WASHINGTON – The Senate Committee on Commerce, Science and Transportation Tuesday adopted legislation by voice vote to make price gouging a federal offense subject to both civil and criminal penalties.
The panel approved as an amendment to legislation increasing the fuel efficiency requirement for vehicles the “Petroleum Consumer Price Gouging Protection Act,” a bill introduced last week by Senators Maria Cantwell (D-WA) and Gordon Smith (R-OR). This legislation sets penalties for sellers who are deemed to be taking advantage of conditions following a presidentially declared energy emergency.
The legislation outlaws price gouging, or charging an unconscionably excessive price, defined as a price which:
1. Represents a gross disparity between the price charged immediately before the declared emergency;
2. Grossly exceeds the price at which other purchasers could buy the same product; or
3. Represents an exercise of unfair leverage or unconscionable means.
The bill specifically excludes prices that can be attributed to increased wholesale or operational costs incurred by the seller that were outside of the seller’s control.
Civil penalties for charging unconscionably excessive prices during an emergency are authorized at not more than $500,000 for an “independent small business marketer of gasoline” and not more than $5 million for any other supplier. Each day of continuing violation will be treated as a separate offense. Criminal penalties may be assessed up to $5 million and/or up to 5 years in prison, according to the bill’s current language.
NACS has been advising Congress that any legislation to protect consumers from unscrupulous market activity must provide retailers, and law enforcement personnel, with a clear definition outlining what retailers can and cannot do when setting prices. To accomplish this objective, NACS has recommended specific language, supported by historic case law, establishing that a price charged by a supplier cannot be considered a violation if that price is within the parameters of a well defined competitive market.
In addition, NACS has advised that the legislation also must make a specific allowance for sellers to make price adjustments based upon replacement cost considerations. If the wholesale price of gasoline is scheduled to increase by 50 cents per gallon on the next shipment (which can occur during supply emergencies), the seller must be allowed to make a price adjustment in order to pay for that next shipment.
Unfortunately, the Committee did not make any adjustments to the legislation. Senator Ted Stevens (R-AL), the ranking member on the Committee, made a strong argument that the legislation must be amended to allow sellers to respond to replacement costs. He advised the Committee that he will be offering his alternative language, which reflects the recommendations of NACS, as an amendment when the bill is considered by the full Senate.
Other Senators who spoke up on behalf of retailer interests were Jim DeMint (R-SC) and John Thune (R-SD). DeMint said that the definitions in the bill were insufficient and represented an opportunity for lawyers to make a lot of money through litigation. He warned the Committee about the dangers of unintended consequences represented by the legislation and advised the Committee that Congress must provide retailers and suppliers with an incentive to operate without fear of prosecution.
Thune expressed his concern that the bill singles out retailers who are not making much money on gasoline sales and must not be prevented from passing along costs incurred upstream.
The Democratic side of the Committee was unified in its support for the legislation. Senator Byron Dorgan (D-ND) said that Congress must seek to end the “orgy of speculation” that affects the spot market and that price gouging legislation, “however that’s defined,” is important to consumers.
Senator Barbara Boxer (D-CA) challenged Republican assertions regarding the lack of a clear definition for price gouging by saying, “you know it when you see it.”
The legislation is expected to be considered by the Senate after the Memorial Day recess as a component of a more comprehensive energy bill, which will include a provision to dramatically increase the renewable fuels mandate.
NACS will be actively engaged in fighting to incorporate retailer concerns into this proposed legislation and will provide updates to NACS members as this draft legislation evolves.