State to ask ChevronTexaco's help on decision

By Sean Hao
Advertiser Staff Writer

In an interesting twist to an ongoing case, the state plans to seek ChevronTexaco Corp.'s help in explaining its decision on whether to sue the oil maker for tax evasion.

That's part of the reason the state attorney general's office said yesterday that it plans to extend a Thursday deadline for announcing a decision on pursuing a lawsuit. It's also why some people are predicting that the state may not sue the oil company.

At issue is whether Chevron and Texaco funneled profits through an offshore joint venture to avoid taxes during the past 30 or more years and whether they paid inflated prices for crude oil that could have led to higher gasoline prices in Hawai'i.

The two companies, which have since merged to become ChevronTexaco, have denied the charges.

Hugh Jones, a state deputy attorney general, said that outside law firm Winston & Strawn has submitted a report with its recommendations on whether the state should sue the oil company, but he would not disclose the law firm's comments.

State officials will decide soon whether to accept the firm's recommendation, Jones said.

"The decision process probably won't take long; the report was very clear and decisive," he said.

However, "the public wants and deserves an explanation of what we're doing," Jones said. "In order to do that, we'll have to distribute some confidential Chevron information."

As a result, the state expects to seek another in a series of 30-day deadline extensions before it decides whether to enlist Chicago-based Winston & Strawn in a case against ChevronTexaco.

Tax evasion allegations were raised last year in a report by two accounting professors, Jeffrey Gramlich and James Wheeler.

The report accused ChevronTexaco of failing to pay $3.25 billion in taxes, including $563 million to the state. The Internal Revenue Service took Chevron to court on similar allegations in 1994, and Chevron settled that case for $675 million.

The plan by the attorney general's office to seek help from the oil giant before making its decision was viewed by the professors as a sign that the state will not pursue a lawsuit.

"That tells me that they're not going to go forward with it and that they have something that lets Chevron off the hook," said Wheeler, a former University of Michigan professor. "I can't imagine what it is."

The professors argued that Chevron and Texaco purchased oil at inflated prices from the Indonesian government to avoid U.S. corporate income taxes and to receive foreign tax credits, among other things. In addition, the two charged that the Indonesian government gave the companies free oil to offset taxes paid on the overstated value of oil purchased.

If any overpriced oil made its way to the Hawai'i market, the alleged pricing scheme could have cost consumers nearly $1.3 billion extra at the pump since 1963, said Gramlich, a University of Michigan visiting professor.

However, Gramlich and Wheeler said they would not be surprised if the administration opts not to sue ChevronTexaco. They cite the pro-business stance of the state and national Republican parties and the decision to rely on Winston & Strawn, which typically defends corporations, Gramlich said.

Former Gov. Ben Cayetano, a Democrat, selected Winston & Strawn, which was among 16 firms considered for the case.

Democrat legislators, concerned that Gov. Linda Lingle would not sue ChevronTexaco, passed a resolution earlier this year urging Lingle to pursue the case.

Sen. Ron Menor, D-17th (Mililani, Waipi'o), chairman of the Senate Committee on Commerce and Consumer Protection, said he has begun investigating alternatives should Lingle choose not to sue ChevronTexaco.

Options include drafting legislation that would force the administration to pursue the case, or spurring the public to take its own legal action against the oil company, he said.

"There's certainly a sentiment in the Legislature in support of having the state pursue litigation against the oil company," Menor said.

A decision not to sue the company also would place greater importance on some form of gasoline price cap to hold down Hawai'i's relatively high gas prices, Wheeler said.

A gas price cap law is scheduled to take effect in mid-2004, but some officials favor repealing it.

"If they're not going to do this (sue ChevronTexaco), then the administration should stop talking about doing away with the gas cap," Wheeler said.

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.