TAPS overcharge tariff ruling gets hearing

Wesley Loy

Anchorage Daily News

Some two dozen lawyers converged on an Anchorage state Superior courtroom last week to argue a case involving as much as $125 million in disputed oil pipeline transportation charges.

Sitting at one table were lawyers for oil companies that own the 800-mile trans-Alaska pipeline. Joining them was a state lawyer supporting, at least in part, the position of the oil firms.

At the opposing table were attorneys for Alaska oil refiners who use crude oil moved down the pipeline, as well as lawyers for the Regulatory Commission of Alaska.

The RCA is an agency that sets the rates that pipeline owners can charge to carry oil for in-state use. Commissioners in November 2002 issued a landmark, 486-page order that said the owners had significantly overcharged.

The ruling thrilled operators of Alaska refineries, including Tesoro, whose attorneys had long argued that their clients were paying too much in transportation costs on North Slope crude oil they use to make gasoline, jet fuel and other finished products.

But attorneys for the pipeline owners including majors BP, ConocoPhillips and ExxonMobil disagree and are appealing the RCA ruling in court.

On April 21, attorneys on all sides hashed through some of the extremely complex issues in the case.

The RCA ruling had broader implications than the dollars in dispute between the pipeline owners and the Alaska refinery.

Pipeline transportation costs are an important factor in determining revenue the state receives for production of oil on state-owned North Slope land.

Lower pipeline costs result in a smaller transportation deduction from the state’s share. It can mean tens of millions of extra dollars for state coffers.

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Levy added, however, that the state isn’t contesting the lower rates the RCA ordered.

She said the state supports lower rates for moving oil, whether the oil is used inside or outside Alaska.

Central in the case is how the owners account for depreciation, or loss in value of the pipeline as it ages. The pipeline has been operating since 1977, and currently carries nearly 1 million barrels of crude oil daily.

Attorneys for the RCA and for Tesoro say the pipeline owners have tried to twist depreciation methods in their favor to collect far more in pipeline charges than they deserve.

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Using an overhead projector, he put up a set of figures showing that the owners had spent $9 billion to build the pipeline, collected $50 billion in revenue since, and made more than $30 billion in profit.

“Does everybody agree with this?” the judge asked, looking at the table where the oil company lawyers sat. They all shook their heads no.

Former Alaska Attorney General Charlie Cole, representing the RCA, argued the oil companies sought to recoup their investment in the pipeline twice.

“And the commission said, ‘Not on your life!’” Cole said.

Steven Reed, a Washington, D.C., attorney representing the oil companies, argued that the five commissioners might have been improperly influenced by an economic adviser who wrote against the companies in a master’s thesis.

Reed also defended how the companies had depreciated the pipeline and suggested that the judge return the case to the RCA for more work. And he said Brena had understated the cost of building the pipeline and incorrectly calculated profits, though he didn’t offer a profit figure of his own.

Brena urged the judge not to kick the case back to the RCA, saying his company already had spent many years and dollars seeking fair pipeline rates.

At the end of the three-hour hearing, Suddock thanked the lawyers and said he would do his best in making a decision. He didn’t offer a timeline.