With the arrival of the summer driving season, the average price of gasoline set a new record of $3.23 a gallon.
Is it a coincidence or gouging?
That is the question that Democrats in Congress want to give the Federal Trade Commission (FTC) greater authority to investigate, along with the power to punish those found to be engaging in unfair price manipulation.
Families are spending nearly $54, on average, every time they fill up their car - an astonishing $30 more per tank since President Bush took office. According to the American Automobile Association (AAA), the typical American family is on course to spend over $3,600 this year filling up their cars if these prices persist.
The price of crude oil is the biggest factor in setting the price of gasoline, but crude oil prices are lower than they were this time last year.
The Department of Energy projects that crude oil prices will average $2 less per barrel this summer than last, but gas prices will be more than ten cents a gallon higher.
Analysts attribute this anomaly in large part to the fact that our refinery capacity has failed to keep pace with the demand for gasoline. We have not had a new refinery built in the United States for 30 years, forcing refineries to operate at capacity levels that are pushing the system to the limits and beyond.
The problems and risks associated with running near full capacity have become very apparent in recent months as BP, ConocoPhillips and Valero Energy have all reported “unexpected” shutdowns at a number of U.S. refineries. Unexpected refinery outages choke-off supply and cause prices at the pump to go up.
The big five oil companies enjoyed astonishing profits of $120 billion last year, but they have not used those profits to invest in increased refining capacity. With capacity as tight as it is, refiners can boost profits by taking capacity offline, particularly when there is a lack of competition at the refinery level.
The Bush Administration has turned a blind eye to oversight of the oil and gas industry in general, but especially mergers. President Bush has approved mergers at such a brisk pace that by 2005 the top 10 refiners controlled 81 percent of the market, up from 56 percent since 1993.
The concentration of refiners has restricted production capacity, causing American consumers to pay more at the pump than they would with more market competition. The lack of competition is hurting consumers now and will hurt our economy in the future.
It is not easy to prove that companies have purposely limited supply, but the risk of manipulating capacity to maximize profits is certainly greater with fewer players in the market.
Democratic-sponsored price gouging legislation working its way through Congress will protect consumers from unscrupulous companies - with a priority on refineries and big oil companies - that try to take advantage of unique energy shortages or charge unconscionable prices for gasoline in national emergencies.
The legislation empowers the FTC to impose tough civil penalties - of up to triple the damages of all excess profits or $3 million dollars - for those that have cheated consumers. Companies would also face criminal fines of up to $150 million, and individuals could be fined $2 million and face up to 10 years in jail for violating the law.
The next step is to design a sensible energy policy that reduces our reliance on oil by investing in renewable fuel sources, lowers global warming emissions, and strengthens our economy.
Representative Carolyn B. Maloney, a Democrat representing Western Queens and Manhattan, is the Vice Chair of the Joint Economic Committee of the United States Congress.