Refiners See the Light

California regulators, heeding oil companies' pleas and a request from Gov. Gray Davis, approved a plan exempting refineries from rolling blackouts during power emergencies.

All five members of the California Public Utilities Commission (CPUC) endorsed the measure, effective Thursday, giving the state's "fossil fuel production system", including pipelines, the same status as hospitals and other essential facilities, Reuters reported.

A U.S. Energy Department report earlier this month warned blackouts could halt processing of up to 543,000 barrels of oil a day, about a fourth of the state's refinery output, at plants without enough backup generation to keep them running.

The report supported the refiners' arguments that Californians, already paying some of the highest gasoline prices in the nation, cannot afford costly disruptions to their fuel production. It can take at least a week to bring a refinery back into full production following a forced outage.

Federal energy officials predict California, in the throes of a severe energy crisis, faces up to 113 hours of blackouts this summer on days when electricity demand overwhelms what the region's power plants can provide, the report said.

Earlier this month, San Antonio-based Valero Energy Corp. and San Francisco-based Chevron Corp. warned they would be forced to reduce production at their refineries because the threat of blackouts would require them to rely on less-powerful back-up generators.

Chevron chief executive David O'Reilly wrote California Gov. Gray Davis that his company might have to operate its two big California refineries at reduced capacity unless it is spared from blackouts. Two days later, Davis asked the state's Public Utilities Commission (CPUC) to consider the exemptions.

Chevron provides most of its own power at the refineries, one near Los Angeles and the other near San Francisco, but relies on utilities for the rest. "We're very pleased. We think the decision is good public policy and in the best interest of California's consumers. This will help avoid a power problem becoming a problem associated with a shortage of transportation fuels," Chevron spokesman Fred Gorell said.

Chevron and Valero both praised the move as one that would avert severe price spikes at the gas pump.

"It's a win for everybody in California because they have a very tight supply-demand situation. They can't afford to lose an hour of production, much less a few days or weeks, which is what would happen if a refinery were subjected to a rolling blackout," Valero spokeswoman Mary Rose Brown told Reuters.

Other refining companies that had filed for exemptions from blackouts include Equilon Enterprises LLC and ExxonMobil Corp.
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