Gasoline Price Going Up; Arco Sale Could Lift It More

Saturday, 9 Mar 2013, 9:08:00 AM

Tom Elias

Thomas B. Elias, Columnist
Santa Monica Mirror Archives
Thomas B. Elias, Columnist

Are you ready for $6-per-gallon gasoline? Then $7 a little


Premium grades of gasoline already go for more than $5 per gallon in some

parts of California; regular has been above $4.50 for a month at hundreds of

service stations.

There is no promise these near-record price levels will drop anytime

soon, especially with summer approaching and refiners making more expensive

California-specific blends for the next few months.

But consumer advocates warn that a proposed purchase of BP’s Arco

gasoline refinery and its company-owned stations by Texas-based Tesoro Corp. may

cause prices to rise much more in the not-so-distant


As February ended, the state’s tax-regulating Board of Equalization took

the first step toward raising gas prices above even today’s levels, voting 3-2

to up gasoline excise taxes 3.5 cents, from 36 cents to 39.5 cents per gallon.

This assures that even if prices come down in the near term, they will not drop

to where they were before the latest big bump took regular over an average of

$4.30, even at “cheap” non-branded stations. The vote was strictly party-line,

with the board’s two Republicans voting no and three Democrats saying


The bump was the result of a 2010 law signed by then-Gov. Arnold

Schwarzenegger (who promised, among other things, never to raise taxes), which

cut the sales tax on gas from 8.25 percent to 2.25 percent, while more than

doubling the excise tax to 35.3 cents (raised to 36 cents a year ago). The total

tax on each gallon of gas bought here will now average just over 70


That 2010 change allowed some gas tax money to

flow to the state’s general fund, easing a budget crunch. But – combined with

reduced gasoline sales due to the increasing efficiency of many new cars – it

also caused a $157 million shortfall in road-maintenance money. Hence the latest

excise tax increase.

But the impending purchase of Arco from the former British Petroleum by

refining giant Tesoro could pose a far larger potential threat to drivers’


Tesoro proposes to pay $1.175 billion for Arco’s refinery, stations,

pipelines and other equipment, with payment for Arco’s inventory of gasoline,

diesel and other items (like the merchandise in its AM-PM convenience stores in

California, Oregon and Washington) probably lifting the full payment to well

over $2.5 billion at current gasoline price levels.

It would leave the Arco name

on most stations that now carry it. BP is not explaining the sale this way, but it would net a couple of billion dollars or more, likely to be used for lawsuit settlements from the huge

2010 Gulf of Mexico oil spill.

The sale poses a threat to California prices, consumer groups contend,

because it would leave Tesoro in a commanding position in the California market,

even if Tesoro were to sell off its current refinery in Carson, smaller than and

adjacent to the Arco facility, to appease anti-trust


Tesoro, on the other hand, said in its press release announcing the

purchase agreement that the move will have “competitive advantages” for

California drivers. A company spokeswoman refused to say what those advantages

might be, saying the firm can’t comment until the deal goes


Tesoro currently sells in California under the USA Gasoline and Shell

labels, as well as supplying hundreds of unbranded stations. The company now

owns the former Ultramar/Beacon refinery in Martinez, the former Shell refinery

in Carson and others in Hawaii, Washington and Texas. If this deal goes through,

Tesoro and Chevron together would produce well over 50 percent of all California


“Who would want two companies to control more than half California’s

gasoline market?” asks Jamie Court, president of the Consumer Watchdog advocacy

group, which has asked both the Federal Trade Commission and state Attorney

General Kamala Harris to nix the deal.

Since 1980, the number of gasoline refineries in California has shrunk

from 27 to 14. Meanwhile, California gas prices (even before the nation’s

highest gas taxes) have consistently remained 10 to 20 cents above those in the

rest of America.

“Our market is geared to shortages and scarcity,” said Court, noting that

a fire or other outage in a single refinery can make prices


Historically, when price spikes occur, they later come down, but almost

never back to previous levels. So the next spike begins at a higher level than

the last one, driving prices ever upward. If that pattern continues, it has to

lead to $6-per-gallon gasoline prices and higher.

All of which means that if BP sells Arco, the FTC or Harris should insist

that Tesoro not be the buyer. Maybe Exxon-Mobil, Valero or Pilot Flying J, all

of which also have refineries here. But concentrating production of vital

necessities in just a few hands is rarely a recipe for competitive pricing and

it doesn’t figure to be this time, either.

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