Anchorage Daily News

State regulators are considering whether to increase rates for shipping oil through the trans-Alaska oil pipeline to in-state refineries.

The Regulatory Commission of Alaska will look into a request from Conoco Phillips to raise intrastate shipping rates on the line by around 55 percent. Those rates cover oil shipped through the pipeline to one of three locations in either North Pole or Valdez.

Conoco is one of five companies that own the pipeline. Together, the companies have proposed changes to the intrastate rates every year since 2002, when state regulators forced them to refund nearly $10 billion to shippers.

The RCA has rejected every filing. Most of the oil is shipped to Outside refineries, and federal regulators, not the RCA, sign off on pipeline fees for that oil.

Conoco proposed the most recent rate increase for in-state refineries without the other owners. Each owner may file for its own fee as long as the total revenue brought in from all five owners does not exceed a limit imposed by the RCA.

CALCULATING RATES

In 2002, the RCA created a methodology for calculating future rates. Conoco said it used that methodology to devise its proposed rate increase. The company attributed the increase to a decline in oil flow through the pipeline over the past six years.

The newly proposed intrastate rates went into effect on Nov. 1 on a temporary and refundable basis while the RCA deliberates.

The new rates for shipping a barrel of oil between Pump Station 1 at Prudhoe Bay and the North Pole refineries jumped from $1.25 to $1.97, while shipping fees between the North Slope and Valdez increased from $1.96 to $3.03 or $3.05, depending on the final destination.

The RCA will hold hearings on the new rates starting June 15.

Tesoro Alaska, Flint Hills Resources and Petro Star, three companies with Alaska refineries, all asked to intervene in Conoco's case, as did the state.

The RCA received two comments from the general public, both against the rate increase, and a comment from the other four owners of the pipeline, supporting a Conoco request to keep certain financial information confidential during the case.

Tesoro also filed a formal complaint against the proposed rates, arguing against many of the claims Conoco made to justify the increase.

BATTLING OVER COSTS

Among the factors the RCA is considering is how it should deal with hundreds of millions of dollars in spending by the pipeline owners in a technological makeover of the line. The federal regulators are also looking at how much of that cost pipeline owners should be able to recover through their shipping fees.

The state regulators decided to put that question on hold until the federal case develops further.

Another possible point of debate during the case could be estimating the end of the pipeline.

The pipeline owners are allowed to use shipping fees to recover depreciation expenses, or using rates to offset the falling value of aging property along the line. The shorter the depreciation time frame, the more depreciation expenses the pipeline owners can collect each year through their shipping fees -- and this raises those shipping fees.

In 2002, the RCA told the owners to average this depreciation expense through 2026.

But Conoco now believes 2034 is a more appropriate end-date, because the pipeline right-of-way leases expire that year and because FERC recently implemented a 2034 deadline.

However Tesoro argues that depreciation expenses should be run through 2075, pointing to a statement from the BP Prudhoe Bay Royalty Trust, a subsidiary that has paid royalties based on the oil produced at Prudhoe Bay for nearly two decades.

In its 2007 annual report, the Trust wrote that BP expects oil to continue flowing from Prudhoe through 2075, although at a declining rate.

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