Document ID: FERC-2015-0872-0001
Agency: ferc
Document Type: Proposed Rule
Title: Oil Pipeline Index; Five-Year Review
Posted Date: 2015-07-08T04:00Z

[Federal Register Volume 80, Number 130 (Wednesday, July 8, 2015)]
[Proposed Rules]
[Pages 39010-39011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16628]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 342

[Docket No. RM15-20-000]

Five-Year Review of the Oil Pipeline Index

AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of inquiry.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) invites 
comments on its proposed five-year review of the index level used to 
determine annual changes to oil pipeline rate ceilings. The Commission 
proposes an index level between the Producer Price Index for Finished 
Goods (PPI-FG)+2.0 percent and PPI-FG+2.4 percent for the five-year 
period commencing July 1, 2016. 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 August 24, 2015, and Reply Comments are 
due September 21, 2015.

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 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; Andrew Knudsen (Legal 
Information); Office of the General Counsel; Federal Energy Regulatory 
Commission; 888 First Street NE.; Washington, DC 20426; (202) 502-6527.

SUPPLEMENTARY INFORMATION: 
    1. The Commission annually applies an index to existing oil 
pipeline transportation rate ceilings to establish new rate ceiling 
levels. The Commission reexamines this index every five years.\1\ In 
this notice of inquiry (NOI), the Commission invites comments on its 
proposal to use an index level between the Producer Price Index for 
Finished Goods \2\ (PPI-FG)+2.0 percent and PPI-FG+2.4 percent for the 
next five years beginning July 1, 2016.\3\ This proposal is based upon 
the Kahn Methodology established in Order No. 561 and applied in 
subsequent five-year review proceedings.\4\ The Commission proposes a 
range because not all pipelines have filed Form No. 6 data for 2014. 
The Commission will select a final index level at the conclusion of 
this proceeding. Commenters are invited to submit comments on, and 
justify alternatives to, the proposed index level. In addition to 
inviting comments, the Commission plans to hold a conference on July 
30, 2015, to discuss the issues raised by this notice. A subsequent 
notice will provide

[[Page 39011]]

additional details regarding the conference.
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    \1\ The five-year review process was established in Order No. 
561. See Revisions to Oil Pipeline Regulations Pursuant to the 
Energy Policy Act, 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, Assoc. of Oil Pipelines v. FERC, 83 F.3d 1424 
(D.C. Cir. 1996).
    \2\ The PPI-FG represents the Producer Price Index for Finished 
Goods. The PPI-FG is determined and issued by the Bureau of Labor 
Statistics, U.S. Department of Labor.
    \3\ As provided by 18 CFR 342.3(d)(2) (2014), ``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 on June 30 of the index year 
by the resulting number gives the rate ceiling for the year 
beginning the next day, July 1.
    \4\ Five-Year Review of Oil Pipeline Index, 133 FERC ] 61,228, 
at PP 5-9, 60-63 (2010), order on reh'g, 135 FERC ] 61,172 (2011). 
See also Five-Year Review of Oil Pipeline Index, 102 FERC ] 61,195 
(2003), aff'd, Flying J Inc., et al., v. FERC, 363 F.3d 495 (D.C. 
Cir. 2004); Five-Year Review of Oil Pipeline Index, 114 FERC ] 
61,293 (2006).
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I. Background

    2. 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.\5\ In Order 
No. 561, 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.\6\
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    \5\ Order No. 561, FERC Stats. & Regs. ] 30,985 at 30,947.
    \6\ Id.
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    3. In Order No. 561 and each successive index review, the 
Commission calculated the index level based upon a methodology 
developed by Dr. Alfred E. Kahn.\7\ The Kahn Methodology measures 
changes in operating costs and capital costs on a per barrel-mile basis 
using FERC Form No. 6 (Form No. 6) data from the prior five-year period 
(for example, between 2009 and 2014 in this proceeding).\8\ The Kahn 
Methodology uses net carrier property per barrel-mile as a proxy for 
capital cost data. The Kahn Methodology assigns a weight to the Form 
No. 6 operating expenses relative to the net carrier property using an 
``operating ratio.'' \9\ The weighted operating expense and the 
weighted net carrier property are then added together to establish the 
cumulative cost change for each pipeline.\10\
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    \7\ The Commission's use of the Kahn Methodology has been 
affirmed by the United States Court of Appeals for the District of 
Columbia Circuit. Assoc. of Oil Pipelines v. FERC, 83 F.3d 1424 
(D.C. Cir. 1996) and Flying J Inc., et al., v. FERC, 363 F.3d 495 
(D.C. Cir. 2004).
    \8\ Specifically, this data is drawn from the Form No. 6: 
Carrier Property, page 110; Accrued Depreciation, page 111; 
Operating Revenues and Operating Expenses, page 114; Crude and 
Products Barrel-Miles, page 600. To the extent this information is 
incomplete, alternate data reported in the Form No. 6 has been 
substituted.
    \9\ The ``operating ratio'' = ((Operating Expense at Year 1/
Operating Revenue at Year 1) + (Operating Expense at Year 5/
Operating Revenue at Year 5))/2. If the operating ratio is greater 
than one, then it is assigned the value of 1 in the Kahn Methodology 
calculations.
    \10\ Cumulative Cost Change = (1-operating ratio) * net plant + 
operating ratio * operating expenses.
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    4. Once these cumulative cost changes have been calculated for each 
pipeline with sufficient Form No. 6 data, the Kahn Methodology culls a 
data set consisting of pipelines with cumulative per-barrel-mile cost 
changes in the middle 50 percent of all pipelines. This trimming 
removes statistical outliers or spurious data points that could bias 
the sample in either direction. For the middle 50 percent data set, the 
Kahn Methodology considers three different measures of central 
tendency. One measure is the median of each data set. Another measure, 
the weighted mean, calculates an average barrel-mile cost change in 
which each pipeline's cost change is weighted by its barrel-miles. A 
third measure, the un-weighted average, calculates the simple average 
of the percentage cost change per barrel-mile for each pipeline. A 
composite is calculated by taking the simple average of the median, the 
weighted mean, and the un-weighted mean. This composite is compared to 
the value of the PPI-FG index data over the same period. The index 
level is then set at PPI-FG plus (or minus) this differential.

II. Commission Proposal

    5. The Commission proposes to use an index level between PPI-FG+2.0 
percent and PPI-FG+2.4 percent as the index level for the five-year 
period commencing July 1, 2016. This proposal is based upon the Kahn 
Methodology as applied to Form No. 6 data from the 2009 through 2014 
period. The Commission's calculations are included in Attachment A to 
this order.

III. Conference and Comment Procedures

    6. The Commission invites interested persons to submit comments 
regarding this proposal and any alternative methodologies for 
calculating the index level for the five-year period commencing July 1, 
2016.
    7. Initial Comments are due August 24, 2015 and Reply Comments are 
due September 21, 2015. Comments must refer to Docket No. RM15-20-000, 
and must include the name of the commenter, and if applicable, the 
organization represented and their address. On July 30, 2015, the 
Commission plans to hold a conference to discuss the issues raised by 
this notice. A subsequent notice will provide additional details 
regarding the conference.
    8. The Commission encourages 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.
    9. 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.
    10. 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 are not required to 
serve copies of their comments on other commenters.

IV. Document Availability

    11. 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) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street NE., Room 2A, 
Washington DC 20426.
    12. From the Commission's Home Page on the Internet, this 
information is available in the Commission's document management 
system, 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) in the docket number field.
    13. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours. For assistance, please contact 
the Commission's Online Support at 1-866-208-3676 (toll free) or 202-
502-6652 (email at FERCOnlineSupport@ferc.gov) or the Public Reference 
Room at 202-502-8371, TTY 202-502-8659 (email at 
public.referenceroom@ferc.gov).

    By direction of the Commission.

    Dated: June 30, 2015.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2015-16628 Filed 7-7-15; 8:45 am]
 BILLING CODE 6717-01-P