We welcome the witnesses who appear before the Committee today, and thank you for your willingness to participate in this hearing.
The purpose of today’s hearing is to examine the results of the Federal Trade Commission’s (FTC) Congressionally-mandated investigation into whether the price of gasoline is being artificially manipulated, and if price gouging occurred in the aftermath of Hurricane Katrina. We look forward to hearing the results of the FTC’s investigation and thank the Commission for its work.
The Committee will also hear testimony concerning factors that dictate the price of gasoline as it passes along the custodial supply chain, including the international and domestic supply of crude oil, refinery capacity, the cost of delivery to consumers, and state and federal taxes. Those testifying will explain which among these factors has most contributed to the current levels of gasoline prices, and whether consumers are being exploited by any party along the supply chain.
It is not unusual for domestic retail gasoline prices to rise sharply immediately following an abnormal market disruption as retailers seek to hedge on unknown replacement costs. As many of you know, this rise in price often triggers consumer protests that gasoline suppliers are taking advantage of these disruptions as profiteers.
In the aftermath of any major market disruption, such as a natural disaster, terrorist attack, or geo-political instability in oil producing countries, allegations of exploitation by providers of essential goods and services often become more prevalent. The aftermath of last season’s hurricanes and its long-term effect on the petroleum market has proven no different. Some call this “price gouging,” while others consider it to be a product of simple economic market forces at work.
The Committee will seek answers from the witnesses today regarding the FTC’s findings in its report, the economic impact of regulating oil and gasoline prices during abnormal market disruptions, and the need for enhanced federal regulatory consumer protection authority to combat unconscionable price increases during such disruptions.
I look forward to a constructive dialogue with the witnesses.
Daniel K. InouyeSenator
The Federal Trade Commission’s (FTC) expedient work on this price gouging report demonstrates that it can meet a Congressional deadline, but the findings do not, in my opinion, explain what many consumers experienced in the aftermath of Hurricane Katrina. This report does not convince me that consumers were treated fairly.
No doubt, gasoline prices were bound to rise after Katrina. However, consumers in Atlanta were asked to pay $6 a gallon, more than twice the national average at the time, and anecdotal evidence suggests that they were not alone. Nothing in this report helps us to understand how such pricing could be considered lawful and legitimate.
The FTC initially refused to investigate price gouging. In fact, at our last hearing, Chairman Majoras suggested that, contrary to consumers’ experiences, there was nothing to investigate. However, pressure and a compromise in the Congress forced the FTC to produce this report.
I noted at that time – and I am still concerned – that the 180-day timeline was too short to fully understand what happened. The oil and gasoline markets are very complex, and frankly, the FTC chose to base a lot of its work for this report on previous work and evidence collected from other investigations in order to meet the deadline. Ironically, the FTC found an important piece of evidence, steep increases in profit margin, directly related to Katrina, yet it declined to examine this in the report.
Both the abbreviated timeline and the FTC’s unmistakable reluctance to investigate leave me questioning the report’s findings. From what I have read and observed thus far, I am not convinced that the FTC was able to thoroughly analyze what happened in the Gulf Coast or its subsequent impact to East Coast markets. If the FTC needed more time to understand the post-Katrina price variations, it should have requested an extension.
I am inclined to support legislation that provides the FTC with clear and effective authority to prosecute incidences of price gouging, despite FTC Chairman Majoras’ opposition. This authority would allow the FTC to continue to investigate incidents, such as the post-Katrina fluctuations, without waiting for the Congress to compromise on reporting requirements.
We have heard testimony from several attorneys general that have utilized this kind of authority to the benefit of consumers, and it makes little sense not to grant the federal government’s consumer watchdog similar power.
Witness Panel 1
The Honorable Deborah Platt MajorasChairmanFederal Trade Commission
Dr. Nariman BehraveshChief EconomistGlobal Insight
Mr. Robert SlaughterPresidentNational Petrochemical and Refiners Association
Mr. Mark N. CooperDirector of ResearchConsumer Federation of America