Memo blames EPA for gas price increases
By Patrice Hill
THE WASHINGTON TIMES
An internal Energy Department memo reveals that the Clinton
administration knew its own environmental regulations were a
major reason gas prices jumped to record highs in the Midwest
last month, even as officials publicly laid blame on "big oil"
companies.
The June 5 memo, obtained by The Washington Times, was written
for Energy Secretary Bill Richardson by the department's acting
policy director, Melanie Kenderdine, just as a public outcry was
rising 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 memo came to light as oil prices surged again Thursday and
federal energy experts repeated warnings that more gas-price
spikes are possible this summer, particularly on the East and
West coasts, because of tight supplies.
Still, the Senate declined for a second time this year to
temporarily ease the burden on consumers by suspending the
18.4-cent federal gasoline tax until fall.
The Energy Department memo echoes the conclusions of private
analysts and even 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."
Despite the ample reasons laid out in the memo for the price
spike in the Midwest, where prices have since dropped back to the
national average, President Clinton, Vice President Al Gore, Mr.
Richardson and EPA Administrator Carol M. Browner all contended
that the price spikes could not be explained and were suspicious.
By mid-June, three federal agencies had initiated investigations
into collusion and price-fixing by oil companies. By the end of
the month, the administration had enlisted the Federal Trade
Commission in its investigative war against the industry.
Mrs. Browner told more than 30 members of Congress 10 days after
the memo was written, at a June 15 meeting in House Speaker J.
Dennis Hastert's office, 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."
[But the memo makes it clear that the EPA rules that went into
effect June 1 were a central factor in the Midwest blowup, which
was magnified by short supplies.]
It states that refineries had been going full blast to produce
the EPA-mandated reformulated gasoline, shippers and distributors
were straining to deliver enough gas supplies to thirsty drivers,
and disruptions of key pipelines had made the supply situation
precarious.
The Chicago-area refineries do not have the capacity to ramp up
production when shortages occur, the memo notes, and the
specially formulated gasoline mixed with ethanol in the region
could not be imported from other areas because few others make
the unique blend of fuel.
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.
Drew Malcomb, spokesman for the Energy Department, said the memo
was written to help Mrs. Browner decide whether to grant Chicago
and Milwaukee waivers they had requested from the clean-fuel
regulations. She turned the cities down repeatedly before and
after the June 1 deadline.
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."
Mr. Hastert, Illinois Republican, cited the memo Thursday in
accusing Mrs. Browner of misleading members of Congress, the
media and the public. 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," the speaker said. "Yet, you continued to point
the finger" in what appears to be a "coordinated strategy" with
the White House to deflect blame, he said.
On the other side of Capitol Hill Thursday, the Senate handily
defeated an attempt to roll back the federal gasoline tax for 150
days during the peak summer driving season. Sen. Spencer
Abraham, Michigan Republican, offered the measure as an amendment
to a bill cutting estate taxes.
The 59-40 rejection drives "a stake through the heart of
consumers," he said.
But opponents — including many Republicans on the budget and
appropriations committees —said the tax cut would undermine the
highway spending program, which is financed with the gas-tax
revenues, and throw as many as 50,000 highway construction
workers out of jobs.
"This tax is more acceptable to the public than any other tax,"
said Sen. John W. Warner, Virginia Republican. "They see their
dollar go directly from the gas pump to the project and
employment in the state."
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