STATEMENT OF COMMISSIONER ORSON SWINDLE
I have voted to approve the Commission's Final Report on the Midwest Gasoline Price Investigation so that it might, after some delay, finally be submitted to Congress. The Bureaus of Competition and Economics concluded their investigation into this complicated and politically charged matter and provided a detailed report, which found no evidence of collusion or any other antitrust violation by the petroleum industry in connection with the spike in gasoline prices in the Midwest in the Spring of 2000. I write separately to express my grave concern, not with the method of investigation or the factual findings of the Final Report, but rather with the way these findings are being characterized.
The Report states that prices rose both because of factors beyond the industry's immediate control and because of independent, varying, and completely legal choices by industry participants -- choices that suggest that the firms were engaged in individual, not coordinated, conduct. Perhaps the most important of these factors was a change, mandated by the Environmental Protection Agency (EPA), from one formulation of gasoline (RFG I) to another formulation (RFG II) that caused unforeseen production difficulties. This was severely exacerbated by other unpredictable problems, such as outages at refineries and pipeline disruptions. At best, firms have imperfect knowledge when projecting production needs. For competitive and legal reasons, firms do not share their supply projections with each other. While a variety of factors may have caused industry supply forecasts to be inaccurate after the fact, I believe it is unfair to insinuate blame on the part of the petroleum industry for a lack of omniscience.
I also believe it is unfair to try to assign blame to industry participants -- directly or through insinuation -- for undertaking varying responses to these market factors. Some companies made more RFG II and shipped it to the area; some made less RFG II but increased production of conventional gasoline; and still other firms waited to see if the price spike would continue before they produced and shipped RFG II into the region from more distant refineries. These firms reacted rationally to market conditions as they understood them. Some of these tactics were profitable for the participants; some turned out not to have been. The crucial point that may get lost in applying 20/20 hindsight to the firms' actions is that the industry acted quickly in response to the price spike, which was intense but relatively short-lived because of the effective workings of the market.
At the time of the price spike, allegations by the Clinton Administration and Vice President Gore of "price gouging" and antitrust violations flourished. Responding to requests from Congress as well as the Clinton Administration -- and specifically Vice President Gore -- the FTC initiated an investigation into the situation and the allegations. After a thorough investigation and analysis of the factors contributing to the price spike, these allegations proved unfounded. The bottom line is that the problems in the Midwest were caused not by antitrust violations -- of which there is no evidence -- but by a combination of the EPA requirement and unforeseen market circumstances. Ultimately, the market worked to correct the situation. These conclusions, and not certain between-the-lines insinuations, should be the overarching message of the Final Report.