Elevated retail gasoline prices have spurred Congress to push legislation to make “price gouging” a federal offense and to impose civil and criminal penalties on violators.
In 2006, the House of Representatives passed a bill directing the Federal Trade Commission to determine what constitutes “price gouging” and make price gouging with respect to crude oil, gasoline, diesel fuel, home heating oil or any biofuel, a violation of federal law. The Senate never considered the legislation.
In the 110th Congress (2007-2008), both the House and Senate passed legislation declaring price gouging as illegal and established civil and criminal penalties for those found in violation of the statute. The legislation is similar, although certain details do vary. The basic provisions, however, define price gouging as charging an “unconscionably excessive price” for gasoline or petroleum distillates (Senate bill includes crude oil) during and within an area declared an energy emergency by the president. Unconscionably excessive prices are defined as those that:
- Are significantly higher than the average price charged by that supplier during the 30-days prior to the emergency;
- Are significantly higher than the competition; and,
- Are not attributable to increased costs, including replacement costs.
- In addition, in determining whether a violation has occurred, the regulators are to take into consideration whether the seller sold more product during the emergency (at the elevated prices) than prior to the emergency.
Violations are punishable as follows:
- House version: civil penalties of 3 times the amount of unjust profits or not more than $3 million; criminal penalties for a corporation not to exceed $150 million, for an individual up to $2 million and /or 10 years imprisonment.
- Senate version: civil penalties of not more than $500,000 for independent small business and not more than $5 million for any other supplier; criminal penalties up to $5 million and/or five years imprisonment.
Any legislation to define price gouging and make it a federal offense is potentially dangerous to the market and retailers in particular. It is essential that retailers are able to respond to changing conditions in a competitive market and set prices based upon their own strategies — not according to artificial parameters established by the government. The legislation provides flexibility to retailers to respond to changing wholesale market conditions, but it includes other provisions that could negatively affect a refiner’s ability to efficiently move product throughout the nation according to supply and demand evaluations during an energy emergency.
There is further concern that certain market participants, unsure of their legal liabilities, will not increase prices when supplies are disrupted, potentially exacerbating the shortage situation and reducing the availability of valuable supplemental imports.
In addition, federal legislation does not pre-empt existing state laws nor preclude states from passing their own laws in the future. The legislation empowers the state agencies to pursue enforcement according to the federal law or the state law, but not both. This is a problem because, while the bills considered by Congress do include certain provisions that will help preserve retailer flexibility in pricing decisions, many state laws make it very difficult for retailers to continue operating their businesses.
While NACS believes that any federal price-gouging legislation is inappropriate, unnecessary and potentially damaging to the market, the political momentum for Congress to “do something” to protect consumers has been strong. Therefore, NACS has made an effort to ensure that any proposals allow the retail market to function effectively and do not impede a retailer’s normal business operations.
Specifically, NACS advocated for inclusion of a provision in each bill that declares a price is not “unconscionably excessive” if it is not substantially higher than the competition. This protects retailers who are simply responding to overall market conditions — competition will remain the driving factor in pricing decisions. This is critical for retailers, especially when wholesale prices begin to retreat, competition remains steady and margins expand. In addition, the bills specify that retailers may factor legitimate replacement costs into pricing decisions. This is critical when wholesale prices are on the rise and gives protection to retailers who are accused by the press of raising prices before a shipment arrives.
NACS further believes that these provisions will provide protection to the wholesale market, which should settle some of the overall supply concerns associated with such price control legislation.
NACS remains opposed to the legislation but, given the fact that the House and Senate addressed our two priority considerations, NACS has been less vocal in expressing its opposition. However, if the Congress begins to consider such legislation again, NACS will be working to convince legislators to defer to the Senate version for two main reasons: 1) the penalties provided in that bill are more reasonable than those in the House and, 2) the Senate stipulates that a person is not charging “unconscionably excessive” prices unless all the factors listed above can be satisfied while the House only directs officials to take those factors into consideration when determining if a person is charging “unconscionably excessive” prices. The Senate provides much greater regulatory certainty.
The best way to influence the outcome of legislation affecting the petroleum marketplace is to communicate with elected officials and local media to explain the operations of the retail business. Many do not understand the slim margins that retailers operate or the impact of volatility in the crude oil and wholesale markets on retail operations. It is essential that individual retailers communicate openly with these opinion leaders to promote the facts about the retail market place.
To help explain how the market works to reporters and public officials, NACS releases each year a Gas Price Kit. Take a look at the most recent by visiting nacsonline.com/gaskit2010
The House and Senate versions of the bill were reconciled and prepared for inclusion in the broad energy bill enacted into law last year. However, the provisions were dropped from the overall package under a veto threat from the then-Bush White House.
On June 24, 2008, the House Democratic Leadership brought up the price-gouging legislation from 2007 for a floor vote. The legislation failed to reach the needed 2/3-majority to pass under suspension of the rules.
On April 27, 2009, Rep. Bart Stupak (D-MI) reintroduced the House price gouging bill as H.R. 2120.
As of February 2010, there was no indication of additional legislative activity at the federal level.