Alaska pipeline owners, despite losing rate case, can recover $56 million in litigation costs

The oil-company owners of the trans-Alaska oil pipeline have so far lost their effort to charge higher rates to recover hundreds of millions of dollars in project costs associated with a bungled upgrade project, but they can still collect millions in litigation costs associated with the rate case, according to decisions by state and federal regulatory agencies.

The state Regulatory Affairs and Public Advocacy section had filed a petition in March challenging the recovery of litigation costs by the pipeline owners connected to the portion of the case involving in-state fees.

The state had argued that the companies, primarily BP, ConocoPhillips and Exxon Mobil, should not be allowed to recover $6.6 million in litigation costs by charging higher pipeline transportation fees to in-state refiners.

But the Regulatory Commission of Alaska issued a decision on Thursday rejecting the state's argument, following an earlier decision by federal regulators allowing some recovery of case costs.

The oil companies had lost the rate case before both regulatory bodies, with the Federal Energy Regulatory Commission in November and the Regulatory Commission of Alaska in February deciding the oil company owners had "imprudently" managed a project to update four pump stations and control systems along the 800-mile line, which the companies called Strategic Reconfiguration.

The agencies had said the companies could not recover most of their project costs by charging higher fees for moving oil, a decision preventing the recovery of more than $1.5 billion in future revenue, according to attorneys who fought the case.

The pipeline owners have appealed the decision to the D.C. Circuit Court of Appeals in Washington.

The state didn't challenge FERC's decision allowing the recovery of litigation costs associated with oil shipped out of state, about $50 million. FERC has precedent supporting the recovery of those costs, said Ed Sniffen, chief assistant attorney general for the Regulatory Affairs and Public Advocacy section.

But the state argued that under Alaska law, the RCA should not allow the pipeline carriers to recover litigation expenses for imprudently managed projects.

The five-member RCA board, with one member dissenting, issued a decision Thursday suggesting the litigation costs themselves have to be imprudent. It's not enough that the companies generally lost the larger, overall argument, the commission said.

"There is no evidence in this record that rate case expense was imprudently incurred," the commission said.

The dissenting commissioner was Stephen McAlpine, a former lieutenant governor, who argued that state law says the commission needs to ensure that no direct or indirect costs associated with an "imprudent" determination can be recovered in pipeline carriers' tariffs or rates.

"If the act or expenditure was unreasonable or imprudent, the need to defend it is an indirect cost of the imprudence and should not be allowed," he wrote.