Cantwell Takes Fight to Senate Floor to Protect Consumers from Gas Price Gouging
Leading a Coalition of 29 Senate Cosponsors, 8 Governors, and 9 Attorneys General, Cantwell Calls on Congress to Confront Sky-High Gas Prices, Record Oil Company Profits Immediately
WASHINGTON, DC – Thursday, U.S. Senator Maria Cantwell (D-WA) took the fight to protect hard-working American families from skyrocketing fuel costs to the Senate floor. Cantwell offered her bill S.1735, The Energy Emergency Consumer Protection Act of 2005, on the floor of the Senate this morning as an amendment to the Tax Reconciliation bill. Her bill would put in place federal anti-gas price gouging protections to guard against future profiteering and market manipulation. Before heading to the floor to offer her legislation, Cantwell announced the support of nine attorneys general for her bill. She now leads a coalition of 29 senators, eight governors and nine attorneys general in the fight to protect consumers from soaring gas prices as oil executives rake in record profits.
"The ongoing energy sticker-shock is real and it hurts," said Cantwell, a member of the Senate Energy Committee. "The American people have waited long enough. They deserve answers and they demand action. How much higher do gas prices need to go? We must protect consumers and prohibit profiteering at the gas pump now. Congress must act."
Based on Cantwell’s measures to ban Enron-style manipulation schemes in the electricity industry, which became law as part of the recent energy bill, S. 1375 empowers federal regulators to ensure greater market transparency and go after companies for manipulation of oil and gas price. It also gives the president the authority to declare national energy emergencies during which proven price gougers would be subject to new fines and criminal penalties.
Senator Maria Cantwell has called on Congress to address record-high fuel costs and has continued to fight to ensure fairness for consumers in the energy industry. Yesterday in a letter to Chairman Ted Stevens of the Commerce Committee and Chairman Pete Domenici of the Energy Committee, Cantwell and other Senators requested that hearings reconvene as soon as possible to take sworn testimony from oil CEOs about their roles in the Cheney energy task force and the recent run-up in American fuel prices. Cantwell also called on the Justice Department to investigate the alleged false statements.
[The text of Senator Cantwell’s floor statement as prepared for delivery follows below]
"Mr. President, American families are struggling under the burden of sky high gas prices. Now they see a cold winter on the horizon and know costly heating bills are going to be this winter’s grinch who stole Christmas. At the same time, the American people see oil companies raking in record profits—over 30 billion dollars just last quarter—as working families, farmers, and small-businesses struggle simply to make ends meet.
"Mr. President, the facts speak for themselves. According to the Department of Energy, Americans will spend over $200 billion more on energy this year than they did last year. That is hundreds of BILLIONS of dollars coming directly out of family budgets and the bottom lines of businesses across the country. And energy intensive industries like the airline, trucking, agriculture, and manufacturing sectors are getting hit the hardest.
"Airlines are expected to spend $30 billion on fuel alone this year, twice what they spent for fuel in 2003. These increased fuel costs have led two airlines to file for bankruptcy and others to increase ticket prices and cancel routes. In the trucking industry, where diesel fuel accounts for a quarter of operating expenses, each penny increase in diesel costs the trucking industry $350 million a year. And our nation’s hard working farmers are struggling to get by. My colleagues from agriculture intensive states know that even during a good year, farmers operate on profit margins of only about 5 percent. The combination of record diesel with price increases of 20 percent or more on essential items like fertilizer and pesticides have made it very difficult for farmers to break even.
"Families and businesses don’t just pay the direct costs. They get whacked a second time through their tax dollars. The Air Force’s energy bill is expected to increase by 50 percent this year, costing taxpayers another $400 million. Higher fuel prices are expected to add $300 million to the Postal Service’s transportation costs nationwide. Taxpayers will even have to pay more for the President’s travel. According to the Associated Press, the cost of jet fuel one hour of travel in Air Force One has increased from $3,974 in 2004 to $6,029 in 2005.
"Mr. President, because energy is so integrated into our economy and daily lives, what this all boils down to is a huge transfer of wealth from hard working Americans to oil companies that are expected to reap in around $100 billion in profits this year. And that doesn’t even count the billions we are sending abroad to countries like Saudi Arabia, Iran, Libya, and Venezuela that don’t exactly have our best Interests at heart.
"So what can we do to help struggling Americans? I think the answer is before us in the pending amendment. I know some of my colleagues have just shrugged their shoulders and told their constituents, "sorry, I know you are struggling to make ends meet but it’s a free market and prices go up and down." Or they’ll say "there’s nothing we can do in the short-term."
"Well I can tell you that’s not what I learned as member of both the Energy and Commerce Committees, which have held three hearings on this subject. I learned that the lack of transparency and increased concentration in the oil and gasoline markets has left us in a situation where the very few can unduly influence energy prices that impact the lives of so many. I heard loud and clear that we desperately need a national plan—triggered in cases of national emergencies--that makes it clear profiteering at the gas pump will not be tolerated.
"Right now, the oil companies know we don’t have a plan to protect American consumers and they are acting with impunity. They know full well that there is no way we can go without gasoline or heating oil, so they are able to exploit every supply shortage-- whether artificial or from a natural disaster like Hurricane Katrina—to their advantage.
"That’s why we need a federal law that prohibits price gouging—a law with teeth that provides for federal penalties for those who exploit national tragedies to maximize their profits. Today, 28 states recognize this problem and have anti-gouging laws on the books.
"However state leaders have called on Congress to pass federal gas price gouging legislation because they appreciate that their inter-state jurisdictions often limit the remedies they are able to offer their consumers. I believe that’s why yesterday I received a letter—which I’d like to place in the record—from the Democratic Governors Association endorsing Senate Bill 1735, which is identical to the amendment before us. To quote from their letter: ‘Democratic Governors have made great strides at the state level to investigate price-gouging but we need more help. Corporate profitability should be encouraged – unless it is obtained by illegal price-gouging on the backs of hard-working families.’
"We have also heard from both Republican and Democratic State Attorney Generals. Let me share with my colleagues what some of our nation’s top law enforcement officials said during last week’s illuminating joint Energy and Commerce Committee hearing: New Jersey State Attorney General Peter Harvey, who has used utilized his own state’s anti price gouging legislation, told us ‘We need a federal price-gouging statute that applies nationwide to the sale of essential goods and services...’
"Republican South Carolina Attorney General Henry McMaster testified in response to the Chairman’s question about whether the state or federal government is better equipped to deal with price-gouging: ‘If the defendant is a big oil company, then perhaps that should be a federal question there."
"I was also pleased to recently receive a letter of endorsement from New York Attorney General Elliott Spitzer which I’d like to place in the record. Attorney General Spitzer has been a longtime champion for the little guy. He has shown that he is not afraid to take on big businesses that are using their market power to manipulate markets and fix prices. I hope the Senate will not be either.
"Mr. President, the American people crying out for common sense protections and basic accountability. They want to pay a fair and reasonable price for the fuel we all need to run our lives. They want to see where their Senators stand up on this issue. And most of all, especially for those whose jobs, pensions, and businesses are on the line, they want action. And they want it NOW.
"That’s why I have offered this amendment today. We have businesses on the brink, that may not be around if they have to wait until Congress returns from its long winter recess. That’s why I believe it would be a travesty to wait until next year to consider this desperately needed legislation.
"Mr. President, let me share some stories which I believe illustrate why Congress needs to act now. A farmer from Lamont, Washington wrote to tell me that his fertilizer prices have gone up 75 percent since May and 100 percent since last year. His fuel costs have gone from $2 to $3.15 for a gallon for gasoline, $1.98 to $3.45 for highway diesel, and $1.20 to $2.67 for off-road diesel. But most telling he said: ‘If something isn't done to support American agriculture, we might just as well write it off.’
"Another longtime Eastern Washington farmer told me that he was now paying more for a gallon of fuel than he received for a bushel of grain. The last time that happened to him was in 1932 when he was forced to park his tractor and pull his equipment with horses and mules - an option that he doesn’t have today. I heard my colleague Senator Roberts describe the situation facing agriculture as a "Category 5 Fuel and Fertilizer Hurricane." Well Mr. President, we all pulled together to provide emergency relief to Hurricane Katrina victims, we need to deal with this energy crisis with the same urgency.
"Unless we act Americans will also face costly, and perhaps life threatening winter heating bills. In fact, if we do nothing every American family that heats with natural gas will pay an average of $306, or 41 percent, more this winter than they did last year. And households that heat with heating oil can expect to pay an average of $325, or 27 percent, more this winter. I hope every Senator will choose to do more than tell that senior on a fixed income from their state that the only thing they can do is pray for a mild winter. Or worse, that Congress is just too busy to help right now, we need to take a vacation first.
"How worried are Americans about being able to pay their heating bills? Let me tell you what is happening in Whatcom County in Northwest Washington state. After the Whatcom Opportunity Council advertised last week that they would take LIHEAP applications from the first 200 walk-ins and 400 phone-ins, they had over 200 people lined up at their door an hour before they opened. Some people even spent the night. Verizon, their local phone service, called to say that the unusual volume of incoming calls had crashed the entire system for the area.
"The airline industry also can’t wait for us to act. They already are going to have to pay $9.2 billion more for fuel in 2005 than they did in 2004. That is over a 100 percent increase from 2001. As Southwest Airlines CEO Steve Kelly told the Seattle Times recently [quote], ‘We are now facing energy prices that no airline can make money at, at least with today's [ticket prices].’ And unless we act now, that reality will cost us a lot more later on. High fuel prices have already forced United Airlines to transfer $6.6 billion of its pension obligations to the government pension agency. If Delta and Northwest terminate their pension plans following their recent bankruptcy declarations, taxpayers will have to cover another $12 billion.
"Mr. President, it’s for these reasons I introduced the Energy Emergency Consumer Protection Act last September and am offering this amendment today. Based on a successful New York law, which has stood up in court on a number of occasions, this bill for the first time makes price gouging illegal nationwide and penalize those who exploit national tragedies to maximize their profits. That will send a strong signal to oil and gasoline markets that profiteering during a national emergency will not be tolerated and should go a long way to preventing price spikes this winter.
"The legislation also gives some much needed teeth to the Federal Trade Commission, State Attorneys General, and the Justice Department by giving them authority to levy civil and criminal penalties for proven price gouging. Real penalties of up to $3 million and five years in jail will serve as an effective deterrent to would-be price gougers. This legislation also promotes price transparency on an ongoing basis by putting into place a new ban on market manipulation and giving false information about fuel prices to the government. These provisions are enforced through fines of up to $1 million. Many of my colleagues voted for very similar provisions for the electricity and natural gas markets in the recently passed Energy Bill.
"Also crucial for making an immediate difference this winter, this legislation gives the Federal Trade Commission additional authority to promote price transparency and require additional reporting of pricing and supply data. I believe that just getting this information public will lead to a sharp reduction in gas prices. Nothing is more effective at keeping prices reasonable and affordable then making sure markets are transparent enough for the free market’s invisible hand to do its magic. Again, these market transparency authorities are consistent with those we just gave to the Federal Energy Regulatory Commission for electricity and natural gas markets in this year’s energy bill.
"Mr. President, many of the solutions proposed in this legislation are based on combating what I believe to be the primary driver to today’s high energy prices – artificial supply constraints. Specifically, I’m talking about the practice of deliberately keeping gasoline supplies tight in order to drive up the price. While this bill will require the necessary market transparency to expose this practice, I believe there is mounting evidence that this practice is going on today.
"One of these practices is the adoption of ‘just-in-time’ oil deliveries, which leaves almost no cushion in case supplies are delayed. Arizona State Attorney General Terry Goddard testified about this phenomenon at last week’s joint hearing on energy company profits: ‘the entire oil industry has moved to a ‘just-in-time’ delivery system, vastly reducing the numbers of refineries nationwide, and minimizing inventories at storage sites. The effect is a constant and precarious supply/demand balancing act, which is exceedingly beneficial to industry in lowered operating costs, but very harmful to consumers as supply vulnerability sets the stage for price spikes.’
"This practice is also directly related to oil companies choosing not to build adequate refinery supplies. While I commend refineries for adopting numerous environmental improvements over the years, their lack of expansion to meet growing demand means that any reduction to a plant’s output, for whatever reason, will lead to supply shortages. As a 2003 Department of Energy funded study found that ‘The reduction of spare capacity has helped drive up prices at the pump and leaves the market vulnerable to shortages caused by a plant breakdown or other unpredictable events.’
"There has also been documented evidence of companies purposefully exporting oil that resulted in constrained supplies. According to the Oregonian newspaper, who reviewed experts' previously secret reports and over 4,000 pages of court documents they sued to obtain, BP Amoco systematically jacked up West Coast oil prices by exporting Alaskan crude to Asia for less than it could have sold it to U.S. refiners. That article quotes one of the two experts the Federal Trade Commission hired to analyze BP's proposed $26.8 billion buyout of ARCO in 2000, University of Texas economist McAfee, who said: ‘There was no doubt whatsoever that they were in the business of shorting the West Coast market.’
"According to the Energy Department figures, between January and August of this year over 48 million barrels of refined product got exported out of the U.S. And as my friend Senator Kohl points out, that 24 times what is stored in the Northeast Heating Oil Reserve, a critical safety net against fuel shortages.
"Mr. President, as someone who was intimately involved in exposing the way Enron manipulated the electricity markets to jack up prices and cash in on record profits, I can tell you there are some distinct parallels with the oil industry I see today. I don’t have time to go into those parallels now, but I will note that my Washington state constituents suffered greatly during the Western Energy crisis, as they are today from record high gas prices. And just like Enron, I plan to get to the bottom of this.
"Mr. President, I believe given the current energy crisis, Congress must make sure no is allowed to rig the market by using an emergency to jack up prices, or creating artificial supply constraints. That should be true whether it’s Enron’s energy traders or any Big Oil company. That’s why I authored this legislation and am submitting it for a vote today. By empowering the President to tackle gas gouging at the federal level, banning manipulation in oil and gasoline markets, and instituting new market transparency, investigation, and enforcement mechanisms, this legislation sends a signal to the oil and gas industry that its time to stop exploiting the American public. That means just passing it today will help send the necessary signals to the market place that will lower energy prices this winter and for years to come.
"Mr. President, this ongoing energy sticker-shock is real and it hurts. And the American people have waited long enough. They deserve answers and they demand action. But what do Americans see their representatives in the United States Senate doing? ABSOLUTELY NOTHING!
"Mr. President, how much higher do prices need to go? How many more families need to choose between food and gas to drive to work? How many seniors must choose between keeping their house warm and buying their medicine? How many businesses need to go under because of soaring fuel costs? It is time we ACT. We must protect consumers and prohibit profiteering at the gas pump. And we must do so, with urgency. Our constituents demand it. And our economy demands it."
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