Elias: ARCO sale could fuel high gasoline prices

Thomas Elias
Thomas Elias

By Tom Elias

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

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 future.

The state’s tax-regulating Board of Equalization recently 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 yes.

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 cents.

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’ pocketbooks.

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 regulators.

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 through.

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