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# Legislative Bulletin........................................................May 23, 2007

**Contents:**

**H.R. 1252**---Federal Price Gouging Prevention Act

H.R. 1252---Federal Price Gouging Prevention Act (*Stupak, D-MI*)

**[Order of Business]{.underline}**: The bill is scheduled to be
considered on Wednesday, May 23^rd^, under a motion to suspend the rules
and pass the bill (therefore allowing no amendments to the bill and
requiring a two-thirds vote for passage).

**[NOTE]{.underline}:** The version on suspension today has been amended
since it was introduced. To see a summary of the introduced version, see
the RSC Policy Brief at this webpage:
<http://www.house.gov/hensarling/rsc/doc/PB_042607_pricegouging.doc>.

**[Summary (as amended)]{.underline}**: H.R. 1252 would make it a
[federal crime]{.underline} for any person to sell, at wholesale or at
retail in an area and during a period of an energy emergency, gasoline
or any other petroleum distillate covered by a presidential proclamation
at a price that is **"unconscionably excessive"** and indicates the
seller is "**taking unfair advantage** of the circumstances related to
an energy emergency to increase prices **unreasonably**." (emphasis
added)

The bill would authorize the President to issue an unlimited number of
30-day energy emergency proclamations (one at a time) for any area
within the jurisdiction of the United States, during which the
price-crime provision above would apply. A proclamation, which could be
issued up to one week in advance of a **"reasonably foreseeable"**
emergency, would have to state the geographic area covered, the gasoline
or other petroleum distillate covered, and the time period that such
proclamation would be in effect.

In determining whether such a violation has occurred, the following
factors would have to be considered:

-   whether the amount charged by a person for the applicable product at
    a given location in a proclamation-covered area:

> \--"**grossly exceeds** the average price at which the applicable
> gasoline or other petroleum distillate was offered for sale by that
> person during the 30 days prior to such proclamation; (emphasis added)
>
> \--"**grossly exceeds** the price at which the same or similar
> gasoline or other petroleum distillate was readily obtainable in the
> same area from other competing sellers during the same period;
> (emphasis added)
>
> \--"**reasonably reflected** additional costs, not within the control
> of that person, that were paid, incurred, or reasonably anticipated by
> that person, or reflected additional risks taken by that person to
> produce, distribute, obtain, or sell such product under the
> circumstances; (emphasis added) and
>
> \--"was **substantially attributable** to local, regional, national,
> or international market conditions; (emphasis added) and

-   whether the quantity of the applicable product the person produced,
    distributed, or sold in a proclamation-covered area during a 30-day
    period following the issuance of such proclamation increased over
    the quantity that that person produced, distributed, or sold during
    the 30 days prior to such proclamation, taking into account "**usual
    seasonal demand variations**." (emphasis added)

**[NOTE]{.underline}:** Nowhere in the legislation are the operative
terms "unconscionably excessive," "unfair advantage," "unreasonably,"
"reasonably foreseeable," "grossly exceeds," "reasonably reflected,"
"substantially attributable," or "usual seasonal demand variations"
defined explicitly.

H.R. 1252 would also make it a [federal crime]{.underline} for any
person to report to a federal agency information related to the
wholesale price of gasoline or other petroleum distillates "with actual
knowledge or knowledge **fairly implied on the basis of objective
circumstances**" that such information is false or misleading. (emphasis
added---another key phrase left undefined in the bill)

Transactions on futures markets would not be covered by this
legislation, nor would crude oil or natural gas.

The Federal Trade Commission (FTC) would be tasked with promulgating and
enforcing the provisions above. Specifically, the FTC would have to
enforce violations of the above provisions as unfair or deceptive trade
practices, [with a particular emphasis on companies with total U.S.
wholesale or retail sales of gasoline or other petroleum distillates
above \$500 million per year]{.underline}.

The penalties for violations would be as follows:

[Civil (per **day**)]{.underline} (FTC) [Criminal]{.underline} (DoJ)

Unconscionable pricing Up to \$3 million or Up to \$150 million (for

(retail or wholesale) up to 3 times the excess corporations); up to

> profits \$2 million and/or 10 years

in prison (for non-corps.)

False price reporting Up to \$1 million Up to \$150 million (for

(wholesale) corporations); up to

\$2 million and/or 10 years in prison (for non-corps.)

A state attorney general could bring a civil action under H.R. 1252 (in
a U.S. district court) on behalf of the residents of his state, if he
feels that "the interests of the residents of the State have been or are
being threatened or adversely affected" by a retail-sale-level violation
of the "unconscionable pricing" provisions of this legislation. The
civil action could seek to either compel compliance with this
legislation or to impose the civil penalties authorized by this
legislation, and the FTC could intervene in any such state action.

The state action could be brought in a judicial district in which the
defendant operates, was authorized to do business, **[or]{.underline}**
is physically found (note the concerns about venue-shopping in the
"Conservative Concerns" section below). Furthermore, process could be
served in such state action "without regard to the territorial limits of
the district or of the State in which the civil action is instituted,"
and "a person who participated with the defendant in an alleged
violation that is being litigated in the civil action may be joined in
the civil action without regard to the residence of the person."

No state action could be brought while an already-initiated FTC action
is pending. This legislation would NOT prevent a state attorney general
from taking state-only actions in state courts.

Revenues collected from violations of this legislation would be diverted
to the Low Income Home Energy Assistance Program (LIHEAP), via a newly
established fund in the U.S. Treasury: the Consumer Relief Trust Fund.
Expenditures from the Fund would be subject to appropriation.

H.R. 1252 would explicitly state that "nothing in this Act preempts any
State law."

[Recent Legislative History]{.underline}: In the 109^th^ Congress, a
variety of bills were introduced to address gasoline "price gouging,"
most of them by Democrats. The House passed, but the Senate never
considered, H.R. 5253, a bill to "prohibit price gouging in the sale of
gasoline, diesel fuel, crude oil, and home heating oil," sponsored by
Rep. Heather Wilson (R-NM). The bill, which is similar to H.R. 1252 in
the 110^th^ Congress, passed
[**389-34**](http://clerk.house.gov/evs/2006/roll115.xml). Of the 34
"no" votes, 33 were Republicans, and the vast majority of those
Republicans were RSC Members.

In the 109^th^ Congress, there was also some price-gouging language
contained in the GAS Act (H.R. 3893) that the House passed on October 7,
2005, by a vote of
[212-210](http://clerk.house.gov/evs/2005/roll519.xml). To read the RSC
Legislative Bulletin on the GAS Act, visit this webpage and scroll down
to page 5:

[http://www.house.gov/hensarling/rsc/doc/LB%2010-07-05\--GAS%20Act.pdf](http://www.house.gov/hensarling/rsc/doc/LB 10-07-05--GAS Act.pdf).

In the Senate this year, Senator Ted Stevens (R-AK) has introduced
related anti-price-gouging legislation (S. 94), and Majority Leader
Harry Reid (D-NV) has introduced a sense of Congress (S. 6) that would,
among other things, encourage the passing of laws to "enhance the
security of the United States by reducing the dependence of the United
States on foreign and unsustainable energy sources and the risks of
global warming by...preventing energy price gouging, profiteering, and
market manipulation."

**[Additional Background]{.underline}**: Gasoline prices naturally vary
from region to region, state to state, locality to locality, and even
block to block, for a variety of reasons, among those are:

-   state and local taxes variations;

-   proximity of supply;

-   supply disruptions;

-   competition in local markets;

-   environmental requirements; and

-   operating costs.

While gas prices may be approaching record highs in nominal terms, they
remain below past gas prices in relative terms. In other words, in
various decades, such as the 1930s, 1940s, and 1970s, the average price
of gas was more hurtful to the average American's pocketbook than is the
average price of gas today.
<http://www.factsonfuel.org/gasoline/index.html#us_pump_prices_in>

According to the American Petroleum Institute, the nationwide average
tax on gasoline is 45.8 cents per gallon as of March 2007, up 0.3 cents
from October 2006.  The federal tax on gasoline is 18.4 cents per
gallon.  The average state gasoline excise tax remained consistent at
18.2 cents per gallon.  Other taxes add 9.15 cents per gallon to the
average tax on gasoline.  These other taxes include applicable sales
taxes, gross receipts taxes, oil inspection fees, underground storage
tank fees, and other miscellaneous environmental fees. 
<http://www.factsonfuel.org/gasoline/index.html#howdotaxesaffect>

The FTC, as cited by the Heritage Foundation, has itself asserted that
price gouging is difficult to define and thus difficult to enforce.
Furthermore, the FTC found that price gouging did NOT occur in the
Hurricane Katrina aftermath, contrary to what many politicians had
assumed and asserted.

<http://www.heritage.org/Press/Commentary/ed062706a.cfm>

To access a variety of statistics about gas prices, including the change
in gas prices over time and the factors behind gasoline production,
visit these webpages: <http://www.factsonfuel.org/gasoline/index.html>

<http://www.fueleconomy.gov/feg/gasprices/FAQ.shtml#History>.

To read an analysis of the economic problems with price controls, visit
this webpage: <http://www.econlib.org/library/Enc/PriceControls.html>.

To read an op-ed by George Will against price controls, visit this
webpage:
<http://www.washingtonpost.com/wp-dyn/content/article/2007/05/16/AR2007051602429.html>.

To read a report on gas taxes in each state, visit this webpage:
<http://www.api.org/statistics/fueltaxes/index.cfm>.

**[RSC Bonus Fact]{.underline}**: In 1980, the average retail price of a
gallon of unleaded regular gasoline was \$1.25
(<http://www.eia.doe.gov/emeu/aer/txt/ptb0524.html>). If this price had
increased steadily with inflation, the price of the same gallon of
gasoline today would be \$3.12
(<http://www.minneapolisfed.org/research/data/us/calc/>).

**[Committee Action]{.underline}**: On February 28, 2007, H.R. 1252 was
referred to the Energy & Commerce Committee, as well as the Education &
Labor Committee, neither of which took subsequent public action on the
bill.

**[Possible Conservative Concerns]{.underline}**: Some conservatives
might be concerned that certain entities, such as *The Wall Street
Journal* and the Cato Institute, have described anti-price-gouging
efforts as federal interference in free-market pricing. Some
free-marketeers have asserted that there is no such thing as
price-gouging, as long as the consumer has reasonably accessible choices
of products, services, and prices in the open market. Anti-price-gouging
legislation would effectively mandate that certain private companies
sell their products within a price-range that is acceptable to the
government.

And although the price controls would be limited to periods in which the
President has declared an energy emergency, some conservatives may still
be concerned that such authority is unconstitutional and
anti-capitalist, while doing actual harm to the supply of gasoline
during emergencies---when arguably the ready availability of gasoline is
most important.

Furthermore, government intervention in the price of gasoline and
petroleum products may stifle the natural market reactions to prices
that consumers find uncomfortably high: strategic innovation, increases
in supply, increased efficiencies in production, increased research into
alternative fuels, etc.

In H.R. 1252, conservatives may object to the lack of definitions of the
operative words in determining whether price gouging or false price
reporting has occurred. There is considerable reliance on FTC
regulations---which the FTC says it does not want to promulgate---and no
guarantee that the FTC definitions will be any less vague or subjective.

Some conservatives may also be concerned that, for states with
anti-price-gouging laws on the books, H.R. 1252 would add a federal
layer of anti-price-gouging law on top of the existing state
anti-price-gouging laws, adding further uncertainty to the energy
marketplace.

Some conservatives may regard H.R. 1252 as allowing venue shopping for
lawsuits. For example, if alleged price-gouging occurred in South
Carolina, but the involved gasoline company also sells gas in
California, a civil action could be brought in California. This could
lead to lawyers strategically picking districts in which to file their
actions that are more favorable to claims of price gouging.

Lastly, some conservatives may be concerned that the revenues collected
from violations of this legislation would be diverted to the Low Income
Home Energy Assistance Program (LIHEAP), which has been viewed by
conservatives as an expensive program, of questionable
constitutionality, and peppered with fraud and abuse.

**[Possible Conservative Solutions]{.underline}**: In recent years, many
conservative sources, in and out of Congress, have proposed
pro-free-market solutions to the uncomfortably high gas prices,
including:

-   Streamline the environmental hurdles to building new oil refineries.

-   Make it easier for small refineries to increase capacity.

-   Allow more offshore (e.g. Outer Continental Shelf) and inland (e.g.
    Arctic National Wildlife Refuge) oil drilling.

-   Temporarily suspend the gas tax (see legislation soon to be
    introduced by Rep. Randy Kuhl of New York).

-   Temporarily suspend the gas tax and temporarily suspend spending on
    all transportation earmarks in the most recent surface
    transportation reauthorization bill.

-   Permanently reduce the gas tax.

-   Waive or repeal gas formulation (e.g. oxygenation) requirements
    under the Clean Air Act and related regulations.

-   Encourage private-market projects to recover usable energy from oil
    shale and to otherwise increase production of renewable/alternative
    fuel sources.

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-   Strengthen the existing investment tax credit for Enhanced Oil
    Recovery (using modern technology improvements to extract oil from
    previously unavailable sources) in section 43 of the IRS Code.

-   Waive the tariff on imported ethanol and waive regulations that
    limit refined gasoline imports.

**[Administration Position]{.underline}**: The Statement of
Administration Policy (SAP) states that the Administration is "strongly
opposed" to H.R. 1252. The SAP notes that, "[If H.R. 1252 or any similar
price control bill were presented to the President, his senior advisors
would recommend that he veto the bill]{.underline}."

Additionally, the Secretary of Energy wrote, in a letter to Rep. Vito
Fossella (R-NY) that, "The Administration strongly opposes the passage
of H.R. 1252 because it is essentially a 'gasoline price control bill'
that has the potential to exacerbate shortages and lead to 1970s style
gasoline lines....**Neither the Department of Energy nor the Federal
Trade Commission has found credible evidence that the rising prices are
due to collusive behavior among private oil companies.** The
Administration and many other experts believe that gasoline prices are
rising because of rising crude oil prices and limited refining capacity
relative to the increasing demand for motor fuels." (emphasis added)

Furthermore, the White House Council of Economic Advisers issued a white
paper, expressing concerns about the vagueness of the operative terms in
H.R. 1252 and asserting that the bill would do more harm than good for
consumers.

**[Cost to Taxpayers]{.underline}**: A CBO cost estimate was not
available at press time. Presumably, the bill would yield additional
revenues (from fines) that could then be spent after further
appropriation act.

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}**: Yes, the bill would create two new federal
crimes, overlaying existing state laws, and in violation of basic
capitalist principles of free-market pricing.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}**: Yes, the bill is filled with
mandates about what the private sector can and cannot do with and
regarding petroleum.

**[Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax
Benefits/Limited Tariff Benefits?]{.underline}**: Though the bill
contains no earmarks, and there's no accompanying committee report, the
earmarks rule (House Rule XXI, Clause 9(a)) does not apply, by
definition, to legislation considered under suspension of the rules.

**[Constitutional Authority]{.underline}**: A committee report citing
constitutional authority is unavailable.

[Note]{.underline}: Article VI, Clause 3 of the U.S. Constitution states
that, "The Senators and Representatives...and all executive and judicial
Officers...shall be bound by Oath or Affirmation, to support this
Constitution."

**[Outside Organizations]{.underline}**: Various conservative entities
have expressed public opposition to this legislation, including the
American Conservative Union, Americans for Tax Reform, the Club for
Growth, FreedomWorks, the National Taxpayers Union, the National
Association of Manufacturers, and the U.S. Chamber of Commerce. The
Heritage Foundation has also written against the notion of federal price
"gouging" legislation. The American Petroleum Institute is strongly
opposed to the bill as well.

**[RSC Staff Contact]{.underline}**: Paul S. Teller,
<paul.teller@mail.house.gov>, (202) 226-9718