TAPS owners respond
Say shippers falsely criticized efforts to follow FERC order to lower rates
By Rose Ragsdale
For Petroleum News
In a spate of filings Aug. 14 and 15 in response to shipper protests, owners of the trans-Alaska oil pipeline defended their proposals for lowering the line’s 2005 and 2006 interstate tariffs and their plans for tallying shipping rates in subsequent years.
The 800 mile pipeline runs from Prudhoe Bay on Alaska’s North Slope south to the Port of Valdez. The five owners, BP Exploration (Alaska) Inc., ConocoPhillips Alaska, ExxonMobil Production Co., Unocal Pipeline Co. (now a subsidiary of Chevron), and Koch Alaska Pipeline Co. LLC, also criticized the shippers’ objections, calling them “illogical, not true” and “without merit.”
The pipeline’s owners had outlined their calculations and plans earlier for the Federal Energy Regulatory Commission in a July 21 filing meant to comply with the commission’s June 20 order to lower the rates, issue some refunds and configure more reasonable shipping rates going forward.
With its order, the commission upheld a May 2007 administrative law judge ruling that interstate rates charged on the Trans-Alaska Pipeline System in 2005 and 2006 were not “just and reasonable.” The judge also ordered limited refunds to shippers who had overpaid.
Shippers Anadarko Petroleum Corp., the State of Alaska and Flint Hills Resources Alaska LLC filed protests and comments separately, citing reasons why the pipeline owners erred in their calculations or asked for clarification of the commission’s directions to the owners. (See story in the Aug. 10 issue of Petroleum News.)
Owners counter Anadarko’s argumentsIn its Aug. 5 protest, Anadarko said it objected to the pipeline owners including in their compliance filing different proposed rates for the various years in question and trying to introduce new evidence after the hearing is closed. The shipper also said $1.92 per barrel of oil should be the rate adopted for 2005 and $2.02/bbl for 2006.
The shipper also accused the pipeline owners of improperly presenting alternative rates “based on new and untested data.”
The owners defended their right to introduce new information in the compliance filing by noting that the FERC has allowed additional data to be introduced in compliance filings in the past, “provided the data is adequately supported.”
The owners also said due process is served by allowing the shippers to review and comment on this “new” data before the commission takes any action that relies on its accuracy.
The owners called Anadarko’s arguments in support of a uniform rate “misguided,” noting that the five of them do not have the same costs, and a uniform rate would cause any owner with above-average costs to “under-recover” its cost of service.
Secondly, they do not transport volumes in proportion to their ownership shares of the pipeline’s capacity, and a uniform rate would necessarily cause an owner with throughput that is less than its ownership share of total system-wide throughput to under-recover its cost of service, the owners said.
Thirdly, an owner with a relatively small ownership share of the pipeline will be precluded by a uniform rate from recovering fixed, base-line costs that are incurred in the owner’s operation of the pipeline.
“Because a uniform rate guarantees that certain TAPS (owners) will under-recover their costs of service while other owners will over-recover their costs of service, it produces a rate that is necessarily unjust and unreasonable,” the attorneys argued.
“Anadarko is also incorrect in asserting that these problems can be resolved through pooling. Indeed, Anadarko’s reliance on pooling is tantamount to an admission that a uniform rate cannot – without a subsequent adjustment – produce just and reasonable rates for each TAPS (owner). Moreover, the commission does not have the authority to order the TAPS owners to pool revenues – a fact that Anadarko simply ignores in its Answer,” the attorneys wrote
The owners further said it is speculative to assert that the problem would be greater for the trans-Alaska oil pipeline than for other oil pipelines that set rates individually.
Criticisms lacks meritThe owners also criticized Anadarko’s protest for failing to raise any specific issue regarding the accuracy or suitability of the actual 2006 data other than “alleging that TAPS throughput ‘during the period in
Question’ was ‘abnormally low.’ ”
The owners said Anadarko failed to show that the actual level of petroleum that flowed through the pipeline in 2006 was unrepresentative, “particularly given the general declining trend in TAPS throughput over the years.”
“Anadarko further argues that the use of actual data is somehow inconsistent with Opinion No. 502. Anadarko Protest at 5-6. But nothing in Opinion No. 502 directed the Carriers not to use actual data, and nothing about the use of actual cost and throughput information for 2005 and 2006 is inconsistent with the methodology established in the commission’s order,” wrote attorneys for the owners.
They also noted that the use of actual data is consistent with commission precedent.
The owners further defended their interpretation of when the FERC meant for prospective rates to take effect, but acknowledged that the commission’s order is subject to different interpretations of how 2007 and 2008 rates should be set.
However, Anadarko is wrong in its interpretation, they argued.
“The prospective rate in this case cannot take effect from 2006 forward or supersede the 2007 or 2008 rates as Anadarko suggests,” the attorneys wrote.
In a separate filing the owners argued that Anadarko’s answer to their compliance filing should be rejected by FERC because the 20-page argument does not meet the commission’s prerequisite that such filings be “brief” and “factual.”
They further charged that Anadarko brought up many of the same issues it raised during the regular proceedings.
“In sum, Anadarko has not shown good cause for waiving the prohibition on answers to requests for rehearing. Rather, it is largely repeating its earlier arguments, which will not assist the commission in its decision-making process,” the owners’ attorneys wrote.
State protest lacks meritThe State of Alaska filed a protest Aug. 5, accusing the pipeline owners of making several mistakes in their compliance filing, including improperly using 2005 and 2006 actual cost figures, interpreting the commission’s order to set prospective rates and interjecting discussion of extraneous and immaterial issues beyond the scope of the commission’s order.
The pipeline owners said state’s protests are without merit and its claim that the prospective rate should begin Jan. 1, 2005 is illogical, given that the Supreme Court has said the meaning of “prospective” is “to be thereafter observed” and FERC’s order was issued June 20, 2008, not Jan. 1, 2005.
The owners also said the state presented no grounds to strike so-called “extraneous” issues from the compliance filing.
BP counters Anadarko’s criticismsBP, which owns more than 50 percent interest in the trans-Alaska oil pipeline, said Anadarko is attempting to “misframe” its request for rehearing certain aspects of the FERC’s June 20 order.
BP said that it would not oppose a uniform rate if an acceptable FERC-approved pooling arrangement could be put in place that would eliminate the over- and under-recoveries that would otherwise flow from a uniform rate.
BP said its percentage ownership of the pipeline significantly exceeds its share of petroleum that flows through the line. This means the owner is “doomed to chronic under-recovery under a uniform rate system unless the commission orders full revenue pooling as a prerequisite to uniform rates,” BP argued.
BP said Anadarko’s claims that the owners’ concerns are hypothetical and that the pooling issue is not yet germane is untrue.
“The losses BPPA faces are real, they are huge, and they are imminent. If BPPA must charge a uniform rate, it stands to fall short of recovering its cost of service by tens of millions of dollars a year commencing January 1, 2009 - less than five months from today - the TAPS Settlement Agreement is terminated, unless the Commission orders pooling, as it acknowledges it has the power to do.” BP’s attorneys wrote.
Moreover, if the FERC requires pooling, it could alleviate the pipeline owners’ antitrust concerns by authorizing them to share the information needed to calculate and file uniform rates, BP said.