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Tesoro prevails in dispute with Unocal Alaska Supreme Court reverses lower court judgment in case involving $24M in RCA-ordered intrastate pipeline tariff refunds Wesley Loy For Petroleum News
The Alaska Supreme Court has sided with refiner Tesoro Alaska Co. in a case involving millions of dollars in pipeline tariffs.
The complex 16-page ruling, issued July 26, reverses a lower court ruling that had largely favored Union Oil Company of California, or Unocal.
The case centered on two crude oil purchase contracts between Tesoro and Unocal. Tesoro agreed to purchase all of Unocal’s Alaska North Slope crude production in 2000, 2001 and 2002.
Tesoro operates a refinery at Nikiski, on the state’s Kenai Peninsula.
“Under the contracts, title and risk of loss transferred to Tesoro at the outlet flange of Pump Station No. 1 of the Trans-Alaska Pipeline System (TAPS),” the Supreme Court opinion said.
The price of the oil was based on quoted crude prices on the West Coast market, minus transportation costs including tanker shipment and the TAPS tariff.
Tariff change The problem was, the contracts didn’t clearly distinguish between interstate and intrastate tariffs, or the rates for transporting oil for use outside the state and within.
That these rates were not distinguished made sense at the time the contracts were signed, as the interstate and intrastate tariffs were the same.
But this would later change, spawning a dispute and leaving the courts with the tedious task of trying to interpret the contracts.
Tesoro not only bought the oil from Unocal, it used a Unocal affiliate, Unocal Pipeline Co., to ship the oil on the pipeline. Unocal Pipeline owned a share of TAPS, and thus had “space” on the pipeline to move oil.
Tesoro was involved in proceedings before the Regulatory Commission of Alaska, challenging TAPS intrastate tariffs including that of Unocal Pipeline.
“Ultimately, the RCA found that the intrastate tariffs were unjust and unreasonable,” the Supreme Court opinion said. “In 2008, as a result of Tesoro’s rate protest, Unocal Pipeline was required to issue a refund to Tesoro of over $24 million in principal and interest.”
Who’s entitled to refunds? The oil supplier, Unocal, would lay claim to the RCA-ordered refund.
“Tesoro filed a declaratory action to establish its rights,” the opinion said.
A state Superior Court awarded Unocal the principal amount of the refund for tariffs paid on barrels of oil shipped intrastate, but denied Unocal statutory interest.
Both Tesoro and Unocal would appeal to the Supreme Court.
“The main issue in this case is which party is entitled to the RCA refunds,” said the high court opinion, written by Justice Walter Carpeneti.
Much of the opinion is devoted to an analysis of the contract language and the “netback formula” for pricing the oil.
“The parties did not expect that the contract would be adjustable based on a change in the intrastate tariffs,” the opinion said.
In the end, the high court ruled “Union Oil is not entitled to any part of the RCA-ordered refunds.”
Thus, the court reversed the Superior Court’s judgment for Unocal and remanded the case to the lower court for entry of judgment in favor of Tesoro.
Read the opinion online at http://1.usa.gov/1ctdN8n.
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