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Consumer group asks Lockyer to halt plan to close refinery

The San Francisco Chronicle

A consumer group has asked state Attorney General Bill Lockyer to block Shell from closing its Bakersfield refinery after unearthing internal company documents that show the facility actually has been profitable.

The group, the Foundation for Taxpayer and Consumer Rights, said closing the refinery would lead to higher gas prices in the state. It accused Shell Oil Products US of deceiving the public and trying to manipulate the gas market.

“Only an oil company that wants to short the market and artificially drive up the price of gasoline would demolish a highly profitable refinery rather than sell it,” said Jamie Court, president of the foundation, which is based in Santa Monica.

In a letter sent Tuesday, the group asked Lockyer to file suit against Shell under the state’s Unfair Business Competition Law. It asked Lockyer to force Shell to either sell the refinery or keep it running.

If Lockyer doesn’t act, the group said it would file its own suit.

Tom Dresslar, a spokesman for the attorney general, said Lockyer “has been aggressively investigating the planned shutdown and exploring a number of legal theories, including antitrust.”

At the same time, he cautioned that “as a general rule, government cannot force private companies to keep operating a business that they don’t want to operate.”

Shell, owned by Royal Dutch/Shell, disclosed in November that it plans to close the Bakersfield refinery, which accounts for 2 percent of the state’s refining capacity. Declining production of heavy crude in the San Joaquin Valley made operating the facility beyond Oct. 1 economically unviable, the company said.

Many consumer groups immediately criticized the decision. Losing the refinery’s supplies would tighten California’s gas market even more than it already is, they said.

Currently, 13 refineries supply the state with just enough of its special blend of smog-reducing fuel to meet demand. In 1983, the state had 37 refineries.

Gas prices have become a sensitive subject among many drivers and political candidates this year as pump prices have soared. The average price of self-serve regular is $2.13 in the state, according to the federal government, just a few cents shy of the all-time high hit last year.

However, prices are less remarkable when inflation is taken into account. In that case, the all-time record for the state was set in 1980 — $2.78 per gallon in today’s dollars.

The internal documents released Tuesday show that Shell‘s Bakersfield refinery is actually the company’s best U.S. performer so far in 2004. It’s refining margin was $23.01 per barrel as of April 2, beating out all seven other Shell refineries, some of which had margins as low as $7.19 per barrel.

Since 1998, the Bakersfield refinery has turned a net profit after taxes in four out of six years for a total profit of $14.5 million. Through February, it has made $2 million in profit, according to the documents released Tuesday.

The apparently good results were underscored in a message that a Shell manager sent to Bakersfield refinery employees at the end of 2003. It said: “We turned in excellent operational performance this year. We are the most reliable Shell U.S. refinery in 2003 and achieved world-class performance two years in a row now.”

Cameron Smyth, a spokesman for Shell, would not comment on the possibility of a lawsuit and said he was unaware of his company doing anything improper. He emphasized that the Bakersfield refinery has lost money in two of the past three years and that the company expects it to show a loss again in 2004, despite the early profit.

“The refinery is closing because of the lack of crude,” Smyth said.

Smyth acknowledged that Shell did not seek any buyers before deciding to close the refinery. The company is willing to entertain offers, but no reasonable ones have been received, he said.
E-mail Verne Kopytoff at [email protected]

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