Supplemental Review of the Oil Pipeline Index Level

DEPARTMENT OF ENERGY <SUBAGY>Federal Energy Regulatory Commission</SUBAGY> <CFR>18 CFR Part 342</CFR> <DEPDOC>[Docket No. RM25-2-000]</DEPDOC> <SUBJECT>Supplemental Review of the Oil Pipeline Index Level</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Federal Energy Regulatory Commission, Department of Energy. <HD SOURCE="HED">ACTION:</HD> Supplemental notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Federal Energy Regulatory Commission (Commission) proposes to amend the index level used to determine annual changes to oil pipeline rate ceilings following the decision of the United States Court of Appeals for the District of Columbia Circuit in <E T="03">Liquid Energy Pipeline Association</E> v. <E T="03">FERC.</E> In place of the index level established by order issued December 17, 2020, in Docket No. RM20-14-000, the Commission proposes to use the Producer Price Index for Finished Goods (PPI-FG) minus 0.21% as the prospective index level for the remainder of the five-year period that began July 1, 2021. The Commission invites interested persons to submit comments regarding this proposal. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Initial comments are due November 26, 2024. Reply comments are due December 20, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Comments, identified by docket number, may be filed in the following ways. Electronic filing through <E T="03">http://www.ferc.gov,</E> is preferred. • <E T="03">Electronic Filing:</E> Documents must be filed in acceptable native applications and print-to-PDF, but not in scanned or picture format. • For those unable to file electronically, comments may be filed by USPS mail or by hand (including courier) delivery. ○ <E T="03">Mail via U.S. Postal Service Only:</E> Addressed to: Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street NE, Washington, DC 20426. ○ <E T="03">Hand (including courier) delivery:</E> Deliver to: Federal Energy Regulatory Commission, 12225 Wilkins Avenue, Rockville, MD 20852. The Comment Procedures Section of this document contains more detailed filing procedures. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> <FP SOURCE="FP-1"> Monil Patel (Technical Information), Office of Energy Market Regulation, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502-8296, <E T="03">Monil.Patel@ferc.gov</E> </FP> <FP SOURCE="FP-1"> Evan Steiner (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502-8792, <E T="03">Evan.Steiner@ferc.gov</E> </FP> <FP SOURCE="FP-1"> Molly Behan (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502-8816, <E T="03">Molly.Behan@ferc.gov</E> </FP> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> 1. On December 17, 2020, the Commission issued an order in the 2020 five-year review of the oil pipeline index (Initial Order) establishing an index level of Producer Price Index for Finished Goods plus 0.78% (PPI-FG+0.78%) for the five-year period beginning July 1, 2021 (Initial Index). <SU>1</SU> <FTREF/> On January 20, 2022, the Commission issued an order granting rehearing (Rehearing Order) and establishing an index level of PPI-FG-0.21% (Rehearing Index). <SU>2</SU> <FTREF/> In <E T="03">Liquid Energy Pipeline Association</E> v. <E T="03">FERC</E> ( <E T="03">LEPA</E> v. <E T="03">FERC</E> ), <SU>3</SU> <FTREF/> the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) held that the Commission violated the Administrative Procedure Act (APA) by amending the Initial Index without providing notice and an opportunity to comment. Accordingly, the court vacated the Rehearing Order and ordered the Commission to reinstate the Initial Order. <SU>4</SU> <FTREF/> In compliance with this directive, the Commission reinstated the Initial Order by order issued September 17, 2024. <SU>5</SU> <FTREF/> <FTNT> <SU>1</SU>   <E T="03">Five-Year Rev. of the Oil Pipeline Index,</E> 173 FERC ¶ 61,245 (2020). </FTNT> <FTNT> <SU>2</SU>   <E T="03">Five-Year Rev. of the Oil Pipeline Index,</E> 178 FERC ¶ 61,078, <E T="03">reh'g denied,</E> 179 FERC ¶ 61,100 (2022) (Second Rehearing Order). </FTNT> <FTNT> <SU>3</SU>  109 F.4th 543 (D.C. Cir. 2024). </FTNT> <FTNT> <SU>4</SU>  Id. at 547-49. </FTNT> <FTNT> <SU>5</SU>   <E T="03">Revisions to Oil Pipeline Reguls. Pursuant to the Energy Pol'y Act of 1992,</E> 188 FERC ¶ 61,173 (2024) (Reinstatement Order). </FTNT> 2. As discussed below, we remain concerned that the Commission erred in establishing the Initial Index. Thus, following <E T="03">LEPA</E> v. <E T="03">FERC,</E> we propose to amend the Initial Index prospectively by adopting a revised index level of PPI-FG-0.21% for the remainder of the five-year period that began on July 1, 2021. We seek comment on this proposal and encourage commenters to address all issues related to the appropriate index level following <E T="03">LEPA</E> v. <E T="03">FERC.</E> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Indexing and the Kahn Methodology</HD> 3. The Commission adopted the indexing methodology in compliance with the Energy Policy Act of 1992 (EPAct 1992), which required the Commission to streamline its procedures related to oil pipeline rates and establish “a simplified and generally applicable ratemaking methodology for oil pipelines.”  <SU>6</SU> <FTREF/> Indexing streamlines and simplifies ratemaking procedures by allowing oil pipelines to change their rates subject to certain ceiling levels, as opposed to making cost-of-service filings. Under this methodology, pipelines may adjust their ceiling levels effective every July 1 by “multiplying the previous index year's ceiling level by the most recent index published by the Commission.”  <SU>7</SU> <FTREF/> <FTNT> <SU>6</SU>  Public Law No. 102-486, 1801(a), 1802(a), 106 Stat. 2776, 3010 (Oct. 24, 1992) (codified at 42 U.S.C. 712 note). </FTNT> <FTNT> <SU>7</SU>  18 CFR 342.3(d)(1). Oil pipelines may adjust their rates to the ceiling levels pursuant to the Commission's regulations so long as no protest or complaint demonstrates that the index rate change substantially diverges from the pipelines cost changes. <E T="03">Id.</E> 343.2(c)(1). </FTNT> 4. The Commission reviews the index level every five years. <SU>8</SU> <FTREF/> Beginning with Order No. 561 and in each ensuing five-year review, the Commission has adjusted the index level using the Kahn Methodology, which calculates each pipeline's cost change on a per barrel-mile basis over the prior five-year period based on FERC Form No. 6, page 700 summary cost-of-service data. To remove statistical outliers and spurious data, the Kahn Methodology trims the data set by removing an equal number of pipelines at the top and bottom of the data set. Then, the Kahn Methodology averages the median, mean, and weighted mean to determine a composite central tendency, which is compared to the changing value of PPI-FG over the relevant five-year period. The index level is set at PPI-FG plus (or minus) this differential. <FTNT> <SU>8</SU>   <E T="03">Revisions to Oil Pipeline Reguls. Pursuant to the Energy Pol'y Act of 1992,</E> Order No. 561, 58 FR 58753 (Nov. 4, 1993), FERC Stats. & Regs. ¶ 30,985, at 30,941, 30,947, 30,951 (1993) (cross-referenced at 65 FERC ¶ 61,109), <E T="03">order on reh'g,</E> Order No. 561-A, 59 FR 40243 (Aug. 8, 1994), FERC Stats. & Regs. ¶ 31,000, at 31,093, 31,099 (1994) (cross-referenced at 68 FERC ¶ 61,138), <E T="03">aff'd sub nom. Ass'n of Oil Pipe Lines</E> v. <E T="03">FERC,</E> 83 F.3d 1424 (D.C. Cir. 1996) ( <E T="03">AOPL I</E> ). </FTNT> <HD SOURCE="HD2">B. 2020 Five-Year Review</HD> 5. On June 18, 2020, the Commission initiated the 2020 five-year review. <SU>9</SU> <FTREF/> The Commission proposed to calculate the index level by (1) trimming the data set to the middle 50% and (2) incorporating the effects of the Commission's 2018 policy change requiring Master Limited Partnership (MLP)-owned pipelines to eliminate the income tax allowance and previously accrued Accumulated Deferred Income Taxes (ADIT) balances from their page 700 summary costs of service (Income Tax Policy Change). <SU>10</SU> <FTREF/> Ten commenters filed comments addressing the Commission's proposal. <SU>11</SU> <FTREF/> LEPA, Designated Carriers, and Kinder Morgan, Inc. (collectively, Pipelines) supported trimming the data set to the middle 80%, rather than the middle 50%, and adjusting the reported page 700 data to eliminate the effects of the Income Tax Policy Change from the index calculation. By contrast, Joint Commenters, Liquids Shippers Group, and CAPP (collectively, Shippers) argued that the Commission should continue using the middle 50% and reject Pipelines' proposed adjustments to the data set. <FTNT> <SU>9</SU>   <E T="03">Five-Year Rev. of the Oil Pipeline Index,</E> 171 FERC ¶ 61,239 (2020) (NOI). </FTNT> <FTNT> <SU>10</SU>   <E T="03">Id.</E> PP 9-10; <E T="03">see also Inquiry Regarding the Commission's Policy for Recovery of Income Tax Costs,</E> 162 FERC ¶ 61,227 (Income Tax Policy Statement), <E T="03">reh'g denied,</E> 164 FERC ¶ 61,030 (2018), <E T="03">requests for clarification dismissed,</E> 168 FERC ¶ 61,136 (2019), <E T="03">petitions for review dismissed sub nom. Enable Miss. River Transmission, LLC</E> v. <E T="03">FERC,</E> 820 F. App'x 8 (D.C. Cir. 2020). </FTNT> <FTNT> <SU>11</SU>  Comments were filed by: Liquid Energy Pipeline Association (LEPA, formely known as Association of Oil Pip ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 62k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━