Tariff ruling may lead to higher state oil revenues

Palin says decision will bolster future gas pipeline deal

Posted: Sunday, May 20, 2007

FAIRBANKS - An administrative law judge's ruling that rates have been too high for shipping oil through the trans-Alaska oil pipeline could mean higher earnings for state coffers.

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The 116-page ruling released Thursday by Carmen Cintron, the judge with the Federal Energy Regulatory Commission, said past pipeline shipping rates were too high and the consortium of companies that own the pipeline should refund excess revenue collected over the past two years.

It also sets the stage for future oil revenues coming into the state treasury to increase "very significantly," according to Antony Scott, an economist with the state.

"It's a good ruling," Scott said.

The state collects its percentage of oil revenues after tariffs have been levied on the wellhead value of a barrel of oil. Lower tariffs mean the state percentage per barrel is worth more.

The case revolves around an inconsistency in the cost to move a barrel of oil through the pipeline, a cost set annually by pipeline owners that include BP, Exxon Mobil and ConocoPhillips.

Currently, tariffs for oil sent through the pipeline bound for sale out of state are higher than for oil sold within Alaska, even though the oil is moving through the same stretch of pipe.

In December 2004, the state, Anadarko Petroleum Corp. and the Tesoro Corp. challenged that inconsistency by arguing that the higher rates should be lowered to around $2 per barrel. Pipeline owners recently proposed to raise the lower rates as high as $5.29 per barrel.

Cintron's ruling sided with the state but only a recommendation to the full FERC board, which will meet on the matter later in the year.

If the FERC agrees with the ruling, it will mean the pipeline owners will have to refund excess revenue collected over the past two years. It will also mean that the proposed tariffs for 2007 have been negated and must be filed again.

After the FERC makes a final ruling, the parties will have the opportunity to appeal the decision to the U.S. District Court.

Gov. Sarah Palin on Thursday said the decision bolsters the state's argument that tariffs will be an important element in a future gas pipeline contract.

"This reaffirms the need to ensure low tariffs on oil and gas lines," Palin said. "This is why we spent a great deal of time working on structuring the Alaska Gasline Inducement Act to maximize value for the state and ensure low tariffs. We're pleased with the FERC decision and we look forward to continued progress on this issue."

Spokesmen for Anadarko and BP said they were reviewing the document and were not ready to comment.

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