Georgia Bill Would Add Useful Flexibility to Price Gouging Law

Michael Giberson

A bill passed by the Georgia state senate would add some helpful flexibility to the state’s anti-price gouging law.  The primary purpose of the bill would be to allow the state to limit the range of items for which the price gouging rules will be enforced based upon the nature of the emergency.  For example, if a storm mostly damaged windows and roofs, the price gouging rule might be enforced on plywood and hotel rooms, but not on ice and gasoline.  Another part of the bill would allow gasoline retailers to raise the price of retail gasoline to reflect the cost of replenishing the store’s supplies rather than linking allowed retail prices to the historical cost of the gasoline sold. Currently the state allows “replacement cost pricing” for plywood during declared emergencies, but gasoline price increases were evaluated with reference to pre-emergency historical cost.

I’d rather see the state repeal its price gouging laws altogether.  The laws probably create more costs than benefits, and can lead businesses to shut down during emergencies rather than risk violating anti-price gouging laws.

From the Atlanta Constitution-Journal, “Bill allows gas price increase in emergency“:

Less than two years after hurricanes brought a run on gas, the state Senate has passed legislation letting station owners charge much higher prices as soon as an emergency is declared.

Officials with the Governor’s Office of Consumer Affairs worry the measure, if it becomes law in its current form, would make it tough to prosecute a gas station for price gouging.

“I think it would be very difficult to determine that price gouging had occurred,” said Bill Cloud, spokesman for the office. “I don’t know that we would have confidence in saying that, as the bill exists right now, we would be able to define, or describe or enforce price gouging as it relates to petroleum products.”

The bill was originally meant to give the governor more flexibility in deciding which products would fall under gouging laws during an emergency. For instance, if an emergency involved damage to homes but not a disruption in the flow of gas, gouging laws could apply to plywood or building materials and not fuel.

However the bill, which was backed by Gov. Sonny Perdue, was rewritten by the Senate Agriculture and Consumer Affairs Committee to allow stations, in an emergency, to charge for gas what they decide it will cost to replenish the fuel they have on site.

Meanwhile, one committee of the Connecticut state assembly unanimously approved a bill which offers a “mathematical definition that the state would use to identify gas station price gouging subsequent to natural disasters.”

“In the past, gas dealers have had trouble knowing what constitutes an emergency and what the definition of gouging is,” [State Rep. Jim] Shapiro said. “So the current provisions against gouging have been tough to enforce. This new anti-gouging provision clarifies the rules to provide consumers and businesses information to act accordingly when there is problems.”

Clarity in the law is usually a good thing – in order to comply with the law, businesses need to be able to tell what level of price increase will constitute a violation of the law.  But, as an industry spokesman stated, “the devil is in the details.”

In this case the bill declares it will not be a violation of the price gouging law if a retailer’s average margin during the “abnormal market disruption” is no higher than the maximum margin during the 90-day period prior to the beginning of the market disruption.  Because the definition is in terms of changing margin rather than changing prices, it may allow retail prices to track changing wholesale costs.  However, the bill fails to clarify whether the relevant rack price is the historical rack price paid at the time of the initial wholesale gasoline purchase, or a contemporaneous rack price at which replacement fuel could be acquired. The historical cost method would restrain price increases and hamper market adjustment more, the contemporaneous rack price method would restrain price increases and hamper market adjustment less.

Once again, probably an improvement over the existing state of affairs, but I’d rather see Connecticut repeal its price gouging laws altogether, too. As with Georgia, the Connecticut law probably creates more costs than benefits.