New federal profit margin regulations for service stations should be abandoned by the Department of Energy because they have allowed gasoline prices to rise too high, a consumer group said yesterday.
In papers filed in U.S. District Court, the Center for AU+D Safety also accused the department of violating several rules of procedure when it implemented its Mandatory Retailer Price Rules July 15.
By not providing ample time for public notice of the proposed rule, the center charged, the department effectively kept the public from knowing the rules would cost consumers as much as 10 cents a gallon more or an additional $7.4 billion a year.
The center, seeking summary judgment in the suit it filed earlier calling on DOE to roll back the regulation, also charged that the DOE acted outside its authority in issuing the rule when it also said that retailers could eliminate certain services -- like checking tire pressures or providing air for tires -- altogether or add a charge for those services.
"The DOE did not comply with provisions of the Emergency Petroleum Allocation Act of 1973 which required that any price rules be conditioned on a dollar-for-dollar pass through of increased costs," said the center's Katherine Meyer. "Instead of only allowing them to recoup their increased costs in supplying gasoline to the public, the rules instead fixed a profit margin."
That means, Meyer explained, that merely by changing accounting methods, for example, gas stations could increase prices artifically.
She said that a gas station could, for example, price its gasoline based on the cost of acquiring the most recent supply. Known as "Lifo" accounting -- last in, first out -- this neams that a station could claim the cost of its gasoline at the latest -- and highest -- price it paid for gasoline, even though it had a considerable amount of gasoline in storage that it paid significantly less for earlier.
Further, the center charged in its filing, "DOE also permitted service stations either to charge for traditional courtesy services without including this in the calculation of their actual (profit) margin, or to eliminate such services."
The center also claimed that while allowing retail profit margins to rise to a uniform 15.4 cents per gallon from the previous average margin of 10.4 cents, the DOE did not provide for decreased costs realized by gas station owners through reduced hours or otherwise reduced costs which were not "passed through" to the consumer in the form of decreased prices.
"Because DOE has wholly failed to provide the fundamental analysis of the impact of the new allowable retail margin and has no basis for concluding that it reflects only a dollar-for-dollar passthrough of increased operating costs, and because DOE failed to mandate a dollar-for-dollar passthrough of decreasing operating costs, the gasoline retail price regulations must be set aside," the center concluded.
The other problems with the DOE rule, the center alleged, involved violations of the Administrative Procedures Act, the DOE Act, Executive Order 10244 and DOE Order 2030 by the department in promulgating its rules.
The Center claimed, for example, that the agency did not give the public adequate notice or chance to comment.
"Had the public been informed that the probable impact of the rule would be to drive full-service stations to self-service in order to take full advantage of the uniform fixed margin," the Center alleged in its papers, "the (notice) would have elicited significant public comment."
"Similarly, had the public been informed that the probably effect of the regulation could be to raise the price of gasoline by 10 cents per gallon, resulting in an annual increase of cost to consumers of $7.4 billion, and that the rule allows retailers to charge separately for services previously provided at no extra cost, DOE would have been inundated with public comments," the Center speculated.
The Energy Department has pressed hard for gasoline deregulation at the pump, and when this pricing regulation change was proposed to help increase profits at independent stations -- the rules do not cover stations owned by oil companies -- the agency said it not cover stations owned by oil companies -- the agency said it needed to rush the order through for several reasons.
Two key reasons cited by DOE last spring were: "significant problems with enforcement of the old rules," and "severe disruptions and imbalances in the supply and distribution of motor gasoline [Which] would develop in the coming months."