The Great Gas Gouge

By Eric Kelderman, Stateline.org. Posted May 15, 2006.

When gasoline prices zoomed past $3 a gallon last month, President Bush sought to harness the regulatory and consumer-protection powers of the states to crack down on potential price gouging. Bush called on the 50 state attorneys general to join in a nationwide investigation into auto fuel prices largely because there is no federal statute against price gouging, although a proposal for such a law recently has passed the U.S. House of Representatives.  

Yet even among the 27 states with laws against price gouging, those statutes rarely have lead to penalties for violators and mostly are meant to deal with emergency situations such as natural disasters, not spiraling world crude prices.  

State price-gouging laws generally are designed to prevent sellers from taking advantage of vulnerable consumers during a crisis. Items covered under the law vary greatly. For example, Idaho limits its price-gouging law to water, food, fuel or pharmaceuticals, while California applies its anti-gouging laws to all "goods and services vital and necessary for the health, safety, and welfare of consumers," according to a summary from the National Conference of State Legislatures.  

State laws also have different definitions of what qualifies as price gouging. Connecticut law says sellers may not charge an "unconscionably excessive price." Oklahoma's law prohibits price hikes of more than 10 percent, unless there is an increased cost for the seller, and bars the seller from earning a greater profit.  

Several states already were investigating price spikes that temporarily drove gas to the $3-a-gallon mark in September after hurricanes Katrina and Rita. But those efforts have produced mixed results. Attorneys general in Connecticut, Florida and New Jersey have announced out-of-court settlements with both individual gas stations and multi-national oil companies for alleged price gouging.  

Louisiana, on the other hand, received and looked into numerous complaints about gas prices, but none qualified as gouging under Louisiana law, said Kris Wartelle, a spokeswoman for Attorney General Charles C. Foti Jr. As in many states with laws against price gouging, Louisiana cannot charge retailers with gouging if price increases match a higher cost for the goods being sold. All but four states require an emergency or disaster declaration to trigger their price-gouging laws. All of the federal emergency and disaster declarations from hurricanes Katrina and Rita remain in effect, said a spokesman for the Federal Emergency Management Agency.

But proving price gouging can be tricky even in the four states where no disaster is required: Maine, Massachusetts, Michigan and New York. "If high prices are caused by high wholesale prices, that's not gouging," said Beth Nagusky, director of energy independence for Maine Gov. John Baldacci (D).   A March report from Maine's attorney general concluded that higher gas prices in northern parts of the state were the result of truck travel across the Canadian border and small retailers that had to charge more to survive in those areas.

Todd Leatherman, director of the Kentucky Consumer Protection Division, said that investigating gasoline price gouging takes a lot of time and staff because of the complexity and international scope of the oil industry.   Although his state has not found any evidence of price gouging, state efforts remain the most effective tool in keeping gasoline suppliers in check, Leatherman said.

The federal government's role in investigating price gouging is limited to providing states with information about nationwide pricing patterns. The Federal Trade Commission monitors gasoline prices at more than 60,000 gas stations across the country to analyze changes in the fuel market and to look for evidence of price-fixing, a different problem that involves companies conspiring to set prices so that consumers cannot benefit from market competition.  

As part of a congressionally mandated investigation, the FTC also is requesting interviews and sales and tax records from nearly 200 oil and gas suppliers, including 99 retailers that were investigated by states for potential price gouging after the hurricanes.  

But a March report to Congress on that investigation notes the overwhelming difficulty of pursuing claims of price gouging: None of the nearly 20,000 complaints to the Department of Energy's gasoline price hotline provided enough information to be included in the FTC's investigation.   

Attorneys general in many of the 23 states that do not have laws against price gouging have called on Congress and the president for a national price-gouging law -- something FTC Chairwoman Deborah Platt Majoras opposed in congressional testimony last year.  

Under pressure to react to the latest price hikes, the U.S. House passed a bill on May 3 that proposes criminal penalties for price gouging of oil, gasoline, diesel fuel, home-heating oil or fuel alcohols derived from plants. But the bill does not define price gouging; the FTC would have to do that within six months of the bill becoming law.  

Unlike most state laws, the House bill does not specifically require an emergency or disaster declaration to trigger its enforcement. State attorneys general would be able to file civil suits under the act, unless the FTC already has initiated legal action against a company.   

Eric Kelderman is a staff writer for Stateline.org.

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