Brattle Testimony Supports Shippers in Trans-Alaska Pipeline Valuation Dispute
In a dispute between Petro Star and certain Trans-Alaska Pipeline System (TAPS) shippers over the valuation of certain crude oil cuts withdrawn from the 800-mile pipeline, a Brattle team evaluated the reasonableness of the methodology used to value the cuts in relation to changes proposed by Petro Star. A recent Federal Energy Regulatory Commission (FERC) decision, in agreement with Brattle’s findings, rejected Petro Star’s proposals to adjust the methodology.
Due to commingling in the common TAPS stream and activity at two Petro Star refineries along the pipeline, the quality (and, hence, value) of crude oil a shipper receives at a delivery point is different than the quality that the shipper initially injected – i.e., some shippers receive crude oil of a higher quality than they originally injected, while others receive crude oil of a lower quality. A methodology called the TAPS Quality Bank (QB) provides a payment system that makes shippers economically whole at the delivery point for the quality changes by compensating those receiving lower-quality crude oil and charging those receiving higher-quality crude oil.
A dispute arose when Petro Star questioned the methodology used to value a specific crude oil cut, called Resid, which Petro Star’s refineries frequently reinjected back into TAPS as part of the unused crude oil portions. Petro Star proposed multiple adjustments that would result in increasing the estimated value of Resid, meaning the two refineries would have to pay less for the impact of their refining activities on the quality of the common stream.
Retained by Venable LLP on behalf of several TAPS shippers, Brattle experts examined the QB methodology and the reasonableness of the adjustments to value Resid proposed by Petro Star. Principals Matthew O’Loughlin and Jake Zahniser-Word used market-based evidence and financial analyses to show that the capital costs embedded in the existing methodology were not too high, and Mr. O’Loughlin testified in front of FERC with their findings.
In a decision issued in December 2023, the Commission largely agreed with evidence provided by Brattle and others, rejecting Petro Star’s proposals to adjust the methodology at issue.
Read the full case highlight to learn more.
