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Wednesday, May 1, 2002


Oil in hot water

State price-cap vote delayed;
U.S. Senate grills corporate execs


By Tim Ruel
truel@starbulletin.com

A last-minute attempt by state lawmakers to regulate Hawaii's high gas prices has sparked a heavy effort by Chevron to thwart the pending law, and has resulted in a two-day delay of a final vote on the measure.

The House and Senate yesterday amended a bill to regulate wholesale and retail gas prices, pushing the law's starting date back one year to July 2004 from July 2003. Because of the change, lawmakers must wait until tomorrow, the last day of this year's session, before they can make a final vote on the measure.

Gov. Ben Cayetano said he still supports the legislation

"The gas companies put on a full court press, but under the circumstances, I felt it was a responsible compromise," Cayetano said. "I think for the opponents, they feel another year will give them some time to make some changes to the political scenery and get the bill eventually repealed, but I don't think they will be successful."

The House could not have passed the bill without the amendment, following recent outcry from gas station dealers over the new regulations, said Ron Menor, who introduced the amendment in the Senate.

Employees of Chevron have been hitting lawmakers with faxes and calls, saying that the company cannot make enough profit under the new law, and will have to abandon Hawaii.

Charmaine Araujo-Caneda, who runs two Chevron-operated gas stations on Kauai, wrote a letter asking lawmakers whether they care if she and other employees lose their jobs. "I work for Chevron and have already been informed that should this bill be passed I will no longer have a job, because Chevron is going to take its business elsewhere," she wrote.

"We've been faxing and calling everybody that would listen," Araujo-Caneda said in an interview.

Rep. Paul Whalen, a Kona Republican who has been pushing for regulation, said he's recently received similar calls from upset gasoline dealers in his district, but he's found the dealers usually don't understand the new law. For example, the dealers don't realize the state Department of Business, Economic Development and Tourism will be required to study the impact of the price caps and make a report to the 2003 session of the Legislature before the bill can take effect.

Plus, the new law specifically allows for the oil companies to make an 18-cent profit on the gasoline they sell to dealers. Chevron made an average of 18.8 cents a gallon on sales to dealers between 1991 and 1998, according to an expert report uncovered in the state's antitrust lawsuit against the oil companies.

Chevron's cost of producing gas in Hawaii is no different from the West Coast, and that's why the Legislature is seeking to tie gas prices to a mixture of West Coast market prices, Whalen said.

It's reasonable for the employees to worry about their jobs, Whalen said. "That's a tremendous motivation factor to get on the phone."

The sudden pronouncement that Chevron won't be able to make enough money in Hawaii stands in stark contrast to the company's huge profits here in the past.

Chevron made $101.2 million in profit from its Hawaii refinery sales from 1988 to 1995, 22 percent of the company's nationwide profit of $462.3 million, according to the expert report from the lawsuit. Between 1988 and 1998, Chevron's average after-tax return on its capital investment in Hawaii was 20.8 percent.

In a Monday letter to state legislators, Chevron marketing manager Ken G. Smith took issue with those numbers, saying the state has taken the data out of context. Chevron's profits in the year 1991 were especially skewed because of the Persian Gulf War and other events, according to Smith's letter.

Rep. Ed Case said the oil companies simply keep coming up with different excuses for why gas prices shouldn't be regulated. The companies warned that there would be no way out if the regulations created unforeseen problems, so the Legislature responded by giving the governor the emergency power to suspend the law, Case said. Last week, lawmakers agreed to push the law's starting date back to 2003, and now the date has been delayed again.

"So the point here is, they just don't want it," said Case (D, Manoa.) "I think this is a good bill and we should get on with it."

The debate about gas regulations come on the eve of a conclusion in the state's 4-year antitrust lawsuit against the oil companies.

U.S. District Judge Samuel King yesterday gave final approval for five oil companies to settle the suit by paying the state a total of $20 million.

Chevron, Shell Oil Co. and Texaco Inc. will each pay the state $5 million, while Unocal Corp. will pay $3.3 million and Tosco Corp. will pay $1.7 million.

The state had been seeking $2 billion from the firms and is disappointed with the amount, but the suit was dealt a blow by a 1999 ruling that requires direct evidence of collusion, said Spencer Hosie, the state's lead attorney.

"People are always unhappy with a settlement," Hosie said. "It's a compromise."

Chevron has said in the past that the settlement amount represented a vindication of the oil companies' denial of antitrust violations.

Two years ago, two other defendants -- Tesoro Petroleum Corp. and BHP Hawaii Inc. -- settled by paying the state a total of $15 million, making the entire settlement worth $35 million from seven companies. After attorneys' fees and legal expenses are subtracted, the state is getting about $22 million.

Hosie said the main benefit of the case is that documents released during the process will allow people to understand exactly how the oil companies do business and what profits they make.

Even though gas-price regulation may be delayed until 2004, the mere fact that a law is pending will likely lead to lower gas prices in Hawaii in the meantime, Hosie said. The oil companies have the ability to keep prices down, and the companies will want to take the immediate pressure off consumers, he said.



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