Oil expert Dr. Philip Verleger, working with Brattle Principal Darrell Chodorow, helped to obtain a favorable outcome for Alaskan refiners in an August 30, 2016 decision handed down by the United States Court of Appeals for the District of Columbia Circuit.
In 2013, the Federal Energy Regulatory Commission (FERC) initiated an investigation into the pricing of Resid, the formula used to value the quality of the components of crude oil that is deposited into an oil pipeline. During this investigation, Flint Hills Resources and Petro Star, which refine crude at an intermediate point on the Trans Alaska Pipeline System (TAPS), argued that the Quality Bank methodology (used to calibrate payments for differences in quality between inputs and outputs on a pipeline) undervalues the Resid cut in an unjust and unreasonable manner. The Commission rejected Dr. Verleger’s argument and declined to change the Resid valuation formula.
The Appellate Court decision found that the FERC “failed to respond meaningfully to evidence presented by Petro Star…and that Petro Star’s purported failure to provide a viable methodology does not provide an independent ground for the Commission’s decision.” Dr. Verleger’s testimony demonstrated that the disparity between the Quality Bank’s value assigned to pricing the various Alaska North Slope (ANS) cuts and the market price of ANS crude, the adverse economics of coking facilities, and depressed refining asset values. The Appellate Court specifically highlighted that the FERC decision failed to adequately to key factors described by Dr. Verleger, noting that “[a]lthough the Commission made some effort to respond to that evidence, its responses contain marked deficiencies.”