August 2000 Vol. 221 No. 8  Editorial

Thomas R. Wright, Jr.,  Editorial Director

Fingerpointing backfires

When gasoline prices hit record levels in the U.S. Midwest, Energy Secretary Bill Richardson appeared on the network news to explain why. Naturally, we expected him to cite higher crude prices brought about by OPEC, a recently ruptured gasoline pipeline, plus higher costs associated with producing a new reformulated gasoline required to meet more stringent government air-quality regulations imposed for the area. We say "naturally," because these particular causes had been discussed/blamed/cited by all sorts of analysts, news organizations and industry associations. Thus, we were surprised and chagrined to hear Richardson suggest that oil company "collusion," "price fixing" and "gouging" was involved.

But chagrined doesn’t come close to describing the sensation one gets upon reading a July 14, 2000, article in The Washington Times titled "Memo blames EPA for gas price increases." In case you missed it, an internal DOE memo was written way back on June 5 for Richardson by the department’s acting policy director, Melanie Kenderdine. According to the paper, the memo’s timing was in response to a public outcry arising "over gas prices as high as $2.50 a gallon for the reformulated gasoline that the Environmental Protection Agency is requiring in the Chicago and Milwaukee areas this summer."

The paper also says that the DOE memo repeats conclusions made by private analysts and oil company representatives in stating that "high consumer demand and low inventories have caused higher prices for all gasoline types" at a time when crude-oil prices are hovering near record highs. "The Milwaukee (and Chicago area) supply situation," the memo says, "is further affected by, among other things, an RFG formulation specific to the area that is more difficult to produce, lower gasoline inventories relative to the rest of the country, high regional demand and limited transportation links."

But despite the rationale presented in the memo, the Clinton administration – including the President, Richardson and EPA Administrator Carol M. Browner – all stated their suspicions that the price spikes could not be explained. In fact, three federal agencies were instructed to investigate the possibility of collusion and price-fixing by oil companies.

The Washington Times reports that 10 days after the memo was written, Mrs. Browner told more than 30 members of Congress that the EPA regulations were not behind the Midwest price increase. Despite the tight supply situation outlined in the memo, she asserted that it was "not a supply issue." However, the memo clearly blames EPA rules that went into effect June 1 as a primary factor in the Midwest price jump that was also magnified by tight supplies. It says that refineries had been running full steam to produce the EPA-mandated reformulated gasoline, that distributors were straining to deliver enough gas supplies to meet demand and that key pipeline disruptions had made the situation even worse. Compounding the problem was the fact that the specially formulated gasoline – which is mixed in the region using ethanol – could not be transferred from other areas, since most don’t make the unique blend.

While the memo concludes that supplies were sufficient to meet "overall demand" at the time, some independent gas stations might have a hard time getting supplies on the spot market, it said. And the market was "sufficiently tight that any disruption in the distribution system could contribute to Phase II RFG shortages" throughout the summer.

Energy Department spokesman Drew Malcomb told The Washington Times that the memo was written to help Mrs. Browner decide whether to grant Chicago and Milwaukee waivers from the clean-fuel regulations that they had requested. She turned the cities down repeatedly. Mr. Malcomb said the memo focuses on "supply and demand" rather than "prices," though at one point it states that the new regulations had raised the cost of reformulated gasoline by 3 cents to 7 cents over conventional gasoline and added that "cost . . . is not necessarily an indication of price."

House Speaker J. Dennis Hastert (R-Ill.) referred to the memo while accusing Browner of misleading Congress, the media and the public. The Times says he demanded immediate action to ease the regulatory pressures on the region. "It is clear from the June 5th memo that the DOE, whose primary responsibility is oversight of our nation’s energy supply, believed that a lack of gasoline inventories in the Midwest, as well as EPA regulations, were not only ‘factors’ which led to higher gasoline prices, but in fact the primary causes," he said in a letter to the EPA administrator. "Nowhere does this document indicate, or imply, that price gouging was a factor; nor has any other federal study or investigation. Yet, you continued to point the finger" in what appears to be a "coordinated strategy" with the White House to deflect blame, he said.

Speaker Hastert’s statement about Browner’s finger pointing and Richardson’s specious look of innocence and concern as he posed on TV to put the blame on Big Oil reminds us of Richardson’s boss’s infamous finger wagging statement when he looked the American public in the eye, saying, "I didn’t have sexual relations with that woman . . . "

Now for the real reason. Despite all of the above, an e-mail we received succinctly answers why shortages are occurring. We don’t know who the original author is yet, but we’re trying to find out, because he wrote: "There are a lot of folks who can’t understand how we ran out of oil here in the U.S. Well, here’s the answer: It’s simple, nobody bothered to check the oil; didn’t know we were getting low. And of course, the reason for that is geographical. Most of the oil is in Texas and Oklahoma, and all the dipsticks are in Washington, D.C."

Oil’s employees hurt too. Tom Stewart-Gordon of Dallas, and former international editor for World Oil, came up with the following: "Things are so good in the oil business that nobody can afford to drive to work. But that’s OK since the guys in the gas business are having their limo drivers swing by to pick them up."