The Federal Energy Regulatory Commission (FERC) has issued an order disallowing proposed rate increases by Buckeye Partners that would cost the company $8 million every year.
Buckeye Partners, the parent company of Bahamas Oil Refining Company (BORCO) in Grand Bahama, had planned to bring in the rate increases this month.
BORCO is one of the largest oil and petroleum storage facilities in the world and a key strategic asset in the company's portfolio.
"The proposed rate increases were expected to increase Buckeye's revenues on an annual basis by approximately $8 million," the report said. "Buckeye believes the short-term impact of the order will not be material, and expects to provide additional information of significance to investors as FERC's review of the program progresses."
Meanwhile, in addition to the restriction on rate increases, FERC is questioning the market-based methodology used by one of Buckeye's subsidiaries.
Since 1991, the company has sought "unique methodology" that constrains rates based on competitiveness pressures that FERC found to be competitive as well as certain other limits on rate increases, according to the report. While this approach was granted by 1994, it was subject to FERC's ability to terminate the arrangement at any time.
The matter was indeed revisited last month.
The order states that it will once again review "the continued efficacy of Buckeye's unique program and directs Buckeye to show cause why it should not be required to discontinue the program and avail itself of the generic ratemaking methodologies used by other oil pipelines".
The company has 30 days to respond to the order.
Last month, Guardian Business reported that BORCO will pour $350 to $400 million into a "near term" expansion project in Grand Bahama.
The move is partly in anticipation of refinery shutdowns in the region that would subsequently boost the facility's capacity. While the company has not delved into specifics, the shutdown of HOVENSA oil refinery in St. Croix, U.S. Virgin Islands, is no doubt on the minds of investors.
The refinery was one of the 10 largest in the world and the biggest in the Caribbean.
The investment in the BORCO facility should provide 7.9 million barrels of additional storage in the near term. It now includes 80 tanks, providing 21.4 million barrels of crude oil, fuel oil and reigned petroleum product storage.

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