A top economist at the University of Kentucky says Attorney General Greg Stumbo's lawsuit against Marathon Oil for alleged price gouging at the gas pump is a waste of taxpayers' money.
"It's the most absurd thing I've ever seen in my life," said Professor Ken Troske, director of the center for Business and Economic Research. "No state has ever won a price-gouging lawsuit."
On Thursday, Stumbo filed a complaint in Franklin Circuit Court alleging that Marathon Oil overcharged Kentucky consumers $89 million in the wake of Hurricanes Katrina and Rita in 2005. The case is before Judge Thomas Wingate.
"Based on an exhaustive review of the evidence, we are confident Marathon's price increases during the emergency period were not justifiable," Stumbo said.
After the hurricanes, Kentuckians were paying between $2.50 and $3.30 per gallon of gas, Stumbo said. The investigation is ongoing, and Stumbo said he has not ruled out filing complaints against other companies.
Gov. Ernie Fletcher declared an emergency after the hurricanes and Kentucky's consumer protection laws prohibit anyone from selling goods or services at grossly inflated costs. According to the suit, the profit margin of Speedway SuperAmerica, wholly owned by Marathon, on 87-octane gas in Kentucky increased 57 percent following the hurricane disasters.
"These increases raised prices to amounts that were grossly in excess of pre-emergency prices and were unrelated to any increase in costs which (were) incurred," according to the lawsuit.
Speedway SuperAmerica operates 137 service stations in Kentucky, including two in Frankfort. Marathon is Kentucky's biggest wholesale supplier of gasoline.
But Troske said the increased prices only resulted from market pressures. He said gasoline is like any other commodity and when supplies become scarce, prices go up.
"It's Economics 101," Troske said. "The market functioned exactly how we expected it to."
The price increases were beyond any costs the wholesalers had incurred from normal economic factors, Stumbo said.
"Our damage model is credible and conservative," he said.
The federal government and the Congressional Budget Review Office conducted an extended investigation and found no evidence of price gouging after the hurricanes, Troske said. None of his colleagues at UK supported the lawsuit against Marathon, Troske said an informal poll revealed. Troske said several other professors had been contacted by the attorney general and refused to participate in the investigation.
"This is politics, plain and simple, because there is no other explanation," Troske said.
Stumbo is running for lieutenant governor with Democratic candidate and Louisville businessman Bruce Lunsford. The primary election on May 22 is less than two weeks away, but Stumbo said there were no political considerations in his decision to sue Marathon Oil.
Charles Cassis, a Louisville attorney who represents Marathon, said he had not seen the lawsuit and could not comment on it.
Chris Smith, owner of Smitty Mart on Wilkinson Boulevard, said high gas prices hurt retailers as well as consumers. Smith has owned the service station and food mart for nine months and said the profit margins on gasoline are only a few pennies a gallon.
"There's no money in gasoline any more," he said. "It's just a draw, you hope people come in and buy something else too."
With some gas above $3 a gallon, Smith said he has already seen a slowdown, as customers buy fewer lunches and soft drinks.
"People still buy gas, but they cut back on other things," he said. "High gas prices slow everything down. People eat out less and don't go on vacation."
Smith buys his gas from a wholesaler, who fills up his 10,000-gallon tank twice a week. He's afraid prices will continue to rise this summer, making matters worse. Smith said he couldn't do anything about the price because he wants to stay competitive with other retailers. If prices go too high, Smith said the state should repeal the gas tax.
"We are held to the market, just like everyone else," he said.