Feds and State bless Tesoro purchase of BP Refinery and Arco stations.

A green light that Tesoro’s purchase of BP’s big refinery in Carson complies with anti-trust laws means over time gas prices will go up in the state, Consumer Watchdog said today.

The approval by the Federal Trade Commission and California Attorney General of Tesoro’s acquisition of BP’s Carson refinery and 800 Arco stations in the Southwest is not good for consumers or for competition, the group said.

“This might be the best deal that California Attorney General Kamala Harris could strike,” said consumer advocate Liza Tucker. “But the status quo is $4 per gallon gasoline and gasoline price spikes and all this deal does is protect the status quo, which is unacceptable to consumers,” Tucker said. Now two companies—Tesoro and Chevron—will control 54% of the California market. “The big oil companies have California over a barrel and there’s no good answer.”

Tucker said the acquisition was a recipe for artificially high gas prices, despite Tesoro guarantees to the Attorney General that current gasoline production would be maintained. According to a letter sent by Attorney General Kamala Harris to the California Energy Commission, Tesoro agreed it will not reduce capacity of CARBOB—or specially blended, environmentally friendly—California gasoline for a period of three years. It also promised to maintain the historical average daily production for both its Carson and Wilmington refineries. No documents signed by the companies with the Attorney General were immediately available for public review.

“It looks to me like the Federal Trade Commission took a walk on its commitment to preserve competition in the world’s ninth largest economy,” said Tucker. Here in California, she said regulators faced a tough choice. “They could have told Tesoro to sell its Wilmington refinery in order to buy the BP refinery,” said Tucker. “But then Tesoro could have said it was shutting that plant down. That would have guaranteed even higher prices as capacity tightened.”

In 2004, a Shell refinery in Bakersfield was sold, instead of shuttered, because of pressure from Consumer Watchdog, then Attorney General Bill Lockyer, and other consumer groups. But a company cannot be compelled by law to sell an asset rather than shutter it.

Only 14 refineries currently make retail gasoline in California and the number has steadily dropped in the last few decades. Last month, Tesoro said it was closing its refinery in Hawaii. That will further tighten capacity, said Tucker, as gasoline will have to be shipped from the West Coast to Hawaii. West Coast refineries also consistently export some of their gasoline. As capacity tightens and more people move into the state, demand for California’s special blend will rise over time, she said.

“We are hostages on a big gasoline island,” said Tucker. “Don’t be surprised if over the long run gasoline costs an average of $5 a gallon.” According to AAA, California’s average price for gasoline currently stands at $4.05, up three cents since the last report on April 9. California suffered a big price spike last October due to refinery outages. Gasoline went up overnight by as much as 50 cents a gallon to $4.67.  One condition of the sale also set by the California Attorney General is that Tesoro will add capacity of 400 gallons a day of CARBOB gas. “That amounts to an extra 16,800 gallons a day. Or what one big gas station can produce—big deal,” said Tucker.