State says oil firms conspired on prices
By Frank Cho
Advertiser Staff Writer
In the first public glimpse into the state's $2 billion anti-trust case against Hawai'i oil companies, state lawyers yesterday told a federal judge that confidential company documents and executive testimony will show the industry has conspired to keep gasoline prices artificially high for drivers since 1987.
State lawyers said that Chevron, the state's leading producer of gasoline, and other oil companies were pocketing profits of 50 cents to 60 cents a gallon on gasoline sold to Hawai'i drivers — compared to the 3 or 4 cents they would earn in other markets — and then misreporting the figures to the state.
During a hearing yesterday on a motion by the oil companies to have U.S. District Judge Samuel King dismiss the state's case, attorneys for the state said they believe they can show a conspiracy that started more than a decade ago and has cheated Hawai'i drivers out of millions of dollars.
The oil companies have denied the charges since the state filed its suit in 1998, and an attorney for the companies argued yesterday that the suit should be dismissed because the state has "manufactured" its case based on circumstantial evidence.
Spencer Hosie, the state's lead attorney, admitted yesterday: "There isn't any direct evidence of a conspiracy. These things live in the shadows."
But Hosie said that through a series of documents and testimony, the state will be able to illustrate the oil companies' pattern of anti-competitive behavior.
Hosie said the state could show that a conspiracy started in May 1987 when Chevron, which owns one of the state's two oil refineries, met with PRI — the other refinery owner at the time — to talk about pricing of gasoline and market share.
Over the next several years, other oil companies doing business in Hawai'i were also added to the group, Hosie said, primarily through gasoline supply contracts. As part of the deal, Hosie said yesterday, Chevron would provide them with gas in exchange for no price competition. If the companies tried to lower their gas prices, Chevron would end the relationship, he said.
Hosie argued yesterday that if there were real competition in Hawai'i's gas market, consumers should have seen more price competition.
But Maxwell Blecher, an attorney for Tosco Corp. who argued yesterday for the defendants, said it was not in the interest of the oil companies to start a price war that could cost them millions of dollars in lost profits.
He also said that prices remain relatively stable in Hawai'i because there are only a handful of competitors and because drivers' demand remains stable so there is little incentive to lower prices. That is why Hawai'i gas prices are among the highest in the nation — not because of an alleged conspiracy, Blecher argued.
The state does not believe that, and Hosie unveiled a series of edited video clips yesterday that appeared to show Chevron, Shell and other oil company executives in depositions talking about efforts to keep gasoline prices high, punish competitors who challenged them on prices, and preserve their market share.
In one of the clips, Mike Caci, a former Chevron pricing manager, is shown as saying as part of his deposition that the company never looked into whether to drop its price or whether such a strategy could be profitable because of increased volume.
Much of the state's testimony yesterday centered on Chevron's role in an alleged conspiracy, barely mentioning the other defendants. "My focus has been Chevron," said Hosie. "It is the big daddy and its (supply) contracts are the key."
Hosie said Chevron had supply agreements with Texaco, Shell and other gasoline wholesalers in Hawai'i. Through the agreements, Hosie said, Chevron could limit how much gas the other companies could buy and thus how much of the market they could control.
When the other companies asked for more gas, Chevron refused, Hosie said. But instead of importing their own gas, Hosie said, they went along to preserve their inflated profits.
Hosie noted that when Texaco needed more gas and was turned down by Chevron, it did not import gas from its refineries in the Pacific Northwest where it had a surplus. Instead, Texaco chose to ship that gas through the Panama Canal and sell it in Florida at 43 cents a gallon, half of what it could have gotten in Hawai'i, Hosie said.
Hosie argued that indicated Texaco surely had an agreement with competitors not to import gasoline into Hawai'i.
The state's lawsuit, filed in October 1998, named several oil companies, including divisions of Chevron, Shell, Texaco, Unocal and Tosco Corp., as defendants. It alleges that, for the past decade, gasoline wholesalers and two refiners fixed prices and agreed to allocate market share among themselves in violation of antitrust laws.
BHP and Tesoro were also named in the original suit but were dismissed from the case as part of a $15 million settlement with the state.
Yesterday's details are some of the first that have surfaced in the case because much of the evidence collected by both sides has been kept secret under a 1999 court order.
The hearing into whether to dismiss the case before it goes to trial — scheduled for Feb. 5 — will continue through today. Both sides are also expected to present a plan that would unseal the rest of the court files in the case.
Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.
