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.
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 gasoline.
“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 skyrocket.
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.
Reach Elias, a syndicated columnist, at email@example.com.