August 14, 2006
The Honorable Deborah Platt Majoras
Federal Trade Commission
600 Pennsylvania Ave. NW
Washington, DC 20580
Dear Chairman Majoras:
I am writing to request that the Federal Trade Commission (FTC) investigate the impact on consumers of BP's closure of the Prudhoe Bay pipelines along the North Slope of Alaska.
The FTC is charged with protecting consumers from negligent business practices that can distort prices and harm consumers. Over the last several years, the FTC has conducted several studies on high oil prices. As recently as May 2006, the FTC issued a report that concluded that oil companies were not manipulating the market or fixing prices in the wake of Hurricane Katrina. A related issue is whether short-sighted efforts by companies like BP to cut corners have resulted in unnecessary environmental degradation or unfair price increases to American consumers.
According to news accounts, BP did not anticipate in some cases that 20- and 30-year old pipes would require regular safety inspections using some of the latest available technology. Indeed, a BP official reportedly admitted that a pipeline in operation since 1977 had never even been tested using an industry standard procedure known as "smart pigging." Had the appropriate tests been conducted, BP would likely have known that some areas of the pipes had corroded to the point of becoming "paper thin." It also appears that BP may have actually scaled back the use of costly but needed corrosion inhibitors in some of its pipelines.
Only after some 267,000 gallons of crude oil spilled on Alaska's North Slope in March 2006 did BP finally take steps to expand its inspection regime and check for possible corrosion. At that point, however, it was too late to do anything but shut down the pipelines and replace the corroded segments. Had BP taken the proper precautions, it might have been able to prevent the environmental damage caused by the leak and last week's untimely shutdown of production.
It is clear that the closure of these pipelines - despite the restoration of some production capacity in recent days - will have an effect on the economic well-being of the State of Alaska and on gas prices for American consumers. Nevertheless, last week, the President of BP America would not answer a direct question from a network reporter as to whether or not BP would pass along the costs of its mistakes to customers, despite the company recording profits of $22.6 billion last year.
I believe that companies like BP have an essential role to play in America's energy future. Large oil companies are too important and receive too many public benefits to shirk their public responsibility. The government must ensure that the appropriate environmental protections and consumer safeguards are in place and that these companies are properly balancing the interests of shareholders and consumers. Indeed, the guarantee that American consumers will be protected from negligent and shortsighted business practices serves as a linchpin to the smooth functioning of our markets.
Accordingly, I ask that the FTC investigate the consumer impact caused by BP's disregard for environmental safety and sound business planning. It is important for the FTC to assess the harm done to consumers and determine what if any steps must be taken by BP, other energy companies, regulatory agencies or Congress in order to protect the American consumer from unnecessary disruptions and price increases in the future.
Please let me know by August 31, 2006, whether you will agree to open such an investigation. Thank you.
United States Senator