Lawmakers worried about gas line tariffs

Pipeline rate dispute may have implications in new developments

Posted: Tuesday, March 06, 2007

JUNEAU - Federal regulators are questioning how oil flowing through the trans-Alaska pipeline is charged, prompting some Alaska lawmakers to say this could serve as a warning for a producer-owned natural gas pipeline.

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The company that manages the oil pipeline is owned largely by a consortium of BP PLC, ConocoPhillips Co. and Exxon Mobil Corp., but other oil companies say they are being charged too much to send their oil down the 800-mile pipeline.

State lawmakers are paying close attention to a dispute over rates - or a tariff - between the consortium, Alyeska Pipeline Service Co., and Tesoro Corp. and Anadarko Petroleum Corp.

Tariffs cover transportation rates, terms and conditions for the service. Higher tariffs mean lower royalties for the state and higher costs for companies paying to use the pipeline.

The issue comes as state lawmakers begin reviewing Gov. Sarah Palin's plan called the Alaska Gasline Inducements Act, or AGIA, and tariff structure will be a critical component of the proposed natural gas pipeline.

"The three most important things - bar none - are the tariff, the tariff, and the tariff," said state Rep. Carl Gatto, R-Palmer, who co-chairs the House Resources Committee.

"Both pipelines, the one that exists and the one that is coming, and AGIA, are all the same issue: develop resources so we can run the state."

The Federal Energy Regulatory Commission is in the middle of reviewing the oil pipeline dispute that may ultimately be resolved by the courts, state officials and lawmakers said.

Tesoro, a refiner, and Anadarko, a producer, want the federal rates to be closer to the state rate, which would drop their fees by about $3 a barrel, the companies said. The companies haven't quantified the difference yet, because the lower tariff would be offset in part by a higher royalty to the state, but could result in millions of dollars in savings for them.

On Monday, the House Resources Committee discussed but took no action on the FERC report. The report from the agency's legal department has sided with Tesoro and Anadarko in the dispute.

Tariff adjustments are submitted to FERC, which can approve, deny or conditionally approve pending appeals, which means the higher rates go into effect.

The battle has lawmakers concerned over potential fallouts from having producers own any natural gas pipeline.

Producers Exxon Mobil, ConocoPhillips and BP have told House and Senate committees they have every fiscal motivation to keep the costs down if they are chosen to build the natural gas pipeline. The producers also argued that they have the financial stability and a proven track record to undertake such a project.

What they don't have any longer is an exclusive deal to build the project, like they had last year with the former governor. When Palin took office, she totally rewrote the process to build a pipeline, proposing a competitive bidding process which has attracted more interest than just from the big three oil companies.

While lawmakers have expressed concern about a producer-owned pipeline, Palin's plan calls for an openly competitive process. She introduced her bill on Friday, and lawmakers could start holding hearings on it as early as next week.

Sen. Gene Therriault, R-North Pole, said producers won't be prejudged.

"We could go end up going arm-and-arm with them to FERC and say this is how we'd like the pipeline to be run and how we can avoid these potential pitfalls," he said.

Even though there are many unknowns at this point, at Monday's committee meeting, lawmakers held up the tariff dispute as an example of a glitch in the current pipeline structure.

"The report appears to say perhaps we made some errors," Gatto said. "It tells us, are these errors correctable and more importantly, don't make the same errors for the gas line."

A prohibitive tariff structure could preclude additional North Slope natural gas exploration from independent companies such as Anadarko, because of the potential costs to transport the gas.

Palin's proposal pledges to expand the pipeline project when new gas is available. This can accommodate untapped fields; for now there are about 35 trillion cubic feet of proven natural gas reserves on the North Slope.

"If indeed we have no control over the tariff, then I'm fearful for the result of getting independent explorers to go out and look for the additional gas," Gatto said.

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