[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
    RUNNING ON EMPTY: THE EFFECTS OF HIGH GASOLINE PRICES ON SMALL  
                               BUSINESSES 

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION


                               __________

                              HEARING HELD
                              MAY 9, 2012


                               __________

                  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 112-067
              Available via the GPO Website: www.fdsys.gov

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                      CHUCK FLEISCHMANN, Tennessee
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York

               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                     Barry Pineles, General Counsel
                  Michael Day, Minority Staff Director



                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hon. Sam Graves..................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Robert McNally, President, The Rapidan Group, LLC, Bethesda, MD..     3
Jamie Smith, Franchisee, Mr. Rooter Plumbing, Baltimore, MD......     5
Ms. C. Cookie Driscoll, Owner, C. Cookie Driscoll, Inc., 
  Fairfield, PA..................................................     6
Michael Greenberger, Law School Professor and Director, 
  University of Maryland Center for Health and Homeland Security, 
  Baltimore, MD..................................................     8

                                APPENDIX

Prepared Statements:
    Robert McNally, President, The Rapidan Group, LLC, Bethesda, 
      MD.........................................................    23
    Jamie Smith, Franchisee, Mr. Rooter Plumbing, Baltimore, MD..    32
    Ms. C. Cookie Driscoll, Owner, C. Cookie Driscoll, Inc. 
      Fairfield, PA..............................................    34
    Michael Greenberger, Law School Professor and Director, 
      University of Maryland Center for Health and Homeland 
      Security, Baltimore, MD....................................    40
Questions for the Record:
    Questions for Robert McNally.................................    57
Answers for the Record:
    Answers from Robert McNally..................................    58
Additional Materials for the Record:
    National Small Business Association..........................    59
    Foreign Affairs: A Crude Predicament by Robert McNally and 
      Michael Levi...............................................    60


    RUNNING ON EMPTY: THE EFFECTS OF HIGH GASOLINE PRICES ON SMALL 
                               BUSINESSES

                              ----------                              


                         WEDNESDAY, MAY 9, 2012

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1 p.m., in room 
2360, Rayburn House Office Building. Hon. Sam Graves [chairman 
of the Committee] presiding.
    Present: Representatives Graves, Chabot, Tipton, Ellmers, 
Walsh, Barletta, Velazquez, Schrader, Cicilline, and Hahn.
    Chairman Graves. We will call the hearing to order. Good 
afternoon, everyone. I want to thank you all for joining us for 
this hearing and I want to thank our witnesses for appearing 
today and agreeing to testify on an issue that just will not 
seem to go away, and that is higher fuel prices.
    Few things have such broad effects on consumers, the 
economy, and small businesses as high fuel prices. The price of 
gasoline often determines where and when consumers are going to 
shop and what it costs a small business to deliver products and 
services and the costs of purchasing materials and other inputs 
necessary from business operations. When consumers have less 
money to spend and small businesses are forced to shift 
resources to fuel purchases or pay higher prices for inputs, 
weaker economic growth is often the result.
    Last Friday, the Department of Labor reported that the 
unemployment rate remains above eight percent and the economy 
has created far fewer jobs than expected. This figure does not 
even count the millions of long-term unemployed Americans who 
have given up trying to find work. That is not included in 
official statistics, nor does it account for the millions of 
underemployed Americans.
    While there are many factors to explain the weak economy 
and job growth, high fuel prices are a contributing factor. And 
given the importance of energy prices to the health of small 
businesses and the economy, this Committee has taken particular 
interest in the effects of high fuel prices on small businesses 
and the role they can play in helping solve the problem of high 
energy prices, create jobs, and enhance our nation's energy 
security.
    This hearing continues that trend and we are fortunate to 
have with us today a panel of witnesses who can provide the 
Committee with important insight into the causes of high fuel 
prices and how they affect small businesses. With that I will 
turn to Ranking Member Velazquez for her opening statement.
    Ms. Velazquez. Thank you, Mr. Chairman. As our economic 
recovery gains steam, this Committee must focus on removing 
obstacles to small business growth. One key hurdle is 
volatility in gas prices. With prices for petroleum and 
gasoline rising one day and plummeting the next, it can be very 
difficult for small firms to plan and make prudent investment 
decisions. In particular, when there is a rapid run-up in gas 
prices, small firms feel the pinch. Indeed, three-quarters of 
small businesses note that rising energy prices will have a 
negative impact on their businesses. There have been even 
estimates that for every $10 increase in the price of a bottle 
of oil, $29 billion is sucked out of the economy. That is money 
which could have gone toward growth and job creation. When 
energy prices are high, small firms face tough choices. Do they 
raise prices for their products to upset gasoline costs? Or do 
they alternatively postpone hiring in order to compensate for 
rising expenses? None of these are good options. It is my hope 
that the Committee can explore solutions for the effects energy 
costs have on entrepreneurs.
    When it comes to gas prices there is not just one reason 
that can be solely blamed for the volatility; instead, a range 
of factors feed into this unpredictability. Instability in all 
regions can result in significant supply disruption as we have 
seen with recent events in the Middle East and North Africa. 
Oil supply disruptions can be further compounded by a reduction 
in refinery capacity, meaning that even when oil supplies 
remain steady, less gasoline is available on the market and 
prices remain high.
    These supply-based factors certainly contribute to rising 
gas prices. However, there is also strong argument to be made 
that excessive speculation is also to blame. Certainly, energy 
futures markets play a valuable role by enabling energy 
consumers like airlines or railroads to hedge against price 
fluctuations. However, today the largest actors in these 
markets are no longer energy consumers. Instead, market 
activity is dominated by players concerned only with betting on 
whether prices rise or fall. When these speculators hold such 
influence that they can single-handedly affect overall pricing, 
then it is questionable whether the future markets are 
functioning correctly or serving as a consumer with consumers 
and small businesses paying for bad bets.
    Just as a range of factors are driving up gasoline prices, 
there is no single solution that will solve the problem alone. 
Instead, we need a multi-prong approach that addresses supply, 
consumption, and speculation. We can start by leaving in place 
the Wall Street Reform Law that was enacted last Congress. By 
giving the Commodity Futures Trading Commission more power to 
prevent unscrupulative behavior, this law will stop some of the 
deceptive practices we have previously seen. Other short-term 
steps might include releasing oil from the strategic petroleum 
reserve, instituting a gasoline tax holiday, and expanding the 
use of oil shale. All of these ideas have drawbacks and 
advantages and all of them merit further discussion.
    Over the long term we need to reduce demand and boost 
supply. Helping small businesses become more energy efficient 
should be a priority. Achieving that goal makes businesses more 
profitable while lowering energy prices for everyone. There 
will also need to be discussions about expanding our energy 
supply through either fossil fuel exploration or expansion of 
renewable fuels. Entrepreneurs have always been on the cutting 
edge of developing new energy sources, and they should have a 
voice on how we proceed in this area as well.
    As consumers prepare for another summertime driving season, 
we can expect gas prices to remain volatile. For small 
businesses, unpredictable fuel costs can at best stunt job 
growth and at worse result in layoffs. It is my hope that 
today's discussion yields insight on how to help small business 
firms overcome these problems now while laying the groundwork 
for long-term energy security.
    And with that I want to take this opportunity to thank all 
the witnesses for being here today. I yield back. Thank you, 
Mr. Chairman.
    Chairman Graves. With that we will hear from our witnesses. 
You each have five minutes. The way the lights work is it is 
green and when you have a minute left it turns yellow and then 
red when time is up.

  STATEMENTS OF ROBERT McNALLY, PRESIDENT, THE RAPIDAN GROUP, 
 LLC; JAMIE SMITH, FRANCHISEE, MR. ROOTER PLUMBING, BALTIMORE, 
 MARYLAND, TESTIFYING ON BEHALF OF THE INTERNATIONAL FRANCHISE 
  ASSOCIATION; C. COOKIE DRISCOLL, OWNER, C. COOKIE DRISCOLL, 
  INC., FAIRFIELD, PENNSYLVANIA, TESTIFYING ON BEHALF OF THE 
 NATIONAL SMALL BUSINESS ASSOCIATION; MICHAEL GREENBERGER, LAW 
   PROFESSOR AND DIRECTOR, UNIVERSITY OF MARYLAND CENTER FOR 
       HEALTH AND HOMELAND SECURITY, BALTIMORE, MARYLAND

    Chairman Graves. And our first witness is Bob McNally. He 
is the founder and president of the Rapidan Group, an 
independent energy and consulting market advisory firm. And 
prior to forming the Rapidan Group, Bob served on both the 
White House Council of Economic Advisors and the National 
Security Council during the Bush Administration.
    Mr. McNally, I appreciate you being here and look forward 
to your testimony.

                  STATEMENT OF ROBERT McNALLY

    Mr. McNally. Thank you, sir. Chairman Graves, Ranking 
Member Velazquez, Members of the Committee, thank you for the 
opportunity to testify. I have spent the bulk of my career 
analyzing energy oil markets and economic policymaking and as 
was mentioned, served in the White House NIC and NSC. I 
currently run a small businesses called the Rapidan Group. I do 
not represent any entity. The views are entirely my own.
    The subject of today's hearing is gasoline prices which 
have risen sharply now six years out of seven and pose a 
special burden for our country's small businesses. But before 
then, gasoline as pretty boring. If you think about it, from 
the 70's until recently, if it was a Disneyland ride, the pump 
price is sort of like It's a Small World--gentle, uneventful, 
not really noticeable. But since 2005, it has been It is a 
Small World. Excuse me, Space Mountain. Gut wrenchingly 
volatile, scary. And today, as pump prices resume their ascent, 
Americans, especially small businesses, are wondering why are 
we on Space Mountain and how are we going to get off?
    Let me come right to the point. Gasoline prices are driven 
by crude oil prices. Crude oil prices are driven by a global 
market. Official data reports show that global market is tight. 
Demand is historically high and strong in the global market--
not in the United States, in the global market. Supply is 
disappointingly small. Commercial inventories outside of North 
America are low. Numerous supply interruptions as was mentioned 
have occurred and OPEC's spare capacity which we will talk 
about today is much lower than estimated a few months ago and 
too low for comfort.
    And earlier this year a rash of refinery closures in the 
Northeast, the U.S. Virgin Islands and Europe and tensions 
surrounding Iran's nuclear program contributed to a risk 
premium or a fear premium on the price of crude.
    It is crucial to understand that crude oil prices are 
naturally very volatile. To help suppress this natural 
volatility throughout history since the mid-1800s, late 1800s, 
producers have held back spare production capacity to temper 
down that volatility. Spare capacity is supply from fields that 
can be quickly tapped to act as a shock absorber when demand is 
strong and disruptions occur, avoiding the otherwise normal 
large swings in prices we would see.
    Since the late 1980s, OPEC has used spare capacity to try 
and stabilize prices, but over the last seven years or so, 
OPEC's spare capacity is showing that red line on that chart 
has fallen and remains much too low to stabilize the market, 
especially given geopolitical risks. The reason is a mix of 
voracious, relentless demand growth in fast growing Asia and 
the Middle East on the one hand and disappointingly small net 
supply growth on the other. While experts differ, many see this 
strong demand, weak production, tight spare capacity 
predicament lasting for the foreseeable future. And if so, oil 
prices are going to keep on gyrating and so are fuel prices.
    There is no short-term silver bullet for our predicament. 
Using the SPR to smooth gasoline prices absent the severe 
supply disruption would be deeply unwise and counterproductive. 
The SPR and Department of Energy are not well suited to 
stabilize global oil prices. Reserves are too small relative to 
market flows. Information is too poor, and the SPR 
interventions have and would be politicized. If Washington sold 
SPR crude every time gasoline prices rose, we will end up with 
no SPR, more volatile prices, and less protection when a severe 
supply interruption occurs.
    It would also be a mistake to misdiagnose the problem of 
gyrating oil prices as one of manipulation, distortion, or 
undue influence of financial market participants. Officials 
have repeatedly investigated the role of the financial market 
participants in recent oil price behavior and concluded that 
supply and demand fundamentals played a major role. This 
includes an interim interagency report headed by the CFTC in 
2008. Leading academics also note there is no compelling data 
or analysis that shows the actions of financial market 
participants have caused the major price swings we have seen in 
recent years.
    In the future, small businesses will need to hedge more in 
response to gyrating oil prices. They will need access to 
bigger and deeper financial markets where producers and 
consumers can transfer price risk to those willing to take it. 
We are now seven years into the Space Mountain era of gasoline 
prices. It is time to get beyond blame games and on with 
solutions. OPEC oil companies, industry, investors, EPA, 
consumers, geopolitical trends, central banks, poor data, all 
this play a role. But the real reason is we have a tidal wave 
of demand, humanity's largest ever demand, humanity's largest 
ever demand, surge for oil is colliding with a supply 
constraint. We may not like the laws of economics but we will 
have to live with them. It is past time to enact easy common 
sense steps like improving data to bolder ones such as vastly 
increasing domestic and international supply, moderating 
demand, and strengthening a resilience to price gyrations. We 
should act quickly and resolutely as if the vitality of our 
small businesses, our standard of living, and our national 
security depended on our success. Thank you.
    Chairman Graves. Our next witness is Jamie Smith. Mr. Smith 
owns and operates a small 10-employee Mr. Rooter Plumbing 
franchise located in Baltimore, Maryland. He is testifying 
today on behalf of the International Franchise Association. Mr. 
Smith, I appreciate you being here. Thank you.

                    STATEMENT OF JAMIE SMITH

    Mr. Smith. Thank you. Chairman Graves, Ranking Member 
Velazquez, and members of the Committee, thank you for your 
invitation to testify today at today's hearing on the effects 
of gasoline prices on small businesses.
    My name is Jamie Smith. I am a franchisee of the Mr. Rooter 
Plumbing Corporation. I am the owner and general manager of Mr. 
Rooter Plumbing of Greater Baltimore and a member of the 
International Franchise Association.
    I believe my experience as a small business owner and my 
struggles with rising fuel prices are representative of the 
small business community today. Many businesses are struggling 
to incorporate these increased costs into business plans that 
are already strained by decreased revenues due to the slow 
economic recovery. My business offers heating and plumbing 
solutions to the Greater Baltimore and Maryland area and I 
employ 10 plumbing and office professionals.
    My current fleet of five service vehicles uses an average 
of 1,200 gallons per month of gasoline, and the cost of this 
fuel equals approximately 10 percent of my total revenue.
    Since opening my operation in 2010, I have seen a 29 
percent increase in my fuel costs at a time when my revenues 
have declined. In an effort to offset rising fuel prices, I 
have added an $11 fuel surcharge to all of my service calls; 
however, many customers have refused to pay this charge and 
several potential customers disapproved so vehemently of this 
practice that they refuse to consider Mr. Rooter of Baltimore 
for their future plumbing and heating needs.
    My other option is to absorb these increased fuel costs 
which directly affects my bottom-line while my business is 
trying to stay competitive in a challenging economic 
environment. Being a small business owner I cannot leverage 
economies of scale to keep costs down like larger businesses 
can. My company services several counties with only five 
vehicles as opposed to larger competitors who have 30-plus 
vehicles and smaller, more defined territories that require 
less travel.
    All the extra travel required for my company makes fuel 
prices a risky exposure for my business. Policy members at all 
levels of government should be focused on reducing and 
stabilizing the cost of gasoline and other fuels, not through 
taxes and disincentives to consume fuel but through increased 
production and efficiency.
    I recently wrote to my governor, Martin O'Malley, to 
protest his proposal to make gasoline subject to the Maryland 
state sales tax. This would obviously increase the cost of 
gasoline and have an immediate and severe impact on small 
businesses such as mine. I think that a focus on new taxes, 
especially when it comes to energy consumption, is the wrong 
approach. Small businesses are desperate for government action 
to alleviate the burden of this drastic cost increase, and I 
ask that policymakers invest our tax dollars on strategies that 
would increase domestic energy production, conserve our 
existing resources, and promote safe and efficient alternative 
energy sources.
    I support projects that would lower the cost of gasoline 
while adding jobs and improving the economy. I enjoy having the 
freedom to own and operate my franchise business and to provide 
a fulfilling place for my fantastic team of Mr. Rooter 
employees to work. However, if policymakers do not begin to 
embrace new energy policies, I believe the country will see an 
increase in small business failures. Meeting obligations such 
as payroll and other overhead expenses while continuing to 
endorse soaring energy costs and diminishing profits is 
unsustainable for any business. I ask that state and federal 
policymakers take immediate and decisive action to help small 
businesses do what they do best--create jobs and drive the 
American economy.
    Thank you for the opportunity to testify before the 
Committee, and I look forward to answering any questions you 
may have. Thank you.
    Chairman Graves. Thank you very much, Mr. Smith.
    Our next witness is Cookie Driscoll. Ms. Driscoll has owned 
and operated her horse farm in Fairfield, Pennsylvania, for 
more than 18 years. And she will be testifying on behalf of the 
National Small Business Association. Ms. Driscoll, thank you 
for being here.

                STATEMENT OF C. COOKIE DRISCOLL

    Ms. Driscoll. Thank you, Chairman Graves, Ranking Member 
Velazquez, and members of the Committee.
    My name is C. Cookie Driscoll and I am the owner of two 
small businesses. Whodathunkit Farm and C. Cookie Driscoll, 
Inc., both of which are located in Fairfield, Pennsylvania, 
just across the Maryland state line in Adams County. My farm is 
a full care boarding and learning facility, and my other 
business offers a line of gift items targeted toward the 
equestrian and pet industries, as well as promotional products, 
like pens and mugs, embroidered shirts. I am also on the board 
of trustees of the National Small Business Association, which 
is the oldest small business advocacy organization in the 
United States.
    I would like to thank you for inviting me to testify today 
about the effects of gasoline and diesel prices on small 
businesses, particularly my farm. I am very grateful that you 
are aware of and addressing the negative impact unstable and 
increasing gasoline prices are having on small businesses 
across the country.
    My farm is on 12 acres and includes a nine stall barn, 
three paddocks, and an outdoor arena for lessons and training. 
I bought the farm--there has got to be a better way to say 
that--I bought the farm on March 20, 1997, and began accepting 
boarders and students. Because of the limited paddock area, I 
feed the horses concentrated feeds which are commonly known as 
oats or sweet feed, and hay pretty much year-round. Over time I 
watched my expenses increase dramatically. The cost of fuel 
affects every aspect of running a horse farm, no matter how big 
or small. The farm equipment used to plant, spray, harvest, and 
transport the feed all use diesel fuel, which is now more 
costly than gasoline.
    Currently, the cost of diesel fuel in our farming community 
varies from 4.15 a gallon to roughly 4.39 per gallon. And 
gasoline varies between 3.69 a gallon and approximately 3.9 per 
gallon. These high prices and the volatility of these prices 
have a significant impact on my bottom-line, including the cost 
of feed which has risen exponentially over the past few years. 
And if that is not bad enough, the use of corn to make fuel now 
has forced the price of corn up and corn is used in almost all 
feed concentrates on the farm. Of course, we feed more than the 
blended concentrates that use corn and other grains. We feed a 
lot of hay and again, every aspect of the price of hay is tied 
into the price of fuel from planting, to cutting, raking, 
baling, and now even the packaging. The big round bales are 
either wrapped in a plastic mesh or in a solid plastic wrap, 
both made from petroleum products.
    With the unusual rain patterns that we have experienced 
over the past few years, the hay crops have been adversely 
affected in many areas around the country. Because of that we 
often have to travel much farther to buy suitable hay, adding 
transport costs to an already expensive staple on the farm.
    But I do not just depend on bailed hay to feed the horses. 
Hay is used as the base ingredient in the pelleted feeds that 
contain the corn and oats and other grains. So no matter where 
the crop fails, feed manufacturers have the added cost of 
trucking the hay in to produce the concentrates we use. These 
costs are then passed on to us.
    And of course, after the horses have enjoyed the benefit of 
the feed, the manure either has to be spread or hauled away, 
again using fuel. Bedding for the horses is either usually wood 
shavings or straw. My cost for packaged wood shavings went from 
$2 per bale to $6 for the packed and $6.50 for the pelleted 
shavings. These increases came about partly because of the 
housing industry coming to a screeching halt and partly because 
of the cost of fuel, again hauling the timber, milling, 
collecting the shavings, and transportation uses diesel fuel 
and the packaged shavings are also packaged in plastic bags. So 
when the cost of fuel goes up it affects the price of bedding.
    If the horses on the farm are being shown, the price of 
fuel can determine how far away the owner is willing to travel 
to campaign a horse and how often they will compete. The 
commercial horse transportation companies have had to increase 
their per mile rate significantly, which is another cost passed 
on to small businesses like mine. The same goes for horses that 
are racing. Breeding operations typically have to transport the 
mares to the stud farms, adding expense to the operation with 
no guarantees that one trip will accomplish the desired 
outcome.
    There just is not much about managing a horse farm that is 
not affected by the price of fuel. Even the veterinarians and 
farriers have to charge trip fees to cover their travel 
expenses when they come to tend to the horses. But for those 
enthusiasts who are determined to keep their horses, it is 
worth it. If they have to, they will take a second job to cover 
the cost and many do.
    In addition to being a small business owner, I am also a 
member of the National Small Business Association and serve in 
a leadership capacity on the board. I can tell you that without 
question my issues are not unique to my business or my 
industry. We are all hurting from the volatile and rising gas 
prices. As such, NSBA recently adopted a new energy and 
environmental policy and will continue to take an active role 
in advocating on behalf of small businesses in these areas and 
urging lawmakers and regulators to consider the burden that any 
energy or environmental policy or rule would have on small 
farms.
    In short, we believe that any energy or environmental 
policy should have five primary objectives: (1) Ensure clean 
air and water; (2) promote adequate and affordable energy; (3) 
End U.S. reliance on foreign energy; (4) simplify regulatory 
requirements and accelerate the approval process. And finally, 
support federal and energy research dollars for small firms.
    I beg of you to please keep in mind that the impact of 
rising and volatile gas prices is not isolated to a horse farm. 
Cattle farms, pig farms, and even poultry operations are 
dramatically affected by the price of fuel just like I am. 
These costs go so far beyond the cost of transporting the 
livestock.
    And finally, I want to thank you for allowing me to testify 
on such a critical issue for America's small business 
community. It was an honor to address all of you, and I welcome 
any questions you might have.
    Ms. Velazquez. Mr. Chairman, it is my great pleasure to 
introduce Professor Michael Greenberger. Professor Greenberger 
is the founder and director of the Center for Health and 
Homeland Security at the University of Maryland and a professor 
at the School of Law. After leaving private practice, he served 
as the director of the Division of Trading and Markets at the 
Commodity Futures Trading Commission. Most recently, Professor 
Greenberger served as the technical advisor to the United 
Nations Commission of Experts on Reforms of the International 
Monetary and Financial System and the International Energy 
Forums independent expert group on reducing worldwide energy 
price volatility. Welcome, sir.

                STATEMENT OF MICHAEL GREENBERGER

    Mr. Greenberger. Thank you. Thank you, Chairman Graves. 
Thank you, Ranking Member Velazquez. It is an honor to be here 
and I congratulate you on holding this important meeting.
    I practiced law for 25 years before I went into the 
government and academia and I was very actively involved in 
supporting small business efforts and considered it to be an 
important part of both my professional life and interests. And 
I agree that small businesses have been very badly hurt by 
gasoline prices, but it is unfortunate that it is not just 
small businesses; it is the economy as a whole, Chairman 
Graves, as you alluded to in terms of unemployment that we see 
across the board.
    Chairman Graves, it is a real pleasure for me to see you 
today because, you may relieve me of this view, but I have 
viewed you as a champion in the kinds of things that I have 
been concerned about. I remember when natural gas was at a 
world record high of $15 per million BTU in December 2005. You 
stepped to the floor of the House of Representatives and added 
a provision with Congressman Barrow on the Democratic side to 
assist the CFTC in controlling excessive speculation in the 
natural gas markets. Congress gave the Federal Energy 
Regulatory Commission, and I know Congressman Joe Barton, then 
chair of the Energy Committee, had a large role in this. The 
Federal Energy Regulatory Commission was given strong anti-
manipulation authority in the natural gas markets. They have 
used it vigorously. They had used it up until about a month ago 
and natural gas was recently at a ten-year low.
    I want to make it clear I do not discount supply-demand as 
being an important factor and I agree that we have to search 
for ways to increase supply and reduce demand. And clearly, 
there are different market fundamentals at work in natural gas. 
But with natural gas going down, when it was at $15 per million 
BTU down to $1.70 four or five weeks ago is really quite 
remarkable. You may attribute that partly to supply-demand. I 
attribute it to your efforts to get the Federal Energy 
Regulatory Commission to be a cop on the beat beating back 
speculators in these markets.
    Now, the price of oil, which, as has been explained, is a 
key determinant of the gas, was at $65, July 2007; $147, July 
2008; $30, December 2008; $75, July 2007; and, when according 
to my testimony the CFTC was unable to cobble together enough 
votes to employ the anti-speculation efforts of Dodd-Frank. 
January 2011, the price went from 85 to 110. President Obama 
then convened an anti-manipulation interagency task force and 
it dropped from 110 to 75. The task force was found not to be 
doing its work and it goes back up to 110.
    And recently, with the uncovering of the Chesapeake 
situation, where the CEO of Chesapeake was not only producing 
oil and gas but running a hedge fund betting on the price of 
oil and gas, that is a ripe situation where the hedge fund can 
be manipulating prices with its parallel corporate institution, 
the company, and involve itself in wash trades which are 
felonious conduct. Now, I am not saying that happened, but it 
certainly is an avenue for investigation.
    My principal point is I am not offering you a silver bullet 
to bring gas prices way down, but I think there is a silver 
bullet and a risk-free process to attempt to bring the price 
down, what has been conservatively estimated by Goldman Sachs 
with analytics by Forbes Magazine about 50-some cents a gallon 
of gas. I personally believe it will go down a lot more. The 
key problem here is that there are betting vehicles in this 
market. There is an estimated half trillion dollars being 
passively bet by hedge funds, mutual funds, private equity, 
pension funds on the upward direction of commodity staples. The 
purveyors of those funds, principally Goldman Sachs and Morgan 
Stanley, then turn around and go into the futures market and 
offset their betting exposure. They only want to make money on 
the transaction fees. They do not want to take bets on the 
price direction, so they may hold, in the futures markets, many 
times, many times the actual supply of oil in the world. Now, 
how do they do that? They have contracts that promise to supply 
and deliver. They let them expire. They convert them. That is 
called the ``Goldman Roll.'' And just continue this process 
down the road.
    So it is this gambling that they are offering, a casino, 
with a preemption in the statute against state gaming laws that 
puts a half trillion dollars in not to production, not to 
owning the underlying commodity, but to bet on the upward 
direction of the price. The casino goes into the real market 
and buys exorbitant amounts of long futures contracts that send 
a false demand signal into the market. My view is the casino, 
the gambling, should be stopped. If I am wrong about this, all 
we will have lost are casinos. If I am wrong about this, the 
$500 billion will be put into production and ownership of 
commodity. I am not against speculation. I think speculation is 
fine. I am against passive gambling. And we have an estimated 
half a trillion dollars gambling going on and that has real 
impact in these markets. It should be stopped. There is 
legislation that is being prepared in the House and will be 
prepared in the Senate to stop the gambling.
    As I pointed out in my testimony, there has been on this 
issue substantial bipartisan concern about speculation. I point 
to several 2008 votes taken in the House that are bipartisan in 
nature. One is 402 to 19; one is 288 to 133. I think that we 
can in a bipartisan way approach a solution which will not 
completely solve the problem, but which will afford important 
relief to the American consumer. Thank you.
    Chairman Graves. Thank you very much, Professor 
Greenberger.
    For my opponents out there who say that I have not done 
anything in Congress, I appreciate what you said about my 
legislation being what caused natural gas prices to go down. I 
wish that I could say the same. I think it is extraordinarily--
I do not know what the word is--I think that is a huge 
overstatement on your part.
    Mr. Greenberger. So you are disabusing me of my admiration?
    Chairman Graves. But I am glad I got that on record and I 
will put it in my next commercial. I appreciate that.
    Mr. Greenberger. I will be happy to help you.
    Chairman Graves. Now, I am a supply and demand guy. That is 
what I am. And the fact of the matter is when you have 
speculators in the market that obviously take opposite 
positions and when you have a futures market and oil, natural 
gas, whatever the case may be is a commodity just like corn and 
soybeans which I have the majority of my experience in, wheat. 
You know, when you have consumers or you have even suppliers 
that are hedging, trying to lock in whatever price that they 
want, you also have to have an opposite position on that which 
the speculators usually tend to fill that position. But my 
point is, too, speculators make money whether the price is 
going up or down. They bid on the trend. And I do not believe 
that they drive the price. Now, I do believe that speculation 
is the cause of volatility, which is what my legislation seeked 
to address, has tried to slow down volatility. In fact, I tried 
to put price stops in just like we have in farm commodities. 
That ended up being a part of it to try to slow down 
volatility.
    But supply and demand, the fact of the matter is supply and 
demand is what drives the market. And while I would like to 
claim credit for gas prices, natural gas prices being so low, I 
do believe it is the fact of we had an extraordinarily mild 
winter and so demand was very low. And we have some of the 
largest production given some of the new areas that we have 
found. We have a huge supply right now of natural gas. And I 
think that is what contributes to long-term pricing structure.
    Now, when it comes to crude oil, which is what the intent 
of this hearing is, again, I am a supply and demand guy and I 
believe in supply and demand. And when you increase supply, and 
if we can increase supply in the United States, it is going to 
have a dramatic effect. Even if that supply is not going to 
come to fruition for 10 years, you talk about how you start 
opening up those regions, it is going to have a huge impact on 
the supply issue out there and it is going to drive prices 
down. But I think it is very, very--and I would very much be 
interested in your comments on, you know, on what I have to say 
about in terms of, you know, the volatility. Speculation 
contributes to volatility. But it does not contribute to 
overall price trends. And the fact of the matter is, and I 
would like your comments on that, too, speculators make money 
whether the price is going up or going down. They bet on that 
trend.
    Mr. Greenberger. Chairman Graves, the crude oil market 
today, the futures market, is 80 percent speculative, 20 
percent commercial. When it said to small businesses you go in 
and hedge, they are not going in to hedge. Farmers I am sure in 
your constituency will tell you it is too volatile to hedge. 
You control a contract with four to seven percent of the value. 
On about Labor Day 2008, I believe the price of oil went up 
about $19 one day and down about $18 the next. You cannot hold 
that contract on four percent margin. The commercials, and you 
should talk to people in the Commodity Market Oversight 
Coalition made up of heating oil dealers, the New England Fuel 
Institute, Petroleum Marketers Association, the airlines, the 
truckers, they all believe that when you have a futures market 
that is 80 percent speculation and 20 percent commercial, you 
are not having those speculators help the commercial. They are 
counterparties to each other.
    Now, you say they make money when the price goes up or the 
price goes down. They offer $500 billion of bets. You can only 
bet the price will go up. To offset those bets they have to buy 
long. Now, the fact that there is an opposite side to that bet, 
it is like there is an opposite side to the stock market bets, 
too. But stock market prices just do not go flat; they can be 
volatile. When there are more people trying to buy it than sell 
it, yes, people will sell it but the price goes up. If you took 
that $500 billion out of this futures market, it would decrease 
not only the price of crude oil because the betting is on a 
basket of commodities. Natural gas, by the way, is only four 
percent of it. Oil products are a huge percent of it, but so 
are farm prices. And you go talk to farmers or related 
industries and they will tell you, small farmers, they cannot 
use futures as a hedging vehicle. The market has passed them 
by. They are not hedging. And what does that mean?
    Chairman Graves. I completely disagree with you. Absolutely 
emphatically disagree.
    Mr. Greenberger. Well, I appreciate that.
    Chairman Graves. And in every futures transaction you have 
to have an opposite position. If an option is exercised, you 
have to have an opposite position.
    Mr. Greenberger. For every stock sale you have to have an 
opposite position, but stocks go up and down. And if people are 
buying Apple----
    Chairman Graves. We are not talking about the stock market.
    Mr. Greenberger. Well, it is the same market fundamental in 
futures contracts.
    Chairman Graves. Mr. McNally, I would appreciate your 
comments.
    Mr. McNally. As I said, since the late 1800s, producers and 
consumers have understood that oil prices tend towards wild 
gyrations. And we should differentiate here between volatility 
day-to-day, week-to-week, and then gyrations, huge swings. 
Economists call it low price elasticity of supply and demand in 
the short run. Plain English, you have got to use oil. If the 
price of chicken goes you, you buy meat. If the price of 
gasoline goes up, you still buy gasoline. So you need big price 
changes to effectuate little changes in demand.
    And that is why throughout history there have been three 
groups that have tried to suppress this volatility on the 
producer side. Rockefeller and standard oil in the late 1800s, 
which we busted up in 1911, and then we were the most effective 
OPEC. We, the United States, the Texas Railroad Commission, 
Seven Sisters locked up, stabilized the price of oil for 30 
years. We handed it over to OPEC in 1972. The chairman of the 
Texas Railroad Commission, they met every month to set 
production quotas just like OPEC has, and he called it a damned 
historic occasion. Why? Because for the first time in 30 years 
the U.S. did not hold any spare back. We let it all go because 
demand was outstripping our net supply growth and OPEC took 
over. In 2008, it was the first time we saw since March of 1972 
the spare capacity holder, now Saudi Arabia, no longer Texas 
Railroad Commission, run out of spare capacity in peacetime. 
You can read the DOE reports from earlier this year. If we are 
looking at a very tight market with a very low shock absorbing 
buffer with Iran possibly for the summer a risk that is being 
alluded to by comments from senior officials such as Secretary 
Panetta, people are going to speculate on prices going a lot 
higher. And I think it is important to differentiate and define 
speculation very carefully. If I am having a picnic near the 
railroad tracks on a sunny day with my family and I see two 
train cars coming down that railroad track heading towards each 
other, I am going to speculate on a train wreck. I am not 
causing the train wreck but I will speculate with high 
conviction we are about to have a train wreck and I want to 
move my family away from the railroad tracks.
    And that similarly goes into price formation and oil. Oil 
prices are driven by supply and demand as you said in terms of 
data and the best we can perceive them. There is a lot of work 
to do to improve that I think we would all agree. But also 
expectations of future supply and demand and supply risk. And 
we are in a tight and fearful market. And as long as this 
market remains tight and fearful we are going to see high 
volatility, or as I prefer to call it, gyrations in prices. 
Thank you.
    Chairman Graves. Ms. Velazquez.
    Ms. Velazquez. Mr. McNally, renewable fuels are becoming 
more popular, not only because they are environmentally 
friendly but also because they are becoming more cost 
competitive when you consider the rising prices of petroleum. 
How does the fact that oil is over $100 a barrel affect the 
buyability of renewable fuels as a solution to our problems?
    Mr. McNally. Ranking Member Velazquez, the main renewable 
fuel that competes with oil we thought would be corn. And then 
we were hoping cellulosic ethanol. And as my colleague on the 
panel mentioned, for various reasons we think that maybe the 
boom in driving corn into our gasoline pool may have 
contributed to rising food prices and has other unintended 
consequences. But corn ethanol is competitive at $100 and more. 
The problem is, and this is the problem with the price 
gyrations which I think we all would agree are a horrible 
thing. At $100 it makes sense to burn corn and ethanol, and it 
may make sense to invest in cellulosic ethanol and other more 
advanced and less--more environmentally friendly forms of 
renewable energy. The problem is when we go as we did from 147 
in the middle of 2008 to $30 a barrel, you do not know what to 
do. At $30 a barrel, at $40 a barrel, corn ethanol probably 
does not make sense. Certainly, cellulosic does not. So it is 
those wild gyrations in prices which keep people from deciding 
whether to buy an F-350 truck or a Leaf or invest in cellulosic 
or buy oil in the ground.
    Ms. Velazquez. So what is your message then, expanded 
domestic energy production?
    Mr. McNally. The comprehensive answer, that would be a very 
important part of it.
    Ms. Velazquez. But it has been found that it could take up 
to between five to 10 years. Right?
    Mr. McNally. Right.
    Ms. Velazquez. So what then relief will small businesses 
have if they have to wait 10 years to get the relief?
    Mr. McNally. As we all said, and my colleagues said, there 
is no short-term solution, unfortunately. I wish I had a magic 
wand to wave. There is no short-term solution.
    Ms. Velazquez. So what you are telling me is that expanded 
domestic energy production is not the sole answer.
    Mr. McNally. Not the sole answer. A very important part of 
the answer but not the sole answer.
    Ms. Velazquez. Mr. Greenberger, do you have any comments?
    Mr. Greenberger. Look, as I said before, I agree with 
Chairman Graves that supply-demand has some relevance here. The 
CEO of Exxon Mobil has said the market fundamentals mean that 
the price should be between $60-70. Goldman Sachs has said 
there is a 56 cent speculative premium here per gallon. It is 
fine for people to move away from a running train. There are 
plenty of speculative avenues. You can buy oil production 
companies. You can buy the oil itself. You can buy futures 
contracts on oil. But what you cannot do is open a casino and 
have people passively bet that the price will go up, and then 
like a bookie, lay off your risk in the real futures market. 
What I am saying is even if I am wrong, those who say yes, we 
want to keep the casinos going, we want gambling, we want to 
preempt state gaming laws, why do you not meet me halfway and 
let state gaming laws apply to this? It is pure passive 
gambling. It has no productive result. It is destroying the 
economy.
    And as to the Saudis, I was an advisor to the International 
Energy Forum. Twenty oil producing countries, including the 
Saudis, and 20 oil consuming countries, Western Europe and the 
United States. There was virtual uniform agreement that the 
market had become financialized. In March, the Saudi king and 
oil minister said they would increase production by 25 percent 
to offset potential interference with the Strait of Hormuz. The 
price went up the next day. The president threatened to release 
strategic----
    Ms. Velazquez. All right. And the prices went down.
    Mr. Greenberger. And the price went up. The more supply we 
are offering, the price goes up. In July 2008, the Saudis, at 
the request of Vice President Cheney, increased production. The 
price went up $5 the next day. That is not market fundamentals. 
That is not speculation. It is betting and gambling. If you 
want to leave the status quo, you have to tell your 
constituents I approve of people passively gambling on the 
upward price direction and the casinos then affecting the bets 
by swamping the market with long crude oil contracts, 10 times 
the size of the world's----
    Ms. Velazquez. Let me follow up with another question to 
Mr. McNally. The St. Louis Federal Reserve recently released a 
report indicating speculation was the second largest 
contributor to oil prices accounting for nearly 15 percent of 
the rice. So how do you reconcile what you said before with 
this report?
    Mr. McNally. I do it by noting we have sort of a battle of 
the Federal Reserve Banks. The Federal Reserve Bank of Dallas 
also issued a report looking at the data and refuted that and 
came to a different conclusion and said there is a very little 
role from financial market participants. So we can probably 
spend all day arguing about those reports but I would just 
point out the commodity futures trading commission in 2008 led 
an interagency task force composed of the Departments of 
Treasury, Energy, Agricultural, Federal Reserve, Federal Trade 
Commission, and the SEC. And they looked at 2008, the period we 
have talked about, and concluded the price behavior was due to 
supply and demand fundamentals. And I could read to you from 
Department of Energy Reports and international agency reports 
from earlier this year ad nauseam showing that it is really 
supply and demand and not financial market participants that 
are responsible for the price behavior.
    Ms. Velazquez. Thank you. Professor Greenberger, do you 
think it is merely a coincidence that the unprecedented growth 
in commodity index trading occurred at the same time as a boom 
in commodity prices?
    Mr. Greenberger. No, I do not think it is a coincidence, 
and there have been three bipartisan reports from the Senate 
Permanent Subcommittee on Investigations on crude oil, natural 
gas, red wheat, each of which concluded that the commodity 
index business, which started in 2004 at $13 billion and is now 
estimated to be $500 billion, if you look at charts, that is 
where the bubble started. And yes, the bubble bursts from time 
to time. And by the way, when it bursts, all these small 
businesses who were advised to hedge; Goldman and Morgan were 
telling airlines when the oil was at 150 to hedge against the 
price of 200. At the end of the year the price was 30. Those 
airlines took a beating and small businesses do not hedge 
anymore because of those kinds of beatings.
    Ms. Velazquez. Thank you, Mr. Chairman. Thank you.
    Chairman Graves. Mr. Walsh.
    Mr. Walsh. Thank you, Mr. Chairman. Thanks for calling this 
hearing.
    This is a big issue and we are forgetting about you two 
rock bones right there in the middle, the small businesses who 
are impacted by this. We are engaged in an important policy 
discussion but you are living this. And so I apologize if you 
two get shunned a little bit today but I very much appreciated 
your testimony because you, small business men and women will 
turn this country around. And we here in Washington make it too 
darn difficult for you to do that.
    I get so tired of hearing this line that, you know, if we 
only increase supply, our domestic supply could take five to 10 
years. We said that five to 10 years ago. We said that 10 to 15 
years ago. We said that 20 to 25 years ago. And Mr. 
Greenberger, respectively, I hear your argument on speculation. 
I respect it to a large degree, but you so dismiss----
    Mr. Greenberger. That is not true.
    Mr. Walsh. But you so dismiss basic supply and demand. It 
is like we look for a bad guy in every debate we have up here 
and the other side tends to demonize big bad oil, not 
understanding that 95 percent of the oil produced in this 
country comes from independent oil companies. This 
administration does not have an energy policy. And so he again, 
the president again clearly a few months ago made up his mind, 
Professor Greenberger, that he was going to jump on that bad 
guys and go after speculators to make up for an utter lack of a 
policy.
    Mr. McNally, this notion of we cannot start drilling 
tomorrow all over the place because we have an abundance of 
areas where we could impact supply, but we may not see the 
effects of that for three or four or five or six or ten years. 
Is that true? If this country aggressively and energetically 
decided to snap their fingers and go after all of the supplies, 
all of the oil supplies we have, could you see some more short-
term impact on prices?
    Mr. McNally. Short-term I think market participants would 
want to see real barrels show up. So I would be cautious in 
expecting too much of a price decrease even if we were to waive 
a wand and open up everything in the very, very short-term. 
Unfortunately, I wish it were not the case but unfortunately in 
the short term there is very little we can do. However, what I 
described, we are living with the consequences of five to 10 
years of bad dreams, if you will, bad surprises. Two billion 
people want to drive. We are not increasing supply as we used 
to. The Persian Gulf is a mess. We are living with that now. 
What we do know with our own resources under the ground, we can 
start creating good surprises so that in the next three to five 
to seven years maybe we can find ways to increase production to 
diversify further out of the Persian Gulf, to find ways to 
scale up a cellulosic or maybe other ways, make battery cars 
work better. So we live with the consequences of surprises and 
trends that develop over the previous five to seven to 10 
years. We absolutely need to right now work on making the next 
three to five to seven years ones where the surprises are good 
ones.
    Mr. Walsh. Professor Greenberger refers to this difference 
between speculators and gamblers. How do you see that 
distinction? Do you see a distinction?
    Mr. McNally. Yeah, I do not see that at all. What we have 
are the oil price and oil markets, exchange markets and the 
derivatives markets are composed of physical consumers and 
producers of oil who want to transfer their price risk to those 
willing to bear it, which include speculators. What Mr. 
Greenberger is also talking about though are these passive long 
only investors. These are folks, pension funds, university 
endowments, you and me, where we want to put a part of our 
portfolio into commodities, a basket of commodities that 
includes oil. Now, the CFTC has looked at this very closely 
because there is no question this money has come into the 
market, that is for sure. But the CFTC has looked into it and 
they have disaggregated careful data and they show, for 
example, in early 2008, as oil prices were lurching up to that 
$147 high, passive investors were actually selling their oil 
futures. And I would be happy to point that out for the record 
in that CFTC report.
    So the folk who try to figure out if it is the rooster 
causing the sun to rise or the rooster just sort of crowing, 
you know, in coincidence with the sun rising, looking at 
Granger causality tests and all kinds of math and speaking 
Greek and everything, the folks who poured into that who were 
unbiased, who have the information, have not yet said or not 
concluded that these investors, whether it is these passive 
long-only folks just buying and holding, or speculators who buy 
and sell have distorted or manipulated or influenced the price 
of oil.
    Mr. Walsh. And Mr. Chairman, let me just close with this. 
Ms. Driscoll and Mr. Smith, it is our job here to make life 
easier for you so that you can be productive and profitable and 
grow businesses and hire people. There is not a lot we can or 
should do here. Often, the things we do here make things worse. 
We have an abundance of oil on our land and around our shores. 
It makes sense for us, I think, and I hope you agree, to go 
after those resources in as sensitive and as reasonable a way 
as we can to make life easier for you two. Thank you for 
coming.
    Thank you, Mr. Chairman.
    Chairman Graves. Mr. Barletta.
    Mr. Barletta. Thank you, Mr. Chairman.
    Mr. Greenberger, one of the biggest national security 
concerns is our dependency on foreign oil obviously. Many 
scientists have argued that our nation has more natural gas 
than Saudi Arabia has oil. And in my home state of 
Pennsylvania----
    Mr. Greenberger. My home state, too.
    Mr. Barletta. It is a very exciting opportunity where our 
state could be, I believe a leader in solving some of America's 
energy concerns.
    A 2010 Penn State study found that Marcellus shale could 
generate nearly $19 billion in economic value per year and 
200,000 jobs by 2020 in Pennsylvania alone. Could you comment 
on a potential impact of natural gas from Marcellus shale and 
helping small businesses decrease their energy costs and the 
impact of an energy policy, whether it be natural gas--and I am 
talking about transportation fuel--natural gas, automobiles, or 
natural gas to liquid fuel?
    Mr. Greenberger. Well, I agree with your premise and before 
Mr. Walsh leaves I just want to say for the fourth time I do 
not discount supply-demand. I have made that clear several 
times. What I am talking about is a premium over supply-demand.
    Mr. Walsh. Do me a favor, before you leave today make sure 
you expound upon what we can do when it comes to supply and 
demand.
    Mr. Greenberger. I will definitely----
    Mr. Walsh. What we control.
    Mr. Greenberger. I can definitely do that. And I think that 
the Pennsylvania situation is a prime example with the natural 
gas resources.
    Now, I will tell you something. What I am not an expert on 
is the environmental concerns. I know there are many 
environmental concerns, but I have got to tell you, I grew up 
in Scranton, Pennsylvania. Do you know Scranton, Pennsylvania?
    Mr. Barletta. It is in my district.
    Mr. Greenberger. Really? Great. Are you from Hazelton?
    Mr. Barletta. I am.
    Mr. Greenberger. Okay.
    Mr. Barletta. Former mayor.
    Mr. Greenberger. Okay. Well, you know that area. And 
anything that would make that area more productive, we 
depended, as you know, on hard coal, anthracite coal, and I 
grew up--when I was born, Scranton had 150,000 people. It now 
has about 50,000 people. I definitely believe that these 
resources--North Dakota is the same thing--need to be explored 
and developed. They are being explored and developed. On my 
theory of supply and demand, I do not think the price going 
from $15 per million BTU down to $1.70 is unrelated to supply-
demand. Those kind of experiences have an effect. But it is not 
completely explained by supply-demand. You cannot go from $15 
to $1.70 and having the FERC bringing manipulation cases 
collecting $200 million against the Amaranth. Thirty million 
dollars against the Amaranth director and that not affect the 
price. We need to see that same aggressiveness in the other 
commodity markets and we are not, but to me the experience that 
you are talking about is one of great hope for us and again I 
say I believe supply-demand is important and I would look for 
every possibility. My concern and expertise is that there is at 
least a 50 cent per gallon premium--I believe it is maybe even 
more--that American consumers are putting into their purchase 
of gasoline that is completely and totally unnecessary. The 
price of oil dropped $5 in two days from 103 to 98 when it was 
discovered that Chesapeake had within its corporate structure a 
hedge fund that was betting on the price of oil. And by the 
way, government regulators did not discover that; Reuters 
discovered that. Where are the government regulators? They are 
asleep.
    And the final point I would make, it is said that President 
Obama was slow to get on the bandwagon. I agree with that 
because John McCain got on this bandwagon when he ran for 
president two weeks before President Obama did. In June of 
2008, McCain said the cause of the explosion in crude oil is 
excessive speculation and I am tired of hearing about a 2008 
CFTC report that has been discredited even by the bipartisan 
House Agriculture Committee and then being told that St. 
Louis's Fed's report of last week or the Dallas Fed's report is 
meaningless. There are 50 studies--Princeton, Texas A&M, 
Stanford, London School of Economics, Nouriel Roubini, Paul 
Krugman. There are 50 studies--they are not uniform--saying 
this is a gambling problem. And there is a difference between 
gambling and speculating. We should stop the gambling.
    Mr. Barletta. And do you feel if we explored for more 
natural gas, what effect would that have on supply and demand 
of oil?
    Mr. Greenberger. There is obviously not a complete 
crossover use. If there were you would see the price of oil go 
down. But it has impacted the price of natural gas. As I said, 
it has gone down from $15 per million BTU, a world record high, 
to $1.70, which is a ten year low. Part of that is stopping 
speculation, but it is not the main part. Part of that is the 
kind of production that you were talking about in Pennsylvania 
and other states which is the hope for the future of the 
American economy.
    Mr. Barletta. Thank you.
    Chairman Graves. Mr. Tipton.
    Mr. Tipton. Thank you, Mr. Chairman. I would like to start 
today by being able to submit an article for the record that 
ran in Monday's Washington Examiner Op-Ed column. It is a joint 
op-ed that you and I wrote, Mr. Chairman, which states that red 
tape is strangling America's energy supply. In the op-ed, we 
point out that one in 10 business owners say energy is his or 
her single largest cost ranking it ahead of wages, material, 
and other investments. Additionally, another 25 percent claim 
energy is its second or third largest expense. Policies by this 
administration, like failing to approve the Keystone pipeline 
are driving up gas prices and prohibiting us from developing 
American energy.
    Just last month I introduced H.R. 1381, the Planning for 
American Energy Act of 2012. Under the legislation, the 
nonpartisan energy information administration provides the 
projected energy needs of the United States over the next 30 
years to the secretary of interior and the secretary of 
agriculture on what they will base for the four-year production 
plans. My ``all of the above'' energy plan requires that wind, 
solar, hydropower, geothermal, natural gas, oil, coal, and 
shake minerals needed for energy development be included in 
those plans. Enacting this plan will develop our resources here 
in America and assist with lowering gas prices and lessening 
our dependence on volatile foreign energy sources.
    I would like to probably start out with Ms. Driscoll, since 
you have not had any questions coming up, we know what is going 
on in the Middle East right now. If all of a sudden we do not 
have that flow of oil coming out of the Middle East, would you 
expect our prices to go up in this country?
    Ms. Driscoll. If I base my expectations on historical data, 
yes. I should hope that we could generate enough fuels here in 
the United States to meet the need but I keep hearing----
    Mr. Tipton. So you and Mr. Smith, you are small business 
people. I am a small businessman as well. You rely on a supply 
coming in. So would it be sensible for the United States of 
America, rather than continuing to say we cannot do it because 
it is five to 10 years down the road, to finally take those 
reins in our hands to be able to create energy certainty for 
the United States of America? Would that give you a little bit 
of consolation and certainty from your businesses if you knew 
that that supply was not going to be cut off and as a byproduct 
you are going to be creating American jobs on American soil and 
developing American energy resources? Would that make sense to 
you?
    Ms. Driscoll. It is a start. It is a start. I would hope 
that we could do it with a heavy emphasis on the safety of the 
American people with the processes used to harvest that fuel. 
That has got to be a primary concern that runs in conjunction. 
Yes.
    Mr. Smith. Absolutely. I agree. You know, we need some 
stability to this at some point for American businesses. So, 
you know, as a businessperson, right now I have to watch every 
dollar I spend because I do not know what is coming next. And 
so I have to hold off on hiring or cut back on hours that 
someone is working to make sure that I can keep my overhead 
down to make up for things like gasoline prices rising.
    Mr. Tipton. So is it accurate, Mr. Smith, that because of 
the failures of this administration to be able to develop an 
energy policy for this country, you are having to direct your 
resources in areas that you would rather be putting to 
productive use like creating jobs, expanding your business, and 
expanding your bottom-line?
    Mr. Smith. I mean, you know, I truly believe that, you 
know, right now with the--I think most people call it the 
gridlock or the red tape--that is not happening--to make sure 
that we have some sort of plan in place to, you know, help the 
economy, help businesses, help families, you know, with the 
rising costs of fuel and the unknown of what fuel will bring in 
the future.
    Mr. Tipton. I know in my district in Colorado we continue 
to hear the stories of struggling families that are paying 
3.80, 3.90 a gallon and they are making a choice--do they fill 
up half the gas tank and buy a little bit of food or what are 
they really going to do? So this is about policy. And I would 
like to maybe expand this discussion just a little bit when we 
are talking about the futures market because I think that we 
neglect to point out the failure of this administration to be 
able to stand up for the strength of the U.S. dollar. We saw 
under the Reagan administration with the strong U.S. dollar we 
can have economic prosperity.
    Mr. McNally, on the world oil markets, is that based off of 
the value of a U.S. dollar?
    Mr. McNally. The role of the dollar and expectations of 
future dollar exchange rates and inflation rates is one factor 
that plays a role in forming oil prices.
    Mr. Tipton. So the weak American dollar is actually driving 
up costs to American consumers. Do we have any data to see how 
that relates as opposed to some of the speculative market in 
terms of the cost to consumers and businesses?
    Mr. McNally. I am not aware of government studies that have 
done that. I am sure banks maybe have looked at that. So that 
is not something in the government sphere which I am aware of.
    Mr. Tipton. I am sorry, Mr. Chairman, my time has expired. 
Thank you.
    Chairman Graves. Ms. Ellmers.
    Ms. Ellmers. Thank you, Mr. Chairman. And my questions are 
for Ms. Driscoll and Mr. Smith as well as business owners. It 
is so important that we understand how the rising price of 
energy is affecting our businesses and how that in turn affects 
you, the community, and the cash flow of your businesses. So 
what I would like to do, Ms. Driscoll, if I could start with 
you and then I am going to ask a couple of questions and if 
both of you could answer.
    There again, you know, as fuel prices have been rising and, 
of course, you know, some have come down a little bit, and of 
course, I am talking about gas prices, as they have fluctuated 
what did this do to the ability of your business and your cash 
flow? How do you manage that?
    Ms. Driscoll. The first thing I did was lay off people 
which absolutely broke my heart to do that. I went from full-
time employees and I put them in a part-time situation. And I 
am now doing everything. So it is really unfortunate. After I 
had laid off people and then put them into part-time and no 
more, then I would at least bring them along to trade shows and 
work with me in that capacity or when I was showing horses I 
would bring them along in that capacity to work for me for the 
day. But with the fuel prices, what I pay to get to the show is 
probably double what I was paying them to come along as grooms. 
So it certainly affected the job market in my region.
    Ms. Ellmers. Sure. You know, I would agree. Each month my 
fuel bill comes in. I never want to open it. I hate to see what 
that number is as it does continue to grow, you know, every 
month. Even though we have had a recent decline it is still 
significantly up from, you know, January 2011.
    So I look at things like I have reduced hours on employees. 
I have replaced employees with part-time people. So I really 
have to watch the overhead portion of my business and cut back 
wherever I can. So at times it means that I do not take a 
paycheck. So usually that is the first cut that happens, is my 
ability to make any money. And then and that point I have to 
look beyond that and see what to do. And right now, while I 
would love to see growth, we do not see it in the plumbing 
industry. Being a part of Mr. Rooter Plumbing, we are a 
national, you know, franchise. International franchise. And so 
I hear of the other business owners that I speak to that are 
laying off people, you know, as we speak. The past few months 
they have been laying people off. And so energy is a huge 
expense for us, you know, and the fuel costs.
    Along that line, basically my question is how has it 
affected your bottom-line? And I guess probably the easiest way 
to say that is are you better off today than you were four 
years ago? So Ms. Driscoll?
    Ms. Driscoll. Being one to conserve words, the answer to 
that is no. Absolutely not. I do not take a paycheck anymore 
either. You find ways. And I truly believe that small business 
owners are our own worst enemy. We find a way to get it done 
anyway, and as a result it gives the impression that it is 
really not that bad for us. And it is. I do not think I have 
taken a paycheck in about two and a half years. It is very 
frustrating and it is difficult for me to add new products to 
the line. It is difficult for me to campaign a horse that 
really should be out on the road being seen. I have cut back on 
some of those things knowing that the end result is I am not 
going to get as good sales. But you have to cut. It is a very 
frustrating situation. I have to do things that I know are not 
good for my business.
    Ms. Ellmers. Thank you. Mr. Smith.
    Mr. Smith. Yeah. And, you know, I would say in a small 
business, it is like a small family. So every time we have to 
lay someone off if is not a large corporation that sends in an 
H.R. person; you are laying off your friend, you know, that you 
have worked with for years and you know their families. So it 
takes a much more enormous toll on us outside of just the 
financial. We are also dealing with people, you know, and our 
friends and making impacts to their lives because of decisions 
we need to make to keep our business open.
    Ms. Ellmers. Thank you. This is the story we keep hearing 
over and over again. Back in my district last week I met with 
some business owners and one of the stories which is 
heartbreaking, literally, in order to keep their business open, 
their small business, one of my friends has actually taken 
another job to keep the doors open on the business. They have 
gone through all of their savings, their retirement, selling 
their home and moving into a townhouse. And this is what they 
have had to do to keep those doors open. And it is what we do 
as Americans. So with that, Mr. Chairman, I yield back.
    Ms. Velazquez. I would just like to say, Mr. Chairman, it 
is evident that, you know, one role of this Committee is to 
help create a climate that is conducive to help small 
businesses do what you do best. That is creating jobs. And one 
area where this Congress can be effective is in the area of 
energy policy and we have not acted on any comprehensive energy 
bill reported out of the House of Representatives. Thank you.
    Chairman Graves. I appreciate it. I want to thank you all 
for coming today. And unfortunately, we lose sight a lot of 
times in the debate over what causes energy prices to rise and 
fall. We lose sight of what it really does to small businesses 
and to consumers and to people out there. So I appreciate 
everybody here coming in and testifying. We are in the middle 
of a vote series so we are going to go ahead and close down the 
hearing. But thank you all very much.
    And I would ask unanimous consent that members have five 
legislative days to submit statements and supporting materials 
for the record. Without objection, so ordered.
    And with that the hearing is adjourned.
    [Whereupon, at 2:11 p.m., the Committee was adjourned.] 

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