Buckeye in a Wood River rumble

Buckeye Partners is in a high-profile regulatory battle over the easternmost leg of its large midcontinent refined products pipeline system. Adding to the regulatory burden, it is also tangling with shippers in a rate case on the western end.

The company in May 2017 asked the Federal Energy Regulatory Commission (FERC) to switch the tariff regime on its 172,000 b/d Wood River pipeline (WRPL) originating in the St Louis, Missouri, area to market-based rates rather than have them follow the agency's oil pipeline index.

"The authority to charge market-based rates in these [markets] will allow Wood River the flexibility to respond quickly to market conditions and more effectively compete in the origin and destination markets," the company said in its 426-page initial petition.

Buckeye argued that its analysis shows it does not exercise market power in any of its origin or destination markets across the region, and that the 450,000 b/d Explorer and 173,000 b/d Marathon Petroleum competing pipelines out of the St Louis area already have won market-based pricing authority from FERC.

Phillips 66, which not coincidentally runs the 356,000 b/d Wood River joint-venture refinery at nearby Roxana, Illinois, quickly and emphatically protested the filing. The Buckeye pipeline does in fact have market power and the other pipelines in the area probably should be on the generic FERC index as well, Phillips 66 argues.

"WRPL possesses market power over the transportation of refined petroleum products from its Wood River, Illinois, receipt point," Phillips 66 consultant Daniel Arthur of the Brattle Group, who has worked on behalf of shippers in other FERC cases, said in testimony filed on 25 June.

FERC administrative law judge Jennifer Long's schedule allows parties and agency staff to file testimony back and forth until 11 October, with the formal hearing set to begin on 27 November and her proposed findings of fact due by 22 January.

Chicago

Among the many bones of contention is the Chicago market, home of Buckeye's Chicago Complex refined products hub that WRPL serves. The pipeline told FERC that it does not use Chicago as an origin point because it does not move fuel out of the area, so it did not include itself in those market power calculations.

"Instead, it transports refined petroleum products between origins and destinations within in the market," the filing said. "For this reason, Wood River's ability to exercise market power over local production … is nonexistent."

Arthur's analysis of the Chicago origin on behalf of Phillips 66 had a different "non" word in its conclusion.

"A capacity-based market share for WRPL of 0pc is … nonsensical, because it presumes that WRPL is not a market participant in the very market for which it is seeking market-based rate authority," he said.

Arthur said omitting WRPL from the Chicago origin calculation would be akin to excluding a large taxi company when determining how transportation around the region is apportioned.

The pipeline noted that in addition to the 38,400 b/d Buckeye line that runs from Chicago to Lima, Ohio, eight pipelines owned by four other companies move fuel away from the area, along with at least 12,000 b/d of barge-loading capacity.

But Arthur also asserts that WRPL's definitions of the various origin and destination markets — which the pipeline said are based on FERC precedent — on its system are overly broad. The combination of WRPL excepting itself from its Chicago origin calculation and use of metropolitan areas defined by the US Bureau of Economic Analysis (BEA) gave those areas artificially low Hefindahl-Hirschman measurements for market concentration.

Using a 100-mile radius of WRPL's origin and destination markets, pipeline consultant Michael Webb said its HHIs are all under the threshold and noted that FERC never has denied market-based pricing to such a pipeline.

Arthur responded WRPL's filing assumes that all transportation options within 100 miles, such as trucks and other pipes, are competitive. Rather, he said further economic analysis would be needed to determine which alternatives are viable.

"These fundamental errors cause WRPL's identification to be meaningless and unreliable," Arthur said.

St Louis

At the WRPL origin near St Louis, Buckeye said there is ample takeaway capacity to remove about 141,000 b/d of fuel production it estimates Phillips 66 needs to send elsewhere.

"In past oil market pipeline market-based rate proceedings, the commission has noted that the existence of significant excess capacity in a market further indicates that the applicant does not have the ability to exercise market power," Buckeye said.

But Phillips 66's consultant said that the six other St Louis takeaway pipeline options by four other companies, as well as about 10,000 b/d of barge capacity, are not necessarily equally accessible compared with WRPL.

"WRPL erroneously presumes that all alternatives within the St Louis BEA are competitive alternatives to transport refined petroleum products produced at the Wood River refinery," refinery consultant Arthur testified.

US midcontinent products pipelines