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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Regulatory Commission of Alaska v. Tesoro Alaska Company (03/21/2008) sp-6239
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. 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,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| REGULATORY COMMISSION OF | ) |
| ALASKA, STATE OF ALASKA, and | ) Supreme Court Nos. S- 12352/12391 |
| INDICATED TAPS CARRIERS, | ) |
| ) Superior Court No. 3AN-03- 11523 CI | |
| Petitioners/Cross-Respondents, | ) |
| ) O P I N I O N | |
| v. | ) |
| ) No. 6239 March 21, 2008 | |
| TESORO ALASKA COMPANY and | ) |
| WILLIAMS ALASKA PETROLEUM, | ) |
| INC., | ) |
| ) | |
| Respondents/Cross-Petitioners. | ) |
| ) | |
Petitions for Review from the Superior Court
of the State of Alaska, Third Judicial
District, Anchorage, Peter A. Michalski,
Judge.
Appearances: Charles E. Cole, Law Offices of
Charles E. Cole, Fairbanks, Stephan H.
Williams, Law Offices of Stephan H. Williams,
Anchorage, for Petitioner/Cross-Respondent
Regulatory Commission of Alaska. Ethan
Falatko, Assistant Attorney General, Talis J.
Colberg, Attorney General, Juneau, for
Petitioner/Cross-Respondent State of Alaska.
Louis R. Veerman, Pamela D. Weiss, Molly C.
Brown, Guess & Rudd, P.C., Anchorage, Albert
S. Tabor, Jr., John E. Kennedy, Vinson &
Elkins LLP, Houston, Texas, for
Petitioner/Cross-Respondent BP Pipelines
(Alaska) Inc., ConocoPhillips Transportation
Alaska, Inc., ExxonMobil Pipeline Company,
and Unocal Pipeline Company. Robin O. Brena,
David W. Wensel, Brena, Bell & Clarkson,
P.C., Anchorage, for Respondent/Cross-
Petitioner Tesoro Alaska Company. Randolph
L. Jones, Jr., Conner & Winters, Tulsa,
Oklahoma, for Respondent/Cross-Petitioner
Williams Alaska Petroleum, Inc.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, and Carpeneti, Justices. [Bryner,
Justice, not participating.]
MATTHEWS, Justice.
I. INTRODUCTION
In 2003 Tesoro Alaska Company and Williams Alaska
Petroleum, Inc., protested the 19861996 rates charged by the
owners of the Trans-Alaska Pipeline System. The Regulatory
Commission of Alaska denied their protest as untimely. Tesoro
and Williams appealed to the superior court, which remanded the
case for further proceedings. This court granted a petition for
review. We reverse the order of the superior court and direct
that the decision of the Regulatory Commission be affirmed.
II. FACTS AND PROCEEDINGS
The Trans-Alaska Pipeline System (TAPS) began operation
in 1977. In 1986, after a prolonged dispute about the rates
charged by the owners of TAPS (collectively the Carriers), the
State of Alaska and the Carriers submitted an Intrastate
Settlement Agreement (hereinafter the Settlement) to the Alaska
Public Utilities Commission1 for approval.2 The Settlement set
rates from the beginning of the pipeline through 1986. With
respect to future rates, the Settlement set rate ceilings, but
parties would still be able to protest rates prospectively.
Under the Settlement, rates and rate ceilings were calculated
using a methodology unique to TAPS, called the TAPS Settlement
Methodology, or TSM.
The Commission opened Docket P-86-2 in 1986 to consider
the Settlement. In Order P-86-2(14) (Order 14), the Commission
approved the Settlement as to the rates prior to 1986. Order 14
emphasized the fact that the economically impacted parties . . .
all of which are knowledgeable and sophisticated and have
sufficient resources to make their views known to the Commission
and, further, have all had notice and an opportunity to be heard,
are either silent or actively support the imposition of the
settlement rates. As shippers, Tesoro and Williams3 were among
the economically impacted parties who actively supported the
Settlement. Since there were no pending objections by
economically impacted parties for periods prior to July 11, 1986,
the Commission approved the rates contained in the Settlement for
that period only.
One shipper, Petro Star, protested the Settlement rates
as of July 11, 1986. Because of this protest, the Commission
began the process of determining whether or not the rates after
that time were just and reasonable. Order 14 therefore suspended
the TAPS rates as of July 11, 1986.4
The Commissions investigation of the rates continued
until 1991, at which time Petro Star and the Carriers submitted a
settlement (the Petro Star Settlement) to the Commission for
approval.5 The Commission issued P-86-2(41) (Order 41) in 1993
addressing the Petro Star Settlement and the Intrastate
Settlement. Order 41 accepted the Petro Star Settlement.6 It
then found that since Petro Star had settled, there was no longer
an economically impacted party contesting the [Intrastate]
settlement. Order 41 noted that 3 Alaska Administrative Code
(AAC) 48.090(d)(2) enables the Commission to terminate a
proceeding if all of the parties stipulate to such a termination,
provided that the Commission did not find that the public
interest requires the proceeding to be continued. The
Commission, referring to its earlier order (Order 14), found
that the economically impacted entities, including shippers,
should be deemed . . . to be knowledgeable and sophisticated and
in possession of sufficient resources to make their views known
to the Commission. It also noted that they had notice and an
opportunity to be heard. Since no economically impacted entity
was protesting the rates that had been calculated using TSM since
Order 14, Order 41 held that the public interest [did] not
require the proceeding to be continued. It therefore accepted
the Settlement. Order 41 nonetheless continued the suspension of
the rates for 19861993 in order to determine that those filed
rates were correctly calculated under TSM.
After Order 41 was issued in 1993, Tesoro and Williams
did not file a motion for reconsideration and did not protest
that the rates calculated under TSM for 19861993 were unjust or
unreasonable. Tesoro and Williams7 also did not protest the
rates for 1994, 1995, or 1996.8 In late 1996, Tesoro protested
the rates filed by the carriers for 1997. The Commission
promptly suspended the 1997 rates and embarked upon an
investigation of whether the rates were just and reasonable. In
November 2002 the Commission issued P-97-004(151) (Order 151),
which held that the rates set by the Carriers from 19972000 were
not just and reasonable and set new rates that were much lower
than those filed by the Carriers. Order 151 also noted that the
Carriers rates through 1997 potentially exceeded their reasonable
costs of providing service by up to 9.9 billion dollars.9
After issuing Order 151, the Commission finally turned
its attention to the question of whether the rates filed for
19861996 were correctly calculated under TSM. It scheduled a
prehearing conference in March 2003 to determine whether any
party still believed it necessary to verify TSM calculations and
inputs for 19861996. A few days before the hearing, Tesoro filed
a petition to intervene and a protest of the 19861996 rates.
Williams moved to intervene shortly thereafter. Tesoro and
Williams asked the Commission to adjudicate whether the rates
were just and reasonable.10 The Commission in Order 68 declined
to expand the scope of its investigation to look at whether the
19861996 rates were just and reasonable and found that the
Shippers petition to intervene was not timely.
The Shippers appealed to the superior court. The
court, in an order dated June 7, 2006, remanded the matter for
further proceedings and instructed the Commission to determine if
it properly acted in excluding appellants as economically
interested parties, and emphasized that it should consider each
year at issue separately. It also held that the Commission
should determine the just and reasonable rates for any years in
which the appellants were improperly excluded, and for those
years from which the appellants were properly excluded, it must
still determine whether the rates at issue were correctly
calculated under TSM. The Commission, the Carriers, and the
State of Alaska filed a petition for review of the superior court
order. Williams and Tesoro filed a cross-petition. Both were
granted, with instructions for each side to file a single,
consolidated brief.11
III. STANDARD OF REVIEW
When reviewing an order of a superior court acting as a
court of appeal in an administrative agency proceeding, we
independently review the agency decision.12
Under the Pipeline Act, final orders of the Commission
are subject to judicial review under AS 44.62.56044.62.570.13
Alaska Statute 44.62.570(b), which is part of the Administrative
Procedures Act, provides that the inquiry
extends to the following questions: (1)
whether the agency has proceeded without, or
in excess of jurisdiction; (2) whether there
was a fair hearing; and (3) whether there was
a prejudicial abuse of discretion. Abuse of
discretion is established if the agency has
not proceeded in the manner required by law,
the order or decision is not supported by the
findings, or the findings are not supported
by the evidence.
In Jager v. State we held that [t]he commissions
decision to conduct a rate investigation is similar to the type
of decision involving agency expertise in a mixed law and fact
setting subject to the reasonable basis standard of review . . .
.14 When applying the reasonable basis test, we give deference to
the agencys determination so long as it is reasonable, supported
by the evidence in the record as a whole, and there is no abuse
of discretion.15
We use our independent judgment in questions involving
statutory interpretation.16 We review an agencys interpretation
of its own regulations under the reasonable and not arbitrary
standard. . . . [This] deferential standard of review properly
recognizes that the agency is best able to discern its intent in
promulgating the regulation at issue.17
IV. DISCUSSION
A. The APUC May Set Rates Based on a Settlement Without
Adjudicating Whether or Not the Rates Are Just and
Reasonable.
The Shippers argue that once the [Commission] acts to
set rates, the Alaska Pipeline Act makes it clear that those
rates must be just and reasonable, and they can only be set after
an investigation and a hearing. While conceding that the
Commission has the discretion to decide not to investigate rates
when there is a reasonable basis for the decision[,] the Shippers
state that setting just and reasonable rates on TAPS is not
discretionary it is mandatory. (Emphasis added.) Thus,
according to the Shippers, it may be appropriate for the
Commission to refuse to initiate an investigation, but once it
does act it must finish the investigation and determine just and
reasonable rates. If this were true, then the Commission would
not be able accept a settlement between a protesting party and a
Carrier once the Commission undertook a rate investigation as a
result of a protest. For the reasons explained in the paragraphs
that follow we reject the Shippers position on this issue.
Alaska Statute 42.06.140(a)(2) states that the
Commission may investigate upon complaint or its own motion, the
rates . . . of pipeline carriers. (Emphasis added.) Alaska
Statute 42.06.140(a)(3) states that the Commission may make,
prescribe, or require just, fair and reasonable rates . . . for
pipeline carriers. (Emphasis added.) This language indicates
that the Commission has the discretion to determine whether or
not to investigate rates or set new ones. The use of the term
may in subsection .140(a)(3) counters the Shippers argument that
the Commission must set rather than accept based on an agreement
rates that are just and reasonable.
The Shippers point to mandatory language in AS
42.06.370(a), which states that [a]ll rates demanded or received
by a pipeline carrier, or by any two or more pipeline carriers
jointly, . . . shall be just and reasonable. (Emphasis added.)
But this language specifies what the Carriers are required to do,
not what the Commission is required to do. Subsections
.140(a)(2)(3) fall under Article 1 of the Alaska Pipeline Act,
which is entitled Powers and Duties of Regulatory Commission of
Alaska. Thus, the language indicating that the Commission has
discretion is found in the part of the Act outlining what powers
and duties the Commission has. Subsection .370(a) is part of
Article 4 of the Pipeline Act, which is entitled Rates and Rate
Schedules. The use of the word shall in subsection .370(a) does
not mean that the Commission must investigate each and every rate
filed by a carrier. Instead, it sets forth the relevant standard
for rates.
The Shippers also point to the following language in AS
42.06.410(a):
When the commission, after an investigation
and hearing, finds that a rate demanded,
observed, charged, or collected by a pipeline
carrier for a service . . . is unjust,
unreasonable, unduly discriminatory or
preferential, the commission shall determine
a just and reasonable rate, classification,
rule, regulation, practice, or contract to be
observed or allowed and shall establish it by
order.
(Emphasis added.) The Shippers argue that this provision means
that once the Commission initiates an investigation, it then has
to complete the investigation and set just and reasonable rates.
The text of the statute does not support this interpretation.
Subsection .410(a) requires the Commission to set just and
reasonable rates if after an investigation and hearing, [it]
finds a rate . . . is unjust [or] unreasonable. The language
therefore indicates that subsection .410(a)s requirement to set
just and reasonable rates only comes into play after the
Commission has completed an investigation and found a rate to be
unjust or unreasonable. There is nothing in this language that
requires the Commission to complete every investigation it
initiates or suggests that the Commission lacks the statutory
authority to accept settlements once it has started investigating
a protest.
The Shippers note that Order 151, which dealt with the
19972000 rates, found that the 19861996 rates were excessive.
The Shippers suggest that this means that the Commission has
already found the rates to be unjust and unreasonable after an
investigation and hearing and should therefore be required to set
just and reasonable rates under subsection .410(a). While it is
true that the Commission incidentally reviewed the rates for
19861996 in order to determine whether or not the rates for
19972000 were reasonable, it is a stretch to say that this
incidental review was the type of investigation and hearing
referred to in subsection .410(a). Subsection .410(a)s use of
the term investigation and hearing refers to a formal
investigation and hearing concerning the rates for the years in
question, not an investigation and hearing concerning rates for
other years that incidentally address the time period in
question. If we were to find otherwise, then the Carriers, who
were not informed that the years 19861996 were on the table
during the investigation of the 19972000 rates, would be deprived
of an opportunity to present a full case as to those years.
Aside from their statutory argument, the Shippers
provide no other support for the proposition that the Commission
may not accept a settlement after it has initiated an
investigation. The Commission provides a cogent statutory
analysis and also relies on case law and its own regulations.
These sources, as we explain below, provide additional support
for the Commissions position.
The Commission cites two relevant regulations. First,
3 AAC 48.140(a) states that [i]nformal conferences of the parties
involved in an informal complaint or formal proceeding . . . may
be held at any time to provide opportunity for the settlement . .
. of any issues or problems relating to any manner whatever.
Second, 3 AAC 48.090(d)(2) states that [a]t any stage of the
proceeding, prior to entry of the commissions final order . . .
the proceeding may be terminated by filing a stipulation agreed
to by all parties of record provided the commission does not find
that the public interest requires the proceeding to be continued.
Thus, the regulations promulgated by the Commission provide for
settlement meetings and set out the standard under which the
Commission will accept a settlement.
The Commission also relies on Arctic Slope Regional
Corp. v. Federal Energy Regulatory Commission.18 In Arctic Slope
a corporation challenged the Interstate Settlement (under which
TSM was used to calculate interstate rates).19 The corporations
argument was similar to that of the Shippers: once the agency has
substantially completed an investigation, it is obliged to see
the matter through to completion and determine whether the rates
were just and reasonable.20 The D.C. Circuit looked to the
Commissions rules governing settlements and noted that they were
quite broadly worded.21 It found that neither the statute nor the
agencys corpus of rules requires the Commission under any and all
circumstances to prescribe just and reasonable rates whenever a
party requests that it do so, even after administrative
proceedings have been underway for some considerable time.22
While Arctic Slope relies on federal statutes and rules, its
commonsense finding that FERC may accept a settlement even after
a rate investigation has begun is persuasive.
The only related Alaska case, Jager v. State,23 is not
on point. That case dealt with a situation in which a
residential customer, Jager, challenged natural gas rates as
discriminatory.24 Based on the memoranda and exhibits submitted
prior to the formal hearing, [the Commissions predecessor, the
Public Utilities Commission] concluded that Jager had not
established a prima facie case requiring an investigation of the
entire rate structure.25 This court disagreed and remanded the
case for further proceedings.26 Nonetheless, the Jager opinion
acknowledges the broad discretionary authority the Commission has
over rate investigations:
There is no right to have the commission act.
The matter of rate discrimination and
investigation is such that the commission
must be free to weigh the charges and data
presented and the costs to the public and
utility, against which a complaint has been
brought, to determine whether further
proceedings are in the public interest.[27]
Jager does not address the question of whether the Commission can
accept a settlement once an investigation has been initiated.
Further, the situation in Jager cannot be likened to the
situation at hand, because in Jager there was a pending complaint
that had not been rejected on grounds of untimeliness. For these
reasons, Jager is not helpful to the Shippers.
Finally, the Commission correctly argues that Alaska
law has long recognized the general policy of encouraging
settlement of litigation. Stipulations and settlements are
favored in law because they simplify, shorten, and settle
litigation without taking up valuable court resources. 28 These
concerns are no less compelling in a regulatory context than in
the court system they might even be more compelling given the
highly technical and complex nature of many regulatory disputes
and the significant resources required to resolve them.
For the reasons expressed above, we reject the Shippers
argument on the question under review.
B. The Commission Had a Reasonable Basis for Denying as
Untimely the Shippers Challenge of the 19861996 Rates.
The Shippers also argue that the Commission erred by
concluding in Order 68 that their 2003 petitions to intervene and
protest the 19861996 rates were untimely. As described above, the
Commission decided to adjudicate the justness and reasonableness
of the rates established by TSM in response to a rate protest by
Petro Star in 1986. After Petro Star settled, the Commission
accepted the Intrastate Settlement in 1993, but continued to
suspend the post-July 11, 1986 rates solely for the purpose of
determining whether they were correctly calculated pursuant to
TSM. It still had not made this determination by late 1996, when
the Shippers protested the 1997 rates. The Commission did not
reach the question of whether the 19861996 rates were correctly
calculated under TSM for some time after that, in part because it
was dealing with the 1997 rate protest.
After the Commission had completed its investigation of
the 19972000 rates and issued Order 151, it turned to the
19861996 rates and scheduled a prehearing conference to be held
on March 7, 2003, to determine whether any party still believed
it necessary to verify TSM calculations and inputs for 19861996.
Shortly before this hearing took place, Tesoro filed a protest
and a petition to intervene. Williams intervened a couple of
days later. After receiving briefing by Shippers, the State, and
the Carriers, the Commission issued Order 68 in 2003.
In Order 68 the Commission noted that Tesoro and
Williams wanted to expand the present scope of Docket P-86-2 to
hold a hearing and rule on the justness and reasonableness of the
19861996 intrastate TAPS rates. The Commission decline[d] to
expand the issues in [the] docket, because fairness, and the
reasonable reliance of the TAPS Carriers on [Order 41] require
that [it] follow that orders clear intent.
In denying the Shippers request, the Commission relied
on its regulations regarding protests and petitions to intervene.29
This court review[s] an agencys interpretation of its own
regulations under the reasonable and not arbitrary standard
. . . . [This] deferential standard of review properly
recognizes that the agency is best able to discern its intent in
promulgating the regulation at issue.30 We will uphold the
Commissions decision in Order 68 to deny the Shippers challenge
to the 19861996 rates as untimely if the Commission had a
reasonable basis for making it. A reasonable basis is
established if the Commissions decision is supported by the
evidence in the record as a whole.31
With respect to the petition to intervene, the
Commission denied it on the basis of 3 AAC 48.110(b) and (d).
Subsection (b) of AAC 48.110 states that [i]n passing on a
petition to intervene the Commission should consider the extent
to which participation of the petitioner will broaden the issue
or delay the proceeding.32 Subsection (d) of 3 AAC 48.110 states
that a petition for permission to intervene must be filed with
the commission before the first prehearing conference . . . . A
petition for permission to intervene which is not timely filed
will be dismissed unless the petitioner clearly shows good cause
for failure to file that petition on time.
With respect to the rate protests before it, the
Commission relied on 3 AAC 48.290(a). This regulation states
that
[a]ny person desiring to submit a statement
of interest in, or objection to, a tariff
filing may be asked to do so not later than
20 days after the date of delivery to the
commission unless a longer period, not in
excess of 30 days, is granted by public
notice or by notice in writing.
In Order 68, the Commission found that the Shippers
petitions to intervene were untimely under 3 AAC 48.110(d) and
also should be denied under 3 AAC 48.110(b) since, if granted,
they would have improperly broadened the scope of the
proceedings. The Commission also found that the Shippers
protests were untimely under 3 AAC 48.290(a). As is discussed
below, the Commission had a reasonable basis for these holdings.
1. The Shippers did not timely challenge the 19861993
rates.
After the State and the Carriers submitted the
Intrastate Settlement to the Commission in 1986, the Commission
issued Order 14. Order 14 approved the portion of the Settlement
dealing with the time period prior to July 11, 1986. Since Petro
Star protested the rates established by TSM as unjust and
unreasonable on July 11, 1986, the Commission noted that there is
no consent of the directly affected entities after that date.
Order 14 therefore held that the Commission was required to
determine just and reasonable rates for periods after that date.
This rate investigation extended through 1991, at which time
Petro Star and the Carriers submitted a settlement agreement for
approval by the Commission. In 1993 the Commission issued Order
41, which accepted both the Petro Star Settlement and the
Intrastate Settlement.33
The Shippers did not petition to intervene in the Petro
Star protest on the issue of whether the rates were just and
reasonable until 2003. Under 3 AAC 48.110(d), the Shippers
should have intervened before the first prehearing conference,
which was held in January 1987.34 The Shippers argue that it is
unfair to require them to intervene in 1987 in order to have an
opportunity to be heard on the TAPS Carriers rate filings in
1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995, and 1996. This
mischaracterizes the rule. The Shippers had to intervene before
the January 27, 1987 prehearing conference in order to intervene
in Petro Stars protest of the 1987 rates. Subsection (d) of 3
AAC 48.110 requires a showing of good cause if they were to
protest after that date. Once the rate investigation continued
past the first year, the Shippers might still have had good cause
to intervene as to prospective years.
Alternatively, the Shippers could have timely protested
each temporary rate that was filed. The Commission suspended the
rates filed every year between 1987 and 1993, noting that they
were under investigation as just and reasonable, and if they were
found to be appropriate, the Commission would determine if they
were correctly calculated under TSM. These rate filings were
published along with a deadline for filing protests. Nothing
stopped the Shippers from timely protesting prospective rates as
they were filed. The key point is that they did nothing. No
petitions to intervene or protests were filed as to the justness
and reasonableness of the rates until 2003.
By failing to intervene in Petro Stars protest as to
whether the rates from 19861993 were reasonable, the Shippers
gained an advantage. They did not have to pay for costly rate
litigation but would have nonetheless reaped the benefits of any
success Petro Star may have had in lowering the rates. At the
same time they ran a risk that Petro Star would settle. The
interests of justice and fairness are not served by permitting
the Shippers to wait on the sidelines for years and only attempt
to intervene as to the past rates when Petro Star tried to
settle. Had the Shippers filed a petition to intervene between
1991 and 199335 with respect to the 19861993 rates, the Commission
might very well have had a reasonable basis for denying the
petition as untimely.36 But the Shippers waited another ten years
before trying to intervene. They have shown no good cause for
waiting until 2003,37 and we therefore uphold the Commissions
determination that the petition to intervene was untimely under 3
AAC 48.110(d).38
Subsection (b) of 3 AAC 48.110 provides a separate
ground for denying the Shippers petitions to intervene. It
states that the Commission will consider the extent to which
participation of the petitioner will broaden the issue.39 As is
discussed below, Order 41 accepted the Intrastate Settlement and
continued to suspend the filed rates for the limited purpose of
determining whether they were correctly calculated under TSM. If
the Commission had accepted the petition to intervene as to the
issue of whether the rates were just and reasonable, it would
have significantly broadened the issues before it. Therefore the
Commission had a reasonable basis for denying the petition based
on 3 AAC 48.110(b) as well.
In 2003 the Shippers also separately protested the
19861993 rates as unjust and unreasonable. This protest of the
19861993 rates was untimely under 3 AAC 48.290(a). The
Commission published notice of temporary rates filed during that
time and deadlines for objections. The Shippers did not protest
any of the rates. The rates were suspended because of the
pending rate investigation, but there is nothing in 3 AAC
48.290(a) to suggest that there is no deadline for protesting
suspended rates. Subsection (a) of 3 AAC 48.290 states that the
deadline applies to a tariff filing not just to permanent tariff
filings. To find that the timeliness requirement did not apply
to suspended rates would be problematic, since any time one
entity protested rates in any way, another entity would be able
to protest any facet of the rates at any time.
The Shippers argue that 3 AAC 48.290(a) does not
govern, and instead the Commissions regulations allow protests .
. . to be filed at any time. They argue that 3 AAC 48.130(a)(4)
only requires that a protest comply with 3 AAC 48.0903 AAC
48.100. According to the Shippers, 3 AAC 48.290(a) only
addresses the manner in which a member of the public should
respond to a public notice of a filing.
This argument has no merit. Part 7 of Title 3 of the
Alaska Administrative Code covers the Commission. Chapter 48
deals with the Commissions practices and procedures. Part 1 of
Chapter 48, which contains 3 AAC 48.090100 and 3 AAC 48.130,
outlines practice before the Commission. These provisions are
not limited to Pipeline proceedings and therefore cover
procedural requirements for all of the entities regulated by the
Commission. The provisions set out detailed technical
requirements for formal complaints filed before the Commission.
The Shippers argue that because Part 1 of Chapter 48
contains no timeliness requirement, none exists. However, as the
Commission notes, [t]he requirement that a protest adhere to
formal and technical pleading requirements does not support the
conclusion that timeliness requirements . . . established in
other relevant regulations do not apply. Part 2 of Chapter 48
expressly deals with Utility and Pipeline Tariffs. This part
contains 3 AAC 48.290(a), which states that the Commission may
impose deadlines for protests. The Commissions interpretation
that this regulation covers protests by parties is reasonable and
one to which we defer.
In summary, the Commissions regulations provide it with
a reasonable basis for denying as untimely the Shippers petitions
to intervene and protests of the 19861993 rates. The Shippers
did not timely petition to intervene in Petro Stars protest.
They did not protest any of the suspended rates filed during that
time period. They did not petition to intervene as to the
justness and reasonableness of the rates for any additional years
after 1987. Order 41 clearly set out the need to protest and the
fact that, absent a protest, the Commission was going to accept
the Settlement and rates correctly calculated under TSM. When
Order 41 came out in 1993 the Shippers still did not protest the
19861993 rates. Instead they waited almost a decade before they
tried to challenge the rates based on justness and
reasonableness. They have shown no good cause for such a delay.
Accordingly, we uphold the Commissions finding.
2. The Shippers did not timely challenge the 19941996
rates.
Order 41 put the Shippers on notice that they needed to
protest future rate filings in order to ensure that the rates
would be investigated. Order 41 noted that Petro Star was the
only economically impacted party which requested the
establishment of just and reasonable rates and that after Petro
Star withdrew from the docket due to its settlement there would
no longer be an economically impacted party contesting the
[Intrastate] settlement. It also noted that under 3 AAC
48.090(d)(2) the Commission could terminate the proceeding prior
to issuing a final order if a stipulation is filed, which is
agreed to by all parties of record provided the commission does
not find that the public interest requires the proceeding to be
continued. It relied on Order 14 to interpret[] the phrase all
parties of record to include only economically impacted parties,
and then held the following:
Under the standard articulated in [Order 14]
the directly affected entities (which were
deemed by the Commission to be knowledgeable
and sophisticated and in possession of
sufficient resources to make their views
known to the Commission and which had notice
and an opportunity to be heard) must either
actively support the settlement or be silent
on the issue. TSM rates have been calculated
and filed for six years since the Commissions
acceptance of past rates in [Order 14]. In
that time no economically impacted entity has
protested those rates . . . .
The Commission also noted that its own staff and the
Alaska Public Interest Research Group still opposed the
Settlement, but found the following:
Those parties have not demonstrated any
plausible reason why the Commission should
mandate litigation of rates which are being
charged by the Carriers without protest by
any ratepayer or other economically impacted
entity. Entities impacted by oil pipeline
rates are sophisticated and capable
financially and practically of protecting
their own interests. Not one has come
forward to contest the TAPS Settlement.
Under these circumstances, the public
interest does not require that this
proceeding be continued. The TAPS Settlement
should be accepted, subject to the condition
that Petro Star file a notice of withdrawal
in Docket P-86-2.
Thus, based on the fact that there were no pending protests filed
by economically impacted entities, Order 41 accepted the TAPS
Settlement and specified that the TAPS Carriers were under an
obligation to file TAPS rates no higher than the maximum tariffs
calculated under TSM. The emphasis on the fact that the
Commission only accepted the Settlement because no economically
impacted entity contested it gave the Shippers notice that they
had to protest a Settlement rate before it would be investigated.
The complicating factor is that Order 41 held that the
suspension of the TSM rates filed between 1986 and 1993 would not
be vacated until the Commission determined that those filed rates
were correctly calculated under TSM.40 The Shippers argue that
the rates for 19861996 were not final because they were still
suspended. Therefore, according to the Shippers, they were not
required to object to the rates in a timely manner.
This argument is unpersuasive. Order 41 is clear that
it accepted the Settlement and only suspended the rates for the
limited purpose of determining whether they were calculated
correctly under the TSM methodology established by the
Settlement. Order 41 also makes it clear that the Shippers would
have to protest future rates in a timely manner in order to
obtain an adjudication of the question of whether the rates were
just and reasonable, as opposed to the question of whether they
were correctly calculated under TSM. It states that [e]ach new
rate filed by the TAPS Carriers under the Intrastate Settlement
Agreement is considered a revised tariff filing under AS
42.06.400. Alaska Statute 42.06.400(a) governs the suspension of
tariff filings. It states that [w]hen a tariff filing is made
containing an initial or revised rate . . . the commission may,
either upon written complaint or upon its own motion, after
reasonable notice, conduct a hearing to determine the
reasonableness and propriety of the filing. (Emphasis added.)
Subsection .400(a) then goes on to discuss the process for
suspending the operation of a tariff [p]ending a hearing. By
referring to this statute, Order 41 put the Shippers on notice
that they must protest a rate to ensure an adjudication of its
reasonableness.
Order 41 also stated that each new rate filed by the
Shippers is subject to the same standards and procedures to which
it would have been subject if the Intrastate Settlement Agreement
had not been accepted. As discussed above, one of the
regulations governing the filing of a new rate is 3 AAC
48.290(a), which enables the Commission to set a deadline for
objecting to rates. The Commission provided public notice and
notice to the Shippers of the Carriers rate filings for 1994,
1995, and 1996, and this notice included a deadline for
objections.
Therefore, even though the Commission stated that it
was going to suspend the rates in order to review them for
compliance with the Settlement, Order 41 gave clear notice that
this review would not include a determination of whether the
rates were just and reasonable. The Shippers were informed that
each rate filing after 1993 would be considered a revised tariff
filing under AS 42.06.400, which would enable them to object to
it. They were also told that each filing would be subject to any
standards and procedures that it would have been subject to if
the Settlement had not been approved. This information put them
on notice that the Commission could set a deadline for protests
under 3 AAC 48.290(a). Then, as required by 3 AAC 48.290(a),
each time the Carriers filed a rate the Commission gave the
Shippers notice of the rate and specified a deadline for comments
and petitions. It is highly unlikely that the Shippers could
have misunderstood the requirement that they object to the rates
in a timely manner in order to ensure that the Commission would
adjudicate the question of whether the rates were just and
reasonable. In fact, in 1996 they did timely protest that the
1997 rates were unjust and unreasonable. As the Commission
points out, Tesoros timely protest of the 1997 rates confirms
that Tesoro was fully aware of the requirement of filing a timely
protest in order to challenge TSM rates on grounds other than
whether they were correctly calculated under TSM. We agree, and
thus uphold the Commissions decision that the Shippers challenge
to the 19941996 rates was untimely.
3. Concerns similar to those underlying the rule
against retroactive ratemaking provide additional
support for the Commissions decision.
In Order 68, the Commission found that:
[Order 41] is not a procedural order. In
that order [the Commission] found that TSM
was an acceptable method to calculate
intrastate rates for 1986 to 1996. It
accepted the filed rates subject to
verification that they were correctly
calculated. Shippers had the right to
challenge any rate calculated under TSM. The
particular shippers who now challenge the
rates have had full knowledge of TSM, the
methodology used to calculate their rates,
and all its provisions, during the entire
period at issue. . . . Fairness and
confidence in the regulatory process both
require that we not disturb [Order 41]
without good cause.
This reasoning alludes to prudential concerns. In its brief, the
Commission points to the rationale underlying the rule against
retroactive ratemaking as support for its finding. As we pointed
out in Matanuska Electric Assn v. Chugach Electric Assn, [a]
fundamental rule of ratemaking is that rates are exclusively
prospective in nature.41 This rule is critical for a utility to
plan its finances. Other purposes for prohibiting retroactive
rates include investor confidence, utility credit rating, and the
integrity of service. And retroactivity, even where permissible,
is not favored, except upon the clearest mandate.42 These
concerns provide policy support for Order 68.
The Commissions regulations and orders clearly
communicated the need to protest rates and the deadlines for
protests and petitions to intervene. The Shippers have provided
no good reason for why they waited until 2003 to protest the
rates. Based on the analysis above, the Commission had a
reasonable basis for denying the Shippers protests and petitions
to intervene between 1986 and 1996.43 We therefore uphold Order
68.
C. The Shippers Other Arguments Are Unpersuasive.
The Shippers make several other arguments which we deal
with briefly below.
The Shippers argue that AS 42.06.400(b) requires the
Commission to hold a hearing and complete its investigation prior
to vacating an order suspending rates. Subsection .400(b) states
that:
An order suspending a tariff filing may be
vacated if, after investigation, the
commission finds that it is in all respects
proper. Otherwise the commission shall hold
a hearing on the suspended filing and issue
its order, before the end of the suspension
hearing, granting, denying or modifying the
suspended tariff in whole or in part.
The Shippers argue that because there was no investigation, there
could be no finding that the rates were proper. They argue that
this Court should reverse and remand this decision on this point
alone. However, there is nothing in the statute suggesting that
the Commission cannot, pursuant to its investigation, find a rate
to be in all respects proper because it is made under a
settlement approved by the Commission. As with the arguments
discussed in Section A above, to find otherwise would mean that
the Commission could never accept a settlement without first
adjudicating rates.
The Shippers also argue that [t]he Commission
wrongfully concluded that Williams and Tesoro were not parties in
Docket P-86-2. However, the Commission did not base its finding
on the party status of the Shippers. Rather it relied upon the
untimeliness of their requests.
The Shippers emphasize the fact that all rates for
19861996 were protested by one or more interested parties.
However, they do not point to a single instance in which they
protested a rate between 19861996. They cannot rely on the fact
that other parties, such as the Commission staff, Petro Star, or
the Alaska Public Interest Research Group, protested the rates.44
They did not invest the significant costs involved in undertaking
rate litigation. While they might hope that the efforts of
others will be successful, they cannot initiate an investigation
years after the other efforts fail on the basis that they did not
have to timely protest because others did.
The Shippers also suggest in passing that the
Commission erred by accepting the filed rates without determining
whether they were correctly calculated under TSM. The Commission
scheduled a prehearing conference in Docket P-82-2 for March 6,
2003, to determine whether any party still believed it necessary
to verify TSM calculations and inputs. In the days immediately
prior to the hearing, the Shippers filed their protests and
petitions to intervene. These filings did not protest that the
rates were not calculated in compliance with TSM. The Shippers
were on notice that the rates were going to be approved if no
party requested a formal verification of the TSM calculations and
inputs, but they did not request this verification. On May 6,
2003, the Commission gave notice that it was going to deny the
Shippers protests and petitions to intervene, and on June 23,
2003, the Commission issued Order 68 stating its decisions and
more fully explaining them. This order also stated that it
approved the unchallenged intrastate TAPS rates [for 19861996] as
permanent rates. The rates were then formally established in a
subsequent order.45 Because the Shippers did not express an
interest in verifying TSM calculations and inputs in their
filings and they had notice that the rates would be established
as final if no one requested verification of the TSM calculations
and inputs, the Commission was within the bounds of its
discretion when it decided not to conduct a further investigation
of whether the 19861996 rates complied with TSM and approved them
as permanent rates in Order 68.
Finally, the Shippers argue that the Commission failed
to resolve crucial regulatory issues that could lead to
inconsistent results. However, these arguments miss the basic
point: the Commission accepted the rates pursuant to a
Settlement. The rates therefore do not need to be consistent
with the rates that were determined as a result of adjudication
following a timely protest.
V. CONCLUSION
The Shippers claim that the Commission must complete
every rate investigation that it initiates and therefore has no
ability to accept a settlement. This claim has no support in the
statutes, case law, or regulations. We decline to reverse Order
68 on the basis of this argument.
The Shippers claim that their petitions to intervene
and protest were timely is also unpersuasive. Tesoro and
Williams (then MAPCO) could have timely petitioned to intervene
in Petro Stars protest in 1987. They could have protested the
temporary rates filed between 1986 and 1993. They could have
tried to intervene in Petro Stars case any time between 1986 and
1991, when Petro Star and the Carriers submitted a Settlement to
the Commission for approval. They could have tried to intervene
after Petro Star submitted the Petro Star Settlement and before
the Commission approved it in Order 41, which was issued in 1993.
They could have submitted a motion to reconsider Order 41. They
could have objected to the 19861993 rates in response to Order
41. They could have timely protested the 19941996 rates after
they were sent notices of rates filings containing deadlines for
protesting. They even could have tried to object to the 19861996
rates when they timely protested the 1997 rates. They did none
of these things. A review of the record as a whole shows that
the Shippers had ample notice and opportunity to protest the
rates but failed to do so. The Commission had a reasonable basis
for denying their 2003 protests as untimely.
Accordingly, we REVERSE the order of the superior court
of June 7, 2006, and REMAND this case with instructions to affirm
Commission Order 68.
_______________________________
1 The Alaska Public Utilities Commission was the
predecessor to the Regulatory Commission of Alaska. In this
opinion, both entities are referred to as the Commission.
2 In re Amerada Hess Pipeline Corp., Order P-97-004(151)
(Order 151) at endnote 2, at 5 (Regulatory Commn of Alaska Nov.
27, 2002), available at
http://www.state.ak.us/rca/orders/pipeline/1997/p97004_151.pdf
(giving an overview of TAPS rate litigation). The rate
litigation before the Commission only concerned rates for
intrastate shipments of oil, which constitute less than ten
percent of the oil that goes through the pipeline. Id. at 2.
The Federal Energy Regulatory Commission (FERC) regulates the
rest of the oil throughput as interstate commerce. Id.
There was prolonged federal rate litigation prior to
1986 as well, id. at endnote 2, at 3-5, which was resolved when
FERC approved an Interstate Settlement Agreement in 1985. The
Intrastate Settlement was modeled after the Interstate Settlement
and set the same rates and rate ceilings as those for interstate
oil shipments.
3 At that time Williams was known as MAPCO Alaska
Petroleum.
4 The Commission noted that it could not sever the Petro
Star complaint and approve the Settlement only as to the other
shippers, since treating similarly situated shippers differently
raises the spectre of undue discrimination under AS 42.06.380.
5 Petro Star was also party to federal and state
proceedings challenging the inclusion of costs related to
corrosion. Under the terms of the Petro Star Settlement, Petro
Star agreed to withdraw from all three proceedings in return for
$2,500,000.
6 Technically, the Commission accepted the Petro Star
Settlement in Order 40. Order 41 contained the Commissions
findings and conclusions regarding that acceptance.
7 Tesoro and Williams are collectively referred to as the
Shippers in this opinion.
8 These rates were also suspended solely for the purpose
of determining if they were correctly calculated under TSM.
9 Order 151 at 8, 42, 131.
10 They made no challenge to the accuracy of the TSM
calculations.
11 This opinion refers to the arguments in the petitioners
brief as the Commissions arguments, but it should be noted that
the brief actually encompasses the arguments on appeal of the
Commission, the Carriers, and the State.
12 Cook Inlet Pipe Line Co. v. Alaska Pub. Utils. Commn,
836 P.2d 343, 348 (Alaska 1992); Jager v. State, 537 P.2d 1100,
1106 (Alaska 1975).
13 AS 42.06.480(a).
14 537 P.2d at 1107 (citing Kelly v. Zamarello, 486 P.2d
906, 916-17 (Alaska 1971)).
15 Cook Inlet Pipe Line Co., 836 P.2d at 348 (quotations
omitted).
16 McMullen v. Bell, 128 P.3d 186, 190 (Alaska 2006).
17 Stoshs I/M v. Fairbanks N. Star Borough, 12 P.3d 1180,
1183 (Alaska 2000) (citation and quotations omitted).
18 832 F.2d 158 (D.C. Cir. 1987).
19 Id. at 163.
20 Id.
21 Id. at 164 (citing 18 C.F.R. 385.602(h)(1)(ii)(B)).
22 Id. at 165.
23 537 P.2d 1100 (Alaska 1975).
24 Id. at 1104.
25 Id. at 1105.
26 Id. at 1111.
27 Id. at 1106 (citation omitted).
28 Quoting Interior Credit Bureau v. Bussing, 559 P.2d
104, 106 (Alaska 1977) (citation omitted).
29 A protest occurs when an entity directly protests a
rate filing by the carriers. A petition to intervene occurs when
an entity tries to join in an existing rate protest. In 2003
Tesoro filed both a protest and a petition to intervene.
30 Stoshs I/M v. Fairbanks N. Star Borough, 12 P.3d 1180,
1183 (Alaska 2000) (citation and quotation omitted).
31 Cook Inlet Pipe Line Co. v. Alaska Pub. Utils. Commn,
836 P.2d 343, 348 (Alaska 1992) (quotation omitted).
32 3 AAC 48.110(b)(7).
33 The Commission suspended 1986 rates after July 11,
1986, and continued to suspend them up until it issued Order 41
in 1993. Order 41 therefore covered rates for all of the years
from 19861993.
34 The Shippers argue that they filed a timely petition to
intervene because a prehearing conference was held on March 6,
2003. But 3 AAC 48.110(d) requires a petition to intervene to be
filed before the first prehearing conference. (Emphasis added.)
The first conference was the 1987 conference, not the 2003
conference.
35 The time period from 1991 to 1993 corresponds with the
time period between Petro Star and the Carriers submitting the
settlement agreement to the Commission for approval and the
Commission accepting the agreement in Order 41.
36 In fact, in 1991 Williams (then MAPCO) unsuccessfully
tried to intervene in Petro Stars protest of the corrosion
costs. In explaining its denial of the intervention attempt, the
Commission noted the following:
The existence of Petro Stars challenge
of TAPS rates on three fronts created in
other shippers, including MAPCO, an
expectancy that, if Petro Star were
successful on any of those fronts, they would
receive a reduction in rates identical to
that received by Petro Star. In order for
that expectancy to come to fruition, it was
necessary for Petro Star to engage in
expensive and complicated litigation in which
other shippers were not participating and for
which they were not paying (except through
funding legal expenses of the TAPS Carriers
under TSM).
Petro Star could have, unilaterally, for
any reason, withdrawn from some or all of
this litigation. It was under no obligation
to anyone, other shippers included, to
continue the litigation.
37 Williams argued that it did not intervene earlier in
the proceedings because it only learned that certain projections
in the 1986 settlement offer provided by the TAPS Carriers were
incorrect during hearings on Docket P-97-4. We agree with the
Commission that Williamss allegations did not provide clear
evidence of misleading information. In addition, Williams chose
to file pleadings in support of the settlement agreement in order
to expedite payment to itself of intrastate refunds without first
conducting an investigation of the settlement. Williams does not
explain why this business decision should provide it with a good
cause excuse for its failure to confirm the information provided
to it by the TAPS Carriers and the State of Alaska.
38 Tesoro also argues that it did timely petition to
intervene since it had six pending, unopposed petitions to
intervene before the prehearing conference in 1987. However,
Tesoro withdrew those petitions pursuant to an agreement with the
Carriers.
39 3 AAC 48.110(b)(7).
40 Between 1993 and 1996 the Commission continued to
suspend rates solely for the purpose of determining whether they
were correctly calculated under TSM.
41 53 P.3d 578, 583 (Alaska 2002) (quotations omitted).
42 Id. (quotations and citations omitted).
43 The Shippers due process claim is rejected for the same
reason that Order 68 is upheld. As described in the analysis
above, the Shippers had notice and an opportunity to be heard.
44 The Shippers also point to the fact that in Order 14,
the Commission declared that the Commission Staff was an
appropriate and independent competent party to protest all
present and prospective rates on behalf of the future shipping
public. . . . They argue that the Commission abruptly changed
course in Order 41 when it held that the staffs protests were not
sufficient to stop it from accepting the Settlement because the
staff was not an economically impacted party.
There are two problems with this argument. First, the
Commission did not change course. In Order 14 the Commission
accepted the Settlement over the opposition of some parties
because those parties have not presented sufficient argument or
evidence to convince the Commission that acceptance of the
settlement rates . . . is contrary to the public interest.
Similarly, in Order 41 the Commission accepted the Settlement as
applied to rates after July 10, 1986, over the arguments of its
staff, explicitly comparing its action with the decision it made
in Order 14. The Commission stated that the opposing parties
have not demonstrated any plausible reason why the Commission
should mandate litigation of rates . . . without protest by any
ratepayer . . . . Under these circumstances the public interest
does not require that this proceeding be continued. The
Commission never stated that it was bound to continue rate
litigation based on the objection of its staff if the Commission
determined that doing so was not in the public interest.
Second, as with many of the Shippers arguments
concerning Order 41, even if it did have merit it does not
explain why they did not protest the rates for the years after
1993, when Order 41 was issued, until 2003.
45 In re Amerada Hess Pipeline Corp., Order P-86-002(69)
(Regulatory Commn of Alaska Feb. 9, 2004), available at
http://www.state.ak.us/rca/orders/pipeline/1996/p86002_69.pdf.
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