State and Alpine Transportation reach tariff agreement at FERC

Regulatory Commission of Alaska Public Advocacy Section objects to agreement; commission reschedules evidentiary hearing to October

Kristen Nelson

PNA Editor-in-Chief

The Regulatory Commission of Alaska is getting closer to a decision on a tariff for the Alpine pipeline and has an evidentiary hearing on a tariff settlement agreement scheduled for Oct. 5.

The Alpine crude oil line went into operation in November 2000 with a tariff rate of $1.10 a barrel from the field to the interconnection point with the Kuparuk pipeline at the Kuparuk River. That rate was based on an estimated annual throughput of 29.9 million barrels and a total revenue requirement of $32.8 million (operating expenses of $5.2 million; depreciation and amortization of $8.7 million; taxes of $6.7 million; and $12.3 million return on estimated $115 million with a weighted cost of capital of 10.67 percent rate of return derived from a 13 percent return on equity and 7.3 percent average cost of debt).

The state objected to the tariff on a number of grounds, including final project costs which significantly exceeded initial estimates, raising concerns about prudent cost and investment. The state also said that the rate may be designed to recover costs which are not used and useful, nor of benefit to Alpine pipeline shippers, including the costs of the Alpine diesel pipeline, the Alpine seawater/fuel gas pipeline, a fiber optic control line and the Nuiqsut natural gas pipeline.

Other issues include federal and state income tax expense related to dismantlement, removal and restoration; whether the depreciation life of the pipeline has been understated; and whether the pipeline was constructed with excess capacity in the expectation that it will carry production from potential future developments, resulting in early shippers bearing unjust and unreasonable rate burdens.

Temporary rate approved

The commission's Public Advocacy Section was also made a party to the proceedings. Since that time the commission has granted various requests for extensions for discussion between the state and Alpine Transportation and for the filing of comments by various of the parties.

The tariff was also filed with the Federal Energy Regulatory Commission and the state and Alpine Transportation negotiated under the auspices of a FERC settlement judge.

Alpine Transportation and the state reached a settlement, filed with the commission July 27, and the evidentiary hearing was scheduled so that the commission could ask questions about the substance of the settlement. The state and Alpine told the commission that the agreement will resolve the state's protests against Alpine's rates, determine Alpine's remedial obligation to its shippers for all past periods and establish a framework for determining future Alpine tariffs designed to avoid controversy for the life of the line.