Lawmakers demand action to cut gas prices

Friday, June 23rd 2000, 12:00 am
By: News On 6

Oil industry calls for patience, denies anticompetitive behavior

WASHINGTON – Consumer anger over the cost of gasoline took Washington by storm Thursday as politicians from President Clinton down demanded federal action to lower prices.

Mr. Clinton said there was no economic justification for gasoline prices hitting $2.39 a gallon in the Midwest, and he promised an aggressive federal investigation of whether the oil industry has fixed prices.

He also blamed world producers for pushing prices too high and said they should fall by 15 to 30 percent.

The Organization of the Petroleum Exporting Countries said Wednesday that its members would increase production to ease a global supply pinch, but analysts do not forecast a big drop in gas prices to result. In fact, crude oil prices rose Thursday, apparently on the belief that OPEC's production increase was too small.

Laying blame

Several members of Congress urged legislation that would allow the federal government to sue OPEC for price-fixing, and they promised hearings on the topic next week.

"This is a big problem, because there are a lot of Americans who have to drive to make a living," Mr. Clinton said.

"If this thing can't be moderated, it's also going to have quite a burdensome impact on the airlines. This is going to rifle through our economy," he said.

But House Majority Leader Dick Armey, R-Irving, castigated the Democrats and Vice President Al Gore for blaming the oil companies.

"We're not being gouged, we're being Gored," Mr. Armey said. "Thanks to the failed energy policies of the Clinton-Gore administration, gas prices are skyrocketing and working men and women are finding it more difficult to fill their gas tanks."

Mr. Gore has tried to link Texas Gov. George W. Bush, his opponent in the race for president, to the price spike because of his oil industry background and the strong support the industry has given to his campaign.

Mr. Bush has faulted the administration's inability to exert diplomatic pressure on OPEC, but he has endorsed the Federal Trade Commission's price-fixing investigation.

FTC Chairman Robert Pitofsky said his agency would have a preliminary report by the third week in July about its investigation of gasoline prices.

"The big oil companies control gasoline supply, and now they're demanding higher profits," said House Minority Whip David Bonior, a Michigan Democrat.

Oil-industry historian Daniel Yergin, invited to the Capitol to talk with lawmakers about gasoline prices, blamed an extremely tight market and discounted industry profiteering.

Dr. Yergin, chairman of Cambridge Energy Research Associates, said OPEC price increases, low inventories, new environmental requirements for cleaner gasoline and booming demand had combined to raise prices.

He said the federal government has mounted more than 10 gasoline price-fixing investigations since 1923 without finding proof of collusion.

"They tend to get a lot of publicity at first, then fade away as supplies clear the market," Dr. Yergin said. "Most of the time, gasoline in the United States has been a great bargain."

Dr. Yergin said gasoline prices adjusted for inflation are lower today than in the 1950s, the 1960s and the early 1980s, when prices peaked in today's dollars at $2.52 a gallon.

Gasoline's share of household expenditures peaked at 5 percent in 1981, and accounted for 2 percent of consumer spending last year, he said.

Sen. Kay Bailey Hutchison, R-Texas, said the Clinton administration has refused to suspend two regulatory changes that will contribute to the price spike. Environmental Protection Agency administrator Carol Browner has said she will push ahead with requirements for cleaner gasoline in urban areas this summer, while the Interior Department's Minerals Management Service is pressing ahead with changes in the federal oil royalty formula that will raise costs for oil producers.

"It's clear that this administration is not going to do anything on the regulatory side to ease prices," Ms. Hutchison said.

Regulations under fire

Mr. Clinton defended the EPA's requirements for reformulated gasoline, saying they add less than 3 cents a gallon to the cost. The new requirements took effect June 1 in some areas.

House Speaker Dennis Hastert, R-Ill., criticized Mr. Clinton for refusing to "acknowledge that the current EPA requirement for reformulated gasoline plays a huge role in the high gas prices being endured in the Midwest."

Dr. Yergin said the problem with the new regulations is less refining costs than transportation rigidities. Because gasoline requirements have become localized under the new rules, surplus gas in one part of the country cannot be easily shipped to other areas experiencing shortages.

He said the gasoline in Illinois, Iowa and Wisconsin uses ethanol as a replacement additive and is so unique to the region that it amounts to a "microbrew."

The problem was compounded by disruptions in two gasoline pipelines supplying the Midwest, which are only now being overcome, he said.

The Renewable Fuels Association, a trade group representing ethanol producers, said its data shows wholesale prices for ethanol-added gasoline and conventional supplies are the same, $1.24 a gallon. It blamed the Midwest price spikes on supply shortages rather than production costs.

The oil industry meanwhile pleaded with consumers to be patient and said new supplies are beginning to reach the Midwest, which should lower prices.

"The market is working. The prices are falling," said Red Cavaney, president of the American Petroleum Institute.

"The claims that anticompetitive behavior has contributed to recent gasoline price increases, nationally and in the Midwest, are without any factual basis," he said.

Dr. Yergin warned that the nation's stretched supply of natural gas foreshadows another firestorm over prices that could break as early as the closing weeks of the presidential campaign.

Natural gas prices have doubled in the last year, even as the electric power industry is making huge investments in gas-fired generating plants.

"The natural gas market is tighter than the oil market," Dr. Yergin said.