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FERC legal team takes sides Shoots holes in TAPS owners’ claims as tariff litigation moves toward review By Rose Ragsdale For Petroleum News
A legal team at the Federal Energy Regulatory Commission has issued an opinion that owners of the trans-Alaska oil pipeline fighting in a Washington, D.C., court to justify the tariffs they would like to charge shippers, have presented no valid evidence, so far, to support their claims.
The five Trans-Alaska Pipeline System carriers are embroiled with the State of Alaska, the Regulatory Commission of Alaska and two TAPS shippers in multi-party litigation before an administrative law judge at the commission. That judge’s decision in the case, which dates back to 2005, is expected to go before the full commission for review and a final ruling in mid-July, according to FERC officials.
Shippers Anadarko Petroleum Corp. and Tesoro Alaska Petroleum earlier challenged the pipeline’s in-state tariffs on the grounds that they were not just and reasonable and won an RCA ruling that lowered the rates by more than 50 percent.
The TAPS carriers — BP Pipelines (Alaska) Inc., ConocoPhillips Transportation Alaska Inc., ExxonMobil Pipeline Co., Unocal Pipeline Co. and Koch Alaska Pipeline Co. LLC — asked FERC to overturn the decision, claiming the lower in-state rates and subsequent attempts to block increases in TAPS’ interstate tariffs contradicted terms of a settlement agreement that the carriers reached with each other and the State of Alaska in 1985.
Case working its way through FERC process The case has been working its way through the FERC’s litigation process for the past two years. In February, the commission’s trial staff joined the other parties in filing initial briefs before Judge Carmen A. Cintron, the administrative law judge hearing the case. Cintron is expected to make her ruling May 18.
Signed by Dennis H. Melvin, director of the legal division of FERC’s Office of Administrative Litigation, the 122-page document criticized the TAPS carriers’ claims in detail, outlining arguments and legal precedents that refute virtually every one of the pipeline owners’ arguments.
“We are concerned that the issues raised and positions taken by some of the parties, most notably the TAPS carriers, are not only directly contrary to the orders which approved the TAPS settlement over 20 years ago, but contrary to some of the most basic notions of calculating just and reasonable rates, as well,” the trial staff wrote.
The staff also said the positions taken by Anadarko and Tesoro and the State of Alaska in the case are consistent with the FERC’s prior orders with regard to TAPS, and with commission policy and precedent.
“It is important that the commission reaffirm its established ratemaking standards in this proceeding and, as the record herein demonstrates, there is no legal, logical, or equitable reason not to do so,” the trial staff wrote.
Other points outlined in brief Among other points the trial staff outlined:
• The FERC never endorsed the rates established under the TAPS Settlement Agreement and its methodology as “just and reasonable,” but instead, said the agreement was “fair and reasonable” for the settling parties and in the public interest.
• The burden is on the TAPS carriers to demonstrate that the TAPS settlement methodology produces just and reasonable rates or, failing that, to develop a just and reasonable rate pursuant to established commission practice and precedent.
• The TAPS carriers have collected hundreds of billions of dollars from the shippers “in a huge pot of money” to cover such factors as accelerated depreciation, presumed risk and competition when many of these factors were never, or are no longer valid. For example, the trial staff noted that pipeline’s original life expectancy has been extended by 22 years to 2034.
• Instead of rushing to produce cost data to justify the tariffs, the TAPS carriers have distanced themselves from cost discussions in making their case.
• The TAPS carriers have contravened the depreciated original cost methodology used by the commission to set just and reasonable rates, and improperly reinstated replacement cost ratemaking.
• Once cost-based, just and reasonable interstate rates for TAPS are established in this proceeding, they should be similar to the cost-based in-state rates for TAPS established by the RCA. This will eliminate any discrimination that currently exists between the rates.
FERC trial staff: carriers have provided no cost evidence The FERC trial staff also said that in order for the TAPS carriers to meet the burden of proof for their claim that the (in-state) rates set by the RCA are discriminatory, the owners must offer evidence to substantiate each of the following five conclusions: (1) that existing (in-state) rates were abnormally low and did not contribute a fair share of the (carrier’s) revenue needs; (2) that conditions as to the movement of (in-state) traffic were not more favorable than those existing in interstate commerce; (3) that the rates cast an undue burden on interstate commerce; (4) that an increase ordered by the FERC would yield substantial revenues; and (5) that such increase would not result in (in-state) rates being unreasonable and would remove the existing discrimination against the interstate commerce.
“Here, the carriers have provided no cost of service evidence whatsoever: 1) to demonstrate that the (in-state) rates are abnormally low or fail to contribute a fair share towards the pipeline’s needs, 2) to demonstrate that their filed interstate rates are just and reasonable, 3) to demonstrate that the disparity between the interstate and (in-state) rates is unreasonable or discriminatory, or 4) to thereby demonstrate that the suggested increase in the (in-state) rate is justified,” the staff wrote.
“While the carriers point to the disparity between the TSM rates and the intrastate rate, as noted, the TSM rates are not cost-based rates. Thus, they have proven nothing. Without evidence regarding the actual cost of service on TAPS, the carriers cannot hope to meet the stringent standards necessary to challenge the reasonableness of the (in-state) rate, or to establish the reasonableness of their filed rate.
“The RCA rate, on the other hand, is a cost-based rate that was determined after years of investigation and a full hearing that produced a record some 75,000 pages in length. The rate was subsequently affirmed by the Superior Court of Alaska. There is no basis in the present record to even question the (in-state) rate, much less find that it is abnormally low or that it fails to make a fair contribution to the pipeline’s revenue needs. Therefore, that rate cannot be overturned.
“There is similarly nothing substantive in the record to substantiate a claim that the (in-state) rate discriminates against, or constitutes a burden on, interstate commerce. Indeed, the carriers do not even make a good case that the (in-state) rate has any impact on interstate commerce,” the trial staff concluded.
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