Wednesday, March 2, 2011

Hinderaker: Think Progress? Think Ignorance

This was the Murkowski administration, so the reference to Sarah Palin is gratuitous
In our post yesterday about the battle between the establishment and the grassroots for the heart and soul of the Republican Party, we linked to a Wall Street Journal op-ed by businessman Charles Koch. After his WSJ opinion piece was published, Mr. Koch and his brother were immediately attacked by hard left wing website Think Progress in an article fabricated by using little more than lies and distortions. The author of the TP hit piece used the opportunity to take a gratuitous shot at Gov. Palin. Though we don't always agree with John Hinderaker, his debunking of the TP smear job is very well done and deserves credit. Here's the excerpt:
-- Relying on an Alaskan blogger, Fang claims that "a Koch subsidiary in Fairbanks asked Gov. Sarah Palin's administration to use taxpayer money to bail out one of their failing refinery [sic]." This one is particularly revealing. One of the problems with a web site like Think Progress is that the kids who write for it are ignorant with respect to both business and law. They lack the experience (and likely also the intelligence) to understand the matters they try to write about. This is a case in point. The Alaskan blogger had no idea what he was talking about; Fang, apparently, even less.

What actually happened was that a Koch subsidiary, Flint Hills, entered into a contract with the State of Alaska whereby it bought crude oil from the state and refined it. The price of the crude oil depended in part on the pipeline tariff charged to ship it. If the tariff went up, the price of the crude went down, and vice versa. A tariff proceeding was commenced that, if successful, would have had the effect of significantly increasing the price that the Koch company would pay to the state per barrel of crude:
The pipeline tariff proceeding, brought by the state of Alaska and pipeline shipper Anadarko Petroleum Corp., was initiated after an agreement was reached on a royalty oil contract between the state and Flint Hills, Cook said. At the time the contract [was] accepted, neither the company nor the state considered a possible change in the tariff, Cook said. "It is a circumstance Flint Hills Resources could not have contemplated at the time the contract was signed," Flint Hills executive vice president Anthony Sementelli said in a Feb. 24 letter to the state Department of Natural Resources. ...

The tariff change could result in Flint Hills paying the state as much as $100 million in additional royalty oil costs, a state official said on background.
This was highly problematic for Flint Hills, in part because the company potentially could go for years without knowing the ultimate price of the crude oil it was buying. So Flint Hills approached the state with a proposal to lock in a fixed price, independent of the tariff proceeding.

There is more on what happened here:
The pipeline tariff used in the calculation is the current interstate tariff filed by TAPS owner companies with FERC.

That tariff is being challenged, however, and if the FERC orders the tariff lowered to a level the Regulatory Commission of Alaska has set for intrastate shipments on TAPS, Flint Hills would have to pay more for its royalty oil, Cook said.

The adjustment could potentially raise crude oil costs for the refinery by $50 million a year, but the real problem is the retroactivity of the potential charge to the start of 2005. FERC has scheduled hearings on the appeal in early 2007, and a decision is possible soon after, but there is no certainty to that, he said.

If the decision is made to order a lower tariff, the additional payments to the state would be retroactive to the beginning of 2005. The TAPS tariff is scheduled to be renegotiated in 2009, so the potential liability could cover four to five years, or $200 million to $250 million, Cook said. ...

Flint Hills has been seeking a revision of its royalty oil contract with the state to remove the potential retroactivity of the charge, but has been unsuccessful so far.
Ultimately, the State of Alaska--this was the Murkowski administration, so Think Progress's reference to Sarah Palin is gratuitous--declined to agree on a fixed price for its crude oil, and the eventual result was that Flint Hills lost a great deal of money. At no time was there any talk of a "bailout" or a "special deal." Lee Fang and his fellow goofballs at Think Progress don't understand any of this. They have no idea what TAPS and FERC are, or how they work. They know nothing about contracts, or the price of crude oil, or how refineries and pipelines operate. To be frank, what they write on such topics is childish, and is driven entirely by prejudice.

So which Alaska blogger did Think Progress get its bad information from? None other than obsessive Palin-hater Andrew Halcro, who still can't seem to manage to get over his crushing humiliation in the 2006 election for Governor of Alaska.

h/t: Steven Hayward

- JP

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