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FAA Reauthorization Act of 2007

Floor Speech

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Location: Washington, DC


FAA REAUTHORIZATION ACT OF 2007 -- (Senate - April 29, 2008)

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Ms. CANTWELL. I come to the floor this evening to talk about the energy crisis, the price of oil, and how consumers are seeing the impacts of high oil prices in their everyday lives. The high price of oil is impacting businesses and many consumers can't afford to take family vacations and trips, dragging down our economy over all, and dragging us further into an economic downturn.

What I have heard today on the Senate floor from many of my colleagues is accusations and claims about what is going on and what might have transpired on various issues that might have caused the high price of gasoline and certainly the price of crude oil, which is now well over $100 a barrel. I think it is important to think about what Congress has already done and to make sure we are telling consumers what needs to be accomplished to solve the problem.

What we are hearing from analysts on Wall Street is that this issue is going to continue to exacerbate, and that oil prices will continue to rise. When we think about oil futures all the way out to 2015, still being over $100 a barrel, and oil futures impacting the physical price, it raises a lot of concerns about how the economy can sustain such a high price of fuel.

Let's start with some basics about supply and demand because many of my colleagues on the other side of the aisle have talked about the fact that they think oil supply hasn't been there, that growth in the numbers of people in India, China, other countries, is exacerbating the problem.

While we have seen growth in demand from other countries, this chart--starting in 1980, going all the way to 2006, and showing some numbers until 2008; the orange line is demand, and the yellow line is supply--except for some anomalies here, shows that supply and demand have kept pace. So anybody who wants to say this is all about supply and demand hasn't looked at a chart such as this showing that these lines pretty much track each other. What it tells us is that we have to look at other fundamental things that are happening in the marketplace and not just make accusations about what is going on.

In fact, if you want to look at the high price of gasoline, you can't say it is just an increase in demand. During the summer season, motor gasoline consumption in the United States is actually projected to decline by four-tenths of a percent, and it is projected to decline by three-tenths for the whole year. We are actually seeing a decline in demand. Obviously, that is not a surprise. Given the high price of fuel, people are not able to afford to continue their normal habits. But the issue isn't that the price is being driven up simply because there is this increase in demand. The high price of gasoline also isn't about the fact that there are low inventories. Some people have wanted to say this issue is about low inventories. When you look at what the industry says, here is an oil analyst who basically says that gasoline inventories are higher than the historical average at this time of the year. So there is really no need to worry about tight supply. Here is an oil analyst saying that.

It points, again, to other questions about what is going on. Some people have said: Let's blame it on renewables. Many Democrats have been big supporters of renewable energy, big supporters of getting alternatives into the marketplace, because we believe if you get alternative fuel into the marketplace, it will lower the demand on normal fossil fuel and create some competitive advantages. I know there are some people--a Governor--basically saying: You ought to repeal the whole RFS. You ought to get rid of this issue as it relates to having a renewable fuels standard. Here is the Wall Street Journal report from Merrill Lynch saying that without biofuels, the price would be even higher, and that basically oil and gasoline prices would be 15 percent higher if biofuels weren't helping to

increase the output. So it is wrong to say that somehow our focus on renewable fuels has exacerbated the situation when, in fact, it has done nothing but help the situation. In fact, I love that this Texas A&M study basically found that ethanol has increased in excess of what our renewable fuels standard was, indicating that relaxing the standard would not cause a contraction in the industry, nor would it cause a reduction in the price of corn.

The issue today is where do we go for solutions. Part of the issue is that many of my colleagues are saying it is all about more supply of fossil fuel for the United States. We have had this debate so many times in the Senate. We have had a debate about whether the United States, with 3 percent of the world's oil reserve, really is going to make a dent in increasing supply and giving consumers a chance to get off fossil fuels. We are going to have a big debate about global warming and its impact and whether we should even keep our focus on fossil fuel or accelerate getting off of it.

Many times today, even down at the Rose Garden, we hear the word ``ANWR'' again, and how ANWR was the secret recipe for lowering gas prices in America. I obviously don't support opening up drilling in the Arctic Wildlife Refuge because it is a wildlife refuge. But I certainly don't support it when even our own Energy Information Administration has said that drilling in the Arctic Wildlife Refuge would only reduce gasoline prices by a penny per gallon and only 20 years after we got to peak production. So at a penny per gallon, if people use 400 to 500 gallons of fuel, we are talking about a few dollars of savings there over many, many months. So the notion that ANWR would be some way of solving our problems just isn't true.

I know a lot of people have talked about refinery capacity, and I think you need to talk to the oil companies about refinery capacity and why they have not expanded. I know my colleague Senator Boxer has been out here many times talking about how she had to stop consolidation in her State because they didn't want to keep a refinery open. But I know this: We know it is not environmental regulation. In fact, according to this CEO of an oil company:

We are not aware of any environmental regulations that would prevent us from expanding our refinery capacity or siting a new refinery.

So we know it is not about environmental regulations. That is not what is stopping them either.

Some people have said: Don't take the tax incentives away from the oil industry; don't do that because somehow that is what is keeping the industry afloat. The industry is making record profits. They are making so much profit they don't even know what to do with the profit. They are buying back their own stock.

We know this: We know the President of the United States, George W. Bush, said:

With $55 oil, we don't need incentives for oil and gas companies to explore.

It is way above $55 a barrel. So I take him at his word that we don't need incentives to continue to explore at that level.

Let's talk about what is the issue. Let's talk about what is the problem we need to solve, for which we need to be responsible to consumers, to businesses, to the economy, and to make sure we continue to deal with this threatening crisis.

I know one oil analyst who looked at these markets. And maybe the man on the street, if you ask him, he thinks something is going on in the oil market. He doesn't think it is about supply and demand. He didn't happen to see that first chart I put up, but he knows something is going on because he sees the irregularity of prices. But this analyst said: Unless the U.S. Government steps in to rein in speculators' power in the market, prices will just keep going up. Basically he is saying that speculators have too much power in the market right now, and unless the Government does its job, the prices are going to keep going up.

So it is time for us to act. It is time for us to get smart about this.

It reminds me of the debate we had when the Enron crisis hit the electricity markets. It probably took well into 2001, when many people said: Do you know what, this is all about environmental regulation, or, this is about not enough refineries, and it is about the fact that there is a supply shortage. They came up with all these things.

So as 2002 rolled around and as more and more investigation was done, we found out that, no, it was actually manipulative schemes by various individuals within a very large organization--actually several organizations--that purposely manipulated the electricity markets. They did this so they could short supply and drive up the price.

Now, Congress acted in 2005. We said--after we found out all the facts, we heard all the terms: Death Star, Get Shorty, all the various schemes that had been manipulated--we kept thinking: How could this happen when we had a Federal Power Act that said, on the wholesale rate of electricity and natural gas, you have to have just and reasonable pricing. We thought that is a clear enough message for people. But, in fact, it was not. It was not a clear enough message. It cost my State billions. It cost California's economy billions. So what did we do? Congress made it illegal to use manipulative devices or contrivances in the electricity or natural gas physical markets, and we greatly increased the penalties for market transparency violations.

Now, why did we go to the extent of doing this? We could not believe that such activities were in some way a gray area and that somehow people were still confused post-Enron that this kind of activity was OK. Some people said: Well, you already have the electricity and natural gas markets under the Federal Energy Regulatory Commission. What else do you need?

But I was very proud that Congress passed this legislation. Since that law has been on the books, since 2005, the Federal Energy Regulatory Commission, as it relates to electricity and natural gas markets, has been aggressive about pursuing this power and using it.

What have been the results? Well, the result has been making market manipulation illegal when it comes to oil and natural gas, so that they have had 64 investigations, 14 settlements, $48 million in civil penalties, two ongoing market manipulation cases that could net over $450 million in civil penalties, and a dramatic increase in self-reporting and self-policing. It is like one of my staffers said: If you want people to straighten up, let them know there is going to be a cop on the beat. Let them know there is going to be someone investigating these activities and we are not going to tolerate it, and people will start obeying the law. So we did that.

In 2007, we decided that if this kind of pervasive activity was still continuing in the natural gas and electricity markets--if that was still happening--maybe there was some correlation here with what was happening in the oil markets, because clearly, after looking at all those charts we just went through about supply and demand, and everything else, we could not understand what was happening. We have had oil company executives tell us that the price of oil today should be at somewhere between $50 and $60 a barrel given where supply and demand is. Oil company executives are throwing up their arms saying: We don't know why the price of oil is well over $100 a barrel. So we, in the Energy bill in 2007, passed a law saying it is time to make the same laws we have for natural gas and electricity apply to oil markets. We said that any person who uses, directly or indirectly, ``any manipulative or deceptive device or contrivance'' in connection with the wholesale purchase of crude oil or petroleum distillates--that that was illegal and that Congress made violations subject to penalties of up to $1 million a day. That is $1 million a day because we believe, if you are doing these kinds of activities, every day that you have engaged in those activities you should pay a fine for that.

Now, where are we today with this authority? Because some people say: Well, you passed a law. Is it working? This law does not really go into effect until the Federal Trade Commission adopts rules and puts them into action. That is what we are waiting for now. My colleagues on the Commerce Committee have urged the FTC to hurry about this task, that it is so important to our economy and to consumers to hurry about this task. I know Senator Reid has encouraged them, Speaker Pelosi has encouraged them. So we are in the process now of hoping that the FTC will implement this rule and give proper notice but start the process because once the marketplace knows--just as they did in natural gas and electricity--that these kinds of activities will not be tolerated, we might be able to make a dent in what is happening with this excessive speculation in the energy markets.

Well, let's look at what exactly the market manipulation behavior is that we are concerned about. We basically have said we are interested in whether companies have manipulated the supply, whether they have given false reporting, whether they have cornered the market, and whether they have engaged in any kind of rogue trading. Those are the things we are concerned about.

Well, let's talk about supply manipulation for a second because that is something for which people might say: Well, it is just about supply and demand, and how do you pass a law about supply and supply manipulation? Believe it or not, there are good Federal statutes on the books starting with a lot of case law and a lot of history. What we are saying is, we do not want any artificial influencing of supply in the energy markets. We do not want someone creating something that is not a normal part of business but is artificially used to create a shortage--for example, diverting or exporting marginal supply in tight markets. That is, we know

the market is tight on oil. You can go back to that chart on supply and demand. They pretty much track very closely. So it is a tight market. When you have an event like Katrina, it is even tighter.

Our question is, Did somebody export supply outside the country just to create a shortage in the United States and drive up the price? Have we had hedge funds holding crude oil ships off the coast just so the price will go up for a few more days?

That is the second point: holding supply deliveries temporarily to boost prices. We have people now who are major players in the oil market who really are not the end users of crude oil supply. They are just big financial movers in the marketplace. They are not taking the delivery of oil because they are out there delivering it to various jobbers or what have you. They are there for a financial investment.

In fact, we want to know if some of these inventory management strategies that have basically reduced physical supply--and basically everybody just trades their reserves on paper, and everybody just trades the paper around, where that, in fact, does not have much transparency to it. So we do not know how much that creates that management system in and of itself. Where we used to have 30 days of crude oil supply, thereby, the market was not so tight. Now we have this paper inventory system. We do not know what that really means. We do not know how much supply is really in reserve. Is that being used to manipulate supply?

Then, obviously, what we saw--I just think back to the Enron days when people said: Oh, no, no one would ever shut down a powerplant just to short supply. They would never do something like that. It must all be about the fact that really something was wrong. Well, we found out that there were purposeful shutdowns of various powerplants to short the market and to drive up the price. So we want to know if there are unnecessary and untimely ``maintenance'' shutdowns just to impact supply in the marketplace of oil.

We also want to know whether there is false reporting because false reporting can lead to misleading or inaccurate statements that also can hinder the marketplace.

Part of this legislation we passed in this bill is to say, in 2007, that if you gave false information, that was also subject to civil penalties of up to $1 million a day because part of this--the same in the Enron case--is it was very hard to understand these schemes. If it was not for videotapes that were put together, we would have never known exactly how these schemes would have worked just by looking at the books. So we want the Government to look at some of this information and if there are manipulative schemes. But if they provide false information, we believe that also should be a penalty.

Now, we know that in one case of natural gas--El Paso Merchant Energy--they reported nonexistent trades to reporting firms while at the same time failing to maintain certain records. They basically created false information about the trades that were going on. The result was six traders were convicted for false reporting and attempting to manipulate the energy market.

Now, the reason why this is so important to the subject we are debating today is that manipulation has happened in natural gas, and why this is so important now is because in the oil markets, and particularly in the oil futures market, we do not even have the same transparency in reporting requirements that we do with other commodities like natural gas. We have given them an exemption in the Enron loophole that was done in 2000 as part of the Commodity Exchange Act, so they do not have those reporting requirements. So we cannot even go and get some of this information to know that something like what was happening with El Paso Energy is transpiring in the oil markets, as it did in the natural gas markets.

So it is one of the reasons why we want to close the Enron loophole and to say that the trading of energy futures, which definitely impacts the price of oil today--and we will get to that on another day out here on the floor, about how the energy futures price impacts oil today, we will get to that, but for today we just know that if you do not have reporting, then there is no way--whether it is the SEC or the CFTC or FERC or the FTC--no one has any ability to get access to the information.

We also know that we want cornering the market to be illegal. Cornering the market would be exploiting the market power through excessive mergers like natural monopolies or blocking new entrants to basically corner the marketplace. We know this is something about which we have a great deal of concern. We know British Petroleum attempted to do this. Basically, they purchased excess propane in Texas, within the pipelines, to hold it from the market and then sell it high. We know they did that in trying to corner the market. The end result was that the Department of Justice and the CFTC ended up with a settlement case against them in the number of $303 million. So we know these things are happening in other energy markets, and we know they are a problem in the--potentially a problem--in the oil markets today.

We also know rogue trading is potentially a problem as well.

Mr. President, I am not going to take much more time on this issue as it relates to the high price of gasoline. I plan to continue to come out to the floor to talk about this issue about the need for the CFTC to promulgate this rule and get on about investigating the oil markets and to make sure consumers are protected.

I talked about what I think the rule needs to do. It needs to prohibit the manipulation of supply and to have a strong statute and penalty for falsifying information. It has to have a prohibition on cornering the market.

I believe that rogue trading is something else we are seeing in the marketplace. We need to have a prohibition on that. People might ask: What is that? It is employing manipulative trading schemes such as buying or selling large volumes of stock or futures contracts with the intention of influencing prices.

You can imagine, if somebody has a large position in one of these energy supplies or stocks, that basically ends up impacting the marketplace. We actually found this with the Amaranth case, in the area of natural gas. Amaranth sold large volumes of what is called next month natural gas delivery in the last 30 minutes of the market. What they did is basically crashed the close of the market. By selling large amounts of futures contracts for delivery of natural gas at the close of the market they manipulated the price and benefitted their large positions in other financial derivatives, and that ended up impacting the physical price of natural gas. The good news is the FERC, because of the 2005 law we passed, was on the beat, doing its job. Unfortunately, consumers paid something akin to $9 billion in increased natural gas costs before the FERC could get this situation under control. Now they are in the enforcement phase of a $291 million civil penalty against Amaranth. We know these situations are happening with rogue trading.

We know of another case that is similar to rogue trading and price manipulation, where Marathon Oil allegedly attempted to sell oil delivery contracts below the market prices in order to basically lower the market price, benefitting them as a net purchaser of foreign crude oil. So there ended up being an investigation by the CFTC, and today they are in a $1 million settlement with the CFTC on that issue.

All these issues, I believe, need to be investigated in the oil markets. They need to have a strong statute passed by the CFTC, similar to in 2005 for electricity and natural gas, where we can see the results of the investigation, we can see that a Federal agency is doing its job; we need to do the same thing with the oil market.

In fact, there are five things I think we need to do that would help protect consumers from high prices of gasoline. Our economy and consumers cannot afford much more.

We need to close the Enron loophole, in which that 2000 law said that online trading promulgated by Enron, they said, they don't have the same transparency, don't have to open their books or allow people to see what they are doing. We know for other commodities the Securities and Exchange Commission and CFTC look at those things to make sure there is not a manipulation in the marketplace. We cannot even get these because we gave them an exemption. That needs to be repealed. We need to require oversight of all oil futures markets. That is, as I said, the oil futures price affects the physical price of oil. If people are going to buy oil futures well into 2015 at over $100 a barrel, it is going to impact the physical price of oil today. If you can buy oil at over $116 in the oil futures, it is hard to believe that oil is going to drop much below that in the physical market. But these are markets--unlike, again, our commodities in the United States, on NYMEX or the mercantile exchange, such as corn or soybean futures, this is an exchange the United States doesn't have any regulatory impact on. We don't have the ability to look at those books, any enforcement mechanisms. We don't have the ability to protect consumers on that kind of speculation if there is manipulative activity going on.

As I said, we need to get the CFTC to finish their work. This is so important that I think the Department of Justice should coordinate all these agencies because there are futures activities, there is a physical market, and there is the falsification of information. What happened with Enron is the Department of Justice created a task force, called the Enron Task Force. It coordinated these agencies and got to the bottom of what was happening with the electricity markets and the manipulation. I think the Department of Justice should create an Oil Market Fraud Task Force to do the same thing.

Lastly, I know my colleagues will talk about this on the floor--to make price gouging a Federal crime. There are 28 States in our country that have the ability, in an emergency, to make a declaration in the event of a natural disaster, or huge anomalies in the market, and help stabilize the situation with executive power. I am willing to give that same executive power to the President of the United States. I hope he would use it.

In conclusion, there is a lack of transparency in energy trading markets. We need to fix that. This is one of the CFTC Commissioners who said:

I am generally concerned about a lack of transparency and the need for greater oversight and enforcement of the derivatives industry.

He is basically talking about this offshore exchange, where we don't have the same kind of oversight that we do. In fact, I said earlier that we have more regulation of hamburger and the future of beef than we have of oil. I will tell you that oil is critically important to our economy, and it needs to have the same kind of transparency and oversight as other futures commodities.

Last, I will reiterate that even on Wall Street, even the analysts who know what is going on in the marketplace, who know these prices are outrageous, not based on supply and demand, are saying:

Unless the U.S. Government steps in to rein in speculators' power in the market, prices will just keep going up.

An energy analyst said that this month.

It is clear the marketplace even thinks there is too much speculative power, and the answer is for us to do our jobs--for the FTC to do their job, to get the help of DOJ, and for us to make sure we are doing our job on oversight in giving consumers protection. But I think there are very few people in America who do not think these prices are out of control, that it is not normal market forces, it is not normal supply and demand, and if it keeps careening out of control, it is going to wreck our economy. It is certainly wrecking consumers' pocketbooks right now.

I hope we will take action. I hope the Federal agencies will get on their feet and be aggressive about protecting consumers on this important issue. I know we will continue to talk about this on the floor as we continue to pass legislation that does protect America from these out-of-control gasoline prices.

I yield the floor.

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Ms. CANTWELL. Mr. President, I say to the majority leader, I appreciate what he said on behalf of women. Washington State has one of the highest rates of breast cancer in the Nation. We have a very good detection program and good survival rates. We don't know the cause of it, but we know it is very important to continue the research.

I know that in 1992, the so-called year of the woman, when we had one of the largest classes of women elected to the Congress, we saw an increase in women's health research. Why? Because women were in the Congress to say it was important to us to not have the research directed in a way that favored some of the particular programs that were about men's health.

So I thank my colleague. The majority leader is right to say we have to respond to our constituents who are concerned about this issue and want to give attention to it. Clearly, women's health research hasn't gotten all the attention it deserves in the past.

Mr. REID. Will the Senator yield?

Ms. CANTWELL. Yes.

Mr. REID. Does the Senator acknowledge that with diseases such as interstitial fasciitis, more than 90 percent of the people who have that disease are women? Women-related diseases have not gotten the attention they deserve, and one reason is because the legislature has been dominated by men.

Ms. CANTWELL. That is what we found in the 1990s, in that we didn't have enough representation to ask the hard questions, to say our constituents were not being heard on this issue and to raise this in various committees. Frankly, that was the time period when, for the first time, we had a woman on every committee in the House of Representatives. Once we got women on every committee, we asked the hard questions and increased the percentage of women's health research.

I think it is a very poignant point to the fact that, while NIH does good work, we have to respond to our constituency and, certainly, there can be discrepancies and issues that the larger public should have a say in as to health research.

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