Hearing of the Energy and Water Development Subcommittee of the Senate Appropriations Committee - Energy Information Administration's Forecasts for Oil and Gasoline Prices and the EIA's Budget Request for FY 2009

Statement

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Let me just say this is extremely timely. As my colleagues know, I go home to Washington state every week and I'm shocked at the rising prices I pay. I paid $4.45 on Sunday to fill up my tank.

This is a huge impact on our neighbors as they see more and more of their paycheck going to pay for their gas to get to work or go to the grocery store, do their chores. And it's taking a bite out of all of our small business budgets, our truckers' budgets, our school districts, who are paying more for gas for their buses.

And our farmers are telling us that they're paying as much as $500 a day -- that's up 60 percent from last year -- on diesel fuel alone. We're going to be heading into the winter months -- doesn't feel like it today, but we will be, and the price of natural gas and heating oil is going to be hitting those pocketbooks, and everyone's going to get the double whammy.

So I appreciate your having this hearing. I think it's very important that we understand this issue from a variety of different perspectives and I hope we can all learn something from today, so thank you.

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Mr. Caruso, thank you for being here. In your testimony and in responding to questions, you talk about the physical forces in the market, supply and demand, as being the primary drivers of these skyrocketing processes that we're all seeing.

In March of this year you testified before the Senate Energy and Natural Resources Committee that the price of oil, which was $112 per barrel, should have been $90 based on that supply and demand, so it's clear there were other forces in play in March and a lot of those forces are remaining in effect today.

You've talked about how the EIA faces challenges in measuring speculative efforts and you mentioned that your agency needs to develop some better measurements of the speculative activity and more transparent information, as you said, is needed.

I think we all are saying we need more transparency, but can you please expand to us on what type of information you're referring to, and where do you think we can get that information, where do you plan to get that information?

MR. CARUSO: Well, I think it's the information that the CFTC has requested with respect to commodity price index funds. It was really a lack of information about knowing exactly how large that market is, because some of their activities are not regulated or not reported to CFTC and they've -- and that has been requested.

There's also more information needed on over-the-counter markets, and a better understanding of the separation between commercial and noncommercial trades in the commodities markets.

And I think all of those things are being sought by the CFTC, and we did talk about them in our market monitoring committee, as well as the task force meetings.

SEN. MURRAY: Okay. Yesterday or this week, acting CFTC Chairman Walt Lukken told the Homeland Security and Governmental Affairs Committee that in times like this the opportunity for market manipulation is ripe, and last week he told us -- a number of us who sit on the Appropriations Committee that manipulation could not be ruled out.

You may remember several years ago my home state of Washington and other West Coast states suffered through the Western energy crisis, and for years, industry representatives and industry regulators came and testified before all of us time and time again that market forces were the source of the skyrocketing electricity costs we were seeing. It wasn't until the tapes of those traders talking about the manipulative schemes at Enron were discovered that our suspicions of market manipulation were confirmed. So you can see my background and know why I look at this and want to make sure that we are asking the questions and know if that's occurring.

Now the CFTC is working to monitor our markets, but can you tell me how EIA accounts for potential market manipulation when you do your forecasts and analysis?

MR. CARUSO: Well, we rely on the data. We would be users of any data that CFTC would make publicly available on that issue, so we're -- they're obviously the lead and we're the -- we would use that data if it were available in our analysis, so we're analytical users of the data collected by CFTC and any other.

SEN. MURRAY: Yeah, and you indicated that you've been doing this for a number of years. Just from your expertise looking at this, do you see any cause for concern from manipulation in the numbers you're seeing?

MR. CARUSO: Well, I think we should be concerned and we should do everything we can to avoid a repeat of the very unfortunate experience that you referred to in the --

SEN. MURRAY: So we can't rule it out? We --

MR. CARUSO: I would agree with the chairman, with Chairman Lukken, that he certainly is in a position to make that statement and I certainly think we need to look. And if we find it, make sure that the perpetrators are properly punished.

SEN. MURRAY: Okay, I appreciate that.

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