FERC Initiates Supplemental Rulemaking Seeking Comments on Oil Pipeline Index Levels Following Pipeline Victory at D.C. Circuit in LEPA v. FERC

How did we get here?

To begin with, at issue is the oil pipeline rate index for the five-year period from July 1, 2021 to July 1, 2026. On December 17, 2020, the Commission first set the index ceiling level at Producer Price Index for Finished Goods (PPI-FG) plus 0.78% (annotated as PPI-FG+0.78%).² Then, on January 20, 2022, the Commission acted on rehearing of its rulemaking docket and lowered the index ceiling for this period to PPI-FG minus 0.21% (annotated as PPI-FG-0.21%). The Commission ordered that pipelines implement the 1 percent lower index rates via updated tariff filings effective March 1, 2022.³ The Rehearing Order was then challenged and vacated by the D.C. Circuit in LEPA v. FERC.⁴ The court ruled that FERC violated the Administrative Procedure Act because the Rehearing Order modified the index without following notice and comment. As a result, the D.C. Circuit vacated the Rehearing Order and on September 17, 2024, the Commission reinstated the Initial Order, setting the index back to the 1 percent higher level. (Earlier coverage of the oral argument can be found here). But with the Rehearing Order vacated entirely, pipelines were entitled to full index rates consistent with the Initial Order.

What now?

Back on the table are the three technical issues addressed by the Rehearing Order: statistical data trimming relying solely on the middle 50% (versus 80%) of data; accounting for the MLP income tax policy change; and the appropriate source of 2014 Page 700 data. The Commission has invited commenters to “renew any arguments raised in request for rehearing or clarification of the Initial Order that they would like for the Commission to consider.”⁵ This will likely result in a repeat of the arguments that led to the Rehearing Order. However, for the first time the Commission is also requesting comments on “any additional remedial steps not discussed herein that they believe the Commission should take following the vacatur of the Rehearing Order in LEPA v. FERC.”⁶ And specifically, the Commission is confronting the elephant in the room, inviting comments on the potential remedy for pipelines who under recovered because of the now-vacated Rehearing Order. The Commission requested comments:

Commenters may also address any potential action that the Commission should take regarding the period between (a) the March 1, 2022 effective date of tariff records filed pursuant to the Rehearing Order and (b) September 17, 2024, when the Commission reinstated the Initial Order.⁷

The Commission repeatedly makes clear its preference for the lower indexed rate ceiling from the Rehearing Order. In the Supplemental NOPR, the Commission expresses “ongoing concerns with the Commission’s determinations in the Initial Order.” Consistent with the procedures required by the D.C. Circuit, the Commission is following notice and comment procedures and appears interested in reimplementing the substantive holdings of the Rehearing Order. What is new in the Supplemental NOPR is the recognition that the Commission needs to address the 30-month period when pipelines under recovered the lawful index rate. The record built in the Supplemental NOPR docket will be critical, as the Commission will be limited to the new record following the notice and comment process.

Initial comments on the Supplemental NOPR are due November 26, 2024, and reply comments are due December 20, 2024.

¹ Supplemental Review of the Oil Pipeline Index Level, 189 FERC ¶ 61,030 (2024) (“Supplemental NOPR”).

² Five-Year Review of the Oil Pipeline Index, 173 FERC ¶ 61,245 (2020) (“Initial Order”).

³ Five-Year Review of the Oil Pipeline Index, 178 FERC ¶ 61,078 (2022) (“Rehearing Order”), reh’g denied, 179 FERC ¶ 61,100 (2022).

⁴ Liquid Energy Pipeline Association v. Federal Energy Regulatory Commission, 109 F.4th 543 (D.C. Cir. 2024).

⁵ Supplemental NOPR at ¶ 12.

⁶ Id. at ¶ 39.

⁷ Id.