FOR IMMEDIATE RELEASE
Tuesday, May 11, 2004

Contact:
Mark Cooper, CFA, (301) 807-1623
Adam Goldberg, CU, (202) 462-6262

(Washington, D.C.) – Domestic petroleum companies have stuck U.S. gasoline and natural gas consumers with about $250 billion in price hikes since January 2000, resulting in an increase in after-tax windfall profits of $50 to $80 billion to the industry, a report released today by the Consumer Federation of America and Consumers Union concluded. The groups are calling on federal and state authorities to investigate oil company price manipulation as one way to bring prices down to more reasonable levels in the near terms and a strong commitment to increased fuel efficiency in the automobile fleet for the long term.

The report, entitled Fueling Profits: Industry Consolidation, Excess Profits & Federal Neglect, Domestic Causes of Recent Gasoline and Natural Gas Price Shocks, shows While OPEC has taken a bite out of consumer’ pocketbooks, domestic companies have taken about three quarters of the price increases since January 2000. The report attributes about half of the price increases to changes in domestic pricing behavior that was created by a wave of mergers that swept through the industry in the past decade.

“The industry became concentrated in the hands of a few vertically integrated companies and allowed domestic oil companies shut down refineries, reduce stocks, and exploit markets when they become tight,” said Mark Cooper, CFA’s Director of Research. “Since these price increases were about padding the corporate bottom line, not about responding to increased costs, petroleum industry profits have risen to record highs over the period.

“Based on results from the first quarter of this year, domestic petroleum industry profits are headed for another record with refining and marketing profits up about 50 percent compared to the first quarter of 2003, Cooper added.”

The report shows a dramatic increase in household energy bills for petroleum products:

• Taken together and averaged across all households, expenditures for gasoline, heating oil and natural gas in 1999 accounted for about $1,400 per year of total household expenditures. Price increases over the past four years for these residential items added about $350 per household per year, meaning that domestic energy price shocks have increased household energy bills by 25 percent.

• A comparison between 1999 and 2003 is even more dramatic – a $500 increase in average annual household expenditures for these petroleum products, which represents a jump of over 35 percent.

“Consumers have paid the price for increasing the profitability of the domestic oil industry,” said Adam Goldberg, a policy analyst in Consumers Union’s Washington office. “It’s time for the Bush Administration to step up and take some action to help out consumers at the pump and at home.”
In response, the groups called for :

• Federal and state law enforcement agencies to investigate and prosecute domestic oil companies that violate the law. Such investigations will likely modify the companies’ behavior when it comes to pricing.

• Congress to consider instituting a windfall profits tax, thus taking the incentive out of manipulating supplies to increase profits. In addition, policymakers should increase market flexibility by expanding fuel stocks through tax incentives to hold and draw down supplies in the face of price increases, mandatory stock requirements as a percentage of sales, and/or government owned/privately operated supplies.

• Congress to increase automobile fuel efficiency standards at the rate achieved in the 1980s, and increase refinery capacity through expansion at existing refineries or redevelopment of the refineries closed in the past decade.

• Promote a more competitive industry by preventing further consolidation through vigorous enforcement of the Department of Justice Merger Guidelines. Also, expose those companies that withhold supplies up to intense public and governmental scrutiny through a joint federal state task force of attorney’s general, and prevent manipulation of commodity markets.

“These policies would build a much more competitive and consumer-friendly energy market in this country for a lot less than the $250 billion consumers already have handed over to the oil companies,” Cooper concluded. “The $20 billion that the energy bill would give to the oil industry would be better spent as a down payment on a long- term commitment to reduce demand and increase domestic market flexibility.”

Click here to view a copy of the report.

Consumers Union, publisher of Consumer Reports magazine, is an independent nonprofit testing, educational and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition and other consumer concerns. Since 1936, our mission has been to test products, inform the public and protect consumers.

Consumer Federation of America (CFA) is a non-profit association of almost 300 pro-consumer groups, with a combined membership of 50 million, which was founded in 1968 to advance the consumer interest through advocacy and education.