THE WALL STREET JOURNAL: Lawmakers Struggle to Define Gasoline Price 'Gouging': "...executives from five big oil companies get set to take the hot seat today in a congressional probe into "price gouging": Wednesday 9 November 2005

As executives from five big oil companies get set to take the hot seat today in a congressional probe into "price gouging" in the wake of Hurricane Katrina, policy makers are trying to determine just what "gouging" means -- and how they should distinguish between rapacious pricing and normal market behavior after supply disruptions.

Over the years, federal investigators have regularly looked into complaints about gas prices and never brought a charge. "In almost every case we find legitimate business reasons" for price increases, including pipeline breaks or refinery outages, says John Seesel, associate general counsel for energy for the Federal Trade Commission.

Some critics say the problem is that the current federal law isn't tough enough. There's no national ban on "gouging" per se. The FTC instead looks for signs of price collusion and "anticompetitive" practices in gasoline markets. "Despite a great deal of intense scrutiny, I don't believe we've found those kinds of situations," says Mr. Seesel.

Post-Katrina, gas prices rose at a Stockbridge, Ga., station.

So lawmakers in both the House and Senate have introduced a spate of bills over the past two months that would more explicitly ban gouging. Most sponsors are Democrats, though a handful of Republicans have expressed interest. Today's hearings were spurred in part by Senate Majority Leader Bill Frist, who said last month, "if the facts warrant it, I will support a federal anti-price gouging law." Executives from Chevron Corp., Exxon Mobil Corp., ConocoPhillips, Royal Dutch Shell PLC's Shell Oil, and BP America Inc., BP PLC's U.S. subsidiary, are expected to testify today at the Senate hearing.

Twenty-nine states already have specific anti-gouging laws on their books. But they, too, have rarely brought a charge. Florida's law bans the sale of an "essential commodity" at an "unconscionable price," a term defined at the discretion of the attorney general. In the wake of this year's hurricane season, the state has brought two cases against gas stations -- the first since the law was enacted in 1992.

"It's a great law and serves as tremendous protection for our citizens," says Charlie Crist, Florida's attorney general. "But it is limited in scope." In the great majority of cases, allegations of "unconscionable" activity break down, he explains, because investigators find normal market forces at work, including higher prices from wholesalers. Winnowing through 8,000 gouging complaints last year, his investigators brought only 13 cases, none of them involving gasoline.

Different states define gouging differently. Kansas calls it an "unconscionable act" to "profiteer from disaster," and defines that as selling goods at more than a 25% markup from pre-crisis prices. New Jersey defines an "excessive price" as a 10% markup. Indiana forbids a price that "grossly exceeds the average price" before the governor called a state of emergency.

Georgia's law, which has been on the books since 1995, says it's illegal for retailers to sell a product at a higher price unless they can prove their costs have gone up. The provisions apply after the governor invokes a "state of emergency." Before this year, the law had been used in the aftermath of storms against sellers of building supplies, tree-removal services, and motel rooms, but never for gasoline sales.

Then came the panic following Katrina. Shortly after the storm hit, rumors swept the state that pipelines had been destroyed and the Republican governor, Sonny Perdue, would soon order gas stations shut down. In the early afternoon, Gov. Perdue went on television to say this was nonsense and that gas stations had adequate supplies. But by that evening he declared a state of emergency, which is the action that triggers most state price-gouging laws.

Investigators from the state's Office of Consumer Affairs, following up on more than 1,600 complaints, found some gas stations had removed signs with stratospheric prices, but others were ignoring the significance of the governor's order. They were posting still higher numbers as long lines of cars approached their pumps.

One station -- which the office has not yet publicly identified -- advertised $5.99 a gallon for regular, $7.99 for midgrade and $8.99 for premium. As customers neared the pumps, however, they found attendants had put yellow bags over the lower-priced pumps, leaving only the premium gas for sale. Bill Cloud, a spokesman for the consumer-affairs office, says the owners of that station are among the dozen cases where his office has negotiated settlement agreements involving fines between $2,000 and $10,000.

"What's going on here is a kind of friendly persuasion," says Mr. Cloud, noting that some owners have also agreed to post signs near their pumps saying that customers who could prove they bought gasoline there in the days following Katrina are eligible for rebates.

One of the executives slated to testify before the Senate today, ExxonMobil Chairman Lee Raymond, said in an interview yesterday that he instructed his company to spend whatever was necessary to avert a gasoline shortage immediately after the hurricanes. Exxon also directed the gas stations it owns to "moderate prices" at the pump, he said.

But only 7% of U.S. gas stations that bear Exxon or Mobil signs are owned and operated by the Irving, Texas-based oil company, Exxon officials say. While Mr. Raymond said he was "confident" that those stations didn't gouge consumers at the pump, he didn't offer the same assurance about gas stations that bear Exxon or Mobil signs but are operated by distributors or independent dealers. "What some of the dealers did is more difficult" to judge, Mr. Raymond said.

Gas-station owners say such problems are rare, and that more vigorous anti-gouging laws would end up unfairly punishing the middleman. "I've heard a lot of rhetoric, vitriol and excitement," says Greg Scott, a lawyer for the Society of Independent Gasoline Marketers of America. He's made several trips to Capitol Hill to argue that most of his members are not among the gougers, but victims who were "squeezed almost to nothing" by fast-rising wholesale prices. "I have yet to have somebody put in front of me an example of a retailer who hasn't priced his product by a price that isn't justified by the marketplace," he says.

Oil companies argue that there's a slippery slope between anti-gouging regulations and more intrusive government attempts to control the market. "Once you go this route, it becomes hideously complex," says Ed Murphy, director of refining and marketing for the American Petroleum Institute. Regulations that prevent needed price adjustments during shortages, he said, can "quickly deteriorate into price controls" and result in spreading shortages as gas stations shut down or sell out.

Write to John J. Fialka at john.fialka@wsj.com