FTC finds no Katrina gas-price gouging

The Federal Trade Commission said yesterday that it investigated 15 instances of potential price gouging in the wake of Hurricanes Rita and Katrina and found no wrongdoing, with extraordinary market disruptions accounting for pump prices of more than $3 a gallon in all but one case.

In a report responding to three congressional measures asking for price-gouging investigations, the independent antitrust agency said it issued 139 civil subpoenas, examined thousands of documents and talked with 65 industry officials in concluding that no widespread collusion or market manipulation occurred to push up oil and gasoline prices and keep them high.

The FTC, for the report, defined price gouging as “any finding” that the average price of gasoline in designated disaster areas in September was higher than in August for reasons other than rising production or transportation costs or national or international market trends.

The commission, whose five members were appointed by President Bush, concluded that the fuel markets responded as they should have to the temporary but complete wipe-out of oil production facilities on the Gulf Coast, with rising prices encouraging increased production and conservation, refineries and wholesalers dipping into their inventories to supply thirsty markets, facilities not damaged by the hurricanes operating at full tilt to ramp up supplies, and oil imports flooding in.

The market forces worked quickly to bring down prices from more than $3 a gallon after the August and September hurricanes to about $2.50 a gallon by December. Prices have since returned to near-record highs, provoking a new rash of congressional calls for price-gouging investigations.

“When you see them responding to prices going up by producing more, that’s a hallmark of competitive behavior,” said Louis Silvia, assistant director of the commission’s Bureau of Economics. It “would have been a bad sign” if companies were cutting back on supplies, he said.

The commission has a long history of investigating and stopping questionable oil company deals, having stymied 20 oil company mergers since the 1980s. One of the five commissioners, Jon Leibowitz, said in a concurring opinion that the behavior of oil companies “left much to be desired” after the hurricanes, but that “the vast majority of retailers raised prices based on what they paid for supply or in anticipation of increased replacement costs.”

“If there is any villain in the long-running saga of high oil prices, it is OPEC,” he said. “For the past 30 years, this cartel has caused massive transfers of wealth from the United States to oil-exporting nations.” The FTC has no jurisdiction over OPEC’s nation-state members, who meet regularly to set production levels and manage world oil prices.

One of the most aggressive members of the Organization of Petroleum Exporting Countries, Venezuela, called yesterday for cutting production in the face of $70-a-barrel oil prices that are twice the $35 level that OPEC was targeting before it abandoned efforts to control prices last year.

Shortfalls in production, geopolitical tensions and tight markets worldwide have kept prices persistently high.

About one-fifth of Gulf Coast oil production facilities remain closed as a result of the hurricanes. Yesterday, Royal Dutch Shell PLC announced that its mammoth deep-water drilling rig, the Mars platform that was the Gulf’s largest oil producer and was smashed by Katrina, resumed production after extensive repairs and will be back to full throttle by the end of next month.

Much of the Washington area’s gasoline and natural gas comes from the Gulf and is processed and transported by refineries and pipelines there that were knocked out by the storms. Pump prices in the Washington area rose to among the highest in the nation in the fall and remain there today.

The FTC said it found 15 cases — seven refineries, two wholesalers and six independent retailers — whose prices fit lawmakers’ definition of price gouging and possibly were out of line. Further investigation determined that prices charged by all but one retailer were similar to what competitors in their markets charged.

The retailer whose prices were more than the local average settled price-gouging charges with state authorities. The FTC declined to name the business.

The report also found that federal price-gouging legislation, such as a bill approved in the House on May 3, may not lower prices. Because price gouging is difficult to define, a federal law could confuse industry and “run counter to consumers’ best interest,” the report said.

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