The US summer driving season is 6 weeks away, and the first gasoline price-gouging salvos of 2007 have been exchanged.
At a US Federal Trade Commission conference on energy markets and competition, Cambridge Energy Research Associates Inc. Chairman Daniel Yergin attempted to put concern about gouging in the context of lessons from the energy crises of the 1970s.
One such lesson, he said, is that tight supplies and elevated prices are most effectively relieved when markets work without government interference.
“The question the FTC will have to confront is what this word ‘gouging’ means and whether it’s necessary to intervene,” Yergin said. “It could look politically attractive. But to intervene quickly would simply interfere with the market’s ability to respond.”
Meanwhile, the American Council on Capital Formation released its own study concluding that price-gouging legislation would do more harm than good. Former US House members Bill Archer (R-Tex.) and Charles Stenholm (D-Tex.), who are on ACCF’s board, suggested that a price-gouging bill simply is an indirect effort to control prices.
Likely impacts
The study concluded that price controls, if they had been implemented as current legislation recommends during supply disruptions following Hurricanes Katrina and Rita in 2005, would have cost consumers an additional $1.9 billion.
Controls also would have prolonged the disruption by discouraging refiners and marketers from securing higher-price supplies from other sources, it said.
“The fact that the US continues to import a significant amount of gasoline from foreign producers should give great pause to legislators seeking to impose price-gouging legislation,” Archer said. “In the event of a disaster and potential price caps, foreign producers simply will sell their products in other countries at higher prices-ultimately harming the very consumers the controls were meant to protect.”
AACF said price-gouging bills, such as the one recently introduced by Rep. Bart Stupak (D-Mich.), have vague criteria for determining when a violation occurs and ambiguous definitions of price-gouging, which would lead to market disruptions (OGJ Online, Feb. 28, 2007).
Not surprised
In a response to reporters, Stupak said he was not surprised that AACF, which he called “an organization that receives hundreds of thousands of dollars in funding from Big Oil,” would produce a study critical of price-gouging legislation. “Last May, the FTC examined the actions of petroleum producers and refiners following Hurricane Katrina and found that they were gouging customers.”
In its May 22, 2006, report on gasoline price increases following the 2005 hurricanes, the FTC said it found 15 instances that fit the definition of “gouging” in legislation at the time, but added, “Other factors, such as regional or local market trends, appeared to explain these firms’ prices in nearly all cases.”
