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State talking about tariff with TAPS owners Alaska’s AG looks for early reopener of oil pipeline tariffs Larry Persily Petroleum News Juneau Correspondent
Alaska’s attorney general says he anticipates reaching an agreement later this fall with the owners of the trans-Alaska oil pipeline to begin negotiations for a new tariff structure on the line, with the hope of finishing the deal within a year.
The existing rate structure for interstate oil shipments was set when the state and pipeline owners settled the tariff case in 1985 before the.
“We’re moving into another phase of oil development,” and it could be a good time to revise the tariff structure, said Attorney General Gregg Renkes.
Critics of the state’s 1985 settlement say it’s time to negotiate a lower tariff structure for oil moving through the line, and Renkes doesn’t disagree that reduced charges would be good for Alaska. “We want to encourage investment … we want explorers.”
Anadarko Petroleum Corp. is among the smaller producers and explorers in Alaska following the pipeline tariff case. “It is a huge issue for the future of the state,” said Mark Hanley, Anadarko spokesman in Alaska. “What those rates are in the future is a big deal.”
Anadarko owns a 22 percent share of production from the Alpine field, about 18,000 to 20,000 barrels a day, but hopes to have a lot more oil in the future and is concerned over the cost of moving that oil through the pipeline. Issue greets new governor The battle over pipeline tariffs greeted the new administration of Gov. Frank Murkowski when the Regulatory Commission of Alaska one week before the governor’s inauguration ruled the pipeline owners had overcharged shippers for in-state transportation of oil from 1997 to 2000.
Williams Alaska Petroleum Co. and Tesoro Alaska Co. filed the complaint in 1997, alleging they were overcharged for North Slope oil shipments to their in-state refineries. The RCA determined the tariffs were about $1.50 per barrel too high, and set new rates and ordered refunds for those years.
A key difference between the RCA ruling and the 1985 TAPS Settlement Methodology, or TSM, is how to account for depreciation of the pipeline. Proponents of a lower tariff say the 800-mile pipeline, which opened in 1977, is fully depreciated. They allege the TAPS settlement allows the owners to recover too much money on their original investment.
Hanley believes capital recovery and how it affects the rate base will be a major issue in any tariff negotiations.
The pipeline owners are appealing the RCA order in Alaska Superior Court, with the state also appealing on some of the same points. Terms of the 1985 tariff settlement before the Federal Energy Regulatory Commission require the state to defend the agreement if challenged. Critics say tariffs too high Some critics of the tariff settlement, who believe the rate is too high and stifles new development of Alaska’s oil resources, have called on the governor to not only walk away from the deal that requires the state to help defend the 1985 settlement but also to push for a new Federal Energy Regulatory Commission case that would apply the lower tariff to interstate oil shipments, too.
Pipeline owners collect more than $1 billion a year in tariffs. The rates vary between pipeline owners and change annually, and are running close to $3.25 per barrel this year. North Slope oil shipments down the line are running just under 1 million barrels per day.
The Regulatory Commission of Alaska regulates in-state tariffs, with FERC in charge of interstate rates. The RCA ruling affected only in-state rates starting with the complaint in 1997.
If FERC or a court were to adopt the RCA tariff calculation and apply it to interstate rates, the pipeline owners could face billions of dollars in reduced future charges and refunds — but no such claim is before FERC yet. Any such decision on the federal level could mean a windfall to the state, since a lower tariff would mean a higher wellhead value for the oil, and state royalty and production tax revenues are based on wellhead values.
However, the 1985 TAPS settlement provides a method for determining total revenue necessary to operate the line, and any reduction of in-state tariffs could mean an equal increase in interstate charges to make the owners whole.
State asked for early reopener The state’s effort to negotiate a new tariff is an attempt to speed up the process set out in the 1985 settlement, which expires in 2011 with a provision for reopener negotiations to start as early as January 2007. The administration asked and the owners agreed to an early reopener, Renkes said, noting there is no prohibition against moving up the date.
State and company officials are drafting a memorandum of understanding that would set out the goals for new tariff negotiations, including what would be on the table and who would sit at the table, the attorney general said, adding he hopes to have the actual tariff deal finished a year after talks begin.
“No one is compelled to be here,” Renkes said of the early effort to reopen tariff negotiations, adding that any agreement will need to provide something of value for the state and pipeline owners if it is to succeed. In addition to depreciation of the line, he said other financial issues possibly on the table include dismantlement, removal and restoration costs charged by pipeline owners for the eventual end of service.
The departments of Revenue and Natural Resources are assisting the Department of Law in discussions for the memorandum of understanding.
Other producers may join talks One unanswered question is whether other parties will sit at the negotiating table when the state and pipeline owners open up the tariff settlement. That question may be addressed in the memorandum talks under way, Renkes said.
Anadarko is among the non-owner producers that are worried about future tariffs. “There is some benefit to being at the table,” Hanley said.
“But I am not sure a settlement is a good idea. The state is not going to get something for nothing,” and Anadarko is concerned that the state take a long-term view of tariffs and recognize their importance to independent explorers and producers.
“There is a risk that lower tariffs now could lead to higher tariffs later,” after 2011 when the current agreement expires, Hanley said.
Pipeline owners are BP at 46.93 percent; ConocoPhillips, 28.3 percent; ExxonMobil, 20.34 percent; Williams, 3.08 percent; and Unocal, 1.35 percent.
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