Oil pipeline rate may be worth hundreds of millions of dollars

Battle over obscure but important rate joins oil tax battle

Posted: Thursday, November 15, 2007

While Gov. Sarah Palin's oil tax bill is still in play, the state may already be on the way to winning one crucial battle.

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State officials have long been grumbling about what it costs to transport oil on the trans-Alaska pipeline, because that cost comes off the top before either a net tax or a gross tax is collected.

All the versions of Palin's Alaska's Clear and Equitable Share bill being discussed in the Alaska Legislature change the way pipeline shipping is charged from how companies want to do it to how the state wants to do it.

"It's worth a lot of money to the state," said Rep. Les Gara, D-Anchorage, who joined Rep. Paul Seaton, R-Homer, in persuading the House Finance Committee, and then the full House of Representatives, to adopt language calling for rates to be "reasonable."

On the street poll: The Empire asks men and women in downtown Juneau what they think. To see their comments, visit the Empire homepage and look for "Latest videos."

State Department of Revenue officials estimate the owners of the trans-Alaska pipeline charged $448 million more than it actually cost to ship oil last year. The additional charges mean lower tax revenue for the state because that money is deducted before taxes are calculated.

The owners of the pipeline are the state's big three oil producers, and if they overcharge for shipping oil it doesn't matter because they're paying it to themselves, state officials say.

"They're moving the money from one pocket to another," said Dan Dickinson, a consultant working for the Legislature.

On Wednesday, Bernard Hajny, BP Alaska's royalty and tax manager, made a last attempt to keep the higher rates and urged the Senate Finance Committee to drop the change.

"We don't believe there is a problem that needs to be fixed," he said.

BP Alaska Vice President Claire Fitzpatrick said that while hot topics such as a 22.5 percent versus a 25 percent tax rate were getting a great deal of attention, a series of other changes under consideration also would be significant tax increases.

During House Finance Committee and floor debate, some representatives said they think changing how the trans-Alaska oil pipeline tariffs are accounted for may be more valuable to the state than making a 2.5 percentage-point change in the total tax rate.

Two different agencies, one state and one federal, regulate the pipeline. The Federal Energy Regulatory Commission sets the rate to ship oil on the pipeline at $5.10 per barrel for interstate shipping, while the state Regulatory Commission of Alaska sets the rate at $1.98 per barrel.

The state rate was set after a study of a reasonable cost, while the FERC rate was simply filed with the federal agency without a study to determine what a reasonable cost would be.

The rates the pipeline has been charging have been "far above reasonable," Seaton said.

The few independent shippers who use the pipeline, including Anadarko Petroleum Co., are challenging those higher rates, and have won a preliminary victory before FERC.

An Anadarko attorney earlier told the Legislature that the pipeline overcharges have so far cost the Alaska Permanent Fund $12.5 billion over the years.

• Contact Pat Forgey at 586-4816 or patrick.forgey@juneauempire.com.

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