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RCA accepts TAPS filings, rejects objections to rate refund amounts
The Regulatory Commission of Alaska has issued an order accepting pipeline rate refund calculations filed by four trans-Alaska pipeline owners in response to a February 2016 decision by the RCA over a major pipeline system upgrade known as strategic reconfiguration. In accepting the refund filings, the RCA has rejected objections by Anadarko Petroleum, Tesoro Alaska Co. and the state of Alaska to the manner in which the refunds were calculated. The objectors to the calculations are all shippers of oil on the pipeline system - they have questioned the recovery by the owners through the pipeline rates of costs associated with the strategic reconfiguration rate case.
Strategic reconfiguration 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.
The 2016 decision by the RCA said that the pipeline owners had overcharged the pipeline shippers for strategic reconfiguration costs - hence the need for rate refunds.
A complex case The length and complexity of the strategic reconfiguration case, which has continued for several years, reflects the complexity of the arrangements for the management, use and government regulation of TAPS, and the complexities of the strategic reconfiguration project. The case revolved around the extent to which the pipeline owners could recover the costs of the highly expensive project through the rates charged for the shipment of oil through the pipeline.
The pipeline owners want to recover as much cost as possible through pipeline rates, while oil shippers without pipeline ownership interests want the rates to be as low as possible. The state also has an interest in low pipeline rates, to maximize the value of the oil on the North Slope and hence to maximize state oil revenues.
Because TAPS carries both interstate oil, destined for locations outside Alaska, and intrastate oil for use inside the state, the Federal Energy Regulatory Commission and the RCA both separately regulate the pipeline system: FERC regulates interstate transportation while the RCA regulates the intrastate component. Both agencies were involved in the challenge to the recovery through rates of the strategic reconfiguration costs.
In November 2015 FERC issued an order disallowing the recovery of much of the strategic reconfiguration costs through the pipeline rates. And in February 2016 the RCA issued an order largely following the findings of the FERC decision.
Imprudent project Both agencies said that the project had been imprudent, given inadequate up-front engineering; major cost and schedule overruns; questions over the extent to which the project was actually necessary; and a failure to demonstrate that claimed benefits from the project have actually been achieved.
The commercial arrangements for TAPS act as if the pipeline consists of several distinct lines, each operated by an individual pipeline owner. Each owner charges its own rates for the shipment of its customers’ oil through the owner’s portion of the line. During the period of pipeline operation under challenge in the strategic reconfiguration case, four pipeline owners were transporting intrastate oil on behalf of in-state customers. These four owners were ConocoPhillips Transportation Alaska Inc., Koch Alaska Pipeline Co., ExxonMobil Pipeline Co. and Unocal Pipeline Co. BP was also a pipeline owner but did not carry any intrastate oil during the period in question.
Recovery of rate case costs In conjunction with its concurrence with the FERC strategic reconfiguration decision, the RCA did allow ConocoPhillips, Koch, ExxonMobil and Unocal to recover from pipeline rates their costs incurred in the FERC and RCA strategic reconfiguration case. Anadarko, Tesoro and the state of Alaska objected to this arrangement, saying that the pipeline owners were being allowed to recover costs associated with a project that had been deemed imprudent. Moreover, Anadarko and Tesoro claimed that, since FERC was also allowing the recovery of a portion of rate-related expenses from pipeline rates, the owners would end up recovering more than the total rate case related costs.
In a previous ruling, dating from June 2016, the RCA upheld the recovery by the pipeline owners of their rate case costs - essentially, the commission said that the rate case itself had been prudent and properly conducted. And, because the recovery of those costs was split between interstate and intrastate rates in proportion to the amount of interstate and intrastate oil carried, there would be no over-recovery of the costs, the RCA said in its new ruling.
Commissioner Stephen McAlpine had dissented from the June 2016 order and continued his dissent in the new order in the strategic reconfiguration case. Alaska statutes, unlike federal statutes, prohibit the recovery from pipeline rates of indirect costs, including costs such as attorney fees, associated with imprudent expenditures, McAlpine argued.
- ALAN BAILEY
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