Market-Based Rates - Staff Oil Pipeline Handbook

This handbook begins with a brief historical overview of oil pipeline regulation and market-based rates, and a summary of the current Federal Energy Regulatory Commission (“FERC” or “Commission”) methodology and precedent for determining whether an oil pipeline is permitted to charge market-based rates. A detailed analysis of the history of oil pipeline rate methodology in the context of market-based rates follows, along with a discussion of relevant precedent and methodology established at the Commission and in the courts applicable to oil pipeline market-based rates. The most notable orders, regulations, Department of Justice reports, and cases on this subject are provided. Additionally, a table of the outcomes of the notable oil pipeline market-based rate cases filed at the Commission and a map of the markets the Commission has considered in market-based rate applications with indications regarding whether those markets were found to be competitive are provided to the right. A complete intact version of the Handbook to Market-Based Rates for Oil Pipelines is also provided to the right.

NOTE: All links are PDF

Introduction

1. Summary of Commission Methodology And Precedent
   • Brief Historical Overview of Oil Pipeline Regulation and Market-Based Rates
   • Summary of Current Commission Market-Based Rate Methodology


2. Historical Overview of Oil Pipeline Rate Regulation
    
   • Opinion No. 154, Farmers II, and FERC’s Initial Reliance on Competition
      
     1. Opinion No. 154 Relies on Implied Market Competition
     2. Farmers II Court Requires Pipeline Specific Analysis of Market Power
        • Case: Farmers Union Central Exchange, Inc. v. FERC (“Farmers II”)
   
   
   • Opinion No. 154-B’s Cost Based Methodology


3. The Department of Justice’s Proposed Partial Deregulation of Oil Pipelines And Guidelines on Market Power
   • Report: Oil Pipeline Deregulation 1986
   
   
   • Guidelines: Horizontal Merger Guidelines 1992 (revised 1997)


4. The Move To Oil Pipeline Market-Based Rates
   
   
   • Opinion Nos. 360 and 360-A in the Buckeye Pipe Line Company Proceeding Adopt Market-Based Rates on a Case-by-Case Basis
      
     1. Interlocutory Order Recognizes Market-Based Rates on a Case-by-Case Basis
     2. Interlocutory Order Clarifies and Elaborates on Market-Based Rate Inquiry
     3. Opinion No. 360 Establishes the Market Based Rate Inquiry
        • Case: Buckeye Pipeline Company, L.P. (1990)
     4. Opinion No. 360-A Adheres to Case-by-Case, Multi-Factored Analysis
        • Case: Buckeye Pipeline Company, L.P. (1991)
   
   
   • Opinion Nos. 391 and 391-A in Williams Pipe Line Company Proceeding Utilizes Buckeye Market Power Analysis
      
     1. Opinion No. 391 Builds on the Buckeye Market Power Analysis
        • Case: Williams Pipe Line Company (1994)
     2. Opinion No. 391-A Further Clarifies and Modifies the Market Power Analysis
        • Case: Williams Pipe Line Company (1995)
   
   
   • Energy Policy Act of 1992 and Rulemaking Order No. 572 on Oil Pipeline Market- Based Rates
      
     1. Order No. 561 Establishes Indexing as the Generally Applicable Ratemaking Tool and Order No. 571 Permits Cost-of-Service Rates in Defined Circumstances
     2. Order No. 572 Establishes Filing Requirements and Procedures for Market-Based Rates
        • Case: Order No. 572


5. Post Order No. 572 Market-Based Rate Cases
    
   • Kaneb Pipe Line Proceeding Outlines When to Deviate from BEA Geographic Areasfor Refined Petroleum Pipelines
     
     
     • Map: BEA Geographic Areas
   
   
   • SFPP, L.P. Proceeding Examines Geographic Origin Markets
      
     1. Order on Application for Market-Based Rates Outlines Geographic Origin Market Inquiry
     2. SFPP Failed to Justify Proposed Alternative Sources of Transportation in Origin Market
   
   
   • Explorer Pipeline Company Proceeding Addresses Corridor Geographic Markets
   
   
   • TE Products Pipeline Matter Establishes a Rebuttable Presumption in Favor of BEAs for Refined Petroleum Pipelines and Requires Detailed Cost Comparisons to Justify a Rebutted BEA, an Expanded BEA, or Alternative Sources Outside a BEA
     
     
     • Case: TE Products Pipeline Co., L.P. (2000)
   
   
   • Colonial Pipeline Company Proceeding Establishes Netback Cost Study for Determining Good Alternatives in a Geographic Origin Market
     
     
     • Case: Colonial Pipeline Co. (2000)
   
   
   • Sunoco Pipeline L.P. Proceeding Outlines Reasonable Grounds to Challenge a BEA Geographic Market
   
   
   • Court of Appeals in Mobil Pipe Line Company Proceeding Overturns Results of Netback Cost Study
      
     1. Commission Finds Mobil Lacks Market Power in Gulf Coast Destination Market but Sets Upper Midwest Origin Market for Hearing
     2. Netback Analysis Reveals Mobil Has No Competition
        • Case: Mobil Pipe Line Co. (2010)
     3. D.C. Circuit Court of Appeals Finds Broad Market Indicators Clearly Evidence Mobil Lacked Significant Market Power
        • Case: Mobil Pipe Line Co. v. FERC (2012)
     4. Market-Based Rates Granted on Remand
   
   
   • Enterprise/Enbridge Proceeding Reaffirms Existing Market-Based Rate Methodology but Modifies Requirement To Show Good Alternatives in Terms of Cost
     1. Initially Commission Denied Application To Charge Market-Based Rates Because of the Lack of Detailed Cost Analysis To Justify Good Alternatives
     2. On Rehearing the Commission Reaffirmed its Market-Based Rate Methodology but Modified How to Determine Good Alternatives in Terms of Cost
        • Case: Enterprise Products Partners L.P. (2014)
6. Conclusion