Federal Energy Regulatory Commission has proposed a rule to streamline and revamp oil pipeline ratemaking.
FERC plans to issue a final rule on oil pipeline rates by Oct. 24. It would take effect 12 months after issuance.
Required by the 1992 Energy Policy Act, the proposed rule would adopt indexing as its general approach to regulating oil pipeline rates.
The index would determine a ceiling rate for oil pipelines, although pipelines could set rates below that ceiling.
FERC proposed the indexing method be based on the Gross Domestic Product-Implicit Price Deflator. It said that approach would meet the legal requirement for simplicity and general applicability and satisfy just and reasonable rate requirements under the Interstate Commerce Act (ICA).
OTHER APPROACHES
The proposed rule would let pipelines depart from indexing and propose other methods, such as rates based on a company's cost of service or market based rates.
For market based rates, pipelines must show case by case that they lack significant market power. The rule would encourage pipelines to submit proposals under streamlined procedures to identify their markets and implement market based rates.
For the cost of service method, a pipeline would have to show that, due to extraordinary circumstances, use of the index in a particular instance would fail to result in a just and reasonable rate under ICA.
FERC said it proposed the cost of service alternative as a temporary departure from indexing and noted subsequent changes to a rate established under the cost of service alternative would be governed by the index.
The proposed rule also makes some procedural changes. FERC would abolish its Oil Pipeline Board and process suspension orders directly.
It would let pipeline customers file protests to rate changes and permit use of alternative dispute resolution procedures early in rate proceedings, such as direct negotiations and voluntary arbitration.
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