What is price ‘gouging,’ and can it be stopped?

Tom Curry National affairs writer • Profile • E-mail

WASHINGTON — If you had a quarter for every time the word “gouging” has been uttered this week on Capitol Hill, you’d be able to afford a tank of gasoline.

Both Republicans and Democrats are urging the Federal Trade Commission to find out whether energy companies are “gouging” the American driver with high prices.

But what exactly is “gouging”?

Apart from a driver’s unhappy feeling of being victimized when he pays $70 to fill up the gas tank of that SUV he just bought, what makes selling gasoline at $3.00 per gallon a case of “gouging” — as opposed to selling it for $2.50 per gallon or $2.25 per gallon?

When does a price increase cross the line to become gouging — and where is that line?

No federal law on gouging
There is no federal law defining or punishing gouging. But Sen. Maria Cantwell, D- Wash., wants to change that.

She is proposing a new federal definition of gouging which she adopted from a New York state statute. The core phrase: “excessively unconscionable price increases.”

Her bill would give the president the power to declare a national emergency whenever he found that “the health, safety, welfare, or economic well-being” of Americans is at risk because of a shortage of gasoline or oil or when he sees “significant pricing anomalies in national energy markets.”

According to her bill, in such an emergency those oil companies, refiners, distributors, or retailers who are “taking unfair advantage of the circumstances to increase prices unreasonably” or imposing “excessively unconscionable price increases” could be subject to up to $3 million in civil penalties.

They could also be criminally prosecuted and fined up to $1 million and thrown in jail for five years.

But how would an oil company executive know if he is imposing “excessively unconscionable” price increases?

What is a 'gross disparity'?
The Cantwell bill says that it depends on whether the price charged amounts to “a gross disparity” with the usual price of oil and gasoline prior to the energy emergency.

The Cantwell bill does not set any specific dollar amount increase or percentage increase, such as a price 150 percent above pre-emergency prices, to define what “a gross disparity” would be.

It would be up to judges to determine what the terms “excessively unconscionable” and “gross disparity” were in practice.

Cantwell said a couple of cases from New York using the “excessively unconscionable” standard had held up in court tests. “As with all standards, they come to be interpreted over time in court decisions to mean certain things,” she said. “You have to come up with some terminology and hope that that terminology has the ability for law enforcement to set a course.”

A separate section of Cantwell’s bill deals with companies manipulating markets.

Asked whether she saw today’s gas pump prices as a case of a national energy emergency under her bill, Cantwell said she’d opt instead to proceed under the market manipulation section of her bill.

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