[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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