Consumer groups to Congress: Big Oil to blame for high prices

Households are spending about $1,000 more per year for gasoline than they were just five years ago, an 85 percent increase according to consumer groups’ analysis in testimony given to the House Judiciary Committee. mp1

Between January and May 2007, gasoline prices have increased 80 cents—60 cents going toward increased refining and marketing prices, according to Consumer Federation of America and Consumers Union. According to the testimony, the lack of investment in refining capacity and other market failures have resulted in record prices for consumers and profits for the oil industry.

“In the past five years the oil industry has picked consumers’ pockets for 200 billion in excess profits,” said Mark Cooper, director of research for Consumer Federation of America. “Today’s high gasoline prices highlight fundamental problems in the industry—a lack of competition that enables oil companies to exploit a tight market,” added Cooper. “It is time for Congress and the Administration to do their part to help alleviate the pain consumers are feeling at the pump.” The testimony was given on May 16.

For years, the consumer groups said, they have called on Congress and the Administration to provide greater oversight over oil industry market practices, as well as creating strategic refinery and product reserves, and policies that promote reducing the nation’s oil consumption.

CFA and Consumers Union recommended Congress and the Administration take immediate steps to help alleviate future spikes in gas prices. The recommendations include:

*Setting aggressive, concrete targets for reducing America’s oil consumption, including increasing miles per gallon standards for vehicles, (CAFÉ standards).

*A strategic refinery reserve and a strategic product reserve that are dedicated to ensuring we have excess capacity sufficient to discipline pricing abuse.

*Mechanisms that prevent pricing abuse in the energy markets including formation of a joint task force of federal and state Attorneys General to monitor the structure, conduct and performance of gasoline markets, with an emphasis on unilateral actions that raise prices.

*A national policy that promotes the research, production and use of biofuels.

*Effective oversight by federal anti-trust authorities to monitor unilateral actions that result in oil price increases.

“An anti-competitive market and mismanagement are bilking consumers, while filling oil industry coffers,” Cooper said. “It is time for Congress and the Administration to address abusive oil industry practices.”

The consumer groups’ said their analysis of the domestic refining sector showed:

  • The merger wave of the past decade dramatically reduced the number of refineries and companies in the wholesale market.
  • As a result, the vast majority of markets in the U.S. are concentrated.
  • Lacking competitive pressures, the industry fails to expand refinery capacity, resulting in a lack of spare capacity. It has dramatically reduced the amount of gasoline in storage, making the markets vulnerable to price surges even when routine maintenance is conducted.
  • With prices rising far faster than costs, net income in U.S. refining has increased sharply, far faster than in foreign refining.
  • Oil company profits have increased far more than profits at comparable companies, setting records in three of the past four years.
  • Excess profits in the past five years exceed $200 billion.
  • The increase in cash flow is so great that the industry cannot absorb it, so it is throwing off huge quantities of cash.
  • Net new investment has been paltry, compared to the growth of net income, especially in domestic refining.

The complete testimony can be viewed at: http://www.consumersunion.org/cooperhousejudiciarymondayfinal.pdf.