And even more on Marathon

We wrote a story Friday about Marathon Oil being sued by Kentucky Attorney General Greg Stumbo for allegedly gouging gasoline customers in the months after Hurricanes Katrina and Rita to the tune of $89 million. Unfortunately, we failed to notice that buried way down in Marathon’s statement yesterday the oil refiner and gasoline retailer is counter-suing, saying the state law that they are being accused of violating is unconstitutional. Sorry about that.

Don’t mess with Kentucky.

Marathon says the lawsuit brought by Kentucky should be thrown out for three reasons (these are a bit lengthy so you may want to get a drink first):
First, the state’s anti-gouging law violates the company’s right to due process under the 14th Amendment of the U.S. Constitution and Kentucky’s Constitution because:
a. it doesn’t define a period of time during which emergency price controls are in effect; b. the “grossly excessive” standard in the law doesn’t give Marathon or other gasoline sellers fair notice of how to calculate allowable price increases; and c. it improperly uses profit margins as a proxy for the “grossly excessive” price increases without giving notice to companies.
Second, the Aug. 31, 2005 order from the Kentucky governor for a state of emergency is unconstitutional because it didn’t set for a date that it would end (and apparently has never been cancelled);
and Third, the governor’s order violates the Commerce Clause of the U.S. Constitution by “unreasonably impeding the flow of interstate commerce” and thus limiting competition.
One aspect of the AG’s suit that is interesting is only part of it focuses directly on retail prices that customers paid at the pump. The state says that $86 million of the $89 million in alleged overcharges by Marathon came when the company’s refining business jacked-up the wholesale price of gasoline. This is the price gas stations pay for those tanker trucks full of gas that goes from refineries to fuel terminals.
The press release from the AG’s office notes:

Marathon is Kentucky’s biggest wholesale supplier of gasoline. In the months following the hurricanes, Marathon produced record amounts of product; and, after months of investigating, the Attorney General has found no significant cost increases for the companies during the State of Emergency that would justify the major spike in gas prices. The Attorney General has not ruled out pursuing other companies.

In other words, they’re saying Marathon’s records show they weren’t setting wholesale prices based on how much it cost them to buy crude oil and refine it with a bit of profit on top. Rather they were using some other method. Kentucky officials wouldn’t say how they reached the $86 million figure.
Marathon says otherwise in a release:

Our product pricing during the time in question was made responsibly, using the same market-based, supply and demand pricing fundamentals we use every day.

This brochure on the Energy Information Administration’s website describes gasoline pricing as the end result supply-and-demand factors. Is it really that simple? Let us know what you think.