Unocal asks for TAPS tariff increase

Unocal wants 22% bump to offset declining throughput, represents relatively small revenue recovery, asks for consolidation

Eric Lidji

For Petroleum News

Union Oil Co. of California has asked state regulators for a 22 percent increase to the rate it charges to ship oil on the trans-Alaska oil pipeline to in-state destinations.

Unocal is proposing to charge $3.07 to ship a barrel of oil from the North Slope to North Pole and about $4.83 to ship to Valdez, depending on the final destination. (There are two off-take points in Valdez: the PetroStar refinery and the Valdez Marine Terminal.)

That represents a roughly 22 percent increase over Unocal’s existing rates of $2.53 per barrel to ship to North Pole, and about $3.94 per barrel to ship to points in Valdez.

Unocal said the increase is needed because throughput is declining while operating costs are increasing. The proposed rates would bring Unocal some $2.4 million per year, or $500,000 more than the $1.9 million the company currently earns on in-state markets.

Unocal wants the rates to go into effect on April 1, 2011.

RCA monitoring 12 cases

Subsidiaries of ConocoPhillips, ExxonMobil, Koch Industries and Unocal each have three rate cases pending before the RCA. BP has not been requesting increases.

While those four companies moved in lock step in 2008 and 2009, each requesting similar increases, the more recent cases have added more complexity to the proceedings.

ConocoPhillips and Koch each requested 12 percent increases in 2010, bringing their rates to roughly $2.87 per barrel to North Pole and $4.50 per barrel to Valdez, but the higher rates proposed by Unocal match the rates ExxonMobil requested in late 2010.

Unocal owns the smallest of the five undivided shares of the pipeline, with 1.36 percent.

The RCA earlier consolidated the 11 previous cases into a single docket because of the similarity of the issues at play. Unocal wants its new case to be added to that docket.

The RCA and the Federal Energy Regulatory Commission, which oversees aspects of the pipeline dealing with interstate commerce, plan to hold joint hearings covering a variety of shipping rate related issues later this year, from October to January 2012. The hearings primarily concern whether and how to include the cost of the Strategic Reconfiguration upgrade project into the shipping rates charged by the owners of the line.

The pipeline runs 800 miles from Prudhoe Bay to Valdez and currently carries less than 670,000 barrels per day, down from its peak of more than 2 million bpd in 1988.

With each new rate case, the difference between permanent and existing rates grows.

The RCA last established permanent shipping rates on the pipeline in 2002.

Those rates, calculated under a new methodology, charge $1.25 to ship a barrel of oil from the North Slope to North Pole and $1.96 to ship to various points in Valdez.

Unocal’s newest request is its third increase since late 2008. If approved, it would represent a 146 percent jump in shipping rates over the past 26 months.

If the RCA ultimately decides that any or all of the rate increases it has temporarily approved since 2008 aren’t justified, the carriers would be forced to issue refunds.