On the way to the hearing this morning I noted that the price of gasoline here in Racine is $ 1.79. Although we have seen price reductions over the last few days, it has not lessened the impact that we’ve seen on families, seniors and businesses since the first of June.

Every day, my office has been confronted by letters, e-mails, faxes and media reports from people who have been hurt because of high gas prices. When it takes $40 or $50 to fill a gas tank, most people decide to conserve gas and stay home -- except for essential trips.

What’s more, high gas prices threaten to increase the cost of basic consumer goods that average families and those on fixed incomes depend on. Economic studies of the affect on high gas prices indicate that without relief soon, they will create a drag on the local economy, and cause a ripple effect throughout the Midwest.

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, 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.

The Environmental Protection Agency’s Reformulated Gasoline (RFG) program is of particular concern to the first congressional district. Half of the district lies in the EPA designated ozone non-attainment zone. Reformulated gasoline is the most important issue for my constituents, and has been for over a month and a half. The small business owners and families of Southeast Wisconsin want to know why they pay more for gasoline than any other region in the country. I commissioned a report from CRS – the non-partisan research branch of Congress – which has been widely cited today. Nowhere in this report is collusion and price-gouging listed as an underlying cause for high prices.

Likewise, I have an internal June 5, 2000, DOE document from a policy director to Deputy Secretary Glauthier. This memorandum summarized rapidly increasing gas prices in the Milwaukee area as a supply problem – "high consumer demand and low inventories." The DOE memo then gets more specific:

"The Milwaukee (and Chicago are) supply situation is further affected by:

• An RFG formulation specific to the area that is more difficult to produce;
• Higher regional demand;
• High regional refinery utilization rates;
• Limited alternative supply sources;
• Limited transportation links, and;
• Lower gasoline inventories relative to the rest of the country."

As many news accounts of the high gas prices have pointed out, Wisconsin and Illinois use ethanol instead of MTBE, which makes the Phase II RFG blend relatively more expensive to the rest of the country. This is because refiners must make the vapor pressure lower, as well as, according to the DOE document, "remove a greater quantity of the higher volatility gasoline blendstocks than was removed for Phase I RFG." The effect is that "RFG II gasoline production processes will yield less gasoline overall than RFG I processes. To compensate for lower yields and performance losses, refineries can either increase crude inputs or rely on more sophisticated processing units, both of which may increase cost and are not at all refineries."

What seems odd to me is that given the unique regional constraints, the knowledge of short supply and the knowledge that RFG II would require more gas than before, the EPA stands by their estimates that gas prices were to only increase by 5 to 8 cents in Wisconsin. Clearly, there is an inconsistency between what is reality and what the EPA claims. Perhaps since 87 percent of the country’s RFG is blended with MTBE instead of ethanol, the EPA didn’t bother to calculate the true costs of the impact on the Milwaukee/Chicago area.

My second concern is that Southeastern Wisconsin is paying the price for other cities’ pollution problems. It is my understanding that because of regional wind patterns, much of the ozone is blown into Wisconsin from places as far away as Texas. It seems to me in the case of ozone transport, Wisconsin receives a lot more than it gives. The Lake Michigan Air Directors Consortium roughly estimates that on bad days, as much as two-thirds of the ozone in the Gary-Chicago-Milwaukee area may come from outside the region from areas such as southern Illinois, Kentucky, Tennessee and Missouri.

If one looks at the EPA’s own data on the sources of pollution it is clear where the vast majority of the problem is coming from. These three charts show that the majority, the majority of pollution is produced in counties in Chicago and Indiana. Counties such as Kenosha, although in the non-attainment zone, are relatively insignificant contributors to the overall pollution problem. Kenosha for example, produces 1/100th the amount of pollution as Cook County, Illinois.

As part of the EPA’s Clean Air program, when a county is designated non-attainment for ozone, EPA requires that all gasoline sold be reformulated gasoline. Consequently, even counties such as Kenosha, which do not appreciably contribute to the ozone problem, are required to have RFG.

Wisconsin is making strides at alleviating air pollution, but at some point, it cannot do anything more to clean its air unless other regions clean their air first. Making the residents of southeastern Wisconsin accountable for others’ pollution is unreasonable. (I recognize that the physics of ozone transport is still new and vaguely understood.) My hope is that the EPA takes this into account when tightening the regulations around Milwaukee.

The cause of high gas prices seems up front to me – it’s a problem of supply and demand and environmental regulation. I do not understand why the Adminstration’s recent investigations have not turned up these same results even though preliminary DOE explanations squarely outline this fact. Enough delay, it’s time to find an honest solution to this mess.