OIL
Photo Essay
What are FERC's responsibilities for regulating
oil?
- Regulating
interstate and U.S. international transportation of petroleum
by common carrier pipelines; and
- Ensuring that oil pipeline carriers file tariffs, which contain
the rates, charges, and rules for transporting the oil by pipeline.
See 18
Code of Federal Regulations (CFR) Part 341.
How
are rates for oil and oil pipelines established?
Rates are established in these four
ways:
- Indexing. An oil pipeline determines
an annual ceiling level which caps (places a maximum
number the rate can be) the rate an oil pipeline may
charge. This ceiling level is adjusted annually based upon
changes in the Producer Price Index minus
one.
- Cost-of-service. A pipeline must show
that there is a substantial difference between the actual
costs experienced by the pipeline and the rate resulting
from application of the index such that the rate at the
ceiling level would precluded the carrier from being able
to charge a just and reasonable rate within the meaning
of the ICA.
- Settlement rate. A pipeline secures
the agreement of all its existing customers to its proposed
rate change.
- Market-based rates. A pipeline must
show that it does not have significant market power in
the markets it is applying for market-based rates.
Establishment of Initial Rates
There are two methods to establish initial
rates:
- Cost-of-service A pipeline must submit the applicable
cost, revenue, and data supporting such a rate as required
by the Commission's regulations. At that time the Commission
will review the rate and decide whether it is appropriate
to set the price at that rate.
- Sworn affidavit A pipeline must submit
a sworn affidavit that the initial rate was agreed to
by at least one non-affiliated person who intends to use
service. If application is protested, the pipeline must
submit cost-of-service data to support the initial rate.
What FERC does not regulate
- The oversight of oil pipeline construction (that authority
rests with states and local jurisdictions);
- Abandonment of Service;
- Mergers and Acquisitions;
- Safety (that authority rests with the Department of Transportation);
and
- Pipeline transportation on or across the Outer Continental
Shelf.
Brief History of Oil Pipeline Regulation
- Hepburn Act of 1906
- Classified interstate oil pipelines as common carriers;
- Began the regulation of interstate oil pipelines; and
- Was an amendment to the existing Interstate Commerce Act
(ICA).
- Interstate
Commerce Commission (ICC): Responsible for regulating interstate
oil pipelines from 1906 until 1977.
- Department of Energy (DOE) Organization Act of 1977: Transferred
regulation of interstate oil pipelines from the ICC to DOE to
FERC.
Energy Policy Act of 1992
- Mandated FERC to provide a "simplified and generally
applicable" ratemaking methodology for oil pipelines;
- Authorized FERC to streamline oil pipeline proceedings; and
- Deemed oil pipeline's existing rates were just and reasonable
as of the enactment of the 1992 Act.
FERC's Response to the Energy Policy
Act of 1992
- Order
No. 561
- Adopted indexing as the "simplified, generally applicable
ratemaking methodology;
- Permitted the use of the cost-of-service, settlement or
market-based rate change methodologies; and
- Streamlined oil pipeline procedures by:
- Addressing the treatment of protests and complaints;
- Revising tariff filing and accounting requirements; and
- Instituting an alternative dispute
resolution procedure.
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