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Flint Hills wins appeal on TAPS refunds FERC ordered to comply with federal statute governing limits on retroactive refunds, other issues in quality bank proceedings Rose Ragsdale For Petroleum News
A federal appeals court has rejected the Federal Energy Regulatory Commission’s interpretation of a law that imposes a limit on the time period for which the agency can order retroactive refunds related to oil shipments on the trans-Alaska oil pipeline.
In Flint Hills Resources Alaska LLC v. Federal Energy Regulatory Commission, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit ruled in a 2-1 decision Jan. 18 that the commission failed to comply with requirements of federal law. The FERC regulates the pipeline under the Interstate Commerce Act.
Multiple shippers use the 800-mile trans-Alaska oil pipeline to transport crude extracted from oil fields in northern Alaska. The oil they tender to the pipeline at Pump Station 1 varies in quality, but it flows through the pipeline in a commingled stream.
The pipeline’s owners use an accounting arrangement called a “quality bank,” that is designed to put the shippers in the same economic position that they would have enjoyed had their crude been shipped separately. The FERC has been involved from the outset in establishing the methodology for valuing the different types of oil, called “cuts.”
The case on appeal dealt with the value assigned the “heavy distillate” cut, which had been based on Platts’ West Coast spot price for diesel fuel of specified sulfur content, less an adjustment for processing costs. But Platts dropped its spot valuation for diesel on June 1, 2006.
Congressional change Congress, meanwhile, had adopted Section 4412 of the Motor Carrier Safety Reauthorization Act of 2005 after the Alaska delegation introduced bills in response to a 2004 FERC decision in a prolonged quality bank proceeding that resulted in the commission ordering retroactive quality bank adjustment refunds going back 11 years to 1993.
Because Alaska refiners would have been among those required to pay the refunds (and 10 years of interest), the delegation sought to abolish FERC’s authority to order retroactive quality bank adjustments.
Congress, however, did not enact the bill as proposed. Instead, federal lawmakers imposed a 15-month limit on retroactive changes, counting from the “the earliest date of the commission’s first order imposing quality bank adjustments” in a proceeding, according to Senior Judge Stephen F. Williams, writing for the majority.
In this case, the court said, the FERC erred in designating its “first order” in the proceeding, an action that resulted in retroactive refunds ordered for a period of about two and a half years, or 30 months.
“In sum, the Commission’s interpretation of § 4412’s phrase, ‘the first order ... imposing quality bank adjustments,’ does not readily match ordinary usage of the terms Congress employed, and, if it fulfills Congress’s goal at all, does so only with respect to a specialized set of delays that no word of § 4412 singles out for special treatment, or for a realm (that of § 13(1)) that may be irrelevant and was obviously not central to the congressional concern,” Williams wrote.
First order not indicated The court, however, chose not to indicate which of the commission’s orders in the proceeding is the “first order” under federal law, nor did it address Flint Hills’ contention that Section 4412(b)(2) limits refunds to a maximum total period of 15 months.
“Resolution of that issue should occur in an analysis integrating it with a lawful choice of ‘the first order,’” the court added.
In a dissenting opinion, Senior Judge A. Raymond Randolph wrote that the FERC’s “interpretation fits comfortably within the language of Section 4412(b)(2).”
“The commission’s interpretation may not be plain from the text of Section 4412(b), but all indications are that Congress wanted somehow to limit retroactive changes in quality bank proceedings. The commission’s interpretation achieves this purpose, and it does so in a rational manner,” Randolph added.
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