Opinion ID: 2633766
Heading Depth: 4
Heading Rank: 1

Heading: Pre-settlement Depreciation

Text: RCA found the depreciation stipulation to be, for all practical purposes, irrelevant, because it was superseded by the TAPS settlement. Order No. 151 reads: The Carriers have urged that using TSM depreciation charges to set rate base for 1997-2000 is inappropriate, because TSM itself contained no depreciation charges for 1977-1983. Instead, the Settlement Agreement set a starting rate base for 1983 year-end and determined depreciation charges for 1984 through the present. The depreciation charges upon which Tesoro relies are contained in an illustrative exhibit [in support of APUC approval of the 1985 TAPS settlement] known as TSM-6. We acknowledge that the TSM-6 depreciation charges were not directly used to set tariffed rates for 1977-1983. Rather, until the Settlement was brokered, rates were still being charged according to the originally filed and suspended rates from 1977. . . . [T]he record shows that the Carriers and the APUC relied on the TSM-6 depreciation charges to arrive at and accept the Settlement's starting rate base. . . . [A]s a witness for Williams noted, the depreciation contained in TSM-6 was analogous to setting a rate based on a suspension rate. In other words, the Carriers had made a tentative filing under one rate methodology, and the actual depreciation rates to be used were not established until later. Thus RCA found that TSM was retroactively applied from the pipeline's inception. Tesoro argues that the initial provisional tariffs were excessive and would have engendered refund obligations in the billions if TSM had not retroactively reckoned them to include accelerated depreciation. RCA's finding that pre-settlement depreciation charges were consistent with accelerated depreciation is most specifically supported in the record by the testimony of State's witness Jerome Haas. Mr. Haas was a member of the State's settlement team who participated in the creation of. TSM; he testified as both an expert and an occurrence witness. Haas stated that a core settlement goal of the State was to set rates that would decline over time to match declining throughput. Asked how TSM achieved these declining rates, he explained: Primarily, the steeply declining rate profile was achieved by rapidly depreciating the original, pre-operating TAPS investment over the years 1977-84, i.e. the operational years preceding the settlement . . . Applied retrospectively [at the time of settlement] in 1985, the front-loaded depreciation resulted in presettlement rates that were roughly equal to the rates the owners actually collected under their filed tariffs. The State believed those past rates were excessive when judged against a benchmark based on traditional straight-line depreciation schedules, but it was willing to accept them as part of a settlement package that produced reasonable and low tariff rates for 1990 and beyond. . . . The resulting, accelerated depreciation schedule was one of the most attractive benefits to the State of the TAPS Settlement Methodology. . . . All parties clearly understood that the effect of using the rapid depreciation I have described would be the relatively quick recovery of invested capital. . . . At the time of the settlements, it was expected that four-fifths of the original (pre-operational) TAPS investment would be recovered by 1990, even though the system would have operated by then for only about two-fifths of its expected economic life. This quoted passage substantially supports RCA's conclusion regarding presettlement depreciation. This court may not weigh or balance conflicting testimony of adverse experts; it is merely to ascertain whether RCA had a reasonable basis in the record for determining that the rates filed before settlement included, de facto, accelerated depreciation. The court so finds.