[Federal Register Volume 60, Number 2 (Wednesday, January 4, 1995)]
[Rules and Regulations]
[Pages 358-360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-116]



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DEPARTMENT OF ENERGY
18 CFR Part 348

[Docket No. RM94-1-001; Order No. 572-A]


Market-Based Ratemaking for Oil Pipelines

Issued December 28, 1994.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule; Order denying rehearing.

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SUMMARY: The Federal Energy Regulatory Commission is issuing an order 
denying the request for rehearing of Order No. 572, the final rule 
adopting filing requirements and procedures with respect to an 
application by an oil pipeline for a determination that it lacks 
significant market power in the markets in which it proposes to charge 
market-based rates. The final rule adopted procedural rules in order to 
implement the Commission's Order 561 market-based ratemaking policy.

EFFECTIVE DATE: This final rule is effective January 1, 1995.

FOR FURTHER INFORMATION CONTACT: Jeffrey A. Braunstein, Office of the 
General Counsel, Federal Energy Regulatory Commission, 825 North 
Capitol Street NE., Washington, DC 20426, (202) 208-2114.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of 
this document in the Federal Register, the Commission also provides all 
interested persons an opportunity to inspect or copy the contents of 
this document during normal business hours in Room 3104, 941 North 
Capitol Street NE., Washington, DC 20426.
    The Commission Issuance Posting System (CIPS), an electronic 
bulletin board service, provides access to the texts of the formal 
documents issued by the Commission. CIPS is available at no charge to 
the user and may be accessed using a personal computer with a modem by 
dialing (202) 208-1397. To access CIPS, set your communications 
software to 19200, 14400, 12000, 9600, 7200, 4800, 2400, 1200 or 300 
bps, full duplex, no parity, 8 data bits and 1 stop bit. The full text 
of this document will be available on CIPS for 60 days from the date of 
issuance in ASCII and WordPerfect 5.1 format. After 60 days the 
document will be archived, but still accessible. The complete text on 
diskette in Wordperfect format may also be purchased from the 
Commission's copy contractor, La Dorn Systems Corporation, also located 
in Room 3104, 941 North Capitol Street NE., Washington, DC 20426.

Order Denying Rehearing

Issued December 28, 1994.
    On October 28, 1994, the Federal Energy Regulatory Commission 
(Commission) issued Order No. 572 in which it adopted procedural rules 
governing an oil pipeline's application for a Commission finding that 
the oil pipeline lacks significant market power in the relevant 
markets.\1\ On November 28, 1994, the Association of Oil Pipe Lines 
(AOPL) filed a request for rehearing of Order No. 572.\2\ As discussed 
below, the Commission denies the AOPL's request for rehearing.

    \1\Market-Based Ratemaking for Oil Pipelines, Order No. 572, 59 
FR 59148 (November 16, 1994), III Stats. & Regs. 31,007 (1994).
    \2\Sinclair Oil Corporation's motion to file a brief in response 
to the AOPL's request for rehearing is denied.
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    In Order No. 561, the Commission adopted section 342.4(b) of the 
regulations, which provides that: ``Until [[Page 359]] the carrier 
establishes that it lacks market power, these rates will be subject to 
the applicable ceiling level under Sec. 342.3.'' Order No. 572 built on 
that requirement by requiring an oil pipeline to file an application 
for a market power determination rather than a rate filing under the 
ICA. Only after the Commission concludes that the oil pipeline lacks 
significant market power in the markets in which it proposes to charge 
market-based rates may it file market-based rates.
    The Commission rejected as collateral attacks on Order No. 561 the 
argument that it had overstepped its authority under the ICA by 
precluding an oil pipeline from charging market-based rates until the 
Commission has determined that the oil pipeline lacks significant 
market power in the relevant markets.
    The AOPL maintains that its objection does not constitute a 
collateral attack on Order No. 561 because its objection does not fall 
within the definition of collateral attack as ``an improper challenge 
to a prior judgement attempted through a proceeding that has an 
independent purpose.''\3\ It avers that it did not object to Order No. 
561's framework. Rather, it claims that it raised its objection to an 
entirely new subject: ``the detailed market power application filing 
requirements proposed by the NOPR.''\4\ It concludes: ``When two 
proposed rules [Order Nos. 561 and 572], addressing different topics 
[framework and application], share a fundamental flaw, and a commenting 
party contests that flaw in each rulemaking, the party's objection in 
the second rulemaking does not constitute a collateral attack on the 
first rulemaking.''<SUP>5

    \3\Request for rehearing at 3, citing, generally, 1B Moore's 
Federal Practice 0.441-0.448.
    \4\Id. at 4.
    \5\Id. at 4, 5. The AOPL notes that it has challenged Order No. 
561 on the legal issue by filing an appeal in the D.C. Circuit. See 
AOPL v. FERC, No. 94-1538 (filed August 5, 1994).
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    The Commission denies the AOPL's request for rehearing on the 
collateral attack issue. It was in Order No. 561 that the Commission 
adopted section 342.4(b) of its regulations which prohibits an oil 
pipeline from charging market-based rates until the Commission 
determines that it lacks significant market power in the relevant 
markets. This was not an issue in the present rulemaking proceeding, 
which adopted procedural requirements relating to that determination. 
Indeed, the different purpose of the rulemakings is shown by the fact 
that if there were no Order No. 572, Order No. 561's requirement, 
codified in section 342.4(b), about the effectiveness of market-based 
rates would still govern. Nonetheless, the Commission, as in Order No. 
572, will address below the AOPL's contentions on the merits.
    On the merits, the AOPL maintains that the Commission has 
mischaracterized Order No. 561 as a permissible waiver procedure when 
it is an improper attempt to modify the ICA's rate change scheme where 
the oil pipeline files a new rate pursuant to Section 6(3), which is 
subject to Commission review under Section 15(7). The AOPL adds that 
the application constitutes a rate filing because the application is 
inextricably linked to an oil pipeline's ability to charge market-based 
rates. The AOPL further maintains that the Commission's inconsistent 
treatment of cost-based and market-based rates is not justified because 
shippers are protected by the ICA's refund provisions, oil pipelines 
might have an expanded period of lost revenues if the application 
process lasts beyond the statutory seven-month suspension period, and 
the Commission has offered no reason why shippers need greater 
protection from presumed market forces than the statutory protection 
from potentially monopolistic rates.
    The Commission denies the AOPL's request for rehearing with respect 
to the Commission's statutory authority. An oil pipeline has no right 
to charge market-based rates. Rather, an oil pipeline must present 
empirical proof that it is not a monopoly so that the Commission can 
ensure that presumed market forces are not the basis of effective rates 
for the transportation of oil.<SUP>6 The Commission has adopted the 
market-based ratemaking process as the procedure that will enable oil 
pipelines to prove that they lack significant market power in the 
relevant markets and are thus entitled to an exception to, that is 
waiver from, the generally applicable indexing method and the maximum 
just and reasonable rate allowed thereunder.<SUP>7 That the market 
power determination will affect the oil pipeline's ability to charge 
market-based rates does not as the AOPL argues, convert the application 
into a rate filing. It merely can lead to such a filing.<SUP>8 
Importantly, the Commission has not precluded an oil pipeline from 
making rate filings to recover its costs under either the indexing 
method or a cost-of-service filing.

    \6\Texaco v. FPC, 417 U.S. 380 (1974); and Farmers Union Central 
Exchange, Inc. v. FERC, 734 F.2d 1486, 1510 (D.C. Cir. 1984).
    \7\In Order No. 572, the Commission referred to the Permian 
Basin Area Rate Cases, 390 U.S. 747 (1988), as support for the 
proposition that the Commission may impose a moratorium on filings 
for market-based rates except under the application process. In 
Permian, the Supreme Court held ``that the Commission may under 
Secs. 5 and 16 [of the Natural Gas Act] restrict filings under 
Sec. 4(d) of proposed rates higher than those determined by the 
Commission to be just and reasonable.'' (at 780) It is true as the 
AOPL submits that Permian involved a temporary moratorium and the 
Supreme Court declined to prescribe the limitations of the 
Commission's authority to proscribe moratoria upon filings in other 
circumstances. Here, however, the Commission's moratorium is also 
limited in that once an oil pipeline makes a showing that it lacks 
significant market power in the relevant markets, it is no longer 
prevented from charging market-based rates in those markets. In 
addition, the Supreme Court's main concern was with circumstances of 
changing costs as opposed to the apparent stability of production 
costs in Permian. Of course, under Order No. 561, the oil pipelines 
may file for cost-of-service rates.
    \8\The AOPL further submits that, with respect to a rate filing, 
the Commission does not have the statutory authority to require at 
the threshold the kind of filing required by Order No. 572. As 
discussed in Order No. 571-A, issued contemporaneously with this 
order, the Commission concludes here that it has the authority under 
Section 12(1) of the ICA to adopt filing requirements at the 
threshold for rate filings, such as for market-based rates. Of 
course, here, the Commission has adopted the waiver approach rather 
than relying on Section 12(1) in connection with a rate filing.
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    It is appropriate that the Commission has treated cost-based rates 
and market-based rates in a different manner by allowing an oil 
pipeline to file for cost-based rates under Section 6(3) of the ICA but 
requiring an oil pipeline to obtain a market power determination before 
it can charge market-based rates. It is true that both constitute 
exceptions to the Commission's generally applicable ratemaking method 
(that is, indexing) for oil pipelines. However it is within the 
Commission's authority to determine how an oil pipeline is to secure 
permission to charge rates based on a method that deviates from the 
generally applicable method. And the difference between cost-based 
rates, where the cost-of-service method is a known quantity, and 
market-based rates where the Commission must make a market power 
determination, justifies the Commission's approach of ensuring that 
presumed market forces will not be the basis of effective rates for the 
transportation of oil when an oil pipeline's application (i.e., its 
waiver request) is under consideration.<SUP>9

    \9\Farmers Union Central Exchange, Inc. v. FERC, 734 F.2d 
1486,1510 (D.C. Cir. 1984).
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    The AOPL maintains further that the Commission erred by adopting 
rules for market-based rates that do not comport with the Act of 1992's 
mandate to ``streamline procedures * * * relating to oil pipelines 
rates in order to avoid unnecessary regulating costs and 
delays.''<SUP>10 It argues that the process [[Page 360]] adopted by 
Order No. 572, requiring a case-in-chief if no protest is filed, cannot 
be characterized as a streamlining measure.

    \10\Section 1802(a) of the Act of 1992.
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    As discussed in Order No. 572, the Commission has fully complied 
with the mandate of the Act of 1992 by adopting the indexing 
methodology. The market-based ratemaking approach is not generally 
applicable and, in any, event, as stated in Order No. 572, does 
streamline procedures as to those rates. Therefore, the Commission 
denies the AOPL's request for rehearing on the Commission's conclusion 
that it did not violate the Act of 1992.

The Commission Orders

    The AOPL's request for rehearing of Order No. 572 is denied. By the 
Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 95-116 Filed 1-3-95; 8:45 am]
BILLING CODE 6717-01-P