Senators Murkowski and Stevens Attempt to Prevent Costly Impacts of Future TAPS Quality

SENATORS MURKOWSKI AND STEVENS ATTEMPT TO PREVENT COSTLY IMPACTS OF FUTURE TAPS QUALITY BANK OIL FIGHTS

Propose Bill to Protect Refinery Jobs, Prevent Repeat of 12-Year Tariff Fight

Saying they never want a repeat of the current 12-year legal wrangle over how oil flowing through the Trans-Alaska Oil Pipeline System (TAPS) is valued, Alaska Sens. Lisa Murkowski and Ted Stevens today introduced legislation to make all future federal oil valuation rulings apply only prospectively, preventing any party from facing huge retroactive charges in the future.

The measure is designed to protect the economics of in-state refineries to guarantee that Alaskans have access to locally produced fuels and to help protect the jobs of in-state refinery workers.

The legislation is designed to limit the ability of the Federal Energy Regulatory Commission (FERC) in the future from assessing retroactive penalties on either the oil producers or oil refiners that utilize TAPS to move oil to market. It is a response to the complex legal battle over the TAPS Quality Bank, the mechanism that compensates individual oil producers for the effects of commingling their crude oil with that of different quality oil generated by other North Slope producers and to compensate them for changes in the oil stream caused when refineries take oil out of the pipeline to make in-state products such as gasoline, diesel and jet fuel.

"The ongoing Quality Bank dispute has such serious implications for Alaska's energy future, we don't want this process ever to be repeated. Clearly companies should have the right to seek changes in the value of oil flowing through the pipeline and changes in future tariffs, but any changes in the valuation methodologies should be levied prospectively, not over long periods retroactively. No business can exist if they buy raw product, manufacture it into finished goods, sell them and then are told 12 years later that they should in effect have paid far more for their raw materials," said Senator Lisa Murkowski.

"Markets for all commodities change over time and no business should be subject to such whims. We have to make this process work better in the future, than it has in the past," said Senator Murkowski.

"The Quality Bank was created to balance accounts among oil producers on Alaska's North Slope who produce crude oil of different quality and value from different oil fields, and also applies to oil refineries who receive needed crude oil from TAPS. The methodology used to determine these payments has been the subject of dispute since the Bank's inception, creating uncertainty in the market and a chilling effect on business investment in Alaska," said Senator Stevens.

"The current case involving the Quality Bank puts Alaska's in-state refineries at risk at a time when the United States can ill afford to lose its limited refining capacity; there needs to be a solution in order to prevent future litigation," said Stevens.

The legislation is an outgrowth to a suit that challenged FERC's decision in 1993 to switch from the former "gravity" method of valuing the quality of oil arriving at Valdez to a new "distillation" methodology, which values crude oil based on the market price of various types of products that can be refined from the oil stream. After repeated legal proceedings, an Administrative Law Judge just last August issued a series of decisions changing the Quality Bank methodology and said his rulings should apply retroactively back to 1993 - years before any of the parties could have reasonably expected any valuation methodology change to take effect.

While the new legislation should not specifically affect the existing legal dispute; it is designed to prospectively -- effective after Dec. 31, 2005 -- prevent FERC from assessing monetary adjustments retroactively against any of the parties involved in the Quality Bank process. That is designed to protect Conoco-Phillips, BP, Exxon-Mobil, the other smaller oil producers on the North Slope, the State of Alaska and the states' two in-state refineries, Petro Star and Flint Hills from facing huge retroactive liabilities should FERC-issued valuation methodologies be changed in the future.

"The goal of this legislation is to eliminate the risk and uncertainty associated with unlimited retroactive application of Quality Bank rules. This will allow all Quality Bank participants to be able to conduct business with the certainty of knowing that prices received and paid for oil today can't be altered years down the road. This should discourage all sides from engaging in endless litigation in hopes of gaining windfall profits. This will end the current litigation lottery where Alaskans stand to be the real losers," said Murkowski, noting that unpredictable liabilities in the current bank rules threaten the health of both in-state refineries, the locally produced fuels that have helped businesses in-state flourish and the more than 400 jobs of workers at the refineries near Fairbanks.

The Senators noted that the refineries, especially, need more certainty when attempting to raise the huge amounts of capital to pay for improvements needed to produce ultra clean diesel fuels now mandated by the government.

The Senators said the effective date for the legislation was set at Dec. 31, 2005 to give FERC and all parties a fair amount of time to hammer out a just settlement of the existing dispute. To that end the Alaska Delegation, both Senators and Congressman Don Young, Thursday sent a letter to FERC asking that the commission speed up its consideration of the Administration Law Judge's ruling and attempt to fashion an equitable solution for all parties of the existing Quality Bank dispute quickly. The Delegation six months ago in report language first put the parties on notice of their concern over the Quality Bank proceeding, urging the Commission to implement a fair tariff and encouraging all the parties to reach a just out-of-court settlement of the dispute.

http://murkowski.senate.gov/pressapp/record.cfm?id=236475