FTC Testimony Highlights Multi-prong Strategy To Ensure Competitive Gasoline Pricing

The Federal Trade Commission today outlined the steps it has taken to assure competitive gasoline pricing in the United States. Testifying today before the House Government Reform Committee's Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs, FTC General Counsel William E. Kovacic reported that, in recent years, the FTC has devoted almost one-third of its Bureau of Competition's total enforcement budget to energy industry investigations. Kovacic noted the FTC is devoting resources to studying the central factors that may affect the level and volatility of refined petroleum products prices. He also noted that the FTC is monitoring wholesale and retail gasoline prices in a number of U.S. cities and analyzing these data for pricing anomalies and their causes.

"The importance of antitrust law enforcement is particularly clear in the oil and gas industry, where fuel price increases can strain the budgets of many consumers and can have a direct and significant impact on businesses of all sizes throughout the U.S. economy. Enforcement of the antitrust laws helps ensure that the oil and gasoline industries are, and remain, competitive," Kovacic stated.

Kovacic cited as an example of the FTC's ongoing efforts to explore gasoline price trends the Commission's public conference on this topic in August 2001. More workshops are scheduled for May 8 and May 9. The Commission expects to summarize and discuss its work in a public report to be issued later this year.

"A Commission goal is to increase public awareness of competitive and other factors affecting the prices of refined petroleum products," Kovacic stated in the testimony. "Increased public awareness should help inform consumers and policymakers in the legislative and executive branches about potential responses to address these factors, if necessary."

Kovacic further noted the issuance of a report in March 2001 summarizing the FTC's nine-month investigation into the causes of gasoline price spikes in local markets in the Midwest in the spring and early summer of 2000. The Commission's extensive investigation uncovered no evidence of collusion or any other antitrust violation, but the FTC identified a variety of factors that contributed to the price spikes. Primary factors included refinery production problems, pipeline disruptions, and low inventories. Secondary factors included high crude oil prices that contributed to low inventory levels, the unavailability of substitutes for certain environmentally required gasoline formulations, increased demand for gasoline in the Midwest, and, in certain states, ad valorem taxes. Ultimately, the industry responded to the price spike within three or four weeks with increased supply of products, and by mid-July 2000, prices had receded to pre-spike or even lower levels.

Discussing the benefits of public forums, Kovacic reported that the August 2001 workshop brought together representatives of various governmental bodies, consumer groups and academia along with all segments of the industry, including exploration, refining, transportation, and marketing. The wide-ranging discussion identified a number of factors that may contribute to price volatility and price spikes. The Department of Energy's Energy Information Administration found that, over broad time periods, the price of gasoline at the pump generally tracks crude oil prices; that is, with some time lags, gasoline pump prices generally rise and fall in response to crude oil price increases and decreases. EIA reported that "OPEC cuts and high crude prices affect gasoline prices directly through the feedstock cost but also indirectly by reducing gasoline inventories." Participants commented that average inventories for refined products have declined over time, contributing to price spikes as additional supply is less available quickly to meet demand.

Participants in the August 2001 workshop also pointed to the high infrastructure usage necessary to refine and transport refined petroleum products to the pump. For example, current refinery capacity utilization rates in the United States are high, averaging 95 percent or higher, Kovacic stated. "Pipeline capacity also is stretched in some regions of the country, although various pipeline expansion projects are underway to address this situation. In addition, several participants reported that a proliferation of different environmentally mandated gasoline blends has reduced the availability of substitutes to moderate any price spikes."

"Perhaps the dominant theme of the August 2, 2001 conference was the complexity of the interrelationships among a large variety of factors and the need for further work in understanding the relative importance of different factors in particular situations. There is much left to learn and to analyze as we proceed in the weeks ahead," Kovacic testified.

The Commission vote to approve the testimony was 5-0.

Copies of the testimony are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.