Firms claim pipeline owner overcharged for fuel delivery

Malcolm Hall

Friday, Feb. 8, 2002 | 11:07 a.m.

Three major oil companies say they were overcharged by at least $2 million for gasoline, diesel and jet fuel delivered in Las Vegas over the Calnev pipeline in 2000.

BP America subsidiary ARCO, the Tosco unit of Phillips 66 and San Antonio-based Valero Energy's Ultramar have filed formal complaints with the Federal Regulatory Energy Commission against Calnev, now a division of Houston-based Kinder Morgan Energy Partners.

They claim Calnev violated the Interstate Commerce Act by charging "unjust and unreasonable rates" on its pipeline from Colton, Calif., to terminals in North Las Vegas and McCarran Field.

A spokesman for a state gasoline dealer's association estimates that as much as 99 percent of all petroleum products consumed in Southern Nevada is carried over the 550-mile pipeline, which Kinder Morgan acquired from GATX Corp. in late 2000 for $1.15 billion.

The case, which went into a settlement phase in October, seeks a price roll back, repayment of overcharges plus interest, reasonable rates, attorneys' fees and other relief.

While parties to the case are bound by confidentiality agreements barring them from discussing details, Phillips spokesman Rich Johnson said the numbers shown in the FERC documents are just estimates made at the time of the filing.

"We can't get into the specific numbers because those would have come out during the discovery process, which turned out to not be necessary because they decided to settle," he said.

Larry Pierce, a spokesman for Kinder Morgan, said it's not unusual for these kinds of complaints to be filed with FERC.

"Essentially, it's not unexpected and we support the complaint because we've been in settlement talks over the issue and by bumping it up to a complaint rather than protest status, it speeds it toward a settlement," he said.

In the complaint, ARCO notes that Calnev has a monopoly on transporting refined petroleum products to Las Vegas and that it even admitted in FERC documents its interstate revenues exceeded its cost of service.

"Indeed, Calnev's own admission indicates that it is overcharging on return by some 22 percent," ARCO says.

ARCO said FERC documents show that Calnev's total interstate cost of service was $35.8 million in 2000, while it reported operating revenues of $37.9 million, hence a 22.8 percent overcharge to customers.

Peter Krueger, executive director of the Nevada Petroleum Marketers & Convenience Store Association, said since nearly all gasoline, diesel and jet fuel arrives in Las Vegas over the Calnev pipeline, his members are concerned about the monopoly.

"Anytime you have one company controlling both the pipeline and the terminal they can charge anything they want," he said. "If it can be established that Calnev has overcharged Ultramar, the case could be made that that cost is passed along to the customer."

Energy consultant Matthew O'Loughlin of the Brattle Group in Cambridge, Mass., said he found "a substantial divergence between Calnev's current indexed rate level and the pertinent cost of service."

O'Loughlin was asked by Ultramar to evaluate Calnev's rates, which currently are 93.39 cents per barrel, with 83 cents per barrel grandfathered under a 1991 tariff agreement.

"The data I have examined demonstrate reasonable grounds for believing that Calnev's jurisdictional rates, including jurisdictional terminal charges, are outside the zone of reasonableness," he said.

O'Loughlin said a reasonable transmission rate would be 60.9 cents per barrel and that Ultramar is paying excess charges of $715,000 a year on volumes of 2.2 million barrels per year.

"Even when one only considers the difference between the current rate and the grandfathered rate, Ultramar is paying excess charges of $229,000 per year," he said.

A barrel of oil contains 42 gallons.

"It's essentially a rate case claim," said ARCO spokeswoman Cheryl Burnett. "We feel they've been charging more than was regulated by law."

The Nevada Department of Transportation said 622 million gallons of gasoline were reported in Clark County taxable sales for 2001. Another 140 million gallons of diesel were sold here, along with nearly 400 million gallons of jet fuel.

BP America has about 50 retail sites in Las Vegas. Bartlesville, Okla.-based Phillips controls 87 branded outlets in Nevada and markets under the 76, Circle K and Phillips 66 brands, 25 of them company owned.

Ultramar supplies unbranded products to local independent dealers.

Last June, Kinder Morgan announced a $9 million expansion of the pipeline, which consists of two lines, one used exclusively for jet fuel and another for all types of fuel.

Once complete, the pipeline's capacity will be boosted by nearly 20 percent, to 128,000 barrels per day. Completion is expected in the second quarter of this year. We feel they've been charging more than was regulated by law."