[Congressional Record Volume 150, Number 36 (Monday, March 22, 2004)]
[Senate]
[Pages S2836-S2839]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        SOARING GASOLINE PRICES

  Mr. WYDEN. Mr. President, gasoline prices are soaring to the highest 
levels ever and once again the response of the Federal Government is to 
do nothing. I have come to the floor today because I believe the 
gasoline consumer is about to be hit by a perfect storm, a combination 
of refinery cutbacks that boost profits, the fact that oil is being 
moved into the Strategic Petroleum Reserve with no plan to protect the 
consumer from resulting shortages, and the prospect of even higher OPEC 
prices when OPEC cuts production possibly in June, just at the start of 
the high travel season. I want to discuss this today because inaction 
in the face of spiraling gas prices is the worst possible response 
Congress and the administration could have at this time.
  Higher oil and gasoline prices act like attacks on our consumers, 
causing them to defer spending in order to pay for gasoline. Right now, 
consumer spending is the principal ingredient driving our economy. If 
consumer spending declines, economic recovery is going to be delayed 
and there is the chance of the economy sliding further into a 
recession.
  I know gasoline prices are already as high as they have ever been, 
and the perfect storm I see coming in the days ahead is going to soak 
consumers for even more money at the pump with the prices already 
staggering.
  According to the American Automobile Association, the national 
average price of gasoline is $1.72 per gallon. That is just 2 cents 
short of the alltime high set last August and, of course, it is not 
even the peak driving season. California prices are consistently way 
over $2 per gallon. The prices in my State are consistently in the 
ballpark of $1.80. I will outline this afternoon

[[Page S2837]]

why I believe it is likely to get even worse.
  One major oil company, Shell, has announced it is deliberately 
shutting a 70,000-barrel-per-day refinery in Bakersfield, CA. This 
refinery is critical to the entire West Coast market. The fact is, when 
Shell permanently constricts gasoline supplies and drives up prices 
along the West Coast, our area, which already has staggeringly high 
unemployment, is going to be hit very hard.
  Earlier this month, at a Senate Energy Committee hearing, I asked the 
Administrator of the Energy Information Administration whether the 
closing of Shell's Bakersfield refinery could boost West Coast prices 
even higher. That day he agreed that could be the result of that 
refinery shutting down. Yet, in the face of these kinds of problems, 
the response of the Federal Government is simply to sit on the 
sidelines.
  Shell's announcement of its decision to close the Bakersfield 
refinery claimed in a statement that there is simply not enough crude 
supply to ensure the viability of the refinery in the long term. Recent 
news articles have reported that both Chevron/Texaco and State of 
California officials estimate that in that valley where the Bakersfield 
refinery is located, there is a 20- to 25-year supply of crude oil 
remaining. In fact, Bakersfield, CA, reported on January 8 of this year 
that Chevron/Texaco plans on drilling more than 800,000 new wells in 
the valley, which is 300 more new wells than last year. The fact that 
Texaco, Shell's former partner in the Bakersfield refinery, is 
increasing drilling in the area calls into question this claim by Shell 
that a lack of available oil supply is the real reason for closing the 
Bakersfield refinery.

  Shell also claimed that its decision was not made to drive up 
profits, but the company admitted to the Wall Street Journal that there 
will be an impact on the market. Of course, the impact is going to be 
to drive up prices even higher. The question for the Senate, and why it 
is so important for us to act now, is, How much are these prices going 
to go up and when is the Senate going to finally stand with those who 
have to make these gasoline purchases?
  In 2001, I revealed internal oil company documents that showed major 
oil companies pursued efforts to curtail refinery capacity as a 
strategy for stifling competition and boosting their profits. These 
documents raised significant questions about whether American oil 
companies are trying to pull off a financial triple play: Boosting 
profits by reducing refinery capacity, tagging consumers with higher 
pump prices, and then going out and arguing for environmental rollbacks 
and additional financial incentives.
  I say, and I want to use this to make clear why I think it is 
important the Senate should act, that I believe these practices I 
described in 2001 are still ongoing today as gasoline prices rise even 
higher and consumers suffer even more. In memos detailed in a report I 
issued then, oil companies articulated a desire to reduce oil and gas 
supply.
  One document from Texaco reads:

       Significant events need to occur to assist in reducing 
     supplies and/or increasing the demand for gasoline in order 
     to increase prices and grow profit margins. Oil company 
     competitors also discussed--

  Discussed with each other, Mr. President--

     mutual opportunities to control oil and gas supply, thus 
     keeping markets tight.

  In one case, they were trying specifically to prevent the restart of 
a closed refinery in southern California. One company document revealed 
if the refinery in question, Powerine, was restarted, the additional 
gasoline supply on the market could bring down gas prices and refinery 
prices by 2 cents to 3 cents per gallon and it called for a ``full 
court press'' to keep the refinery down. The Powerine refinery's 
capacity was 20,000 barrels per day. The Bakersfield company Shell 
wants to shut down has a capacity of 70,000 barrels a day. If oil 
companies in the mid-1990s thought a much smaller shutdown would raise 
the price of gas by 2 cents to 3 cents, you can't tell me the shutdown 
of a refinery with 3\1/2\ times the capacity will not have an even 
larger impact on prices at the pump.
  What makes Shell's decision to close its Bakersfield refinery 
especially curious is it seems the company has done virtually nothing 
proactively to find a buyer. But, to date, in spite of my requests and 
the requests of others, the Federal Trade Commission has made no effort 
to stop or even slow plans for Shell's refinery closure. The Federal 
Trade Commission has been arguing they can only prosecute if they find 
out-and-out blatant collusion, setting out a standard that is virtually 
impossible to prove against these very savvy oil interests. But in this 
case the Federal Trade Commission has the authority to act because the 
Agency allowed two megamergers to go through that directly affect the 
refinery Shell now plans to shut down. The Federal Trade Commission had 
a chance to act when it allowed Shell to acquire full ownership of the 
Bakersfield refinery in 2001 from a Shell-Texaco partnership.
  The Federal Trade Commission had another chance to act when it 
allowed Shell to acquire Pennzoil-Quaker State in 2002. Then last 
November, when Shell announced it was closing the Bakersfield refinery, 
the Federal Trade Commission had a third chance to act, using its 
continuing authority to reexamine these earlier mergers.
  I say it is time to get the Federal Trade Commission off the 
sidelines and onto the side of the consumer who is getting shellacked 
at gasoline pumps all across America. Today I am calling on the Federal 
Trade Commission to exercise its continuing authority over these past 
mergers and to either block the shutdown of Shell's Bakersfield 
refinery or to otherwise keep refineries in that area viable. That set 
of decisions will affect the entire west coast gasoline market. At a 
time when our economy is being hit so hard, it is absolutely critical 
to the public interest.
  The Energy Department ought to be doing more to address the problem 
of high gasoline prices, but at a minimum the Energy Department should 
not be making the problem worse. When Secretary Abraham was asked 
recently about the problem of rising gasoline prices, he told reporters 
he was extremely concerned but did not specify the Department would do 
anything. One thing that could be done by the Department that would 
help address the problem is the Energy Department could stop making the 
current supply situation worse by taking oil from the tight U.S. market 
to fill the Strategic Petroleum Reserve without any protections for the 
consumer.
  On February 12, as crude and gasoline prices were spiking up, the 
Bush administration awarded five new long-term contracts to fill the 
Strategic Petroleum Reserve. These new contracts will run from April 
through the summer, the very time period where prices typically shoot 
upward. If the Bush administration were concerned about high gasoline 
prices, the Energy Department could have either delayed awarding these 
long-term contracts or arranged to defer the delivery of oil to the 
Strategic Petroleum Reserve, as was done last winter, to minimize the 
impact on the market and on the consumer. But now the administration is 
taking oil off the market and moving it into the Strategic Petroleum 
Reserve with no concrete plan to protect consumers from the higher 
prices this action will cause.

  Earlier this month, Guy Caruso of the Energy Information Agency told 
me OPEC would be making up the difference in supply for oil that is 
being moved into America's Strategic Petroleum Reserve. So you have a 
situation where the administration, through the Energy Information 
Agency, is telling people to not really sweat these OPEC decisions. But 
now OPEC is telling us they are going to cut production by 1 million 
barrels a day. This morning we hear they might hold off until June 
instead of making cuts in April. But even if they do that, the OPEC 
production cuts would come at the beginning of the summer travel 
season. So certainly OPEC is engaged in some doubletalk. For some time 
they have not kept their promise to hold oil prices within their own 
target price range. In fact, some members of OPEC just want the price 
range increased.
  Some in OPEC say they are concerned prices are too high. Yet this 
cartel is taking oil off the market. Others are saying they see a glut 
of oil on the market, justifying the production cut. These are mixed 
signals, but the message for our consumers is clear: OPEC is certainly 
going to do what is

[[Page S2838]]

best for OPEC, not what is best for the American consumer.
  My bottom line is the Federal Government certainly is challenged, in 
terms of stopping OPEC from cutting production. But certainly the 
Federal Government can take steps and take steps immediately to make 
sure there is competition in our gasoline markets so consumers are not 
getting ripped off at the pump.
  Today I am calling for Congress to take action on a specific, 
concrete package of procompetition initiatives to help consumers at the 
Nation's gas pumps. First, Congress needs to direct the Government 
regulators to act to eliminate anticompetitive practices that currently 
siphon competition out of gasoline markets. Scores of communities, 
including those in my home State, have few if any choices for the 
consumer. Nationwide, the gasoline markets in Oregon and in at least 27 
other States are now considered to be tight oligopolies, with 4 
companies controlling more than 60 percent of the gas supply. In 
California, where Shell's Bakersfield refinery is located, 4 oil 
companies control 70 percent of the market. In these tightly 
concentrated markets, numerous studies have found oil company practices 
have driven independent wholesalers and dealers out of the market. One 
practice they employ, called redlining, limits where independent 
distributors can sell gas. As a result, independent stations have to 
buy their gas directly from the oil company, usually at a higher price 
than the company's own brand-name stations are paying. With these 
higher costs the independent stations can't compete.
  Last year I sponsored legislation, S. 1732, that would give the 
Federal Trade Commission additional tools to promote competition in 
these areas that are essentially small monopolies. Under my bill, in 
these very highly concentrated markets you would have consumer watch 
zones. In these zones there would be greater monitoring of 
anticompetitive practices by the Federal Trade Commission. The Federal 
Trade Commission would also be empowered to issue cease-and-desist 
orders to prevent the companies from gouging the consumer, and Congress 
would stipulate certain anticompetitive practices like redlining and 
zone pricing are, per se, anticompetitive and oil companies engaging in 
these anticompetitive practices that manipulate supply or limit 
competition would have the burden of proof to show these 
anticompetitive practices are not harming consumers.
  There is a vehicle right now. Right today there is a vehicle, S. 
1737, Congress could use to address the problem of skyrocketing 
gasoline prices, because the companies admit the market is not going to 
solve the problem on its own.
  Last August, a report by the RAND Corporation revealed even oil 
industry officials are predicting more price volatility in the future. 
This means consumers can expect more frequent and larger price spikes 
in the next few years.
  Last November, the Energy Information Agency also issued a report on 
the causes of last summer's record high gas prices. The Energy 
Information Agency found, ``There is continuing vulnerability to future 
gasoline price hikes.'' The industry and the Bush administration both 
agree gasoline price spikes are going to be a continuing and 
significant problem. But neither, as of today, is willing to step in 
and work with the Congress on a bipartisan basis to do anything about 
the problem. I am here to say the Congress needs to act now. This is 
legislation to act now before gasoline shoots up to $3 per gallon, as 
some oil industry analysts are predicting.
  The reasons Congress ought to act are twofold. Aside from the obvious 
cost to the consumer at the pump, there are hidden costs to the price 
manipulation. There is a huge economic impact that will only worsen as 
prices rise. When gasoline costs more, the costs for our businesses in 
the transportation area go up. Our businesses see their profits go 
down. So we have one of two things--either the prices of the goods they 
sell to consumers have to go up or the number of people they employ is 
going to plummet. Higher gasoline prices either means bigger costs for 
consumer goods or fewer jobs in our economy. And certainly in our home 
State, we cannot afford to see that. This isn't high economic theory. 
This is basic math.
  Just this month, the New York Times quoted a truck driver from 
Wisconsin saying eventually the added cost of transporting household 
goods and snacks and other items will once again come back and clobber 
the consumer. You have a double whammy. Consumers get socked at the 
pump in person, and then get hit again with higher prices for the goods 
they buy. That is not acceptable to me, and I don't believe it is 
acceptable to the American people.
  The challenge now is for the Congress to stand up to the status quo 
in the oil industry. I understand--and certainly nobody would minimize 
this--this will be a hard row to hoe in terms of taking on these very 
powerful interests.
  When I first introduced legislation that now can be used to protect 
the consumer from gasoline prices going up to $3 per gallon, various 
oil interests and Bush administration officials voiced great 
consternation and argued vociferously that the legislation I believed 
will protect the consumer was unacceptable to the oil industry and the 
administration.
  I still believe the proposals which I have put forward in legislation 
and on which the Congress could move now would protect competition and 
free markets. My legislation doesn't involve big expenditures from 
Government. It doesn't involve setting up new agencies. It involves 
bringing some competition and free market forces back to this country 
and to the gasoline business--particularly in those States where we 
have these quasi-monopolies.
  But for those who disagree with my legislation, S. 1737, which I 
believe would protect the consumer who is getting clobbered at the 
gasoline pumps, I issue a challenge. If they think they have a better 
approach than my legislation for bringing competition and free market 
forces back to the gasoline market, they have an obligation to come 
forward at a time when our consumers are being hit so hard at the pump. 
Unless people who are opposing my legislation are prepared to say the 
record high gasoline prices aren't a problem, they have an obligation 
to come forward with their proposals to promote competition. Put an 
alternative on the table and stand up for the consumer.

  I also think Congress needs to address the growing gap between 
consumer demand for gas and what the oil companies can produce. When 
supplies are tight and there is no spare gasoline in inventories, 
consumers are especially vulnerable to supply shortages and price 
spikes. That frequently causes severe price spikes when refineries shut 
down unexpectedly or a pipeline breaks, as happened last summer. 
Congress should ensure consumers are not left stalled by the side of 
the road or being pounded at the pump by taking steps to keep supplies 
available in an emergency. One option would be to require major oil 
companies to maintain minimum inventories to address unexpected supply 
crunches.
  Alternatively, the Federal Government can create a strategic gasoline 
reserve to provide supplies during refinery or pipeline shutdowns. This 
proposal would build on the strategic reserves that already exist for 
petroleum and heating oil supplies.
  It seems to me what it all comes down to is the American people 
deserve better, and they deserve better than the Federal Government 
being AWOL when our consumers are facing skyrocketing gasoline prices 
across the country. With a new energy bill expected to come before the 
Senate in the next several weeks, this is an opportunity to put the 
Government on the side of the American consumer when they are filling 
their tanks at the pumps across the land.
  I conclude by again commenting on the role of the Federal Trade 
Commission. This is the agency that is charged by Congress with 
promoting competition and free markets. Again and again in the energy 
field they have either sat on the sidelines or simply looked the other 
way in the face of increasing concentration in this critical sector of 
our economy. With gasoline prices already soaring at the highest level 
at this particular time, it seems to me it is absolutely critical for 
the Federal Trade Commission to reverse its present

[[Page S2839]]

course, get on the side of the consumer, and promote marketplace forces 
and competition in the gasoline business.
  I intend to use my seat on the Senate Commerce Committee at every 
possible opportunity to force the Federal Trade Commission to do the 
job it has been charged by the Congress to do. It ought to start with 
looking seriously into the shutdown in Bakersfield, which is going to, 
in my view, have calamitous consequences for the entire west coast 
gasoline market. But it also should include a broader look at the 
implication of concentration in the gasoline business.
  I am hopeful that ultimately the Federal Trade Commission will 
support my legislation, S. 1737, which would promote more competition 
in the gasoline business. And if they disagree with it, the head of 
that agency, Mr. Timothy Muris, ought to propose his own alternative.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Massachusetts.
  Mr. KENNEDY. Mr. President, before I make comments on a different 
subject matter, I commend my friend and colleague for addressing the 
issue of energy--energy production and energy costs--while he is still 
on the floor. We have probably close to 200,000 American troops in the 
gulf area to protect and preserve the countries in those regions. It 
seems to me it would not be asking too much of our President to jawbone 
those leaders to increase production. We can see what an increase of 
production of 1 million barrels per day and 2 million barrels a day 
would mean. It would have a dramatic impact and effect on consumers in 
this country. It is difficult for me to understand why we should not 
expect that kind of leadership from the President of the United States 
when every day we learn young Americans are losing their lives in that 
region, and tens of thousands of troops have been serving over in that 
region for years in order to protect the security of those nations.
  Now we come to an issue of enormous need in our country--an important 
part of that because of our responsibilities in meeting the defense 
needs and security needs for our forces overseas. We have silence by 
the administration when they are asked why they aren't jawboning these 
countries in the Middle East.
  I don't know whether the Senator could make some comment on that, 
just briefly. I listened with great interest to his other comments. I 
hope the Senate as a whole will take him to heart.
  Mr. WYDEN. Mr. President, I very much appreciate the distinguished 
Senator from Massachusetts coming to the floor because he has done so 
much to help the consumer in this area. My concern--and I would be 
interested in the Senator's reaction--is I think the consumer is about 
to get hit by a perfect storm with the combination of failure to push 
OPEC, as the Senator has said, to try to help on the production issue, 
plus the refinery cutbacks that apparently are primarily to boost 
profits, plus filling the strategic petroleum reserve. With these 
factors coming together, it seems to me a perfect storm is going to 
push the consumers' gasoline price at the pump to $3 a gallon.
  I would be interested in the Senator's reaction, and I am anxious to 
work with him in this effort to push the administration to go after 
OPEC.
  Mr. KENNEDY. The Senator is sounding the alarm. I think his 
predictions are self-evident. Thankfully, he is providing the 
leadership before the full impact of these different events, the 
confluence of these different events taking place. Clearly, they will 
take place over the course of late spring or early summer.

  I commend the Senator for bringing this to our attention. It is an 
enormous service, not only to the people of his State but the people of 
my State and the people all over this country. As we are coming into 
the late spring and summer, constituents will be wondering where we 
have been as representatives in dealing with this issue. The Senator 
from Oregon has outlined a very critical problem and made splendid 
recommendations. I look forward to working with the Senator to achieve 
these recommendations.

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