The Valdez Star - Serving Prince William Sound and Copper River Basin

 
 

By Lee Revis
Editor, Valdez Star 

Judge rules TAPS worth over $9 Billion

Ruling expected to be appealed by oil producers lawyers say

 


The City of Valdez won a significant battle last Friday when Alaska Superior Court judge Sharon Gleason ruled that the taxable value of the 800-mile Trans-Alaska Pipeline System (TAPS) was $8.941 billion in 2007, $9.644 billion in 2008 and $9.249 in 2009.

“She increased it to virtually $9 billion,” Bill Walker, attorney for the City of Valdez, said in a telephone interview Monday afternoon.

Valdez and the Fairbanks North Star Borough argued the taxable value of TAPS to be between $13 and $14 billion dollars for the years in question, while its owners argued its value was a little over one billion dollars.

“It could have been higher,” Walker said of the judge’s decision, but still considered the ruling a plus for Valdez. “It is much closer to our number than their number.”

In 2009 the state estimated nearly $2 billion of TAPS taxable properties were within the Valdez City limits and its taxable base provides the lion’s share of the city’s yearly tax revenue.

Valdez and the Fairbanks North Star Borough have been in litigation with TAPS owners since 2006 after state property tax assessors began devaluing the pipeline and its related properties.

This is why the December 30 ruling by Superior Court Judge Sharon Gleason for tax years 2007-09 is only one minor victory in a long-standing dispute.

“It can be appealed to the Alaska Supreme Court,” Walker said, adding that he has no reason to believe the decision will not be appealed by TAPS and its owners, Alaska subsidiaries of BP, ExxonMobile, Unocal, ConocoPhillips and Koch Industries.

The 2006 tax valuation appeal is slated to be heard by the Alaska Supreme Court this year.

Walker said briefings in the case are due later in January, with oral arguments in six months and a decision due about six months after that.

“We’re about a year out,” on a final 2006 decision he said.

DRAWNOUT LITIGATION

In 2009, TAPS owners argued in Superior Court that the assessed 2006 value of the pipeline system was only $1 billion. Valdez and the Fairbanks North Star Borough argued it was worth about $11.6 billion, based on what it would cost to build the pipeline in 2009 dollars. Gleason ruled in 2010 its 2006 assessed value was $9.977 billion.

Friday’s ruling by Gleason outlined the laborious process undertaken by both TAPS owners and the municipalities on the 2007 through 2009 tax years.

“The proceedings surrounding these three tax years have been considerably more contentious than those held with respect to the 2006 tax year,” Gleason said in the written ruling, which contained a total of 216 pages.

“The length of the trial proceeding was not primarily due to the fact that three years were heard at one time,” Gleason said. “Indeed very little trial time was spent focusing on the differences between the three lien years. Rather, the evidence focused on each of the substantive issues applicable to all three years. Each of the parties presented a considerably more technical and in-depth analysis of many of the issues identified in the 2006 tax year proceeding.”

All sides in the dispute offered expert witnesses in the nine week trial. But that was just the tip of the iceberg according to Walker, noting there were weeks of legal wrangling that occurred before the trial began last September.

In simplified terms, the municipalities have argued the taxable value of TAPS should be based on replacement costs for an identical pipeline. TAPS owners have argued it should be valued based on its tariff income, which has been significantly lower in the past decade due to less oil throughput.

Gleason did not buy the owner’s argument and came to the conclusion – based on expert witnesses for the municipalities - that the pipeline will remain a viable oil transportation venue until 2065.

STARTING OVER AGAIN

The process is likely to repeat itself in 2012.

The Dept. of Revenue issues a taxable value of TAPS to municipalities on the first of each year. For the past several years, the initial taxable value has been appealed by municipalities with taxing authority along the pipeline corridor. In 2011, the department assessed its value at $6.7 billion. That amount was appealed by all parties involved and the department’s State Assessment Review Board, SARB, upped the taxable value to $7,932,979,800.

The appeal by TAPS owners and the municipalities is slowly winding its way through the court system.

Valdez Star file photo

An aerial view of the Valdez Marine Terminal, the end of the Trans-Alaska Pipeline System.

“We’ve gotten a lot of good out of it,” Walker said of the city’s litigation with the oil shippers.

But he also said he hopes for a more permanent methodology in determining TAPS tax valuation in the future that will end the constant litigation and stop the constant fluctuations in the city’s budget process.

“That’s the whole goal of this thing,” Walker said.

The City of Valdez is currently sitting on tens of millions of dollars it cannot spend due to unsettled tax valuation litigation with the oil companies.

“It would be great to get a resolution on this,” for the long term Walker said.

 

Reader Comments

(1)

logcbin writes:

I just finsihed reading the TAPS article in your paper. I'm so happy for the city of Valdez. Is there any hope they will now be able to restore the Sea Otter RV Park? That would definatley bring me back to Valdez to spend the summer.

 
 
 
 
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