Hearings and Business Meetings

SD-106 02:30 PM

Mr. Robert Darbelnet

Robert L. Darbelnet
President & CEO

on behalf of AAA

before the

Senate Energy & Natural Resources Committee
Hearing on Gasoline Prices
September 6, 2005



Good afternoon, Mr. Chairman, and members of the committee.  I am Robert Darbelnet, President and CEO of AAA.

The devastation resulting from Hurricane Katrina is unfathomable.  I suspect all of us have been moved over the last few days by the heartbreaking pictures of those who have lost everything and are now homeless. 

In a sense, every American has been visited by the emotional impact of Katrina. Soon though, many American’s will also be affected by the economic impact of what has occurred.

I will speak to the latter, but let me be clear – the greatest tragedy is on the Gulf coast. Addressing that situation must be the nation’s first priority.

Mr. Chairman, not only has this hurricane wreaked havoc on the inhabitants of the Gulf region, it has added considerably to an energy market already on edge.  In addition to laying waste to millions of homes, it has devastated much of our nation’s fragile gasoline infrastructure.  Many people were already paying nearly $3.00 a gallon for gasoline before the storm with no end in site.  Katrina had made what was a bad situation, worse.

I stated that soon many Americans would be impacted by the economic consequences of Katrina.

That will occur through potentially limited availability of gasoline and increasing prices. Gas may soon be selling at a dollar more a gallon than it was 12 months ago.  In some areas, it already is.

In times of abundance and low prices, we don’t realize how critical fuel is to our economy and our way of life.  As a public service, AAA maintains a nationwide gasoline price report on the Internet, the Fuel Gauge Report (www.fuelgaugereport.com).  We list daily average prices for 250 metropolitan locations and all 50 states which is updated every 24 hours.  At the end of last week the Fuel Gauge Report showed that the national average price for a gallon of regular unleaded gasoline was $2.867.  This compares to $1.852 per gallon a year ago, or an increase of over $1 per gallon.

Although AAA is not involved in the production, shipping, refining, or retailing of gasoline, we have serious concerns about policy decisions and approaches to the nation’s price and supply of gasoline, and the resulting impact on consumers.

The uninterrupted availability of reasonably priced gasoline is what allows:
• people to get to work,
• children to get to school,
• goods to be transported,
• business people to travel, and
• families to vacation.

Katrina has disrupted our access to crude oil and our refining capability, both of which were already under enormous pressure.

To avoid this escalating into a nationwide crisis, the country needs a broad and well-coordinated effort.

To be successful, this immediate effort must involve:
• motorists
• oil companies
• federal authorities
• local authorities, and
• media.

The required measures include the following, some of which are already under way:

• Motorists must reduce consumption by using their most fuel efficient car, avoiding unnecessary trips, maintaining their vehicle, driving “gently” and car-pooling whenever possible.

We should also avoid the impulse to hoard gas or constantly top off tanks.  Even in the best of times there is not enough fuel in the system to fill every car and truck to the top of their fuel gauge. 

Effective use of energy is a learned behavior.  To conserve, Americans must find ways to lessen their demand for gasoline and do more with less.  But Americans are faced with marketing messages that promote a bigger, high-powered automotive culture.  We are urged to “drive bigger,” “go faster,” and “do more.”  Such messages are inconsistent with fuel conservation, let alone traffic safety. 

Americans can do a great deal to conserve gasoline.  They can use public transportation wherever and whenever feasible.  They can form carpools for commuting.  They can purchase fuel-efficient vehicles.  And they can take everyday actions that will help reduce the amount of gasoline they have to purchase. 

In particular, the car or truck you drive, how it’s maintained, where you drive and how you drive are the most important factors in conserving fuel:
• Routinely maintaining your vehicle by keeping tires properly inflated, keeping moving components well lubricated, and emissions systems operating properly will help you achieve maximum fuel economy and extend its useful life. 
• A heavier vehicle uses more gasoline so don’t haul extra weight or cargo if you don’t have to. 
• Take a look at your owner’s manual.  If your vehicle does not require premium or mid-grade fuel, purchase less expensive regular unleaded. 
• Consolidate trips and errands to cut down on driving time and slow down.  Leave enough time to reach your destination at a proper speed. 
• Avoid sudden stops and “jack rabbit” starts that waste fuel and are hard on your vehicle’s components. 
• Finally, comparison shop for gasoline prices just like you would any other consumer good.

•   Employers can do their share too.  Many companies have telecommuting policies, allowing staff to work from home.  Now is the time to apply those policies more liberally, especially while refining capacity is diminished.

• Oil companies must ensure that their pricing yields what they need and deserve, but not more.

• Federal authorities needed to relax requirements for blended fuels and release crude oil from the Strategic Petroleum Reserve. We applaud that they have.

• Local authorities must be vigilant with regard to any retail pricing abuses which may occur. Also, they must be prepared to institute fuel purchase management programs if the need arises.

• The media must carefully cover the situation.  Over-reporting a limited number of shortages may provoke panic buying or hoarding, and that will only make the situation worse.

Doing all of these things will not end the crisis, but will mitigate its impact.

There are three other things Congress could encourage that would also help the situation:

1. Require that the EPA modify its MPG testing procedures to accurately reflect real-world driving conditions.

Current MPG tests assume drivers never go over 55 miles per hour, drive up hills or use their air conditioners. That’s wrong and the American people deserve better, especially if we expect them to make informed car purchases.

Americans need to be smarter, better informed consumers when it comes to fuel efficiency.  Unfortunately, people who shop for new vehicles are experiencing a different kind of “sticker shock” when it comes to the posted mileage estimate for highway and city driving.  Unfortunately, motorists find out after they’ve bought that new vehicle that the posted estimated mileage by the Environmental Protection Agency (EPA) is not going to reflect the results they experience in the real world.

The EPA uses tests designed in the mid-1970s, to measure vehicle miles per gallon under ideal circumstances that reflect little of the actual driving conditions that face most motorists.  AAA has urged the EPA repeatedly to use whatever means at its disposal to enhance these mileage tests to better reflect the manner in which people actually drive.  We were very appreciative of Senator Cantwell’s efforts to address this issue during consideration of the Senate version of the transportation bill.  But AAA believes the MPG provision in the recently enacted energy bill will not solve this problem and we will therefore continue to advocate an effective standard to achieve more accurate mileage estimates.

Another tool that consumers can utilize is AAA’s Fuel Price Finder.  This is a new Internet-based tool to research local gasoline prices.  When prompted by a ZIP code or a city name, the site will identify recent prices for fuel stations within a three, five, or ten-mile radius with addresses and a map of their locations.  This is a new service that is currently available to approximately 50 percent of AAA’s membership in the United States.  Just like you shop around for other consumer products, AAA recommends you shop around, when possible, for gasoline.

2. Seek a federal standard for clean gasoline that does not result in a patchwork of fuel blends.
AAA has no interest in scaling back improvements in air quality, but so-called “Boutique Fuels” have contributed to price volatility and regional disruptions. We need to find a way to achieve both our clean air and supply goals.

3. Commit to achieving higher fuel economy standards on all vehicles.
We would prefer to see automakers commit to this challenge voluntarily, but if they are unwilling to do that, Congress should require improvements through changes in CAFE standards.  AAA acknowledges that the Administration has issued a proposal to revise the current CAFE program.  However, this proposal does nothing to address the largest and heaviest passenger vehicles on the road today.  That’s not right.

AAA believes the proposal is flawed:  it is merely a small step toward fuel efficiency and does nothing to capture the heaviest passenger vehicles on the road.  This is unacceptable while the nation faces the reality of high gasoline prices and potential supply problems.  AAA understands that Americans want choice in their vehicles, but we also believe choice is possible among much more fuel efficient vehicles.  We can no more ignore these vehicles in CAFE standards than we can when we try to park next to one.

When things do return to normal, we should not forget the fragility of our situation.

As Katrina has reminded us, we are never more than a disaster away from this type of crisis.

If we do not reduce our dependency on fossil fuel or increase our access to a reliable source of it -- or both -- the narrow margin we rely on for stability will continue to erode.

There are also longer term strategies that are important, such as:
• developing alternate fuel sources,
• building more fuel efficient vehicles,
• expanding efficient public transit,
• reducing our dependency on foreign oil, etc.

These will all take time and thus won’t resolve our more immediate problems.

But these longer term strategies are important and are deserving of your attention. These are not new issues, but it is now clearly time for them to be elevated in importance and priority.

Mr. Chairman, a word of caution.  In the Spring and Summer of 2000 as the nation grew alarmed by $2 per gallon gas prices, Congress seriously considered a temporary repeal of federal gasoline taxes.  AAA opposed those efforts then, and would caution against such an effort now as well.

While attractive at first glance, such a course of action will do little to address the root causes of our gasoline price problem today.  The resulting loss in receipts to the Highway Trust Fund would severely compromise the safety of the traveling public.  Asking the American people to choose between a gas tax reduction and safety is posing the wrong question.  Short term fixes, while politically popular, are not the answer to a long-simmering national energy problem, and are not in the best interests of highway safety and the overall economic well-being of the nation.

Let me reiterate that the greatest hardship resulting from Katrina is not at a fuel pump that displays a high price or – even worse – the word “empty”.

The greatest hardship is that faced by the people of the Gulf coast, and our hearts go out to them.

In conclusion, Mr. Chairman, AAA will continue to urge motorists to do their part, but we are also looking to our leaders in government and industry for answers. 

If we consider the issues in a comprehensive fashion, we will better be able to serve our constituents -- and yours -- together.

Once again, thank you for the opportunity to testify today.  I will be happy to answer any questions.