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CIPL to RCA: We’re nearly ‘non-profit’ Operator of oil pipeline along Alaska’s Cook Inlet tries to quell protest against its volcano-related 259 percent rate hike Wesley Loy For Petroleum News
Answering criticism of its steep tariff increase, Cook Inlet Pipe Line Co. is telling Alaska regulators its crude oil pipeline is “very small” and is operated on “nearly a non-profit basis.”
Those arguments might not wash with oil shippers, who have lodged objections to the carrier’s 259 percent rate hike with the Regulatory Commission of Alaska.
The RCA is allowing the pipeline operator to collect the higher rate for now, but subject to refunds if commissioners determine CIPL is overcharging.
The higher rate of $14.57 per barrel, up $4.06 per barrel, kicked in beginning Jan. 1.
Texas-based CIPL operates a 20-inch pipeline that runs 42 miles from Granite Point southwest along the western bank of Cook Inlet to the Drift River Oil Terminal, which also belongs to CIPL. The pipeline was installed in 1966.
At least three industry players with an interest in Cook Inlet oil production have lodged objections with regulators: Cook Inlet Energy LLC, ExxonMobil and Dan Donkel.
Bad timing for new producer Anchorage-based Cook Inlet Energy has lodged the most extensive protest of CIPL’s higher rate.
The firm’s lawyer has argued the rate hike couldn’t have come at a worse time, as the newly formed company is just now ramping up production from oil and gas assets it bought out of bankruptcy court from troubled Pacific Energy Resources Ltd. of California.
Cook Inlet Energy’s parent company, Miller Energy Resources, on Feb. 1 announced those assets are now producing more than 300 barrels of oil equivalent a day with production expected to reach 1,100 barrels within eight weeks.
Cook Inlet Energy argues the tariff hike is excessive and unreasonable.
Further, it argues that CIPL can’t justify the increase simply by saying it followed a methodology established in a 2001 settlement between CIPL and the state.
Although the commission accepted that settlement, Cook Inlet Energy argues it wasn’t a signatory and so the settlement is “legally irrelevant” to the company’s right to challenge rates.
CIPL’s defense Chevron subsidiary Unocal owns half of CIPL, while Pacific Energy holds the other half.
On Feb. 1, CIPL filed a 10-page answer to Cook Inlet Energy’s Jan. 14 formal complaint, arguing it disagrees that the settlement is legally irrelevant.
It argues Cook Inlet Energy and other shippers invite an even higher tariff should they press for a calculation under “a more traditional rate-making approach.”
CIPL also urged the commission to consider a Jan. 13 ruling from the U.S. Supreme Court that deals with rate challenges brought by non-signatories to a settlement. The case is NRG Power Marketing v. Maine Public Utilities Commission. It can be found at www.scotusblog.com.
CIPL has blamed its rate hike largely on damage and disruption from last year’s series of Mount Redoubt volcanic eruptions. The eruptions forced an extended shut-in of oil production, as well as the pipeline, along the west side of Cook Inlet.
CIPL also made another argument to the RCA — that it’s essentially doing west Cook Inlet oil producers a favor.
“The Commission should recognize … that CIPL is a very small pipeline that is operated on nearly a non-profit basis, with very limited throughput, and a short expected remaining life,” the company’s lawyers wrote in the Feb. 1 filing.
The RCA should either approve the higher rate as final or, at most, “designate a settlement judge to hold a conference to explore the issues raised in this proceeding,” the CIPL filing concluded.
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