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

Vol. 23, No.38 Week of September 23, 2018

Kenai Pipeline Co files new tariff rates

Tariff has been by segments, proposal is postage stamp rate; tariffs haven’t been increased since Chevron owned facilities in 1990s

Kristen Nelson

Petroleum News

Kenai Pipeline Co., a subsidiary of Tesoro Alaska Pipeline Co. LLC, has filed a proposed postage stamp rate to replace four separate transportation tariffs in place since the 1990s for its Nikiski-area facilities. Tesoro Alaska and affiliates are the only shippers on KPL’s facilities and the only entities affected by the tariff change. The combined current rates total 22.5 cents per barrel; the proposed postage stamp rate is 50.53 cents per barrel, an increase ranging from 556 percent to 1584 percent from the current tariffs.

In its August filing KPL’s attorneys cited a 2017 test year and said that the proposed rate of 50.53 cents per barrel for a projected 23,969,376 jurisdictional barrels would allow the company to recover its jurisdictional revenue requirement of $12,112,245, opposed to jurisdictional revenue of only $1,379,138 under the current tariffs. The increase would thus “allow KPL a reasonable opportunity to recover its cost of service and earn a reasonable return on its investment.”

Previously multiple shippers

Scott Rosin, pipelines and terminal manager for Tesoro Logistics General Partners LLC, who manages Kenai Pipe Line Co. for Tesoro, said in prefiled testimony that Kenai Pipeline “is presently configured and utilized as a contiguous crude oil and refined products terminal facility rather than as a traditional pipeline.” He said it was previously used by multiple shippers to transport crude oil to two refineries in Nikiski, but one of those refineries has shut down and Tesoro Alaska is currently KPL’s only shipper.

Since the early 1990s changes have caused integration at KPL, which was always operated as an integrated facility, to be even more pronounced. That integration means any effort to separate costs among specific KPL assets would be artificial.

KPL receives crude oil at four receipt points - the Nikiski marine terminal and dock facility; the Middle Ground Shoals Pipeline; the truck rack; and the interconnection with the Swanson River Oil Pipeline. There are five crude oil storage tanks at the facility, an office-shop building and the meters, pumps, pipelines and fittings interconnecting KPL’s facilities and that interconnect with Tesoro Alaska’s Nikiski refinery.

Rosin said that until 1995 KPL was owned by Chevron Corp. and Atlantic Richfield Co., and until the early 1990s, provided transportation and storage services to Chevron’s refinery and to Tesoro Alaska’s refinery, each adjacent to KPL facility.

In 1995, ownership of KPL was transferred from Chevron/ARCO to Tesoro Alaska; prior to that, Chevron closed its Nikiski refinery, leaving only the Tesoro Alaska refinery to be serviced by KPL, so since the early 1990s, Tesoro Alaska has been KPLs only shipper.

More streamlined operation

The changes over the years “have resulted in a more streamlined, focused, contiguous, and integrated operation with most of KPL’s operating assets and operations being located within a very short distance of each other,” Rosin said.

For any of its receipt points, crude oil can be directed to storage tanks or the refinery, allowing Tesoro Alaska “to utilize crude oil of varying grades and qualities received from different locations, including the blending of these crude oil sources, to meet the refined product demand needs of the refinery at any given time.”

For planning and budgeting, Rosin said, “KPL is viewed in its entirety as a single, integrated facility, with each of its elements (i.e., pipelines, storage tanks, receipt point assets) relying upon all of its other parts and elements to support a complete and fluid operation.”

The postage stamp rate

Peter Ashton, a senior consultant with Premier Quantitative Consulting Inc., in prefiled testimony on behalf of KPL, addressed the issue of why a postage stamp rate is the most appropriate basis for a KPL tariff. He said since the Swanson River Oil Pipeline was sold to Hilcorp Alaska in 2013, “there are no movements that occur over a distance greater than 3.8 miles” at KPL.

Regulated facilities at KPL consist of some 4 miles of 12-inch pipeline from Middle Ground Shoals to a point near KPL’s marine terminal and dock; marine terminal and docking facilities; a truck rack near KPL’s marine terminal; the Swanson River receipt point; five crude oil storage tanks; and “appurtenant piping, valves, pumps, and facilities. All of the foregoing are proximate to TAC’s Nikiski refinery,” Ashton said.

He said the facilities “operate in concert with one another, and most movements occur between the dock, the storage facilities, and TAC’s Nikiski refinery - a distance of a mile or less.”


Martin Marz, tariff manager for Tesoro Logistics General Partners LLC, said KPL’s current tariff rates were approved in 1993, were first effective in 1991, more than 27 years ago, and have not changed since.

With the current rates, KPL is not earning a reasonable return on investment, and is not “even remotely” covering its cost of service, he said.

KPL has an annual revenue requirement of $12,112,245 for facilities covered by the Regulatory Commission of Alaska - and in 2017, the company earned only $1,379,138 based on throughput of 23,966,376 barrels, for an under recovery of $10,733,107.

Marz said a rate increase of 778.25 percent would allow KPL to recover its revenue requirements, resulting “in an identical $0.5053 per barrel just-and-reasonable rate for all types of movements within KPL’s jurisdictional transportation service.”

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