BP, Conoco, Exxon seek reversal of FERC decision by circuit court

The three major owners of the trans-Alaska oil pipeline have appealed a federal agency’s order to charge shippers lower interstate rates for pumping oil through the 800-mile line in 2007 and 2008 and to refund the difference to the shippers.

BP Pipelines (Alaska) Inc., ConocoPhillips Alaska and ExxonMobil Pipeline Co. petitioned the U.S. Circuit Court of Appeals for the District of Columbia June 15 to review and reverse an April 16 order by the Federal Energy Regulatory Commission.

The order appeared to move a long-running dispute between owners of the trans-Alaska oil pipeline and unaffiliated shippers on the line closer to resolution. The commission reviewed interstate shipping rates proposed by the pipeline’s carriers for 2007 and 2008 in compliance with a June 2008 order. Also known as Opinion 502, the 2008 ruling endorsed an earlier decision by a FERC administrative law judge that established substantially lower pipeline shipping rates for 2005 and 2006. A subsequent order resulted in the carriers also proposing lower tariffs for 2007 and 2008.

In April, FERC rejected a request for rehearing from the State of Alaska and concluded that the carriers’ proposed 2007 tariffs met requirements of Opinion 502 and no further review of them is necessary. The commission also directed the carriers to pay refunds.

FERC further accepted the carriers’ proposed 2008 tariffs on an interim basis, ordered preliminary refunds and established hearing and settlement procedures for the 2008 rates.

Carriers: FERC made many errors

The carriers claimed the commission also improperly required the use of depreciation taken from an earlier settlement agreement rather than relying on the depreciation rates it has previously prescribed; improperly calculated the carriers’ allowed return on investment; and improperly shifted the burden of proof to the carriers from the parties seeking a change in the existing ratemaking method.

FERC also incorrectly determined that the carriers may be required in the future to refund a portion of funds characterized as “prepayments” of future expenses for dismantlement, removal and restoration, the carriers argued.

BP and ExxonMobil asserted that the commission made another error by improperly awarding refunds for past periods rather than requiring that rates be changed prospectively.

BP also asked the appeals court to reverse the commission’s April order because it erred in directing the carriers to issue refunds for 2007 and interim refunds for 2008.

ConocoPhillips Alaska, however, argued that FERC improperly imposed a uniform rote structure on the carriers, which hold individual undivided joint interests in the pipeline.

“These and other errors may be asserted by (ConocoPhillips) in seeking to have certain rulings made in the April 2009 Order modified or set aside. ConocoPhillips has not sought rehearing of the April 2009 Order,” the company wrote in its petition.

BP paid refunds

The carrier said it also paid 2007 refunds and 2008 preliminary refunds to the shippers on May 18 in compliance with the FERC’s April order and provided the shippers with detailed reports May 19 showing how the refunds were calculated.

In addition, BP said it told the shippers that it reserved the right to recoup the refunds if its appeal results in the commission’s decision being modified or reversed.

Jonathan Iversen, director of the Alaska Department of Revenue Tax Audit Division, said Alaska was due an estimated $441 million in unpaid royalties and production taxes for the years 2007 and 2008 and an estimated $175 million for 2005 and 2006 as a result of the lower interstate rates. Some of these funds have been paid and will be analyzed on audit, he added.

—Rose Ragsdale

FERC denies rehearing request on pooling

FERC had earlier concluded that “pooling” would address any concerns about under- or over-recovery of tariffs resulting from its June 2008 order requiring the carriers to develop an alternative method for calculating shipping rates. The agency had found earlier that the existing methodology for establishing tariffs on the pipeline “no longer resulted in just and reasonable rates.”

The three carriers argued that the federal agency did not have the authority to order them to adopt a “more inclusive pooling” method.

BP Pipelines (Alaska) Inc. and Koch Pipelines (Alaska) LLC did not object to the pooling order.

In denying the rehearing request, the commission also clarified that the pooling mechanism that the carriers develop should “reallocate all of TAPS Carriers’ costs based on throughput or usage, so that the allocation of costs matches the allocation of revenues on TAPS.”

“Beyond this, the Commission will not dictate the particulars of the pooling mechanism, as the TAPS carriers, including BP, are in a better position to work out the details of such an arrangement themselves.” The commission will have an opportunity to consider the appropriateness of the pooling provision when it is submitted in the above-mentioned tariff filing, FERC added.

—Rose Ragsdale