State stands to gain millions in trans-Alaska pipeline settlement
The State of Alaska is moving to settle a legal dispute involving the transport costs oil companies pay to pump petroleum through the trans-Alaska pipeline, a step officials say would immediately take in hundreds of millions of dollars and bolster the tax value of North Slope crude.
The proposed settlement, announced Thursday by the state Department of Law, involves more than 20 cases regarding tariffs for transporting oil charged by pipeline operator Alyeska Pipeline Service Co. between 2009 and 2015. Because tariffs are deducted from the taxable value of oil, higher tariff rates mean less money flowing into the state’s coffers.
According to the state, the lawsuits hinged on whether APSC improperly incorporated more than $600 million in “strategic reconfiguration” costs of modernizing pipeline equipment into tariff rates. Another key question was whether the oil companies which own APSC – including the “Big Three” producers BP, ConocoPhillips and ExxonMobil – could recover previously paid property taxes on the pipeline in the future.
“As a result of litigating these questions, the state already collected approximately $224 million of additional revenue,” state officials wrote. “However, these matters were under review by two appellate courts. This settlement would bring those matters to a close.”
Under the terms of the deal, the state will keep the $224 million already collected; APSC’s owners also promise never to recover the “strategic reconfiguration” costs through tariff rates. The settlement also includes a framework for determining future interstate tariff rates through 2021.
“This settlement is a great result for the state,” Alaska Attorney General Jahna Lindemuth said in Thursday’s statement. “It creates certainty going forward, avoids future litigation, and will provide additional taxes and royalties – bringing needed money to the state treasury.”
Assistant Attorney General John Ptacin said that the cases, which have been litigated ever since 2009’s tariff rates were announced, entered settlement talks about two years ago. While the state receives stability on future tariff rates, the flexible framework of the 2021 agreement offers the pipeline owners the ability to fully recover justifiable costs associated with the pipeline.
“One of the things that was most important to them was entering what is called variable tariff methodology,” Ptacin said.
Those costs will be reviewed by the state, which counts excluding the “strategic reconfiguration” costs from tariff rates as a victory.
“The state will look at operating and capital costs to ensure that only just and reasonable rates get put into TAPS tariff costs,” Ptacin said. “That was a very key part of the settlement for the State of Alaska.”
APSC staff deferred a request for comment to the company’s owners.
The Regulatory Commission of Alaska, as well as the Federal Energy Regulatory Commission, must approve the settlement before it is finalized. The state plans to file approval requests with both bodies Friday.
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