Los Angeles Times: FTC Probing Shell's Plan to Shut Refinery: "We're looking at any possible antitrust violations associated with the closure,"

The antitrust inquiry heightens scrutiny surrounding proposed closure of the oil firm's Bakersfield plant.

By Elizabeth Douglass, Times Staff Writer

The Federal Trade Commission has launched a formal antitrust investigation into Shell Oil Co.'s plan to close its Bakersfield refinery, an agency official said Wednesday, stepping up scrutiny of a move that California officials believe will worsen the state's gasoline supply woes.

Meanwhile, the oil company on July 1 reduced crude oil processing at the refinery to levels 19% below capacity, according to an internal Shell document obtained by The Times and a plant employee who asked not to be identified. A Shell spokesman would not say whether the facility was running at full capacity.

Any reduction in refining capacity could create even more inflationary pressures in a market in which Californians are paying a statewide average of $2.204 a gallon for regular gasoline, marking the 20th straight week of pump prices above $2. Experts see little relief in sight until after Labor Day, when vacation travel falls and fuel demand slackens slightly.

Politicians, consumer groups and other critics have accused Shell of plotting to shutter the refinery to tighten gasoline and diesel supplies and, in turn, boost retail prices as well as profit at the company's two other California refineries. One is in Martinez, in the Bay Area; the other is in Wilmington.

Shell has said its decision to close the Bakersfield plant Oct. 1 was based on economic factors and crude-oil supply problems.

On Wednesday, FTC General Counsel William Kovacic took the unusual step of announcing at a congressional hearing in Washington that the commission began a formal investigation into Shell's closure plan.

"We're looking at any possible antitrust violations associated with the closure," Kovacic said after his testimony at a subcommittee hearing of the House Committee on Government Reform.

"We regard the matter as a very important one," he added, "and we know time is of the essence."

Kovacic would not say what steps the commission would take if it found Shell's move to be anti-competitive, but analysts said the FTC could block the closure or order Shell to sell the facility, among other options.

Shell spokesman Stan Mays said the company had been cooperating with the FTC for several months, but had not received any subpoenas from the commission on the Bakersfield matter.

Shell gained full ownership of the Bakersfield refinery as a condition of the FTC's approval of the 2001 merger that created ChevronTexaco Corp. — giving the agency further reason to explore the effects of the refinery's closure.

Sens. Barbara Boxer (D-Calif.) and Ron Wyden (D-Ore.) urged the FTC to launch a probe months ago, and had said recently that the commission was conducting an informal inquiry.

"Certainly, this is more than they've said to date," Wyden said Wednesday of the FTC's investigation. "The acid test here is whether the FTC will actually act to protect the consumer when they complete their inquiry."

As for the refining cutback, an internal e-mail dated July 1 ordered an immediate reduction in Bakersfield crude rates to 56,300 barrels a day, more than 19% below the plant's capacity.

No explanation was given for the reduction, and there were no problems with the plant's equipment, according to internal documents and the employee who asked not to be identified.

Shell spokesman Mays would not comment on the e-mail. Instead, he said Shell was refining more crude in Bakersfield and Martinez than it had planned back in June.

That June plan, however, called for total production in July to be more than 11% below the combined full capacity of the two refineries. Mays would not break out current production rates for the two refineries or say whether or how much that production is below capacity.

"We're making as much gasoline and diesel as we can … just as we said we would," Mays said.

Shell's Bakersfield refinery, though smaller than most others in the state, produces 2% of California's gasoline and 6% of its diesel and lately has been profitable for Shell.

Statewide demand for fuel already outstrips production at California-based refineries, and the gap grows wider in the summer months as more drivers hit the road for vacations.

Separately, an industry consultant hired by California Atty. Gen. Bill Lockyer is studying whether the plant could be sold instead of closed.