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Gas Price Update

Gas prices are causing working families significant financial hardship. Many Americans are being forced to make considerable sacrifices just to fill up their tanks. While high gas prices and home heating fuel prices can make heating homes expensive during winter months, high energy and gasoline costs also affect farmers, manufacturers, electrical utilities, and other industries.

Traditionally, trading of energy commodities such as crude oil, gasoline, diesel fuel, and natural gas has taken place on the New York Mercantile Exchange (NYMEX), with oversight by the Commodity Futures Trading Commission (CFTC). However, as a result of the “Enron Loophole”, which was included in the Commodity Futures Modernization Act of 2000, an increasing amount of trading does not occur on NYMEX but in off-market deals, known as “over-the-counter” (OTC) or “dark markets.” It is estimated that up to 50 percent of all energy trades are on these dark markets, where speculation occurs without any regulation or oversight by the federal government. Without effective oversight, there is no way to know whether energy speculators are basing their oil trades on market realities or speculation based on fear and greed at the expense of hard-working Americans.

As Chairman of the Oversight and Investigations Subcommittee of the House Energy and Commerce Committee, I have led a significant investigation into excessive speculation on these dark markets and its affect on energy prices. The Subcommittee held hearings in December 2007 and June 2008 on this issue. The Energy and Commerce Committee has held six hearings over the past three years on gas prices.

At the June 23, 2008, Oversight and Investigations Subcommittee hearing, Fadel Gheit, Managing Director and Senior Oil Analyst at Oppenheimer & Co. Inc. testified that: “I firmly believe that the current record oil price in excess of $135 per barrel is inflated. I believe, based on supply and demand fundamentals, crude oil prices should not be above $60 per barrel.”

Building on legislation I introduced in 2006 to close the Enron Loophole, on June 20, 2008, I introduced the Prevent Unfair Manipulation of Prices (PUMP) Act, (H.R. 6330). The PUMP Act is the most comprehensive bill, and would establish strong aggregate position limits over all markets, to curb excessive speculation. The bill would also close the remaining loopholes that energy speculators use to avoid government oversight.

By closing all of these loopholes, CFTC would be better able to monitor trades to prevent manipulation and help eliminate the unreasonable inflation of energy prices, helping protect American consumers.

The PUMP Act has been endorsed by several agriculture, labor, and industry groups, including the major airlines, the National Farmers Union, and the Industrial Energy Consumers of America, which is a coalition of more than 35 different companies such as Dow Corning, Goodyear, BASF, US Steel, Tyson Foods, Plum Creek, and International Paper, amongst others.

On September 18, 2008, the U.S. House of Representatives passed compromise legislation that would crack down on the Wall Street speculators running up the price of oil. H.R. 6604, the Commodity Markets Transparency and Accountability Act, pulled several key provisions from my PUMP Act.

H.R. 6604 strengthens position limits on regulated markets and establishes an advisory board to set position limits, while protecting physical hedgers. It addresses the foreign boards of trade loophole and properly limits the bona fide hedging exemption to physical hedgers. It improves the information available to the CFTC, significantly improving the agency’s ability to monitor energy markets. Should the CFTC find excessive speculation on unregulated markets as a result, CFTC can take the steps necessary to correct it.

The Commodity Markets Transparency and Accountability Act now awaits Senate approval. I will continue to work as Chairman of the Oversight and Investigations Subcommittee to scrutinize these markets to ensure that Wall Street is not inflating prices.

While my energy speculation legislation will help ensure fair energy markets, I believe that the federal government must also protect consumers from price gouging.

While consumers are being forced to pay more than $4.00 a gallon for gasoline, oil companies continue to reap record profits. Last year, Exxon Mobil posted $36 billion in profits, the largest profit for any corporation in United States history. Moreover, in 2005, refineries increased their prices 255 percent. As these profits increase, so does the potential for price gouging.

In the Federal Trade Commission’s (FTC) Spring 2006 report, Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases, the FTC found that after Hurricane Katrina 23% of refineries studied, 9% of wholesalers studied, and 25% of retailers studied had price increases that “were not substantially attributable to increased costs” and that these increases “could not be attributed to national market trends.” FTC Commissioner Jon Leibowitz, in a statement on the report, acknowledged that “the behavior of many market participants, on balance, leaves much to be desired.”

Oil companies are raking in excessive profits at the expense of working Americans. This is price gouging, and Congress should give the Federal Trade Commission (FTC) the tools to investigate these profits and prosecute those energy companies that engage in unfair practices.

Approximately three years ago, I introduced legislation (H.R. 3936) to provide the FTC with new authority to investigate and prosecute those who engage in predatory pricing and other unfair practices, with an emphasis on those who profit most. My bill would have set specific guidelines for the FTC to define price gouging, including provisions that would have made unconscionable pricing and false pricing information illegal.

On February 28, 2007, I re-introduced my legislation to make price gouging illegal. My bill, The Federal Energy Price Gouging Prevention Act (H.R. 1252), has 125 bipartisan co-sponsors. On May 24, 2007, the U.S. House of Representatives sent a clear message that the new Democratic Congress will stand up for the American consumer who is forced to pay too much at the gas pump. The House approved my price gouging prevention legislation by a two-thirds vote, 284 to 141. Unfortunately, President Bush has issued a Statement of Administration Policy that he will veto H.R. 1252 if it comes to his desk.

Ultimately, the United States needs to lessen our dependence on foreign energy sources. Congress made a good start when the House passed the Energy Independence bill, which became law on December 19, 2007. The bill included incentives to improve energy efficiency for appliances, lighting and buildings, and promoted the production and use of alternative fuels. The bill also increased fuel economy standards (CAFÉ) from 27.5 miles per gallon for cars and 22 miles per gallon for light trucks to 35 miles per gallon in 2020 for cars and trucks.

This increase in fuel economy will save American families $700 - $1000 per year at the pump, with $22 billion in net consumer savings in 2020 alone. The new fuel economy standards will also reduce oil consumption by 1.1 million barrels per day in 2020, one-half of what we currently import from the Persian Gulf, and reduce greenhouse gases equal to taking 28 million of today's average cars and trucks off the road.

However, much more must be done to diversify our energy use. Congress must work to promote alternative energy sources such as ethanol, biodiesel, wind, solar, geothermal, and nuclear to help reduce our dependence on foreign energy. As a member of the House Energy and Commerce Committee, I will continue to work to diversify our nation’s energy portfolio, to help ease high energy prices.

I will continue to do all I can to provide short and long term answers to the country’s energy needs and eliminate high gas prices.