On December 17, 2020, FERC issued an order concluding its review of the index level used to determine annual changes to oil pipeline rate ceilings, establishing an index level of Producer Price Index for Finished Goods plus 0.78% (PPI-FG+0.78%), and also issued a Withdrawal of Proposed Policy Statement on Oil Pipeline Affiliate Contracts, the latter of which drew a dissenting opinion from Commissioner Richard Glick.
Rather than making cost-of-service filings, oil pipelines adjust their rates to applicable ceiling levels under an indexing methodology that FERC reviews every five years. On June 18, 2020, FERC issued a Notice of Inquiry initiating its review to establish the oil pipeline index for the July 1, 2021 to June 30, 2026 time period. FERC proposed an index level of PPI-FG+0.09% and requested comments on its proposal and any alternative methodologies for calculating the index level. In its December 17, 2020 Order, FERC ultimately set the index level of PPI-FG+0.78, which is a reduction from the existing index level of PPG-FG+1.23 and an increase from the preliminary proposed index level of PPI-FG+0.09. As FERC explained, the new index reflects the removal of the effects of FERC’s 2018 income tax policy change for Master Limited Partnership-owned pipelines, a broader and more inclusive data sample, as well as updates and corrections to the data set used in calculating the index.
Concurrent with the order updating FERC’s oil pipeline index, FERC also withdrew an oil pipeline-related policy statement. On October 15, 2020, FERC issued a Proposed Policy Statement on Oil Pipeline Contracts outlining proposed guidelines for carriers to follow with respect to Affiliate Contracts (see October 28, 2020 edition of the WER). FERC determined, however, that providing additional guidance was not necessary for oil pipelines to demonstrate that affiliate contracts were just, reasonable, and not unduly discriminatory under the Interstate Commerce Act. Commissioner Glick issued a separate statement dissenting and explaining his view that FERC should have addressed the comments filed and issued a statement to provide greater regulatory certainty and decrease the burden on making long-term investments that are necessary for pipeline expansions. Newly-seated Commissioner Allison Clements did not participate in this decision.