[Congressional Record (Bound Edition), Volume 151 (2005), Part 20]
[Senate]
[Pages 27283-27284]
[From the U.S. Government Publishing Office, www.gpo.gov]


            NOMINATIONS OF WILLIAM KOVACIC AND THOMAS ROUSCH

  Mr. WYDEN. Mr. President, when it comes to energy, the Federal Trade 
Commission, FTC, is basically out of the consumer protection business.
  Well over a year ago, I released a report documenting the Federal 
Trade Commission's campaign of inaction when it comes to protecting 
consumers at the gas pump. 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 7 cents a gallon on 
the West Coast. My report also documented how the FTC failed to act 
when refineries have been shut down or to stop anti-competitive 
practices like redlining and zone pricing.
  Since then, nothing has changed.
  Despite the recent record-high prices for consumers and record 
profits by big oil companies, we are seeing a record level of inaction 
by the Federal Trade Commission, FTC, on behalf of energy consumers.
  In the last few months, when the price of gasoline soared to an all-
time record-high level, the FTC has been invisible. As far as I can 
tell, the FTC failed to take any action at all in the wake of 
hurricanes in the gulf that sent the price of gasoline skyrocketing to 
over $3 a gallon nationwide.
  If you do a Google search on the ``FTC and gasoline prices,'' nothing 
comes up that shows the FTC is taking any action on behalf of energy 
consumers.
  What you will find are statements by the Chairman of the Federal 
Trade Commission arguing against giving the agency additional authority 
to protect consumers against price gouging at the gas pump. For 
example, the FTC Chairman recently made statements opposing Federal 
price gouging laws, because ``they are not simple to enforce'' and that 
they could do more harm to consumers.
  But 28 States already have price gouging laws on their books and two 
state attorney General testified at last week's joint hearing by the 
Senate Energy and Commerce Committees that these laws are more 
beneficial than harmful to consumers.
  In her testimony before the joint Senate hearing last week, FTC 
Chairman Majoras described what I consider to be an astounding theory 
of consumer protection when she essentially said there is no need for 
Federal price gouging laws no matter how high the price goes. She 
argued that gasoline price gouging was a ``local issue'' even if the 
price gouger was a multinational oil company.
  FTC officials also recently testified before Congress that the agency 
has no authority to stop price gouging by individual oil companies. 
Despite this clear gap in the agency's authority, the FTC has refused 
to say what additional authority it needs to go after price gouging, as 
I have pressed them to do for years.
  Mr. President and colleagues, there is gasoline price gouging going 
on today and it didn't start with Hurricane Katrina. As The Wall Street 
Journal documented in September, gasoline prices have increased twice 
as fast as crude oil price during the past year. Clearly, the oil 
companies are not simply passing on higher crude oil costs but are also 
adding on substantial increases to the cost of gasoline above and 
beyond the higher crude costs.
  Since the early 1970s, 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 are seeing today. We didn't see this great 
of a price difference even in the days of the longest gas lines 
following the OPEC embargo.
  Over the past 30 years, gasoline prices never rose more than 5 
percent higher in a year than the cost of crude increased. But in the 
past year, gas price increases outpaced crude by 36 percent. And since 
Hurricane Katrina, the price difference has soared even higher to 68 
percent.
  Further evidence of price gouging can be found in what happened on 
the west coast immediately following Hurricane Katrina when prices 
surged 15 cents per gallon overnight. For years, oil industry 
officials, the Federal Trade Commission and other government agencies 
have maintained that

[[Page 27284]]

the west coast is an isolated gasoline market from the rest of the 
country.
  West coast supplies were not affected by the hurricane. The west 
coast gets almost none of its gasoline from the gulf. If the west coast 
is an isolated market as the oil industry has claimed for years, then 
Katrina is no justification for jacking up gas prices on the west coast 
immediately after the hurricane hit.
  The FTC is the principal consumer protection agency in the Federal 
Government. It is the Federal agency that can and should take action 
when gasoline markets are going haywire as they have both before and 
since Hurricane Katrina.
  But instead of action, we have excuses. In the past, the FTC often 
claimed that it was studying the problem or monitoring gasoline markets 
as an excuse for its inaction on gas pricing.
  Recently, the FTC's campaign of inaction has even extended to its 
studies. The FTC Chairman testified last week that a study of gas price 
gouging that Congress required the FTC to complete by this month would 
not be ready until next spring.
  Mr. President, the FTC's campaign of inaction is approaching the 
point of paralysis!
  The FTC has continued its program of inaction on behalf of gasoline 
consumers despite findings by the U.S. Government Accountability 
Office, GAO, that the FTC's policies are raising prices at the gas 
pump.
  In May 2004, GAO released a major study showing how oil industry 
mergers the FTC allowed to go through during the 1990's substantially 
increased concentration in the oil industry and increased gasoline 
prices for consumers by as much as seven cents per gallon on the West 
Coast.
  Specifically, GAO found that during the 1990's the FTC allowed a wave 
of oil industry mergers to proceed, that these mergers had 
substantially increased concentration in the oil industry and that 
almost all of the largest of the oil industry mega-mergers examined by 
GAO each had increased gasoline prices by one to two cents per gallon. 
Essentially, the GAO found that the FTC's oil merger policies during 
the 1990's had permitted serial price gouging.
  Two years ago, when the current FTC Chairman, Deborah Majoras, came 
before the Senate for confirmation, I asked her to respond to the GAO's 
report. Despite her promise to do so, I have yet to receive any 
response from Chairman Majoras.
  The GAO is not alone in documenting how FTC regulators have been 
missing in action when it comes to protecting consumers at the gas 
pump. Since 2001, oil industry mergers totaling $19.5 billion have been 
unchallenged by the FTC, according to an article in Bloomberg News. The 
article also reported that these unchecked mergers may have contributed 
to the highest gasoline prices in the past 20 years.
  According to the FTC's own records, the agency imposed no conditions 
on 28 of 33 oil mergers since 2001.
  You can see the results of the FTC's inaction at gas stations in 
Oregon and all across America. Nationwide, the GAO found that between 
1994 and 2002, gasoline market concentration increased in all but four 
states. As a result of FTC merger policies, 46 States' gasoline markets 
are now moderately or highly concentrated, compared to 27 States in 
1994.
  The FTC, oil industry officials and consumer groups all agree that in 
these concentrated markets, oil companies don't need to collude in 
order to raise prices. The FTC's former General Counsel William Kovacic 
has said that ``It may be possible in selected markets for individual 
firms to unilaterally increase prices.'' In other words, the FTC 
General Counsel basically admitted that oil companies in these markets 
can price gouge with impunity. Mr. Kovacis is one of the two nominees 
for FTC Commissioner who is now before the Senate.
  Despite all this evidence that gasoline markets around the country 
have become more concentrated and, in these concentrated markets, 
individual firms can raise prices and extract monopoly profits, the FTC 
has failed to take effective action to check oil industry mergers. In 
the vast majority of cases, the FTC took no action at all.
  In addition to its inaction in merger cases, the FTC has also failed 
to act against proven areas of anti-competitive activity.
  Major oil companies are charging dealers discriminatory ``Azone 
prices'' that make it impossible for dealers to compete fairly with 
company-owned stations or even other dealers in the same geographic 
area. With zone pricing, one oil company sells the same gasoline to its 
own brand service stations at different prices. The cost to the oil 
company of making the gasoline is the same. In many cases, the cost of 
delivering that gasoline to the service stations is the same, but the 
price the service stations pay is not the same. And the station that 
pays the higher price is not able to compete.
  Another example of anticompetitive practices now occurring in 
gasoline markets is a practice known as ``redlining.'' This involves 
oil companies making certain areas off-limits to independent gasoline 
distributors known as jobbers who could bring competition to the area.
  The Federal Trade Commission's own investigation of west coast 
gasoline markets found that the practice of redlining was rampant in 
west coast markets and that it hurt consumers. But the FTC concluded it 
could only take action to stop this anti-competitive practice if the 
redlining was the result of out-and-out collusion, a standard that is 
almost impossible to prove in court.
  In my home State of Oregon, one courageous gasoline dealer took on 
the big oil companies and won a multi-million dollar court judgment in 
a case that involved redlining. This dealer gave the evidence he used 
to win his case in court to the Federal Trade Commission. But the 
Federal Trade Commission the preeminent consumer protection agency in 
the Federal Government failed to do anything to help this dealer or 
reign in the anti-competitive practices at issue in his case.
  In areas other than energy, the Federal Trade Commission has been a 
great consumer protection agency. It has not hesitated to move 
aggressively to act on behalf of consumers.
  To give one example, the FTC created a ``Do Not Call'' program to 
prevent consumers from being hassled at home by telemarketers. With its 
``Do Not Call'' program, the agency pushed to protect consumers to the 
limits of its authority and even went beyond what the courts said it 
had authority to do.
  But in the case of energy, the FTC has a regulatory blind spot. And 
this has been true in both Democratic and Republican administrations. 
It's been a bipartisan blind spot that keeps the agency from looking 
out for gasoline consumers.
  The FTC won't even speak out on behalf of consumers getting gouged at 
the gas pump. The agency won't use its bully pulpit to even say that 
record-high gasoline prices are an issue of concern, that they will be 
looking at closely.
  The FTC's approach on gas prices has got to change. I'm not going to 
support the business as usual approach on energy we've seen for too 
long at the FTC. So, I have asked the Senate leadership for additional 
time to study the views of the two nominees to the Federal Trade 
Commission, Mr. William Kovacic and Mr. Thomas Rousch. I just received 
detailed letters and other documents from each of them.
  I have asked the leadership for time for consultation on these two 
nominations, as it is not my intent at this time to lodge a formal 
objection to a unanimous consent request to consider them. I will use 
the time between now and when the Senate returns in December to examine 
their records more carefully and reach a decision as to whether these 
individuals are committed to and will in fact work aggressively toward 
changing the culture of inaction at the FTC regarding consumer 
protection in the energy field.

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