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2005 Gasoline Report

Hundreds of Arizona consumers called the Attorney General’s Office to investigate whether illegal conduct was responsible for Arizona’s gasoline prices jumping 48 cents in the days following Hurricane Katrina. On September 9, 2005, Attorney General Terry Goddard launched civil antitrust and consumer fraud investigations into the causes of Arizona’s high gasoline prices.1 The Antitrust Unit (“ATU”) issued 45 Civil Investigative Demands (“CIDs”) to a cross-section of Arizona’s gasoline wholesalers, distributors, retailers and related parties. The CIDs requested information and data regarding supply, demand, sales, prices and industry communications from August 1, 2005 through September 9, 2005.

ATU thoroughly examined all of the information provided by the CID recipients, conducted interviews and performed independent market research to determine whether Arizona’s abnormally high prices were the result of collusion or other anticompetitive or fraudulent practices prohibited by law. The investigation did not uncover any illegal conduct. The investigation concluded that Arizona’s high prices were primarily caused by:

  • Market tightness caused by the industry’s “just-in-time” inventory management system, which cannot withstand any supply disruption without causing price spikes;
  • An insufficient and fragile delivery system with little or no redundancy;
  • Unusually tight gas supply in Arizona just before Hurricane Katrina due to full pipelines and unexpected refinery shutdowns;
  • Abnormally restricted gas supply resulting from Hurricane Katrina’s disruption of the nation’s tightly networked crude oil and gasoline distribution systems and the industry’s emergency rationing practices;
  • An increase in Arizona consumer demand in the days immediately following Hurricane Katrina;
  • Increased profit-taking by retailers, wholesalers and especially refiners.
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