Provided by the Society of Independent Gasoline Marketers of America

Senate hears testimony on price gouging

At a joint hearing of the Senate Committees on Commerce, Science and Transportation and Energy and Natural Resources on Nov. 9, a panel of attorneys general and the Federal Trade Commission testified on the issue of pricing and consumer protection. Price gouging, or the threat of it, has been a hot topic among legislators in the wake of the rapid run-up of gasoline prices after hurricanes Katrina and Rita.

At the hearing, Commerce Committee Chairman Ted Stevens, R-Alaska, asked the nation’s state attorneys general to provide Congress with recommendations for a federal standard defining price gouging. He noted that the Senate will be considering legislation and that he believed there should be a federal standard providing criminal penalties for violations.

A week earlier, Reps. Allyson Schwartz, D-Pa., and Tim Bishop, D-N.Y., persuaded the House of Representatives to approve a motion instructing conferees to insist on an FTC investigation of gasoline pricing to determine if gouging is occurring. The provision will be part of a fiscal 2006 appropriations bill. It is non-binding, but it puts the House on record as supporting such a study.

According to John Eichelberger, the National Association of Convenience Stores’ director of motor fuels, the most astute student of the petroleum marketplace at the Nov. 9 Senate hearing was FTC Chair Deborah Platt Majoras.

“Ms. Majoras presented the committees with the most robust and honest description of marketplace fundamentals that any witness has yet provided Congress,” Eichberger told NACS Daily. “Acknowledging that her testimony may not be received favorably, she continued to explain how supplies are distributed throughout the market and how various market participants make independent business decisions. NACS has been working for months to explain how the market works. At this hearing, although retailers were not represented by a witness, an explanation of how the market works was independently and masterfully delivered by the head of the federal government’s competition agency.”

Majoras testified that competition in the marketplace is the best protection against price gouging and that restrictions on higher prices could do more harm than good for consumers by discouraging conservation and the diversion of supplemental supplies from other markets. In addition, she noted that it is very difficult to define and/or enforce any type of price-gouging statute.

“To be sure, there may be situations in which sellers go beyond the necessary market-induced price increase. A seller who does not want to run out of a supply of gasoline to sell might misjudge the market and attempt to charge prices substantially higher than conditions warrant or than its competitors are charging,” Majoras said. “Examination of the federal gasoline price-gouging legislation that has been introduced and of state price-gouging statutes indicates that the offense of ‘price gouging’ is difficult to define....Ultimately, the inability to agree on when ‘price gouging’ should be prohibited indicates the risks in developing and enforcing a federal statute that would be controversial and could be counterproductive to consumers’ best interest.”

South Carolina Attorney General Henry McMaster further displayed an understanding of market conditions when he noted the cases of retailers charging $3.519 per gallon on Sept. 29, and the subject of multiple consumer complaints, who were found not guilty of any wrongdoing.

“[A]fter reviewing his records, it was determined that his supply costs had risen substantially in line with his retail prices, so that the price increases appeared to be the results of increased costs to the retailer rather than price gouging,” said McMaster. “The records of another retailer indicate that one of the retailer’s employees, without direction from the retailer, made an unauthorized price increase out of panic because the employee thought the station would run out of gasoline; the employee wanted to slow down the sales volume in order to avoid running out of supply. As to the retailers under investigation, it is still too early to determine whether or not they acted improperly. But we have learned how difficult it is to make a determination of the true cause of fluctuations in market price.”