15 AAC 55.193 - Calculation of costs of transportation for oil and gas produced after June 30, 2007

Current through September 28, 2021

(a) Costs of transportation are the ordinary and necessary costs incurred to transport the oil or gas from the point of production to the sales delivery point.
(b) Actual costs of transportation under AS 43.55.150(a) are
(1) if transportation of oil or gas is by a regulated carrier, the tariff rate that is on file with the Regulatory Commission of Alaska or another regulatory agency having jurisdiction, and that is applicable to and paid for that transportation of the oil or gas, from the point where that oil or gas is tendered into the facility of the carrier to the point where it is delivered from the facility of the carrier; for purposes of this paragraph, "carrier" includes a person providing gas treatment in a regulated gas treatment plant;
(2) if transportation of oil is by a vessel that is not owned or effectively owned, in whole or in part, by the producer of that oil
(A) for a single voyage charter, the total costs under the charter for that vessel, plus any voyage and port costs as provided in (d) of this section if those voyage and port costs are incurred for that transportation during the term of the charter, are not included in the charter fee, and are borne by the producer, plus the positioning costs, if any, borne by the producer for that vessel;
(B) for a consecutive voyage charter or a time charter, the total costs under the charter for that vessel, plus any voyage and port costs as provided in (d) of this section if those voyage and port costs are incurred for that transportation during the term of the charter, are not included in the charter fee, and are borne by the producer, plus the positioning cost, if any, borne by the producer for that vessel; the positioning cost must be 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; or
(C) for a contract of affreightment, the total costs under the contract, plus any voyage and port costs as provided in (d) of this section if those voyage and port costs are incurred for that transportation during the contract of affreightment, are not included in the charter fee, and are borne by the producer, plus any positioning costs not included in that fee that are incurred with respect to that transportation during the contract of affreightment and that are borne by the producer;
(3) if transportation of oil is by a vessel that is owned or effectively owned, in whole or in part, by the producer of that oil, the sum of
(A) voyage and port costs incurred with respect to that transportation, as provided in (d) of this section;
(B) the positioning cost, amortized over 36 months, for that vessel; and
(C) depreciation of the vessel and a cost of capital allowance calculated under 15 AAC 55.196(d);
(D) repealed 1/1/2020;
(4) in the case of transportation of gas as liquefied natural gas (LNG) by an LNG transportation facility not subject to tariff regulations of the Federal Energy Regulatory Commission or another federal agency, a state, territory, or possession of the United States, or a foreign nation,
(A) if the producer does not own or effectively own, in whole or in part, the LNG transportation facility, the amount charged to the producer for that LNG transportation;
(B) if the producer owns or effectively owns, in whole or in part, the LNG transportation facility, the sum of
(i) the direct operating costs of the LNG transportation facility incurred with respect to the producer's gas; for an LNG tanker, direct operating costs consist of the tanker's voyage and port costs as provided in (d) of this section;
(ii) the positioning cost, amortized over 36 months, in the case of an LNG tanker; and
(iii) depreciation of the LNG transportation facility and a cost of capital allowance calculated under 15 AAC 55.196(d);
(iv) repealed 1/1/2020;
(5) if transportation of oil or gas is by a nonregulated pipeline facility or gas treatment plant that is not owned or effectively owned, in whole or in part, by the producer of that oil or gas, the transportation fee specified in the contract;
(6) if transportation of oil or gas is by a nonregulated pipeline facility or gas treatment plant that is owned or effectively owned, in whole or in part, by the producer of that oil or gas, the costs calculated using the methodology under 15 AAC 55.197.
(c) Reasonable costs of transportation under AS 43.55.150(b) are determined as follows:
(1) for transportation whose actual costs are calculated under (b)(2) or (4)(A) of this section, reasonable costs of transportation are fair market value; the department will determine the fair market value of the transportation
(A) for shipments of oil, on the basis of third-party charters (that is, time charters in which the producer does not own or effectively own the vessel in whole or in part) of one year or more for like vessels; two vessels will be considered like vessels if the difference between them in tonnage is less than 10,000 dead-weight tons and if they are both
(i) Jones Act vessels ( 46 U.S.C. 55102 and 57109 );
(ii) Construction-Differential Subsidy (CDS) vessels ( 46 U.S.C. 53101- 53312 );
(iii) Operating-Differential Subsidy (ODS) vessels ( 46 U.S.C. 53101- 53517 );
(iv) CDS and ODS vessels; or
(v) vessels that do not meet the qualifications of (i) - (iv) of this subparagraph;
(B) for shipments of gas as LNG, on the basis of third party charters or leases (that is, time charters or leases in which the producer does not own or effectively own, in whole or in part, the LNG transportation facility in question) of three years or more for like LNG transportation facilities;
(2) for transportation whose actual costs are calculated under (b)(3) of this section, reasonable costs are the actual costs;
(3) for transportation whose actual costs are calculated under (b)(4)(B) of this section, reasonable costs are the actual costs;
(4) for transportation of gas as LNG by a regulated LNG transportation facility whose actual costs of transportation are calculated under (b)(1) of this section, reasonable costs are determined using the applicable methodology under (b)(4)(B) of this section for calculating actual costs as if the LNG transportation facility were not regulated;
(5) for transportation by a pipeline facility or gas treatment plant, except as otherwise provided under (e) - (j) of this section, reasonable costs are 103 percent of the costs of transportation calculated by the department using the methodology under 15 AAC 55.197.
(d) For purposes of this section, allowable voyage and port costs for a vessel do not include losses, damages, or expenses incurred in connection with an oil discharge except as provided in this subsection, and do not include taxes or fees on the receipt of oil or LNG at a marine terminal from a vessel. Allowable voyage and port costs for a vessel or LNG tanker are costs actually incurred for the following purposes:
(1) fuel for the vessel or LNG tanker while in port and at sea not to exceed the actual cost if purchased from a third party, or if the fuel is not purchased from a third party, the spot market price of comparable fuel as reported by Platts's at the time of the fuel purchase for the market nearest the point of refueling, plus related allowable fuel taxes and handling charges;
(2) stores and provisions for the vessel or LNG tanker and its captain and crew;
(3) wages and benefits of the vessel's or LNG tanker's captain and crew;
(4) routine maintenance;
(5) drydocking costs, expensed in the year paid;
(6) port and dock fees;
(7) demurrage;
(8) tug and pilotage fees;
(9) marine agents' fees in port;
(10) lightering;
(11) transshipment charges;
(12) customs fees and duties;
(13) taxes incurred due to the ownership and operation of the vessel or LNG tanker, except for income taxes and other taxes (including certain franchise taxes) measured by income;
(14) regular and customary gratuities that are also legal;
(15) insurance premiums actually paid to third-party insurers;
(16) minor cargo losses or measuring differentials not to exceed .0025 of the oil transported, determined on an annual basis for each vessel;
(17) loading and unloading inspection fees;
(18) Panama Canal transit fees;
(19) a reasonable management fee for operating vessels or LNG tankers; this fee is set at six percent of the allowable costs set out in (1) - (3) of this subsection; this set fee covers all general and administrative costs related to vessel operations, including all costs for accounting services, clerical services, administrative services, secretarial services, data processing services, legal services, corporate and operations management, overhead pass-throughs, facility costs and depreciation, corporate planning, risk management, environmental planning and risk evaluation, public affairs, governmental affairs, political affairs, dues and subscriptions other than dues allowable under (21) of this subsection, long-range scheduling, and long-range planning; additional deductions will not be allowed for these costs;
(20) other costs directly associated with the operation or maintenance of the vessel or LNG tanker, including costs for port services and operations, cargo scheduling and planning, fleet staffing, fleet scheduling, fleet staff training, fleet safety, engineering for repair, engineering for maintenance, engineering for drydocking, quality assurance for vessel operations, communication systems, navigation systems, United States Coast Guard certifications, and utility services; these costs include costs for personnel performing the functions listed and the first level of supervision of these personnel;
(21) costs incurred in transportation of oil to comply with 33 U.S.C. 2701- 2762 (Oil Pollution Act of 1990), AS 46.04, and applicable laws of this or any other state or political subdivision requiring equipment and personnel to be in place for spill prevention and response to spills from vessels; those costs must have not been incorporated into a pipeline tariff, but must have been incurred as an actual cost in the transportation of oil produced in the state; and
(22) costs of containing and cleaning up cargo lost in a discharge, unless the discharge is a catastrophic oil discharge under AS 46.04.900.
(e) Except as otherwise provided in this subsection and in (i) of this section, if a tariff rate for pipeline transportation of oil or gas or gas treatment has been adjudicated as just and reasonable by the Regulatory Commission of Alaska or another regulatory agency having jurisdiction, the tariff rate establishes the reasonable costs of the pipeline transportation or gas treatment to which the tariff rate applies, for periods for which the tariff rate is in effect, including periods for which the tariff rate is given retroactive effect. However, the tariff rate does not establish those reasonable costs for any period later than five years after the end of the test period on which the tariff rate is based. If a complaint challenging the tariff rate has been filed with and accepted for investigation by the Regulatory Commission of Alaska or other regulatory agency, the reasonable costs of the pipeline transportation or gas treatment are 103 percent of the costs of transportation calculated by the department using the methodology under 15 AAC 55.197, for the period
(1) that begins on the date the complaint is accepted for investigation and ends the day before the date, if any, that the complaint proceeding is resolved by
(A) the adjudication of an applicable tariff rate as just and reasonable; or
(B) the acceptance by the Regulatory Commission of Alaska or other regulatory agency of a settlement to which the state is a party and that provides for a tariff rate that the department determines uses a cost-based tariff settlement methodology; and
(2) for which a tariff rate described in (1)(A) or (B) of this subsection is not given retroactive effect.
(f) Except as otherwise provided in this subsection and in (i) of this section, if a tariff rate for pipeline transportation of gas or gas treatment has been approved by the Federal Energy Regulatory Commission in connection with issuance of a certificate of public convenience and necessity for the pipeline facility or gas treatment plant, respectively, the tariff rate establishes the reasonable costs of the pipeline transportation or gas treatment to which the tariff rate applies, for periods for which the tariff rate is in effect. However, the tariff rate does not establish those reasonable costs for any period later than three years after the later of the date the tariff rate is approved or the date commercial operation commences. For purposes of this subsection, the date a tariff rate is approved is the date when the Federal Energy Regulatory Commission's final order issuing the certificate of public convenience and necessity becomes effective, regardless of whether the order is subject to judicial review. If a complaint challenging the tariff rate has been filed with and accepted for investigation by the Federal Energy Regulatory Commission, the reasonable costs of the pipeline transportation or gas treatment are 103 percent of the costs of transportation calculated by the department using the methodology under 15 AAC 55.197, for the period
(1) that begins on the date the complaint is accepted for investigation and ends the day before the date, if any, that the complaint proceeding is resolved by
(A) the adjudication of an applicable tariff rate as just and reasonable; or
(B) the Federal Energy Regulatory Commission's acceptance of a settlement to which the state is a party and that provides for a tariff rate that the department determines uses a cost-based tariff settlement methodology; and
(2) for which no rate referred to in (1)(A) or (B) of this subsection is given retroactive effect.
(g) Except as otherwise provided in this subsection and in (h) and (i) of this section, if the department determines that a tariff rate for pipeline transportation of oil or gas or gas treatment on file with the Regulatory Commission of Alaska or another regulatory agency having jurisdiction uses a cost-based tariff settlement methodology, and if the tariff rate is the result of a settlement that is accepted by the Regulatory Commission of Alaska or other regulatory agency and to which the state is a party, the tariff rate establishes the reasonable costs of the pipeline transportation or gas treatment to which the tariff rate applies, for periods for which the tariff rate is in effect, including periods for which the tariff rate is given retroactive effect. However, the tariff rate does not establish those reasonable costs for any period later than the latest of the following dates:
(1) December 31, 2013;
(2) five years after the date the settlement is accepted by the regulatory agency;
(3) three years after the last date that under the settlement the state has the right, beginning no later than five years after the date the settlement is accepted by the regulatory agency and recurring at least once every three years, to require renegotiation or arbitration of material terms of the settlement in response to a material change in rate determination methodologies approved by the regulatory agency, in the economic life of the pipeline facility or gas treatment plant, in capital structure, or in the cost of capital.
(h) Except as otherwise provided in (i) of this section, if a protest or complaint has been filed with and accepted for investigation by the Regulatory Commission of Alaska or another regulatory agency challenging a tariff rate that would otherwise establish the reasonable costs of pipeline transportation or gas treatment under (g) of this section, the reasonable costs of the pipeline transportation or gas treatment are 103 percent of the costs of transportation calculated by the department using the methodology under 15 AAC 55.197, for the period
(1) that begins on the date the protest or complaint is accepted for investigation and ends the day before the date, if any, that the protest or complaint proceeding is resolved by
(A) the adjudication of an applicable tariff rate as just and reasonable; or
(B) the acceptance by the Regulatory Commission of Alaska or other regulatory agency of a settlement to which the state is a party and that provides for a tariff rate that the department determines uses a cost-based tariff settlement methodology; and
(2) for which a tariff rate described in (1)(A) or (B) of this subsection is not given retroactive effect.
(i) If two or more tariff rates for the same category of service for pipeline transportation of oil or gas from a given point of receipt to a given point of delivery are in effect for a calendar year or portion of a calendar year for which each rate would otherwise establish the reasonable costs of the pipeline transportation under (e) - (h) of this section, the reasonable costs of the pipeline transportation for that category of service are equal to the average of all those tariff rates, weighted according to the respective amounts of throughput or, in the case of tariff rates for firm transportation on a gas pipeline facility, the respective amounts of contracted pipeline capacity subject to each of those tariff rates during the calendar year or portion of the calendar year, as applicable.
(j) In the case of an oil or gas pipeline facility as to which the difference between the tariff rate and the reasonable costs of transportation if determined under (c)(5) of this section would not be expected to have a material effect on the production tax liability of producers shipping oil or gas in the pipeline, due to the low volume of oil or gas transported in the pipeline or the low tariff rate, the department may determine that the reasonable costs of transportation equal the tariff rate.
(k) A payment for unused pipeline capacity under a contractual obligation to pay for pipeline capacity whether or not used does not constitute a cost of transportation of oil or gas.
(l) If a producer 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 the sale expects to repurchase that oil or gas at a subsequent time and place, 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 producer's own oil or gas throughout the time between that sale and repurchase. In determining the value at the point of production of the oil or gas, the cost of transportation between the point of sale for that sale and the point of repurchase must be determined as if the producer were the shipper. This subsection does not apply if the producer's expected repurchase does not in fact occur.
(m) The producer's actual or reasonable marine transportation cost, as otherwise determined under this section, for a producer that transports oil or gas produced in the state through a charter, contract of affreightment, sublease, or other arrangement on behalf of a person not affiliated with the producer, in addition to the producer's own oil or gas produced in the state, includes the cost of transporting that non-affiliated person's oil or gas produced in the state and is reduced by the revenue received for providing that transportation.
(n) Costs that are reimbursed or otherwise offset by payments or credits are not allowable as actual or reasonable costs of transportation. Gas pipeline facility revenues for interruptible transportation, authorized overrun service, or park-and-loan service that the facility does not credit to shippers are considered as credited to the shippers that are affiliated with a person that owns an interest in the facility and that have made firm transportation commitments for the facility; the revenues considered as credited are allocated to these shippers in proportion to the amounts of contracted pipeline capacity under their respective firm transportation commitments. A producer shall report to the department any reimbursements or other payments or credits that offset transportation costs.
(o) The following are not allowable costs of transportation:
(1) a fee or other cost incurred for storage, except for storage
(A) for no more than 30 days if the storage is required under the applicable transportation services agreement with a pipeline facility and is necessary for pipeline operations;
(B) as part of LNG transportation, if the fee or cost is allowed under (b)(4)(B) of this section;
(2) an intra-hub transfer fee paid to a gas pipeline hub operator for administrative services, including accounting for the sale of gas within a hub and title transfer tracking;
(3) a fee paid to a scheduling service provider;
(4) internal costs to schedule, nominate, and account for the sale or movement of oil or gas, if incurred by an entity other than the provider of the transportation services; those costs include salaries and related costs, rent and space costs, office equipment costs, and legal fees;
(5) an aggregator or marketer fee, including a fee a producer pays its affiliate or another person to market, purchase, or resell oil or gas, or find or maintain a market for oil or gas;
(6) a fee paid to a broker, including a fee paid to a person that arranges marketing or transportation;
(7) a penalty incurred as a shipper, including
(A) an over-delivery cash-out penalty, including the difference between the price a pipeline pays for over-delivered volumes outside the tolerances and the price received for over-delivered volumes within the tolerances;
(B) a scheduling penalty, including a penalty incurred for differences between daily volumes delivered into a pipeline and volumes scheduled or nominated at a receipt or delivery point;
(C) an imbalance penalty, including a penalty incurred for differences between volumes delivered into a pipeline and volumes scheduled or nominated at a receipt or delivery point;
(D) an operational penalty, including a fee incurred for violation of a pipeline's curtailment or operational orders issued to protect the operational integrity of the pipeline;
(8) a transportation factor listed as reducing the sales price or posted price for a component of gas;
(9) costs of arbitration, litigation, or other dispute resolution activity that involves the state or concerns the rights or obligations
(A) among carriers or owners of a transportation facility; or
(B) between a carrier or owner of a transportation facility and a shipper;
(10) if the producer is affiliated with the carrier or owner of the transportation facility or if the transportation contract otherwise is not at arm's length,
(A) a payment, either volumetric or in value, for actual or theoretical losses of oil or gas;
(B) costs of a surety.
(p) Only costs incurred in the transportation of taxable oil or gas produced from a lease or property in the state are allowable costs. Costs incurred in connection with the transportation of any other oil or gas are not allowable costs.
(q) A producer for which the gross value at the point of production of oil or gas is calculated using the lower of actual costs of transportation or reasonable costs of transportation under AS 43.55.150 shall provide to the department, upon request, information available to the producer that the department considers as necessary to determine the reasonable costs of transportation under this section.
(r) For purposes of AS 43.55.150(b) and this section, a tariff rate has been adjudicated when the regulatory agency has issued its final order in the adjudication and that order has become effective, regardless of whether the order is subject to judicial review.
(s) For purposes of this section,
(1) a settlement has been accepted by a regulatory agency when the regulatory agency has issued its final order accepting the settlement and that order has become effective, regardless of whether the order is subject to judicial review;
(2) a tariff rate is given retroactive effect for a period beginning on a past date if the regulatory agency having jurisdiction provides that the tariff rate is effective beginning on that date, regardless of the extent, if any, to which the agency orders refunds with respect to transportation charges paid by shippers during the period;
(3) a cost-based tariff settlement methodology is a methodology
(A) for determining the charge for pipeline transportation of oil or gas or for gas treatment;
(B) that is substantially similar to an adjudicatory methodology used by the Regulatory Commission of Alaska or another regulatory agency having jurisdiction over one or more pipeline tariffs for an oil or gas pipeline in the state;
(C) that provides for periodic true-up of forecast costs with known costs actually incurred; and
(D) that provides for a charge per unit of oil or gas transported or gas treated based solely on recovery of the sum of no more than the following elements of cost:
(i) a return on capital investment calculated by multiplying a specified percentage rate times the amount of capital investment in the transportation facility net of prior accumulated depreciation;
(ii) depreciation of the capital investment in the transportation facility;
(iii) identified elements of operating and maintenance costs and ad valorem taxes incurred, or identified elements of operating and maintenance costs and ad valorem taxes forecast to be incurred;
(iv) income taxes;
(v) an allowance for the cost of dismantlement and removal of the pipeline facility and of restoration after removal of the pipeline facility, if the tariff specifically identifies and provides for the allowance to be included in the applicable recourse rate, in the case of a regulated gas pipeline facility, or the applicable rate, in the case of a regulated oil pipeline facility;
(4) a producer effectively owns a vessel, LNG transportation facility, nonregulated gas treatment plant, or nonregulated pipeline facility if the vessel, LNG transportation facility, nonregulated gas treatment plant, or nonregulated pipeline facility
(A) is owned by another person comprising part of a consolidated business in which the producer is also a part;
(B) is the subject of a lease that qualifies as a capital lease under generally accepted accounting principles, in which the producer or another person comprising part of a consolidated business in which the producer is also a part, is the lessee;
(C) was built to the account of the producer, or of another person comprising part of a consolidated business in which the producer is also a part, was sold and was chartered or leased back by the producer, or by another person comprising part of a consolidated business in which the producer is also a part, all in a simultaneous transaction, and is on a term charter or lease for a period of 15 years or longer to the producer, or to another person comprising part of a consolidated business in which the producer is also a part; or
(D) in the case of a vessel or LNG transportation facility for which a cost of capital allowance is allowed under 15 AAC 55.196, is treated as owned by the producer, or by another person comprising part of a consolidated business in which the producer is also a part, in a federal income tax return filed by or on behalf of the producer, or by or on behalf of another person comprising part of a consolidated business in which the producer is also a part;
(5) "expected useful life" means the period of time used to calculate depreciation under (b)(3)(C) or (4)(B)(iii) of this section;
(6) "positioning cost" for a vessel or LNG tanker includes the costs borne by the producer for placing that vessel or LNG tanker into position before the vessel's or LNG tanker's first voyage in service for that producer;
(7) transportation of gas includes gas treatment.
(t) This section applies to oil and gas produced after June 30, 2007.

Notes

15 AAC 55.193
Eff. 4/30/2010, Register 194; am 3/1/2017, Register 221, April 2017; am 1/1/2020, Register 232, January 2020 ; am 9/20/2020,Register 235, October 2020

Authority:AS 43.05.080

AS 43.55.020

AS 43.55.030

AS 43.55.040

AS 43.55.110

AS 43.55.150

AS 43.55.900

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