FTC Testifies on Market Forces, Competitive Dynamics, and Gasoline Prices

Initiatives to Protect Competitive U.S. Gasoline Markets Detailed

For Release

Testifying today on behalf of the Federal Trade Commission before the U.S. House of Representatives Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, Commissioner William E. Kovacic detailed the FTC’s varied initiatives to protect competitive markets in the production, distribution, and sale of gasoline and other petroleum products.

“The petroleum industry plays a crucial role in our economy. Indeed, few issues are more important to American consumers and businesses than the decisions being made about current and future energy production and use,” Kovacic said in opening the FTC’s testimony. “Not only do changes in gasoline prices affect consumers directly, but the price and availability of gasoline also influence many other economic sectors. No other industry’s performance is more deeply felt, and no other industry is so carefully scrutinized by the FTC.”

The testimony presents FTC’s work related to the petroleum industry in two parts. First, it reviews the basic tools used by the Commission to promote competition in the petroleum industry – challenging potentially anticompetitive mergers, investigating potential nonmerger antitrust violations and prosecuting actions where appropriate, and monitoring industry behavior to detect possible anticompetitive conduct. Second, it details the Commission’s additional efforts to examine and analyze issues important to consumers in the petroleum industry – including conferences, studies, and reports.

Acknowledging that gas prices have been moving higher lately, the testimony states, “The Commission places a premium on careful research, industry monitoring, and investigations to understand current petroleum industry developments and to identify obstacles to competition” that may lead to higher prices for consumers, whether they arise from private behavior or public policies. “A well-informed understanding of these factors is essential, if FTC actions are to benefit consumers.”

Next, the testimony examines why gas prices have risen so quickly in recent months, stating that, “ . . . The lion’s share of the recent increase in gasoline prices appears to be attributable to three factors: refinery outages, increased demand for gasoline, and decreased gasoline imports.” Increases in crude oil prices have played a relatively minor role in the increase, according to the testimony.

In summarizing the FTC’s recent enforcement work in the petroleum industry, the testimony first describes the Commission’s recent filing for a preliminary injunction in federal court and the issuance of an administrative complaint against Western Refining’s proposed acquisition of Giant Industries. The FTC contends that the transaction would lead to reduced competition for the bulk supply of light petroleum products such as gasoline to northern New Mexico. The testimony also details FTC’s recent challenge to the acquisition of energy transportation, storage, and distribution firm Kinder Morgan by Kinder Morgan management and a group of investment firms, as well as a transaction, abandoned in November 2006, in which Chevron would have acquired most of the retail gasoline stations owned by USA Petroleum.

In the nonmerger area, the testimony summarizes enforcement actions including the FTC’s actions related to Unocal, in which the Commission alleged that the company deceived the California Air Resources Board (CARB) in connection with regulatory proceedings to develop the reformulated gasoline standards that CARB adopted.

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 presents an overview of the FTC’s gasoline price monitoring project and additional efforts to examine markets and promote competition, including the 2007 energy conference hosted by the Commission and the issuance of the second annual report on the current state of the U.S. ethanol industry, as well as other recent reports related to gasoline pricing.

“High gasoline prices are a drain on consumers’ budgets, particularly low-income working Americans who need automobiles to travel to and from their jobs,” the testimony concludes. “Policymakers are right to be concerned about this issue, and enforcers should – and do – vigorously pursue any evidence of market manipulation or otherwise anticompetitive conduct leading to those higher prices.”

The Commission vote authorizing the presentation of the testimony and its inclusion in the formal record was 5-0.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/bc/edu/pubs/consumer/general/zgen01.shtm.

(FTC File No. P859910)

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