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High court rejects TAPS case Legal watchdog: Congress overstepped authority with 2005 legislation that bars Exxon Mobil from collecting millions Rose Ragsdale For Petroleum News
The U.S. Supreme Court declined Jan. 11 to consider a legal challenge from Exxon Mobil Corp. to a 2005 congressional provision on Alaska oil shipments that the company said cost it $125 million in refunds.
At issue in Exxon Mobil Corp. v. Federal Energy Regulatory Commission was an accounting mechanism for valuing oil shipped through the Trans Alaska Pipeline System, which transports oil from Alaska’s North Slope. The Federal Energy Regulatory Commission uses the accounting method to value different qualities of crude oil that multiple shippers pump into the shared pipeline.
The crude oil produced from all the fields on the North Slope is transported to Pump Station No. 1, where all of the production streams are commingled.
The resulting common stream is then transported to Valdez. Along the system there are refineries, where a portion of the crude is removed from the common stream and refined, and the unused portion is re-injected into the common stream.
As a result of this commingling, a shipper will not necessarily receive at Valdez the same quality of crude which it tendered for transportation.
FERC establishes Quality Bank In 1984, FERC approved a Quality Bank using the American Petroleum Institute gravity methodology, whereby shippers of crude with a higher quality than the common stream would be compensated, and shippers of lower quality crude would be charged.
This methodology puts a higher value on crude with a higher specific gravity.
In 1993, after producers constructed and put into operation a facility to process natural gas liquids found in ANS crude, the commission held that a change in the existing gravity-based Quality Bank was required because the presence of substantial amounts of NGLs in the TAPS stream had skewed the relationship between the “gravity” of the stream and its value since NGLs with their low specific gravity do not have as high a value as crude with a similarly low specific gravity. The gravity method however, attributed the same value to them.
To replace the gravity methodology, the Commission approved, as modified, a contested settlement that used a distillation method for valuing the streams. Under that methodology, the crude stream is separated into its component parts, or “cuts” market values are assigned to each cut, and the value of a crude stream is determined by the relative weighting of the cuts.
Challenge led to court case When the change in the methodology was challenged by ExxonMobil (then Exxon Company U.S.A.), a FERC administrative law judge concluded that the revised values should be made effective on a retroactive basis, and the retroactive period would be back to December 1993. Parties in the case, including two refiners, challenged the decision, but before FERC could rule on the challenges, Congress stepped in and tacked an amendment onto the Motor Carrier Safety Reauthorization Act of 2005, a transportation appropriations bill.
The provision, enacted Aug. 10, 2005, limited the period of any retroactive refunds in the pending TAPS proceeding to Feb. 1, 2000. It provided that for TAPS proceedings that began before the legislation became law, the Commission “may not order retroactive changes in TAPS quality bank adjustments for any period before February 1, 2000.”
ExxonMobil challenged the congressional amendment in court, saying it was owed refunds totaling $125 million from the refiners who pumped crude oil of lower-quality through the pipeline than ExxonMobil did. The U.S. Court of Appeals for the District of Columbia Circuit agreed with Congress and the company appealed to the Supreme Court.
In its petition before the high court, ExxonMobil said Congress improperly interfered with ongoing legal proceedings and abused its legislative authority. The oil giant said Alaska oil refiners encouraged their members of Congress to insert the provision so they wouldn’t have to pay the rebates.
The Supreme Court declined to consider the appeal without comment. The high court’s action resolved a major issue in the Quality Bank case, which is ongoing before FERC.
Possible congressional misstep A spokeswoman for ExxonMobil said Jan. 13 that the oil producer is disappointed in the court’s action.
“The primary issue is the interference of Congress in a FERC decision on the proper and fair valuation of the crude oil streams transported through the Trans Alaska Pipeline System by the various North Slope producers. FERC’s 2004 ruling established a methodology that properly valued crude production. The law Congress passed in 2005 interfered with FERC’s ability to award refunds,” said ExxonMobil spokeswoman Margaret Ross.
The Washington Legal Foundation, a legal watchdog group, agreed with ExxonMobil.
In a brief filed as a friend of the court in the case, the Foundation argued that while Congress is permitted to amend generally applicable law even when doing so affects pending lawsuits, separation-of-powers principles prohibit Congress from exercising judicial power by dictating the results in individual cases without simultaneously making its new rule applicable to all similarly situated cases.
“WLF is concerned that the decision below eliminates all constraints on the ability of Congress to direct a result in a particular judicial proceeding, without repealing or amending the general law underlying the litigation,” the group said in its brief.
The watchdog urged the Supreme Court to review (and ultimately overturn) the appeals court decision that upheld the challenged congressional action.
“The framers of the Constitution established very clear boundaries between legislative and executive power because they had seen first-hand abuses by colonial legislatures, which often sought to control the outcomes of particular cases,” said Chief Counsel Richard Samp after filing the foundation’s WLF’s brief. “The types of legislative skullduggery that went on in this case were exactly the types of abuses the framers sought to prevent,” Samp said.
Samp told Petroleum News Jan. 13 that the legal foundation got involved in the case because the watchdog group has been interested over the years in whether Congress should be permitted to interfere in judicial decisions.
Watchdog: Alaska delegation interfered Samp said former U.S. Sen. Ted Stevens, R-Alaska, and U.S. Rep. Don Young, R-Alaska, arranged to amend the huge transportation bill at the last minute because they occupied powerful positions in the Senate and House at the time.
“They were sympathetic to the two oil refiners — the only ones in the whole state of Alaska I understand — and they added the provision to the huge bill the night before its passage,” Samp said. “Now who in Congress would read legislation like that the night before you vote on it?”
Samp said instances of Congress interfering in individual court cases without changing applicable laws “happens not infrequently.”
He said the most famous example also involved Alaska and occurred in the late 1980s. That case concerned alleged racial discrimination among salmon canneries in Alaska where workers were housed in segregated barracks. The Supreme Court ruled in favor of the salmon canneries, saying the companies had to demonstrate discriminatory intent.
The ruling upset some members of Congress and ultimately led to changes in federal civil rights laws and the Civil Rights Act of 1991, he added.
While the Supreme Court’s decision to not get involved in Exxon Mobil v. F.E.RC., Samp predicted that sooner or later, the high court will have to address the issue.
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