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Producers Protest Sea Robin's Proposed Hurricane Surcharge

ExxonMobil Gas & Power Marketing and Hess Corp. have filed a protest at FERC against an attempt by Sea Robin Pipeline Co. LLC to collect a surcharge for extensive damages it incurred during Hurricane Ike last September and to install a mechanism to regularly institute surcharges for costs to repair damage from disasters beyond amounts covered by insurance.

In a filing Aug. 31 Sea Robin Pipeline requested that the Federal Energy Regulatory Commission impose a surcharge of 4.01 cents/Dth starting Oct. 1 to recover $37 million in capital and related operation and maintenance costs incurred because of damage to its facilities from Hurricane Ike in the Gulf of Mexico (GOM). The Minerals Management Service initially estimated that the Category Two storm had destroyed 52 platforms, along with three jackup drilling rigs and one platform drilling rig (see NGI, Sept. 29, 2008).

The producers protested the imposition of a surcharge, saying it would violate the basic principles of ratemaking and the Commission's regulations governing cost tracker filings. They asked that the tracker proposal be summarily rejected.

Sea Robin's proposal for a limited Section 4 adjustment contravenes the Commission's consistent holding that a pipeline cannot use a filing under a tracker provision in its tariff to recover an extraordinary one-time cost, the producers said, adding that it also frustrates an uncontested, comprehensive rate settlement the Commission approved less than a year ago. The pipeline argued there was precedent for the request, citing trackers for other hurricane damages to offshore pipelines.

Sea Robin said it had incurred costs of $144 million for inspections and repairs to pipelines, compressor stations and meter and regulatory stations, as well as platform removals and abandonments and replacement of various equipment. While the pipeline anticipates reimbursement from insurance for a significant portion of the costs, it nevertheless will have a sizeable remaining obligation.

The pipeline filing noted that during the Sept. 11-13, 2008 period Hurricane Ike had caused water levels to rise one to three feet across the entire Gulf Coast from South Florida to Texas, with waves almost 30 feet high in places. The intense northeast quadrant of the storm passed across South Marsh Island, Vermilion, East Cameron and West Cameron blocks in the GOM, where Sea Robin's offshore facilities are located.

Although it only reached the Category Two level, "the continuous pounding of hurricane force winds and 30-foot and higher waves for over 20 hours through the heart of the offshore production zone caused catastrophic damage to the oil and gas facilities," Sea Robin said. The offshore line sustained significant damage to its West Leg and J Leg.

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