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RCA concurs with FERC TAPS opinion Agrees that the strategic reconfiguration project was imprudent and requires pipeline owners to prepare a rate refund plan ALAN BAILEY Petroleum News
The Regulatory Commission of Alaska has concurred with a November order by the Federal Energy Regulatory Commission, concluding that the owners of the trans-Alaska oil pipeline can only recover from pipeline transportation fees a portion of the cost of the electrification of the pipeline’s pumping systems, because the electrification project was imprudent. FERC had found that the project, referred to as strategic reconfiguration, had suffered from inadequate up-front engineering; major cost and schedule overruns; and a failure to demonstrate that claimed benefits from the project have actually been achieved.
Pump replacement The project involved the replacement of the original turbine-powered pumps that drove oil through the pipeline with electrically powered pumps, together with the implementation of a more automated pipeline control system. Alyeska Pipeline Service Co., the company that operates the pipeline on behalf of its owners, has said that the electric pumps enable efficient operation over a wide range of pipeline throughputs, thus better accommodating the low flow rates of oil through the line as North Slope oil production declines.
Conversion of three of the four operational pump stations along the pipeline was completed by 2009. The more complex conversion of pump station 1, at the northern end of the line, is being completed as part of a separate electrification project, with the new electric pumps for that pump station having gone into action in October 2015.
FERC regulates the commercial operation of the pipeline because most of the oil passing through the line is destined for the U.S. West Coast and is thus involved in interstate trade. However, RCA has a role in regulating the tariffs for intrastate oil, the oil that goes to destinations in Alaska. The Alaska destinations consist of oil refineries near Fairbanks and Valdez, and at Nikiski on the Kenai Peninsula.
12 tariff filings The new RCA order, which was filed on Feb. 29, actually relates to a series of 12 tariff filings dating from 2009 and 2010 from four of the then five pipeline owners, ConocoPhillips, ExxonMobil, Koch Alaska Pipeline Co, Unocal and BP. BP did not file an intrastate tariff during the period in question. The case was actually split into two parts, one considering the question of whether the strategic reconfiguration project was imprudent, and one considering some other challenges to the tariffs by pipeline users. Given the significant overlaps in the scope of the issues raised by the RCA dockets and a parallel FERC TAPS tariff case, RCA and FERC held joint hearings to gather evidence.
The case has been massively complex. According to the RCA order, the investigation involved 48 days of hearings, more than 9,000 pages of hearing transcripts and more than 1,600 pages of post-hearing briefings.
The issue dealt with in part 1, the question of the imprudence of strategic reconfiguration, was identical for both RCA and FERC. However, part 2 included some Alaska specific questions, RCA said.
FERC material and findings In its Feb. 29 order, RCA said that it is incorporating the relevant sections of the FERC testimony, exhibits and findings into its record. And, having adopted the findings from the FERC case over the recovery of the costs of the strategic reconfiguration project, the commission requires the pipeline owners to develop a compliance filing and refund plan for the pipeline fees at issue. As part of its findings, the commission has also barred the pipeline owners from including the expense of a one-off property tax payment from 2006 in a later rate case.
However, the commission is allowing the owners to recover their rate-case legal costs from the pipeline rates, and the commission has approved the use of data from certain years of pipeline operation in setting pipeline rates during the period under dispute.
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