The news reports were on the gee-whiz side this week as state job safety regulators announced nearly $1 million in fines–the largest ever!– against Chevron for its refinery blaze last August. But “largest ever” only means that the levy hit the state’s $1 million cap on such fines. For Chevron, whose yearly profits are measured in the tens of billions (second only to Exxon), $1 million is pocket lint. As with so much of California’s regulation of mega-businesses, such fines are baked into the cost of doing business. They have zero deterrent effect.

The Cal-OSHA fines were for Chevron’s carelessness and lax oversight at its Richmond. CA refinery–leading to a a burst pipe, a huge fire and a toxic smoke cloud that sickened thousands of residents in and around the Richmond, CA, refinery last August. Chevron also dithered and delayed a shutdown for more than two hours after finding the leak, guaranteeing a conflagration.

The blaze starkly illustrated how the energy industry and other polluters evade regulation and play off one regulator against another. The regulators sit in their little silos of fractured authority, disclaiming responsibility for this disaster or that disaster.

Chevron, as the fine was issued, also listed how it would make the aged Richmond refinery safer in the future. The list is a joke–it promises not one cent in capital spending to upgrade and make safer the parts of the plant that didn’t burn down. All of the promises amount to “we’ll keep a closer eye on things.” Keep in mind as you read that Chevron’s inspections and safety training, before the August fire, were considered state of the art in the industry.

Chevron said it was:

• Enhancing inspections of piping components potentially susceptible to sulfidation corrosion since carbon steel components with low-silicon content can corrode at an accelerated rate. This inspection program is being applied throughout our refinery system worldwide.
• Strengthening reliability programs for piping and equipment, and enhancing competency requirements for leaders, inspectors and engineers.
• Strengthening leak response protocols and reinforcing the authority that everyone has to shut down equipment.
• Creating more management oversight and accountability for process safety and re-emphasizing focus on process safety.

That all sounds like more of the same, vulnerable to the same human error, reluctance to shut down and cost-cutting that led to the August disaster.The badly corroded pipe that burst, for instance, was skipped in a Nov. 2011 inspection of the unit destroyed by the fire. The deliberate omission was in violation of Chevron’s own safety policies.

Chevron will obviously have to replace the pipes (and everything else) in the processing unit that failed. But even that is in question–the new pipes that Chevron insists it will usewill use are the same as the piping that corroded at a BP refinery in Washington State, leading to a similar huge blaze that shut down the refinery. Richmond’s City Council, which has  final say over how Chevron does its repairs, is largely staying out of the dispute between Chevron and the U.S. Chemical Safety Board over the pipe replacements.

Could it be because Chevron spent $1.2 millon on the city’s municipal municipal election last November, putting two of the three candidates it backed onto the council and fighting off progressive candidates? The company is also pouring millions into pet projects for city leaders.

There are endless ways that a company the size of Chevron can spend relative pennies in order to keep all of its billions in profits. Fines make more economic sense than upgrades. Building parks and meddling in local elections is cheaper than protecting the overall health and safety of local citizens. Spending more millions on state officials and elections is also cheaper than suffering coordinated official scrutiny.

California’s governor and Legislature could easily improve both safety and consumer protection with some reasonable changes:

• Put oversight and regulation of oil refineries under a single independent body, funded through a tax on oil extraction.
• Give the regulator the power and funding to inspect refineries regularly and follow up frequently to ensure that violations are fixed.
• Require refineries to stagger routine maintenance shutdowns in order to prevent spikes in gasoline prices, and oversee routine shutdowns to ensure that they are not dragged out for financial reasons.
• Require that refiners keep about three weeks’ worth of gasoline in stock to ease price spikes after events like the Richmond fire. This could include stronger oversight of refiners’ exports outside the U.S.

Sounds pretty simple. But Chevron, Exxon and friends see such regulation as interfering in their freedom to profit. Gov. Jerry Brown could lead the reforms above and probably win with major public backing. It’s all a matter of whether anyone, even Brown, will stand up to the oil industry. Early on, he didn’t show much backbone. But with the economy recovering slowly and the state’s debt looking more manageable, the still-popular Brown could successfully lead the charge to make refiners operate safely and in the public interest.

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Posted by Judy Dugan, research director emeritus for Consumer Watchdog, a nonpartisan, nonprofit organization dedicated to providing an effective voice for taxpayers and consumers in an era when special interests dominate public discourse, government and politics. Visit us on Facebook and Twitter.

What an inspiring 2012! Together, we exposed and stopped false MPG claims by automakers, shamed health insurance companies into lowering outrageous rate hikes and moved closer to the day when technology companies can’t collect and sell our private information online and on our phones without consent. This year we’ll continue these fights, and more.

Big things are going to happen in 2013, and we’re glad you’re here with us to see them through. We’ll be asking in the coming days your thoughts on what Consumer Watchdog’s priorities should be in 2013.

For now, here are some of our pledges for this year. We will:

• Turn up the heat on health insurance companies to stop unjustified rate hikes for families like Karyn Mor’s, who has seen her premiums jump over $800 a month in just two years. Californians will have a chance to vote at the next general election on the ballot initiative to require companies to publicly justify and get their rates approved.
• Win our three-year campaign to give consumers the right to say “Do Not Track Me” online. The more companies collect information about what we read, search for and buy online, the more they abuse that knowledge – as privacy project director John M. Simpson discusses in this news story about companies that change prices based on your browsing habits.
• Expose oil companies’ continued Enron-like manipulation of gas prices, which brought gasoline to $5.00 a gallon on the West Coast this summer. When gas prices spiked in May and August, oil refiners blamed reduced capacity because of outages and maintenance. But new evidence in November suggested that refineries were running as usual. Consumer Watchdog has called for a criminal investigation, joined by 7 US Senators, into whether oil companies faked the supply shortage.
• Protect patients from the kind of dangerous medicine practiced by doctors like Dr. Carlos Estiandan, who the LA Times exposed as a reckless over-prescriber of narcotics. Eight of Estiandan’s patients died of overdoses or related causes while the Medical Board of California dragged its feet on a 4-year investigation before finally pulling his prescription pad. It’s time the Medical Board got serious about disciplining bad doctors.
• Save California consumers hundreds of millions more on their auto and homeowners insurance premiums. Since 2002, our challenges to excessive rate hikes have saved policyholders over $2.2 billion.
• Prosecute our suits filed on behalf of drivers to hold car companies accountable for their fuel economy promises. Louis Bird bought a Hyundai Elantra that advertised 40 MPG, but the car never came close to that promise. A Consumer Watchdog complaint led to an EPA audit finding the company’s MPG claims were false, and to the first-ever multi-vehicle recall of MPG window stickers. The state and federal cases on behalf of owners of the Hyundai Elantra and three other models are heading to court.

What do you think of our resolutions? At Consumer Watchdog we know that when public opinion is on our side, we can make big things happen. So be on the lookout for our survey next week, and let us know your opinion on what our priorities should be in 2013.

Your ideas, actions and complaints were behind some of our biggest consumer protection victories. We need your input again to make this year as big as the last.

Happy New Year!

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Posted by Carmen Balber, Executive Director of Consumer Watchdog.

Today, senators from California, Washington and Oregon joined our call to investigate refineries, asking the Department of Justice to comb through California refineries one by one to see whether market manipulation or false reporting by oil refineries had something to do with record $5 a gallon prices at some California gas stations last month and near record prices earlier in the year.

Read our letter to California Attorney General Kamala Harris here.

“We are requesting a Department of Justice investigation of possible market manipulation and false reporting by oil refineries which may have created the perception of a supply shortage, when in fact refineries were still producing,” wrote six Senators, including California Senators Dianne Feinstein and Barbara Boxer.

The Senators cited the same report we did by McCullough Research concluding that price spikes in May and October happened while crude oil prices were declining, and inventories were increasing, possibly in conjunction with misleading market-making information.

The Senators called on Attorney General Eric Holder to use existing authority to prevent and prosecute fraud and collusion, and to draw upon the Federal Trade Commission to prohibit fraud or deceit in wholesale petroleum markets, and on the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Federal Energy Regulatory Commission to exercise their power to prevent the use of any “manipulative or deceptive device or contrivance.”

Read the Senators’ entire letter here.

Consumer Watchdog wrote California Attorney General Kamala Harris on November 15 calling for a criminal investigation of possible market manipulation or false reporting by refineries to drive up the price of gas to the highest in the nation, based on the McCullough report.  

Between the Justice Department and its collaboration with other agencies in Washington and the California Attorney General on the West Coast, consumers should be getting some answers about why wild gyrations in the price of gas cost them $1 billion dollars extra in a short span of time in October, adding up to a 66-cent-per-gallon windfall for oil companies, or about $25 million a day, according to the McCullough report.

$5-a-gallon gas is a wake-up call. Let’s change the way oil companies operate here.

How can a power outage at a refinery spark $5-a-gallon gasoline at some L.A. stations? Why would the fact that California had to switch to the winter-blend fuel at the end of October – a fact known all year – raise gasoline prices to record levels?

This price surge is not a freak phenomenon or the result of a convergence of refinery problems, as the oil industry has argued. It’s happened before (only the $5 level is new) and will happen again and again because California oil companies can make more money by making less gasoline.

California’s under-regulated gasoline market resembles our briefly deregulated electricity grid during 2000-01, when energy pirates such as Enron manipulated prices. Why? The market is geared to shortages and scarcity. So when an inevitable problem occurs to shock the system, such as a refinery outage or pipeline problem, gasoline prices and company profits go through the roof in tandem.

The state’s gasoline, the lifeblood of our economy, is priced by an under-regulated commodities market largely controlled by a handful of companies. Over the last decade, Californians have consistently paid prices that are 10 to 20 cents a gallon higher than the rest of the nation, and we have lower inventories. The rest of the continental U.S. has about 24 days of gasoline on hand; California’s average is 10 to 13 days. Not surprisingly, over the last 10 years, refineries on the West Coast consistently have been among the most profitable in the continental U.S.

Memos from West Coast oil refiners from the 1990s and released years ago by Sen. Ron Wyden (D-Ore.) suggest that this is a deliberate business strategy. An internal Chevron memo, for example, stated: “A senior energy analyst at the recent API [American Petroleum Institute] convention warned that if the U.S. petroleum industry doesn’t reduce its refining capacity, it will never see any substantial increase in refinery margins.” It then discussed how major refiners were closing down refineries. Oil company profit reports show each dramatic gasoline price spike over the last decade has been mirrored by a corresponding corporate profit spike.

This situation is well known to policymakers in California. About a decade ago, after some sharp, unexpected price hikes, then-Atty. Gen. Bill Lockyer formed a gas pricing task force that included industry experts and me. We viewed industry documents and cross-examined industry representatives. Among the conclusions: “Supply disruptions that contributed to major price spikes of 1999 are likely to continue … because (1) California refiners have little spare capacity to cover outages; (2) California refiners maintain relatively low inventory levels.” The report also noted: “Refiners have significant market control.”

The task force recommended a series of measures, including building a strategic gasoline reserve that could flood the market when supply is most scarce. But the Legislature didn’t listen. And now we are near 5 bucks a gallon.

There’s a simple policy fix to the gasoline woes in California: more regulation and less consolidation.

If the state doesn’t have the wherewithal to build a strategic gasoline reserve, a simple requirement that refiners keep at least three weeks of inventory on hand will do.

Rapid oil company consolidation has also been a driver of high gas prices. A handful of refiners control 14 state refineries. It had gotten so ludicrous that in 2005, my consumer group teamed up with Sen. Barbara Boxer (D-Calif.) and Lockyer and succeeded in getting Shell Oil to reverse its decision to bulldoze its Bakersfield refinery, and to instead sell it. Internal documents showed that the refinery was making among the highest profits of all Shell refineries. That indicated the company wanted to make supplies even tighter, driving prices artificially higher.

The greatest challenge for competition may be ahead. Tesoro is seeking to buy the low-cost Arco brand and its California assets from BP. More than 800 stations carry the Arco brand. If state Atty. Gen. Kamala Harris and federal regulators approve the merger, two refiners – Chevron and Tesoro – will control 51% of the refining capacity in the state. That would be like writing a blank check from California drivers to the oil industry.

Let’s hope that $5-a-gallon gasoline is a wake-up call that came in time to head off greater refinery consolidation and higher prices. Fourteen refineries now power the world’s ninth-largest economy. It’s time Sacramento stepped in to keep them running at full speed, producing enough inventory to fuel the state, and from falling into even fewer corporate hands.

Jamie Court is the president of Consumer Watchdog and author of “The Progressive’s Guide to Raising Hell: How to Win Grassroots Campaigns, Pass Ballot Box Laws and Get the Change We Voted For.”



First printed in the October 12, 2012 edition of the Los Angeles Times

More than two hours passed at Chevron’s Richmond, CA, refinery between the discovery of a leak and the ignition of a blaze that threatened the health of thousands of nearby residents and sent hundreds to hospital emergency rooms Monday night. At any point during those hours, shutting down the big crude-oil processing unit in which a pipe was leaking could have prevented or greatly limited the disaster.

The San Francisco Chronicle reported details of that excruciating delay Wednesday morning, along with very different accounts of why it happened. The plant’s emergency response managers vaguely said they saw the leak as too minor–just “20 drops a minute” at first, to trigger an emergency or notify anyone. Until, of course, it suddenly got bigger and exploded into a blaze. But workers on the ground saw it differently and told their story to their union’s safety experts:

“From the time they did see the leak, they debated what to do,” said Kim Nibarger, who has investigated refinery accidents nationwide. “It was not so much whether to fix the leak, it was about what could they do to keep the line running and get it fixed.”

Nibarger based his opinion on Monday’s incident after discussions with union representatives at the refinery. The choice, he said, should have been clear.

“When you have hydrocarbons outside the pipe, you are no longer running at a normal condition. It’s time to shut the thing off and fix it, not to try to figure out a way around it.”

The last big fire at the Chevron Richmond refinery, in 2007, started the same way: a leak in the same refining unit, No. 4. Two employees were injured and the refinery was shut for months.

What one local resident said in 2007 sounds like it was today:

“Once those [emergency] sirens sound, you are supposed to shelter in place,” [the resident] said. “That means nobody goes to work, nobody comes to work in the west end of Richmond and no schools open. The cost of that is incredible.”

The costs of shutting down a refining unit to be on the safe side are nothing compared to the costs of shutting down a community, of treating respiratory crises at the emergency room, of higher child asthma rates.

Motorists will also pay. San Francisco and Los Angeles wholesale gasoline prices jumped 30 cents a gallon overnight following Monday’s fire. If recent history is any guide, other West Coast refiners will just grab the extra profit rather than raising production to keep supplies up and prices down. That’s exactly what happened after a major refinery accident in Washington State last year, according to a study commissioned by Sen. Maria Cantwell.

So all Californians will pay something for Chevron’s attempt to keep Unit 4 running even though its own emergency response team knew about the leak.

Safety procedures are also at issue in Chevron’s offhore drilling near Brazil, where 155,000 gallons of oil leaked from undersea cracks. Brazil last month accused Chevron of failing to follow its own procedural manual and dismissing troubling test results when it started production from the well. Chevron is also continuing to pay its lawyers millions of dollars to avoid paying damages to Ecuadoran peasants whose land was ruined by Texaco, which is now part of Chevron.

Chevron is not alone in this mindset.

BP ignored safety and quality questions about sealing cement used to cap a deep offshore well in the Gulf of Mexico two years ago, when it could have ordered the cement contractor, Halliburton, to start over (meaning at least a few days of delay). We all know how well that went. BP also skimped on maintenance and ignored corrosion of its Alaska pipeline near Prudhoe Bay in a 2006 spill of 200,000 gallons that shut down the pipeline. Exxon let a known drunk pilot its giant oil tanker, the Exxon Valdez.

It’s a long list. But the common thread is that safety is not a profit center for the oil industry and every penny spent on safety dings the bottom line. Until, of course, cleaning up the mess costs millions or billions.

Posted by Judy Dugan, research director for Consumer Watchdog, a nonpartisan, nonprofit organization dedicated to providing an effective voice for taxpayers and consumers in an era when special interests dominate public discourse, government and politics. Visit us on Facebook and Twitter.

The energy investigators who nailed Enron for energy price manipulation that nearly bankrupted California just took aim at oil refining giants including Chevron and BP. May the refiners’ gasoline-price schemes now come crashing down in an Enron-style heap.

We’ve known for years that California and West Coast refiners find endless ways to shut down some of their gasoline production, cutting supplies and jacking up  pump prices.  They actually make more money from making and selling less gasoline. It explains why West Coast drivers are stuck paying $4-plus a gallon while pump prices take a dive in the rest of the country. Now a credible study and a U.S. Senator have reached the same conclusion-and trying to put some muscle on the oil industry.

Washington State Sen. Maria Cantwell is probably the best-informed on the petroleum industry of all federal legislators, at least among those not joined at the hip with Exxon. She is calling on the  the Federal Trade Commission to investigate six major refiners-Alon, Chevron, ConocoPhillips, Shell, Tesoro and BP.  It’s a smart move, because the oil lobby has a stranglehold on Congress and most state legislatures. President Obama has tried at least twice to reduce the industry’s billions of dollars in taxpayer subsidies, and gotten nowhere.

Here’s the gist of the story by McClatchy news service’s Kevin Hall:

In a letter being sent to regulators on Thursday and obtained by McClatchy, Sen. Maria Cantwell, D-Wash., calls on the Federal Trade Commission to investigate refinery operators Alon, Chevron, ConocoPhillips, Shell, Tesoro and BP following the shutdown of BP’s Cherry Point refinery in Washington State.

Citing a report by Portland energy consultant McCullough Research – a group whose work helped topple energy-trading giant Enron Corp. – Cantwell questioned why May gasoline prices in her state soared recently to within cents of the local record of $4.35 a gallon set in July 2008. Meantime, gasoline prices nationwide in May fell 17 cents a gallon and oil tumbled more than $14 a barrel.

The McCullough Research report questioned whether the historically low gasoline inventories on the West Coast were really a result of a fire on Feb. 17 that idled the BP plant for about three months.

Gasoline prices on the West Coast had tracked closely with the price of West Texas intermediate crude delivered at Cushing, Okla., but in May veered widely from historical norms, according to the report. Had prices followed supply costs, said the report’s author, Robert McCullough, retail gasoline prices on the West Coast would have dropped to about $3.65 a gallon. Instead, prices have been about 68 cents higher.

The report estimates “a windfall profit of $43 million a day” for refiners on the West Coast as the supply manipulation continues.

The investigators who nailed Enron ought to be able to get the attention of the FTC, and Sen. Cantwell may be able to get the oil CEOs into a hearing room for some sworn testimony.

Here’s the full report from McCullough Research, and the news release from Sen. Cantwell’s office, with her letter to the FTC attached. She requests the FTC to:

…utilize its regulatory authority and responsibility granted by Congress to ensure that Washington state consumers are not subject to “any manipulative or deceptive device or contrivance” that could be resulting in unjustifiably high gasoline prices.  In particular, I am asking the Commission, pursuant to the Prohibition on Market Manipulation Rule, to investigate whether or not recent and inexplicable gas price spikes in Washington state are the result of deliberat[e] efforts by West Coast refiners to keep gasoline inventories artificially low.

This is a fight that’s been going on for a long time and California is even more affected by what the refineries are doing. Cantwell would no doubt welcome some company in her effort from Sens. Dianne Feinstein and Barbara Boxer.

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Posted by Judy Dugan, research director for Consumer Watchdog, a nonpartisan, nonprofit organization dedicated to providing an effective voice for taxpayers and consumers in an era when special interests dominate public discourse, government and politics. Visit us on Facebook and Twitter.

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Posted by Judy Dugan, research director for Consumer Watchdog, a nonpartisan, nonprofit organization dedicated to providing an effective voice for taxpayers and consumers in an era when special interests dominate public discourse, government and politics. Visit us on Facebook and Twitter.