Judge rules for state in pipeline tax appraisal suit

Wesley LoyPetroleum News

Does federal tariff regulation somehow preempt the state's ability to appraise the trans-Alaska oil pipeline for property tax purposes?

No, a state Superior Court judge ruled recently.

The decision from Judge Sharon Gleason of Anchorage knocks down an attempt by the pipeline owners -- BP, Exxon Mobil, Conoco Phillips, Chevron and Koch Industries -- to invalidate the state's method of valuing the pipeline.

The owners feel overtaxed on the pipeline that carries North Slope oil 800 miles to the tanker port at Valdez.

They are fighting their property tax bills for a number of years beginning with 2006.

At stake is potentially tens of millions of dollars in property taxes -- the difference between what the pipeline owners believe they owe and what the state as well as local governments believe is due.

Gleason's 10-page ruling on March 30 pertains only to 2006. The pipeline valuation for that year was $4.3 billion.

The ruling is the upshot from oral arguments Gleason heard on the pipeline owners' motion for summary judgment that would nullify the 2006 appraisal.

Lawyers for the owners argued federal law preempted the new method the state Department of Revenue adopted beginning in 2005 to value the pipeline.

Specifically, the owners said state officials violated the "filed rate doctrine" by failing to recognize income from tariffs -- or fees the owners charge oil producers to use the pipeline -- filed with the Federal Energy Regulatory Commission as the basis for determining pipeline value. Instead, the state used an appraisal approach that resulted in a higher value and thus bigger property tax bills.

Gleason ruled against the owners.

She noted that the state Assessment Review Board in 2006 determined that an appraisal based on declining tariff revenue "fails to capture the full and true economic value" of the pipeline system -- an asset the energy companies would replace if necessary to continue producing their North Slope oil.

Because the Department of Revenue and the review board did not employ a tariff different from what the FERC set, their 2006 pipeline valuations for property tax purposes "are not preempted by the filed rate doctrine," Gleason held.

So, what's next in the already protracted fight over pipeline property taxes?

A big item to look for is another ruling from Gleason on whether the $4.3 billion assessment for 2006 was correct.

Petroleum News