Refineries could be subject to rolling blackouts

Jan. 22, 2001—Once exempt from involuntary electricity outages, California refineries were notified by utilities they will be subject to rolling blackouts just as any ordinary customer.

Meanwhile, the California Public Utilities Commission (PUC) temporarily exempted certain pipelines from the voluntary interruptible load provisions of their contracts during electricity emergencies, after gasoline, jet fuel, and diesel for emergency generators began backing up in the system during last week’s rolling blackouts.

The California Independent System Operator (ISO) ordered forced outages during 3 days last week in northern California, but refineries were not forced to shut down. They escaped the hardship because of the limited amount of megawatts that had to be curtailed, says Rich Marcogliese, plant manager for Valero Energy�s Benicia 135,000 b/d refinery. The refineries might not be so lucky next time the ISO calls for rolling blackouts, he says.

�If we are shut off, this will migrate a power crisis into a fuel crisis,� says Marcogliese. �Our operations would be disrupted for a week.� The Benicia refinery supplies about 10% of the state�s gasoline, he says.

Valero is working with other California refiners and the Western States Petroleum Association to get refineries back in the exempt business category during involuntary outages.

They are also concerned about the effect of product pipelines shutting down during electrical emergencies. During last week’s outages, key product pipelines were shut in causing inventories to build at refineries and inventories to be drawn down at the terminals.

�We have the attention of the state attorney general and are currently working with the legislature to get some kind of bill passed,� says Scott Folwarkow, government affairs spokesman for Valero.

The refiners are worried any disruption to production could have quick repercussions on the gasoline market. Because California imports little gasoline as a result of a special formulation, the market is somewhat isolated.

GATX Corp. has an interstate pipeline which moves gasoline and jet fuel, originating near Los Angeles at Colten and extends to Las Vegas, Nev. �Our major pipeline is where we had most of the problems,� says George Lowman, spokesman for GATX.

The pipeline was shut in because GATX was on an interruptible load contract. In exchange for lower rates, companies agree to have their power cut off during emergencies. He says the products distribution company attempted to insure gasoline was available the Los Angeles area by keeping its �truck rack� open for pick up despite hefty penalties.

Penalties for operating when asked to shut down are $9/kw-hr, compared to the usual tariff of 7 cents/kw-hr, he says. With the pipeline out of commission, the problems began to spill over into other markets.

�In the Las Vegas area, our terminals were out of most common blend gasoline, diesel, and jet fuel,� says Lowman.

Kinder Morgan Inc.�s major pipeline which transports much of California�s gasoline to distribution points from refineries, was also shut down because of the electricity emergency. Inventories backed up at the Benecia refinery, says Marcogliese.

GATX and Kinder Morgan are currently operating under an emergency order issue by the PUC late Friday which exempt them from paying penalties, if they operate when interruptible load is called by utilities. It is set to expire Friday, but Monday a PUC spokeswoman said a revised letter was in the works.