ConocoPhillips Co. and Encana Marketing (USA) Inc. are challenging Plains All American’s plans to implement a surcharge on its Cactus II crude oil pipeline, a 5.0-cent/bbl fee designed to offset costs related to U.S. tariffs on steel imports.
ConocoPhillips and Encana Marketing filed a protest earlier this week with FERC asking the agency to reject the proposed surcharge for the Cactus II line. The companies, both seeking to intervene as prospective shippers on the Cactus II project, argued that the surcharge has not been shown to be “just and reasonable” under the federal Interstate Commerce Act.
If the Federal Energy Regulatory Commission does not reject the surcharge, which is proposed to go into effect April 1, 2020, the issue should be set for a hearing or technical conference, they said.
During a conference call with analysts and investors earlier this month, Plains CEO Willie Chiang discussed the company’s plans to offset the increased costs of the imported steel needed for its pipelines through a surcharge.
“As with everything, it seems, these days there are a lot of moving parts,” Chiang said. “On Cactus II, we ended up buying international, non-U.S. steel because the U.S. steel producers were not able to produce the pipe in the spec that we wanted. The key point on this is we purchased the steel before the tariffs were implemented.
“And so we are going through the exception process with the Department of Commerce and will continue to do that to try to get resolution on it,” the CEO said. “As a parallel path, we have moved forward with a surcharge, and if we're able to get an exemption, clearly, we would stop the surcharge and rebate it as appropriate.”
ConocoPhillips and Encana noted Chiang’s comments in this week’s filing, arguing that the proposed surcharge “appears to be premature.”
Since it is still seeking an exemption from the tariffs, Plains has “failed to demonstrate that it will even be necessary to recover costs associated with steel tariffs by the time” the surcharge would go into effect next year.
“It is worth noting that, despite Mr. Chiang’s comments, the capital surcharge language” submitted to FERC “does not state that Cactus II would refund the surcharge to shippers if it received an exemption from the steel tariffs,” the protesters argued.
This month, Cactus II delivered its first crude oil volumes from the Permian Basin to the Buckeye Texas Partners terminal near Corpus Christi in South Texas.