Oil shippers decry judge ruling on Seaway pipeline tariffs

Thu Oct 24, 2013 4:10pm EDT
 
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By Jeanine Prezioso and Sabina Zawadzki

NEW YORK Oct 24 (Reuters) - A ruling by a federal judge to cut agreed tariffs on a major oil pipeline has drawn fire from the energy industry which says it could jeopardize billions of dollars of future investment.

The provisional ruling last month, if approved by the U.S. Federal Energy Regulatory Commission (FERC), would reduce so-called "committed" rates already agreed in contracts last year to ship oil on the Oklahoma-to-Texas Seaway pipeline. The rates were settled with shippers to ensure the operators had enough guaranteed revenue to justify the investment in the line.

While FERC frequently reviews the "uncommitted" tariffs that pipeline operators use for short-term customers, Administrative Law Judge Karen Johnson's decision challenging the commercially settled "committed" long-term rates appeared to be unprecedented.

"The very idea that you have the potential to rewrite these contracts down the line is worrisome," said Steven Kramer, general counsel for the trade group Association of Oil Pipelines (AOPL).

A deluge of objections were filed last week by operators Enterprise Product Partners and Enbridge Energy Partners ; committed shippers including Continental Resources and Tidal Energy Marketing; as well as other companies concerned about future rulings, such as Chesapeake Energy and Plains All American (PAA).

"This ruling would upset 17 years of fundamentally important commission precedent and policy," PAA said in a filing.

The decision emerged from a case that focused on "uncommitted" rates, a relatively common dispute over how rates are set for those who would use the pipeline occasionally.

The question remains whether FERC will actually use proceedings from a rate case to change its policy. The agency has long been regarded as upholding "contract sanctity" and reaffirmed that position in a March filing.   Continued...