RCA accepts Tesoro tariff settlement

Kristen Nelson

Petroleum News

The Regulatory Commission of Alaska has accepted a settlement agreement, as amended, between Tesoro Alaska Pipeline Co. LLC and Tesoro Alaska Co. LLC., over the objections of the Regulatory Affairs and Public Advocacy Section in the Attorney General’s office.

RCA said in a Nov. 1 order that Tesoro Alaska Pipeline filed a proposed tariff increase on May 31, 2017, based on a 2016 test year, for an increase from 61 cents per barrel, a rate which had been in place for 30 years, to 75.31 cents per barrel.

The tariff applies to a products pipeline between Tesoro’s refinery at Nikiski and Tesoro’s Anchorage terminal.

RCA opened a docket and established as a temporary rate the 75.31 cents per barrel filed rate, inviting the RAPA to participate; Tesoro Alaska Co. requested intervention, which was granted.

Both Tesoro entities were represented by the same counsel.

At a prehearing conference counsel for the Tesoro entities told the commission they wanted to find an acceptable way to end the proceeding without going through the long and expensive process of fully litigating a rate case.

Tesoro Alaska is the only shipper - and the only possible shipper - on the line, counsel told the commission, and because it is a products line there are no royalty or state income tax implications. The pipeline is regulated because of the right-of-way lease associated with the pipeline.

The settlement

The settlement agreement was amended in April based on federal tax changes, reducing the proposed tariff from 75.31 cents per barrel to 74.43 cents per barrel.

The Tesoro entities asked that the commission accept the settlement agreement and close the docket, telling the commission that all economically impacted parties had signed the settlement agreement and the public interest did not require continuation of the proceeding.

RAPA, however, urged the commission to reject the settlement agreement based on public interest, and said Tesoro needed to prove its tariff was reasonable and that the proceeding needed to continue.

The commission said that the essence of RAPA’s position what that the public interest requires the commission to determine whether the rates agreed on in the settlement are just and reasonable before accepting the settlement agreement.

Commission’s decision

The commission said RAPA had not provided an analysis of Tesoro’s revenue requirements study “sufficient to demonstrate that we should reject the proposed rates as unjust and unreasonable nor has it provided us with a basis for setting just and reasonable rates.”

Many common carriers in the state operate under settlement agreements the commission has accepted “without adjudication of just and reasonable rates. RAPA has not provided any information indicating that those pipelines are operating in violation of their respective ROW leases,” the commission said.

RAPA had asserted that components of Tesoro’s revenue requirements appeared to be inconsistent with RCA regulations. The commission found that assertion “unsupported and without merit,” and also said “RAPA has not provided any precedent or valid argument explaining why, in this instance, we should overturn our existing precedent and fully adjudicate the rates proposed in a settlement agreement.” RCA said RAPA has not pointed to any previous instance where the commission has done that. “In fact,” the commission said, “most of the pipeline settlement agreements currently in place contain no evaluation as to whether the rates are just and reasonable or whether the revenue requirement was calculated in compliance with all of our regulations.”

The commission also said that “RAPA has failed to demonstrate who would benefit from our rejection of the settlement agreement,” and said it agreed with Tesoro that there would be no beneficiaries to a settlement rejection.