Alaska regulators OK tariff settlement

After 259 percent rate increase provokes a fight, Cook Inlet Pipe Line Co. and small oil producer Cook Inlet Energy talk it out

Wesley Loy

For Petroleum News

A dispute over a sharp hike in the cost to ship oil through a pipeline along Alaska’s Cook Inlet has ended peaceably with a settlement.

The Regulatory Commission of Alaska blessed the settlement with a Nov. 19 order accepting the deal between Cook Inlet Pipe Line Co. and small oil and gas producer Cook Inlet Energy LLC.

The settlement ends a dispute raised after CIPL filed a 259 percent rate increase for 2010, pushing its rate from $4.06 per barrel of oil to $14.57.

The RCA allowed the higher rate to take effect at the start of the year, but only temporarily and subject to refunds.

Cook Inlet Energy, which operates wells on the western side of Cook Inlet, complained the rate hike was excessive. But CIPL said it was reasonable, blaming the increase on reduced throughput and damage to its system resulting from eruptions of Redoubt volcano in 2009.

Five-year deal

Cook Inlet Energy complained the timing of the rate hike was terrible, as the newly formed company had only acquired its oil and gas properties in late 2009. It filed a formal protest calling the increase “excessive, unjust, and unreasonable.”

But CIPL argued it operated “a very small pipeline … on nearly a non-profit basis.” The company added it had “no responsibility to subsidize” Cook Inlet Energy’s oil field investment.

With the help of a settlement judge the RCA appointed, the two sides negotiated over several months and ultimately reached the agreement.

Under the five-year deal, Cook Inlet Energy will pay CIPL a rate of $8 per barrel for the remainder of 2010. In coming years, the rate will be determined by dividing CIPL’s agreed annual revenue requirement of $17.28 million by the total number of barrels shipped through the pipeline.

As part of the settlement, Cook Inlet Energy will pay CIPL to transport at least 260,063 barrels of oil in 2010 and 346,750 barrels each year thereafter, regardless of whether it actually ships the volumes.

CIPL, partly owned by Chevron subsidiary Unocal, runs a 42-mile pipeline on the west side of Cook Inlet between Granite Point and the Drift River Oil Terminal, where tankers load.

Cook Inlet Energy is a subsidiary of Tennessee-based Miller Energy Resources.