Providing coverage of Alaska and northern Canada's oil and gas industry
September 2018

Vol. 23, No.36 Week of September 09, 2018

State challenges PTE tariff rate increase

Cost to move condensate from Point Thomson to Badami would increase to $20.84 per barrel; current rate, set by settlement, $12.09

Kristen Nelson

Petroleum News

The Regulatory Commission of Alaska has suspended PTE Pipeline LLC’s tariff revision and established a temporary rate equal to the filed rate, subject to refund with interest, the commission said in an Aug. 29 order.

On July 30, PTEP LLC filed a revenue requirement study based on a 2017 case year and proposed a new rate of $20.84 per barrel. The state protested the increased tariff and petitioned to intervene in the proceeding, a petition which RCA accepted.

The tariff is for the 22-mile line between the Point Thomson unit on Alaska’s North Slope and the Badami Pipeline. The line, owned 68 percent by ExxonMobil Pipeline Co. and 32 percent by BP Transportation (Alaska) Inc., went into operation in 2016, moving condensate from the Point Thomson field.

In 2015 PTE proposed a rate of $20.39 per barrel; both the state and ConocoPhillips protested. RCA accepted a settlement rate of $12.09 per barrel effective April 1, 2017, based on expected volumes, replacing a rate of $17.56 per barrel which replaced the proposed rate. The $12.09 rate was to end when PTE Pipeline placed new rates into effect, no later than July 1, 2019.

State’s objection

In its Aug. 20 protest, the Alaska Attorney General’s office said the proposed tariff “is unjust and unreasonable because the proposed tariff rate is based on unsupported and unexplained assumptions and assertions.”

The proposed new tariff, $20.84, is a 41.9 percent increase from the settlement rate, the state said.

On specifics of the rate, the state argued the weighted average cost of capital of 9.68 percent includes a return on equity of 14.23 percent, “too high relative to other pipeline carriers in Alaska.” It includes a 1 percent risk premium.

That risk premium is based on upstream operational problems, the state said, adding that “short-term operational issues should not justify a long-term risk premium.”

The state said PTE “inadequately supports operating and maintenance costs,” with are based on master services and operating services agreements provided at cost, but without “data or documents to substantiate the claim that these services are in fact ‘at cost.’”

The state said throughput estimates are unreasonably low since the pipeline’s upstream partner “intends to ship 10,000 barrels of gas condensate per day.”

The state said it is engaged in discussions with the pipeline “in an attempt to narrow the issues that will be the subject of this proceeding or potentially to resolve the State’s concerns.”

PTE response

PTE Pipeline responded to the state’s protest Aug. 24. In response to issues regarding lack of adequate detail, PTE said that to the extent more detail is needed, it would provide that once investigation in the docket gets underway.

Among issues to which PTE responded were the risk premium. In the response, PTE noted testimony that risks faced by the pipeline are considerably greater than the proxy group and are the same as many risks faced by the trans-Alaska oil pipeline in its early years - with additional development risks not faced by the oil line.

PTE disputed the state’s contention that the stated intention at Point Thomson was to produce 10,000 bpd; what the upstream partner has said, PTE argues, is that the Point Thomson production facilities are designed to produce up to 10,000 bpd of condensate.

PTE also argues that the 4,500-bpd estimate of throughput is lower than the rate for calendar year 2017 but reflects the lower throughput in the first six months of 2018.

RCA has appointed a panel to hear the issue, appointed an administrative law judge and suspended the proposed tariff for an initial period of six months, ending March 1, 2019, during which the proposed tariff will be collected, subject to refund of the difference between the temporary rate and the final rate determined by the commission, with interest.

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