POST SCRIPTS

Thank you Tina for the opposing view and I liked reading the IBD article that made many good points.

I read IBD all the time for investment reasons, and they are usually a trusted source. But, like all trusted sources it's always good to read opposing views and then make an informed decision based on what you have discovered. I think you just said that? lol Well, it's soooo true.

However, it's hard for consumer to understand how last year oil was price about what it is today but not the price of gasoline. In fact our current supply capability was supposed to be much improved over last year when we were closer to all that Katrina damage.

It's hard for consumers not to notice dramatic and yet uniform increases in coporate profits for all 5 major oil companies (and the absence of many other competing companies that we had just 30 years ago) and accept it's not because of the pump price.

It's hard for us to accept that having only 5 major companies involved the US is a good thing. This (oil/gas) is a [must have] product and it's part of our national security, if not our economic security. We can't allow a monopoly here, it's too important. Wonder why others are not rushing to compete against them? Is all about Gov. regs? A fair question I think, I wish I had the answer.

I guess we can parse words over what is gouging and what is not gouging, but the end effect is still the same. Windfall profits for the oil business and consumers lose, they are now paying an extra $1000 a year on their fuel bill.

Witholding production (or supply) to increase demand and get higher prices may be legal but is it good capitolism? Yet it's exactly what Williams Bros, CMS Energy, Enron and many others did to PG&E when they knew they had them and they went mad with greed to the point they got about whatever they wanted for KW's of electricty that desperate California needed to keep running. Calif. and the feds were loath to do anything about it at the time, but now the civil suits have proven it was all a charade and the feds indicted a couple of Enron execs.

Call me cynical, but it just doesn't surprise me that in 30 years the feds haven't found enough solid evidence to indict the oil companies for conspiracy to fix prices.

Out of the thousands of stock and corp. frauds committed in the past few years how many ever got indicted? Not many, a handfull at most. 5 that I can recall...yeah, I'm bitter, I admit it.

The free wheeling energy market failed us when it nearly bankrupted this state a couple of years ago, of course it did bankrupt PG&E and it ruined a lot of little people in the process. At the time it was held as legal and it was just capitalism and there were some excuses about greater demands for electrical energy, yadda, yadda... it sounded almost plausible only it just didn't turn out to be true.

I see little difference in what the oil companies are doing now with a subtle wink and a nod.

That's not evidence you can take to court either.

The fed is looking for hard evidence, but it's not there. Oil barons don't have to hold smoke filled backroom meetings anymore where a gov bug proves their complicity, they understand how the game works and they can easily work in concert without really being in concert, if you follow me?

Well, Tina the bottom line here is that we have reasonably (I hope) represented two opposing sides. It's up to consumers and to the government that represents us to collectively decide what should be done, if anything...maybe there is no answer or maybe there is an indictment or two that will work wonders?

Tina, thank you for your wisdom and input! And with that I shall defer to you or to anyone else who wishes to pose a comment or a question for us.

Jack, I too appreciate your comments and imput on this subject. This forum offers a great opportunity for learning and that's a good thing for all of us. I only have a few more things to add...your fault, you asked the questions and posed the challenges. LOL

It's hard for consumers not to notice dramatic and yet uniform increases in coporate profits for all 5 major oil companies (and the absence of many other competing companies that we had just 30 years ago) and accept it's not because of the pump price.

Most businesses go out of business within the first two years. It's understandable that in a very competitive field smaller companies will go out of business or be bought out because they just find it too difficult (or not worth it) to continue to try to compete. At the personal level this is tough and doesn't seem fair. But life isn't fair, none of it...if it was I'd have been born with Ella Fitzgeralds voice and Bill Gates money! (sighhhh)

It's hard for us to accept that having only 5 major companies involved the US is a good thing. This (oil/gas) is a [must have] product and it's part of our national security, if not our economic security.

Five companies in a field that has such tremendously high operation costs and risks (financial and in terms of actual danger) is pretty good if you ask me. Only in a free country would such a thing happen. Five!!!

Windfall profits for the oil business

Now there's a hook for ya! What exactly is a "windfall profit" other than a politically charged grouping of words designed to make blood boil? Is it a windfall, for instance, to face customers seeking product and angry frustrated consummers just as your ability to produce has been dimminished because a couple of rigs in the gulf have been hit by hurricanes? Is it a windfall when political hacks take advantage of the situation to trash your industry yet AGAIN! Is it a windfall to KNOW that if only politicians would open up the Alaska reserve or get out of the way and allow refineries you could deliver more product at better prices. Is it a windfall to know that one company got caught up in a scandal due to a few bad men...or one drunk pilot of a tanker created an oil spill resulting in lost reputation of the entire industry?

I think that if the big wigs in the oil companies had the power to coordinate hurricanes with the emerging markets all over the world to cover their "price gouging" then they would also have the power to make sure their "profitable years" happened in a different year.

Witholding production (or supply) to increase demand and get higher prices may be legal but is it good capitolism? Yet it's exactly what Williams Bros, CMS Energy, Enron and many others did to PG&E when they knew they had them and they went mad with greed to the point they got about whatever they wanted for KW's of electricty

Jack, i'll take your word for this but I'd like to see the evidence if you can lead me to the links. Show me the evidence that those companies actually witheld production (rather than being legally bound to contractual agreements with CA & PG&E or facing production slow downs due to other circumstances) Frankly I trust government, particullarly CA under Grey Davis, a lot less than the oil companies...seperate, privately owned entities trying to make a buck. I'm a little surprised some of your ire isn't directed at government.

Well, Jack as you indicated we have really wrung this sponge dry! It's been a valuable exchange...hope our readers feel the same. LOL

In answer to your question here is but a few of many, many examples of wrong doing that bankrupted PG&E a few years ago...

This a Dept of Justice Document filed in court:

RELIANT ENERGY SERVICES, INC. AND FOUR OF ITS OFFICERS CHARGED WITH CRIMINAL MANIPULATION OF CALIFORNIA ELECTRICITY MARKET

San Francisco Grand Jury Returns Six-Count Indictment Against Houston-Based Energy Company And Traders, Charging Conspiracy, Commodities Manipulation And Wire Fraud

WASHINGTON, D.C. - Houston-based energy company Reliant Energy Services, Inc., and four of its officers have been charged in connection with a federal criminal investigation of the manipulation of the California energy markets, the Department of Justice announced today.

A federal grand jury in San Francisco returned a six-count indictment today against Reliant Energy Services, Inc., a subsidiary of the company now known as Reliant Resources, Inc., and four of its officers..."

What many energy companies were doing was called round trip trading. Instead of selling to California they sold vast numbers of BTU's or KW's to neighboring energy companies and during this process those companies then sold it back at the same cost.

This greatly boosted the volumn of each company without suffering any loss or cost and at the same time it took an equivalent amount of energy out of the free market pool and that created a perceived shortage!

There was NEVER a shortage, it was all in creative bookeeping and R/T trades, however it forced California to pay increasing higher amounts. PG&E could not raise their rates to offset the higher cost and as cost climbs well beyond the price PG&E paid outside the state for energy they began going into the red. The squeeze continued even amidst claims of price gouging and collusion. Of course all the guilty corporations said no,no,no, not us, why we're just as much a victim of supply and demand as you guys in California, this is just something we all have suffer with until we can get more power plants on line... in otherwords it's our fault, not theirs.

In the end it was their fault not ours.

It was proved over and over, in case after case that rocked the utility empire that they lied. They cheated. They deliberately slowed production. They manipulated prices higher.

Everything we suspected was true! These were rats caught by their own greed. Had they only fleeced us a little they could have got away with it...but they went too far and the rest is history as they say.

Speculators forced up prices and California payed and payed and payed, hundred of millions...until that fateful day of reckoning when the truth began to leak out. Then the civil suits were filed, company records were subpeoned, tape recorded telephone conversations between plant operators and traders showed collusion as they conspired to screw PG&E and this state. And then came the coupe de grau of all corruption...the round trip trades that were admitted to only after the hard evidence gave CEO's nowhere else to turn except to the truth.

Check out this snipet:

"It's been a bad year for energy companies. Energy company CFOs haven't fared all that well, either.

Marie Leone, CFO.com
July 03, 2002

Mary Shelley could have written the plot line. An astonishing, bold experiment suddenly goes terribly wrong, ending with an angry mob of citizens chasing a bloodied and confused monster with big clubs and torches..."

12/4/02) - NEW YORK -(Dow Jones)- The energy industry could see more arrests and charges following the indictment of a former El Paso Corp. natural gas trader Wednesday for supplying fabricated natural gas data to an energy publication, legal experts said Wednesday.

Prosecutors in the U.S. Attorney's office in Houston, which charged former El Paso Vice President Todd Geiger, declined to say whether other traders at El Paso or other companies could face similar charges, saying only that their investigations continue.

But the probes will almost certainly reveal similar behavior at other trading companies, a handful of which have already admitted to submitting false data to publications that produce indexes and to doing fake trades solely to boost trading revenue and volume, lawyers said.

"It's not going to be a single episode here," said Michael Greenberger, a law professor at the University of Maryland and former director of the Commodity Futures Trading Commission's trading and markets division. "This was a problem that was not limited to El Paso."

NO IT WASN'T... dozens of utility companies were involved like a pack of wolves. CEO's were suddenly born again believers of truth, justice and the American way as the Dept. of Justice lawyers started snooping around. So CEO's did what they had to do, they fained ignorance, they had plausible deniability and lesser employees fell on their swords. The big CEO for CMS Energy blamed their corp wrong doing entirely on the CFO and fired her as being the only villian, she admitted dooing round trip or wash trades! The CEO got a bonus that year too, even though CMS lost a ton of money once their plot was discovered.

Thanks for your trouble Jack...and thanks for the information. This is very bad behavior and I'm glad to see it was prosecuted successfully. I understand your suspicions better now...besides we'd expect it of you with your nose for crime...and thats a good thing that has served you well.

Still not convinced though that this is the whole industry and I'm glad Bush made it a priority to go after corporate crooks. They were certainly overlooked in the nineties where they seemed to be blossoming like weeds in the garden.

I'm going to see what I can find on the Grey Davis, CA gov't, PG&E situation...something in the back of my mind keeps tickling. I'll let you know if I ever recover it.

From Thomas Sowell

With gasoline prices rising, political rhetoric is rising even faster. Liberals in Congress and in the media have launched a war of words, whose net result may well be a demand for some form of price control.

Price controls are not a new idea. There have been price controls in countries around the world. There were price controls during ancient times in Babylon and in the Roman Empire.

Gas prices in the northwest section of the District of Columbia at this Exxon Gas Station are seen at more than $3.25 per gallon, Saturday, May 19, 2007, in Washington. A cash crunch is fast approaching for the government trust fund that pays to build and repair highways and bridges. The federal tax on a gallon of gas has not risen in 14 years and Congress is reluctant to increase it. People are demanding more fuel-efficient vehicles _ less gasoline used, fewer dollars for the fund. (AP Photo/Haraz N. Ghanbari)
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Whatever the hopes that may have inspired price controls, economists have studied their actual consequences, which have been remarkably similar from one place to another and from one time to another -- and almost invariably bad.

That history has even included higher prices in places with price controls. For example, New York and San Francisco have severe rent control laws -- and some of the highest average rents in the country.

But those pushing for price controls on gasoline are not likely to go into facts about the consequences of price controls, much less go into the economics that explains why such bad consequences have repeatedly followed price controls.

This issue, like so many others, is likely to be settled on the basis of rhetoric. And, on that basis, the left has always had the advantage. As former House Majority Leader Dick Armey -- an economist by trade -- has put it: "Demagoguery beats data" in political battles.

The demagoguery in this case is that "price gouging" and "greed" explain rising gasoline prices -- and that price controls will put a stop to it.

It is an exercise in futility to try to refute words that are meaningless. If a word has no concrete meaning, then there is nothing that can be refuted. "Price gouging" is a classic example.

The phrase is used when prices are higher than most people are used to. But there is nothing special or magic about what we happen to be used to.

When the conditions that determined the old prices change, the new prices are likely to be very different. That is not rocket science.

How have conditions changed in recent years? The biggest change is that China and India -- with more than a billion people each -- have had rapidly growing economies ever since they began relaxing government controls and allowing markets to operate more freely.

When there are rising incomes in countries of this size, the demand for more petroleum for both industry and consumers is huge. Increasing the supply of oil to meet these escalating demands is not nearly as easy.

In the United States, liberals have made it virtually impossible, by banning drilling in all sorts of places and preventing any new refinery from being built anywhere in the country in the last 30 years.

Prices are like messengers carrying the news of supply and demand. Like other messengers carrying bad news, they face the danger that some people think the answer is to kill the messenger, rather than taking steps to change the news.

The strongest proponents of price controls are the strongest opponents of producing more oil. They say the magic words "alternative energy sources" and we are supposed to swoon -- and certainly not ask any rude questions like "At what cost?"

Then there are the famous "obscene" profits of oil companies. Again, there is no definition and no criterion by which you could tell obscene profits from PG-13 profits or profits rated G.

There is not the slightest interest in how large the investments are that produced those profits. Relative to the vast investments involved, oil company profits do not begin to approach the rate of return received by someone who bought a house in California ten years ago and sells it today.

Oil company executives make big bucks incomes, almost as much as liberal movie stars who are never criticized for "greed." And if Big Oil CEOs worked for nothing, it is unlikely to be enough to bring the price of a gallon of gas down by a nickel.

But facts are not nearly as exciting as rhetoric -- and the role of most political rhetoric is to be a substitute for facts.

Thomas Sowell is a senior fellow at the Hoover Institute and author of Basic Economics: A Citizen's Guide to the Economy.

Nice article Nick...Dr. Sowell always makes things very easy to understand.

the role of most political rhetoric is to be a substitute for facts.

And that hooks the pull toy voters every time!!