Judge OKs state’s
oil settlement

The $20 million deal clears a
final hurdle without objections

Firms inflate prices, study says

By Tim Ruel

U.S. District Judge Samuel King today gave final approval for five Hawaii oil companies to pay the state $20 million to settle the state's antitrust lawsuit.

Chevron Corp., 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. King approved the settlement during a short hearing in federal court.

In the 4-year-old suit, 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 price-fixing, said Spencer Hosie, the state's lead attorney.

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

There were no objections to the deal, which was reached between the state and the companies in January and filed with the court in March.

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. The information provided by the case has proven critical to state legislators who are seeking to regulate Hawaii's gas prices. A bill that would set maximum wholesale and retail prices is headed for final votes today in the House and Senate. Gov. Ben Cayetano, who sued the oil companies in October 1998, has said he would support regulation.

If passed, the law would not take effect until July 2003, to allow for further study of the contentious issue of price caps. But the mere fact that a law is pending will likely lead to lower gas prices in Hawaii over the next year, 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.

"I think it is vitally important that the price cap bill be passed," Hosie said.


Oil firms inflate prices,
U.S. probe says

A Senate investigation found
the companies withhold supply
in already-tight markets

By H. Josef Hebert
Associated Press

WASHINGTON >> The concentration of oil companies and refineries among a few owners allows producers to manipulate gasoline supplies and force up prices to increase profits, a congressional report concluded yesterday.

The investigation by a Senate subcommittee found that intentional reductions in gasoline supplies tightened fuel markets and helped produce some of the sharp price spikes over the past three years, especially in the Midwest.

"In a number of instances, refiners have sought to increase prices by reducing supplies," says the 396-page report released by Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Investigations Subcommittee.

Hawaii, meanwhile, is poised to become the first state to allow state regulation of gasoline prices when the House and Senate vote this week on a measure, which has the support of Gov. Ben Cayetano, that would set a maximum price on gasoline based on an average of prices in West Coast markets.

Levin said "the concentration of oil companies is so heavy that it allows them to manipulate supply ... without fear of competition," to the detriment of consumers.

Levin urged tighter antitrust laws and a tougher review of oil industry mergers to curtail market abuses by today's dwindling number of industry players. He noted that in some European countries companies are required by law to keep in storage a minimum amount of oil or gasoline to avert shortages.

Red Cavaney, president of the American Petroleum Institute, said the Senate panel's report vindicates the oil companies because -- as have previous investigations -- it found no collusion or illegal market activities in setting gas prices. He said companies have a right, if they act alone, to make market dedications on supply.

"As long as the company or individuals act on their own, when they decide to put their supply on the market is their decision and it's legal. ...It's part of the free enterprise system," Cavaney said.

Levin acknowledged the investigation "did not discover any evidence of collusion," but he argued gasoline markets are so "highly concentrated don't need collusion to have a big artificial impact on supply" and, in turn, prices.

The report, written by the Democratic staff of Levin's subcommittee, cited several internal memos, dating back to 1998, from major oil firms that outline a general strategy of using supplies to influence prices.

An internal "confidential" memo written in 1999 by BP Amoco -- now known only as BP -- suggests "significant opportunities to influence" the balance of supply and demand in the tight Midwest gasoline market to assure higher prices.

Among the potential actions cited in BP's "Midwest, Mid-Continent Strategy" memo was to reduce refinery production, ship supplies to Canada, fill limited pipeline capacity from the Gulf to the Midwest with products other than gasoline, provide incentives to other producers not to provide additional gasoline, or lobby for environmental regulations to slow fuel shipments.

It's not known what, if any, of these actions were followed up.

Last summer, the Senate report said, "major refiners reduced gasoline production even in the face of unusually high demand ... contributing significantly to the price spike."

And in the spring of 2000 when prices soared past $2 a gallon, the report said that Marathon Ashland Petroleum held back on selling some of its cleaner burning gasoline from the market "so as not to depress prices."

It cited one internal Marathon e-mail which warned that if the company unloaded too much of its gasoline it could "thrash the market." Another executive said he would rather make 40 cents a gallon on 40,000 barrels of gasoline than 10 cents a gallon on 50,000 barrels.

The incident of a refiner withholding fuel in the spring of 2000 had previously been cited by a Federal Trade Commission report, which did not name the company.

A spokesman for Marathon, Chuck Rice, said yesterday that Marathon did not withhold gasoline from the market. "We produced 33 percent more in RFG (cleaner burning gasoline) in 2000 than in 1999 and we sold every drop we made."

Separately, the report cited another Marathon document, this one from 1998, as an example of the lack of concern by oil companies over tight supplies.

The internal economic analysis by Marathon, dated, Oct. 1, 1998, and marked "confidential" appear to welcome OPEC and other oil exporters' "efforts to rein in output" to try to prop up prices.

It also noted that a major Gulf hurricane has provided some "storm induced optimism" about prices.

"Nature stepped in to lend the oil producers a helping hand in the form of Hurricane Georges which caused some major refinery closures, threatened offshore oil production and imports, and generally lent some bullishness to the oil futures markets," said the Marathon memo, which analyzed the short-term gasoline price outlook.

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