U.S. GOVERNMENT PRINTING OFFICE

73–069 DTP WASHINGTON : 2001

RISING FUEL PRICES AND THE APPROPRIATE

FEDERAL RESPONSE

HEARING

BEFORE THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

JUNE 28, 2000

Serial No. 106–240

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: (202) 512–1800 Fax: (202) 512–2250

Mail: Stop SSOP, Washington, DC 20402–0001

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COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

LISA SMITH ARAFUNE, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

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C O N T E N T S

Page

Hearing held on June 28, 2000 ............................................................................... 1

Statement of:

Richardson, Bill, Secretary, Department of Energy; Carol Browner, Administrator, Environmental Protection Agency; and Robert Pitofsky,

Chairman, Federal Trade Commission ....................................................... 131

Schneider, Scott, vice president of sales, Mister Ice of Indianapolis, Inc.,

Indianapolis, IN; Mark Hrobuchak, CEO, president of MPH, Transportation and Logistics, Scranton, PA; Charles Bailey, Jefferson, OH;

Elaine Oberweis, CEO, Oberweis Dairy, Inc., Chicago, IL; and Doug

Wilson, Gridley, IL ........................................................................................ 47

Letters, statements, etc., submitted for the record by:

Bailey, Charles,Jefferson, OH, prepared statement of .................................. 62

Burton, Hon. Dan, a Representative in Congress from the State of Indiana, prepared statement of .......................................................................... 5

Chenoweth-Hage, Hon. Helen, a Representative in Congress from the

State of Idaho:

Prepared statement of ............................................................................... 35

Report of the Attorney General’s Advisory Committee on Gasoline

Pricing ..................................................................................................... 185

Gilman, Hon. Benjamin A., a Representative in Congress from the State

of New York, prepared statement of ........................................................... 273

Hrobuchak, Mark,CEO, president of MPH, Transportation and Logistics,

Scranton, PA, prepared statement of .......................................................... 52

Kanjorski, Hon. Paul E., a Representative in Congress from the State

of Pennsylvania, prepared statement of ...................................................... 86

LaTourette, Hon. Steven C., a Representative in Congress from the State

of Ohio, prepared statements of Mr. Cavaney and Mr. Vaughn ............... 246

McIntosh, Hon. David M., a Representative in Congress from the State

of Indiana, prepared statement of ............................................................... 40

Morella, Hon. Constance A., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 25

Oberweis, Elaine,CEO, Oberweis Dairy, Inc., Chicago, IL, prepared statement of ........................................................................................................... 67

Richardson, Bill, Secretary, Department of Energy; Carol Browner, Administrator, Environmental Protection Agency; and Robert Pitofsky,

Chairman, Federal Trade Commission, prepared statements of .............. 132

Ryan, Hon. Paul, a Representative in Congress from the State of Wisconsin:

Memo dated June 5, 2000 ......................................................................... 229

Prepared statement of ............................................................................... 161

Sanders, Hon. Bernard, a Representative in Congress from the State

of Vermont, prepared statement of .............................................................. 172

Schneider, Scott, vice president of sales, Mister Ice of Indianapolis, Inc.,

Indianapolis, IN, prepared statement of ..................................................... 49

Shays, Hon. Christopher, a Representative in Congress from the State

of Connecticut, prepared statement of ........................................................ 268

Waxman, Hon. Henry A., a Representative in Congress from the State

of California:

CRS Report ................................................................................................ 11

Prepared statement of ............................................................................... 270

Wilson, Doug,Gridley, IL, prepared statement of .......................................... 74

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RISING FUEL PRICES AND THE APPROPRIATE

FEDERAL RESPONSE

WEDNESDAY, JUNE 28, 2000

HOUSE OF REPRESENTATIVES,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 2:30 a.m., in room

2154, Rayburn House Office Building, Hon. Dan Burton (chairman

of the committee) presiding.

Present: Representatives Burton, Gilman, Morella, McHugh,

Horn, McIntosh, Souder, LaTourette, Barr, Terry, Biggert, Ose,

Ryan, Chenoweth-Hage, Waxman, Kanjorski, Maloney, Cummings,

Kucinich, Tierney, Ford, and Schakowsky.

Staff present: Kevin Binger, staff director; Daniel R. Moll, deputy

staff director; David A. Kass, deputy counsel and parliamentarian;

Mark Corallo, director of communications; Caroline Katzen and Nicole Petrosino, professional staff members; Kimberly A. Reed, investigative counsel; Lisa Smith Arafune, chief clerk; Robert A.

Briggs, clerk; Robin Butler, office manager; Michael Canty, legislative assistant; Leneal Scott, computer systems manager; John Sare,

staff assistant; Corinne Zaccagnini, systems administrator; Phil

Schiliro, minority staff director; Phil Barnett, minority chief counsel; Kristin Amerling, minority deputy chief counsel; Ellen Rayner,

minority chief clerk; and Jean Gosa and Earley Green, minority assistant clerks.

Mr. BURTON. Good afternoon. A quorum being present, the Committee on Government Reform will come to order.

The ranking minority member, Mr. Waxman, is on his way. He

intends to make an opening statement, but since we are under severe time constraints because of floor action, we need to get started. We anticipate that within 2 hours we will probably have another vote or a series of votes, and I want to make sure we get as

much done as possible.

I ask unanimous consent that all Members’ and witnesses’ written opening statements be included in the record, and without objection, so ordered.

I ask unanimous consent that all articles, exhibits, and extraneous or tabular material referred to be included in the record, and

without objection, so ordered.

I ask unanimous consent that questioning in this matter proceed

under clause 2(j)(ii) of House rule 11 and committee rule 14, in

which the chairman and ranking minority member allocate time to

members of the committee as they deem appropriate for extended

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questioning not to exceed 60 minutes equally divided between the

majority and the minority, and without objection, so ordered.

I am not going to make a long opening statement today because

of the time constraints. We all know what the problems are, so I

don’t think we need to speak at length.

The price of gasoline has gone through the roof this year. The entire country has been hit hard, but nobody has been hit as hard

as the Midwest. In Chicago, the price of gasoline has reached $2.30

a gallon. In Milwaukee, the price reached $2.20 a gallon. Other

parts of the Midwest have been hit almost as hard. In my hometown of Indianapolis, we have been paying over $1.70 a gallon.

We haven’t seen anything like this since the oil crisis of the

1970’s. In fact, it wasn’t that long ago that people in most areas

of the country were barely paying $1 a gallon. This problem has

an impact on the entire economy. The cost of fuel is factored into

almost everything we buy and sell: bread, food, meat, potatoes, ice.

We have a person here from the ice industry. Every product that

we sell is affected by the gasoline prices.

But it goes beyond that. When gas prices skyrocket, it can be

devastating for families as well as small businesses. We are going

to hear from some of those people in our first panel.

We are going to hear from a small businessman from my hometown of Indianapolis. We are going to hear from an electrician from

Ohio. We are going to hear from a man who runs a trucking company in Pennsylvania, and we will hear from a woman who runs

a dairy farm near Chicago. We will hear from a farmer from Illinois as well.

The questions before us are pretty simple: Why did this happen?

Could anything have been done to prevent it? What is being done

to get prices back down to a rational level? And what can be done

to prevent something like this from happening again in the future?

Lots of explanations have been offered: OPEC cutbacks, rising

demand, reformulated gasoline, and transportation bottlenecks. I

think it is fair to say that this sudden eruption caught everyone

asleep at the switch. I think it is also fair to say that this administration has not had an effective energy policy.

For instance, I have real questions about the way we have handled OPEC, the oil-producing countries, over the last several years.

When oil prices were at an all-time low last year, Secretary Richardson went over to the Middle East. According to media reports,

he encouraged OPEC nations to start raising prices. There is apparently some dispute over exactly what he said at those meetings,

but I will read to you what the Saudi Arabian Oil Minister said;

He said that Secretary Richardson had ‘‘saved the oil industry’’

during that visit because his intervention had persuaded the

Saudis to change policy by raising prices. So we will ask the Secretary about that today.

Raising prices is exactly what they did. In the last year, they

raised prices from $10 a barrel to $34 a barrel. I don’t understand

why it is in our interest to encourage OPEC nations to raise prices.

I read Secretary Richardson’s opening statement from yesterday’s hearing. He says that free market forces are the foundation

of the Clinton administration’s energy policy. Now, I don’t see how

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encouraging OPEC to artificially restrict supply and raise prices is

a free market policy. It is certainly not a pro-consumer policy.

When OPEC’s cutbacks got completely out of hand and gas prices

went soaring this spring, Secretary Richardson was sent back to

the Middle East to try to get them to bring prices back down by

increasing production. Judging by the prices at the pump, this trip

was not nearly as successful as the one that raised prices.

My question is: How much leverage do we have with OPEC? We

were there in the Persian Gulf war when the Gulf nations needed

us. Now where are they now?

These are all issues that we are going to discuss with Secretary

Richardson. I know that he is making the rounds from one committee to the next this week, and I appreciate that he has carved out

a little time for us to be with us here today.

We are going to talk a great deal about reformulated gasoline

today. Is reformulated gas behind the price spikes and supply disruptions in Chicago and Milwaukee? According to the EPA, the

phase 2 requirements for reformulated gasoline add about 5 to 8

cents to the cost of a gallon of gas. However, according to the Congressional Research Service, that figure is more like 25 cents in

Chicago and Milwaukee. So where did the extra 17 cents come

from?

How much has reformulated gasoline added to the problems in

the Midwest? We will be going over that issue at length with Carol

Browner from the Environmental Protection Agency during the second panel. I know several of our members from the Midwest are

eager to discuss the reformulated gas issue with her, and we appreciate the fact that she will be with us today.

We are also going to hear from the chairman of the Federal

Trade Commission, Mr. Robert Pitofsky. The FTC has started an

investigation into the gasoline price increases, and we look forward

to hearing his testimony as well.

In our third panel, we will hear from Mr. Red Cavaney from the

American Petroleum Institute and Mr. Eric Vaughn from the Renewable Fuels Association. We appreciate their being here as well.

Now, there is one point that I want to touch on briefly, and I

hope my colleagues on the Democrat and Republican side listen to

this because I think it is very important, and that is the issue of

natural gas. We have an abundant supply of natural gas in this

country, approximately a 500-year supply. It is inexpensive, it is

clean-burning. So why is it we can’t get people to convert to natural

gas automobiles? There are a number of countries around the world

where natural gas vehicles are very popular: Argentina, Germany,

Italy. In those countries, you can find natural gas at gas stations

all over the country.

Since 1990, many gas stations in California have carried natural

gas, but in this country, outside of California, you can’t find it anywhere. There is a system that lets you refuel a natural gas car

right at your own home. There is a special system of nozzles that

you can attach to the natural gas supply in your home and refuel

your car overnight while you sleep, and the cost is about one-third

of the cost per gallon of gas.

Natural gas costs, as I said, are about one-third of the cost of

gasoline. It pollutes less and we have an abundant supply. So I

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don’t know why we don’t take advantage of that. Of course, it

makes a lot of sense, so it probably won’t ever happen.

Let me just say a couple of things in closing. These problems that

we are experiencing aren’t going to go away by themselves. We

need to have a comprehensive energy policy, or these problems are

only going to get worse. We don’t have a comprehensive energy policy right now, and the administration needs to address that.

I have had a chance to review Secretary Richardson’s schedule

for most of this year. It looks like to me he is traveling all the time.

I see a lot of political events on his schedule. I tried to get a meeting with him 2 weeks ago to talk about the situation regarding the

espionage or alleged espionage at Los Alamos, and I couldn’t get

a meeting because he was traveling. He couldn’t testify before the

Senate Intelligence Committee because of his travel schedule.

I think we need to ask some tough questions about who is minding the shop. I think we need to completely re-evaluate our approach to dealing with the OPEC countries. I think we need to

completely re-evaluate our approach to reformulated gasoline. I

think the complexity of all these different formulas of gasoline is

just overwhelming to our distribution system. I also think that we

need to get serious about using natural gas as an alternative gasoline in our cars, like they do in many other countries.

I think we are obviously going to have some disagreement on

some of these issues. I am sure we won’t resolve many of them

today. But if we don’t accomplish anything else today, I would like

to get an answer to this simple question. Fall is right around the

corner. What is being done by this administration to make sure we

don’t have a repeat of this calamity during the home heating fuel

season? And what is being done to make sure that we don’t have

a repeat of this crisis situation next summer?

And, with that, Mr. Waxman, I will be happy to yield to you for

an opening statement.

[The prepared statement of Hon. Dan Burton follows:]

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Mr. WAXMAN. Today’s hearing addresses an important topic: Why

are gasoline prices so high, especially in the Midwest? There are

some things we know about this issue and many that we don’t. I

hope this hearing will shed light on some of the unanswered questions.

But let me begin by reviewing what we know. First, I think it

is clear that environmental requirements are not the cause of high

gasoline prices. The chairman and other Republican leaders have

tried to blame the Clean Air Act and the Environmental Protection

Agency for high gas prices. They say that reformulated gasoline is

a lot more costly to make than conventional gasoline, forcing fuel

prices up. But they are simply wrong.

I know something about the reformulated gasoline provisions of

the Clean Air Act because I was one of the principal authors of

those provisions. The record shows that the reformulated gasoline

provisions of the 1990 act have been an enormous success. Since

1990, emissions of volatile organic compounds, the main source of

urban smog, have decreased by 20 percent. Average levels of urban

smog have dropped by 9 percent. At the same time, the Clean Air

Act is responsible for reducing emissions of hazardous air pollutants by over 800,000 tons annually.

One of the single most important factors in achieving these reductions has been reformulated gasoline. As a result of reformulated gasoline, emissions of smog-forming pollutants have been reduced by 105,000 tons annually, and emissions of toxic air pollutants have been reduced by 24,000 tons annually. The levels of benzene, a known human carcinogen, declined by 38 percent in urban

areas that introduced reformulated gasoline in 1995. And these reductions have been achieved at an extremely low cost.

Republican leaders are saying that reformulated gasoline is causing high gas prices, but the fact is that across most of the Nation,

the average retail price of a gallon of reformulated gasoline is less

than the average retail price of a gallon of conventional gas.

Let me repeat this point because it is something that people

ought to take note of. The retail price of reformulated gasoline is

often less than the retail price of conventional gasoline. If the Republicans were right, this would be impossible. Reformulated gasoline would be much more expensive than conventional gasoline, but

the fact is reformulated gasoline costs most motorists less than conventional gasoline.

There are other essential facts that are often overlooked in this

debate. We will hear today that reformulated gasoline is different

in Chicago and Milwaukee than in many other parts of the country.

In other parts of the country, reformulated gasoline is made with

MTBE. In Chicago and Milwaukee, it is made with ethanol. We

will hear today that it is the ethanol requirement that is driving

up Midwest gasoline prices. Part of this is true. Reformulated gasoline in Chicago and Milwaukee does use ethanol. But it is not true

that the Clean Air Act or any other Federal law requires the use

of ethanol in reformulated gasoline in Chicago and Milwaukee. In

these areas, under Federal law it is perfectly legal for the oil companies to seek to use reformulated gasoline that uses other

oxygenates if they wanted to.

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Now, why do the oil companies use ethanol in reformulated gasoline in Illinois and other Midwestern States? They do this because

these States grow a lot of corn. These States have passed State

laws that give tax breaks and other incentives that encourage the

use of the ethanol in fuel. So it can’t possibly be Federal ethanol

requirements that are responsible for high prices in Chicago and

Milwaukee since there aren’t any. There aren’t any Federal laws

that require the gas to be changed in those two areas when they

do their reformulated gasoline. It is State laws to satisfy the corn

growers that require the ethanol to be used.

Moreover, it is doubtful that ethanol is the cause of high prices.

Detroit uses conventional gasoline, not reformulated gasoline. But

this week the price of conventional gasoline in Detroit was $1.93

per gallon, 7 cents more than a gallon of reformulated gasoline in

Milwaukee. Republicans have said that Congressional Research

has found that reformulated gasoline is the cause of high prices.

Well, the CRS has a new report out today, and I want to share this

report with my colleagues and to read about what it says.

As of June 19, RFG—reformulated gasoline—prices in Chicago

and Milwaukee, which are determined not only by cost of production but more directly by the supply of and demand for gasoline locally, were 50 to 58 cents above reformulated gasoline prices elsewhere. Not all of this difference can be attributed to the RFG requirements or the use of ethanol. In fact, non-reformulated gasoline

sold in areas near Chicago and Milwaukee is priced well above

comparable gas sold elsewhere. More recently, the RFG price differential in the area appears to be diminishing significantly.

That is part of what CRS said, and then they also went on to

say the RFG program by itself has caused only limited price increases in other markets on the order of 2 to 8 cents per gallon,

which is the range currently in effect as the prices in the Midwest

decline.

[The information referred to follows:]

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Mr. WAXMAN. If reformulated gasoline is not the cause of high

gas prices, what is? Well, one cause that has been mentioned is the

temporary shutdown of explorer pipeline in March. This is a possible cause. But as we will hear from Federal officials today, it does

not seem likely that the pipeline is a major cause of high prices.

In fact, I understand that the pipeline has unused capacity and

could ship more reformulated gasoline to the Midwest if the oil

companies asked it to do so.

Another possible cause is price gouging by the oil companies. It

is clear that the high prices of fuel in the Midwest mean millions

more in oil company profits. But the fact that oil companies are

earning record profits does not necessarily mean they are violating

the law. If the shortage of gasoline in the Midwest is due to a legitimate cause or causes, oil companies’ profiteering may be improper, but it would not be illegal.

I requested that the chairman invite the CEOs of the major oil

companies to testify today so that we could get answers to these

questions, but they have refused to attend, and the chairman has

refused to subpoena them, even though on this committee the

chairman could issue a subpoena, and they would have to show up.

But he didn’t choose to issue subpoenas to the CEOs of the oil companies. He wanted to make sure he got Bill Richardson here to

beat up on him. But what about the CEOs of the oil companies?

Some on the Republican side have criticized the administration

for seeking a Federal Trade Commission investigation into oil company behavior, but this is exactly what is needed. There is clearly

much more that we need to learn about why prices spiked up in

the Midwest. The Federal Trade Commission has the expertise and

experience needed to provide answers. And so you wonder why they

would criticize the administration for asking the FTC to look at

this issue.

There is one final point I wanted to address. It is Congress’ role

and responsibility in this matter. Unfortunately, energy policy is an

area where we simply haven’t done our job. And I don’t say that

in a partisan way. Congress hasn’t done its job. The Democrats and

Republicans have not done the job. The administration has proposed numerous initiatives that would have increased energy efficiency and reduced our reliance on imported oil. These initiatives

include tax breaks to promote the purchase of fuel-efficient vehicles, the creation of heating oil reserves, and research partnerships

with the auto industry.

But Congress has repeatedly blocked these initiatives. In fact, we

have even let the President’s authority to deploy the Strategic Petroleum Reserve expire. So the President can’t act on his own because Congress took away his authority to have that reserve of oil

now made available in this crisis of high oil prices.

The leadership in Congress is good at pointing fingers, but they

rarely seem to accept responsibility for their mistakes. In this case,

however, Congress would serve the public better if we did less

blaming and more legislating.

Mr. Chairman, that completes my statement. I look forward to

hearing from the witnesses. I want to explain to the witnesses that

what we have going on today in the House is a three-ring circus.

On the floor is an important legislative fight on prescription drug

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benefits for Medicare where, again, we are not even talking about

how we can resolve our differences and pass a bill. We are only

pointing to the differences and fighting over what the American

people want us to stop fighting about and start legislating. And so

some of us have to be on the House floor. There are other committee meetings as well. So I apologize to the witnesses if I am not

here when they make their oral presentation. But we are going to

have the whole transcript and record, and I hope the chairman will

even let us ask further questions for the record so we can have this

hearing record as complete as possible.

I say a three-ring circus. Ironically enough, we have three rings

in the circus on this issue because the Commerce Committee of

which I am a member has held a hearing, this committee is holding

a hearing, and the Judiciary Committee of the House is holding a

hearing.

I guess the American people are concerned about this problem,

but so far all three committees are holding hearings trying to

blame somebody. Let’s take responsibility. Let’s understand the

facts. Let’s act. And let’s act in a bipartisan way to do something

to help people who are suffering from these high oil prices.

Thank you.

Mr. BURTON. I would like to correct one thing. We do not have

people from the major oil companies here today, but like Chairman

Gilman, chairman of the International Operations Committee, we

will probably have another set of hearings, and we will ask the people from the oil industry to come in.

We do have some of the representatives of the oil industry here,

however, but the people from the major oil companies will be asked

to testify in the not too distant future.

Mr. GILMAN. Mr. Chairman, I will reserve my opening for Secretary Richardson.

Mr. BURTON. Chairman Gilman reserves his time.

We are going to recognize members for opening statements. What

is the order we have here? I thought we were going to go with Mrs.

Morella. Is Mrs. Morella here? Since everybody arrived at the same

time—— Mrs. MORELLA. Mr. Chairman, I do have an opening statement.

I hope to learn from this committee and the panels that we have

assembled. But I am going to ask unanimous consent to have the

opening statement put into the record since so many Members are

interested and it would take too long to hear all the opening statements.

[The prepared statement of Hon. Constance A. Morella follows:]

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Mr. BURTON. I thank the gentle lady.

Mr. Ryan, I understand, has to go to a markup, so we will—oh,

excuse me. We will go to you right after we go to the Democrat

side. Do you have an opening statement, Mr. Tierney?

Mr. TIERNEY. No, Mr. Chairman. Thank you.

Mr. BURTON. Mr. Ryan.

Mr. RYAN. Thank you, Mr. Chairman. Thank you for considering

my markup.

As Mr. Waxman said, we do have a lot going on today. I would

like to make an opening statement because I represent southeastern Wisconsin. We are right smack dab in the middle of the Milwaukee-Chicago area, so I would like to talk about this issue a little bit, if you don’t mind.

Half of the district I represent is in the EPA designated ozone

non-attainment area. The other half is not. Reformulated gasoline

is the most important issue to my constituents in southeastern

Wisconsin at this time, and it has been that way for over a month.

And they want to know why they are paying gasoline prices that

on average are 40 cents a gallon more than anybody else is paying

in the United States.

Now, along with Jim Sensenbrenner and I, we commissioned a

report from the CRS, the nonpartisan research branch of Congress,

which has been widely cited today, and I think there is a copy

floating around, and this report goes into the issue of why we are

paying these his gas prices. Nowhere in this report is collusion and

price gouging listed as an underlying cause for high gas prices.

Now, I think it would be shortsighted for anyone on this panel

to suggest that it is not happening. That is the whole purpose of

an FTC investigation, one that I, along with all members of the

Wisconsin delegation, asked for. And I think Mr. Pitofsky is coming

here to talk about that. So I think it is shortsighted for anybody

here to allege with authority, with knowledge, that price gouging

is occurring. But on the same point, you can’t say it is not occurring. So let’s put that one aside and hear from the FTC when they

come up here.

But, also, I have an internal EPA document dated June 5th of

this year which was written by a policy director to Deputy Secretary Glauthier, and please forgive me if I have mispronounced

his last name. This memorandum summarized the rapidly increasing gas prices in the Milwaukee area as a supply problem: ‘‘high

consumer demand and low inventories.’’

The EPA memo then gets more specific. ‘‘The Milwaukee and

Chicago area supply situation is further affected by, one, an RFG

formulation specific to the area that is more difficult to produce;

two, higher regional demand; three, higher regional refinery utilization rates; four, limited alternative supply sources, limited transportation links; and, seven, lower gasoline inventories relative to

the rest of the country.’’ A supply problem, an RFG problem, an

ethanol problem, a convergence of many factors that the EPA in

their own memo cites on June 5th.

Now, again, nowhere in this EPA’s memo is their explanation for

Wisconsin’s gas prices is collusion for price gouging. That is what

the FTC is investigating.

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But many members who have been following this issue, especially those of us from Illinois and Wisconsin, know that Wisconsin

and Illinois use ethanol instead of MTBE, which makes the phase

2 RFG blend relatively more expensive than the rest of the country.

This is because refiners must make the vapor pressure lower, and

as well, according to the EPA document, ‘‘remove a greater quantity of the high volatility gasoline blend stocks that was removed

for Phase 1 RFG.’’ The effect is that RFG–2 gasoline production

processes will yield less gasoline overall than RFG–1 processes.

It goes on and on. I will summarize what the EPA memo says.

Basically they saw this coming. They know that we had a unique

problem in the upper Midwest. They know we used ethanol. They

know we had all of these converging market forces coming to bear,

and we moved forward with this RFG mandate.

On May 23rd, the petroleum marketers petitioned for a waiver

from this mandate in the upper Midwest. I, along with Senator

Herb Kohl, Senator Russ Feingold, and Jim Sensenbrenner, also on

that date petitioned the EPA for a waiver from this mandate, foreseeing that these factors would occur. The EPA’s own internal documents suggested this would occur. We had a unique situation in

Wisconsin and in Illinois that we thought would lead to a very high

spike in gas prices. The EPA in turn said no. The only shot that

is going to occur with RFG is a 5 to 8-cent-a-gallon gasoline increase. That didn’t happen; 40 cents a gallon increase.

So what I would like to know is, A, why, when you had this internal documentation, which was then followed up with this most

recent CRS report, did you continue on with the RFG mandate

when you suggested that it was going to be a 5 to 8-cents-a-gallon

increase, when it was actually about a 40-cents-a-gallon increase?

Why, when we had this knowledge within the EPA, within the

other branches of our Federal Government, did we move forward

with this? And why were our requests for waivers, until we could

get a handle on this situation, denied? That is what I would like

to know today.

This isn’t finger pointing. This isn’t blame shifting. This is simply a review of the facts that took place over the last 2 months,

and I think that really speaks to the heart of the issue, and that

is what the constituents that I represent in southeastern Wisconsin

want an answer to. And I hope that we can dig into that in this

hearing.

Mr. BURTON. I understand, Mr. Ryan, you have to go to another

markup, but if you can get back here, perhaps you can put those

questions to the head of the FTC.

Mr. RYAN. I would like to do that.

Mr. BURTON. Thank you.

Mr. Kanjorski.

Mr. KANJORSKI. Thank you, Mr. Chairman.

Mr. Chairman, I want to thank you for having this hearing, because I think if nothing else, we will have an opportunity to look

at what are the potential causes of some of the problems in the energy field today, but they just have not happened in this last

month, and they have been going on in the country for about 6

months. I know that the northeast portion of the country suffered

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from the same problem with heating oil and diesel fuel in the late

winter of this year.

And I have been trying to look around and see where is the problem and where is the fault that can be laid? And I conclude that

there isn’t any one single individual or group that can be identified,

and I am not sure even if the word ‘‘fault’’ is the correct word. It

is the system that is working.

And I think my friend from Wisconsin put his hand on it. He

talked about his CRS study, and he laid out that there is a shortage of supply, and of course, there is an increased demand in the

summer. And if we go back to our basic economics, we know that

supply and demand usually fix price, and short of rationing or

some other methodology to reduce demand, price is used to contain

demand. And as the price—if you have 90 percent supply for 100

percent demand, that 10 percent spread exacerbates the price

sometimes by as much as 50 or 100 percent, because the marketplace will raise the price until the demand decreases consistent

with the amount of supply available. That would mean that oil

companies significantly could raise their profits from, say, 10 percent to as much as 30 or 40 percent, and legitimately argue that

it is the marketplace, supply and demand, and they are correct.

Our problem is: does that constitute gouging, and are we as a

Congress and the American people going to accept the responsibility for this tremendous deficit in supply and the ever-increasing demand that is out there without some of the concomitant investments that are necessary in refining capacity, new sources of field,

encouragement in the field. But nevertheless, if we leave it as a

free-market system, you could end up with a $3 or $4 a gallon gasoline, whose price would be driven by a limited supply, and overwhelming demand, particularly in summer months or areas of excessive use.

So we have to, as a Congress, be looking at long-term policy increased in all the new fuel sources, and potentially excess profits,

because that price, although it is a free-market-arrived-at price,

will exacerbate profits to extraordinary proportions. And I think

some of the testimony today is going to reflect that some of the oil

companies in the United States have shown 300, 400, 500 percent

increase in profits. It is not because they invested any more money.

It is not because they did anything other than the fact that they

had a limited supply for an overwhelming demand, and price

reaches its own level, and as a result, their profits go up inordinately.

Now, I do not think it would be fair for any of us to condemn

the petroleum and gas industry of the United States. I think to be

rational, to a large extent, we have had cheap gasoline as a matter

of national policy for a long time. We should try and keep gasoline

and diesel fuel at a reasonable rate, because it does fuel what has

been the world’s most successful economy.

But on the other hand, I agree with the ranking member of the

committee, Mr. Waxman. We in the Congress know that in prosperity there are more cars sold, more homes built, and more use of energy, and for the last 20 years in this country we have totally neglected a structured national policy to either provide a larger supply or make more efficient the use of the supply that we have so

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we can bring the demand down that it is affordable to the average

person or to the small businessman. I think that is what the direction of this hearing should be about. That is why I commend the

chairman.

I just want to raise one other question, and that is, if we think

we have problems today with gasoline and diesel fuel prices,

whether it is in the Middle East or anywhere else, we ain’t seen

nothing yet until we get to electricity and the overwhelming demand and increase of demand for electricity in this country and the

limited supply that is out there. Everyone I have talked to in the

field project brown-outs this summer. As we find deregulation of

the energy field and electricity occurring across this country, again,

price is going to be arrived at by the forces of supply and demand,

and that means very high price, and in some people’s vernacular,

that could constitute gouging for excessive profits. And I think if

we can’t arrive at an energy policy, at least we ought to arrive at

a policy that we don’t reward people getting excessive profits because of the flotation of price as a result of limited supply and excess demand. And if we can keep our eyes focused on that effort,

I think we can do some good by coming up with some new policy.

If we try and find fault and point fingers, as we traditionally have

done in these last several Congresses, we will not have done the

people’s business. Thank you.

Mr. BURTON. Thank you, Mr. Kanjorski. I understand Mrs.

Biggert has to go to a mark-up as well, so we will ask Mrs. Biggert

to make her statement real quickly.

And I understand you are going to do some of the questioning,

Mrs. Biggert, so will you be able to be back? OK, Mrs. Biggert.

Mrs. BIGGERT. Thank you, Mr. Chairman. I represent a suburban

Chicago district, and as we all know, the Chicago area now faces

the highest gas prices in the Nation, and this is not a distinction

of which we are proud or happy. Chicago area residents have heard

all about the numerous and complex factors that influence what we

pay at the pump for a gallon of gasoline. They have heard about

petroleum industry consolidation, pipeline distribution, the Unocal

patent, retail competition, State and local taxes, government regulation and OPEC.

What they have not heard is why they in particular are paying

the highest pump prices in the 48 contiguous United States. Any

and all of these factors may be contributing to the high price of

gasoline today, but as members of this committee, it is our primary

responsibility to focus on the issues of Federal responsibility. In

particular, we want to know what role the Federal Government has

played through its actions or through its inaction, precipitating the

increase in gas prices in the Midwest and throughout the Nation.

I want to be assured that it is not Federal regulation or Federal

interference in the market that has forced the price of gasoline sky

high in the Midwest. I want to hear that our Federal agencies have

done everything possible to insure that no Federal program, no

agency, bureau or office, and no bureaucrat has precipitated the

spike in the price of gasoline in my home State. I don’t believe the

administration witnesses here today can give us these assurances,

but I challenge them to try.

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Immediate action is what is needed. Individuals are struggling

with the burden of high gas prices, as are businesses like Oberweis

Dairy, an independent dairy processor that delivers its wonderful

ice cream products to consumers throughout Illinois. I am very

thankful that the CEO of Oberweis Dairy, Elaine Oberweis, is here

today to share with this Congress the hardship her business faces

under the added burden of high gas price.

I hate to say it, but we saw this coming, and the administration

should have seen it coming too. For the past year the Illinois delegation has been warning EPA that the new regulations for the second phase of the RFG Program would seriously impact the price of

gasoline in Illinois. We held hearings in Illinois. We had meetings

in Washington, DC. We offered solutions to avoid the situation.

And still the EPA did nothing. Everything would be fine, we were

told. Well, things are not fine, and we are not happy.

And as the non-partisan Congressional Research Service Report

indicated last week, we now know that our warnings, unfortunately, were right on the mark. CRS reported that at least 25 cents

of the increase in the price of gasoline in the Chicago area is directly attributable to these new RFG programs and regulations,

and still there is no action from the EPA. Last week Administrator

Browner was quick to assert that the wholesale price of gasoline

dropped on the same day the FTC announced a formal investigation into collusion on the part of the Nation’s oil refiners. Yet there

was no comparable quick-fire assertion made by EPA when the

price of gasoline began to rise with the implementation of phase II

of the Reformulated Gas Program on June 1st. What is especially

disappointing about the EPA’s inaction is that it could result in an

erosion of support of the RFG Program, which has successfully improved the quality of Chicago’s air. The EPA and the Clinton administration can point fingers at the oil companies, but at some

point they had better look in the mirror. Too many government

regulations affect the price of gasoline, which is why the actions of

the DOE and EPA must be scrutinized. There are Governors and

State legislatures, like mine in Illinois, that are right now going

back for special sessions, all for the purpose of providing relief to

gas customers by way of a moratorium on their State gas taxes.

They are forced to take this extraordinary action of sacrificing

badly needed road improvement funds in order to give consumers

at the pumps an extra 10 or 20 cents per gallon relief. These extraordinary actions would not have been necessary. These sacrifices

would not have to be made. These road improvement funds would

not be foregone if only agencies like the EPA had heeded the warnings and done their job.

I want to thank all the witnesses for being here today. It is about

time that we put on record what kind of adverse impact these high

gas prices are having on individuals and small business owners

across America. Thank you, Mr. Chairman.

Mr. BURTON. Thank you, Mrs. Biggert. I believe Mr. Kucinich

was the next one. Mr. Kucinich.

Mr. KUCINICH. Thank you very much, Mr. Chairman, for holding

this hearing, and glad we have so many Members of Congress here,

and thanks to the panelists.

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I think the public knows intuitively what is going on. You don’t

have to be an economist. You don’t have to be a Member of Congress. You don’t have to work at a gas station. People know when

prices go up 25, 30, 40 cents within a few days, that someone is

taking advantage of them. There is no shortage of gasoline, the

supply of gasoline. We know the oil companies had made substantial profits from 1999 to year 2000, the first quarter. The public understands this. And the average person, who is just trying to make

ends meet, trying to support a family, who relies on a car in this

automobile culture, who is stuck with primarily one source of fuel

for their cars, understands they are a captive right now of the oil

industry, and that this government has a responsibility to challenge the private sector’s pricing practices, to examine where the

laws of supply and demand have gone awry, to ferret out all areas

where the public has been cheated in the last few weeks, and to

make sure that there is some remedy brought forward, such as a

windfall profits tax.

But that is not going to be enough. We need to encourage the development of new technologies which are energy efficient, so we are

not back here year after year at committee rooms, talking about

what we are going to do about rising oil prices. We need ultra efficient engine technologies and ultra efficient fuels which will enable

people to have alternatives, so we are not captive of the oil companies, and so this country can move toward sustainability and not

be captive to foreign oil.

But does anyone in America doubt that the oil companies have

taken advantage of the American people? Perhaps only the oil companies doubt that. But the American people know what happened.

They know, and particularly in the Midwest, and in Cleveland

where I come from, they know they are being cheated, and they

want their government to do something about it. And to the FTC,

who is on the second panel, I am not satisfied with the conduct of

the FTC approving merger after merger after merger, and pretending that is not going to have an effect on the marketplace.

So I am looking forward to the discussion here today, but people

in my district already know what this is about, and they expect the

government to be a little bit more active in surveillance of the pricing practices of the oil company, and they expect their government

to stand up to protect consumers so that we are not at the mercy

of oil companies, who will take advantage of anything in the marketplace to sock it to the consumers. Thank you.

Mr. BURTON. Thank you, Mr. Kucinich. Before you leave, could

I talk to you just a second, Mr. Kucinich?

Mr. KUCINICH. Yes, sir.

Mr. BURTON. Mr. McHugh.

Mr. MCHUGH. Mr. Chairman, I am going to follow the lead of the

gentle lady from the great State of Maryland and withhold my

statement for the moment. I always appreciate hearing from my

colleagues, but frankly, we are going to be around here where I can

hear that any time. I would like to hear from these good folks, so

I will yield back.

Mr. BURTON. Do we have any other members on the Democrat

side? Who was next, Ms. Schakowsky or—OK, Danny, go ahead.

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Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Chairman,

and let me commend you for holding this hearing to examine the

causes for the rise in gasoline prices and generalize the impact of

the high gasoline prices on the U.S. economy. I also want to thank

the witnesses for coming to share their knowledge and expertise.

Mr. Chairman, the current gasoline prices in the Midwest especially are totally unacceptable. The good and hard-working people

of Chicago are paying $2.50 per gallon in some areas, and about

a year ago, gasoline prices in Chicago averaged about half that

much, a little bit more, and I think that this is way beyond the

pale.

With the current high prices of gasoline, we need to better our

relationship with oil-producing countries, insure research funding

for alternative energy development, and to strengthen our antitrust

law provisions, and to investigate the practices of the big oil companies.

First of all, relationships with major oil-producing countries are

critical factors for maintaining reasonable gasoline prices. The

United States need to renegotiate with these nations, and we also

need to look at the oil-producing companies, the oil-distribution

companies, the companies that get the product to the consumer.

Second, Mr. Chairman, with the current high price in gasoline,

I believe that the time to act is now. We need to approve additional

research funding for alternative energy programs, and energy

sources. We need to allocate more money in renewable energy research, for example, research in renewable ethanol as a fuel alternative. We need to find better ways to make ethanol and other

products like it more reasonably accessible to the consumer, and I

believe with our track record of technology advancement, of improvement, that we can actually do that.

And, finally, Mr. Chairman, I certainly welcome the FTC as it

looks into the practices of the companies. I am not sure that I believe that there is any one answer or that anybody’s got a panacea

to what is causing the problem to exist, but I do believe that by

putting forth a concentrated effort, looking at all of the factors that

are in fact involved, that we can come up with a strategy and a

program and a direction that will get prices down to the point

where consumers can reasonably expect to make use of them.

And so I thank you, Mr. Chairman, and yield back the balance

of my time.

Mr. BURTON. Thank you very much. Mr. Horn.

Mr. HORN. Thank you, Mr. Chairman. I did not intend to say

anything, but I am going to say one sentence, and then I will turn

back a lot of my time to the gentlewoman from Idaho, and then I

hope we get to the panel who has been long suffering.

But we in transportation in this Congress on both the Senate

and House side, often in annual bills we purchase diesel buses and

diesel school buses and all this kind of thing. It seems to me Congress could say, ‘‘Hey, let us start in trying to get the cleanest type

of fuels,’’ and there is no question we have got to invest in batteries

in this country. That is one of the major things we have not been

able to do. It needs it both for military purposes, as well as civilian

transportation purposes, and natural gas is the type of bus we

ought to do. That is clean fuel, and frankly, I get tired of the diesel

34

smoke in my face as I am driving behind buses and trucks and all

the rest of it. So I think we ought to think in those terms.

And I now yield the rest of my time to the gentlewoman from

Idaho.

Mrs. CHENOWETH-HAGE. I thank the gentleman from California,

and I will just summarize my opening statements by asking the

question: how much does this administration’s environmental policies impact the price of oil and gasoline?

I found it interesting yesterday, Mr. Chairman, in the Washington Times, that it was quoted inside the Beltway that Paul R. Ehrlich and Anne Ehrlich, who wrote a book entitled ‘‘The Population

Explosion’’ and published it in 1990, on page 219, is quoted as saying in the book: ‘‘The United States could start by gradually imposing a higher gasoline tax, hiking it by 1 or 2 cents per month until

gasoline costs $2.50 to $3.00 per gallon, compared to prices in Europe and Japan.’’ And then on the dust cover, on the inside of that

book, was a statement written by our now Vice President Al Gore,

who is quoted as saying, ‘‘The time for action is due and past. Ehrlich has written the prescription.’’ And, Mr. Chairman, I am wondering how much the environmental policies of this administration is the prescription. We can

sit here and point fingers at each other, but there is a major problem with this administration’s environmental policies. We are now

56 percent dependent on the unstable OPEC nations for our oil resources, and we are sitting on top of great resources in this country

at ANWR and multiple-capped oil companies, that because of the

environmental policies, we are not able to develop.

So that will end my oil statement, Mr. Chairman, but I would

like to ask permission that my entire statement be entered into the

record.

Mr. BURTON. Without objection. Thank you, Mrs. Chenoweth and

Mr. Horn.

[The prepared statement of Hon. Helen Chenoweth-Hage follows:]

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Mr. BURTON. Ms. Schakowsky.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. I appreciate the

patience of the panel.

We have been suffering in Chicago from some of the highest gasoline prices, and I just wanted to briefly tell you my take on this,

because I have really been puzzling over why our prices in Chicago

and Milwaukee have been so much higher than everywhere else.

We had a hearing in Chicago that was convened by Congressman

Bobby Rush last week, and at that time, what we were hearing

from the oil companies—there was a lot of finger pointing going on,

but we heard about how high the taxes are relative to other places

around the country. And that is true, in Illinois we pay higher

taxes. And then they were talking about ethanol, and that the

problem really is that we have to use ethanol. We heard about— then we came to Washington and met with some of the oil executives and we heard about supplies, and we heard about problems

with pipelines, and of course, we saw a lot of finger pointing at the

EPA and the environmental regulations.

Well, let us look at all the facts, peel away the rhetoric, and look

at what we have. And what we see is that the cost of reformulated

gasoline in all of the places around the country except Chicago and

Milwaukee areas was always about the same price as conventional

gasoline. We are talking about the fees to RFG. In Chicago, for example, these are old numbers, but June 12th, $1.62 for conventional gasoline, $1.63 for reformulated in places other than Chicago

and Milwaukee; $2.04 in Chicago and Milwaukee, a full 60-cent per

gallon difference.

Well, when the FTC began its investigation, coincidentally—and

I don’t think it really was—we began to see this precipitous drop

in the wholesale cost of reformulated gasoline with ethanol in the

Chicago area, and we have seen that drop now from, it was at

about $1.60 a gallon to now, as of 2 days ago, $1.22 a gallon. So

what could it be? We have not changed the taxes. The supplies

have been the same. The pipeline, which was a problem, was the

same fix on the 15th and the 14th as it is today. The EPA regulations haven’t changed any. It seems to me that if prices can fall so

far and so fast, that it was within the power of the oil companies

to drop those prices, and the only explanation then that makes

sense to me is that Chicago and Milwaukee, the two areas that use

ethanol the most, were being punished for their use of ethanol, a

corn-based product that the oil companies don’t make any money

off of. That is the only thing that distinguishes Chicago and Milwaukee from the other places around the country, is our use of ethanol. And it seems to me that that is where the problem lies, that

the oil companies, who have seen up to 500 percent profits this

year, this quarter this year over last year, have seen fit to use the

environmental regulations as a fig leaf to disguise their attack on

ethanol and to punish those of us in the areas that most heavily

rely on ethanol.

I hope now that we are going to continue to see a decline in the

wholesale price, that we will see it reflected at the price in the

pump, which of course for our consumers is the bottom line, and

that this hearing will shed further light on the subject. I appreciate

the witnesses’ indulgence, and I thank you, Mr. Chairman.

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Mr. BURTON. Thank you, Ms. Schakowsky. Mr. McIntosh.

Mr. MCINTOSH. Thank you, Mr. Chairman.

I have a prepared statement that I would like to put into the

record, and just make a couple minutes’ remarks.

Mr. BURTON. Without objection.

Mr. MCINTOSH. And let me focus on the Midwest, because that

is where I think the key problem is, at least where I am familiar

with it, and let me remind everyone on the committee that the Chicago market also includes parts of Indiana, particularly Lake County.

And I was up there recently, and noticed that on the Lake Coun- ty side of the border, you are paying $2.18 a gallon. You drive 2

miles south and you are paying $1.78 a gallon, whether or not in

that non-attainment zone and don’t have to use reformulated gas.

So there is a price difference, and unlike the East Coast or the

West Coast, it costs a lot more to use this reformulated gas.

I think what we need to keep in mind is that an economic analysis of this explains what is going on pretty simply, that the demand

curve for gasoline is very inelastic. Put into English, that means

people are willing to pay a lot more for the same amount of gas,

because they need to fill up in order to drive to work and buy groceries and use it in their car. Therefore, when the supply goes

down and the demand is still high, you get a spike up in the price.

That is what has happened here. That is what is referred to by

some of the members as gouging.

The solution to that is one of two things. People use less gas so

you reduce the demand, or suppliers find alternative supply and increase the supply, and that will then cause a decrease in the price.

When you break down according to the CRS study, which is confirmed by the memo that Mr. Ryan introduced today from EPA,

and frankly, confirmed by the subsequent CRS study that Mr.

Waxman mentioned, you look at the price of gas in the Midwest,

in the Chicago area, as well as the broader Midwest, it was $1 a

gallon roughly a year ago. It has been increased by about 50 cents

a gallon which can be attributed to the restriction of supply by

OPEC and the oil-producing countries. That gets you to about

$1.50 range. That is what people on the East Coast and the West

Coast are paying for gas, both reformulated and non-reformulated.

The restrictions in supply due to the pipelines and the fact that

there are no refineries supplying the Midwest, adds about another

25 cents to the gallon, and then the fact that Chicago and Milwaukee and Lake County, Indiana use reformulated gasoline with ethanol adds another 25 cents to the gallon.

And it isn’t 25 cents more expensive to produce that gas, the

problem is that the blend when you blend with ethanol is different

than the base ingredient for other reformulated gas using MTBE

or an oil-based product.

So, in California or New York they have a fairly large supply of

the base material, they add the oxygenate and get reformulated

gas. But in these two cities and Lake County, IN, the EPA regulations require them to produce a special blend and the supply problem comes about because of that requirement that there be a special blend that you mix with ethanol. That is what spiked up the

price by another 25 percent according to the CRS study.

39

Now, when people say that the regulations are causing the increase in the cost, that is one way to look at it. And I can understand why some of my colleagues say that can’t really be. The oil

companies are only required to spend so much money to produce

that. The rest of it is they are charging extra money for the product

that they are selling.

But if you look at it the other way that you have got this dislocation between demand and supply and the demand curve essentially

is what causes the spike in prices; people are willing to pay more

in order to get a gallon of gas when there are fewer of them

around. The regulations are causing a dislocation in the market so

that the suppliers cannot bring in alternatives to sell at a cheaper

price. And, so, the low supply causes the high price, the EPA regulation prevents anybody else coming in and supplying an alternative in Chicago, Milwaukee, and Lake County.

And that is how the government regulations have caused this

temporary crisis in the Midwest cities by not allowing the market

forces to work to bring in alternatives to that reformulated phase

II gasoline. That is what this committee should look at. That is,

frankly, what the Governors in Illinois and Wisconsin requested

EPA to grant a waiver, to say, let’s get through the summer, where

we can open up the market place, and you can have a different

form of reformulated gas come in, supply the need, and we will see

the price come back down.

Thank you, Mr. Chairman.

[The prepared statement of Hon. David M. McIntosh follows:]

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Mr. BURTON. Thank you, Mr. McIntosh.

Mr. Ford.

Mr. FORD. Thank you, Mr. Chairman.

I look forward to hearing from the panel so I am not going to

speak very long. I would say that we have all become experts here,

at least we believe we have become experts on the environment

and how these emissions may affect our environment and how you

can mix these things. I don’t claim to be that bright and I am

amazed at the intellect and the wisdom that poured on this side

regarding how EPA does its job and how the big oil companies are

conducting themselves.

I will note again for the record that I know we have a third panel

where we will have a representative from the American Petroleum

Institute, and I think the Renewable Fuels Association but I do

hope that the chairman will show the same vigor and relentlessness in bringing the CEOs of some of the large oil companies before

this committee too as he did Cheryl Mills who have been subpoenaed before this committee.

I would have to think that this issue affects more Americans

than whether or not e-mails might have been lost at the White

House, but that might be a difference of opinion on sides of the

aisle.

With that being said, I look forward to hearing from the panelists. They have taken time out of their very, very busy schedule to

be with us today and I do apologize that more of my colleagues

could not be here. This is an extremely busy day as we debate prescription drug benefits for seniors in America. And with that I yield

back the balance of my time and hope that we can get on with this

panel as well as the other panel.

And I would say one additional time, I know Mr. Waxman has

said it. I hope to hear from the heads of the oil companies, perhaps

they can explain what clearly so many on the other side of the aisle

now understand in terms of what EPA, the Clean Air Act, has required these oil companies to do. I would like for them to explain

to me how it is they are enjoying a 500 percent profit—nothing

against it, I am a capitalist also, I think the people ought to make

all the money they possibly can—but we ought to be very careful

in casting aspersions on laws that have made our air cleaner and

our water safer to drink and at the same time oil companies are

enjoying record profits.

I would also add that over the last 8 years, and as we criticize

environmental regulations, our economy is growing like it has

never grown. We are all making forecasts about surpluses we are

going to enjoy in this Nation and we are all now, both sides of the

aisle, trying to determine how we are going to spend the taxpayer’s

money. So, I would caution my friends on the other side, who suggest that somehow or another the EPA has slowed the growth of

this economy. We are growing like we have never grown before.

We face a particular crisis here, and instead of the demagoguing

that goes on, on both sides, we ought to call all of those before us

who could perhaps provide some insight and guidance as to what,

we, as policymakers ought to consider and ought to be doing to

help to bring some relief to working mothers in my district in

Memphis, in the Ninth District in Tennessee, certainly in CaliforVerDate 11-MAY-2000 10:49 Jul 30, 2001 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 C:\DOCS\73069.TXT HGOVREF1 PsN: HGOVREF1
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nia, where my friend, Mr. Ose, is from and Indiana, where Mr.

McIntosh and where Mr. Burton is from. I would hope that my colleague from Indiana, Chairman Burton will not hold too much

against Mr. Ose, since he is from California and I saw you don

those glasses on the floor, Mr. Chairman, saying that the Indiana

Pacers would defeat the Lakers. That didn’t happen. I hope that

you would not hold that against Mr. Ose in his efforts to bring relief to the residents of California.

With that, I yield back my time.

Mr. BURTON. I wasn’t going to until now.

Let me just say since we cannot run cars on missing e-mails, we

will have the people from the oil company before us.

Who is next on our side?

Mr. La Tourette.

Mr. LA TOURETTE. Thank you, Mr. Chairman.

I will try to be mercifully brief. I want to thank you for holding

this hearing today and for inviting not only the consumers that I

think are going to be the most important panel, but also the Federal agencies and representatives of the oil industry and also alternative fuels. I am also encouraged by the opening statements today

that it has not devolved into the rhetoric, the silly rhetoric that

punctuated some of the press conferences that occurred on Capitol

Hill at the end of last week.

My personal favorite, not only at the press conference but also

at a meeting that I was at with the EPA Administrator, was somehow a letter sent by the Administrator of the EPA and the Energy

Secretary caused the wholesale prices in Chicago to plummet that

very day. Apparently they sent the letter and it scared the beJesus

out of the oil companies and oil prices dropped 27 percent on the

wholesale market in Chicago.

That is a ludicrous and ridiculous observation, but it got me to

thinking because a couple of days earlier Congressman Kucinich

had sent a letter to the FTC to the chairman, as a matter of fact,

3 days earlier than the Energy Secretary’s letter, and the EPA Administrator’s letter. We got a letter back from Chairman Pitofsky

that said that he was going to launch an investigation in the Midwest. So, it occurred to me that maybe Congressman Kucinich and

I could have a press conference and take credit for tumbling gas

prices in the Midwest but that would be, I think, just as silly.

It would appear from the meetings that Speaker Hastert had

over the last couple of weeks that there have been a number of unhappy circumstances that have come together about the same time

in the Midwest and they have left drivers and consumers really

scratching their heads in my State. We have heard from some of

our colleagues from Illinois and Wisconsin, they have a pretty good

handle on it. At least they had new regulations that went into effect on June 1st for RFG–2. I would say that we have 4 out of

every 10 gallons of fuel sold in Ohio is already ethanol made with

corn and, so, I don’t suspect any vast right-wing corn conspiracy

going on at least in the State of Ohio.

But I would tell you that we don’t understand what happened to

us in Ohio on June 8th. I got a call from a guy who lives in Geneva, OH. His wife filled up at a gas station that morning before she

went to work and the gas was a $1.57. He comes home, 5 hours

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later, and he fills up at the same gas station, same pump, apparently the same gas in the tank that was there at the beginning of

the day was $1.99. There is no war, no national disaster. He

couldn’t think of anything that caused it to go up so much and he

is asking, well, OK, we understand what happened to our friends

in Chicago, we understand what happened to the folks in Milwaukee, but what is going on in Geneva, OH?

And I want to welcome Charles Bailey from Jefferson, next door,

who has experienced some of the same things from Jefferson, OH,

to talk a little bit about what he experienced. I think it is easy to

cast blame. I think it if you don’t like the Environmental Protection

Agency you can blame their regulations and say that they have

caused the problem. If you don’t like the Clinton administration

you can say that they don’t have a fuel policy and energy policy to

follow. If you don’t like the big oil companies you can accuse them

of price gouging. If you don’t like the Republicans you can say, as

some have suggested, that the Republicans are in the pocket of the

big oil companies and we don’t want to look at them.

I would hope that rather than fanning out and hunkering down

into foxholes or, in this case, oil wells, that at today’s hearing the

committee really, everybody who comes before the committee sits

back and says, maybe in this crisis I could have done something

better.

For instance, we are aware that the EPA granted, they didn’t

grant a waiver but they granted enforcement discretion to St.

Louis, Missouri, which is a fine city but also the Energy Department took a look at fuel supplies, saw they were low, as they did

for Chicago and Milwaukee, and decided not to issue enforce discretion. Well, why?

Maybe the EPA could have done better. Maybe the Energy Department could have done better. And the oil industry, I think

what happened in Ohio is that the pipelines broke. We had some

problems, shortages were low, a 15-year low. But if I am an oil

company and I can sell gasoline in Chicago for $2.20, as Mr. Kanjorski was talking about, supply and demand, why the hell would

I sell it in Ohio for a $1.60? I am going to take it up to Chicago

and sell it.

And my suspicion is that they perhaps were a little greedier in

the supply and demand situation than they needed to be. Maybe

we need to look at our PAD system that was put into place after

World War II to develop oil distribution in this country and come

up with a better way to do it.

And in the spirit of cooperativeness, and doing something constructive, the Transportation Committee is already looking at the

Explorer Pipeline and we are talking about pipeline safety. Mr.

Waxman, I think, talked about the Explorer Pipeline. It is now operating at, my understanding is, 80 percent pressure, 90 percent

capacity. And rather than saying well, you know, darn somebody,

we are looking to work with the Department of Transportation how

to get them up to 100 percent so Chicago could have more gasoline

than they know what to do with.

I thank you, Mr. Chairman, and yield back my time.

Mr. BURTON. Thank you, Mr. La Tourette.

Mrs. Maloney.

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Mrs. MALONEY. Thank you, Mr. Chairman.

First of all, Mr. Chairman, I really want to sincerely thank you

for calling this hearing because I think it is tremendously important to customers and it is a very important issue. Recently I have

been very alarmed by the incredible growth in gasoline prices

across the Nation and in my own State of New York. And these

prices have grown even though the oil supply has remained constant over the past year. As we know, on Wednesday, June 21st,

OPEC agreed to raise their oil production by 700,000 barrels a day

or 3 percent.

But what really astonishes me is the oil industry’s pathetic excuses for the increases that they have seen and the cost of gasoline

has become record highs. The oil industry profits have increased

from 200 to 500 percent over the last year. And I think that it is

no accident that when the Federal Trade Commission announced

that it would launch an investigation into whether the oil companies were engaged in price gouging the price and the cost of a gallon of gas actually dropped in the Midwest.

But what I would like to get to is—and I would like to stress that

this is standard practice for some of the oil companies. Back in

1996, Chairman Horn and I, in part of our effort to oversee the collection of Government debt, issued a report on what was owed to

the Federal Government on uncollected oil royalties for oil that is

extracted from land that is owned by the taxpayer, federally owned

land. And what I found in my studies is that there was a consistent

effort to cheat taxpayers and the Government out of millions of dollars that are owed in royalties and this money that comes in, in

royalties goes to education and to many important areas.

We had a series of hearings and there were subsequent investigations by GAO and others that really came to the conclusion

that many of the major oil companies were paying royalties based

on what they called posted prices but the price was much lower

than the market price. And we merely worked, many of us, to encourage a law or a rule that is very simple, that the oil companies

should pay the Government and the taxpayers the same amount

that they pay each other.

And because of the lawsuits that came out of these investigations

that we had in your hearings and other places, the oil industry

paid the Federal Government more than $300 million and overall

the oil companies were forced to pay over $5 billion to the Federal

Government, States and Indian Tribes. And there were many suits

against the oil companies and they settled over their underpayment. And recently the Office of Minerals and Management

Services re-wrote the rule that merely states that the oil companies

should pay to the Federal Government what they paid each other

which is market price and that will provide an additional $66 million each year to the Federal Treasury.

So, I think that is important but the reason I bring up this history of hearings and work that many of us on this committee did

on the underpayment of oil royalties shows a behavior of trying to

really rip off the American consumers and rip off the fair and just

payment.

And I can say that I am looking forward to the report that will

come from the Federal Trade Commission on how we jumped to

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500 percent increases in profits, while the supply was basically the

same in this country.

Thank you.

Mr. BURTON. Does the gentlelady yield back her time?

Mrs. MALONEY. If anyone would like to comment on that, I would

be glad to hear their comments.

Mr. BURTON. Well, we are not to the questioning phase of the

hearing yet, Mrs. Maloney.

Mrs. MALONEY. OK.

Well, I was at another meeting and just got here. So, I yield

back. I didn’t realize it was opening statements. I thought we were

at questions.

Mr. BURTON. OK. Thank you very much.

Mrs. MALONEY. Thanks.

Mr. BURTON. Mr. Barr.

Mr. BARR. I look forward to the testimony and questions, Mr.

Chairman.

Mr. BURTON. Mr. Terry.

Mr. TERRY. I will associate myself my remarks with Mr. Barr’s.

Mr. BURTON. So noted.

Mr. Ose.

Mr. OSE. Thank you, Mr. Chairman.

Before I associate my remarks with Mr. Barr, I want to remind

the chairman that I am from Sacramento and a supporter of the

Sacramento Kings, not the Los Angeles Lakers.

Mr. BURTON. Well, I would hope that in the finalists you were

rooting for the Indiana Pacers even though they were not successful.

Mr. OSE. Does Indiana have a team?

Mr. BURTON. Never mind, never mind. [Laughter.]

Would the—first of all, before we have you sworn in, I want to

thank you all for your patience. Would you all rise so I can swear

you in, please?

[Witnesses sworn.]

Mr. BURTON. Be seated.

Our panel consists of Scott Schneider, from Indianapolis; Mark

Hrobuchak. Where are you from, Mr. Hrobuchak?

Mr. HROBUCHAK. Northeastern Pennsylvania.

Mr. BURTON. Charles Bailey from Jefferson, OH; Elaine

Oberweis?

Ms. OBERWEIS. From Aurora, IL, represented by Mr. Dennis

Hastert.

Mr. BURTON. Speaker Hastert. Well, we better treat you right

then. And Doug Wilson. Where are you from, Doug?

Mr. WILSON. North central Illinois in Congressman Tom Ewing’s

District.

Mr. BURTON. Very good.

I think we will just go right down the line. Mr. Schneider is a

member of the city county council of Indianapolis and also I guess

runs the Mister Ice Co., with his father, who is a good friend of

mine.

Mr. Schneider.

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STATEMENTS OF SCOTT SCHNEIDER, VICE PRESIDENT OF

SALES, MISTER ICE OF INDIANAPOLIS, INC., INDIANAPOLIS,

IN; MARK HROBUCHAK, CEO, PRESIDENT OF MPH, TRANSPORTATION AND LOGISTICS, SCRANTON, PA; CHARLES BAILEY, JEFFERSON, OH; ELAINE OBERWEIS, CEO, OBERWEIS

DAIRY, INC., CHICAGO, IL; AND DOUG WILSON, GRIDLEY, IL

Mr. SCHNEIDER. Thank you, Mr. Chairman and members of the

committee. I would like to thank the committee for giving me this

opportunity and in particular my Congressman, Chairman Burton,

and Mr. McIntosh is also a delegate of my State. In 1964, my father realized the American dream of owning his own business.

Starting in his garage he formed a small business supplying packaged ice to local businesses for resale. Now, over 36 years later,

much hard work and sacrifice, 12 employees, and the help of his

father and those employees, the business has grown to a very successful and well-respected distributor of commercial ice machines,

and restaurant equipment.

Our family has about 7 trucks, traveling at 60 mile radius of Indianapolis, performing service and sales functions for our customers. Needless to say, gas prices, obviously, have a huge impact

on our business.

As gas prices go up, quite simply, our profits go down. Gas prices

directly affect our bottom line. But it affects much different than

if there were an increase in merchandise for resale or things of

that nature. Those prices can generally be passed on in the form

of a price increase of our own.

But it affects our company differently than normal fixed costs

that every business has. The recent volatility of gas prices especially in the Midwest has affected us and there is no way really to

recover those in the business that we are in. So, we would have to

absorb them.

Our company has two customer segments. We have a retail segment and a wholesale segment. The retail segment, most of our

customers have a long-term contract and as a short-term spike in

gas prices go up, our long-term prices cannot be changed. So, therefore, that affects directly to the bottom line.

For our wholesale customers most of those customers receive

products that we ship out by freight carrier and the freight industry is showing a lot of increase in gas surcharges and our prices

have been going up. Those prices usually are included in our discount structure, therefore, when freight prices go up our margin

also goes down and it is a thin margin to begin with.

And, consequently we are trying to order more shipments, more

items per shipment, fewer shipments, which obviously then puts a

strain on our inventory levels and strains our cash-flow. Now, fortunately, and Lord willing, we can get through this. We are a

strong company and I believe we will be able to get through a short

spike in gas prices. But given the long-term continued prices at

these levels, we would possibly be faced with cut backs and lower

margins.

The question now to me seems to be how do we correct this? And

I would like to emphasize quite, quite, obviously, that I am in no

way advocating any sort of Federal price control on gasoline. But

what I am advocating actually is that this body take at least some

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sort of action that it has the power and the control to take. I have

identified two areas that I believe have an immediate and direct

impact on gas prices. That would be No. 1 to lift EPA regulations;

and No. 2, suspend or even cut the Federal gas tax.

And, if I could, Mr. Chairman, I would like to interject, I know

that I have got, continue on with my prepared remarks, but as I

was listening to the opening remarks of the panel, the committee,

it occurred to me that really what we are looking at in my opinion

is a much larger picture and a bigger question and that is a general question of government regulation, in particular, here, the

EPA; and in general, for businesses everywhere. General Government regulation that hinders us all.

And we, as a business, are forced to deal with all kinds of Government regulation. And it almost seems at times that in order to

succeed in business we do that in spite of the Government regulations from any, every different type of department, both local, State

and national.

I am from the Midwest so I will use the analogy of a tractor pull.

It is very similar to a tractor pull where business is the tractor and

Government is the weight upon the sled in which we pull. And as

the weight of Government regulations gets greater and greater we

have to work harder and harder and spinning our tires more often

just to stay, just to sustain the pace that we are at now.

And I firmly believe that if something does not happen to Government regulation in general that businesses small and large

alike are going to stall out under the weight of Government regulation.

The question was this committee, was the rising fuel prices and

the appropriate Federal response. In my opinion, that Federal response and this committee’s response can be summed up in some

simple language and that is please, get Government off the backs

of small business and, in particular, for this committee, pull the

reins on the EPA. They are over-regulating business and in this

particular case, there is identifiable areas where the gas prices

have gone up simply because of non-attainment and those types of

things.

There is an article in a northern Indiana newspaper and Mr.

McIntosh was right on line when several of the counties in Indiana

lie in the non-attainment zone and some do not. And the headline

is, Drivers Bolt for County Lines To Fill Up Gas Tanks, because

the gas on the other side of the county line is 30 cents cheaper.

And, again, you all mentioned that there is no change in supply,

there is no change in anything other than Government regulation

by the EPA. And those effects or those regulations took effect in my

State on June 1.

So, as I was talking to some of my peers and my colleagues telling them that I was going to appear before the committee, I was

given some marching orders by several of them. And that is to

plead with you to pull the reins on the EPA and to pull back on

Government regulation in general.

Thank you very much.

[The prepared statement of Mr. Schneider follows:]

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Mr. BURTON. Thank you, Mr. Schneider, and be sure to give your

mom and dad my regards.

Mr. Hrobuchak.

Mr. HROBUCHAK. Mr. Chairman, and members of the committee,

I would like to thank you for appearing today in front of you. I

have a lot to say in a short period of time so I am going to be real

quick about it. I have been in the transportation business, trucking

business for 22 years, OK? As a refrigerated carrier, I was third

in command of the 10th largest refrigerated trucking company in

the United States at one time.

And we are located in northeastern Pennsylvania in the 11th

Congressional District and due to Mr. Paul Kanjorski I have to

thank him, Congressman, for being here. He has supported me all

the way.

You know, we heavily rely on fuel. And, you know, this is not a

problem that just happened a couple of weeks ago in the Midwest.

This problem happened 8 months ago. And the trucking industry

was struggling since then and we were promised an investigation

then and we have not seen anything. They have held hearings,

March 9, 2000. As a matter of fact, I was recommended to testify

at those hearings, and it was actually the Energy of Power and

Subcommittee hearing, chaired by Congressman Barton of Texas.

And it was on oil market price fluctuations.

I have not heard a thing. I was promised that there would be

something done. I will go further. This is not just about fuel. This

is about jobs. OK? I have over 150 employees that work for me,

owner-operators, company drivers, mechanics, office staff and administrative staff. OK? I started in 1995. I left the 10th largest refrigerated trucking company and went on my own. OK?

I started with nothing. By the year’s end I did $3.4 million. At

the end of this year I will have done $15 million in gross revenue

and sales. And it was not an easy hike and it’s not getting any

easier.

The fuel is choking the transportation industry by the throat.

And this is just by coincidence yesterday. A gentleman from the

Travel Port Centers of America stopped in my office and it’s a big

chain of places where trucks can stop and get fuel and guys get

showers and stuff like that. And he actually told me the reason the

shortage as he experienced and why fuel was so expensive up in

the New England area was because they have actually rerouted the

pipeline up into the New England area and made him ship his

trucks over to Kentucky when he was based in Richmond, VA, just

to get the fuel he needed to support his truck stops. And all that

fuel went up to the New England States.

So, I don’t believe there was a shortage there. Let me hurry on

with this.

I will address the fuel issue now. Our fuel price rose 78 percent

in the 10-day period. MPH sustained losses during this period

while our gross revenues increased 26 percent in the first quarter

of 2000, OK, in comparison to the 1999 first quarter, OK? But our

profits fell in 2000 98 percent in comparison to 1999 because of direct cause of the fuel shortage, so-called.

And all that’s really happened in my opinion is that the trucking

industry has gotten off the back of Congress and subcommittees

51

and lowered the fuel enough to where now they raise the gas

prices. And it’s raising everybody’s attention.

And they are seeing where they can get away with it. And, you

know, I have several responses to that. And I contacted everybody.

I started with Mr. Kanjorski, in the 11th Congressional District. I

contacted Senator Sherwood, Holden, Specter, and Santorum, Energy Secretary Richardson, Pennsylvania State Senator Mellow,

Pennsylvania Attorney General Fisher, Governor Ridge. I also contacted President Clinton and Al Gore, OK?

And I contacted everybody. I have been working on this since the

very beginning and I work hard and I have actually ignored my

business in spite of everything that has happened. And I take this

serious. This is my livelihood. And I have independent owner-operators that work for me which, you know, tried to be self-employed

independents and want to be the American entrepreneur with their

own little truck running around the country.

I want you to know that 80,000 trucks were returned from one

corporation in the United States that had 35 percent of the market

share, OK, was given back by the American owner-operator who

pulled freight. So, what I am trying to say there is that in my company during the fuel shortage for the first quarter is that 20 of my

employees, owner-operators had, went bankrupt, they lost their

homes, they lost their houses, they lost their cars, they lost everything because they just couldn’t live up to the fuel prices.

And we need to take immediate action. I mean immediate. We

need to do something this time. We can’t say we are going to try

to do something, OK? We need to make those parties responsible,

OK, impose taxes, OK? Not only the parties responsible but the executives of those companies responsible and hold them.

And I don’t agree with a peeling away with the Federal and

State taxes. I just want you to put a moratorium on them. Just a

moratorium on them so the trucking industry can get a grip and

get back in line where it needs to be so their bottom line can get

back on track with its profits.

OK? That is all I have to say. Thank you very much.

[The prepared statement of Mr. Hrobuchak follows:]

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Mr. BURTON. Thank you very much, and we will get back to you

in the question-and-answer period.

Mr. Bailey, if you could, you might keep your eye on that little

clock there. When it gets to ‘‘sum up,’’ you have about 1 minute

left. If you could stay within that timeframe, it would help us.

Thank you.

Mr. BAILEY. Good afternoon, Mr. Chairman and members of the

committee. My name is Charles Bailey. I live in Jefferson, OH, the

county seat of Ashtabula. It is part of the Ohio’s 19th Congressional District.

Let me begin my testimony by saying I am honored to be here

on behalf of northeast Ohio. I thank Chairman Burton for holding

this hearing and Congressman LaTourette for inviting me to testify.

I am a foster parent, I am an adoptive parent. I am probably the

closest thing you are going to see to a typical American family

here. I work as an electrician. My wife is a stay-at-home mom. I

drive 880 miles a week to and from work. I work at an outfit in

North Canton called Schaub Electric as a union electrician.

The price of gasoline has cut into my family’s budget, as it has

with everybody else in this country. We no longer have any luxuries in life, and barely have enough money to buy groceries. There

will be no fairs or festivals in my children’s lives this summer, no

amusement parks, and because we have chosen to move closer to

work and save on gas, there won’t even be many trips to grandma’s

house.

I have been chosen to tell my story about how this has affected

me and my family. But in truth, I am telling the story of millions.

Every person in this country feels the effect of the rising price of

gasoline. It has doubled in a matter of a few months and has made

the cost of living increase in more ways than just at the pumps.

Our grocery prices have gone up, due to the rising cost of delivery.

We live close to Lake Erie, and the Great Lakes, and I have seen

this effect at marinas, as far as fishing charters, anything that has

to do with the Great Lakes.

There isn’t any part of our lives or the local economy this hasn’t

affected. Our country has grown to rely on transportation that uses

gasoline, which means, in reality, that not only has this affected us

at home, but it has affected everything in this country. There are

many people who have it much worse than my family: people who

have to travel for a living, people who have loved ones in the hospital and need to be visited, people who are barely making it on

what they were being paid before the hike in gasoline and now

can’t pay their bills at all. And what about those individuals on

fixed incomes? Social Security, the people that need to make it to

the doctors or the pharmacy, are they going to be able to pick up

their prescriptions after paying for gas?

As a Nation, this has hit everyone’s pocket, and there doesn’t

seem to be any relief in sight. How are our children supposed to

become well-rounded when they can’t even play extracurricular activities because there is no money to pay for it; when they are not

allowed to take the trip in sixth grade to Washington, DC, because

mom and dad won’t have the money to get back and forth to work

if they take that extra money and use it for the field trip. What

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is this world coming to when your children can’t even take a field

trip?

In the past year, we have been able to do very little. The cost

of gasoline is so high that we can barely make it to the grocery

store. Our grocery budget has been cut almost in half. With six

children and two adults, we have five children—and I also have a

15-year-old niece staying with us over summer break—that doesn’t

leave a whole lot for us to choose from. The days of big dinners are

over for us at this point.

We try to make sure that the kids have everything that they

need before we even concern ourselves with any needs we may

have. There have been many evenings in this last year that either

myself or my wife have gone without a meal so that the children

can have seconds. We feel it is more important to let them have

a second helping for their growing bodies. I never want any of my

children to go to sleep hungry. This is an issue for many people in

our area. We have others who are getting public assistance because

they can’t work and support their family. However, there is no assistance for those of us who go out and work every day and still

don’t earn enough to simply feed their family, let alone try and

supply them with all of the other basic necessities of life.

I am fortunate to have a good enough job. But I drive 88 miles

one way to work, so I can have hospitalization for my children.

Like many families, we have two car payments. We have nothing

new. We have two 1992s. My Jeep has 160,000 miles on it, and it

will probably be wore out before I ever have it paid for.

As for any trips to the amusement park or the zoo, we just don’t

have it in the budget to go anywhere. With the cost of the tickets,

food and, of course, the added expense of gasoline for a family, it

is just impossible to go anywhere. We had hopes of taking our children to Disney World before they get too old, but I don’t ever think

that will ever happen. I now spend $400 a month for gasoline just

to go to work and back.

After local media did a story about me coming to Washington, I

received e-mails. In a matter of 3 days, I have a folder here 1-inch

thick from Northeast Ohio people reaching out and telling me their

stories. I have read every one of these e-mails, and I have responded.

And I wish for my Federal Government to take the steps that are

necessary to bring our gas prices back down, so the local families

can have the things in life that this Nation has promised us and

that is here for us. That is the reason we are here.

Thank you.

[The prepared statement of Mr. Bailey follows:]

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Mr. BURTON. Thank you very much, Mr. Bailey. And those emails that you have, if you would like to share those with the committee, we would be happy to have those, and we will review them.

Ms. Oberweis.

Ms. OBERWEIS. Thank you for inviting me here today. I am indeed honored to be asked to testify in front of this distinguished

committee, and I would especially like to thank Representative

Biggert for extending the invitation.

I am Elaine Oberweis. I am president and CEO of Oberweis

Dairy, the processor of the finest milk and the most delicious ice

cream on the planet. We utilize three means of distribution: direct

home delivery, company-owned retail stores, and wholesale distribution to both single-store and chain-store grocery stores. Our

service area covers most of Illinois and the St. Louis, MO, area.

Milk is brought in from Illinois and Wisconsin and processed in our

North Aurora facility and then distributed either directly to homes,

our stores or our wholesale accounts. We utilize approximately 75

trucks to accomplish these deliveries.

It is troubling that our fuel costs have increased more than 40

percent from May 1999 until June 2000. This translates to an additional $15,000 per month for fuel. While this number does not

sound huge in governmental budgetary terms, the increased cost on

an annual basis represents 16 percent of our 1999 pre-tax net income; dollars that could have been spent to expand our business

and better serve our customers.

We have also been assessed fuel surcharges of up to 4 percent

by most of the trucking companies serving our own suppliers. Thus,

the cost of our farm milk, raw materials and resale items, such as

butter and eggs, have also increased.

High gas prices have hidden costs as well. Our employees receive

the IRS-mandated $.31 per mile for business use of their personal

vehicles. This is a national standard. Thus, the Chicago area employee is penalized by the higher price of fuel. Our employees are

also paying much more just to get to and from work each day, as

Mr. Bailey has testified, so their paycheck is effectively shrinking.

We have an extremely difficult time attracting employees to the

Chicago job market. The national media coverage of the cost of fuel

in Chicago is fanning the flame of fear about the high cost of living

in the area. Recruiting in an already very tough job market is only

becoming more difficult.

What does this mean in the long run? The convenience of

Oberweis home delivery that we provide to our customers may become an unaffordable luxury. It will be increasingly more difficult

to hire new employees. As a result, our ability to grow our business

will be restricted, if not stopped all together.

Mr. Chairman, Government involvement in fuel formulation affecting the economics of fuel pricing has created today’s environment. The inequalities that exist between Chicago’s price of fuel

and that of the rest of the United States is the direct result, at

least in part, of a bureaucratic execution of a plan. On its own merits, reducing emissions through the change in gasoline formulations

may be worth doing—however, not at the expense of job creation

or product quality.

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The EPA has set standards for air quality that would result in

required changes to gasoline formulations. The EPA, oil industry

and local Governments were aware of Chicago’s need to implement

these new formulations. The EPA and the oil industry should have

been working together to forecast the changes in demand based on

new regions being required to use reformulated fuels. Thus, the adjusted cost of fuel should not have been a surprise. And the increased cost of the EPA-mandated formulations could have been

softened by an increased supply, allowing the basic price of fuel to

fall during the implementation period. The new formulation could

have been introduced with little fanfare.

But also affecting supply are OPEC’s monopolistic restrictions on

supply. Also, it is my understanding that a supply issue in the

‘‘pipeline’’ is affecting the oil industry’s ability to deliver fuels to

market. Combined, these two issues are seriously depleting supplies. Thus, rather than an increased supply at the moment of implementation of the new formulation, we experienced a decreased

supply and higher prices at the pump. It is my claim that only the

Government would behave as it has in continuing to mandate the

reformulated fuels during a crisis.

As a businessperson, I can testify this is an unworkable strategy.

No business would force or implement a plan that is no longer viable. When business conditions change, businesses alter their plans

to allow them to continue to be successful. In any major business

undertaking of which I have been part, at the time of the plan’s

implementation, we reassess the environment to assure ourselves

the underlying assumptions are still true. The existing supply of

required fuel is one assumption the EPA had a responsibility to

check, and it didn’t check its plan for viability.

Now the Congress has a chance to say to Chicago and the Upper

Midwest, ‘‘We can wait until all of our ducks are in a row before

we make this important change.’’ Congress can remove the requirement for reformulated fuels mandated by the EPA or, at a minimum, delay such action until both the oil industry and the EPA

can assure increased supplies. Or, best of all, in lieu of mandating

reformulated fuel usage, Congress can increase the tax on the current formulation of fuel and reduce the tax on reformulated fuel

nationwide. The market would then be allowed to solve the problem, as it should.

Mr. Chairman, I thank you again for this opportunity to present

my views, and I am more than happy to answer questions.

[The prepared statement of Ms. Oberweis follows:]

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Mr. BURTON. Thank you, Ms. Oberweis.

Mr. Wilson.

Mr. WILSON. Thank you, Mr. Chairman and members of the

Committee, for this opportunity to discuss the rising price of gas

for farmers and our perspective of what the right solution could be

for what I see is a preventable problem.

My name is Doug Wilson, and I am a farmer in north central Illinois, and I am also the immediate past president of the Illinois

Corn Growers Association. I am testifying today on behalf of the

NCGA and the more than 30,000 farmers they represent in the 48

States.

Let me make one thing perfectly clear right off the bat. No group

suffers more from skyrocketing fuel prices than farmers. This year,

the typical corn farmer will pay a whopping $5,000 more for fuel

and other inputs than he did last year. For many of us, especially

family farmers like myself, that is a giant chunk out of our wallets,

and it will have a devastating impact on our ability to make ends

meet.

Why has this occurred? Because fuel prices have increased phenomenally since last year’s harvest. I called my local petroleum distributor yesterday in Livingston County. I asked him for a comparison of what the price of gasoline, diesel fuel and other products I

use were 1 year ago and what they were today. The price of gasoline has jumped 64 percent, and the price of diesel fuel is up 73

percent for the off-road price that I pay for the diesel. That is none

of the Federal tax. Last year I was able to contract my fuel needs

for 69.9 cents a gallon. Today, that price is $1.209.

Most of our equipment runs on diesel. In fact, U.S. agriculture

uses almost 4 billion gallons of diesel every year. Consequently,

American farmers will be spending approximately $2 billion more

to plant and harvest this year’s crop. And if these higher prices

persist, we are going to be looking at higher costs for agricultural

chemicals, and farm fuels and supplies as well. For instance, the

cost of anhydrous ammonia, one of the most-used fertilizers for

corn, is up $50 per ton in my area just in the last 5 weeks. This

is because of the increasing demand for natural gas, from which it

is made.

Farmers are paying through the nose, despite a record in energy

conservation that we have implemented. By switching to more fuelefficient machinery, adopting conservation practices, reducing tillage and becoming smarter about pest management, farmers’ energy consumption has declined by nearly 30 percent since 1978. At

the same time, corn yields have increased by more than 22 percent.

We are doing everything we can, and then some, to be environmentally responsible and hold down our costs, while maximizing

our productivity.

So let me repeat: There is no one out there with a greater stake

in reducing energy costs than American farmers, which is why we

want to be doubly and triply sure that any action that Congress

takes to address the issue really addresses the real problems.

Let me start with what I believe is not one of the problems, and

that is the Clean Air Reformulated Act program, the RFG program

that so many of you have been mentioning today. Big Oil would

have you believe that consumers have been paying $2.30 a gallon

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or more for gasoline in the Midwest because of costs of complying

with more stringent phase 2 Clean Air guidelines that took effect

earlier this year, particularly in areas of Chicago and Milwaukee

where corn-based ethanol is used to make cleaner-burning RFG.

During the summer months, refiners must use a lower volatility

gas to blend with ethanol to make RFG 2, yes, but the lower volatility gasoline costs only slightly more than the U.S. Environmental

Protection Agency has repeatedly emphasized that it should be no

more than 5 to 8 cents, as some of the opening comments said earlier.

On the other hand, consider the fact that a gallon of ethanol delivered to Chicago-Milwaukee market is currently selling for $1.28

to $1.32 a gallon. That is well below the current price of gasoline.

This means that blending less-expensive ethanol into gasoline actually reduces the cost of finished gasoline. If we were not using ethanol in RFG in places like Chicago and Milwaukee, gasoline prices

could be even higher than they are today.

But despite the economic and environmental benefits of using

ethanol in RFG, the EPA hasn’t helped us either. Despite repeated

urgings from ourselves and many others, including the Illinois delegation, the agency has failed to make appropriate regulatory

changes that could reduce the cost of producing phase 2 RFG.

Current EPA rules fail to give ethanol credit for significant carbon monoxide reduction benefits. If these environmental benefits

were fully accounted for, refiners could blend ethanol into their

RFG much more cheaply and easily. But as the rules now stand,

there is actually a disincentive to use ethanol in RFG.

Corn growers and ethanol manufacturers long ago geared up to

meet the demands of the new phase 2 RFG. With 58 facilities in

19 States, producers are making ethanol at a rate that exceeds 1.6

billion gallons per year. This means the United States is using 1.6

billion gallons less of gasoline than we otherwise would have, and

we could easily make more.

So from both a price and supply standpoint, you reach the inescapable conclusion, ethanol is not the problem, it is the solution.

So why have gasoline prices gone so high? No one seems to know

the answer. But one thing that we do know for sure, something

smells in the barnyard. And that is why we asked the Federal

Trade Commission to investigate, and we applaud your committee’s

action of looking into the problem, but the facts just don’t add up.

Crude oil prices have leveled off, so they cannot account for the

recent price rise. The supply of crude is plentiful, at least if you

believe ExxonMobil’s recent statement that the company has exceeded 100-percent replacement of its oil and gas reserves for the

6th year in a row.

Meanwhile, oil companies have allowed gasoline inventories to

drop to alarmingly low levels in many areas. And despite having

5 years to prepare for phase 2, refiners failed to build adequate

supplies of low-volatility gasoline to blend with ethanol.

Ethanol-blended gasoline should be selling for less than conventional gasoline. But since April, both RFG and conventional gasoline prices have risen at close to the same rate, 34 percent and 29

percent respectively.

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So are we looking at price gouging by the oil industry or is it a

cleverly orchestrated attempt to eliminate RFG requirements? I

will openly say Big Oil has never liked the RFG program and has

not been very happy to work with it. My hope is that your good

work and that of the FTC will get to the bottom of the matter.

Now, I would also hope you use this occasion as a unique opportunity to craft a more rational national energy policy, one that expands the use of reformulated fuels, such as ethanol, and domestic

energy sources, such as oil, coal and natural gas. By reducing our

dangerous dependence on foreign oil, we can benefit the environment, while increasing our energy security.

Mr. Chairman and members of the committee, I hope you will

heed what has been said by the panel today and those that follow.

I hope you will recognize that ethanol remains the answer. It is the

only fuel that is made from all-American resources, 100-percent renewable, it is clean burning and it improves our air quality. And

as not mentioned by those supportive of MTBE, it does not pollute

groundwater. And so I hope that all of this will help to improve our

national energy security, our environment and our economy.

I thank you for your time, and I would also be pleased to answer

any questions.

[The prepared statement of Mr. Wilson follows:]

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Mr. BURTON. Thank you very much, Mr. Wilson. Let me just ask

a couple of questions. I know you have been here a long time, and

I really appreciate your patience.

Let me start with you, Mr. Schneider. Since the gas prices have

increased, how much more is your company spending for transportation per month of all kinds? And you can give me a percentage,

if you would like, or a dollar amount, either one.

Mr. SCHNEIDER. I don’t have a particular number because it is

sort of a recent phenomenon in Indianapolis that gas prices have

gone up so high—as of yesterday, $1.84. But I would say the simple

math, a year ago I believe a newspaper article said that we were

at 89 to 90 cents a gallon 1 year ago in Indianapolis. So if you look

at just another dollar per gallon, you can look at the math there.

Mr. BURTON. So you are looking at almost double your fuel costs

right now.

Mr. SCHNEIDER. Absolutely.

Mr. BURTON. You talked about getting fuel surcharges when you

received shipments. Can you give me an example of how that has

kicked up the cost of your products.

Mr. SCHNEIDER. Our freight carriers, we use an LTL carrier,

which means that we don’t contract a full truck body out. We use

one or two skids go out per shipment to different areas. As the base

rates have also gone up over the last few years, the fuel surcharge

has gone up, and that has gone up an average of 10 to 12 percent,

which is a direct drop to any profit that we have in those——

Mr. BURTON. So it affects the bottom line substantially.

Mr. SCHNEIDER. Absolutely.

Mr. BURTON. Yes.

How about the rest of you? We will start with you, and go right

down the line. What kind of an increase have you seen in the

spending, as far as your transportation costs are per month?

Mr. HROBUCHAK. Currently, for the last 2 months, since fuel

came down 50 cents a gallon, it is approximately up 52 percent.

But at one time it was up 125 percent in comparison to this time

last year.

Mr. BURTON. And then when you have that kind of an increase

and it starts biting into your profits, do you have to consider laying

off people and that sort of thing?

Mr. HROBUCHAK. Well, no, I have been in the business long

enough. We aggressively pursue surcharges, like he was saying. So

our customers, we pursue surcharges several percent, which does

not nearly accommodate our fuel costs. But what we do is redirect

our trucks in different fashions, to where we can compensate and

make money in other areas, something that we don’t specialize in

doing. We just figure out the math in different areas.

Mr. BURTON. So you eat part of the costs yourself, and the rest

you try to pass on to your consumers.

Mr. HROBUCHAK. Right.

Mr. BURTON. Let us say, for instance, it was a person that used

flour and you were transporting that, and they were making bread,

the cost of bread naturally would go up, and it would be passed on

to the consumer.

Mr. HROBUCHAK. Right.

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Mr. BURTON. So they can only eat part of the loss themselves and

the rest is borne through inflationary trends in the country.

Mr. HROBUCHAK. Well, out of the 50-percent increase in costs,

they would be paying roughly 7 percent of that.

Mr. BURTON. How about you?

Mr. BAILEY. I am going to address that in two ways: First, in my home, right now we are experiencing about a $200-per-month increase in fuel use compared to last year, which, you know, your

house payment, your utilities, those things are set. You can’t

change that. So, basically, you take away from necessities, as far

as groceries or any sort of entertainment or anything like that you

might do with the children.

And the other I wanted to address it is I notice this at my work.

We use on the average of 3,500 gallons of gas per month. The National Electrical Contractors national average is 1.8-percent profit

before taxes, after all expenses. So when you’re talking on an aver- age of $4,000 more per month and you have to recoup that at 1.8

percent before taxes, that is an awful lot more work that you have

to get and make a profit on just to recoup that small amount of

money.

Mr. BURTON. Ms. Oberweis.

Ms. OBERWEIS. It has cost us about $15,000 a month, and if you

annualize that out in terms of our net income, that represents

about 16 percent of our 1999 net. So that is, for us, a huge number.

Mr. BURTON. Mr. Wilson.

Mr. WILSON. My list is a little bit longer than just gasoline or

diesel fuel. In addition to diesel fuel, which is the No. 1 way that

I power my equipment, I also use gasoline in trucks, and sprayers

and things like that. I also use liquid propane [LP], a natural gas

product, which has gone up about 30 percent so far. Also, which I

mentioned earlier in my testimony, anhydrous ammonia is up

about $50 a ton, also a product of natural gas. And DAP, a dry fertilizer that contains nitrogen, is up about $15 a ton. I have a feeling that that is going to go substantially higher.

What I have seen is the energies follow each other. And as we

have seen higher prices in one particular sector, the others seem

to follow. And so I am afraid that we are going to see, going into

the fall and winter season, a lot harder situation.

Mr. BURTON. Thank you. Mr. Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman, and I want to thank the

panel. In deference to trying to get to your statements, I forewent

an opening statement. So bear with me as I probably talk a little

more than I question at the moment.

It took some pains to listen to what you said, and I don’t dispute

anything that any of you said in terms of the impact that it is having on you. It is happening in our district. It may be a little less

extreme to what is happening in the Midwest, but we also felt a

similar impact with the home heating fuel situation last winter and

anticipate more problems this winter.

But I looked through the CRS report, and I note that there are

five reasons for costs going up, according to them: One is that 25

cents of the increase is allocated to the pipeline difficulties. One

pipeline had a leak and one pipeline went on fire. Now, certainly

the Government and the EPA didn’t have anything to do with those

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incidents, and those are costly. Yet I don’t see those industries taking any of the hit on that. Neither of those pipelines and their owners are asking to lower their prices or are taking a hit on their

profits, but they are the ones that caused 25 percent, either

through bad operation or bad maintenance or maybe it was just

bad luck.

Forty-eight percent of it is because of supply. Crude oil costs

have increased because supply is down. Again, the industry apparently did not do what they should have done in anticipation of the

situation we are in. Again, they are not taking a hit on their profit

margin. You all and everybody else is taking a hit.

Two cents to 8 cents is on the EPA regulations, and although I

know it’s fashionable among some to all want to pile onto the EPA

on this, I think Mr. Wilson has it right when he says that, you

know, 2 cents to 8 cents is not our problem here. It may—and I

guess we can talk a little about this, Mr. Wilson, as to whether or

not ethanol and the fact that it has gone up, they say, 25 to 34

cents higher in certain areas like Milwaukee and Chicago because

they use ethanol as opposed to MTBE or something else, and that’s

a local decision of the refiners. It is not government, it’s not the

EPA that requires that, it is the refiners. And, again, they are

doing it to appease the corn growers, and they are not taking any

hit on their profits or anything like that. They are passing it along

to all of you.

The last category, of course, then is the higher profits. The fact

that with the supply lower than it is and demand being greater,

they have jacked up their prices. They are having a great time for

themselves, and again they are not taking a hit, they are passing

it along to you.

So I go back to Mr. Hrobuchak’s comment and Mr. Schneider’s

comments, who said, ‘‘Yeah, we need relief and we need it now.’’

Maybe one suggestion on that is that the States whose taxes on

gasoline are generally higher than the Federal Government, and

the Federal Government, each temporarily have a moratorium on

some of their taxes, and maybe we do something about having the

companies that are responsible take some relief from some of the

excess profits that they have got in an interim basis, and we

spread it around instead of trying to all jump on the EPA for what

amounts to about 2 to 8 cents. And then we can focus on keeping

our environment where it ought to be and getting some relief here

while the FCC—the FCC has some impact in taking a look and investigating what is going on with these companies that all of a sudden are making miraculous profits from everybody else’s misfortune, and apparently, their ineptitude in a number of different

areas.

Mr. Wilson, just before my time is up, let me ask you: do you

think the use of ethanol based gasoline is responsible for the recent

price increases in the Midwest?

Mr. WILSON. I don’t think the production and the usage of adding

ethanol to the gasoline is at all in the fault. If I were to speculate,

and I guess let me clarify, as president of the Illinois Corn Growers

last year, this little farm boy from Pike Township found himself in

a lot of doorways I never thought I would be, all the way from the

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White House to a lot of these types of chambers, to the Chicago

City Council, to Springfield, to too many hallways in the EPA.

If I am going to speculate on the situation, we have a situation

that EPA could have been more responsive to earlier on as they implemented phase II. And, the oil companies had issues with supply

and other things happening. However, let us look at the situation

we have. The Reformulated Gasoline Program is a nationwide program. However, in almost every other area, people are screaming

to get rid of MTBE, the other oxygen additive, because of groundwater contamination. In Chicago, we have lowered carbon monoxide levels by 25 percent and we haven’t polluted 1 gallon of

water. And guess what? It is not an oil product.

Is there something going on here that means we have been targeted? Is indeed there a problem that has been tried to turn into

an opportunity to break RFG’s back? I am mad at the EPA. I am

mad at the oil companies, and there is probably some of you on the

panel I don’t agree with either, because the bottom line is, a lot of

us, everyone sitting on this panel, is feeling the pinch, and I think

there is enough blame to go around. But there is a situation here

that, as I said earlier, something smells in the barnyard.

Mr. TIERNEY. I think it coincides with remarks that I made. I

think we can point our finger at where some investigation needs

to be done. And, you know, the companies certainly should have

anticipated it. EPA should have anticipated it. The companies

should have anticipated it. And EPA doesn’t control the supply and

what they keep on in their inventories, and that is the point that

I want to make clear. Those companies knew damn well that they

were going to have this situation. They could have done it at a reasonable price. They had the time to put that in here, and instead,

they work around and try to jack all of you up so you can all get

mad at the EPA, when in fact, they could have had the supplies

on hand, they could have prepared for this, and they could have

moderated the prices down on that, and they could have done a

better job in a lot of those areas.

So I want to thank you all for your testimony here today and let

you know that we should do something about this, but we should

not direct our attention and our anger in the wrong direction, and

we should understand that as much as this is a free market out

there, some people are taking extreme advantage of this free market at your expense. Thank you.

Mr. BURTON. Thank you, Mr. Tierney. Mr. Souder.

Mr. SOUDER. I thank the chairman, and I wanted to continue a

little bit with Mr. Wilson on the ethanol question.

You heard in the opening statement of our distinguished ranking

minority member, a direct attack on ethanol, which is kind of a bipartisan southern California attack on ethanol, because it is certainly happening on the Republican side as well. And in the CRS

report that we were given, part of its argument is that the low volatility oxygenate blending is more expensive because it is harder

to manufacture. Do you know any data on that, and is that true?

Mr. WILSON. Well, now you are getting past where a farmer’s

knowledge is into the situation, although I do have a lot of folks

that have been helping and assisting keeping me informed.

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From everything that I have been able to see and read, and a lot

of the same sources that you have had access to, I cannot believe

that the ethanol is the No. 1 issue. Could the EPA have made some

adjustments that would have made life easier for the oil refineries?

Absolutely. They brought phase II gasoline in at the maximum

level. We encourage them to look at ways—and as a matter of fact,

the Illinois delegation has offered solutions. Illinois EPA Director

Skinner has led with some alternatives available. Those were refused. And so I think I am back to the assessment that ethanol

isn’t the problem. The two or three different choices of how to move

forward with implementing the next phase of the Clean Air Act has

been the problem.

Mr. SOUDER. It is important, if you can communicate too to your

association, that those of us who are strong supporters of ethanol

for both energy independence and the question of environmental,

and happen to also represent agricultural areas, which I am sure

is just happenstance. But it does. The energy independence is ultimately one of our major goals. Those of us who are conservatives

are concerned that we haven’t adequate drilling in our country,

that we haven’t given adequate incentives in addition to ethanol.

And once you become dependent, then you become vulnerable.

But as we move forward in the ethanol argument, we have to be

prepared to address this question. In other words, if—I understood

you to argue that the actual cost of ethanol is less than the others,

but if its blending adds above that, we kind of need to know where

that ultimate cost is, because to be able to advocate on behalf of

ethanol, that is going to be one question of this, and part of my understanding from this would be is, that is an argument that EPA

should have factored in and phased in if indeed there wasn’t

enough production capacity to meet that. They could have even

done a phase in. It doesn’t mean the policy was bad, because we

are actually trying to extend that policy, but it has to be a logical

implementation status, and we need to know what the cost is so

it doesn’t have these big jumps and will set the whole ethanol campaign backward.

The second thing is, as we start to look at this on a broader

scale, is how do we deal with questions of drought and of the cyclical variations in the corn crop, because as we become more dependent—could you kind of address that question in a broader energy

way, and what that could do to prices if we become more dependent

on ethanol?

Mr. WILSON. Well, I think what you have to look at is that cornbased ethanol is what got us to the dance, but if we are going to

continue, we are going to have to look at biomass and all types of

other alternatives, whether it is methane-based or other types of

biomass ethanol, we need to look at gathering more and more alternative sources. Alternative energy sources have to be a component

of the national energy policy, and I firmly believe we need a national energy policy. If you refer back to the 1970’s when we were

35 percent dependent on foreign oil, we are now over 50 percent

dependent, and I am not going to project how many years it will

be, given the current course we are running, to where we are going

to be close to 60 percent dependent. That is not good sense for any

of us here.

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Now, we can increase our domestic energy sources, and in my

testimony I talked about oil and coal and natural gas. Folks that,

at different times, we have been at each other’s throats, but the

bottom line is we need renewables, we need to lessen our foreign

dependency, and we need to get on it now, because we are on our

second run, and I am afraid to think what will happen to the next

run.

Mr. SOUDER. And just as a matter of parochial interest, which all

of us politicians do, Ms. Oberweis, I do need to say that I represent

the largest ice cream factory in the United States, Edy’s, as well

as No. 3, Good Humor, which is based out of Huntington, Edy’s out

of Fort Wayne, and so I am sure your ice cream is delicious, but

we have delicious ice cream as well.

Ms. OBERWEIS. It is good.

Mr. BURTON. These commercials. Mr. Kanjorski.

Mr. KANJORSKI. Thank you, Mr. Chairman.

The testimony I have heard so far allows us to jump to the conclusion that EPA and their regulation is somewhat responsible, and

I think I agree with Mr. Wilson that is a minimal amount. But in

order to extract that from the problem, I think, Mr. Hrobuchak, if

you could tell a story of when we first got together in January and

February, EPA regulations at the price of diesel and heating oil,

had no effect on that, did it?

Mr. HROBUCHAK. Absolutely none at all.

Mr. KANJORSKI. Tell this committee and the record what happened in January and February, and how the companies spiked the

prices in the northeastern United States and New England.

Mr. HROBUCHAK. The reason why I am here is because a portion

of my fleet runs up into the New England area. I do a lot of local

delivery. Well, that is a local, regional haul for me. I do the West

Coast. I do the southern. I do the Midwest. I am subject to the

prices in Chicago as well. And I would come to work for—it is in

my testimony—about a 10-day period, and 1 day I came to work,

it was up 40 cents a gallon, diesel fuel, and I just—over the course

of 10 days it was up 78 percent. It was actually at $2.25 a gallon,

so that was actually a 125 percent increase. In New England it was

as high as $3 a gallon. I absolutely forbidded my trucks to buy fuel

in New England, and would not even go to New England. That is

how bad the crisis was. And it is more serious than you think.

I want to just say one more thing that I didn’t say before. An average driver that owns his own truck makes about $43,000 a year,

which is 35 cents a mile, OK? Since he is paying 50 percent more

or 52 percent more in operating costs due to fuel, that brings his

yearly annual income down to $20,000, which is 16.8 cents a mile

that man has to drive. OK? How do you support a family on that

type of money? And you know, once you are accustomed to a lifestyle.

Mr. KANJORSKI. Did we ever get an explanation from the oil companies as to what happened in January and February and the

spikes of those prices?

Mr. HROBUCHAK. I will tell you what, not one gas company, not

one fueling company, not one refinery, not one pipeline in my area

ever went dry or closed up or couldn’t pump a gallon of gas. And

I kept track of prices starting in February on forward.

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Mr. KANJORSKI. And I have made a request that FTC do a study

on that, and we are still awaiting the results in the next several

weeks, but that is 6 months later. Of course, they indicated to me

that they are overcome with the merger examinations that are a

priority to them and because of the cut in finances, I dare say. And

this isn’t political, Mr. Chairman. Because we have cut back the

amount of money the FTC has, they are not able to do the investigations with the speed and accuracy that they would like to do.

But the other problem in your earlier testimony you gave, and

I am not sure the committee understood what you were talking

about, in that crisis in January and February, one of your competitors had to drive his trucks to Kentucky to get them fueled, because the people in Richmond, VA were shipping their oil to New

England so they could get $3 a gallon.

Mr. HROBUCHAK. The oil parties that were responsible for the

Mid-Atlantic area at the time were pipelining their oil and their

fuel up into the New England area because it was such a lucrative

market. Therefore, the independent truck stops, where the truckers

go to fuel and take showers and stuff like that, these companies

had to send their trucks 300 or 400 miles away to a different State

in order to purchase fuel just to support their truck stop.

Mr. KANJORSKI. So, Mr. Chairman, the point I am trying to make

is that it isn’t all or the EPA isn’t completely removed from some

responsibility. We haven’t had the testimony of the oil and gas

companies, and I think they are going to give us answers for why

they do this and how prices are used to make profits, and that is

our system, supply and demand driving the price to wherever it

can go.

The problem that I see exacerbated by all five witnesses here

today is that they seem to lean on the side of not desiring the Federal Government to get involved in their lives any more than they

are. And I am just wondering whether or not you have all given

it some thought. If we don’t do anything, the market is setting

what is happening in chicago and what happened in New England

in January. One of my colleagues said we have the capacity to increase the supply or the capacity to reduce the demand. And I don’t

know how that is done in the United States with the economy as

strong as it is, how we are going to encourage people to drive less.

We have a third alternative. And that is we can discourage spiking,

as some people define as gouging, by making the oil companies pay

a windfall or excess profit tax. They don’t have to go for the $1.50

profit a gallon. But that takes governmental action. And Mr.

Schneider, I go to you because I listened to your testimony. If you

really don’t want us involved, we probably shouldn’t have had you

come all this distance, because the government is not in the business of providing oil or petroleum. We deregulated, to a large extent over the last 10, 15 years, what regulation and capacity we did

have to affect the marketplace. I don’t think any of us want to assume it any more. But I do have to be honest with you. We probably, philosophically, disagree to an extent, but there is a role

sometime for government in our society, when individuals such as

yourself, or Mr. Bailey who has to spend $90 a week for fuel, you

have nowhere else to look, and if you say you don’t want government regulation and you want us totally off your back and you

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want free market operation, then you are voting for what happened

in Chicago, and you are voting for what happened in New England

in January. And unless we find a balance—and I think the answer

is a balance, is Mr. Wilson’s answer—and you are talking about alternative fuels, new supplies, more efficient cars.

I will point one thing out for the committee, Mr. Chairman. I

have been working in the fuel cell business for several years now

and encouraging that. It is a tremendous alternative. But, you

know, so that the committee is alert, and when it happens we don’t

act like we were blind, deaf or dumb, the oil and petroleum industry today in the United States is instrumentally working very hard

to be certain that the fuel used and the fuel cell in this country is

only a petroleum product so that they will not lose their market or

their profit.

And I think that is what Mr. Wilson was talking about. The reason they spiked Chicago is they were going to do two things: make

more money, but discourage the ethanol use because they don’t

control ethanol from corn. They wanted the gasoline to be refrained

with the product that they controlled and gained a profit on. Is

that what you were saying, Mr. Wilson?

Mr. WILSON. That is one of the scenarios that could be painted,

yes.

Mr. BURTON. Thank you, Mr. Kanjorski.

Mr. KANJORSKI. Mr. Chairman, just—I didn’t make my formal

opening statement, so I ask unanimous consent that it be entered

in the record. I know Mr. Hrobuchak has a file that he has prepared that is quite extensive, and I would ask unanimous consent

that his file be made part of the record.

Mr. BURTON. Without objection, so ordered.

[The prepared statement of Hon. Paul E. Kanjorski follows:]

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Mr. SCHNEIDER. Mr. Chairman, if I could just respond to what

the Congressman was saying. I guess in your previous remark, if

I remember it correctly, I am here because I advocate a free market

economy, and I advocate the least amount of government control as

possible, and I make no bones about that. That is why I am here,

and I appreciate the chairman for asking me to address you all.

All things being equal, your statement would be correct, but if

you are going to have a free market, and you are going to have the

market forces dictate price, it can be a one-sided deal where you

have government interfering in environmental policy and regulations which affect from the top down, all the way to the job or to

the convenience store, or to the guy that pumps the gas. All things

being equal, yeah, you are probably right, but we are not—the

prices are—especially in Indiana, when you have one county that

is in the ozone non-attainment area and one county that is not, and

the prices are 30 cents higher, there is only one explanation in my

mind.

Mr. KANJORSKI. No, no. And I am glad you brought it up. There

is another explanation. Mr. Schneider—and I think Mr. Wilson

may have referred to it. Look, we can pay now or we can pay later.

We can do away with any guide as to what kind of gasoline or what

kind of pollution pours into the air or goes into our water. I happen

to agree with my friend from Indiana and his side, I think ethanol

is a very smart choice to add to gasoline instead of the chemical

they are adding. The things I am reading about the additive, we

are going to have clean air, but we are going to have awful damn

dirty water, and spend a fortune somewhere down the road when

we start finding out how many cancers get caused by whatever

that pollutant will be in the water.

So, you know, we are not magical. We use jurisdictional lines

that are false, but if you are living in a containment area, and if

we don’t try to bring that into a reasonable ability to breathe oxygen, we are going to pay the expense out in medical care in the future, in limited capacity to produce in the future, in all kinds of

things that we can’t even estimate.

Mr. BURTON. The gentleman’s time has expired, and we could get

into a long discussion about this, and I might even be tempted to

get involved myself, but we will let that pass right now.

Mr. LaTourette.

Mr. LATOURETTE. Mr. Chairman, I don’t have any questions of

this panel other than to thank them for——

Mr. BURTON. Would the gentleman yield to me for just a second?

Mr. LATOURETTE. Be happy to yield.

Mr. BURTON. One of the things that we have not talked about

and I mentioned in my opening statement was we have a 500-year

supply of natural gas, and with a attachment to our gas line at

home and a chance in our cars, we could fill up our cars right out

of our own gas line at night for about one-third the cost of gasoline.

The problem is we have a petroleum monopoly in this country, and

we ought to look at these alternative sources. And I think Democrats and Republicans alike ought to look at natural gas as a possibility of being used for motor transportation in this country, because all of these people right here, if they use natural gas, could

cut their costs, all things being equal, by probably at least half, and

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maybe more than that. And so we need to look at natural gas an

alternative to the regular gasoline that we use.

Mr. LATOURETTE. If I can reclaim my time, then I am going to

yield it to Mrs. Morella. But when we were briefed by the Energy

Information Administration, they indicated that the price of natural gas is going up, and one of the problems that we are going to

have is that now the refiners are going to have to make a choice

between RFG, regular gasoline, making distillate fuels or building

up stocks for the home heating oil season, or we are going to have

a repeat of exactly what we had last summer that Mr. Hrobuchak

was talking about again. And so this is a big mess that needs a

fix. I promised Mrs. Morella.

Mr. BURTON. Before you yield, let me just say this: the natural

gas though has so few contaminants to the environment, that you

wouldn’t run the risk of the things you are talking about if we used

that more.

Mr. KANJORSKI. Mr. Chairman, could I add——

Mr. LATOURETTE. I promised Mrs. Morella. If she has a few seconds, she can give it to my good friend from Pennsylvania.

Mrs. MORELLA. If the good friend from Pennsylvania only needs

maybe a half a minute?

Mr. KANJORSKI. I think the chairman said something very important that may make us more sensible——

Mrs. MORELLA. I yield to you, sir.

Mr. KANJORSKI. I would like to join the chairman, and make sure

that the future fuels of America and the world are not monopolized,

and I think give these alternatives. And I think you are coming

close to the solutions, one of the solutions that Mr. Wilson. So as

a Democrat, I will join you, Mr. Burton.

Mrs. MORELLA. Splendid, and I thank Mr. LaTourette for yielding time to me, because I really want to thank you for being here.

You have waited a long time, you have traveled a distance. You all

have personal experiences that you shared with us.

Now, when you go back, you are probably going to be asked

about what happened in Congress with those members, what did

they ask you? What is it you want us to remember from what you

said? We want to learn from you. We are going to have the Secretary of Energy appearing after you, and we are going to have the

EPA Director. Maybe something you want us to ask them, or is

there one thing you would like us as Members of Congress to remember, and maybe we could do that kind of quickly, starting with

Mr. Schneider.

Mr. SCHNEIDER. Thank you very much. I did touch on this in my

opening statement, but if business—and I am sure Mr. Kanjorski

would disagree with me, but if business is given the opportunity to

operate without regulation and restriction, I believe that you would

see an economy that would boom even faster than what it is now.

And if there is one thing that I could ask you to say, would be just

to ease off on the regulations, give us an opportunity to freely exercise our talents and make a profit, because there is nothing wrong

with profit and there is nothing wrong with a profit motive. Thank

you.

Mrs. MORELLA. Thank you.

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Mr. HROBUCHAK. Thank you. I still want to make one point very

clear. I am concerned about jobs, and I am concerned about my

people and our State making money and then the United States

making money. And at the present rate, because of the fuel situation, people cannot survive on a $20,000 income and work 80 hours

a week. OK? And I just need to know that—or let Mr. Richardson

to know that people that were making 40,000 to $43,000 last year

are making $20,000 this year and still working just as hard.

Mrs. MORELLA. That he should step up to it and do something

in terms of whether it is a concerted energy policy, strategic petroleum reserve, OPEC nations responding, laying off regulations.

Have you, your employees, been able to see any significant benefits

at the pump from the recent decrease in wholesale gasoline prices

over the past week?

Mr. HROBUCHAK. No. Our costs are still up 52 percent. Like I

said, they were up 125 percent initially in January, and you know,

I don’t care if Mr. Richardson pulls it out of his hat. You know, we

need to get the oil from somewhere, because without the trucking

industry in America, a lot of things won’t happen in this country,

and that is, No. 1, putting food on our tables, and that is what I

do best.

Mrs. MORELLA. Thank you. Mr. Bailey.

Mr. BAILEY. Just need to remember that this fuel cost is affecting

the foundation of America, and that is us citizens, and for every

person out there like myself and my family, there is 1,000 more

that aren’t speaking up, that maybe you are not hearing, but we

are, and that just goes to show by the contacts that I have had—— Mrs. MORELLA. That something needs to be done is what you are

saying.

Mr. BAILEY. Absolutely.

Mrs. MORELLA. Ms. Oberweis.

Ms. OBERWEIS. I am very intrigued by a lot of the long-range

thoughts and ideas that have been shared in terms of alternative

fuels, but I think that what we are dealing with right now is a crisis, and a crisis doesn’t need a long-term solution, it needs a solution immediately.

The one thing that I guess I would like to have you go away with

is if there is an implementation of any sort of program that causes

total chaos, back off. Allow the chaos to settle down. You can reimplement at a later date. But when I see an implementation, and

from my view the EPA’s implementation has affected gas prices,

that has contributed certainly to total chaos, and we can’t control— government can’t control the oil industry, but they certainly can

control our own organizations, and that is when I would ask back

off, allow it to settle, and then let us look at it again.

Mrs. MORELLA. And finally Mr. Wilson.

Mr. WILSON. A couple of points. One thing that I would like to

point out, when I said 5 to 8 cents more for using ethanol-blended

reformulated gasoline, that includes the ethanol component. So

that does not, in my mind, add to the other cost.

We talk about the RFG program. I live in a nonattainment area.

Yet as I look at my gasoline prices for bulk delivery, I’m looking at $1.95 for unleaded, I am looking at $1.94 for unleaded with ethanol, and I am looking at $2.09 delivered to my farm for premium

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gasoline. I already talked to you about the rise we have seen in diesel fuel prices. RFG is what is taking the brunt because that is

where it seems to be the most out of whack, and indeed it is.

There is a bigger issue here, and the gentleman from Pennsylvania and Ohio said that they did not share the same problems,

but yet they suffer the same situation. And so I think we need to

look long and hard at what is going on. I am tired, not only from

the fuel and energy crisis, I am tired from regulatory efforts that

I am polluting the water, and other issues I can’t even begin to go

into. It seems like we farmers have been under attack for a long

time. The bottom line is we produce food, we produce energy, we

produce it better and cheaper than anyone else in the world. We

have been able to lower your share of what you spend on food from

17 percent down to about 12 percent.

And quite honestly, I am getting tired of getting kicked around

on every issue that comes up. That something we produce is renewable, and positive and helpful to this economy—in Illinois, where

agriculture is our No. 1 industry, and I think that everyone needs

to stop and think about what is happening. It should not be taken

for granted because if you want it grown in South America, if you

want it grown in the European Union, you are not too many steps

away from taking a lot more farmers out with situations like this.

Mrs. MORELLA. Thank you, Mr. Wilson; thank you, panel; thank

you Mr. LaTourette; thank you, Mr. Chairman. It was an excess of

time I took.

Mr. BURTON. That is all right. Thank you.

Ms. Schakowsky.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. I really want to

thank the panel very much, the Illinois representatives. I appreciate it. Mr. Wilson, I really appreciate your testimony, the contributions that your products have made to helping clean our air,

and hopefully the rest of the Nation as well.

I welcome the suggestion of the chairman, that Democrats and

Republicans work together to find alternative fuels that can provide a reliable source of energy, and hopefully cleaner energy. And

we would just like to point out to Mr. Schneider that that kind of

suggestion is the kind of ways that Government can work in a very

positive way. I am really disturbed by that image of yours of having to drag along the business, and enterprise has to drag along

Government regulations. And I am sure that there are some things

in your business that Government has provided that actually help

you, I am sure, if you looked hard enough, even the roads that you

drive on.

I, also, just wanted to tell you, as the mother of a son that has

had breathing problems, I really appreciate regulations that help

him breathe easier, and just as an aside, the oil companies have

opposed waiving the phase 2 regulations at this point and feel that

it would add to the chaos, if that is even an appropriate word; that

it would make things more difficult if, at this point, the phase 2

regulations were lifted.

But most of all, I just want to thank you for your testimony, your

contribution to this debate and for coming here today and being so

patient.

Thank you.

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Mr. BURTON. Thank you, Ms. Schakowsky.

Mr. Walden.

Mr. WALDEN. Thank you, Mr. Chairman. I have a statement I

would like to have entered in the record.

Mr. BURTON. Without objection, so ordered.

Mr. WALDEN. Mr. Wilson, I wanted to followup on something you

said. I come from a very rural agrarian district out in Oregon. Our

gas prices in the West Coast did this blip months ahead of the rest

of the country, and we have had serious concerns. But the comment

I wanted to followup earlier today, I was in a hearing involving the

EPA and USDA on TMDLs, which I know are certainly an issue

that farmers must be facing, and I am sympathetic to the, as a

small business owner myself, problems that we face from overzealous regulation. It is not common-sense regulation, it is the overzealous regulation I think you were referring to, wasn’t it?

Mr. WILSON. Yes. If you look at my bio, I have a very diverse

background. I have been involved in environmental projects. I am

currently the president of the Illinois Council on Best Management

Practices. I have been involved in the Mackinaw River projects,

Vermillion River project and other instances.

I am the first point—my family is the first point of exposure to

what I do on my farm. I do not want to contaminate anyone. However, there is a balance between environmental concern and economic understanding. And I think the old saying, I had a friend

that said a pendulum never stops in the middle, it swings from one

extreme to the other. And I think part of what has caused some

of our problems is the pendulum swinging to where we have lost

the ability to do more with domestic energy. And I think that goes

ways, from the development of renewables to further implementing

more of the energy that we have available to us, that perhaps

hasn’t been as readily available as it could have been. We have

been willing to move it to other countries, and we have been willing

to subsidize that dependency, both in dollars and in lives to defend

an area that supplies us a lot of our energy.

Mr. WALDEN. As we meet here today, there is a forum going on

elsewhere in this very building on renewable energy alternatives

that are out there.

Congressman Mark Udall and I chair the Renewable Energy

Caucus. And I think what we need to do is make these renewable

energy opportunities, whether it is wind or geothermal or natural

gas or, well, the other ones, the fuel cells, things of that nature far

more a part of a comprehensive energy plan for this country. And

it seems like I think we all share a little blame in getting complacent in between energy crises. We kind of get over the hump, the

prices go down, we think we have resolved it. And it is unfortunate

that we wait until we are all caught in a squeeze again, where family budgets are dramatically impacted, small businesses are hit

hard, farmers and ranchers are really crunched, before we take a

look at a comprehensive policy.

I know the Secretary of Energy even said, is quoted as saying the

administration has been asleep at the wheel on this one. And I am

not being critical of him. I think he is right. But I think perhaps

we all share in that, to the extent that we can have a positive step

forward here to say, ‘‘OK. How do we deal with the emergency that

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is before us, as it affects our economy?’’ I think we need to be much

tougher on the OPEC nations if we are going to spill blood to defend some of them. I think we need to figure out why we are unable to use the WTO process to get at price fixing. That is what

they do, and that is not right.

So I appreciate all of your testimony, and I am very sympathetic

with what you have brought with us today, and hopefully we can

be of help.

Thank you, Mr. Chairman.

Mr. BURTON. Mrs. Biggert.

Mrs. BIGGERT. Thank you, Mr. Chairman. I, too, would like to

thank everyone for their testimony. It is a lot longer panel or questioning than we thought because you have such interesting testimony.

I would like to ask just one question of Mr. Wilson. And I know

ethanol is so important to the State of Illinois. In fact, I think it

is about 15 percent of our corn production goes to ethanol, and certainly that has been very important. But I am concerned about

something that you said. It made it seem like ethanol, the reformulated phase 2, was a question of just 5 to 8 cents, and that is an

estimate by the EPA.

But the CRS Report, which is really a bipartisan study, it is an

independent study, says that it can be roughly estimated that

about 48 percent of the current price is due to the higher crude oil

costs in the region of Chicago-Milwaukee. Another 25 cents of the

regional cost is due to transportation difficulties, and that was the

breakdown of a couple of the pipelines, the cost of actually putting

a reformulated gas into the pipeline because of the difference. You

know, in Illinois, we have 12 or 16 different types of gasoline coming to different areas, four zones where there are different costs.

And then another 25 cents could be due to the unique RFG situation.

I don’t think, and I would like to know if you agree with me, but

that the cost of ethanol is not the problem. It is the cost of the

uniqueness of the blend that we have to put in because of the RFG

phase 2. It is much more costly. And there is also a patent from

Unocal that really can make most of that gas, and a lot of the refiners would like to go around that patent so that they have to

make a very expensive blend.

So I don’t know. I would hate to have it just that it is 5 to 8

cents, when somebody else has said that it is 25 cents. And I think

that we have asked, the Illinois delegation, has asked the EPA to

really take a look at this and then report back to us by yesterday.

And we have not heard anything back from them, and so I intend

to ask them about that today.

Mr. WILSON. One thing I would point out about the report, I have

read it as well, in the beginning of their report they talk about that

this is an estimation. They did not have time to study the problem

and do analysis. In the past year, I have talked with USDA, Department of Energy, the U.S. EPA and others along that line. They

have taken more time to do an analysis. I would tend to feel that

their analysis is a little bit more accurate than the analysis done

here. I am not discrediting those folks. There are problems in how

the prices have spiked.

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But if I go on the basis of who has had time to analyze it, because a lot of these agencies have been looking at the problem for

over a year, they perhaps maybe have a better handle, and as you

are very much aware, as is the rest of the Illinois delegation. We

have all been at their doorstep.

Mrs. BIGGERT. Well, we have asked them for a year, and actually

had a hearing in Springfield last year to request that this be done.

And the Illinois EPA actually recommended that study. So I am

not sure that that study has been done.

Mr. WILSON. Right.

Mrs. BIGGERT. And that is why we recommended that there either be the waiver, because they had not come up with whether we

could have a carbon monoxide credit, which then would have solved

some of this problem and not had that definite spike on June 1st.

But I just wanted to clarify that.

Mr. WILSON. In my opinion, EPA knew they were taking a risk

by pushing the way that they did. The oil companies knew they

had a problem, but they also were taking a risk. I used the analogy

over a year ago in March, they are rolling the dice with our economic future and—— Mrs. BIGGERT. Well, how could the refineries make that product

until June 1st, when they had to, since it is more expensive to do?

Wouldn’t they want to keep the RFG phase 1 until June 1st, and

then they have to provide for it. But to do it ahead of time and

store it I don’t think was a good idea.

Mr. WILSON. I think there have been supply issues. I think the

pipeline has added dramatically to that. I flew out of St. Louis this

morning. When I drove into town last night, that is an RFG city,

it was $1.54.

Mrs. BIGGERT. And that is because they have had a waiver from

the EPA.

Mr. WILSON. I think the waiver expired June 12th, unless it was

extended, though. I think there is a knot in the system, and I am

hoping that supplies will improve. The last thing I will reiterate is

that the reformulated gasoline program has helped improve air

quality, and it has done it in a way that has not been dramatically

costly until now.

Mrs. BIGGERT. Absolutely. It is has been very good for Illinois.

Mr. WILSON. And I think there are several ways to look at a

problem.

Mrs. BIGGERT. Thank you.

Thank you, Mr. Chairman.

Mr. BURTON. Well, as you can hear from all of these buzzes, that

we have at least one vote, and probably a series of votes, on the

floor. I don’t believe, Mrs. Maloney, do you have any other questions or anything?

Mrs. MALONEY. No, I don’t.

Mr. BURTON. We are going to go vote right now. And then when

we return, after the series of votes, we will go with our second

panel.

I want to thank all of you very much. You have put a human face

on the problems, and I can assure you that we are going to do everything we can to help resolve them. Thank you very much.

We stand in recess until the fall of the gavel.

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[Recess.]

Mr. BURTON. The committee will reconvene. And if we could get

our guests to come to the table, we will try to get started.

Here is the way we are going to work this because of the time

constraints. The guests, witnesses will be sworn. Then we will go,

according to the rules that were established earlier today, the majority has 30 minutes on our side.

Mrs. Biggert will be recognized for 10 minutes, then Mr. Ryan

will be recognized for 10 minutes, and then Mr. LaTourette will be

recognized for 10 minutes, and then we will go to the minority. And

we may be able to expedite this in a quick way if we get to the

questions and get them answered.

So with that, would the three of you please stand and raise your

right hands.

[Witnesses sworn.]

STATEMENTS OF BILL RICHARDSON, SECRETARY, DEPARTMENT OF ENERGY; CAROL BROWNER, ADMINISTRATOR, ENVIRONMENTAL PROTECTION AGENCY; AND ROBERT

PITOFSKY, CHAIRMAN, FEDERAL TRADE COMMISSION

Mr. BURTON. Please be seated. And I ask unanimous consent

that your statements be submitted for the record. And I would also

like to ask you, if we send you written questions, if you can respond to those if we don’t get to them tonight. Thank you.

[The prepared statements of Mr. Richardson, Ms. Browner and

Mr. Pitofsky follow:]

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Mr. BURTON. Mrs. Biggert, you are recognized for 10 minutes.

Mrs. BIGGERT. Thank you, Mr. Chairman. I guess we probably

picked the worst day in the last month or something with this commotion. So we are really sorry to keep you waiting and that we

don’t really get to hear your testimony.

But first of all, I have a question for Mr. Pitofsky. The FTC has

launched a formal investigation into the retail prices in Chicago

and Milwaukee. And I am from Illinois, so I have a lot of concern

about what is happening in the nonattainment area that I am in.

So certainly the gasoline prices have surpassed the $2-per-gallon.

Am I correct in understanding that your investigation will focus

on the allegations of collusion or price fixing involving the oil and

gas products?

Mr. PITOFSKY. Yes.

Mrs. BIGGERT. And I also understand that the FTC’s Bureau of

Competition already has been conducting a long-term probe into

price-fixing by California refiners.

Mr. PITOFSKY. We have looked at California gas prices, yes.

Mrs. BIGGERT. What events instigated that probe in California?

Mr. PITOFSKY. In California, it really grew out of our investigation of some mergers that had an impact on the West Coast market.

Second, we were aware of the fact that prices on the West Coast

were higher at that time than in any other part of the country.

That’s no longer true, but that was true at that time. And then

there were some—— Mrs. BIGGERT. Yes. I guess, we—excuse me. Go ahead.

Mr. PITOFSKY. And then there were some practices that were

called to our attention that we thought deserved to be examined.

Mrs. BIGGERT. What is the status of the California investigation?

Mr. PITOFSKY. It is ongoing.

Mrs. BIGGERT. Are there differences between that investigation

and the investigation that will be conducted in the Midwest?

Mr. PITOFSKY. I think so. The reason we are looking at the Midwest is because of a very substantial sharp spike in prices. That

is a specific event that we are examining, and we will try to find

out why it is happening.

In California, or not just California, but the West Coast, you

have had a long-term elevated level of gasoline prices that, in many

ways, is more complicated and more difficult to investigate.

Mrs. BIGGERT. How does your investigation then differ from the

EPA or the DOE or groups like the Congressional Research Service?

Mr. PITOFSKY. I think there’s a great deal of overlap in what we

would examine, but we’re doing it with compulsory process, subpoenas, and we are focusing on whether or not a possible explanation

for this price spike is illegal behavior under the antitrust laws.

Mrs. BIGGERT. Are you able to share information obtained in

your investigation with the EPA or with the DOE?

Mr. PITOFSKY. Yes, we will be able to share information.

Mrs. BIGGERT. And are they sharing information with you?

Mr. PITOFSKY. They certainly have been.

Mrs. BIGGERT. If there is evidence of price gouging or collusion

or if that was happening, why would an industry raise such a draVerDate 11-MAY-2000 10:49 Jul 30, 2001 Jkt 000000 PO 00000 Frm 00158 Fmt 6633 Sfmt 6633 C:\DOCS\73069.TXT HGOVREF1 PsN: HGOVREF1
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matic amount rather than maybe saying 2 cents across the Nation,

which might go a little bit less unnoticed than 50 cents a gallon

in the Midwest, which has caused such a firestorm?

Mr. PITOFSKY. I don’t know why anyone would do that.

Mrs. BIGGERT. I hope you find out.

Mr. PITOFSKY. And I hope we can find out promptly as well.

Mrs. BIGGERT. In your testimony, or in the record now that you

put into the record, you state that one of the possible causes for

high gas prices in Chicago-Milwaukee is that the ethanol-based

RFG use in those cities is supposedly the most difficult to make.

Mr. PITOFSKY. People have said that. I don’t know that that is

true, but we will look at that question.

Mrs. BIGGERT. OK. So you haven’t found that to be true or gotten

that far yet.

Mr. PITOFSKY. We are very early in this investigation.

Mrs. BIGGERT. You said people have said that. What is the

source of that information?

Mr. PITOFSKY. Mostly published reports from people who speak

for the industry have talked about the difficulty of including this

ingredient in the reformulated gasoline.

Mrs. BIGGERT. And then in St. Louis and Louisville, who also use

ethanol in the RFG, from what I understand, the prices are not as

high in those cities. How would you account for the difference?

Mr. PITOFSKY. Well, it’s a very important aspect of any investigation to compare one area to another. I am not going to try to account for the difference today. What we are going to ask is for the

companies to try to help us understand why it should be that

prices are 30, 40, and 50 cents higher in Chicago and Milwaukee

and not in these other places.

Mrs. BIGGERT. How long do you expect your investigation to

take?

Mr. PITOFSKY. I don’t know. What I have committed to is an interim report, a status report, before the end of July. I doubt very

much that in that short period of time, we can come up with all

of the answers to all of these questions. But we will be able to report on what we found to that point. And I think then we can perhaps make a commitment as to how long the investigation will

take.

Mrs. BIGGERT. Well, so much of the concern in the Chicago-Milwaukee area is immediate. Will your investigation be able to address these problems and have then a long-lasting impact on the

current price of gasoline?

Mr. PITOFSKY. Let me repeat what I have said to several delegations. Antitrust is not a quick fix. We don’t have the authority to

roll back prices. We don’t have the authority to take steps that

would immediately adjust these problems. We will investigate, we

will try to do it in a thorough, fair and objective way. I don’t

think—well, you know, one consequence of the investigation is, perhaps coincidentally, prices have begun to come down. I am not saying that’s the reason.

But as far as a final judgment as to why this is happening, which

is what we’re about, we’re going to do it thoroughly, and carefully.

I realize people want an answer quickly. But I think a rush to

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judgment on an issue as complicated as this would not be a good

idea.

Mrs. BIGGERT. Thank you.

Ms. Browner, have you formally denied the Illinois and Wisconsin waivers from the RFG program?

Ms. BROWNER. We have not made any decision on the waiver requests. There are two different requests, as I am sure you are

aware. Your Governor has requested that you go back to the phase

I RFG Program. There is none of that currently being produced.

Governor Thompson has asked to go to conventional gasoline. We

have left all options on the table. As I shared with you in the Illinois delegation meeting, there are concerns at this point in time

that you could cause disruptions in the conventional gas market.

And while we are seeing the wholesale price, very dramatic drop

in wholesale price in Chicago and Milwaukee in the cleaner gasoline, I think the real question right now is. why is it not being immediately passed on to the consumers, and that is certainly the

question that we think the oil companies should answer, and that

is why we welcome the FTC investigation.

Mrs. BIGGERT. Twenty members of the Illinois delegation sent

you a letter at the beginning of—I think it was June 6th, and we

requested a response from you by June 27th, and that was yesterday.

Ms. BROWNER. OK.

Mrs. BIGGERT. And I have still not seen your response to the Illinois delegation. This was about the situation in Illinois. And I

would like to know why the EPA formally has not responded to

the——

Ms. BROWNER. We will certainly get you a response, and I apologize if we have been tardy. We will certainly get you a response.

You are entitled to a response, absolutely.

Mrs. BIGGERT. And you have an answer for the questions that we

have asked?

Ms. BROWNER. We will answer your questions to the best of our

ability.

Mrs. BIGGERT. OK. Just to go back to the waivers and the tax

credit, which I think is—I’m sorry—the credit came from taxes.

Ms. BROWNER. OK.

Mrs. BIGGERT. The role of ethanol in the phase II and work on

the carbon monoxide credit, you know, the Illinois delegation did

have meetings and has been concerned for the past year that the

new regulations would severely impact the price of gasoline in Illinois. When did you start looking into this situation?

Ms. BROWNER. Well, the issue of the carbon monoxide credit or

the RVP, the read-vapor pressure adjustment, is something that

we—as I think you are well aware—have been working on for a

while. The National Academy of Sciences has also looked at the

issue. As far as your own State environmental agency has provided

us with several proposals and thoughts on it. We have always indicated that we would make a proposal on a read-vapor pressure adjustment, RVP adjustment, once we have been able to take into account all of that information. Illinois’ information did come in

somewhat later in the process in the National Academy of Sciences,

but here I think that the point that I would ask you to be aware

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of, within the next several days, certainly by early next week, we

will issue that proposal. We will then begin a public comment period. No one has ever suggested that an adjustment in this pressure, given the constituencies of ethanol would have a price impact

beyond a penny. It may not even be that much, but we certainly

recognize that ethanol brings with it environmental benefit that

does have a lower toxic, that has lower carbon monoxide, and

therefore, that some amount of adjustment to the read-vapor pressure may be appropriate, and we do intend to issue a proposal in

the next several days and take comment on that.

Mr. BURTON. Mrs. Biggert, can we come back to you?

Mrs. BIGGERT. Yes.

Mr. BURTON. We need to yield to Mr. LaTourette now for his 10

minutes.

Mrs. BIGGERT. Thank you.

Mr. LATOURETTE. Thank you, Mr. Chairman.

Chairman Pitofsky, if I could start with you for a few minutes,

there has been a good deal of discussion about how it is that this

antitrust, anti-competitive pricing thing came to your attention. Do

you recall who it is that first requested that you look into the issue

of price gouging relative to the major oil companies in the United

States and the Midwest?

Mr. PITOFSKY. It first came to our attention because we read the

newspaper just like everybody else, and we see what is going on.

My recollection is that the first request for an investigation came

from Chairman Hyde.

Mr. LATOURETTE. And was that also Mr. Sensenbrenner, was he

associated with that as well?

Mr. PITOFSKY. Yes, it was a joint request.

Mr. LATOURETTE. And that would have been maybe 3 weeks ago

Friday more or less?

Mr. PITOFSKY. It would have been, yes, the 7th of this month, as

I recall.

Mr. LATOURETTE. OK. Now, as you go down the path of collecting

information and determining whether or not there is gouging or a

violation of the antitrust laws, would you maybe just enlighten the

committee in terms of what the difference is in terms of your understanding between price gouging and perhaps a company taking

advantage of a supply and demand situation?

Mr. PITOFSKY. Yes, I would like to do that, because actually, we

bypassed that issue several times during the day. Conspiracy,

agreement, collusion, to fix prices or curtain output is illegal behavior. It is a violation of the antitrust laws, and it opens up companies to all sorts of fairly tough remedies. Price gouging, as to which

there is really no precise definition of it in the law, but I take it

to mean taking advantage, being opportunistic, perhaps overreaching on behalf of the seller. That may be very unattractive behavior,

but I do not take that to be a violation of law. I do think, however,

in a situation like this, that people who are paying these higher

prices have a right to know whether or not there is either collusion

or price gouging, and we will look into both.

Mr. LATOURETTE. I agree with you, and I made the observation— you weren’t here during my opening remarks—you may find price

gouging, but we couldn’t figure out in Ohio how come our prices

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went up, and we don’t have this RFG–2 requirement, and the speculation is that the people that are in the oil business could sell it

for $2.20 in Chicago and $1.60 in Ohio, and they took it all to Chicago because they could make 60 cents more per gallon. And I

guess that some people call it the American way, some people

would call it something else I suppose.

Secretary Richardson, welcome to you. We had a briefing, the

Ohio delegation, from the Energy Information Administration,

which is part of your department, and I want to commend you on

their work, and you should give them all a raise, because they really did a great job of bringing a number of us up to speed on what

to many of us was a foreign issue.

But I would like to ask you and Administrator Browner a couple

questions about two situations in the Midwest, St. Louis, and then

the Chicago/Wisconsin situation. And it is my understanding—and

Madam Administrator, I will start with you—that I think you have

testified before that perhaps you don’t have the ability to offer a

waiver of the Clean Air Act, but you do have the ability to offer

enforcement discretion on a limited basis.

Ms. BROWNER. No, actually, the rules that were adopted in 1993

as part of the Reformulated Gas Program, the negotiated rulemaking, does include provisions for a waiver. It lays out standards

for a waiver.

Mr. LATOURETTE. It is my understanding that you didn’t grant

a waiver for St. Louis; you granted something called enforcement

discretion relief though; is that right?

Ms. BROWNER. I am happy to explain what we did in St. Louis

if you would like.

Mr. LATOURETTE. I would be happy to hear it.

Ms. BROWNER. The situation in St. Louis arose when they had,

I think, three of their six tanks or terminals that supply the city,

literally go empty. And in essence, what we did there was allow

them to delay the start of the program, of the clean gas program,

I think by 5 or 6 days. The mechanism we used, because it is, for

that particular situation, being the best, was enforcement discretion. That was because the pipeline that serves St. Louis had had

a problem in it. St. Louis gets about 70 percent of their fuel from

that pipeline. Chicago, Milwaukee get something like 15 to 17 percent of their fuel from the pipeline. It is a very, very different situation. But we do have both enforcement discretion, and we do lay

out in the rules a waiver provision.

Mr. LATOURETTE. That was my understanding, and in the St.

Louis situation there was a pipeline difficulty with the Explorer

Pipeline, one. But, two, I also understood that your agency relied

on Secretary Richardson’s agency to determine what gas stocks and

inventories might be available in an area based upon what was

going on with pipelines and other factors. Is that also accurate?

Ms. BROWNER. We looked both to the Department of Energy, we

worked with the State. I think—did we have inspectors in the

field? We do have inspectors that can visit these facilities. We may

have used our own inspectors. We certainly have used them in the

Chicago/Milwaukee situation. I would be happy to explain to you

all of the resources we used in making that decision.

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Mr. LATOURETTE. Whatever resources were used though, a decision was made that there was going to be a problem in St. Louis

about April 1st, I guess, was the date that things were supposed

to kick in, and for whatever reasons, due to low supply and pipeline problems, this enforcement discretion relief was granted on a

short basis; is that fair?

Ms. BROWNER. That is correct. I think it was—again, it delayed

the startup of the clean gasoline program by, I think—was it 5

days—6 days, while they could address the pipeline problems and

other issues. We never had this situation in Chicago or Milwaukee.

We didn’t have tanks going dry the way we did in St. Louis.

Mr. LATOURETTE. Oh, that is correct, but what we did have in

other parts of the Midwest, I think—and I am referring to a memorandum written to the Secretary, Secretary Richardson, on June

5th from Melanie Kenderdein, I guess, that talks about the situation that existed in terms of low inventories, and also the EIA,

when they came to talk to us, I think said that they were at 15-

year lows, the lowest since 1981. Is that your recollection, Mr. Secretary?

Mr. RICHARDSON. Yes, Congressman. We found that there could

be physical shortages at a number of RFG terminals in St. Louis,

and as you know, Congressman—and thank you for the compliment

about the Energy Information Agency. They are sitting right here.

They’re all chuckling. I will consider giving them a raise.

But I will, for the record, state they’re a statistical independent

agency at the Department of Energy. They don’t always predict

what I want them to. What we do, Congressman, is we do supply

assessments. We provide that to EPA. And did you want me to say

anything more?

Mr. LATOURETTE. Well, that was my understanding, that you do

give them supply assessments, and you were asked to give, or you

gave a supply assessment for Chicago/Milwaukee as well, did you

not?

Mr. RICHARDSON. Right, right. And what we found, Congressman, is that in the Midwest, crude oil prices, obviously remain

high. That is a factor. There is higher demand in the Midwest than

the national average, 3 percent compared to 1.6 percent. Inventories, gasoline inventories in the Midwest were low going into the

summer driving season, about 15 percent lower than last year, and

RFG–2 was introduced—this is ethanol, not the MTBE—was introduced into the Milwaukee/Chicago market. And then you had the

pipeline problem, the Explorer Pipeline, in the Chicago/Milwaukee

area, we estimated it affected about 6 million barrels.

What we then did, is because we had all these factors, and you

still couldn’t explain the 40-cent differential, that’s when Administrator Browner and I, like several Members of Congress and yourself, sent a letter to the chairman here to look at the rationale why

there is such a broad and large price differential.

Mr. LATOURETTE. All right. I think I am going back, before we

ask Mr. Pitofsky to jump in, and I guess what I’m trying to get at,

is I believe from what I’ve reviewed, and talking to the EIA, talking to the refiners, that there were some warning signs, that because the price was jacked up by the OPEC countries, because we

had a pipeline problem—we also had a problem with the Wolverine

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Pipeline later on—because of the tolerances where some refineries

have now gone from 8 blends of gasoline to 16 to 18 blends of gasoline, that it was sort of ripe for a problem not only in St. Louis,

but also in Chicago and Milwaukee. And I’m wondering why in the

days leading up to June 1st, which sort of is the trigger date for

the new requirements, that there wasn’t the same consideration

given to Chicago and Milwaukee as there was to Wisconsin? And

because, again, your excellent folks at the EIA, who I hope do get

the raise, indicated to us that the area—and I’m talking now about

the area of Chicago and Milwaukee—is functioning with no room

for error, and basically indicating that if one more bad thing happens, you’re going to have the whole market thrown into chaos, and

it does appear to me, at least, that the market was thrown into

chaos.

I gave a speech in Cleveland, and you know, I’m not an EPA

basher, and I said, you know, my information is that this RFG program maybe adds 5 to 8 cents—and you may disagree with that,

Madam Administrator—and in the summer driving season, historically we’ve gone up 31⁄2 cents, 4 cents a gallon because there’s

greater demand. So none of those things explain what happened.

But what I think can partially be led to explain is that we had historically low inventories, we had some changes coming in, EPA

changes, supply difficulties, and so forth and so on, and maybe Energy, maybe EPA, maybe the oil companies, maybe everybody could

have done a better job than we did in the Midwest, and we’ve all

contributed to the problem that has now jacked up the oil prices.

And if anybody disagrees or agrees, I’d be more than happy to let

you say so.

Mr. BURTON. The gentleman’s 10 minutes has expired. If you

care to comment on what he just said, that would be fine. No comments?

Mr. Ryan, you’re recognized for 10 minutes.

Mr. RYAN. Thank you, Mr. Chairman. Glad we finally got to this

point. Thank you for waiting.

I suppose the three of you have probably been here all day long,

haven’t you, going to different chairs? I appreciate you spending all

the time with us today.

I, unfortunately, just arrived, so I was unable to hear your opening testimony, but——

Mr. PITOFSKY. You didn’t miss a thing. We didn’t have any.

Ms. BROWNER. We didn’t do it.

Mr. RYAN. Oh, you didn’t do one, OK. Well, then let me just go

on——

Mr. BURTON. Submitted for the record.

Mr. RYAN. Well, Mr. Chairman, I would like unanimous consent

to add my opening statement into the record as well.

Mr. BURTON. Without objection, so ordered.

[The prepared statement of Hon. Paul Ryan follows:]

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Mr. RYAN. I represent southeastern Wisconsin. Half of the district I represent is in the RFG area, half of the district I represent

is outside of the RFG area. Now, if you recall, Ms. Browner, we

sent you, myself, Mr. Sensenbrenner, Senator Kohl, Senator Feingold, sent you a waiver request on May 23rd. On May 26th you responded, saying it would be denied.

Then, Secretary Richardson, we have a memo, which I believe

you were just talking about, dated June 5th, where you went

through—your agency went through and showed that there were

severe supply shocks that were occurring. Basically you went

through and outlined six factors that were basically a convergence

of factors, culminating in the fact that we had supply shocks, we

had a unique RFG blend, we had a Unocal patent, we had a lot

of problems specifically with respect to the upper Midwest.

We then asked for another waiver from you, Ms. Browner, which

we were denied again.

Mr. Sensenbrenner asked the CRS to study whether or not the

RFG mandate itself was a part of the problem or why were we having these price increases? The report basically concurred with the

DOE’s analysis, a convergence of several factors. So I don’t think

one can point a finger at just one source. I don’t think those of us

in this aisle can point to the EPA and say it’s your fault. I don’t

think the EPA can point to the oil producers and say it’s their

fault. I mean, that’s what the FTC is about to figure out. And I

think for any of us to say with certainty that it’s because of price

gouging is just inaccurate, and that’s what—you know, Mr.

Pitofsky, that’s what your investigation will do, so I think it’s foolhardy for a member of the administration or a politician to suggest

they know that price gouging is occurring.

But there are some things we do know, and the things we do

know, because of the DOE’s report, because of the CRS’s report, is

that this RFG mandate in the upper Midwest, specifically in the

Milwaukee and Chicago area, has contributed, by the CRS’s estimate, 25 to 34 cents a gallon. Why, when you knew this, did we

not receive a waiver? And if the answer is we didn’t receive a waiver because there was a short supply of conventional gas in the

area, the short supply of conventional gas in the area is because

of the EPA’s banning of conventional gas in the area. So our constituents are really caught between a rock and a hard place.

They’re looking for answer. I don’t think putting it off to saying it’s

price gouging and the FTC will confirm this in 6 weeks, that’s not

good enough. We’re in the middle of the summer months. You

know, we do a lot of driving at this time. Our consumers in the

Milwaukee area are paying something like $2.30 a gallon of gas.

It’s gone down recently, but what is the answer other than price

gouging? And let me start with you, Mr. Richardson, and, Ms.

Browner, if I could go to you then?

Mr. RICHARDSON. Well, I think the assessment that we made—

and by the way, Melanie Kenderdein is right here—EPA and DOE

have sent teams to the area. The Administrator and I felt that we

needed people on the ground in your region and in the Congressman’s region to get firsthand assessments. And basically they came

back with a multiplicity of problems. You mentioned the supply

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issue. There is the pipeline problem. There is refinery problems,

RFG coming into the market. There were other factors.

Another thing, Congressman that really is out there, is there is

unusually high demand in the country, and it’s the driving season,

the economy is in good shape, everybody is out there spending

money, and that’s good. We also have, because of the international

situation, regrettably, a lot of low stocks, low stocks of crude, low

stocks of gasoline, both nationally and internationally.

So I think what the Administrator and I felt after we got our reports, is that nonetheless, despite all these factors, why is there

such a high differential, why 40 cents, why 38 cents if it costs 3

to 4 cents for RFG–2. And so I think this compelled us to write

Chairman Pitofsky to see—and the explanations we were getting

from the oil companies were not adequate, and not, by the way, as

eloquent as you two did, the three of you. It was, well, it was just

OPEC or some other reason. So this is why we’ve asked for this

probe.

Mr. RYAN. Well, Mr. Richardson, if I could mention, I believe,

Mr. Pitofsky, the original FTC investigation was instigated by

Chairman Henry Hyde and Jim Sensenbrenner on June 7th; is that

correct?

Mr. PITOFSKY. It was the first or one of the first requests that

we received.

Mr. RYAN. And then I believe the Wisconsin delegation followed

up, where we met in Senator Kohl’s office, before the two administration officials asked for that. But, Mr. Richardson, what I’m getting at is it sounds like you already knew these factors were out

there. It sounds like you knew there was something unique in the

upper Midwest, and yet you proceeded with this RFG mandate.

And given that you knew these factors were out there, that you

knew something unique was in the Midwest, we had a different

blend, we used ethanol, we had these problems—we knew we had

an Explorer Pipeline problem, we knew we had supply shocks, you

still went ahead with the mandate. Then we find out we’re paying

40 cents more a gallon of gas, and now we’re pointing fingers and

we’re trying to get the FTC to give us an answer in 6 weeks. Meanwhile, Wisconsin and Illinois consumers pay an average of 40 cents

more a gallon of gas for the summer months.

Couldn’t we have not placed the mandate, given the information

you had in your hands at the time, found out what was going on,

then worked on this mandate?

Ms. Browner, let me ask you to——

Ms. BROWNER. I’m happy to answer the question. I think that it

is important that there was broad support for the FTC investigation.

Mr. RYAN. I support it as well.

Ms. BROWNER. One of the reasons that EPA and DOE asked for

it is that we did send our own investigators out into the field, and

based on the answers they came back with, based on the evidence

they came back with, we did not see an answer to the question,

and thus, we felt the FTC investigation was warranted.

The second point I would like to make is that the issues that are

presented particularly to Chicago or Milwaukee or both of them,

while they certainly are issues in those areas, they are not necVerDate 11-MAY-2000 10:49 Jul 30, 2001 Jkt 000000 PO 00000 Frm 00169 Fmt 6633 Sfmt 6633 C:\DOCS\73069.TXT HGOVREF1 PsN: HGOVREF1
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essarily unique to those areas, so they don’t explain why you have

a price spike in Chicago and Milwaukee. The example I’ll give you

is that ethanol is used in St. Louis. About 50 percent of the Louisville gasoline is an ethanol blend, and yet you don’t see the same

kind of high prices. If the problem is ethanol, if the problem is that

putting ethanol into cleaner gasoline is costing money, then you

should see a price differential in other areas that use it.

Second, if the problem is the Explorer Pipeline, then you should

see a price problem in other areas serviced by the Explorer Pipeline. And I said this before you came in: St. Louis gets 70 percent

of its product from Explorer. I think Milwaukee, Chicago—— Mr. RYAN. They received a waiver though, didn’t they?

Ms. BROWNER. They were affected by the pipeline break. They

had three tanks go dry. They requested a delay in the startup of

the program. Congressman LaTourette and I discussed this previously. It was an enforcement discretion. There are waiver provisions.

But the point I would like to make is that all of the facts and

all of the issues that we have all been looking at, the pipeline, the

issue of is it more difficult to make ethanol-blended gasoline—we

don’t believe it is, but some people have put that on the table.

When you take all of those issues together, nothing has changed

with respect to any of those issues in the last month. In fact, nothing has changed with respect to any of those issues in the last several months. And yet, what you are suddenly seeing is a precipitous drop in wholesale prices. You cannot point to why wholesale

prices are suddenly coming down, because none of—if those are the

reasons, if it’s because of the pipeline, if it’s because ethanol is

harder to use—I don’t believe that—but if those are the reasons,

then why suddenly, with no change in the recipe for ethanol, with

no change in the pipeline capacity, do you see a drop in price? And

that’s what we’re asking the FTC to look at.

Mr. RYAN. So you’re suggesting that once Mr. Pitofsky got started, prices went down?

Ms. BROWNER. I certainly think it is fair to note that on the date

that the FTC, which I think was the day after the administration’s

letter, which followed after our investigation and other letters,

prices did drop. That is a fact. They did begin dropping, and we can

show you—— Mr. RYAN. Isn’t it true that the spot price started declining much

sooner than that though? Didn’t the spot price start going down,

I think, June 7, and between June 7 and June 21 it went down

about 40, 45 cents?

Ms. BROWNER. The price that we have been——

Mr. RYAN. Before the FTC?

Ms. BROWNER. The price that we have been watching is the price

that is posted on OPIS, the Oil Price Information Service. That is

a privately owned service that monitors the price of what the

trucker pays when he or she pulls up to the tank farm to put the

product in their truck and drive it to the pump. That is the price

that is changing on a daily basis. That is the price where the vast

majority of this product is moved around, and that is the wholesale

price that we have been referencing that has dropped now on the

order of 40 cents a gallon wholesale.

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And it’s not being passed onto the consumer, which I think is a

question we all have. Why is the consumer not getting the benefit

of this dramatic drop in wholesale prices? And why, with no change

in any factor—and you and I may disagree on all the factors—but

it is true there’s been no change in any external factor—did you

suddenly see this rapid decline in wholesale price. Those are questions we should all get an answer to.

Mr. BURTON. Excuse me. Mr. Ryan, our time has expired on this

side. We have to yield to the minority for their 30 minutes, and if

you can, we’ll have you back.

Mr. RYAN. Second round?

Mr. BURTON. Yes, second around.

The minority, who is going to control your time on your side?

Will you control it?

Mr. TIERNEY. I’ll control it.

Mr. BURTON. Mr. Tierney, you’re recognized for 30 minutes.

Mr. TIERNEY. Thank you. Thank you all for joining us today, and

for lasting through the delays.

I want to cover some of this ground quickly, and then move on

to some areas particular to my district, but if companies fail to

keep their inventories up—and Mr. LaTourette suggested that the

EPA and Department of Energy and the companies all might take

some, or might have taken some participatory action on that, but

to my knowledge, DOE doesn’t have any authority to force a company to keep its inventories up. Does it, Mr. Secretary?

Mr. RICHARDSON. No, that’s correct.

Mr. TIERNEY. And the EPA doesn’t have any authority to do that.

Ms. BROWNER. No.

Mr. TIERNEY. So I don’t know why we’re here talking about why

everybody has to share the blame. If there’s enough oil out there,

and they choose to keep their inventories down and then create

more of a demand so they can jack their prices up, why should we

share the blame with them? And you have a pipeline problem, if

in fact there were one, one was a fire and one was a leak, Mr. Secretary, do you have any control over the pipelines?

Mr. RICHARDSON. No, it’s the Secretary of Transportation, and

we wouldn’t—— Mr. TIERNEY. But he wouldn’t have any control either.

Mr. RICHARDSON. Right.

Mr. TIERNEY. And neither the EPA. And so there they are, that’s

either bad operation or bad maintenance. And of course, it doesn’t

affect their bottom line, they’re just going to pass their costs along

and get it, but they’d like to share the blame with you.

And the last thing, I guess, is like if 2 cents to 8 cents is what

the EPA regulations were going to put in for the gasoline on that

situation, holding off on June 1st wasn’t going to make a hell of

an impact on that, was it?

Ms. BROWNER. If I might just say something, this recipe for

cleaner gasoline was agreed to with the oil companies in 1993.

They had 7 years notice of what would be required.

Mr. TIERNEY. But even if putting that aside, and assuming

they’re as bad there as they were with their inventories and with

their pipeline maintenance, it was a 2 to 8-cent increase, and that

was that.

168

Ms. BROWNER. Right.

Mr. TIERNEY. So then I think we’re chasing around a lot of phantom people around here, and we ought to think of where this situation really lies as those prices go up and those situations get created.

Mr. Secretary, can I just ask you a couple of questions about

home heating fuel? You know, we had experience last year in New

England with a low supply and high demand for home heating

fuels. And what’s your anticipated forecast for this coming winter?

Mr. RICHARDSON. Well, we are concerned, Congressman, we are

very concerned about the supply situation, and this is why I think

it is so important, the leadership that many in this committee have

shown, you and Congressman Sanders, for the Northeast heating

oil reserve that we need, because what we need to establish is a

reserve that doesn’t deal with prices, that deals with emergency

supply situations. What we are looking at is 2 million barrels, have

it ready in the event, have a trigger similar to the Strategic Petroleum Reserve based on emergency supply situation.

We are concerned with the level of natural gas, with home heating oil. We are concerned that unless we prepare now, there may

be some emergencies that we will not be ready for. And we don’t

want to repeat what happened last winter with the unusually cold

January and some transportation problems that we had in your region, as you remember. The Coast Guard had to come in. We don’t

want to have the situation where the truckers and many others,

the home heating oil operators, are in an emergency situation.

Mr. TIERNEY. Well, we know Mr. Sanders had a bill to set up

that Petroleum Reserve, Strategic Petroleum Reserve for the

Northeast area, and it lost by two votes. But, fortunately, and miraculously, I guess, there was a swivel of opinion on that, and the

other night it was passed with some pretty good support. But we

haven’t funded it yet, and it is not on the President’s desk. So I

ask you, assuming that it hasn’t moved at the speed we want it to

move, do you have authority to do that unilaterally?

Mr. RICHARDSON. We need full authority—this is a whole issue

involving the entire Strategic Petroleum Reserve. The House has

passed, but it has languished still, the authorization for me to have

authority with the Strategic Petroleum Reserve, my lawyers are

telling me we need the full authority. So I would just urge as a national priority that every effort be made to pass that and to move

it forward so we have that authority to use in an emergency.

Mr. TIERNEY. So you are saying basically without the legislative

action, you are not going to have authority within your own position to take action?

Mr. RICHARDSON. Well, you know, you don’t want to make a conclusion like that, but certainly we need the full authority, Congressman, for a variety of activities regarding the Strategic Petroleum Reserve. I was able—my lawyers said to me that I could use

it—I used it last week—a swap. There was a dry dock problem in

Louisiana, and we were able to exchange some Strategic Petroleum

Reserve oil with Citgo and other companies, 500,000 barrels. This

was an emergency. We had the authority to move ahead.

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But it is just very murky, and I would urge you, whatever it

takes, to get that authority fully passed. It should be bipartisan,

but it is somehow held up. I think it is just part of the delays.

Mr. TIERNEY. I am going to ask you something that is the flip

side. On the one hand, we have people in their homes who probably

ought to know that they might be able to get a fixed-price contract

with their deliverers. Is there anything that the Department is

doing to give people that knowledge that that might be an option

for them, to at least help some people cap what might be escalating

prices?

Mr. RICHARDSON. Well, we think that these fixed prices protect

consumers, and we have what are called consumer-friendly information that we disseminate to consumers that we do have.

Through the Energy Information Administration, which has been

praised roundly by this committee, we are able to make some of

these forecasts, and through their public information system, their

Web sites, they can forecast energy supplies that help consumers

make good fuel purchase decisions.

Mr. TIERNEY. On the flip side of that, I have my dealers, my

folks that go out and deliver, and their concern is that the companies are trying to lock them into some pretty significant fixed-price

contracts, and their concern is that those prices might go down—

they have two concerns: one is that there won’t be anything for

them to deliver, and the other is that if they set into a fixed price

now and prices go down, they are going to have unreasonably high

costs.

Can you give them any comfort on the first?

Mr. RICHARDSON. Well, I think your small home heating oil operators should contact us, because I think we’d be ready to work with

them on how we can provide more consumer-friendly, small business-friendly information on fuel purchases, on heating oil supplies,

or other factors that might be needed.

Mr. TIERNEY. Let’s have them do that, and I thank you.

I am going to give 5 minutes to Mr. Sanders now.

Mr. SANDERS. Thank you, John.

Let me begin by thanking Administrator Carol Browner for your

work on the environment. As we enter the 21st century, there is

no reason why millions of people should suffer respiratory problems

and other illnesses because of filthy air. There is no excuse for

that. And I applaud you for the work that you are doing.

Secretary Richardson, thank you for the help that you are giving

us on the home heating oil reserve. I think you share our feeling

that we want to not see next year a huge spike in home heating

oil. The reserve makes sense.

As John just mentioned, we had significant bipartisan support in

the House the other night for it, but we are still going to need the

estimated $10 million to get the funding to set up that reserve, and

we would very much appreciate any help that the administration

could give us to make sure that that happens.

Let me ask Mr. Pitofsky a question. I support the investigation

of price gouging in the Middle West, but as you know, many of us

in New England were asked last March to investigate the increases

in home heating oil that we experienced. I think you received a letVerDate 11-MAY-2000 10:49 Jul 30, 2001 Jkt 000000 PO 00000 Frm 00173 Fmt 6633 Sfmt 6633 C:\DOCS\73069.TXT HGOVREF1 PsN: HGOVREF1
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ter from many, many Members of Congress on that issue, and as

of now, we have not yet received a reply from the FTC.

Can you give me some assurance that we are going to be getting

some response in the very near future?

Mr. PITOFSKY. Yes. The very near future.

Mr. SANDERS. OK. I appreciate that. That is a brief answer, and

it is the answer I wanted to hear. Thank you.

Mr. Pitofsky, let me ask you another question, not talked about

as much, I think, as it should. In the last number of years, we have

seen significant mergers within the oil industry, as you know.

Major oil companies are merging with other major oil companies.

There are some people, including myself, who believe that that is

going to result in less competition and the consumers getting less

of a fair shake.

Is this something that the FTC is looking at? What impact on

mergers and less competition in the industry having on driving

prices up?

Mr. PITOFSKY. It is a very interesting question, and it deserves

to be addressed.

As you may know, I and my colleagues are very concerned about

the move toward concentration in the oil industry. In the last 4

years, we have reviewed four, what I think can fairly be described

as mega-mergers. We have not let any of them go through without

restructuring. On the last of these mergers, BP/ARCO, we went to

court and required restructuring.

I am generally concerned about where we are going in this particular industry. However, as far as the Midwest was concerned,

which is the focus of our present investigation, Midwest and West

Coast, I took a look, and the fact of the matter is that I don’t think

any of these mergers involve firms that have much of an overlap

in the Midwest. So there are plenty of explanations, but I don’t

think the merger wave is one of them.

Mr. SANDERS. OK. At some other point, I would like to pursue

the issue of mergers in general with you.

Let me just ask perhaps you, Mr. Pitofsky, or anybody else on

the panel who wants to respond: I am not a great fan of many aspects of globalization. I must be honest with you. It seems, though,

very clear to me that OPEC, by definition, is a cartel whose goal

is to limit production. I don’t think there is any debate about that.

If we had the head of OPEC here, that is what he would tell you

the reason for existence of that organization is. Correct? That is not

a great debate.

What I don’t understand—and I know this is not necessarily your

area as opposed to our trade people—why hasn’t somebody gone to

the World Trade Organization and said, excuse me, OPEC is violating every concept of free trade in terms of the production and distribution of oil? Does anyone want to comment on that? I mean, it

seems so very obvious, and I am not a great fan of WTO. Does anyone want to comment on that; Bill; Carol?

Mr. RICHARDSON. Not really, Congressman.

Mr. SANDERS. Am I missing something, or is this an organization

designed to limit free trade in a world which is supposedly moving

toward free trade? Mr. Pitofsky, what am I missing here?

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Mr. PITOFSKY. I don’t know that you’re missing anything. Let me

break this down. As a matter of law, it is a cartel, except that it

is being run by nation-states.

Mr. SANDERS. Right.

Mr. PITOFSKY. And, therefore, as a matter of law, it would be difficult, if not impossible, to get at it.

As a matter of negotiation and diplomacy, you are asking why

don’t we challenge OPEC in some other way, but it is not part of

the role of an agency like mine to address that. It is really a State

Department issue.

Mr. SANDERS. Well, I think it is a USTR issue, probably, and I

share the concern of many Americans that we went to war defending Kuwait and Saudi Arabia, and I think we deserve a little bit

fairer shake.

I yield back the balance of my time.

[The prepared statement of Hon. Bernard Sanders follows:]

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Mr. TIERNEY. Thank you. I yield 5 minutes to Mr Kanjorski.

Mr. KANJORSKI. Thank you very much. I know all of you seem

to be unwilling to postulate why the price is what it is, but let me

ask you some simple questions to start with.

Mr. Secretary, do you directly impact on the price of a gallon of

gasoline sold in the Midwest?

Mr. RICHARDSON. No.

Mr. KANJORSKI. You don’t set the price?

Mr. RICHARDSON. No. No, we don’t, Congressman.

Mr. KANJORSKI. It seems to me we are talking about 40, 50, 60,

70, 80 cents here, and we have been talking during the day the

question of supply and demand.

Just some things I may be conscious of, the world market for a

price of a barrel of oil was about $32 a barrel in February. It is

$31 or $32 a barrel today. The processing plants, to my knowledge,

refineries, etc., have not made any investments in that last 6-

month period for a recapture of capital. There is no further investment there.

What explains the fact that in February, with relatively the same

supply, or a little less, and with a little higher demand today, the

actual or real cost of gasoline as opposed to the price of gasoline,

what explains that differential? Who made the determination of

what to charge?

Mr. RICHARDSON. Congressman, if you recall—you were right

about your February statistic. In March, OPEC met and, as you recall, we worked with OPEC to have their production increase.

What then happened was oil went from 34 to 23 in a short period, but then it started coming back up. The reason is very simple:

Demand has outstripped supply, and demand growth, the second

quarter, worldwide demand growth has increased by 2.1 percent,

which is a record, almost unprecedented demand growth. And this

is international, and a lot of it has been fueled by us.

But since that time, Congressman, February, there are 3.5 million more barrels per day out there in the international market.

But you still have a low stock problem. You still have unprecedented demand. And that is also accounting for low gasoline stocks.

Mr. KANJORSKI. But the real reality is that it doesn’t cost any

more today to make a gallon of gasoline to put into a tank in the

Midwest than it did probably in February. So somebody sets a differential price there, and the price, it seems to me, is supply and

demand and what you can get for it. It is a form of rationing. You

are going to push the price up until people stop buying at a certain

price so that you can provide the demand out there. Isn’t that the

concept of price?

Mr. RICHARDSON. Yes, that’s accurate.

Mr. KANJORSKI. So these people are wondering, you know, who

charged more. The oil companies could have maintained the same

income level they were making in February or March by keeping

the gasoline the same price in the Midwest as it was selling in February or March.

There was a selection to set a higher price, whether it was for

purposes of discouraging purchases and demand, or for whatever

reason. But, nevertheless, does anybody there really believe that

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they are not going to show an inordinate amount of profit with that

40, 50, or 60 percent increase?

And what I am really wondering about is why are we so fancily

stepping around the issue. The Government doesn’t set the price.

Let’s tell the American people. That is what my friends on the

other side of the aisle have been arguing about for 20 years. They

want a supply and-demand free market. Well, they have got it. If

they want to charge $3 a gallon in the Midwest, there is nothing

we can really do about it, or $4, whatever the consumers will pay.

And I think we should send that message to the American people.

It is not what Ms. Browner in EPA—2 to 8 cents, that didn’t do

a damn thing. It is not the fact that you didn’t get them to give

us another billion—or a million barrels a day in the negotiations.

The fact of the matter is a private organization organized for profit,

saw an opportunity to charge a higher price and make a greater

profit.

We had earlier testimony from a trucker today that in February

and March he had that price with diesel fuel. Diesel fuel in New

England was selling for $3 a gallon. It was just absolutely unreasonable. It would go up at the rate of 40, 50 cents a day. And his

price went up 125 percent.

Now, the question is—you know, I think we should send the message. It hasn’t changed since the diesel fuel increase. It is not

changing now. The fact of the matter is what we do have to watch

is what you were saying, Mr. Pitofsky. If we don’t get competition

out there and if we have people who control or monopolize markets,

they can literally set the price for energy at any price they want.

And I think the second thing we have to worry about is in other

energy fields, such as electricity, as we deregulated electricity in

this country, the electrical companies will be able to set the price

of supply and demand at any price they wish, and the American

people have to pay it. Is that correct?

Mr. PITOFSKY. Yes, it is—the price will respond to competitive

pressures, and if you have a monopoly or something approaching

a monopoly, then the sellers can set the price anywhere they want.

But, you know, in the Midwest, where we are looking at this tremendous price spike, there are seven independent refineries that

are operating, and two or three outside the area that ship into the

area. So you would have expected that competition would not allow

price to spike up that way, especially because you can’t attribute

a price spike in the Middle West to OPEC. OPEC is as guilty of

raising prices on the East Coast and the West Coast as in the Middle West. That’s what’s tricky and that’s what’s challenging about

this investigation.

Mr. KANJORSKI. Thank you very much. I yield back.

Mr. TIERNEY. Ms. Schakowsky, 5 minutes.

Ms. SCHAKOWSKY. Thank you.

First, I would like to thank all three of you for being so available

to us in Chicago when we have had hearings and your top staff

have been wonderful. We really appreciate your answering all of

our questions. A special thank you also to Administrator Browner.

I want to make it clear that people in Chicago are quite literally

breathing easier because of the clean air standards, and I think

that in all of this, we have to keep that clearly in mind.

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I wanted to ask Secretary Richardson if he would react to a bill

that I am going to introduce that I hope will help us head off some

future problems. It would require the Department of Energy to not

only monitor petroleum inventories and refinery production nationally and regionally, which I believe you do, but when production

rates or supplies indicate that a shortage and subsequent price

spike may occur, the Department of Energy would have the responsibility and the authority to sound the alarm and notify Congress

and to offer suggestions for appropriate ways that Congress could

respond.

I wanted to ask you what you think of that.

Mr. RICHARDSON. Congresswoman, it sounds like a good bill. We

support it. I think it makes sense.

The Energy Information Agency, which we have some representatives here, which is a statistical independent agency, does a lot of

that tracking. But I think we need to have better tracking of domestic and international petroleum inventories.

One of the big problems we have right now is low stocks, and

what has happened in the international and national community is

oil data—if we could just have one oil data statistics that we all

believe in, oil companies and governments, we’d be a lot better off.

There are a lot of different data there, so I would be interested

in working with you to find ways that we can do this, tracking distillates, tracking inventories. So I think the bureaucratic answer

would be that we will work with you. I will say that we will support your bill in principle if we work together.

I would ask, though—and since there is quite a bit of support for

the Energy Information Administration—which is independent, by

the way. They don’t report what I tell them to. I wish they would

sometimes. But they have some funding problems in the conference

right now, so any help you could give us to give them the budget

that they need—they do excellent work. They work all night. They

are all these academic statistical types that crank these things up.

But I think if we can strengthen them, but also incorporate your

bill, I think we would have something that would be valuable for

the country and for the international community.

So I like your bill and in principle we can support it.

Ms. SCHAKOWSKY. I appreciate that. I look forward to working

with you on both issues, the appropriate funding and the language

of this.

I wanted to give the Administrator an opportunity to, I think,

correct some misunderstanding—I see Representative isn’t here.

Oh, are you there? I am sorry.

Mr. RYAN [presiding]. It is Chairman Ryan.

Ms. SCHAKOWSKY. Excuse me, Chairman Ryan. [Laughter.]

The CRS report that I think you were looking at that attributed

25 cents to the RFG that we were using——

Mr. RYAN. The unique RFG situation.

Ms. SCHAKOWSKY [continuing]. I believe was updated, and I wondered if you could explain that.

Ms. BROWNER. Yes. We have seen—I want to make sure we have

all our facts right here. Mr. Chairman, Congressman Ryan, as I

understand it, you are referring to a June 16th memorandum from

CRS that didn’t look at the production cost, what it actually cost

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the refiner to make RFG, but simply looked at the consumer

price—which is important—looked at the consumer price in both

Milwaukee and Chicago, and it found exactly what we found, which

is that the RFG in those two cities was selling 40 to 50 cents more

than the RFG ethanol fuels in other cities. I mean, that is all they

did. They went out and looked at current consumer price issues.

They didn’t go to the refiners and say: How much does it actually

cost to make cleaner gasoline? Is there any cost differential if you

make that cleaner gasoline with ethanol?

The CRS report that is being released today actually looks at the

cost for the refiner of making the cleaner gasoline either with ethanol or one of the other additives, and it is very, very much in keeping with what EPA itself said in 1993 when we reached this agreement for cleaner gasoline, which is it would be approximately 3 to

7 cents, for the non-ethanol-blended cleaner gasoline 4 to 8 cents,

and I’ll actually read from the report. This is a quote from the CRS

report of today saying, ‘‘The RFG program by itself has caused only

limited price increases on the order of 2 to 8 cents per gallon,’’ which is precisely what we predicted.

And I think, Chairman Ryan, not to dispute what CRS said previously, but they were looking at a different type of number. They

were simply looking at how much was an ethanol blend selling for

in, I don’t know, Louisville or St. Louis versus how much was it

selling for in Chicago and Milwaukee, and those are very different

issues than how much does it actually cost you to make ethanolblended cleaner gasoline.

Thank you.

Mr. TIERNEY. Thank you.

Mr. Ford, 5 minutes.

Mr. FORD. I know the witnesses have been here some time. I appreciate them staying. I wanted to personally say to both Ms.

Browner and Secretary Richardson—I might add, Chairman

Pitofsky, my cousin, who is in the room, was a student of yours,

I believe, at Georgetown and he commented—you wouldn’t remember him for anything, but I said, hey, I am on the panel, he may

at least pretend like he remembered you. [Laughter.]

He is sitting there in the back, but I would love for him to have

an opportunity to meet you. But I want to thank the three of you

for your patience today and certainly say to Secretary Richardson

you have a full plate at this point, and I am one Member that appreciates your leadership and your persistence. And I am quite confident that if you say you are going to resolve the issues, all the

matters that are on your plate now at the Department of Energy,

I am willing to wait and see and willing to give you the benefit of

the doubt.

I say to Ms. Browner thank you for clarifying some of these

issues for us with regard—it is amazing. Before you got here, I listened to some of my colleagues on the other side, and all of us now

are experts on how ethanol mixes with all of this stuff. I don’t profess to be one, but in the last few days, the amount of wisdom, scientific wisdom that somehow has befallen my colleagues on that

side of the aisle is nothing short of remarkable. So I thank you for

clarifying some of these issues for us, and I don’t look forward to

seeing you before this committee again dealing with this issue. I

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hope we let you get back to work and get these doggone gas prices

lowered for all of us across the country.

Again, thank you for coming, and always excited to see Chairman Ryan in the chair.

With that I yield back to Mrs. Maloney.

Mr. TIERNEY. Thank you.

Mrs. MALONEY. Thank you.

I would like to particularly welcome Secretary Richardson. Good

to see you again, one of my former colleagues. Do you agree—as a

former Member of Congress, I would like to see how you rate Congress. Do you agree that two essential components of a coherent

energy strategy are diversification of energy sources and the reduction in the use of inefficient energy? And how would you rate Congress’ consideration of these two goals so far?

Mr. RICHARDSON. Well, the answer on the first is yes, and I

think, Congresswoman, the key here is—what has been outlined is

a number of problems that we have as a country. We need a diversified energy policy that is a balance.

And let me just say that in administration we’ve have 7 years

of unprecedented economic growth, but at the same time, in Ms.

Browner’s area, sulphur emissions have declined considerably. So

I think it shows that as a Nation we have balanced properly.

What we need is a number of initiatives that we have proposed

that the Congress hopefully will pass. We need tax credits for energy efficiency. We need the Strategic Petroleum Reserve reauthorized. We need funding for alternative sources of energy—solar,

wind, biomass. We need tax credits for energy efficiency. We need

renewable energy. We need the Northeast reserve. We need a number of, I think, other measures that have been brought up and that

are still languishing. The Congress has to legislate and appropriate

many of the initiatives that we feel are needed.

So I think the main message here is that we need to work together to get soon many of these measures enacted, because, otherwise, we won’t have this diversified energy supply. Otherwise, we

will not be able to keep addressing some of the problems that have

come up. You can’t just blame one entity or one movement. We

have a multiplicity of factors that have to be dealt with.

Mrs. MALONEY. I would like to ask anyone on the panel to comment on the Unocal lawsuit.

Some people have alleged that it may have had some impact on

the raising of prices. Would you give us an overview if you believe

that is true or not, and if not, why?

Ms. BROWNER. I would be happy to share with you what the oil

industry, oil companies, have told us that they are managing with

the Unocal patent that they are able to work around it. We specifically asked them—Bob Perciaseppe and George Lawrence, who are

here from my office, who participated in our investigations and the

meetings we had with the oil companies—this question, and the

sense that was conveyed to us is that it was not an issue.

I would certainly hope that it would be part of Chairman

Pitofsky’s investigation.

Mr. PITOFSKY. We will take a look at it.

If the threat of paying royalties to Unocal has had an effect here,

it would have been a limited and modest effect, I believe.

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Mrs. MALONEY. Could I just in a general sense say, what has

changed in the last recent history that could have caused these

prices to go up? Is there any change that you see? I would like to

ask any of the panelists to comment on that.

Ms. BROWNER. I would actually suggest it is—and then I will

defer to my colleague, but there is another way, maybe, to think

about it, with all due respect, which is what has changed that

caused them to come down. Nothing. Nothing caused them—— Mrs. MALONEY. Well, what caused it to go up, and what caused

it to come down? I would like to ask all three panelists if you have

any insight on this, what caused it to go up and what caused it to

come down.

Ms. BROWNER. I think, unfortunately, everything we went out

and looked at could not find a factor or a group of factors that you

could directly tie a 40-cent-per-gallon wholesale price increase. We

could not find something, and that is why we wrote to the FTC.

Mr. PITOFSKY. And I think our role in life is not to try to guess

or speculate, as attractive as that activity is, but to try to get an

answer to the question that you raised.

Mr. RICHARDSON. Congresswoman, I would just say in general

what has been in the last 20 years: No. 1, the return of OPEC as

a major entity; second, dramatically increased demand. However,

domestic oil production and domestic refinery capacity has not kept

up with that demand. So that is what is characteristic, I would say,

of the last 20 years, and as the world becomes more globalized, you

have got basically producer and consumer countries recognizing

that what is best for all is not a high price of oil, but a stable stability in oil markets, less volatility, and this is the point that we

have been making, that if we let the market, the international

market, dictate these prices and not artificially set prices, that we

will have that stability. What has been happening is there have

been production cuts. There have been other types of international

disruptions. I think if we just let the market be the dominant factor, not have these other entities that have been playing in this

field—this is why we have had these international dislocations.

It is like the international community is in the same boat. You

have got the producer and consuming countries. The United States

is a producer and consuming country.

Mrs. MALONEY. Well, my time is up. Thank you very much.

Mr. TIERNEY. I yield back the balance of my time.

Mr. BURTON. OK. Well, you had about 30-some seconds left. That

is fine. That is amazing.

Well, I will take 5 minutes now, since I have not asked any questions. One thing I would like to start off with is we have a 500-

year estimated natural gas supply, and automobiles run cleaner.

The environment is better protected if you use natural gas.

I have been told that you can buy some kind of a device to hook

onto your house where you can actually back your car up to it and

fill it up with natural gas overnight and have a gas supply, and

the cost would be somewhere around a third to half of the current

gasoline cost.

All I would like to say to you, all three of you, is that I wish this

administration would look into that. I think that would be a real

service to the country if we could start moving toward a supply

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that is almost limitless right now, that is clean-burning, that is

going to help the environment, and is going to cost less than half

of what the current gas that you are buying at the pump costs.

Once you started doing that, you could fill up at your house, and

if you did not have natural gas, once the gas companies and the

oil service stations around the country saw that that was a growing

thing, they would start supplying it. I think it would help the

whole economy and help with the environment as well.

So I wish you would look into that.

Ms. Browner.

Ms. BROWNER. I just want to say that we are very, very big supporters of that. In fact, the EPA fleet includes a number of compressed natural gas vehicles, and—— Mr. BURTON. Well, I understand that, and I—— Ms. BROWNER. You can buy it at gas stations now. That is a

great thing.

Mr. BURTON. I applaud you for that. Probably 60, 70 percent of

the homes in this country have natural gas piped in. If we could

encourage the use of this, encourage people to buy cars and the

manufacturers to manufacture them, to have that, I think it will

be a real service for the country and the environment.

Mr. RICHARDSON. I will be very brief.

I am delighted you are interested in this. We have at the Department of Energy a program, Compressed Natural Gas, that deals

with engines, that deals with vehicles, that deals with on-board

fuel storage, infrastructure, and we need some support to get that

more off the ground. We have started it, but the administrator, I

know, is very committed to this.

I think you have a—do you ride in a natural gas now?

Ms. BROWNER. Yes, we have it. Yes.

The problem with home use is they are going to need compressors. It is compressed natural gas.

Mr. BURTON. I understand.

Ms. BROWNER. That is what we have to figure out together.

Mr. BURTON. I understand. Congressman Kucinich and I and I

think Congressman Kanjorski has consented to start the wheels

rolling toward looking into this. I am sure the oil companies will

view that with a jaundiced eye, but that is something we want to

look into.

I would like to ask you, Secretary Richardson, in February 1999,

did you have a meeting in Saudi Arabia with Mr. Yamani, the oil

minister, over there?

Mr. RICHARDSON. No.

Mr. BURTON. You did not?

Mr. RICHARDSON. No.

Mr. BURTON. Did you meet with anybody in Saudi Arabia in 1999

about oil?

Mr. RICHARDSON. Yes. You will recall, Congressman, Yamani

used to be an energy minister. He is not now. He used to be.

Mr. BURTON. With whom did you meet in 1999?

Mr. RICHARDSON. Well, I met with the Crown Prince of Saudi

Arabia. I met with the energy minister, the foreign minister.

Mr. BURTON. Did you talk with them at all about the price of oil?

Mr. RICHARDSON. No, but I know what you are going to ask.

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Mr. BURTON. I know it is funny, but they always talk about that.

Mr. RICHARDSON. There was a false report that I had advocated

production cuts. I did not even talk to Yamani at the time, Congressman, and you know, if anything, I have been an advocate for

production increases to the consternation of many of these OPEC

countries.

What I was there for at the time in February 1999 was Saudi

Arabia had said they were ready to talk to American companies

about upstream investment, and I went there to pursue this.

Mr. BURTON. Mr. Secretary, with all due respect, I have only got

5 minutes, and I do not want to go into—I mean, what I want to

find out is did you talk to anybody about production of oil from the

OPEC countries or Saudi Arabia—— Mr. RICHARDSON. No.

Mr. BURTON [continuing]. Or anybody.

Mr. RICHARDSON. No. In that visit, no.

Mr. BURTON. Or any visit.

Mr. RICHARDSON. Oh, yes. Of course.

Mr. BURTON. When did you talk to them?

Mr. RICHARDSON. Well, I—just this year, I went to several of— in fact, almost every OPEC country advocating production increases.

Mr. BURTON. Let me ask you. Did you at any time during the

last 2 years talk to anybody about oil production cuts?

Mr. RICHARDSON. No.

Mr. BURTON. Anybody?

Mr. RICHARDSON. No. That was a false report that I—— Mr. BURTON. You did not talk to any country or any oil ministers?

Mr. RICHARDSON. None whatsoever.

Mr. BURTON. So the report that was in the paper was totally

wrong.

Mr. RICHARDSON. Yes, it was wrong. I have not even met

Yamani.

Mr. TIERNEY. I am shocked, Mr. Chairman, that the papers

would be wrong.

Mr. BURTON. I am just checking. I am just checking. He is under

oath. If that is what he says, then we will live with it.

Mr. TIERNEY. Put the journalist under oath. That would be

amusing.

Mr. BURTON. There it is. That is what we ought to do. Unfortunately, the first amendment would not allow us to do that.

Let me go into another issue, then, and that is the situation that

we had at Los Alamos.

I am running out of time. I will catch this the next round. Who

has time on your side? Do you have any questions on your side?

We will go to Mrs. Chenoweth. She did not participate.

Mrs. Chenoweth, you have been waiting a long time.

Mrs. CHENOWETH-HAGE. Thank you, Mr. Chairman.

Mr. Chairman, in December 1999, the Idaho Attorney General’s

Office issued a report on gasoline prices.

Actually, Idaho was one of the first to feel the increase in prices,

and the only possible reason that I could wish what we had early

on, on the Midwestern States, was that we finally got everybody’s

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Mr. BURTON. Without objection.

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Mrs. CHENOWETH-HAGE. Thank you.

Mr. Richardson, it is nice to see you again. After these last few

weeks, I think probably the Resources Committee looks like angel

food cake, doesn’t it?

Mr. RICHARDSON. Yes, it does.

Mrs. CHENOWETH-HAGE. I will not ask you to answer that, but

it was good to work with you then.

Mr. Richardson, I understand that the cost of ethanol delivered

to Chicago is 70 cents a gallon, and the cost for gasoline is $1.30

in Chicago. I just had my staff check on that.

So how is it that when you blend 70-cent ethanol delivered to Chicago, $1.30 gasoline delivered to Chicago, that we get $2.30-agallon blended?

Ms. Browner.

Ms. BROWNER. I am not sure I followed the numbers you were

using. I will tell you—— Mrs. CHENOWETH-HAGE. The price.

Ms. BROWNER [continuing]. That today the wholesale price for

the cleaner gasoline with ethanol and conventional gasoline in surrounding Chicago areas, the wholesale price is the same. It is $1.17

a gallon wholesale for the ethanol-blended cleaner gasoline and

$1.17 a gallon wholesale for what we refer to as conventional gasoline. The prices are the same.

There has been a price differential, and that is why I think all

of us agree the FTC needs to conduct an investigation of price differential that has not been explained, and then specifically the

question is why is it that the ethanol-blended gasoline in Chicago

and Milwaukee is significantly higher than the ethanol-blended

gasoline in all the other parts of the country.

Mrs. CHENOWETH-HAGE. And that is your testimony?

Ms. BROWNER. That is a question which we have investigated,

and we have not found an answer to that we think is acceptable.

Therefore, we have asked the Federal Trade Commission to look at

whether or not there may be inappropriate pricing activities on the

part of the oil company—companies, I should say.

Mrs. CHENOWETH-HAGE. Ms. Browner, do you believe that by

opening up more drilling in Alaska, we could better control the cost

of oil nationwide?

Ms. BROWNER. I do not believe that the answer to our energy

prices—and I agree we all need to be about dealing with those

issues across the board, not because of cleaner gasoline, but because of all of the issues that the Secretary has testified. I do not

believe the answer is opening up pristine areas of Alaska. I think

there are other solutions.

Mrs. CHENOWETH-HAGE. So then is it your testimony that we are

already at near maximum production here in the United States, so

we are dependent on foreign companies subsidizing us and producing more oil would not help us?

Ms. BROWNER. I am happy to share with you my personal opinion. In my professional job, I am not responsible for the decisions

in terms of oil production. That is not something that falls within

EPA’s responsibility.

Now, I do accept responsibility for that portion of the gasoline

programs that are designed to reduce air pollution in the dirtiest

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cities for the proposals that we have put forward to take sulfur out

of diesel fuel and to reduce fine particles which yet another scientific study has found contributes to respiratory illness, premature death.

I am happy to speak to the EPA responsibility for cleaner gasoline and less air pollution.

Mrs. CHENOWETH-HAGE. I think, just very briefly, I would like to

ask Mr. Richardson with regards to an administration energy policy.

I do remember in 1975 and 1976 when Jimmy Carter was our

President. We really engaged in a really sound energy policy. We

instituted and made a reality, the strategic petroleum reserves. We

had a policy that encouraged the production of electricity, like Mr.

Kanjorski early on mentioned that we may be facing an electricity

shortage very soon.

Carter instituted the Public Utility Regulatory Policy Act, which

opened up the whole market system to the plethora of ideas for energy. The Supreme Court ruled on his policy in a case entitled Mississippi v. FERC and AEP v. FERC, and in both of those Supreme

Court decisions, the Supreme Court ruled that it is within the public interest and it is our national policy to become energy-independent. Those decisions, of course, were in 1982, both of them—1982

and 1983. Since then, we have become more dependent on the unstable OPEC nations.

Mr. Richardson, I know you have kind of inherited this job, but

I keep being asked why can’t we see an energy policy.

I remember living through the Carter energy policy, and it really

was sound and it responded right away to the crisis. So, Mr. Richardson.

Mr. RICHARDSON. Congresswoman, thank you for asking the

question so constructively.

I think something that we need to do that is fundamental is to

boost our domestic production, and we have—the administration

recently submitted—I know in your part of the country and mine

it is important—a tax credit package for marginal wells, for G&G

expensing, for delayed rentals, tax credits for some of these independents that everyone thinks they are making loads of money, but

you know just as I do that they were hurt bad when oil was at $10

a barrel.

We also have about $4 billion out there in tax cuts for energy efficiency. This Congress has already passed $128 billion in tax cuts,

but we have yet to deal with these tax cuts for energy efficiency.

We need more investment in domestic production, alternative

sources of energy, domestic sources, energy renewables, as I said,

energy efficiency.

This program that we have for more fuel-efficient vehicles—I

know Congressman Burton is interested in this—with Detroit

where we worked to create more fuel-efficient engines for cars, sedans, and trucks by a date certain, distributed power generation.

You mentioned electricity. You know, as westerners, I am worked

about the Southwest, the Pacific Northwest. In California, especially right now, there could be some serious power outages. We

need to revamp and modernize our electricity grid.

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You mentioned the strategic petroleum reserve. It is not fully reauthorized. We need to do that.

So I think there are a number of steps that we need to take together to be able to say that we are dealing with energy self-sufficiency, that we are not overly dependent on imported oil, and this

has happened through a number of administrations. It keeps moving up. I think we need to move it in the other direction.

Mrs. CHENOWETH-HAGE. Thank you, Mr. Richardson.

Thank you, Mr. Chairman.

In closing, I would just like to say I would really appreciate seeing a decentralization of production.

Thank you very much.

Mr. BURTON. Thank you, Mr. Chenoweth.

Mr. Tierney.

Mr. TIERNEY. Thank you.

Mr. BURTON. Should I yield to you?

Mr. TIERNEY. If I were truly partisan, which I do not want to go

down that path here today, we would talk about the next 12 years

after Mr. Carter who established the policy and where it went and

in what direction in terms of energy, but I do not think we have

to go there because I think history reflects what happened in the

downward spiral that we went for 12 years succeeding the Carter

administration on that.

I think the other thing is since 1994, I do not remember anything

in the so-called Contract on America dealing with these very serious issues, if they really were that important, but this Congress

has to take some responsibility for giving the administration the

tools, in giving your respective Departments the tools to move this

country in the right direction, and I think some people in the country have——

Mr. BURTON. I am glad you did not go down that path.

Mr. TIERNEY. I am glad I did not, too. [Laughter.]

I think that Congress has to take some—and the people of this

country have to take some responsibility about conserving fuel and

looking at the way we consume.

With that, I will yield the balance of my time to Mr. Sanders.

Mr. SANDERS. Let me agree, as I very, very rarely do, with the

chairman. We do not agree on much.

He gave the example of natural gas not being fully utilized. Let

me just throw in something else. We have millions of Americans

driving cars today. They get 20, 22 miles a gallon, which my guess

is this is not a hell of a lot different than we had 20 years ago.

We are looking at an explosion of technology in every conceivable

area. They just mapped our gene code and so forth. Why is it that

there has not been revolutionary breakthroughs in terms of energy

efficiency in this country?

Mr. RICHARDSON. Well, Congressman, we are close to it. We have

a number of investments in fuel cell vehicles, in hybrid vehicles.

We work with Detroit on this partnership for new generation of vehicles which, by the way, the funding was cut last week in the

house, which we needed back, because what we are doing is saying—working with Detroit to develop those 40-mile-per-gallon, 80-

mile-per-gallon fuel-efficient engines in sedans and SUVs.

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So what we are saying to the American people is you can have

the SUVs, and we can make them more fuel-efficient.

Mr. SANDERS. Mr. Secretary, I myself do not know that we need

taxpayer money to help Detroit develop these things. The technology is—I have to believe that the technology is close to at hand.

Ms. Browner.

Ms. BROWNER. I think you are right. Actually, starting last

month, you were able to buy here in the Northeast, the Mid-Atlantic States, the hybrid cars.

Mr. SANDERS. Right.

Ms. BROWNER. They bring with is a tremendous opportunity for

fuel efficiency, for much lower tail-pipe emissions, less air pollution.

Mr. SANDERS. Right.

Ms. BROWNER. We are seeing these.

I think the work the administration has done is incredibly important because it almost leap-frogs that.

I would just say from our perspective at EPA, in addition to the

work we do on the fuel side with the automotive industry with

DOE, we also have a very aggressive program on simply reducing

energy use, on energy efficiency. Every time you use a computer

and that computer goes to sleep, the screen goes to sleep when you

walk away, that is an EPA industry invention to save electricity.

We just reached an agreement with buildings like the World

Trade Center, the Sears Tower, the Nasdaq, huge, huge buildings

where we were able to show them that it was cost-effective to reduce their energies, if they put in a better heating and cooling systems, if they changed their windows, if they changed their lighting

systems.

What happened is the technology for energy efficiency has advanced dramatically, and yet, we have found it all very, very difficult to get the public to understand the opportunities that exist

for these efficiencies.

One of the things that Congress certainly can do, and many of

you have done this, is support these outreach programs where we

actually go out and show the business community that they can do

their part for less pollution, less energy use, and save money, incredibly successful.

Mr. SANDERS. I agree with you. Let me just ask you this. In your

judgment, has the automobile industry been as aggressive as they

might? I think the car that you are referring to is, what, a Toyota?

Ms. BROWNER. There are several of them coming out. Toyota and

Honda are the first two to market.

Mr. SANDERS. Has our automobile industry been as aggressive as

they might in your judgment?

Ms. BROWNER. I think that for a variety of reasons, the investments necessary to get to the next generation, the 80-, 90-mile-pergallon cars, was not, unfortunately, made early enough, and that

is why I do think Government participation, which this administration has been leading, is very, very important in these programs.

We do a lot of the research in our own EPA labs that lead to

these kind of cars. I think we would all agree we would like to have

seen it happen more quickly than it has happened, but we are on

the verge of having these vehicles.

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Mr. SANDERS. When I was mayor of Burlington, we pushed light

bulbs that were much more energy efficient. Has this country done

as good a job in that respect? There are light bulbs out there that

are very—— Ms. BROWNER. Yes. Unfortunately, we are not getting as much

conversion to these energy-efficient light bulbs.

It is hard. It is very hard because you go to the store and there

is the 67-cent light bulb that will run out in a couple of weeks if

you use it all the time, a couple of months perhaps. Then there is

the $5 or $6 light bulb which will burn for 5 or 6 years. Convincing

people to make that kind of an investment has been something of

a struggle, and it is something that we are trying to do at EPA,

but we all need to work on doing. There are real energy efficiencies, savings, to be had. The technology is there. It is getting

people to use it.

Mr. SANDERS. My last question, because I think you have raised

an important point, does EPA or another Government agency have

money for outreach efforts to try to explain to the public about the

advantages of moving in that direction?

Ms. BROWNER. We do get some money. The Congress has not

been willing to fully fund the administration’s request for our energy efficiency programs; for example, EPA’s Energy Star program

which is some of the programs I have been talking about. I think

each and every year, the request is probably cut on the order of 30,

40, maybe as much as 50 percent in some years, and I think right

now in the appropriations process, we are looking at a similar lack

of funding.

We think these programs are hugely, hugely successful. They do

take a modest investment of Government resources, but the returns, less pollution, less dependence on foreign oil, good technology. It is a win-win.

Mr. SANDERS. The technology is there.

Ms. BROWNER. Yes.

Mr. SANDERS. It is a shame that it has not been utilized.

Ms. BROWNER. The energy-efficiency technologies are there.

American companies have led the way to create them, and what we

need to do is create the consumer demand and educate the consumer on why it is in his or her interest to use it.

Mr. SANDERS. Thank you.

Mr. BURTON. The gentleman’s time has expired.

Mr. LaTourette.

Mr. LATOURETTE. Thank you, Mr. Chairman. I just have what I

hope are three short questions to clean up where I was before. I

saw the administrator’s stomach growling.

Ms. BROWNER. Sorry.

Mr. LATOURETTE. So I will try to be as quick as I can.

At the end of my 10 minutes the last time, I think I was making

the observation that perhaps there were things that everybody

could have done better now that we have the 20/20 hindsight to

look back at what happened in the Midwest, and the ever non-partisan/bipartisan Mr. Tierney then suggested since you did not answer my question either yes or no that perhaps there was no responsibility on the part of either of the agencies that you proudly

represent.

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I do not know how that goes in Massachusetts, but in Ohio, they

would like an answer, I guess. So I would ask you again, and this

time, if the chairman will not give the option of saying yes or no,

knowing what we do today, is there anything, Madam Administrator or Mr. Secretary, as you look at what happened in the Midwest that your agency could have done better than it did? And if

it is no, that is fine with me, but if it is yes, I would like to know

what it is.

Ms. BROWNER. Congressman LaTourette, we were monitoring

this situation back in the spring, and the reason we were doing

that was because a new cleaner gasoline program was coming online. We had been working with the oil industry for 7 years. We

had written the recipe 7 years ago. We did send people out into the

field to visit the tanks. We got questions.

I will honestly tell you that we were looking at everything, and

we could not see any individual thing that would lead to this situation.

I will also tell you since the situation occurred, we have not been

able to point to any individual thing or any string of things. I wish

there was a different answer. I wish this had not happened. I wish

that we had seen something in the field that would have allowed

us to correct this in advance.

We went to the oil companies repeatedly. We asked were they

going to experiment problems. They did not anticipate problems.

The tanks, the terminals were required to have the cleaner gasoline on May 1st. They had it on May 1st. Everything was moving

along, and then, suddenly, in just two cities, boom, the price went

up.

Mr. LATOURETTE. The only thing that did not fit with what I had

been told is I had thought that the folks that are going to be on

the next panel notified the EPA in June 1999, that they expected

this kind of problem. Is that your recollection?

Ms. BROWNER. My recollection of what we were told—I did not

meet with them. Other people in the agency met with them, but

they obviously shared it with me—is that generally supplies were

tight. They were tight in the conventional gas market. They were

tight in what is referred to as RBOB, which is the blend that ethanol is added to, but that they were adequate; that you did not have

situations of terminals going dry. You did not have the situation

of a pipeline being dry. You did have a pipeline that in March had

come down for a few days, but it was back up at 90-percent capacity.

You had trucks moving the product in. So all of the factors we

looked at and what we understood from the Department of Energy—and I do not think we misunderstood something—is that yes,

the situation was tight, but that it was adequate. The fact of the

matter is for June, what we have been told and what we ourselves

have seen, is that you actually have an increase in the amount of

gasoline product in the Chicago-Milwaukee area compared to last

June. You actually have—what is it—650,000 more barrels in that

market.

Now, as the Secretary said, you have more demand, but everything we were looking at indicated that a smooth transition was

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certainly in the offing, and there should be no reasons for price

spikes.

Mr. LATOURETTE. So the short answer to my question was no.

Ms. BROWNER. I wish it were different.

Mr. LATOURETTE. Mr. Secretary, anything you can think of that

maybe Energy could have done better?

Mr. RICHARDSON. Congressman, I feel very satisfied that our

team collected data. They were impartial. We work well together

as agencies, and we responded effectively. I give you credit for asking for this FTC effort, also.

Mr. LATOURETTE. Thank you.

The yellow light is on, and I will take your answer as no, too.

Somebody asked earlier about why when the wholesale price

came down, you cannot understand why it is not at the pump.

Again, the guys that I think deserve the raise gave me the observation that once the region begins to recover, there is going to be

some delay before the wholesale price improvements are seen at

the retail level, and I assume you agree with that, one.

Two, my dad said I need to ask you this question, Mr. Secretary.

In Desert Storm, we went over and defended Kuwait’s oil fields. We

sent young men and women over there to basically protect their

property. We were told again by your agency that they have excess

capacity.

Why the heck, since we now can travel the world through your

eyes—why the heck isn’t this country repaying its debt to the

United States of America for what we did for them during Desert

Storm and helping us out of this situation?

Mr. RICHARDSON. Congressman, right now, Kuwait does not have

excess capacity. They are a major producer.

By the way, they have just had a serious explosion there that

may affect some of their production. We hope that is not the case.

I will say to you this, Congressman. When we went to Kuwait

and Saudi Arabia and said it is important for the international

community, for the United States, that they increase production,

they did.

Mr. LATOURETTE. Not enough to—I mean, you deserve a great

credit, with the chairman’s indulgence. You deserve a great credit

because even though we are short, we are getting more oil out of

there than we ever did before because the demand is higher. So

you deserve credit for doing that, but the fact of the matter is they

have not increased it enough to make the difference that we need

not only in this country, but in the world. Isn’t that right? And

they could do it. If Kuwait could do it, Saudi Arabia could do it,

could they not?

Mr. RICHARDSON. Saudi Arabia right now, Congressman, is the

country with the most potential for increased capacity, but I will

say Kuwait right now does not. It is not there.

The Saudis, who have taken a leadership role in increasing production, have the capacity to increase, but within OPEC, they have

taken the leadership position.

Mr. LATOURETTE. Thank you very much.

Mr. BURTON. Mr. Kanjorski.

Mr. KANJORSKI. Thank you very much, Mr. Chairman.

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Several months ago at a meeting at the White House, Mr. Secretary, I think you were there, and after an hour or two, several

of us and the President were talking about fuel cells and

nanotechnology. I do not know if that jogs your mind, but we came

up with the recognition that, one, fuel cell work in this country is

being directed back to the petroleum industry as a fuel source as

opposed to going to hydrogen, and I think that could be a very serious mistake in terms of the volume of material that would be available for energy production, not only in this country, but in the

world.

Second, some of the movement in nanotechnology could really affect the composite industry and the manufacture of new vehicles

and all sorts of new processes, and the President that night asked

us to try and put together a summit, if you may recall.

Mr. RICHARDSON. Yes.

Mr. KANJORSKI. I do not think we have done anything on it. So

I am taking this opportunity to say, look, I am waiting for your

call, or do you want me to call you?

Mr. RICHARDSON. You are right. No, I think you should call me.

I have been a little busy lately.

Mr. KANJORSKI. Right.

Mr. RICHARDSON. You are right. I remember that commitment

for White House Summit on energy, on fuels. You are right.

Mr. KANJORSKI. Shall we get together in the next week?

Mr. RICHARDSON. Yes.

Mr. KANJORSKI. Because I have been dealing with a lot of the national laboratories, and I do find something—I mean, I know the

difficulty you had with some of them recently, but I understand

why you had that difficulty. They do not seem to be in any way

coordinated together in any respect.

I am running across laboratories that are working on fuel cells

and spending an awful lot of time and money, and another laboratory in the same system has solved the problem and they do not

seem to be cross-pollenizing the ideas that they have and the

breakthroughs that they have.

So that, if we could in some way in the executive branch and on

the congressional branch bring some of these people in for a couple

of days, I think we could move the process along significantly.

I think we talked about it that night reducing it from 5 to 3

years to get to the hybrid car.

Mr. RICHARDSON. We should do that, Congressman.

Ms. BROWNER. And we would obviously like to participate. I

think we can be helpful.

Mr. KANJORSKI. Very good.

Mr. BURTON. Are you finished, Mr. Kanjorski?

Mr. KANJORSKI. Yes, Mr. Chairman.

Mr. BURTON. OK. Mr. Ryan.

Mr. RYAN. Thank you, Mr. Chairman.

Ms. Browner, let me just say I appreciate and admire your commitment to your convictions. I know we may disagree on some

things, but I appreciate all three of you spending the time you

have. I know you are doing this in various committees. I know it

is getting late, but I would like to revisit the RFG issue. I know

that the conversation has gone beyond that.

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I, too, read the CRS report that you cited, which you accurately

said 2 to 8 cents specifically to the production of this RFG, and I

cannot contest that, but three sentences earlier in this report, it

says that the unique RFG situation in Milwaukee and Chicago

could contribute to 25 to 34 cents on a gallon of case.

So, yes, you can say 2 to 8 cents on this particular blend and production, but what the CRS report says, possibly 25 to 34 cents. I

am not asking for a comment. I am just making a clarification.

I just want to ask you, briefly, do you rely on data and information from the DOE and specifically the EIA?

Ms. BROWNER. Yes, we do.

Mr. RYAN. You do in promulgating the regulations?

Ms. BROWNER. Absolutely, absolutely. In fact, they were very important to us in the work we did in 1993.

Mr. RYAN. Right.

Ms. BROWNER. Then, more recently, the work we did which will

not take effect for several years, but to remove sulfur from the conventional gasoline, yes.

Mr. RYAN. Secretary Richardson, it is adequate to say that Ms.

Kenderdine, who is sitting behind you, was the author of the memo

here, the Acting Director of Office of Policy?

Mr. RICHARDSON. Yes.

Mr. RYAN. I assume you rely on her and her memoranda for the

information.

Mr. RICHARDSON. Yes, I do.

Mr. RYAN. I would like to ask unanimous consent, Mr. Chairman,

to include Melanie Kenderdine’s memo dated June 5, 2000.

Mr. BURTON. Without objection.

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Mr. RYAN. In this memo—and we all seem to be saying—we do

not know why these prices are going so high, we do not know what

is happening in Milwaukee and Chicago. There is no explanation.

We need to get the FTC to investigate price gouging, but I must

say the answer may be underneath our noses. If the EPA relies on

the DOE and the DOE relies on their own personnel to investigate

the unique problems and we have a memorandum here which says

that supply is short in Milwaukee and Chicago and that the Milwaukee and Chicago area supply situation is further affected by— and then it goes on to list six factors, six pretty unique factors, and

it is a convergence of those six factors, not all just RFG, but other

factors, supply factors, none of which have to do with price gouging,

which may or may not be occurring. I await your report, Mr.

Pitofsky, but this is June 5th.

We have had repeated denials for requests for waivers. However,

the DOE, Ms. Kenderdine’s memo, which I hope and assume was

sent on to the EPA, shows you an explanation for the unique problem in the RFG situation in Milwaukee and in Chicago. The CRC

report says there is a unique situation in Milwaukee and Chicago,

could be contributed to 25 to 34 cents a gallon of gas. The point

is you had the information. There was a unique problem in this

area. The DOE—you have a memo yourself suggesting that this

problem is occurring, and there is a convergence of factors.

Mr. Richardson, did you share this information with the EPA

after Ms. Kenderdine wrote her memo?

Mr. RICHARDSON. Yes. The EPA and DOE on these Chicago/Milwaukee problems have had a totally joint effort.

Congressman, since Ms. Kenderdine is here, if you would like to

hear from her, I do rely on her for this policy advice.

My point is what she gave to me and what we shared together

is totally consistent with a policy that we have sought. The price

differential still cannot be explained, and this is why we have gone

to Chairman Pitofsky, but do you want to hear from her or you

would rather not?

Mr. RYAN. I would be happy to. I do not know if we are going

to have much time. I would be happy to do that, actually, if she

could come up, but the point is she has identified six factors, and

the convergence of these factors is a significant contributor to this

phenomenon, this unique RFG situation. It seems to me that that

could have played a much more significant role in the determination of whether or not we had a real problem in Milwaukee and

Chicago and whether or not we should have addressed that with

a waiver to find out what was actually happening before we continued to push on the RFG mandate to try and make sure that the

supply shocks were answered, Unocal, whatever these problems

were, were settled. Yet, these waivers were denied. So I would be

happy to—— Mr. BURTON. Mr. Ryan, do you want her to testify?

Mr. RYAN. Yes. I would defer to the chairman.

Mr. BURTON. Do you swear to tell the whole truth, nothing but

the truth, so help you God?

Ms. KENDERDINE. Yes, sir.

Mr. LATOURETTE. I would ask Ms. Kenderdine to get the raise

first before she testifies. Get the raise.

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Mr. RYAN. Let me just say I think it is a very thorough memo,

and you should be commended for a very thorough memo. I would

be happy to get your take. I am not trying to play ‘‘gotcha.’’ Ms. KENDERDINE. Would you put in a plug for the policy office

budget as well?

Mr. RYAN. OK. The point is not to try and play ‘‘gotcha.’’ I simply

want to get the truth. I would simply want to find some answers

to the questions before 6 weeks, when the FTC comes up to us with

answers. I have got to assume there are some other answers in addition to possible gouging that is occurring.

Ms. KENDERDINE. Let me start off by saying that the Department

of Energy does not look specifically at price. Our job is to do supply

assessments, and that is what this document is. We work with

EPA and the EIA policy office, our emergency office. It is a physical

contacting of the people out there to assess supply, and so we do

not look specifically at price. As you have noted, we have identified

factors that may contribute to price.

What I would say—and we have talked about that a lot here

today—is that the cost differential between RFG and conventional

gasoline is 5 to 8 cents, and I think the point that you are making

is that cost is not price. There is a whole distribution chain that

is involved that adds to the price, and there were a convergence of

factors in the Midwest. It is a transportation-constrained market.

On the East Coast, you have alternative means of getting your

product. You are pipeline-limited in the Midwest. You can barge.

You can truck. That is more expensive, OK? So cost is not price.

We cannot assess the price value of any of these factors because

the differential was so large, the decision was made to refer it to

the FTC.

Mr. RYAN. Would you characterize this market as a balkanized

market, given all of these factors?

Ms. KENDERDINE. It is a unique market in that both Milwaukee

and Chicago are ethanol RFG exclusively. ‘‘Balkanize’’ is not necessarily a word I would use.

I mean, California has a unique market as well.

Mr. RYAN. True.

Ms. KENDERDINE. It has its own unique gasoline blends. It is

transportation-constrained as well. So there are several unique

markets.

Mr. BURTON. The gentleman’s time has expired.

Mr. RYAN. Thank you. I appreciate it.

I notice that Ms. Browner wanted to respond.

Ms. BROWNER. Yes, I do, if I might, Mr. Chairman, with leave

of the Chair.

Mr. BURTON. Sure.

Ms. BROWNER. I am sure everybody knows this, but I do think

it is worth remembering why Chicago and Milwaukee are in the

cleaner gasoline program. That was a product of the 1990 amendments to the Clean Air Act, which is a very unique provision.

Two things happened in the 1990 amendments to the Clean Air

Act which have really never been replicated in any other environmental statute. First, while EPA was required to work to develop

the recipe, part of the recipe, Congress mandated an oxygenate, a

2-percent oxygenate. That was done by Congress. Illinois and WisVerDate 11-MAY-2000 10:49 Jul 30, 2001 Jkt 000000 PO 00000 Frm 00242 Fmt 6633 Sfmt 6633 C:\DOCS\73069.TXT HGOVREF1 PsN: HGOVREF1
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consin made their own State decisions to limit that oxygenate to

ethanol.

The second thing that happened in the 1990 amendments—and

again, this was Congress, not EPA—is Congress said that those

areas with the worst air pollution problems—and they used a definition—would be required to sell this cleaner gasoline, and Chicago

and Milwaukee both fall within that definition.

I think it is important to note these things because what you

have is a lot of advance warning, 10 years in some instances, 7 I

think it is fair to say when the recipe got written, that these areas

would have to go to this cleaner gasoline. Many, many areas in the

country have gone to it. About a third of the gasoline now in the

United States is this cleaner gasoline, and we are not seeing these

kind of issues.

I am not an expert on energy transportation and pipelines or

anything, and I would not want to pretend to be. That is not our

jurisdiction.

It may well be, as you suggest, Mr. Ryan, that here you have a

certain set of transportation limitations that may not exist in other

parts of the country, but the point I want to make sure we all see

is that the requirement for cleaner gasoline in these two cities is

not related to transportation. That is a separate issue. That is an

issue regardless of what gasoline you sell in these areas.

Some of the other issues that were raised in this memo, we certainly agree with, but they are not issues unique to cleaner gasoline. When we look at the price spike in cleaner gasoline in these

two cities, we can find the exact same factors listed here in other

cities, and yet, we do not get the price spoke.

Mr. RYAN. Or they are unique to these two cities.

I mean, I think you touched on—— Ms. BROWNER. The pipeline issue—no, St. Louis actually gets 70

percent of their fuel that comes off the Explorer pipeline. Only 12

to 17 percent of the Chicago/Milwaukee fuel comes off the Explorer

pipeline. So you cannot say it is the Explorer pipeline when St.

Louis ethanol blend is much, much cheaper than Chicago and Milwaukee. This is why we need this FTC investigation. Clearly,

something is amiss. Something does not quite add up, and that is

what their job is to figure it out for us.

Mr. RYAN. I see that my time has expired. I thank the chairman.

I think the ozone transport issue is a whole other issue I hope

that 1 day we can get into—— Ms. BROWNER. We would love to.

Mr. RYAN [continuing]. Which we in Wisconsin feel like we are

paying for somebody else’s pollution, quite honestly speaking, and

I hope that next time this comes around that the EPA will look at

this on a regional basis as well, look at the regions that are being

affected, look at the uniqueness of the situations in regions before

moving through with these mandates.

I yield my time.

Ms. BROWNER. Congress put the cities in the statute, with all

due respect, Mr. Chairman, not EPA. It was Congress. And we

would be happy to work with you to rewrite that portion of the

Clean Air Act. In fact, we had sent up legislative principles.

Mr. RYAN. Waivers——

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Mr. BURTON. Mr. Ryan, your time has expired.

Mrs. Biggert.

Mrs. BIGGERT. Thank you, Mr. Chairman.

I think where we were when I last asked a question—I do not

know how long ago it was, and I will be quick—we were talking

about the carbon monoxide credit.

Ms. BROWNER. Yes.

Mrs. BIGGERT. In the letter that we are seeking an answer to,

you were going to look at that.

Ms. BROWNER. Yes.

Mrs. BIGGERT. What you said, just as we ended, was that you

would put this out for comment. Now, why can’t we do this under

a direct final rulemaking which would shorten the process as long

as there is no one that objects to that?

Ms. BROWNER. Well, there will be people who would object. This

is an issue with some amount of—how do I put this diplomatically—a range of views, shall I say. For example, your own State

of Illinois has a particular point of view. It is outside the scope of

what the National Academy of Sciences looked at. They did not accept it. They did not reject it, but it is outside the scope of what

they actually looked at.

Therefore, I would simply say to you, for all of us who care about

preserving the opportunities for ethanol, this administration has

been at the forefront of ethanol as part of a clean fuels program.

The best way to make this adjustment—and we believe an adjustment will be warranted—is to do it through the appropriate notice

and comment rulemaking so that we can defend whatever final decision we make. This will not be without its opponents, and we

want to do it in the way that allows us to make it based on a

record with full comment, with full information, so that whatever

ultimate decision we make, we can defend it.

Mrs. BIGGERT. We have been seeking that for quite a while now.

In fact, I think that after the NAS put that out, it was a recommendation from the Illinois EPA that we proceed with that, and

that has been a year now.

Ms. BROWNER. With all due respect, what the Illinois State

EPA—it is not part of us. It is a separate entity. What they are

recommending is not in keeping with what the National Academy

of Sciences reported on to us. It is different. However, we believe

that there is enough there that it should be part of what we take

comment on, and much of the delay in getting this proposal out

was an effort to accommodate your own State’s thinking on this.

We had to go back and rewrite the document to take the Illinois

thoughts and recommendations, if you will, and incorporate them.

They did come to us late in the process. They came to us after the

Academy had finished their work.

Mrs. BIGGERT. So how long will the rulemaking take?

Ms. BROWNER. We are going to use a shortened comment period.

I am sure that will have its detractors. We are going to go to a 60-

day. We normally do a 90. Occasionally, we do a 120. We will do

a 60-day, depending on the volume of comments we receive, and we

will be happy to report to you at the close of the 60-day, the volume

of comments. In some instances, it can take several months.

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I think the real trick here and in the commitment that we are

trying to make to everybody is to make sure—remember, this is a

summer fuels program. That is when smog is a problem. That is

when air pollution is the worst. So what we need to do is make

sure that any adjustment that we finally adopt is available to both

the ethanol industry and the petroleum industry in time for its

next summer’s program. I think the summer programs are required

to start on June 1st.

Mrs. BIGGERT. How many companies produce the phase-one RFG

for the Chicago-Milwaukee area?

Ms. BROWNER. No one is making phase-one RFG anymore according to our inspections.

Mrs. BIGGERT. How many did produce that when it was——

Ms. BROWNER. There were seven refineries that serviced the Chicago area. I want to make sure that all of them in fact made phase

one, and we may need to answer that for the record. We are not

sure.

Eleven refineries are making the phase-two cleaner gasoline.

Whether or not all of them made the phase one is a question I

would like to answer for the record. There is reason to think it is

probably the same group, but there may have been some adjustments.

Obviously, outside of the large Chicago area, you have refiners

providing conventional gasoline.

Mrs. BIGGERT. So my figure of seven is not correct for phase one

and then four for phase two?

Ms. BROWNER. I am sorry. Ask the question again. I apologize.

They were trying to give me the answer while you were asking the

question.

Mrs. BIGGERT. How many companies produced phase one, and

how many now produce phase two in the Chicago-Milwaukee area?

Ms. BROWNER. I think there is——

Mrs. BIGGERT. Markets, I should say.

Ms. BROWNER. I may have made a mistake because I may have

misunderstood your question.

There are the refiners in your area, and there are the refiners

that service your area that come up, the pipelines that come over

from other parts of that country. It is my understanding that the

total number of refiners selling cleaner gasoline into the ChicagoMilwaukee area is seven.

In terms of how many refiners participated in the phase-one

cleaner gasoline program, if I might answer that for the record,

and we would be happy to give you lists and names and all of that.

Mrs. BIGGERT. Thank you.

Mr. Chairman, if I might just have 1 minute?

Mr. BURTON. Mrs. Biggert, for you, anything.

Mrs. BIGGERT. Thank you.

Secretary Richardson, we were talking about the auto industry

and the public-private partnership. I was very disappointed when

the PNGB funding was withdrawn from that program.

I think that when it was on the House floor that there were a

very few Congressmen and women that really knew what that program did and how it really does fit into an energy policy. So I am

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hopeful that it will be put back in because I think it is a very important thing.

I think just for comment, we really need to have more of an active public awareness of what our policies are not only to the public, but also to what is going on here for those of us that serve on

the Science Committee and are involved with the national laboratories. What is really a very important public and private policy

needs to be addressed before we get to the final appropriations bill

so that we are not making major errors in this area.

Mr. RICHARDSON. Congresswoman, I agree with you, and I know

you have one of our national labs in your district.

Yes. The answer is more public awareness. This is an excellent

program, and hopefully, that floor amendment will be reversed as

we move through the process because this program is really working. I have seen it firsthand. It is exciting. Industry is committed

to it. The Government is committed to it.

To Congressman Sanders, what this is, is a partnership. It is not,

OK, you guys in the Government pay for it. It is a shared effort.

We want these vehicles eventually on the market. You can do all

the research and technology, which we are doing, but eventually we

want them in the market. You have got to show a financial commitment, and this is what we are doing with Detroit. We really

hope this program is restored.

I agree with Congressman Kanjorski. We need to bring these

labs closer together. They do share a lot, but, Congresswoman, you

are right. They get very competitive with each other, and there are

ways that we can channel their efforts closer together.

Mrs. BIGGERT. Thank you.

Thank you, Mr. Chairman.

Mr. BURTON. I am not sure, but I believe I am going to be the

last questioner. I am not sure you saved the best for last, but, nevertheless, I am going to hopefully wrap this up.

Let me, first of all, say that the energy problems and the gasoline prices are not restricted to the areas that have been discussed.

All across the country, gas prices are higher than they ought to be.

In Indianapolis, where we do not have the problems that we have

talked about, my son-in-law went to get gas for his SUV the other

day. It normally cost him about $28 or $30, and it cost him almost

$50 to fill up his tank. So the hue and cry that you hear is not just

coming from Chicago or Wisconsin or from those other areas. It is

coming from all over the place, and there needs to be a very thorough review of all of this, not just because of the ethanol issue, but

because of the exorbitant prices that are being charged for gasoline

across the Nation right now and we need to check that out.

I want to talk to you, Secretary Richardson, about another issue,

a year ago. I am not here to try to beat up on you. I have seen

some of your television interviewers, and I have watched you undergo some difficult times. So it is not my purpose to do that, but

I do want to go over a few things with you about Los Alamos.

A year ago this week, you were in my office and we talked about

the previous espionage that took place and whether or not the Chinese had certain secrets that we believe they have and how that

investigation was going on. You urged me not to hold hearings

about certain parts of that because you were concerned that we

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might be giving away national security information if we did that.

You assured me, and assured others, that we were not going to

have any more problems, that you were going to go in there and

clean that up.

I got to tell you, the thing that concerns me is the Chinese have

the largest standing army in the world. They are buying submarines. They are buying everything that you can think of in the

area of military equipment, from the Soviets and every place else,

and I think they are going to be a major threat to the United

States at some point. I really believe that. Now they have stolen

a lot of our nuclear secrets, maybe all of them. They now have the

ability to have a mobile-launched ICBM with 10 W–88 warheads,

and we could not even use the term ‘‘W–88’’ a year ago because it

was so top secret. I worry about my kids and my grandkids and

your kids and your grandkids, and I am sure you share that.

But the thing that I am concerned about is that we still have lax

security at Los Alamos. Now, I cannot go into some of the details

that I have learned from the FBI today about how those hard

drives were obtained and why the security was so lax, but what I

wanted to ask you is—there is the bell. What I wanted to ask you

is why in the world did that happen and what is going to be done

to make sure that this never happens again because you assured

us a year ago that that was going to be stopped, and there were

not proper procedures at Los Alamos where those hard drives were.

Mrs. BIGGERT. Yes.

Mr. RICHARDSON. Congressman, first, I appreciate the very constructive way you have framed the issue in the question.

I am going to get to the bottom of this. What obviously happened

at Los Alamos after 21 massive security improvements and 36

counter-intelligence improvements, including polygraphs and more

guards at Los Alamos and gates and making sure that cyber security, computer security, you could not transfer, and just stand

down. I stood down all those labs. In other words, you cannot do

anything except undertake security training. That we had this

problem, it is inexcusable. It is wrong. I am getting to the bottom

of it.

You mentioned that the FBI right now is undertaking an investigation. The good news is that the hard drives were found.

Their——

Mr. BURTON. Let me interrupt you there. I cannot go into the details about what was on those hard drives, and you cannot either

in a public forum, but the fact of the matter is it was a real—it

is a real problem for our national security. Those hard drives and

the way they got them out of there—and I am not going to go into

it, but you and I know the security measures were taken. For

somebody to take those out of there, they had to do it for a reason.

They just did not do it for their health. And then to find them behind a copy machine would indicate that they were trying to get

them back as hastily as possible. How do we have assurances that

they were not copied and given to the Chinese or to some other entity?

Mr. RICHARDSON. Congressman, at this stage, I can categorically

state to you—and this is based on FBI information—there is no evidence of espionage. There is no evidence that they left that——

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Mr. BURTON. Is there any evidence that it was not espionage?

Mr. RICHARDSON. I think what is happening right now is

polygraphing. There is a focus on a few members of that team that

have made contradictory statements. You and I cannot go into it

here.

I will assure you that I will get to the bottom of this; that we

will take disciplinary action. We have already taken additional procedures since then on encryption, on logging, that should have happened before. I am reviewing the contract of Los Alamos.

Mr. BURTON. Mr. Secretary, Bill, my fellow Member, I had a

hearing in California. We had a Soviet former KGB and a GRU

agent in that said that there were nuclear devices that were buried—possibly buried in the United States and 100 other sites

around the world—possibly. There have been two sites that have

been uncovered where equipment of the type they talked about was

buried in Europe, and they said that there were numerous sites in

the United States. One of the agents said he surveyed a site in the

Shenandoah Mountains.

The reason I am bringing that up is the information that was at

Los Alamos—and I am not going to go into what it was, but the

information could be detrimental to our national security if nuclear

devices have been buried and it has not been proven that they are

not buried here in the United States right now.

The point I am trying to make is that is something that is intolerable. The other things you did are great. The other security improvements you made are great, but this is one that was missed

or overlooked. For what reason, I know not. We do not have any

evidence whatsoever that it was not taken by a foreign entity.

So all I am saying is what steps are you taking now to make sure

this does not happen again if we do have any more secrets.

Mr. RICHARDSON. I mentioned several measures. One, we are

encrypting this data so that this cannot occur again. Second, some

of those logging procedures have been established. We have

taken—you know, one of the problems, Congressman, is that I put

all these hugely tough measures, like polygraphing, and civil libertarians, Asian-American groups, a lot of Members of Congress,

some of the scientists that I supervise went against them.

Now, we are doing them, and it is happening, but I think, if anything, one of the things that I wish I had done more, despite all

of these security experts and measures and directives, is to deal

with a culture. We are also changing the combination to vaults. We

are staffing the vaults. We are putting alarm on vaults. We are

putting serial numbers on sensitive materials.

As you know, Congressman, you cannot change a security classification of a document or a drive without making sure there is

inter-agency approval, and we are working on that, too, but we are

massively ordering increased security measures for some of these

encyclopedia data bases. We are going to get to the bottom of this.

Mr. BURTON. I know you have been involved in the political

realm over the past few months, and I can understand that, but

because of the significance of the threat to our national security,

are you going to devote all of your time to correcting this measure?

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Mr. RICHARDSON. I have said publicly that my time right now,

this Los Alamos issue, oil prices, that is going to be a large part,

a majority part, full time.

Mr. BURTON. I cannot tell you what to do. You were appointed

by the President of the United States, and I understand the politics

that are involved and I understand what your commitments are,

but I would just say this is of such import that I would hope that

you would devote more than just the majority of your time. I would

hope that you would devote all of your time that is possible to making sure this is cleared up.

Mr. RICHARDSON. I will do that.

Mr. BURTON. I will tell you, the people in the other body and this

body are really upset about the problems that have occurred, and

if you made that kind of a commitment, I think it would take a lot

of pressure off of you, rather than being out there campaigning. I

understand you want to do that, and you can do that, but this is

something of major significance and should be given priority.

Mr. RICHARDSON. Congressman, I made a pledge, and you saw

some of those news shows. My time will be focussed entirely on

these two issues.

Mr. BURTON. All right. Without any further questions—do you

have any?

Mr. LATOURETTE. I do not have any further questions of this

panel, but if I have a unanimous consent request relative to the

third panel, if the Chair would entertain that.

Mr. BURTON. I will entertain a unanimous consent request.

Mr. LATOURETTE. Mr. Chairman, the third panel has been sitting

here all day, specifically Mr. Red Cavaney and Mr. Eric Vaughn,

one from the American Petroleum Institute, the other one from the

Renewable Fuels Association. I would first ask unanimous consent

that the record reflect that they have been here and are prepared

to testify, and it is our schedule that keeps them from doing that.

Mr. BURTON. One of them has an anniversary today. Yes.

Mr. LATOURETTE. Then the second unanimous consent request

that I would make is any statement that they wish to have before

the committee in the record be accepted into the record and that

the committee in the future consider whether or not we should

have another hearing and invite them back to give their views on

what has been said today.

Mr. BURTON. We will consider that.

[The prepared statements of Mr. Cavaney and Mr. Vaughn follow:]

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Mr. LATOURETTE. Thank you.

Mr. BURTON. We stand adjourned. Thank you very much.

[Whereupon, at 8:12 p.m., the committee was adjourned.]

[The prepared statements of Hon. Christopher Shays, Hon.

Henry A. Waxman, Hon. Benjamin A. Gilman, and additional information submitted for the hearing record follow:]

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