Docket No. RM26-6-000
It is imperative that the oil index ensure that pipeline owners and operators can charge a just and reasonable rate for the important public service which they provide to our nation. The index must also send the right price signal to ensure market stability and achieve economic growth for years to come. Today’s final rule, which I completely support, fully achieves these purposes. I write separately to underscore the importance of today’s action, given the recent history of missteps with the oil index.[1]
The Interstate Commerce Act (ICA) requires that oil pipelines charge “just and reasonable” rates.[2] And the Energy Policy Act of 1992 (EPAct) requires the Commission to establish a “simplified and generally applicable” ratemaking methodology[3] that is consistent with the just and reasonable standard of the ICA. Based on these directives, the Commission issued Order No. 561, adopting an indexing methodology that allows oil pipelines to change their rates subject to certain ceiling levels, as opposed to making complex, individual cost-of-service filings and mandating annual reporting of summary cost and throughput data in pipeline annual reports.[4] In other words, instead of the Commission setting pipeline rates, it allows pipelines to simply adjust their rates annually by following an index, reviewed every five years, guided by a government-published inflation measure (here, the Producer Price Index for Finished Goods).[5]
This process is akin to a rent escalation clause in a lease. The landlord (here, the pipeline in this analogy) does not have to negotiate a new lease every year to raise rent; instead, the contract specifies how often and by how much the rent may increase over time, sometimes involving a set percentage increase over time or by incorporating a variable percentage increase based on, for example, the Consumer Price Index. The Commission’s oil index works in a similar fashion: As long as a pipeline stays within its indexed ceiling, as adjusted year-to-year, it can raise or lower rates without needing to engage in a lengthy cost-of-service proceeding.
This method reasonably balances precision and simplicity[6] and results in a reduced administrative burden. Pipelines get rate certainty and creditworthiness. Shippers get predictability. Consumers reap the benefits of additional pipeline capacity over time while costs are kept in check. And the Commission avoids adjudicating hundreds or perhaps thousands of individual pipeline rate cases every year (which could go on for years).[7] All parties get to avoid the cost and uncertainty of litigating those cases individually. The tradeoff is that the index may over- or under-compensate any given pipeline, depending on whether its actual costs track the index, which is an inherent source of litigation and strife from economically opposed, sophisticated actors.
My colleague’s dissent raises various objections to the final rule, but these objections are, as I read them, a fundamental disagreement with the pillars of a periodic index itself. While appearing to acknowledge that something must be done here,[8] in the absence of a perfect (or at least more granularly precise) solution, the dissent would prefer that the Commission continue to chase the rabbit of perfection. I respectfully disagree.
In my view, inexactness is an inherent feature of the index, not a flaw. Imprecision, uniformly applied, strikes an appropriate balance between ensuring the index reasonably reflects pipeline cost increases, on the one hand, and maintaining a simple and generally applicable methodology, on the other. But endless tinkering with data sets in search of a desired, or perfect, outcome belies the purpose of the index altogether.
Consensus-driven orders at the Commission have been and will remain a priority of mine, but in the absence of consensus, and where required to act, action and progress must continue, as it does here. Commissioners often are frustrated by endless rounds of stakeholder process outside of 888 that fail to produce a pencils-down moment; we should practice what we preach and that moment is now. Action is required in this case, and perfection cannot be the enemy of the good.
Balance in the oil value chain is paramount. To that end, I look forward to considering efforts and reforms to maintain that balance in the coming days, weeks, and years, as we continue to take a closer look at our oil regulations beyond the oil index.
For these reasons, I respectfully concur.
[1] See, e.g., Five-Year Rev. of the Oil Pipeline Index, 173 FERC ¶ 61,245 (2020), order on reh’g, 178 FERC ¶ 61,023 (2022), vacated sub nom. Liquid Energy Pipeline Ass’n v. FERC, 109 F.4th 543 (D.C. Cir. 2024).
[2] 49 U.S.C. app. 1 et seq.; see also Tex. & Pac. Ry. Co. v. ICC, 162 U.S. 197, 233 (1896) (explaining that the ICA’s purpose is to “make charges for transportation just and reasonable” and “forbid undue and unreasonable preferences or discriminations”).
[3] Pub. L. No. 102-486, 1801(a), 106 Stat. 3010 (Oct. 24, 1992).
[4] Revisions to Oil Pipeline Reguls. Pursuant to Energy Pol’y Act of 1992, Order No. 561, FERC Stats. & Regs. ¶ 30,985 (1993) (cross-referenced at 65 FERC ¶ 61,109), order on reh’g, Order No. 561-A, FERC Stats. & Regs. ¶ 31,000 (1994) (cross-referenced at 68 FERC ¶ 61,138), aff’d sub nom. Ass’n of Oil Pipe Lines v. FERC, 83 F.3d 1424 (D.C. Cir. 1996).
[5] See Five-Year Rev. of the Oil Pipeline Index, 195 FERC ¶ 61,062, at P 3 n.7 (2026).
[6] Order No. 561, FERC Stats. & Regs. ¶ 30,985 at 30,946; id. at 30,940 (indexing provides “a simplified and generally applicable methodology for regulating oil pipeline rates. . .”).
[7] Ass’n of Oil Pipe Lines v. FERC, 83 F.3d at 1430 (“As the Commission explained, simplification results from the elimination, with rare exceptions, of rate-specific examinations of costs.”).
[8] See, e.g., Dissent at P 26 (“I respect and understand the desire to fix the asymmetry in the data set.”).