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RCA extends TAPS tariff increases Facing an increasingly complex rate case, the RCA waives timeline in order to continuing studying; may hold hearing with FERC Eric Lidji For Petroleum News
The Regulatory Commission of Alaska is allowing four owners of the trans-Alaska oil pipeline to keep charging increased shipping rates on oil bound for Alaska markets while it continues investigating whether or not the rate increases are just and reasonable.
Meanwhile, the RCA is also looking into a second increase to in-state shipping rates.
In late 2008 and early 2009, four of the five owners of the pipeline requested increases to the rates they charge to ship North Slope oil to markets in Fairbanks and Valdez. The companies said they needed the increases to offset lower throughput on the pipeline.
In early 2009, the RCA allowed the companies to charge those increased rates for six months on a refundable basis while it examined whether the increases were justified. In April 2009, the RCA extended the temporary period by one year, to May 2010. In a ruling on April 29, 2010, the RCA extended that temporary period indefinitely.
If, however, the RCA decides in the future that the rates aren’t reasonable, the companies would have to refund the excess tariffs they collected since the rates went into effect.
The rate increases are being requested by subsidiaries of ConocoPhillips, ExxonMobil, Union Oil Company of California and Koch. The fifth owner of the pipeline, BP, did not request a rate increase. Each company owns an undivided share of the pipeline and sets its own rates, so long as the five rates combined stay below a predetermined limit.
Whether or not to merge The RCA needed the second extension because the case is becoming increasingly complicated, even by the standard of notoriously complex pipeline tariff proceedings.
In essence, four companies are each asking two sets of regulators for two rate increases.
The 2008 tariff filings increased intrastate rates on the pipeline by around 57 percent.
That meant the cost to ship a barrel of oil from the North Slope to North Pole jumped to $1.97, up from $1.25, while rates to locations in Valdez jumped to around $3.04, depending on the company and the final destination, up from the previous rate of $1.96.
Then, in late 2009 and early 2010, while the RCA was still considering that first increase, the four companies requested a roughly 30 percent additional increase. The RCA approved those as well, creating two layers of temporary and possibly refundable rates.
Under that second increase, now the current rate, the cost to ship a barrel of oil from the North Slope to North Pole jumped to $2.55, while rates to Valdez jumped around $4.
Taken together, the increases have doubled the cost to ship oil to in state markets.
To simplify the proceedings, the RCA might merge those two sets of rate cases.
To further simplify things, the RCA might hold a joint hearing with the Federal Energy Regulatory Commission. FERC oversees elements of the pipeline that involve interstate transactions, such as tariffs on oil that leaves Alaska for markets on the West Coast.
The owners of the pipeline also have rate increases pending with FERC, creating some overlapping issues between the in-state and out-of-state rate cases. The largest of these is whether and how to include costs of Strategic Reconfiguration into shipping rates.
Strategic Reconfiguration is a multiyear effort to upgrade operations on the pipeline. The process has been more expensive than anticipated, though, leading the state and refiner Tesoro to challenge whether all those costs should be included in shipping rates.
Independent oil producers like Anadarko Petroleum and third-party refiners like Tesoro watch shipping rates because higher rates increase operating costs and reduce profits.
The state monitors shipping rates because its royalties are based on the value of oil after tariffs, meaning the rate directly impacts the amount coming into the state treasury.
Debate different this time While debates over pipeline tariffs are common in Alaska, this round is unique because everyone involved seems to agree on the general terms of how to set shipping rates.
In 1986, the state and the pipeline owners reached a settlement on how to set shipping rates, ending a decade of litigation. That system stayed in place until 2002, when a subsequent ruling found the old rates to be too high, changed the system for calculating rates in the future and forced the companies to refund nearly $10 billion to shippers.
Between 2002 and 2008, though, the companies continued filing rate increases using the original 1986 methodology. The RCA, in turn, rejected each of those filings.
In 2008, four of the five owners again asked for rate increases, but this time used the new formula, saying shipping rates needed to increase to make up for declining throughput. They said volumes fell to 700,000 barrels per day in 2008, from 1 million bpd in 2000.
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