DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 342

[Docket No. RM20-14-000]

Five-Year Review of the Oil Pipeline Index

June 18, 2020

AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of inquiry.

SUMMARY: The Federal Energy Regulatory Commission (Commission) invites 

comments on its proposed index level used to determine annual changes to oil pipeline 

rate ceilings. The Commission proposes to use the Producer Price Index for Finished 

Goods (PPI-FG) plus 0.09% as the index level for the five-year period commencing 

July 1, 2021. The Commission invites interested persons to submit comments regarding 

this proposal and any alternative methodologies for calculating the index level.

DATES: Initial Comments are due on or before August 17, 2020, and Reply Comments 

are due on or before September 11, 2020.

ADDRESSES: You may submit comments, identified by docket number, by any of the 

following methods:

• Agency Web Site: http://www.ferc.gov. Documents created electronically using 

word processing software should be filed in native applications or print-to-PDF

format and not in a scanned format. All supporting workpapers must be 

submitted with formulas and in a spreadsheet format acceptable under the 
Docket No. RM20-14-000 ii

Commission’s eFiling rules.

• Mail/Hand Delivery: Commenters unable to file comments electronically must 

mail or hand deliver an original to: Federal Energy Regulatory Commission, 

Office of the Secretary, 888 First Street, NE, Washington, DC 20426.

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

SUPPLEMENTARY INFORMATION:
UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Five-Year Review of the Oil Pipeline Index Docket No. RM20-14-000

NOTICE OF INQUIRY

June 18, 2020

The Commission annually applies an index to existing oil pipeline transportation 

rate ceilings to establish new rate ceiling levels.1

 The Commission reexamines the index 

level every five years.2

 In this notice of inquiry (NOI), the Commission invites 

comments on its proposal to use the Producer Price Index for Finished Goods (PPI-FG)3

plus 0.09% as the index level for the next five years beginning July 1, 2021.4

 This 

1 Indexing allows oil pipelines to change their tariff rates so long as those rates 

remain at or below certain ceiling levels. 18 CFR 342.3(a).

2 The five-year index review process was established in Order No. 561. See

Revisions to Oil Pipeline Regulations Pursuant to the Energy Policy Act of 1992, Order 

No. 561, FERC Stats. & Regs. ¶ 30,985 (1993), order on reh’g, Order No. 561-A, FERC 

Stats. & Regs. ¶ 31,000 (1994), aff’d, Ass’n of Oil Pipe Lines v. FERC, 83 F.3d 1424 

(D.C. Cir. 1996).

3 The PPI-FG is determined and issued by the Bureau of Labor Statistics, U.S. 

Department of Labor.

4 As provided by 18 CFR 342.3(d)(2), “The index will be calculated by dividing 

the PPI-FG for the calendar year immediately preceding the index year, by the previous 

calendar year’s PPI-FG.” Multiplying the rate ceiling effective on June 30 of the index 

year by the resulting number establishes the new rate ceiling for the year beginning the 

next day, July 1.
Docket No. RM20-14-000 - 2 -

proposal is based on the Kahn Methodology established in Order No. 561 and applied in 

subsequent five-year index review proceedings.5

As discussed below, commenters are invited to submit comments regarding the 

Commission’s proposal and any alternative methodologies for calculating the index level. 

Among other issues, these comments may address different data trimming methodologies 

and whether and how the index should reflect changes to the Commission’s policies 

regarding income tax costs and return on equity (ROE). The Commission will select a 

final index level at the conclusion of this proceeding.

I. Background

A. Five-Year Review Process

In Order No. 561, the Commission established an indexing methodology that 

allows oil pipelines to change rates based upon an annual index as opposed to making 

cost-of-service filings.6

 The Commission committed to review the index level every five 

years to ensure that the index level chosen by the Commission adequately reflects 

changes to industry costs.7

5 Five-Year Review of the Oil Pipeline Index, 153 FERC ¶ 61,312, at PP 5, 12-18 

(2015) (2015 Index Review), aff’d, Ass’n of Oil Pipe Lines v. FERC, 876 F.3d 336 (D.C. 

Cir. 2017); Five-Year Review of Oil Pipeline Pricing Index, 133 FERC ¶ 61,228, at PP 5-

9, 60-63 (2010) (2010 Index Review), order on reh’g, 135 FERC ¶ 61,172 (2011); see 

also Five-Year Review of Oil Pipeline Pricing Index, 114 FERC ¶ 61,293 (2006) (2005 

Index Review); Five-Year Review of Oil Pipeline Pricing Index, 102 FERC ¶ 61,195 

(2003), aff’d, Flying J Inc. v. FERC, 363 F.3d 495 (D.C. Cir. 2004).

6 Order No. 561, FERC Stats. & Regs. ¶ 30,985 at 30,947.

7 Id.
Docket No. RM20-14-000 - 3 -

In Order No. 561 and each successive five-year index review, the Commission has 

calculated the index level based upon a methodology developed by Dr. Alfred E. Kahn.8

 

The Kahn Methodology uses pipeline data from Form No. 6, page 7009 from the prior 

five-year period to determine an 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 in this proceeding) is calculated. In order to remove 

statistical outliers and spurious data, the resulting data set is trimmed to those oil 

pipelines in the middle 50% of cost changes. The Kahn Methodology then calculates 

three measures of the middle 50% central tendency: the median, the mean, and a 

weighted mean.10 The Kahn Methodology calculates a composite by averaging these 

three measures of central tendency and measures the difference between the composite 

and the PPI-FG over the prior five-year period. The index level is then set at PPI-FG plus 

(or minus) this differential.

8 The Commission’s use of the Kahn Methodology has been affirmed by the 

United States Court of Appeals for the District of Columbia Circuit. Ass’n of Oil 

Pipelines v. FERC, 83 F.3d 1424 (D.C. Cir. 1996); Flying J Inc. v. FERC, 

363 F.3d 495 (D.C. Cir. 2004).

9 2015 Index Review, 153 FERC ¶ 61,312 at P 12 (updating the Commission’s 

calculation of the five-year oil pipeline index to use page 700 data to measure changing 

barrel-mile costs). Page 700 provides summarized interstate barrel-mile and cost-ofservice data consistent with the Commission’s cost-of-service methodology. Id. PP 12-

13, 16.

10 The weighted mean assigns a different weight to each pipeline’s cost change 

based on the pipeline’s total barrel-miles.
Docket No. RM20-14-000 - 4 -

B. Developments Since the Most Recent Five-Year Review

Since the Commission’s most recent review of the index in 2015, the Commission

has adopted two major changes to the cost-of-service methodology used to populate page 

700 data. First, in 2018, the Commission revised its policy concerning the treatment of 

income taxes and Accumulated Deferred Income Taxes (ADIT) in the rates of master 

limited partnership (MLP) pipelines (income tax policy change). Following the remand 

in United Airlines, Inc. v. FERC,

11 the Commission determined that an impermissible 

double recovery results from granting MLP pipelines an income tax allowance when 

using the discounted cash flow (DCF) methodology.

12 Thus, the Commission instructed

MLP oil pipelines to eliminate the income tax allowance from page 700 costs filed on 

April 18, 201813 and clarified that pipelines eliminating an income tax allowance may 

also eliminate previously-accumulated ADIT from their costs of service.14 The 

Commission further stated that it would incorporate the effects of the income tax policy

change on industry-wide oil pipeline costs in the 2020 five-year review of the oil pipeline 

index level.15

11 827 F.3d 122 (D.C. Cir. 2016).

12 Inquiry Regarding the Commission’s Policy for Recovery of Income Tax Costs, 

162 FERC ¶ 61,227, at P 8 (2018) (Income Tax Policy Statement), reh’g denied, 164 

FERC ¶ 61,030 (2018) (Income Tax Policy Statement Rehearing Order).

13 Id. P 46.

14 Income Tax Policy Statement Rehearing Order, 164 FERC ¶ 61,030 at P 13.

15 Income Tax Policy Statement, 162 FERC ¶ 61,227 at P 46.
Docket No. RM20-14-000 - 5 -

Second, on May 21, 2020, the Commission issued a policy statement revising its 

methodology for determining ROE for interstate natural gas and oil pipelines (ROE 

policy change).

16 The Commission departed from its longstanding policy of determining 

pipeline ROEs by relying solely on the discounted cash flow model (DCF) and expanded 

its methodology to afford equal weighting to the results of DCF and Capital Asset Pricing 

Model (CAPM) analyses.17 Moreover, the Commission encouraged oil pipelines to file

updated Form No. 6, page 700 data for 2019 reflecting the revised ROE methodology, 

explaining that such data may help the Commission better estimate industry-wide cost 

changes for purposes of the five-year index review.18 The Commission explained that 

following Office of Management and Budget (OMB) approval of this voluntary 

information collection pursuant to the Paperwork Reduction Act,19 the Commission will 

issue a notice affording pipelines two weeks to file updated Form No. 6, page 700 data 

reflecting the revised ROE methodology.20

16 Inquiry Regarding the Commission’s Policy for Determining Return on Equity, 

171 FERC ¶ 61,155 (2020) (ROE Policy Statement).

17 Id. PP 18, 28, 50.

18 Id. P 92. The Commission further explained that pipelines that previously filed 

Form No. 6 for 2019 and choose to submit updated page 700 data should, in a footnote on 

the updated page 700, either (a) confirm that their previously filed Form No. 6 was based 

solely upon the DCF model or (b) provide the real ROE and resulting cost of service 

based solely upon the DCF model as it was applied to oil pipelines prior to the ROE 

Policy Statement. Id.

19 44 U.S.C. 3501-21.

20 ROE Policy Statement, 171 FERC ¶ 61,155 at P 93. The Commission clarified 

that pipelines that have not filed Form No. 6 for 2019 (e.g., pipelines that have received 
Docket No. RM20-14-000 - 6 -

II. Commission Proposal

We propose PPI-FG plus 0.09% as the index level for the five-year period 

commencing July 1, 2021. This proposal is based on the Kahn Methodology as applied 

to Form No. 6, page 700 data from the 2014 through 2019 period. The Commission’s 

calculations are included in workpapers available in this docket on the Commission’s 

eLibrary system.21. This proposal is subject to change based upon the updated Form 

No. 6, page 700 data for 2019 and other potential adjustments as supported by the record 

in this proceeding.

We invite interested persons to submit comments regarding the Commission’s 

proposal and any alternative methodologies for calculating the index level for the 

five-year period commencing July 1, 2021. Commenters may address issues that include, 

but are not limited to, different data trimming methodologies and whether, and if so how, 

the Commission should reflect the effects of cost-of-service policy changes in the 

calculation of the index level.

an extension of the Form No. 6 filing deadline) should file page 700 data consistent 

with their previously granted extensions and such filings should be based upon the DCF 

model, which was the Commission’s oil pipeline ROE methodology as of April 20, 2020. 

Id. Moreover, upon OMB approval of the information collection in the ROE Policy 

Statement, those pipelines will have the opportunity to file updated page 700 data 

reflecting the Commission’s revised oil pipeline ROE methodology. Id. n.192.

21 See infra P 17 (discussing the Commission’s eLibrary system).
Docket No. RM20-14-000 - 7 -

A. Trimming of the Data Set

The Commission calculated the proposed index level by trimming the data set to 

the middle 50 percent of all oil pipelines, consistent with the Commission’s practice in 

the 2010 and 2015 index reviews.

22 We encourage commenters to address whether the 

Commission should continue to trim the data set to the middle 50 or adopt an alternative 

approach to data trimming, such as returning to the Commission’s prior practice of

considering the middle 8023 or any other approach. Commenters should explain why any 

such alternative approach is superior to the middle 50 and how it would appropriately 

address outliers and spurious data that could bias the results in either direction.

B. Cost-of-Service Policy Changes

As discussed above, the Commission uses the Kahn Methodology to measure 

changes in pipeline costs using page 700 data from the prior five-year period. 

Accordingly, the Commission’s proposal incorporates the effects of the income tax policy 

change on industry-wide oil pipeline costs because this policy change is reflected in 

pipelines’ page 700 data. The Commission’s proposal does not include the effects of the 

ROE policy change because page 700 data reflecting that policy change has yet to be 

filed. However, as explained in the ROE Policy Statement, the Commission will afford 

22 2015 Index Review, 153 FERC ¶ 61,312 at PP 42-44; 2010 Index Review, 

133 FERC ¶ 61,228 at PP 60-63.

23 See, e.g., 2005 Index Review, 114 FERC ¶ 61,293.
Docket No. RM20-14-000 - 8 -

pipelines an opportunity to file this data for consideration in this five-year index review.24 

As discussed above, interested persons may address whether, and if so how, the 

Commission should reflect the effects of cost-of-service policy changes (including the 

income tax policy change25 and the ROE policy change26) in the calculation of the index

level.

However, this proceeding is not the appropriate forum to litigate the merits of the 

policy changes themselves. Litigating the merits of cost-of-service policy changes in the 

five-year index review is inappropriate for several reasons. First, the index adjusts for

and the effects of subsequent changes to the Commission’s cost-of-service policies which

could be incorporated into the index level in the next five-year index review. Second, 

litigating policy changes in the five-year index review would be impractical because,

whereas the Commission’s policies are continually evolving, the five-year index review 

is based upon a snapshot of pipeline cost changes during the applicable review period. 

Third, litigating policy changes would improperly complicate and prolong the five-year 

index review by introducing complex cost-of-service issues that can require years to 

resolve.

27 The Commission must complete this five-year index review in order to 

24 ROE Policy Statement, 171 FERC ¶ 61,155 at P 93.

25 Income Tax Policy Statement, 162 FERC ¶ 61,227 at P 8.

26 ROE Policy Statement, 171 FERC ¶ 61,155 at P 2.

27 See, e.g., SFPP, L.P., Opinion No. 511-C, 162 FERC ¶ 61,228, at PP 4-7 (2018) 

(noting that the litigation culminating in the 2018 income tax policy change began in 

2008).
Docket No. RM20-14-000 - 9 -

establish the index level in sufficient time for it to be used by pipelines in the index 

filings to be effective July 1, 2021. Finally, cost-of-service rate proceedings, where 

participants and the Commission have a full opportunity to develop an evidentiary record, 

are a more appropriate forum for litigating policy changes than the generic, industry-wide 

proceeding on the five-year index review. 

III. Comment Procedures

Initial Comments are due on or before August 17, 2020 and Reply Comments are 

due on or before September 11, 2020. Comments must refer to Docket No. RM20-14-

000, and must include the name of the commenter, the organization they represent, if 

applicable, and their address.

We encourage comments to be filed electronically via the eFiling link on the 

Commission’s web site at http://www.ferc.gov. The Commission accepts most standard 

word processing formats. Documents created electronically using word processing 

software should be filed in native applications or print-to-PDF format and not in a 

scanned format. All supporting workpapers must be submitted with formulas and in a 

spreadsheet format acceptable under the Commission’s eFiling rules. Commenters filing 

electronically do not need to make a paper filing.

Commenters that are not able to file comments electronically must send an 

original of their comments to: Federal Energy Regulatory Commission, Secretary 

of the Commission, 888 First Street, NE, Washington, DC 20426.

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 
Docket No. RM20-14-000 - 10 -

below. Commenters are not required to serve copies of their comments on other 

commenters.

IV. Document Availability

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 

(http://www.ferc.gov). At this time, the Commission has suspended access to the 

Commission’s Public Reference Room, due to the proclamation declaring a National 

Emergency concerning the Novel Coronavirus Disease (COVID-19), issued by the 

President on March 13, 2020.

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.

User assistance is available for eLibrary and the Commission’s website during 

normal business hours. For assistance, please contact the Commission’s Online Support 

at (202) 502-6652 (toll free at 1-866-208-3676) or email at ferconlinesupport@ferc.gov, 

or the Public Reference Room at (202) 502-8371, TTY (202) 502-8659. E-mail the 

Public Reference Room at public.referenceroom@ferc.gov.

By direction of the Commission.

Secretary
Docket No. RM20-14-000 - 11 -