Californians fight against free market economy - again

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http://www.latimes.com/business/la-fi-arco-tesoro-20121010,0,780585.story

Tesoro plan to buy Arco gets more scrutiny amid gas-price surge

Consumer groups gear up to fight the sale of Arco and its Carson refinery to Tesoro, saying it would reduce competition and possibly lead to higher fuel costs.

By Ronald D. White, Los Angeles Times

October 9, 2012, 5:02 p.m.

As California gasoline prices set fresh records daily, consumer advocates are gearing up to fight the sale of the low-cost Arco brand and its Carson refinery to a Texas company not known for its cheap fuel.

Some experts are calling the proposed $2.5-billion sale to Tesoro Corp. of San Antonio the biggest shift in California's petroleum business in decades. Activists say the deal, announced in August, would reduce competition and possibly raise prices for motorists, and they will ask state and federal regulators to reject it.

The transaction is drawing fire now — with California's average gasoline price at a record $4.671 a gallon Tuesday, according to AAA — because it would leave 51% of the state's refining capacity in the hands of just two companies: Tesoro and Chevron Corp. of San Ramon, Calif. At the moment, 38% of the fuel sold in California is made by Chevron and Arco, which is owned by British oil giant BP.

"We need more competition in California, not less," said Charles Langley of the Utility Consumers' Action Network in San Diego. "We need to see if there are any other suitable buyers."

Jamie Court, president of the advocacy group Consumer Watchdog, said the latest price jump "is proof positive that we have too few refiners controlling too much gasoline" and that the proposed acquisition "is a recipe for huge sticker shock for consumers at the pump."

The Santa Monica group has sent a letter to state Atty. Gen. Kamala D. Harris urging her to block the sale on antitrust grounds.

"It is in refiners' self-interest to restrict production and supply, taking higher profits from selling less but more expensive gasoline," the letter said. "Tesoro's purchase of the BP refinery will intensify the ability of one or two companies to control output and supply."

Harris said Monday that she was opening an investigation into the transaction "to ensure competition in the marketplace is maintained and consumers are protected."

On a typical day, more than half of California's lowest-cost service stations carry the Arco name, according to GasBuddy.com, which tracks fuel prices supplied by a network of registered volunteers. More than 800 stations sell the Arco brand, which is made at the sprawling refinery in Carson.

In the middle of the price pack usually are stations supplied by Tesoro under the USA and Shell brands, averaging nearly a nickel to almost 20 cents a gallon higher than Arco's average price, according to GasBuddy. Tesoro owns two California refineries and supplies more than 650 gas stations in the state.

In an analysis of prices for regular gasoline from May through August, Arco stations averaged $3.891 a gallon, according to GasBuddy. Tesoro's USA stations averaged $3.935, and Shell stations were at $4.068.

Tesoro executives have expressed confidence that the deal will get the green light from regulators. The Federal Trade Commission has declined to discuss the review, which is expected to last into next year.

Service-station dealers, largely independent business owners, say they're in the dark about what lies ahead.

Tesoro spokeswoman Tina Barbee said the refiner "is committed to maintaining the well-established Arco brand model of providing low-cost fuel for consumers."

Still, the consistent price disparity between Arco and the Tesoro-supplied stations has left consumer advocates worried that Arco's low-priced ways might be in danger when there are fewer companies selling to California's drivers.

That perception, exacerbated by the recent price surge, could cause problems with the deal, analysts said.

"That fuel spike could very much hurt Tesoro's chances even though they had no real involvement in last week's problems," said John Kilduff, founder of Again Capital in New York. "Any further consolidation of the refinery industry in California will be looked at quite hard, if not made impossible, because of this episode."

The blue, white and red Arco stations have their quirks: They don't take credit cards, and some mechanics gripe about the gas quality, a longtime complaint that the company has vehemently rejected.

But the chain has plenty of loyalists, and some are worried about the proposed deal. Among them is Cynda Holmes, who searches for the cheapest gasoline using her smartphone.