State files appeal on oil-pipeline charges

Posted: Sunday, February 09, 2003

ANCHORAGE - The state is appealing a regulatory decision that cut rates for oil shipped through the trans-Alaska oil pipeline to in-state customers.

The state is vitally interested in pipeline tariffs because state royalties and severance taxes are based on the price of the oil after transport charges have been subtracted. Higher pipeline charges mean lower revenues for Alaska.

Tesoro Alaska Petroleum and Williams Alaska Petroleum in 1986 challenged rates they were being charged for oil carried down the pipeline to supply the two companies' refineries in Nikiski and North Pole.

The Regulatory Commission of Alaska ruled in November that the rates were, on average, 57 percent too high. The pipeline owner companies immediately appealed to Superior Court.

Now, the state is filing its own independent appeal of the RCA ruling, said Attorney General Gregg Renkes, with Superior Court Judge Eric Sanders.

"The real reason for me to make a decision to be in the proceeding is that we need to be a participant at the table," Renkes said.

If the companies involved in the dispute decide to talk about a settlement, Gov. Frank Murkowski said in a statement, "it is imperative that the state be involved in those talks."

Indeed, Renkes said, he has started negotiations with the pipeline owners to hash out a new agreement to set rates after 2011, when a long-term settlement agreement between the state and the owner companies expires.

The state entered into a settlement agreement with pipeline owner companies in 1986. That agreement set maximum rates those companies could charge for oil sent through the pipeline.

The agreement allowed the owners to depreciate the pipeline faster than they would normally in exchange for other concessions, Renkes said.

But the regulatory commission said that once the owners reduced the value of the pipeline with that depreciation, they could only charge based on that depreciated value.

That's not fair to the owners because they gave the state concessions to get the agreement on the depreciation, Renkes said.

"The fundamental thing is cherry-picking one element out of the settlement," Renkes said.

The other big issue for the state is setting one rate for the oil that passes through the line instead of allowing each owner company to charge different rates, as the settlement allows.

Each owner is fundamentally a different carrier, he said.

"It's like a bunch of straws, not one big pipe," Renkes said. "The state - we think it's better to have separate rates and bargaining."

As oil flow declines, there's more capacity up for auction, he said, and rates should decline, assuming there's no collusion, which would be a violation of antitrust laws.

The pipeline is owned principally by the big North Slope producers. BP holds about 46.7 percent, ConocoPhillips 28.3 percent, and ExxonMobil 20.3 percent. Williams has 3.1 percent and Unocal 1.4 percent.

The companies, excepting Williams, filed their own appeal of the RCA decision and have posted a guarantee of just more than $100 million. Since the bond represents 125 percent of the potential refund to Tesoro and Williams, those two companies could be due to collect about $80 million, said Robin Brena, who is representing Tesoro in the case.

The commission ruling on the refunds applied to just four years, 1996 to 2000. If the RCA decision is upheld in the courts, further refunds would be forthcoming for the years from 2001 on.

The RCA regulates only oil that is transported for use within the state of Alaska.

More than 90 percent is sent out of state on tankers, and pipeline charges for that oil are regulated by the Federal Energy Regulatory Commission. So far, those interstate rates have not been challenged.

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