|
Supremes rule on tariff Conclude Superior Court was right to support RCA’s decision to lower TAPS shipping rates for 1997-2000 By Rose Ragsdale For Petroleum News
The Alaska Supreme Court has affirmed a lower court ruling upholding a state regulatory agency’s order directing owners of the trans-Alaska oil pipeline to cut in-state shipping rates and refund excess collections.
The Feb 15 decision comes about two years after the Alaska Superior Court endorsed a Regulatory Commission of Alaska opinion that tariffs for in-state shipping via the 800-mile conduit were at least 57 percent too high between 1997 and 2000.
The RCA order in 2002 came in response to complaints from shippers who supply crude to two of Alaska’s four refineries. The commissioners said the shipping rates were not “just and reasonable” under Alaska’s Pipeline Act.
RCA rejected the formula used at the time to calculate in-state tariffs, a method the pipeline’s owners and the State of Alaska settled on in 1985.
RCA calculated the rate base to be $669 million rather than the $3.2 billion computed by the owners. It also noted that under the 1985 settlement, the owners had potentially collected a $9.9 billion windfall up to 1998 through excessive rates.
The Alaska Department of Revenue estimated that shippers could be owed about $80 million in refunds, plus interest. State economists also say the state is owed about $25 million in back taxes as a result of the case.
RCA further ordered the owners, primarily affiliates of oil companies that produce crude and natural gas liquids on Alaska’s North Slope, to use another rate-making formula based on straight-line depreciation of the pipeline’s assets. Built in the 1970s, the mammoth carrier had been transporting crude for more than 30 years.
Owners advanced several arguments In their defense, the pipeline’s owners argued that the settlement methodology was fair, and they were within their rights to accelerate depreciation on the carrier, seek sufficient return on their investment and include a risk premium in the shipping rates. They also complained that RCA failed to remove a potentially biased staffer from the case when it came to light that the individual years earlier had written a master’s thesis in graduate school, arguing that the pipeline’s tariffs were excessive.
The owners further argued that the state’s 180-degree change of opinion about how to set rates did not invalidate earlier ratemaking nor did it necessitate refunds.
When the lower court rejected the arguments, the owners appealed to the Supreme Court.
Everything in order Alaska’s high court endorsed the Superior Court’s view in a one-and-a-half-page opinion, noting that the “arguments on appeal are generally the same as those they presented to the superior court.”
“We conclude that the superior court correctly resolved these arguments and therefore adopt the opinion of the superior court,” the justices said.
BP Pipeline (Alaska) Inc., one of the pipeline’s five current owners, holds a slight majority interest in the carrier at 50.01 percent. The others are ConocoPhillips Transportation Co.(25.2 percent), ExxonMobil Pipeline Alaska Inc. (20.34 percent), Williams Alaska Pipeline Co. LLC (now Koch Alaska Pipeline Co. with 3.08 percent) and Unocal Pipeline Co. (1.36 percent). Amerada Hess Pipeline Corp., a 1.50 percent owner in 2002, since has sold its interest to ConocoPhillips.
Besides the RCA, plaintiffs included refinery owners Tesoro Alaska and Williams Alaska, when the case was filed in 1997. Petro Star Inc., owner of two smaller refineries in Fairbanks and Valdez, settled its own tariff dispute with the pipeline owners separately in 1993.
A spokeswoman for ConocoPhillips said Feb. 20 the company is still reviewing the Supreme Court decision and made no further comment.
A BP spokesman said the majority owner is reviewing its legal options, which include petitioning the Supreme Court for another review of the case.
“We believe the pipeline tariffs we charged were reasonable. We set those rates according to a method that the State of Alaska had agreed upon. It was later that the state changed its mind about the way to calculate the tariffs,” BP spokesman Steve Rinehart told Petroleum News Feb. 20.
“If the result of this case is that we owe refunds, then we will certainly pay them,” Rinehart added.
Key decision for independents The state, which owns about 12 percent of the oil shipped through the pipeline, in royalties, collects its percentage of oil revenues after tariffs are levied on the wellhead value of a barrel of oil. Lower transportation costs mean the state’s percentage per barrel is worth more.
State Sen. Gene Therriault, R-North Pole, announced the court’s ruling Feb. 15 on the floor of the Alaska Senate.
He said the ruling is significant for independent oil producers as well because it reduces their costs.
Alaska lawmakers are interested in enticing independent producers to explore and develop more challenging oil reserves in the hopes of stemming the steady decline in oil production from the state’s major fields.
“The hurdle for them to get into the game is lowered because less of the value from their investment in finding oil will be eaten up by the pipeline tariff,” said Therriault.
Precedent for gas pipeline The Supreme Court ruling signals that “owners of the pipeline are required to charge fair rates based on their costs, and will be held accountable for refunds when they have overcharged their shippers,” said Commissioner Tom Irwin of the Alaska Department of Natural Resources.
“This decision supports our efforts to make sure that the rates charged for shipment through a future gas pipeline are just and reasonable,” Irwin said in a statement Feb. 15.
A related issue regarding tariffs on oil shipped out of state via the pipeline is currently pending before the Federal Energy Regulatory Commission.
About 8 percent of the 750,000 barrels of oil being produced daily in Alaska is used within the state. The rest is transported by tanker to refineries on the West Coast.
A FERC administrative law judge issued a decision in May 2007 that is consistent with the RCA’s ruling. FERC’s three commissioners are expected to review the decision in the coming months.
The FERC ruling also will affect state royalty revenues.
—The Associated Press contributed to this report
| 