Published January 13, 2015
The Federal Trade Commission on Monday said it found 15 examples of gasoline price gouging after Hurricane Katrina, though the agency said it has not identified any widespread effort by the oil industry to illegally manipulate the marketplace.
The agency sought to downplay the instances of post-hurricane price gouging by seven refiners, two wholesalers and six retailers, chalking up their soaring prices in September 2005 to "regional or local market trends."
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"Based on well-established economic principles, the price increases were roughly in line with increases predicted by the standard supply and demand paradigm of a competitive market," the FTC said in a 200-plus page report that noted the lack of a common legal definition of price gouging.
For the purpose of the report, and as mandated by Congress, the FTC defined price gouging as "any finding" that the average price of gasoline in designated disaster areas in September 2005 was higher than in August 2005 for reasons other than rising production or transportation costs, or national or international market trends.
Industry officials lauded the report's findings, while some members of Congress lambasted them.
The FTC was first directed by the energy law passed last August — before Katrina — to investigate whether oil companies manipulated the price of gasoline in any way, including whether they intentionally held back refining capacity to keep supplies artificially tight. This part of the agency's probe found "no instances of illegal market manipulation."
Congress demanded separate investigations into the industry's pricing activities — as well as its enormous profits — after Hurricane Katrina, which severely disrupted the flow of oil and natural-gas in the Gulf of Mexico and also caused the shutdown of onshore refineries and pipelines.
In the week after the hurricane, retail gasoline prices leapt 46 cents to a record nationwide average of $3.07 per gallon.
At the peak of the Katrina-related supply disruptions, 13 percent of U.S. refining capacity was shut down and two major pipelines that deliver fuel from the Gulf Coast to the Northeast were not working due to power outages, decreasing the nationwide gasoline supply in September by almost 4 percent, compared with the prior year.
Based on the assumption that the U.S. gasoline market is competitive, the FTC said it would have anticipated a price increase of almost 20 percent in the month following Katrina. Instead, the average September price of $2.95 a gallon was only 17 percent higher than August. The muted impact was attributed to a surge in gasoline imports from Europe and an increase in productivity by refiners that were not damaged by the hurricane.
"The evidence indicates that suppliers responded quickly to the supply disruptions caused by the hurricanes," the report said.
Bob Slaughter, president of the National Petrochemical & Refiners Association, said the report "appears to vindicate the refining industry's actions post-Katrina."
But Sen. Chuck Schumer, D-N.Y., criticized the FTC for ignoring what he said was "the 800 pound gorilla in the room, namely that the oil companies engage in price leadership — setting prices higher than what real competition would merit." For example, Schumer said retail prices are jacked up quickly, then fall unnaturally slowly.
The team of FTC lawyers and economists who conducted the investigation found no evidence of malicious intent in 14 of the 15 instances of price gouging. Rather, they concluded that local market conditions, ranging from pipeline outages to panic buying, created confusion among retailers about how to price their fuel. At the refinery level, the so-called gouging resulted from the fact that refiners whose plants were shut down by the storms were forced to buy gasoline on the open market and then re-sell it, which created higher-than-normal pricing.
One retailer was determined to be taking advantage of the catastrophe for personal gain, according to Phill Broyles, assistant director of the agency's bureau of competition. None of the companies were named in the report.
"What we found ought to give people confidence that while prices might be higher than they like, it isn't the result of anything nefarious by the oil companies," Broyles said in an interview.
In 2005, the country's three largest integrated oil companies — Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and ConocoPhillips (COP) — earned more than $63 billion. They made an additional $16 billion in the first quarter of 2006 amid soaring prices for oil, natural gas and gasoline.
At the moment, pump prices for regular unleaded average $2.89 a gallon nationwide.
Facing criticism from the public and Congress over persistently high fuel prices, President Bush earlier this spring vowed to pursue any collusion or price gouging and directed the Justice Department to help states pursue allegations of such behavior. But the White House said it opposed additional federal laws to address price gouging or strengthen antitrust laws as they pertain to oil companies, as some members of Congress have proposed.
The FTC does not have jurisdiction to prosecute cases of criminal violations of federal antitrust laws, though it can refer those cases to agencies that do.
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https://www.foxnews.com/story/federal-trade-commission-says-oil-industry-did-not-manipulate-prices-after-hurricane-katrina