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Temporary National Gasoline and Oil Price Controls Needed Until Refineries Damaged by Hurricane Katrina Are Repaired

Sept. 1, 2005

Temporary National Gasoline and Oil Price Controls Needed Until Refineries Damaged by Hurricane Katrina Are Repaired

Statement by Joan Claybrook, President, Public Citizen

In the wake of skyrocketing gasoline and oil prices after Hurricane Katrina—both as a result of speculation on Wall Street and product shortages—President Bush and Congress should enact temporary, adjustable price controls to ensure that gasoline and home heating oil prices charged to consumers will be directly tied to costs, not speculation or price-gouging. The government also should enact an excess profits tax retroactive to January 2005 to reduce oil company incentives to gouge consumers and the transportation industry. Such a tax would require companies to pay the government all profits in excess of a designated percentage, such as 5 or 10 percent. Public Citizen is sending a letter this week to President Bush and congressional leaders calling for action.

Price controls have been used before to correct severe market dysfunctions during a time of crisis. The Federal Energy Regulatory Commission enacted strict electricity price controls over the entire western United States in June 2001 to address the widespread price-gouging by Enron, Reliant Energy, Duke Energy and other companies. Those price controls, which are still in effect, were enormously successful in protecting consumers, ending the power blackouts and holding corporations accountable.

Given the oil industry’s exorbitant profits—the five largest oil producers and refiners in America (ExxonMobil, ChevronTexaco, ConocoPhillips, BP and Shell) have enjoyed profits of $254 billion since 2001—the U.S. oil industry can easily afford to take a break from profiting from a national crisis and deliver this critical commodity at cost. And if price controls are temporary, there is no deterrent for future investment in the oil industry. Such a price control mechanism can be best administered by the U.S. Department of Energy.

So far, President Bush’s response to high gasoline prices in the face of Katrina’s catastrophic aftermath has been to order the U.S. Environmental Protection Agency to grant a nationwide waiver for clean gasoline blends, a response that fails to address the fundamental problem. Bush needs to do more.

Effective today, Hawaii became the first state to enact a price control measure to ensure that residents aren’t gouged at the pump; federal price controls could be implemented in a similar fashion.

Oil companies operate as near-monopolies, producing huge amounts of oil not only in the United States but in the Middle East, Africa, South America, Asia and Europe. They own the refineries that turn their crude oil into gasoline. In fact, the five largest oil producers and refiners control nearly half of U.S. oil production and more than half of all refining capacity, enabling them to enjoy huge profits both when the price of crude oil and the price of gasoline rise.

Consider that the top five oil companies also produce 14 percent of the world’s oil. Combined, these five companies produce 10 million barrels of oil a day—more than Saudi Arabia’s 9 million barrels of oil a day. This extent of market control has reduced competition and makes apparent the need for price caps.

Oil and gasoline prices were rising long before Hurricane Katrina wreaked havoc. U.S. gasoline prices jumped 14 percent from July 25 to Aug. 22. Indeed, profits for U.S. oil refiners have been at record highs. In 1999, U.S. oil refiners made 22.6 cents for every gallon of gasoline refined from crude oil. By 2004, they were making 40.8 cents for every gallon of gasoline refined, an 80 percent jump.

The energy bill signed by the president on August 8 does nothing to address this country’s energy problems. For example, the bill fails to improve fuel economy standards, an unbelievable failure given the fact that the United States consumes 25 percent of the world’s oil every day, with more than 50 percent of that being burned in passenger cars and light trucks. The proposed fuel economy standard issued by the U.S. Department of Transportation last week is miniscule, saving only 10 billion gallons over 15 years. It exempts the largest vehicles—those over 8,500 pounds such as the Hummer. No significant new fuel economy standards have been issued since 1977. Instead of tackling the problem, the Bush energy bill spends $6 billion of taxpayer money over the next decade on tax breaks and new spending programs to benefit these same wealthy oil companies.

Reducing the profit margins of U.S. oil companies in a time of national emergency is necessary to keep the current regional disaster from becoming a national disaster. We urge the president and Congress to take immediate action.