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PRICES AT THE PUMP: MARKET FAILURE

AND THE OIL INDUSTRY

HEARING

BEFORE THE

ANTITRUST TASK FORCE

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 16, 2007

Serial No. 110–84

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://judiciary.house.gov 

(II)

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio

PERRY APELBAUM, Staff Director and Chief Counsel 

JOSEPH GIBSON, Minority Chief Counsel 

ANTITRUST TASK FORCE

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

ANTHONY D. WEINER, New York 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

STEVE CHABOT, Ohio 

RIC KELLER, Florida 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

BOB GOODLATTE, Virginia 

CHRIS CANNON, Utah 

DARRELL ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

LAMAR SMITH, Texas, Ex Officio 

PERRY APELBAUM, Staff Director and Chief Counsel 

JOSEPH GIBSON, Minority Chief Counsel 

(III)

C O N T E N T S 

MAY 16, 2007

Page 

OPENING STATEMENT 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Chairman, Antitrust Task Force ................................. 1

WITNESSES 

The Honorable Bart Stupak, a Representative in Congress from the State 

of Michigan 

Oral Testimony ..................................................................................................... 2

Prepared Statement ............................................................................................. 4

Dr. Mark N. Cooper, Director of Research, Consumer Federation of America 

Oral Testimony ..................................................................................................... 6

Prepared Statement ............................................................................................. 8

The Honorable Richard Blumenthal, Attorney General for the State of Connecticut 

Oral Testimony ..................................................................................................... 28

Prepared Statement ............................................................................................. 30

The Honorable Heather Wilson, a Representative in Congress from the State 

of New Mexico 

Oral Testimony ..................................................................................................... 39

Prepared Statement ............................................................................................. 40

Dr. John Felmy, Chief Economist, American Petroleum Institute 

Oral Testimony ..................................................................................................... 42

Prepared Statement ............................................................................................. 59

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Executive Summary entitled ‘‘What Goes Down Must Come Up: A Review 

of the Factors Behind Increasing Gasoline Prices, 1999–2006,’’ Carol Dahl, 

Ph.D., Professor of Economics, Colorado School of Mines, April 2007,

submitted by Dr. John Felmy, Chief Economist, American Petroleum Institute ........................................................................................................................ 44

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Sheila Jackson Lee, a Representative 

in Congress from the State of Texas, and Member, Antitrust Task Force ..... 76

(1)

PRICES AT THE PUMP: MARKET FAILURE 

AND THE OIL INDUSTRY 

WEDNESDAY, MAY 16, 2007

HOUSE OF REPRESENTATIVES, ANTITRUST TASK FORCE

COMMITTEE ON THE JUDICIARY, Washington, DC.

The Task Force met, pursuant to notice, at 1:13 p.m., in Room 

2141, Rayburn House Office Building, the Honorable John Conyers, 

Jr. (Chairman of the Task Force) presiding. 

Present: Representatives Conyers, Davis, Smith, Chabot, and 

Keller. 

Staff present: Stacey Dansky, Majority Counsel; Mark Dubester, 

Majority Counsel; Stewart Jeffries, Minority Counsel; and Brandon 

Johns, Majority Staff Assistant. 

Mr. CONYERS. The hearing of the Antitrust Task Force will come 

to order. 

Good afternoon. 

As summer approaches, consumers are panicking over the price 

of gasoline at the pump. Prices have skyrocketed. Today’s average 

U.S. price of a gallon of gas is $3.03, short just barely of the record 

high reached in September of 2005 after Hurricane Katrina hit. 

In Michigan, gas prices have reached their highest levels ever, at $3.27 a gallon. My State is now the third most expensive State for 

gasoline in the country, behind only California and Illinois. 

Now, how did we get to this crisis, and what are the solutions? 

Cartels, the OPEC cartel, to be specific, which accounts for the 

two-thirds of the world’s oil reserves and over 40 percent of the 

world’s oil production. Most significantly, OPEC’s oil exports represent about 70 percent of the oil traded internationally. This affords them considerable control over the global market. 

Its net oil export revenues should reach nearly $395 billion this 

year, and its influence on the oil market is predictably dominant, 

especially when it decides to reduce or increase its levels of production. For years, this conspiracy has unfairly driven up the cost of 

imported crude oil to satisfy the greed of oil exporters. 

We have long decried OPEC but, sadly, no one in the Government has tried to take any action. Because the Subcommittee 

Chairman, Bart Stupak, of Michigan is here and I happen to know 

that he is also chairing his own hearing in another room around 

the corner, I will suspend my statement, invite our colleague, Mr. 

Stupak, to join us here, and with the approval of the rest of the 

Members of the Task Force and the Ranking Chairman——

2

Mr. CHABOT. We have no objection. 

Mr. CONYERS. Thank you. 

We would invite Bart Stupak to begin. 

He has been a Member of this body since 1992, has served on 

the Energy and Commerce Committee as Chairman of the Oversight and Investigation Subcommittee and will be holding hearings 

looking into the causes behind rising gas prices. 

He is also a leader in the Democratic Caucus on Energy Issues 

and is the author of the Federal Price Gouging Prevention Act, 

which would give the Federal Trade Commission the authority to 

investigate and punish those who unreasonably inflate the price of 

energy. 

Without objection, his statement will be entered into the record. 

And we welcome you to the Judiciary Committee, the Task Force 

on Antitrust. Welcome, Bart. 

TESTIMONY OF THE HONORABLE BART STUPAK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. STUPAK. Thank you, Mr. Chairman, Mr. Chabot, thank you, 

and thank you for the courtesy. 

I am in a hearing with British Petroleum. We are looking at the 

Texas City explosion that occurred in 2005 in which 15 people were 

killed, another 180 people injured and also what has happened up 

at Prudhoe Bay where we shut down our oil fields, America’s most 

strategic oil field, last summer because of leaks. 

And it looks like it is, testimony is showing us, through lack of 

maintenance while they had record profits. In fact, during that period of time, they received $106 billion in profits from 1999 to 2005 

but yet they cannot maintain their maintenance which led to explosions and deaths and things like that. 

But today we are here to talk about gas prices. 

You are right, Mr. Chairman, on the 22nd of this month, we will 

hold hearings on the price gouging legislation and other legislation 

we have. 

Today, on the news, you heard that nationwide average price for 

gasoline hit $3.10 a gallon. This is higher than any time last year, 

and we haven’t even begun the summer driving season. While consumers pay record prices, oil companies make record profits. 

For years, big oil has told us that the cost of a gallon of gas is 

directly related to the price of crude on the world market. However, 

in April of this year, a barrel of crude oil was $63. A year before, 

last year, a barrel of crude was $70. Despite the fact that crude is 

$7 a barrel cheaper than last year, gas prices are almost 50 cents 

higher per gallon. Clearly, there is more at play than simply the 

price of crude oil. 

Since 1980, more than 200 refineries in the U.S. have been 

closed. Only one new major refinery has been requested and environmental permits were permitted within a year for that refinery. 

It was chosen, though, the oil companies chose never to build it. 

Oil companies complain there is too much environmental red 

tape, but as I said, since 1976, only one application for a new refinery has occurred, and those permits were approved forthwith. 

3

In fact, there is evidence that the oil companies have intentionally reduced refinery capacity to drive up gas prices. The Oversight Investigations Committee—I will leave you the internal documents from Mobil, Chevron and Texaco—in 1995 and 1996, specifically, advocated that these companies limit domestic refining capacity to drive up prices. 

Today, there are fewer independent refineries in the United 

States, according to the May 2004 GAO study. The four or five 

largest oil companies now own the majority of the refineries, giving 

these companies a significant amount of control over the entire distribution process, from exploration for oil to the gas that goes in 

your tank. Shrinking refinery capacity and a reluctance to invest 

in new infrastructure have significantly restrained gasoline supplies, driving refinery profits to record highs. 

Take, for example, after Hurricane Katrina. Refinery profits were 

255 percent higher than they were the same time the previous 

year. The average profit margin between a barrel of crude oil and 

a barrel of gasoline now, today, is $30, as reported in the May 3 

BusinessWeek article. 

That is about 70 cents in refinery profits based on a $3 per gallon of gas. So according to experts, the spread or the profit should 

be $8 or $9 a barrel, not the $30 we see today. At $8 or $9 a barrel 

for a refinery, they earn about 20 cents a gallon, which is a reasonable profit margin. 

As a result of these enormous profits, in the first 3 months of 2007, Valero, the Nation’s largest refinery, announced $1.1 billion 

in profit. That is up 30 percent over last year. ExxonMobil’s refineries alone made $1.9 billion in the first quarter. 

I have introduced legislation, the Federal Price Gouging Prevention Act, to protect American consumers from being gouged at the 

pump. It is H.R. 1252. It would give the FTC, Federal Trade Commission, the authority to investigate and punish those who artificially inflate the price of energy. The FTC would be empowered to 

exercise its authority at each stage of energy production and distribution supply chain. The legislation applies to gasoline, diesel 

fuel, crude oil, natural gas, home heating oil and propane. 

Over 100 Members of Congress have already co-sponsored this 

legislation. 

I have also introduced the Prevent Unfair Manipulation of 

Prices, the PUMP Act, H.R. 594. the PUMP Act would increase the 

oversight by the Commodity Futures Trade Commission of overthe-counter energy trading. According to the April 30 Financial 

Times, the CFTC, Commodity Futures Trading Commission, has 

taken the rare step of having to issue subpoenas to McGraw-Hill, 

which produces trade publications on energy trading. 

Because the CFTC does not have the authority to ask traders for 

this information, it is instead forced to take legal action against 

third party publications. Without proper oversight, energy prices 

can be driven up by fear, greed and speculation. 

Economists have estimated that improving oversight of these 

markets would eliminate the fear premium on crude oil and lower 

the price by as much as $20 a barrel, or almost 50 cents per gallon. 

By passing these two bills, Congress can reign in the excessive 

profits made by the oil companies and the speculation of unreguVerDate 0ct 09 2002 11:59 Jul 09, 2008 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 H:\WORK\ATRUST1\051607\35451.000 HJUD1 PsN: 35451
4

lated energy markets. Just counting the 50 cents per gallon of excess profit on refineries and 50 cents per gallon of fear premium—

we call it fear premium—these two bills could save consumers $1 

per gallon at the pump. 

In addition, I encourage this Committee to continue to investigate the influence that big oil has on the price of gasoline, including a May 2004 GAO report, because they do talk about is there 

collusion between the companies, why have they failed to invest in 

refinery infrastructure? 

So I want to thank this Committee for allowing me to testify. I 

look forward to take any questions you may have. 

[The prepared statement of Mr. Stupak follows:]

PREPARED STATEMENT OF THE HONORABLE BART STUPAK, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF MICHIGAN

Chairman Conyers and Members of the Committee, gas prices are causing Americans significant financial hardship, and I appreciate the work this Committee is 

doing to address this problem. Thank you for allowing me to appear before you 

today. 

Last week, the nationwide average price for gasoline hit $3.07 a gallon. This is 

higher than any time last year, and we have yet to reach the peak driving season 

for 2007. As we approach Memorial Day and increased summer driving, gas prices 

are expected to be even higher. While consumers pay record prices, oil companies 

make record profits. 

For years, Big Oil has told us that they have no control over gas prices because 

it is dependent on world crude oil prices. 

However, in April, a barrel of oil cost $63. A year before, a barrel of crude oil was 

$70. Despite the fact that crude oil was $7 a barrel cheaper than last year, gas 

prices were almost 50 cents per gallon higher. Clearly, there is more at play than 

simply the world crude oil market. 

Since 1980, more than 200 refineries in the United States have been closed. Demand for gasoline continues to grow every year, but a new refinery has not been 

built since 1976. Only one new major refinery has requested environmental permits 

in the past 30 years. While the permits were granted, the refinery was never built. 

The oil companies complain that there is too much environmental red tape. The 

truth is that very few companies have even tried to build new refineries, instead 

opting to upgrade existing facilities and run them as close to capacity as possible. 

In fact, there is evidence that oil companies have intentionally reduced refining 

capacity to drive up gas prices. 

Internal documents from Mobil, Chevron, and Texaco in 1995 and 1996 specifically advocated that these companies limit domestic refining capacity to drive up 

prices. 

Today, there are fewer independent refineries in the United States, according to 

a May 2004 Government Accountability Office (GAO) study. The 4 or 5 largest oil 

companies now own the majority of refineries, giving these companies a significant 

amount of control over the entire distribution process, from exploration to your gas 

tank. 

Shrinking refinery capacity and a reluctance to invest in new infrastructure have 

significantly restrained gasoline supplies, driving refinery profits to record highs. 

For example, after Hurricane Katrina, refinery profits were 255 percent higher 

than they were at the same time a year before, according to the The Washington 

Post. 

The average profit margin between a barrel of crude oil and a barrel of refined 

gasoline is now $30, as reported in a May 3, 2007 Business Week article. That’s 

about 70 cents in refinery profits for every $3 gallon of gas. According to experts, 

$8 or $9 a barrel, or about 20 cents a gallon, is a more reasonable profit margin. 

As a result of these enormous profit margins, in the first three months of 2007, 

Valero, the nation’s largest refinery company, announced profits of $1.1 billion, up 

30% over last year. ExxonMobil’s refineries alone made $1.9 billion in the first quarter of 2007. 

Other oil companies have enjoyed similar profits. During the first 3 months of 

2007, Royal Dutch Shell’s profit was $7.3 billion. Chevron reported $4.7 billion, up 

18 percent from last year. ConocoPhilips made more than $3.5 billion. And 

ExxonMobil’s profits were more than $9.2 billion. 

5

I have introduced legislation, the Federal Price Gouging Prevention Act (HR 1252) 

to protect American consumers from being gouged at the pump. 

H.R. 1252 would give the Federal Trade Commission (FTC) the authority to investigate and punish those who artificially inflate the price of energy. The FTC would 

be empowered to exercise this authority at each stage of the energy production and 

distribution supply chain. 

The legislation applies to gasoline, diesel fuel, crude oil, natural gas, home heating oil, and propane. 

Over 100 Members of Congress have already co-sponsored this legislation, and I 

look forward to moving it soon. 

I have also introduced the Prevent Unfair Manipulation of Prices (PUMP) Act, HR 

594. The PUMP Act would increase oversight by the Commodity Futures Trading 

Commission of over-the-counter energy trading. 

According to an April 30 Financial Times story, the CFTC has taken the rare step 

of issuing a subpoena to McGraw-Hill, which produces trade publications on energy 

trading. Because the CFTC does not have the authority to ask traders for this information, it is instead forced to take legal action against third-party trade publications. 

Without proper oversight, energy prices can be driven by fear, greed, and speculation. Economists have estimated that improving oversight of these markets would 

eliminate the ‘‘fear premium’’ on crude oil and lower the price by as much as $20 

a barrel, or almost 50 cents per gallon of gasoline. 

By passing my two bills, Congress can reign in the excessive profits made by the 

oil companies and the speculation on unregulated energy markets. 

Just counting the 50 cents a gallon of excess profit by the refineries, and the 50 cents per gallon of fear premium, these two bills could save consumers up to $1 a 

gallon at the pump! 

In addition to my legislation, I encourage this Committee to investigate the influence the Big Oil has on the price of gasoline. Is there any collusion between these 

companies? Why have they failed to invest in refinery infrastructure? 

As Chairman of the Oversight and Investigations Subcommittee in Energy and 

Commerce, I have scheduled a hearing on gas price gouging and the factors that 

go into the price of gasoline. 

I thank the Committee for allowing me to testify, and I look forward to your questions.

Mr. CONYERS. Well, we have decided that we will send you the 

questions in writing and then incorporate them into the hearing, 

Bart Stupak, but thank you for getting us started. 

Mr. STUPAK. Thank you, Mr. Chairman. 

Mr. CONYERS. Not only do you have one piece of legislation for 

us to examine, but two, and we want to get further descriptions of 

them to include in the record. I don’t want to take up anybody’s 

time here. 

Mr. STUPAK. Well, take a look at the PUMP Act, Mr. Chairman. 

About half the trades on the oil market are not being subject to any 

kind of Government oversight, and that is when you do get the 

fear, speculation and greed. Everything we have looked at we can 

save $20 a barrel if we just put oversight. I am not saying regulation, I am just saying oversight. Why are some of the trades on the 

oil market subject to oversight and the others are not? 

Mr. CONYERS. I thank my colleagues. 

And I thank you. 

And we will now recess for two votes that are pending. And we 

stand in recess. 

Mr. SMITH. Mr. Chairman, may I——

Mr. CONYERS. Yes? 

Mr. SMITH. Just a point of personal privilege, if I may. 

Mr. CONYERS. Absolutely. 

Mr. SMITH. I want, while we are here and before we get interrupted by the votes, want to congratulate you on a happy birthday 

today. 

6

Now, there are a couple ways to look at this. We could maybe 

look at it, Jack Benny said he was 39 forever. I won’t ask whether 

you have doubled Jack Benny or not, but it is a credit to you that 

you are as active and vibrant and alert and take the initiative you 

do. There is no sign of any age whatsoever, and we appreciate that 

in our Chairman. 

On a more partisan note, the fact that you are so hale and hearty 

should be reassuring to John McCain, I would assume. [Laughter.] 

Mr. CONYERS. Well, thank you very much, Ranking Member 

Lamar Smith. I am just so happy you didn’t ask for my age, because I have lied and misrepresented it for so many years, I am 

not sure what it really is at this point. [Laughter.] 

So the Committee stands in recess, and thank you so very much. 

[Recess.] 

Mr. CONYERS. The Committee will come to order. The Antitrust 

Task Force continues its hearing intermittently between our responsibilities on the floor. 

Our next witness is not a stranger to the Committee. Mark Cooper is Director of Research at Consumer Federation of America. He 

is responsible for analysis and advocacy in the area of telecommunications, media, digital rights, economic and energy policy. 

He has provided expert testimony in more than 250 cases for public 

interest clients, including attorneys general, people’s council and 

citizen interveners before State and Federal agencies, courts and 

legislators in almost four dozen jurisdictions in the United States 

and Canada. A Yale University Ph.D., a Fulbright fellow and author of numerous books and articles. 

Welcome, Mr. Mark Cooper, and you may begin. 

TESTIMONY OF MARK N. COOPER, DIRECTOR OF RESEARCH, 

CONSUMER FEDERATION OF AMERICA 

Mr. COOPER. Thank you, Mr. Chairman and Members of the 

Committee. I appreciate the opportunity to offer the consumer perspective on rising gasoline prices. 

American gasoline consumers are fed up, mad as hell, and they 

have good reason to be. Over the past 5 years, the average household expenditure for gasoline has increased by over $1,000. A major 

cause of this immense increase is the failure of Federal antitrust 

authorities to prevent the abuse of market power by oil companies 

and the failure of the Administration and Congress to enact policies to address the problems that plague the gasoline market. 

Between January of this year and the first week in May, gasoline 

prices increased about 80 cents per gallon. Over 60 cents was the 

result of an increase in the amount taken by domestic refining and 

marketing. In the past 5 years, the increase in price paid to domestic refining and marketing has cost consumers over $130 billion. 

Consumers believe that gasoline prices are unreasonable and 

that there is something the Administration and Congress can do 

about it, and our analysis shows they are right. The domestic refining sector has become so concentrated that these price increases 

represent the abuse of market power in the industry. 

The merger wave of the past decade dramatically reduced the 

number of refineries and companies in the wholesale market. As a 

result, the vast majority of markets in the U.S. are concentrated. 

7

Lacking competitive pressures, the industry has failed to expand 

refinery capacity adequately and dramatically reduced the amount 

of gasoline in storage. This makes markets vulnerable to price 

surges, even when routine maintenance is conducted, not to mention unexpected events. The companies put up prices, blame supply 

and demand, but they are the cause of the supply side problem. 

With prices rising faster than cost, net income in U.S. refining 

has increased sharply, far faster than in foreign refining. Oil companies’ profits have increased far more than profits at comparable 

U.S. non-oil companies, setting records in 3 of the last 4 years. Excess profits in the past 4 years exceed $200 billion. 

The increase in cash flow is so great that the industry cannot absorb it, so it is throwing huge quantities of cash—stock buybacks, 

debt reduction, dividends and huge piles of cash. Net new investment has been paltry compared to the growth of net income, especially in domestic refining. 

This is great for their Wall Street performance, but it is bad 

news for Main Street America. 

This industry has all of the characteristics of market failure: 

Basic structural conditions of low elasticity of demand and supply; 

concentration and barriers to entry; conduct, including lockstep 

pricing, conscious parallelism in which each of the individuals mutually reinforces the other; bad management, so bad that they can’t 

even handle routine maintenance without interrupting supply and 

putting prices up; and, finally, performance, high prices, excess 

profit, underinvestment and in the inability to absorb cash flow. 

This is a picture of fundamental market failure. 

The pain felt by consumers is ultimately the result of a policy 

failure at every level. Antitrust officials approve too many mergers 

and imposed weak conditions on those that went through so that 

they could not discipline market power. Congress and the Administration have stood idly by and done nothing to help consumers. 

We believe that to address the short-term problem of price 

spikes, we need a strategic refinery reserve and a strategic product 

reserve that are dedicated to ensuring we have excess capacity sufficient to discipline pricing abuse. 

We need antitrust authorities that really do their job and look 

very closely at unilateral actions that raise prices. We need authority to make sure they can look at those kinds of behaviors. 

We need commodity market regulators who look at all the market, and we need joint Federal-State task forces to oversee both the 

physical and financial markets, so we have more eyeballs with different perspectives overseeing this vital energy commodity. 

To address long-term problems, we need fundamental changes in 

supply and demand. We have to accelerate the day when we will 

use less oil by setting aggressive, concrete targets for reducing 

American oil consumption, above all, increasing CAFE standards. 

We need a national policy that promotes the research, production 

and use of biofuels in a socially and environmentally responsible 

manner. 

Now is the time to act. Six years ago was the time to act. Hopefully, the current round of spikes, which has gotten everybody’s attention, will finally convince policymakers to take some measures 

8

that alleviate the pain that Americans have been suffering at the 

pump. 

Thank you. 

[The prepared statement of Mr. Cooper follows:]

PREPARED STATEMENT OF MARK N. COOPER


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Mr. CONYERS. Thank you, Mr. Cooper. 

Because of time constraints, we are going to call on Attorney 

General Richard Blumenthal from Connecticut as the next witness. 

He has advocated reforms in the health insurance industry, has 

fought unfair utility rate charges, has led the fight against big tobacco in terms of their deceptive marketing aimed at children, has 

investigated insurance industry abuses. In other previous public 

services he was administrative assistant to United States Senator 

Abe Ribicoff, aide to former United States Senator Daniel Moynihan and was a law clerk to the Supreme Court Justice Harry 

Blackmun. He has also worked with the NAACP Legal Defense 

Fund, has served in the Connecticut House of Representatives, and 

we are delighted that his schedule would permit him to join us for 

this important hearing before the Antitrust Task Force today. 

We welcome you, Mr. Attorney General. 

TESTIMONY OF THE HONORABLE RICHARD BLUMENTHAL, 

ATTORNEY GENERAL FOR THE STATE OF CONNECTICUT 

Mr. BLUMENTHAL. Thank you so much, Mr. Chairman. I am honored to be before you and have long admired the great work that 

you have done in the consumer area and so many other areas 

where I have observed the many contributions that you have made. 

And so I am particularly honored to be here before you. 

Mr. CONYERS. Thank you. 

Mr. BLUMENTHAL. And particularly so on this subject, which concerns consumers as much or more than any. I have found that 

there is none that angers and outrages the consumers of the country more, and with great reason, than this one precisely because 

of the statistics that you have just heard from Mr. Cooper, which 

are so compelling and persuasive as to the need for fundamental 

change. 

This market is not just failed, it is dysfunctional, and it overpowers consumers and causes abuses, enables those abuses in a 

way that virtually none other in the country today. 

As I was driving here from the airport, I thought back to a meeting that I had with the United States Attorney General less than 

a year ago involving a number of my colleagues from all around the 

country, both Republican and Democrat attorneys general, who met 

with him and the chairman of the FTC with the single purpose of 

persuading them to begin a Federal investigation. And, unfortunately, our plea went unheeded then. There has been no effective 

Federal investigation. 

We pleaded with Attorney General Gonzalez and FTC Chairman 

Majoras Platt to begin an investigation of the oil industry, and we 

offered our partnership in that work. All 50 attorneys general have 

a task force investigating monopolistic abuses on the part of the oil 

industry, but we lack the authority and expertise and resources of 

the Federal Government, and so we invited, we beseeched the Federal Government to join with us in that investigation, and so far 

they have declined to do so. 

There is a need to provide greater authority but also to use that 

authority effectively to enforce the law. The law without enforcement is dead letter. 

29

And so as we review what can be done to change the law, I think 

at the top of the priorities ought to be the kinds of demands that 

you have made, Mr. Chairman, other Members of the Committee 

and Congress that the Justice Department be more aggressive and 

vigorous in enforcing these laws that protect against antitrust and 

consumer abuses. 

I am here to strongly support the legislation that you have proposed that would enable antitrust enforcement against OPEC. By 

an accident of interpretation in the Federal courts, we lack that authority now, but there is no clearer instance of monopolistic pricing 

than on the part of those OPEC countries. And if they were entities 

in any way within the reach of law, there would be no question 

that they were breaking laws and doing business in the United 

States. And so I strongly support that measure. 

I also believe that we ought to have, as a remedy under the antitrust laws, the potential to break up the big oil companies if they 

abuse their market power. Clearly, there is a concentration of 

power. 

I know my colleague, Mr. Felmy, differs on that point. He says 

that there is robust competition, no concentration of power. I think 

there is virtual unanimity among economists that there is a concentration of power. Indeed, I have fought it. For example, the 

ExxonMobil merger, and the statistics, support that view overwhelmingly. 

The question really is what to do about it—whether they are capable of using that power wisely or whether they need to be policed 

and stopped from abusing it—and I think they have clearly demonstrated that they will abuse it unless antitrust authorities apply 

the laws with the potential remedy of breaking up some of the concentration. 

I also support in my testimony—and I won’t go through every detail, because it is in the testimony, and I would simply ask for permission to make it a part of the record—a 1-year moratorium on 

any future mergers; a prohibition against any oil company merger 

in a highly concentrated market unless there is a showing by the 

FTC that there is a benefit to consumers; a series of steps to expand refinery capacity and product inventory levels, which are a 

vital weak point in the system now; a series of measures, including 

banning zone pricing, which divides geographic turf. Big oil companies divide that turf, deciding what consumers can pay in different 

geographic areas and through their agreements with franchisees 

enforce those kinds of rules on them. 

And, finally, I strongly support measures relating to conservation, alternative fuels, essentially, to reduce the dependency and, 

as it is called, addiction to big oil. 

And I think that, again, to close where Mr. Cooper did, there is 

a need, as Mr. Felmy says, to avoid doing harm, first do no harm, 

but the point here is that there can be no more egregious harm 

than to watch prices rise at the pump, 50 cents higher than last 

year at this time, when crude is lower, $7 a barrel lower. 

That is an outrage, and consumers are rightly angry about it, 

and I hope that the Congress will give States and State attorneys 

general some of the measure that I think can help us overcome it. 

Thank you. 

30

[The prepared statement of Mr. Blumenthal follows:]

PREPARED STATEMENT OF THE HONORABLE RICHARD BLUMENTHAL


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Mr. CONYERS. Thank you so much. The documents you referred 

to will be incorporated into the record. There is so much that we 

can talk about and so little time to do it. So we will stay in touch. 

Mr. BLUMENTHAL. Thank you. 

Mr. CONYERS. The Chair wants to recognize the gentlelady from 

New Mexico, Heather Wilson, a senior Member of the Energy and 

Commerce Committee in the House, a leader in efforts to protect 

consumers from price gouging and who has led a bipartisan effort 

after Hurricanes Katrina and Rita to prevent price gouging during 

emergencies. We passed one of her pieces of legislation overwhelmingly just recently. 

She serves also on the Environment and Hazardous Materials 

Subcommittee, Health Subcommittee and Telecommunications and 

Internet Subcommittee of the Energy and Commerce Committee. 

She is also on the Intelligence Committee and has been active, very 

active, in the subject matter that brings us here today. 

And we will incorporate your full statement into the record and 

invite you to begin. 

TESTIMONY OF THE HONORABLE HEATHER WILSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW MEXICO 

Mrs. WILSON. Thank you, Mr. Chairman, and happy birthday. 

Mr. CONYERS. Oh, thank you, just as long as you don’t ask me 

how old I am. 

Mrs. WILSON. I won’t, sir. 

Mr. CONYERS. Thank you so much. 

Mrs. WILSON. Thank you, Mr. Chairman, and thank you for holding this hearing. 

I believe very strongly that we need a balanced long-term energy 

policy for the country that makes America more energy independent, and there are a variety of ways to do that, but I think 

that everybody concerns when the price at the pump goes up to 

$3.10 a gallon, which is what it is, on average, and was $3.06 when 

I last filled up my car at I-25 and Alameda in Albuquerque. Drivers across the Nation are feeling the pinch in their pocketbook, and 

it is uncomfortably high. 

There are a number of pieces to this puzzle, and part of addressing energy independence is to understand the factors driving prices 

and to mitigate those factors. That certainly means reducing demand and moving toward alternative fuels and E85 ethanol. The 

country of Brazil is almost completely energy independent. They 

import almost no oil, because they depend on E85, which is ethanol 

that they make from sugarcane, hydrogen and biofuels. 

I would note that the Senate, with the leadership, in a bipartisan 

way, of Senator Bingaman and Senator Domenici, has passed the 

Senate Energy Savings Act, and that is now pending here in the 

House. 

Whether it is hybrid vehicles or conservation or changing the 

way in which we calculate fuel savings for trucks, these are the 

kinds of things that can reduce demand. 

At the same time, we have to diversify supply. We have got 

worldwide volatility and worldwide increases in demands in oil. We 

import over 60 percent of our oil from countries that generally don’t 

40

like us, and we don’t want to be in that situation, whether it is violence in Nigeria and dealing with that or the fact that we are making some advances here in domestic exploration, including the passage of the Gulf of Mexico Security Act of 2006, so we diversify our 

sources of supply. 

We have got supply chain bottlenecks, and some have mentioned 

also refinery capacity already. We have very little margin of error 

in our refinery capacity. We have got about 800,000 barrels per day 

in the United States of crude oil refining capacity that is currently 

offline, and that translates to about 400,000 barrels a day in lost 

gasoline production. In a normal season, about 100,000 barrels are 

offline. 

One of the pieces, though, I think is to look at the issue of price 

gouging, and I have reintroduced my legislation that passed overwhelmingly in the House in the last Congress. I don’t think Federal 

law adequately addresses price gouging. Currently, under the FTC, 

Federal Trade Commission, rules, they can investigate collusion, 

but they cannot investigate price gouging; they don’t have the legal 

authority. 

My bill would prohibit price gouging at any time for gasoline or 

diesel fuel, crude oil, home heating oil and biofuels. It would direct 

the Federal Trade Commission to come up with a definition of price 

gouging for both retail and wholesale. 

One of the difficulties is that we have 30 States with price 

gouging laws and very different definitions of what that means. I 

think we need an extensive rulemaking in order to come up with 

a very good definition so everybody knows the rules of the road. 

The bill provides for both criminal and civil sanctions as well as 

civil enforcement by the Federal Trade Commission as well as the 

State attorney generals if the FTC does not act. 

I thank the Committee for its consideration of this legislation, 

and I look forward to working it through in this Congress. 

Thank you, Mr. Chairman. 

[The prepared statement of Mrs. Wilson follows:]

PREPARED STATEMENT OF THE HONORABLE HEATHER WILSON, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NEW MEXICO

Chairman Conyers and Ranking Member Smith, thank you for providing me the 

opportunity to testify before the House Committee on the Judiciary. 

We need to make America more energy independent and that is going to take a 

long-term, balanced approach that deals with supply, demand and protecting consumers. Americans are again seeing gasoline price spikes at the pump with prices reach- ing over $3 a gallon all over the country. Back home in Albuquerque, New Mexico, 

prices for unleaded gas range from $3.09 to $3.25. A month ago prices in New Mexico hovered around $2.80 and a year ago prices were around $2.90. 

While price fixing, collusion and other anti-competitive practices are currently illegal on the federal level, there is no federal statutory prohibition against price 

gouging. Following the Hurricane Katrina disaster, gasoline prices fluctuated up to $6 per 

gallon in some communities. I was concerned that current law does not adequately 

address price gouging that does not rise to the level of antitrust prohibitions. 

Last Congress I introduced HR. 5253, the Federal Energy Price Protection Act of 

2006. A little more than a year ago, on May 3, 2006 the House passed H.R. 5253 

by a vote of 389–34. Unfortunately, the Federal Price Protection Act of 2006 stalled 

in the Senate. 

I have reintroduced the Federal Energy Price Protection Act. 

The Federal Energy Price Protection Act prohibits price gouging—at any time—

in the market for gasoline, diesel fuel, crude oil, home heating oil, and biofuels. 

41

The Federal Energy Price Protection Act directs the Federal Trade Commission 

to define by rule the terms ‘‘price gouging’’, ‘‘wholesale sale’’, and ‘‘retail sale’’. The 

existing state statutes in this area have vastly different definitions and interpretations. Under a rulemaking, the FTC would have the benefit of receiving, and the 

obligation to consider, comment from interested parties on the definition of price 

gouging. The Act directs the FTC to define price gouging within 6 months of enactment. 

The Federal Energy Price Protection Act provides for strong civil enforcement by 

the FTC, by States’ Attorneys General, and criminal enforcement by the U.S. Attorney General and the Department of Justice. 

The Federal Energy Price Protection Act provides for civil penalties for price 

gouging. For ‘‘wholesale sale’’ violations, the penalties are 3 times the ill-gotten 

gains of the seller, plus an amount not to exceed $3 million, per day of a continuing 

violation. For ‘‘retail sale’’ violations, the penalties are simply 3 times the ill-gotten 

gains of the seller. 

The Federal Energy Price Protection Act provides for criminal penalties. ‘‘Whole sale’’ violations will be punishable by a fine of no more than $150 million, imprisonment for not more than 2 years, or both. ‘‘Retail sale’’ violations will be punishable 

by a fine of no more than $2 million, imprisonment for not more than 2 years, or 

both. 

At least 30 states have laws that prohibit price gouging or excessive price increases. Most states have laws that are triggered in the event of a declared emergency, with a few having laws that may be applicable at other times as well. Other 

states may also exercise authority under general deceptive trade practice laws depending on the nature of the state law and the specific circumstances in which price 

increases occur. 

When defining ‘‘price gouging’’, the devil is in the details. Under the provisions 

of The Federal Energy Price Protection Act, the Federal Trade Commission would 

consider public comment in defining exactly what wholesale pricing is, what retail 

pricing is, and it gives them some regulatory authority to come up with definitions. 

The truth is, there are about 30 State laws. Some of those laws are very, very different, and it makes sense to allow the States and those involved to come up with 

a national definition that will work best for consumers in the marketplace. 

The government doesn’t set prices, but we do have a responsibility to prohibit 

price gouging and unfair manipulation of the markets. Opportunists should not be 

able to reap ill-gotten windfall profits on the backs of America’s families, particularly when disaster strikes. 

A federal statutory prohibition against price gouging is one piece of the puzzle. 

We also need to deal with other pieces of the puzzle as we move along, everything 

from building refinery capacity, encouraging more hydrogen-powered cars, using 

ethanol in our gas tanks, exploring for energy in America and in American waters 

and conservation so that America becomes more energy independent. 

We need a balanced, long term energy plan for the country that makes us more 

energy independent. 

Again, thank you for allowing me the opportunity to testify before the Committee 

on the Judiciary.

Mr. CONYERS. My congratulations to you for your past efforts, 

and we look forward to you continuing in this Congress. 

I would like now to introduce our last witness, the Chief Economist and Director of the Statistics Department at the American Petroleum Institute, Dr. John Felmy. Twenty years’ experience in energy economic and environmental analysis, Bachelor’s and Master’s 

in Economics from the Pennsylvania State University and a Ph.D. 

in the same area from the University of Maryland, a member of 

several professional associations, including the American Economics Association, International Association for Energy Economics, 

and is serving as the chairman of the Policy Committee of the Alliance for Energy and Economic Growth. 

We welcome you and look forward to your contribution to this 

hearing. 

Mr. CHABOT. Mr. Chairman, before the doctor gets started, if I 

could just ask a question. We have got a vote on the floor, so we 

are going to head over for that, I guess, and there is a markup in 

42

this room at 4 o’clock, and I was just wondering what the Chair 

was thinking relative to panel Members asking questions and that 

sort of thing. 

Mr. CONYERS. We will go till 3:59. 

Mr. CHABOT. Okay. Because we may not be back here for another——

Mr. CONYERS. Yes. 

Mr. CHABOT. We have got two 20-minutes votes, they are saying. 

Mr. CONYERS. That is life in the Congress. 

Mr. CHABOT. Excellent. I just wanted to make sure we understood where we were at. Thank you, Mr. Chairman. 

Mr. CONYERS. You are welcome. 

Dr. Felmy, welcome to the Committee. 

TESTIMONY OF JOHN FELMY, CHIEF ECONOMIST,

AMERICAN PETROLEUM INSTITUTE 

Mr. FELMY. Thank you, Mr. Chairman and Members of the Committee. We appreciate the invitation to present API’s view on gasoline prices. 

We recognize that consumers are frustrated with today’s higher 

prices. However, the cause of the higher prices is an imbalance between supply and demand, worsened, at least, in part, by policy 

failures, which the current price control proposals could make 

worse. 

Price control legislation fails to address this cause and is premised on this about how fuel is marketed. Our companies have 

been producing record amounts of fuel to supply their customers in 

highly competitive markets. The industry has supplied about 8.85 

million barrels per day to date this year. However, because of 

maintenance at European refineries and a French port workers 

strike, less imported gasoline has been available. Gasoline imports 

typically make up about 12 percent of our supply. 

As a result, total U.S. gasoline supplies have struggled to keep 

up with demand, which has been extremely strong. During the first 

quarter of 2007, total U.S. gasoline demand set a record, increasing 

almost 2 percent over the same period in 2006. 

Besides record-breaking demand and sluggish imports, other factors have been contributing to higher gasoline prices. They include 

crude oil prices, which account for more than half the cost of gasoline and are set on international markets, the annual switchover 

to more expensive to produce summer blend gasoline required by 

EPA and regularly scheduled refinery maintenance and on-plan 

problems that have prevented refiners from making even more gasoline. 

In short, the price increases reflect supply and demand, and the 

same is true for past price increases that have been thoroughly investigated by Government agencies who would not have hesitated 

to take the industry to task if illegal or improper activity had been 

discovered. Invariably, these agencies have explained price spikes 

by supply-demand conditions that had nothing to do with the manipulation of supplies or illegal agreements among companies. 

A 2006 investigation by the U.S. Federal Trade Commission 

found ‘‘no evidence indicating that refiners make product output 

decisions to affect the market price of gasoline. Instead, the eviVerDate 0ct 09 2002 11:59 Jul 09, 2008 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6601 H:\WORK\ATRUST1\051607\35451.000 HJUD1 PsN: 35451
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dence indicates that refiners responded to market prices by trying 

to produce as much high-value products as possible. The evidence 

collected in this investigation indicated that firms behave competitively.’’

Those who persist in suspecting that the industry is holding back 

supplies often cite the lack of new refinery construction. However, 

over the past 10 years, existing refineries have expanded capacity 

equivalent to building 10 new refineries, and based on public announcements of refinery expansions are projected to add capacity 

equivalent to an additional eight new refineries by 2011. 

Another explanation advanced to explain high prices is industry 

mergers. Industry mergers have occurred only after careful FTC 

scrutiny to ensure competitiveness of all markets. There is no 

shortage of competitors today. The eight biggest refiners account 

for about 66 percent of the market at the beginning of 2006—a 

level of concentration that is comparable to other consumer products industries. There is nothing we are aware of in a professional 

peer-reviewed literature tying higher prices to mergers. In that category, I exclude a 2004 GAO report dismissed by the FTC as badly 

flawed. 

In short, the justifications advanced in support of price control 

legislation are without merit. Price control laws could prevent the 

operation of laws of supply and demand, hamstring efforts to secure ample supplies of fuel to consumers. Such proposals are cousins of the disastrous price and allocation controls of the 1970’s 

which led to gasoline lines, odd or even days and millions of angry 

motorists. 

If price controls are enacted, the 12 percent of our daily gasoline 

consumption met by imports could be jeopardized. Because of artificially low prices, exporters would have less incentive to ship to U.S. 

markets. Also, they may prefer to ship to other markets rather 

than risk jail time or exorbitant fines supplying the U.S. 

Finally, after a natural disaster in the U.S., the same disincentives could affect domestic suppliers, making it harder to end regional shortages that typically follow national disasters. 

The U.S. oil and natural gas industry is doing everything it can 

to produce the fuels consumers demand. Markets work and have 

done more for consumers than price controls could ever hope to, but 

we also need policies that focus on increasing supplies, encouraging 

energy efficiency and conservation in all sectors of the economy, including transportation and reporting and promoting responsible development of alternative and non-conventional sources of energy. 

At a minimum, we must do no harm. Price control laws threaten 

consumers and the Nation’s energy security. We can do much, 

much better. 

Finally, Mr. Chairman, I would like to submit for inclusion in the 

record the executive summary of a recent study by Professor Carol 

Dahl. Professor Carol Dahl is an economist at the Colorado School 

of Mines who has studied, at our request, many of the issues he 

discussed today. 

Mr. CONYERS. Without objection, so ordered. We will include it. 

[The information referred to follows:]

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1 ‘‘Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases,’’ 

U.S. Federal Trade Commission, May 22, 2006.

Mr. FELMY. Thank you, Mr. Chairman. 

[The prepared statement of Mr. Felmy follows:]

PREPARED STATEMENT OF JOHN FELMY

I am John Felmy, chief economist of API, the national trade association of the 

U.S. oil and natural gas industry. API represents nearly 400 companies involved in 

all aspects of the oil and natural gas industry, including exploration and production, 

refining, marketing and transportation, as well as the service companies that support our industry. 

The oil and natural gas industry understands America’s frustrations about gasoline prices. Higher prices are a burden to households and potentially threaten the 

economy. 

However, the evidence overwhelmingly demonstrates that higher prices reflect an 

imbalance between supply and demand, worsened at least in part by policy failures, 

which the current price-control proposals will make still worse. The contention that 

higher prices are driven by market failure or market manipulation, including the 

holding back of supplies, is not credible. The prices are a symptom of larger energy 

challenges facing the nation and must be addressed in other ways. 

U.S. oil companies are working extremely hard to provide Americans with the 

fuels they need and demand. 

U.S. refineries have been making record amounts of gasoline, about 8.85 million 

barrels per day to date this year (see Figure 1). However, less imported gasoline has 

been available. Typically, imports make up about 12 percent of gasoline supply. Less 

foreign gasoline has been available in part because of spring refinery maintenance 

in Europe and an 18-day French port-workers’ strike in March, which led some European refiners to reduce production. As a result, total U.S. gasoline supplies have 

struggled to keep up with demand, which has been extremely strong. During the 

first quarter of 2007, total U.S. gasoline demand set a record, increasing almost 2 

percent over the same period in 2006. 

The most important factor in higher gasoline prices has been higher crude oil 

prices. More than half the cost of gasoline is attributable to the cost of crude oil. 

Crude oil prices have fluctuated significantly, driven by lingering geopolitical tensions, OPEC’s continuing production controls, and worldwide demand growth. Oil 

companies do not set the price of crude. It is bought and sold in international markets, with the price for a barrel of crude reflecting the market conditions at the time 

of purchase. It is well recognized that the market for crude oil has tightened. World 

oil demand reached unprecedented levels in 2006 and continues to grow due to 

strong economic growth, particularly in China and the United States. World oil 

spare production capacity—crude that can be brought online quickly during a supply 

emergency or during surges in demand—is near its lowest level in 30 years. 

In addition, the annual switchover to ‘‘summer blend’’ gasoline required by EPA 

has occurred, and this warm-weather gasoline is more expensive to produce. The 

switchover lowers yields per barrel of oil and requires a large supply drawdown to 

meet regulations, which reduces inventories. 

Finally, despite record U.S. gasoline production, regularly scheduled refinery 

maintenance and unexpected problems relating to extreme weather, external power 

outages and other incidents have prevented refiners from making even more gasoline. Maintenance is a normal procedure, though it has been delayed, in some cases, 

by damage suffered from the catastrophic hurricanes in 2005. While maintenance 

curtails refining operations temporarily, it helps ensure the long-term viability of 

the refinery and protects the health and safety of workers. 

In short, the recent price increases reflect the forces of supply and demand. And 

the same is true for past price increases that have been thoroughly investigated by 

government agencies who would not have hesitated to take the industry to task if 

illegal or improper activity had been discovered. Invariably, these agencies have explained price spikes by supply/demand conditions. The evidence is overwhelming 

that refiners are not withholding supplies or otherwise manipulating the market. 

Here, for example, is what the U.S. Federal Trade Commission said in May 2006 

as a result of an investigation: 1

‘‘. . . the best evidence available through our investigation indicated that companies operated their refineries at full sustainable utilization rates. Companies 

scheduled maintenance downtime in periods when demand was lowest in order 

to minimize the costs they incur in lost production. Internal company docuVerDate 0ct 09 2002 11:59 Jul 09, 2008 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 H:\WORK\ATRUST1\051607\35451.000 HJUD1 PsN: 35451
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ments suggested that refinery downtime is costly, particularly when demand 

and prices are high. Companies track these costs, and their documents reflected 

efforts to minimize unplanned downtime resulting from weather or other unforeseen calamities. Our investigation uncovered no evidence indicating that refiners make product output decisions to affect the market price of gasoline. Instead, the evidence indicated that refiners responded to market prices by trying 

to produce as much higher-valued products as possible, taking into account 

crude oil costs and other physical characteristics. The evidence collected in this 

investigation indicated that firms behave competitively.’’

Those who persist in suspecting, despite the massive evidence to the contrary, 

that the industry is holding back supplies often cite the lack of new refinery construction. While it is true that no new refinery has been built since the 1970s, companies have steadily increased the capacity of existing refineries and continue to do 

so. Over the past ten years, existing refineries have expanded capacity equivalent 

to building 10 new refineries and, based on public announcements of refinery expansions, are projected to add capacity equivalent to an additional eight new refineries 

by 2011. 

Another explanation advanced to explain higher prices is industry mergers. As 

with all industries, mergers have occurred only after careful FTC scrutiny to ensure 

the competitiveness of markets. There is no shortage of competitors today, and market power is not heavily concentrated. The eight biggest refiners account for 66 percent of the market, a level of concentration that compares favorably to other consumer product industries. There are close to 60 refining companies, about 142 refineries, and about 165,000 retail outlets, all but a small percentage of these outlets 

owned by small businessmen and women. A 2004 report by the FTC said that the 

share of U.S. refining capacity owned by independent refiners with no production 

operations rose from 8 percent in 1990 to over 25 percent in 2006. 

A 2003 GAO report says that mergers affected prices by less than one half of one 

cent per gallon at the wholesale level, but the FTC dismissed the report as ‘‘fundamentally flawed’’ and full of ‘‘major methodological mistakes.’’ It says the report’s 

conclusion ‘‘lack any quantitative foundation.’’ Beyond this suspect GAO report, we 

are unaware of anything in the professional literature tying higher prices to mergers. Indeed, in part as a result of the mergers, the industry has become more efficient, which has reduced costs to consumers, though this benefit has been masked 

by sharp increases in crude oil prices. 

None of the arguments advanced to justify the price-control proposals has a strong 

factual and analytical basis, yet even if all did, price-control legislation would be a 

supremely bad idea. The proposals could interfere with the operation of the law of 

supply and demand, hamstringing efforts to secure and deliver ample supplies of 

fuel to consumers. 

Today’s proposals are cousins of the disastrous price and allocation controls of the 

1970s. Those policies established price ceilings on domestically produced crude oil 

and refined products, keeping them artificially low compared to world prices. This 

resulted in decreased domestic crude oil production while domestic demand for 

crude oil and refined products increased, leading to a worsening of shortages and 

increased oil imports. It was the era of gasoline lines, odd or even days, and millions 

of angry motorists, victims of the misguided policies of their own government, which 

should have known better. 

If price controls are enacted, the 12 percent of our daily gasoline consumption met 

by imports could be jeopardized. Overseas suppliers would not have an incentive to 

ship to U.S. markets if the price were kept artificially low. Also, they might prefer 

to ship to other markets rather than risk jail time or exorbitant fines in the U.S. 

In addition, today’s proposals contain vague pricing requirements that make it 

virtually impossible for marketers to know in advance if their actions will be found 

to be in or out of compliance and, therefore, will be extremely difficult to enforce 

fairly. For example, under these bills, how is a gas station operator to know whether 

a price increase of five, ten or fifteen cents a gallon will be considered ‘‘unconscionable?’’ This legal uncertainty, especially when coupled with the serious risk of jail 

time or exorbitant fines, could discourage a supplier from doing business in areas 

affected by a natural disaster when supplies have been substantially reduced, thus 

delaying a return to normal conditions. 

Price-control laws will not solve today’s problems. The U.S. oil and natural gas 

industry is doing everything it can to produce the fuel supply needed to meet consumer energy needs. Congress needs to allow the oil and gas industry to invest today’s earnings in meeting tomorrow’s energy needs and continue to operate within 

a market system, which has done far more for consumers than price controls could 

ever hope to. However, the industry cannot meet U.S. energy challenges alone. Our 

61

nation’s energy policy needs to focus on increasing supplies; encouraging energy efficiency and conservation in all sectors of the economy, including transportation; and 

promoting responsible development of alternative and non-conventional sources of 

energy. 

At a minimum, we must do no harm. Price control laws threaten consumers and 

the nation’s energy security. We can do much, much better. 

APPENDIX 1: OIL AND NATURAL GAS INDUSTRY EARNINGS

Proponents of ‘‘price-gouging’’ proposals say they are partly justified by the oil and 

natural gas industry’s large earnings. There is considerable misunderstanding about 

this. Companies’ earnings are typically in line with other industries and often lower. 

For 2006, the industry’s annual earnings averaged 9.5 cents on each dollar of sales. 

The average for all manufacturing industries was 8.2 cents or about a penny lower. 

From 2002 to 2006, average earnings for the industry stood at approximately 7.4 

cents on each dollar of sales—a penny above the five-year average for all U.S. manufacturing industries. 

It should not be forgotten that the energy Americans consume today is brought 

to us by investments made years or even decades ago. Today’s oil and natural gas 

industry earnings are invested in new technology, new production, and environmental and product quality improvements to meet tomorrow’s energy needs. Between 1992 and 2005, the industry invested more than $1 trillion—on six continents—in a range of long-term energy initiatives: from new exploration and expanding production and refining capacity to applying industry leading technology. 

In fact, over this period, our cumulative capital and exploration expenditures exceeded our cumulative earnings. 

Furthermore, the industry’s future investments are not focused solely on oil and 

natural gas projects. For example, one oil company is among the world’s largest producers of photovoltaic solar cells; another oil company is the world’s largest developer of geothermal energy; and the oil and gas industry is the largest producer and 

user of hydrogen. Over the last five years in North America alone, we have invested 

$12 billion in renewable, alternative and advanced non-hydrocarbon technologies. In 

fact, when you add up all of the various types of emerging energy technologies, our 

industry, over the five years, has invested almost $100 billion—more than two and 

half times as much as the federal government and all other U.S. companies combined. 

It also requires billions more dollars to maintain the delivery system necessary 

to ensure a reliable supply of energy and to make sure it gets where it needs to 

go: to industry customers. According to the EIA, Americans will need 28 percent 

more oil and 19 percent more natural gas in 2030 than in 2005. The industry is 

committed to making the reinvestments that are critical to ensuring our nation has 

a stable and reliable supply of energy today and tomorrow. 

It is also important to understand that those benefiting from healthy oil and natural gas industry earnings include numerous private and government pension plans, 

including 401K plans, as well as many millions of individual American investors. 

While shares are owned by individual investors; firms, and mutual funds, pension 

plans own 41 percent of oil and natural gas company stock. To protect the interest 

of their shareholders and help meet future energy demand, companies are investing 

heavily in finding and producing new supplies.

62

did Mr. Blumenthal and Mr. Cooper get it so wrong? Is there some 

Mr. CONYERS. Before we go to vote, just tell me, Dr. Felmy, how 

f way we can explain their understanding of the dimensions of the 

problem? 

Mr. FELMY. Mr. Chairman, I am an economist. I fundamentally 

believe in markets, markets at work, and as I look at the data carefully, what I see is an industry that has, true, a shortage of refinery capacity through a whole host of reasons leading up over years. 

We faced enormous challenges this year in terms of what was actually happening with markets. Their perception of what is going on 

is simply different than my own. As an economist, I believe in markets. 

Mr. BLUMENTHAL. And I believe in markets too, Mr. Chairman. 

This one simply isn’t working because it has become so concentrated and power is in so few hands that have failed to expand 

refinery capacity when it is desperately needed, failed to maintain 

proper levels of inventory and thereby exposed the system to the 

shocks of pipelines bursting and other temporary phenomena and 

failed to be responsive to consumers. And the Federal Government 

bears a share of the responsibility, the Department of Justice and 

FTC, in failing to enforce the law. 

So I think there is concentration of market power, clearly. The 

question is what to do about it, how to remedy it. 

Mr. CONYERS. Mark Cooper? 

Mr. COOPER. It is wonderful to believe in markets, but you also 

have to accept the proposition that sometimes they fail. And in this 


Felmy.eps
63

case, this year we have got an excuse about some refineries out 

here and there. For the last 7 years, we have had a different excuse each year. And the simple fact of the matter is that once is 

an accident, twice is a surprise, six times means there is a fundamental flaw in the structure that has failed to build an industry 

that can actually deliver a stream of product at reasonable prices. 

You can’t look at oil company profits in the last 4 years and say 

they are not extreme, excessive. Last year, they were twice the average for the manufacturing sector, and they have averaged about 

seven or eight points over the last 4 years. 

So if you look at the structural characteristics of the market, not 

just pray to it and believe in it, but analyze it, you have to conclude 

that there is a market failure here of immense proportions. 

Mr. CONYERS. Heather Wilson, last word. 

Mrs. WILSON. I am not an economist, Mr. Chairman, but I am 

a mom with a Subaru, and I think people are upset about how high 

their gas prices are, and it puts a real crimp in their pocketbook. 

But we are not going to get out of this overnight. We need a balanced long-term energy plan for this country that makes us more 

energy independent and helps to keep the prices down. I am a big 

believer in competition. 

Mr. CONYERS. Mr. Keller? 

Mr. KELLER. Thank you. 

Mr. Attorney General Blumenthal, I don’t disagree with you on 

this NOPEC issue at all. I may even co-sponsor it. 

But just for the sake of argument—you are a good attorney—do 

you believe, in your legal opinion, that if we pass this, that we will 

have jurisdiction over these OPEC nations in Federal court and 

that we would be in a position to enforce a judgment against them 

if we are able to acquire a judgment? 

Mr. BLUMENTHAL. The answer to that question, a very central 

and obviously excellent question is unequivocally yes. 

This measure would, very simply, have the effect of removing 

from the Federal Sovereign Immunities Act of 1976 the flawed interpretation, in my view flawed interpretation, given by the Ninth 

Circuit in the OEM case—I can give you the exact citation, IAM 

v. OPEC, 644 F. 2d 1354. It is a 1981 case and, essentially, in my 

view, extends immunity to the OPEC nations, wrongly interprets 

their commercial activities as acts of state rather than, in fact, economic and commercial activities. 

But the Congress has the authority to apply jurisdiction—that is 

the key concept here—and it can through this measure. 

Mr. KELLER. Time is running out. 

Dr. Felmy, let me just get you the central question here to kind 

of sum up what the other side has said. There is no doubt that the 

majority of the cost in a gallon of gasoline is crude oil, and there 

is no doubt that crude oil is a commodity governed by the law of 

supply and demand, and there is nothing we can do in Congress 

to pass a law changing the law of supply and demand. 

But it has been pointed out, both by Mr. Blumenthal and by Congressman Stupak, that in fact gas prices are 50 percent higher this 

year despite the fact that crude oil is $7 a barrel lower. And they 

say that something else is at play here, and, specifically, what they 

are alleging, just to be frank, is that oil companies are intentionally 

64

not building any new refineries in the past 30 years because they 

want to drive prices up. 

And to support that, they say three things: One, the idea that it 

is difficult to get environmental permits is false, they say, because 

only once in the last 30 years, they say, was a permit requested 

and it was granted; two, they say there are certain internal documents from the big oil companies that say that they want to limit 

refinery capacity to drive up prices; and, third, they point out that 

big oil companies like Exxon had $400 million to pay CEO Lee Raymond last year, why don’t they use the money to build a new refinery. 

So you tell me what your side is to those arguments. 

Mr. FELMY. Thank you, Congressman. 

The fact is the industry is expanding refinery capacity. As my 

testimony indicated, while we have not built a new refinery for 30 

years, and I would say it is an enormous challenge to build a new 

refinery and to articulate that, I testified last week before Chairman Markey’s Committee, and I would propose to submit the same 

letter that was provided by Arizona Clean Fuels in terms all the 

difficulties they have faced in terms of actually developing a new 

refinery. 

Second, we have expanded existing capacity because it is easier 

to do so within the walls of the existing refineries. But even that 

is a challenge because you have complex permitting problems. You 

have also got local folks who don’t want you there. When refineries 

were developed originally, they were out in the middle of nowhere. 

Now, communities have built up or they were on desirable waterfronts. People just simply don’t want an industrial facility. So even 

expanding an existing one is. 

And, finally, the industry produced record amounts of output this 

year, and that is a key factor that we are explaining, that it is a 

combination of both crude oil costs, which I mentioned, but also 

supply and demand fundamentals in terms of increased demand, a 

decline in imports and it was more than even a record production 

of output of gasoline could show. 

Mr. KELLER. I don’t have a Ph.D. in economics from Harvard or 

MIT, and you are an economist, so just explain it to me as if I am 

in 6th grade to help me out. 

This is what they are saying, and I want your response. They are saying, a year ago crude oil was $70. This year, a barrel of crude 

oil is $63. Despite the fact that crude oil was $7 a barrel cheaper 

last year, gas prices are now $7 cheaper than they were last year, 

gas prices are 50 percent higher. 

Why? I mean, what is the explanation for that? 

Mr. FELMY. Well, first, I just looked at the AAA data from last 

year and a year ago gasoline prices were $2.93 and now they are 

$3.10, so I am not quite sure where 50 cents——

Mr. KELLER. So you take issue with the 50-cent issue to start 

with. Okay. 

Mr. FELMY. In any case, there is no question it is not just crude 

oil. We have seen crude oil increase from earlier this year, and that 

is where you are talking about an increase from $50 a barrel to $66 

they peaked out. But it is clearly a tight market, that it is an increased demand, it is a limitation of imports, which we have tradiVerDate 0ct 09 2002 11:59 Jul 09, 2008 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6601 H:\WORK\ATRUST1\051607\35451.000 HJUD1 PsN: 35451
65

tionally been able to increase from Europe, and so it is a combination of supply and demand factors. With less supply and more demand, you have a tighter market. That yields price increases. 

Mr. KELLER. Mr. Blumenthal, you are one of the ones who made 

that argument. I would ask Congressman Stupak but he is gone. 

Why is it that gas is higher this year despite the fact that crude 

oil is $7 a barrel lower. What is your explanation? 

Mr. BLUMENTHAL. Well, there are a number of explanations. 

Partly, he has given them. We have all repeated them. Lack of refinery capacity, concentration in the market, which gives power to 

the oil companies that impose, for example, zone pricing, geographic divisions of economic turf that are inherently anticompetitive, essentially a collection of anticompetitive practices, beginning 

with shortages of supply, lack of refinery capacity. There has been 

no new refinery built, albeit expansion of existing refineries but 

still not enough. 

And I think credit, if I may use that term, has to be given where 

it also should lie to the OPEC cartel. They have failed to provide 

the supply that would enable lower prices, but with a lack of refining capacity, the question is whether the United States industry 

could really do anything productive with it. 

Mr. KELLER. Let me follow up with that. Let’s assume that the 

four or five largest oil companies own most of the refineries, and 

for sake of argument, they don’t want to expand capacity. 

Isn’t it true that if I don’t like the prices at my local ExxonMobil 

gas station, I can just go across the street to Chevron and BP? I 

mean, doesn’t Chevron and BP keep Exxon honest, so to speak? 

Mr. BLUMENTHAL. The simple answer is no. 

Mr. KELLER. Why is that? 

Mr. BLUMENTHAL. Well, talk to your constituents. They tend to 

rise together. Prices tend to go up——

Mr. KELLER. I talked to them all today, and everybody wants me 

to do something about it, and if I could change the law of supply 

and demand, I would do it. But I want you to tell me, I mean, you 

are the expert testifying, why is it that competition isn’t sufficient 

in order to keep one group from price gouging the other? 

Mr. BLUMENTHAL. Because there has been consolidation. In our 

part of the State—I know you are from Florida——

Mr. KELLER. I mean, are you alleging collusion, I guess, between 

these big companies? 

Mr. BLUMENTHAL. We don’t know, is the most honest answer. 

Certainly, conscious parallelism, at a minimum, exists, which is not 

collusion. 

Mr. KELLER. If I talk to my constituents, do you think they 

would tell me the problem is conscious parallelism? 

Mr. BLUMENTHAL. You won’t get very far with your constituents 

talking about conscious parallelism, nor would I in court in an antitrust case, but we have more than enough evidence to begin a national investigation, which I have urged the Department of Justice 

to do, meeting with the United States Attorney General and the 

chairman of the FTC. There should be a Federal joint investigation. 

There should be not one but a series of investigations focusing at 

different levels of the industry. 

66

Mr. KELLER. All right. And let me follow up, because I have just 

got to wrap up. I have got to go vote too. 

Are you concerned if we pass the NOPEC law that you are advocating that these OPEC nations could possibly embargo oil to the 

United States like they did in 1973 as a response to such a lawsuit? 

Mr. BLUMENTHAL. No, I am not concerned about that fact, because—or about that possibility, I should emphasize. All we are 

doing is require they submit to the jurisdiction of our courts, abide 

by our rules, play by those rules fairly and compete so as to be on 

a level playing field. And in my view, they have to do business with 

the United States. 

Mr. KELLER. Okay. 

Mr. Cooper, I know you want to respond, but since you are out 

there for the consumers and want the lowest possible prices, I assume you would be supportive of efforts to drill in ANWR, which 

would give us 16 billion barrels of oil, which is the equivalent of 

58 years worth of oil from Iraq? 

Mr. COOPER. It is our belief that drilling will do nothing to lower 

the price of oil. 

Mr. KELLER. You don’t think 16 billion barrels of oil——

Mr. COOPER. Absolutely not. It is a miniscule addition to supply, 

first of all. Second of all——

Mr. KELLER. Fifty-eight years’ worth of oil from Iraq is miniscule? 

Mr. COOPER. From Iraq? 

Mr. KELLER. Fifty-eight years’ worth of——

Mr. COOPER. In terms of the world supply, there is almost no difference. You add almost nothing in terms of the global supply from 

crude. 

Second of all, it will do nothing to build any refineries. 

Mr. KELLER. Let me just stop you. Do you oppose the ANWR 

drilling? 

Mr. COOPER. We absolutely oppose ANWR drilling. 

Mr. KELLER. And let me give you a follow-up question. What do 

you believe is the cause of the spike in gas prices? Do you believe 

it is lack of refinery capacity, or what is the nub of what you are 

trying to say? 

Mr. COOPER. Since January, the overwhelming increase has come 

from domestic refining, up 65 cents a gallon that is taken by refiners. That is an uncontrovertible fact from the EIA’s numbers. 

Sixty-five-cent increase in what is known as the domestic spread, 

that is the amount that domestic refining takes. This year, there 

is no doubt about that. After Katrina, there was no doubt about it. 

Mr. KELLER. All right, Mr. Cooper. 

Let me give you a chance, Dr. Felmy, because you are kind of 

outnumbered here. Do you want to respond to just the allegation 

as, ‘‘Hey, don’t blame supply and demand. It is really the failure 

to increase your capacity and conscious parallelism on the part of 

the oil companies to let the prices go up.’’

What is your response on behalf of the Petroleum Institute to 

those allegations? 

Mr. FELMY. Well, I don’t know what conscious parallelism is, and 

I have heard that term in the past, but my interpretation is prices 

67

move together because markets are at work. You have one price, 

the market-clearing price. So this notion of parallelism I have 

never understood from an economic context. 

But the industry is working very hard. We have plans to expand 

existing refinery capacity even more. We have expanded it the 

equivalent of a new refinery every year for the last 10 years. 

But we do face fundamental challenges. We have an import challenge this year, and we have continuing demand growth, and that 

has resulted in the higher prices. 

Mr. KELLER. Why not build the new refineries? What is the short 

answer? 

Mr. FELMY. Well, the short answer is, there are a whole series 

of hurdles you have to go through in terms of permitting, in terms 

of NSR conflicts, and you have to financially look at it, is it wise 

to build a new refinery to return a return to your shareholders, 

given the uncertainties going forward. 

Mr. KELLER. Is it true that you all have only asked for one permit in the past 30 years and it was granted or is that a 

misstatement by Mr. Stupak? 

Mr. FELMY. I don’t know the answer to that, because it is such 

a large industry. I don’t know that that is the case. I don’t know 

yes or no. 

Mr. KELLER. Let me ask you—and I hate to cut you off, but I 

have got to vote, I am already in trouble here—to wrap it up, you 

are an economist, is that correct? 

Mr. FELMY. Yes, sir. 

Mr. KELLER. Do you believe that someone who understands the 

law of supply and demand, that having 16 billion barrels of oil 

extra is irrelevant to the issue of price as a determinant of crude 

oil for supply and demand? 

Mr. FELMY. There is no question to me that expanding production from anywhere in the world by the equivalent of 16 billion barrels is an increase in supply, and that will help a market in terms 

of whenever you have increased supply or reduced demand, it results, generally, in lower price. 

Mr. KELLER [presiding]. Gentlemen, I want to thank you all. I 

have tried to be fair to all sides and get all your testimony out. I 

am going to have to recess this hearing at this point to go vote, but 

I very much appreciate you staying and answering the questions. 

Mr. BLUMENTHAL. Thank you, sir. 

Mr. KELLER. You bet. 

[Recess.] 

Mr. CONYERS [presiding]. The Chair recognizes the gentleman 

from Alabama, Mr. Artur Davis. 

Mr. DAVIS. Thank you, Mr. Chairman. 

Mr. Cooper, Dr. Felmy, let me get your attention back. I apologize to you, as I know the Chairman has, that, unfortunately, we 

have had a number of procedural votes, and we are none happier 

about it than you are, so I apologize that it has depleted your audience. 

But I want to do is, frankly, use my time to ask you some of the 

questions people ask me when I go back home to see if you can 

make my answers better informed. 

68

First question, a lot of people ask me, why are prices at the 

pump going up when there has not been a disruption in supply in 

the Middle East? I suppose we can argue about the level of production capacity we are getting in the Middle East, but I think it is 

hard to make the case there has been a major disruption in supply 

either. 

So can either one of you quickly speak to that point: Prices going 

up, no disruption in supply. Why? 

Mr. COOPER. This season, there is no doubt that it is a domestic 

problem, and, actually, Katrina was the thing that woke people up. 

Crude didn’t go up, we didn’t need crude, and we learned that 

there is a domestic problem. And the lack of refinery capacity; the 

inability of the industry to change over from winter fuels to summer fuels, which happens every year, that is no surprise, they have 

to do that every year; the fact that demand is growing—yes, that 

has happened every year for an awfully long time. There are no 

surprises here. So this is an industry that has mismanaged the 

simple basics of switching fuels and meeting demand which they 

know is increasing. 

We believe that the underlying cause is a lack of sufficient competition, the competitive discipline that makes each individual company worry about running short and therefore adding more capacity so that they never have to tell their customers, ‘‘We are out’’ 

or that they have to raise their price. The fact that there are only 

two or three companies that they can look across the street, they 

see the price, they know no one else is going to come along, and 

so they both put the price up immediately. Most Americans think 

that that is not the way it is supposed to happen. 

Mr. DAVIS. Let me ask a second question related to that, and, Dr. 

Felmy, perhaps you can chime in on this one. 

The industry often says that, well, even if we had a stimulus and 

delivery from the Middle East, even if Saudi Arabia, for example, 

dramatically stepped up their production, even if we somehow had 

a surge in production in Iraq and Iraq returned to the oil market, 

that it wouldn’t matter, because we haven’t had a refinery built in 

a while. 

A lot of people in your industry say, ‘‘Well, we haven’t had refineries built for 25 years because of regulation, environmental standards.’’ Can both of you weigh in on why the industry has not had 

more refinery development? 

Mr. FELMY. There is the question of building a new refinery, but, 

as I have pointed out in my testimony, we have expanded the existing capacity the equivalent of a new refinery for every year for the 

last 10 years, and the public announcements are for an additional 

expansion of, I believe, an additional 1.6 million barrels a day of 

capacity going forward. So the industry is looking forward to increasing that capacity. 

In terms of the Middle East and crude, there is no question if 

you look at the increases this year so far, you saw crude oil prices 

go from $50 a barrel to over $66 a barrel. So, clearly, part of it was 

cost; clearly, part of it is the turnover to the new summer price gasoline, which is an enormous challenge for the industry, because we 

effectively have to draw down inventory to very low levels so that 

69

you are able to bring in the new summer-based gasoline and still 

be compliant with EPA standards. So it is a challenge. 

Mr. DAVIS. Let me make sure I understand that. You are saying 

that the industry has stepped up the existing refinery capacity to 

the equivalent of building a new refinery. 

Mr. FELMY. The equivalent of building a new refinery every year 

for the past 10 years. 

Mr. DAVIS. Okay. Well, that is helpful to know, because every 

now and then we hear from some in industry that the environmental standards are just too heavy and we can’t get new refineries. 

Let me ask you one last set of questions. If you would jump in 

on this, Mr. Cooper. Instituting or reinstituting a windfall profit 

tax, would it have an impact on prices at the pump short or medium term? 

Mr. COOPER. It would not have an impact on prices at the pump. 

What it would is tax away the windfall, the cash that has been piling up. The American majors have bought back over $60 billion in 

stock. Now, that is great for their stock performance on Wall 

Street, no doubt about it, but that is money that is not being put 

to productive use. The cash has piled up. They have increased their 

dividends, they have reduced their debt, they haven’t put it back 

into the sector in a productive way. 

So if you taxed away a windfall, you will have no effect on the 

efficient operation of that market. It is truly, in the last 4 years, 

a windfall that the industry could not absorb. 

Mr. DAVIS. Well, let me ask you both one last question before I 

have to take my leave. 

Both of you, is there anything that could be done from a regulatory standpoint by this Congress that would impact contemporary 

prices at the pump? 

Mr. FELMY. In terms of contemporary prices, there is very little 

that can be done instantly to change supplies or demand. There is 

no question to encourage consumers to use gasoline wisely, to encourage them to properly tune their cars, to their inflate their tires, 

to drive sensibly. A softening of the demand is the one option that 

could help, and so advising consumers of what they can do is a potential hopeful aspect. 

Mr. DAVIS. Mr. Cooper, would you like to weigh in? 

Mr. COOPER. In the short term, the industry won’t help us, we 

know that. The authority in the Congress to look at the market will 

not help us in the very short term. So, yes, consumers can try to 

cut back. 

But let’s be clear: We have spent a decade digging this hole. We 

have built over several decades a society that drives a lot. I would 

like to remind people, it is interesting, in many suburban communities in this country, it is illegal to walk to the grocery store. Now, 

I say it that way to get your attention. Because zoning laws have 

said we don’t want commercial establishments in those neighborhoods, and we don’t even want sidewalks in those neighborhoods. 

That is the way we have chosen to live, and it has increased demand, and the industry knows it. 

So we are not going to change that in the short term. This is a 

long-term problem, but there are immediate things that can be 

70

done that can start and send a signal in addition to some oversight. 

We think there is plenty of abuse that could be found if we had 

laws that let people look at unilateral action. 

But your answer is, I think, to tell your constituents, ‘‘It took a 

long time to get in this hole, and it is going to take a long time 

to get out, but now is the time to start.’’

Mr. DAVIS. That is actually about what I tell them. 

I yield back, Mr. Chairman. 

Mr. CONYERS. Thank you very much. 

Is there anything here, with two distinguished witnesses, at the 

end of a few minutes only left in this hearing, that we could attest 

to on the record that you do agree on? 

Mr. COOPER. We agree that people ought to adjust their behaviors as best they can to lower their demand. That is something we 

always tell people, to think about the extra trip, to get your car 

tuned, to clean your air filter, to inflate your tires, to take the bags 

of sand that you threw in the trunk in the winter for traction, take 

them out in the summer, because you are burning gas. 

We do agree on that. That is an important set of short-term 

things to do. But I suspect that is about as far as we go on our 

agreement. 

Mr. FELMY. Mr. Chairman, I would agree with Mr. Cooper 

that——

Mr. CONYERS. Amazing. 

Mr. FELMY [continuing]. Using energy wisely is something we 

agree on. 

But I think we both share the interest in seeing expanding refinery capacity. It is a question of how you get there. And we feel that 

there are policies that the Congress can enact that would help us 

expand capacity. We feel we are already doing quite a bit. But I 

think that that is something that remains that could help consumers. 

Mr. CONYERS. Could you take back to the industry, Dr. Felmy, 

that more and more of us want more refineries built, and quickly? 

Mr. FELMY. Well, the industry very carefully looks at what expanded capacity has happened, what going forward is potentially 

possible, but it is an economic calculation that they have to look 

at very carefully in terms of returns to their owners. And there are 

large uncertainties out there that have just begun to come around, 

such as the proposals in the Senate for alternative fuels of 35 billion gallons, reducing gasoline demand that makes a further challenge in terms of doing the calculations on building that new capacity. 

But, certainly, we understand the position, and I will communicate that to my management. 

Mr. CONYERS. What do we tell the people, Cooper, that we are 

being put on hold here? I guess there is no way I can be optimistic 

about refineries. You tell me, on the other hand, that taxing the 

profits is not a real solution. So where are both of you leaving a 

concerned Member of Congress? 

Mr. COOPER. Well, frankly, if you taxed away the profits, it de- pends what you did with them. I mean, if you took that $200 billion—I will just give you an example—which I see as excess profit, 

and you directed that to the auto industry, that is about half of 

71

what the Transportation Department said it would cost to get us 

to 35 miles per gallon. Boy, that would be a real good use of those 

excess profits, and that kind of policy is something that we may 

have to look at. We may have to look at ways to incentivize the alternative solutions. 

I think you heard an answer here about refineries that is really, 

really troubling. The chairman of Exxon earlier this year said, ‘‘We 

think gasoline demand will decline starting out in 2020 or so, and 

therefore we are not going to consider building new refineries. 

Well, that is 12 more years of pain. So they are not going to give 

you the solution to the refinery problem. 

There was legislation introduced in the last Congress about a 

strategic refinery reserve. If the industry is not going to give us 

more refinery capacity because 16 years is a time horizon that they 

want to keep making all this money past 15 years, then this Congress is going to have to step in with a social return on capital that 

fits the needs of the people. We cannot wait for 15 years before 

they think the marketplace will start to create a balance or even 

your policy. Imagine what they said, ‘‘If you pass laws which reduce the demand for gasoline, we are not going to build refineries 

to reduce and improve the supply-demand balance.’’ I think that is 

an outrage. 

Mr. FELMY. Well, Mr. Chairman, there are several comments I 

could give to that, but the first is the discussion of the windfall 

profits tax. Our history with that tax when it was imposed in the 

eighties was a disaster. It increased the cost of the industry, it reduced production, as documented by the Congressional Research 

Service, and largely increased imports. I fail to see how that can 

help consumers. 

Secondly, the companies are owned by millions of Americans. 

Taking money away from the industry is equivalent to taking away 

from millions of Americans who have invested their hard-earned 

savings in that. Fully, 41 percent of the equity of companies is 

owned by retirement plans of some type. So one has to be cautious 

in terms of where you are taking money from and what the impact 

is. 

But the bottom line is it potentially raises cost, and that I fail 

to see how it can help consumers. 

Mr. COOPER. Mr. Conyers, let me respond to the question about 

stock ownership. I suggest that if you go to your constituents and 

say, ‘‘Look, use your dividends from the oil companies to pay your 

gasoline bills,’’ they will fall down laughing, and they might not 

send you back here. 

That is not an answer to that question. Sure, there are investors 

here and there, but those investments are highly concentrated 

among richer people, yes, there are some pension funds in there, 

but, by and large, the average American is paying through the nose 

at the pump, and they are not getting it back in their dividends 

from oil company stock. 

Mr. FELMY. Well, just as a point, Mr. Chairman, 485,000 folks 

in the State of Michigan are members of State and local pension 

funds that are invested in oil companies. And approximately 18 

million Americans have similar types of investments. So one has to 

72

be cautious that our companies are owned by millions of Americans. 

But going forward, there are things that I believe we can do in 

terms of streamlining the regulation process, resolving questions 

about new source review for refineries, and it could help expand 

the existing plans already announced for an additional 1.6 million 

barrels a day of capacity. 

Mr. CONYERS. I would like now to recognize the distinguished 

Ranking Member, Steve Chabot, of Ohio for concluding remarks. 

Mr. CHABOT. Thank you very much, Mr. Chairman, and my 

opening statement and concluding remarks will all be contained in 

the same couple of minutes here. 

I want to thank you for holding this important hearing today. 

There is not an issue that comes up more often when I am talking 

with my constituents back in Cincinnati than the high cost of gasoline at the pump. Every day, people raise questions about price fixing, questions about oil companies or service stations taking advantage of their market power to stick it to the consumer, and these 

concerns won’t diminish until this Congress is willing to take steps 

to make energy more affordable to consumers. The national average, as we have said, is anywhere from $3.10— last weekend, when I got gas back home, it was between $3.13 and 

$3.19 in my district, back in Cincinnati, and we haven’t even entered the traditional summer driving season. That peak driving 

season starts around Memorial Day and ends around Labor Day. 

Up 90 cents since January, and forecasters expect prices to continue surging through the summer months, and I don’t have to tell 

anyone how these price hikes have and will continue to impact consumers and their families and ultimately weigh down the economy. 

Over the last decade, it has become alarmingly clear that America is far too dependent on foreign oil to meet our energy needs. 

Disservingly, we import more than a third of the oil we consume 

and much of it from OPEC nations. At the same time, the number 

of refineries operating in the U.S. has decreased from over 300 to 

fewer than 150, with the last domestic oil refinery being built, as 

we know, back in 1976. 

Various efforts have been announced by the current and previous 

Administrations, and bills have been introduced in Congress to address this ongoing problem, including exploring new sites in both 

ANWR and the Outer Continental Shelf in order to replenish domestic oil reserves. Yesterday, the president ordered stricter rules 

for automobile fuel efficiency and the use of alternative fuels. 

There is no doubt that we need to focus on both short-and longterm strategies to address these issues. We need increased domestic production and refinery capabilities, and we need to put a 

stronger emphasis on alternative energy and conservation efforts. 

The hearing today is important, although, obviously, it got very 

divided up, and we want to, I think, apologize to the witnesses. 

There were a whole series of votes that took place on the floor that 

sort of broke this hearing up, but we are all making the best use 

of it that we obviously can. 

And it gives us the opportunity to examine these seasonal, if not 

daily, price surges from another perspective, through the antitrust 

lens. And, in particular, we have had the opportunity this afterVerDate 0ct 09 2002 11:59 Jul 09, 2008 Jkt 000000 PO 00000 Frm 00076 Fmt 6633 Sfmt 6601 H:\WORK\ATRUST1\051607\35451.000 HJUD1 PsN: 35451
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noon to examine whether OPEC’s cartel structure plays a substantial role in this roller coaster ride and examined whether the oil 

industry consolidation that has taken place in this country has resulted in limited oil supplies and higher fixed gas prices and examined the effectiveness of measures that have been introduced to respond to this situation, such as H.R. 2264, the Conyers-ChabotLofgren NOPEC bill, which we reintroduced last week and also introduced it in the last Congress. 

And also H.R. 1252, the Federal Price Gouging Prevention Act 

and the Federal Energy Price Protection Act of 2007, which have 

been introduced by two of our witnesses that we had here, the distinguished gentleman, Mr. Stupak, from Michigan and the distinguished gentlewoman, Mrs. Wilson, from New Mexico. 

And, again, I appreciate the Chairman holding this hearing. I 

apologize for running out of time here, and I know that another 

Committee is coming in that is going to kick us out, and that is 

a Committee that we are all on also, so thank you again, Mr. 

Chairman. 

Again, we apologize to the witnesses for any difficulty you might 

have had testifying and responding. It has been one of those days 

up here. 

Mr. CONYERS. Well said. 

We will keep the record open for 5 days for questions and answers that may come from both of you. 

Thank you for this initial hearing. There is much more inquiry 

that is required here. This is not a simple subject, but you have 

gotten us off to a great start. 

Dr. John Felmy, Mr. Mark Cooper, we thank you so much. 

The hearing is adjourned. 

[Whereupon, at 3:58 p.m., the Task Force was adjourned.] 

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MATERIAL SUBMITTED FOR THE HEARING RECORD

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PREPARED STATEMENT OF THE HONORABLE SHEILA JACKSON LEE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TEXAS, AND MEMBER, TASK FORCE ON ANTITRUST


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