U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

76–473 2012

RUNNING ON EMPTY: THE EFFECTS OF HIGH 

GASOLINE PRICES ON SMALL BUSINESSES 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD 

MAY 9, 2012 

Small Business Committee Document Number 112–067 

Available via the GPO Website: www.fdsys.gov 


erowe on DSK2VPTVN1PROD with E:\Seals\Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

CHUCK FLEISCHMANN, Tennessee 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, General Counsel 

MICHAEL DAY, Minority Staff Director 


erowe on DSK2VPTVN1PROD with 
(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Sam Graves ..................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESSES 

Robert McNally, President, The Rapidan Group, LLC, Bethesda, MD ............... 3 

Jamie Smith, Franchisee, Mr. Rooter Plumbing, Baltimore, MD ....................... 5 

Ms. C. Cookie Driscoll, Owner, C. Cookie Driscoll, Inc., Fairfield, PA ............... 6 

Michael Greenberger, Law School Professor and Director, University of Maryland Center for Health and Homeland Security, Baltimore, MD .................... 8 

APPENDIX 

Prepared Statements: 

Robert McNally, President, The Rapidan Group, LLC, Bethesda, MD ....... 23 

Jamie Smith, Franchisee, Mr. Rooter Plumbing, Baltimore, MD ................ 32 

Ms. C. Cookie Driscoll, Owner, C. Cookie Driscoll, Inc. Fairfield, PA ......... 34 

Michael Greenberger, Law School Professor and Director, University of 

Maryland Center for Health and Homeland Security, Baltimore, MD .... 40 

Questions for the Record: 

Questions for Robert McNally ......................................................................... 57 

Answers for the Record: 

Answers from Robert McNally ........................................................................ 58 

Additional Materials for the Record: 

National Small Business Association .............................................................. 59 

Foreign Affairs: A Crude Predicament by Robert McNally and Michael 

Levi ................................................................................................................ 60 


erowe on DSK2VPTVN1PROD with 

erowe on DSK2VPTVN1PROD with 
(1) 

RUNNING ON EMPTY: THE EFFECTS OF HIGH 

GASOLINE PRICES ON SMALL BUSINESSES 

WEDNESDAY, MAY 9, 2012 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 1 p.m., in room 2360, 

Rayburn House Office Building. Hon. Sam Graves [chairman of the 

Committee] presiding. 

Present: Representatives Graves, Chabot, Tipton, Ellmers, 

Walsh, Barletta, Vela ́zquez, Schrader, Cicilline, and Hahn. 

Chairman GRAVES. We will call the hearing to order. Good afternoon, everyone. I want to thank you all for joining us for this hearing and I want to thank our witnesses for appearing today and 

agreeing to testify on an issue that just will not seem to go away, 

and that is higher fuel prices. 

Few things have such broad effects on consumers, the economy, 

and small businesses as high fuel prices. The price of gasoline often 

determines where and when consumers are going to shop and what 

it costs a small business to deliver products and services and the 

costs of purchasing materials and other inputs necessary from business operations. When consumers have less money to spend and 

small businesses are forced to shift resources to fuel purchases or 

pay higher prices for inputs, weaker economic growth is often the 

result. 

Last Friday, the Department of Labor reported that the unemployment rate remains above eight percent and the economy has 

created far fewer jobs than expected. This figure does not even 

count the millions of long-term unemployed Americans who have 

given up trying to find work. That is not included in official statistics, nor does it account for the millions of underemployed Americans. 

While there are many factors to explain the weak economy and 

job growth, high fuel prices are a contributing factor. And given the 

importance of energy prices to the health of small businesses and 

the economy, this Committee has taken particular interest in the 

effects of high fuel prices on small businesses and the role they can 

play in helping solve the problem of high energy prices, create jobs, 

and enhance our nation’s energy security. 

This hearing continues that trend and we are fortunate to have 

with us today a panel of witnesses who can provide the Committee 

with important insight into the causes of high fuel prices and how 

they affect small businesses. With that I will turn to Ranking 

Member Vela ́zquez for her opening statement. 


erowe on DSK2VPTVN1PROD with 
2 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. As our economic recovery gains steam, this Committee must focus on removing obstacles to small business growth. One key hurdle is volatility in gas 

prices. With prices for petroleum and gasoline rising one day and 

plummeting the next, it can be very difficult for small firms to plan 

and make prudent investment decisions. In particular, when there 

is a rapid run-up in gas prices, small firms feel the pinch. Indeed, 

three-quarters of small businesses note that rising energy prices 

will have a negative impact on their businesses. There have been 

even estimates that for every $10 increase in the price of a bottle 

of oil, $29 billion is sucked out of the economy. That is money 

which could have gone toward growth and job creation. When energy prices are high, small firms face tough choices. Do they raise 

prices for their products to upset gasoline costs? Or do they alternatively postpone hiring in order to compensate for rising expenses? None of these are good options. It is my hope that the 

Committee can explore solutions for the effects energy costs have 

on entrepreneurs. 

When it comes to gas prices there is not just one reason that can 

be solely blamed for the volatility; instead, a range of factors feed 

into this unpredictability. Instability in all regions can result in 

significant supply disruption as we have seen with recent events in 

the Middle East and North Africa. Oil supply disruptions can be 

further compounded by a reduction in refinery capacity, meaning 

that even when oil supplies remain steady, less gasoline is available on the market and prices remain high. 

These supply-based factors certainly contribute to rising gas 

prices. However, there is also strong argument to be made that excessive speculation is also to blame. Certainly, energy futures markets play a valuable role by enabling energy consumers like airlines or railroads to hedge against price fluctuations. However, 

today the largest actors in these markets are no longer energy consumers. Instead, market activity is dominated by players concerned 

only with betting on whether prices rise or fall. When these speculators hold such influence that they can single-handedly affect 

overall pricing, then it is questionable whether the future markets 

are functioning correctly or serving as a consumer with consumers 

and small businesses paying for bad bets. 

Just as a range of factors are driving up gasoline prices, there 

is no single solution that will solve the problem alone. Instead, we 

need a multi-prong approach that addresses supply, consumption, 

and speculation. We can start by leaving in place the Wall Street 

Reform Law that was enacted last Congress. By giving the Commodity Futures Trading Commission more power to prevent 

unscrupulative behavior, this law will stop some of the deceptive 

practices we have previously seen. Other short-term steps might include releasing oil from the strategic petroleum reserve, instituting 

a gasoline tax holiday, and expanding the use of oil shale. All of 

these ideas have drawbacks and advantages and all of them merit 

further discussion. 

Over the long term we need to reduce demand and boost supply. 

Helping small businesses become more energy efficient should be 

a priority. Achieving that goal makes businesses more profitable 

while lowering energy prices for everyone. There will also need to 


erowe on DSK2VPTVN1PROD with 
3 

be discussions about expanding our energy supply through either 

fossil fuel exploration or expansion of renewable fuels. Entrepreneurs have always been on the cutting edge of developing new 

energy sources, and they should have a voice on how we proceed 

in this area as well. 

As consumers prepare for another summertime driving season, 

we can expect gas prices to remain volatile. For small businesses, 

unpredictable fuel costs can at best stunt job growth and at worse 

result in layoffs. It is my hope that today’s discussion yields insight 

on how to help small business firms overcome these problems now 

while laying the groundwork for long-term energy security. 

And with that I want to take this opportunity to thank all the 

witnesses for being here today. I yield back. Thank you, Mr. Chairman. 

Chairman GRAVES. With that we will hear from our witnesses. 

You each have five minutes. The way the lights work is it is green 

and when you have a minute left it turns yellow and then red 

when time is up. 

STATEMENTS OF ROBERT MCNALLY, PRESIDENT, THE RAPIDAN GROUP, LLC; JAMIE SMITH, FRANCHISEE, MR. ROOTER 

PLUMBING, BALTIMORE, MARYLAND, TESTIFYING ON BEHALF OF THE INTERNATIONAL FRANCHISE ASSOCIATION; C. 

COOKIE DRISCOLL, OWNER, C. COOKIE DRISCOLL, INC., 

FAIRFIELD, PENNSYLVANIA, TESTIFYING ON BEHALF OF 

THE NATIONAL SMALL BUSINESS ASSOCIATION; MICHAEL 

GREENBERGER, LAW PROFESSOR AND DIRECTOR, UNIVERSITY OF MARYLAND CENTER FOR HEALTH AND HOMELAND 

SECURITY, BALTIMORE, MARYLAND 

Chairman GRAVES. And our first witness is Bob McNally. He is 

the founder and president of the Rapidan Group, an independent 

energy and consulting market advisory firm. And prior to forming 

the Rapidan Group, Bob served on both the White House Council 

of Economic Advisors and the National Security Council during the 

Bush Administration. 

Mr. McNally, I appreciate you being here and look forward to 

your testimony. 

STATEMENT OF ROBERT MCNALLY 

Mr. MCNALLY. Thank you, sir. Chairman Graves, Ranking Member Vela ́zquez, Members of the Committee, thank you for the opportunity to testify. I have spent the bulk of my career analyzing 

energy oil markets and economic policymaking and as was mentioned, served in the White House NIC and NSC. I currently run 

a small businesses called the Rapidan Group. I do not represent 

any entity. The views are entirely my own. 

The subject of today’s hearing is gasoline prices which have risen 

sharply now six years out of seven and pose a special burden for 

our country’s small businesses. But before then, gasoline as pretty 

boring. If you think about it, from the 70’s until recently, if it was 

a Disneyland ride, the pump price is sort of like It’s a Small 

World—gentle, uneventful, not really noticeable. But since 2005, it 

has been It is a Small World. Excuse me, Space Mountain. Gut 

wrenchingly volatile, scary. And today, as pump prices resume 


erowe on DSK2VPTVN1PROD with 
4 

their ascent, Americans, especially small businesses, are wondering 

why are we on Space Mountain and how are we going to get off? 

Let me come right to the point. Gasoline prices are driven by 

crude oil prices. Crude oil prices are driven by a global market. Official data reports show that global market is tight. Demand is historically high and strong in the global market—not in the United 

States, in the global market. Supply is disappointingly small. Commercial inventories outside of North America are low. Numerous 

supply interruptions as was mentioned have occurred and OPEC’s 

spare capacity which we will talk about today is much lower than 

estimated a few months ago and too low for comfort. 

And earlier this year a rash of refinery closures in the Northeast, 

the U.S. Virgin Islands and Europe and tensions surrounding 

Iran’s nuclear program contributed to a risk premium or a fear premium on the price of crude. 

It is crucial to understand that crude oil prices are naturally very 

volatile. To help suppress this natural volatility throughout history 

since the mid-1800s, late 1800s, producers have held back spare 

production capacity to temper down that volatility. Spare capacity 

is supply from fields that can be quickly tapped to act as a shock 

absorber when demand is strong and disruptions occur, avoiding 

the otherwise normal large swings in prices we would see. 

Since the late 1980s, OPEC has used spare capacity to try and 

stabilize prices, but over the last seven years or so, OPEC’s spare 

capacity is showing that red line on that chart has fallen and remains much too low to stabilize the market, especially given geopolitical risks. The reason is a mix of voracious, relentless demand 

growth in fast growing Asia and the Middle East on the one hand 

and disappointingly small net supply growth on the other. While 

experts differ, many see this strong demand, weak production, 

tight spare capacity predicament lasting for the foreseeable future. 

And if so, oil prices are going to keep on gyrating and so are fuel 

prices. 

There is no short-term silver bullet for our predicament. Using 

the SPR to smooth gasoline prices absent the severe supply disruption would be deeply unwise and counterproductive. The SPR and 

Department of Energy are not well suited to stabilize global oil 

prices. Reserves are too small relative to market flows. Information 

is too poor, and the SPR interventions have and would be politicized. If Washington sold SPR crude every time gasoline prices 

rose, we will end up with no SPR, more volatile prices, and less 

protection when a severe supply interruption occurs. 

It would also be a mistake to misdiagnose the problem of gyrating oil prices as one of manipulation, distortion, or undue influence 

of financial market participants. Officials have repeatedly investigated the role of the financial market participants in recent oil 

price behavior and concluded that supply and demand fundamentals played a major role. This includes an interim interagency report headed by the CFTC in 2008. Leading academics also note 

there is no compelling data or analysis that shows the actions of 

financial market participants have caused the major price swings 

we have seen in recent years. 

In the future, small businesses will need to hedge more in response to gyrating oil prices. They will need access to bigger and 


erowe on DSK2VPTVN1PROD with 
5 

deeper financial markets where producers and consumers can 

transfer price risk to those willing to take it. We are now seven 

years into the Space Mountain era of gasoline prices. It is time to 

get beyond blame games and on with solutions. OPEC oil companies, industry, investors, EPA, consumers, geopolitical trends, central banks, poor data, all this play a role. But the real reason is 

we have a tidal wave of demand, humanity’s largest ever demand, 

humanity’s largest ever demand, surge for oil is colliding with a 

supply constraint. We may not like the laws of economics but we 

will have to live with them. It is past time to enact easy common 

sense steps like improving data to bolder ones such as vastly increasing domestic and international supply, moderating demand, 

and strengthening a resilience to price gyrations. We should act 

quickly and resolutely as if the vitality of our small businesses, our 

standard of living, and our national security depended on our success. Thank you. 

Chairman GRAVES. Our next witness is Jamie Smith. Mr. Smith 

owns and operates a small 10-employee Mr. Rooter Plumbing franchise located in Baltimore, Maryland. He is testifying today on behalf of the International Franchise Association. Mr. Smith, I appreciate you being here. Thank you. 

STATEMENT OF JAMIE SMITH 

Mr. SMITH. Thank you. Chairman Graves, Ranking Member 

Vela ́zquez, and members of the Committee, thank you for your invitation to testify today at today’s hearing on the effects of gasoline 

prices on small businesses. 

My name is Jamie Smith. I am a franchisee of the Mr. Rooter 

Plumbing Corporation. I am the owner and general manager of Mr. 

Rooter Plumbing of Greater Baltimore and a member of the International Franchise Association. 

I believe my experience as a small business owner and my struggles with rising fuel prices are representative of the small business 

community today. Many businesses are struggling to incorporate 

these increased costs into business plans that are already strained 

by decreased revenues due to the slow economic recovery. My business offers heating and plumbing solutions to the Greater Baltimore and Maryland area and I employ 10 plumbing and office professionals. 

My current fleet of five service vehicles uses an average of 1,200 

gallons per month of gasoline, and the cost of this fuel equals approximately 10 percent of my total revenue. 

Since opening my operation in 2010, I have seen a 29 percent increase in my fuel costs at a time when my revenues have declined. 

In an effort to offset rising fuel prices, I have added an $11 fuel 

surcharge to all of my service calls; however, many customers have 

refused to pay this charge and several potential customers disapproved so vehemently of this practice that they refuse to consider 

Mr. Rooter of Baltimore for their future plumbing and heating 

needs. 

My other option is to absorb these increased fuel costs which directly affects my bottom-line while my business is trying to stay 

competitive in a challenging economic environment. Being a small 

business owner I cannot leverage economies of scale to keep costs 


erowe on DSK2VPTVN1PROD with 
6 

down like larger businesses can. My company services several 

counties with only five vehicles as opposed to larger competitors 

who have 30-plus vehicles and smaller, more defined territories 

that require less travel. 

All the extra travel required for my company makes fuel prices 

a risky exposure for my business. Policy members at all levels of 

government should be focused on reducing and stabilizing the cost 

of gasoline and other fuels, not through taxes and disincentives to 

consume fuel but through increased production and efficiency. 

I recently wrote to my governor, Martin O’Malley, to protest his 

proposal to make gasoline subject to the Maryland state sales tax. 

This would obviously increase the cost of gasoline and have an immediate and severe impact on small businesses such as mine. I 

think that a focus on new taxes, especially when it comes to energy 

consumption, is the wrong approach. Small businesses are desperate for government action to alleviate the burden of this drastic 

cost increase, and I ask that policymakers invest our tax dollars on 

strategies that would increase domestic energy production, conserve our existing resources, and promote safe and efficient alternative energy sources. 

I support projects that would lower the cost of gasoline while 

adding jobs and improving the economy. I enjoy having the freedom 

to own and operate my franchise business and to provide a fulfilling place for my fantastic team of Mr. Rooter employees to work. 

However, if policymakers do not begin to embrace new energy policies, I believe the country will see an increase in small business 

failures. Meeting obligations such as payroll and other overhead expenses while continuing to endorse soaring energy costs and diminishing profits is unsustainable for any business. I ask that state 

and federal policymakers take immediate and decisive action to 

help small businesses do what they do best—create jobs and drive 

the American economy. 

Thank you for the opportunity to testify before the Committee, 

and I look forward to answering any questions you may have. 

Thank you. 

Chairman GRAVES. Thank you very much, Mr. Smith. 

Our next witness is Cookie Driscoll. Ms. Driscoll has owned and 

operated her horse farm in Fairfield, Pennsylvania, for more than 

18 years. And she will be testifying on behalf of the National Small 

Business Association. Ms. Driscoll, thank you for being here. 

STATEMENT OF C. COOKIE DRISCOLL 

Ms. DRISCOLL. Thank you, Chairman Graves, Ranking Member 

Vela ́zquez, and members of the Committee. 

My name is C. Cookie Driscoll and I am the owner of two small 

businesses. Whodathunkit Farm and C. Cookie Driscoll, Inc., both 

of which are located in Fairfield, Pennsylvania, just across the 

Maryland state line in Adams County. My farm is a full care 

boarding and learning facility, and my other business offers a line 

of gift items targeted toward the equestrian and pet industries, as 

well as promotional products, like pens and mugs, embroidered 

shirts. I am also on the board of trustees of the National Small 

Business Association, which is the oldest small business advocacy 

organization in the United States. 


erowe on DSK2VPTVN1PROD with 
7 

I would like to thank you for inviting me to testify today about 

the effects of gasoline and diesel prices on small businesses, particularly my farm. I am very grateful that you are aware of and 

addressing the negative impact unstable and increasing gasoline 

prices are having on small businesses across the country. 

My farm is on 12 acres and includes a nine stall barn, three paddocks, and an outdoor arena for lessons and training. I bought the 

farm—there has got to be a better way to say that—I bought the 

farm on March 20, 1997, and began accepting boarders and students. Because of the limited paddock area, I feed the horses concentrated feeds which are commonly known as oats or sweet feed, 

and hay pretty much year-round. Over time I watched my expenses 

increase dramatically. The cost of fuel affects every aspect of running a horse farm, no matter how big or small. The farm equipment used to plant, spray, harvest, and transport the feed all use 

diesel fuel, which is now more costly than gasoline. 

Currently, the cost of diesel fuel in our farming community varies from 4.15 a gallon to roughly 4.39 per gallon. And gasoline varies between 3.69 a gallon and approximately 3.9 per gallon. These 

high prices and the volatility of these prices have a significant impact on my bottom-line, including the cost of feed which has risen 

exponentially over the past few years. And if that is not bad 

enough, the use of corn to make fuel now has forced the price of 

corn up and corn is used in almost all feed concentrates on the 

farm. Of course, we feed more than the blended concentrates that 

use corn and other grains. We feed a lot of hay and again, every 

aspect of the price of hay is tied into the price of fuel from planting, 

to cutting, raking, baling, and now even the packaging. The big 

round bales are either wrapped in a plastic mesh or in a solid plastic wrap, both made from petroleum products. 

With the unusual rain patterns that we have experienced over 

the past few years, the hay crops have been adversely affected in 

many areas around the country. Because of that we often have to 

travel much farther to buy suitable hay, adding transport costs to 

an already expensive staple on the farm. 

But I do not just depend on bailed hay to feed the horses. Hay 

is used as the base ingredient in the pelleted feeds that contain the 

corn and oats and other grains. So no matter where the crop fails, 

feed manufacturers have the added cost of trucking the hay in to 

produce the concentrates we use. These costs are then passed on 

to us. 

And of course, after the horses have enjoyed the benefit of the 

feed, the manure either has to be spread or hauled away, again 

using fuel. Bedding for the horses is either usually wood shavings 

or straw. My cost for packaged wood shavings went from $2 per 

bale to $6 for the packed and $6.50 for the pelleted shavings. These 

increases came about partly because of the housing industry coming to a screeching halt and partly because of the cost of fuel, again 

hauling the timber, milling, collecting the shavings, and transportation uses diesel fuel and the packaged shavings are also packaged in plastic bags. So when the cost of fuel goes up it affects the 

price of bedding. 

If the horses on the farm are being shown, the price of fuel can 

determine how far away the owner is willing to travel to campaign 


erowe on DSK2VPTVN1PROD with 
8 

a horse and how often they will compete. The commercial horse 

transportation companies have had to increase their per mile rate 

significantly, which is another cost passed on to small businesses 

like mine. The same goes for horses that are racing. Breeding operations typically have to transport the mares to the stud farms, adding expense to the operation with no guarantees that one trip will 

accomplish the desired outcome. 

There just is not much about managing a horse farm that is not 

affected by the price of fuel. Even the veterinarians and farriers 

have to charge trip fees to cover their travel expenses when they 

come to tend to the horses. But for those enthusiasts who are determined to keep their horses, it is worth it. If they have to, they 

will take a second job to cover the cost and many do. 

In addition to being a small business owner, I am also a member 

of the National Small Business Association and serve in a leadership capacity on the board. I can tell you that without question my 

issues are not unique to my business or my industry. We are all 

hurting from the volatile and rising gas prices. As such, NSBA recently adopted a new energy and environmental policy and will 

continue to take an active role in advocating on behalf of small 

businesses in these areas and urging lawmakers and regulators to 

consider the burden that any energy or environmental policy or 

rule would have on small farms. 

In short, we believe that any energy or environmental policy 

should have five primary objectives: (1) Ensure clean air and water; 

(2) promote adequate and affordable energy; (3) End U.S. reliance 

on foreign energy; (4) simplify regulatory requirements and accelerate the approval process. And finally, support federal and energy 

research dollars for small firms. 

I beg of you to please keep in mind that the impact of rising and 

volatile gas prices is not isolated to a horse farm. Cattle farms, pig 

farms, and even poultry operations are dramatically affected by the 

price of fuel just like I am. These costs go so far beyond the cost 

of transporting the livestock. 

And finally, I want to thank you for allowing me to testify on 

such a critical issue for America’s small business community. It 

was an honor to address all of you, and I welcome any questions 

you might have. 

Ms. VELA ́ ZQUEZ. Mr. Chairman, it is my great pleasure to introduce Professor Michael Greenberger. Professor Greenberger is the 

founder and director of the Center for Health and Homeland Security at the University of Maryland and a professor at the School 

of Law. After leaving private practice, he served as the director of 

the Division of Trading and Markets at the Commodity Futures 

Trading Commission. Most recently, Professor Greenberger served 

as the technical advisor to the United Nations Commission of Experts on Reforms of the International Monetary and Financial System and the International Energy Forums independent expert 

group on reducing worldwide energy price volatility. Welcome, sir. 

STATEMENT OF MICHAEL GREENBERGER 

Mr. GREENBERGER. Thank you. Thank you, Chairman Graves. 

Thank you, Ranking Member Vela ́zquez. It is an honor to be here 

and I congratulate you on holding this important meeting. 


erowe on DSK2VPTVN1PROD with 
9 

I practiced law for 25 years before I went into the government 

and academia and I was very actively involved in supporting small 

business efforts and considered it to be an important part of both 

my professional life and interests. And I agree that small businesses have been very badly hurt by gasoline prices, but it is unfortunate that it is not just small businesses; it is the economy as a 

whole, Chairman Graves, as you alluded to in terms of unemployment that we see across the board. 

Chairman Graves, it is a real pleasure for me to see you today 

because, you may relieve me of this view, but I have viewed you 

as a champion in the kinds of things that I have been concerned 

about. I remember when natural gas was at a world record high 

of $15 per million BTU in December 2005. You stepped to the floor 

of the House of Representatives and added a provision with Congressman Barrow on the Democratic side to assist the CFTC in 

controlling excessive speculation in the natural gas markets. Congress gave the Federal Energy Regulatory Commission, and I know 

Congressman Joe Barton, then chair of the Energy Committee, had 

a large role in this. The Federal Energy Regulatory Commission 

was given strong anti-manipulation authority in the natural gas 

markets. They have used it vigorously. They had used it up until 

about a month ago and natural gas was recently at a ten-year low. 

I want to make it clear I do not discount supply-demand as being 

an important factor and I agree that we have to search for ways 

to increase supply and reduce demand. And clearly, there are different market fundamentals at work in natural gas. But with natural gas going down, when it was at $15 per million BTU down to 

$1.70 four or five weeks ago is really quite remarkable. You may 

attribute that partly to supply-demand. I attribute it to your efforts 

to get the Federal Energy Regulatory Commission to be a cop on 

the beat beating back speculators in these markets. 

Now, the price of oil, which, as has been explained, is a key de- terminant of the gas, was at $65, July 2007; $147, July 2008; $30, 

December 2008; $75, July 2007; and, when according to my testimony the CFTC was unable to cobble together enough votes to employ the anti-speculation efforts of Dodd-Frank. January 2011, the 

price went from 85 to 110. President Obama then convened an 

anti-manipulation interagency task force and it dropped from 110 

to 75. The task force was found not to be doing its work and it goes 

back up to 110. 

And recently, with the uncovering of the Chesapeake situation, 

where the CEO of Chesapeake was not only producing oil and gas 

but running a hedge fund betting on the price of oil and gas, that 

is a ripe situation where the hedge fund can be manipulating 

prices with its parallel corporate institution, the company, and involve itself in wash trades which are felonious conduct. Now, I am 

not saying that happened, but it certainly is an avenue for investigation. 

My principal point is I am not offering you a silver bullet to 

bring gas prices way down, but I think there is a silver bullet and 

a risk-free process to attempt to bring the price down, what has 

been conservatively estimated by Goldman Sachs with analytics by 

Forbes Magazine about 50-some cents a gallon of gas. I personally 

believe it will go down a lot more. The key problem here is that 


erowe on DSK2VPTVN1PROD with 
10 

there are betting vehicles in this market. There is an estimated 

half trillion dollars being passively bet by hedge funds, mutual 

funds, private equity, pension funds on the upward direction of 

commodity staples. The purveyors of those funds, principally Goldman Sachs and Morgan Stanley, then turn around and go into the 

futures market and offset their betting exposure. They only want 

to make money on the transaction fees. They do not want to take 

bets on the price direction, so they may hold, in the futures markets, many times, many times the actual supply of oil in the world. 

Now, how do they do that? They have contracts that promise to 

supply and deliver. They let them expire. They convert them. That 

is called the ‘‘Goldman Roll.’’ And just continue this process down 

the road. 

So it is this gambling that they are offering, a casino, with a preemption in the statute against state gaming laws that puts a half 

trillion dollars in not to production, not to owning the underlying 

commodity, but to bet on the upward direction of the price. The casino goes into the real market and buys exorbitant amounts of long 

futures contracts that send a false demand signal into the market. 

My view is the casino, the gambling, should be stopped. If I am 

wrong about this, all we will have lost are casinos. If I am wrong 

about this, the $500 billion will be put into production and ownership of commodity. I am not against speculation. I think speculation is fine. I am against passive gambling. And we have an estimated half a trillion dollars gambling going on and that has real 

impact in these markets. It should be stopped. There is legislation 

that is being prepared in the House and will be prepared in the 

Senate to stop the gambling. 

As I pointed out in my testimony, there has been on this issue 

substantial bipartisan concern about speculation. I point to several 

2008 votes taken in the House that are bipartisan in nature. One 

is 402 to 19; one is 288 to 133. I think that we can in a bipartisan 

way approach a solution which will not completely solve the problem, but which will afford important relief to the American consumer. Thank you. 

Chairman GRAVES. Thank you very much, Professor Greenberger. 

For my opponents out there who say that I have not done anything in Congress, I appreciate what you said about my legislation 

being what caused natural gas prices to go down. I wish that I 

could say the same. I think it is extraordinarily—I do not know 

what the word is—I think that is a huge overstatement on your 

part. 

Mr. GREENBERGER. So you are disabusing me of my admiration? 

Chairman GRAVES. But I am glad I got that on record and I will 

put it in my next commercial. I appreciate that. 

Mr. GREENBERGER. I will be happy to help you. 

Chairman GRAVES. Now, I am a supply and demand guy. That 

is what I am. And the fact of the matter is when you have speculators in the market that obviously take opposite positions and 

when you have a futures market and oil, natural gas, whatever the 

case may be is a commodity just like corn and soybeans which I 

have the majority of my experience in, wheat. You know, when you 

have consumers or you have even suppliers that are hedging, tryVerDate Mar 15 2010 09:24 Nov 16, 2012 Jkt 076473 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 E:\HR\OC\A473.XXX A473

erowe on DSK2VPTVN1PROD with 
11 

ing to lock in whatever price that they want, you also have to have 

an opposite position on that which the speculators usually tend to 

fill that position. But my point is, too, speculators make money 

whether the price is going up or down. They bid on the trend. And 

I do not believe that they drive the price. Now, I do believe that 

speculation is the cause of volatility, which is what my legislation 

seeked to address, has tried to slow down volatility. In fact, I tried 

to put price stops in just like we have in farm commodities. That 

ended up being a part of it to try to slow down volatility. 

But supply and demand, the fact of the matter is supply and demand is what drives the market. And while I would like to claim 

credit for gas prices, natural gas prices being so low, I do believe 

it is the fact of we had an extraordinarily mild winter and so demand was very low. And we have some of the largest production 

given some of the new areas that we have found. We have a huge 

supply right now of natural gas. And I think that is what contributes to long-term pricing structure. 

Now, when it comes to crude oil, which is what the intent of this 

hearing is, again, I am a supply and demand guy and I believe in 

supply and demand. And when you increase supply, and if we can 

increase supply in the United States, it is going to have a dramatic 

effect. Even if that supply is not going to come to fruition for 10 

years, you talk about how you start opening up those regions, it is 

going to have a huge impact on the supply issue out there and it 

is going to drive prices down. But I think it is very, very—and I 

would very much be interested in your comments on, you know, on 

what I have to say about in terms of, you know, the volatility. 

Speculation contributes to volatility. But it does not contribute to 

overall price trends. And the fact of the matter is, and I would like 

your comments on that, too, speculators make money whether the 

price is going up or going down. They bet on that trend. 

Mr. GREENBERGER. Chairman Graves, the crude oil market 

today, the futures market, is 80 percent speculative, 20 percent 

commercial. When it said to small businesses you go in and hedge, 

they are not going in to hedge. Farmers I am sure in your constituency will tell you it is too volatile to hedge. You control a contract 

with four to seven percent of the value. On about Labor Day 2008, 

I believe the price of oil went up about $19 one day and down 

about $18 the next. You cannot hold that contract on four percent 

margin. The commercials, and you should talk to people in the 

Commodity Market Oversight Coalition made up of heating oil 

dealers, the New England Fuel Institute, Petroleum Marketers Association, the airlines, the truckers, they all believe that when you 

have a futures market that is 80 percent speculation and 20 percent commercial, you are not having those speculators help the 

commercial. They are counterparties to each other. 

Now, you say they make money when the price goes up or the price goes down. They offer $500 billion of bets. You can only bet 

the price will go up. To offset those bets they have to buy long. 

Now, the fact that there is an opposite side to that bet, it is like 

there is an opposite side to the stock market bets, too. But stock 

market prices just do not go flat; they can be volatile. When there 

are more people trying to buy it than sell it, yes, people will sell 

it but the price goes up. If you took that $500 billion out of this 


erowe on DSK2VPTVN1PROD with 
12 

futures market, it would decrease not only the price of crude oil because the betting is on a basket of commodities. Natural gas, by 

the way, is only four percent of it. Oil products are a huge percent 

of it, but so are farm prices. And you go talk to farmers or related 

industries and they will tell you, small farmers, they cannot use futures as a hedging vehicle. The market has passed them by. They 

are not hedging. And what does that mean? 

Chairman GRAVES. I completely disagree with you. Absolutely 

emphatically disagree. 

Mr. GREENBERGER. Well, I appreciate that. 

Chairman GRAVES. And in every futures transaction you have to 

have an opposite position. If an option is exercised, you have to 

have an opposite position. 

Mr. GREENBERGER. For every stock sale you have to have an opposite position, but stocks go up and down. And if people are buying Apple—— 

Chairman GRAVES. We are not talking about the stock market. 

Mr. GREENBERGER. Well, it is the same market fundamental in 

futures contracts. 

Chairman GRAVES. Mr. McNally, I would appreciate your comments. 

Mr. MCNALLY. As I said, since the late 1800s, producers and consumers have understood that oil prices tend towards wild gyrations. And we should differentiate here between volatility day-today, week-to-week, and then gyrations, huge swings. Economists 

call it low price elasticity of supply and demand in the short run. 

Plain English, you have got to use oil. If the price of chicken goes 

you, you buy meat. If the price of gasoline goes up, you still buy 

gasoline. So you need big price changes to effectuate little changes 

in demand. 

And that is why throughout history there have been three groups 

that have tried to suppress this volatility on the producer side. 

Rockefeller and standard oil in the late 1800s, which we busted up 

in 1911, and then we were the most effective OPEC. We, the 

United States, the Texas Railroad Commission, Seven Sisters 

locked up, stabilized the price of oil for 30 years. We handed it over 

to OPEC in 1972. The chairman of the Texas Railroad Commission, 

they met every month to set production quotas just like OPEC has, 

and he called it a damned historic occasion. Why? Because for the 

first time in 30 years the U.S. did not hold any spare back. We let 

it all go because demand was outstripping our net supply growth 

and OPEC took over. In 2008, it was the first time we saw since 

March of 1972 the spare capacity holder, now Saudi Arabia, no 

longer Texas Railroad Commission, run out of spare capacity in 

peacetime. You can read the DOE reports from earlier this year. 

If we are looking at a very tight market with a very low shock absorbing buffer with Iran possibly for the summer a risk that is 

being alluded to by comments from senior officials such as Secretary Panetta, people are going to speculate on prices going a lot 

higher. And I think it is important to differentiate and define speculation very carefully. If I am having a picnic near the railroad 

tracks on a sunny day with my family and I see two train cars coming down that railroad track heading towards each other, I am 

going to speculate on a train wreck. I am not causing the train 


erowe on DSK2VPTVN1PROD with 
13 

wreck but I will speculate with high conviction we are about to 

have a train wreck and I want to move my family away from the 

railroad tracks. 

And that similarly goes into price formation and oil. Oil prices 

are driven by supply and demand as you said in terms of data and 

the best we can perceive them. There is a lot of work to do to improve that I think we would all agree. But also expectations of future supply and demand and supply risk. And we are in a tight 

and fearful market. And as long as this market remains tight and 

fearful we are going to see high volatility, or as I prefer to call it, 

gyrations in prices. Thank you. 

Chairman GRAVES. Ms. Vela ́zquez. 

Ms. VELA ́ ZQUEZ. Mr. McNally, renewable fuels are becoming 

more popular, not only because they are environmentally friendly 

but also because they are becoming more cost competitive when 

you consider the rising prices of petroleum. How does the fact that 

oil is over $100 a barrel affect the buyability of renewable fuels as 

a solution to our problems? 

Mr. MCNALLY. Ranking Member Vela ́zquez, the main renewable 

fuel that competes with oil we thought would be corn. And then we 

were hoping cellulosic ethanol. And as my colleague on the panel 

mentioned, for various reasons we think that maybe the boom in 

driving corn into our gasoline pool may have contributed to rising 

food prices and has other unintended consequences. But corn ethanol is competitive at $100 and more. The problem is, and this is 

the problem with the price gyrations which I think we all would 

agree are a horrible thing. At $100 it makes sense to burn corn and 

ethanol, and it may make sense to invest in cellulosic ethanol and 

other more advanced and less—more environmentally friendly 

forms of renewable energy. The problem is when we go as we did 

from 147 in the middle of 2008 to $30 a barrel, you do not know 

what to do. At $30 a barrel, at $40 a barrel, corn ethanol probably 

does not make sense. Certainly, cellulosic does not. So it is those 

wild gyrations in prices which keep people from deciding whether 

to buy an F–350 truck or a Leaf or invest in cellulosic or buy oil 

in the ground. 

Ms. VELA ́ ZQUEZ. So what is your message then, expanded domestic energy production? 

Mr. MCNALLY. The comprehensive answer, that would be a very 

important part of it. 

Ms. VELA ́ ZQUEZ. But it has been found that it could take up to 

between five to 10 years. Right? 

Mr. MCNALLY. Right. 

Ms. VELA ́ ZQUEZ. So what then relief will small businesses have 

if they have to wait 10 years to get the relief? 

Mr. MCNALLY. As we all said, and my colleagues said, there is 

no short-term solution, unfortunately. I wish I had a magic wand 

to wave. There is no short-term solution. 

Ms. VELA ́ ZQUEZ. So what you are telling me is that expanded domestic energy production is not the sole answer. 

Mr. MCNALLY. Not the sole answer. A very important part of the 

answer but not the sole answer. 

Ms. VELA ́ ZQUEZ. Mr. Greenberger, do you have any comments? 


erowe on DSK2VPTVN1PROD with 
14 

Mr. GREENBERGER. Look, as I said before, I agree with Chairman 

Graves that supply-demand has some relevance here. The CEO of 

Exxon Mobil has said the market fundamentals mean that the 

price should be between $60–70. Goldman Sachs has said there is 

a 56 cent speculative premium here per gallon. It is fine for people 

to move away from a running train. There are plenty of speculative 

avenues. You can buy oil production companies. You can buy the 

oil itself. You can buy futures contracts on oil. But what you cannot 

do is open a casino and have people passively bet that the price 

will go up, and then like a bookie, lay off your risk in the real futures market. What I am saying is even if I am wrong, those who 

say yes, we want to keep the casinos going, we want gambling, we 

want to preempt state gaming laws, why do you not meet me halfway and let state gaming laws apply to this? It is pure passive 

gambling. It has no productive result. It is destroying the economy. 

And as to the Saudis, I was an advisor to the International Energy Forum. Twenty oil producing countries, including the Saudis, 

and 20 oil consuming countries, Western Europe and the United 

States. There was virtual uniform agreement that the market had 

become financialized. In March, the Saudi king and oil minister 

said they would increase production by 25 percent to offset potential interference with the Strait of Hormuz. The price went up the 

next day. The president threatened to release strategic—— 

Ms. VELA ́ ZQUEZ. All right. And the prices went down. 

Mr. GREENBERGER. And the price went up. The more supply we 

are offering, the price goes up. In July 2008, the Saudis, at the request of Vice President Cheney, increased production. The price 

went up $5 the next day. That is not market fundamentals. That 

is not speculation. It is betting and gambling. If you want to leave 

the status quo, you have to tell your constituents I approve of people passively gambling on the upward price direction and the casinos then affecting the bets by swamping the market with long 

crude oil contracts, 10 times the size of the world’s—— 

Ms. VELA ́ ZQUEZ. Let me follow up with another question to Mr. 

McNally. The St. Louis Federal Reserve recently released a report 

indicating speculation was the second largest contributor to oil 

prices accounting for nearly 15 percent of the rice. So how do you 

reconcile what you said before with this report? 

Mr. MCNALLY. I do it by noting we have sort of a battle of the 

Federal Reserve Banks. The Federal Reserve Bank of Dallas also 

issued a report looking at the data and refuted that and came to 

a different conclusion and said there is a very little role from financial market participants. So we can probably spend all day arguing 

about those reports but I would just point out the commodity futures trading commission in 2008 led an interagency task force 

composed of the Departments of Treasury, Energy, Agricultural, 

Federal Reserve, Federal Trade Commission, and the SEC. And 

they looked at 2008, the period we have talked about, and concluded the price behavior was due to supply and demand fundamentals. And I could read to you from Department of Energy Reports and international agency reports from earlier this year ad 

nauseam showing that it is really supply and demand and not financial market participants that are responsible for the price behavior. 


erowe on DSK2VPTVN1PROD with 
15 

Ms. VELA ́ ZQUEZ. Thank you. Professor Greenberger, do you think 

it is merely a coincidence that the unprecedented growth in commodity index trading occurred at the same time as a boom in commodity prices? 

Mr. GREENBERGER. No, I do not think it is a coincidence, and 

there have been three bipartisan reports from the Senate Permanent Subcommittee on Investigations on crude oil, natural gas, red 

wheat, each of which concluded that the commodity index business, 

which started in 2004 at $13 billion and is now estimated to be 

$500 billion, if you look at charts, that is where the bubble started. 

And yes, the bubble bursts from time to time. And by the way, 

when it bursts, all these small businesses who were advised to 

hedge; Goldman and Morgan were telling airlines when the oil was 

at 150 to hedge against the price of 200. At the end of the year the 

price was 30. Those airlines took a beating and small businesses 

do not hedge anymore because of those kinds of beatings. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. Thank you. 

Chairman GRAVES. Mr. Walsh. 

Mr. WALSH. Thank you, Mr. Chairman. Thanks for calling this 

hearing. 

This is a big issue and we are forgetting about you two rock 

bones right there in the middle, the small businesses who are impacted by this. We are engaged in an important policy discussion 

but you are living this. And so I apologize if you two get shunned 

a little bit today but I very much appreciated your testimony because you, small business men and women will turn this country 

around. And we here in Washington make it too darn difficult for 

you to do that. 

I get so tired of hearing this line that, you know, if we only increase supply, our domestic supply could take five to 10 years. We 

said that five to 10 years ago. We said that 10 to 15 years ago. We 

said that 20 to 25 years ago. And Mr. Greenberger, respectively, I 

hear your argument on speculation. I respect it to a large degree, 

but you so dismiss—— 

Mr. GREENBERGER. That is not true. 

Mr. WALSH. But you so dismiss basic supply and demand. It is 

like we look for a bad guy in every debate we have up here and 

the other side tends to demonize big bad oil, not understanding 

that 95 percent of the oil produced in this country comes from independent oil companies. This administration does not have an energy policy. And so he again, the president again clearly a few 

months ago made up his mind, Professor Greenberger, that he was 

going to jump on that bad guys and go after speculators to make 

up for an utter lack of a policy. 

Mr. McNally, this notion of we cannot start drilling tomorrow all 

over the place because we have an abundance of areas where we 

could impact supply, but we may not see the effects of that for 

three or four or five or six or ten years. Is that true? If this country 

aggressively and energetically decided to snap their fingers and go 

after all of the supplies, all of the oil supplies we have, could you 

see some more short-term impact on prices? 

Mr. MCNALLY. Short-term I think market participants would 

want to see real barrels show up. So I would be cautious in expecting too much of a price decrease even if we were to waive a wand 


erowe on DSK2VPTVN1PROD with 
16 

and open up everything in the very, very short-term. Unfortunately, I wish it were not the case but unfortunately in the short 

term there is very little we can do. However, what I described, we 

are living with the consequences of five to 10 years of bad dreams, 

if you will, bad surprises. Two billion people want to drive. We are 

not increasing supply as we used to. The Persian Gulf is a mess. 

We are living with that now. What we do know with our own resources under the ground, we can start creating good surprises so 

that in the next three to five to seven years maybe we can find 

ways to increase production to diversify further out of the Persian 

Gulf, to find ways to scale up a cellulosic or maybe other ways, 

make battery cars work better. So we live with the consequences 

of surprises and trends that develop over the previous five to seven 

to 10 years. We absolutely need to right now work on making the 

next three to five to seven years ones where the surprises are good 

ones. 

Mr. WALSH. Professor Greenberger refers to this difference between speculators and gamblers. How do you see that distinction? 

Do you see a distinction? 

Mr. MCNALLY. Yeah, I do not see that at all. What we have are 

the oil price and oil markets, exchange markets and the derivatives 

markets are composed of physical consumers and producers of oil 

who want to transfer their price risk to those willing to bear it, 

which include speculators. What Mr. Greenberger is also talking 

about though are these passive long only investors. These are folks, 

pension funds, university endowments, you and me, where we want 

to put a part of our portfolio into commodities, a basket of commodities that includes oil. Now, the CFTC has looked at this very closely because there is no question this money has come into the market, that is for sure. But the CFTC has looked into it and they have 

disaggregated careful data and they show, for example, in early 

2008, as oil prices were lurching up to that $147 high, passive investors were actually selling their oil futures. And I would be 

happy to point that out for the record in that CFTC report. 

So the folk who try to figure out if it is the rooster causing the 

sun to rise or the rooster just sort of crowing, you know, in coincidence with the sun rising, looking at Granger causality tests and 

all kinds of math and speaking Greek and everything, the folks 

who poured into that who were unbiased, who have the information, have not yet said or not concluded that these investors, 

whether it is these passive long-only folks just buying and holding, 

or speculators who buy and sell have distorted or manipulated or 

influenced the price of oil. 

Mr. WALSH. And Mr. Chairman, let me just close with this. Ms. 

Driscoll and Mr. Smith, it is our job here to make life easier for 

you so that you can be productive and profitable and grow businesses and hire people. There is not a lot we can or should do here. 

Often, the things we do here make things worse. We have an abundance of oil on our land and around our shores. It makes sense for 

us, I think, and I hope you agree, to go after those resources in as 

sensitive and as reasonable a way as we can to make life easier for 

you two. Thank you for coming. 

Thank you, Mr. Chairman. 

Chairman GRAVES. Mr. Barletta. 


erowe on DSK2VPTVN1PROD with 
17 

Mr. BARLETTA. Thank you, Mr. Chairman. 

Mr. Greenberger, one of the biggest national security concerns is 

our dependency on foreign oil obviously. Many scientists have argued that our nation has more natural gas than Saudi Arabia has 

oil. And in my home state of Pennsylvania—— 

Mr. GREENBERGER. My home state, too. 

Mr. BARLETTA. It is a very exciting opportunity where our state 

could be, I believe a leader in solving some of America’s energy concerns. 

A 2010 Penn State study found that Marcellus shale could gen- erate nearly $19 billion in economic value per year and 200,000 

jobs by 2020 in Pennsylvania alone. Could you comment on a potential impact of natural gas from Marcellus shale and helping 

small businesses decrease their energy costs and the impact of an 

energy policy, whether it be natural gas—and I am talking about 

transportation fuel—natural gas, automobiles, or natural gas to liquid fuel? 

Mr. GREENBERGER. Well, I agree with your premise and before 

Mr. Walsh leaves I just want to say for the fourth time I do not 

discount supply-demand. I have made that clear several times. 

What I am talking about is a premium over supply-demand. 

Mr. WALSH. Do me a favor, before you leave today make sure you 

expound upon what we can do when it comes to supply and demand. 

Mr. GREENBERGER. I will definitely—— 

Mr. WALSH. What we control. 

Mr. GREENBERGER. I can definitely do that. And I think that the 

Pennsylvania situation is a prime example with the natural gas resources. 

Now, I will tell you something. What I am not an expert on is 

the environmental concerns. I know there are many environmental 

concerns, but I have got to tell you, I grew up in Scranton, Pennsylvania. Do you know Scranton, Pennsylvania? 

Mr. BARLETTA. It is in my district. 

Mr. GREENBERGER. Really? Great. Are you from Hazelton? 

Mr. BARLETTA. I am. 

Mr. GREENBERGER. Okay. 

Mr. BARLETTA. Former mayor. 

Mr. GREENBERGER. Okay. Well, you know that area. And anything that would make that area more productive, we depended, as 

you know, on hard coal, anthracite coal, and I grew up—when I 

was born, Scranton had 150,000 people. It now has about 50,000 

people. I definitely believe that these resources—North Dakota is 

the same thing—need to be explored and developed. They are being 

explored and developed. On my theory of supply and demand, I do 

not think the price going from $15 per million BTU down to $1.70 

is unrelated to supply-demand. Those kind of experiences have an 

effect. But it is not completely explained by supply-demand. You 

cannot go from $15 to $1.70 and having the FERC bringing manipulation cases collecting $200 million against the Amaranth. Thirty 

million dollars against the Amaranth director and that not affect 

the price. We need to see that same aggressiveness in the other 

commodity markets and we are not, but to me the experience that 

you are talking about is one of great hope for us and again I say 


erowe on DSK2VPTVN1PROD with 
18 

I believe supply-demand is important and I would look for every 

possibility. My concern and expertise is that there is at least a 50 

cent per gallon premium—I believe it is maybe even more—that 

American consumers are putting into their purchase of gasoline 

that is completely and totally unnecessary. The price of oil dropped 

$5 in two days from 103 to 98 when it was discovered that Chesapeake had within its corporate structure a hedge fund that was 

betting on the price of oil. And by the way, government regulators 

did not discover that; Reuters discovered that. Where are the government regulators? They are asleep. 

And the final point I would make, it is said that President 

Obama was slow to get on the bandwagon. I agree with that because John McCain got on this bandwagon when he ran for president two weeks before President Obama did. In June of 2008, 

McCain said the cause of the explosion in crude oil is excessive 

speculation and I am tired of hearing about a 2008 CFTC report 

that has been discredited even by the bipartisan House Agriculture 

Committee and then being told that St. Louis’s Fed’s report of last 

week or the Dallas Fed’s report is meaningless. There are 50 studies—Princeton, Texas A&M, Stanford, London School of Economics, 

Nouriel Roubini, Paul Krugman. There are 50 studies—they are 

not uniform—saying this is a gambling problem. And there is a difference between gambling and speculating. We should stop the 

gambling. 

Mr. BARLETTA. And do you feel if we explored for more natural 

gas, what effect would that have on supply and demand of oil? 

Mr. GREENBERGER. There is obviously not a complete crossover 

use. If there were you would see the price of oil go down. But it 

has impacted the price of natural gas. As I said, it has gone down 

from $15 per million BTU, a world record high, to $1.70, which is 

a ten year low. Part of that is stopping speculation, but it is not 

the main part. Part of that is the kind of production that you were 

talking about in Pennsylvania and other states which is the hope 

for the future of the American economy. 

Mr. BARLETTA. Thank you. 

Chairman GRAVES. Mr. Tipton. 

Mr. TIPTON. Thank you, Mr. Chairman. I would like to start 

today by being able to submit an article for the record that ran in 

Monday’s Washington Examiner Op-Ed column. It is a joint op-ed 

that you and I wrote, Mr. Chairman, which states that red tape is 

strangling America’s energy supply. In the op-ed, we point out that 

one in 10 business owners say energy is his or her single largest 

cost ranking it ahead of wages, material, and other investments. 

Additionally, another 25 percent claim energy is its second or third 

largest expense. Policies by this administration, like failing to approve the Keystone pipeline are driving up gas prices and prohibiting us from developing American energy. 

Just last month I introduced H.R. 1381, the Planning for American Energy Act of 2012. Under the legislation, the nonpartisan energy information administration provides the projected energy 

needs of the United States over the next 30 years to the secretary 

of interior and the secretary of agriculture on what they will base 

for the four-year production plans. My ‘‘all of the above’’ energy 

plan requires that wind, solar, hydropower, geothermal, natural 


erowe on DSK2VPTVN1PROD with 
19 

gas, oil, coal, and shake minerals needed for energy development 

be included in those plans. Enacting this plan will develop our resources here in America and assist with lowering gas prices and 

lessening our dependence on volatile foreign energy sources. 

I would like to probably start out with Ms. Driscoll, since you 

have not had any questions coming up, we know what is going on 

in the Middle East right now. If all of a sudden we do not have 

that flow of oil coming out of the Middle East, would you expect 

our prices to go up in this country? 

Ms. DRISCOLL. If I base my expectations on historical data, yes. 

I should hope that we could generate enough fuels here in the 

United States to meet the need but I keep hearing—— 

Mr. TIPTON. So you and Mr. Smith, you are small business people. I am a small businessman as well. You rely on a supply coming 

in. So would it be sensible for the United States of America, rather 

than continuing to say we cannot do it because it is five to 10 years 

down the road, to finally take those reins in our hands to be able 

to create energy certainty for the United States of America? Would 

that give you a little bit of consolation and certainty from your 

businesses if you knew that that supply was not going to be cut off 

and as a byproduct you are going to be creating American jobs on 

American soil and developing American energy resources? Would 

that make sense to you? 

Ms. DRISCOLL. It is a start. It is a start. I would hope that we 

could do it with a heavy emphasis on the safety of the American 

people with the processes used to harvest that fuel. That has got 

to be a primary concern that runs in conjunction. Yes. 

Mr. SMITH. Absolutely. I agree. You know, we need some stability 

to this at some point for American businesses. So, you know, as a 

businessperson, right now I have to watch every dollar I spend because I do not know what is coming next. And so I have to hold 

off on hiring or cut back on hours that someone is working to make 

sure that I can keep my overhead down to make up for things like 

gasoline prices rising. 

Mr. TIPTON. So is it accurate, Mr. Smith, that because of the failures of this administration to be able to develop an energy policy 

for this country, you are having to direct your resources in areas 

that you would rather be putting to productive use like creating 

jobs, expanding your business, and expanding your bottom-line? 

Mr. SMITH. I mean, you know, I truly believe that, you know, 

right now with the—I think most people call it the gridlock or the 

red tape—that is not happening—to make sure that we have some 

sort of plan in place to, you know, help the economy, help businesses, help families, you know, with the rising costs of fuel and 

the unknown of what fuel will bring in the future. 

Mr. TIPTON. I know in my district in Colorado we continue to 

hear the stories of struggling families that are paying 3.80, 3.90 a 

gallon and they are making a choice—do they fill up half the gas 

tank and buy a little bit of food or what are they really going to 

do? So this is about policy. And I would like to maybe expand this 

discussion just a little bit when we are talking about the futures 

market because I think that we neglect to point out the failure of 

this administration to be able to stand up for the strength of the 


erowe on DSK2VPTVN1PROD with 
20 

U.S. dollar. We saw under the Reagan administration with the 

strong U.S. dollar we can have economic prosperity. 

Mr. McNally, on the world oil markets, is that based off of the 

value of a U.S. dollar? 

Mr. MCNALLY. The role of the dollar and expectations of future 

dollar exchange rates and inflation rates is one factor that plays a 

role in forming oil prices. 

Mr. TIPTON. So the weak American dollar is actually driving up 

costs to American consumers. Do we have any data to see how that 

relates as opposed to some of the speculative market in terms of 

the cost to consumers and businesses? 

Mr. MCNALLY. I am not aware of government studies that have 

done that. I am sure banks maybe have looked at that. So that is 

not something in the government sphere which I am aware of. 

Mr. TIPTON. I am sorry, Mr. Chairman, my time has expired. 

Thank you. 

Chairman GRAVES. Ms. Ellmers. 

Ms. ELLMERS. Thank you, Mr. Chairman. And my questions are 

for Ms. Driscoll and Mr. Smith as well as business owners. It is so 

important that we understand how the rising price of energy is affecting our businesses and how that in turn affects you, the community, and the cash flow of your businesses. So what I would like 

to do, Ms. Driscoll, if I could start with you and then I am going 

to ask a couple of questions and if both of you could answer. 

There again, you know, as fuel prices have been rising and, of 

course, you know, some have come down a little bit, and of course, 

I am talking about gas prices, as they have fluctuated what did 

this do to the ability of your business and your cash flow? How do 

you manage that? 

Ms. DRISCOLL. The first thing I did was lay off people which absolutely broke my heart to do that. I went from full-time employees 

and I put them in a part-time situation. And I am now doing everything. So it is really unfortunate. After I had laid off people and 

then put them into part-time and no more, then I would at least 

bring them along to trade shows and work with me in that capacity 

or when I was showing horses I would bring them along in that capacity to work for me for the day. But with the fuel prices, what 

I pay to get to the show is probably double what I was paying them 

to come along as grooms. So it certainly affected the job market in 

my region. 

Ms. ELLMERS. Sure. You know, I would agree. Each month my 

fuel bill comes in. I never want to open it. I hate to see what that 

number is as it does continue to grow, you know, every month. 

Even though we have had a recent decline it is still significantly 

up from, you know, January 2011. 

So I look at things like I have reduced hours on employees. I 

have replaced employees with part-time people. So I really have to 

watch the overhead portion of my business and cut back wherever 

I can. So at times it means that I do not take a paycheck. So usually that is the first cut that happens, is my ability to make any 

money. And then and that point I have to look beyond that and see 

what to do. And right now, while I would love to see growth, we 

do not see it in the plumbing industry. Being a part of Mr. Rooter 

Plumbing, we are a national, you know, franchise. International 


erowe on DSK2VPTVN1PROD with 
21 

franchise. And so I hear of the other business owners that I speak 

to that are laying off people, you know, as we speak. The past few 

months they have been laying people off. And so energy is a huge 

expense for us, you know, and the fuel costs. 

Along that line, basically my question is how has it affected your 

bottom-line? And I guess probably the easiest way to say that is 

are you better off today than you were four years ago? So Ms. Driscoll? 

Ms. DRISCOLL. Being one to conserve words, the answer to that 

is no. Absolutely not. I do not take a paycheck anymore either. You 

find ways. And I truly believe that small business owners are our 

own worst enemy. We find a way to get it done anyway, and as a 

result it gives the impression that it is really not that bad for us. 

And it is. I do not think I have taken a paycheck in about two and 

a half years. It is very frustrating and it is difficult for me to add 

new products to the line. It is difficult for me to campaign a horse 

that really should be out on the road being seen. I have cut back 

on some of those things knowing that the end result is I am not 

going to get as good sales. But you have to cut. It is a very frustrating situation. I have to do things that I know are not good for 

my business. 

Ms. ELLMERS. Thank you. Mr. Smith. 

Mr. SMITH. Yeah. And, you know, I would say in a small business, it is like a small family. So every time we have to lay someone off if is not a large corporation that sends in an H.R. person; 

you are laying off your friend, you know, that you have worked 

with for years and you know their families. So it takes a much 

more enormous toll on us outside of just the financial. We are also 

dealing with people, you know, and our friends and making impacts to their lives because of decisions we need to make to keep 

our business open. 

Ms. ELLMERS. Thank you. This is the story we keep hearing over 

and over again. Back in my district last week I met with some 

business owners and one of the stories which is heartbreaking, literally, in order to keep their business open, their small business, 

one of my friends has actually taken another job to keep the doors 

open on the business. They have gone through all of their savings, 

their retirement, selling their home and moving into a townhouse. 

And this is what they have had to do to keep those doors open. And 

it is what we do as Americans. So with that, Mr. Chairman, I yield 

back. 

Ms. VELA ́ ZQUEZ. I would just like to say, Mr. Chairman, it is evident that, you know, one role of this Committee is to help create 

a climate that is conducive to help small businesses do what you 

do best. That is creating jobs. And one area where this Congress 

can be effective is in the area of energy policy and we have not 

acted on any comprehensive energy bill reported out of the House 

of Representatives. Thank you. 

Chairman GRAVES. I appreciate it. I want to thank you all for 

coming today. And unfortunately, we lose sight a lot of times in the 

debate over what causes energy prices to rise and fall. We lose 

sight of what it really does to small businesses and to consumers 

and to people out there. So I appreciate everybody here coming in 

and testifying. We are in the middle of a vote series so we are 


erowe on DSK2VPTVN1PROD with 
22 

going to go ahead and close down the hearing. But thank you all 

very much. 

And I would ask unanimous consent that members have five legislative days to submit statements and supporting materials for the 

record. Without objection, so ordered. 

And with that the hearing is adjourned. 

[Whereupon, at 2:11 p.m., the Committee was adjourned.] 


erowe on DSK2VPTVN1PROD with 
23 


erowe on DSK2VPTVN1PROD with Insert offset folio 61 here 76473A.001
24 


erowe on DSK2VPTVN1PROD with Insert offset folio 62 here 76473A.002
25 


erowe on DSK2VPTVN1PROD with Insert offset folio 63 here 76473A.003
26 


erowe on DSK2VPTVN1PROD with Insert offset folio 64 here 76473A.004
27 


erowe on DSK2VPTVN1PROD with Insert offset folio 65 here 76473A.005
28 


erowe on DSK2VPTVN1PROD with Insert offset folio 66 here 76473A.006
29 


erowe on DSK2VPTVN1PROD with Insert offset folio 67 here 76473A.007
30 


erowe on DSK2VPTVN1PROD with Insert offset folio 68 here 76473A.008
31 


erowe on DSK2VPTVN1PROD with Insert offset folio 69 here 76473A.009
32 


erowe on DSK2VPTVN1PROD with Insert offset folio 70 here 76473A.010
33 


erowe on DSK2VPTVN1PROD with Insert offset folio 71 here 76473A.011
34 


erowe on DSK2VPTVN1PROD with Insert offset folio 72 here 76473A.012
35 


erowe on DSK2VPTVN1PROD with Insert offset folio 73 here 76473A.013
36 


erowe on DSK2VPTVN1PROD with Insert offset folio 74 here 76473A.014
37 


erowe on DSK2VPTVN1PROD with Insert offset folio 75 here 76473A.015
38 


erowe on DSK2VPTVN1PROD with Insert offset folio 76 here 76473A.016
39 


erowe on DSK2VPTVN1PROD with Insert offset folio 77 here 76473A.017
40 


erowe on DSK2VPTVN1PROD with Insert offset folio 78 here 76473A.018
41 


erowe on DSK2VPTVN1PROD with Insert offset folio 79 here 76473A.019
42 


erowe on DSK2VPTVN1PROD with Insert offset folio 80 here 76473A.020
43 


erowe on DSK2VPTVN1PROD with Insert offset folio 81 here 76473A.021
44 


erowe on DSK2VPTVN1PROD with Insert offset folio 82 here 76473A.022
45 


erowe on DSK2VPTVN1PROD with Insert offset folio 83 here 76473A.023
46 


erowe on DSK2VPTVN1PROD with Insert offset folio 84 here 76473A.024
47 


erowe on DSK2VPTVN1PROD with Insert offset folio 85 here 76473A.025
48 


erowe on DSK2VPTVN1PROD with Insert offset folio 86 here 76473A.026
49 


erowe on DSK2VPTVN1PROD with Insert offset folio 87 here 76473A.027
50 


erowe on DSK2VPTVN1PROD with Insert offset folio 88 here 76473A.028
51 


erowe on DSK2VPTVN1PROD with Insert offset folio 89 here 76473A.029
52 


erowe on DSK2VPTVN1PROD with Insert offset folio 90 here 76473A.030
53 


erowe on DSK2VPTVN1PROD with Insert offset folio 91 here 76473A.031
54 


erowe on DSK2VPTVN1PROD with Insert offset folio 92 here 76473A.032
55 


erowe on DSK2VPTVN1PROD with Insert offset folio 93 here 76473A.033
56 


erowe on DSK2VPTVN1PROD with Insert offset folio 94 here 76473A.034
57 


erowe on DSK2VPTVN1PROD with Insert offset folio 95 here 76473A.035
58 


erowe on DSK2VPTVN1PROD with Insert offset folio 96 here 76473A.036
59 


erowe on DSK2VPTVN1PROD with Insert offset folio 97 here 76473A.037
60 


erowe on DSK2VPTVN1PROD with Insert offset folio 98 here 76473A.038
61 


erowe on DSK2VPTVN1PROD with Insert offset folio 99 here 76473A.039
62 


erowe on DSK2VPTVN1PROD with Insert offset folio 100 here 76473A.040
63 


erowe on DSK2VPTVN1PROD with Insert offset folio 101 here 76473A.041
64 


erowe on DSK2VPTVN1PROD with Insert offset folio 102 here 76473A.042
65 


erowe on DSK2VPTVN1PROD with Insert offset folio 103 here 76473A.043
66 


erowe on DSK2VPTVN1PROD with Insert offset folio 104 here 76473A.044
67 


erowe on DSK2VPTVN1PROD with Insert offset folio 105 here 76473A.045
68 


erowe on DSK2VPTVN1PROD with Insert offset folio 106 here 76473A.046
69 


erowe on DSK2VPTVN1PROD with Insert offset folio 107 here 76473A.047
70 


erowe on DSK2VPTVN1PROD with Insert offset folio 108 here 76473A.048
71 


erowe on DSK2VPTVN1PROD with Insert offset folio 109 here 76473A.049
72 


erowe on DSK2VPTVN1PROD with Insert offset folio 110 here 76473A.050