Profits not a windfall, oil executives declare at Senate appearance

WASHINGTON — Oil executives sought to justify their huge profits under tough questioning Wednesday, but they found little sympathy from senators who said their constituents are suffering from high energy prices.

"Working people struggle with high gas prices, and your sacrifice, gentlemen, appears to be nothing," Sen. Barbara Boxer, D-Calif., told the executives, citing multimillion-dollar bonuses the officials are receiving amid soaring prices at gasoline pumps and predictions of more of the same for winter heating bills.

During the joint hearing of the Senate Commerce and Energy and Natural Resources committees, Sen. Larry Craig, R-Idaho, an industry ally, told the executives that the No. 1 question asked at his recent town-hall meetings was "about you and your profitability. And I must tell you, it's not terribly fun defending you."

The executives represented five major companies that, along with their global parent corporations, earned more than $32.8 billion during the July-September quarter. Consumers, meanwhile, saw gasoline prices soar beyond $3 a gallon after supply disruptions caused by hurricanes.

Lee Raymond, chairman of ExxonMobil, the world's largest publicly traded oil company, acknowledged that high gasoline and home heating prices "have put a strain on Americans' household budgets," but he defended his company's profits. Petroleum earnings "go up and down" from year to year and are in line with other industries when compared with the industry's enormous revenues.

It would be a mistake, Raymond said, for the government to impose "punitive measures hastily crafted in response to short-term market fluctuations." They would probably result in less investment by the industry in refineries and other oil projects, he said.

ExxonMobil earned nearly $10 billion in the third quarter. Raymond was joined at the witness table by the chief executives of Chevron, ConocoPhillips, BP America and Shell Oil.

But senators pressed the executives to explain why gasoline prices jumped so sharply after Hurricane Katrina, when prices at the pump in some areas soared by $1 a gallon or more overnight.

Sen. Bill Nelson, D-Fla., asked why the industry didn't freeze prices, as it did after the Sept. 11 terrorist attacks.

"We had to respond to the market," replied Chevron Chairman David O'Reilly.

Raymond said that after Sept. 11 "the industry wasn't concerned about whether there was adequate supply," as it was after this year's Gulf storms. By keeping prices higher, adequate supplies were assured, he maintained.

Democrats said that during the storm some ExxonMobil gas station operators complained the company had raised the wholesale gas price 24 cents a gallon in 24 hours.

Raymond said his company issued guidelines "to minimize the increase in price" but added, "If we kept the price too low we would quickly run out [of fuel] at the service stations."

"It was a tough balancing act," said Raymond, who said ExxonMobil was not price gouging.

The hearing was delayed initially as Democrats tried unsuccessfully to have the five oil executives take an oath before testifying, implying they otherwise wouldn't be truthful.

Commerce Committee Chairman Ted Stevens, R-Alaska, reacted testily when Sen. Maria Cantwell, D-Wash., asked for a vote on whether to ask the executives to testify under oath. Stevens ignored her, and then snapped, "There will be no vote. ... It's the decision of the chairman, and I have made that decision." When she moved for a vote, he interrupted, "That's the last we're going to hear about that, because it's out of order."

Cantwell didn't get much satisfaction from oil executives, either. When she told the executives that she wanted "just a yes-or-no answer" to whether their companies exported fuel before Hurricane Katrina, Raymond responded, "Well, senator, there are no easy yes-or-no answers in this business."

A number of Democrats have called for windfall profits taxes on the industry. Other senators, including Majority Leader Bill Frist, R-Tenn., have said it may be time to enact a federal law on price gouging.

Some Republican and Democratic legislators have suggested that the oil companies should funnel some of their earnings to supplement a federal program that helps low-income households pay heating bills. That got a cool reception from the executives.

"As an industry we feel it is not a good precedent to fund a government program," said James Mulva, chairman of ConocoPhillips.

The head of the Federal Trade Commission said a federal price-gouging law "likely will do more harm than good."

"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," FTC Chairman Deborah Platt Majoras told the hearing.

"That's an astounding theory of consumer protection," replied Sen. Ron Wyden, D-Ore.

Mulva of ConocoPhillips said, "We are ready to open our records" to dispute allegations of price gouging. ConocoPhillips earned $3.8 billion in the third quarter, an 89 percent increase over a year earlier. But Mulva said that represents only a 7.7 percent profit margin.

"We do not consider that a windfall," he said.

Chevron's O'Reilly attributed the high energy prices to tight supplies even before the hurricanes struck. He said his company is "investing aggressively in the development of new energy supplies."

Shell earned $9 billion in the third quarter, said John Hofmeister, president of Shell Oil, but he said its investment in U.S. operations over the past five years was equal to its income from U.S. sales.

"We respectfully request that Congress do no harm by distorting markets or seeking punitive taxes on an industry working hard to respond to high prices and supply shortfalls," he said.

To the visible shock of some Republicans, all five executives said under questioning by Wyden that they don't need the $2.6 billion in tax credits contained in energy legislation that President Bush signed over the summer. Wyden plans to try to revoke those tax credits.

Material from the Los Angeles Times, Knight Ridder Newspapers and Seattle Times staff reporter Alicia Mundy is included in this report.