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COLUMN: The Attorney General and high gas prices

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by Jack Conway | Attorney General

As I travel the state, I am frequently asked what I can do about high gas prices and price fluctuations across the Commonwealth.
 I understand the frustration with high gas prices. I understand how tough it is on hard-working families. No one wants to choose between filling up the gas tank or putting food on the table or paying a bill. And many of us rely on our vehicles to get to work, so that we can pay our bills. Be assured, protecting Kentucky consumers at the gas pumps is a top priority of mine.  
 So, why are gas prices in parts of Kentucky between 12 and 20 cents higher on average?  In 2008, we launched an investigation into the wholesale price of gasoline.
 Our experts uncovered strong data to suggest that Marathon’s acquisition of Ashland Oil in the late 1990s negatively impacted competition in the wholesale gasoline market in Kentucky.  In other words, our investigation indicated Marathon has a regional monopoly that allows it to manipulate gas prices at the wholesale level.  Even after approving the merger in the 1990s, the Federal Trade Commission (FTC) warned that of the nine states involved in the merger, one state bears watching- that was Kentucky.
 Marathon, which bases its prices off of the Chicago Spot Market, is the dominant supplier of gas to retailers who sell that gas in Kentucky.   In Louisville and Northern Kentucky, where the Environmental Protection Agency (EPA) mandates that reformulated gas (RFG) must be used, it supplies nearly 100 percent of the wholesale RFG. Whether you buy gas at a Chevron station, BP or Thornton’s, you are likely buying Marathon gas. EPA requirements account for about a 10-cent increase in the price of reformulated gas.  Our investigation shows the monopoly accounts for the additional 5 to 10 cent difference.
After we completed our investigation in 2008, we provided then FTC Chairman Jon Leibowitz with our findings because this is an antitrust issue that falls under the FTC’s jurisdiction.  The FTC did nothing. We even made our case to the U.S. Attorney General and the Justice Department’s Oil and Gas Price Fraud Working Group.  Again, federal regulators have done nothing to address Marathon’s dominant position in Kentucky.
I refuse to let this matter rest. Recently, I spoke with the FTC’s new Chairwoman Edith Ramirez about our findings and have sent our report to the Commission for a second review. I have also spoken with FTC Commissioner Julie Brill about this matter.
It is also important to note, price differences between communities are not necessarily indicative of price-gouging or price fixing. Legitimate cost and competitive differences may cause the price of gasoline to be higher in one community than another. Similarly, it is not necessarily an antitrust violation if one station matches a competitor’s price as long as there is no agreement to fix prices.
Kentucky’s price-gouging statute can only be triggered by the Governor during a declared emergency and for a specific amount of time following that emergency.   This statute prohibits price increases for certain commodities/emergency supplies grossly in excess of pre-declaration prices. So, a supplier may increase its prices during a time of emergency, only if its costs increase. Gouging is only a small part of the problem here in the Commonwealth.
We have been vigilant in protecting consumers against price-gouging at the pumps. As you may recall, we fined retailers into the six figures in the wake of Hurricanes Katrina, Ike and the Ice Storm for gouging.
As your Attorney General, I have taken action against retailers who have gouged consumers at the pumps. I have studied and identified the broader issue of Marathon’s stranglehold on the wholesale gas market in Kentucky.  Now, it’s time for federal regulators to take action and I again call on them to do so.