June 05, 2017

Brattle Consultants Contribute to Favorable Initial Decision for BP Products North America Inc. on Discrimination Claims Against Sunoco Pipeline

On May 26, 2017, an initial decision by U.S. Federal Energy Regulatory Commission (FERC) Administrative Law Judge (ALJ) Patricia E. Hurt, finding that Sunoco Pipeline L.P. (Sunoco Pipeline) discriminated against BP Products North America Inc. (BP), relied extensively on testimony and evidence submitted by Brattle Principal Steve Levine. The matter pertained to Sunoco Pipeline’s Marysville Pipeline, a crude oil pipeline originating near Marysville, Michigan, which serves three refineries: Sunoco R&M’s refinery in Toledo, Ohio (later acquired by PBF Holding Company LLC), Marathon Petroleum Company’s (Marathon’s) refinery in Detroit, Michigan, and BP’s refinery in Toledo, Ohio.

Brattle was retained by BP and Venable LLP to investigate the circumstances under which Sunoco Pipeline offered Throughput and Deficiency Agreements (TDAs). In addition to Mr. Levine, the Brattle team included Principal Matthew O’Loughlin, Senior Associate Anul Thapa, and Research Analysts Rob Morandi, Will Gorman, and Andrew O’Brien. Mr. Levine submitted two rounds of testimony detailing the discriminatory conduct of Sunoco Pipeline that resulted in a significant decline since 2010 of BP’s allocated volumes on the Marysville Pipeline.

In 2010, with continuous prorationing of its Marysville Pipeline, Sunoco Pipeline revised its Proration Policy to account for volume commitments made in the TDAs. In conjunction with the revision, Sunoco Pipeline executed TDAs on the existing capacity of the Marysville Pipeline with two of the three shippers on the pipeline, Sunoco R&M (an affiliate) and Marathon. The TDAs with Sunoco R&M (later acquired by PBF) and Marathon were for volume commitments above their respective, then-existing shipper histories, and Sunoco Pipeline did not expand the capacity of the pipeline when it executed the TDAs. In addition to explaining how the TDAs were discriminatory in both content and execution, Mr. Levine’s testimony also detailed how Sunoco Pipeline waived deficiency payments owed by Marathon under its TDA, but still credited Marathon’s shipper history as if the deficiency payments had been paid. This preferential conduct allowed Marathon to grow its shipper history at BP’s expense, despite Marathon’s failure to ship or make deficiency payments to satisfy its volume commitment.

Consistent with Mr. Levine’s testimony, the ALJ found that BP was not only denied the opportunity to enter into a TDA similar to those Sunoco Pipeline executed with Marathon and PBF, it was also denied the informational knowledge to even properly evaluate any conceptual TDA or related opportunity. The ALJ also found that the 2010 Proration Policy and TDAs allowed the TDA shippers (PBF and Marathon) to inflate their shipper histories and increase their allocated capacity, while BP’s allocations on the pipeline were detrimentally and prejudicially eroded over time.

Mr. Levine’s testimony also estimated revised capacity allocations and calculated damages owed to BP as a result of Sunoco Pipeline’s discriminatory and preferential actions. Due to its loss of capacity on the Marysville Pipeline, BP had to source volumes from the U.S. that were typically more expensive than the lower-cost Canadian crude supplies available over the Marysville Pipeline. Mr. Levine’s testimony provided a damages framework that served as the foundation for the ALJ’s decision ordering Sunoco Pipeline to pay damages to BP in the amount of at least $13.1 million, given that this damage number needs to be updated for interest and more recent volumes. The ALJ’s decision also adopted Mr. Levine’s recommendation that Sunoco Pipeline’s TDAs with PBF and Marathon be voided, and that BP’s volume history be restored to remove the impact of Sunoco Pipeline’s discriminatory conduct. Finally, the ALJ’s decision found that the FERC should investigate Sunoco Pipeline’s 2010 Proration Policy, which Mr. Levine recommended be voided since it was part of Sunoco Pipeline’s discriminatory conduct.

BP’s complaint against Sunoco Pipeline now awaits a final decision by the FERC.

Associated Experts
Levine 056a
Principal
+1.617.234.5729
Mr. Levine specializes in energy and regulatory economics and is an expert in the economics of the natural gas, oil, and liquefied natural gas markets. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4
O'loughlin photo bio
Principal
+1.617.864.7900
Mr. O'Loughlin specializes in regulatory economics and valuation as applied to the natural gas, oil pipeline, and electric power industries. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4
Thapa 112
Senior Associate
+1.617.864.7900
Mr. Thapa is an expert in the regulation and economics of the energy sector. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4