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Trans-Alaska pipeline owners, municipalities end litigation, set line's value at $8 billion

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published March 1, 2016

The owners of the trans-Alaska pipeline and three municipalities have declared a cease-fire in the decade-long war over the pipeline system's value, approving a settlement agreement setting its worth at $8 billion through 2020 for property tax purposes, a significant jump over the much smaller amounts previously sought by industry.

The Valdez City Council on Monday night accepted the agreement with the pipeline owners — primarily BP, ExxonMobil, ConocoPhillips. The Valdez council joined the mayors of the North Slope Borough and the Fairbanks North Star Borough, who had accepted the agreement in January.

The owners of the 800-mile line delivering North Slope oil have long declared its value for property tax purposes to be below $3 billion, arguing that declining oil flow shortened the pipeline's life and lowered its worth. But they've lost at every turn since 2006, a year in which the state Supreme Court affirmed a lower court decision setting the value at just under $10 billion.

In a separate agreement, the parties and the state have agreed to dismiss unresolved disputes related to assessments between 2007 and 2015.

After court battles and administrative hearings, the Trans-Alaska Pipeline System's value, on average, has ultimately been set at about $10.2 billion a year for the past decade, said Robin Brena, lead attorney for the pipeline corridor municipalities during the litigation and Valdez's attorney during the settlement negotiations.

The $8 billion annual settlement for future years was a compromise for the city of Valdez, which had pursued valuations closer to $14 billion, Brena said.

"From Valdez's perspective, the settlement agreement is for less than the full and true value of TAPS, but that being said, it represented a reasonable settlement of these cases given the circumstances," Brena said.

Between 2016 and 2020, the agreement will annually be worth $44.5 million to the North Slope Borough, $38 million for the city of Valdez and $13.7 million for the Fairbanks North Star Borough. The pipeline crosses the boundaries of each municipality.

The guaranteed tax payment is a benefit, and so is the end of a long-running, contentious fight, said Larry Weaver, Valdez mayor.

"We have a settlement, so that's the positive," Weaver said. "I don't think anyone is really happy about it, but under the circumstances it's acceptable."

The years of dispute put the municipalities at odds not just with the oil companies but also with the state, which typically chose a middle-ground valuation between the higher amount sought by the municipalities and the lower amount sought by the oil companies.

The Valdez City Council also accepted an agreement Monday night to end litigation involving the state's claim that Valdez and the North Slope Borough had exceeded the amount of taxes they could collect from oil and gas properties.

Court decisions that had boosted the pipeline's value had led to increased property tax income for both the state and the municipalities, said Brena. But the state had argued that a tax cap in the law governing property taxes on the pipeline meant the municipalities should not be able to keep all the extra income.

"It was a heck of a deal to fight against the state, and then after the state received twice as much in taxes, for them to advance novel theories in the way the tax cap is calculated and say we also want the (extra) taxes the municipalities received," said Brena.

Under the agreement, the state drops tax cap claims against the municipalities between 2006 and 2015.

Also, the North Slope Borough will pay the state $7.6 million and commit $43 million to paying off bond debt. Valdez will pay the state $7.3 million and commit $41.4 million to paying off bond debt.

State law says the tax cap does not apply to money used to pay debt such as bonds.

North Slope Borough Mayor Charlotte Brower said in a prepared statement the settlement will provide a "stable" budget environment that helps ensure the borough's financial security.

"It also brings an end to the need for continuous litigation in which the borough and other municipalities have spent a decade and millions of dollars to obtain a fair valuation of TAPS," she said.

Representatives with BP, ConocoPhillips and ExxonMobil said the agreement provides a reliable tax structure for the municipalities, the state and the pipeline owners.

"It reflects the parties' shared desire to resolve this issue in a mutually agreeable manner that is fair to the citizens of Alaska and the owners of the pipeline," said a statement sent by Ashley Smith Alemayehu, media adviser for ExxonMobil.

ConocoPhillips said the outcome would benefit everyone. "We believe the $8 billion valuation of TAPS is a suitable compromise for all parties involved," the company said in a prepared statement.

Cori Mills, the spokeswoman for the Alaska attorney general's, said the settlements "bring certainty and an end to these long, ongoing cases, so we can move forward."

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