Connecticut Attorney General Urges Congress To Break Up Oil Companies That Engage In Anti-Competitive Practices

Allow Lawsuits Against OPEC

May 16, 2007 -- In testimony before a congressional committee, Connecticut Attorney General Richard Blumenthal today called for wide-ranging measures to rein in skyrocketing gasoline prices, including break up of oil companies that engage in anti-competitive practices, allowing antitrust lawsuits against OPEC and a federal-state investigation into possible monopolistic practices by the oil industry.

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Blumenthal made his remarks at an appearance in Washington D. C. before the Antitrust Task Force of the Judiciary Committee of the U.S. House of Representatives.

Blumenthal blamed most of the recent run up in oil and gasoline prices on the federal government's failure to halt repeated oil industry mergers, which have undercut competition in the wholesale, retail and refinery markets. Excessive concentration has allowed the oil industry to reduce inventories and refinery capacity to the point that even fear of a disruption - rumors of Middle East unrest, the onset of hurricane season - causes prices to spike, he said.

"The federal government's lax and lackluster enforcement of antitrust laws has led to an explosion of mergers in the oil industry - more than 2,500 in the past 15 years or more than 150 mergers and acquisitions every year - most of them profoundly anti-competitive and anti-consumer," Blumenthal said. "More and more market power is concentrated in fewer and fewer hands.

"Consumers need and deserve swift congressional action to halt oil company mergers, break up oil companies who misuse market power to engage in predatory practices against competitors and consumers, and allow antitrust lawsuits against OPEC.

"Mega-companies arising from this merger mania have aggressively used their ever-growing market clout to subject consumers to increasing prices and unnerving market volatility. Big Oil has created a market on the brink, manipulating inventories and refinery capacity to the point that the slightest supply disruption sends prices -- and company profits - skyrocketing. There is sufficient supply, but these newly created industry giants use their huge market power to keep a stranglehold on the spigot.

"While consumers struggle to pay record heating oil and gasoline prices, the industry is drowning in cash. Witness the staggering level of oil industry profits in the wake of a horrible natural disaster -- Hurricane Katrina: Three companies reported quarterly profits exceeding $16 billion. More recently, Exxon Mobil took advantage of refinery shutdowns to raise its refiner margins by 50%, recording $9.28 billion in profits for the quarter. Astronomical profits at the expense of American consumers has been the rule, not the exception, again and again.

"Government tolerance of anti-competitive mergers and oil industry practices has enabled, even encouraged, the recent sharp rise in gasoline prices. Congress needs to take aggressive action easing sky-high gasoline prices that hit hardest people of low and moderate means, who can reduce only so much their consumption of such a vital commodity.

"I strongly believe in free markets. Congress needs to restore the free market in oil products by breaking excessive market concentration that stifles competition and constricts supply."

Blumenthal also proposed Congress:

* Enact a one-year moratorium on oil industry mergers.

* Prohibit oil company mergers in highly concentrated markets unless the Federal Trade Commission finds consumers will benefit.

* Outlaw zone pricing.

* Encourage or mandate expansion of refinery capacity and an increase in minimum oil product inventory levels.

* Enact a windfall profits tax to fund conservation and alternative fuels, reducing the nation's dependence on gasoline.

Blumenthal said:

"Rampant mergers have significantly concentrated market power at every level of the gasoline industry. For example:

* Five companies control 61% of the 175,000 gasoline stations in the nation, compared to 27% in 1991;

* The five largest companies control 50% of the refinery capacity, as opposed to 1/3 of capacity ten years ago;

* The five largest oil companies have doubled their control of oil production in the past ten years;

"Lax antitrust enforcement has real life consequences.

"In one example affecting Connecticut, the proposed Mobil-Exxon merger would have resulted in the top four gasoline companies controlling 73% of the retail market in half the metropolitan areas in the Northeast and Mid-Atlantic region. I strongly opposed this merger in comments to the FTC. While the FTC ordered divestiture of some assets, such divestiture did not prevent the market from becoming highly concentrated with its anti-consumer impact.

"In the retail area, the merger trend has enhanced the power of industry players to use zone pricing. The FTC describes this practice as "oligopolistic." This term could easily apply to the entire industry.

"So too, oil company decisions to close 50 refineries and merge with competitors have led to significant market concentration in the refinery and production segments of the oil industry. The Wall Street Journal recently reported that the six largest refiners control 59% of the refining market, a 50% increase in the concentration level of that market in 12 years. The FTC has reviewed and approved refiner company mergers with conditions and divestments supposedly designed to reduce the impact of the proposed mergers. Again, these conditions and divestments have failed to slow, let alone stop, the anti-competitive consequences of increasingly concentrated market power.

"Through increased market concentration, domestic refining capacity has diminished, even as demand has increased steadily. The predictable result has been extraordinarily tight supplies, barely meeting demand, leading to very volatile prices at the pump. Inadequate inventories, disruption in delivery systems and other factors make the market even more vulnerable.

"When oil is in short supply, the consumer is a sure loser, and rightly a sore loser."

Source: Connecticut Attorney General