Good morning. With the temperatures pushing eighty degrees here in Washington and the thermometer in the high seventies on a humid early summer day in Boston, today might strike some of you as odd timing to hold a hearing on home heating oil prices. But for those of us who are New Englanders and know the costs of a cold Massachusetts winter ahead, the real home heating oil crisis is now – and the clock is ticking when it comes to Washington’s ability to step in and help before it’s too late and the crisis becomes devastating. Now and in the coming weeks, families and businesses will be sitting down to sign their heating oil contracts, and record prices are creating impossible decisions.
Nationally, 7.7 households heat their homes with home heating oil. In Massachusetts, over 963,000 households use home heating oil delivered by over 800 distributors, many of them small businesses.
It is reality – not rhetoric – that price spikes will force people to decide whether to feed their families or heat their homes.
Don’t take my word for it.
The Energy Information Administration is projecting that heating oil prices will be up 56 percent in 2009 as compared with 2007, and even that estimate may be modest. Prices for a gallon of home heating oil sit at over $4.50 today compared with less then a dollar ten years ago. That means consumers will have to pay thousands more than ever before to heat their homes this winter. In a slumping economy where the cost of everything else is soaring, too, that’s a recipe for families to choose between food or fuel, and that’s unacceptable.
I’ve been fighting to get Washington to take precautions now – to help avoid a snowy Katrina where our government is caught flat-footed while families shiver in their homes. For low income families and the elderly, step one should be to fully fund LIHEAP, the Low Income Home Energy Assistance Program.
But that’s just the start of a comprehensive answer to a complex problem. Consumers bear the brunt of spikes in heating oil prices, but small business owners are extremely hard hit, too. Most heating oil distribution is done by small businesses like the Northboro Oil Company owned by Sandra Farrell. As we will hear from Mrs. Farrell, she and other small distributors are victimized many times over by the rising price of fuel. Their accounts receivables go through the roof – which isn’t a pretty picture during a credit crunch. Their customers have a difficult time paying their bills and rising credit card fees eat into their margins. The volatility in the market also causes price hedging -- locking into a price and buying certainty -- to rise from a few cents a gallon a few years ago to upwards of 40 cents a gallon today.
We’ve got to do a much better job to ease the impact of these price shocks. This isn’t a new problem, but obstruction in Congress certainly hasn’t helped to solve it. Way back in the winter of 2000 I authored the Home Heating Readiness Act, which called on the Secretary of Energy to report to Congress on the readiness of the heating oil and propane industries to prevent and prepare for shortages, and I supported the creation of a Northeast Home Heating Oil reserve to respond to localized price shocks. I’ve also co-sponsored Senator Snowe’s bill, the Energy Policy and Conservation Act, which will mandate a release from the Northeast Home Heating Oil Reserve if the price of home heating oil is over $4/gallon. We must be clear about the definition of a price shock and make sure this reserve is there to help people when they need it – and time is running out.
These are the short term, stop gap precautions we should insist upon. But Congress also has to tackle the explosion of energy prices as a whole. Crude oil prices make up 60% of the cost of home heating oil. We’ve received testimony from energy market experts and major oil company executives that the price of oil and gas can no longer be explained or predicted by normal market dynamics or their historic understanding of supply and demand forces. An Exxon Mobil executive just testified before Congress under oath that the price of crude oil should be about $50 to $55 per barrel based on the supply and demand fundamentals he had observed. Yet current crude oil prices are more than double that.
There are many reasons why these prices have risen to these levels, but make no mistake -- rampant speculation is a prime culprit. We just passed legislation which gives the Commodity Futures Trading Commission the authority and responsibility to prevent fraud, manipulation, and excessive speculation in U.S. commodity markets. As we have seen speculation drive the price of oil to unheard of levels, rather than a toothless, feckless bureaucracy, the CFTC must once again be an instrument to help reign in speculation and help lower the cost of gas and energy for every American.
We also need a broader, comprehensive strategy to help out the small businesses and consumers walloped by today’s skyrocketing prices. This week I will once again be introducing, along with Senator Snowe, the Small Business Energy Emergency Relief Act of 2008 to provide assistance through affordable, low-interest Small Business Administration disaster loans to small businesses that have suffered economic harm and can’t pay their bills because of the huge price increases in heating oil, propane, kerosene, and natural gas. Whether they are small distributors or business owners who rely on those fuels to heat their stores, many small businesses are dependent on these four heating fuels. This legislation will provide small businesses with assistance when energy prices fluctuate dramatically. It has passed the full Senate three times and passed this Committee several other times, and it is time we made it law.
With crisis sometimes there comes opportunity. The market, with help from the government, can unleash some powerful forces to create new efficiencies – and new innovations to address this challenge in the long term. In Massachusetts, Governor Patrick, Senate President Murray, and House Speaker DiMasi introduced legislation last year that would make Massachusetts the first state to require all diesel and home heating fuel sold in the State to contain a minimum amount of renewable, biobased alternatives in their blends, with that amount rising from 2 percent in 2010 to 5 percent in 2013. These mandates will help build Massachusetts’ emerging biofuel refinery and distribution sector and save consumers money as renewable sources become more prevalent and cheaper.
We also need to get on the fast track towards increasing energy efficiency. The fastest way to reduce bills is to help consumers upgrade or replace existing boilers and reduce their consumption of heating oil and other home heating fuels. We should implement an aggressive state-federal partnership program to do exactly that.
We know these programs work and translate into real savings and we have seen this with other energy sources. In Massachusetts, the current natural gas energy efficiency programs administered by the utilities deliver significant benefits. One utility, Keyspan, tracked its results between 2005 and 2006 and found that its investment of $12.6 million per year produces total savings to consumers exceeding $73.4 million. In last year’s Energy bill, Senator Snowe and I included a provision that would give small businesses low interest loans to improve their energy efficiency, and we are working to ensure that this program is fully implemented and utilized. This is low hanging fruit when it comes to the effort to deal with these soaring energy costs, it’s the right place to begin, but there is more – much more – that needs to happen and it needs to happen rapidly.
This is just some of what we need to cover today. I thank you all for coming and I want to also thank Senator Snowe for her leadership on this issue which is as crucial to Maine as it is to Massachusetts. I now invite her opening comments.