Senate Testimony on Gasoline Price Gouging

I was one of three attorneys general invited to testify at a U.S. Senate hearing Wednesday, Nov. 9, on energy prices, price gouging and the effectiveness of consumer protection laws.

My testimony recounted two major gasoline price spikes in Arizona - one this year related to Hurricane Katrina, the other during the Kinder Morgan pipeline break in 2003 - that underscore the need for laws that will protect consumers against excessive profiteering.

Arizona consumers and businesses have little legal protection against arbitrary and steep price hikes, since our state does not have anti-price gouging legislation. My Office has used every investigative tool at its disposal under Arizona's civil antitrust and consumer fraud statutes, but these tools are less than effective against the practices of the oil and gas industry.

Just as I have strongly supported an anti-price gouging law for Arizona, I testified in support of a national anti-price gouging statute. A federal law, which would allow state Attorneys General to take action in their own state courts, would greatly benefit consumers.

After each of the two major price spikes, there was an outcry from Arizona consumers, pleading for my Office "to do something" to protect them. Most consumers simply assumed that charging exorbitant prices for essential goods, especially gasoline, during a time of crisis would be illegal. They were shocked to find out that Arizona, unlike 28 other states, has no such protections. I supported two efforts in the Arizona Legislature to pass anti-price gouging legislation. Both times, the bills never reached the floor for a vote.

I initiated investigations in 2003 and 2005 with the legal tools at hand: civil antitrust and consumer fraud law and their attendant remedies. Even if the evidence from my current investigation reveals what would be "price gouging" in any other state, under Arizona law I may not have a legal basis for suing the companies involved.

The oil industry often tells us that high fuel prices are simply the result of supply and demand and that the market is the best arbiter of price. The fact is that the inelastic demand for oil and gas and the concentration of major industry players make a mockery of competition. The "just in time" delivery system and a lack of alternative supplies means that any supply disruption, however slight, provides an excuse to raise prices and profits. In both Arizona price spikes investigated by my Office, some Arizona gasoline companies enjoyed profit levels two to three times above pre-supply disruption profit levels.

Market forces are just not working in the oil industry. The industry's lack of reinvestment in refining capacity, product storage, and delivery infrastructure serves the industry's financial interests, while exposing consumers to huge price spikes when the market experiences a supply disruption. It is up to our state and federal lawmakers to enact laws that will help stop this noncompetitive, exploitative and economically disruptive situation.

If you would like to see my written remarks in full, you can click on this link: Senate Testimony.

Terry Goddard