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Supreme Court affirms pipeline value decision

Posted: February 20, 2014 - 1:10am

ANCHORAGE — The Alaska Supreme Court on Wednesday handed Alaska municipalities a victory in a dispute over the value of the trans-Alaska pipeline, affirming that the structure for 2006 should have been valued at nearly $10 billion, not the $850 million claimed by pipeline owners.

The justices backed a Superior Court ruling that based the value of the pipeline on replacement costs, not fees paid to the owners for use of the pipeline.

The higher value means more tax revenue for municipalities through which the pipeline runs, especially the North Slope Borough, the Fairbanks North Star Borough and the city of Valdez, the parties in the lawsuit. The municipalities have long argued that pipeline owners have undervalued the 800-mile pipeline and tanker-loading facilities in Valdez.

“I’ve got a smile on my face today,” Fairbanks North Star Borough Mayor Luke Hopkins said. “The Supreme Court validated what our position has been all along.”

State Rep. Dave Guttenberg, D-Fairbanks, in a prepared statement praised the municipalities for seeking additional revenue and faulted the state for not intervening.

“The court has made it clear: It’s about time the state starts living up to its constitutional obligation to maximize the benefit to Alaskans from their natural resources,” he said. “The governor needs to reverse course and stand up for Alaskans instead of giving their resource wealth away at every opportunity.”

Sharon Leighow, a spokeswoman for Gov. Sean Parnell, said the court affirmed the state’s method for assessment based on replacement value.

“Although we are still reviewing the decision, the State’s methodology, upheld by the court, leaves more money in the people’s treasury,” she said by email.

Alyeska Pipeline Service Co. spokeswoman Michelle Egan was traveling out of state and was not immediately available.

The case focused on how the state would calculate the value of the pipeline in 2006. A Department of Revenue assessor, basing the value on replacement costs, set the value at $3.6 billion. That figure was appealed by both the owners and the municipalities.

The State Assessment Review Board sided with the municipalities, but it raised the valuation only to $4.3 billion.

Again, the owners and the municipalities appealed. After a five-week trial, Superior Court Judge Sharon Gleason, who has since moved to the federal bench, in May 2010 settled on a far higher number.

She concluded that the replacement-cost approach was proper and agreed with the municipalities that the assessment board had made mistakes. Gleason said the pipeline enables production from North Slope oil fields. She calculated the higher number based on an estimated $18.7 billion replacement cost minus depreciation and other factors, leaving the final figure at $9.98 billion.

The ruling resulted in a windfall in December 2010 for municipalities — with the understanding that an unfavorable Supreme Court ruling might mean they would have to return money to pipeline owners. The money has in effect been put in escrow, Hopkins said.

The North Slope Borough received $35 million in back-tax payments; Valdez received $32 million; and Fairbanks about $9 million. Anchorage received $4.6 million, and the state received $73.6 million based on the higher assessed value of the pipeline, and the money was placed in the Constitutional Budget Reserve.

The Supreme Court rejected the owners’ argument that state lawmakers intended true value to mean “fair-market value” determined by the value of the pipeline’s income from tariffs for all pipeline property. Justices found no error in Gleason’s conclusion that there is a limited market for sale of individual ownership interest in the Trans-Alaska Pipeline System and that North Slope oil production and pipeline ownership are inextricably linked.

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