Providing coverage of Alaska and northern Canada's oil and gas industry
August 2008

Vol. 13, No. 34 Week of August 24, 2008

TAPS owners respond

Say shippers falsely criticized efforts to follow FERC order to lower rates

By Rose Ragsdale

For Petroleum News

In a spate of filings Aug. 14 and 15 in response to shipper protests, owners of the trans-Alaska oil pipeline defended their proposals for lowering the line’s 2005 and 2006 interstate tariffs and their plans for tallying shipping rates in subsequent years.

The 800 mile pipeline runs from Prudhoe Bay on Alaska’s North Slope south to the Port of Valdez. The five owners, BP Exploration (Alaska) Inc., ConocoPhillips Alaska, ExxonMobil Production Co., Unocal Pipeline Co. (now a subsidiary of Chevron), and Koch Alaska Pipeline Co. LLC, also criticized the shippers’ objections, calling them “illogical, not true” and “without merit.”

The pipeline’s owners had outlined their calculations and plans earlier for the Federal Energy Regulatory Commission in a July 21 filing meant to comply with the commission’s June 20 order to lower the rates, issue some refunds and configure more reasonable shipping rates going forward.

With its order, the commission upheld a May 2007 administrative law judge ruling that interstate rates charged on the Trans-Alaska Pipeline System in 2005 and 2006 were not “just and reasonable.” The judge also ordered limited refunds to shippers who had overpaid.

Shippers Anadarko Petroleum Corp., the State of Alaska and Flint Hills Resources Alaska LLC filed protests and comments separately, citing reasons why the pipeline owners erred in their calculations or asked for clarification of the commission’s directions to the owners. (See story in the Aug. 10 issue of Petroleum News.)

Owners counter Anadarko’s arguments

In its Aug. 5 protest, Anadarko said it objected to the pipeline owners including in their compliance filing different proposed rates for the various years in question and trying to introduce new evidence after the hearing is closed. The shipper also said $1.92 per barrel of oil should be the rate adopted for 2005 and $2.02/bbl for 2006.

The shipper also accused the pipeline owners of improperly presenting alternative rates “based on new and untested data.”

The owners defended their right to introduce new information in the compliance filing by noting that the FERC has allowed additional data to be introduced in compliance filings in the past, “provided the data is adequately supported.”

The owners also said due process is served by allowing the shippers to review and comment on this “new” data before the commission takes any action that relies on its accuracy.

The owners called Anadarko’s arguments in support of a uniform rate “misguided,” noting that the five of them do not have the same costs, and a uniform rate would cause any owner with above-average costs to “under-recover” its cost of service.

Secondly, they do not transport volumes in proportion to their ownership shares of the pipeline’s capacity, and a uniform rate would necessarily cause an owner with throughput that is less than its ownership share of total system-wide throughput to under-recover its cost of service, the owners said.

Thirdly, an owner with a relatively small ownership share of the pipeline will be precluded by a uniform rate from recovering fixed, base-line costs that are incurred in the owner’s operation of the pipeline.

“Because a uniform rate guarantees that certain TAPS (owners) will under-recover their costs of service while other owners will over-recover their costs of service, it produces a rate that is necessarily unjust and unreasonable,” the attorneys argued.

“Anadarko is also incorrect in asserting that these problems can be resolved through pooling. Indeed, Anadarko’s reliance on pooling is tantamount to an admission that a uniform rate cannot – without a subsequent adjustment – produce just and reasonable rates for each TAPS (owner). Moreover, the commission does not have the authority to order the TAPS owners to pool revenues – a fact that Anadarko simply ignores in its Answer,” the attorneys wrote

The owners further said it is speculative to assert that the problem would be greater for the trans-Alaska oil pipeline than for other oil pipelines that set rates individually.

Criticisms lacks merit

The owners also criticized Anadarko’s protest for failing to raise any specific issue regarding the accuracy or suitability of the actual 2006 data other than “alleging that TAPS throughput ‘during the period in

Question’ was ‘abnormally low.’ ”

The owners said Anadarko failed to show that the actual level of petroleum that flowed through the pipeline in 2006 was unrepresentative, “particularly given the general declining trend in TAPS throughput over the years.”

“Anadarko further argues that the use of actual data is somehow inconsistent with Opinion No. 502. Anadarko Protest at 5-6. But nothing in Opinion No. 502 directed the Carriers not to use actual data, and nothing about the use of actual cost and throughput information for 2005 and 2006 is inconsistent with the methodology established in the commission’s order,” wrote attorneys for the owners.

They also noted that the use of actual data is consistent with commission precedent.

The owners further defended their interpretation of when the FERC meant for prospective rates to take effect, but acknowledged that the commission’s order is subject to different interpretations of how 2007 and 2008 rates should be set.

However, Anadarko is wrong in its interpretation, they argued.

“The prospective rate in this case cannot take effect from 2006 forward or supersede the 2007 or 2008 rates as Anadarko suggests,” the attorneys wrote.

In a separate filing the owners argued that Anadarko’s answer to their compliance filing should be rejected by FERC because the 20-page argument does not meet the commission’s prerequisite that such filings be “brief” and “factual.”

They further charged that Anadarko brought up many of the same issues it raised during the regular proceedings.

“In sum, Anadarko has not shown good cause for waiving the prohibition on answers to requests for rehearing. Rather, it is largely repeating its earlier arguments, which will not assist the commission in its decision-making process,” the owners’ attorneys wrote.

State protest lacks merit

The State of Alaska filed a protest Aug. 5, accusing the pipeline owners of making several mistakes in their compliance filing, including improperly using 2005 and 2006 actual cost figures, interpreting the commission’s order to set prospective rates and interjecting discussion of extraneous and immaterial issues beyond the scope of the commission’s order.

The pipeline owners said state’s protests are without merit and its claim that the prospective rate should begin Jan. 1, 2005 is illogical, given that the Supreme Court has said the meaning of “prospective” is “to be thereafter observed” and FERC’s order was issued June 20, 2008, not Jan. 1, 2005.

The owners also said the state presented no grounds to strike so-called “extraneous” issues from the compliance filing.

BP counters Anadarko’s criticisms

BP, which owns more than 50 percent interest in the trans-Alaska oil pipeline, said Anadarko is attempting to “misframe” its request for rehearing certain aspects of the FERC’s June 20 order.

BP said that it would not oppose a uniform rate if an acceptable FERC-approved pooling arrangement could be put in place that would eliminate the over- and under-recoveries that would otherwise flow from a uniform rate.

BP said its percentage ownership of the pipeline significantly exceeds its share of petroleum that flows through the line. This means the owner is “doomed to chronic under-recovery under a uniform rate system unless the commission orders full revenue pooling as a prerequisite to uniform rates,” BP argued.

BP said Anadarko’s claims that the owners’ concerns are hypothetical and that the pooling issue is not yet germane is untrue.

“The losses BPPA faces are real, they are huge, and they are imminent. If BPPA must charge a uniform rate, it stands to fall short of recovering its cost of service by tens of millions of dollars a year commencing January 1, 2009 - less than five months from today - the TAPS Settlement Agreement is terminated, unless the Commission orders pooling, as it acknowledges it has the power to do.” BP’s attorneys wrote.

Moreover, if the FERC requires pooling, it could alleviate the pipeline owners’ antitrust concerns by authorizing them to share the information needed to calculate and file uniform rates, BP said.

Anadarko asks FERC to deny Flint Hills’ motion

Anadarko Petroleum Corp., a shipper on the trans-Alaska oil pipeline, asked the Federal Energy Regulatory Commission Aug. 19 to deny a motion filed two weeks ago by Flint Hills Alaska LLC.

Flint Hills, also a shipper on the pipeline, filed comments and a motion for clarification of the pipeline owners’ approach to calculating lower rates for 2005 and 2006 and their suggestions for determining 2007 and 2008 rates.

Flint Hills also asked the FERC to direct the owners to refund to the shippers the full difference between pipeline tariffs charged for 2004 and the amounts charged for 2005 and 2006 “in light of the fact that rate calculations submitted by the Carriers are all lower than the 2004 rates.”

Anadarko said Flint Hills appears to be seeking the FERC’s endorsement of its interpretation of parts of the commission’s June 20 order, directing the pipeline owners to lower their interstate shipping rates.

Anadarko urged the commission to deny the motion, saying it is not pertinent to the only issue in question at the compliance stage of the proceedings.

The shipper said Flint Hills initially stated “correctly” that nothing in the FERC order grants the pipeline owners license to increase their rates for indexing or any other reason.

But then Flint Hills requested clarification that the compliance filing dealt only with refunds due for the 2005-2006 period and not the 2007 and 2008 rate periods.

Anadarko said no such clarification is necessary because the owners’ compliance filing does not deal with rates for the 2007 and 2008 period, which the commission plans to address in separate proceeding pending the outcome of the current case

Moreover, Flint Hills appears to be seeking endorsement of its interpretation of part of the FERC’s June 20, an interpretation that is “inconsistent” with its “plain language,” Anadarko added.

—Rose Ragsdale

Petroleum News - Phone: 1-907 522-9469 - Fax: 1-907 522-9583
[email protected] --- http://www.petroleumnews.com ---

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)©2013 All rights reserved. The content of this article and web site may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.