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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

             OPEC'S POLICIES: A THREAT TO THE U.S. ECONOMY

=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                        INTERNATIONAL RELATIONS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 27, 2000

                               __________

                           Serial No. 106-197

                               __________

    Printed for the use of the Committee on International Relations

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

                                 ______

                   U.S. GOVERNMENT PRINTING OFFICE
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_______________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Printing 
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                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa                 TOM LANTOS, California
HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                      Samoa
ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina       ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California         SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois         CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
PETER T. KING, New York              PAT DANNER, Missouri
STEVE CHABOT, Ohio                   EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South     BRAD SHERMAN, California
    Carolina                         ROBERT WEXLER, Florida
MATT SALMON, Arizona                 STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York               JIM DAVIS, Florida
TOM CAMPBELL, California             EARL POMEROY, North Dakota
JOHN M. McHUGH, New York             WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina         BARBARA LEE, California
PAUL E. GILLMOR, Ohio                JOSEPH CROWLEY, New York
GEORGE RADANOVICH, California        JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
                    Richard J. Garon, Chief of Staff
          Kathleen Bertelsen Moazed, Democratic Chief of Staff
    Francis C. Record, Senior Professional Staff Member and Counsel
                    Nicolle Sestric, Staff Associate

                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

The Honorable Bill Richardson, Secretary, Department of Energy...    14
Edward J. Curran, Director of Counterintelligence, Department of 
  Energy.........................................................    39
The Honorable Howard Metzenbaum, Chairman of the Consumer 
  Federation of America, former Senator from Ohio................    43

                                APPENDIX

Members' prepared statements:

The Honorable Benjamin A. Gilman, a Representative in Congress 
  from the State of New York, and Chairman, Committee on 
  International Relations........................................    53
The Honorable Sam Gejdenson, a Representative in Congress from 
  the State of Connecticut.......................................    54
The Honorable Paul Gillmor, a Representative in Congress from the 
  State of Ohio..................................................    55
The Honorable Robert Menendez, a Representative in Congress from 
  the State of New Jersey........................................    56
The Honorable Joseph Crowley, a Representative in Congress from 
  the State of New York..........................................    57

Witness prepared statements:

The Honorable Bill Richardson, U.S. Energy Secretary.............    58

Additional material submitted for the record:

GAO Report entitled MOTOR FUELS, California Gasoline Price 
  Behavior, April 2000...........................................    68

 
             OPEC'S POLICIES: A THREAT TO THE U.S. ECONOMY

                              ----------                              

                         TUESDAY, JUNE 27, 2000

                  House of Representatives,
                      Committee on International Relations,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:45 a.m. in Room 
2172, Rayburn House Office Building, Hon. Benjamin A. Gilman 
(Chairman of the Committee) presiding.
    Chairman Gilman. The Committee will come to order. Members 
please take their seats.
    We are very pleased to welcome Secretary Richardson back to 
our International Relations Committee for our hearing this 
morning on OPEC's Policies: A Threat to Our U.S. Economy, and 
to note that later on this week Secretary Richardson will speak 
on similar topics before at least three other Committees in the 
House and Senate. It sounds like you have a busy week, Mr. 
Secretary.
    I want to welcome former Senator Howard Metzenbaum, who has 
joined us today. Welcome, Senator.
    Today's hearing is the third in our series on the impact of 
the price fixing schemes by the Organization of Petroleum 
Exporting Companies on the American homeowner, on the small 
businessman, on our commuters, on our aviation industry, on the 
truck drivers and the policy maker who sits in your seat and 
must manage this uneasy and very troubled relationship. We look 
forward to holding additional meetings of our Committee to 
explore additional issues related to the energy crisis facing 
the American people, including a sustainable energy strategy 
and a review of the profits of the major oil companies that are 
up some $7 billion over the past year and the OPEC nations 
whose revenues have doubled over the past 2 years.
    I would also note that the General Accounting Office 
released a report over the weekend reviewing areas where 
existing controls over foreign travel of our nuclear scientists 
can be and should be strengthened.
    I would ask our good Secretary if he would make a brief 
comment on that issue during the course of the morning. I 
realize these incidents occurred before your watch at the 
Department.
    In regard to our topic today, I can't help but conclude 
that our policy toward OPEC is hard to discern, and harder 
still to explain to the average American who has seen his 
gasoline prices rise some 60 cents over the past year and a 
hike to record levels in the Northeast and Midwest. Our Vice 
President has called for an investigation by the Federal Trade 
Commission into possible price gouging by the oil companies. I 
think many of us agree that would be appropriate. But certainly 
that is not enough, and certainly is not a forward looking 
policy that will lead to lower gas prices in the future.
    Oil prices today are higher than at any time since the 
Iraqi invasion of Kuwait. Continued high prices for gasoline 
and other fuels are now beginning to stunt our own economic 
growth and to curtail global growth prospects as well. In 
addition, they are stoking the flames of inflation, inducing 
bankers to raise their rates and curtail lending.
    How has the administration reacted to this growing threat 
to our pocketbook and our prosperity? Remarkably passive in the 
face of OPEC's continued assault on our free market system and 
our antitrust norms. This administration is still firing blanks 
when it should be making an all-out attack on a production 
allocation system which has kept oil at $30 a barrel for much 
of this year.
    The oil producers are in clover with multibillion dollar 
profits while the consumers are in hock to a cartel that is 
turning our economy's soft landing into an abrupt free-fall 
with apparently no rip cords left to pull. We are still waiting 
for the answers we raised at the first hearing. What has the 
administration done to systematically review our policies 
toward OPEC and its member states? Why has the administration 
failed to weigh in strongly enough with OPEC last year to 
prevent a continuation of production cutbacks? And how can we 
begin to take effective action against its continued production 
cutbacks and price fixing behavior?
    The administration's laissez faire approach has sent a 
clear signal to OPEC that price fixing is okay by us, that 
production cutbacks are not so bad after all, and that as long 
as you keep trying to aim at a reasonable price for crude oil, 
you can overshoot $30 barrel oil with not so much as a slam on 
the wrist. Our government has become the victim of the 
manipulation of the oil market by OPEC.
    The legislation I introduced last week, the Foreign Trust 
Busting Act and the International Energy and Fair Pricing Act 
of 2000 will ensure that this administration adopts a 
consistent and a comprehensive policy of opposition to OPEC and 
to other similar cartels. In the ongoing energy crisis facing 
our Nation, we can help keep the spotlight where it belongs, on 
this international energy cartel. With the enactment of this 
measure, the administration will no longer be able to go back 
to business as usual in supporting any back room arrangements 
and cartel-like behavior.
    The first measure would allow lawsuits to be brought 
against foreign energy cartels. Our second measure would 
specifically direct the President to make a systematic review 
of its bilateral-multilateral policies and those of all 
international organizations and international financial 
institutions to make certain that they are not directly or 
indirectly promoting the oil price fixing activity policies and 
any of the OPEC programs.
    It would require the administration to launch a policy 
review of the extent to which international organizations 
recognize and/or support OPEC and to take that relationship 
into account in assessing the importance of our relationship to 
those organizations. It would also set up a similar review of 
the programs and policies of the Agency for International 
Development to ensure that that agency is not directly or 
inadvertently supporting OPEC programs and policies.
    Finally, it would examine the relationship between OPEC and 
the Multilateral Development Banks and the International 
Monetary Fund and mandates that our U.S. representatives to 
those institutions should be using their voice and vote to 
oppose any lending or financial support to any nation that 
provides support for OPEC's activities in manipulating our fuel 
prices.
    I now turn to our Ranking Minority Member, the gentleman 
from Connecticut, Mr. Gejdenson, for any opening remarks.
    Mr. Gejdenson. Mr. Chairman, the failure to act about our 
energy independence really starts here in the Congress. If you 
think of the initiatives of the Republican-led Congress over 
the last 6 years, I think one of its earliest initiatives was 
simply to abolish the Energy Department. But it got worse. When 
we take a look at where we are today as a Nation, this Congress 
has continuously prohibited the administration from increasing 
the standards of efficiency on automobiles. This is not simply 
as bad as living with the status quo, because as Americans 
moved from cars to trucks, it actually reduced our overall 
fleet average. If you want to create new forms of energy and 
you want to do it quickly and efficiently, just increasing our 
fleet average by one mile per gallon would save 12.5 million 
barrels of oil per year.
    For those of you who think this would somehow infringe on 
our personal freedoms, think about this. When I was a teenager, 
a Corvette got 9 miles to the gallon. Today that same car, more 
powerful and faster, gets 27 miles to the gallon, because 
Congress and the administration after the energy crisis forced 
the automobile industry by increasing CAFE standards, not as 
this Congress has done by blocking the administration from 
increasing CAFE standards.
    One mile per gallon, 12.5 million barrels of oil. That is 
an impact that clearly would help us toward energy 
independence.
    We also have a problem here with oil company mergers. The 
oil companies keep running to us with new mergers, arguing they 
are increasing efficiency. The only efficiency that seems to be 
gotten from these mergers is the oil companies are more 
efficient at ripping off the American people. The first quarter 
profits before the most recent increases in gasoline profits 
indicated that some of these companies had increased profits of 
as much as 500 percent. While we can complain, and rightly so, 
about the oil supply from other nations, these American 
corporations are taking advantage of America and damaging its 
economy in a conspiracy that will hurt all of us.
    We are in a difficult situation in the Northeast, and the 
one place where I think the administration has not moved fast 
enough, Mr. Secretary, is last year in February, when we hit 
that cold snap and suddenly New England saw escalating energy 
costs, I said then that the heating oil crisis of that winter 
would become a gasoline crisis of this summer. I can tell you 
now as sure as we are all here that this gasoline crisis is 
still going to become a heating oil crisis.
    Now, today, or at least yesterday when I took a look, or 
the day before, there was about a $6 difference between the 
spot markets and the futures market on oil, even though the 
Senate and Mr. Lott has sat for 76 days on reauthorization of 
the SPRO, the House passed reauthorization of the Strategic 
Petroleum Reserve, whose legislative authority has expired. The 
Senate has sat on that legislation for 76 days as Mr. Lott and 
others make speeches about this crisis. We ought to be dumping 
SPRO, trading SPRO, increasing the short-term supply to drive 
prices down, and we ought to make sure that there is a 
Strategic Petroleum Reserve in the Northeast.
    The House rejected that by 2 votes just recently, 193 to 
195. This ``just on time'' delivery by these handful of large, 
merged oil companies will leave our Northeast citizens again in 
the dark and in the cold. Congress and the administration needs 
to move quickly to make sure there is a Strategic Petroleum 
Reserve.
    You can drive less if there are high gasoline prices. You 
may be able to carpool. But when heating oil prices get to the 
point where citizens can't afford to heat their homes, we 
endanger their lives and security.
    Again, from my Republican colleagues often we hear the 
solution is take away environmental protection laws, cut the 
standards of emissions into the atmosphere. That is 
unacceptable. We need to make sure that we invest in 
alternative energy that will give us clean energy and make this 
country independent. We have squandered the 20-some years since 
the last energy crisis. Let us hope we have a wake-up call here 
that we can leave this kind of hearings of the week that we are 
having and move on to legislative action by the Congress.
    The Congress ought to pass a new CAFE standard, demanding 
more efficient standards for trucks and cars. The Congress 
ought to provide the funds for research and development in 
alternative energy, even when oil prices are low, so we can't 
be blackmailed when oil prices are high.
    The first hearing that the Republicans had on energy 
happened about a year and a half ago, and it was interesting 
that a number of the Members at that hearing were complaining 
that the administration was at fault. They were complaining the 
administration was at fault because oil prices were too low, 
that oil prices were 10, 12, $13 a barrel, and they thought oil 
prices needed to be $25 a barrel. Well, again we are here and 
it is the administration's fault.
    Well, it seems to me Congress, before it puts the blame on 
the administration, ought to take the initiative and do the 
things we can do. We ought to get Mr. Lott out of the way so we 
can reauthorize the Strategic Petroleum Reserve. We ought to 
make sure there are tax credits for alternative energy. Every 
one mile per gallon saves us 12.5 million barrels of oil a 
year, just as if you drilled a hole in the floor here and came 
up with that oil. Increase the CAFE standards, help alternative 
energy, help weatherization, and we will make this country more 
independent and strong.
    Thank you, Mr. Chairman.
    Chairman Gilman. Thank you. Permit me to remind my 
colleagues and Mr. Gejdenson that today we will be looking at 
the issues Mr. Gejdenson raised, but we will also be focusing 
on OPEC and our failed policies toward that cartel. I would 
remind my colleagues that a recent CRS report concluded that 80 
percent of the recent rise in gasoline prices is attributable 
to the higher crude price, and that is attributable to OPEC.
    Any other Member seeking recognition? Mr. Bereuter.
    Mr. Bereuter. Thank you, Mr. Chairman. I want to welcome 
our former colleague, Secretary Richardson. He and I were next-
door neighbors for 4 years in the House of Representatives and 
visited a lot of dangerous and unpopular places like Angola 
together. I think the Secretary is a little nostalgic for the 
days when he could be asking the questions up here.
    I would say to our colleague from Connecticut, I have never 
complained about low oil prices, it is for sure. In Secretary 
Richardson's home State and my home State, people have to 
travel long distances to conduct the business of life and get 
to their jobs. A very high proportion of the people are in that 
situation. I would have liked the FTC to move beyond looking at 
the problems in Illinois and Wisconsin to the Upper Great 
Lakes. Just to give you one example, at a time when we had very 
low commodity prices, we had the worst drought conditions in a 
115-year history of climatology in my State.
    Perhaps some of you who are air travelers have noticed 
those green circles in the western half of the United States. 
Those have nothing to do with alien spaceships. Those are 
center pivots, and they are particularly needed now. Today it 
is costing our farmers when they really need to move those 
center pivots 50 percent more in fuel every time they revolve 
around the field than it did a year ago. We are very concerned 
whether the administration intervened early enough and 
energetically enough with respect to OPEC and interested in 
what we can do to make sure we are not subject to their price 
setting by oil production limitations.
    That is why we are here. I hope we will focus on these 
issues and we are looking for some answers. Thank you, Mr. 
Chairman.
    Chairman Gilman. Thank you, Mr. Bereuter. Mr. Lantos.
    Mr. Lantos. Thank you, Mr. Chairman. I want to welcome our 
good friend and former colleague, Secretary Richardson, who 
seems to be the designated victim of the week. I would like to 
pay public tribute to his long and distinguished public 
service, both in this Congress and in the administration at the 
United Nations and the Department of Energy.
    I was rather amused, Mr. Chairman, when you accused this 
administration of pursuing a laissez-faire policy, because 
unless I am mistaken laissez-faire policies have been the 
hallmark of the Republican Party for a long time, and I am not 
sure as of this moment whether you have used the phrase 
laissez-faire as a pejorative or as a laudatory statement 
concerning the administration.
    But be that as it may, I do not believe that it will be 
successful on the part of anyone on this Committee or in the 
other body to place the blame of responsibility for the current 
high prices of energy on the shoulders of this administration.
    As my colleague indicated earlier, the Republican majority 
began its energy policy by recommending the abolition of the 
Department of Energy, which is a hell of a way of crafting an 
energy policy for the one remaining superpower on this planet.
    That idiotic notion has now been abandoned. But I would not 
like to embark as my colleagues by having a rollcall of my 
Republican colleagues in both the House and the Senate, 
including some presidential candidates, who joyfully called for 
the abolition of the Department of Energy as their first step 
in crafting an intelligent energy policy for the Nation.
    I also think it is important to realize that it is the 
majority which has had for a long time, a long, long time, an 
incredibly chummy relationship with the giant oil companies. 
Now, for us to hold a hearing on high energy prices and not to 
recognize that the American people currently are being gouged 
by the oil companies, where the profit margins have increased 
to absolutely obscene proportions, would indeed be naive in the 
extreme.
    I would like to focus in on two or three specifics, Mr. 
Chairman, if I may. Funding for energy research and development 
during the three Congresses where your party was in the 
majority. Just a quick examination of the Energy and Water and 
Interior appropriations for fiscal years 1996 through 2001, the 
period in which you controlled the budget, clearly demonstrates 
that the majority has repeatedly failed to invest the resources 
necessary to improve our energy independence.
    This has occurred at the very same time when the Clinton-
Gore administration requested higher levels of investment in 
this crucial field every single year. Every single year the 
majority cut the request by hundreds of millions of dollars. 
For energy supply research and development at the Department of 
Energy, the major account, Mr. Chairman, that supports R&D to 
develop alternative fuels and renewable energy technologies, 
the cumulative cut below the administration request is 
$1,970,291,000.
    Now some Members of the majority are accusing this 
administration of not doing enough to encourage the development 
of the domestic oil and natural gas industries. The fiscal year 
2001 bill recently approved by the Committee, the majority cut 
funding by $84.5 million below the President's request.
    I want to spend a moment, if I may, Mr. Chairman, on 
funding for conservation. It is self-evident that we can 
dramatically improve our energy security by boosting 
conservation efforts. Every action we take that reduces the 
consumption of a barrel of oil means we have to import one 
barrel of oil less. Once again, the Republican record when it 
comes to investing in conservation is abysmal. In fiscal year 
1996, the first year the new majority wrote the appropriations 
bills, that investment was slashed to $552 million by the 
House, a reduction of $202 million below the year earlier 
level.
    In the first year, your majority cut by $202 million 
investment in conservation. Between fiscal year 1996 and 2001, 
the cumulative reduction below the administration's request for 
energy conservation exceeds $1 billion, Mr. Chairman.
    So we are not going to sit here quietly and listen as to 
how the administration's laissez-faire policies brought us to 
where we are.
    My colleague has talked about CAFE standards. Current 
standards have been in place now for a long time, and you do 
not have to be a rocket scientist to recognize that increasing 
CAFE standards would dramatically enhance our energy security.
    My view of the administration's failure is really 
concentrated in two areas where I think the administration, as 
indeed the previous administration, deserves criticism.
    Chairman Gilman. Mr. Lantos, I am going to ask if you would 
be brief so that we can have an opportunity to hear the 
Secretary. I am going to ask any further opening remarks be 
limited. We will limit opening marks to 5 minutes.
    Mr. Lantos. Do you want me to make my criticisms of the 
administration or not, Mr. Chairman?
    Chairman Gilman. I would just ask you to summarize, if you 
would, Mr. Lantos, so other Members will have an opportunity.
    Mr. Lantos. I will be happy to. This administration, as the 
previous Republican administrations, have not been forceful 
enough in dealing with OPEC. The two key countries of OPEC, 
Saudi Arabia and Kuwait, are today countries because we went to 
the Persian Gulf to protect them. Had we not put a half a 
million American military into the Persian Gulf War, the King 
of Saudi Arabia would be living on the French Riviera and the 
Emir of Kuwait would have a villa next to him. I think both the 
Republican administrations and this administration should have 
exerted a far more effective policy measure vis-a-vis OPEC, 
particularly the two countries whose very survival we ensured 
less than a decade ago.
    Secondly, I am one of those who has advocated for a long 
time dramatically increasing our Strategic Petroleum Reserve. 
Had we done so, we would now be in a much more comfortable 
position of releasing significant supplies. I still believe 
that under the present circumstances, releasing supplies from 
the Strategic Petroleum Reserve once the legal possibility is 
open should be done.
    Thank you, Mr. Chairman.
    Chairman Gilman. I am going to ask our further speakers to 
please be brief so that Members will have an opportunity to 
hear Secretary Richardson.
    Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you very much, Mr. Chairman. I 
certainly agree with Mr. Lantos on a couple of things he said, 
but on some others I have some disagreement. First of all, I 
agree with Mr. Lantos in welcoming Bill Richardson here. He is 
a man of impeccable credentials and a fine record of public 
service, and I will not be using him as a punching bag even 
though he has got the punching bag suit on to take the blows 
for administration policies that he, of course, as a member of 
the administration has to be the advocate of.
    So with that said, welcome, Bill, and, again, the other 
thing I agree with Mr. Lantos on is this administration has not 
used--the Clinton-Gore administration has not used the leverage 
that it has on members of OPEC, especially Saudi Arabia and 
Kuwait, to keep oil prices under control. The American people 
are suffering because of that.
    It is the Clinton-Gore administration that has not used 
this leverage. It is not Congress, it is the Clinton-Gore 
administration. Now, why haven't they used that leverage? Why 
haven't we told our Saudi allies and Kuwaiti allies that we 
have to have some stability in the price of oil, rather than 
these gouging and major increases we are suffering under today?
    It is because the Clinton-Gore administration supports 
higher prices for gasoline. Now, all of the political rhetoric 
we hear from the other side of the aisle can't hide the fact 
that Vice President Gore has made it very clear. He wrote a 
book about it. He wants higher prices for gasoline. He blames 
the American consumer for the fact that the United States is 
contributing to the global warming problem, supposed global 
warming problem. And what is his solution? His solution is pay 
more money. Have the people in our country pay more money for 
gasoline, as if it is not going to affect their standard of 
living.
    It is this administration, the Clinton-Gore administration, 
that is pushing for these Kyoto protocols, that, again, what is 
the purpose of those Kyoto protocols? To raise the price of 
gasoline. There is no political rhetoric on the other side of 
the aisle that is going to disguise this. You can talk about 
some of the proposals the administration has made for 
conservation, which are aimed at lessening the pain suffered by 
the American people, but the fact is that the Clinton-Gore 
administration blames the American consumer, blames the victim, 
rather than using its leverage against the OPEC cartel and 
rather than trying to expand America's supply of energy.
    Mr. Chairman, I think that Congress and this administration 
should be working together to increase the supply of oil so 
that our people won't suffer, and we must quit playing these 
political games which we have heard today in which we are 
trying to blame Congress, for Pete's sake, on this. We have an 
administration spokesman to talk to, and let's be serious about 
it. Thank you very much.
    Chairman Gilman. Thank you, Mr. Rohrabacher.
    Mr. Ackerman. Please be brief, all of my colleagues.
    Mr. Ackerman. I ask unanimous consent to put the full text 
of my remarks in the record.
    Chairman Gilman. Without objection.
    Mr. Ackerman. Mr. Chairman, I want to echo the sentiments 
of Mr. Gejdenson and Mr. Lantos in their entirety, and also add 
my personal welcome to our former colleague, Bill Richardson, 
who has shown tremendous courage and determination all over the 
world in spreading humanitarian and human values and doing acts 
that I think all of us would recognize as heroic, and for 
doggedly sticking to the task of trying to bring some reason 
and responsibility to America's energy policy.
    Having said that, I can't help but comment on the politics 
that are going on here, first in the construct of the hearing. 
I find it incredible that we are having a hearing on how oil 
prices are affecting the American economy and providing a safe 
haven by excluding the appearance of the oil companies at this 
hearing.
    Chairman Gilman. Mr. Ackerman, if you would pause a moment 
and let me interrupt, we will be conducting a further hearing 
with the oil company representatives.
    Mr. Ackerman. When would this be, Mr. Chairman?
    Chairman Gilman. As soon as we can put it on the schedule. 
The staff is working on it now.
    Mr. Ackerman. Would it be within the next few weeks?
    Chairman Gilman. We would hope to get it out as quickly as 
possible.
    Mr. Ackerman. Does that mean in the next few months?
    Chairman Gilman. No, it would be as quickly as possible, 
Mr. Ackerman.
    Mr. Ackerman. Would that be before the November election?
    Chairman Gilman. Possibly into the next tenure, if you are 
going to pursue this. We are going to have it as quickly as 
possible.
    Mr. Ackerman. We are prepared to wait as long as hell 
freezes over in the Northeast, Mr. Chairman.
    Chairman Gilman. Mr. Ackerman, we have a limited period of 
time.
    Mr. Ackerman. Mr. Chairman, I will use my time the way I 
see fit. Nobody interrupted your 25-minute oratory. Thank you, 
Mr. Chairman. I think all the Members deserve the same 
courtesy.
    The rest of the politics in blaming the Clinton-Gore 
administration for high oil prices is also absurd, or haven't 
we taken a look at where all the Texas oil money is pouring 
into whose campaign? Forwarded to the campaign of Mr. Bush and 
Bush the Second. It doesn't seem to be going to the Clinton-
Gore administration. So a little bit of reality here, Mr. 
Chairman, would serve us well.
    I think I have said my piece, and I don't need the rest of 
my 5 minutes. I yield back the balance of my time.
    Chairman Gilman. Thank you.
    Mr. Brady.
    Mr. Brady. The inescapable fact is America is addicted to 
foreign oil and we are falling deeper into addiction every day. 
Many have chosen to blame OPEC, the dealers of the oil, for not 
selling to us at a fair street price, which is ludicrous. 
America needs to kick its habit, its dependence on foreign oil, 
and that is one of the questions the Secretary Richardson needs 
to answer today, why we fail to address the real problem.
    America's oil and gas production is at its lowest in 50 
years. We have walled off reserves of clean coal and Alaskan 
and Gulf Coast oil. The President has vetoed efforts by 
Congress to increase our independence.
    There is no responsible, sensible energy policy to decrease 
dependence, and so far our energy policy with this 
administration is summed up like this: Buy fewer Ford Explorers 
and more longer lasting light bulbs. That is why we have higher 
fuel prices today.
    Others, as you heard on this dais, have tried to divert 
blame by pointing fingers at the oil companies. Well, the lack 
of a comprehensive, responsible energy policy has resulted in a 
loss of 100,000 American jobs this decade in the energy 
industry. That is 10 times more than steel and every bit as 
many jobs as we lost in agriculture. Since this administration 
took credit for the low fuel prices, it is important that they 
take the deserved blame for the higher fuel prices.
    Finally, Mr. Chairman, one of the key questions today deals 
with conflict of interest. Do the current high fuel prices 
promote this administration's environmental goals? Do we have a 
conflict of interest between the environment and affordable 
fuel for homeowners?
    Thank you, Mr. Chairman.
    Chairman Gilman. Thank you, Mr. Brady.
    Mr. Royce will be our last speaker, and then we will go on 
with the Secretary's testimony.
    Mr. Royce. Mr. Chairman, I appreciate that. We have heard a 
defense of the Department of Energy after the disastrous 
guarding of our nuclear secrets, after we have seen the 
inability of the Energy Department to formulate an energy 
strategy. And let me just say this for the record, it is not 
for the lack of spending. We spent $17.8 billion over in the 
Department of Energy. Is this really the record we wish to 
defend?
    The answer which we have heard here is to raise taxes, to 
spend money on new subsidies for alternative fuels. The world 
is awash in oil reserves, and it is a matter of using our 
diplomatic clout to increase production out of OPEC, and yet 
what we have here is a call for more funds into the Department 
of Energy.
    I just want to share with you my observation. This 
administration has been able to push up the gas taxes to the 
point where they are 60 cents a gallon State and local. That is 
the hit now. I just want to share with you the words, a quote. 
``The United States should start by gradually imposing a higher 
gasoline tax, hiking it by 1 or 2 cents per month, until 
gasoline costs $2.50 to $3.00 per gallon, comparable to prices 
in Europe and Japan.'' That is what Paul and Ann Ehrlich said 
in their book, and this is what Vice President Gore said. The 
time for action is due and past due. The Ehrlichs have written 
the prescription.
    Now, it was Vice President Gore who was the chief advocate 
of the energy tax, arguing it was good for the economy, good 
for the environment, and I would urge you to read George 
Stephanopoulos' book ``All Too Human'' about that. This 
administration has pursued this goal. What we would like to do, 
what the Chairman of this Committee would like to do, is get 
some focus on the question of OPEC and getting some leverage on 
OPEC to break that cartel. I would just like to say as Chairman 
of the Africa Subcommittee, I have listened to the Nigerians 
explain that they would like to double their production of oil. 
I think it would be wise for the administration to get behind 
that effort. You know, new technology is allowing for deeper 
offshore drilling. West Africa is one of the top regions for 
oil prospecting. Frankly, their known reserves dwarf anything 
in the Caspian Sea.
    We need to have a focused energy policy on breaking up this 
OPEC cartel and taking those countries that want to develop 
more production on their reserves and encouraging them to do 
so. I hope we end today's hearing with some commitment that we 
will focus on the pieces of legislation that the Chairman of 
this Committee has introduced in order to try to go after that 
OPEC cartel and break it up.
    Thank you, Mr. Chairman.
    Chairman Gilman. Thank you, Mr. Royce.
    Mr. Menendez.
    Mr. Menendez. Thank you, Mr. Chairman. Mr. Secretary, let 
me first say I was appalled at how the head hunters over at 
Mount Olympus, which is the Senate, treated you. We, however, 
have a different view. We understand and recognize your service 
here in the House of Representatives. We recognize your service 
as our U.N. Ambassador, and we recognize the tough issues you 
are facing in the Energy Department and want to give you the 
opportunity to fully explain those issues as they develop. So 
we appreciate your service, and I want you to know that.
    On this issue, let me just say that as we enter the summer 
season gas prices are of great concern; but I am even more 
concerned about home heating oil costs this coming winter. The 
current inventory of home heating oil on the East Coast is 40 
percent lower than at this time last year.
    Mr. Chairman, this is not the first time we are having this 
discussion. Many of the steps we can take are already before 
us. Certainly OPEC should be persuaded that collusion now in 
the effort to gain high prices in the short term could come 
back to haunt the cartel in the long term. This country should 
not be underestimated in its ability to develop alternative 
energies if we work toward them.
    The Vice President's announcement this week of a bold new 
energy policy should be read as a welcome sign to America's 
consumers and a warning sign to OPEC's producers.
    I have joined a large number of my Democratic colleagues in 
calling for urgent action on several fronts.
    We have asked the Federal Trade Commission to expedite its 
investigation into price gouging on the part of the oil 
companies. Major oil companies have nearly tripled their 
profits as a result of these price increases, from $4.5 billion 
in profits in the first 3 months of 1999, to more than $12 
billion in the same period this year. We have also urged the 
leadership in Congress to unblock efforts to renew the 
Strategic Petroleum Reserve, and once given that authority, we 
hope the President will release or exchange some of reserves 
from the SPRO.
    Finally, we call again on Congress to authorize the 
Northeast Oil Reserve as passed by the House but languishing in 
the Senate.
    Lastly enough, let us not forget, Mr. Chairman, that the 
leadership of this Congress shares a responsibility to act now. 
The Republican leadership has failed to provide Americans with 
energy securities. It has failed to reauthorize the Strategic 
Petroleum Reserve. It continues to send Alaskan oil to Japan, 
despite our current domestic price hike, and, most damaging, it 
has failed to fund research and development into alternative 
fuels and energy efficiency.
    In fact, over the past 5 years, Republicans in Congress 
have funded only 12 percent of the administration's request for 
new investments in renewable sources of energy and energy 
efficiency initiatives. This measly and irresponsible level of 
funding has been nearly $2 billion short of the Clinton 
administration request. I don't think it is appropriate to 
claim here that today the administration has no energy policy. 
Republicans have not only failed to build up the Strategic 
Petroleum Reserve when fuel was cheap, but before we faced this 
conflict and the difficulties we are having now, they proposed 
getting rid of the Energy Department and selling off the 
reserve, policies that would have been extremely detrimental if 
carried out as proposed.
    When they are not trying to abolish the Department, they 
are starving it. So if we allow the oil companies a slight 
reduction in price, settling at still higher than necessary 
prices, we may very well affect our surplus forecasts for the 
future.
    So, Mr. Secretary, I hope when we are finished here at the 
end of the day, we can agree on taking some steps now, action 
now, here in the Congress now, hoping the Republican leadership 
will put their actions against their words, so that the 
American economy and American consumers this summer and this 
fall will have some relief before we face a winter of 
discontent.
    Thank you, Mr. Chairman.
    Chairman Gilman. Thank you, Mr. Menendez.
    Ms. McKinney.
    Ms. McKinney. Thank you, Mr. Chairman. I would like to join 
my colleagues in welcoming the Secretary to our hearing today, 
and I am glad that the Secretary is not going to be the 
punching bag, but it sure sounds like he has been so far.
    I have some concerns that I would like to express. My first 
concern, Mr. Secretary, is that it appears that the old 
Standard Oil Trust is reassembling itself and we are being 
supported with repeated mergers and consolidation, and that is 
happening on our own shores and not thousands of miles away. I 
haven't heard much of an outcry about that.
    Also, Mr. Secretary, I am concerned at reports that have 
been produced saying that oil prices as high as they are, 
gasoline prices as high as they are, are higher in black and 
minority neighborhoods than they are in white neighborhoods, 
probably a new manifestation of driving while black.
    I am also concerned, Mr. Secretary, that racial 
discrimination and racial harassment at Savannah River site. 
The poor employees have to foot their own legal bills when they 
fight back, but the multibillion dollar Westinghouse 
Corporation can tap taxpayer funds and fight the employees. 
There we have got situations where, such as an example, where 
one black employee was surrounded by white coworkers who were 
dangling nooses, and yet the Westinghouse Corporation can 
proudly say they are going to use taxpayer funds to defend 
themselves when black employees try to fight back.
    I am also concerned that oil companies have given hundreds 
of thousands of dollars in campaign contributions and probably 
no telling how much they have given to these 527 organizations 
that have no disclosure requirements whatsoever, and, quite 
frankly, they have given more money to George Bush than they 
have given to Al Gore, although I do have problems with Al 
Gore's association with Occidental and in Colombia as it 
affects the U'Wa people.
    Finally, I would just like to say I think it is a travesty 
that given what is happening in the oil industry, that we don't 
have anyone from the oil companies here at this hearing today. 
But I do want to welcome the Secretary.
    Chairman Gilman. Thank you, Ms. McKinney. Again, I want to 
remind you, we will be conducting a further hearing in the near 
future with our oil company experts here.
    Mr. Manzullo.
    Mr. Manzullo. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. We were here several months ago and 
I asked the Secretary what the administration's policy, if any, 
would be toward an international criminal conspiracy, where 
people got together and decided to fix the price of oil, where 
if that had been done by domestic companies, those people would 
have been jailed. The Secretary advised that diplomatic talks 
were under way, and that is about the best that he could give 
us. That may be about the best that the Secretary can give us, 
absent the clear direction from the President or from the 
United States Congress.
    I guess what bothers me is that I represent an area, one of 
whose counties is in the Chicago Metropolitan Area, where the 
price of gasoline is $2.50 a gallon. This hurts farmers, this 
hurts the trucking industry. These costs are being passed on to 
the consumer and were it not for the fact that the costs of 
energy is excluded from the core index for inflation, it 
probably would be reflected in higher interest rates, which in 
fact may be the case if in fact the Fed decides to raise those 
interest rates. Maybe they will ignore the core index rate and 
take energy into consideration. Let's hope not.
    I think what bothers me more than anything is an attempt to 
try to get to the cause of the problem. The Congressional 
Research Service says that 48 cents of every dollar increase in 
gasoline is attributable to OPEC, 25 cents for every gallon is 
attributed to the energy policy of the administration, and 
prior administrations, on the new formula for gasoline to be 
used in non-attainment areas, and 25 cents per gallon is a 
probable distribution caused by the new mixing. That is at $1 
per gallon. We have three reasons here to go after OPEC and to 
make EPA accountable.
    But I just want to add this: The people who have tried to 
make this political, and Ms. McKinney talked about it, is that 
the Vice President's portfolio of Occidental has doubled in 
value from between $250,000 and a half a million, to half a 
million to $1 million as a result of his being influential in 
privatizing some oil fields that were formerly owned by the 
Federal Government.
    So the axe goes both ways in this situation. But I would 
say, not to politicize anything, let's ask the Secretary what 
his views on this proposed legislation are, because I think in 
all defense to the Secretary, absent clear direction from 
Congress and its administration, he is doing what he can under 
the circumstances and it has been very limited. The authority 
given has been very limited.
    Thank you.
    Chairman Gilman. Thank you. We would like to ask the 
Secretary very shortly what his views are. Mr. Delahunt will be 
our last speaker. I have been told that the Secretary must 
leave us by 12:30. Mr. Delahunt.
    Mr. Delahunt. Thank you, Mr. Chairman. I will be very 
brief. To pick up on the observation by Mr. Manzullo regarding 
his desire not to politicize it, despite the fact he did make a 
reference to the Vice President and his holdings in Occidental, 
I think in response to that it behooves me to enter into the 
record the fact that while Vice President Gore has accepted 
$100,000 from oil and gas PACs, in fact the campaign of 
Governor Bush has accepted in excess of $1.5 million from oil 
and fast PACs. I think it is important to set that record 
straight so that we can have a context here.
    While this hearing is entitled OPEC policies, I can't 
believe that OPEC's policies in and of themselves, unless the 
major oil companies in this country are part of OPEC, and 
maybe, Mr. Secretary, you can amplify the relationship between 
the oil companies and OPEC for our benefit. But I simply can't 
believe that the cost of home heating oil and gasoline at the 
pump is totally unrelated to the fact that in this quarter, the 
first quarter of 2000, as compared to 1999, the profits for 
these following companies has increased by these percentages: 
Texaco, 473 percent, over 1999, the same quarter; Conoco, 371 
percent; BP-Amoco, 296 percent; Chevron, 291 percent; Phillips, 
259 percent; ARCO, 136 percent; Shell, 117 percent; and Exxon-
Mobil, 108 percent.
    I just thought I would read those figures into the record 
to provide some context. I yield back.
    Chairman Gilman. Thank you, Mr. Delahunt. We are pleased to 
welcome the Secretary before us today. Mr. Richardson is, of 
course, well-known to all of us. For eight terms as a 
Congressman, he represented the Third District of New Mexico, 
and from 1997 to 1998 Mr. Richardson ably served as our 
Ambassador to the United Nations. In August 1998, Mr. 
Richardson was sworn in as our ninth Secretary of Energy. He 
has also served as the President's special envoy to many of the 
world's troubled areas.
    I am pleased to welcome Secretary Richardson today as the 
leading energy troubleshooter. Mr. Secretary.

    STATEMENT OF THE HONORABLE BILL RICHARDSON, SECRETARY, 
                      DEPARTMENT OF ENERGY

    Secretary Richardson. Mr. Chairman, Members, thank you very 
much for your very gracious and supportive comments that many 
of you made. Let me just start out with hopefully what we see 
in the short term as good news, but we can't yet call this a 
trend. But heading into the 4th of July, this is good news, and 
hopefully, and I said hopefully, we are turning a corner on 
gasoline prices.
    We are examining a trend in the last week. Nationally 
conventional regular gasoline dropped 3 cents. In the Midwest 
conventional regular gasoline dropped 7 cents. In the Midwest, 
reformulated gasoline dropped 12 cents to $1.88 in the last 
week. Prices are still unacceptably too high. We are working 
vigorously to bring them down, and my main message here is that 
we have to do this in a bipartisan fashion, that we need to 
take some steps and the Congress needs to take some steps, and 
we have to resolve these problems together.
    Mr. Chairman, any actions we take in the Clinton-Gore 
administration on energy are based on a number of steadfast 
principles. This is what they are.
    Number one, market forces, not artificial pricing.
    Number two, diversity of supply and strong diplomatic 
relations with energy producing countries.
    Number three, improving the production and use of 
traditional fuels through new technology development.
    Number four, diversity of energy sources with long-term 
investment in alternative fuels and energy sources.
    Fifth, increasing efficiency in the way we use energy.
    Lastly, maintaining and strengthening our insurance policy 
against supply disruptions, and that is the Strategic Petroleum 
Reserve.
    Mr. Chairman, I addressed to you in the spring what I 
thought was a very productive hearing regarding actions by the 
administration to counter tight markets, low worldwide oil 
stocks, and gradually increasing prices. At that time we were 
taking specific actions to address an untenable imbalance 
between supply and demand, one that risked negative 
repercussions in the world economy.
    We continue to believe that markets should set prices, but 
while we import 22 percent less oil from OPEC today than we did 
around our last gas crunch, which was in 1977, it remains clear 
that actions by major oil producing nations still significantly 
affect oil supply.
    That is why this spring I spent a great deal of my time 
talking with energy ministers and leaders from the oil 
producing nations, Saudi Arabia, Kuwait, Mexico, Norway and 
Venezuela, often getting great criticism from one side that I 
wasn't tough enough, from the other side that we were too 
pressure oriented. Each of these nations is well aware of the 
special economic and energy relationships between their country 
and the United States, as well as to other importing countries. 
Each of these nations agrees that stability is our common goal 
and that volatility in the oil markets is undesirable.
    We met with some success at that time. In February, all 
OPEC governments were quoted as saying that production 
increases were unnecessary. But, on March 28th, OPEC announced 
their decision to increase production and other producers 
joined them. We saw some trimming of crude prices then and some 
slight easing on gas prices. They did go down for a while. But 
very low stocks and soaring demand have boosted prices still 
higher since that increase. So I have continued to keep 
producing nations abreast of our situation and made our 
position clear. With prices staying high since spring, we 
needed to do more. I urged OPEC to keep an open mind.
    Now, it is worth remembering that OPEC is a consensus 
organization and not all governments in OPEC are friendly 
toward the United States. Still, the consensus that came about 
when the OPEC leaders met in Vienna, Austria, last week, 
increases output by roughly 3 percent, about 708 million 
barrels per day, and Mexico will provide an additional 75,000 
barrels a day, Mexico being a non-OPEC country. We also 
anticipate an additional small increase from other non-OPEC 
producing countries soon.
    Overall, we believe that OPEC's decision is a testament to 
the fact that those governments responded to the concerns that 
we raised. While this recent lift is modest, it is an important 
step. Mr. Chairman, since this time last year, we have seen a 
nearly 3.5 million barrel per day increase in production. This 
is substantial and it is not only good for America, but it is 
good for Asia, Europe, and all the world economies.
    I am pleased to report that in the past week, as I said, we 
have seen some positive movements in the market, this based 
from the Energy Department's Energy Information Administration, 
reporting, as I said, that conventional regular gasoline has 
dropped 3 cents per gallon over the past week nationwide and in 
the Midwest, where we are seeing very high prices, EIA sees a 
drop of about 7 cents per gallon on conventional regular. 
Reformulated gas is down 12 cents a gallon in the Midwest. We 
can't yet, as I said, call this a trend, but heading into the 
4th of July this is good news.
    But we are still not seeing the greater price decreases, 
both per barrel of oil and per gallon of gas that we might have 
hoped for. The reason for this is quite simple: Demand. The 
world's thirst for oil is steadily rising. Other than 1997, the 
second quarter of this year may show the strongest year-over-
year growth, 2.1 million barrels per day, ever. When combined 
with our need to build inventories from historically low 
levels, enlarging supply increases of 3 million barrels per day 
are not enough, and demand will continue to grow. We need to 
encourage methods to temper that need.
    We are not relying on other governments for those answers 
and certainly not to ensure our energy security. As I 
mentioned, our Nation has a firm energy policy that serves as a 
foundation ensuring that we have the energy resources we need. 
Beyond that policy, the administration has also made some 
aggressive short-term moves to cool off particular hot points.
    You remember that we had a heating oil shortfall in the 
spring. In response, the President released almost one-third of 
a billion dollars in funds in the spring so that low income 
households could pay their heating bills. He asked for $600 
million more in low income housing energy assistance funds, and 
the President is seeking an additional $19 million from 
Congress for low income home weatherization.
    We addressed the issue of supply through increased support 
for tankers, small business loans for distributors and other 
small businesses impacted by high prices, and encouraged 
refiners to increase production. We also reestablished an 
Office of Energy Emergencies at the Energy Department to 
coordinate with the States and other Federal agencies regarding 
any energy-related crisis. This move is helping us right now as 
we assess the demand for power during a very hot summer.
    We are also seeking to turn around domestic production of 
oil, developing alternative sources of energy, and increase 
energy efficiency. In energy efficiency, one of our most 
exciting prospects is our work in the Partnership for a New 
Generation of Vehicles, PNGV, where we are looking to develop a 
car that will get 80 miles per gallon. While Congress has 
eliminated all our funding for PNGV via a recent amendment, we 
remain committed. We need your help on this.
    You have likely read of the new release of Honda's Insight, 
which is nearing our 80 miles per gallon target. These vehicles 
are not just of the moment, they will be part of the lasting 
solutions we can commit to today for tomorrow. We are also 
looking to help independent oil producers test new production 
technologies and give a hand to small producers in existing 
fields, and we are helping refiners deal with the new EPA tier 
2 rules through our ultra clean fuels program.
    I think, to the Congressman that talked about domestic 
production, we are interested in marginal well relief for small 
independents, for GNG expenses, steps we think are important 
for domestic oil and gas producers. But still we remain 
concerned about oil supplies. There is significantly more oil 
on the market today than there was prior to OPEC's March 
meeting, and domestic production is turning around. But we need 
to ensure that supply is sufficient enough to meet demand and 
to build stocks, both worldwide and here at home.
    This will help the market operate within a comfortable 
margin of safety for the remainder of the year. Still, facing 
the imminent 4th of July weekend, America cannot declare 
independence from the gas pump. This is peak driving season and 
refineries in the U.S. are already operating at 96 percent 
utilization and at 99 percent in the Midwest. When levels are 
that high, it clearly indicates that demand is the driving 
factor.
    So I don't think that the production boosts are going to 
immediately push prices lower, but I think we are close to 
turning the corner. We remain very concerned about gasoline 
prices in the Midwest, especially around Chicago and Milwaukee. 
President Clinton is very concerned about this and there is no 
question, drivers in those cities and other parts of the 
Midwest are angry. We are looking for solutions, but questions 
remain.
    While we did have a regional pipeline problem in the spring 
that left supplies hobbled, our experts are talking to the 
Environmental Protection Agency to see what we can do in the 
near term to bring some relief to consumers. While there was 
some easing of prices at the pump in the past few days, as I 
mentioned in the opening, the FTC, the Federal Trade 
Commission, continues its investigation of pricing practices in 
the region, probing for unfair or illegal activity. We hope to 
hear from the Commission sometime this July.
    We took several other steps, Mr. Chairman, in the past 2 
weeks to meet some rather unexpected issues. On June 15th, I 
ordered a limited exchange of crude oil from the Strategic 
Petroleum Reserve's West Hackberry site, the two refineries, 
after a commercial dry dock collapsed near Lake Charles, 
Louisiana. Our response came within hours and shows our 
commitment to responding quickly. The Army Corps of Engineers 
has since worked overtime to dredge a new channel so oil 
traffic is moving once again. When there was a pipeline problem 
near St. Louis, we granted a waiver that postponed 
implementation of the new EPA rule on reformulated gasoline 
until the problem was solved.
    But there is still more that we can do together to get 
relief to consumers, and these are the kinds of long-term 
solutions we need to embrace, to ensure that we get out of 
lasting cycles with prices pegged at one extreme or another.
    Last week President Clinton sent a letter to the Senate 
majority leader and the Speaker urging that the Congress work 
with us to enact the President's energy proposals without 
delay. One central component of the President's energy 
initiative is a $4 billion tax package of tax incentives to 
encourage domestic oil and gas production and for consumers to 
purchase more efficient cars, homes and consumer products. This 
package has languished here on the Hill for 2 years.
    The President has also consistently asked for increased 
investments to meet our energy needs. In the fiscal year 2001 
budget, the President proposed a $1.4 billion investment for 
Energy Department programs and energy efficiency, renewable 
energy, natural gas, distributed power systems. We need the 
Congress to support these critical goals. Unfortunately, it has 
approved only 12 percent of the increases over the past 7 
years.
    We are also concerned about the deletion in the fiscal year 
2001 budget for energy efficiency below last year's level. As I 
mentioned, a recent House amendment cut virtually all of the 
Department's funding for the Partnership for a New Generation 
of Vehicles, where we work with the Big 3 to develop more fuel 
efficient cars.
    The House has added a rider to the Transportation 
appropriations bill prohibiting the Department from even 
studying increases in CAFE standards. We have also had perhaps 
what we consider the most harmful action, delaying extending 
the Energy Policy Conservation Act, which authorizes two 
programs at the core of our Nation's energy security. I know 
the House has acted, but it is still languishing, and that is 
the Strategic Petroleum Reserve and our participation in the 
International Energy Agency.
    Mr. Chairman, the Strategic Petroleum Reserve authorization 
expired on March 31. We need to work together to get this done. 
The President also submitted a comprehensive electricity 
restructuring bill 2 years ago. We have not enacted a bill with 
the latest failure last week in the Senate when they failed to 
report comprehensive legislation.
    To better ensure our energy security this last year, the 
President also has called for the establishment of a Regional 
Home Heating Oil Reserve in the Northeast. Mr. Chairman, we 
need action on this because we are concerned about stocks of 
home heating oil. We are talking about 2 million barrels. We 
are talking about a modest effort, only to be used for 
emergencies, and we are concerned about those supplies.
    We also need a replenishment of the Low Income Energy 
Assistance Program emergency funds which we needed to tap 
during the heating oil shortfall last year.
    In conclusion, Mr. Chairman, we simply cannot ensure 
America's energy security with such a lacking commitment to its 
energy future. We have to act expeditiously together. I would 
urge the Congress to act so that we can establish the Home 
Heating Oil Reserve in time for next winter. Nobody wants to 
see people in the Northeast next winter debating whether they 
can afford to eat or stay warm. It is a devil's choice and 
Americans should not have to live that way.
    Mr. Chairman, we have viable options before us to improve 
America's energy security and do so in ways that are cleaner 
and more economical than ever before. I appreciate again this 
opportunity to explain to you what I have done as energy 
Secretary to bolster that confidence. I again thank every 
Member here for their courtesies and I urge the Congress to 
work with us to do its part and act on the critical energy 
proposals before us. Thank you.
    Chairman Gilman. Thank you, Mr. Richardson. Because of the 
very short time remaining for the Secretary's appearance, I am 
going to ask our Members to cooperate and to limit their 
questions to 3 minutes each so that each Member may have the 
opportunity to be heard. I will be calling on those who have 
not had an opportunity to make an opening statement first 
before we get on to the entire list.
    Mr. Secretary, the Congressional Research Service issued a 
paper earlier this month on the very sharp rise of gas prices 
in the Midwest and noted the gasoline prices nationwide had 
increased 60 cents a gallon over the past 18 months, with 48 
cents of that increase attributable to higher crude oil. Do you 
agree that OPEC and its member states have been playing the 
decisive role in our domestic energy price crisis?
    Secretary Richardson. Mr. Chairman, we agree with the 
Congressional Research Service that high crude prices are a 
factor, but we also believe that transportation problems, 
refinery problems, high demand, low inventory contributed to 
these Midwest price spikes. We also agree that RFG costs 5 to 8 
cents more than conventional gas. We don't agree in that report 
that ethanol RFG accounts for 25 cents of the 48 cents price 
differential between RFG-2 and conventional gasoline.
    We could not totally account for the price differential 
after we did a supply assessment, and this is why we asked for 
an FTC investigation. In other words, we believe the causes are 
higher demands in the Midwest than the national average, 3 
percent compared to 1.6 percent; gasoline inventories were low 
going into the summer driving season, 15 percent lower than 
last year; thirdly, as I said, RFG-2 was introduced into the 
Milwaukee-Chicago markets, and then there was a pipeline 
problem, the Explorer pipeline in the Chicago-Milwaukee area 
contributed to a loss of 60 million barrels.
    The main question that needs to be answered is why is there 
such a high price differential between conventional gasoline 
and reformulated gasoline. We believe that pollution 
controlling devices do not cause that price spike. Yes, it is 
maybe 3 or 4 cents more, but 30 cents? And this is why the 
Federal Trade Commission is investigating. They should have a 
response by the end of July. The oil companies have some 
explaining to do, the refineries have some explaining to do. 
But, again, let's await the results of this investigation.
    But all of these factors, Mr. Chairman, should not be 
attributed solely to the price differential that has occurred.
    Chairman Gilman. My time has expired.
    Mr. Gejdenson.
    Mr. Gejdenson. Thank you, Mr. Chairman. Mr. Secretary, we 
look at the estimates in the Northeast to be 22 percent below 
last year's level for home heating oil. Any kind of cold snap 
at the beginning of the year could be deadly if people's houses 
catch fire as they turn to alternative heating, obviously the 
result of really cold homes. I would hope that you would 
continue to press this Congress to get that Home Heating Oil 
Reserve established in the Northeast. This is a life and death 
issue.
    Secondly, I think that the investigation of the oil 
companies, we haven't seen the second quarter profits yet, but 
my sense is they are going to be even larger than the first 
quarter profits of almost 500 percent increase over the year 
earlier. You have got to use your bully pulpit and stay after 
them, just like you stay after OPEC.
    The last thing I would say is again that swap or sale, you 
have got a $6 difference between the spot market and the 
futures market. You ought to pump that out. Even if the Saudis 
and everybody fulfill their commitment, there is a gap in 
getting it here. There is obviously a shortage that exists 
already. Get that product out from--you are going to make a 
profit--you can put more into the SPRO afterwards with the 
extra money you get, so you can end up with more oil in SPRO. 
You could end up helping the supply problem.
    So I hope you take these messages very seriously. The only 
other question that I would have for you is what do you think 
the capacity is of non-OPEC countries for increased production? 
Mexicans and others, where do they stand, where do some of the 
major OPEC countries stand?
    Secretary Richardson. Congressman, first, I share your view 
about the Northeast reserve. We need this, and we need to work 
with you to make this happen. We are concerned about home 
heating oil in the Northeast. If we can work together to get 
this legislation passed, the House has passed it, it is tied up 
in the Senate, although I am informed there is an amendment to 
the Energy and Water appropriations today in the House, and I 
hope it gets the support, because what we are talking about, 
Congressman, is not an effort to deal with prices.
    We just want a regional reserve for the Northeast off the 
docks of New York and New Jersey. We can lease space. We don't 
have to build anything. Two million barrels for emergencies, 
for emergencies, not for pricing. We worry about what might 
happen in the Northeast. We also had some difficulty getting 
some reprogramming funds to get it moving, about $8 million. We 
need your help on that.
    Looking at what options the President uses, Congressman, 
for the future to deal with this problem, let me just say that 
we have to continue monitoring the gasoline situation. A big 
problem is low crude oil stocks and low gasoline stocks in this 
country and worldwide, too. Unusually high demand. This is 
happening right now. We are hopeful that there will not be any 
more refinery or more pipeline problems. Transportation 
problems you cannot always account for, but we are working on 
this.
    Your last point----
    Mr. Gejdenson. The last point was on the OPEC nations and 
non-OPEC nations. Are there particular countries that have 
capacity to pump more and are some countries at capacity?
    Secretary Richardson. Most non-OPEC countries, Congressman, 
are producing at capacity. We do predict small increases from 
non-OPEC countries. As I mentioned to you in March, Mexico 
announced that they would do 50,000 barrels more per day. In 
the last meeting in June, which just happened, they said they 
are going to do 75,000. Norway is another non-OPEC country that 
contributed 100,000 in March, and may be making a decision 
shortly about increased production in March. This is good, but, 
again, they have to go through their parliament.
    The other countries that were involved in increases in 
production, non-OPEC, one was Oman, and we don't know where 
they may be in this cycle, and Russia was another one. But 
basically most non-OPEC countries are producing at capacity.
    Chairman Gilman. The gentleman's time has expired.
    Mr. Chabot.
    Mr. Chabot. Thank you, Mr. Chairman. Mr. Secretary, 
consumers in my district, Cincinnati and throughout the 
Midwest, are getting gouged, or perhaps I should say gored, at 
the gas pumps. Working families are being priced off the 
highways. Small businesses are feeling the squeeze. Frankly, 
your administration is rapidly losing credibility.
    In February, when our constituents felt the first major 
spike in gas prices, you said, ``It is obvious that the Federal 
Government was not prepared. We were caught napping. We got 
complacent.''
    Now it is late June and those taxpayers are still waiting 
for relief. Many of my constituents have asked me if there 
isn't something the Clinton administration can do when it 
engages in dialogue with the price fixing oil cartels. After 
all, it hasn't been so long ago that American servicemen and 
women laid their lives on the line for some of those oil 
producing nations that are now threatening our economy with 
cutbacks and production and higher prices.
    I have to ask the same question: What goes on at those 
meetings? I note that you traveled to Saudi Arabia in February 
1999, oil was then selling for $12 a barrel. In March you went 
to the OPEC meeting in Vienna, the price jumped to $14.68 per 
barrel. In July, you hosted the Western Hemisphere Energy 
Ministers Conference, and the cost of a barrel of oil soared to 
$20. In August a trip to Nigeria, $21 a barrel. By December 
1999, when you hosted the African Energy Ministers Conference, 
the price went to $26 a barrel. After you traveled to Saudi 
Arabia, Kuwait, Mexico, Norway and Venezuela in February of 
this year, the price of oil rose to nearly $30 a barrel. 
Apparently whatever our government was doing during those 
meetings wasn't working very well.
    Do you think it is perhaps time for the Clinton 
administration to take a different approach? Do you think 
perhaps we can send a strong message to the price fixing oil 
cartels that we take a dim view of this criminal behavior and 
that our President will finally respond to this crisis by 
exercising the power he has as chief executive? Can we tell 
them to look elsewhere for assistance, perhaps in the area of 
arms sales?
    Mr. Secretary, the working people of my district in 
Cincinnati and all over the Midwest and in fact all over the 
country are growing angrier by the day. They want their 
government, the government they pay for, to lend them a hand. 
The time for complacency is over.
    Would you care to comment?
    Secretary Richardson. Congressman, I do really care about 
your constituents. This is an agonizing problem for all of us. 
Let me just talk about OPEC, because there are a lot of Members 
here that have a lot of negotiating experience. This is the 
International Relations Committee. We are always very firm with 
OPEC. When we started out in this effort, OPEC was not going to 
increase production. In March they went close to 2 million 
barrels per day. They were not going to increase production 
this last time and they are close to 800,000 or 900,000 barrels 
per day. What we say to OPEC is what the international 
community needs is stability. There is too much volatility. A 
good American economy is good for everybody. The developing 
world, Asia, Europe needs price stability and prices are too 
high.
    Now, when I went out to those nations that you mentioned, 
it was very visible, and I was criticized on the one hand for 
being too visible and pressuring, and on the other hand for not 
being strong enough, and I think using some of the measures 
that Congressman Gilman and others have advocated. OPEC did 
increase production, so whatever actions we took worked.
    Now, that is not sufficient. We have got some gasoline 
problems in the Midwest that I have outlined, gasoline supply 
and demand problems. There are problems relating to pipelines. 
There are problems related to refineries. There are problems 
related to low stocks, increased demand. And I think, 
Congressman, what we are looking at in your region is why is 
there such a high price differential on conventional and 
reformulated gasoline, while in some districts of some of your 
colleagues prices are substantially lower? I think we have to 
get at the facts.
    I believe our policy of engagement with OPEC is working. 
Now, let me just tell you a little bit about OPEC, and you know 
this very well. There are some countries there in OPEC that we 
don't have strong relations with, Iraq, Iran, Libya. There are 
other countries that we have strong relations with, Saudi 
Arabia, Kuwait, Venezuela, Nigeria--I know Congresswoman 
McKinney has been there--Indonesia. OPEC operates by consensus, 
and I engage them, every minister, intensively. I did not 
travel this last time, but telephone incessantly, making our 
case, saying ``keep an open mind,'' and we think the results 
were positive. They were modest, but positive.
    Now, everybody here knows that you want to work with your 
friends in an institution like that where you have nations that 
don't want to increase production, that like the prices high, 
and what we are doing is trying to find ways that you balance 
your diplomatic efforts.
    My point, Congressman, is I think our diplomatic efforts of 
quiet diplomacy, engaged diplomacy are working. There are other 
factors we need to deal with too. That doesn't mean we don't 
continue dealing with OPEC. It is better to engage them in a 
way that produces results, and we believe that we can have some 
in their September meeting. You know, playing it cool, working 
with them, we can continue the progress we have made.
    Congressman, I think that in Cincinnati you were affected 
by that pipeline I mentioned, the Wolverine pipeline. You get 
conventional gasoline there, as I understand it. That pipeline 
problem was one of the reasons for this disruption.
    Chairman Gilman. The gentleman's time has expired.
    Mr. Chabot. If I could just respond, we don't have 
reformulated gas. We were affected by that pipeline.
    Chairman Gilman. Ms. Danner.
    Ms. Danner. Thank you, Mr. Chairman. Welcome, Mr. 
Secretary. I would like to follow through on two questions 
based on what my colleagues have talked about. You talked about 
``an anticipated increase in output from some of the non-OPEC 
countries.'' I am particularly interested in Russia, because we 
have talked about all we have done for the OPEC countries with 
regard to the Gulf War, but let's talk about the fact that we 
are sending literally tens of billions of dollars into Russia, 
according to the Congressional Research Service.
    What particularly is Russia planning to do to increase 
their output? They certainly have the supply and availability.
    Secretary Richardson. Congresswoman, Russia has enormous 
resources. The problem with Russia is not that they don't want 
to do it, they have some infrastructure problems. We are trying 
to get Russia to engage in more production sharing agreements 
with American companies, with Western companies, so that they 
can increase their production. So their production capability 
is the problem. It is not a lack of will.
    I think in the years ahead, you will see Russia concentrate 
extensively on improving that productive capacity.
    Ms. Danner. I might say in all the years that I have been 
traveling between Kansas City, Missouri, and Washington, D.C., 
for the first time ever gasoline prices are less expensive in 
Shirlington than they are in Kansas City, Missouri. That is 
certainly something that has impacted my constituents, and that 
is the increase in gasoline prices. My husband tells me that 
last week overnight the prices went down 15 cents per gallon. 
The interesting thing, and one of the things that I have 
inquired of the FTC, and I hope that in your conversations with 
them you will pursue it too, is the interesting fact that I 
think we are talking about some collusion between the gasoline 
companies within areas. For example, if one of my--well, one of 
the gasoline stations located in my district raises its price, 
every price goes up throughout that area exactly the same 
amount overnight. It is almost as though they have a telephone 
tree. It seems strange to me that with different base prices 
based on real estate, co-branding, all of those things, that 
they all happen to have the same price to charge for all of my 
motorists.
    For those of us who live in the less populated part of the 
country, the Middle West, it is a surprise to me we are the 
ones with all the reformulated gasoline when the traffic here 
in the Washington area is certainly much more heavy than it is 
north of the river in Kansas City, Missouri.
    Secretary Richardson. Congresswoman, on that FTC 
investigation, they are going to be issuing subpoenas, and they 
expect to complete their action, at least the preliminary 
report, by the third week of July. Their objective is to find 
out the high price differential, as you mentioned, from 
reformulated and conventional and non-reformulated.
    The price differential, 30 cents, 40 cents, has caused 
significant questions to be asked, and the oil companies have 
not adequately explained it.
    Now, again, the issue of price fixing will be examined. 
That is the purpose of this.
    Chairman Gilman. The gentlelady's time has expired.
    Mr. Salmon.
    Mr. Salmon. Thank you, Secretary Richardson, it is good to 
have you here today. We are neighbors from the same part of the 
country. Actually I lived in New Mexico for 4 years, 4 of the 
best years of my life.
    It is interesting, about 15 months ago my constituents and 
your former constituents, I guess they are always your 
constituents, were really getting gouged at the gas pumps. In 
Arizona the price of a gallon of gas went up about 35 percent 
over the course of 2 weeks, and 15 months ago I started calling 
for hearings. It fell on deaf ears, Mr. Chairman. Nobody even 
wanted to talk about it 15 months ago.
    Then a strange thing happened, and I think you have seen 
the same phenomenon. When the Northeast started feeling like it 
was getting gouged, then there was a big hue and cry and 
everybody wanted to take a look at this thing. One of the 
interesting phenomena, what a difference a day makes.
    But I really believe if we had been ahead of the curve 15 
months ago and started these hearings back then when I started 
to call for these hearings, maybe we could be on top of this 
thing by now.
    I found myself being very, very frustrated with the way 
that we all in government have handled this situation. A month 
or so ago, a couple months ago, the House passed a measure 
which I think would have been about as beneficial as a Hallmark 
card to send to the OPEC countries and tell them how 
dissatisfied we are with what is going on, because I don't 
really feel it had any teeth. But we had an opportunity to put 
some teeth in it. One of the ideas that I was planning on 
including, had the bill we passed really had some teeth, was to 
give the President the power of seizing the assets of those 
OPEC nations if we found out that price fixing was occurring.
    Could I get your comments on that, and if that isn't 
something we could look at doing, is there anything else that 
we in the Congress can give the President so that he has more 
tools in his tool belt when it comes to dealing with these 
problems, because a lot of us really do believe in our hearts, 
even though we have not proven it yet, that there is some price 
fixing going on, and that there is some skullduggery going on 
with these OPEC nations.
    So what can we do for you guys to give you more arsenal to 
deal with these problems that we perceive are happening?
    Secretary Richardson.  Well, Congressman, let me first 
commend you, because you have been a leader on renewable 
energy, and that is very important. That is key to improving 
our energy security.
    Secondly, you are also, like I was, from the Oil Patch, and 
we have some initiatives, the President does, to help marginal 
well tax credits, oil producers, some of the small oil 
producers. Even though prices are high now, it still has taken 
them a long time to recover from when prices were $10 a barrel. 
Thus, regions in your part of the world and my part of the 
world, were hurting, because energy is so important.
    Congressman, I think the way you engage OPEC is through 
effective diplomacy. I believe we are doing that.
    Now, we can't support the Chairman's bill of sanctions. The 
second bill, I don't know if that is the one you are referring 
to, the Justice Department and State Department are reviewing 
it. Is that Chairman Gilman's bill, the asset bill?
    Mr. Salmon. It is the one we passed about 45 days ago, 30 
to 45 days ago, and I believe it was just a resolution.
    Secretary Richardson. Congressman, I would say that we 
would oppose that bill, because we believe in engaging OPEC. 
And if you look at the record, for instance, Saudi Arabia has 
been forthcoming. They have been leaders in increasing 
production. Kuwait has also, and I think Chairman Gilman 
effectively made a case with Kuwait earlier and was helpful.
    So there have been countries, Algeria is another country 
that has taken some surprising positive positions in increases 
in production. What we try to do with OPEC is engage them, 
convince them, make our arguments on economic grounds, not 
political grounds. It doesn't pay, I have found, to coerce or 
threaten, but to be forceful. As you know, a lot of OPEC 
countries were not happy when I made those visible trips and 
when I advocated very strongly for our position.
    This last time we took a more low key approach. But it 
still involved a number of telephone calls and quiet visits 
that took place. That is how I think we should deal with OPEC. 
OPEC is a reality. They are going to be around. As a nation, we 
need to reduce our reliance on imported oil. I think that is 
message number one. This is where, together, in a bipartisan 
fashion, we can deal with renewable energy and those tax 
credits and the Home Heating Oil Reserve and helping domestic 
oil and gas production.
    Chairman Gilman. The gentleman's time has expired.
    Ms. Lee.
    Ms. Lee. Thank you, Mr. Chairman. Let me also thank you, 
Mr. Secretary, for your forthright testimony and also for the 
success that you are having, though not complete success, but 
some success.
    Let me just ask you a couple of things. In your opening 
statement, you did mention the fact that prices have dropped in 
some parts of the country. I don't believe you mentioned the 
West Coast. As you know, on the West Coast we have had huge 
high prices for a couple of years now.
    Mr. Chairman, in fact I would like to insert in the record, 
I ask unanimous consent to put this GAO study on California 
gasoline price behavior.
    Chairman Gilman. What is the date of that?
    Ms. Lee. The date is April 2000.
    Chairman Gilman. Without objection.
    [The information referred to is in the appendix.]
    Ms. Lee. Thank you, Mr. Chairman. But let me just ask you 
in terms of the discrepancies, in terms of prices in California 
and the West Coast versus the rest of the country, we know 
California is really the third largest consumer of gasoline in 
the world behind the United States and Japan. Gas prices in the 
Bay Area, Oakland, San Francisco in particular, are higher than 
any area in the State, and probably in the country. So now we 
are still dealing with this, with no real relief in sight.
    Secondly, let me just ask you in terms of the explanation 
by the oil companies, have they actually explained to you a 
rationale for how they see the increase in prices, and do you 
see a correlation between their huge windfall profits and the 
soaring prices of gasoline and home heating oil?
    Secretary Richardson. Congresswoman, as you know, 
California has some particular features that probably occasion 
higher gasoline prices for consumers. Number one, there is 
higher State and local taxes, as you know, almost total taxes 
as much as 10 cents per gallon above the national average. This 
is in taxes.
    Number two, product quality. In other words, it costs more 
to make reformulated gasoline in California than it does--5 to 
8 cents per gallon more to produce, than conventional gasoline.
    Thirdly, the Rocky Mountain region, there is some 
transportation problems, some logistical problems, that have 
taken place that prices in the region have been more 
independent than in other regions.
    There has been some pipeline problems, specifically the 
shutdown of the Olympic pipeline that took place in June 1999 
because some gasoline markets in Washington and Oregon were 
also affected. So California has those particular problems that 
we have been trying to address. I have been out there and we 
are trying to find ways to reduce that gasoline price. There 
has been a slight drop, but, again, we are monitoring it very 
closely.
    Chairman Gilman. The gentlelady's time has expired.
    Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman. First of all, I want to 
say to my good friend Secretary Richardson, welcome. I remember 
our good times working on the Helsinki Commission together. I 
want him to know I have a great deal of respect for him.
    Let me just say, I also think you are trying to do a very 
difficult process. But let me just raise an issue, because I am 
deeply concerned that the administration, while you are pushing 
hard in one area, may be deeply conflicted on the issue of gas 
prices and the impact on my constituents in New Jersey and in 
my district. I hear about it all the time. People are 
concerned, they are paying more, they don't like it, and it is 
impacting upon their lives.
    We saw not so long ago a deep conflict on the issue of MFN, 
most-favored-nation status for China. There is a correlation 
here. When the linkage was there with trade and human rights 
during Mr. Clinton's first couple of years in the White House, 
there was a mega effort made by people inside the White House 
to delink. There was a conflicted White House. There were 
people, particularly in the Commerce Department, who had a 
decidedly negative and jaundiced view as to whether or not 
human rights ought to be linked. Sure enough, 1 year there was 
a total delinking and unraveling of that policy. I am afraid 
there may be a disconnect here as well.
    Having read Vice President Gore's book, Earth in the 
Balance, I have seen the quote, some of the people have quoted 
it today, but I have read The Population Explosion by Paul 
Ehrlich, I also read the previous book, The Population Bomb. It 
is a book of pseudoscience, extreme exaggeration, a book filled 
with worst case scenarios. As a matter of fact, I went back and 
looked at some of the things with The Population Bomb. They 
haven't happened. Yet that was used to drive policy for years 
and yet those worst case scenarios were nothing but worst case 
scenarios that didn't even come close to happening. Hyperbole 
like that is very dangerous when it has such an impact on 
policy.
    Now, in looking at The Population Explosion, there is a 
quote, and again I read the book, so I am very well acquainted 
with it, but one quote from it, ``The United States can start 
by gradually imposing a higher gasoline tax, hiking it by 1 or 
2 cents per month, until gasoline costs $2.50 to $3.00 per 
gallon, comparable to prices in Europe and Japan.'' That is on 
page 219 to 220.
    As we all know, the Vice President wrote the promo for that 
and said, ``The time for action is due and passed due. The 
Ehrlichs have written the prescription.'' if that is not an 
endorsement of higher gasoline prices, I don't know what is.
    I would just ask you respectfully, Mr. Secretary, can you 
not understand why reasonable people, looking at the Vice 
President's many uttered answers and writings on this, would 
not at least feel that the administration might be conflicted? 
You are pushing for lower prices, but there may be other people 
that say if it goes up, it goes up, it will be good for the 
environment. I will never forget how just his work was skewered 
by his writings. He had so much in written form that Members of 
the Senate could go back and look at it and say we don't like 
this opinion, we don't like that. I think we should be held 
accountable for what we say and for what we write. The Vice 
President has clearly made it clear that he would like to see 
higher prices as a way of mitigating consumption as an 
environmental issue.
    So why is that not unreasonable for those of us who look at 
those writings to conclude there could be a problem here?
    Secretary Richardson. Well, first of all, the Congressman 
is, as usual, awfully skillful, and I admire your work on human 
rights and diplomacy, and et cetera.
    The Vice President is making a speech today on his views on 
energy in Philadelphia, in fact, this morning. He may have 
already done so.
    This is what we want to see. We want to see tax credits for 
fuel efficiency, for spurring domestic oil and gas industry, 
for renewable energy. We want to see Federal investment in 
domestic sources of energy.
    I have not been necessarily in your district, Congressman, 
but I know the transportation problems, some of the truckers 
there. We need to really revive this partnership for a new 
generation of vehicles.
    I know that the Vice President cares about how we can make 
automobiles and trucks more fuel efficient, and still ensure 
that Americans have a free choice in buying them. I just heard 
today that SUVs, their sale has been dramatically increasing in 
the last 2 weeks, more than ever, the most-sold automobile. We 
want to see a more creative policy on natural gas, on 
distributed generation systems.
    Mr. Smith. That is what I know the Vice President believes 
in.
    Chairman Gilman. The gentleman's time has expired.
    Mr. Smith. The $3 deal, that is where we are heading.
    Chairman Gilman. Mr. Crowley.
    Mr. Crowley. Thank you, Mr. Chairman. I ask unanimous 
consent to revise and extend my remarks into the record.
    Chairman Gilman. Without objection.
    Mr. Crowley. First of all, let me welcome you, Mr. 
Secretary. Again, the more things change, the more things seem 
to stay the same. We were here last March, as you mentioned 
earlier, to discuss the issue of home heating oil. I would 
point out for my colleagues from the west and southwest the 
issue of home heating oil was of greater importance, in my 
opinion, because it was life and death in the northeast. There 
was concern people would not have the ability to heat their 
homes. I just make that distinction.
    I believe if our Chamber doesn't work together with the 
administration to solve some of the problems, we will be back 
here again next winter trying to figure out what we can do to 
reduce the cost of home heating oil as well.
    Gas prices in my district have gone up over 75 cents since 
last summer. I represent a working class district in Queens and 
the Bronx in New York City. They are working people, working 
class people, many senior citizens who are living on fixed 
incomes and fixed budgets. They are paying their mortgages, 
setting aside funds for their kids' education, and also 
attempting to save a little bit to go on vacation this year. It 
seems as though they may have to save a bit more now in order 
to do that. Therefore, I implore the Secretary, once again, to 
open up the SPRO, to provide immediate relief to my 
constituents. We all know what happened during the Gulf War 
when then-President Bush opened up the SPRO, it reduced the 
price of oil by $10 a barrel overnight.
    I am not going go into my comments about OPEC. I will leave 
those for the record as well. A lot has been stated already. 
But having stated that, I would like to address momentarily the 
partisan bickering that has taken place, not so much today. I 
have to commend my colleagues for not being as partisan today 
as they were last week, and not necessarily this House, but 
particularly the other chamber.
    While I disagree with the administration on their policy 
regarding the opening of SPRO, my Republican colleagues are 
wrongly, I believe, blaming the President and this 
administration for every problem under the sun. This 
administration has advocated the creation of a home heating oil 
reserve for the northeast, but my Republican colleagues refuse 
to fund that. There was no funding in the Interior 
Appropriations bill for a North East reserve. Additionally, an 
amendment offered by Rep. Sanders to provide $10 million for 
this reserve, failed 193 to 195 in the House.
    The administration continually worked for the 
reauthorization of SPRO, but again, the Republican Congress has 
blocked that as well. This President has worked for greater 
energy efficiency and alternative sources of power, all to see 
his work destroyed by the Republican majority in this House.
    Lastly, this Congress has voted yesterday to cut the 
funding for the Federal Trade Commission, the people who 
investigate price fixing here in the United States, by $30 
million from the President's request, and $10 million from last 
year's enacted appropriation. This Congress has been fiddling 
while Rome burns and then has called the President an arsonist.
    Mr. Secretary, I just have one question, because my time is 
actually out. In your opinion, why is it that we as a Congress 
have not reauthorized SPRO at this point in time?
    Secretary Richardson. Well, Congressman, my most urgent 
plea here is that regardless of anyone's position on whether we 
use the Strategic Petroleum Reserve or not, and there are 
arguments on both sides, we have hesitated to use it because 
the law says it should be an emergency supply disruption and 
not a price problem. But ultimately the President makes those 
decisions.
    We need the full authority to use the Strategic Petroleum 
Reserve, and we don't have it right now. We have limited use of 
it. As I mentioned earlier, I used it last week with a dry dock 
problem in Louisiana, and basically 500,000 barrels of oil were 
exchanged with some energy companies that dealt with the 
disruption. That was a swap.
    But we need that full authority. I am not going to ascribe 
any motives. I think there was some dispute because in the 
House, the home heating oil reserve was attached to it. In the 
Senate it was clean. There was some stripper well provision 
that I believe was in the House that was added that, quite 
frankly, we didn't think was that bad.
    My main point, Congressman, is we just need this SPRO 
authority passed, and the sooner you can do it, the better. I 
don't want to ascribe any motives, but the fact it is not there 
hampers our ability to deal with the potential problem.
    Chairman Gilman. The gentleman's time has expired.
    Ms. Ros-Lehtinen.
    Ms. Ros-Lehtinen. Thank you, Mr. Chairman. Thank you Mr. 
Richardson. First, following up on Mr. Smith's question, I 
don't think that we got a response on whether Vice President 
Gore has abandoned his commitment for higher gas prices in 
order to save the environment. I would like to get an answer to 
that. But I wanted to ask you also about the dismantling of the 
OPEC cartel, Mr. Secretary. With real oil prices at their 
highest levels since 1985, is the administration doing anything 
to put into place a long-range strategy for the dismantling of 
the OPEC cartel?
    The inability of OPEC to predict world demand for oil 
before and after the Asian financial crisis and its single-
minded focus on the importance of rising demand for gasoline in 
the U.S. has, yet again, clearly demonstrated that it cannot 
fulfill the purpose of this organization without damaging the 
interests of the consumer countries, such as us here in the 
United States.
    So please describe in detail, if you could, the efforts of 
the administration to show that its demand projections were 
flawed and its quota system was harmful to the global economy. 
Contrary to your statement, Mr. Secretary, OPEC has, I think, 
consistently failed to bring stability to the market. The Saudi 
oil minister, as you know, has admitted that OPEC was caught 
flat-footed by the revival of the Asian economy following the 
economic downturn in that region in 1998, and he has 
backpedaled on his earlier claims that demand for gasoline in 
the U.S. was the key factor in driving prices up, and OPEC, in 
short, is not capable of engineering a soft landing for oil 
prices.
    So if you could address those concerns, beginning with Vice 
President Gore, the dismantling of the OPEC cartel, and OPEC's 
commitment for stability.
    Secretary Richardson. Thank you for your nice opening 
words.
    Congresswoman, let me start with OPEC and then I will deal 
with the second issue. I remember going to Saudi Arabia when 
prices were $10 a barrel and there was great concern in Saudi 
Arabia, there was great concern in America's oil patch, in New 
Mexico and Texas, and in California and Arizona and many other 
States, Louisiana, because our domestic oil and gas industry 
was hurting.
    Our policy has been to say that $10 is too low, $30 is too 
high. It is now over $30, $31, I think, and we are saying it is 
too high.
    Now, given that, what has been our policy with OPEC? Our 
policy with OPEC has been to forcefully engage it. When they 
had the production cuts, we expressed strong concerns. We are 
against artificially set prices. We think the market should 
dictate.
    Now, the last two decisions OPEC has made to increase 
production we think is good for us and good for the world 
economy. We have advocated that. Our preference, Congresswoman, 
and you have been very successful in this arena too, is to 
forcefully engage them, to explain our position, not to coerce 
and pressure. And I believe we have been getting solid results.
    There are other factors: increased demand, the low stocks, 
the low stocks of gasoline, and crude oil that exist, pipeline 
and refinery problems, reformulated gasoline. All of these 
factors have contributed to the spike at a time when after OPEC 
took those decisions, you recall prices started going down.
    Now, on the second question, I have never read that book of 
the Vice President's. I can tell you that he wants to see an 
energy policy where there is a balance, where there is a 
balance for renewable energy, where there is a balance for 
economic growth. You know, he will outline his policy today. 
But, as I mentioned before, he has been very----
    Ms. Ros-Lehtinen. With all respect, the question had to do 
with the Vice President's commitment for advocating in favor of 
higher gas prices in order to bring a more liveable future for 
our generation?
    Chairman Gilman. The gentlelady's time has expired. The 
Secretary has given us 10 additional minutes, and we tried to 
make good use for those who have not been called on.
    Mr. Meeks.
    Mr. Meeks. Thank you, Mr. Chairman. I want to thank the 
Secretary, also. Let me just say maybe something that might not 
be as popular to say, but I think we just need to be mindful 
and always believe in counting our blessings. Though we are 
going through a crisis here in America right now with reference 
to oil and gas prices, still, as I was walking over here with 
my intern, she mentioned to me, you know, aren't we still 
getting gas and oil cheaper than anyplace else in the world, 
and that is probably true, and we should count our blessings 
for that. But it does not mean that we should be easy and take 
it easy, and there is enough blame to go around with reference 
to the crisis we are currently in.
    Clearly, I agree with Mr. Brady, for example, whereas there 
is blame on the consumer's part. We have not been smart 
consumers. There is blame on the administration, there is blame 
on Congress. And we can sit here until we are blue in the face, 
blaming one another and pointing fingers at one another, and 
not resolving an issue here of trying to make sure that we 
reduce the oil and heating prices.
    I want to thank you, Mr. Secretary, for rising above the 
fray. I mean, you have been attacked personally and politically 
for a long period of time, but yet, as I sat here and listened 
to you, you still continue to want to work in a bipartisan 
manner, trying to work together so that we can make sure that 
we solve some of the problems that the American people are 
concerned about. They are not concerned whether or not it is a 
Democratic or Republican administration; they are concerned 
about someone working to resolve some of the issues that they 
have, that is confronting them now with the oil and the heating 
prices.
    Particularly for those of us who live in the northeast, it 
is going to be a matter of life and death for some of them, 
making the decision of whether or not they can eat or whether 
they have to have enough oil so they can have heating.
    Let me ask this question then, and I wanted to pick up on 
something Mr. Royce said. I have heard some, I think, 
meaningful suggestions and recommendations coming from both 
sides of the aisle here. But something that Mr. Royce had 
talked about with the increase of production of oil in Nigeria, 
but not only in Nigeria, but in all of West Africa. What can we 
do, or what are we doing to look at increasing the oil 
production in West Africa, and how would that affect us and how 
would that help us with some of the crises that we have here in 
America?
    Secretary Richardson.  Congressman, I think Congressman 
Royce knows Africa very well, since he chairs that 
Subcommittee. We think Nigeria has enormous potential for more 
oil and gas production, and we are working with them to bring 
more technology, to bring more American investment. We have got 
substantial investment there. They have had some infrastructure 
problems, as you know, because of some of the political issues 
that have been affected there. There was a lot of corruption; 
instead of revenues coming in from energy production for other 
capacities, they went elsewhere.
    What we want to do is develop--we have a three-pronged 
strategy: Develop oil and gas resources in three key regions; 
in Africa, in Latin America, and in the Caspian. We think that 
we bring our leadership in that area, especially in Nigeria, 
where there is a pro-market, pro-democracy government, that is 
doing the best it can to get the economy back and bring some 
true democracy, and is having some good effects, we are very 
bullish about Nigeria. The problem still is their 
infrastructure, their pipelines.
    We also support a West Africa gas pipeline. We have been 
very involved in spurring the production of that with both, 
some energy companies and some of the governments there in Chad 
and Nigeria and other nations that are key to that.
    So we think that Africa is a real untapped resource, not 
just for itself, but for our country. I thank you for your very 
constructive comments.
    Chairman Gilman. Thank you, Mr. Meeks.
    Mr. Payne.
    Mr. Payne. Thank you very much. It is good to see you, 
Secretary. I want to say, once again, we worked together in 
Congress, your work on getting hostages freed in dangerous 
places, your work with the United Nations, our trip together to 
the democratic Republic of Congo, all of these things, and, of 
course, your work here as Secretary of Energy.
    When I was listening to the Senate last week, one thing for 
sure, they are certainly bipartisan--they are not very 
partisan, they are equal-opportunity bashers. I don't know if 
any one side was any worse than the other. But your head was 
bloodied, but it was unbowed. That is the Secretary I knew 
well.
    I would just like to say that I think the work that you 
have done bringing the African energy ministers to the United 
States some time ago perhaps had something to do with Nigeria, 
saying we want to pump more oil, because we know we have a 
friend in our Energy Secretary. So I would like to compliment 
you on a number of the initiatives. I couldn't agree more with 
Mr. Brady, you know, we keep pointing to everyone else and 
looking for the enemy, and the enemy is us. Housing prices go 
up, so we are not bringing in the National Homebuilders 
Association and bashing them. It has gone up because the demand 
is exceeding the supply. The same way in my State of New 
Jersey, it just is common sense, the cost of higher education 
is going through the roof. Why? Because the demand is 
outstripping the supply. Health care, it is the same thing.
    So I don't like it either. I don't like our prices to go 
up, but I can't understand why Americans and our political 
leaders here are so surprised that somebody has got something 
that they can--that is the American way, they got something you 
want, and they are going to shoot the price up to maximize the 
profit.
    I think what we need to do is stop being so dependent. I 
think what we need to do is stop buying all of those sports 
vehicles, as you mentioned. Ever since the crisis got here, the 
jump has gone through the roof. So we are blaming other people. 
I think that we need to have alternative energy sources, we 
need to talk about ways to reduce the consumption of these gas 
guzzlers that have been reintroduced into our country, and I 
believe that what we need to do is to start looking at 
ourselves to see how we can come about.
    Let me just ask a quick question. There were a number of 
initiatives that were introduced that were not passed by the 
Congress. In your opinion, if some of these initiatives that 
were mentioned earlier, initiatives made by the administration 
but the Republican-controlled Congress felt that we shouldn't 
spend the money that way, do you think that we should re-visit 
those initiatives, and perhaps that could be an alternative 
plan of trying to become less energy dependent and more frugal 
in the manner in which we guzzle up energy?
    Mr. Secretary, maybe you could respond to that.
    Secretary Richardson. Congressman, we need the following 
and we hope the Congress acts in a bipartisan fashion.
    $4 billion in tax incentives for fuel efficiency; tax 
incentives in the domestic oil industry; and renewable energy.
    Secondly, we need to pass the Strategic Petroleum Reserve 
Authorization, the full power. This is critically important.
    We need also to pass what is called electricity 
restructuring legislation that is before the Commerce 
Committee. There are brownouts and blackouts in the country. I 
have been going around the country warning that our grid is 
hurting, that we need to modernize our grid. I was in your 
district, your State. We need to do that. There are some outage 
problems, possibly soon, that are taking place in the west 
coast and in the northeast that we are concerned about. We need 
to get that program restored for the partnership for a new 
generation of vehicles for more fuel-efficient vehicles. We 
need domestic energy funds for more investment in solar, wind 
and biomass and bioenergy. We think it is important to fund the 
weatherization program to its full capacity, the low income 
energy assistance.
    We would like to also look at a number of other initiatives 
that the President has put forth that are emergency measures, 
the home heating oil reserve for the northeast. We think that 
needs to happen.
    My main message, Congressman, is we need to do this 
together. We need to stop blaming each other and move forward 
and find ways that we can act on some of these measures, 
because you can't have energy policy problems blamed on one 
factor, OPEC or whatever. There is a number of factors that we 
have to play with. One that you have been very aggressive and 
positive on is developing countries having shared market 
partnerships with the Nigerias, with the Congos of the world, 
and we have been trying to do that.
    Chairman Gilman. The gentleman's time has expired.
    Mr. Brady.
    Mr. Brady. Mr. Secretary, is Governor Bush responsible for 
our current high fuel prices?
    Secretary Richardson. George Bush? No.
    Mr. Brady. Governor Bush isn't responsible for our current 
high fuel prices, and I think we can agree that some of the 
comments earlier today by my Democratic colleagues can be 
dismissed as just partisan inaccuracies. You may not describe 
it that way, but I think that is the point.
    It is true that oil prices have gone up, and we are working 
together to bring them down, but it is important to remember 
that rent has increased 10 times the amount that fuel has over 
the last 20 years, dental service, things we all need for our 
kids, 20 times, but we don't launch investigations into 
apartment owners or dentists. The fact of the matter is as 
George Foreman, world champion boxer, one of my constituents 
once said, you have to do your own road work. In this case, I 
agree with the gentleman, Mr. Payne, and others, who recognize 
that we have to take responsibility for our own energy needs.
    We talk about Africa and Caspian and Latin America, but why 
aren't we doing more to significantly increase the 
responsibility America takes for our energy needs? Is it the 
conflict between our environmental goals and our energy goals? 
Is it the unwillingness to stand up to special interests and 
say we have to have a long-term energy policy that allows us to 
be more independent? What is it going to take to get a 
responsible energy policy that all of America is engaged in?
    Secretary Richardson. Well, Congressman, first of all, it 
is going to have to be, I think, a bipartisan effort, because a 
lot of these measures cannot be approved without the support 
from your side and our side.
    I think that is number one.
    Number two, I think we have to stop blaming each other. I 
mentioned that I don't believe Governor Bush is to blame. 
Neither is our administration or the Vice President. I think 
our energy policy has been laid out, it has had successes, and 
right now our biggest challenge is high gasoline prices. How do 
we achieve that?
    I have given you our measure. I think a key component is we 
cannot forget our domestic producers. We cannot forget not just 
oil and gas, we have got to help our own coal people, we have 
got to help our other industries that are fossil fuels, 
renewable energy. We have to invest. But in particular, what we 
have is a balanced package, a balanced package in fuel 
efficiency, in tax incentives for a number of measures to make 
homes and buildings and automobiles more fuel efficient, but 
also an effort to help our own domestic production with 
marginal well assistance and other factors, which I think is 
essential. We need to get these approved and passed.
    Mr. Brady. My only correction to that, I agree with what 
you said, is that you, in your role as Secretary of Energy, our 
President and Vice President, have been at the helm for 7\1/2\ 
years. It is fair to ask how did we get here, what are we going 
to do to get out? It is not a factor of blaming, it is a way of 
looking to see what we ought not do in the future so we don't 
end up here with people in tough situations another 8 years 
from today.
    Mr. Secretary, I appreciate the efforts you are making on 
our domestic production and our smaller independent producers.
    Chairman Gilman. The gentleman's time has expired.
    Mr. Rothman.
    Mr. Rothman. Mr. Secretary, a pleasure to see you again. I 
certainly agree with you that we need to work as a Congress 
with the administration, Democrat and Republican, in reducing 
our reliance on imported oil and developing alternative sources 
of energy. I hope we can, the Congress, my Republican friends, 
along with my Democratic colleagues, can pass the host of 
initiatives that this administration has put before the 
Congress, pleading with Congress to pass, to help address the 
oil crisis, the price crisis in America.
    I hope in particular being a Congressman from New Jersey, a 
region also suffering very high gasoline prices and who 
suffered with the dangerously high home heating oil prices of 
last winter, that we do pass the Strategic Petroleum Reserve 
Reauthorization and create, as the Clinton administration is 
pleading for Congress to create, the home heating oil reserve.
    But I cannot avoid the feeling that there is extraordinary 
price gouging going on by the oil producing nations of the 
world and the oil companies located here in America. I believe, 
if you examine all of the figures of increased oil production 
that have occurred in the last 12 months and that are occurring 
now, the increase in oil production, we are not seeing a 
commensurate drop in price. It is inescapable to me the 
certainty that there is price gouging going on by the oil 
companies and these oil producing nations.
    Now, we introduced some legislation here in Congress 
recently to prevent arms sales to those oil producing nations 
that were price gouging. We certainly tried to get it out of 
the Committee. I want to know what we can do about these oil 
companies that are price gouging. You can say this is the 
marketplace and they have got a commodity that people want and 
they can set their own price. Well, that is true. But this 
government has the ability to create laws that can get the 
attention of these oil companies so that they understand that 
they cannot double and triple the price of their product 
whenever they feel like it, even if there is no--just to create 
double and triple-size profits when the American consumer is 
suffering.
    Enough is enough, oil companies and the United States 
Congress, in conjunction with this administration, I believe, 
has the tools to send a clear message. I am asking you, Mr. 
Secretary, what can we do to let the oil companies know that we 
will not forget their greed, the greed that is causing them to 
gouge prices on our consumers at the very height of our oil 
demands of this summer?
    Secretary Richardson. Congressman, we are investigating the 
oil companies for potential price fixing. The Federal Trade 
Commission will conclude in late July. There are unexplained 
price differentials in the Midwest, unaccounted for price 
spikes, conventional versus reformulated gasoline, of as much 
as 30 to 40 cents.
    There are other factors that are involved. You mentioned 
the production supply. There is increased demand, unusually 
high demand, low stocks. There has been transportation 
problems. There has been refinery problems. There has been 
pipeline problems. There has been reformulated gasoline in some 
cases, the differential is slight, 2 to 3 cents, maybe a little 
more.
    So, that doesn't account for 30 cents. So I think the 
burden is on the oil companies to explain why this is 
happening. This is why the FTC is investigating.
    Chairman Gilman. The gentleman's time has expired.
    Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you very much. Again, Bill, welcome, 
and just let me note there has been no one on this Committee 
and this hearing that has raised any objections to your job, 
and no one has used you as a punching bag. We respect you, we 
like you, you are our friends and former colleague, but we do 
have some fundamental questions about administration policy. 
Let me just say that when you talk about responsible policy, 
and what we see from this side is that the Clinton-Gore 
administration, it seems to us, has not had a responsible 
energy policy, and perhaps this is due, and we can't overlook 
this possibility, to the fact that it is being unduly 
influenced by looney environmental ideas that have been 
espoused by the Vice President for decades. The Vice President 
has been the number one advocate of higher gas prices in order 
to achieve his environmental goals for decades.
    Now, are you or are you not here telling us that the Vice 
President has or has not abandoned his commitment to 
dramatically raising the price of gasoline in America?
    Secretary Richardson. Congressman, the Vice President does 
not favor higher gasoline prices for consumers. Let me just 
state that.
    Mr. Rohrabacher. He has always advocated that. That is not 
even debatable.
    Secretary Richardson. That is not the case. He has 
advocated--he wants to see tax credits for families to purchase 
fuel efficient cars.
    Mr. Rohrabacher. No, he has advocated in his writing, he 
has advocated in speeches, that Americans, that we are at fault 
because we want to use our cars too much, because the price of 
gas is too low. Does that mean the administration has backed 
off of its commitment to higher gas prices through the Kyoto 
agreement? Has the administration backed off from that?
    Secretary Richardson. Congressman, we have never been for 
that. Let me just tell you what the Vice President wants to do. 
You mentioned automobiles. He is the author, it is through him 
that the big 3 and the Department of Energy and other agencies 
are trying to make SUVs more fuel efficient, 40 miles per 
gallon, 80 miles per gallon. That is his objective. He believes 
there should be freedom of choice for the American people in 
any vehicle they purchase.
    Mr. Rohrabacher. Are you trying to tell us today that he 
never advocated higher prices for gasoline----
    Secretary Richardson. Yes.
    Mr. Rohrabacher [continuing]. As a means of achieving his 
environmental goals?
    Secretary Richardson. Yes.
    Mr. Rohrabacher. That goes against everything we believe. 
We are just mistaken.
    Chairman Gilman. Mr. Rohrabacher, give the witness an 
opportunity to respond.
    Secretary Richardson. Congressman, there are a number of 
initiatives that we need that require legislation and 
appropriations. I have pointed them out. We need to do this 
together. I think that just trying to engage in the dialogue 
you and I have had, even though we are friends, and I know you 
have to establish your position, I don't think it is 
productive. I think what we need to do is there are some 
emergency measures that we need to deal with this problem. I 
have outlined those. There are a number of tax credits that are 
needed. There are a number of initiatives that I think many on 
your side could support, like the domestic oil and gas 
incentives. We need to just move forward.
    Mr. Rohrabacher. Thank you.
    Chairman Gilman. The gentleman's time has expired.
    Ms. McKinney.
    Ms. McKinney. Thank you, Mr. Chairman. First of all, I 
would like to thank you for allowing those of us who have 
stayed throughout the entire hearing to get a second round, and 
I would like to thank the Secretary for staying here to respond 
to all of our questions.
    I am going to change the subject a little bit, but I want 
to bring something that I feel is very, very important to your 
attention that I am sure you are not aware of. It has to deal 
with the situation of African-American workers at Savannah 
River site. I just want to list some of the things that are 
alleged to have taken place there.
    There is a work area where African Americans primarily 
work. That area is referred to as ``Coonsville.'' nooses have 
been placed on African Americans' work stations, and 
electricians brought a noose to the site and demonstrated the 
historical value of a noose. The ``N'' word is reportedly 
regularly used by both management and staff. African Americans 
at the Savannah River site have 1.7 to 1.8 times the exposure 
to radiation than their white counterparts. African American 
employees feel that management places African Americans in the 
work site to get the radiation.
    Twenty percent of the total workforce at Savannah River 
site is African American, yet 40 percent of the staff in the 
areas of exposure to radiation are African American. Two 
percent of the upper management at Westinghouse are African 
Americans. There has never been an African American vice 
president at Savannah River site. A machine named ``the 
manipulator'' is referred to as the slave master.
    Finally, I would just like to say I had the president of 
Westinghouse, Savannah River site, in my congressional office, 
Mr. Buggy, and while there, Mr. Buggy actually used the ``N'' 
word in my presence, in my office. That is the kind of 
leadership that exists at Savannah River site Westinghouse 
under contract by DOE.
    Now, I also have a letter from Maryanne Sullivan, general 
counsel, dated May 15, 2000, from the Department of Energy, 
where she says that litigation expenses are considered to be 
costs of doing business.
    My question to you, Mr. Secretary, is why should the U.S. 
taxpayers foot the bill for litigation expenses against poor 
employees who have already been victimized by that kind of 
management and that kind of an environment? And why should that 
be condoned by the Department of Energy?
    Secretary Richardson. Congresswoman, I will get back to you 
on these issues. Let me just say that after that 60 Minutes 
report came out, and I think you are aware of that, I sent a 
team down there to look at some of those allegations. I also 
sent my ombudsman, somebody who I appointed in the Department 
to find problems of racial profiling, we have had some problems 
with Asian Americans in the suspect case at Los Alamos, and I 
wanted to send a message that we don't tolerate racial 
profiling.
    I will have somebody come see you, or I will come to see 
you myself, to look into some of these issues that you have 
raised with me.
    Chairman Gilman. The gentlelady's time has expired.
    Ms. McKinney. Thank you, Mr. Secretary.
    Chairman Gilman. Our last intervenor will be Mr. Royce. I 
want to advise my colleagues that Senator Metzenbaum has been 
patiently awaiting to testify. He will follow Mr. Richardson.
    Secretary Richardson. I would also like 3 minutes to 
explain, you asked that question about that GAO report.
    Chairman Gilman. We welcome your comments.
    Secretary Richardson. At the end, if I could do that.
    Chairman Gilman. Thank you.
    Mr. Royce.
    Mr. Royce. Thank you, Mr. Chairman. Mr. Secretary, I want 
to say I am glad that you recognize the potential for West 
African oil protection, and I mentioned also the Chad Cameroon 
gas pipeline about to get underway.
    I think we should be pressuring OPEC, as I said earlier, to 
increase production, and you have told us today about some of 
the things you have worked on in the past to do that.
    My question is, what does a Secretary of Energy bring to 
that task that the Secretary of State or the Secretary of 
Defense could not do with more leverage? I think Cabinet 
colleagues of yours would bring more leverage to the table, and 
I am reminded of a conversation I had once with Casper 
Weinberger, the former Secretary of Defense, and he said, 
frankly, the security issue over our nuclear secrets should be 
handled by the Department of Defense, as it was in the past 
before the creation of the Department of Energy.
    He said the culture, the culture in the Department of 
Energy, can't be changed. The Department of Defense will 
safeguard these secrets, and that is why he backed a measure, a 
piece of legislation I introduced in the past.
    The reason I am raising these points is because in many 
ways, in my view, you have been saddled with a responsibility 
through the creation of a separate Cabinet-level position of 
energy that, in my view, should be done by other sectors. The 
Department of Defense, I believe, should be handling the 
security, as it once did. The issue of leveraging OPEC, I 
think, frankly, the Department of Defense or the Department of 
State, no, our Secretary of State, probably could do that with 
more leverage.
    This goes to the issue that you have been saddled with the 
responsibility here that is very difficult. The concept that 
was dreamed up that we would develop these alternative energy 
sources with subsidies, rather than go through the market. I am 
reminded of the oil shale project where we spent $1 billion and 
never developed a drop of oil out of that. I think some of it 
goes to the original way in which we invented this separate 
Cabinet-level position, and in many ways it is unfortunate.
    I think in many ways it is an outdated and duplicative 
boondoggle, as many critics have charged. Every year we get 
reports about inefficiency, corporate welfare, failure to 
respond to high gas prices and so forth, and I am not sure 
this, in fact, can be handled the way we have created this 
agency.
    I wanted to give you a chance to respond to those critics 
who raised these points.
    Secretary Richardson. Congressman, first of all, while I 
have shouldered the principal discussions with OPEC, and have 
traveled and have phoned these ministers and worked them very 
hard, and in fact, have good working relationships, which I 
think is key, I have not been the only actor. The Secretary of 
State has made phone calls and visits that have been extremely 
helpful. The President has made calls.
    I have had the principal responsibility, because energy, 
this is a task that other energy secretaries' discussions with 
OPEC have had.
    I think you are absolutely right. How do you maximize the 
full leverage of the United States, the full economic-political 
relationships. And I believe we have done that, not just 
through my visits, but through other interventions by others, I 
can assure you, and I can go into more detail.
    On the issue of energy and the nuclear weapons, civilian 
agencies have always handled our nuclear weapons. What we are 
doing right now, Congressman, is with our nuclear weapons 
complex, a semiautonomous agency headed by General Gordon, who 
I met with yesterday, deputy director of CIA, that basically 
streamlines a lot of the nuclear weapons responsibility into 
this semiautonomous entity that reports to me, but basically 
has its own structure, and that is what we are looking at now. 
I am giving it my full support.
    But I would be very pleased, especially to work with you on 
some of the Africa issues you mentioned, and go into more 
detail as to how we have interacted with OPEC.
    Chairman Gilman. The gentleman's time has expired. Mr. 
Secretary, we welcome your comments on the GAO report.
    Secretary Richardson. Mr. Chairman, I would like to have Ed 
Curran join me here. He is the director of our 
counterintelligence program.
    Chairman Gilman. Mr. Curran.
    Secretary Richardson. Mr. Chairman, you mentioned, even 
though this report covered a period of time from 1995 to 1998, 
where I was not Secretary of Energy, nonetheless, I think the 
report shows the success of our program. As you know, we 
cooperated extensively with the GAO, provided the data on some 
of these counterintelligence issues. Ed Curran is the best 
counterintelligence person we have in our government. He broke 
the Ames case, the Aldrich case, who knows how many others. But 
he has now been the director of counterintelligence in the 
Department of Energy, and I might add too that we have the most 
effective brief and pre-brief and post-brief programs we 
believe of any agency in government. I think it is reflected in 
this report, which we believe shows our commitment to security 
and to protecting our scientists.
    Let me just say that even the GAO said there is no evidence 
that any espionage was obtained. So I want to State that for 
the record. I would like to defer to Mr. Curran.

STATEMENT OF EDWARD J. CURRAN, DIRECTOR OF COUNTERINTELLIGENCE, 
                      DEPARTMENT OF ENERGY

    Mr. Curran. Thank you, Mr. Secretary.
    I would just like to explain it in a very short period.
    Chairman Gilman. Mr. Curran, identify yourself for the 
record.
    Mr. Curran. Edward J. Curran, director of 
counterintelligence for the Department of Energy. I am a 
current FBI employee detailed over to the Department by the FBI 
2\1/2\ years ago as a result of the Presidential Decision 
Directive 61 signed by President Clinton in February 1998. My 
assignment was, first of all, the review of the 
counterintelligence program within DOE, prepare a 90-day study 
with recommendations, and improve the counterintelligence 
program.
    Chairman Gilman. Thank you, Mr. Curran. Please proceed.
    Mr. Curran. I think it is important to state that after our 
findings almost 2\1/2\ years ago as a result of PDD 61, there 
were 46 recommendations came out of my office to the Secretary. 
I am not going to go over all those recommendations, but 
basically what we found 2\1/2\ years ago is the 
counterintelligence program at the Department of Energy was 
almost nonexistent. It didn't even meet minimal standards. We 
said that and we said we have a lot of things to do here. The 
48 recommendations were very controversial within the 
Department and the laboratories. There is a great deal of 
resistance to any of those recommendations.
    We broke them down into tier recommendations, tier 1, 2 and 
3. The 1's, tier 1, was those recommendations that we need to 
do right now to fix the problem at DOE. One of those 
recommendations was to enhance our pre-brief and debriefing 
programs of our scientists who are traveling overseas, and we 
acknowledged 2 years ago they are targets of foreign 
intelligence service, just like anybody else in the government, 
DOD or other government agencies, including private industry.
    The results of this GAO study we worked very closely with 
them in the past 8 months while they were preparing this. We 
gave them complete access to our database that we put the 
information on our pre-briefings. These were pre-briefings that 
the Secretary has approved in November. Despite the resistance, 
he approved all 48 of these recommendations.
    We considered pre-briefs of our scientists, which was 
basically nonexistent before, as a critical area to prepare our 
scientists to interface with their counterparts overseas, 
especially those from sensitive countries.
    Today, 2\1/2\ years later, rather than having a 
counterintelligence program that meets minimum standards, I 
believe it is equal to all counterintelligence agencies within 
the government and better than most, and basically it is 
because this man sitting next to me had the courage to go forth 
and approve the recommendations that we made despite tremendous 
resistance.
    The only difference we had with the GAO study, and it is 
not a major study, is that they say we are not spending enough 
time looking at the threat from nonsensitive countries. We 
agree totally that all our scientists are at risk, no matter 
where they are outside the United States, whether it be because 
of economic espionage, proprietary information. What we have to 
first address, though, are those countries from the sensitive 
countries that have a track record, have been identified as 
activities by those intelligence services that threaten 
immediately our national security.
    Our scientists get pre-briefs often, personal briefings, 
before they go overseas. We gather this type of information. We 
know what countries do what to us, and it is a defensive 
mechanism that whether we do this or not, that targeting is 
going to take place overseas. We feel that to have a structured 
program to prepare these people to go over is of tremendous 
interest to counterintelligence. If I could just read from the 
GAO study one paragraph, which was unfortunately leaked to the 
news media last week, and I think some elements in the news 
media believed that anything that is leaked is critical to the 
Department of Energy. I think you need to read it thoroughly, 
though, to see this is not a critical report.
    Page 3 of the GAO study, it says, DOE and its laboratories 
have instituted several national security controls over 
official foreign travel by laboratory employees. They include 
threat assessment and analysis provided by DOE's office of 
counterintelligence, security and counterintelligence awareness 
training, an a review and approval process for foreign travel 
requests, face-to-face or written pre-travel briefings, 
classification review of publications and presentations, and 
face-to-face or written post-travel debriefings and trip 
reports prepared by the traveller. All official contractor 
travel is subject to these controls.
    I think in whole, we agree with the GAO study.
    Chairman Gilman. Mr. Curran, did you have any report of any 
important secure information being given by any of the lab 
scientists when they were overseas?
    Mr. Curran. No. What we try to do is if you do these pre-
briefings early, we can come up with determinations whether a 
particular employee is being targeted or singled out, whether 
because of the science he happens to be working on, or whether 
he may show some vulnerabilities. Once we determine that, if we 
consider an employee to be in harm's way or be unusually 
targeted, we will take him out of that country.
    Chairman Gilman. Do you properly brief your scientists 
before they go overseas?
    Mr. Curran. Every scientist within DOE that travels to a 
foreign country is required to have a pre-brief with a 
counterintelligence officer. Every employee going overseas is 
required by the Secretary to have at least an annual briefing 
on awareness training and counterintelligence security issues.
    Chairman Gilman. Are those pretty thorough briefings?
    Mr. Curran. Yes, they are, sir. This is where we get this 
type of information. We have to have the confidence in the 
scientists who are willing to comfort and share this with us. 
The only thing we said to DOE is you cannot identify these 
employees or attribute it to a certain laboratory. If they 
don't have the confidence to come and share this information 
with us, we are not going to get it.
    Chairman Gilman. Do any of my colleagues want to inquire 
about this?
    Mr. Payne?
    Mr. Payne. I would just like to thank the gentleman for 
bringing that information to our attention, making it public 
here. We certainly will--I have not taken the time, it hasn't 
been brought to my attention the study, but I certainly will 
have staff and I will certainly look into the recommendations. 
But I thank you for bringing this to light.
    Chairman Gilman. Let me state that we will have a further 
hearing with regard to the security situation at a later date 
and will ask Mr. Richardson and you to attend.
    Mr. Sherman, a very brief statement, because the Secretary 
is beyond his time limit.
    Mr. Sherman. I thank the Secretary for his indulgence. We 
are being told that oil prices would be lower if we just got 
rid of all environmental concerns, drilled everywhere, 
eliminated any attempt to reduce air pollution, and nothing 
could be further from the truth. I want to thank the 
administration and the Secretary for standing firm on 
environmental concerns.
    We should, instead, focus on the fact that we went to war 
in the Gulf, we could have experienced thousands of casualties, 
and we had an opportunity to turn to Saudi Arabia and to turn 
to Kuwait and say in return for your continued existence as 
countries, we insist that you leave OPEC and produce oil at a 
reasonable economic rate. Instead, we returned Kuwait to its 
Sultan or its Emir, and, let's face it, Saudi Arabia would not 
be an independent state today had we not acted. Without asking 
for a single concession for the American consumer or motorist, 
and in doing so, we not only failed to overthrow Saddam 
Hussein, we failed to, at that point, and that was, I think, 
the only point we could have, to break OPEC.
    Those who blame the environmentalists should recognize that 
if it wasn't for environmentalist concerns, we would be getting 
12 miles a gallon in our cars and 8 miles a gallon or 6 miles a 
gallon in our trucks and SUVs, and think that we need to go 
further if we want to break OPEC toward fuel efficiency 
standards and toward fuel efficiency research.
    We are told that America is addicted to foreign oil, so the 
solution is huge subsidies for big producers of oil 
domestically. Yet we, as motorists, pay the same price, whether 
we are buying oil from Saudi Arabia or from Texas, domestically 
produced oil sells for no less. So when OPEC forces the price 
of oil up, the producers in Texas do just as well as those in 
Kuwait, and yet we are told we are supposed to give more 
subsidies, more tax breaks, to those who are already getting 
huge prices for their oil.
    The key is not foreign oil versus domestic oil, it is just 
total world supply of oil.
    Focusing on that, Mr. Secretary, I have a number of 
questions, and I don't know if you will choose to answer them 
here, where I know your time is limited, or furnish these 
answers for the record. The first----
    Chairman Gilman. Mr. Sherman, the gentleman's time has 
expired. We have had to cut back on time so that we could wind 
up. I am going to suggest you submit your questions in writing.
    Mr. Sherman. Mr. Chairman, if I could just have 30 seconds.
    Chairman Gilman. Without objection.
    Mr. Sherman. You commented earlier that Mexico is producing 
another 50,000 barrels of oil per day, I believe was the 
figure. I would like to know how much oil could Mexico produce 
beyond what is being produced now if they had over the last 
several years and currently been producing oil as quickly as 
they could in as large a quantity as they could instead of 
cooperating with OPEC?
    How much oil do we save each year because of our fleet 
deficiency CAFE standards?
    Finally, what is the total additional money flowing to 
domestic oil producers as a result of the recent OPEC increase 
in prices?
    Chairman Gilman. The time of the gentleman has expired. One 
question will be responded to.
    Mr. Secretary.
    Secretary Richardson. The statistics, Congressman, is 
Mexico, in the March OPEC flow, as a non-OPEC nation, increased 
their production by 150,000 barrels per day. In this last 
meeting in June, they agreed to 75,000 per day more. We believe 
that they are at full capacity, and in these discussions Mexico 
has been helpful. I would only point out one thing, 
Congressman, and that is we have had a period of unprecedented 
economic growth in this country. The economy has grown 
enormously in the last 7 years, and there has been a dramatic 
decrease in sulfur emissions. So I think what we are trying to 
achieve is a balance between economic growth and environmental 
goals which you espoused.
    Chairman Gilman. Thank you, Mr. Secretary. If the gentleman 
wants to submit any statements for the Secretary, I am sure he 
will be pleased to respond.
    We thank you for being patient for overextending your time, 
and this portion of the hearing is completed.
    Secretary Richardson. Thank you, Mr. Chairman.
    Chairman Gilman. Now we are pleased to hear from former 
Senator Howard Metzenbaum, who has been very patient. Howard 
Metzenbaum is the Chairman of the Consumer Federation of 
America. He is more widely, known of, course as a former 
Democratic Senator from Ohio, where he served for three terms 
ending in 1995. He was the Chairman of the Antitrust 
Subcommittee of the Senate Judiciary Committee when he served 
in the Senate.
    A native of Cleveland, Ohio, he served as a State 
legislator, a businessman, and a lawyer. He was the author of 
the Age Discrimination Act of 1988 and the Civil Rights Act of 
1991.
    Howard Metzenbaum serves on a myriad of boards and as 
director of charitable institutions across our Nation. A common 
word applied to Senator Metzenbaum was scrappy. We are 
delighted to have you here today, Senator.

 STATEMENT OF THE HONORABLE HOWARD METZENBAUM, CHAIRMAN OF THE 
    CONSUMER FEDERATION OF AMERICA, FORMER SENATOR FROM OHIO

    Mr. Metzenbaum. Thank you very much, Mr. Chairman.
    Chairman Gilman. Would you please press your button on the 
mike.
    Mr. Metzenbaum. On the mike. Just the middle portion there?
    Chairman Gilman. Just the middle portion there.
    Mr. Metzenbaum. Is it working?
    Chairman Gilman. Yes, indeed.
    Mr. Metzenbaum. Thank you. Thank you, Mr. Chairman. I know 
the hour is late, and I will not be lengthy. It is a privilege 
to appear before your Committee, and I am particularly pleased 
to see Mr. Payne sitting as Ranking Member today. I remember 
him well from a trip that we made together.
    I represent the Consumer Federation of America, an 
organization consisting of 240 separate organizations 
representing in excess of 50 million people. I am a non-paid 
chairman of the Consumer Federation of America, and when I left 
the Senate, I thought that I wanted to be able to continue my 
advocacy position in connection with certain issues, and this 
has given me an opportunity to do so.
    I am concerned about the oil situation in this country, as 
I was concerned when I was in the Senate. I am concerned that 
we are not releasing oil from the Strategic Petroleum Reserve 
when we could and should be doing just that.
    Now, the Strategic Petroleum Reserve was established about 
25 years ago, and it provided that when there was a serious 
disruption of oil supply, there could be a release of oil from 
the Strategic Petroleum Reserve. Realistically speaking, there 
has not been a serious disruption.
    But the fact is that the President does have the authority 
to release oil if he so determines, and I believe that under 
the circumstances, if he were to release 2 million barrels of 
oil a day, we have about 573 million barrels of oil in the 
Strategic Petroleum Oil Reserve, if we were to release 2 
million barrels of oil a day at least during the summer months, 
we are talking about approximately 180 million barrels of oil 
in a 3-month period, the Strategic Petroleum Oil Reserve would 
be down to as low as 400 million barrels, which would not be a 
serious security threat to our Nation's security.
    I believe what is happening now is a serious threat, not to 
our Nation's security, Mr. Chairman, but to the lives, the 
economic welfare, of literally millions of Americans.
    The price of gasoline may not matter much to those who have 
the wherewithal, but the price of gasoline is a very serious 
threat to working people who have to use their automobiles to 
get to work, to mothers who have to leave their children at a 
baby clinic, at a child clinic, so that their child may be safe 
while the mother is working, and it is a challenge for many who 
are living on a very meager existence to try to be able to get 
along with the extra costs brought about by reason of increased 
gasoline prices.
    It is just unfair, it is unreasonable, it is illogical for 
us not to be releasing oil from the Strategic Petroleum 
Reserve.
    On March 6th, I wrote the President to this effect. On June 
20th I wrote the President a second time. It is my opinion that 
this would be an extremely helpful move in the right direction 
as far as our economy is concerned. It would certainly mean 
much to many people in this country, not those who are making 
millions of dollars in the market these days, but to average 
Americans who are working hard to eke out an existence.
    So I consider it a privilege to appear before this 
Committee in order that I might voice the concerns of millions 
of consumers who are disturbed about what is happening and what 
is not happening, and what is not happening is hurting their 
economic existence, and we need support across the board.
    Thank you.
    Chairman Gilman. Thank you, Senator Metzenbaum. Senator, in 
your role as Antitrust Subcommittee Chairman in the Senate 
Judiciary, do you think that we could do something more than we 
are doing to make the OPEC nations subject to our jurisdiction 
with regard to their monopolistic controls?
    Mr. Metzenbaum. I am not sure we could make the OPEC 
nations more responsive. I do believe that we could do 
something through antitrust with respect to the oil companies, 
who we all know are now exploiting these shortages to their own 
economic benefit. They are ripping off the American people. I 
have read somewhere that some of their profits are up on a 5-
times basis, 5 times over what it has been in the past. I think 
we could use antitrust there, and I would hope the antitrust 
department would move.
    But realistically speaking, the antitrust department, or 
the FTC, whichever sees fit to move, and I think the FTC is 
about to conduct some hearings on this subject, the procedure 
has to be a slow one, and it can't be a very rapid one, whereas 
releasing oil from SPRO would be a much more rapid one. I don't 
think we can use antitrust against the oil-producing nations.
    Chairman Gilman. Well, we do have a measure that I have 
introduced to explore that possibility of whether we can gain 
jurisdiction over them, and we are taking a good hard look at 
that.
    Mr. Payne.
    Mr. Payne. Thank you very much. It is very good to see you 
again, Senator.
    Mr. Metzenbaum. Nice to see you.
    Mr. Payne. I miss your company on our trips there. They are 
not the same anymore.
    Let me say that the Consumer Federation of America 
certainly is very fortunate to have you as their spokesperson 
and as their leader. I think it is very important that there is 
an advocate for the people that you talked about, those who are 
really being impacted by the high cost of fuel, people who, as 
you know, are struggling with the minimum wage. Many of them 
don't have cars, but they do carpooling with someone who does 
and they pay in sharing the costs of the gasoline and things of 
that nature. So it is really having a tremendous impact on 
people who are struggling to manage and to make it. Also as we 
saw in the northeast, there was not too much sympathy from the 
rest of the country during this winter when the northeast was 
hit with the fuel shortage. It only hit the States of New 
Jersey and New York and Massachusetts, and we found very little 
concern from the rest of the country. But now, the other part 
of the country is hit by the high oil prices. So I think the 
more that we remember that we are one Nation, indivisible, and 
what impacts negatively on one part of the country, other parts 
of the country should have a concern about it, and we should 
have a more united approach to our problems.
    The numbers I heard mentioned, 2 million barrels a day, if 
they were to be released from the 500 million barrel reserve, 
it would use 180 million barrels during the course of the 
summer and would keep the reserves at about 400 million 
barrels. Now, in your letters to the administration on March 
6th and on June 20th when you wrote to the President, what 
responses have you received from them, and in your letter, did 
you suggest a use of the Strategic Petroleum Reserve and what 
was the response?
    Mr. Metzenbaum. I specifically requested a use of the 
Strategic Petroleum Reserve, and I might say I sent a copy of 
that original letter of March 6th to Secretary of Energy, Mr. 
Richardson. I received a response from the President some weeks 
after the original letter was sent indicating that he was not 
inclined to do so, and in a nice way saying no. But the fact is 
I didn't get very far. So I decided to go back on June 20th and 
I did go back on June 20th, a second letter, and I have not 
received an answer from that letter. Of course, it is just very 
recent.
    I think there is a crying need to do something about this, 
and I think the little people are being hurt, the oil companies 
are getting richer, and I think that the economy itself is 
being negatively impacted.
    Mr. Payne. Thank you very much. I couldn't agree with you 
more. I was shocked at Congressman Delahunt as he read off the 
8 or 9 companies, oil companies, and the profits, starting at 
600 percent now, they were making profits all along. I mean, 
that is on top of what was going on. That is egregious. I mean, 
here we are all bashing OPEC, and we should, but no one, 
especially from the other side, who have all left--we do have a 
Member--no one is talking about what is happening with these 
oil companies, and the mergers, which is happening in banking, 
which is happening in transportation, which is happening in the 
airlines. We are going right back to the standard oils of the 
turn of the century, with the robber barons and the big mega 
companies that are there, and they are so large that they are 
almost too big for the government to even have an impact on.
    So I think there is enough to go around. I do think too 
that it is really being naively optimistic to think that we can 
do something to make OPEC change. I mean, people say we need to 
bust up OPEC. I just would like to know how do you bust OPEC 
up? We should bust up the diamond cartel. As a matter of fact, 
they take diamonds of civil wars and bandits and dictators and 
continue to sell them. We ought to look at busting that up too. 
It is great to say that, but how do you go about breaking up a 
group that comes together. I think that we need to have 
alternative sources, we need to stop being dependent.
    As long as we go to bigger cars and more gas guzzlers and 
more disregard for the regard that we had 10 or 15 years ago 
when we went to smaller cars and people were more fuel 
efficient. But we have gotten back to the way we were in our 
habits of consumption that just going on and on and on, until 
we have alternative energy sources, until we have fuel 
efficient cars, until we really have electric automobiles on 
the road, these things make sense. We need to put our 
investment into those. We should really have funds made 
available and tax credits for these alternative sources of 
energy. That is the competition that OPEC will need. When we 
reduce our dependence on them, they will simply reduce the 
prices. That will weaken the cartel. That is the only way I 
think we are going to have a real impact on it.
    I do believe that our friends that we did defend should 
have a little more respect for us, the Saudis and the Kuwaitis 
and those who we put 500,000 troops on the line for to defend 
their countries, it seems like it would simply be a show of 
good faith and appreciation to maybe raise the issue in the 
cartel, maybe they would be outvoted, but at least say maybe we 
are doing a little bit too much, knowing it was too low at $9 a 
barrel, but now that it has gone up to the other $31, we see 
the tremendous increase. So I think we have to have balance, 
figure out what it ought to be, move toward that goal, 17-, 18-
, $19-a-barrel thing, and I think the stability in the world 
will benefit. Thank you very much. I appreciate having an 
opportunity to see you again.
    Mr. Metzenbaum. I think that history will record that 
probably the failure to have some sense of appreciation from 
Saudi Arabia and Kuwait is probably one of the most ungracious, 
ignominious acts of any nation, one to the other. We were there 
when they needed us, we were there with our men, women, who 
went there to save those countries. The Kuwaiti leadership left 
the country while our men and women were there saving them from 
being overtaken by the Iraqis, and in appreciation, what comes 
about? The highest price oils, restricting the production of 
oil. They ought to be ashamed of themselves.
    Chairman Gilman. Mr. Chabot.
    Mr. Chabot. Thank you, Mr. Chairman. Senator, we welcome 
you here today. I agree with you completely about the 
ingratitude of both Kuwaitis and Saudi Arabia in the fact that 
we sent our men and women in harm's way over there. This is a 
real slap in the face to the United States that they have 
cooperated in this collusion, in this unholy alliance of 
countries withholding oil from the market and driving up these 
gas prices to the extent that they have been, particularly in 
the Midwest, where we live.
    I agree with you also that it is the little people, 
especially, that are being hit hardest at the gas pump. It the 
people that can least afford it that are paying these 
outrageous prices. I was over in your predecessor's, your 
successor's office, Senator DeWine and Senator Voinovich this 
past week, over in a bipartisan fashion, Congressman Sawyer and 
Congressman Tony Hall, and I believe Marcy Kaptur and some 
other Democrats were there, as well as Congressman Portman and 
myself, and a number of Republican Members of the House were 
there, and we were there with the head of the FTC requesting 
that the FTC do an investigation to determine if there has been 
any antitrust violations by the oil companies, if there has 
been any collusion, any price fixing going on here to determine 
if that has played a role in this.
    I believe we should leave no stones unturned, that a full 
investigation ought to be done. He indicated that we would 
probably have an interim report back within 4 to 6 weeks. They 
claim that is pretty fast, but I hate to see these oil prices 
remain as high as they are for any length of time, because 
people really are being hurt.
    I really do appreciate your being here. You had a very long 
and distinguished career in Ohio. I came in as you were going 
out, and I am sure politically we would have been at odds many 
times. I know you were----
    Mr. Metzenbaum. We would have gotten along.
    Mr. Chabot. I am sure we would have gotten along 
personally. But I do very much appreciate being here today.
    You mentioned the Strategic Petroleum Reserve, and I also 
believe that the administration should have pursued this to a 
greater degree. They seem to have, just offhand, rejected this.
    What I wanted to ask you, one thing I wanted to ask you was 
if, and I know we have 500-some million barrels of oil there, 
and if you put out on the market, say, 2 million barrels or so 
a day, how long do you think it would take for that to have a 
real impact at the pumps, how long do you think we would have 
to continue to put that oil on the market? And are you 
satisfied that that would not put us into any sort of 
disadvantage as far as our defenses in this country go?
    Mr. Metzenbaum. Let me answer the last part first. I am 
totally satisfied it wouldn't put us at any disadvantage as far 
as our defenses are concerned. There is nobody that says you 
need 575 million barrels or 475 million barrels. I have never 
seen any figure saying how many barrels we actually need to 
have in reserve.
    But certainly, the way our military situation is and our 
world situation is today, I don't think there is any real 
threat. So I think we certainly could afford to bring down the 
Strategic Petroleum Reserve 200 million barrels without 
jeopardizing our security in any way.
    The other part of your question was how long do I think it 
would take to have an impact upon oil prices. My opinion is 
that once we started to release the oil, it would have an 
immediate impact. I think that when the OPEC nations raise the 
price of oil, it has an immediate impact here. When they lower 
the price, it has an immediate impact here. I think if you put 
2 million barrels a day more into the pipeline, it is not a 
matter of how long it would take to get from the pipeline to 
California or to get to Ohio or to get to New York, because 
once it is in there, it has an immediate impact upon the 
pricing mechanism, and I think that it would just be within 
days, hours or days, before the prices would start to come down 
if we started to release oil from OPEC.
    Mr. Chabot. Thank you, Senator. I appreciate your time.
    Chairman Gilman. Mr. Delahunt?
    Mr. Delahunt. Thank you, Senator. I never had the pleasure 
to serve with you either. I came only--this is my second term, 
but I have always admired and respected your work here.
    Mr. Metzenbaum. Thank you.
    Mr. Delahunt. You know, the subject of today's hearing is 
OPEC's policies, a threat to the U.S. economy? But the more I 
listen, and particularly your observations and my own about the 
remarkable increase in terms of oil company profits from the 
first quarter of 1999 to the first quarter of 2000, which is 
approximately triple, and we should be reminded or we should 
note that in 1999, it was an extremely profitable year for the 
major oil companies.
    I think what we should be doing is to examine, and I would 
be interested in your observation, to examine the relationship 
between the OPEC countries and the major oil countries? I think 
we try to separate and distinguish between OPEC, and I think 
that conjures up a vision primarily of Middle Eastern nations 
such as Kuwait and the oil emirates and Saudi Arabia on the one 
hand, and the major oil companies, whether it be Amoco or 
Texaco, or Exxon-Mobil on the other.
    But I presume that in the marketplace, there really is a 
commercial relationship between the major oil companies and the 
OPEC nations that really has not been revealed in any of the 
hearings that I have attended.
    I would be interested in your comment as far as that is 
regarded.
    Mr. Metzenbaum. I think you are right on target, Mr. 
Delahunt. I think there is no question about the fact that the 
oil companies and the oil producing nations are in bed 
together. They do not fight oil price increases. The Arab 
nations want to increase their prices, the OPEC nations, so be 
it. And I don't think, it is not a matter of being arm's-length 
relationship.
    Mr. Delahunt. If you know, Senator, if I can interrupt, I 
presume that there are strategic alliances where, for example, 
an American company will work with a State-owned entity in one 
of the OPEC countries, and there will be an equity relationship 
with either the State-owned entity or the major oil company 
will have 50 percent or 51 percent of the equity in a 
particular enterprise. Am I correct when I say that?
    Mr. Metzenbaum. I think you are 100 percent correct, and, 
frankly, I don't believe that the OPEC nations in the main 
would have been able to develop their oil without the financial 
assistance, or the engineering assistance, and the intelligence 
portion of putting it together and seeing to it that the oil 
gets up out of the ground and into the pipes. I think, perhaps 
at this time, they are able to do that. But for many years, I 
think that American ingenuity and some European ingenuity as 
well made it possible for the oil-producing nations to get the 
oil out of the ground and get it to market.
    I think that the oil companies probably originally had a 
pretty good go of it as far as they were concerned. But right 
now, I think that it is not an arm's-length transaction. I 
think that----
    Mr. Delahunt. They are working in tandem?
    Mr. Metzenbaum. They are in bed together.
    Mr. Delahunt. Because if you take a look, the profits that 
have just exploded----
    Mr. Metzenbaum. Absolutely.
    Mr. Delahunt. Clearly, the cost of doing business for the 
oil companies did not escalate so substantially during the 
course of a single year that would have allowed those kind of 
profits to occur.
    Mr. Metzenbaum. In no way did their costs increase. I think 
maybe it is a bad pun, but I think the oil companies greased 
the way for the Arab nations to take advantage of this 
situation. They didn't fight it. They didn't try to find some 
alternate way of dealing with it.
    Mr. Delahunt. They benefited from it.
    Mr. Metzenbaum. Sure. They went along.
    Mr. Delahunt. They benefited from it.
    Mr. Metzenbaum. Look at the profit margins. They are 
unbelievable.
    Mr. Delahunt. What we have are the OPEC nations, and you 
justifiably noted what we, in this Nation, did, in terms of 
saving the regimes, and let us call them really what they are, 
the regimes, because they are not democracies in Kuwait and 
Saudi Arabia, because of our oil interests, by the way, we 
didn't do what I would suggest out of any democratic impulses, 
but it was because of oil. And here we are, you know, 10 years 
later dealing with another crisis. But I would hope that in our 
next hearing that the Chair would consider a panel that would 
describe in detail for us the relationship between the OPEC 
nations and the major oil companies, because what I see 
happening is on this side of the aisle, among Democrats, there 
is a lot of talk about the major oil companies; silence on the 
other side, and again, I am not ascribing, you know, any 
particular motives, but there is enough culpability and 
responsibility to go around here to really examine, once and 
for all, these interlocking relationships that are not just 
benefiting the OPEC nations, but major oil companies, to the 
detriment of the consumer.
    Mr. Payne. Would the gentleman yield for a moment?
    Mr. Delahunt. Certainly.
    Mr. Payne. I just think that is an excellent presentation, 
an area we ought to move in, but I might even, you know, as you 
probably know as well as I do, when the British ended 
colonialism, particularly around the Red Sea, the Horn, Qatar 
and the Emirates and those small countries, one of the reasons 
that they were broken up into mini-states was that it made it 
easier for the major oil companies to deal with one Sultan or 
someone, so the whole question of the division of those States 
were based on oil, and based on the colonial oil companies 
wanting to have the direct tie because of the sharing of the 
profits by the investment from them to the oil there. So I 
yield back.
    Chairman Gilman. Just to respond to Mr. Delahunt, we will 
be inviting major oil companies at our next hearing.
    Mr. Delahunt.
    Mr. Delahunt. I thank the Chairman. I am not here to simply 
bash the major oil companies, but I think in terms of an honest 
and thoughtful examination of the subject, that it is very 
important and critical to examine these relationships.
    Mr. Payne's comment about, you know, the early decades of 
this century when Britain was an imperial power, and he is so 
correct when he says that it was much easier dealing with a 
Sultan or a Emir, rather than nurturing democracy. You know, 
nothing has really changed in the course of 100 years as far as 
the Middle East is concerned and the nurturing of democracy, 
other than the state of Israel. But, again, it would lead one 
to wonder why we haven't been more aggressive in terms of 
again, promoting democracy. But maybe there is an answer 
somewhere in this mix of big oil and the OPEC nations that are 
enjoying, you know, this spike in prices.
    Chairman Gilman. Thank you, Mr. Delahunt.
    Senator Metzenbaum, in closing, I would like to note for 
the record that Senators Kohn and Senator DeWine are both 
calling for antitrust action against the OPEC nations. I think 
we should try to find a method for doing that. I have 
introduced some legislation, I am going to submit it to you, 
and we would welcome your reviewing it and think about how best 
we could accomplish this with all of your experience in 
antitrust work.
    Our hearing stands adjourned----
    Mr. Sherman. Mr. Chairman, I did come with some questions, 
but if the hearing needs to end, I will understand.
    Chairman Gilman. If you would like, one question, if you 
would, and then we are really overextending our time.
    Senator Metzenbaum has been here for a couple of hours.
    Mr. Sherman. Senator, I thank you for your patience. I was 
talking to one of our colleagues from Earl, Wisconsin, who 
points out that they are paying more in rural Wisconsin for 
non-reformulated gas, for the old-fashioned gasoline, than they 
are even in Milwaukee and Chicago for the reformulated gas. I 
don't know if you have had a chance to look at this either in 
Ohio or the Midwest in general, but does this reformulated gas 
really have much to do with the spike in prices?
    Mr. Metzenbaum. I don't think that is really the cause for 
this spike in prices. I think it is just a question of what 
they can get they are going to get, and they are doing it very 
well, to the detriment of the American people.
    Chairman Gilman. Thank you again, Senator Metzenbaum. We 
appreciate your patience to be with us this long. We wish you 
good health.
    Mr. Metzenbaum. Thank you very much, Mr. Chairman. It is 
very gracious of you to permit me to be heard. Thank you, Mr. 
Payne. It is nice to see all the rest of you here this 
morning--this afternoon, I guess it is.
    Chairman Gilman. The Committee stands adjourned.
    [Whereupon, at 1:50 p.m., the Committee was adjourned.]

                            A P P E N D I X

                              ----------                              

               Material Submitted for the Hearing Record

       Prepared Statement of the Honorable Benjamin A. Gilman, a 
 Representative in Congress from the State of New York, and Chairman, 
                  Committee on International Relations

    I am very pleased to welcome Secretary Richardson back to the 
International Relations Committee for our hearing this morning on 
``OPEC's Policies: A Threat to the U.S. Economy,'' and to note that 
later this week he will speak on similar topics before at least three 
other committees in the House and Senate.
    Today's hearing is the third in our series on the impact of the 
price-fixing-schemes of the Organization of Petroleum Exporting 
Countries on the American homeowner, the small businessman, the 
commuter, the truck driver, the consumer--and the policymaker who sits 
in your seat and must manage this uneasy and very troubled 
relationship.
    Our policy is hard to discern--and harder still to explain to the 
average American who has seen gasoline prices rise some 60 cents over 
the past year and a half to record levels in the northeast and midwest.
    Oil prices today are higher than at any time since the Iraqi 
invasion of Kuwait. Continued high prices for gasoline and other fuels 
are now beginning to stunt our own economic growth and curtail global 
growth prospects as well. In addition, they are stoking the flames of 
inflation inducing bankers to raise rates and curtail lending.
    How has the Administration reacted to this growing threat to our 
pocketbook and our prosperity? Remarkably passive in the face of OPEC's 
continued assault on our free market system and antitrust norms, this 
Administration is still firing blanks when it should be making an all-
out attack on the production allocation system which has kept oil at 
$30 a barrel for much of the year.
    The producers are in clover with multi-billion dollar profits while 
consumers are in hock to a cartel that is turning our economy's soft 
landing into an abrupt free fall with no rip cords left to pull.
    I am still waiting for the answers I raised at our first hearing: 
What has the Administration done to systematically review our policies 
toward OPEC and its member states? Why has the Administration failed to 
weigh in strongly enough with OPEC last year to prevent a continuation 
of production cutbacks? And how can we begin to take effective action 
against its continued production cutbacks and price fixing behavior?
    The Administration's laissez-faire approach has sent the clear 
signal to OPEC that price-fixing is fine by us, that production 
cutbacks are not so bad after all, and that as long as you keep trying 
to aim at a reasonable price for crude oil, you can overshoot your mark 
with $30 a barrel oil with not so much as a slap on the wrist. Uncle 
Sam is being played for ``Uncle Sucker.''
    The legislation I introduced last week, ``The Foreign Trust Busting 
Act' 'and the ``International Energy Fair Pricing Act of 2000'' will 
ensure that this Administration adopts a consistent and comprehensive 
policy of opposition to OPEC and other similar cartels. In the ongoing 
energy crisis facing this nation, it keeps the spotlight where it 
belongs--on this international energy cartel. With the enactment of 
this measure, the Administration will no longer be able to go back to 
business as usual in supporting back room arrangements and cartel-like 
behavior.
    The first measure would allow lawsuits to be brought against 
foreign energy cartels. The second would specifically direct the 
President to make a systematic review of its bilateral and multilateral 
policies and those of all international organizations and international 
financial institutions to ensure that they are not directly or 
indirectly promoting the oil price-fixing activities policies and 
programs of OPEC.
    It would require the Administration to launch a policy review of 
the extent to which international organizations recognize and or 
support OPEC and to take this relationship into account in assessing 
the importance of our relationship to these organizations. It would set 
up a similar review of the programs and policies of the Agency for 
International Development to ensure that this agency has not indirectly 
or inadvertently supported OPEC programs and policies.
    Finally, it would examine the relationship between OPEC and 
multilateral development banks and the International Monetary Fund and 
mandates that the U.S. representatives to these institutions use their 
voice and vote to oppose any lending or financial support to any 
country that provides support for OPEC activities and programs.
    I would now turn to Mr. Gejdenson for an opening statement.

                               __________

Prepared Statement of the Honorable Sam Gejdenson, a Representative in 
                 Congress from the State of Connecticut

    Mr. Chairman, thank you for scheduling today's hearing. With gas 
prices surging to between $1.80 and $2.00 per gallon in eastern 
Connecticut and as high as $2.50 in the Midwest, we need some answers. 
High prices for gas and oil adversely affect the economy, lead to 
higher inflation, and increase the trade deficit.
    I am pleased at Secretary Richardson's willingness to be here to 
address this difficult issue, but frankly, he should not be here alone. 
We should be hearing from the chief executives of major domestic oil 
companies which are realizing enormous profits this year. The industry 
has attributed high gas prices in the Midwest to a host of problems 
from a ruptured pipeline to ``new'' gasoline requirements which it knew 
about long ago. Taken together, these factors do not fully explain the 
high prices in Chicago and Milwaukee, and they certainly do not explain 
$1.80 and $2.00 gas prices in eastern Connecticut. What they also fail 
to explain is the 500% increase in earnings that some oil companies 
have realized in the first quarter this year.
    OPEC shares much responsibility for the current crisis. It has 
manipulated worldwide supply to maximize the profits of its member 
nations. This syndicate took 6% of world supply off the market in 1999 
to drive prices up. Now it is slowly increasing production under 
pressure from this Administration.
    I had hoped that the heating oil crisis in the northeast this 
winter would have persuaded members to support sensible long and short-
term proposals to reduce our dependence on foreign oil.
    On February 15th, in the midst of the heating oil crisis, I warned 
that gas prices would rise dramatically unless decisive steps were 
taken. Now, I am warning that unless we act soon, we face another 
heating oil crisis. Indeed, heating oil stocks are now 22% below last 
year's levels. Although some positive initiatives have been introduced 
in Congress, we have not followed through on any of them.
    It's high time that we started enacting sensible legislation and 
supporting the Administration's efforts to reduce our dependence on 
foreign oil. In short, Congress cannot be the foul-weather friend of 
American consumers; we must have a sustained interest in this issue, 
even when times are good.
    Mr. Secretary, I want to thank you for coming before the Committee 
today. I want to thank you for your commitment to public service and to 
your job as Secretary of Energy. I particularly want to thank you for 
your diplomatic efforts which have encouraged OPEC to increase 
production by a total of 2.4 million barrels per day since March.
    Mr. Secretary, I was one of the first in this body to be critical 
of the Administration's slow response to the heating oil crisis that we 
experienced in the northeast. It failed to act aggressively, and 
consumers in the northeast paid a high price for its inaction. I must 
add that although you and others have pressed OPEC to boost production 
in March and again just last week, the Administration must keep OPEC's 
feet to the fire and ensure that member nations follow through on their 
commitments. OPEC promised to raise production 500,000 barrels per day 
if crude prices went above $28 per barrel for a specified period of 
time. When these conditions were met, OPEC reneged. These empty 
promises will not bring prices down at the pump.
    Now, some in this body are attempting to convince the American 
people that the Administration is solely responsible for the current 
situation. I give tbe American people more credit. I believe that they 
recognize that an energy policy is based on long-term investments in 
building energy security and independence. Unfortunately, for six 
years, the majority in Congress has failed to make the necessary 
investments in energy efficiency, renewables, and conservation.
    Since Fiscal Year 1996, the majority has slashed the President's 
proposed investments in energy supply research and development by 
approximately $2 billion and conservation programs by $1.1 billion. In 
fact, the investment for conservation approved the House Appropriations 
Committee only a week ago is $44 million less, in nominal terms, than 
the investment in Fiscal Year 1995.
    The majority also consistently blocked any effort to improve the 
fuel efficiency of our cars and trucks. If we had more efficient 
vehicles on the road today, high gasoline prices would be less of an 
issue. Unfortunately, since 1996, Congress has barred the National 
Highway Traffic Safety Administration (NHTSA) from even studying 
whether or not fuel efficiency standards for cars and light trucks 
should be increased. As a result, we have not increased average fuel 
efficiency standards (Corporate Average Fuel Economy--CAFE, for short) 
since 1985. This is extremely short-sighted because raising the average 
fuel economy of our cars and trucks just by one mile per gallon will 
save about 250 million gallons of gasoline each year--that's 12.5 
million barrels of oil per year.
    Even more damning is Congress's failure to reauthorize the 570 
million barrel strategic oil reserve. This legislation lapsed at the 
end of March. Although the heating oil crisis forced the majority to 
take up this legislation, which eventually passed on an overwhelming 
416-8 vote, it has languished in the Senate. For 76 days, the Senate 
leadership has stalled action as it has tried to use this essential 
legislation as a vehicle for anti-environmental provisions--including 
opening the Arctic National Wildlife Refuge to oil exploration and 
drilling. We all know that drilling in this pristine wilderness has no 
chance of being signed into law.
    Two weeks ago, the Secretary had to tap the reserve to supply 
refineries that had been cut off from their regular crude supply. This 
quick action has helped keep gasoline flowing to the east coast. 
Unfortunately, because Congress has not passed a simple, cost-free bill 
to renew the reserve, the Secretary's legal authority to use it for 
this type of common-sense measure has been put in doubt.
    By failing to reauthorize the strategic oil reserve, the majority 
has also failed to provide energy security for consumers in the 
northeast who rely on heating oil to heat their homes and businesses. 
At the request of the President, the Secretary, and many members of 
Congress, the reauthorization of the strategic reserve includes 
language to create a northeast heating oil reserve. However, because of 
the 76-day delay in the Senate, it appears that we will not have a 
reserve in the northeast before the onset of winter.
    The House had a chance two weeks ago to make its concern about the 
heating oil reserve clear. Mainly along party lines, the House voted 
down a measure (193 to 195) that would have provided $10 million to 
fund the northeast reserve.
    Again, I wish we were not facing another price and supply problem, 
but if anything is to come out of this current crisis, I hope it is a 
more active interest in these important initiatives.
    Before I conclude, I want to emphasize that if the authority to use 
the strategic oil reserve is extended, the Administration should not be 
reluctant to use it. When I warned about high gasoline prices this 
winter, I called on the Administration to use the reserve to tide us 
over until higher OPEC production entered the market. If we had pursued 
this course, I believe we would have been in a more comfortable 
position during the summer driving season and heading into winter.
    Mr. Secretary, I want to again thank you for being here this 
morning. I look forward to your testimony.

                               __________

 Prepared Statement of the Honorable Paul Gillmor, a Representative in 
                    Congress from the State of Ohio

    Mr. Chairman, I thank you for convening this hearing on the 
policies of the Organization of Petroleum Exporting Countries (OPEC). 
OPEC, without a doubt, is one of the major reasons for unacceptably 
high gas prices in the Midwest.
    I was happy to see OPEC's decision last week to boost production by 
708,000 barrels a day. However, it is important to note that this 
action will do little to relieve the burden on American consumers. Many 
analysts agree that refineries are already operating at peak levels to 
meet existing demands. This may prove to be to little, too late for my 
constituents.
    Another factor in the high gas prices has been the fact that the 
United States has placed many areas ``off limits'' to domestic 
petroleum exploration and production. While there may be some valid 
reasons for doing so, the fact is this has made the United States more 
dependent on foreign energy and much more vulnerable to the 
international cartel.
    There have also been allegations of collusion by oil companies in 
forcing up prices. So far, these allegations have not been proven, but 
the Federal Trade Commission is investigating the matter to get at the 
truth.
    The major reason, though, for high gas prices is the failure of the 
Clinton Administration to develop a coherent or effective energy 
policy. The Administration has also failed to confront OPEC when they 
could and should have. For example, one of the major OPEC producers is 
Nigeria. Two weeks ago, the U.S. Secretary of State proposed that 
Nigeria be relieved from billions of dollars in foreign debt. At no 
time, though, did the Administration do the obvious thing in the 
interest of the United States. I believe we should call on Nigeria to 
conduct itself in a way that will provide relief to American consumers 
for the billions of dollars in additional costs imposed on them by OPEC 
and Nigeria.
    I would also like to take advantage of this audience with Secretary 
Richardson to make my opinion known on the current security situation 
within the Department of Energy. I am sure we are all aware of the many 
security breeches that have occurred in recent weeks and have put our 
national security severely at risk. Yet, I would like to draw this 
committee's attention to a startling report in yesterday's Columbus 
Dispatch revealing that ``30 percent of the security-operations 
personnel at the (Los Alamos National) Laboratory, who were interviewed 
by the inspector general, said they had been pressured to alter their 
responses on periodic surveys of laboratory security conducted by the 
Energy Department.''
    This is absolutely unacceptable behavior by Clinton Administration 
employees. Coercing security personnel into giving positive statements 
designed to improve the laboratory's security rating is careless, 
dangerous, and irresponsible. It is time for someone to be held 
accountable for this problematic situation within the Department of 
Energy and for adequate and full explanations to be put forth.
    Mr. Chairman, again, I thank you for calling this hearing and 
allowing me to make some brief comments. I would also like to thank 
Secretary Richardson for making himself available to the Committee this 
morning.
                               __________

 Prepared Statement of the Honorable Robert Menendez, a Representative 
                in Congress from the State of New Jersey

    ``Thank you, Mr. Chairman, for convening this important hearing. 
Secretary Richardson, I thank you for coming before us today.
    ``Mr. Chairman, despite Secretary Richardson's recent diplomatic 
efforts, which resulted in OPEC and other oil producing nations 
increasing their oil output by an additional 700,000 barrels per day, 
we are facing a crisis in our nation's energy situation. If not 
addressed quickly and forcefully, this crisis will become even more 
serious than it already is.
    ``Exorbitant gasoline prices are a problem as we begin the summer 
season. I am even more concerned about home heating oil costs for next 
winter. The current inventory of home heating oil on the East Coast is 
40% lower than at this time last year.
    ``Mr. Chairman, this is not the first time we are having this 
discussion. Many of the steps we can take are already before us. 
Certainly, OPEC should be persuaded that collusion now in the effort to 
gain high prices in the short-term, could come back to haunt the cartel 
in the long-term. This country should not be underestimated in its 
ability to develop alternative energies. Vice-President Gore's 
announcement this week of a bold new energy policy should be read as a 
welcome sign to America's consumers and a warning sign to OPEC's 
producers.
    ``I have joined a large number of my Democratic colleagues recently 
in calling for urgent action on several fronts. We have asked that the 
Federal Trade Commission expedite its investigation into price-gouging 
on the part of oil companies. Major oil companies have nearly tripled 
their profits as a result of these price increases--from $4.5 billion 
in profits in the first three months of 1999, to more than $12 billion 
in the same period this year. We also have urged the leadership in 
Congress to unblock efforts to renew the Strategic Petroleum Reserve 
(SPR). We ask also that the President, once given the authority, 
release or exchange more oil reserves from the SPR. Finally, we call 
once again on Congress to authorize the Northeast Oil Reserve, as 
passed by this House, but now languishing in the Senate.
    ``Let us not forget, Mr. Chairman, that the leadership of this 
Congress shares a responsibility to act now.
    ``The Republican leadership has failed to provide Americans with 
energy security. The Republican majority has failed to reauthorize the 
Strategic Petroleum Reserve; continues to send Alaskan oil to Japan, 
despite our current domestic price spike; and--most damaging--has 
failed to fund research and development into alternative fuels and 
energy efficiency. In the past five years, Republicans in Congress have 
funded only 12% of the Administration's requests for new investments in 
renewable sources of energy and energy efficiency initiatives--this 
measly and irresponsible level of funding has been nearly $2 billion 
short of Clinton Administration requests. [So. I don't think, Mr. 
Chairman, it is appropriate to claim here today that the Administration 
has no energy policy.]
    ``Republicans not only have failed to build up the Strategic 
Petroleum Reserve when fuel was cheap, but before we faced this crisis, 
they proposed getting rid of the Energy Department and selling off the 
reserve--policies that would have been extremely detrimental if carried 
out as proposed.
    ``I look forward to our discussion with Secretary Richardson and 
hope that by the end of the day we can all agree on taking some steps 
now that will protect the American economy and American consumers this 
summer, this winter, and for many seasons to come.''

                               __________

Prepared Statement of the Honorable Joseph Crowley, a Representative in 
                  Congress from the State of New York

 LI would like to thank Chairman Gilman and Ranking Member 
Gejdenson for holding this important hearing today
 LThe more things change, the more things stay the same
 LWe all gathered here last March for a similar hearing; at 
that time we all gathered to discuss the high costs of home heating oil
 LToday, we discuss the high costs of gasoline
 LIf this chamber does not work together with the 
Administration to solve this problem, we will again be back here next 
winter to again discuss the high cost of heating oil--I don't want 
that, Mr. Gilman and Mr. Gejdenson don't want that., and our 
constituents definitely do not want that
 LGas prices have gone up over 75 cents a gallon since last 
summer in my Congressional District
 LI represent a working class district, where most of the 
homeowners are senior citizens or working families--they cannot afford 
this
 LThey are the working people who have budgets to keep, are 
paying their mortgage, setting aside funds for their kids education and 
hopefully keeping enough money for a family vacation
 LTherefore, I again implore the Secretary to open up the 
Strategic Petroleum Reserve (SPRO) to provide immediate relief to my 
constituents
 LWhen President Bush opened the SPRO up at the start of the 
Persian Gulf War, the price of crude oil dropped $10 a barrel on world 
markets over night
 LThe SPRO was created by the Federal government to provide 
relief to American citizens and small business owners in times of 
energy crises like we are experiencing today
 LAdditionally, I would like to state that OPEC should continue 
to increase its output
 LAs a nation, we have worked hard to ensure the survival of a 
number of Middle Eastern nations, it is time that this friendship be 
reciprocated
 LQuite frankly, some of these nations owe us a major debt and 
I find their current collusion disgraceful and something that this 
Congress should remember well into the future
 LStating that, I would like to address the partisan bickering 
from the other side blaming this Administration and you Mr. Secretary 
for the high prices of oil
 LWhile I disagree with the Administration on their policy 
regarding opening the SPRO, my Republican colleagues are wrongly 
blaming the President for every problem under the sun
 LThis Administration has advocated the creation of a home 
heating oil reserve for the Northeast, but the Republican, majority 
refused to fund it (no funding in Interior Approps and Sanders 
amendment for $10 million for this reserve failed 193-195)
 LThe Administration had continually worked for the 
reauthorization of the SPRO, but again, the Republican Congress has 
blocked that too
 LThis President has worked for greater energy efficiency and 
alternative sources of power, all to see his work destroyed by the 
Republican Majority
 LAnd lastly this Congress voted yesterday to cut funding for 
the Federal Trade Commission--the people who investigate price fixing 
here in America--by $30 million from the President's request and $10 
million from last years enacted appropriation (CJS)
 LThis Congress is fiddling while Rome bums and then calling 
the President an arsonist
 LIt is time to put the partisan rhetoric aside and work 
together to make sure this is the last hearing this Congress needs to 
hold on the excessive costs of oil
 LStating that, I welcome Secretary Richardson to the Committee 
today and would like to pose a question to the Distinguished Secretary

                               __________

                               
                               
United States General Accounting Office Report to the Honorable Dianne 
                         Feinstein, U.S. Senate

                               APRIL 2000
            MOTOR FUELS--CALIFORNIA GASOLINE PRICE BEHAVIOR

B-285102

The Honorable Dianne Feinstein
United States Senate

Dear Senator Feinstein:

    Retail gasoline prices in the United States have risen sharply 
since early 1999, mostly in response to sharply rising world crude oil 
prices. Although gasoline prices have, in general, been relatively low 
for U.S. consumers' compared with both historical standards and the 
prices paid in many other industrialized countries--sharply rising 
gasoline prices can potentially have an adverse impact on U.S. 
consumers, as well as on the U.S. economy. Moreover, during the second 
half of the 1990s, retail gasoline prices throughout the United States 
have exhibited a high degree of volatility and fairly frequent spikes. 
Particularly in California, where consumers already generally pay 
higher average prices than they do elsewhere in the United States, the 
spikes have raised questions about the behavior of gasoline prices both 
within the state and between California and the rest of the country.
    Concerned about the higher gasoline prices and the extent of price 
spikes in California, you asked us to analyze the behavior of gasoline 
prices in the state. Because we found no standard definition of a 
gasoline price spike, for this report, we define a spike as an increase 
of at least 6 cents per gallon in a 4- to 21-week period. As agreed 
with your office, this report addresses the following questions: (1) To 
what extent do retail gasoline prices spike more frequently and higher 
in California than they do in the rest of the United States, and what 
factors account for any difference? (2) Do retail gasoline prices in 
California rise faster than they fall in response to increases and 
decreases in the wholesale price of gasoline and, if so, why? (3) What 
factors account for differences in the retail prices of gasoline 
between San Francisco and Los Angeles?

                            RESULTS IN BRIEF

    According to our analysis of gasoline price data, from January 1995 
through December 1999, retail gasoline prices spiked no more frequently 
in California than they did in the rest of the United States, but the 
spikes that did occur were generally higher in California than 
elsewhere in the nation. Prices spiked seven times, and during six of 
the spikes, the price increases. (the differences between the low and 
high prices) were between 3 cents and 31 cents per gallon higher in 
California than in the rest of the United States. Many federal, state, 
and oil industry officials told us that the higher price spikes in 
California were caused primarily by unplanned refinery outages that 
disrupted the state's tight balance between gasoline supply and demand. 
Because California refineries produce at almost full capacity, supply 
disruptions caused by refinery outages must be made up from other 
sources, such as out-of-state providers. However, obtaining gasoline 
from such providers is slow and costly because only a few out-of-state 
refineries can produce gasoline that meets the state's stringent 
emission-reducing standards and the gasoline must be shipped by tanker 
from far-away locations. In contrast, some West Coast retailers told us 
that reduced competition at the refinery and retail levels caused the 
higher California spikes. The Federal Trade Commission is currently 
investigating gasoline prices in California and other West Coast 
states.
    According to the results of statistical modeling by the Department 
of Energy's Energy Information Administration, retail gasoline prices 
in California rise faster than they fall in response to a delayed pass-
through of changes in the wholesale prices of gasoline--a behavior that 
has been observed in other markets. The model was not designed to 
explain the factors that account for this price behavior. Energy 
Information Administration officials believe, however, that this price 
behavior has little or no impact on consumers because their analysis 
shows that price increases and decreases at the wholesale level are 
generally fully passed through to the retail level, despite some delay. 
Oil industry officials and experts we contacted also told us that 
retail prices generally fully reflect changes in wholesale prices and 
that the observed price patterns may be due to the way retail sellers 
react to these changes. The officials and experts were uncertain about 
what effect, if any, this behavior could have on consumers.
    Retail gasoline prices are higher in San Francisco than in Los 
Angeles, in part because of local supply and demand conditions. Retail 
gasoline prices were, on average, about 11 cents higher in San 
Francisco than in Los Angeles for the period from January 1992 through 
December 1999. Among the local supply and demand conditions that are 
important in explaining the price differences between the two cities 
are (1) the number and location of retail gasoline stations, (2) the 
costs of building and operating gasoline stations, and (3) consumers' 
incomes. Together, these conditions would be expected to lead to higher 
retail gasoline prices in San Francisco than in Los Angeles, although 
the exact magnitude of the effects on prices cannot be determined with 
the available data. The local supply and demand conditions we 
identified may not entirely explain the price differences between the 
two cities. Other factors, such as competition at the refining level, 
may help explain these differences, but we were unable to obtain 
proprietary data that would have allowed us to explore this 
possibility.

                               BACKGROUND

    Gasoline prices in California and the rest of the United States 
have risen sharply over the past year, largely because of increases in 
the price of world crude oil, which rose from a low of about $12 per 
barrel in February 1999 to a high of about $34 per barrel in early 
March 2000. In spite of this sharp rise, gasoline prices are still 
lower in real terms than they were at their peak in 1981. For example, 
in early March of this year, the average price of gasoline in the 
United States was $1.50 per gallon, compared with about $2.47 in 1981 
(in 1999 dollars). In addition, the amount of oil the U.S. economy uses 
per unit of gross domestic product has decreased since 1979. Finally, 
average fuel economy for the new vehicle fleet--including light trucks 
and sport utility vehicles--has risen slightly since 1980, although it 
has been declining since about 1988 with the increasing share of light 
trucks and sport utility vehicles, which have a lower average fuel 
economy than cars. If fuel efficiency continues to decline, the impact 
of higher gasoline prices on consumers will also rise. Moreover, the 
increased price volatility over the last year may have adverse effects 
on consumers and the U.S. economy.
    California consumed almost 1 million barrels of gasoline per day in 
1999, more than any other state in the country. Furthermore, from 1996 
through 1999, California's gasoline demand grew at an annual rate of 
about 1.4 percent. To put these data into perspective, in 1997 (the 
last year data were available for international comparisons) California 
was the third largest consumer of gasoline in the world, behind only 
the United States and Japan and ahead of such major countries as China, 
Germany, and Russia (see fig. 1).

    According to oil industry, federal, and California officials, in 
general, California's gasoline demand is met almost entirely by supply 
from refinery production within the state. In 1999, 23 refineries in 
California made gasoline: 11, owned by five large refiners, had the 
capacity to make almost 0 100 200 300 400 500 600 700 800 900 Japan 
California China Germany Russia 932 911 774 751 530 Refineries 2,000 
3,000 4,000 5,000 6,000 7,000 8,000 8017 UnitedStates.California 
Gasoline Price Behavior 95 percent of the gasoline refined in the 
state, and 2, owned by independent refiners, had the rest of the 
gasoline-producing capacity. Other refineries made other petroleum 
products, such as asphalt and lubricants. Some conventional gasoline 
and gasoline that met federal standards for reformulated gasoline made 
by California refineries was shipped primarily to other West Coast 
markets, such as Oregon, Arizona, and Nevada.\1\ Gasoline is 
transported primarily by pipeline from the refineries to storage 
terminals and then, typically, by truck from the storage terminals to 
retail gasoline stations.
---------------------------------------------------------------------------
    \1\ Reformulated gasoline is designed to reduce harmful exhaust 
emissions that cause smog.
---------------------------------------------------------------------------
    The remaining supply comes from using existing gasoline inventories 
and from out-of-state providers. Gasoline brought into California from 
the U.S. Gulf Coast or other out-of-state locations typically travels 
by water on tankers or barges. Inventories and out-of-state providers 
generally play a minimal role except during disruptions in refinery 
production, when they become important supply sources. Events that 
substantially disrupt the supply of gasoline through this system could 
have a significant impact on the prices paid by consumers. Figure 2 
shows California's gasoline demand/ supply network.

    To improve its air quality, California established gasoline 
standards that are more stringent than the federal standards and 
different from those of any other state. On March 1, 1996, California 
implemented a program that exceeded the federal requirements for states 
to use reformulated gasoline in areas with serious ozone problems. The 
California reformulated gasoline program is administered by the 
California Air Resources Board (CARB). To make reformulated gasoline to 
meet the more stringent California standards, referred to as CARB 
gasoline, California refiners invested billions of dollars to modify 
their refineries to add sophisticated equipment and processes needed to 
make such gasoline. According to several industry officials and experts 
and CARB officials, some refiners, especially smaller ones, that could 
not make the needed modifications, partly because of high modification 
costs, shut down their refineries. This contributed to the reduction in 
the number of refineries in California that can make gasoline.

 GASOLINE PRICE SPIKES WERE NO MORE FREQUENT IN CALIFORNIA THAN IN THE 
  REST OF THE NATION BUT WERE GENERALLY HIGHER, PRIMARILY BECAUSE OF 
                            REFINERY OUTAGES

    The retail price of regular gasoline spiked the same number of 
times in California and in the rest of the United States from 1995 
through 1999.\2\ However, all but one of the price spikes were higher 
in California than elsewhere in the country. Many federal, state, and 
oil industry analysts and officials believe that the California spikes 
were higher primarily because unplanned refinery outages disrupted the 
state's tight balance between gasoline supply and demand. In contrast, 
some West Coast gasoline retailers believe that the higher California 
spikes resulted from reduced competition at the refinery and retail 
levels.
---------------------------------------------------------------------------
    \2\ Because we found no standard definition of a gasoline price 
spike, we analyzed gasoline prices in California and in the rest of the 
United States (excluding California) between Jan. 1, 1995, and Dec. 31, 
1999, to identify apparent spikes. During that time, there were seven 
periods when California and U.S. prices increased by at least 6 cents 
per gallon in a relatively short period of time--from 4 to 21 weeks. 
For this report, we refer to these increases as spikes.
---------------------------------------------------------------------------

Retail Gasoline Price Spikes in California Were No More Frequent but 
        Were Generally Higher

    Regular gasoline retail prices spiked seven times in California and 
in the rest of the United States (excluding California) from January 1, 
1995, through December 31, 1999, as shown in figure 3. Moreover, five 
of the seven California spikes started at about the same time as the 
U.S. spikes, and six California spikes overlapped the corresponding 
U.S. spikes by at least 4 weeks. Generally, these spikes coincided with 
increases in crude oil prices and increases in the demand for gasoline 
during the spring and summer driving seasons.\3\ Price spikes in 
California and in the rest of the United States occurred at different 
times only between the fall of 1996 and the spring of 1997. During this 
period, U.S. prices spiked in the fall of 1996, and California prices 
spiked in the spring of 1997, with a 1-week overlap.
---------------------------------------------------------------------------
    \3\ The director of EIA's Petroleum Division testified on Mar. 9, 
2000, that gasoline retail prices in the United States were about $1.50 
per gallon--about 23 cents higher than at the beginning of the year--
citing increases in crude oil prices as a major contributing factor.

    In terms of size, retail gasoline price spikes were higher in 
California than in the rest of the United States from January 1, 1995, 
through December 31, 1999, with one exception, as shown in figure 4. 
During six of the spikes, the California price increases (the 
differences between the low and high prices) were between 3 cents and 
31 cents per gallon greater than the corresponding price increases in 
the rest of the United States. The smallest difference occurred in the 
summer of 1999, when California prices spiked 3 cents per gallon higher 
than prices in the rest of the United States (20 cents versus 17 
cents). The largest difference occurred in the spring of 1999, when 
California prices spiked 31 cents per gallon higher (53 cents versus 22 
cents). Conversely, U.S. prices spiked 7 cents per gallon higher than 
California prices (14 cents versus 7 cents) in the spring of 1995.

    In addition, the relationship between California and U.S. prices 
changed after CARB gasoline requirements were implemented. The 
difference between gasoline prices in California and in the rest of the 
United States increased by about 6 cents per gallon--California prices 
were 10.5 cents per gallon higher than U.S. prices before CARB and 16.9 
cents per gallon higher after CARB.
    A comparison of the number and size of gasoline retail price spikes 
in California and in Texas--a large refining state that is comparable 
to California in terms of its role in the U.S. gasoline market--
corroborated our finding that spikes were no more frequent but were 
generally higher in California than in the rest of the United States. 
(See app. I for details of this related analysis.)

Higher Price Spikes in California Were Due Primarily to Unplanned 
        Refinery Outages, but Other Factors May Have Contributed

    Many oil officials and analysts told us that refinery outages were 
the primary reason California gasoline prices spiked higher than prices 
in the rest of the United States. However, some West Coast retailers 
believe that reduced competition was the primary reason.

            Unplanned Refinery Outages Were the Primary Cause of Higher 
                    California Price Spikes

    California refineries had unplanned outages every year from 1995 
through 1999. When such outages disrupted the California gasoline 
supply, oil companies met demand with gasoline from other sources. They 
obtained gasoline from out-of-state providers, used existing inventory, 
and increased production at California refineries whose operations were 
not disrupted. Obtaining gasoline from such sources was necessary when 
refinery outages significantly disrupted California's supply, as they 
did in the following instances:

         LOn April 1, 1996, an explosion at the Shell refinery 
        in northern California virtually shut down the refinery's 
        production, which amounted to about 100,000 barrels of gasoline 
        a day. Before the Shell refinery was fully repaired, explosions 
        and mechanical problems disrupted operations at several other 
        refineries. According to the Energy Information Administration 
        (EIA), these disruptions affected about 12 percent of the 
        state's production for several months. Our analysis showed that 
        California gasoline prices spiked about 39 cents per gallon 
        that spring. The spike was primarily due to the refinery 
        disruptions, according to CARB and oil industry officials. 
        Gasoline was brought into California from as far away as 
        Finland to make up for the lost production.

         LAn explosion at Tosco's northern California refinery 
        in February 1999 and subsequent outages in at least three other 
        California refineries significantly disrupted gasoline 
        production for several months, adversely affecting 12 to 15 
        percent of the state's production, according to EIA and others. 
        California Energy Commission officials and oil industry 
        analysts told us that these outages forced some oil companies. 
        to buy gasoline on the spot market, driving up wholesale prices 
        and, consequently, retail prices. Our analysis showed that 
        California retail prices spiked 53 cents per gallon that 
        spring. Gasoline from U.S. Gulf Coast, U.S. Virgin Islands, and 
        foreign refineries helped lower prices. However, additional 
        problems at several California refineries in the summer 
        disrupted the state's supply again, and these disruptions were 
        exacerbated by a June 10 explosion that shut down part of the 
        Olympic Pipeline, which transports thousands of barrels of 
        gasoline a day from Washington State to Oregon. Federal, state, 
        and oil industry officials told us that the West Coast gasoline 
        market is interrelated and that a major supply disruption 
        anywhere in the region affects supply and prices throughout the 
        region. Our analysis showed that California retail prices 
        spiked 20 cents per gallon that summer. According to EIA, 
        gasoline from the U.S. Gulf Coast and U.S. Virgin Islands was 
        used to meet California's gasoline demand.

    Bringing gasoline into California is slow and costly because 
California is isolated from out-of-state sources in two ways. First, 
only a few refineries outside the state can make gasoline that meets 
the state's CARB gasoline requirements. These few refineries are not 
set up to make CARB gasoline routinely, and they have to reconfigure 
their refining operations to produce it. Some oil industry officials 
told us that making the decision and reconfiguring for CARB gasoline 
production takes up to a week and adds costs for blending, storing, and 
segregating the gasoline. Second, because California has no pipelines 
that can bring gasoline into the state, tankers and other means must be 
used. According to oil industry analysts, CARB gasoline has been 
brought into California by tankers from the U.S. Gulf Coast, the U.S. 
Virgin Islands, and countries as far away as Finland, Singapore, and 
South Korea. According to EIA and oil industry officials and analysts, 
shipping gasoline into California from these locations takes between 11 
and 40 days and adds 3 to 12 cents per gallon to the retail price.
    To a limited extent, oil companies have also used gasoline in 
inventory and have increased output at uninterrupted refineries to meet 
demand when some California refineries' production has been disrupted. 
California inventories offered little potential relief because oil 
companies maintain relatively low inventories to avoid tying up 
resources. Similarly, California refineries can increase their 
production to only a limited degree because they are already operating 
at almost full capacity. According to CARB officials, California 
refineries were operating at about 97 percent of capacity in 1999.

            Reduced Competition May Have Contributed to Higher 
                    California Spikes

    Several West Coast retailers we contacted and others believe that 
reduced competition at the refinery and retail levels was the primary 
reason why California spikes were higher than U.S. spikes from 1995 
through 1999. According to the executive director of the California 
Service Stations and Automotive Repair Association, which represents 
about 850 gasoline service stations, a lack of competition in 
California caused the spring 1999 spike. Testifying before the 
California legislature on April 28, 1999, he noted that consumption in 
the state increased 30 percent between 1982 and 1999, while the number 
of refineries decreased from 43 to 23 and the number of service 
stations decreased from 14,687 to 9,513. Similarly, representatives 
from the Automotive Trade Organizations of California, which represents 
the owners of over 2,000 service stations, repair facilities, and 
related businesses, told us that reduced competition was the major 
cause of the California price spikes. Additionally, the executive 
director of the Automotive United Trade Organization, which is 
headquartered in Washington State, attributed the generally higher 
gasoline price spikes in California and other West Coast states to the 
limited competition facing large oil companies in these states at both 
the refiner and the retail levels. In addition, referring to a 1999 
preliminary report on California gasoline prices, the California 
attorney general issued a press release expressing concern that the 
relative lack of competition in California contributed to the state's 
high gasoline prices.\4\ We could not confirm that reduced competition 
was the primary reason for the higher California price spikes because 
the information needed to do so, such as oil companies' pricing 
formulas, plans, or policies, was not readily available.
---------------------------------------------------------------------------
    \4\ Keith Leffler and Barry Pulliam, Preliminary Report to the 
Attorney General Regarding California Gasoline Prices (Nov. 22, 1999).
---------------------------------------------------------------------------
    The Federal Trade Commission is investigating gasoline prices in 
West Coast states, including California, Oregon, and Washington. This 
investigation was prompted by allegations of anticompetitive behavior 
by oil companies. As of January 2000, Commission officials had reached 
no conclusions on the matter.

  RETAIL GASOLINE PRICES IN CALIFORNIA RISE FASTER THAN THEY FALL IN 
                RESPONSE TO CHANGES IN WHOLESALE PRICES

    According to statistical modeling completed by EIA at our request, 
from April 1996 through July 1999, retail gasoline prices in California 
rose faster than they fell in response to changes in the wholesale 
prices of gasoline. In other words, the pattern of retail price 
adjustments to increases and decreases in the wholesale prices of 
gasoline was asymmetric.\5\ The modeling did not separately estimate 
how much faster retail prices increased versus decreased in response to 
wholesale price changes. A previous study by EIA also found this 
asymmetric pattern for price adjustments in the Midwest, and the 
pattern is consistent with the findings of several other studies cited 
in the EIA report.\6\ Figure 5 illustrates an asymmetric pattern of 
retail price adjustments to wholesale price increases and decreases 
using California price data over a 10-week period during the price 
spike in the spring of 1999.
---------------------------------------------------------------------------
    \5\ EIA's statistical modeling also tested for the pattern of 
gasoline retail price increases and decreases in response to changes in 
the wholesale price in Texas, using Texas data for the same period. The 
result showed that retail prices in Texas also rose faster than they 
fell in response to changes in wholesale prices.
    \6\ See Price Changes in the Gasoline Market: Are Midwestern 
Gasoline Prices Downward Sticky? DOE/EIA, Washington, D.C. (Mar. 1999).

    As the figure illustrates, when wholesale prices rose, retail 
prices adjusted to this increase by also rising, but with a lag. 
However, the figure also shows that before retail prices reached their 
peak, wholesale prices began to fall. Again, retail prices responded to 
wholesale prices by falling, but with a lag. The figure also shows that 
retail prices rose at a faster rate than they fell. Although retail 
prices did not reach the peak of the increase in wholesale prices 
before the latter started falling, they stayed up longer, or fell more 
slowly, than the decline in wholesale prices. In this example of an 
actual price spike, retail prices rose for 4 weeks and fell for 6.
    The finding that retail gasoline prices have risen faster than they 
have fallen in response to wholesale price changes may have little or 
no implication for gasoline consumers apart from a consideration of the 
extent to which the wholesale price changes were passed on to 
consumers. EIA officials told us that their analyses of the data for 
California and other U.S. markets have shown that while the time taken 
for wholesale price changes to be fully reflected at the retail level 
varies among markets, all increases and decreases in wholesale prices 
were completely passed through to the retail level. According to these 
officials, because both increases and decreases in wholesale prices are 
ultimately fully passed through to the retail level, the pattern of the 
pass-through has little or no adverse impact on consumers. Many of the 
oil industry officials and experts we contacted also believe that, in 
general, because of competition at the retail level, retail prices 
fully reflect wholesale price changes, although they do so with a lag 
when prices are changing.
    To understand why retail gasoline prices may rise faster than they 
fall in response to wholesale price changes, and because there is no 
consensus in the economic literature as to why, we discussed this 
asymmetric price pattern with EIA and other oil industry officials and 
experts. EIA officials said that the observed pattern is almost 
entirely driven by the way retail prices respond with a lag to changes 
in wholesale prices. In general, this explanation is consistent with 
the description of the price patterns depicted in figure 5 above.
    In our discussions with oil industry officials and experts, several 
of them said that retail gasoline prices probably rise faster than they 
fall in response to wholesale price changes because retailers try to 
make up, during falling prices, for revenues lost when wholesale prices 
were rising. According to some oil industry officials and experts, 
although retail prices may rise fairly quickly in response to increases 
in wholesale prices, the increases in retail prices may not always 
fully reflect the wholesale price increases. They said that retailers 
exercise caution in raising their prices when wholesale prices are 
rising to avoid decreased sales and to forestall any backlash from 
consumers and public officials. Therefore, they explained, when 
wholesale prices fall, retailers lower prices more slowly in an attempt 
to recoup revenues lost when prices were rising. Furthermore, some 
argued that while retail prices may be slow to follow when wholesale 
prices fall, competition eventually forces retail prices down. The 
officials and experts we contacted said they did not know what impact 
this pattern of price adjustments would have on consumers. Furthermore, 
they pointed out that such price patterns are generally short lived and 
are not typical of long-run price behaviors.

RETAIL GASOLINE PRICES ARE HIGHER IN SAN FRANCISCO THAN IN LOS ANGELES, 
         IN PART BECAUSE OF LOCAL SUPPLY AND DEMAND CONDITIONS

    Retail gasoline prices are higher in San Francisco than in Los 
Angeles, and these differences have increased since the introduction of 
CARB gasoline in 1996. The price differences between the two cities are 
explained in part by local supply and demand conditions, including (1) 
the number and location of retail gasoline stations, (2) the costs of 
building and operating gasoline stations, and (3) consumers' incomes. 
These local supply and demand conditions may not entirely explain the 
price differences between the two cities. Other factors, such as 
competition at the refining level, may help explain these differences, 
but we were unable to obtain proprietary data that would have allowed 
us to explore this possibility.

Retail Prices in San Francisco Have Been Higher Than in Los Angeles 
        Since at Least 1992

    We examined retail gasoline prices from January 1992 through 
December 1999 and found that with few exceptions, San Francisco had 
higher prices than Los Angeles.\7\ According to data from the Oil and 
Gas Journal, the average difference was about 11 cents over the entire 
period. Moreover, as discussed below, the average difference grew 
larger in the second half of the period, from March 1996 through 1999, 
and grew still further in 1999.\8\ Figure 6 shows retail gasoline 
prices in the two cities from January 1992 through December 1999.
---------------------------------------------------------------------------
    \7\ We chose the period from 1992 through 1999 so that we could 
examine the price differences between San Francisco and Los Angeles 
before and after CARB gasoline was introduced.
    \8\ We used data from the Oil and Gas Journal to calculate the 
differences in retail gasoline prices between San Francisco and Los 
Angeles. We compared these data with data from the Lundberg survey that 
we received from an industry source. The Lundberg data showed a similar 
pattern of price differences between San Francisco and Los Angeles, but 
the differences were about 3 cents per gallon smaller. For example, the 
average difference between prices from Jan. 1992 through Feb. 2000 was 
about 8 cents using Lundberg data compared with 11 cents using Oil and 
Gas Journal data. Similarly, according to Lundberg data, the average 
differences before and after CARB were about 3 cents and 14 cents, 
respectively, compared with 6 cents and 17 cents using Oil and Gas 
Journal data.

    From January 1992 through February 1996, the retail price of 
regular gasoline was, on average, about 6 cents higher in San Francisco 
than in Los Angeles, but this difference increased to about 17 cents 
over the period from March 1996 through December 1999. In addition, 
refinery shutdowns in the Bay Area in the summer of 1999 further 
increased the price difference between the two cities to about 38 cents 
in August and September--the highest difference between 1992 and 1999. 
The price difference remained above 26 cents through December 1999.

Supply and Demand Conditions Help Explain Price Differences Between San 
        Francisco and Los Angeles

    In general, local supply and demand factors help explain why retail 
gasoline prices are higher in San Francisco than in Los Angeles. On the 
supply side, according to some experts and industry officials we 
interviewed, one key factor explaining the price differences is that 
consumers have fewer places to buy gasoline in San Francisco than in 
Los Angeles. In 1996, for example, there were about 19 gasoline 
stations in San Francisco for every 100,000 people, compared with about 
25 stations in Los Angeles. One explanation for why there are fewer 
gasoline stations per capita in San Francisco than in Los Angeles is 
that land is relatively more developed in San Francisco, which raises 
the cost of acquiring a site for a gasoline station. For example, 
according to a recent study, gasoline station development costs--real 
estate and construction costs--are about 50 percent higher in San 
Francisco than in Los Angeles.\9\ In addition, zoning and other 
regulations make it harder for station owners in San Francisco to 
operate convenience stores on the same property as gasoline stations 
and therefore eliminate profitable secondary sales. Being unable to 
spread high land costs over gasoline and convenience store sales would 
tend to make the costs of selling gasoline and also its price higher in 
San Francisco than in Los Angeles.
---------------------------------------------------------------------------
    \9\ Gasoline Station Development Issues in San Francisco, prepared 
for the Western States Petroleum Association by Kosmont & Associates, 
Inc. (Jan. 1998).
---------------------------------------------------------------------------
    On the demand side, the annual per-capita consumption of gasoline 
is higher in San Francisco than in Los Angeles--in 1996, about 520 and 
390 gallons, respectively. Tourists consume part of the gasoline, and 
on a per-capita basis, more tourists visit San Francisco than Los 
Angeles. For example, according to a survey done in 1998 for the 
California Department of Commerce, San Francisco County--with a 
population of around 783,000--was host to about 10 million leisure 
visitors, or about 13 per capita. In contrast, Los Angeles County--with 
a population of about 9,587,000--had about 24 million visitors, or 
about 2.5 per capita. Travelers to San Francisco County were also more 
likely to rent cars--about 12 percent of the leisure visitors to San 
Francisco rented cars compared with about 8 percent for Los Angeles. 
Besides increasing the total demand for gasoline, tourists may be less 
inclined than residents to search for low prices, enabling gasoline 
stations in areas with high tourist traffic to charge higher prices. 
Per-capita incomes are also higher in San Francisco than in Los 
Angeles, which may make the demand for gasoline in San Francisco less 
sensitive to price. Finally, the market structure of the two areas may 
play a role in explaining the price differences. For example, ARCO--a 
self-declared and commonly recognized seller of low-priced gasoline at 
the retail level--has a bigger market share in southern California than 
in northern California, potentially contributing to the lower prices in 
Los Angeles.
    The local supply and demand conditions that led to generally higher 
prices in San Francisco than in Los Angeles may also explain why these 
price differences rose when CARB gasoline was introduced in 1996 and 
why they rose further during refinery outages in 1999. The introduction 
of CARB gasoline in March 1996 caused prices to rise in California 
relative to the rest of the United States, in part by raising the cost 
of refining gasoline. At the same time, the supply of gasoline in 
California became more sensitive to supply disruptions because no 
outside source of CARB gasoline is readily available. When the cost of 
producing gasoline rose, refiners would have passed at least some of 
the cost on to retailers in the form of higher wholesale gasoline 
prices, in turn causing retail prices to rise. However, both wholesale 
and retail prices apparently increased more in San Francisco than in 
Los Angeles--the gasoline spot price (a wholesale price) rose about 2 
cents more in San Francisco, and the difference in retail prices 
between the two cities increased from 6 cents to 17 cents, an increase 
of 11 cents.\10\ There is no consensus among experts and industry 
officials as to why higher price increases occurred in San Francisco. 
One explanation offered is that higher refining costs are easier to 
pass on to consumers in San Francisco because of its local supply and 
demand conditions. Another is that the new fuel requirements might have 
tightened the gasoline supply and demand balance more in the northern 
part of the state than in the southern part. Consensus is also lacking 
as to why the refinery shutdowns in 1999 caused such a large increase 
in the retail price difference between the two cities, particularly 
since gasoline can be shipped by barge between San Francisco and Los 
Angeles for between 2 and 4 cents per gallon. However, as noted, local 
supply and demand conditions may make it easier to pass on refinery 
costs and wholesale price increases in San Francisco than in Los 
Angeles.
---------------------------------------------------------------------------
    \10\ We were unable to gather data on the two other principal 
wholesale prices--``rack'' and ``dealer tank wagon''--so we cannot 
determine the extent to which wholesale prices in general changed when 
CARB gasoline was introduced.
---------------------------------------------------------------------------
Other Factors May Play a Role in Explaining Differences in Gasoline 
        Prices
    The 1999 preliminary report on California gasoline prices for the 
California attorney general concluded that there is less competition at 
the refiner level in California than in the rest of the United States. 
The report stated that refiners engage in the practice of zone pricing, 
which enables them to charge different wholesale prices to different 
retail dealers according to what the market will bear. The report 
stated that retail dealers pay higher wholesale prices in San Francisco 
(17 cents higher for the first 9 months of 1999) than in Los Angeles 
and that these differences in wholesale prices explain most of the 
differences in retail prices between the two cities. Although zone 
pricing is not unique to California, this practice could be a 
significant cause of retail price differences between San Francisco and 
Los Angeles. However, we were unable to obtain proprietary data on the 
actual wholesale prices paid by specific retail dealers, and without 
this information, we could not explore this possibility. Moreover, the 
ability of refiners to engage in and benefit from zone pricing depends 
to a large extent on other factors we have addressed in this report. 
For example, refiners may not be able to charge higher wholesale prices 
for gasoline if competition among retail dealers will preclude them 
from passing the higher prices on to consumers.

                            AGENCY COMMENTS

    We provided a draft of this report to the Department of Energy and 
EIA for review and comment. We discussed the report with EIA officials, 
including the Director, Petroleum Division. EIA agreed with the report 
and provided clarifying comments that we incorporated, where 
appropriate.

                         SCOPE AND METHODOLOGY

    To determine the extent to which retail gasoline prices spike more 
frequently and higher in California than in the rest of the United 
States, we obtained and analyzed average weekly price data from EIA for 
selected retail regular gasoline markets for the period from January 1, 
1995, through December 31, 1999. Specifically, we compared price data 
for California reformulated gasoline with price data for all 
formulations of U.S. gasoline (excluding California). We also compared 
price data for California reformulated gasoline with price data for all 
formulations of Texas gasoline, using Texas as a benchmark state for 
U.S. prices. Specifically, we calculated the differences between the 
low and high gasoline prices in California, Texas, and the rest of the 
United States during the periods we identified as spikes--when the 
California and U.S. prices increased at least 6 cents per gallon in a 
4- to 21-week period. To ascertain the reasons for the differences, we 
reviewed expert studies and relevant federal and state records, and we 
interviewed officials and experts in the oil industry (selected oil 
companies, consulting firms, and trade organizations) and at EIA and 
the Federal Trade Commission, the California Energy Commission and 
CARB, and the University of California at Berkley and Purdue 
University.
    To determine whether California retail gasoline prices rise faster 
than they fall in response to changes in wholesale gasoline prices, we 
worked with EIA to develop and interpret an econometric model. This 
type of model is generally used by energy analysts to determine whether 
the prices of petroleum products, such as gasoline and home-heating 
oil, rise at a different rate than they fall in response to wholesale 
or even crude oil price changes--a phenomenon commonly referred to by 
analysts as price asymmetry. We used this model to analyze the response 
of retail prices to wholesale price changes from April 1996 through 
July 1999. To the extent possible, we used data in EIA's database, 
which we supplemented with data purchased from the Oil Price 
Information Service (a private vendor). However, these purchased data 
were not available at the level of detail needed to fully explain price 
behavior. To determine the reasons for the gasoline price asymmetry, we 
interviewed officials and experts in the oil industry, EIA, state 
agencies, and academia. We also reviewed existing studies and economic 
literature on gasoline markets.
    To determine the extent to which gasoline prices were higher in San 
Francisco than in Los Angeles, we analyzed data on retail and wholesale 
gasoline prices for the San Francisco/Bay Area and Los Angeles. To 
determine the reasons for the differences in the gasoline prices for 
these two areas, we assessed the potential effects on gasoline prices 
of such factors as geographical characteristics, barriers to market 
entry, and cost differences. A lack of data prevented us from fully 
describing the importance of all these variables. We also interviewed 
officials from the oil industry, EIA, the California Energy Commission, 
and academia.
    We conducted our work between June 1999 and March 2000 in 
accordance with generally accepted government auditing standards.
    Unless you publicly announce its contents earlier, we plan no 
further distribution of this report until 7 days after the date of this 
letter. At that time, we will send copies to appropriate congressional 
committees and interested Members of Congress. We will also make copies 
available to others upon request.
    If you have any questions about this report or need additional 
information, please call me at (202) 512-3841. Key contributors to this 
report included Daniel Haas, Godwin Agbara, Byron Galloway, and Frank 
Rusco.
            Sincerely yours,
                         Barry T. Hill, Associate Director,
                     Energy, Resources, and Science Issues.

                               APPENDIX I

    COMPARISON OF RETAIL GASOLINE PRICES IN CALIFORNIA AND TEXAS, A 
                 BENCHMARK FOR THE U.S. GASOLINE MARKET

    We compared gasoline prices in California and Texas to determine 
whether California prices were different from prices in the rest of the 
United States. We selected Texas as a benchmark for the comparison 
because Texas, like California, played a major role in the U.S. 
gasoline market from January 1, 1995, through December 31, 1999. Texas 
and California, respectively, were the first and third largest refining 
states and the second and first largest consuming states.
    Gasoline prices in Texas followed a pattern similar to prices in 
the rest of the United States (excluding California and Texas), 
increasing seven times, as shown in figure 7. However, two Texas price 
increases, which averaged less than 6 cents per gallon in the fall of 
1996 and the spring of 1998, did not meet the criteria for a spike that 
we applied to California price increases.

    The size of the retail gasoline price spikes was greater in 
California than in Texas. Six of the seven California price spikes were 
between 4 and 34 cents per gallon higher than the corresponding Texas 
price spikes or increases. The smallest difference occurred the summer 
of 1999 (20 cents per gallon in California versus 16 cents per gallon 
in Texas), and the largest difference occurred in the spring of 1999 
(53 cents per gallon in California versus 19 cents per gallon in 
Texas). Once, in the spring of 1995, Texas prices spiked 6 cents per 
gallon higher than California prices (13 cents versus 7 cents per 
gallon).

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