The 917-page complaint, filed last month with the Federal Energy Regulatory Commission (FERC), says Colonial's fees "greatly exceed just and reasonable levels". It alleges Colonial overcharged the companies by more than $60 million combined, and is potentially monopolizing fuel delivery into the New York region.
The complaint could lead to the first regulatory reexamination of Colonial Pipeline's rates in nearly 20 years, at a time when the line's importance for delivering refined products to the Northeast and Southeast United States has come into sharp focus. Colonial says the complaint has no merit, and a legal expert said it may be hard for the shippers to prove their case.
Even with the current fees, the 3 million-barrel-per-day Colonial system is the cheapest and most efficient way to move barrels from the Gulf Coast to the East Coast. Over the past two years, a series of outages, including shutdown of parts of the line in wake of Hurricane Harvey, drove up pump prices and created fears of gasoline shortages across numerous states.
Spokeswoman Malesia Dunn said Colonial Pipeline believes the shippers manipulated data "and made improper and highly unrealistic assumptions in an effort to strengthen their arguments."
The complaint was filed on Nov. 22 by Chevron Products Co, Valero Marketing & Supply Co and Epsilon Trading LLC, the trading arm of Delta. The companies did not elaborate on the dispute to Reuters.
Colonial shippers have often complained that the company has tried to squeeze access and limit competition for space on its congested line. One shipper sued Colonial this year in federal court in New Jersey, alleging it is blending gasoline from its customers without authorization, and profiting from that. The company has answered the complaint, denying the charges.
"We have a diverse shipper base, with nearly 300 shippers," said Dunn. "We aim to provide value and the best offerings for a majority of shippers. We can't customize for every shipper."
Other companies, such as Murphy Oil, Vitol and Flint Resources LP have lodged complaints with FERC against Colonial in the past two years, but the latest action represents the largest threat to the operator's current rate structure.
"I expect given the importance of the line, the resources of the parties bringing the complaint and the number of shippers that use the line, this case will be heavily litigated and is very serious," said Tony Clark, a senior advisor at Wilkinson, Barker Knauer LLP and a FERC Commissioner from 2012 until 2016.
NEW YORK MONOPOLY
The companies say in the complaint that they were collectively overcharged by about $64.1 million between Oct. 1, 2015 and Sept. 30, 2017. They say Colonial's exorbitant and 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.
The companies said they used adjustments that accounted for, among other things, the cost of two pipeline outages in 2016 to arrive at that figure.
"The Commission has previously held that an apparent over-recovery of this magnitude...is more than sufficient to warrant setting for hearing a complaint against the pipeline rates," the complaint says.
Interstate pipelines are allowed to recover operating costs by charging shippers to use the line, but are prohibited from "over-recovery."
The US Congress set Colonial's rates in 1990s-era legislation. In 2001, FERC allowed Colonial to charge market-based rates from the Gulf Coast to the Philadelphia and New York areas, on the understanding that Colonial lacked monopoly power over those markets. For other delivery points, such as Alabama and Georgia, Colonial rates are not market-based.
Colonial's market power raises serious concerns over whether its rates remain "just and reasonable," the complaint says. It says the market-based rate structure has not undergone scrutiny for years, while economic conditions have changed enough to warrant a review.
It may be hard for shippers to convince FERC that market-based rates are excessive, said FERC litigation partner Joseph Fagan, at Day Pitney LLP.
"Simply saying that they are charging rates that are very high and therefore they must have market power, that doesn't get you there Frustration does not a valid complaint make," he said.