New Liquids Tariff Clause Causing Rate Confusion and Confrontation — Shippers Seek Clarity from FERC

What’s the issue?

In recent weeks, Arbo’s liquids tariff analysts have noticed several new filings with clawback provisions asserting the right to retroactively collect from shippers any positive difference between the rates resulting from the FERC-approved March 1 Index and a hypothetical future increase to the index. As we expected, protests have begun to pour in, asking the FERC Commission to reject such filings and require removal of the clawback language. Then yesterday, a group of shippers filed a Request for Clarification or Rehearing on the proposed new Index.

Why does it matter?

FERC’s controversial decision to reduce the “adder” to last year’s oil index resulted in ambiguity around the right for shippers and pipelines to collect any rate differences back to July 1, 2021.

What’s our view? 

Shippers and pipelines can probably agree that whenever the final word is had on the index, that rate should be collectible from the shippers from July 1, 2021 onward. If more was collected, shippers may sue to get it back; if less was collected, pipelines could file to collect up to the proper amount for movements made after July 1, 2021. Arbo suspects FERC will agree as well, and we’ll be closely following this issue as it develops.

Meanwhile, our team will be busy updating our Liquids Commerce Platform as tariffs are withdrawn and refiled — which remains the most comprehensive and easily accessible source of pipeline tariff and Form 6 financial data. 

In recent weeks, Arbo’s liquids tariff analysts have noticed several new filings with clawback provisions asserting the right to retroactively collect from shippers any positive difference between the rates resulting from the FERC-approved March 1 Index and a hypothetical future increase to the index. 

As we expected, protests have begun to pour in, asking the FERC Commission to reject such filings and require removal of the clawback language. 

Protestors include, to date: Shell Trading, Liquids Shippers Group (Marathon Oil and Ovintiv Marketing, Devon Gas Services), and ConocoPhillips. 

Filing entities protested include: NuStar Logistics, NuStar Permian Transportation and Storage, Plains Pipeline, Plains Oryx Permian Basin, Hilcorp Pipeline Company, Arrowhead Gulf Coast Pipeline, Oryx Delaware Oil Transport, Permian Express Terminal, Permian Express Partners, West Texas Gulf Pipe Line Company, Chaparral Pipeline Company, and Enterprise Interstate Crude. 

In 1995, FERC required SFPP to remove similar language from its tariff, stating that “the Commission has the authority to allow the remedies mentioned in SFPP's tariff provision. It is, however, within the Commission's administrative discretion to ensure that its tariffs are not cluttered with such unnecessary provisions.”

We believe pipeline companies may be incorporating these provisions in effort to provide advance notice to shippers and avoid a different precedent involving SFPP. In this case, FERC held that allowing an index change proposed by SFPP would not be appropriate, because "there was no notice of the 2011, 2012 and 2013 index increases SFPP now seeks to retroactively impose in this compliance filing (Table 1, Column E) and, thus, shippers did not have the opportunity to consider these newly-proposed rate changes. The Commission rejects an approach that retroactively and without appropriate notice would impose such rate changes upon a shipper’s prior movements.” 

Airlines for America, Chevron Products Company, National Propane Gas Association, and Valero Marketing and Supply Company filed yesterday (February 22) a Request for Clarification or Rehearing. Their request asks for clarification that the “deadline for carriers to make effective new tariffs does not purport to foreclose shippers from pursuing other relief on a case-by-case basis to the extent that a carrier’s rates exceeded applicable ceiling levels calculated per the Revised Index during the period from July 1, 2021 through February 28, 2022.” And, it requested rehearing if “the Rehearing Order sought to implement two Index ceiling levels during the Index Year July 1, 2021 to June 30, 2022 (i.e., make new ceiling levels effective only as of March 1, 2022 versus July 1, 2021 which is the beginning of the current Index Year), or otherwise foreclose shippers from pursuing complete relief on a case-by-case basis for being charged rates in excess of appropriate ceiling levels.”

Shippers and pipelines can probably agree that whenever the final word is had on the index, that rate should be collectible from the shippers from July 1, 2021 onward. If more was collected, shippers may sue to get it back; if less was collected, pipelines could file to collect up to the proper amount for movements made after July 1, 2021. We suspect FERC will agree as well, and we’ll be closely following this issue as it develops.

Arbo will be closely following this issue and provide updates on related filings or FERC actions; meanwhile, we expect some tariff withdrawals and re-filings resulting from the protests mentioned. Our team will be busy updating our Liquids Commerce Platform — which remains the most comprehensive and easily accessible source of pipeline tariff and Form 6 financial data. 

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Background reading

FERC Reverses Oil Index Rate Decision — Commission Considers Accelerating Inflation and Ire between Pipes and Shippers, but Consumer Savings will be Sparing. 

FERC made in January a controversial decision to reduce the “adder” to the oil index it put in place last year from plus .78% to minus .21%. This decision was taken at a rehearing that considered comments from 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).