A federal agency's recent decision to prevent the oil-company owners of the trans-Alaska pipeline from charging higher shipping rates to recover costs from a mismanaged upgrade also blocked them from using higher rates to pay off their old property tax bill.
The Federal Energy Regulatory Commission said the pipeline owners -- primarily BP, ExxonMobil and ConocoPhillips -- can't use higher shipping rates to recover $113 million in property taxes related to a 2010 state Superior Court decision that set the pipeline's 2006 value at $9.98 billion. The companies were, in effect, seeking to make the state and independent producers pay for a portion of their new property taxes through the higher rates.
The tax value of the line, as upheld by the Alaska Supreme Court, was much higher than the 2006 value of $850 million claimed by the oil companies.
The FERC decision sets a precedent for years beyond 2006 when property values for the 800-mile pipeline system were also determined to be higher than the pipeline owners wanted, said attorneys with Morrison and Foerster in Washington, D.C., the private law firm representing the state.
As a result, that part of the decision alone could represent hundreds of millions of dollars in savings to the state and companies that don't own a piece of the pipeline but rely on it for moving oil, such as Anadarko Petroleum and Tesoro Alaska. The two companies argued against the higher rates alongside the state, the lead party in the hearing. The rates are important to the state because oil companies, especially the big three, get to deduct the shipping costs they pay their own pipeline subsidiaries as pre-tax expenses.
The property tax issue was a relatively small part of the decision issued on Nov. 20 when the four commissioners determined that a major project to update pump stations along the line was "imprudently" managed and that higher rates could not be used to pay for most of the improvements.
The FERC decision means the oil company owners will collect at least $2 billion less through rates in the coming decades than they would have liked, the attorneys with Morrison and Foerster estimated.
"I believe this is the largest imprudence decision in several decades and it's certainly one of the largest FERC has ever resolved," said Bob Loeffler, a longtime attorney with Morrison and Foerster's Washington, D.C., office.
"It's a big win for the state, and it really was across the board," said Brad Lui, who argued the case for Morrison and Foerster.
In deciding the property-tax issue, FERC rejected three arguments presented by the oil company owners, including that the agency's rule against "retroactive ratemaking" did not apply because the adjusted amount of the 2006 tax was not known until May 2010.
The owners argued they should be allowed to recover the costs by amortizing them over time or as a rate surcharge, noting that past FERC decisions have allowed such relief "in the case of extraordinary events."
To support the argument, the owners cited cases related to Hurricane Katrina and the 9/11 terrorist attack in 2001.
But the commissioners said the owners' arguments didn't hold up.
"The failure to accurately estimate taxes is not an extraordinary event," FERC said.
BP and ConocoPhillips said Monday they are continuing to review the order and did not have further comments. ExxonMobil said it's evaluating its options. The options include appealing to the courts.