FERC may limit oil pipeline rate increases: Update
The proposal comes in response to concerns that pipelines have been increasing rates even when their revenues were significantly higher than their cost of service. FERC floated that and other changes today through an advanced notice of proposed rulemaking, which will give the public multiple opportunities to offer comments before the agency proposes formal regulations.
FERC allows interstate oil pipelines it oversees to adjust their rates every 1 July based on an oil pricing index it updates each year. That index, which reflects approximate industry-wide changes in costs, allows pipelines to avoid repeatedly making complex requests for rate increases. An oil pipeline tracking the index since 2010 would have been able to increase its rates by nearly 30pc.
But FERC today said it was considering a new policy that would deny proposed index-based increases if a pipeline reported revenues that were 15pc higher than their total cost-of-service for the two prior years. The policy would also apply to pipelines seeking to increase indexed rates by 5pc more than their annual change in cost of service, which would prevent a pipeline with significantly declining costs from increasing indexed rates.
The rulemaking is an outgrowth of a petition shippers filed in April 2015 that asked FERC to require oil pipelines to report the costs and revenues of each pipeline they own on a form called Page 700. Anadarko, Noble Energy and Statoil were among the oil producers that said mergers and consolidation in the pipeline sector had made it difficult to decide if rates were reasonable. This is because Page 700 data is reported on a company-wide basis, meaning it can aggregate cost and revenue data from multiple pipelines transporting different products.
FERC in response today proposed requiring pipeline owners to file supplemental Page 700 forms that separately break down the costs and revenue for each geographically separate pipeline and each "major" pipeline that is longer than 250 miles (402km). FERC wants pipeline owners to distinguish on those forms between crude pipelines and products pipelines.
Pipeline owners under the new policy would need to separately report revenue that comes from cost-based transportation rates, market-based transportation rates and settlement-based transportation rates. FERC chairman Norman Bay said this would allow for an "apples to apples" comparison when the agency or pipeline customers are reviewing rates.
FERC today said it was declining to adopt a request from the shippers' petition to require pipelines to file a separate Page 700 form for each pipeline segment with a different rate design. Most pipelines had never made a filing with FERC identifying their rate design segments, agency staff said, and adding segment data could lead to fact-specific disputes.
FERC plans to accept initial comments on the advanced notice of proposed rulemaking 45 days after it publishes in the Federal Register. It will then give stakeholders an additional 45 days to file replies to those comments. Those proceedings are likely to be heavily discussed because of the many stakeholders involved and the effect the proposals could have on rates.
"I know I do not have to ask for robust comments on this one," FERC member Cheryl LaFleur said today.
Airlines for America, one of the trade groups that filed the 2015 petition, said the proposal was a "positive step" toward addressing consumer concerns over the escalating costs of transportation fuel by pipeline. The National Propane Gas Association, another group behind the petition, said it was pleased that FERC addressed its petition but declined to comment further.
The Association for Oil Pipelines, which represents pipeline owners, declined to comment until it had a chance to review the rulemaking.
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