c. SFPP 2008 West Line (Docket No. IS08-390)
As discussed in previous reports and above, the D.C. Circuit’s United Airlines decision remanded FERC’s Opinion Nos. 511, 511-A and 511-B addressing SFPP, L.P.’s (“SFPP”) 2008 West Line cost-of-service rate case, Docket No. IS08-390. On March 15, 2018, the Commission issued its Order on Remand and Compliance Filing, Opinion No. 511-C. This ruling, consistent with the Revised Income Tax Allowance Policy Statement, concluded that granting SFPP an income tax allowance resulted in an impermissible double recovery of the carriers income liabilities and that removing the allowance restores parity between corporate and MLP pipelines. Regarding the calculation of real ROE, the Commission allowed a real ROE of 10.24 percent with a 12.63 percent nominal ROE and a 2.39 percent inflationary component. The Commission declined to reopen the record on the issues. The Commission directed SFPP to make a compliance filing within 60 days, with Comments due within 75 days and replies within 90 days.
On April 16, 2018 SFPP filed a Request for Rehearing and Motion to Hold in Abeyance. This filing challenged Opinion No. 511-C as arbitrary and capricious because it relied on the Revised Income Tax Allowance Policy Statement without reaching its own conclusions. SFPP also requested that Opinion No. 511-C be held in abeyance pending its rehearing request and the rehearing requests in Docket No. PL17-1 dealing with the Revised Income Tax Allowance Policy Statement so that it need not make a compliance filing within 60 days of Opinion No. 511-C’s issuance.
On May 1, 2018, Joint Shippers filed their Answer to the April 16 Motion to Hold in Abeyance. Joint Shippers asserted that abeyance was not justified, that delaying the effectiveness of Opinion No. 511-C would more properly be characterized as a stay of an order, and that the higher burden for issuance of a stay had not been met. On May 9, 2018, SFPP filed its Motion for Leave to Answer and Answer which asserted abeyance was justified, citing continued argument of the income tax allowance issue in other dockets.
On May 14, 2018, SFPP submitted its Compliance Filing Implementing Opinion No. 511-C. Also on May 14, the Commission granted SFPP’s prior rehearing request for the limited purpose of further consideration.
On June 8, 2018, Joint Shippers filed their Comments and Protests on the Compliance Filing. Also on June 8, 2018, Tesoro Refining and Marketing (“Tesoro”) filed a Motion to Intervene, Protest and Comments. Joint Shippers and Tesoro took issue with SFPP’s proposal and methodology to recover Overpaid Refund/Under-Collected Revenues (“ORR”) associated with its restored 2011 index-based rate increase in Docket No. IS11-444 and litigation expenses in future rates. Much of the discussion in the protests involved SFPP’s removal of Accumulated Deferred Income Taxes (“ADIT”) from consideration with respect to the development of rates and/or refunds, with shippers arguing that, due to the removal of any income tax allowance from rates, the ADIT amount previously accumulated from prior rates should be considered entirely overfunded and thus should properly be returned to ratepayers in rates to prevent a windfall to the carrier.
On July 11, 2018, SFPP filed Reply Comments to the June 8, 2018 Comments and/or Protests. SFPP responded to shippers’ allegations regarding its proposals associated with ORR and litigation expenses and also defended its treatment of ADIT. In particular, SFPP argued that removal of ADIT for ratemaking purposes and rejecting the concept of returning any overfunded ADIT amounts to ratepayers is consistent with Commission policy and requiring SFPP to do otherwise would violate the rule against retroactive ratemaking. SFPP also alleged that returning ADIT to shippers was allegedly foreclosed by a Commission-approved settlement.
On August 17, 2018, Joint Shippers submitted their Motion to File Surreply Comments and Surreply Comments in response to the carrier’s July 11, 2018 Reply Comments. These comments denied that refunding ADIT is against Commission policy or otherwise retroactive ratemaking. Specifically, in these comments, the shippers took issue with SFPP’s assertions arguing that (i) the carrier’s justification for retaining its existing excess ADIT balance is contrary to both fact and law, (ii) the rule against retroactive ratemaking is inapplicable to SFPP’s situation, and (iii) no prior settlement precludes prospective rate adjustments to remedy SFPP’s overfunded ADIT balance. In addition, the shippers took the opportunity to address and rebut the tentative ADIT observations made by the Commission in its Order on Rehearing (discussed above) asserting that the Commission’s proposed tentative ADIT treatment allowing carriers to retained such over-funded amounts directly conflicts with established precedent and tax normalization principles.
On February 21, 2019, the Commission issued its Order on Rehearing and Compliance filing. In that order the Commission denied SFPP’s requests for rehearing and to reopen the record on income tax allowance issues. The Order accepted SFPP’s compliance filing but rejected SFPP’s proposal to create an ORR reserve.
The Commission denied rehearing of “the findings in Opinion No. 511-C that a double recovery results from granting SFPP an income tax allowance and a DCF ROE,” as it found the Commission had adequately addressed SFPP’s comments. The Commission rejected SFPP’s Motion to Reopen the Record on the grounds that SFPP has already fully litigated the issue of whether including an ITA in its cost of service results in a double recovery and none of the offered evidence refutes the Commission’s conclusion that it does. The Commission also rejected SFPP’s argument that it should receive a partial ITA. Procedurally, Commission found the argument to be untimely raised on rehearing. Further, the Commission rejected the substance of the proposal because the issue of double recovery would still be present. On the issue of MLP incentive distributions and their interaction with evaluating the reasonableness of an income tax allowance, the Commission reversed its prior determinations finding, among other things, that allowing incentive distributions to influence the derivation of an income tax allowance would be contrary to the Commission’s stand-alone tax policy and, in addition, allowing an ITA to be based on incentive distributions in a partnership agreement would lead to nonsensical results and is not needed to attract capital.
Regarding ADIT, the Commission found that it was appropriate for SFPP to eliminate its ADIT balance from its cost of service because (i) the ITA had been removed, (ii) shippers had no alleged right to the accumulated ADIT balance, and (iii) amortizing excess ADIT in rates back to shippers would be prohibited retroactive ratemaking pursuant to the D.C. Circuit’s decision in Public Utilities Commission California v. FERC. The Commission allowed SFPP to update its litigation surcharge to account for costs incurred since the 511-B Compliance filing and found a three-year recovery period to be appropriate. However, the Commission rejected SFPP’s assertion that it reserved the right to recover litigations costs it is unable to recover in IS11-444-002 as beyond the scope of the proceeding. As noted, the Commission rejected SFPP’s proposed ORR reserve mechanism as unjustified and contrary to the general policy that shippers should not bear the costs of other shippers’ debts.
d. SFPP 2009 and 2010 East Line (Docket Nos. IS09-437 and IS10-572)
Closely related to the Docket No. IS08-390 proceeding is the dispute regarding SFPP’s 2009 and 2010 East Line rate increase proceedings, Docket Nos. IS09-437 and IS10-572. As described in prior reports, on July 31, 2009, SFPP filed FERC Tariff No. 182, to be effective September 1, 2009 (“East Line Tariff Filing”) and on May 28, 2010, SFPP filed FERC Tariff No. 187 (“2010 Index Filing”), pursuant to the Commission’s annual rate indexing methodology for oil pipelines. SFPP’s 2009 rate increase proceeding was protested by shippers and went to a hearing which resulted in an Initial Decision issued February 10, 2011. On September 20, 2012, the Commission issued its determination concerning the Initial Decision (i.e., Opinion No. 522). On February 19, 2015, the Commission partially granted rehearing in Opinion No. 522-A. On March 23, 2015, SFPP sought rehearing of Opinion No. 522-A. On April 6, 2015, SFPP submitted its Compliance Filing Pursuant to Opinion No. 522-A. On April 20, 2015, Joint Shippers filed a Protest of the April 5, 2015 Compliance Filing. On May 5, 2015 SFPP filed Reply Comments.
On March 15, 2018 the Commission issued Opinion No. 522-B. This opinion reverses Opinion No. 522-A insofar as it allowed SFPP to apply index increases different from what the carrier actually sought in the subject years in indexing-forward its rates for deriving refunds and going-forward rates. The Commission also directed SFPP to remove any income tax allowance in the development of its cost-based rates and related refunds, “consistent with United Airlines, the Remand Order in Docket No. IS08-390 and the Revised Policy Statement on Treatment of Income Taxes in Docket No. PL17-1.” The decision also rejected SFPP’s prior rehearing request as moot given that SFPP was not entitled to incorporate a 2011 index increase in its compliance filing. SFPP filed its Opinion No. 522-B Compliance Filing on May 14, 2018 and shippers filed their protests related thereto on June 8, 2018.
The remainder of the pleadings mirror in timing, form, and substance those in SFPP’s West Line rate case (Docket No. IS08-390) discussed above. As of publication of the report, the Commission has not yet acted on SFPP’s Opinion No. 522-B Compliance Filing and the related protests.
e. Chevron Products Company, et al. v. SFPP, L.P. (Docket No. OR16-6)
As noted in previous reports, on December 4, 2015, Chevron Products Company, HollyFrontier Refining & Marketing LLC, US Airways, Inc., Valero Marketing and Supply Company, and Western Refining Company, L.P. (“Joint Complainants”) filed a joint complaint in Docket No. OR16-6 against SFPP, L.P. (“SFPP”) challenging the lawfulness of the existing transportation rates and charges for services on the carrier’s “East Line” facilities originating in El Paso, Texas and delivering to Lordsburg, New Mexico; Tucson, Arizona; Phoenix, Arizona; and various military destinations. The Joint Complainants alleged that Page 700 data from SFPP’s Form No. 6 report for 2014 and data from SFPP’s Opinion 522-A Compliance Filing demonstrated that SFPP’s East Line rates were not just and reasonable as they were substantially over-recovering the carrier’s applicable costs. The joint complaint requested reparations for past payments and the establishment of just and reasonable rates going forward.
SFPP filed an answer to the joint complaint arguing that the data upon which the Joint Complainants relied is subject to change based on the result of several ongoing rate and complaint proceedings. Therefore, SFPP asked the Commission to hold the joint complaint in abeyance until the pending dockets reach a final outcome. Joint Complainants responded, laying out their arguments for why the joint complaint should not be held in abeyance. On March 23, 2016, the Commission issued an order stating that the Joint Complainants had presented a prima facie case to support their rate challenge and set the complaint for a hearing.
On June 24, 2016, Joint Complainants filed their direct testimony estimating that Joint Complainants had overpaid for shipments on the East Line by approximately $44.5 million between December 2013 and May 2016. SFPP filed its answering testimony on August 12, 2016 challenging Joint Complainants’ positions. However, SFPP’s own testimony demonstrated rate reductions on the East Line were in order. Commission Trial Staff filed direct and answering testimony on September 14, 2016 which, based on the cost-of-service elements and principles addressed, advocated East Line rate reductions in excess of Joint Complainants. On October 18, 2016, SFPP filed testimony responding to Commission Trial Staff and challenging Staff’s economic analysis.
Joint Complainants and Commission Trial Staff filed their respective rebuttal testimonies on November 23, 2016. Notably, Joint Complainants updated their overpayment calculations for the period December 1, 2013 through September 30, 2016 based on updated cost information and their interpretation of the United Airlines, Inc., et al. v. FERC, 827 F.3d 122 (D.C. Cir. 2016) decision and asserted that aggregate overpayments to SFPP totaled approximately $70 million. A hearing was held from January 24 to February 7, 2017.
In the Initial Decision, filed on July 21, 2017, the Presiding Judge found that the Joint Complainants are due reparations from SFPP (with interest) equal to the difference between what SFPP collected for East Line service and the amount to be established by the Commission as just and reasonable based on the cost-of-service and throughput rulings set forth in the Initial Decision.
The Initial Decision addressed the following rate design and development issues: (i) the determination of an appropriate base and test period for deriving going-forward rates and computing reparations; (ii) the appropriate throughput level for deriving reasonable rates and whether actual throughput for the base and test period should be adjusted for any particular shipper or refinery events; (iii) the appropriate cost of capital, capital structure, and proxy group to rely on for deriving rates; (iv) the appropriate level of operating expenses, including right-of-way, environmental remediation, regulatory litigation, and oil losses and shortages, and whether such test period costs should be updated as of the end of the test period; (v) depreciation expenses; and (vi) the appropriate treatment of SFPP’s request for an income tax allowance now that it is ultimately owned by a corporation versus its prior ownership by a master limited partnership which situation was addressed in the D.C. Circuit’s United Airlines decision.
The Initial Decision found in favor of Commission Trial Staff’s and Joint Complainant’s positions in multiple instances indicating that reparations will need to be paid. However, the ultimate just and reasonable rates for SFPP’s East Line service will be established after the Commission addresses the briefs on and opposing exceptions associated with the Initial Decision and any related SFPP compliance filing(s) associated with implementing the Commission’s related cost and throughput decisions. Briefs on exception to the Initial Decision were filed September 20, 2017 and briefs opposing exceptions were filed on October 17, 2017.
In addition, on September 20, 2017, SFPP filed a Motion to Reopen the Record, or, in the Alternative, for the Commission to Take Administrative Notice. SFPP’s motion stated that a long-running dispute with Union Pacific Railroad Company (“UPRR”) regarding the rental expenses for, among others, the East Line right-of-way paid by SFPP to UPRR during the test period was resolved after the close of evidence in the docket. SFPP contended that this settlement affects SFPP’s overall cost-of-service calculation and therefore moved to re-open the record so the settlement figure could be incorporated into the cost-of-service analysis as it respects the Commission’s review of the Initial Decision. Alternatively, SFPP requested the Commission to take administrative notice of the court record showing that the dispute between SFPP and UPRR regarding the rental expenses had been resolved and terminated.
Joint Complainants and Trial Staff both filed answers to SFPP’s motion on October 5, 2017. Trial Staff stated that it did not oppose reopening the record to admit the new right-of-way cost figures so long as an adequate supplemental record could be established through limited testimony and procedures. However, Trial Staff opposed the Commission taking administrative notice of these facts. Joint Complainants’ opposed both reopening the record and the Commission taking administrative notice. Joint Complainants argued that the UPRR rental expense is one discrete and minor cost item among many others and therefore does not meet the Commission’s high bar for evidence worthy of submission after the record is closed. Moreover, Joint Complainants argued that SFPP is not able to add this new cost item into its test period cost-of-service calculation because such would amount to improper retroactive ratemaking and that Commission policy and precedent precludes spot adjustments to costs of service following the close of the record. Joint Complainants further argued that to the extent the carrier desired to recover its alleged increased cost, it should file a rate case where all costs and revenues could be evaluated to determine whether any cost increases were offset by cost decreases and/or increased revenues.
On December 12, 2018, SFPP filed another Motion to Reopen the Record. SFPP requested a paper hearing to discuss applying in that proceeding a new rate of return methodology (the Composite Method) which SFPP alleged was announced by the Commission in another proceeding under the Federal Power Act. SFPP argued that reopening the record was justified because this new policy amounts to an extraordinary circumstance, the policy was not announced before the close of the record in Docket No. OR16-6, and reopening the record at this stage would promote administrative efficiency. On December 27, 2018, Commission Trial Staff filed an Answer to SFPP’s Motion, taking the position that reopening of the record may be justified as the Commission had appeared to articulate a new policy. In its Answer, Staff also emphasized the high burden to reopen the record and requested any reopening be narrowly defined. Joint Complainants answered the motion on December 27, 2018, arguing that the burden had not been met to reopen a proceeding that had already taken so long, and that a new policy articulated under the FPA was not applicable to proceedings under the Interstate Commerce Act. On January 10, 2019, SFPP answered Joint Complainants Answer asserting that the Coakley Briefing Order was an extraordinary change in circumstance, a re-opened proceeding would be limited, and reopening was consistent with precedent.
On January 18, 2019, Joint Complainants filed a Motion to Supplement Answer and Supplement of Answer. Joint Complainants sought leave to supplement their answer because the Commission issued a subsequent order on January 7, 2019 clarifying that the Coakley Briefing Order had neither rejected the DCF methodology used in the present proceeding or adopted the Composite Methodology. In particular, the Commission stated, “the Commission did not reach any final conclusions or make any final determinations with respect to the new ROE methodology in the Briefing Order,” and that the “Commission also did not reach any final conclusions or make any final determination in the Briefing Order with respect to the use of the DCF in determining the ROE or whether DCF alone has ceased to be sufficient to estimate investors’ expectations for a return on equity.” On January 25, 2019, Commission Trial Staff filed an Answer to Joint Complainants Motion to Supplement, urging the Commission to accept the Joint Complainants’ supplemental answer and reject SFPP’s Motion to Reopen in light of the Commission’s pronouncements. On February 11, 2019, SFPP filed an Answer to Joint Complainants Motion, arguing that the language cited by Joint Complainants and Staff in the January 7 Coakley Order spoke to the finality of that order, and did not undermine the policy articulated in the Coakley Briefing Order which allowed parties to brief the issue of whether the DCF methodology or the Composite Method was more appropriate.
As of this report, the Commission has not yet ruled on the Initial Decision and the exceptions taken with respect thereto or on SFPP’s motions to reopen the record.
f. 2011 West Line Index (Docket No. IS11-444)
As described in past reports, on May 27, 2011, SFPP submitted a company-wide index rate increase of 6.88 percent. This was protested by various shippers and SFPP ultimately chose only to defend the West Line index-based rate increase as part of this proceeding. On March 12, 2012, the Presiding Judge granted summary judgment against SFPP on the grounds that SFPP was over-recovering its West Line costs by 1.16 percent for the relevant review period and thus was not entitled to any index-based rate increase associated with this line.
On exceptions, the Commission issued two orders. On July 12, 2012, the Commission denied SFPP’s motion to reopen the record to incorporate 2011 data into the evaluation of the reasonableness of the proposed 2011 index increase on the grounds that calendar-year 2011 data was irrelevant and that the relevant analysis is focused on cost changes between 2009 and 2010. On June 6, 2013, the Commission also issued Opinion No. 527, which upheld the Presiding Judge’s granting of summary judgment. Opinion No. 527 did not look at the difference between 2010 revenues and 2010 costs, stating “comparing costs to revenues in a single year is irrelevant.” Opinion No. 527 also refused to remove surcharged litigation costs and revenues from its analysis, because “there is no distinction between so-called ‘surcharged’ and ‘nonsurcharged’ litigation expenses for purposes of the percentage comparison test of the prior two years’ Form No. 6 data.” Accordingly, the Commission directed that SFPP refund to West Line shippers the index-based rate increase previously put into effect.
On July 8, 2013, SFPP filed a Request for Rehearing and Clarification and for Expedited Consideration. The Rehearing Request claimed that Opinion No. 527 was internally inconsistent. The Rehearing Request further asserted that the rejection of the index increase in Opinion No. 527 was inconsistent with the Commission’s practice of allowing pipelines to take an increase up to a 10 percent threshold. SFPP also sought clarification on Opinion No. 527’s declaration that comparing “costs to revenues in a single year is irrelevant.” On July 23, 2013 Shippers responded arguing that SFPP’s arguments were misplaced and that it was unlikely to prevail at trial and that the 10 percent rule was a screening tool not applicable at a trial type hearing.
On March 15, 2018, the Commission issued its Order on Rehearing and Establishing Further Hearing and Settlement Judge Procedures (Opinion No. 527-A), which partially granted SFPP’s rehearing request. The Commission affirmed the use of West-Line only data (versus total company data) to evaluate the proposed index rate increase, and clarified that Opinion No. 527’s emphasis regarding Form No. 6, Page 700 total company cost data did not change this determination. The Commission also upheld the July 2012 Order’s refusal to consider 2011 end-of-year cost and revenue data to evaluate the reasonableness of the proposed 2011 index-based rate increase.
However, the Commission found that the previous determination to reject the carrier’s index-based West Line rate increase in its entirety was unjustified based on the current record. Regarding the 10-percent threshold used at the screening stage of index protests proceedings, the Commission acknowledged that parties can advocate a different standard at hearing, but found that “the present record would not justify Opinion No. 527’s rejection of the index increase.” The Commission also found that “Opinion No. 527 improperly rejected SFPP’s West Line index increase based upon data that includes revenues and costs associated with SFPP’s litigation surcharge.” However, the Commission clarified that “if a pipeline’s revenues already significantly exceed its costs, then this pre-existing disparity will magnify the effect of any difference between an indexed rate change and the pipeline’s cost changes” and, as such, “[s]o long as the consideration of revenues is tied to the language of the regulation and indexing’s policy objectives, then the parties may consider revenues at hearing.” In sum, the Commission found that the current record was insufficient to accept the index increase and therefore directed that a new hearing be held and that settlement procedures be explored.
Opinion No. 527-A provided three pieces of guidance for the future hearing. First, because the Commission’s percentage comparison test is a screening mechanism, at hearing parties may advance other methods which “fully explain why the percentage comparison test and the 10-percent threshold do not justify accepting or rejecting SFPP’s 2011 West Line index” The Commission also clarified that “Opinion No. 527’s statement that ‘comparing costs to revenues in a single year is irrelevant’” was “overly broad.” Finally, the Commission emphasized that the hearing must revolve around indexing policy objectives of simplified rate regulation and rewarding efficient pipeline operation.
To date, the parties have been engaged in Commission-supervised settlement discussions and no procedural schedule concerning an evidentiary hearing has been established. A final settlement conference was scheduled for January 24, 2019. As of the publication of this summary, it appears that the parties have reached an agreement in principle regarding settlement and are in the process of finalizing the overall settlement agreement.
g. ConocoPhillips Company v. SFPP, L.P., (Docket No. OR11-13); Chevron Products Company, (Docket No. OR11-16); and Tesoro Refining and Marketing Company, (Docket No. OR11-18)
As briefly discussed in past reports, on June 13, 2011, ConocoPhillips Company (“ConocoPhillips”) and Chevron Products Company (“Chevron”) filed similar complaints (Docket Nos. OR11-13 and OR11-16, respectively) challenging the justness and reasonableness of the interstate rates on SFPP, L.P.’s (“SFPP”) pipeline system, including the portions grandfathered by the Energy Policy Act of 1992 (“EPAct 1992”). These complaints were followed on July 20, 2011 by a similar complaint instituted by Tesoro Refining and Marketing Company (“Tesoro”) (Docket No. OR11-18). SFPP filed a Joint Answer to Chevron’s and ConocoPhillips’s Complaints on July 5, 2011, and an Answer to Tesoro’s Complaint on August 9, 2011.
On October 3, 2011, the Commission issued its Order on Complaints and Establishing Further Procedures. This order found that notwithstanding SFPP’s reported over-recovery of costs, because SFPP reported its 2010 revenue and cost-of-service data on a consolidated system-wide basis, the record was insufficient to determine whether complainants had made an appropriate showing that the carrier’s rates on its individual pipeline systems warranted investigation as potentially being unjust and unreasonable. The Commission ordered that the complaints be held in abeyance and directed SFPP to provide segmented or system-specific revenue and cost-of-service data after appropriate progress had been made in connection with SFPP’s ongoing rate proceeding in Docket No. IS08-390 as this case dealt with “issues that have a very large economic impact on rates, most notably the income tax allowance and overhead cost allocation issues.” The Commission identified that once SFPP did ultimately provide the referenced segmented cost and revenue data, the complainants would have a reasonable period of time to submit amended complaints.
On March 15, 2018, the Commission issued an Order Establishing Further Procedures in the referenced dockets. The Commission found that it had “sufficiently resolved the ongoing litigation involving SFPP's 2008 rate case in Docket No. IS08-390 to proceed with these complaints.” The Commission lifted the abeyance and directed SFPP to provide the segmented cost, revenue and throughput data for each of its systems.
On June 13, 2018, SFPP submitted its cost, revenue, and throughput data for calendar years 2009 and 2010 and moved to hold the proceedings in abeyance on the grounds that a rehearing request of Order 511-C was pending. On August 10, 2018, Tesoro filed two Amended Complaints: one challenging SFPP’s West Line rates and the other challenging the carrier’s North and Oregon Line rates. On August 13, 2018, Philipps 66 and Chevron filed Amended Complaints which withdrew that portion of their original complaints challenging SFPP’s East Line, Sepulveda Line, and Watson Station rates, but continued to challenge the carrier’s West, Oregon, and North Line rates. Both filings also responded to SFPP’s motion to hold the proceeding in abeyance.
Based on SFPP’s compliance filing data and by making certain cost-of-service adjustments they believed appropriate, the Philipps 66 and Chevron Amended Complaints alleged an 8.8 percent over-recovery of costs for the West Line, a 15.5 percent over-recovery for the North Line, and a 22.6 percent over-recovery for the Oregon Line. These Amended Complaints also alleged that their preliminary analyses demonstrated that the change in the achieved real rate of return on equity for the Oregon and North Lines, when compared to the achieved real rates of return in prior periods, raised serious questions as to the grandfathered status of the Oregon and North Line rates pursuant to the Energy Policy Act of 1992 (“EPAct 1992”). Tesoro’s Amended Complaint made similar assertions, estimating a 2010 over-recovery of 15 percent for the North Line and 22 percent for the Oregon Line, and not making a numerical estimate regarding the West Line absent discovery. Tesoro also asserted that its preliminary analysis of the achieved real rates of return on equity for the North and Oregon Lines for the relevant time periods placed in question the grandfathered status of the carrier’s North and Oregon Line rates.
On September 10, 2018, SFPP filed its Answers to the Amended Complaints in all three unconsolidated but related dockets. Regarding the West Line, SFPP’s Answer claimed none of the complainants had made a prima facie showing that the rates were unreasonable. SFPP asserts the adjustments were unwarranted and that, even with adjustments, the estimated over-recovery of 8.8 percent fell within a reasonable range of divergence between costs and revenues. Regarding the North and Oregon Lines, the Answer emphasized that the burden to examine grandfathered rates lies with complainants and argued that they had failed to meet this burden here. SFPP also asserted that the interstate status of the Oregon Line is doubtful, and claimed the burden lies with complainants to establish jurisdiction. SFPP also contended that the complaints’ request for reparations are directly impacted by previous global settlements resulting in a claimed overstatement of potential damages.
On September 24, 2018, Tesoro filed an Answer to SFPP’s Answer, arguing the Answer amounted to a motion to dismiss. And on October 9, 2018, Chevron and Phillips 66 filed a similar Motion for Leave to Respond and Response to SFPP’s Answer. The complaining shippers all argued that there is no 10% threshold divergence of cost and revenues to set a complaint for hearing, that SFPP’s 10% threshold is a novel standard unsupported by law or precedent, and that the complainants had met their prima facie burden of alleging reasonable grounds that the rates are unjust and unreasonable. The complaining shippers also took issue with SFPP’s characterization of Accumulated Deferred Income Taxes (“ADIT”) for similar reasons raised by shipper parties in other SFPP dockets discussed herein. Complaining shippers defended the use of a pipeline’s actual capital structure model and contended that, contrary to SFPP’s claims, recovery is not barred by any previous settlements because those settlements contain exclusions which cover the time period at issue in this case. Complaining shippers defended their estimates and assertions regarding costs resulting from a right of way settlement, pipeline relocation, and environmental remediation. Chevron and Phillips 66 also took issue with SFPP’s characterization of its Oregon Line shipments as intrastate and non-jurisdictional, since the location of a line in one state is not dispositive of its jurisdictional status. These issues, shippers contend, preclude dismissal and require a hearing.
On October 9, 2018, SFPP filed an Answer to Tesoro’s answer and on October 24, 2018 filed an Answer to the Answer of Chevron and Phillips 66. SFPP stressed that the “substantially over-recovering” language came directly from the Commission’s October 2011 Order. SFPP also defended the 10% threshold and distinguished Epsilon Trading cited by the complainants because the over-recovery alleged was higher than 10% although the carrier’s Page 700 in that case showed less. SFPP supported its treatment of ADIT and argued the amount in this case is too small to help complainants meet their prima facie burden. SFPP also asserted, once again, the recovery sought is barred by settlement, as the exclusion in the Global Settlement cited by the shippers was limited to particular other dockets.
As of the publication of this report, the Commission has not yet acted on the shippers’ Amended Complaints and the carrier’s response thereto described above.
h. 2012 and 2013 Indexing Complaints (Docket Nos. OR14-35 and OR14-36)
As noted in prior reports, on June 27 and 30, 2014, HollyFrontier Refining & Marketing LLC, Southwest Airlines Co., Tesoro Refining and Marketing Company, US Airways, Inc., Valero Marketing and Supply Company, Chevron Products Company, and Western Refining Company, L.P. (collectively, “Joint Complainants”) filed complaints challenging the justness and reasonableness of SFPP, L.P.’s (“SFPP”) West and East Line 2012 index rate increases and the justness and reasonableness of SFPP’s West, East, Oregon , North, and Sepulveda Line 2013 index rate increases. SFPP filed its answer on July 28, 2014, arguing that the Joint Complainants failed to show a reasonable basis for the Commission to reject the 2012 and 2013 index rate changes. On October 31, 2014, the Commission held the complaint proceedings in abeyance pending the resolution of other ongoing proceedings affecting SFPP’s rates, including Docket Nos. IS08-390, IS09-437, and IS11-444. On November 26, 2014, Joint Complainants filed a request for rehearing, asserting that FERC’s decision to hold the complaint in abeyance was in direct contradiction to its policy of streamlining index rate challenges and basing such decisions solely on the pipeline’s Form No. 6 Page 700 data.
On December 8, 2016, the Commission issued its Order on Rehearing and Dismissing Complaints. The Order stated that the Joint Complainants failed to satisfy the second part of the “substantially exacerbate” test: showing reasonable grounds that the pipeline’s index increase substantially exacerbates the carrier’s existing over-recovery. The Commission stated that the difference between SFPP’s costs and revenues (i.e., over-recovery) declined from 2011 to 2013, based on end-of-year cost and revenue data from the carrier’s 2013 Form 6 post-dating the index rate increases at issue. As a result, the Commission concluded that the Joint Complainants did not show that the 2012 and 2013 index rate increases substantially exacerbated the pipeline’s existing over-recovery.
On January 9, 2017, Joint Complainants filed a request for rehearing concerning the Commission’s December 8 Rehearing Order. The Joint Complainants claimed that the December 8 Rehearing Order’s failure to rely on specifically the cost and revenue data from the two years prior to the subject index rate change unreasonably alters FERC’s established test for determining whether an index rate increase “substantially exacerbates” the over-recovery of a pipeline’s cost of service without reasoned basis and contrary to precedent. SFPP filed, on January 24, 2017, a Motion for Leave to Answer and Answer to Joint Complainants rehearing request disputing the arguments made in opposition to the December 8 Rehearing Order.
On March 15, 2018, the Commission issued its order denying rehearing. The Commission found that, contrary to Joint Complainants contentions, it had not altered the “substantially exacerbate” test since different situations call for different analysis. The Commission determined that notwithstanding its prior orders indicating that index-based rate increases should be evaluated based on the change in costs between the previous two years, given the timing of the complaint (i.e., near the end of the ICA’s two-year statute of limitations), the carrier’s Form No. 6 Page 700s showed a declining over-recovery from 2011 to 2013 and this “continuing decline is inconsistent with the claim that the index increase substantially increased any pre-existing over-recovery.” In this connection, the Commission, for the first time, identified that when an index complaint is filed can dictate what cost and revenue information can be relied on to evaluate the reasonableness of the challenged index rate increases.
The Joint Complainants filed Petitions for Review with the Court of Appeals for the D.C. Circuit on May 14, 2018. And SFPP moved to intervene in the consolidated dockets on June 7, 2018.
The Joint Complainants (now “Petitioners”) filed their Initial Brief on October 26, 2018, requesting the Court to vacate FERC’s orders with instructions to reconsider the complaints. Petitioners argued that FERC policy is clear that an index rate increase is intended to compensate a pipeline for the cost changes occurring between the two preceding years. And that therefore, when evaluating an index rate increase, FERC has consistently held that only the pipeline’s cost and revenue data between the two preceding years is relevant. Petitioners thus argue that FERC’s dispositive reliance on data after the effective date of the increase constitutes an unjustified departure from the agency’s established methodology and past precedent without any explanation, rendering the Order arbitrary and capricious.
Petitioners also argued that applying different standards based on when complaints are filed within the applicable statute of limitations is arbitrary and invites gamesmanship and undermines the policy goal of simplified ratemaking for indexed rates. Petitioners further claimed the Rehearing Order relied on data FERC knew to be incorrect by relying on SFPP’s Form No. 6, Page 700 data that included an income tax allowance (“ITA”) despite a Commission policy no longer allowing that allowance in a cost of service for entities such as SFPP. Petitioners point to orders issued by the Commission the same day, including in another SFPP index dispute, which inconsistently took account of and directed the removal of any ITA from the carrier’ s cost of service before evaluating the reasonableness of the index-based rate change.
Respondent FERC filed its Brief on December 21, 2018 and SFPP filed its Intervenor Brief in Support of Respondents on January 10, 2019. FERC defends its reliance on data significantly post-dating the increase on the grounds that the shippers filed their complaints more than a year later and the Commission had not necessarily committed itself to reviewing only the data from the prior two years. Respondent FERC argued it had not yet clarified whether its indexing policy was forward-looking or backwards-looking, leaving it with the purported discretion to decide in specific cases. FERC argued the Rehearing Order did acknowledge the departure from “generally” using data and adequately justified the broader approach as yielding a sounder and more equitable result. Respondent also claimed Petitioners should not be allowed to cite prior FERC orders where the Commission had refused to consider new data when available on the grounds that Petitioners did not specifically cite those cases to the agency. SFPP argued that the substantially exacerbate test is inherently forward-looking because exacerbation occurs in the future. FERC asserts there is little concern of gamesmanship because complainants choose the timing of their complaints. Respondent FERC also argued that applying the Commission’s ITA policy here would contravene the goal of simplicity inherent in index proceedings.
Regarding the reliance on incorrect data, FERC argued that Petitioners cannot raise that argument before the Court because they had not raised it before the agency. FERC further argued that under simplified indexing procedures, the Commission does not examine assumptions underlying the annual cost data included in the Form No. 6, Page 700. SFPP also argued that Petitioners had not exhausted their administrative remedies. SFPP further argued that Petitioners invited the alleged income tax allowance-related error because by filing their Request for Rehearing of FERC’s order originally holding the case in abeyance, they urged the Commission not to wait to consider the outcome of the proceedings which ultimately required SFPP to remove its income tax allowance. Therefore, SFPP argues, the Petitioners should not now have the benefit of those rulings because it allegedly induced the Commission to ignore them.
Petitioners filed their Reply Brief on February 11, 2019. Petitioners asserted Respondents had not rebutted arguments that past Commission precedent considered post-index rate increase data entirely irrelevant. They took issue with FERC’s claims that its own precedent was unclear as to whether its indexing mechanism is retrospective or prospective. Petitioners contend the agency’s precedent is clear that it is retrospective and FERC could not cite to any authority supporting its contrary theory. Petitioners claim they are not precluded from citing FERC precedent not cited before the agency because they had fully raised the issue of inconsistency there and were not required to cite each and every case FERC has issued finding that index-based rate increases are only retrospective especially where FERC has never before permitted cost and revenue data post-dating the index-based increase to influence an evaluation of the reasonableness of index-based rate increase. Petitioners also assert they were not required to request rehearing regarding FERC’s reliance on incorrect data because they could not have raised that issue prior to issuance of the final order. Petitioners assert that applying the ITA policy will not impair the simplicity of the proceedings as the issue is resolved and the application would be straightforward. Petitioners also dispute that they invited FERC’s error.
Oral argument at the D.C. Circuit in this matter has been scheduled for April 12, 2019.
i. Aircraft Service International Group, Inc., et al. v. Central Florida Pipeline LLC, et al. (Docket No. OR16-26)
As noted in prior reports, Aircraft Service International Group, Inc. (“ASIG”), American Airlines, Inc., Delta Air Lines, Inc., Hookers Point Fuel Facilities LLC, Southwest Airlines Co., United Aviation Fuels Corporation, and United Parcel Service, Inc. (collectively, “Joint Complainants”) filed a joint complaint against Central Florida Pipeline LLC (“CFPL”) and Kinder Morgan Liquid Terminals LLC (“KMLT”) on September 20, 2016. The complaint alleged that CFPL has unlawfully provided for physical transportation of jet fuel in interstate commerce on its pipeline from a KMLT terminal in Tampa, Florida (“KMLT Terminal”) to CFPL delivery points at a liquids terminal in Taft, Florida and the ASIG terminal at Orlando International Airport without filing a tariff with the Commission. The joint complaint also alleged that KMLT has unlawfully provided un-tariffed FERC-jurisdictional break-out tankage service at its liquids terminal in Tampa, Florida. Finally, based on public filings related to CFPL costs, the joint complaint alleged that the rates charged by CFPL for the transportation of jet fuel are not just and reasonable. Joint Complainants requested that the Commission order an evidentiary hearing to determine just and reasonable rates for jet fuel transportation on CFPL’s pipeline, as well as direct CFPL to file an appropriate FERC-related tariff in recognition that CFPL is providing interstate transportation of jet fuel.
CFPL and KMLT filed a joint answer on October 17, 2016. CFPL and KMLT argued that there is a “break” between the waterborne movement of jet fuel to the KMLT Terminal and the subsequent transportation of jet fuel to Orlando and other Florida airports. As a result of this alleged break in the chain of commerce, CFPL and KMLT argued that CFPL does not provide interstate transportation of jet fuel and, therefore, the Commission does not have jurisdiction over the pipeline. CFPL and KMLT also argued that KMLT does not provide un-tariffed FERC-jurisdictional break-out tankage service at its liquids terminal in Tampa, Florida because the tanks at the Tampa terminal are not necessary for the operation of the pipeline (i.e., there are other points at which product may originate). Finally, the defendants argued that the Joint Complainants’ over-recovery analysis is incorrect and should be disregarded.
The Commission issued an order on December 15, 2016 setting this matter for hearing, stating: “because of the need for an intensely factual inquiry and the need to examine closely the complex nature of the transactions and relationships between various entities on both sides of the complaint, it would not be appropriate to make a jurisdictional determination based upon the pleadings alone.” The Commission noted that the threshold question in this matter is whether the CFPL pipeline and the KMLT terminal facilities are providing interstate transportation service and therefore directed the ALJ “to establish appropriate hearing procedures, including whether a phased hearing is required.”
On January 5, 2017, the Presiding Judge requested briefs from the parties on whether a phased hearing is “required.” The Joint Complainants submitted comments arguing that a two-phase proceeding would be inefficient and result in a longer time frame for CFPL and KMLT to provide un-tariffed transportation and break-out storage services. CFPL and KMLT submitted joint comments stating that a two-phase proceeding was appropriate and most efficient. On January 25, 2017, the Presiding Judge issued an Order Phasing Case and Establishing Procedural Schedule. The Presiding Judge stated that the factors enumerated by the Commission in Trans-Alaska Pipeline System, 16 FERC ¶ 61,245 (1981), dictate that a two phase proceeding is appropriate in this matter. Phase 1 of the hearing would address whether the CFPL pipeline and the KMLT terminal facilities are providing interstate oil pipeline transportation service that is subject to the Commission’s jurisdiction under the ICA. Phase 2, if necessary, would address the remaining issues including the justness and reasonableness of CFPL’s rates. The Phase 1 hearing commenced on August 31, 2017 and concluded on September 21, 2017.
The Presiding Judge issued an Initial Decision on January 30, 2018, finding generally that KMLT/CFPL’s pipeline was providing intrastate service not subject to FERC’s jurisdiction. First, with respect to the issue of whether KMLT should be dismissed from the proceeding, the Presiding Judge denied KMLT/CFPL’s motion for summary disposition because material facts remained in dispute at the time of the filing of the motion regarding KMLT’s control over certain facilities and the intent/purpose of certain agreements.
Second, the Presiding Judge indicated that she gave significant weight to the jurisdictional test and related line of cases utilized in Guttman Energy, Inc. v. Buckeye Pipe Line Company, L.P., 161 FERC ¶ 61,180 (2017) (“Guttman”), to determine that transportation on CFPL is not jurisdictional (i.e. intrastate). The Presiding Judge stated that the appropriate test to determine the nature of transportation on CFPL is (i) whether the product comes to rest at a point of interruption and (ii) whether the point of interruption constitutes a “‘sufficient break’ in the continuity of the transportation, such that the foreign or interstate journey comes to an end and subsequent movements beyond the point of interruption constitute independent, intrastate transportation.” After determining that transported jet fuel comes to rest at the KMLT Terminal, the bulk of the Initial Decision weighed the multiple factors relevant to the inquiry regarding whether a sufficient break in the continuity of transportation had occurred at that point. The Presiding Judge determined that these factors weighed in favor of finding a sufficient break at the KMLT Terminal, such that subsequent transportation on the CFPL should be considered intrastate transportation.
Notably, in recognition of the Joint Complainants’ arguments and related precedent relied on, the Presiding Judge observed that “there is another line of cases that has revised” the jurisdictional test used in the Initial Decision – namely, cases related to the Interstate Commerce Commission’s (“ICC”) Policy Statement – Motor Carrier Interstate Transportation – From Out-of-State Through Warehouses to Points in Same State, 8 I.C.C. 2d 470 (1992) (“1992 Policy Statement”) and related case law. The Presiding Judge concluded the Initial Decision by stating that “[t]he Commission may want to review the 1992 Policy Statement” and subsequent case law and noting that application of this precedent “to the present proceeding might alter the outcome.”
The Presiding Judge determined that her decision regarding the intrastate nature of transportation on CFPL mooted the issue of whether the break-out tankage service at the KMLT Terminal is jurisdictional.
On March 1, 2018, opposing briefs on exception were filed by Joint Complainants and KMLT and CFPL. Complainants raised several exceptions. Chief among them was that the Initial Decision viewed the factors in an overly restricted and isolated manner, rather than in a broader or holistic context. Joint Complainants alleged this was a legal error which led to various factual errors on most key points in dispute. Joint Complainants also argued that the question of whether the KMLT Terminal was jurisdictional was not moot and that the Initial Decision erred by declining to adopt the methodology and analysis espoused in the ICC’s 1992 Policy Statement.
The two parties also took exception to the Initial Decision’s characterization of a product’s coming to rest as a “threshold” to be met before applying certain evaluation factors. On exceptions, KMPLT and CFPL argued that such a determination is the conclusion of the factor-driven inquiry, not a condition precedent to it.
On March 22, 2018, briefs opposing exception were filed by Joint Complainants, KMLT and CFPL, and Commission Trial Staff. Joint Complainants agreed with Respondents that the Initial Decision misapplied the law by treating the factual inquiry concerning the issue of whether a product has come to rest as a threshold question but differed from KMLT and CFPL by arguing that the Northville Dock factors are not a conclusive test.
In their Brief Opposing Exceptions, KMLT and CFPL argued that Joint Complainant’s analysis would be disruptive of the Commission’s jurisdictional treatment of oil pipelines and have negative policy ramifications. They also supported the conclusions reached by the Initial Decision and argued that Joint Complainant’s factual evidence and legal arguments had been adequately addressed. Commission Trial Staff agreed with KMLT and CFPL on all relevant points and took issue with Joint Complainants argument that Supreme Court precedent, as well as the Commission’s recent decision in Guttman, which applied the cases cited by Joint Complainants, required a different result.
As of publication of this report the Commission has not yet acted on the Initial Decision and exceptions raised in relation thereto.
j. North Dakota Pipeline Company LLC (Docket No. IS18-486)
On May 30, 2018, North Dakota Pipeline Company LLC (“North Dakota Pipeline”) filed FERC Tariff No. 3.26.0 to implement a 4.41 percent index rate increase to be effective July 1, 2018 pursuant to section 342.3 of the Commission’s regulations. Hess Trading Corporation (“Hess”) and ConocoPhillips Company (“ConocoPhillips”) filed a joint protest against the index increase to North Dakota Pipeline’s uncommitted rates but not the index increase as applied to North Dakota Pipeline’s contractual, committed rates subject to a Transportation Service Agreement. On June 19, 2018, North Dakota Pipeline responded to the Joint Protest. On June 22, 2018, Hess and ConocoPhillips filed a motion for leave to answer and answer to North Dakota Pipelines response.
On June 29, 2018, the Commission issued an order accepting and suspending North Dakota Pipeline’s tariff to become effective July 1, 2018, subject to refund and the outcome of hearing and settlement judge procedures to investigate the proposed index increase to North Dakota Pipeline’s uncommitted rates. Following settlement procedures, on August 22, 2018, ConocoPhillips and Hess filed a Notice of Withdrawal of Motions to Intervene and Protest. On September 11, 2018, the Chief Administrative Law Judge found that there were no additional matters pending before the Office of Administrative Law Judges and Dispute Resolution, subject to final action by the Commission, and terminated the settlement judge procedures.
E. Tariff Rules Issues
1. CHS Inc., et al. v. Enterprise TE Products Pipeline Company, LLC (Docket Nos. OR13-25 and OR13-26)
As noted in prior reports, in 2013 several parties filed complaints against Enterprise TE Products Pipeline Co., LLC (“Enterprise TE”) challenging the lawfulness of a tariff that abandoned service for jet fuel and distillates. According to the complainants, Enterprise TE violated a settlement agreement that required Enterprise TE to continue offering transportation for jet fuel and distillates. The complainants requested that the Commission prevent Enterprise TE from abandoning service and award damages. On October 17, 2013, the Commission granted the complaints in part. The Commission interpreted the settlement agreement as requiring Enterprise TE to maintain service for the duration of the settlement. However, because it lacked jurisdiction over oil pipeline abandonments, the Commission could not require Enterprise TE to continue jet fuel and distillate service. Instead, the Commission set a hearing to determine any damages from the termination of service. On November 18, 2013, the complainants filed a request for a limited rehearing of the Commission’s order, claiming that the Commission erred in determining that it lacked the authority to direct Enterprise TE to continue to transport distillates and jet fuel and failing to enforce the terms of the settlement. Ultimately, Enterprise TE reached a settlement with all parties regarding the issue of damages and the hearing proceedings were terminated. However, two of the complainants, United Airlines, Inc. (“United”) and UPS Fuel Services, Inc. (“UPS”), remained parties to the proceedings to pursue the request for rehearing.
On May 19, 2016, the Commission denied the request for rehearing. In the Order on Rehearing, the Commission held that Enterprise TE’s decision to discontinue transportation service for distillate and jet fuel did not violate the pipeline’s common carrier obligations or the requirements set forth in the ICA. Further, the Commission explained that its decision to establish a proceeding to determine monetary damages was the proper remedy for Enterprise TE’s violation of the settlement agreement. The Commission concluded once again that an equitable remedy of specific performance was not appropriate
The Commission analyzed five main issues in the Rehearing Order. First, the Commission affirmed its prior holding that the decision by a common carrier oil pipeline to no longer provide transportation of a distinct product is an abandonment and not merely a refusal to provide service. The Commission explained that the best analogy to the definition of an abandonment concerning an oil pipeline is found in the Commission’s definition for abandonment for gas pipelines, and not in the definition used by the Surface Transportation Board in the context of railroads. Second, the Commission emphasized that nothing in the ICA changed the common law rule that common carriers were only required to provide the services that they held themselves out as being willing and able to provide. In its analysis, the Commission reviewed various case law addressing the development of the common carriers’ ability to limit the type of service that it provides, both before and after the adoption of the ICA. The Commission pointed to the tariff as the definition of the types of service that a common carrier oil pipeline holds itself out as providing. The Commission held that Enterprise TE was involved in an abandonment of service that was beyond the Commission’s jurisdiction to regulate. Third, the Commission rejected the argument that Enterprise TE’s discontinuation of transportation service for distillate and jet fuel involved a classification, regulation, or practice. The Commission clarified that the rates at issue were not based on a classification, which would require similar rates for similar groupings of commodities, but instead were commodity rates, which removes the rates from the scope of section 1(6) of the ICA. Fourth, the Commission reiterated that where service is abandoned entirely, and all shippers receiving the service are subject to the abandonment, there is no issue of discrimination under the ICA. Fifth, the Commission held that there is no ICA provision that would grant the Commission equitable authority to obstruct the decision of an oil pipeline to abandon a particular service.
On July 18, 2016, United and UPS, filed a petition for review of the Commission’s October 13, 2013 and May 19, 2016 orders with the D.C. Circuit in case No. 16-1245. That case was consolidated with Enterprise TE’s petition for review of the Commission’s October 13, 2013 order in case No. 13-1305. On December 13, 2016, the court granted an unopposed motion to voluntarily dismiss Case No. 13-1305, leaving only Case No. 16-1245 pending before the court. In Case No. 16-1245, the Joint Petitioner Brief was filed on February 14, 2017. Respondents’ brief was filed on May 1, 2017. Intervenor for Respondents’ brief was filed on May 16, 2017. Petitioners’ reply brief was filed on June 15, 2017. Final briefs were filed on July 6, 2017. Oral arguments were held on February 13, 2018. A decision remains pending.
2. BP Products North America v. Sunoco Pipeline, L.P. (Docket No. OR15-25)
As noted in past reports, BP Products North America Inc. (“BP”) filed, on April 30, 2015, a complaint against Sunoco Pipeline, L.P. (“Sunoco”) concerning throughput and deficiency (“T&D”) agreements Sunoco entered into with other shippers on its Marysville to Toledo pipeline segment and a revision of the carrier’s proration policy. BP contended that Sunoco’s actions and conduct resulted in an undue preference for certain shippers and unduly discriminated against BP contrary to the ICA. Sunoco answered the complaint on June 1, 2015 disputing BP’s complaint allegations. The Commission, on July 31, 2015, set the complaint for hearing.
BP, Sunoco, FERC Trial Staff, and Intervenors, Marathon Petroleum Company LP (“Marathon”), PBF Holding Company LLC and Toledo Refining Company LLC (together “PBF”), filed their respective testimonies throughout 2016 with the hearing being held November 17-22, 2016. Of note, on November 1, 2016, PBF and Marathon filed motions to strike certain portions of BP’s witness testimony. Administrative Law Judge Patricia E. Hurt denied these motions on November 14, 2016, finding that PBF and Marathon failed to carry their burden of proof in demonstrating that the challenged testimony provisions were “irrelevant, immaterial, or unduly repetitious” under 18 C.F.R. § 385.509(a).
On November 11, 2016, PBF filed a motion requesting that the Commission treat certain materials in the exhibits filed by the parties as protected from public disclosure. The ALJ denied this motion at a prehearing conference on November 15, 2016, and simultaneously denied PBF’s motion for permission to file an interlocutory appeal. PBF subsequently filed an interlocutory appeal to the Commission on November 18, 2016, arguing that the ALJ had applied an overly stringent standard for PBF to prevent public disclosure of the contested materials. On December 8, 2016, the Commission issued an order stating that the appropriate standard for protection of confidential materials is whether disclosure is “likely to cause substantial harm to the competitive position of the person from whom the information was obtained.” The Commission determined that the ALJ may have applied too strict of a standard (i.e., requiring PBF to show that disclosure would in fact cause competitive harm) and remanded the matter for further consideration in accordance with the appropriate standard. On December 16, 2016, after holding oral argument on the issue, the ALJ issued an order confirming her prior ruling on releasing the contested information based on her finding that PBF had failed to show that public release was likely to cause competitive harm.
The Presiding Judge issued her Initial Decision on May 26, 2017, finding that “Sunoco unduly discriminated against BP by its process of awarding [T&Ds], by granting an undue preference via the terms and treatment of a particular shipper’s [T&Ds], and by revising its proration policy to favor certain shippers over BP.” Relying primarily on Colonial Pipeline Co., 146 FERC ¶ 61,206 (2014) and White Cliffs Pipeline, L.L.C., 148 FERC ¶ 61,037 (2014), the Presiding Judge held that Sunoco’s T&Ds with PBF and Marathon should be voided.
Additionally, the Presiding Judge held that the capacity allocation of the Marysville pipeline should be re-calculated according to the three shippers’ actual shipment data for the 12-month period preceding the effective date of the first unlawful T&D at issue in the proceeding (i.e., September 30, 2010). The Presiding Judge also recommended that the Sunoco proration policy be investigated by the Commission. In response to the issue of whether BP’s claim was time barred, the Presiding Judge found that the complaint was timely filed within the requirements of the ICA. Finally, with regard to damages, the Presiding Judge adopted an alternative damage calculation of FERC Trial Staff amounting to approximately $13.1 million for BP, without interest and related updating. The parties filed briefs on exception on July 26, 2017 and briefs opposing exceptions on September 18, 2017.
On October 15, 2018, the parties filed a Joint Unopposed Motion to Defer Ruling on the Initial Decision Pending Completion of Settlement Discussion. In the motion, the parties represented that they were close to reaching an agreement and requested the Commission strike the matter from the Commissions upcoming October 18, 2018 meeting agenda. On November 8, 2018, the parties filed a Notice of Settlement Agreement in Principle. On December 11, 2018 the parties jointly submitted the Offer of Settlement to the Commission. The Settlement resolves all issues in the proceeding. Under the Settlement, Sunoco will revise its proration policy, as well as revise the parties’ Initial Base Period Histories and Initial Heavy Ratios. Further, Sunoco’s T&D agreements with Marathon and PBF are null and void under the Settlement and an Alternative Allocation Charge (allowing shippers to pay to maintain their shipping history on the Marysville Pipeline) will expire four years following the effective date of the Settlement Agreement. Sunoco will also make a settlement payment to BP, which will withdraw its Complaint. On December 20, 2018, Commission Trial Staff filed Initial Comments supporting Commission certification of the Settlement Agreement.
As of publication of this report, the Commission has not acted on the Offer of Settlement.
3. SFPP, L.P. (Docket No. IS15-587)
As noted in previous reports, HollyFrontier Refining & Marketing LLC (“HollyFrontier”) protested revisions filed by SFPP, L.P. (“SFPP”) to its Rules and Regulations Tariff designed to revise the carrier’s allocation method for transmix generated on gathering lines connected to SFPP’s pipeline system. On August 31, 2015, the Commission issued an order accepting SFPP’s proposed changes. On September 30, 2015, HollyFrontier and Holly Energy Partners – Operating, L.P. (“HEP Operating”) filed a Joint Request for Rehearing. The request argued that the Commission’s order is based on erroneous finding of facts, forces a non-shipper to take service under the revised tariff, abrogates the relevant portion of the Connection Agreement between SFPP and HEP Operating, and erroneously accepts a tariff provision that is vague, ambiguous and difficult to apply.
On October 8, 2015, SFPP filed a Reply to the Rehearing Request, disputing HollyFrontier’s and HEP Operating’s arguments and stating that the Holly entities were improperly presenting their claims in a piecemeal fashion. On October 27, 2015, the Commission granted the Joint Rehearing Request for the limited purpose of further consideration.
On October 5, 2017, the Commission issued its Order on Rehearing. First, the Commission denied HEP Operating’s motion to intervene out of time because (i) the entity did not show good cause for its late motion, (ii) granting the motion would prejudice SFPP, and (iii) its arguments were already raised by HollyFrontier. Second, the Commission denied HollyFrontier’s request for rehearing. While the Commission admitted the proposed allocation method may not be perfect, it determined that SFPP had satisfactorily shown that the proposal is just and reasonable. The Commission also rejected HollyFrontier’s other arguments and stated that any allegation that SFPP had violated the Connection Agreement was beyond the scope of the current proceeding.
HollyFrontier did not seek rehearing of the Commission’s Order on Rehearing and has not sought court review of the Commission’s determinations. Accordingly, the Commission’s order with respect to this proceeding are now final and this proceeding has been concluded.
4. Colonial Pipeline Company (Docket Nos. OR18-7, OR18-12, OR18-17, and OR18-21)
On November 22, 2017, Epsilon Trading, LLC (“Epsilon”), Chevron Products Company (“Chevron”), and Valero Marketing and Supply Company (“Valero”) (collectively, “Complainants”) filed a Complaint in Docket No. OR18-7 challenging the lawfulness of the rates charged by Colonial Pipeline Company (“Colonial”) for transportation of petroleum products from all origins to all destinations under FERC Tariff No. 99.30.0. The complaint alleged that Colonial’s rates are unjust and unreasonable and that Colonial is over recovering its cost of service. The complaint also challenged the pipeline’s market-based and grandfathered rates. In addition, it argued that Colonial’s transmix and product loss allocation accounting are not properly stated in the tariff. Complainants seek prospective relief and reparations. On December 22, 2017, Colonial answered the complaint and argued that it lacked merit and should be dismissed. On January 8, 2018, the Complainants filed an answer to Colonial’s answer.
On February 2, 2017, BP Products North America, Inc., Trafigura Trading LLC, and TCPU, Inc. (“Joint Complainants”) filed a complaint in Docket No. OR18-12 challenging the lawfulness of the rates charged by Colonial for transportation of petroleum products, including aviation kerosene, motor gasoline, diesel, and jet fuel, from all origins to all destinations in the FERC Tariff No. 99.30.0 and FERC Tariff No. 98.34.0, and predecessor tariffs to both tariffs, alleging that pipeline’s interstate revenue in 2016 exceeded the pipeline’s interstate cost of service by an estimated level of $339.3 million based on reasonable and conservative adjustments to account for the impact of non-recurring pipeline integrity incidents, including related impacts therefrom, and other appropriate adjustments to Colonial’s reported cost-of-service and revenue data. The complaint challenged colonial’s cost-based tariffs, its market-based and grandfathered rates, as well as its transmix allocation policy. The complaint also requested consolidation with the complaint filed in Docket No. OR18-7. On March 5, 2018, Colonial answered the complaint and argued that it lacked merit and should be dismissed, or if not dismissed, that any proceeding be conducted in two phases, where the first phase would address Colonial’s market power and its market-based rates and the second phase would address Colonial’s indexed rates and any outstanding issues. On March 20, 2018, the Joint Complainants filed an answer to Colonial’s answer.
On March 1, 2018, TransMontaigne Product Services LLC (“TransMontaigne”) filed a complaint in Docket No. OR18-17 challenging the justness and reasonableness of Colonial’s cost and market-based rates from all origins to all destinations on similar grounds to the complaints filed in Docket Nos. OR18-7 and OR18-12, including challenges to Colonial’s cost-based tariffs, its market-based and grandfathered rates, as well as its transmix allocation policy. The complaint also requested consolidation with the complaint filed in Docket No. OR18-7 and OR18-12. On April 2, 2018, Colonial answered the complaint and argued that it lacked merit and should be dismissed, or if not dismissed, that any proceeding be conducted in two phases, where the first phase would address Colonial’s market power and its market-based rates and the second phase would address Colonial’s indexed rates and any outstanding issues. On April 17, 2018, TransMontaigne filed an answer to Colonial’s answer.
On April 20, 2018, CITGO Petroleum Corporation (“CITGO”) filed a complaint in Docket No. OR18-21 challenging the justness and reasonableness of Colonial’s cost and market-based rates from all origins to all destinations on similar grounds to the complaints filed in Docket Nos. OR18-7, OR18-12, and OR18-17, including challenges to Colonial’s cost-based tariffs, its market-based and grandfathered rates, as well as its transmix allocation policy. The complaint also requested consolidation with the complaint filed in Docket No. OR18-7, OR18-12, and OR18-17. On April 20, 2018, Colonial answered the complaint and argued that it lacked merit and should be dismissed, or if not dismissed, that any proceeding be conducted in two phases, where the first phase would address Colonial’s market power and its market-based rates and the second phase would address Colonial’s indexed rates and any outstanding issues. On April 17, 2018, CITGO filed an answer to Colonial’s answer.
On September 20, 2018, the Commission established hearing and settlement judge procedures consolidated Docket Nos. OR18-7, OR18-12, OR18-17, and OR18-21. The Commission set dual-track, but contemporaneous proceedings, one regarding indexed rates, grandfathered rate, and transmix and product loss allocation practices and charges, and another to address market-based rates. The Commission rejected the argument that market-based rates which diverge from a pipeline’s cost of service are per se unjust and unreasonable. However, the Commission set for hearing the issue of whether there have been significant changes in the relevant markets since Colonial was granted market-based rate authority that resulted in Colonial possessing significant market power.
In addition, on October 9, 2018, Southwest Airlines Co. and United Aviation Fuels Corp. filed a complaint against Colonial in Docket No. OR19-1. On October 16, 2018, Phillips 66 Company filed a similar Complaint in Docket No. OR19-4. Colonial answered both of the complaints, and complainants in both dockets filed additional answers thereto. On February 5, 2019, the Commission issued an order consolidating Docket Nos. OR19-1 and OR19-4 with Docket Nos. OR18-7-000, et al. for purposes of hearing and settlement judge procedures.
In addition the ongoing proceedings in Docket Nos. OR18-7, OR18-12, OR18-17, and OR18-21, additional similar complaints have been filed by American Airlines, Inc. (OR19-16), BP Products North American, et al. (OR19-10), TransMontaigne Product Services, LLC (OR19-8), and. Colonial has answered each of these complaints and Commission action is pending.
5. Colonial Pipeline Company (Docket No. OR16-17)
On May 9, 2016, Tricon Energy Ltd. and Rockbriar Partners Inc. filed a complaint alleging that it is unlawful for Colonial Pipeline Company (“Colonial”) to enforce the tariff modifications filed in Docket No. IS16-259-000 (discussed in our Spring 2017 and Fall 2017 reports) prior to Commission review and acceptance of that modification. On September 13, 2016, the Commission issued an Order on Complaint in Docket No. OR16-17. The Commission explained that it “requires additional information before rendering a decision on the Complaint.” The Commission then directed Colonial and the three other parties to respond to data request and requests for production of documents within 30 days of the order. The Commission explained that it would “defer action on the complaint until it receives and reviews the responses to the data request and requests for production of documents.”
On September 29, 2016, Colonial submitted a motion for expedited clarification, protective order, and extension of time for submission of discovery responses concerning the data requests and requests for production of documents in the Commission’s September 13 Order (“Motion”). The Motion explained, among other things, that the due process protections to be afforded to Colonial must be clarified because the Commission’s September 13 Order expands the scope of the proceeding without specifying the issues the Commission ultimately intends to rule on. Colonial requested that the Commission clarify the issues and provide Colonial with a timely opportunity to address those issues substantively. Colonial also requested that the Commission enter a protective order to safeguard certain information to be submitted as part of the discovery responses. Additionally, Colonial requested additional time to respond to the discovery requests.
On October 5, 2016, the Commission issued a Notice of Extension of Time providing Colonial until November 14 to respond to the data requests and requests for production of documents in the Commission’s September 13 Order.
On October 13, 2016, Tricon Energy Ltd. and Rockbriar Partners Inc. responded to the Commission’s data request. On the same date, Flint Hills Resources LP also responded to the Commission’s data request. On November 14, 2016, Concept Petroleum Marketing, LLC filed comments in the docket, and Colonial later filed a motion to reject those comments. On December 5, 2016, Emert Enterprises, LLC filed comments, and Colonial filed a motion to reject those comments as well.
On November 14, 2016, the Commission issued an order entering the proposed protective order sought by Colonial. In that order, the Commission noted that Colonial did not allege that any due process violations have occurred, and therefore the issue was not ripe for review. However, the Commission stated that the proceeding will comport with any and all due process requirements, Colonial will have an opportunity to address the substance of issues that warrant further examination by the Commission, and any alleged violations of due process may be raised during the course of the proceeding.
On November 16, 2016, Colonial responded to the Commission’s data request. On January 23, 2017, Costco Wholesale Corporation (“Costco”) submitted an answer to Colonial’s response to the Commission’s data request. On February 13, 2017, Colonial submitted a reply to Costco’s answer. Commission action on this docket remains pending.
6. Colonial Pipeline Company (Docket No. IS17-522)
On June 23, 2017, Colonial Pipeline Company (“Colonial”) filed FERC Tariff Nos. 98.31.0 and 1.5.0 ("tariff”), proposing modifications to Colonial’s product specifications for its Greensboro line segments. On July 20, 2017, pursuant to the authority delegated by the Commission’s February 3, 2107 Order Delegating Further Authority to Staff in Absence of Quorum, the Commission accepted Colonial’s proposed tariff for filing and suspended it for seven months, to become effective February 24, 2018, subject to refund and further Commission order.
Phillips 66 Company filed comments in support of Colonial. Murphy Oil USA, Inc. (“Murphy”) and G.P. & W., Inc. d/b/a Center Oil Company protested the tariff. Murphy argued in its protest that the proposed revisions would permit Colonial to confiscate up to five percent of a shipper’s more valuable low sulfur diesel and replace it with a less expensive biodiesel and that Colonial would retain a profit. As such, Murphy argued that Colonial failed to adequately justify its proposed revisions and the filing should be rejected. Colonial answered Murphy and explained that carriers have discretion to make tariff changes that are consistent with common carrier obligations and just and reasonable rates and practices and do not unduly discriminate against similarly situated shippers. Colonial also explained that the character and value of the product is not changed by the new tariff. Subsequently, Murphy filed another response to Colonial’s answer, reiterating that Colonial’s changes would provide Colonial with the opportunity to arbitrage the relative value of clear diesel versus bio-diesel and would make it difficult to comply with labelling requirements. In response, Colonial explained that Murphy’s allegations of economic disadvantage were not supported by the facts and Colonial revised its internal process to enable Murphy to comply with labelling requirements.
On September 7, 2017, the Commission found that the issues require additional exploration and scrutiny that can best be accomplished at a technical conference. The Commission scheduled a technical conference and stated that parties would be allowed to submit comments after the conference. On November 15, 2017, Colonial and Murphy filed post-technical conference comments, and they each filed post-technical conference reply comments on December 6, 2017.
On February 23, 2018, the Commission issued an order following the technical conference and found that Colonial’s tariff changes are just and reasonable, and not unduly discriminatory or preferential, and permitted the tariffs to become effective on February 24, 2019, after the end of the seven-month suspension period. In particular, the Commission found that the biodiesel blending service is not “necessary or integral to the transportation function” and it is therefore non-jurisdictional. The Commission also accepted Colonial’s revised product specifications and found that Colonial’s proposal to allow blending through the service of a third-party (i.e., Texon L.P.) does not create an undue preference and is not unduly discriminatory.
7. Challenge to Leveret Pipeline Co. LLC/Mid-America Pipeline Co., LLC Tariffs (Docket Nos. IS17-498, et al.)
As noted in prior reports, on June 12 and 16, 2017, Leveret Pipeline Company LLC (“LPC”) and Mid-America Pipeline Company, LLC (“MAPL”) filed various tariff amendments to (i) reflect the transfer of certain assets and facilities from MAPL to LPC (effective immediately) and (ii) increase general commodity and incentive rates on their respective pipelines (effective July 1, 2017).
INEOS USA LLC (“INEOS”), a chemical manufacturer with a fractionator connected to the MAPL system, filed a protest and motion to intervene on June 26, 2017, arguing that the proposed LPC and MAPL tariff amendments would improperly deny INEOS the ability to utilize portions of the MAPL system and are unreasonably designed to favor affiliates of LPC and MAPL. INEOS requested that the Commission reject the proposed tariff amendments or, in the alternative, set the matter for hearing. LPC and MAPL submitted a joint response to INEOS’ protest on July 3, 2017 and INEOS filed an answer on July 10, 2017.
On July 12, 2017, subject to the authority delegated in absence of a Commission quorum, the Acting Director of the Division of Pipeline Regulation issued a letter order stating that the tariff amendments “may be unjust, unreasonable, unduly discriminatory, or preferential or otherwise unlawful” and, therefore, stated that the tariff amendments were “accepted for filing, and suspended, to become effective as proposed in their individual filings, subject to refund, and further Commission order.”
INEOS filed a request for rehearing on August 4, 2017 stating that FERC Staff erred by failing to set the tariff amendments for hearing and settlement judge procedures (despite finding that the tariff amendments may be unjust, unreasonable, or otherwise unlawful) and for failing to suspend the tariff amendments for the maximum period allowed by statute (seven months). On September 5, 2017, the Commission granted the rehearing request solely for the purpose of affording additional time for consideration of the matters raised.
The Commission issued an order on January 18, 2018, accepting LPC’s and MAPL’s tariffs to be effective on the dates requested and denying INEOS’ request for rehearing. First, the Commission stated that rejection or further hearing on the filed tariffs was unwarranted because the filings dealt mainly with administrative aspects of the transfer of assets between LPC and MAPL. Second, the Commission rejected INEOS’ rehearing request because the request related to cancellations of service contained in the tariff filings. The Commission stated that cancellations of service amount to an “abandonment” under the Interstate Commerce Act and the Commission has no jurisdiction over oil pipeline “abandonments.” Accordingly, the Commission concluded that no hearing or further investigation was warranted.
On February 20, 2018, INEOS filed a Request for Rehearing arguing that the January 2018 Order erred in three ways. First, by finding no jurisdiction over the transfer at issue or the cancellation filing. Second, by not rejecting the tariffs or setting them for hearing and/or settlement judge procedures. And third, by not consolidating the cases. INEOS characterized a communication it made with MAPL before the tariff filing as a “Connection Request” and the subsequent tariff revisions as a de facto denial of that request.
On March 7, 2018, MAPL and LPC filed a Request for Leave to Answer and Joint Answer to the INEOS Rehearing Request. The answer asserted that the corporate form of MAPL and LPC should not be ignored and that no connection request had been denied so arguments that the denial was unreasonable are premature.
On March 19, 2018, INEOS submitted a Petition for Review in the Court of Appeals for the D.C. Circuit associated with the July 2017 Order and the January 2018 Order. On March 20, 2018, the Commission granted INEOS February 20, 2018 rehearing request for the limited purpose of further consideration.
On June 1, 2018, the Commission issued an Order Denying Rehearing. The Commission found that “rehearing does not lie” because the January 2018 Order did not modify the result of the July 2017 Order. To the extent the rehearing request concerns the January 2018 Order’s acceptance or the tariffs contemplated in the July 2017 Order, the Commission rejected those arguments on the grounds they had already been argued by INEOS twice before and rejected. The Commission also rejected the request on the merits, restating its position on jurisdiction over abandonments and connections, and distinguishing the cases cited by INEOS.
On July 30, 2018, INEOS submitted another Petition for Review to the Court of Appeals for the D.C. Circuit concerning the July 2017 Order, January 2018 Order, and June 2018 Orders.
On September 6, 2018 the D.C. Circuit issued a per curiam order consolidating INEOS’s two petitions for review and rejecting motions to hold in abeyance as moot. On September 11, 2018, a 60-day briefing schedule was established with Petitioners’ initial brief due October 22, 2018. Subsequent to the briefing schedule being established, the Commission filed motions to dismiss the appeal and suspend the briefing schedule. As a result, the Court issued an order, on September 18, 2018, suspending the briefing schedule.
In its motion to dismiss, the Commission argues that its rejection of a protest is a refusal to initiate an investigation, and therefore unreviewable. The Commission claimed that INEOS was not left without a remedy because it could file a complaint under section 13 of the ICA. On September 27, 2018, INEOS responded to FERC’s motion to dismiss. INEOS argues that it is not simply challenging the Commission’s decision not to investigate. Rather, it is challenging FERC’s disclaimer of jurisdiction over the tariff revisions at issue, so review is proper. On October 2, 2018, the Commission filed a reply in support of its motion, arguing that the precedent cited by INEOS was distinguishable. The Commission asserts that only a decision to investigate may be challenged on jurisdictional grounds and that decisions not to investigate are still not reviewable even when they are based on disclaimers of jurisdiction. On November 14, 2018, the Court issued a Per Curiam Order referring the motion to dismiss to the merits panel.
On January 29, 2019, INEOS filed its Initial Brief of Petitioner, which was updated on February 6, 2019 to comply with Court rules regarding the overuse of acronyms. In its brief, INEOS asserts that the Court has jurisdiction over the tariff revisions, and therefore dismissal is inappropriate. INEOS also claims the ambiguous nature of FERC’s January order required INEOS to file both a rehearing request and a petition for review to preserve its rights. INEOS urged the Court to direct FERC to exercise jurisdiction over the Enterprise tariff revisions. INEOS argues that FERC should have pierced the corporate veil of the two affiliated companies if it had properly applied Commission policy and based its decision on the substantial evidence. INEOS also argues that the transfers at issue here are not complete abandonments according to FERC precedent because the transportation service, facilities, and direction will all remain the same after the cancellation. According to INEOS this amounts to an unexplained departure from precedent.
The Respondent’s Brief is due March 29, 2019 and Final Briefs are due May 9, 2019. Oral argument has not yet been set.
8. BridgeTex Pipeline Company, LLC (Docket Nos. IS18-102, OR18-6, and OR18-3)
On October 30, 2017, BridgeTex Pipeline Company, LLC (“BridgeTex”) filed a petition for declaratory order (“PDO”) in Docket No. OR18-3 related to the proposed BridgeTex II Expansion Capacity project. The PDO sought approval of: (1) a proposed version of a tariff (subsequently filed in IS18-102), and (2) an overall rate structure and terms of service for a proposed expansion of the existing BridgeTex pipeline system, including an earlier addition of a new origin in Midland, Texas for service to Houston, Texas, referred to as the BridgeTex Expansion Capacity project. In the PDO, BridgeTex also sought a ruling that the regulatory assurance provided by the Commission in two earlier declaratory orders approving the original BridgeTex pipeline system and the initial expansion are not be affected by the BridgeTex II Expansion Capacity project.
On November 21, 2017, Occidental Energy Marketing, Inc. (“Occidental”) filed a protest regarding the PDO. Occidental argued that it underwrote the construction of the BridgeTex system and the terms and rates in the PDO are unduly discriminatory as compared to those available in the original open season. Occidental also alleged that the prorationing policy in the PDO was unduly discriminatory. Occidental contended that its original Transportation Service Agreement (“TSA”) should continue to govern its transportation on “Carrier Facilities,” which were defined to include “associated facilities and improvements.” The original TSA, according to Occidental, did not contemplate different tranches of capacity on the BridgeTex System. Also on November 21, 2017, Occidental filed a complaint against BridgeTex. The complaint alleged that BridgeTex unlawfully refused to provide service to Occidental under two existing tariffs and also discriminated against it in violation of the ICA.
On December 21, 2017, BridgeTex filed a response to the protest and complaint. BridgeTex asserted that the Commission has held that committed shippers from different open seasons are differently situated and may be treated differently. BridgeTex argues that because Occidental had the opportunity but declined to participate in the BridgeTex II Expansion Capacity project, it cannot now deny other shippers that participated and signed TSAs the benefit of rates and terms of service offered. BridgeTex disputed that Occidental underwrote the system and argued that the term “improvement” in Occidental’s TSA is not the same as “expansion.” Also on December 21, 2017, BridgeTex filed FERC Tariff Nos. 6.0.0 and 7.0.0 in Docket No. IS18-102 setting forth rules and regulations, and uncommitted and committed rates for the BridgeTex II Expansion Capacity Project to be effective on January 1, 2018. On December 22, 2017, Occidental protested the tariff filing and argued that BridgeTex has attempted to carve up capacity on its system into tranches of capacity with different rates and terms and conditions of service.
On January 19, 2018, the Commission issued an order that accepted and suspended the tariffs filed in Docket No. IS18-102 subject to refund and established hearing and settlement judge procedures for the tariff and the complaint in Docket No. OR18-6. In the same order, the Commission held in abeyance the PDO filed in Docket No. OR18-3. The Commission found that there were material issues of fact related to the fundamental issue of contract interpretation concerning the existing BridgeTex tariff and the TSA signed by Occidental, and particularly whether the definition of “Carrier Facilities” applies to BridgeTex II Expansion Capacity project or only contemplates the facilities installed at the time of the initial construction of the BridgeTex system. The Commission explained that the language “associated facilities and improvements” contained in the definition of “Carrier Facilities” is not clear on its face and therefore, to resolve the conflict, extrinsic evidence needs to be examined to ascertain the intentions of the parties. The Commission stated that it will address the merits of the regulatory rulings sought in the PDO after the contractual rights of the respective parties are resolved at hearing.
On January 30, 2018, BridgeTex filed a tariff pertaining to a supplemental open season on expansion capacity from the Permian Basin to East Houston, Texas, which resulted in additional volume commitments pursuant to a supplemental TSA. On March 1, 2018, the Commission accepted and suspended the tariff, subject to refund, set the tariff for hearing, and consolidated the proceeding with the ongoing proceedings in Docket Nos. IS18-102 and OR18-6. The PDO in Docket No. OR18-3 remains held in abeyance subject to the outcome of the consolidated proceedings. BridgeTex filed requests for rehearing to both the Commission’s January Order and its March Order. On August 16, 2018, the Commission dismissed both requests for rehearing because they did not seek rehearing of final Commission action.
On February 13, 2018, the Chief Administrative Law Judge recognized that the Settlement Judge declared an impasse following the first settlement conference, terminated settlement judge procedures, designated a Presiding Judge for the hearing, and set the hearing on a Track III schedule, with an Initial Decision due by April 30, 2019.
On February 19, 2019, however, Occidental notified the Commission that it had reached a settlement with BridgeTex resolving the claims set forth in its complaint and protests, and it withdrew its complaint and protests.
9. Andeavor Field Services, LLC v. Mid-America Pipeline Company, LLC (Docket No. OR18-15)
On February 27, 2018, Andeavor Field Services, LLC (“Andeavor”) filed a complaint against Mid-America Pipeline Company, LLC (“MAPL”) and Enterprise Products Operating LLC (“Enterprise”) (together “Joint Respondents”). The Complaint alleged that MAPL was improperly imposing a ship-or-pay obligation on uncommitted shippers for existing capacity in violation of the ICA. These alleged ship-or-pay obligations were said to come from a Transportation Service Agreement (“TSA”) which the Commission approved in August 2011 pursuant to a declaratory order request. Andeavor contended that MAPL had misrepresented that portion of the TSA and requested the Commission either rescind or modify the August 2011 Declaratory Order to prohibit the imposition of ship-or-pay obligations on uncommitted shippers for existing capacity. Andeavor also alleged that the penalty for failure to ship-or-pay—seizure of product—allowed Joint Respondents to take advantage of the volatile market by strategically choosing the time to seize the line fill to the benefit of MAPL’s affiliate Enterprise. Andeavor also alleged this maneuver raised the possibly that MAPL was sharing shipper information in violation of Section 15(13) of the ICA.
On March 29, 2018, MAPL and Enterprise filed a Joint Answer to the Complaint. Joint Respondents claim that the obligations in the TSA are clear. Joint Respondents also claimed that the central issue was the terms of the TSA, and that the proper forum was a state court. Joint Respondents applied the Commission’s Arkla factors used to determine when the Commission should assume jurisdiction over a matter of contract interpretation. Joint Respondents also contended that Andeavor had not provided any evidence to justify its accusation that seizure of the line fill had been timed strategically or information had been shared improperly.
On April 12, 2018, Andeavor filed an Answer to Joint Respondents’ Joint Answer. Andeavor argued that the Complaint does not involve a “contract dispute,” asserting the wrongs alleged would violate the ICA regardless of the terms of the contract. Andeavor further contended that the Commission should exercise jurisdiction because the seizure of line fill is governed by the tariff, not the TSA. Andeavor also claimed the facts would justify exercising jurisdiction under the Arkla test.
On June 21, 2018, the Commission issued its Order on Complaint. The Commission found that “the dispute in this case turns on the intent of Mid-America and Andeavor’s predecessor, QEP-FS, in the formation of the contract at issue.” It therefore considered the Complaint a contract dispute and applied the Arkla factors. Applying these factors, the Commission declined to exercise jurisdiction stating: (i) the Commission has no special expertise to interpret contracts beyond a state court, (ii) there was no need for uniformity of interpretation, and (iii) resolution did not implicate the Commission’s regulatory responsibilities. The Commission did not believe the use of the line fill seizure terms of the tariff warranted jurisdiction because “the application of the tariff provision in question is a result of the contract dispute at issue here,” i.e., if the dispute had not arisen, those terms would not be invoked. The Commission also found no evidence MAPL was improperly disclosing shipper information. The Commission therefore dismissed the Complaint in its entirety.
On July 17, 2018, Andeavor filed a Request for Rehearing of the June 21 Order. The request claims the Complaint never requested the Commission actually interpret the contract, it only requested that the Commission find MAPL’s practices illegal under the ICA. Andeavor claimed it was only the Commission’s intent in issuing the August 2011 Declaratory Order, not the parties intent in signing the TSA, which was relevant to the Complaint. Andeavor also disputed the Commission’s application of the Arkla factors. On August 16, 2018, the Commission granted the rehearing request for the limited purpose of further consideration.
As of publication of this report, the Commission has not ruled on Andeavor’s July 17, 2018 Request for Rehearing.
10. Chevron Pipe Line Company (Docket No. IS18-605)
On May 31, 2018, Chevron Pipe Line Company (“CPL”) filed a tariff to implement a surcharge to recover the capital investment and expenses associated with new methanol treatment facilities, to be effective July 1, 2018. Methanol is used to prevent hydrate formation in deep-water crude oil production operations. Methanol that remains in crude oil is considered a contaminant, and must be removed prior to pipeline transportation. According to CPL, the new methanol treatment facilities are necessary because not all producers remove methanol from the crude oil before it is shipped on CPL’s Breton Pipeline System.
A group of producers that would be affected by the surcharge (“Producer Coalition”) filed a protest on June 15, 2018, urging the Commission to reject CPL’s proposed surcharge, or, alternatively, to apply it only to producers tendering crude containing methanol to the Breton Pipeline System. The Producer Coalition argued that recovery of the methanol treatment facilities’ capital costs through a surcharge is contrary to Commission policy, because the costs are not unexpected or extraordinary. CPL argued in response that the surcharge is similar to the ultra low sulfur diesel (“ULSD”) surcharge that the Commission has previously approved for several carriers because the costs at issue were not industry-wide, extraordinary, and non-recurring.
In an order issued June 29, 2018, the Commission found that the costs of methanol treatment were not appropriately recovered through a surcharge, and thus rejected CPL’s proposal. Specifically, the Commission determined that the methanol treatment costs were neither extraordinary nor non-recurring, and that the use of methanol is an industry-wide factor in deep water drilling. On July 30, 2018, CPL filed a request for rehearing, which the Commission granted for further consideration on August 29, 2018. The request for rehearing remains pending before the Commission.
On October 31, 2018, the Commission issued an order denying CPL’s request for rehearing. The Commission noted that surcharges are appropriate where the costs at issues are: (i) necessitated by factors beyond the pipeline’s control; (ii) extraordinary and nonrecurring; and (iii) not industry-wide. As it did in the Initial CPL Order, the Commission found that CPL’s surcharge was neither extraordinary nor non-recurring. It held that the costs “represent the continued operational and capital costs associated with oil pipeline operations.”
The Commission reiterated that, aside from limited circumstances, it generally disfavors surcharges. It disagreed with CPL’s arguments that the present surcharge was similar to past examples of where the Commission approved the use of pipeline surcharges. The Commission also rejected CPL’s position that the Initial CPL Order was inconsistent with the surcharge test the Commission utilized in Tesoro Logistics Northwest Pipelines LLC. The Commission found that the pipeline’s control of costs in Tesoro was not determinative in this instance because CPL’s costs were operational and capital costs for managing and monitoring product quality that could appropriately be recovered through the normal ratemaking process. The Commission also noted that, as in Tesoro, CPL’s costs were not extraordinary, but ongoing and operational in nature.
CPL also asserted that in the Initial CPL Order the Commission found that the surcharge was inappropriate because the costs were not the result of a change in regulation or law. CPL asserted that a change in federal regulation or law was not a standalone factor on which the Commission could judge the appropriateness of a surcharge. However, the Commission disagreed with CPL’s characterization of the Initial CPL Order’s determination; it stated that the Initial CPL Order merely offered a federal requirement as an example of a qualifying extraordinary event, and that it did not hold that the presence of a federal regulation was itself a standalone requirement. The Commission stated that the Initial CPL Order’s references to federal regulations in prior surcharge cases simply supported the conclusion that the costs in those cases were not suitable for recovery through the oil pipeline index.
The Commission rejected CPL’s argument that costs for its methanol treatment facilities were not industry-wide, and thus not the type of costs typically recovered through indexed rates. Despite CPL’s assertions that methanol treatment facilities are unique to deep-water production and that few pipelines face methanol contamination on the scale faced by CPL’s system, the Commission determined that CPL’s costs were capital costs and operational costs associated with typical oil pipeline transportation operations connected to deep-water production. The Commission stressed that “each pipeline encounters unique cost experiences, which, if taken to the extreme, include costs that should be excluded from the index” and categorized the methanol treatment costs as expenses for “maintaining quality”, which it described as “a common function of oil pipeline operations.”
CPL also argued that a surcharge would more accurately align with the Commission’s cost causation principles as compared to a general cost-of-service filing. CPL asserted that because only a small number of shippers are responsible for the methanol-contaminated crude on its system, it would be inappropriate to allocate methanol treatment costs to all volumes through a cost-of-service filing. However, the Commission disagreed and found that the costs of methanol treatment are correctly recovered in CBL’s rates, through either the ordinary process of periodic adjustments or through a cost-of-service filing. The Commission stated that it was appropriate to distribute the costs of methanol treatment among all shippers on the CBL system because CBL was unable to identify the shippers and platforms causing the methanol contamination issue, and because all shippers on the system would benefit from methanol treatment. The Commission also reiterated that such costs are more akin to typical capital and operational costs which are recovered through cost-of-service ratemaking.
11. Mid-America Pipeline Company, LLC and Seminole Pipeline Company LLC (Docket Nos. IS18-766 and IS18-767)
On September 28, 2018, Mid-America Pipeline Company, LLC (“MAPL”) filed FERC Tariff No. 74.7.0 to cancel and replace FERC Tariff No. 74.6.0 (Docket No. IS18-766) and Seminole Pipeline Company LLC (“Seminole”) filed FERC Tariff No. 2.14.0 to cancel and replace FERC Tariff No. 2.13.0 (Docket No. IS18-767). The two tariffs (together, “Revised Tariffs”), proposed three changes to the current tariffs. First, the Revised Tariffs proposed to give the carriers a lien on the shippers’ product as collateral. Second, the Revised Tariffs required financial assurances as a condition of receiving transportation services under certain circumstances. And third, new shippers who are affiliates of existing shippers would no longer be allocated capacity during periods of prorationing. MAPL and Seminole contended these changes were needed in light of companies creating affiliates to secure capacity and an increased credit risk among their shippers.
Andeavor Field Services, LLC (“Andeavor”) filed a Protest and Motion to Intervene in Docket No. IS18-766 on October 12, 2018, and in Docket No. IS18-767 on October 15, 2018. In its protests, Andeavor claimed all three tariff provisions were unduly discriminatory in violation of the Interstate Commerce Act (“ICA”). Andeavor also asserted that the burden of proof to justify a tariff change is on a carrier and neither MAPL nor Seminole had met this burden in their tariff filings. Andeavor also discussed its ongoing dispute with MAPL (OR18-15, discussed infra). Andeavor claims that the proposed lien provisions are too broad and allow the carriers too much discretion and that they could refuse service to captive shippers based on payment disputes the shippers undertook in good faith. And Andeavor claims the financial assurance provisions are too broad and grant too much discretion to the carriers which could result in discrimination against similarly situated shippers. Andeavor argues that the Revised Tariffs did not sufficiently justify the limit on allocating capacity to new shippers (i.e., those without historical volumes) who are affiliates of existing shippers who have established historical capacity interests. Andeavor also asserts those terms are impermissibly discriminatory.
On October 17, 2018, MAPL filed a Response to Andeavor’s Protest and Seminole filed a similar Response on October 22, 2018. The carriers argued that the terms proposed in the Revised Tariffs were commercially needed, were common in the industry, and that Andeavor’s concerns were hypothetical and overblown. Regarding the lien provisions, the carriers argued that Andeavor’s grievances were directed at existing tariff provisions, beyond the scope of the protest proceeding. The carriers assert that other pipelines include financial assurances provisions similar to the ones proposed, including affiliates of Andeavor. The carriers further asserted that pipelines are typically allowed significant discretion in conducting their business and it is improper to automatically assume they will abuse it. The carriers claimed the terms which disallow capacity allocations to affiliates of existing shippers are common in the industry and justified in light of recent shipper practices.
On October 23, 2018, Andeavor filed a Motion for Leave to Answer and Answer to MAPL’s response and on October 24, 2018 Andeavor filed a Motion for Leave to Answer and Answer to Seminole’s response. In the Answers, Andeavor sought to distinguish the existing tariff provisions from those in the Revised Tariff and stressed that the burden of proof is on a carrier in proposing new tariff terms. On October 24, 2018 and October 25, 2018 similar Answers were filed by MAPL and Seminole respectively. These Answers claimed Andeavor repeated arguments, changed past arguments, and made hyperbolic inaccuracies in relation to its previous Answers.
On October 25, 2018, the Commission issued an Order Accepting and Suspending Tariffs Subject to a Technical Conference and Consolidating Proceedings. The Commission found there to be “a number of issues requir[ing] additional clarification that can best be addressed at a technical conference, after which a resolution may be reached or further process ordered if necessary.” The Commission therefore accepted the Revised Tariffs and suspended them for the full seven-month period allowed under section the ICA.
A technical conference on this matter is scheduled for March 26, 2019.
F. TAPS Issues
1. TAPS Quality Bank Litigation
The Trans Alaska Pipeline System (TAPS) Quality Bank (QB) makes monetary adjustments among TAPS shippers to account for the pipeline’s commingling of multiple crude oils that have different qualities and, therefore, different market values. The QB is designed to compensate (or charge) a TAPS shipper for the difference between the quality of crude oil it tenders to and receives from TAPS. The procedure for making these adjustments – a “simple distillation” methodology – separates the individual input and the delivered crude oil streams into their component parts (“cuts”) and assigns market values to each cut. Each shipper’s stream is valued according to the volume-weighted value of its cuts.
As discussed in prior reports, the QB’s valuation of the TAPS crude streams has been the subject of extensive litigation at FERC, the Regulatory Commission of Alaska (and predecessor agencies), and the U. S. Court of Appeals for the D.C. Circuit since the late 1980s. The current chapter of that litigation (still in progress) began in August 2013, when Flint Hills Resources Alaska, LLC (FHR), a TAPS shipper, supported by Petro Star Inc.(PSI), challenged the Quality Bank’s valuation of the Resid cut, the heaviest of the nine cuts used in valuing each shipper’s crude stream. After a hearing and an Administrative Law Judge’s Initial Decision rejecting FHR/PSI’s challenge, the Commission affirmed the Initial Decision in an order issued in November 2014. PSI then filed a petition for review to the D.C. Circuit, which the court granted in an opinion issued in August 2016. The court concluded that Petro Star had “‘establish[ed] a prima facie case that new evidence warrants re-examination’ of the Quality Bank formula used to value Resid,” and that neither the ALJ’s nor FERC’s decision had provided a meaningful response to Petro Star’s arguments. Those arguments included: (1) the “less-than-a-barrel anomaly” argument – namely, that during 2009-2012, the market price for a barrel of ANS crude exceeded the calculated Quality Bank value based on the assigned values of the nine “cuts” – a result that is counter-intuitive if one assumes that the distillation process necessarily adds value to the cuts, such that their composite value should always exceed the crude oil’s value; and (2) post-2008 conditions in the West Coast coking market demonstrate that West Coast refineries no longer expect to recover their capital investment in cokers. Notwithstanding FERC’s failure adequately to address those arguments, the court stated that, on remand, (1) the Commission may find the premise of the alleged “less-than-a barrel anomaly” is “oversimplified or incorrect,” and (2) “there may be evidence in the record or elsewhere contradicting Petro Star’s claims about West Coast market conditions or undercutting the inferences Petro Star seeks to draw.”
In its order on remand, the Commission rejected PSI’s arguments and reaffirmed the lawfulness of the QB methodology used to value the Resid cut. With respect to PSI’s “less-than-a-barrel anomaly” argument, the Commission found that the Quality Bank methodology was not intended to, and does not, replicate the gross product worth to a complex refinery of finished products made from ANS crude. “The fact that the combined value of the nine individual cuts under the Quality Bank methodology has at times been lower than the market price for ANS crude merely demonstrates that refiners need to subject the intermediate products used in the Quality Bank methodology to further processing to create more valuable finished products.” The Commission also rejected PSI’s argument that West Coast refiners no longer expect to recover their capital investment in cokers, finding that the record data showed that West Coast cokers had achieved a positive return on capital investment in cokers throughout the period covered by the record.
On April 20, 2018, PSI filed a petition for review of FERC’s order on remand. The parties are currently briefing the case, and final briefs are due on May 3, 2019. A date for oral argument has not been set.
2. PTE Pipeline LLC, FERC Docket No. IS18-686/RCA Docket
The Point Thomson Unit (“PTU”), which holds both natural gas and condensate (light liquid hydrocarbons), lies on the Alaska North Slope 60 miles east of Prudhoe Bay and the Trans Alaska Pipeline System (“TAPS”) and west of the Arctic National Wildlife Refuge. PTE Pipeline LLC (“PTE Pipeline”) owns and operates a liquids pipeline – the Point Thomson Export Pipeline (“PTEP”) – that transports PTU-produced condensate through 22 miles of 12-inch pipeline to an interconnection with the Badami Pipeline. The Badami Pipeline connects to Endicott Pipeline that connects to TAPS at Pump Station No. 1.
On July 30, 2018, PTE Pipeline filed proposed rate increases for interstate and intrastate service on PTEP at the FERC and the Regulatory Commission of Alaska, respectively. The State of Alaska protested the filings. Both agencies issued orders allowing the proposed rate increases to become effective, subject to refund, on September 1, 2018. Pursuant to the FERC’s order, settlement discussions are currently underway in that proceeding. Pending the outcome of those discussions, the RCA is holding its proceeding in abeyance.
G. Petitions for Declaratory Orders
During 2018, pipelines filed petitions for declaratory orders (“PDO”) requesting approval of various committed rate structures under Transportation Service Agreements (“TSA”) that support new pipeline projects and expansions. The Commission issued 12 orders on the PDOs in 2018, and granted certain PDOs when the open season process was fair and transparent and the terms were consistent with prior Commission precedent. However, the Commission has not acted on 16 of the PDOs filed in 2018.
For example, Buckeye Pipe Line Company, L.P. and Laurel Pipe Line Company, L.P. (“Buckeye/Laurel”) filed a PDO on April 30, 2018. Buckeye/Laurel requested an order granting the PDO by July 18, 2018, to provide the regulatory certainty needed to proceed with the project.
Similarly, EPIC Crude Pipeline, LP (“EPIC”) filed a PDO on October 10, 2018. EPIC asked for a Commission order granting the PDO by January 4, 2019, so that it could commence service on its new pipeline by mid-2019. On January 8, 2019, EPIC filed a letter addressed to the FERC Commissioners, and asked for an order granting the PDO by January 15, 2019, “a date of significance” for its committed shipper TSAs. EPIC’s letter explained that the lack of a Commission order on the PDO was “placing [its] project timeline in some jeopardy, and causing concern to [its] shippers.” As of March 1, 2019, the Commission has not acted on Buckeye/Laurel’s PDO, EPIC’s PDO, or 14 other PDOs that were filed in 2018.
1. Magellan Midstream Partners, L.P. (Docket No. OR17-2)
On November 14, 2016, Magellan Midstream Partners, L.P. (“Magellan”) filed a petition for declaratory order (“PDO”) requesting six rulings regarding a proposal to establish a marketing affiliate to buy, sell, and ship crude oil. Magellan explained that the marketing affiliate would be consistent with the ICA and benefit Magellan and its shippers by increasing the usage of underutilized pipeline capacity, providing flexibility for producers and marketer, and increasing access to pipelines. Magellan also stated that a number of its crude oil pipeline competitors have marketing affiliates similar to the one it proposed that transport crude over the affiliates’ pipelines at an economic loss when the commodity price differential between the origin and destination markets is less than the filed tariff rate applicable to the movements. When the commodity price differential exceeds variable cost, marketing affiliate transactions are profitable to an integrated company. These transactions can also result in shipping history on the affiliate pipeline, and Magellan requested that its marketing affiliate be allowed to enter into assignments of capacity rights created by that history. Magellan explained that because marketing affiliate transactions are prevalent, without a marketing affiliate it is at a competitive disadvantage when it can only offer transportation at the filed tariff rate.
On November 22, 2017, the Commission issued an order denying the PDO on the ground that the transactions proposed by Magellan would violate provisions of the ICA, primarily the ICA’s prohibition on rebates (“Order”). The Commission found that while the creation of a marketing affiliate is permissible without Commission approval, Magellan’s proposal would run afoul of the ICA’s prohibition on rebates. The Commission held that the ICA prohibits marketing affiliates from shipping in situations where the commodity price differential is insufficient to cover the filed tariff rate and the pipeline subsidizes those losses. In addition, the Commission determined that Magellan’s proposal would violate the ICA’s anti-discrimination provisions by offering pipeline transportation pursuant to customized terms, conditions, and rates unavailable to shippers who directly use Magellan’s pipeline according to the tariff. The Commission also found that the PDO appeared to seek permission not to publish arrangements between the pipeline and the affiliate, which appear to circumvent the ICA’s publication requirements.
Requests for clarification or rehearing were filed by Enterprise Products Partners L.P. (“Enterprise”); Medallion Pipeline Company, LLC (“Medallion”); Plains Marketing, L.P. (“Plains Marketing”); and Magellan Midstream Partners, L.P. After the issuance of Commission’s order, there were also six out-of-time interventions and one out-of-time request for clarification by Energy Transfer Partners, L.P. Enterprise sought clarification that the Order “only prohibits transactions where both (i) the price differential is less than the filed tariff rate, and (ii) the pipeline subsidizes the loss incurred by the Affiliate; and [. . .] recognizes that there are lawful, legitimate business reasons why a shipper, whether an affiliated shipper or an unaffiliated shipper, may elect to transport product even though the price differential between the purchase receipt point and the sale delivery point is not favorable in comparison to the filed tariff rate.” Enterprise explained that any interpretation of the Order to the contrary would have a discriminatory impact and prohibit economically rational and legitimate transactions. Medallion argued that the Order impermissibly reached beyond the facts presented in the PDO to conclude that the transactions proposed by Magellan would violate the ICA, notwithstanding that the Order also states that Magellan did not describe the exact nature of how payments would be reflected against the integrated company, and thus does not identify the alleged direct or indirect payments. Medallion stated that the Commission should vacate the Order or clarify that its findings are limited to transactions involving pipeline subsidized losses that involve actual payments from the pipeline to the marketing affiliate and only applied on a prospective basis. Plains Marketing requested clarification that the Order is based upon and specific to the transactions presented and described by Magellan in its PDO. In the alternative, Plains Marketing sought rehearing because the Commission exceeded its jurisdiction by regulating the actions of marketing affiliates and it findings are not supported by a factual or evidentiary record.
Magellan also sought clarification or rehearing of four errors. Magellan requested clarification of whether the ICA permits a marketing affiliate, which participates in its pipeline affiliate’s open season and signs a TSA, to buy and sell crude oil from and to third parties and ship it on the pipeline pursuant to such TSA if the differential is below the pipeline’s tariff rate. Magellan also sought clarification of the tariff rate that would be applicable in the prohibited transactions and whether a TSA can be structured so that a marketing affiliate is the only shipper. Where a marketing affiliate pays the filed pipeline rate, Magellan sought clarification that the ICA prohibits shippers, including the marketing affiliate or third parties to whom it has sold or traded capacity, from realizing a discount on a non-jurisdictional service offered in conjunction with pipeline transportation where the discount results from integrated company economics and is not offered in a filed tariff to all shippers. Magellan also sought clarification of what the Commission means by “discount” in the Order and that it includes any lower price not offered to other shippers, regardless of whether it is below costs. Further, Magellan requested clarification that the Commission does not intend to limit its ruling to marketing affiliate transactions only involving a single third party at the origin and destination or to transactions with a particular structure. Finally, Magellan asked the Commission to clarify that the Order applies to all liquids pipelines regulated under the ICA.
On January 22, 2018, the Commission granted the requested rehearings for further consideration. On March 14, 2018, Shell Trading (US) Company (“Shell”) filed a request to institute a generic proceeding to address new issues raised in the rehearing phase of the proceeding. Specifically, Shell requested generic proceedings because of the industry-wide implications of the issues raised and a separate proceeding would afford all parties an opportunity to participate and provide comments to further a competitive marketplace. The Commission has not yet acted on the pending rehearing requests.
2. Shell Pipeline Company LP (Docket No. OR18-28)
On July 3, 2018, Shell Pipeline Company LP (“Shell”) filed a PDO requesting the Commission to approve the rate structure and terms for committed service on its proposed Falcon Ethane Pipeline System.
Specifically, Shell asked the Commission to approve: (1) a committed rate structure where committed shippers pay a premium, relative to the uncommitted rate, for firm service on 90 percent of the pipeline capacity during prorationing; (2) committed rates that vary, based on the contract term and committed volumes; (3) a prorationing policy that reserves 10 percent of the pipeline capacity for uncommitted shippers; (4) the postage-stamp rate design reflected in the proposed committed and uncommitted rates; (5) additional rights for certain committed shippers (i.e., anchor shippers), including rights to expand and ramp up their committed capacity, request new interconnections, and request expansions at certain points at potentially higher committed rates. On September 7, 2018, the Commission issued an order granting Shell’s PDO.
3. Sunrise Pipeline LLC (Docket No. OR18-29)
On July 24, 2018, Sunrise Pipeline LLC (“Sunrise”) filed a PDO requesting the Commission to approve the rate structure and terms for committed service on its planned crude oil pipeline from Midland and Colorado City, Texas to Cushing, Oklahoma.
Specifically, Sunrise asked the Commission to approve: (1) its plan to use unutilized capacity and expansion capacity on existing pipeline segments and new construction to provide the committed service; (2) a committed rate structure where committed shippers pay a premium, relative to the uncommitted rate, for firm service on 90 percent of the pipeline capacity during prorationing; (3) committed rates that vary, based on the contract term and committed volumes; (4) a prorationing policy that reserves 10 percent of the capacity for uncommitted shippers; (5) committed shippers’ contract extension rights; (6) TSA provisions establishing that the committed rates will be adjusted (increased or decreased) if Sunrise’s actual construction costs for the new pipeline vary from its cost estimates; and (7) additional rights for certain committed shippers (i.e., anchor shippers), including a right of first refusal to contract for all of the committed capacity offered on future expansions. On October 24, 2018, the Commission issued an order granting Sunrise’s PDO.
The Committee acknowledges with great appreciation the primary contribution to the preparation of this report by Thomas C. Kirby of Steptoe & Johnson LLP; Keith Coyle, and Ashleigh Krick of Babst, Calland, Clements and Zomnir, P.C.; and Christopher M. Randall of Latham & Watkins LLP.
