TAPS owners seek higher tariffs for 2005

Rose Ragsdale

Petroleum News Contributing Writer

Owners of the trans-Alaska oil pipeline system are seeking substantially higher tariffs for crude being shipped outside the state in 2005, according to recent regulatory filings.

In documents filed Dec. 1 with the Federal Energy Regulatory Commission, the TAPS owners will ask shippers to pay up to 28 percent higher interstate transportation rates in 2005 for oil moved on the 800-mile trans-Alaska oil pipeline.

Unlike most oil pipelines, which base their tariffs on the producer price index, TAPS charges shipping rates calculated using a cost-based model approved by the owners, the state of Alaska and FERC in a 1985 settlement.

Each of the five owners will seek higher tariffs in 2005, ranging from $3.52 to $3.98 per barrel. The new transportation rates will apply to all crude types shipped destinations outside the state from the North Slope, according to filings made with FERC by the five owner companies.

BP Pipelines (Alaska) Inc., which owns slightly more than a 50 percent interest in TAPS, is asking $3.86 per barrel, up 28 percent from $3.01 per barrel this year.

“The new rate was reached under the (TAPS Settlement Methodology) formula, which takes into consideration operating costs, depreciation, taxes and other components,” BP spokesman Daren Beaudo told Petroleum News Dec. 9.

ConocoPhillips Transportation Alaska Inc., which holds more than a 26 percent stake in TAPS, will ask $3.52 per barrel, up nearly 9 percent from $3.23 per barrel in 2004. ExxonMobil Pipeline Co., which owns the third-largest share of TAPS, will seek $3.60, up 17.6 percent from $3.06, while minority owner Koch Alaska Pipeline Co. LLC wants $3.97 per barrel, or 7 percent more than the $3.71 per barrel that Williams Alaska sought in 2004 for the 3 percent interest in TAPS that it later sold to Koch. Unocal Pipeline Co., another minority owner, aims to charge $3.98 per barrel for 2005, compared with the $3.55- per-barrel tariff it sought for this year.

Assistant Attorney General Wilson Condon told Petroleum News that Alaska has until Dec. 16 to protest the tariff hikes. Condon supervises the oil, gas and mining section of the Alaska Department of Law.

The state of Alaska has filed protests of some aspects of TAPS tariffs in the past, but is precluded from protesting other aspects of the shipping rates under provisions of the earlier TAPS settlement, Condon added.

State protests pipeline price hike

Petroleum News

According to a Dec. 16 story in the Anchorage Daily News, state officials say they disagree with the proposed rates before the Federal Energy Regulatory Commission because of the big difference in the rates for shipping oil for use within the state versus oil that is destined for the Lower 48 via tankers. State officials say this constitutes “discrimination” forbidden under both a 1985 TAPS rate settlement between the state and the pipeline owners, as well as under federal interstate commerce law.

Currently the tariff for oil being purchased for in-state use (for example, by refineries at Valdez) is about $1.96 per barrel as compared to $3.01 per barrel for oil headed outside the state. The largest hike being proposed from TAPS owners is the 28 percent hike BP has requested which would take the out-of-state rate from $3.01 to $3.86 per barrel.

The main reason for the significant difference between the current out-of-state tariff set by FERC and the in-state tariff set by the Regulatory Commission of Alaska is the 1985 TAPS rate settlement agreement that governs how tariffs are determined. That settlement was set aside by RCA following a successful protest by shippers. Those shippers are currently battling TAPS owners in Alaska Superior Court.

State: high tariff could discourage exploration

Renkes is also concerned that higher pipeline tariffs will discourage oil companies that don’t own a share of the pipeline from exploring for new oil on the North Slope.

Tariff negotiations failed

“Unfortunately, we were not able to do that,” Renkes said. “We worked hard, no one’s really at fault, but it’s a very difficult subject.”

BP and Conoco, which together own about 75 percent of the pipeline, told the Anchorage Daily News that the out-of-state shipping rates they are proposing for next year are fair and proper.

Conoco spokeswoman Dawn Patience said her company’s proposed tariff reflects, in part, a lower than expected flow of oil down the pipeline recently, raising costs per barrel shipped.

BP spokesman Daren Beaudo said some years his company’s tariff has dropped, not risen. He said next year’s proposed tariff was calculated precisely under the 1985 agreement to cover the company’s pipeline operating costs plus provide a profit.