Senators berated oil company executives claiming their big profits are the result of gouging U.S. consumers. The senators demanded that oil companies take steps to bring down high gasoline and heating oil prices.
Members of the Senate Energy and Commerce Committee questioned top executives from five major oil companies including Lee Raymond, chairman of Exxon Mobil Corp.
Raymond conceded that high gasoline prices "have put a strain on Americans' household budgets" but he insisted that Exxon Mobils huge profits this year are just part of a business cycle where petroleum earnings "go up and down" from year to year.
Federal Trade Commission Chairman Deborah Platt Majoras testified that her agency is investigating to determine if the price of gasoline is being artificially manipulated by reducing refinery capacity or by any other form of market manipulation or price gouging practices.
Faced with record profits as the price of crude oil hit $70 a barrel and gasoline prices soared after supply disruptions caused by Hurricanes Katrina and Rita, bosses at the five giant oil companies repeatedly defended their industry's profits.
They told senators that most of the money is re-invested into energy exploration projects.
Republican Sen. Pete Domenici said many Americans believe the companies are exploiting current conditions to reap excess profits that amount to price gouging.
ExxonMobil is the worlds' largest privately-owned oil company and earned nearly $10 billion in the third quarter of the year. The five companies as a group earned more than $25 billion in profits in the July-September quarter after the price of crude oil hit $70 a barrel and gasoline spiked at record levels following Hurricanes Katrina and Rita.
Raymond told the senators that ExxonMobil tried to minimize the increase in price while at the same time recognizing if the company kept the price too low ExxonMobil would quickly run out of fuel at its service stations.
Majoras said the FTC is "keenly aware of the importance to American consumers of free and open markets and intends faithfully to fulfill its obligation to search for and stop illegal conduct, which undermines the markets consumer benefits."
Majoras cautioned, however, that a full understanding of pricing practices before and since Hurricane Katrina may not lead to a conclusion that a federal prohibition on price gouging is appropriate. She said consumers understandably are upset when they face dramatic price increase within a short period of time, especially during a disaster.
"But price gouging laws that have the effect of controlling prices likely will do consumers more harm than good," she said. "While no consumers like price increases, in fact, price increases lower demand and help make the shortage shorter-lived than it otherwise would have been."
Even if Congress were to outlaw gasoline price gouging, such laws would be difficult to enforce fairly, based on the difficulty of defining the term price gouging and determining when such laws should be put into effect, she said.
For all of these reasons, Majoras said, the commission remains persuaded that federal price gouging legislation would unnecessarily hurt consumers. Enforcement of the antitrust laws is the better way to protect consumers.
To determine whether oil companies have violated antitrust laws, Majoras told Congress that her agency has sent subpoenas to the nations largest oil companies in connection with its probe, and hopes to reach a conclusion by next spring. Among those receiving subpoenas are Exxon Mobil Corp., Chevron Corp. , ConocoPhillips, and the U.S. units of BP Plc. (BP.L) and Royal Dutch Shell Plc.