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Court upholds TAPS rate Upholds RCA’s tariff decision for 1986-96, says shippers’ protest was untimely Kristen Nelson Petroleum News
In 2003, following a successful protest of 1997 intrastate rates for shipping crude oil on the trans-Alaska oil pipeline, two shippers, Tesoro Alaska and Williams Alaska Petroleum, protested the 1986-96 rates.
While the Regulatory Commission of Alaska heard the 1996 protest on proposed 1997 rates — and ultimately agreed with the shippers that the rates were too high — it found the 2003 protest of the 1986-96 rates untimely.
Tesoro and Williams appealed the decision to the Alaska Superior Court, which remanded the case to RCA for further proceedings.
The pipeline owners and the State of Alaska appealed to the Alaska Supreme Court, which in a March 21 decision reversed the order of the Superior Court and directed that the decision of RCA be affirmed.
The Supreme Court said claims by Tesoro and Williams that RCA must complete every rate investigation that it initiates, “and therefore has no ability to accept a settlement … has no support in the statutes, case law, or regulations.”
The court also said that claims by Tesoro and Williams “that their petitions to intervene and protest were timely is also unpersuasive.”
Settlement reached in 1986 The trans-Alaska oil pipeline went into operation in 1977 and a 1986 settlement reached by the State of Alaska and the pipeline owners was submitted to RCA’s predecessor agency, the Alaska Public Utilities Commission. That settlement set intrastate rates from the beginning of the pipeline through 1986, allowing protests for rates going forward, using the TAPS settlement methodology or TSM.
When the commission approved the settlement for rates prior to 1986 it said the “economically impacted parties … are knowledgeable and sophisticated,” had the means and opportunity to object and “are either silent or actively support the imposition of the settlement rates,” the court said, quoting the commission.
Tesoro and Williams (then known as Mapco Alaska Petroleum), the court said, were among the economically impacted parties actively supporting the decision.
Another shipper, Petro Star, did protest and the commission “began the process of determining whether or not the rates after that time were just and reasonable,” a process which was still under way when Petro Star and the pipeline owners settled in 1991. In 1993, the commission accepted the Petro Star settlement. At that point, the commission said, there were no economically impacted parties protesting the intrastate rate settlement.
Under Alaska Administrative Code the commission was allowed to terminate a proceeding if all parties agreed, providing there was no public interest requiring continuation of the proceeding, the court said.
Tesoro and Williams did not protest the commission’s 1993 acceptance of the Petro Star settlement and did not protest rates filed under TSM for 1986-93 as unjust or unreasonable. The companies also did not protest rates for 1994, 1995 or 1996.
No protest until 1996 In late 1996, Tesoro protested rates filed for 1997. The commission suspended the 1997 rates “and embarked upon an investigation of whether the rates were just and reasonable,” the court said.
The commission issued Order 151 in November 2002. It found rates for 1997-2000 were not just and reasonable; set new, and much lower, rates; and said that rates charged through 1997 may have exceeded the reasonable cost of service by as much as $9.9 billion.
The commission then began looking at whether rates filed for 1986-96 were correctly calculated under TSM — the methodology approved in 1986 — and scheduled a prehearing conference for March 2003.
Tesoro and Williams moved to intervene and shortly thereafter asked the commission to adjudicate whether the 1986-96 rates were just and reasonable.
The commission declined to expand the scope of its investigation from whether the rates were correctly calculated under TSM to whether they were just and reasonable and found the Tesoro and Williams’ petition to intervene not timely.
Tesoro and Williams appealed to the superior court, which in 2006 remanded the matter for further proceedings and told the commission to determine if it had acted properly in excluding Tesoro and Williams as economically interested parties and to look at each year separately.
The superior court told the commission it should determine just and reasonable rates for any years in which Tesoro and Williams were improperly excluded — in addition to determining if rates under TSM were properly calculated.
The commission, the pipeline owners and the State of Alaska filed for review of the superior court order.
Rates may be set based on a settlement In its decision the Supreme Court said Tesoro and Williams argued that while the commission may decide whether to investigate rates, once it begins such an investigation it must determine just and reasonable rates.
If that were true, the commission would not be able to accept a settlement once it had begun an investigation, the court said, noting that Alaska statutes state that the commission may investigate pipeline rates and may prescribe just and reasonable rates, emphasizing the use of the word “may” in statute.
While there is a section of statute which says rates shall be just and reasonable that section, the court said, specifies what the pipeline owners must do, not what the commission is required to do.
The court said Tesoro and Williams provided no support, other than statutory argument, that the commission may not accept a settlement after it has initiated an investigation, while the commission provided “a cogent statutory analysis and also relies on case law and its own regulations.”
Not timely The March 2003 hearing the commission scheduled was on TSM calculations for 1986-96, and whether any party still believed it was necessary to verify those calculations.
In Order 68, issued later in 2003, the commission said Tesoro and Williams wanted the scope of the docket expanded to a determination on whether 1986-96 intrastate rates were just and reasonable. The commission declined, relying on its regulations for protests and petitions to intervene. The court said it reviews an agency’s interpretations of its own regulations under a reasonable and not arbitrary standard, deferring to the agency on the intent of regulations.
The court said Tesoro and Williams did not make a timely challenge to the 1986-93 rates because they “did not petition to intervene in the Petro Star protest on the issue of whether the rates were just and reasonable until 2003.” They would have had to have intervened before the first prehearing conference on Petro Star’s protest of 1987 rates or show good cause to protest after that date.
The court said Tesoro and Williams might have had a good cause to intervene after 1987 for prospective years.
Or they could have “timely protested each temporary rate that was filed,” which occurred for intrastate rates until 1993.
The court said nothing stopped Tesoro and Williams from protesting rates as they were filed. “The key point is that they did nothing. No petitions to intervene or protests were filed as to the justness and reasonableness of the rates until 2003.”
The court said Tesoro and Williams gained an advantage by not intervening in the Petro Star protest.
“They did not have to pay for costly rate litigation but would have nonetheless reaped the benefits of any success Petro Star may have had in lowering the rates. At the same time they ran a risk that Petro Star would settle,” the court said.
Tesoro and Williams might have intervened between 1991 and 1993 and the commission “might very well have had a reasonable basis for denying the petition as untimely.”
But, the court said, Tesoro and Williams waited another 10 years before trying to intervene.
Broadening the issue Regulations provide a separate ground for denying the petition to intervene, the court said, because regulations say the commission will consider “the extent to which participation of the petitioner will broaden the issue.”
The issue was whether rates were correctly calculated under TSM, so, the court said, if the commission “had accepted the petition to intervene as to the issue of whether the rates were just and reasonable, it would have significantly broadened the issues before it,” providing another basis for denying the petition.
The court also said the challenge of the 1994-96 rates was not timely, even though the commission said it was going to suspend rates to review them for compliance with TSM. The order “gave clear notice that this review would not include a determination of whether the rates were just and reasonable.”
In 1996 the shippers did timely protest the 1997 rates. The court quotes the commission: “Tesoro’s timely protest of the 1997 rates confirms that Tesoro was fully aware of the requirement of filing a timely protest in order to challenge TSM rates on grounds other than whether they were correctly calculated under TSM.”
The court agreed with the commission, upholding its decision that the challenge to the 1994-96 rates was untimely.
On other issues raised by Tesoro and Williams the court disagreed, noting in one instance that while the rates for 1986-96 were protested by one or more interested party, Tesoro and Williams did not protest rates between 1986 and 1996. “They cannot rely on the fact that other parties, such as the Commission staff, Petro Star, or the Alaska Public Interest Research Group, protested the rates. They did not invest the significant costs involved in undertaking rate litigation. While they might hope that the efforts of others will be successful, they cannot initiate an investigation years after the other efforts fail on the basis that they did not have to timely protest because others did.”
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