Tesoro, the second largest oil refiner in California, received permission to buy the state’s BP refinery and Arco assets, despite anti-trust concerns that further market consolidation will hurt consumers.
State and federal officials gave thumbs up (pdf) to the $2.5 billion deal, which includes the sale of Arco’s 800-station retail network and the BP refinery in Carson. As part of the deal, Tesoro agreed to upgrade that refinery and one it owns in Wilmington.
In response to concerns that Tesoro would use the refinery purchase to achieve “synergy” savings by firing a bunch of workers, the company promised California Attorney General Kamala Harris not to do that for at least two years. The company also promised not to reduce capacity at its refineries for three years.
Although the deal left the Federal Trade Commission (FTC) “without a reason to believe this transaction is likely to substantially lessen competition,” critics were not quite so sure.
The advocacy group Consumer Watchdog sent a letter (pdf) to California Attorney General Kamala Harris asking for rejection of the sale: “A California market that is already concentrated and uncompetitive will become a duopoly, with even higher retail gasoline prices and greater market control by the industry.”
Tesoro and Chevron will own nearly half of California’s oil refining capacity, including its three largest refineries. California consistently has the highest gasoline prices in the country, generally attributed to erratic refinery production and low supplies of gasoline.
California does not have pipeline connections to the Midwest or the Gulf Coast and relies almost entirely upon its own refinery capabilities. Spikes in gasoline prices are a staple of California life, sometimes the result of market speculation but frequently in response to extended refinery closures for maintenance, mishaps and seasonal switches to production of summer-adjusted fuels.
Tesoro has trumpeted future savings as a result of the deal, which will allow it to combine operations between its Wilmington and Carson refineries. Liza Tucker at Consumer Watchdog said the savings will be one-sided: “That might be great for Tesoro, but not for consumers. It gives Tesoro a reason to cut output and drive up gasoline prices all under the guise of eliminating so-called redundant refinery operations.”
Arco tends to sell less expensive gas than other retailers, but promised the state it would keep those prices low. Consumer Watchdog thought that promise dubious. Noting that Tesoro already controls Shell stations in Southern California, and Tesoro, USA and Thrifty stations statewide, the group warned that “shrinking competition will almost certainly remove Arco as the state’s largest lower-priced seller.”
“The conditions of the refining market in California today are even more stacked against consumers than in 2001,” Consumer Watchdog argued. “The state still has no authority over refinery output or supply. Refiners are not required to even report outages to regulators. Environmental and safety regulation of refineries is so fragmented that it is largely ineffective.”
The Attorney General’s office promised to be “vigilant in monitoring Tesoro’s compliance with its commitments.”