A US bid to ease gas prices

Price gouging! Windfall oil profits!

Those are words that make many Americans see red, especially when prices skyrocket at the pump. This spring, gasoline costs 70 cents a gallon more than it did last April - a rise that traders say has more to do with market speculation than a fundamental shift in supply and demand.

So what can the US do? That's the question roiling Washington right now. Congress is promising probes, hearings, and maybe new laws reining in windfall profits. Some lawmakers are talking about rebate checks for families. Others are calling for a lower federal gasoline tax.

Tuesday, President Bush waded into the issue, saying the administration would not tolerate "manipulation" of gasoline prices. He also ordered a temporary halt to filling the Strategic Petroleum Reserve (SPR) to relieve pressure on crude oil prices.

All the rhetoric will certainly resonate with many Americans, worried or angry about the steep rise in prices this spring. But experts and even members of Congress concede that the federal government has limited ability to push prices down, at least in the short term.

What really matters, they add, is what the government does for the long term - themes that Mr. Bush also sounded in Tuesday's speech. But such moves do little to calm the public uproar as Republicans and Democrats try to get out in front of the issue. "Consumers and motorists think questions should be asked. There is no natural disaster" to push up prices, says Mantill Williams of AAA in Washington. "But there does not seem to be any hard evidence of illegal activities" either.

Next week, many of the major oil companies will report first-quarter earnings, and they're expected to be eye-opening. The industry, which is often called to Capitol Hill to testify, is bracing for yet more investigations and lectures.

"It won't be the first or the last [time]," says Robert Slaughter, president of the National Petrochemical and Refiners Association in Washington. "The good news is that studies in the past have largely found that market conditions are responsible for the prices in the industry that we display."

Many gasoline retailers say it's not their fault that prices are rising. Jeff Lenard, a spokesman for the National Association of Convenience Stores, says consumers are complaining that prices are going up even when there are no deliveries of fuel. "They then go inside and start screaming at the clerk," he says. "But what they don't know is the prices are based on the replacement cost - the price the wholesaler tells them they will be paying for their next shipment."

Dennis Jacobe, chief economist at Gallup, says prices have reached the "psychological level" that causes many Americans to become "exercised." He says in polls, Gallup has found that gasoline at $3 a gallon causes many Americans to "recalculate everything."

He says it is reminiscent of the post-Katrina period when prices rose so quickly that Americans postponed major purchases. The economy grew at under 2 percent in that quarter.

The ramifications of a pullback by the consumer are not lost on Washington. Tuesday Bush, in his speech, called the current price "a hidden tax on Americans." He characterized his plan to deal with high energy prices as a "strategy that recognizes the realities of the world in which we live."

Immediately after the speech, Democrats took to the Senate floor to blast any suggestion that the consumers were to blame.

"It is not the consumers' fault," said Sen. Richard Durbin (D) of Illinois, the deputy Democratic leader. "It is the fault of leadership: the leadership of the oil companies and the fault of an administration that comes from the oil patch and is afraid to confront their old friends when it comes to these rising prices at the gas tank."

In fact, rallying behind a common energy policy is a tough call for either party. In the past, energy debates on Capitol Hill have been shaped by regional, rather than partisan, lines. While some Democrats call for responding to the crisis by opening up new sources of production at home, Sen. Bill Nelson (D) of Florida vows to filibuster any attempt to open oil and gas exploration off the west coast of Florida.

"It's the most likely prospect we have for increasing supply in the next few years," says Sen. Jeff Bingaman of New Mexico, ranking Democrat on the Senate Energy and Natural Resources Committee and a cosponsor of the bill. Democrats are also divided over whether to open the Arctic National Wildlife Refuge to drilling.

"It's going to be very difficult for the Republican Party to try to convince folks that this energy problem is the result of anything that Democrats have or have not done, particularly when oil profits are announced next week," says Bill Wicker, the Democratic spokesman for the Senate Energy and Natural Resources Committee.

Since 1990, oil and gas interests have contributed $140.9 million to GOP federal candidates and $46.7 million to Democrats, according to the Center for Responsive Politics in Washington. In the 2006 electoral cycle, those industries have given 84 percent to Republicans and 16 percent to Democrats, according to the Washington-based public-interest group.

Some consumer groups blame the current price run-up on the refiners. They maintain that consolidations have reduced the amount of gasoline available to Americans. "They have failed to expand capacity to discipline price," says Mark Cooper of the Consumer Federation of America.

He says any study of price gouging by the government is already too late. "They will look for collusion, but collusion is not the problem. It is how concentrated the industry has become."

However, Mr. Slaughter maintains that the mergers have kept some refineries open that would have otherwise closed. "It's not clear some of the small refiners would have survived on their own," he says. "The consolidation has made the industry more competitive and added refining capacity had the mergers not occurred."

President Bush Tuesday outlined how he intends to ease high fuel prices. His short-term strategy includes the following three prongs:

• Relief for consumers. Mr. Bush said the Federal Trade Commission, the Justice Department, and the Energy Department are investigating whether gasoline prices have been unfairly manipulated. The administration has urged all 50 state attorneys general to investigate possible illegal price manipulation. Bush also called on Congress to take back some of the tax breaks for energy companies.

• Incentives for fuel-efficient vehicles. Bush urged Congress to expand tax credits for people who buy hybrid and clean-diesel vehicles.

• More domestic supplies. Bush halted government purchases of crude oil for the Strategic Petroleum Reserve until fall, ostensibly freeing that supply for consumers. He also allowed the temporary suspension of clean-air rules requiring certain additives in gasoline that reduce pollution. The rule suspension makes it easier for refiners to meet demand, possibly lowering prices at the pump.

- Associated Press