- The Washington Times - Sunday, May 6, 2001

PublishDat=0:00BodyText1 =Having just returned to my home in Michigan from a driving trip to the East Coast, its easy to understand the anger and frustration of motorists contemplating gasoline prices of $2 a gallon or more in many parts of the country. Didnt we go through this last summer, and why havent they fixed the problem?

But before you begin conjuring up conspiracy theories about the big bad oil companies, consider a couple of pesky facts. One is the figure 5 percent, about which more later. The other is the recently released report of the Federal Trade Commission about last summer´s price spike.

When gasoline prices soared at the beginning of the driving season last June, particularly in the Midwest, panicky members of Congress demanded an investigation into possible price-gouging and antitrust violations. The FTC, which by law is balanced between Republican and Democratic appointees, subpoenaed 13 American refiners, 10 pipeline companies and scores of employees. It pored over 1,000 boxes of information (and, reflecting our modern times, 100 compact disks). And after months of testimony and deliberations, it concluded:

"There is no evidence that the price increases were a result of conspiracy or any other antitrust violation. Indeed, most of the causes were beyond the immediate control of the oil companies… . Once the magnitude of the price increases became apparent, several oil companies moved aggressively to bring supply into the Midwest and the price spike was eliminated."

The FTC report was approved unanimously. Orson Swindle, whom you may remember both for his suspicious name and the fact that he once served as Ross Perot´s campaign manager, added an even stronger separate written opinion that "the bottom line is that the problems in the Midwest were caused not by antitrust violations but by a combination of the EPA [Environmental Protection Agency] and unforeseen market circumstances." Mr. Swindle was referring to federal mandates that gasoline in certain markets, particularly the industrial Midwest, be specially tailored to reduce pollution emissions almost to zero. Not good enough for the likes of Jamie Court, executive director of the California-based Foundation for Taxpayer and Consumer Rights, who told the Chicago Tribune recently that the latest runup is being engineered by Big Oil. "They are pocketing everything in profit," he asserted, adding darkly that "you can basically control the price of oil over a table of eight in a restaurant."

But that overlooks a few minor things like supply and demand. Consumer appetite for gasoline is still rising despite the cooling of the economy. In addition, refiners were forced to draw down sharply on their oil inventories in order to supply the home-heating market during the unusually cold winter. As a result, production of gasoline had to be cut 1.7 percent. And because refineries were running flat out in order to insure that nobody froze to death, many had to be taken off line for maintenance this spring and several, including one in Illinois, have experienced fires that disrupted production.

But down at the bottom of the problem is that 5 percent figure. It´s the average rate of return on oil refineries in the United States. And it helps explain why there are only half as many refineries in the United States now as 20 years ago.

Think of it this way. You can take your money down to the corner bank and open a saving account that returns 5 percent. There is almost zero risk in such an investment.

Why would you sock your money into a new oil refinery that could burn down at a moment´s notice or get socked by a huge EPA fine for the least infraction of inscrutable laws when you can routinely earn 10 percent to 20 percent on other investments? As the National Petroleum and Chemical Refiners Association points out, federally mandated investments in environmental controls now total more than the depreciated value of the refineries themselves. Some restaurant conspiracy.

Help may be on the way: Refineries are once again responding to the price spike with aggressive efforts to get more product to market. But longer term, this second round of price shocks shows the need for a new approach to energy in this country: one that focuses on supply bottlenecks usually the result of some misguided government edict rather than demagogic and ill-informed attacks on producers we routinely get from our media and politicians.

Tom Bray is a staff columnist for the Detroit News.


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