When he came before the Senate Appropriations Committee's Financial Services and General Government Subcommittee on May 14, Federal Trade Commission Chairman William E. Kovacic told the subcommittee's chairman, Richard J. Durbin (D-Ill.), exactly what he wanted to hear.
Durbin had written Kovacic on April 23 requesting an investigation of spikes in diesel and jet fuel prices. Noting that diesel historically has been less expensive than gasoline at the retail level, the senator said that the Energy Information Administration reported that week that diesel had reached a record $4.14/gal national average compared to $3.51/gal for gasoline. "The growing price gap has never been wider," he said.
Two days before the hearing, EIA reported that diesel cost an average $4.33/gal and gasoline an average $3.72/gal. Durbin came to the hearing looking for answers from Kovacic and commissioner member Jon Leibowitz.
The FTC officials were there to testify about the agency's fiscal 2009 budget request. They spent much of their time answering questions from Republican as well as Democratic committee members about FTC efforts to monitor oil product prices.
'Facts, not anecdotes'
"All of us are very concerned about the price consumers are paying at the pump. If oil companies are making excessive profits and manipulating markets, let's throw the book at them. But let's base our actions on facts and not anecdotes," said Sam Brownback (R-Kan.), the ranking minority member.
Durbin said that the difference between crude oil and product prices has grown from $1-5/bbl to more than $40/bbl. "The crack spread for middle distillate and distillate fuel oil has grown dramatically. The spread for jet fuel has also grown," he said.
Noting that the agency has followed gasoline and diesel prices for the past three or four years, Kovacic said that it was dramatically expanding its examination. "It's an international pattern. There's been a dramatic increase in diesel demand, particularly in Europe, and a close interaction between refining capacity and prices," he said.
Other federal lawmakers have accused the FTC of not moving promptly to use authority it received under the 2007 Energy Independence and Security Act to investigate and prosecute oil market manipulation. Kovacic pointed out that the agency approved an advanced notice of probable rulemaking on May 1 to seek public comments on the appropriate way to interpret its new responsibility under EISA. "The 30-day comment period runs through June 6 and the commission anticipates concluding the rulemaking process this year," he told the subcommittee.
"We intend to examine several scenarios, including the possibility of fraud in reporting pricing and transaction information. We'll also look at more traditional behavior such as collusion, but not antitrust issues which other agencies already examine," Kovacic continued.
The FTC also plans to study impacts following public announcements of refinery shutdowns and efforts to move products into and out of specific markets, Leibowitz added.
When Durbin asked if the agency had examined how futures markets influence crude and product prices, Kovacic said that individual investors have tried to influence futures prices but the question of their extent hasn't been answered. "Whatever we do, we'll make the best use of knowledge that already resides in the Commodity Futures Trading Commission, the Federal Energy Regulatory Commission and the Securities and Exchange Commission as we investigate this matter," he said.
The FTC also intends to use resources the subcommittee gave it a year ago and work closely with its counterparts in other countries on this inquiry, the agency's chairman said. "There's no bigger issue for them either," he said.
"Within the sphere of the work we do, it's our responsibility to use our authority as effectively as possible. But we also need to initiate a larger discussion of how we use energy, what changes we may want to make in how we live and work, and the direction we want this country to go," Kovacic maintained.
I asked Durbin after the hearing if he was satisfied that the FTC was using its new authority quickly enough. "That was the good news today. They obviously responded to our letter of two weeks ago. We'll keep in close touch as the process unfolds and offer suggestions when we think it's appropriate and necessary," he replied.
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