Letter to The Honorable William H. Frist, M.D. Majority Leader, United States Senate on Gas Price-Gouging Ban, Greater Oil Industry Transparency .....
Letter to The Honorable William H. Frist, M.D. Majority Leader, United States Senate Gas Price-Gouging Ban, Greater Oil Industry Transparency by Memorial Day
April 23, 2006
The Honorable William H. Frist, M.D.
Majority Leader, United States Senate
S-230 United States Capitol
Washington, D.C. 20510
Dear Majority Leader Frist,
I write to very respectfully request your support in enacting legislation to protect American consumers from price gouging at the gas pump this summer. As you know, oil prices last week spiked to record levels, gasoline eclipsed $3.00 per gallon in many parts of the country and the East Coast braced for possible fuel shortages. Experts have projected that these prices will continue their precipitous climb throughout the coming months-- despite the fact U.S. oil inventories are currently at their highest levels since 1998. While some have suggested an ethanol shortage and the phase-out of methyl tertiary butyl ether (MTBE) are to blame for rising prices at the pump, these explanations are simply insufficient. In light of the challenges these fuel prices pose for consumers, businesses, farmers and the American economy as a whole, I hope you will agree that the Senate should take up and pass a federal anti-price gouging law before the summer driving season begins in earnest, this Memorial Day.
Already, price gouging legislation (S. 1735) exists that has been cosponsored by nearly a third of the United States Senate, and endorsed by a number of Governors and state Attorneys General. This legislation would give federal and state regulators new authority to prosecute price gouging in the wake of national energy emergencies, as well as put in place measures to ban manipulation and enhance the transparency of our nation's fuel markets. One of the hallmarks of this legislation is that it would also apply to the wholesale fuel markets-an important distinction, given that it is often the large vertically integrated oil companies that dictate the prices that gasoline retailers can charge. While the oil companies rake in record profits, it is often these retailers that bear the brunt of consumer anger.
As you know, a number of investigations of our nation's fuel markets are already underway. Specifically, the Federal Trade Commission is currently conducting a price gouging investigation it expects to complete in mid-May, pursuant to provisions included in both the Energy Policy Act of 2005 and the Commerce Department's Fiscal Year 2006 appropriations legislation. It is my understanding that the Senate's Permanent Subcommittee on Investigations is also conducting an inquiry, pursuant to your request last fall. In the wake of Hurricane Katrina, President Bush also directed the Department of Energy to compile and refer to the Department of Justice and FTC price gouging complaints. And finally, the Government Accountability Office (GAO) is also conducting a comprehensive investigation of fuel inventory practices, refining capacity and market transparency, at the joint request of myself and Commerce Committee Co-Chairman Inouye.
These investigations will most certainly bring additional empirical evidence and insights to bear on the fundamental dynamics of fuel market volatility. But at the same time, these studies must not be used as an excuse for continued inaction when it comes to protecting American consumers from price gouging this summer. I believe this is the case for a number of reasons:
First, sufficient evidence that price gouging occurred in the wake of last fall's hurricanes has been accumulated such that the FTC-in its interim report to Congress last month-identified 99 cases in which charges have been brought by state Attorneys General against retailers, "many of which had settled state charges without a trial and paid a fine." While states with price gouging laws on the books have been successful in this regard, the interstate nature of fuel markets suggests the need for a strong federal price gouging law, which reaches beyond just retailers to the wholesale markets that extend beyond state boundaries. This concept was embraced by state Attorneys General who testified at last fall's joint hearing of the Senate Commerce and Energy Committees.
Second, enacting a federal price gouging law will hold the oil industry accountable during the coming summer driving season. To date, the industry has offered insufficient explanations for the current price spike, attributing the increases to factors such as ethanol shortages and the transition away from MTBE. The flaws in this explanation are particularly glaring from the perspective of consumers in Washington state, where MTBE has been banned as a gasoline additive since 2004. Moreover, ethanol blending is not required as a means of achieving Clean Air Act requirements. Taken together, these facts might suggest that Washington state consumers should be relatively insulated from the kinds of physical disruptions the industry has cited for the current price spike. Yet, Energy Information Administration data shows that pump prices in Washington state have risen an average of 60 cents/gallon just since January. In fact, prices in my state-which averaged $1.99/gallon in 2004-have actually risen faster than prices in California, which does use substantial quantities of ethanol. In short, these explanations simply don't add up.
Finally, unless Congress passes a law, an eventual finding that price gouging is occurring in U.S. fuel markets will be completely meaningless to consumers. In other words, should any of the countless investigations and studies now underway find evidence of price gouging in wholesale fuel markets, the federal government will still have little if any authority to do anything about it. On the contrary, it is my hope that, as policymakers, we have learned one of the most important lessons of the Western energy crisis of 2000-2001: when it comes to the vital energy commodities that power our economy, proactive consumer protection on the part of the federal government is a far better course of action than attempting to pick up the pieces and fashion some measure of justice after billions of dollars have been stolen by unscrupulous actors in a dysfunctional market. My constituents have learned this lesson the hard way. More than four years after Enron's scandalous collapse into bankruptcy, ratepayers in my region are still fighting for a measure of relief from its schemes to inflate Northwest energy prices. It's my hope that we can come together in a bipartisan manner to pass price gouging legislation, which will help ensure this experience is not repeated.
Toward that end, you will recall that a number of my colleagues and I offered a version of S. 1735 as an amendment on the Senate floor last November (SA 2612). At that time, 57 Senators voted in favor of taking up this critical measure, and I remain committed to working with you and other colleagues to make modifications to this legislation that will build as broad a consensus as possible on its provisions.
While it is clear that a federal price gouging ban is only one element in the equation when it comes to putting our nation on a path toward greater energy security and independence, I hope you will agree that it is crucial that we act quickly to pass such a law, to protect American consumers at the gas pump this summer.
Thank you for your attention to this request.
Sincerely,
Maria Cantwell
United States Senator
Cc: Senate Minority Leader Harry Reid
http://cantwell.senate.gov/news/record.cfm?id=254634&&days=30&