Copyright 2000 Federal News Service, Inc.
Federal News Service
June 28, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 828 words
HEADLINE:
PREPARED TESTIMONY OF THOMAS BARRETT UNITED STATES REPRESENTATIVE 5TH
CONGRESSIONAL DISTRICT OF WISCONSIN
BEFORE THE
HOUSE COMMITTEE ON THE JUDICIARY
SUBJECT -
SOLUTIONS TO COMPETITIVE PROBLEMS IN THE OIL INDUSTRY: PART 3
BODY:
Mr. Chairman and Members of the
Committee, thank you for the opportunity to testify before you today on the
topic "Solutions to Competitive Problems in the Oil Industry." This is a
significant and important issue, and I have heard from numerous constituents
about the impact of this issue on their families. I hope today's hearing leads
to a better understanding of the consequences of these exorbitant prices for
consumers, and what we can do to get and keep prices down.
Although
rising gas prices are affecting an increasing number of
communities across the country, unexplained price spikes have been plaguing
southeastern Wisconsin since the middle of May. The cost of gas rose from an
average of $1.48 a gallon in early May to
$1.69 a gallon by May 12, and to over $2 by
the middle of June. In response to these escalating costs, I joined other
Wisconsin lawmakers in demanding answers and requesting assistance from the
federal agencies. At our request, the Environmental Protection Agency (EPA) and
the Department of Energy (DOE) went to Milwaukee and Chicago on June 12 to
investigate gasoline supply issues for our region. In addition, members of the
Wisconsin Congressional delegation asked the Department of Justice (DOJ) and
Federal Trade Commission (FTC) to investigate the oil industry's role in the
sudden price hike. As you are all aware, this investigation is currently
underway. The entire Wisconsin delegation also joined with me in asking the
Department of Transportation (DOT) to investigate the status of the Explorer
Pipeline, which has not operated at full capacity since March 10 because of a
rupture.
Because of the intolerable price differential between RFG and
conventional gasoline affecting the Milwaukee area, I also joined other members
of the Wisconsin Congressional Delegation in twice asking EPA for a temporary
waiver from the RFG program until prices could be stabilized. I requested this
waiver in hopes of bringing price relief to consumers in southeastern Wisconsin.
As you know, Mr. Chairman, the cost of producing RFG Phase II with
ethanol, the oxygenate of choice in Milwaukee and Chicago, was estimated by the
EPA to only be about 5 to 8 cents more per gallon than conventional gasoline.
The DOE estimates were only slightly higher. Given these estimates, it is
unclear how the oil companies and others can point to the Phase II requirements
as the primary factor in the price differential between RFG and conventional gas
-- especially when the wholesale price deferential in Milwaukee yesterday was 8
cents per gallon, while in Chicago RFG was actually cheaper at the wholesale
level than conventional gas.
Moreover, oil companies' assertions that
Phase II is so costly because of the refining difficulties associated with
ethanol-blended RFG are troublesome in light of the fact that industry has had
seven years to prepare for the implementation of the program. During this
period, the industry participated in a formal regulatory-negotiation process
with EPA and was also a part of the agency's implementation assessment in 1999.
Never did the industry did identify production issues that would warrant such
high costs.
But the most amazing fact before the committee today
pertains to the timing of the FTC investigation and the drop in wholesale prices
of ethanol gasoline (see graph). On June 15, EPA Administrator Browner and DOE
Secretary Richardson wrote to FTC Chairman Pitofsky requesting a full and
expedited investigation into the pricing of reformulated gas by the oil
companies in Milwaukee and Chicago.
On June 15, the average wholesale
RFG price per gallon was $1.58; by June 27 it had dropped
nearly 33 cents to $1.25.6. The wholesale price differential
between RFG and conventional gas is now 8 cents in southeastern Wisconsin. We
can debate until the cows come home about whether the FTC investigation led to
this drop or whether, as industry claims, this drop would have occurred
regardless. The fact of the matter is, however, that since FTC has launched its
investigation, the wholesale price of reformulated gasoline has dropped markedly
in the Milwaukee and Chicago areas.
But, unfortunately, we aren't out of
the woods yet. This significant wholesale price reduction, which occurred
without any changes to the RFG program, has yet to be felt at the pump. Average
retail RFG prices are down only slightly. Thus, motorists in southeastern
Wisconsin are still paying an unfair price for gas. The most important question
of the day is when will the oil companies pass these price reductions on to our
consumers? For everyone's sake, I hope the answer is today.
Thank you
for the opportunity to present this testimony. I look forward to reading the
testimony of all the witnesses who are here today, and hope all of us working
together will find a way to get prices down and achieve a long-term strategy to
prevent these types of problems in the future.
END
LOAD-DATE: June 29, 2000 
