Category Archives: Energy markets

Notes on the post-Sandy NJ/NYC black market in gasoline

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Michael Giberson

Jeffrey Tucker at Laissez Faire Today points out Peter C. Earle’s blog on the emergence of a black market in gasoline in northern New Jersey and New York City during the post-Storm Sandy period. A few days after the storm swept through, when politicians began reasserting their willingness to enforce price gouging limits on gasoline sales, Earle went looking for signs that the price caps contributed to gasoline sales shifting to the black market.

Without too much trouble Earle found the black market: tweets naming offer prices or bid prices much higher than legal retailers could legally charge; on-line want ads with prices asked at $15 or $25 per gallon, and other ads with buyers suggesting $5. He tracked bids and offers for a few days, noticing a kind of rough fumbling for a mutually workable price–the way price discovery works when it has to work in the shadows. As news stories noted at the time, some persons were offering a variety of personal services in exchange for gasoline in place of a cash payment.

I wish news organizations with their teams of reporters and camera crews would have explored these market developments more carefully-not just going for the “sex for gas” titillation, but also reporting the more ordinary money trades. It would be great to have price, quantity, and location data for all of the black market exchanges, too, so as to get a clearer picture of the costs of price gouging policy’s price caps. But Earle’s reports provide some useful insight into how people creatively respond to politicized efforts to control prices. Earle has performed a real public service.

It is interesting to note that consumer bids tended to anchor around $5/gallon, perhaps near the highest that consumers could imagine being willing to pay under most circumstances, and yet sellers were often offering at a much higher level. (This $5 stickiness in buyer bids may be evidence of an anchoring effect, that is to say a behavioral bias that causes the market to function less efficiently in that consumers resist transactions that would contribute to consumer surplus. See related issues raised here.)

Norwalk Connecticut Gas Station Settles on Charges of Sandy-Related Price Gouging

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Michael Giberson

When it comes to gasoline price increases, how much do prices have to rise before a price increase is “unconscionably excessive”? What difference between prices before and after a declaration of emergency is large enough to create a “gross disparity”? Twenty percent? Ten percent? Five?

In Connecticut these days it looks like a mere 2.25 percent price increase after a big storm is a sufficient danger to the consuming public to invite the wrath of Conn.’s Department of Consumer Protection. As reported in a DCP press release:

A  Norwalk Shell gasoline station has signed an agreement with the Department of Consumer Protection and has paid $1,449 to the agency to settle allegations that the station raised its retail gas price by 10 cents per gallon on November 1, 2012, without there being a corresponding increase in wholesale gas prices for that day. The conduct occurred in the immediate aftermath of Storm Sandy. State law prohibits fuel suppliers from charging unconscionably excessive prices during times of abnormal market disruptions, such as storm-related disasters.

“Given that the state was in a period of abnormal market disruption due to the severe impact of Storm Sandy, we determined that the Shell station’s 10-cent per gallon increase was not justified and constituted an unconscionably excessive price for gasoline,” Consumer Protection Commissioner William M. Rubenstein said today.  “The retailer sold 4,830 gallons of gasoline that day at the increased price, but we are requiring him to disgorge three times the amount of that unfair profit.”

The Shell station is known as Connecticut Avenue Shell and is located at 307 Connecticut Avenue, Norwalk.  While the station does not admit to any wrongdoing, it entered into the agreement, which requires it to pay $1,449 to the Department of Consumer Protection for its complaint resolution, education and enforcement programs.

A newspaper account fills in some details: a few days after November 1 the newspaper observed that Connecticut Avenue Shell was charging $4.55 at a time when many stations in the area were charging between $3.95 and $4.05. (A check of connecticutgasprices.com supports the view that the station regularly charges higher prices than other stations in the area.)

Assuming the price was $4.45 for the days leading up to November 1, the 10-cent change constituted a 2.25 percent increase in the price charged for regular unleaded gasoline at the station.

No doubt the retailer concluded that $1,449 was less than its lawyers would have charged to fight the allegation, and so it took the commercially expedient route of settling with the state. Still, the settlement puts a pretty tight cap on future retailers who may wish to raise prices during times the state has asserted a market disruption.

A call for controlled experimentation in California’s energy efficiency programs

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Michael Giberson

UC-Berkeley economist Catherine Wolfram has an op-ed in the Sacramento Bee advocating the state use controlled experimentation to discover with energy efficiency programs work best. As she explains, retailers are increasingly using experimentation and advanced data analysis to discover how to increase sales. Surely, she suggests, when planning to spend nearly half a billion tax dollars annually on energy efficiency California ought to devote a bit of effort into separating programs that sound good and work well from those that merely sound good.

[HT to Elizabeth M. Bailey at Energy Economics Exchange.]

New group formed to promote research in U.S. electric power markets

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Michael Giberson

Last week saw announcement of the Electric Markets Research Foundation. The group plans “to fund unbiased research that will examine the track records of centralized electricity markets and traditionally regulated markets in providing affordable and reliable supplies of power as well as meeting clean energy, transmission and environmental needs.” The news release continues:

“There is a dearth of research available on this market-versus-regulation debate and little analysis has been conducted on this 50-state experiment. The Electric Markets Research Foundation intends to address this by supporting research by academics and industry experts on major electric market issues, including customer rates, reliability and service,” said Bruce S. Edelston, the foundation’s president and the driving force behind the research effort.

The governance group looks a little heavy on DC-oriented policy folks, except for Albert Danielsen, a long-time professor of economics at the University of Georgia and executive director of the Bonbright Center for Public Utilities at U. of G. I guess we’ll have to count on Danielsen to keep an eye on the lobbyists.

I’m looking forward to their efforts.

American biofuel policy increases hardship on the Guatemalan poor, and you help every time you buy gasoline

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Michael Giberson

Next time you see one of those “This product may contain up to 10 percent ethanol” stickers on a gas pump, ask yourself why federal government biofuel policies are forcing you to help increase hunger and hardship among poor Guatemalans.

Sure, politicians in their comfortable offices in Washington, DC, didn’t intend to help starve the world’s poor. But biofuel policy is requiring conversion of food to fuel and contributing to higher corn prices, so having that effect.

Looking at you, Iowa Congressional delegation.

New York newspaper says “add shame to penalty for gouging”

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Michael Giberson

Is price gouging like highway robbery? The Journal News, from the suburbs north of New York City, said: “Add shame to penalty for gouging“:

Given the extraordinary cost of just about everything in New York, it is often difficult to distinguish price-gouging, which is both illegal and despicable, from the usual highway robbery, which is just sort of expected. Then there are those merchants, as seen during Superstorm Sandy, who make the distinction so abundantly clear that all doubt is removed. Stiff fines and restitution should await these offenders, should the allegations hold up; a measure of public shaming ought to be part of the menu of sanctions as well.

Attorney General Eric Schneiderman, following up on familiar pre-storm threats and warnings, announced enforcement actions Thursday against a dozen gas station operators who allegedly kicked motorists when they were down — after rampaging Sandy darkened many gasoline stations, disrupted gasoline supplies and caused consumers, many toting gasoline cans, to endure interminable waits outside stations. Long lines and even rationing weren’t all that they faced.

For example, there were Mobil stations in Katonah, at 80 Bedford Road, and in Spring Valley, at 189 Route 59, where gasoline sold for $4.79 and $4.65, respectively, according to the allegations from the AG’s Office. Those prices — like all the charges highlighted by Schneiderman — were for a gallon of regular, and decidedly higher than normal, even in this high-cost region.

There was the BP station in Elmont where the price was an attention-getting $6.99; prices at the Shell in East Elmhurst, according to complaints, ranged from $4.89 to $7.90.

But they had nothing on the purported gouging leader, the Mobil at 3424 East Tremont Avenue in the Bronx, “where a consumer waiting in line for over an hour was just three cars from the pump when she was told that she would be charged $50 for five gallons of gasoline — $10 per gallon.” Stations nearby charged $3.95.

If I may interject, I think it is useful to distinguish between cases of suddenly higher prices and cases in which stations charge higher than the publicly posted price.

The “Stations nearby charged $3.95″ will be an incomplete accounting of the cost, since they must have had lines too. It would be great if the New York Attorney General’s office collected data on time spent in lines, might be useful in helping to calculate the full cost of low station prices.

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New Yorkers didn’t ‘share the pain’ of higher gasoline prices during emergency

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Michael Giberson

One idea advanced by proponents of anti-price gouging laws is that after disaster strikes people should put aside their usual self-interests, join in with the community, and share in the burden of recovery. What these proponents often miss is that normal market adjustments will support a sharing in the burden of recovery, even among those lacking much in the way of charitable impulses, when prices are relatively free to adjust.

Prices go up in the disaster zone, supplies are diverted from elsewhere, prices go up elsewhere, people elsewhere cut back a little in response to higher prices, and there we have it: sharing the pain. Adam Smith’s “invisible hand” is a helping hand to those in need.

But the actions of the “invisible hand” were constrained by the very visible hand of the state. In both New York and New Jersey state officials were prominently threatening to slap businesses with thousands of dollars in fines if prices went up too much. Prices did go up a bit in the disaster struck area, but not enough to prompt extraordinary efforts from elsewhere. New York saw none of that normal, voluntary response to changing supply and demand conditions elsewhere, and post-disaster sacrifices remained concentrated mostly in the hardest hit areas.

Consider the price chart below, which shows regular gasoline prices in Albany, Buffalo, and New York City, all in New York State, from June of 2011 through the end of November 2012. Typically these prices move up and down together with just a little localized variation. Beginning at the end of October 2012, during Sandy and its aftermath, prices in the New York City moved sharply higher for nearly two weeks. In New York state outside the disaster-struck area, however, gasoline prices barely slowed their descent from late summer highs.

18_months_of_NY_pricesGasoline lines? Odd-even rationing? Gasoline stations pumped dry? Yes, but only around the power-out, flooded-out, storm-struck area.

Elsewhere in the state: business as usual but for the occasional invitation to chip in $10 to the Red Cross.

ROCKETS AND FEATHERS NOTE: Interestingly, Buffalo prices pretty consistently show a slower price descent when prices are falling than either New York City or Albany. I recall that at the end of 2008 a Buffalo-area Congressman was complaining about the same thing. See here and here. The second half of 2008 was a time of fairly consistently falling gasoline prices throughout the U.S., interrupted only by a short lived mid-September price spike due to Hurricane Ike. Gasoline price researchers, start your engines.

Another round of price gouging charges in New York

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Michael Giberson

The New York Attorney General’s office continues its aggressive pursuit of price gouging violations, announcing another 12 cases last week. From the press release:

“Our office will continue to take enforcement actions against price gougers because ripping off New Yorkers is against the law,” Attorney General Schneiderman said. “We are actively investigating the hundreds of complaints we’ve received from consumers of businesses preying on victims of Hurricane Sandy. There must be no tolerance for unscrupulous individuals who take advantage of New Yorkers trying to rebuild their lives.”

… Among the current batch of 12 enforcement targets is a Mobil station at 3424 East Tremont Avenue in the Bronx where a consumer waiting in line for over an hour was just three cars from the pump when she was told that she would be charged $50 for five gallons of gasoline – $10 per gallon. In contrast, stations nearby were charging $3.95 a gallon.

At a second station, the Coastal station at 1575 Route 112 in Port Jefferson Station, a consumer reported being charged $4.69 per gallon of gasoline while neighboring stations were charging between $3.69 and $4.05. One consumer waited in line for over an hour and did not see a sign detailing prices until after the attendant began pumping gas for the customer.

The 12 stations charged with price gouging are branded: Coastal, BP, Liberty, Ultra, Rio, Getty, Gulf, Shell, Sunoco, Mobil (3). Charged in the earlier 13 price gouging cases were: The 13 gasoline stations are branded: Shell (3), Mobile (4), USA Petroleum (2), Babylon Gas/Express Market, Sonomax, Delta, and Getty.

In New Jersey seven gas stations have been charged with price gouging, with the following brand names: Lukoil (2), Gulf, Delta, Exxon, BP, and Sunoco.

Before getting too excited about the IEA’s forecast of US oil production leadership…

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Michael Giberson

Earlier this week the International Energy Agency released their annual World Energy Outlook, and new is a forecast that the United States would surpass Russian and Saudi Arabia to once-again become the world’s largest oil producer, sometime around 2020. The news set off a wave of happy press, i.e. the Wall Street Journal,  more WSJ, Fox Business, Oil and Gas Journal, Reuters, and this odd warning from OPEC that said the report could lead to higher prices. Mark Mills offers a slightly tempered view of the IEA report at Forbes. 

Many of the news reports, if you get beyond the headline and first few paragraphs, do provide a bit of context. The projection depends on a host of factors, not the least of which is the price of oil over the next few years. If oil prices drop much below $60 bbl., the U.S. oil boom will slow much more quickly than Saudi or Russian output. U.S. regulatory changes, the pace of pipeline construction, and numerous other factors will also affect how quickly U.S. production can grow.

More generally, such long term forecasting exercises are regularly wrong. Indeed, the news here is exactly the change in the forecast, i.e., the IEA view that their earlier forecasts were wrong. The obvious question is “why we should believe the new view?” Of course changing views when the facts change is a most reasonable thing to do, but we ought not believe that the facts can’t change again.

I recommend we all go read Vaclav Smil on the “Perils of Long-Range Energy Forecasting” (Technological Forecasting and Social Change, 65:3, 2000).