Federal ban is needed to prevent price-gouging

THE ISSUE A federal investigation has concluded that the sharp increase in gasoline prices last year was caused by market factors.

OIL COMPANIES recorded obscene earnings in the aftermath of Hurricane Katrina, but the Federal Trade Commission has concluded that they broke no law. The FTC report sides with the industry's explanation that the gasoline price spikes and continuing high prices result from market forces, but a federal law against price-gouging is needed.

In a 222-page report, the commission found 15 examples of pricing by refineries, wholesalers and retailers that it said technically could be defined as "price-gouging." However, in all but one of those cases -- which went unnamed -- the steep price increases followed regional or local trends, so were probably not gouging.

At a Senate Commerce Committee hearing following release of the report, Senator Inouye pointed out that it did not explain why gas prices jumped to $6 a gallon in Atlanta. The report "does not convince me that consumers were treated fairly," said Inouye, the committee's ranking Democrat.

The high prices in the two weeks following Katrina were blamed on the damage to refineries along the Gulf Coast. However, they had a direct effect on prices in Hawaii, which were capped on the basis of prices on the Gulf Coast and in New York and Los Angeles even though the state gets its crude oil from Asia and Alaska.

Gas prices surged to nearly $4 a gallon for regular unleaded in many parts of Hawaii in the two weeks following Katrina, while the nation's average surpassed $3. As a result, big oil companies posted profits of $30 billion in that quarter. Exxon profits reached a record quarterly profit of $9.9 billion.

Hawaii's rates now average $3.40 -- a dime less on Oahu -- compared to the national average of $2.88. Hawaii prices are highest in the nation but only 4 cents higher than in California. Retailers in many California cities charge slightly higher prices than those in Honolulu.

The FTC report was met with justifiable bipartisan skepticism. "There's something really fishy here," said Sen. Trent Lott, R-Miss., pointing to the excessive profits and questioning the supply-and-demand explanation.

Although the price of crude oil rose in this year's first quarter, the "spread" between crude oil costs and retail prices of gasoline reached 30 cents a gallon, and rose to 40 cents in April. The spread is the amount the industry makes in profit.

The House has approved an energy price-gouging prohibition, and the Senate has begun to draft a similar bill. The legislation is needed because the price-gouging laws in 29 states vary widely and some are applied only in emergencies, which is the case in Hawaii.