Friday, August 3, 2018

Shale Law in the Spotlight: Pennsylvania Public Utility Commission Refuses Request to Change Direction for Western Portion of Laurel Pipeline

Written by Chloe Marie – Research Fellow

On November 14, 2016, Laurel Pipe Line Company, L.P., a subsidiary of Buckeye Partners, L.P., filed an application to obtain a Certificate of Public Convenience from the Pennsylvania Utility Commission (PUC) seeking to reverse the directional flow of the western portion of the Laurel Pipeline. Since 1957, the Laurel Pipeline has been designed to transport, store, and distribute refined petroleum products from Philadelphia area refineries to destination points in the Pittsburgh area. Buckeye Pipe Line Company, L.P., another subsidiary of Buckeye Partners, L.P., also uses a portion of the Laurel Pipeline to provide interstate transportation service from origin points in New Jersey and Delaware to destination points in Pennsylvania.

The certificate application filed by Laurel states that “this change in direction of service will provide ongoing access to lower wholesale commodity prices for gasoline and other petroleum products to consumers in Western and Central Pennsylvania” before adding that it “will provide an additional Midwest source of petroleum products in the event of a disruption of East Coast supplies.”

Interestingly, this proposed change is part of a project – entitled Broadway II Project – by Buckeye Pipe Line Company, L.P. to expand pipeline capacity from origin points in Woodhaven and Detroit, Michigan through Toledo, Findlay, and Lima, Ohio and Midland, Pennsylvania to a destination point in the Altoona area in central Pennsylvania. In addition to this change in directional flow, Laurel Pipe Line Company, L.P. and Buckeye Pipe Line Company, L.P. also filed a proposed capacity agreement on February 6, 2017, by which “Buckeye will obtain from Laurel throughput capacity sufficient to transport up to 40,000 BPD of refined petroleum products between Eldorado, Pennsylvania and Buckeye’s terminal facilities at Midland, Pennsylvania, and will reduce its capacity rights between Sinking Spring and Coraopolis, Pennsylvania, by the same quantity.”

Numerous energy companies, including Gulf Operating, LLC, Sheetz, Inc., Giant Eagle, Inc., Philadelphia Energy Solutions Refining and Marketing (PESRM), Monroe Energy, LLC, and HMSC, a subsidiary of Husky Energy Inc., have filed formal protests identifying concerns about the negative impacts of such change in direction of service on the local economy. To counter Laurel’s argument that the flow reversal would reduce gasoline prices for Pennsylvania consumers, these companies responded as part of their protests that Pittsburgh currently has excess pipeline capacity from both the Midwest and the East Coast; thus allowing Pittsburgh wholesalers and retailers to obtain refined petroleum products at the lowest price through arbitrage. Consequently, they claim that “competition and price levels in Pittsburgh are clearly not providing the incentive for additional supply from the Midwest to flow to Pittsburgh” at the moment.

On March 29, 2018, Administrative Law Judge Eranda Vero issued a recommended decision urging the state utility commission to deny Laurel’s application to reverse the pipeline directional flow. In support of her recommendation, Judge Vero held that Laurel failed to show that the proposed flow reversal would decrease gasoline prices at the pump and highlighted the fact that “Midwestern supplies are already reaching Pennsylvania, yet excess capacity for these products into Pittsburgh is not being fully utilized.”

On July 12, 2018, the state utility commission upheld part of Judge Vero’s recommended opinion and ordered that the application of Laurel for approval to change the Laurel Pipeline directional flow be denied. More precisely, the Commission concluded that “Laurel’s Application is a request for a partial abandonment of intrastate public utility service along its pipeline … and [we] find that Laurel has failed to satisfy its burden of proof regarding its abandonment request.”

Further information regarding this case is available at docket no. PUC A-2016-257829.

This material is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.

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