U.S. GOVERNMENT PRINTING OFFICE

66–026 CC WASHINGTON : 2000

OPEC AND THE NORTHEAST ENERGY CRISIS

HEARING

BEFORE THE

COMMITTEE ON

INTERNATIONAL RELATIONS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

FEBRUARY 10, 2000

Serial No. 106–131

Printed for the use of the Committee on International Relations

(

Available via the World Wide Web: http://www.house.gov/international relations

(II)

COMMITTEE ON INTERNATIONAL RELATIONS

BENJAMIN A. GILMAN, New York, Chairman

WILLIAM F. GOODLING, Pennsylvania

JAMES A. LEACH, Iowa

HENRY J. HYDE, Illinois

DOUG BEREUTER, Nebraska

CHRISTOPHER H. SMITH, New Jersey

DAN BURTON, Indiana

ELTON GALLEGLY, California

ILEANA ROS-LEHTINEN, Florida

CASS BALLENGER, North Carolina

DANA ROHRABACHER, California

DONALD A. MANZULLO, Illinois

EDWARD R. ROYCE, California

PETER T. KING, New York

STEVE CHABOT, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

MATT SALMON, Arizona

AMO HOUGHTON, New York

TOM CAMPBELL, California

JOHN M. MCHUGH, New York

KEVIN BRADY, Texas

RICHARD BURR, North Carolina

PAUL E. GILLMOR, Ohio

GEORGE RADANOVICH, California

JOHN COOKSEY, Louisiana

THOMAS G. TANCREDO, Colorado

SAM GEJDENSON, Connecticut

TOM LANTOS, California

HOWARD L. BERMAN, California

GARY L. ACKERMAN, New York

ENI F.H. FALEOMAVAEGA, American

Samoa

MATTHEW G. MARTINEZ, California

DONALD M. PAYNE, New Jersey

ROBERT MENENDEZ, New Jersey

SHERROD BROWN, Ohio

CYNTHIA A. MCKINNEY, Georgia

ALCEE L. HASTINGS, Florida

PAT DANNER, Missouri

EARL F. HILLIARD, Alabama

BRAD SHERMAN, California

ROBERT WEXLER, Florida

STEVEN R. ROTHMAN, New Jersey

JIM DAVIS, Florida

EARL POMEROY, North Dakota

WILLIAM D. DELAHUNT, Massachusetts

GREGORY W. MEEKS, New York

BARBARA LEE, California

JOSEPH CROWLEY, New York

JOSEPH M. HOEFFEL, Pennsylvania

RICHARD J. GARON, Chief of Staff

KATHLEEN BERTELSEN MOAZED, Democratic Chief of Staff

FRANCIS C. RECORD, Senior Professional Staff Member

MARILYN C. OWEN, Staff Associate

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C O N T E N T S

WITNESSES

Page

The Honorable David L. Goldwyn, Assistant Secretary for International Affairs, U.S. Department of Energy ....................................................................... 14

Peter Bass, Deputy Assistant Secretary for Energy, Sanctions and Commodities, Bureau of Economic and Business Affairs, U.S. Department of State ... 17

F. William Valentino, President, New York State Energy Research and Development Authority ................................................................................................. 31

John J. Huber, Vice President and Chief Counsel, Petroleum Marketers Association of America ................................................................................................ 33

Robert Costello, Chief Economist, American Trucking Associations ................... 35

APPENDIX

Prepared Members’ Statements:

The Honorable Benjamin A. Gilman, a Representative in Congress from New

York and Chairman, Committee on International Relations ........................... 44

The Honorable Sam Gejdenson, a Representative in Congress from Connecticut .................................................................................................................. 48

The Honorable Christopher H. Smith. a Representative in Congress from

New Jersey ........................................................................................................... 50

The Honorable Robert Menendez, a Representative in Congress from New

Jersey .................................................................................................................... 52

The Honorable John M. McHugh, a Representative in Congress from New

York ....................................................................................................................... 55

The Honorable Joseph Crowley, a Representative in Congress from New

York ....................................................................................................................... 56

Prepared Witness Statements:

David L. Goldwyn, U.S. Department of Energy .................................................... 57

Peter E. Bass, Department of State ....................................................................... 65

John Huber, Petroleum Marketers Association of America ................................. 71

F. William Valentino, New York State Energy Research and Development

Authority ............................................................................................................... 74

Bob Costello, American Trucking Associations ..................................................... 90

Additional statements and materials submitted for the record:

Testimony of the American Petroleum Institute ................................................... 97

Letter to Secretary of State dated February 4, 2000 from The Honorable

Sam Gejdenson ..................................................................................................... 102

Letter to Secretary Energy dated February 8, 2000 from The Honorable

Sam Gejdenson ..................................................................................................... 103

Letter to The President dated January 21, 2000 from George E. Pataki,

Governor, New York, concerning release of emergency LIHEAP funds .......... 104

Additional letter dated January 21, 2000 from Governor Pataki to President

Clinton .................................................................................................................. 105

Letter to Secretary of Energy dated January 21, 2000 from Governor Pataki .. 106

Page

IV

Letter to Governor George E. Pataki (New York) dated February 19, 2000

from New York State Legislature (Assemblyman Paul D. Tonko and State

Senator Richard A. Dollinger) ............................................................................. 107

Testimony of Senator John J. Bonacic, New York State Senate ......................... 109

Statement of Senator William J. Larkin, Jr., New York Senate ......................... 111

Statement of Howard D. Mills, New York State Assembly .................................. 112

Statement of Nancy Calhoun, New York State Assembly .................................... 113

Testimony of Jacob Gunther, New York State Assembly ..................................... 115

Letter of Joseph G. Rampe, County Executive, Orange Co., NY, dated February 9, 2000 ........................................................................................................ 116

Letter of Joseph A. Berti, of Speed Motor Express, Buffalo, NY, dated February 9, 2000 with related charts on Diesel Prices ........................................... 117

Letter of Richard E. Jamieson, of Rich’s 24 Hour Towing Service, Spring

Valley, NY, dated February 9, 2000 ................................................................... 120

Letter of Carl D. Morse,of E. A. Morse & Co., Inc., Middletown, NY, dated

February 9, 2000 .................................................................................................. 121

Letter of Rodney A. Kaufmann, of Kaufmann’s Servicenter, Montgomery,

NY, dated February, 2000 ................................................................................... 122

Letter of Joseph Pillitteri, of Triple Petroleum, Inc., Pine Bush, NY ................. 124

Two letters of Christopher Sardo, Thames Valley Council for Community

Action, Inc., dated February 9, 2000 .................................................................. 126

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OPEC AND THE NORTHEAST ENERGY CRISIS

Thursday, February 10, 2000

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERNATIONAL RELATIONS,

Washington, D.C.

The Committee met, pursuant to call, at 10:30 a.m., in Room

2154, Rayburn House Office Building, Hon. Benjamin A. Gilman

[Chairman of the Committee] presiding.

Chairman GILMAN. The Committee will come to order. We are

pleased to convene this hearing on OPEC and the energy crisis. We

are joined this morning by two international energy policy experts

from the Department of Energy and the Department of State, and

by three witnesses representing the New York Energy Authority,

the Petroleum Marketers Association, and the American Trucking

Association.

Our two panels are going to be able to provide Committee Members with a comprehensive overview of the impact in the Northeast

and throughout our Nation of the production cutbacks by the Organization of Petroleum Exporting Countries, OPEC, and the origins

of the energy crisis affecting thousands of households and hundreds

of businesses across the State of New York and New England.

With the price of home heating tripling over the past year, many

of our low-income consumers and many of our small businesses in

our districts and our states are hard-pressed to heat their homes

and to keep their shops and their factories running. Hundreds of

letters and calls have poured into our district offices and Washington offices describing the crisis from their own perspective,

where to a large extent they are fighting a losing battle in trying

to stay warm without going broke in the process.

Today we will try to find some answers from these witnesses who

are here with us, and we are demanding to know how all of this

happened and what our local, state and Federal policymakers are

doing to ensure that it is going to be corrected as early as possible

and does not recur. Many of us who have been around a while recall this happening many years ago when OPEC decided to do the

very same thing in the past, cutting back on production and impacting upon our Nation.

We will also get firsthand reports from our witnesses today on

the extent of the problem and a review of what our States are

doing to try to meet this emergency, and how the Federal Government can and must do much more to help low-income families put

at risk by the frigid temperatures across the Northeast, and to

keep icebreaking tugboats in operation so that our ports and rivers

remain open to barge traffic.

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There are no simple answers on why or how we got into this crisis, but there can be little doubt that dramatically higher energy

prices will boost inflation and could ultimately force the Federal

Reserve to consider additional interest rate hikes.

Oil prices are higher today than at any time since the Iraqi invasion of Kuwait a decade ago. Production cutbacks decreed by the

producer cartel, the Organization of Petroleum Exporting Countries, have caused worldwide stocks, including those in our Nation,

to be drawn down to very low levels. This imbalance has resulted

in the sharp climb in crude oil prices over the past year.

Late last year, OPEC was indicating that it might relax its production quotas if stock reached 1996 levels. But in early January

of this year, the member states of OPEC reversed course and indicated they fully intended to maintain their cutbacks of about six

percent of worldwide production, at least through March of this

year, and possibly through June or later.

As our dependency on foreign oil has increased over the past decade, the Administration has regrettably fallen short in its efforts

to persuade OPEC and non-OPEC nations alike to moderate their

aggressive policies designed to punish oil-importing nations.

Together with the very cold weather this year and transportation

bottlenecks, OPEC cartel-like operations have sent the price of

heating oil surging throughout New England and New York. The

price of oil reached $30 per barrel briefly during the week of January 21st, compared to about $12 a barrel of oil in the summer

months of last year.

Yesterday I talked with a civil service employee in one of my

counties who told me that his cost for heating oil has doubled from

December of last year to January of this year; that he can only afford to replenish his supply of heating oil to the 150-gallon mark

of his 300-gallon tank. In yesterday’s edition one of our local papers, the ‘‘Times Herald Record,’’ a prominent newspaper in my

district, described the plight of many of our elderly low-income consumers who are being forced to turn up their thermostats in the

face of sharply higher home heating costs.

That article describes the plight of 74-year-old Virginia Jump of

Mount Hope, who has been forced to keep her oil furnace set at 80

degrees so that her thermostat can stay at 68, and that doesn’t

even keep the drafts at bay in her chilly two-bedroom home. She

lives on a monthly Social Security income of $734, with no phone

or running water because she can’t afford those kinds of services.

Last week she paid $268 for fuel oil, double the price she paid

just two months ago, and she is far from alone in that situation.

Seniors on fixed incomes have been hard-hit by the dramatic increase in energy costs. According to Christine Noble of the Ulster

County Office for the Aging, I quote, ‘‘It’s affecting a lot of people.

Seniors don’t like to ask for help, but this year they don’t have any

choice.’’

So, in trying to address a domestic solution to the growing energy crisis, I think the Administration has been a day late and a

dollar short with inadequate efforts to boost stocks of heating oil

around the country and to find a proposal for our low-income consumers.

3

In its latest allocation of funding, our U.S. Department of Health

and Human Services released $45 million in additional funding to

the low-income Home Energy Assistance Program to the ten states

of the Northeast and to Alaska, but my State of New York got less

than its fair share, receiving $2.6 million for some 1.4 million lowincome households, while New Hampshire received $5.4 million for

just 47,000 low-income households. We have to make certain that

there is more equity in the distribution of these funds.

I am hoping that someone in the Administration can let us know

how we should explain the problem to our folks who are being

hard-pressed.

Before turning to Mr. Gejdenson for his opening remarks, I

would like to ask that the record be kept open for a period of five

days for incorporation of additional relevant material related to our

hearing, including statements by our witnesses, Joe Berti, Director

of Operations of Speed Motor Express, a family-owned transportation business in Buffalo, New York; New York State Senator

John Bonacic, Chairman of Senate Committee on Housing Construction and Community Development; Richard Jamieson of Rich’s

Towing, a small towing business in Spring Valley, New York; New

York State Assemblyman, Howard Mills, of Goshen, New York; and

New York State Assemblywoman, Nancy Calhoun, of Blooming

Grove; and New York State Senator Bill Larkin, Steering Committee Chairman; Joseph Rampey, County Executive of Orange

County, New York; Carl Morse of E.A. Morse and Company, a delivery company, Middletown, New York; and Rodney Kaufmann of

Kaufmann Service Center, Gulf Service Station, Montgomery, New

York.

[The information appears in the appendix.]

Chairman GILMAN. I am pleased to turn to our Ranking Minority

Member, Mr. Gejdenson, for his opening statement.

Mr. GEJDENSON. Thank you, Mr. Chairman.

In watching the Administration’s response, I almost thought I

was back in the Reagan and Bush years rather than the Clinton

years. Frankly, I do not know whether it has been a function of the

great success that we have had in almost every other sector, but

the reaction from the Administration in this area has been difficult

to discern.

We look at any other energy sector in this country, and we have

a strategy to deal with supply and demand. If you are a natural

gas supplier, you have to make sure that you can adequately take

care of your home heating reserves, and you have interruptible contracts with industrial users to make sure if there is a crisis that

home residential people are not left without a supply.

What we find is those kinds of actions taken in the area of natural gas actually exacerbate the situation when it comes to home

heating oil because, as industrial users are pushed away from natural gas, they go to number two. They go to fuel oil, increasing demand at a time when there is the lowest supply.

So what we essentially had here was a case where the gas companies managed load by getting rid of industrial users. Industrial

users moved to fuel oil, putting additional pressure on those individuals who heated their home with number two.

4

Additionally, sitting on the strategic petroleum reserve like it

was some ancient artifact that we ought to hang onto is irrational.

For one thing, you get a lot of money for it if you sell it today.

Now, I understand there is a lag in this, but if the present supply problems exist in heating oil, you know what is going to happen

when we come to summer drive time. We are going to have the

same kind of pressures on the gasoline price.

We have seen some of this, and people do have an ability to reduce driving a lot more than they have an ability to reduce the

heat in their homes. It seems to me, it does not take an energy genius to figure out what will happen if there is a short supply of fuel

oil. We may see some of these pressures in the summer, and if we

want to tell OPEC that they can manipulate our economy and supply, then we ought to sit on our hands. If we want to tell them it

is a bad idea to do this, it’s a great time to sell off some SPRO.

You will make a little profit. When the oil price goes down, you can

buy it back and actually make a profit for the Government, rather

than just leaving the citizens to be victims of these countries that

we have rescued so often.

The Chairman and I, we all have the same set of experiences. I know of a woman in Putnam, Connecticut, paying $2.66 a gallon.

I think the Government ought to establish a program where not

only is there a Northeast regional supply, but wholesalers ought to

be required to have an adequate supply in place.

When you look at the fact in this year that we found ourselves

below the 5-year average, I think something like 32 percent below

the 5-year average, it does not take a genius to say at some point,

we would have a couple of cold days in the winter, and people

watching these energy supplies, which I imagine somebody must

have, should have recognized there would be a problem.

So I think one of the things we have to do is tell the wholesale

suppliers who operate in these regions that they cannot walk into

a year with such an inadequate supply that even an average winter

would give you trouble, never mind about a bad month or two in

the winter. So I think one of the things you have got to take back

to your agencies is make sure that wholesale suppliers have an

adequate supply.

Home heating oil and diesel fuel stocks nationwide are down 2

billion gallons, 47 million barrels. Again, I do not know why we

have a Department of Energy. The Republicans wanted to get rid

of all of these departments. Maybe they were right if the only thing

they do is collect statistics and leave consumers out there to

OPEC’s kind of actions. Then maybe they are right. Maybe we

ought to get rid of these departments.

In one county in my district, New London County, we have 4,000

families applying for LIHEAP. That is a thousand more families

than last year already. Now, some LIHEAP dollars are very nice

for them, but inadequate in every one of our districts for the real

need, and middle-class families are also getting killed. So it seems

to me whether you have been a trucker trying to make your living

driving diesel fuel or whether you are somebody heating your home

or running a business, we have had a Government that basically

said we are going to take American assets in the 1990’s and American lives to protect Saudi Arabia and Kuwait from the terrible

5

people in Iraq; and then, when Saudi Arabia and Kuwait got together to have a damaging effect on our economy, we did not hear

anything. We hear nothing frankly from the Administration in this

area, and the thing that we do have is use the Strategic Petroleum

Reserve. But there is always a reason not to dip into it.

If we are not going to ever dip into it, then maybe we ought to

get rid of it. I mean, it is just sitting there in the ground. Now

would be a good time to get rid of it again because, on average, the

barrels you would sell would bring you a higher price than it would

cost you to put them back in there.

I think that when you look at the things we need to do, a regional reserve obviously makes sense. The commercial guys ought

to have an adequate reserve at the beginning of a heating season.

We would not let an electric company reduce its generating capacity, recognizing that if we had an average summer there would be

brownouts across the country. If the electric utilities came to the

Energy Department, and said, ‘‘We are going to close 14 plants on

the East Coast because, if everything is cool and the temperature

does not get above 70 in August, everything is going to be fine,’’

I assume the Energy Department might say this is a bad idea.

On the other hand, when we see OPEC reducing production, refined oil reserves dropping to a level that would endanger people

in an average month, and we see no action, one has to wonder why

we pay these salaries in these various departments.

Mr. Chairman, I am frustrated, as I think many Members are.

I would like to put into the record two letters from the Thames

Valley Community Council for Community Action, together with

my prepared statement.

It may be too late to help people with heating oil, but the answer

then is we still need to make sure we do not end up with a gas

crisis coming into the spring and summer, and also you have got

to send a message to OPEC.

The Gulf producers cannot just pick up the phone and say, ‘‘Gee,

the terrible Iraqis are doing something. We need help,’’ and then

they get to manipulate our economy every time they have a desire

to enrich themselves. If they want to do that, fine. If we have

SPRO, we ought to be using it to protect ourselves, to make sure

we drive down the price of crude, even if it has no impact today.

We ought to start doing this. It will bring us higher prices for the

oil that is in SPRO. It will allow us then to rebuy that oil when

the prices dip, and it will tell people the next time they want to

mess with us, there will be a price.

If not, if I were OPEC, I would cut the production by another five

percent with the response I have seen from the Administration.

I can understand why they sent guys who did not necessarily

have the rank to answer all of these questions.

Thank you.

Chairman GILMAN. Thank you, Mr. Gejdenson.

Without objection, your request to enter into the record will be

agreed to.

[The information appears in the appendix.]

Chairman GILMAN. Mr. Rohrabacher?

Mr. ROHRABACHER. Thank you very much, Mr. Chairman.

6

Mr. ACKERMAN. Just recall, Mr. Rohrabacher, that is the side of

the room you defend the Administration from.

Mr. ROHRABACHER. Uh-oh.

Mr. Gejdenson’s remarks reminded me of the story that, I might

add, Ronald Reagan used to tell about a time during the blitz when

some firemen noticed that in one of the burned-out buildings from

the German bombings that there was a noise coming. They went

into the building, and there, after going through the rubble, they

found there was an older lady who was trapped there in the rubble,

but still alive. As they tried to pull the rubble off of her, one of

them found in the rubble also a bottle of whiskey which he immediately brought over to the elderly woman who was still trapped

and said, ‘‘Here, why don’t you have a drink of this.’’ She said,

‘‘Hold on, now. That’s just for emergencies.’’

When we are talking about our oil reserve, perhaps whether or

not we are going to use it as a tool in times like this or whether

this is an emergency or not, I think this is a very important discussion of what is the purpose of us having all of that oil if we are

not going to protect the American consumer in times like this. I am

not necessarily sure what the answer to that question is.

I would like to say that the issue that we are discussing today

seems far removed from some of the policies that I believe directly

impact on this issue and on oil prices and on the availability of fuel

to the United States and the American consumer. Some of the policies of this Administration, however, have led directly to this situation, and not necessarily policies by the Department of Energy.

I will, for example, point out that today, because of policies of

this Administration, we have a repressive anti-Western regime that

harbors terrorists in Afghanistan, and I believe this can be tied directly to the policies of the Administration.

Because we have that hostile regime in Afghanistan, there have

been no pipelines built through Afghanistan that would permit the

oil that is in Central Asia to flow into the world market. These

things seem far removed, but they directly impact on what we are

talking about today.

If Central Asia’s oil had been brought into the world market, it

would have been impossible for OPEC to try to control prices and

manipulate prices the way we are talking about.

I have been trying to get to the bottom of what our policy is in

Afghanistan for several year, and I appreciate Mr. Ackerman, who

has been supporting my legitimate call for the documents that are

necessary to find out what American policy has been in Afghanistan.

Let me just report today to my colleagues and to the press and

to whoever else is listening that the Administration is again

stonewalling the efforts that I have made to try to determine

whether or not there has been a covert policy by this Administration of supporting the Taliban in Afghanistan, and that I have been

denied the documents that are in the time period that I have been

requesting for two years.

There is some reason why the Administration does not want to

give me those documents. Perhaps they are hiding something. I do

not know what it is, but there is a reason. I called on the State

Department today to fulfill their obligation from requests made by

7

Chairman Gilman and myself, backed up by Mr. Ackerman, that

they provide us the documents necessary to find out what American policy has been in Afghanistan. Again, this may seem far removed from the fact that our people are suffering in the Northeast

right now, but if you look very closely, it has everything to do with

it. The fact that Central Asia is still isolated has something to do

with the fact that oil pipelines have not been able to be put

through Afghanistan, and without those oil pipelines in Afghanistan, OPEC rules the day.

So, with that, Mr. Chairman, I thank you for giving me this opportunity for an opening statement. I am interested in the testimony.

Chairman GILMAN. Thank you, Mr. Rohrabacher.

Mr. Menendez?

Mr. MENENDEZ. Thank you, Mr. Chairman.

I want to ask unanimous consent to have my entire statement

in the record.

Chairman GILMAN. Without objection.

Mr. MENENDEZ. There is no doubt that an energy crisis exists in

the Northeast. If you are from other parts of the country, you may

not have felt a pinch, but certainly we have. In New Jersey, we are

clearly at crisis levels.

Imagine your residential energy costs doubling in a matter of

weeks. That is what we are facing. I do not know many families

who have planned for this type of fluctuation in their monthly bills,

but I can tell you there are not many.

We see the cost for home heating oil has more than doubled just

since the middle of January. That means that the price of home

heating oil has risen from about $1 per gallon to $2 per gallon in

just a matter of weeks. To put this in perspective, home heating

oil prices have not averaged more than $1 a gallon since the winter

of 1991.

If average consumption remains constant and the cost for home

heating oil this winter remains on the path we have seen so far,

this could mean that a typical household could spend an additional

$350 or $400 more in home heating cost this winter.

Many factors have contributed to the high cost of home heating

oil in the Northeast, not the least of which is recent action taken

by OPEC to control oil supply and thus increase the price for crude

oil. However, the impact of these OPEC actions has been exacerbated by the increase in domestic crude oil prices. These price increases have prompted many refiners and marketers to draw from

their existing stocks of lower-cost crude rather than buying today’s

higher-priced supply.

In this draw-down of domestic supply, it has left the United

States particularly vulnerable to the additional stresses created by

recent winter storms and colder weather, as well as interruptions

in the delivery of home heating oil.

With OPEC’s control of over 40 percent of the world’s oil production and 77 percent of reserves, action by the cartel to control

prices by controlling supply has obviously played a significant role

in today’s energy crisis. They have accomplished their goals. Not

only did they achieve their goal of $21 a barrel, but prices have

continued to increase to more than $25 per barrel.

8

So I hope that Secretary Richardson, who I understand will be

meeting with OPEC Ministers before their March rendezvous, will

be strong, will be clear and will be sending a very strong message

about what we are willing to do. At the same time, I believe there

is much more that we can do here at home to alleviate the overwhelming burden on consumers of home heating oil prices.

I support the Administration’s decision to increase supply by deferring the purchase of five million barrels of crude for the Strategic Petroleum Reserve until the end of the heating season. However, I do not believe that, by any stretch of the imagination, is

enough.

I have been actively, along with many of my other colleagues, encouraging the Administration to go even further and implement a

draw-down of the Strategic Petroleum Reserve either through a

sale or a swap of oil now to be replaced with interest by a date certain.

I cannot understand why the Strategic Petroleum Reserve was

drawn down during the Gulf War under prices which were far, far

below today’s prices, why it is not being drawn now.

Winter weather does not wait for Government decisions. Our constituents in the Northeast cannot afford to wait any longer, and we

look forward, Mr. Chairman, to the testimony, but more importantly the actions that will be take to give us some relief.

[The statement of Mr. Menendez appears in the appendix.]

Chairman GILMAN. Thank you, Mr. Menendez.

Mr. Smith?

Mr. SMITH. Thank you very much, Mr. Chairman.

I do have a lengthy opening statement which I will not read, but

ask that it be made a part of the record.

Chairman GILMAN. Without objection, the full statement will be

a part of the record.

Mr. SMITH. I want to thank you for convening this very important hearing, notwithstanding some abatement in the weather

which could obviously change in a day or two. We never know

which way that is going to go.

It is very important that the fundamental gauging that is going

on by OPEC and by all those in the pipeline be fully revealed and

hopefully very aggressively fought against.

You fight fire with fire, Mr. Chairman, and you fight oil supply

with oil supply. As my good friend, Mr. Menendez, just pointed out

a moment ago, even during the Gulf War, we were paying less for

home heating oil in New Jersey than we are right now. As a matter

of fact, it was about 50 cents less per gallon than it is today.

I talked to one of the providers of home heating oil in my area,

and he pointed out that in just one weekend the price had jumped

22 cents from Friday to Monday. That is outrageous. I smell a rat.

We should all smell a rat, and hopefully, the Administration will

be much more aggressive. Certainly draw-downs on the Strategic

Petroleum Reserve will help resolve or at least be part of the solution, because we all know that supply dictates market price. If the

supply goes up, the price will come down.

[The statement of Mr. Smith appears in the appendix.]

Chairman GILMAN. Thank you, Mr. Smith.

Mr. Ackerman?

9

Mr. ACKERMAN. Thank you, Mr. Chairman. Let me thank you

first for calling this timely meeting of our Committee.

I was delighted when I came into the room to see the new seating arrangement. I do not know if it was just something to make

us reminiscent of the past or if it is a harbinger of things yet to

be, but nonetheless we are happy to be back here on this side.

I, too, have a rather lengthy, but nonetheless brilliant statement

that someone wrote, and I will spare us all today by asking unanimous consent to place it in the record, if there is no objection, Mr.

Chairman.

Chairman GILMAN. Without objection.

Mr. ACKERMAN. I would like to make a point or two. First, this

is kind of unusual. Usually, this is not the kind of cold war that

we discuss in this Committee, but it certainly has international

causes and international ramifications. So I thank the Chairman

for holding this, albeit hastily, much-needed hearing.

It seems to me we have an opportunity to ameliorate the problem

that exists. We have a strategic petroleum reserve. What is it for?

I hope that our panel will address that because it seems to me that

at least a major part of our country, the part that uses much of

this oil—my State alone, I believe uses 20 percent of the home

heating oil of the entire country, and our region accounts for even

more than that.

It makes good economic sense, as the Ranking Member, the gentleman from Connecticut, pointed out. You have bought low. This

is your opportunity to sell high. It will be low again, and you will

have the opportunity to replenish the Strategic Reserve and yet

gain a profit for the Government, not that that is the purpose. But

you lose nothing by this and you will not be running the reserve

into the ground. Instead, you will be providing a much-needed service to a region of the country that is suffering deeply.

I know there is a concern about doing this because there is an

OPEC meeting on the 27th of next month, and there is a concern

that perhaps a strategy such as releasing some of the reserve will

cause some kind of retaliation on the part of some members of

OPEC, or OPEC overall.

I would think that they have already reacted. They have preemptively reacted. They have made a decision to do exactly what they

are doing, and if our Strategic Petroleum Reserve is there for some

strategic purpose, I would like to know what the strategy is, if not

to use it, to try to control this kind of preemptive strike by the oil

producers.

That being said, I will yield back the balance of the my time.

[The statement of Mr. Ackerman was not available.]

Chairman GILMAN. Thank you, Mr. Ackerman.

Mr. Delahunt?

Mr. DELAHUNT. Thank you, Mr. Chairman.

I would just echo what others have said. I come from a State that

has been particularly hard hit. I have not had a chance to read

your testimony, Mr. Secretary, but what I would like to hear today

is whether the Energy Department feels that there needs to be additional statutory authority to draw down from the Strategic Petroleum Reserve. I’d like to have an answer to that particular question.

10

I would like to express my own concern that was clearly articulated yesterday at a meeting that Members from the Northeast and

New York and other States particularly impacted, with Secretary

Richardson, about the need to take immediate action. There is no

way that we can wait until March 27th, and I think from that

meeting, there was a consensus from Members of Congress—and I

should underscore on a bipartisan basis—that much of the crisis is

now being driven by speculation.

There was a consensus that clearly the preferable approach to

pierce, if you will, that speculative bubble is to engage in a drawdown, because history is very instructive in this regard when President Bush, as I am sure you are aware, drew down in the midst

of the Gulf War. In a single day, the price plummeted by $10 per

barrel, and I would pick up on the observation by Mr. Ackerman.

I think at this point in time, we are in very hard negotiations

with OPEC, and I would suggest that is the best course of action

on behalf of the people whom we represent because we know that

sooner or later the prices are going to go back to a more reasonable

level. So I would conclude and yield back by just making those observations.

Thank you, Mr. Chairman.

Chairman GILMAN. Thank you, Mr. Delahunt.

Mr. Salmon?

Mr. SALMON. Thank you, Mr. Chairman.

I congratulate you on this hearing. I think it is very, very timely.

Let me read a letter that I wrote to you back in April of last

year. ‘‘Dear Mr. Chairman: Since March 1st, the price of gas in certain Arizona markets has increased by about 50 cents, considerably

more than the prices have increased nationally. Gas prices now average about $1.40 in Phoenix and Scottsdale. In fact, a recent AAA

survey found that the Arizona price for self-serve unleaded ranked

as fourth highest in the country. While I understand there may be

legitimate reasons for this increase, including refinery fires in California and, indeed, prices in States dependent on California gas

have risen more than other regions of the country, there may be

another factor, namely OPEC’s recent agreement to fix prices. Accordingly, I write to request the International Relations Committee

hold a hearing to explore the action that the Administration has

taken or could have taken to prevent OPEC from fixing prices and

the measures it is pursing to break the cartel’s anti-competitive

maneuver. I am gravely concerned that the Administration has neglected this matter, resulting in higher gas prices for millions of

American drivers. Therefore, I believe it is imperative for your

Committee, as it has done so on many occasions in the past, to provide guidance to the Clinton Administration on how to counter the

OPEC cartel.’’ That is what I wrote clear back in April of last year.

I am pleased now—I guess misery loves company. The fact that

now the Northeast is suffering as well has caused Congress to take

a very serious look at this. I think there are some real irregularities that have been going on for a very, very long time, and I feel

like kind of the voice in the wilderness. I am tired of my constituents being molested by these oil prices, and now that it has hit

Northeastern America, maybe we can get something done about

this and fix the problem.

11

Thank you.

Chairman GILMAN. Thank you, Mr. Salmon.

Mr. Sanders?

Mr. SANDERS. Mr. Chairman, thank you very much for allowing

me to join you today, and I really do congratulate you for calling

attention to what is a crisis in Vermont and the Northeast and in

many parts of the country.

Let me be very brief and tell you what I think of some of the

things that the Government might be doing and tell you that I

share the disappointment of others in terms of the meeting we had

yesterday with Secretary Richardson. I think that there is not an

understanding of the kind of urgency that exists in this country

and the need for bold action on the part of the Administration. So

let me very briefly talk about a number of steps that I think we

should take.

First, the President should immediately release oil from the Strategic Petroleum Reserve. The fact is that in 1990, as I understand

it, President Bush released a small amount of that oil, and the immediate impact was to lower the price per barrel of oil by $10. It

seems to me that when prices are escalating as they are right now,

it is appropriate for the United States Government to use the resources that it has to drive prices down, and I am disturbed that

the President has not yet done that.

Second, I think it is appropriate that the Administration press

OPEC and our other major foreign suppliers to increase their production of both crude oil and home heating oil exported to the

United States. I think that there is something wrong when allies

in the Middle East, for whom American soldiers lost their lives defending, are taking action which is having an enormously disruptive impact on millions of American families.

Third, I think that there has got to be a significant increase in

terms of releasing the emergency LIHEAP funding for low-income

Americans. A couple of weeks ago, the President released $45 million, but many of us fought to make sure that there would be at

least $300 million in emergency LIHEAP funding. We are in a crisis situation. Fewer people are able to get LIHEAP resources, and

we think that the President should now release all or almost all

of that emergency funding.

Fourth, I think we need an immediate investigation of the alleged price-gauging by the oil industry. I do not want to go into

that in great length, but I think there are people in the business

and many consumers, people in Government, who are concerned

about possible illegal activities that might be taking place, and it

would be appropriate for the Attorney General of the United States

to take a hard look at that.

Also, Mr. Chairman, yesterday, with a number of cosponsors,

Democrats and Republicans, I introduced the heating legislation

which would establish a home heating oil base reserve in New York

Harbor. It seems to me that one of the tools that we have in order

to prevent this kind of crisis from occurring again is to have established a home heating oil reserve so that when heating oil prices

go up, we can release that oil into the market and lower prices. We

have many, many cosponsors on that legislation. I am happy to say

12

that Secretary Richardson indicated that his Department would be

taking a serious look at it.

The bottom line is, Mr. Chairman, congratulations for holding

this hearing. In my view, the Administration is not doing enough

to respond to this crisis. There are a number of things that can be

done immediately, and we should do them.

Thank you, Mr. Chairman.

Chairman GILMAN. Thank you, Mr. Sanders.

Mr. McHugh?

Mr. MCHUGH. Just briefly, Mr. Chairman. I do have a full statement that I would ask to enter its entirety.

Chairman GILMAN. Without objection.

Mr. MCHUGH. I just want to associate myself with the comments

of all of my colleagues, particularly those from the Northeast. Let

me say to my friend from Arizona, I am glad we are able to help,

although I wish we could find other areas in which to cooperate,

as I am sure he does, too.

I just want to underscore the very serious nature of this, and I

am sure witnesses are beginning to get a flavor of our deep, deep

concern. The fact of the matter is, in the Northeast, there are about

7.5 million households that use home heating fuel as a way to drive

heat and hot water to their homes. About 75 percent, as I understand it, of the entire Nation’s households that use that kind of

fuel.

I was in a beautiful little community, about 21⁄2 weeks ago, called

Saranac Lake in my district. I stepped out of the car and I looked

at the bank sign, and it was minus 27 degrees Fahrenheit. That

was without wind chill. The wind chill brought it to about 80 degrees below zero. I think you can tell that this is not a question

of frivolity. This is a question of literally life and death.

In my district, we have not seen and enjoyed the benefits of this

great economic boom we hear about. Unfortunately, too many of my

counties have double digit on unemployment, and 8 percent is considered a good unemployment rate at the present time in my district. That equates to a lot of people who are really struggling hard

to keep their heads above water. When you have the kinds of increases to home heating fuel that have occurred in my part of the

world, a 90-cents-a-gallon increase in just 3 weeks, for example,

this becomes an issue of crisis proportion.

I understand the Administration now has concerns about their

legal authority to release stockpiles out of the Strategic Petroleum

Reserve. I wish we would have heard that a few weeks ago. I am

surprised it took them that long to discover this little technicality.

I do not happen to agree that that legal problem exists, and I

would like to see us try to work through it. However, it seems to

me if that is the only barrier, we could act pretty quickly in this

Congress, or certainly I would hope so, to take the steps necessary

to provide the Administration the authority that they need.

So, Mr. Chairman, let me add my words of thanks again to you.

This is a question of, as I said, life and death, and I am just delighted that you have decided to take this very, very necessary

step, and I would yield back.

Chairman GILMAN. Thank you, Mr. McHugh.

[The statement of Mr. McHugh appears in the appendix.]

13

Mr. Sherman?

Mr. SHERMAN. Thank you, Mr. Chairman.

I cannot join the colleague who just spoke in a concern for windchill factor, but I do commend the Chair for holding these hearings,

and I represent an area that is as dependent upon the automobile

as other districts are on home heating oil.

The Members of this Committee have often heard me describe

America’s foreign policy as that we would like the honor of defending other countries for free, and in return for that honor, we would

like to make major trade concessions. Nothing perhaps illustrates

this to a greater extent than the Gulf War and the preceding

Desert Shield, where we had the honor of defending not only Kuwait, but also, let’s face it, Saudi Arabia and all the Gulf states

that would have been under Saddam Hussein. The ruling classes

in those countries would have been liquidated or exiled, probably

would have fled for their lives; and yet, we never even thought at

that point to negotiate, for saving the existence of these ruling

classes, perhaps some modification in OPEC approaches would be

part of that bargain.

As a result, the very countries that we saved in last decade are

blatantly getting together in what in this country we would call a

conspiracy in constraint of trade to gauge us on the price of oil.

California has had its own unique problem here. We have in effect a separate market for gasoline because it is specially formulated to deal with our clean air standards. The price of gasoline,

especially in Southern California, as my colleague from Southern

California well knows, has often been 10 or even 15 percent higher

than the rest of the country, and, of course, with OPEC, the rest

of the country is paying a lot as well.

I would hope that the Justice Department would further study

the possible antitrust implications of the high cost of gasoline

unique to California, and at the same time our foreign policy not

simply be to accept as fait accompli the idea that our friends would

get together to try to raise the price of a commodity on which we

are so dependent.

Finally, I do want to agree with my colleagues who have suggested that the strategic oil reserve be tapped at times like this,

but we also ought to take advantage of low oil prices which we experienced, I believe, just a couple years ago to build and replenish

that reserve. I do not want to see that reserve permanently decline

each time we have a price crisis.

So I want to join my colleagues in concern for this issue and

yield back the balance of my time.

Chairman GILMAN. Thank you very much, Mr. Sherman.

Are there any other Members seeking recognition? If not, we will

proceed with our witnesses.

We are pleased to have with us today David Goldwyn, Assistant

Secretary for International Affairs at the Department of Energy,

and Deputy Assistant Secretary for Energy, Sanctions and Commodities, for the Bureau of Economic and Business Affairs at the

Department of State, Peter Bass.

President Clinton nominated David Goldwyn to serve as Assistant Secretary of International Affairs at the Department of Energy

in April of 1999. Prior to that appointment, Mr. Goldwyn served as

14

a counselor to the Secretary of Energy, as senior advisor and counsel to the Ambassador to the United Nations, during which tenure

he also sat on the Deputies Committee of the National Security

Council, and has served under both Presidents Bush and Clinton

at the Department of State. He has extensive private sector experience in international business through his long association with a

New York law firm.

We welcome you today, Secretary Goldwyn.

We also have appearing on our first panel, Peter Bass, who

served as a career civil servant with extensive experience in international economic and security affairs. He began his career with

the U.S. Court of Appeals, then joined the State Department as attorney-advisor in the Office of Legal Advisor. Mr. Bass has served

as special assistant to the Under Secretary of State for Political Affairs at the State Department. He served in the Office of the

United States Trade Representative, and has served on the staff of

the Secretary of State, Warren Christopher.

Mr. Bass has served on the staff of the National Security Advisor

at the White House, and most recently was the chief of staff to

Under Secretary of State, Stuart Eisenstadt.

We welcome you today, Mr. Bass.

Gentlemen, please proceed. You may put your full statement in

the record and summarize, whichever you deem appropriate. Please

proceed.

STATEMENTS OF DAVID L. GOLDWYN, ASSISTANT SECRETARY

FOR INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF ENERGY

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

Committee. Let me apologize for my rasp. I have got a little touch

of laryngitis, which will help me keep my statement brief.

Let me say at the outset that Secretary Richardson and the other

members of the Administration do take this crisis very seriously;

that this is not just a matter of geopolitics, that they understand

this affects people at home and in a severe manner. It is a matter

of urgency that we are taking steps to address, steps which I will

outline in my statement later this morning.

What I hope to do today is to talk a little bit about the current

state of the oil market and the concerns we have over recent developments in the market, particularly on heating oil in the Northeast, and to talk about the actions the Administration has taken

to address these concerns and also Secretary Richardson’s energy

diplomacy and the steps that he will take in the coming weeks.

As we all know, oil prices have more than doubled in the past

year. Prices have increased from near historically low levels,

around $11 in December 1998, to recent levels not seen since the

Gulf crisis. This rise in price is largely attributed to the actions

taken by OPEC to restrict supplies to the market.

Recently, the already tight supply situation in the market has

been exacerbated by cold weather here in the United States, which

has resulted in soaring heating oil prices. Beginning in March

1998, OPEC instituted three tiers of production cost which have actually totalled 4.3 million barrels per day.

OPEC member compliance with a third cut, which is effective in

April of 1999, has created an increasingly tight market as crude oil

15

inventories have been drawn down over the course of the past year.

Overall, OPEC compliance with its quota has been running between 75 and 90 percent, which is quite high.

Largely as a result of production cutbacks by OPEC and its allies, in 1999 the shortfall in crude oil worldwide averaged over 1

million barrels per day. If OPEC keeps production in the year 2000

at the levels seen in the fourth quarter of 1999, our EIA estimates

the shortfall in 2000 at between one and two million barrels per

day.

Before last month’s cold snap, the oil market was already tightly

drawn. Inventories were low, and prices were already relatively

high. The late January heating oil and diesel fuel price surges in

the Northeast resulted from a combination of low inventories,

weather, and supply problems.

At the beginning of January, load stocks on the East Coast were

running almost 15 million barrels, or 21 percent below their 5-year

average value for that time of year, and these load stocks as we

have found leave little cushion to absorb sudden changes in supply

or demand and increased the possibility of price spikes.

During the week ending January 21, weather in New England

was nearly 21 percent below normal for this time of year. The cold

weather not only increased demand, but also caused supply problems which are unique to the Northeast, with frozen rivers and

high winds hindering the arrival of new supply. The region has

continued to struggle since then to bring in new supply as strong

demand continues. We believe that the combination of actions that

we are taking over the short term, barring additional weather disasters, will correct the market imbalance promptly.

Over the past few weeks as the heating oil situation has worsened, the Department and Administration have taken a comprehensive look at ways to ease the situation. We have taken a

number of actions. One is to enhance market monitoring of home

heating oil markets in order to provide prompt information to the

market. The second is the low-income home energy assistance

emergency funds, which many of you have discussed this morning

in directing Department of Health and Human Services to release

to those funds to many of your States. Another is the waiver of carrier driving hours. The Department of Transportation has been approving requests for waivers, which accelerates the delivery of supply to markets badly in need of it. Another is to clear shipping

lanes. The Department of Transportation also directed Coast Guard

ice-breakers to help with clearing shipping lanes in the New York

Harbor area. The Northeast is unique in having a predominant

amount of the heating oil supply by barge traffic, and the clog in

the New York Harbor is part of what has impeded supply to that

area.

Yesterday afternoon, as the Congressman mentioned, the Secretary convened a meeting of the parties most involved in this crisis, State governments, utility representatives, fuel distributors, refiners, and transporters, to discuss the situation and identify what

measures can be taken both now and in the future.

A number of the ideas are under active consideration, and by active consideration, I mean after that meeting broke up—and I

think there were 10 or 12 suggestions made by the people at that

16

meeting—the Secretary convened not only a task force within the

Department, but working inter-agency to act on a number of those

recommendations. We expect to make some announcements drawing from some of those suggestions very promptly, hopefully today

or tomorrow.

The Secretary is holding a Home Heating Oil Summit in Boston

on February 16th to meet with refiners, distributors, Government

officials, and consumers to discuss the reasons for the recent problems and to develop ways the Government and industry can work

together to better meet consumer needs.

Let’s talk a little bit about the Secretary’s energy diplomacy. The

Department and other Departments regularly talk to both OPEC

and non-OPEC member countries about marketing conditions and

their impact. This sharing of information is a critical part of the

effective functioning of the oil markets. It lets us identify whether

we, and especially the major producers, have the same understanding of market conditions, stocks of inventories.

Over the past couple of months as stocks have decreased and

prices have risen, the Department has had a number of discussions

with various members of OPEC and with Mexico and with Norway.

Secretary Richardson met with Minister Tellez of Mexico and Mr.

Arnstad of Norway last week. He had met with Saudi Minister Ali

Naimi and Kuwaiti Minister Saud Nasir Al Sabah in December,

and he will meet with both Ministers again later this month, I

think actually leaving next weekend when he travels to the Middle

East.

In these conversations, what he has talked about is, first, our information analysis of the current state-of-the-oil market and our

views of its impacts, especially the impacts these have on a world

oil market with growing demand.

We have provided the best information obviously that we have on

stock levels and near-term future trends. The bottom line we have

told them, which is immanently clear to all of you, is that crude

oil stocks in the U.S. are at their lowest levels in years and getting

lower. Distillate and gasoline stocks on a week-to-week basis are

lower than they have been in years. The point that we have made

to OPEC and non-OPEC member countries based on this data is

that they have already achieved their previously stated goal of reducing surplus oil stocks. The market is now extremely tight, so

tight that any unfortunate event we have seen, like a cold snap,

can generate price spikes in our market that need additional supply. I can repeat, this is the message which we are conveying both

OPEC and non-OPEC members that we believe is the solution to

these problems is that market forces need to operate freely, and

this growing demand needs additional supply.

In conversations with producers, we have also talked about the

impact of the actions they have taken to reduce oil supplies. First,

we tell them as we have for many years that the free market

should govern the forces of supply, demand, and price without the

interference of organized groups of producers and without the interference of organized groups of consumers.

Second, we have told them that artificial supply constraints

placed on the market are ultimately self-defeating even for OPEC.

OPEC needs only to look at its own history for proof. Its efforts in

17

the early 1980’s restricting supply to support artificially high price

goals led to a boom in non-OPEC production and a loss of OPEC

market share.

OPEC asserts that price stability is its goal, but supply constraints exacerbate volatility in the market and lead to boom-andbust tendencies, global instability, and an uncertain energy investment environment.

Third, we had expressed our concern that high oil prices inflict

economic damage. This impact can fall on both the developed and

the developing world. Many of the economies which OPEC and nonOPEC members rely on for their trade are struggling to recover

from recession and will be greatly challenged by these high oil

prices. If these economies flounder, everyone in the developing

world will be hurt.

Fourth, we have cautioned these countries that restricting supply

in a market that sorely needs additional oil does serious damage

to the efforts that some in OPEC have made to demonstrate that

they represent a reliable source of supply. When a supplier will not

give you the supply you need, it is only natural that you would

seek other sources of supply. So it will have long-term effects on

the market.

In recent days, the public statements of many oil ministers have

suggested that they do take our concerns about inflationary impact

in the U.S. economy and the recessionary impact on other economies seriously. They have indicated they will take these considerations into account at their next meeting and act responsibly. This

is by no means a guarantee or predictor of their action, but they

are hearing what we have been telling them.

Secretary Richardson will carry this message to Kuwait and

Saudi Arabia—he is leaving I think next weekend—to make sure

that they understand what our position is. I spoke to the Secretary

this morning, and he said he would be pleased to brief the Committee upon his return from that trip to discuss these issues with

you.

That concludes my prepared testimony, and I would be pleased

to answer any questions.

[The statement of Mr. Goldwyn appears in the appendix.]

Chairman GILMAN. Thank you, Mr. Goldwyn.

Mr. Bass?

STATEMENT OF PETER BASS, DEPUTY ASSISTANT SECRETARY

FOR ENERGY, SANCTIONS AND COMMODITIES, BUREAU OF

ECONOMIC AND BUSINESS AFFAIRS, U.S. DEPARTMENT OF

STATE

Mr. BASS. Thank you, Mr. Chairman and Members of the Committee, for the opportunity to testify here today on recent developments in the oil market, especially in view of the difficulties encountered in the heating oil market in the Northeast.

Let me just say that Secretary Albright and senior officials of the

Department are also acutely aware of the difficulties that your constituents are experiencing and have asked me to brief them regularly.

Chairman GILMAN. Mr. Bass, would you put the microphone a

little closer to you? Just bring it closer to you.

18

Mr. BASS. Okay. Does that work?

Chairman GILMAN. Thank you. That is better.

Mr. BASS. As I was saying, Secretary Albright and other senior

officials in the Department are acutely aware of the difficulties that

your constituents are experiencing now and have asked me and

other officials at the Department to keep them fully briefed on the

oil market conditions.

The Department of Energy can and indeed has provided a much

better analysis than I can of the various factors that came together

this winter to cause a run-up in heating oil prices, but one of the

factors in the heating oil price increase was the increase in world

crude prices, and I wanted to review with you briefly the approach

this Administration and previous administrations have taken to

handling oil issues since the oil shocks of the ’70s and to review

the role of major OPEC producers in the market.

Ensuring access to sufficient quantities of oil remains a critical

and indeed strategic aspect of U.S. foreign policy. While oil’s role

in the U.S. economy has declined, the efficient availability of oil

and other sources of energy remains vital to our economy and those

of our key trading partners and allies. Energy disruption anywhere

in the world can affect our economy directly through its impact on

energy prices and indirectly through its impact on our major markets.

Disruptions can also increase the risk of political instability in

areas of strategic importance to the United States and can increase

the ability of certain states to pursue policies that threaten U.S. interests.

The U.S. policy toward domestic and global energy markets has

helped foster a two-decade trend of greater choices and lower real

prices for consumers as well as lower production costs for energy

producers. However, there have been and will continue to be price

swings in the U.S. and global energy market as countless consumers, producers, and marketers interact in a very flexible and

competitive energy market.

Regional problems with refineries or transportation systems can

create acute localized problems, reflected in difficulties with access

to supplies and sharply higher prices. While crude oil prices are

generally not the predominant factor in these regional supply problems, changes in global crude production and prices can be a complicating and exacerbating factor.

That brings me to the central topic of this hearing, OPEC crude

oil production decisions and U.S. policy toward OPEC. First, let me

say the U.S. Government has always had regular consultations

with both OPEC and non-OPEC countries. These routine discussions continue to take place as they did before crude oil prices fell

considerably in 1998 and early 1999 and when crude prices began

increasing about a year ago.

At international fora attended by many energy producing and

consuming countries, crude oil production and price levels also

come up regularly, especially when prices are viewed as extremely

low or extremely high. Our consistent position in these fora, regardless of where prices are at the moment, has been that we do

not believe cartels should be coordinating production levels among

producers to set prices. It is for that reason that the United States

19

does not maintain a dialogue with OPEC as an institution, but bilaterally with key OPEC and non-OPEC producers. We believe

markets should determine prices by reacting to the full range of individual decisions made by virtually infinite numbers of consumers

and producers in the global energy market.

OPEC producers, as well as some non-OPEC producers, do not

share our view that oil producers should not coordinate production

levels to set prices. However, major oil producers recognize their

strong interest in maintaining long-term demand for oil and ensuring that oil continues to be the fuel of choice for much of the world.

Oil producers recognize the importance of maintaining their reputations as reliable suppliers. Obviously, any problems with heating oil supply or prices that would encourage consumers to switch

to non-oil alternatives would not be a welcome development for

anyone in the oil business.

Mr. Chairman, assuring access to imported oil for the U.S. and

our major allies and trading partners is and will remain a continuing critical objective for U.S. foreign and economic policy for

the foreseeable future. At the same time, we need to view current

market conditions in a historical perspective. It was 25 years ago

that the energy consuming countries believed we were facing a

bleak future of ever-rising energy prices, diminishing reserves, and

the increased vulnerability of our economies to oil-based price

shocks. The intervening years have been far less bleak than expected, and we are better off on all these fronts than two decades

ago.

In contrast to the 1970’s, when national oil companies rose to

prominence, governments around the world are increasingly open

to the benefits of foreign investment, privatization, and deregulation. Global-proven oil reserves have actually increased 50 percent

over the last 25 years, while consumption is only slightly higher

than in the late 1970’s, despite a doubling of the size of the U.S.

economy. Both production techniques and oil markets have become

highly efficient, and active futures market results in almost instantaneous price responses to perceived changes in supply.

As a result of all these factors, oil prices when adjusted for inflation remain well below the real price levels of 1974 to 1985. Despite almost three decades since the U.S. consumer suffered, having to wait in long gas lines, something that I personally remember

as does everyone I think in this room, the memory of that acute

vulnerability still casts a long shadow over the oil market. The

price jolts of the 1970’s put a number of forces in motion with considerable influence on today’s market. Higher prices had a major

impact on oil demand and resulted in slower economic growth in

the industrialized countries, and also intensified efforts to advance

energy efficiency and conservation.

In addition, the oil price hikes of the 1970’s encouraged the

search for oil in new countries and regions and accelerated new

production and consumption technologies and brought new alternatives to the dependence on oil.

A consistent U.S. Government approach since the early 1980’s

has reinforced the effectiveness of the market. One of the steps in

the ’80s was to deregulate domestic energy markets. That initial

action set the tone for policy over the past two decades. Meanwhile,

20

there was a concerted effort to reduce the Government role in the

energy sector.

We have also let the benefits of generally lower oil prices flow

through to end users, thereby increasing the economic benefits of

lower oil prices and increasing market opportunities for energy producers.

We have strongly supported the free-flow of international capital.

As these flows have come to be determined by market forces, they

have helped to foster more efficient and productive allocation of investment. Downstream integration of major oil producers adds to

stability in the oil market by increasing the commonality of interest between consumers and producers.

Producers have shown an increased understanding of new mechanisms for disseminating information and establishing prices, such

as the futures market. They have also recognized both the importance of ensuring supply reliability and the need to avoid taking

actions which harm oil’s long-term competitiveness. On a global

basis, the United States seeks good relations with oil producers

around the world, recognizing that global economic growth depends

on the availability of increasing volumes of oil.

In order to expand the availability of oil, we promote international efforts to remove barriers to energy, trade, and investment, as well as increased access for U.S. energy firms around the

world.

I think this hearing today can have a useful role in illuminating

some of the problems that occurred this winter, and I welcome the

Committee’s effort to shine a spotlight on the problem. I would be

happy to answer any questions you may have.

[The statement of Mr. Bass appears in the appendix.]

Chairman GILMAN. Thank you, Mr. Bass and Mr. Goldwyn.

We will now proceed with questioning our Administration witnesses.

As we look over this problem, it is apparent to all of us that the

problem has been the supply by the OPEC nations, as they are restricting the supply. You talk about ice-breakers. You talk about

reserves. It is a matter of trying to get the OPEC nations to turn

on a spigot and allow the market prices to determine what the

price should be.

I do not think any of the agencies, either State Department or

Commerce Department or Energy Department, have done what we

should be doing, and that is to convince the OPEC nations that if

they were here as a citizen of our country, or a corporation in our

Nation doing what they are doing, we would have them in court

for conspiracy in driving up the prices. I do not think just sitting

and talking with them is sufficient.

In looking over this chart that I have before me, we find that six

of these nations, OPEC nations—and Mexico is an associate with

them, making it seven—are dependent upon getting some assistance or military sales from our Nation. Now they are turning

around and impacting upon our economy. What more can we or

should we be doing than just sitting and talking with them or having Richardson go on over and talk to the Saudis? The Saudis can

do a lot more in opening the spigot.

21

I resent, and I am sure my colleagues resent, the kind of attitude

the OPEC nations have been taking because they want to get richer in a shorter period of time and forget about our people, who are

being impacted by all of this.

Are you satisfied with what we are doing by just conferring with

them?

Mr. GOLDWYN. If I can address just the part about the energy diplomacy and then defer to Mr. Bass on other actions that you mentioned, I think neither the Secretary nor the Administration is satisfied with what has happened so far. I do not underestimate our

ability to motivate both OPEC and non-OPEC members to understand that the situation created right now is a market out of balance, that additional supply needs to be provided and quickly, and

that it is in both their interests and our interests to do it.

With respect to the other actions, I will let Mr. Bass answer.

Chairman GILMAN. Let me ask you this. Suppose this Committee

were to recommend that we impose sanctions against those nations

that are impacting our Nation with this reduced supply. What is

your response to that?

Mr. BASS. First, let me echo Mr. Goldwyn’s remarks about the

seriousness with which we take this problem.

On the specific issue of sanctions, I am not sure that any trade

restrictions or sanctions are going to address the issue of ensuring

a free flow of oil determined by the market.

Chairman GILMAN. We are certainly not getting a free flow by

just sitting and talking to them. What more can we do?

Mr. BASS. I think it is very important for OPEC countries, including Saudi Arabia, to understand the market conditions in the

United States. They, too, have an interest over the long term in ensuring themselves as a reliable supplier of oil, and they also have

a direct interest in the continued robust economic activity of consumer countries, including the United States.

Chairman GILMAN. You just told us in your testimony that they

had agreed to, I guess, a six-percent increase and they met that increase; and in January, they met again and they decided to continue because they were not satisfied with their overall return.

That does not seem to make sense to us.

Mr. BASS. We hope through our mutual conversations which are

quite serious and quite thorough about the state of the market, including the issues that Mr. Goldwyn referred to, they will understand the potential problems that artificial restrictions on supply

can cause. I am sure this will be a topic that Secretary Richardson

will take with him when he goes to Saudi Arabia next month.

Chairman GILMAN. Is there any Administration activity and

inter-agency report on the origins of the surge in energy costs and

how we can better meet these challenges now and for the future,

and is there anyone preparing such a report?

Mr. GOLDWYN. Are you referring to the home heating oil crisis

right now?

Chairman GILMAN. To all of the energy prices. It is home heating; it is gasoline; it is diesel fuel. We are hearing it from all aspects; kerosene.

Mr. GOLDWYN. In terms of analysis of the market, why these

things have occurred and how they occur on a regular basis, our

22

Energy Information Agency regularly studies the market. That is

the primary thing that they do.

The causes of the rise in prices over the last year are at this

point pretty well known, and those are largely because of OPEC’s

decision to restrict supply and to eliminate what was a year

ago——

Chairman GILMAN. Essentially, OPEC is causing our problem, is

it not?

Mr. GOLDWYN. OPEC’s production cuts were the primary factor

in reduction of supply in the market. The increase in prices over

this winter, though, as I mentioned in my testimony, are really

from a combination of factors. It is not just the rise in crude oil

supplies, although crude oil supplies are obviously a dominant factor.

Mr. GEJDENSON. A decrease?

Mr. GOLDWYN. Decrease, yes. Thank you, Congressman.

But also, it is low inventories, as Congressman Gejdenson mentioned, low inventories which did not anticipate a cold winter, the

bad weather which not only caused an increase in demand, but unusual restrictions in supply which caused price spikes as well. So

it was a combination of factors.

Chairman GILMAN. If we had supply, the higher temperatures

would not impact upon the prices as much as having a sufficient

supply out there.

What we are asking you is what is the Administration going to

do to turn OPEC around at this point.

Mr. GOLDWYN. I think the answer is, short term, we are taking

measures to provide relief to the Northeast, and we are talking to

OPEC before they are about to make another decision about the

situation in the market on why an adjustment in the production

quotas is necessary and appropriate.

I have to say that while there have been no indications about

what their decision is going to be, there has certainly been a

change in rhetoric in the papers from many ministers. I am quoting

from Minister Tellez’s speech yesterday that he gave to the Cambridge Energy Research Associates.

Chairman GILMAN. The minister of which country?

Mr. GOLDWYN. Tellez of Mexico.

He said the recent run-up in oil prices has led some market participants to voice concern that the prices are too high, that inflationary pressures are now becoming significant, and that world economic growth may be adversely affected.

Chairman GILMAN. Is Mexico reducing its price?

Mr. GOLDWYN. I think I speak for all of us when I say these concerns are legitimate and should not be dismissed lightly.

He said that in terms of working with their colleagues, they will

make decisions which will be responsible with the objectives of

prime producers and consumers for sustained market growth

through price stability, in place of an uncertain and harmful cycle

of price spikes and collapses.

Chairman GILMAN. Yet, Mexico went along with OPEC, did they

not?

Mr. GOLDWYN. The question is what happens next and what do

we do next and will there be a change.

23

Chairman GILMAN. What do we do next if they refuse to reverse

their situation on prices? What do we do next? What do you recommend? We would like to hear the Administration recommend

some significant steps to ease the burdens of the Northeast.

Mr. GOLDWYN. The short-term steps for the Northeast that I

mentioned, and in the medium term, the investments that the Department makes in alternative sources of supply, not only energy

supply in other parts of the world, is one area. Our work in the

Caspian and Africa and Latin America to create other sources of

supply is a way to provide diversity and better energy security.

Technology provides a way to reduce costs also of producing energy,

and energy efficiency and renewables provide alternatives as well.

All those things are important to pursue.

Chairman GILMAN. Mr. Gejdenson?

Mr. GEJDENSON. Thank you.

It seems to me if I am OPEC, I would look at this and it is working. The reason they reduced supply is they wanted to get more

money for their oil. So, simply going to OPEC and saying, ‘‘Gee,

this is causing a problem here,’’ I am sure their hearts are going

to ring sadly for us, but their treasuries are obviously doing better.

So the question is not what OPEC is going to do because they

represent other countries. The question is what are we going to do,

you guys and us, because we represent the people in this country.

If we just sit here and wait for the goodness of Saudi Arabia and

Kuwait and Qatar and all of these wonderful countries to get

around to the point where they want to help us out, it is going to

be a very cold winter. So what are you going to do?

I have not heard anything here that makes me feel better today.

You guys do not have the pay grade to come up with a new policy,

but I suggest you go back and tell your bosses that in Congress,

on a bipartisan basis, there is a feeling that the Administration is

not getting the issue, and it is going to happen again this summer.

It is just going to happen in a different product.

So it seems to me that, again, unless OPEC has some downside

impact from its reduced production, it is going to continue to do it.

Why wouldn’t they? They make more money selling fewer barrels

of oil. It does not take a genius to figure out that it is good for their

treasuries. So they are going to continue to create a short supply.

What you have to do is make sure that the resources we have

guarantee that the supply that is here is not being manipulated

against the consumer. That is one.

The second thing is you want to increase the supply of crude because, unless there is an increased supply of crude, the price is

going to continue to stay up there. They may switch to another

product. They may go after gasoline in the summer and not short

supply heating oil again until next fall or winter, but the end impact on the consumer is going to be the same.

The next thing you have to do in the free market that we generally live in, if in electricity and in natural gas there is a control

mechanism to prevent short supply problems and the only elastic

area is the demand on number-two fuel oil, you can be damn sure

every time there is a cold spell, companies are going to be pushed

off natural gas to number two, home heating demand goes up, corVerDate 11-MAY-2000 10:55 Aug 16, 2000 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 66026.TXT HINTREL1 PsN: HINTREL1
24

porate demand goes up, and you are going to have a short supply

problem.

So the Government ought to make sure the wholesalers, or the

Government in combination, have an adequate reserve. Do you

presently monitor the supplies that are sitting there, Mr. Goldwyn?

Mr. GOLDWYN. Yes. I believe we do, yes.

Mr. GEJDENSON. So when did you know that we were running 47

million barrels below last year in home heating oil and diesel fuel?

Mr. COOK. We have been tracking it on a weekly basis for

months.

Mr. GEJDENSON. Do you want to come up here and identify yourself? We will not get you in trouble.

Mr. GOLDWYN. He tracks home heating oil supplies on a weekly

basis. I think they have been publishing them only on a biweekly

or monthly basis.

Mr. GEJDENSON. So didn’t somebody who sat there say even if we

get an average month in the end of January and February, we

would have trouble? Did somebody see that coming?

Mr. COOK. We have put reports out to that extent, yes.

Mr. GEJDENSON. What action, then, did you take?

Mr. COOK. My group just puts out the statistics.

Mr. GEJDENSON. The numbers. So now we are back to you and

the guys above you.

It seems to me that collecting this information is nothing but a

nice academic exercise, unless the response is that there is a policy

change. So the policy change has to be either to demand that we

switch production from gasoline to number two, or that we release

crude trying to affect worldwide market availability of crude. If we

do not do that, we are going to continue to get manipulated.

It seems to me the Secretary of State can take some action in our

dealings with these countries; but it does come down to the immediate action by the Secretary of Energy, and the Secretary of Energy, I think—again, sees a little heat from the Northeast at the

moment. You are going to see heat from across the country when

gasoline prices this summer are up around $2 a gallon. So what we

need to make sure is that we do not end up in that situation.

I did not get the sense from what Mr. Richardson said yesterday

that he understands that. I think he is a very smart fellow. I have

served with him. So you tell him, his friends in Congress understand he can figure this out, and that there is no reason to be sitting on that Strategic Petroleum Reserve now.

I am going to repeat myself again. You can make money selling

the stuff, and you affect the world supply. We expect to see some

response here.

This Administration understands that in a free market, at some

point OPEC can control the price unless we do something besides

go over there and beg them to recognize our needs. If we dump

crude on the market from our reserve, that is going to have an impact on supplies.

So I certainly hope we are going to see a more responsive Administration in the weeks to come. Again, I do not blame the two of

you. I think that people above you, though, have to initiate a policy

that is going to give people protection.

25

It is one thing to be sitting there in the top one percent and see home fuel oil go to $2.66 or two bucks-plus a gallon. It is another

thing when you are a senior citizen on a fixed income, a family

with a kid in school. These people are being wiped out by this. The

great American boom has left a lot of people still living at the very

edge, and when this kind of stuff happens, those people are devastated. That is why we are in Government. We are not just here

to watch the rosy scenarios and make reports.

Thank you very much.

Mr. ROHRABACHER. [Presiding.] Thank you very much, Mr.

Gejdenson. I will move forward now, and the Chairman will be returning after he votes. Then I will go and vote.

Let me just note that I have not really heard a policy. Again, I

am echoing what my friends have said here. From what you have

said, I just get the idea that you are following this very closely. You

have your experts looking at all the statistics and all the figures,

but I have not heard a policy yet of how we deal with obviously

an international price-fixing arrangement by people in countries

and governments. This is a conspiracy against the American consumer.

With that in mind, how much money has this cost, this price-fixing effort by OPEC? How much has it cost the average American

so far, and how much do we expect it to cost in the time ahead?

Mr. GOLDWYN. I do not have that statistic at my fingertips in

terms of over the last year from a particular baseline, what the additional cost has been, but we can try to provide that to the Committee.

Mr. ROHRABACHER. How much is it costing those people in the

Northeast now, per family? Are we talking about crude oil prices?

Are we talking about $500? Are we talking about $1,000? What is

the expense to the average American family by this price-fixing

conspiracy?

Mr. GOLDWYN. The situation in the Northeast is obviously different than it is in the rest of the country. Prices have not spiked

up nearly as high in other parts of the country where there are

higher inventories, where there is easier ability to deliver the supply, than it has in the Northeast, but we have seen extreme volatility in the heating oil crisis from $1 to $2.

Mr. ROHRABACHER. You have been following this very closely.

Obviously, you have not done anything about it, but you have been

following the statistics very closely, supposedly. How much is it

costing the average family in the Northeast because of this international price-fixing conspiracy?

Mr. GOLDWYN. That is a number that we can provide you, but

not one that I have at my fingertips, Congressman.

Mr. ROHRABACHER. What was that?

Mr. GOLDWYN. That is a number that we can provide you, but

not one that I have at my fingertips.

Mr. ROHRABACHER. All right. I will have to say that this is a

hearing specifically on this issue; and I am disappointed that we

have representatives of the executive branch who come here to testify on this issue and are not prepared enough to tell us how much

it is costing the people of the Northeast, because that is what this

hearing was supposedly called about.

26

You are the Government officials who are supposedly watching

the numbers. If you are not making the policy, we should at least

know the numbers.

Please tell my friend, Mr. Richardson, that there are people overseas who are taking helpless Americans and American families and

stealing hundreds of dollars out of their pockets, and the average

American family who is being hurt cannot afford this.

I believe in market. I am a free-market guy. This is not a product

of a free market. This is a product of a controlled market that is

manipulated by a price-fixing conspiracy. Bill Richardson, who is a

good man and cares about people—because we served with Bill—

should not be just sitting back looking at the figures and analyzing

what the effect of this should be and trying to convince people that

in the long run their price-fixing is not going to hurt them. I would

expect that there would be something that would be proposed

where we would be punching people in the nose for hurting our

people.

We have people who are hurting American citizens and damaging, causing great pain to the standard of living and well-being

of average Americans, honest people. Those honest people depend

on our Government to watch out for them when they are unfairly

affected by a manipulation of the market, and that is what is happening here today.

Mr. ACKERMAN. Mr. Chairman?

Mr. ROHRABACHER. Yes.

Mr. ACKERMAN. If I may have a minute, I just wanted to say that

I do not know that we really have a reasonable expectation to have

exact numbers or even estimates right now, because we do not

know what the average American suffering through this crisis is

doing with their thermostat, whether they are pushing it ahead or

whether they are just suffering in the cold or what the temperature

is going to be later tonight. So that seems to be a moving target,

and I guess we are going to have to have a little patience to get

the real numbers.

A quick question: one of our colleagues alluded to maybe there

being some kind of conspiracy on the part of those within the industry here in our own country. Do you have any evidence to support that?

Mr. GOLDWYN. We do not have any evidence. In 1996, the same

issue was raised when prices spiked at that time, and the study at

that time indicated there was not manipulation by the big traders.

In fact, they more or less broke even and there was not an economic incentive for them to do that. So it is not an area where you

have jurisdiction.

Mr. ROHRABACHER. For my colleague’s sake, let me just note that

the price-fixing conspiracy that I was talking about there was the

International Organization of Oil-Producing States, OPEC.

Mr. ACKERMAN. I meant our colleague on the right, Mr. Sanders.

Mr. ROHRABACHER. By manipulating supply, they are trying to

manipulate price, obviously.

Let me just say if a group of countries, especially countries that

we have defended in the Gulf, are involved with trying to hurt average Americans, our Government should have a policy that retaliVerDate 11-MAY-2000 10:55 Aug 16, 2000 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 66026.TXT HINTREL1 PsN: HINTREL1
27

ates against that. There should be another shoe falling rather than

simply just analyzing the figures.

I am deeply disappointed that we have not had that. Let me just

give an example. We could suggest that we are going to withdraw

certain support, defense support for that area.

The Venezuelans, for example, I understand are involved with

driving this up. Perhaps we could tell the Venezuelans if they continue to be involved in a conspiracy to do damage to the American

people that we will see that they do not get certain credits or that

anyone investing in their country will not do so with Export-Import

Bank backing. There are things that can be done to put pressure

on countries like this that are trying to hurt our citizens. That is

our job, to prevent our citizens from being hurt by artificial manipulations of the market. The market has to work. I agree with you,

and I think the Administration is committed to that, but when we

have people who are robbing people through this type of price-fixing, we expect more than what we have heard today.

I am going to have to put this in recess until I go and vote. We

are in recess for ten minutes. Thank you.

[Recess.]

Chairman GILMAN. [Presiding.] The Committee will come to

order.

Mr. Delahunt?

Mr. DELAHUNT. Thank you, Mr. Chairman.

I wonder, Mr. Secretary, could you respond to the question that

I posed during my opening remarks. Is it the position of the Department that you need additional statutory authority to draw

down under current conditions from the SPR, or do you believe you

have that authority now?

Mr. GOLDWYN. No, sir. We do not believe that we require additional authority to make draw-downs under the SPR. The Administration’s position is that under current conditions, in the current

context, we should not draw down the SPR because the situation

that we are in right now, while serious and requiring response, is

not the kind of national emergency for supply disruption which the

SPR legislation contemplated, and that there are other measures,

better measures with which to respond——

Mr. DELAHUNT. But you are confusing me. Do you believe that

given the current conditions, however you interpret them, that you

have the statutory authority to draw down from the SPR?

Mr. GOLDWYN. I am trying to be direct and be clear at the same

time.

Mr. DELAHUNT. Right.

Mr. GOLDWYN. The question about whether the current situation

is an emergency or not is a judgment call.

Mr. DELAHUNT. Right.

Mr. GOLDWYN. It is a judgment call that the President makes,

and the Administration’s position is that these current conditions

do not constitute that kind of emergency.

Mr. DELAHUNT. So what you are saying is it is the position of the

Administration that the existing situation as of today is not an

emergency that would warrant a draw-down?

Mr. GOLDWYN. That is correct. It is not the kind of emergency

that would require or warrant a draw-down, and that other measVerDate 11-MAY-2000 10:55 Aug 16, 2000 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 66026.TXT HINTREL1 PsN: HINTREL1
28

ures, a number of measures, some of which I have outlined this

morning in trying to put additional supply in the market through

energy diplomacy, are better alternatives.

Mr. BASS. If I might add, that is because the statute refers to a

major market supply disruption.

Mr. DELAHUNT. What I am trying to get clear, Mr. Bass, if there

is the need, if the Administration should feel it is appropriate—let’s

not call it an emergency, but it would be timely to draw down, do

you have the statutory authority? Secretary Goldwyn indicated

that he does feel that under the current conditions the statutory

language authorizes a draw-down, but it is the position of the Administration that it is not an emergency. Do you disagree at all

with his——

Mr. BASS. No.

Mr. DELAHUNT. Because I think it is really important, you have

heard from Members of Congress. Again, I think it is important to

note, that it is at least from the Members you have heard and from

those who were present yesterday with Secretary Richardson, that

this is an emergency. So we have a disagreement as to the judgment of whether an emergency exists.

I think that it has been alluded to, but I think we should speak

directly to the reality, which is this particular crisis—let’s call it a

crisis rather than an emergency—this particular crisis has the potential to undermine the current economic prosperity if it continues

to exist. Would you agree with that?

Mr. GOLDWYN. I am not an economist, but I think——

Mr. DELAHUNT. Neither am I, I can assure you, but let me ask

you this. Has anyone in the Department made an assessment as

to the impact on the economy if the status quo remains, and at

what point in time, if you have done any economic modeling, does

it undermine the prosperity that we have been enjoying now for

some period of time? Either you or Mr. Bass are free to——

Mr. GOLDWYN. Let me take a try at the first two parts. There

is no question that we are telling both OPEC and non-OPEC members that continuation of the status quo and, indeed, if they do not

increase supply will put additional inflationary pressure, we believe, on the U.S. economy and threaten recession in other countries.

Mr. DELAHUNT. Do we have any time frames, though? Has the

Department internally done an analysis of when those inflationary

pressures would substantially kick in and threaten our national

economy?

Mr. GOLDWYN. It is more in the province of the Council of Economic Advisors to do that kind of analysis.

Mr. DELAHUNT. Have they done anything that you are aware of?

Mr. GOLDWYN. Not to my knowledge. I am not aware of——

Mr. DELAHUNT. Mr. Bass, has the Department of State done anything?

Mr. BASS. The State Department has not, but there are, I

think—certainly among the private market experts, there are

agreed assumptions—I do not have them at my disposal—about

what a given price increase does to GDP and inflation and so forth.

So these figures are——

29

Mr. DELAHUNT. It would be nice if either one of you gentlemen

could contact the appropriate agency and bring that forward, because this is more than just a home heating crisis, more than a potential gasoline crisis. This could put at very risk the success that

this Administration has had over the course of the last nine years.

That is why I suggest the frustration that you have been hearing

is that time is of the essence here, and I dare say waiting until

March 27th carries some risk. I am confident that Secretary Richardson will be consulting and having discussions with the appropriate oil ministers; but from February 10th to March 27th, we

may get past the home heating crisis because the temperature obviously will get warmer, but we have the economy at risk here.

That is why I cannot overstate the need for immediate action.

I know that he has trips scheduled. I really want to compliment

the Chair because he is hearing from Members of Congress, but

more importantly, the OPEC Ministers ought to be hearing the

frustration from Congress. If there is not action by the Administration and an appropriate response by the oil producers, there will

be action from this institution, albeit slow and cumbersome as is

any legislative action, but there will be clearly a move to secure alternatives to oil in terms of energy sources.

We should have been doing this since the last crisis and have let

our guard down, but this does not accrue to the benefit of the

OPEC and major oil producers. I really hope that the oil ministers

and those that are responsible in other countries for production

and restricting supply are hearing this. Both parties are united not

only on a regional basis and not only in the appropriate Committees of jurisdiction. Action is necessary now, or there will be proposals that I am sure they will not want to hear about. But there

will be some call for retaliation.

You heard the Chairman. You heard the Ranking Member. There

is great frustration.

Now, in these consultations that we have had with these various

countries, can you indicate to us what their response has been?

Mr. GOLDWYN. Let me say a couple things. First, we will get back

to you with the economic information, and while there may be a

disagreement that this is a SPRO emergency, there is no disagreement that we have a crisis and that prompt action is required.

I guess I would prefer not to comment on the private conversations the Secretary has had with a number of these countries, especially on the verge of another trip back out to Middle East countries.

Mr. DELAHUNT. I can respect that, but I think at the next hearing we are going to anticipate and expect to hear the position of

the individual countries that comprise the cartel, as well as other

major oil companies. We in this particular Committee and elsewhere will want to know their specific response to the Secretary’s

message.

I am not going to, probe any further, but I think that those nations and their ambassadors ought to be put on notice that this institution in Congress will be awaiting an appropriate response.

Clearly, in the long term, it is detrimental to their best interests.

But we can’t wait. We simply cannot wait, and action has to be

taken now.

30

So, again, I want to thank you, Mr. Chairman, for calling this

meeting, and I hope that the oil-producing countries are hearing

this message very loudly and clearly. I would recommend that they

expend the money simply to secure transcripts of the Members’

comments here today, because I think it will bring home that message.

I thank you.

Chairman GILMAN. Thank you, Mr. Delahunt, and thank you for

your comments with regard to the OPEC nations. I hope that our

Administration witnesses are going to take that message to where

it counts, because, otherwise, the Committee will be forced to take

some other action.

Let me just ask one or two questions, and then we will go on to

the next panel. Is the Administration considering release of the remaining $255

million in emergency funding for the Low-Income Home Energy

Program?

Mr. GOLDWYN. I believe a number of measures are under consideration, some that came up at the meeting yesterday the Secretary

held. But I think those are under continuing consideration, so I

have no answer for you.

Chairman GILMAN. Will you have an early decision on that?

Mr. GOLDWYN. We are hoping for one.

Chairman GILMAN. And can you let our Committee know?

Mr. GOLDWYN. Absolutely.

Chairman GILMAN. And I hope it will be fairly allocated when

you do make some decision with regard to that.

In your testimony, Mr. Goldwyn, you note that the Department

of Transportation has directed its Coast Guard icebreakers to help

clear up the shipping lanes in the New York harbor. Is that being

undertaken at the present time?

Mr. GOLDWYN. Actually, it has. It is a question of actual

prioritization of which traffic gets through in order to make sure

that those supplying home heating oil have priority. I understand

the first step in that was for the Energy Department to request the

Coast Guard to do this, and that has taken place.

With respect to what the Coast Guard has actually done to implement that, I am not certain.

Chairman GILMAN. Will there be funding available to pay for

these icebreakers?

Mr. GOLDWYN. I was not aware that funding was an issue.

Chairman GILMAN. I gather it is, and I would hope you would explore that to see if there is any funding needed.

Mr. GOLDWYN. I will look into that, Mr. Chairman.

Chairman GILMAN. I want to thank our panelists for being here.

We appreciate your patience, and we hope you will take back our

message. There is a great deal of concern in the Congress about

this, and we would not like to act peremptorily. We welcome your

response to our Committee as to what the situation is with regard

to OPEC before we act further.

Thank you very much, gentlemen.

Mr. GOLDWYN. Thank you, Mr. Chairman.

Chairman GILMAN. We will proceed to the second panel: Mr.

Valentino, Mr. Huber, and Mr. Costello.

31

Our second panel is led by William Valentino, President of the

New York State Energy Research and Development Authority. As

president, Mr. Valentino is responsible for oversight of programs in

energy, environmental research, hazardous waste management, energy efficiency analysis, and tax-exempt bond financing for the

state. It sounds like you have got a full plate, Mr. Valentino. We

welcome you.

Our second witness on this panel is John Huber, Vice President

and Chief Counsel of the Petroleum Marketers Association of

America. We thank you for being with us today, Mr. Huber.

We are joined also by Bob Costello, Chief Economist for the

American Trucking Associations. We thank you, too, for being with

us, Mr. Costello.

I think we have a good second panel. Gentlemen, you may summarize your statements or read your statements as you see fit, and

your full statement will be made part of the record if you care to

summarize.

Please proceed, Mr. Valentino.

STATEMENT OF F. WILLIAM VALENTINO, PRESIDENT, NEW

YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY

Mr. VALENTINO. Thank you, sir. Distinguished Committee Members, I appreciate the opportunity to testify on behalf of Governor

Pataki and the people of the State of New York. I am going to truncate my testimony even greater than I was before, because a lot of

the data I was going to talk about has already been entered into

the record.

Chairman GILMAN. Without objection, your full statement will be

made part of the record.

Mr. VALENTINO. Thank you.

Some data I would like to add, however, is that 40 percent of

New York’s households use oil for space heating, so New York

State residential customers bear the brunt of any increase in home

heating oil.

We have talked about price. Over the last week, the price has increased by about 75 cents a gallon, and as a matter of comparison,

last year the price of home heating oil in New York was about .91

cents. Obviously, the people have been talking about prices in the

$2.50, $2.60 range.

The reasons for this have already been mentioned. Obviously, we

are concerned about OPEC. There have been other contributing factors that I would like to mention. One of the factors that hasn’t

been mentioned is that it’s our understanding that the petroleum

industry, like other industries, has adopted a ‘‘just in time’’ resupply of inventory, and New York’s heating oil bulk storage capacity

has declined by about 20 percent over the last five years.

New York does not have refineries within its state. We depend

on national efforts and refineries in other states, and we understand national refinery utilization rates have dropped. We understand that on the East Coast heating oil production was down 46

percent from a year ago.

32

By the third week in January, heating oil reserves had shrunk

to 50 percent less than a year ago and below any comparable level

of the past seven years.

Obviously, we were hit by the weather. I won’t talk about the

weather, but all things hit almost simultaneously, driving the

prices through the roof, and obviously caught in the crossfire are

the consumers.

Needless to say, Governor Pataki is concerned about the economic consequences of this unprecedented rise in prices and the effect on New York’s citizens, particularly our elderly, our working

poor, and our low-income consumers.

I want to just mention for the record, Mr. Chairman, some of the

things we have done in New York and, by comparison, some of the

things we are incapable of doing as a state. But faced with this immediate crisis, we did a number of things. We established emergency provisions for shelter and heating. We are in constant contact with our county energy emergency coordinators across the

state, with the Coast Guard on icebreaking activities in the Hudson

River and New York harbor, and with all the dealers and suppliers

to assess the current situation.

Governor Pataki directed the Public Service Commission to voluntarily have utility customers who could switch be kept on natural gas rather than fuel oil. Our Department of Tax issued temporary certificates to heating oil distributors and trucking companies to allow them to buy heating oil from other states. Our Department of Environmental Conservation granted a one-week waiver to New York City municipal facilities to use slightly higher sulfur oil to meet their heating needs.

All these actions were directed at ensuring that nobody was cut

off from heating oil, but there was very little we could do about the

price.

On a national level, Governor Pataki has written the Clinton Administration asking for an immediate investigation into the factors

that have driven those price increases and supply shortages.

But there are some other things, and we believe the Federal Government can take other actions. I am probably piling on, but I feel

it is my responsibility to also say that we believe on the international side, which is clearly your domain and not ours, we believe we need to use our influence with OPEC, and also a lot of

non-OPEC cartel producers who have never been a factor before.

We believe that cartel control of production not only has reduced

supply but created the perception of a shortage, which may have

done as much as anything else to drive these prices through the

roof. I do want to add that, one of the questions that came up earlier in the panel and wasn’t answered, was we believe in New York

State that the average homeowner will probably be paying somewhere between $250 and $350 a year in additional home heating

oil purchases. That probably will equate to about an additional $92

million in the state this year.

Beyond OPEC, I know New York State is in the process of urging

the U.S. Department of Health and Human Services to more equitably allocate additional LIHEAP funds. We also had the same experience that was relayed by a couple of the Members, but in the

latest release of $45 million in emergency LIHEAP to ten NorthVerDate 11-MAY-2000 10:55 Aug 16, 2000 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 66026.TXT HINTREL1 PsN: HINTREL1
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eastern States and Alaska, for some reason New York did very

poorly in the allocation. For example, while New Hampshire was

mentioned, Maine was our comparison, and Maine received an additional $208 for each LIHEAP-eligible individual, while New York

LIHEAP recipients received $37.68 on the same allocation.

Besides, I would like to go a little bit beyond LIHEAP. The heating oil problem has extended beyond LIHEAP-eligible people to

working families and small commercial customers who can’t meet

their high-cost oil obligation. This is causing, in New York at least,

a ripple effect among dealers who are not receiving full payment

for deliveries. All this is creating cash flow and bank line of credit

problems and a high risk of personal and company bankruptcies

that could weaken the oil distribution system. A quick means to

make funds available to those in need but not eligible for LIHEAP

is needed.

Another important step the Federal Government can take is to

ensure that there is adequate funding for the Coast Guard icebreakers. Without those five icebreakers in New York harbor and

on the Hudson River, we would not have the product that we need.

We are hearing rumors that Coast Guard services—we have, I

think, two 140-footers and three 65-footers—and we understand

that they have considered funding cuts for those three 65-footers.

Chairman GILMAN. These are Coast Guard icebreakers?

Mr. VALENTINO. Yes, sir.

Chairman GILMAN. Have they been funded properly in the past?

Mr. VALENTINO. They have been. We have just heard rumors

that within the Coast Guard budget there wasn’t funding this year

for those 65-footers, but they did find some funds for it.

Chairman GILMAN. Thank you.

Mr. VALENTINO. Finally, I guess the last comment, I would be

somewhat remiss if I didn’t say that we believe energy efficiency

is the most cost-effective way to reduce our dependency on foreign

oil, and we should do a little bit more in that regard.

I want to thank you for the opportunity to testify, and I will be

glad to answer any questions you may have.

[The statement of Mr. Valentino appears in the appendix.]

Chairman GILMAN. Thank you, Mr. Valentino.

Mr. Huber?

STATEMENT OF JOHN J. HUBER, VICE PRESIDENT AND CHIEF

COUNSEL, PETROLEUM MARKETERS ASSOCIATION OF

AMERICA

Mr. HUBER. Thank you, Mr. Chairman. I apologize for not having

a written statement available, and I will make one available in the

next two days.

I will primarily focus on the domestic situation. PMAA is a national association of petroleum marketers, and we represent residential heating oil retailers, 90 percent of which are small businesses.

Before beginning, I would like to join the Chairman in expressing

concern for consumers. The high prices and cold weather of the last

weeks will affect many of the working poor and middle class who

lack excess disposable income. My members have discussed this

problem with thousands of customers and, as this crisis eases, will

34

turn their attention to easing the financial burden on those consumers.

Unfortunately, for the past three weeks their sole attention has

been on making sure your constituents have product. They recognize the impact of the financial drain, but it is critical that all

steps be taken to ensure that product is available.

It should also be noted, as Mr. Valentino noted, that this is creating a crisis for the small businesses I represent. Their cash flow

and credit lines have been stretched beyond breaking points, and

many undoubtedly will be filing for bankruptcy at the end of the

season.

The Committee is interested in why this happened and why so

severely in the heating oil sector. There are two words that I think

explain a lot of it. OPEC is a critical component of it and has led

to the modest but strong and continued upward pressure on prices.

The second is inventories and the backwardization in the market.

Backwardization is considered by industry leaders to be the most

important factor. That is a market signal that the prices of crude

product prices will fall over time. As a result, the industry is unwilling and cannot afford to hold inventory. As we found out with

this last three-week period, inventories are critical to being able to

absorb price increases. Now, we are setting prices on a daily and

hourly basis. As to whether a barge can get into New York harbor

or whether it is delayed by high winds on the high seas, all affect

daily pricing. That is an unacceptable situation for the industry

and for consumers.

This volatility, as we know, is very bad for the industry and very

bad for consumers. The price should be much lower and should be

in the 70- to 80-cent price per gallon range for wholesale based on

OPEC. But OPEC is one of the people that creates that volatility

and the misperceptions in the market. As noted in the DOE testimony, indications that supplies were going to increase in January,

which were not founded, led the industry to continue to be lean

through the winter. If there is an anticipation that prices will fall

as supplies become more available, everybody hesitates to take in

inventory.

These types of false signals to the market need to be stopped. As

the Committee has focused on us, we have governments making

policy decisions that affect consumers in the U.S. that do it without

repercussions, that do it in a coherent, conspiratorial fashion. We

need to control that to the best of our ability.

I want to mention some bright spots. There are very few, but I

will mention them.

Customers did receive oil during this crisis. Everybody worked

together—the states, the industry—to ensure that oil did flow to

consumers.

LIHEAP funds did become available. The hours of service were

relaxed by government. Government was responding. The Coast

Guard was keeping the waterways open. That is critical.

The other thing that has been a bright spot, as Mr. Valentino

mentioned, is efficiency of equipment has increased over the years.

Consumers are using half the amount of oil they were using 20

years ago. That is a critical part of the impact on the end consumer. Unfortunately, our Government has not sought to fund that

35

type of research and development to continue that trend, something the PMAA has to work for vigorously every year. We would

hope the Department of Energy will be willing to change its position and support movements to ensure residential research continues.

A couple of the other problems that we think need to be addressed: We think that there needs to be better information on

international stocks of oil. Traditionally, stocks of heating oil have

flowed back and forth between Europe and the U.S., depending on

demand, and I think there was anticipation that more flow from

Europe would come this year. However, they did continue to consume all the oil that was sent over there earlier in the year.

The industry needs to be better apprised of what the international stocks of distillate are. Interruptibles, which have been

mentioned by many Members of the Committee, have raised some

interesting issues. They have been typically termed ‘‘industrial

users,’’ but those industrial users are actually hospitals, schools,

nursing homes. It has been critical that the heating oil industry

has stood up and made sure that those customers did get oil. We

believe that the suppliers of those interruptibles need to bear some

of the burden of making sure that supplies are available for those

consumers throughout the winter. We think, and have suggested it

many times, that interruptible consumers also have supplies of

heating oil on hand so that they don’t jump into our market and

immediately send the price of oil spiking.

We intend PMAA to work with the states, the National Association of Energy Officials, and the Department of Energy to try to

educate consumers to these problems and try to develop systems

within the industry and within private consumers that will allow

them to mitigate future problems. We will invest a lot of time and

effort into that over the coming months.

Finally, we do think that inventory, as I mentioned earlier, is

critical. Many Members of the Committee have mentioned the regional product reserve. PMAA members have never supported that.

However, we do feel that Government must start helping us develop the incentives to have inventory in place. It has been the policy of this Government to discourage inventories through environmental regulations for many, many years; and, therefore, we are

starting to bear the burden of those shortages and tightness of supplies. We need to all work together to make sure these types of

spikes don’t happen again.

Thank you, Mr. Chairman.

[The statement of Mr. Huber appears in the appendix.]

Chairman GILMAN. Thank you, Mr. Huber.

Mr. Costello?

STATEMENT OF ROBERT COSTELLO, CHIEF ECONOMIST,

AMERICAN TRUCKING ASSOCIATIONS

Mr. COSTELLO. Thank you, Mr. Chairman. I am Bob Costello,

Chief Economist of the American Trucking Associations. We appreciate this opportunity to testify before this Committee on the diesel

fuel crisis that is devastating our industry.

In order to meet the freight needs of the country, thousands of

motor carriers who are ATA members need Government action

36

now. As the Nation enjoys the benefits from this record-long economic expansion, an expansion of which the trucking industry has

played an integral part, I fear that the rise in oil prices and the

rapid surge in diesel fuel could bring all that to an end.

The trucking industry is the backbone of this new economy. As

more and more consumers simply point and click to buy a vast

array of merchandise on the Internet, they depend on an efficient

and productive trucking industry to deliver those goods in a timely

manner.

But trucks deliver far more than just goods bought on the Web.

They transport nearly every commodity consumed. In fact, 81 cents

out of every dollar spent on freight transportation goes to trucking.

The Nation’s 3 million truck drivers haul 6.7 billion tons of goods

annually. Furthermore, over 70 percent of communities in the U.S.

rely exclusively on trucks to deliver the freight they consume. This

is clearly a vital industry that comprises nearly five percent of

GDP and employs 9.6 million people nationwide.

Trucking is only becoming more and more important to the U.S.

economy because of its reliability and flexibility. As increasingly

more businesses reduce costly inventory, they depend on trucks to

bring them the goods and supplies they need exactly on time. This

ability of trucking to keep down costs for further industries has

been fundamental in suppressing inflation in recent years. But I

fear all this could come to an end with the recent surge in diesel

fuel prices. Instead of propelling the economy, trucking could be a

significant drag if the industry does not receive relief soon.

Diesel fuel is often the second highest expense for truckers and

comprises up to 20 percent of their operating budget, especially for

smaller companies. In addition, the trucking industry consumes

nearly 30 billion gallons of diesel fuel each year. So as the national

average price of diesel fuel rose from 96 cents a gallon a year ago

to $1.30 by the end of 1999, as published by the U.S. Department

of Energy, we were somewhat concerned. But it was not until the

recent spike that our industry has spoken out.

Since January 1st of this year, the average price per gallon has

shot up 17 cents, or 12 percent, but that is not the worst of it. On

the East Coast, the situation is grim.

Since the beginning of the year, the East Coast average price per

gallon has increased 25 percent to $1.63. Specifically in the Central

Atlantic States and New England, the price has risen an astounding 43 percent and 55 percent, respectively, in only six weeks. In

the Central Atlantic area, the average price per gallon is just under

$2, with the New England price at $2.12.

Our members have told us of a considerable number of ridiculous

price increases in an extremely short period of time. For instance,

some areas of New York State witnessed 30-cent increases or more

in only a few days.

Then there was a trucker that pulled into a New York State

truck stop one night to sleep. When he awoke eight hours later to

fill up his truck, the price had jumped nearly 15 cents from the

night before.

Before the recent spike, trucking companies had profit margins

of only two to four percent on average. Now many small-and meVerDate 11-MAY-2000 10:55 Aug 16, 2000 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 66026.TXT HINTREL1 PsN: HINTREL1
37

dium-size companies are actually losing money on every single

haul.

While there are some pretty big carriers out there, over 70 percent of the Nation’s 400,000 trucking companies operate six or

fewer trucks. So as all trucking companies are feeling the crunch,

it is these 280,000 companies that are being pummeled.

Let me try to put this current fuel crisis in context. The trucking

industry is now operating at near capacity limits due to a booming

economy and an acute driver shortage. If the industry does not get

some fuel relief soon, it is likely that a significant number of small

and medium-size companies will be forced to close their doors and

park their trucks; and at least in the short run, the larger trucking

companies will not be able to pick up the slack. This will cause a

significant number of bottlenecks in the supply chain, and freight

will start to pile up at docks. This situation will slow the economy

much faster than any interest rate hikes from the Federal Reserve.

Other modes of transportation will not be able to fill the void.

First of all, they are also being severely impacted by fuel prices.

Second, only trucks can deliver goods to grocery stores, malls, hospitals, and schools, to name a few. In our letter to President Clinton, a copy of which is attached to this testimony, we are asking

the Government to get involved in a few ways.

First, we believe it is necessary to release oil from the Strategic

Petroleum Reserve. The 9.6 million taxpayers that work in trucking-related jobs have helped to buy that oil, and we are now asking

that some of it be released. This will have an immediate impact

and should provide a substantial amount of relief.

Second, we are asking that the Government enter into immediate

talks with OPEC and try to convince them to start producing more

oil. We should remind them of the assistance we provided only a

decade ago, keeping them at arm’s length from an Iraqi dictator.

It would also be helpful if the Small Business Administration

would provide loans for companies trying to survive in this difficult

time, as Energy Secretary Richardson suggested yesterday.

In conclusion, just imagine any type of company trying to survive

when the second highest expense is escalating as fast as diesel fuel

apparently is. It is nearly impossible. The growth of both the trucking industry and the aggregate economy relies on a quick solution

to this problem. I truly believe our economic stability depends on

it.

I thank you for your time, and I would be happy to entertain any

questions.

[The statement of Mr. Costello appears in the appendix.]

Chairman GILMAN. Thank you, Mr. Costello, and I thank our

panelists for their testimony.

Mr. Valentino, what steps is Governor Pataki taking to help

home heating oil distributors overcome their resupply problems

around the State?

Mr. VALENTINO. Sir, beyond my testimony, what we have tried

to do is get as much supply from other states as we can. We have

done that through licensing and making it easier for our truckers

to go out of state. Some of the other things we have done is try to

reduce the sulfur content, but pretty clearly, the number of things

we have available to us are limited.

38

We look to the future, however, and there is a number of things

we probably will try to do. We will probably try to increase gas

pipelines into the State of New York, particularly for interruptible

customers. We are probably going to encourage our people to lock

in a fixed rate contract at the beginning of the season, and we are

going to try to look at bulk purchasing for low-income people because, generally, lower-income people pay at the highest rate—to

see if we can help them out a little bit.

Chairman GILMAN. To all of our panelists, you have been looking

at this shortage. What conclusions have you drawn with regard to

the cause of the shortage?

Mr. HUBER. It, certainly, Mr. Chairman, has been a number of

factors—as I indicated, the low inventories being the most important. There have been several years of warm weather in the industry; and this was a strong and severe cold for an extended period

of time that really made the inventories, which were tight as they

were, go even farther down, which made us ride on a spot market

where price wasn’t really even a factor in getting supply. Getting

supply itself was the critical factor, which spikes prices in those

settings.

Chairman GILMAN. Mr. Costello?

Mr. COSTELLO. On average, it costs $150 more to fill up a truck

now than it did a year ago. This is an industry with well over a

million trucks. It is a substantial increase that could be upwards

of at least $100 million.

Chairman GILMAN. Mr. Valentino, do you care to comment?

Mr. VALENTINO. Not much more than what I said earlier in my

testimony, sir, but I think that as we look at the standard price

differential between the wholesale price of home heating oil and

crude oil, it is generally 52 cents a gallon. In the last couple of

weeks, this differential went up to about 83 cents a gallon—to a

wholesale price of $1.35 a gallon. So the standard differential now

is up to about 83 cents, and generally it should track the OPEC

prices. The OPEC price is going up.

There is a lot of data that we have to collect, and it is probably

going to take us a couple of months to sort all this stuff out.

Chairman GILMAN. Has New York been shortchanged in the allocation of funds in the LIHEAP Program?

Mr. VALENTINO. That is a good question, and actually we are

working with Human Service people trying to understand the allocation formula. But in this latest allocation of emergency LIHEAP

funds, if we do a per capita comparison with the other states looking at the eligible clients, in some cases it is three and four-fold

for the other states as compared with New York. So we have asked

for a clarification as to how the allocation——

Chairman GILMAN. Who have you addressed that to?

Mr. VALENTINO. We have worked within the State of New York

and our Office of Temporary Disability and Assistance, which work

with HHS. So we have directed it back through state channels to

the Federal Government.

Chairman GILMAN. We would welcome it if you would let us

know when you get an appropriate response to your inquiry.

Mr. VALENTINO. Yes, sir, we will.

39

Chairman GILMAN. If you would forward that to the Committee,

we will make it part of this record.

Chairman GILMAN. Gentlemen, all of the panelists, should the

DOE release oil from the Nation’s Strategic Petroleum Reserve to

help us with this problem?

Mr. COSTELLO. Absolutely. I think that we are in a critical situation with the trucking industry. As I stated in my testimony, many,

many, literally thousands of carriers are losing money on each and

every haul because of this rapid increase in prices.

I think we have come to a point where if the price doesn’t lower,

we could have significant bottlenecks because trucking companies

simply will have to park their trucks.

Chairman GILMAN. Mr. Huber?

Mr. HUBER. We are hesitant to have the Government play a

major role in the markets. We think that it would have been critical several weeks ago for a major statement and some jawboning

to get some of the OPEC—SPR oil released as a way to break some

of the market psychology that was letting oil drift up and rise so

rapidly.

Chairman GILMAN. Mr. Valentino?

Mr. VALENTINO. We are also hesitant—obviously, we would like

some more supply. I think to activate a drawdown from the SPRO

it would take probably a number of weeks. Some people have said

six to ten weeks to draw down the crude oil, transport it to refineries, and deliver a refined product. In all likelihood, the current

price spike will have passed. I leave it up to the experts on the

Federal level to decide what constitutes an emergency.

I think we are somewhat hesitant as well about releasing the

SPRO.

Chairman GILMAN. Gentlemen, do you have any recommendations for any policies we ought to put in place, local, state, or Federal, to ensure we don’t have a repeat of the ongoing energy crisis?

Mr. HUBER. I will make a couple quick comments. We are looking

at a change in the refinery capacity in this country that is significant. We are going to have ever sharper and more stringent requirements for the fuels that we use, both for diesel and gasoline,

which leads to reduced production, makes us less of an international player in buying fuel, and which makes the U.S. a segregated market. All those create difficulties long term. We need to

be much more cautious in making environmental changes that

have those secondary implications.

Second, we also have fuel locked-in in the U.S., so that we are

not producing. We again need to be more careful in allowing fuel

to be produced in the United States, which is one of the few major

free market suppliers of oil in the world. We have to encourage production because we are always going to be subject to OPEC and

countries restricting supply. We need to be much more cautious on

that in the future.

Chairman GILMAN. Do you think, gentlemen, we should establish

a fuel oil reserve in the Northeast? Comments?

Mr. HUBER. We do not think that a regional product reserve is

appropriate at this time. There are lots of storage in the U.S. and

in the Northeast. It has to be encouraged to be filled. It needs to

be handled by the private sector. People need to be doing more forVerDate 11-MAY-2000 10:55 Aug 16, 2000 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 66026.TXT HINTREL1 PsN: HINTREL1
40

ward purchasing. Whether it is the trucking industry, the heating

oil consumers, state governments, the airlines, we need to ensure

that they have supplies available for the long term. We need to recognize that we are dealing with a volatile product and ensure that

people are forward purchasing so we don’t run into tight inventories.

Chairman GILMAN. Any other comments by Mr. Costello?

Mr. COSTELLO. Yes, I would definitely say that we would probably encourage something like that. There are many, many small

trucking companies out there that simply can’t afford to have big

reserves set aside for when there are supply problems. It is these

companies that haul a significant amount of freight, so anything

that could help in making sure there is enough supply we would

encourage.

Chairman GILMAN. Mr. Valentino, do you want to comment?

Mr. VALENTINO. Yes, there are a couple of concerns we would

have about that, and we haven’t studied it in detail. But I believe

it would be a great deal of expense to maintain these reserves, and

as I understand the technology, it isn’t like maintaining crude. I

think you have to have additives, churn it around. It is a pretty

expensive proposition, and, obviously, that would be passed along

to the consumer and one would have to really judge whether the

cost/benefit was there.

I worry that companies would reduce their stocks by a like

amount if they believe Government is in the storage business, and

then in New York, I would probably have responsibility for releasing it. I often wonder, what would be the direction—when would

we consider it an emergency? When the price goes up 25 percent?

When the price goes up 50 percent? We would be interfering with

the markets. But those are just my preliminary thoughts.

I would like to clarify one thing, Mr. Chairman. I had said that

we had requested LIHEAP assistance through our health and

human services organizations within the state. One of my colleagues just gave me a letter from Governor Pataki to Secretary

Richardson requesting it directly that way.

Chairman GILMAN. Thank you. One last question. What steps

should the Administration here in Washington take to meet your

trucking crisis?

Mr. COSTELLO. I think definitely selling off some of the Strategic

Petroleum Reserve would help.

Chairman GILMAN. As Mr. Valentino mentioned, it could take six

weeks before you get the benefit of that.

Mr. COSTELLO. I also think the market would react to that, and

as I said, back during the Gulf War time, the prices dropped substantially, immediately. I think that would help in relaxing the

market and perhaps, I think, would drop prices.

Chairman GILMAN. Just the decision to release would help.

Mr. COSTELLO. Yes.

Chairman GILMAN. Any other last thoughts that any of our good

panelists have? We can’t thank you enough for being here. Any last

thoughts you would like to leave with the Committee.

Mr. HUBER. We just want to express our thanks for the Committee’s consideration of this critical issue. Your concern, I think, does

help the industry move forward and makes us look more closely to

41

solutions, and hopefully we can revisit with the Committee and

other Members as better developed solutions emerge that will protect us in the long term.

Chairman GILMAN. Thank you, Mr. Huber.

I would like to encourage the panelists, if you have any further

thoughts you would like to add for the record, don’t hesitate to

send them on within the next few days to our Committee, and we

will make them part of the record.

Again, our thanks to you for being here today and offering your

comments.

The Committee stands adjourned.

[Whereupon, at 12:50 p.m., the Committee was adjourned.]

(43)

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