Oil company executives defend profits in appearance before Congress
The chiefs of five major oil companies defended the industry's huge profits today at a Senate hearing where they were exhorted to explain prices and assure customers they're not being gouged.
The Associated Press
WASHINGTON – The chiefs of five major oil companies defended the industry's huge profits today at a Senate hearing where they were exhorted to explain prices and assure customers they're not being gouged.
There is a "growing suspicion that oil companies are taking unfair advantage," Sen. Pete Domenici, R-N.M., said, opening the hearing in a packed committee room.
"The oil companies owe the American people an explanation," he declared.
Lee Raymond, chairman of Exxon Mobil Corp., said he recognizes that high gasoline prices "have put a strain on Americans' household budgets" but he defended his company's huge profits, saying petroleum earnings "go up and down" from year to year.
ExxonMobil, the worlds' largest privately owned oil company, earned nearly $10 billion in the third quarter. Raymond was joined at the witness table by the chief executives of Chevron Corp., ConocoPhillips, BPAmerica Inc., and Shell Oil Company.
Together the companies earned more than $25 billion in profits in the July-September quarter as the price of crude oil hit $70 a barrel and gasoline surged to record levels after the disruptions of Hurricanes Katrina and Rita.
Raymond said the profits are in line with other industries when earnings are compared to the industry's enormous revenues.
But senators pressed Raymond to explain why in the aftermath of Hurricane Katrina some ExxonMobil gas station operators complained the company had raised the wholesale price of its gas by 24 cents a gallon in 24 hours. Is that not price gouging? they asked.
Raymond said he could not confirm the specific price increase, but that ExxonMobil had issued a directive in response to the storm disruptions "to minimize the increase in price while at the same time recognizing if we kept the price too low we would quickly run out (of fuel) at the service stations."
"It was a tough balancing act," said Raymond, who said it was not price gouging.
Although only 28 states have price gouging laws, and they vary widely as to implementation, the head of the Federal Trade Commission cautioned against enactment of a federal price gouging law. "Price gouging laws that have the effect of controlling prices likely will do more harm than good" and would be difficult to enforce, FTC Chairman Deborah Platt Majoras told the hearing held jointly by the committees of energy and commerce.
Democrats had wanted the executives to testify under oath, but Republicans rejected the idea. "If I were a witness I would demand to be put under oath," said Sen. Daniel Inouye, D-Hawaii. The soaring prices have sent shivers through a Congress worried about political fallout.
Sen. Barbara Boxer, D-Calif., made the issue personal, noting that the executives were reaping multimillion-dollar bonuses on top of multimillion-dollar salaries as "working people struggle" to pay for gasoline and face the specter of soaring home heating bills this winter. "Your sacrifice appears to be nothing," Boxer told the executives.
The head of the National Association of Manufacturers, former Michigan Gov. John Engler, criticized lawmakers for the way they handled the hearing.
"Demagoguery and demonization will not reduce energy prices or solve supply problems in the long run," he said. "Our energy supply and infrastructure have suffered from 25 years of increasingly restrictive government policies that have made it almost impossible to access and refine the resources we have. The Senate should dispense with the theatrics and get serious about Americas energy supply."
The White House said that President Bush, too, is concerned about energy prices.
"Energy prices have been too high and energy companies have realized significant increases in profits," said spokesman Scott McClellan. "It's important that the private sector be good corporate citizens and invest in the energy infrastructure and support those who are in need."
A number of Democrats, joined by a few Republicans, have called for a windfall profits tax on oil companies.
Domenici said he opposes such a move, saying "it didn't work before and probably won't work again." The government imposed taxes on oil company windfall profits in the 1970s, resulting in a drop in investment in oil development.
The executives hoped to dampen any further momentum for calls for taxing windfall oil company profits, something still viewed as a longshot but also no longer out of the question. Such a tax could inhibit investment in refineries or oil exploration and production, the industry argues.
James Mulva, chairman of ConocoPhillips, said "we are ready open our records" to dispute allegations of price gouging. ConocoPhillips earned $3.8 billion in the third quarter, an 89 percent increase over a year earlier. But he said that represents only a 7.7 percent profit margin for every dollar of sales. "We do not consider that a windfall," said Mulva.
Raymond cautioned against Congress imposing "punitive measures, hastily crafted" — an apparent reference to windfall profits taxes — and suggested that they would inhibit investment in domestic energy projects. Both Republicans and Democrats have urged the companies to use more of their profits to build refineries and other energy projects.
David O'Reilly, chairman of Chevron, attributed the high energy prices to tight supplies even before the Gulf hurricanes hit and said his company is "investing aggressively in the development of new energy supplies."
The oil executives said their companies spend tens of billions of dollars in investments.
Shell earned $9 billion in the third quarter, said John Hofmeister, president of Shell Oil Co., but he said over the last five years the company's investment in U.S. operations was equal to its income from U.S. sales.
The oil industry's record third-quarter profits — at a time when motorists were reeling from unprecedentedly high gasoline costs and warned of huge heating bills this winter — have caught the attention of both Republicans and Democrats in Congress. Some analysts predict the 29 largest oil companies will earn $96 billion this year.
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