|
RCA upholds TAPS case expense recovery Majority of commissioners say that pipeline owners can recover litigation expenses relating to challenge to imprudent project ALAN BAILEY Petroleum News
The Regulatory Commission of Alaska has rejected a request from the state of Alaska to prohibit the owners of the trans-Alaska pipeline from recovering through pipeline rates their $58 million in litigation expenses relating to a major rate case for the pipeline system. The hugely complex rate case, which extended over several years, concerned the recovery of the cost of a major pipeline upgrade involving the electrification of the pipeline pumping systems and the implementation of a more automated pipeline control system. The case involved the RCA for the transportation of oil used in Alaska and the Federal Energy Regulatory Commission for the shipment of oil that is exported from the state.
Both government agencies disallowed the recovery from pipeline rates of a significant portion of the project costs because the agencies determined that the upgrade project had been imprudent. However, both agencies allowed the oil companies to recover from rates the cost of the litigation involved in the case.
Indirect cost? The state has challenged the decision to allow the recovery of the litigation costs, saying that under state law the companies cannot recover from rates “the direct or indirect costs of any unreasonable practices or imprudent expenditures.” The litigation costs associated with the TAPS rate case constitute an indirect cost from an imprudent project and should, therefore, be disallowed from cost recovery, the state has argued.
A majority of the RCA commissioners have rejected the state’s argument and have said that previous cases cited by the state do not support the state’s positions. Essentially, state law prohibits the recovery through rates of imprudent litigation costs but does allow the recovery of reasonably incurred costs, regardless of the outcome of the rate case, the majority said in an order declining the state’s request.
“No person or party challenged the prudency of rate case expense in this 12-docket proceeding,” the majority wrote. “Nor were there any assertions during the entirety of the proceeding that, if the … project was found imprudent, the (pipeline) carriers should as a consequence not be allowed to recover their rate case expense.”
In a dissenting opinion Commissioner Stephen McAlpine said that state law does prohibit the recovery of litigation costs in a case such as the TAPS rate case, where an action by the pipeline owners is found to be imprudent.
“If the act or expenditure was unreasonable or imprudent, the need to defend it is an indirect cost of the imprudence and should not be allowed,” McAlpine wrote.
| 