their views so that we have a better understanding of what is right for this country. At this point I would yield to my colleague, Mr. Bedell, if he has an opening statement. OPENING STATEMENT OF HON. BERKLEY BEDELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA Mr. BEDELL. Thank you very much, Mr. Chairman. And I certainly want to thank you for holding this hearing today. The Oversight Subcommittee first held hearings on Alaska North Slope crude oil transportation issues on September 15, 1983, and has been quite active on this issue since then. I am pleased to say that we have succeeded in forcing action on two of the concerns we raised at those hearings. The 1984 Deficit Reduction Act included language from legislation that I had introduced to close a loophole that had allowed oil companies to claim that income derived from shipping oil from Alaska to the Continental United States was subject to foreign source tax credit because the ships go outside U.S. waters. Earlier, a Treasury Department revenue ruling had closed the loophole that allowed one oil company to calculate shipping charges from Alaska to the West Coast as if that oil were actually shipped to the West Coast. Chairman Mavroules has continued this subcommittee's involvement in the TAPS tariff issue, and I would like to thank him for his cooperation for continuing our work on this matter. This is an enormously complex issue, and I hope that this hearing will help us to understand the issues involved in the TAPS tariff matter. However, I do believe there are some simple and fundamental issues at stake here that should not be confused by technical and legal obfuscation. One concern of mine is whether H.R. 245 and the proposed settlement would result in the best energy policy for the independent sector of the petroleum industry and for the American consumer. Another concern of mine is the impact of the various methodologies on the Federal Treasury. 1 As you may know, the Departments of Justice and Treasury were invited 3 weeks ago to testify at this hearing, and both refused late last week. Treasury says it is busy with tax reform. Maybe Treasury should spend less time on changing our tax laws and more time in overseeing existing laws. Justice says it will not testify for fear of jeopardizing the settlement. Both were invited 3 weeks ago. People have come to see this hearing from all over the country. I have met with representatives of the Treasury Department and the Internal Revenue Service to express my concern that the proposed settlement may result in the loss to the Federal Treasury of billions of dollars in back windfall profits taxes. Both agencies claim that it is not their responsibility to exercise oversight of the tax consequences of this proceeding before FERC. Justice has told my staff that it did not even seek an opinion on the tax consequences of the settlement from Treasury and that it would not need this information anyway in deciding whether to support the proposed settlement. 1 See Appendix A, p. 185. We in Congress have plenty to do. I have farmers that need my time here in Congress. I would prefer that the proper Government agencies would handle this matter. However, from all my contacts it is clear to me that the only body that will exercise the needed oversight is Congress itself. That is why we are here today. Before I close, Mr. Chairman, I notice Mark Levine in the audience, and I would like to acknowledge the work Mark has done on this as former counsel to this subcommittee. I think he was an outstanding contributor in solving some of these problems. Mr. MAVROULES. Mark, did you tell Mr. Bedell that you are now working in my district? It is nice to have you here. Mr. Olin, do you have any statement? Mr. OLIN. Just a short remark. Mr. Chairman, I would like to congratulate you for continuing this investigation which was begun last year by Congressman Bedell. I am looking forward to hearing all the testimony and seeing if we can bring some clarity to this subject. Mr. MAVROULES. Well, thank you very much, Mr. Olin. Before we call the first panel, I am going to ask that without objection a letter sent to the Department of Justice on March 26 and the response of April 30 be included in the record before the panel takes place. [The letter and response follow:] We write to ask you not to close the proposed agreement between the State of Alaska, the U.S. Department of Justice and the ARCO Pipeline Company in the Trans-Alaska Pipeline System (TAPS) proceedings before the Federal Energy Regulatory Commission (FERC). In addition, we ask that your office provide for us within two weeks certain information necessary in negotiating the proposed settlement. Over the past few years, we have observed that some Alaska North Slope (ANS) producers have acted to artificially increase the transportation expenses on ANS crude oil in order to avoid paying a proper portion of windfall profits taxes. You will remember that, during the last Congress, the Treasury Department closed one major loophole by issuing a revenue ruling to clarify the proper method of figuring the removal price of a barrel of ANS crude oil for purposes of the windfall profits tax. You will also remember that Congress adopted provisions in the Deficit Reduction Act of 1984 to close a second major loophole used by shippers of ANS oil. Under this change, shipping companies will no longer be permitted to charge off as foreign source income the money that they make from transporting ANS oil to market in the lower 48 states. Revenues gained by closing these two loopholes will exceed $200 million annually. We believe that events have come to a critical juncture in the resolution of what is by far the most important issue in the collection of windfall profits taxes on ANS oil. We are concerned that the major owners of the TAPS, who are also the major producers of ANS oil, have set artificially high tariff rates in order to reduce their windfall profits tax liabilities and to exclude independent producers of ANS oil from the market. The U.S. Circuit Court of Appeals and the FERC's own Administrative Law Judge have found merit in this concern, and have clearly indicated the proper approach for the regulation of TAPS tariffs. We are therefore skeptical of the proposed settlement, which we understand would condone past years of high tariffs by excusing the pipeline companies for using an inflation-adjusted valuation rate base to set TAPS tariff rates. Given the considerable volume of ANS oil that flows through the pipeline, this agreement would likely excuse the ANS producers from paying billions of dollars in back windfall profits taxes. Edwin Meese March 1985 Bearing this in mind, we ask that you provide us with the following information: (1) Whether the Justice Department consulted with the Treasury (2) (3) A copy of Treasury's comments, assuming your department did An analysis of the range of possible tariffs considered by Justice officials in negotiating the settlement; and, (4) The Justice Department's estimatation of how much windfall profits Because this information must have been necessary to complete the proposed settlement, we hope that your office will comply with this request within two weeks. In the meantime, we ask that the Justice Department refrain from closing and enforcing this proposed agreement until we have had adequate time to review these and other important aspects of the TAPS settlement. If you have any questions about our request, please contact Cathy Garman at 225-8944 or Ralph De Gennaro at 225-5476. This letter responds to the March 26, 1985, letter to the Attorney General signed by you and five other members of Congress regarding the impact of the proposed settlement in the Trans Alaska Pipeline System ("TAPS") matter pending before the Federal Energy Regulatory Commission, FERC Docket No. OR78-1. Your letter expressed concern about the possible impact that settlement of this matter could have on Crude Oil Windfall Profit Tax receipts, and you requested certain information concerning this matter. You also requested that we postpone finalizing the settlement of the litigation until you have had an opportunity to review this matter further. On December 27, 1984, the Department announced that it had entered into an agreement in principle with ARCO Pipe Line Company and the State of Alaska regarding a total settlement of the TAPS litigation. 1/ The proposed settlement grew out of a series of negotiations between ARCO and Alaska during the preceding four months and several attempts at reaching a settlement, beginning at least as early as 1979, involving Alaska, the Department, ARCO and other pipelines. Throughout this period, the litigation has moved forward. A formal settlement agreement has now been completed and, by agreement of the settling parties, it will be filed with the FERC on 1/ The agreement cannot become final until all of the papers required to be submitted under FERC Rule of Practice and Procedure 602 are presented to the Commission. Given the scope of this litigation, that project has taken some time. However, the parties have been using this time to consult with owners of the system other than ARCO in an effort to convince them to join in the settlement when it is presented to the FERC. These efforts have resulted in BP Pipelines Inc.'s agreement to the settlement. |