Document ID: FERC-2020-0474-0001
Agency: ferc
Document Type: Notice
Title: Inquiry: Standard Applied to Complaints Against Oil Pipeline Index Rate Changes
Posted Date: 2020-04-17T04:00Z

[Federal Register Volume 85, Number 75 (Friday, April 17, 2020)]
[Notices]
[Pages 21420-21423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08178]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. AD20-10-000]

Standard Applied to Complaints Against Oil Pipeline Index Rate 
Changes

AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of inquiry.

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SUMMARY: Following the issuance of HollyFrontier Refining & Marketing 
LLC v. SFPP, L.P., 170 FERC ] 61,133 (2020), the Federal Energy 
Regulatory Commission (Commission) seeks comment on the Commission's 
recent proposal to eliminate the Substantially Exacerbate Test as the 
preliminary screen applied to complaints against oil pipeline index 
rate changes under 18 CFR 343.2(c)(1) and to apply the Percentage 
Comparison Test as the preliminary screen for complaints. The 
Commission also seeks comment on the use of the 10% threshold when 
applying the Percentage Comparison Test to complaints.

DATES: Initial Comments are due June 16, 2020, and Reply Comments are 
due July 16, 2020.

[[Page 21421]]

ADDRESSES: Comments, identified by docket number, may be filed 
electronically at http://www.ferc.gov in acceptable native applications 
and print-to-PDF, but not in scanned or picture format. For those 
unable to file electronically, comments may be filed by mail or hand-
delivery to: Federal Energy Regulatory Commission, Secretary of the 
Commission, at Health and Human Services, 12225 Wilkins Avenue, 
Rockville, Maryland 20852.

FOR FURTHER INFORMATION CONTACT: Evan Steiner (Legal Information), 
Office of the General Counsel, 888 First Street NE, Washington, DC 
20426, (202) 502-8792, Evan.Steiner@ferc.gov. Monil Patel (Technical 
Information), Office of Energy Market Regulation, 888 First Street NE, 
Washington, DC 20426, (202) 502-8296, Monil.Patel@ferc.gov.

SUPPLEMENTARY INFORMATION: 1. In HollyFrontier Refining & Marketing LLC 
v. SFPP, L.P.,\1\ the Commission proposed to eliminate the 
Substantially Exacerbate Test as the preliminary screen applied to 
complaints against index rate increases and to evaluate such complaints 
by applying the Percentage Comparison Test. The Commission further 
stated that it planned to initiate a separate, generic proceeding to 
request briefing from industry participants.\2\ As contemplated in 
HollyFrontier, we invite public comment on the merits of this proposal 
as well as the use of the 10% threshold when applying the Percentage 
Comparison Test to complaints.
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    \1\ 170 FERC ] 61,133 (2020) (HollyFrontier).
    \2\ Id. P 46 n.82.
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I. Background

    2. The Commission regulates oil pipeline rates pursuant to the 
Interstate Commerce Act's just and reasonable standard.\3\ In 
accordance with the Energy Policy Act of 1992,\4\ the Commission 
adopted the indexing regime to provide a simplified and generally 
applicable ratemaking methodology for oil pipelines and created 
streamlined procedures related to oil pipeline rates.\5\ Indexing 
allows oil pipelines to change their tariff rates so long as those 
rates remain at or below applicable ceiling levels. When the Commission 
created indexing, it also added page 700 to Form No. 6 to provide cost, 
revenue, and throughput information so that the Commission and the 
industry can monitor these indexed rates.\6\
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    \3\ 49 U.S.C. app. 1(5) (1988).
    \4\ Energy Policy Act of 1992, Public Law 102-486 1801(b), 106 
Stat. 3010 (Oct. 24, 1992).
    \5\ See Revisions to Oil Pipeline Regulations Pursuant to Energy 
Policy Act of 1992, Order No. 561, FERC Stats. & Regs. ] 30,985 
(1993), (cross-referenced at 65 FERC ] 61,109), order on reh'g and 
clarification, Order No. 561-A, 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).
    \6\ Cost-of-Service Reporting and Filing Requirements for Oil 
Pipelines, Order No. 571, FERC Stats. & Regs. ] 31,006 (1994), 
(cross-referenced at 69 FERC ] 61,102), order on reh'g and 
clarification, Order No. 571-A, FERC Stats. & Regs. ] 31,012 (1994), 
(cross-referenced at 69 FERC ] 61,411) aff'd sub nom. Ass'n of Oil 
Pipe Lines v. FERC, 83 F.3d 1424 (D.C. Cir. 1996); see also 
Revisions to and Electronic Filing of the FERC Form No. 6 and 
Related Uniform Systems of Accounts, Order No. 620, FERC Stats. & 
Regs. ] 31,115 (2000) (cross-referenced at 93 FERC ] 61,262), reh'g 
denied, Order No. 620-A, 94 FERC ] 61,130 (2001); Revisions to Page 
700 of FERC Form No. 6, Order No. 783, 144 FERC ] 61,049, at PP 29-
40 (2013), reh'g denied, Order No. 783-A, 148 FERC ] 61,235 (2014). 
All jurisdictional pipelines are required to file page 700, 
including pipelines exempt from filing the full Form No. 6. 18 CFR 
357.2(a)(2)-(3).
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    3. In adopting the indexing regime, the Commission established a 
procedure to allow shippers to challenge index rate increases that, 
while in compliance with the applicable ceiling, are substantially in 
excess of the actual cost changes that the pipeline incurred.\7\ 
Section 343.2(c)(1) of the Commission's regulations provides that a 
protest or complaint against an index rate increase must allege 
``reasonable grounds'' that the index rate increase is ``so 
substantially in excess of the actual cost increases incurred by the 
carrier that the rate is unjust and unreasonable.'' \8\ The Commission 
reviews protests and complaints against index rate increases by: (1) 
Applying a preliminary screen based on cost and revenue data from the 
pipeline's page 700; and (2) if the preliminary screen is satisfied, 
investigating the rate or rate increase at a hearing.
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    \7\ Order No. 561, FERC Stats. & Regs. ] 30,985 at 30,951.
    \8\ 18 CFR 343.2(c)(1).
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    4. Under the Commission's current policy, the preliminary screen 
differs for protests and complaints. When a proposed index rate 
increase is protested, the Commission applies the Percentage Comparison 
Test and will investigate the protested increase if the pipeline's page 
700 revenues exceed its costs and there is more than a 10 percentage-
point differential between: (a) The index rate increase; and (b) the 
change in the prior two years' total cost-of-service data reported on 
page 700, line 9.\9\ By contrast, when a complaint against an index 
rate increase is filed, the Commission considers ``a wider range of 
factors beyond the Percentage Comparison Test,'' including the 
Substantially Exacerbate Test.\10\ Pursuant to the Substantially 
Exacerbate Test, the Commission will investigate a complaint against an 
index rate increase if the complaint shows that: (1) The pipeline is 
substantially over-recovering its cost of service (first prong); and 
(2) the index rate increase so exceeds the actual increase in the 
pipeline's cost that the resulting rate increase would substantially 
exacerbate the pipeline's over-recovery (second prong).\11\
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    \9\ E.g., SFPP, L.P., 168 FERC ] 61,043, at P 4 (2019) (citing 
Calnev Pipe Line, L.L.C., 130 FERC ] 61,082, at PP 10-11 (2010)).
    \10\ E.g., Calnev Pipe Line L.L.C., 130 FERC ] 61,082 at P 11 
(citing BP W. Coast Prods. LLC v. SFPP, L.P., 121 FERC ] 61,243, at 
PP 8-9 (2007); BP W. Coast Prods., LLC v. SFPP, L.P., 121 FERC ] 
61,141, at P 7 (2007)).
    \11\ E.g., BP W. Coast Prods., LLC v. SFPP, L.P., 121 FERC ] 
61,141 at P 10.
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II. HollyFrontier Proceedings

    5. In 2014, two complaints were filed in Docket Nos. OR14-35-000 
and OR14-36-000 challenging SFPP, L.P.'s (SFPP) index rate increases 
for the 2012 and 2013 index years under Sec.  343.2(c)(1) (2014 
Complaints). The Commission dismissed the complaints for failing the 
second prong of the Substantially Exacerbate Test, finding that the 
complaints failed to show that the challenged rate increases 
exacerbated any over-recovery because, notwithstanding the rate 
increases, page 700 data that became available after SFPP implemented 
the increases and before the 2014 Complaints were filed (post-increase 
data) showed that the difference between SFPP's costs and revenues 
declined between 2011 and 2013.\12\
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    \12\ HollyFrontier Ref. & Mktg. LLC v. SFPP, L.P., 157 FERC ] 
61,186, at P 9 (2016).
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    6. Following an appeal by the complainants, the United States Court 
of Appeals for the District of Columbia Circuit held in Southwest 
Airlines Co. v. FERC \13\ that the Commission's consideration of post-
increase data in evaluating the 2014 Complaints marked an unjustified 
departure from the Commission's prior practice of considering only pre-
increase data in evaluating challenges to index rate increases.\14\ The 
court vacated and remanded the Commission's orders dismissing the 2014 
Complaints so that the Commission, if it chose to consider post-
increase data in evaluating the complaints, could persuasively 
distinguish or knowingly abandon its prior inconsistent practice.\15\ 
The court directed the Commission on remand to ``explain its action in 
a way that coheres with the rest of its indexing scheme''

[[Page 21422]]

and ``provide a reasoned explanation that treats like cases alike.'' 
\16\
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    \13\ 926 F.3d 851 (D.C. Cir. 2019).
    \14\ Id. at 856-59.
    \15\ Id. at 859.
    \16\ Id.
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    7. In 2019, three additional complaints were filed in Docket Nos. 
OR19-21-000, OR19-33-000, and OR19-37-000 challenging certain SFPP 
index rate increases for the 2018 index year (2019 Complaints).

III. Discussion

    8. In response to the remand in Southwest Airlines and the 2019 
Complaints, the Commission issued the HollyFrontier order proposing to 
revise the Commission's policy for reviewing complaints against index 
rate increases by eliminating the Substantially Exacerbate Test as the 
preliminary screen applied to such complaints and applying the 
Percentage Comparison Test to both protests and complaints under Sec.  
343.2(c)(1).\17\
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    \17\ HollyFrontier, 170 FERC ] 61,133 at P 21. The Commission 
further explained that under this proposed approach, it would 
continue to strictly confine its evaluation of protests to the 
Percentage Comparison Test while retaining the discretion to 
consider additional factors in evaluating complaints. Id. P 37.
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    9. In HollyFrontier, the Commission explained that several 
considerations support this proposed change in policy. First, the 
Substantially Exacerbate Test has not been defined and lacks clear 
standards.\18\ Second, the Substantially Exacerbate Test suffers from 
an inherent mechanical flaw that makes developing analytically sound 
thresholds unworkable and causes the test to yield irrational 
results.\19\ Third, the Substantially Exacerbate Test is arguably 
inconsistent with the purposes of indexing because rather than measure 
the challenged index rate increase relative to the pipeline's already 
incurred annual cost increases, it considers whether the increase will 
substantially worsen the gap between the pipeline's revenues and costs 
going forward.\20\ Fourth, the Substantially Exacerbate Test appears to 
be inconsistent with Commission regulations because it does not 
consider whether the challenged index rate increase is ``so 
substantially in excess of the actual cost increases incurred by the 
carrier that the rate is unjust and unreasonable,'' as required by 
Sec.  343.2(c)(1).\21\ Finally, eliminating the Substantially 
Exacerbate Test would not deprive shippers of the ability to challenge 
a pipeline's rates where the pipeline is substantially over-recovering 
its cost of service because regardless of the standard applied to 
complaints against individual index rate increases, shippers can file a 
cost-of-service complaint challenging the pipeline's rates that have 
historically been indexed.\22\
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    \18\ Id. PP 22-23.
    \19\ Id. PP 24-26.
    \20\ Id. P 27.
    \21\ Id. PP 28-30.
    \22\ Id. PP 31, 38.
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    10. In light of these concerns regarding use of the Substantially 
Exacerbate Test to evaluate complaints under Sec.  343.2(c)(1), the 
Commission in HollyFrontier proposed to eliminate the Substantially 
Exacerbate Test and apply the Percentage Comparison Test to both 
protests and complaints. Under this proposed approach, the Commission 
would apply the Percentage Comparison Test to complaints against index 
rate increases and establish a hearing to investigate the increase when 
the complaint shows that the pipeline's page 700 shows that revenues 
exceed its costs and that there is a 10% or more differential between: 
(a) The proposed index rate increase; and (b) the annual percentage 
change in cost of service reported on line 9, page 700, over the two 
years preceding the index rate increase.\23\
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    \23\ Id. P 32.
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    11. The Commission explained how this proposed change in policy 
appears to resolve the concerns regarding the current policy of 
applying the Substantially Exacerbate Test. The Commission explained 
that the Percentage Comparison Test is free of the apparent 
methodological defect that causes the Substantially Exacerbate Test to 
yield irrational results \24\ and more closely conforms to indexing's 
purpose and the language of Sec.  343.2(c)(1).\25\ In addition, the 
Commission stated that the proposed change in policy would respond to 
the court's concerns in Southwest Airlines by adopting a single test 
applicable to all challenges to index rate changes that relies solely 
upon pre-increase data.\26\
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    \24\ Id. P 33.
    \25\ Id. P 34.
    \26\ Id. P 35.
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    12. The Commission also proposed in HollyFrontier to maintain the 
Percentage Comparison Test's existing 10% threshold in applying the 
test to complaints, consistent with the Commission's historical 
practice involving protests against index rate changes.\27\ The 
Commission noted that the 10% threshold could apply to complaints as 
well as protests because it preserves indexing's cost efficiency 
incentives and encourages pipelines to control costs.\28\ Moreover, the 
Commission stated that high annual volatility in oil pipeline cost and 
volume data militates against adopting a threshold below 10%, because 
lower thresholds could result in distorted outcomes.\29\ The Commission 
invited the parties to comment on the use of the 10% threshold for 
complaints against index rate increases and to present and justify any 
alternative threshold they believe would be superior.\30\
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    \27\ Id. P 39.
    \28\ Id. PP 42-43.
    \29\ Id. P 44.
    \30\ Id. P 45.
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    13. The Commission directed the parties in the HollyFrontier 
proceedings to submit briefs addressing the merits of the Commission's 
proposal.\31\ The Commission further stated that it planned to initiate 
a separate, generic proceeding to request briefing from industry 
participants.\32\
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    \31\ Id. P 46.
    \32\ Id. P 46 n.82.
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    14. As contemplated in HollyFrontier, we therefore now invite 
public comment on the Commission's proposal to eliminate the 
Substantially Exacerbate Test as the preliminary screen applied to 
complaints against index rate increases and to apply the Percentage 
Comparison Test as the preliminary screen for both protests and 
complaints under Sec.  343.2(c)(1). The comments should address the 
merits of the Commission's proposal; whether the Commission should 
apply the Percentage Comparison Test's existing 10% threshold to 
complaints; and whether and how the Commission should consider 
additional factors beyond the Percentage Comparison Test in evaluating 
complaints against index rate increases. The comments may also propose 
alternative methods or standards for the Commission to apply in 
determining whether a complaint against an index rate increase 
satisfies the requirements of Sec.  343.2(c)(1). The comments should 
fully justify any such alternatives and explain why the alternative is 
superior to the Percentage Comparison Test. In addition, the comments 
may propose alternative Percentage Comparison Test thresholds, but must 
fully explain why any such alternative thresholds are superior to the 
10% threshold.
    15. After publication of this Notice of Inquiry in the Federal 
Register, the Commission will extend the comment deadlines in the 
HollyFrontier proceedings so that the period for comments in 
HollyFrontier aligns with the period for comments in the instant 
docket.

IV. Comment Procedures

    16. The Commission invites public comment on the proposals 
discussed in HollyFrontier. Initial Comments are due

[[Page 21423]]

by June 16, 2020, and Reply Comments are due by July 16, 2020.
    17. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's website 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. Commenters filing electronically do not 
need to make a paper filing.
    18. 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, at Health and Human Services, 
12225 Wilkins Avenue, Rockville, Maryland 20852.
    19. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

V. Document Availability

    20. 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.
    21. 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.
    22. User assistance is available for eLibrary and the Commission's 
website during normal business hours from 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.
    Email the Public Reference Room at public.referenceroom@ferc.gov.

    By direction of the Commission.
    Issued: March 25, 2020.
Kimberly D. Bose,
Secretary.
[FR Doc. 2020-08178 Filed 4-16-20; 8:45 am]
BILLING CODE 6717-01-P