Senate Adopts Gas Price Gouging Amendment

Requires immediate investigation by FTC

Published in CSP Daily News

WASHINGTON -- The U.S. Senate last week passed by unanimous consent an amendment endorsed by Senate Committee on Energy & Natural Resources Chairman Pete V. Domenici (R-N.M.) that requires the Federal Trade Commission (FTC) to conduct an immediate investigation into gasoline price-gouging in the wake of Hurricane Katrina.

The amendment, offered by Senator Mark Pryor (D-Ark.), would require the FTC to provide an initial report to Congress within 30 days and a final report no later than 180 days after enactment of the Commerce, Justice & Science [image-nocss] appropriations bill.

The investigation includes any company with total U.S. in excess of $500 million, any retail distributor against which formal complaints have been filed, and a comparison and explanation of any change in recent profit level. This amendment compliments individual state laws by notifying the individual attorney general of any unfair increases in price or market manipulation.

A study on price-gouging and market manipulation by the FTC was also addressed in the Energy Policy Act of 2005.The amendment adopted will further expedite the study in light of elevated concerns about price fairness due to Hurricane Katrina.

"We must find out, not speculate, not accuse, not assume -- but find out whether or not gas-price gouging is occurring through the supply chain or distribution markets," said Pryor.

According to the Associated Press, the amendment calls for the FTC to spend at least $1 million to conduct the immediate, two-week investigation on both regular gasoline and ethanol blended gasoline. The study will include a comparison and reasons for changes in profit levels over the past year for oil companies, distributors and retailers. It will also look at the effects of higher gasoline prices on the country's economy and the consumer's purchasing power.

Earlier in the month, Domenici and his committee colleagues heard testimony from government, industry and consumer groups regarding gasoline prices and factors contributing to current high prices such as global oil demand, constraints on refinery capacity, and speculation in the futures market. The hearing also provided a status report on the effects inflicted by Hurricane Katrina on the oil and gasoline infrastructure.

Society of Independent Gasoline Marketers of America (SIGMA) President William S. Shipley III, CEO of Shipley Stores LLC, York, Pa., testified before the Energy & Natural Resources Committee on behalf of SIGMA and the National Association of Convenience Stores (NACS) to discuss Gasoline Prices & Factors Contributing to Current High Prices.

According to SIGMA, his testimony combated media reports of retailer price gouging and explained how retailers set their prices. Simply stated, I try to set my prices on the basis of the replacement cost of the gallons I have at my outlets, Shipley said. This is an important concept which may not be readily grasped. When wholesale prices are rising, and I know that the next load of gasoline I purchase from my supplier will cost me substantially more than my last load, my sales must generate sufficient cash for me to make that next purchase and to pay my supplier.

As reported earlier in CSP Daily News, AAA President and CEO Robert Darbelnet also testified. He called on Congress to commit to achieving higher fuel economy standards on all vehicles, updating miles-per-gallon testing procedures and seeking a federal standard for clean gasoline.

Meanwhile, in the U.S. House of Representatives, Bill Douglass, CEO of Douglass Distributing Co., Sherman, Texas, also testified before the Committee on Energy & Commerce on behalf of SIGMA and NACS, to discuss Hurricane Katrina's Effect on Gasoline Supply & Prices. Douglass emphasized gasoline pricing procedures in his testimony and explained how parties other than gasoline retailers contributed to the consumers' end price, including royalty owners of crude oil, crude exploration and extraction companies, refiners and credit card companies.

SIGMA said its advocate messagethat regardless of the crude supply, unless there is sufficient refinery capacity to meet or exceed the demand of U.S. consumers, the petroleum industry will always experience instabilityresonated with Committee Chairman Joe Barton (R-Texas), who by hearing's end announced he will draft legislation that will facilitate construction of additional refineries throughout the United States.

During his testimony, Douglass addressed the allegations made against retailers for gouging at the pump, added a NACS report. I am here to respond to allegations that I, and my industry, have taken advantage of this tragedy by gouging' our customers by raising retail motor fuel prices. Such allegations are personally offensive to me, and in general, they reflect a lack of understanding of the market events that have led to the gasoline and diesel fuel price spikes of the last 10 days, he said. While it is certainly possible that some bad actors' have sought to exploit this crisis for personal gain, I can assure you that their actions are not the actions of the vast majority of our industry.

Other testimony was provided in the House by American Petroleum Institute (API) President Red Cavaney.

He said, Government policies are needed to create a climate conducive to investments to expand refining capacity. For example, the federal government should take steps to streamline the permitting process to expand capacity at existing refineries and possibly even build a new refinery.

Cavaney added, Our industry has been repeatedly investigated over many decades by the [FTC}, other federal agencies and state attorneys general. In every instance, our companies have been exonerated of price gouging or other anti-competitive behavior.

Also, in written testimony submitted to both the Senate and House Energy Committees, American Trucking Associations (ATA) President and CEO Bill Graves asked Congress to increase U.S. investment in refining capacity as well as to amend the Clean Air Act to restore a single national diesel fuel standard so as to limit the magnitude and duration of fuel price spikes.

ATA said the United States for years has underinvested in refining capacity even as oil refiners operated at 95% capacity. As a result, when hurricane Katrina crippled Gulf refineries, other facilities were unable to increase production to make up the difference. This made price spikes more extreme than necessary. At the same time, the lack of a single national diesel fuel standard generates regional price disparities and heightens localized supply shortages and price spikes, he said. Varying state diesel fuel requirements, for example, typically prevent diesel fuel from being transported from one jurisdiction to another in times of shortage. The fact that region-specific fuels also tend to be produced by only a handful of refineries results in less competition and higher fuel prices.