Senate panel told market forces causing West Coast gasoline woes

Oil companies are not gouging motorists on the West Coast, industry officials told Congress Wednesday. Instead, too many recipes for reformulated gasoline and a constrained gasoline delivery system are to blame for higher gasoline prices, an official with BP PLC told a Senate subcommittee's oversight hearing.


By Maureen Lorenzetti
OGJ Online

WASHINGTON, DC, Apr. 26 -- Oil companies are not gouging motorists on the West Coast, industry officials told Congress Wednesday.

Instead, too many recipes for reformulated gasoline and a constrained gasoline delivery system are to blame for higher gasoline prices, an official with BP PLC told the Senate Subcommittee on Consumer Affairs, Foreign Commerce, and Tourism.

The subcommittee held the hearing to determine why West Coast gasoline prices are on average so much higher than the rest of the country, and to get an update on the Federal Trade Commission's 30-month investigation of that market. FTC officials said their report would be released next month.

FTC sought information from BP because of its dominant position in the West Coast market, although other companies with a large West Coast presence such as Chevron Corp. and Unocal Corp. also have provided data to the agency, industry sources say.

Senators on the subcommittee, especially those from Western states, said they were frustrated with the slow pace of the investigation. FTC Chairman Robert Pitofsky explained his agency has been "cautious" because of the complicated nature of gasoline markets.

BP Regional Pres. Bob Malone told the subcommittee his company has "fully cooperated" with the FTC and "believe[s] the evidence will show that BP is one of the most competitive marketers in the region and show no evidence of wrongdoing, similar to findings from past investigations."

Agency officials have said the focus of their investigation is on "red-lining," a downstream marketing practice in which refiners give wholesale gasoline marketers one price but instruct them to sell the fuel at a higher price to some retail station owners in a specific local market. FTC said it has evidence to show some companies do red-line, but it is analyzing whether the practice is illegal under US antitrust laws.

But BP said its distributor supply contracts do not contain territorial restrictions, and on the West Coast, "We have very few distributor supply agreements and this practice does not apply to us."

BP said it does use prize zones, in which all branded facilities in a specific market receive the same wholesale price, "to meet competition and comply with the law."

Malone also said that documents given FTC in connection with the company's acquisition of Atlantic Richfield Co. do not reflect illegal or improper conduct as some press reports suggested.

He said some of the documents, which detailed BP's Alaskan North Slope crude trading overseas, were "unfortunately worded." However, he said the FTC, in approving the BP-ARCO merger, made "no allegations that exports were illegal."

Additionally, BP's ANS exports have not been a factor in West Coast gasoline prices, as previously determined by the General Accounting Office, Malone said. Nevertheless, BP has no plans to export ANS crude at this time, he said.

Some senators, however, said they were unconvinced. Sen. Ron Wyden (D-Ore.) complained merger documents given to FTC show numerous "smoking guns" that show the company "gouged" consumers.

Wyden and a handful of other West Coast Democratic senators are urging the administration to re-impose a ban on ANS crude exports. No hearings have been held on the matter, however.

Contact Maureen Lorenzetti at maureenl@OGJOnline.com

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