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Depends what you mean by ‘gouged’ . . .

Marketplace Staff May 23, 2006

KAI RYSSDAL: You might remember yesterday we told you about a report by the Federal Trade Commission. It said there was no illegal price fixing in the oil markets after Hurricane Katrina. But that wasn’t enough for the chairman of the Senate Commerce Committee. Today, Alaska Republican Ted Stevens said he wants to outlaw excessive price increases. Said he’s going to write a bill that’ll take care of it. First, though, he has to define what exactly price gouging is. Commentator and consumer advocate Jamie Court is happy to help.

JAMIE COURT: What does a gallon of gasoline really cost to make anyway? No one knows exactly. But oil companies’ recent profit reports tell us it’s a whole lot less than what we’re being charged at the pump.

That’s how Exxon Mobil took home more than $8.4 billion in the first quarter and Chevron doubled its profits to $4 billion.

You see, big oil companies say the price of their raw material — crude — is skyrocketing.

In reality, Exxon and Chevron make piles of money both from selling their crude oil and from refining that oil into gasoline.

Refiners like Exxon almost never pay the high crude prices they complain about. That’s because when refiners aren’t using their own crude, they have long-term contracts at cheaper-than-market prices.

And that’s why profits from Chevron’s refineries jumped 260 percent in the same quarter.

Consider California. Pump prices shot up 60 cents between January and April. Government reports show that even if you assume refiners paid market price for crude oil, that accounts for only 12 cents of the 60-cent run-up.

Oil companies also blame the cost of ethanol additives. But not all states mandate that oxygenates be added to gasoline.

So, why did states like Washington, which doesn’t require ethanol, see jumps at the pump just like California, which does?

Are Americans being gouged? Well, the FTC just found that oil companies did not illegally manipulate the markets.

But absent a smoky back room with oil company execs smoking cigars and fixing prices, regulators will never be able to prosecute collusion under outdated antitrust laws.

When it comes to price gouging, there are no federal laws.

States say you can only prosecute for gouging under two conditions. First, there has to be a state of emergency. And next, gas prices have to go up by at least 10 percent when the cost of supplies doesn’t justify it.

With outrageous gasoline prices sucking the life out of the economy, why doesn’t the federal government apply the same state standard for price gouging prosecutions all the time, not just during emergencies?

That way, when politicians and regulators talk about going after price gougers, they won’t be able to claim the law ties their hands.

RYSSDAL: Jamie Court is the president of the Foundation for Taxpayer and Consumer Rights.

Crude prices, by the way, stepped up more than 2 percent today. Traders couldn’t help but be nervous about the prospect of a tough hurricane season.

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