Exxon and Unocal file new tariffs

Companies follow lead set by ConocoPhillips in October; filings mark first time pipeline owners used 2002 formula to craft rates

Eric Lidji

Petroleum News

Following the lead set by ConocoPhillips, two more owners of the trans-Alaska oil pipeline are proposing to increase their rates for shipping crude to in-state markets.

ExxonMobil Pipeline Co. and Unocal Pipeline Co. recently requested increases to their intrastate tariffs, the rates for shipping oil to three off-take points in North Pole and Valdez.

In filings with the Regulatory Commission of Alaska in late November, Unocal proposed nearly doubling its intrastate tariff, while ExxonMobil proposed a roughly 56 percent increase to its intrastate tariff. ConocoPhillips previously requested a 56 percent increase to its in-state rates, which the commission approved on a temporary basis on Nov. 1.

Under its proposal, the Exxon rate for shipping a barrel of oil between Pump Station 1 and North Pole would jump from $1.25 to $1.97, while rates to locations in Valdez would increase from $1.96 to $3.04 or $3.05, depending on the final destination.

Meanwhile, the Unocal rate for shipping a barrel of oil between Pump Station 1 and North Pole would jump from $1.74 to $3.46, while rates to locations in Valdez would increase from around $2.82 to around $5.62, depending on the final destination.

Because each company owns a dedicated portion of the pipeline, each company sets its own rates, so long as the combined rates of all five owners stays below a set amount.

The Regulatory Commission of Alaska is responsible for setting intrastate rates, as opposed to interstate rates for oil leaving Alaska, which are set by federal regulators.

North Slope crude bound for in-state markets typically ends up at refineries in North Pole and Valdez, which sit along the pipeline, or a refinery in Nikiski, accessed by tanker.

Unocal wants its rates to start on Jan. 1, 2009, while Exxon wants its rates to go into effect on Dec. 31, 2008. The RCA is taking comments on the requests through Dec. 22.

The pipeline runs 800 miles from the North Slope to a marine terminal in Valdez. Most of the oil moving through the line, around 90 percent, ends up in markets out of state.

Changes to the shipping rates often become heated and lengthy battles.

The rates dictate the revenues of the pipeline owners and the margins of refineries. And because state taxes and royalties are calculated after tariffs have been levied, the shipping rate also determines how much money the state gets from North Slope oil production.

This year marks the first time the pipeline owners have filed rate increases using a formula created by the Regulatory Commission of Alaska in a major 2002 decision.

As a result of the decision, the commission set new rates on the pipeline. The formula used to create those new rates replaced one that had been in effect since the mid-1980s, when the state and the owners of the pipeline signed a settlement agreement.

The owners of the pipeline challenged the 2002 decision, and continued using the old formula to craft rates each year. State regulators, in turn, rejected all of those filings.

The new formula significantly lowers the tariff rate.

By comparison, Exxon is currently requesting to increase its North Pole rate from $1.25 to $1.97. Using the old formula last year, the company requested an increase from $1.25 to $3.05. The other four pipeline owners filed similar rate increase requests last year.

Now, the companies claim the 2002 rates no longer adequately compensate them, even under the new formula, because volumes on the pipeline have fallen 30 percent since 2000 to around 700,000 barrels per day, without a corresponding decrease in costs.

Exxon is asking the Regulatory Commission of Alaska to merge its case with that of ConocoPhillips, saying the companies used similar information to calculate their rates.

Currently, the state along with the three companies with refineries in Alaska and four of the five owners of the pipeline have been added to the ConocoPhillips case. On Dec. 4, Koch Alaska Pipelines asked to be a party to both the ConocoPhillips and Exxon cases.