SAN FRANCISCO (Dow Jones Newswires), Apr. 27, 2010

A California appeals court ruled Monday that Chevron and the city of Richmond, Calif., will have to complete a new environmental review before the company can proceed with planned construction at its San Francisco-area oil refinery.

In its decision, the California Court of Appeal in San Francisco upheld a decision by a lower court that found that the environmental review completed by Chevron and approved by the city of Richmond was inadequate.

Chevron stopped work at the refinery last summer and let about 1,000 construction workers go after a state Superior Court judge halted work until the city of Richmond had a chance to reconsider its approval of the environmental review of the project to ensure it meets state emissions requirements.

The company wants to replace equipment at the refinery, which can process nearly 243,000 barrels of crude a day, to make it operate more efficiently and allow it to process more types of crude, particularly those with higher sulfur contents. Local environmental groups sued Chevron and the city of Richmond, which issued the company a permit for the project, over allegations that the environmental review for the project was incomplete. The groups argued that the review doesn't provide enough information about what types of crude will be processed at the renovated plant or whether higher levels of emissions of heavy metals and nitrogen oxides will result.

"It's a huge decision," said Deborah Reames, an attorney with Earthjustice, which represented the plaintiffs. "It says the public has a right to know what Chevron has up its sleeve before Chevron goes ahead with its plans."

In his decision Monday, California Appeals Court Judge Ignazio John Ruvolo found that Chevron's environmental review doesn't provide decision-makers, and the public, with information about the project that is required by the California Environmental Quality Act. He also found that the review "completely fails to properly establish, analyze and consider an environmental baseline," which is a "fundamental requirement" for a review.

Chevron spokesman Brent Tippen said the company is disappointed with the ruling and hasn't yet decided its next steps.

"Chevron believes that the...project was properly analyzed and permitted," Tippen said.

Over the past several months, state Attorney General Jerry Brown and state lawmakers have offered to help negotiate an agreement between Chevron and plaintiffs in the lawsuit, to keep the project on track, but Chevron demurred.

Chevron and the environmental groups had been in mediation in July, but those talks broke down and were not restarted.

Last year, Chevron insisted the refinery improvements would not result in higher pollution levels. To comply with state rules, Chevron filed a greenhouse-gas emission-reduction plan, which the attorney general said was acceptable.

Judge Ruvolo, however, ordered Chevron to provide more details about how the company plans to cut greenhouse-gas emissions at the Richmond refinery as part of its revised environmental review for the refinery upgrade.

Shares of Chevron closed Monday 8 cents lower, at $82.59.

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