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NEWS BULLETIN

October 20, 2005 --- Vol. 11, No. 86October 2005

FERC affirms TAPS quality bank decision, limits retroactive refunds

The Federal Energy Regulatory Commission Oct. 20 issued an order largely affirming an administrative law judge’s initial decision involving a method for compensating shippers according to the quality of the crude oil they ship through the trans-Alaska pipeline system but limiting retroactive refunds as required by Congress.

“This is a very complicated case with a long history and a voluminous record. I hope our action today marks the final chapter in the disputes surrounding the TAPS Quality Bank,” said Commission Chairman Joseph T. Kelliher.

The quality of the crude shipped from the North Slope on the 800-mile, 48-inch pipeline operated by TAPS differs depending upon where it is produced. Because the crude is commingled into a common stream, shippers may receive at Valdez a different quality of crude than what the shipper had injected into TAPS.

FERC’s order involves the TAPS Quality Bank, which was created in the early 1980s to compensate shippers of higher quality crude that is commingled with lower quality crude from another shipper.

In previous decisions, FERC adopted a valuation methodology using a distillation method for valuing various components of the crude oil. With the distillation method, the crude oil is separated into “cuts,” such as butane, propane, naphtha and resid. The market values assigned to each cut and the value of a crude oil stream is determined by the relative weighting of the cuts.

The commission applied the new distillation methodology prospectively, without refunds. Since 1995, FERC has approved valuations for every part of the crude stream, except for the resid cut. In the Oct. 20 decision, the commission affirmed the judge’s Aug. 31, 2004, ruling with a minor modification and limited the retroactive refund provisions for the resid cut to Feb. 1, 2000, rather than December 1993 when the valuation methodology, in keeping with stipulations passed by Congress in the Motor Carrier Safety Reauthorization Act of 2005.

TAPS is owned and operated by six companies: Amerada Hess Pipeline Corp., BP Pipeline (Alaska) Inc., ExxonMobil Pipeline, ConocoPhillips Transportation Alaska Inc. (formerly known as Phillips Transportation Alaska Inc.), Koch Alaska Pipeline Co. (formerly Williams Alaska Pipeline) and Unocal Pipeline Co.

CORRECTION:

The last sentence is yesterday’s news bulletin was incorrect. All the EnCana Beaufort OCS leases were initially purchased in MMS sale 186 held in September 2003.

See the corrected news bulletin headlined 'ConocoPhillips buys five Beaufort Sea leases from EnCana' at:

http://www.petroleumnews.com/nb/722208490.html

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