UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Joseph T. Kelliher, Chairman;

Nora Mead Brownell, and Suedeen G. Kelly.

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

ExxonMobil Pipeline Company ) Docket No. IS06-71-000

ConocoPhilips Transportation Alaska, Inc. ) Docket No. IS06-63-000

Unocal Pipeline Company ) Docket No. IS06-82-000

Koch Alaska Pipeline Company ) Docket No. IS06-66-000

ORDER ACCEPTING AND SUSPENDING TARIFFS, SUBJECT TO REFUND,

AND ESTABLISHING HEARING AND CONSOLIDATING HEARINGS

(Issued December 29, 2005)

1.  On or about December 1, 2005, BP Pipelines (Alaska) Inc. (BP), Exxon
    Mobil Pipeline Company (Exxon Mobil), Conoco Phillips Transportation
    Alaska, Inc. (ConocoPhillips), Unocal Pipeline Company (Unocal), and
    Koch Alaska Pipeline Company (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] That
    settlement prescribed the TAPS Settlement Methodology (TSM) for
    computing the rates for the transportation of petroleum by pipeline
    through the Trans Alaska Pipeline System (TAPS). All of the subject
    filings propose increases to the existing rates.

2.  The State of Alaska (Alaska), and Anadarko Petroleum Corporation,
    and Tesoro Alaska Company (Anadarko/Tesoro) filed protests to the
    instant tariff filings and included complaints relating to the
    instant tariff filings, as well as to previous tariff filings by the
    TAPS Carriers.[^3] On December 19, 2005, the TAPS Carriers filed
    responses to Alaska's and Anadarko's filings. This order addresses
    only the protests to the proposed 2006 rates. The Commission will
    address the complaints in the docketed complaint proceedings.

3.  As detailed below, we accept and suspend the 2006 TAPS tariffs for
    one day and permit them to take effect January 1, 2006, subject to
    refund, and set this matter for hearing. We are also consolidating
    the hearing on the subject filings with the ongoing proceedings
    concerning the TAPS 2005 rate tariffs.

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

4.  In December 2004 the TAPS Carriers filed their 2005 rate tariffs.
    Alaska and Anadarko filed protests and complaints of 2005 TAPS
    Carriers' tariff filing. The Commission issued an order accepting
    and suspending the TAPS Carriers' 2005 tariff, 109 FERC ¶
    61,276 (2004) (the 2005 Rate Proceedings). The Commission
    subsequently issued an order on the complaints, consolidating them
    with the 2005 Rate Proceeding, 110 FERC ¶ 61,129 (2005).

5.  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 § 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.[^4] These consolidated proceedings are before
    an Administrative Law Judge (ALJ).

**II. [Background]{.underline}**

6.  The Settlement established the TSM and required the TAPS Carriers to
    calculate their interstate rates in accordance with the TSM. Under
    the TSM, each TAPS Carrier calculates a single Total Revenue
    Requirement, which reflects the TAPS Carriers' total cost of
    providing service, for both interstate and intrastate deliveries.
    Once a TAPS Carrier calculates its Total Revenue Requirement, the
    TSM requires the TAPS Carrier to determine the portion of the Total
    Revenue Requirement that the pipeline uses to calculate rates for
    interstate transportation.

7.  In November 2002, the RCA issued Order No. 151,[^5] and held that
    the 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."[^6] It also ordered refunds for past years,
    and directed the TAPS Carriers to set lower intrastate rates using a
    new methodology prescribed by the RCA.[^7]

**III. [The Protests]{.underline}**

> **a. [Alaska]{.underline}**

8.  Alaska raises three main objections to the TAPS Carriers' tariffs.
    Alaska objects that the interstate~~s~~ rates are discriminatorily
    high when compared with far lower intrastate rates for the same
    service. Alaska contends that the TAPS Carriers seek to charge
    interstate shippers for the same service substantially more than the
    rate they are allowed to charge intrastate shippers by the RCA.
    Second, Alaska argues that the TAPS Carriers include in their
    interstate rates the costs of litigation related to their intrastate
    rates, and Alaska protests the 2006 TAPS tariffs to the extent that
    the rates contain such improper costs. Third, it argues that the
    TAPS Carriers impermissibly include in their rates, certain costs
    relating to the Strategic Reconfiguration Program (SR) because that
    program has been characterized by imprudent management resulting in
    very substantial schedule and cost overruns. Alaska asks the
    Commission to suspend the 2006 TAPS tariffs subject to refund and
    investigation, and permit Alaska to become a party to the
    proceedings.

> **b. [Anadarko/Tesoro]{.underline}**

9.  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.

10. 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." *Id.* at 14-15.

**IV. [TAPS Carriers' Response]{.underline}**

> **a. [Alaska]{.underline}**

11. As to the claim that the TAPS Carriers' 2006 tariffs unjustly
    discriminate and/or grant undue or unreasonable preferences, by
    virtue of the current disparity between the interstate and
    intrastate rates for service on TAPS, TAPS Carriers assert those
    claims are barred by the Settlement, are incorrect as a matter of
    law, and should be dismissed summarily. Alaska now claims that the
    TAPS Carriers' 2006 interstate rates, even if properly calculated
    under the agreed-upon TSM methodology, are unduly discriminatory and
    preferential because they exceed intrastate rates prescribed by the
    RCA. The TAPS Carriers argue that as a party to the Settlement,
    which this Commission approved, Alaska is foreclosed from making
    this argument.

12. The TAPS Carriers assert that Alaska's argument that this Commission
    should lower interstate rates to remedy an alleged discrimination
    against interstate rates is wrong as a matter of law, because the
    premise that all disparities between interstate and intrastate rates
    constitute unlawful discrimination under the ICA is not, and has
    never been the law. The only section applicable to this claim, they
    assert, is ICA Section 13(4). That section, they argue, does not
    provide the remedy that Alaska seeks in its Protest -- namely, the
    lowering of an interstate rate that Alaska agrees is just and
    reasonable (because it conforms to TSM) to the level of the
    intrastate rate. Thus, they conclude, in seeking a reduction of
    interstate TAPS rates to the level of intrastate TAPS rates, Alaska
    has failed to state a claim for relief, as matter of law.

13. With respect to Alaska's contention that in calculating their 2006
    interstate TAPS rates, the TAPS Carriers improperly included costs
    incurred in connection with intrastate rate litigation, the TAPS
    Carriers respond that this position is directly contrary to the
    requirements of TSM, the rate methodology to which it agreed in the
    Settlement.

14. The TAPS Carriers assert that Alaska's claim regarding the SR
    program are groundless. Strategic Reconfiguration describes a series
    of projects undertaken by the TAPS Carriers to reduce costs and
    increase efficiency, while maintaining safety, integrity, and
    environmental standards. The TAPS Carriers argue that while Alaska
    makes numerous unsupported allegations regarding Strategic
    Reconfiguration and its costs, it fails to link those costs to the
    TAPS Carriers' 2006 rates. In fact, TAPS Carriers assert SR costs
    included in the TAPS Carriers' 2006 rates are immaterial, because
    the vast majority of costs incurred to date involve capitalized
    expenditures relating to property not yet in service, and such
    expenditures have not been included in rates.

15. The TAPS Carriers state that work on the Strategic Reconfiguration
    program is still underway. Accordingly, they request that if the
    Commission decides not to dismiss Alaska's protest on SR program
    costs, it should establish a separate proceeding to consider such
    matters and should hold that proceeding in abeyance pending
    completion of the SR projects. The TAPS Carriers assert that the
    Commission should not consolidate the State's SR claims with
    proceedings already in progress relating to the TAPS Carries' 2005
    rates.

16. In summary, the TAPS Carriers request that Alaska's protest should
    be dismissed. Alternatively, if not dismissed, Alaska's allegations
    of unjust discrimination and wrongful inclusion of intrastate rate
    litigation costs should be consolidated with the 2005 Rate
    Proceedings already in progress in Docket No. OR05-2-000, *et al.*
    Finally, if not dismissed, Alaska's allegations regarding SR program
    costs should be the subject of a separate proceeding, which should
    be held in abeyance pending the completion of the SR project.

> **b. [Response to Anadarko/Tesoro Protest]{.underline}**

17. The TAPS Carriers' response to Anadarko/Tesoro's protest is that it
    attacks the TSM to which they were not a signatory, and attempts to
    "cherry pick" which terms of the TSM they would like to be applied
    when establishing new rates.

18. The TAPS Carriers state that the protest incorporates the previous
    filings in connection with the TAPS Carriers 2005 rate filings, and
    for the reasons set forth in the TAPS Carriers' responses to
    Anadarko's protest of the 2005 TAPS rates, attached to the instant
    response, the Anadarko/Tesoro Protest is without merit and should be
    dismissed. The TAPS Carriers assert that as their response shows
    Anadarko/Tesoro fails to analyze the justness and reasonableness of
    the TAPS Carriers' rates under the Commission's standard ratemaking
    methodology for oil pipelines. Instead they attack the TSM embodied
    in the Settlement, even though neither Anadarko nor Tesoro is a
    party to that agreement.

19. The TAPS Carriers state they do not oppose consolidation of the
    protest with the ongoing 2005 Rate Proceeding.

    **V. [Discussion]{.underline}**

20. 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.

21. 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
    in order that all issues may be resolved in an efficient and
    consistent manner.

22. Although the Commission has consistently encouraged 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. Therefore
    we will not refer the matter to a settlement judge.

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 related to the SR program, as the
    TAPS Carriers have requested.

**VI. [Suspension]{.underline}**

24. Based upon a review of the filing, the Commission finds that the
    TAPS 2006 Tariffs have not been shown to be just and reasonable and
    may be unjust, unreasonable, unduly discriminatory, or otherwise
    unlawful. Accordingly, the Commission will accept and suspend the
    tariffs, to become effective January 1, 2006, subject to refund and
    subject to the conditions set forth in the body of this order and in
    the ordering paragraphs below.

[The Commission orders]{.underline}:

\(A\) BP Pipelines (Alaska) Inc. -- FERC No. 32; ConocoPhillips
Transportation Alaska, Inc. -- FERC No. 8; ExxonMobil Pipeline Company
-- FERC No. 252; Koch Alaska Pipeline Company LLC -- FERC No. 6; and
Unocal Pipeline Company -- FERC No. 280 are accepted for filing and
suspended, to become effective January 1, 2006, subject to refund and
further order of the Commission.

\(B\) Pursuant to the authority of the Interstate Commerce Act,
particularly section 15(7) 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*.

\(C\) The Chief Judge may authorize a change to the Track III procedures
established in OR05-2-000, *et al.* as necessary.

By the Commission.

( S E A L )

Magalie R. Salas,

Secretary.

[^1]: The 2006 TAPS tariffs as filed on or about December 1, 2005
    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]: *Trans Alaska Pipeline System*, 33 FERC  61,064 (1985) and 35
    FERC  61,425 (1986).

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

[^4]: *BP Pipelines (Alaska) Inc.*, 112 FERC ¶ 61,219 (2005).

[^5]: RCA Order No. P-97-4-(151) (Nov. 27, 2002).

[^6]: *Id.* at 2.

[^7]: RCA decisions are not binding upon the Commission.