SPECIAL REPORT: War worries prompt call for fuel gouging investigation

| 2/26/2003

Sens. Joe Lieberman, D-CT, and Chuck Schumer, D-NY, asked federal officials to review petroleum markets amid concerns of fuel-price gouging as oil supplies tighten and diesel and gas prices hit record-breaking levels.

However, little action is expected.

The Clinton administration in 2000 requested a Federal Trade Commission study of price gouging in response to concerns about oil company mergers, price fixing and collusion to hold reserves. But the FTC concluded the concerns were not warranted.

In fact, while the National Association of State Attorneys General told Land Line about 17 states have price gouging statutes, they mostly cover gouging to cover essentials and necessities and are triggered by a governor's declaration of an emergency.

In the end, prices are not regulated and are determined by what the market will bear, as long as there is no collusion or price fixing.

"Once again, we see calls for price gouging investigations," said Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association. "Unfortunately, these investigations never bring relief. Real positive action, such as protection against fuel spikes, will only come when senators hear from their constituents, including truckdrivers, who tell them fuel spikes are the main reason they're being driven out of business."

According to figures released by the Department of Energy's Energy Information Administration (EIA) Feb. 24, the national average cost of diesel fuel per gallon this week rose to $1.709 from last week's average price of $1.704. The latest average is the highest cost of diesel per gallon ever recorded by the EIA. The previous high was $1.67, recorded in October 2000.

Lieberman to Abraham: Aggressive market monitoring required

In a Feb. 24 letter to Energy Secretary Spencer Abraham, Lieberman sought assurances the Bush administration was prepared to respond to supply disruptions that might occur as a result of developments in the Persian Gulf.

He wrote: "As we have seen in recent weeks, U.S. consumers are directly feeling the impact of the volatility of the crude oil market as the price of gasoline at the pump spikes higher each day. Since December alone, the price of crude oil, which accounts for almost half of the cost of a gallon of gasoline, has risen by roughly 25 percent.

"Roughly 20 percent of our oil imports come from the Persian Gulf. Consequently, I am calling on you to initiate a review of the current petroleum supply and demand situation and our preparations, both nationally and internationally, to respond to supply disruptions, including possible impacts as a result of developments in the Persian Gulf."

The letter also said the department should monitor both domestic and international petroleum markets and take additional steps to mitigate supply disruptions, including tapping the Strategic Petroleum Reserve.

"It is also imperative that the department and the administration assure the American people, now and in the future, that the prices they are paying at the gas pump and for their fuel oil are not the result of price manipulation or gouging," Lieberman wrote. "This will require aggressive monitoring of these markets in coordination with state and local energy and consumer protection officials."

Schumer calls for FTC investigation

Meanwhile, Sen. Charles Schumer, D-NY, asked the Federal Trade Commission to investigate industry practices.

"It appears as if price gouging is taking place across the country," Schumer said in a letter to FTC Chairman Timothy Muris.

Schumer wrote: "Any conflict in the Middle East, as well as further problems in Venezuela, will send markets soaring. With this upward pressure on crude prices, we must ensure that any gasoline price increase is the result of market movement rather than unscrupulous businesses seeking to exploit these uncertain times .

"It appears as if price gouging is taking place across the country. I urge you to launch an immediate investigation into these developments and to prosecute those who would exploit the current uncertainty to the fullest extent of the law."

The American Automobile Association supports Schumer's request. The travel company said it was also concerned about why prices had gone up so much in such a short period of time, though a spokesman stopped short of using the term gouging.

Meanwhile, little relief is expected. Gas prices typically rise during spring, when refiners shift from winter to summer-grade fuel. The switch requires shutting down equipment, scrubbing it clean and starting it up all over again - a process that causes supplies to contract and prices to move higher even under the best conditions.

The impact of this switch has already been magnified by the possibility of a U.S.-led invasion of Iraq, press reports say.

Station owners: "Don't blame me"

Gas station owners are frustrated by accusations of profiteering, but they insist they're not the ones to blame. They say that suppliers have been steadily upping their "rack" prices for weeks and that station owners are merely passing along the changes to customers without any benefit to their bottom lines.

A case in point: Land Line recently called Little Sandy's Hancock Truck Stop in I-70's Exit 3, near Hancock, MD to ask why the cost of diesel in a single day went from $1.79 to $1.99.

Truck Stop General Manager Woody Liggett offered some answers.

"We got a call from the main office. I can tell you we don't like to see the prices go up like that," Liggett said. "It's not good for business. But they wouldn't have raised the prices unless their supplier also raised prices."

So who is the "they?" In this case, it's Peters Fuel, Oakland, MD.

Company President Louise Friend told Land Line why Hancock's prices went up so much in a day's time.

"We have let prices drag a bit," Friend explained. "I had to change the price to cover my margins. I know people will get mad, but that's just tough."

She said prices at other truckstops were "running neck and neck" with prices at the Hancock stop, so the action was needed to stay competitive.

Friend also explained: "Until war is declared, the (fuel price) situation will get very nervous and real dicey. Even now, prices at the rack (at the terminal where the fuel is loaded onto trucks) are changing several times a day - they go up, then down. When we see a steady downward trend, we'll look at the possibility of lowering prices."

Friend added: "We know we have a big problem with the public's perception. But we're not raising the price independent of what we have to pay. Actually, we hate to post this price."

Friend declined to say what she actually paid the refiner and how the prices compared with earlier costs.

According to press reports, Richard Loeber, owner of a Hess station in Union Beach, NJ, said, "I realize that the price of a barrel of oil has gone up tremendously, but the way that rack prices have gone up for the last two weeks is just not right."

He said about 40 percent of the retail cost of gasoline is attributed to the price of crude oil, which has risen 19 percent since the start of the year to $36.79 per barrel. Loeber said that Hess had raised the rack price by 16 cents a gallon in less than three weeks and that he had maintained his 8-cent-per-gallon profit margin all along.

Rapid increases are sometimes attributed to "zone pricing," where suppliers value their product based upon the highest level a particular market will bear. For example, if their customers' rivals are getting a nickel more per gallon at the pump, they will set their rack price accordingly, even if the supplier's costs haven't gone up.

"People know they're getting gouged, but believe me, it's not from the dealers," Loeber said.

--by Dick Larsen, senior editor