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Providing coverage of Alaska and northern Canada's oil and gas industry
February 2009

Vol. 14, No. 6 Week of February 08, 2009

Alaska seeks clarification from FERC

State wants separate consideration for four years of protests about strategic reconfiguration costs being lumped in with tariffs

Rose Ragsdale

For Petroleum News

The State of Alaska has asked the Federal Energy Regulatory Commission to make it clear that the federal agency has yet to rule on claims made by Alaska officials against owners of the 800-mile trans-Alaska oil pipeline concerning certain costs they believe the carriers erroneously added to their shipping rates in 2005 and 2006.

In a Jan. 28 filing, the state asked the commission’s presiding administrative law judge to continue to defer a hearing date on the claims regarding costs associated with the pipeline’s ongoing strategic reconfiguration project until the five-member commission has ruled on a concurrent request for clarification or has conducted a rehearing of its Dec. 29 order directing the pipeline owners to submit compliance filings establishing rates for 2007 and 2008 consistent with Opinion No. 502, FERC’s first major ruling in the tariff case.

In that initial decision, issued June 20, 2008, the commission upheld a May 2007 administrative law judge’s ruling in the case, but clarified and modified the judge’s decision on certain points. FERC also directed the pipeline’s owners — BP Pipelines (Alaska) Inc., ConocoPhillips Alaska, ExxonMobil Production Co., Unocal Pipeline Co. and Koch Pipelines (Alaska) LLC) — to comply with the decision by establishing “just and reasonable” rates for 2005 and 2006. A final decision by FERC on the 2005 and 2006 rates is still pending.

‘Imprudent’ costs

The State of Alaska closely monitors shipping rates on the pipeline because taxes and royalties that assesses and collects on petroleum production from the North Slope oil fields reflect transportation costs, which are primarily tariffs charged by the pipeline’s owners.

Alyeska Pipeline Service Co., operator of the pipeline, launched the multimillion-dollar strategic reconfiguration project in 2001 to streamline the carrier’s operation in the face of declining petroleum throughput. Changes have included closing pump stations and modernizing equipment along the line.

The state contends that the five owner companies incorrectly included “imprudent” expenditures for the strategic reconfiguration project in the tariffs that they charged all shippers in 2005 and 2006.

The state filed a protest and complaint in December 2004, alleging that the carriers impermissibly included dismantling, removal and restoration costs incurred in conjunction with the strategic reconfiguration project in the shipping rates. The state also protested the carriers’ 2005 rates on the grounds that they were unjustly discriminatory and unduly prejudicial in violation of the Interstate Commerce Act and the Interstate Settlement Agreement.

The state filed additional protests and complaints, alleging that the carriers made similar missteps in determining the pipeline’s 2006, 2007 and 2008 shipping rates.

On Feb. 17, 2006, the commission consolidated the state’s 2006 protest and complaint with an ongoing hearing in the previously consolidated proceedings concerning the 2005 rates, but allowed the presiding administrative law judge to determine whether to establish a separate hearing for the strategic reconfiguration claims and whether to allow a stay of those claims.

After a pre-hearing conference in September 2006, the judge decided that the strategic reconfiguration claims should be heard separately from the tariffs case and in subsequent pre-hearing conferences, that the matter should be deferred until FERC reached a final decision in the broader tariffs dispute.

Unclear opinion

In requesting that the FERC judge continue to stay proceedings regarding the strategic reconfiguration claims, the State said it is still not clear whether its strategic reconfiguration claims regarding the 2005 and 2006 rates were resolved by Opinion No. 502 and the carriers’ compliance filings as a result of that order.

“The information that the TAPS carriers provided with their compliance filings did not contain sufficient detail to determine whether they included SR costs in the ratebases they used for calculating their 2005 and 2006 rates,” the state said in its filing. “If such costs were included in the ratebases, then the State’s SR Claims for those years continue to be relevant because SR costs added to the ratebase will have continuing impacts on rates for many years to come, including the TAPS Carriers 2007 and 2008 rates. Moreover, since discovery has been stayed in this case, the State has not been able to ascertain through discovery whether SR costs were included in the ratebases for 2005 and 2006.”

The state said it would be most efficient to handle all of its “SR Claims” in one consolidated proceeding, to be held after the strategic reconfiguration project is completed. Alyeska Pipeline Service Co., the pipeline’s operator, has said the strategic reconfiguration project will be completed in 2009.

In such a consolidated proceeding, the state said it would have access to discovery, and it would be able to determine the years in which SR costs were included in the carriers’ rates and whether there are continuing relevant SR claims with respect to the 2005 and 2006 TAPS rates.

The state also noted that the carriers have not filed new rates for 2009 and thus are charging the same rates that took effect at the beginning of 2008. They also observed that the carriers’ compliance filings for the 2007 and 2008 rates may raise additional protests that could be consolidated for review with the SR claims.

Clearing the record

In seeking clarification from the commission of whether its SR claims were included in Opinion No. 502 and whether the commission’s Dec. 29 order included the SR claims, the state said it merely wanted to ensure that the procedural record is clear that the claims are not part of the compliance proceedings and rather will be adjudicated in separate proceedings.

To that end, the state requested that its 2007 and 2008 SR claims be separated from the compliance proceedings and consolidated with its SR claims relating to the 2005 and 2006 rates currently being held in abeyance.

Given that the strategic reconfiguration project is nearing its projected date of completion later this year, the state also observed that it “might soon be appropriate for proceedings on the strategic reconfiguration claims to commence.”






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