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FERC limits retroactive refunds in decision Commission cites desire to meet stipulations of new federal law in TAPS Quality Bank case based on 1993 change in valuation Rose Ragsdale Petroleum News Contributing Writer
The Federal Energy Regulatory Commission Oct. 20 issued an order largely affirming an administrative law judge’s initial decision involving a method for compensating shippers according to the quality of the crude oil they ship through the trans-Alaska pipeline system. But the commission limited retroactive refunds ordered by the judge on one type of material addressed in the ruling as required by a new federal law.
“This is a very complicated case with a long history and a voluminous record. I hope our action today marks the final chapter in the disputes surrounding the TAPS Quality Bank,” Commission Chairman Joseph T. Kelliher said in an Oct. 20 statement.
TAPS is a common carrier owned and operated by six companies: Amerada Hess Pipeline Corp., BP Pipeline (Alaska) Inc., ExxonMobil Pipeline, ConocoPhillips Transportation Alaska Inc. (formerly known as Phillips Transportation Alaska Inc.), Koch Alaska Pipeline Co. (formerly Williams Alaska Pipeline) and Unocal Pipeline Co.
The quality of the crude shipped from the North Slope on an 800-mile pipeline operated by TAPS differs depending upon where it is produced. Because the crude is commingled into a common stream in the 48-inch-diameter line, shippers may receive at Valdez a different quality of crude than what the shipper had injected into TAPS. Oil sold as a blend FERC’s order involves the TAPS Quality Bank, which was created in the early 1980s to compensate shippers of higher quality crude that is commingled with lower quality crude from another shipper.
Oil from the Alaska pipeline is sold as a blended liquid in Lower 48 markets. The quality bank makes up for differences in the value of material contributed to the blend.
Shippers of poorer quality crude oil and refineries that return oil to the line after taking out some of its valuable components to make gasoline, jet fuel and heating oil pay money into the quality bank. Shippers of better quality crude take payments from the bank.
In previous decisions, FERC adopted a valuation methodology using a distillation method for valuing various components of the crude oil. With the distillation method, the crude oil is separated into “cuts,” such as butane, propane, naphtha and resid. The market values assigned to each cut and the value of a crude oil stream is determined by the relative weighting of the cuts.
The Commission applied the distillation methodology prospectively, without refunds. 2004 valuation ruling affirmed In the Oct. 20 order, the commission affirmed an administrative law judge’s Aug. 31, 2004, ruling on valuation of resid, a low-value material in the crude stream, with a minor modification and limited the retroactivity of refunds ordered by the judge to Feb. 1, 2000, or less than five years.
The judge had ordered refunds on resid going back 12 years to December 1993, the date of FERC’s ruling approving the quality bank valuations. Various interested parties appealed that decision and a settlement was reached in 1995 between most, but Exxon and Tesoro contested it. Disputes ensued.
FERC said it limited the retroactive refunds on resid in keeping with stipulations passed by Congress in the Motor Carrier Safety Reauthorization Act of 2005.
The new law followed concerns raised by U.S. Sen. Ted Stevens, R-Alaska, about the implications of the Aug. 31, 2004, decision in the 15-year-old dispute.
Oil companies and refineries also complained to the commission about the judge’s 949-page decision.
Flint Hills Resources Alaska LLC, a subsidiary of Koch Industries, operates a major refinery in North Pole. Flint Hills was among companies that expressed dissatisfaction with the FERC administrative law judge’s decision.
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