For Release: July
13, 2000 FTC Competition Director Testifies Before Senate Regarding
Recent Midwest Gasoline Price Increases
Presenting Federal Trade Commission testimony today before the U.S. Senate Committee on
Energy and Natural Resources regarding recent gasoline price increases in the Midwest, FTC
Competition Director Richard G. Parker described several potential causes for the
increases and assured Congress that the Commission's investigation into whether such
increases have resulted from anti-competitive, collusive or otherwise illegal behavior
will be "thorough, objective and as expeditious as possible."
Beginning the testimony by saying that "competition in the energy sector -
particularly in the petroleum industry - is vital to the health of the economy of the
United States," Parker stressed that antitrust enforcement "has an important
role to play in ensuring that the industry is, and remains, competitive." With
consumers in some Midwest markets such as Chicago and Milwaukee seeing gasoline prices
rise from an average of $1.85 in Chicago to nearly $2.13 per gallon between May 30 and
mid-June, before falling back under $2.00 in early July, he said, "increases as
dramatic as those seen ... without any obvious complete explanation, call for scrutiny by
antitrust enforcement authorities to determine whether they result from collusion or other
unlawful anticompetitive conduct."
According to the testimony, publicly available information suggests that several
factors may have contributed to the recent price increases. The first is the reduced
global supply of crude oil, resulting from OPEC's curtailed production in the second half
of 1999. At the same time, several Asian countries began to recover from a regional
recession, leading to an increase in their demand for petroleum products. Combined with
the continued expansion of the U.S. economy and growth of many foreign economies, this led
to a worldwide consumption of oil that exceeded production and lowered existing
inventories. Refiners responded by cutting gasoline production and using inventories to
meet demand, expecting that these inventories could be replenished once crude prices
dropped. As a result, gasoline supplies tightened and the spread between crude oil and
conventional gasoline prices increased. Crude prices dropped temporarily last spring after
OPEC agreed to increase production, but recovered, reaching $33 a barrel in June -
compared to a low of $12 a barrel in early 1999. Two further production increases have
been announced over the past month, but their effect on gasoline prices remains to be
seen.
At the same time, according to the testimony, "one factor specific to the Midwest
that may have contributed to the price increases" was the introduction of EPA Phase
II regulations for summer-blend reformulated gasoline (RFG) that went into effect on May
1, 2000 at the wholesale level in Chicago and Milwaukee. The new, more stringent
regulations "may have led to abnormally low inventories," the testimony stated,
with some reports indicating that summer-blend Phase II RFG is more difficult to refine
than expected, and the ethanol-based blend used in Chicago and Milwaukee is proving to be
the most difficult of all to make. St. Louis has now entered the RFG program for the first
time, adding additional demand to an already tight Midwest RFG supply situation. However,
the testimony states, "as with the OPEC factor, RFG-related issues seem unlikely ...
to provide a complete explanation for the recent Midwest gas price increases, given that
in the Midwest as a whole, conventional gas prices have risen more dramatically than RFG
prices since the end of May."
According to the testimony, another possible factor leading to price increases could be
last March's break in the Explorer pipeline which moves petroleum from the Gulf of Mexico
inland. But none of these factors "precludes the possibility that collusion may have
occurred at some point that further contributed to higher gas prices for consumers."
This has led the FTC to initiate an independent investigation into the recent Midwest gas
price increases. While this investigation will not determine whether prices are too high
or too low, it will determine "whether or not specific anticompetitive and unlawful
conduct has occurred that interferes with the operation of the free market" and
whether there is reason to believe that antitrust laws have been violated.
The testimony continued by describing the FTC's antitrust enforcement authority in the
merger and nonmerger areas, stating that this investigation "will focus on whether
any industry participants have engaged in collusion because it does not appear, at the
outset, that any single oil company has sufficient market power to raise prices
unilaterally." The Commission's investigation will be a civil matter and will involve
"a thorough search for evidence that the industry participants are engaging in, or
have engaged in, collusive behavior prohibited by the antitrust laws." Information
will be collected from "various entities that refine, transport and distribute
gasoline in the Midwest, as well as suppliers, customers and other knowledgeable or
affected persons." The Commission has also authorized staff to use compulsory process
to collect information, and has begun issuing subpoenas to "entities involved in the
chain of the gas supply to the region," including refiners, pipeline owners and
operators, terminal owners and operators, and blend plant owners and operators. FTC staff
also have begun interviewing market participants, corporate gasoline users and others,
according to the testimony, with the objective of determining who raised prices and
"whether there was any illegal contact, communication or signaling among competitors
before or during the time prices increased."
The Commission must show more than parallel behavior among market participants to prove
collusion, the testimony concluded. The courts have held that some "plus factor"
beyond the fact of simultaneous industry-wide price increases is required to demonstrate
an unlawful agreement. The Commission will provide an interim status report on its
investigation to Congress by the end of this month, but the full review may take
significantly longer to ensure "the thorough investigation that this matter
deserves."
The Commission vote to approve the testimony and submit a prepared copy for the record
was 5-0.
NOTE: The testimony
mentioned in this release is 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; 877-FTC-HELP
(877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as
it is announced, call the FTC NewsPhone recording at 202-326-2710.
- MEDIA CONTACT:
- Mitchell J. Katz
- Office of Public Affairs
- 202-326-2161
-
- STAFF CONTACT:
- Matt Downs
- Office of Congressional Relations
- 202-326-2457
(File No. 0010174)
*The information in this release, as well as that in
Richard Parker's prepared statement, represent the views of the Federal Trade Commission.
His oral presentation and response to questions are his own, and do not necessarily
represent the views of the Commission or any individual Commissioner.
(http://www.ftc.gov/opa/2000/07midwest.htm) |
Related
Documents: Prepared
Statement of the Federal Trade Commission on Midwest Gasoline Prices
Presented by Richard G. Parker, Director, Bureau of Competition, before the
Committee on Energy and Natural Resources, United States Senate
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