Oil pipelines with revenues 15pc higher than cost-of-service for two consecutive years would be unable to make annual index-based increases to their tariffs under a rule the US Federal Energy Regulatory Commission (FERC) proposed today.
The proposal comes in response to concerns that pipelines have been increasing their rates even when their revenues were significantly higher than their cost of service. FERC floated that and other changes 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 pipelines tracking the index since 2010 would have be able to increase their rates by nearly 30pc.
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 were making it hard to decide if rates were reasonable. This is because Page 700 data is reported on a company-wide basis, rather than for each pipeline.
FERC today in response is proposing to require oil pipeline owners to file supplemental Page 700s with more detailed data on costs and revenue for pipelines they own. The regulation would distinguish between pipelines that charge cost-based rates and market rates, making it easier to compare costs with revenues.
FERC chairman Norman Bay said this would allow for an "apples to apples" comparison. The agency would then use supplemental information it collects when applying its proposed policy to block annual index-based rate increase to rates if a pipeline reported revenues 15pc higher than its cost of service for two consecutive years.
But FERC said it was declining to adopt the request the shipping consortium made in 2015 to require pipelines to file a separate supplement 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 allow stakeholders to file replies to those comments it receives 45 days after that. 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.
FERC has yet to publish the actual text of the advanced notice of proposed rulemaking, which will likely come out later today.
The National Propane Gas Association, one of the trade groups behind the April 2015 petition, said it was pleased that FERC addressed its petition but declined to comment until the regulatory text is released. Other members of the shipper coalition did not immediately respond for comment.
