UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Joseph T. Kelliher, Chairman;

Nora Mead Brownell, and Suedeen G. Kelly.

State of Alaska

v\. Docket No. OR06-1-000

BP Pipelines (Alaska) Inc.

ExxonMobil Pipeline Company

ConocoPhillips Transportation Alaska, Inc.

Unocal Pipeline Company

Koch Alaska Pipeline Company

Anadarko Petroleum Corporation

v\. Docket No. OR06-2-000

TAPS Carriers

BP Pipelines (Alaska) Inc. Docket No. IS06-70-000

ExxonMobil Pipeline Company Docket No. IS06-71-000

ConocoPhillips Transportation Alaska, Inc. Docket No. IS06-63-000

Unocal Pipeline Company Docket No. IS06-82-000

Koch Alaska Pipeline Company, LLC Docket No. IS06-66-000

State of Alaska

v*.* Docket No. OR05-2-000, *et al.*

The Taps Carriers

ORDER ON COMPLAINTS, ESTABLISHING HEARINGS

AND CONSOLIDATING HEARINGS

(Issued February 17, 2006)

1.  On or about December 1, 2005, BP Pipelines (Alaska) Inc. (BP),
    ExxonMobil Pipeline Company (ExxonMobil), ConocoPhillips
    Transportation Alaska, Inc. (ConocoPhillips), Unocal Pipeline
    Company (Unocal), and Koch Alaska Pipeline Company, LLC (Koch)
    (collectively, the TAPS Carriers) filed tariffs[^1] (the 2006 TAPS
    Tariffs), with proposed effective dates of January 1, 2006. These
    filings are the annual filings required by the Commission-approved
    settlement (the Settlement) in the *Trans Alaska Pipeline System*
    case.[^2] The Settlement prescribed the TAPS Settlement Methodology
    (TSM) for computing the transportation rates for petroleum through
    the Trans Alaska Pipeline System (TAPS). All of the filings proposed
    increases to the existing rates.

2.  The State of Alaska (Alaska), and jointly Anadarko Petroleum
    Corporation, Tesoro Corporation, and Tesoro Alaska Company
    (Anadarko/Tesoro), filed protests to the tariff filings. Each
    protest also included a complaint relating to the tariff
    filings.[^3] On December 19, 2005, the TAPS Carriers jointly filed
    responses to the protests, and stated that they would file separate
    answers to the complaints.

3.  On December 29, 2005, the Commission issued an order accepting and
    suspending the 2006 TAPS tariffs to take effect January 1, 2006,
    subject to refund, and set them for hearing.[^4] The order also
    consolidated the hearing on the 2006 rate filings with the ongoing
    proceedings concerning the TAPS Carriers' 2005 rate tariffs. Since
    the same issues are present in the instant complaints, this order
    sets the complaints for hearing, and consolidates them with the
    ongoing proceeding concerning the TAPS Carriers' 2005 and 2006 rate
    tariffs.

**[Notice of Filings and Pleadings]{.underline}**

4.  On December 14, 2005, the Commission issued notice of Alaska's and
    Anadarko/Tesoro's protests and complaints, with comments,
    interventions or protests, due on or before January 3, 2006. Motions
    to intervene in both complaint proceedings were filed by Arctic
    Slope Regional Corporation, and Flint Hills Resource, Alaska, LLC,
    (Flint Hills). Flint Hills also filed comments. Alaska, and
    Anadarko/Tesoro each moved to intervene in the other party's
    complaint proceeding. On December 29, 2005, Alaska filed a reply to
    the TAPS Carriers' request for indefinite stay of certain issues
    that was included in their response. On January 3, 2006, the TAPS
    Carriers jointly filed answers to Alaska's and Anadarko/Tesoro's
    complaints.

**[Related Proceedings]{.underline}**

5.  In December 2004, the TAPS Carriers filed their 2005 rate tariffs.
    Alaska and Anadarko filed protests to the TAPS Carriers' 2005 tariff
    filings. They also included related complaints with the protests. On
    December 29, 2004, the Commission issued an order accepting and
    suspending the TAPS Carriers' 2005 tariffs and set them for hearing.
    (the 2005 rate proceeding).[^5] The Commission subsequently issued
    an order on the complaints, consolidating them with the 2005 rate
    proceeding.[^6]

6.  On July 20, 2005, the TAPS Carriers filed a petition under sections
    13(3) and 13(4) of the Interstate Commerce Act (ICA), alleging that
    the TAPS intrastate rates set by the Regulatory Commission of Alaska
    (RCA) are unlawfully low, and requested that the Commission invoke
    its authority under ICA section 13(4) to increase the
    RCA-established intrastate rates. Anadarko and Tesoro Alaska Company
    protested the TAPS Carriers' ICA section 13(4) petition. The
    Commission issued an order establishing a hearing, and consolidated
    that hearing with the 2005 rate proceeding.[^7] These consolidated
    proceedings are before an Administrative Law Judge (ALJ).

**[Background]{.underline}**

7.  The Settlement requires the TAPS Carriers to use the TSM to
    calculate their interstate rates. Under the TSM, each TAPS Carrier
    calculates a single Total Revenue Requirement, which reflects the
    TAPS Carriers' total cost of service, for both interstate and
    intrastate deliveries. After calculating its Total Revenue
    Requirement, the TAPS Carrier then determines the portion of the
    Total Revenue Requirement allocable to interstate transportation.

8.  In November 2002, the RCA issued Order No. l5l,[^8] and held that
    TAPS Carriers' intrastate rates for past years calculated using the
    TSM "do not satisfy the AS 42.06 requirement that pipeline rates be
    just and reasonable."[^9] The RCA also ordered refunds for past
    years, and directed the TAPS Carriers to establish lower intrastate
    rates using a new methodology prescribed by the RCA.[^10]

**[The Complaints]{.underline}**

**A. [Alaska's Protest and Complaint]{.underline}**

9.  Alaska protested the 2006 TAPS' tariffs on a number of grounds and
    asked the Commission to suspend the 2006 TAPS' tariffs, subject to
    refund and investigation. In its protest, among other things, Alaska
    asserted that the tariff included expenditures caused by the TAPS
    Carriers' imprudence in the planning, approval, and management of
    the Strategic Reconfiguration program (SR Program).[^11] Together
    with the protest, Alaska included a complaint seeking relief from
    the inclusion of imprudently incurred costs relating to the SR
    program in the TAPS Carriers' 2004, 2005 and 2006 interstate
    tariffs.

> **B. [Anadarko/Tesoro's Protest and Complaint]{.underline}**

10. Anadarko/Tesoro essentially protest that the TSM does not produce
    rates that are just and reasonable under the ICA. They rely on
    various decisions of the RCA in support of their position. They
    incorporate by reference Anadarko's protest of the TAPS Carriers'
    2005 rates and indicate that the issues raised in this protest "are
    essentially the same as those raised regarding the 2005 tariffs."
    Protest at 14.

11. They further state that "for all the reasons set forth in \[the
    protest of the 2005 rates\], Anadarko/Tesoro request that the
    Commission suspend the 2006 Tariff rates, declare them subject to
    refund, initiate hearing procedures, consolidate those hearings with
    the pending proceeding regarding the 2005 Tariffs, and establish
    just and reasonable TAPS rates." Protest at 14-15.

**[The TAPS Carriers' Answers]{.underline}**

**A. [Answer to Alaska's Complaint]{.underline}**

12. The TAPS Carriers assert that Alaska limited its complaint to
    "seeking relief from the inclusion of imprudently incurred costs
    relating to the SR Program in the TAPS Carriers' 2004 and 2005
    interstate tariffs." Complaint at 2. Accordingly, the TAPS Carriers
    request that the Commission state that Alaska's Complaint regarding
    the 2006 rates is limited to the single issue involving the SR
    Program. The TAPS Carriers basically repeat the contentions in their
    December 19, 2005 response to the protest, which they incorporate by
    reference, that there is no merit to the complaint, and ask the
    Commission to dismiss Alaska's complaint. In the alternative, they
    request that the Commission establish a separate proceeding to
    consider the prudence of the SR Program costs, and hold that
    proceeding in abeyance pending the completion of the SR Program.

**B. [Answer to Anadarko/Tesoro's Complaint]{.underline}**

13. The TAPS Carriers state that the Anadarko/Tesoro complaint against
    the 2006 rates relies upon Anadarko's challenge to the TAPS Carriers
    2005 interstate rates, and the TAPS Carriers similarly rely on, and
    incorporate by reference the answers filed by individual TAPS
    Carriers to Anadarko's complaint concerning the 2005 rates.

14. The TAPS Carriers assert to the extent the complaint alleges that
    the TAPS Carriers' 2006 interstate rates are unjust, unreasonable,
    and unduly discriminatory, the complaint is without merit, and
    should be denied. Specifically, the TAPS Carriers contend that the
    rates subject to the complaint are within the rate ceilings
    established by the TSM as approved by the Commission, and
    accordingly the TAPS Carriers' interstate rates are just and
    reasonable and non-discriminatory.

15. Further, the TAPS Carriers argue that Anadarko, Tesoro Corporation,
    and Tesoro Alaska Company failed to show that they have standing to
    obtain or are otherwise entitled to reparations, refunds or any
    other damages for transportation rates charged by the TAPS Carriers.

**[Discussion]{.underline}**

16. The issues in the 2005 rate proceeding pertain to application of the
    TSM to the TAPS Carriers' 2005 Tariffs. The parties have different
    understandings of how the terms of the TSM apply when there are
    orders from the RCA that may be inconsistent with the TSM. In the
    February 2005 Order, the Commission held that there was insufficient
    information to enable the Commission to resolve the dispute, and
    therefore it was in the public interest to establish hearing
    procedures to examine the issues raised in the complaints and
    protests.

17. The TAPS Carriers' 2006 rate filings, and the protests filed in
    response, raise many of the same issues that are present in the 2005
    rate proceeding. Clearly, all the proceedings are related, and must
    be decided at the same time. It would be in the interest of all
    parties if all the issues were examined in a consolidated proceeding
    to allow the resolution of all issues in an efficient and consistent
    manner.

18. Although the Commission consistently encourages parties to resolve
    disputes of this nature through settlement, it is unrealistic to
    believe that this proceeding could be resolved through settlement
    when the 2005 rate proceeding was not. Moreover, in its protest,
    Alaska stated that it "does not believe that ADR would be an
    effective means to resolve the dispute" (State's protest and
    complaint at 21), and the TAPS Carriers, in their response to
    Alaska's filing stated that they "question whether ADR and
    settlement judge procedures will be productive here." (Response at
    7). Therefore, we will not refer the matter to a settlement judge.

19. In their December 19, 2005 response to Alaska's protest, the TAPS
    Carriers stated that they do not oppose the consolidation of the
    protest with the on-going challenge to the TAPS Carriers' 2005 rates
    in Docket No. OR05-2-000, *et al*. However, with respect to Alaska's
    allegations concerning costs associated with the SR Program that
    were imprudently incurred, the TAPS Carriers contend that
    consideration of the prudence of the costs of the SR Program is
    premature. Accordingly, the TAPS Carriers request that if the
    protest is not dismissed, the Commission should establish a separate
    proceeding to consider the prudence issues, and should hold that
    proceeding in abeyance pending the completion of the SR projects.

20. In a reply filed December 29, 2005, Alaska stated that the
    Commission should consolidate all issues other than the SR Program
    issue with the ongoing 2005 rate proceeding. However, while it
    agrees that the portion of its protest and complaint regarding the
    SR Program should be the subject of a separate proceeding, Alaska
    stated that it objected to the TAPS Carriers' request for an
    indefinite stay of that proceeding, and urged that the Commission
    limit any stay of that proceeding to July 1, 2006.

21. In its motion to intervene, Flint Hills agrees that the Commission
    should consolidate the 2006 rate proceeding with the ongoing 2005
    rate proceeding. Flint Hills also agrees that the SR Program
    imprudence issues should be a separate docket, but rather than
    staying this proceeding only until July 1, 2006, as Alaska requests,
    Flint Hills suggests that the Commission should stay this new docket
    until December 1, 2006. Flint Hills notes that date would be the
    first calendar month after the Initial Decision is to be issued in
    the 2005 rate proceeding This date, Flint Hills explains, also is
    the date by which the TAPS Carriers have stated they expect to
    complete the largest part of their SR Program.

22. In the December 29, 2005 Order, in ordering the consolidation, the
    Commission stated, at P 23:

> the Presiding Judge can determine the most appropriate way to handle
> this proceeding in conjunction with that ongoing proceeding. The
> Presiding Judge may also consider whether or not to establish a
> separate hearing regarding issues relating to the SR program, as the
> TAPS Carriers have requested.[^12]

That ruling applies here as well, so the question of a stay of any
separate hearing for issues relating to the SR Program will also be for
the Presiding Judge to determine.

[The Commission orders]{.underline}:

\(A\) Pursuant to the authority of the Interstate Commerce Act,
particularly section 13(1) thereof, and the Commission\'s regulations, a
hearing is established to address the issues raised by the TAPS
Carriers' filings, and the hearing is consolidated with the hearings in
the 2005 rate proceeding in Docket No. OR05-2-000 *et al.*

\(B\) The Presiding Judge may determine the most appropriate way to
handle this proceeding in conjunction with the ongoing 2005 rate
proceeding. The Presiding Judge may also consider whether or not to
establish a separate hearing regarding issues relating to the costs of
the SR Program.

By the Commission.

( S E A L )

Magalie R. Salas,

Secretary.

[^1]: The 2006 TAPS tariffs include: BP -- FERC No. 32; ConocoPhillips
    -- FERC No. 8; ExxonMobil -- FERC No. 252; Koch -- FERC No. 6; and
    Unocal -- FERC No. 279. On December 13, 2005, Unocal withdrew FERC
    No. 279, previously filed in Docket No. IS06-47-000 and replaced it
    with FERC No. 280 in Docket No. IS06-82-000.

[^2]: 33 FERC & 61,064 (1985) and 35 FERC & 61,425 (1986).

[^3]: The complaints were assigned Docket No. OR06-1-000 (Alaska), and
    Docket No. OR06-2-000 (Anadarko/Tesoro).

[^4]: *BP Pipelines (Alaska) Inc., et al.*, 113 FERC ¶ 61,332 (2005).

[^5]: 109 FERC ¶ 61,376 (2005). The December 2004 Order held the hearing
    in abeyance pending the outcome of settlement proceedings provided
    therein, but those proved fruitless. On April 25, 2005, the Chief
    Judge terminated the settlement procedures, and set the matter for
    hearing, 111 FERC ¶ 63,018. The December 2005 Order did not refer
    the matter for settlement procedures.

[^6]: *State of Alaska v. The Taps Carriers*, 110 FERC ¶ 61,129 (2005),
    Docket No. OR05-2-000 *et al.* Reference to the 2005 rate proceeding
    will use this as the lead docket.

[^7]: *BP Pipelines (Alaska) Inc.*, 112 FERC ¶ 61,219 (2005).

[^8]: RCA Order No. P-97-4(151) (Nov. 27, 2002).

[^9]: *Id*. at 2.

[^10]: RCA decisions are not binding upon the Commission.

[^11]: The TAPS Carriers describe the SR Program as "a series of
    projects that have been undertaken by the TAPS carriers to reduce
    costs and increase efficiency.... Included under the Strategic
    Reconfiguration umbrella are the Pipeline Electrification project,
    supervisory control and data acquisition (SCADA) upgrades, revisions
    to oil spill contingency plans, and a preliminary study of possible
    changes at the Valdez Marine Terminal." TAPS Carriers" Response to
    Alaska's Protest, at 8.

[^12]: 113 FERC at 62,296-97. We recognize that, pursuant to the
    procedural schedule in effect in the existing proceeding, the
    parties filed their prepared direct testimony with respect to the
    2005 rates on December 7, 2005, and the hearing is currently
    scheduled to commence on May 24, 2006.