Drive For Oil Company Profits Threatens Economy

The higher oil prices are a threat to America's overall economy and the skyrocketing costs of heating public facilities and keeping school buses, police cars, emergency vehicles and snowplows running are wreaking havoc on local governments all across the country.

For example, in Charlotte, SC, each one cent increase in a gallon of gas means a $70,000 increase in annual fuel costs to the city budget, according to a report distributed at the League of Municipalities Conference, on October 17, 2005.

According to district administrator, Lois Cuff, the small school district of Freedom Wisconsin, came up $100,00 short for heating bills in 2005. The district budgeted $135,00 to heat the school buildings but the actual bill topped $233,000.

To help cover the increase in heating costs, Freedom was forced to pull $87,000 from accounts that supply funding for equipment, athletic uniforms, copy paper, staff travel, student field trips and upgrades in technology.

“Buildings must be kept at a reasonable temperature,” Cuff said. “These are costs that are out of our hands in many ways.”

Local governments are scrambling to find ways to cut costs. In Rhea County, Tennessee this week, about 3,800 school children got 2 days off of school to save money on transportation expenses.

Brad Harris, Finance Director for Rhea County said schools spent $14,000 on fuel in March 2006, compared to $7,800 in March 2005, and that year to-date-spending was up from $68,000 to $102,500.

Fuel prices are already taking a huge slice out of family budgets but higher prices also mean paying more elsewhere as businesses are forced to pass on the increased costs.

The nation's small businesses that depend on deliveries are feeling the squeeze. Businesses like floral shops, pizza parlors, taxi drivers are finding it hard to make ends meets.

On March 29, 2006, the city of Seattle, Washington authorized a fuel surcharge of 50 cents per trip for taxicab trips originating in Seattle. The surcharge will also be added to the $28 flat rate charged for the trip to the airport from downtown Seattle.

In Lafayette Indiana, since September 27, 2005, Star Taxi & Courier, has had a temporary surcharge of $1 in effect. In March 2006, the city moved to discontinue the surcharge and increase the flat fee from $2.50 to $3.50 since gas prices had not decreased since September.

Fernando Mateo, spokesman for New York State Federation of Taxi Drivers, wants to charge passengers a $1.50 surcharge to help with the cost of gas now, and if the price hits $4 a gallon, the taxi drivers wants a $2 dollar surcharge.

On February 14, 2006, Montgomery County, Maryland made permanent a $1.50 per trip increase for cab rides in effect since September 2005, to provides relief to cab drivers.

Late last year, Business Know-How, interviewed a number of small business owners to see how they were affected by rising gas costs.

At Royal Pizza in Centereach, New York, the manager said the rising cost of gas has seriously affected the business: "Rising oil prices have affected not only our delivery costs;" she told Business Know-How, "but it has also affected just about all our costs: cheese, flour, boxes, soda. The distributors are charging us more because their costs are higher as a result of rising oil prices."

"Our pizzas used to sell for $3.99 a pie," said the manager, "and because of higher gasoline prices, we've had to raise our prices; most recently in 2003, and again in 2005; now a pizza costs $6.90."

Jack Wright, owner of Wright-Way Moving and Storage, in Seattle told Business Know-How, that pennies count. "When you're using 8000 to 10,000 gallons of fuel per month," he explained, "five cents less per gallon can mean a savings of $500."

Fuel prices are at the top of the list of concerns for members of the trucking industry. "Fuel is our second-largest expenditure following labor costs," Tim Lynch, a senior vice president of the American Trucking Associations told reporters on April 24, 2006.

"Fuel expenditures are roughly 20 to 25 percent of total expenditures for a typical trucking company," he said.

ATA predicts the industry will spend $94.3 billion on fuel this year, based on current fuel price forecasts, a $6.6 billion increase over the $87.7 billion spent by trucking in 2005.

Spiraling fuel prices threaten to spoil what many had hoped would be a recovery year for the airline industry. The record-high cost of commercial jet fuel is the primary reason why the industry is expected to post an estimated $10 billion net loss for 2005

The average cost of a gallon of jet fuel has more than doubled since 2000 – from 78 cents-per-gallon in January 2000 to $1.81 per-gallon in January 2006, according to the Energy Information Administration, US Department of Energy.

The Air Transport Association expects jet fuel costs to average $70 per barrel or $1.67 per gallon in 2006, a 90% increase since 2001.

According to the ATA, at a usage rate of 19.5 billion gallons of fuel a year, each penny increase in price per gallon adds $195 million in annual costs for the airline industry

Rising costs caused airlines to raise fares 12 times in 2005. Last month, American Airline raised domestic round-trip ticket prices by $10, and in the first quarter of 2006, both Continental and Southwest reported a 5.4% increase in ticket prices, increases that fell short of rising fuel prices, according to Airwise News on April 21, 2006.

Farmers face an increasing cost-price squeeze in 2006, according to economists from the University of Missouri-Columbia. Production costs that increased $28 billion in the past 3 years will increase another $7 billion in 2006, the economists predict. Rising energy prices, including fuel and fertilizer, made up $10 billion of the increase since 2002, they said.

In 2005, farmers spent $3 billion more on fuel and $1.4 billion more on fertilizer than they did in 2004. Natural gas which is 90% of the cost of nitrogen fertilizer is one reason and diesel which has commanded a large per-gallon premium over regular gasoline is another, according to Agriculture Secretary Mike Johanns remarks to The Second Annual National Agricultural and Forestry Renewable Energy Summit Washington DC on March 8, 2006

In 2002, farmers spent $18.36 billion on energy for crop production. Increasing prices raised those costs to approximately $46.4 billion in 2004. Price increases of 20% or more on essential items like fertilizer, fuel, and pesticides have made it very difficult for farmers to get by, according to the Congressional Research Service, on November 19, 2004.

And prices for fuel and natural gas are forecast to rise by about 5% in 2006, according to the Department of Energy, coming off last year's 35% hike in diesel and natural gas prices. In addition to oil companies, major credit card companies are making huge profits from higher gas prices because the fee that banks charge gas station owners to process a credit card transaction is based on a percentage of the purchase price. So, if gas prices rise, the processing fee goes up. On September 25, 2005, columnist, Margaret Webb Pressler, explained the details in the Washington Post:

"So a year ago, when gas prices averaged $1.87, banks involved in credit card processing made about $12.5 million a day on fees. Now, with prices averaging $2.75 nationally, the credit card companies are raking in $18.4 million a day. That is $183 million more a month, or nearly $2.2 billion dollars on an annual basis in extra money paid to the nation's banking giants just because of rising gasoline prices."

Moreover, interest rates are on the rise, which means Americans will be facing higher rates on credit cards.

There needs to be a full investigation into why Americans are getting gouged when the major oil companies are experiencing windfall profits. Three of which are currently ranked in the top 10 corporations on the Forbes 500 list. ExxonMobil holds the number one spot, ChevronTexaco weighs in at four, and ConocoPhillips has the number 6 position.

In 2005, Exxon reported third-quarter profits of $9.92 billion, 75% higher than its third-quarter earnings in 2004, and the largest quarterly profit ever reported by a US company.

For the 3rd quarter of 2005, ChevronTexaco reported a 53% increase to nearly $4 billion; and ConocoPhillips’s profits were up 89% to $3.8 billion.

Exxon is reportedly giving its retiring chairman, Lee Raymond, a package worth nearly $400 million, in combined pension, stock options and other perks, including a $1 million consulting deal, the use of a corporate jet for professional purposes, 2 years of home security, and a car and driver.

While testifying at a Congressional hearing last November, Raymond claimed that high gas prices were a result of supply and demand. "We're all in this together," he told members of Congress, "everywhere in the world."

"In 2004, Mr. Raymond," Senator, Barbara Boxer (D-CA), was quick to point out, "your bonus was over $3.6 million."

After exhibiting a chart revealing the pay scale for each of the CEOs at the hearing, Senator Boxer told the oil executives: “Your sacrifice appears to be nothing.”

According to Exxon's filings with the Securities and Exchange Commission, Raymond's paycheck rose to $51.1 million in 2005.

These profits and CEO salaries are obscene at a time when the elderly and families with young children are struggling every day to keep their homes heated and fill up the gas tank to drive to work and back.

Evelyn Pringle - evelyn.pringle@sbcglobal.net

(Evelyn Pringle is an investigative journalist focused on exposing corruption in government and corporate America)

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