U.S. GOVERNMENT PRINTING OFFICE

67–558 WASHINGTON : 2000

THE IMPACT OF FUEL PRICES ON

SMALL BUSINESS

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON REGULATORY REFORM AND

PAPERWORK REDUCTION

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

CASTLETON, NY

APRIL 18, 2000

Serial No. 106–53

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Illinois

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

DAVID M. MCINTOSH, Indiana

RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania

JOHN E. SWEENEY, New York

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

EDWARD PEASE, Indiana

JOHN THUNE, South Dakota

MARY BONO, California

NYDIA M. VELAZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

CAROLYN MCCARTHY, New York

BILL PASCRELL, New Jersey

RUBEN HINOJOSA, Texas

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

SHELLEY BERKLEY, Nevada

HARRY KATRICHIS, Chief Counsel

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON REGULATORY REFORM AND PAPERWORK REDUCTION

SUE W. KELLY, New York, Chairwoman

LARRY COMBEST, Texas

DAVID M. McINTOSH, Indiana

JOHN E. SWEENEY, New York

JOHN THUNE, South Dakota

BILL PASCRELL, New Jersey

ROBERT A. BRADY, Pennsylvania

DENNIS MOORE, Kansas

MEREDITH MATTY, Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on April 18, 2000 .............................................................................. 1

WITNESSES

Gee, Robert, Assistant Secretary for Fossil Energy, Department of Energy ...... 4

Hulbert, Tim, President and CEO, Rensselaer County Chamber of Commerce 7

O’Connell, Dan, Center Director, Small Business Administration ...................... 10

DeGuzman, Dantaid, Owner, Pioneer Fuels, Inc. ................................................. 18

Stevens, Marshall, Assistant Manager, Warren County Airport ......................... 22

LeGrand, Tom, Owner, LeGrand Construction ..................................................... 26

Czub, Jim, National Corn Growers Association .................................................... 28

Buhrmaster, James, Empire State Petroleum Association, Inc ........................... 30

(1)

THE IMPACT OF FUEL PRICES ON SMALL

BUSINESS

TUESDAY, APRIL 18, 2000

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON REGULATORY REFORM AND

PAPERWORK REDUCTION,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Subcommittee met, pursuant to call, at 3 p.m., at the

Schodack Town Hall, 1777 Columbia Turnpike, Castleton, New

York, Hon. John Sweeney presiding.

Chairman SWEENEY. I will gavel in the proceedings. We’ll begin

a little bit out of regular order by first saying thank you to

Schodack Town Supervisor Eileen Natoli for all of the accommodations you’ve made here. Eileen would like to say a few words.

Ms. NATOLI. I would just like to say welcome, ladies and gentlemen and especially to Congresswoman Sue Kelly, who I’m delighted to meet for the first time. Welcome to Schodack. Sue is from

the 19th Congressional District, Columbia County. Sue is the chairwoman of the Regulatory Reform and Paperwork Subcommittee

and on the Small Business Committee.

Our other guest today needs no introduction, John Sweeney. I

think all of us remember him from around these parts, from DWI

and Rensselaer County to Commissioner of Labor to the Governor’s

Deputy Secretary and now, for the first time in his life, a real honest job, Member of Congress. John, we’re so happy to have you.

Chairman SWEENEY. Thank you. Eileen. Thank you. Welcome everyone. I want to thank the crowd, you folks, for coming out and

participating today. I will make a brief opening statement and then

turn it over to Mrs. Kelly for her opening statement. And what I’m

going to do is give you an abridged version of my opening statement and submit to the record the full statement.

As Mrs. Natoli pointed out, Sue Kelly is an important member

of the Small Business Committee as the Chairwoman of the Subcommittee on Regulatory Reform and Paperwork Reduction. And

I’ve had the privilege of serving the last year and a half with her

in Congress. And this morning we were in Mount Pleasant, in

Westchester County, conducting a similar hearing to this.

As we all know, we’re going to hear today testimony relating to

how fuel prices have impacted small business throughout New

York State. We’ve had a winter of economic discontent and hardship and as was the case for so many in the Northeast, Spring

comes with little promise of lower fuel prices.

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In this past winter, we’ve witnessed skyrocketing heating bill

prices and now we’re faced with high gasoline prices. I’ve been following this problem very closely, have been in touch with a number

of my constituents who have called my office. And as far back as

last December, I have been urging the Clinton Administration to

release low income heating funds and consider releasing from the

Strategic Petroleum Reserves into the Northeast.

It’s this Congressman’s opinion that the Administration’s initial

response has been woefully inadequate. In fact, I term it benign neglect in some instances.

We have asked the White House on a number of occasions, as I

have mentioned, to release oil from the SPR. In January, Mrs.

Kelly myself, and a bipartisan delegation of Representatives from

the Northeast met with Secretary Richardson and asked again that

he do that. We have been, thus far, fairly ignored in our pleas.

We’ve watched the Secretary travel throughout the world with

his hat in hand asking OPEC to increase oil production. Many of

these same OPEC nations, just a few short years ago, we went to

war in order to protect. Now we are subjected to what I call economic terrorism on their part. During this time, the last seven

years, U.S. oil production has fallen by nearly 20 percent while oil

consumption has continued to rise.

During the 25 years since the last oil crisis, our reliance on foreign oil has increased from 37 percent to 57 percent today. I believe

we have no or a very failed energy policy, and I’m hoping that in

today’s testimony we can begin to work in a bipartisan and cooperative and a reasonable way to try to change some of that.

On a positive note, I want to note that last Wednesday in the

House, we authorized the Strategic Petroleum Reserves with a bipartisan vote of 416 to 8. And I’m proud that my suggestion for a

regional heating pool reserve was included in that bill. This reserve

will help protect us from skyrocketing heating fuel prices in the future, I believe.

There are a number of other proposals and ideas floating around,

and I want to get to the testimony of our witnesses, but let me

point out that 90 percent of all employment in the 22nd Congressional District that I represent derives from small businesses. We

thought it very important that we, specifically today, address the

affects on the small business community so that we could be better

prepared to understand what needs to be done in the future in

order to rectify the situation.

And with that, I will turn over now to Mrs. Kelly for her opening

statement.

Mrs. KELLY. Thank you very much. Good afternoon, everyone.

It’s a pleasure to be here. I’d also like to thank Congressman

Sweeney for inviting me here this afternoon. And I thank him for

joining me earlier for the morning hearing that we held in Valhalla, New York, where we held a hearing on the same topic.

This afternoon I’m very happy to be able to turn over the gavel

to him for this hearing. Near tripling of the price of crude oil since

March of 1999 to the first months of the year 2000, coupled with

other developments, initially brought about sharp increases in the

price of home heating oil and diesel fuel. As you all know, the

Northeast has been hit the hardest by these rising energy costs.

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We’ve made it through the winter, but we have to insure that we

avoid another home heating oil crisis. Nevertheless, the Northeast

and the nation has turned its attention to a new crisis, the price

of fuel. And, moreover, the possibility of a sharp increase in electric

rates is becoming more and more of a reality.

I would like to insert into the record, Mr. Sweeney, a copy from

the Wall Street Journal. It’s from the Wall Street Journal of March

20th. The headline of this article reads, ‘‘Northeast Faces Electricity Price Surge.’’ Now, it’s—the second thing says ‘‘Costly oil

fired plants may drive up summer rates.’’ That’s what I’m talking

about.

The possibility of this sharp increase in electric rates is becoming

more and more of a reality. And I think that New York is at a

major disadvantage because it doesn’t have any refineries here. We

don’t have a major gas pipe that’s coming up here. New York is dependent upon just oil for our heat and our gas. This fact, coupled

with the market forces and the President’s inability to compel

OPEC to reach a production agreement until just two weeks ago

and his continued reluctance to release oil from the Strategic Petroleum Reserve forced us to examine the problem in a deeper way.

Caught up in all of these issues are the consumers, all of you,

all of us, people who drive up to the gas pump every day and have

to fill their tank because they’re going to work, because they’re

doing a volunteer job. These are the people who are being hit by

these gas prices. Add to that the truckers who are facing fuel prices

that are close to $2 a gallon of gas for diesel fuel in my area. Some

people are paying $2.25 for diesel fuel.

The spillover effect of that is enormous. It’s catching all of us. It’s

raising our prices. And I believe that the Administration has got

to keep its guard up because we are likely to see rising electricity

rates on top of these high oil prices. The price of oil has decreased

a little bit now. We hope the crisis part is over, but the Energy Information Administration indicated on April 6th that it believed

that gasoline prices may not have peaked and the national average

price during this summer may exceed about 1.5—1.51 or $1.51 a

gallon of gas. That’s unfortunate. The EIA added that the Northeast might see spikes to a higher level.

For small businesses that are producing, distributing and consuming oil, the crisis has really just begun. And it’s for this reason

that I think Congress has to continue to debate the possible longterm and short-term courses of action. That’s really why we’re here

today. We want to take the debate away from Washington, D.C.,

and bring it here so we can listen and hear and take back to Washington and enact into, we hope, good public policy.

We also are—I’m excited that we have the, we have the Assistant

Secretary of Fossil Fuels from the Department of Energy, Mr. Robert W. Gee, here with us today to discuss the Administration’s most

recent actions regarding oil production. And Mr. Gee, I hope, will

take back our issues and our concerns from this area back to

Washington.

With that, I thank you all for being here and I thank you, Mr.

Sweeney, for allowing me to be with you today. I look forward to

everybody’s testimony.

Chairman SWEENEY. Thank you, Congresswoman Kelly.

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We have two panels today that we will be taking testimony from.

And I’ll go to the second panel first.

This arose this morning in Westchester County. It was a reference made to Alan Jackson, the country singer, in his song ‘‘Remember the Little Man.’’ That second panel will be made up of a

number of small business folks from the 22nd Congressional District who will provide us with their insight and give us a real firsthand account of what the effect of the past year’s events have been.

Our first panel, I guess, are the big guys. They’re the government and the business community representatives.

Robert Gee, is, as Mrs. Kelly pointed out, the Assistant Secretary

for Fossil Energy with the Department of Energy.

I thank you, Mr. Gee, for being here. I know this hasn’t been exactly easy for many people in the Department to appear and testify, but your testimony this morning was very forthright and I

look forward to your testimony here.

With us as well is Daniel O’Connell, Center Director for the

Small Business Administration in Albany, New York. Mr.

O’Connell does extensive work with my office. And I thank you,

Dan, for being here.

And last, but not least, Tim Hulbert, the President and CEO of

the Rensselaer County Chamber of Commerce.

I will point out that Mr. Hulbert and I are long time friends and

acquaintances. In fact, I bought my first life insurance policy off

him. And I thank him for being here today.

With that I will turn it over to you, Assistant Secretary Gee.

STATEMENT OF ROBERT GEE, ASSISTANT SECRETARY FOR

FOSSIL ENERGY, DEPARTMENT OF ENERGY

Mr. GEE. Thank you very much, Mr. Chairman, and thank you

again for the opportunity to participate in this hearing here in

Castleton, New York.

As you know, I’ve already submitted a formal statement for the

record and I will just take this opportunity to summarize key

points.

The Department, primarily through its Energy Information Administration, maintains data on the general patterns of fuel supply

and demand within the U.S. economy. Our data, however, do not

always reflect the individual impacts on specific business sectors.

We know clearly, however, that small businesses, especially those

whose profit margins are influenced significantly by the cost of fuel

have experienced difficult times in recent weeks and months.

My testimony today will focus on several actions the Administration’s taking to address this situation. Our goal has been not to try

to set an artificial price for petroleum; rather, our goal is to lessen

volatility in the market, volatility that can make business decisions

especially difficult, particularly for small energy intensive businesses.

The recent announcement by OPEC and others that enough oil

will be flowing in the global market is good news for consumers.

It will build oil inventories and, as we’ve already seen in the past

couple of weeks, it will lower prices.

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But the recent price spike reminds us that every American can

still be affected by actions and decisions that occur well outside our

borders.

The recent volatility in all markets is yet another in a series of

cycles, this one perhaps more extreme in its roller coaster effect

than others in the past. It’s a cycle that actually began in 1997

when OPEC substantially increased production at just about the

time when the economic downturn in Asia began to sharply reduce

global oil demand.

This led to unprecedented low oil prices, the lowest in 50 years,

and much of our domestic industry, that is, the producing industry,

suffered as a result.

The most recent price spike came as a result of a series of production cuts as both OPEC and non-OPEC producing countries attempted to compensate for the plunge in prices. Unfortunately,

these cuts came at the same time the Asian economy began to rebound. The supply and demand imbalance quickly swung the other

way and suppliers began drawing on petroleum stocks. Inventories

were driven to extremely low levels and the price of crude oil and

refined products shot up.

It is important to note that the dramatic swings in prices have

largely resulted from an imbalance of less than three percent in

world oil supply and demand. Today, the world consumes 75 million barrels of crude oil per day. A two-million barrel supply overhang led to the price plunge in 1998. A two-million barrel supply

shortfall contributed to the price hike of this year.

That is the nature of the global oil market that affects every

American. Today, 52 percent of the oil consumed in the United

States originates from outside of our borders. That is not only due

to declining domestic production, but from a continuing rise in U.S.

demands. Our petroleum appetite has increased more than 20 percent since 1985.

There are some short-term global actions that can help. We’ve diversified our international sources of oil supply. Last year we imported oil from 40 different countries. We can engage in global diplomacy, and I believe Secretary Richardson deserves a considerable amount of credit for the diplomatic efforts he has made in recent weeks.

But in the longer run, we must continue to take actions that

strengthen our own domestic energy security and protect those

Americans that can be harmed most by sharp price fluctuations.

That is what the President and the Department of Energy have

been doing over the last several months.

To ease the problems faced by low-income persons, this past winter, the President released nearly $300 million from the Low Income Home Energy Assistance Program. In the pending supplemental appropriations bill, he has asked Congress for another $600

million for this program, plus additional funding for weatherizing

the homes of low-income families.

The Administration took action to insure the availability of SBA

loans for heating oil distributors who needed better cash flow to

meet contractual obligations and make deliveries.

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In all, I’ve cited 15 separate actions on pages three and four of

my formal statement that the Administration took following this

winter’s run up in distillate fuel prices.

Within the last month, the President has proposed additional

measures. In his March 18th radio address to the nation, he called

on Congress to enact legislation authorizing a regional heating oil

reserve in the Northeast.

This would be a two-million barrel emergency supply of heating

oil that could be released when supply shortages threaten economic

harm to consumers. We are currently working on plans for this reserve and we are prepared to work with members to pass legislation that would establish clear authorities for its creation and use.

The President has also called on Congress to extend the Energy

Policy and Conservation Act, the legislation that provides organic

authorities for the Strategic Petroleum Reserve. Despite the recent

visibility and concern expressed over our nation’s oil situation and

our energy security, the legislative authorities for our most important energy emergency response tool have been allowed to lapse.

They expired on March 31st.

We were encouraged last week when the House passed an extension of the Act through fiscal year 2003, and included provisions for

heating oil reserve. That legislation has now been returned to the

Senate which had previously passed a similar extension.

It is critical that Congress act soon to extend this legislation to

ensure that the President maintains the ability to use all available

tools to respond to future energy needs.

There are also opportunities to reduce our economy’s appetite for

petroleum and to supply a greater proportion of our oil from domestic sources.

In his radio address, the President announced several new tax

incentives to support domestic oil exploration and production, as

well as reiterating his support for tax credits that would encourage

greater use of renewable fuels and improved energy efficiency.

For the longer term, we are strong believers in the potential of

new technology, both to make our economy more energy efficient

and to enhance our nation’s ability to produce more fuels from its

own domestic resources.

One of our key energy efficiency initiatives is to develop a prototype full-size automobile by 2004 that would get 80 miles per gallon. By the same year, we also want to improve light truck fuel efficiencies by 35 percent while, at the same time, ensuring that these

vehicles meet new air quality regulations. These efforts will not

only benefit millions of individual automobile owners, but also the

hundreds of thousands of businesses that rely on delivery trucks

and freight haulers to move their products to market.

Finally, Mr. Chairman, let me make a final point that often goes

overlooked in a discussion about small businesses. We correctly

focus much of our attention on the small companies and familyowned businesses that consume petroleum and other fuels, and

rightly so. I would also point out that, increasingly, the companies

that produce those fuels in our country are also small businesses.

Today’s petroleum industry is not the same industry that existed

in the 1950s, ’60s or ’70s. For the most part, large oil companies

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that had been here have turned their attention to more lucrative

prospects overseas.

Today, 85 percent of the new oil and gas wells drilled in our

country are drilled by the smaller, independent companies. They

account for nearly half of the crude oil produced in the lower 48

states. They are responsible for two-thirds of the nation’s natural

gas supply today. Nearly 80 percent of the more than 8,000 companies that now make up the U.S. oil industry have less than 20 employees.

The extreme price volatility we witnessed recently is good for

neither the oil consumer nor the oil producer. They are both small

businesses.

Consequently, Mr. Chairman, we believe a truly comprehensive

national energy strategy must address both ends of the fuel spectrum, the producer in the field as well as the consumer in the home

or business.

There are remarkable opportunities at both ends of this spectrum. If we can sustain a partnership between government and industry in developing new energy consuming technologies and new

energy producing technologies, we can look forward to a day when

the roller coaster rise of prices comes to a halt.

Our goal is a future in which the United States is producing the

full potential of its domestic resource and consuming those resources in the most efficient manner possible. The more we drive

toward that goal, the greater the likelihood that the cost of a barrel

of oil in the future will be dictated by markets and not by cartels.

This concludes my opening statement, Mr. Chairman. And I’ll

certainly be glad to answer any questions you may have.

Chairman SWEENEY. Thank you, Mr. Gee.

We’ll go to Mr. Hulbert.

STATEMENT OF TIM HULBERT, PRESIDENT AND CEO,

RENSSELAER COUNTY CHAMBER OF COMMERCE

Mr. HULBERT. Good afternoon, Madam Chairwoman and Mr.

Chairman.

As John has pointed out, I’ve known him since he had an honest

job. I’m very proud to have known him when he worked assisting

many of our citizens with developmental disabilities, with the

Rensselaer County Association for Retarded Citizens. That’s when

I first met him. And that was an honest job and it was a great job.

And you did as good a job there as you’re doing here. It’s an honor

to have you here.

I wanted to point out in my remarks that, when it gets close to

August 1st and you’re rushing to the summer recess and trying to

get all those things done, just think about this nice warm weather

we’re having here today in beautiful Upstate New York.

My name is Timothy Hulbert. I live about 10 or 15 miles due

north of here, the way the crow flies, but something less of than

a dollar fifty a gallon of gasoline would get me here from my home.

I work for the Rensselaer County Regional Chamber of Commerce.

And I thank you for having me.

Our Chamber’s been around for a hundred years. We have a

thousand members. We are very proud of our heritage. We are very

proud of the heritage of this community.

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Let me get to the business at hand.

Just a week ago, crude oil prices reported in The New York

Times listed that the Saudi Arabian Light, the benchmark commodity, was selling in the spot market for $22 a barrel. Now, that’s

pretty good news, because a month ago, as you noted, it was selling

for about $34 a barrel. However, for that same barrel getting delivered in May, the price has risen to $24. That’s the energy future.

The International Energy Agency reported in last Wednesday’s

New York Times, ‘‘they’ve warned of possible shortages unless

OPEC lifts output more than expected.’’ As you know, as has been noted here, there’s been a steady rise

upward until the last month in the price of a barrel of oil. There’s

been some volatility over the last month and, to the great extent,

it has come down, but what goes down can come up. It’s the reverse of Newton’s Law.

Over the past year, the Organization of Petroleum Exporting

Countries has once again demonstrated that they can dictate either

world-wide economic disruption or stability. The cartel has once

again shown us just how vulnerable our economic prosperity really

is.

Just what has this price runup done to us?

Every time OPEC strangles production or raises the price of petroleum, ultimately, everything we buy as businesses and consumers costs more. When OPEC raises its price, rest assured that

Texas oil, Alaskan oil, natural gas and all heating fuels, ultimately

track that price and rise, too.

So much for economics. What does this mean to businesses and

consumers?

Virtually every American product and service gets delivered over

the highways. When the price of gasoline rises, business costs and

the costs to all consumers rise.

Just take a look at groceries.

We are fortunate to be just a few miles from Hannaford Brothers

Company’s New York regional office and distribution center. They

have a half a million square feet under a roof. They have 400 people working there. And from that facility they supply 23 of the finest supermarkets in Upstate New York and even more in neighboring Vermont and Massachusetts.

Company-wide, Hannaford’s distribution costs have risen by

more than $50,000 a month. For the Schodack-based portion of the

company, that means somewhere between 15 and $20,000 each

month in increased costs that’s going to find its way into their

products. That’s a steep increase that requires a steep challenge by

the management to manage that.

If there’s any good news for this industry it’s that all grocers

move their products over the highway. So, whether it’s Golub,

Wegmans, Hannaford or whatever, they’re all distributing over the

highway and they’re all dependent upon gasoline. That means they,

unfortunately, are simply conduits of the OPEC tax, and that conduit from OPEC directly to us as consumers. I know the Hannaford

management team quite well. Their vice president Beth Nuance

Campbell and other vice president Ron Spear are here in the room.

And I know that they will do whatever it takes to keep the price

advantage in the marketplace. They’ll do whatever it takes to keep

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any advantage in the marketplace. And so will their competitors.

But rest assured that much of the later OPEC tax, it’s going to find

its way into cereal, ketchup, dog food and everything else that we

buy, be it at Price Chopper, Wegmans or Hannaford.

Other businesses that face these costs face a little bit different

circumstances.

Again, a few miles from here, Hudson Valley Coffee Company is

located in Schodack. It’s owned by a woman, Lisa Topaltzas. She,

too, gets her products, coffee, to the market over the road.

Coffee is very much like petroleum, and I’m not speaking of the

coffee that I make every morning. But Lisa pointed out to me that

coffee and petroleum are perhaps the two most traded commodities

in the world marketplace. There’s really no arguing with her there.

The world-wide coffee market, however, is very different than the

petroleum market. Price and supply are not set by an international

governmental cartel. For the most part, and maybe some of you

will disagree with this, coffee trades openly and freely around the

world and it seeks its own level. When it’s affordable, we buy it.

When it gets too pricy, we drink tea, we drink soda, but we don’t

drink coffee. Unless, of course, you’re dependent like I am.

Lisa’s company has one basic product. They have a variety of

variations on that, but they have one basic product, coffee. The several hundred dollars that she and her company face every month

really can’t be covered because of the nature of that marketplace

right now, so she eats that tax. She eats that and, you know, less

salaries for her employees, less other things for her company.

There’s another business that I know fairly well, and that’s R.J.

Giles, a very good friend of ours, unfortunately moved his company

over to Albany temporarily. He’ll be back in Brunswick at some

point.

He started his business about 15 years ago out of his living room

and in the back of a Dodge station wagon. Today, he has over 30

men and women working for him.

His company, which competes with all the regional and national

office supply companies, is paying about $600 a month additional

in increased gasoline costs.

Now, he’s a little bit like Hannaford and a little bit like Lisa. He

can move some of that, some of that product, that price increase

into his products. Not too much, though. He has to eat the rest. He

loses profitability. That hurts a local business.

Ultimately, these things find their way to consumers. As I said

here in my remarks, I guess I’m pleased, if you will, to share this

bad news with you. What I don’t have for you is some type of silver

bullet that would be a remedy. I think it’s a problem of markets.

I don’t know that there is a remedy. And I am speaking as a recovering energy bureaucrat. I spent five glorious years with the now

former New York State Energy Office.

John, in his previous capacity, was successful in eliminating that

alma mater of mine.

Don’t laugh. He’s got his eyes on you.

Anyway, our Chamber members do not call me up and say, ‘‘Tim,

what are we going to do about this?’’ I think they call their congressman and congresswoman.

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I don’t know that price controls, fuel allocations and those types

of mechanisms will work. I am very doubtful about what the release of the Strategic Petroleum Reserve will do. I think they’re

more theater.

Having said that, I am a veteran of the ’79 energy crisis, or socalled energy crisis. And during that crazy time, odd/even did work.

And I’m not saying that we should do odd/even but, if there is a

point where that does occur, odd/even can work for a period of

days. One of the things that we do in government is we manage

emergencies quite well. What we don’t do in government is we recognize when the emergency is over. So if you are driven to do this

this summer or some time in the future, remember you have to remove the rationing.

I do think we need to do some of the things that the Assistant

Secretary has said, which is to create the incentives, tax incentives

for the market, introduction of competing fuel forms and energy efficiency.

There was an article in yesterday’s Record in Troy about the

Honda Insight—I can’t help notice it was Honda and not Chevrolet—that now has a hybrid product that you can buy in beautiful

downtown Brunswick that gets 60 to 70 miles a gallon, and maybe

even drive it to Cape Cod.

Finally, a word about OPEC.

You know, in our little corner of the world here, we might not

be completely up on all the nuances of the geo-political machinations. But, you know, without a score card, it’s pretty tough to keep

current on these things, but I don’t know.

Is Kuwait on our side these days or are they back on the same

side as Iraq?

Where are our buddies, the Saudis, Abu Dhabil or the United

Arab Emirates?

These questions, of course, are rhetorical, but Americans certainly can remember that less than 10 years ago our men and

women were fighting to protect these nations as well as our own

strategic interests in the Persian Gulf.

Maybe these nations could use a gentle reminder that their longterm strategic and economic interests are better served by our

American economic success. Maybe if President Clinton appointed

former Secretary of State James Baker as a special ambassador to

go visit our, quote unquote, friends around the Gulf, maybe they

would see the friendly face and rethink their openly hostile economic policies that are currently in place.

I know it’s not that simple, but feel free to pass that last suggestion along.

Again, thank you for coming here. And it’s great to see you

again, John.

Chairman SWEENEY. Thank you Mr. Hulbert.

Our next witness, Dan O’Connell, is the manager of the Capital

Business Resource Center, which is an SBA, Small Business Administration, sponsored business information center. Welcome.

STATEMENT OF DAN O’CONNELL, CENTER DIRECTOR, SMALL

BUSINESS ADMINISTRATION

Mr. O’CONNELL. Thank you, Congressman.

11

Welcome, Congresswoman Kelly. Thank you for coming up to

Schodack.

I live on the other side of the river, still in the 22nd District, I

might add, in Clifton Park. I guess we’re neighbors up there.

So far, from the other two people that are contributing, we’ve

heard about part of the cause of the problem. We’ve heard about

OPEC. And, certainly, OPEC had a great effect on the price bites

that we saw this past winter.

OPEC production restrictions finally began to diminish what had

been a glut on the market. And, as the Assistant Secretary said,

we were at a low price in the cost of oil historically.

However, in September, the supply of the product was sufficient

in the Northeast to meet the anticipated demands of this winter.

Of course, the decision to restrict all production caused an international increase in crude oil per barrel and that was something

that affected us in the Northeast, particularly. But there was, were

two other factors involved. One was we had a cold snap that began

January 13th. And it lasted for approximately three weeks. That

cold snap caused the utilities, the gas companies, if you will, the

natural gas companies, to invoke their interruptible clause in their

gas contracts. The interruptible clause is for big businesses, for big

users, for hospitals, federal buildings, electricity generation plants.

They are required that, when demand for natural gas becomes

high, that they convert back to another type of fuel or they would

pay a significant penalty for their continued use of gas, of natural

gas. This interruptible clause put an unprecedented demand upon

the supply that was already limited in this area.

During the three-week cold snap, interruptible customers required four million gallons of fuel oil per day in the Northeast.

And, for example, four million gallons of fuel oil would heat, one

day of what the gas interruptibles used would heat 4,000 homes for

one year.

The demand triggered by these interruptible customers had a net

effect of increasing oil prices by 50 to 60 cents per gallon. The oil

dealers that I talked to identified this as the single largest problem

that they faced this winter.

At the same time, the cold snap caused the river to freeze. No

surprise there. The river freezes every year. However, when the

river froze, it lengthened the time to get a barge of oil from the

Port of New York to the Port of Albany from 16 hours to approximately 36 hours, which increased the cost of transportation. Also,

because of the ice on the river, they required, the tugs required

having, the barges required having an ice breaker to lead them up

the river at a cost of approximately $800 per hour. So this also had

a tremendous effect on the price increase for a barrel of oil, for a

gallon of oil, rather.

These factors resulted in a rapidly increasing price. Many occasions the price went up more once in one day and the fuel oil dealers had a terrible time trying to stay abreast of the prices. In many

cases, they could not get a quote on a barge load of oil from the

Port of New York because, by the time it got here, it was significantly higher. It was worth more when it got here.

12

We ran into some product shortages. Unlike Western and Central New York, we’re not available to pipeline. We’re water dependent for supply.

While the price of oil was high in Western New York and in Central New York, it was not as high as it was here. And they had

access to the pipelines.

One of the oil dealers I talked to said that they were sending

tractor trailers to Toledo, Ohio, to get product, because they could

get it cheaper than bringing it up from the Port of New York, even

with the cost of fuel involved.

What’s the solution?

Part—of course, part of the solution is what we talked about,

what’s already been said, the Strategic Oil Reserves.

Most of the dealers I talked to said that we really ought to keep

the Strategic Oil Reserves for a real emergency, catastrophe, a disaster, a time of war, but we should have a special supply reserve,

perhaps with, the figure that was thrown at me was two and a half

million gallons, that would be stored somewhere in the Northeast

and be available for just such supply shortages, not for critical. We

didn’t want to touch—they didn’t want to touch the strategic reserves that would be there for in case of real physical or disaster

measures. But they thought we should have some access to relieve

the demand when the gas interruptibles clicked in and when the

river froze.

In addition, they thought that it would be a good idea if the gas

interruptible customers were required to store a five-day oil supply

that they could buy in the spring or in the fall, store for the winter

and, if they were required to use it, they would have it. If they

weren’t required to use it, they could shut down their gas supply

for five days and burn off the oil and then replace it the following

season.

Right now, they can buy contracts from their oil dealers to meet

their interruptible supply. But that doesn’t help the supply, because the contract is just that, it’s a promise to buy from, promise

to deliver.

Certainly, what the oil dealers were faced with, beside the lack

of product, was a cash-flow crunch. And this was what most of our

small businesses were faced with. The oil dealers had it first. They

were faced with a cashflow crunch because the price was going up

so quickly, that they were buying increasingly more expensive

product while waiting for accounts receivables, that were already

of lesser value, to come in. HEAP was a great help, but it took a

while to get that money.

One of the things, the small businesses, once again, rose to the

occasion. Of all the oil dealers I spoke with in the last few weeks,

all of them made it a point to say nobody went without heat,

whether they could pay or not, whether they would be paid in a

timely basis or not. If they got the call at two o’clock in the morning, they went out and delivered, regardless. They just made it a

policy that nobody was going to be cold. And I think that says a

lot for the small businesses.

In addition, they honored their contracts. The companies that

sold contract prices for their oil customers at a guaranteed price at

the beginning of the season, they honored those contracts and they

13

didn’t walk away from them. They all talked about one guy in New

Hampshire that walked away from them. I was just happy it was

in New Hampshire and not here.

The SBA was given a million dollars in supplemental funds to

provide guarantees for oil dealers that were hurt by this shortage.

That allowed us to guarantee $86 million worth of loans. In Central New York, in the Syracuse district, which this area is part of,

we did not make one loan to an oil dealer for this purpose.

Now, why, why was that the case?

Certainly, part of it’s our fault. Maybe we didn’t market it correctly. Most of the oil dealers I talked to knew about the program,

they said that they were experiencing very difficult cashflow situation, but they were able to handle it with their banks. They borrowed from friends, they borrowed from relatives, they borrowed

from banks to get through this situation. They didn’t think that the

SBA would respond quick enough.

We have some programs today, thanks to the small business

community, that allows us to respond quickly. We can get an answer and actually get the money in somebody’s hands within 36

hours. I don’t think we’ve done a proper job in marketing. And

that’s something that we certainly want to make clear to all the

businesses in our area and we have been making a concentrated

effort to get that information out.

We expect that, come later on in the spring, when the oil dealers

find just how badly they’ve been affected by their situation—a lot

of them don’t know yet just how bad it is. One fellow told me he

didn’t want to know until he got back from vacation because he

didn’t want to worry about it. Once we find out just how bad this

is, then they will be able to avail themselves of SBA products to

do some refinancing. We can term out some of their credit lines

and provide them with the capital that they need.

In my written testimony, I gave you some figures as to how

many loans that the SBA’s made in both the 19th and the 22nd

Districts over the last two years. We had been, in the 22nd District, significantly behind last year. And, overall, in the Syracuse

district of the SBA, we had been significantly behind last year.

However, in March, we had a record month, and we believe that

it was due primarily to the energy crunch. So we anticipate seeing

that go forward in April, May and June and we probably will catch

up by providing some capital to businesses that are dependent.

That concludes my testimony. I’ll be glad to take any questions.

Chairman SWEENEY. Thank you, Dan.

We’ll go to questions now, and what I’ll do is direct my first

round of questions to the Assistant Secretary and then turn it over

to Mrs. Kelly for her round of questions.

I noticed, Mr. Gee, that some adjustments, or I sensed some adjustments from your testimony this morning. And I appreciate that

you flushed out some of the President’s proposals, because it does,

indeed, provide us some opportunity to develop some focus. But I

must say, I am skeptical and, at a minimum, unclear still in terms

of what and how the Administration is viewing its policy decision

making. And I want to point to a little bit of the history and then

ask you a very specific question.

14

And as I look at the history, I’m not sure if the Administration

is a proponent or a supporter of the notion that we need to increase

domestic production. You had pointed out that domestic production’s defined.

When you consider in 1995 that the President vetoed a bill which

would have opened up as much as 16 billion barrels, 30 years’ worth of Saudi Arabian imports in Alaska. When you consider that,

I think it’s the policy of this Administration to not believe that hydropower is renewable, in light of the fact that the Secretary of Interior has essentially launched an all-out assault against our domestic energy by keeping regulations, raising royalties, closing vast

expanses of the U.S. to natural gas and oil exploration. I mean, the

Secretary’s actually bragged that he was going to be the first secretary to tear down a hydroelectric dam in his term. When you consider the Administration shut off the entire Rocky Mountain front

to energy exploration, foregoing enormous quantities of clean

American natural gas. When you consider the Administration has

embraced the Kyoto protocol, which could impose staggering economic costs on the United States, in my opinion, the protocol requires the U.S. to vastly reduce its use of fossil fuels, like oil and

natural gas and coal, to a cheap (inaudible) initially carbon dioxide.

I’m a principle sponsor of acid rain legislation in Congress. I am

sensitive to the needs to balance environmental policy. But it

seems to me that the Administration has tilted substantially in one

direction while not—while foregoing many opportunities that we

might have in developing alternate sources and in improving and

wisely managing our domestic supply.

So, if you could tell me what is DOE’s sense of priorities. Is it

domestic production first or is it alternate fuel sources as the principle priority to moving forward and ensuring that we don’t have

a repeat of this kind of crisis?

Mr. GEE. Let me try to—as I understand your question, let me

try to answer it this way. Rather than either or, I don’t think it’s

domestic versus alternate, it’s actually both. Our policy priorities

are to diversify, as best we can, all forms of energy, whether it’s

fossil based, whether it’s renewables in the form of solar or wind,

whether it’s continued use, continued use of nuclear power, which,

in many quarters, is unpopular, but we recognize that it still contributes some 20 percent in electric power generation, energy efficiency and, certainly, the concerns you’ve addressed with respect to

hydro, I think those are challenges that are going to have to, on

a continued basis, simply because you have a lot of license authority that are now being—that are now expired or about to expire.

And the question then becomes whether you relicense a lot of that

capacity, given our surge in energy demand.

With respect to oil and gas production, let me tackle that first,

since you brought that up.

This Administration is, indeed, as you point out, opposed to opening up the Alaska Natural, Alaska Natural Wildlife Reserve for oil

and gas production. However, I don’t think it is correct to say that

we are adamantly opposed to continue domestic production of new

fields. This Administration decided to open up the NPRA in Alaska,

the National Petroleum Reserve of Alaska. It did so with the understanding that new technologies have been fashioned that would

15

allow the beneficial, environmentally beneficial, environmentally

sensitive production of new green fields development in Alaska.

And, in fact, our Department’s worked very closely with the Department of Interior, the head of the Department of Interior to release those and, in fact, they are now ready to open those additional new oil and gas fields in Alaska.

We’ve also passed the Deep Water Royalty Relief Act in 1995

which afforded a lot more oil and gas development in the Gulf

Coast of the United States, and that has led to higher rates of oil

and gas production off the OCS.

We’re working closely, as a department, with the Department of

Interior to look to the Rocky Mountain area to find out how we can

best inventory all of the properties that are currently being utilized

for exploration, and even those that are off limits, and seeing

whether there could be, whether there could be some opportunity

for continued exploration in the Rocky Mountain region.

So I want to emphasize, Congressman, I think your question, as

I understand it, what’s this Administration doing to promote domestic production, in fact, we’re opening up new area—— Chairman SWEENEY. Please tell me and tell the panel what are

the quantified goals, what is your goal and your plan to attain

those goals in increasing domestic production, and by what time

period are we talking?

Mr. GEE. In 1998, our Department released the President’s Comprehensive National Energy Strategy, and one of its goals was to

slow down the decline in domestic production to a point, hopefully,

by 19—excuse me—2005 we would stabilize the level of domestic

production.

Let me give you a few facts, Mr. Congressman.

The problem in the United States today is that many of our

fields, most of our fields have already been well explored, unlike

other parts of the world. So it becomes increasingly difficult to realize higher rates of recovery. The number of barrels that you

produce per well is shrinking, simply because we’re going back into

the same fields, and that’s just a matter of geology. You can’t fight

that. Okay?

What we can do is to try to find ways, through tax incentives,

through lowering of cost production, to keep margin of wells productive. And perhaps with that, in addition to the increase in the

new areas that we are permitted to explore, try to find ways to

slow down the slide in domestic production and perhaps arrest it

over a period of time. And that is one of our goals.

Chairman SWEENEY. I’m a supporter of ethanol and biodiesel alternative fuels. And I happen to be fortunate in that I represent

a number of people who work for a fantastic company called Plug

Power, that is in the area, that’s——

Mr. GEE. Very good company. Very familiar with them.

Chairman SWEENEY. So you know what they’ve done.

Now, I’m wondering, what is DOE—is DOE using this latest crisis to expand alternate fuel research and what are the expectations

that you have in that area?

Mr. GEE. That is a different part of our department, for which

I am not directly responsible. Let me go ahead and share with you

what I do know.

16

We do have a big biofuels program as part of our department’s

research and development program, and they also are big into ethanol research as well.

In my own office, we have a program which, hopefully, will take

coal and coal waste and petroleum and natural gas and hopefully

convert that into liquid transportation fuel. That, in conjunction

with our renewable biomass ethanol program, would hopefully lead

to diversification of these fuel resources to liquid transportation

fuels. That is a big part of our program. In fact, I think—I don’t

know what the budget figures are. I do know that we are asking

in our next, in the current 2001 budget request for an increase, I

know, in some of these R and D technologies.

Let me also add, the Plug Power, the fuel cell technology, my office is very heavily invested in new fuel cell technologies. We think

that is one way where we can continue using, for example, natural

gas in a way in which boosts efficiency way beyond what anybody

would ordinarily expect and also do it in a way which is environmentally benign, because all you emit is, basically, water and minimal amounts of CO2.

I was in New York City at a ribbon cutting of a fuel cell that was

put together by the New York Power Authority along the Hudson,

a fuel cell developer, and it was a marvelous fuel cell that they

have there in the substation right in the midst of Central Park. Excellent example of distributing generation in a heavily urbanized

area.

Chairman SWEENEY. Thank you.

Mrs. Kelly.

Mrs. KELLY. Thank you.

Mr. Gee, when this whole crisis started, Governor Pataki asked

the Administration for an immediate investigation into the factors

that are driving these fuel prices and its shortages and so on. And

on January 27th, the Ranking Chairman, the Ranking Member of

Transportation asked for a similar study.

Can you tell us what the status of those investigations are at

this point?

Mr. GEE. I believe, if you’re referring to investigations into potential anti-competitive conduct, if that’s what the thrust—I’m not familiar with the specific inquiry. I do know that questions have been

asked about why prices seem to fly up so rapidly and whether

there were some anti-competitive actions being taken by various

parties.

I do know that the Federal Trade Commission and the Department of Justice are looking into competitive questions, if that’s

what your question refers to.

Mrs. KELLY. Well, some of those questions I asked Secretary

Richardson myself when I met with him early in this problem, and

we asked if there was, in fact, price gouging, whether there was a

deliberate attempt to withhold oil from the Northeast, which would

drive up our prices. Given what we know about the regional nature

of oil pricing and so forth, I know that the Governor also was concerned about the way, the impact of that, in terms of price increases, and also he was, I believe, asking about the supply shortages. And I just wondered, I know that those questions——

17

Mr. GEE. I think we’re talking about the same thing. I believe,

as I understand it, the Department of Justice and FTC are looking

into these matters that you referred to.

Mrs. KELLY. Those questions were asked January 27th. Perhaps

you could take a recommendation back to the Department—— Mr. GEE. I’ll be happy to take that back.

Mrs. KELLY [continuing]. And respond?

Mr. GEE. I’ll ask our Department what they know of your inquiry

and see what other agencies are doing as well in response to that.

I’ll be happy to do that.

Mrs. KELLY. Thank you very much.

In the interest of time, are you going to hold the hearing open

and then I will submit some—— Chairman SWEENEY. I was just going to make a motion. We will

hold the hearing open for an additional 14 days so that additional

questions can be submitted.

Mrs. KELLY. May I just state one thing?

I know that you’ve been talking about the Arab nations. I happen

to have had some relationship with the Country of Qatar and the

Minister of Energy of Qatar is the Chairman of OPEC. When he

was in my office talking with me about something that his nation

needed, I turned to him and said, ‘‘Sir, I need something from you.

We, in the Northeast, need something from you.’’ I want to make

it clear, put it on the record, that at the time I was speaking with

him, I was talking with him about the impact in the Northeast of

the problem with oil prices going up, my concern about price

gouging, my concern that they have made, they made an effort to

shrink the amount of oil that they were pumping and making

available to us and what that impact is. And I think we’ve heard

today, and we’ll hear some more, about the impact on individual

people’s lives. He does—they do know that, OPEC. The question is:

Are they going to pay attention to us? And I hope that the Department of Energy and Secretary Richardson, in particular, will drive

that message home when he is talking with them, because he’s not

the only one speaking to them.

Chairman SWEENEY. Okay. With that, I have a number of questions for both Mr. O’Connell and Mr. Hulbert but I’ll submit them

in writing to you.

I want to thank the panel for its great testimony, very insightful,

very forthright, and I appreciate it.

We will stand in recess for about 10 minutes as we call up the

second panel. We will resume promptly at 10 minutes after four.

[Recess.]

Chairman SWEENEY. Okay. I’ll gavel back in the proceedings, and

we’ll now move to our second panel.

And I welcome the panelists and I’ll begin by introducing each

of them.

Dantaida DeGuzman is co-owner of Pioneer Fuels along with her

husband. The DeGuzmans went into business in July of 1997 by

advertising their business door to door. They currently serve over

1,000 customers, which I think will provide important insight into

this crisis.

Also joining us is Marshall Stevens, welcome, the assistant airport manager for the Floyd Bennett Memorial Airport, which is the

18

Warren County Airport. Mr. Stevens is fairly new to the region.

He’s been with the Floyd Bennett Memorial Airport since December of 1999, and I’m sure he’s excited that the airport is going to

receive the additional $150,000 in federal funding from the Air 21

Bill that we passed earlier this year. Being the Vice Chairman of

the Aviation Committee, Marshall, welcome and I know you and I

will do a lot of work together.

Tom LeGrand is the owner of LeGrand Construction. Mr.

LeGrand is a businessman from northern Dutchess County, whom

I’ve known for a couple of years and who I know is a real doer and

a real pro in the construction industry. And I’m anxious to hear

from Mr. LeGrand on the effects of increased fuel costs in the construction industry and in the southern end of my district.

Jim Czub is representing the National Corn Growers Association.

Mr. Czub is a resident of Rensselaer County. Jim brings a very

local perspective on the impact on local farming but he also brings

us a national perspective as well as one of the real strong voices

in the agricultural community. Thank you for coming today.

And Jim Buhrmaster is representing the Empire State Petroleum Association. Mr. Buhrmaster, thank you for being here. Mr.

Buhrmaster is president of J.H. Buhrmaster Company, Incorporated. He is currently the director of the Petroleum Marketers

Association of America and is past chairman of the Empire Petroleum Association Board of Directors. He will, no doubt, provide us,

the committee, with firsthand knowledge of how these costs have

affected their members.

I said in the earlier introduction that you were really representative of the little people, which you really are the representative of

the most important part of our job, as members of the House of

Representatives. You represent a wide group of constituents who

have been affected here. And I’m eager to hear your testimony. And

thank you all for being here today.

And Dantaida, we’ll begin with you.

STATEMENT OF DANTAIDA C. DeGUZMAN, OWNER, PIONEER

FUELS, INC.

Ms. DEGUZMAN. Thank you.

Chairman Sweeney, Miss Kelly, good afternoon.

First, I’d like to make sure that everybody understands that we

are a very, very small company. We have just started in 1997,

making our first delivery October of 1997, after doing thousands of

fliers the week before. And due to lack of funds in advertising or

marketing and even buying our first load of product, which had to

come from my paycheck, that’s how we got established. Through

hard work, we were able to have 400 customers in the end of 1998,

the first season. And, as of last year, we had over 1000 customers

in our data base that was continuous in ordering fuel from us.

Our plans to grow was kind of stunted this year because of the

oil prices. We purchased a second truck last year to meet the high

demands of the deliveries so that we can market more. Unfortunately, the second truck and the first truck only provided us deliveries or as much gallonage as it did last year due to the fact that

consumers were ordering lesser amounts of fuel oil than they did

last year. So our personnel increased, our gas increased, our phone

19

calls increased but the money, no, we made a lot less money than

we did last year with two trucks.

Again, due to the age of the company, one of the things that kind

of hurt us and why we couldn’t take a lot of the customers is because we were not as established in the field of the fuel industry.

Thank God that Apex Oil, which is our main distributor, had

given us a line of credit last year of $10,000 and increased it to

$15,000 in February after much begging and pleading from me, because I was constantly going to the bank everyday, making deposits from our customers, waiting for those checks to clear, which has

a clearance rate of three to five days, getting a cashier’s check to

bring it to Apex just so that my trucks can pick up product again

the next day.

So that was a hardship personally for me, because I have a job,

a full-time job with the State of New York. So lunch hours were

spent going to the bank and going to Apex.

The next dilemma that we encountered with the high fuel is the

lack of kerosene product in the Capital District. Again, we were

only dealing primarily with Apex Oil. And Apex Oil had run out

of kerosene product for approximately three to four weeks. When

we asked them why they had stopped buying kerosene, there was

a couple of reasons: One, again, because of the barges, as I think

it was Mr. O’Connell who stated that; and, two, they were, they

were at a fear of buying the product and then the market going

down. When they buy gallons of fuel, they’re buying millions of gallons, and if the price of the product decreases that night or that

day 25, 30 cents, then they’re apt to lose millions of dollars in the

deal. So they stopped, all together, buying kerosene. Luckily,

Polsinello Fuels helped us get some fuel product. And, again, that

was hard on our drivers because what they were doing is we

weren’t—they were getting it from one of their dealers that they

were established with, filling their trucks, their trucks were filling

our trucks right at the Port of Albany. So we were buying it—so

they’re filling their trucks, they’re putting it in our trucks, then

we’re delivering it to our customers. Not a good business move for

us, because we were trying to be as inexpensive in the fuel market

as we can, but trying to at least make some pennies so that we can

pay our bills.

So that was our next dilemma. But the worst dilemma, I guess

I could say, is the effect that it had on the personnel and the consumers, on both of us.

The main anxiety for all the personnel of Pioneer was that it

worried about their customers and their ability to keep warm.

I’m located in Petersburg, New York. It’s not the most affluent

neighborhood. It’s very repressed. It’s a lot of farms. It’s a lot of

people that are not high income that does not want to live in the

city, so they move out there so that their kids can grow in an environment that’s kind of open.

Constant calls by our customers that were made to us were

yelling, screaming, crying. They couldn’t understand why it was

high, that at first, initially, they put a lot of the blame on the fuel

companies. ‘‘You guys are out to get, to make money. OPEC’s making money,’’ you know. And what do you do? How can you explain

to the customers when they’re crying and yelling and screaming

20

and their kids are cold, how can you say, ‘‘Okay. We’re not going

to deliver to you’’? ‘‘We’ll be right there. We’ll be there even if

you’re yelling and screaming.’’. Again, that increased our costs because, what used to take three

to five minutes to take an order from a customer of a fuel delivery,

is now taking 15 to 20 minutes because we still want to offer the

best customer service that we possibly can to maintain our customers.

We’ve—we also during that time dropped our minimum gallons

from 125 gallons to 100 gallons per drop. So let’s say we were making 10 cents per gallon, at 125 gallons we’d be making $12.50 per

gallon. At a drop of a hundred, now we’re only making $10 per

drop. You add all those gallons, it’s a considerable amount of

money to a small company like us.

So, for the first time in its history, where, every time the phone

rang, we’d jumped to answer it, now every time it rang we’d look

at each other and say, ‘‘Do we want to answer it? You take the call.

No, you take the call.’’ It became very difficult because it caused

a lot of anxiety. I mean, you don’t want to get yelled at by a customer or have somebody crying.

There were a lot of times we also delivered only 25 gallons. I

mean, if somebody called us and said, ‘‘All we have is $40, would

you deliver to us?’’ And at first you say no, this is not a good business move. Unfortunately, we’re not the best business people. We’re

also human. So we delivered to them at a loss to us.

Compared to last year, Pioneer Fuels has always tried to maintain an average gross profit of 23 cents to 28 cents per gallon.

There was a period of time during this past heating season where

Pioneer made not a single penny and probably lost money delivering products.

How? Well, let’s assume that on any given day the cost of product for Pioneer to purchase is a dollar a gallon. Customers calling

on that day for delivery the next day would range at $1.25. What

started happening is, that same night, after we’d given these prices

to our customers, the price of fuel would go up 25 cents to 30 cents

per gallon. When we delivered that product the next day, we’re actually delivering that product at our cost. We let that happen for

a few days until we finally said, ‘‘Geez, we keep letting this happen, we’re going to go bankrupt and we don’t want that to happen.’’

So we sat down and discussed an alternative of making sure that

every customer was called to insure that, geez, you know, I’m

sorry, the price of your fuel that we promised you at $1.25 yesterday is now a $1.50 and do you still want the delivery. And it wasn’t

just one night. There was, I remember, one day during January

where it increased three times during one day. So we called that

same customer three times.

Also, because of the fuel prices were so low from 1997 to 1999,

not many people signed up for our budget plan, which was 79 cents

a gallon. Because of this, we didn’t really get involved with the futures market. We didn’t buy at a lower rate last year. Still, we did

get some people to sign up for their budget and prepaid plans, so

when the price of fuel at our cost was at $1.80 per gallon, we were

still selling it at 79 cents a gallon. We did this not only because

there’s a contract but also for the goodwill of our customers.

21

Mr. O’Connell stated that there was one person in New Hampshire that reneged on their contracts. For January and February

the news was rampant around our community that there were a

couple of small fuel companies that did renege in their contracts.

And I’ve never verified that, but there was a lot of talk that they

did do that.

The concern for the consumers forced Pioneer Fuels to call the

HEAP Department and also call the Governor’s Office during this

time. Unlimited calls, many calls were made to the HEAP Department, because we have a lot of HEAP customers, advising HEAP

that the usual grant of six, $700 that lasted a customer all year

long was only going to last them for a few months, a couple of

weeks and that they’ll be freezing within the next two or three

months. And, luckily, they did double their grants.

Unfortunately, for the people that were elderly and are on fixed

income, that are on pensions, that do not qualify for HEAP just because they do not meet that income level, they really hurt. My

neighbor, older couple, one person had a stroke, and she actually

comes in to help baby-sit my kids in the morning, they used probably 275 gallons to 400 gallons of fuel a month. Last year, it probably cost them $600 to fill up their tanks all year because of the

low fuel prices. This year, they couldn’t meet it. So what were we

doing? Every time we had a few gallons, we would give it to them

just because, you know, they’re our neighbors, we’re not going to

let them freeze. So another not a good business sense for us.

If the market of the heating oil products remains as it has during

this past year, we would have to consider increasing or gross profit

per gallon. We would have no choice if we wanted to continue to

stay in business. And the reason for these are increased personnel

in the office to maximize talk time to offer customer service; offset

the amount of bad checks we got this year. We got plenty of those.

And people writing bad checks. And you know what? I can’t even

blame them. You’re cold, give the fuel guy a bad check. And most

of them have worked it out with us where they’re making payments. There are some hard cases out there that I will probably

have to collect on; higher diesel prices to run trucks; minimum

drops made to consistently remain at a hundred gallons per drop;

increased personnel and trucks to meet the high volume of drops

and deliveries compared to last year.

Unfortunately, the increase of the amount of the gross profit per

gallon will offset the above expenses. We’ll be fine. The unfortunate

thing is the consumers will have to eat this. I mean, did we eat

it also? Absolutely.

As Mr. Sweeney knows, my husband is my partner in this business. We haven’t cashed one of his paychecks since November.

We’ve been living solely on my paycheck, and thank God I’ve got

a State job and I got promoted in the State and, luckily, that’s

what’s keeping us, our family, surviving.

Thank you.

Chairman SWEENEY. Thank you, Mrs. DeGuzman. I have to say,

I want to applaud you on all of your efforts to make sure that your

customers were heated. And I’m actually very proud to represent

you.

Ms. DEGUZMAN. Thank you.

22

Chairman SWEENEY. I’m very thankful that you came here with

your testimony. I’m hoping that we can find a way to ensure that

you don’t have to go through that again.

Ms. DEGUZMAN. I hope not either, sir.

Chairman SWEENEY. Marshall Stevens.

STATEMENT OF MARSHALL STEVENS, ASSISTANT MANAGER,

WARREN COUNTY AIRPORT

Mr. STEVENS. Thank you, Congressman Sweeney, Congresswoman Kelly.

And, also, before I start, I wanted to thank both of you, especially Congressman Sweeney, for your efforts with the Air 21 legislation. That package is a tremendous help to airports throughout

the country. And the topic we’re talking about here today is also

related to that, and I will come back to that a little at the end of

my testimony.

Congressman Sweeney said we were representing the little guy

today, which, personally, I’ve never been called the little guy, but

that was very flattering.

But, in some ways, I’m representing the little guy for a lot of different people, because at Floyd Bennett Airport, I’m talking about

primarily general aviation. When people are thinking about aviation, they usually think about big airports and commercial airline

service. But that, as far as number of airports, is the smallest segment of the aviation community. And general aviation is the largest as far as number of airports and areas served.

The definition of general aviation is anything that is not involved

in scheduled air carrier cargo or military service. Some representative examples of general aviation include corporate use of aircraft,

charter flights, air taxi type service, air ambulance, flight instruction and training, recreational flying, areal application, including

crop dusting and fire fighting, and private business flying.

These activities serve approximately 18,000 airports in the

United States, including privately-owned airports. Of the 18,000

airports in the United States, only about 538 airports have scheduled commercial service. So this kind of gives you an idea of what

their impact is on general aviation.

Earlier, Mr. Hulbert had said that the coffee business and the

shopping business were very closely linked to the fuel business.

General aviation is a slave to that business because there is no

part of general aviation that does not rely on fuel, with the possible

exception of people who throw themselves off of cliffs on hang gliders.

According to the National Business Aircraft Association, general

aviation consumes approximately 930 million gallons of fuel in a

year, but that is only five percent of the total fuel consumed in nonmilitary aviation. And this is why that the commercial airlines get

most of the attention.

However, the impacts of fuel price increases on the commercial

airlines are fairly direct. They increase the ticket prices and pass

that along to the millions and millions of passengers that they

serve every year. General aviation does not always have that luxury.

23

I’ve prepared a brief list of my testimony, which I will summarize

here today, of the different impacts that that has, including on the

small businesses and on other parts of the community that people

may not think of.

The first item on that list is the fixed based operators, the businesses at the airport which pump the fuel into the airplanes, provide the air charter and the flight instruction services to the customers. These are the people most directly impacted by the fuel

price increases. Balance for these businesses is the direct passage

of the fuel price increases through to their customers versus the potential loss of business that will occur, especially in the recreational flying market, which we have quite a bit of up in Warren

County. This market is very volatile based on price increases. And

an increase in price will result in a decrease in demand for flying.

As a result, fixed base operators, including the one in Warren

County, don’t always increase the fuel prices by the amount that

their own costs increase.

From February ’99 to February of 2000, the average fuel cost to

the FBO increased 55 percent, but the price that they increased

their fuel that they were charging their customers increased only

eight percent over the same period. That cuts into their profitability, cuts into their business and even, in some cases, can create

a loss. Fortunately, it’s better off than they were last year, only because last year at this time, as many people know, we didn’t have

any fuel at all. We were in the process of changing over our tanks.

As I am new to the airport, also the fixed based operator is fairly

new to the airport, so we don’t have any real picture of what the

long-term impact would be. We’re just looking at the short term.

A year from now, we’ll have a better handle on the long-term impacts.

Another point of note is that the fixed based operator in Warren

County, as is true in many places, fuel sales represent the majority

of their business, as is the case with Empire East Aviation, which

is 53 percent of total revenues per year in fuel sales. It’s a substantial impact when they can’t charge as much.

Rising fuel costs also affect the other activities of the fixed based

operator, the flight training, aircraft rental and aircraft charter.

Fuel expenses are the largest single operating expense for aircraft.

One operator estimated that the cost of fuel is 40 to 50 percent of

an aircraft’s operating costs; therefore, any increase in fuel also affects this business. And, again, the same balancing act occurs: Do

you pass that cost along to the customer or eat it yourself or a portion of it in order to keep competitive?

Again, the fixed base operator in Warren County chose to keep

their prices the same. The flight training costs, the flight charter

costs did not increase at the same time that their fuel costs did.

Again, cutting into the bottom line of the business and hurting

them.

The second impact category is the impact to business aviation.

This impact is typically longer term than the direct impacts that

I spoke of to the fixed based operators. Fuel is also the single

greatest operational expense to these business aircraft. But in this

case, the cost of that is typically passed along to the customers. In

the case of a corporation that operates a business aircraft, again,

24

that can be spread out over several periods of time. That aircraft

may not be related even to the product. It may be a product that

they produce that’s not aviation related. And the cost is passed

along there, ultimately as part of the operating expense of the company. But it is still an increase, ultimately, passed to the consumers.

Other products, and I know Mr. Czub will probably talk a little

bit about that, but areal application is a business flying expense;

people who are out crop dusting. Again, those prices ultimately get

reflected in the price of the commodity. Over the short term, that’s

usually what happens. Over the longer term, if the price stays up,

then alternate means of either pest control or transportation for

the businesses are sought. Again, this ends up hurting the fixed

based operator at the airport, because in the case of a corporate

aircraft, one fixed based operator may sell hundreds of gallons or

even thousands of gallons of fuel to a single aircraft. Loss of that

sale is a tremendous impact on the business.

There’s impact to medical flights as well. Air ambulance itself

does not cease based on rising fuel prices. These are medically necessary flights, the helicopters that you see, and they continue. But

the cost associated with those flights go up. I don’t have any data

on this, but I know, just from looking at my health insurance policy, that they cover those things under health insurance. The costs

of those are going up. The cost of health insurance is going up as

well. It’s not the only thing that contributes to rising health costs,

but it does contribute.

The other part of medical flights are what’s known as mercy

flights, and these are more drastically impacted by rising fuel

prices. These are typically flights which transport patients from

one area to another for specialized treatments. And, in most cases,

these flights are performed free of charge to the patient because

they generally cannot afford the transport. These flights are flown

by volunteers and use donations to provide their operating costs.

Any increase in these operating costs, i.e., fuel prices, results in either fewer flights that can be made or an increase in donations

that can be made. This is a vital service that is drastically impacted.

Another impact that’s not as obvious is the impact to airport

maintenance. At Floyd Bennett Airport, we have 20 different fuelpowered vehicles that we use for airport maintenance; snow plowing, grass mowing, cleaning the runways. We can’t stop doing any

of those things. They are safety related. We are in the business of

keeping the airport open for our users, and so we must plow the

snow, we must keep the runways clear of debris, we must keep the

grass down to reduce wildlife hazards. So the cost of rising fuel

prices have impacted us as well.

Our impacts were fairly drastic, as far as the short term. We saw

a spike from February ’99 to February 2000 for unleaded fuel of

193 percent increase. We are buying in the bulk wholesale level,

because I’m a county employee, but it was still a substantial increase. And the cost of diesel fuel, which most of our vehicles run,

rose 110 percent. At the moment, those seem to have come back

down a little bit. But, as recently as a month ago, all department

heads received memos from the County Superintendent saying,

25

‘‘You shall look at your budget and find ways that we may cut

back.’’ What this ultimately may mean is a lesser ability to fund

capital projects or to provide training for our employees, which,

again, hurts the airport in terms of operational reliability and safety.

The last impact category I’m talking about is airport capital improvements. These, obviously, are very dependent on fossil fuels.

Most capital improvements I’m talking about are construction. Typical paving job will have as many as 30 vehicles on the site doing

various operations plus a fleet of dump trucks hauling back and

forth. Unfortunately, the cost of increased fuel get passed along to

the airport as the sponsor and to the federal, state and state grant

programs that fund these options.

There are a couple of things that happen when the fuel prices go

up.

Because the budgets for these projects are typically set six

months, even a year, in advance, when the cost of rising fuel are

not known, the impacts can include an increase in the total project

cost, a reduction in the scope of the project, or even cancellation of

the project, which impacts the safety and reliability of the airport.

This summer, we have one anticipated construction project,

which is the rehabilitation of a portion of our parking apron and

one of our taxiways. Again, this budget has not quite been set, but

a portion of it has been estimated in advance, so we do not know

what the impact of it will be.

In conclusion, rising fuel costs have a tremendous impact on the

aviation industry. These costs impact every portion of general aviation and have potential to create economic damage to airport-related businesses. The impact of these costs also extends into capital

improvement projects and into other industries. Reduction of operational costs, including fuel costs, is essential for the continued success of general aviation airports.

One remedy to higher fuel costs that should not be considered,

in our opinion, is the reduction of the tax on aviation fuels that

funds the Aviation Trust Fund.

Again, I thanked you earlier for that increase that we have seen

through the Air 21 Bill, but any reduction to the revenue portion

of that fund will, obviously, bring us back to the state we were before or even before that. As you well know, that fund is vital to the

success of airports and, therefore, although we are hoping to see

remedies, we certainly hope this is not one of the remedies considered.

I thank you for your time today.

Chairman SWEENEY. Thank you, Mr. Stevens.

Let me just say that one of my top priorities is to better connect

the citizens, both for leisure purposes and business purposes, in my

district and our region of the state to the rest of the world. And

the Floyd Bennett Memorial Airport is a key, key player and component in that.

And I welcome you and thank you for that very thorough testimony.

Tom LeGrand will now provide us some testimony regarding the

effects on the construction industry.

26

I will point out to the panelists that your statements in full will

be entered into the record. And, as we are going to run out of time,

given the size of our panel, if we can get through them a little more

succinctly, that will be appreciated so we can go to some questions.

Mr. LeGrand.

STATEMENT OF TOM LeGRAND, OWNER, LeGRAND

CONSTRUCTION

Mr. LEGRAND. Thank you, Mr. Sweeney.

It’s an honor to be here today with the Congressman and Congresswoman Kelly.

I would like to take a moment and thank you, both of you, for

recognizing the importance of small business in your respective districts.

In some of my civic duties, I served as the chairman of the

Dutchess County Economic Development Corporation from 1992 to

1995 after the IBM downsizing in this region lost 12,000 jobs from

the IBM Corporation and a tremendous spin-off of other businesses

that went down with the loss of those jobs, small business held up

and it did fill the building. It’s still filling the building, making up

for the loss of those jobs.

I’m going to talk today a little bit about costs in the construction

industry and also a little bit in the real estate industry, because

those industries are really one in the same.

A couple of comments. I’d like to think of—my office is an extremely busy place, as Congressman Sweeney knows, because he’s

been there many times, and I like to think that I do get a good

slice of life in and out of my office doors. So we really get a good

feel on things.

In my businesses, I employ five veterans from the U.S. Services,

and one thing they all say is, ‘‘What we’ve done to keep Kuwait in

the oil business and what we’ve done to protect the Saudi Arabians, what’s wrong with this picture?’’ It’s a disgrace that they’re

holding a gun to our head with these oil prices. You know, we supply them with military hardware. They sleep well at night because

our planes are keeping surveillance of their territory. And there’s

something wrong when they’re holding a gun to our head with

these type of fuel increases.

I disagree—one of the earlier presenters said, you know, as far

as he knew, companies we’re honoring their contracts. I know,

down in Dutchess County, we heard that several companies were

not honoring their fuel contracts. And there was people that did go

without oil. I think two groups of people that were impacted the

hardest were the elderly and the poor. And poorer people do not

have the luxury to call a big-name oil company and sign up for

automatic delivery. The poor residents in this county, they buy

their oil on the spot market, meaning that they pick up their local

paper and they see fuel oil so many cents a gallon, M and G Oil,

B and G Oil, and they call those guys.

Here was the problem. Those oil companies depend on another

company to buy. They cannot buy oil direct, so they buy oil from

the bigger named companies and the big name companies were not

supplying them. So a lot of low income people could not get oil. So

what did they have to do? They had to go to kerosene heaters, they

27

had to go to electric heaters and things like that. I don’t have the

statistics in front of me, but I’m sure that the rate of fire damage

and loss of life in the area, in the Northeast, was probably one of

the highest it’s ever been. And I think that’s something that should

be looked at.

Also, with—the gentleman from the Department of Energy said

that they’re looking into a program about insulation, the program

to increase insulation. In both of your districts, the majority of the

low-income people are renters, not homeowners, so I don’t know

what the insulation program is going to do for them. Not much.

Okay. As far as the construction industry goes, we are, in all of

Mr. Sweeney’s district and in a good portion of Miss Kelly’s district,

we’re in a rural community, so if you want to have a house built,

you need a road built. The materials, the gravel, the sand, the concrete products, have to be trucked from miles and miles away with

heavy trucks that use a lot of fuel.

Last winter, when one night we were hauling snow in one of the

villages during a large snow storm, and I had to pull up to the

pump—I was driving myself that night, my employees thought that

was interesting—I paid $2.29 for diesel fuel. $2.29.

I believe that this will certainly have a big impact on my business this year. In most small construction companies, you can figure an average budget of five percent of your gross for cost of fuel

throughout a year. This year I’m figuring it’s going to be between

nine and 10 percent. For instance, in my construction division, I

spend around—last year I spent $18,000 for fuel. I will probably

spend this year between 30 and $36,000.

The reality is, if you’re in a competitive market, like we’re in in

this area, you really can’t pass that onto the customers. That is absorbed by the small business owner. The big companies, if you hire

something from a large company or buy something from a large

company, they can put a surcharge, a fuel surcharge on your bill.

Small businesses can’t do that because the guy down the street

isn’t going to do it and he’ll have your accounts.

I want to get into a little bit and just talk briefly about long-term

effects because I think a couple of things that have to be looked at.

We are a bedroom community. And there’s two things—I’ve been

in business 26 years this year. And two things that took the bottom

out of the construction and the real estate industry: One was the

fuel problems that we had in the ’70s, and—I believe in the early

’70s and the late ’70s we had it again, fuel shortages and the stock

market crash, and they were both disastrous. We depend on tourism. And a lot of the people that are in business in these areas

don’t realize how much of their dollar they derive from tourism, but

it’s a tremendous amount. And I know in Dutchess County it’s the

second largest employer in the county. And I believe that higher

gasoline prices, everybody talks about $2 a gallon for gasoline

prices this summer, is strictly going to—it’s going to definitely diminish the amount of tourists that are coming into our area. And

that’s going to have a very large and long lingering effect.

And it’s also going to have an effect on the real estate market

because, like where we are in northern Dutchess County, probably

35 percent of our buyers are second home buyers. That will diminish. And, by the same token, 35 percent of those buyers, that supVerDate 11-MAY-2000 10:05 Feb 08, 2001 Jkt 010199 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 E:\HEARINGS\67558.XXX txed01 PsN: txed01
28

plies 35 percent of the independent construction jobs, because those

people, they usually are affluent, they buy homes, they renovate

them, they fix them up, they build new houses and it supplies a

lot of the local trades with business. Big impact. You have to understand that.

And just to wrap up, as far as some solutions. The people I’ve

talked to, and my own personal position is I would really—I don’t

know if we should tap the Strategic Reserve or not because, you

know, when you really need that for an emergency. But I do believe

that the Saudis should be put on record that we are going to solve

this problem with them or without them. And I think at the same

time that we should have a comprehensive energy policy that looks

towards fuel efficiency, research dollars, maybe go back and take

another look at nuclear energy, things that make sense. But I

think we have to do something and we have to do it now.

Chairman SWEENEY. Thank you. Let me say that we are privy

to what you’ve provided in your testimony. As you mentioned, we

were in Dutchess County performing miracles at a very critical

time. I appreciate your insight.

Mr. LEGRAND. Thank you for having me.

Chairman SWEENEY. Jim Czub will be next.

STATEMENT OF JIM CZUB, NATIONAL CORN GROWERS

ASSOCIATION

Mr. CZUB. Thank you, Congresswoman Kelly and Congressman

Sweeney, for inviting me to testify here today on the impact of the

dramatic increase in fuel prices.

My name is Jim Czub, from WestWind Farms in Schaghticoke,

New York. My father, brother and I grow 1800 acres of field crops

in the Hudson Valley. I also serve as the Chairman of the New

York Corn Growers Association and serve on the national board for

the National Corn Growers Association.

I hope to touch on all the impacts of New York and the U.S. agriculture, but more specifically myself today.

The current energy crisis raises serious concerns for my family

business in both the long and short term. This product year, diesel

fuel and other energy products will cost us about 40 percent more

than last year. If the energy crunch had come at a time of our

major fuel usage here in the spring, it would have been more about

70 percent. This, translated into dollar figures, will raise my costs

an additional $12,000. It amazes me that when I fuel my tractor

at the end of an average work day, it will cost me $90 more than

last year. Typically, we expect and plan for increases in input costs

at the rate of inflation. When any one input exceeds normal rates

of increase, it causes havoc with our budget.

The fuel crisis comes at a time of extremely depressed agricultural commodity prices. Corn prices are 50 percent lower than in

1996. When doing our cashflow budgets this winter, we find that

we need a 30 percent increase in price to make the budgets work.

If we excluded family living expenses, we are able to operate the

business and pay our bills. We may be working for free this year.

Multiply this by the thousands of farms and millions of acres of

cropland in the U.S. and you can see that the overall impact is not

dramatic, it is perverse.

29

This is not a rosy picture. My larger concern is the impact of

these high energy prices on next year’s inputs. I can be self-assured

that my fertilizer, herbicide, insecticide and seed costs will be significantly higher in 2001, as Mr. Marshall indicated. But will the

price of commodities? Farmers have a way of passing their costs

through to U.S. consumers, who happen to have the lowest food

prices in the world. We survive by becoming more efficient, raising

our yields and lowering our costs. Many of us don’t survive.

The 1959 Federal Census showed that farm land, all uses, in

New York to be 13,480,000 acres. The New York State Department

of Agriculture and Markets in 1997 statistics show this number to

be 7,700,000. Thousands of farming operations in this State have

gone out of business. This is a dangerous trend, not only for farm

economy, but the rural economy as well.

Efforts must be made to reserve this trend and help agriculture

secure new and untraditional markets. Incentives to produce valueadded products will help farmers transition and capture more of

the commodity value.

A recent value-added study sponsored by the New York State Energy Research Development Authority, in which I participated,

demonstrated that corn for ethanol production in New York State

is feasible. A 29–million-gallon-a-year plant would create 100 direct

jobs, support 250 farm-related jobs and create a market for 100,000

acres of corn production. The necessary investment in such a plant

is $30 million, but operation of the plant would support 500 million

in on-farm investment and $1 billion in land investment. These are

significant numbers, and the benefits go far beyond this. New York

residents would gain by reducing our dependence on foreign oil,

building new in-state businesses and the environmental benefits of

open space and a cleaner burning motor fuel.

Congresswoman Kelly and Congressman Sweeney, I hope I have

shed some light on the current fuel price crisis as well as a few

other issues confronting my agricultural business.

In the short term, our farming operation will be under great financial pressure from the dramatic increase in fuel prices. Measures to provide immediate relief from this escalating input cost

must be secured as soon as possible. And regarding the long term,

I ask for your assistance in two ways: One, in monitoring the cost

of petroleum-based agricultural inputs over the next several years

to determine the other indirect and unforeseen impact of these high

energy prices on overall production costs; and, two, in creating incentives to help the farmer-owned small business capture new and

emerging value-added markets to receive a better price for his commodity.

Thank you, and I would be happy to answer any questions.

Chairman SWEENEY. Thank you Mr. Czub. Great testimony.

I, as you know, am a strong supporter of ethanol, so I am looking

forward to working with you in the future.

Let me just say, Mrs. Kelly has to leave at five o’clock because

she has to head back down to Westchester County for another engagement. So if she gets up to leave, Mr. Buhrmaster, it’s no reflection on your testimony. I’m going to stay. James Buhrmaster.

30

STATEMENT OF JAMES BUHRMASTER, EMPIRE STATE

PETROLEUM ASSOCIATION, INC.

Mr. BUHRMASTER. Thank you very much, Congressman and Con- gresswoman. I appreciate the opportunity to speak on behalf of the

petroleum industry. And I’ve heard the comments of small marketers and large marketers, and I think, since the time is so short and

you will be leaving in five minutes, my testimony is here, anybody

can read it at their leisure.

I’ve got a couple quick comments that I’ll just pass on that I think may be the highlights. I perceive there were three reasons why we had trouble this win- ter. The first was low inventories, and that was clearly what the

OPEC nations did. Second, we, in the industry, had something

called a backwardization, and that was where prices in the future

months cost less than what they did in the month we were buying

the product. So it didn’t make it very profitable for any of us to buy product in the future and store it because it’s—we’re going to get less for it when we put it away and sell it the following month. And

third, and I think maybe the most critical one for those of us in

the Northeast, was the interruptible situation. It was an absolute

disaster, it’s a travesty and I know here in New York we’ve been

working very, very hard for the last four or five years to try and

solve this problem. We knew it was coming. It happened four years

ago and we’ve had bills on the hoppers in both the Senate and Assembly in New York, we’ve addressed it down in Washington and nobody has stood up and really helped us solve the problem, but

it’s serious.

We’ve done an awful lot throughout the Northeast, particularly, our backyard, in resolving storage and switching people over to

natural gas, and we all know that we’ve got to have a cross section

of goods and services to make this system run, to make it run properly.

What happened this year was the gravest situation of all: Shortage of product, problems with the mercantile exchange and the

backwardization and then, ultimately, the natural gas kicking in.

In our own company, we had a small situation where one of our

customers who had experienced a problem four years ago went and

put in a 10,000–gallon tank, it was actually a local college, and felt

that that would take care of them if anything happened.

On the 13th of January, I think it was a Thursday, I got a call

at noontime, and they said, ‘‘As of tomorrow, we’re going to be requiring tractor trailer load of product each day to take care of us.

And, unfortunately, our tank’s above ground and outside, so it’s not

going to be fuel oil, it’s going to have to be kerosene also to keep

it from freezing and gelling if the weather gets as cold as they’re

promising. So, all of a sudden, 9,000 gallons a day was taken away

from our homeowners, our small commercial customers that had to

have it every day. Compound that by all of the other people around

the Northeast that had the same experience, and we believe it was

between four and six million gallons a day, barrels a day were

taken out of the New York Harbor for these interrutibles.

And I think if there’s anything that you can do to help, not only

in Washington, but in the local, here in New York, for instance, to

find a way to solve the interruptible problem.

31

Some of the things that I have in my testimony that I would like

to have you take a look at: One, we do have a bill that’s been

passed in the House last year, passed this year in the Senate, and

we’re now having it considered by the two houses together, the National Oil Heat Research Alliance. That’s Senate 348 and HR–380.

And we really wish you would take a long hard look at it and help

us get that passed to stabilize what’s happening in the industry.

Second, the oil heat industry gets just a minuscule amount of

money for oil heat research and development to help consumers do

a better job at conserving.

The Department of Energy puts in their bill, or has in the past,

about a million dollars for oil heat research and development.

There is nothing in the 2001 budget. We would like you to take a

look at that. I think that would be a big help to our industry, and

it’s right here, selfishly, in New York State. It’s done at

Brookhaven out in Long Island.

Chairman SWEENEY. If I can interrupt. Something you just said

is very important. There is nothing in the federal budget, after having gone through what we just went through. I think that speaks

volumes about some of the priorities that exist.

Mr. BUHRMASTER. I clearly agree. Certainly, we won’t make it political, but the buck always has to stop somewhere, and it goes to

the top. We need some direction.

Thirdly, storage incentives. We have gone all up throughout the

Northeast in being environmentally conscious, in removing storage

tanks, but we’ve done nothing for incentives for people to store

product. And I think that could be very, very helpful.

And, fourth, as I mentioned earlier, interruptible gas. I would

like to see you address interruptible gas to the best of your ability

on a regional and a statewide and Northeast region situation.

I do thank you very much for the regional reserve. I think that

the jury is still out on it. I do have a little bit of a concern that

may be taken as a disincentive to our suppliers to bring product

and store it, if there is a reasonable reserve that they can tap off.

But, again, we are behind you. We will work with you as an industry.

And, finally, I’ll leave with you, and it was mentioned twice by

two of the earlier speakers, I’m absolutely appalled that we are still

held hostage. OPEC said they were going to do it, did it and we

paid the price here in the Northeast for their fixing the prices. If

we did it, you’d have us in jail. They fixed the prices of crude oil

around the country, move it from $10 a barrel. They said they

wanted 18 to $21 a barrel a year ago. What they got was 25, 30—

we got up to $36 a barrel this year, which has impacted on everybody in this room and particularly us in the Northeast. And I

would like someone in government, in Washington, to address the

situation where the OPEC countries were able to openly say,

‘‘We’re going to fix prices and control what’s going on and you

American consumers will pay the price.’’.

Thank you very much for your time.

Chairman SWEENEY. Thank you, Mr. Buhrmaster, for your testimony.

I know Mrs. Kelly has to leave. I want to give her one crack at

asking questions, if she’d like that.

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Mrs. KELLY. I simply want to thank you for being here. I’ve

found your testimony really compelling. And, Mr. Buhrmaster, I

want you to know that pussyfooting around, when we’re dealing

with OPEC, I don’t think proved a thing this year. I think that it

was very important for us to take a stand, which we did not take,

and, when we finally did take a stand, it was too late. I would hope

that we can work with you to try to find some resolution.

Mr. Czub, I hope, too, that we’re able to work something out

maybe with ethanol. Certainly, the MTVE problem is indicating

that there may be some issue there that we need to address, and

ethanol may very well be one of the things we should take a look

at.

Mr. LeGrand, my husband is a general contractor. I know what

you’re talking about.

Mr. Stevens, I appreciated hearing from you because I think that

I, too—well, you probably know—I, too, sit on the National Aviation—I did sit on Aviation, but I am on the Transportation and Infrastructure Committee. And we work very hard.

And Mrs. DeGuzman, I really was—I really enjoyed your testimony, having been a woman who started my own businesses a couple of times.

I want to say that, despite the joking about that I’ve heard here

today about your congressman, Congressman Sweeney, he is a superb addition to Congress. He knows what he’s talking about. He

works exceptionally hard to represent this district and he is a good

friend to you, he is a good friend to New York. And I’m glad he’s

my friend, too, and I’m very happy to be able to be here with him

today and with all of you.

Thank you very much for allowing me to be here and sharing

your concerns.

And with that, I’m going to turn it back to you, John.

Chairman SWEENEY. Thank you, Mrs. Kelly. I need to say, before

you leave, thank you for this idea and this hearing and coming all

the way up here. And I thank you for your leadership in the House

and on the Small Business Committee as well as the Transportation Committee.

Sue Kelly and I sit next to one another at most of the hearings

in Washington on the Small Business Committee, and I can tell

you that she is a principle leader of that committee and for the interest of small businesses.

So thank you for your time.

I only have a few questions that I’d like to get to on the record

and I will be submitting some written questions to you as well.

I’ll start with Ms. DeGuzman. I heard from a number of your colleagues, a complaint that, it was related to the HEAP funds and

the delay in receiving HEAP funds and how it caused such great

concern and pain out there.

Do you have similar experiences? Did you have similar experiences?

Ms. DEGUZMAN. Certainly.

Actually, the bulk of our second HEAP awards has just been

granted the last two or three weeks. What good is that going to do

our customers when it’s getting warmer?

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What we did do, because there are—again, it’s a small community. They’re not just our customers, they’re our neighbors. We

dropped them the 25, 50 gallons. And some of these folks, if they

don’t pay us, we’ll mark it off as, okay, bad business sense. A lot

of them will come and stop to the office and pay $5 every week.

We don’t want anybody to freeze. I wish that HEAP was granted,

I wish when this first came up that people took it seriously and

that they had acted quicker because it was needed January, February and not now.

Chairman SWEENEY. I’d like you to think about, and I don’t necessarily need it today, but I’d like you to think about improvements

that we could bring about or suggestions that you might have in

the HEAP process so that we can try to ensure that that doesn’t

happen again.

Jim Czub, you know, I know the tight margin you operate on,

and $12,000 in energy costs, I don’t know how you’re surviving. It’s

amazing.

What sort of price increase—I want to be an optimist about this.

What sort of price increase will this mean for an acre of corn, corn

and farmers, if we are able to move forward on the ethanol proposals?

Mr. CZUB. Typically, the USDA says for every 100 million bushels of corn demand, additional corn demand, the price of corn

comes up a nickel. And, obviously, you know, corn is a commodity,

but the current prices or the lack, the trend that we’ve been in, has

been down. We—as I said in my testimony, our current price is

about 30 percent, which is going to be to me about 60 cents a bushel. Now, whether we pull that out of the market or develop new

markets to help use that demand and create that price differential,

you know, that’s about where we need be.

I think what’s more important, and I tried to allude to that in

my testimony, is that farmers need to start participating in valueadded, in other words, we need to be company owners or stockholders of companies that produce corn value-added products. And

I think that’s what’s critical to try to move the industry in that direction.

Chairman SWEENEY. Thank you for that.

Mr. Stevens, I heard you allude to it, but the sense I got was you

don’t know yet whether construction of the aircraft parking apron

and the taxiway project are going to be delayed. Is that correct?

Mr. STEVENS. At this point, we don’t know. We’re in the design

of the project right now. We are still—we’ve had a verbal commitment that federal funds would be available for that. Because of the

funding bill, we have not had anything in writing.

Chairman SWEENEY. I want to help you on that. I know how important it is. So let’s stay in touch on it because it is critical.

Mr. Buhrmaster, I’d also like to work with you on the interruptible issue because I heard it as well pretty substantially. And if we

could get together and maybe devise some planning in terms of a

resolution of some sort, I’m very interested.

I will not hold this panel any longer. You’ve already gone over

your time.

I want to thank you all.

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Tom LeGrand, thank you for your great testimony. You did such

a good job, I didn’t have a question for you. I actually do. I’ll give

them to you later.

I appreciate this. I think it’s important that we get the message

out of the effects. I think we need to look perspectively at avoiding

this kind of a problem in the future and I think we need to get the

attention of the decision makers in Washington. And the best way

to do that, I think, was to bring them here, to home, and you did

a superb job of that.

With that, I’ll conclude this hearing and thank you.

[Whereupon, at 5:07 p.m., the subcommittee was adjourned.]

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