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Published January 13, 2015
Top oil industry executives are pushing eased restrictions on exploration and refining activities rather than more regulation in the wake of scrutiny by lawmakers concerned with gasoline price fixing and profiteering following this year's record hurricane season.
Oil executives say the best way to lower prices at the pump is to ease administrative processes, including approvals and permitting procedures, that slow the distribution of supplies. Reducing the number of so-called "boutique" fuels, which are special to states and regions due to regulations, would also do the trick, they say.
But some senators prefer to pass legislation and other regulations that they say would prevent the painful prices seen this year. Among the possible solutions proposed by lawmakers are a new federal price-gouging law, a windfall profits tax, a rejiggering of this year's energy bill to remove tax incentives to oil production companies, an increase in the amount of federal home heating assistance and education campaigns for the public to be more efficient with energy use.
"The past several weeks have been very painful for the people of the United States. It has been the time of Katrina. It has been a time of suffering, of death," said Sen. Daniel Inouye, D-Hawaii, during a joint hearing in the Senate Wednesday. "Then, suddenly, they have thrust upon them headlines saying, 'record-breaking profits,' in the midst of suffering, in the midst of sacrifice."
Oil companies reported record profits in recent weeks that were largely due to supply shortages resulting directly from Hurricanes Katrina and Rita. As the supplies drew even tighter than they already were, oil prices spiked to $70 per barrel on Aug. 29, the day Katrina hit oil-producing Louisiana, and gasoline prices hit a national average of $3.05. Oil companies like ExxonMobil, Royal Dutch Shell and ConocoPhillips profits increased as much as 89 percent from the same quarter a year earlier.
Asked to account for the record profits — said to be more than $32 billion in the third quarter among the five oil companies who appeared on Capitol Hill Wednesday — oil executives say it's a simple case of supply and demand.
"There are no quick fixes and there are no short-term solutions," said ExxonMobil Chairman Lee Raymond. Rather, he said, it is important to have a stable environment for an industry that is among the most volatile in the marketplace.
Raymond was joined by the executives of Chevron Corp., BP America, ConocoPhillips, and Shell Oil Co. in testimony before a joint meeting of the Senate Commerce, Science and Transportation Committee and the Senate Energy and Natural Resources Committee.
They offered their suggestions on how to increase supply — exploration for new fuels, additional refineries and research and development. But in any of those pursuits, government regulation won't help, they said.
"Our country sorely needs additional refining capacity, pipelines and other critical energy infrastructure, including LNG [liquefied natural gas]-receiving terminals. The private sector will make these investments without need of any new government incentives," said ConocoPhillips Chairman James Mulva. "However, the industry needs governments at all levels to streamline permitting and environmental review processes so we can make these investments and add to our energy supplies."
The executives said their companies are investing billions of dollars in new oil refining and exploration.
"Since 2002, our company has invested $32 billion in our business. During the same time period, our earnings were $32 billion. In other words, we invested what we earned," said Chevron Corp. CEO David O'Reilly.
Federal Remedies
While increasing supply interests lawmakers, legislative options that could include punishment for oil companies also holds its appeal.
Among the considerations is a possible federal price-gouging statute, which could impose criminal penalties if companies are found to be unfairly charging higher prices than necessary
Attorneys general from New Jersey and South Carolina told lawmakers on Wednesday that they have price-gouging statutes in their states, which work to varying degrees of success. Arizona Attorney General Terry Goddard said he does not have such a statute, but one could help.
Oil prices in Arizona go "up like a rocket and down like a feather," Goddard told senators, but investigating fraudulent price hikes has been difficult because of a lack of industry cooperation.
"We certainly can't investigate beyond the borders of our own state," Goddard said.
Sen. Maria Cantwell, D-Wash., said the state's inability to investigate is good reason for a federal law.
"I think this is a critical part of why you need federal legislation to make sure that supply isn't being manipulated and that there is transparency in the market," Cantwell said.
But Federal Trade Commission Chairwoman Deborah Majoras disputed the value of such a law, saying that any law that focuses only on prices might have the opposite effect and could harm consumers.
In an emergency situation like a hurricane, for instance, a fuel vendor might wish to raise his prices to protect his supply, knowing that if he didn't raise his prices he would run out of fuel. But if it were a criminal act, he likely wouldn't, and on a wider scale, supplies would run short, Majoras argued.
That explanation fell flat with Sen. Ron Wyden, D-Ore.
"What you're telling us Mrs. Majoras, is there are no prices that are too high?" Wyden asked.
Majoras said that wasn't the case, but the FTC already is equipped to handle fraudulent charging allegations.
One windfall profits proposal in Congress that would place a 50 percent tax on profits received on oil sold above $40 per barrel was criticized both by oil executives and some lawmakers. Sen. Byron Dorgan, D-N.D., is the chief sponsor of that proposal.
Sen. John Sununu, R-N.H., cited a 1990 congressional report that said a previous windfall profits tax slowed domestic oil production, increased oil imports and increased the cost of domestic oil production.
Sununu, however, agreed with Wyden, who has called for a look into this year's energy bill, which offers tax break provisions for oil production facilities. Wyden said some of the incentives could be repealed, freeing up money that could be placed into a heating program for the poor, the Low Income Home Energy Assistance Program, or LIHEAP.
"There were over $12 billion dollars in different kinds of tax subsidies in that energy bill, not all of course going to the oil industry," Sununu said, adding that many incentives "simply are not needed. ... I think we need to go back and look at that energy bill."
LIHEAP arose several times Wednesday. Proposals to increase its funding by $1.3 billion to $2.9 billion recently have been stymied in the Senate.
Sen. Ted Stevens, R-Alaska, said he hoped to get support from industry executives for the program. Asked if the companies would directly support it with some of their extra profits, one executive said it would set a bad precedent.
"We think that's more a realm of the government," ConocoPhillips' Mulva said, though he credited the program's function.
Sen. Jeff Bingaman, D-N.M., asked ExxonMobil's Raymond what he would do to expand public education in reducing fuel use, suggesting a public-private partnership.
Raymond said that in addition to work already being done, "I would think that that's something that we ought to look at very, very carefully and see if there can be a constructive role."
https://www.foxnews.com/story/lawmakers-weigh-energy-price-solutions