Date of this Version
In the wake of the devastation of Hurricanes Katrina and Rita, Nebraskans experienced a dramatic increase in the price of motor fuels. Although Nebraska was not impacted directly by the physical effects of these storms, damage to critical production, refining, and transportation facilities in the Gulf Coast region sent shock waves throughout the country. Attorney General Jon Bruning convened this task force for the purpose of studying these price movements and to analyze whether price-gouging activity may be occurring.
Motor vehicle fuels are a vital commodity. Businesses and consumers depend on a network of oil producers, refiners, and retailers and an extensive transportation system to provide these fuels for daily use. This network extends far beyond Nebraska borders and links oil producers, refiners, retailers, and consumers across the entire globe.
Careful scrutiny of the pricing and delivery of petroleum products is not a singular phenomenon limited to Nebraska. On a federal level, the Federal Trade Commission (FTC) regularly examines the petroleum industry to address concerns about concentration in production and refining and issues affecting retail pricing. Other states also have undertaken investigations, with Florida recently concluding a study addressing antitrust concerns in that state. These studies have not found violations of law, and they generally have found competitive markets affected by worldwide conditions. Growing global demand has led to increasing dependence on imported crude oil products, and disruptions in supplies–whether from political or natural causes–quickly are assimilated into market prices on a worldwide scale.
This study is unique in focusing on Nebraska markets. No refineries currently operate in Nebraska. Motor fuels for sale in retail establishments in Nebraska come primarily through pipelines, which depend heavily on refinery operations in the Gulf Coast region for supplies. An extensive network of retail establishments serves Nebraska consumers and businesses, but these retailers generally can be characterized as price takers dependent upon other suppliers for their inventory. After laying a foundation for understanding national price trends, this study analyzes price data from a sample of establishments throughout different geographic regions of the state. This analysis focuses on price and gross margin behavior during a period of approximately one year, including the months immediately preceding and following Hurricanes Katrina and Rita.
This study begins with a discussion of legal questions that are basic to defining price gouging. After analyzing the general principles for price determination in a market economy, Part 1 outlines legal constraints from both federal and state law that affect price-setting functions. It compares statutes from other states with Nebraska law and examines the concept of unconscionability in proscribing certain commercial behavior. It concludes that retail price behavior in Nebraska is unlikely to meet a standard of unconscionability under the current Nebraska statute.
Part 2 examines U.S. Energy Information Agency data to determine factors contributing to volatility in oil and refined gasoline prices. Additionally, we investigate the profitability of twenty-one major independent oil companies during the period before and after the hurricanes struck.
Part 3 examines gasoline and diesel price fluctuations in individual Nebraska cities both before and after Hurricanes Katrina and Rita struck the Gulf Coast region. We examine how prices in Nebraska react to the natural disasters in the Gulf Coast. We also examine whether any particular brands (or stations) commonly led price increases and declines in Nebraska cities.