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

Heading: The Challenge to the Gravity Methodology

Text: 8 In 1989, the issue of the Quality Bank valuation methodology reemerged. Following routine practice, the TAPS Carriers filed new tariffs, to be effective July 1, 1989, which proposed slight adjustments in the value of TAPS streams consistent with changes in market prices of crude oils of various gravities. See Amerada Hess Pipeline Corp., 47 F.E.R.C. p 62,336 at 63,654-55 (1989) (Pipeline Board Order ). Petitioner OXY USA, Inc. and Conoco, Inc. challenged the filings as unjust and unreasonable, alleging both that the Carriers improperly calculated the new gravity values and that they had violated the terms of their previously filed tariffs by permitting shippers to include NGLs in the petroleum they shipped through TAPS. Id. at 63,655. 9 Underlying the OXY/Conoco challenge, and critical to the petitions for review now before us, is the concern of some shippers over the increase in the amount of NGLs shipped through the pipeline between 1984 and 1989. NGLs have a very high gravity relative to other petroleum products but, according to the critics of the gravity methodology, they do not have as high a value as that attributed to them by that methodology. The critics believe that shippers with a high percentage of NGLs in their petroleum streams were actually reducing the value of the common stream but were being compensated by the Quality Bank as if they were increasing its value. 10 FERC's Oil Pipeline Board suspended the new rates for one day and then permitted them to become effective subject to refund following a hearing concerning their lawfulness, id. at 63,656, pursuant to the Commission's authority under section 15(7) of the ICA. That section provides that 11 in case of a proposed increased rate or charge ... the Commission may by order require the interested carrier or carriers to keep accurate account ... and upon completion of ... hearing and decision may by further order require the interested carrier or carriers to refund, with interest ... such portion of such increased rates or charges as by its decision shall be found not justified. 12 49 U.S.C.App. Sec. 15(7) (1988). On appeal, the Commission affirmed the Oil Pipeline Board's decision and explained that it would order refunds, retroactive to the date the rate adjustments were filed, should a hearing before an administrative law judge (ALJ) reveal that the adjustments were incorrectly calculated or that the TAPS Carriers were in violation of the terms of their tariffs by transporting NGLs, but stated that because the TAPS owners ha[d] not proposed to change the existing methodology, any change in [the Quality Bank valuation] methodology [would] be effected prospectively. Trans Alaska Pipeline System, 49 F.E.R.C. p 61,349 at 62,264-65 (1989) (1989 Order ); see also Trans Alaska Pipeline System, 51 F.E.R.C. p 61,062, at 61,137 (1990) (1990 Order ). That said, the Commission ordered an investigation into the lawfulness of the Quality Bank gravity methodology pursuant to section 13(2) of the ICA, 1989 Order, 49 F.E.R.C. p 61,349 at 62,265, which grants the Commission 13 full authority and power at any time to institute an inquiry ... concerning ... any of the provisions of this chapter ... on its [own] motion ... including the power to make and enforce any order or orders ... excepting orders for the payment of money. 14 49 U.S.C.App. Sec. 13(2) (1988). 15 In November 1991, an ALJ assigned to investigate both the OXY/Conoco objections to the new tariff filings and the underlying reasonableness of the Quality Bank valuation methodology issued his opinion on all of the issues raised. First, he determined that the Quality Bank's past charges were proper and that there had been no violations of the TAPS Carriers' tariffs because the shipment of NGLs was consistent with the terms of the FERC-approved 1984 settlement. Trans Alaska Pipeline System, 57 F.E.R.C. p 63,010 at 65,041-42 (1991) (ALJ Decision ). After reexamining the Quality Bank's valuation methodology, however, he determined that the evidence indicates that the current straightline gravity basis for valuing crude oil does not assign an accurate value for NGLs. Id. at 65,050. Coupled with his finding that shipments of NGLs had increased precipitously since 1984, this led the ALJ to conclude that circumstances surrounding the TAPS Quality Bank had changed significantly, that the evidence strongly establishes the distortion of value caused by the NGLs delivered at Pump Station No. 1 and present in the GVEA return stream, and therefore that the gravity methodology as applied at Pump Station No. 1 and GVEA no longer yield[ed] a just and reasonable result. Id. at 65,049-50, 65,052-53. To remedy this problem, he recommended a prospective alteration of the gravity methodology at those two locations, the details of which are not relevant to the claims before us. Id. at 65,069. The ALJ also found, however, that [t]here is no evidence of any change in conditions at Valdez, and thus determined that the current gravity valuation method continued to be appropriate at that location. Id. at 65,053, 65,066.