GAO Launches Investigation into High Gas Prices

Responding to requests from several dozen congressmen and senators, the General Accounting Office (GAO) has launched an investigation to determine the reasons for the rise in natural gas prices over the past two years and the record high prices last winter. Although the GAO has been asked to look into supply availability, changes in demand, futures trading and the possibility of collusion or price fixing, the scope of the investigation still has not been determined, said Robert Robinson, managing director of natural resources and environment at the GAO.

"We are embarking upon a project aimed at assessing what's happening with prices. We're just beginning," he said last week. "We haven't worked anything out on the [scope] just yet. Literally, we've embarked on this only a couple of hours ago. We've accumulated a host of requests for this; at least a half a dozen separate requests, involving three or four times that many [co-sponsors], all with slight nuances and differences," said Robinson. "What we are doing is trying to package a single review that deals with as many of them as possible.

"The basic issue is why are [gas prices] the way they are, what has caused them to be the way they are and the factors associated with that, and separately, what is the impact on a particular region or industry," he added.

One joint request for the probe came in March from Rep. John M. Spratt Jr. (D-SC) and five other House lawmakers --- Reps. Mike Thompson (D-CA), Bud Cramer (D-AL), Robert Ethridge (D-NC), Jan Schakowsky (D-IL) and Edward Markey (D-MA). Other congressmen made similar requests.

"Natural gas users in South Carolina and other states were hit hard during this heating season and there are indications that gas prices may stay high and rise again," Spratt said last week in a statement. "We've got to find a solution." Spratt said he hopes the GAO can explain what drove the dramatic rise in prices this winter so Congress can "correct whatever deficiencies may exist in the market... We also need to know whether there is collusion or price fixing. If there is, the Justice Department should stop it," he said.

Spratt's request for an investigation came in response to "lots and lots of complaints from constituents" about their winter gas prices, a staffer noted. "We are alarmed at this spike in the cost of natural gas and the impact on our constituents," the statement said.

Spratt noted that gas prices reached record levels last winter, rising from $2.35/MMBtu in January 2000, to almost $10 in January 2001, an increase of more than 400%. The Nymex futures settlement price in February of $6.29/MMBtu was the second highest monthly settlement price of all-time.

Specifically, the lawmakers have asked the GAO to look into supply availability from domestic and imported production, changes in demand by class and type (particularly gas-fired generation), the role of futures trading on the New York Mercantile Exchange and any over-the-counter trading activities on the escalation in prices over the past two years, the methods used to establish published spot market index prices for gas, the role of pipeline capacity constraints, and whether manipulation of prices appears to have occurred during the recent price spike and what legislation might prevent it from recurring in the future. The investigation is expected to be completed in six to eight months.

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