Docstoc

Exhibit No

Document Sample
Exhibit No Powered By Docstoc
					 1
                                                            Exhibit No. ___ (BCB-1)
 2
                             OLYMPIC PIPE LINE COMPANY
 3

 4                       DIRECT TESTIMONY OF BOB BATCH

 5

 6   Q.   Please state your name, business address, and position with Olympic Pipe
 7
          Line Company.

 8
     A.   My name is Bob Batch. I work for BP Pipelines, (North America), Inc., ("BP
 9
          Pipelines" or "BP") and I am President of the Olympic Pipe Line Company.
10
          My business address is 2201 Lind Ave., Suite 270, Renton, WA 98055.
11

12   Q.   Please describe your educational and professional background qualifications.

13
     A.   I have had over 20 years of experience in the energy industry including the oil
14
          pipeline business before becoming President of Olympic Pipe Line Company
15
          ("Olympic") in Summer 2000. I joined Amoco Oil Company in 1984 as a
16
          Research Engineer and have served over the years as President, Amoco
17
          Remediation Management Services Corporation; Strategy Leader—
18
          Environment, Health and Safety, Amoco Corporation; Manager of
19
          Environment Health and Safety for the Supply and Logistics Business Group,
20
          Amoco Corporation; and Manager of Environment, Health and Safety for
21
          Amoco Pipeline Company.
22

23

24




     DIRECT TESTIMONY OF
     BOB BATCH - 1
 1
          I have a bachelors degree in chemistry from City University of New York, a

 2
          masters degree in chemistry from Adelphi University and a master's degree in

 3
          chemical engineering from Rutgers University.

 4
          I serve on boards of the Association of Washington Business, the British-American
 5
          Chamber of Commerce-Pacific NW and the Association of Oil Pipelines (AOPL).
 6
          I have served on several pipeline industry committees and am the former Chairman
 7
          of the American Petroleum Institute (API) Environment Health and Safety
 8
          Committee for Pipelines.
 9

10   Q.   How is your testimony organized?

11
     A.   My testimony is organized to address six topics:
12
          1.    The changes in management at Olympic last year.
13
          2.    The BP commitment to safety.
14

15        3.    The safety investments that are being made and are planned to continue
                by Olympic under the direction and standards of BP.
16
          4.    The need for immediate rate relief. Rates would be subject to refund in
17
                the event of a need for hearing following formal adoption of a pipeline
18              rate methodology by the Commission.

19        5.    The parallel FERC rate proceeding.
20        6.    The policy reasons for use of a common oil pipeline rate methodology
21              based on federal practices.

22

23

24




     DIRECT TESTIMONY OF
     BOB BATCH - 2
 1   Q.   Can you summarize your testimony?

 2
     A.   Olympic owns approximately 400 miles of trunk and lateral oil pipelines
 3
          between Ferndale, Washington and Portland, Oregon (a system map is at
 4
          Exhibit No. ___ (BCB-2)). In July 2000, BP became the operator of Olympic
 5
          Pipeline Company and replaced its prior management. In September 2000 BP
 6
          acquired a majority ownership of Olympic. BP's goals are simply stated: "no
 7
          accidents, no harm to people, and no damage to the environment." If we can't
 8
          do it right, we don’t want to do it at all.
 9

10        Following the BP management changes at Olympic, BP has directed significant

11        safety investments in Washington State, and we plan to make more.

12
          Olympic, however, needs immediate rate relief. Olympic is rapidly losing money.
13
          The company reported a net loss of $18.8 million in 2000 and is forecasting an
14
          additional loss of $16.2 million in 2001.
15

16        Olympic’s annual cost of service is $60.1 million and its annual revenues are $36.9

17        million, for a revenue gap of $23.2 million. For the five-year period ended

18        December 2000, Olympic had a revenue shortfall of nearly $53 million, most of

19        which may never be able to be recovered.

20
          Olympic has no credit rating from any rating agency and cannot borrow money
21
          from commercial sources.
22

23        Our requested rate increase will amount to approximately ¼ a cent a gallon to

24        shippers ($0.0025). The shippers, whose retail prices are not regulated by the




     DIRECT TESTIMONY OF
     BOB BATCH - 3
 1
         WUTC, may or may not pass through that cost to Washington State consumers.

 2
         But even if they did, the cost to the average driver in Washington State would be

 3
         less than $3.00 a year.

 4
         Oil pipeline rates should be set at a level that will continue to attract capital, and
 5
         not discourage investments in system upgrades and safety.
 6

 7
         BP, as well as the other major shippers who use the Olympic pipeline, are oil

 8
         companies with global investment opportunities.

 9
         We propose a procedure that provides for the immediate adoption of the new
10
         pipeline tariff, subject to refund. The Commission can then determine what
11
         pipeline rate methodology is appropriate and then, if necessary, call for additional
12
         testimony and hearings.
13

14
         In the event any refund is due, it would be administratively easy to identify the

15
         shippers entitled to a refund. Compared to a retail public service utility case where

16
         there can be hundreds of thousands of retail ratepayers, there are approximately 70

17
         shippers who use Olympic's pipeline.

18
         Without an immediate rate increase, Olympic cannot attract capital needed for
19
         further safety investments and system upgrades. The immediate increase can be
20
         made subject to refund, as is currently the case with the pending parallel interstate
21
         tariff proceeding at the FERC.
22

23

24




     DIRECT TESTIMONY OF
     BOB BATCH - 4
 1
     1.   Changes in Management and Ownership

 2
     Q.   Please describe the recent ownership changes at Olympic.
 3

 4   A.   BP is a newcomer to Olympic. Olympic is a Delaware corporation with

 5        individual shareholders. In April 2000, BP acquired ARCO, which owned a

 6        37.45% share of Olympic; Equilon owned a 37.45% share of Olympic; and

 7        GATX Terminals owned the remaining 25.10% share.

 8
          BP's connection with Olympic came after the tragic events in 1999 in Whatcom
 9
          County. BP's purpose was to restore confidence in the pipeline and to bring in a
10
          new management team committed to the BP safety philosophy. In June 2000, BP
11
          Pipelines (North America), Inc., was selected by Olympic's Board of Directors to
12
          operate the pipeline at the conclusion of a competitive bid process.
13

14        In July 2000, BP Pipelines began to operate Olympic. In September 2000, BP

15        purchased the GATX shares and became the majority shareholder of Olympic.

16        Today, BP owns 62.55% of Olympic with Equilon owning 37.45% of the shares.

17
     Q.   Are the employees who now operate Olympic Pipe Line BP employees?
18

19   A.   Yes. All of our managers and employees who operate the Olympic pipeline
20        system are now BP Pipeline employees who must adhere to the BP safety
21        philosophy and other BP standards.
22

23

24




     DIRECT TESTIMONY OF
     BOB BATCH - 5
 1   Q.   Who is BP?

 2
     A.   BP p.l.c. is the holding company of one of the world's best-known petroleum
 3
          and petrochemicals groups. BP's main activities are exploration and production
 4
          of crude oil and natural gas; refining, marketing, supply and transportation; and
 5
          manufacturing and marketing of petrochemicals. We have a growing activity
 6
          in gas and power and in solar power generation. BP has well-established
 7
          operations in Europe, North and South America, Australia and Africa. BP
 8
          owns BP Pipelines (North America), Inc.
 9

10        BP Pipelines is the second largest liquids pipeline company in the U.S.,

11        transporting over 450 million barrel-miles of oil, refined products, natural gas

12        liquids, carbon dioxide, and chemicals daily—about 9 percent of the U.S.

13        liquids pipeline market. Beyond our core operations, BP Pipelines participates

14        in several joint ownership and joint venture pipelines.

15
          BP Pipelines' operations span 33 states with a central pipeline control center
16
          located in Tulsa, Oklahoma. Olympic’s control center is located in Renton,
17
          Washington.
18

19   2.   BP's Commitment to Safety

20
     Q.   What is the BP safety philosophy?
21

22   A.   BP Pipelines' philosophy, which we have brought to the Olympic system, is
23        simply stated: "NO ACCIDENTS, NO HARM TO PEOPLE, NO DAMAGE
24




     DIRECT TESTIMONY OF
     BOB BATCH - 6
 1
          TO THE ENVIRONMENT.‖ This philosophy is emphasized in all of our

 2
          activities.

 3
          BP has a strong commitment to Health, Safety and Environmental (HSE)
 4
          Performance. Everyone who works for BP, anywhere, is responsible for
 5
          getting HSE right. Good HSE performance is critical to the success of our
 6
          business.
 7

 8   Q.   What changes did BP Pipelines bring to the management and operation of
          Olympic Pipe Line?
 9

10   A.   With new management, Olympic Pipe Line has a new approach.
11              When BP Pipelines took over management of the Olympic Pipe Line
12               last year, it brought with it BP's high standards and commitment to
                 safety.
13
                New management has undertaken an extensive program of testing,
14
                 replacement, repair and ongoing safety upgrades that will meet or
15               exceed government and industry standards.

16              The new management team running Olympic's system recognizes the
                 public's need to know how the pipeline is operated and what changes
17
                 have been made to increase safety and reliability. We are maintaining
18               an open channel of communication with public officials, community
                 leaders, and the general public. All of our senior management have
19
                 been located in Renton since BP became the operator of Olympic's
20               pipeline.

21              The new management's safety actions and changes have been publicly
                 recognized. (See Exhibit No. ___ (BCB-3), which is included as
22
                 examples of community recognition only).
23

24




     DIRECT TESTIMONY OF
     BOB BATCH - 7
 1   Q.   In addition to BP's changes, have there been changes to safety requirements
          mandated by government agencies?
 2

 3   A.   Yes. Olympic is obligated to comply with safety regulations promulgated by
 4        the U.S. Department of Transportation’s Office of Pipeline Safety (OPS). In
 5        2000, OPS delegated inspection authority to the Washington Utilities and
 6        Transportation Commission ("WUTC").
 7
          In order to comply with federal laws and regulations, the WUTC amended its
 8
          rules in June 2001 to require enhanced training of pipeline personnel, new
 9
          measures to identify and prevent pipeline corrosion, safety performance
10
          standards for the repair of corroded pipelines, and random drug testing.
11

12        OPS also has enacted new rules regarding pipeline safety in High Consequence
13        Areas (HCA’s) and Operator Qualification (OQ). Under Olympic’s Safety and
14        Integrity (S&I) program, we will meet the requirements of the HCA rule and
15        the OQ rule in advance of the federal mandate.
16
          As the new operator of Olympic, BP met all of the conditions of the Corrective
17
          Action Order (CAO) following the tragic accident in Bellingham in June 1999.
18
          By meeting these requirements, Olympic was authorized to restart the 16-inch
19
          pipeline system from Ferndale to Allen station in Burlington in February 2001
20
          and from Allen station to Renton in June 2001 after fully meeting the
21
          requirements of OPS following the tragic accident in Bellingham in June 1999.
22

23        The entire Olympic system today is operating at 80% operating pressure—a
24        mandate by OPS until further testing is completed. At 80% pressure, there has



     DIRECT TESTIMONY OF
     BOB BATCH - 8
 1
          been a decline in the throughput from historical volumes at 100% or normal

 2
          operating pressure. Because throughput is limited, the fixed costs of the system

 3
          must be spread over fewer gallons of product that are shipped, causing an

 4
          increase in per gallon costs.

 5
     Q.   Is Olympic asking for the costs of the Whatcom Creek accident in this filing?
 6

 7   A.   No. The chart that is Exhibit No. ___ (BCB-4) shows the approximate

 8        distribution of mandated costs, increased internal safety requirements, and

 9        Whatcom Creek accident costs. The portion relating to the Whatcom Creek

10        accident costs are not included in the requested rate filing.

11   3.   Safety Investments Olympic Has Made and Plans to Continue to Make in
          Washington State
12

13
     Q.   What actions has new management taken since July 2000?
14

15   A.   New management of Olympic Pipe Line has taken action to ensure safe and

16        reliable pipeline transportation of petroleum products. In summary, these

17        actions include:

18              We are conducting internal inspections using three state-of-the-art
                 devices to verify the integrity and safety of the pipeline system from
19
                 Ferndale to Portland, including the inspection of the lateral lines. These
20               tests will continue over the next several years – meeting and exceeding
                 federal requirements for internal inspections of pipeline systems.
21
                New management of Olympic has applied inspection criteria to the test
22
                 results that are more stringent than industry standards. As part of this
23               inspection program, Olympic has conducted hundreds of visual
                 inspections and made appropriate repairs.
24




     DIRECT TESTIMONY OF
     BOB BATCH - 9
 1           We intend to complete an analysis of Olympic's entire system using the
              most sophisticated inspection device available, a transverse flux
 2            inspection tool.
 3
             We have conducted hydrostatic tests of Olympic’s entire 16" pipeline
 4            from Ferndale to Renton.
 5           We have conducted a valve effectiveness study along Olympic’s
 6
              pipeline corridor. We retained an independent consultant to reevaluate
              valve locations. As a result of this evaluation, numerous additional
 7            valves are being installed.
 8           In several locations, the pipeline is being relocated (e.g., the pipeline is
 9            being directionally drilled below a stream bed replacing sections that
              currently sit on the stream bottom, and in other sections the pipeline is
10            being directionally drilled down to bedrock for earthquake/landslide
              protection).
11

12           We have completed a diagnostic analysis of Olympic's computer system,
              Supervisory Control and Data Acquisition System (SCADA), and have
13            modified system parameters and subjected the software to failure
14
              analysis. We have made modifications, upgrades and design changes to
              the SCADA system.
15
             We conducted a detailed engineering analysis of Olympic's Bayview
16            Products Terminal and are making design changes.
17
             We are implementing secondary containment at our pump stations and
18            valve sites.
19           New management has instituted right-of-way protection procedures to
20
              minimize and improve monitoring of potential third-party construction
              damage to pipelines. These include weekly overflights of the entire
21            pipeline system.
22           We are aggressively supporting measures to prevent damage to the
23            pipeline from construction, including the ―One Call‖ system that
              requires excavators to call a phone number for instructions and
24




     DIRECT TESTIMONY OF
     BOB BATCH - 10
 1               assistance before digging near the pipeline or other underground
                 infrastructure.
 2

 3   4.   The Need For Immediate Rate Relief
 4
     Q.   Please summarize Olympic's need for immediate rate relief.
 5

 6   A.   Over the last five years, Olympic has underrecovered its costs by millions of
 7        dollars. Olympic reported a net loss of $18.8 million in 2000, and expects to
 8        report and additional loss of $16.2 million in 2001. Olympic has no
 9        independent credit rating and cannot borrow from commercial sources.
10
          At the same time, Olympic must invest millions of additional dollars in safety
11
          upgrades as a result of a rigorous safety inspection, repair and replacement
12
          program to meet BP's uniform safety standards and government mandated
13
          standards.
14

15        Olympic's annual cost of service is $60.1 million and its annual revenues are
16        $36.9 million for a revenue shortfall of $23.2 million a year. As shown in its
17        FERC Form 6 filings, Olympic underrecovered its cost of service by $3.8
18        million in the three-year period up to 1999. After 1999 and 2000, Olympic had
19        a total cumulative five-year revenue gap of nearly $53 million, most of which
20        may never be able to be recovered.
21
          Olympic has a negative return on equity. Olympic's filing does not include the
22
          costs of the Whatcom County accident. With or without those costs, Olympic
23
          has a negative return.
24




     DIRECT TESTIMONY OF
     BOB BATCH - 11
 1
          In its parallel filing for the petroleum products that move on Olympic's system

 2
          in interstate commerce, FERC allowed Olympic's rate increase to go into

 3
          immediate effect subject to refund on September 1, over the protests of two of

 4
          Olympic's 70 shippers.

 5
     5.   The Parallel FERC Rate Proceeding
 6

 7   Q.   Please describe the parallel FERC Rate Proceeding.

 8
     A.   Because Olympic's rates for its pipelines are rates for products that move in
 9
          interstate commerce as well as intrastate commerce, Olympic filed FERC Tariff
10
          No. 24 on May 30, 2001, and at the same time it filed WUTC Tariff No. 22.
11

12        Two of Olympic's 70 shippers, filed a protest of the proposed tariff at the

13        FERC.

14
          After initially rejecting Olympic's filing on June 29, 2001, for failing to include
15
          1) an explanation of how it derived the base and test periods, and 2) throughput
16
          data, FERC approved Olympic's supplement No. 4 to Olympic's FERC Tariff
17
          No. 24 with an effective date of September 1, 2001, subject to refund. A copy
18
          of the FERC order approving the tariff subject to refund is attached for
19
          convenience as Attachment 1.
20

21        The FERC order required the parties to enter into settlement discussions.

22
          On October 4, 2001, a settlement meeting with a federal settlement judge was
23
          held as FERC ordered. The federal settlement judge terminated the settlement
24




     DIRECT TESTIMONY OF
     BOB BATCH - 12
 1
          discussions and, consequently, FERC has now set a schedule for the filing of

 2
          testimony and a hearing. Pursuant to that schedule Olympic's direct testimony

 3
          and exhibits in support of its rates will be filed by December 13, 2001.

 4   6.   The Policy Reasons For Use of a Common Federal Oil Pipeline Rate
          Methodology and Supporting Data
 5

 6   Q.   What are the policy reasons for the adoption of a common oil pipeline rate
 7        methodology based on federal practice?

 8
     A.   Having two separate sets of rate methodologies and sets of supporting data for
 9
          the same pipeline system is undesirable. It would result in needless duplication
10
          of efforts, add to costs and potentially result in conflicting outcomes.
11
          Olympic's nearly 400 miles of pipelines carry oil products in both interstate and
12
          intrastate commerce. Up to now, Olympic has filed with the WUTC the same
13
          information and supporting data for rate revisions as it has filed with the
14
          FERC.
15

16        Oil pipeline rate regulation in the United States has a unique history and limited

17        scope. Because state commissions do not regulate the retail prices of gasoline

18        and other petroleum products, the need for a separate state rate methodology

19        and procedure is not strong. Since at least 1983, the WUTC has used the

20        federal methodology and supporting data.

21
          If the WUTC now adopts a separate methodology and a set of requirements for
22
          supporting data distinct from and different from federal practice, it would create
23
          needlessly complex transition issues and uncertainty.
24




     DIRECT TESTIMONY OF
     BOB BATCH - 13
 1   Q.   Does this conclude your testimony?

 2
     A.   Yes.
 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24




     DIRECT TESTIMONY OF
     BOB BATCH - 14