Alaska Superior Court rejects state’s request for stay in TAPS tariff case

Petroleum News

Calling the state’s argument “a half bubble off,” the Alaska Superior Court has denied a motion by the state of Alaska to prevent the Regulatory Commission of Alaska from lowering intrastate tariffs for shipping North Slope crude through the trans-Alaska oil pipeline system. The order, issued by Judge John Suddock, effectively allows RCA to reduce TAPS tariffs by approximately $1.50 per barrel for the years 2001 through 2003.

Williams Alaska and Tesoro Alaska, which both own refineries in Alaska and pay shipping charges for transporting oil through TAPS, had asked RCA to reduce tariffs set by a 1985 settlement between the state and the pipeline owners, claiming the tariffs were excessively high. The pipeline owners are a consortium of subsidiaries of major oil companies, including North Slope producers BP, ConocoPhillips and ExxonMobil.

On Nov. 27, RCA ruled in favor of Williams and Tesoro on the years in question – 1997 through 2000 – and ordered the TAPS owners to refund approximately $9.9 billion in tariff overcharges. Much of that money will go back to the North Slope producers themselves as most of the oil shipped in the pipeline belonged to them, but some will also go back to the state for the shipment of its royalty oil. And other shippers who do not own a piece of TAPS, such as refiners Williams and Tesoro, will also get some of the money.

Order 151, the court said, was “a substantial defeat for the carriers and the state.” The refunds “have been stayed by corporate guarantees” accepted by the court in lieu of bonds.

But further rate setting, the court said, has proceeded under RCA docket P-03-4 for years 2001 to 2003.

The state took “a back seat” in those proceedings, “stating orally and in writing that it was indifferent to the level of temporary rates” set by RCA in light of Order 151, so long as there were “provisions for refunds if the shippers were later determined to have underpaid in light of a final rate set by the RCA and upheld in the courts,” the court said. Provisions were made for Tesoro and Williams to escrow the funds to cover such an eventuality.

But the state recently petitioned the court for a stay of Order 151, which the court said “appears to mean an injunction against utilization by the RCA of that order’s underlying methodology for rate computation.” The state wanted the court to order RCA to go back to using the higher, pre-existing rates.

The state’s motion, prepared by the state attorney general’s office, said it will suffer irreparable harm without a stay. It said it will incur litigation expense in docket P-03-4 as that proceeding goes to hearing in December. The state also said it foresees circumstances under which its royalties could decrease, if the carriers successfully petition the Federal Energy Regulatory Commission for an offsetting increase in the interstate TAPS tariff to recoup any decrease in the intrastate tariff.

The court said it has the right to issue a stay of Order 151 if it can show it is “guided by the public interest.”

The court said avoidance of litigation fess is “not a persuasive” argument and the possibility of offsetting action by FERC is “speculative.”

The court said the state argued that it had contracted away its ability to resist an offsetting action by FERC in the 1985 settlement with the pipeline owners.

The court responded by saying “This was a freely dickered business decision” and that the state’s professed harm is “highly speculative.”

The state has “aligned itself with one commercial interest group, the carriers (pipeline owners), and against another, the shippers, in an attempt to maximize royalties to the state. That may be an intelligent litigation position, but it is not a restatement of the public interest. That interest is to collect a royalty based on a fair and just transportation rate structure,” the court said, agreeing with RCA and the shippers in saying “the procedural posture of the state’s motion is half a bubble off.”

The court set a Nov. 7 date for briefs by appellants.