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The Honolulu Advertiser
Posted on: Saturday, July 13, 2002

Tesoro says military owes $143M for fuel

Advertiser Staff and News Services

SAN ANTONIO — Tesoro Petroleum Corp. is seeking more than $143 million from the Defense Department in a lawsuit accusing the government of underpaying for jet fuel, gasoline, diesel, marine fuels and other petroleum products from its refineries in Hawai'i and Alaska for 16 years.

The Hawai'i refinery has a "major share" of the claims in the case, which represents the combined claims of Tesoro Hawaii Corp. and Tesoro Alaska Co., a Tesoro Hawaii lawyer said.

The lawsuit is similar to those filed by other oil refiners who say they were underpaid under contracts with the Defense Energy Support Center. The companies say the agency adjusted the prices it paid each month based on information that often underestimated the price for the petroleum products.

Tesoro's complaint centers on fuel sold to the government from Tesoro's refineries in Hawai'i and Alaska from 1983 to 1999. The company's sales under the contracts in that period reached about $1 billion.

David Leonard, vice president and general counsel for Tesoro Hawaii Corp., said the government had a price-adjustment clause in the supply contracts that courts have ruled violates federal regulations controlling government purchases from suppliers such as Tesoro.

"Because they did not follow the requirements of their regulations, the courts have held their adjustments were illegal and Tesoro and other refiners are now entitled to a repricing of the fuel going back to the early 1980s," Leonard said.

He said Tesoro filed administrative claims with the Defense Energy Support Center from October 2001 to April to recover the $143 million. After the government rejected those claims this past spring, Tesoro filed its suit, he said.

Pentagon officials declined to comment on the specifics of the lawsuit, but spokeswoman Lynette Ebberts said the support center stood behind its pricing system.

"It was a fair system. It is a fair system. We firmly believe that," Ebberts said.

San Antonio-based Tesoro filed the lawsuit June 17 in the U.S. Court of Federal Claims in Washington. Companies taking similar action include Chevron Texaco Corp., The Williams Cos., Sunoco Inc. and Phillips Petroleum Co.

Valero Energy Corp. of San Antonio, the largest U.S. independent refiner, is reviewing its military jet fuel contract, a spokesman said.

Advertiser staff writer Susan Hooper contributed to this story.