Public Citizen Urges Congress to Restore Accountability in Oil and Gas Markets
Feb. 1, 2006
Public Citizen Urges Congress to Restore Accountability in Oil and Gas Markets
Tyson Slocum, Acting Director of Public Citizen’s Critical Mass Energy Program, Testifies Today Before Senate Committee
WASHINGTON, D.C. – Record oil company profits are partially the result of uncompetitive markets created by too many recent mergers combined with lax government regulations, leading consumers to be gouged at the pumps, Public Citizen told lawmakers today in testimony before the Senate Committee on the Judiciary. The national consumer group called on Congress to investigate uncompetitive practices by oil companies, curb energy companies’ price-gouging by implementing a windfall profits tax and enact strong fuel economy standards to curb demand and save the environment.
Since the 1990s, more than 2,600 mergers have been approved in the U.S. petroleum industry, resulting in just a few companies controlling a significant amount of America’s gasoline, squelching competition and leading consumers to pay more at the pump, Tyson Slocum, acting director of Public Citizen’s Critical Mass Energy Program, told lawmakers. In addition, an increasing share of energy trading has been moving from regulated markets and into unregulated exchanges, allowing companies and hedge funds to escape federal oversight and more easily manipulate the energy market.
Public Citizen also noted that oil companies downplay these record profits by calculating profits differently when they communicate with Wall Street and shareholders. When speaking to lawmakers and the general public, the oil industry highlights the small profit margins (typically around 8 to 10 percent) that measuring net income as a share of total revenues produces.
But that’s not the measurement ExxonMobil uses when talking to investors and Wall Street. For example, the company’s 2004 annual report reads: “ExxonMobil believes that return on average capital employed is the most relevant metric for measuring financial performance in a capital-intensive industry such as” petroleum [emphasis added]. In 2005, ExxonMobil enjoyed a 30 percent return on average capital employed, meaning the company’s profit margin can clearly sustain a windfall profits tax.
Slocum also questioned oil companies’ recent excuse that the weather is to blame for high gas prices. Despite the fact that oil and gasoline prices were rising long before Hurricane Katrina, the oil industry still continues to falsely use the weather as an excuse for its record-breaking profits (ExxonMobil set another record Monday, reporting $36.1 billion in profits in 2005). To protect consumers from future pricing abuse, Congress should:
- Implement a windfall profits tax and close loopholes allowing oil companies to escape paying adequate royalties;
- Launch an immediate investigation, including the use of subpoena, into uncompetitive practices by oil companies;
- Strengthen anti-trust laws by empowering the Federal Trade Commission to crack down on unilateral withholding of supplies and other non-collusive anti-competitive actions by oil companies;
- Re-regulate energy trading exchanges to restore transparency; and
- Improve fuel economy standards to reduce demand.
“Billions of gallons of gasoline could be saved if significant fuel economy increases were mandated. There is a direct connection between the record profits enjoyed by oil companies and the record high prices Americans are paying for gasoline, home heating oil and natural gas,” said Slocum. “The facts show that part of these record profits are the result of price-gouging. It is up to Congress and the White House to ignore the $55 million in campaign contributions they’ve received from the industry and step in to protect consumers.”
To read Public Citizen’s testimony, click here. For more information about oil industry mega-mergers and anti-consumer pricing policies, click here.
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