At its Open Meeting this past Thursday, FERC made a controversial decision to reduce the “adder” to the oil index it put in place last year, considering long-running disputes between oil pipelines and their shipper customers, as well as the dramatic change to inflation measured by the Producer Price Index (PPI) for Fixed Goods (FG), which is the core component of the index regulated pipelines are required to use to calculate their rates.
This FERC order is unprecedented in the 30 years that have passed since the current rate making methodology was enacted. In addition to its impact on rates, the order will cause widespread regulatory compliance burden because pipelines are required to refile their indexed tariff rates by March 1, 2022. The order allows pipelines to request a waiver of the typical 30-day notice period, and of course, oil pipelines with rates filed using alternative rate making methodologies are not required to recompute their ceiling levels or to make an interim filing.
The many parties to the decision include Buckeye Partners, Colonial Pipeline, Energy Transfer Partners, Enterprise Products Partners, Plains All American, the Canadian Association of Petroleum Producers, the Association of Oil Pipelines, the Liquids Shippers Group, Airlines for America, Chevron Products, the National Propane Gas Association, and Valero Marketing and Supply. Their advocacy to FERC resulted in an examination of the statistical methods for calculating the index, possible impacts to consumer prices, and the impacts of tax policy changes to pipeline returns on equity.
Market participants depending on real-time accurate rates for the buying and selling of physical oil and liquids products will need to make extensive updates to their back office systems given the forthcoming industry-wide pricing adjustments. Those using Arbo’s Liquids Commerce Platform and/or associated API data feeds (contact us) will stay up to date on revised Form 6 financials and current tariff rates.
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