The headline on a news release from the office of Sen. Chuck Grassley (R-Iowa) says it all: “GRASSLEY QUESTIONS CORPORATE RESPONSIBILITY OF OIL AND GAS COMPANIES; ASKS THEM TO GIVE 10 PERCENT OF PROFITS TO HELP LOW-INCOME AMERICANS.”
Noting the oil industry’s recent profit surge, the document includes the text of a letter to American Petroleum Institute Pres. and Chief Executive Officer Red Cavaney. Grassley writes: “You have a responsibility to use these record profits to invest in more exploration, production, and refining capacity to increase supply of petroleum products. Beyond that, you have a responsibility to help less-fortunate Americans cope with the high cost of heating fuels”(see p. 27). He opines that “it’s not unreasonable to expect” companies with 50-100% earnings growth “to contribute a mere 10% of those profits” to programs supplementing the federal Low-Income Home Energy Assistance Program (LIHEAP).
Political grandstanding
This is, of course, political grandstanding. In the US, politicians don’t dictate investment or charitable giving. And the focus on profit growth is pure distortion. Third-quarter profits in the oil and gas industry are aberrations, the results of commodity prices first lifted by a tight market then pushed to unsustainable levels by hurricane damage. The numbers are large because the industry and its biggest companies are very large. Anyone with a level head can see that. But level-headedness in Congress, where even Republicans are rejecting measures to boost energy production and discussing “windfall profits” taxes, seems rare these days.
Nothing about size or earnings change bears on corporate responsibility. And nothing in Grassley’s letter or press release offers evidence that oil and gas companies have behaved irresponsibly. Without any substantiation, Grassley simply raises doubt about the corporate responsibility of large companies in a large industry merely because they reported large profits. Who’s irresponsible here?
Perspective more meaningful than a quarter’s profit change comes from profit margins: income as a percentage of total revenue. Even in the wildly profitable third quarter, margins of the three largest US oil companies were not high by general business standards: 9.9% for ExxonMobil Corp., 6.6% for Chevron Corp., and 7.6% for ConocoPhillips.
Those margins, for example, fall below the corresponding third-quarter figures of three not-randomly selected representatives of other industries: Amgen Inc. 34.4%, Wells Fargo 23.3%, and Verizon Communications Inc. 10%. Amgen, Wells Fargo, and Verizon were the top three publicly traded sources of indirect contributions to Grassley’s successful endeavors in the 1999-2004 political cycle. If Grassley has written these companies to tell them how to spend their money, the letters don’t appear on his web site under headlines questioning their corporate responsibility.
The political contribution figures come from the Center for Responsible Politics, which notes that funds reported for specific companies don’t flow directly from the companies themselves but from affiliated individuals and political action committees (PACs). On its web site (opensecrets.org), the center lists PAC contributions by industry.
It will surprise no one that Grassley does well with PACs associated with farming. Agribusiness ranked fourth on a list of PAC categories for 2003-04 contributions to the senator behind-in ascending order-miscellaneous business; finance, insurance, and real estate; and health. Representing as he does a major corn-growing state, Grassley naturally helped champion the massive fuel ethanol mandate in this year’s omnibus energy bill.
Has he written any letters berating Cargill Inc. or the Iowa Corn Growers Association for anticipating profits from a program that will raise gasoline costs to all Americans and lower federal tax receipts? Has he disparaged members of the American Sugar Cane League or American Crystal Sugar who benefit because harm to supply from Hurricanes Katrina and Rita has lifted sugar prices, already supported by federal import and domestic supply limits, to more than 40¢/lb from 28¢/lb?
Profit outrage
Of course not. It’s the oil and gas industry alone whose prosperity inspires political outrage and whose adversity goes unnoticed. And it’s the legislative and regulatory affairs of the oil and gas industry that, to the appalling detriment of American energy consumers, opportunistically outraged politicians seldom get right.
Grassley, by the way, receives indirect contributions from an impressive number of oil and gas companies and associations, including the three big companies mentioned here. The money would be better spent supplementing LIHEAP.✦