Judge to rule in five days on gasoline price gouging case

By Beth Musgrave
bmusgrave@herald-leader.com

FRANKFORT — Franklin Circuit Court Judge Thomas Wingate said Thursday that it will probably be five days before he decides whether to issue an injunction against Marathon Petroleum that would keep gas at prices paid before April 26.

Attorney General Jack Conway filed a motion for a temporary injunction on May 13, alleging that Marathon, which owns Speedway LLC, had dramatically increased its prices after Gov. Steve Beshear declared a state of emergency on April 26 due to heavy rains and flooding across the state.

That state of emergency triggered the state’s price gouging statutes, which say retailers can not raise prices if their costs don’t go up. The injunction asks that Marathon lower its wholesale prices in all Kentucky markets to no more than the price charged on April 25.

In court Thursday, an expert for the state testified that Marathon Oil had raised its prices — in some cases more than 30 cents — after the emergency order was in effect on April 26. The price of oil — which can account for as much as 70 percent of the cost of gas — had not risen during that time period, said Peter Ashton, an economic expert who specializes in petroleum markets.

“Cost increases could not justify those price increases,” Ashton said.

Gas in many Kentucky markets topped more than $4.00 a gallon last week.

Ashton also testified that Marathon’s profits continued to grow during that same time period.

But lawyers for Marathon Oil countered that profits were not factored into decisions about increasing the cost of gas and asked that Ashton’s testimony regarding Marathon’s profits be stricken from the record. Wingate denied the request.

Marathon, in court documents and in arguments before Wingate during Thursday’s hearing, said its wholesale gas prices are dependent on the commodity spot market prices set by the Chicago Mercantile Exchange.

Lawyers for Marathon Oil also pointed out that Marathon’s wholesale gas prices have steadily declined since May 13, when the motion for an injunction was filed. If Ashton had used data from the past eight days, the average price of gas during the time of emergency — April 26 to the present — would be much lower, said Barry Hunter, a lawyer for Marathon.

In court documents, Marathon argues that an injunction should not be issued because the attorney general can not show that the company raised its gas prices in order to take advantage of market disruptions caused by the severe flooding that hit the state last month.

Gas prices are high across the Midwest and those costs have nothing to do with the heavy rains Kentucky experienced last month, the lawyers argue.

“Instead, the theory of his case seems to be the issuance of an emergency declaration permits the attorney general to force price controls upon Marathon for reasons unrelated to the disaster,” wrote Sheryl Snyder, a lawyer for Marathon, in court documents.

Price controls violate the Kentucky Constitution, Snyder wrote.

Moreover, an injunction could disrupt the sale and distribution of gasoline to Kentucky, Marathon argues. If the judge issues an injunction — which would freeze the price of gasoline to levels before April 26 — Marathon could shift its supply to neighboring states where it can sell gas at higher prices.

An injunction could cause “potential supply disruptions from all levels of distribution.”

But Ashton, in court testimony Thursday, countered that it is unlikely that there would be much disruption because much of Marathon’s gas is purchased through contract. It would be difficult to move the gas to different markets.

The motion for an injunction was filed in the state’s ongoing case against Marathon and Speedway LLC for alleged price-gouging violations following Hurricane Katrina and Rita in 2005. That case is still pending.

Filed Under: Jack Conway • KY Courts • State Government