Court Opinion

ID: 2831982
Source: CourtListenerOpinion
Date Created: 2015-08-28 17:02:10.878199+00
Date Added: 2024-06-11T13:40:01.080695
License: Public Domain

Notice: This opinion is subject to correction before publication in the P ACIFIC R EPORTER .
     Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
     303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
     corrections@akcourts.us.

              THE SUPREME COURT OF THE STATE OF ALASKA

STATE OF ALASKA,                 )
DEPARTMENT OF REVENUE,           )                     Supreme Court Nos. S-14696/14705/
                                 )                     14706/14716/14725
           Appellant and         )
           Cross-Appellee,       )                     Superior Court No. 3AN-06-08446 CI
                                 )
      v.                         )                     OPINION
                                 )
BP PIPELINES (ALASKA) INC.,      )                     No. 7039 – August 28, 2015
CONOCOPHILLIPS                   )
TRANSPORTATION ALASKA, INC., )
EXXONMOBIL PIPELINE              )
COMPANY, KOCH ALASKA             )
PIPELINE COMPANY, LLC,           )
UNOCAL PIPELINE COMPANY,         )
ALYESKA PIPELINE SERVICE         )
COMPANY, NORTH SLOPE             )
BOROUGH, FAIRBANKS NORTH )
STAR BOROUGH, and CITY OF        )
VALDEZ,                          )
                                 )
           Appellees,            )
           Cross-Appellants, and )
           Cross-Appellees.      )
_______________________________ )

             Appeal from the Superior Court of the State of Alaska, Third
             Judicial District, Anchorage, Sharon Gleason and Andrew
             Guidi, Judges.

             Appearances: Kenneth J. Diemer, Assistant Attorney
             General, Anchorage, and Michael C. Geraghty, Attorney
             General, Juneau, for Appellant/Cross-Appellee State of
             Alaska, Department of Revenue. Leon T. Vance, Faulkner
             Banfield, P.C., Juneau, and Alexander O. Bryner, Feldman
             Orlansky & Sanders, Anchorage, for Appellees/Cross­
             Appellants/Cross-Appellees BP Pipelines (Alaska) Inc.,
             ConocoPhillips Transportation Alaska, Inc., ExxonMobil
             Pipeline Company, Koch Alaska Pipeline Company, LLC,
             Unocal Pipeline Company, and Alyeska Pipeline Service
             Company. Jessica Dillon and Mauri Long, Dillon &
             Find ley , P C , A n ch o rag e, fo r A ppellee/Cross­
             Appellant/Cross-Appellee North Slope Borough. A. Rene
             Broker, Borough Attorney, Fairbanks, and Robin O. Brena,
             Kevin G. Clarkson, Anthony Guerriero, and Laura S. Gould,
             Brena, Bell & Clarkson, PC, Anchorage, for Appellee/Cross­
             Appellant/Cross-Appellee Fairbanks North Star Borough.
             William M. Walker, Craig W. Richards, and Jon S.
             Wakeland, Walker & Richards, LLC, Anchorage, for
             Appellee/Cross-Appellant/Cross-Appellee City of Valdez.

             Before: Fabe, Chief Justice, Winfree, Stowers, Maassen, and
             Bolger, Justices.

             STOWERS, Justice.

I.    INTRODUCTION
             This is an appeal of the superior court’s de novo valuation of the Trans-
Alaska Pipeline System (TAPS) for tax assessment years 2007, 2008, and 2009. In
February 2014 we issued a decision affirming the superior court’s de novo valuation of
TAPS for the 2006 assessment year.1 The parties introduced considerably more evidence
during trial for the 2007, 2008, and 2009 years, but the operative facts remained
substantially the same and the superior court applied similar standards and methods for
valuation. Many of the issues raised on appeal are similar or identical to issues raised

      1
            BP Pipelines (Alaska) Inc. v. State, Dep’t of Revenue, 325 P.3d 478 (Alaska
2014) (BP Pipelines I).

                                          -2-                                     7039
in the 2006 appeal and thus are partially or wholly resolved by our prior opinion.
Because the superior court did not clearly err or abuse its discretion with regard to any
of its findings or its methodology, and because it committed no legal error in its
conclusions, we affirm.
II.   FACTS AND PROCEEDINGS
      A.     Facts
             TAPS is an 800-mile-long oil pipeline system that connects the Alaska
North Slope oil reserves to a shipping terminal in Valdez. The pipeline was constructed
between 1974 and 1977 at a cost of approximately $8 billion. This appeal involves a
dispute over the value of TAPS for property tax purposes during the assessment years
2007, 2008, and 2009. Because this is our second appeal involving TAPS, we provide
only a brief overview of the facts.
             Under Alaska law municipalities “may levy and collect a tax on the full and
true value” of oil and gas property, including pipelines, but only the Department of
Revenue may assess the value of that property.2 Alaska Statute 43.56.060(e)(2) requires
an assessor to determine the “the full and true value” of oil and gas production and
transportation facilities “with due regard to the economic value of the property based on
the estimated life of the proven reserves of gas or unrefined oil then technically,
economically, and legally deliverable into the transportation facility.” A party may
appeal the Department’s valuation to the State Assessment Review Board.3 The Board’s

      2
             AS 29.45.080(b); AS 43.56.060(a).
      3
             AS 43.56.120(a).

                                           -3­                                     7039
decision is, in turn, appealable to the superior court, which reviews the Board’s decision
in a trial de novo.4
              Before 2001 there were no administrative or court challenges involving the
value of TAPS. The Department had previously used an income method5 to assess
TAPS’s value, relying on tariff income as the primary source of value, and the ultimate
valuation was reached in a negotiated settlement between the Department and TAPS’s
Owners.6 For the 2001 tax year the Owners and the Municipalities7 appealed the
Department’s valuation of $2.75 billion to the Board. The Board adjusted the valuation
to $3.0178 billion and suggested that accurately valuing the pipeline was difficult because
there had never been a replacement cost study for TAPS. For the 2002 to 2004 tax years
the Department, Owners, and the Municipalities stipulated to a value of $3.017 billion.
For the 2005 tax year the Department used the replacement-cost-new-less-depreciation

       4
              AS 43.56.130(i).
       5
              Under the income approach, “[t]he appraiser determines the present value
of the future economic benefits of owning the property.” A M . SOC ’Y OF A PPRAISERS ,
V ALUING M ACHINERY AND EQUIPMENT : THE FUNDAMENTALS OF A PPRAISING
M ACHINERY AND TECHNICAL A SSETS 571 (2d ed. 2005).
       6
             The Owners refer to themselves as “Taxpayers” in their briefing. For
consistency with the superior court’s decision and our decision in the 2006 appeal, we
refer to them as the Owners. The Owners of TAPS are BP Pipelines (Alaska) Inc.
(46.9%), ConocoPhillips Transportation Alaska, Inc. (28.3%), ExxonMobil Pipeline
Company (20.3%), Koch Alaska Pipeline Company (3.1%), and Unocal Pipeline
Company (1.4%). The Alyeska Pipeline Service Company is the operating agent for the
Owners and is also an appellee/cross-appellant/cross-appellee.
       7
             We refer to the North Slope Borough, the Fairbanks North Star Borough,
and the City of Valdez collectively as the Municipalities.
       8
             The precision of values given in the record varies. For consistency, we
round all values to three decimal places, or the nearest $1 million.

                                           -4-                                       7039

method,9 also called the cost approach, and arrived at a value of $3 billion. The Owners
and Municipalities appealed the 2005 assessment; the Board affirmed the valuation and
agreed with the Department’s conclusion that the income method was unreliable and
TAPS should be valued using a cost approach.
             For the 2006 tax year the Department again relied on the replacement-cost­
new-less-depreciation methodology and determined an assessed value of $3.641 billion.
Both the Owners and the Municipalities appealed to the Board, which, using the same
methodology but rejecting certain deductions the Department made, adjusted the value
to $4.306 billion.10 The parties then appealed to the superior court.11
             In the 2006 appeal the superior court concluded that the Department and
the Board correctly used a replacement-cost-new-less-depreciation method to value
TAPS.12 In October 2010 the superior court issued its decision following a trial de novo.
The superior court found that the Municipalities’ cost study was more reliable and
accurate than those relied on by the Department and the Board.13 The court also
determined that a scaling adjustment14 for excess capacity should be made as a form of

      9
              Under the replacement-cost-new-less-depreciation or cost approach, “[t]he
appraiser starts with the current replacement cost new of the property being appraised
and then deducts for the loss in value caused by physical deterioration, functional
obsolescence, and economic obsolescence.” A M . SOC ’Y OF A PPRAISERS , supra note 5,
at 561.
      10
             BP Pipelines I, 325 P.3d 478, 481 (Alaska 2014).
      11
             Id.
      12
             Id.
      13
             Id.
      14
             Scaling, also called an inutility penalty, measures the decrease in value due
                                                                            (continued...)

                                           -5-                                      7039

economic obsolescence rather than functional obsolescence.15 The superior court’s final
valuation for the 2006 year was $9.978 billion.16 In our opinion issued in February 2014
we affirmed the superior court’s decision, finding no error in the superior court’s
valuation decision or its specific deductions made to account for depreciation.17
             For the 2007 assessment year, the Department assessed TAPS’s value at
$4.578 billion, which the Board adjusted to $4.589 billion. For the 2008 assessment
year, the Department valued TAPS at $7.166 billion, relying for the first time on a
ProPlus cost study provided by the Municipalities. The Board, utilizing the same study
but making some adjustments, concluded that the value of TAPS in 2008 was $6.154
billion. Finally, for the 2009 assessment year, the Department valued TAPS at $7.715
billion, and the Board concluded that the value was $9.046 billion.
      B.     Proceedings
             The superior court considered the appeals for the assessment years 2007,
2008, and 2009 together in a trial de novo that lasted approximately nine weeks
beginning on September 6, 2011.
             The Municipalities asserted that the value of TAPS for each of the years in
question should be about $14 billion, while the Owners asserted that the value should be
little more than $1 billion. The reason for the difference in these values was that the
Owners continued to argue for the income approach to valuation, which would limit

      14
        (...continued)
to operation below rated or design capacity. See A M . SOC ’Y OF A PPRAISERS ,
supra note 5, at 97; BP Pipelines I, 325 P.3d at 499 & n.16 (citing A M . SOC ’Y OF
A PPRAISERS , supra note 5, at 97, for scaling analysis).
      15
             BP Pipelines I, 325 P.3d at 481.
      16
             Id.
      17
             Id. at 496.

                                          -6-                                       7039

TAPS’s value based on its tariff income, while the Municipalities advocated for a cost
approach using the replacement-cost-new-less-depreciation method.
              Both the Municipalities and the Owners relied upon different replacement­
cost-new (RCN) surveys than they did in the 2006 trial — the Municipalities submitted
a ProPlus RCN that replicated the existing pipeline diameter and capacity of TAPS, and
the Owners submitted a Stantec RCN with a much smaller pipeline diameter to account
for the low volume of oil then flowing through the pipeline. The Owners’ appraiser
applied the “breakdown method” to account for depreciation, which quantifies each type
of depreciation individually.18 The Municipalities argued for continued application of
the economic age-life method,19 as in the 2006 case. All parties submitted substantial
evidence relating to TAPS’s proven reserves, including expert reports from each party.
And the Municipalities and the Owners submitted voluminous evidence relating to
possible minimum flow rates for TAPS.
              Although in the 2006 case there was disagreement regarding whether a
deduction for economic obsolescence20 had actually been litigated, it was exhaustively
litigated for the 2007, 2008, and 2009 years. The Municipalities argued strenuously that

      18
              The breakdown method “identifies specific elements of depreciation and
treats each element separately.” A PPRAISAL INST ., THE A PPRAISAL OF REAL ESTATE
410 (13th ed. 2008). It “segregates total depreciation into individual component parts:
Physical deterioration[,] Functional obsolescence[, and] External obsolescence.” Id. at
424.
       19
              “In the economic age-life method, total depreciation is estimated by
calculating the ratio of the effective age of the property to its economic life expectancy
and applying this ratio to the property’s total cost.” Id. at 420.
      20
             Economic obsolescence is defined as “[a] form of depreciation or loss in
value or usefulness of a property caused by factors external to the property.” A M . SOC ’Y
OF A PPRAISERS , supra note 5, at 565.

                                           -7-                                       7039

any deduction for economic obsolescence was unwarranted, or if it was warranted, it was
outweighed by positive external economic factors. They submitted evidence regarding
the Owners’ profitability and the then-high price of oil. The Municipalities also offered
evidence that the mechanical limit of TAPS without using drag reducing agents is
760,000 barrels (bbl) per day, and argued that this limit should be used as TAPS’s “full
capacity” if the court chose to account for low throughput. The parties also contested
whether only the pipeline should be scaled for low throughput or whether all TAPS
property — including the Valdez Marine Terminal and the pumps — should be scaled.
             As it did in the 2006 case, the superior court found that TAPS was a
limited-market, special-purpose property.        The court again determined that the
replacement-cost-new-less-depreciation method was the most accurate method for
valuing TAPS. The court found that the ProPlus replacement cost study provided by the
Municipalities was more accurate than the Stantec study provided by the Owners. It
further found that TAPS’s status as a regulated pipeline did not result in any further
diminution of its value and rejected the Owners’ attempts to apply either an income
approach or an income shortfall approach21 in order to account for governmental
regulation of TAPS.
             The court again applied the economic age-life method as an approximation
of physical, functional, and economic obsolescence, and it rejected the Owners’
argument for the breakdown method. The court was unpersuaded by the Municipalities’
arguments against an economic obsolescence deduction, and it deducted for additional
obsolescence not captured by the economic age-life method. In deducting for economic

      21
             The Owners also argued for this methodology in the 2006 case.
BP Pipelines I, 325 P.3d at 488-89. The “income shortfall” approach involves
comparing the tariffs that could be charged on a new pipeline with the tariffs currently
charged. Id.

                                           -8-                                     7039

obsolescence, it agreed with the Municipalities that the number to use as TAPS’s full
capacity should not be its maximum capacity achievable only with drag reducing agents,
but the court disagreed that it should use TAPS’s mechanical limit. Instead, the court
scaled TAPS using TAPS’s original design basis, after finding that the ProPlus RCN had
the same design capacity as the original TAPS. And the court scaled all TAPS property,
not just the pipeline.
              The superior court determined that TAPS’s value was $8.941 billion in
2007, $9.644 billion in 2008, and $9.249 billion in 2009. All of the parties now appeal
various aspects of the superior court’s decision.
III.   STANDARD OF REVIEW
              In an appeal from the superior court’s review of an administrative decision
in a trial de novo we review only the superior court’s decision.22 “We review the
superior court’s factual findings under the clearly erroneous standard and will not
overturn a factual finding unless ‘left with the firm and definite conviction on the entire
record that a mistake has been made.’ ”23 We review questions of law de novo,24 and
“[o]ur duty is to adopt the rule of law that is most persuasive in light of precedent,

       22
             Id. at 482 (citing City of Nome v. Catholic Bishop of Northern Alaska,
707 P.2d 870, 875 (Alaska 1985)). Because we review only the superior court’s
decision, we cannot apply a substitution of judgment or rational basis standard to the
Board’s decision. See id. at 485.
       23
              Id. at 482 (quoting City of Nome, 707 P.2d at 876).
       24
              Nash v. Matanuska-Susitna Borough, 239 P.3d 692, 698 (Alaska 2010).

                                           -9-                                       7039

reason, and policy.”25 Whether the superior court itself applied the correct standard for
reviewing the Board’s decision is a question of law that we review de novo.26
             We review the superior court’s decision to apply collateral estoppel for
abuse of discretion.27 “We will find an abuse of discretion when the decision on review
is manifestly unreasonable.”28
IV.	   DISCUSSION
       A.	   The Superior Court Did Not Err By Requiring Public Disclosure Of
             Taxpayer Information.
             During the trial de novo the Municipalities moved to introduce exhibits that
the Department argued contained confidential information. Among the exhibits were
production reports provided by the Department’s expert, and also references to
communications with operators and field-by-field forecasts. The Department was
worried that the under-development and under-evaluation totals for different fields could
be extrapolated from the information contained in the documents. The superior court
eventually admitted the documents in redacted form.
             The Department asserts that the superior court erred by admitting the
documents.    It argues that under AS 40.25.100(a) all “information designated
confidential by the taxpayer, or the Department, or confidential taxpayer information the
Department used in preparing its own documents” is not public record and must not be

       25	
             BP Pipelines I, 325 P.3d at 482 (quoting Guin v. Ha, 591 P.2d 1281, 1284
n.6 (Alaska 1979)) (internal quotation marks omitted).
       26
             Smith v. Weekley, 73 P.3d 1219, 1222 (Alaska 2003) (quoting Barrett v.
Alguire, 35 P.3d 1, 5 (Alaska 2001)).
       27
             See Misyura v. Misyura, 242 P.3d 1037, 1040 (Alaska 2010).
       28
            Ranes & Shine, LLC v. MacDonald Miller Alaska, Inc., __ P.3d __,
Op. No. 7003 at 7, 2015 WL 1958657, at *3 (Alaska May 1, 2015).

                                          -10-	                                    7039

publicly disclosed.29 But AS 40.25.100(a) expressly does not apply to information
required to be produced in court proceedings. It allows release of information “when its
production is required in an official investigation, administrative adjudication under
AS 43.05.405-43.05.499, or court proceeding.”30 The superior court did not err by
concluding that AS 40.25.100(a) did not prevent public disclosure of the exhibits and
production forecasts, as redacted.
       B.	    The Superior Court Did Not Err By Applying The “Use Value
              Standard” To Value TAPS.
              Despite our decision in BP Pipelines I holding otherwise,31 the Owners still
argue that the application of a “use value” standard was improper. They mainly argue
that the superior court failed to account for the legal restrictions on TAPS, thereby
valuing the pipeline at a use that it cannot actually fulfill: an unregulated pipeline
moving the Owners’ oil to market. And they argue that the court should have used the

       29
              The Department argues that it should prevail because there is a reasonable
basis to support its interpretation of AS 40.25.100(a). The superior court’s order did not
mention AS 40.25.100(a). Instead, the court referenced its reasoning in an earlier order
on the confidentiality of documents, which focused on the common law right of access
to court records and trade secret law. It is thus not clear what weight, if any, the superior
court gave to the Department’s interpretation of AS 40.25.100(a). But even if the
Department’s interpretation was entitled to some deference, the superior court would
have been correct to reject the Department’s interpretation.
       30	
              AS 40.25.100(a) (emphasis added).
       31
               In the 2006 appeal we held that AS 43.56.060 does not require a market
value standard and that the superior court permissibly applied the use value standard to
value TAPS. BP Pipelines I, 325 P.3d 478, 483-86 (Alaska 2014) (“The plain text and
history of AS 43.56.060 indicate that the legislature did not intend for ‘fair market value’
to be the only allowable standard for the assessment of pipeline property.” Id. at 483).
Initially, the Owners again argued that AS 43.56.060 required valuing TAPS at market
value, but they have since recognized in their supplemental briefing to this court that our
decision in the 2006 appeal forecloses that contention.

                                            -11-	                                      7039

income method of valuation or applied the “income shortfall technique” to the
replacement-cost-new-less-depreciation method to account for the fact that tariffs are the
pipeline’s only certain economic value.32 Each of these arguments is a variant of the
Owners’ claim that the superior court erred by not using an income approach to value
TAPS.
             1.     “Use value” does not value TAPS based on an unlawful use.
             The Owners argue that the only legally permissible use of TAPS is as a
regulated common-carrier pipeline available to all shippers. They contend the superior
court erred by finding that TAPS was a “non-investment property within each Owner’s
integrated system” and determining that its “highest and best use was to transport oil
from the North Slope to Valdez for [Owners’] affiliates in an integrated system.” But
there is no authority supporting the Owners’ position that the value of TAPS for tax
assessment purposes must be based only on the tariff income it generates. And the

      32
               The Owners also argue that by considering any value other than tariff
income, the superior court improperly valued non-TAPS property, specifically the North
Slope oil reserves. They argue that new testimony in this case “demonstrat[es] that the
goal of the valuation was to capture the value of non-taxable property.” This new
testimony — from a Municipality expert — is that TAPS’s value is in monetizing the
North Slope reserves. This testimony is consistent with the testimony in the 2006
appeal — that TAPS’s value is in moving the Owners’ oil to market; it is not new. The
superior court was not “captur[ing]” the value of the North Slope reserves; it was
examining what drove TAPS’s value in order to choose the appropriate valuation method
for the pipeline property. The superior court made clear that the taxable property did not
include oil and gas reserves: it explained that “TAPS’[s] taxable property includes only
the tangible real and personal property from Pump Station 1 through the [Valdez Marine
Terminal].” As in the 2006 appeal, the Owners “have not shown that the superior court
considered the value of Alaska North Slope oil reserves for any other reason than to
support the conclusion that the Trans-Alaska Pipeline System has a unique use value
distinct from its tariff income.” BP Pipelines I, 325 P.3d at 486.

                                          -12-                                      7039

superior court’s decision to value TAPS based on its actual use — transporting oil and
gas from the Alaska North Slope for affiliated producers — is well supported.
              The superior court found that TAPS is a special-purpose property that was
“specifically designed, constructed, and adapted for its particular use — to move
affiliated crude oil from the [Alaska North Slope] to Valdez.” The court also found that
“TAPS is a limited-market property,” with no real market for ownership interests in
TAPS outside of the Alaska North Slope oil producers. The court found that four of the
five TAPS owners are vertically integrated oil companies that ship their own oil through
TAPS, and the fifth, Koch Alaska Pipeline company, “has an affiliate [whose] contract
with the State provides it with oil for delivery to the largest refinery connected to TAPS.”
The superior court relied in part on the Owners’ appraisal expert’s testimony — that the
owners of TAPS would not sell TAPS even for $20 billion if the sale were “for the
expressed purpose of shutting TAPS down” — to find that there was “no market for
TAPS as a stand-alone investment based solely on its tariff income.” The superior court
also found that TAPS’s highest and best use was its current use — “the transport of
[Alaska North Slope] oil to market.”
              Based on these findings, the superior court concluded that the Board’s use
value standard, which based the value of TAPS “on the economic value of its continued
use in transporting [Alaska North Slope] proven reserves to market, has not been
demonstrated to constitute a fundamentally wrong principle of valuation.”                In
conformance with our decision in the 2006 appeal, and based on the court’s findings in
the current case, it was not error to assess TAPS under a use value standard.33

       33
             See BP Pipelines I, 325 P.3d at 486 (holding that “[i]n light of these
unchallenged factual findings, we cannot conclude that it was error to assess the Trans-
Alaska Pipeline System under a use value standard”).

                                           -13-                                       7039

              2.     Legal regulation does not cause economic obsolescence in TAPS.
              The Owners argue, as they did in the 2006 appeal,34 that even if the court
properly applied a use-value standard and used the replacement-cost-new-less­
depreciation method to value TAPS, it erred by failing to reduce the value of TAPS due
to legal restrictions on its use. The Owners argue that the legal restrictions are a form of
external obsolescence.35 The Owners’ appraisers again applied this deduction using what
is termed an “income shortfall” method.
              We again agree with the superior court that “if the income shortfall method
was applied based on tariff income, the [replacement-cost-new-less-depreciation]
valuation would no longer reflect the ‘full and true’ economic value of TAPS as a critical
component of the integrated [Alaska North Slope] production and transportation
system.” And we again express our scepticism with the income shortfall method of
valuation.36 But, as in the 2006 case, the record simply does not reflect that the
regulation adversely affects the value of the pipeline. The facts have not changed.
Relying on similar, and at times identical, evidence, the superior court again rejected the
income shortfall method and found that “[t]he record does not support the proposition

       34
                 In the 2006 appeal we held that “the superior court did not err by refusing
to treat tariff regulations as a form of economic obsolescence.” BP Pipelines I, 325 P.3d
at 489. In reaching that conclusion we observed that “the superior court heard ample
testimony that [the Owners’ income shortfall method] of calculating depreciation is not
a widely accepted appraisal practice, nor does it appear in any widely accepted appraisal
manuals.” Id. But we ultimately rested our conclusion on the superior court’s finding
that tariff regulation is simply not a source of external obsolescence. Id.
       35
               The Owners suggest that “[l]egal regulation in general, and tariff regulation
in particular, make TAPS less valuable to own than a newly constructed property would
be, requiring a deduction for external obsolescence.”
       36
              See BP Pipelines I, 325 P.3d at 489. The superior court referenced
significant evidence that the income shortfall method is not widely accepted.

                                           -14-                                       7039

that the regulatory status of TAPS negatively affects its economic value.” The superior
court’s determination that economic regulation does not affect the pipeline is not clearly
erroneous. We hold that the superior court did not err by refusing to apply an economic
obsolescence deduction based on tariff regulations.
      C.	    The Superior Court Did Not Err In Calculating The Total Proven
             Reserves For 2007-2009 And Estimating The Economic Life Of TAPS.
             The Department, Owners, and Municipalities each challenge the superior
court’s end-of-life determination. The Department argues that the court wrongly relied
on production forecasts produced by the Municipalities’ expert, Dudley Platt, which the
Department claims are less reliable than the production forecasts provided by its expert,
Frank Molli. The Municipalities challenge the court’s use of a 100,000 bbl/d minimum
mechanical throughput for TAPS, arguing that no minimum should have been applied.
And the Owners argue that the minimum throughput should have been higher than
100,000 bbl/d.
             1.	    The superior court did not clearly err in relying on Platt’s
                    production forecasts.
             The superior court concluded that production forecasts and economic life
estimates prepared by Platt were more reliable than those prepared by the Department’s
and Owners’ experts. Platt’s forecast used a “decline curve analysis at the pool level, as
opposed to a well-by-well analysis” (used by the Department and the Owners), and the
superior court found that “a pool-based analysis is generally preferable to a well-based
analysis.” The court consequently found that Platt’s forecasts were more reliable than
those prepared by the Department and the Owners.

                                          -15-	                                     7039

              A decline curve analysis is a required component of forecasting the life of
proven reserves.37 One component of a decline curve is the “b-factor,” which determines
the shape of the curve of predicted future reservoir production.38 In his report Platt
included some b-factors that were one or greater. The superior court found that “[a] b-
factor greater than [one] projects infinite production over an infinite period of time.” But
the court noted that “forecasters use economic tests to terminate production at some point
several decades in the future,” making the concern regarding a b-factor greater than one
irrelevant.
              The Department suggests that its expert, Molli, was better credentialed and
used more accepted methods than Platt. And the Department criticizes Platt’s use of b-
factors greater than one. The Department argues that it is well accepted that a b-factor
greater than one represents an infinite or unbounded reserve, which is technically
impossible.
              In this case the superior court reviewed enormous amounts of evidence on
oil- and gas-field production forecasts generally and the use of b-factors specifically.
The superior court found that “Platt is one of the preeminent production forecasters in
the state,” and his estimates of economic life correlated well with the estimates BP
submitted to the United States Securities and Exchange Commission in connection with
other proceedings unrelated to assessing the value of TAPS. And the superior court

       37
             Decline curve analysis is a means of predicting future oil well or gas well
production based on past production history. See J.J. Arps, Analysis of Decline Curves,
160 TRANSACTIONS OF THE AIME 228, 228-229 (Dec. 1945).
       38
              The b-factor controls the amount of curvature on the decline curve. A b-
factor of zero will produce a straight line, and as the b-factor increases, more curvature
is apparent. Thus, a higher b-factor will result in a longer forecasted production. See id.
at 242.

                                           -16-                                       7039

found that Platt’s economic testing was reliable and that “[overall] . . . Mr. Platt’s
production forecast and economic testing [was] persuasive.”
              The record does not show that Platt’s use of a b-factor greater than one had
a material effect on TAPS’s projected end of life. The fact that projected production
continues for an infinite time period using one b-factor, but only for billions of years
using another, is not in any way instructive on which projection more accurately predicts
pool decline over the relevant period — the next several decades. While there appears
to be legitimate debate regarding the methods used by each of the expert forecasters, no
party has presented evidence sufficient to show that the superior court clearly erred in
choosing the production forecast it relied on to predict TAPS’s end of life.
              2.	    It was not error as a matter of law for the superior court to
                     apply a minimum throughput, and the minimum flow rate it
                     chose was not clearly erroneous.
              The Municipalities argue that the court erred by applying a minimum
throughput limitation for TAPS when determining the life of the estimated proven
reserves under AS 43.56.060. The Owners argue that the court correctly applied a
minimum throughput limitation, but that the court’s minimum throughput limit of
100,000 bbl/d was too low.
                     a.	    Applying a minimum throughput limitation was not
                            error.
              The superior court held that AS 43.56.060(e)(2) “does not expressly require
the [c]ourt to consider the transportation facility’s hydraulic, mechanical, or operational
capacity to transport all of those proven reserves.” Nevertheless, the court concluded
that the Board’s interpretation that the statute requires a minimum throughput
determination was reasonable, and the court deferred to that interpretation.          The
Municipalities argue that the superior court erred by deferring to the Board’s
interpretation because it is not consistent with the Board’s application of

                                           -17-	                                     7039

AS 43.56.060(e)(2) to other pipelines in the state. They further argue that there is no
evidence in the record of a specific minimum mechanical throughput limitation for
TAPS.
                Alaska Statute 43.56.060(e)(2) provides that the full and true value of an
oil or gas transportation facility must be determined “with due regard to the economic
value of the property based on the estimated life of the proven reserves of gas or
unrefined oil then technically, economically, and legally deliverable into the
transportation facility.” As the superior court correctly explained, the statute nowhere
mandates consideration of a “facility’s hydraulic, mechanical, or operational capacity.”
But neither does it prohibit consideration of those factors. To the extent that a facility
does have a minimum throughput capacity, failing to account for that minimum capacity
would overvalue the facility by attributing value to transporting oil that is not physically
capable of being transported.
                The superior court noted that “[a]t trial, many expert witnesses testified that
they were unaware of any pipeline that had suspended transportation service for oil that
was otherwise economic to produce due to mechanical, hydraulic or operational
limitations of the pipeline.” But in this case the record supports the superior court’s
finding that TAPS has a minimum mechanical throughput limitation. The superior court
reviewed multiple studies that discussed minimum operating levels from 300,000 bbl/d
to as low as 50,000 bbl/d.         It mainly relied on a 2010 study that BP Pipelines
commissioned that set TAPS’s lowest operational level at 70,000 to 80,000 bbl/d. Thus,
the superior court did not err when it applied a minimum throughput limit in its
assessment.39

       39
           The Municipalities also argue that the superior court erred by applying a
minimum throughput limitation to TAPS without actually determining that there was a
                                                                       (continued...)

                                              -18-                                       7039

                    b.	    The superior court did not clearly err in choosing
                           100,000 bbl/d as the minimum throughput.
             After considering extensive evidence, the superior court found that
evidence supported a minimum throughput of 100,000 bbl/d. The Owners argue that
evidence suggests “serious operational problems associated with lower levels of
throughput, particularly for throughput levels below 300,000 [bbl/d].”
             The evidence supports the superior court’s determination that TAPS can
effectively operate with a throughput as low as 100,000 bbl/d. Several experts testified
that there is no hydraulic constraint that would prevent TAPS from operating even at
levels near zero throughput. A BP analyst, John Haines, suggested that TAPS’s
operational limit is about 100,000 bbl/d. A study conducted for BP in 2004 suggested
a low-flow limit for the existing pipeline of 135,000 bbl/d. In 2010 Phil Carpenter
conducted a low-flow study for BP Pipelines and concluded that TAPS could operate
effectively at throughputs between approximately 70,000 and 100,000 bbl/d and possibly
down to 50,000 bbl/d.     The Carpenter study also suggested that there could be
technological options for reducing flow even further.

      39
        (...continued)
minimum limit, citing the court’s statement that “TAPS can effectively transport
throughputs at least down to a minimum flow rate of 100,000 bbl/d.” (Emphasis added.)
The court’s statement acknowledged uncertainty regarding whether the minimum
mechanical throughput for TAPS is lower than 100,000 bbl/d. But it is not inconsistent
with that uncertainty to set the minium throughput at the lowest level the court found
with reasonable certainty at which TAPS could continue to operate. The court’s
suggestion that TAPS may be able to operate at an even lower throughput may support
an argument 100,000 bbl/d is a conservative estimate, but it does not negate the
estimate’s validity or mandate a lower minimum throughput determination.

                                         -19-	                                    7039

              Based on this evidence, the superior court did not clearly err by finding that
TAPS’s minium throughput capacity was at least 100,000 bbl/d.40
       D.	    The Superior Court Did Not Err By Making An Economic
              Obsolescence Deduction For Low Throughput.
              The replacement-cost-new-less-depreciation valuation method requires an
assessor to deduct for three types of depreciation: physical deterioration, functional
obsolescence, and economic obsolescence. Physical deterioration is the “loss in value
or usefulness . . . due to the using up or expiration of [the property’s] useful life caused
by wear and tear” and other like causes.41 Functional obsolescence is defined as “the loss
in value or usefulness of a property caused by inefficiencies or inadequacies of the
property itself.”42 Economic obsolescence is “the loss in value of a property by factors
external to the property,” such as a decrease in demand, loss of labor or materials,
increased costs of raw materials, new legislation, or the like.43
              The superior court applied the economic age-life method to estimate
depreciation, which “[i]n its simplest form . . . considers all three forms of depreciation
using a single calculation.” But the economic age-life method is limited by depreciating
all property on a straight line basis; the court concluded that “[w]ithout a scaling

       40
               The 2011 Alyeska Low Flow Impact Study, which suggested that TAPS’s
lower operational capacity limit is between 300,000 and 350,000 bbl/d, is insufficient to
offset the large amount of evidence offered to the contrary. As we have said many times,
“the superior court, not this court, judges the credibility of witnesses and weighs
conflicting evidence.” See, e.g., 3-D & Co. v. Tew’s Excavating, Inc., 258 P.3d 819, 824
(Alaska 2011) (quoting Josephine B. v. State, Dep’t of Health & Social Servs., Office of
Children’s Servs., 174 P.3d 217, 222 (Alaska 2007)) (internal quotation mark omitted).
       41
              A M . SOC ’Y OF A PPRAISERS , supra note 5, at 67.
       42
              Id.
       43
              Id.

                                           -20-	                                      7039

adjustment, the approach can lead to an overestimation of the value of pipeline property
that transports declining proven reserves.”
              The court recognized that low throughput decreased the value of TAPS but
declined to make a functional obsolescence adjustment for superadequacy44 because, in
part, it found that TAPS’s excess capacity was required by contract.45 Instead, the court
deducted for the low throughput as a form of economic obsolescence, finding, as it did
in 2006, that “while TAPS is required to have a design capacity of at least 1.1 million
bbl/d, the fact that capacity is not all being used to transport affiliated oil reduces the
utility and value of TAPS as of the lien date.”46
              The Municipalities argue that if an adjustment were legally allowable, the
superior court erred by miscalculating it.47 They allege that the court erred by (1) scaling

       44
              A superadequacy occurs when “some aspect of the subject property exceeds
market norms;” “[i]t represents a cost without any corresponding increment in value or
a cost that the increment in value does not meet.” A PPRAISAL INST ., supra note 18,
at 434-35.
       45
              The Amended Capacity Settlement Agreement, an agreement reached
among the Owners and the State, “assure[d] the State of a certain level of excess capacity
to optimize the development of its natural resources.” BP Pipelines I, 325 P.3d 478, 501
n.53 (Alaska 2014). The agreement set TAPS’s capacity at 1.1 million bbl/d for the
duration of the agreement. The superior court found that it required the Owners to
maintain that capacity during the years on appeal.
       46
               We conclude that the superior court did not clearly err in this finding.
Evidence presented at trial again showed that TAPS was operating below its maximum
throughput capacity. No party disputes this fact. And we again agree that the continued
low throughput makes TAPS less valuable as an asset. A M . SOC ’Y OF A PPRAISERS , supra
note 5, at 97 (“Whenever the operating level of a plant or an asset is significantly less
than its rated or design capability, and the condition is expected to exist for some time,
the asset is less valuable than it would be otherwise.”).
       47
              As in BP Pipelines I, 325 P.3d at 493-95, the Municipalities also argue that
                                                                            (continued...)

                                           -21-                                       7039

all TAPS property rather than just the pipeline; (2) scaling based on a capacity of 1.42
million bbl/d rather than the currently required 1.1 million bbl/d capacity or the
mechanical capacity (760,000 bbl/d); (3) failing to consider the value of excess capacity;
and (4) failing to account for positive external factors that would negate the deduction
for low throughput.
              Because the superior court’s decision is supported by the evidence, we hold
that the superior court’s scaling calculations were not clearly erroneous. However, we
note that in the future it would be helpful to see more detailed findings and reasoning in
the superior court’s decision on some of these issues.

       47
         (...continued)
(1) the superior court erred by failing to defer to the Board; (2) economic obsolescence
was already counted in the economic age-life method; and (3) a scaling adjustment is
inappropriate because the Owners are required to maintain the capacity. But these
questions have all been resolved by our opinion in the 2006 case, as outlined below.
       The Municipalities seek to apply the standard of review under which the Board
reviews a Department decision, but the superior court reviews the Board’s action de novo
and need not give deference to the Board’s decision. See id. at 493 (citing
AS 43.56.130(i)). Second, we held in BP Pipelines I that the economic age-life method
did not result in any double counting because “when operating level is significantly less
than design capacity, ‘the asset is less valuable than it would otherwise be,’ and that drop
in value comes not just from the decline in operating level, but also from the
superadequacy that exists.” Id. at 494-95 (quoting A M . SOC ’Y OF A PPRAISERS ,
supra note 5, at 97). This is intuitive because the economic age-life method only
measures the economic obsolescence due to the fact that the North Slope reserves will
be exhausted before the end of TAPS’s useful life. It does not account for the fact that
during this time TAPS will be underutilized. Finally, we held that “whether a deduction
for economic obsolescence is appropriate does not depend on any obligation the Owners
may have to maintain a certain capacity.” Id. Whether the low throughput decreases
TAPS’s value is a question of fact, id. at 493, but this argument — that as a matter of law
no economic obsolescence deduction may be taken for required capacity — was already
considered and decided in the 2006 appeal. Id. at 494-95.

                                           -22-                                       7039

              1.	    The superior court did not clearly err by scaling all TAPS
                     property.
              The Municipalities argue that even if the superior court appropriately
considered excess capacity as economic obsolescence, it erred by scaling all TAPS asset
categories because all other categories are assumed to be efficient at current volumes.
They suggest that “[t]he court did not explain its rationale for deviating from the
Assessor’s and the Board’s approaches in scaling only the pipeline.”
              The Municipalities cite evidence that the Department and the Board scaled
only the pipeline for the years 2008-2010, based on the Assessor’s conclusion that other
TAPS facilities and property may not be sensitive to low throughput. But the evidence
also shows that the Assessor applied a scaling adjustment to the entire system in 2006
and began doing so again in 2011 in response to the superior court’s decision in the 2006
assessment appeal that scaling was external rather than functional obsolescence. The
Department’s assessor, Greeley, explained that “starting in 2007, in considering the
obsolescence as a functional issue, I had only been scaling the pipeline portion . . .
because functional obsolescence emanates from within the property and can only affect
pieces and parts of the property.” But he testified that after the superior court’s decision
in the 2006 appeal he thought it was “pretty obvious . . . that the source of the
obsolescence is external, . . . and the obsolescence does affect the entirety of the
property.” He then elaborated that it is a “tenet of appraisal theory . . . that external
obsolescence affects the property in its entirety.”
              And it’s really important . . . to not confuse functional
              obsolescence with external obsolescence. For instance, if
              you’ve cured a functional issue with the pumps by replacing
              the pumps . . . with pumps that can vary their throughput
              efficiently through different bandwidths, you’ve cured a
              functional issue. But what you haven’t cured is the
              diminution in value due to declining reserves that’s reflected

                                           -23-	                                      7039

              that [sic] the pumps are now anticipated to be only operating
              at 600,000 barrels a day instead of the 1.1-million-barrel-a­
              day upper limit on the pumps.
              The superior court heard testimony and reviewed appraisal literature48 that
counseled that if the obsolescence emanates from factors outside of the property, the
entire property should be scaled. The superior court did not clearly err by scaling the
entire property.
              2.	    The superior court did not clearly err by using TAPS’s design
                     basis of 1.42 million bbl/d in its scaling calculation.
              The Municipalities argue that the superior court erred by using the original
design basis of 1.42 million bbl/d in its scaling calculation. The Municipalities contend
that the court should have used the mechanical capacity of TAPS (the throughput
achievable without use of drag reducing agents), 760,000 bbl/d, or at least the 1.1 million
bbl/d design basis of the ProPlus Replacement Cost New (RCN). And they contend that
it was inconsistent for the superior court to reject the Owners’ argument that the pipeline
should be scaled to 2.1 million bbl/d because this throughput could be achieved only
using drag reducing agents but then choose to scale to another number that is also
achievable only using drag reducing agents.
              The superior court found that the design capacity of the replacement
pipeline was the same as the existing pipeline, 1.42 million bbl/d. But the court
determined that the pumps should be scaled at a 1.1 million bbl/d capacity because that
is the capacity of the existing pumps. The court explained that while ProPlus RCN’s

       48
              See A M . SOC ’Y OF A PPRAISERS , supra note 5, at 99-100 (scaling the whole
property in example 12); A PPRAISAL INST ., supra note 18, at 435, 442 (compare
definition of superadequacy — describing a “property component that exceeds market
requirements” — with economic obsolescence, which “frequently affect[s] both the land
and building components of a property’s value”).

                                           -24-	                                     7039

design basis is only 1.1 million bbl/d, the actual design capacity is based on the number
of installed pumps and the tank capacity at the Valdez Marine Terminal and that “[t]he
[replacement] 48-inch mainline pipe has exactly the same capacity as the existing TAPS
48-inch pipeline.” In contrast, in the 2013 tax year the Board began to “use the
mechanical capacity of the replacement TAPS, not augmented by the use of drag
reducing agents . . . because, to the extent that there is any super-adequacy, it is in the
actual capacity of the TAPS itself, not in any extra capacity that could be created by
external efforts that involve increased operating expenses.”
              The superior court’s finding — that although ProPlus RCN’s design basis
is 1.1 million bbl/d, its design capacity is that of the existing TAPS pipeline — is
supported by the record. ProPlus, which designed the hypothetical replacement pipeline
for the Municipalities, estimated a maximum capacity of up to 1,382,000 bbl/d without
drag reducing agents. The Municipalities’ expert testified that this capacity is the same
as the existing TAPS capacity, but that higher throughput can be achieved using drag
reducing agents. He also suggested that the design included expandable capacity to 1.8
million bbl/d. In other words, the capacity of the existing pipeline and a hypothetical
replacement pipeline can be increased well beyond a 1.1 million bbl/d design basis by
adding or enhancing pumps and/or by using drag reducing agents.
              One of the treatises relied upon by the parties states that unused utility is
present when a plant is operating below its “rated or design capability.”49 It explains that
the scaling “measures the loss in value by reducing the capital investment from rated

       49
              A M . SOC ’Y OF APPRAISERS , supra note 5, at 97.

                                           -25-                                       7039
capability to the actual operating level to ‘balance’ the plant.”50 It also uses “rated or
design capacity” as the full capacity in the denominator of the scaling calculation.51
              While we believe that the Board’s decision to use a mechanical limit is
reasonable, the superior court’s decision to use design capability is not clearly erroneous
considering that using design capability is one of the approaches advocated by the
valuation treatises relied upon by the parties. Because the superior court permissibly
chose to use the design capability, we hold that it did not clearly err in choosing 1.42
million bbl/d as its scaling denominator.
              3.	    The superior court did not fail to account for the utility of excess
                     capacity.
              The Municipalities argue that the superior court should not have made a
deduction for economic obsolescence because TAPS’s extra capacity has value. They
argue that the extra capacity gives the Owners flexibility to ramp up production and has
“day-to-day operational utility.” The Owners respond that the excess capacity does not

       50	
              Id. (emphasis added).
       51
                Id. at 98. This treatise also states that scaling is applicable when “the
operating level of a plant or an asset is significantly less than its rated or design
capability,” id. at 97 (emphasis added), implying that the appraiser must find the
operating level to be significantly less than capacity. See also CAL. BD . OF
EQUALIZATION , G UIDELINES FOR SUBSTANTIATING A DDITIONAL O BSOLESCENCE FOR
P E R S O N A L P R O P E R T Y A N D F IX T U R E S 20 (May 2010), available at
www.boe.ca.gov/proptaxes/pdf/10-003.pdf (using the “rated or design capacity” as the
full capacity but stating that “[i]f the expected capacity of the user differs from the rated
capacity of the manufacturer, it may be valid to use the expected capacity instead of the
rated or design capacity when the expected capacity is less than the rated or design
capacity”). In the future if this issue arises again, we would expect to see more findings
and analysis regarding what constitutes a “significant” drop if the court continues to
deduct for economic obsolescence.

                                            -26-	                                      7039

have utility because there is no predicted increase in throughput that such capacity would
be useful to accommodate.
              The Municipalities are correct that excess capacity that has functional utility
should not be deducted as a form of functional obsolescence.52 An example would be
excess capacity used to handle regular or expected spikes in production or expected
growth.53 But those situations do not apply here. There may be variations in a pipeline’s
throughput, but the evidence shows that the throughput is not subject to the same type
of immediate and unexpected increases in use that characterize telephone and electric
power utilities. The Municipalities’ argument that the excess capacity is valuable to
“ramp up production” fails when the evidence shows there is no expectation of that
happening. The Municipalities have not established that the superior court clearly erred
by not reducing TAPS’s economic obsolescence based on utility.
              4.	     The superior court did not err by declining to adjust for other
                      external factors.
              The Municipalities argue that the superior court erred by failing to consider
positive external factors in its economic obsolescence analysis. The Municipalities’

       52
             See In the Matter of Onondaga Cnty. Water Dist. v. Bd. of Assessors of the
Town of Minetto, 350 N.E.2d 390, 391-92 (N.Y. 1976) (excess capacity for future needs
should not be deducted as a form of functional obsolescence).
       53
              Cf.         CA . BD . OF EQ U A LIZA TIO N , G U ID E L IN E S FO R
SU B S T A N T IA T IN G A D D IT IO N A L O B SO L E SC E N C E F O R ST A T E -A S S E S S E D
T E L E C O M M U N I C A T I O N S P R O P E R T IE S 5-6 (A pr. 2 0 0 9), a va ila b le a t
www.boe.ca.gov/proptaxes/pdf/Obsolescence_Guidelines.pdf (explaining that “the
purported excess capacity [cannot be] spare capacity the market typically builds into the
property to handle peak demands, growth, planned redundancy, or that required by law”
when “local exchanges typically design and build their systems to handle the high
volume of calls on holidays or emergencies”); Onondaga Cnty. Dist., 350 N.E.2d at 392
(holding no excess capacity when water system was “[d]eliberately planned and
constructed to meet the future needs” in an area with increasing water usage).

                                             -27-	                                        7039

argument suggests that there are many positive external factors derived from the fact that
TAPS is part of a valuable broader enterprise that is very profitable and that oil prices
are likely to increase,54 which may spur additional development. The Owners argue that
none of these factors change the amount of oil flowing through the pipeline. The
superior court implicitly rejected the Municipalities’ argument by not adjusting the
economic obsolescence deduction.55
             The superior court’s implicit rejection of these arguments was not clearly
erroneous. According to the testimony of the Department of Revenue appraiser, James
Greeley, a high price of oil alone does not decrease the underutilization of the pipeline:
he explained that with increased oil prices the value of oil flowing through the pipeline
would be higher, but the quantity of oil would not change; the pipeline would still be
underutilized. And it is the low quantity of oil flowing through the pipeline that makes
a deduction for economic obsolescence warranted, not the price of the oil. As the
Owners note, a higher price of oil might make more reserves economically recoverable,
resulting in a later end of life for TAPS, but an increased price would not, on its own,
increase the amount of oil in the pipeline. The price of oil or the Owners’ profitability

      54
              We take notice that the price of oil has collapsed from a high of $145 a
barrel in July 2008 to its current value of approximately $45 a barrel in August 2015.
Spot Prices for Crude Oil and Petroleum Products, U.S. ENERGY INFO . A DMIN .,
www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=D (last visited
Aug. 17, 2015).
      55
              Contrary to the Municipalities’ suggestion, we take notice that the value of
oil and production projections were accounted for in determining the end of life for the
pipeline, and in fact were the subject of considerable discussion in the superior court’s
decision. We infer that the superior court’s omission of any other deduction meant that
it considered and rejected these arguments. If this issue arises in the future, explicit
findings and analysis should be provided.

                                          -28-                                      7039

does not change the amount of inutility the pipeline experiences from the decreased
amount of oil flowing through it.
              We conclude that the superior court did not clearly err by not adopting the
Municipalities’ argument that the proffered positive factors should offset the court’s
economic obsolescence deduction for low throughput.
       E.	    The Superior Court Did Not Abuse Its Discretion By Declining To
              Apply Collateral Estoppel.
              Before the trial began the superior court issued an order precluding
relitigation of many of the issues tried in the 2006 appeal. But the superior court vacated
that order at trial. The Municipalities argue that the court abused its discretion by
vacating its order and not applying collateral estoppel to preclude relitigation of issues
decided in the 2006 appeal.
              Collateral estoppel prohibits relitigation of issues actually decided in earlier
proceedings where:
              (1) the party against whom the preclusion is employed was a
              party to or in privity with a party to the first action; (2) the
              issue precluded from relitigation is identical to the issue
              decided in the first action; (3) the issue was resolved in the
              first action by a final judgment on the merits; and (4) the
              determination of the issue was essential to the final
              judgment.[56]
But “the existence of [these] elements provides only the underlying basis for the trial
court’s exercise of discretion to apply or not apply collateral estoppel, and . . . this

       56
            Ahtna, Inc. v. State, Dep’t of Transp. & Pub. Facilities, 296 P.3d 3, 8
(Alaska 2013) (quoting Matanuska Elec. Ass’n v. Chugach Elec. Ass’n, 152 P.3d
460, 468 (Alaska 2007)).

                                            -29-	                                       7039

discretion must be tempered by principles of fairness in light of the circumstances of
each particular case.”57
                The superior court expressed legitimate concerns about applying collateral
estoppel in this case given the complexity of the issues and potential for some change in
the relevant facts, and we conclude this was a permissible exercise of the court’s
discretion.58
V.     CONCLUSION
                We AFFIRM the superior court’s decision in all respects.

       57
            McAlpine v. Pacarro, 262 P.3d 622, 627 (Alaska 2011) (quoting Misyura v.
Misyura, 242 P.3d 1037, 1040 (Alaska 2010)) (internal quotation marks omitted).
       58
             The Owners argued in their initial briefing to this court — as they did in the
2006 appeal — that the superior court erred by imposing interest based on the tax’s
original due date. We addressed and rejected this contention in the 2006 appeal.
BP Pipelines I, 325 P.3d 478, 495-96 (Alaska 2014).

                                            -30-                                     7039