Baltimore Sun: Franchot Concerned About "Price Gouging" for Gasoline Click HERE to Bring Up Full Post

Baltimore Sun, May 26, 2007:

State Comptroller Peter Franchot said yesterday that he is launching a probe into high gas prices and wants answers from oil companies - particularly why the price can range 10 or 20 cents a gallon between nearby stations selling the same brand.

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Twenty-one governors, including Maryland's Martin O'Malley, called this week for an inquiry into pricing. The House voted for legislation making gas price gouging a federal offense and also approved a bill to give the federal government the power to sue the Organization of Petroleum Exporting Countries, the major oil cartel.

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Rayola Dougher, a senior economic analyst at the American Petroleum Institute, a trade association for the oil and natural gas industry, said the practice drives prices down, not up.

Refiners, distributors and marketers - sometimes the same entity, sometimes not - can decide to charge a station with stiff competition less than a station that's in a better position elsewhere in the area.

Several issues.

1. I return to my beloved refrain of the imperialist expansion of Comptroller Franchot's bailiwick. Is it the legitimate business of the Comptroller of Maryland - a tax collector - to engage in consumer protection activity? While gasoline is substantially taxed on a per gallon basis, and inaccurate measures of gasoline volume (mentioned in the Sun article also) can provide either an illegal windfall or shortfall to the state's coffers, it's not at all clear how the state's tax collector has a piece of this action. The Office of the Maryland Attorney General, Consumer Protection Division, has a large staff of attorneys, investigators and paralegels. It's like hearing that the IRS has gone into the truth-in-advertising enforcement business for hardware or socks.

2. Lowering one's prices to meet intense hyperlocal demand on three-gas-station intersection is not evidence in itself of an agreement to fix prices. It can be consistent with such an agreement but it is not evidence of one. Agreements between competitors to hold prices high (or low) are illegal under the Sherman Anti-Trust Act (15 USC Sec 5.) However, if there is other evidence of price coordination between competitors, such as sharing information about zones, that would be fairly powerful evidence of an contract, combination or conspiracy in restraint of trade.

3. Franchot once had a commitment to transit issues, having served on multiple committees and fora dealing with such issues. Artificial efforts to keep gasoline cheap postpone the inevitable: the reckoning with both an overburdened transit network and the environmental damage that comes from the one-commuter-per-tailpipe model of commuting. When gasoline rises in price, consumers respond by considering alternatives, such as combining trips, ordering goods online instead of driving to the mall, carpooling/slugging or public transit in the short term, and transit improvements and mixed-use development as is common in many parts of Canada become more attractive. There is a reason why Saudi Arabia wants to sell oil relatively cheaply now: they are afraid of structural reforms in fuel consumption here that would result from expensive gasoline.

Franchot should be more worried about making sure that he gets full enforcement of all taxes including gasoline taxes so that the projected budget deficits either do not materialize or come worse than feared. He should leave nickel-and-dime pricing decisions to other branches of government to address or (ideally) to leave alone in benign neglect.

Baltimore's transit system is a joke, with a reported about half of all buses arriving late. You know who has an award-winning transit system? The city in the country least likely to be considered a transit haven: Sunny, low-density, tailpipe-and-freeway-addicted Los Angeles, the city that infamously ripped up its transit network of streetcars around the same time that Baltimore did. So, Comptroller Franchot, please focus on your day job so that taxes get collected and Baltimore's weak, inefficient transit system doesn't get further damaged bu budget cuts while you are focused on who's charging $3.17 a gallon versus $3.23. This is from a life-long Marylander who commutes 800 miles a month by car (1200 by rail.)