An FTC Probe Finds Minimal Gas Gouging

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The New York Sun

WASHINGTON – The Federal Trade Commission yesterday said a nine-month investigation revealed a smattering of gasoline price gouging after Hurricane Katrina, though not any widespread effort by the oil industry to manipulate the marketplace.

Industry officials lauded the report’s findings, while Democratic members of Congress lambasted them and promised some tough questioning for FTC officials at today’s hearing.

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.”

“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.

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 or inventories to keep supplies artificially tight. This part of the agency’s probe, which analyzed market trends dating back to the early 1990s, found “no instances of illegal market manipulation.”

Congress demanded a separate investigation 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.

Peter Beutel, president of energy-market consultancy Cameron Hanover Incorporated in New Canaan, Conn., said the FTC’s conclusions were reasonable in that they determined the American gasoline market to be very competitive and at the same time vulnerable to a small number of participants behaving badly.

“Those people will get the book thrown at them and be fined heavily and rightly so,” Mr. Beutel said.

The New York Sun

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