Idaho gasoline retailers’ margins were relatively stable before the coronavirus pandemic hit and Attorney General Lawrence Wasden accused the state’s three largest convenience store chains of gouging customers.
Between 2006 and 2019, the difference between the price dealers paid for gas and the price they charged ranged between 2 and 15 cents a gallon. Known as markup or margin, the difference takes into account the 51 cents per gallon in state and federal taxes, along with delivery costs.
The margin was 10 cents in February. The arrival of the coronavirus pandemic in Idaho changed that. In March, when the Gem State saw its first Covid-19 diagnosis and Gov. Brad Little issued an emergency declaration, the margin shot up to 39 cents.
By March 23, the margin was more than 50 cents a gallon in Boise and more than 60 cents statewide, Wasden said in a March 24 letter to the Idaho Petroleum Marketers & Convenience Store Association. A few days later, it was 70 cents in Boise.
This came even as gas prices were falling. The Idaho average at the pump in February was $1.95 per gallon, followed by a 3-cent drop in March. By April, the average price fell to $1.45.
But wholesale prices fell further: The cost to dealers was $1.86 in February, $1.53 in March and 82 cents in April.
FUEL, FOOD, WATER, DRUGS COVERED BY IDAHO ANTI-GOUGING LAW
Little’s declaration triggered a section of the Idaho Consumer Protection Act, which prohibits retailers from charging an exorbitant or excessive price for fuel, food, water and drugs during emergencies. It caused Wasden to investigate and conclude that price gouging was taking place.
“A 60-cent markup is excessive at any time, but during a declared emergency it is unconscionable,” Wasden wrote. “Idaho citizens and businesses are already afraid and frustrated with the current health crisis and declining financial security. High gas prices only add to the uncertainty.”
Wasden’s letter was included in 193 pages of documents released to the Idaho Statesman in response to a public records request. The documents include letters written by Wasden, others in his office and lawyers representing the three convenience store chains.
In late November, Maverik, Jacksons Food Stores and Stinker Stores agreed to provide $1.5 million in discounted gasoline to settle claims they overcharged customers. The dealers, Idaho’s three largest convenience store chains, denied doing anything wrong but agreed to lower their prices next year to address complaints.
“We were shocked when the Office of Attorney General notified us of their investigation,” John Jackson, founder and CEO of Jacksons, said in an email. “It came at a time we were dealing with a sudden, dramatic loss of more than 50% of our fuel sales with a rapid, dramatic drop in our fuel prices in the midst of a global crisis no one was prepared for.”
CONVENIENCE STORES SAY THEY KEPT GAS PRICES COMPETITIVE
Jackson said his company, which operates more than 230 stores in Idaho, Oregon, Washington and three other Western states, “stayed competitive with every single other fuel retailer in the state, despite shouldering significantly higher operating costs and caring for the health and safety of our customers and employees. We could not understand why we were the ones being singled out.”
David Hancock, vice president and general counsel for Maverik, which operates 350 stores in 11 states, said in an email that Wasden’s office misinterpreted the law.
“Its interpretation was contrary to the intent of the lawmakers who wrote it,” Hancock said. “The statute is very clear in referring to ‘prices’ and not to ‘margins.’ A court can consider the price a retailer pays for a product to judge whether an increase paid by the retailer’s customers is justified. But no state has said a reduction in price to consumers is a problem in this situation and the Idaho Legislature never said it, either.”
Deputy Attorney General Brett DeLange, head of the state’s consumer protection office, disagrees. The statute says “fuel, food, water and pharmaceuticals may not be sold at an excessive or exorbitant price,” DeLange said by phone. He said he was able to look at the price retailers paid for gas, the selling price after the emergency was declared and any extra emergency-based costs.
“While it’s true that retail prices charged to consumers didn’t go up the wholesale prices paid by the retailers plummeted,” he said.
In the only other action apparently taken against a gas supplier nationwide, District of Columbia Attorney General Karl Racine in November sued Capitol Petroleum Group, accusing it of price gouging.
Racine said CPG, which supplies gas to 54 stations across the city and also sells to motorists at its own stations, doubled its profits from 44 cents per gallon to 88 cents in the weeks following the city’s emergency coronavirus declaration in March.
Under District of Columbia laws, businesses are required to charge the same markup percentage as 90 days before the emergency.
In a March 30 letter to the Idaho Attorney General’s Office, Suzanne Budge, executive director of the Idaho Petroleum Marketers & Convenience Store Association, said she was “disappointed” Wasden characterized the margin increases as “unconscionable.”
“The Covid-19 virus crisis has created an extraordinary burden on retail gas stations, convenience stores, our workers and customers,” Budge wrote.
Budge said the 5.7 magnitude earthquake that struck Salt Lake City on March 18 shut down a pipeline that supplies 90% of Idaho’s gasoline. By March 26, Salt Lake had the highest rack, or retail, prices in the nation, she said, but prices in Idaho had continued to decrease.
BOISE GASOLINE MARKED UP 74 CENTS IN LATE MARCH
DeLange said fuel margins had continued to climb even after Budge wrote her letter. He noted in an April 1, 2020, reply that the average margin for gas in Boise had risen to 74 cents per gallon by March 26.
“You note that gas prices have dropped, notably since we first wrote your association,” DeLange wrote. “But rack prices appear to have dropped even more so, leaving us with margins that give the Attorney General reason to believe that members of your association have violated or are violating Idaho’s price gouging law.”
DeLange noted that the longest refinery shutdown in Utah because of the earthquake was 24 hours for Marathon Petroleum, one of five companies that operate refineries in Utah. He said decreased demand, when the supply is constant, should lead to lower prices.
Lawyers representing Maverik, Jacksons and Stinker, which operates 110 store in Idaho, Colorado and Wyoming, denied their clients were earning unfair and illegal profits. A response from Wendy Olson, former U.S. Attorney for Idaho and now with Boise firm Stoel Rives, who represents Maverik, was typical.
“Maverik respectfully disagrees that Idaho gas prices warrant a price-gouging investigation,” Olson wrote DeLange on April 10. “Gas prices have dropped across the nation since March 13, just as they have in Idaho, in part because of reduced demand. As gas prices in Idaho and the Pacific Northwest typically are above the national average, Maverik’s $1.99 a gallon price that we discussed on April 7 (is) consistent with the nationwide decrease.”
The documents reviewed by the Statesman did not reveal the companies’ wholesale costs and expenses used to calculate retail costs. Those were blacked out as trade secret information that’s not subject to public release under Idaho’s Public Records Act.
Jeremy Chou, a lawyer with Boise firm Givens Pursley, who represents Stinker, provided the Attorney General’s Office with an analysis from the National Association of Convenience Stores that showed the average margin for gas stations in Idaho averaged 36 cents a gallon between January and July. That ranked Idaho at 12th from the bottom nationally, the report said.
Wyoming and Colorado were eighth and ninth from the top, with average margins of 49 cents and 48 cents a gallon, the report said.
“We couldn’t understand why they were conducting this investigation when Idaho’s margins were the 12th lowest in the country and certainly lower than the surrounding states,” Jackson said. “Fuel in Idaho was never in short supply, was never priced excessively — in fact, prices were dropping at unprecedented rates. It just defies common sense to think there has been a violation of the statute when retail prices dropped up to 90 cents a gallon in less than a 30-day period.”
DeLange said prices being charged in other states were irrelevant to whether Idaho customers were being charged excessive or exorbitant prices.
“We don’t involve ourselves in how other states enforce their laws,” DeLange said. “We enforce Idaho’s statutes, which were directly applied to what the retailers were doing.”
MAVERIK, JACKSONS, STINKER AGREE TO GAS DISCOUNTS
By Sept. 17, lawyers for the three convenience store chains agreed to a settlement in exchange for the Attorney General’s Office not initiating a legal action for violation of the Consumer Protection Act. The companies would also not admit to any wrongdoing.
The lawyers suggested the companies collectively donate $200,000 to a charity selected by the Idaho Petroleum Marketers & Convenience Store Association and approved by the Attorney General’s Office.
Maverik and Jacksons would have paid $80,000 each, while Stinker would have paid $40,000. That offer was rejected.
A month later, the companies agreed to the $1.5 million settlement, with gas discounts provided in 2021. The agreement was announced by the Attorney General’s Office on Nov. 30. Both sides, in press releases, said they were satisfied with the settlement.
“We were faced with a very difficult decision,” Jackson said. “We knew we were on the right side of the law and that we would be able to prove it in court. The cost of fighting it would be enormous, however, both emotionally and for our bottom line given that litigation like this could last for years.
“The agreement gave us an option that was better for the business, even if it was difficult to swallow personally. It was the right choice for everyone in our organization and the people who work with us.”
Maverik and Jacksons agreed to provide $600,000 each in discounts, while Stinker will provide $300,000. The stores will receive credit for gas prices that dip below the existing average margin for gas sold in the six states bordering Idaho.
For example, If the average margin in those states for a given month is 25 cents per gallon and one of the retailers sells a customer 10 gallons of gas at a price with a margin of 15 cents per gallon, the store would earn a credit of $1.
The companies have a year to complete their obligations.