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Energy

Floor Speech

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Location: Washington, DC

ENERGY -- (Senate - May 23, 2007)

Mr. GRASSLEY. Mr. President, I am going to talk about an energy issue. I am sure people listening, and my colleagues, might think I am talking about an energy issue because gasoline is at the highest price it has ever been in the history of the country. I assure you I would be giving these remarks even if the price of gasoline was only $1 a barrel, because it involves, in an overview, testimony that was given by oil company executives before the Judiciary Committee some time ago. What is being reported are policies of oil companies. I have become aware of an article in the Wall Street Journal. So I am going to be referring, during my remarks, to evidence I got from the Wall Street Journal, letters that I have sent to the CEOs of major oil companies, and testimony that was given before the Judiciary Committee of the Senate--I might say that it was sworn testimony--and what I consider to be some inconsistencies. I will be referring to that testimony from the record.

I will be referring to the letters I have sent to the CEOs. As an overview, I am going to be pointing out inconsistencies between sworn testimony and what oil company executives say are their company policies regarding ethanol, and particularly the 85-percent ethanol that we call E85; and then, of course, letters I sent to the oil companies, raising questions that were raised because of this article, to have the oil companies give me their story, in case this article was wrong.

Across the country, American families and businesses are suffering from the economic impact of rising gasoline prices. As many families begin to plan their summer vacations, they are being forced to dig deeper into their pockets to fill up the family car.

The rising cost of gasoline is a result of many factors. Global demand for crude oil and refined products is way up constantly, as a result, driving up the price. The Organization of Petroleum Exporting Companies--what the people of this country know as OPEC--has curtailed some production. Refineries are offline for maintenance or have experienced outages. As a result, these refineries are operating at 5 to 10 percent below normal.

Once again, refinery outages have, coincidentally, occurred just as the summer driving demand kicks into gear, and this has led to an average price of over $3.15 a gallon as a national average. In my State of Iowa, I think it is $3.33 today.

The impact of these increased prices is being felt across the country by working families, farmers, businesses, and industry. The increased cost for energy has the potential to jeopardize our economic security, our economic vitality.

Because we are dependent upon foreign countries for over 60 percent of our crude oil, our dependence on them is a threat to our national security.

In recent years, many Members of the Senate have touted the value of increasing our domestic energy resources. I have been one of those--particularly for ethanol and particularly for biodiesel. In Iowa, I am the father of the wind energy tax credit. Iowa is the third leading State in the production of electricity from wind energy.

Increasing domestic resources, whether it is ethanol, biodiesel, wind, biomass, you name it--all of these are from alternative sources that are good for our economy and particularly good for our national security. Diversity of supply can go a long way toward reducing the impact of price spikes and volatility. That is why I have been such an ardent supporter of the development of these domestic renewable fuels. Each gallon of homegrown, renewable ethanol or biodiesel is 1 gallon of fuel that we are not importing from countries such as Iran, or Venezuela, which are very unpredictable--or Nigeria, where we get 10 percent of our oil, which might be unpredictable because of revolutionaries there kidnapping American workers, such as they did 2 weeks ago, or German workers over the period of the last year. It is a very nervous environment we are in.

The supply from the Saudi oil wells to our gas tank is maybe a 17-day inventory. So any little thing happening, according to the business pages of the newspaper, causes the price to spike. So I have been an ardent supporter of these domestic renewable fuels.

In the past few years, domestic ethanol production has grown tremendously. Right now, we are consuming about 5 billion gallons of ethanol annually. With all of the new ethanol biorefineries under construction, we will be producing as much as 11 billion gallons annually by 2009.

Ethanol's contribution is a significant net increase to our Nation's fuel supply. But as the industry grows, it is imperative that higher ethanol blends be available to consumers. When I say higher ethanol blends, I mean beyond the 10 percent mixture that we have right now. We even have cars right now that can burn up to 85 percent ethanol. That is why we refer to it as E85. That is what we are talking about, increasing the 10 percent as cars are manufactured, to be able to consume it without hurting the engine. That is where the automobile companies are headed. That is where the ethanol industry is headed to back it up. But the point I will make in a minute is that the distribution for E85 is a problem, and it looks to me like big oil is a major part of that problem. That is what I am going to point out.

We are quickly approaching a time when ethanol will be produced in a quantity greater than that needed for the blend market as we continue down the road that has been pioneered by Brazil--and that is the best example--to

use cars that will, in fact, burn 100 percent ethanol. For sure, we must continue on this path of reducing foreign oil dependence and greater renewable fuel use.

To do that, then, it is critical that we develop the infrastructure and the demand for E85, an alternative fuel comprised of 85 percent ethanol, 15 percent gasoline.

Our domestic auto manufacturers are leading the effort to expand what we call the flex-fuel--meaning flexible fuel--market. Our domestic manufacturers of automobiles are doing this. Our domestic automakers have produced approximately 6 million flex-fuel vehicles over the past decade. In fact, you might be driving a flex-fuel vehicle and don't even know it, burning 100 percent gasoline, or the 90/10 percent mixture of gasoline and ethanol. Look at your book. If you can burn E85, do it--if you can buy it. I am going to point out how that is a problem--the distribution--and the oil companies' involvement in it.

In a visit to the White House in March of this year, the chief executive officers of Ford, General Motors, and DaimlerChrysler committed to double their production of E85 vehicles by 2010. By 2012, they committed to have 50 percent of their production of vehicles E85 capable. Listen, there is a big price difference here--$2.85 for E85 a gallon versus $3.33 for gasoline today. So when they get 50 percent of their production E85 capable, this is then, as they say, a highly achievable goal with very little impact on consumers because you can buy these cars for as little as $200 in additional cost. So you can burn the E85 as well as 100 percent gasoline. If you would rather pay more and buy the 100 percent gasoline, you can still burn it in the same car. This is very inexpensive for the money that can be saved.

However, a very important component of the alternative fuel market is ensuring that the fuel is available to the consumers. The ethanol industry is working hard to increase production of ethanol, and they are on target to have 11 billion gallons in a little while.

The automobile makers are ramping up production of their vehicles. So everybody seems to be doing their part.

But where is the oil industry? I thought a year ago, when they appeared before the Judiciary Committee, they were on the road to cooperating with the distribution of E85, but I read in the Wall Street Journal quite a different story. So I think I can legitimately ask, if we got the car manufacturers producing E85 cars that can burn that and the ethanol industry producing it, where is the oil industry? Because that is the distribution of this. There is not an independent distribution of E85. You have to go to your filling station, where you can buy 100 percent gasoline and have the alternative of filling up with E85.

What have they done to ensure a robust growth of the alternative fuels market? Well, Mr. President, it appears they have been less than helpful. I have referred to this article in the Wall Street Journal. It details many of the obstacles the major oil companies use to block service stations from selling E85.

Now, imagine my surprise when I read this story, because just over a year ago, I questioned many of the CEOs of the major oil companies on this very issue when they appeared before the Senate Judiciary Committee about whether there was any sort of violation of antitrust laws, any sort of collusion. There was a whole range of questions that were being asked by the members of the Judiciary Committee, wanting to know if the marketplace is working, because if the marketplace is working, you cannot have any complaints. But if it is not working, we have to do something about it. The CEOs of ExxonMobil, British Petroleum, Chevron, ConocoPhillips, and others testified before this Senate Judiciary Committee under oath. The bottom part of this picture depicts the CEOs I named from ExxonMobil, British Petroleum, Chevron, ConocoPhillips--I will not name them all, the major oil companies testifying, taking their oath, as they swore to tell the truth in the Judiciary Committee.

I remind my colleagues of another very famous group of CEOs on the top of this picture back in 1994 taking the oath to tell the truth to a House committee. Those are the CEOs of the major tobacco companies. At that hearing, our great colleague from Oregon, Senator Wyden, who was then a Member of the other body, went down the line of these CEOs and asked each of them whether they believed nicotine or cigarettes were addictive. We all know how that hearing went, with each of the CEOs testifying that nicotine was not addictive when, in fact, it is. There is the photo of those CEOs who got themselves in trouble a little bit later when there was plenty of evidence brought out that they knew what the situation was with tobacco being addictive and what they did to make it addictive. Of course, the second photo is from March 2006, before the Senate Judiciary Committee, of the chairmen of the major oil companies taking an oath to tell the truth as well.

Much like my colleague, Senator Wyden, when he was a Member of the House of Representatives asking the tobacco company executives about tobacco being addictive, I questioned the oil company executives, in the bottom picture, at the time of this hearing, about their policies regarding alternative fuels, meaning mostly ethanol. I was leading up to E85. I asked the CEOs quite clearly if they would commit to allowing independent owners of branded stations to sell E85 or biodiesel, B20, which is a 20-percent mixture with petroleum diesel. Remember, as I was asking them questions, these folks were under oath.

I also asked them if they would allow those station owners to purchase the alternative fuel from any outlet because if they didn't sell it and oil companies are not selling ethanol but people who produce it can, will they let their stations buy it from an independent outlet. Each of these CEOs, when I asked that question, testified that they were perfectly willing to allow the sale of alternative fuels at their stations. ExxonMobil CEO Rex Tillerson stated:

We've denied no request from any of our dealers who have asked for permission to sell unbranded E85. We've granted every request by our dealers who wanted to install separate pump facilities under their canopy for E85.

Mr. David O'Reilly, the CEO of Chevron--I am referring to people who took an oath to tell the truth, and we can see their picture here--Mr. David O'Reilly, CEO of Chevron, responded, similarly stating that E85 was already available at Chevron stations and that it was available under the canopy. He offered with pride that Chevron was probably the largest seller of ethanol. According to the CEO for British Petroleum, all of BP's 8,900 independently owned stations are free to deploy E85. Finally, the CEO of ConocoPhillips simply associated himself with the comments of the other witnesses.

Mr. President, I ask unanimous consent that the relevant pages of the March 14, 2006, Senate Judiciary Committee transcript be printed in the Record.

There being no objection, the material was ordered to be printed in the RECORD, as follows:

BREAK IN TRANSCRIPT

Mr. GRASSLEY. So the CEOs of the major integrated oil companies testified under oath before the Judiciary Committee stating their willingness to allow independent stations to offer E85. But the Wall Street Journal told a much different story. It highlighted tactics used by the big oil companies to block alternative fuel. The obstacles included contracts restricting the purchase by the station owners of alternative fuel. They also required the installation of completely separate pumps, sometimes far away from the main canopy, and in many cases station owners are prohibited from advertising the product or even posting the price of that fuel, E85. British Petroleum goes so far as to prohibit station owners from placing signs that include E85 on gasoline dispensers, perimeter signs, or light poles. These tactics don't sound consistent with a company--meaning British Petroleum--with a marketing slogan ``beyond petroleum.''

The big oil companies on many occasions cited ``customer confusion'' as the rationale for their policies or that they don't want to ``deceive their customers'' about the product. I happen to believe that it has more to do with limiting the availability of a product that they don't control and the sale of alternative fuels much more than it is customer deception.

After I read the Wall Street Journal article, which is so contrary to what I remember them telling me 1 year, 13 months before, I wrote letters to the CEOs who testified. Their picture is here. I pointed out the contradictions in their testimony before the Senate Judiciary Committee and the allegations that were made in the Wall Street Journal.

I wish to refer to these letters so my colleagues will know what I asked them based on this article.

I have a letter to Mr. Rex Tillerson of ExxonMobil. I am not going to read the whole letter, but I am going to read what I am after here:

In fact, Exxon Mobil's standard contract bars Exxon stations from buying fuel from anybody but Exxon--a fact you chose not to disclose to our committee. It also appears that even in cases where exceptions are made, Exxon requires those station owners to install entirely separate dispensers.

I refer to a letter I sent to Mr. Robert Malone, chairman of British Petroleum:

The Wall Street Journal article indicated that BP prohibits branded stations from including E-85 on gasoline dispensers, perimeter signs or light poles. Another obstacle employed by your company is the prohibition of using pay-at-the-pump credit card machines for E-85 purchases. .....

That seems to be very contrary to what they told us, that they were allowing the sale of E85 at their stations.

Mr. James J. Mulva, ConocoPhillips:

The Wall Street Journal article indicated that Conoco Phillips does not allow E-85 sales on primary islands under the canopy. This policy directly contradicts the statement to which you associated yourself during the March 2006 hearings.

And lastly, Mr. David J. O'Reilly, Chevron:

..... Chevron's agreement with franchisees discourages selling E-85 under the main canopy and includes policies that are claimed to prevent franchisees from deceiving customers as to the source of the product. The Wall Street Journal article indicated that Chevron recommends that E-85 pumps be outside the canopy and that Chevron prohibits branded stations from including E85 on signs listing fuel prices.

I ask unanimous consent that these letters to ExxonMobil, British Petroleum, ConocoPhillips, and Chevron be printed in the Record.

There being no objection, the material was ordered to be printed in the RECORD, as follows:

BREAK IN TRANSCRIPT

Mr. GRASSLEY. Mr. President, in my letters, I ask for an explanation of their policies that are seemingly used to block alternative fuels. I hope to get a thorough explanation as to why these CEOs led me, led the Senate Judiciary Committee members, and the American people to believe they support making E85 available to their customers when there is plenty of evidence that they do not practice what they preach, that they do not practice what they told our committee under oath.

What I am afraid of is that these companies are not serious about expanding the availability and use of alternative fuels. I say this for a couple reasons. First, if one takes a close look at the E85 stations in my home State of Iowa, it is rather telling. I have a map. What might look like missiles are ears of corn because ethanol comes from corn. We have 65 stations in Iowa selling E85 today. Only one of those 65 stations selling is a major branded station, and it is down where the yellow arrow is--only one of 65.

A second reason I am skeptical of big oil's claims comes straight from the words of their chief lobbyist, the head of the American Petroleum Institute. Red Cavaney recently stated that there is not enough ethanol or flex-fuel vehicles available to economically justify widespread installation of E85 pumps.

For argument's sake, let's assume that is an accurate statement. Why, then, would big oil undertake such an effort to block independent station owners from deciding for themselves whether to invest in the infrastructure? Let the station owners make that decision. Let's not have, as this article in the Wall Street Journal implies, all these obstacles, particularly since we were led to believe when they testified under oath before our committee that they were fully cooperating with allowing the installation of E85 pumps. If big oil sees no competitive threat from E85 pumps, why not just let the independent-minded station owner decide if there is a demand for the product? The market will make that decision. Why erect all these discriminatory tactics if you believe there is no threat from alternative fuels?

When I get answers to my letters--and I am going to wait until I get all the answers back before I draw any conclusions--maybe they will say the Wall Street Journal article is wrong. I hope that is what I find out and that they did not mislead us under oath when they testified before the committee.

All I can say is, as I conclude, if our Nation is serious about reducing our dependency on fossil fuels and imported crude oil, more must be done to expand the infrastructure for ethanol and particularly E85. America's farmers are demonstrating daily their desire to reduce our dependence on foreign oil by producing more corn in the United States. More acres of corn were planted this year than any time since 1944. And our ethanol industry has invested to make sure we can be less dependent on imported crude oil.

So I look forward to hearing from big oil companies on what they are doing to help. I hope I get answers that are contrary to what the Wall Street Journal said.

Mr. President, I yield the floor.


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