Long-standing complaints that the owners of the trans-Alaska pipeline are overcharging to ship oil -- costing private companies and the state hundreds of millions of dollars -- recently got a potential boost from federal lawyers.
Staff attorneys for the Federal Energy Regulatory Commission, which oversees pipelines, said the companies that own the 800-mile Alaska pipe have done a poor job of justifying their high rates, known as tariffs.
The Feb. 16 legal brief comes amid a massive, multiyear legal fight involving the pipeline owners, other companies that ship oil through the pipe, and the state.
The five pipeline owners -- BP, Exxon Mobil, Conoco Phillips, Koch Industries and Chevron -- currently charge an average of more than $5 per barrel to carry oil from the North Slope to the tanker port in Valdez.
Lawyers for the state as well as two energy companies that ship crude on the line -- Anadarko and refiner Tesoro -- argue that the oil companies are grossly overcharging. They say the tariff ought to be what state energy regulators in 2002 ruled it should be -- less than $2 per barrel.
At stake is a possible refund to the state of more than $800 million, should the commission order the $2 rate, state tax director Jon Iversen told state lawmakers this month.
Why? Because higher pipeline transportation costs mean lower tax and royalty collections for oil produced from state land. These costs are deducted from the price refineries pay for crude, and the greater the deductions, the lower the taxable value of the oil.
The pipeline owners are vigorously defending their rates as fair, and they are fighting on two fronts to maintain them -- at the federal commission in Washington, D.C., and in the Alaska Supreme Court, where the oil companies are trying to kill the 2002 state order.
The Feb. 16 legal brief from the commission's staff attorneys was big, said Robin Brena, a lawyer for Anadarko and Tesoro. Brena said the pipeline owners, over the 30-year life of the pipeline, have booked billions of dollars in undeserved profits by cheating the state and gouging companies such as Anadarko and Tesoro.
Because the state has only one pipeline off the North Slope -- what Brena calls a "monopoly pipeline" -- higher transportation costs hurt chances that smaller oil fields will be developed, and that refiners such as Tesoro can afford to make fuel products within the state, he said.
"There's a huge amount at stake for Alaska's future in this," Brena said.
Lawyers for the pipeline owners, however, insist their rates have been and remain fair.
Steven Brose, an attorney for the owners, told state lawmakers during a March 5 hearing on the pipeline tariff fight that the five-member federal regulatory commission often doesn't agree with the opinions of the agency's staff lawyers.
The commission's lawyers, in the Feb. 16 brief, said the pipeline owners had made arguments that are "contrary to some of the most basic notions of calculating just and reasonable rates" and conflict with prior commission orders. They recommend that the pipeline tariffs be cut.
Richard Fineberg, an Ester analyst and longtime oil industry critic, recently completed a study in which he calculated that the state is losing $404 a minute due to excessive charges on the oil pipeline, amounting to billions of dollars over the life of the pipeline.
He said a 1985 legal settlement between the state and the pipeline owners establishing a method for setting pipeline tariffs -- a deal that's now at the center of the legal fight -- was a big mistake for the state.
The state has a long legacy of battling with oil companies over pipeline tariffs, royalties and taxes, and this latest struggle isn't likely to end soon.
The case before the federal commission is densely complicated. Filings routinely exceed 100 pages, and at least a dozen law firms are involved from Anchorage to Houston to Washington.
An administrative law judge is expected to rule in the commission case by May 18. After that, the commission itself is expected to consider the matter, possibly ruling by the end of the year, a commission spokesman told state lawmakers.
After that, the parties can carry the battle into the federal courts, and are likely to, Brose said.
Daily News reporter Wesley Loy can be reached at wloy@adn.com or 257-4590.
