Study: gas gouging limited after Katrina

WASHINGTON — The Federal Trade Commission on Monday said a nine-month investigation revealed a smattering of gasoline price gouging after Hurricane Katrina, though not any widespread effort by the oil industry to manipulate the marketplace.

Industry officials praised the report's findings, while Democratic members of Congress lambasted them and promised some tough questioning for FTC officials at a hearing today.

The agency concluded that soaring prices in September 2005 were due mainly to "regional or local market trends."

"Based on well-established economic principles, the price increases were roughly in line with increases predicted by the standard supply-and-

demand paradigm of a competitive market," the FTC report said, noting the lack of a common legal definition of price gouging.

For the purpose of the report, and as mandated by Congress, the FTC defined price gouging as "any finding" that the average price of gasoline in designated disaster areas in September 2005 was higher than in August 2005 for reasons other than rising production or transportation costs, or national or international market trends.

The FTC was first directed by the energy law passed last August — before Katrina — to investigate whether oil companies manipulated the price of gasoline in any way. This part of the agency's probe, which analyzed market trends dating to the early 1990s, found "no instances of illegal market manipulation."

Congress demanded a separate investigation into the industry's pricing activities — as well as its enormous profits — after Hurricane Katrina.

In the week after the hurricane, retail gasoline prices leapt 46 cents to a record nationwide average of $3.07 per gallon.

At the peak of the Katrina-related supply disruptions, 13 percent of U.S. refining capacity was shut down and two major pipelines that deliver fuel from the Gulf Coast to the Northeast were not working due to power outages, decreasing the nationwide gasoline supply in September by almost 4 percent, compared with the prior year, the report said.

Based on the assumption that the U.S. gasoline market is competitive, the FTC said it would have expected a price increase of almost 20 percent in the month after Katrina. Instead, the average September price of $2.95 a gallon was only 17 percent higher than August.

"The evidence indicates that suppliers responded quickly to the supply disruptions caused by the hurricanes," the report said.

Bob Slaughter, president of the National Petrochemical & Refiners Association, said the report "appears to vindicate the refining industry's actions post-Katrina."

But Sen. Chuck Schumer, D-N.Y., criticized the FTC for ignoring what he said was "the 800-pound gorilla in the room, namely that the oil companies engage in price leadership — setting prices higher than what real competition would merit."