State, pipeline owners to open TAPS tariff negotiations

Lower tariffs would mean more money for the state's cash-strapped coffers

Posted: Sunday, February 01, 2004

Five owners of the trans-Alaska oil pipeline have agreed to begin early negotiations with the state on a tariff structure that could translate into millions of dollars for Alaska.

The original agreement, which allows oil companies that own the 800-mile line to recoup billions in construction and operating costs, was set to expire in 2011.

The major oil companies' tariff structure came under attack in recent years by in-state refiners who successfully argued before the Regulatory Commission of Alaska to get tariffs reduced.

Gov. Frank Murkowski and the pipeline owners could have reopened tariff talks - on in-state and interstate rates - as early as 2007.

"The governor had come to the owners and asked back in May 2003 to consider a 'reopener,' " said Daren Beaudo, a spokesman for BP Pipelines (Alaska) Inc., which owns 46.9 percent of the line.

Phillips Transportation Alaska, Inc. owns 28.3 percent; ExxonMobil Pipeline Co. owns 20.3 percent; Unocal Pipeline Co. owns 1.4 percent; and Williams Alaska Pipeline Co. owns 3.1 percent.

"We thought it was the right thing to do, and we are glad to take part in these upcoming discussions," Beaudo said Friday.

Under the 1985 agreement, pipeline owners are allowed to recover costs for the $8 billion line and additional expenses related to its operation.

Tesoro Alaska Co. and the Williams Alaska Petroleum Co. filed a complaint in 1997 alleging in-state rates were too high. Williams did not buy a share of the pipeline until 2000.

The RCA ruled that pipeline companies charged $9.9 billion too much to in-state shippers over a 19-year period ending in 1996.

While the RCA regulates in-state oil shipments, the Federal Energy Regulatory Commission regulates about 90 percent of the oil bound for interstate shipments.

The pipeline owners are appealing the RCA order in Alaska Superior Court. Terms of the 1985 tariff settlement require the state to defend the agreement if challenged.

Pipeline owners could be forced to reduce future charges and pay refunds if FERC or a court were to adopt the RCA tariff calculation.

Alaska receives a 12.5 percent royalty share of oil that's pumped through the pipeline after tariff costs are deducted. So lower tariffs mean more money for the state's already cash-strapped coffers.

Pipeline owners collected about $1.19 billion in 2003 on an average tariff of $3.24 per barrel, said Chuck Logsdon, chief oil economist for the state Department of Revenue.

On average, each $1 per barrel change in North Slope oil prices means about $65 million in revenue, Logsdon said.

Lower tariffs also could spur more oil development by independent oil companies seeking to ship North Slope oil through the line, said consultant Ken Boyd.

"Having the discussion sooner rather than later is good for everybody, but it's certainly good for the state and for new players," Boyd said.

Attorney General Gregg Renkes said representatives from the state departments of Natural Resources, Revenue and Law will conduct negotiations.

Negotiations would begin before March 1 and could last two years under a Jan. 22 memorandum signed by the two sides.

"A first step for the state will be to conduct meetings with important stakeholders, including the affected municipalities, legislators, shippers and explorers to solicit their concerns and ideas," Renkes said in a statement.

Municipal governments receive property tax revenue based on the value of the pipeline, which is related to the tariff.

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