Antitrust Lawyer Blog Commentary on Current Developments

FTC Testifies on Market Forces, Competitive Dynamics, and Gasoline Prices

On May 22, Commissioner William E. Kovacic detailed the FTC’s varied initiatives to protect competitive markets in the production, distribution, and sale of gasoline and other petroleum products before the U.S. House of Representatives Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce.
The petroleum industry plays a crucial role in our economy. Indeed, few issues are more important to American consumers and businesses than the decisions being made about current and future energy production and use. Not only do changes in gasoline prices affect consumers directly, but the price and availability of gasoline also influence many other economic sectors. This is why this industry is so carefully scrutinized, more than others, by the FTC.

The testimony presents FTC’s work related to the petroleum industry in two parts. First, it reviews the basic tools used by the FTC to promote competition in the petroleum industry – challenging potentially anticompetitive mergers, investigating potential non-merger antitrust violations and prosecuting actions where appropriate, and monitoring industry behavior to detect possible anticompetitive conduct. Second, it details the FTC’s additional efforts to examine and analyze issues important to consumers in the petroleum industry – including conferences, studies, and reports.

With the gas prices raising lately, the FTC has emphasized on researching, industry monitoring, and investigations to understand current petroleum industry developments and to identify obstacles to competition that may lead to higher prices for consumers, whether they arise from private behavior or public policies. All of these efforts on behalf of the FTC are to protect consumers.

Next, the testimony examined why gas prices have risen so quickly in recent months, stating that, the share of the recent increase in gasoline prices appear to be attributable to three factors: refinery outages, increased demand for gasoline, and decreased gasoline imports. Increases in crude oil prices played a relatively minor role in the increase.

In summarizing the FTC’s recent enforcement work in the petroleum industry, the testimony first described the FTC’s recent filing for a preliminary injunction in federal court and the issuance of an administrative complaint against Western Refining’s proposed acquisition of Giant Industries. The FTC contended that the transaction would lead to reduced competition for the bulk supply of light petroleum products such as gasoline to northern New Mexico. The testimony also detailed FTC’s recent challenge to the acquisition of energy transportation, storage, and distribution firm Kinder Morgan by Kinder Morgan management and a group of investment firms, as well as a transaction, abandoned in November 2006, in which Chevron would have acquired most of the retail gasoline stations owned by USA Petroleum.
In the nonmerger area, the testimony summarized enforcement actions including the FTC’s actions related to Unocal, in which the FTC alleged that the company deceived the California Air Resources Board (“CARB”) in connection with regulatory proceedings to develop the reformulated gasoline standards that CARB adopted.

The report analyzes the factors, including supply, demand, and competition, as well as federal, state, and local regulations, that drive gasoline prices, so policy-makers can evaluate and choose strategies likely to succeed in addressing high gasoline prices. The FTC also focuses on the price increases following Hurricane Katrina.

Finally, the testimony presented an overview of the FTC’s gasoline price monitoring project and additional efforts to examine markets and promote competition, including the 2007 energy conference hosted by the FTC and the issuance of the second annual report on the current state of the U.S. ethanol industry, as well as other recent reports related to gasoline pricing.
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