FTC Testifies on its Initiatives to Protect Competitive Markets for Gasoline

Testifying today on behalf of the Federal Trade Commission before the Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs of the House Committee on Government Reform, General Counsel William Kovacic said “the single most important factor affecting both the level and movement of gasoline prices in the United States is the price of crude oil. Changes in crude oil prices account for approximately 85% of the variability of gasoline prices.” In his testimony, Kovacic detailed the agency’s initiatives to maintain competitive energy markets, and said that the Commission will take enforcement action to protect U.S. consumers from price increases resulting from illegal anticompetitive conduct.

The Commission’s testimony also discussed a number of significant flaws in a recent GAO report, “Energy Markets: Effects of Mergers and Market Concentration in the U.S. Petroleum Industry,” that reviewed the price effects of a number of oil mergers consummated in the mid to late 1990s. According to the Commission’s testimony, “the GAO report ... contains major methodological mistakes that make its quantitative analyses wholly unreliable. It relies on critical factual assumptions that are both unstated and unjustified, and it presents conclusions that lack a quantitative foundation. Simply stated, the GAO report is fundamentally flawed.” A detailed staff appendix included with the Commission’s testimony provided further discussion of these flaws.

The Commission testimony indicates that the FTC has been very active in reviewing and challenging potentially anticompetitive mergers in the petroleum industry, noting that “since 1981, the Commission has taken enforcement action against 15 major petroleum mergers. Four of the mergers were either abandoned or blocked as a result of Commission or court action. In the other 11 cases, the Commission required the merging companies to divest substantial assets in the markets where competitive harm was likely to occur.” Noting the high level of interest in the GAO report and the benefits of a credible review of antitrust enforcement efforts, Kovacic told the Subcommittee that FTC Chairman Timothy J. Muris plans to convene a public conference to discuss whether the GAO report provides credible evidence of anticompetitive effects arising from specific mergers. Chairman Muris has invited GAO to co-host the conference. “Participants at the conference would include GAO and FTC experts and advisors,” Kovacic said. The conference is consistent with GAO’s call for an independent analysis of this important policy issue and its encouragement that the FTC undertake such a review.

Kovacic’s oral remarks also noted that the Commission today, in an Opinion by Chairman Muris, has reinstated charges that the Union Oil Company of California violated antitrust laws by defrauding the California Air Resources Board (CARB) in connection with regulatory proceedings regarding development of reformulated gasoline. This opinion overturns an administrative law judge’s decision to dismiss the FTC’s case. In March 2003, the FTC sued Unocal to prevent it from collecting royalties that could cost California consumers hundreds of millions of dollars a year. The agency charged that Unocal deceived the California state regulators who developed the standard for reformulated gasoline for the state.

The testimony also provided a look at the FTC’s gasoline price monitoring and investigation initiative, and analyzed recent gas price anomalies in Arizona, Atlanta, the Mid-Atlantic area and the western states of California and Nevada. In addition, the testimony provided an overview of FTC conferences and staff commentary that have identified factors which affect the price of gasoline.

In concluding, the Commission indicated that “competition policy helps ensure that the petroleum industry is, and remains, competitive. The FTC has expended substantial effort and resources to enforce the antitrust laws and to scrutinize behavior in this industry.” “Understanding and publicizing developments in this sector, and attacking conduct that violates the antitrust laws, are competition policy priorities second to none for the Federal Trade Commission.”

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.