TARIFFS AND OTHER AGREEMENTS RELATING TO TRANSPORTATION ON INTERSTATE OIL PIPELINES
| Jurisdiction | United States |
(Jan 1995)
TARIFFS AND OTHER AGREEMENTS RELATING TO TRANSPORTATION ON INTERSTATE OIL PIPELINES
Texaco Inc.
Denver, Colorado
I. INTRODUCTION.
This paper is intended to be a general discussion of the terms and provisions commonly found in contracts for transportation on pipeline systems engaged in the interstate transportation of crude oil or petroleum products as common carriers for hire, and the regulation of those contracts under the Interstate Commerce Act of 18871 (ICA). With only a few exceptions, the issues and principles discussed herein apply generally to crude oil pipeline systems used to transport crude oil from the wellhead to the facility at which that crude oil is refined as well as product pipeline systems used to transport refined petroleum products form refining facilities to various product distribution terminals. Except where a distinction is useful or necessary, I will refer throughout this paper to both types of pipeline systems and the respective commodities that they transport as oil pipelines and oil, respectively.
In 1987, the oil pipeline network in the United States consisted of approximately 108,000 miles of crude oil pipelines and 95,000 miles of product pipelines.2 It would be impossible to discuss each of the tariffs currently published and covering all of those miles of pipeline, not to mention all of the variations on common tariff provisions that exist in those tariffs. There is no statutory or regulatory language carving in stone any specific language that must be used by a pipeline in its tariff to describe the transportation services that it offers, nor is there any language mandating what transportation and related services a pipeline must provide. Therefore, this paper looks at some of the more universal and common provisions contained in pipeline tariffs, relying on the language of a handful of published tariffs as examples.
It is also not within the scope of this paper to attempt to discuss in any detail, contracts relating to transportation on intrastate pipelines or the regulations of such contracts by the various States. The extent and nature of such regulation, if any,
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may vary greatly and should be reviewed carefully when dealing with any intrastate common carrier issues.3
Oil pipelines were not originally subject to the ICA. The Hepburn Amendment of 19064 , however, amended Part I of the ICA which applied to railroads, to include "the transportation of oil or other commodity, except water and except natural or artificial gas, by pipe line, or partly by pipe line and partly by railroad and by water."5 The Hepburn Amendment which, for most practical purposes, opened up all interstate oil pipelines to public use, was held constitutional by the United States Supreme Court in 1914.6
Since passage of the Hepburn Amendment in 1906, oil pipelines engaged in interstate commerce have been regulated under certain provisions of the ICA. The nature of this regulation has been two-fold: to ensure that rates charged by a pipeline are "just and reasonable," and to ensure that shippers have access to pipelines on a non-discriminatory basis.
From 1906 until 1977, the Interstate Commerce Commission (ICC) exercised regulatory jurisdiction over common carrier oil pipelines. In 1977, the Department of Energy Authorization Act7 transferred jurisdiction of those pipelines under the ICA from the ICC to the Federal Energy Regulatory Commission (FERC).
The ICA requires that every common carrier file with the FERC and keep open for inspection "schedules showing all the rates, fares, and charges for transportation between different points on its own route and between points on its own route and points on the
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route of any other carrier...."8 These "schedules" filed with the FERC are commonly referred to as tariffs and in essence constitute the contract between a common carrier pipeline and its shippers. The ICA also requires that a common carrier pipeline's rates, rules and regulations as set forth in its tariff be just and reasonable.9 Pipelines are expressly barred from giving rebates or granting any unreasonable preference to, or discriminating in any way between, shippers in the transportation of property, the furnishing of services or the rates that they charge.10
Since the tariffs which a pipeline maintains on file with the FERC constitute the contract and the terms and conditions under which a common carrier pipeline agrees to render its transportation services, the majority of this paper will focus on the terms and conditions generally contained within such tariffs and certain items of flexibility which may be built into those tariffs.
A pipeline tariff is generally composed of two parts: the rules and regulations which set forth the terms and conditions, except the rates, under which a pipeline will accept, transport and deliver oil;11 and the rates that the pipeline will charge for furnishing those services.12 The rules and regulations are often filed separately and then incorporated by reference into all subsequent rate filings; however, some pipelines include their rules and regulations as a part of every rate filing.13
II. RULES AND REGULATIONS
Pipelines are required to publish rules and regulations covering such matters as prorationing, demurrage, liability, quality bank, reconsignment, storage, loading and unloading, gathering, terminalling, batching, connection policy and "all other charges, services, allowances, absorptions and rules which in any
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way increase or decrease the amount to be paid on any shipment or which increase or decrease the value of service to the shipper."14 Although the various provisions of a pipeline's rules and regulations are not necessarily grouped into any specific categories, it will be helpful for purposes of this paper to discuss the various tariff provisions as they relate to one of the following areas: quality, quantity, logistics, responsibility or liability and other common provisions.
A. Quality
Of fundamental importance to any oil pipeline, is the ability to maintain the quality of the oil transported on its system. This is no small task considering that some crude oil pipeline systems collect crude oil through lease gathering systems consisting of hundreds of miles of pipeline spread across hundreds of square miles of sparsely populated areas of the oil patch. In addition, each gathering line may receive oil gathered by truck from wells located a great distance from the point at which the crude oil is finally injected into the pipeline's gathering system. As a result, it is not only possible but probable that the quality of the crude oil delivered into a pipeline will vary to some degree across the system. Moreover, both crude oil and product pipelines will have a number of interconnections located along their main transmission lines at which crude oil and product are received into those systems.
At the other end of, or at certain points along, the pipeline the oil must be delivered to the parties designated by the shipper, usually either a refining facility, a distribution terminal or a connecting pipeline system. Each of these recipients has its own specifications regarding the type, quality and grade of oil it can and/or will receive into its facilities. As a result, the delivering pipeline must make certain that all of the oil it receives into its system will meet the requirements of the designated recipients. If the oil does not meet those specifications, the pipeline will not be able to deliver the oil and will be forced to either store the oil or transport it to another destination.
The volume of oil that a pipeline can carry depends on the size of the pipeline, the capabilities of its pumps and the gravity and/or viscosity of the oil being pumped. As discussed above, pipelines publish tariffs that establish rates for their transportation services and which state the conditions and specifications of the oil that may be shipped through a pipeline. Specifications will normally establish the pour point of the oil (the temperature at which the liquid will no longer flow) and its viscosity (a measure of the resistance exhibited by the oil),
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because the rate of flow in a pipeline is determined by the slowest-moving liquid in the pipeline. In addition, oil pipelines usually carry specifications regarding the sulfur content, gravity, vapor pressure, basic sediment and water, and limits on contaminates such as metals and chlorides. Product pipelines may also have limited capacities for certain products and, therefore, restrictions for these products will be stipulated.
Specifications are needed to maintain an optimum rate of flow and to avoid downgrading or contaminating the oil shipped on the pipeline. Contamination can result in costly penalties to the pipeline, the refiner or the distributor who receives the contaminated oil.
1. Definitions of Oil, Product and Indirect Products
Fundamental to any discussion regarding the quality of a commodity that a pipeline is willing to ship on its system is a definition of that commodity. Two terms often used in crude oil pipeline tariffs to describe the commodity that a pipeline will accept for transportation are "Crude Petroleum" and "Petroleum" Some pipeline tariffs define these terms to include only the direct product of oil wells, while others include indirect products as well. The following are examples of both types of definitions:
"Crude Petroleum," as used herein, means the direct product of oil wells, indirect petroleum products resulting either from refining crude petroleum or from the operation of gasoline recovery plants, gas recycling plants or distillate recovery equipment in gas and distillate fields, or a mixture of the direct product and indirect petroleum products."15
"Petroleum" as herein used means the...
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