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Inlet producer open to tariff settlement Cook Inlet Energy urges regulators to continue formal proceedings on whether pipeline operator’s 259 percent rate increase is proper Wesley Loy For Petroleum News
An oil producer protesting Cook Inlet Pipe Line Co.’s steep tariff increase says it is “willing to participate in any reasonable settlement process,” but it also wants regulators to press on with formal proceedings to determine if the rate is fair.
The producer, Cook Inlet Energy LLC of Anchorage, is fighting the rate hike, which took effect at the beginning of the year with the blessing of the Regulatory Commission of Alaska. CIPL, however, might have to pay refunds if the commission ultimately finds the rate is excessive.
The current transportation rate of $14.57 per barrel is a 259 percent increase from the previous rate of $4.06.
Texas-based CIPL operates a 20-inch pipeline that runs 42 miles from Granite Point down along the western side of Cook Inlet to the Drift River Oil Terminal, which also belongs to CIPL. The pipeline was installed in 1966.
At least three industry players with an interest in Cook Inlet oil production have lodged objections with the RCA: Cook Inlet Energy, ExxonMobil and Dan Donkel.
‘Too serious’ In a Feb. 19 filing with the RCA, Cook Inlet Energy said the issues raised with CIPL’s tariff hike are “too serious” to be put on hold, as the pipeline operator has suggested.
The small producer said it’s willing to try for a settlement, but the RCA should concurrently move forward an adjudicatory docket to determine if the higher rate is just and reasonable.
Cook Inlet Energy “is paying a rate that is clearly excessive, at great burden to its ongoing operations,” wrote the company’s attorney, Robin Brena of Anchorage.
The tariff increase raises questions about the pipeline operator’s status going forward, and for settlement talks to be productive, the RCA should require CIPL to turn over information necessary to “honestly assess CIPL’s financial position and the future of its existing tank farm and related facilities,” Brena wrote.
Eruptions of nearby Redoubt volcano last year shut down west Cook Inlet oil production and the pipeline for months and forced a mothballing of the Drift River tank farm, which was used for storing crude for shipment on tankers. CIPL has cited the damage from the volcano as a big reason for its tariff increase.
“At this point, CIPL’s tank farm and related facilities are not in service, and CIE is concerned that they may not be viable facilities for future shipments,” Brena wrote. “The tank farm facilities are located in the middle of a volcanic flood plain. They have been severely impaired by volcanic flows during two separate periods of time over the last 20 years. Because the prior volcanic flows have built up the earth outside the protective dike around the tank farm, the elevation of the tank farm is now lower than the level of the adjacent river.
“The facilities are no longer even under CIPL’s control — they are under a Unified Command system that includes entities other than CIPL. Placing those facilities back into service at the current location may involve a substantial environmental risk. CIE details its concerns to emphasize to the Commission that successful settlement discussions in the context of this docket must include a commitment by CIPL to provide the information reasonably requested about the current status of its facilities and its intended future plans.”
Settlement judge suggested In a filing with the RCA on Feb. 1, CIPL suggested the RCA either approve its rate increase as filed or, at most, “designate a settlement judge to hold a conference to explore the issues raised in this proceeding.”
CIPL characterized its operation as “a very small pipeline that is operated on nearly a non-profit basis, with very limited throughput, and a short expected remaining life.”
Chevron subsidiary Unocal owns half of CIPL, while Pacific Energy Resources Ltd. holds the other half.
Cook Inlet Energy, in its Feb. 19 answer to CIPL, likewise requested appointment of a settlement judge. But it also asked the RCA to press on with adjudication and reiterated its position that a 2001 tariff settlement between CIPL and the state doesn’t apply to third parties such as Cook Inlet Energy.
A relatively new firm, Cook Inlet Energy in late 2009 purchased an assortment of oil and gas assets on the west side of Cook Inlet from Pacific Energy, a California independent that was undergoing bankruptcy liquidation. The assets include the West McArthur River oil field and the Osprey offshore oil platform in the Redoubt unit.
Cook Inlet Energy is a subsidiary Miller Energy Resources of Tennessee.
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