FTC Report: Some Companies Limited Gas Supplies to Maximize Profits

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Is this doubletalk or what?

Mar 30, 2001 - 06:56 AM

Some Companies Limited Gas Supplies to Maximize Profits, Report Says By H. Josef Hebert Associated Press Writer

WASHINGTON (AP)- Some energy producers withheld supplies of gasoline to maximize profits, but there is no evidence that companies conspired to raise gas prices last summer, the Federal Trade Commission has concluded. In a final report being released Friday, the FTC said that a variety of factors, including many beyond the control of producers and marketers, were partly responsible for gasoline prices soaring beyond $2 a gallon in parts of the Midwest last summer.

Still, the FTC report said that "conscious, but independent choices" by market participants, often to maximize profits, also played a significant role in the Midwest price spikes.

"Although the principal causes of the price spike were largely beyond the immediate control of industry participants, the industry as a whole made errors in supply forecasts and underestimated the potential for supply shortages," the FTC report concluded.

The agency was asked last year to investigate whether producers and marketers had violated antitrust laws to manipulate the summer gasoline markets in the Midwest where supplies were particularly tight.

"The investigation uncovered no evidence of collusion or any other antitrust violation," concluded the report summary, a copy of which was made available Thursday to The Associated Press.

"Some firms did take advantage of the situation by withholding gas to keep prices and their profits high," said Sen. Herbert Kohl, D-Wis., who was briefed Thursday on the FTC findings.

The FTC investigation found that decisions by some refiners, acting independently, added to the supply shortages and price increases.

When prices spiked, especially in the Chicago and Milwaukee areas, several companies "delayed shipments of additional product into the Midwest in the expectation that prices would soon abate," said the report.

One problem was that refineries had difficulties making a new blend of cleaner-burning gasoline mandated by the federal Environmental Protection Agency, the report said.

But the investigation said some refiners also chose not to produce as much of the cleaner so-called "reformulated" gasoline as they could have because they did not want to spend money for retooling facilities.

For example, said the FTC report, three Midwest refiners upgraded their facilities only enough to produce enough gas for their own, branded gas stations. As a result, they produced 23 percent less reformulated gasoline in 2000 than they did the previous summer.

Another firm substantially increased its production of the cleaner gasoline and built up inventories. However the company admitted to investigators that it limited the amount of the gasoline it sold because "increasing supply ... would push down prices" and reduce profits.

Last May and June prices in Chicago, Milwaukee and Detroit rose well above the $2 mark - as much as 65 cents a gallon above the national average.

At the time, the industry widely blamed trouble refineries were having in producing the new formula gasoline; problems on two major gasoline pipelines; refinery maintenance problems; and low inventories at the time of high demand.

The FTC investigation confirmed that all of these factors were partially responsible for the Midwest supply problems and high prices.

But it said prices also rose because "each industry participant acted unilaterally and followed individuals profit-maximization strategies."

Also a factor were industry trends of maintaining minimum gasoline inventories to save storage cost and when oil prices are expected to decline. "These low inventory levels made it more difficult to respond to unexpected supply problems," said the FTC report. http://ap.tbo.com/ap/breaking/MGAY177VXKC.html

-- Carl Jenkins (somewherepress@aol.com), March 30, 2001

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