High Oil and Gas Prices: The Federal Trade Commission

My Vision For America

responsible for setting policy that sets us free from oil and the terrorism that comes with it.
responsible for setting policy that sets us free from oil and the terrorism that comes with it.

Richard Clough

Quotes from Richard
“If the United States Department of Energy statement is true that oil and natural gas are the lifeblood of the U.S.
economy, then American consumers are in the process of having their throats cut and will slowly bleed to death.”

“Big 5 oil companies operate very similarly to the way OPEC operates, by controlling supply. Less supply means
higher prices for the consumer and higher profit for oil companies. Even the Federal Trade Commission’s own
analysis has shown that a decrease in supply or increase in demand of five percent will result in a 30% to 40%
increase in wholesale prices.”

“Who is monitoring refinery utilization? Oil companies are, that's who? That is like foxes watching over their own hen
houses.”

“This oligopoly the Federal Trade Commission has created, at the expense of the America consumer, has created
such market concentration and market control that the Big 5 can manipulate the supply and price of petroleum
products.”

Are you ready to start paying $4 for a gallon a gas?
Do you want a clean renewable energy source to power your vehicle?
Do you know that the money you spend at the gas pumps is fueling and funding Terrorism?

In my book, “The Truth Behind High Fuel Prices” I answer these three questions and tell you what you can do to help
solve these three problems.

We have seen gas prices rise dramatically in the last 3 years and folks we have not seen anything yet. We will see
prices continue to rise steadily in the next few years. Are you ready to pay $4 a gallon by year end? What about $5 a
gallon? Those prices are right around the corner.

For this U-Tube production, I want to talk about the ethics and character of the top three companies in the United
States, of which two are not US companies.

If you have read my book, I do want to solidify my position on couple issues.

First, I want to make it plain that I am not anti-capitalist and I believe in the America system of free enterprise. I left JC
Penney and opened a gas station to make more money. I currently have a business and I want to make money at it.
But, our elected leaders are in place to set policy and laws that encourages competition, so you the consumer can get
a fair price. It is the role and responsibility of the FTC to enforce these policy and laws and ladies and gentlemen –
our elected leaders and the FTC are not doing their jobs. Our energy policy is worthless and the FTC is not and I
repeat NOT enforcing current trade laws.

Secondly, I am not saying all oil companies are bad or evil. There are some good ones out there, they’re just hard to
find. It just happens to be that the Big Oil companies who have the control of this industry have a dismal track record
when it comes to integrity, character and excellence. And our elected leaders sit back and watch as the FTC
continues to do nothing as some major oil companies collude, price fix and manipulate supplies to increase the price
to you the consumer.

Now, let’s take a look at the oil industries BIG 3 – Exxon Mobil, BP-Arco, Royal Dutch Shell and you the viewer can
decide if you can trust these companies.

Exxon Mobil - the largest publicly trades company in the world.
-        The state of Alabama won $3.5 billion lawsuit against Exxon Mobil for not paying natural gas royalties
-        In June of 2005 the US Supreme Ct. ruled in favor of over 10,000 Exxon Mobil gas station dealers in the amount
of $1 billion. The dealers were promised price reductions to offset a new fee on credit card sales. For more than 12
years Exxon Mobil secretly charged dealers.

Who do you think pays for these attorneys and lawsuits? You do by …..

-        Exxon Mobil big polluters- the state of NY is currently suing Exxon Mobil over a 17 million gallon oil spill. This is
being called the largest spill in our nation’s history – twice as large as the Valdez disaster, which was also an Exxon
Mobil spill.

BP Arco – British owned Oil Company operating in US
-        Texas City refinery fire – killed 15 people, injured 170 people, 1700 claims. BP set aside $1.6 billion to settle
lawsuits. BP’s own management team admitted serious safety concerns.
-        US commodity Futures Trading commission accused BP energy traders of manipulating the Propane markets so
they could profit $20 million
-        Environmental problems – failure to inspect and keep clean an oil pipeline in Alaska. This resulted in 270,000
gallon spill.

Now let’s talk about the worst of the worst oil companies.

Royal Dutch Shell – a DUTCH owned Oil Company with major hooks in the US market. Listen to some of their
accomplishments.
-        In Sept. 2000 Shell paid an additional $56 million to the US for underpaying natural gas royalties owed on federal
land leases
-        In 2002 Shell paid the state of Alabama an additional $33.5 million for again underpaying natural gas royalties
-        In 2004 the US Security and Exchange Commission issued a $120 million fine against Royal Dutch Shell for
overstating its oil and gas reserves by 4-5 billion barrels. In layman terms Shell lied about their oil and gas reserves
inflating their profits.
-        As part of this gas reserves oil statement, RD Shell has announced that they will pay non US investors $352.6
million and plans to offer US investors the same proportional settlement. Is that another $350 million?   We will find
out when the US courts approve.
-        Wanted to close the Bakersfield refinery for no reason. Read page 149 from The Truth Behind High fuel Prices.

Shell has the worst record for dealer relations. I know I was one. These dealers are the people who own or operate
Shell branded gas stations. Listen to what Oil Express says, ‘If there were ever a contest for the most sued major, the
Texaco-Shell alliance – Motiva and Equillon would surely win.”

-Listen to how Shell responded to plaintiffs in a Texas lawsuit. “Shell does not         owe a duty of good faith and fair
dealings to plaintiffs.”

-        Now look at RD Shell’s Involvement in Iran – a country that is recognized by the US as a sponsor of Terror. The
United State has a law that prohibits foreign companies like Royal Dutch Shell from doing business in Iran’s petroleum
industry. This law is called the, Iran Freedom Support Act. This Act or law requires our government to impose
sanctions on foreign companies, UNLESS the President of the United States certifies to the appropriate committee
that a waiver of sanctions is vital to US security interests.

-        Royal Dutch Shell has been doing business in Iran since at least 1999 when they signed an oil and gas deal
valued at $800 million. Even then we had a law called the Iran Libya Sanction Act that should have applied sanctions
at that time, but then President Bill Clinton did not pursue action.

-        NOW, in January of this year we have the AP reporting that Royal Dutch Shell and Repsol, a Spanish state owned
company has signed a deal with Iran’s state owned company. This deal is valued at over $9 billion. Is our President or
Congress going to take action?

Do we the people of the United States of America want to align, partner with, give our fuel dollars to a company that is
doing business with a country that sponsors terror; that sends our dollars to terrorist to kill our soldiers in Iraq, or
innocent lives who do not believe the way they do, or that wants to wipe the sovereign nation Israel off the face of
the earth.

I want to call on the people of America (young and old, men and women, blue collar, white collar, business, labor,
Republican, Democrat and Independent) to unite, rise up and do what is right! I give 8 things in my book that will give
us:

-        lower prices
-        clean air and water
-        fuel dollars not going to companies and countries who support or sponsor terrorism

I am also a firm believer that a total economic boycott of one company will work and in my book I tell you why. Guess
what companies I recommend we boycott?

Since 1991, the United States domestic oil industry has seen 2600 acquisitions, buy-outs, joint ventures, mergers and
alliances, thanks to the Federal Trade Commission (FTC). Since 1998, the FTC has allowed eleven integrated oil
companies to merge into five of the largest and most powerful companies in the United States. These five
companies, known as the “Big 5,” control 62% of the US retail market, 52% of the US refining capacity and are the US
major oil producers. The Big 5, can and do “at will” control the supply and price of oil and gas in America. The Big 5
consist of Exxon Mobil Corp., BP PLC, Royal Dutch Shell PLC, Chevron Corp., and Conoco Phillips.

This oligopoly the FTC has created, at the expense of the America consumer, has created such market concentration
and market control that the Big 5 can manipulate the supply and price of petroleum products. These Big 5 oil
companies operate very similarly to the way OPEC operates, by controlling supply. Less supply means higher prices
for the consumer and higher profit for oil companies. Even the FTC’s own analysis has shown that a decrease in
supply or increase in demand of five percent will result in a 30% to 40% increase in wholesale prices. It is not an
accident the Big Five all produced less oil in 2005. Is this not called collusion? Is Hurricane Katrina an excuse for
less production? Of course the oil companies want the consumer to believe it is. But, production for the Big Five
was less in the fourth quarter of 2004 and first quarter of 2006 and record profits were the result.    Even the FTC will
tell you there are many gasoline markets in the US that are moderately or highly concentrated. Economists
characterize a market where four firms control 60% of the market as a “tight oligopoly.” In the FTC guidelines, it is
noted that in an oligopoly market, it is not necessary for firms explicitly to collude in raising prices above competitive
levels. Individual firms with a degree of market power in a concentrated market can act in “conscious parallelism”
with other firms to raise prices.

This is what we see with oil companies when there are few competitors in the market place. They make their pricing
decisions by anticipating what their competitors will do.   Usually it is to raise the price and watch their competitor
follow. This pricing practice is known as parallel pricing and the result is to avoid price competition. Parallel pricing
practices are committed at the production level, refining level and the retail level This pricing practice is what we see
in most of the regions in the US where there are four firms that control 60% of the market. In a review of the
Exxon/Mobil merger, the Federal Trade Commission put out a release in March of 1999. The Director of the FTC’s
Bureau of Competition, William J. Baer, stated that the bureau would be looking closely at refining competition,
because even a small reduction of supply in a concentrated market can cause substantial price increases. The FTC
testimony stated that the commission had reviewed every significant merger over the previous twenty years. Mr.
Baer stated, “What we have learned from these and other investigations is that competition is critical to this industry,
and that concentration, as well as increases in concentration – even to levels that the antitrust agencies call
‘moderately concentrated’ –can have substantial adverse effects on competition.” Anti trust laws prohibit
competitors from agreeing on prices or reaching other agreements that would cause a reduction in competition.
Section 5 of the Federal Trade Commission outlaws unfair methods of competition, and section 7 of the Clayton Act
prohibits mergers and acquisitions where the effect may be substantial to lessen competition, or tend to create a
monopoly.

The Exxon Mobil merger, as well as many other mergers has lessened competition. If the FTC’s primary mission is to
truly “protect consumers,” then they have failed miserably, and their actions have cost consumers billions of dollars
at the pump.    The General Accounting Office (A Congressional Investigative Agency) released a major study in 2004,
showing how oil industry mergers have increased fuel prices. Specifically, the General Accounting Office found that
during the 1990’s the Federal Trade Commission allowed a wave of oil industry mergers that substantially increased
market concentration and that all the oil “mega-mergers” had led to higher prices. Yet, the Federal Trade Commission
keeps allowing more mergers, thus more concentration in the oil and natural gas industry. The Federal Trade
Commission is charged with keeping American businesses functioning competitively by eliminating practices deemed
unfair or deceptive. They’re charged with the duties of safeguarding competition among companies so as to provide
the opportunity for products and services at the lowest prices. Safeguarding this type of free enterprise encourages
innovation and strengthens the economy. Part of the Federal Trade Commission’s obligation is to enforce anti trust
laws and prohibit mergers that prevent or restrict competition. To establish a competitive market where the
consumer is the winner, the Federal Trade Commission has a responsibility to enforce laws that prevent collusion,
price fixing, deception and unfair business practices. Have they done their job?

Since 1998, oil industry mergers have total over $170 billion and since 2001, the FTC’s own records show that the
agency has imposed no conditions on 30 of 35 mergers. Where conditions were imposed, market concentration
issues were not addressed and competitors were not added to the marketplace. An example of this is the Chevron
Texaco merger. Under the FTC’s proposed terms, Texaco would be required to divest all of its interest in two joint
ventures, Equilon Enterprise and Motiva Enterprise. Texaco’s partner in Equilon Enterprises was Shell Oil, and
Texaco’s partner in Motiva was Shell Oil and Saudi Refining Inc. In the case of Equilon, Shell Oil happily snapped up
those assets. In the case of Motiva, Shell Oil and Saudi Refining Inc eagerly snapped up those assets. This
supposed divesture of the Chevron Texaco merger did nothing to encourage competition or lower consumer prices.
All it did was strengthen Chevron and Shell’s position in the marketplace. It is FTC decisions like this that have led to
five companies controlling 62% of the retail marketplace and these same five companies controlling 52% of the
refining capacity.

In June of 2004, Senator Ron Wyden released his own investigative report revealing the following findings with
regards to mergers. The FTC had failed to aggressively challenged oil industry mergers, allowing the vast majority to
proceed without any checks by the agency. The mergers allowed by the FTC have substantially increased
concentration in gasoline markets around the country, with the majority of states’ gasoline markets now to be
considered tight oligopolies. The FTC, oil industry officials and consumer groups all agree that in these highly
concentrated markets, individual oil companies have the market power to raise prices and extract monopoly profits.
The FTC also has not exercised effective oversight over gasoline markets of the conditions it imposed to minimize
anti-competitive impacts of the mergers the agency allowed to go through.

The U.S. General Accounting Office found that almost all of he oil industry mega-mergers allowed by the FTC during
the 1990’s each increased gasoline by one to two cents per gallon. This one to two cents may not seem like a lot, but
to the oil industry for every one-cent increase at the pump, one billion dollar in revenue is generated. This July of
2006 the prices nationally are seventy cents higher than one year ago. This equates to $70 billion worth of revenue to
the oil industry.

The FTC is charged with enforcing antitrust laws and preventing mergers that prevent or restrict competition. The
FTC will tell you that at least two conditions are necessary for a merger to have a likely anticompetitive effect:
1) The market must be substantially concentrated after the merger, and
2) It must be difficult for new firms to enter the market in the near term and provide effective competition.

Everyone agrees, including the FTC’s commissioners that competition in the oil and petroleum industry is of the
utmost importance. In a report before the Committee on Commerce, Science, and Transportation dated April 25th,
2001 Chairman Robert Pitofsky states, “Competition in the energy sector- particularly in the petroleum industry – is
vitally important to the health of the economy of the United States, and to the various regions of the country. Our
experience has taught us that gasoline markets can be much narrower than the entire country, and the West Coast
markets have their own particular features that set them apart from the rest of the country. In all markets, antitrust
enforcement has an important role to play in ensuring that the gasoline industry is, and remains, competitive.” Again
the question is, has the Federal Trade Commission done their job? The evidence proves they have not! The idea of
a free competitive marketplace should be a win/win situation, first for the consumer and secondly for the company. A
competitive market place encourages competition, brings lower prices, better service and encourages innovation.
This has not happened in the oil and petroleum industry! The United States of American will continue to be at the
mercy of oil companies till the problem of concentration is addressed.

Richard Clough
Author of “The Truth Behind High Fuel Prices”
Email- highfuelprices@yahoo.com