For Immediate Release
Media Contact: Bob Cooper
Date: October 13, 2006
Attorney General Concludes Investigation of Post-Katrina Gasoline Prices
(Boise) – Attorney General Lawrence Wasden today released the report of his office’s investigation of retail gasoline prices in Idaho following Hurricane Katrina. The report concludes that the high gasoline prices experienced in Idaho in late summer and early fall of 2005 were not caused by illegal activity by Idaho retailers.
The full report is available on the Attorney General’s Internet site by clicking here.
Wasden ordered the investigation pursuant to the Idaho Consumer Protection Act’s provisions prohibiting fuel retailers from knowingly taking advantage of an emergency or disaster declared by either the governor of Idaho or the president of the United States by selling fuel to the ultimate consumer “at an exorbitant or excessive price.” The statute applies only for the duration of an officially declared emergency or disaster and only to retailers who sell fuel to the ultimate consumer. It does not apply to wholesalers or refiners.
Key findings of the investigation include:
- The OAG found no evidence that the average weekly margins in the Pocatello and Boise markets during the last quarter of 2005 were attributable to anticompetitive behavior or inappropriate price manipulation by retailers.
- Investigation by the Federal Trade Commission (FTC) of national and regional gasoline pricing following Hurricane Katrina and Hurricane Rita found no evidence of anticompetitive behavior by retailers.
- Idaho motor fuel retailers did not charge consumers “exorbitant or excessive price[s]” in violation of the Idaho Consumer Protection Act.
- The Office of Attorney General obtained no information suggesting that state antitrust laws had been violated, nor information warranting an investigation of any retailers under the provision of the Idaho Competition Act that prohibits conspiracies to fix prices.
- Idaho demand in 2005 for gasoline, on-road and off-road diesel, and aviation fuel increased 3.5 percent over 2004.
- Idaho has limited petroleum infrastructure, which puts it at a supply disadvantage relative to other states. Idaho, the seventh smallest petroleum market in the United States, is dependent upon other states for its fuel supply.
- Seventy percent of Idaho’s gasoline, diesel, and aviation fuel supplies originate from Utah’s five refineries at or near Salt Lake City. These supplies primarily are transported into Idaho through a pipeline that originates in Salt Lake City and traverses southern Idaho before continuing on to Pasco and Spokane, Washington.
- The balance of Idaho’s fuel demand primarily is satisfied by production from refineries in Billings, Montana, that is transported to fuel storage terminals in Spokane through the Yellowstone Pipeline System.
- Over the past decade, Idaho has had higher average wholesale prices for regular grade gasoline than Washington, Oregon, Montana, Wyoming, Utah, or Colorado. However, Idaho’s average retail prices rank fourth among the seven states.
- Idaho still ranks fourth among the seven when retail prices over the past decade are adjusted for state taxes.
- Gross retail margins (the difference between the retail price and the wholesale price) in Idaho during the past decade were the second lowest of the seven-state grouping.
- Retail gasoline prices, nationally, regionally, and in Idaho, follow a pattern of lagging changes in wholesale prices. But, retailers pass wholesale price increases to consumers faster than wholesale price decreases. In other words, prices “rocket” up but “feather” down.
- Price lags are a structural feature of retail markets and are not illegal.
- Gross margins in 2005 averaged 9.13 cents per gallon in the Pocatello market and averaged 13.26 cents per gallon in the Boise market. But, there were wide swings quarterly from these averages.
- Gross margins during the September-December 2005 quarter in the Pocatello and Boise markets were especially volatile. Margins in Pocatello went from their lowest weekly point in September of minus 15.61 cents per gallon to a high of 46.87 cents per gallon the week ending November 10 then steadily dropped to a low of 1.93 cents as of December 29. Margins reacted similarly in Boise.
- Hurricane Katrina’s impact on the Gulf Coast region’s petroleum infrastructure had a ripple effect on wholesale and retail prices throughout the country, including in Idaho.
- The historic relationship in Idaho between diesel and regular gasoline prices has inverted. Diesel prices now tend to be higher on average than prices for regular gasoline. This change is likely due to rapidly increasing world demand for diesel, particularly in Europe and Asia. It also appears to be partially influenced by a change in the Environmental Protection Agency’s (EPA) standard for sulfur in diesel.
- Demand for diesel is increasing in Idaho at a faster rate than demand for gasoline.
- It is unclear whether the change in the relationship between diesel and regular gasoline prices in Idaho is permanent. However, based on economic forecasts for the remainder of 2006 and on the implementation of EPA standards, it is likely to continue at least for the next several months.
On September 3, 2005, five days after Hurricane Katrina made landfall, Idaho Governor Dirk Kempthorne issued a declaration of disaster emergency for Idaho. The declaration was effective for 30 days and was not renewed. On September 13, 2005, President Bush issued a declaration of the existence of an emergency in Idaho retroactive to August 29, 2005.
Prior to Hurricane Katrina, retail gasoline prices in Idaho had steadily climbed from a statewide average of $2.19.9 in June to $2.27.2 in July and $246.6 in August. After the hurricane, prices spiked to $2.94.9 the week of Labor Day before settling back to an average of $2.87.0 for the month of September.
In September, Attorney General Wasden directed his Consumer Protection Unit and Civil Litigation Division to conduct an investigation of Idaho fuel retailers to determine whether, during the period covered by the Governor’s emergency declaration, any had charged prices in violation of the Idaho Consumer Protection Act.
During the yearlong investigation, the Office of the Attorney General examined financial records for the motor fuel operations of ten companies and 184 gasoline stations in Idaho. The inquiry focused on prices during August and September 2005. This time period was consistent with Governor Kempthorne’s 30-day disaster emergency declaration and with the provisions of Idaho Code § 48-603(19) that limit the statute’s reach to prices during the duration of an officially declared disaster or emergency.
The Attorney General also retained the services of economist Don Reading, Ph.D., with the national economics consulting firm of Ben Johnson Associates and a former Idaho Public Utilities Commission economist. Dr. Reading assisted in a background inquiry into the nature of retail gasoline and diesel markets in Idaho.
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