Gov. Jennifer Granholm has called for legislation to increase the power of the state to investigate "gas-gouging." While many Michiganders may feel cheated at the pump, House Bill 6250 is neither fair nor desirable. If passed, the legislation may actually increase gas prices and exacerbate the broader economic woes of the state.

According to the governor’s office, "The legislation would … [grant] the attorney general the ability to issue a civil investigative demand against companies believed to be in violation of the act without having to first obtain a court-ordered subpoena based on probable cause. …" The new authority is aimed at local gas stations and any sudden increase in prices. The governor’s office states the bill will facilitate responsiveness to consumer complaints and "make sure that consumers are treated fairly."

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The proposed legislation makes gasoline retailers sitting ducks. True, the bill appears to permit retailers to raise prices if they can prove their own costs went up, but they can face such fluctuations daily. Gas stations are squeezed between the input costs of refined gasoline and price competition from other stations. Threatening to investigate these businesspeople for price-gouging whenever consumers complain about spiking prices would not only be misguided but could drive up gas stations’ legal bills and force them to either raise prices or close up shop. Fewer gas stations would mean less competition and fewer jobs — that is, costlier gas and, for some, less money to afford it.

Empirically, efforts to regulate gas prices have backfired, hurting the consumers they were supposed to help. For example, Michael G. Vita of the Federal Trade Commission reported that states’ anti-collusion laws restricting refiners from owning gas stations actually raise gasoline prices by generating economic inefficiencies, such as compelling two markups on gas prices instead of just one. These antitrust regulations were supposed to protect drivers from price-gouging, yet as Vita notes, they were only "harmful to gasoline consumers." The oil industry is complex, and governmental intervention, no matter how well intentioned, can easily lead to costly outcomes for motorists.

HB 6250 still has troubling legal implications. Though the search-and-seizure protections in the U.S. and Michigan constitutions do not appear to affect noncriminal investigations such as these, the legislation’s encroachments on privacy should concern any state resident. The bill eliminates the current requirement for a court-ordered subpoena in consumer-protection probes and replaces the need for probable cause with "reasonable cause," thereby creating a nominal standard that an attorney general could hardly fail to meet. The governor’s reference to consumer complaints suggests that any disgruntled customer might initiate an invasive investigation, threatening an innocent station owner’s reputation and livelihood.

Furthermore, while the legislation was prompted by high gas prices, the proposed amendment to the consumer protection act does not limit the attorney general’s increased latitude only to gasoline retailers and price-gouging. Under the proposal, all Michigan businesses would be vulnerable to the attorney general’s expanded powers whenever they faced allegations that they had violated any of the numerous provisions of the state’s consumer protection act.

A genuine solution to rising gasoline prices does not require such drastic measures; instead, it would involve deregulating oil and gasoline markets to allow greater competition. Contrary to the theory of price-gouging, gas stations cannot simply charge whatever they please for gasoline; if they could, they would have been charging $5 per gallon for years. In a competitive market, if one station raises its price, others will undercut it as much as they profitably can to lure away the station’s customers. Competition, not undue power for the attorney general, will "make sure that consumers are treated fairly."

Hair-trigger investigations can only reduce competition, hurt consumers and make the state’s business climate even more unfriendly. Stripping businesspeople of safeguards of their civil liberties is a high price to pay for the dubious effects of this legislation — a brutal form of price-gouging indeed.


Hannah K. Mead is a senior at Hillsdale College in Hillsdale, Mich., and a communications intern for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

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