Title 11 . Natural Resources

Chapter 83 . (No Regulations Filed)

Section 229. Calculation of reasonable costs of transportation

11 AAC 83.229. Calculation of reasonable costs of transportation

(a) Reasonable costs of transportation shall be calculated from the point of production to the sales delivery point.

(b) Reasonable costs of transportation under 11 AAC 83.228(a) are actual costs of transportation. The actual costs of transportation are

(1) in the case of transportation of oil or gas by a regulated carrier, the tariff on file with the FERC or other regulatory agency having jurisdiction that is applicable to that transportation of the oil or gas by the carrier, from the point where that oil or gas is tendered into the facilities of the carrier to the point where it is delivered from the facilities of the carrier;

(2) in the case of transportation of oil by a tanker or other vessel that is not owned or effectively owned by the lessee

(A) for a single voyage charter, the reasonable cost for that transportation is, for purposes of this chapter, the charter fee for that vessel, plus any voyage and port costs not included in that fee that are incurred with respect to that transportation during the term of the charter and that are borne by the lessee plus the positioning cost, if any, borne by the lessee for that vessel;

(B) for a consecutive voyage charter or a time charter, the reasonable cost for that transportation is, for purposes of this chapter, the charter fee for that vessel, plus any voyage and port costs not included in that fee that are incurred with respect to that transportation during the term of the charter and that are borne by the lessee, plus the positioning cost (amortized over the lesser of 36 months or the term of the charter in the case of a time charter, and amortized on the basis of the number of voyages in the case of a consecutive voyage charter), if any, borne by the lessee for that vessel;

(C) for a contract of affreightment, the reasonable cost for that transportation is, for purposes of this chapter, the affreightment fee specified in that contract, plus any voyage and port costs and any positioning costs not included in that fee that are incurred with respect to that transportation during the term of the contract of affreightment and that are borne by the lessee.

(c) In the case of transportation of oil by a tanker or other vessel that is owned or effectively owned by the lessee, the department will, in its discretion, authorize the lessee to use the fair market value of like transportation as the reasonable cost for the transportation in question. The department, and not the lessee, will determine the fair market value of like transportation, on the basis of third-party time charters (that is, time charters in which the lessee does not own or effectively own the vessel) of one year or more that are reported to the department for like vessels; and when it makes its determination, the department will notify the lessee. Two vessels will be considered like vessels for purposes of this chapter if the difference between them in deadweight tonnage is less than 10,000 deadweight tons and if they are both Jones Act vessels, or are both CDS vessels, or are both ODS vessels, or are both CDS/ODS vessels. If the department does not authorize the lessee to use fair market value of like transportation (as described in this subsection) as the reasonable cost for the transportation in question, then the reasonable cost for that transportation is, for purposes of this chapter, the lessee's actual cost for that transportation. This actual cost equals the sum of

(1) the voyage and port costs incurred with respect to that transportation;

(2) the positioning cost, amortized over 36 months, for that vessel, but only for placing that vessel into position before its employment in the Alaska trade and not for placing it into position after its employment in the Alaska trade for employment in another trade;

(3) depreciation of the vessel; if the vessel is actually owned by the lessee, depreciation must be calculated in accordance with the applicable FASB Financial Accounting Standards for such owned assets; if the vessel is effectively owned by the lessee, depreciation must be calculated in accordance with FASB-13 from the standpoint of a lessee under a capital lease; and

(4) an amount which, when taken together with depreciation under (3) of this subsection, will provide a reasonable return on the acquisition cost of the vessel over its expected life; for purposes of this paragraph

(A) "acquisition cost" means the cost of the vessel which may be capitalized by its actual owner under generally accepted accounting principles, but not including costs of improvements made after the date the vessel is placed in service by or on behalf of the lessee, and

(B) "expected life" means the period of the time used to calculate depreciation under (3) of this subsection.

(d) In the case of transportation of gas as LNG where not all of the LNG transportation facilities are subject to tariff regulation (by FERC or another agency of the United States, a state, territory or possession of the United States or a foreign nation)

(1) when the lessee does not have or effectively have an ownership interest in the LNG transportation facility, the reasonable cost of transportation for that LNG transportation facility is, for purposes of this chapter, the amount charged to the lessee for that LNG transportation; or

(2) when the lessee has or effectively has an ownership interest in the LNG transportation facility, the department will, in its discretion, authorize the lessee to use the fair market value of like transportation as the reasonable cost for the transportation in question; the department, and not the lessee, will determine the fair market value of like transportation, on the basis of third-party charters or leases (that is, charters or leases in which the lessee does not own or effectively own the LNG transportation facility in question) of three years or more that are reported to the department for like LNG transportation facilities; and if it makes such a determination, the department will notify the lessee of its determination; if the department does not authorize or require the lessee to use fair market value of like transportation (as described in this paragraph) as the reasonable cost for the transportation in question, then the reasonable cost for that transportation is, for purposes of this chapter, the lessee's actual cost for that transportation; this actual cost equals the sum of

(A) the direct operating costs of the LNG transportation facility (in the case of an LNG tanker, its respective voyage and port costs) incurred with respect to the lessee's gas;

(B) depreciation of the LNG transportation facility (if the facility is actually owned by the lessee, depreciation must be calculated in accordance with the applicable FASB Financial Accounting Standards for the owner of such assets; if the LNG transportation facility is effectively owned by the lessee, depreciation must be calculated in accordance with FASB-13 from the standpoint of a lessee under a capital lease); and

(C) an amount that, when taken together with depreciation under (B) of this paragraph, will provide a reasonable return on the acquisition cost of the LNG transportation facility over its expected life; for the purposes of this subparagraph

(i) "acquisition cost" means the cost of the LNG transportation facility which may be capitalized by its actual owner under generally accepted accounting principles, and

(ii) "expected life" means the period of time used to calculate depreciation under (B) of this paragraph.

(e) Reasonable cost of transportation under sec. 228(b) of this chapter is fair market value. Fair market value of transportation is to be determined

(1) for shipments of oil, on the basis of third party charters (that is, time charters in which the lessee does not own or effectively own the vessel) of one year or more, plus regulated transportation costs determined under (a) of this section; two vessels will be considered like vessels for purposes of comparing like transportation under this chapter if the difference between them in deadweight tonnage is less than 10,000 deadweight tons and if they are both Jones Act vessels, or are both CDS vessels, or are both ODS vessels or are both CDS/ODS vessels; or

(2) for shipments of gas as LNG, on the basis of third party charters or leases (that is, charters or leases in which the lessee does not own or effectively own the LNG transportation facility in question) of three years or more which are reported to the department for like LNG transportation facilities, plus regulated transportation costs determined under (b)(1) of this section.

(f) If a lessee sells its oil or gas to a third party in what would otherwise be a bona fide, arm's-length sale but at the time of this particular sale the lessee expects to repurchase that oil or gas at a subsequent time and place, then that sale to the third party and the repurchase from the third party, when it occurs, must be disregarded and the oil or gas subject to that sale must be regarded as if it had remained the lessee's own oil or gas throughout the time between that sale and repurchase. In determining the value at the point of production in such a case, the reasonable cost of transportation between the point of sale for that sale and the point of repurchase must be determined as if the lessee were the shipper. This subsection does not apply if the lessee's expected repurchase does not in fact occur.

(g) For the purposes of this chapter, "voyage and port costs" for a vessel are

(1) costs actually incurred for fuel for the vessel while in port and at sea, stores and provisions for the vessel and for her captain and crew, wages, and benefits of the vessel's captain and crew, routine maintenance, port and dock fees, storage costs, demurrage, tug and pilotage fees, marine agents' fees in port, lightering, transshipment charges, customs fees and duties, regular and customary gratuities that are also legal, insurance premiums actually paid to third party insurers, minor cargo losses or measuring differentials, loading and unloading inspection fees, Panama Canal transit fees, a reasonable management fee (to be prorated equally among vessels) for coordinating arrivals and departures into and out of ports for vessels owned, effectively owned or chartered by the shipper and other reasonable costs associated with the operation or maintenance (or both) of the vessel; and

(2) in addition to the costs listed in (1) of this subsection, in the case of catastrophic loss or damage of a vessel transporting oil or LNG from Alaska or en route to Alaska to take on oil or LNG, a portion of the loss (for loss or damage of the ship, for injury or loss of her captain or crew and for damage and cleanup due to spillage of part or all of her cargo, but not for the loss of the cargo itself) that is borne by the lessee as the result of that catastrophic loss or damage and that is not reimbursed by insurance or by a third party but excluding any civil and criminal penalties and civil punitive damages which may be assessed as a result of this loss or damage; a lessee's portion of the loss is determined by dividing the unreimbursed liability on the basis of deadweight tonnage among the vessels owned, effectively owned or chartered by the lessee to transport oil or LNG (whichever was lost) from Alaska.

(h) A lessee "effectively owns," "has effective ownership of" or "effectively has an ownership interest in" a vessel or LNG transportation facility for purposes of this section if

(1) the vessel or LNG transportation facility is owned by another person comprising part of a consolidated business in which the lessee is also a part;

(2) the vessel or LNG transportation facility is the subject of a capital lease on which the lessee or another person comprising part of a consolidated business in which the lessee is also a part, is the lessee under that capital lease;

(3) the vessel or LNG transportation facility was built to the account of the lessee (or another person comprising part of the consolidated business in which the lessee is also a part), was sold and was chartered back by the lessee (or another person comprising part of the consolidated business in which the lessee is also a part) all in a simultaneous transaction and the vessel or LNG transportation facility is on a term charter or lease to the lessee (or another person comprising part of the consolidated business in which the lessee is also a part) for a period of 15 years or longer.

(i) For purposes of this chapter, the "positioning cost" for a vessel includes the costs not included in the charter for that vessel that are borne by the lessee for placing that vessel into position before the first voyage under that charter or the estimated costs to be borne by the lessee for delivering it up at a specified location after the last voyage under that charter, or both if the lessee is obligated under the terms of the charter or contract of affreightment to bear them both.

(j) A reasonable return under (c)(4) or (d)(2)(C) of this section is presumed to be that internal rate of return (after federal income tax) on the amount which yields an investment that equals two percent plus the average annual national inflation rate (measured by the GNP deflator) during

(1) the period between the time the commitment is made to construct or acquire the vessel or LNG transportation facility and the time when the vessel or LNG transportation facility has been received (or delivered) and is ready to be placed into service, or

(2) if the period in (1) of the subsection falls entirely within a calendar year, that entire calendar year.

(k) At the request of the lessee, the department will in its discretion, or, on its own motion, the department will replace the presumed return under (j) of this section with one based on the rate of return imputed to that investment or similar ones by the person owning or effectively owning the vessel or LNG transportation facility.

( l ) The third-party nature of an agreement between a shipper and a third-party carrier regarding transportation costs is not affected during the term of that agreement by a subsequent consolidation of that lessee and carrier into a consolidated business, if, at the time they entered that agreement, neither the lessee nor the carrier exercised, directly or indirectly, any control over the business affairs of the other in anticipation of their subsequent consolidation into the same consolidated business.

History: Eff. 11/9/79, Register 72

Authority: AS 38.05.020

AS 38.05.180