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






     ECONOMICS OF DEPENDENCE ON FOREIGN OIL-RISING GASOLINE PRICES

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

                                HEARING

                               before the
                          SELECT COMMITTEE ON
                          ENERGY INDEPENDENCE
                           AND GLOBAL WARMING
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 9, 2007

                               __________

                            Serial No. 110-4


             Printed for the use of the Select Committee on
                 Energy Independence and Global Warming

                        globalwarming.house.gov


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                SELECT COMMITTEE ON ENERGY INDEPENDENCE
                           AND GLOBAL WARMING

               EDWARD J. MARKEY, Massachusetts, Chairman
EARL BLUMENAUER, Oregon              F. JAMES SENSENBRENNER, Jr, 
JAY INSLEE, Washington                   Wisconsin
JOHN B. LARSON, Connecticut            Ranking Member
HILDA L. SOLIS, California           JOHN B. SHADEGG, Arizona
STEPHANIE HERSETH SANDLIN,           GREG WALDEN, Oregon
  South Dakota                       CANDICE S. MILLER, Michigan
EMANUEL CLEAVER, Missouri            JOHN SULLIVAN, Oklahoma
JOHN J. HALL, New York               MARSHA BLACKBURN, Tennessee
JERRY McNERNEY, California
                                 ------                                

                           Professional Staff

                     David Moulton, Staff Director
                       Aliya Brodsky, Chief Clerk
                 Thomas Weimer, Minority Staff Director










                            C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............     1
    Prepared statement...........................................     3
Hon. F. James Sensenbrenner, Jr., a Representative in Congress 
  from the State of Wisconsin, opening statement.................     6
Hon. Earl Blumenauer, a Representative in Congress from the State 
  of Oregon, opening statement...................................     7
Hon. Hilda Solis, a Representative in Congress from the State of 
  California, opening statement..................................     8
Hon. John Sullivan, a Representative in Congress from the State 
  of Oklahoma, opening statement.................................     9
Hon. Jerry McNerney, a Representative in Congress from the State 
  of California, opening statement...............................     9
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, opening statement..........................    10
Hon. Jay Inslee, a Representative in Congress from the State of 
  Washington, opening statement..................................    10

                               Witnesses

Mr. Terry Thomas, President and CEO of the Community Bus Service, 
  Incorporated...................................................    11
    Prepared Statement...........................................    13
    Answers to submitted questions...............................   103
Mr. Michael Mitternight, owner of Factory Service Agency, 
  Incorporated...................................................    19
    Prepared Statement...........................................    21
    Answers to submitted questions...............................   108
Donn Teske, Farmer and President, Kansas Farmers Union, 
  McPherson, KS..................................................    26
    Prepared Statement and attachments...........................    28
    Answers to submitted questions...............................    38
Sylvia Estes, Pipeline and Industrial Group, Virginia Beach, VA..    57
    Prepared Statement...........................................    59
    Answers to submitted questions...............................   119
John Felmy, Chief Economist, American Petroleum Institute........    65
    Prepared Statement...........................................    67
    Answers to submitted questions...............................   120

                           Submitted Material

Hon. John Shadegg, letter of May 8, 2007, from Mr. McGinnis, 
  Chief Executive Officer of Arizona Clean Fuels Yuma............   125
Hon. Nancy Pelosi and Hon. Dennis Hasert, letter of May 3, 2006 
  from the National Association for Pupil Transportation, 
  National Association of State Directors of Pupil Transportation 
  Services, and National School Transportation Association.......   129

 
  HEARING ON ECONOMICS OF DEPENDENCE ON FOREIGN OIL--RISING GASOLINE 
                                 PRICES

                              ----------                              


                         WEDNESDAY, MAY 9, 2007

                  House of Representatives,
            Select Committee on Energy Independence
                                        and Global Warming,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 2 p.m.., in room 
2318, Rayburn House Office Building, Hon. Edward Markey 
(chairman of the Committee) presiding.
    Present: Representatives Markey, Blumenauer, Inslee, Solis, 
Herseth, Cleaver, Hall, McNerney, Sensenbrenner, Shadegg, 
Walden, Sullivan, and Blackburn.
    Chairman Markey. Ladies and gentlemen, welcome. This 
hearing is commenced on the economics of dependence on foreign 
oil, rising gasoline prices.
    In 1973 Americans were shocked by a sudden increase in 
gasoline prices and supply shortage that were brought on by the 
Arab OPEC member states. And the price of the gasoline rose 
from 38 cents in May of '73 to .55 in June of 1974. Lines for 
refueling formed as supplies were constrained. But America 
responded. We largely moved away from the use of oil for 
electricity generation, going from 16 percent oil fired 
generation in '72 to 2.5 percent today.
    We promoted energy efficiency and conservation, and most 
effectively in 1975 the Congress passed and President Ford 
signed a bill which doubled the fuel economy for the vehicle 
fleet in the United States from 13.5 miles per gallon to 27.5 
miles per gallon, a doubling of fuel economy for the vehicles 
we drive in America in ten years. And what happened?
    Well, the dependence on foreign oil in the United States 
dropped from 46.5 percent in 1977 to 27 percent in 1985, a 
precipitous drop in oil consumption in the United States. We 
backed out 4.3 million barrels a day of energy consumption as 
the fuel economy average for the American automotive fleet 
doubled in just ten years.
    Well, today we are unfortunately faced with a similar 
crises. Because since 1986 what we are seeing is a dramatic 
rise in oil consumption, largely related to the fact that there 
has been an SUV-like truck exception that has seen the average 
for fuel economy go backwards since 1986 from 27 back to 25 
miles per gallon, even as the United States has pretty much 
lead the way in deploying the internet around the world, 
cracked the human genome, here in auto mechanics we have 
actually gone backwards for the last 20 years. But with an 
increase from 27 percent to 60 percent our dependence upon 
imported oil.
    If all we did in the United States was to improve our fuel 
economy average from 25 miles per gallon to 35 miles per 
gallon, we would back out all of the oil that the United States 
imports from the Persian Gulf states. Just an increase in ten 
miles per gallon. And we can do that.
    As the price of gasoline now passes $3 and experts are 
predicting are $4 a gallon gasoline, this becomes an even more 
serious issue. Because not only are we spending all this money 
to import the oil, but the money which is then spent is used by 
many of these countries to finance the terrorism, to finance 
the hate which is then redirected back at the United States of 
America. It is the worst of all worlds for our country.
    If you are a family only one car making $20,000 a year, $3 
a gallon gasoline consumes almost 9 percent of the annual 
income of that family.
    For a family making $40,000 a year, $3 a gallon gasoline 
costs them 4.5 percent of their annual budget.
    So this issue becomes something that is very real for 
ordinary Americans. This is a lot of money. Increasingly, OPEC 
is able to tip consumers upside down and shake money out of 
their pockets because we do not have a national policy which is 
effective to protect the consumers in our country.
    So this issue is something that is central to the American 
well-being. We have to increase the fuel economy of our cars 
and trucks. We have to increase the amounts of renewable, home 
grown biofuels. We have to prevent gasoline price gouging 
during times of tight supply and high demand. Gasoline prices 
are at $3 a gallon right now. Experts say that $4 a gallon is 
right around the corner for the American consumer.
    I look forward to gaining the perspective of our witnesses 
on this issue. It is an issue that effects our economy. It 
effects our national security. It effects the very ability of 
our country to be able to deal with issues both domestic and 
international. And so I do not think there can be a more 
important subject. I think that it is critical for us to 
understand that the time has now arrived for the Congress and, 
hopefully, for the President to begin to do something about 
this outrageous high priced gasoline that consumers are forced 
to purchase and as a result, make other choices that deprive 
their families of what they need.
    [The statement of Hon. Edward Markey follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    
    Chairman Markey. The time for the opening comments by the 
Chair has expired. I turn to recognize the Ranking Member, the 
Gentleman from Wisconsin, Mr. Sensenbrenner.
    Mr. Sensenbrenner. Thank you, Mr. Chairman.
    Contrary to popular belief this Select Committee is not 
just about global warming. Energy independence is also in this 
panel's title. And I am pleased that today we will be talking 
about America's dependence on foreign oil.
    Nowhere do Americans feel our economy's reliance on foreign 
oil more than when filling up at the pump. Everyone who drives 
knows that the cost of gas has been rising. While some of us 
have almost become use to gasoline price fluctuations, most of 
us will never get used to the consequences of high gas prices.
    Some of the reasons for these fluctuations are straight 
from the economics 101 textbook. Demand for oil is rising 
around the world and cartels like OPEC, which enforce 
production controls, are not doing much to help keep costs 
down.
    Geo-political uncertainty is also doing its part to keep 
the value of a barrel of oil high.
    If American drivers are going to see gas prices drop, we 
need to break our country's dependence on foreign oil. But we 
also need to break Washington's dependency on taxes and 
regulation. Lowering the cost of gas is about freeing drivers 
from regulations that keep prices high and about reducing 
dependency on foreign oil.
    When crude oil gets to U.S. shores it must be processed 
into gasoline at domestic refineries. Today the U.S. has the 
ability to refine about 17 million barrels of oil a day into 
gasoline. Unfortunately, the average U.S. demand for gasoline 
is 21 million barrels a day. This gap is often met by importing 
gasoline that has been refined in other countries, further 
expanding our reliance on foreign sources of energy.
    The residents of my District, which is the area surrounding 
Milwaukee, often experience the hidden fee cost by limited 
refinery capacity. While the national average for gasoline was 
reasonably reported to be $3.07 a gallon, the Milwaukee Journal 
Sentinel reported yesterday that my constituents are paying 
$3.28 a gallon. And why so high? Scheduled maintenance, a power 
failure and even a fire have reduced capacity at the refineries 
in Indiana and Minnesota that supply the Milwaukee area.
    Mr. Felmy of API says the industry is working to increase 
refinery capacity, and that's very good. However, I also note 
that it has been 30 years since a new gasoline refinery has 
been built in the United States. An expensive and cumbersome 
permitting process has contributed to this trend.
    Republicans last year tried to streamline this process in a 
way that will continue to protect the environment. But, 
unfortunately, we met too much opposition along the way.
    As we hear from the panelists today, higher gas prices are 
felt nearly every corner of the economy from farmers to small 
businesses to school bus operators.
    Mr. Michael Mitternight says in his testimony that gas 
prices are wrecking havoc on America's small businesses. Mr. 
Mitternight also rightly notes that onerous government 
regulations hit small businesses very hard.
    As Congress looks for ways to address both global warming 
and energy independence issue, I am worried that the cure may 
be worse than the cough. The most recent report from the U.N. 
Intergovernmental Panel on Climate Change includes a proposal 
for a tax of $100 for each ton of carbon dioxide released into 
the atmosphere. The Washington Post reported last Saturday that 
that proposal could result in drivers paying up a $1 more for 
each gallon of gas they pump.
    The testimony we will hear today shows that $4 a gallon gas 
would be a blow to the economy. Fortunately Mr. Mitternight 
also has many positive ideas on how to address these problems. 
He says that any government energy problem must focus on new 
technology, should use the power of markets and protect 
American jobs. And I agree. I will add that any energy or 
environmental policy must also produce tangible environment 
improvements and include international participation from 
countries like India and China.
    I am pleased this panel is talking about energy 
independence. Let us hope that today's discussion helps us find 
way to free American drivers from both foreign oil and 
government regulators.
    I thank the Chair and yield back the balance of time.
    Chairman Markey. The Gentleman's time has expire.
    The Chair recognizes the Gentleman from Oregon, Mr. 
Blumenauer.
    Mr. Blumenauer. Thank you, Mr. Chairman.
    I appreciate your setting the context in terms of how we 
rose to the challenge 30 years ago when we were facing this 
issue. The trends that you demonstrated in terms of failure for 
us to deal meaningfully with conservation, there is a very real 
issue in terms of refinery capacity. But it is not a case of 
tweaking, streamlining regulatory matter. I think the record 
will show that there has been a conscious effort to actually 
reduce the amount of refining capacity. There has been more 
consolidation. I look forward to being able to deal with some 
of the impacts that that has had in terms of the free market.
    I know that there are other initiatives that are being 
examined to make sure that there is not collusion and unfair 
advantage being taken by people who are consumers. I think in 
any respect it is going to require a balanced approach in terms 
of dealing with supply, in terms of dealing with conservation, 
making sure that a market that is becoming less and less 
perfect both nationally and internationally, that we examine to 
see if there are ways that we can provide the protections to 
make sure that the market does in fact work.
    I appreciate the breadth of opinions that are being 
offered. I had a chance to skim some of the testimony. I think 
it is going to be very useful for us to have as part of the 
record. And look forward to a conversation with people who are 
dealing with these consequences on an ongoing basis.
    I know the people that I represent who are now looking at 
the third highest gasoline prices in the country, this is not 
an idol concern whether they are commuters, whether they are 
small business people or that they are people who are just 
breathing the air and wondering where we are going.
    Thank you very much.
    Chairman Markey. The Gentleman's time has expired.
    The Chair recognizes the Gentleman from Arizona, Mr. 
Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman, for holding this 
hearing. And I will waive my opening statement and reserve.
    Chairman Markey. The Gentleman reserves his time.
    The Gentleman from Oregon, Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman. I, too, would rather 
reserve my time and use it in questions.
    Chairman Markey. The Gentlelady from California, Ms. Solis.
    Ms. Solis. Thank you, Mr. Chairman.
    And I am delighted to be here this afternoon to hear what 
our witnesses have to say. Every time I go home, and I go home 
just about every weekend here from Washington to visit my 
District in Los Angeles, the number one question that people 
tell me at any forum or any meeting is ``When is the gas price 
going to go down, Hilda. I do not want to hear about anything 
else. I want to know when the gas prices are going to go 
down.''
    When you have working families suffering right now with 
other economic constraints on them, you hear about the price of 
gasoline nationally. Well, let me tell you, folks, in 
California and Los Angeles for the last two years it has been 
above $3. In fact, in my District in east Los Angeles, probably 
one of the poorest areas in the country, we are experiencing 
levels of $3.69 a gallon and sometimes even upwards on the west 
side of town, the higher income, maybe $4 and higher.
    So we are talking about a real crunch on our pocketbook, 
but we are also talking about the cost of people who want to 
use public transportation. We are seeing proposals right now in 
my District where the Metropolitan Transportation District 
would like to increase their fees almost 80 percent. And the 
majority of those bus riders tend to be low income folks who do 
not have cars so they use alternative sources of 
transportation. But again because the high cost of gasoline and 
what have you, they are not going to be experiencing an 
increase from what is now at a $1.25 to up to $2. That is an 87 
percent increase for the ridership. And many of constituents 
use those buses to get around town, to get to work, to see the 
doctor and what have you.
    I am equally concerned also about our schools. And I know 
one of our witnesses will be talking about traveling on school 
buses. Well, I tend to represent one of the largest, second 
largest school district in the county, LA Unified School 
District. This was a question that I raised last year during 
the energy. Debate how we dealing with the high cost of fuel 
and fuel efficiency in trying to make sure that our students 
get to school on time and get home on time, and that they are 
safe. And believe me, there was not much discussion or concern 
at the time.
    And, yes, I tend to agree with some of my colleagues here 
that costs that are being transferred onto the consumer are not 
transparent. And what I am trying to get to is that refineries 
and what have you, there is not a shortage of refineries. There 
is a shortage of political will.
    So I look forward to hearing from our witnesses today.
    Thank you, Mr. Chairman.
    Chairman Markey. The Gentlelady's time has expired.
    The Gentleman from Oklahoma, Mr. Sullivan.
    Mr. Sullivan. Thank you, Mr. Chairman.
    And thank you for holding this hearing today on an 
important issue of rising gas prices. I welcome this debate.
    As you remember, in 2005 the Republican Majority in the 
House passed the Gasoline for America Security Act. The Gas Act 
helped bring greater quantities of fuel to the market by 
expanding domestic refining capacity and limiting the number of 
gasoline and diesel blends refineries must product. By 
increasing the quantity of fuel that makes it into American's 
neighborhood gas stations, we are able to help keep the price 
consumers pay per gallon from rising.
    Additionally, by opening up the Outer Continental Shelf to 
new energy exploration, the House allowed for oil and natural 
gas exploration in an area holding 85 percent of America's 
Outer Continental Shelf energy, much of which was untapped 
because of a 25 year old ban on deep sea energy production.
    Furthermore, if President Clinton had not vetoed ANWR 
legislation in 1995, the U.S. could be domestically producing 1 
million barrels of oil from that area today. Having both these 
areas into play would allow the U.S. to have energy security 
through a more diverse supply.
    I am submitting for the record a letter from the National 
School Transportation Association citing their support for past 
action on gas prices. This includes H.R. 5254, legislation from 
the 109th Congress which would have streamlined the permitting 
process to allow for new or expanded domestic refineries to be 
built. I, too, supported this legislation and was original 
sponsor. This noteworthy legislation would have helped meet 
America's increasing demand for gasoline by increasing domestic 
refining capacity. It is a shame that this legislation was not 
able to move past the Senate.
    Thank you. And I yield back the balance of my time.
    Chairman Markey. The Gentleman's time has expired.
    The Chair recognizes the Gentleman from Missouri, Mr. 
Cleaver.
    Mr. Cleaver. Mr. Chairman, thank you for holding the 
hearing. I would reserve my time and use it to ask questions.
    Chairman Markey. The Gentleman's time will be reserved.
    The Chair recognizes the Gentleman from California.
    Mr. McNerney. Thank you, Mr. Chairman.
    We all know that there are numerous factors impacting the 
price of a gallon of gasoline: World conflict, for example; 
refinery capacity as has been mentioned here earlier; weather 
changes such as Katrina can all contribute to fluctuating gas 
prices. However, we are now experiencing prices that are higher 
in California than the post-Katrina gouge. We are paying nearly 
3.50 a gallon, as my colleague from California mentioned with 
reports from some stations in the Bay area just a nickel short 
of $4 a gallon. This kind of price hike is very bad for 
commuters and business alike.
    We all know that we are going to experience even higher 
prices as the summer wears on and vacationers head out. Clearly 
if our cars and trucks had better fuel efficiency, lowering the 
demand for gasoline, the price of gas would be lower. The 
better the efficiency, the lower the price.
    Moreover, wasteful consumption of gasoline does contribute 
to global warming, another very bad outcome.
    So I am looking forward to hearing the testimony from 
today's witnesses. And I hope we can highlight just how 
devastating high prices can be on our small businesses.
    Thank you, Mr. Chairman.
    Chairman Markey. The Gentleman from California time has 
expired.
    The Chair recognizes the Gentlelady from Tennessee.
    Ms. Blackburn. Thank you, Mr. Chairman. Thank you for the 
hearing.
    And I want to thank and welcome our witnesses. We are 
looking forward to the testimony today.
    In many places in the U.S. energy prices for electricity 
and transportation fuel are increasing significantly. You are 
hearing that from us today as we are out there with our 
constituents in responding to what they tell us. It has 
effected many sectors of our economy and in my District we hear 
a lot about this from our small businesses and our logistic 
businesses in their work.
    I believe that we can make America energy independent and 
free from all foreign sources of energy, but it is going to 
take serious actions to increase and diversify our supply of 
available energy. It is not going to be easy. We did not get 
here overnight and we are not going to get out of it overnight. 
We realize that.
    The interesting thing is we do have vast resources of oil, 
gas and coal in our country that would meet our need for 
hundreds of years. But there is a group of people that do not 
want us to tap into these resources. Now, I have had some 
interesting conversations with some from this group. And when 
you ask them what they would recommend, sometimes you will get 
an answer that sounds like returning to the stone age or having 
a substandard quality of life and shutting down our coal plants 
because there is a perceived threat of global warming. And most 
often it does not include measures that incorporate 
conservation, innovation, deregulation, exploration, production 
or commercialism; all steps I feel are necessary to get us to 
energy independence.
    What Americans want is reliable and affordable energy, but 
they do not want to sacrifice their way of life because of 
somebody's political agenda that is based on what they consider 
to be a faulty and unproven science. They want options that 
will allow them a continuance of a good quality of life and an 
available and affordable energy supply. And they want to 
continue to benefit from a robust economy.
    America would rather have us here in Congress encourage the 
production of more energy right here in this country and not 
rely on foreign sources of oil that could increase prices with 
little notice.
    Mr. Chairman, I thank you for the hearing today. I look 
forward to the comments from our witnesses.
    Chairman Markey. Thank the Gentlelady.
    And Mr. Inslee, you are the last Member if you wish to be 
recognized for an opening statement.
    Mr. Inslee. I just want to say briefly that there is a 
cause for optimism in this whole issue. I was walking over to 
be on C-SPAN's journal this morning and ran across a car that 
gets 150 miles a gallon runs 40 miles on electricity when you 
plug it in, and one day we are running ethanol and we ought to 
have optimism and use technology to solve this problem. And I 
am glad this Committee is on the job to do it.
    Chairman Markey. I thank the Gentleman very much.
    I will note before we will hear from the witnesses. But for 
the Members there is a clock right in the middle of Mr. Teske 
right there. And that clock will move from green to yellow with 
one minute remaining, and then to red if anyone is interested 
in just keeping track of the time which you have.
    So now we will turn to witnesses. And I would like to now 
recognize our first witness, Mr. Terry Thomas, President and 
CEO of the Community Bus Service, Incorporated in Youngstown, 
Ohio.
    Welcome, sir.

   Statement of Terrence V. Thomas, President and CEO, Community Bus 
                         Services, Incorporated

    Mr. Thomas. Thank you so much, Chairman Markey, Members of 
the Committee.
    My name is Terry Thomas. I am President and CEO of the 
Community Bus Services. My company provides school bus service 
to 22 school districts and 7.000 students in northern Ohio.
    I am past President of the National School Transportation 
Association, which represents private school bus contractors 
that operate one-third of the nation's 475,000 school buses.
    I also serve on the Governing Committee of the American 
School Bus Council, which is a coalition of public and private 
operators, manufacturers, suppliers and State policymakers. We 
represent the entire school bus industry. And my remarks today 
are consistent with the entire school bus industry.
    I appreciate the opportunity to share with you my concerns 
about the effect of energy dependence, rising fuel costs on my 
family, and I am the father of five children three of which 
ride the school bus everyday, my business, the school districts 
I serve and the entire school bus industry. According to the 
latest statistics from the U.S. Department of Education 56 
percent of public school students in the United States depend 
on school bus to access their education. Twenty-five million 
public school children every day on a fleet of vehicles that is 
two and a half times the size of all other forms of mass 
transportation; that is transit buses, intercity business, 
commercial airlines and rail combined. School buses are far 
safer statistically than any other mode of travel with an 
average of 20 fatalities a year compared to 800 fatalities a 
year for students traveling to school by any other means. 
Teenagers are 44 times safer if they ride the bus rather than 
riding with their friends.
    But when faced with the need to cut service, school 
districts are most likely to discontinue high school 
transportation, thereby encouraging or even forcing teenagers 
to high risk driving.
    School buses play an important role in mitigating traffic 
congestion. Replacing an average of 50 personal automobiles for 
every school bus on the road. In addition, one school bus uses 
significantly less fuel than 50 cars and SUVs.
    The Federal Government provides no funding source for 
routine home to school transportation or school activity 
transportation. Increasingly, a larger burden falls on the 
local school districts to support school transportation, and 
though it represents just four percent of the total school 
budget, it is the first target hit when districts need to 
reduce expenditures.
    From September 2004 to September 2005 the price of diesel 
fuel increased an average of 58 percent, a $1 a gallon. Though 
prices slipped back somewhat in 2006, they are on the rise 
again and in many areas have reached or exceeded the 2005 
highs. Other transportation modes are better able to either 
absorb the costs or pass them on to the marketplace. The school 
bus operators literally have nowhere to go.
    School districts have had to find other ways to respond, 
most of which now involve reduction of school bus service. For 
example, Troy, Michigan eliminated sports and activity trips. 
Massachusetts districts are charging parents for school bus 
service. Ohio eliminated, if you can believe this, 80,000 
students from school transportation over the last two years. 
Tennessee and Georgia closed schools for two days last year and 
Kentucky went to four-day weeks for some schools just as a 
result of the cost of the fuel for the school buses.
    Congestion, pollution, excessive fuel consumption, 
inconvenience to parents and employers, inconsistent attendance 
and interruptions in the educational progress, all of these 
result from reductions in school bus service. But the number 
one reason to ensure that school buses keep running is student 
safety.
    We know Congress is tackling this issue on many fronts, and 
our industry has supported efforts to increase supply through 
more refinery capacity and reasonable exploration of oil and to 
protect consumers against price gouging. Additional steps that 
might help with fuel costs and congestion include: The use of 
Federal Highway Congestion Mitigation Funding for the purpose 
of new school buses and for a national public education 
campaign to encourage the greater use of school buses to cut 
down on the use of personal vehicles;
    Federal assistance to school districts to offset the ever 
increasing cost of fuel, regardless of whether the districts 
operate it themselves or if they contract out for the service;
    An investment tax credit or other incentives for bus 
manufacturers to encourage the production of energy efficient 
and alternative power vehicles;
    Managing tax credit for school bus companies to encourage 
purchase of a cleaner, more energy efficient fleet, and;
    Funding to assist Federal mandates to meet safety, 
environmental and security standards.
    As fuel costs go up due to the increased cost of energy, 
everyone feels the burden including parents who pay for gas to 
drive their school children. Already schools are seeing a 
difference. Sixty percent of the districts reported an increase 
of ridership due to fuel prices.
    I want to thank the Committee for this opportunity to 
provide some insight into our industry and share our concerns.
    [The statement of Mr. Thomas follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    
    Chairman Markey. Thank you, Mr. Thomas, very much.
    Our second witness, Mr. Michael Mitternight, is the owner 
of Factory Service Agency, Incorporated, a commercial air 
conditioning, construction and service company in Metairie, 
Louisiana. He has been nominated as a finalist for the 2007 
Small Business Advocate of the year. After Hurricane Katrina he 
helped many New Orleans area businesses recover and resume 
operations.
    Welcome, Mr. Mitternight.

    Statement of Michael Mitternight, Owner Factory Service Agency, 
                              Incorporated

    Mr. Mitternight. Thank you, Chairman Markey and Ranking 
Member Sensenbrenner, Members of the Committee.
    My name is Mike Mitternight. I am the owner of Factory 
Service Agency, the family owned small business established in 
1975 located in the New Orleans of Metairie, Louisiana. My 
company specializes in commercial air conditioning service and 
installation throughout southeast Louisiana.
    I am also a member of the National Small Business 
Association, which the Chairman just mentioned.
    I would like to thank you for inviting me to testify today 
about the impact of rising gasoline prices on small businesses, 
particularly mine. I am very grateful that you are cognizant of 
the negative effect increasing gasoline prices are having on 
small business across the country and that you are seeking to 
address it. Whatever the cause, the volatile increase in price 
of gasoline is wreaking havoc on America's small businesses.
    The day-to-day operation of my small business, I have as 
many as six service trucks and three management vehicles on the 
street at any one point in time. In order to carry the load of 
tools and service equipment necessary to provide the service 
for the equipment upon which we work, most of my service trucks 
are three quarter ton pickup trucks with a service body on the 
back. Obviously, these trucks fall into the category of nonfuel 
efficient vehicles. Unfortunately, there is no affordable 
alternative to this choice.
    Currently the cost of gasoline in the metropolitan New 
Orleans area varies from $2.88 per gallon to 2.93 per gallon 
from a low of 1.98 late last year. This sudden and 
unpredictable 50-percent increase hits directly at the bottom 
line of my business, and countless others.
    In my industry one major problem is that many of my service 
and maintenance contracts are fixed cost contracts with 
billable rates established well in advance, sometimes for a 
period of a year with no opportunity to recoup increased 
expenses. Although I routinely try to include an estimated 
escalation percentage in my pricing, the actual cost of 
gasoline is impossible to project. If I project too large an 
increase, I will lose the contract. If I project too small, I 
will lose money.
    Direct impact on cash flow, the life blood of any business 
is seen when you compare a weekly operating cost for fuel from 
$325 in December of '06 to my current expense of $510 a week. 
This represents an increase of 60 percent in only five months.
    A fellow contractor in my area provided me with the cost 
figures of his company showing an increase of 113 percent in 
fuel costs between '02 and '06. How in the world does a small 
business owner like me supposed to cope with this sort of a 
volatile and devastating price increase? How can I expect to 
formulate a viable business model with these sorts of wild 
price fluctuations? How can I grow my business? How can I add 
additional employees?
    As summer months approach, fuel costs continue to rise, 
almost expidentially with the temperature. Unfortunately for my 
business the summer price surge occurs during a period of 
increased fuel consumption as a result of expanded service 
activity. I dare say that these numbers are typical for most 
businesses regardless of their geographic location.
    In fact, 75 percent of respondents doing an NSBA survey 
last year reported their businesses had either been 
significantly or moderately effected by rising prices.
    In order to maintain any level of profit in my operation I 
have no alternative but to pass the cost of rising gasoline 
prices onto my customers. Sometimes I could arbitrarily 
increase--just put a fuel surcharge on, but I cannot do that on 
fixed cost contracts and long term customers, and I cannot 
arbitrarily raise hourly rates.
    One unique problem that I face in the New Orleans area, the 
fact that many areas are still recovering, is that the 
availability of service stations is a factor. No long are there 
sources of fuel on every other corner. It's imperative that my 
service technicians be properly routed to ensure that they have 
adequate gas supply for their day's routes as they make their 
rounds.
    The immediate problem of removing flood waters from my 
property, working to help family and employees return and 
recover, reestablishing customer contact and establishing 
necessary financing when my accounts receivable became accounts 
inconceivable following the storm all seem to have been a 
foreteller of today's problem of upwarding spiraling fuel 
costs. Despite such persistence obstacles in the situation in 
New Orleans has improved. At least I no longer have to fill 
five gallon gas cans at a remote location and fuel my trucks by 
hand. Now my main concern seems to be what will the price be at 
the pump when my trucks roll out in the morning.
    It is one thing to deal with such uncertainty and 
volatility in the midst of what is arguably the worst natural 
disaster in the nation's history, it is another to have to deal 
with the day-to-day basis a year and a half after the event 
occurred.
    New Orleans area, we are working to solve these problems. 
The rising cost of gas is just a devastating problem that we 
are fighting, but it is something that we are trying to deal 
with. The NSBA has several issues that they are supporting and 
ideas that they are behind. I mentioned in my written 
testimony: Increasing and diversifying the domestic and energy 
production; improving the efficiency standards which would help 
anyone; studying utilization of hybrid vehicles especially 
those that run on alternative fuels but they need to be 
something that are capable of carrying service loads on major 
service trucks and most hybrid vehicles will not accomplish 
that.
    Thank you for your time, sir. And I welcome questions.
    [The statement of Mr. Mitternight follows:]

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    Chairman Markey. Thank you, Mr. Mitternight.
    Speaking of alternative fuels, Mr. Donn Teske is a farmer 
from northeastern Kansas. He is now in his seventh year as the 
Kansas Farmers Union President. He serves on the Boards of 
numerous other agricultural associations. He has worked at 
Kansas State University as a farm analyst.
    We welcome you, Mr. Teske. Whenever you feel comfortable, 
please begin.

        Statement of Donn Teske, President, Kansas Farmers Union

    Mr. Teske. Thank you, Congressman Markey. Thank you Member 
Sensenbrenner. Members of the Committee.
    I consider this a really unique opportunity for a pretty 
darn nervous redneck farmer from Kansas to be addressing this 
group. So if I get to stuttering around, have patience with me.
    Energy consumption in agriculture is a very significant 
issue, and I really welcome the opportunity to have it. And 
representing and speaking on behalf of Kansas Farmers Union and 
National Farmers Union, we really want to compliment this 
Committee on the proactive approach that they are having to 
address in this very serious issue.
    Personally we operate a fifth generation farm in northeast 
Kansas, as the Congressman said. We are on the eastern edge of 
the Flint Hills in Pottawatomie County, Kansas.
    The operation is about 2,000 acres, about two-thirds of 
that is native bluestem grass, another 500 acres of it is 
certified organic. On that we raise commodities that we sell 
into the organic livestock industry, mostly alfalfa hay, red 
clover hay, corn, milo, wheat, soy beans; that type of thing.
    In the past my wife and I operated a dairy farm there for 
many years. My wife Kathy was really glad to see the cows go.
    Agriculture has really been stagnant for quite a few years 
now. I have farmed for 30 years and a lot of times it ends up, 
you know, you are in the red. And if it is in the black, it is 
usually about the difference in the government subsidy payments 
that make the difference.
    Both my wife and I have had to seek off farm employment to 
sustain a family. To me there is something wrong when you have 
a farm operation that size and both spouses are working off the 
farm to feed the family so they can produce their share of the 
country's food supply virtually for free.
    Now on top of that we get into a situation like this where 
we have been blindsided by super high energy costs, and it is a 
double whammy.
    The former Congressman from Massachusetts John Kennedy once 
said that the farmer is the only entity out there that buys 
everything retail and sells everything wholesale. And there is 
a lot of truth in that. You know, everything that we put into 
the farm we buy in the marketplace and we have virtually no 
control over what we get from it. And the new energy costs 
expenses that we are getting on, we cannot automatically pass 
on. So the buck stops here, and it is with us, and it has 
really been a bad situation. And we are trying to deal with 
this at a time when oil companies are recording record profits? 
A little hard to digest.
    To put it in a little perspective into the farm situation, 
I got some information from Kansas State University Farm 
Management data. In 2000 it took about 115 bucks to put in an 
acre of non-irrigated crops in Kansas. Out of that 26 percent 
was energy related. In 2005 it took 140 bucks and about 35 
percent is energy related. That is over 20 bucks an acre that I 
got to figure out how to come up with.
    To put it on a personal note, I have some letters that I 
would like to include as support from a real bank and from a 
trucker.
    I had a trucker that took a load of hay to Texas for me a 
couple of weeks ago. That load of alfalfa hay was 20 tons. It 
is going to bring me about a $3500 check when it is all done. 
The increased expenses on the recent escalation in fuel prices 
compared to what we did before is going to add 600 bucks of 
trucking expense to that load. Somewhere between the three 
entities, the trucker, the dairyman and myself, we got to 
figure out how to absorb that 600 bucks to keep going the way 
we have been going. And that does not work very well.
    Now on the positive side of things it looks to me like 
society is finally starting to address the issue of our 
environment. And I think that is wonderful. Global warming to 
me is very real, and I think it is the scariest thing that I am 
leaving for my children. Economies can be fixed. Governments 
can be fixed. You mess up our world, you kind of got a problem.
    I think that we as a nation need to take responsibility, 
and I have four quick steps that I wanted to put in.
    Number one and foremost is energy conservation. We are a 
gluttony nation and we need to do something about it.
    Number two. We need a nationwide renewable portfolio 
standard, especially addressing community wind would be my 
passion.
    Number three. I think we need to address the food issues in 
our transportation system and food delivery. We need to go back 
to more local food production and supply and distribution. We 
are shipping our food all over the country.
    And number four. And the worst case scenario is we may have 
to look at rationing because we may have to separate the 
entertainment from the necessities.
    And I do want to thank you. And would ask that that be 
included.
    Thank you.
    [The statement of Mr. Teske follows:]

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    Chairman Markey. I thank you, Mr. Teske. And without 
objection it will be included in the record.
    We thank you for quoting President Kennedy on farm policy. 
That is very helpful to me. Actually, we were just the reverse 
in the Markey family. My father was a milkman, so we actually 
go back to the retail again, going door-to-door with it, having 
the company purchase it wholesale.
    We will now move on to our next witness. Our next witness 
is Sylvia Estes. She is a Native American Indian. She owns two 
businesses in Virginia Beach, Virginia; the Pipeline Industrial 
Group performs new construction, demolition, design build, 
emergency response mostly for the Federal Government.
    We welcome you, Ms. Estes. Whenever you are ready, please 
begin.

          Statement of Sylvia Estes, Pipeline Industrial Group

    Ms. Estes. I am more nervous than he is.
    Chairman Markey. Well, he did a great job. I am sure you 
will, too.
    Ms. Estes. He did a fabulous job.
    I am a farmer as well. I have a horse farm and a 
construction company, both of which, anyone here we all know 
that fuel costs going up have firm fixed price contracts which 
means we do not get economic adjustments and we eat it off the 
bottom line. So as your costs keep going up or our costs keep 
going up, our profit margins keep going down.
    I will sit here and try go back to my prepared statement.
    Founded in January 2000 Pipeline Industrial Group started 
with four employees and two trucks. Our primary work was 
petroleum. The field of petroleum had lapsed, and we went into 
construction. The Government grew us in construction. As of 
today, we support 120 people, that includes wives and children. 
We are a team. We work together as a team. Together we overcome 
problems every single day. We do whatever the Government ask of 
us, whether it is new construction or Hurricane cleanup.
    I have talked about rising gas prices and how they are 
effecting the small businesses like mine and the families and 
the community they support. We cannot build in contingency to 
our proposals with the Government. Any additional costs at all 
comes off our bottom line profits.
    The rise in fuel costs effect nearly every aspect of my 
business in one way or another. Many direct costs. It costs me 
more to run my business. Costs of materials, copper, steel, 
they have escalated in price. The cost in labor, and my 
employees expect more money. In order for them to even get to 
work I have to pay them more money. And in order to keep them, 
I have to get employees that do not have as much experience so 
that I can afford them. And then I have to train them and I 
have to start all over again.
    Every time our economy shifts, the small business shifts. 
We are good people. We work hard. We want to do good for you. 
We believe that there is technology available to you that we 
all hope that you would look at. Technology that is a little 
different than the normal.
    I spent four days writing your speech that I cannot even 
remember. I looked at every single thing on the internet I 
could possibly read, and my poor brain got fried. I did find 
one thing that I found was extremely interesting and it was 
called SkyTran. Runs off of solar energy. It is not paid for by 
the government. It is private industry. Whether it will work or 
not, I cannot answer that. I do not have your answers, but I do 
know that there is technology here in the United States that 
does have your answers.
    And instead of us relying on someone else to give our 
country what we need to exist, why can we not rely on 
ourselves? We do it everyday as a team. Look at Hurricane 
Katrina. We all pitched in together. That is what America is 
made of. It is not made of politics. And I will give you small 
joke that I have recently been told. Politics are the worst 
kind of ticks to have. And as a country girl, I agree with 
that.
    I am sorry. We are out here earning a living. We want to 
make the best for our employees. We treat them with respect. We 
give them the respect that they are out there working for us. 
And as long as we keep that respect in life, we all keep moving 
up. When we take that respect away, and when you start raising 
the cost consider the fact that these people are not eating 
lunch. You may actually have enough money in your bank account 
to afford to go out to lunch, but most employees do not. They 
skip lunch, they skip breakfast and they eat dinner.
    I have a nursery in my office so I can keep my employees. A 
lot of babies being born. It is one way that I can give back 
instead of giving raises. Every employer should be responsible 
for their employees. You should not go to sleep at night if you 
do not think your business is going to make it. You should 
figure out how to make it.
    I would like to ask you guys to look at how to make it. If 
I can tell you in four days between running a business, two 
businesses and two teenagers, there is not much left of me. But 
I do know that there are answers. I know they are here. I know 
the internet is a great source for them. I have read more 
articles. One says it is pro, one says it is against. I mean, 
what is real? Does anyone truly know what is truly real? I 
agree with him, global warming is real. We are experiencing 
more storms. In fact, I have been invited by the government to 
go next week or the week after to a world global emergency 
summit because we all are facing problems.
    We need to pay attention to what it is going to be twenty 
years from now, forty years from now, not just today. We have 
children and, hopefully, someday grandchildren.
    And I thank you.
    [The statement of Ms. Estes follows:]

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    Chairman Markey. Thank you. Thank you Ms. Estes very much.
    And I heard what you said at the beginning of your 
statement and I know you will not take this as a compliment, 
but you would be an excellent politician. Really, you have the 
makings of one. You are very good.
    And next we have John Felmy. Dr. Felmy is the Chief 
Economist of the American Petroleum Institute. He is 
responsible for overseeing economic statistical and policy 
analysis of the American Petroleum Institute. He has over 25 
years experience in energy, economic and environmental 
analysis. He received bachelor's and master's in economics from 
Pennsylvania State University, and a Ph.D. in economics from 
the University of Maryland.
    Welcome, Dr. Felmy. Whenever you are ready, please begin.

   Statement of Dr. John Felmy, Chief Economist, American Petroleum 
                               Institute

    Mr. Felmy. Chairman Markey, Ranking Member Sensenbrenner, 
Members of the Committee, I am John Felmy, Chief Economist at 
API, the national trade association of the 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.
    U.S. oil and gas companies understand the frustration that 
consumers are expressing about gasoline prices. We recognize 
that these higher prices adversely impact individuals, 
households, businesses and potentially the economy. Our member 
companies are doing everything they can to meet the fuel needs 
of U.S. consumers.
    As of today, crude oil inventories have been building and 
are 8.9 percent above the five year average at this time.
    Year to date gasoline production is 8.85 million barrels 
per day, the highest ever. Thanks to the industry's major 
investments in state-of-the-art refining technologies, our 
companies are able to squeeze more gasoline and diesel fuel 
from a barrel of crude oil compared to past years. Looking 
ahead, we expect to bring the equivalent of an additional eight 
new refineries into operation by 2011.
    Despite the industry's all out efforts we are still faced 
with a set of challenges that in combination have driven up 
gasoline prices. Most importantly, crude oil prices have 
fluctuated significantly driven by lingering geo-political 
tensions, OPEC's continuing production controls and worldwide 
demand growth.
    More than half the price of gasoline is attributable to 
crude oil. Oil companies do not set the price of crude. It is 
bought and sold in international markets and the price paid for 
a barrel of crude reflects the market conditions of that day.
    A second major factor is that gasoline demand in the U.S. 
reached a record high in the first quarter of this year. The 
Department of Energy forecasts that demand will increase 
further in the summer driving season, which begins this month.
    Moreover, nearly half of U.S. gasoline is blended with 
ethanol so as demand has gone up, ethanol prices and the cost 
of ethanol blended gasoline has risen as well.
    In addition, the annual switchover to summer blend gasoline 
required by EPA has occurred. And this warm weather gasoline is 
more expensive to produce. The switchover requires a large 
supply drawdown to meet regulations. Unless gasoline is 
available to import because of spring refinery maintenance in 
Europe, an 18 day French port workers strike in March led some 
European refiners to reduce production.
    U.S. gasoline production this year is at all time record 
highs despite regularly scheduled refinery maintenance and 
several unexpected problems that have interrupted some refining 
operations. The maintenance is a normal procedure, though 
delayed in some cases by damages suffered from the catastrophic 
hurricanes in 2005.
    While maintenance curtails refining operations temporarily, 
it helps to ensure the longtime viability of the refinery and 
protects the health and safety of our workers.
    Some are again accusing the industry of illegal activity. 
Our industry has been repeatedly investigated over the many 
decades by the Federal Trade Commission and State Attorneys 
General. Of more than 30 investigations that we are aware of, 
all have resulted in exoneration.
    I would also note the introduction of price gauging 
legislation in Congress. I would caution that this legislation 
could have many unintended consequences that would not benefit 
consumers.
    Rising gasoline prices are a burden on U.S. consumers, but 
they cannot be viewed in isolation from the U.S. energy 
situation. Solution to the energy challenge that we face is to 
increase and diversify sources of supply, including 
alternatives, reduced demand and expand infrastructure. We have 
plentiful domestic oil and gas resources remaining to be 
discovered in the U.S. Only government policies stand in the 
way of increasing access to these resources, facilitating 
refining capacity and pipeline expansions and increasing energy 
security.
    America can meet its energy challenges just as it has met 
great challenges in the past. But meaningful changes in energy 
policy will be required.
    API stands ready to work with your Committee and others in 
the Congress and the Administration to help bring about these 
changes that are so important for America's energy future.
    With that, I will thank the Committee and I will be happy 
to answer any questions you might have.
    [The statement of Dr. Felmy follows:]

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    Chairman Markey. Thank you, Dr. Felmy, very much.
    That completes the time for opening statements by the 
witnesses. The Chair will now turn and recognize himself for 
five minutes.
    Dr. Felmy, yesterday in the Senate Commerce Committee 
legislation dealing with fuel economy of cars and light trucks 
was passed. Senator Cantwell added an amendment which dealt 
with the issue of oil price gauging. Can I ask you some 
questions about that?
    Do you agree that President Bush should have the authority 
to declare a temporary national emergency if there was a 
threatened or existing disruption of oil and petroleum supplies 
due to events such as a hurricane or a terrorist attack?
    Mr. Felmy. I believe that in the area of price gauging you 
have a number of possibilities that could be considered. I have 
not seen the exact legislation to know the exact wording on how 
that could be declared and what else would go with it. But we 
do have cases where governors have the ability to be able to 
declare emergencies for some situation such as that. So it 
would be something that we would have to look at carefully.
    Chairman Markey. Well, you were quoted in yesterday's 
newspaper as saying that ``Senator Cantwell's legislation was 
unfortunate political rhetoric with no basis in facts.'' So I 
think that today's answer is somewhat different, in fact 
radically different from what you said yesterday.
    Let me ask another question. Do you agree that in the event 
that there was a national emergency, national energy emergency 
that it should be illegal to charge unconscionably excess 
prices for gasoline?
    Mr. Felmy. As an economist, Mr. Chairman, I do not know 
what ``unconscionable'' means.
    What we have seen in the past in terms of changes have been 
largely as a result of market forces at all levels of the 
supply chain. I simply do not know what ``unconscionable'' 
means in terms of a definition that can be usefully employed 
that would not cause potential problems in the marketplace that 
could, again, have unintended consequences.
    Chairman Markey. I think the other witnesses know what 
unconscionable would mean in terms of high energy prices. I see 
all four heads nodding.
    Do you agree, Dr. Felmy, that especially at a time when we 
might be in a national energy emergency that there should be an 
explicit statutory ban on manipulative practices in wholesale 
petroleum markets?
    Mr. Felmy. I am not an attorney, Mr. Chairman, so I cannot 
comment beyond just I believe the understanding of the law is 
that you already have many provisions in place to deal with 
manipulation under the regulatory authority of the Commodities 
Future Trading Commission and the Federal Trade Commission.
    Chairman Markey. Do you agree that it should be illegal to 
knowingly submit false information about wholesale petroleum to 
the Federal Trade Commission?
    Mr. Felmy. I--again, Mr. Chairman, I am not an attorney. 
But my understanding is that you already have those provisions 
in place. You have had prosecutions to that effect for false 
submitting of data to various entities.
    Chairman Markey. Let me ask the other witnesses quickly if 
each of you could tell us what it would mean to each of you 
briefly if the price of gasoline moved over $4 a gallon. Very 
briefly.
    Mr. Thomas.
    Mr. Thomas. The number of students riding school buses 
would dramatically increase, but the problem would be that we 
would not be able to afford to deliver that bus service because 
that money would be taken out of the education.
    Chairman Markey. Mr. Mitternight.
    Mr. Mitternight. It would require me to definitely raise 
prices to my customers and try to renegotiate contracts. I 
would have to find some way to pass that cost on in order to 
make any profitability.
    Chairman Markey. Mr. Teske.
    Mr. Teske. At this point in agriculture, we do not have 
that ability to pass it on. So we are talking about disaster 
within the agriculture industry. And you are talking about 
additional subsidies or you are talking about some major change 
within the marketing system.
    Chairman Markey. Ms. Estes.
    Ms. Estes. I work for the Federal Government, and I know 
they do not have any money, so I cannot pass it on either. So I 
would say it be closing my doors down.
    Chairman Markey. Well, I will say this: It is the goal of 
the speaker to pass legislation that will deal with this issue 
of price gouging. And we intend on doing that this year, very 
very soon.
    In the first three months of this year ExxonMobil, Chevron, 
ConocoPhillips, Shell and BP collectively reported $29.4 
billion in profits.
    This Congress in January in one week, the first week, 
passed legislation to reclaim $14 billion in excessive 
royalties that the oil companies had received and created a 
fund for renewable energy and for energy conservation. The 
White House opposes that. That is half of the money that these 
oil companies made in three months. And we are trying to move 
the country in a different direction, which this Administration 
continues to fight us.
    The time of the Chair has expired. We will turn and 
recognize the gentleman from Wisconsin, Mr. Sensenbrenner.
    Mr. Sensenbrenner. I thank the gentleman for giving me this 
time.
    We live in a market economy. And one of the laws that 
Congress cannot repeal is the law of supply and demand. So if 
we want the price of anything, including petroleum, to go down 
we have to either increase the supply or reduce the demand or a 
combination of the two.
    I think probably the most telling immediate statistic that 
we have is that our refining capacity is about 17 million 
barrels a day and the demand for gasoline is about 21 million 
barrels a day. Can I ask all five witnesses if they think that 
we would get immediate price relief if we went on a crash 
program to increase our refining capacity so that we are able 
to have more product on the market, starting with you Dr. 
Felmy?
    Mr. Felmy. Mr. Sensenbrenner, I would agree that increase 
in capacity would allow more refining of petroleum products for 
the consumer. And as an economist, whenever you increase 
supply----
    Mr. Sensenbrenner. Okay. I want some brief answers. I got 
five minutes.
    Mr. Felmy. Yes, sir.
    Mr. Sensenbrenner. Ms. Estes.
    Ms. Estes. Absolutely.
    Mr. Sensenbrenner. Mr. Teske.
    Mr. Teske. I'm not convinced in that itself would do it.
    Mr. Sensenbrenner. Okay. Mr. Mitternight.
    Mr. Mitternight. I think in the long run it would. I do not 
think it would be immediate because the cost of the fabrication 
or the construction of the new refineries would be there. But I 
think in the long run it would definitely bring the cost down.
    Mr. Sensenbrenner. Mr. Thomas.
    Mr. Thomas. I think it would bring the cost down.
    Mr. Sensenbrenner. Okay. Now another way to reduce demand 
is to raise the price. In my opening statement I talked about 
the carbon tax that the U.N. is talking about imposing of 
approximately $100 a ton which translates to about a dollar a 
gallon of gasoline, according to last Saturday's Washington 
Post. What do you think would happen to your businesses if we 
passed this carbon tax, starting with your, Mr. Thomas?
    Mr. Thomas. Well, as long as the school buses remained 
exempt from the Federal taxes that they are now----
    Mr. Sensenbrenner. Okay. That is a good thought.
    How about you, Mr. Mitternight.
    Mr. Mitternight. Any increase in taxation, if there is 
anyway to reduce taxes and being from Louisiana we have above 
and beyond our far share of taxes on everything that we do. So 
we could not----
    Mr. Sensenbrenner. Just come to Wisconsin if you want to 
see how bad taxes are.
    Mr. Teske, how about the dollar a gallon increase because 
of the carbon tax that has been talked about.
    Mr. Teske. You know, I would not like that for the same 
reasons we said all along, but at the same time if all the 
polluters had that same carbon tax on it, I think we could make 
dramatic differences. Those coal plants do a heck of a lot more 
than my farm equipment does.
    Mr. Sensenbrenner. Okay. Ms. Estes.
    Ms. Estes. Bottom line, it would hurt my employees more 
than it would hurt me. Financially at this point I cannot keep 
giving them raises. They are going to go without food. So----
    Mr. Sensenbrenner. Dr. Felmy.
    Mr. Felmy. A carbon tax could have severe negative impacts 
on the economy. API does not have a specific position on many 
of these global policies that are being discussed, but we would 
certainly welcome the opportunity to talk about all of them.
    Mr. Sensenbrenner. Okay. Now some people around here, 
including my dear friend the Chair seemed to think that the 
magic wand is increasing CAFE standards. And I saw the chart 
that he had raised behind him during his opening statement. I 
ask you because my time is running out, Dr. Felmy, when the 
CAFE standards kicked in we had a period of double digit 
interest rates stagflation and then followed by a recession. 
How much of the reduced imports do you think were caused by 
economic factors other than the increase in the CAFE standards?
    Mr. Felmy. Mr. Ranking Member, I have not done an 
analytical study but there is no question there were three 
broad factors that caused the reduction in demand.
    CAFE standards could have had an impact.
    We also had high prices. We had $3.22 per gallon in 1981 in 
today's dollars for gasoline.
    And finally economic activity slowed down and recession all 
had significant impacts.
    Mr. Sensenbrenner. Okay. So it would be your considered 
judgment that it was not exclusively the raising of the CAFE 
standards that caused the reduction in our percentage of oil 
that we imported from overseas?
    Mr. Felmy. That would be my judgment, sir.
    Mr. Sensenbrenner. I thank the Chair.
    And I yield back the balance of my time.
    Chairman Markey. The Gentleman's time has expired.
    The Chair recognizes the Gentleman from Oregon, Mr. 
Blumenauer.
    Mr. Blumenauer. Thank you.
    And I, Mr. Chairman, would like to thank you and the staff 
of assembling I think a very useful panel. I thought the range 
of experience that was given in real life, putting a face on 
this, was extraordinarily helpful. And I appreciate what we 
have heard.
    I am particularly want to, just if I could, Mr. Teske, you 
had given a hint there, you talked about the carbon tax or some 
sort of carbon system. I mean I think most people agree the 
world is moving in this direction. We have got ten northeastern 
states that are doing it, most of the business community 
understand that there will be some carbon constraint.
    You hinted at something. Would it make a difference to you 
or any of the panel members if there was some sort of carbon 
constraint in terms of what happened to it? If it was used to 
be able to help give you the type of energy technology that you 
want? If it was used to defray the high costs that some 
particularly lower income people were contending with? If it 
was used to offset the costs, for example in some cases, of 
more energy efficient equipment or technology? Does that make a 
difference to you in terms of how this money is used? Are there 
ways that it could be used that it would make a difference to 
how you do business?
    Mr. Teske. That is kind of an interesting concept. As I 
kind of hinted at there, I do not like new taxes but we have to 
take environmental responsibility. My belief is that global 
warming is true, and so where do we take those steps. And so I 
was having this discussion with a close friend that I have a 
lot of respect in recently, and we were talking about the 
current marketing structure and could we address increased fuel 
costs alone to reduce demand. And both of us did not think that 
marketplace would allow that flow through to happen so the 
general economies could flow.
    And so about the only we are going to have to do it is with 
some type of Federal Government interaction. And whether that 
is a carbon tax or something else, I do not know what the 
proper structure for that is. But I do not think the ``free 
marketplace'' that we have now is going to absorb that and pass 
that through the system. And so we would have devastated 
businesses and economies all around the country with trying to 
do it with just increased gas prices alone.
    If the polluters that were building this carbon problem 
were taxed equally across the board, I would have a hard time 
arguing with that.
    Mr. Blumenauer. Let me just say, I do not want to catch any 
of unawares, but I want to plant the seed and invite you to 
think about ways that it might make a difference to you.
    And I would like to follow up, Mr. Teske, with one thing 
that you talked about in terms of the farm legislation. Because 
one of the things that this Committee is looking at, we are not 
originating legislation per se, but we are looking at big 
concepts. We do have a farm bill that is coming along that has 
lots of opportunities to deal with rural redevelopment, to deal 
with--there will be an energy title in it. To deal with things 
from wind to solar to biomass where Federal farm policy might 
be able to reduce the carbon footprint of American agriculture 
and help farmers do that. And I wondered if you had any 
thoughts about what the farm bill might do to help in your 
situation with the energy question?
    Oops. I realized I have less than a minute, and that is not 
fair either. I will follow up with you personally on that.
    I just wanted to make one point. We talked about refining 
capacity, Mr. Chairman. It just seems to me that there is a 
pretty clear record that there were opportunities for--there 
has only been one refinery proposal, to my knowledge, in the 
last 30 years. One in Yuma. Since the early 1990s it has 
received all of its environmental permits, but could not get 
financing because nobody wanted to invest in it. And the oil 
companies had lots of money. It was not that they did not have 
money to invest. It seems to me that there were bets made that 
they could make money without increasing refining capacity.
    Thank you, Mr. Chairman.
    Chairman Markey. Okay. The Gentleman's time has expired.
    The Chair recognizes the Gentleman from Arizona, Mr. 
Shadegg for seven minutes.
    Mr. Shadegg. Thank you, Mr. Chairman, and thank you for 
holding this hearing.
    I do not really want to get into the issue in great depth, 
but I want to begin by asking unanimous consent to put into the 
record a letter from Arizona Clean Fuels Yuma, which goes into 
the issue raised by the Gentleman from Oregon just a moment 
ago. Arizona Clean Fuels Yuma, I believe, is very close to 
having its financing. The letter includes with it a lengthy 
analysis of the delays in the construction project. The 
Gentlemen is correct, I think that is the only effort to get a 
new refinery on line. They detail at length the regulatory 
impediments to that. And I would put that in the record, if I 
might.
    Chairman Markey. Without objection, it will be included in 
the record.
    Mr. Shadegg. I want to thank the panel for their testimony. 
I think it is very interesting. It actually reminds me of a 
number of conversations with my wife over what happens at this 
time of year, and I will go into that in just a moment.
    I do want to follow up on a line of questioning that Mr. 
Sensenbrenner had. He asked you about a carbon tax and were a 
carbon tax to add a dollar to the cost of fuel, what that would 
do in terms of having an impact on you.
    Another idea that is floating out there, and it has been 
proposed by a lot of thoughtful people, and has been 
implemented in part in Europe is the idea of a cap and trade 
program. That is we would set a cap on carbon emissions and 
then you would buy and sell trading permits. Europe has 
implemented such a cap and trade system, not by the way for 
mobile sources but for fixed courses of carbon. And it has 
caused an increase in the cost of energy of between 16 and 25 
percent. Let us assume it is half of that, an increase of eight 
percent or ten percent.
    Each of you expressed concern about a carbon tax in terms 
of driving up the cost of fuel. I assume your thoughts about an 
increase in cost would be the same if it were as a result of 
the imposition of a cap and trade system? Mr. Thomas, would 
you----
    Mr. Thomas. Yes, the result would be the same.
    Mr. Mitternight. Yes. Any increase in taxation does the 
same thing.
    Mr. Shadegg. Mr. Teske.
    Mr. Teske. I believe I have addressed that issue.
    Mr. Shadegg. Fair enough.
    Ms. Estes.
    Ms. Estes. I am not sure if the increased tax of a $1.00 is 
going to make a difference.
    Mr. Shadegg. Mr. Felmy.
    Mr. Felmy. If implemented in the same technique as using a 
carbon tax, then you would likely have the same impacts. The 
issue with cap and trade is allowances and a whole host of much 
more complicating factors that can distort the system 
significantly.
    Mr. Shadegg. Yes. One of my concerns is that in Europe it 
appears to have added cost without having achieved the 
environmental goal. And that would be one of my concerns.
    Let me ask another concern, because I am curious about 
this. I personally favor if you are going to impose a cost to, 
for example, reduce carbon emissions, I would rather have it be 
a visible cost. I have a little bit of concern that if it were 
in a cap and trade as opposed to a carbon tax, it would be 
buried and people would not be able to see it. I hope you all 
understand what I am saying.
    If there is going to be a cost to reduce carbon in our 
atmosphere, would you rather it be clearly set out and visible 
so we know what that cost is, or does that not matter and if it 
were buried in a cap and trade system, that would be just as 
well with you? Mr. Felmy.
    Mr. Felmy. API only has a position that we would like all 
the different options to be discussed. These are very 
complicated systems to put in place.
    Mr. Shadegg. Fair enough.
    Ms. Estes. It is a question of whether you would see it or 
not or have it varied?
    Ms. Estes. I would rather see it. And I think the American 
people, right now one of the big things I saw is we do not have 
any trust.
    Mr. Shadegg. Right.
    Ms. Estes. So I would rather see it. I believe they need to 
see it.
    Mr. Shadegg. Fair enough.
    Mr. Teske.
    Mr. Teske. I would like to see it.
    Mr. Shadegg. Mr. Mitternight.
    Mr. Mitternight. I agree. I would want to know where it is 
going.
    Mr. Shadegg. Mr. Thomas, I had the impression that most 
school buses run on diesel, but maybe I am wrong about that.
    Mr. Thomas. You are correct.
    Mr. Shadegg. Okay. And so your fleet would be diesel fleet. 
And when we are talking generally gasoline prices, you are 
talking about diesel prices having gone up the same, is that 
what you are saying?
    Mr. Thomas. Actually more.
    Mr. Shadegg. Diesel prices have gone up more?
    Mr. Thomas. Yes, they have.
    Mr. Shadegg. Have you taken a look at natural gas as a fuel 
for your fleet?
    Mr. Thomas. Yes. Actually the industry has. And the net 
effect is that we believe that clean diesel has the best effect 
overall on both the supply for the fleet and not only the 
global impact, the emissions impact, but the availability to 
school districts.
    Mr. Shadegg. There are developments in clean diesel which 
dramatic recent development making it even cleaner than natural 
gas, is that correct?
    Mr. Thomas. It actually almost reduces all the emissions 
that we consider toxic.
    Mr. Shadegg. So you would----
    Mr. Thomas. Clean diesel.
    Mr. Shadegg. That leads me to kind of a broad question. 
Would you all agree that we need to keep a broad diversity in 
our fuels, that is gasoline, diesel, biodiesel, liquid to gas, 
coal liquid to gas? Is a broad diversity something you think 
will help hold down costs for down the line?
    Mr. Thomas. Well, I think it would.
    Mr. Shadegg. Mr. Mitternight.
    Mr. Mitternight. I would think it would, again as long as 
it is adaptable to a small business' fleet of vehicles that you 
can adapt easily.
    Mr. Shadegg. Mr. Teske.
    Mr. Teske. In the short term yes, in the long term I think 
we will have something come out a clear winner that is a lot 
better than petroleum. Hopefully, hydrogen or something like 
that.
    Mr. Shadegg. Well, yes. I am not limiting this to 
petroleum, by any means.
    Ms. Estes.
    Ms. Estes. Yes, I definitely agree that you need to look at 
the wider spectrum. There are other alternatives out there. You 
have mentioned Europe is using a nuclear power system----
    Mr. Shadegg. I appreciate that. We will look into it.
    Mr. Shadegg. Mr. Felmy.
    Mr. Felmy. Going forward we will need all sources of energy 
to increase, we will need energy efficient and we will need 
more infrastructure.
    Mr. Shadegg. My time is just about expired.
    You said, Dr. Felmy, that there is a large supply drawdown 
required by regulations. My wife says why do the gas prices go 
up at this time of year every year. And she says why--you said 
summer fuel is more expensive. Is the Government causing by 
either regulation or by prescription of a formula gasoline 
causing prices to go up at this particular time of year?
    And with that, I yield.
    Mr. Felmy. The regulations require summer blend gasoline 
starting May 1st, unless you are in California, and then it is 
March 1st, April 1st, May 1st. So it is a much more complicated 
system.
    You need cleaner burning gasoline that has less vaporative 
properties, and that is more expensive to produce.
    Mr. Shadegg. I am done. I yield.
    Chairman Markey. The Gentleman's time has expired.
    The Chair recognizes the Gentlelady from California, Ms. 
Solis.
    Ms. Solis. Thank you, Mr. Chairman.
    I would like to make a comment directed to Mr. Felmy. While 
I appreciate your testimony on the oil and natural gas industry 
claiming that they understand the frustrations of our 
consumers, I tend to question that appreciation of your 
testimony and what I have read in your statement.
    First you go to great length to defend the industry profits 
and criticize efforts to protect consumer gauging. And you left 
out several details, some of which I would like to mention.
    In April of 2004 Bloomberg New Service reported that 
ExxonMobil refining profit rose 39 percent. And we heard 
earlier from our Chairman regarding that. They actually made a 
profit of $1 billion.
    ConocoPhillips in their first quarter 2004 report stated 
that the U.S. refining margin increased almost 31 percent and 
that most of their overall corporate earnings came from the 
refining side of the business.
    And another report released in 2005 shortly before 
Hurricane Katrina hit showed that in August of 2005 refinery 
margins rose 54 percent and that those profit margins were 
responsible for 60 percent of the increased cost of fuel at the 
pump.
    Other studies estimated that as much as two-thirds of the 
increased cost of gas at the pump is a direct result of profit 
margins of refiners.
    And immediately after Hurricane Katrina Murphy Oil, a 
company with refineries impacted by the Gulf Coast, lamented 
the fact that it had refineries off line because it is missing 
out ``record margins.''
    And in your written testimony you also contend that 
Congress can help by opening up areas which are off limits to 
new production. However, you leave out critical information 
about the lands which are available for leasing upon which 
there is no current production. In 2003 the Bureau of Land 
Management reported that 85 percent of the oil and 88 percent 
of the proven gas on Federal lands in Colorado, New Mexico, 
Utah, Montana and Wyoming were available for leasing and 
development. Of those areas which are currently available 
offshore, only 35 percent are currently in production.
    It is disingenuous in my opinion to argue that your 
industry needs greater access when it is not currently 
producing in areas already available.
    Do you have a comment?
    Mr. Felmy. There are several points you brought you, 
Congresswoman.
    First in terms of access. While you may have access for 
leasing, there are a whole host of other restrictions postly 
that can prevent you from actually exploring. But irrespective 
of that, the ability to produce more oil and gas anywhere will 
increase supplies for whatever reason and potentially help 
consumers.
    Now in terms of the refinery situation, this is a 
fundamental focus of markets at work. Refining margins go up, 
they go down. They were very low at the beginning of the year. 
They increased subsequently from that. But these are forces of 
supply and demand that effect the prices of crude oil, the 
prices of natural gas and ultimately refining margins. And I 
would also like to point out those are margins and not 
necessarily profits. Because the margins themselves are gross 
margins for which you then have to deduct all the costs. And it 
is very difficult to see what happens.
    In the first quarter, for example, if you also put it in 
context, the oil industry in terms of earnings on the dollar 
made 9.1 cents on a dollar. Comparing that to all of 
manufacturing for 2006, which is the only data we have 
available right now. We do not have the first quarter. You had, 
taking out the car companies which of course they have had 
their struggles, the average profit earnings margin for 
manufacturing industries was 9.5 cents on a dollar.
    So what we have is a situation where----
    Ms. Solis. I would also like to hear from our other 
witnesses, if possible. Thank you.
    Mr. Felmy. Okay. Thank you.
    Ms. Solis. I think I got the gist of your comment.
    If we could start with Mr. Thomas, briefly.
    Mr. Thomas. I am going to pass.
    Mr. Mitternight. I am not a 100 percent sure of the 
question. Can you briefly----
    Ms. Solis. More of a comment. I mean what I was saying that 
actually we are finding that there are lands available to 
conduct and produce, provide for more production but there 
really has not been an effort on the part of the oil 
corporations or companies to do that.
    Mr. Mitternight. Right.
    Ms. Solis. You heard a little bit of that from one of our 
colleagues who left, Mr. Blumenauer, who said that the last 
refinery or proposed permit that was actually issued was 
almost, what? Several years ago. And the blame or attempted 
blame was that the regulations were onerous that kept the 
production from occurring from that facility coming out in 
play. That is not necessarily true, and that is what we are 
trying to get to.
    Mr. Mitternight. Just a brief comment. Again, being from 
Louisiana where we have our fair share of offshore drilling 
going on, there is a serious problem. There is still lots of 
area to further development offshore. But there are a lot of 
State regulations as well as Federal regulations. And as much 
as we trying to salvage our coast, there are a lot of problems 
in developing that area.
    Chairman Markey. The Gentlelady's time has expired.
    The Chair recognizes the Gentleman from Oregon.
    Mr. Walden. Thank you, Mr. Chairman.
    I want to thank our witnesses today. I have enjoyed your 
comments and your testimony.
    For more than 21 years I have also been a small business 
owner with my wife. We are in the radio business. So our 
transmitters run electricity, not oil, which is a good thing at 
least unless there is a power outage, then they run on LP gas.
    So I am concerned about the economy, obviously. I 
understand, Ms. Estes, what you are saying and Mr. Mitternight 
and others about what it is like to make a payroll and take 
care of the people that work for you. It is not easy and it is 
always challenged, and especially when you have uncontrollable 
costs. And the radio business in small markets, very reflective 
of the local economy. And we cannot really push our costs up to 
somebody else either. And so it is a challenge.
    With that, let me just ask you Mr. Teske recommended a 
national energy portfolio standard, right? A requirement, a 
mandate that says every power company has to have a certain 
percentage of renewal energy in their portfolio, the percentage 
of which we might all argue about. There are some who would say 
that in some regions of the country that will drive up the cost 
of energy because you will be forced to perhaps buy a renewable 
energy source that is more expensive than what you are today 
getting.
    So, Ms. Estes, you have raised the question about 
additional costs in your business. Is that direction from the 
Government a mandate on what your local supplier has to buy, 
does that effect you if your price goes up?
    Ms. Estes. Yes, it effects me. It effects me through the--
--
    Mr. Walden. Can you move that mike a little closer. That is 
why it cuts out on you.
    Ms. Estes. Sorry about that. Yes, it effects me. It not 
only effects me through my employees, it effects me through the 
supplies, through the materials; pretty much everything.
    Do I believe that we need to mandate and add more 
alternatives? Absolutely. Is it going to cost us? Yes, but in 
the long run, is it not going to save us?
    Mr. Walden. Well, it might. And I guess--see, I come at it 
the other way, which I would rather have an incentive system. 
And in the Energy Policy Act of 2005, which some of us on this 
Committee were on the other Committee that wrote that and it is 
now law, that created the incentives for example that are 
driving the production of ethanol by putting a $1 a gallon tax 
credit there, that are giving .51 cent a gallon credit for 
agrobiodiesel development. And I assume those who are in 
agriculture have seen some benefit if you are on the growing 
end of it.
    I will tell you the story about my cattle rancher. It cost 
him $100,000 a year more to finish off his herd because of the 
increased cost of corn. So he did not think much of ethanol out 
in Oregon, because we are not raising a lot of corn out in 
Oregon, so I mean it has that effect.
    But that Energy Policy Act we passed and put into law also 
has the incentives, I think it is 1.9 cent a kilowatt hour to 
encourage production of wind energy, geothermal energy, solar 
energy. Half that credit for woody biomass.
    So I kind of come at that I would rather incent the market 
to go rather than arbitrarily demand and mandate and drive your 
costs up and your costs. That is my own personal preference, 
but I do not know. Maybe you wanted the mandated costs from 
here. We can pick 20 percent of all your power has to be green 
and let you figure out why. But there are members of this 
Committee that pose wind generation off their coasts.
    Dr. Felmy, we talk about trying to be energy independent. 
Can you speak to the reserves that are in the United States in 
the lower 48 and Alaska of what that could do if we could 
access those reserves in terms of energy independence?
    Mr. Felmy. In terms of undiscovered resources that if we 
could have access to them, they could do a substantial amount 
toward reducing imports. It is in excess, I believe, of a 100 
billion barrels of oil that could be available for developing 
that would go a long way to helping reduce our import 
dependence.
    Mr. Walden. I want to go to the issue of refinery capacity. 
Because I gassed up in Brothers, Oregon, which none of you 
should ever know about necessarily because it is a very small 
little burg on the way between Burns and Bend and there is one 
pump and a diesel pump. And it was like 3.99 a gallon, if my 
eyesight was right. And they would sell me $15 worth because it 
is that kind of limited capacity, but it got me to the next 
town where I could gas up fully for $3.35.
    The point is, though, I talked to a group of cattlemen that 
were there. And they are concerned about this price because 
what it takes to run their pickups and haul their horses and 
cows and all. And they asked me about refinery capacity. And so 
my colleagues have raised this issue as well, and I am 
concerned. Because I know your capacity has increased. Even 
though the number of refineries has been reduced, the refinery 
capacity itself through new technology has increased, correct?
    Mr. Felmy. That is correct.
    Mr. Walden. How many companies own the refineries, do you 
know? How consolidated is that market?
    Mr. Felmy. Well, if you look at the top eight refiners, I 
have looked at this in comparing it to Commerce Department 
Census Bureau data, the share of total refining capacity is 
about two-thirds. And that compares to other industries that 
are large consumer products industries which have more 
concentration of ownership than the refining industry.
    So it does not look to me as though it is an overly 
concentrated. And I firmly believe it is a highly competitive 
industry.
    Mr. Walden. If it is highly competitive, the profit margins 
are fairly significant even though the percentage, I 
understand, is 9 percent. But many industries, 9 percent is not 
a bad margin to have. Why is it we are not seeing more 
investors build refineries? I mean, we are on the bubble, I 
mean that is my sense after several years on these committees. 
The big storm in Louisiana that knocks out a couple of 
refineries or a fire here, or a breakdown there, prices go 
through the roof all of a sudden, you know. Why are we not 
seeing more--do I not have another minute to finish up here? 
Yes.
    Why are we not seeing more refineries being constructed?
    Mr. Felmy. Well, in terms of new refineries, I think 
Congressman Shadegg pointed out the difficulties of Arizona 
Clean Fuels in terms of all the hurdles they have to face. But 
the industry has expanded the refinery capacity. The equivalent 
of a new refinery every year for the last ten years within the 
gates, and their announcements indicate that you could see, as 
I believe and my testimony said, an additional equivalent of 
eight more refineries. But it is a cyclical business. The 
returns have not been good. And ultimately if you want to 
invest, say, $2 or $3 billion in a new refinery, you have to 
assure returns to your shareholders.
    Mr. Walden. And is supply of the feedstock an issue 
domestically to get it refined or do you have enough of the raw 
product coming in?
    Mr. Felmy. Well, worldwide markets are fairly efficient so 
you are able to usually attract imported crude oil to be able 
to refine it into petroleum products. But it is more expensive, 
as my testimony indicated.
    Ms. Solis [presiding]. Time is up. Thank you.
    Mr. Walden. My time has expired. Thank you very much.
    Thank you, Madam Chair.
    Ms. Solis [presiding]. Thank you.
    I would like to recognize Congressman Cleaver for seven 
minutes.
    Mr. Cleaver. Thank you, Madam Chair.
    I thank all of you for being here. Thank you, Mr. Thomas, 
for being here. I am very much interested in school bus issues. 
And I look--I am from Kansas City, Missouri. I have looked at 
the fleet of school buses and I know why they are yellow. We 
used to have red fire trucks and we did a study and it showed 
that yellow was much better seen.
    But we have got to improve, I think, the look of the buses, 
which is secondary to my real concern, which is what do you 
think the capacity of school districts would be if by 2017 
school buses were required to have a fleet of biodiesel buses 
or hybrids? It is a ten or 15 year period for the school 
districts to ramp up and get fuel efficient vehicles?
    Mr. Thomas. The impact, because of the hybrids that we have 
available now, IC Corporation has a hybrid out there that is 
being tested in several states and the results are dramatic. 
There is a dramatic decrease in the emissions, almost 90 
percent and there is a dramatic increase in its fuel 
efficiency, the miles per gallon would get. If the Federal 
Government would mandate that, certainly the industry would 
respond. And industry would, just as they have responded with 
clean diesel, and this is the first year we have had to outfit 
the whole fleet with clean diesel engines, we would comply. So 
the impact, I think, would be dramatic and positive.
    Mr. Cleaver. Thank you.
    Mr. Felmy, I am one of the co-sponsors of the Federal Price 
Gouging Prevention Act that was mentioned earlier. And I agree 
with you that there may be some difficulty in defining 
unconscionably excessive. I think I could do it. But you are in 
that industry. Could you give me just your belief or figure for 
unconscionably excessive movement of gasoline prices?
    Mr. Felmy. Congressman, as an economist I cannot do it. 
What we have seen over repeated increases in prices, whether it 
be Hurricane Katrina or Rita or what we have experienced this 
year, is markets at work. And so I would be very concerned that 
if you were to put in an artificial definition, however 
crafted, that it could have the unintended consequence 
especially when combined with civil, criminal penalties, jail 
time and so on, of traumatizing the market at a point where you 
actually need movements of supplies, you need to be able to 
attract imports, you need to be able to bring--you need a 
demand restraint and so on. I would just be very concerned that 
this could set us back to the price controls of the '70s, which 
were an unfortunate episode we experienced.
    Mr. Cleaver. Well, this Act would not prosecute anyone for 
the normal natural movement of prices. The market will deal 
with that. But what this legislation would deal with is 
situations where it appears based on either natural disasters 
or other events that may not have had an impact on the 
industry, and yet the prices would soar.
    And as members of Congress, I think you would agree that it 
is difficult to explain to the constituents, or I would like 
for you to give me information on how to do it when you go home 
and people talk to at your neighborhood meetings about a $400 
million bonus for an executive for MobilExxon, Lee Raymond. And 
then they go and look--in Kansas City the average price of 
gasoline today is like $2.92 and rising. So when you look at 
Raymond getting $400 million as a retirement benefit, the 
people at my town hall meetings are not interested in me saying 
well the market is just kind of taking care of things and do 
not worry about. I mean you can, or at least I hope, understand 
that people are angry out here. And someone mentioned it 
earlier, there was a $14 billion tax cut for the oil industry. 
And then they recorded the highest profits in the history of 
the planet.
    And so, you know, I am not a bomb thrower, you know. I want 
to be able to sit down and have an intelligent discussion. The 
public is not inclined to be that patient right now. They are 
angry, and so can you help me?
    Mr. Felmy. Well, Congressman, we clearly know the 
frustrations of consumers. I cannot comment on any individual 
company's compensation policies. But if you look at the size of 
that in the context of a multi hundred billion dollar 
corporation, it really is insignificant in the scheme of 
things.
    Mr. Cleaver. That will not work. I can tell you now, that 
will not work out on Blue Ridge Boulevard in Kansas City. So 
give me something else.
    I mean, these people are having difficulty earning $13 an 
hour or, you know, they are working all day and you start 
saying well that is not much money in the context of things.
    Mr. Felmy. And, Congressman, I understand that. But one has 
to put it in proper context, just as you need to put the 
overall earnings of the industry in proper context. That they 
are consistent with the earnings, as I mentioned earlier, with 
manufacturing industries. And we understand the frustrations of 
consumers.
    Ms. Solis [presiding]. Unfortunately time has expired.
    Mr. Cleaver. Thank you, Madam Chair.
    Ms. Solis [presiding]. I would like to recognize 
Congressman Sullivan for five minutes.
    Mr. Sullivan. Thank you, Madam Chairman.
    And in my opening statement I wanted to submit these two 
letters into the record, and I ask unanimous consent to do it. 
I didn't ask unanimous consent earlier.
    Ms. Solis [presiding]. Without objection.
    Mr. Sullivan. Thank you.
    You know, you hear a lot about all this stuff. And I agree 
with you. I think that compensation is big and I do think 
saying that, you know, it is insignificant is a good answer. It 
does not work, does it, out there? But companies do what they 
do and we cannot control that.
    But, you know, I was going to ask I guess Mr. Felmy, you 
know we have gas prices are high, higher than usual, people are 
going to experience that probably more so this summer. And, you 
know, well I guess I will ask you if we had more refineries, do 
you think that would help the prices?
    Mr. Felmy. I think that anytime you are able to increase 
the supply of any product, whether it be gasoline or whether it 
be any other product, you help the market conditions.
    Mr. Sullivan. And do you think Katrina, because of the 
geographical location--we did not have much geographical 
diversity on our refineries in this country. Really, a lot of 
them--I guess 40 percent or so are down in that area that was 
effected by Katrina and Rita. Did that have any impact on 
price, do you think, as an economist?
    Mr. Felmy. Well, as an economist the industry took a 
beating from refining capacity shutdown, \25/30\ percent of 
capacity, pipelines were shutdown, import facilities were 
shutdown, production, complete production in the Gulf of Mexico 
was shutdown. We had a real supply hit of all different 
dimensions. At the same time you had increased demand leading 
into the Labor Day holiday.
    So there is no question we took a hit from both supply and 
demand and what you saw, markets respond as a result.
    Mr. Sullivan. You, sir, or anyone here, does anyone have 
any evidence, or the FTC or anybody have any evidence of any 
price gouging that occurred after Hurricane Rita and Katrina? 
Is there anything that we can point to that is overwhelming 
evidence that states that there absolutely was price gouging 
and collusion and price fixing? Does anyone have anything they 
can say?
    Mr. Mitternight. I can answer it from my personal 
experience. Prices escalated somewhat immediately thereafter, 
but the State Attorney General and the State put a price cap so 
that no prices could be increased. You know, they froze prices 
where they were to try to protect people.
    It was not necessarily a price problem as much as an 
availability. You know, there were no places to----
    Mr. Sullivan. So, Mitternight, you have experienced a great 
deal of adversity down there during all that. I heard you 
talking about it and it was terrible and prices were high. But 
was anybody convicted of price gouging down there?
    Mr. Mitternight. There may have been one or two isolated 
instances in some of the rural areas around the city. But in 
general, no.
    Mr. Sullivan. But probably if that happened, it was like an 
independent guy?
    Mr. Mitternight. Correct.
    Mr. Sullivan. Not like ExxonMobil or anybody with a 
concerted effort to fix prices?
    Mr. Mitternight. No. In fact in most cases some of the 
larger corporations, the Shell and those kind of places worked 
diligently to try to get a few isolated stations open to 
provide a supply. And they were working with the emergency 
relief people also and providing the fuel for them.
    Ms. Clarke. Okay. Yes, I know you have been through a lot 
down there.
    Dr. Felmy, have you heard of anything, any evidence by the 
FTC, any evidence by anybody, State, law enforcement agency of 
conviction or suspicion or anything of any price fixing or 
gouging that has occurred in the United States of America?
    Mr. Felmy. In terms of any type of illegal activity beyond 
the subjected price gauging, no. I mean, I think there probably 
were a handful of instances in a few states where individual 
owners, perhaps, exercised poor judgment in terms of the 
results. But it certainly was not widespread. And that is my 
recollection from what the discussion was.
    Mr. Sullivan. So I guess it is safe to say, though, we can 
say today in this hearing that there has never been evidence of 
any widespread price fixing or price gouging that has occurred 
in the United States of America through any of these companies 
with an organized effort to do that? Would that be safe to say? 
Everybody? Mr. Thomas, would you say?
    Mr. Thomas. I think that would be safe to say?
    Mr. Sullivan. Mr. Mitternight.
    Mr. Mitternight. Not to my knowledge, no.
    Mr. Sullivan. Mr. Teske.
    Mr. Teske. I am just a cynical old redneck from Kansas. I 
do not believe a bit of crap that comes out of the petroleum 
industry.
    Mr. Sullivan. All right.
    Mr. Teske. But that is just my opinion.
    Mr. Sullivan. And it is America. You can say that, sir.
    Ms. Estes.
    Ms. Estes. I was able to read both sides of it. And you 
asked if anyone brought literature. Yes, I did. And I brought 
it about that thick. And to go through that information, it 
goes both ways. For every article that says that there was, 
there is an article that says they are wrong. For every article 
that says there is, there is an article that says it is 
something else.
    So for me to determine what is right, I cannot tell you. I 
would need more than four days.
    Ms. Solis [presiding]. Unfortunately, time has expired.
    Thank you.
    Mr. Sullivan. Thank you.
    Ms. Solis [presiding]. I would like to recognize 
Congresswoman Herseth Sandlin for five minutes.
    Ms. Sandlin. Thank you, Madam Chairwoman.
    Thank you all for your testimony today.
    And before I pose some additional questions on this 
refining capacity issue, I do want to just clarify a few 
things.
    My friend Mr. Walden from Oregon and I see eye-to-eye on a 
lot of things, but I do want to sort of clarify what I viewed 
as important in the Energy Policy Act of 2005. The incentives 
that Mr. Walden referred to in terms of the dollar per gallon 
for biodiesel and the 51 cent credit on ethanol, those have 
been around for over 20 years, these incentives. It was the 
renewable fuel standard as a mandate that in my opinion caused 
the mix of incentives, existing incentives, and expanding 
those, extending them in the Energy Policy Act and the mandate 
creating the market, imposing the competition that for years 
was not there and I think attributes perhaps, Mr. Teske, to 
some of what we know the attitude is farm country because of 
our difficulty of getting a market for ethanol for a long time 
until we had that mandate. And since we have had that mandate 
we have seen start-up companies take off in the investment of 
new technologies to make the production process even more 
efficient. Not just for corn ethanol, but increasingly 
cellulosic ethanol and the potential that has. And that leads 
me to this refining capacity issue because we are focusing on 
refining capacity only for fossil fuels and petroleum products.
    But, Mr. Felmy, would you agree that along Mr. Sullivan's 
question, because you did take this body blow, right, in terms 
of your imports, port of entry, the refining capacity being 
concentrated in a certain geographic region of the country. 
That it is not just increasing the supply of the product, it is 
having a decentralized and geographically diverse distribution 
system and where the refining capacity would exist?
    Mr. Felmy. I am not quite sure. Are you asking that it 
would be preferable to have a geographical dispersed capacity 
on that?
    Ms. Sandlin. Yes. Would that not in terms of how the 
market--would the market function more effectively in terms of 
insulating us from those types of body blows if geographically 
our refining capacity either for petroleum products or refining 
capacity in biorefineries throughout rural American would 
assist in insulating us from those types of price fluctuations?
    Mr. Felmy. Well, it would likely help in terms of specific 
disasters, such as hurricanes which are, of course, 
concentrated in the Gulf of Mexico. There is, however, a trade 
off with costs that when you get to a highly dispersed level of 
production, it can increase your distribution costs. So there 
is somewhat of a trade off. But certainly to the extent that 
you do not have all your capacity located in one area that is 
vulnerable to hurricanes, that of course can help in terms of 
more supply reliability.
    Ms. Sandlin. But if highly dispersed and used more locally 
increased with flux-fuel vehicles, that type of infrastructure, 
that would assist consumers as well, correct?
    Mr. Felmy. That would certainly lower the transportation 
costs versus long distance shipping, which can be quite 
expensive ethanol because you cannot include it in pipelines.
    Ms. Sandlin. And you had mentioned that over the years the 
industry has expanded existing refineries equivalent to one new 
refinery, but in doing so has that not enhanced the degree of 
concentration geographically of where our refining capacity 
exists?
    Mr. Felmy. Yes. You are expanding the existing within the 
existing fences. And so if you have a concentration there, then 
of course it increases more of that capacity in a area. And 
that is unfortunate, but it is the only place we can locate the 
refineries right now.
    Ms. Sandlin. But is it not also true that while the 
industry may have expanded in certain existing refineries, 
there were a number of mergers throughout the 1990s that led to 
closures of some existing refineries? Is that true?
    Mr. Felmy. I do not think so much the mergers led to 
closures of refineries. I think what you saw is divestiture of 
those refineries actually to a whole new class of independent 
refiners who have gotten much larger.
    So, for example, refiners such as Valero, who were much 
smaller, it picked up assets from these divestitures. And so 
the concentration impact has gone up since 19--I guess the 
first date I have is '97 from around 49 percent to about 66\2/
3\ roughly. But that still does not put it out of line with 
other industries in terms of supplying consumers.
    Ms. Sandlin. No, it does not. But some of us share the same 
concerns about other sectors and industries like the livestock 
industry and the concentration there when we do not have the 
kind of competition when you have that type of concentration 
develop and the impact that that ultimately has on prices for 
producers, for consumers and on down the line.
    I see my time is up. So I will yield back any remaining 
time. I do not have it. So thank you, Mr. Chairman.
    Chairman Markey. Thank you. The Gentlelady's time has 
expired.
    The Gentlelady from Tennessee, Ms. Blackburn, is recognized 
for five minutes.
    Ms. Blackburn. Thank you, Mr. Chairman.
    Mr. Mitternight, I know a little bit about that area where 
you are from. I have a dad who, 81 years old, just sold his oil 
filled equipment business, worked in it every day of his life 
up until recently down in southern Mississippi. I know 
Metairie. And I would imagine that you would probably agree 
with me that regulation is just choking the business down 
there. And I imagine you also would support one-stop 
regulation, a one-stop shop for working with all these 
regulatory State and Federal agencies to get these refineries 
up and running?
    Mr. Mitternight. I agree, a thousand percent. There have 
been some negotiations between economic development people in 
Louisiana and some of the foreign countries to try to establish 
a new refinery, the first one in 35 years in the country, so--
--
    Ms. Blackburn. Right. It would go a long way to solving the 
problem we have.
    Mr. Mitternight. It would. Right.
    Ms. Blackburn. And it sounds like Mr. Teske and Ms. Estes 
would also like to get rid of a little bit of regulation that 
hampers small business. Most of us small business people would.
    Mr. Mitternight, on the energy expenses fuel cost, what 
percentage of your total business expense do you give toward 
fuel cost?
    Mr. Mitternight. It is fluctuating. But right now my energy 
costs are probably 6 to 8 percent of my overall expense.
    Ms. Blackburn. Six to 8?
    Ms. Estes, how about you? What is your percentage?
    Ms. Estes. In the last year--in the last two years, about 
1600 a month. And I have actually had one month----
    Ms. Blackburn. No. I just need a percentage. $1600 a month 
does not really--I mean, there is nothing to balance that 
against.
    Ms. Estes. Within 4800 to 7,000.
    Ms. Blackburn. That would be helpful.
    You know, you said your employees would like to have a 
little bit of a raise to help offset some of those energy and 
fuel costs. And I think most people in America would like to 
have that. And I look forward to a day when our small 
businesses can be more taxation and regulation free so that 
they can enjoy that.
    You said you had a seven percent profit margin?
    Ms. Estes. Yes.
    Ms. Blackburn. Okay. That is pretty good, is it not?
    Ms. Estes. For Federal contracts----
    Ms. Blackburn. I think for most small businesses, you know 
you are running twice the GDP. So that is a pretty good profit 
margin, I would think. So congratulations on having a 7 percent 
profit margin at the end of the year. Having been a small 
business person you enjoy those years when you do come out 
ahead.
    Mr. Felmy, I know I am going to run out of time and we are 
getting ready to have votes in a few minutes. There are others 
who want to ask questions.
    When I am with my constituents in Tennessee and we talk 
about the increase in transportation fuels, the increase in 
electricity and all of these energy costs, people turn around 
and they look at you and they say ``You ought to be able to do 
something about this.'' The Federal Government has been piling 
on regulation for years and years and years. Federal Government 
increases our taxes. The gas tax goes up, it is not going to 
the Highway Fund, now they are sending over to research global 
warming. And they do not like that.
    I would love to hear from you as an economist what three or 
four things you feel like we could do that would actually make 
a difference in the price at the pump and the price that people 
are paying for energy. Because I think that is part of the 
frustration.
    You know, we talk about things that need to happen short 
term, mid term, long term. We talk about conservation efforts. 
We talk about incentives. And all of those things, the Energy 
Act of '05, which has been referenced, did a good bit of that. 
And that is commendable. But people want to know what we could 
do that would actually help make that change. And I would love 
to hear from that. And if I run out of time, if you would 
submit it to me in writing.
    Mr. Felmy. Thank you, Congresswoman.
    Put simply we need to increase supply. That means to 
increase supply of production of oil and gas in our own 
country, which would both stimulate the economy, lower our 
trade deficit and help economic activity.
    We need to streamline regulations so that we can more 
expeditiously expand refinery capacity or perhaps build a new 
refinery.
    And we need infrastructure to be put in place, whether it 
be pipelines or power lines, or ports, or terminals, or 
everything that goes to actually getting that fuel to 
consumers. We are going to need more renewable energy, we are 
going to need more emerging energy technology to be able to 
help and we are going to need more energy efficiency.
    So things that would help consumers in terms of more 
efficient vehicles, more efficient houses, more efficient 
operations will reduce the demand. That combined with increased 
supply can help consumers.
    Ms. Sandlin. Thank you, sir.
    I yield back.
    Chairman Markey. The Gentlelady's time has expired.
    The Chair recognizes the Gentleman from New York, Mr. Hall 
for five minutes.
    Mr. Hall. Thank you, Mr. Chairman.
    And thank you for your presence here and your discussion 
with us. I am sorry I missed your opening statements. I was 
booked in another Committee at the same time. Funny how they do 
that.
    The good news, I wanted to point out, from the latest IPCC 
report that the Ranking Member mentioned in his opening 
statement is that there are plenty of currently available and 
affordable technologies, and policies, that can reduce global 
warming, pollution and oil imports.
    As this Committee is already discovering in hearings we 
have held, and Mr. Teske made clear, when it comes to global 
warming the costs of inaction far outweighs the cost of action. 
Many of the smart actions we could take today like raising CAFE 
standards would save consumers money.
    And I wanted to ask Mr. Thomas, you are probably familiar 
with this. My home District, one of the five counties I 
represent, Westchester County, is running hybrid buses on their 
bus loops around the country. And has there been any discussion 
that you have heard about combining that with if you are 
running hybrids you can certainly run biodiesel hybrids.
    Mr. Thomas. Yes.
    Mr. Hall. So there you are compounding one new technology 
with another, and it would seem to increase the efficiency or 
shall we say, to lower the demand for petroleum products.
    Mr. Thomas. Exactly. We are very excited about it as an 
industry. The IC Corporation has taken the lead on this and as 
well as Westchester County, New York and several other states 
they have introduced the hybrid. And we are excited about the 
results.
    The problem is is that the cost of that vehicle is 
dramatically more than the cost of today's regular old clean 
diesel school bus. So we have to do something about coming up 
with the up front cost to offset the capital expense in order 
to get the emission and the fuel efficiency benefits.
    Mr. Hall. But given the size of the overall yellow school 
bus fleet in the United States, which was amazing when I read 
about it in your written comments, would it not be worth it in 
your mind----
    Mr. Thomas. Certainly.
    Mr. Hall [continuing]. If the Government were to 
incentivize or subsidize the up front costs?
    Mr. Thomas. And the congestion mitigation air quality 
formula funds that come out of DOT would be a perfect avenue to 
do that.
    Mr. Hall. I am driving an American made hybrid which shuts 
down the motor when you are a standstill. So if a school bus is 
caught at a stop light or in a traffic jam, and suddenly stops 
pumping out fumes from diesel or biodiesel, that would 
contribute to air quality----
    Mr. Thomas. Definitely.
    Mr. Hall [continuing]. As well as reducing global warming.
    Mr. Thomas. And for every bus that is on the road, you have 
50 cars that are not.
    Mr. Hall. Right. So I just wanted to comment also on a 
remark that was made from a member on the other end of the 
bench here about ``companies do what they do, we cannot control 
that,'' I think was quote/unquote. The fact is that we do 
control that. That we regulate airlines, we regulate meat 
packing companies, we recognize all kinds of--you know, when 
the public interest and health or national security are at 
stake, we do sometimes decide that it is in our interest to 
regulate.
    And I just wanted to ask starting with Dr. Felmy, I guess, 
about the sort of rockets and feathers syndrome that when 
petroleum prices or gas prices at the pump go up, they seem to 
go up fast. And then they seem to drift down more slowly like a 
feather. My constituents are seeing that and talking to me 
about it. It does not seem to follow the price of oil. And, in 
fact, the gasoline that is already in the ground at a 
particular gas station, the truck has already come and 
delivered it, and then you see the guy on his ladder up that 
night changing the numbers. And I have driven to events and 
come back later the same night and the price was .10 cents 
higher. I am just curious why it is also so fast to go up and 
so slow to come down?
    Mr. Felmy. Sometimes it does, sometimes it does not. In 
some cases in the past if you look, you have had perfectly 
symmetrical rises and falls. The public does not always 
recognize that, though. They tend to have a very visile 
response to the price increases, but as they come down and 
economic studies have verified this, you tend to have less 
shopping behavior, less discipline on the market and so you 
sometimes see prices.
    Ultimately it really is a function of why did the prices go 
up. If crude oil prices went up rapidly and gasoline prices 
followed and crude oil prices do not come rapidly, then there 
is no reason to suggest why gasoline prices would. Because the 
cost of producing gasoline is most importantly tied to crude 
oil costs.
    In terms of the individual gas station owner, 95 percent of 
the stations roughly are owned by independent businessmen who 
make their own decisions about what the price is. They do that 
as a function of the market for the gasoline based on their 
local conditions and the costs of what they spend it, along 
with a lot of other things that they take into account. Their 
decision about the price is not necessarily tied to what they 
paid for the gas in the pump.
    Generally we have heard from, for example, the dealer 
organizations that it is more of a replacement cost that is a 
challenge for them. As an independent businessman if he sees 
the price going up dramatically, has a feeling that the cost of 
gasoline is going to be much higher, then he is concerned about 
not having the cash flow to be able to buy that next tank load 
of gasoline.
    Mr. Hall. Thank you, Mr. Felmy.
    I am sorry. My time has expired for my other questions.
    I yield back.
    Chairman Markey. Okay. The Gentleman's time has expired.
    What we are going to do now is ask the witnesses if they 
will each give us the one minute they want us to remember about 
skyrocketing gasoline and oil prices.
    And we thank each of you for testifying here today. And 
your one minute summation of your views on this looming $4 a 
gallon gasoline threat to our economy is something we very much 
appreciate.
    Mr. Thomas. One minute.
    Mr. Thomas. Thank you.
    The impression that I would like to leave the Committee 
with is very simple. As gas and diesel prices go up, I hate to 
say it this dramatically, but children are at risk and in many 
cases when school bus service is pulled off the road, actually 
we have an increase of student injuries and fatalities. That is 
how dramatic it is in my industry. And I would just like to 
leave you with that impression.
    Chairman Markey. Mr. Mitternight.
    Mr. Mitternight. I would just like to say, as I indicated 
in my written testimony, a 60 percent cost increase in the cost 
of gasoline from December of '06 to the current time is 
impossible for me to recoup on fix contracts. And it comes 
right out of the bottom line, which impacts salaries and 
everything else. So it is a dire situation for small businesses 
to compete with.
    Chairman Markey. Mr. Teske.
    Mr. Teske. Thank you.
    As I said earlier, I am pretty cynical about what I hear. 
There has been enormous amounts of--that is going other 
directions now. And I have never seen anybody that has been 
short of fuel. Everyplace you go to buy gas, they will sell it 
to you. So I am puzzled. I mean, I do not quite understand the 
concept.
    So my ideal world would be every farmer having his own wind 
turbine where he goes and plugs his tractor in at night and he 
is completely off the grid and off the petroleum. That would be 
my perfect world.
    Thank you.
    Chairman Markey. Thank you.
    Ms. Estes. I agree. The fact that the firm fixed price, 
there is not much we can do about it. What my concerns are, and 
the one thing I will leave with you, is the American public. 
The effects that it is having on the lower class, they cannot 
afford any increases. And that is my main concern. You are 
creating anger and poverty.
    Chairman Markey. Dr. Felmy.
    Mr. Felmy. The current gasoline situation is clearly a 
function of markets at work. Higher cost to manufacture 
gasoline, crude oil costs, ethanol costs, summer blend fuel 
that is coming in, marry that to market conditions with strong 
demand for gasoline, a supply challenge because of lower 
imports. The refiners have responded by producing record 
amounts of gasoline, but we still have a tight market. And it 
is that movement of the market that allows supplies to be able 
to be diverted where they are needed and does not foster gas 
lines that we have experienced in the past.
    Chairman Markey. Thank you, Mr. Felmy, very much.
    All I can tell you is that your testimony was really 
excellent, and especially the ordinary citizens that came here 
to Washington. I mean, it is right out of central casting. You 
really did a great, great job.
    We are committed to answering this question. We have to 
change our behavior here in the United States. We have seen a 
doubling of the price of gasoline over the last ten years. It 
is unsustainable if it goes to $4 a gallon. In other words, the 
price of not doing something is much, much higher than the 
price of doing something. It has already gone up a buck and a 
half and it is heading toward two and a half bucks that it will 
have gone up over the last ten years. So now we have to change 
direction. We have to innovate. We have to ensure that the 
automotive sector, that every sector changes and that we take 
the revenues that we have been sending into the oil and gas 
industry and we begin to redirect them towards the renewable 
energies, towards the innovative new technologies that can 
change the direction in this country. That will be our task 
including our goal of passing legislation that outlaws price 
gauging by oil companies in this country, and to do it this 
year.
    We thank each of you for your testimony.
    With that, this hearing is adjourned.
    [Whereupon, at 4:10 p.m. the Committee was adjourned.]

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