Saturday, March 27, 1999

Gasoline-Paying the Price

State raises
ante in gasoline
antitrust suit

Oil companies' profits from
high prices were three times greater
than originally thought,
the state alleges

By Rob Perez


Alleging that Hawaii's oil companies profited far more from a gasoline price-fixing conspiracy than previously estimated, the state is now seeking more than $1.8 billion in damages and penalties.

That is nearly triple the amount originally sought in the state's antitrust lawsuit against the companies.

The new figure is contained in an amended complaint the state filed late Thursday in federal court.

Spencer Hosie, the state's lead attorney in the case, said the government increased the amount because the companies earned greater profits from excessive prices than originally suspected and because the alleged violations occurred over a longer period.

The new complaint, for instance, says Chevron Corp.'s net profits on local gas sales in 1998 were five times greater than its gas profits on the West Coast. Previously, the state alleged the company's profits were three times greater in Hawaii.

Hosie declined to say how the state came up with the new numbers, citing a court confidentiality order.

In the amended complaint, the state also adds a new count of deceptive trade practices, accusing the oil companies of thwarting gas price investigations and deceiving consumers over the past decade to perpetuate the excessive profits the companies allegedly made.

Chevron, Hawaii's gasoline market leader, did not respond yesterday to several requests for comment. A spokesman for Tesoro Hawaii, another defendant, declined comment, citing the pending litigation.

The state in October sued 13 companies -- past and current refiners and gas wholesalers in Hawaii -- on charges they conspired to keep local prices artificially high. The initial lawsuit sought $670 million in damages plus costs.

All the companies have denied the state's allegations. But they failed earlier this month to persuade federal Judge Samuel King to dismiss the case.

Hosie said the revised complaint seeks damages for alleged violations occurring over the past decade, instead of the four years the state was limited to under the charges in the original lawsuit.

The amended lawsuit contains new details that, if accurate, would seem to contradict public statements Chevron and other oil companies have made in defending their marketing practices here.

Chevron officials, for example, have told the Star-Bulletin that a price comparison between the Hawaii and West Coast gas markets would be irrelevant because the two are completely different and no connection exists from a pricing perspective.

Company officials also have said that isolating the profitability of one product such as gasoline from a range of products made at the local refinery would be difficult.

But the revised complaint notes that Chevron since at least 1989 prepared reports to track profit margins by product and region, including margins on gas sold in Hawaii.

It also says the defendants in their own internal economic studies treated Hawaii as part of a larger West Coast market. In addition, a correlation between the two markets was used to determine certain wholesale prices among the defendants and internal price transfers at Chevron, the lawsuit said.

The document lists several other points the oil companies have made publicly which the state claims are deceptive, including the contention that Hawaii's high gas prices reflect the higher cost of doing business here.

But the cost of refining gasoline locally is no more than what it would cost on the mainland -- and sometimes even less, the state alleges.

The state also for the first time cites diesel fuel prices to help buttress its case.

It says Chevron's national customers who purchased diesel in Hawaii and on the mainland paid a local price just several cents a gallon above California levels. But commercial customers who bought only in Hawaii paid substantially more than their national counterparts for the same diesel purchased at the same place and time, the state says.

It cites 1994 data showing that Chevron's Hawaii-only customers were charged more than 20 cents a gallon above the amount charged the national customers.

The lawsuit has been scheduled for a February 2001 trial date.

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