Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

F I S C A L I M P A C T R E P O R T

SPONSOR HJC

DATE TYPED 10/11/05 HB 9/aHAFC/CS/aHFl#1

SHORT TITLE Emergency Anti-Price-Gouging Act

SB

ANALYST

Medina/Fernández/

Francis/Quezada

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to the Unfair Practices Act (Chapter 57, Article 12 NMSA 1978)

Conflicts with House Bill 9 and Senate Bill 3

SOURCES OF INFORMATION

LFC Files

Federal Trade Commission

National Consumer Law Center

Office of the Governor

FindLaw

Library of Congress

Responses Received From

First Judicial District Attorney

Attorney General

SUMMARY

Synopsis of HFl # 1 Amendment

House Floor Amendment 1 to House Judiciary Committee Substitute for House Bill 9 as

amended by HAFC relates to the determination of an unconscionable price and to the application

of the Unfair Practices Act.

The amendment removes “whether an increase in local prices is attributable to regional, national

or international trends, indices and postings” as a criterion to consider in determining whether a

price is unconscionable. The amendment converts this criterion into a determinant of a price of a

good or service that is to be deemed not unconscionable. The new language says that an increase

House Bill 9/aHAFC/CS/aHFl #1 -- Page 2

in the price sought for essential goods or services shall not be deemed unconscionable to the ex-

tent that: “the increase in local prices is attributable to national or international trends or regional,

national or international indices or postings”.

Finally, the amendment changes the title of Section 8 of the bill from “Application of Unfair

Practices Act” to “Application of Unfair Practices Act—Attorney Fees” and adds a provision

prohibiting private action from being brought pursuant to the Emergency Anti-Price-Gouging

Act.

Synopsis of HAFC Amendment

The House Appropriations and Finance Committee amendment to House Judiciary Committee

Substitute for House Bill 9 strikes the appropriation and the sections of the bill creating the anti-

price-gouging fund and providing for the emergency release of funds to the anti-price-gouging

fund.

Synopsis of Original Bill

House Judiciary Committee Substitute for House Bill 9 authorizes the governor, with State

Board of Finance approval, to transfer $1,000.0 from the general fund operating reserve to a pro-

posed anti-price-gouging fund for the attorney general to investigate and prosecute alleged viola-

tions of the Emergency Anti-Price-Gouging Act.

Prohibited practices. The bill prohibits the sale, rent or lease of goods or services vital and nec-

essary for the health, safety and welfare of consumers for an unconscionable price during a fed-

erally or state-declared period of abnormal market disruption. The charging for such a good or

service at an unconscionable price is the practice commonly known as price gouging. A period of

abnormal market disruption is defined as a change in the market proximately caused by an emer-

gency or disaster where market forces are or appear to be likely to be insufficient to ensure rea-

sonably stable prices of good or services.

Abnormal market disruption. A period of abnormal market disruption is declared by executive

order after any federal or state declaration of emergency or disaster has been made, subject to the

governor’s determination that the emergency or disaster has caused an abnormal market disrup-

tion within the state. In the governor’s declaration of a period of abnormal market disruption, the

governor is to specify the cause of the disruption, the geographic regions with which the price

gouging restrictions imposed apply, and the categories of essential goods and services to which

the restrictions apply. An executive-ordered period of restrictions due to abnormal market dis-

ruption can end when the governor determines that the abnormal market disruption has ceased

but is not to exceed thirty days. The governor may issue a single thirty day extension of the pe-

riod of abnormal market disruption for each federally or state-declared emergency or disaster.

The legislature may also extend or terminate a period of abnormal market disruption by joint

resolution.

Exemptions. Persons subject to the price gouging restrictions may file a petition for exemption

from those restrictions in any district court in a county included in an area affected by the ab-

normal price disruption. Notice of a petition for an exemption shall be served upon the attorney

general. The court is to act upon a petition for exemption pursuant to Rule of Civil Procedure 1-

066 NMRA (Injunctions and Receivers). The court’s issuance of an exemption can come if the

House Bill 9/aHAFC/CS/aHFl #1 -- Page 3

court determines that the enforcement of the price restrictions of the Emergency Anti-Price-

Gouging Act could result in a catastrophic loss of life or property, or if the petitioner demon-

strates that due to certain circumstances the petitioner is unable to comply with the restrictions

without suffering undue hardship beyond the hardship suffered by the persons generally subject

to those restrictions.

Unconscionable price. The bill requires that proof of the occurrence of price gouging lies in

proving that the price that a violator charged for an eligible good or service was more than fif-

teen percent above the average price charged by the alleged violator at the same location during

the twenty days prior to the issuance of an executive order declaring a period of abnormal market

disruption. This constitutes prima facie evidence that the price charged for that good or service

was unconscionable. (See Significant Issues)

Penalties, remedies and enforcement. Each instance of violating the prohibited practices of this

Act constitutes a separate violation of the Act. Those found by a court to be engaged in continu-

ous and willful violations of this Act (those found guilty of price gouging) would be subject to a

court’s suspension or revocation of their business licenses and may be banned from conducting

business in the state. Any profits deemed to have resulted from the charge of an unconscionable

price may also be required to be disgorged. Violators of this Act would also be subject to the

civil penalties outlined in the Section 57-12-11 NMSA 1978, which allows the attorney general,

upon petition to the court, to recover, on behalf of the state of New Mexico, a civil penalty of not

exceeding five thousand dollars ($5,000) per violation.

Emergency civil investigative demands. The attorney general may, in addition to exercising its

normal authority to investigate alleged violations of the Emergency Anti-Price-Gouging Act,

serve a civil investigative demand pursuant to Section 57-12-12 NMSA 1978 (Civil investigative

demand of the Unfair Practices Act) and may require the person to whom the demand is directed

to respond within three business days.

Notice. The Office of the Governor is to immediately notify the public of a declaration of a pe-

riod of abnormal market disruption by any means available.

Significant Issues

The main difficulty in determining whether the price of a good or service is unconscionable lies

in the determination of price prior to the event and the changes in the components of the price.

Anti-price-gouging laws have been challenged on the basis of the inherent subjectivity of this

determination. A violation of this Act would occur when a vendor charges a price deemed insuf-

ficiently supported by market forces. The bill includes a non-exclusive list of seven factors that

are to be considered by the court in determining whether a price is unconscionable:

•

Notice of the declaration of period of abnormal market disruption. The court is to con-

sider whether and when an alleged violator had actual or constructive notice of the issu-

ance of executive order declaring restrictions under the Emergency Anti-Price-Gouging

Act.

•

The timing, frequency and extent of increases in price by the alleged violator.

•

Exercise of unfair economic or other advantage by the alleged violator.

House Bill 9/aHAFC/CS/aHFl #1 -- Page 4

•

Price difference between alleged violator and market area twenty days prior to declara-

tion of period of abnormal market disruption. This requires a comparison between the

price sought for the essential goods or services by the alleged violator and the average

price of those same goods or services in the market area during the twenty days prior to

the declared period of restrictions.

Determining an appropriate “market area” will be the challenge of this method. If the al-

leged violator is near an access point (i.e. an interstate ramp), is the market price of the

good/service all others at that access point or the community at large. Another considera-

tion is whether the vendor has always been higher than the market area even in non-

emergencies. There are cases where retailers, due to visibility or particular locations or

even brand identification, can command a higher price than surrounding retailers.

•

Profit margin difference. A determination needs to be made that the price sought by the

alleged violator would have resulted in a profit margin greater than the alleged violator’s

usual and customary profit margin.

This factor would capture all of the input prices and thus isolate the cause of the higher

price of the alleged violator. A significant difference in profit margin before and after a

significant event would provide substantiate that the price sought for a good or service

was unconscionable. However, determining profit margin difference would likely be

controversial to vendors since profit margins are generally thought of as confidential in-

formation crucial to competition. It would not be improbable to envision a competitor

making allegations for the sole purpose of discovering profit margin information.

•

Historical seasonal price changes—whether the price sought by the alleged violator was

a result of historical seasonal price changes.

•

Other market forces affecting local prices—whether an increase in local prices is attribut-

able to regional, national or international trends, indices and postings.

This provision allows for some protection for local retailers who are heavily dependent

on suppliers outside of the state.

The bill provides that an increase in price sought for a good or service be construed as uncon-

scionable to the extent that the increase is directly attributable to actual costs imposed by a sup-

plier of essential goods or services or other costs of providing goods or services, including addi-

tional costs for labor, transportation or material used to provide the good or service. Increases in

price that are deemed necessary to prevent catastrophic loss of life or property are also exempt

from being considered unconscionable.

FISCAL IMPLICATIONS

This bill creates the Anti-Price-Gouging Fund to be administered by the Attorney general.

Money shall be transferred from the general fund operating reserve pursuant to Section 1-2 of the

Emergency Anti-Price-Gouging Act and any other appropriations, gifts, grants or donations.

Funds shall be used by the Attorney general for the investigation and prosecution of alleged vio-

lations of the Emergency Anti-Price-Gouging Act, including expenses of other state agencies

involved in the investigation.

House Bill 9/aHAFC/CS/aHFl #1 -- Page 5

Money in the fund shall not revert at the end of a fiscal year but shall remain in the fund.

In the event there is a transfer of funds to the Anti-Price-Gouging fund on or before the first day

of a regular legislative session that convenes at least one hundred twenty days after the issuance

of an executive order, the Attorney general shall report to the following to the legislature:

•

The amount of funds that have been expended from the Anti-Price-Gouging through De-

cember 31 of the calendar year prior to the legislative session and the purposes for which

the funds have been expended;

•

The amount of funds the Attorney general projects spending from the fund during the

calendar year in which the legislative session has convened and the purpose for which the

funds are to be expended;

•

Whether the Attorney general anticipates that the remaining funds will be sufficient to

complete investigations and prosecutions regarding alleged violations of the act during an

abnormal market disruption set forth in an executive order.

Continuing Appropriations - This bill creates a new fund and provides for continuing appropria-

tions. The LFC objects to including continuing appropriation language in the statutory provi-

sions for newly created funds. Earmarking reduces the ability of the legislature to establish

spending priorities.

The authorization for the transfer in case of an emergency of up to $1,000.0 for a single abnor-

mal market disruption resulting from a single cause, contained in this bill is a nonrecurring ex-

pense to the general fund operating reserve. If the period of abnormal disruption is limited to 60

days, then potentially there could be up to 6 periods in one year at a cost of $6,000.0.

Any unexpended or unencumbered balance remaining in a newly-created anti-price-gouging

fund at the end of a fiscal year shall not revert to the general fund. Rather, any funds remaining

are to remain to the credit of the anti-price-gouging fund until the attorney general completes the

investigation and prosecution of a violation. The costs to the attorney general of obtaining prima

facie evidence that a price charged for a good or service is unconscionable would require issuing

subpoenas for business records, obtaining search warrants, and economic analyses, among other

activities.

ADMINISTRATIVE IMPLICATIONS

As the primary enforcer of the Unfair Practices Act, the Office of the Attorney General’s Con-

sumer Protection Division has the resources to investigate, mediate, and prosecute cases related

to consumer protection and would also have original jurisdiction of the Emergency Anti-Price-

Gouging Act.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

The Unfair Practices Act (Chapter 57, Article 12 NMSA 1978) prohibits unfair or deceptive and

unconscionable trade practices but does not provide for price control mechanisms related to cir-

cumstances of emergency or disaster-related market abnormalities.

Similar legislation at the federal level is currently under consideration by the U.S. House of Rep-

resentatives. House Resolution 3681 proposes to amend the Clayton Act to make unlawful price

House Bill 9/aHAFC/CS/aHFl #1 -- Page 6

gouging for necessary goods and services during Presidentially-declared times of national disas-

ter. H.R. 3681 includes provisions similar to those in this bill for the determination of an uncon-

scionable price.

OTHER SUBSTANTIVE ISSUES

According to the Office of the Governor and the National Consumer Law Center, at least nine-

teen states have laws or regulations that prohibit price-gouging on petroleum products or other

goods in the aftermath of disasters. New Mexico is one of four states not directly affected by

Hurricane Katrina that are currently taking action on alleged price gouging. These efforts are a

targeted response to spikes in gas prices since Hurricane Katrina.

According to the Seattle Post-Intelligencer (September 19, 2005), the Federal Trade Commission

(FTC), which investigates suspected violations of price gouging using broad laws regulating an-

titrust practices and collusion between businesses, has never brought a gas-price-gouging case.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

If this bill is not enacted, current statutes would not include provisions for investigating allega-

tions of price gouging during a state of emergency or abnormal market disruption, nor for impos-

ing penalties for persons engaged in price gouging. By not enacting this bill, the state’s economy

would be allowed to react to states of emergency or abnormal market disruption as a free market

economy.

POSSIBLE QUESTIONS

Has it been determined that price gouging has had a significant negative impact on the state’s

economy.

How successful have efforts in other states been at combating price gouging, in particular at the

gas pump.

If a state of emergency is declared for which what are the implications of that declaration. In

other words, what resources are automatically mobilized following an emergency declaration

that are unnecessary to the public safety of New Mexicans.

Is it conceivable, following the liberal interpretation called for in Section 15 of this bill, that an

executive emergency declaration in which no disaster, natural or otherwise, has befallen in the

state, could be used to justify enacting the price controls contained in this bill.

XM:CF:NF:GQ/lg;yr