FTC Provides Senate Testimony on Initiatives To Protect Competition in the U.S. Petroleum Industry

Recent Report Examines Factors Affecting Gasoline Prices Nationwide

For Release

Testifying today on behalf of the Federal Trade Commission before the U.S. Senate’s Committee on Commerce, Science, and Transportation, FTC Associate General Counsel for Energy John Seesel detailed the FTC’s varied initiatives to protect competitive markets in the production, distribution, and sale of gasoline, and discussed in detail an important Commission study issued earlier this year on the factors affecting gas prices across the United States.

“No other industry’s performance is more deeply felt or carefully scrutinized by the FTC,” Seesel said in opening the testimony. “In the recent weeks since Hurricane Katrina, gasoline prices rose sharply to $3.00 per gallon or more in most markets . . . On top of an already tight market, [Hurricane] Katrina has temporarily disrupted an important source of crude oil and gasoline supply.”

The FTC, he said, “is very conscious of the swift and severe price spikes that occurred immediately before and after Katrina made landfall. There have been numerous calls for investigations of ‘price gouging,’ particularly at the retail gasoline level . . . The Commission staff has already launched an investigation to scrutinize whether unlawful conduct affecting refinery capacity or other forms of illegal behavior have provided a foundation for price manipulation.” A determination that unlawful conduct has occurred “will result in aggressive law enforcement activity by the FTC,” Seesel said.

Seesel next testified about two recent consent orders that resolved the FTC’s competitive concerns regarding Chevron’s acquisition of Union Oil Company of California (Unocal) and settled the Commission’s 2003 monopolization complaint against Unocal. “The Unocal settlement has the potential to save billions of dollars for California consumers in future years,” he said, by barring Chevron from enforcing Unocal’s patents for specially blended gas – patents the FTC alleged Unocal obtained illegally by manipulating the state’s standard-setting process.

Seesel further testified that in 2004, the FTC staff published a study reviewing mergers and structural changes in the U.S. petroleum industry. The study also provided an overview of antitrust enforcement actions the Commission has taken since 1981 – including 19 complaints filed against larger petroleum mergers. In addition, the FTC actively monitors wholesale and retail prices of gasoline and diesel fuel, Seesel stated, to protect consumers by identifying unusual movements in prices both at the wholesale and retail levels and investigating their causes when appropriate.

The testimony addresses congressional inquiries in two areas. It first reviews the basic tools the FTC uses to promote competition in the petroleum industry, including challenging potentially anticompetitive mergers, prosecuting nonmerger antitrust violations, monitoring industry conduct to detect possible anticompetitive behavior, and researching developments in the petroleum sector. Next, it reviews what the Commission has learned from its conferences and research, as well as its review of recent gasoline price changes.

The testimony also provides a detailed explanation of the Commission’s recent report on the factors affecting the price of gasoline – a topic of even more relevance to consumers in the wake of price increases following Hurricane Katrina. The report analyzes the factors, including supply, demand, and competition, as well as federal, state, and local regulations, that drive gasoline prices, so policy-makers can evaluate and choose strategies likely to succeed in addressing high gasoline prices.

Finally, the testimony stresses 1) that the worldwide supply, demand, and competition for crude oil are the most important factors in the national average prices of gasoline in the United States, and 2) that gasoline supply, demand, and competition produced relatively low and stable prices from 1984 until 2004, despite substantial increases in U.S. gasoline consumption. It also discusses local regulations that may have an impact on retail gasoline prices, as well as how the development of hypermarkets – large retailers of general merchandise and grocery items, such as Wal-Mart and Safeway – has affected what consumers pay at the gas pump.

The testimony concludes by stating that “[t]he Federal Trade Commission has an aggressive program to enforce the antitrust laws in the petroleum industry. The Commission has taken action whenever a merger or nonmerger conduct has violated the law and threatened the welfare of consumers or competition in the industry. [The FTC] continues to search for appropriate targets of antitrust law enforcement, to monitor retail and wholesale gasoline and diesel prices closely, and to study this industry in detail.”

The Commission vote authorizing the presentation of the testimony and its inclusion in the formal record was 4-0.

Copies of the Commission’s testimony are available on the FTC’s Web site at www.ftc.gov. 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, DC 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.

(FTC File No. P052103)

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