[Congressional Record Volume 150, Number 52 (Wednesday, April 21, 2004)]
[Senate]
[Pages S4178-S4181]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
GASOLINE PRICES
Mr. REID. Mr. President, I want to talk about gasoline prices in the
country and in Nevada. This is a terribly difficult situation. It is a
story about the wild west, but it is not about Wild Bill Hickock or
cowboys or mining or claim jumping. It is about gasoline. Some refer to
it as black oil.
This chart illustrates how the gasoline prices in Nevada have
skyrocketed. The prices are as of April 5. Prices now are at least 5
cents higher. I was in Nevada last week. Gas prices were approaching
$2.50 a gallon in some locations. This has been a burden on the people
of Nevada and visitors who come there. The average price on January 5
of this year in Nevada was $1.64 a gallon, which was pretty high
compared to the rest of the country. But now it is much higher. This
chart, as I have indicated, is as of April 5. We have had an increase
in the State of Nevada of about 50 cents a gallon. We can't keep up
with the increases in the price with our charts.
This is outrageous. Let me put it into perspective. In a truly
bipartisan spirit, the Senate passed a $318 billion highway bill. The
bill would create at least 1 million jobs, rebuild and improve our
transportation system, and provide a tremendous boost to the economy.
In the House of Representatives, Chairman Young proposed a highway bill
with a price tag of $375 billion. The White House opposes Chairman
Young's proposal to add 5 cents in taxes to a gallon of gasoline and to
index future tax increases to inflation.
Meanwhile, the oil companies have gouged--I use that word purposely--
consumers by 10 times the amount of what Chairman Young proposed for an
increase in the tax, a half dollar a gallon.
This is ironic. The President doesn't want Americans to pay more at
the pump, does he? There is no way the administration can shake the
mantle they have assumed of being close to the oil industry. Both the
Vice President and the President have been in the oil business. We have
been litigating for 3 years whether the Vice President has to disclose
who he met with, when he met with them, and what he talked about; that
is, the oil companies. He has fought this every step of the way. He has
fought it through the court system. It is still going on.
Then there is the fact the President won't call upon Saudi Arabia to
increase their supply unless, according to Bob Woodward and his book,
the President makes a deal with Prince Bandar to do this in September
when it would have more of an impact on the elections. Time will only
tell. I would hope if they have made an arrangement with the Saudis,
they will start doing it now rather than wait until September.
Nevada gets all of its gasoline from California, so any problem with
supply in California is a problem for Nevada. There has been a lot of
talk and a lot written about the tight California gasoline market,
where prices are typically 20 to 30 cents above the national average.
We hear about the lack of refineries. We hear about boutique fuels and
reduced inventories contributing to higher prices. I am sure each one
of these has some bearing on higher prices. All of these things I have
talked about need to be addressed.
I met with the Chairman of the Federal Trade Commission. There are
reports there are as many as 300 separate boutique fuels. He thinks
there are around 100. But there are lots of them, and that could be a
problem. We realize the need to reduce the number of specialty fuels.
We also hear about supply and demand. One thing I have been pushing
is something the first President Bush did and President Clinton did,
and that is to release oil out of our petroleum reserve to bring up the
supply to reduce prices. I know the law of supply and demand cost
Nevada ratepayers nearly $1 billion during the western electricity
crisis 3 years ago. While Enron was reaping windfall profits--and there
must be a better name for that than windfall profits; it was even
bigger than windfall profits--it told consumers it was all a matter of
supply and demand. But, of course, it turned out Enron was really
manipulating the supply. So it wasn't supply and demand.
Based on this bitter experience which is still being litigated in the
courts, I was concerned Nevadans might be getting ripped off again when
gasoline prices went through the roof this year. I asked the Federal
Trade Commission, along with Senator Ensign, to investigate these wild
price increases, particularly with an eye toward any possible
manipulation in gasoline markets. I needed to assure the citizens of
Nevada that gasoline markets were operating fairly and not being
manipulated to maximize the profits of oil companies.
It is easy for domestic oil companies to boost their profits by
squeezing the supply of gasoline. A combination of refinery capacity
reductions and corporate mergers has concentrated control of prices in
only a handful of companies. Again, this chart shows how prices have
risen steadily in Nevada since the first of the year.
A major spike occurred in February 18, due to a power outage at the
Tesoro refinery in northern California that supplies 20 percent of the
refined gasoline to that region. In a matter of days, prices in Nevada
topped $2 a gallon. The refinery came back on line only a week later,
and the supply was restored. But as the chart shows, prices at the pump
didn't recover. They had a power outage that slowed that refinery for a
week. Prices skyrocketed. The refinery came back on line. Prices stayed
high. Actually, they went higher. Prices at the pump didn't recover.
Families were still paying an extra half dollar a gallon every time
they filled their tanks.
So in case anyone is worried about the impact of a refinery shutdown
at Tesoro, they can rest easy. Refiner margins of profits were 70 cents
higher a share this quarter; 60 percent higher than analysts had
expected. The stock at Tesoro is at a 52-week high.
Let me show another chart, the price of a gallon of gasoline in
Nevada. Here is where we arrived at $1.64. The bottom number is
important: Crude oil price, 77 cents; refiner margin, that is cost plus
profits, at a quarter; dealer margin, 10 cents; taxes, 52 cents. That
is the way it is. There's ample profit for the oil companies at $1.64.
Anything above that is just additional profit.
In order to understand what drove gasoline prices in Nevada to record
highs and why they stayed high even after California refineries
temporarily reduced their wholesale price, we need to understand what
goes into the price we pay at the pump for a gallon of fuel. As
indicated, this chart shows the price of a gallon of gasoline has four
main components: cost of crude oil; refiner's margin, which is cost
plus profits; the dealer's margin, which is cost plus profit; and fuel
taxes, both Federal and State. We must pay attention to the word
``profits.'' It figures big in this discussion.
The chart shows the typical numbers we have come to expect in the
Nevada
[[Page S4179]]
gasoline market. Crude oil, let's say 77 cents, or $32.34 a
barrel; refinery margin, 25 cents; dealer margin, 10 cents; and taxes,
52 cents. These are prices we might expect, but they are already too
high because of the extremely high price of crude oil.
Nevada's gas prices are the third highest in the Nation behind Hawaii
and California. I am sure we are gaining on them. So these are locked
in prices.
Let's go to chart 3, which shows that the latest Nevada gas price
increases are not caused by taxes or crude oil costs. Taxes are
constant. Crude oil varies only by a small margin. Crude oil used in
California refineries is 64 percent from the Alaska North Slope. The
majority of our oil doesn't come from Saudi Arabia. So if you look at
the contribution of taxes and crude oil to the price of a gallon of
gasoline in Nevada during the first 3 months of the year, taxes are
constant at 52 cents a gallon, so that does not contribute to a 46-cent
increase since the first of the year.
According to data supplied by the California Energy Commission, the
price of crude oil acquired by California refineries varied by only 8
cents over the first 3 months of the year, from 78 cents to 86 cents a
gallon. That is equivalent to crude oil prices varying by about $3 per
barrel.
The reason that price doesn't vary much is the California refineries
get 64 percent of their crude oil from the Alaska North Slope and the
California fields. So they don't feel the full impact of the more
volatile OPEC or west Texas intermediate crude markets.
There is no doubt that the price of crude oil has contributed to
higher gasoline prices in Nevada and throughout the country in the last
few years. However, it is not the reason why west coast gas prices have
skyrocketed in the first 3 months of the year.
If we subtract the 8-cent increase that can be attributed to crude
oil, we still have to explain a 38-cent increase in the price of gas.
The number I use is smaller than what the real price is in Nevada.
These are as of April 5. As I have indicated, they are at least a
nickel higher now. That leaves us with dealer and refinery margins, or
what is referred to as the domestic ``spread.''
(Mr. Ensign assumed the Chair.)
Mr. REID. I also alert the Presiding Officer that prior to the
Senator from Nevada becoming the Presiding Officer, I mentioned his
name regarding a meeting we had with the Chairman of the FTC.
I would like to go down to chart 4. It is easy to determine refiner
margins, which is simply refiner costs plus profits. You simply take
the published spot or wholesale price of gasoline and subtract the
price of crude oil. I have chosen the spot price in Los Angeles because
L.A. supplies the Las Vegas market.
Bear in mind that the cost of refining oil into gasoline will vary by
only a few cents. Like taxes, it is pretty much a fixed cost.
Consequently, any increase in the refiner margin is actually an
increase in profits.
The April 5 Oil Price Information Newsletter, a publisher of industry
data, says California fuel blends averaged $10.80 a barrel over crude
during the decade.
That is a historical refiner margin of 26 cents for every gallon of
gas.
So this chart shows that the refiner profits have recently peaked
nearly 50 cents above that historical level.
These estimates are conservative. They are actually lower than the
estimates of the California Energy Commission.
Can you imagine these profits? Take the normal profit that a refiner
makes on a gallon of gas; now add another half dollar to every single
gallon. Nevadans use 2.3 million gallons of fuel a day. Area-wise, it
is a very big State. Many people have to drive long distances to get to
their jobs--I will read letters indicating that is the case--or they
take their kids to school.
When you figure the refiners are making an extra 50 cents of profit
on every gallon of gasoline purchased in Nevada, Nevadans alone are
paying an extra $1.15 million every single day, or almost $35 million a
month--$35 million a month just in the State of Nevada. If
``outrageous'' is not a strong enough term, I don't know what term to
use. If this isn't price gouging, it doesn't exist anyplace in the
world.
I am for free markets. But it is not a free, competitive market when
refiners can exercise this degree of control and manipulation over the
supply and the cost of something that is not a luxury but a necessity
on which every family must depend.
People have to put fuel in their vehicles. They have no choice. Is
the California-Nevada gasoline market truly competitive when the
wholesale price of refined gasoline is largely controlled by what a few
refiners are willing to sell for and what the markets are forced to
pay?
It looks to me as if the market has been manipulated and consumers
have been gouged. If you think the worst is over, think again. The spot
and refiner profits increased again in early April.
Mr. President, my information, from which I prepared these remarks,
and this chart, go back to April 5. It is now the 21st and prices are
higher. I returned, as I have indicated earlier, from Nevada and prices
there are approaching $2.50 a gallon for some fuels.
Let me go to another chart. This will detail and outline refiner
profits. I believe this chart will clearly show that refiner profits
drove gas prices in Nevada to $2 a gallon. On this chart, I am simply
adding the refiner margin data. It is clear that prices in Nevada were
driven to $2 a gallon on a wave of refiner profits. Keep in mind, $2 a
gallon doesn't do the trick anymore. If this chart were as of today, we
would be up here, the next line on the chart. But we will use this
chart for illustrative purposes.
It wasn't taxes; those don't change. It wasn't the cost of crude;
that only went up 8 cents a gallon. It had to be refiner profits. There
is nothing left.
There is the one last question to be answered: Why have prices
remained high, even as refiner profits returned to more normal levels
during the first couple weeks of March? Refiner profits dropped a full
30 cents. Why no relief at the pump?
That brings us to the dealer margin, the fourth and final component
that determines the price of gasoline.
This last chart I wish to talk about shows that dealer profits added
to refiner profits led to a sustained $2.10 per gallon at Nevada pumps.
Again, dealer profits added to refiner profits led to a sustained $2.10
per gallon at Nevada pumps. The historic margin is 35 cents. Again, I
repeat, they are even higher now by as much as 4 or 5 cents a gallon
than they were before. So it is very clear what this shows. Dealer
margin is the cost to acquire, store, and sell gasoline, plus profits.
This chart shows that dealer margin takes a beating when the refiner
rapidly increases spot or the wholesale price of gasoline. The dealer
needs to pay up front to acquire fuel before the gasoline makes it to
the marketplace.
Once this gasoline is distributed, dealer profits increase
dramatically and sustain the price of gasoline at the pump. During
March, dealer profits rose to 35 to 40 cents a gallon in Nevada. That
is two or three times the historic levels of 10 to 15 cents a gallon.
The combined total of refiner and dealer profits has kept the price
of gasoline in Nevada at an astronomical level.
If the wholesale price stays down long enough, the hope is that both
dealer and refiner profits will retreat to more normal levels. That is
not the case, unfortunately.
Refiner profits are spiking again, and we can expect another round of
sustained high gas prices.
Make no mistake, this is a win-win deal for refiners and dealers. In
the gasoline business, they say prices shoot up like a rocket and float
down like a feather. This is the dynamic that keeps the price of
gasoline high, and enables refiners and dealers to gouge consumers.
Let me show you what is on the next chart. I want to be able to show
that Nevada gasoline prices are clearly driven by refiner and dealer
profits.
This bar chart summarizes the four components of the price of
gasoline in Nevada during the first 3 months of the year--a gallon of
gasoline would be more specific. It shows that dealer and refiner
profits increased the price of gasoline in Nevada from $1.64 to $2.10
per gallon since the first of the year.
With the recent increase in the spot price in early April, we can
expect a new round of increases in refiner and dealer profits. The
roller coaster ride
[[Page S4180]]
of gas prices is becoming a ratchet, moving ever higher, threatening
the fragile budgets of working families.
We picked out a few letters I received in my office. I will read only
a few of them. Here is one:
I filled up my gas tank today and prices were $2.18 per
gallon for the mid-grade fuel. This is just not acceptable
any longer. I am a single 58 year old female who is working
for ridiculously low wages at UNLV and living on extremely
limited budget. Between the cost of medications, heat,
communications, and other living expenses, now I can't afford
to even get to work. Please, please, please do something to
stop this now. A constituent from Las Vegas.
I am going to read part of another letter, but it is sad, to say the
least:
Senator Reid: I have had to cut my grocery budget by $100
per month, and we're already eating cereal for dinner, 28
cent macaroni and cheese, and hot dogs. We also eat hamburger
when we can afford it. It cuts into the lunches I have to
provide for my children since no school lunch program exists
at Virginia City, and I need to insure that my daughter has a
decent lunch . . . in her lunch pail.
This is the same person:
There is something very wrong with our system when our
President fails to act on behalf of the American people.
Protecting us against terrorism is only part of the job. When
he fails to act changing the entire American way of freedom,
choice, and an affordable living, then he's not doing his
job. Somebody needs to get off their duff and do something
about the gas prices, production, and our being held hostage
by OPEC and the Oil Companies. . . .Do something to help us,
so that single parents like me don't have to put our
children's lives and futures at risk by having to move closer
to our jobs and all because of gas prices.
This is signed by a constituent from Dayton, NV.
Another letter:
This is about gas prices. Is there anyway that you can work
a little faster on this? My husband works at Primm, and it
costs us now $100 a week in gas. We were trying to save $20 a
week since he got a pay raise. We have a family of 5 and he
is the only worker. We are in debt because they don't give a
lot in pay raises, and when they do, it seems like the phone
company, electric, gas, and anyone else says ``we need extra
money.'' You give them all that they need, but the poor
people trying to make it on 1 income or even 2 are getting
screwed. We watch every penny and it seems to be gone. We are
having to make a hard choice of what not to buy at the store.
We already don't go out to the movies or anywhere else. I can
see why President Bush doesn't do anything about the gas
prices, since he has an interest in his cut. Thank you for
your time. A constituent from Las Vegas.
Another constituent from Las Vegas:
Thank you so much for looking into the gas price increase.
This has been a very big concern for my husband and myself.
We are a large family and my husband works out at one of the
state prisons. This means a 120 mile round trip every day. .
. .If gas prices increase like they are this is going to hurt
our family a great deal. It in turn could hurt our state as
he is a 13 year state employee, this could mean looking for
another job in town. I do hope and pray you are able to help
our state with this crisis.
Another letter:
Dear Senator Reid: I currently reside in Las Vegas, NV. I
am disabled and live on a fixed income. I am writing you
today outraged by the ever growing cost of living we face
here in Las Vegas. Every day the price of gasoline continues
to rise, while large oil companies like Exxon Mobile and
Chevron Texaco are recording breaking profits, I hate to
say on the backs of the average citizens in this country.
I have heard all of the stories of fuel shortage due to
the harsh winter in the eastern United States, the
blockage of shipping lanes, and the list could go on and
on with excuses. This still does not explain these record
profits. No other segment in our economy, especially the
small businessmen, experience this rate of profit. Costs
continue to rise from gasoline, to utility cost, to
grocery bills, while incomes are not rising. The middle
class is slowly being eroded with all these rising costs.
Signed by a constituent from Las Vegas.
This is a small smattering of the letters we have received. I have
asked, along with the junior Senator from Nevada, the Federal Trade
Commission to look into possible market manipulation and price gouging.
After 5 weeks, the FTC responded to us by saying prices in Nevada were
``unusually high'' and above predicted norms. An informal FTC
investigation is still looking into the cause of the price spike, but
they are having a hard time showing collusion and market manipulation.
I do not need an investigation to tell me big oil profits have soared
at the expense of working families. We all understand the forces of
supply and demand, but in the gasoline market, control of the supply is
concentrated in a handful of oil companies and dealers. Seven oil
companies control 94 percent of California's gasoline production, so
they can push prices up faster and keep them higher than they would be
in a competitive market.
These markets are not competitive because they provide no incentive
to refiners to maintain adequate supplies and physical infrastructure.
Every accident, power outage, pipeline break in the market triggers a
price shock, and profits mount.
The structure of this industry allows price manipulation at the pump.
These charts show how refiners and dealers manipulate markets to
sustain high, exorbitant gas prices. If this is not anticompetitive, it
is certainly anticonsumer. The profits of oil companies are at record
levels. I am sure this makes their shareholders happy.
The FTC has been AWOL, like FERC was a couple years ago during the
electricity crisis when consumers were ripped off. As a nation, we need
to demand both the supply and demand of this equation to promote a
truly competitive market.
On the demand side, we have to increase the fuel efficiency of cars.
That is very long term. We need to promote public transit. That is long
term. But in the short term, we need to have this administration weigh
in against the OPEC nations and do what they can do to have the OPEC
nations produce more oil. They have turned the spigots down. They have
done it openly. I hope the reports in the Woodward book are false. I
hope the President would not enter into a deal with Prince Bandar in
saying we are going to increase the supply of oil in the fall. I hope
that is absolutely false. But I do say the President has to exert more
pressure on our so-called allies to produce more oil. That is short
term.
What also needs to be done on a short-term basis is we need to start
releasing oil from our oil reserves. As I stated before, it was done by
the first President Bush and it was done by President Clinton. This
President needs to do the same.
In the long term, we need to increase the use of alternative fuels
and renewable energy resources, but we must also provide for true
competition in the oil and gas markets.
Oil companies have little incentive to build or improve their
infrastructure and increase their inventories. They can simply dominate
tight markets where any disruption allows their profits to soar.
Through use of the Strategic Petroleum Reserve or some other
mechanism, oil companies should be required to maintain adequate stocks
of crude and refined product to prevent price spirals.
At the very least, we should not be filling the Strategic Petroleum
Reserve when markets are not able to meet consumer demand at reasonable
price levels. Any rapid price increase should draw immediate and
intense public scrutiny and trigger investigations.
Energy in America is essential to the well-being of our Nation and
its citizens. This is part of our Nation's security, to have adequate
energy. Remember, the United States of America, even counting what may
be in ANWR, would only have 3 percent--in fact, it is less than 3
percent--of the oil reserves of the world. We cannot produce our way
out of our problems. Ninety-seven percent of the oil in the world is
someplace other than the United States.
The citizens of the State of Nevada have been rocked with a one-two
punch over the last couple of years by manipulation of the electricity
market and now the gasoline market. This cycle of price gouging must
stop. Even in the wild, wild west, we have to make energy markets
operate properly.
Mr. President, I express my appreciation to the Senator from Wyoming
for his courtesy in allowing me to go before him.
How much time is remaining for the majority for morning business?
The PRESIDING OFFICER (Mr. Ensign). Four minutes fifteen seconds.
Mr. REID. I say to my friend from Wyoming, he has 4 minutes 15
seconds. Does he need more time?
Mr. ENZI. Mr. President, yes, we should get an equal amount of time
in order to respond to what the Senator from Nevada said.
[[Page S4181]]
Mr. REID. When I spoke, I indicated I would be happy to agree to
that. Would the Chair indicate again how much time I used?
The PRESIDING OFFICER. The Senator used 29 minutes.
Mr. REID. I ask unanimous consent that the time for morning business
on the majority side be extended 29 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Wyoming.
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