STICKUP AT THE PUMP IN HAWAII?

Why does gas cost so much more in Hawaii than on the mainland? Hawaii's attorney general believes that price-fixing has something to do with it. The AG has filed an antitrust suit in federal court seeking as much as $500 million in damages for profits gained from the alleged price-fixing and collusion. Named in the suit were Hawaii's two oil refiners: Chevron Corp. and Tesoro Hawaii Corp. as well as past and present Hawaii gasoline wholesalers Unocal, BHP Hawaii, Shell Oil, Tosco, and Texaco. All strongly deny the charges.

The state has long suspected collusion in Hawaii's gas business and has mounted investigations three times over the past decade. Retail prices of unleaded gasoline in the Aloha State have consistently tracked between 15 cents and 25 cents above those on the West Coast -- far above what oil business watchdogs claim is a reasonable price differential.

"People expect it to be expensive in Hawaii," says Spencer Hosie, a San Francisco private attorney who is spearheading Hawaii's litigation team. "But the oil comes into Hawaii on a boat from Alaska, and it's the same boat that goes to Los Angeles and San Francisco. Sometimes the oil comes from Indonesia and sails right by the Hawaiian Islands on its way to Los Angeles."

According to Hosie, who has litigated numerous oil business cases, the cost of crude oil purchases typically represents 87 percent of total refining costs. The remaining margin, which is subject to regional costs, is so small that the price differential between Hawaii and the West Coast should be no more three or four cents in a competitive market. But over the past year, Hawaii prices have risen to levels almost 40 cents a gallon higher than those on the West Coast despite record low prices of crude oil worldwide.

Price changes among competing oil companies in Hawaii have moved in virtual lockstep for years and land prices -- long considered a major added cost in Hawaii -- are now on a par with those in Los Angeles and San Francisco. What's more, bulk buyers, like the State of Hawaii and the federal government, fill their cars' tanks at prices only a few cents more than prices for similar bulk contracts in California.

Add to this a Byzantine set of marketing and preferential pricing agreements among Hawaii oil companies, and Hosie believes he has a case. "There is abundant evidence that they allocated the market amongst themselves, they understood the allocation, and they agreed to live with the allocation," Hosie says. According to the state AG's office, the collusion is costing Hawaii consumers $200,000 per day in allegedly illegal profits.

The oil companies cry foul. They say high prices are due to higher costs of doing business in a small, expensive, and isolated market like Hawaii. "It simply costs more to do business in Hawaii, and that cost difference is reflected not only in the price of gasoline but also in most other goods and services," says Chevron's Hawaii pricing manager Michael R. Neeley, who says the market is highly competitive with constant price changes. Neeley called the lawsuit preposterous and pointed to the upcoming gubernatorial election where Hawaii's incumbent Democratic governor is trailing badly in the polls as possible reasons behind the lawsuit.

One point is indisputable: The high price of gas is no help to an economy reeling from steep declines in Asian tourism and the collapse of the local construction industry.

By Alex Salkever in Honolulu