Eight oil companies which own the Alaskan pipeline indicated yesterday they might refuse to operate the line if the Interstate Commerce Commission does not approve transport rates the firm have proposed.
"If this pipeline stops," warned John Lansdale, a lawyer for the Sohio Pipeline Co., "you're going to have, in effect, an 800-mile-long empty cannon."
The thought of $9.2 billion worth of steel pipe sitting idle on the Alaskan tundra stunned commission members, who held a long day of hearings yesterday punctuated by charges and countercharges that the proposed tariffs will yield windfall profits to the pipeline's oil company owners.
Lawyers for the oil companies took turns saying they were not trying to threaten the commission. They said they were only raising a very real possibility.
The regulator agency is expected to announce its decision today on the rates that will be charged for carrying oil from Alaska's north slope to the port of Valdez on Alaska's south coast.
Oil companies have filed for rates ranging from $6.04 to $6.44 per barrel, depending on the financing of each firm. The Justice Department, the State of Alaska and the Arctic Slope Regional Corp. (the Eskimo lobby) claim these rates are at least $2 per barrel too high.
Whatever the commission decides, it will have no direct effect on the price of oil. That is expected to remain equal to the current selling price of imported oil of $14.50 per barrel.
At issue is how the oil companies and the State of Alaska are to divide the pipeline profits. Royalties and severance taxes owed to Alaska are basedon the wellhead price of the oil, which is the sale price minus transportation costs.
So the higher the tariff, the lower the wellhead price and the less Alaska gets.
Alaska had been expecting to collect upwards of $250 million from the operation of the pipeline. Many of these funds, state officials said yesterday, are targeted to build schools and new fisheries for the 85,000 native Alaskans who live in villages without public schools.
"It is obvious the native people are going to be again the last ones to benefit if the higher rates go through," O. Yale Lewis, attorney for the Eskimos, told the commission.
The Justice Department claimed the proposed tariffs are excessively high and will damage the nation's energy policy by discouraging other companies from developing still untapped oil reserves in the north slope.
Donald Kaplan, a Justice attorney, said the Alaskan pipeline constitutes a natural monopoly and threatened anti-trust action against the oil companies should they decide to shut it down.
The head of the ICC's Bureau of Enforcement and Investigation, Peter Shannon, also suggested the federal government would not tolerate an idle pipeline. In the event of a shutdown, Shannon said his bureau would seek a court injunction against the oil companies "for failure to perform their duty as common carriers."