Valero Says It Faces $342,000 in Penalties Over Benicia Refinery Pollution Incident

The Valero refinery in Benicia. (Craig Miller/KQED)

Valero says it's facing $342,000 or more in fines from county and regional agencies after a major air pollution incident earlier this year at its Benicia refinery.

In a filing last week with the federal Securities and Exchange Commission, the company says it expects to face $242,840 in proposed penalties from the Solano County Department of Resource Management and at least another $100,000 in fines to settle a dozen notices of violation from the Bay Area Air Quality Management District.

The reported penalty amount is about 1/100th of 1% of the San Antonio, Texas-based company's reported adjusted net profit for 2018 — $3.2 billion.

"While it is not possible to predict the outcome of the following environmental proceedings, if any one or more of them were decided against us, we believe that there would be no material effect on our financial position, results of operators, or liquidity," the company said in its filing.

The SEC document also reported a much larger penalty, $1.3 million, that Valero believes it faces in connection with an incident in the Texas city of Corpus Christi, where contaminated backflow from a company asphalt plant contaminated the area's water supply for several days.

Benicia's mayor and a local environmentalist who has followed the Benicia refinery's recent problems said the penalties barely amount to a drop in the bucket.

"The fines are the cost of doing business," said Mayor Elizabeth Patterson, who says Valero should reimburse the city for the money it spent on handling the refinery accident.

"These fines don't mean much to a giant oil company worth tens of billions of dollars," said Hollin Kretzmann, an Oakland-based lawyer for the Center for Biological Diversity.

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"It's likely only a matter of time before we see another incident, so the communities near these dangerous refineries deserve better protection from toxic air pollution," Kretzmann said.

Lillian Riojas, a Valero spokeswoman, said the company would not comment beyond its public filing.

Ralph Borrmann, a spokesman for the BAAQMD, emphasized that the Valero fines were not settled yet.

The district tends to spend several years negotiating settlements with local refineries, bringing together a handful of violations into a package long after they are the subject of media coverage.

For instance, the district announced in March that Shell had agreed to pay $165,000 to settle violations at its Martinez refinery that took place in 2015 and 2016.

The agency's violations associated with a larger problem at Valero, the full facility power outage in May 2017 that caused a more significant pollution release, have been not been resolved yet, according to Borrmann.

Solano County's investigation into Valero's most recent incident is ongoing, according to Terry Schmidtbauer, the county's assistant director or resource management, who emphasized that the agency has yet to produce or negotiate any final violations in connection with Valero's March releases.

But Schmidtbauer said it was typical for his department to discuss tentative findings and potential penalties with companies it's investigating, talks he said would be preliminary.

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Two refinery components — a processing unit called a fluid coker, which heats up and "cracks" the thickest and heaviest components of crude oil, and a flue gas scrubber, which is supposed to remove fine particles before they're released from the facility's smokestacks — are under scrutiny in Solano County's probe.

They began malfunctioning on March 11, resulting in the release of sooty smoke from the refinery. The releases intensified two weeks later when the facility belched out a large amount of black soot, leading to elevated levels of particulate matter.

The smoke prompted county officials to issue a health advisory for those with respiratory problems. Refinery managers shut down the facility.

Valero's SEC filing came as the Benicia refinery began a gradual process of restarting after being offline for more than 40 days.

The resumption of operations at the facility coincided with a slow and very small drop in gas prices, after two months of increases. On March 24, the day Valero shutdown, the average cost of a gallon of unleaded gasoline in California was $3.49, according to AAA.

On May 7, as the Benicia refinery gradually got back online, the the average price was $4.10. On Tuesday, it had dipped slightly to $4.07.

Energy experts have said Valero's shutdown, coupled with other refinery problems in California and the high cost of crude oil globally, led to the state's recent gas price hikes, which are currently the subject of a state Energy Commission investigation.

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