Cantwell: "Americans deserve to know what's really behind the rapid increase in gas prices burdening families and businesses'
Today, after months of urging by U.S. Senator Maria Cantwell (D-WA), the Federal Trade Commission (FTC) announced it would begin an investigation to determine whether skyrocketing prices at the gas pump are the result of market manipulation or other anticompetitive behavior.
This marks the FTC's first use of new authority authored by Cantwell, which makes it a crime to manipulate wholesale oil markets. FTC Chairman Jon Leibowitz announced the investigation in a letter and phone call to Cantwell today, saying that the Commission has authorized the use of "compulsory process,' including subpoenas, to determine whether certain players are in violation of a the law.
Cantwell first demanded an investigation three months ago in a bipartisan letter sent to the FTC urging the regulatory body to use the authority she granted it to actively police the markets and ensure consumers are paying fair and market-based prices at the gas pump. According to AAA figures, a gallon of regular gasoline in Washington state is 88 cents more per-gallon today than just one year ago, hurting small business and burdening families and the economic recovery.
"Americans deserve to know what's really behind the rapid increase in gas prices burdening families and businesses," Sen. Cantwell said Monday. "Bad actors who are artificially driving up gas prices ought to be brought to justice and face stiff punishment. I am pleased the FTC is using this new authority to protect consumers. The American public deserves to have aggressive policing of these markets and for the FTC to enforce these new laws."
In November 2009, the FTC's final Petroleum Market Manipulation Rule went into effect, which was promulgated in compliance with legislation Cantwell authored in 2005 and successfully shepherded into law in 2007. The legislation sought to prevent Enron-style manipulation schemes from happening in the oil industry by creating a federal ban on oil market manipulation. Cantwell's provision empowers the FTC to levy civil penalties of up to $1 million per day. Over the course of the FTC's nearly two-year rulemaking needed to fulfill its Congressionally-mandated responsibility to prevent manipulation in the oil and petroleum markets, Cantwell aggressively pushed the Commission to lay out the strongest rules possible. The final FTC rule essentially adopted all of Cantwell's recommendations.
In the letter sent to the FTC in March, Cantwell urged the FTC to be more proactive and aggressive in enforcing its market manipulation rule, noting the success the Federal Energy Regulatory Commission (FERC) has had in ferreting out bad actors in the electricity and natural gas markets using identical authority she helped author and shepherd into law.
Cantwell has long fought to prevent market manipulation and excessive speculation from artificially driving up the price of oil and prices faced by consumers at the pump. In recent months, she has called on the Commodity Futures Trading Commission (CFTC) to not delay any further in implementing overdue rules on speculative position limits. The 2010 Wall Street Reform bill called for the CFTC to implement speculative position limits in energy markets within 180 days of enactment. The CFTC is more than five months late on its January 2011 deadline to take action, while consumers continue to pay high prices at the pump. Meanwhile, numerous experts have concluded that excessive trading in oil futures is causing oil price volatility unrelated to supply-and-demand fundamentals, and contributing to rising gas prices.
In recent weeks, CFTC Chairman Gary Gensler said that 80 percent of the oil futures market is held by speculators, squeezing out bona-fide hedgers such as farmers and airlines. Just a decade ago, speculators controlled 37 percent of the oil futures market. Goldman Sachs has estimated that for every million barrels of oil held by speculators, the price of a barrel of oil goes up 8 to 10 cents. And last month, when oil was trading at just under $100 per barrel, the CEO of Exxon Mobil said when questioned by Cantwell that oil should cost between $60 and $70 per barrel if the price were based on supply and demand fundamentals. The last time crude prices were stable in the $60-$70 range was between June and August of 2009 and the national average price of regular gasoline was $2.50 to $2.70, according to the Energy Information Administration.
During last year's financial market reform debate, Cantwell pushed for tough and effective rules and the elimination of loopholes to prevent speculators from manipulating the oil market. She fought to ensure that the bill required the CFTC to enact position limits to diminish, eliminate, or prevent excessive speculation that disrupts the market. Mandatory speculative position limits, which the CFTC are in the process of setting now, and strong anti-manipulation tools were main contributors to Cantwell's eventual support of the Wall Street reform law.
Cantwell brought to the larger financial regulatory reform effort the knowledge she gained from a decade of fighting to protect Washington state ratepayers, including her historic battle to expose the ways Enron manipulated West Coast electricity markets to jack up prices. Using the lessons learned, Cantwell helped author provisions in the 2005 Energy Bill that made it a crime to manipulate electricity or natural gas markets. As of March 2011, the Federal Energy Regulatory Commission (FERC) has used the law to conduct 93 investigations resulting in 45 settlements and civil penalties of $122,230,000 and disgorgement of profits totaling $35,945,000. Cantwell also secured a provision in the Energy Policy Act of 2005 that prevented a bankruptcy court from forcing Snohomish Public Utility District (PUD) and its customers to pay millions of dollars in termination fees for electricity that was never delivered. This measure reaffirmed FERC's authority to decide whether charges related to manipulated power contracts could be deemed invalid.