Independent Gas Stations Cleared of Price Gouging
BY Angus Loten
A Federal Trade Commission report blames refinery disruptions for high prices after Hurricane Katrina.
Despite taking heat from drivers, independent gas station owners were not price gouging at the pump after last year's hurricane season, federal investigators said at a senate hearing on Tuesday.
Instead, higher gas prices were caused by widespread damage to oil refineries and pipelines in the Gulf Coast in the aftermath of Hurricanes Katrina and Rita, and a subsequent decline in inventory, according to a Federal Trade Commission report released earlier in the week.
The report was ordered last fall by Congress after gas prices soared an average of 50 cents to more than $3 per gallon within weeks of Katrina, which slammed into the Gulf Coast on Aug. 29.
In its wake, a full 27% of the nation's crude oil production and 13% of its refining capacity was disabled, FTC Chairman Deborah Majoras told a Senate Commission on Commerce, Science, and Transportation investigating gasoline supplies and prices.
"In light of the amount of crude oil production and refining capacity knocked out by Katrina and Rita, the sizes of the post-hurricane price increases were approximately what would be predicted by the standard supply-and-demand paradigm that presumes a market is performing competitively," Majoras said.
As much as 75% of the price of a gallon of gas is determined by crude oil and refinery costs combined, Energy Information Administration figures show.
As part of its investigation, the FTC analyzed margin and price data at a dozen gas stations suspected of gouging prices by various state authorities. Yet, even here, Majoras said, "these retailers did not have significantly increased operating margins in September 2005, nor were their average price increases much different from the change in the national average retail price."
The FTC also found no evidence of price manipulations by big oil companies, refineries, or petroleum pipeline operations.
Despite signs bearing names like Exxon, Shell, and other oil industry giants, more than 95% of nation's 160,000 gas stations are independently owned and operated.
"Increasing wholesale and retail gasoline prices do not translate into higher margins for gasoline retailers," Paul Reid, who owns 65 gas stations in Upstate New York and Northwest Pennsylvania, told the senate commission on May 11. "In fact the opposite is true."
Testifying on behalf of the Society of Independent Gasoline Marketers of America, Reid said the cost of wholesale regular octane in February was $2.40 per gallon, which he sold for $2.52 per gallon. "As a result, my gross margin -- from which I must pay my employees, my rent, my utilities, my credit card fees, and all other operating costs -- was 12 cents per gallon."
Last month, wholesale prices jumped to $2.97 per gallon, forcing him to raise prices to $3.03 per gallon and cutting his margin to just six cents, Reid said.