Opinion ID: 703151
Heading Depth: 2
Heading Rank: 1

Heading: The TAPS Quality Bank

Text: 4 TAPS is a 48-inch diameter pipeline that extends nearly 800 miles from its origin on Alaska's North Slope near Prudhoe Bay to its terminus at Valdez on Alaska's south central coast. The pipeline is jointly owned by seven TAPS Carriers. Affiliates of some of the TAPS Carriers constitute a subset of the group of companies that ship petroleum through the line. TAPS carries a mixture of crude oils and natural gas liquids (NGLs) from a series of North Slope oil fields. The Quality Bank makes monetary adjustments among the shippers to compensate for the commingling of differing qualities of crude oil. 5 The Quality Bank operates at three locations. At Pump Station No. 1, located at the Prudhoe Bay origin of the pipeline, the Bank values the petroleum streams delivered to TAPS by the various shippers. It charges some shippers and makes payments to others based on the difference in value between their individual contributions and the weighted average of all incoming streams. More than 400 miles south of Prudhoe Bay, at the junction of TAPS and the Golden Valley Electric Association pipeline (GVEA) near Fairbanks, refineries operated by petitioners MAPCO Alaska Petroleum, Inc. (MAPCO) and Petro Star, Inc. (Petro Star) divert a portion of the common stream and remove certain petroleum products from it. That portion of the common stream less the products removed, known as the refinery return stream, is then returned to TAPS. At GVEA, the Quality Bank compares the value of the diverted portion of the common stream to that of the return stream, charging the refiners and compensating other shippers for the reduction in the common stream's value caused by the removal of the refinery products. Finally, at the Port of Valdez, TAPS returns the common stream to the shippers in amounts proportionate to the quantity of petroleum they originally delivered to the pipeline. Because there are minor daily fluctuations in the value of the petroleum delivered at Valdez, the Quality Bank makes price adjustments based on the difference in value between the petroleum received by a shipper on a given day and the average value of the common stream at Valdez over the course of the month. Thus shippers who receive a tanker-full of oil of a higher-than-average quality will make a payment to the Quality Bank so that it may in turn compensate those who receive oil of a lower-than-average value. 6 In 1984, following years of litigation between the TAPS Carriers and MAPCO over the valuation methodology used by the Quality Bank, FERC approved a settlement between the parties that embodied a notably simple approach. Trans Alaska Pipeline System, 29 F.E.R.C. p 61,123 (1984) (1984 Order ). Because lighter, high gravity crude oil (as gravity is measured on the American Petroleum Institute (API) scale) is generally more valuable than a heavier, low gravity crude, the settlement proposed to equate the gravity of the petroleum with its value: contributors of petroleum having a gravity higher than that of the TAPS common stream would receive payments from the Quality Bank while contributors of petroleum having a gravity lower than that of the stream would make payments to the Bank. Under this system, known as the intra-field gravity differential methodology, the amounts of these payments were calculated using the adjustments to the posted prices for variations in gravity appearing in the postings for a number of Texas and California crude oils having a range of gravity that includes the average API gravity of the TAPS commingled stream. Id. at 61,239. 7 Tesoro Alaska Petroleum Co. (Tesoro), a TAPS shipper, contested the settlement on the ground that the gravity of petroleum is an inaccurate measure of its value. Tesoro favored a distillation methodology that would value the petroleum based on the boiling point of various hydrocarbons in the streams. Id. In approving the settlement over Tesoro's objection, FERC conceded that there is no perfect valuation methodology and that other approaches might produce more accurate measurements than the one proposed by the settlement. Nevertheless, the Commission found that the proposed gravity method passed the threshold test of being just and reasonable. Id. The Commission noted that Tesoro or any other interested party had the ability to propose another methodology in the future. Id. at 61,240.