Congress moves to outlaw gas gouging

Congress has been busiest of all, conducting hearings, holding news conferences and drafting legislation. One bill being written by Sen. Maria Cantwell, D-Wash., would make price gouging a federal offense and heavily fine violators. Another bill to be introduced in the House will call for increased fuel efficiency, and still another, to be introduced in both houses, would impose a windfall profit tax on oil companies.

The Energy Department has set up a hot line to take calls about suspected price gouging. The agency has received 26,001 calls since Aug. 28.

Attorneys general in 45 states, including Washington, have started highly publicized investigations of suspected illegal pricing. Though no evidence of price gouging has been found in Washington, Attorney General Rob McKenna said he is monitoring prices and would "take action against any company that engages in illegal business practices."

Everywhere you look, some official or agency is bearing down on high gas prices, promising to right wrongs and help beleaguered consumers.

But the full-throttle approach is deceiving. As gas prices hover around $3 a gallon in many parts of the country, a new reality is coming into focus: The federal government and many states -- including Washington -- are virtually powerless to combat high prices, even if they are manipulated illegally.

There is no specific federal law against price gouging on gas. In cases in which violations are suspected, the Federal Trade Commission must use broader and more cumbersome laws regulating antitrust practices and collusion between businesses . The FTC is the government's front-line enforcer of consumer protections, but, to date, the agency has never brought a gas-price-gouging case. In fact, the federal government doesn't even have a clear definition of what price gouging is.

"The federal government really is very impotent in dealing with gouging issues in the absence of collaborative behavior," a frustrated Rep. Jay Inslee, D-Wash., said last week. "We really don't have a tool in our toolbox federally to enforce this."

Guy Caruso, the head of the Energy Information Administration, which collects and analyzes pricing data for the Energy Department, conceded that under current law, the definition of what constitutes price gouging "is very nebulous."

So while the Energy Department continues to collect information from its hot line and diligently passes on promising tips to the FTC, legal and business analysts say there is little chance a case will be made.

Moreover, federal officials say that making a case is incredibly difficult and time-consuming. The last time the FTC looked hard at the issue it drilled a dry hole, concluding after three years of work that unusually high gas prices in Washington, Oregon and California were the result of normal market forces.

"The investigation uncovered no evidence that any refiner had the ability profitably to raise price marketwide or reduce output at the wholesale level, nor did it find a situation in which a refiner adopted redlining in a metropolitan area and increased marketwide prices," the FTC said in its final report, issued in 2001. "As a result of these findings, the commission voted to close the investigation."

States have a bit more muscle, but their record is no better.

In most cases, states' price-gouging protections kick in after a governor declares an emergency. That designation limits price increases to a narrow band based on an average price over the previous month.

Inspectors in New Jersey, for example, swept across the state last week checking 400 stations suspected of violating price laws. More than 100 violations were issued, but not one was for price gouging. Stations were cited for raising prices more than once in 24 hours.

In Alabama, Attorney General Troy King issued subpoenas to more than 20 gas retailers seeking detailed price information. Even if the information is promising, it will take months to pursue charges.

The gaps have prompted Congress to act. Cantwell is promising to introduce legislation in coming days to give the FTC specific authority to investigate price gouging and issue fines. The bill also is likely to require the government to more closely monitor the gasoline production and supply chain to reduce price manipulation.

It would empower the president to declare an emergency that would trigger the anti-price-gouging powers.

The fines could be heavy. One proposal calls for a $1 million fine for every violation, with that amount tripling to $3 million if the violation occurs during a state of emergency.

Whatever form the legislation takes, its overarching purpose will be to give government sharper teeth.

"We need to make price gouging illegal," Cantwell said Wednesday. "We need to make sure that there is a federal price-gouging law on the books, so that in times of national emergencies, oil companies aren't tempted to rake in outrageous profits."

Cantwell is seasoned by her experience with the West Coast electrical crisis of 2001, when Enron traders manipulated the market in California and drove prices to record highs across the West.

In that case, she says, government regulators insisted that spiraling prices were the result of normal market forces. Only years later was it proven that energy traders manufactured the crisis.

Cantwell sees a parallel in the price of gas.

"Oil barons are making $200 million a day in profits," she said. "There is absolutely no reason for gas to go up in Washington as the result of a hurricane."

Senate aides wouldn't predict the chances Cantwell's bill has to pass. But others note that even if it does, there's no guarantee the new powers will be used. The price-gouging authority activates only after the president formally declares a national energy emergency. And that decision is left entirely to the discretion of the president.

Cantwell aides conceded the point but said passing the bill would help protect consumers because the markets would be aware of the new power whether it is used or not.

Rep. Robert Menendez, D-N.J., is drafting similar legislation in the House that, unlike the Senate bills, includes a tax on windfall profits collected by oil companies.

"Americans are now paying 60 percent more than they did well before the hurricane, and this has a dramatic impact on an average American family," he said.

Although Cantwell and her allies insist new laws are needed, the very market from which they are trying to protect consumers could overwhelm their efforts.

Government and independent economists predict that gas prices will begin falling sharply by the end of the year and should level off at around $2.40 per gallon by the end of 2006. Movement has already begun. The Energy Information Administration announced Wednesday that the average price of gas fell by 11 cents between Sept. 5 and 12 to $2.95.

Despite lower prices, government analysts and lawmakers pressing for change ended the week agreeing on one thing.

"While the situation may be improving, the supply system is still a long way from being back to normal," the EIA report said.

RECAP

Congress is moving to pass a law designed to investigate and punish price gouging at the pump because there is no federal law against it. The law will be modeled after laws in 28 states that deal with the problem. Washington is not among states with protective laws.

Here is a sample of state laws:

Alabama: The law kicks in after the governor declares a formal state of emergency. After that, no one can sell gas for more than 25 percent above pre-emergency price. Fines can be $1,000 per violation.

West Virginia: During a formal emergency, it is illegal to sell items for 10 percent more than the price 10 days before the declaration of a state of emergency.

Kentucky: During an emergency, it is illegal to charge a price grossly in excess of the price before the triggering event and unrelated to an increased cost to the seller. Fines can be as high as $5,000 for the first offense and $10,000 for later offenses.MORE ONLINE

To file a complaint about prices:

Call the Energy Department's hot line at 800-244-3301 or go to the department's Web page at www.energy.gov.

P-I Washington correspondent Charles Pope can be reached at 202-263-6461 or charliepope@seattlepi.com.

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