ConocoPhillips and Encana Corp.'s marketing arm filed a protest with federal regulators over Plains All American Pipeline LP's request to impose a surcharge on crude oil flows through its Cactus II system, alleging that the pipeline company is improperly passing on the cost of the Trump administration's steel tariffs to Permian Basin producers.
In an Aug. 19 filing, the two companies asked the Federal Energy Regulatory Commission to reject the initial capital surcharge requested by Plains, or else hold a full evidentiary hearing or technical conference to review the proposed charge.
In an Aug. 2 tariff rate filing, Plains proposed imposing a capital surcharge of 5 cents per barrel on crude oil flows on its Cactus II system. The pipeline system is poised to relieve transportation bottlenecks in West Texas by moving as much as 670,000 barrels per day of crude oil from the Permian Basin to the growing energy export hub at Corpus Christi, Texas. Plains proposed the surcharge "for the purpose of amortizing capital expenditures associated with increased construction costs as a result of governmental regulation and tariffs."
While Plains did not directly evoke U.S. steel tariffs in the filing, ConocoPhillips and Encana Marketing (USA) Inc. pointed to an Aug. 3 Bloomberg News report that indicated the "government regulation and tariffs" in fact referred to the import tariff. Energy companies have warned that the steel tariffs will increase the cost of construction projects like pipelines and refineries.
The producers claimed Plains' request is premature because it comes far in advance of the surcharge's proposed April 1, 2020 effective date. They said the pipeline operator is still pursuing a tariff exclusion from the U.S. Department of Commerce, and they noted Plains CEO Wilfred Chiang said on an Aug. 6 conference call that the company would end the surcharge and "rebate it as appropriate" should the waiver come through.
"Cactus II has therefore failed to demonstrate that it will even be necessary to recover costs associated with steel tariffs by the time that the proposed initial capital surcharge is scheduled to go into effect on April 1, 2020," ConocoPhillips and Encana said. "It is worth noting that, despite Mr. Chiang's comments, the capital surcharge language proposed in F.E.R.C. 2.0.0 does not state that Cactus II would refund the surcharge to shippers if it received an exemption from the steel tariffs."
The producers also argued that it is uncertain that FERC approved Plains' proposed capital surcharge, even though the company indicated regulators had given them permission to impose the levy. They said Plains lacks the authority to establish the surcharge as a settlement rate and assert the Cactus II operator has not provided the information necessary to determine whether the charge is consistent with FERC policy.
The Commerce Department denied Plains' tariff exclusion request for Greek steel in July 2018, saying the developer could source the 26-inch steel from U.S. mills. The company has said the steel tariffs have inflated the planned $1.1 billion cost of the Cactus II project, which began transporting initial crude flows earlier this month.
