UTC fines Olympic Pipe Line $30,000
By Ericka Pizzillo

The Bellingham Herald
25 July, 2002

Penalty follows failure to give UTC data; judge calls for FERC to reject rate hike request.

Olympic Pipe Line Co. provided unreliable information and failed to make its case for higher fuel transportation rates to the Federal Energy Regulatory Commission, an administrative law judge ruled on Friday.

The recommendation from Judge Jeffie J. Massey, who reviewed the application for FERC, will now be sent to the commission, which will make the final decision on whether to reject Olympic's request for a 62 percent increase in the rate to refineries and other pipeline customers.

FERC's decision affects only fuel transported out of Washington.

At the same time, Olympic is also pursuing a 62 percent rate increase from the Washington Utilities and Transportation Commission for fuel transported within the state.

In the ongoing and separate state case, Olympic was fined $30,000 on Tuesday by the Utilities and Transportation Commission for failing to provide six documents the commission ordered Olympic to give to refineries challenging Olympic's rate increase request.

Stating that Olympic has repeatedly failed to provide necessary documents and comply with orders and rules of the commission, UTC members said at least one of those failures to produce documents - showing how much fuel runs through the pipeline - delayed the proceedings.

UTC policy director Beth Redfield said a fine is "extremely unique." UTC staff involved in the proceeding could not remember a previous fine imposed by the commission during a rate case.

Olympic spokesman Dan Cummings said the company's attorneys are reviewing the fine to determine if they will appeal, but he couldn't comment further.

Olympic has said that if the refineries passed the cost of the increase on to consumers, most drivers in Western Washington would see an increase of about $3 per year in gasoline costs.

The increases would cost Olympic customers, such as Phillips 66 Co. Ferndale Refinery and the Tesoro Northwest Refinery in Anacortes, millions of dollars every year.

Both Phillips and Tesoro have challenged the rate increase before the UTC and FERC. The companies transport their fuel on Olympic Pipeline to transfer stations. The fuel is then delivered to gas stations.

The companies have already been paying the increased rate - imposed while FERC deliberates the rate change. If FERC agrees with the judge, Olympic will be forced to provide refunds to the oil companies.

Explosion costs

Approval for the increases by both commissions rests on the actual cost of shipping product, but Massey said in the July 19 ruling that Olympic's argument about its costs and fuel shipments were "somewhat creative."

Even more of a concern, Massey wrote, was that Olympic included some costs from the June 10, 1999, Whatcom Creek explosion in the operating expenses it used to estimate the rate increase needed by the company.

The pipeline rupture spilled more than 236,000 gallons of gasoline into Whatcom Creek, which ignited into a fireball that destroyed 1.5 miles of creek. The rupture also led to the deaths of 10-year-olds Wade King and Stephen Tsiorvas and 18-year-old Liam Wood.

Tesoro and Phillips refinery officials said they should not be forced to pay costs associated with the rupture and poor financial decisions made previously by the Olympic.

Olympic said it eliminated $30 million in direct costs of the rupture from their rate estimates, but said an increased safety program is part of its regular operating expenses.

The company faces new requirements from Congress and state regulators and demands from those who live along the pipeline, Cummings said. Cummings also said the company disagrees with Massey's conclusions.

"The new rules passed on the federal and state level cost additional money," Cummings said. "We're confident that regulatory agencies - UTC and FERC - will respond as Congress has and with rates that will let us continue our pipeline safety program."

Cummings said Olympic officials are considering whether to appeal Massey's recommendation or wait for FERC's decision and then possibly file a new motion.

Massey said Olympic was unable to produce witnesses to show how the direct costs of the rupture were separated in their estimates. Instead, Olympic said it appointed an engineer to keep track of the costs of the rupture, didn't say if the engineer had an accounting background and then failed to give testimony from the engineer about the rupture's costs.

Olympic officials said in filings with the UTC that the company's financial situation is "dire" and it may be unable to attract enough credit to complete some of the $23 million in safety programs the company planned for this year.

The company will continue to move forward with safety plans without the rate increases, but possibly at a slower pace, Cummings said.

The company has debts of $150 million and has lost money since 1997, before the 1999 Whatcom Falls Park rupture, Olympic officials said.

Olympic is a subsidiary of BP Amoco, which reported $8 billion in profits in 2001, according to the company's annual report.

FERC has not set a date to rule on the rate case.

The UTC is expected to rule on Olympic's request for a rate increase by Oct. 1.

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