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January 2010

Vol. 15, No. 5 Week of January 31, 2010

FERC agrees to review pipeline lifespan

Anadarko presents new evidence that conduit likely will transport oil until 2042, gets agency to clarify meaning of ‘uniform rate’

Rose Ragsdale

For Petroleum News

After several unsuccessful appeals, shippers on the 800-mile trans-Alaska oil pipeline have succeeded in getting the Federal Energy Regulatory Commission to reconsider an earlier decision that accepted a 30-year useful life estimate for the line.

In an order issued Dec. 10, the federal regulator of interstate shipping rates for pipelines said Anadarko Petroleum Corp. presented sufficient new evidence in a recent request for rehearing to merit additional review of the 700,000-barrel-per-day conduit’s life expectancy.

The State of Alaska and Anadarko protested the commission’s April 16 ruling that the pipeline’s useful life will end in 2034. In subsequent requests for rehearing, the shippers argued that the commission must base the depreciable life of the pipeline on the economic life of reserves left in Alaska’s Arctic oil fields, which it was built to transport. They both argued that a reserve study is needed in order to accurately determine the pipeline’s useful life expectancy.

The commission rejected the requests, stating that Alaska and Anadarko did not show any new evidence why a reserve study is needed.

State board sees longer life

But Anadarko then brought to the commission’s attention an Alaska State Assessment Review Board Certificate of Determination in June in which the state Tax Division “properly” estimated the economic life of the pipeline extending to 2042.

“In addition, the Assessment Board recommended that the tax division ‘thoroughly review the economic end life of TAPS every year,’ because: (i)t will likely be proper to extend the estimated economic end life of the TAPS past 2042 in future assessments as additional oil reserves on the North Slope become economically extractable or the estimated minimum mechanical throughput of the TAPS is reduced below 200,000 barrels per day,” the commission noted in its order.

The commission also took note of Anadarko’s observation that the pipeline’s owners, BP Pipelines (Alaska) Inc., ConocoPhillips Transportation Alaska Inc., ExxonMobil Pipeline Co., Unocal Pipeline Co. and Koch Alaska Pipeline Co. L.L.C., did not object to the state review board’s conclusions.

According to FERC, Anadarko cited the testimony of a “Witness Greeley” at the review board’s proceeding, who said the pipeline’s owners “were willing to live with the (review board’s) determination last year regarding two layers of the forecast and the 2042 end of life.”

The shipper asserted that the analysis coincidently ended up at 2042 in both 2008 and 2009, according to the witness.

Anadarko also argued that the review board’s findings were significant because the pipeline’s owners recently proposed much higher interstate tariffs, citing the review board’s ruling as a major factor because it increased state property taxes on the pipeline system. The carriers also attributed the rate increases to higher costs associated with an extended series of multimillion-dollar upgrades known as the strategic reconfiguration program.

BP, ConocoPhillips and ExxonMobil filed rate proposals in 2009 that averaged about $1.12 billion, or nearly double the $577 million rate underlying the 2006 rate that the commission accepted as “just and reasonable” in a June 2008 opinion that currently guides the setting of annual interstate tariffs for use of the pipeline. The 2007 compliance rate accepted by the commission in an April 16 order reflects an average rate base of $719.022 million. The 2008 compliance rate, which is set for hearing before an administrative law judge at the commission, includes an average rate base of $889.945 million.

FERC to review Unocal incentive

The commission also agreed to take another look at its rejection in the June 30 order of the State of Alaska’s protest of Unocal’s base rate compliance filing May 29 that brought forward an already effective volume incentive rate.

The state argued that the commission should have accepted the protest since it was timely filed and that the agency should have imposed conditions on its order No. 304 since an earlier order, No. 298, had been canceled by the compliance filing.

FERC said it would review the Unocal volume incentive rate because of Alaska’s concern that the cancellation of FERC No. 298 might extinguish conditions imposed on it. The commission also subjected the rate to refund and the outcome of final commission action in the TAPS 2008 compliance rate proceeding.

Uniform rate also maximum rate

The regulatory body also responded to Anadarko’s request for clarification of the meaning of the term, “uniform rate,” that it said should apply for transportation service on the pipeline in its two major compliance orders in 2009 and 2008, which provide guidance for establishing future interstate tariffs on the pipeline.

“Since the rate increases filed by BP, ConocoPhillips, and Exxon were not uniform, the June 30 (2009) Order consolidated these proceedings, as well as Exxon’s filing in Docket No. IS09-177-000, and the volume incentive rate filing under Docket No. IS09-176-000, to establish ‘one proceeding to determine a just and reasonable uniform rate for TAPS,’” the commission wrote.

Anadarko contended that the commission’s June 30 order stated that “(t)he uniform rate and pooling mechanism established in the case will apply to all of the carriers, so any carrier that has not yet intervened or filed its own rate, may want to do so to ensure its interests are represented.”

Anadarko asked the commission whether the uniform rate that it ordered constitutes a maximum rate for TAPS but does not obligate all of the carriers to file for and charge the maximum rate.

FERC agreed, noting that “the uniform rates will establish the maximum rate, but carriers may charge a lesser rate.”






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