AOPL Calls On FERC To Clarify Rate Disputes

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The Association of Oil Pipe Lines (AOPL) has asked the U.S. Federal Energy Regulatory Commission (FERC) to step in and fix a brewing dispute threatening billions of dollars in energy infrastructure projects. At issue is the ability to obtain financing for new pipeline infrastructure needed to supply the American public with the benefits of our current domestic energy boom.
  Andy Black, President and CEO of AOPL, stated: “Literally billions of dollars of energy infrastructure project investment vital to new domestic energy supplies and lower energy prices is threatened if FERC does not act to protect the ability of project sponsors to finance their projects based on committed rate contracts.”
  Financing new pipeline construction depends upon a guaranteed stream of revenue based on rates charged for using the pipeline. Shippers and pipeline operators enter into contracts to deliver crude oil, gasoline, diesel and other products at agreed upon rates. These committed rate agreements give confidence to shippers that the infrastructure they need to deliver their production to market will be there when they need it. These agreements also give confidence to companies and investors ready to fund new pipeline projects that their investments will be repaid. Unfortunately, FERC staff testimony in a pending pipeline rate case could undercut this financing method by threatening to void mutually beneficial rate contracts agreed to by energy shippers andpipeline operators.
  Because of the importance of this issue to new pipeline construction, AOPL filed a Motion to Intervene and Comments at FERC supporting a petition filed by the Seaway Pipeline. On December 12, 2012, the joint owners of the Seaway pipeline stretching from Cushing, OK to Houston, TX filed a Petition for DeclaratoryOrder (Docket No. OR13-10-000) asking FERC to confirm that the rate contracts agreed to by Seaway’s operator and shippers are not subject to review in Seaway Pipeline’s pending rate proceeding.
  Instead of honoring the rate contracts reached by the pipeline operator and a prospective shipper, FERC staff recommended an entirely different rate and rate structure.
  According to AOPL, FERC staff seeking to overturn a rate contract in these circumstances is unprecedented. The idea that FERC would retroactively throw out rate agreements upon which private financing is dependent could negatively reverberate throughout the financing and infrastructure development communities. Commercial agreements between knowledgeable and sophisticated parties should be honored.
  In its filing, AOPL said pipeline operators and shippers may be deterred from entering into contracts for new projects or from moving forward current projects based on existing contracts, until FERC rules on the issue. AOPL called on FERC to act quickly and to provide reassurance to the public that committed rate contracts will be honored.
  Early this year, the Seaway Crude Oil Pipeline Company LLC’s Seaway Pipeline expansion to increase capacity from approximately 150,000 bpd to 400,000 bpd was completed.
  Seaway Crude Pipeline Company LLC is a 50/50 joint venture owned by affiliates of Enterprise Products Partners and Enbridge Inc.  In addition to the pipeline that transports crude oil from Cushing to the Gulf Coast, the Seaway system is comprised of a terminal and distribution network originating in Texas City, TX, which serves refineries locally and in the Houston area. The Seaway system also includes dock facilities at Freeport and Texas City, TX.