Press Release of Senator Cantwell

Cantwell-Requested Report Confirms Recent Spokane Gas Prices Exceeded Seattle’s by Largest Margin in Last 57 Months

Thursday, October 19,2006

WASHINGTON, DC – Thursday, the Federal Trade Commission (FTC) responded to U.S. Senator Maria Cantwell’s September 15, 2006 request for an investigation of significant gas and diesel price disparities between eastern and western Washington, and the disproportionately high prices in the eastern portion of the state. The FTC report confirmed that local retailers are not responsible for the price disparity, pointing instead to refineries in the Rocky Mountain region. In response to the report, Cantwell said she intends to continue working with the FTC to answer new questions the analysis raises about the role of refiners in Spokane’s elevated gasoline prices. Cantwell plans to ask the Commission for an additional audit and analysis, using subpoenas if necessary, related to refinery inventories, output reductions, profit-taking, and wholesale price setting. She also plans to ask the Commission to reanalyze the gasoline price differentials between Spokane and Seattle using the actual prices that retailers pay, rather than just the rack price that does not include commonly applied discounts.

“This analysis confirms exactly what eastern Washington consumers already know: Spokane fuel prices have exceeded Seattle’s by a record margin,” said Cantwell. “The FTC report raises a number of important questions about the role of oil refiners in the Spokane price spike. I learned from the Western energy crisis that we need to take a very close look at exactly what factors may be distorting a market’s normal supply and demand dynamics. I appreciate the FTC’s work to date, but we now need an audit of the refineries where these problems occurred because it’s absolutely critical that even when margins are tight, refiners do not suppress the fuel supplies our families, farmers, and businesses depend on.”

Spokane and Seattle have two largely separate supply sources: Petroleum Administration for Defense Districts (PADD) IV for Spokane and PADD V for Seattle. PADD IV covers the Rocky Mountain region, primarily Colorado, Idaho, Montana, Utah, and Wyoming. PADD V covers the West Coast, as well as Nevada and Arizona. The FTC report suggests that higher PADD IV prices resulted from problems regional refineries had producing ultra-low-sulfur diesel fuel needed to meet a new national air quality requirement. This contributed to constrained petroleum supplies and drove up prices. However, the report did not address why this switchover did not cause a similar problem for PADD V refineries. Probably given the tight time-frame associated with the Commission’s response, it does not appear the FTC reviewed the preparations for the switch at the level of individual refiners.

At the same time, the FTC report says that with diesel prices considerably above those of gasoline, PADD IV refiners might have shifted to making more diesel fuel to maximize their profits, thereby causing abnormally high gasoline prices as well. It is unclear at this time how PADD IV refiners would be able to make more diesel fuel at the same time they were allegedly having problems switching over to ultra-low-sulfur diesel production. The FTC further attributed high diesel prices to seasonal demand issues, and the fact that importing diesel from abroad to meet supply shortages is more difficult than importing gasoline.

Spokane-area prices have been significantly higher than those in Seattle since the beginning of August. In mid-September, while regular gasoline in western Washington was available at many locations for less than $2.70 per gallon, Spokane-area drivers paid an average price of $3.04. Spokane-area diesel fuel, important to farmers and other low profit-margin businesses, averaged $3.46 per gallon. Currently, regular gasoline sells for an average price of $2.57 per gallon in Spokane, compared to $2.48 per gallon in the Seattle area.

A copy of the FTC's response to Cantwell can be found here

In addition to her work to get to the bottom of high eastern Washington fuel prices, Cantwell proposed legislation last year, now co-sponsored by nearly a third of the Senate, that would make gas price-gouging a federal crime. Her measure garnered 57 votes when it was considered last fall—including the support of 13 Republicans—but required 60 votes for Senate passage at the time. Cantwell’s legislation would outlaw gas price-gouging at all levels, impose tougher fines and criminal penalties on violators, and give federal and state authorities new powers to go after companies that manipulate prices.

Cantwell also joined Senators Dianne Feinstein (D-CA) and Olympia Snowe (R-ME) earlier this year in introducing bipartisan legislation (S.2642) to enhance transparency in energy commodity trading—up to 80 percent of which is currently taking place beyond the reach of federal regulators thanks to the ‘Enron’ loophole. This transparency legislation has the full support of the Agriculture Retailers Association, the American Public Power Association, the Consumer Federation of America, Consumers Union, the National Association of Wheat Growers, The National Barley Growers Association, the Washington Oil Marketers Association, and numerous other national and state organizations.

Both pieces of the Cantwell legislation are expected to come up for consideration when Senate leadership agrees to take up legislation to reauthorize the Commodity Futures Trading Commission.

At a hearing last November, Cantwell questioned oil company CEOs about below-average reserve capacities, unregulated trading markets, and exporting of gasoline during times of record U.S. prices. In response, oil executives told Cantwell they would provide data to answer her questions, but later refused to disclose much of the requested information. To get the answers oil companies refused to provide, Cantwell and Senator Daniel Inouye (D-HI), Co-Chairman of the Commerce Committee, requested a Government Accountability Office (GAO) investigation into fuel inventory practices, refining capacity, and market transparency.

Cantwell has worked to increase our nation’s energy independence, promote greater use of domestically produced biofuels, develop a biofuels industry in Washington state with the help of local crops and agriculture waste, increase the availability of flex-fuel vehicles and biofuel pumps, and improve national fuel economy standards. In June, Cantwell sponsored bipartisan Ten-in-Ten Fuel Economy Act (S.3543), which would increase combined corporate average fuel economy (CAFE) standards to 35 miles per gallon by 2017 for all passenger cars and light trucks, including sport utility vehicles. She has also authored comprehensive energy legislation (S.2829) that provides specific legislative measures to reach a national goal of reducing domestic oil consumption equivalent to 40 percent of America’s projected imports in the next 20 years.