April 23, 2006

The Honorable William H. Frist, M.D.

Majority Leader, United States Senate

S-230 United States Capitol

Washington, D.C. 20510

Dear Majority Leader Frist,

I write to very respectfully request your support in enacting
legislation to protect American consumers from price gouging at the gas
pump this summer. As you know, oil prices last week spiked to record
levels, gasoline eclipsed \$3.00 per gallon in many parts of the country
and the East Coast braced for possible fuel shortages. Experts have
projected that these prices will continue their precipitous climb
throughout the coming months\-- despite the fact U.S. oil inventories
are currently at their highest levels since 1998. While some have
suggested an ethanol shortage and the phase-out of methyl tertiary butyl
ether (MTBE) are to blame for rising prices at the pump, these
explanations are simply insufficient. In light of the challenges these
fuel prices pose for consumers, businesses, farmers and the American
economy as a whole, I hope you will agree that the Senate should take up
and pass a federal anti-price gouging law before the summer driving
season begins in earnest, this Memorial Day.

Already, price gouging legislation (S. 1735) exists that has been
cosponsored by nearly a third of the United States Senate, and endorsed
by a number of Governors and state Attorneys General. This legislation
would give federal and state regulators new authority to prosecute price
gouging in the wake of national energy emergencies, as well as put in
place measures to ban manipulation and enhance the transparency of our
nation's fuel markets. One of the hallmarks of this legislation is that
it would also apply to the wholesale fuel markets---an important
distinction, given that it is often the large vertically integrated oil
companies that dictate the prices that gasoline retailers can charge.
While the oil companies rake in record profits, it is often these
retailers that bear the brunt of consumer anger.

As you know, a number of investigations of our nation's fuel markets are
already underway. Specifically, the Federal Trade Commission is
currently conducting a price gouging investigation it expects to
complete in mid-May, pursuant to provisions included in both the Energy
Policy Act of 2005[^1] and the Commerce Department's Fiscal Year 2006
appropriations legislation[^2]. It is my understanding that the Senate's
Permanent Subcommittee on Investigations is also conducting an inquiry,
pursuant to your request last fall[^3]. In the wake of Hurricane
Katrina, President Bush also directed the Department of Energy to
compile and refer to the Department of Justice and FTC price gouging
complaints[^4]. And finally, the Government Accountability Office (GAO)
is also conducting a comprehensive investigation of fuel inventory
practices, refining capacity and market transparency, at the joint
request of myself and Commerce Committee Co-Chairman Inouye[^5].

These investigations will most certainly bring additional empirical
evidence and insights to bear on the fundamental dynamics of fuel market
volatility. But at the same time, these studies must not be used as an
excuse for continued inaction when it comes to protecting American
consumers from price gouging this summer. I believe this is the case for
a number of reasons:

First, sufficient evidence that price gouging occurred in the wake of
last fall's hurricanes has been accumulated such that the FTC---in its
interim report to Congress last month---identified 99 cases in which
charges have been brought by state Attorneys General against retailers,
"many of which had settled state charges without a trial and paid a
fine.[^6]" While states with price gouging laws on the books have been
successful in this regard, the interstate nature of fuel markets
suggests the need for a strong federal price gouging law, which reaches
beyond just retailers to the wholesale markets that extend beyond state
boundaries. This concept was embraced by state Attorneys General who
testified at last fall's joint hearing of the Senate Commerce and Energy
Committees[^7].

Second, enacting a federal price gouging law will hold the oil industry
accountable during the coming summer driving season. To date, the
industry has offered insufficient explanations for the current price
spike, attributing the increases to factors such as ethanol shortages
and the transition away from MTBE. The flaws in this explanation are
particularly glaring from the perspective of consumers in Washington
state, where MTBE has been banned as a gasoline additive since 2004.
Moreover, ethanol blending is not required as a means of achieving Clean
Air Act requirements. Taken together, these facts might suggest that
Washington state consumers should be relatively insulated from the kinds
of physical disruptions the industry has cited for the current price
spike. Yet, Energy Information Administration data shows that pump
prices in Washington state have risen an average of 60 cents/gallon just
since January. In fact, prices in my state---which averaged
\$1.99/gallon in 2004---have actually risen faster than prices in
California, which does use substantial quantities of ethanol. In short,
these explanations simply don't add up.

Finally, unless Congress passes a law, an eventual finding that price
gouging is occurring in U.S. fuel markets will be completely meaningless
to consumers. In other words, should any of the countless investigations
and studies now underway find evidence of price gouging in wholesale
fuel markets, the federal government will still have little if any
authority to do anything about it. On the contrary, it is my hope that,
as policymakers, we have learned one of the most important lessons of
the Western energy crisis of 2000-2001: when it comes to the vital
energy commodities that power our economy, proactive consumer protection
on the part of the federal government is a far better course of action
than attempting to pick up the pieces and fashion some measure of
justice after billions of dollars have been stolen by unscrupulous
actors in a dysfunctional market. My constituents have learned this
lesson the hard way. More than four years after Enron's scandalous
collapse into bankruptcy, ratepayers in my region are still fighting for
a measure of relief from its schemes to inflate Northwest energy prices.
It's my hope that we can come together in a bipartisan manner to pass
price gouging legislation, which will help ensure this experience is not
repeated.

Toward that end, you will recall that a number of my colleagues and I
offered a version of S. 1735 as an amendment on the Senate floor last
November (SA 2612). At that time, 57 Senators voted in favor of taking
up this critical measure, and I remain committed to working with you and
other colleagues to make modifications to this legislation that will
build as broad a consensus as possible on its provisions.

While it is clear that a federal price gouging ban is only one element
in the equation when it comes to putting our nation on a path toward
greater energy security and independence, I hope you will agree that it
is crucial that we act quickly to pass such a law, to protect American
consumers at the gas pump this summer.

Thank you for your attention to this request.

Sincerely,

Maria Cantwell

United States Senator

Cc: Senate Minority Leader Harry Reid

[^1]: Pub. L. No. 109-058, Sec. 1809; Enacted August 8, 2005

[^2]: Science, State, Justice, Commerce, and Related Agencies
    Appropriations Act, 2006, Pub.L. No. 109-108, Sec. 632; Enacted
    November 22, 2005

[^3]: http://frist.senate.gov/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=2126

[^4]: *Department of Energy Response to Hurricane Katrina, Monday,
    September 6, 2005;* http://www.gop.gov/Katrina/96DOEFacts.doc

[^5]: Acceptance letter from GAO Managing Director of Government
    Relations Gloria Jarmon to Senators Inouye and Cantwell, March 29,
    2006

[^6]: *Interim Report on Gasoline Pricing: A Report to Congress;*
    Federal Trade Commission, March 2006

[^7]: Testimony of Arizona Attorney General Terry Goddard and New Jersey
    Attorney General Peter Harvey, November 9, 2005. Specifically,
    General Goddard noted that "we\'ve not had access to any
    information, really, outside of the geographical limits of our
    state. One of the problems we have with petroleum industry numbers
    is the transparency is hazy at best...And so it\'s very difficult to
    have a clear analysis using just the resources that I have in
    Arizona of the industry and its practices." Similarly, General
    Harvey urged that "whatever price-gouging statute that is formulated
    here, that it reach also beyond the retailers to the suppliers and
    the refineries."