Through legislation, U.S. Sen. Ted Stevens chastised the Federal Energy Regulatory Commission for a decision affecting Alaska refineries and major oil companies.
Stevens, R-Alaska, inserted language in the federal omnibus spending bill that says “Congress has concerns” about a FERC administrative law judge’s Aug. 31 decision in a 15-year-old dispute over the value of different components in North Slope crude oil.
Oil companies and refineries also have submitted a variety of complaints to the commission about the judge’s 949-page decision.
The decision laid out formulas for deciding the value of the 10 components of the crude. FERC gets involved in such decisions because the trans-Alaska oil pipeline is a common carrier and must accept any qualifying oil products.
FERC, representing the government, mediates disputes over the value of the carried products, which are set through a system called the TAPS Quality Bank.
Oil from the Alaska pipeline is sold as a blended liquid in Lower 48 markets. The quality bank makes up for differences in the value of material contributed to the blend.
Refiners pay into quality bank
Shippers of poorer quality crude oil and refineries — which return oil to the line after taking out some of its valuable components to make gasoline, jet fuel and heating oil — pay money into the quality bank. Shippers of better quality crude take money from the bank. Flint Hills Resources Alaska LLC, a subsidiary of Koch Industries, operates the major refinery in North Pole. Flint Hills spokesman Jeff Cook said the company did not ask for the language.
Flint Hills is among the companies unhappy with parts of the FERC administrative law judge’s decision.
“Nowhere in the United States, except in the world of the TAPS Quality Bank, is a manufacturer of products such as (Flint Hills Resources) called upon to produce and sell goods to its customers, without any rational basis upon which to determine the costs of its raw materials for years,” Flint Hills attorneys wrote in recent comments.
Some have suggested the refineries can just create accounting reserves to hedge against such decisions going against their interests, but that harms the public because the companies would have to charge more for their products to cover that reserve, Flint Hills said.
One decision retroactive 11 years
The judge’s decision on one type of material, called “resid,” is retroactive 11 years. That part seems to have struck the refineries hardest.
The resid valuation is “wholly outside any reasonable interpretation of the evidence,” Flint Hills said.
Stevens’ language in the omnibus bill reflects this objection.
“Congress expects (FERC) to evaluate carefully the disputed resid valuation and related retroactive resid refund matters affecting the TAPS Quality Bank adjustments,” the bill states. “Except where the parties have otherwise stipulated, Congress is particularly concerned about the equity of assigning retroactive refunds beyond a term of 15 months.” Exxon Mobil, one of the three major North Slope producers, and Tesoro, which operates a refinery on the Kenai Peninsula, submitted generally positive comments about the FERC decision.
“The analysis in this massive record was an enormous and difficult task, and the 949-page initial decision ... represents an able and well-reasoned evaluation of the evidence that will produce a just and reasonable result,” Exxon and Tesoro said.
Another eight-member group — including BP, Conoco Phillips and Unocal Corp. — filed a separate set of comments on three issues, including the resid valuation.
“The initial decision not only results in resid values that are lower than any party proposed, it ignores the record evidence and inappropriately applies the clearly unjust and unreasonable resid values retroactively to Dec. 1, 1993,” the group said.
That’s the date of a FERC ruling approving quality bank valuations. Various interested parties appealed that decision and a settlement was reached in 1995 between most, but Exxon and Tesoro contested it.
The disputes have continued since.
