December 22, 2017 / 11:29 PM / in a year

Colonial Pipeline defends fees to U.S. watchdog after shippers complain

NEW YORK, Dec 22 (Reuters) - Colonial Pipeline Co, the largest U.S. fuel network, defended the fees it charges to ship gasoline, diesel and jet fuel, saying on Friday a formal complaint by some of its biggest customers was based on "purposefully manipulated" financial data.

In a November complaint filed with the U.S. Federal Energy Regulatory Commission (FERC), affiliates of Chevron, Valero and Delta Air Lines said Colonial's rates were excessive and unreasonable, and accused it of effectively monopolizing the New York market.

The complaint alleged that Colonial's opaque fee structure pushed its 2016 interstate revenue to exceed its costs by $339.3 million, earning it about a 29 percent realized return on equity, an increase of about 44 percent from 1991.

In a filing to FERC, Colonial said that figure is inaccurate, and there is only a difference of 2.5 percent between Colonial's costs and revenues, a figure well below the level U.S. regulators have found to warrant further investigation.

It said contrary to FERC regulations, Chevron, Valero and Delta's trading arms excluded non-recurring costs in their calculations, such as those incurred after outages due to a leak and an explosion in 2016.

Without such adjustments, the rate of return on equity fell by 18 percent, Colonial said, rather than rising 44 percent.

In their complaint, the three companies argue that Colonial overcharged them by more than $60 million combined and is potentially monopolizing fuel delivery into the New York region, the largest demand hub in the United States.

If FERC holds a hearing and rates are ultimately lowered, it could be the most significant change to Colonial's rate structure in nearly 20 years.

The pipeline hauls more than 3 million barrels of gasoline, diesel and jet fuel from the refinery hub in the Gulf Coast to centers in the northeast every day. Even with the current fees, it remains the cheapest and most efficient way to haul fuel across the country to those markets.

Colonial was allowed to charge market-based rates in 2001 to deliver fuel into the New York area, on the understanding that it did not posses monopoly power over those markets.

The complaint alleges Colonial's rates have not been reviewed in recent years and warrant investigation in part due to the changes in market conditions.

Colonial said on Friday that a 2015 FERC audit, which covered a period from 2011 to 2014, showed no findings related to its grandfathered rates, indexed rates or market-based rates.

Colonial currently charges about $2.20 a barrel to ship fuel from Houston, Texas to the New York area.

"The complainants knowingly and purposefully manipulated and cherry-picked data from various different public filings over a course of several years to mix and match numbers to make their case," Colonial said in a statement. "That's not how this process works."

U.S. refiner Phillips 66, another shipper on Colonial Pipeline, filed a request to intervene in the proceeding last week. Others including Flint Hills Resources LP, Castleton Commodities, TransMontaigne Partners LP, Marathon Petroleum and World Fuel Services filed motions to intervene this week.

"At this time, we are not taking a position and we do not plan on submitting comments unless specific questions arise concerning our interests that warrant a response," Flint Hills spokesman Jake Reint said in an emailed statement.

It was not immediately clear whether the other companies would be for or against Colonial Pipeline.

Reporting by Devika Krishna Kumar in New York; Editing by Susan Thomas

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