Price gouging at pump? It's a formula

GRAND RAPIDS, Mich. (WOOD) - State Attorney General Bill Schuette issued a warning that gasoline price gouging is illegal in Michigan as some oil production in the Gulf of Mexico could be shut down due to hurricane Isaac.

Schuette said in a release Tuesday that higher gas prices are likely, but circumstances "are not a free pass for price gouging."

AAA Michigan says gasoline prices jumped 12 cents during the past day to a statewide average of about $4.05 per gallon as Hurricane Isaac made landfall.

The Consumer Protection Act prohibits retailers from charging a price that is grossly in excess of the price at which similar property or services are sold. Anti-trust laws also prohibit gas stations from entering into agreements to arbitrarily fix prices in unison.

The attorney general's office monitors retail profit margins and the actual cost of providing gasoline to consumers.

Five Detroit area gas station owners were convicted last year in a price-fixing scheme.

To determine price gouging, said GasBuddy.com analyst Patrick DeHaan , the Attorney General looks at the wholesale price -- what gas stations pay -- compared to the price they're charging customers. If the wholesale price goes up, stations charge more at the pump.

That price is calculated, DeHaan told 24 Hour News 8. So the attorney general will know if the wholesale price jumps to X then the retail price will jump to X-per-gallon.

That's how stations caught charging a much higher retail price than the wholesale price warrants can be investigated for gouging.

The hurricane, drought, the price of crude oil and regional issues are already factored into the wholesale price, DeHaan said.

Customer complaints of price gouging based on the price of crude oil are off base, he said, because crude oil is not a comparable factor by itself. Refineries buy crude oil and determine how much more or less they'll produce.

The wholesale price is the factor used to determine gouging. On Aug. 24, the wholesale price was $3.08, but Monday it jumped to $3.31 -- a 31% increase and the highest single increase in 2012 by 7 cents.

But Tuesday, the wholesale price dropped to $3.21, an 18% decrease from just the day before. At noon Wednesday, the wholesale price was down to $3.18.

Stations had every right to increase their prices Monday to around $4.09, but prices should be falling to around $3.99 -- unless a specific station's tanks were on empty Monday and they were forced to buy gas at a record wholesale price.

In his opinion, DeHaan said stations charging higher than $4.09 now could be investigated for price gouging.

The Associated Press contributed to this report.

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Gas prices in Grand Rapids and Michigan