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FTC Acts Against Two Oil Companies

The Wall Street Journal: FTC Acts Against Two Oil Companies

“The launch of a formal investigation means the FTC has the authority to issue subpoenas to Shell”

By JEFFREY BALL and EMILY CHASAN

Staff Reporters of THE WALL STREET JOURNAL

July 8, 2004; Page A3

In two moves to crack down on alleged efforts to keep gasoline prices high, the Federal Trade Commission said it launched a formal investigation into the planned closing of a Royal Dutch/Shell Group refinery in California and it reinstated an antitrust complaint against Unocal Corp.

The commission’s actions come in the wake of record U.S. gasoline prices, which climbed to an average of more than $2 a gallon nationwide this year before pulling back a bit recently. The moves also come as the commission is under fire for failing to police the petroleum industry, most recently in a General Accounting Office report that concluded oil-company mergers approved by the commission in recent years contributed to higher gasoline prices.

In an appearance yesterday before a House committee looking into high gasoline prices, FTC General Counsel William Kovacic said the commission’s actions against Shell and Unocal are evidence that the commission is taking the issue seriously. “Where we find anticompetitive conduct, we will bring lawsuits,” Mr. Kovacic said. “With every policy-making tool at the commission’s disposal, gasoline-price increases are receiving acute attention.”

Shell said last year that it plans to close its Bakersfield, Calif., refinery Oct. 1 because a nearby oil field will run out of crude in coming decades and because the refinery needs expensive fixes to stay open. But critics say the closure will crimp gasoline supply and raise prices in the West, where prices are already the highest in the nation. The Bakersfield refinery supplies about 2% of California’s gasoline and about 6% of the state’s diesel fuel.

The launch of a formal investigation means the FTC has the authority to issue subpoenas to Shell.

Stan Mays, a Shell spokesman, said the company has received no subpoenas. He said Shell’s announcement last fall gave the market plenty of notice to adjust. “We don’t know what competitors might do to help make up for shortfalls,” he said. The company said it has been cooperating with the commission’s inquiry.

In April, the commission said in a letter to Sen. Ron Wyden, an Oregon Democrat, that it was evaluating concerns over the shutdown.

Separately, the commission overruled an administrative-law judge and reinstated an antitrust complaint against Unocal for pursuing patents for a special low-emissions gasoline at the same time that the company was helping California regulators mandate that gasoline as a state standard. The complaint originally was filed in March 2003, but was overruled by the judge in November.

The FTC alleges Unocal unlawfully created a monopoly in the market for a blend of low-emission gasoline. Unocal spokesman Barry Lane said the El Segundo, Calif., company believes its actions were proper and is prepared for a trial.

Write to Jeffrey Ball at [email protected]

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