Idaho Attorney General Pumps Brakes on Gas Sales

Proskauer - Minding Your Business

On November 18, 2020 the Idaho Attorney General entered into a settlement agreement with three gasoline retailers following an investigation into alleged price gouging. The settlement agreement, which focuses largely on the unique restitution system it creates, discloses that the allegations in the case stemmed from the companies’ motor fuel prices following Idaho’s declaration of a state of emergency on March 13, 2020. Findings in an Idaho Statesman investigation into the settlement agreement suggest that Attorneys General are continuing to push the envelope and bringing sometimes aggressive price gouging claims.

The settlement requires each company to provide a benefit to Idaho consumers by selling gas at reduced profit margins. To calculate this benefit, each company is awarded credits when the margin between their retail price and the wholesale price of its product is less than the existing average margin of the states surrounding Idaho. Using the Attorney General’s example, if the average margin in a given month between retail and wholesale prices in the states surrounding Idaho is $.25 per gallon, and one of the retailers sells a consumer ten gallons of gas at a price with a margin of $.15 per gallon, the retailer would earn a $1 credit towards their redress obligation. The three companies have until January 2021 to satisfy these credit obligations.

The novelty of the credit system was not the only thing that raised eyebrows. An open question following the settlement was why a settlement for engaging in price gouging was focused largely on profit margins. Idaho’s price gouging statute, like many price gouging statutes, proscribes firms from charging “exorbitant or excessive prices.” But the settlement agreement frames restitution entirely in terms of margins. This question was answered last week by the Idaho Statesman who obtained 193 pages of documents on the state’s investigation pursuant to a public records request.

The documents reveal that the Attorney General’s theory of liability was indeed based entirely on profit margins. Despite the fact that gas prices dropped in Idaho following the declaration of state of emergency in March, the investigated companies allegedly saw profit margins steadily rise from the $.10 margins the companies had been collecting in February. Despite the drop in prices, the Attorney General focused on profit margins that allegedly reached as high as 70 cents/gallon, concluding that such mark-ups are “excessive at any time, but during a declared emergency it is unconscionable.”

Accordingly, even though prices had been dropping, the Idaho Attorney General nevertheless concluded that the prices were unconscionable because the companies were not dropping them even further to keep their historical margins in place.  he settlement represents a significant development in price gouging enforcement, and one that threatens to make it more difficult for companies to maintain compliance with applicable laws.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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