CONSUMER ALERT

MIKE COX

ATTORNEY GENERAL

The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern.

Increased Gas Prices? Again?

The Attorney General's office constantly monitors gas prices to protect consumers from price fixing and price gouging.  Over the last few years, gasoline prices in the State of Michigan have fluctuated dramatically, and the Attorney General has taken action when circumstances warrant action.  For example, in August 2003, shortly after massive power outages hit southeast Michigan, Attorney General Cox proactively sent a legal team into Metro Detroit to look for price gouging and to take legal action against any retailers gouging consumers. 

Attorney General Cox again took swift action in the face of Hurricane Katrina in August 2005 issuing a warning to gas retailers in the State of Michigan advising that "[a]nyone looking to gouge consumers as a result of the hurricane will be dealt with swiftly and severely."  The Attorney General pledged to vigorously prosecute any station gouging consumers and reminded that violators will be subject to fines of up to $25,000.  

On September 1, 2005, Attorney General Cox joined with Attorneys General from the nearby Midwestern states of Illinois, Iowa, Missouri, and Wisconsin and jointly requested the FTC to exercise its broad federal statutory powers and investigate whether the dramatic increases in gas pricing seen in August and September 2005 were legitimately tied to Hurricane Katrina -- actual supply and demand factors -- or whether the prices increased as a result of illegal and artificial manipulations in the gas supply chain.  General Cox and his Midwestern colleagues offered to assist the FTC in any investigation.

On September 2, 2005, Attorney General Cox announced joining over 40 Attorneys General from across the country in a multi-state comprehensive investigation of the post-Katrina dramatic gas price increases.  The investigation included pricing at points of entry of crude oil and costs associated with the refining process.  

Attorney General Cox, in September of 2005 and 2008, initiated his own investigation into post-hurricane (Katrina and Ike) gas prices.  AG Cox's investigators reviewed thousands of pricing and cost documents from retail gas stations in order to protect Michigan consumers from price gouging and price fixing by retail gas stations.

Currently, consumers are asking questions about the increasing gas prices.  This consumer alert addresses commonly asked questions and discusses the role of the Michigan Department of Attorney General in investigating gas-pricing issues.

Question:  When the price of gasoline increases dramatically, who is it that benefits from the price increases?

Answer:  The Attorney General's office daily reviews retail profit margins and actual cost of providing gasoline products to the consumer throughout the State of Michigan.  Historically, gas retailers (i.e. corner gas station owners) have not appeared to profit from high prices.  Instead, high profits have been extracted by refiners and producers farther up the supply chain.

Question:  Why do gas prices keep fluctuating?

Answer:  Many factors play a role in the cost of a gallon of gasoline, including the cost of crude oil, refinery processing, transportation, distribution, marketing, operating expenses, retail station operations, and taxes.  The prices we pay at the pump reflect these costs, as well as the profits (or losses) of refiners, marketers, distributors, and retail station owners.  Other factors that have also historically affected gas prices include: (1) increasing demand, (2) a historical drop in U.S. refinery capacity, (3) a downward trend in how much gasoline is held in inventory, and (4) regulatory factors. Some analysts attribute spikes to a number of additional factors, including current economic conditions here in the United States and weakness in the U.S. dollar.

All told, there are numerous factors that affect both the general upward trend in gasoline prices and the daily fluctuations we experience.  Efforts to monitor these factors continue in this office.  Additionally, given the national scope of this issue and its impact on the U.S. economy, the various federal agencies that have oversight and enforcement authority in this area, as well as your representatives in Congress, continue to watch the issue closely and formulate responses.  For example, Congress recently enacted the Energy Independence and Security Act, which gives the Federal Trade Commission new authority to police market manipulation in the petroleum industry.  This is one of many steps that have been undertaken to monitor these markets and prevent unwarranted high prices.  However, as experience has demonstrated, there are always a myriad of factors that contribute to the price we pay for gasoline.

Question:  What can the Attorney General's office do to promote price competition in the gasoline industry and protect consumers?

Answer:  Attorney General Cox is concerned about the effect that high gas prices in Michigan have on the consumer, the State's tourism industry, and the overall health of the state economy.  The Attorney General believes that the key to protecting consumers in Michigan is the promotion of healthy, vigorous competition among as many different petroleum refiners, marketers, and retailers as possible.  To protect competition in the marketplace, the Attorney General can take action under various antitrust laws.

The Attorney General may also file suit against retailers for "price gouging."  Under the Consumer Protection Act, a retailer may not charge a price that is "grossly in excess of the price at which similar property or services are sold."  The Attorney General's office monitors gas prices daily and immediately investigates price-gouging claims.  During 2003 - 2008, frequent daily price swings of 30 - 40 cents per gallon were common due to international events, natural disasters, industrial accidents at refineries, and other causes. 

Question:  What if all of the gas stations in a certain geographic area raise their prices by the exact same amount on the same day?  Isn't this price fixing?

Answer:  Retailers are free to independently determine what they should charge for gasoline.  Retailers in similar geographic areas often price match, therefore, the cost of gasoline appears to rise or fall at the same time.  If they explicitly agree together to raise or lower prices, such an agreement is illegal under state and federal antitrust law.  However, numerous court decisions have held that gas station retailers may respond to the price changes of other retailers by unilaterally "matching" their price changes.  Without proof of an actual, explicit agreement, the fact that stations match each other's price increases is not illegal.

Question:  What should I do if I feel there has been price fixing or gas gouging?

Answer: Attorney General Cox remains committed to fighting higher gasoline prices in court when those price increases violate the law.  If you become aware of direct evidence of a conspiracy between companies, or have verifiable evidence of a retailer charging a price "grossly in excess of the price at which similar property or services are sold," please contact the Attorney General's Consumer Protection Division:

Consumer Protection Division
P.O. Box 30213
Lansing, MI 48909

Phone: 517-373-1140

Toll-free within Michigan: 1-877-765-8388
Fax: 517-241-3771
www.michigan.gov/ag (online complaint form)