Chevron documents reveal its
Hawaii refinery generated 14 percent
of U.S. profits while producing only
3 percent of its crude oil

The state says oil firms conspired to keep prices high.

By Rob Perez
Star-Bulletin

The Hawaii market was so lucrative for Chevron Corp. that its local refinery generated 14 percent of the company's U.S. profits in the late 1980s even though the plant was processing only 3 percent of the crude oil, according to an internal Chevron document cited by the state.

What's more, the company has exported locally produced gasoline to the mainland to help maintain excessive profits in Hawaii and has disguised those efforts to thwart state investigators, the state alleges.

The allegations, based partly on confidential Chevron documents from the late 1980s, are contained in a July 23 federal court filing the state made to amend its antitrust lawsuit against Chevron and other major oil companies in Hawaii.

Based on the amended complaint, the state is now seeking at least $2 billion in damages and penalties from the companies, accusing them of illegally conspiring to keep Hawaii gas prices artificially high. The companies have denied any wrongdoing.

The amended complaint accuses Chevron, Hawaii's market leader, and the other defendants of fraudulently concealing information for years to hinder the state's investigations into whether the industry was making excessive profits.

A Chevron spokesman, Albert Chee Jr., dismissed the latest allegations as concoctions. He said they were designed to increase the potential for damages, which would mean a bigger payoff to the state-hired law firm pursuing the case on a contingency basis.

Chee denied that Chevron has concealed information and said the company has cooperated in the various state investigations. Chee, however, would not address some of the specific points the state raised quoting Chevron documents. He said those points were periphery issues that didn't deal with the heart of the state's case: whether a conspiracy existed.

The latest complaint marks the first time the state has quoted from internal company memos to buttress its case.

"It's not so much what they say," Chee said. "The issue at hand is whether we concealed them. ... The answer to that question is no."

In a May 1987 document, according to the lawsuit, Chevron says its Hawaii refinery profit on a barrel of crude oil was four times Chevron's U.S. average. The state also cited the same Chevron document to note how much the refinery contributed to the company's U.S. profits, even including a line suggesting great exuberance locally for such a role.

"We are obviously very important to CUSA (Chevron USA) profitability, and (Hawaii) should stay a good place to run crude oil!!" the state quotes from the document.

In citing company documents, the state tried to show how industry officials said one thing publicly and something seemingly contradictory privately, underscoring what the state described as a decade-long campaign to hide the truth.

The state said Chevron also withheld numerous relevant documents that the state asked for during the investigations.

But Chee said Ted Clause, a recently retired deputy attorney general who headed the investigations, testified in a recent deposition that the documents were received.

Asked if Clause's testimony contradicted the state's concealment allegation and put the issue to rest, Chee said, "In our mind, yes, it does."

Clause declined comment, referring questions to Spencer Hosie, the San Francisco attorney who is heading the state's case.

Hosie could not be reached for comment.

On the issue of exports, Chevron viewed the matter as being politically sensitive, the state said, again quoting from a company document. The company feared people would question why it would take the costly and difficult step of shipping gas from Hawaii, a high-priced market, to a low-priced one on the mainland, instead of using the fuel to bring more price competition to the islands, the state said.

To forestall such questions, Chevron decided to export gasoline in a slightly different form, called "light catcracked gasoline component," a product one step removed from gasoline, according to the lawsuit.

"Chevron did indirectly what it did not want to be seen doing directly," the complaint said.

Tim Hamilton, a mainland petroleum analyst and frequent critic of the oil companies, said the latest revelations remove the facade the industry has hid behind for years.

"The smoke-and-mirrors show is over," Hamilton said. "It's not the cost of doing business that accounts for the higher gas prices; it's the greed of the oil companies."

In the state's original lawsuit of October 1998, it sought $670 million in damages and penalties, then raised that to $1.8 billion in March.