Refiners warn of shortages if no blackout exemptions

The Associated Press
Friday June 08, 2001

SAN FRANCISCO — As the peak summer driving season shifts into high gear, several major oil companies are warning that California could face gasoline shortages and higher prices unless their refineries are shielded from the blackouts facing the electricity-starved state in the weeks ahead. 

Four oil refiners – Valero Energy, Tosco, Exxon Mobil and Equilon Enterprises – are petitioning the California Public Utilities Commission for blackout exemptions at facilities that produce about one-fourth of the state’s refining capacity of 2.3 million barrels per day. 

Meanwhile, California’s biggest refiner, Chevron Corp., has taken its exemption case directly to Gov. Gray Davis. The San Francisco-based company, which controls about 18 percent of the state’s refining capacity, told Davis the company will curtail production unless regulators or state lawmakers protect its two California refineries from blackouts. 

The industry’s arguments for a blackout exemption revolve around the elaborate — and dangerous – manufacturing process used to turn crude oil into fuel. 

If a refinery suffers a blackout, it would take at least two days to restore full production, according to industry officials. If equipment is damaged in an abrupt shutdown, it could diminish refining capacity for weeks – a loss that could lead to shortages in gasoline-guzzling California and increase prices. 

The California refiners had been excluded from the blackouts until early April, when the PUC narrowed its blackout exemptions to utility customers that would pose “imminent danger to public health and safety” if they lost power. 

Despite the change, none of the refineries lost power in early May – the last time that California’s electricity grid managers ordered rolling blackouts. 

Nevertheless, the PUC’s decision “threatens to expand our energy problems from the current electricity supply problem to problems with shortages of critical fuels – gasoline, diesel and aviation fuel,” Chevron CEO David O’Reilly advised Davis in a June 1 letter. 

Even a temporary shortage could increase California’s gasoline prices by as much as 25 percent, according to estimates made by the California Energy Commission. Millions of California households and businesses already face electricity rate increases on their summer utility bills. 

The oil refiners join a long line of businesses lobbying for blackout exemptions, with the PUC receiving more than 10,000 such applications. The PUC expects to make a preliminary decision on the exemption applications July 10, with a final decision scheduled for Aug. 2. 

Fearing grid managers might pull the plug before the PUC acts, the refineries also are lobbying state lawmakers to pass a bill that would provide blackout exemptions for businesses “engaged in the manufacturing and/or transportation of critical fuels.” 

The bill cleared the state Assembly by a unanimous vote, but is now stuck in a Senate committee. 

“We’re paralyzed right now,” said Scott Folwarkow, Valero’s environmental and regulatory manager at its Benicia refinery. “This isn’t just about us or a few other refineries. There would be huge ripple effects through the economy because so many things, including police and ambulances, depend on gasoline.” 

While the refineries have a compelling case for blackout exemptions, they also should be required to pay more for electricity when other customers are enduring power outages, said Severin Borenstein, director of the University of California’s energy institute. 

“If the power is that valuable to them, then the state should probably say, ’OK, you won’t have to suffer blackouts, but you will have to pay extra for the electricity during shortages,”’ Borenstein said. 

Paying a little more for power wouldn’t represent a huge blow for oil companies because the industry’s profits have soared along with gasoline and natural gas prices. Chevron, for instance, earned $1.6 billion during the first three months of this year, 53 percent more than last year — when its profits set a company record. 

The state, in contrast, can’t afford to lose refining capacity for an extended period. 

Even when all the state’s refineries are operating at full capacity, the state traditionally needs to import about 10 percent of its summer gasoline supply, according to the California Energy Commission, which supports the refineries’ effort to obtain blackout exemptions. 

Based on recent accidents that forced California refineries to shut down in 1996 and 1999, gasoline prices would rise by as much as 50 cents per gallon if just one plant lost capacity for a few days, said Gordon Schremp, senior fuel specialist for the California Energy Commission. 

As it is, California motorists already pay some of the highest gasoline prices in the country. In May, California’s average gasoline price stood at $2 per gallon compared to the national average of $1.72 per gallon, according to surveys by the American Automobile Association. 

Providing the refineries with adequate electricity to supplement their internal power generation would reduce California’s electricity supply by 200 to 250 megawatts, Schremp estimated. That’s enough power for 150,000 to 187,500 homes. 

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