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Cook Inlet Pipeline Co. v. Tesoro and Alaska Public Util. Comm. (6/26/92), 836 P 2d 343
Notice: This is subject to formal correction
before publication in the Pacific Reporter.
Readers are requested to bring typographical
or other formal errors to the attention of
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THE SUPREME COURT OF THE STATE OF ALASKA
COOK INLET PIPE LINE COMPANY, )
) Supreme Court No. S-4144
Appellant, ) Superior Court No.
) 3AN-85-8029 Civil
THE ALASKA PUBLIC UTILITIES ) O P I N I O N
COMMISSION, and TESORO ALASKA )
PETROLEUM COMPANY, )
) [No. 3851 - June 26, 1992]
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
John Bosshard III, Judge.
Appearances: George Trefry, Perkins
Coie, Anchorage, for Appellant. Glenn M.
Gustafson, Assistant Attorney General,
Anchorage, Charles E. Cole, Attorney General,
Juneau, for Appellee The Alaska Public
Utilities Commission, and Robin O. Brena, Law
Offices of Robin O. Brena, Inc., Anchorage,
for Appellee Tesoro Alaska Petroleum Company.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton and Moore, Justices.
This appeal arises out of Cook Inlet Pipe Line
Company's (CIPL) challenges to intrastate crude oil
transportation tariffs ordered by the Alaska Public
Utilities Commission (APUC) under the authority of
Alaska's Pipeline Act. At the foundation of the
dispute is the APUC's use of an "original cost method"
for reviewing intrastate tariffs. CIPL notes that the
Federal Energy Regulatory Commission (FERC), which
regulates interstate tariffs, used a different rate
setting method for the relevant time period. According
to CIPL, use of these different methods resulted in
intrastate tariff rates established by the APUC which
were substantially below the interstate tariffs
approved by the FERC. CIPL contends that the
APUC tariff orders are preempted by federal law. CIPL
also argues that the APUC's tariff setting methodology
results in an unconstitutional taking of property and
that the lower intrastate tariffs result in unjust
discrimination in violation of the federal commerce
clause. Additionally, CIPL maintains that the APUC
abused its discretion in making several factual
determinations. Finally, CIPL challenges the superior
court's award of costs and attorney's fees. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
A clear understanding of the facts and the arguments of
the parties in this case is possible only in
conjunction with an understanding of the historical
development of the methods government agencies have
used to regulate utilities. This historical
development is summarized in Farmers Union Central
Exchange v. Federal Energy Regulatory Commission,
(Farmers Union I) 584 F.2d 408, 412-17 (D.C. Cir.
1978), cert. denied, 439 U.S. 995 (1978), rev'd after
remand, 734 F.2d 1486 (D.C. Cir. 1984), cert. denied,
469 U.S. 1034 (1988).
In its early regulation of railroads, the Interstate
Commerce Commission (ICC) utilized a "fair value"
ratemaking method. See Smyth v. Ames, 169 U.S. 466,
546 (1898). In the early 20th century, the United
States Supreme Court approved the use of the fair value
method for ratemaking in other public utility contexts.
See e.g., Willcox v. Consolidated Gas Co. of New York,
212 U.S. 19, 50 (1909). However, the fair value method
lost favor after Justice Brandeis criticized it in
Missouri ex rel. Southwestern Bell Telephone Co. v.
Public Service Commission of Missouri, 262 U.S. 276,
289-312 (1923) (Brandeis, J. concurring). Setting a
just rate of return for a regulated utility under the
"fair value" method required a determination of the
reasonable value, at the time of ratemaking, of
property dedicated to public use. Id. at 287; Willcox,
212 U.S. at 50. After a careful analysis of the "fair
value"method, Justice Brandeis declared:
The result, inherent in the rule itself,
is arbitrary action on the part of the rate-
regulating body. For the rule not only fails
to furnish any applicable standard of
judgment, but directs consideration of so
many elements that almost any result may be
Missouri ex rel. Southwestern Bell, 262 U.S. at 296-98.
As an alternative to the "fair value"approach,
Brandeis recommended that rates be determined based on
the amount of "capital prudently invested in the
utility." Id. at 310. Some regulatory agencies,
including the Federal Power Commission, implemented
this suggested change and in 1944 the United States
Supreme Court approved this "prudent investment" or
what has become known as an "original cost"ratemaking
method in Federal Power Commission v. Hope Natural Gas
Co., 320 U.S. 591, 603-06 (1944).
The ICC abandoned the "fair value"ratemaking method
and adopted an "original cost"method for railroads.
See Increased Freight Rates, 1951, 284 I.C.C. 589, 607-
08 (1952). However, it retained a "fair value"
approach in oil pipeline rate regulation. Petroleum
Products, Williams Bros. Pipe Line Co., 355 I.C.C. 479,
In Farmers Union I, the United States Court of Appeals
for the District of Columbia Circuit directed the newly
formed Federal Energy Regulatory Commission (FERC)1 to
reconsider the ICC's use of the valuation ratemaking
method in reviewing oil pipeline tariffs. 584 F.2d at
422. The court stated:
In sum, we are not persuaded by the
Commission's conclusion that "consistency and
fairness" dictate resurrection of the "fair
value"method last used thirty years ago. To
the extent that the method was wrongly
grounded in the law at that time, it is no
better off now. To the extent that it may
have been rightly grounded in the economics
of that day, the ICC has provided us with no
reason to believe that three decades have not
changed the situation.
Id. at 418-19 (citation omitted).
When the FERC adopted a fair value methodology on
remand, the court concluded the FERC's decision lacked
a reasoned basis because it failed to adequately
consider alternative methods and remanded the case
again with directions that the FERC reconsider again
its ratemaking method. Farmers Union Cent. Exch. v.
Fed. Energy Regulatory Comm'n, (Farmers Union II), 734
F.2d 1486, 1520, 1530 (D.C. Cir. 1984), cert. denied,
469 U.S. 1034 (1984). The court noted that "the
original cost methodology, a proven alternative, enjoys
advantages that should not be underestimated." Id. at
Further, the court called into question one of the
FERC's justifications for continued use of a fair value
ratemaking method. This justification was that an
adoption of an original cost method would require the
costly construction of "transitional"rate bases. Id.
at 1517. The court stated:
FERC failed to give a reasoned basis for
its assumption that "[t]ransitional rate
bases would have to be constructed"at all.
Regulated industries have no vested interest
in any particular method of rate base
calculation. See FPC v. Natural Gas Pipeline
Co., 315 U.S. 575, 586, 62 S.Ct. 736, 743, 86
L.Ed. 1037 (1942). Accordingly, as FERC
acknowledged, a switch to a new rate base
formula would not disrupt protected pipeline
property. So long as the resulting rates are
reasonable, the oil pipeline companies should
have no difficulty maintaining their
financial integrity. We are therefore at a
loss to understand FERC's trepidation about a
change in its regulatory method.
Id. at 1517-18.
On remand, in a decision commonly known as Opinion No.
154-B, the FERC concluded that an original cost
ratemaking methodology should be adopted. Williams
Pipe Line Co., 31 FERC 61,377 (1985). However, it
also adopted a "starting or transition rate base" for
existing pipeline assets. Id. at 61,835. The FERC
[T]he Commission is concerned about the
long reliance of pipeline investors on the
previous rate base method and, as a result,
has sought a middle ground that is fair in
light of investor expectations but without
perpetuating the serious flaws of the
previous method. . . . The Commission
believes [the transition rate base] formula,
which is a middle ground between valuation
and net depreciated original cost, is fair in
view of pipeline investor reliance on a rate
base which has been adjusted for inflation.
Id. at 61,836.
FERC's Opinion No. 154-B has not been judicially
During this period of fundamental change in regulatory
ratemaking methods, the Cook Inlet Pipe Line System
(pipeline) was developed. The pipeline was built in
1967 to transport crude oil from several offshore oil
fields in Cook Inlet. The twenty-inch pipeline is over
forty miles in length and extends from Granite Point to
an offshore tanker loading platform near Drift River.
The owners of the pipeline contributed $4 million in
equity by purchasing stock. In order to obtain
financing to construct the pipeline, a throughput
agreement was assigned to a lender to secure a $36
million five-year loan. The owners' original plan was
to convert the financing to a thirty-year term.
However, in 1970 the owners adopted a policy of
forgoing dividends in order to pay off debt because of
decreased oil reserve estimates. The debt was retired
At the time operations commenced, CIPL became subject
to federal regulation as a common carrier engaged in
interstate commerce. The interstate tariffs CIPL
established for oil transportation were subject to FERC
review and approval. See Cook Inlet Pipe Line Co., 38
FERC 61,083 (1987) (FERC Approval of Settlement).
CIPL filed interstate tariffs of $0.58 per barrel for
1981 and $0.915 per barrel for 1982. Concerns of the
State of Alaska regarding these tariffs were resolved
in an agreement with CIPL. Thereafter, the FERC
approved the tariffs as part of an uncontested
CIPL concedes that because of intrastate crude oil
deliveries which began in 1976, CIPL became subject to
state regulation by the Alaska Pipeline Commission
(APC) under the authority of the Alaska Pipeline
Commission Act of 1972. Ch. 139, 1, SLA 1972
(amended 1976, 1977). Over the next several years,
CIPL gradually increased its intrastate tariffs.
The present dispute arose when CIPL increased its
intrastate tariff from $0.38 to $0.58 per barrel
effective January 1, 1981. Twelve cents of the
increase were included to pay for the future
dismantling and restoration (D&R) of CIPL's facilities.
Eight cents of the increase were included because of
increased operating costs and reduced crude oil
production. In December 1980 the APC suspended the
$0.58 per barrel tariff and ordered an investigation,
designated Docket No. P-80-5, to determine whether the
tariff was just and reasonable. However, the APC
permitted CIPL to collect the $0.58 tariff subject to
In July 1981 the APUC assumed responsibility for state
regulation of intrastate pipeline tariffs and for the
resolution of Docket No. P-80-5.2 Before Docket No. P-
80-5 was resolved, CIPL filed a new intrastate tariff
of $0.915 effective January 15, 1982. The D&R charge
remained at twelve cents per barrel. In Docket No. P-
82-1, the APUC suspended the new tariff and set a
temporary tariff of $0.38, which was equal to the last
rate approved by the APC. As before, CIPL was
permitted to collect the new tariff subject to refund.
In April 1982 the APUC consolidated the two pending
In January 1985 after conducting a hearing and
receiving briefs and other materials, the APUC entered
an Order Prescribing Regulatory Methodology and
Directing CIPL to File Revised Revenue Requirements
(Methodology Order). In the Methodology Order, the
APUC rejected CIPL's arguments that a "transition rate
base"was necessary to ensure just and reasonable rates
and adopted a rate base "computed by taking the
original cost of the pipeline minus accumulated
depreciation on a straight line basis as if the
pipeline had been regulated on original cost from the
beginning." In January 1987 the APUC entered an
Order (Tariff Order) approving intrastate tariffs for
1981 and 1982 of $0.49 and $0.59 per barrel
respectively, exclusive of D&R charges. These approved
rates differed from the tariffs CIPL filed in 1981 and
1982 of $0.46 and $0.795 respectively, exclusive of D&R
charges. In the Tariff Order, the APUC required CIPL
to refund the excess amount it collected from
intrastate commerce in 1982.
In March 1987 CIPL moved for reconsideration of the
Methodology Order and the Tariff Order in light of the
FERC's Opinion No. 154-B, which had established a
transition rate base. When the APUC denied CIPL's
motion CIPL appealed to the superior court.
While this appeal was proceeding, CIPL requested that
the FERC declare that the intrastate tariffs set by the
APUC violated sections 2 and 3(1) of the Interstate
Commerce Act.3 CIPL eventually dropped its allegations
with respect to section 3(1). Cook Inlet Pipe Line
Co., 47 FERC 61,057 at 61,172 (1989). The FERC
ultimately determined that it had no power to alter
intrastate rates under section 2. Cook Inlet Pipe Line
Co., 47 FERC 61,393 at 62,306 (1989). Further, it
stated that it did not "intend to suggest that the ICA
requires absolute rate parity either for rates for
similar interstate services or between rates for
similar intra/interstate services." Id.
Proceedings in the Alaska superior court culminated in
July 1990 when Judge John Bosshard III affirmed the
agency's Methodology Order and Tariff Order holding
that the "APUC's authority to determine reasonable
intrastate rates was not preempted by federal law; that
APUC reasonably applied the original cost methodology
for ratemaking; and that APUC set just and reasonable
intrastate tariff rates for CIPL." CIPL appeals.
II. STANDARD OF REVIEW
In an appeal from a judgment of a superior court acting
as an intermediate court of appeal, we give no
deference to the superior court decision. Rather, we
independently review the agency decision. Tesoro
Alaska Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d
896, 903 (Alaska 1987).
This case involves questions of constitutional law,
federal preemption and the scope of administrative
authority. These are questions of law within the
special expertise of the courts. In reviewing
questions of law which do not involve agency expertise,
we will substitute our judgment for that of the
administrative agency. North Slope Borough v.
LeResche, 581 P.2d 1112, 1115 (Alaska 1978). As we
substitute our judgment, it is our duty "to adopt the
rule of law that is most persuasive in light of
precedent, reason, and policy." Guin v. Ha, 591 P.2d
1281, 1284 n.6 (Alaska 1979).
However, we apply a reasonable basis standard of review
to administrative determinations of complex issues
involving agency expertise and specialized knowledge.
Kelly v. Zamarello, 486 P.2d 906, 917 (Alaska 1971).
The reasonable basis standard is especially appropriate
where the legislature has delegated to the agency broad
regulatory authority over an area in question.
Therefore, it is the appropriate standard of review of
the technical bases for APUC's establishment of a
regulatory methodology and for its establishment of
intrastate tariffs. See Homer Elec. Ass'n v. Alaska
Pub. Util. Comm'n, 756 P.2d 874, 877 (Alaska 1988);
Glacier State Tel. Co. v. Alaska Pub. Util. Comm'n, 724
P.2d 1187, 1190-92 (Alaska 1986). When applying the
reasonable basis test, we give deference to the
agency's determination "so long as it is reasonable,
supported by the evidence in the record as a whole, and
there is no abuse of discretion." Kodiak Western
Alaska Airlines, Inc. v. Bob Harris Flying Serv., Inc.,
592 P.2d 1200, 1203 n.7 (Alaska 1979).
Our review of the superior court's award of attorney
fees is limited to a determination of whether the court
abused its discretion. Tesoro Alaska Petroleum, 746
P.2d at 907.
At the foundation of this case is a dispute about the
extent of the APUC's power to set intrastate rates
which differ from interstate rates approved by the
FERC. We believe CIPL's theory of the case is flawed
at this basic level and that CIPL mistakes the proper
scope of the APUC's jurisdiction. Moreover, we believe
CIPL mistakenly relies on the 1982 interstate rates
approved by the FERC as a standard by which intrastate
rates should be measured.4
The three legal issues CIPL presents are as follows:
1) whether the APUC's denial of a "transition rate
base" constitutes an unconstitutional taking of
property; 2) whether federal law preempts the APUC's
Methodology and Tariff Orders; and 3) whether the
Methodology and Tariff Orders create an undue burden on
A. Taking of Property.
CIPL contends that the APUC should have adopted a
"transitional rate base"to avoid a taking of property
in violation of the constitutions of the State of
Alaska and the United States.5 CIPL argues it has been
treated in a manner which was characterized as
unconstitutional in Duquesne Light Co. v. Barasch, 488
U.S. 299 (1989).
According to CIPL a taking of property occurred in two
alternative ways. First, CIPL argues that the APUC's
original cost methodology results in higher rates in
the early years of a pipeline and lower rates in later
years. CIPL contends that the APUC's scheme creates
"fictional intrastate shippers"which "plainly results
in a taking of CIPL's property rights to the extent of
the higher, earlier rates which the APUC has falsely
deemed CIPL to have received." Second, CIPL argues
that the APUC's scheme reduced "the 1981 rate base from
the FERC valuation of $41,911,500 to $17,996,000 . . .
[and reduced] the 1982 rate base from the FERC
valuation of $43,359,200 to $17,996,000." CIPL
contends this reduction of its rate base is a taking of
We are not persuaded by CIPL's first takings arguments
because the arguments focus on the ratemaking method
rather than the effect of the method on return on
investment. CIPL apparently overlooked the nature of
the proper inquiry which the United States Supreme
Court identified in Duquesne:
"It is not the theory, but the impact of
the rate order which counts." Hope, 320 US,
at 602, 88 L Ed 333, 64 S Ct 281. The
economic judgments required in rate
proceedings are often hopelessly complex and
do not admit of a single correct result. The
Constitution is not designed to arbitrate
these economic niceties. . . . The
Constitution protects the utility from the
net effect of the rate order on its property.
Duquesne, 488 U.S. at 314 (1989).
Only one sentence out of CIPL's entire takings
arguments addresses the economic effect of the APUC's
regulatory scheme. CIPL complains that "the resulting
20.5 reduced tariff for 1982 will substantially reduce
1982 earnings for CIPL."
We have held that the State of Alaska may regulate
industry in a manner which has a detrimental economic
effect on a business without causing a taking of
property which requires compensation. Alaska, Dep't of
Natural Resources v. Arctic Slope Regional Corp.,
P.2d , Op. No. 3776 (Alaska, November 22, 1991). We
recognize that the APUC has broad limits within which
it may exercise its regulatory ratemaking power without
running afoul of constitutional protection of private
property. See Duquesne, 488 U.S. at 316 (rejecting the
notion that any particular ratemaking method is
constitutionally required). Even if the APUC's
regulatory scheme has a detrimental effect on CIPL's
earnings, CIPL has made no showing that the scheme
threatens CIPL's financial integrity. See Farmers
Union II, 734 F.2d at 1517-18. We conclude that the
APUC's application of an original cost rate methodology
without a transition rate base does not constitute an
unconstitutional taking of CIPL's property. CIPL's
second argument that the APUC took its property when it
reduced CIPL's "rate base"is wholly without merit.
The "rate base"is a theoretical construct from which
rates are derived. It is not "property."
B. Federal Preemption.
CIPL contends that "it cannot comply with both the
Tariff Order and section 2"of the Interstate Commerce
Act (ICA).6 CIPL contends that because of this
conflict with federal law the Tariff Order is
preempted. CIPL also argues that the APUC's "Tariff
Order is preempted under the "filed rate doctrine"
which requires the APUC to recognize FERC-approved
rates." CIPL contends that this doctrine compels the
APUC to set intrastate rates equal to the interstate
rates approved by the FERC since the service is the
same in either case.
The Alaska legislature delegated to the APUC the
authority to prescribe or require "just, fair and
reasonable rates"for pipeline carriers operating in
Alaska. AS 42.06.140. Although the legislature
recognized that federal regulators had jurisdiction
over interstate commerce, the legislature intended to
grant the APUC full power to regulate intrastate rates:
"[n]othing limits the powers of the commission set out
in this chapter except to the extent they are preempted
by federal law." AS 42.06.245.
This state legislation was enacted against a backdrop
of well established federal law in the form of the ICA.
The ICA was enacted to "secure just and reasonable
charges for transportation; to prohibit unjust
discriminations in the rendition of like services under
similar circumstances and conditions; [and] to prevent
undue or unreasonable preferences to persons,
corporations, or localities." Interstate Commerce
Comm'n v. Baltimore & Ohio R.R., 145 U.S. 263, 276
However, the United States Supreme Court has squarely
held that as originally enacted the ICA was not
intended to intrude on the power of the states to
regulate intrastate commerce. Simpson v. Shepard, 230
U.S. 352, 418 (1913). In Simpson, the Court stated,
"Congress carefully defined the scope of its
regulation, and expressly provided that it was not to
extend to purely intrastate traffic." Id.
Congress did not undertake to say that
the intrastate rates of interstate carriers
should be reasonable, or to invest its
administrative agency with authority to
determine their reasonableness. . . . It
cannot be supposed that Congress sought to
accomplish by indirection that which it
expressly disclaimed, or attempted to
override the accustomed authority of the
states without the provision of a substitute.
On the contrary, the fixing of reasonable
rates for intrastate transportation was left
where it had been found; that is, with the
states and the agencies created by the states
to deal with that subject.
Id. at 420-21.
Section 2 was part of the original ICA of 1887. 49
U.S.C.A. 2 (West 1959). Therefore, we conclude that
when it interpreted Congress' intent regarding the
regulation of intrastate rates in Simpson, the Court
rejected the notion that section 2 applied to
intrastate rates.7 Because section 2 of the ICA was
not intended to apply to intrastate rates, we reject
CIPL's argument that section 2 requires the APUC to
allow CIPL to set intrastate rates which match
Our conclusion does not ignore the power of Congress
over intrastate rates where necessary to prevent unjust
discrimination which creates an undue burden on
interstate commerce. We recognize that in a provision
of the Transportation Act of February 28, 1920, now
codified at 49 U.S.C.A. 13(4), Congress granted the
ICC power to fix intrastate rates "after full hearing"
which demonstrates that the intrastate rates result in
"unjust discrimination against, or undue burden on,
interstate or foreign commerce." 49 U.S.C.A. 13(4)
CIPL expressly disclaims8 an argument based on section
13(4). It relies only on section 2.9
C. The Commerce Clause.
Invoking the "dormant commerce clause,"CIPL contends
that on its face, the APUC Tariff Order "discriminates
against interstate commerce because it provides a
different tariff if the person using the pipeline does
not take the oil out of the state." It argues that
this court has aggressively struck down regulations
which "result in intrastate economic protectionism."
We find it unnecessary and improper to analyze CIPL's
argument under a "dormant commerce clause" theory.
While such an analysis may be proper in the absence of
federal legislation, Philadelphia v. New Jersey, 437
U.S. 617, 623 (1972), it is unnecessary in the context
of this case. In fact, the United States Supreme Court
has declared that "a limitation [on state power over
intrastate rates] may not be implied because of a
dormant Federal power; that is, one which has not been
exerted, but can only be found in the actual exercise
of Federal control." Simpson v. Shepard, 230 U.S. 352,
417 (1913). In section 13(4) of the ICA Congress
clearly provided for distinct roles of federal and
state regulators and provided a remedy where intrastate
rates are found to unjustly discriminate against
interstate commerce. 49 U.S.C.A. 13(4) (West 1959).
The United States Supreme Court interpreted the effect
of 13(4) as follows:
As to interstate regulation, the
Commission is granted the broadest powers to
prescribe rates and other transportation
details. No such breadth of authority is
granted to the Commission over purely
intrastate rates. Neither 13(4), nor any
other congressional legislation, indicates a
purpose to attempt wholly to deprive the
states of their primary authority to regulate
intra-state rates. Since the enactment of
13(4), as before its enactment, a state's
power over intra-state rates is exclusive up
to the point where its action would bring
about the prejudice or discrimination
prohibited by that section. When this point
-- not always easy to mark -- is reached, and
not until then, can the Interstate Commerce
Commission nullify a state-prescribed rate.
North Carolina v. United States, 325 U.S. 507, 510-11 (1945)
The Court also emphasized that the ICC was powerless to
interfere with a state-prescribed rate "unless there
are clear findings, supported by evidence, of each
element essential to the exercise of that power by the
Commission." Id. at 511.
To our knowledge, there has never been a "full hearing"
by any regulatory body which resulted in findings
supporting a determination that the 1982 intrastate
rates the APUC approved resulted in undue prejudice or
unjust discrimination against interstate commerce.
Therefore, we consider only whether the APUC's approval
of an intrastate rate which was lower than the
interstate rate, by itself, violates section 13(4) by
causing "unjust discrimination against, or undue burden
on, interstate . . . commerce." 49 U.S.C.A. 13(4)
We conclude that CIPL's contentions are without merit.
Indeed, the federal courts have consistently found that
a disparity between interstate rates and intrastate
rates does not, by itself, equate to unjust
discrimination against interstate commerce. North
Carolina, 325 U.S. at 512-14. Rather, a finding of
unjust discrimination must rest on specific findings
based on substantial evidence that demonstrates, inter
alia, that the intrastate rates are "less than
compensatory or insufficient to cover the full cost of
service,"Id. at 515, or that they "were abnormally low
and failed to contribute a fair share of overall
revenue." Public Service Comm'n of Utah v. United
States, 356 U.S. 421, 426 (1958).
CIPL has not developed any such evidence in this
proceeding which supports its claim that interstate
shippers suffered unfair prejudice or were otherwise
commercially disadvantaged. It chose not to pursue an
action before the FERC based on section 13(4), which
would have required it to present such evidence.
Rather, CIPL contends that as a matter of law,
discrimination against interstate commerce is present
where approved intrastate rates are $0.20 per barrel
less than interstate rates and the service provided is
This argument rests on the unproven assumption that the
interstate rates were "reasonable." Unlike CIPL's
approved 1982 intrastate rates, which the APUC found to
be just and reasonable following an exhaustive review,
CIPL's 1982 interstate rates were approved without a
reasonableness determination in an uncontested
settlement.11 Cook Inlet Pipe Line Co., 38 FERC
61,083 (1989) (FERC Approval of Settlement). Because
there has never been a determination by a regulatory
body regarding whether CIPL's 1982 interstate rates
were reasonable, this argument must fail.
An uncontested settlement of the 1982 interstate rates
does not establish that the rates are reasonable. See
Arctic Slope Regional Corp. v. Fed. Energy Reg. Comm'n,
832 F.2d 158, 163-64 (D.C. Cir. 1987), cert. denied,
488 U.S. 868 (1988) (holding that a FERC-approved
settlement need not assure just and reasonable rates);
see also Trans-Alaska Pipeline System, 35 F.E.R.C.
61,425 at 61,983 n.17 (noting that justness of rates
cannot be implied from an approved settlement "since
the settlement rates were never adjudicated to be just
We agree with Tesoro Alaska Petroleum Company's
(Tesoro) assessment that:
It simply cannot be that intrastate
tariff rates may be set by an uncontested
settlement of unreviewed interstate tariff
rates before the FERC. If the uncontested
settlement of interstate tariff rates
controls similar intrastate tariff rates,
then procedurally the FERC could mandate
intrastate tariff rates in every state
without even a review as to the
reasonableness of either the interstate or
the intrastate tariff rates.
(Emphasis in original).
If courts found that unjust discrimination violative of
the commerce clause resulted every time a state
regulatory agency set an intrastate rate which was
lower than the federally approved interstate rate for
similar services, it would seem that Congress' efforts
to respect state power over intrastate rates would have
failed. Therefore, in conformity with federal
authority, we reject the proposition that a difference
between interstate and intrastate tariff rates, by
itself, results in unjust discrimination against
D. Costs and Attorney's Fees.
Under Alaska Appellate Rule 508, the superior court
awarded the APUC attorney's fees in the amount of
$20,000 and awarded Tesoro attorney's fees and costs in
the amount of $54,911.67. CIPL argues that Tesoro's
efforts in this matter were duplicative of the APUC's.
Therefore, CIPL contends it was inequitable for the
superior court to award Tesoro more than twice the fees
awarded to the original party. CIPL does not question
the percentage of Tesoro's actual fees awarded.
CIPL also contends that the court improperly awarded
fees of approximately $5,500 which Tesoro incurred
prior to its intervention in superior court. Finally,
CIPL argues that Tesoro failed to demonstrate why costs
not covered by Rule 508(d) should be awarded.
Where a trial court sits as an intermediate appellate
tribunal, it has broad discretion to award a party
reasonable attorney's fees under Alaska Appellate Rule
508(e). Rosen v. State Bd. of Public Accountancy, 689
P.2d 478, 482 (Alaska 1984). Although we have required
an explanation where the court denied an award of fees
under Rule 508(e) we have never required an appellate
court to articulate its reasons for an award. Id. at
Based on our review, we cannot say that the attorney's
fee award in this case is manifestly unreasonable.
While it is true that Tesoro and the APUC address many
of the same issues, we do not find Tesoro's efforts
"completely duplicative." Tesoro's brief was helpful
to this court. In the absence of any other challenge,
we will not disturb the court's award of fees to
Tesoro. We similarly reject CIPL's argument
that the fee award was improper in light of Stepanov v.
Homer Electric Ass'n, Inc., 814 P.2d 731 (Alaska 1991).
In Stepanov, we held that "under Appellate Rule 508(e),
attorney's fee awards, `should . . . be limited to
attorney's fees incurred in court, not those incurred
in a prior administrative proceeding.'" 814 P.2d at
737 (quoting Kenai Peninsula Borough v. Cook Inlet
Region, Inc., 807 P.2d 487, 501 (Alaska 1991)).
Tesoro did not move to intervene in the appeal to the
superior court until January 27, 1988. The actual fees
upon which the award was based include fees from as
early as May 18, 1987. However, the activity recorded
for May 18, 1987 was "[r]esearch issues related to
intervention at an appellate level when Tesoro was not
a party to the administrative proceeding." While these
fees were not "incurred in court"they were related to
the appeal. Therefore, we conclude the trial court
properly considered these fees in its award.
We will not disturb the court's award of costs not
expressly included in Rule 508(d). "The costs included
in Appellate Rule 508(d) are not meant to preclude the
trial court's exercise of its sound discretion in
awarding additional costs in a particular case."
State, Dep't of Educ. v. Nickerson, 711 P.2d 1165, 1170
(Alaska 1985). CIPL has provided us with no persuasive
arguments that the court abused its discretion in its
The judgment of the superior court which upheld the
APUC's Methodology and Tariff Orders is AFFIRMED.
1. Responsibility for regulation of interstate oil
pipeline rates was transferred from the ICC to the FERC
pursuant to the Department of Energy Organization Act,
Pub. L. No. 95-91, 402(b), 91 Stat. 584 (1977).
2. In 1981 the responsibilities for intrastate oil
pipeline regulation was transferred from the APC to the
APUC and the Alaska Pipeline Commission Act was renamed
the Pipeline Act. Ch. 110, 1, 9, SLA 1981. The
Pipeline Act is presently codified at AS 42.06.140-640.
3. These statutory provisions appear at 49 U.S.C.A. 2,
3 (1959). In 1978 Congress repealed the relevant parts
of the Interstate Commerce Act except as it relates to
transportation of oil by pipeline. 49 U.S.C.A. App.
2, 3, 13(4) (West Supp. 1991).
4. After focusing on its three major legal arguments, CIPL
briefly raises four technical issues which involve
agency expertise. Based on our review of the record
and the contested APUC orders we conclude that these
objections are without merit. As noted above, we will
defer to determinations involving agency expertise and
specialized knowledge unless they are unreasonable or
are unsupported by the record. Kodiak Western Alaska
Airlines, 592 P.2d at 1203 n.7.
CIPL contends that it was inappropriate for the APUC to
impute a hypothetical capital structure of 25% debt and
75% equity for ratemaking purposes where no debt
existed in CIPL's actual capital structure. We find no
error in the APUC's use of this hypothetical capital
structure. Even CIPL's expert indicated that, based on
information available at the time the APUC was setting
rates, some debt would have been appropriate in CIPL's
Moreover, imputation of hypothetical capital structures
is an established and widely used regulatory tool.
"The practice of imputing a hypothetical amount of debt
has been explicitly approved by the public utilities
commissions or courts of at least twenty-two states and
the District of Columbia." Communications Satellite
Corp. v. F.C.C., 611 F.2d 883, 903-09 (D.C. Cir. 1977)
(approving a hypothetical 45% debt structure where the
company's actual capital structure was 100% equity).
CIPL also contends that the APUC's rate of return
determination was not supported by substantial
evidence, that the APUC erred in its calculation of
CIPL's "allowance for funds used during construction"
and that there was no reasonable basis for the method
CIPL was required to use in accounting for certain
major repairs to the pipeline. Our review of the
record leaves us with the conclusion that the APUC's
determinations in these areas are adequately supported
by facts and have a reasonable basis in law.
5. Alaska's constitution protects private property as
follows: "Private property shall not be taken or
damaged for public use without just compensation."
Alaska Const. art I, 18.
Under the constitution of the United States, "private
property [shall not] be taken for public use, without
just compensation." U.S. Const. amend. V.
We have previously held that because of the inclusion
of the term "damaged,"the Alaska Constitution affords
the property owner broader protection than that
conferred by the Fifth Amendment. DeLisio v. Alaska
Superior Court, 740 P.2d 437, 439 n.3 (Alaska 1987).
However, the difference between Alaska's takings clause
and the federal clause is irrelevant to this case.
6. Section 2 of the Interstate Commerce Act provides as
If any common carrier subject to
the provisions of this chapter shall,
directly or indirectly, by any special rate,
rebate, drawback, or other device, charge,
demand, collect, or receive from any person
or persons a greater or less compensation for
any service rendered or to be rendered, in
the transportation of passengers or property,
subject to the provisions of this chapter,
than it charges, demands, collects, or
receives from any other person or persons for
doing for him or them a like and
contemporaneous service in the transportation
of a like kind of traffic under substantially
similar circumstances and conditions, such
common carrier shall be deemed guilty of
unjust discrimination, which is prohibited
and declared to be unlawful.
49 U.S.C.A. 2 (West 1959).
7. CIPL also mentions section 3 of the ICA in it
arguments. However, the United States Supreme Court
has also considered and rejected an argument that
section 3 was intended to impose federal control over
intrastate rates. Chicago, Milwaukee & St. Paul Ry.
Co. v. State Pub. Util. Comm'n of Illinois, 242 U.S.
333, 335-37 (1917).
8. In its opening brief, CIPL notes that it "has not yet
sought the Section 13(4) remedy. This remedy involves
the FERC holding a hearing, making findings, and
setting intrastate rates itself. CIPL has not sought
this remedy, because the language of Section 2 is plain
enough to obviate the need for FERC intervention."
As discussed above, section 2 of the ICA does not help
CIPL. Its remedy, if it has one, must be sought in a
section 13(4) proceeding before the FERC. We decline
CIPL's invitation to remand this proceeding for further
fact finding regarding prejudice to interstate
9. CIPL also contends that the interplay between Section 2
of the ICA and the "filed rate doctrine" works to
preempt an intrastate rate which differs from a FERC-
approved interstate rate.
This argument ignores Congress' careful preservation of
the primary authority of states over intrastate rates.
See North Carolina v. United States, 325 U.S. 507, 510-
11 (1945). The filed rate doctrine requires states and
their agencies to respect interstate rates set by the
FERC, but does not require that interstate and
intrastate rates be identical. See, e.g., Nantahala
Power & Light Co. v. Thornburg, 476 U.S. 953, 966
(1986) (holding that a state must allow FERC-approved
wholesale power rates as a reasonable cost when setting
retail power rates).
10. The full text of section 13(4) is as follows:
Whenever in any such investigation
the Commission, after full hearing, finds
that any such rate, fare, charge,
classification, regulation, or practice
causes any undue or unreasonable advantage,
preference, or prejudice as between persons
or localities in intrastate commerce on the
one hand and interstate or foreign commerce
on the other hand, or any undue,
unreasonable, or unjust discrimination
against, or undue burden on, interstate or
foreign commerce (which the Commission may
find without a separation of interstate and
intrastate property, revenues, and expenses,
and without considering in totality the
operations or results thereof of any carrier,
or group or groups of carriers wholly within
any State), which is hereby forbidden and
declared to be unlawful, it shall prescribe
the rate, fare, or charge, or the maximum or
minimum, or maximum and minimum, thereafter
to be charged, and the classification,
regulation, or practice thereafter to be
observed, in such manner as, in its judgment,
will remove such advantage, preference,
prejudice, discrimination, or burden:
Provided, That upon the filing of any
petition authorized by the provisions of
paragraph (3) of this section to be filed by
the carrier concerned, the Commission shall
forthwith institute an investigation as
aforesaid into the lawfulness of such rate,
fare, charge, classification, regulation, or
practice (whether or not theretofore
considered by any State agency or authority
and without regard to the pendency before any
State agency or authority of any proceeding
relating thereto) and shall give special
expedition to the hearing and decision
therein. Such rates, fares, charges,
classifications, regulations, and practices
shall be observed while in effect by the
carriers parties to such proceeding affected
thereby, the law of any State or the decision
or order of any State authority to the
49 U.S.C.A. 13(4) (West 1959).
11. Moreover, the settlement regarding the interstate rate
included the following language:
Pursuant to Rule 602 of the Commission's
Rules of Practice and Procedure, this
agreement is a negotiated settlement with
respect to all matters covered herein and the
Commission and the parties hereto shall not
have accepted as precedent, or approved,
accepted, agreed to, or consented to any
principle of ratemaking, cost of service
determination, allocation method, or rate
design formula underlying, supposed to
underlie, or advanced by any party with
respect to any of the rates here at issue or
terms of this agreement. The Commission's
approval of this agreement shall not
constitute approval of, or precedent
regarding, any principle or issue in this
12. Our opinion in United States v. RCA Alaska
Communications, Inc., 597 P.2d 489 (Alaska 1979), does
not require a different result. In that case we
disapproved of the rate setting method by the APUC
which likely would have resulted in "rate
discrimination through hidden subsidies of some
ratepayers by others." Id. at 504. We also concluded
that "the APUC erred in considering the whole of RCAA's
operations in its determination of whether interim rate
relief should be granted. . . . [and] that separation
of intrastate and interstate properties, expenses, and
revenues is required for properly determining the
adequacy of RCAA's intrastate rates." Id. at 499
(footnotes omitted). In this case CIPL makes no claim
that the APUC failed to separate intrastate and
interstate properties, expenses and revenues. CIPL
claims only that the APUC is bound to accept a
federally approved rate which was never determined to