Supplemental Review of the Oil Pipeline Index Level, 84475-84482 [2024-24518]
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84475
Proposed Rules
Federal Register
Vol. 89, No. 205
Wednesday, October 23, 2024
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Part 342
[Docket No. RM25–2–000]
Supplemental Review of the Oil
Pipeline Index Level
Federal Energy Regulatory
Commission, Department of Energy.
ACTION: Supplemental notice of
proposed rulemaking.
AGENCY:
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 Liquid Energy Pipeline
Association v. FERC. 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.
SUMMARY:
Initial comments are due
November 26, 2024. Reply comments
are due December 20, 2024.
ADDRESSES: Comments, identified by
docket number, may be filed in the
following ways. Electronic filing
through https://www.ferc.gov, is
preferred.
• Electronic Filing: 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.
Æ Mail via U.S. Postal Service Only:
Addressed to: Federal Energy
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DATES:
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Regulatory Commission, Secretary of the
Commission, 888 First Street NE,
Washington, DC 20426.
Æ Hand (including courier) delivery:
Deliver to: Federal Energy Regulatory
Commission, 12225 Wilkins Avenue,
Rockville, MD 20852.
The Comment Procedures Section of
this document contains more detailed
filing procedures.
FOR FURTHER INFORMATION CONTACT:
Monil Patel (Technical Information),
Office of Energy Market Regulation,
Federal Energy Regulatory
Commission, 888 First Street NE,
Washington, DC 20426, (202) 502–
8296, Monil.Patel@ferc.gov
Evan Steiner (Legal Information), Office
of the General Counsel, Federal
Energy Regulatory Commission, 888
First Street NE, Washington, DC
20426, (202) 502–8792, Evan.Steiner@
ferc.gov
Molly Behan (Legal Information), Office
of the General Counsel, Federal
Energy Regulatory Commission, 888
First Street NE, Washington, DC
20426, (202) 502–8816, Molly.Behan@
ferc.gov
SUPPLEMENTARY INFORMATION:
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).1
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).2 In Liquid Energy
Pipeline Association v. FERC (LEPA v.
FERC),3 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.4 In compliance with this
1 Five-Year Rev. of the Oil Pipeline Index, 173
FERC ¶ 61,245 (2020).
2 Five-Year Rev. of the Oil Pipeline Index, 178
FERC ¶ 61,078, reh’g denied, 179 FERC ¶ 61,100
(2022) (Second Rehearing Order).
3 109 F.4th 543 (D.C. Cir. 2024).
4 Id. at 547–49.
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directive, the Commission reinstated the
Initial Order by order issued September
17, 2024.5
2. As discussed below, we remain
concerned that the Commission erred in
establishing the Initial Index. Thus,
following LEPA v. FERC, we propose to
amend the Initial Index prospectively by
adopting a revised index level of PPI–
FG–0.21% for the remainder of the fiveyear 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 LEPA v. FERC.
I. Background
A. Indexing and the Kahn Methodology
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.’’ 6
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.’’ 7
4. The Commission reviews the index
level every five years.8 Beginning with
Order No. 561 and in each ensuing fiveyear review, the Commission has
adjusted the index level using the Kahn
Methodology, which calculates each
5 Revisions to Oil Pipeline Reguls. Pursuant to the
Energy Pol’y Act of 1992, 188 FERC ¶ 61,173 (2024)
(Reinstatement Order).
6 Public Law No. 102–486, 1801(a), 1802(a), 106
Stat. 2776, 3010 (Oct. 24, 1992) (codified at 42
U.S.C. 712 note).
7 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. Id. 343.2(c)(1).
8 Revisions to Oil Pipeline Reguls. Pursuant to the
Energy Pol’y Act of 1992, 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), order on reh’g, 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), aff’d sub nom. Ass’n of Oil
Pipe Lines v. FERC, 83 F.3d 1424 (D.C. Cir. 1996)
(AOPL I).
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pipeline’s cost change on a per barrelmile 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.
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B. 2020 Five-Year Review
5. On June 18, 2020, the Commission
initiated the 2020 five-year review.9 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).10
Ten commenters filed comments
addressing the Commission’s
proposal.11 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)
9 Five-Year Rev. of the Oil Pipeline Index, 171
FERC ¶ 61,239 (2020) (NOI).
10 Id. PP 9–10; see also Inquiry Regarding the
Commission’s Policy for Recovery of Income Tax
Costs, 162 FERC ¶ 61,227 (Income Tax Policy
Statement), reh’g denied, 164 FERC ¶ 61,030 (2018),
requests for clarification dismissed, 168 FERC ¶
61,136 (2019), petitions for review dismissed sub
nom. Enable Miss. River Transmission, LLC v.
FERC, 820 F. App’x 8 (D.C. Cir. 2020).
11 Comments were filed by: Liquid Energy
Pipeline Association (LEPA, formely known as
Association of Oil Pipe Lines or AOPL); Buckeye
Partners, L.P., Colonial Pipeline Company, Energy
Trasfer LP, Enterprise Products Partners L.P., and
Plains All American Pipeline, L.P. (collectively,
Designated Carriers); Kinder Morgan, Inc.; Airlines
for America, Chevron Products Company, National
Proprane Gas Association, and Valero Marketing
and Supply Company (collectively, Joint
Commenters); Apache Corporation Cenovus Energy
Marketing Services Ltd., ConocoPhillips Company,
Devon Gas Services, L.P., Equinor Marketing &
Trading US Inc., Fieldwood Energy LLC, Marathon
Oil Company, Murphy Exploration and Production
Company—USA, Ovintiv Marketing Inc., and
Pioneer Natural Resources USA, Inc. (collectively,
Liquids Shippers Group); Canadian Association of
Petroleum Producers (CAPP); Pipeline Safety Trust;
Energy Infrastructure Council; and Pipeline and
Hazardous Materials Safety Administration.
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argued that the Commission should
continue using the middle 50% and
reject Pipelines’ proposed adjustments
to the data set.
6. In the Initial Order, the
Commission established the Initial
Index of PPI–FG+0.78%.12 The
Commission adopted Pipelines’
proposals to use the middle 80% and to
remove the effects of the Income Tax
Policy Change from the index
calculation.13 On January 19, 2021,
Shippers filed requests for rehearing
challenging the Commission’s
determinations, and Pipelines requested
rehearing or clarification to correct
minor errors in the workpapers
underlying the Initial Order.
7. In the Rehearing Order, the
Commission granted rehearing in part
and adopted the Rehearing Index of
PPI–FG–0.21%. The Commission
granted Shippers’ requests to calculate
the index level using the middle 50%
and unadjusted page 700 data that
reflects the effects of the Income Tax
Policy Change.14 The Commission
found that the middle 50% produces a
more accurate measure of normal
pipeline cost changes than the middle
80%, which includes pipelines with
extraordinary cost changes that were
unrepresentative of ordinary pipeline
operations.15 Furthermore, the
Commission found that the index
calculation must incorporate the Income
Tax Policy Change to produce just and
reasonable rates.16 The Commission also
granted Pipelines’ request to calculate
the index level using updated page 700
data for 2014 where available.17
8. The Commission directed oil
pipelines to recompute their ceiling
levels to reflect the Rehearing Index and
to reduce their rates in accordance with
those ceiling levels effective March 1,
2022.18 Thereafter, Pipelines filed
petitions for review of the Rehearing
Order with the D.C. Circuit,19 and Joint
Commenters filed a request for
rehearing or clarification, which the
Order, 173 FERC ¶ 61,245 at P 2.
PP 16–20, 25–32.
14 Rehearing Order, 178 FERC ¶ 61,023 at PP 16–
36, 43–58; see also id. PP 64–70, 78–88, 95–98
(denying rehearing regarding issues raised by
Liquids Shippers Group and CAPP).
15 Id. PP 46–50
16 Id. P 17.
17 Id. P 101; see also id. P 104 (denying additional
proposal raised by Designated Carriers in light of
Commission’s determination to use unadjusted page
700 data that incorporated effects of Income Tax
Policy Change).
18 Id. P 106, ordering para. (B).
19 Pipelines initially appealed the Rehearing
Order to the Unites States Court of Appeals for the
Fifth Circuit (Fifth Circuit). However, in May 2022,
the Fifth Circuit transferred the appeals to the D.C.
Circuit. Buckeye Partners, L.P. v. FERC, No. 22–
601000, 2022 WL 1528311 (5th Cir. May 13, 2022).
Commission denied by order issued
May 6, 2022.20
C. LEPA v. FERC and Reinstatement
Order
9. In LEPA v. FERC, the D.C. Circuit
granted Pipelines’ petitions and held
that the Commission violated the APA
by altering the Initial Index on rehearing
without providing additional notice and
an opportunity for comment. The court
found that the Commission adhered to
the APA’s notice-and-comment
requirements when it adopted the Initial
Index.21 However, the court explained
that once an agency’s rule ‘‘carrie[s]
legal consequences,’’ the APA generally
requires the agency to follow noticeand-comment procedures before
amending the rule.22 The court found
that the Initial Index became
‘‘sufficiently final’’ by July 1, 2021, ‘‘to
require that any amendment undergo
notice-and-comment procedures.’’ 23
Because the Commission amended the
Initial Index without engaging in
additional notice-and-comment
procedures, the court vacated the
Rehearing Order and ordered the
Commission to reinstate the Initial
Order.24
10. On September 17, 2024, the
Commission issued an order reinstating
the Initial Order in compliance with the
court’s decision.25
II. Commission Proposal
11. Following the vacatur of the
Rehearing Order in LEPA v. FERC, we
remain concerned that the Initial Order
improperly calculated the index level by
using the middle 80%, removing the
effects of the Income Tax Policy Change,
and using outdated page 700 data for
2014 for certain pipelines. Accordingly,
we initiate notice-and-comment
procedures to consider whether to
amend the Initial Index on a prospective
basis.26
12. As discussed below, we propose
to adopt a revised index level of PPI–
FG–0.21% for the remainder of the five-
12 Initial
13 Id.
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20 Second Rehearing Order, 179 FERC ¶ 61,100.
Joint Commenters filed petitions for review of the
Second Rehearing Order in the D.C. Circuit, which
were consolidated with Pipelines’ petitions for
review of the Rehearing Order.
21 LEPA v. FERC, 109 F.4th at 547.
22 Id. at 548 (quoting Humane Soc’y v. USDA, 41
F.4th 564, 570 (D.C. Cir. 2022)) (internal quotation
marks omitted).
23 Id. at 549.
24 Id. The court held that because it was vacating
the Rehearing Order, Joint Commenters’ challenges
to the Second Rehearing Order were moot. Id.
25 Reinstatement Order, 188 FERC ¶ 61,173 at P
1. The Commission reinstated the Initial Index after
the D.C. Circuit issued the mandate associated with
LEPA v. FERC on September 17, 2024.
26 See LEPA v. FERC, 109 F.4th at 549; see also
49 U.S.C. app. 17(9)(g).
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year period that began on July 1, 2021.27
This proposal is based on the Kahn
Methodology as applied to page 700
data from 2014–2019 and results from
(1) relying solely on the middle 50%, (2)
using unadjusted page 700 data that
reflects the effects of the Income Tax
Policy Change, and (3) using updated
page 700 data for 2014, where available.
We seek comments on our proposal and
encourage commenters to address all
issues related to the appropriate index
level following LEPA v. FERC, including
those issues discussed below.28
Commenters should also renew any
arguments raised in requests for
rehearing or clarification of the Initial
Order that they would like for the
Commission to consider.
A. Statistical Data Trimming
13. We propose to amend the Initial
Index by calculating a revised index
level relying solely on the middle 50%.
As discussed below, we are concerned
that the Commission’s use of the middle
80% in the Initial Order departed from
established practice and that the record
in the 2020 five-year review did not
support this change.
14. As an initial matter, the index
aims to reflect the cost experience of a
typical pipeline during ordinary
pipeline operations.29 The index is not
designed to recover extraordinary cost
changes,30 including those resulting
from atypical or idiosyncratic
circumstances,31 and the presence of
extraordinary cost changes in the data
set can inflate the index level.32
15. To avoid inflating the index, the
Commission excludes pipelines with
extraordinary or idiosyncratic cost
changes from its analysis. In the 2010
and 2015 Index Reviews, the
Commission found that the middle 50%
more appropriately adjusts the index
level for normal cost changes than the
middle 80%, which, by definition,
includes pipelines relatively far
removed from the median of the data
set.33 The Commission also concluded
that pipelines included in the middle
80% but not the middle 50% (i.e., the
incremental 30%) are more likely to
have cost changes resulting from
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idiosyncratic factors, such as a rate base
expansion, plant retirement, or localized
changes in supply and demand, that do
not reflect normal industry-wide
experience.34 Thus, the Commission
found that the middle 50%, more
effectively than the middle 80%, trims
pipelines with anomalous cost changes
from the data set while avoiding the
complexities and distorting effects of
manual data trimming methodologies.35
Following the 2015 Index Review, the
D.C. Circuit affirmed the Commission’s
decision to calculate the index level
based solely upon the middle 50%.36
16. As discussed above, in the Initial
Order, the Commission departed from
its prior practice by using the middle
80%, as opposed to the middle 50%. We
are concerned, however, that the page
700 data set for the 2014–2019 period
does not support this change. The
scatter plot below indicates that the
middle 80% in this data set includes
several pipelines near its upper bound
that differ considerably from the other
pipelines in the sample.37
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27 This supplemental NOPR applies to the current
five-year review period. Consistent with its
longstanding practice, the Commission will initiate
a separate process for establishing the index level
for the five-year period starting July 1, 2026.
28 5 U.S.C. 553(b)–(c); see also LEPA v. FERC, 109
F.4th at 549.
29 E.g., Five-Year Rev. of Oil Pipeline Pricing
Index, 133 FERC ¶ 61,228, at P 61 (2010) (2010
Index Review), reh’g denied, 135 FERC ¶ 61,172
(2011); Order No. 561–A, FERC Stats. & Regs. ¶
31,000 at 31,097 (‘‘The role of an index is to
accommodate normal cost changes.’’).
30 Extraordinary cost changes are recovered using
the Commission’s alternate ratemaking
methodologies, rather than through indexing. Order
No. 561–A, FERC Stats. & Regs. ¶ 31,000 at 31,097
(‘‘Extraordinary costs can be recovered through
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either of the alternate rate change means—cost of
service or settlement rates—as provided in [Order
No. 561].’’).
31 Order No. 561–A, FERC Stats. & Regs. ¶ 31,000
at 31,097, aff’d, AOPL I, 83 F.3d at 1434; see also
2010 Index Review, 133 FERC ¶ 61,228 at P 54.
32 Extraordinary cost changes would affect the
composite central tendency of the data sample
through the weighted mean and unweighted mean,
which, unlike the median, reflect the cost
experiences of all pipelines in the sample,
including those at the upper and lower bounds.
33 Five-Year Rev. of the Oil Pipeline Index, 153
FERC ¶ 61,312, at PP 43–44 (2015) (2015 Index
Review), aff’d sub nom. Ass’n of Oil Pipe Lines v.
FERC, 876 F.3d 336 (D.C. Cir. 2017) (AOPL III);
2010 Index Review, 133 FERC ¶ 61,228 at P 61.
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34 2010
Index Review, 133 FERC ¶ 61,228 at P 61.
Index Review, 153 FERC ¶ 61,312 at P 42
(citing 2010 Index Review, 133 FERC ¶ 61,228 at
PP 60–63).
36 AOPL III, 876 F.3d at 342 (stating that the court
had ‘‘little difficulty in finding that the Commission
adequately and reasonably justified its decision not
to consider the middle 80[%] of pipelines’ costchange data’’ in that proceeding).
37 This scatter plot modifies a similar chart
submitted by Joint Commenters in Docket No.
RM20–14–000. Joint Commenters Reply Comments,
Brattle Group Report at 19, Figure 3 (scatter plot
illustrating dispersion of the middle 50% and
middle 80% in the unadjusted 2020 data set). The
modifications reflect the adjustments proposed
herein to the page 700 data set.
35 2015
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17. Moreover, these pipelines,
particularly those at the upper bound of
the middle 80% range, exert an outsized
influence that inflates the index
calculation. The difference between the
middle 50% and the middle 80% results
primarily from eight pipelines at the
upper bound of the middle 80%.38
18. Furthermore, the page 700 data set
indicates that the middle 80% is even
more dispersed than in 2015 or 2010,39
as illustrated by the bar chart below.40
35%
30%
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2015 Index Review
2020 Index Review
19. In addition, the incremental 30%
appears to include pipelines with
extraordinary cost changes that are not
reflective of ordinary pipeline
operations. For example, in the 2020
five-year review, Joint Commenters
identified seven pipelines in the
incremental 30% whose reported cost
changes resulted from irregular
circumstances, such as pipeline
ruptures or temporary shutdowns.41
20. Although the Initial Order
identified three reasons for using the
middle 80% instead of the middle 50%,
we no longer find this reasoning
persuasive. First, the mere fact that the
middle 80% contains more data does
not support departing from the middle
50%.42 The middle 50% here includes
81% of industry-wide oil pipeline
barrel-miles,43 and thus provides a more
representative sample than in 2015 or
2010, when the Commission relied
solely on the middle 50%. In particular,
the middle 50% in the 2015 and 2010
Index Reviews contained 56% and 76%,
respectively of total barrel-miles subject
to the index.44 Thus, omitting the
additional pipelines included in the
incremental 30% would not deprive the
Commission of a robust data sample.
Furthermore, we are concerned that any
benefits of considering the larger sample
in the middle 80% would not outweigh
the risk that this additional data will
distort the measurement of normal cost
changes.
21. Second, contrary to the Initial
Order, it is not clear that using the
middle 80% would provide a better
measure of ‘‘normal’’ cost changes in
this proceeding.45 Rather, as discussed
above, the middle 80% appears to
include anomalous data that would
distort the measurement of the central
tendency used to calculate the index
level.46 This suggests that the more
tailored data sample in the middle 50%
provides a superior method of
measuring normal cost changes, as
opposed to extraordinary or
idiosyncratic costs.
22. Third, the Initial Order sought to
distinguish the 2015 and 2010 Index
Reviews on the basis that, unlike in the
2020 review, commenters in those
proceedings ‘‘presented detailed
analyses demonstrating that the
incremental 30% contained anomalous
cost changes . . . .’’ 47 However, as in
38 As discussed above, the Kahn Methodology
calculates a composite central tendency by
averaging the data sample’s median, weighted
mean, and unweighted mean. See supra P 4. If the
top and bottom eight pipelines in the middle 80%
are removed from the sample, the composite central
tendency would increase by 3 basis points relative
to the middle 50%, from ¥0.21% to ¥0.18%. By
contrast, including the top and bottom eight
pipelines in the middle 80% would increase the
composite central tendency by an additional 29
basis points, from ¥0.18% to 0.11%. See Attach.
A, Ex. 6.
39 When the data sample is highly dispersed, data
at the outer bounds of the middle 80% are further
removed from the remaining data and thus can have
an outsized and distorting effect if used to measure
the central tendency.
40 The bar chart modifies a similar chart
submitted by Joint Commenters in Docket No.
RM20–14–000. Joint Commenters Reply Comments,
Brattle Group Report at 18, Figure 2 (bar chart
illustrating dispersion of middle 50% and middle
80% in 2010, 2015, and the unadjusted 2020 data
sets). The modifications reflect the adjustments
proposed herein to the page 700 data set.
41 Joint Commenters Reply Comments, Brattle
Group Report at 13–17. For example, MPI Services
North America, Inc., reported an inflated 2019 cost
of service per barrel-mile due to a temporary
shutdown of one of its pipeline segments and Mobil
Pipe Line Company experienced a pipeline rupture
in 2013 that distorted its 2014 cost-of-service data.
Id. at 15–17.
42 See Initial Order, 173 FERC ¶ 61,245 at P 26.
43 See attach. A, Ex. 1.
44 See 2015 Index Review, 153 FERC ¶ 61,312 at
P 44 n.85; id. at attach. A, Ex. 1; 2010 Index Review,
133 FERC ¶ 61,228 at P 63.
45 See Initial Order, 173 FERC ¶ 61,245 at P27.
46 The Commission stated in the Initial Order that
using the middle 80% is appropriate because the
index average will be significantly below the
relatively high cost changes at the upper bound. Id.
PP 27, 32. However, even if the index average is not
set at the upper bound of the data sample, including
the upper bound of the middle 80% could
nonetheless produce an index average inflated by
anomalous cost experience. See 2010 Index Review,
133 FERC ¶ 61,228 at P 61 (‘‘Using the middle
50[%] ensures that pipelines with relatively large
cost increases or decreases do not distort the
index.’’).
47 See Initial Order, 173 FERC ¶ 61,245 at P 28.
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Federal Register / Vol. 89, No. 205 / Wednesday, October 23, 2024 / Proposed Rules
those prior reviews, the record in the
2020 review indicates that the middle
80% includes outlying cost increases,
reflects significant dispersion, and
includes pipelines with idiosyncratic
cost changes. To the extent that shippers
submitted more detailed analyses in
2015 and 2010, they presented this
evidence to support manual data
trimming proposals, which the
Commission rejected in favor of
trimming the data set to the middle
50%.48 We are concerned that it would
be incongruous to reject manual data
trimming while at the same time
requiring commenters to present similar
analyses to justify continued use of the
middle 50%.
23. For these reasons, we are no
longer persuaded by the Commission’s
reasoning in the Initial Order for using
the middle 80%. Accordingly, we
propose to calculate a revised index
level using the middle 50% and seek
comment on this proposal.
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B. Income Tax Policy Change
24. We are concerned that removing
the Income Tax Policy Change from the
index calculation could result in oil
pipeline rates that are unjust and
unreasonable. Thus, we propose to
revise the index level prospectively by
using unadjusted page 700 data that
reflects the effects of the Income Tax
Policy Change on pipeline cost changes
from 2014–2019.
25. Several considerations support
this proposal. The D.C. Circuit and the
Commission have concluded that
allowing MLP pipelines to recover an
income tax allowance in addition to a
return on equity (ROE) determined
using the Discounted Cash Flow (DCF)
model results in an impermissible
double recovery of investor-level tax
costs and produces unjust and
unreasonable rates.49 Although the
48 2015 Index Review, 153 FERC ¶ 61,312 at PP
36, 42; 2010 Index Review, 133 FERC ¶ 61,228 at
P 62.
49 United Airlines, Inc. v. FERC, 827 F.3d 122
(D.C. Cir. 2016), order on remand, SFPP, L.P.,
Opinion No. 511–C 162 FERC ¶ 61,228, at P 22
(2018), reh’g denied, Opinion No. 511–D, 166 FERC
¶ 61,142, at PP 90–95 (2019), aff’d sub nom. SFPP,
L.P. v. FERC, 967 F.3d 788, 793–97, 801–03 (D.C.
Cir. 2020); see also Income Tax Policy Statement,
162 FERC ¶ 61,227 at P 8. MLP pipelines do not
incur income taxes at the entity level, but the
Commission justified permitting MLP pipelines to
recover an income tax allowance on the basis that
their investors pay taxes on their allocated share of
the MLP’s taxable income. See Inquiry Regarding
Income Tax Allowances, 111 FERC ¶ 61,139, at P
32 (2005). Because the D.C. Circuit and the
Commission concluded that the MLP pipeline’s
DCF ROE already included investor-level income
tax costs, a double recovery resulted from
permitting an income tax allowance that recovered
those same tax costs. Opinion No. 511–C, 162 FERC
¶ 61,228 at P 22.
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Income Tax Policy Change eliminated
this double recovery by prohibiting MLP
pipelines from recovering an income tax
allowance, oil pipeline rates have not
incorporated this policy change into
going forward rates following the
vacatur of the Rehearing Order.50
Because indexing is the Commission’s
primary ratemaking methodology for oil
pipelines and because indexed oil
pipeline rates must be just and
reasonable, we believe that the index
calculation should address the Income
Tax Policy Change.
26. Furthermore, the index is
intended to reflect changes in costs
recoverable under the Opinion No. 154–
B methodology,51 such as the Income
Tax Policy Change. The Commission
and the D.C. Circuit have long
recognized that the index should reflect
changes in costs recoverable under the
Opinion No. 154–B methodology.52 The
index is the primary means for adjusting
rates to recover those costs, and the
Commission uses the Opinion No. 154–
50 With regard to natural gas pipeline rates, the
Commission acted to address this double recovery
by requiring natural gas pipelines to submit a onetime filing for the purpose of evaluating the impact
of the Income Tax Policy Change and the Tax Cuts
and Jobs Act on the pipeline’s revenue requirement.
Interstate & Intrastate Nat. Gas Pipelines, Order No.
849, 164 FERC ¶ 61,031, at P 30 (2018), reh’g
denied, Order No 849–A, 167 FERC ¶ 61,051 (2019).
This process allowed for MLP natural gas pipelines
to voluntarily reduce their rates in response to the
Income Tax Policy Change and for the Commission
to initiate rate investigations pursuant to section 5
of the Natural Gas Act where the pipeline appeared
to be over-recovering its cost of service as a result
of the policy change. E.g., Stagecoach Pipeline &
Storage Co., 166 FERC ¶ 61,199 (2019); N. Nat. Gas
Co., 166 FERC ¶ 61,033 (2019). As opposed to
initiating cost-of-service complaints against oil
pipelines, the Commission stated that it would
incorporate the effects of the Income Tax Policy
Change in the 2020 five-year review. Income Tax
Policy Statement, 162 FERC ¶ 61,227 at PP 8, 46.
51 The Opinion No. 154–B methodology is the
cost-of-service ratemaking methodology that the
Commission uses for oil pipelines. Williams Pipe
Line Co., Opinion No. 154–B, 31 FERC ¶ 61,377,
order on reh’g, Opinion No. 154–C, 33 FERC ¶
61,327 (1985). The Opinion No. 154–B methodology
is based on trended original costs, whereby the
inflationary component of the nominal return is
placed in deferred earnings and recovered as part
of rate base in future years. E.g., BP W. Coast Prods.,
LLC v. FERC, 374 F.3d 1263, 1282–83 (D.C. Cir.
2004).
52 AOPL III, 876 F.3d at 345 (finding that the
Commission ‘‘has consistently treated the index as
a measure of normal industry-wide cost-of-service
changes’’); 2015 Index Review, 153 FERC ¶ 61,312
at P 13, aff’d, AOPL III, 876 F.3d at 345–46 (‘‘[T]he
index is meant to reflect changes to recoverable
pipeline costs, and, thus, the calculation of the
index should use data that is consistent with the
Commission’s [Opinion No. 154–B] cost-of-service
methodology.’’); see also Order no. 561–A, FERC
Stats. & Regs. ¶ 31,000 at 31,096 (stating that the
then-existing Form No. 6 provided a ‘‘highly
unsatisfactory’’ measure of capital cost changes
because it did ‘‘not contain the information
necessary to compute a trended original cost (TOC)
rate base or a starting rate base’’ under the Opinion
No. 154–B methodology).
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B methodology cost data reported on
page 700 to calculate the index level.53
Here, the Income Tax Policy Change
altered pipelines’ recoverable costs by
barring MLP pipelines from recovering
in 2019 income tax costs that they were
permitted to recover in 2014.54 Thus, by
comparing the 2014 data reported on
page 700 under the Commission’s
previous policy with the 2019 data
reported under its changed policy, the
index calculation will accurately
capture the effects of the Income Tax
Policy Change on costs recoverable
under Opinion No. 154–B.55
27. In addition, we believe that
incorporating the Income Tax Policy
Change into the index complies with
EPAct 1992’s dual mandates for just and
reasonable rates and simplified and
streamlined ratemaking.56 As the
Commission’s Opinion No. 154–B
methodology evolves, oil pipeline rates
adjusted via indexing should reflect
those changes in order to remain just
and reasonable. If the Commission omits
the effects of the Income Tax Policy
Change from the index calculation, the
alternative method for reflecting the
elimination of the MLP income tax
double recovery in rates would be
through cost-of-service litigation.57 We
53 2015 Index Review, 153 FERC ¶ 61,312 at PP
12–13 (adopting use of page 700 data to measure oil
pipeline cost changes because, among other
reasons, page 700 data is consistent with the
Opinion No. 154–B methodology).
54 Although the Income Tax Policy Change
applied only to MLP pipelines, and not to non-MLP
pipelines, this does not provide a basis for
excluding the Income Tax Policy Change from the
index calculation. As discussed above, indexing
simplifies and streamlines oil pipeline ratemaking
by allowing pipelines to adjust their rates based
upon a generally applicable index that reflects
industry-wide cost experience. E.g., Order No. 561–
A, FERC Stats. & Regs. ¶ 31,000 at 31,103
(explaining that indexing ‘‘relies upon industrywide average costs, not company-specific costs, to
establish rates’’). A policy change affecting the costs
recoverable by particular pipelines (such as MLPs)
contributes to changes in industry-wide recoverable
costs and is thus appropriately reflected in the
calculation of the industry-wide index. By contrast,
excluding the Income Tax Policy Change from the
calculation merely because it applied only MLP
pipelines would produce an index level that fails
to fully reflect cost-of-service changes across the
industry from 2014–2019.
55 In contrast, adjusting the data set to remove the
effects of this policy change would maintain a
divergence between indexed rates and Opinion no.
154– B recoverable costs.
56 EPAct 1992, at 1801(a).
57 The index calculation for 2021–2026 presents
the sole opportunity for addressing the MLP income
tax double recovery in indexed rates via the
simplified and streamlined five-year review
process. As discussed above, the Kahn Methodology
calculates the index level based on the change in
industry-wide page 700 costs from the first year of
the review period to the last. Thus, it is only
possible to reflect the Income Tax Policy Change in
the instant index calculation, which measures cost
changes from 2014 (when MLP pipelines reported
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are concerned that implementing costof-service policy changes in this manner
would frustrate the statutory goals of
efficient and simplified ratemaking
embodied in EPAct 1992.58
28. We are also concerned that
adjusting page 700 data to remove the
effects of the Income Tax Policy Change
conflicts with the Commission’s
historical practice. Before the Initial
Order, the Commission had not
previously adjusted the reported Form
No. 6 data used to derive the index
level. Rather, Order Nos. 561 and 561–
A ‘‘opted for a purely historical
analysis’’ 59 for measuring pipeline cost
changes based on documented cost
experience, and in subsequent five-year
reviews, the Commission calculated the
index level using reported Form No. 6
data without adjustment. Thus,
modifying MLP pipelines’ reported page
700 data in the Initial Order departed
from the purely historical analysis on
which the Commission has consistently
relied since establishing the indexing
regime.
29. Moreover, our proposal would
honor the Commission’s assurances in
the 2018 Income Tax Policy Statement
that it would ‘‘incorporate the effects of
[the Income Tax Policy Change] . . . in
the 2020 five-year review’’ so that oil
pipeline rates would reflect these
reduced costs.60 Whereas the
a positive income tax allowance) to 2019 (when
MLP pipelines reported zero income tax allowance).
Capturing this decrease in recoverable income tax
costs from 2014 to 2019 will reduce the index level
to incorporate the elimination of the MLP income
tax double recovery. In contrast, the 2025 five-year
review will reflect no change in MLP income tax
costs because MLP pipelines will report zero
income tax allowances for both the first and last
years of the 2019–2024 period.
58 See Ass’n of Oil Pipe Lines v. FERC, 281 F.3d
239, 244 (D.C. Cir 2002) (AOPL II) (holding that an
oil pipeline ratemaking regime based in large part
on cost-of-service rate proceedings ‘‘would be
inconsistent with Congress’s mandate under the
EPAct for FERC to establish ‘a simplified and
generally applicable ratemaking methodology’ ’’
(quoting EPAct 1992, at 1801(a))).
59 Id. at 247 (citing Five-Year Rev. of Oil Pipeline
Pricing Index, 93 FERC ¶ 61,266, at 61,855 (2000)
(2000 Index Review), aff’d in part and remanded,
AOPL II, 281 F.3d 239, order on remand, 102 FERC
¶ 61,195 (2003) (2000 Remand Order); Order No.
561, FERC Stats. & Regs. ¶ 30,985 at 30,951
(explaining that the Commission ‘‘opted for a
purely historical analysis’’ for calculating the index
level and ‘‘has adhered to it’’).
60 Income Tax Policy Statement, 162 FERC ¶
61,227 at P 8; see also Inquiry Regarding the Effect
of the Tax Cuts & Jobs Act on CommissionJurisdictional Rates, 162 FERC ¶ 61,223, at P 4
(2018) (‘‘The Commission must ensure that the
rates, terms, and conditions of jurisdictional
services under the Federal Power Act (FPA), the
Natural Gas Act (NGA), and the Interstate
Commerce Act are just, reasonable, and not unduly
discriminatory or preferential’’); id. P 8 (directing
oil pipelines to report on page 700 an income tax
allowance consistent with the Income Tax Policy
Change and the Tax Cuts and Jobs Act). As opposed
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Commission acted promptly to
eliminate the MLP income tax double
recovery from natural gas pipeline rates,
the Commission deferred adjusting oil
pipeline rates until the 2020 five-year
review. Failure to incorporate the
Income Tax Policy Change into the
index level would leave MLP oil
pipeline rates unaddressed indefinitely.
Furthermore, we recognize that shippers
relied upon the Commission’s
assurances in considering whether to
bring challenges against oil pipeline
rates following the Income Tax Policy
Change.
30. We are no longer persuaded by the
reasoning provided in the Initial Order
for excluding the Income Tax Policy
Change from the index calculation.
Contrary to the Initial Order, we do not
believe there is a meaningful distinction
between changes to the Opinion No.
154–B methodology and changes to the
costs that pipelines input into that
methodology and end up reported on
page 700.61 Rather, changes to the
Opinion No. 154–B methodology
produce corresponding changes to the
costs that pipelines can recover.
Accordingly, for purposes of
determining the index, any meaningful
measure of changes to recoverable costs
between 2014 and 2019 should reflect
the Income Tax Policy Change.62
31. Additionally, in contrast to the
Initial Order, we do not believe that
reflecting the Income Tax Policy Change
would effectuate a true-up for priorperiod over-recoveries.63 Consistent
with the purposes of the five-year
review, incorporating the effects of the
Income Tax Policy Change in the index
calculation would align pipelines’
future rates with their future costs
recoverable under Opinion No. 154–B.
By failing to reflect the Income Tax
Policy Change in the calculation of the
to initiating cost-of-service complaints against oil
pipelines, deferring action until the 2020 five-year
review best fulfilled EPAct 1992’s dual mandates
for simplified oil pipeline ratemaking and just and
reasonable rates. See supra note 59.
61 Initial Order, 173 FERC ¶ 61,245 at P 17
(stating that ‘‘the purpose of indexing is to allow the
indexed rate to keep pace with industry-wide cost
changes, not to reflect alterations to the
Commission’s Opinion No. 154–B cost-of-service
methodology’’).
62 In the Initial Order, the Commission stated that
‘‘[j]ust as a business must account for changes to its
accounting practices when comparing costs over
two different periods, we must make a similar
adjustment to the reported page 700 data here to
derive an ‘apples-to-apples’ comparison of pipeline
cost changes.’’ Id. However, this analogy to
accounting methods is misplaced. Whereas an
accounting methodology simply involves the
method of recording costs, as explained above, the
Income Tax Policy Change directly affected the
costs the MLP pipelines can recover under the
Opinion No. 154–B methodology.
63 Id. P 18.
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prospective index, the approach
adopted in the Initial Order would
cause future indexed rates to become
estranged from future recoverable costs.
32. We likewise question the Initial
Order’s reasoning that ‘‘[b]ecause no
prior index calculation incorporated the
[Commission’s 2005 policy change]
allowing MLP pipelines to recover an
income tax allowance, it is not
necessary to reflect the policy change
denying those pipelines an income tax
allowance in the calculation here.’’ 64
This statement disregards indexing’s
purpose and oversimplifies historical
Commission practice. Indexed rates
have always served as a means for
recovering pipeline income tax costs.
Accordingly, the five-year review index
calculation was always intended to
incorporate changes in pipeline income
tax costs, even if the Commission
previously measured those costs using
an imperfect estimate.65 Now that the
Commission uses page 700 data that
directly measures income tax costs, we
believe that the Commission should not
disregard this data when calculating the
index level.
33. Moreover, contrary to the findings
in the Initial Order,66 MLP income taxes
have been reflected in oil pipeline rates.
Before the 2005 income tax policy
change, MLP pipelines could include at
least a partial income tax allowance in
their costs of service.67 To the extent
that prior index calculations did not
incorporate the 2005 policy change
allowing MLP pipelines to recover a full
64 Id.
P 19.
the 2015 Index Review when the
Commission began using page 700 data, the
Commission estimated pipeline cost changes using
a rough proxy based on Form No. 6 accounting data.
This accounting data did not directly measure
changes in the income tax costs recoverable under
Opinion No. 154–B. Id.; see also 2015 Index
Review, 153 FERC ¶ 61,312 at PP 14–15 (describing
this proxy and its deficiencies). The Commission
relied on this proxy because direct measures of
capital costs and income were not available when
the index was first established. 2015 Index Review,
153 FERC ¶ 61,312 at P 14. Before page 700 was
created, the Commission lamented that ‘‘the
measure of the capital cost component of the cost
of service is highly unsatisfactory’’ because Form
No. 6 did ‘‘not contain the information necessary
to compute a trended original cost . . . rate base or
a starting rate base as allowed for in [Opinion] No.
154–B.’’ Order No. 561–A, FERC Stats. & Regs. ¶
31,000 at 31,096.
66 Initial Order, 173 FERC ¶ 61,245 at P 19.
67 Lakehead Pipe Line Co., Opinion No. 397, 71
FERC ¶ 61,338 at 62,314–15 (1995) reh’g denied,
Opinion No. 397–A, 75 FERC ¶ 61,181 (1996)
(permitting partnership entities like MLP pipelines
to recover an income tax allowance for income
attributable to corporate partners, but not for
income attributable to individuals or other noncorporate partners); see also Riverside Pipeline Co.,
48 FERC ¶ 61,309, at 62,018 (1989) (applying preLakehead policy permitting partnership pipelines
to recover a full income tax allowance as if they
were corporations).
65 Before
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income tax allowance, we believe that
pipeline rates substantially came to
reflect that policy over time. In
particular, as the number of pipelines in
the Commission’s data set expanded,68
all initial rates and non-indexing rate
changes would have reflected MLP
pipelines’ ability to recover a full
income tax allowance under the
previous 2005 policy. Although we
recognize that prior index reviews
imperfectly captured the 2005 income
tax policy change, the 2005 policy
change affected oil pipeline rates over
the last 15 years. Thus, we do not
believe that the arguments based on the
2005 income tax policy change require
excluding the Income Tax Policy
Change from the index calculation.
34. For these reasons, we propose to
revise the index level prospectively by
using unadjusted page 700 data that
incorporates the effects of the Income
Tax Policy Change on pipeline
recoverable costs between 2014 and
2019. We invite comments on this
proposal.
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C. Appropriate Source of 2014 Page 700
Data
35. Page 700 includes columns for
reporting summaries of cost-of-service
data for both the current year and
previous year.69 The more recently filed
data reported in the previous-year
column often updates the data that was
filed in the prior year. As a result, for
the first year of the index review period
in the five-year review, the Commission
uses updated page 700 data filed in the
following year’s Form No. 6, where
available.70
36. In the Initial Order, the
Commission inadvertently departed
from its prior practice by using outdated
page 700 data for 2014. Although 38
pipelines filed updated 2014 data in
April 2016, the Initial Order erroneously
relied on those pipelines’ originally
filed 2014 data as reported in April
2015. Accordingly, we propose to
calculate a revised index level using
updated 2014, page 700 data, where
available, as reported in the previousyear column in the Form No. 6 filings
submitted in April 2016. This
68 Notably, 164 of the 277 total oil pipelines in
the Commission’s data set, or 59% have been added
since the 2005 five-year review.
69 For example, pipelines’ reported cost-of-service
data for the 2014 in their page 700s submitted in
April 2015 would be listed in the current-year
column and cost-of-service data for 2014 would
shift to the previous-year column in the page 700s
submitted in April 2016.
70 Five-Year Rev. of the Oil Pipeline Pricing Index,
114 FERC ¶ 61,293, at P 40 (2006) (2005 Index
Review) (finding that a witness was ‘‘correct to use
the data contained in [a] resubmitted FERC Form
No. 6’’).
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adjustment would ensure that the index
calculation reflects the most current
page 700 data for 2014 in accordance
with prior Commission practice.71
D. Calculating Prospective Ceiling
Levels
37. We propose that pipelines
recalculate their ceiling levels on a
prospective 72 basis as though the
revised index level was effective
throughout the five-year period.73 This
approach will set the going-forward oil
pipeline indexed rates at the proper
level in future years. Furthermore, this
approach will ensure that future rates
reflect the appropriate use of the middle
50% (not the distortions caused by the
adoption of the middle 80%) as well as
the elimination of the MLP income tax
allowance.74 We also believe that this
approach is appropriate given the
circumstances of this case resulting
from the flaws in the Initial Order, the
71 E.g., 2015 Index Review, 153 FERC ¶ 61,312 at
Workpapers, COSdata Tab (noting that ‘‘[w]here
available, data for given year is taken from the
‘Previous Year Amount’ column of the following
year’s Form 6 (e.g., 2009 data is from column (c)
of the 2010 Form 6’’); 2005 Index Review, 114 FERC
¶ 61,293 at P 40.
72 See, e.g., 5 U.S.C. 551(4) (defining ‘‘rule’’ under
APA ‘‘as an agency statement of general or
particular applicability and future effect’’ (emphasis
added)); Safari Club Int’l v. Zinke, 878 F.3d 316,
333 (D.C. Cir. 2017) (explaining that ‘‘rules
generally have only ‘future effect’ ’’ (citations
omitted)); Georgetown Univ. Hosp. v. Bowen, 821
F.2d 750, 758 (D.C. Cir. 1987) (‘‘The . . . suggestion
that a retroactive rulemaking is permissible to
remedy a procedural defect in a rule would, if
accepted, make a mockery of the provisions of the
APA. . . . [B]oth the express terms of the APA and
the integrity of the rulemaking process demand that
the corrected rule, like all other legislative rules, be
prospective in effect only.’’).
73 For example, assume that Pipeline A’s ceiling
level on June 30, 2021, was $5.00 and that Pipeline
A has not subsequently revised its rate by a method
other than indexing. See 18 CFR 342.3(d)(5). Under
our proposal, if the Commission adopts a revised
index level of PPI–FG–0.21% in this proceeding,
Pipeline A’s recomputed ceiling level would be
$6.13941 as of June 30, 2025 ($5.00 × (0.984288 ×
1.087107 × 1.133194 × 1.012647)). See
Reinstatement Order, 188 FERC ¶ 61,173 at P 1
(listing index multipliers that result from using
index level of PPI–FG–0.21%).
74 The index is cumulative from year to year,
whereby each annual index is applied to the
pipeline’s ceiling level from the preceding year. 18
CFR 342.3(d)(1); Order no. 561, FERC Stats. & Regs.
¶ 30,985 at 30,954. In the Reinstatement Order, the
Commission directed pipelines to recompute their
ceiling levels as though the Initial Index applied for
the full five-year period. Reinstatement Order, 188
FERC ¶ 61,173 at P 1. As a result, if the Commission
adopts a revised index level that incorporates the
Income Tax Policy Change, this determination
would not be fully reflected in rates unless
pipelines’ ceiling levels are recomputed as though
the revised index level applied for the full five-yearperiod. By contrast, if ceiling levels were computed
as if the revised index level applied as of July 1,
2025, rather than for the full five years, pipeline
rates would only partially reflect the Commission’s
determination to eliminate the MLP income tax
allowance from the index calculation.
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84481
timely concerns raised by shippers, and
the procedural holdings of LEPA v.
FERC. Additionally, this approach
would conform to the Commission’s
practice in the 2000 five-year review,
where it adopted a revised index level
following a judicial remand.75 We seek
comment upon this proposal. Moreover,
commenters may address whether, in
the alternative, pipelines’ ceiling levels
should only reflect a revised index level
as of July 1, 2025, rather than for the full
five-year period.
III. Request for Comments
38. We invite comments on the
Commission’s proposal to calculate a
revised index level, as described above.
Commenters may address any issues
regarding the appropriate index level
following LEPA v. FERC, including, but
not limited to, whether the Commission
should amend the Initial Index by
relying solely upon the middle 50%,
incorporating the Income Tax Policy
Change, and using updated page 700
data for 2014. Commenters may address
the calculation of the revised index
level. In addition, commenters should
renew any arguments raised in requests
for rehearing or clarification of the
Initial Order that they would like for the
Commission to consider in determining
the index level for this five-year review
period.
39. In their initial comments,
commenters may also describe any
additional remedial steps not discussed
herein that they believe the Commission
should take following the vacatur of the
Rehearing Order in LEPA v. FERC.
Commenters may also address any
potential action that the Commission
should take regarding the period
between (a) the March 1, 2022 effective
date of tariff records filed pursuant to
the Rehearing Order and (b) September
17, 2024, when the Commission
reinstated the Initial Order.
40. We acknowledge that the
Commission has not previously
undertaken a supplemental rulemaking
to consider revisions to the index level
outside of the five-year review process
established in Order No. 561. However,
in the present circumstances, we believe
that it is appropriate to initiate new
notice-and-comment procedures given
the D.C. Circuit’s holdings in LEPA v.
FERC and our ongoing concerns with
the Commission’s determinations in the
Initial Order. Commenters may address
any issues or concerns associated with
75 2000 Remand Order, 102 FERC ¶ 61,195 at PP
1, 31 (allowing pipelines to recalculate their ceiling
levels as though the revised index level adopted on
remand was in effect throughout the ongoing fiveyear period).
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the proposal to revise the index level
during the five-year period.
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IV. Comment Procedures
41. Initial comments are due
November 26, 2024. Reply comments
are due December 20, 2024. Comments
must refer to Docket No. RM25–2–000,
and must include the commenter’s
name, the organization they represent, if
applicable, and their address. All
comments will be placed in the
Commission’s public files and may be
viewed, printed, or downloaded
remotely as described in the Document
Availability section below. Commenters
on this proposal are not required to
serve copies of their comments on other
commenters.
42. The Commission encourages
comments to be filed electronically via
the eFiling link on the Commission’s
website at https://www.ferc.gov. The
Commission accepts most standard
word processing formats. Documents
created electronically using word
processing software must be filed in
native applications or print-to-PDF
format and not in a scanned format.
Commenters filing electronically do not
need to make a paper filing.
43. Commenters that are not able to
file comments electronically may file an
original of their comment by USPS mail
or by courier-or other delivery services.
For submission sent via USPS only,
filings should be mailed to: Federal
Energy Regulatory Commission, Office
of the Secretary, 888 First Street NE,
Washington, DC 20426. Submission of
filings other than by USPS should be
delivered to: Federal Energy Regulatory
Commission, 12225 Wilkins Avenue,
Rockville, MD 20852.
V. Document Availability
44. In addition to publishing the full
text of this document in the Federal
Register, the Commission provides all
interested persons an opportunity to
view and/or print the contents of this
document via the internet through the
Commission’s Home Page (https://
www.ferc.gov).
45. From the Commission’s Home
Page on the internet, this information is
available on eLibrary. The full text of
this document is available on eLibrary
in PDF and Microsoft Word format for
viewing, printing, and/or downloading.
To access this document in eLibrary,
type the docket number excluding the
last three digits of this document in the
docket number field.
46. User assistance is available for
eLibrary and the Commission’s website
during normal business hours from
FERC Online Support at (202) 502–6652
(toll free at 1–866–208–3676) or email at
VerDate Sep<11>2014
16:04 Oct 22, 2024
Jkt 265001
ferconlinesupport@ferc.gov, or the
Public Reference Room at (202) 502–
8371, TTY (202) 502–8659. Email the
Public Reference Room at
public.referenceroom@ferc.gov.
By direction of the Commission.
Issued: October 17, 2024.
Debbie-Anne A. Reese,
Secretary.
[FR Doc. 2024–24518 Filed 10–22–24; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF STATE
22 CFR Parts 120, 121, and 126
[Public Notice: 12543]
RIN 1400–AE73
International Traffic in Arms
Regulations (ITAR): U.S. Munitions List
Categories IV and XV
Department of State.
Proposed rule.
AGENCY:
ACTION:
The Department of State (the
Department) proposes to amend the
International Traffic in Arms
Regulations (ITAR) to revise U.S.
Munitions List (USML) Categories IV
and XV and related sections of the ITAR
to clarify and standardize the regulatory
text, add items that warrant designation
on the USML, and remove those items
that no longer warrant designation on
the USML. The Department further
proposes to add three new license
exemptions to the ITAR.
DATES: Send comments on or before
November 22, 2024.
ADDRESSES: Interested parties may
submit comments to the Department by
any of the following methods:
• Visit the Regulations.gov website at:
https://www.regulations.gov and search
for the docket number DOS–2024–0035.
• Email: DDTCPublicComments@
state.gov. Commenting parties must
include RIN 1400–AE73 in the subject
line of the email message.
See SUPPLEMENTARY INFORMATION for
other information about electronic
filing.
SUMMARY:
Mr.
Robert Rasmussen, Office of Defense
Trade Controls Policy, Department of
State, telephone (202) 663–2217; email
DDTCCustomerService@state.gov;
SUBJECT: International Traffic in Arms
Regulations: USML Categories IV and
XV (RIN 1400–AE73).
SUPPLEMENTARY INFORMATION: The
Department of State’s Directorate of
Defense Trade Controls (DDTC)
regulates the export, reexport, retransfer,
FOR FURTHER INFORMATION CONTACT:
PO 00000
Frm 00008
Fmt 4702
Sfmt 4702
and temporary import of the defense
articles and defense services identified
on the USML at ITAR § 121.1. Items not
subject to the ITAR or to the exclusive
licensing jurisdiction of any other
department or agency of the U.S.
Government are subject to the Export
Administration Regulations (EAR, 15
CFR parts 730 through 774, which
includes the Commerce Control List
(CCL) in supplement no. 1 to part 774).
The EAR is administered and enforced
by the Bureau of Industry and Security
(BIS), U.S. Department of Commerce.
This rule does not modify the list of
defense articles and defense services
controlled for purposes of permanent
import by the Attorney General, as
enumerated on the U.S. Munitions
Import List (USMIL) at 27 CFR 447.21.
Section 38 of the Arms Export Control
Act (AECA) (22 U.S.C. 2778), the
authority from which the ITAR is
derived, requires periodic review to
determine what articles and services, if
any, no longer warrant designation on
the U.S. Munitions List at 22 CFR 121.1.
In maintaining the USML, DDTC’s
Office of Defense Trade Controls Policy
(DTCP) identifies articles and services
for review through a variety of methods,
including informal public and
interagency comment, commodity
jurisdiction reviews, advisory opinions,
and technology monitoring. The
Department maintains the USML such
that it comprises those defense articles
or defense services that provide a
critical military or intelligence
advantage or, in the case of firearms,
have an inherently military function.
The Department, informed by
consultations with its interagency
partners, determined that the additional
defense articles this rule proposes to
designate on the USML warrant ITAR
control and those articles it proposes to
remove from the USML no longer do.
This rule also proposes to amend and
clarify certain regulatory text that
describes items on the USML.
Further, on December 20, 2023, Vice
President Kamala Harris convened the
National Space Council to discuss U.S.
leadership in space. The Departments of
State and Commerce were subsequently
tasked to ‘‘review relevant export
controls and processes to better enable
a globally competitive U.S. space
industrial base while protecting our
national security and foreign policy
interests.’’ In addition to clarifying
existing controls, the Department
identifies three primary methods to
meet that objective. First, it presents
several updates to the USML’s structure,
terminology, and concepts. Second, it
proposes three new license exemptions
within the ITAR and the transition of
E:\FR\FM\23OCP1.SGM
23OCP1
]]>Agencies
[Federal Register Volume 89, Number 205 (Wednesday, October 23, 2024)]
[Proposed Rules]
[Pages 84475-84482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-24518]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 89, No. 205 / Wednesday, October 23, 2024 /
Proposed Rules
[[Page 84475]]
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 342
[Docket No. RM25-2-000]
Supplemental Review of the Oil Pipeline Index Level
AGENCY: Federal Energy Regulatory Commission, Department of Energy.
ACTION: Supplemental notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: 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 Liquid Energy
Pipeline Association v. FERC. 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.
DATES: Initial comments are due November 26, 2024. Reply comments are
due December 20, 2024.
ADDRESSES: Comments, identified by docket number, may be filed in the
following ways. Electronic filing through https://www.ferc.gov, is
preferred.
Electronic Filing: 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.
[cir] Mail via U.S. Postal Service Only: Addressed to: Federal
Energy Regulatory Commission, Secretary of the Commission, 888 First
Street NE, Washington, DC 20426.
[cir] Hand (including courier) delivery: Deliver to: Federal Energy
Regulatory Commission, 12225 Wilkins Avenue, Rockville, MD 20852.
The Comment Procedures Section of this document contains more
detailed filing procedures.
FOR FURTHER INFORMATION CONTACT:
Monil Patel (Technical Information), Office of Energy Market
Regulation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426, (202) 502-8296, [email protected]
Evan Steiner (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street NE, Washington,
DC 20426, (202) 502-8792, [email protected]
Molly Behan (Legal Information), Office of the General Counsel, Federal
Energy Regulatory Commission, 888 First Street NE, Washington, DC
20426, (202) 502-8816, [email protected]
SUPPLEMENTARY INFORMATION:
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).\1\ 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).\2\ In Liquid Energy Pipeline Association v.
FERC (LEPA v. FERC),\3\ 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.\4\ In compliance with this
directive, the Commission reinstated the Initial Order by order issued
September 17, 2024.\5\
---------------------------------------------------------------------------
\1\ Five-Year Rev. of the Oil Pipeline Index, 173 FERC ] 61,245
(2020).
\2\ Five-Year Rev. of the Oil Pipeline Index, 178 FERC ] 61,078,
reh'g denied, 179 FERC ] 61,100 (2022) (Second Rehearing Order).
\3\ 109 F.4th 543 (D.C. Cir. 2024).
\4\ Id. at 547-49.
\5\ Revisions to Oil Pipeline Reguls. Pursuant to the Energy
Pol'y Act of 1992, 188 FERC ] 61,173 (2024) (Reinstatement Order).
---------------------------------------------------------------------------
2. As discussed below, we remain concerned that the Commission
erred in establishing the Initial Index. Thus, following LEPA v. FERC,
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 LEPA v. FERC.
I. Background
A. Indexing and the Kahn Methodology
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.'' \6\ 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.'' \7\
---------------------------------------------------------------------------
\6\ Public Law No. 102-486, 1801(a), 1802(a), 106 Stat. 2776,
3010 (Oct. 24, 1992) (codified at 42 U.S.C. 712 note).
\7\ 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. Id.
343.2(c)(1).
---------------------------------------------------------------------------
4. The Commission reviews the index level every five years.\8\
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
[[Page 84476]]
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.
---------------------------------------------------------------------------
\8\ Revisions to Oil Pipeline Reguls. Pursuant to the Energy
Pol'y Act of 1992, 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), order on reh'g, 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), aff'd sub nom.
Ass'n of Oil Pipe Lines v. FERC, 83 F.3d 1424 (D.C. Cir. 1996) (AOPL
I).
---------------------------------------------------------------------------
B. 2020 Five-Year Review
5. On June 18, 2020, the Commission initiated the 2020 five-year
review.\9\ 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).\10\ Ten commenters filed comments addressing the
Commission's proposal.\11\ 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.
---------------------------------------------------------------------------
\9\ Five-Year Rev. of the Oil Pipeline Index, 171 FERC ] 61,239
(2020) (NOI).
\10\ Id. PP 9-10; see also Inquiry Regarding the Commission's
Policy for Recovery of Income Tax Costs, 162 FERC ] 61,227 (Income
Tax Policy Statement), reh'g denied, 164 FERC ] 61,030 (2018),
requests for clarification dismissed, 168 FERC ] 61,136 (2019),
petitions for review dismissed sub nom. Enable Miss. River
Transmission, LLC v. FERC, 820 F. App'x 8 (D.C. Cir. 2020).
\11\ Comments were filed by: Liquid Energy Pipeline Association
(LEPA, formely known as Association of Oil Pipe Lines or AOPL);
Buckeye Partners, L.P., Colonial Pipeline Company, Energy Trasfer
LP, Enterprise Products Partners L.P., and Plains All American
Pipeline, L.P. (collectively, Designated Carriers); Kinder Morgan,
Inc.; Airlines for America, Chevron Products Company, National
Proprane Gas Association, and Valero Marketing and Supply Company
(collectively, Joint Commenters); Apache Corporation Cenovus Energy
Marketing Services Ltd., ConocoPhillips Company, Devon Gas Services,
L.P., Equinor Marketing & Trading US Inc., Fieldwood Energy LLC,
Marathon Oil Company, Murphy Exploration and Production Company--
USA, Ovintiv Marketing Inc., and Pioneer Natural Resources USA, Inc.
(collectively, Liquids Shippers Group); Canadian Association of
Petroleum Producers (CAPP); Pipeline Safety Trust; Energy
Infrastructure Council; and Pipeline and Hazardous Materials Safety
Administration.
---------------------------------------------------------------------------
6. In the Initial Order, the Commission established the Initial
Index of PPI-FG+0.78%.\12\ The Commission adopted Pipelines' proposals
to use the middle 80% and to remove the effects of the Income Tax
Policy Change from the index calculation.\13\ On January 19, 2021,
Shippers filed requests for rehearing challenging the Commission's
determinations, and Pipelines requested rehearing or clarification to
correct minor errors in the workpapers underlying the Initial Order.
---------------------------------------------------------------------------
\12\ Initial Order, 173 FERC ] 61,245 at P 2.
\13\ Id. PP 16-20, 25-32.
---------------------------------------------------------------------------
7. In the Rehearing Order, the Commission granted rehearing in part
and adopted the Rehearing Index of PPI-FG-0.21%. The Commission granted
Shippers' requests to calculate the index level using the middle 50%
and unadjusted page 700 data that reflects the effects of the Income
Tax Policy Change.\14\ The Commission found that the middle 50%
produces a more accurate measure of normal pipeline cost changes than
the middle 80%, which includes pipelines with extraordinary cost
changes that were unrepresentative of ordinary pipeline operations.\15\
Furthermore, the Commission found that the index calculation must
incorporate the Income Tax Policy Change to produce just and reasonable
rates.\16\ The Commission also granted Pipelines' request to calculate
the index level using updated page 700 data for 2014 where
available.\17\
---------------------------------------------------------------------------
\14\ Rehearing Order, 178 FERC ] 61,023 at PP 16-36, 43-58; see
also id. PP 64-70, 78-88, 95-98 (denying rehearing regarding issues
raised by Liquids Shippers Group and CAPP).
\15\ Id. PP 46-50
\16\ Id. P 17.
\17\ Id. P 101; see also id. P 104 (denying additional proposal
raised by Designated Carriers in light of Commission's determination
to use unadjusted page 700 data that incorporated effects of Income
Tax Policy Change).
---------------------------------------------------------------------------
8. The Commission directed oil pipelines to recompute their ceiling
levels to reflect the Rehearing Index and to reduce their rates in
accordance with those ceiling levels effective March 1, 2022.\18\
Thereafter, Pipelines filed petitions for review of the Rehearing Order
with the D.C. Circuit,\19\ and Joint Commenters filed a request for
rehearing or clarification, which the Commission denied by order issued
May 6, 2022.\20\
---------------------------------------------------------------------------
\18\ Id. P 106, ordering para. (B).
\19\ Pipelines initially appealed the Rehearing Order to the
Unites States Court of Appeals for the Fifth Circuit (Fifth
Circuit). However, in May 2022, the Fifth Circuit transferred the
appeals to the D.C. Circuit. Buckeye Partners, L.P. v. FERC, No. 22-
601000, 2022 WL 1528311 (5th Cir. May 13, 2022).
\20\ Second Rehearing Order, 179 FERC ] 61,100. Joint Commenters
filed petitions for review of the Second Rehearing Order in the D.C.
Circuit, which were consolidated with Pipelines' petitions for
review of the Rehearing Order.
---------------------------------------------------------------------------
C. LEPA v. FERC and Reinstatement Order
9. In LEPA v. FERC, the D.C. Circuit granted Pipelines' petitions
and held that the Commission violated the APA by altering the Initial
Index on rehearing without providing additional notice and an
opportunity for comment. The court found that the Commission adhered to
the APA's notice-and-comment requirements when it adopted the Initial
Index.\21\ However, the court explained that once an agency's rule
``carrie[s] legal consequences,'' the APA generally requires the agency
to follow notice-and-comment procedures before amending the rule.\22\
The court found that the Initial Index became ``sufficiently final'' by
July 1, 2021, ``to require that any amendment undergo notice-and-
comment procedures.'' \23\ Because the Commission amended the Initial
Index without engaging in additional notice-and-comment procedures, the
court vacated the Rehearing Order and ordered the Commission to
reinstate the Initial Order.\24\
---------------------------------------------------------------------------
\21\ LEPA v. FERC, 109 F.4th at 547.
\22\ Id. at 548 (quoting Humane Soc'y v. USDA, 41 F.4th 564, 570
(D.C. Cir. 2022)) (internal quotation marks omitted).
\23\ Id. at 549.
\24\ Id. The court held that because it was vacating the
Rehearing Order, Joint Commenters' challenges to the Second
Rehearing Order were moot. Id.
---------------------------------------------------------------------------
10. On September 17, 2024, the Commission issued an order
reinstating the Initial Order in compliance with the court's
decision.\25\
---------------------------------------------------------------------------
\25\ Reinstatement Order, 188 FERC ] 61,173 at P 1. The
Commission reinstated the Initial Index after the D.C. Circuit
issued the mandate associated with LEPA v. FERC on September 17,
2024.
---------------------------------------------------------------------------
II. Commission Proposal
11. Following the vacatur of the Rehearing Order in LEPA v. FERC,
we remain concerned that the Initial Order improperly calculated the
index level by using the middle 80%, removing the effects of the Income
Tax Policy Change, and using outdated page 700 data for 2014 for
certain pipelines. Accordingly, we initiate notice-and-comment
procedures to consider whether to amend the Initial Index on a
prospective basis.\26\
---------------------------------------------------------------------------
\26\ See LEPA v. FERC, 109 F.4th at 549; see also 49 U.S.C. app.
17(9)(g).
---------------------------------------------------------------------------
12. As discussed below, we propose to adopt a revised index level
of PPI-FG-0.21% for the remainder of the five-
[[Page 84477]]
year period that began on July 1, 2021.\27\ This proposal is based on
the Kahn Methodology as applied to page 700 data from 2014-2019 and
results from (1) relying solely on the middle 50%, (2) using unadjusted
page 700 data that reflects the effects of the Income Tax Policy
Change, and (3) using updated page 700 data for 2014, where available.
We seek comments on our proposal and encourage commenters to address
all issues related to the appropriate index level following LEPA v.
FERC, including those issues discussed below.\28\ Commenters should
also renew any arguments raised in requests for rehearing or
clarification of the Initial Order that they would like for the
Commission to consider.
---------------------------------------------------------------------------
\27\ This supplemental NOPR applies to the current five-year
review period. Consistent with its longstanding practice, the
Commission will initiate a separate process for establishing the
index level for the five-year period starting July 1, 2026.
\28\ 5 U.S.C. 553(b)-(c); see also LEPA v. FERC, 109 F.4th at
549.
---------------------------------------------------------------------------
A. Statistical Data Trimming
13. We propose to amend the Initial Index by calculating a revised
index level relying solely on the middle 50%. As discussed below, we
are concerned that the Commission's use of the middle 80% in the
Initial Order departed from established practice and that the record in
the 2020 five-year review did not support this change.
14. As an initial matter, the index aims to reflect the cost
experience of a typical pipeline during ordinary pipeline
operations.\29\ The index is not designed to recover extraordinary cost
changes,\30\ including those resulting from atypical or idiosyncratic
circumstances,\31\ and the presence of extraordinary cost changes in
the data set can inflate the index level.\32\
---------------------------------------------------------------------------
\29\ E.g., Five-Year Rev. of Oil Pipeline Pricing Index, 133
FERC ] 61,228, at P 61 (2010) (2010 Index Review), reh'g denied, 135
FERC ] 61,172 (2011); Order No. 561-A, FERC Stats. & Regs. ] 31,000
at 31,097 (``The role of an index is to accommodate normal cost
changes.'').
\30\ Extraordinary cost changes are recovered using the
Commission's alternate ratemaking methodologies, rather than through
indexing. Order No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,097
(``Extraordinary costs can be recovered through either of the
alternate rate change means--cost of service or settlement rates--as
provided in [Order No. 561].'').
\31\ Order No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,097,
aff'd, AOPL I, 83 F.3d at 1434; see also 2010 Index Review, 133 FERC
] 61,228 at P 54.
\32\ Extraordinary cost changes would affect the composite
central tendency of the data sample through the weighted mean and
unweighted mean, which, unlike the median, reflect the cost
experiences of all pipelines in the sample, including those at the
upper and lower bounds.
---------------------------------------------------------------------------
15. To avoid inflating the index, the Commission excludes pipelines
with extraordinary or idiosyncratic cost changes from its analysis. In
the 2010 and 2015 Index Reviews, the Commission found that the middle
50% more appropriately adjusts the index level for normal cost changes
than the middle 80%, which, by definition, includes pipelines
relatively far removed from the median of the data set.\33\ The
Commission also concluded that pipelines included in the middle 80% but
not the middle 50% (i.e., the incremental 30%) are more likely to have
cost changes resulting from idiosyncratic factors, such as a rate base
expansion, plant retirement, or localized changes in supply and demand,
that do not reflect normal industry-wide experience.\34\ Thus, the
Commission found that the middle 50%, more effectively than the middle
80%, trims pipelines with anomalous cost changes from the data set
while avoiding the complexities and distorting effects of manual data
trimming methodologies.\35\ Following the 2015 Index Review, the D.C.
Circuit affirmed the Commission's decision to calculate the index level
based solely upon the middle 50%.\36\
---------------------------------------------------------------------------
\33\ Five-Year Rev. of the Oil Pipeline Index, 153 FERC ]
61,312, at PP 43-44 (2015) (2015 Index Review), aff'd sub nom. Ass'n
of Oil Pipe Lines v. FERC, 876 F.3d 336 (D.C. Cir. 2017) (AOPL III);
2010 Index Review, 133 FERC ] 61,228 at P 61.
\34\ 2010 Index Review, 133 FERC ] 61,228 at P 61.
\35\ 2015 Index Review, 153 FERC ] 61,312 at P 42 (citing 2010
Index Review, 133 FERC ] 61,228 at PP 60-63).
\36\ AOPL III, 876 F.3d at 342 (stating that the court had
``little difficulty in finding that the Commission adequately and
reasonably justified its decision not to consider the middle 80[%]
of pipelines' cost-change data'' in that proceeding).
---------------------------------------------------------------------------
16. As discussed above, in the Initial Order, the Commission
departed from its prior practice by using the middle 80%, as opposed to
the middle 50%. We are concerned, however, that the page 700 data set
for the 2014-2019 period does not support this change. The scatter plot
below indicates that the middle 80% in this data set includes several
pipelines near its upper bound that differ considerably from the other
pipelines in the sample.\37\
---------------------------------------------------------------------------
\37\ This scatter plot modifies a similar chart submitted by
Joint Commenters in Docket No. RM20-14-000. Joint Commenters Reply
Comments, Brattle Group Report at 19, Figure 3 (scatter plot
illustrating dispersion of the middle 50% and middle 80% in the
unadjusted 2020 data set). The modifications reflect the adjustments
proposed herein to the page 700 data set.
[GRAPHIC] [TIFF OMITTED] TP23OC24.007
[[Page 84478]]
17. Moreover, these pipelines, particularly those at the upper
bound of the middle 80% range, exert an outsized influence that
inflates the index calculation. The difference between the middle 50%
and the middle 80% results primarily from eight pipelines at the upper
bound of the middle 80%.\38\
---------------------------------------------------------------------------
\38\ As discussed above, the Kahn Methodology calculates a
composite central tendency by averaging the data sample's median,
weighted mean, and unweighted mean. See supra P 4. If the top and
bottom eight pipelines in the middle 80% are removed from the
sample, the composite central tendency would increase by 3 basis
points relative to the middle 50%, from -0.21% to -0.18%. By
contrast, including the top and bottom eight pipelines in the middle
80% would increase the composite central tendency by an additional
29 basis points, from -0.18% to 0.11%. See Attach. A, Ex. 6.
---------------------------------------------------------------------------
18. Furthermore, the page 700 data set indicates that the middle
80% is even more dispersed than in 2015 or 2010,\39\ as illustrated by
the bar chart below.\40\
---------------------------------------------------------------------------
\39\ When the data sample is highly dispersed, data at the outer
bounds of the middle 80% are further removed from the remaining data
and thus can have an outsized and distorting effect if used to
measure the central tendency.
\40\ The bar chart modifies a similar chart submitted by Joint
Commenters in Docket No. RM20-14-000. Joint Commenters Reply
Comments, Brattle Group Report at 18, Figure 2 (bar chart
illustrating dispersion of middle 50% and middle 80% in 2010, 2015,
and the unadjusted 2020 data sets). The modifications reflect the
adjustments proposed herein to the page 700 data set.
[GRAPHIC] [TIFF OMITTED] TP23OC24.008
19. In addition, the incremental 30% appears to include pipelines
with extraordinary cost changes that are not reflective of ordinary
pipeline operations. For example, in the 2020 five-year review, Joint
Commenters identified seven pipelines in the incremental 30% whose
reported cost changes resulted from irregular circumstances, such as
pipeline ruptures or temporary shutdowns.\41\
---------------------------------------------------------------------------
\41\ Joint Commenters Reply Comments, Brattle Group Report at
13-17. For example, MPI Services North America, Inc., reported an
inflated 2019 cost of service per barrel-mile due to a temporary
shutdown of one of its pipeline segments and Mobil Pipe Line Company
experienced a pipeline rupture in 2013 that distorted its 2014 cost-
of-service data. Id. at 15-17.
---------------------------------------------------------------------------
20. Although the Initial Order identified three reasons for using
the middle 80% instead of the middle 50%, we no longer find this
reasoning persuasive. First, the mere fact that the middle 80% contains
more data does not support departing from the middle 50%.\42\ The
middle 50% here includes 81% of industry-wide oil pipeline barrel-
miles,\43\ and thus provides a more representative sample than in 2015
or 2010, when the Commission relied solely on the middle 50%. In
particular, the middle 50% in the 2015 and 2010 Index Reviews contained
56% and 76%, respectively of total barrel-miles subject to the
index.\44\ Thus, omitting the additional pipelines included in the
incremental 30% would not deprive the Commission of a robust data
sample. Furthermore, we are concerned that any benefits of considering
the larger sample in the middle 80% would not outweigh the risk that
this additional data will distort the measurement of normal cost
changes.
---------------------------------------------------------------------------
\42\ See Initial Order, 173 FERC ] 61,245 at P 26.
\43\ See attach. A, Ex. 1.
\44\ See 2015 Index Review, 153 FERC ] 61,312 at P 44 n.85; id.
at attach. A, Ex. 1; 2010 Index Review, 133 FERC ] 61,228 at P 63.
---------------------------------------------------------------------------
21. Second, contrary to the Initial Order, it is not clear that
using the middle 80% would provide a better measure of ``normal'' cost
changes in this proceeding.\45\ Rather, as discussed above, the middle
80% appears to include anomalous data that would distort the
measurement of the central tendency used to calculate the index
level.\46\ This suggests that the more tailored data sample in the
middle 50% provides a superior method of measuring normal cost changes,
as opposed to extraordinary or idiosyncratic costs.
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\45\ See Initial Order, 173 FERC ] 61,245 at P27.
\46\ The Commission stated in the Initial Order that using the
middle 80% is appropriate because the index average will be
significantly below the relatively high cost changes at the upper
bound. Id. PP 27, 32. However, even if the index average is not set
at the upper bound of the data sample, including the upper bound of
the middle 80% could nonetheless produce an index average inflated
by anomalous cost experience. See 2010 Index Review, 133 FERC ]
61,228 at P 61 (``Using the middle 50[%] ensures that pipelines with
relatively large cost increases or decreases do not distort the
index.'').
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22. Third, the Initial Order sought to distinguish the 2015 and
2010 Index Reviews on the basis that, unlike in the 2020 review,
commenters in those proceedings ``presented detailed analyses
demonstrating that the incremental 30% contained anomalous cost changes
. . . .'' \47\ However, as in
[[Page 84479]]
those prior reviews, the record in the 2020 review indicates that the
middle 80% includes outlying cost increases, reflects significant
dispersion, and includes pipelines with idiosyncratic cost changes. To
the extent that shippers submitted more detailed analyses in 2015 and
2010, they presented this evidence to support manual data trimming
proposals, which the Commission rejected in favor of trimming the data
set to the middle 50%.\48\ We are concerned that it would be
incongruous to reject manual data trimming while at the same time
requiring commenters to present similar analyses to justify continued
use of the middle 50%.
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\47\ See Initial Order, 173 FERC ] 61,245 at P 28.
\48\ 2015 Index Review, 153 FERC ] 61,312 at PP 36, 42; 2010
Index Review, 133 FERC ] 61,228 at P 62.
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23. For these reasons, we are no longer persuaded by the
Commission's reasoning in the Initial Order for using the middle 80%.
Accordingly, we propose to calculate a revised index level using the
middle 50% and seek comment on this proposal.
B. Income Tax Policy Change
24. We are concerned that removing the Income Tax Policy Change
from the index calculation could result in oil pipeline rates that are
unjust and unreasonable. Thus, we propose to revise the index level
prospectively by using unadjusted page 700 data that reflects the
effects of the Income Tax Policy Change on pipeline cost changes from
2014-2019.
25. Several considerations support this proposal. The D.C. Circuit
and the Commission have concluded that allowing MLP pipelines to
recover an income tax allowance in addition to a return on equity (ROE)
determined using the Discounted Cash Flow (DCF) model results in an
impermissible double recovery of investor-level tax costs and produces
unjust and unreasonable rates.\49\ Although the Income Tax Policy
Change eliminated this double recovery by prohibiting MLP pipelines
from recovering an income tax allowance, oil pipeline rates have not
incorporated this policy change into going forward rates following the
vacatur of the Rehearing Order.\50\ Because indexing is the
Commission's primary ratemaking methodology for oil pipelines and
because indexed oil pipeline rates must be just and reasonable, we
believe that the index calculation should address the Income Tax Policy
Change.
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\49\ United Airlines, Inc. v. FERC, 827 F.3d 122 (D.C. Cir.
2016), order on remand, SFPP, L.P., Opinion No. 511-C 162 FERC ]
61,228, at P 22 (2018), reh'g denied, Opinion No. 511-D, 166 FERC ]
61,142, at PP 90-95 (2019), aff'd sub nom. SFPP, L.P. v. FERC, 967
F.3d 788, 793-97, 801-03 (D.C. Cir. 2020); see also Income Tax
Policy Statement, 162 FERC ] 61,227 at P 8. MLP pipelines do not
incur income taxes at the entity level, but the Commission justified
permitting MLP pipelines to recover an income tax allowance on the
basis that their investors pay taxes on their allocated share of the
MLP's taxable income. See Inquiry Regarding Income Tax Allowances,
111 FERC ] 61,139, at P 32 (2005). Because the D.C. Circuit and the
Commission concluded that the MLP pipeline's DCF ROE already
included investor-level income tax costs, a double recovery resulted
from permitting an income tax allowance that recovered those same
tax costs. Opinion No. 511-C, 162 FERC ] 61,228 at P 22.
\50\ With regard to natural gas pipeline rates, the Commission
acted to address this double recovery by requiring natural gas
pipelines to submit a one-time filing for the purpose of evaluating
the impact of the Income Tax Policy Change and the Tax Cuts and Jobs
Act on the pipeline's revenue requirement. Interstate & Intrastate
Nat. Gas Pipelines, Order No. 849, 164 FERC ] 61,031, at P 30
(2018), reh'g denied, Order No 849-A, 167 FERC ] 61,051 (2019). This
process allowed for MLP natural gas pipelines to voluntarily reduce
their rates in response to the Income Tax Policy Change and for the
Commission to initiate rate investigations pursuant to section 5 of
the Natural Gas Act where the pipeline appeared to be over-
recovering its cost of service as a result of the policy change.
E.g., Stagecoach Pipeline & Storage Co., 166 FERC ] 61,199 (2019);
N. Nat. Gas Co., 166 FERC ] 61,033 (2019). As opposed to initiating
cost-of-service complaints against oil pipelines, the Commission
stated that it would incorporate the effects of the Income Tax
Policy Change in the 2020 five-year review. Income Tax Policy
Statement, 162 FERC ] 61,227 at PP 8, 46.
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26. Furthermore, the index is intended to reflect changes in costs
recoverable under the Opinion No. 154-B methodology,\51\ such as the
Income Tax Policy Change. The Commission and the D.C. Circuit have long
recognized that the index should reflect changes in costs recoverable
under the Opinion No. 154-B methodology.\52\ The index is the primary
means for adjusting rates to recover those costs, and the Commission
uses the Opinion No. 154-B methodology cost data reported on page 700
to calculate the index level.\53\ Here, the Income Tax Policy Change
altered pipelines' recoverable costs by barring MLP pipelines from
recovering in 2019 income tax costs that they were permitted to recover
in 2014.\54\ Thus, by comparing the 2014 data reported on page 700
under the Commission's previous policy with the 2019 data reported
under its changed policy, the index calculation will accurately capture
the effects of the Income Tax Policy Change on costs recoverable under
Opinion No. 154-B.\55\
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\51\ The Opinion No. 154-B methodology is the cost-of-service
ratemaking methodology that the Commission uses for oil pipelines.
Williams Pipe Line Co., Opinion No. 154-B, 31 FERC ] 61,377, order
on reh'g, Opinion No. 154-C, 33 FERC ] 61,327 (1985). The Opinion
No. 154-B methodology is based on trended original costs, whereby
the inflationary component of the nominal return is placed in
deferred earnings and recovered as part of rate base in future
years. E.g., BP W. Coast Prods., LLC v. FERC, 374 F.3d 1263, 1282-83
(D.C. Cir. 2004).
\52\ AOPL III, 876 F.3d at 345 (finding that the Commission
``has consistently treated the index as a measure of normal
industry-wide cost-of-service changes''); 2015 Index Review, 153
FERC ] 61,312 at P 13, aff'd, AOPL III, 876 F.3d at 345-46 (``[T]he
index is meant to reflect changes to recoverable pipeline costs,
and, thus, the calculation of the index should use data that is
consistent with the Commission's [Opinion No. 154-B] cost-of-service
methodology.''); see also Order no. 561-A, FERC Stats. & Regs. ]
31,000 at 31,096 (stating that the then-existing Form No. 6 provided
a ``highly unsatisfactory'' measure of capital cost changes because
it did ``not contain the information necessary to compute a trended
original cost (TOC) rate base or a starting rate base'' under the
Opinion No. 154-B methodology).
\53\ 2015 Index Review, 153 FERC ] 61,312 at PP 12-13 (adopting
use of page 700 data to measure oil pipeline cost changes because,
among other reasons, page 700 data is consistent with the Opinion
No. 154-B methodology).
\54\ Although the Income Tax Policy Change applied only to MLP
pipelines, and not to non-MLP pipelines, this does not provide a
basis for excluding the Income Tax Policy Change from the index
calculation. As discussed above, indexing simplifies and streamlines
oil pipeline ratemaking by allowing pipelines to adjust their rates
based upon a generally applicable index that reflects industry-wide
cost experience. E.g., Order No. 561-A, FERC Stats. & Regs. ] 31,000
at 31,103 (explaining that indexing ``relies upon industry-wide
average costs, not company-specific costs, to establish rates''). A
policy change affecting the costs recoverable by particular
pipelines (such as MLPs) contributes to changes in industry-wide
recoverable costs and is thus appropriately reflected in the
calculation of the industry-wide index. By contrast, excluding the
Income Tax Policy Change from the calculation merely because it
applied only MLP pipelines would produce an index level that fails
to fully reflect cost-of-service changes across the industry from
2014-2019.
\55\ In contrast, adjusting the data set to remove the effects
of this policy change would maintain a divergence between indexed
rates and Opinion no. 154- B recoverable costs.
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27. In addition, we believe that incorporating the Income Tax
Policy Change into the index complies with EPAct 1992's dual mandates
for just and reasonable rates and simplified and streamlined
ratemaking.\56\ As the Commission's Opinion No. 154-B methodology
evolves, oil pipeline rates adjusted via indexing should reflect those
changes in order to remain just and reasonable. If the Commission omits
the effects of the Income Tax Policy Change from the index calculation,
the alternative method for reflecting the elimination of the MLP income
tax double recovery in rates would be through cost-of-service
litigation.\57\ We
[[Page 84480]]
are concerned that implementing cost-of-service policy changes in this
manner would frustrate the statutory goals of efficient and simplified
ratemaking embodied in EPAct 1992.\58\
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\56\ EPAct 1992, at 1801(a).
\57\ The index calculation for 2021-2026 presents the sole
opportunity for addressing the MLP income tax double recovery in
indexed rates via the simplified and streamlined five-year review
process. As discussed above, the Kahn Methodology calculates the
index level based on the change in industry-wide page 700 costs from
the first year of the review period to the last. Thus, it is only
possible to reflect the Income Tax Policy Change in the instant
index calculation, which measures cost changes from 2014 (when MLP
pipelines reported a positive income tax allowance) to 2019 (when
MLP pipelines reported zero income tax allowance). Capturing this
decrease in recoverable income tax costs from 2014 to 2019 will
reduce the index level to incorporate the elimination of the MLP
income tax double recovery. In contrast, the 2025 five-year review
will reflect no change in MLP income tax costs because MLP pipelines
will report zero income tax allowances for both the first and last
years of the 2019-2024 period.
\58\ See Ass'n of Oil Pipe Lines v. FERC, 281 F.3d 239, 244
(D.C. Cir 2002) (AOPL II) (holding that an oil pipeline ratemaking
regime based in large part on cost-of-service rate proceedings
``would be inconsistent with Congress's mandate under the EPAct for
FERC to establish `a simplified and generally applicable ratemaking
methodology' '' (quoting EPAct 1992, at 1801(a))).
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28. We are also concerned that adjusting page 700 data to remove
the effects of the Income Tax Policy Change conflicts with the
Commission's historical practice. Before the Initial Order, the
Commission had not previously adjusted the reported Form No. 6 data
used to derive the index level. Rather, Order Nos. 561 and 561-A
``opted for a purely historical analysis'' \59\ for measuring pipeline
cost changes based on documented cost experience, and in subsequent
five-year reviews, the Commission calculated the index level using
reported Form No. 6 data without adjustment. Thus, modifying MLP
pipelines' reported page 700 data in the Initial Order departed from
the purely historical analysis on which the Commission has consistently
relied since establishing the indexing regime.
---------------------------------------------------------------------------
\59\ Id. at 247 (citing Five-Year Rev. of Oil Pipeline Pricing
Index, 93 FERC ] 61,266, at 61,855 (2000) (2000 Index Review), aff'd
in part and remanded, AOPL II, 281 F.3d 239, order on remand, 102
FERC ] 61,195 (2003) (2000 Remand Order); Order No. 561, FERC Stats.
& Regs. ] 30,985 at 30,951 (explaining that the Commission ``opted
for a purely historical analysis'' for calculating the index level
and ``has adhered to it'').
---------------------------------------------------------------------------
29. Moreover, our proposal would honor the Commission's assurances
in the 2018 Income Tax Policy Statement that it would ``incorporate the
effects of [the Income Tax Policy Change] . . . in the 2020 five-year
review'' so that oil pipeline rates would reflect these reduced
costs.\60\ Whereas the Commission acted promptly to eliminate the MLP
income tax double recovery from natural gas pipeline rates, the
Commission deferred adjusting oil pipeline rates until the 2020 five-
year review. Failure to incorporate the Income Tax Policy Change into
the index level would leave MLP oil pipeline rates unaddressed
indefinitely. Furthermore, we recognize that shippers relied upon the
Commission's assurances in considering whether to bring challenges
against oil pipeline rates following the Income Tax Policy Change.
---------------------------------------------------------------------------
\60\ Income Tax Policy Statement, 162 FERC ] 61,227 at P 8; see
also Inquiry Regarding the Effect of the Tax Cuts & Jobs Act on
Commission-Jurisdictional Rates, 162 FERC ] 61,223, at P 4 (2018)
(``The Commission must ensure that the rates, terms, and conditions
of jurisdictional services under the Federal Power Act (FPA), the
Natural Gas Act (NGA), and the Interstate Commerce Act are just,
reasonable, and not unduly discriminatory or preferential''); id. P
8 (directing oil pipelines to report on page 700 an income tax
allowance consistent with the Income Tax Policy Change and the Tax
Cuts and Jobs Act). As opposed to initiating cost-of-service
complaints against oil pipelines, deferring action until the 2020
five-year review best fulfilled EPAct 1992's dual mandates for
simplified oil pipeline ratemaking and just and reasonable rates.
See supra note 59.
---------------------------------------------------------------------------
30. We are no longer persuaded by the reasoning provided in the
Initial Order for excluding the Income Tax Policy Change from the index
calculation. Contrary to the Initial Order, we do not believe there is
a meaningful distinction between changes to the Opinion No. 154-B
methodology and changes to the costs that pipelines input into that
methodology and end up reported on page 700.\61\ Rather, changes to the
Opinion No. 154-B methodology produce corresponding changes to the
costs that pipelines can recover. Accordingly, for purposes of
determining the index, any meaningful measure of changes to recoverable
costs between 2014 and 2019 should reflect the Income Tax Policy
Change.\62\
---------------------------------------------------------------------------
\61\ Initial Order, 173 FERC ] 61,245 at P 17 (stating that
``the purpose of indexing is to allow the indexed rate to keep pace
with industry-wide cost changes, not to reflect alterations to the
Commission's Opinion No. 154-B cost-of-service methodology'').
\62\ In the Initial Order, the Commission stated that ``[j]ust
as a business must account for changes to its accounting practices
when comparing costs over two different periods, we must make a
similar adjustment to the reported page 700 data here to derive an
`apples-to-apples' comparison of pipeline cost changes.'' Id.
However, this analogy to accounting methods is misplaced. Whereas an
accounting methodology simply involves the method of recording
costs, as explained above, the Income Tax Policy Change directly
affected the costs the MLP pipelines can recover under the Opinion
No. 154-B methodology.
---------------------------------------------------------------------------
31. Additionally, in contrast to the Initial Order, we do not
believe that reflecting the Income Tax Policy Change would effectuate a
true-up for prior-period over-recoveries.\63\ Consistent with the
purposes of the five-year review, incorporating the effects of the
Income Tax Policy Change in the index calculation would align
pipelines' future rates with their future costs recoverable under
Opinion No. 154-B. By failing to reflect the Income Tax Policy Change
in the calculation of the prospective index, the approach adopted in
the Initial Order would cause future indexed rates to become estranged
from future recoverable costs.
---------------------------------------------------------------------------
\63\ Id. P 18.
---------------------------------------------------------------------------
32. We likewise question the Initial Order's reasoning that
``[b]ecause no prior index calculation incorporated the [Commission's
2005 policy change] allowing MLP pipelines to recover an income tax
allowance, it is not necessary to reflect the policy change denying
those pipelines an income tax allowance in the calculation here.'' \64\
This statement disregards indexing's purpose and oversimplifies
historical Commission practice. Indexed rates have always served as a
means for recovering pipeline income tax costs. Accordingly, the five-
year review index calculation was always intended to incorporate
changes in pipeline income tax costs, even if the Commission previously
measured those costs using an imperfect estimate.\65\ Now that the
Commission uses page 700 data that directly measures income tax costs,
we believe that the Commission should not disregard this data when
calculating the index level.
---------------------------------------------------------------------------
\64\ Id. P 19.
\65\ Before the 2015 Index Review when the Commission began
using page 700 data, the Commission estimated pipeline cost changes
using a rough proxy based on Form No. 6 accounting data. This
accounting data did not directly measure changes in the income tax
costs recoverable under Opinion No. 154-B. Id.; see also 2015 Index
Review, 153 FERC ] 61,312 at PP 14-15 (describing this proxy and its
deficiencies). The Commission relied on this proxy because direct
measures of capital costs and income were not available when the
index was first established. 2015 Index Review, 153 FERC ] 61,312 at
P 14. Before page 700 was created, the Commission lamented that
``the measure of the capital cost component of the cost of service
is highly unsatisfactory'' because Form No. 6 did ``not contain the
information necessary to compute a trended original cost . . . rate
base or a starting rate base as allowed for in [Opinion] No. 154-
B.'' Order No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,096.
---------------------------------------------------------------------------
33. Moreover, contrary to the findings in the Initial Order,\66\
MLP income taxes have been reflected in oil pipeline rates. Before the
2005 income tax policy change, MLP pipelines could include at least a
partial income tax allowance in their costs of service.\67\ To the
extent that prior index calculations did not incorporate the 2005
policy change allowing MLP pipelines to recover a full
[[Page 84481]]
income tax allowance, we believe that pipeline rates substantially came
to reflect that policy over time. In particular, as the number of
pipelines in the Commission's data set expanded,\68\ all initial rates
and non-indexing rate changes would have reflected MLP pipelines'
ability to recover a full income tax allowance under the previous 2005
policy. Although we recognize that prior index reviews imperfectly
captured the 2005 income tax policy change, the 2005 policy change
affected oil pipeline rates over the last 15 years. Thus, we do not
believe that the arguments based on the 2005 income tax policy change
require excluding the Income Tax Policy Change from the index
calculation.
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\66\ Initial Order, 173 FERC ] 61,245 at P 19.
\67\ Lakehead Pipe Line Co., Opinion No. 397, 71 FERC ] 61,338
at 62,314-15 (1995) reh'g denied, Opinion No. 397-A, 75 FERC ]
61,181 (1996) (permitting partnership entities like MLP pipelines to
recover an income tax allowance for income attributable to corporate
partners, but not for income attributable to individuals or other
non-corporate partners); see also Riverside Pipeline Co., 48 FERC ]
61,309, at 62,018 (1989) (applying pre-Lakehead policy permitting
partnership pipelines to recover a full income tax allowance as if
they were corporations).
\68\ Notably, 164 of the 277 total oil pipelines in the
Commission's data set, or 59% have been added since the 2005 five-
year review.
---------------------------------------------------------------------------
34. For these reasons, we propose to revise the index level
prospectively by using unadjusted page 700 data that incorporates the
effects of the Income Tax Policy Change on pipeline recoverable costs
between 2014 and 2019. We invite comments on this proposal.
C. Appropriate Source of 2014 Page 700 Data
35. Page 700 includes columns for reporting summaries of cost-of-
service data for both the current year and previous year.\69\ The more
recently filed data reported in the previous-year column often updates
the data that was filed in the prior year. As a result, for the first
year of the index review period in the five-year review, the Commission
uses updated page 700 data filed in the following year's Form No. 6,
where available.\70\
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\69\ For example, pipelines' reported cost-of-service data for
the 2014 in their page 700s submitted in April 2015 would be listed
in the current-year column and cost-of-service data for 2014 would
shift to the previous-year column in the page 700s submitted in
April 2016.
\70\ Five-Year Rev. of the Oil Pipeline Pricing Index, 114 FERC
] 61,293, at P 40 (2006) (2005 Index Review) (finding that a witness
was ``correct to use the data contained in [a] resubmitted FERC Form
No. 6'').
---------------------------------------------------------------------------
36. In the Initial Order, the Commission inadvertently departed
from its prior practice by using outdated page 700 data for 2014.
Although 38 pipelines filed updated 2014 data in April 2016, the
Initial Order erroneously relied on those pipelines' originally filed
2014 data as reported in April 2015. Accordingly, we propose to
calculate a revised index level using updated 2014, page 700 data,
where available, as reported in the previous-year column in the Form
No. 6 filings submitted in April 2016. This adjustment would ensure
that the index calculation reflects the most current page 700 data for
2014 in accordance with prior Commission practice.\71\
---------------------------------------------------------------------------
\71\ E.g., 2015 Index Review, 153 FERC ] 61,312 at Workpapers,
COSdata Tab (noting that ``[w]here available, data for given year is
taken from the `Previous Year Amount' column of the following year's
Form 6 (e.g., 2009 data is from column (c) of the 2010 Form 6'');
2005 Index Review, 114 FERC ] 61,293 at P 40.
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D. Calculating Prospective Ceiling Levels
37. We propose that pipelines recalculate their ceiling levels on a
prospective \72\ basis as though the revised index level was effective
throughout the five-year period.\73\ This approach will set the going-
forward oil pipeline indexed rates at the proper level in future years.
Furthermore, this approach will ensure that future rates reflect the
appropriate use of the middle 50% (not the distortions caused by the
adoption of the middle 80%) as well as the elimination of the MLP
income tax allowance.\74\ We also believe that this approach is
appropriate given the circumstances of this case resulting from the
flaws in the Initial Order, the timely concerns raised by shippers, and
the procedural holdings of LEPA v. FERC. Additionally, this approach
would conform to the Commission's practice in the 2000 five-year
review, where it adopted a revised index level following a judicial
remand.\75\ We seek comment upon this proposal. Moreover, commenters
may address whether, in the alternative, pipelines' ceiling levels
should only reflect a revised index level as of July 1, 2025, rather
than for the full five-year period.
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\72\ See, e.g., 5 U.S.C. 551(4) (defining ``rule'' under APA
``as an agency statement of general or particular applicability and
future effect'' (emphasis added)); Safari Club Int'l v. Zinke, 878
F.3d 316, 333 (D.C. Cir. 2017) (explaining that ``rules generally
have only `future effect' '' (citations omitted)); Georgetown Univ.
Hosp. v. Bowen, 821 F.2d 750, 758 (D.C. Cir. 1987) (``The . . .
suggestion that a retroactive rulemaking is permissible to remedy a
procedural defect in a rule would, if accepted, make a mockery of
the provisions of the APA. . . . [B]oth the express terms of the APA
and the integrity of the rulemaking process demand that the
corrected rule, like all other legislative rules, be prospective in
effect only.'').
\73\ For example, assume that Pipeline A's ceiling level on June
30, 2021, was $5.00 and that Pipeline A has not subsequently revised
its rate by a method other than indexing. See 18 CFR 342.3(d)(5).
Under our proposal, if the Commission adopts a revised index level
of PPI-FG-0.21% in this proceeding, Pipeline A's recomputed ceiling
level would be $6.13941 as of June 30, 2025 ($5.00 x (0.984288 x
1.087107 x 1.133194 x 1.012647)). See Reinstatement Order, 188 FERC
] 61,173 at P 1 (listing index multipliers that result from using
index level of PPI-FG-0.21%).
\74\ The index is cumulative from year to year, whereby each
annual index is applied to the pipeline's ceiling level from the
preceding year. 18 CFR 342.3(d)(1); Order no. 561, FERC Stats. &
Regs. ] 30,985 at 30,954. In the Reinstatement Order, the Commission
directed pipelines to recompute their ceiling levels as though the
Initial Index applied for the full five-year period. Reinstatement
Order, 188 FERC ] 61,173 at P 1. As a result, if the Commission
adopts a revised index level that incorporates the Income Tax Policy
Change, this determination would not be fully reflected in rates
unless pipelines' ceiling levels are recomputed as though the
revised index level applied for the full five-year-period. By
contrast, if ceiling levels were computed as if the revised index
level applied as of July 1, 2025, rather than for the full five
years, pipeline rates would only partially reflect the Commission's
determination to eliminate the MLP income tax allowance from the
index calculation.
\75\ 2000 Remand Order, 102 FERC ] 61,195 at PP 1, 31 (allowing
pipelines to recalculate their ceiling levels as though the revised
index level adopted on remand was in effect throughout the ongoing
five-year period).
---------------------------------------------------------------------------
III. Request for Comments
38. We invite comments on the Commission's proposal to calculate a
revised index level, as described above. Commenters may address any
issues regarding the appropriate index level following LEPA v. FERC,
including, but not limited to, whether the Commission should amend the
Initial Index by relying solely upon the middle 50%, incorporating the
Income Tax Policy Change, and using updated page 700 data for 2014.
Commenters may address the calculation of the revised index level. In
addition, commenters should renew any arguments raised in requests for
rehearing or clarification of the Initial Order that they would like
for the Commission to consider in determining the index level for this
five-year review period.
39. In their initial comments, commenters may also describe any
additional remedial steps not discussed herein that they believe the
Commission should take following the vacatur of the Rehearing Order in
LEPA v. FERC. Commenters may also address any potential action that the
Commission should take regarding the period between (a) the March 1,
2022 effective date of tariff records filed pursuant to the Rehearing
Order and (b) September 17, 2024, when the Commission reinstated the
Initial Order.
40. We acknowledge that the Commission has not previously
undertaken a supplemental rulemaking to consider revisions to the index
level outside of the five-year review process established in Order No.
561. However, in the present circumstances, we believe that it is
appropriate to initiate new notice-and-comment procedures given the
D.C. Circuit's holdings in LEPA v. FERC and our ongoing concerns with
the Commission's determinations in the Initial Order. Commenters may
address any issues or concerns associated with
[[Page 84482]]
the proposal to revise the index level during the five-year period.
IV. Comment Procedures
41. Initial comments are due November 26, 2024. Reply comments are
due December 20, 2024. Comments must refer to Docket No. RM25-2-000,
and must include the commenter's name, the organization they represent,
if applicable, and their address. All comments will be placed in the
Commission's public files and may be viewed, printed, or downloaded
remotely as described in the Document Availability section below.
Commenters on this proposal are not required to serve copies of their
comments on other commenters.
42. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's website at https://www.ferc.gov. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software must be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
43. Commenters that are not able to file comments electronically
may file an original of their comment by USPS mail or by courier-or
other delivery services. For submission sent via USPS only, filings
should be mailed to: Federal Energy Regulatory Commission, Office of
the Secretary, 888 First Street NE, Washington, DC 20426. Submission of
filings other than by USPS should be delivered to: Federal Energy
Regulatory Commission, 12225 Wilkins Avenue, Rockville, MD 20852.
V. Document Availability
44. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
internet through the Commission's Home Page (https://www.ferc.gov).
45. From the Commission's Home Page on the internet, this
information is available on eLibrary. The full text of this document is
available on eLibrary in PDF and Microsoft Word format for viewing,
printing, and/or downloading. To access this document in eLibrary, type
the docket number excluding the last three digits of this document in
the docket number field.
46. User assistance is available for eLibrary and the Commission's
website during normal business hours from FERC Online Support at (202)
502-6652 (toll free at 1-866-208-3676) or email at
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at
[email protected].
By direction of the Commission.
Issued: October 17, 2024.
Debbie-Anne A. Reese,
Secretary.
[FR Doc. 2024-24518 Filed 10-22-24; 8:45 am]
BILLING CODE 6717-01-P
