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RCA decides not to investigate TAPS rates Producers, shippers agree now is not the time: producers say judicial decision important now; shippers say defend rates you set By Kristen Nelson Petroleum News Editor-in-Chief
The Regulatory Commission of Alaska will not open a docket to investigate current rates for intrastate shipment of oil on the trans-Alaska pipeline.
The commission took public comment on the issue Sept. 9, hearing from attorneys representing the trans-Alaska pipeline carriers (BP Pipelines (Alaska), ConocoPhillips Transportation Alaska, ExxonMobil Pipeline, Koch Alaska Pipeline and Unocal Pipeline), Flint Hills Resources, Tesoro and Anadarko.
As the attorneys took pains to point out to the commission, it was rare for two of them to agree and in this case they all agreed in urging the commission not to begin an investigation of current intrastate rates.
Their reasons, of course, were not the same. State also in agreement The State of Alaska was not represented at the hearing, but the Department of Law submitted written comments; it also opposed opening a docket on current intrastate rates.
The commission set intrastate rates in November 2002 and established a methodology, which the carriers have appealed in Alaska Superior Court. That appeal, the state noted, has been briefed and argued and the parties are awaiting a decision.
The state also said Anadarko has appealed to the Federal Energy Regulatory Commission, “alleging that the interstate rates are not just and reasonable,” and the state has asked “FERC to investigate interstate rates, alleging that the disparity between the interstate and intrastate rates constitutes discrimination,” and has asked “FERC to lower interstate rates to the level of intrastate rates.”
The carriers, the state said, “have admitted that the disparity between the intrastate rates and the interstate rates constitutes discrimination, but have petitioned the FERC to increase the intrastate rates to cure the discrimination.”
FERC has agreed to investigate the carriers’ claims, the state said, noting that “to succeed in their petition, the Carriers will have to prove that interstate shippers are subsidizing the intrastate shippers,” requiring the carriers to show actual operating costs as evidence, evidence which will likely be contested by Anadarko, Flint Hills and the state.
The state said it thinks “it would be quite difficult for the parties to be required to participate simultaneously in the current FERC proceeding investigating intrastate rates and an RCA proceeding investigating those same rates. … The cost would be significant, and it is difficult to see what could be gained.” FERC could set intrastate rates Commission Chair Kate Giard said at the Sept. 9 hearing that the commission has been told that $22 million was spent on the last intrastate hearing, which covered 5-7 percent of the oil shipped through the line.
Giard said that with trans-Alaska oil rates before it, “The FERC could establish rates for the intrastate as well as interstate service. It is far from certain, however, that the FERC will set intrastate rates.”
If FERC set interstate rates lower than the current intrastate rates, “it’s highly likely the intrastate shippers would complain to the RCA and then a new rate case would begin,” she said. Conversely, if FERC set interstate rates higher than intrastate rates, then likely the TAPS carriers would file new rates with RCA and a new rate case would begin.
What concerns RCA, Giard said, is that pipeline owners and shippers and the state have collectively “spent millions of dollars” and could be back before RCA “getting ready to spend millions of dollars again. That concerns us.”
She said RCA was looking at a docket as a way to hold concurrent hearings with FERC, providing the carriers “and shippers as well as the public an opportunity for substantial efficiencies and could potentially end the leapfrog regulatory efforts on both the federal and the state side.”
It was the desire for efficiency, Giard said, that lead RCA to ask for comments on whether it should open a docket and plan to “sit concurrently with FERC and set rates based on the financial information for the same time period.” Carriers want to hear what the court has to say Dick Veerman of Guess & Rudd, representing the carriers, said they were opposed to the commission opening a new docket, since rates have just recently been set. “We don’t believe that anything has occurred since that time to warrant opening a new docket at this time to investigate the intrastate rates.”
Those rates, along with the rate-making methodology the commission adopted in Order No. 151 in Docket P-97-4, are currently under appeal in Alaska Superior Court, Veerman said. “The TAPS carriers believe that it would be inefficient to initiate a new rate case at this juncture until we have some guidance from the courts on whether they will uphold the” rate-making methodology the commission established in Order No. 151, he said.
The carriers don’t know, he said, whether the commission would use the Order No. 151 methodology or reconsider it in a new rate case, and don’t believe it would be useful to investigate intrastate rates “applying the methodology that’s currently under review in the Alaska courts.” Flint Hills also wants legal ruling Randy Jones of Conner & Winters representing Flint Hills Resources Alaska said it was rare that he and Veerman “go in the same direction, but this is one of those rare occasions.”
The commission should not open a new docket he said.
FERC has not ruled on the carriers petition, and is unlikely to do so until late 2006, and if FERC grants relief it wouldn’t be effective immediately, probably not until 2007, so 2005 rates aren’t going to be affected, and probably 2006 rates won’t be either, because FERC rulings are prospective.
The standard the FERC is looking at isn’t just and reasonable, Jones said, it’s a discrimination standard. “It’s looking at a different issue rather than the justness and reasonableness of the actual intrastate rates.”
Flint Hills is also concerned that a new RCA docket could result in a request that the appeals before the Superior Court be stayed or remanded. “We believe we need decisions,” Jones said, noting that the appeal affects rates going back to 1997.
“This is only the first of two courts that are going to hear this and we don’t want to see anything impacting the time table on getting court — judicial decisions on those appeals so everybody knows where we stand rate-wise intrastate.” Brena: RCA should defend its rates Robin Brena, representing Tesoro and Anadarko, said in more than 20 years of practice before the commission, “this is the first time the three of us have ever agreed before this commission.”
Brena said the commission doesn’t need to open a new docket. “This commission needs to defend its jurisdiction and the rate it already set.”
When RCA does its job and FERC does its job, he said, “the rates will always be different,” and difference between state and federal rates is not a reason to investigate either.
Those rates are different Brena said, because FERC regulates under the Interstate Commerce Act and RCA regulates under the Alaska Pipeline Act. FERC is regulating competing pipelines, but there is no competition among pipelines in Alaska, “there will never be another line from the North Slope.”
Brena said what’s driving rate litigation is “a paradigm shift from a non-cost based methodology to determining services based on cost.” RCA made that shift with Order No. 151, he said, and FERC is in the process of doing that now.
If RCA wants efficiency, Brena said, and doesn’t want FERC taking over its jurisdiction and setting rates, it should defend its rates “before the FERC as a party. Don’t open concurrent hearings and throw open the door of what is a just and reasonable rate based on your methodology.”
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