High gas prices may not be
conspiracy, isle experts admit

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By Tim Ruel
truel@starbulletin.com

The state's key economics experts in its $2 billion antitrust case against Hawaii's major oil firms conceded several times that high local gas prices were not necessarily the result of a price-fixing conspiracy, attorneys for the oil companies said yesterday.

University of Washington economist Keith B. Leffler said it would be self-defeating for Chevron Corp. to cut its Hawaii prices when the firm was already the market leader.

Jeffrey J. Leitzinger, another economist working for the state's case, said it was possible the oil companies could decide individually against price wars without collusion between the firms.

Plus, University of Hawaii economics professor Sumner La Croix acknowledged that Hawaii's retail gas prices were boosted partly because the state Legislature in 1991 barred the opening of new company-owned gas stations. La Croix later changed his testimony, said Robert Mittelstaedt, a San Francisco attorney representing Chevron.

The state law was changed in 1997 to allow company-owned stations to open beyond a certain distance from dealerships.

The gas companies used the statements by the state's economists, taken during defense depositions, to bolster their own case during a second day of hearings before senior U.S. District Judge Samuel King. The companies are seeking dismissal of several counts against them, arguing that the state doesn't have enough evidence of a conspiracy to put before a jury.

The state's lead attorney, Spencer Hosie, rejected that argument on Thursday, saying he has ample proof that there were secret agreements between the firms that affected the market.

So far, attorneys for defendants Chevron, Shell Oil Co., Union Oil Co. and Unocal Corp. have made their case, while testimony from Texaco Inc. and a rebuttal argument from the state is expected when the hearings continue Monday morning.

The oil firms argue that limited competition -- not conspiracy -- explains Hawaii's high gas prices at the pump.

Unocal would have only lost profits if it dropped its gas prices, said the firm's attorney Ernest I. Reveal. Rather, Unocal competed by building more stations, adding car washes and retail stores and making other improvements, Reveal said. As a result, Unocal went from 14 percent market share in 1994 to 17 percent in 1997, the year the firm's Hawaii assets were sold to Tosco.

Reveal denied an allegation by the state that Unocal purposely refused to sell gasoline to competitor Aloha Petroleum in 1992 and 1993.

The state contends that the oil firms conspired to shut out Aloha, which was discounting its gasoline prices.

Unocal never received an adequate request from Aloha that Unocal could respond to, Reveal said.