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BP asks FERC to help recover costs Four owners fight to keep $35 million in pipeline expenses, though commission approved settlement of 2008 rate dispute in April Rose Ragsdale For Petroleum News
The company with the largest ownership stake in the trans-Alaska oil pipeline is continuing to pursue its quest to recoup unpaid expenses it incurred between 2005 and 2008 under a new “pooling” method for allocating interstate shipping costs among owners of the 800-mile conduit.
Seeking relief at the Federal Energy Regulatory Commission, BP Pipelines (Alaska) Inc., took its campaign to recover $35 million in costs from the other four pipeline owners before Presiding Administrative Law Judge Michael J. Cianci July 13.
In oral arguments, BP’s representatives parried a barrage of counter-arguments from attorneys representing the other owners — ConocoPhillips Transportation Alaska Inc., ExxonMobil Pipeline Co., Koch Alaska Pipeline Co. LLC and Unocal Pipeline Co. — shippers, the State of Alaska and others in an extensive question and answer session directed by Cianci.
At issue is whether BP, which holds nearly 47 percent interest in the Alaska pipeline, was shortchanged when the commission directed the pipeline owners to develop a pooling mechanism to re-allocate all of the carriers’ costs based on throughput or usage.
Under the new arrangement, the other carriers paid $289 million to BP, a sum that the company says fell short of what was owed by about $35 million. Since then, BP has sought the commission’s help in recovering the additional money, arguing that FERC’s Order 502 was intended to end both under- and over-recovery of costs among the pipeline’s owners.
Tariffs case progresses toward resolution The pipeline transports oil produced in fields on Alaska’s Arctic coast region known as the North Slope. More than 30 years old, the line transports about 700,000 barrels per day of oil and other petroleum liquids, substantially less than its 2 million bpd peak flow in the late 1980s.
FERC, which regulates interstate shipping rates for oil pipelines, has spent the past few years wading through a thicket of complex issues in a dispute over the pipeline’s interstate tariffs. The commission ultimately found that interstate shipping rates charged by the carriers in 2005 and 2006 were not just and reasonable and required the owners to calculate new rates for those years consistent with its requirements. FERC also held that going forward the rates should be based on a uniform rate ceiling instead of separate rates based on each carrier’s individual cost-of-service.
The commission accepted a 2007 compliance filing rate from the owners and directed them to refund the difference between the rates they charged in 2007 and the applicable 2004 refund floor. That decision, along with Order 502, is currently on appeal before in the U.S. Court of Appeals for the District of Columbia.
Because the owners’ proposed rates for 2008 came in above the refund floor applicable to each carrier, the commission accepted the 2008 compliance filing rate on an interim basis subject to further investigation and hearing. The proceeding involving the 2008 rates ultimately was settled and the commission approved a limited settlement April 1.
Each of the pipeline owners also filed new cost-of-service rates in 2009. BP then sought to cover costs the company says it was not allowed to recover through its 2005-08 rates.
Owners dispute right to recover costs The other four pipeline owners — ConocoPhillips, Exxon, Koch and Unocal — concede that the $35 million that BP seeks consists primarily of return on investment, a cost that BP did incur. However, they retained the sum as a group because the commission required that the pipeline owners calculate their rates for 2005-08 on a uniform basis. In reaching that decision, they said the commission recognized that requiring uniform rates without also requiring pooling of all pipeline costs — including return — would cause some owners to over-recover their costs and others to under-recover their costs.
The four owners argued that they should be allowed to keep the $35 million because there is no legal justification for BP’s proposed retroactive adjustment to the pipeline settlement agreement that the owners entered with the State of Alaska in 1985 and the commission did not intend to modify that existing settlement agreement with its decisions.
BP countered, saying it has a right to adjust the 2005-08 return based on the commission’s adoption of uniform rates and that right is not barred by terms of the longstanding settlement. The company also said its position is not inconsistent with the settlement agreement.
BP further argued that the commission provided the legal justification for the proposed 2005-08 adjustment, and the return of its costs would not violate the rule against retroactive ratemaking.
At the conclusion of the oral arguments, Cianci indicated that he would entertain additional arguments Aug. 10 and Sept. 17 before making a decision.
ConocoPhillips seeks rate increase ConocoPhillips separately, filed notice with FERC July 6 of its intention to increase the interstate rate for its share of the pipeline’s shipping capacity between Prudhoe Bay and the Valdez Marine Terminal. The carrier, which owns 28.29 percent of the pipeline, currently charges an interstate tariff of $4.08 per barrel. It is increasing the rate to $4.36 per barrel, effective Aug. 1.
In the filing, ConocoPhillips said the new rate is calculated according to the ratemaking methodology prescribed by the commission in Order 502.
Flint Hills Resources Alaska LLC, owner of a petroleum refinery in North Pole, Alaska, filed a motion to intervene July 12 in ConocoPhillips’ rate increase proceedings. The shipper, which purchases petroleum from North Slope producers that is literally carried to its doorsteps about 420 miles to the south by the pipeline, did not state a reason for its motion in the filing.
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