Fifteen Gas Stations Fined In Hurricane Price Gouging Probe

Attorney General Spitzer today announced the results of a three-month probe of suspected gasoline price gouging after Hurricane Katrina.

Spitzer said that a careful analysis of gas station records and other evidence showed that certain stations used the disaster as an excuse to raise prices well beyond what was warranted by market factors.

The investigation identified gas stations across the state where the evidence of price gouging was clearest. Fifteen stations have agreed to pay fines totaling $63,500. The investigation is continuing into other retailers, distributors and wholesalers.

In a related development, Spitzer called for strengthening the state’s price gouging statute to help deter similar problems in the future.

"No one begrudges a business the right to make a profit and under normal circumstances business owners may charge whatever price they think is appropriate," Spitzer said. "But when disaster strikes, state law requires that price increases be linked directly and proportionately to increased costs. This investigation has found numerous instances of unwarranted price increases. In fact, many retailers appear to have used the disaster as an excuse to gouge consumers."

John A. Corlett, Director of Government Relations for the New York Chapter of the American Automobile Association said: "New York’s price gouging laws were designed to deter those who seek to profit from natural disasters and supply disruptions such as those resulting from Hurricane Katrina. This investigation should send a clear message to gasoline retailers and station owners that they should think twice before exploiting catastrophes at the expense of consumers."

As part of the investigation, Spitzer’s office obtained invoices and other records from 80 stations where consumers filed complaints about record surges in gas prices after Hurricane Katrina struck in late August.

The office compared costs incurred by these gas stations with prices charged by the stations before and after the storm. Out of the 80 stations analyzed, 15 emerged as having increased their mark-ups most significantly. In fact, the 15 stations all increased their mark-up on the gas (the difference between the cost of the gas and its sale price) by 25 percent or more after the storm.

One station in Westchester County tripled its mark-up as it raised its price from $2.69 to $4 per gallon of unleaded regular gas.

The Attorney General thanked state and local officials, including Westchester County Executive Andrew Spano, for forwarding gas price information to his office.

Westchester County Executive Andrew Spano said: "To benefit from an obscene profit at the expense of the general public is unconscionable. We will not tolerate price gouging of any kind in Westchester County, and our Consumer Protection Office will continue to investigate situations where it appears to be going on. I thank Attorney General Spitzer for pursuing this so aggressively."

The agreements with the 15 station owners impose civil penalties based on a number of factors including: the size of the price increases; number of days that gouging occurred; and the amounts the stations spent to replenish inventories. In addition to the penalties, the agreements contain a provision that will result in much larger fines (up to $10,000) if there is price gouging in the future.

The Attorney General also called on the State Legislature to strengthen the state price gouging law.

Current law prohibits the sale of vital consumer goods at an "unconscionably excessive price" during natural disasters. The law specifically says that a price may be considered excessive if there is a gross disparity between the price charged before and after a market disruption and the price increase is not attributable to higher costs imposed upon the seller.

The law does not quantify the term "gross disparity." The Attorney General is proposing that the law be amended to specify that an increased markup of 25 percent or more would constitute a presumption of price gouging. In addition, Spitzer is recommending that penalties under the law be increased to $500 per violation plus three times the gouger’s profits.

"Current law does not provide a strong enough deterrent to price gouging. We need to amend the law as soon as possible to ensure that unscrupulous individuals to not take advantage of future disasters," the Attorney General said.

The investigation was led by Deputy Attorney General Martin Mack. He was assisted by Assistant Deputy Attorney General Christopher Walsh; and Assistant Attorneys General Judith Malkin, Dennis McCabe, and Winthrop Thurlow.

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