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Special Event

Energy Secretary Richardson Testifies Before House Committee on International Relations Regarding Rising Fuel Prices

Aired June 27, 2000 - 11:40 a.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

DARYN KAGAN, CNN ANCHOR: The energy secretary has started to speak before the International Relations Committee of the House. Let's go ahead and listen to the energy secretary.

(JOINED IN PROGRESS)

BILL RICHARDSON, ENERGY SECRETARY: ... and gradually increasing prices. At that time, we were taking specific actions to address an untenable imbalance between supply and demand, one that risked negative repercussions in the world economy.

We continue to believe that markets should set prices, but while we import 22 percent less oil from OPEC today than we did around our last gas crunch, which was in 1977, it remains clear that actions by major oil-producing nations still significantly affect oil supply. That is why this spring I spent a great deal of my time talking with energy ministers and leaders from the oil-producing nations Saudi Arabia, Kuwait, Mexico, Norway and Venezuela, often getting great criticism from one side that I wasn't tough enough, from the other side that we were too pressure oriented.

Each of these nations is well-aware of the special economic and energy relationships between their country and the United States as well as to other importing countries. Each of these nations agrees that stability is our common goal and that volatility in the oil markets is undesirable.

We met with some success at that time. In February, all OPEC governments were quoted as saying that production increases were unnecessary. But on March 28, OPEC and announced their decision to increase production and other producers joined them. We saw some trimming of crude prices then and some slight easing on gas prices. They did go down for a while. But very low stocks and soaring demand have boosted prices still higher since that increase.

So I've continued to keep producing nations abreast of our situation and made our position clear. With prices staying high since spring, we needed to do more. I urged OPEC to keep an open mind.

Now it's worth remembering that OPEC is a consensus organization and not all governments in OPEC are friendly towards the United States. Still the consensus that came about when the OPEC leaders met in Vienna, Austria, last week increases its output by roughly 3 percent, about 708 barrels per day, and Mexico will provide an additional 75,000 barrels a day, Mexico being a non-OPEC country. We also anticipate an additional small increase from other non-OPEC producing countries soon.

Overall, we believe that OPEC's decision is a testament to the fact that those governments responded to the concerns that we raised. While this recent lift is modest it is an important step.

Mr. Chairman, since this time last year we have seen nearly 3.5 million barrel per day increase in production. This is substantial and it is not only good for America, but it is good for Asia, Europe and all the world economies.

I'm pleased to report that in the past week, as I said, we have seen some positive movements in the market. This base from the Energy Department's Energy Information Administration, reporting, as I said, that conventional regular gasoline has dropped 3 cents per gallon over the past week nationwide. And in the Midwest, where we are seeing very high prices, EIA sees a drop of 7 cents per gallon on conventional regulated. Reformulated gas is down 12 cents a gallon in the Midwest. We can't yet, as I said, call this a trend, but heading into the Fourth of July this is good news.

But we are still not seeing the greater price decreases, both per barrel of oil and per gallon of gas that we might have hoped for. The reason for this is quite simple -- demand. The world's thirst for oil is steadily rising. Other than 1997, the second quarter of this year may show the strongest year over year growth, 2.1 million barrels per day, ever.

When combined with our need to build inventories from historically low levels, even large supply increases of 3 million barrels per day are not enough, and demand will continue to grow. We need to encourage methods to temper that need.

We are not relying on other governments for those answers, and, certainly, not to ensure our energy security. As I mentioned, our nation has a firm energy policy that serves as a foundation ensuring that we have the energy resources we need. And beyond that policy, the administration has also made some aggressive, short-term moves to cool off particular hot points.

You remember that we had a heating oil short-fall in the spring. In response the president released almost a third of billion dollars in funds in the spring so that low-income households could pay their heating bills. He asked for $600 million more in low-income housing energy assistance funds, and the president is seeking an additional $19 million from Congress for low-income home weatherization.

We address the issue of supply through increase support for tankers, small business loans for distributors and other small businesses impacted by high prices, and encourage refiners increase production. We also re-established an office of energy emergencies at the Energy Department to coordinate with the states and other federal agencies regarding any energy-related crises. This move is helping us right now as we assess the demand for power during a very hot summer. We are also seeking to turn around domestic production of oil via where we are seeking some -- seeing some good results, developing alternative sources of energy and increasing energy efficiency.

And energy efficiency, one of our most exciting prospects, is our work in the Partnership for a New Generation of Vehicles, PNGV, where we're looking to develop a car that will get 80 miles per gallon.

While Congress has eliminated all our funding for PNGV via a recent amendment, we remain committed. We need your help on this.

You've likely read of the new release of Honda's Insight, which is nearing our miles-per-gallon target. These vehicles are not just of the moment; they will be part of the lasting solutions we can commit to today for tomorrow.

We're also looking to help independent oil producers test new production technologies and a give hand to small producers in existing fields. And we're helping refiners deal with the new EPA tier-two rules through our ultra-clean fuels program.

And I think, to the congressman that talked about domestic production, we are interested in marginal well relief for small independents for G&G (ph) expensing, steps that we think are important for domestic oil and gas producers.

But still, we remain concerned about oil supply. There is significantly more oil on the market today than there was prior to OPEC's March meeting.

And domestic production is turning around, but we need to ensure that supply is sufficient enough to meet demand and to build stocks both worldwide and here at home. This will help the market operate within a comfortable margin of safety for the remainder of the year.

Still, facing the imminent Fourth of July weekend, America cannot declare independence from the gas pump. This is peak driving season, and refineries in the U.S. are already operating at 96 percent utilization and at 99 percent in the Midwest.

When levels are that high, it clearly indicates that demand is the driving factor. So I don't think that the production boosts are going to immediately push prices lower, but I think we are close to turning the corner.

We remain very concerned about gasoline prices in the Midwest, especially around Chicago and Milwaukee. President Clinton is very concerned about this. And there's no question, drivers in those cities and other parts of the Midwest are angry. We're looking for solutions, but questions remain. While we did have a regional pipeline problem in the spring that left supply hobble, our experts are talking to the Environmental Protection Agency to see what we can do in the near term to bring some relief to consumers.

And while there was some easing of prices at the pump in the past few days, as I mentioned in the opening, the FTC, the Federal Trade Commission, continues its investigation of pricing practices in the region, probing for unfair or illegal activity. We hope to hear from the commission some time in July.

We took several other steps, Mr. Chairman, in the past two weeks to meet some rather unexpected issues. On June 15, I ordered a limited exchange of crude oil from the Strategic Petroleum Reserve's West Hackberry site to two refineries after a commercial dry-dock collapse near Lake Charles, Louisiana. Our response came within hours and shows our commitment to responding quickly. The Army Corps of Engineers has since worked overtime to dredge a new channel, so oil traffic is moving once again. And when there was a pipeline problem near St. Louis, we granted a waiver that postponed implementation to the new EPA rule on reformulated gasoline until the problem was solved.

But there's more we can do together to get relief to consumers. And these are the kinds of long-term solutions we need to embrace, to ensure that we get out of lasting cycles with prices pegged at one extreme or another.

Last week, President Clinton sent a letter to the Senate majority leader and the speaker, urging that the Congress work with us to enact the president's energy proposals without delay. One central component of the president's energy initiative is a $4 billion tax package of tax incentives to encourage domestic oil and gas production, and for consumers to purchase more efficient cars, homes and consumer products. This package has languished here on the Hill for two years.

The president has also consistently asked for increased investments to meet our energy needs. In the FY 2001 budget, the president proposed a $1.4 billion investment for Energy Department programs and energy efficiency, renewable energy, natural gas, distributed power systems. We need the Congress to support these critical goals.

And unfortunately, it has approved only 12 percent of the increases over the past seven years. We're also concerned about the deletion in the FY 2001 budget for energy efficiency below last year's level. As I mentioned, a recent House amendment cut virtually all of the department's funding for the Partnership for a New Generation of Vehicles, where we work with the Big Three to develop more fuel efficient cars.

The House has added a rider to the transportation appropriations bill prohibiting the department from even studying increases in CAFE standards. We've also had perhaps what is -- we consider the most harmful action, delaying extending the Energy Policy Conservation Act, which authorizes two programs at the core of our nation's energy security -- I know the House has acted, but it's still languishing -- and that is the Strategic Petroleum Reserve and our participation in the International Energy Agency.

Mr. Chairman, the Strategic Petroleum Reserve authorization expired on March 31, and we need to work together to get this done. The president also submitted a comprehensive electricity restructuring bill two years ago. We have not enacted a bill with latest failure last week in the Senate when they failed to report comprehensive legislation.

To better ensure our energy security this last year, the president also has called for the establishment of a regional home heating oil reserve in the Northeast.

And Mr. Chairman, we need action on this because we are concerned about stocks of home heating oil. We're talking about 2 million barrels. We're talking about a modest effort only to be used for emergencies, and we are concerned about those supplies.

We also need a replenishment of the low-income energy assistance program emergency funds, which we needed to tap during the heating oil shortfall last year.

In conclusion, Mr. Chairman, we simply cannot ensure America's energy security with such a lacking commitment to its energy future. We have to act expeditiously together. I would urge the Congress to act so that we can establish the home heating oil reserve in time for next winter. Nobody wants to see people in the Northeast next winter debating whether they can afford to eat or stay warm. It is a devil's choice, and Americans should not have to live that way.

Mr. Chairman, we have viable options before us to improve America's energy security and do so in ways that are cleaner and more economical than ever before. I appreciate again this opportunity to explain to you what I've done as energy secretary to bolster that confidence. I again thank every member for their courtesies. And I urge the Congress to work with us to do its part and act on the critical energy proposals before us. Thank you.

REP. BENJAMIN GILMAN (R), NEW YORK: Thank you, Mr. Richardson. Because of the short time remaining for the secretary's appearance, I'm going to ask our members to cooperate and to be limited to -- limit their questions to three minutes each so each member may have the opportunity to be heard. And I will be calling on those who have not had an opportunity to make an opening statement first before we get on to the entire list.

Mr. Secretary, Congressional Research Service issued a paper earlier this month, on the very sharp rise of gas prices in the Midwest, noted the gasoline prices nationwide had increased 60 cents a gallon over the past 18-months with 48 cents of that increase attributable to higher crude oil. Do you agree that OPEC and its member states have been playing the decisive role in our domestic energy price crisis?

RICHARDSON: Mr. Chairman, we agree with Congressional Research Service that high crude prices are a factor. But we also believe that transportation problems, refinery problems, high demand, low inventory, contributed to these Midwest price spikes. We also agree that RFG costs five to eight cents more than conventional gas. We don't agree in that report that ethanol RFG accounts for 25 cents of the 48 price differential, 48 cent price differential, between RFG-2 and conventional gasoline.

We could not totally account for the price differential after we did a supply assessment. And this is why we asked for an FTC investigation.

In other words, Mr. Chairman, we believe the causes are higher demand in the Midwest than the national average, 3 percent compared to 1.6 percent. Gasoline inventories were low going into the summer driving season; 15 percent lower than last year. Thirdly, as I said, RFG-2 was introduced into the Milwaukee-Chicago market. And then there was a pipeline problem, the Explorer pipeline, in the Chicago- Milwaukee area, contributed to a loss of net 6 million barrels.

But the main question that needs to be answered is, why is there such a high price differential between conventional gasoline and reformulated gasoline? We believe that pollution-controlling devices do not cause that price spike. Yes, it's maybe three, four cents more, but 30 cents?

And this is why the Federal Trade Commission is investigating. They should have a response by the end of the July. The oil companies have some explaining to do. The refineries have some explaining to do. But, again, let's await the results of this investigation.

But all of these factors, Mr. Chairman, should not be attributed solely to the price differential that has occurred.

GILMAN: My time has expired.

Mr. Gejdenson?

REP. SAM GEJDENSON (D), CONNECTICUT: Thank you, Mr. Chairman.

Mr. Secretary, we look at the estimates in the Northeast to be 22 percent below last year's level for home heating oil. Any kind of cold snap at the beginning of the year could be deadly, if people's houses catch fire as they turn to alternative heating, obviously the impact of really cold homes. And I would hope that you would continue to vociferously press this Congress to get that home heating oil reserve established in the Northeast. This is a life and death issue.

Secondly, I think that the investigation of the oil companies, we haven't seen the second quarter profits yet, but my sense is they're going to be even larger than the first quarter profits of almost 500 percent increase over a year earlier. You've got to use your bully- pulpit and stay after them just like you stay after OPEC.

And the last thing I'd say is, again, that swap or sale, you've got a $6 differential between the spot market and the futures market. You ought to dump that out. Even if the Saudis and everybody fulfill their commitment, there's a gap in getting it here. There's obviously a shortage that exists already. Get that product out there. You're going to make a profit. You can put in more into the SPRO afterwards with the extra money you get, so you could end up with more oil in SPRO. You could end up helping the supply problem.

So I hope you take these messages very seriously.

And the only other question that I'd have for you, is what do you think the capacity is of non-OPEC countries for increased production? Mexicans and others, where do they stand and where do some of the major OPEC countries stand?

RICHARDSON: Congressman, first, I share your view about the Northeast reserve. We need this, and we need to work with you to make this happen. We are concerned about home heating oil in the Northeast. If we can work together to get this legislation passed -- the House has passed it -- it's tied up in the Senate. Although I am informed that there is an amendment to the energy and water appropriations today in the House and I hope it gets the support, because what we're talking about, Congressman, is not an effort to deal with prices. We just want a regional reserve for the Northeast off the docks of New York and New Jersey. We can lease the space. We don't have to build anything. Two million barrels for emergencies, not for pricing. We worry about what might happen in the Northeast. We also had some difficulty getting some reprogramming funds to get it moving, about $8 million. We need your help on that.

Looking at what options the president uses, Congressman, for the future to deal with this problem, let me just say that we have to continue monitoring the gasoline situation. A big problem is low crude oil stocks and low gasoline stocks in this country and worldwide, too. Unusually high demand, this is happening right now. We are hopeful that there won't be any more refinery or more pipeline problems. Transportation problems you can't always account for, but we're working on this.

Your last point was on?

GEJDENSON: Last point was on the OPEC nations and non-OPEC nations. Are there particular countries that have capacity and are some countries at capacity?

RICHARDSON: Most non-OPEC countries, Congressman, are producing at capacity. We do predict small increases from non-OPEC countries. As I mentioned to you, in March, Mexico announced that they would do 50,000 barrels more per day. In the last meeting, in March -- in June, which just happened, they have said they're going to do 75,000. Norway is another non-OPEC country that contributed 100,000 in March, and may be making a decision shortly about increased production in March. This is good, but, again, they have to go through their parliament.

The other countries that were involved in increases in production, non-OPEC, one was Oman, and we don't know where they may be in this cycle, and Russia was another one. But basically, most non-OPEC countries are producing at capacity.

KAGAN: We are listening to Energy Secretary Bill Richardson as he appears before House Committee on International Relations. The topic today, once again: OPEC and the rising price of gasoline. They talked about the summer travel season and the high price of gas, also looking ahead, what could be a very tough problem: home heating oil prices. The energy secretary saying he doesn't want people to have to pick between eating and staying warm. They will continue to talk about that.

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