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Providing coverage of Alaska and northern Canada's oil and gas industry
June 2011

Vol. 16, No. 26 Week of June 26, 2011

Koch requests 15% tariff increase

The RCA is now managing 14 separate rate cases filed since late 2008 as it prepares for joint hearings with FERC this fall

By Eric Lidji

For Petroleum News

Following the lead set by ConocoPhillips, Koch wants to increase the rate it charges to ship oil on the trans-Alaska oil pipeline, its fourth request since late 2008.

The company recently told the Regulatory Commission of Alaska that it wants to increase the rate it charges to move oil to locations within Alaska by about 15 percent.

The proposed rates would increase the cost to ship a barrel of oil with Koch from the North Slope to North Pole to $3.31, from $2.87. The rate to ship to one of two offtake points in Valdez — the PetroStar refinery and the Valdez Marine Terminal — would increase to as much as $5.19, from around $4.50 (depending on location). Koch, which owns the Flint Hills Refinery in North Pole, does not currently ship to Valdez.

Koch said it needs the increase because throughput on the pipeline is falling while operating costs are rising. The new rates would bring in $34.2 million per year, up from current revenues of $29.7 million. That figure, though, includes money Koch could be forced to refund if the RCA ultimately denies its previous rate increases. Using its actual rates, Koch would make just $12.9 million this year on its shipping services. Those rates, set in 2002, charge $1.25 to ship a barrel to North Pole and $1.96 to points in Valdez.

Koch is asking for the new increase to go into effect by July 31.

ConocoPhillips requested a 17 percent increase in late May. The RCA is still considering whether to allow the company to begin collecting those rates on a refundable basis.

Koch wants consolidation

Koch asked the RCA to consolidate its rate case with the one ConocoPhillips filed in late May because the two companies used the same methodology to formulate their rates.

The RCA previously consolidated 12 separate rate cases into a single docket, but ConocoPhillips asked that its newest case not be added to that larger docket, saying that those proceedings are too far along to be relevant to filings made more recently.

That consolidated docket will be the subject of joint hearings this fall between the RCA and its federal counterpart, the Federal Energy Regulatory Commission. The two bodies will be considering whether and how to include the costs of Strategic Reconsideration — an expensive effort to upgrade operations on the aging pipeline — into the shipping rates.

The pipeline runs 800 miles from Prudhoe Bay to Valdez and currently carries some 600,000 barrels per day, down from its peak of more than 2 million bpd in 1988.

Midstream subsidiaries of BP, ConocoPhillips, ExxonMobil, Koch Industries and Union Oil Company of California each own undivided shares of the pipeline. Each company can set its own rates, so long as the combined rates stay at or below a certain level.

Other rate cases extended

The RCA also extended the timelines on several existing temporary increases.

The RCA initially gives a company six months to collect increased rates on a refundable basis while it investigates the merits of a case, but is allowed to extend that if need be, first by a year and then indefinitely if the case requires additional investigative work.

The RCA gave ExxonMobil an additional year to collect its increased 2010 rates, and allowed ExxonMobil and Union Oil Co. of California to collect their 2009 rate indefinitely. However, the increases are still subject to refunds if ultimately denied.






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