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Tesoro Alaska Co. v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

February 20, 2015

TESORO ALASKA COMPANY, PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS, BP PIPELINES (ALASKA) INC., ET AL., INTERVENORS

Argued: December 8, 2014.

Robin O. Brena argued the cause for petitioners. With him on the joint briefs were Anthony S. Guerriero, Kelly M. Helmbrecht, Joseph Koury, and Andrew T. Swers. David W. Wensel entered an appearance.

Beth G. Pacella, Deputy Solicitor, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were David L. Morenoff, General Counsel, and Robert H. Solomon, Solicitor.

Charles F. Caldwell argued the cause for respondent intervenors. With him on the brief were Dean H. Lefler, Steven H. Brose, Steven Reed, Daniel J. Poynor, Eugene R. Elrod, Christopher M. Lyons, and J. Patrick Nevins. Elizabeth B. Kohlhausen and Ruth M. Porter entered appearances.

Before: GRIFFITH, KAVANAUGH and WILKINS, Circuit Judges.

Page 1035

ON PETITIONS FOR REVIEW OF AN ORDER OF THE FEDERAL ENERGY REGULATORY COMMISSION

WILKINS, Circuit Judge.

The Trans Alaska Pipeline System (TAPS) runs for 800 miles from Prudhoe Bay on Alaska's North Slope to a southern terminus at Port Valdez. TAPS is jointly owned by the three TAPS Carriers, BP Pipelines (Alaska) Inc., ConocoPhillips Transportation Alaska, Inc., and ExxonMobil Pipeline Company. The crux of the consolidated Petitions before us is a challenge to the authority of the Federal Energy Regulatory Commission (FERC) to approve a cost pooling agreement among the Carriers that allocates most fixed costs on the basis of each Carrier's share of combined interstate and intrastate utilization of TAPS.

TAPS carries a common stream--that is, the oil in the pipeline from different shippers headed to different destinations is comingled in transit. The Carriers have an undivided joint ownership interest in TAPS, which is operated by the Carriers' agent, Alyeska Pipeline Service Company. Each Carrier is entitled to control capacity corresponding to its percentage ownership share. A shipper seeking to move oil on the pipeline must pay one of the Carriers for " nominating" oil from one point on the pipeline to another, and the shipper adds to and withdraws from the common stream accordingly. TAPS is used for both interstate shipping (where the oil is destined for points beyond Alaska, via the Valdez Marine Terminal), and intrastate shipping (where the oil is destined for a refinery within the state). Under a complex regulatory structure, FERC is empowered to set maximum rates for interstate service and the Regulatory Commission of Alaska (RCA) is empowered to do the same for intrastate service. Although each Carrier may sell shipment rights on TAPS, the service is provided entirely by Alyeska rather than by the Carrier itself--in other words, the three Carriers offer literally identical service.

A settlement reached in 1985 governed TAPS rates smoothly for three decades, and the current controversy arose when that settlement expired. Following several years of disputes (with each other, with FERC, with RCA, and with shippers), the Carriers entered into a new settlement agreement, effective August 1, 2012. The settlement includes a pooling structure by which fixed costs are allocated to each Carrier based on total traffic, including

Page 1036

both interstate and intrastate traffic. Petitioners Tesoro Alaska and Anadarko Petroleum, which ship oil on the pipeline between points within Alaska, challenge FERC's approval of that settlement.

Petitioners argue, first, that FERC misunderstood and exceeded its statutory authority; second, that including intrastate traffic in the pooling agreement was improper regulation of intrastate commerce; and third, that FERC's approval of the settlement failed various requirements of the Administrative Procedure Act (APA). For the reasons described in detail in this opinion, we find that FERC did have statutory authority to approve the settlement; did not improperly regulate intrastate commerce; and did comply with APA requirements in reaching the order challenged here. Accordingly, we deny the Petitions.

I.

This Court has previously had occasion to describe the backstory of TAPS:

[A]fter the discovery of vast oil reserves on the North Slope of Alaska in 1969, various oil companies constructed an 800-mile pipeline from the Prudhoe Bay field south to the warm water port of Valdez. From rather modest estimates at the outset, TAPS was ultimately completed at a cost of over $9 billion. Oil started to flow through TAPS in the summer of 1977 and has continued since.

Arctic Slope Reg'l Corp. v. FERC, 832 F.2d 158, 160, 265 U.S.App.D.C. 390 (D.C. Cir. 1987).

The original maximum rates for shipping oil on TAPS were hotly contested. Id. But following protracted litigation, the TAPS Carriers and Alaska reached a settlement agreement in 1985 that determined maximum rates and provided for annual rate-setting through 2011, the end of the pipeline's then-projected useful life (although provisions existed for earlier termination of the settlement). [1]See id. at ...


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