FERC Rejects Colonial Pipeline’s Proposed Tariff Changes on Gasoline Grades

The U.S. regulator said in a Monday order it rejected the proposed changes that Colonial had requested in March because “Colonial failed to meet its burden of proof demonstrating that its proposals are just and reasonable.”

According to FERC, the proposals would have allowed shippers to receive an inferior product without proper compensation by Colonial.

The agency said it recognizes that fuel pipeline operators are generally not required to return to shipper the exact molecules that were tendered. However, when a less valuable product is delivered than tendered, the pipeline operator must compensate shippers for the lost value, FERC said.

“Colonial’s proposals could require a shipper to put higher-value product (low RVP) on the system and then require that shipper to accept lower-value product (high RVP),” FERC said.

FERC said “the benefits that Colonial claims these proposals would create are outweighed by the burdens on shippers.” In addition, the agency said the changes would leave them with greater uncertainty about the product specifications they would receive.

“Colonial is reviewing the FERC’s ruling that was issued Monday evening related to proposed changes to product specifications and we have no further comment at
this time,” David Conti, a company spokesman, said in an email statement.

Among the proposed changes were the elimination of overlapping grades of gasoline on Colonial’s system by only shipping one grade, as well as the movement of grade 5 gasoline, which is the 15-lb RVP gasoline delivered into Northeast markets in the winter.

Some shippers have argued that the movement of grade 5 gasoline and overlapping grades can discriminate against certain regions of the country as well as non-affiliated shippers. This would also potentially favor Colonial affiliates which could inject higher-RVP products midstream.

Colonial has said that the changes in procedure and specifications would increase capacity, reduce cycle pressure and enhance pipeline integrity, but protestors argue that the claims are speculative.

In early April, FERC suspended Colonial’s proposed changes for seven months following a complaint by a dozen shippers including ExxonMobil, Shell, Atlantic Trading, Tartan Oil, Phillips 66, Trafigura and TransMontaigne. Their concerns focused on what is known on the pipeline as the “swell,” or when butane injections fatten the volumes of gasoline blendstock as it moves to downstream locations.

Colonial, which operates its 5,500-mile product pipeline system between the Gulf Coast and the Northeast, also owns and runs four terminals in the Southeast and Mid-Atlantic.

–Reporting by Frank Tang, ftang@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com