Panel finds pipeline operators overcharged in-state refineries

Posted: Friday, November 29, 2002

ANCHORAGE, Alaska - A state watchdog commission said that oil companies that operate the trans-Alaska oil pipeline have overcharged in-state refineries from 1997 through 2000, and has ordered them to pay refunds.

The amount was not specified in the decision announced Wednesday. But in its decision, the Regulatory Commission of Alaska said that it believes oil companies had made an extra nearly $10 billion from Alaska refiners during the years 1977 to 1996.

The RCA order arose after two companies, Tesoro Alaska Co. and Williams Alaska Petroleum Co., claimed that the 1997 rates for transporting North Slope oil to their Alaska refineries over the pipeline system exceeded the reasonable costs of transportation.

The RCA found that from 1997 through 2000 rates exceeded costs by an average of 57 percent.

The order also directs Amerada Hess Pipeline Corp., BP Pipelines (Alaska) Inc., Exxon Mobil Pipeline Co., Phillips Transportation Alaska, Inc. and Unocal Pipeline Co. - known collectively as the Trans-Alaska Pipeline Service (TAPS) carriers - to set a more reasonable rate so the RCA can approve it for coming years.

The carriers had wanted the commission to approve the rates filed for 1997 through 2000 and to continue those rates in the future.

RCA Commissioner James S. Strandberg said commissioners could not comment because the order is being litigated.

In its analysis, the RCA looked at the way rates were calculated from 1977 to 1996. It found the system allowed TAPS carriers to earn over $9.9 billion more than the cost of providing service during those years.

The rates for 1997 through 2000 were based upon costs through the end of 1996.

TAPS carriers since 1986 have calculated intrastate rates using the TAPS Settlement Methodology (TSM). The rates were agreed on after lengthy litigation under the Alaska Public Utilities Commission, the agency that existed before the RCA.

The RCA took over that agency's duties on July 1, 1999, but it did not conclude the rates reached by the previous agency were fair.

"The 1997 Tesoro and Williams protests put that issue before us for the first time in this pipeline's 20-year history," the RCA decision said.

Even though 90 percent of the oil produced in Alaska is carried by tankers to West Coast markets, some of it is removed from the pipeline in Alaska and sold in local markets.

"Just and reasonable intrastate transportation rates are important for insuring continuing development of the state's oil resources and insuring that Alaskans have the opportunity to benefit from development of their natural resources," the RCA said.

The RCA found that the TAPS carriers have charged the maximum amounts allowed under the 1986 agreement with the state.

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