The Association of Oil Pipelines (AOPL) asked the US Federal Energy Regulatory Commission on Jan. 7 to fix a developing dispute that the trade association says threatens pipelines’ ability to get financing for new construction.
“Literally billions of dollars of energy infrastructure project investment vital to new domestic supplies and lower prices is threatened if FERC does not act to protect the ability of project sponsors to finance their projects based on committed rate contracts,” AOPL Pres. Andrew J. Black said on Jan. 9.
Financing new pipeline construction depends upon a guaranteed stream of revenue based on rates charged for using the pipeline, Black explained. Shippers and pipeline operators enter into contracts to deliver crude oil, gasoline, diesel and other products at agreed upon rates, he said.
“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,” Black said, adding, “They 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 and pipeline operators, according to AOPL.
It filed a motion to interview and comments on Jan. 7 supporting a petition Seaway Pipeline, which extends from Cushing, Okla., to Houston, filed on Dec. 12, 2012, asking FERC to confirm that agreed contract rates are not subject to review in the pipeline’s pending rate proceeding.
FERC’s staff recommended a different rate and rate structure which would retroactively throw out agreements on which private financing depends, AOPL said. It urged FERC to act quickly because pipeline operators and shippers could be deterred from starting new projects or moving forward on current construction based on existing contracts and rates.
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