Office of the Attorney General
Attorney General Conway Accuses Marathon Oil of Price Gouging – Asks Court to Require Company to Lower Wholesale Prices

Press Release Date:  Friday, May 13, 2011  
Contact Information:  Allison Gardner Martin
Communications Director
502-696-5651 (office)

Attorney General Jack Conway today filed a motion for a temporary injunction in Franklin Circuit Court alleging that Marathon Petroleum Company LLC illegally raised the wholesale price of gasoline and other motor fuels in markets across Kentucky during a time of emergency.

"I want to thank Kentuckians who called or emailed our office to report the drastic changes in gas prices that reached more than $4 a gallon at the pump in many communities," General Conway said. "Gas prices jumped about 30 cents overnight. The tips provided by consumers and retailers helped us bring this action that will hopefully provide some relief for Kentuckians who are struggling to put gas in the car and clean up from flooding."

The motion alleges that Marathon violated Kentucky’s price-gouging statute (KRS 367.372, et seq.) that was triggered when Gov. Steve Beshear declared a state of emergency on April 26 in the wake of massive flooding.

"General Conway and I recognize the importance of protecting Kentucky consumers, particularly in the wake of recent devastating storms and floods," Gov. Beshear said. "I issued the price-gouging executive order precisely so our Kentucky families will be protected from attempts to profit from disaster. I fully support the Attorney General’s ongoing efforts to investigate instances of price gouging and bring offenders to justice."

The motion, filed today in the ongoing case against Marathon and its wholly owned subsidiary, Speedway LLC, for alleged price-gouging violations following Hurricanes Katrina and Rita in 2005, asks the court to require Marathon to lower its wholesale prices in all Kentucky markets to no more than the price charged on April 25.

The motion uses an example of the Louisville wholesale market to illustrate the allegations. The motion alleges that Marathon’s wholesale price for regular 87 octane gasoline at its Louisville terminals on April 25 was $3.25 per gallon and that it raised its wholesale price to $3.48 on April 29 and up to $3.46 on May 9. Thursday’s rack price was $3.32. Wholesale prices for reformulated gasoline were raised from $3.45 to $3.65 and $3.61 on those dates. The wholesale prices vary depending on the location in Kentucky and the amount of fuel purchased, but similar reductions would be expected in all Kentucky wholesale markets.

Attorney General Conway is alleging that Marathon’s actions violate the price-gouging law, since the law only permits suppliers to increase prices if there has been an increase in costs to the supplier. The Office of the Attorney General does not believe that cost increases in this case justify the price increases. The memorandum supporting the motion alleges that Marathon’s increase of price was unsupported by any increase of costs, but instead was linked to an increase in the commodity spot market price and New York Mercantile Exchange future prices. Marathon has previously admitted in the case that spot market prices have been a primary factor in its pricing decisions.

A hearing on the motion is set for Monday at 9 a.m. in Franklin Circuit Court.

Wholesale Gas Price Investigation

The Attorney General’s office also launched an investigation in the summer of 2008 into the wholesale price of gasoline and how it affected prices in the Louisville market. According to information gleaned during that investigation, the Office of the Attorney General believes that Marathon’s acquisition of Ashland Oil in 1996 negatively impacted competition in the gasoline market in Kentucky and in particular in the market for reformulated gasoline (RFG), which is required to be sold in Louisville and Northern Kentucky.

Today, General Conway announced that his office is referring that antitrust investigation to the Department of Justice’s recently created task force formed at the request of President Obama to investigate allegations of fraud and market manipulation in the oil and petroleum industry.

"Our investigation is complete, and we feel there is sufficient data and information that the task force will find useful in its review of the industry and how industry operations may negatively affect consumers and prices at the pump." General Conway said.

Marathon has publicly admitted that it supplies virtually all of the RFG used in Kentucky. According to a petroleum industry expert, who reviewed the market data at the request of General Conway’s office, wholesale prices in Louisville have increased following Marathon’s acquisition of the Ashland refineries, and retail prices are higher than would be expected in a competitive market.