Tesoro Alaska Company v. Union Oil Company of California

305 P.3d 329, 2013 WL 3864478, 2013 Alas. LEXIS 95
CourtAlaska Supreme Court
DecidedJuly 26, 2013
Docket6802 S-14122/S-14132
StatusPublished
Cited by4 cases

This text of 305 P.3d 329 (Tesoro Alaska Company v. Union Oil Company of California) is published on Counsel Stack Legal Research, covering Alaska Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Tesoro Alaska Company v. Union Oil Company of California, 305 P.3d 329, 2013 WL 3864478, 2013 Alas. LEXIS 95 (Ala. 2013).

Opinion

OPINION

CARPENETI, Chief Justice.

I. INTRODUCTION

In 2001 an oil producer on the Alaska North Slope entered into a contract to sell its oil to another oil company. Under the contract the buyer took title at the North Slope, but agreed to use a pipeline company associated with the supplier to transport the oil through the Trans-Alaska Pipeline. The price per barrel was calculated as the West Coast market price less marine transport and pipeline tariff. The contract made no mention of whether the pipeline tariff was tied to the ultimate destination of the oil. At the time, the interstate and intrastate pipeline tariffs were the same. The buyer shipped the oil to an in-state refinery and paid the tariff to the pipeline company. The supplier duly subtracted the tariff amount from the market price of the oil less marine transport and sent invoices to the buyer. Meanwhile, the buyer successfully challenged the intrastate tariff as unjust and unreasonable and the pipeline company issued a refund, including 10.5% interest. Then, the supplier claimed that it was entitled to the tariff refund under the contract. The superi- or court, on motions for summary judgment, awarded the principal amount of the refund to the supplier and the interest to the buyer.

Both parties appeal. The buyer claims that the reference to tariffs in the contract related to interstate tariffs because the price of the oil was a netback price to the Los Angeles market. The supplier asserts that the contractual reference to tariffs meant the actual tariff amount paid. In its cross-appeal, the supplier asserts that because it was awarded the principal amount, it should have received the statutory interest as well,. We hold that the pricing term was a netback price to the Los Angeles market referencing the interstate tariff. Accordingly, we reverse the superior court's grant of summary judgment to the supplier and remand for entry of judgment in favor of the buyer. In light of our conclusion, we do not reach the issues raised in the cross-appeal.

II. FACTS AND PROCEEDINGS

A. Facts

1. Background and Regulatory Commission of Alaska proceedings

This appeal concerns two crude oil purchase contracts between Tesoro Alaska Company (Tesoro) and Union Oil Company of California (Union Oil). Under the contracts Tesoro agreed to purchase all of Union Oil's Alaska North Slope (ANS) erude oil production in 2000, 2001, and 2002. The first contract was executed in November 1999, covering January 1, 2000 through December 31, 2000. The second contract was executed in November 2000; it covered January 1, 2001 through December 31, 2002. Under the contracts, title and risk of loss transferred to Tesoro at the outlet flange of Pump Station No. 1 1 of the Trans-Alaska Pipeline System (TAPS). The price was set as follows:

The price ... shall be the average ANS [erude oil] closing price as quoted by Reuters and Telerate for each trading day of the month prior to the delivery ... less *331 $1.35 per barrel for marine transportation less one of the following:
a.) Tesoro will, at Unoecal's direction, nominate and ship the Quantity of [crude oil] onto Unocal Pipeline space on TAPS and the Unocal [Pipeline] TAPS tariff shall apply to all [Union Oil] Crude shipped on Unocal [Pipeline] space. Tesoro agrees to pursue any such nomination diligently and absolutely until or unless prorated out of Unocal Pipeline space.
b.) If not directed by Unocal, Tesoro shall use its best efforts to nominate and ship the Quantity of [erude oil] on the TAPS so as to minimize, to the extent practical, pipeline transportation costs. The weighted average tariff rates paid by Tesoro shall then apply.

TAPS carries oil from the Alaska North Slope to Valdez. The owners of the pipeline are allocated space and share costs according to the portion of the pipeline owned. Some pipeline owners are affiliated with oil producers. Here, Unocal Pipeline was owned by the same parent company as Union Oil, Unocal Corporation. Pipeline owners are considered common carriers. Subject to regulatory oversight, each pipeline owner determines a tariff for oil shipped through its space. The pipeline tariffs are subject to different regulation depending upon whether the oil is ultimately shipped interstate or intrastate. The Federal Energy Regulatory Commission regulates interstate tariffs, while the Regulatory Commission of Alaska (RCA) regulates intrastate tariffs and is tasked with setting "Just and reasonable rates." Throughout the duration of these contracts the intrastate and interstate tariffs were the same.

Tesoro challenged the TAPS intrastate tariffs, including that of Unocal Pipeline, in two RCA proceedings, one covering tariffs from 1997 to 2000 and another covering tariffs from 2001 to 2008. In December 1997, Unocal Corporation's counsel placed himself on the distribution list for matters concerning the tariff rate proceedings and received RCA orders. After Tesoro's challenge was initiated the RCA issued orders accepting the filed tariff rates as "temporary" and collectable but "subject to refund."

In the meantime, Union Oil delivered the oil and Union Oil's affiliated pipeline company, Unocal Pipeline Company, shipped it. Unocal Pipeline Company invoiced Tesoro using the published pipeline tariff rates for the duration of the contract. Tesoro paid all invoices. Ultimately, the RCA found that the intrastate tariffs were unjust and unreasonable 2 In 2008, as a result of Tesoro's rate protest, Unocal Pipeline was required to issue a refund to Tesoro of over $24 million in principal and interest.

2. The first contract

Union Oil contracted with ARCO for the sale of Union Oil's ANS crude for 1998 and 1999. Under the contract ARCO was required to ship the oil on Unocal Pipeline space "so that [Unoeal Pipeline] would be assured of at least some revenues to offset its ongoing TAPS expenses." The pricing mechanism on the ARCO contract was based on a West Coast delivery point. Therefore, although ARCO was required to take title and risk of loss at Pump Station No. 1 and ship on Unocal Pipeline space, according to Unocal, ARCO could deduct "the theoretical transportation cost of moving the ANS erude to Valdez" and the marine transport cost from Valdez to Los Angeles.

As the ARCO contract neared expiration Tesoro began negotiations with Union Oil. The contract between Union Oil and Tesoro was essentially the same contract that Union Oil had previously negotiated with ARCO. Point of sale was on the North Slope and title and risk of loss passed at Pump Station No. 1. Tesoro agreed to ship on Unocal Pipeline space if space was available and the tariff would be deducted from the price charged. The contract contained no mechanism for retroactive pricing adjustments and no definitions section. However, there was a reservation for retroactive adjustment of taxes.

*332 When the contract cireulated within Union Oil and was passed to Tesoro, there was no indication that either party discussed the meaning of the "Unocal [Pipeline] TAPS Tariff" term.

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Bluebook (online)
305 P.3d 329, 2013 WL 3864478, 2013 Alas. LEXIS 95, Counsel Stack Legal Research, https://law.counselstack.com/opinion/tesoro-alaska-company-v-union-oil-company-of-california-alaska-2013.