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State objects to proposed Thomson tariff PTE Pipeline between Point Thomson and Badami files for $20.39 per barrel tariff; state asks RCA to investigate rate as ‘unjust’ KRISTEN NELSON Petroleum News
PTE Pipeline LLC, the ExxonMobil-BP partnership which built the new pipeline from Point Thomson to Badami, has filed for an initial tariff of $20.39 per barrel and the state of Alaska has protested.
Filings by PTE Pipeline in the tariff case put the cost at some $165.8 million for the 22-mile 12-inch line which runs from the Point Thomson unit central production facility to the Badami pipeline connection. PTE Pipeline is owned 68 percent by ExxonMobil Pipeline Co. and 32 percent by BP Transportation (Alaska) Inc. PTE Pipeline said it expects the line to be in service on or about Dec. 15. The line will be operated and maintained, under a services agreement, by ExxonMobil Pipeline Co.
Jeffrey Ray, president of PTE Pipeline, told RCA in prefiled testimony that projected throughput for the line’s first year of operation is some 5,800 barrels per day, 2,102,000 barrels in the first year of operation.
A study of the cost of dismantling and removing the pipeline was done in 2011 and estimated $25.5 million, updated to $27 million in 2015 dollars. Ray said the cost estimate assumes that in the summer prior to demolition the pipeline would be decommissioned. Then the pipe would be cut into 80-foot lengths and, along with the vertical support members, transported to Fairbanks by truck for recycling. The economic end of life for the pipeline is set at Oct. 31, 2042, the end of the state right-of-way lease for the line.
State objects The tariff was filed Sept. 15. On Oct. 5 the state protested the tariff and petitioned RCA for an investigation, calling the rates “unjust, unreasonable and unlawful.”
The state also said the underlying assumptions and inputs to the tariff are unsupported, and because some underlying assumptions and the basis for inputs “are not stated in the testimony and workpapers accompanying the tariff filing,” neither the state nor RCA “can determine whether those assumptions and inputs are valid.”
The state asks RCA to investigate the tariff and suspend it subject to refund with interest, while allowing the filed rates to be collected.
The state said it has a direct and substantial interest in the tariff “because its royalty revenues, among other things, are based generally on the ‘wellhead’ value of crude petroleum and natural gas liquids,” and “... other things being equal, the wellhead value of oil declines as tariff rates increase.”
Throughput issue The state said one reason the tariff is so large is that the rate is calculated based on throughput for the first year of operations, which the state said PTE Pipeline has estimated to be some 5,000 bpd. The pipeline has said it expects second-year throughput to be some 8,000 bpd, but the state said the tariff model “makes no adjustment to its tariff calculation in order to recognize its own projection that there will be a 60% increase in throughput in the second year of operations.”
The line has a capacity of 70,000 bpd and Point Thomson initial production is projected to peak at 10,000 bpd.
The state also protests that operating expenses for the pipeline “are presented in very summary fashion” and there is no information provided on how the numbers were developed. There is no description of how salaries of ExxonMobil Pipeline employees are split between PTE and their other duties, the state said. ExxonMobil Pipeline is an affiliate of PTE Pipeline, and affiliate costs “are subject to more significant scrutiny and more detail regarding these expenses should have been provided in order to justify those expenses,” the state said.
The state also objects to lack of detail for other categories of operating costs, such as “outside services” and “other.”
DR&R The state said that since PTE Pipeline “seeks to recover in rates an allowance for dismantlement, removal, and restoration,” RCA should require it “to deposit all DR&R collections in a separate fund and to return any funds not used for DR&R activities to ratepayers.”
The state said that given the lack of detail it reserves the right to raise additional issues.
The state is petitioning to intervene in the proceeding, and told RCA it has a direct interest in the tariff because of its royalty revenue, with excessive tariff rates resulting in “direct and substantial injury” to the state.
“Excessive rates may also adversely affect exploration and development of oil resources,” the state said.
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