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



 
   PUMPING UP PRICES: THE STRATEGIC PETROLEUM RESERVE AND RECORD GAS 
                                 PRICES
=======================================================================


                                HEARING

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

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 24, 2008

                               __________

                           Serial No. 110-34


             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, Ranking Member
JOHN B. LARSON, Connecticut          JOHN B. SHADEGG, Arizona
HILDA L. SOLIS, California           GREG WALDEN, Oregon
STEPHANIE HERSETH SANDLIN,           CANDICE S. MILLER, Michigan
  South Dakota                       JOHN SULLIVAN, Oklahoma
EMANUEL CLEAVER, Missouri            MARSHA BLACKBURN, Tennessee
JOHN J. HALL, New York
JERRY McNERNEY, California
                                 ------                                

                           Professional Staff

                   Gerard J. Waldron, 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.................     5
Hon. John Hall, a Representative in Congress from the State of 
  New York, opening statement....................................     5
Hon. John Shadegg, a Representative in Congress from the State of 
  Arizona, opening statement.....................................     6
Hon. Jerry McNerney, a Representative in Congress from the State 
  of California, opening statement...............................     7
Hon. Jay Inslee, a Representative in Congress from the State of 
  Washington, opening statement..................................     7
Hon. John Larson, a Representative in Congress from the State of 
  Connecticut, opening statement.................................     8
Hon. Stephanie Herseth Sandlin, a Representative in Congress from 
  the State of South Dakota, opening statement...................     9
Hon. Earl Blumenauer, a Representative in Congress from the State 
  of Oregon, opening statement...................................     9
Hon. Emanuel Cleaver II, a Representative in Congress from the 
  State of Missouri, prepared statement..........................    11

                               Witnesses

Ms. Melanie Kenderdine, Associate Director, Strategic Planning, 
  MIT Energy Initiative..........................................    12
    Prepared statement...........................................    15
Mr. Mark Cooper, Director of Research, Consumer Federation of 
  America........................................................    24
    Prepared statement...........................................    26
Mr. Dave Berry, Vice President, Swift Transportation Company, 
  Inc., Chairman, Energy and Environment Policy Committee, 
  American Trucking Association..................................    41
    Prepared statement...........................................    43
    Answers to submitted questions...............................    95
Mr. Kevin Book, Senior Vice President, Senior Analyst, Energy 
  Policy, Oil & Alternative Energy, Friedman, Billings, Ramsey & 
  Company, Inc...................................................    51
    Prepared statement...........................................    54
    Answers to submitted questions...............................   104
Dr. Frank Rusco, Acting Director, Natural Resources and 
  Environment, GAO...............................................    64
    Prepared statement...........................................    66
    Answers to submitted questions...............................   110


   PUMPING UP PRICES: THE STRATEGIC PETROLEUM RESERVE AND RECORD GAS 
                                 PRICES

                              ----------                              


                        THURSDAY, APRIL 24, 2008

                  House of Representatives,
            Select Committee on Energy Independence
                                        and Global Warming,
                                                  Washington, DC. 
    The Committee met, pursuant to call, at 10:00 a.m., in room 
2212, Rayburn House Office Building, Hon. Edward Markey 
(chairman of the Committee) presiding.
    Present: Representatives Markey, Blumenauer, Inslee, 
Larson, Herseth Sandlin, Hall, Sensenbrenner and Shadegg.
    Staff present: Morgan Gray.
    The Chairman. Good morning, and welcome to this hearing by 
the Select Committee on Energy Independence and Global Warming 
on the subject of Pumping Up Prices: The Strategic Petroleum 
Reserve and Record Gas Prices.
    This summer families all across America will pile into 
their cars to take their vacations. Unfortunately, as a result 
of nearly eight years of the Bush administration's energy 
policy, they will face gas and oil prices that are skyrocketing 
out of control with no end in sight.
    Earlier this week oil reached yet another all-time high, 
trading above $119 per barrel. The price of oil has risen by 
$100 a barrel since President Bush took office. American 
consumers are paying the price at the pump for this 
administration's failed energy policy. They are being tipped 
upside down by the big oil companies. They are being tipped 
upside down by OPEC, with money being shaken out of their 
pockets at the pump every day across America.
    Gas prices have more than tripled over the last six years. 
The price of a gallon of gas jumped 12 cents in just the last 
week alone, and more than a quarter in the past month. American 
families are now paying $3.53 per gallon every time they fill 
up, and the Department of Energy projects that gas may reach $4 
a gallon by this summer.
    And what has been the Administration's response to this 
energy crisis? Well, earlier this week, Energy Secretary Bodman 
said, ``I have done everything I know how to do with OPEC.'' 
Rather than taking action to help consumers, it seems that the 
Bush administration's response is to throw up its hands and to 
say that there is nothing to be done.
    Well, there are things that can be done. Earlier this year, 
the House passed legislation that would redirect $18 billion in 
tax breaks for big oil to promote renewable fuels and clean 
energy. However, the Bush administration continues to oppose 
this legislation that would move us away from a fossil fuel 
future and help provide consumers with long-term relief from 
high oil and gas prices.
    Democrats in the House have passed four bills this Congress 
to address high prices and break our dependence on oil. This 
administration has answered with tax breaks for big oil and 
tough breaks for American consumers. The Bush administration is 
ignoring actions that would provide consumers with relief right 
now.
    The United States currently purchases 70,000 barrels of oil 
every day to fill the Strategic Petroleum Reserve, which 
already contains over 700 million barrels and is roughly 97 
percent full. By law, the Strategic Petroleum Reserve must be 
filled ``as expeditiously as possible without incurring 
excessive cost or appreciably affecting the price of petroleum 
products to consumers.''
    With the price of oil at $119, removing 70,000 barrels of 
oil a day from the market to build the Reserve is both 
incurring excessive cost for the Federal Government and 
affecting, in a negative way, runaway oil and gas prices. Based 
on projections by the Bush administration's own Department of 
Energy, ending the fill of the Reserve could reduce prices by 
about $2 per barrel of oil and 5 cents per gallon of gas.
    Not only should the Bush administration stop filling the 
Reserve, it should also release oil onto the world market as a 
weapon to end escalating prices. These two actions would send a 
strong signal to speculators and to OPEC that Americans won't 
be held hostage by high prices.
    Earlier this month, the number two executive at Exxon Mobil 
testified before this Committee that speculation, along with 
geopolitical instability and a weakening dollar, was 
responsible for half of current oil prices. That based only on 
oil supply and demand, the price of a barrel of oil should be 
only $50 to $55 a barrel.
    However, President Bush continues to refuse to use the 
Strategic Petroleum Reserve to pop the speculative bubble. The 
Bush administration is willing to deploy our National Guard 
Reserves in Iraq, but it refuses to deploy our oil reserves to 
protect consumers and our economy.
    If President Bush were to announce his intention to release 
oil from the Strategic Petroleum Reserve today, it would put an 
immediate end to the speculative feeding frenzy that is driving 
up prices. Releasing oil from the Reserve is something that can 
be done to help American families this summer. It is high time 
that the Bush administration does it.
    Now I would like to turn to recognize the Ranking Member of 
the Select Committee, the gentleman from the State of 
Wisconsin, Mr. Sensenbrenner.
    [The prepared statement of Mr. Markey follows:]
    [GRAPHIC] [TIFF OMITTED] 61637A.001
    
    [GRAPHIC] [TIFF OMITTED] 61637A.002
    
    Mr. Sensenbrenner. Thank you very much, Mr. Chairman. I am 
not going to make a partisan rant this morning, because this is 
a serious problem and it should rise above partisanship.
    Sometimes administrations have tapped the Strategic 
Petroleum Reserve effectively. Sometimes they haven't done it 
and there have been consequences. Sometimes they have done it 
and it has been ineffective. Sometimes they haven't done it and 
it has been effective. And I don't know whether tapping the 
Strategic Petroleum Reserve or not is going to help or have no 
effect on the cost of high gas prices here in America.
    What I will say is that the problem that we face is one of 
lack of supply. And the Chairman referred to the hearing that 
we had earlier this month where either the CEOs or their 
representatives of the five major domestic oil companies came 
to testify. And in my five minutes of questioning, I asked them 
point blank, what would be the single most important thing that 
Congress can do to lower prices of gas at the pump? And every 
one of them said ``increase domestic production.''
    Now, what has this Congress done? We have voted down every 
effort to increase domestic production. We have taxed or taken 
away tax credits for domestic production, which was referred to 
by the Chairman, which means it is cheaper to buy oil from 
OPEC, because we have taxed domestic production so high.
    Now, it seems to me that the time has come to quit the 
partisan shots and to start going back to Economics 101. We do 
need to increase the supply of petroleum. Tapping the domestic 
petroleum reserve, or not filling it any further, is going to 
be literally a drop in the bucket compared to the huge amount 
of oil that is used both in the United States and worldwide.
    But I think that we ought to start looking at serious 
issues relative to this, rather than trying to get sound bites 
on the network news. And I hope this hearing will allow us to 
get serious.
    I yield back the balance of my time.
    The Chairman. Great. The gentleman's time has expired.
    The chair recognizes the gentleman from New York State, Mr. 
Hall.
    Mr. Hall. Thank you, Mr. Chairman. I was recalling a 
hearing myself, and it was interesting to hear the CEOs of the 
five top oil companies, as the Ranking Member said. Their main 
recommendation was to increase domestic production. It just 
happens to be production of the product that they make profits 
on, in fact record profits in the history of all industries in 
recorded time.
    We are, in fact, working on increasing domestic production 
of many other kinds of fuels to try to phase out the oil 
dependency, not just foreign but oil dependency in general, 
that is damaging the environment, damaging our balance of trade 
deficit, damaging our health, damaging the climate, damaging 
our standing in the world and our involvement--very costly 
involvement, I might say--in military conflicts in unstable 
parts of the world to secure those oil supplies.
    But everybody here knows that oil and gasoline has gone 
through the roof, already exceeding $4 in some parts of the 
country. We didn't get into this hole overnight, and there is 
no silver bullet that will get us out of it immediately. I am 
proud that Congress has acted to pass sweeping legislation to 
raise fuel economy, provide tax incentives for green energy 
development, and to establish a green collar workforce, so that 
we can get back to being a leader, being the leader in the 
world in energy and economic policy on the right track, rather 
than giving other countries a 20- or 30-year head start on such 
things as hybrid vehicles.
    People in my district talked to me, my constituents in the 
19th District of New York, talked to me about how much they 
want to do and what they can do. From the students--high school 
students at Arlington High School in Dutchess County, New York, 
who recently put together plans for a solar system on the roof 
of their high school, and got half the money from New York 
State and I was able to secure the other half of the money in a 
private grant for them, to a local company that is making 
ethanol gas that they can spin a turbine with and make 
electricity, and also hydrogen that they can fuel hydrogen fuel 
cells from from municipal solid waste.
    There is such a wide range, not just solar and wind and all 
of the geothermal and the ones everybody talks about, but there 
are a lot of new sources of energy that are coming to play, and 
that with the proper subsidies and the proper investments and 
research and development dollars will come to play.
    So I would hope that that's the direction that we will go 
in, and I encourage what the Chairman is suggesting--that for 
now in this crisis situation we stop purchasing oil for the 
Strategic Reserve.
    And I yield back.
    The Chairman. The gentleman's time has expired.
    The chair recognizes the gentleman from Arizona, Mr. 
Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman, and I would like to 
commend you for calling this hearing on gas prices and, more 
specifically, on what is pumping them up and what we can do 
about it.
    I want to begin by welcoming a fellow Arizonan and a 
personal friend, Dave Berry, Vice President of Swift 
Transportation. I believe you will find him to be very 
knowledgeable about the impact of high fuel prices on our 
entire economy, and I think--I know I am looking forward to his 
testimony, and I think it will be helpful to the Committee.
    High gas prices are an extremely serious problem for all 
Americans, American consumers and American businesses. And, 
therefore, it is important that we identify the reason for 
those high prices and, more important, that we do what we can 
to alleviate them.
    I think in this Committee I have repeatedly said they are a 
unique problem for those of us out West who drive great 
distances, both in commuting back and forth to work or in 
taking summer vacations. In many instances, much more travel, 
much more driving time, and much more mileage than those who 
live in the East.
    I would suggest that gas prices are most appropriately 
addressed by looking at the relationship between supply and 
demand. During the last 25 years, world energy demand has 
increased by 60 percent. The Energy Information Administration 
predicts that demand in the United States alone will grow by 19 
percent through 2030.
    I wholeheartedly agree, as the Chairman knows, with his 
sentiment that we have to find alternative forms of energy. But 
every single expert that has been before this Committee, and 
that I have talked to, has said that at least in the short run 
we are looking at an oil-based economy. At least for today. We 
are talking about the price spike in gasoline over the last 60 
to 90 days, or, at most, over the last 12 months, which has 
been stunning and has had a dramatic impact on our 
constituents.
    I don't think that alternative forms of energy are going to 
go at that issue, and so we are looking at whether or not 
speculation has driven up the demand. One issue here today is: 
could we deal with that speculation by addressing the SPRO and 
perhaps releasing some fuel from it?
    I would suggest that a much greater signal in the wrong 
direction has been sent to speculators by all of the potential 
sources of oil that we have locked up in this country and made 
unavailable, on the outer continental shelf and the inner 
mountain west, in coal-to-shale or shale-to-oil programs, and 
that we have sent, at least in the short run in this Congress, 
by refusing to adopt policies that would open up our domestic 
supply, even where it can be done in a very rational and safe 
way, the wrong signals, which have driven up the cost of 
gasoline for our consumers dramatically in the short run.
    Thank you, Mr. Chairman.
    The Chairman. Okay. The gentleman's time has expired.
    The chair recognizes the gentleman from California, Mr. 
McNerney.
    Mr. McNerney. Thank you, Mr. Chairman. I want to thank the 
witnesses for agreeing to testify here today. Many of the 
issues that we consider in Congress are topics that the average 
person may not--may only rarely consider in their daily lives. 
But I can tell you, the issue we are discussing today, people 
are watching, they are interested in.
    You can ask any commuter in my district or around the 
country how much it cost for them to fill their tank with gas 
the last time, and they will tell you the exact number. And 
they will tell you how much more it was than they paid the week 
before. So this is an issue that is affecting everybody's lives 
in this country.
    And in our current economy, oil and gas do drive progress. 
And whether you are just going to the beach or you are driving 
to work on a Thursday, high gas prices are a constant 
consideration. Given the recent increases in prices, and the 
prospect for this continuing, I am hopeful that the panel today 
can shed some light on the importance of the Strategic 
Petroleum Reserve, how we might be able to lower the price of 
gasoline by manipulating what goes in and what does go in the 
SPR. And I am looking forward to your testimony to help us 
understand that.
    And with that, I yield back.
    The Chairman. Great. The gentleman's time has expired.
    The chair recognizes the gentleman from Washington State, 
Mr. Inslee.
    Mr. Inslee. Thank you. I think there are four things we can 
do about energy prices, three short-term and one long-term. The 
administration has done zero out of those four, and we are here 
to talk about them. I just want to outline them.
    First, we can do something with the SPRO to send a signal 
to the speculators, which are a significant part of the reason 
for the runup in these prices. We heard Exxon Vice President 
Simon tell us that speculation was a significant part for the 
reason for these extraordinary volatile prices. What we can do 
is send a message to the speculators that we are going to stop 
at least increasing the capacity of the SPRO, and the reason is 
is when your house is on fire it is more important to get the 
hose than an additional policy of insurance.
    And that is the situation right now. We need some water. We 
need less insurance. At the moment, that is clearly something 
we should do. That is the first thing. The administration has 
refused to do it.
    Second, we should clearly bring in the over-the-counter 
market for oil futures into the jurisdiction of the Commodities 
Future Trading Commission. We have these markets transparent 
and open and regulated in oranges, soybeans, wheat, sorghum, 
but not oil and gas. It is insane to have such a fundamental 
part of our economy open for the wild west speculation that is 
going on right now and driving up these prices. That is number 
two. The administration has refused to help us.
    Third, Senator Cantwell and I have called for the formation 
of a task force in the Justice Department to send a signal 
again to the markets of the seriousness to follow the law and 
have transparency in these markets. That is the third thing the 
administration has failed to do.
    The fourth thing is the long-term, and what the American 
people understand, that all of the things we are going to talk 
about today are short-term. They are not permanent fixes to 
this problem. The permanent fix to this problem is found in 
groups like a couple of people I met in my office yesterday. 
They are the leaders of the Phoenix Motor Car Company, who are 
going to bring an all-electric car to market in June from 
Ontario, California, that you can drive on all electricity for 
120 miles for $3 for 120 miles. That is the solution. The 
administration refused to help us move in that direction.
    We have got to do all four. Thank you, Mr. Chair.
    The Chairman. Great. The gentleman's time has expired.
    The chair recognizes the gentleman from Connecticut, Mr. 
Larson.
    Mr. Larson. I want to thank the Chairman and thank the 
witnesses for being here this afternoon. Let me follow on with 
the reasoning of my esteemed colleague from Washington State. 
At a previous hearing, we have heard from a number of 
executives in the oil and gas business around this whole issue 
of speculation.
    The independent Connecticut Petroleum Dealers Association 
tells heart-rendering story after story of citizens who receive 
their Social Security checks turning around and handing them 
over to them. They say that the rules of supply and demand no 
longer apply with respect to this issue. That, in fact, it is 
speculation and greed that is driving the cost up at the pump, 
and clearly in the area of home heating oil.
    These rock-rib Republicans from my district have said that 
what needs to be done is that what we need to do is focus on 
this speculation and require that unless, in fact, you are the 
recipient of the commodity you would not--you shouldn't ought 
to be able to use the declining dollar as a way to transfer 
paper or continue to speculate in such a manner that it raises 
the cost of gas at the pump or home heating oil that is 
distributed to your home.
    I am interested in hearing from all of you, and concur with 
my other colleagues' outlining of the issues that confront us.
    The Chairman. Great. The gentleman's time has expired.
    The chair recognizes the gentlelady from South Dakota, Ms. 
Herseth Sandlin.
    Ms. Herseth Sandlin. Thank you, Mr. Chairman. Thank you for 
having this important hearing, and I thank our witnesses for 
testifying.
    To reiterate some of the important points made by some of 
my colleagues, I represent the entire State of South Dakota, a 
very rural State, and so you can imagine the impact that record 
gas prices are having on families and businesses across the 
State.
    While we have been one of the leaders in biofuels 
production, that it has had a moderating influence on the gas--
price of gas, upwards of 15 percent as we have seen in some 
analysis that we explored with oil companies--company 
executives that generally agreed, although they didn't think 
that it was upwards of at least 15 percent that ethanol has 
been able to, again, moderate the price that we would see 
otherwise if we didn't have ethanol production today.
    But I do think it is important, as we explore with our 
witnesses today the other impacts--I have long advocated in 
times of record gas prices, whether it was last year, the year 
before, or now, that we not continue to add oil to the 
Strategic Petroleum Reserve to help alleviate some of the 
market pressures.
    But I would also like to explore with the witnesses today 
the impact of our domestic refining capacity, as well as how we 
develop a plan for the SPR in light of the projected effects of 
last year's energy bill and the standards that we put in and 
what that is projected to save us in terms of imported oil over 
time.
    So, again, I thank the Chairman and the witnesses, and look 
forward to their testimony.
    The Chairman. Great. The gentlelady's time has expired.
    The chair recognizes the gentleman from Oregon, Mr. 
Blumenauer.
    Mr. Blumenauer. Thank you, Mr. Chairman. I, too, welcome 
our witnesses, look forward to some thoughtful interaction.
    It is important that we focus on three things, in my 
judgment. One is making sure that we have a transparent and 
fair market, look forward to exploring that. Second is being 
sensible about what the Federal Government itself does. It is 
not just the Strategic Petroleum Reserve, but how we, as the 
largest consumer of petroleum in the world, for our military 
and other actions, do the best possible job of stretching that 
resource.
    And, finally, with the work of this Committee, look 
comprehensively at how we are going to deal with rebuilding and 
renewing this country to provide more choices to people, so 
they are not sentenced to buy--if they want to buy a gallon of 
milk that they have to burn a gallon of gas, because of how we 
organize our communities, the limited transportation choices 
that people have, and how we have failed in terms of promoting 
more technology.
    Mr. Chairman, I appreciate what you have done with this 
Committee, looking at the big picture, not just as we are today 
with one piece of it, but how all of them fit together. And I 
look forward to our progress in looking at that bigger picture 
as we go on.
    Thank you.
    The Chairman. I thank you. I thank the gentleman from 
Oregon. That completes the time for opening statements for the 
members of the Select Committee.
    [The prepared statement of Mr. Cleaver follows:]
    [GRAPHIC] [TIFF OMITTED] 61637A.003
    
    Mr. Chairman. I note that we have a guest, Mr. Welch from 
Vermont, who is sitting in today, and we welcome you, sir, to 
the hearing.
    Let me now turn to our first witness. Our first witness is 
Ms. Melanie Kenderdine. She is the Associate Director of 
Strategic Planning for the MIT Energy Initiative. She has had a 
long career as well at the Department of Energy before that.
    We welcome you. Whenever you are comfortable, please begin.

   STATEMENTS OF MS. MELANIE KENDERDINE, ASSOCIATE DIRECTOR, 
  STRATEGIC PLANNING, MIT ENERGY INITIATIVE; DR. MARK COOPER, 
DIRECTOR OF RESEARCH, CONSUMER FEDERATION OF AMERICA; MR. DAVE 
BERRY, VICE PRESIDENT, CHAIRMAN, SWIFT TRANSPORTATION COMPANY, 
  INC., AMERICAN TRUCKING ASSOCIATION; MR. KEVIN BOOK, SENIOR 
  VICE PRESIDENT AND SENIOR ANALYST, ENERGY POLICY, OIL, AND 
  ALTERNATIVE ENERGY, FRIEDMAN, BILLINGS, RAMSEY AND COMPANY, 
 INC.; AND DR. FRANK RUSCO, ACTING DIRECTOR, NATURAL RESOURCES 
                      AND ENVIRONMENT, GAO

                STATEMENT OF MELANIE KENDERDINE

    Ms. Kenderdine. Thank you, Mr. Chairman. Mr. Chairman, Mr. 
Sensenbrenner, members of the Committee, thank you for giving 
me the opportunity to testify today.
    While the SPR is our primary line of defense in the event 
of an emergency oil supply disruption, each day the current RIK 
program pulls 70,000 barrels of oil off tight markets, at a 
time of record high prices and volatile geopolitics. Attention 
to market conditions and the willingness to act in a more 
flexible and creative manner could achieve the same result but 
enable lower cost options for filling the SPR, as well as help 
address other key energy priorities.
    The purposes in implementation of the original RIK program 
in 1999 provides an example of such creativity. In late 1998, 
oil prices hit historic lows. While moderate oil prices are 
good for consumers, extremely low prices, shut-in wells, 
decimate the workforce, particularly in the oil-producing 
regions of the country, and destroy the technical 
infrastructure of the industry--impacts that lead to lower 
supplies and higher prices in the future.
    To help mitigate these adverse impacts, the Clinton 
administration established the RIK program. This provided a 
market outlet for domestic oil in a glutted market and enabled 
DOE, without the need for new appropriations, to replace 28 
million barrels of oil in the SPR that had been sold two years 
earlier, largely at the direction of Congress, simply to 
generate revenues.
    The current RIK program is operating under market 
conditions that are precisely the opposite of those that the 
original program was established to exploit. In fact, two 
energy secretaries, in both Democratic and Republican 
administrations, elected to pursue the path of do no harm with 
the RIK program. Secretary Richardson in 2000 and Secretary 
Abraham in 2003 deferred deliveries under the RIK program for 
fear that removing even small amounts of oil from the market 
would increase prices to consumers.
    Another authority where creativity and flexibility can and 
should be employed is exchanging oil to acquire oil. We first 
used this in a significant way to establish a home heating oil 
reserve in the Northeast in 2000. Chairman Markey was a major 
supporter of that effort. The rapid stand-up of this reserve, 
absent appropriations to do so, was accomplished by using this 
authority and cost us no money.
    We also conducted a time exchange of oil in September of 
2000 when heating oil inventories in New England were 72 
percent lower than in the previous winter. On September 22nd 
that year, the President directed the Secretary to conduct a 
time exchange of SPR oil, in effect loaning the market 30 
million barrels of oil.
    The results were immediate. Spot prices dropped by almost 
20 percent. By the end of the year, actual oil prices had 
decreased by 34 percent, and there was adequate heating oil 
supplies for the winter. Importantly, this exchange of 30 
million barrels of oil ultimately returned over 35 to the 
Reserve, or a 17 percent interest payment on that loan. At 
today's prices, this equates to an additional half billion 
dollars of oil in the Reserve at no cost to the taxpayer.
    The energy bill passed last December established the 
foundation for alternative energy security pathways. 
Conservative estimates are that by 2022 provisions in that law 
will reduce net oil imports by well over two million barrels 
per day, in effect increasing the insurance value of the SPR 
without adding any additional oil to the Reserve.
    Between now and then, however, we have to meet what I call 
the 80/80/40 challenge--replacing current--the current 80 
percent fossil fuel consumption with 80 percent carbon-free or 
carbon light energy, renewable energy, and sequestration, to 
avoid the doubling of CO2 emissions in approximately 
40 years. That 40 years also roughly equates to the time it 
will take us to turn over the energy infrastructure.
    Replacement cost of that infrastructure is estimated to be 
$12 trillion. To do this, we will need to find new ways to 
finance key energy technologies and research. Total energy R&D 
investment in both the U.S.--in the U.S., both public and 
private, is estimated to be around $5 to $6 billion a year. 
And, according to GAO, DOE's total budget authority for energy 
R&D has dropped by over 85 percent since 1978.
    I offer, without advocating, three options for your 
consideration. First, an outright sale of 40 million barrels of 
oil from the SPR would generate around $4.5 billion in new 
revenues. That could help pay, for example, Congressman 
Inslee's Apollo project.
    This would have the added benefit of lowering prices to 
consumers. Notwithstanding attacks that this would diminish our 
energy security, I note that this would reduce the amount of 
oil in the SPR to around 660 million barrels, roughly 60 
million barrels more than was in the Reserve when we went to 
war in Iraq. Presumably, that was deemed sufficient to go to 
war in the Middle East.
    Or, second, temporarily suspend the current RIK program, 
and forcing the sale of that oil into the open market could 
provide at least a billion new dollars to fund key energy 
research programs.
    And, finally, exchanging 50 million barrels of sweet crude 
in the Reserve for heavy oil in the open market, if done 
correctly, could net roughly $500 million without reducing the 
overall volume of the Reserve by a single barrel.
    This, combined with the roughly $590 million currently in 
the SPR account, would also provide an additional billion 
dollars for energy research at no cost to the taxpayer.
    The Chairman. If you could please summarize.
    Ms. Kenderdine. Yes. In closing, sir, the current policy of 
taking royalty oil in a continuous flow, regardless of market 
signals, ignores many of these lessons. It is a waste of 
taxpayer dollars to put oil in the Reserve at today's prices 
when futures markets offer the same oil at a lower price 12 
months from now.
    Thank you very much.
    [The prepared statement of Ms. Kenderdine follows:]
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    The Chairman. Thank you. We very much appreciate that.
    Our next witness, Dr. Mark Cooper, is the Director of 
Research at the Consumer Federation of America, and has 
testified many times on these subjects before Congress.
    Welcome, Dr. Cooper.

                    STATEMENT OF MARK COOPER

    Mr. Cooper. Thank you, Mr. Chairman. I appreciate the 
opportunity to testify on this important issue.
    We estimate that over the past six years household 
expenditures on gasoline and motor oil have more than doubled, 
rising by over $1,200. In a recent national poll earlier this 
month, we found that 73 percent of respondents are greatly 
concerned about rising gasoline prices, and 60 percent are 
greatly concerned about Mideast imports. Thus, the pocketbook 
and national security implications of our oil addiction, which 
are the subject of this hearing, are top of mind for consumers.
    Our research shows that current high gasoline and oil 
prices are the result of a long-term combination of an 
international crude oil cartel and a tight domestic refining 
oligopoly, both of which have systematically underinvested in 
production capacity. By failing to expand production capacity 
to meet demand and provide a reasonable reserve in an industry 
with very low elasticities of supply and demand, and that is 
prone to accidents and disruptions, they have created tight and 
volatile markets from which they profit.
    While crude oil is the largest component of gasoline costs, 
there have been months over the past five years when the 
domestic spread, the amount that domestic refiners and 
marketers take at the pump, has been over $1 per gallon. That 
is domestic $1.
    Moreover, the tug of war between OPEC and the domestic 
refining industry over the extraction of consumer surplus has 
pushed up prices. The U.S. gasoline market accounts for about 
one-quarter of all the gasoline consumed in the world and is by 
far the largest single product market in the oil sector. As 
U.S. refining margins increase, OPEC receives the signal that 
the market will support higher prices, and, as a rent-seeking 
cartel, pushes crude prices up, so that they get their share of 
the available rents. So crude oil pushes gasoline prices up, 
and U.S. gasoline prices pull crude oil up in a vicious anti-
consumer spiral.
    Speculation has also played an increasing role in driving 
up the price of crude oil and gasoline, as huge influxes of 
money increase volume, volatility, and risk in those financial 
markets. A couple of years ago, the Senate Committee on 
Oversight Investigations concluded that speculation accounted 
for one-third of the oil price. That is something like $38, not 
too far off what the oil executives told you a few weeks ago.
    In a well-functioning market, steadily growing demand, 
which we have had in the world, does not cause this powerful 
surge of prices or this huge increase in volatility. It is the 
failure on the supply side to invest, the concentration we 
allow to afflict the domestic refining industry, and barriers 
to entry that have allowed the cartel and the oligopoly to 
profit at the expense of the public with speculators driving 
the process forward.
    At best, our strategic petroleum policy does us little 
good. At worst, the failure to have a comprehensive policy 
makes matters worse. We refused to fill the Reserve in the 
1990s when oil was $10 a barrel, and we refuse to stop filling 
it when oil is $110 a barrel. That adds insult to injury.
    I don't believe that SPR fill or drawdown will have a 
significant impact on prices in the long term. However, in the 
short term, under certain circumstances, fill and drawdown can 
in fact affect the speculative bubbles or short-term 
disruptions.
    Unfortunately, at its current size, the SPR is not a very 
credible source to execute those policies. We don't have enough 
to credibly threaten the markets over a significant period of 
time. Size matters when it comes to the strategic stockpiles.
    Since 1990, our stocks of crude oil have declined by 40 
percent from 200 days of net imports to 100 days. On a 
percentage basis, our gasoline inventories have declined even 
more than that. Does anyone in this room believe that the world 
oil market has become 40 percent more secure in the last two 
decades? Not at all. Moreover, we do not have strategic 
refineries or a strategic product reserve when in fact refinery 
capacity and extremely tight gasoline inventories have been 
important causes of price increases over the past six years.
    The long-term solution to our oil addiction lies in 
reducing our consumption and increasing the supply of 
alternative transportation fuels. Congress took a big step in 
that direction with the Energy Independence and Security Act of 
2007. But even if every goal in that Act is achieved, in 2022 
we will still be consuming over 20 million barrels and 
importing over 10 million barrels. We will still have a major 
national oil security problem and need a more effective 
strategic policy.
    Strategic petroleum policy needs to be dramatically 
improved in three areas. Expand the crude reserve so we can use 
it as an economic weapon. It is too small. We treat it as a 
pure military strategy reserve. Second of all, we should create 
a refinery reserve, because the oil companies have made it 
clear they will not build enough capacity in the U.S. to meet 
our needs. And, third, we need to build product reserves 
through a mix of public stockpiles and mandatory private 
reserves, which many European nations have.
    Thank you.
    [The prepared statement of Mr. Cooper follows:]
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    The Chairman. Thank you. Thank you, Dr. Cooper, very much.
    Our next witness is Mr. Dave Berry. He is the Vice 
President of Swift Transportation, Incorporated, the nation's 
largest truckload carrier. Mr. Berry is also the Chairman of 
the American Trucking Association's Environmental and Energy 
Policy Committee. The American Trucking Association represents 
over 37,000 American truck carriers.
    We welcome you, sir. Whenever you are ready, please begin.

                    STATEMENT OF DAVE BERRY

    Mr. Berry. Thank you, Mr. Chairman, and members of the 
Committee. My name is Dave Berry. I am the Vice President of 
Swift Transportation, a truck carrier headquartered in Phoenix, 
Arizona. Swift operates more than 18,000 trucks and employs 
more than 21,500 hardworking, safe individuals. As a trucking 
company, Swift is dependent on a plentiful supply of diesel 
fuel. In fact, Swift purchases about 650,000 gallons of diesel 
fuel daily to ensure that our trucks are able to deliver 
freight on time to our customers.
    Last year, during the first quarter, Swift spent about 
$2.37 per gallon for diesel fuel. In this year, first quarter, 
we spent about $3.37 per gallon. This dramatic, 42 percent, 
year-over-year increase in the cost of diesel fuel is harmful 
to Swift and to the U.S. economy. I must add that earlier this 
week the national average price for diesel fuel was $4.14.
    Today, I appear before you representing not just Swift but 
the entire U.S. trucking industry. You have heard about ATA. 
The trucking industry is the backbone of this nation's economy, 
accounting for more than 80 percent of the nation's freight 
bill, and employing more than 8.5 million hardworking 
Americans.
    The trucking industry delivers virtually all of the 
consumer goods in the United States. We are an extremely 
competitive industry comprised largely of small businesses. 
Roughly 96 percent of all interstate motor carriers operate 20 
or fewer trucks.
    Diesel fuel is the lifeblood of the trucking industry. Each 
year the trucking industry consumes over 39 billion gallons of 
diesel fuel. This means that a one-cent increase in the average 
price of diesel costs the trucking industry an estimated $391 
million in fuel expenses annually. And every penny increase in 
both gasoline and diesel costs all U.S. consumers nearly $2 
billion.
    The average national price of diesel fuel is now $4.14 per 
gallon, nearly double what it cost in 2004. Based on current 
Department of Energy forecasts, the trucking industry will be 
forced to spend an incredible $141 billion on fuel this year. 
This is $29 billion more than in 2007, and more than double the 
amount we spent four years ago.
    Today it costs approximately $1,200 just to fill up a 
truck. As a result of this dramatic increase in the price of 
diesel, which has coincided with the down turn in the economy 
and a softening of demand for freight transportation services, 
many trucking companies are struggling to survive.
    Against this backdrop, we greatly appreciate the 
opportunity to discuss the Strategic Petroleum Reserve and 
other initiatives that could help address the speculative 
bubble that has materialized in the petroleum market.
    The remainder of my statement highlights actions we believe 
Congress can take to help restore balance to the petroleum 
market, increase supplies of petroleum, and lower the demand 
for petroleum. We are confident that these initiatives will 
help reduce the price of diesel fuel, which has been damaging 
the trucking industry and the economy.
    ATA has previously asked the Federal Government to 
temporarily stop filling the Strategic Petroleum Reserve and 
consider releasing oil from the SPRO to address this crisis. 
The SPRO currently stores just over 700 million barrels of 
crude oil, which is the equivalent of a 58-day supply of 
imported oil for our nation to--for our nation or a nine-day 
supply of the oil consumed globally.
    The U.S. currently deposits 70,000 barrels of crude oil 
into the SPRO each day. To suspend filling of the SPRO will 
reduce the global demand for oil and could help lower its 
price. There are undoubtedly many factors contributing to the 
runup in fuel prices, but in a recent article in Investor's 
Business Daily, an economist with the Institute of 
International Economics suggested that one of those factors was 
the SPR's renewed purchases of oil on the open market.
    ATA has also asked the administration to release oil from 
the SPR. While we know the SPR does not contain enough oil to 
permanently alter the supply of crude oil in the marketplace, 
we believe that strategic releases from the SPR could 
temporarily increase the supply of crude oil, and hopefully 
help restore rational behavior to the petroleum markets. This 
type of government intervention could drive speculators out of 
the market and help ensure that petroleum prices are once again 
driven by supply and demand.
    We acknowledge that the rules governing the management of 
the SPR are the subject of an international agreement with 
other developed nations. This agreement limits our ability to 
use SPRO to address market irregularities and may be an issue 
that Congress should further investigate.
    We believe that temporarily halting the filling of the SPR 
and releasing oil from the SPR could have a positive impact on 
the speculative nature of today's petroleum prices. We 
recognize, however, that this step, in and of itself, will not 
address the long-term petroleum pricing issues.
    I have put comments--additional comments on the record. I 
would just summarize by saying that other things to consider 
would be increasing domestic oil exploration, increasing 
domestic petroleum refining capacity, eliminating the tax 
subsidies for exported biodiesel, and enacting a national fuel 
standard for diesel.
    Thank you.
    [The prepared statement of Mr. Berry follows:]
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    The Chairman. Thank you, Mr. Berry, very much.
    Our next witness is Mr. Kevin Book. He is the Senior Vice 
President and Analyst for Energy Policy, Oil, and Alternative 
Energy at Friedman, Billings, Ramsey and Company. In those 
senior roles, he evaluates the impact of legislative actions on 
investment opportunities within the energy sector.
    Welcome, sir. Whenever you are ready, please begin.

                    STATEMENT OF KEVIN BOOK

    Mr. Book. Mr. Chairman, did you intend for me to go next or 
for----
    The Chairman. Yes.
    Mr. Book. Okay. Great, thank you. Chairman Markey, thank 
you very much. Thank you, distinguished members of the 
Committee, for the privilege of contributing to your discussion 
today. The opinions I express this morning are my own and do 
not necessarily reflect the viewpoint of my employer.
    To summarize my remarks, as my testimony is----
    The Chairman. And by the way, a graduate of Tufts and 
Fletcher School of Diplomacy in my district, so a very well 
educated----
    Mr. Book. You were my Congressman for six years, sir, yes. 
And I enjoyed you very much. Thank you.
    The Chairman. Thank you. [Laughter.]
    Mr. Book. In my view, fundamental scarcity and geopolitical 
risk form the backdrop to today's discussion. Each day the 
world consumes just shy of 86 million barrels of petroleum and 
refined petroleum products. The infrastructure that supplies 
this oil took nearly a century and a half and multiple 
trillions of dollars to evolve.
    In just the last five years, however, demand patterns have 
shifted dramatically. Since 2003, developed world oil 
consumption has remained essentially flat, while non-OECD 
demand has risen by approximately 18 percent. Simply put, the 
world's emerging economies have entered into their energy-
hungry adolescence.
    I don't need to enumerate them here, but an unfortunate 
confluence of geopolitical risks threats the stability of 
existing supply. This year's WTI futures prices averaged 
slightly more than $100 per barrel. As has been mentioned 
repeatedly, this is a significant premium to most fair 
estimates of extraction costs in the Gulf of Mexico and the 
Canadian tar sands. The dollar's decline against the Euro and 
other currencies may be partly to blame. Producers may charge 
higher prices to compensate for value erosion.
    Increased speculative activity may play a small role as 
well, although speculators may also have more of an effect on 
the velocity of oil prices than their absolute levels. 
Speculators aren't the whole story. Commercial refiners of 
crude oil cannot operate their businesses without stable 
supply. They must bid up for oil at times of greatest perceived 
supply risk. In many commodity markets, this behavior can 
accelerate at capacity utilization levels above 90 percent.
    Three million barrels of global spare capacity and 86 
million barrels of daily demand puts the global oil system at 
about 96 percent of capacity. And yet one well-conceived U.S. 
energy policy keeps refiners from engaging in bidding wars and 
hoarding oil--the Strategic Petroleum Reserve. The SPR 
primarily does ensure against the risk of a catastrophic supply 
interruption. It provides other value, too.
    Refiners assured of supply can operate at lower inventory 
and working capital levels. Assurance of supply in the event of 
an emergency can deter hoarding and gouging by market 
participants. To quantify the safety value of the SPR, you can 
talk in storage levels of barrels. But it might be better to 
express it in terms of the days of import coverage provided--
that is, the number of barrels of storage divided by the number 
of barrels the nation imports each day.
    Import cover has fallen from the 100-day range in 1990 to 
estimates, depending on how you count it, between 58, which I 
think we heard, and as high as 70, depending on what you think 
demand is. And there is a variety of reasons for this--deterred 
investment at low prices, conventional basis is declining, 
increased household wealth, transportation use rising as well.
    The suggestion I would make is that basing any fill 
decision on days of import cover, rather than absolute supply 
level, and using a thorough and ongoing assessment of supply 
risks might make it easier to determine fill rates and 
quantities and also easier to communicate that message and the 
importance of that message to the American people.
    Now, my view is that markets can sometimes provide useful 
predictions of future events, especially markets as big, 
liquid, and broadly traded as the oil market. And one might 
interpret $117, or even $100, oil as a risk premium that says 
maybe supply is riskier than we think, and we should continue 
to fill the SPRO.
    I realize that is not a popular view at this point in time. 
Suspending the fill may do little, however, to affect price as 
long as the emerging world drives oil demand. There are 
linkages worth noting. U.S. imports feed overseas manufacturing 
chemicals and logistics demand for oil. The wealth exporters 
aren't selling into the U.S. stokes demand at home. Subsidies 
overseas make energy users less sensitive to price. Seventy-
thousand barrels per day might quickly be absorbed with little 
or no price effect.
    U.S. circumstances can affect demand and global price. A 
serious recession--and hopefully this doesn't happen--here 
could decrease demand by 300,000 to 400,000 barrels today, and 
an echo overseas, in China alone, could account for another 
250,000 barrels per day in decline.
    Creating that surplus with a non-emergency drawdown could 
affect price, particularly the first time it occurs and 
especially if it happens with little or no fanfare and 
surprises the market. On the other hand, the price effect might 
be very small relative to the social cost of effectively 
burning the nation's safety net in our gas tanks.
    Moreover, the price effect might be temporary, could be 
offset by demand growth, and OPEC cutbacks as well, and could 
even set commodity market expectations so that traders view the 
SPRO as just another upstream oil supplier. Now, you can't run 
it full tilt for more than five months, as you know. And if you 
do, you are out of your safety net, refiners have to buy more 
oil, and OPEC has more market power.
    So I think I would conclude by suggesting that there is 
risk that demand may start to soften of its own accord. There 
are also opportunities. One of these is that there is a real 
call now to build on the good work you did last year--the 
Energy Independence and Security Act--to add still greater 
standards.
    And when you make a cocktail, sometimes you marry two 
things that are bitter to come up with something sweet. And it 
has been suggested here today the notion that you can marry 
increased domestic energy production, including biofuels, which 
are a very big part of it, with increased conservation, I think 
might be the drink that cools the summer driving season in 
years to come.
    Thank you very much. I look forward to your questions.
    [The prepared statement of Mr. Book follows:]
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    The Chairman. Thank you so much, and thank you for bringing 
what you learned at Tufts about cocktails and energy policy----
    [Laughter.]
    The Chairman [continuing]. To this hearing. They are an 
excellent metaphor.
    And our final witness is Dr. Frank Rusco. He is the Acting 
Director of Natural Resources and Environment for the Office of 
the Government--the Government Accountability Office. He has 
been with the GAO for 10 years and managed teams on wide ranges 
of issues in the energy field.
    We welcome you, sir. Whenever you are ready, please begin.

                    STATEMENT OF FRANK RUSCO

    Dr. Rusco. Thank you. Mr. Chairman, Mr. Sensenbrenner, and 
members of the Committee, I am pleased to be here today to 
discuss how to reduce the cost of filling the Strategic 
Petroleum Reserve, as well as reduce the effect that filling 
the Reserve is currently having on oil prices.
    The Reserve now contains just over 700 million barrels of 
light oil and has about 27 million barrels of available 
capacity that DOE is currently planning to fill in the near 
term. DOE has also been directed to create and fill an addition 
about 300 million barrels of capacity. With the price of light 
oil recently hitting almost $120 per barrel, this expansion 
could easily run into the tens of billions of dollars.
    Taking barrels of oil off the market to put in the Reserve 
puts upward pressure on prices. However, there is no consensus 
on the magnitude of that effect, and GAO does not have a 
position on that.
    In my testimony, I will discuss things DOE can do to reduce 
the cost of expanding the Reserve and to improve its 
effectiveness during oil supply shocks. I will also suggest 
something DOE could do in the near term to achieve both these 
goals while reducing whatever upward pressure on light oil 
prices it currently is putting.
    First, DOE has not, but should, put heavier grades of oil 
in the Reserve, because, (a) many U.S. refineries run most 
efficiently using heavier oil than what is currently in the 
Reserve, and (b) heavier oils are cheaper than light oils.
    Second, DOE should put fewer barrels of oil into the 
Reserve when oil prices are high and more when prices are low. 
This would save a great deal of money, and with record oil 
prices currently, there is no time like the present to act on 
this.
    DOE could achieve both of these goals by immediately 
swapping some of the light oil in the SPR for heavier oils. 
This would allow DOE to expand the size of the Reserve at lower 
cost, because each barrel of light oil can be traded for more 
than a barrel of heavier oil, and it would also improve the 
SPR's effectiveness in the event of an oil supply disruption.
    Finally, it would have a dampening effect on the price of 
these light oils by putting them on the market now rather than 
taking them off. To elaborate on these points, our work 
indicates that about 40 percent of all crude oil used by U.S. 
refineries is heavier than what is currently in the Reserve.
    Many U.S. refineries run most efficiently using these 
heavier oils, and, in practice, this means that during an oil 
supply disruption many U.S. refineries would have to operate 
below capacity if they used oil from the Reserve. This loss in 
capacity would reduce supplies of gasoline and diesel and 
exacerbate the economic effects of an oil supply disruption.
    DOE should put fewer barrels into the Reserve when prices 
are higher and more when prices are lower. One way to do this 
is to buy a constant dollar amount of oil each month rather 
than buying a constant number of barrels. This approach, 
commonly referred to as dollar cost averaging, is very similar 
to what many of us do when we put steady monthly contributions 
into our 401(k) plans.
    Going forward, our simulations show that because oil prices 
are typically volatile, using a constant dollar approach would 
save money as DOE adds to the Reserve, whether oil prices are 
generally rising or falling.
    DOE could get heavier oils into the Reserve by immediately 
using the agency's existing authority to swap some of the 
Reserve's light barrels for heavier barrels. DOE did a reverse 
swap in 1998 when it traded the only heavy oil it had--about 11 
million barrels--for eight million barrels of light oil.
    If DOE swaps some light oil for heavy starting in the near 
term, it would have three main effects. First, it would get 
heavier barrels into the Reserve, which is itself a desirable 
goal. Second, DOE could fill the remaining capacity at lower 
cost because a barrel of light oil trades for more than a 
barrel of heavy oil. And, third, swapping light for heavier 
barrels would put more light oil on the market now when light 
oil prices are as high as they have been in, well, recent 
history.
    To conclude, the Strategic Petroleum Reserve protects our 
economy from oil supply shocks. It has been useful in the past, 
such as in the aftermath of Hurricanes Katrina and Rita. 
Currently, the Reserve holds about 56, 58 days of net oil 
imports, but it will have to grow to maintain the same level of 
protection, if demand for oil continues to rise.
    However, we have a large reserve now that can protect the 
economy from any but the most extreme supply disruptions. This 
allows us some flexibility to be smarter about how we add oil 
to the Reserve. Our work shows that several billion dollars 
could be saved, and the Reserve made more efficient by putting 
heavier oils into the Reserve as soon as possible and by buying 
less when prices are higher and more when prices are lower.
    Both of these goals could be achieved in the near term if 
DOE used its authority to swap light for heavier barrels, and 
this would take pressure off the record light oil prices we are 
currently facing.
    Thank you. This completes my oral statement. I will be 
happy to answer any questions you may have.
    [The prepared statement of Dr. Rusco follows:]
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    The Chairman. Thank you, Dr. Rusco, very much.
    The chair now turns to recognize himself for a round of 
questions.
    Right now, OPEC and Big Oil have a weapon aimed at the 
heart of the American economy. We are seeing its effects in the 
failure of airlines. We are seeing its effects in the impact on 
truckers across our country. We are seeing its impact on the 
dramatic rise in the price of fuel, and we are going to see its 
effect on a continuing basis on the decline in the American 
economy.
    The Strategic Petroleum Reserve was constructed in order 
for the President to use it as a counterweapon in order to say 
to the world's oil market that we are serious about not 
allowing Big Oil and OPEC to exploit a vulnerability in the 
American economic structure.
    Ms. Kenderdine, the Bush administration thus far has 
refused to deploy this protective weapon which we have--the 
Strategic Petroleum Reserve, meant to protect businesses and 
consumers across our country. What, in your opinion, would be 
the impact if we, as a country, under the President's 
instructions, stopped filling the Strategic Petroleum Reserve, 
so that we reduce the amount of oil being taken off the world 
market and begin to deploy upwards of 40 million barrels of oil 
in the Strategic Petroleum Reserve, and made that announcement 
today?
    Ms. Kenderdine. The other witnesses and I have indicated it 
is difficult to quantify the precise amount of reduction in 
price that you would see. I would go back to the SPR exchange 
that we did in 2000. We put 30 million barrels of oil onto the 
market, loaned it. It wasn't a sale. We put $30 million as a 
loan.
    And to put that in context, I think at that time the world 
consumption in a year is about three billion, give or take, you 
know, a couple hundred million barrels of oil a day--or a year. 
Okay. So in a three billion barrel market, we put 30 million 
barrels into the marketplace, and the price dropped almost $7 a 
barrel. And the price drop was immediate.
    The price dropped before the oil moved into the marketplace 
and stayed--it stayed down very--that $7 per barrel for about 
three weeks. Then, the USS COLE was bombed in the Middle East 
and the price went back up. But then, it fell back down again 
when the markets calmed down.
    The Chairman. So much of what goes on in the oil 
marketplace is just speculation. It is panic. It is 
exploitation of an out-of-control sense that the price is just 
going to go up and up and up with no stop.
    So to you, Mr. Berry, would the trucking industry, would 
truckers across the country like to see our President stop 
filling the Strategic Petroleum Reserve and send a signal to 
OPEC that we are going to deploy the Strategic Petroleum 
Reserve as a way of signaling that we are not going to stand 
still and allow our economy to suffer this grievous injury that 
will have negative effect on truckers, on consumers, and on 
industries all across the country?
    Mr. Berry. Yes.
    The Chairman. You would like to see that.
    Mr. Berry. Yes.
    The Chairman. Expand.
    Mr. Berry. Mr. Chairman, we have made that request of the 
administration, that they stop filling the Strategic Petroleum 
Reserve. We don't know precisely what that impact would be, but 
I think even the mere threat of doing that may have an impact 
on the speculators. And it just seems silly and ridiculous to 
me at this time of high prices for us to be adding such a small 
quantity.
    And I see very little risk to our nation in stopping--to 
stop filling. I mean, what is the worst that could happen? 
Prices don't go up, so then you resume filling? I mean, I see 
very little risk in the strategy to stop filling the Reserves.
    The Chairman. So this environment in which we are living 
right now is one where we are buying high, at the very peak of 
the market. The American people, through the Bush 
administration, are buying oil at $119 a barrel, and at the 
same time that we should be selling our oil into the global 
marketplace, to say to the OPEC countries, to say to the oil 
companies, ``This is not going to last.''
    And those speculators will in fact receive that message 
very quickly, and, in my opinion, respond and the consumers 
will start to see the benefit in the marketplace. Do you agree 
with that, Mr. Berry?
    Mr. Berry. Mr. Chairman, that is the hope, that that is 
precisely what would happen.
    The Chairman. Aren't we, Dr. Rusco, at the worst of both 
worlds right now? We are wasting taxpayer money, and we are 
raising prices to consumers at the pump simultaneously.
    Dr. Rusco. Our findings are that you could reduce the cost 
of filling the Reserve by adopting this practice of putting 
heavier barrels in there. And if you did that right now with 
swapping, whatever the effect on the price is, if you swap 
light barrels out now for heavier barrels, and more of them 
later, you would alleviate that immediate effect on the price. 
We do not know what the actual magnitude of that would be.
    The Chairman. Thank you, Dr. Rusco.
    The chair recognizes the gentleman from Arizona, Mr. 
Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman. In the memo we have 
from staff, it notes that the Department of Energy is currently 
filling the SPRO at the rate of 70,000 barrels a day, and it 
proposes to increase that in August--I find that timing 
curious--to 76,000 barrels a day. Can anybody explain to me 
why, at least during a portion of the high driving season, we 
would increase the fill rate? Does anyone--I know there isn't a 
DOE witness. Does that make sense to anybody? I will have to 
ask DOE. Okay.
    Mr. Berry. Mr. Shadegg, I would just add to that that not 
only is that the peak driving season for people going on 
vacation, students returning to school, but it is also when the 
economic activity starts to rise. All of your Christmas, fall 
shipments start going and the trucking activity is actually 
picking up then. So any activity that would cause fuel prices 
to rise during that time would not be good.
    Mr. Shadegg. It is the peak trucking industry or trucking 
time for the Christmas shopping.
    Mr. Berry. It is the advent of the peak.
    Mr. Shadegg. Well, that means we ought to put more oil in 
right then. I guess I will have to ask DOE about that.
    Dr. Rusco, I am fascinated by your proposal that by 
swapping heavy--I guess it is swapping light for heavy we could 
have a positive effect. Is it your testimony that that could 
have an effect not just on--in terms of beneficially filling 
the SPRO, but also in terms of the price of oil? And would it 
have a consequent effect on the price of gasoline?
    Dr. Rusco. Yes. We have advocated--long advocated--the 
introduction of heavy oil into the SPR, because it would make 
it more effective, you know, in the event of a supply 
disruption. It has also been considerably less expensive. It 
has--over the last five years, heavy oil has averaged over $12 
a barrel less than light oil. So you could fill the Strategic 
Reserve more cheaply by adding heavier oil and make it more 
effective.
    And, once again, if you did that with a swap where you 
swapped light oil now for heavier oil in the future, you would 
be selling essentially light oil out of existing caverns. When 
they are empty, then you would go and buy heavy oil to fill it. 
That would have an immediate effect on light oil prices 
currently. And, again, I don't know the magnitude of that 
effect.
    Mr. Shadegg. I find the idea fascinating. The next question 
is, so--you keep saying, ``We advocate this.'' Who is resisting 
it? And why? And what are the reasons?
    Dr. Rusco. Well, we have recommended that the DOE study the 
maximum amount of heavy oil they could put in. They agree that 
they should put heavy oil in in the amount of at least 10 
percent. But so far, to our knowledge, they have no intention 
of doing so until they expand beyond the current level.
    Mr. Shadegg. I would be happy to join you and maybe talk 
further. Maybe some of us in Congress need to talk to them and 
get answers from them why they are not doing that.
    Mr. Book, you mentioned that speculation can in fact be a 
part of the current high gas prices. One of the issues at least 
that Mr. Berry has raised and the trucking industry is 
concerned about is that if we were to at least stop filling the 
SPRO, or perhaps even release some oil from the SPRO, we could 
drive down--we could drive out that speculation and maybe have 
a consequent impact on the price of gasoline.
    I have heard it said that the price of gasoline is 20 to 40 
percent higher than it would be but for the speculation. First 
question is: do you agree that there is a possibility that we 
could have that effect? And, second, are we also driving 
speculation by locking up a great deal of the supply that is 
potentially available in the United States, in the inner 
mountain west, on the outer continental shelf, in Alaska, and 
elsewhere, and saying, ``Well, it is there, but we are never 
ever going to go get it.'' Is that also driving speculation?
    Mr. Book. Congressman, 70,000 barrels per day is a small 
amount relative to the global market. It is possible it could 
have an effect, but it is certainly not anything like the 
effect of a sale that has been described, nor is it anything 
like the effect--to your second question--that would be 
immediately signaled if you were to open up some of the off-
limits areas, because we have the best oil production 
technology in the world. We have the best information 
management technology in the world.
    We are really a very capable economy. I suspect the market 
would take a look at our intent to produce some of our own 
reserves and take it very seriously. On the other hand, to be 
fair, the effect of that production hitting the market is 7 to 
10 years away from the go decision.
    Mr. Shadegg. But speculators are in fact speculating out 
into the future. So that----
    Mr. Book. There is contracts all the way out to 2016 right 
now that would probably start to change shape on the basis of 
that decision, yes.
    Mr. Shadegg. Is there anything else--since I think every 
member of this panel, Republican and Democrat alike, wants to 
do what we can do to deal with the spike in gas prices right 
now, is there anything else you would suggest?
    Mr. Book. Well, the idea of tax holidays is a symbolic move 
and a dangerous one. I think the hard part is swallowing the 
bitter medicine and trying to encourage consumers to learn more 
about ways they can save energy on a daily basis.
    Mr. Shadegg. We are doing that. Thank you very much.
    The Chairman. Okay. The gentleman's time has expired.
    The chair recognizes the gentleman from California, Mr. 
McNerney.
    Mr. McNerney. Thank you, Mr. Chairman. We have heard a lot 
about how the SPR manipulations can impact the market. But what 
I would like to know is: are there computer models out there, 
and how sophisticated they are, how much collaboration there 
is, how much validation there is. In other words, when market 
manipulations occur, are the models validated? Can anyone 
answer that question? Mr. Book, you are probably in the best 
position.
    Mr. Book. Well, there are certainly very sophisticated oil 
traders who use computer models to try to predict market 
activity. In terms of my own models, my models as a Wall Street 
analyst tend to be simple and, based on my current oil price 
estimates, inadequate. So I would humbly say that it is very 
tough to do any kind of simulation of that much activity with 
that many players and that many variables, and any model, no 
matter how sophisticated, may not be truly reliable.
    Mr. McNerney. Do you have an opinion, Ms. Kenderdine.
    Ms. Kenderdine. I am sorry.
    Mr. McNerney. Do you have an opinion on that?
    Ms. Kenderdine. MIT has no models that is looking at the 
level--the granularity that you are talking about or would need 
in that kind of a--to make that kind of a determination. It is 
very difficult to do. I think Wall Street is the most 
appropriate place. They are paying the most attention.
    Mr. McNerney. Well, then, basically what we have heard is 
all speculation. I mean, look at--the SPR would look like a 
spring in a mechanical system. It can make it--it can smooth it 
out, but it can also make it more unstable. So, I mean, it 
seems to me that we ought to have a fairly sophisticated 
market. Maybe someone in the University of Chicago or----
    Ms. Kenderdine. Or MIT. [Laughter.]
    But the activity and what we are seeing--and we do have 
historical data about the use of the SPR. And the--I went 
through and had a price graph, looked at when we went to war in 
Iraq and we released oil into the market--first time, not 
second time, because we didn't do it the second time.
    Looked at when we put the SPR oil--the exchange we did in 
2000 and Katrina, and you see an immediate decline in price on 
that graph. So, historically, we do know of the impacts of 
using the SPR.
    You can also look at the graph and see prices go up when 
OPEC takes certain actions. So we are informed by what we know 
from the past, and certainly traders are looking at these 
issues constantly. But it is not necessarily transparent what 
OPEC countries are up to or, you know, it is meant to not be 
transparent.
    Mr. Book. Congressman, could I----
    Mr. McNerney. Yes.
    Mr. Book. The historical comps are the best we have. They 
are also a different world. Globalization was still in its late 
childhood, pre-adolescence. We have had a lot of changes in the 
currency relationships between the dollar and other currencies, 
and it is hard, with the narrower head room in global capacity 
and a different dollar, to take those as apples to apples. They 
are a good place to start. I would start there, too.
    Mr. McNerney. Should we be looking in the Congress at 
commissioning a modeling of this phenomenon? Yes?
    Mr. Cooper. The one thing we should do is--the lack of 
transparency in OPEC is one thing. There is not a lot we can do 
about that. The lack of transparency on our commodity markets 
is something we can do about it. We made a huge mistake in 2002 
when we modernized the Commodities Future Trading Commission--
Exchange Commission and failed to extend oversight to energy 
markets. And so now we have a complete lack of transparency in 
the trading of energy commodities and futures on the over-the-
counter markets.
    We have had a series--a continuous series of cases brought 
and settlements signed about abusive markets. And we are told 
that the most sophisticated model that ever existed about these 
markets was Enron's model. And, of course, Enron said, you 
know, it is supply, it is this, it is that, the other thing, 
and it was cheaters. And we have had plenty of court cases.
    So if we want to learn about what is going on in these 
markets, we--and Congress passed in the ag bill last year a law 
that would have closed the Enron loophole. The President vetoed 
it for all kinds of other reasons, and we are struggling to get 
that back in. If you want transparency, you need to have the 
Commodities Future Trading Commission overseeing these markets.
    They told us they had enough power, and then we had the 
effort to corner the gas market with AmerEn, and a whole series 
of things they don't know. We simply don't know who trades what 
in this most important commodity. That is the single most 
important thing you could do to fix the financial speculation 
problem.
    The Chairman. Great. The gentleman's time has expired.
    The chair recognizes the gentleman from Connecticut, Mr. 
Larson.
    Mr. Larson. Thank you, Mr. Chairman.
    And thank you, Mr. Cooper. I couldn't agree more with what 
you have to say. A colleague of ours, Bart Stupak, has a bill 
as well called the PUMP Act that would do just that. I believe 
the GAO, even in its recent study, came out and said the CFTC, 
while it does have regulatory authority, doesn't seem to have 
the broad exuberance needed or required to be able to look at 
and peel away, especially when it comes to the over-the-counter 
market, these unregulated activities.
    Let me ask first, Dr. Book--excuse me, Dr. Rusco, and then 
Mr. Book--whether or not you feel that that would better help 
in terms of transparency the initiative that would be required, 
as my grandfather Nolan would say--to trust everyone but cut 
the cards?
    Dr. Rusco. I am going to have to answer that for the 
record. That was done in a team outside the energy group, and I 
would hesitate to offer an opinion without first reviewing that 
report.
    Mr. Larson. Well, if you could get back to them, and, as 
part of GAO, I would love to get that, Mr. Chairman, for the 
record.
    The Chairman. Without objection, it will be included.
    Mr. Larson. It also brings up a point that--and I think 
several--I think it was Mr.--the Chairman or Mr. Blumenauer 
might have mentioned that the largest consumer of energy of 
course is the Federal Government.
    And that being the case, if the Federal Government were to 
say, with regard to speculation, that the procurement of oil, 
the procurement of petroleum for the entire federal system is 
not subject to speculation, that you have to actually receive, 
be a recipient, in order to be a trader in those areas, what 
would that do to the price of oil? Would either of you care to 
respond?
    Mr. Book. I mean, Congressman, it sounds like that proposal 
would take a substantial volume of oil off market and put it 
into a time contract between the buyer and the seller. And by 
reducing the available supply to the market, you might raise 
the price with a proposal like that.
    Mr. Larson. Well, it is in the market currently. If we are 
purchasing X amount already, but it is subject to the prices 
driven up by speculation, why, if you eliminated the 
speculators, would it cost the Federal Government more? And if 
it cost the Federal Government less, would we be able to, 
therefore, release the Strategic Petroleum Reserve or purchase 
more in a way that would be able to assist our truckers and 
everybody else throughout the economy?
    Mr. Book. I mean, the idea makes sense. The problem is 
finding a seller who will tie a contract at a time of high 
prices and say, ``Yes, I will tie it--lock this in'' with 
uncertainty and volatility and scarcity on the horizon.
    Mr. Larson. Yes. But if all we are hearing from our oil 
executives is that the laws of supply and demand and 
volatility, and yada, yada, yada, no longer apply, then what 
does it leave policy decisionmakers with? And if we have 
unregulated markets that have no transparency, and small 
businesses and oil dealers saying that it is a fraud and a sham 
and nothing more than, you know, a charade that is going on 
that causes our prices to go up, while the people, as you 
pointed out, were concerned on making the money on paper based 
on a declining value of the dollar and other volatility or 
other arguments that they may make, and call that the 
marketplace. Isn't that----
    Mr. Book. Well, increased transparency is always good for 
markets. Also, cautious small moves are generally good for 
markets, particularly when there is a lot of capital in 
circulation. I would agree that any move you can make to try to 
increase accountability, without increasing the transaction 
cost--and that is sort of the flip side of it. The more you 
regulate something the more expensive it becomes to trade on 
that regulated exchange.
    And this is a global world. Trade can go elsewhere. So you 
have to balance the two.
    Mr. Larson. Well, I am all in favor of balancing the two, 
but perhaps Ms. Kenderdine could answer.
    Ms. Kenderdine. Transparency is terrific for markets. The 
only concern I have is that 80 to 90 percent of the world's oil 
reserves are controlled by national oil companies or OPEC. And 
so you can have transparency in U.S. markets and on our 
producers. You are only going to have a very small picture of 
what is actually going on in global oil markets.
    So it is just a caution that I would put out there is that 
there is not transparency in the rest of the world, and you 
will only get a small slice of what is actually going on. And 
we actually, when I was at DOE--there is also not transparency 
on oil data in general, including demand data. And we launched 
an effort to try and improve data worldwide, so that we could 
have a better understanding from a government policy 
perspective. Very difficult thing to do.
    Mr. Larson. I see my time has expired, Mr. Chairman, but I 
thank you.
    The Chairman. The gentleman's time has expired.
    The chair recognizes the gentlelady from South Dakota, Ms. 
Herseth Sandlin.
    Ms. Herseth Sandlin. Thank you, Mr. Chairman.
    Dr. Rusco, I think in response to some of the questions of 
Mr. Shadegg and the recommendations as it relates to more cost 
effective ways of filling the SPR, he discussed with you the 
whole issue of heavier versus lighter crude into the SPR. I 
would like to ask you about the employment of the dollar cost 
averaging that you discussed. Why isn't that recommendation 
being employed?
    Dr. Rusco. I don't know why. It clearly makes sense. We did 
simulations that estimated the value of dollar cost averaging, 
when prices were generally rising but volatile, generally 
falling but volatile, or staying generally flat but volatile. 
And as long as there is volatility in prices, you can, on a 
month-to-month basis save money, and essentially fill the SPR 
at the same rate that you want. You just have to pick the right 
target for the number of dollars.
    You would have to adjust that target periodically, because 
you don't know where prices will be in the future. But there 
are potentially billions of dollars to be saved as you expand 
the SPR.
    Ms. Herseth Sandlin. Are you aware of any specific 
opposition to employing this method when making purchases?
    Dr. Rusco. I think that the primary opposition is that the 
DOE has essentially used royalty-in-kind oil only to fill the--
or almost exclusively to fill the SPR, and----
    Ms. Herseth Sandlin. Since when, 1999? Later than----
    Dr. Rusco. Yes. Since about 1999, yes. And the problem with 
that is that there is no real coordination between DOE and DOI 
in terms of how to do that. They could--you could still use 
royalty-in-kind oil and adopt a dollar cost averaging approach. 
You would just--DOI would deliver fewer barrels when prices are 
high, and they would sell the remainder of the RIK barrels in 
the market and deliver more barrels when the price is low. And 
you could still do it, but it may be a lack of coordination or 
a lack of imagination.
    Ms. Herseth Sandlin. Most likely, I would think you are 
right on that. We have seen a lot of lack of coordination 
between agencies. And if we can save dollars, we appreciate 
your insight today as we address these issues further.
    Dr. Cooper, your written testimony notes on page 6 that 
there is a ``disastrous shortfall in domestic refining 
capacity, and the refinery shortfall has doubled to over 300 
million barrels per day since the early 1990s.'' To what 
factors do you attribute the increase in refining capacity 
shortfall over that period of time, and what do you think would 
be the optimal increase in domestic refining capacity over the 
next five years?
    Mr. Cooper. Well, the cause of the lack of capacity is 
clear. The industry has not provided it. If you look back 
through the early 1990s, the Clean Air Act amendments were 
passed in 1990. They went into effect in 1995. And the industry 
engaged in a series of strategic decisions about what to do, 
and the central strategic decision was to reduce refinery 
capacity.
    The decision was made not to upgrade certain refineries to 
meet the Clean Air Act. Decisions were made and mergers were 
allowed to go forward, which dramatically slashed the number of 
refiners. So we are down--and you know the names--Exxon Mobil, 
Chevron, Texaco, BP, ARCO, Amoco, Conoco Phillips. All of those 
companies once were separate, and now they are one.
    And so clear decisions made throughout the 1990s about how 
to tighten the market--there is a very good RAND study which 
showed a complete change in behavior. They no longer compete 
for market share on price. And over that time period, we have 
seen the shortfall increase from about a million and a half 
barrels a day to three million barrels a day.
    Refinery profits have gone through the roof. So this is the 
outcome of a policy of shorting the market--the strategic 
underinvestment in domestic refining. And every price spike we 
have had in the last six or seven years, except this most 
recent one, was always triggered by some complaints about, oh, 
we didn't have enough capacity. They couldn't even do spring 
cleaning, switching over from winter fuels to summer fuels, 
without it.
    So the answer is--I believe Dingell and Stupak had a bill 
in that started to talk about a domestic refinery reserve, 
operating these refineries to meet military needs in normal 
times, and diverting capacity to serve the market. The oil 
industry will not build enough refineries in this country.
    Ms. Herseth Sandlin. My time is almost up. So in addition 
to the Dingell-Stupak bill, just an optimal increase over the 
next five years, what would you say? I mean, optimal.
    Mr. Cooper. It would be wonderful. How are you going to 
make them do it? The oil industry won't do it. You will haul 
them up here, and they will tell you why they are not going to 
build any more refineries. You cannot depend on the oil 
industry to meet our refinery needs.
    The Chairman. The gentlelady's time has expired.
    The chair recognizes the gentleman from Washington State, 
Mr. Inslee.
    Mr. Inslee. Thank you. While listening to the testimony, I 
was reminded of what we went through on Enron, which was a 
learning experience. And I remember a time where we had a 
Northwest delegation go meet with Vice President Dick Cheney to 
beg the administration help us take some action in response to 
what was going on with prices going up through the roof on 
electricity.
    And what we told the Vice President was that there was 
obviously some ``imperfections in the market,'' some 
manipulation going on, we didn't have adequate oversight over 
speculation and manipulation. And we told him that one-third of 
all the power was turned off, sort of similar to the refinery 
situation Dr. Cooper talked about, at that time while prices 
were going up 1,000 percent. He looked at us and he said, ``You 
know what your problem is? You just don't understand 
economics.''
    And we did. I suggest that they did not. And we got 
absolutely taken to the cleaners on the West Coast while the 
administration sat on its hands and did nothing. And I think 
that is reminiscent of what we are having here, listening to 
this testimony, where there is an abject lack of action to 
respond to this in any way.
    And I just don't believe we are totally helpless in the 
face of what is going on in the economy. There are these 
underlying tensions, but there are things we can do, and, 
frankly, we are not doing them because the administration will 
not use tools at its disposal, nor help us to respond.
    I want to talk about a longer term issue. We have talked 
about the short-term issue. I want to talk about a longer term. 
Ms. Kenderdine talked about the need for research and 
development dollars to really develop a post-carbon based 
economy. That might be my term rather than Ms. Kenderdine's, 
but that is the way I think of it.
    And I wonder if you can just go in a little greater depth 
what you view as the shortfall in research and development to 
develop non-carbon based fuel systems, fuels and fuel systems. 
I alluded to these electric cars that are now starting to hit 
the road.
    Could you just tell us what you think is in the realm, 
should be in the realm of the scope of our ambition in research 
and development to wean ourselves off of being so oil and gas 
dependent?
    Ms. Kenderdine. The reason I used the numbers on the 
challenge is because they--the magnitude of the need, the 
magnitude of the requirements is--needs to be well understood. 
And, you know, we are talking--we are not talking about 
telephones, widgets, etcetera, in terms of innovation. We are 
talking about a major commodity-based industry, has a 40-year--
its infrastructure has a 40-year life span.
    And we are facing right now under business-as-usual carbon 
emissions a catastrophic event by 2050, beyond the doubling of 
CO2 emissions in the atmosphere, if we do not do 
something and do something now. As I mentioned, the 
infrastructure value that we are going to have to turn over in 
the next 40 years is $12 trillion. We have significant 
challenges. We have to go from 80 percent carbon-based fuels 
to--and I agree with you, a carbon-free, carbon light.
    I would say perhaps carbon light is kind of the interim 
that we are going to have to support in order to get to those 
goals. And by carbon light, I would say sequestration is going 
to be critical in order for us to get there, as well as natural 
gas, because it produces so much fewer greenhouse gas 
emissions.
    But the--and we have done modeling on this at MIT. 
Incredible gains in reductions of CO2 emissions and 
efficiency technologies, both--and that is in part a deployment 
issue. But we need biofuels, obviously, we need alternative--we 
need--quite frankly, we need nuclear in order to get there.
    And so the R&D investments are--and I said we have $5 to $6 
billion total investment, U.S. Government and industry in the 
U.S., to turn over a $12 trillion infrastructure.
    Mr. Inslee. And what should be our national goal as far as 
R&D? What is a reasonable R&D figure we should be shooting at 
in the next several years?
    Ms. Kenderdine. Right now, the Department of Energy on its 
applied energy R&D programs--and I set aside the Science 
Office, because while it is doing basic research, energy 
research, it is not strategic research, it is research for 
research sake, for knowledge sake.
    We are only spending maybe $3 billion a year in energy R&D. 
I think a doubling of that is absolutely essential. I think 
also a carbon price is essential, and I know that the Congress 
is debating the carbon price. We can put a price on carbon. We 
still don't have the technologies to produce affordable 
renewable energy at this point, so we need the research.
    So a combination of an increase in R&D, much more focused 
R&D, I think we need to do it better than we have done in the 
past. And a carbon price is, I believe, critical. And I would 
double the R&D budget.
    Mr. Inslee. Thank you.
    The Chairman. The gentleman's time has expired.
    The chair recognizes the gentleman from Oregon, Mr. 
Blumenauer.
    Mr. Blumenauer. Thank you. Thank you, Mr. Chairman.
    I would just like to clarify. Do any of you feel that there 
is any question but that we should regulate petroleum and 
gasoline through the commodities future trading market? Any of 
you disagree with that proposition?
    Ms. Kenderdine. I am not sure I would use the word 
``regulate.'' Certainly oversight on the part of the CFTC is--
--
    Mr. Blumenauer. But they are included within the regime.
    Ms. Kenderdine. Yes, yes, yes.
    Mr. Blumenauer. Is there any reason to exclude them any 
longer?
    Dr. Rusco. Again, I cannot comment on that. I don't want my 
silence to be viewed as----
    Mr. Blumenauer. Okay. GAO exception noted. [Laughter.]
    But----
    Mr. Berry. I would just say that the trucking industry I 
don't think has considered specifically that point. As one 
member of the trucking industry, it seems reasonable to me--the 
proposal.
    Mr. Blumenauer. Mr. Berry, I appreciate that. Would it be 
possible to check with your association about running it 
through the trap line and see where they are? Because----
    Mr. Berry. Yes.
    Mr. Blumenauer [continuing]. They are a pretty big player 
in this game.
    Mr. Berry. Yes. We will get back to you.
    Mr. Blumenauer. Thank you. I appreciate it. And I must say 
that I do appreciate the comprehensive nature of your testimony 
in particular. I have had the opportunity in recent days out 
campaigning in Pennsylvania, maybe not to very good effect for 
Senator Obama, but hearing very heart-rendering direct 
reactions from people who can only afford to fill up a third of 
the tank. And making it real I thought was very important.
    And the notion that you have in terms of some specific 
things in terms of reducing demand, which I welcomed from ATA--
the section that you had in your testimony--touching what some 
feel is the third rail, like, you know, should we take a look 
again at controlling speeds? Because we did move in that 
direction 30 years ago to significant effect.
    And even the notion of reducing--I mean, we have had 
legislation. We have tried to fix this to be able to help, 
what, APUs? So that we don't have the whole rig burning 
expensive diesel. This is an example to me of simple, common 
sense items that ought to be employed in a heartbeat, that make 
sense, save money. Do you want to elaborate on that for a 
moment?
    Mr. Berry. I would be happy to. At great personal risk, I 
will tell you that it is our association's position that there 
should be a 65 mile an hour speed limit, and that that would 
save a tremendous amount of fuel. And I would venture to say 
that it would probably save as much as 10 percent of our annual 
consumption, and that is a big number.
    Our own company has reduced our speed in December from 65 
to 64 miles an hour, and our trucks are governed so that we can 
set it with a computer. And then, here three weeks ago in 
response to the high price of fuel, we reduced our speed even 
further to 62 miles an hour. Now, we did that at great risk 
because there is a shortage of truck drivers, and we felt as 
though we might be disarming unilaterally in the war to attract 
truck drivers.
    But our drivers all understood the need, they see the $4 
price at the truck stops, and they willingly voluntarily reduce 
the speed, and we have had wonderful compliance. They get it. 
They know this is a huge problem, and they were on board with 
it.
    But anti-idling--Representative Inslee talked about 
research and development. There are a lot of common sense 
solutions coming from the users, and the users are left out of 
all of these equations. And I think that the users need to be 
included in the research and development.
    There are trucking companies that are coming up with 
fabulous ideas, common sense solutions, and those should be 
incorporated. Anti-idling--we are looking at battery-powered. 
We can't get the battery-powered to work, because the cabs need 
to be better insulated. So we are all out there experimenting 
with ways to better insulate the cabs.
    EPA's Smart Way Program is a fabulous program that has 
looked at different technologies, has put it out on the 
internet, so truckers can see what works, what doesn't work, 
and that has been a huge service. Those are all examples of 
things that can be done.
    Mr. Blumenauer. I appreciate that. I appreciate, as I say, 
the comprehensive testimony that you have offered up. We are 
working to try and fix that APU item. In the Ways and Means 
Committee, we have got a little glitch. But I think in toto 
this was extraordinarily helpful.
    Mr. Chairman, I really appreciate your allowing us to come 
together to analyze this.
    The Chairman. I thank the gentleman from Oregon.
    And I thank all of our witnesses. I think this has been an 
extremely helpful hearing. I think it is clear from today's 
testimony that President Bush must deploy the Strategic 
Petroleum Reserve in order to send a signal to OPEC that we are 
going to stop begging, to send a signal to the speculators that 
we are going to begin to take action against them, and to send 
a signal to those who are afraid of the impact on the trucking 
industry, on the food industry, on the airline industry, and 
all other industries of this dramatic rise in the price of 
fuel, that we are not going to allow our competition here to 
raise the price of oil to have such a dramatic impact upon our 
economy.
    Our poor people have to choose between fuel and food. This 
is not something that America should allow to happen. This is 
not something that President Bush should sit on the sidelines 
and pretend he is powerless to do something about. If President 
Bush can call up the Reserves over and over again to go to 
Iraq, he can deploy the Strategic Petroleum Reserve as a weapon 
against OPEC and Big Oil to protect the American consumer and 
American industry here at home.
    I think that is clear from the testimony that we heard here 
today. We thank all of our witnesses for this testimony, and we 
hope that President Bush hears the plea of the American people.
    This hearing is adjourned.
    [Whereupon, at 11:41 a.m., the Committee was adjourned.]
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