Chairman
Stevens, Co-Chairman Inouye, Chairman
Domenici, Ranking Member Bingaman and
Members of the two Committees. I am Peter
Harvey, Attorney General for the State
of New Jersey. Thank you for inviting
me to testify today about energy pricing
and profits.
As New Jersey’s top law enforcement
officer, I filed lawsuits in September
against three oil companies and a number
of independent gas-station operators alleging
that they violated New Jersey’s
Motor Fuels Act and Consumer Fraud Act
in connection with gasoline price increases
in the wake of Hurricane Katrina. New
Jersey citizens, like consumers in other
states, were stunned by the steep price
hikes that followed this tragic storm
in the Gulf States. Similar to other states,
New Jersey has a specific price gouging
law that is part of our Consumer Fraud
Act. It applies, however, only when a
state of emergency has been declared within
our state. Its protections were not available
to us following Katrina because this disaster
occurred in another region.
To
protect our consumers, who rightly questioned
whether they were being treated fairly
and honestly, we thoroughly investigated
what was happening at our gas stations
in New Jersey and took the strongest legal
action we could under our state laws.
I’m here to share our experience
in New Jersey and discuss why I believe
that we need a federal price gouging statute
that applies nationwide to the sale of
essential goods and services following
a disaster occurring in a particular region
of the United States.
A.
New Jersey’s Investigation
In the week after Katrina struck, gas
prices in New Jersey soared upward, to
an average of $3.16 a gallon by Labor
Day. That was a dollar higher than the
average price just one month earlier.
Hundreds of concerned citizens telephoned
the New Jersey Division of Consumer Affairs
and the State Office of Weights and Measures,
both of which are within the Attorney
General’s Office. The acting Governor,
Richard Codey, also expressed concern
about escalating gas prices. We responded
by closely monitoring gas prices and investigating
individual complaints regarding gas retailers.
To
be specific, we sent state, county and
municipal weights and measures inspectors
to visit more than 500 of New Jersey’s
3,260 gas stations. The Office of Weights
and Measures in the Division of Consumer
Affairs has responsibility for ensuring
that all commercial weighing and measuring
devices, including gas pumps, accurately
measure commodities being sold to consumers.
In this case, under our oversight and
pursuant to our statutory enforcement
authority, these state and local inspectors
conducted broader investigations to ensure
that gasoline retailers were complying
with state laws and treating customers
fairly. They monitored price changes and
demanded access to books and records that
retailers are required by law to maintain
and make available to state inspectors.
The inspectors identified over 100 violations
of New Jersey’s laws.
B. Our Lawsuits Against Oil Companies
and Gas Stations
On
September 26, 2005, my Office filed suit
against three oil companies, Hess, Motiva
Shell and Sunoco, as well as various independent
gas-station operators. The suits allege
violations at 31 gas stations: 13 owned
by the three oil companies, and 18 independently
owned. As I previously stated, without
a declared state of emergency in New Jersey,
our state’s price gouging statute
does not enable us to target gas retailers
and suppliers who seek to profit unjustly
as a result of a disaster occurring in
another part of the country. In our suits,
we instead allege specific violations
of New Jersey’s Motor Fuels Act
and Consumer Fraud Act. Specifically,
we allege that the defendants violated
a provision in the Motor Fuels Act that
prohibits a gas retailer from changing
gas prices more than once in a 24-hour
period. We also allege that price increases
that violate the Motor Fuels Act constitute
an unconscionable commercial practice
in violation of our Consumer Fraud Act.
In other instances, we allege that defendants
posted prices on roadside signs that were
lower than the actual prices charged at
the pumps, a violation of the advertising
regulations under the Consumer Fraud Act
that prohibit deceptive practices and
misrepresentations in the sale of merchandise.
In addition, we charged defendants with
not maintaining and providing access to
books and records required to be kept
under the Motor Fuels Act.
We
were able to pursue claims against these
retailers who failed to obey our laws
by their rapid escalation of prices. We
do believe that part of the volatility
in gas prices in New Jersey following
Katrina was the result of retailers charging
prices based not on what they actually
paid, but on what they feared they might
eventually pay or, worse yet, on what
they thought they could get away with
given the market conditions. While some
busy gas stations do get fuel deliveries
more than once a day, others were charging
increasingly high prices for the same
gas they had in the ground when the day,
or week, began. New Jersey’s Motor
Fuels Act, enacted in 1938, was indeed
aimed at reducing volatility in gas pricing.
However, this trust-busting era legislation
was originally intended to maintain healthy
competition by preventing one gas retailer,
who is perhaps in a stronger financial
position, from continuously undercutting
a competitor’s prices to drive the
competitor out of business. In other words,
it was aimed at preventing predatory pricing.
The Motor Fuels Act still carries the
penalty schedule originally enacted in
1938, with penalties ranging from $50
to $200 and retail license suspension.
Unfortunately, these penalties are inadequate
to punish an oil company given the enormous
revenue generated by the sale of gasoline.
While
the Motor Fuels Act applies to the unlawful
pricing conduct engaged in by certain
oil companies in New Jersey, it does not
get at the heart of the price gouging
issue that we experienced in the wake
of Katrina. Our Consumer Fraud Act casts
a wider net and carries penalties of up
to $10,000 for a first offense and up
to $20,000 for subsequent offenses. However,
this law also is inadequate because it
still does not get us beyond the gas retailer
and onto the conduct of the supplier or
refinery. Moreover, it does not provide
penalties that, for a big oil company,
represent more than a marginal cost of
doing business. We are here today because
serious questions have been raised about
why the major oil and gas companies posted
record profits for the most recent quarter
when consumers who rely upon gas every
day to get to work and run essential errands
were getting squeezed financially with
record high prices, increased, perhaps,
without any economic justification. I
believe that our experience with Hurricane
Katrina clearly points to the need for
a federal price gouging statute.
C.
The Need for a Federal Price Gouging Statute
When there is a state of emergency declared
in New Jersey, we have the ability under
the price gouging provisions of our Consumer
Fraud Act to take action against merchants
operating within the state who reap unconscionable
profits from essential commodities. In
the impacted geographical area, we can
prevent those affected by the disaster
from being unfairly exploited by profiteers
and sharp operators. However, when there
is a disaster or emergency situation in
one area of the country that affects the
supply and pricing of an essential, nationally
distributed product, as with Katrina,
Congress should provide a mechanism that
reduces the volatility of prices across
state lines. Even if states were to enact
new laws to address these situations,
a state-by-state approach would prove
difficult and inconsistent. A nationwide
problem demands a nationwide solution,
though I would recommend one that does
not pre-empt state remedies and, ideally,
one that provides an enforcement role
for state attorneys general.
Let
me make one thing clear: I am not talking
about attacking profits; I am talking
about attacking profiteering. There is
a difference. Consumers should not face
artificially inflated prices that bear
no substantial relationship to the supply
of goods. Congress has long recognized
the need to curb profiteering. After the
outbreak of the Civil War, it enacted
the Federal False Claims Act to prevent
false claims and overcharging by those
who contracted with the federal government
to provide essential services. Its impact
has greatly expanded in recent years through
private enforcement actions authorized
under the law. A federal price gouging
statute should take effect, when needed,
for a limited time span, perhaps for 60
days. The purpose of the law should be
to allow things to settle, just as the
New York Stock Exchange can now close
the market to prevent a crash if there
is a large enough fall in stock prices.
The factors involved in fuel pricing are
complex, and sustained attempts to control
fuel prices might prove counterproductive.
Ultimately,
we must have a balance that accommodates
business as well as the consumer. People
must to be able to buy essential goods
such as food, gasoline, home heating oil
and electricity. I would emphasize that
in striking that balance, we cannot lose
sight of just how essential these goods
are to Americans. For some, the cost of
a tank of gas can be the obstacle that
prevents them from driving to a doctor’s
appointment or to the grocery store for
food. We hear stories during winter of
elderly Americans who freeze to death
because they run out of fuel oil, and,
in summer, of those who die in the heat
for lack of electricity and air conditioning.
People should not have to make life or
death decisions based upon prices that
have been put out of their reach by profiteering.
Many will not have a choice, and the result
will be death. Economics will self-select
them to freeze, boil or live in darkness.
If Katrina teaches us nothing else, it
should teach us that our emergency plans
must include providing for the poor, the
immobile, the sick and the elderly --
in other words, those with the least resources
to help themselves.
Thank you again for the opportunity to
testify. This is a critical issue, and
I am prepared to offer whatever assistance
you might request in the future as you
address it. I look forward to answering
any questions that you have for me today.
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