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FERC: State, carriers may reach accord Administrative law judge postpones oral arguments for two weeks to allow parties time to complete settlement negotiations Rose Ragsdale For Petroleum News
Owners of the trans-Alaska oil pipeline and the State of Alaska told the Federal Energy Regulatory Commission Feb. 24 that they are nearing settlement of at least one aspect of the long-running interstate tariffs case that began in 2004.
In granting a request for postponement of oral arguments in the case, presiding administrative law Judge Carmen A. Cintron said in a Feb. 25 procedural order that the state and the five pipeline owners — BP Pipelines (Alaska) Inc., ConocoPhillips Alaska, ExxonMobil Production Co., Unocal Pipeline Co. and Koch Pipelines (Alaska) LLC) — have indicated that they reached an agreement in principle, which would make oral argument in the case unnecessary, and they requested a two-week period to complete settlement negotiations.
Cintron then postponed oral arguments in the dispute until March 11.
State sought refunds for “imprudent” costs At issue in this latest round of FERC filings is the state’s assertion that the pipeline carriers impermissibly charged sums to the line’s shippers during the four years, 2005-08, for transporting their oil from Alaska’s North Slope 800 miles to the south to tidewater in Valdez.
The State of Alaska closely monitors shipping rates on the pipeline because taxes and royalties that it assesses and collects on petroleum production from the North Slope oil fields reflect transportation costs, which are primarily tariffs charged by the pipeline’s owners.
The state contends that the pipeline owners incorrectly included “imprudent” expenditures for a multimillion-dollar strategic reconfiguration project in tariffs that they charged all shippers between 2005 and 2008.
Alyeska Pipeline Service Co., operator of the pipeline, launched the strategic reconfiguration project in 2001 to streamline the carrier’s operation in the face of declining petroleum throughput. Changes have included closing pump stations and modernizing equipment along the line. The project is due for completion in 2009.
Dispute affects shipping rates in multiple years The state filed a protest and complaint in December 2004, alleging that the carriers impermissibly included dismantling, removal and restoration costs incurred in conjunction with the strategic reconfiguration project in the shipping rates. The state also protested the carriers’ 2005 rates on the grounds that they were unjustly discriminatory and unduly prejudicial in violation of the Interstate Commerce Act and the Interstate Settlement Agreement.
The state filed additional protests and complaints, alleging that the carriers made similar missteps in determining the pipeline’s 2006, 2007 and 2008 shipping rates.
In a Jan. 28 filing, the state asked the commission’s presiding administrative law judge to continue to defer a hearing date on the claims regarding costs associated with the pipeline’s ongoing strategic reconfiguration project until the five-member commission has ruled on a concurrent request for clarification or has conducted a rehearing of its Dec. 29 order directing the pipeline owners to submit compliance filings establishing rates for 2007 and 2008 consistent with Opinion No. 502, FERC’s first major ruling in the tariff case.
In that initial decision, issued June 20, 2008, the commission upheld a May 2007 administrative law judge ruling in the case, but clarified and modified the judge’s decision on certain points. FERC also directed the pipeline’s owners to comply with the decision by establishing “just and reasonable” rates for 2005 and 2006 and to make limited refunds.
Challenges to various aspects of the commission’s decision are ongoing.
Carriers: State’s claims are academic
However, the pipeline owners responded to the state’s Jan. 28 filing on Feb. 12 by asking Cintron and Chief Administrative Law Judge Curtis L. Wagner Jr. to terminate proceedings related to the state’s claims regarding the strategic reconfiguration project because they are “academic” and “moot” at this point because “all outstanding issues regarding the 2005 and 2006 TAPS interstate rates have now been resolved by the Commission.”
“Because of the refund floor ruling in Opinion No. 502, any further reductions in the rates for those locked-in periods cannot result in additional refunds, and the rates have no forward-looking effect,” the carriers argued. “Thus, the State’s request to continue to suspend the procedural schedule should be rejected as unnecessary.”
Carrier paid some refunds in January The pipeline owners said the commission accepted their compliance filings for 2005 and 2006 under Opinion No. 502 in November, and in January, they took the final steps of compliance by paying refunds to the shippers and submitting refund reports to the commission.
However, they argued, Opinion No. 502 did not need to resolve the State’s strategic reconfiguration claims because the commission’s resolution of the refund floor issue for 2005-06 effectively mooted those claims.
“To the extent the State claims that SR costs should be removed from the rates determined by the Commission for 2005 and 2006, the refund floor would prevent any further refunds to shippers and the rates themselves are locked-in and do not affect subsequent periods,” the owners said.
In response to the state’s argument that its strategic reconfiguration claims for 2005 and 2006 continue to be relevant because the relevant costs added to the rate base will have continuing impacts on rates for many years to come, including the pipeline carriers’ 2007 and 2008 rates, the owners argued that the state can pursue the relevant claims in proceedings regarding the rates for the years in question.
“Any pursuit of those issues in the context of the 2005 and 2006 rates would be entirely academic because the result could not be greater refunds for parties that shipped in those years,” the owners said.
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