FERC Sets Hearing on Airlines’ Complaint About Kinder Morgan Florida Pipeline

Unable to make a jurisdictional finding based on a complaint (OR16-26) and several pleadings that followed it, FERC on December 15 set for hearing the complaint by Airline Service International Group Inc. (ASIG) on behalf of several airlines against Central Florida Pipeline LLC (CFPL) and Kinder Morgan Liquid Terminals LLC (KMLT).

On December 20, FERC designated Administrative Law Judge Suzanne Krolikowski to preside over the hearing. FERC noted that the proceeding is subject to Track III of the procedural time standards for hearing cases.

The hearing will help FERC determine whether CFPL violated the Interstate Commerce Act (ICA) by providing interstate transportation on its oil pipeline system within Florida without a FERC tariff.

While that is the primary issue to be addressed, the case includes many allegations and responses among the various parties in the 9/16/16 complaint about transportation rates for moving jet fuel to the Orlando International Airport.

Complaint. The complaint is based on CFPL being the only pipeline supplying jet fuel to the Orlando airport, with ASIG and others alleging that with KMLT and other Kinder Morgan affiliates controlling the flow of jet fuel from Tampa to Orlando, the companies are collecting transportation rates well beyond their cost of service.

CFPL, a Kinder Morgan subsidiary, operates an intrastate pipeline and the Kinder Morgan companies involved in the proceeding have all maintained that the services being provided are intrastate in nature since they take place within Florida and there are sufficient breaks in the transportation chain. They urged FERC to dismiss the complaint, which sought reparations of $4 million and other relief.

“The Commission finds that because of the need for an intensely factual inquiry and the need to examine closely the complex nature of the transactions and relationships between various entities on both sides of the complaint, it would not be appropriate to make a jurisdictional determination based upon the pleadings alone,” FERC said.

The parties filing the complaint in the case include ASIG, a commercial aviation services company that contracts with airlines operating at the Orlando airport, Hooker’s Point Fuel Facilities LLC, which contracts with ASIG to provide management services that include fuel scheduling, billing and the use of fuel storage tanks at the Tampa terminal, and American Airlines Inc., Delta Air Lines Inc., Southwest Airlines Co., United Aviation Fuels Corp., and United Parcel Service Inc.[1]

The storage tanks at the Hooker’s Point facility at the Tampa terminal are operated by KMLT to receive fuel from marine cargo shipments and hold fuel for a limited number of days due to their limited storage capacity before volumes are transported on CFPL to Orlando, according to the complaint. The complaining parties allege that no jet fuel is stored at the Hooker’s Point tanks for distribution operations, no sales of jet fuel are made from the tanks and jet fuel does not undergo any processing at the Hooker’s Point location before being transported on CFPL.

All jet fuel transported on CFPL is received through the KMLT terminal in Tampa from sources outside of Florida, either foreign or domestic, the complainants said. ASIG is the shipper of record for jet fuel on CFPL transported from the Hooker’s Point tanks and pays all tariff charges, but it does not take title to the fuel at any point, as title remains either with the individual airline or fuel service provider that procured the fuel.

Because it coordinates the transportation of jet fuel to Orlando, ASIG is in a position to identify the source of all volumes it ships on CFPL and the ultimate recipient of the jet fuel, and it is the intent of the shipper that is a major factor in determining interstate or intrastate jurisdiction, the complainants said. In previous cases involving oil pipeline jurisdiction, FERC examined the “essential character of the commerce” and relied most often on the “fixed and persisting intent of the shipper” to determine the type of commerce involved, they said.

They asserted that the essential character of the transportation of jet fuel on the CFPL system is interstate commerce, and that CFPL is over-recovering its cost of service by almost 57%.

Because there are no refineries in Florida, all parties responsible for transporting jet fuel to Orlando know that the fuel will come from out-of-state refineries and may be transported by marine barge to the Tampa terminal and storage tanks. But that terminal and brief use of storage would simply be a “link in the chain of interstate transportation” and not a sufficient break in that chain such that transportation on CFPL should be deemed intrastate service, the complainants said.

In response, CFPL and KMLT said that CFPL only provides intrastate service, that the jet fuel storage tanks at the Tampa terminal are not jurisdictional and are not an essential part of the transportation service provided by CFPL, FERC related in the order. Interstate commerce ends as the jet fuel arrives in Florida, CFPL and KMLT said, adding that the complaint misstated or ignored the proper test for determining whether transportation is interstate or intrastate in nature.

KMLT’s operations at the Tampa terminal and CFPL have been operating in the same manner since the early 1970s, and every factor under the relevant case law supports the finding that CFPL provides intrastate service, the companies said.

They pointed to factors such as the marine and inland transportation are arranged separately, with separate billing, the commingling of the commodity shipped with other shipments of the same commodity and the ability of the title holder to diver shipment after initial transportation has begun. At the Hooker’s Point storage tanks, the allocation of jet fuel is highly variable based on fuel consumption at other airports and is completely disconnected from the marine transportation to Tampa.

There is a sufficient break in the transportation chain between the marine movement of the fuel and the transportation on CFPL to result in a lack of FERC jurisdiction under the ICA, CFPL and KMLT said.

FERC Jurisdiction. In the order, FERC said that the threshold matter to be addressed is whether CFPL and the KMLT terminal facilities are providing interstate oil pipeline transportation service subject to FERC’s jurisdiction under the ICA. A finding of jurisdiction would require the companies to file tariffs with FERC and to support their respective rates pursuant to the ICA and Commission regulations.

Such a finding also could subject CFPL and KMLT to pay reparations for charging ASIG and the airlines rates that were unjust and unreasonable, FERC noted.

Hearing. FERC found that “there are genuine issues of material fact in dispute that require discovery and an evidentiary hearing” before an administrative law judge (ALJ).

The Commission directed the Chief ALJ at FERC to designate an ALJ to preside in the case within 15 days of the order. The presiding ALJ then should convene a prehearing conference to establish a procedural schedule within 15 days of being designated, FERC said.

The Kinder Morgan companies asserted that FERC should dismiss the complaint, but if the Commission determines that a hearing is needed, it should set up a phased hearing process to determine the jurisdictional issue first. FERC declined to do that in the order, but it noted that if interstate jurisdiction is not found, the issues concerning rates and reparations are moot.

FERC said that the ALJ could establish appropriate hearing procedures, including whether a phased hearing is appropriate.

By Tom Tiernan TTiernan@fsoterreport.com

[1]   For previous coverage of the case, see Central Florida Pipeline, Kinder Morgan Liquids Defend Intrastate Pipeline Operations, FR No. 3124, pp. 34-36, Airlines Say Complaint Against Kinder Morgan, Central Florida Pipeline Deserves Hearing, FR No. 3122, pp. 35-38, Central Florida Pipeline and Kinder Morgan Assert that FERC Should Dismiss Airline Shippers’ Complaint, FR No. 3120, pp. 32-35, and Airline Shippers File Complaint Against Central Florida Pipeline and Kinder Morgan Liquid Terminal, FR No. 3116, pp. 12-14.

This article appears as published in The Foster Report No. 3129, issued December 21, 2016

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