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RCA approves GVEA pipeline rate increase GVEA convinces RCA to increase both monthly flat fee and per barrel shipping rate on small Interior pipeline; Flint Hills protests Eric Lidji For Petroleum News
When Golden Valley Electric Association asked for a rate increase on its small crude oil pipeline, the Fairbanks utility proposed two structures: a flat monthly fee and a per-barrel rate. Although GVEA preferred the flat fee, the Regulatory Commission of Alaska approved the per-barrel rate temporarily while it reviewed the case. Now, though, that flat fee is back on the table, after several months of legal filings back and forth.
GVEA operates a 5.4-mile crude oil pipeline that connects the trans-Alaska oil pipeline to three neighboring facilities in North Pole: two oil refineries and GVEA’s power plant.
Claiming that it lost money two years in a row on the pipeline, GVEA in September asked the Regulatory Commission of Alaska for a rate increase, and preferably to bring back an old structure it used years ago. Under that structure, GVEA charged a monthly flat rate that it trued up annually. If the RCA agreed that GVEA should be collecting more, but rejected the flat fee, GVEA asked for a traditional per barrel rate increase.
The RCA ultimately gave GVEA its second choice, approving a temporary and refundable 25 percent increase to 3.54 cents per barrel, up from 2.85 cents per barrel.
Flat-fee increase requested In November, though, GVEA asked the RCA to also increase the flat fee, in addition to the per barrel rate, saying it wouldn’t be able to recover its operation costs on the pipeline without it. The RCA rejected that request, saying GVEA would need to start a new tariff case if it wanted to add the flat fee to its rate structure. In response, GVEA filed additional testimony in the hope of showing the interrelated nature of the two fees.
Rates are designed to allow a utility to collect a set amount of revenue over a specific period of time, but those calculations remain mere estimates until oil actually moves through the pipeline. Because of the declining throughput, GVEA argued that it needs both mechanisms to guarantee it can collect all of the revenue it’s entitled to collect.
“The per barrel interim rate that was approved by the Commission was appropriate, but without the Minimum Monthly Billing charge, the interim rates will be ineffective,” Richard Cuthbert, a GVEA consultant, wrote in additional testimony filed Dec. 13.
The new monthly flat fee would be $390,166, up from the previous rate of $313,761.
GVEA noted that if its rates ultimately bring in too much revenue, it would have to issue refunds with interest, but that no corresponding mechanism exists if the rates are insufficient, i.e. GVEA couldn’t retroactively collect more money from shippers.
GVEA said its recent losses came from higher operating costs, but also because a fund set up several years ago to pay for investment projects didn’t work out as planned.
FHR: shippers bear risk The pipeline serves two customers: Flint Hills Resources and Petro Star Inc., the owners and operators of the two North Pole oil refineries. Flint Hills is by far the larger customer, accounting for more than 90 percent of the shipments on the pipeline. Flint Hills called the additional testimony a way for GVEA to “circumvent” the previous RCA order requiring GVEA to file a separate tariff if it wanted to add the flat fee to its rate structure.
Flint Hills said that increasing both rates placed all of the risk on the shippers.
The RCA ultimately allowed the additional testimony into the record and approved the increased monthly flat fee on a temporary basis while it reviews the case. The RCA said that the potential for refunds addressed Flint Hills’ concern about shipper risk.
The RCA also allowed Flint Hills and PetroStar to become parties to the case, and appointed a settlement judge to handle certain aspects of the proceedings.
The temporary rates went into effect on Jan. 1.
Flint Hills is owned by Koch Industries, which also owns a stake in the trans-Alaska oil pipeline. The refinery has been struggling with poor economics in recent years.
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