Commissioner James Danly Statement
January 20, 2022
Docket No. RM20-14-001
Today’s order grants rehearing of the December 2020 Order,[1] in part, denies rehearing, in part, and establishes an index level of PPI-FG-0.21%. My separate statement focuses only on the aspects of today’s order that depart from the Commission’s December 2020 Order.[2] I dissent from the Commission’s decision[3] to grant rehearing and depart from the December 2020 Order by (1) trimming the data set to the middle 50% of cost changes, as opposed to the middle 80%; and (2) incorporating the effects of the Commission’s 2018 policy change requiring Master Limited Partnership (MLP)-owned pipelines to eliminate the income tax allowance and previously accrued Accumulated Deferred Income Taxes balances from their page 700 summary costs of service (Income Tax Policy Change).[4] I concur in the Commission’s decision to grant rehearing for the purpose of correcting the index calculation based upon updated page 700 cost data for 2014.[5]
We must ask a threshold question every time we make a decision: Does the Commission have the legal authority to do what it is doing? In some cases, the Commission, acting within its authority, may take any of a number of approaches so long as it adequately explains its decision under the Administrative Procedure Act. In such instances, a robust record may provide substantial evidence for several legitimate approaches and the Commission’s ultimate decision then turns on a collective judgment call. This is such a case.
As an initial matter, I agree that the Commission is obligated to ensure that the pipelines charge just and reasonable rates and I remain convinced that the December 2020 Order’s decisions to trim the data set to the middle 80% and not to incorporate the effects of the Income Tax Policy Change would have resulted in just and reasonable indexed rates. In my view, based on the ample record before us, the Commission could have sustained that decision in both respects. Nothing in parties’ arguments on rehearing, or in the record compel the Commission to find otherwise.
First, I dissent from the Commission’s decision to trim the data set to the middle 50% of cost changes[6] and disagree with the Commission’s conclusion that “the record in this proceeding does not justify departing from the Commission’s established practice of calculating the index level based solely upon the middle 50%.”[7] I would have sustained the Commission’s decision to trim the data set to the middle 80% for the reasons articulated in the December 2020 Order: it is consistent with the purpose of the statute, when possible, to use a “broader sample of data [in order to] enhance the Commission’s calculation of the central tendency of industry cost experience.”[8] I simply do not agree with the Commission’s assertion that, in order to ensure just and reasonable rates, “it remains necessary to use the middle 50% to avoid including outlying data.”[9]
Second, I dissent from the Commission’s decision to incorporate the effects of the Income Tax Policy Change. I would have sustained the Commission’s decision in the December 2020 Order to adopt Designated Carriers’ proposed adjustment to remove the effects of the Income Tax Policy Change from the page 700 data used to calculate the index. I acknowledge that the Commission previously stated that it “will incorporate the effects of this Revised Policy on industry-wide oil pipeline costs in the 2020 five-year review of the oil pipeline index level.”[10] A prior Commission, however, cannot bind a future Commission’s decisions.[11] Further, I disagree with the Commission’s repeated statements in today’s order that the Commission’s decision to incorporate the effects of the Income Tax Policy Change in the index is required to ensure just and reasonable rates.[12] In my view, the reasons provided in the Commission’s December 2020 Order remain persuasive, including the following: (1) “the purpose of indexing is to allow the indexed rate to keep pace with industry-wide cost changes, not to reflect alterations to the Commission’s Opinion No. 154-B cost-of-service methodology;”[13] (2) “[t]he index allows for incremental rate adjustments to enable pipelines to recover normal cost changes in future years;”[14] (3) the index “is not a true-up designed to remedy prior over-or under-recoveries in pre-existing rates resulting from cost-of-service policy changes during the prior five-year period;”[15] and (4) it remains unclear “that the double recovery of MLP pipelines’ income tax costs was ever incorporated into the index.”[16]
Third, I concur with the Commission’s decision to grant rehearing to correct the index calculation such that it relies on updated page 700 cost data for 2014 and with the Commission’s clarification that “where a pipeline updates its page 700 data for the first year of the index review period in the previous-year column of the following year’s Form No. 6, it is the Commission’s policy to calculate the index level using that updated data.”[17]
While it would have been better for the Commission to reaffirm the December 2020 Order as discussed above, it is necessary for me to acknowledge that the Commission is acting in accordance with the law and the majority’s decision to reverse parts of the December 2020 Order will likely withstand judicial review. I am surprised, however, to see the majority’s seeming vitriol over what amounts to a judgment call.
For these reasons, I respectfully concur in part and dissent in part.
[1] Five-Year Rev. of the Oil Pipeline Index, 173 FERC ¶ 61,245 (2020) (December 2020 Order).
[2] This does not mean that I agree with all of the reasoning provided for the aspects of rehearing that are denied. Therefore, I concur in the result for the parts of the Commission’s decision that deny rehearing.
[3] Five-Year Rev. of the Oil Pipeline Index, 178 FERC ¶ 61,023, at P 2 (2022) (Oil Index Rehearing Order).
[4] Inquiry Regarding the Commission’s Policy for Recovery of Income Tax Costs, 162 FERC ¶ 61,227, at P 8 (2018 Income Tax Policy Statement), reh’g denied, 164 FERC ¶ 61,030, at P 13 (2018), request for clarification dismissed, 168 FERC ¶ 61,136 (2019); petitions for review dismissed sub nom. Enable Miss. River Transmission, LLC v. FERC, 820 F. App’x 8 (2020).
[6] See id. PP 43-58.
[7] See id. P 43.
[8] December 2020 Order, 173 FERC ¶ 61,245 at P 26 (explaining that the Commission’s use of “the middle 50% would exclude 48 pipelines from the Commission's review of industry-wide cost changes over the 2014-2019 period”) (citation omitted).
[9] Oil Index Rehearing Order, 178 FERC ¶ 61,023 at P 57 (emphasis added).
[10] 2018 Income Tax Policy Statement, 162 FERC ¶ 61,227 at P 8.
[11] My colleagues acknowledge that the “2018 Income Tax Policy Statement provided non-binding guidance regarding the Commission’s future intentions.” Order Index Rehearing Order, 178 FERC ¶ 61,023 at P 21 n.55.
[12] See id. P 17 (“The index must reflect the Income Tax Policy Change in order to produce just and reasonable oil pipeline rates.”); id. (“Because indexing is the Commission’s primary oil pipeline ratemaking methodology and because indexed oil pipeline rates must be just and reasonable, we conclude that the index calculation must now address the Income Tax Policy Change.”); id. P 20 (“Thus, as the Commission’s Opinion No. 154-B methodology evolves, oil pipeline rates adjusted via indexing must reflect those changes in order to remain just and reasonable.”).
[13] December 2020 Order, 173 FERC ¶ 61,245 at P 17 (footnotes omitted).
[14] Id. P 18.
[15] Id.
[16] Id. P 19.
[17] See Oil Index Rehearing Order, 178 FERC ¶ 61,023 at P 101.