Document ID: FERC-2022-0110-0001
Agency: ferc
Document Type: Rule
Title: Five-Year Review of the Oil Pipeline Index
Posted Date: 2022-01-28T05:00Z

[Federal Register Volume 87, Number 19 (Friday, January 28, 2022)]
[Rules and Regulations]
[Pages 4476-4498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01544]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 342

[Docket No. RM20-14-001]

Five-Year Review of the Oil Pipeline Index

AGENCY: Federal Energy Regulatory Commission.

ACTION: Order on rehearing.

-----------------------------------------------------------------------

SUMMARY: The Federal Energy Regulatory Commission (Commission) 
addresses arguments raised on rehearing of the December 17, 2020 Order 
Establishing Index Level concluding the Commission's five-year review 
of the index level used to determine annual changes to oil pipeline 
rate ceilings (December 2020 Order). The December 2020 Order 
established an index level of Producer Price Index for Finished Goods 
plus 0.78% (PPI-FG+0.78%) for the five-year period commencing July 1, 
2021. In this order, the Commission grants rehearing of the December 
2020 Order, in part, denies rehearing, in part, and establishes an 
index level of PPI-FG-0.21%.

DATES: This order is applicable beginning January 20, 2022.

FOR FURTHER INFORMATION CONTACT: 

Evan Steiner (Legal Information), Office of the General Counsel, 888 
First Street NE, Washington, DC 20426, (202) 502-8792
Monil Patel (Technical Information), Office of Energy Market 
Regulation, 888 First Street NE, Washington, DC 20426, (202) 502-8296

SUPPLEMENTARY INFORMATION:

Order on Rehearing

(Issued January 20, 2022)

    1. On December 17, 2020, the Commission issued an order 
establishing an oil pipeline index level of Producer Price Index for 
Finished Goods plus 0.78% (PPI-FG+0.78%) for the five-year period 
beginning July 1, 2021.\1\ On January 19, 2021, Joint Commenters,\2\ 
Liquids Shippers Group (Liquids Shippers),\3\ the Canadian Association 
of Petroleum Producers (CAPP) (together with Joint Commenters and 
Liquids Shippers, Shippers), the Association of Oil Pipe Lines (AOPL), 
and Designated Carriers \4\ (together with AOPL, Pipelines) requested 
rehearing or clarification of the December 2020 Order.
---------------------------------------------------------------------------

    \1\ Five-Year Rev. of the Oil Pipeline Index, 86 FR 9448 (Feb. 
16, 2021), 173 FERC ] 61,245 (2020) (December 2020 Order).
    \2\ Joint Commenters include: The Airlines for America; Chevron 
Products Company; the National Propane Gas Association; and Valero 
Marketing and Supply Company.
    \3\ Liquids Shippers include: Apache Corporation; Cenovus Energy 
Marketing Services Ltd.; ConocoPhillips Company; Devon Gas Services, 
L.P.; Equinor Marketing & Trading US Inc.; Fieldwood Energy LLC; 
Marathon Oil Company; Murphy Exploration and Production Company--
USA; Ovintiv Marketing, Inc.; and Pioneer Natural Resources USA, 
Inc.
    \4\ Designated Carriers include: Buckeye Partners, L.P.; 
Colonial Pipeline Company; Energy Transfer LP; Enterprise Products 
Partners L.P.; and Plains All American Pipeline, L.P.
---------------------------------------------------------------------------

    2. As discussed below, we grant the requests for rehearing, in 
part, and deny the requests for rehearing, in part. As a result, we 
adopt an index level of PPI-FG-0.21%. This departure from the December 
2020 Order results from: (a) Trimming the data set to the middle 50% of 
cost changes, as opposed to the middle 80%; (b) incorporating the 
effects of the Commission's 2018 policy change requiring Master Limited 
Partnership (MLP)-owned pipelines to eliminate the income tax allowance 
and previously accrued Accumulated Deferred Income Taxes (ADIT) 
balances from their page 700 summary costs of service (Income Tax 
Policy Change); \5\ and (c) correcting the index calculation to rely 
upon updated page 700 cost data for 2014.
---------------------------------------------------------------------------

    \5\ 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, at P 13 (2018), request 
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 (2020).
---------------------------------------------------------------------------

    3. In addition, as discussed below, we direct oil pipelines to 
recompute their ceiling levels for July 1, 2021 through June 30, 2022, 
based upon an index level of PPI-FG-0.21%. Consistent with Sec.  
342.3(e) of the Commission's regulations,\6\ any oil pipeline with a 
filed rate that exceeds its recomputed ceiling level for July 1, 2021 
through June 30, 2022 must file to reduce that rate to bring it into 
compliance with the pipeline's recomputed ceiling level. We direct such 
pipelines to submit these filings to be effective March 1, 2022.
---------------------------------------------------------------------------

    \6\ 18 CFR 342.3(e).
---------------------------------------------------------------------------

I. Background

A. The Kahn Methodology

    4. The Commission reviews the oil pipeline index level \7\ every 
five years.\8\ Beginning in Order No. 561 and in each ensuing five-year 
review, the Commission has adjusted the index level using the Kahn 
Methodology, which calculates each pipeline's cost change on a per 
barrel-mile basis over the prior five-year period (e.g., 2014-2019 in 
this proceeding) based upon FERC Form No. 6, page 700 summary cost-of-
service data. In order to remove statistical outliers and spurious 
data, the Kahn Methodology trims the data set by removing an equal 
number of pipelines at the top and bottom of the data set.\9\ The Kahn 
Methodology then averages three measures of the trimmed data sample's 
central tendency (the median, mean, and weighted mean) to determine a 
composite central tendency and compares this average to the changing 
value of PPI-FG over the same five-year period. The index level is set 
at PPI-FG plus (or minus) this differential. Historically, the index 
has ranged from PPI-FG-1% to PPI-FG+2.65%, and in 2015, the Commission 
set the index level at PPI-FG+1.23%.
---------------------------------------------------------------------------

    \7\ Pursuant to the indexing methodology, pipelines may increase 
their 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). The Commission 
publishes an annual index figure every May in a notice issued in 
Docket No. RM93-11-000.
    \8\ Revisions to Oil Pipeline Regulations Pursuant to Energy 
Policy Act of 1992, Order No. 561, FERC Stats. & Regs. ] 30,985, at 
30,941 (1993) (cross-referenced at 65 FERC ] 61,109), order on 
reh'g, 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) (AOPL I).
    \9\ In Order No. 561 and the 2015 and 2010 five-year reviews, 
the Commission relied solely upon the middle 50% of the data set. 
Five-Year Rev. of the Oil Pipeline Index, 153 FERC ] 61,312, at PP 
42-44 (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); Five-Year 
Rev. of the Oil Pipeline Pricing Index, 133 FERC ] 61,228, at P 60 
(2010) (2010 Index Review), reh'g denied, 135 FERC ] 61,172 (2011) 
(2010 Index Rehearing Order); Order No. 561-A, FERC Stats. & Regs. ] 
31,000 at 31,096-097. In the 2005 and 2000 five-year reviews, the 
Commission averaged the middle 50% with the middle 80% but did not 
justify or address its consideration of the middle 80%. 2010 Index 
Review, 133 FERC ] 61,228 at P 60. In addition, in the 2000 review, 
considering the middle 80% did not alter the index calculation. Id.
---------------------------------------------------------------------------

B. Notice of Inquiry and Comments

    5. On June 18, 2020, the Commission issued a Notice of Inquiry 
(NOI) proposing to adopt an index level of

[[Page 4477]]

PPI-FG+0.09%.\10\ The NOI proposed to calculate the index level by (1) 
trimming the data set to the middle 50% and (2) incorporating the 
effects of the Income Tax Policy Change upon pipeline cost changes over 
the 2014-2019 period.\11\ The Commission explained that commenters 
could address issues including, but 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 
index calculation.\12\
---------------------------------------------------------------------------

    \10\ Five-Year Rev. of the Oil Pipeline Index, 171 FERC ] 61,239 
(2020) (NOI).
    \11\ Id. PP 9-10.
    \12\ Id.
---------------------------------------------------------------------------

    6. Ten commenters filed comments in response to the NOI.\13\ 
Pipelines urged the Commission to use the middle 80%, as opposed to the 
middle 50%, and proposed to adjust the reported page 700 data for 2014 
to eliminate the effects of the Income Tax Policy Change. Shippers, by 
contrast, argued that the Commission should continue using the middle 
50% and reject Pipelines' proposed adjustments to the data set. In 
addition, Liquids Shippers proposed to replace the weighted mean in the 
Kahn Methodology's calculation of central tendency with the weighted 
median and to replace the returns on equity (ROE) reported on page 700 
for 2014 and 2019 with standardized, industry-wide ROEs for both years. 
CAPP argued that negotiated rate contracts have served to reduce 
pipelines' risks and urged the Commission to require pipelines to 
provide their page 700 workpapers to investigate whether the reported 
page 700 ROEs reflect these effects.
---------------------------------------------------------------------------

    \13\ Comments were filed by AOPL, Designated Carriers, Kinder 
Morgan, Inc., Colonial, Joint Commenters, Liquids Shippers, CAPP, 
the Energy Infrastructure Council, the Pipeline Safety Trust, and 
the Pipeline and Hazardous Materials Safety Administration (PHMSA).
---------------------------------------------------------------------------

C. December 2020 Order and Requests for Rehearing

    7. The December 2020 Order established an index level of PPI-
FG+0.78%.\14\ The Commission adopted Pipelines' proposed adjustments to 
remove the effects of the Income Tax Policy Change from the index 
calculation \15\ and to use the middle 80%,\16\ and declined to adopt 
Liquids Shippers' and CAPP's proposals.\17\ On January 19, 2021, 
Shippers filed requests for rehearing challenging these determinations 
and Pipelines requested rehearing or clarification to correct minor 
errors in the workpapers underlying the December 2020 Order.
---------------------------------------------------------------------------

    \14\ December 2020 Order, 173 FERC ] 61,245 at P 2.
    \15\ Id. PP 16-20.
    \16\ Id. PP 25-32.
    \17\ Id. PP 36-40, 45-50, 52-53.
---------------------------------------------------------------------------

II. Discussion

A. 2018 MLP Income Tax Policy Change

1. December 2020 Order
    8. Prior to the December 2020 Order, the Commission committed in 
the 2018 Income Tax Policy Statement to ``incorporate the effects of 
[the Income Tax Policy Change] on industry-wide oil pipeline costs in 
the 2020 five-year review . . . .'' \18\ Through the Income Tax Policy 
Change, the Commission altered its policies so that natural gas and oil 
pipelines organized as MLPs could not recover the same tax costs twice 
in their rates.\19\ Although the Commission acted immediately to 
address this double recovery in natural gas pipeline rates,\20\ the 
Commission deferred action regarding oil pipeline rates and emphasized 
that oil pipeline rates ``will be addressed in due course'' during the 
2020 five-year index review.\21\ The Commission explained that by 
acting in the 2020 five-year review, the Commission would ``ensure that 
the industry-wide reduced costs are incorporated on an industry-wide 
basis. . . .'' \22\
---------------------------------------------------------------------------

    \18\ Income Tax Policy Statement, 162 FERC ] 61,227 at P 8.
    \19\ From 2005 to 2018, the Commission allowed MLP pipelines to 
claim a full income tax allowance in their costs of service. Inquiry 
Regarding Income Tax Allowances, 111 FERC ] 61,139, at P 32 (2005) 
(2005 Income Tax Policy Statement). In a series of orders beginning 
in 2016, the Commission and the U.S. Court of Appeals for the 
District of Columbia Circuit (D.C. Circuit) found that allowing MLP 
pipelines to recover both an income tax allowance and an ROE 
determined using the Discounted Cash Flow (DCF) model results in an 
impermissible double recovery of tax costs. The Commission rectified 
the double recovery through the Income Tax Policy Change in 2018, 
finding that MLP pipelines could no longer recover an income tax 
allowance and could eliminate previously accumulated ADIT balances 
from their costs of service. The D.C. Circuit affirmed the 
Commission's decisions in 2020. See United Airlines, Inc. v. FERC, 
827 F.3d 122 (D.C. Cir. 2016) (United Airlines), order on remand, 
SFPP, L.P., Opinion No. 511-C, 162 FERC ] 61,228, at P 22 (2018), 
(remanding the Commission's application of the 2005 policy), reh'g 
denied, Opinion No. 511-D, 166 FERC ] 61,142, at PP 90-95 (2019), 
aff'd, SFPP, L.P. v. FERC, 967 F.3d 788, 793-97, 801-03 (D.C. Cir. 
2020) (SFPP); see also Income Tax Policy Statement, 162 FERC ] 
61,227, reh'g denied, 164 FERC ] 61,030, request for clarification 
dismissed, 168 FERC ] 61,136; petitions review dismissed sub nom. 
Enable Miss. River Transmission, LLC v. FERC, 820 F. App'x 8.
    \20\ Interstate & Intrastate Nat. Gas Pipelines, Order No. 849, 
164 FERC ] 61,031, at P 30 (2018), reh'g denied, Order No. 849-A, 
167 FERC ] 61,051 (2019).
    \21\ Income Tax Policy Statement, 162 FERC ] 61,227 at P 46.
    \22\ Id. P 8.
---------------------------------------------------------------------------

    9. However, when the 2020 five-year review arrived, the Commission 
reversed course. In the December 2020 Order, the Commission declined to 
incorporate the effects of the Income Tax Policy Change into the 2020 
five-year review index calculation. Accordingly, the December 2020 
Order adopted Designated Carriers' proposal to eliminate the effects of 
the Income Tax Policy Change from the index calculation by adjusting 
the reported page 700 data for all pipelines that were MLPs in 2014 to 
reduce the 2014 income tax allowance to zero and to revise the 2014 
return on rate base to reflect the removal of ADIT.\23\
---------------------------------------------------------------------------

    \23\ December 2020 Order, 173 FERC ] 61,245 at P 16. Because the 
2014 page 700 data reflected the old policy whereas the 2019 data 
reflected the new policy, a straightforward application of the 
longstanding Kahn Methodology would have incorporated the cost 
reductions caused by the Income Tax Policy Change. AOPL's and 
Designated Carriers' proposals for eliminating the effects of the 
Income Tax Policy Change differed. AOPL proposed to (1) eliminate 
the 2014 income tax allowance for all pipelines that reduced their 
income tax allowance from a positive number to zero in response to 
the 2018 Income Tax Policy Statement and continued reporting zero 
income tax allowance for the remainder of the 2014-2019 period, and 
(2) adjust these pipelines' 2014 return on rate base to reflect the 
elimination of their ADIT balances. Designated Carriers supported 
AOPL's adjustments and proposed to extend them to all pipelines that 
were owned by MLPs in 2014, including those that later converted to 
business forms eligible to recover an income tax allowance. No 
entity challenges on rehearing the Commission's decision not to 
adopt AOPL's proposal.
---------------------------------------------------------------------------

    10. The Commission determined that although the index aims to 
reflect changes in recoverable costs, alterations to the Opinion No. 
154-B methodology \24\ are distinct from the annual changes to pipeline 
costs that are input into that methodology.\25\ The Commission stated 
that the index is not a true-up designed to remedy over- or under-
recoveries resulting from past cost-of-service policy changes, but 
instead simply allows for incremental rate adjustments to enable 
recovery of future cost changes.\26\ The Commission also determined 
that it was not clear that the double recovery of MLP pipelines' income 
tax costs was ever incorporated into the index or that MLP

[[Page 4478]]

pipelines benefitted from the Commission's prior policy permitting them 
to recover an income tax allowance.\27\
---------------------------------------------------------------------------

    \24\ The Opinion No. 154-B methodology is the cost-of-service 
ratemaking methodology that the Commission uses for oil pipelines. 
Williams Pipe Line Co., Opinion No. 154-B, 31 FERC ] 61,377, order 
on reh'g, Opinion No. 154-C, 33 FERC ] 61,327 (1985). The Opinion 
No. 154-B methodology is based upon trended original costs, whereby 
the inflationary component of the nominal return is placed in 
deferred earnings and recovered as a part of rate base in future 
years. E.g., BP W. Coast Prods., LLC v. FERC, 374 F.3d 1263, 1282-83 
(D.C. Cir. 2004).
    \25\ December 2020 Order, 173 FERC ] 61,245 at P 17 (stating 
that ``the purpose of indexing is to allow the indexed rate to keep 
pace with industry-wide cost changes, not to reflect alterations to 
the Commission's Opinion No. 154-B cost-of-service methodology'').
    \26\ Id. P 18.
    \27\ Id. P 19 & n.37.
---------------------------------------------------------------------------

2. Rehearing Requests
    11. Shippers argue that the Commission's decision to adjust 
reported page 700 data to remove the effects of the Income Tax Policy 
Change contravenes established precedent and rests upon flawed 
reasoning. First, Shippers contend that both the D.C. Circuit and the 
Commission have found that the index aims to track changes in 
recoverable pipeline costs consistent with the Opinion No. 154-B 
methodology.\28\ Shippers argue that the Income Tax Policy Change 
changed pipelines' recoverable costs by requiring MLP pipelines to 
remove the income tax allowance and ADIT balances from their costs of 
service. Thus, Shippers contend that the index should reflect this 
policy change.\29\
---------------------------------------------------------------------------

    \28\ Joint Commenters Request for Rehearing at 43-45 (quoting 
2015 Index Review, 153 FERC ] 61,312 at P 13) (citing AOPL III, 876 
F.3d at 345-46); Liquids Shippers Request for Rehearing at 17 
(quoting AOPL III, 876 F.3d at 345; 2015 Index Review, 153 FERC ] 
61,312 at P 13).
    \29\ Joint Commenters Request for Rehearing at 42-46; Liquids 
Shippers Request for Rehearing at 16-19.
---------------------------------------------------------------------------

    12. Second, Shippers state that the December 2020 Order contradicts 
the Commission's statement in the 2018 Income Tax Policy Statement that 
it would ``incorporate the effects'' of the Income Tax Policy Change in 
this five-year review.\30\ Shippers assert that they relied upon this 
statement and, as a result, lost their ability to seek rehearing or 
judicial review of the 2018 Income Tax Policy Statement and forewent 
opportunities to challenge oil pipeline rates.\31\ Shippers further 
claim that the Commission's continued inaction on eliminating the MLP 
income tax double recovery from oil pipeline rates, as contrasted with 
its actions to eliminate that double recovery from natural gas pipeline 
rates, raises due process concerns for oil pipeline shippers.\32\ In 
addition, Shippers disagree with the December 2020 Order's conclusion 
that reflecting the Income Tax Policy Change would convert the index 
into a true-up designed to remedy a prior over-recovery.\33\
---------------------------------------------------------------------------

    \30\ 2018 Income Tax Policy Statement, 162 FERC ] 61,227 at P 
46; Joint Commenters Request for Rehearing at 41-42, 56; Liquids 
Shippers Request for Rehearing at 15.
    \31\ Joint Commenters Request for Rehearing at 57; CAPP Request 
for Rehearing at 11-13; see also Liquids Shippers Request for 
Rehearing at 15-16.
    \32\ Joint Commenters Request for Rehearing at 59-60.
    \33\ Id. at 46-47.
---------------------------------------------------------------------------

    13. Third, Shippers maintain that adjusting reported page 700 data 
is unprecedented and departs from the Commission's consistent practice 
of calculating the index level using unadjusted data.\34\ Shippers 
state that the Commission has previously rejected proposals to make 
targeted adjustments to the data set by removing pipelines with cost 
changes resulting from specific factors because such proposals failed 
to identify other factors that could render a pipeline's data non-
comparable.\35\ Shippers contend that the Commission should likewise 
reject Pipelines' adjustments because they fail to consider other 
factors or policy changes.\36\
---------------------------------------------------------------------------

    \34\ Id. at 46.
    \35\ Id. at 51 (quoting 2015 Index Review, 153 FERC ] 61,312 at 
P 34).
    \36\ Id.
---------------------------------------------------------------------------

    14. Fourth, Shippers state that regardless of whether prior index 
calculations directly incorporated the Commission's prior policies 
allowing MLP pipelines to recover an income tax allowance, the MLP 
income tax allowance became integrated into the industry's recoverable 
costs and thus came to be reflected in the index.\37\ Shippers also 
argue that MLP pipelines did, in fact, benefit from these policies 
because they allowed MLPs to report higher costs on their page 700s, 
which helped to insulate their annual index rate increase filings from 
challenge under the Commission's Percentage Comparison Test.\38\
---------------------------------------------------------------------------

    \37\ Id. at 53.
    \38\ Id. at 53-55. Under the Percentage Comparison Test, the 
Commission will investigate a protested index rate increase filing 
if the pipeline's page 700 revenues exceed its costs and there is a 
more than a 10 percentage-point differential between the index rate 
increase and the change in the prior two years' total cost-of-
service data reported on page 700, line 9. E.g., HollyFrontier 
Refin. & Mktg. LLC v. SFPP, L.P., 170 FERC ] 61,133, at P 5 (2020).
---------------------------------------------------------------------------

    15. Fifth, Liquids Shippers argue that the December 2020 Order 
further distorts the index calculation by adjusting the page 700 data 
of pipelines that were MLPs in 2014 and converted to C-Corporations 
after the 2018 Income Tax Policy Change. Liquids Shippers contend that 
because these pipelines were eligible as C-Corporations to report a 
positive income tax allowance on page 700 for 2019, reducing their 2014 
income tax allowance to zero fabricates an erroneous cost increase 
between 2014 and 2019.\39\
---------------------------------------------------------------------------

    \39\ Liquids Shippers Request for Rehearing at 18-19.
---------------------------------------------------------------------------

3. Commission Determination
    16. We grant rehearing of the December 2020 Order to calculate the 
index level using unadjusted page 700 data that reflects the effects of 
the Income Tax Policy Change upon recoverable pipeline costs.
a. The Income Tax Policy Change Should be Incorporated Into the Index 
Calculation
    17. The index must reflect the Income Tax Policy Change in order to 
produce just and reasonable oil pipeline rates. Prior to the 2018 
Income Tax Policy Change, MLP pipelines' rates could recover the same 
investor-level tax costs twice, once in an income tax allowance and 
again in an ROE.\40\ The D.C. Circuit and the Commission both concluded 
that this led to an impermissible double recovery of investor-level tax 
costs and produced unjust and unreasonable rates.\41\ The Income Tax 
Policy Change eliminated this double recovery by prohibiting MLP 
pipelines from recovering an income tax allowance. However, oil 
pipeline rates have yet to incorporate this policy change.\42\ Thus, 
the impermissible double-recovery has not been eliminated from oil 
pipeline rates. Because indexing is the Commission's primary oil 
pipeline ratemaking methodology and because indexed oil pipeline rates 
must be just and reasonable, we conclude that the index calculation 
must now address the Income Tax Policy Change.
---------------------------------------------------------------------------

    \40\ 2005 Income Tax Policy Statement, 111 FERC ] 61,139 at P 
32.
    \41\ SFPP, 967 F.3d at 795-97; United Airlines, 827 F.3d at 136; 
Income Tax Policy Statement, 162 FERC ] 61,227 at PP 8, 45. MLP 
pipelines do not incur income taxes at the entity level, but the 
Commission justified permitting them to recover an income tax 
allowance on the basis that their investors pay taxes on their 
allocated share of the MLP's taxable income. Because the D.C. 
Circuit and the Commission concluded that the MLP pipeline's DCF ROE 
already included investor-level income tax costs, a double recovery 
resulted from permitting an income tax allowance that recovered 
those same tax costs. Opinion No. 511-C, 162 FERC ] 61,228 at P 22.
    \42\ Pipelines identify only one MLP oil pipeline, SFPP, L.P. 
(the pipeline whose rates were the subject of United Airlines), that 
has adjusted its rates in response to the Income Tax Policy Change. 
AOPL Initial Comments at 27-28; Designated Carriers Initial Comments 
at 11, 14.
---------------------------------------------------------------------------

    18. The index was always intended to reflect changes to Opinion No. 
154-B costs such as the elimination of the double recovery via the 
Income Tax Policy Change. The Opinion No. 154-B methodology defines the 
costs that oil pipelines can recover in rates and the index is the 
primary means for recovering those costs.\43\ Accordingly, the 
Commission and the D.C. Circuit have long recognized that the index 
should reflect changes in costs recoverable under the Opinion No. 154-

[[Page 4479]]

B methodology,\44\ and the Commission uses the Opinion No. 154-B 
methodology cost data reported on page 700 to calculate the index 
level.\45\ Here, the adoption of the Income Tax Policy Change altered 
those costs by barring MLP pipelines from recovering in 2019 income tax 
costs that they were permitted to recover in 2014. By comparing the 
2014 data reported on page 700 under the Commission's previous policy 
with the 2019 data reported under its revised policy, this index 
calculation will accurately capture the effects of the Income Tax 
Policy Change on costs recoverable under Opinion No. 154-B.\46\
---------------------------------------------------------------------------

    \43\ As explained above, the Opinion 154-B methodology is the 
Commission's cost-of-service ratemaking methodology for oil 
pipelines. See supra note 24.
    \44\ AOPL III, 876 F.3d at 345 (finding that the Commission 
``has consistently treated the index as a measure of normal 
industry-wide cost-of-service changes''); 2015 Index Review, 153 
FERC ] 61,312 at P 13, aff'd, AOPL III, 876 F.3d at 345-46 (``[T]he 
index is meant to reflect changes to recoverable pipeline costs, 
and, thus, the calculation of the index should use data that is 
consistent with the Commission's [Opinion No. 154-B] cost-of-service 
methodology.''); see also Order No. 561-A, FERC Stats. & Regs. ] 
31,000 at 31,096 (lamenting that the then-existing Form No. 6 
provided a ``highly unsatisfactory'' measure of capital cost changes 
because it did ``not contain the information necessary to compute a 
trended original cost (TOC) rate base or a starting rate base'' 
under the Opinion No. 154-B methodology).
    \45\ 2015 Index Review, 153 FERC ] 61,312 at PP 12-13 (adopting 
use of page 700 data to measure oil pipeline cost changes because, 
among other reasons, page 700 data is consistent with the Opinion 
No. 154-B methodology).
    \46\ In contrast, adjusting the data set to remove the effects 
of this policy change would maintain a divergence between indexed 
rates and Opinion No. 154-B recoverable costs.
---------------------------------------------------------------------------

    19. We also find that adjusting page 700 data to remove the Income 
Tax Policy Change's effects conflicts with the Commission's historical 
practice. The Commission has not previously adjusted the reported data 
used to derive the index level. Order Nos. 561 and 561-A ``opted for a 
purely historical analysis'' \47\ for measuring pipeline cost changes 
based upon documented cost experience, and in each subsequent index 
review the Commission has calculated the index level using reported 
Form No. 6 data without adjustment.\48\ Thus, modifying MLP pipelines' 
reported income tax allowances and returns on rate base would depart 
from the purely historical analysis on which the Commission has 
consistently relied since establishing the indexing regime.
---------------------------------------------------------------------------

    \47\ Ass'n of Oil Pipe Lines v. FERC, 281 F.3d 239, 247 (D.C. 
Cir. 2002) (AOPL II) (citing Five-Year Rev. of Oil Pipeline Pricing 
Index, 93 FERC ] 61,266, at 61,855 (2000) (2000 Index Review), aff'd 
in part and remanded, AOPL II, 281 F.3d 239, order on remand, 102 
FERC ] 61,195 (2003); Order No. 561, FERC Stats. & Regs. ] 30,985 at 
30,951).
    \48\ Although the Commission has curtailed the amount of data it 
considers in calculating the index level via statistical data 
trimming to the middle 50%, it has never modified the specific 
inputs that pipelines have recorded in their Form No. 6 filings. 
Similarly, while the Commission adjusts the data set to account for 
pipeline mergers and divestitures that occurred during the five-year 
review period, these steps are distinguishable from the adjustments 
to omit the effects of the Income Tax Policy Change adopted in the 
December 2020 Order based upon Pipelines' proposals. Where pipelines 
filed separate page 700 data for the first year of the review period 
(e.g., 2014) and merged later in the review period, the Commission 
adds the separate costs that the pipelines reported for the first 
year and compares this sum to the newly combined company's page 700 
costs reported for the last year of the data set (e.g., 2019). 2015 
Index Review, 153 FERC ] 61,312 at P 38. Conversely, in the case of 
divestitures, the Commission adds the separate costs the pipelines 
reported for the last year of the data set and compares this sum to 
the formerly combined company's page 700 costs reported for the 
first year. Unlike Pipelines' proposed adjustments, which alter a 
specific cost item that pipelines reported on page 700, this step 
simply combines the total costs that the pipelines reported as 
separate entities at one endpoint of the review period to mirror 
their status as a combined entity at the other endpoint.
---------------------------------------------------------------------------

    20. In addition, incorporating the Income Tax Policy Change into 
the index complies with the Energy Policy Act of 1992's (EPAct 1992) 
dual mandate for just and reasonable rates and for simplified and 
streamlined ratemaking.\49\ As stated above, the D.C. Circuit and the 
Commission have previously held that an impermissible double recovery 
results from granting MLP pipelines an income tax allowance.\50\ Thus, 
as the Commission's Opinion No. 154-B methodology evolves, oil pipeline 
rates adjusted via indexing must reflect those changes in order to 
remain just and reasonable. If the Commission omits the effects of the 
Income Tax Policy Change from the index calculation, the only 
alternative method of reflecting the elimination of the MLP income tax 
double recovery in rates would be through cost-of-service rate 
litigation.\51\ We find that implementing cost-of-service policy 
changes in this fashion would hinder the statutory goals of efficient 
and simplified ratemaking embodied in EPAct 1992.\52\
---------------------------------------------------------------------------

    \49\ Public Law 102-486, 1801(a), 106 Stat. 2776, 3010 (1992) 
(codified at 42 U.S.C. 712 note).
    \50\ See supra note 19.
    \51\ Importantly, this proceeding presents the sole opportunity 
for addressing the MLP income tax double recovery in indexed rates 
via the simplified and streamlined five-year review process. As 
discussed above, the Kahn Methodology calculates the index level 
based upon the change in industry-wide page 700 costs from the first 
year of the review period to the last year. Accordingly, it is only 
possible to reflect the Income Tax Policy Change in the instant 
index calculation, which measures cost changes from 2014 (when MLP 
pipelines reported a positive income tax allowance) to 2019 (when 
MLP pipelines reported zero income tax allowance). Capturing this 
decrease in recoverable income tax costs from 2014 to 2019 will 
reduce the index level to incorporate the elimination of the MLP 
income tax double recovery. In contrast, the 2025 five-year review 
will reflect no change in MLP income tax costs because MLP pipelines 
will report zero income tax allowance for both the first and last 
years of the 2019-2024 period.
    \52\ See AOPL II, 281 F.3d at 244 (holding that an oil pipeline 
ratemaking regime based in large part upon cost-of-service rate 
proceedings ``would be inconsistent with Congress's mandate under 
the EPAct for FERC to establish `a simplified and generally 
applicable ratemaking methodology.' '' (quoting EPAct 1992, at 
1801(a))).
---------------------------------------------------------------------------

    21. Finally, our holding on rehearing honors the Commission's 
assurances in the 2018 Income Tax Policy Statement. There, the 
Commission committed to ``incorporate the effects of [the Income Tax 
Policy Change] . . . in the 2020 five-year review'' so that oil 
pipeline rates would reflect these reduced costs.\53\ Whereas the 
Commission acted immediately to eliminate the MLP income tax double 
recovery from natural gas pipeline rates,\54\ the Commission deferred 
adjusting oil pipeline rates until the 2020 five-year index review. 
Failure to act here would leave oil pipeline rates unaddressed 
indefinitely. While Pipelines urge the Commission to disregard our 
assurances from the 2018 Income Tax Policy Statement, they offer no 
alternative remedy.\55\ Moreover, we recognize that
---------------------------------------------------------------------------

    \53\ Income Tax Policy Statement, 162 FERC ] 61,227 at P 8; see 
also Inquiry Regarding the Effect of the Tax Cuts and Jobs Act on 
Commission-Jurisdictional Rates, 162 FERC ] 61,223, at P 4 (2018) 
(``The Commission must ensure that the rates, terms, and conditions 
of jurisdictional services under the Federal Power Act (FPA), the 
Natural Gas Act (NGA), and the Interstate Commerce Act are just, 
reasonable, and not unduly discriminatory or preferential.''); id. P 
8 (directing oil pipelines to report on page 700 an income tax 
allowance consistent with the Income Tax Policy Change and the Tax 
Cuts and Jobs Act. As opposed to initiating cost-of-service 
complaints against oil pipelines, deferring action until the 2020 
five-year index review best fulfilled EPAct 1992's dual mandate for 
simplified oil pipeline ratemaking and just and reasonable rates. 
See supra P 20 & note 51.
    \54\ Specifically, the Commission required natural gas pipelines 
to submit a one-time filing for the purpose of evaluating the impact 
of the Income Tax Policy Change and the Tax Cuts and Jobs Act upon 
the pipeline's revenue requirement. Order No. 849, 164 FERC ] 61,031 
at P 30. This process allowed for MLP natural gas pipelines to 
voluntarily reduce their rates in response to the Income Tax Policy 
Change and for the Commission to initiate rate investigations 
pursuant to section 5 of the Natural Gas Act where the pipeline 
appeared to be over-recovering its cost of service as a result of 
the policy change. E.g., Stagecoach Pipeline & Storage Co., 166 FERC 
] 61,199 (2019); N. Nat. Gas Co., 166 FERC ] 61,033 (2019). In 
contrast to MLP natural gas pipelines, Pipelines identify only one 
MLP oil pipeline, SFPP, L.P. (the pipeline whose rates were the 
subject of United Airlines), that has adjusted its rates in response 
to the Income Tax Policy Change. See supra note 42.
    \55\ We recognize that the 2018 Income Tax Policy Statement 
provided non-binding guidance regarding the Commission's future 
intentions. Accordingly, in the NOI initiating this proceeding, the 
Commission invited the commenters to address this issue. NOI, 171 
FERC ] 61,239 at P 10. Our determination here is based upon the full 
consideration of the extensive record developed in this proceeding.

---------------------------------------------------------------------------

[[Page 4480]]

shippers relied upon our assurances in considering whether to bring 
challenges to oil pipeline rates following the Income Tax Policy 
Change.\56\
---------------------------------------------------------------------------

    \56\ Joint Commenters Request for Rehearing at 57; CAPP Request 
for Rehearing at 11-13; see also Liquids Shippers Request for 
Rehearing at 15-16.
---------------------------------------------------------------------------

b. Reconsidering the December 2020 Order
    22. As discussed below, we reject the reasons provided by the 
December 2020 Order for excluding the Income Tax Policy Change from the 
index calculation.
    23. First, there is no meaningful distinction between changes to 
the Opinion No. 154-B methodology and changes to the costs that 
pipelines input into that methodology.\57\ Rather, changes to the 
Opinion No. 154-B methodology produce corresponding changes to the 
costs that pipelines can recover. Thus, for purposes of determining the 
index, any meaningful measure of changes to recoverable costs between 
2014 and 2019 must reflect the Income Tax Policy Change. The December 
2020 Order's adjustments to the page 700 data omit the effects of the 
Income Tax Policy Change--as though MLP pipelines did not receive an 
income tax allowance in 2014.\58\ Given the purpose of the indexing 
regime to adjust rates for changes to Opinion No. 154-B recoverable 
costs, a true ``apples-to-apples'' comparison involves comparing the 
recoverable costs in 2014 with the recoverable costs in 2019--if 
companies received an income tax allowance in 2014 but did not in 2019, 
the index must reflect that reality.
---------------------------------------------------------------------------

    \57\ December 2020 Order, 173 FERC ] 61,245 at P 17 (stating 
that ``the purpose of indexing is to allow the indexed rate to keep 
pace with industry-wide cost changes, not to reflect alterations to 
the Commission's Opinion No. 154-B cost-of-service methodology'').
    \58\ In the December 2020 Order, the Commission stated that 
``[j]ust as a business must account for changes to its accounting 
policies when comparing costs over two different periods, we must 
make a similar adjustment to the reported page 700 data here to 
derive an `apples-to-apples' comparison of pipeline cost changes.'' 
Id. This analogy to accounting methods is misplaced. Whereas an 
accounting methodology simply involves the method of recording 
costs, as explained above, the Income Tax Policy Change directly 
affected the costs that MLP pipelines can recover under the Opinion 
No. 154-B methodology.
---------------------------------------------------------------------------

    24. Second, contrary to the statements in the December 2020 Order, 
we find that reflecting the Income Tax Policy Change does not 
effectuate a true-up for prior-period over-recoveries.\59\ Consistent 
with the purposes of the five-year review, incorporating the effects of 
the Income Tax Policy Change in the index calculation will align 
pipelines' future rates with their future costs recoverable under 
Opinion No. 154-B. By failing to reflect the Income Tax Policy Change 
in the calculation of the prospective index, the approach adopted in 
the December 2020 Order would cause future indexed rates to become 
estranged from future recoverable costs.
---------------------------------------------------------------------------

    \59\ Id. P 18.
---------------------------------------------------------------------------

    25. Third, we disagree with the December 2020 Order's reasoning 
that ``[b]ecause no prior index calculation incorporated the [2005 
policy] allowing MLP pipelines to recover an income tax allowance, it 
is not necessary to reflect the policy change denying those pipelines 
an income tax allowance in the calculation here.'' \60\ This statement 
disregards indexing's purpose and oversimplifies the Commission's 
historical practice. Indexed rates have always served as a means for 
recovering pipeline income tax costs. Accordingly, the five-year review 
index calculation was always intended to incorporate changes in 
pipeline income tax costs, even if the Commission previously measured 
those costs using an imperfect estimate.\61\ Now, the Commission uses 
page 700 data that directly measures income tax costs. The Commission 
should not disregard this data when calculating the index level.
---------------------------------------------------------------------------

    \60\ Id. P 19.
    \61\ Before the 2015 Index Review when the Commission began 
using page 700 data, the Commission estimated pipeline cost changes 
using a rough proxy based upon Form No. 6 accounting data. This 
accounting data did not directly measure changes in the income tax 
costs recoverable under Opinion No. 154-B. December 2020 Order, 173 
FERC ] 61,245 at P 19; see also 2015 Index Review, 153 FERC ] 61,312 
at PP 14-15 (describing this proxy and its deficiencies). The 
Commission relied upon this proxy because direct measures of capital 
costs and income tax costs were not available when the index was 
first established. 2015 Index Review, 153 FERC ] 61,312 at P 14. 
Before page 700 was created, the Commission lamented that ``the 
measure of the capital cost component of the cost of service is 
highly unsatisfactory'' because Form No. 6 did ``not contain the 
information necessary to compute a trended original cost . . . rate 
base or a starting rate base as allowed for in Order No. 154-B.'' 
Order No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,096.
---------------------------------------------------------------------------

    26. Moreover, the facts here undercut Pipelines' claim that MLP 
income taxes have not been incorporated into pipeline rates.\62\ Prior 
to the 2005 income tax policy change, MLP pipelines were eligible to 
include at least a partial income tax allowance in their costs of 
service.\63\ To the extent that prior index calculations did not 
incorporate the 2005 income tax policy directly, pipeline rates did 
substantially come to reflect that policy over time.\64\ To explain 
further, as the number of pipelines in the Commission's data set 
expanded,\65\ all initial rates and non-indexing rate changes would 
have reflected MLPs pipelines' ability to recover a full income tax 
allowance under the previous 2005 policy. Although we recognize that 
prior index reviews imperfectly captured the 2005 income tax policy 
change, we know that the 2005 policy change plainly affected oil 
pipeline rates over the last 15 years.\66\ Furthermore, Pipelines' 
argument ignores how MLP pipelines' ability to claim an income tax 
allowance under the previous 2005 policy shielded those pipelines' 
rates from challenge.\67\ Therefore, we are not persuaded by arguments 
based upon the 2005 policy change that the Commission must remove the 
2018 Income Tax Policy Change from this index calculation.
---------------------------------------------------------------------------

    \62\ Designated Carriers Initial Comments at 17-20; see also 
December Order, 173 FERC ] 61,245 at P 19.
    \63\ Lakehead Pipe Line Co., L.P., Opinion No. 397, 71 FERC ] 
61,338, at 62,314-15 (1995), reh'g denied, Opinion No. 397-A, 75 
FERC ] 61,181 (1996) (permitting partnership entities like MLP 
pipelines to recover an income tax allowance for income attributable 
for corporate partners, but not for income attributable to 
individuals or other non-corporate partners); see also Riverside 
Pipeline Co., L.P., 48 FERC ] 61,309, at 62,018 (1989) (applying 
pre-Lakehead policy permitting partnership pipelines to recover a 
full income tax allowance as if they were corporations).
    \64\ Consistent with EPAct 1992's mandate for a simplified and 
streamlined ratemaking regime, the Commission does not scrutinize 
the costs underlying each individual pipeline's rates when 
developing the industry-wide index. Rather, the Commission reaches 
its determinations based upon what is appropriate on balance for the 
industry as a whole.
    \65\ Notably, 164 of the 277 total oil pipelines in the 
Commission's data set, or 59%, have been added since the 2005 five-
year review.
    \66\ In urging the Commission to adopt the adjustment to the 
reported page 700 data to eliminate the effects of the Income Tax 
Policy Change, neither AOPL nor Designated Carriers account for the 
extent to which the Commission's prior income tax policies 
permitting MLPs to recover an income tax allowance were incorporated 
into pipelines' existing rates.
    \67\ Specifically, the Commission evaluates cost-of-service 
complaints and challenges to annual index rate increases based upon 
the differential between costs and revenues on page 700. To the 
extent that an MLP pipeline's page 700 revenues exceeded its costs, 
the ability to report an income tax allowance as a cost on page 700 
would have reduced the gap between revenues and costs. This lower 
cost-revenue differential would have reduced the pipeline's exposure 
to cost-of-service rate complaints and challenges to index rate 
changes.
---------------------------------------------------------------------------

    27. Fourth, the adjustments adopted in the December 2020 Order lead 
to incongruous and unreasonable results because they enable pipelines, 
including those with an existing double recovery, to increase their 
rates above the levels that would have resulted absent the D.C. 
Circuit's and the Commission's double-recovery findings. The Commission 
adopted the Income Tax Policy Change in response to findings by the 
D.C. Circuit and the Commission that MLP pipeline rates

[[Page 4481]]

were double recovering those pipelines' income tax costs.\68\ Absent 
the D.C. Circuit's and the Commission's holdings prohibiting MLP 
pipelines from recovering an income tax allowance in their costs of 
service, MLP pipelines, like corporate pipelines, would have reported a 
reduction in their income tax allowances as a result of the Tax Cuts 
and Jobs Act. However, by treating MLP pipelines' income tax liability 
as zero for both 2014 and 2019, Pipelines' adjustments eliminate the 
downward effect the Tax Cuts and Jobs Act would have exerted upon MLP 
pipelines' recoverable income tax costs during the 2014-2019 
period.\69\ Thus, not only do Pipelines' adjustments eliminate the 
reduction in industry-wide recoverable costs resulting from the Income 
Tax Policy Change, but they also diminish the separate reduction in MLP 
pipelines' recoverable costs that would have resulted from the Tax Cuts 
and Jobs Act had that policy change not occurred. As a result, 
incorporating Pipelines' adjustments in the cost-change analysis would 
produce a higher index level than what would have resulted absent the 
Income Tax Policy Change eliminating the MLP income tax double 
recovery. Therefore, we decline to adopt Pipelines' adjustments given 
this incongruous and unreasonable result and instead calculate the 
index level using unadjusted page 700 data.
---------------------------------------------------------------------------

    \68\ 2018 Income Tax Policy Statement, 162 FERC ] 61,227 at P 8.
    \69\ All commenters agree that the index should reflect the 
decrease resulting from the Tax Cuts and Jobs Act to the income tax 
allowance recoverable by pipelines organized as corporations. 
December 2020 Order, 173 FERC ] 61,245 at P 10 n.20.
---------------------------------------------------------------------------

c. Pipelines' Remaining Arguments Are Unpersuasive
    28. We are unpersuaded by Pipelines' remaining arguments for 
removing the effects of the Income Tax Policy Change from the index 
calculation. Regarding their claim that the policy change should be 
excluded because it did not affect pipelines' actual income tax 
costs,\70\ we find that this argument misconstrues the cost changes 
that the index is designed to measure. As discussed above, ``the index 
is meant to reflect changes to recoverable pipeline costs'' measured 
under the Opinion No. 154-B methodology.\71\ Thus, the index is 
designed to track changes in the income tax costs that pipelines can 
recover under the Commission's cost-of-service ratemaking methodology. 
In arguing that the Income Tax Policy Change only modified the 
ratemaking treatment of MLP income tax costs without affecting actual 
costs,\72\ Pipelines overlook that changes in ratemaking treatment 
produce the very Opinion No. 154-B cost-of-service changes that the 
index calculation seeks to measure.\73\
---------------------------------------------------------------------------

    \70\ E.g., AOPL Initial Comments at 29-31; AOPL Reply Comments 
at 11; Designated Carriers Initial Comments at 7, 9-12; see also 
Kinder Morgan Initial Comments at 3-4.
    \71\ 2015 Index Review, 153 FERC ] 61,312 at P 13 (citing Order 
No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,096). In fact, the 
Commission updated its calculation of the index level to rely upon 
page 700 because it includes actual total cost-of-service data 
consistent with Opinion No. 154-B. Id. PP 13-14.
    \72\ AOPL Initial Comments at 30 (quoting Shehadeh Initial Decl. 
at 14); Designated Carriers Initial Comments at 3, 7-8, 10-11.
    \73\ AOPL III, 876 F.3d at 345 (``[N]either Order No. 561 nor 
the subsequent index review orders indicate that the index was 
intended to measure something distinct from the costs measured under 
its cost-of-service methodology. Rather, the Commission has 
consistently treated the index as a measure of normal industry-wide 
cost-of-service changes . . . .'').
---------------------------------------------------------------------------

    29. Moreover, the income tax costs that pipelines can recover under 
Opinion No. 154-B are distinct from the actual tax costs that pipelines 
have paid to the taxing authority. Instead, as the D.C. Circuit has 
recognized, income tax costs recoverable under the Commission's cost-
of-service methodology are not equivalent to ``actual taxes paid.'' 
\74\ Accordingly, because recoverable income tax costs do not 
correspond to taxes paid, we reject Pipelines' claim that the index 
should only reflect changes in actual income tax costs.
---------------------------------------------------------------------------

    \74\ City of Charlottesville v. FERC, 774 F.2d 1205, 1213-15 
(D.C. Cir. 1985) (Scalia, J.). As then-Judge Scalia explained:
    [T]he imprecision of the ``actual taxes paid'' formulation is 
exceeded only by the name of the Holy Roman Empire: two out of the 
three words are wrong. Taxes, yes. But not necessarily actual taxes, 
since inexact estimations are often allowed, e.g., a nationwide tax 
allowance applied to all individual utilities . . . . And not 
necessarily taxes paid, since tax liability incurred by current 
activities but in fact not paid currently can be charged to present 
ratepayers, e.g., taxes deferred by reason of accelerated 
depreciation but passed on to current ratepayers through 
normalization. So the principle should be expressed `actual or 
estimated taxes paid or incurred'--whereupon it ceases to constrain 
the Commission with regard to taxes any more than the Commission is 
constrained with regard to its treatment of other expenses. Which is 
as it should be.
    Id. at 1215 (emphasis in original) (citing Pub. Sys. v. FERC, 
709 F.2d 73, 81-82 (D.C. Cir. 1983); Tenneco Oil Co. v. FERC, 571 
F.2d 834, 844 (5th Cir. 1978)).
---------------------------------------------------------------------------

    30. We also reject AOPL's assertion that the Income Tax Policy 
Change should be excluded because it represents an extraordinary, one-
time event that is not representative of likely future cost 
experience.\75\ As discussed above, the Kahn Methodology calculates the 
index level based upon historical cost changes, and does not address 
speculative assertions about future developments.\76\ Consistent with 
this approach, the Commission has previously rejected similar requests 
to adjust the data set for one-time cost changes resulting from events 
that were unlikely to reoccur in the future. For example, in the 2000 
Index Review, the Commission rejected a proposed adjustment to address 
one-time cost savings resulting from the establishment of the indexing 
methodology and its associated cost efficiency incentives.\77\ The D.C. 
Circuit affirmed this decision, finding that the Commission reasonably 
adhered to its purely historical analysis and ``declined to embroil 
itself in the complexity and iffiness of'' a forward-looking 
methodology.\78\ Similarly, in the 2010 Index Review, the Commission 
rejected shipper proposals to manually trim the data set to remove 
pipelines that reported one-time cost increases attributable to 
expansions or major rate base changes.\79\ Just as the Commission 
declined to adjust the data sets in those proceedings to eliminate the 
effects of one-time events, we likewise decline to adjust the data set 
here to eliminate the effects of the Income Tax Policy Change.\80\
---------------------------------------------------------------------------

    \75\ AOPL Reply Comments at 13-14.
    \76\ See 2000 Index Review, 93 FERC at 61,855 (``The purpose of 
our indexing methodology is to permit adjustment to ceiling rates 
based on historical not anticipated cost changes over some future 
period.'').
    \77\ Id.; see also id. (rejecting proposed adjustment based upon 
anticipated future cost increases due to increased environmental and 
safety regulations).
    \78\ AOPL II, 281 F.3d at 247.
    \79\ 2010 Index Review, 133 FERC ] 61,228 at PP 48-55.
    \80\ Furthermore, we find that AOPL's arguments are internally 
inconsistent. AOPL's reasoning for excluding the Income Tax Policy 
Change because it is an extraordinary, one-time policy change would 
apply equally to the Tax Cuts and Jobs Act, yet AOPL does not oppose 
reflecting the Tax Cuts and Jobs Act's effects in the index 
calculation. AOPL Initial Comments at 25-26; AOPL Reply Comments at 
10.
---------------------------------------------------------------------------

    31. We disagree with AOPL's contention that the Income Tax Policy 
Change renders the page 700 data not ``consistent enough,'' and, 
therefore, that the page 700 data must be adjusted to remove the 
effects of the Income Tax Policy Change.\81\ This argument relies upon 
a passage in AOPL III stating that the Commission, in adopting the use 
of page 700 data to measure pipeline cost changes, determined in the 
2015 Index Review that ``the assumptions [required by page 700] should 
reflect established ratemaking practices and
---------------------------------------------------------------------------

    \81\ AOPL Reply Comments at 13-14.
---------------------------------------------------------------------------

    thus should be consistent enough to accurately calculate the 
index.'' \82\ The D.C. Circuit's use of ``consistent'' refers to 
pipelines' consistent compliance with

[[Page 4482]]

the Commission's prevailing policies in their page 700 filings, not, as 
AOPL argues, that the index level cannot reflect policy changes that 
occur during the five-year review period.\83\ Moreover, as discussed 
above, the index should reflect industry-wide changes to recoverable 
costs such as those caused by the Income Tax Policy Change--thus, it is 
appropriate for the 2014 page 700 data to include income tax allowances 
for MLPs while the 2019 page 700 data does not.
---------------------------------------------------------------------------

    \82\ AOPL III, 876 F.3d at 345 (citing 2015 Index Review, 153 
FERC ] 61,312 at P 18).
    \83\ AOPL III, 876 F.3d 345; see also 2015 Index Review, 153 
FERC ] 61,312 at P 18 (``The allocation methodologies used by 
pipelines on page 700 should reflect established ratemaking 
practices, and thus these allocation methodologies should be 
sufficiently robust to calculate the index. . . . [T]o the extent a 
pipeline's page 700 ratemaking assumptions change over a period of 
time, pipelines are obligated to note them on their page 700.''). 
Pipelines that were MLPs consistently claimed an income tax 
allowance in 2014 and consistently did not claim an income tax 
allowance in 2019.
---------------------------------------------------------------------------

    32. Finally, we reject Designated Carriers' remaining claims as 
irrelevant, unsupported, or without merit. Designated Carriers 
incorrectly claim that income tax allowance costs should be removed 
from the 2014 page 700 data for MLP pipelines because the Commission 
has previously found that partnership investors' income tax costs are 
not properly considered costs in a partnership pipeline's regulated 
cost of service.\84\ To the contrary, the Commission and the D.C. 
Circuit have concluded that MLP pipelines incur investor-level income 
tax costs that are already reflected in the pipeline's DCF ROE, such 
that including an income tax allowance in the pipeline's cost of 
service alongside the ROE results in an impermissible double 
recovery.\85\ Accordingly, the issue in this proceeding is whether the 
index level and the resulting pipeline rates should reflect the 
elimination of that double recovery. As discussed above, we find that 
by adjusting the data set to eliminate MLP pipelines' 2014 income tax 
allowances, Designated Carriers' proposal would allow the income tax 
double recovery to persist in pipeline rates.
---------------------------------------------------------------------------

    \84\ Designated Carriers Initial Comments at 10-11 (citing 
Opinion No. 511-C, 162 FERC ] 61,228 at P 28; Webb Initial Aff. P 
8).
    \85\ Opinion No. 511-C, 162 FERC ] 61,228 at P 22, aff'd, SFPP, 
967 F.3d at 795-97; see also United Airlines, 827 F.3d at 136. 
Moreover, Designated Carriers misconstrue the applicable law. 
Neither the D.C. Circuit nor the Commission have held that these 
costs are not properly included in a partnership pipeline's cost of 
service. Rather, both United Airlines and the 2018 Income Tax Policy 
Statement concluded that partnership investors' income tax costs are 
already recovered by the ROE and that allowing partnership pipelines 
to recover an income tax allowance in addition to that ROE would 
impermissibly double recover those costs. United Airlines, 827 F.3d 
at 135-37; 2018 Income Tax Policy Statement, 162 FERC ] 61,227 at PP 
8-9, 45.
---------------------------------------------------------------------------

    33. Designated Carriers misconstrue Commission precedent in arguing 
that Pipelines' proposed adjustments accord with the Commission's 
actions applying the Income Tax Policy Change retroactively in the 2018 
Income Tax Policy Statement and in Docket Nos. IS08-390 and IS09-
437.\86\ In the 2018 Income Tax Policy Statement, issued on March 15, 
2018, the Commission applied the policy change prospectively by 
directing pipelines to report their income tax costs in accordance with 
its revised policy in their upcoming Form No. 6 filings due for 
submission on April 18, 2018, which would include cost-of-service data 
for 2017 and 2016.\87\ The Commission did not apply the new policy 
retroactively to periods before the years encompassed by those 
impending filings. In Docket Nos. IS08-390 and IS09-437, the Commission 
applied its revised income tax allowance policy in pending cost-of-
service rate proceedings to the time periods at issue,\88\ which 
predated the 2018 Income Tax Policy Change.\89\ Contrary to Designated 
Carriers' claim, applying the Commission's new policy to a pipeline 
whose rates were the subject of pending proceedings involving earlier 
time periods does not support applying that policy retroactively to 
revise the reported cost-of-service data of pipelines whose rates were 
not the subject of ongoing litigation.
---------------------------------------------------------------------------

    \86\ Designated Carriers Initial Comments at 9, 11-12, 14-15 
(citing SFPP, L.P., 162 FERC ] 61,229, at P 8 (2018); Opinion No. 
511-C, 162 FERC ] 61,228 at PP 28, 54-57; 2018 Income Tax Policy 
Statement, 162 FERC ] 61,227 at PP 8, 46, n.83; Webb Initial Aff. PP 
9, 11). AOPL echoes this argument in its reply comments. AOPL Reply 
Comments at 18-19.
    \87\ 2018 Income Tax Policy Statement, 162 FERC ] 61,227 at P 46 
n.83.
    \88\ See SFPP, L.P., Opinion No. 435, 86 FERC ] 61,022, at 
61,093-94 (1999) (``Commission practice is to base its decision on 
the policy in effect in the year a regulatory decision is made, and 
then apply that decision to the time frame to which the case 
applies.''); see also Consol. Edison Co. of N.Y. v. FERC, 315 F.3d 
316, 323-24 (D.C. Cir. 2003) (explaining that an agency may apply a 
new substantive rule to decide a pending proceeding).
    \89\ The Docket No. IS08-390 proceeding addressed SFPP's West 
Line rates to be effective August 1, 2008. Opinion No. 511-C, 162 
FERC ] 61,228 at P 4. The Docket No. IS09-437 proceeding addressed 
SFPP's East Line rates to be effective January 1, 2010. SFPP, L.P., 
Opinion No. 522-B, 162 FERC ] 61,229 at P 8.
---------------------------------------------------------------------------

    34. Designated Carriers' claim that reflecting the Income Tax 
Policy Change in the index calculation would constitute retroactive 
ratemaking likewise lacks merit.\90\ The rule against retroactive 
ratemaking ``prohibits the Commission from adjusting current rates to 
make up for a utility's over- or under-collection in prior periods.'' 
\91\ By contrast, the five-year review uses past cost changes to 
calculate the index adjustment that pipelines can use to adjust their 
future rates. Accounting for reduced recoverable costs in calculating 
the prospective index adjustment does not modify current rates to 
account for prior period over- or under-recoveries and therefore does 
not contravene the bar against retroactive ratemaking.
---------------------------------------------------------------------------

    \90\ Designated Carriers Initial Comments at 16.
    \91\ SFPP, 967 F.3d at 801 (quoting Old Dominion Elec. Coop. v. 
FERC, 892 F.3d 1223, 1227 (D.C. Cir. 2018)).
---------------------------------------------------------------------------

    35. Designated Carriers also do not provide support for their 
contention that incorporating the Income Tax Policy Change in the index 
would negatively impact MLP pipelines twice, such as SFPP, whose cost-
of-service rates have already been revised to remove the income tax 
allowance and ADIT balances.\92\ As discussed above, Designated 
Carriers have only identified one pipeline (out of 240 pipelines filing 
page 700 with the Commission) whose rates have been lowered to reflect 
the Income Tax Policy Change and thus have not shown that this alleged 
harm would affect any pipeline besides SFPP.\93\ More generally, the 
Commission calculates the index level based upon normal industry-wide 
cost changes, without regard to the particular experiences of 
individual pipelines. To do otherwise would produce nonsensical 
results, as indexing would cease to function as a generally applicable 
ratemaking methodology if the index was adjusted to account for

[[Page 4483]]

the particular cost changes of each individual pipeline.
---------------------------------------------------------------------------

    \92\ Designated Carriers Initial Comments at 15 (citing Webb. 
Aff. P 14).
    \93\ Moreover, even as to SFPP, it is unclear that incorporating 
the Income Tax Policy Change in the index calculation would produce 
the adverse effects that Designated Carriers describe. First, after 
the Commission adopted the Income Tax Policy Change, SFPP converted 
to a Schedule-C Corporation eligible to recover an income tax 
allowance and defended their rates on that basis in their East Line 
rate case in Docket No. OR16-6-000. Second, SFPP's implementation of 
the Income Tax Policy Change (before its conversion to a C-
Corporation) actually produced an increase to its rates on its West 
Line system. In response to Opinion No. 511-C, SFPP removed the 
income tax allowance and previously accumulated ADIT balances from 
its West Line cost-of-service rates. Opinion No. 511-D, 166 FERC ] 
61,142 at P 59. As a result, SFPP's West Line rates increased to 
levels above the rates established following Opinion No. 511-B, 
which included an income tax allowance and ADIT balances. Compare 
SFPP, Compliance Filing, Docket No. IS08-390-011, Tab A, COS Summary 
at 2 (filed May 14, 2018) (rates filed in response to Opinion No. 
511-C), with SFPP, Compliance Filing, Docket No. IS08-390-008, Tab 
A, COS Summary at 2 (filed Apr. 6, 2015) (rates filed in response to 
Opinion No. 511-B). Because reflecting the Income Tax Policy Change 
in SFPP's West Line rates resulted in a rate increase, we are 
unconvinced that incorporating this policy change in the index 
calculation would somehow adversely impact SFPP for a second time as 
Designated Carriers allege.
---------------------------------------------------------------------------

    36. Finally, to the extent that Designated Carriers argue that the 
Commission should have ``trued up'' prior index levels in the 2015 
Index Review to account for the impact of the 2005 income tax policy 
change upon recoverable costs, this argument is unsupported.\94\ 
Designated Carriers do not specify the type of analysis they believe 
the Commission should have performed in the 2015 Index Review \95\ and 
fail to quantify the impact of this analysis upon pipelines' 
recoverable costs. Furthermore, any arguments concerning the 
Commission's actions in previous index reviews are outside the scope of 
this proceeding.
---------------------------------------------------------------------------

    \94\ Designated Carriers Initial Comments at 17-20 (citing Webb 
Aff. PP 19-22).
    \95\ To the extent that Designated Carriers argue the Commission 
should have retroactively revised previously established index 
levels to allow pipelines to recover for prior under collections in 
excess of their then-effective rates, this would conflict with both 
indexing's purpose and the filed rate doctrine. E.g., Ark. La. Gas 
Co. v. Hall, 453 U.S. 571, 577 (1981) (explaining that the filed 
rate doctrine ``forbids a regulated entity to charge rates for its 
services other than those properly filed with the appropriate 
federal regulatory authority'' (citation omitted)). Alternatively, 
if they argue that the Commission should adjust the going-forward 
index level upward because prior index calculations did not 
incorporate the 2005 policy change, they have not demonstrated that 
the multiple income tax policy changes the Commission has adopted 
since it established the indexing regime, including Lakehead and the 
2005 policy change, caused pipelines to under-recover their costs on 
a systematic basis.
---------------------------------------------------------------------------

B. Statistical Data Trimming

1. December 2020 Order
    37. In the December 2020 Order, the Commission departed from its 
prior practice established in the 2010 and 2015 Index Reviews of using 
the middle 50%.\96\ Instead, for the first time, the Commission relied 
solely upon the middle 80%. The Commission decided that it would 
consider more data in measuring industry-wide cost changes because 
using a broader sample should enhance the Commission's calculation of 
the central tendency of industry cost experience.\97\ The Commission 
further stated that ``normal'' cost changes are best defined by using 
the inclusive data sample embodied in the middle 80% in order to 
accurately identify the central tendency of industry-wide cost 
changes.\98\
---------------------------------------------------------------------------

    \96\ See supra note 9.
    \97\ December Order, 173 FERC ] 61,245 at P 26.
    \98\ Id. P 27.
---------------------------------------------------------------------------

    38. Additionally, the Commission held that ``mere generalized 
concerns'' about outlying data do not justify excluding the experiences 
of pipelines included in the middle 80% but not the middle 50% (i.e., 
the incremental 30%) from the Commission's review of industry cost 
changes.\99\ The Commission stated that unlike in prior index reviews, 
the record here does not contain ``detailed analyses'' showing that 
pipelines in the incremental 30% experienced anomalous cost changes 
that would skew the index.\100\
---------------------------------------------------------------------------

    \99\ Id. P 28.
    \100\ Id.
---------------------------------------------------------------------------

2. Rehearing Requests
    39. Shippers argue that the December 2020 Order conflicts with 
precedent and fails to justify departing from the Commission's 
established practice of trimming the data set to the middle 50%. They 
first contend that using the middle 80% contravenes the Commission's 
findings in the 2015 and 2010 Index Reviews that the index aims to 
reflect normal cost changes and that the middle 50% more effectively 
excludes anomalous cost data than the middle 80%, which includes 
pipelines further removed from the median whose cost changes may result 
from idiosyncratic circumstances rather than ordinary pipeline 
operations.\101\ According to Shippers, the December 2020 Order fails 
to distinguish those findings and instead attempts to redefine 
``normal'' cost changes to encompass the widest possible range of data, 
regardless of whether that data reflects typical experience. Shippers 
argue that the middle 80% in this proceeding includes pipelines with 
anomalous cost changes and that the central tendency of a data sample 
that includes such unrepresentative data fails to reflect normal 
industry-wide cost changes.\102\ In addition, Shippers dispute the 
December 2020 Order's conclusion that the presence of anomalous data in 
the middle 50% in prior reviews supports using the middle 80% in this 
proceeding. Shippers argue that the December 2020 Order does not 
demonstrate that the middle 50% includes unrepresentative data and, 
even if it did, this would not justify using a larger sample that 
likely includes more idiosyncratic data.\103\
---------------------------------------------------------------------------

    \101\ Joint Commenters Request for Rehearing at 23-26 (citing 
2015 Index Review, 153 FERC ] 61,312 at PP 23, 42-44; 2010 Index 
Review, 133 FERC ] 61,228 at P 61); Liquids Shippers Request for 
Rehearing at 37-38 (citing 2015 Index Review, 153 FERC ] 61,312 at 
PP 42-44; 2010 Index Review, 133 FERC ] 61,228 at PP 60-63 & n.36).
    \102\ Joint Commenters Request for Rehearing at 26-27; Liquids 
Shippers Request for Rehearing at 44-45.
    \103\ Joint Commenters Request for Rehearing at 32.
---------------------------------------------------------------------------

    40. Similarly, Shippers state that the December 2020 Order ignores 
the Commission's findings in 2015 and 2010 that trimming to the middle 
50% provides a simplified and objective method for removing 
unrepresentative data that minimizes the need to scrutinize individual 
pipeline data or engage in manual data trimming.\104\ Shippers assert 
that expanding the data sample to the middle 80% discards this 
simplified and effective tool for removing outliers without an adequate 
replacement.\105\
---------------------------------------------------------------------------

    \104\ Id. at 34 (citing 2015 Index Review, 153 FERC ] 61,312 at 
P 42). In both the 2015 and 2010 Index Reviews, shipper commenters 
proposed manual data trimming methodologies in which they carefully 
reviewed the costs for each of the 150-200 pipelines in the data set 
to remove those pipelines with cost changes resulting from specific 
factors not broadly shared across the industry, such as large rate 
base expansions. See 2015 Index Review, 153 FERC ] 61,312 at PP 19-
21 (describing manual data trimming proposals); 2010 Index Review, 
133 FERC ] 61,228 at PP 34-47 (same).
    \105\ Joint Commenters Request for Rehearing at 33 (citing AOPL 
II, 281 F.3d at 245 (vacating and remanding the Commission's 
determination in the 2000 Index Review to decline to engage in 
statistical data trimming as unjustified departure from prior 
practice of trimming to the middle 50%)).
---------------------------------------------------------------------------

    41. Shippers next argue that the record in this proceeding does not 
support this departure from established practice and in fact provides a 
stronger basis for using the middle 50% than in prior index reviews. In 
particular, Shippers state that the middle 50% represents a greater 
percentage of barrel-miles subject to the index (82.2% in the NOI data 
set) than in 2015 (56%) or 2010 (76%),\106\ whereas the middle 80% is 
more widely dispersed than in 2015 or 2010 and includes outlying cost 
increases that are not offset by comparable cost decreases.\107\ 
Moreover, Shippers assert that the December 2020 Order acknowledged 
that ``the record contains no evidence addressing whether the more 
dispersed cost changes in the incremental 30% resulted from pipeline-
specific factors rather than from broadly shared circumstances 
representative of ordinary pipeline operations.'' \108\ Given the 
Commission's previous findings that the middle 80% more likely includes 
pipelines with idiosyncratic and outlying data, Shippers argue that 
this lack of evidence supports continued use of the middle 50%.\109\
---------------------------------------------------------------------------

    \106\ Id. at 30; Liquids Shippers Request for Rehearing at 41-
42.
    \107\ Joint Commenters Request for Rehearing at 30; Liquids 
Shippers Request for Rehearing at 43, 46-47.
    \108\ Joint Commenters Request for Rehearing at 38 (quoting 
December 2020 Order, 173 FERC ] 61,245 at P 29).
    \109\ Id. at 38-39.
---------------------------------------------------------------------------

    42. Shippers further contend that the December 2020 Order 
erroneously places the burden upon shipper commenters to justify 
continued use of the middle 50% by faulting them for

[[Page 4484]]

failing to present detailed analyses of the incremental 30%.\110\ 
Shippers state that the Commission discouraged commenters from 
submitting such evidence by declining to consider similar analyses in 
the 2015 and 2010 Index Reviews.\111\ Moreover, Shippers assert that it 
is not incumbent upon commenters to justify continued application of 
the Commission's existing policy. Rather, they argue that the agency 
attempting to depart from a well-established practice bears the burden 
of explaining why the reasoning underlying that practice should no 
longer control.\112\ Similarly, Shippers claim that it was incumbent 
upon Pipelines, as the proponents of a change in Commission policy, to 
justify the change by demonstrating that the incremental 30% does not 
contain outlying data. Shippers argue that Pipelines failed to make 
this showing and that the limited evidence in the record analyzing the 
incremental 30% indicates that it contains anomalous data that skews 
the index calculation.\113\ According to Shippers, this evidence was 
sufficient to justify using the middle 50% consistent with established 
practice.\114\
---------------------------------------------------------------------------

    \110\ Id. at 35-39; Liquids Shippers Request for Rehearing at 
51-52.
    \111\ Joint Commenters Request for Rehearing at 35, 37. Liquids 
Shippers observe, moreover, that the Commission did not rely upon 
such analyses when it declined to use the middle 80% in the 2015 and 
2010 Index Reviews. Liquids Shippers Request for Rehearing at 51 
(citing 2015 Index Review, 153 FERC ] 61,312 at P 43; 2010 Index 
Review, 133 FERC ] 61,228 at P 61).
    \112\ Joint Commenters Request for Rehearing at 35-36 (citing 
Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2126 (2016); FCC 
v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009); Balt. 
Gas & Elec. Co. v. FERC, 954 F.3d 279, 286 (D.C. Cir. 2020); Air 
All. Houston v. EPA, 906 F.3d 1049, 1066 (D.C. Cir. 2018)); Liquids 
Shippers Request for Rehearing at 52 (citing FCC v. Fox Television 
Stations, Inc., 556 U.S. at 515-16).
    \113\ Joint Commenters Request for Rehearing at 38; Liquids 
Shippers Request for Rehearing at 45-51.
    \114\ Joint Commenters Request for Rehearing at 38; Liquids 
Shippers Request for Rehearing at 52-53.
---------------------------------------------------------------------------

3. Commission Determination
    43. We are persuaded by Shippers' arguments on rehearing and grant 
rehearing of the December 2020 Order to calculate the index level based 
upon the middle 50%, consistent with the Commission's practice in the 
2015 and 2010 Index Reviews.\115\ We conclude that the record in this 
proceeding does not justify departing from the Commission's established 
practice of calculating the index level based solely upon the middle 
50%.
---------------------------------------------------------------------------

    \115\ 2015 Index Review, 153 FERC ] 61,312 at PP 42-44, aff'd, 
AOPL III, 876 F.3d at 342-44; 2010 Index Review, 133 FERC ] 61,228 
at PP 60-63. Although the Commission averaged the middle 50% with 
the middle 80% in the 2000 and 2005 five-year reviews, it did not 
justify or address its consideration of the middle 80%. 2010 Index 
Review, 133 FERC ] 61,228 at P 60. Moreover, the Commission has 
never relied upon the middle 80% alone and provided a detailed 
explanation in the 2015 and 2010 Index Reviews why it would not 
consider the middle 80%. As the D.C. Circuit explained, ``[n]othing 
in any of the Commission's past index review orders bound the agency 
to use the middle 80% of pipelines' cost-change data in any later 
proceeding.'' AOPL III, 876 F.3d at 353.
---------------------------------------------------------------------------

a. The Record in This Proceeding Supports Using the Middle 50% To 
Calculate the Index Level
    44. As an initial matter, the objective of the index is to reflect 
the cost experience of a typical pipeline during ordinary pipeline 
operations.\116\ The index is not designed to recover extraordinary 
cost changes, including those resulting from atypical or idiosyncratic 
circumstances.\117\ These extraordinary cost changes are recovered 
using the Commission's alternate ratemaking methodologies rather than 
through indexing.\118\ In addition, the presence of such extraordinary 
cost changes in the data set can inflate the index level.\119\
---------------------------------------------------------------------------

    \116\ E.g., 2010 Index Review, 133 FERC ] 61,228 at P 61; Order 
No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,097 (``The role of an 
index is to accommodate normal cost changes.'').
    \117\ The Commission has held, and the D.C. Circuit has 
affirmed, that use of an index sufficiently high to encompass 
extraordinary costs ``would provide windfalls to many oil pipelines 
by allowing rate changes substantially above cost changes'' and 
``effectively abdicate [the Commission's] responsibilities for rate 
regulation under the ICA.'' Order No. 561-A, FERC Stats. & Regs. ] 
31,000 at 31,097, aff'd, AOPL I, 83 F.3d at 1434; see also 2010 
Index Review, 133 FERC ] 61,228 at P 54 (interpreting the use of 
``extraordinary'' in Order Nos. 561 and 561-A as referring to 
``pipelines experiencing changed per barrel-mile costs that were 
greater than the changing costs experienced by other pipelines 
regardless of the causes underlying any particular pipeline's cost 
changes.'').
    \118\ Order No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,097 
(``Extraordinary costs can be recovered through either of the 
alternate rate change means--cost of service or settlement rates--as 
provided in [Order No. 561].'').
    \119\ Such cost changes would impact the composite central 
tendency of the data sample through the weighted mean and unweighted 
mean, which, unlike the median, reflect the cost experiences of all 
pipelines in the sample, including those at the upper and lower 
bounds.
---------------------------------------------------------------------------

    45. To avoid inflating the index, the Commission excludes pipelines 
with extraordinary or idiosyncratic cost changes from the analysis. 
Along these lines, in the 2010 and 2015 Index Reviews, the Commission 
found that the middle 50% more appropriately adjusts the index level 
for normal cost changes than the middle 80%, which, by definition, 
includes pipelines relatively far removed from the median.\120\ The 
Commission also concluded that pipelines in the incremental 30% are 
more likely to have cost changes resulting from idiosyncratic factors, 
such as a rate base expansion, plant retirement, or localized changes 
in supply and demand, that do not reflect normal industry-wide 
experience.\121\ Thus, the Commission found that the middle 50%, more 
effectively than the middle 80%, trims pipelines with anomalous cost 
changes from the data set while avoiding the complexities and 
distorting effects of laborious and subjective manual data trimming 
methodologies.\122\ Following the 2015 Index Review, the D.C. Circuit 
affirmed the Commission's decision to trim the data set to the middle 
50% instead of the middle 80%.\123\
---------------------------------------------------------------------------

    \120\ 2010 Index Review, 133 FERC ] 61,228 at P 61; 2015 Index 
Review, 153 FERC ] 61,312 at P 43 (``[B]y definition, costs at the 
top (or bottom) of the middle 80 percent deviate significantly from 
the cost experience of other pipelines''); id. P 44 (``Pipelines in 
the middle 80 percent, as opposed to the middle 50 percent, are more 
likely to have outlying cost changes which could result from 
idiosyncratic factors particular to that pipeline.'').
    \121\ 2010 Index Review, 133 FERC ] 61,228 at P 61.
    \122\ 2015 Index Review, 153 FERC ] 61,312 at P 42 (citing 2010 
Index Review, 133 FERC ] 61,228 at PP 60-63).
    \123\ AOPL III, 876 F.3d at 342 (explaining that the court had 
``little difficulty in finding that the Commission adequately and 
reasonably justified its decision not to consider the middle 80 
percent of pipelines' cost-change data'' in that proceeding).
---------------------------------------------------------------------------

    46. Upon reconsideration of the December 2020 Order, we find that 
the record in the instant proceeding does not justify a different 
result. The scatter plot below \124\ demonstrates that the middle 80% 
in this data set includes several pipelines near its upper bound that 
are considerably removed from the other pipelines in the sample.
---------------------------------------------------------------------------

    \124\ This scatter plot modifies a similar chart submitted by 
Joint Commenters. Joint Commenters Reply Comments, Brattle Group 
Report at 19, Figure 3 (scatter plot illustrating dispersion of the 
middle 50% and middle 80% in the unadjusted 2020 data set). The 
modifications reflect the adjustments adopted herein to the page 700 
data set.

---------------------------------------------------------------------------

[[Page 4485]]

[GRAPHIC] [TIFF OMITTED] TR28JA22.000

    47. Furthermore, the pipelines at the upper bound of the middle 80% 
exert an outsized influence that inflates the index calculation.\125\ 
The difference between the middle 50% and the middle 80% results 
primarily from 8 pipelines at the upper bound of the middle 80%. 
Namely, expanding the data sample from the middle 50% to the middle 
70%, which omits the top and bottom 8 pipelines in the middle 80%, only 
increases the composite central tendency by 3 basis points, from -0.21% 
to -0.18%.\126\ By contrast, expanding the sample to include these 16 
pipelines increases the composite central tendency by an additional 29 
basis points, from -0.18% to 0.11%.\127\ In contrast to their outsized 
effect on the index, the 8 pipelines at the upper bound of the middle 
80% account for only 2.10% of total barrel-miles.
---------------------------------------------------------------------------

    \125\ AOPL's calculations demonstrate that using the middle 80% 
would increase the cost change calculation by 41 basis points while 
only expanding the number of barrel-miles in the analysis by 
approximately 14%. Shehadeh Initial Decl., Exhibit A11 (calculating 
that the composite central tendency of the cost change data, when 
incorporating AOPL's proposed adjustments to remove the effects of 
the Income Tax Policy Change, increases from 0.90% to 1.31% when 
expanding from the middle 50% to the middle 80%); Shehadeh Initial 
Decl., Exhibit A12 (stating that the middle 50% and middle 80% 
contain 81.9% and 95.8%, respectively, of total barrel-miles in 2014 
subject to the index).
    \126\ As discussed above, the Kahn Methodology calculates a 
composite central tendency by averaging the data sample's median, 
weighted mean, and unweighted mean. See supra P 4.
    \127\ Attach. A, Exhibit 14. The outsized impact these pipelines 
exert upon the index calculation undermines the conclusion in the 
December 2020 Order that the dispersion of the middle 80% is not 
relevant because it results from ``just a few pipelines at the top 
of the middle 80%.'' December 2020 Order, 173 FERC ] 61,245 at P 29. 
Furthermore, this analysis rebuts the statement in the December 2020 
Order that the record did not contain a ``detailed showing'' that 
using the additional data in the middle 80% would distort the index 
calculation. Id.
---------------------------------------------------------------------------

    Not only does the middle 80% include pipelines at its upper bound 
that diverge considerably from the other pipelines in the sample, but 
the record further establishes that the middle 80% as a whole is even 
more dispersed than in 2015 or 2010,\128\ as illustrated in the bar 
chart below.\129\
---------------------------------------------------------------------------

    \128\ When the data sample is highly dispersed, data at the 
outer bounds of the middle 80% are further removed from the 
remaining data and thus can have an outsized and distorting effect 
if used to measure the central tendency.
    \129\ The bar chart modifies a similar chart submitted by Joint 
Commenters. Joint Commenters Reply Comments, Brattle Group Report at 
18, Figure 2 (bar chart illustrating dispersion of middle 50% and 
middle 80% in 2010, 2015, and the unadjusted 2020 data sets). The 
modifications reflect the adjustments adopted herein to the page 700 
data set.
[GRAPHIC] [TIFF OMITTED] TR28JA22.001

[[Page 4486]]

    48. Additionally, AOPL has presented no evidence that the middle 
80% in this proceeding lacks the type of atypical and idiosyncratic 
cost changes observed in the middle 80% in the 2015 and 2010 Index 
Reviews.\130\ To the contrary, the record demonstrates that the 
additional data included in the incremental 30% contains pipelines with 
idiosyncratic cost changes resulting from circumstances that are not 
broadly shared across the industry. For example, Joint Commenters 
identify 7 pipelines in the incremental 30% whose reported cost changes 
resulted from irregular circumstances or specific factors not broadly 
shared across the industry, such as temporary shutdowns or pipeline 
ruptures.\131\
---------------------------------------------------------------------------

    \130\ AOPL, the proponent of changing the Commission's policy to 
use the middle 80% instead of the middle 50%, had the opportunity to 
provide such evidence in its initial comments and reply comments. 
See 5 U.S.C. 556(d) (``Except as otherwise provided by statute, the 
proponent of a rule or order has the burden of proof.''); P.R. v. 
Fed. Mar. Comm'n, 468 F.2d 872, 881 (D.C. Cir. 1972) (``Ultimately, 
the rule requiring the proponent of an order to sustain the burden 
of its justification rests on the policy of requiring a person 
seeking a change from the status quo to take on the burden of 
justifying the change.''); see also S. Ga. Nat. Gas Co., 73 FERC ] 
61,354, at 62,106 (1995) (``[W]here there is a `settled practice,' 
the proponent of a change to that practice has the burden of 
proof.'').
    \131\ Joint Commenters Reply Comments, Brattle Group Report at 
13-17. For example, PMI Services North America, Inc., reported an 
inflated 2019 cost of service per barrel-mile due to a temporary 
shutdown of one of its pipeline segments and Mobil Pipe Line Company 
experienced a pipeline rupture in 2013 that distorted its 2014 cost-
of-service data. Id. at 15-17.
---------------------------------------------------------------------------

    49. In sum, the record demonstrates that the middle 80% in this 
proceeding includes pipelines with extraordinary cost changes that are 
not reflective of ordinary pipeline operations. Accordingly, we find 
that for purposes of calculating the index level in this proceeding, 
using the more tailored data sample embodied by the middle 50% produces 
a more accurate measure of ``normal'' cost changes and minimizes the 
risk that the index will be distorted by pipelines with 
unrepresentative cost experiences. Pipelines have not demonstrated why 
the instant record is distinguishable from the 2015 and 2010 Index 
Reviews such that the Commission should depart from the data trimming 
methodology it employed in those proceedings.
b. Reconsidering the December 2020 Order
    50. We believe the reasons given in the December 2020 Order for 
using the middle 80% in this proceeding to be in error.
    51. First, the mere fact that the middle 80% includes additional 
data does not support departing from the middle 50%.\132\ The middle 
50% already includes 81% of industry-wide oil pipeline barrel-
miles,\133\ which is significantly more than the barrel-miles used in 
prior index reviews.\134\ Moreover, the middle 80% only incorporates an 
additional 15% more of the industry's barrel-miles. Thus, although 
using the middle 50% excludes 48 pipelines from the cost-change 
analysis,\135\ omitting these pipelines does not deprive the Commission 
of a robust data sample. Moreover, any benefits of considering the 
larger data sample do not outweigh the risk, discussed above, that this 
additional data will distort the measurement of normal cost changes.
---------------------------------------------------------------------------

    \132\ See AOPL III, 876 F.3d at 343 (noting the Commission has 
``rejected the precise principle'' that the middle 80% is preferable 
because it includes a larger number of pipelines) (citing 2010 Index 
Review, 133 FERC ] 61,228 at PP 57, 61); 2015 Index Review, 153 FERC 
] 61,312 at P 44 (rejecting argument that ``the middle 80 percent 
should be used merely because it contains more barrel-miles'').
    \133\ Attach. A, Exhibit 1.
    \134\ In the 2015 and 2010 Index Reviews, the Commission 
concluded that it was ``unnecessary to include the middle 80 percent 
to obtain a representative sample of the data'' where the middle 50% 
included 56% and 76%, respectively, of total barrel-miles subject to 
the index. 2010 Index Review, 133 FERC ] 61,228 at P 63; see also 
2015 Index Review, 153 FERC ] 61,312 at P 44 n.85 (concluding that 
the fact that the middle 50% included a lower percentage of barrel-
miles than in 2010 ``is not a sufficient basis to risk including 
more outlying data''), aff'd, AOPL III, 876 F.3d at 344.
    \135\ December Order, 173 FERC ] 61,245 at P 26.
---------------------------------------------------------------------------

    52. Second, we disagree with the December 2020 Order and find that 
for purposes of this proceeding, ``normal'' cost changes are best 
measured using a more tailored data sample that excludes the anomalous 
and idiosyncratic data in the middle 80%.\136\ For the reasons 
discussed above,\137\ this record demonstrates that ``including data 
from the middle 80% distorts our measurement of the industry-wide 
central tendency [used to calculate the index level].'' \138\ Rather, 
using the middle 50% is more consistent with the index's purpose of 
allowing recovery for normal cost changes, not extraordinary costs.
---------------------------------------------------------------------------

    \136\ We disagree with the statement in the December 2020 Order 
that using the middle 80% is appropriate because the index average 
will be significantly below the relatively high cost changes at the 
upper bound. Id. PP 27, 32. Even if the index average is not set at 
the upper bound of the data sample, including the upper bound of the 
middle 80% nonetheless produces an index average inflated by 
anomalous cost experience. See 2010 Index Review, 133 FERC ] 61,228 
at P 61 (``Using the middle 50[%] ensures that pipelines with 
relatively large cost increases or decreases do not distort the 
index.'').
    \137\ See supra PP 46-50.
    \138\ December 2020 Order, 173 FERC ] 61,245 at P 27. The 
December 2020 Order erroneously implied that entities supporting 
continued use of the middle 50% must provide a ``compelling 
showing'' that using the middle 80% would distort the calculation of 
the index level. Id. Although the record here provides such a 
compelling showing, we clarify that entities advocating for a 
departure from the Commission's practice of using the middle 50% 
bear the burden of justifying that change. See supra note 129.
---------------------------------------------------------------------------

    53. Third, in the December 2020 Order, the Commission sought to 
distinguish the 2010 and 2015 Index Reviews on the basis that, unlike 
in the instant review, commenters in those proceedings ``presented 
detailed analyses demonstrating that the incremental 30% contained 
anomalous cost changes . . . .'' \139\ However, we no longer find this 
reasoning persuasive because, as in prior reviews, the present record 
demonstrates the middle 80% includes outlying cost increases, reflects 
significant dispersion, and includes pipelines with idiosyncratic cost 
changes. Although shippers submitted more detailed analyses in 2010 and 
2015, they presented this evidence to support manual data trimming 
proposals that required a labor-intensive pipeline-by-pipeline analysis 
of page 700 data. Finding manual data trimming to be highly subjective, 
the Commission rejected this approach because ``[a]ny potential 
improvement from manual data trimming is outweighed by the increase in 
the potential for error or manipulation.'' \140\ Rather, the Commission 
concluded that, instead of manual data trimming, using the middle 50% 
more effectively addressed those same issues in a manner that was more 
consistent with simplified and streamlined ratemaking.\141\ We conclude 
that it would be incongruous to reject such manual data trimming while 
at the same time requiring commenters to present similar analyses to 
justify continued use of the middle 50%.\142\
---------------------------------------------------------------------------

    \139\ December 2020 Order, 173 FERC ] 61,245 at P 28.
    \140\ 2015 Index Review, 153 FERC ] 61,312 at P 34; see also id. 
PP 36, 42; 2010 Index Review, 133 FERC ] 61,228 at P 62.
    \141\ 2015 Index Review, 153 FERC ] 61,312 at PP 36, 42; 2010 
Index Review, 133 FERC ] 61,228 at P 62.
    \142\ In any case, the December 2020 Order overstates the 
absence of evidence regarding anomalous data among the 48 pipelines 
in the incremental 30%. Acknowledging that Shippers identified 7 
pipelines, the December 2020 Order stated that for the remaining 41 
there is no evidence of anomalous data. December 2020 Order, 173 
FERC ] 61,245 at P 28. However, this ignores the chart above that 
examined the entire middle 80% and showed how those pipelines at the 
top of the middle 80% were inflating the index level.
---------------------------------------------------------------------------

c. AOPL's Remaining Arguments Are Not Persuasive
    54. We reject AOPL's remaining arguments in support of using the

[[Page 4487]]

middle 80% as unpersuasive. First, AOPL erroneously claims that the 
Commission should use the middle 80% based upon its previous 
recognition that ``it is preferable to apply the larger data set when 
the additional data is available using the Kahn Methodology.'' \143\ 
However, the D.C. Circuit rejected this exact argument following the 
2015 Index Review, finding that the quoted language ``addressed FERC's 
approach to selecting the pool of pipelines whose costs should be 
measured at all--not the portion of the resulting data to trim before 
calculating the normal industry change in costs.'' \144\ Further, the 
court explained that the Commission had in fact rejected the argument 
that it is preferable to use a larger data sample merely because 
additional data is available. Instead, the Commission concluded that 
the middle 50% more appropriately adjusts the index level for normal 
cost changes, notwithstanding the fact that it contains less data than 
the middle 80%.\145\ We reject AOPL's argument for the same reasons 
here.
---------------------------------------------------------------------------

    \143\ AOPL Initial Comments at 19-20 (quoting 2010 Index 
Rehearing Order, 135 FERC ] 61,172 at P 41).
    \144\ AOPL III, 876 F.3d at 343 (citing 2010 Index Rehearing 
Order, 135 FERC ] 61,172 at P 41 & n.38).
    \145\ Id. (citing 2010 Index Review, 133 FERC ] 61,228 at PP 57, 
61).
---------------------------------------------------------------------------

    55. Second, we dismiss AOPL's claim that the middle 80% provides a 
more accurate measure of industry cost changes merely because it 
resembles a lognormal distribution.\146\ As the Commission found in the 
2015 Index Review and as the D.C. Circuit affirmed, to the extent that 
the middle 80% data conforms to a lognormal distribution, outlying cost 
increases per barrel-mile will not be offset by similarly outlying cost 
decreases.\147\ This concern is illustrated in the instant record, 
where the middle 80% includes multiple pipelines with cost increases 
above 100% and no pipelines with cost decreases of negative 100%.\148\ 
Thus, using the middle 80% would skew the index upward based upon these 
outlying cost increases, which is contrary to the index's objective of 
reflecting normal cost changes.\149\
---------------------------------------------------------------------------

    \146\ AOPL Initial Comments at 20-21; AOPL Reply Comments at 8-9 
(citing Shehadeh Initial Decl. at 24). A lognormal distribution is a 
continuous probability distribution of a random variable whose 
logarithm is normally distributed.
    \147\ 2015 Index Review, 153 FERC ] 61,312 at P 43 (``using the 
middle 80 percent would skew the index upward based upon these 
outlying cost increases, which is contrary to the objective of the 
index to reflect normal industry-wide cost changes''), aff'd, AOPL 
III, 876 F.3d at 344.
    \148\ See Liquids Shippers Reply Comments at 24 (citing Crowe 
Reply Aff. at 4-5).
    \149\ We also question the mathematical reasoning underlying 
AOPL's argument. Specifically, a lognormal distribution occurs when 
performing a natural logarithm transformation of a data set produces 
a normal distribution. However, it is not possible to take the 
natural logarithm of negative numbers. Id. at 24-25. Because the 
data set here contains negative numbers, it cannot be lognormally 
distributed.
---------------------------------------------------------------------------

    56. Third, AOPL misconstrues Commission precedent in claiming that 
reliance on the middle 50% is only appropriate where there are concerns 
of erroneous data.\150\ Although use of the middle 50% in Order No. 561 
was based in part upon concerns about erroneous data, the Commission 
has relied upon the middle 50% to exclude not only inaccurate data, but 
also extraordinary data that is unrepresentative of normal cost 
experience.\151\ As the D.C. Circuit explained when upholding the 
Commission's continued use of the middle 50% in the 2015 Index Review, 
the Commission provided extensive justification for its ongoing 
reliance on the middle 50% in both the 2010 and 2015 Index 
Reviews.\152\ Thus, even where the reported page 700 data is accurate, 
it remains necessary to use the middle 50% to avoid including outlying 
data that exerts a disproportionate impact on the index calculation.
---------------------------------------------------------------------------

    \150\ AOPL Initial Comments at 21-22 (citing Shehadeh Initial 
Decl. at 21-22).
    \151\ See 2010 Index Review, 133 FERC ] 61,228 at P 61 (``Even 
when accurate data is reported, pipelines in the middle 80, as 
opposed to the middle 50, are more likely to have cost changes 
resulting from factors particular to that pipeline, such as a rate 
base expansion, plant retirement, or localized changes in supply and 
demand.'').
    \152\ See AOPL III, 876 F.3d at 343 (rejecting AOPL's argument 
that the Commission was precluded from excluding the middle 80% when 
``that data is available and accurate''); id. at 339 (``[C]ontrary 
to AOPL's assertion, nothing in any of FERC's past index review 
orders bound the agency to use the middle 80 percent of pipelines' 
cost-change data.'').
---------------------------------------------------------------------------

    57. In sum, we conclude that the evidence does not support 
departing from the Commission's established practice of trimming the 
data set to the middle 50%. Pipelines have presented the same arguments 
that the Commission rejected in the 2010 Index Review and that the 
Commission and the D.C. Circuit rejected in the 2015 Index Review. 
Pipelines also presented no evidence demonstrating that the middle 80% 
contains fewer pipelines with idiosyncratic cost changes than in 2010 
and 2015. Moreover, as articulated above, the record in this proceeding 
provides less support for using the middle 80% than in 2015 or 2010 
because the middle 50% includes a considerably higher percentage of 
industry-wide barrel-miles (81% in 2020 versus 76% in 2010 and 56% in 
2015) and the middle 80% of this data set is more dispersed. We 
therefore grant Shippers' requests for rehearing to calculate the index 
level using the middle 50%.\153\
---------------------------------------------------------------------------

    \153\ Consistent with the Commission's historical practice, 
nothing in this order precludes commenters from proposing 
modifications to the Kahn Methodology, including different data 
trimming methodologies, in future five-year reviews based upon the 
records in those proceedings. See NOI, 171 FERC ] 61,239 at P 8 
(``We invite interested persons to submit comments regarding . . . 
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 . . . .'').
---------------------------------------------------------------------------

C. Liquids Shippers' Proposal To Calculate the Composite Measure of 
Central Tendency Using the Weighted Median

    58. Liquids Shippers argued in their comments that the weighted 
mean of the data set in this proceeding accords undue weight to two 
pipelines, Colonial and Enbridge Energy, L.P. (Enbridge). Liquids 
Shippers asserted that these pipelines are substantial outliers in 
terms of barrel-miles and cost changes \154\ and that both reported 
inaccurate page 700 data for 2014 and 2019.\155\ Because the weighted 
mean affords these pipelines significant weight, Liquids Shippers 
argued that using it to calculate the composite measure of central 
tendency will skew the index upwards and fail to track normal industry-
wide cost changes.\156\ To remedy this issue, Liquids Shippers proposed 
to replace the weighted mean in the index calculation with the median 
of the barrel-mile weighted cost changes in the middle 50% (weighted 
median), as calculated by their witness Elizabeth H. Crowe. 
Alternatively, if the Commission decides not to replace the weighted 
mean with the weighted median, Liquids Shippers proposed reducing the 
weighting afforded to the weighted mean in the Kahn Methodology from 
33.3% to 20% or 10%.\157\
---------------------------------------------------------------------------

    \154\ Liquids Shippers Initial Comments at 13-15.
    \155\ Id. at 17-19.
    \156\ Id. at 16-19.
    \157\ Id. at 20 n.45; Crowe Initial Aff. at 8-9.
---------------------------------------------------------------------------

1. December 2020 Order
    59. The December 2020 Order declined to adopt Liquids Shippers' 
proposals. First, the Commission found that removing the weighted mean 
from the index calculation would conflict with longstanding Commission 
precedent relying upon the weighted mean and with Dr. Kahn's testimony 
in the Order No. 561 rulemaking proceeding endorsing its use.\158\ 
Second, the Commission explained that the index aims to track cost 
changes among

[[Page 4488]]

pipelines of all sizes and that discarding the weighted mean or 
reducing the weighting it receives in the analysis would upset the 
balance between large and small pipelines that the Kahn Methodology 
achieves.\159\ Third, the Commission determined that Liquids Shippers' 
calculation of the weighted median was methodologically flawed and did 
not provide a useful measure of central tendency for purposes of 
calculating the index.\160\ Fourth, the Commission concluded that 
Liquids Shippers' challenges to Colonial's and Enbridge's page 700 data 
are misplaced and unavailing on the merits.\161\
---------------------------------------------------------------------------

    \158\ December 2020 Order, 173 FERC ] 61,245 at P 36.
    \159\ Id. P 37.
    \160\ Id. PP 38-39.
    \161\ Id. P 40.
---------------------------------------------------------------------------

2. Rehearing Request
    60. Liquids Shippers renew their arguments that Colonial and 
Enbridge are outliers in terms of cost changes \162\ and barrel-miles 
\163\ and that these pipelines reported inaccurate page 700 data for 
2014 and 2019.\164\ As a result, Liquids Shippers argue that using the 
weighted mean in this proceeding skews the index level upwards, fails 
to reflect industry-wide cost changes, and increases the likelihood 
that inaccurate or erroneous page 700 data will distort the index 
calculation.\165\ Liquids Shippers argue that the December 2020 Order 
failed to address their evidence that Colonial and Enbridge are 
outliers in terms of barrel-miles or acknowledge the errors in those 
pipelines' page 700 data. Although the Commission has previously 
declined to consider challenges to individual pipelines' page 700 
inputs, Liquids Shippers state that this proceeding is distinct because 
of the substantial weight the weighted mean accords to Colonial and 
Enbridge.\166\
---------------------------------------------------------------------------

    \162\ Liquids Shippers Request for Rehearing at 56-57. Liquids 
Shippers assert that Enbridge and Colonial reported annual cost 
changes of 3.1% and 4.3%, respectively, both of which exceed the 
median of the data set (0.05%), the unweighted mean of the middle 
80% (1.45%), and the unweighted mean of the middle 50% (0.29%). Id. 
(citing December 2020 Order, 173 FERC ] 61,245 at Workpapers, 
Exhibit 5 Tab, Column P, Lines 21 and 35; id. at Workpapers, Exhibit 
1 Tab, Column F, Lines 11-12; id. at Workpapers, Exhibit 5 Tab, 
Column Q, Line 184).
    \163\ Specifically, Liquids Shippers state that Colonial and 
Enbridge represent 40% of the total barrel-miles in the untrimmed 
data set of 160 pipelines and 48% of the total barrel-miles in the 
middle 50% sample used in the NOI. Liquids Shippers Request for 
Rehearing at 54-55.
    \164\ Id. at 65-66.
    \165\ Id. at 58, 65-67. Liquids Shippers state that removing 
Enbridge and Colonial from the data set would cause the index level 
proposed in the NOI to decrease from PPI-FG+0.09% to PPI-FG-0.34%. 
Id. at 57 (citing Liquids Shippers Initial Comments at 15-16; Crowe 
Initial Aff. at 6-7). Given this effect, Liquids Shippers argue that 
affording these pipelines significant weight will skew the index 
upward. Id. at 58.
    \166\ Id. at 67.
---------------------------------------------------------------------------

    61. Liquids Shippers further argue that the December 2020 Order 
erred in relying upon earlier index proceedings to justify using the 
weighted mean in this case. Liquids Shippers contend that this 
proceeding is distinguishable from prior five-year reviews because the 
weighted mean is heavily influenced by just two pipelines and a 
commenter has demonstrated that two outlying pipelines skew the 
weighted mean.\167\ Furthermore, Liquids Shippers state that there is 
limited judicial and Commission precedent addressing use of the 
weighted mean and that existing precedent supports only the use of some 
weighted measure of central tendency.\168\ Liquids Shippers maintain 
that they do not object to the Commission taking pipeline size into 
account or according additional weight to larger pipelines when 
calculating the index level, so long as two pipelines like Colonial and 
Enbridge are not permitted to skew the result.\169\
---------------------------------------------------------------------------

    \167\ Id. at 64, 67.
    \168\ Id. at 62-63 (quoting AOPL II, 281 F.3d at 241).
    \169\ Id. at 63.
---------------------------------------------------------------------------

    62. In addition, Liquids Shippers object to the December 2020 
Order's suggestion that shippers should challenge the inputs in a 
particular pipeline's page 700 by filing a complaint.\170\ Liquids 
Shippers state that a cost-of-service complaint against a pipeline's 
base rates is unlikely to result in changes to its page 700 and that 
there would be no commercial benefit for a shipper to file a complaint 
for the sole purpose of challenging the pipeline's page 700 
inputs.\171\ Liquids Shippers argue that by requiring shippers to 
challenge page 700 inputs in a complaint or litigated rate proceeding, 
the Commission is insulating pipelines' page 700 data from meaningful 
review.\172\
---------------------------------------------------------------------------

    \170\ Id. at 68 (citing December 2020 Order, 173 FERC ] 61,245 
at P 40 n.87).
    \171\ Id. at 68-69.
    \172\ Id. at 69.
---------------------------------------------------------------------------

3. Commission Determination
    63. We are unpersuaded by Liquids Shippers' arguments and deny 
rehearing. As the December 2020 Order explains, replacing the weighted 
mean in the calculation of the composite central tendency would 
contravene longstanding Commission practice dating to the rulemaking 
proceeding that established the indexing regime.\173\ As discussed 
below, although no commenter has previously challenged the use of the 
weighted mean in the Kahn Methodology, we find that Liquids Shippers 
have not justified departing from the Commission's well-established 
policy.\174\
---------------------------------------------------------------------------

    \173\ December 2020 Order, 173 FERC ] 61,245 at P 36.
    \174\ See supra note 129.
---------------------------------------------------------------------------

    64. As an initial matter, Liquids Shippers acknowledge that the 
Kahn Methodology appropriately relies upon a weighted measure of 
central tendency \175\ but fail to propose a credible alternative to 
the weighted mean. As discussed above, the December 2020 Order rejected 
Liquids Shippers' proposed weighted median calculation as 
methodologically flawed. The Commission explained that the established 
statistically appropriate method for calculating the weighted median, 
as applied to pipeline cost changes, is to order the pipelines by cost-
change percentage, compute each pipeline's share of total barrel-miles, 
and identify the pipeline whose share of total barrel-miles causes the 
cumulative share to reach 50%.\176\ However, rather than identify the 
pipeline that causes the cumulative share of total barrel-miles 
represented in the sample to reach 50%, Ms. Crowe derives the median 
value of the weighted cost-change percentages for 2019 without regard 
to the barrel-miles represented above and below that cost change.\177\ 
Unlike the correct calculation of the weighted median, Ms. Crowe does 
not order pipelines by cost changes, and instead orders them by cost 
change times barrel-miles.\178\ The Commission found that under this 
approach, it is unclear whether the median pipeline of a given sample 
reported (a) relatively high cost changes and low barrel-miles or (b) 
relatively low cost changes and high barrel-miles.\179\ The Commission 
also observed that a small shift in the data sample's median would 
produce significant and multidirectional changes in the calculation's 
result.\180\ Thus, the

[[Page 4489]]

Commission determined that this calculation produces ``haphazard 
results'' that ``do not reflect a convergence towards a central 
tendency of industry-wide cost changes.'' \181\ The Commission further 
explained that Ms. Crowe's methodology would ``nullify the influence of 
larger pipelines upon the index calculation and thereby defeat the 
purpose of relying upon a weighted measure of central tendency.'' \182\ 
On rehearing, Liquids Shippers do not address these findings or attempt 
to rectify the identified flaws in Ms. Crowe's weighted median 
calculation. Thus, even if we were inclined to replace the weighted 
mean with a different weighted measure of central tendency, Liquids 
Shippers present no credible alternative.
---------------------------------------------------------------------------

    \175\ Liquids Shippers Request for Rehearing at 63.
    \176\ December 2020 Order, 173 FERC ] 61,245 at P 38 (citing 
Shehadeh Reply Decl. at 11 & App. B, Ex. 1). In fact, as explained 
in the December 2020 Order, the pipeline reflecting the weighted 
median using such a calculation would be Enbridge (which as 
discussed below, Liquids Shippers allege should be removed as an 
outlier from the data set). Id. P 40.
    \177\ Id. P 39.
    \178\ Id.
    \179\ Id. n.84.
    \180\ For example, a median reflecting the pipeline with the 
next lowest weighted percentage change (Wildcat Liquids Caddo LLC) 
would reduce Ms. Crowe's result from 0.57% to -1.74% (a decrease of 
over 200%), whereas a median reflecting the next highest weighted 
percentage change (reported by Wesco Pipeline, LLC) would reduce the 
result by an even greater amount, from -0.57% to -2.28% (a decrease 
of 400%). Id. n.85.
    \181\ Id.
    \182\ Id. n.86 (citing AOPL II, 281 F.3d at 241). Specifically, 
the Commission explained that because Ms. Crowe orders the pipelines 
by barrel-mile cost change times barrel-miles, a pipeline with high 
barrel-miles would likely only lie near the median of the data 
sample if it reported extremely low cost changes. Id.
---------------------------------------------------------------------------

    65. In addition, we remain unpersuaded by Liquids Shippers' claims 
that the weighted mean needs to be modified or replaced because two 
large pipelines, Colonial and Enbridge, allegedly skew the index 
calculation. First, the December 2020 Order found that the record 
indicates that neither Colonial nor Enbridge reported outlying cost 
changes,\183\ and Liquids Shippers do not refute these findings on 
rehearing.\184\ Although both Colonial and Enbridge reported barrel-
mile cost changes above the median in the middle 50%, this does not 
make them outliers in terms of cost changes.\185\ Second, the fact that 
the weighted mean in this proceeding ascribes additional weight to two 
pipelines with high barrel-miles does not support removing this measure 
of central tendency or reducing its weighting in the Kahn Methodology. 
Rather, the Kahn Methodology includes the weighted mean in the 
calculation of central tendency specifically to provide appropriate 
weight to large pipelines like Colonial and Enbridge whose cost changes 
are highly reflective of industry cost experience.\186\ This additional 
weighting is necessary to ensure that ``minor firms do not skew the 
result.'' \187\ Because unweighted measures of central tendency weight 
all cost changes equally without regard to pipeline size, failing to 
incorporate a weighted measure would allow the cost experiences of 
small pipelines to obscure the experiences of pipelines that represent 
a much larger share of the industry's barrel-miles. In this proceeding, 
for instance, three small pipelines representing 0.00073% of the 
barrel-miles in the middle 50% influence the sample's unweighted mean 
by the same degree as Colonial and Enbridge, which represent 50.04% of 
the barrel-miles in the middle 50%.\188\ Thus, the fact that the 
weighted mean accords significant weight to Colonial and Enbridge is 
fully consistent with its role in the index calculation and does not 
skew the index calculation as Liquids Shippers allege.\189\ To the 
extent that Liquids Shippers oppose use of the weighted mean in this 
proceeding because it provides significant weighting to the two largest 
pipelines,\190\ we find that this concern does not justify eliminating 
the weighted mean from the index calculation in the absence of a 
credible alternative.\191\
---------------------------------------------------------------------------

    \183\ The Commission observed that both Colonial and Enbridge 
are included in the middle 50% of cost changes, which indicates that 
their cost experiences did not diverge significantly from industry 
norms. December 2020 Order, 173 FERC ] 61,245 at P 40.
    \184\ See Liquids Shippers Request for Rehearing at 65-66 
(acknowledging the Commission's findings but arguing that they do 
``not respond to [Liquids Shippers'] evidence or [their] concerns 
that Enbridge Energy and Colonial skew the index due to being 
extreme outliers in terms of barrel-miles . . . .'').
    \185\ The 2014-2019 cost changes in the middle 50% ranged from -
32.23% to 28.97%. Colonial's cost change of 23.72% lies well within 
the middle 50%'s upper bound, while Enbridge's cost change of 3.43% 
lies close to the median of the sample.
    \186\ December 2020 Order, 173 FERC ] 61,245 at P 37.
    \187\ AOPL II, 281 F.3d at 241.
    \188\ Whereas removing the cost changes of Colonial and Enbridge 
would reduce the unweighted mean by 7 basis points (from -0.20% to -
0.27%), removing the cost changes of Wesco Pipeline LLC, Hilcorp 
Pipeline Company, LLC, and Black Bear Liquids LLC increases the 
unweighted mean by the same magnitude of 7 basis points (from -0.20% 
to -0.13%). Attach. A, Exhibit 13.
    \189\ December 2020 Order, 173 FERC ] 61,245 at P 37.
    \190\ Liquids Shippers Request for Rehearing at 63, 65-66.
    \191\ As discussed above, although Liquids Shippers contend that 
another approach to weighting pipeline cost changes may achieve a 
better balance between large and small pipelines, they have not 
justified an alternative to the weighted mean.
---------------------------------------------------------------------------

    66. Moreover, we continue to find that Liquids Shippers' challenges 
to the reported page 700 data of Colonial and Enbridge are outside the 
scope of this proceeding. As the December 2020 Order explains, indexing 
proceedings are not an appropriate forum for challenging specific 
pipelines' page 700 inputs.\192\ In the five-year review, the 
Commission must review pipeline cost changes on an industry-wide basis 
to establish the generic index that pipelines may use to adjust their 
rates going forward. Allowing commenters to litigate individual 
pipelines' page 700 inputs would risk expanding this review into a 
wide-ranging rate proceeding involving complex cost-of-service issues 
that would require significant time to resolve. Given that the 
Commission must consider industry-wide cost changes based upon data for 
over 160 pipelines and must complete each five-year review in order to 
establish the index level for use in index filings to be effective on 
July 1 of the following year,\193\ it would be unworkable to permit 
challenges to individual pipeline page 700 inputs in this proceeding.
---------------------------------------------------------------------------

    \192\ December 2020 Order, 173 FERC ] 61,245 at P 40; see also 
AOPL I, 83 F.3d at 1437 (holding that the Commission did not err in 
Order No. 561 by declining to periodically review individual 
pipeline costs and instead requiring shippers to challenge 
individual pipeline rates via protests or complaints); Calnev Pipe 
Line L.L.C., 127 FERC ] 61,304, at P 5 (2009) (``[T]he Commission 
has made quite clear that it will not review allegations regarding 
the appropriateness of a pipeline's cost of service or the accuracy 
of its accounting in an index proceeding. Such allegations must be 
included in a complaint once the index-based filing becomes 
effective.'' (citing SFPP, L.P., 123 FERC ] 61,317 (2008); BP W. 
Coast Prods. LLC v. SFPP, L.P., 121 FERC ] 61,243 (2007))).
    \193\ NOI, 171 FERC ] 61,239 at P 11.
---------------------------------------------------------------------------

    67. Furthermore, we are not persuaded by Liquids Shippers' claim 
that reporting errors by Colonial and Enbridge are skewing the index 
level upwards by 43 basis points.\194\ Regarding Enbridge, this 
argument is particularly unpersuasive. First, removing Enbridge from 
the middle 50%, while retaining Colonial in that sample, actually 
increases the index level rather than decreasing it as Liquids Shippers 
imply.\195\ Second, correcting Enbridge's alleged reporting errors only 
marginally influences the index calculation. Liquids Shippers claim 
that the 12.71% ROE that Enbridge reported on page 700 for 2019 exceeds 
both the 9.84% ROE that it reported for 2014 and the 10.85% ROE that 
many pipelines reported on page 700 for 2019. However, adjusting 
Enbridge's 2019 page 700 ROE from 12.71% to 9.84% or 10.85% would only 
impact the index level by 2 basis points.\196\
---------------------------------------------------------------------------

    \194\ Liquids Shippers allege that when using the data set 
underlying the NOI proposal, removing Enbridge and Colonial from the 
middle 50% reduces the index level by 43 basis points (from PPI-
FG+0.09% to PPI-FG-0.34%). Liquids Shippers Request for Rehearing at 
57 (citing Liquids Shippers Initial Comments; Crowe Initial Aff. at 
6-7). Similarly, removing those pipelines from the middle 50% of the 
data set adopted in the instant order would reduce the index level 
by 44 basis points, from PPI-FG-0.21% to PPI-FG-0.65%. Attach. A, 
Exhibit 8.
    \195\ Removing Enbridge from the middle 50% but not Colonial, 
increases the index level from PPI-FG-0.21% to PPI-FG-0.14%. Attach. 
A, Exhibit 9.
    \196\ Lowering Enbridge's page 700 ROE from 12.71% to either 
9.84% or 10.85% would reduce the index level from PPI-FG-0.21% to 
PPI-FG-0.23%. Attach. A, Exhibit 10.

---------------------------------------------------------------------------

[[Page 4490]]

    68. Similarly, although Colonial accounts for most of the 44 basis-
point shift in the index calculation that results from removing 
Colonial and Enbridge from the middle 50%, correcting Colonial's 
alleged reporting errors produces only a de minimis change in the index 
level. Liquids Shippers argue that Colonial reported in its 2014 and 
2019 page 700 filings that it is 92% financed by equity, but reported 
on its balance sheet and in an ongoing rate proceeding that it is 100% 
financed by debt.\197\ However, adjusting Colonial's capital structure 
to 50% equity and 50% debt produces a mere one-basis-point change to 
the index level.\198\ Accordingly, given these relatively minor 
effects, we are unpersuaded by Liquids Shippers' claim that using the 
weighted mean in this proceeding increases the likelihood that page 700 
reporting errors will skew the index calculation.
---------------------------------------------------------------------------

    \197\ Liquids Shippers Request for Rehearing at 59-60 (citing 
Crowe Initial Aff. at 5-6).
    \198\ Using the data set adopted in this proceeding, adjusting 
Colonial's capital structure to 50% equity and 50% debt while 
preserving the composition of the middle 50% increases the index 
level by one basis point, from PPI-FG-0.21% to PPI-FG-0.20%. Attach. 
A, Exhibit 11.
---------------------------------------------------------------------------

    69. Furthermore, we find that requiring shippers to challenge page 
700 inputs outside of the five-year review process does not present an 
infeasible approach. First, Liquids Shippers' argument that a cost-of-
service complaint is unlikely to result in a change to the pipeline's 
page 700 reporting is without merit. For example, if the Commission 
determines in a cost-of-service rate proceeding that a pipeline set its 
rates based upon an inaccurate capital structure, the pipeline would be 
required to implement this determination in its subsequent page 700 
reporting.\199\ Second, we are unpersuaded by Liquids Shippers' claim 
that a complaint challenging a pipeline's page 700 inputs would bring 
shippers ``no commercial benefits.'' \200\ Where a shipper believes 
that a pipeline may have reported inaccurate or erroneous information 
on its page 700, initiating a complaint proceeding provides the parties 
and the Commission with a full opportunity to develop an evidentiary 
record that would allow for a meaningful review of the challenged page 
700 inputs. If the complaint is successful, the Commission would direct 
the pipeline to revise its page 700 to correct any errors or 
inaccuracies. These revisions, in turn, could alter the cost and 
revenue data on which shippers and the Commission rely in evaluating 
cost-of-service complaints against the pipeline's rates and challenges 
to the pipeline's annual index rate changes. Thus, although we 
recognize the burden and expense associated with filing a complaint, we 
disagree with Liquids Shippers' claim that there would be no commercial 
benefits to filing a complaint against a pipeline's page 700 inputs.
---------------------------------------------------------------------------

    \199\ The instructions on page 700 require pipelines to 
determine their page 700 inputs consistent with the Opinion No. 154-
B cost-of-service methodology. To comply with this instruction, a 
pipeline must adhere to the Commission's application of the Opinion 
No. 154-B methodology in proceedings involving the pipeline's rates.
    \200\ Liquids Shippers Request for Rehearing at 84.
---------------------------------------------------------------------------

D. Liquids Shippers' Proposal To Adopt Standardized ROEs for 2014 and 
2019

    70. Liquids Shippers argued in their comments that the reported 
page 700 ROEs conflict with the Commission's cost-of-service ratemaking 
methodology because they are self-reported and vary substantially.\201\ 
In addition, Liquids Shippers maintained that uncertainty surrounding 
the Commission's oil pipeline ROE policy at the time pipelines 
submitted their page 700 filings for 2019 undermined the reliability of 
the reported ROEs for 2019.\202\ Thus, Liquids Shippers urged the 
Commission to replace pipelines' reported page 700 ROEs for 2014 and 
2019 with standardized ROEs for purposes of calculating the index 
level. For 2014, Liquids Shippers proposed a standardized ROE of 
10.29%, which 54 pipelines reported in their 2014 page 700 
filings.\203\ For 2019, Liquids Shippers proposed to use the 10.02% ROE 
that Trial Staff proposed in an ongoing Colonial rate proceeding based 
upon data for the six-month period ending in November 2019.\204\
---------------------------------------------------------------------------

    \201\ Liquids Shippers Initial Comments at 21-23.
    \202\ Id. at 25-28. In support of this argument, Liquids 
Shippers contend that two pipelines submitted updated Form No. 6 
filings in July 2020 indicating that the page 700 ROEs they reported 
in April 2020 did not comply with the Commission's then-applicable 
policy relying solely upon the DCF model. Liquids Shippers Request 
for Rehearing at 76-77 (citing Liquids Shippers Initial Comments at 
25-28) (referring to updated Form No. 6 filings of Plains Pipeline, 
LP, and Rocky Mountain Pipeline System LLC).
    \203\ Ms. Crowe stated that 45 pipelines reported a 10.29% ROE 
on their page 700s for 2014. Crowe Initial Aff. at 11-12. However, 
based upon a review of Form No. 6 filings submitted in 2016, the 
Commission found in the December 2020 Order that 54 pipelines 
reported this ROE for 2014 in the column on page 700 for previous 
year data. December 2020 Order, 173 FERC ] 61,245 at P 43 n.97.
    \204\ Liquids Shippers Initial Comments at 30-31; Crowe Initial 
Aff. at 11 (citing Trial Staff, Exhibit S-00057 (Direct and 
Answering Cost-Based Rate Testimony of Commission Trial Staff 
Witness Robert J. Keyton), Docket Nos. OR18-7-002 et al. (filed Jan. 
14, 2020)).
---------------------------------------------------------------------------

1. December 2020 Order
    71. The December 2020 Order declined to adopt standardized ROEs for 
2014 and 2019 and concluded that Liquids Shippers have not demonstrated 
that the reported page 700 ROEs are unreliable or inconsistent with 
Commission policy.\205\ First, the Commission rejected Liquids 
Shippers' argument that page 700 ROEs are unreliable simply because 
they are self-reported, reasoning that the instructions on page 700 
required pipelines to determine ROE consistent with the Commission's 
then-applicable policy of relying solely upon the DCF model.\206\ 
Second, the Commission found that variation among page 700 ROEs does 
not indicate that this data is unreliable and that such variation may 
result from differences in proxy group composition and relative 
risk.\207\ Third, the Commission rejected Liquids Shippers' contention 
that pipelines were uncertain as to the Commission's oil pipeline ROE 
policy when they submitted their 2019 Form No. 6 filings. The 
Commission found that pipelines had adequate notice of the prevailing 
policy through the page 700 instruction requiring pipelines to 
determine ROE consistent with the then-current Opinion No. 154-B 
methodology.\208\ Fourth, the Commission found that Liquids Shippers 
have not supported their proposed standardized ROEs.\209\ Finally, the 
Commission concluded that determining standardized ROEs would 
complicate the five-year review process and undermine indexing's 
purpose as a simplified and streamlined ratemaking regime.\210\
---------------------------------------------------------------------------

    \205\ December 2020 Order, 173 FERC ] 61,245 at P 45.
    \206\ Id. P 46.
    \207\ Id. P 47.
    \208\ Id. P 48.
    \209\ Id. P 49.
    \210\ Id. P 50.
---------------------------------------------------------------------------

2. Rehearing Request
    72. Liquids Shippers contend that the December 2020 Order erred by 
failing to replace the reported 2014 and 2019 page 700 ROEs with 
Liquids Shippers' proposed standardized ROEs. They repeat their 
argument that the reported page 700 ROEs cannot be consistent with the 
Commission's cost-of-service methodology because they vary 
substantially.\211\ Liquids Shippers

[[Page 4491]]

emphasize that these ROEs were selected by the pipelines themselves. 
Furthermore, Liquids Shippers contend that the page 700 ROEs fail to 
accurately capture changing market conditions between 2014 and 2019 
because some pipelines reported a 2019 page 700 ROE that was 
significantly higher than their 2014 page 700 ROE, while other 
pipelines reported a 2019 ROE that was significantly lower than their 
2014 ROE.\212\ Liquids Shippers state that to the extent there is 
limited evidence addressing whether the page 700 ROEs conflict with the 
Commission's policy, the absence of more concrete evidence ``does not 
give rise to a negative inference that such evidence does not exist.'' 
\213\
---------------------------------------------------------------------------

    \211\ Liquids Shippers Request for Rehearing at 70-72 (citing El 
Paso Nat. Gas Co., Opinion No. 528, 145 FERC ] 61,040, at P 592 
(2013)). For instance, Liquids Shippers state that among the 160 
pipelines in the untrimmed data set, the reported page 700 ROEs for 
2019 range from 0.9% to 22.3%. Among the pipelines in the middle 
50%, Liquids Shippers state that the 2019 page 700 ROEs range from 
7.2% to 18.8%. Id.
    \212\ Id. at 73 (citing Liquids Shippers Initial Comments at 23-
24; Crowe Initial Aff. at 9-10).
    \213\ Id. at 78.
---------------------------------------------------------------------------

    73. Liquids Shippers also challenge the Commission's finding that 
variations in the reported page 700 ROEs could result from differences 
in proxy group composition and relative risk. Liquids Shippers claim 
that the December 2020 Order cites no evidence for this conclusion, 
despite the fact that the Commission has access to the workpapers 
underlying pipelines' page 700 ROE calculations.\214\ In addition, 
Liquids Shippers contend that the Commission overstates the degree of 
variation that can result from these factors. Regarding proxy group 
composition, Liquids Shippers state that there is a small number of 
eligible oil pipeline proxy group members, such that there is limited, 
if any, potential for variation in the proxy group that may be used 
from pipeline to pipeline.\215\ Regarding differences in risk, Liquids 
Shippers contend that the Commission has recognized that most pipelines 
fall within the same broad range of average risk, such that the median 
of the proxy group results is sufficient to compensate most pipelines 
for their investments.\216\
---------------------------------------------------------------------------

    \214\ Id. at 81 (citing December 2020 Order, 173 FERC ] 61,245 
at PP 46-47; Revisions to & Electronic Filing of the FERC Form No. 6 
& Related Uniform Sys. of Accounts, Order No. 620, FERC Stats. & 
Regs. ] 31,115, at 31,959-60 (2000) (cross-referenced at 93 FERC ] 
61,262), reh'g denied, Order No. 620-A, 94 FERC ] 61,130 (2001)).
    \215\ Id. at 82-83 (citing Opinion No. 528, 145 FERC ] 61,040 at 
P 595; AOPL, Comments, Docket No. PL19-4-000, at 15 (filed June 26, 
2019)).
    \216\ Id. at 83 (citing Opinion No. 528, 145 FERC ] 61,040 at P 
592; Composition of Proxy Groups for Determining Gas and Oil 
Pipeline Return on Equity, 123 FERC ] 61,048 (2008) (Proxy Group 
Policy Statement)).
---------------------------------------------------------------------------

    74. Furthermore, Liquids Shippers reiterate their earlier argument 
that uncertainty surrounding the Commission's oil pipeline ROE 
methodology in April 2020 undermines the reliability of the reported 
page 700 ROEs for 2019.\217\ Liquids Shippers dispute the Commission's 
finding that pipelines received adequate notice of the Commission's 
prevailing ROE policy through the page 700 instruction requiring 
pipelines to determine ROE consistent with the then-current Opinion No. 
154-B methodology.\218\ They argue that the ``mere existence of a rule 
does not guarantee compliance with that rule'' and that the Commission 
had an affirmative obligation to investigate whether ambiguities in its 
prevailing ROE policy affected the 2019 page 700 ROEs.\219\
---------------------------------------------------------------------------

    \217\ As discussed in the December 2020 Order, Liquids Shippers 
assert that the Commission initiated a review of its ROE policy in 
Docket No. PL19-4-000 on March 21, 2019, but did not clarify its 
policy until it issued a policy statement revising its ROE 
methodology for natural gas and oil pipelines on May 21, 2020. Id. 
at 74-75 (citing Inquiry Regarding the Commission's Policy for 
Determining Return on Equity, 171 FERC ] 61,155 (2020) (ROE Policy 
Statement); Inquiry Regarding the Commission's Policy for 
Determining Return on Equity, 166 FERC ] 61,207 (2019)). Because oil 
pipelines were required to submit page 700 cost-of-service data for 
2019 in April 2020, Liquids Shippers allege that pipelines were not 
certain of the Commission's prevailing policy when pipelines 
reported their 2019 ROEs. Id. at 75-76.
    \218\ Id. at 85-86 (citing December 2020 Order, 173 FERC ] 
61,245 at P 48).
    \219\ Id. at 86.
---------------------------------------------------------------------------

    75. In addition, Liquids Shippers contend that the Commission 
applied an unreasonably strict standard in rejecting their proposed 
standardized ROEs. Liquids Shippers state that in order to determine an 
ROE that ``accurately measures the investor-required cost of equity for 
all pipelines in the data set,'' \220\ Liquids Shippers would need to 
provide evidence establishing the financial and business risks for more 
than 100 pipelines.\221\
---------------------------------------------------------------------------

    \220\ December 2020 Order, 173 FERC ] 61,245 at P 49.
    \221\ Liquids Shippers Request for Rehearing at 87.
---------------------------------------------------------------------------

    76. Liquids Shippers also disagree with the Commission's conclusion 
that replacing reported page 700 ROEs with standardized ROEs would 
improperly complicate the five-year review. Liquids Shippers state that 
because standardized ROEs would only serve as benchmarks for measuring 
pipeline cost changes,\222\ ``establishing a standardized ROE may not 
require the same rigor as, e.g., determining an allowable ROE to be 
included in an oil pipeline's just and reasonable rates.'' \223\ 
Liquids Shippers contend, moreover, that determining standardized ROEs 
in each five-year review would not be a prohibitive undertaking. 
Because most pipeline ROEs would fall at the median of the oil proxy 
group, Liquids Shippers state that the Commission would not have to 
perform an individualized analysis of every oil pipeline to determine a 
standardized ROE.\224\ Additionally, Liquids Shippers observe that 
Commission Trial Staff regularly develops proposed ROEs in cost-of-
service rate proceedings. Finally, Liquids Shippers contend that it is 
inconsistent for the Commission to reject their proposal to adopt 
standardized ROEs as incompatible with simplified and streamlined 
ratemaking while also adopting Pipelines' proposals to adjust the 
reported page 700 data to remove the effects of the Income Tax Policy 
Change.\225\
---------------------------------------------------------------------------

    \222\ Id. at 88-89.
    \223\ Id. at 89.
    \224\ Id. at 89-90.
    \225\ Id. at 90-91.
---------------------------------------------------------------------------

3. Commission Determination
    77. We deny rehearing and sustain the Commission's determination in 
the December 2020 Order. We continue to find that Liquids Shippers have 
not adequately demonstrated that the reported page 700 ROEs for 2014 
and 2019 are unreliable or inconsistent with Commission policy such 
that the Commission should revise the Kahn Methodology to replace those 
figures with standardized ROEs.\226\
---------------------------------------------------------------------------

    \226\ As discussed, Liquids Shippers, as the proponent of a 
change to the Kahn Methodology, bears the burden of justifying that 
change. See supra note 129.
---------------------------------------------------------------------------

    78. As an initial matter, Liquids Shippers fail to present usable 
alternatives to the ROEs that pipelines reported on page 700. As the 
Commission concluded in the December 2020 Order, we find that Liquids 
Shippers have not supported their proposed standardized ROEs.\227\ 
Regarding their proposed industry-wide 2014 ROE, Liquids Shippers' 
arguments on rehearing do not explain why an ROE figure that only 29% 
of pipelines reported for that year accurately measures the investor-
required cost of equity for all pipelines in the data set.\228\ 
Likewise, for the 2019 ROE, we reject Liquids Shippers' proposal to use 
an ROE that one participant proposed in an ongoing hearing for use in 
Colonial's rates. Neither the Presiding Judge nor the Commission have 
opined on this

[[Page 4492]]

ROE proposal.\229\ Moreover, this proposal was challenged by the other 
litigants in that proceeding and Liquids Shippers have presented no 
evidence that this particular ROE was more appropriate than the other 
litigants' proposed ROEs.\230\ In addition, even if the Commission had 
adopted a proposed ROE for Colonial in that rate case, the December 
2020 Order explains that given the diversity of the oil pipeline 
industry, we cannot simply assume that any single ROE could reflect the 
investor-required return for all pipelines in the data set.\231\
---------------------------------------------------------------------------

    \227\ Not only do Liquids Shippers fail to justify their 
proposed standardized ROEs, but they also fail to correctly 
incorporate those ROEs into pipelines' page 700 cost-of-service 
calculations. Because ROE forms part of the return on rate base for 
which non-MLP pipelines may recover an income tax allowance, any 
adjustment to the page 700 ROEs should include corresponding changes 
to the pipeline's page 700 income taxes. However, in adjusting the 
reported page 700 ROEs, Ms. Crowe fails to reflect the resulting 
income tax changes in pipelines' page 700 cost-of-service 
calculations. See Crowe Initial Aff. at App. 4.
    \228\ December 2020 Order, 173 FERC ] 61,245 at P 49.
    \229\ Id. The initial decision addressing Colonial's cost-based 
rates, including its just and reasonable ROE, is scheduled to issue 
by April 29, 2022. Epsilon Trading, LLC v. Colonial Pipeline Co., 
Docket No. OR18-7-002 (Dec. 2, 2021).
    \230\ Although this figure was proposed in the ongoing hearing 
by Commission Trial Staff, Trial Staff are non-decisional employees 
for purposes of that proceeding. 18 CFR 385.2201(c)(3) (2021) 
(defining ``decisional employee'' to exclude ``an employee 
designated as part of the Commission's trial staff in a 
proceeding''); Separation of Functions, 101 FERC ] 61,340, at P 7 
(2002) (``A `non-decisional employee' is a member of the 
Commission's trial staff in a proceeding . . . .'').
    \231\ December 2020 Order, 173 FERC ] 61,245 at P 49.
---------------------------------------------------------------------------

    79. We conclude, moreover, that Ms. Crowe determines her proposed 
standardized ROEs using an inconsistent approach that deflates the 
index level. Ms. Crowe asserts that the Commission should adopt 10.29% 
as the standardized ROE for 2014 because 54 of 184 filing pipelines 
reported that figure on page 700. Liquids Shippers also acknowledge 
that an even greater percentage of filing pipelines reported a 10.85% 
ROE on page 700 for 2019.\232\ However, rather than adopt this widely 
reported figure as the standardized ROE for 2019, Ms. Crowe instead 
proposes to use an untested 10.02% ROE that remains subject to 
Commission evaluation in the ongoing Colonial rate proceeding. This 
unexplained inconsistency materially affects the index level: Whereas 
using a 10.85% ROE for 2019 with the proposed 10.29% ROE for 2014 would 
reduce the index level by 11 basis points, using a 10.02% ROE for 2019 
as Ms. Crowe proposes with the same ROE for 2014 would reduce the index 
level by 55 basis points.\233\ Liquids Shippers neither acknowledge 
these effects nor justify their proposal to use a widely reported ROE 
as the standardized ROE for 2014 but not for 2019.\234\
---------------------------------------------------------------------------

    \232\ Whereas approximately 29% of filing pipelines reported a 
10.29% ROE for 2014 (54/184 = 0.293), Liquids Shippers state that 69 
of 160, or approximately 43%, of filing pipelines reported a 10.85% 
ROE for 2019. Liquids Shippers Request for Rehearing at 80 (citing 
Liquids Shippers Initial Comments at 29-32; Crowe Initial Aff. at 
10-11)).
    \233\ Using the 10.85% ROE for 2019 with the 10.29% ROE for 2014 
reduces the index from PPI-FG-0.21% to PPI-FG-0.32%, whereas using 
the 10.02% ROE for 2019 with the same ROE for 2014 reduces the index 
level from PPI-FG-0.21% to PPI-FG-0.76%. Attach. A, Exhibit 12.
    \234\ Ms. Crowe states that the widely reported 10.85% ROE 
should not be used as the standardized ROE for 2019 because it ``is 
unsupported by any explanation or derivation, and there is no 
evidence this ROE was derived in a manner consistent with Commission 
policy.'' Crowe Initial Aff. at 11. It is unclear, however, why this 
critique would not apply with equal force to the 10.29% ROE that she 
proposes to use for 2014. To the extent that Ms. Crowe proposes to 
use a widely reported ROE for 2014 on the understanding that Trial 
Staff had not proposed an ROE based upon 2014 data in an oil 
pipeline rate proceeding, this understanding is incorrect. To the 
contrary, in a rate proceeding involving SFPP, L.P., in Docket No. 
OR16-6-000, Trial Staff proposed an ROE of 10.24% based upon 2014 
data. Trial Staff, Exhibit S-24 (Direct and Answering Testimony of 
Commission Trial Staff Witness Robert J. Keyton), Docket No. OR16-6-
000, at 61:15-17 (filed Sept. 14, 2016).
---------------------------------------------------------------------------

    80. In addition, we reject Liquids Shippers' claim that the 
Commission applied an unreasonably strict standard in requiring them to 
demonstrate that their proposed standardized ROEs ``accurately measure[ 
] the investor-required cost of equity for all pipelines in the data 
set.'' \235\ As Liquids Shippers acknowledge,\236\ ROE is a major 
component of the page 700 summary cost of service and therefore 
significantly affects the Commission's measurement of industry-wide 
cost changes in the five-year review. Thus, where a commenter proposes 
to replace the reported page 700 ROEs of every pipeline in the data set 
with standardized, industry-wide figures, it is not unreasonable to 
require commenters to demonstrate that those standardized figures 
accurately measure the cost of equity for all pipelines in the data 
set. Otherwise, a standardized ROE that does not accurately reflect the 
costs of equity of pipelines in the data set could skew the index 
calculation by distorting the measurement of those pipelines' per 
barrel-mile equity cost changes during the review period. To the extent 
that satisfying this standard would impose significant evidentiary 
burdens, this supports maintaining the Commission's simplified approach 
of measuring equity cost changes using reported page 700 ROEs.
---------------------------------------------------------------------------

    \235\ December 2020 Order, 173 FERC ] 61,245 at P 49.
    \236\ Liquids Shippers Initial Comments at 24.
---------------------------------------------------------------------------

    81. Liquids Shippers' remaining arguments for replacing the 
reported page 700 ROEs with standardized ROEs are unavailing. Contrary 
to Liquids Shippers' argument, we again conclude that the fact that 
page 700 ROEs are self-reported (like all other page 700 data used in 
this proceeding) does not demonstrate that this data is unreliable or 
fails to capture the returns that investors demand in the market. As 
the December 2020 Order explains, the instructions on page 700 required 
pipelines to determine their ROE for each year during the 2014-2019 
period using the DCF model. Pipelines submitted page 700 under oath and 
subject to sanction if there were purposeful errors in their reported 
data.\237\ Moreover, the Commission's five-year review process reduces 
the incentive or ability for pipelines to report inaccurate data in an 
effort to skew the index calculation. The Commission calculates the 
index level based upon changes in cost over the applicable review 
period, rather than total costs in a given year. Because the last year 
of any particular review period (e.g., 2014-2019) is the first year of 
the next review period (e.g., 2019-2024), an attempt by pipelines to 
distort the index calculation by reporting inflated cost data in the 
last year of one period would harm their interests by establishing a 
higher cost baseline in the first year of the next period.\238\ Given 
these facts, we continue to find that Liquids Shippers have not 
demonstrated that the reported page 700 ROE data is unreliable merely 
because pipelines self-reported.\239\
---------------------------------------------------------------------------

    \237\ December 2020 Order, 173 FERC ] 61,245 at P 46 (citing BP 
W. Coast Prods. LLC v. SFPP, L.P., 121 FERC ] 61,243, at P 9 
(2007)).
    \238\ Id. n.103. Along similar lines, reporting overly low cost 
data in the last year of one review period in an effort to skew the 
index calculation downward would similarly harm pipelines' interests 
by establishing a lower cost baseline in the first year of the next 
period.
    \239\ Id. P 46.
---------------------------------------------------------------------------

    82. We also remain unpersuaded that variation among page 700 ROEs 
indicates that the reported ROE data is unreliable. As an initial 
matter, it is not clear from the record that the level of a pipeline's 
page 700 ROE correlates with that pipeline's annualized cost changes 
such that variations in ROE would materially affect the index 
calculation.\240\ In any event, however, the D.C. Circuit has 
recognized that ``the zone of reasonableness creates a broad range of 
potentially lawful ROEs rather than a single just and reasonable ROE.'' 
\241\ Thus, mere variation in the page 700 ROEs does not establish that 
those ROEs are not just and reasonable. Rather, as the Commission found 
in the December 2020 Order, multiple factors can cause the DCF model to 
yield different results for different

[[Page 4493]]

pipelines.\242\ Contrary to Liquids Shippers' claim, we disagree that 
the December 2020 Order overstates the degree to which pipeline ROEs 
may vary as a result of differences in proxy group composition. In 
forming proxy groups, the Commission applies specific criteria to 
ensure that the proxy group members are risk-appropriate and comparable 
to the pipeline whose rate is being determined.\243\ Although the 
number of companies satisfying the Commission's historical proxy group 
criteria in pipeline proceedings has declined in recent years,\244\ 
this does not support the conclusion that a single proxy group would be 
appropriate for every oil pipeline. Rather, the Commission has 
explained that it will apply its proxy group criteria flexibly 
depending upon the particular record in each proceeding when necessary 
to form a proxy group of sufficient size.\245\ Thus, even under current 
market conditions, the appropriate proxy group can vary from pipeline 
to pipeline based upon the specific facts in the proceeding. Any 
difference in proxy group composition can cause the DCF model to 
produce different results for different pipelines.\246\
---------------------------------------------------------------------------

    \240\ See Shehadeh Reply Decl. at 18-19 (comparing annualized 
cost changes of pipelines in middle 80% that reported 10.85% ROE for 
2019 and pipelines that reported ROEs other than 10.85% and 
concluding that ``cost change and ROE are not positively 
correlated'').
    \241\ Emera Maine v. FERC, 854 F.3d 9, 26 (D.C. Cir. 2017).
    \242\ Id. P 47. For instance, in a recent oil pipeline cost-of-
service rate proceeding, the potential proxy group member companies 
included three pipelines with DCF returns near 10%, one pipeline 
with a DCF return of 21.17%, and one pipeline with a DCF return of 
51.14%. Chevron Prods. Co. v. SFPP, L.P., Opinion No. 571, 172 FERC 
] 61,207, at P 152 (2020).
    \243\ Historically, the Commission has required that each proxy 
group company satisfy the following criteria. First, the company's 
stock must be publicly traded. Second, the company must be 
recognized as an oil pipeline company and its stock must be 
recognized and tracked by an investment information service such as 
Value Line. Third, pipeline operations must constitute at least 50% 
of the company's assets or operating income over the most recent 
three-year period (50% standard). E.g., ROE Policy Statement, 171 
FERC ] 61,155 at P 58 (citing Proxy Group Policy Statement, 123 FERC 
] 61,048 at P 8). In addition to these criteria, the Commission has 
historically declined to include Canadian companies in pipeline 
proxy groups. Id. (citing Opinion No. 528, 145 FERC ] 61,040 at P 
626; Kern River Gas Transmission Co., Opinion No. 486-B, 126 FERC ] 
61,034 at P 60, order on reh'g and compliance, Opinion No. 486-C, 
129 FERC ] 61,240 (2009)).
    \244\ Id. PP 60, 65.
    \245\ The Commission maintains a flexible approach to forming 
natural gas and oil pipeline proxy groups. For example, the 
Commission retains the discretion to enforce or relax the 50% 
standard based upon the record in each proceeding. Id. PP 64-65. 
Similarly, the Commission has explained that it will consider 
proposals to include Canadian companies in pipeline proxy groups on 
a case-by-case basis. Id. P 66. Furthermore, given the ongoing 
difficulties in forming pipeline proxy groups of sufficient size, 
the Commission has stated that it ``will consider adjustments to 
[its] ROE policies where necessary.'' Id. P 64.
    \246\ For example, in Opinion No. 571, the Commission adopted a 
proxy group of Buckeye Partners LP, Magellan Midstream Partners LP, 
Enterprise Products Partners, LP, and Enbridge Energy Partners, LP, 
which produced a median DCF result of 10.54%. Opinion No. 571, 172 
FERC ] 61,207 at P 52. However, substituting Kinder Morgan Inc. in 
the place of Enbridge would have reduced the median DCF result to 
10.195%, a difference of over 30 basis points. See id.
---------------------------------------------------------------------------

    83. Similarly, we continue to find that variation among page 700 
ROEs may result from differences in relative risk. The December 2020 
Order explains that although the Commission typically sets an oil 
pipeline's real ROE at the median of the DCF results, it may set the 
ROE above or below the median where the record demonstrates that the 
pipeline faces anomalously high or low risks.\247\ Thus, even when 
using an identical proxy group, the appropriate placement of a 
pipeline's ROE within the proxy group results turns upon an 
individualized, fact-specific analysis of its business and financial 
risks relative to the risk profiles of the proxy group members. Because 
oil pipelines' risk levels may differ based upon factors such as 
location, size, and business model, it is unsurprising that ROEs would 
vary to some degree across the oil pipeline industry.\248\ Contrary to 
Liquids Shippers' argument, this variation does not demonstrate that 
the page 700 ROEs are inaccurate or inconsistent with Commission 
policy. In addition, to the extent a particular pipeline's per barrel-
mile equity cost changes departed substantially from industry norms, 
that pipeline would not be among the middle 50% used to calculate the 
index level.\249\
---------------------------------------------------------------------------

    \247\ December 2020 Order, 173 FERC ] 61,245 at P 47 (citing BP 
Pipelines (Alaska) Inc., Opinion No. 502, 123 FERC ] 61,287 at P 
195, order on reh'g and compliance, 125 FERC ] 61,215 (2008), reh'g 
denied, 127 FERC ] 61,317 (2009), aff'd sub nom. Flint Hills Res. 
Alaska, LLC v. FERC, 726 F.3d 881 (D.C. Cir. 2010)).
    \248\ This is particularly true where, due to the declining 
number of proxy group companies, it may become necessary for the 
Commission to include Canadian companies or companies that do not 
satisfy the 50% standard to form a proxy group of sufficient size. 
Including these more diverse companies in the proxy group could 
necessitate setting the subject pipeline's ROE above or below the 
median due to differences in risk.
    \249\ December 2020 Order, 173 FERC ] 61,245 at P 47 (citing 
2015 Index Review, 153 FERC ] 61,312 at P 17).
---------------------------------------------------------------------------

    84. We conclude, moreover, that Liquids Shippers' have not 
supported their argument that the Commission should have audited 
pipelines' page 700 workpapers to review their ROE calculations. As the 
December 2020 Order explains, the Commission does not scrutinize the 
inputs underlying individual pipelines' page 700 data.\250\ Thus, 
analyzing individual pipeline page 700 workpapers would depart from the 
Commission's established practice.
---------------------------------------------------------------------------

    \250\ Id. P 53.
---------------------------------------------------------------------------

    85. Furthermore, we reject Liquids Shippers' claim that the page 
700 ROEs fail to capture changing market conditions because some 
pipelines reported ROE increases from 2014 to 2019 while other 
pipelines reported ROE decreases. As discussed above, oil pipelines 
have diverse business models and risk levels that can cause page 700 
ROEs to vary from pipeline to pipeline. Merely because two entities are 
part of the same industry does not dictate that they will experience 
market changes in similar ways such that their ROEs will shift in the 
same direction over a given five-year period. Accordingly, we are not 
persuaded that the page 700 ROEs fail to adequately track changing 
market conditions over the review period simply because some pipelines' 
ROEs increased from 2014 to 2019 while other pipelines' ROEs decreased.
    86. In addition, we remain unpersuaded by Liquids Shippers' 
assertion that pipelines were uncertain as to the Commission's 
prevailing oil pipeline ROE methodology when they submitted their 2019 
Form No. 6 filings in April 2020. Because the Commission had not yet 
revised its longstanding policy of determining ROE using only the DCF 
model at the time of those filings, the Form No. 6 instructions 
requiring pipelines to complete page 700 in accordance with the then-
applicable Opinion No. 154-B methodology provided pipelines with 
adequate notice of the requirement to determine their 2019 ROEs using 
only the DCF model.\251\ We again conclude that the fact that two 
pipelines (out of 254 pipelines that submitted Form No. 6 filings in 
2020) later indicated that they did not adhere to the page 700 
instructions in developing their ROEs does not present sufficient 
evidence of widespread uncertainty regarding the Commission's 
applicable policy that would undermine our confidence in the 
reliability of the data set.\252\
---------------------------------------------------------------------------

    \251\ December 2020 Order, 173 FERC ] 61,245 at P 48. As 
discussed above, we find that the Commission's five-year review 
process reduces the incentive or ability for pipelines to report 
inaccurate data in an effort to skew the index calculation. See 
supra P 82.
    \252\ December 2020 Order, 173 FERC ] 61,245 at P 48.
---------------------------------------------------------------------------

    87. Finally, Liquids Shippers' arguments on rehearing do not refute 
the Commission's finding that replacing reported page 700 ROEs with 
standardized ROEs would improperly complicate and prolong the five-year 
review process in violation of EPAct 1992's mandate for simplified and 
streamlined ratemaking.\253\ We are

[[Page 4494]]

unpersuaded by Liquids Shippers' claim that determining a standardized 
ROE may not require the ``same rigor'' as determining an ROE in a 
litigated cost-of-service rate proceeding. Liquids Shippers do not 
describe what this less rigorous determination would resemble or how it 
would differ from the ROE analysis the Commission performs using the 
Opinion No. 154-B methodology. In addition, the fact that Trial Staff 
regularly performs ROE analyses in litigated rate proceedings has no 
bearing on whether it would be appropriate or feasible for the 
Commission to do so for every pipeline whose page 700 data is examined 
in the five-year review. Accordingly, Liquids Shippers do not 
persuasively rebut the Commission's finding that determining a just and 
reasonable ROE on an industry-wide basis would be a complex and fact-
intensive inquiry that could require considerable time and resources to 
resolve.\254\ Moreover, we reject as irrelevant Liquids Shippers' 
comparison of their standardized ROE proposal to Pipelines' proposal to 
adjust the data set to remove the effects of the Income Tax Policy 
Change, as we decline on rehearing to adopt Pipelines' proposed 
adjustments.
---------------------------------------------------------------------------

    \253\ Id. P 50 (citing NOI, 171 FERC ] 61,239 at P 11).
    \254\ Id.
---------------------------------------------------------------------------

E. CAPP's Argument Regarding Negotiated Rate Contracts

    88. CAPP argued in its comments that the Commission should quantify 
the effects of negotiated rate contracts upon oil pipelines' reported 
costs of equity. CAPP stated that these contracts typically contain 
provisions such as shipper volume commitments that serve to transfer 
risk from the pipeline to its shippers and that failing to reflect 
pipelines' reduced risks in the page 700 data could improperly inflate 
the index calculation. CAPP recognized that the Commission found in the 
2015 Index Review that the page 700 total cost of service would reflect 
any reduction in the pipeline's risk. However, CAPP argued that the 
page 700 data in this proceeding does not indicate whether this 
occurred over the 2014-2019 period. To provide increased transparency, 
CAPP requested that the Commission require pipelines to provide 
shippers with the workpapers underlying their page 700 
calculations.\255\
---------------------------------------------------------------------------

    \255\ CAPP Initial Comments at 2-5.
---------------------------------------------------------------------------

1. December 2020 Order
    89. The December 2020 Order rejected CAPP's arguments as 
unpersuasive. First, the Commission reiterated its conclusion in the 
2015 Index Review that ``[t]o the extent that volume commitments in 
[negotiated rate] agreements have reduced the pipeline's risk, the page 
700 total costs of service would reflect this reduction in the embedded 
costs of equity and costs of debt.'' \256\ The Commission explained 
that these effects would tend to reduce pipeline costs and thereby 
produce a lower index level, rendering CAPP's concerns unfounded. The 
Commission further determined that CAPP provided no basis for the 
Commission to conclude that the reported page 700 data fails to 
adequately account for pipelines' risks in measuring changes in cost of 
equity and cost of debt.\257\ Second, the Commission found that CAPP 
had not supported its request for the Commission to review individual 
pipeline data to evaluate the effects of contract rates on the 
pipeline's risk.\258\ In addition, the Commission found that such a 
review would exceed the scope of the five-year review and conflict with 
streamlined and simplified ratemaking.\259\
---------------------------------------------------------------------------

    \256\ December 2020 Order, 173 FERC ] 61,245 at P 52 (quoting 
2015 Index Review, 153 FERC ] 61,312 at P 28).
    \257\ Id.
    \258\ Id. P 53.
    \259\ Id.
---------------------------------------------------------------------------

2. Rehearing Request
    90. CAPP challenges the Commission's determination in the December 
2020 Order in several respects. First, CAPP asserts that the Commission 
cited no evidence to support its conclusion that reduced pipeline risks 
resulting from negotiated rate contracts are embedded in the reported 
page 700 data.\260\ CAPP argues that the December 2020 Order 
acknowledged that differences in risk can produce variations in ROE but 
nonetheless declined to investigate whether pipelines' reported page 
700 ROEs appropriately reflect their risks.\261\ CAPP further states 
that without reviewing the page 700 workpapers, the Commission cannot 
evaluate pipelines' reported capital structures, identify the proxy 
group companies used to determine each pipeline's page 700 ROE, or 
evaluate the placement of the pipeline's ROE within the DCF 
results.\262\ CAPP claims that it would not be complicated for the 
Commission to verify whether the reported ROEs accurately reflect 
reduced pipeline risks. Thus, CAPP states that its request to require 
pipelines to provide their page 700 workpapers is modest.\263\
---------------------------------------------------------------------------

    \260\ CAPP Request for Rehearing at 24-25.
    \261\ Id. at 21. CAPP argues that the Commission has recognized 
in other proceedings that negotiated rate contracts with shipper 
volume commitments have become more prevalent in the oil pipeline 
industry and serve to transfer risk from the pipeline to its 
shippers and reduce the pipeline's cost of equity. Id. at 23-24 
(quoting Enbridge Pipelines (S. Lights) LLC, 144 FERC ] 61,044, at P 
71 n.209 (2013) (``[T]here is no disagreement that most of the 
business and financial risks of the Southern Lights Pipeline have 
been transferred to the Committed Shippers through the TSAs during 
their term.'')). Thus, CAPP argues that the impacts of negotiated 
rate contracts upon pipeline risks are a documented reality and 
warrant investigation in the five-year review. Id. at 26.
    \262\ Id. at 22-23.
    \263\ Id. at 24-25.
---------------------------------------------------------------------------

    91. Second, CAPP asserts that the range of the reported page 700 
ROEs during the 2014-2019 period exceeds the range of a reasonable DCF 
analysis. CAPP maintains that this disparity in reported ROEs provides 
a sufficient basis for the Commission to investigate how pipelines 
determined these figures.\264\ In addition, CAPP argues that the fact 
that ROEs may vary due to differences in proxy group composition and 
relative risk supports its proposal.\265\ Regarding proxy group 
composition, CAPP argues that if a pipeline charges contract rates, its 
page 700 ROE would only reflect the pipeline's reduced risk if the 
proxy group it uses to perform the DCF analysis includes pipelines that 
also charge contract rates.\266\ Because page 700 does not disclose the 
proxy group that the pipeline used to determine its reported ROE, CAPP 
argues that the Commission should examine the page 700 workpapers to 
determine whether pipelines construed their DCF proxy groups in 
accordance with Commission policy. Along similar lines, CAPP states 
that if the Commission believes that variation in reported ROEs results 
from differences in relative risk, the Commission should investigate 
how pipelines' risk levels are affecting their page 700 data.\267\ CAPP 
states, moreover, that credit ratings of oil pipelines do not reflect a 
wide divergence of risks.\268\
---------------------------------------------------------------------------

    \264\ Id. at 28.
    \265\ Id. at 31.
    \266\ Id. at 31-32.
    \267\ Id.
    \268\ Id. at 32.
---------------------------------------------------------------------------

    92. Third, CAPP objects to the Commission's finding that CAPP 
provided no basis for determining that the reported page 700 data fails 
to adequately account for pipelines' risks. CAPP states that because 
page 700 does not include information necessary to evaluate the 
pipeline's ROE analysis, CAPP cannot make this showing without access 
to pipelines' page 700 workpapers.\269\ CAPP states that to the extent 
the December 2020 Order suggests that shippers should attempt to

[[Page 4495]]

perform DCF analyses of pipelines known to charge contract rates and 
compare the results with those pipelines' reported ROEs, it would be 
more efficient for the Commission to investigate the reported ROEs as 
part of the five-year review.\270\
---------------------------------------------------------------------------

    \269\ Id. at 21-22.
    \270\ Id. at 28.
---------------------------------------------------------------------------

    93. Finally, CAPP challenges the Commission's conclusion that 
investigating pipelines' page 700 ROEs would conflict with Commission 
precedent declining to scrutinize the inputs underlying individual 
pipelines' page 700 data.\271\ CAPP contends that this argument is 
inconsistent with the Commission's decision to adjust MLP pipelines' 
reported page 700 data to remove the effects of the Income Tax Policy 
Change.\272\
---------------------------------------------------------------------------

    \271\ Id. at 33 (citing December 2020 Order, 173 FERC ] 61,245 
at P 50).
    \272\ Id. at 30, 33.
---------------------------------------------------------------------------

3. Commission Determination
    94. We deny rehearing. First, CAPP provides no basis for altering 
the Commission's conclusion that ``[t]o the extent that volume 
commitments in [negotiated rate] agreements have reduced the pipeline's 
risk, the page 700 total cost of service would reflect this reduction 
in the embedded costs of equity and costs of debt.'' \273\ Although 
CAPP emphasizes that variation in the page 700 ROEs indicates that 
``something may be amiss'' with this data,\274\ we again conclude that 
such variation may result from legitimate factors such as differences 
in proxy group composition and relative risk and does not demonstrate 
that the reported data is inaccurate or inconsistent with Commission 
policy.\275\ Accordingly, we continue to find that CAPP has not 
substantiated its claim that the reported ROEs fail to adequately 
account for pipelines' risks in measuring changes in costs of equity 
and costs of debt.\276\
---------------------------------------------------------------------------

    \273\ December 2020 Order, 173 FERC ] 61,245 at P 52 (quoting 
2015 Index Review, 153 FERC ] 61,312 at P 28). Reflecting these 
reduced risks would tend to reduce pipeline costs and thereby 
produce a lower index level, rendering CAPP's concerns unfounded. 
Id.
    \274\ CAPP Request for Rehearing at 28.
    \275\ As discussed above, to the extent a particular pipeline's 
per barrel-mile equity cost changes departed substantially from 
industry norms, that pipeline would not be among the middle 50% used 
to calculate the index level. Moreover, even if a pipeline with 
outlying equity cost changes is included in the middle 50%, that 
pipeline's cost changes would likely not significantly affect the 
central tendency of that 80-pipeline sample. Finally, as discussed 
above, it is not clear from the record that the level of a 
pipeline's page 700 ROE correlates with that pipeline's annualized 
cost changes such that variations in ROE would materially affect the 
index calculation. See Shehadeh Reply Decl. at 18-19.
    \276\ December 2020 Order, 173 FERC ] 61,245 at P 52.
---------------------------------------------------------------------------

    95. Second, in any case, CAPP has not rebutted the Commission's 
conclusion that reviewing individual pipeline data would exceed the 
scope of the five-year review and conflict with EPAct 1992's mandates 
for simplified and streamlined ratemaking. The Kahn Methodology 
measures cost changes on a generic, industry-wide basis. Thus, in 
calculating the index level, the Commission does not scrutinize the 
inputs underlying individual pipelines' page 700 data.\277\
---------------------------------------------------------------------------

    \277\ Id. P 53.
---------------------------------------------------------------------------

    96. Third, we continue to find that CAPP's request to review 
individual pipeline data to evaluate the effects of contract rates upon 
the pipeline's risk is unsupported. As CAPP acknowledges,\278\ the 
Commission has declined to require pipelines to provide workpapers to 
shippers \279\ and explained that the dissemination of this data would 
impose considerable industry-wide costs upon pipelines \280\ and raise 
potential confidentiality concerns.\281\ CAPP's arguments do not 
address these issues. Accordingly, we continue to find that CAPP has 
not provided a basis for the Commission to depart from existing policy 
to require pipelines to provide page 700 workpapers in the five-year 
review.\282\
---------------------------------------------------------------------------

    \278\ CAPP Initial Comments at 5.
    \279\ Revisions to Indexing Policies and Page 700 of FERC Form 
No. 6, 170 FERC ] 61,134, at P 6 (2020).
    \280\ Id.
    \281\ These potential confidentiality concerns relate to shipper 
information protected by section 15(13) of the Interstate Commerce 
Act and the pipeline's competitive business information. Revisions 
to Indexing Policies and Page 700 of FERC Form No. 6, 157 FERC ] 
61,047, at P 49 (2016).
    \282\ As discussed above, the proponent of a change in 
Commission policy bears the burden of justifying that change. See 
supra note 129.
---------------------------------------------------------------------------

    97. Fourth, we are not persuaded that an intensive review of 
individual pipeline page 700 data would be appropriate even if the 
reported ROEs for 2014 and 2019 do not fully reflect reductions in risk 
resulting from contract rates. As an initial matter, the Commission 
calculates the index level based upon pipeline cost changes over the 
prior five-year period, rather than pipeline costs at a particular 
time. Thus, to the extent that a pipeline reported an ROE that does not 
reflect the risks it faces charging contract rates in both 2014 and 
2019, those errors would tend to cancel out without distorting the 
measurement of industry-wide cost changes. More broadly, CAPP has not 
demonstrated why the index should reflect the lower risks associated 
with contract rates. The five-year review calculates the index level 
used to adjust non-contract rates,\283\ and under CAPP's own argument, 
pipelines with non-contract rates face higher risks than pipelines with 
contract rates. Thus, we are unpersuaded that the page 700 data used to 
calculate the index level should reflect the lower risks associated 
with contract rates.\284\
---------------------------------------------------------------------------

    \283\ Negotiated committed shipper contracts only incorporate 
indexing when both the pipeline and the committed shippers accept 
such terms. 2015 Index Review, 153 FERC ] 61,312 at P 49 n.94.
    \284\ To the extent that the index should be adjusted in light 
of the reduced risks associated with contract rates, CAPP's argument 
would support adopting an adder to increase the ROE of pipelines 
that charge contract rates to reflect the higher risks faced by 
pipelines with non-contract rates.
---------------------------------------------------------------------------

F. Appropriate Source of 2014 Page 700 Data

1. Background
    98. Page 700 includes columns for reporting both current-year and 
previous-year summary cost-of-service data. Thus, for example, 
pipelines reported cost-of-service data for 2014 in their page 700s 
submitted in April 2015 (in the current-year column) and in April 2016 
(in the previous-year column). The more recently filed data reported in 
the previous-year column often updates the data that was filed in the 
prior year. Accordingly, 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.\285\
---------------------------------------------------------------------------

    \285\ See Five-Year Review of Oil Pipeline Pricing Index, 114 
FERC ] 61,293, at P 40 (2006) (2005 Index Review) (finding that a 
witness was ``correct to use the data contained in [a] resubmitted 
FERC Form No. 6'').
---------------------------------------------------------------------------

2. Requests for Rehearing and Clarification
    99. Pipelines assert that the December 2020 Order errs by relying 
upon outdated page 700 data for 2014.\286\ Pipelines state that 
although 38 pipelines filed updated 2014 page 700 data in April 2016, 
the December 2020 Order erroneously relied upon those pipelines' 
originally filed 2014 data as reported in April 2015.\287\ Pipelines 
state that because the December 2020 Order did not discuss this 
departure from past practice, the use of these pipelines' originally 
filed data appears

[[Page 4496]]

to have been inadvertent.\288\ Thus, Pipelines request rehearing and/or 
clarification to correct this apparent departure from past 
practice.\289\
---------------------------------------------------------------------------

    \286\ AOPL Request for Rehearing at 2-3; Designated Carriers 
Request for Rehearing at 7-8, 11.
    \287\ AOPL Request for Rehearing at 2-3; Designated Carriers 
Request for Rehearing at 4, 7; see also AOPL Request for Rehearing, 
Shehadeh Aff. at attach. A (listing 38 pipelines that filed updated 
page 700 data for 2014).
    \288\ AOPL Request for Rehearing at 3; Designated Carriers 
Request for Rehearing at 7-9.
    \289\ AOPL Request for Rehearing at 1-3. Designated Carriers 
request that the Commission clarify that it intended to calculate 
the index level using updated page 700 data for 2014 as reported in 
the previous-year column in page 700 filings submitted in April 
2016. Designated Carriers Request for Rehearing at 1-2, 4-5. If the 
Commission denies this request for clarification, Designated 
Carriers request rehearing of the December 2020 Order to the extent 
that it does not rely upon this updated data. Id.
---------------------------------------------------------------------------

3. Commission Determination
    100. We agree with Pipelines' arguments and grant rehearing to rely 
upon updated page 700 data for 2014, as reported in the previous-year 
column of page 700 filings submitted in April 2016. This adjustment 
ensures that the index calculation reflects the most current page 700 
data for 2014 and accords with the Commission's prior practice of 
relying upon updated data reported in the previous-year column of the 
following year's Form No. 6, where available.\290\ Accordingly, we 
grant Pipelines' requests for rehearing and clarify that where a 
pipeline updates its page 700 data for the first year of the index 
review period in the previous-year column of the following year's Form 
No. 6, it is the Commission's policy to calculate the index level using 
that updated data.
---------------------------------------------------------------------------

    \290\ E.g., NOI, 171 FERC ] 61,239 at Workpapers, COSsort Tab, 
Column C; 2015 Index Review, 153 FERC ] 61,312 at Workpapers, 
COSdata Tab (noting that ``[w]here available, data for given year is 
taken from the `Previous Year Amount' column of the following year's 
Form 6 (e.g., 2009 data is from column (c) of the 2010 Form 6''); 
2005 Index Review, 114 FERC ] 61,293 at P 40.
---------------------------------------------------------------------------

G. Application of Adjustments to 2014 Page 700 Data

1. Request for Clarification or Rehearing
    101. Designated Carriers assert that in adopting their proposal to 
eliminate the effects of the Income Tax Policy Change from the index 
calculation, the December 2020 Order failed to adjust the 2014 page 700 
data for two MLP pipelines, MPLX Ozark Pipe Line LLC and Lambda Energy 
Gathering, LLC.\291\ Designated Carriers state that neither of these 
pipelines filed Form No. 6 in 2014 because they formed as a result of 
mergers or acquisitions of MLP predecessor entities that occurred 
during the 2014-2019 period.\292\ However, because these pipelines' MLP 
predecessor entities filed page 700 data for 2014, Designated Carriers 
assert that the Commission should have adjusted the predecessor 
entities' 2014 page 700 data to remove the effects of the Income Tax 
Policy Change.\293\ Designated Carriers state that the December 2020 
Order does not explain why the Commission did not adjust the 2014 page 
700 data for the predecessor entities as it did for all other pipelines 
that were MLPs in 2014.\294\
---------------------------------------------------------------------------

    \291\ Designated Carriers Request for Rehearing at 18-19.
    \292\ Id. at 19.
    \293\ Id.
    \294\ Id. at 20-21.
---------------------------------------------------------------------------

    102. Thus, Designated Carriers request that the Commission clarify 
that it intended to adjust the 2014 page 700 data of the predecessor 
entities of MPLX Ozark Pipe Line LLC and Lambda Energy Gathering, LLC, 
to eliminate the 2014 income tax allowance and adjust the 2014 return 
on rate base to reflect the removal of ADIT.\295\ If the Commission 
denies this request for clarification, Designated Carriers request 
rehearing of the December 2020 Order to the extent that it fails to 
adopt the foregoing adjustments.\296\
---------------------------------------------------------------------------

    \295\ Id. at 4-5.
    \296\ Id. at 12-14, 18-21.
---------------------------------------------------------------------------

2. Commission Determination
    103. We deny Designated Carriers' request for clarification or 
rehearing. As discussed above, we grant rehearing of the December 2020 
Order to incorporate the effects of the Income Tax Policy Change in the 
index calculation using unadjusted page 700 data. Given that we do not 
adopt Pipelines' proposed adjustments to the data set to remove the 
effects of the Income Tax Policy Change, we deny Designated Carriers' 
request to apply those adjustments to the predecessor entities of MPLX 
Ozark Pipe Line LLC and Lambda Energy Gathering, LLC.

III. 2021-2026 Oil Pipeline Index

    104. Based upon the foregoing, we grant rehearing of the December 
2020 Order, in part, deny rehearing, in part, and establish an index 
level of PPI-FG-0.21% for the five-year period beginning July 1, 2021.

IV. Interim Rate Change Filings

    105. Consistent with the Commission's action in this order, oil 
pipelines must recompute their ceiling levels and rates to be effective 
March 1, 2022. Specifically, pipelines must revise the ceiling levels 
that became effective July 1, 2021, to reflect an index level of PPI-
FG-0.21% instead of the index level adopted in the December 2020 
Order.\297\ Any oil pipeline with a filed rate that exceeds its 
recomputed ceiling level must file to reduce that rate to bring it into 
compliance with the pipeline's recomputed ceiling level as required by 
Sec.  342.3(e) of the Commission's regulations.\298\ We direct such 
pipelines to submit these filings to be effective March 1, 2022.\299\ 
To the extent that pipelines are unable to submit these filings 30 days 
in advance of the March 1, 2022 effective date, pipelines may seek 
waiver of the 30-day notice requirement.\300\
---------------------------------------------------------------------------

    \297\ Concurrently with this order, the Commission is issuing a 
Notice of Annual Change in the Producer Price Index for Finished 
Goods in Docket No. RM93-11-000. Revisions to Oil Pipeline 
Regulations Pursuant to the Energy Policy Act of 1992, 178 FERC ] 
61,046 (2022) (Notice). As described in the Notice, oil pipelines 
must recompute their ceiling levels for July 1, 2021 through June 
30, 2022 by multiplying their ceiling levels for July 1, 2020 
through June 30, 2021 by 0.984288. Id.
    \298\ 18 CFR 342.3(e). The filing requirements of 18 CFR 
342.3(e) are included in the FERC-550 information collection and 
approved by the Office of Management and Budget (under OMB Control 
No. 1902-0089).
    \299\ Oil pipelines that filed to revise their rates effective 
on or after July 1, 2021 using one of the Commission's alternative 
ratemaking methodologies are not required to recompute their ceiling 
levels or make an interim rate change filing. See id. 342.3(d)(5) 
(``When an initial rate, or rate changed by a method other than 
indexing, takes effect during the index year, such rate will 
constitute the applicable ceiling level for that index year.'').
    \300\ Id. 341.14.
---------------------------------------------------------------------------

The Commission Orders

    (A) The requests for clarification or rehearing of the December 
2020 Order are granted in part and denied in part, as discussed in the 
body of this order.
    (B) Oil pipelines are directed to recompute their ceiling levels 
for July 1, 2021 through June 30, 2022 based upon an index level of 
PPI-FG-0.21%, as discussed in the body of this order.
    (C) Oil pipelines with filed rates that exceed their recomputed 
ceiling levels must file to reduce the rate to bring it into compliance 
with the recomputed ceiling level to be effective March 1, 2022, as 
discussed in the body of this order.

    By the Commission. Commissioner Danly is concurring in part and 
dissenting in part with a separate statement attached.
    Commissioner Christie is concurring in part and dissenting in 
part with a separate statement attached.

[[Page 4497]]

    Issued: January 20, 2022.
Kimberly D. Bose,
Secretary.

Department of Energy

Federal Energy Regulatory Commission

Five-Year Review of the Oil Pipeline Index

Docket No. RM20-14-001
(Issued January 20, 2022)
DANLY, Commissioner, Concurring in Part and Dissenting in Part
    1. Today's order grants rehearing of the December 2020 Order,\1\ in 
part, denies rehearing, in part, and establishes an index level of PPI-
FG-0.21%. My separate statement focuses only on the aspects of today's 
order that depart from the Commission's December 2020 Order.\2\ I 
dissent from the Commission's decision \3\ to grant rehearing and 
depart from the December 2020 Order by (1) trimming the data set to the 
middle 50% of cost changes, as opposed to the middle 80%; and (2) 
incorporating the effects of the Commission's 2018 policy change 
requiring Master Limited Partnership (MLP)-owned pipelines to eliminate 
the income tax allowance and previously accrued Accumulated Deferred 
Income Taxes balances from their page 700 summary costs of service 
(Income Tax Policy Change).\4\ I concur in the Commission's decision to 
grant rehearing for the purpose of correcting the index calculation 
based upon updated page 700 cost data for 2014.\5\
---------------------------------------------------------------------------

    \1\ Five-Year Rev. of the Oil Pipeline Index, 173 FERC ] 61,245 
(2020) (December 2020 Order).
    \2\ This does not mean that I agree with all of the reasoning 
provided for the aspects of rehearing that are denied. Therefore, I 
concur in the result for the parts of the Commission's decision that 
deny rehearing.
    \3\ Five-Year Rev. of the Oil Pipeline Index, 178 FERC ] 61,023, 
at P 2 (2022) (Oil Index Rehearing Order).
    \4\ 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, at P 13 (2018), request 
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 (2020).
    \5\ Oil Index Rehearing Order, 178 FERC ] 61,023 at P 2.
---------------------------------------------------------------------------

    2. We must ask a threshold question every time we make a decision: 
Does the Commission have the legal authority to do what it is doing? In 
some cases, the Commission, acting within its authority, may take any 
of a number of approaches so long as it adequately explains its 
decision under the Administrative Procedure Act. In such instances, a 
robust record may provide substantial evidence for several legitimate 
approaches and the Commission's ultimate decision then turns on a 
collective judgment call. This is such a case.
    3. As an initial matter, I agree that the Commission is obligated 
to ensure that the pipelines charge just and reasonable rates and I 
remain convinced that the December 2020 Order's decisions to trim the 
data set to the middle 80% and not to incorporate the effects of the 
Income Tax Policy Change would have resulted in just and reasonable 
indexed rates. In my view, based on the ample record before us, the 
Commission could have sustained that decision in both respects. Nothing 
in parties' arguments on rehearing, or in the record compel the 
Commission to find otherwise.
    4. First, I dissent from the Commission's decision to trim the data 
set to the middle 50% of cost changes \6\ and disagree with the 
Commission's conclusion that ``the record in this proceeding does not 
justify departing from the Commission's established practice of 
calculating the index level based solely upon the middle 50%.'' \7\ I 
would have sustained the Commission's decision to trim the data set to 
the middle 80% for the reasons articulated in the December 2020 Order: 
It is consistent with the purpose of the statute, when possible, to use 
a ``broader sample of data [in order to] enhance the Commission's 
calculation of the central tendency of industry cost experience.'' \8\ 
I simply do not agree with the Commission's assertion that, in order to 
ensure just and reasonable rates, ``it remains necessary to use the 
middle 50% to avoid including outlying data.'' \9\
---------------------------------------------------------------------------

    \6\ See id. PP 43-58.
    \7\ See id. P 43.
    \8\ December 2020 Order, 173 FERC ] 61,245 at P 26 (explaining 
that the Commission's use of ``the middle 50% would exclude 48 
pipelines from the Commission's review of industry-wide cost changes 
over the 2014-2019 period'') (citation omitted).
    \9\ Oil Index Rehearing Order, 178 FERC ] 61,023 at P 57 
(emphasis added).
---------------------------------------------------------------------------

    5. Second, I dissent from the Commission's decision to incorporate 
the effects of the Income Tax Policy Change. I would have sustained the 
Commission's decision in the December 2020 Order to adopt Designated 
Carriers' proposed adjustment to remove the effects of the Income Tax 
Policy Change from the page 700 data used to calculate the index. I 
acknowledge that the Commission previously stated that it ``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.'' \10\ A prior Commission, however, cannot bind a future 
Commission's decisions.\11\ Further, I disagree with the Commission's 
repeated statements in today's order that the Commission's decision to 
incorporate the effects of the Income Tax Policy Change in the index is 
required to ensure just and reasonable rates.\12\ In my view, the 
reasons provided in the Commission's December 2020 Order remain 
persuasive, including the following: (1) ``The purpose of indexing is 
to allow the indexed rate to keep pace with industry-wide cost changes, 
not to reflect alterations to the Commission's Opinion No. 154-B cost-
of-service methodology;'' \13\ (2) ``[t]he index allows for incremental 
rate adjustments to enable pipelines to recover normal cost changes in 
future years;'' \14\ (3) the index ``is not a true-up designed to 
remedy prior over-or under-recoveries in pre-existing rates resulting 
from cost-of-service policy changes during the prior five-year 
period;'' \15\ and (4) it remains unclear ``that the double recovery of 
MLP pipelines' income tax costs was ever incorporated into the index.'' 
\16\
---------------------------------------------------------------------------

    \10\ 2018 Income Tax Policy Statement, 162 FERC ] 61,227 at P 8.
    \11\ My colleagues acknowledge that the ``2018 Income Tax Policy 
Statement provided non-binding guidance regarding the Commission's 
future intentions.'' Order Index Rehearing Order, 178 FERC ] 61,023 
at P 21 n.55.
    \12\ See id. P 17 (``The index must reflect the Income Tax 
Policy Change in order to produce just and reasonable oil pipeline 
rates.''); id. (``Because indexing is the Commission's primary oil 
pipeline ratemaking methodology and because indexed oil pipeline 
rates must be just and reasonable, we conclude that the index 
calculation must now address the Income Tax Policy Change.''); id. P 
20 (``Thus, as the Commission's Opinion No. 154-B methodology 
evolves, oil pipeline rates adjusted via indexing must reflect those 
changes in order to remain just and reasonable.'').
    \13\ December 2020 Order, 173 FERC ] 61,245 at P 17 (footnotes 
omitted).
    \14\ Id. P 18.
    \15\ Id.
    \16\ Id. P 19.
---------------------------------------------------------------------------

    6. Third, I concur with the Commission's decision to grant 
rehearing to correct the index calculation such that it relies on 
updated page 700 cost data for 2014 and with the Commission's 
clarification that ``where a pipeline updates its page 700 data for the 
first year of the index review period in the previous-year column of 
the following year's Form No. 6, it is the Commission's policy to 
calculate the index level using that updated data.'' \17\
---------------------------------------------------------------------------

    \17\ See Oil Index Rehearing Order, 178 FERC ] 61,023 at P 101.
---------------------------------------------------------------------------

    7. While it would have been better for the Commission to reaffirm 
the December 2020 Order as discussed above, it is necessary for me to 
acknowledge that the Commission is acting in accordance with the law 
and the majority's decision to reverse parts

[[Page 4498]]

of the December 2020 Order will likely withstand judicial review. I am 
surprised, however, to see the majority's seeming vitriol over what 
---------------------------------------------------------------------------
amounts to a judgment call.

    For these reasons, I respectfully concur in part and dissent in 
part.
-----------------------------------------------------------------------

James P. Danly,

Commissioner.

Department of Energy

Federal Energy Regulatory Commission

Five-Year Review of the Oil Pipeline Index

Docket No. RM20-14-001
(Issued January 20, 2022)
CHRISTIE, Commissioner, Concurring in Part and Dissenting in Part
    1. I concur with most of today's order,\1\ most significantly the 
restoration of the use of the middle 50% of the data set for 
determining the index. As today's order notes, the December 2020 
Order's move to the middle 80% was an unjustified departure from the 
Commission's settled practice of relying on the middle 50%.\2\ Because 
the 50% range represents the established practice over the past decade, 
restoring it is more consistent with the principle of regulatory 
certainty than the December 2020 Order's reliance on the 80% range 
without sufficient justification.
---------------------------------------------------------------------------

    \1\ Five-Year Review of the Oil Pipeline Index, 178 FERC ] 
61,023 (2022) (Order).
    \2\ Id. P 37 & n.9.
---------------------------------------------------------------------------

    2. Consistent with this principle of regulatory certainty, however, 
I dissent from the portion of today's order that reverses the 
determination in the December 2020 order declining to incorporate the 
effects of the Income Tax Policy Change into the 2020 index 
calculation. In what it described as ``an issue of first impression,'' 
the Commission, in that order, adopted a proposal submitted by 
Designated Carriers in response to a previously issued NOPR.\3\ The 
December 2020 Order explained the Commission's reasoning.\4\
---------------------------------------------------------------------------

    \3\ December 2020 Order, 173 FERC ] 61,245 at P 16.
    \4\ Id. PP 16-20.
---------------------------------------------------------------------------

    3. The Income Tax Policy Change presented a unique factual 
circumstance that had yet to be considered by the Commission's indexing 
policies. It thus constitutes a ``one-off.'' It fell to a differently 
constituted Commission to determine whether, and if so how, the index 
calculation must be adjusted to address the Income Tax Policy Change. 
That Commission made its decision. I was not on the Commission in 
December 2020. If I had been, I may have voted for a different 
treatment of the tax issue, but unlike the change of the data set 
range--which disturbed without adequate justification an established 
practice--this unique tax issue was one in which there were valid 
arguments on both sides. What I or other members of this Commission 
might have done, however, if we had been given the opportunity in 2020, 
matters much less than what the Commission sitting in December 2020 
actually did do: Namely, consider the pros and cons of an issue and 
make a decision based on the arguments and evidence in the record. 
Accordingly, I believe that the principle of regulatory certainty 
argues for leaving that ``one-off'' decision on the tax issue alone.

    For these reasons, I respectfully concur in part and dissent in 
part.
-----------------------------------------------------------------------

Mark C. Christie,

Commissioner.

[FR Doc. 2022-01544 Filed 1-27-22; 8:45 am]
BILLING CODE 6717-01-P