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Bill would outlaw gas price gouging
McClatchy Newspapers


May 03, 2007

WASHINGTON -- With some analysts predicting gasoline prices could reach $4 a gallon by Memorial Day, Sen. Maria Cantwell is introducing legislation to outlaw price gouging in petroleum markets and set stiff fines and criminal penalties for those caught violating the law.

Similar legislation sponsored by the Washington Democrat was defeated on the Senate floor by three votes in late 2005. Cantwell said an informal vote count this time shows she likely has the votes to pass it.




"We need to be aggressive," Cantwell said in an interview Tuesday. "We need to pass a federal law to go after people who manipulate the market to drive up the price."

Cantwell has asked the Senate Commerce Committee to consider her legislation as soon as next week.

The average price of gasoline in the Puget Sound region, for example, is already nudging $3.30 a gallon.

Nationally, the price rose 10 cents a gallon to $2.97 last week, more than a nickel higher than a year ago, the Department of Energy said Monday.

While gasoline prices normally surge in the spring, this year's run up has come earlier than usual with industry analysts blaming strong demand and a string of refinery outages.

Washington state Attorney General Robert McKenna has announced his office will investigate allegations of price fixing and market manipulation. Despite having five refineries, gasoline prices in Washington state are among the highest in the nation partly as a result of the nation's sixth highest gas tax.

Existing federal anti-trust laws make it illegal for companies to "collude" to manipulate prices, but Cantwell said the problem is when companies do it on their own as Enron did in the electricity market.

"The current laws don't match what we need," she said. "Our laws should be clear that any manipulative device should be a crime."

Twenty-eight states have price gouging regulations, but many of them focus on the retail level while Cantwell's is aimed at wholesale markets. Washington state does not have a price gouging law, Cantwell said, adding her measure was modeled on a New York law that has been upheld by the courts.

Cantwell earlier asked Congress' investigative arm, the Government Accountability Office, to determine whether oil companies have been diverting crude oil originally destined for U.S. refineries overseas instead to tighten domestic supplies and drive up prices. The GAO is expected to issue its report this fall.

The GAO is also investigating whether speculative trading of oil futures on commodity markets have driven up gasoline prices. That report could come next month.

"Oil is being trade on international exchanges without any U.S. oversight," Cantwell said. John Felmy, chief economist for the American Petroleum Institute called Cantwell's bill "unfortunate political rhetoric with no basis in fact."

Felmy said the nation's oil refineries were producing record amounts of petroleum products, Cantwell's allegations that companies were exporting oil to create shortages in the U.S. were "absurd" and regulatory agencies had not asked for more authority and were already pursuing enforcement investigations were necessary.

"There is no evidence the companies are doing anything but responding to market forces," he said. The American Petroleum Institute is a national trade organization representing the oil and gas industry.

Cantwell originally introduced her legislation after Hurricane Katrina devastated oil production facilities along the Gulf Coast and gasoline prices spiked into the $3 range.

Almost a year ago, the Federal Trade Commission, issued a report which concluded there were "no instances" of illegal market manipulation in the wake of Hurricane Katrina. The report noted 15 examples of price gouging at the refining, wholesale and retail levels that fit the legal definition of price gouging. But dismissed those instances as the result of "regional or local market trends."

In a footnote, however, the report recalled that as part of the proposed merger of BP and Atlantic Richfield Co. (Arco) the commission's staff alleged in 2000 that oil from Alaska's North Slope was exported to the Asia rather than shipped to West Coast refineries, including those in Washington state. The commission staff alleged BP was willing to sell the oil in Asia for less, because it would create a shortage on the West Coast and keep prices up.

BP denied the allegations.

But Richard Parker, the director of the FTC competition bureau, said at the time that Arco was being "bought by a firm who has found it in its interests to ship oil offshore and to short the (domestic) market and keep prices up. That's a problem."

The allegations were dropped and the FTC approved the merger after BP agreed to sell Arco's Alaskan interests.

During a Senate hearing last year, Cantwell asked the chief executives of the nation's major oil companies whether they were diverting oil to overseas markets even if they would get a lower price than in the U.S.

Some of the CEOs said their companies were not, while others said they would provide her with additional information.

"They haven't provided anything," Cantwell said. "That's what we are still trying to figure out."

The FTC warned in its report federal gasoline price-gouging legislation would be difficult to enforce and could cause more problems for consumers than it solves.

Cantwell scoffed at the commission's warnings. "We need a federal statute," she said. "We want to give consumers confidence."


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Ketchikan, Alaska