Senator Ron Wyden

WYDEN TESTIFIES ON STRATEGIES
TO REDUCE GASOLINE PRICE GOUGING

Senator advocates new “Do Not Gouge” measures to force FTC action for consumers

September 21, 2005

Washington, DC – U.S. Senator Ron Wyden (D-Ore.), a longtime advocate for American consumers hit by unfairly high gasoline prices, testified today before the U.S. Senate Commerce Committee at a hearing on energy pricing. In a 2004 report, Wyden sharply criticized the Federal Trade Commission for its failure to act on behalf of American consumers when oil company practices caused price spikes; in light of huge price increases following Hurricane Katrina he is suggesting more aggressive measures to give the FTC additional authority and responsibility to go after gas price gougers.

The 2004 Wyden report is available at http://wyden.senate.gov/leg_issues/issue/special.html. Senator Wyden’s prepared testimony from today’s hearing follows:

“I’ve come to the conclusion that while there is a need to strengthen consumer protection law in the area of energy pricing, specifically gasoline, this is as much a question of political will at the Federal Trade Commission as it is a question of Congress passing new laws. All the laws in the world aren’t going to protect the consumer if the consumer watchdog remains far from its beat.

“Last year, I issued a report on the FTC’s Campaign of Inaction that documented how the agency has failed to act to protect gasoline consumers. My report documented how the FTC has refused to challenge oil industry mergers that the Government Accountability Office says have raised gas prices at the pump by seven cents a gallon on the West Coast. My report also documented how the FTC failed to act when refineries have been shut down or stop anti-competitive practices like redlining and zone pricing. That report and others are available on my website.

“The FTC has shown they can get results when they want to – when there is the political will. Witness the ‘Do Not Call’ program. Just as today, consumers saw there was a problem in the marketplace; they said to their government, ‘stand up for us.’ In that case, the Congress, despite judicial opposition, gave the Federal Trade Commission the authority to run a ‘Do Not Call’ program. It’s made a real difference.

“In this case, Congress needs to move to give the agency the authority to run the equivalent of a ‘Do Not Gouge’ program – and require in those laws that the FTC stiffen its backbone and exhibit the political will to act.

“Here are ways to jumpstart the ‘Do Not Gouge’ effort:

“One: give the Federal Trade Commission sufficient authority so they can no longer say their hands are tied by the law. The FTC testified this morning that under section 1809 of the Energy Bill, they are investigating gas prices for possible antitrust violations. But that’s not the same thing as investigating for price gouging. Price gouging without collusion isn’t covered by the antitrust laws. The FTC has admitted in testimony in the House that they can’t do anything about price gouging by individual companies. So the FTC is investigating for something they can’t find – collusion – because the oil companies don’t need to collude to price gouge, and the FTC can’t do anything about price gouging by individual companies that they find. By their own admission, there is a clear gap in the agency’s authority to protect consumers at the pump. The GAO also testified today that there is no Federal law prohibiting price gouging. So these are clearly areas where the FTC doesn’t have all the tools it needs. Congress should change the law and give FTC the explicit authority to go after anyone who is exploiting consumers. I don’t care who the gouger is – whether it’s an oil company, a refiner, or an individual station. I want the FTC to find out and crack down.

“Two: get the facts. I believe Congress should require that when a large individual seller of gasoline raises prices significantly faster than the price of crude increases, the FTC must obtain from that seller documentation that the differential is warranted in the marketplace. The media has documented that over the last year gasoline prices have increased much faster than the price of crude. But my office went further. We took data from the Energy Information Administration, verified it with the Congressional Research Service, and we have compiled some stunning results on this chart (see chart here). In all the time for which data is available, there has never been the kind of disparity between increases in the price of gasoline and the increase in the price of crude oil that we’ve seen in the last year. We found that during the last 30 years, when crude oil prices went up, annual gasoline price increases often didn’t even keep pace. This chart shows what the media found and what we found. Before Hurricane Katrina, gasoline price increases were 36 percent bigger than crude oil increases. That number ballooned to a shameful 68 percent disparity immediately after the storm. And those kinds of numbers just don’t exist in the previous 30 years. I ask that a copy of this chart be placed in the record. I’d like the FTC to ask the oil companies to explain that one.

“Three: require the FTC, at a minimum, to ‘out the gougers.’ If a huge differential between crude price spikes and gasoline prices can’t be justified by marketplace conditions, the FTC should put suspicious sellers – at least the top 100 – on a ‘Do Not Gouge’ list, putting them on notice and letting consumers know whose prices are cause for concern.

“Four: go after the proven bad actors. If the FTC finds that the gasoline prices go beyond disparity with crude to a level that is simply unconscionable, the Federal Trade Commission should have the power – and the responsibility in law – to order the price gouger to stop and to fine the gouger.

“In addition to giving the FTC new enforcement powers, there are other actions this Committee can take to help out gasoline consumers. One would allow oil companies to coordinate when they schedule their refinery maintenance to avoid supply shortages from multiple refineries in an area shutting down at the same time. This usually happens each spring when multiple refineries shut down for maintenance before they gear up to produce gasoline for the summer driving season. To avoid supply disruptions and price spikes for consumers, I propose a limited antitrust exemption to allow the refineries to coordinate the timing of their shutdowns as long as it was done to avoid or minimize disruption of fuel supplies.

“To provide relief for consumers at the pump over the long term and to reduce our nation’s dependence on foreign oil, nothing is more critical than improving fuel economy in the transportation sector. During the energy bill conference, I proposed a very modest one mile per gallon increase each year for the next five years in Corporate Average Fuel Economy (CAFÉ) standards. My proposal is much more modest than what the leading scientific experts in the country have found is both technically feasible and affordable to consumers.

“To make this proposal more attractive to carmakers, I would add a market incentive to encourage companies to go beyond the minimum one-mile per year increase. For example, the companies that have the largest increase in fuel economy for either their passenger cars or SUVs and light trucks could get double or even triple credit for the amount they exceed the required increase. This bonus could count toward the company’s future model year requirements to provide additional flexibility in meeting the new standards.

“In closing, I again urge the Committee to give the Federal Trade Commission more tools to protect consumers at the gas pump. In the wake of Hurricane Katrina, the White House said there would be ‘zero tolerance for price gouging.’ But having a zero tolerance policy is meaningless unless there’s enforcement to back it up and, right now, the Federal government can only take action against price gouging when there’s out and out collusion. There need to be stronger Federal remedies to stop unconscionable price gouging whenever and wherever it takes place.

“Thank you again for providing me the opportunity to testify before the Committee.”

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