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The Hon. Nydia M. Velázquez

Ranking Member

House Committee on Small Business

Running on Empty: The Effects of High Gasoline Prices on Small Businesses

May 9, 2012

Thank you, Mr. Chairman.  As our economic recovery gains steam, this committee must focus on removing obstacles to small business growth.  One key hurdle is the recent rise in gas prices.  

Indeed, three-quarters of small businesses note that rising energy prices would have a negative impact on their businesses.  There have even been estimates that for every $10 increase in the price of a barrel of oil, $29 billion is sucked out of the economy.  That is money which could have gone toward growth and job creation. 

With energy prices high, small firms face tough choices -- do they raise prices for their products to offset gasoline costs?  Or, do they alternately postpone hiring -- in order to compensate for rising expenses?  None of these are good options.  It is my hope that the committee can explore solutions for the effects energy costs have on entrepreneurs.  

When it comes to rising gas prices, there isn’t a sole reason why costs continue going up, but, instead a range of factors.  Instability in oil rich regions can result in significant supply disruptions, as we’ve seen with recent events in the Middle East and North Africa.  Oil supply disruptions can be further compounded by a reduction in refinery capacity, meaning that even when oil supplies remain steady, less gasoline is available on the market --- and prices remain high.  

These supply-based factors certainly contribute to rising gas prices.   However, there is also a strong argument to be made that excessive speculation is also to blame. Certainly, energy futures markets play a valuable role by enabling energy consumers – like airlines or railroads - to hedge against price increases.   However, today, the largest actors in these markets are no longer energy consumers.  Instead, market activity is dominated by players concerned only with betting on whether prices rise or fall.  When these speculators hold such influence that they can single handedly affect overall pricing, then it is questionable whether the future markets are functioning correctly --- or serving as a casino, with consumers and small businesses paying for bad bets.  

Just as a range of factors are driving up gasoline prices, there is no single solution that will solve the problem, alone.  Instead, we need a multi-pronged approach that addresses supply, consumption and speculation. We can start by leaving in place the Wall Street reform law that was enacted last Congress.  By giving the Commodity Futures Trading Commission more power to prevent unscrupulous behavior, this law will stymie some of the deceptive practices we have previously seen.

Other short term steps might include releasing oil from the Strategic Petroleum Reserve, instituting a gasoline tax holiday and expanding the use of oil shale.  All of these ideas have drawbacks and advantages -- and all of them merit further discussion. Over the longer term, we need to reduce demand and boost supply.  Helping small businesses become more energy efficient should be a priority.  Achieving that goal makes businesses more profitable, while lowering energy prices for everyone. 

There will also need to be discussions about expanding our energy supply --- through either fossil fuel exploration or expansion of renewable fuels.  Entrepreneurs have always been on the cutting edge of developing new energy sources and they should have a voice on how we proceed in this area, as well.   

As consumers prepare for another summertime driving season, we can expect gas prices will get worse, before getting better.  For small businesses, rising fuel costs can, at best, stunt job growth and, at worst, result in layoffs.  It is my hope that today’s discussion yields insights on how to help small firms overcome this problem, now, while laying the groundwork for long term energy security.  

With that, I thank our witnesses for being here and yield back.