Antitrust Lawyer Blog Commentary on Current Developments

FTC Testifies Before Congress on Petroleum Industry Consolidation

On May 23, Bureau of Economics Director Michael A. Salinger described the FTC’s initiatives to protect competitive markets in the production, distribution, and sale of gasoline through the agency’s comprehensive merger program on behalf of the FTC before the U.S. Congress’ Joint Economic Committee.

Although the FTC does not regulate energy market sectors, the agency plays a key role in maintaining competition and protecting consumers in energy markets. The FTC has been very involved regarding mergers in the oil industry that could harm competition. It examines any merger and any course of conduct in the industry that has the potential to decrease competition and thus harm consumers of gasoline and other petroleum products.

The FTC’s statement states that a review released in January of this year on horizontal merger investigations and enforcement actions from fiscal year 1996 to fiscal year 2005 shows that the FTC has brought more merger cases at lower market concentration levels in the petroleum industry than in any other industry. Further, unlike in other industries, the FTC has brought enforcement actions – and obtained merger relief in many instances – in petroleum markets that are only moderately concentrated.

Next, the FTC examined proposed mergers and blocked or required revisions to any mergers that could potentially harm consumers and competition. The FTC also challenged, or obtained modifications of, numerous other mergers and acquisitions. From 1981 to 2007, for example, the agency filed complaints against 21 petroleum mergers. In 13 of these cases, the FTC obtained significant divestitures. In the eight other matters, the parties in four cases abandoned the transactions altogether after antitrust challenges, one case resulted in a conduct remedy, and the others were resolved in ways that protect competition.

The testimony continues by presenting several themes from the FTC’s recent study of changes in the petroleum industry over the past two decades, including the findings that: 1) mergers of private oil companies have not significantly affected worldwide concentration in crude oil – this is important, as the price of crude is the primary determinant in gasoline prices; and 2) despite some increases over time, concentration in most levels of the U.S. petroleum industry has remained low to moderate. It then provides an overview of the FTC’s merger enforcement work in the petroleum industry, including a detailed review of recent Commission actions, up to the recent filing for a preliminary injunction in federal court (and the issuance of an administrative complaint) to stop Western Refining’s proposed acquisition of Giant Industries.

Finally, the testimony presents other FTC activities in the petroleum industry, such as its program to monitor retail and wholesale gasoline prices in more than 20 wholesale regions and approximately 360 retail areas across the country. The testimony also describes the FTC’s work and results stemming from its investigation of gasoline price spikes after Hurricane Katrina in 2005.

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

Robert Doyle
(202) 589-1834
rdoyle@dbmlawgroup.com