Refunding $500 Million in Alleged Overcharges : 6 Owners Cut Rates on Alaska Pipeline

Six of the eight owners of the Trans-Alaska Pipeline have agreed to cut their rates and refund $500 million as part of a government-approved settlement to complaints that they were overcharging by billions of dollars for shipping oil through the system.

The settlement, approved Wednesday by the Federal Energy Regulatory Commission, resolves the major portions of an 8-year-old dispute among the oil companies who built and own the 800-mile pipeline, the Justice Department and the state of Alaska over the appropriate rates for moving the 1.6 million barrels of oil that flow through it daily.

The state and federal governments complained that the rates, some in the range of $6.20 per barrel, charged by the pipeline owners would decrease oil production from Alaska’s North Slope and Beufort Sea fields by a billion barrels over 25 years.

The consequent loss in federal revenue--from lease sales, royalties and windfall profit taxes--could total $15 billion over the same period, according to the Justice Department.

Both the state and federal governments wanted the lower pipeline rates because it would allow North Slope and Beufort Sea producers to charge higher oil prices. The higher the prices, the more royalties and taxes that the governments can share.

The settlement sets the rates for moving petroleum through the pipeline at $6.05 per barrel for 1982, $5.93 for 1983, $5.63 for 1984 and $5.31 for 1985. It also establishes a complex methodology for determing rates in future years through 2011.

Under the settlement, six of the eight oil companies owning the pipeline agreed to refund $500 million, plus interest, for alleged overcharges from 1982 through 1985.

But they would not have to make any refunds for alleged overcharges from when the pipeline from the North Slope oil fields to the port of Valdez on Alaska’s southern coast opened in July, 1977, through 1981. For the year 1978 alone, the Justice Department had estimated those overcharges at as much as $900 million.

In addition, the six companies agreed to pay the state of Alaska $23 million to cover its eight years of legal expenses in the case. They also agreed to reduce their investment base in the pipeline by $450 million, as of 1976, to effectively decrease their rates.

The six pipeline owners agreeing to the settlement are Atlantic Richfield, British Petroleum, Exxon, Mobil, Unocal and Phillips Petroleum.

Pipeline owners opposing the settlement are Standard Oil (Ohio)--with which British Petroleum owns 50% of the pipeline--and Amerada Hess. Sohio is 55% owned by British Petroleum.