mr. Sires. No. Anybody else? Mr. Slocum?
    Mr. Slocum. No, this isn't an issue that Public Citizen has 
been intimately involved with, unfortunately. I am happy to get 
back to you in some written statement on Public Citizen's 
analysis of the situation.
    Mr. Sires. That would be great, because there are a number 
of proposals floating around here.
    Maybe you can help me understand this, because I am not as 
knowledgeable as some people. It seems to me that the crude oil 
jumps from one day to the next, and it seems to me there are 
already people hiding behind the pump, ready to raise the price 
as soon as it jumps. What about all those purchases before 
that, the supply that was bought before that? How does that 
work? How does it seem to me that oil prices jump from one day 
to the next and it is already on the pumps the next day, it 
seems to me? How does that work? Mr. Slocum, can you help me 
with that?
    Mr. Slocum. Right. There have been some investigations, 
particularly by some State attorney generals, into potentially 
anti-competitive practices in so-called zonal pricing and other 
financial and contractual arrangements between refiners and 
other large wholesale suppliers and some of the regional 
distributors and retailers. There is no question that there has 
been--just as we have seen a rise in the market concentration 
within the refining industry, we have also seen it in some of 
these other wholesale distributional systems. So I think that 
Congress conducting an investigation that would complement what 
some attorney generals have been doing at the State level to 
determine whether or not these markets and these financial 
arrangements are adequately competitive and whether or not they 
are resulting in higher prices to consumers at the pump than 
there otherwise would be if we had a little more competition or 
transparency in these contractual arrangements.
    Mr. Felmy. If I could respond. I think that you either 
believe in conspiracy or markets, and what we have here is a 
very rapid transmission of price information throughout the 
system. Whereas, in the past, a dealer or a wholesaler would 
not know what the prices are; now, within seconds, they know 
what is going on in the futures exchange, they know what is 
happening in wholesale markets, they have got price signals. So 
things move very quickly.
    In terms of the product that they have purchased before, 
remember, this is not a cost-plus business and, as explained to 
me or explained publicly by the association that deals with 
that, this is a cash flow concern by retailers. Ninety percent 
of the retailers are not owned by the integrated oil companies 
and they have a real cash flow challenge when you have price 
change. So if they are looking over their shoulder, wondering 
what is going to be the cost of the next delivery, then they 
may not have the cash flow without responding in advance.
    That is just simply from presentations I have heard from 
the retailer side of the business.
    Mr. Sires. Thank you very much.
    Mr. DeFazio. Thank you. We now turn to Mr. Latta.
    Mr. Latta. Thank you very much, Mr. Chairman. Appreciate 
it. Good morning and, again, thank you and Ranking Member 
Duncan. I too want to thank you very much for holding these 
hearings and welcome to the witnesses.
    Just briefly, as has already been pointed out by the 
Ranking Member, we do have a crisis in this Country on 
continuing our reliance on foreign oil, and the rising cost of 
the diesel fuel is another indicators of the disaster that is 
going to occur in this Country if we don't change our course 
now and stop that over-reliance on that oil from other 
countries. As has been pointed out again by the Ranking Member, 
Mr. Duncan, the United States is at a crucial point in terms of 
our own domestic energy production.
    With estimates that China and India, combined, will consume 
more energy than the United States by 2015, we have to 
seriously take a look at our own domestic energy production and 
continue to reduce our dependence and reliance on Middle 
Eastern oil. China's increasing offshore energy production to 
reduce its own dependence on foreign oil, growing their own 
production at an average of 15.3 percent per year, with plans 
to make offshore production of China's largest source of oil by 
doubling production by 2010.
    I hear daily from my constituents in Northwest Ohio 
regarding the rising diesel prices, as well as gas prices. It 
hits the automobile driver, the truck driver, looking at their 
own personal pocketbooks, and this rise in the diesel fuel is 
having a dramatic increase on the effect of businesses in our 
area. Consequently, it is not only directing the impact of 
paying more for that diesel fuel, but the higher costs are 
being passed down to the consumer through the rising cost of 
consumer goods.
    Where I am from, in Northwest Ohio, I live just south of 
the Ohio Turnpike, along I-75, and within a day's drive I am 
within 60 percent of the United States population, so we are 
heavily into trucking and shipping in my area. Trucks transport 
freight to 19,346 manufacturing companies in Ohio, supply goods 
to 59,660 retail stores, and stock 24,466 wholesale trade 
companies. In addition, trucks supply goods to 5,414 
agricultural businesses and deliver the produce and products to 
markets to nearly 80 percent of the communities in Ohio that 
are only exclusively served by trucks. So the rise in the 
diesel fuel cost in the trucking industry is a major crisis in 
the Country.
    Talking about China and its energy usage and where they are 
going to be in next few years, really, I guess the question is 
going to be on diesel usage, where you see diesel usage in 
China and where it is going to be in the near future, and what 
is that doing to do to the overall market, not only across the 
world, but here in the United States; and how much is that 
going to drive the cost in the near future, because that is one 
of the questions. You drive by the stations and you see the 
diesel cost continuing to go up. But as we are in daily 
competition for that same barrel of oil across the world, and 
with China using as much energy as it is going to use in the 
near future, where do you see the oil or oil with diesel in the 
near future with the amount that China is going to be 
consuming?
    Mr. Todd. I will touch briefly on that. We would see that 
diesel will remain at a premium to gasoline, probably, 
structurally going forward. Diesel growth globally, partly 
driven by diesel growth in China, India, and developing 
nations, but also driven by diesel growth in Europe and here at 
home, will grow faster than gasoline and will probably keep 
diesel at a premium to gasoline going forward.
    Mr. Latta. Thank you, Mr. Chairman.
    Mr. DeFazio. Thank you.
    Ms. Hirono.
    Ms. Hirono. Thank you, Mr. Chairman. I realize that this 
market, this industry is very, very complicated and regulators, 
State as well as Federal, are very hard-pressed to figure out 
what is going on. The State of Hawaii had also filed a lawsuit 
a number of years ago regarding pricing in this industry, and 
we had to settle because it is really hard to prove anything.
    Now, Mr. Todd and Mr. Felmy, if I read your testimony, the 
gist of your testimony, basically, you wouldn't want the 
Federal Government to step back in to re-regulate; you pretty 
much would like to have the marketplace set prices. I think 
that was the gist of your testimony. Is that accurate? Okay, I 
am going somewhere with this.
    You would like the free marketplace to do what a free 
market is supposed to do. However, we know that we provide 
billions and billions of dollars in subsidies to this industry, 
so, on the one hand you are saying let the free market dictate 
and set the prices; on the other this is an industry that 
enjoys billions of dollars in subsidies. So what I can't see as 
a consumer is why we should continue to do this. I mean, 
really, can you think of a really good reason why you should 
have both sides, you know, have Government support you as well 
as arguing that Government should leave you alone?
    Mr. Felmy. Well, I think, Congresswoman, it is, first, very 
helpful to look at what the real subsidies are there. The 
Department of Energy just released a study last week that 
indicated that the total subsidies for all aspects of the oil 
and gas industry were about $2 billion. And when you convert 
that to million Btu, they were very nearly the bottom of energy 
industries in terms of those provisions.
    Mr. Slocum's testimony came up with a number of $9 billion. 
I honestly can't find that anywhere in the report. But if you 
look at it in terms of the actual subsidies, they are very low. 
But, more importantly, to the extent that you have subsidies or 
anything that lowers the cost to the industry, it can benefit 
consumers.
    Ms. Hirono. I don't know how you can say that when the 
prices keep going up. As a consumer, I don't see how these 
subsidies are particularly helping to keep the prices of 
gasoline and diesel low.
    Mr. Felmy. Because it lowers the cost of operations. The 
primary reason why we are seeing gasoline prices go up is the 
increase in the cost of manufacturing the product via crude 
oil.
    Ms. Hirono. Well, okay. We can sit here and have all kinds 
of arguments, but I think if we look at the bottom line for 
consumers, it is very difficult to figure out what we should do 
in order to create alternative energy to wean ourselves away 
from imported oil and not having to drill in pristine areas of 
our Country. My point is this is a very complicated industry 
and we are hard pressed, but it seems to me that we should 
start with just getting rid of these subsidies that I don't 
think can be justified. Thank you.
    Mr. Felmy. Then you are raising the cost of the operation 
of the industry, and there is no way you can argue that helps 
consumers.
    Ms. Hirono. Thank you, Mr. Chairman.
    Mr. Slocum. Congresswoman, if I may respond to your 
questions about subsidies.
    Ms. Hirono. Go ahead.
    Mr. Slocum. It is true that the U.S. Energy Information 
Administration, which is the research arm of the Department of 
Energy, recently came out with a much needed report looking at 
overall energy subsidies. And it is true that their number for 
the oil industry was just over $2 billion a year annually, 
which is a huge number. But the Department of Energy did not 
include several very large tax breaks that are enjoyed by the 
petroleum industry in that analysis, and that is the primary 
difference between our two calculations.
    The first large tax break that the Department of Energy's 
analysis did not include was the manufacturing tax deduction 
which Congress provided many different industries in the fall 
of 2004, but it classified oil extraction and oil refining as a 
manufacturing activity. The Department of Energy did not 
include that, and that is a highly lucrative tax break, over 
$700 million a year. In addition, the last in-first out 
accounting method, so called LIFO, which some Members of 
Congress have targeted for repeal, that would constitute a one-
time value of between $4 billion and $5 billion.
    So those tax breaks were not included in the Department of 
Energy analysis and Public Citizen thought it prudent to 
include those.
    Mr. Felmy. If I may, those are provisions that are 
available to all industries, and there is no justification for 
singling out the oil industry. And raising those will not help 
consumers; it raises the cost of operation.
    Mr. DeFazio. Okay, thank you, Ms. Hirono.
    Mr. Felmy, if I may, so you are saying the $2 billion a 
year subsidy from the taxpayers to the industry, if the 
industry didn't receive that subsidy from the taxpayers, you 
would be charging them even more at the pump?
    Mr. Felmy. Mr. Chairman, I am not----
    Mr. DeFazio. That $2 billion would translate to higher 
prices?
    Mr. Felmy. I am not going into prices, Mr. Chairman. I am 
simply saying it would be a higher cost for the industry, and 
there is no way you could make that argument that it would 
benefit the consumers.
    Mr. DeFazio. But maybe it would come out of their profits, 
or maybe it would come out of their stock buy-back program, or 
maybe it would come out of the CEO's retirement pension--$400 
million, not bad for Mr. Raymond. But okay, thank you.
    We would turn now to Mr. Boustany.
    Mr. Boustany. Thank you, Mr. Chairman.
    I think, first, we should start off with a little bit of a 
dose of reality in looking at the oil and gas markets, and the 
complexity of it. There is significant risk--geopolitical risk, 
geologic risk--and that hasn't really come up in this 
discussion. I think, secondly, we have to accept the fact that 
we are dependent on fossil fuels and will be for the 
foreseeable future. So we need to strategically manage that 
dependence. We have had 40 years of energy policies that really 
have not been much of energy policy in this Country, and this 
110th Congress is no exception. In fact, some of the policies 
being advocated are entirely detrimental. We lack a long-term, 
a mid-term, and a short-term policy, particularly just looking 
at the fossil fuel industry, with regard to upstream and 
downstream development, and these are critical issues.
    I know Mr. Slocum mentioned the issue about refining 
capacity and why profits aren't being used for refining 
capacity. But if you look at refining capacity and the barriers 
to building out refining capacity in this Country, they are 
enormous. I have spoken to the Kuwaitis and tried to entice 
them to come down in Louisiana in my State to build a new 
refinery, and they said no, absolutely not, unless we find a 
U.S. partner; it is entirely too expensive; we would rather 
build in North Africa or we will build another refinery in the 
Mid-East.
    So what are we doing? We are sitting here and we are making 
our U.S. companies less competitive. We are looking at taking 
away important manufacturing breaks that all of our 
manufacturing sector has at this time, and we complain that we 
are chasing manufacturing out of this Country. Give me a break.
    And then to demonize the U.S. oil and gas companies, let's 
look at what happened in the Gulf of Mexico after Hurricanes 
Rita and Katrina. In record time, when 80 percent of all the 
production was down, in record time they got this back up and 
running to deal with the problems we had in this Country. It 
was a remarkable turnaround.
    So I think we need a little balance in this discussion, 
first and foremost. We have to recognize we must strategically 
manage this dependence as we then transition into investment 
into alternative fuels and other energy options.
    But let me get to a couple of questions. One, we have 
talked about the profits; we have talked a little bit about 
subsidies. Could you gentlemen talk about what U.S. oil 
companies currently pay in taxes?
    Mr. Felmy. If I could. If you look at the last year of 
available data, Department of Energy indicated that if you take 
a share of taxes as a share of net income before taxes, the oil 
and gas industry, under their financial reporting system, paid 
40.7 cents on the dollar in taxes, compared to all 
manufacturing of 22.1 cents. So it is a heavily taxed industry 
in terms of the share of their net income.
    Mr. Boustany. Thank you.
    Any of you other gentlemen want to comment on this?
    Mr. Slocum. I think it is probably accurate that the oil 
industry is paying more in taxes than they have in the past, 
and that is primarily because they are awash in so much money. 
It is a very lucrative business.
    Mr. Boustany. Mr. Slocum, do you understand the cyclical 
nature of the oil and gas industry, and the fact that oil was 
down at $10.00 a barrel, less than $10.00 a barrel in the late 
1990s and that it is a multi-year planning process and that you 
have got significant geopolitical and geologic risk? So to 
simply look at this in one-year terms is really an inaccurate 
depiction of the reality.
    Mr. Slocum. Well, I absolutely agree that historically the 
industry has been very cyclical, but I think some elements of 
that cyclical history are being repealed. I think that the 
industry responded to that first by engaging in an 
unprecedented wave of mergers to address some of the problems 
that occurred----
    Mr. Boustany. So the U.S. oil industry is remarkably 
resilient and flexible. We should be proud of that and we 
shouldn't be advocating policies by singling out the oil and 
gas industry to make them less competitive when they have to 
fight against national oil companies and all the geopolitical 
risks that are attendant with that.
    Secondly, I would say that all the discussion about 
speculation, while interesting, is really merely diversionary 
in many respects because we do have very accurate, very timely 
pricing information throughout the oil and gas industry. But it 
basically ignores the fact that we have a fundamental, very 
tight supply and demand equation, and when almost 1 million 
barrels a day are taken off the Nigerian market because of 
pipeline disruptions and terrorist activity, when you have the 
U.K., a strike which took some 500,000 or so barrels off per 
day, and then the Saudis are dealing with a situation whereby 
they do not have the reserve capacity now to ramp up production 
to meet extra demand, we need to focus on the fundamentals in 
this industry and do everything that we can to make this a more 
competitive industry and promote U.S. interest to strategically 
manage our oil dependence at this time.
    So I challenge my colleagues on both sides of the aisle. 
Let's look at some reasonable policies, a real energy policy 
that looks at the entire spectrum and looks at drilling in this 
Country. It can be done in environmentally sound ways and with 
a light footprint; we have seen it in Louisiana. The oil and 
gas companies have made tremendous strides in this area. I 
think we need to look at a real energy policy and not just 
simply try to point fingers and pick out demons.
    With that, Mr. Chairman, I think my time has expired and I 
yield back.
    Mr. DeFazio. I thank the gentleman. Just one clarification 
to the answer to one point. Mr. Felmy, you said the industry 
paid 40 percent in taxes. So ExxonMobil--I am staggered by 
this. So they had a $40 billion profit last year and they paid 
40 percent in taxes? Would I find that if I go through their 
report?
    Mr. Felmy. I am not familiar with the Exxon financials to 
be able to give you an answer to that, Mr. Chairman.
    Mr. DeFazio. Well, but where did the 40 percent number come 
from?
    Mr. Felmy. The 40 percent number comes from Table 1 of the 
financial reporting system of the U.S. Department of Energy 
that tabulates the financial information on the major oil 
companies of the United States, and it is basically just taking 
income taxes as a share of net income before taxes, and it 
works out to 40.7.
    Mr. DeFazio. So income taxes as a share of----
    Mr. Felmy. Net income before taxes.
    Mr. DeFazio.--net income before taxes. Okay. So they are 
paying over the highest corporate rate in America, then. There 
is no 40 percent bracket for corporations. So they are 
overpaying their tax. I guess we will see. Okay. We will have 
to look at that. Thank you.
    Mr. Slocum. Mr. Chairman, may I add something to that, sir? 
Any estimate that is being provided by the Department of Energy 
or other entity is just that, it is an estimate. The only way 
that we will find out exactly how much they are paying in taxes 
is to consult with the Internal Revenue Service. We are not 
necessarily saying to make those public----
    Mr. DeFazio. Okay, thank you.
    Ms. Richardson.
    Ms. Richardson. Yes. Thank you, Mr. Chairman.
    I have a question for you, Mr. Felmy. I am kind of a new 
Member on the block, and before I get into my question, I am a 
new Member here, but I wasn't very comfortable with, I felt, 
how you were cutting off our Chairman, and I would really 
appreciate it, in the future, a little more respect. I worked 
very hard to get here, and I think the American people sent us 
here for a purpose, and I felt it was crossing the line. And I 
feel very comfortable in making that statement to you.
    So, Mr. Felmy, my question is in which piece of the oil 
pipeline can Congress, in your opinion, do the most to promote 
lower diesel prices? What do you recommend regarding 
distribution prices, taxation, etc.? And how do you blame the 
weak dollar for our current prices?
    Mr. Felmy. Well, the most important thing that Congress can 
do is to increase supplies or reduce demand. Now, in the case 
of diesel, that is an enormous challenge because diesel is not 
discretionary; the trucking community is very much tied to 
operations on that. We can, however, do things that increase 
supply. We can improve the infrastructure. We can aid things 
that could lead to overall improvement in the market, which 
would reduce the cost of manufacturing diesel. So there a host 
of things that can be done to be able to improve supply or 
reduce demand.
    Ms. Richardson. I thought I read, though, that the supply, 
in fact, we do have adequate supply. Would you say that that is 
not true?
    Mr. Felmy. Well, if you look at the worldwide situation, 
which is what you have to look at, for example, in 2007 we saw 
that production worldwide for oil was virtually flat, at the 
same time that demand went up by 1.1 million barrels a day, 
according to the International Energy Agency. So there is no 
question to me that what we see is a tighter market. Going 
forward, we will have to see what happens with worldwide 
demand. IEA is forecasting about a percent and a half increase 
in world demand, and we have these struggles, as was mentioned 
earlier, in terms of Nigeria, the blip that happened in 
Scotland, and a host of other places around the globe for 
producing oil, not to mention which Venezuelan production, what 
will happen with President Chavez's plans, Mexican oil 
production. So we have an enormous struggle in terms of a tight 
market with only a small amount of excess capacity to be able 
to respond to shocks.
    Ms. Richardson. So are you saying to me that we can do 
nothing to reduce our costs except for to increase our supply 
or reduce our demand, that there are no other things within the 
industry that can be done to help with this issue? I am not 
saying completely resolve the issue, but you mean to tell me 
there is absolutely nothing within the industry that can be 
done besides us addressing those two issues, increasing supply 
or reducing demand?
    Mr. Felmy. Well, as an economist, those are the things that 
we look at first and primarily. To increase supply is to both 
produce more oil, perhaps more refinery capacity for diesel 
because of the tightening market for diesel worldwide, in 
Europe, potentially in the U.S., and so on. So it is something 
that we need to look at. Some of our companies are expanding in 
that regard, looking at more opportunities in diesel, which 
appear to be something they are considering. So, yes, at a 
lower level, that is really what, ultimately, the supply and 
demand factors come into play.
    Ms. Richardson. Okay, but we have heard the Chairman and 
several other Members mention some other areas that could be 
considered. You don't equally feel that those are valuable, 
besides increasing supply and reducing demand?
    Mr. Felmy. Well, I think that it is the market fundamentals 
that are driving the situation. If you look at how much crude 
oil costs are up, they are up $1.00 a gallon year over year; 
diesel is up $1.03; gasoline is up $0.71. So that tells me very 
clearly what we see is, at least in my opinion, market 
fundamentals that are the situation
    Ms. Richardson. Okay.
    My last comment. Mr. Chairman, I understand that currently 
we have had a little discussion about the Enron loop, and I 
guess it is Mr. Welch who I think currently has a piece of 
legislation that would deal specifically with this. I would be 
willing to follow your lead on what you recommend as we, as a 
Committee, could help to bring that forward, if you feel it is 
appropriate after this discussion.
    Mr. DeFazio. I thank the gentlelady. In fact, the issue is 
also in discussion as part of the farm bill. It may get 
resolved there. If it doesn't get resolved there, Mr. Welch has 
legislation and I believe Mr. Stupak has legislation on the 
same subject, as do I. So we have some choices out there and I 
think it would be prudent to at least deal with that.
    We now turn to the former Chairman from the great State of 
Alaska, Mr. Young.
    Mr. Young. Thank you, Mr. Chairman. This is an interesting 
presentation. I am, of course, one who has been through this 
war over the years. Deja vu. I can remember when we had the 
embargo in 1973 and we immediately acted to increase the supply 
by building the Trans Alaska Pipeline. That is the last action 
we have done in this Congress to increase the supply of fossil 
fuels to the United States and American citizens, the last act; 
and I think it is long overdue. I do not believe that we can 
ever drill our way into total independence, but we can drill 
our way into some stability, Mr. Chairman, in the sense that we 
have ANWR, 74 miles from an existing pipeline. We could deliver 
a million and a half barrels of oil and supply the United 
States in three years. That doesn't solve the problem.
    If we want to solve the problem and quit pandering to the 
general public--and that is what this Congress is doing, is 
pandering now--we are not looking at a solution to a problem--
if we would like to solve this problem, being as you are the 
Chairman of the Subcommittee, I suggest we raise the taxes to 
$1.00 a gallon. That makes you put your money where your mouth 
is. Because if we can stabilize the cost of fossil fuels, then 
there would be the incentive and the stability to use and 
develop the alternate sources of energy, other than ethanol, 
which I am strongly opposed to. But no one wants to touch that. 
You don't even mention it. I tried it in a highway bill. I 
wanted to raise it $0.05 a gallon and, my God, the world came 
to an end.
    Now we have the question on diesel fuel, which is actually 
a different program. I can't see why we can't--because diesel 
plays a major role in delivering products through the trucks 
and the locomotives to our consumers--why we can't set up a 
different strata. If we don't want to raise diesel fuel taxes, 
then raise it on gasoline. So people would have the knowledge 
that, yes, it is not going to go down--and, by the way, I don't 
think it will because we have built no refineries--and we are 
still dependent. And we just watched what happened in Nigeria 
yesterday, and it put up the price of oil $3.00 because we 
don't have any reserve, Mr. Chairman. We don't have the 
refinery capability and supply is not there, and what has 
occurred is we are really in shortage of storage and shortage 
of reserves now, and foreign countries are consuming what we do 
not have availability to. That is our problem.
    We can talk about the environment all you want. I know Mr. 
Slocum is down there. If you want to solve the environment, 
back a tax for $1.00 a gallon so people will stop driving like 
a bunch of idiots, which they are doing right now. Did anybody 
watch anybody drive here today when you came to work? They are 
driving cars 100 miles an hour. I drive 60 miles an hour and 
they pass me like I am standing, and they honk the horn at me 
and wondering why they are spending fuel. Yet, they are 
complaining about $4.00 gasoline.
    I worry about the truckers. I worry about those that 
deliver product to consumers. But I am not worried about the 
general public when it comes down to how they misuse the fossil 
fuels we have left. So we have a lot of oil in this Nation. We 
have not developed it. Not one development other than the Gulf 
of Mexico other than the Trans Alaska Pipeline. Approximately 
36 million barrels of oil in ANWR can't be open. Chukchi Sea, 
$2.6 billion we bid on that last week, the oil industry did. I 
don't know whether they are going to be able to develop it or 
not. Beaufort Sea, Lucian Chain, off the Coast of California, 
off the coast of Florida, off the coast of North Carolina, 
coast of Virginia, all oil. Rocky Mountains. We just haven't 
done it.
    So we have a choice, Mr. Chairman, and this hearing and 
everybody else need to understand it, and this Congress, to get 
off the duff and either do something or quit pandering to the 
general public and look for a real solution. It is easy to 
blame the major oil companies. Absolutely, let's blame them. 
Let's tax them. But when you do that, you are not going to hurt 
Exxon, you are not going to hurt BP, you are not going to hurt 
Shell. You are going to hurt the domestic production. Those are 
international companies. And then we do not have any production 
in this Nation.
    So, Mr. Chairman, I think these hearings are good. I don't 
have any questions. I like to make statements on this type of 
matter because I have been doing it for years. We have got to 
start doing something instead of talking. We have to start 
doing something with result. And I will promote a tax so the 
general public will slow down, will change their driving 
habits, will have a different vehicle, and we will save fuel. I 
am not for trucks for doing that because they are delivering 
the products we consume.
    We did this in World War II. If you go back to the history, 
we had a 35 mile an hour speed limit. I am not advocating that; 
my God, everybody gum and glue it. We did have gas ration. I am 
not advocating that. But we also had preferential use of fossil 
fuels. The farmer had use of fossil fuels at a more reasonable 
rate and no rationing, because he was producing food for the 
war effort. Maybe we ought to look at that. Maybe we ought to 
give a break to the truckers and the locomotives and the people 
that are delivering products. Maybe we ought to do that. But we 
better do something instead of just talking.
    I have been in this business long enough to watch nothing 
happen in this Congress when it comes to fossil fuels that we 
are dependent upon the foreign countries today. China is 
consuming more barrels of oil today than we are. Not per 
capita, per day. And they are going to triple that in the next 
two years. So the sellers, they don't have to sell it to us 
anymore; they sell it to another country with a heartbeat. So 
we have got to start developing our own sources. And it is 
here, we have the Btus. I haven't even talked about coal, 
because under this Speaker we can't talk about coal because we 
contaminate the air; in the meantime, we all can break 
ourselves economically in this Country.
    So, Mr. Chairman, I hope everybody just starts thinking 
about the solutions. Solutions, I have them: raise a tax on a 
gas so the public starts being aware it is going to be high for 
the rest of the time and the rest of their lives, and they will 
drive differently and have a different automobile; make an 
exemption for trucks and locomotives and ships that deliver 
products to and from this Nation to the consumer; instigate an 
idea that maybe there is a better way than ethanol, which is 
the dumbest thing we ever did when you think about it--a food 
for a fuel, when we have starving people in this Country and in 
this world?
    So, Mr. Chairman, I thank you for having this hearing and 
thank you for putting up with me and thank you for recognizing 
me. I yield back the balance.
    Mr. DeFazio. I thank the former Chairman for his 
provocative statement.
    Mr. Baird.
    Mr. Baird. I thank the Chair. I actually thank the former 
Chair as well. He didn't give you a chance to answer his 
statement, but I would like to. I think he raises some pretty 
good points, both about the issue of what the impact of a gas 
tax might be and also about the idea of distinguishing between 
the delivery and cargo sector of our economy versus the 
personal vehicle sector. And the reason I am interested in that 
is because passenger vehicle use has options: you can carpool, 
you can take buses; not always, but many options. But it seems 
to me the delivery sector, the cargo sector doesn't. So take a 
few minutes and respond, if you would, to Mr. Young's 
provocative thoughts and share your thoughts on that, if you 
would.
    Mr. Slocum. Sure, please. I will start. First, they were 
indeed very important comments, and in response to opening up 
new areas of domestic production, which a number of Members 
have raised today, well, Congress did just that in December of 
2006. Congress voted to open up 8.3 million acres of new 
development in the Gulf of Mexico, and the markets responded by 
sending the price of crude oil skywards. So increasing domestic 
levels of production when there is no shortage of crude oil is 
not a solution to energy independence or to lower prices.
    Consumers are doing their part. I believe that motorists 
are not gluttons for punishment; they have reduced demand by 
over a percent, which is fairly remarkable in an economy our 
size and a population of over 300 million people.
    Mr. Baird. Talk a little less on the production side and 
more about the impact of the $1.00 a gallon gas tax in terms of 
anticipated impact on consumption and also the differential 
notion that I think is intriguing between taxing gasoline 
versus diesel.
    Mr. Slocum. First of all, Public Citizen opposes efforts to 
temporarily repeal the Federal gas tax. We do not believe that 
a Federal gas tax, which has remained the same since the mid-
1990s, at 18.4 cents a gallon and 24.4 cents a gallon for 
diesel, is a culprit behind high prices. Right now, those 
represent----
    Mr. Baird. I will stipulate to that. Go ahead with his 
proposal.
    Mr. Slocum. Well, I agree with the sentiment of what the 
Congressman is saying, that an increased gas tax may result in 
less demand. The problem, from Public Citizen's point of view, 
is the punitive action that that has. We have already seen 
people with rising crude and gasoline prices pay what 
essentially amounts to a tax, and I believe that our 
President----
    Mr. Baird. I am going to ask Mr. Todd and Mr. Felmy to 
comment on this.
    Mr. Todd. In general, I think that we have typically tried 
to do a policy here in the United States which says we want to 
protect the environment, we want to increase supply, we want to 
have cheap gasoline. We want to do all these things that are 
kind of mutually exclusive. With that being said, I think that 
a higher gasoline tax in order to destroy demand is probably 
a--it is tough to get through here in Washington, but it is 
probably not a bad policy.
    Mr. Baird. What about this differential between gasoline 
tax versus diesel tax to spare the cargo transportation sector 
from the personal vehicle use?
    Mr. Todd. We haven't looked at it and I would have a tough 
time commenting on it. Certainly, in Europe, they have favored 
diesel versus gasoline, which is why they drive diesels; and we 
have favored gasoline, which is why we drive gasoline cars. So 
it would seem like----
    Mr. Baird. I am not----
    Mr. Todd.--but you would have to have a corresponding 
increase certainly in diesel production capacity to make it 
work; otherwise, you would artificially inflate diesel demand 
without----
    Mr. Baird. That is a good point. I am not sure the 
distinction between the type of fuel versus--I think it is 
better to distinguish between the usage of the fuel. And if 
there is a manner in which you could--you know, I don't care if 
a truck delivering groceries is a diesel powered truck or a gas 
powered truck. That use, in my mind, should have preference, as 
Mr. Young seemed to suggest, over passenger vehicle because 
there is less flexibility.
    Mr. Felmy?
    Mr. Felmy. In general, we don't have a perspective on the 
level of taxation as it is used for road construction, things 
along that line. We do object to general taxation of that type 
that is used for overall goals such as deficit reduction and 
things like that.
    The differential in terms of diesel versus gasoline is 
fairly complex; there are a lot of things that you need to look 
into. Diesel car technology presents a tremendous opportunity 
going forward in terms of efficiency improvements with now the 
introduction of ultra low sulfur diesel. So one could see, if 
you were trying to move toward more efficiency, that would be 
one technique to do it.
    Mr. Baird. Mr. Slocum, one final question, which I actually 
can't resist. Was Ralph Nader the founder of Public Citizen?
    Mr. Slocum. Yes, he was, in 1971, and he ceased being 
president in 1980. So it has been a while.
    Mr. Baird. I will spare you my thoughts on the impact of 
Mr. Nader on the environment with the result of the election of 
2000.
    Mr. Slocum. I appreciate that.
    Mr. DeFazio. We now turn to Mrs. Capito.
    Mrs. Capito. Thank you, Mr. Chairman.
    I want to thank the panel, too. This is an extremely 
important issue and very complex, as we have heard. I have two 
questions. First, I represent the State of West Virginia. It 
has abundant resources of coal. Former Chairman Young alluded 
to coal, but there is technology there where coal can be 
liquified and used for diesel or for other fuels. They do it in 
South Africa, I believe, for almost all of their fuel. With the 
price of oil going up so excruciatingly high, the reason that 
we don't have these coal liquification plants, among other 
reasons, is the absolute cost of them; and there is a lot of 
technology on carbon catcher aspect of this. Do you all have 
any comments on coal liquification as a way to ease the 
situation around the high price of diesel and gas in general?
    Mr. Slocum. Sure. Given the extremely high capital costs 
involved with these coal-to-liquid projects, and given some of 
the environmental concerns, it still is not competitive, even 
in an era of record-high crude oil prices. The coal-to-liquid 
industry has addressed that by entering into or proposing to 
enter into long-term purchase agreements with the Air Force. I 
would not see broader application other than in select segments 
of the economy, just because of the enormous costs involved, 
capital costs, for those projects.
    Mrs. Capito. Mr. Felmy?
    Mr. Felmy. I think the National Petroleum Council said very 
clearly that, going forward, we are going to need all forms of 
energy; we are going to need energy efficiency improvements; we 
are going to need alternatives; we are going to need 
renewables. Coal to liquids is one of that suite of things that 
we are going to need. Yes, it is high-cost right now, but 
technology improves. This is a demonstrated technology that has 
been around for a very long time. And if memory serves me, I 
think the Department of Energy has a forecast for coal to 
liquids somewhere around 700,000 barrels a day, going forward, 
by 2030. That is dependent, of course, on capital costs and so 
on, but it is one of the things we need to look at.
    Mrs. Capito. Thank you.
    Did you have a comment?
    Mr. Todd. I would agree with the fact that, in general, 
based on the comments that I have said on the challenges to 
increase oil supply sufficiently, to keep up with demand, we do 
need everything; we need coal, we need nuclear, we need 
biofuels, we need conservation, we need wind energy. We need 
the whole range of the spectrum. It is very difficult, from a 
cost perspective, with coal; it is difficult from an 
environmental perspective barring carbon sequestration and 
capture; and, in general, again, I think subsidies get very 
difficult, but the markets will allocate capital to those 
things which can be economically competitive and beneficial.
    Mrs. Capito. Right. That is what I would like to see. I 
would like to see this Congress and future Congresses take this 
technology, take this natural resource that we have abundantly 
in this Country and use it to help every single individual 
buying gas at the gas pump. And I particularly like the 
diversification aspect of coal to liquid. It is not going to 
solve everything, but it is going to be a small part, and can 
be a small part, of solution of the problem. So I appreciate 
all your comments and I will keep pushing for that.
    My second question is we have a lot of individual truckers 
and we have a big timbering industry; a lot of them are private 
contractors that really are on a needle's eye, really, 
balancing their budget. And I guess the most difficult thing 
for people right now, consumers at all levels, but particularly 
people who are making their living on transportation, is the 
total uncertainty of what you are going to wake up to the next 
day. And this is a difficult question, but what--can you 
prognosticate? Are we in the middle, are we at the bottom, are 
we at the top? You know, I really think that if we can get some 
certainty back into the market, some certainty back into 
stabilization of our prices, I think people would then begin to 
make some of the adjustments that we have talked about here 
today.
    So do you all have a comment on where are we on a scale? 
Are we on a run-up, a rundown? And I know it is hard to 
predict, but I would like to hear your comments on that. Thank 
you.
    Mr. Slocum. Well, I think Goldman Sachs answered that for 
us last night when they released a report saying that they were 
predicting $200 for a barrel of oil in a short period of time. 
So it is clear that the largest energy commodity trader on the 
planet is extremely bullish about where oil is going to go. So, 
unfortunately for the American economy and the American driver, 
we ain't seen nothing yet. I think prices are going to continue 
to escalate until we restore some transparency to these energy 
trading markets to clamp down on some of this harmful 
speculation that we have been experiencing.
    Mr. Todd. In general, I do the same thing that Arjun Murti 
at Goldman Sachs, who created that report this morning, I do 
the same thing and, in general, I wouldn't place too much 
weight in the forecast. We have been wrong before; we will be 
wrong again. The fact that Goldman Sachs says it doesn't mean 
oil is going to $200 a barrel. We do have a supply problem. We 
do need higher prices in order to--higher prices are, as we 
speak, rationing back demand, again, as we speak, which is 
good, and it is promoting alternative energies, which is also 
good. But, in general, where we are is going to depend to a 
large degree on international growth and where that goes. If we 
continue to see growing demand----
    Mrs. Capito. So basically the uncertainty still exists.
    Mr. Todd. The uncertainty is----
    Mrs. Capito. And will for a while. Thank you.
    Mr. DeFazio. I thank the gentlelady. I would be happy to 
share the Goldman Sachs report with her. They have their own 
idea about where it is headed.
    Mr. Arcuri.
    Mr. Arcuri. Thank you, Mr. Chairman, and thank you, 
gentlemen, for being here.
    You know, I was thinking while you were speaking. I 
remember one time they used to say that what was good for 
General Motors is good for America, and some people believed 
it; some people didn't. But I don't imagine anyone is ever 
saying what is good for ExxonMobil is good for America. And, 
you know, it troubles me that we sit here and I listen to you 
talk about supply problems, and then in the next breath they 
are talking about building new refineries, and it seems to me 
it is missing the real problem here or the real issue, and that 
is that the amount of oil is finite. Whether we are at peak oil 
now or whether we passed it a couple years ago or whether we 
are going to pass it in a couple years, it is going to be more 
and more expensive to get more oil out. And I guess the reason 
I said that at the beginning is my question is what are the oil 
companies doing to develop alternative energy? I mean, what we 
are trying to do is make it cheaper for us to get goods to/from 
where they are produced to where they are consumed, and that is 
what the cost of diesel is all about. So are they going to do 
anything? I mean, I know what they know how to do is drill for 
oil and refine it and pump it. Does Government have to do all 
of that? Do we have to be the ones that are giving subsidies to 
oil companies to promote it or is there any responsibility on 
the part of oil companies to develop alternative energy?
    Mr. Felmy. Congressman, the oil industry is first and 
foremost involved in keeping oil flowing 24/7, because that is 
what you are here asking us questions on.
    Mr. Arcuri. Well, is it energy or oil? What is it?
    Mr. Felmy. Well, first and foremost it is gasoline and 
diesel, because that is what everybody is talking about right 
now. But looking forward, the companies are major investors in 
emerging energy. Between 2000 and 2005 they invested $98 
billion in total emerging energy, which included a host of new 
things, such as oil sands, oil shale, L&G, gas liquids, and so 
on. And then they also invested in non-hydrocarbons and in 
energy efficiency improvements. So they are looking forward, 
but it is a delicate, very challenging question to be where do 
you put your bets in the future and keeping fuel flowing.
    Mr. Arcuri. Well, I have been hearing that since the 1970s 
when I was in grammar school and we were talking about what are 
we going to do to lower the price of oil, what are we going to 
do to make America independent; and the oil companies continue 
to say the kind of things that I am hearing, unfortunately, 
today. Thirty years we have been hearing this and still there 
has been either no development or certainly that we haven't 
heard about yet because the oil companies are too busy pumping 
the oil that is out there. So at what point do they say we are 
more concerned with getting energy and keeping cars and diesel 
trucks moving, or are they just going to continue to pump oil 
and continue to watch the prices go up?
    Mr. Felmy. Well, they are continuing to invest heavily 
across the board in all types of projects. As I mentioned 
earlier, $175 billion, as documented by Oil & Gas Journal. They 
have a delicate challenge in terms of where do you make an 
investment so that, after all, you have a fair return to your 
shareholders.
    Mr. Arcuri. Well, but why do they keep investing in finite 
resources like coal and oil? Why are they not investing in 
other renewable sources of energy that are not finite?
    Mr. Felmy. I just pointed out they are investing in other 
non-finite energy sources, such as energy efficiency and non-
hydrocarbons. So they are making those investments, but it is a 
difficult challenge when you have got to, first of all, satisfy 
your customers today and then look forward to the energy 
future. You also have to satisfy your owners, which are the 
millions of Americans who are retirees and other owners of the 
companies that you simply not----
    Mr. Arcuri. But those are also the people that are paying a 
lot of money at the pump and they are also the people who are 
going to benefit from the developing of alternative energy in 
the future, which is actually going to drive up, probably, the 
cost of stock, effects on Mobil were to come up with 
alternative energy that isn't finite in its nature.
    Thank you, Mr. Chairman. I have nothing further.
    Mr. DeFazio. Ms. Fallin.
    Ms. Fallin. Thank you, Mr. Chairman, and thank you, 
gentlemen, for joining us today to visit with us about a very 
important issue.
    I have just a couple of points I would like to make and 
then just ask your opinion about a couple of things. Congress, 
in past legislation, has voted on drilling in ANWR, in opening 
up Alaska and even some of the Gulf areas. In 1991, the Senate 
blocked it, and in 1995 President Clinton vetoed ANWR and 
drilling there, and then, as you have heard in testimony, we 
haven't had a new refinery in 25 years in the United States. 
And I also know from just talking to the people in the industry 
that it takes about 10 years to even go through the permitting 
process, the environmental rules and regulations, just to even 
talk about a refinery because it is so complicated to build 
one.
    But my question is if, in 1995, 1991, if we would have 
allowed more drilling--allowed drilling, I should say, in ANWR, 
and more off-coast drilling in the United States, what would 
have been the effect upon our supply and the cost of gasoline 
today if the United States policy had been different, and if we 
had had the refineries being built during that time period?
    Mr. Felmy. Well, I think if you look at the Deepwater 
Royalty Relief Act, which was passed in 1995, on the impact of 
production in the Gulf, it is truly stunning. They have gone 
from a very small estimate of resources to finding, I believe 
it is, something on the order of 10 billion barrels equivalent. 
That is added supply; it is an increasing share of the Gulf's 
production, and it is an important additional supply.
    If you look at the time lines for developing ANWR in terms 
of everything you would have to do to be able to go through the 
whole process of permitting, finding, and so on, we would 
probably be producing right now. How much is of course 
uncertain until you are actually producing, but the USGS 
estimates are for a mean estimate of 10 billion barrels, which, 
if you produced it over 30 years, would 1 million barrels a 
day. So those could be some substantial--first of all, they are 
substantial improvement in resources and could be additional.
    And in terms of refinery, we haven't built a new refinery, 
but we have expanded existing capacity. We may need more 
capacity going forward, and that is on the drawing boards right 
now according to the Department of Energy.
    Ms. Fallin. Would it have had an effect upon the price of 
gasoline today if we had those supplies online?
    Mr. Felmy. Well, I can't speculate about price because of 
antitrust law, but it is fundamental to an economist core 
existence that if you increase supply, all other things equal, 
it can help the market.
    Ms. Fallin. Okay.
    Mr. Todd, do you have a comment?
    Mr. Todd. I would agree that, in economic terms, the prices 
would probably be lower, but we have no idea how much lower 
they would be. Again, in general, I think it is good policy for 
us to, if we, as consumers, want to use oil, to produce as much 
as we can, just as we ask other countries to produce as much as 
they can. So, yes, we would probably be lower, but no idea how 
much.
    Ms. Fallin. Don't know for sure?
    Mr. Todd. And in terms of refining capacity, again, there 
seems to be a lot of discussion about how much refining 
capacity we are building. We are adding significant refining 
capacity and we have every year for probably the last 20 years. 
There is major investment going on as we speak, a major 
investment in Texas, a major one in Louisiana, adding 
additional capacity, adding additional capacity that is 
actually focused on producing as much diesel as possible. 
Again, that is where the higher margins are and that is where 
the capital is going. But, again, it is a global balance as 
well. Refineries are being built internationally. Refiners in 
general are not making any money right now, or very little 
money, so it is a delicate balance. When you look on an 
investment time frame that is 10 years down the road, as to if 
we ramp up ethanol production, if we all drive more fuel-
efficient cars, if we do these things, what are the incentives 
for me to build a refinery now that is going to come online 
five years from now, when we might have an entirely different 
environment?
    Ms. Fallin. My time is about ran out, but let me ask you 
another question. Some Members of Congress have been advocating 
putting a windfall profits tax back in place. What would that 
do to the marketplace and supply and demand and the cost?
    Mr. Todd. It would lower supply.
    Ms. Fallin. And----
    Mr. Todd. Higher taxes have never increased supply, so I 
have a very difficult time envisioning that it would do 
anything other than increase prices.
    Ms. Fallin. And if yo lower supply, what happens?
    Mr. Todd. Prices go up.
    Ms. Fallin. Okay.
    Sir?
    Mr. Felmy. I think it is instructive from the studies of 
the Congressional Research Service that we affirm that, that 
the windfall profits tax of the early 1980s led to reduced 
supply, increased imports, and that is not good for consumers.
    Ms. Fallin. So you are telling me that gasoline prices 
could go up even further?
    Mr. Felmy. Once again, I don't speculate on gasoline prices 
because of antitrust, but I see a tighter market.
    Ms. Fallin. Let me ask the economist.
    Mr. Todd. Yes.
    Ms. Fallin. Okay.
    Did you have something you wanted to say?
    Mr. Slocum. Yes, please. First, the primary decisions in 
the oil and gas industry affecting production is the market 
price of that underlying commodity. And unless you price a 
windfall profits tax at a punitive Swedish style rate, it is 
not going to discourage production as long as oil is over $100 
a barrel. And the proposals that I have seen from Congress thus 
far are not punitive tax rates, they are tax rates that would 
reduce somewhat returns to shareholders, to the owners of 
publicly held companies. But, typically, economists do not 
believe that corporate income taxes are paid by end consumers; 
they are paid by the shareholders of the company in the form of 
slightly lower stock value or lower dividends, things like 
that. So I would disagree that enactment of a reasonable 
windfall profits tax would hamper domestic oil production.
    And getting back at some of the other questions you were 
asking, about whether or not bringing on new sources of 
production, such as the Arctic National Wildlife Refuge, would 
reduce prices, we have already seen that basic supply-demand 
fundamentals are not being followed in the crude oil markets. 
U.S. gasoline demand is down over a percent from a year ago, 
and that is significant because the United States is far and 
away the largest gasoline consumer on the planet, and the 
markets have responded by increasing the market price, which is 
exactly the inverse of what you would expect. So even if we 
were bringing on massive new supplies, as long as we have 
dysfunctional, non-transparent futures markets where prices are 
actually set, it will probably be irrelevant what is going on 
in supply and demand.
    Ms. Fallin. I appreciate your answer to that, but I think 
my question was more towards if we increase the U.S. supply--
since now we buy over 62 percent of our energy needs from 
foreign countries--what would that do to our own market and 
supply and the cost of gasoline.
    Mr. DeFazio. I thank the gentlelady for the question, and I 
think it was responsive.
    Mr. Braley.
    Mr. Braley. Thank you, Mr. Chairman. I first want to 
comment that I certainly agree with your characterization of 
the former Chairman's testimony as provocative. There were 
things that he said that I agreed with; there were things he 
said that I found intriguing; and there were things that I 
blatantly disagreed with. And as a big fan of the TV show Ice 
Road Truckers, which is filmed in his State, and as a former 
trucker, I take a very serious interest in the topic we are 
here to discuss today.
    I got my driver's license on October 30th of 1974, right in 
the wake of the oil embargo and the aftermath, and there were a 
lot of things that happened that the oil and gas industry 
didn't have much to do with. One of the things we saw was we 
saw incredible change in innovation in the U.S. auto industry, 
which produced vehicles like the Chevy Vega, the Ford Pinto, 
the AMC Gremlin, and a host of other vehicles whose sole 
purpose was to try to get better fuel mileage and to preserve 
the precious resources that we had available in this Country.
    Setting aside for the moment some of the safety 
implications of those vehicles, one of the things we know is, 
if we look back through history, we can see various spurts of 
innovation to try to address things that affect both supply and 
demand in the marketplace we are talking about. For example, if 
you go back and look at some of the documentation from Renault, 
a French auto maker, in the early part of this century you will 
see that they were producing an internal combustion engine that 
was capable of getting 70 miles per gallon, almost 100 years 
ago.
    So one of the concerns I have on this Committee is that we 
are looking at this problem in a global viewpoint, not just a 
narrow focus viewpoint. And I want to start with you, Mr. 
Felmy, because you are an economist by training, is that 
correct?
    Mr. Felmy. Yes.
    Mr. Braley. And I think you would agree that one of the 
things economists have to do is have an understanding of 
history.
    Mr. Felmy. Yes.
    Mr. Braley. Because market trends and things economists 
study are based upon an assessment of how things evolve 
historically and how we can predict future economic trends 
based on things we have learned from the past. Is that a fair 
statement?
    Mr. Felmy. Yes..
    Mr. Braley. One of the things that students of history know 
is that there was a little thing called the whiskey rebellion 
in this Country. Do you remember that?
    Mr. Felmy. I would say yes, barely.
    Mr. Braley. All right.
    Mr. Felmy. I couldn't give you any details on it, but I do 
remember the title of the history.
    Mr. Braley. One of the things that former Chairman Young 
was talking about was that his opinion that ethanol was an 
incredibly poor idea as part of this equation we are talking 
about. Do you remember him saying that?
    Mr. Felmy. Yes.
    Mr. Braley. Do you agree with that statement?
    Mr. Felmy. Well, the oil industry has been committed to 
adding more ethanol into the fuel supply. We were originally 
agreed to the renewable fuel standard, and the industry has a 
requirement this year of using 9 billion gallons, and the 
industry is working very hard to meet those requirements for 
ethanol. It is the law.
    Mr. Braley. Well, I brought up the whiskey rebellion for a 
very specific purpose, because the truth is we have been 
refining corn a lot longer in this Country than we have been 
refining petroleum, isn't that true?
    Mr. Felmy. Oh, absolutely. There is no question. Worldwide 
we have been refining ethanol without gasoline additives for a 
long time.
    Mr. Braley. And, in fact, frontier farmers, which caused 
the whiskey rebellion, were converting corn into grain alcohol 
and selling it because it was easier to transport it in that 
fashion than in a food commodity fashion.
    Mr. Felmy. No question. In fact, if history reminds me, I 
think Abraham Lincoln was involved in shipping whiskey across 
the rivers at that point, and I think it is also a case that 
Henry Ford, one of his original vehicles was designed to run on 
ethanol, if memory serves me.
    Mr. Braley. That is correct.
    Now, one of the things that has happened here in Washington 
lately is ethanol is being blamed for a lot of things. It is 
being blamed for the rise in rice prices worldwide; it is being 
blamed for the rise in food cost and in energy cost. One of the 
questions I have for you is do you like to eat corn?
    Mr. Felmy. Absolutely. It is one of my favorite vegetables.
    Mr. Braley. Good. Well, I had some great----
    Mr. Felmy. I love it every summer.
    Mr. Braley. Do you understand, Mr. Felmy, that there is a 
big difference between the corn you buy in a store and the corn 
that is grown in cornfields in Iowa and Illinois and Indiana 
that is used to produce ethanol?
    Mr. Felmy. Having grown up in central Pennsylvania, I know 
the problems you have when you eat the wrong type.
    Mr. Braley. It is not a very tasty----
    Mr. Felmy. It is not a pretty sight.
    Mr. Braley. Exactly right.
    Mr. Slocum, one of the things that we have been talking 
about here today is how supply and demand affect the actual 
price that people at the pump, especially as it relates to the 
trucking industry, and I would like you to comment on one of 
Mr. Felmy's earlier statements, where he said you either 
believe in conspiracy or markets, as explanation of what is 
happening right now in the oil market. One of the things that I 
have learned from studying history is that usually conspiracies 
develop in the absence of appropriate market regulation and 
intervention, and I would like you to comment on that as you 
see it relating to the problems that bring us here today.
    Mr. Slocum. Right. I don't know if I would use the word 
conspiracy to talk about some of the anti-competitive issues 
that Public Citizen believes exists in America's energy 
markets; it is more, as the Federal Trade Commission has termed 
them, profit maximization strategies. And there is nothing 
wrong with that as long as they are being conducted in a 
competitive fashion.
    But when you have got an industry like petroleum and oil 
and gas that is inelastic in its supply, and you have demand 
that is largely inelastic, and you have high levels of market 
concentration of producers and refiners, and you have got 
unregulated energy trade markets where the prices of these 
commodities are set, that opens the door very wide to collusive 
and other anti-competitive practices by the industry. And all 
Public Citizen is seeking is increased Government oversight 
over these important markets. It is bad policy, from our 
perspective, to allow energy markets that determine the prices 
we all pay in our economy and what we pay at the pump and to 
heat and cool our homes, to be set in an unregulated fashion. 
We are not talking about Hugo Chavez style intervention here in 
the marketplace; we are talking about basic Government 
oversight over critical commodities essential to the health of 
the U.S. economy.
    And when you approve the number of vertically integrated 
mergers in the U.S. petroleum industry that we have over the 
last decade, thereby reducing the level of effective 
competition in key industries like refining, I believe that you 
are setting the stage for profits and prices that would be much 
higher than if consumers had access to adequately competitive 
markets.
    Mr. DeFazio. I thank the gentleman for his questions.
    Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. This has been an 
interesting discussion, and I hope I am not going to be 
redundant in some of my questions, but it has been pretty 
interesting, the dialogue that we have been exchanging between 
the Members and the panel.
    My concern is that as we talk about the demand and we talk 
about the supply and we talk about how we are going to do the 
markets and how we are going to generate the price, what 
concerns me is the vulnerability we find ourselves in, our 
economy in the United States, where we are using some 21 
million barrels of oil a day and some 62 percent of that comes 
from someplace else. And I know we talked about subsidizing oil 
companies, and I don't think we do that; that is based on the 
research that we must find additional energy, and we are doing 
the same thing, I guess, in the other alternative fuels, be it 
wind or be it ethanol or whatever else we find out there. So I 
think we must look at it as a total picture, not just isolate 
one item against the other.
    I was impressed when my good friend from Louisiana really 
brought some calm and reality to the process by saying that we 
have got to get off of the oil glut or whatever we call 
ourselves today. So we must find an alternative energy 
solution, but we can't do it unless we have cooperation across 
the whole spectrum. We cannot reduce our demand for 13 million 
barrels of oil a day that we get from outside the continental 
United States, a lot of places that don't particularly like who 
we are and a lot of it is not stable, like the Nigerian problem 
we find ourselves in today. And everything that happens impacts 
the oil price, so the consumer has to deal with it.
    And I was just doing a little quick calculation, and maybe 
some of you guys have got a quicker pencil than mine, but at 
the price of oil of $120 a barrel, and we are using 13 million 
barrels coming from offshore, we are generating over half a 
trillion dollars worth of trade imbalance every year, which is 
a major concern as we deal with the price of the dollar and we 
are buying oil with the dollar and the Euro is being bought, 
which is now $1.57 or something compared to the dollar. So all 
of those factors injected in, we have got to become energy 
independent in the United States. We not only have to deal with 
lack of our own energy supply, but now we have got to compete 
in some kind of a monetary market that the dollar is pretty 
weak.
    So with that being said, Mr. Felmy, do you know whether we 
could convert those trucks from diesel to natural gas? Would 
that be a major cost to do that?
    Mr. Felmy. I would think that it would be a major cost. It 
is quite a bit of different combustive thing. I am not an 
engineer to give you any specifics, but it would strike me as 
being fairly high cost. And then the challenge in terms of 
natural gas is that we don't have a lot of excess natural gas. 
Our production has been relatively flat; we are relying more 
and more on imports, including liquified natural gas imports. 
So that would present some other challenges.
    Mr. Brown. Well, but you know, just like we do in our 
petroleum explorations, we have plenty of natural gas. I know 
off the coast of South Carolina. We are not talking about the 
beaches. We are talking about 50 miles, even 100 miles off the 
coast. There is a tremendous reserve of natural gas, but there 
again we are not dealing with that issue.
    We need to be proactive in trying to find alternative 
energy supplies. We have particular potential for nuclear power 
which we are using about 20 percent in the United States, 80 
percent of France. We have a lot of catching up to do if we 
have the will to do it, and sometimes our energy policy is no 
and no is not the answer.
    Mr. Felmy. I think the National Petroleum Council clearly 
said exactly that, that we are going to need all forms of 
energy. We are going to need energy efficiency, and all too 
often things are taken off the table before you have a real 
opportunity.
    There is an excess of 600 trillion feet of natural gas that 
is estimated that you could produce, much of which is off 
limits. The Marcellus Gas Shale Play in my area of Pennsylvania 
is an exciting opportunity. There is a host of resources we 
could develop.
    Mr. Brown. Right. Well, Mr. Chairman, thank you for holding 
this hearing and thank you for this exchange.
    Mr. DeFazio. I thank you, Mr. Brown.
    Mr. Space.
    Mr. Space. I yield, Mr. Chairman. Thank you.
    Mr. DeFazio. Okay. Mr. Duncan.
    Mr. Duncan. We need to get on to the second panel, so I 
thank the witnesses for being with us. Thank you.
    Mr. DeFazio. Okay. I will just ask one last question. I am 
just curious. We visited the refinery issue, and we heard that 
last year refineries were very profitable. This year, 
refineries are theoretically losing money.
    But I guess the question is if Exxon Mobil is a fairly 
major refinery, if they almost beat their quarterly record 
profit for the largest corporate quarterly profit in the 
history of the world, and they are losing money on refining, 
where does the money come from?
    Mr. Todd. From the oil and gas production side of the 
business.
    Mr. DeFazio. Okay. So, basically, if you are vertically 
integrated, maybe in certain years you can make the money over 
here with squeezed refinery capacity and the concentration in 
refining and, in other years, you are going to make the money 
over here in the production side. Vertical integration is a 
great thing that way, right?
    Mr. Todd. Yes. To a certain extent, it provides a type of 
natural hedge.
    Mr. DeFazio. Not to the particular source maybe.
    Mr. Todd. It provides a type of a natural hedge for a 
company, correct, but it doesn't always work out that way. In 
the late nineties, nobody was making very much money on 
anything, upstream or downstream.
    Mr. DeFazio. Right. Well, I doubt we are headed back to the 
nineties, particularly looking at Goldman Sachs, but I can 
agree with you. I hope they are wrong, but I am sure they did 
very well today because if they are going to put the report out 
today. I would love to see what their positions in the market 
were yesterday.
    I thank all the members of the panel for your forbearance. 
This went on longer than we expected, but we will go to the 
next panel. Thank you very much.
    I am going to take a one minute break. The next panel can 
get set up.
    [Recess.]
    Mr. DeFazio. All right. We are going to move on now to our 
second panel.
    I guess referring back to the first panel, when we talked 
about upstream-downstream, you folks are the downstream portion 
of this issue. You are getting to deal with the high prices. I 
am not certain we convinced anybody or illuminated too much, 
but I thought it would be useful just to have some discussion 
of some of the causes of high prices and some potential ways to 
address it.
    We are going to go now to panel two. We will go first to 
Ms. Suzanne Te Beau from the Federal Motor Carrier Safety 
Administration, Department of Transportation.
    Ms. Te Beau.

 TESTIMONY OF SUZANNE M. TE BEAU, CHIEF COUNSEL FEDERAL MOTOR 
       CARRIER SAFETY ADMINISTRATION, U.S. DEPARTMENT OF 
 TRANSPORTATION; TODD SPENCER, EXECUTIVE VICE PRESIDENT, OWNER-
OPERATOR INDEPENDENT DRIVERS ASSOCIATION; MIKE CARD, PRESIDENT, 
  COMBINED TRANSPORT; ROBERT A. VOLTMANN, PRESIDENT AND CEO, 
 TRANSPORTATION INTERMEDIARIES ASSOCIATION; AND WAYNE JOHNSON, 
         DIRECTOR OF LOGISTICS, AMERICAN GYPSUM COMPANY

    Ms. Te Beau. Thank you. Good afternoon, Mr. Chairman, 
Ranking Member Duncan.
    I am the Chief Counsel for the Federal Motor Carrier Safety 
Administration and am here today on behalf of Administrator 
John Hill who was not able to attend. I have been asked to 
provide background on the agency's jurisdiction over interstate 
property brokers.
    For FMCSA's purposes, a broker is defined as a person other 
than a motor carrier or an employee or agent of a motor carrier 
that sells, offers for sale, negotiates for or holds itself out 
by solicitation, advertisement, or otherwise as selling, 
providing, or arranging for transportation by motor carrier for 
compensation. Generally, brokers are transportation 
intermediaries who procure the services of motor carriers to 
transport property.
    Historically, Federal oversight of brokers has been limited 
primarily to ensuring that brokers register for authority, 
provide evidence of financial responsibility, and designate 
process agents for service.
    Brokers arranging for transportation of property in 
interstate commerce were first regulated by the Interstate 
Commerce Commission in 1935. Brokers were required to obtain 
operating authority from the ICC and meet financial 
responsibility and other regulatory requirements.
    The ICC Termination Act of 1995 continued the registration 
requirement if the broker is fit, willing, and able to provide 
the service, comply with applicable regulations, and continued 
the financial responsibility requirement. The brokers must file 
evidence of financial responsibility such as a surety bond or 
trust fund agreement.
    However, ICCTA transferred oversight of these requirements 
to the Department of Transportation where they were delegated 
to the Federal Highway Administration.
    With the enactment of the Motor Carrier Safety Improvement 
Act of 1999, which established FMCSA, oversight of this 
authority was then transferred to our agency. MCSIA, however, 
did not amend any of the broker statutory or regulatory 
requirements, but did reemphasize that the primary mission of 
FMCSA was safety.
    In 2005, Congress enacted SAFETEA-LU, which addressed 
broker requirements. Specifically Section 4142(c) of SAFETEA-LU 
continued the registration requirement for brokers of household 
goods. However, it amended the law to provide the Secretary 
discretion to continue to register brokers of non-household 
goods if the Secretary finds that such registration is needed 
for the protection of shippers.
    FMCSA believed it was in the best interest of shippers to 
continue registering all brokers. In August 2006, the Agency 
published a notice in the Federal Register finding that 
continued registration of non-household goods brokers is needed 
for the protection of shippers. As a result, property brokers 
remain subject to both registration and bond requirements.
    SAFETEA-LU added requirements specific to households goods 
brokers designed to better educate shippers who use the 
services of such brokers by requiring the distribution of key 
information regarding the moving transaction. The statute 
increased existing penalties or created new penalties for 
certain household goods broker infractions.
    In addition to these statutory requirements, property 
brokers are subject to a number of regulations found in Title 
49 of the Code of Federal Regulations. Regulations primarily 
found in Parts 371 and 387 contain record-keeping and 
accounting requirements and prohibit misrepresentation and 
rebating, impose broker financial responsibility requirements, 
require brokers to preserve records, and establish procedures 
for designating process agents.
    Under the Household Goods Consumer Protection Regulations, 
a broker of household goods is prohibited from providing an 
estimate before it has an agreement in place with a carrier 
evidencing that the carrier has adopted the broker's estimate.
    To implement Section 4212 of SAFETEA-LU and provide 
additional protections to individual household goods shippers, 
in February 2007, the agency published a notice of proposed 
rulemaking proposing a separate sub-part of Part 371 
regulations applicable only to household goods brokers. The 
NPRM proposes to raise the minimum surety bond or trust fund 
for household goods brokers to $25,000. We anticipate 
publishing of this final rule in 2009.
    In order to obtain authority to operate as a broker, 
applicants must register and be granted operating authority. A 
prospective broker is required to file an application to 
request authority to become a broker.
    Upon completion of the filing, as is the case with motor 
carrier applicants, notice of the application is published in 
the FMCSA Register and there is a 10-day period to allow for 
protests.
    Before broker authority is issued, the applicant must also 
file evidence of a surety bond or trust fund to meet the 
financial responsibility requirements and a form designating 
its process agents. The purpose of the surety bond or trust 
fund agreement is to ensure that the transportation the broker 
arranges is provided. In other words, it is designed to protect 
shippers who pay brokers who do not meet their obligation to 
arrange for transportation service or to pay the motor carrier 
who does not receive payment.
    As to enforcement, FMCSA's oversight efforts are integrated 
with other aspects of the agency's enforcement program. 
Following a grant of authority, FMCSA monitors the status of 
the brokers' surety bond or trust fund agreement through its 
licensing and insurance data system, which is also accessible 
to law enforcement and the general public from the FMCSA web 
site.
    As with other areas of commercial regulations, FMCSA field 
investigations are complaint-driven. Many of the complaints we 
receive regarding brokers are outside the scope of our 
jurisdiction. These types of complaints usually concern 
contractual disputes for which a private right of action is 
available to the complainants.
    When we receive complaints that do fall within the scope of 
our authority, we generally respond with a field investigation.
    Mr. Chairman, this concludes my brief summary of FMCSA's 
statutory and regulatory authority over interstate property 
brokers. I would be pleased to answer any questions.
    Mr. DeFazio. Thank you, Ms. Te Beau.
    We would now turn to our next witness. I want to make sure_
they gave me a different order here_I have the order right, 
yes. It would be Mr. Todd Spencer, Executive Vice President, 
Owner-Operator Independent Drivers Association.
    Mr. Spencer.
    Mr. Spencer. Good morning, Chairman DeFazio, Ranking Member 
Duncan, distinguished Members of the Subcommittee. I am very 
pleased to be here to testify today on this extremely important 
issue to small business trucking and the nation.
    As you know, the trucking industry plays a vital role in 
our Nation's economic well-being. Small businesses comprise a 
vast majority of this industry in the United States. 
Approximately 96 percent of motor carriers have fleets of 20 or 
fewer trucks and 87 percent operate just 6 or fewer trucks.
    This is very much a small business industry, and the cost 
of fuel is very often the largest operating expense with which 
small business truckers must contend. For them, fuel costs can 
easily be 50 percent or more of their total operating expenses.
    To say the least, small business truckers are severely 
impacted by current prices at the pump. They are experiencing 
unprecedented operating cost increases and are being forced to 
make tough decisions in the name of saving their businesses and 
providing for their families. Thousands have parked their 
trucks or gone out of business in the past year alone.
    Without the services small business truckers provide the 
price of goods will dramatically increase and undoubtedly add 
to our Nation's economic woes. That is precisely what happened 
prior to the last recession in the year 2000 when more than 
250,000 trucks were repossessed due to business failures.
    A recent report estimated that 935 American trucking 
companies went out of business in the first quarter of this 
year. The report estimates those businesses operated 
approximately 42,000 trucks and accounted for roughly 2.1 
percent of the Nation's over-the-road heavy-duty truck 
capacity. While this data was shocking, it wasn't even the 
complete picture since this data doesn't include the numbers 
for those with five or fewer trucks that also failed.
    Every day at our headquarters in Missouri, we hear from 
truckers who have recently lost their businesses, and the 
overwhelming majority cite the inability to recoup increased 
fuel costs as a primary contributing factor to their failures.
    This morning, the AAA calculated the national average 
retail price of diesel at an astonishing $4.24 per gallon which 
is actually down a penny from its historic high just last week. 
That is more than $1.30 higher than last year at this time.
    Unfortunately, the Department of Energy predicts that 
diesel prices will continue to rise. To put this into 
perspective, each time the price of fuel increases by 5 cents, 
a trucker's annual costs increase by roughly $1,000. This is an 
enormous burden on the small business trucker whose average 
annual income is around $38,000.
    Throughout the history of the trucking industry, the only 
viable marketplace solution to erratic and rising fuel prices 
has been the application of a fuel surcharge. With diesel 
prices consistently going up, shippers are paying more now in 
fuel surcharges to get their freight moved than ever before.
    But due to the dynamics of the industry and the lack of 
regulatory oversight, middle men often hold all the cards and 
are able to exploit shippers as well as truckers particularly 
when it comes to surcharges. Most shippers do not realize that 
the surcharges they are paying aren't necessarily going through 
to the trucker who is paying for the fuel to move their 
freight.
    Collecting fuel surcharges and not passing them through to 
whoever is paying the associated fuel cost is simple fraud. It 
is a common practice in the trucking industry, and it has a 
devastating impact on small businesses.
    To hide their tracks, unscrupulous brokers and their 
representatives make outrageous claims about massive litigation 
and economic re-regulation whenever sunlight gets close to 
being shown upon some of the trucking industry's normal 
practices and realities that have been created.
    Unfortunately, FMCSA as the only Federal agency with 
jurisdiction over the registration and oversight of freight 
brokers does little, if anything, to rein in unscrupulous 
brokers or their activities. FMCSA seldom responds to 
complaints about brokers and, to my knowledge, never takes any 
action against them.
    Small businesses are truly the backbone of our Nation's 
economy. Their economic health is necessary if a stable 
trucking industry is to be available in good times and in bad 
to move freight across the Country. If we do not find ways to 
help them soon, I have no doubt that we will see greater 
disruptions in the movement of our Nation's commerce and a 
further worsening of our Nation's economy.
    Thank you for the opportunity to share our views today. I 
will be happy to answer questions.
    Mr. Duncan. I asked the Chairman if I could get one quick 
clarification. You said 935 companies went out of business in 
the first quarter and 87 percent of the companies had 6 or 
fewer trucks, but the 935 did not count the companies that had 
5 or fewer trucks. So there could have been hundreds of more?
    Mr. Spencer. I am confident there were. You know the other 
figure.
    The actual numbers between 2000 and 2002 when we saw the 
last run-up in fuel prices were that a quarter of a million 
trucks actually ended up being repossessed. I mean that is how 
many that went back on the market. The economics of that and 
the economics overall is what precipitated the recession then.
    Mr. Duncan. Well, I didn't want to go into that.
    Mr. Spencer. Sure.
    Mr. Duncan. Those are shocking figures. I wanted to make 
sure I had it straight. Thank you.
    Mr. DeFazio. I thank the gentleman for his clarification.
    We would now turn to the next witness. Mr. Mike Card, 
President, Combined Transport, Central Point, Oregon, welcome. 
We appreciate your being here today and the long trip. I know 
how long it is.
    Mr. Card. Thank you, Chairman DeFazio and Members of the 
Subcommittee.
    My name is Mike Card. I am the President of Combined 
Transport, a family owned and operated trucking company located 
in Central Point, Oregon.
    Today, I appear before you not just for my company but also 
the American Trucking Association who has 37,000 members, 
trucking companies and affiliates.
    Each year, the trucking industry consumes over 39 billion 
gallons of diesel fuel. This means that a 1 cent increase in 
the average price of diesel costs the trucking industry an 
additional $391 million in fuel expenses. Today, it costs me 
approximately $1,200 to fill one truck.
    The dramatic increase in the price of diesel combined with 
the downturn in the economy jeopardizes the survival of many 
trucking companies. In the first quarter, as was just 
mentioned, over 1,000 trucking companies failed, and this was 
the largest number since 2001.
    My family built and grew Combined Transport over the past 
30 years, and today we operate more than 400 trucks and employ 
over 500 individuals. My company purchases approximately 25,000 
gallons of diesel fuel daily, and this recent escalation in the 
price of fuel costs me an additional $4 million a year. It is 
harmful to my company, the trucking industry and the U.S. 
economy.
    I am a specialized carrier. We haul specialized 
commodities, building materials, heavy equipment, windmill 
towers, transformers.
    Thirty-five percent of my miles that my fleet travels are 
empty miles. We are not hauling a load. We are returning empty, 
and I do not have a customer to pay for the fuel on those miles 
or my costs. While this is often built into the rates we 
charge, the rapid escalation in the price of diesel fuel has 
turned profitable contracts that I negotiated in October to 
unprofitable obligations in May because I don't have enough 
money built in for my costs.
    Against this backdrop, we greatly appreciate the 
opportunity to discuss actions that Congress can take to help 
address the soaring price of diesel fuel. So there are three 
initiatives that I would like to discuss that will help reduce 
the trucking industry's consumption of diesel fuel. First is 
auxiliary power units, APUs, which will reduce idling; the 
second is speed limits; and the third is the EPA's SmartWay 
program.
    The first issue, idle reduction, is a very important part 
because our drivers live in the trucks when they are away from 
home. They don't idle because they want to. They idle out of 
necessity, and the idling is necessary to maintain the sleeper 
compartment's comfortable temperatures and other uses.
    APUs can save up to one gallon of fuel per hour and 
substantially reduce emissions and greenhouse gases.
    There are three major barriers that stand in the way of 
trucking companies purchasing APUs for their daily use. First 
is the actual cost of the devices themselves. They cost about 
$10,000. It is really unaffordable today to put that much money 
out for every truck when the economy is tough.
    There is also the weight problem that we have. These units 
weigh about 400 pounds, and it takes away from our cargo 
carrying capacity. Congress passed an exception to the 
additional weight, but not all States have taken that 
exception, and there is only about seven of them that have.
    Finally, there is a 12 percent Federal excise tax on 
purchasing APUs. It shouldn't be there. It shouldn't be part of 
the transportation usage for idling.
    The other big thing that we should do is we should control 
speed. Congressman Young mentioned the embargo problems we had 
in the seventies. We reduced the speed limit to 55 miles an 
hour back then.
    We think that we need to reduce speed to 65 miles an hour 
for all vehicles because there is a direct correlation to speed 
and fuel use. For example, a truck traveling at 65 miles an 
hour can achieve about 6 miles per gallon. A truck traveling at 
75 miles per hour only achieves 5 miles a gallon.
    So, in addition to the fuel conservation benefits, we are 
confident that this measure will reduce truck-related accidents 
on our Nation's highways as well.
    The third issue is the EPA's SmartWay program. EPA's 
SmartWay program of which my company is an authorized member is 
a voluntary program patterned after the highly successful 
Energy Star program. It encourages trucking companies to 
improve their fuel efficiency by creating market-based 
incentives to reduce fuel consumption through the use of super 
single tires, better aerodynamics, APUs and other technologies.
    It looks like Congress might be trying to cut the cost of 
that program. We think that is an important program.
    So, even though I am not here to physically shake up 
Congress, like Congressman Mica mentioned, I am here to ask for 
help. Thank you for allowing me to come before you and thank 
you.
    Mr. DeFazio. Thank you, Mr. Card.
    We would now turn to Mr. Robert Voltmann, President and 
CEO, Transportation Intermediaries Association.
    Mr. Voltmann. Thank you, Mr. Chairman.
    TIA is the professional organization of the $162 billion 
U.S. third party logistics industry. All TIA members adhere to 
the only mandatory code of ethics in the transportation 
industry. Transportation intermediaries 3PLs act as travel 
agents for freight.
    They serve tens of thousands of shippers and carriers, 
bringing together the transportation needs of those shippers 
with the corresponding capacity and special equipment offered 
by motor, rail, air and ocean carriers. ThreePLs get to know 
the shipper's business and tailor a package of transportation 
services to meet those needs.
    ThreePLs have two customers in every transaction:
    For their shipper customer, the 3PL brings expertise, 
significant and sophisticated software resources, relationships 
with thousands of carriers, insurance coverage, claims 
management, carrier screening and carrier payments.
    For their carrier customers, 3PLs bring equilibrium to 
equipment imbalances, provide small carriers with access to big 
shippers, provide carriers with an active sales force in every 
market, manage the relationship with the shipper and even 
assume the shipper's credit risk for the carrier.
    It is a total fabrication to state that 3PLs are profiting 
from fuel surcharges. In truth, due to the dynamic nature of 
the 3PL carrier contracts and the more static nature of the 3PL 
shipper contracts, 3PLs are paying trucking companies more 
money when fuel spikes occur than the fuel surcharges they 
actually receive from shippers. As fuel costs increase, 3PLs 
have to pay more or the carrier will not haul the load.
    TIA members report that their profit margins have declined 
10 percent since early 2007 versus 2008 because of the rising 
fuel costs and weak economy. This is the direct result of 3PLs 
paying their carriers more for fuel than the 3PLs receive from 
the shipper.
    The trucker alone decides how much money they need to 
profitably handle a specific shipment on a specific day, and 
they are never forced to take a shipment. Regulation is not 
necessary.
    As I stated earlier and is detailed in our written 
submission, shippers and 3PLs are paying fuel surcharges to 
carriers, sometimes at a loss to the 3PL. All carriers are free 
to accept or reject any load. If the shippers and 3PLs were not 
paying fuel surcharges the carriers wouldn't take the freight.
    We believe that the Truck Act will essentially return the 
industry to tariffs and, if enacted, every broker, forwarder 
and carrier would have to detail their income on every load. In 
no other American business has Congress so repudiated 
deregulation and private enterprise.
    Disclosure requirements would return the industry to the 
nightmare of lawsuits not seen since the undercharge crisis of 
the 1990s. If enacted, we believe that the Truck Act would also 
give shippers and 3PLs a strong incentive to avoid disclosure 
of their margins and the exposure to lawsuits under the Act by 
avoiding altogether the use of carriers that utilize owner-
operators, and such a result would have a devastating effect on 
the very people this proposal is supposed to help.
    Mr. Chairman, the members of TIA urge this Committee to 
maintain a free and open market in transportation.
    Thank you.
    Mr. DeFazio. Thank you.
    Now, we would turn to the last witness, Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Chairman, Members of the 
Subcommittee.
    I am Wayne Johnson, Director of Logistics for the American 
Gypsum Company in Dallas, Texas. I am representing today, 
though, the National Industrial Transportation League with more 
than 600 members that ship their products by all modes of 
transportation including motor carriers. I am also the Chairman 
of the League's Highway Transportation Committee.
    League members are well aware that diesel fuel prices have 
increased significantly. According to the EIA, the national 
average diesel price of fuel this last week was $4.14 a gallon, 
an increase of $1.33 since a year ago and more 62 cents in the 
last two months.
    Obviously, this rapid increase represents a challenge to 
all sectors of the freight transportation community. 
Fortunately, the transportation industry has the tools to meet 
this challenge.
    Over 25 years ago, Congress deregulated the motor carrier 
industry in order to free the industry from outdated, 
unnecessary government regulations. That policy has been a 
spectacular success and has resulted in a strong, innovative, 
efficient and highly responsive motor carrier industry.
    The system depends upon a complex set of individually 
negotiated, market-driven confidential contracts. This system 
is flexible, efficient and, because these agreements are 
negotiated in a highly competitive and dynamic environment, 
these agreements are extremely responsive to changes in market 
conditions, including the price of fuel.
    For years, the shippers have created fuel surcharge 
programs within their confidential agreements with their 
carriers. They reflect the differing conditions under which 
each shipper operates.
    Some shippers have a specific fuel surcharge provision in 
their agreements often based on national indexes. Others prefer 
to roll changes in fuel prices into the rate so that they pay a 
flat rate for all inclusive charges. Thus, there is no right 
answer to the question of what a fuel surcharge should be or 
even whether a separate fuel charge should be included in a 
confidential motor transportation agreement.
    For many shippers, fuel costs are the responsibility of the 
trucking company. It is protected by the fuel surcharge 
mechanism which it negotiates with its shippers.
    In other cases, the trucking company employs the services 
of an independent operator which typically is responsible for 
the cost of fuel. The independent operator has the same 
opportunity and responsibility to negotiate fair compensation 
from the trucking companies with which they do business as 
trucking companies have when they enter into agreements with 
shippers.
    This is a competitive system. Shippers, brokers, carriers 
can enter into and exit this market freely, participating on 
terms that they can negotiate in light of market conditions. 
Competition is made possible by the fact that these agreements 
are confidential and no party is forced to disclose its 
economic interest to the other.
    Legislation has been introduced, S. 2910 and H.R. 5934, 
that would require a motor carrier, broker or freight forwarder 
to provide to a person who bears the cost of fuel a payment in 
the amount equal to the charges invoiced which relate to the 
cost of fuel. That person would also have to provide a written 
list that specifically identifies any freight charge, broker's 
fee or commission, fuel surcharge or adjustment or other 
charges.
    Finally, the proposed legislation would forbid a person to 
cause a motor carrier, broker or freight forwarder to present 
false or misleading information in an oral representation about 
a rate, charge, or allowance.
    The League strongly opposes this proposed legislation. This 
bill would substantially undermine the current competitive 
system by forcing one party to reveal to the other its 
confidential business information. This would be an 
unprecedented, unnecessary, unwarranted intrusion into the 
workings of a competitive market and would likely harm 
competition.
    The proposed legislation would also be likely to spawn 
substantial litigation as one party tries to prove whether 
another caused false or misleading information in an oral 
representation. This type of ``he said, she said'' litigation 
would be almost impossible to resolve and would do nothing more 
than provide a windfall to the litigation bar.
    At bottom, this proposed legislation would undo the highly 
successful competitive market that the Congress has 
successfully created in the motor carrier industry.
    In sum, the League is strongly opposed to these two bills 
and believes that the current system of confidential contracts 
appropriately provides for the needs of all sectors of the 
transportation marketplace.
    I would be pleased to answer any questions you may have.
    Mr. DeFazio. Thank you.
    We are going to try. The Republicans are in a bad mood 
today, so we are having some procedural votes. We will see how 
far we can get with the first round of questions.
    To Ms. Te Beau, I just want to clarify the law a little bit 
here when it talks about parties. Each party to a broker 
transaction has the right to review the record of the 
transaction required to be kept by these rules.
    In the logistics journal of TIA, they have a statement that 
says nothing in the statute or regulation requires you to send 
the information. You only have to make them available, make the 
information available in your office during normal business 
hours. That is part of the question.
    They also say that if the carrier shares the information 
from the accounting, you may have an action against them, i.e., 
a carrier who employs independent truck drivers, the TIA is 
saying they may have an action against them.
    Then the third part of the question is what is a party, 
because if the independent trucker working for the carrier is a 
party, then I don't believe TIA would be accurate in their 
assertion.
    Could you address those?
    Ms. Te Beau. I can try, sir.
    With regard to the first part, I assume that you are 
referring to our regulations under Part 371 for the record-
keeping requirements.
    Mr. DeFazio. Yes.
    Ms. Te Beau. With regard to whether they have the right to 
only come and see the information onsite, the regulations do 
not address that specifically. I would have to look at that. I 
do not think we have had any complaints specifically on that.
    Mr. DeFazio. Okay. There is nothing that would preclude a 
rulemaking that would say that they have to transmit the 
information as opposed to making someone travel to their place 
of business during those working hours in order to get 
information which they are lawfully entitled to.
    Ms. Te Beau. Are you asking if the regulations preclude an 
interpretation that way or preclude a regulation that way?
    Mr. DeFazio. Preclude a regulation, there is nothing that 
would preclude your enhancing the regulation.
    Ms. Te Beau. Not that I am aware of.
    Mr. DeFazio. Okay. Then how about party? What is a party in 
the case that we refer to here?
    Ms. Te Beau. It is not defined under the regulation, but I 
would think that would be a party to the agreement that is 
made. So it would be, I guess, a broker and the motor carrier 
or, if it is an owner-operator contracting with the broker.
    Mr. DeFazio. So you are saying that if a carrier contracts 
with the broker and then I enter into an agreement with the 
carrier, I am not entitled to any transparency about the 
transaction between those two?
    Ms. Te Beau. I am saying our regulation says party, and you 
are asking the definition of a party. That is the way I am 
reading it on its face.
    Mr. DeFazio. Right. Okay. How about cause of action if a 
carrier is good enough to share its information?
    Since we are talking about market forces and free markets. 
I don't know how many people have read Adam Smith. I did. I had 
to struggle through it. You know he talks about the amount of 
information that has to be made available.
    In this case, we have total opacity. We determine the 
charges in a very complicated way to the shippers, and then we 
pay the carriers in a different way, particularly the 
independent carriers. My question is if a carrier shared that 
information, what would be the cause of action?
    Ms. Te Beau. I do not understand there to be a cause of 
action. I am not clear what the cause of action would be.
    Mr. DeFazio. Okay. Well, because they were so concerned 
about lawsuits, I was just concerned about them filing lawsuits 
against people who actually obtain market information. I was 
just kind of curious about that.
    Mr. Spencer, you look like you want to say something there.
    Mr. Spencer. I just find it really, really curious that the 
organization that says all of their members have a mandatory 
code of ethics and their memos that they send out to their 
members are basically an instruction on how to circumvent what 
has been the law since the 1960s. This is current law, and this 
is how we circumvent it because, for God's sake, we don't want 
to comply because this might screw up a free market.
    Mr. DeFazio. To Mr. Voltmann, I guess I question what is 
the problem with transparency?
    Did you ever read Adam Smith? Do you understand how markets 
are supposed to work? People are supposed to have some 
information.
    Mr. Voltmann. I do understand Adam Smith. In a transparent 
and free market, transparency comes not from privity of 
contract but from public information.
    There are 20,000 licensed property brokers in the United 
States. The largest single company in the United States 
represents less than 5 percent of the market. It is the most 
diverse industry, I think, you can find in the United States.
    The privity of contract--and the ICC never challenged 
this--these are regulations that go back, as Mr. Spencer said, 
to the 1960s. We don't believe that it does anyone any good to 
know what the broker has negotiated its margin with the 
shipper.
    Mr. DeFazio. Doesn't that create a more competitive market?
    I mean suddenly people say: Gee, it is all on the internet. 
I can figure out. Gee, I see what they paid. I am going to try 
to negotiate a better deal over here.
    Gee, I see what they paid. I know now, gee, I can maybe 
raise my price a little as an independent trucker who is going 
broke and can't afford the fuel on the run that they have been 
assigned.
    They are told, oh, they can choose. They can pick and 
choose. They have to pay for the truck. They have to keep 
moving.
    Wouldn't everybody benefit? Wouldn't this be great to have 
a totally transparent market so both the truckers could be more 
competitive and the shippers could be more competitive and the 
brokers could be more competitive?
    Mr. Voltmann. Again, Mr. Chairman, transparency in a free 
market comes from public information.
    Mr. DeFazio. Right, and this could be posted on the 
internet. It could be public.
    Mr. Voltmann. It is posted. It is public, what rates are 
being offered by brokers, what rates are being sought by 
carriers on publicly open exchange boards, hundreds of 
thousands of loads and transactions. This is a very crazy and 
diverse market without any equilibrium.
    Mr. DeFazio. But how are the charges established?
    Mr. Voltmann. The charges are out there, what people 
actually pay.
    Mr. DeFazio. Established, how they are established, 
including the fuel charges, that sort of thing?
    Mr. Voltmann. It really depends on what the carrier asks 
for.
    Mr. DeFazio. Okay. So then what is the reference in the TIA 
newsletter to cause of action if a carrier shares the 
information from the accounting? What is that about?
    Mr. Voltmann. We believe that the regulations provide for 
that carrier to see an accounting on its load but not to share 
privity of contract or in violation.
    Mr. DeFazio. The load isn't actually up on the internet? 
People don't actually see what is paid for the load? It is a 
confidential contract?
    Mr. Voltmann. It is confidential.
    Mr. DeFazio. So there is all this stuff up there, but it is 
not what was really paid for particular loads.
    Mr. Voltmann. There are.
    Mr. DeFazio. How do we establish that baseline? How do you 
know?
    Mr. Voltmann. In a competitive market, Mr. Chairman, it is 
established, one, by the market and, two, by companies and 
organizations that track pricing and post average price per 
load, average loads available in a particular market.
    Mr. DeFazio. So, basically, you are just saying that the 
independent truck drivers are just not conversant enough with 
the internet and they should have laptops in the cab and be 
tracking all this stuff.
    Mr. Spencer, can you comment on that?
    Mr. Spencer. Well, certainly that would be ideal, but still 
we haven't got to the disclosure that really is the core of the 
issue. I actually brought an example that is illustrative of 
how unbalanced the field is and how the lack of information can 
really get exploited to the Nth Degree, and it shows off the 
difference where the parties are, the disparity of the 
difference in the parties.
    I notice in the comments regarding how well brokers are 
doing that the economic end result has been their margins have 
been squeezed a little bit.
    In my comments, it was in essence there were roughly 1,000 
trucking companies with 45 or more trucks that went out of 
business. I mean this is real. This is a real economic squeeze.
    Getting to the core of the question here, one specific 
example where a shipper paid $1,425 to have their goods moved. 
In addition to that, they paid $342 in a fuel surcharge for 
that, assuming that that surcharge was going to the person who 
paid for the fuel, that actually expended for the fuel.
    The trucker that moved the load got 600 bucks. That was an 
all inclusive rate, 600 bucks, which basically means the broker 
didn't spend a dime on fuel, took the $1,767 total, paid $600. 
They netted $1,167. Our trucker grossed $600 and had all of the 
expenses out of that.
    So it is not a surprise to me why these folks aren't having 
their margins squeezed; they are going out of business. That 
will continue to happen until there is a disclosure that is an 
actual practice, not just simply required in the laws from the 
sixties and hopefully required again when Congress is done.
    Mr. DeFazio. Okay. I hate to do this because we have been 
here a long time today already. Mr. Duncan, Ms. Hirono, I am 
not quite done, and we do have these three votes. They should 
go relatively quickly.
    The first one is a motion to adjourn, and then I don't know 
what the second is. Then the third vote is actually 
substantive. But it should all be done, hopefully, unless they 
have other procedural votes. Well, within five minutes of the 
last vote, I will be back here and would urge other Members to 
be back here.
    I can't quite predict when that will be. Hopefully, just to 
give everybody a little break, let's say five after 1:00. That 
way, you can go grab a soda or something like that.
    Thank you. I thank you for your forbearance.
    [Recess.]
    Mr. DeFazio. We will come back to order.
    We are kind of between votes here, and they are going to 
swear in a new Member, et cetera. So we are going to try and at 
least move through my part of the questions. When Mr. Duncan is 
able to return--Ms. Hirono and Mr. Michaud said they have 
questions--we will be able to get you out of here.
    Again, I regret this is not an efficient institution here.
    I guess I would like to ask for the shipper witness, Mr. 
Johnson, we heard a good deal from Mr. Voltmann about how 
everything has been. Can shippers go online and see how much 
other shippers are paying to move their product?
    Mr. Johnson. No, we cannot.
    Mr. DeFazio. No. Okay.
    Mr. Johnson. You cannot. You don't know exactly what they 
are paying, no.
    Mr. DeFazio. Okay. Then as a shipper, would it disturb you 
that a part of the rate that is being charged includes, as we 
heard from Mr. Spencer, a significant fuel surcharge?
    Would shippers feel concerned that they are paying a higher 
rate ostensibly to defray the high cost of fuel, but that isn't 
being passed through?
    Mr. Johnson. No.
    Mr. DeFazio. That wouldn't concern shippers?
    Mr. Johnson. We are just interested in the competitive 
rates that we need at the time. As long as we feel the rate is 
competitive, that is what we are looking for depending on the 
circumstances.
    Mr. DeFazio. Right, competitive, but you don't know what 
other people are paying, and you don't know whether the fuel 
surcharge is an excuse to charge you a higher rate or whether 
it is actually being passed through to the carrier. But that 
doesn't matter?
    Just competitive means you set a price that you think you 
can pay and you try and find someone?
    Mr. Johnson. The circumstance of the shipment will 
determine what price we need to pay for that shipment. It may 
change from day to day.
    Mr. DeFazio. Now, Mr. Spencer, that information you gave to 
us, how did that particular trucker get that information?
    Mr. Spencer. He was able to get the information after the 
fact. The curious thing that I didn't mention about this load 
previously is this is a government shipment that he moved that, 
again, the disparity in what he received as opposed to what the 
broker collected.
    The characteristic of every government shipment is there 
will be a government bill of lading that will clearly list that 
information on there, that will also clearly list the fuel 
surcharge. I mean to not share that with the trucker is a 
conscious decision absolutely not to do it, but if you pursue, 
you can find it out after the fact.
    Mr. DeFazio. If you can what?
    Mr. Spencer. If you can pursue, many times you can find out 
what a government bill of lading was after the fact.
    Mr. DeFazio. So that is why this shipper was able to find 
out through the Freedom of Information Act or somehow what the 
government contracted for or is this a case where the 
independent trucker directly contracted with the broker and 
therefore was entitled?
    Of course, they aren't entitled to information on the other 
end, are they? They are never entitled to that information
    Mr. Spencer. Well, actually, the regulations, again the 
current regulations do say that this information is to be 
provided to any party to the transaction, any party. I think 
that is clear. They should have been entitled to that 
information, but they won't get that information from the 
broker because that is a regulation they don't comply with.
    With a government load, if you persist hard enough, you can 
generally find somebody that will give you the information, and 
I think that is what happened in this instance.
    Mr. DeFazio. So, party, once I asked Ms. Te Beau about 
party. Do you have an opinion on what a party is?
    If an independent trucker contracts with a carrier who has 
contracted with a broker, is the trucker a party or are they 
just excluded from any of it?
    Mr. Spencer. Oh, in my opinion, clearly they are a party. 
Actually, from a real perspective, they are the key party in 
that if they don't perform, if they don't deliver the goods, if 
they can't pay for the fuel, obviously no transportation 
service actually takes place.
    Mr. DeFazio. But we have heard they are free to reject 
loads, et cetera. I mean those arguments. Is there a reality 
out there?
    Mr. Spencer. The reality is you may very well be in a truck 
stop in Portland, Oregon, and you have been there for three 
days and various brokers post loads on load boards. Maybe they 
are calling you because they have your phone number, offering 
these various loads, and it is early.
    It is early in the week, and the loads are, for example, 
typical of the one that I mentioned. The load actually paid 
$1,767. They offered the trucker $600. As long as there is no 
urgency on the part of the broker to actually get this load 
covered, they have all the latitude in the world to actually 
shop this load downward.
    As the load gets later in the week, then the urgency may 
rise just a little bit. Well, we will give this guy another 
couple hundreds bucks to get the load moved.
    Now, bear in mind, the way this situation works not only 
disadvantages the trucker from an economic standpoint but also 
has impacts on other things as well. Here, we have a shipment 
that has a whole week to move, but it doesn't move until the 
very last minute because they haven't been able to find 
somebody to haul it cheap enough.
    Well, this impacts all kinds of other safety regulations 
that are directly related to how quickly a load can move. It 
affects speed limits. It affects hours of service compliance. 
These things, no matter what you may say, are always going to 
be intertwined. Economics impacts highway safety, and pressure 
impacts highway safety.
    To say that hey, look, we benefit greatly from this free 
market approach and that is the way it ought to be sort of 
ignores reality.
    Mr. DeFazio. Mr. Voltmann, just sort of a housekeeping 
thing because I am a bit confused by your testimony, on page 
three, you say, the 3PL pays a carrier within hours of delivery 
even though the cargo shipper may take up to 30 days after 
delivery to pay the 3PL. That is because credit agencies are 
tracking and they track on days to pay, nonpayment complaints, 
et cetera. No one wants to have a negative credit rating.
    But then on page eight of your testimony, you say typically 
the carrier pays its fuel surcharges to the date the load is 
booked, say, $3.00 on April 1st. The load might actually move, 
however, on April 10th when fuel costs $3.25. The carrier will 
receive the money for that load on May 8th when he is paying 
$3.75 for the fuel.
    I had a little trouble. At the front there, we are saying 
they are paid within hours, and here that would seem to be 
several weeks.
    Mr. Voltmann. Mr. Chairman, it is a dynamic market.
    Mr. DeFazio. But I mean the original assertion is, say, 
overly global. Would you admit that they do not pay the carrier 
within hours because in some cases it is more than three weeks 
since you used that example?
    Mr. Voltmann. No, Mr. Chairman.
    Mr. DeFazio. No? Okay.
    Mr. Voltmann. What I said was that the 3PL can pay the 
carrier within hours. They do pay.
    Mr. DeFazio. It says this is because the 3PL pays the 
carrier within hours. You left out, I guess, the word, can. I 
will add it right there, ``can'' pay the carrier within hours. 
Would that be correct?
    Mr. Voltmann. Yes.
    Mr. DeFazio. Okay. They can pay, but they can take up to a 
month or so.
    Mr. Voltmann. Right, and the average days of pay for 
shippers to brokers is about 65 days after the cargo is 
delivered. So the carrier is not waiting those 65 days for 
payment. They can receive within hours if that is what they 
want or within 30 days.
    Mr. DeFazio. Right. I just was puzzled at the contrast 
there.
    Mr. Voltmann. Okay.
    Mr. DeFazio. Now, you are talking about the tough times for 
the 3PLs and that some are losing money. It is kind of like the 
discussion we had with the fellow representing the Petroleum 
Institute where he talked about, well, if you look sales, their 
percentage on sales is down.
    Of course, Exxon Mobil just had the second largest 
quarterly profit in the history of the world, but you can say 
their profitability is down too. They didn't have the most 
profitable quarter in the history of the world.
    But you are saying the margin declined 10 percent during 
the first quarter compared to the first quarter of 2007: ``C.H. 
Robinson Worldwide, the largest 3PL in the United States, 
reported that its margin declined 10 percent during the first 
quarter compared to the first quarter of 2007. The reduction in 
margin is a direct result of their receiving less revenue from 
shippers while paying carriers more for fuel.''
    I just would like to know how we are going to substantiate 
that because I do note that C.H. Robinson Worldwide's earnings 
per share was up by 19 percent, gross revenues were up by 22.6 
percent, gross profits were up 13.8 percent, net income was up 
18.3 percent, and gross margin was up 18.3 percent.
    So they are passing on all this fuel surcharge, and they 
are making more money. That is pretty good.
    Mr. Voltmann. Mr. Chairman, it is good.
    Mr. DeFazio. Yes.
    Mr. Voltmann. And it shows a dynamic, growing market.
    Mr. DeFazio. But are they passing on a fuel surcharge? We 
don't know that, do we? We can't know that. We are not allowed 
to know that.
    Mr. Voltmann. We do know that, Mr. Chairman.
    Mr. DeFazio. We do? How do we know it?
    Mr. Voltmann. C.H. Robinson is a publicly traded company. 
They have to report to the SEC. They have to report to the Wall 
Street analysts.
    Mr. DeFazio. So do they report what their fuel surcharge 
proceeds were and then the disbursements of that particular 
line item in their budget?
    Mr. Voltmann. They don't break it out as clearly as you are 
intimating.
    Mr. DeFazio. Right.
    Mr. Voltmann. What they have said in their reports and to 
the analysts is that fuel has decreased. The rising cost of 
fuel has decreased their margin because they are passing more 
on to the carrier than they are collecting from the shipper. 
Our other publicly traded companies have also reported 
similarly.
    Mr. DeFazio. Margins are down. Profits are up. Not bad, 
right?
    Mr. Voltmann. Margins are down, nor does this take into 
effect, Mr. Chairman, the thousands of small brokers that have 
gone out of business. Fifty percent of this industry, of the 
20,000 companies that are in this industry, have revenues of 
under a million dollars gross.
    Mr. DeFazio. Mr. Spencer or Mr. Card, you are in the 
business. How do you know that fuel surcharges are being passed 
on to your members?
    Mr. Spencer. Clearly, we have been inundated with comments 
from members about no, we are not getting any. We are only 
getting a portion of it, and this includes broker loads but 
also includes loads that come through motor carriers as well 
that do collect surcharges or presumably.
    I would think, clearly, it is something that brokers could 
easily report because they are required to capture that 
information, again by the current regulations.
    So is it a chronic problem? Darn right, it is, unless there 
is some regulation.
    Mr. DeFazio. How do you know? How do you know it is a 
chronic problem if these are proprietary agreements and the 
fuel surcharges are proprietary between the shippers and the 
brokers?
    Mr. Spencer. Well, you know I mentioned a while ago what 
would be a anecdotal example.
    Mr. DeFazio. Right, we have one. Until we have more 
transparency, we won't know for sure.
    Mr. Voltmann. Mr. Chairman?
    Mr. DeFazio. Yes.
    Mr. Voltmann. What the members are reporting to me is that 
70 percent of carriers ask for an all-in rate per mile. They 
don't ask to have fuel broken out. If they did, the members 
would price it that way, but the carriers aren't asking for 
that.
    Mr. DeFazio. Fuel broken out doesn't mean the amount of 
money that the broker received for fuel. It just means we will 
break out what we are paying you for fuel. We aren't going to 
say to you how much we received for fuel.
    Mr. Voltmann. Well, Mr. Chairman, the way this market works 
is the broker buys freight from the shipper at a price he 
believes he can resell to a motor carrier and make money. It is 
not a real estate transaction. It is much more of a commodity 
transaction where the broker is deciding whether or not they 
can make money on the transaction.
    Mr. DeFazio. Right, but do shippers ask for all-in rates?
    Mr. Voltmann. Yes, they do.
    Mr. DeFazio. Okay. Do they get them?
    Mr. Voltmann. Yes, they do.
    Mr. DeFazio. Whenever they ask for them?
    Mr. Voltmann. And so do the motor carriers when they ask 
for them, which is what I am telling you 70 percent of our 
members report.
    Mr. DeFazio. Okay.
    Mr. Voltmann. Our members report that 70 percent of motor 
carriers only ask for a rate per mile.
    Mr. DeFazio. Okay. I received bad information. So I regret 
to inform the panel. They told me this would be a 15-minute 
vote, and it was a 5-minute vote, and I have 2 minutes and 20 
seconds left to get there.
    I am trying to expedite things here as much as I can and I 
will urge other Members. I don't know what is happening now 
since we are off the program, but hopefully this will not take 
long. I will call the staff, and they can let you know.
    Thank you for your forbearance.
    [Recess.]
    Mr. DeFazio. Again, thank you for your forbearance. You are 
getting a little insight into how legislation is or is not made 
around here.
    Mr. Michaud, question?
    Mr. Michaud. Thank you very much, Mr. Chairman, for having 
this hearing. It is very important when you look at the cost of 
diesel fuel and the cost of trucking all across this Country. 
So I appreciate your hearing this morning.
    I just have one question that is related to the cost of 
trucking and the use of diesel fuel, and my question will be 
for Mr. Spencer and Mr. Card, if you both could answer it. I 
would like to actually hear your thoughts on the current 
patchwork of truck weights all across the Country, with 100,000 
pounds versus 80,000 pounds which relates to the cost of how 
much truckers can consume with diesel.
    So I would like each of you just to comment on the truck 
weight issue and the disparity across the Country.
    Mr. Card. Well, there is not only a disparity across the 
Country but across North America. There is a great new study 
out by the American Transportation Research Institute that 
talks about how more productive vehicles can really save fuel 
per pound of freight that is hauled.
    So we believe that even though the economy is slow now, as 
we get busy again or busier, the congestion problems that we 
have in this Country are going to get worse. We burn fuel 
sitting in traffic. It would be better to have a free flow of 
traffic. If we can haul larger, more productive vehicles 
safely, we should do it.
    Mr. Spencer. Our organization has always taken a position 
that no one is well served by a patchwork of varying State 
regulations on size and weight. We have always been adamant 
proponents of uniform sizes and uniform weights simply because 
to do anything different doesn't make economic sense. It works 
out to, quite often, a discriminatory economic move to small 
business because relatively only a handful of big carriers can 
set up for certain elements.
    We have also noticed the other curious element is that it 
is quite often not truckers that are even proponents of bigger 
and heavier. It is often the shipping community.
    Of course, I understand where they are coming from. They 
don't see any overriding sense of responsibility to address the 
highway safety issues that come along or, for that matter, the 
highway cost responsibility. If they think they can save a buck 
by moving more, they certainly will.
    This is an issue that begs for a broader discussion. I am 
certain it is going to get one as part of this highway bill.
    Mr. Michaud. Thank you.
    My next question is to Ms. Te Beau. In Maine, actually part 
of the interstate system has 80,000 pounds. The other part has 
100,000 pounds.
    The Maine Department of Transportation did an analysis on 
safety issues to get the trucks off the secondary roads. I 
believe they came back and said you actually could help reduce 
the number of fatal accidents by as much as 10 percent by 
increasing the weight limit on the interstate.
    So my question to you is on the safety issue. Do you feel 
that the 100,000 pounds is an unsafe issue?
    Ms. Te Beau. First of all, FMCSA doesn't regulate the size 
and weight issues. I know that sounds a little strange. It is 
actually a Federal Highway Administration issue.
    Naturally, we are interested in safety interests and things 
that address that, but I am not in a position to provide an 
answer to your question.
    Mr. Michaud. So you never looked at the safety issue at all 
or have done any studies on that then?
    Ms. Te Beau. It would be the other administration that 
would have.
    Mr. Michaud. Okay, thank you.
    Thank you very much, Mr. Chairman.
    Mr. DeFazio. Thank you.
    Ms. Hirono.
    Ms. Hirono. Thank you, Mr. Chairman.
    Just to get your position straight, Mr. Card, do you 
support H.R. 5934? Does your organization support that?
    Mr. Card. I don't know what H.R. 5934 is?
    Ms. Hirono. It is the one relating to making sure that 
truckers know how much the surcharge is. It is the one that Mr. 
Voltmann and Mr. Johnson do not support. If you haven't taken a 
position on it, that is okay.
    Mr. Card. I haven't taken a position on it.
    Ms. Hirono. Mr. Spencer, what about your organization?
    Mr. Spencer. Oh, clearly, we are supporters of the two key 
elements of that legislation.
    I think it is really important that we understand just how 
simple this is. One, it simply says if a shipper pays a fuel 
surcharge, if. It doesn't require them to or any particular 
amount, but if they do, it should go for its intended purpose 
to the trucker.
    The other element of that is simply transparency in the 
transaction which has been required since the sixties, just 
simply never been complied with. Obviously, it won't, left up 
to the market because it benefits the other not to comply.
    Ms. Hirono. Another question: This is an industry where, 
for example, the sum of the barriers to entry for trucking 
companies is far lower than for brokers, et cetera. There was 
some testimony--I believe it was from both Mr. Voltmann and Mr. 
Johnson--that indicated that this is an industry where the 
truckers should be able to negotiate their contracts.
    But this is for Mr. Card and Mr. Spencer. Since you both 
testified that the trucking side of the equation is made up of 
many small trucking companies, when you look at the negotiation 
power of the brokers vis-a-vis the truckers, I would say that 
there is an unequal negotiation power. Would you agree with 
that?
    Mr. Spencer. I clearly would agree with that and 
understand. I can't understand how it serves any other purpose.
    It doesn't serve the interest of the shipper. It certainly 
doesn't serve the interest of the consumer. It doesn't serve 
the interest of the trucker because he is discriminated against 
or disadvantaged by it. It simply serves the interest of the 
broker.
    Looking beyond this, we have heard the specter of 
litigation and lawsuits and things like that raised by this 
issue. I am fully aware right now that at least 40 LTL shippers 
are suing trucking companies over overcharging and over-
collecting on fuel surcharges.
    I mean this appears to me that this is not a system that 
the market is handling very well at all. It is disadvantaging 
shippers. It is disadvantaging some big carriers. It is 
certainly shortchanging the small guys. So we ought to be 
looking into this issue and, again, transparency benefits 
everyone.
    Ms. Hirono. You would agree with the statement that for a 
lot of trucking companies, which are really smaller companies, 
their bargaining position vis-a-vis the brokers is really that 
they have limited ability to say to heck with you, I am not 
going to enter into a contract with you?
    Mr. Spencer. They don't really have any bargaining 
position.
    Ms. Hirono. I guess that is a loaded question, but you 
agree with that.
    Mr. Spencer. About like somebody at a payday loan shop has 
bargaining.
    Ms. Hirono. Thank you.
    Thank you, Mr. Chairman.
    Mr. DeFazio. Thank you, Ms. Hirono.
    I just want to follow up on the issue which was just raised 
again about fuel surcharges. As Ms. Hirono, I believe, said or 
I think it was actually Mr. Spencer said if there is a 
surcharge, it would have to be passed on to the actual provider 
of the transportation service.
    Now, Mr. Voltmann says they are passing on the fuel 
surcharges, but we can't know that because it is proprietary.
    I guess my question would be if they are passing the fuel 
charges, how come 42,000 truckers or trucks? What was the total 
number of trucks? It was 42,000 larger than 5?
    Mr. Spencer. It was 985 motor carriers that operate in 
excess of 42,000 trucks. Now that is a number that can be 
documented, looking at government data. There would be 
additional numbers in that. Those in the fire below five, no 
one will know about those.
    Mr. DeFazio. So I haven't noticed that labor costs have 
gone up. I haven't noticed. I don't know what the other factors 
might be. Is this a larger than normal number for that time 
period?
    Mr. Spencer. Oh, certainly. These numbers actually parallel 
what we saw in 2000 when there were ultimately a quarter of a 
million large trucks repossessed.
    Mr. DeFazio. So, if all the fuel surcharges are being 
passed on, why would so many people be going broke?
    I guess, Mr. Voltmann, you would just say they are bad 
business people?
    Mr. Voltmann. No, Mr. Chairman. In fact, I have that slide 
if you will permit it to be put up: Trucking Failures to Fuel 
Price.
    Mr. DeFazio. Maybe the brokers aren't extracting enough out 
of the shippers, is that what you are saying, or there is 
resistance or they are not capable of getting a fuel charge 
that really reflects the market?
    Mr. Voltmann. Mr. Chairman, shippers negotiate in an open 
market. The shippers are negotiating a rate that they believe 
with which they can make money selling their product. The 
brokers are buying that freight and reselling it and making a 
profit, and the carriers are accepting it with the hopes or to 
make a profit.
    The point of this fuel surcharge or of this chart, if you 
look, is in the 2000 to 2003 period that Mr. Spencer is talking 
about, when fuel was a $1.50 a gallon. Who wouldn't want to go 
back to a $1.50 right now? Trucking failures were at their 
highest.
    When we moved to the period of 2003 to 2006, fuel is 
increasing at a much more precipitous rate, yet trucking 
failures are at their lowest point in history because freight. 
We were not in a freight recession at that time, and there were 
11 brokered loads per truck posted on the public exchanges.
    So what you have, even today, look at the price of fuel. 
Yes, trucking failures are beginning to increase but not nearly 
to the rate they did in 2000 to 2002, when fuel is now three 
times what it was in that time period. That is the reason.
    There is not a one-to-one ratio of fuel pricing to trucking 
failures. The ratio is between the amount of freight being 
offered and the amount of trucks in the marketplace.
    Mr. DeFazio. Okay. This is all sort of like talking to the 
first panel, the oil industry, because Exxon Mobil is 
complaining.
    The shippers have a lot of leverage here. You are not 
exacting full costs, the additional cost for fuel surcharges. 
There is sort of freight recession, the way you are describing 
it.
    Mr. Voltmann. There is a freight recession.
    Mr. DeFazio. There is a freight recession.
    Then how does C.H. Robinson see all of their factors, first 
quarter, up, earnings up, gross revenues up, gross profits up, 
net income up, gross margin up?
    I mean if there is such a squeeze on here, they just must 
be astounding business people, and I guess everybody else is 
not very good or something.
    Mr. Voltmann. Mr. Chairman, first of all, it is a huge 
company in economics.
    Mr. DeFazio. Well, how big is huge, because I thought you 
said no one controls more than 5 percent of the market?
    Mr. Voltmann. They don't.
    Mr. DeFazio. Okay.
    Mr. Voltmann. They are a $7.3 billion publicly traded 
company, and that is less than 5 percent of the market.
    Mr. DeFazio. Five percent of the loads?
    Mr. Voltmann. No. Five percent of the value of the market.
    Mr. DeFazio. No, I am not talking about value. What percent 
of the loads do they control? You don't know?
    Mr. Voltmann. I don't know.
    Mr. DeFazio. All right.
    Mr. Spencer, you seem anxious to say something.
    Mr. Spencer. Well, I think it is kind of interesting 
because the economic reality that Mr. Voltmann points out is 
kind of this boom-bust cycle frenzy that, to a large extent, 
they contribute to. In essence, they help wipe truckers out, 
and then they come back even when fuel prices are high, and 
they can prosper. They feed right into this boom-bust 
mentality.
    But I can tell you I know the experience of our members 
dealing with shippers is 70 percent don't say we don't want a 
surcharge, we want a flat rate. They virtually all say we would 
like to have a surcharge.
    Our experience in dealing with shippers is that they 
generally do believe surcharges are fair, and they are fully in 
the camp right now of remembering those figures he looks at. 
They don't want to be gooned to death two years, three years 
from now when the economy starts moving back again, and all of 
these 20-year veteran small business people have been wiped 
out. They don't want to be gooned. So they are much more 
sympathetic to the truckers' dilemma.
    Not so with the people that Mr. Voltmann represents. They 
basically profit whether times are good, whether times are bad. 
I mean the data shows that.
    We are not against them profiting, not at all. Again, what 
we are talking about is the need for a mandatory pass-through 
and simple disclosure. That will go a long way to resolving the 
problem.
    Mr. DeFazio. Only mandatory if it was charged as fuel 
surcharge? Only mandatory if it was charged or represented as a 
fuel surcharge?
    Mr. Spencer. Absolutely.
    Mr. DeFazio. Yes, okay.
    I guess then back to Mr. Voltmann. We have this disconnect 
because we have no information, and you would say that is a 
free market functioning. I would say it is not, but we can 
disagree over that.
    But you are saying for the most part or almost universally 
the fuel surcharges are being passed on except perhaps in the 
instance of the government contract we heard about. Is there 
anything illegal about not passing on the fuel surcharge in its 
entirety?
    Say you were going to charge $1,000 for a load, but you add 
on a $300 surcharge. You just keep the whole surcharge, and you 
were going to pay the trucker out of the $1,000, say the $600, 
kind of the example we heard about. Anything illegal about 
that?
    Mr. Voltmann. It doesn't happen.
    Mr. DeFazio. It doesn't happen. Okay, well, then I guess it 
would be wonderful if we could open up the books here and see 
if it really doesn't happen because this is kind of like 
Rashomon.
    I mean profits are up for the largest broker, but they are 
being squeezed, and they are passing on all the fuel surcharge 
to the truckers. We have a huge and growing number of truckers 
going broke, but nothing is going on here except pure market 
forces in a totally opaque market.
    Mr. Voltmann. Mr. Chairman, let me because we started 
having this discussion before votes.
    In your State, in Oregon, the first exchange was created by 
Al Jubitz at the Jubitz Truck Stop. It operates much the same 
way as the New York Stock Exchange operates. Brokers put in 
their buy truck rates.
    Mr. DeFazio. That scares me if that is the way it works.
    Mr. Voltmann. Carriers put in their sell truck rates.
    Mr. DeFazio. Right. We have a well-organized casino like on 
Wall Street.
    Mr. Voltmann. Well, I disagree with your characterization 
of it.
    DAT and the others, there are several of these. Hundreds of 
thousands of loads are posted on these systems every day. You 
can see the buy rate. You can see the sell rate. This is how 
you get transparency in an open market.
    I can see what a company is offering to sell their stock 
for, I can see what people are willing to buy stock for, but I 
don't get to see what you actually buy your stock for.
    Mr. DeFazio. The key point is the representation to the 
shippers and the opacity, but in any case we are going to 
disagree over that.
    Just one last question: You say that the TRUCC Act would 
subject your members to more lawsuits. I am puzzled by that 
because there is no new rights of action in here. In fact, 
there are contract disputes that are settled through litigation 
now. So that would continue.
    This, in my opinion, if your members actually followed the 
new requirements, that would give them more defense for 
following the regulations against this flood. How many lawsuits 
have been filed?
    All I know it was flood, we heard. Twenty-seven, was that 
the flood?
    Mr. Spencer. Oh, I don't know, maybe 20, 22 over a span.
    Mr. DeFazio. Against the flood of lawsuits that are out 
there and/or would result from this.
    I am just curious. If there is no new right of action, why 
do you come to that conclusion?
    Mr. Voltmann. Except, Mr. Chairman, it is a right. It is a 
new right of private action. It is a new right.
    Mr. DeFazio. Because the pass-through? Is that the concern 
about passing through the fuel surcharge which is done 
routinely anyway?
    Mr. Voltmann. No.
    Mr. DeFazio. Is that the concern?
    Mr. Voltmann. No, Mr. Chairman.
    Mr. DeFazio. Okay. Which part of it then, the billing and 
collection practices?
    Mr. Voltmann. Mr. Chairman.
    Mr. DeFazio. The false, misleading information?
    I mean those are the two major parts of the bill: 
disclosure pass-through and false and misleading information. 
So which of those two is going to trigger a flood of lawsuits?
    Mr. Voltmann. First of all, Mr. Chairman, this is not a new 
right. The Interstate Commerce Commission from the 1960s 
allowed this between the parties.
    Mr. DeFazio. You are criticizing this very brief piece of 
legislation.
    I am asking which of those two provisions is it that would 
bring about the flood of lawsuits, a disclosure and a pass-
through.
    Mr. Voltmann. I was trying.
    Mr. DeFazio. Well, it is a simple question. Is it because 
fuel surcharges would be required to be passed through or is it 
because of the amending the false and misleading information 
section? Which one of those two are you particularly concerned 
about?
    Mr. Voltmann. It is the other provision, Mr. Chairman, in 
which all margins must be posted by both the broker and the 
motor carrier.
    Mr. DeFazio. So, if we took out all margins, you would 
support the legislation?
    Mr. Voltmann. No. We don't believe that the government.
    Mr. DeFazio. Oh, you would still oppose the legislation.
    Mr. Voltmann. We would still oppose it because we don't.
    Mr. DeFazio. Well, I thought maybe we could get to 
agreement there for a second. Thank you.
    I want to say in response to the testimony of the ATA. The 
APU thing, I mean we ended up with a discretionary word in 
SAFETEA-LU instead of a mandatory word. That should be dealt 
with.
    You have several other provisions in there. One, in 
particular, I will ask everybody if they would agree with this. 
You said, in agreement with a point raised during the first 
panel, that there should be some re-regulation of energy 
commodities in your testimony, Mr. Card. That was point six in 
your testimony.
    Mr. Spencer, would you agree with that?
    Mr. Spencer. We think the opportunities that currently 
exist for manipulating the petroleum markets are extreme.
    Mr. DeFazio. Okay. So you answer is yes?
    Mr. Spencer. Yes.
    Mr. DeFazio. All right.
    Mr. Voltmann, your folks ought to be concerned about fuel 
costs. Would you agree with that?
    Mr. Voltmann. Not our issue, Mr. Chairman.
    Mr. DeFazio. What?
    Mr. Voltmann. Not our issue, Mr. Chairman.
    Mr. DeFazio. You would say no opinion?
    Mr. Voltmann. No opinion.
    Mr. DeFazio. No opinion, okay.
    Mr. Johnson, as representing shippers?
    Mr. Johnson. As a shipper, we like capitalism the way it 
stands, and the open market is fine. So we have pretty much no 
objection to it.
    Mr. DeFazio. I couldn't quite follow. You have no objection 
to regulating or you think everything is just fine the way it 
is?
    Mr. Johnson. Keep the open market the way it is.
    Mr. DeFazio. Okay. Well, it is an interesting response from 
the shipper point of view.
    Oh, Mr. Platts, do you have questions?
    Mr. Platts. Thank you, Mr. Chairman.
    No question, just want to thank the witnesses in the prior 
panel. I could make it but for the written testimony to give 
the Committee and all of us Members, great insights to the 
issue and the challenges the industry is facing.
    Thank you, Mr. Chairman.
    Mr. DeFazio. Thank you for coming, Mr. Platts. I appreciate 
it.
    Ms. Hirono, do you have any further questions?
    Okay, with that, the Committee will stand adjourned. Thank 
you very much for your testimony.
    [Whereupon, at 2:09 p.m., the Subcommittee was adjourned.]

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