Attorney General wants scrutiny on refineries - East Valley Tribune: Business

Attorney General wants scrutiny on refineries

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Posted: Thursday, August 12, 2004 7:20 am | Updated: 4:46 pm, Thu Oct 6, 2011.

Arizona Attorney General Terry Goddard wants the federal government to more closely regulate when refineries switch from winter to summer gasoline blends so they don’t all do it at the same time, a move that results in huge gas price increases in the East Valley every spring.

Goddard and his counterpart in Nevada met with the U.S. Department of Energy last month to ask the agency to use its authority and schedule the switches. Scheduling when refineries change blends would avoid what Goddard calls artificial shortages that lead to huge price hikes at the pump, particularly during the past two years.

Using numbers from the California Energy Commission and Department of Energy, Goddard estimates the halfdozen refineries that supply the state appear to have made $1 million a day in Arizona during March and April in 2003 and 2004.

"I’m not saying the profit is illegal," he said. "I’m saying the government should not be the facilitator of this extraordinary profit, because that’s what’s happening today. The excuse is ‘We’re changing blends, therefore we’re raising prices’ and that doesn’t work for me. I don’t think that’s an excuse that anybody ought to have, so if by scheduling and thereby eliminating the short supply period we can get that excuse off the table, I think that’s something that ought to be done."

The U.S. Environmental Protection Agency requires the refiners to switch the Valley’s gas during the month of March. But Goddard says all of them begin flushing their tanks of winter gasoline at the the beginning of the month, creating the shortage in summer fuel. He suggests a staggered schedule to fix problem.

"I believe what happened in this state over the past two years is highly questionable, that it should be looked at very carefully by all authorities," Goddard said, producing charts that showed gas prices increasing more than 30 cents per gallon in March and April 2003 and nearly 30 cents a gallon in March and April 2004. Prices don’t come down to the national average for two months after the switches, he said.

A Department of Energy spokesman called the refinery switchovers a corporate issue.

"We do not mandate or regulate that. It is up to them," Drew Malcomb said. "If there is price shift because they’re all switching at the same time, that would be something to address with them."

An oil industry spokesman said the scheduling idea may violate anti-trust laws and wreak havoc in the marketplace.

"Many of these companies are ordering and transporting in huge amounts of crude that they have scheduled a long time in advance and they have limited storage for that," said John Felmy, American Petroleum Institute chief economist.

"That would be a very complicated situation for the government to get involved and tell refiner X, Y and Z ‘It’s your turn’ when ‘Oh my God I’ve got 300,000 barrels of crude that is piling up.’ There’s really a lot of devil in the details, and we’ve learned from the past anytime you get government in those types of things that are largely regulated by the marketplace, it’s been a disaster."

Goddard said Mark Maddox, acting assistant director of the Department of Energy’s Office of Fossil Energ y, appeared receptive to his proposal. He is seeking a second meeting with Maddox, Nevada Attorney General Brian Sandoval and EPA officials.

In an effort to lower gas prices in the state, Goddard has banded with attorneys general in Nevada and California, which also have been hit with high prices compared with other states during the switches. The group has created a task force at the National Association of Attorneys General to study gas prices, and Goddard has met several times with Western states on the issue.

"This is regional problem, not just an Arizona problem," he said.

Gasoline prices are controlled by a few large companies that have huge market power, Goddard said.

"I certainly wish we could snap our fingers and have gas prices go down," he said. "I have not figured out how to do that. I think what we have is what’s referred to as oligopoly market conditions."

As an example, Goddard said gas prices increased in Tucson following last summer’s gasoline pipeline break.

"Tucson should have more than enough gas during that period because the gas that was normally shipped to Phoenix got stopped because of the pipeline break in Tucson," he said. "There’s should have been fire sales . . . they had a surplus. In spite of that, prices went up. I think that’s a highly questionable situation, and one that needs to be looked into further by federal authorities."

The Federal Trade Commission, Goddard said, has approved every refinery merger that has come to them in the past three years, Goddard said.

And a Shell refinery in Bakersfield, Calif., is scheduled to be closed.

"It doesn’t make sense that close a refinery that’s 2 percent of the gas market and 6 percent of the diesel market when everybody is telling us there’s not enough refining capacity," he said.

Arizona, Goddard said, is "dependent on a fragile and singular pipeline" that supplies gas from both Texas and California.

About 70 percent of the state’s gas comes from California.

"California projects in the next three to four years they’re going to be using all of the supply that comes in on import and local production," Goddard said, adding there are no plans for new pipelines in Arizona.

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