Make Oil a Public Utility
The furious moans and groans about gasoline and heating oil prices have been met with a public-be-damned attitude from the oil industry — and nothing is being done to rectify the problem. Prices continue to sky-rocket.
Why not designate oil companies as public utilities?
A public utility has been defined as “a business that provides an everyday necessity to the public at large” — such as water, electricity, natural gas, telephone service, transportation, cable TV and other essentials.
Because of the need for and dependence on these commodities and products, the business of supplying them is readily subject to abuse. Without regulation, price gouging can become rampant in a time of great demand and economic turmoil, such as this.
A public utility regulated by the state or federal government, or the two working together, is entitled to charge reasonable rates for its products and services. It also is entitled to earn a reasonable profit. But that’s far less than what Big Oil is making. Public utilities are corporations that distribute dividends to their shareholders amounting to perhaps 5 percent a year of the stock’s value.
Oil energy fits squarely into the criteria for a public utility. How can it be distinguished from electricity and natural gas? It can’t be. But right now, it’s a political “untouchable.”
The oil industry recently posted record earnings for 2007, as it had for the previous two years. Exxon Mobil, known as the industry gold standard, had a net income of $40.6 billion, attributed to surging oil prices. For every blink of a second in 2007, that amounted to $1,287.
Exxon Mobil’s sales exceeded $404 billion, which was more than the gross domestic revenue of 120 countries. Chevron and other big oil companies also announced the largest profits in history.
“Congratulations to Exxon Mobil and Chevron — for reminding Americans why they cringe every time they pull into a gas station,” said New York Sen. Charles Schumer.
Some members of Congress have supported an excess profits tax. Others have said the tax breaks accorded two years ago to encourage domestic production should be rescinded. Advocacy groups say the profit margins are unjustifiable.
The oil industry’s defense relies on the economics of the market place and the mounting difficulties of competing with subsidized foreign oil companies — PetroChina, Petrobras in Brazil, Gazprom in Russia.
The lack of domestic refinery capacity also has been cited as a reason for escalating prices.
What is left out of these various assessments and ripostes is, most importantly, the consumer. The consumer’s only recourse is to reduce consumption. But consumption most often is an economic necessity — the most harmful effects falling on those who may be the neediest and who can least afford the price increases. What is a less-than-wealthy person who must drive to work or pay for home heating oil to do?
None of the proposals, such as an excess profits tax or a retraction of tax incentives, will directly benefit the public or make up for the overrides paid for oil products in the last several years.
On 9/11, the price of a gallon of regular gasoline was about $1.25. It has climbed almost vertically since then. In the past year, it has more than doubled and is now close to $3.50.
Part of the problem is that the United States has no comprehensive energy policy or oversight. For example, the war in Iraq for the last five years has placed a great demand on the availability of oil products — both because of their use for military purposes and the lack of the predicted production of Iraqi oil.
Neither of these down sides have been quantified or publicized. Both are important contributors to the high cost of oil energy.
And while our government wrings its hands, what is it really doing, geopolitically, to bring down prices?
Given the political implications and the strength of the oil industry’s influence, the chances of regulating it are presently nonexistent. However, the inordinate profits in the past several years, regardless of the explanations, cry out for demanding that oil be treated as a public utility. It is an indispensable commodity, and the opportunity for abuse at the public’s expense is undeniable.
The industry has demonstrated that it will not regiment or control itself. If the industry were confronted with even the mere possibility of becoming a government-regulated utility, gasoline and heating oil prices would come tumbling down in a hurry.
Ed Ludwig is a U.S. District Court judge in Philadelphia.
© 2008 The Times Union