The Attorney General's Efforts to Maintain Low Gasoline Prices
Attorney General Terry Goddard is committed to fighting
high gas prices by closely monitoring the gas market
in Arizona, pushing for more diversity in the Arizona
gas supply and encouraging more competition in the Arizona
gasoline market.
Attorney General Goddard has spearheaded efforts to expand
state and federal dialogue regarding gasoline issues.
In 2004, he co-chaired the National Association of Attorneys
General’s Gasoline Pricing Task Force, holding discussions
with the United States Department of Energy, the Environmental
Protection Agency, the White House Office of General
Counsel, state Attorneys General and the Federal Trade
Commission about the causes of high gasoline prices,
especially in Arizona and the Western United States.
In 2005, the Attorney General’s Office launched an investigation into the causes of Arizona’s high gasoline prices after Hurricane Katrina and joined a multistate working group examining post hurricane gasoline price spikes (click here for 2005 Gasoline Report). Attorney General Goddard testified in November 2005 before the United States Senate Energy and Commerce Subcommittees regarding the need for a national price gouging law.
Since
2004, Attorney General Goddard has supported anti-price
gouging legislation for Arizona. In
2006, Attorney General Goddard again backed a bill that
would make price gouging illegal during national or local
emergencies or disasters.
The Attorney General’s Antitrust Unit collects and analyzes gasoline pricing
data. The Unit closely tracks the gasoline industry and investigates any legitimate
allegations of anticompetitive conduct such as price fixing.
Arizona’s average price
for regular unleaded gasoline is usually at or near the
national average, except for a couple of months in the
spring and fall, as illustrated in the graph below, when
prices are typically higher due to supply tightness associated
with the transition between the winter and summer fuel
blends.
Industry analysts suggest
that the primary cause of extremely high gasoline prices
in the spring of 2006 is the record high cost of crude
oil, in part due to geopolitical uncertainties in oil
producing countries. While increased crude prices are
partly responsible for higher Arizona prices, other factors,
including the spring transition from the winter to summer
fuel blend, extensive refinery maintenance and the switch
from MTBE to higher-priced ethanol as the oxygenate in
reformulated or “Cleaner Burning Gasoline,” also impact
the price Arizonans pay at the pump.
The Oil and Gasoline Industry ("the Industry") is primarily regulated by the federal government on environmental grounds and pipeline rates. Pricing and supply (amounts of gasoline produced, stored and sent to retail stores) are generally not regulated.
Over the past several years, the Industry moved towards a "just-in-time" inventory management system, which means they keep their inventories at low levels that are just sufficient to meet projected, normal demand. This reduces storage costs but eliminates a safety-net of extra supply in the system. The result is significantly higher prices for consumers when the market tightens for any reason. Since demand for gasoline is fairly constant, the lack of surplus supply causes prices to rise. This system is not prohibited by any federal or Arizona law. During recent years, every spike in gasoline prices brought a significant increase in oil company profits.
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Arizona currently has no oil refineries and only two pipelines which transport almost all of Arizona’s gasoline from Texas, New Mexico and California. (See pipeline map below.) It takes a gallon of gasoline approximately 7 days to travel through the West Line from California to Phoenix and approximately 6 days to travel on the East Line from El Paso, Texas to Phoenix. A small percentage of the state’s gasoline is trucked in from neighboring states.
The federal government has divided the nation into geographic districts called Petroleum Administration Districts for Defense (“PADD”) and the U.S. Department of Energy tracks and reports supply information accordingly. Arizona is in the Western District (“PADD V”) along with California, Nevada, Oregon, Washington, Alaska and Hawaii.
Gasoline prices for PADD V have traditionally been higher than the national average. Also, during times of tight supply, gasoline prices in the West tend to be more volatile than the national average. As of January 1, 2005, there are 36 operable refineries located within PADD V, as compared with 115 elsewhere in the United States. Adding to this equation is increasing demand for gasoline in Arizona and Nevada.
Arizona supplies are limited because of industry inventory management (the “just-in-time” system), our geographic isolation from alternative suppliers, and pipelines and refinery limitations. Adding to this equation is increasing demand for gasoline in Arizona and Nevada, which are experiencing population booms.
Consumers typically pay less for gasoline in Arizona than in other Western states. The average price for regular unleaded gasoline in Arizona is almost always lower than the average prices in California and Nevada. Part of this price differential is likely due to the higher gasoline taxes in other PADD V states. Arizona’s state and federal gasoline taxes are 37.4 cents per gallon. Comparatively, California’s state and federal taxes are 60 cents per gallon, while Nevada consumers pay 51.9 cents per gallon. (Source: American Petroleum Institute)
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The Phoenix metropolitan area, including Maricopa County and parts of Pinal and Yavapai Counties, is required to use special gasoline blends during the winter and summer to meet federal air quality standards. Tucson also uses a special blend during the winter months. The rest of Arizona, outside the metropolitan Tucson and Phoenix areas, uses conventional gasoline year round.
Arizona’s special blends are credited with improving air quality in the Phoenix and Tucson metropolitan areas. Industry analysts and refiners, however, claim these unique blends are expensive to produce, in part because expensive blend stocks and sophisticated equipment are necessary to produce the specialized blends and the number of refineries that produce them is limited.
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Despite skyrocketing gasoline prices, consumer demand for gasoline has not lessened. In fact, the Energy Information Administration reports that, nationwide, consumer demand increased approximately 2 percent from 2004 to 2005. Arizona consumers use about 7.3 million gallons of gasoline per day. A little less than 5 million gallons are used in Maricopa County alone.
The demand for gasoline in Arizona will continue increasing as our population increases and the number of drivers and gasoline consumers in our state rise accordingly. Arizona’s population is estimated to increase a dramatic 64.8% from 2000 to 2020. According to the U.S. Census Bureau, Maricopa County has gained more residents since the 2000 Census than any other county in the nation. More drivers, combined with continuing suburban spread, lead to additional gasoline demand in Arizona, which in turn, support high gasoline prices.
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Price gouging is generally defined
as an attempt by a vendor to charge unreasonably high
prices for goods or services that are in short supply
during an emergency situation or a disaster. Shortages
of necessary goods or services can occur for a wide variety
of reasons, including a pipeline break, fire, flood,
hurricane, earthquake or terrorist attack.
More than half the states have price gouging laws, but
Arizona does not. Most states’ laws define price-gouging
as a price increase after a state of emergency has been
declared by a governor or the President. These emergency
declarations are usually only in effect for limited periods
of time, and do not apply to general price increases.
What can the Attorney General’s Office do about gas prices?
There are no price regulations on gasoline in Arizona. It is not illegal to sell gasoline for high prices, unless there is some other illegal activity involved.
The Attorney General has the authority to enforce antitrust laws, which prohibit anticompetitive behavior, such as price fixing and unlawful monopolization. Price fixing is an agreement between competitors to set prices at a certain level. Prohibited monopolization occurs when a company controls a market for goods or services and takes illegal anticompetitive actions to maintain its market dominance. The Attorney General also enforces Arizona’s consumer protection laws against practices such as fraud.
Consumers may suspect that because
gasoline stations raise or lower their prices at or around
the same time, they are fixing prices. Within a geographic
market, prices often move more or less together, rising
quickly and falling slowly as the companies move both
interdependently and independently. This is called “parallel
pricing” and is not illegal unless there is proof of
collusion or an agreement to fix prices.
Attorney General Goddard will vigorously prosecute any
violations of antitrust or consumer fraud laws. For example,
Attorney General Goddard filed antitrust and consumer
fraud claims against natural gas and pipeline companies
for manipulating the supply of natural gas, which caused
the prices of natural gas and electric power to increase.
Attorney General Goddard’s settlement of that case was
worth more than $75 million for Arizona consumers.
What Can I Do to Save Money on Gasoline?
The Arizona Department of Commerce, Energy Office offers consumer-friendly tips to save you money and conserve energy.
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If you believe you have evidence of price fixing, consumer fraud, or any other illegal behavior involving the oil and gas industry, please contact us at aginfo@azag.gov or fill out our complaint form. If you have complaints about gasoline pumps and/or discrepancies between the price posted on the gasoline station’s street sign and the gasoline pump, you should contact the Department of Weights and Measures.
Mail-in Complaint Form
On-line Complaint Form
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