The Justice Department yesterday charged that the consortium of oil companies that own the Trans-Alaska Pipeline may reap as much as $900 million in overcharges next year if their proposed rates for shipping oil through the pipeline are approved.
In a formal protest to the Interstate Commerce Commission, which must approve the rates, the Justice Department's Antitrust Division said rates filed by seven of the eight pipeline owners could yield them as much as $2 a barrel more than a fair return on their investment in the pipeline.
The rates filed by the companies range from $6.04 to $6.44 a barrel, while the department said the most of the rates should be in the range of $4.40 to $4.60 a barrel.
Joe Sims, a deputy assistant attorney general, said the division used cost figures supplied by the pipeline owners themselves. "We are not now challenging any of the cost figures, or questioning the[ir] . . . choice of financial structure," he said. "We have based our calculations on a 14 per cent rate of return to equity. This return is in the higher ranges of what has recently been allowed by other federal regulatory bodies for other federally regulated industries."
According to the division, the proposed rates would result in a rate of return on equity of about 40 per cent for the companies involved.
Each of the eight owners of the pipeline files its own rates with the ICC because each owner will have the right to use a fraction of the pipeline capacity equal to its share of ownership. If the owner doesn't use its share to ship its own oil, it can allow others to send oil through the pipeline, but only at the rates approved by the ICC.
The division argued in its filing that unreasonable high transportation rates could discourage exploration and development of new fields by reducing the wellhead value of crude oil, thus decreasing returns on production.
If the price at this end of the pipeline is fixed - at it is under federal controls at about $11.28 a barrel - the most the companies can make from selling the oil is the delivery price ($11.28) minus the transportation costs, a Justice Department source explained. Increasing the transportation cost therefore reduces the potential profit for other companies looking for oil.
Most of the $900 million in overcharges paid out by the oil companies to ship oil through the pipeline in the beginning would go just to themselves as the owners of the pipeline, he exvere later on when - and if - oil belonging to other begins flowing through the pipeline.
The line is to begin carrying oil this summer. As of yesterday, seven of the eight owners had filed proposed rates, scheduled to go into effect as early as June 30, with the ICC. Those who have filed are BP Pipelines, Inc., Sohio Pipe Line Co., Arco Pipe Line Co., Amerada Hess Pipeline Co., Exxon Pipeline Co., Mobil Alaska Pipeline Co., and Union Alaska Pipeline Co. A Phillips Petroleum subsidiary has not yet filed.
In its filing, the department also asked the ICC to examine the cost of the pipeline - which is asserted to be about $9 billion - as well as the method by which company costs and rates of return are calculated.