FTC releases report on post-Katrina price hikes

On May 22, the Federal Trade Commission issued a report titled “Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases.” The report details the results of an FTC investigation into whether gasoline prices nationwide were “artificially manipulated by reducing refinery capacity or by any other form of market manipulation or price-gouging practices,” and into gasoline pricing by refiners, large wholesalers and retailers in the aftermath of Hurricane Katrina last August.

In its investigation, the FTC found no instances of illegal market manipulation that led to higher prices during the relevant time periods but found 15 examples of pricing at the refining, wholesale or retail level that fit the relevant legislation’s definition of evidence of “price-gouging.”

Other factors such as regional or local market trends, however, appeared to explain these firms’ prices in nearly all cases. Further, the report reiterated the FTC’s position that federal gasoline price-gouging legislation could cause more problems for consumers than it solves and that competitive market forces should be allowed to determine the price of gasoline that drivers pay at the pump.

“As the report demonstrates, price-gouging is a phenomenon that is hard to nail down,” said John Leibowitz, an FTC commissioner. “In sum, petroleum-industry pricing and gas-price manipulation are enormously complicated matters, ones not subject to simple explanation, even absent the disruptive effects of a major natural disaster. Still, the behavior of many market participants, on balance, leaves much to be desired. Our report sheds some light on market practices after the hurricanes and, hopefully, it will be put to good use.”

The FTC’s findings are divided into those related to market manipulation and other types of illegal anti-competitive conduct, as required by the Energy Policy Act of 2005, and those related to “price-gouging,” as defined by Section 632 of the Commission’s appropriations legislation for fiscal year 2006.

Section 632 directed the FTC to identify price-gouging as “any finding that the average price of gasoline available for sale to the public in September, 2005, or thereafter in a market area located in an area designated as a state or national disaster area because of Hurricane Katrina, or in any other area where price-gouging complaints have been filed because of Hurricane Katrina with a federal or state consumer protection agency, exceeded the average price of such gasoline in that area for the month of August, 2005.”

During the time period examined, the commission found:

• No evidence to suggest that refiners manipulated prices through any means. The evidence indicated that these firms produced as much gasoline as they economically could.
• No evidence to suggest that refinery expansion decisions over the past 20 years resulted from either unilateral or coordinated attempts to manipulate prices.
• No evidence to suggest that petroleum pipeline companies made rate or expansion decisions in order to manipulate gasoline prices.
• No evidence to suggest that oil companies reduced inventory to increase or manipulate prices or exacerbate the effects of price spikes generally, or due to hurricane-related supply disruptions, in particular.
• No situations that might allow a firm, or firms, to manipulate gasoline futures prices by using storage assets to restrict gasoline movements into New York Harbor.