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RCA opens docket on intrastate tariffs Pipeline owners have filed rates every year since 2002 without success; regulators phase proceedings on Strategic Reconfiguration Eric Lidji Petroleum News
State regulators have opened a docket to consider whether to increase rates for shipping oil to in-state markets along the trans-Alaska oil pipeline.
The Regulatory Commission of Alaska will look into a request from ConocoPhillips to raise intrastate shipping rates on the line by around 55 percent. Those rates cover oil shipped through the pipeline to one of three locations in either North Pole or Valdez.
ConocoPhillips is one of five companies that jointly own the pipeline. Together, the companies have proposed changes to the intrastate rates every year since 2002, when state regulators forced them to refund nearly $10 billion to shippers.
The RCA has rejected every filing.
ConocoPhillips proposed the most recent rate increase without the other owners. Each of the five owners is allowed to file individual tariffs on the pipeline as long as the total revenues brought in from all five owners does not exceed a limit imposed by the RCA.
In 2002, the RCA created a methodology for calculating future rates. ConocoPhillips said it used that methodology to come up with its proposed rate increase. The company attributed the increase to declining throughput on the pipeline over the past six years.
The newly proposed intrastate tariffs on the pipeline went into effect on Nov. 1 on a temporary and refundable basis while the RCA deliberates.
The new rates for shipping a barrel of oil between Pump Station 1 and the North Pole refineries jumped from $1.25 to $1.97, while shipping fees between the North Slope and Valdez increased from $1.96 to $3.03 or $3.05, depending on the final destination.
The RCA will hold hearings on the new rates starting June 15, 2009.
Tesoro Alaska, Flint Hills Resources and Petro Star, three companies with refineries in Alaska, all petitioned to intervene in the case, as did the State of Alaska.
The RCA received two comments from the general public, both against the rate increase, and a comment from the other four owners of the pipeline, supporting a request from ConocoPhillips to keep certain financial information confidential during the case.
Tesoro also filed a formal complaint against the proposed rates, arguing against many of the claims ConocoPhillips made to justify the increase.
Rate case to be phased Although the RCA should rule on the case sometime next year, the entire proceedings will most likely run on a timetable established by federal regulators.
Following a request from ConocoPhillips, the RCA agreed to phase the case in two parts, the first dealing with most of the variables involved in crafting new rates, and the second dealing with costs related to an upgrade project known as Strategic Reconfiguration.
The state and the owners of the pipeline have been arguing over which costs from the Strategic Reconfiguration project the owners should be allowed to recover through rates.
The matter is currently before the Federal Energy Regulatory Commission, and the RCA decided to pause that part of the rate case until the FERC proceedings develop further.
A question of depreciation A possible point of debate for the hearings could be estimating the end of the pipeline.
The pipeline owners are allowed to use tariffs to recover expenses related to depreciation, or using rates to offset the falling value of aging property along the line.
In its 2002 ruling, which looked back to rates set in 1997, the RCA told the owners to average this depreciation expense through 2026, or a 30-year time frame.
But ConocoPhillips now believes 2034 is a more appropriate end-date for calculating depreciation expenses, because the current right-of-way leases on the pipeline system expire in 2034 and because FERC recently implemented a 2034 deadline.
However Tesoro, in its complaint, argued that the depreciation expenses should be run through 2075, pointing to a filing from the BP Prudhoe Bay Royalty Trust, a subsidiary that has paid royalties based on the oil produced at Prudhoe Bay for nearly two decades.
In its annual report for 2007, the Trust wrote, “BP Alaska expects continued economic production from the Prudhoe Bay field at a declining rate through 2075.”
Tesoro argues that since the trans-Alaska oil pipeline is currently the only way to get Prudhoe Bay oil to market, and because BP is a part owner of the pipeline, the RCA should look into the issue of further pushing back the end date for the pipeline.
Extending the projected life of the pipeline past 2026 would lower rates because the depreciation expenses could be recovered over a longer period of time.
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