Pumping the Oil Tycoons
It was a great quarter for the oil industry, but Wednesday was not a great day.
For the first time this year, top executives from ExxonMobil, Chevron, ConocoPhillips, BP and Shell Oil were summoned to Capitol Hill for a little Q&A with Congress. Big Oil's soaring profits, at a time of record gas prices last month, meant sagging poll numbers for the Republican leadership -- a reality even Senate majority leader Bill Frist couldn't ignore when he hastily called for hearings shortly after ExxonMobil announced $9.9 billion in third-quarter profits, the largest take in US corporate history. Four companies are expected to collectively pocket $100 billion in profits this year.
Dozens of reporters, young activists wearing "ExposeExxon" T-shirts and industry lobbyists filled a spacious Senate room on Wednesday for a rare joint hearing by the Energy and Natural Resources and Commerce committees. They expected a showdown, a rarity given that this Congress hasn't been known to investigate much of anything, least of all oil companies.
After all, the Bush Administration and the Republican Congress have reliably provided favors large and small to Big Oil, paving the way to unprecedented prosperity. In the last year alone, they've blocked meaningful action on global warming and significant investment in renewable energy sources, sought to open the Arctic National Wildlife Refuge for oil drilling, inserted $2.6 billion in tax breaks into the energy bill and cleared the way for new, regulation-lite oil refineries by holding open a five-minute floor vote in the House for forty-eight minutes. Big Oil responded in kind, donating $13.3 million to Republican Congressional candidates in the 2004 election cycle.
But the profits and the poll numbers have become too significant to ignore. Seventy-two percent of the public believe oil companies gouged gas prices in the wake of Hurricane Katrina, according to an ABC News poll. Four out of five Americans support a tax on windfall profits to benefit alternative energy sources, the Civil Society Institute recently found. "The polling numbers are so bad for Washington Republicans that there are only two groups less popular than they are right now," the Cato Institute's Jerry Taylor recently told CNBC's Lawrence Kudlow, "Oil companies and mass murderers."
The oil execs started Wednesday's hearing with a note of defiance by refusing to testify under oath, possibly recalling the image of their predecessors holding their right hands in the air before a Congressional hearing in 1974.
Thirty-one years later, many of the same questions exist. "Are you rigging the price of oil?" asked Energy and Natural Resources Chairman Pete Domenici, who's accepted more than $500,000 from oil companies since 1989. "I think you owe the American people an explanation."
When the execs pointed to rising global demand, decreasing supply, worldwide speculators, disruptions from Hurricanes Katrina and Rita and nettlesome domestic regulations, Domenici replied: "I'm not sure my constituents will be pleased with that answer."
In fact, the Big Five failed to take responsibility for much of anything. The situation today strangely parallels the Enron debacle; energy companies complained about excessive regulation when the real cause was a manipulation of supply. A lengthy question-and-answer session with senators bore out this inflexibility.
Should oil companies encourage automakers to raise fuel efficiency standards in light trucks and SUVs?
Lee Raymond, ExxonMobil: "I don't want to get into the political aspect of that."
Could oil companies voluntarily donate 10 percent of their profits toward heating assistance for low-income Americans, as suggested by Senate Finance Committee chairman Charles Grassley?
James Mulva, ConocoPhillips: "That's not a good precedent for the industry to fund."
Was a 24-cent increase in the price of gas over a 24-hour period following Hurricane Katrina unconscionably excessive?
Raymond: "We have nothing to say about the price at the pumpÃ¢â‚¬Â¦. I don't know if that data is accurate."
Had we not experienced Hurricane Katrina, would the profits be even higher?
Raymond: "That's a hard question to answer."
And so on. "I hope I can give you a bit of a reality check," a reliably agitated Barbara Boxer said, before displaying a chart illustrating how the execs' yearly bonus was 155 times greater than the average American's yearly salary. "Will you consider making a major personal and corporate contribution to help Americans get relief from high heating costs? I'd like a yes or no answer." Before anyone could respond, Commerce chairman Ted Stevens, an irascible 82-year-old ally of Big Oil, interrupted the exchange.
"This chart is really publicity," Stevens said.
Publicity or not, more than eight pieces of legislation stand before Congress targeting oil industry profits. Senators Byron Dorgan and Chris Dodd want a 50 percent excise tax on the sale of oil priced above $40 a barrel, a variation on a theme recently endorsed by Senate Budget Committee chairman Judd Gregg. Members of both parties have called for a federal anti-price-gouging law, modeled after regulation already on the books in many states--an idea explored by state attorney generals and the chairman of the Federal Trade Commission in the day's afternoon panel.
Through a clever line of questioning, Oregon Democrat Ron Wyden persuaded the execs to admit that little, if any, of the $2.6 billion tax incentives in the energy bill would actually benefit their companies. Wyden said on Thursday he will try to strip the tax breaks from the Senate's massive budget reconciliation bill. More so than high-profile hearings, measures such as these will indicate the resolve of the Congress.