S. HRG. 109–1156 PRICE GOUGING HEARING BEFORE THE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS SECOND SESSION MAY 23, 2006 Printed for the use of the Committee on Commerce, Science, and Transportation ( U.S. GOVERNMENT PRINTING OFFICE 71–812 PDF WASHINGTON : 2011 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 14:15 Dec 22, 2011 Jkt 071812 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\GPO\DOCS\71812.TXT SCOM1 PsN: JACKIE SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION ONE HUNDRED NINTH CONGRESS SECOND SESSION TED STEVENS, Alaska, Chairman JOHN MCCAIN, Arizona DANIEL K. INOUYE, Hawaii, Co-Chairman CONRAD BURNS, Montana JOHN D. ROCKEFELLER IV, West Virginia TRENT LOTT, Mississippi JOHN F. KERRY, Massachusetts KAY BAILEY HUTCHISON, Texas BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine BARBARA BOXER, California GORDON H. SMITH, Oregon BILL NELSON, Florida JOHN ENSIGN, Nevada MARIA CANTWELL, Washington GEORGE ALLEN, Virginia FRANK R. LAUTENBERG, New Jersey JOHN E. SUNUNU, New Hampshire E. BENJAMIN NELSON, Nebraska JIM DEMINT, South Carolina MARK PRYOR, Arkansas DAVID VITTER, Louisiana LISA J. SUTHERLAND, Republican Staff Director CHRISTINE DRAGER KURTH, Republican Deputy Staff Director KENNETH R. NAHIGIAN, Republican Chief Counsel MARGARET L. CUMMISKY, Democratic Staff Director and Chief Counsel SAMUEL E. WHITEHORN, Democratic Deputy Staff Director and General Counsel LILA HARPER HELMS, Democratic Policy Director (II) VerDate Nov 24 2008 14:15 Dec 22, 2011 Jkt 071812 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\71812.TXT SCOM1 PsN: JACKIE C O N T E N T S Page Hearing held on May 23, 2006 ............................................................................... 1 Statement of Senator Boxer .................................................................................... 58 Additional information ..................................................................................... 79 Statement of Senator Cantwell .............................................................................. 68 Statement of Senator Dorgan ................................................................................. 43 Statement of Senator Inouye .................................................................................. 1 Statement of Senator Lautenberg .......................................................................... 65 Statement of Senator Lott ...................................................................................... 46 Statement of Senator Pryor .................................................................................... 50 Prepared statement .......................................................................................... 50 Statement of Senator Smith ................................................................................... 54 Statement of Senator Snowe ................................................................................... 62 Statement of Senator Stevens ................................................................................ 58 Prepared statement .......................................................................................... 71 WITNESSES Behravesh, Dr. Nariman, Chief Economist/Executive Vice President, Global Insight ................................................................................................................... 15 Prepared statement .......................................................................................... 18 Cooper, Dr. Mark, Research Director, Consumer Federation of America (CFA) 38 Prepared statement .......................................................................................... 40 Majoras, Hon. Deborah Platt, Chairman, Federal Trade Commission ............... 2 Prepared statement .......................................................................................... 5 Slaughter, Bob, President, National Petrochemical & Refiners Association (NPRA) .................................................................................................................. 23 Prepared statement .......................................................................................... 25 APPENDIX Response to written questions submitted by Hon. Daniel K. Inouye to: Dr. Nariman Behravesh ................................................................................... 97 Dr. Mark Cooper ............................................................................................... 100 Hon. Deborah Platt Majoras ............................................................................ 93 Bob Slaughter ................................................................................................... 98 Response to written questions submitted by Hon. Frank R. Lautenberg to: All Witnesses .................................................................................................... 101 Dr. Nariman Behravesh ................................................................................... 97 Hon. Deborah Platt Majoras ............................................................................ 95 (III) VerDate Nov 24 2008 14:15 Dec 22, 2011 Jkt 071812 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\71812.TXT SCOM1 PsN: JACKIE VerDate Nov 24 2008 14:15 Dec 22, 2011 Jkt 071812 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\71812.TXT SCOM1 PsN: JACKIE PRICE GOUGING TUESDAY, MAY 23, 2006 U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. The Committee met, pursuant to notice, at 10 a.m. in room SD– 562, Dirksen Senate Office Building, Hon. Daniel K. Inouye, pre- siding. OPENING STATEMENT OF HON. DANIEL K. INOUYE, U.S. SENATOR FROM HAWAII Senator INOUYE [presiding]. Pursuant to the direction of the Chairman of the Committee, I call the meeting to order. The Fed- eral Trade Commission’s expedient work on this price gouging re- port is most gratefully received by this Committee. However, we find the findings do not explain what many consumers experienced in the aftermath of the hurricane. This report, for example, does not convince the Committee that consumers were treated fairly. No doubt, gasoline prices were bound to rise after Katrina. How- ever, consumers in Atlanta were asked to pay $6 dollars a gallon, more than twice the national average at that time, and anecdotal evidence suggests that they were not alone. And nothing in this re- port 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, pressure and a compromise in the Con- gress forced the FTC to produce this report. It was noted at that time 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 impor- tant piece of evidence, steep increases in profit margin, directly re- lated to Katrina, yet it declined to examine this in the report. Both the abbreviated timeline and the FTC’s unmistakable reluc- tance to investigate leave the Committee questioning the report’s findings. From what I’ve read and observed thus far, I am not con- vinced that the FTC was able to thoroughly analyze what hap- pened in the Gulf Coast or its subsequent impact to the 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 (1) VerDate Nov 24 2008 14:15 Dec 22, 2011 Jkt 071812 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\71812.TXT SCOM1 PsN: JACKIE 2 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 I believe it makes little sense not to grant the Federal Govern- ment’s consumer watchdog similar power. With that, I would like to call the first witness. And the first wit- ness is the Honorable Deborah Platt Majoras, Chairman of the Federal Trade Commission. STATEMENT OF HON. DEBORAH PLATT MAJORAS, CHAIRMAN, FEDERAL TRADE COMMISSION Ms. MAJORAS. Thank you, Mr. Co-Chairman, Members of the Committee. I’m Deborah Platt Majoras, Chairman of the Federal Trade Commission. I appreciate having the opportunity to present the Commission’s testimony on the findings of our investigation which we conducted pursuant to Section 1809 of the Energy Policy Act of 2005 and Section 632 of the Commission’s Appropriations Legislation for Fiscal Year 2006. The Commission conducted a sin- gle investigation in response to these two directives and yesterday, we issued our final report. While I will briefly explain the Commission’s findings, my brief remarks cannot do justice to this lengthy and thorough investiga- tion. I urge all interested