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December 2008

Vol. 13, No. 52 Week of December 28, 2008

Three carriers challenge FERC order

Pipeline owners protest full revenue pooling requirement designed to remedy BP’s chronic under-recovery of costs from tariffs

Rose Ragsdale

For Petroleum News

Three owners of the Trans-Alaska Pipeline System filed a request for rehearing Dec. 22 with the Federal Energy Regulatory Commission, challenging a new commission order requiring all five of the system’s owners to pool revenue requirements and to amend their operating agreement to implement the involuntary pooling.

The commission issued the order Nov. 21 in a broader ruling that addressed various rehearing requests from both carriers and shippers on the 800-mile trans-Alaska oil pipeline it received in response its June 20 decision upholding a 2007 ruling by a FERC administrative law judge. The FERC judge found that interstate tariffs charged shippers on the trans-Alaska oil pipeline in 2005 and 2006 were “not just and reasonable” and ordered limited refunds to the shippers that overpaid.

FERC ordered refunds by Dec. 21

In the Nov. 21 order, the FERC ordered the pipeline owners to issue refunds of the difference between the their 2004 interstate tariffs and comparable 2005 and 2006 filed rates within 30 days, and to file a refund report within 30 days thereafter.

The commission also denied most of the other rehearing requests, but did order the involuntary pooling in response to an argument by BP Exploration (Alaska) Inc. that unless full revenue pooling by all of the pipeline owners accompanied the commission’s direction to establish uniform interstate tariffs for the pipeline, BP would be doomed to chronic under-recovery of commission-allowed revenues because its percentage of pipeline ownership consistently exceeds the percentage petroleum volumes that the company ships on the line.

ConocoPhillips Alaska, ExxonMobil Production Co. and Unocal Pipeline Co. challenged this order, and jointly asked the commission to rehear the issue. The three carriers argued that in ordering the full revenue pooling requirement, FERC “committed clear legal errors that can and should be corrected before the matter is submitted to a reviewing court.”

To illustrate its concern, BP gave the Commission, in its July 20 filing, an example in which it applied its 2006 ownership share and barrel-mile share to a cost calculation and assumed no revenue pooling. The company said it would have borne 46.8430 percent of all costs, or $468.43 (ignoring relatively minor variable costs), while under the uniform rate of $2 BP would have recovered only 37.4587 percent of the total revenues, or $374.59.

FERC agrees with BP

The commission said it found merit in BP’s contention that if a uniform rate is required, there must be pooling of revenues because costs are allocated on the ownership share, but throughput is not necessarily equal to that share.

Thus, FERC ordered the pipeline owners to modify their governing operating agreement to include an all-inclusive pooling mechanism consistent with its reasoning.

But ConocoPhillips Alaska, ExxonMobil and Unocal challenged the order, arguing that the commission does not have the statutory authority to require involuntary pooling of revenue requirements for purposes of establishing a uniform tariff.

Moreover, even if the commission could approve an involuntary pooling, the statute requires that it can do so only “after hearing” and no hearing on pooling has occurred in the case.

The three protesting pipeline owners said FERC also failed to make any statutory findings required to support approval of pooling. In addition, they said the commission did not find, and had no record on which it could find, that the proposed pooling will be “in the interest of better service to the public.”

Further, they argued that the rehearing order did not explain in any way how the imposed pooling would improve service or be “in the interest of ... economy in operation,” or how it will not unduly restrain competition.

“The finding of no undue restraint on competition is crucial to the statutory scheme, since the approval of a pooling by the Commission confers broad antitrust immunity on the parties to the pooling,” the carriers added.






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