Price gouging bill faces battle

WASHINGTON – Sen. Maria Cantwell’s legislation to outlaw gasoline price gouging has flown mostly under the radar for the past two years.

But with House passage last week and the Senate set to consider it after the congressional Memorial Day recess, foes launched a vigorous campaign to defeat the measure. The White House has threatened a veto, business groups and oil companies are running newspaper ads and free-market think tanks are cranking out reports and press releases.

Their message is simple: Cantwell’s bill is tantamount to imposing price controls that will lead to shortages, long lines at the pumps and double-digit inflation like that of the 1970s.

Cantwell, D-Wash., scoffs at such suggestions. “Their P.R. machine is bigger than ours,” she said. “But I don’t think the public will buy it.”

Yet even with gas prices at record or near-record levels in Washington state and nationwide, Cantwell knows she has a fight on her hands.

“There will be a tidal wave of oil money to fight this,” she said. “I’m concerned about how we get our message out, how we avoid being swamped.”

Cantwell’s bill would make it illegal for oil companies to charge “unconscionably excessive” gasoline prices and set stiff fines and criminal penalties for those who do. The statute would take effect only if the president declared a national energy emergency. The bill makes no reference to price controls.

Twenty-eight states, including Washington, have price-gouging laws. But Cantwell said those laws mostly focus on the retail level. She said a national law aimed at wholesale markets is needed.

In a report a year ago, the Federal Trade Commission found “no instances” of market manipulation when gasoline prices surged after Hurricane Katrina. The report dismissed the 15 examples at the refining, wholesale and retail levels that fit the legal definition of price gouging as “regional or local market trends.”

However, Cantwell said the FTC is handicapped in investigating alleged gouging because it has to rely on federal antitrust laws that make it illegal for companies to collude to manipulate prices. With the string of mergers in the industry, Cantwell said, major oil companies can manipulate prices on their own.

THE INDUSTRY RESPONDS

Industry officials and their allies insist gasoline prices are determined by supply and demand. They point out that crude oil prices are up because of tensions in places like Iran, Venezuela and Nigeria as global demand has skyrocketed. At the same time, they point out gasoline production at U.S. refineries is at record levels, and the industry is investing in modernizing its refineries.

“Proposed price gouging legislation is de facto price control and could have unintended consequences by creating product shortages and gas lines as evidenced in the 1970s,” according to a fact sheet distributed by an industry trade group, the American Petroleum Institute.

In threatening to veto Cantwell’s bill, the White House used similar language: “This bill could result in gasoline price controls and in some cases bring back long gas lines reminiscent of the 1970s.”

The National Association of Manufacturers took the same line in a full-page ad in The Washington Post, as did Exxon Mobil in a separate advertisement.

“If you threaten to investigate producers when prices go above a certain level, that’s a de facto price control,” said Bryan Brendle, a spokesman for the National Association of Manufacturers.

While not singling out Cantwell by name, Brendle and others accused her of trying to score “political points” with the public.

“This is sheer populism and displays an outrageous ignorance of basic economics,” said Iain Murray, a senior fellow at the Competitive Enterprise Institute.

A FEW VOTES SHORT

Cantwell, who earlier worked to expose Enron’s manipulation of electricity markets, isn’t cowed. She says the same consumer protections that now apply to electricity and natural gas markets should be extended to cover gasoline.

“Why would we (Congress) ignore this?” Cantwell said. “I think the oil industry should endorse this bill. They should stand up and say, ‘If there is wrongdoing in our industry we want to end it.’”

In late 2005, Cantwell’s bill received 57 votes, three shy of the 60 needed to overcome a budget point of order. The House version of the measure passed 284-141, enough yes votes to barely override a presidential veto.

Cantwell is taking nothing for granted.

“These guys are working hard,” she said of the industry. “They are turning it on. But if oil companies’ claims that price gouging is not happening are correct, then they have nothing to fear. If they’re wrong, the federal government needs the power to protect consumers.”