[Federal Register Volume 90, Number 225 (Tuesday, November 25, 2025)]
[Proposed Rules]
[Pages 53255-53261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-20900]
-----------------------------------------------------------------------
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.
[[Page 53256]]
ACTION: Withdrawal of supplemental notice of proposed rulemaking and
termination of rulemaking proceeding.
-----------------------------------------------------------------------
SUMMARY: The Federal Energy Regulatory Commission (Commission) is
withdrawing the supplemental notice of proposed rulemaking
(Supplemental NOPR) that proposed to amend the index level used to
determine annual changes to oil pipeline rate ceilings for the
remainder of the five-year period that began July 1, 2021, and
concludes June 30, 2026.
DATES: The Supplemental NOPR published on October 23, 2024, at 89 FR
84475 is withdrawn as of November 25, 2025.
FOR FURTHER INFORMATION CONTACT:
Monil Patel (Technical Information), Office of Energy Market
Regulation, 888 First Street NE, Washington, DC 20426, (202) 502-8296,
[email protected].
Evan Steiner (Legal Information), Office of the General Counsel,
888 First Street NE, Washington, DC 20426, (202) 502-8792,
[email protected].
SUPPLEMENTARY INFORMATION: 1. On October 17, 2024, the Commission
issued a supplemental notice of proposed rulemaking proposing to amend
the index level used to determine annual changes to oil pipeline rate
ceilings.\1\ The Supplemental NOPR requested comment regarding (a)
changing the current index level of Producer Price Index for Finished
Goods plus 0.78% (PPI-FG+0.78% (Initial Index)) to PPI-FG-0.21%
(Rehearing Index) and (b) other issues related to the appropriate index
level following the decision of the United States Court of Appeals for
the District of Columbia Circuit (D.C. Circuit) in Liquid Energy
Pipeline Association v. FERC.\2\
---------------------------------------------------------------------------
\1\ Supplemental Rev. of the Oil Pipeline Index Level, 89 FR
84475 (Oct. 23, 2024), 189 FERC ] 61,030 (2024) (Supplemental NOPR).
\2\ 109 F.4th 543 (D.C. Cir. 2024) (LEPA v. FERC).
---------------------------------------------------------------------------
2. For the reasons discussed below, we exercise our discretion to
withdraw the Supplemental NOPR and terminate this rulemaking
proceeding.
I. Background
A. Indexing and the Kahn Methodology
3. The Energy Policy Act of 1992 (EPAct 1992) required the
Commission to establish a ``simplified and generally applicable''
ratemaking methodology \3\ that was consistent with the just and
reasonable standard of the Interstate Commerce Act (ICA).\4\ To
implement this mandate, the Commission issued Order No. 561,\5\
establishing an indexing methodology that allows oil pipelines to
change their rates subject to certain ceiling levels as opposed to
making cost-of-service filings.\6\ In Order No. 561, the Commission
committed to review the index level every five years to ensure that it
adequately reflects changes to industry costs.\7\ The Commission
conducted five-year index reviews in 2000,\8\ 2005,\9\ 2010,\10\ and
2015.\11\
---------------------------------------------------------------------------
\3\ Public Law 102-486, 1801(a), 106 Stat. 3010 (Oct. 24, 1992).
\4\ 49 U.S.C. app. 1 et seq.
\5\ Revisions to Oil Pipeline Reguls. Pursuant to Energy Policy
Act of 1992, Order No. 561, 58 FR 58753 (Nov. 4, 1993), FERC Stats.
& Regs. ] 30,985 (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 (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).
\6\ Pursuant to the Commission's indexing methodology, oil
pipelines change their rate ceiling levels effective every July 1 by
``multiplying the previous index year's ceiling level by the most
recent index published by the Commission.'' 18 CFR 342.3(d)(1). Oil
pipelines may adjust their rates to the ceiling levels pursuant to
Commission's regulations so long as no protest or complaint
demonstrates that the index rate change substantially diverges from
the pipeline's cost changes. Id. 343.2(c)(1).
\7\ Order No. 561, FERC Stats. & Regs. ] 30,985 at 30,941.
\8\ Five-Year Review of Oil Pipeline Pricing Index, 93 FERC ]
61,266 (2000), aff'd in part and remanded in part sub nom. Ass'n of
Oil Pipe Lines v. FERC, 281 F.3d 239 (D.C. Cir. 2002) (AOPL II),
order on remand, 102 FERC ] 61,195 (2003), aff'd sub nom. Flying J
Inc. v. FERC, 363 F.3d 495 (D.C. Cir. 2004).
\9\ Five-Year Review of Oil Pipeline Pricing Index, 114 FERC ]
61,293 (2006) (2005 Index Review).
\10\ Five-Year Review of Oil Pipeline Pricing Index, 133 FERC ]
61,228 (2010) (2010 Index Review), reh'g denied, 135 FERC ] 61,172
(2011).
\11\ Five-Year Review of the Oil Pipeline Index, 153 FERC ]
61,312 (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).
---------------------------------------------------------------------------
4. In Order No. 561 and each successive five-year review, the
Commission has calculated the index level based upon a methodology
developed by Dr. Alfred E. Kahn.\12\ The Kahn Methodology uses pipeline
data from FERC Form No. 6, page 700 from the prior five-year period to
determine an appropriate adjustment to be applied to PPI-FG. The
calculation is as follows. Each pipeline's cost change on a per-barrel
mile basis over the prior five-year period (e.g., the years 2014-2019)
is calculated. In order to capture normal industry cost experience, the
resulting data set is trimmed by removing an equal number of pipelines
from the top and bottom of the data set. The Kahn Methodology then
calculates three measures of the trimmed data sample's central
tendency: the median, the mean, and a weighted mean.\13\ The Kahn
Methodology calculates a composite by averaging these measures of
central tendency and measures the difference between the composite and
the PPI-FG over the prior five-year period. The Commission then sets
the index level at PPI-FG plus (or minus) this differential.
---------------------------------------------------------------------------
\12\ The D.C. Circuit has affirmed the Commission's use of the
Kahn Methodology. AOPL I, 83 F.3d at 1433-37; Flying J Inc. v. FERC,
363 F.3d at 497-500.
\13\ The weighted mean assigns a different weight to each
pipeline's cost change based upon the pipeline's total barrel-miles.
---------------------------------------------------------------------------
B. The 2020 Five-Year Review
5. The 2020 five-year review addressed the index level for the July
1, 2021, to June 30, 2026 period.\14\ In December of 2020, the
Commission's Initial Order \15\ adopted the Initial Index level of PPI-
FG+0.78%. As relevant here, the Commission determined the Initial
Index, in part, by: (1) adjusting the data for Master Limited
Partnership (MLP) pipelines to remove the effects of a 2018 policy
change (Income Tax Policy Change), and (2) trimming the data set to the
middle 80% of cost changes.
---------------------------------------------------------------------------
\14\ The Commission initiated the 2020 five-year review by
issuing a Notice of Inquiry in June of 2020. Five-Year Rev. of the
Oil Pipeline Index, 171 FERC ] 61,239 (2020).
\15\ Five-Year Rev. of the Oil Pipeline Index, 173 FERC ] 61,245
(2020) (Initial Order), order on reh'g, 178 FERC ] 61,023 (2022)
(Rehearing Order), vacated sub nom. LEPA v. FERC, 109 F.4th 543.
---------------------------------------------------------------------------
6. First, the Commission considered whether to adjust the data to
remove the effects of the Income Tax Policy Change. As noted above, the
Commission measures industry-wide cost changes using data from
pipelines' Form No. 6, page 700 for the five years prior to the start
of the five-year review, here, 2014 to 2019. In 2018, the Commission
changed its policy regarding the recovery of income tax costs and
required MLP pipelines to eliminate their income tax allowance and
Accumulated Deferred Income Taxes (ADIT) balances from their page
700s.\16\ As a result, the 2014 page 700 data for MLP pipelines
reflected the Commission's old policy while the 2019 page 700 data
reflected the new policy. In the Initial Order, the Commission adjusted
for this by removing the effects of the Income Tax Policy Change.\17\
---------------------------------------------------------------------------
\16\ See Inquiry Regarding the Comm'n Pol'y for Recovery of
Income Tax Costs, 162 FERC ] 61,227 (2018 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).
\17\ For any pipelines that were MLPs in 2014, the Commission
set the 2014 page 700 income tax allowance to zero and revised the
2014 return on rate base to reflect the removal of ADIT. Initial
Order, 173 FERC ] 61,245 at P 16.
---------------------------------------------------------------------------
7. Second, the Initial Order trimmed the data set to the middle 80%
of cost
[[Page 53257]]
changes. As noted above, the Kahn Methodology statistically trims the
page 700 data by removing an equal number of pipelines from the top and
bottom of the data set to remove outlying and anomalous data that can
distort the measure of central tendency. Participants in the 2020 five-
year review proceeding disputed whether to trim the data to the middle
80% or the middle 50% of cost changes. The Commission determined that
using the middle 80% was appropriate for this index review.\18\
---------------------------------------------------------------------------
\18\ Id. P 25.
---------------------------------------------------------------------------
8. In January 2021, shippers filed requests for rehearing of the
Initial Order. While those rehearing requests were pending, the
Commission published a new annual index on May 14, 2021, consistent
with the Initial Order.\19\ Pipelines proceeded to make rate filings,
which became effective July 1, 2021, reflecting the Initial Order.
---------------------------------------------------------------------------
\19\ Notice of Ann. Change in the Producer Price Index for
Finished Goods, 175 FERC ] 61,117 (2021).
---------------------------------------------------------------------------
9. In January 2022, the Commission issued the Rehearing Order \20\
adopting the lower Rehearing Index level of PPI-FG-0.21%.\21\ In the
Rehearing Order, the Commission reversed course on the two issues
described above: the Commission calculated the Rehearing Index (1)
using unadjusted page 700 data that reflected the Income Tax Policy
Change, and (2) trimming the data set to the middle 50% of cost
changes.\22\ In addition, the Commission addressed certain relatively
minor computational issues identified by pipelines related to the
appropriate source for the 2014 data from page 700.\23\
---------------------------------------------------------------------------
\20\ Rehearing Order, 178 FERC ] 61,023, reh'g denied, 179 FERC
] 61,100 (2022) (Second Rehearing Order).
\21\ Rehearing Order, 178 FERC ] 61,023 at P 2.
\22\ Id. PP 17-36, 43-58.
\23\ Id. PP 99-102.
---------------------------------------------------------------------------
10. The Commission directed pipelines to recompute their ceiling
levels and reduce their rates to reflect the lower Rehearing Index,
effective March 1, 2022.\24\ Certain parties appealed the Rehearing
Order.
---------------------------------------------------------------------------
\24\ Id. P 106.
---------------------------------------------------------------------------
C. LEPA v. FERC and Reinstatement Order
11. In LEPA v. FERC, the D.C. Circuit vacated the Rehearing
Order.\25\ The court held that the Commission's Rehearing Order
violated the Administrative Procedure Act (APA) by amending the Initial
Index without providing notice and an opportunity for comment. The
court explained that once an agency's rule ``carrie[s] legal
consequences,'' the APA requires the agency to follow notice-and-
comment procedures before amending the rule.\26\ The court found that
the Initial Index became ``sufficiently final'' by July 1, 2021, when
pipelines' rates for the first year of the five-year period became
effective, ``to require that any amendment undergo notice-and-comment
procedures.'' \27\ Because the Commission changed the index to the
Rehearing Index level and required pipelines to lower their rates
without providing notice-and-comment procedures, the court vacated the
Rehearing Order and ordered the Commission to reinstate the Initial
Order.
---------------------------------------------------------------------------
\25\ LEPA v. FERC, 109 F.4th 543.
\26\ Id. at 548 (quoting Humane Soc'y v. USDA, 41 F.4th 564, 570
(D.C. Cir. 2022)) (internal quotation marks omitted).
\27\ Id. at 549.
---------------------------------------------------------------------------
12. On September 17, 2024, the Commission issued an order
reinstating the Initial Order in compliance with the court's
decision.\28\ The Commission directed oil pipelines to recompute their
ceiling levels for a second time to reflect the Initial Index and
explained that pipelines could file to prospectively increase their
indexed rates up to their recomputed ceiling levels.\29\ The Commission
also stated that it would address other issues following LEPA v. FERC
in a subsequent order.
---------------------------------------------------------------------------
\28\ Revisions to Oil Pipeline Reguls. Pursuant to the Energy
Pol'y Act of 1992, 188 FERC ] 61,173 (2024) (Reinstatement Order).
\29\ Id. PP 1-2.
---------------------------------------------------------------------------
13. Parties continued to file comments in Docket No. RM20-14
disputing the appropriate index level following LEPA v. FERC.\30\ Among
other things, shippers argued that the Commission should reinstitute
the Rehearing Order vacated by LEPA v. FERC and consider their
rehearing requests.\31\
---------------------------------------------------------------------------
\30\ In addition, certain shippers filed a Petition for Action
requesting the Commission readopt the Rehearing Index in notice-and-
comment proceedings. Five-Year Review of the Oil Pipeline Index,
Joint Shippers Petition for Action Following Vacatur and Remand of
Five-Year Index Review Decision, Docket No. RM20-14-003, (filed Sep.
23, 2024) (Joint Shippers Petition for Action).
\31\ The Commission is issuing an order resolving the remaining
issues in that proceeding concurrent with this order. Revisions to
Oil Pipeline Reguls. Pursuant to the Energy Pol'y Act of 1992, 193
FERC ] 61,137 (2025).
---------------------------------------------------------------------------
II. Supplemental NOPR
A. Supplemental NOPR
14. In order to resolve the ongoing disputes over whether the index
should be modified following LEPA v. FERC and to comply with the
court's holding that any change must be accomplished through APA
notice-and-comment procedures, the Commission issued the Supplemental
NOPR. The Commission proposed to amend the index level to PPI-FG-0.21%
(the same level as the Rehearing Index) and sought comments on its
proposal. The Commission proposed to amend the index level on a
prospective basis for the remainder of the five-year period. More
specifically, the Commission proposed the following:
[ssquf] Calculating Prospective Ceiling Levels: The Commission
proposed that pipelines recalculate their ceiling levels as though the
amended index level of PPI-FG-0.21% was effective throughout the five-
year period beginning in 2021.\32\ However, the Commission noted that
commenters could address, in the alternative, if ceiling levels should
only reflect a revised index level as of July 1, 2025, rather than the
full five-year period.\33\
---------------------------------------------------------------------------
\32\ Under this approach, pipelines would recalculate their July
1, 2025 ceiling levels using the revised index level for 2021, 2022,
2023, and 2024.
\33\ Supplemental NOPR, 189 FERC ] 61,030 at P 37.
---------------------------------------------------------------------------
[ssquf] Income Tax Policy Change: The Commission proposed to use
unadjusted page 700 data that reflects the Income Tax Policy Change,
consistent with the Rehearing Order, rather than the adjusted data used
in the Initial Order.\34\
---------------------------------------------------------------------------
\34\ Id. PP 24-34.
---------------------------------------------------------------------------
[ssquf] Statistical Data Trimming: The Commission proposed to trim
the data set to the middle 50% of cost changes, as the Commission did
in the Rehearing Order, rather than the middle 80% adopted by the
Initial Order.\35\
---------------------------------------------------------------------------
\35\ Id. PP 13-23.
---------------------------------------------------------------------------
[ssquf] Appropriate Source of 2014 Page 700 Data: The Commission
proposed to use page 700 data for 2014 from more recent filings made in
April 2016 rather than the outdated 2014 data filed in April 2015. The
Commission explained that the Initial Order inadvertently used outdated
page 700 data for 2014.\36\
---------------------------------------------------------------------------
\36\ Id. PP 35-36.
---------------------------------------------------------------------------
15. The Commission acknowledged that it had never previously
undertaken a rulemaking to consider revisions to the index level
outside of the five-year review process. However, the Commission found
it appropriate to initiate new notice-and-comment procedures given the
D.C. Circuit's holdings in LEPA v. FERC and ongoing concerns with the
Initial Index.\37\ The Commission emphasized that commenters could
address any issues or concerns associated with the proposal to revise
the index level during the five-year period.\38\
---------------------------------------------------------------------------
\37\ Id. P 40; see also Joint Shippers Petition for Action.
\38\ Supplemental NOPR, 189 FERC ] 61,030 at P 40.
---------------------------------------------------------------------------
[[Page 53258]]
B. Comments
16. Initial comments on the Supplemental NOPR were filed on
November 26, 2024, and reply comments were filed on December 20, 2024.
In general, pipeline commenters (Pipelines) \39\ oppose the
Commission's proposal to revise the index level. Pipelines assert that
amending the index level at this time would disrupt settled
expectations, cause regulatory uncertainty, and incentivize litigation
over pipeline rates.\40\ By contrast, shipper commenters (Shippers)
\41\ support the Commission's proposal.
---------------------------------------------------------------------------
\39\ Pipelines include: Liquid Energy Pipeline Association
(LEPA); Designated Carriers (Buckeye Partners, L.P., Colonial
Pipeline Company, Energy Transfer LP, Enterprise Products Partners,
L.P., and Plains All American Pipeline, L.P.); Bridger Pipeline LLC
(Bridger); Kinder Morgan, Inc. (Kinder Morgan); Marathon Pipe Line
LLC (Marathon); Williams Companies, Inc. (Williams); South Bow (USA)
LP (South Bow); and Tallgrass Energy Partners LP. In addition, the
Energy Infrastructure Council filed comments opposing the
Commission's proposal to adopt a revised index level.
\40\ Designated Carriers Initial Comments at 23-34; LEPA Initial
Comments at 21; Bridger Comments at 6; Williams Comments at 8;
Kinder Morgan Initial Comments at 5; Marathon Initial Comments at 5.
\41\ Shippers include: Joint Commenters (Air Transport
Association of America d/b/a Airlines for America, Chevron Products
Company, National Propane Gas Association, and Valero Marketing and
Supply Company); Appalachian Basin Shippers (PennEnergy Resources,
LLC, and Range Resources--Appalachia, LLC); American Exploration &
Production Council; Canadian Association of Petroleum Producers
(CAPP); Pilot Travel Centers, LLC, George E. Warren LLC, and Murphy
Oil USA, Inc. (PG&M Shippers); Liquids Shippers Group (Apache
Corporation, Cenovus Energy Marketing Services Ltd., ConocoPhillips
Company, Husky Marketing and Supply Company, and Ovintiv Marketing
Inc.); River City Petroleum; Expand Energy Marketing LLC (formerly
known as SWN Energy Services Company, LLC), and Shell Trading (US)
Company (Shell).
---------------------------------------------------------------------------
17. Regarding the Commission's proposal to calculate ceiling levels
as if any revised index was effective for the entire five-year period,
Pipelines argue that the Commission's proposal is inconsistent with the
vacatur of the Rehearing Order and the D.C. Circuit's directive in LEPA
v. FERC to reinstate the Initial Order.\42\ Additionally, Pipelines
argue that the Commission's proposal is inconsistent with Commission
regulations,\43\ and constitutes impermissible retroactive rulemaking
\44\ and retroactive ratemaking.\45\ Shippers dispute Pipelines' claims
that the Commission's proposal constitutes retroactive rulemaking or
ratemaking.\46\ Shippers argue that the Commission's proposal ensures
that going-forward rates reflect any revised index level adopted in
this proceeding,\47\ and conforms to the Commission's practice in the
2000 index review.\48\
---------------------------------------------------------------------------
\42\ LEPA Initial Comments at 47; South Bow Initial Comments at
8; LEPA Reply Comments at 28.
\43\ Designated Carriers Initial Comments at 30.
\44\ LEPA Initial Comments at 48-49; Designated Carriers Initial
Comments at 31-32; Kinder Morgan Initial Comments at 9-12; South Bow
Initial Comments at 8.
\45\ LEPA Initial Comments at 49.
\46\ Joint Commenters Reply Comments at 38; Appalachian Basin
Shippers Reply Comments at 8-9; Liquids Shippers Group Reply
Comments at 16; Shell Reply Comments at 12.
\47\ See Joint Commenters Initial Comments at 36; Liquids
Shippers Group Initial Comments at 12.
\48\ Joint Commenters Initial Comments at 36; Shell Initial
Comments at 13-14.
---------------------------------------------------------------------------
18. Pipelines oppose the Commission's proposal to calculate a
revised index level using page 700 data that incorporates the Income
Tax Policy Change. Pipelines argue that because previous index reviews
did not incorporate the Commission's policy allowing MLP pipelines to
recover a full income tax allowance, it would be improper to reflect
the 2018 policy change removing the MLP income tax allowance in this
review.\49\ Additionally, Pipelines contend that most pipelines in the
data set are not MLPs and the double recovery is not widely reflected
in MLP pipelines' rates.\50\ In contrast, Shippers argue that the
Commission's proposal to reflect the Income Tax Policy Change in the
index calculation conforms with indexing's purpose of tracking changes
in recoverable costs,\51\ regardless of whether individual MLP
pipelines' rates incorporate the income tax double recovery.\52\
Shippers contend that implementing the Income Tax Policy Change as
proposed fulfills EPAct 1992's mandates for simplified and streamlined
ratemaking while ensuring just and reasonable rates.\53\ Pipelines also
oppose the Commission's proposal to trim the data set to the middle
50%, arguing that the record in this proceeding supports using the
middle 80%.\54\ Shippers, on the other hand, support the Commission's
proposal and argue that the middle 50% conforms to past Commission
practice and is a better measure of normal cost changes.\55\
---------------------------------------------------------------------------
\49\ LEPA Initial Comments at 40-41; Designated Carriers Initial
Comments at 48-51, 64; Designated Carriers Reply Comments at 31, 33-
35.
\50\ LEPA Initial Comments at 37, 44; Designated Carriers
Initial Comments at 52-61.
\51\ E.g., Joint Commenters Initial Comments at 32-33; CAPP
Initial Comments at 3; Shell Initial Comments at 13; Appalachian
Basin Shippers Reply Comments at 12-13 & n.42; PG&M Shippers Reply
Comments at 9-10.
\52\ Joint Commenters Initial Comments at 65, 68-69; PG&M
Shippers Reply Comments at 11-12. Relatedly, Shippers explain that
even though the policy change did not affect pipelines owned by
corporations, its effects on costs recoverable by MLPs are
appropriately reflected in the industry-wide index. Liquids Shippers
Group Reply Comments, Affidavit of Elizabeth H. Crowe, at 6:21-7:17.
\53\ Joint Commenters Initial Comments at 35-36; Appalachian
Basin Shippers Initial Comments at 8.
\54\ LEPA Initial Comments at 27-28; Designated Carriers Initial
Comments at 72-74; LEPA Reply Comments at 33-34; Designated Carriers
Reply Comments at 40-42.
\55\ Joint Commenters Initial Comments at 24-32; CAPP Initial
Comments at 3; Appalachian Basin Shippers Initial Comments at 4-7;
Shell Initial Comments at 9-11; PG&M Shippers Initial Comments at
10-11; River City Petroleum Initial Comments at 1; Joint Commenters
Reply Comments at 43-45, 51, 53 (citing 2015 Index Review, 153 FERC
] 61,312 at PP 9, 42-44; 2010 Index Review, 133 FERC ] 61,228 at P
63; Order No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,097, aff'd,
AOPL I, 83 F.3d at 1434).
---------------------------------------------------------------------------
III. Discussion
19. Upon consideration of the record in this proceeding and given
the late stage of the five-year review period that began July 1, 2021,
and concludes June 30, 2026, we are not persuaded to proceed with the
proposal considered in the Supplemental NOPR. The Commission initiated
the Supplemental NOPR to allow industry-wide comment on ``all issues
related to the appropriate index level following LEPA v. FERC,'' \56\
including whether to modify the index level outside the five-year
review process based on the issues discussed in the Rehearing
Order.\57\
---------------------------------------------------------------------------
\56\ Supplemental NOPR, 189 FERC ] 61,030 at P 2.
\57\ Id. PP 13-34.
---------------------------------------------------------------------------
20. We conclude that the best course of action is to allow the
current index level to remain effective for the remainder of this five-
year period. The question before the Commission in the instant
proceeding is not what action the Commission should have taken in 2020
at the beginning of this five-year review. Rather, the question
presented here is whether in 2025 the Commission should now change the
index level prospectively in the last year of this five year period as
proposed in the Supplemental NOPR.\58\ Changing the index level for a
fourth time in the fifth year of the five-year period \59\ would
prolong ongoing regulatory uncertainty regarding the index level.\60\
As
[[Page 53259]]
discussed below, we do not find that the record supports taking such a
step. Moreover, at this stage, the benefits of any index change are
limited, as pipelines made the last annual indexed rate filing of the
five-year period in June 2025.
---------------------------------------------------------------------------
\58\ As with any rulemaking, any action the Commission might
take to amend the index level through notice-and-comment procedures
may be prospective only. Bowen v. Georgetown Univ. Hosp., 488 U.S.
204, 208 (1988); see also LEPA v. FERC, 109 F.4th at 547.
\59\ After establishing the Initial Index for this five-year
period in 2020 and after 201 pipelines filed rates pursuant to that
index effective July 1, 2021, the Commission changed the index level
twice. First, the Commission issued the Rehearing Order on January
20, 2022 and pipelines filed rates to comply with the Rehearing
Order's lower index made effective March 1, 2022. Then, following
LEPA v. FERC, the Commission issued the Reinstatement Order on
September 17, 2024, which restored the Initial Index and pipelines
once again refiled rates and ceiling levels.
\60\ As noted above, indexing is intended to provide a
``simplified and generally applicable ratemaking methodology for oil
pipelines'' under EPAct 1992. EPAct 1992 1801(a). Consistent with
that goal, the Commission established a framework under which the
Commission would review the index once every five years. Order No.
561, FERC Stats. & Regs. ] 30,985 at 30,946-47.
---------------------------------------------------------------------------
21. We therefore exercise our discretion to withdraw the
Supplemental NOPR and terminate this rulemaking proceeding. We address
below the Supplemental NOPR's proposals regarding (1) recalculation of
prospective ceiling levels, (2) the Income Tax Policy Change, (3)
statistical data trimming, and (4) the appropriate source of 2014 Page
700 data.\61\
---------------------------------------------------------------------------
\61\ The Supplemental NOPR also requested comment on any
additional remedial steps the Commission should take following LEPA
v. FERC. Because we decline to adjust the index level, we reject
Shippers' arguments that they are entitled to remedies for any part
of the five-year period based on the application of a lower index
level than the Initial Index. We decline to address here whether
Pipelines are entitled to remedies for the period between March 1,
2022 and September 17, 2024 when the Rehearing Index was in effect.
Instead, we address this issue in a concurrent order in Docket No.
RM20-14. See Revisions to Oil Pipeline Reguls. Pursuant to the
Energy Pol'y Act of 1992, Order Denying Rehearing, Denying Petition
and Granting Remedies, 193 FERC ] 61,137 (2025).
---------------------------------------------------------------------------
A. Calculating Prospective Ceiling Levels
22. We are not persuaded to adopt the Supplemental NOPR's proposal
to require pipelines to recalculate ceiling levels effective
prospectively from the issuance of this rule as though a revised index
resulting from this rulemaking was effective starting July 1, 2021.\62\
---------------------------------------------------------------------------
\62\ Supplemental NOPR, 189 FERC ] 61,030 at P 37. As explained
above, the indexing methodology allows oil pipelines to change their
rates, effective every July 1, subject to specific ceiling levels,
which pipelines recalculate annually by multiplying their previous
year's ceiling level by the annual index published by the
Commission.
---------------------------------------------------------------------------
23. As explained further below, commenters raised extensive
questions and concerns regarding this proposal, including assertions
that this proposal departs from the Commission's indexing framework and
regulations, and runs afoul of the rules against retroactive rulemaking
and retroactive ratemaking. On balance, we are not convinced that the
Commission should recalculate pipeline ceiling levels for the preceding
four years of the five-year period.
24. First, commenters argue that the proposal to recalculate prior
ceiling levels departs from the Commission's indexing framework and
regulations.\63\ Although the Commission can amend its rules through
notice-and-comment rulemakings, we recognize that the proposal to
recalculate the ceiling levels for multiple past years would be an
unprecedented departure from the Commission's existing indexing
policies and regulations, in which the index is ``cumulative from year
to year,'' \64\ and each annual index is applied to a pipeline's
ceiling level from the preceding year.\65\ Moreover, each year's index
is based upon the prior years' cost changes, not some other adjustment
as proposed in the Supplemental NOPR.\66\ Pipeline rates are bound by
those annual ceiling rate changes.\67\
---------------------------------------------------------------------------
\63\ Designated Carriers Initial Comments at 30.
\64\ Order No. 561, FERC Stats. & Regs. ] 30,985 at 30,954.
\65\ 18 CFR 342.3(d)(1).
\66\ In particular, section 342.3(d)(1) of the Commission's
regulations requires pipelines to compute the ceiling level for each
index year by multiplying the previous index year's ceiling level by
the most recent index. 18 CFR 342.3(d)(1).
\67\ Carriers are permitted to raise their rates to unused
ceiling levels at any time after those ceiling levels are
established and while they remain in effect. Id.; id. 342.3(a).
Conversely, the Commission prohibited pipelines from filing rates
exceeding their ceiling levels except in very specific
circumstances. Order No. 561, FERC Stats. & Regs. ] 30,985 at
30,947; 18 CFR 342.4(a)-(b).
---------------------------------------------------------------------------
25. Second, the Commission designed the cumulative ceiling level
approach to achieve EPAct 1992's ``criteria of simplicity and general
applicability'' \68\ and ``reduce[ ] the necessity and likelihood of
prolonged litigation.'' \69\ Yet another change to the ceiling levels
that were in place over the prior four years would directly contravene
such mission, adding even more complexity and is thus in tension with
the index's simplified design.
---------------------------------------------------------------------------
\68\ Order No. 561, FERC Stats. & Regs. ] 30,985 at 30,946; id.
at 30,940 (indexing provides ``a simplified and generally applicable
methodology for regulating oil pipeline rates'').
\69\ Id. at 30,946.
---------------------------------------------------------------------------
26. Third, we acknowledge significant debate in the record
regarding whether the remedy proposed in the Supplemental NOPR
constitutes impermissible retroactive rulemaking and retroactive
ratemaking.\70\ While we decline to address the scope of the
Commission's remedial authority in this rulemaking context, we are not
persuaded that perpetuating and exacerbating uncertainty for the final
year of this index cycle is warranted.
---------------------------------------------------------------------------
\70\ Compare LEPA Initial Comments at 48-50; Designated Carriers
Initial Comments at 31-32; Kinder Morgan Initial Comments at 9-12;
South Bow Initial Comments at 8 with Joint Commenters Reply Comments
at 38; Appalachian Basin Shippers Reply Comments at 8-9; Liquids
Shippers Group Reply Comments at 16; Shell Reply Comments at 12.
---------------------------------------------------------------------------
27. We are not persuaded by other arguments advanced by Shippers.
Although the Shippers argue that the proposal is necessary to ensure
that the ``flaws'' of the Initial Index do not result in inflated
ceiling levels going forward,\71\ as discussed below, we find those
flaws to be overstated.
---------------------------------------------------------------------------
\71\ Joint Commenters Initial Comments at 36; Shell Initial
Comments at 13-14.
---------------------------------------------------------------------------
28. We recognize that Shippers cite to the 2000 five-year review as
one prior instance in which the Commission directed pipelines to
recalculate index increases over multiple years for prospective effect
in rates.\72\ However, we believe this case is distinguishable. The
Commission's decision to recalculate ceiling levels in the 2000 five-
year review was made in addressing the legal error identified by the
D.C. Circuit on remand,\73\ whereas any recalculation of ceiling levels
as proposed in the Supplemental NOPR would occur in response to a
rulemaking. Thus, we are not persuaded that the Commission's decision
in the 2000 five-year review would support adoption of the Supplemental
NOPR's proposal on ceiling levels.
---------------------------------------------------------------------------
\72\ Five-Year Review of Oil Pipeline Pricing Index, 102 FERC ]
61,195, at PP 1, 31 (2000).
\73\ Id. The D.C. Circuit remanded the Commission's December
2000 order establishing the index level on the grounds that the
Commission had not adequately addressed the concerns raised by
certain pipelines. See AOPL II, 281 F.3d at 245-46.
---------------------------------------------------------------------------
29. In sum, we conclude that the benefit of rate certainty at this
late stage of the current five-year index cycle generally counsels
against the Supplemental NOPR's proposal to revise the index going back
more than four years. It would be an unprecedented step for the
Commission to take such action, and we are concerned about establishing
a practice here that could justify additional disruption of subsequent
index periods. On balance, we are not persuaded to adopt the
Supplemental NOPR's proposal to recalculate pipeline ceiling levels for
the full five-year period.
B. Income Tax Policy Change
30. We are not persuaded to modify the index level to incorporate
the Income Tax Policy Change as proposed in the Supplemental NOPR in
order to address an income tax double recovery in pipeline rates. As
discussed below, there are valid arguments against taking such action,
particularly in the fifth year of the five-year index.
31. As an initial matter, it is not clear the extent to which an
income tax double recovery exists in oil pipeline rates. The income tax
double recovery concern applies only to MLP pipelines, less than half
of the pipelines subject to
[[Page 53260]]
the index.\74\ Moreover, as the Initial Order explained, it is not
clear that the income tax double recovery is widely incorporated in
those MLP pipelines' rates. The Commission only permitted MLP pipelines
to include a full income tax allowance in their costs of service
between 2005 and 2018. During that period, the Commission's index
reviews did not actually incorporate the Commission's policies allowing
MLP pipelines to recover an income tax allowance.\75\ Although the
Commission's prior income tax policy influenced MLP pipelines' rates in
other ways,\76\ MLP pipelines are only a subset of all pipelines and
the Supplemental NOPR acknowledged that MLP pipelines' rates only
``imperfectly captured the 2005 income tax policy change'' that allowed
MLPs to recover a full income tax allowance.\77\
---------------------------------------------------------------------------
\74\ Seventy of the 160 pipelines in the data set (or
approximately 44%) were organized as MLPs when the Commission
adopted the Income Tax Policy Change. See Designated Carriers
Initial Comments, Aff. of Dr. Michael J. Webb, at P 48 & n.60 (Webb
Aff.).
\75\ Before the Commission updated its calculation of the index
in the 2015 Index Review to use page 700 data, the Kahn Methodology
used net carrier property as a proxy for capital costs and income
taxes. 2015 Index Review, 153 FERC ] 61,312 at P 14 (citing Order
No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,096, 31,098). This
proxy did not reflect changes in the Commission's Opinion No. 154-B
cost-of-service methodology, including changes to the Commission's
income tax policy. As a result, the Commission's prior policies
permitting MLP pipelines to recover a full or partial income tax
allowance were never directly incorporated into the index.
\76\ See Supplemental NOPR, 189 FERC ] 61,030 at P 33. For
example, as the Supplemental NOPR observed, 164 of the 277 total oil
pipelines in the Commission's data set, or 59%, have been added
since the 2005 five-year review. Supplemental NOPR, 189 FERC ]
61,030 at n.68. Those pipelines either filed cost-of-service rates
directly incorporating the income tax allowance or negotiated rates
under the circumstances of the Commission's income tax policies for
MLP pipelines.
\77\ Supplemental NOPR, 189 FERC ] 61,030 at P 33; see also
Inquiry Regarding Income Tax Allowances, 111 FERC ] 61,139, at P 32
(2005).
---------------------------------------------------------------------------
32. Second, to the extent the income tax double recovery was
incorporated into MLP pipelines' rates, the index provides an
incomplete mechanism for remedying this issue because it would not
fully remove any double recoveries from MLP pipeline rates. The index
reflects an average of all pipelines' cost changes on an industry-wide
basis,\78\ including the cost changes of non-MLP pipelines that were
not affected by the Income Tax Policy Change. Accordingly, the
reduction to the index level that results from reflecting the Income
Tax Policy Change provides an imprecise mechanism for addressing any
MLP pipeline double recoveries.
---------------------------------------------------------------------------
\78\ E.g., Order No. 561-A, FERC Stats. & Regs. ] 31,000 at
31,103 (explaining that indexing ``relies upon industry-wide average
costs . . . to establish rates'').
---------------------------------------------------------------------------
33. Third, the late-stage of this proceeding (the fifth year of the
five-year review) significantly reduces the effectiveness of the index
as a mechanism for addressing the income tax double recovery. To
meaningfully address the income tax double recovery, as proposed in the
Supplemental NOPR, the Commission would need to direct pipelines to
recompute their ceiling levels and rates as though the revised index
level was effective for the full five-year period beginning July 1,
2021. As discussed above, however, this presents considerable concerns,
and thus we decline to take such a step.\79\
---------------------------------------------------------------------------
\79\ Supra PP 22-29.
---------------------------------------------------------------------------
34. Finally, attempting to address the double recovery via the
index reduces the index for pipelines that have no double recovery. For
example, it is not clear that index reductions to address the double
recovery are necessary for MLP pipelines whose revenues under-recover
costs.\80\ Whereas shippers may file cost-of-service complaints in
those circumstances where pipelines' rates are excessive in light of
the Income Tax Policy Change, making an industry-wide adjustment of the
index level for the only remaining year of the five-year period would
be both overbroad (in capturing pipelines who do not have a double-
recovery embedded in rates) and have limited effectiveness (in only
capturing a fraction of any double-recovery).
---------------------------------------------------------------------------
\80\ Even where an MLP pipeline filed a cost-of-service rate
that included a full income tax allowance or negotiated a settlement
rate based on the Commission's prior income tax policy, it is not
clear that the pipeline is presently over-recovering its cost of
service. For instance, when the Commission evaluated whether natural
gas pipelines were over-recovering their costs of service as a
result of the Income Tax Policy Change, the resulting proceedings
did not result in rate reductions for most pipelines. Interstate &
Intrastate Nat. Gas Pipelines, Order No. 849-A, 84 FR 17739 (April
26, 2019), 167 FERC ] 61,051, at P 4 (2019) (stating that of 120
natural gas pipelines that filed FERC Form No. 501-G in response to
Order No. 849, 84 pipelines explained why no change to their cost-
of-service rates was necessary following the Income Tax Policy
Change).
---------------------------------------------------------------------------
35. In 2020, at the beginning of this five-year review period, the
income tax allowance double recovery issue was an issue of first
impression that the Commission in 2020 addressed by removing the
effects of that change from the calculation of the index.\81\ It is now
2025, the fifth year of the five-year index process, and the benefit of
rate certainty support leaving the index undisturbed.\82\ None of the
comments \83\ undermine the factual findings above and, as explained
above, we decline to modify the index level for a policy change that
was only partially incorporated into pipeline rates and where, to the
extent any double recovery exists, any modifications we could make at
this stage would provide an imprecise and limited resolution to the
double-recovery issue.\84\
---------------------------------------------------------------------------
\81\ Initial Order, 173 FERC ] 61,245 at PP 16-20.
\82\ See Rail Splitter Wind Farm, LLC v. Ameren Servs. Co., 142
FERC ] 61,047, at P 31 (2013) (emphasizing the importance of
stability and certainty in the Commission's decision-making
process).
\83\ Supplemental NOPR, 189 FERC ] 61,030 at PP 24-34; Joint
Commenters Initial Comments at 32-36; Appalachian Basin Shippers
Initial Comments at 8-9; CAPP Initial Comments at 3; PG&M Shippers
Initial Comments at 10; Shell Initial Comments at 11-13; River City
Petroleum Initial Comments at 1; Joint Commenters Reply Comments at
61-69; Liquids Shippers Group Reply Comments at 12-13; Appalachian
Basin Shippers Reply Comments at 12-13; PG&M Shippers Reply Comments
at 9-13.
\84\ We decline to resolve the differing positions in the
Initial Order and the Supplemental NOPR, regarding whether the index
should generally reflect policy changes embedded in the Opinion No.
154-B cost of service. See Supplemental NOPR, 189 FERC ] 61,030 at P
30 (citing Initial Order, 173 FERC ] 61,245 at P 17). Similarly, we
do not resolve whether reflecting the Income Tax Policy Change would
effectuate a true-up for prior-period over-recoveries. Id. P 31
(citing Initial Order, 173 FERC ] 61,245 at P 18). As necessary,
those issues can be addressed in subsequent five-year review
proceedings.
---------------------------------------------------------------------------
36. We acknowledge that the Commission stated in the 2018 Income
Tax Policy Statement that it would ``incorporate the effects of the
post-United Airlines policy changes . . . on industry-wide oil pipeline
costs in the 2020 five-year review.'' \85\ However, these statements
were not binding,\86\ and the Commission later reconsidered those
statements in the Initial Order and decided a different course of
action was more appropriate.\87\ We find that at this late stage any
potential benefits of addressing the Income Tax Policy Change through
the index calculation are significantly attenuated, and do not outweigh
the disruption and regulatory
[[Page 53261]]
uncertainty that revising the index level again would entail.
---------------------------------------------------------------------------
\85\ 2018 Income Tax Policy Statement, 162 FERC ] 61,227 at P
46; see also id. P 8 (``[T]he Commission will incorporate the
effects of this Revised Policy on industry-wide oil pipeline costs
in the 2020 five-year review of the oil pipeline index level.'').
\86\ E.g., Ass'n of Flight Attendants v. Huerta, 785 F.3d 710,
716 (D.C. Cir. 2015) (``Policy statements `are binding on neither
the public nor the agency, and the agency retains the discretion and
the authority to change its position . . . in any specific case.''')
(quoting Syncor Int'l Corp. v. Shalala, 127 F.3d 90 (D.C. Cir.
1997)).
\87\ Initial Order, 173 FERC ] 61,245 at P 18 (considering the
Commission's statement in the 2018 Income Tax Policy Statement but
concluding that the index is not an appropriate mechanism for
incorporating the Income Tax Policy Change).
---------------------------------------------------------------------------
C. Statistical Data Trimming
37. We likewise decline to adopt the Supplemental NOPR's proposal
to modify the index level by using the middle 50% instead of the middle
80% of cost changes.
38. We find that any benefits that may result from using the middle
50% do not justify revising the index level at this late stage in the
five-year review period. The record demonstrates that using the middle
50% would reduce the index level by 33 basis points, from PPI-FG+0.78%
to PPI-FG+0.45%.\88\ Moreover, this change would be only for one year
and affect pipeline rates by \1/3\ of one percent or 0.33%.\89\ It
would represent an extremely small percentage of the total pipeline
indexed rate changes over the five-year review period, and, when
considered over the five-year period, this 0.33% effect is de minimis.
Indexing necessarily involves some degree of imprecision.\90\ Even in a
more traditional ratemaking framework, a change of 0.33% above or below
a pipeline's cost of service is within expected imprecision in rates
over any period of time.\91\ Neither ratemaking generally nor the index
in particular are so exact.\92\
---------------------------------------------------------------------------
\88\ LEPA Initial Comments, Declaration of Dr. Ramsey D.
Shehadeh, at Ex. A4 (Shehadeh Decl.).
\89\ For example, assume that Pipeline A's ceiling level was $10
on June 30, 2021. Thus, Pipeline A's ceiling level would be $12.748
following the reinstatement of the index level of PPI-FG+0.78%
pursuant to LEPA v. FERC (10 * 0.994188 * 1.097007 * 1.143094 *
1.022547 = 12.748). See Order Reinstating Index, 189 FERC ] 61,173
at P 1 (listing index multipliers reflecting PPI-FG+0.78% index
level for July 1, 2021-June 30, 2025). In addition, assume that the
annual change in PPI-FG from 2023-2024 is 1.22%, which reflects the
most recent data published by the Bureau of Labor Statistics,
available at https://data.bls.gov/toppicks?survey=bls (accessible by
selecting ``PPI Finished Goods 1982 + 100 (Unadjusted) -
WPUFD49207'' and clicking ``Retrieve data''). Using the index of
PPI-FG+0.78%, Pipeline A's ceiling level would increase from $12.748
to $13.004 effective July 1, 2025 (12.748 * (1 + 0.0122 + 0.0078)) =
13.0036). By contrast, using a revised index of PPI-FG+0.45% that
reflects the middle 50% for July 1, 2025-June 30, 2026, Pipeline A's
ceiling level would increase from $12.748 to $12.961 (12.748 * (1 +
0.0122 + 0.0045) = 12.9609). As a result, revising the index level
using the middle 50% at this stage would only reduce Pipeline A's
ceiling level by $0.043 (or 0.33%).
\90\ E.g., Order No. 561, FERC Stats. & Regs. ] 30,985 at 30,949
(explaining that under the indexing system ``some divergence between
actual cost changes experienced by individual pipelines and the rate
changes permitted by the index is inevitable''); 2005 Index Review,
114 FERC ] 61,293 at P 57 (explaining that in adopting indexing, the
Commission ``recognized in adopting a uniform index for all
pipelines that inevitably some pipelines would over-earn while
others will under-earn''); see also Joint Commenters Reply Comments
at 69 (stating that ``indexing is necessarily inexact to some
degree'').
\91\ For example, between 2018 and 2019, 156 of the 160
pipelines in the data set had a change in billing determinants
(throughput) exceeding plus or minus 0.33%. Likewise, between 2018
and 2019, 94% of pipelines had page 700 costs of service per barrel-
mile changes exceeding plus or minus 0.33%.
\92\ See, e.g., Consol. Edison Co. of N.Y., Inc. v. FERC, 45
F.4th 265, 286 (D.C. Cir. 2022) (stating that ``courts have long
recognized that ratemaking is `much less a science than an art' '')
(quoting Ala. Elec. Coop., Inc. v. FERC, 684 F.2d 20, 27 (D.C. Cir.
1982)); Farmers Union Cent. Exch., Inc. v. FERC, 734 F.2d 1486, 1502
(D.C. Cir. 1984) (explaining that there is a ``zone of
reasonableness'' for just and reasonable rates).
---------------------------------------------------------------------------
39. The question before the Commission is not the index that should
be in place for the full five-year index period, but whether there is
sufficient basis to change the Commission-established index in the
fifth year of the five-year review period. As discussed above, this
record does not justify such an unprecedented step.
D. Appropriate Source of 2014 Page 700 Data
40. As explained in the Supplemental NOPR,\93\ page 700 includes
columns for reporting summary cost-of-service data for both the current
year and the previous year. 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.\94\ However,
in the Initial Order, the Commission inadvertently departed from its
prior practice by using outdated page 700 data for 2014.\95\ Thus, the
Supplemental NOPR proposed to calculate a revised index level using
updated page 700 data for 2014, where available, as reported in the
previous-year column in the Form No. 6 filings submitted in April
2016.\96\
---------------------------------------------------------------------------
\93\ 189 FERC ] 61,030 at P 35.
\94\ 2005 Index Review, 114 FERC ] 61,293 at P 50 (finding that
a witness was ``correct to use the data contained in [a] resubmitted
FERC Form No. 6'').
\95\ Specifically, 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.
\96\ Supplemental NOPR, 189 FERC ] 61,030 at P 36.
---------------------------------------------------------------------------
41. After further consideration, we decline to adopt the proposal
in the Supplemental NOPR. Consistent with our determination above, we
conclude that any benefit of adopting this proposal would not justify
the additional disruption that would result from modifying the index
level for a fourth time at this late stage of the five-year period.
IV. Conclusion
42. As discussed above, upon review of the record in this
proceeding and given the late stage of the five-year review period that
began July 1, 2021, we are not persuaded to proceed with the proposals
considered in the Supplemental NOPR. Thus, we withdraw the Supplemental
NOPR and terminate this rulemaking proceeding.
The Commission orders:
The Supplemental NOPR is hereby withdrawn and Docket No. RM25-2-000
is hereby terminated.
By the Commission.
Issued: November 20, 2025.
Debbie-Anne A. Reese,
Secretary.
[FR Doc. 2025-20900 Filed 11-24-25; 8:45 am]
BILLING CODE 6717-01-P