Academic journal article Energy Law Journal

Report of the Oil Pipeline Regulation Committee

Academic journal article Energy Law Journal

Report of the Oil Pipeline Regulation Committee

Article excerpt

This report summarizes significant developments with respect to oil pipeline regulation that have occurred during the period of January through December, 2003. The topics are covered in the following order: I. Complaint Cases; II. Market-Based Rates; and III. Jurisdictional Issues.


A. Texaco Refining and Marketing Inc. v. SFPP, L.P.,

Docket Nos. OR96-2: Grandfathered Rates

Presiding Administrative Law Judge Raymond M. Zimmet issued an Initial Decision on June 24, 2003, finding that SFPP, L.P.'s (SFPP) rates are not "grandfathered" under the Energy Policy Act of 1992 (EPAct) and are unjust and unreasonable in violation of the Interstate Commerce Act (ICA).1 This is the first decision since enactment of EPAct to overturn an oil pipeline's "grandfathered" rates. The decision is now subject to review by the Federal Energy Regulatory Commission (Commission).

1. "Grandfathered Rates" and Regulatory Context of Initial Decision

Oil pipelines are "common carriers" subject to regulation by the FERC under the ICA.2 In 1992, when Congress enacted Title XVIII of EPAct pertaining to oil pipelines,3 Congress retained the ICA's requirement that oil pipeline rates be "just and reasonable," but at the same time "grandfathered" certain rates if no challenge had been brought against them within the year prior to EPAct's enactment. The "grandfathered" status of the rates could be revoked upon a showing by a shipper, inter alia, that there had been a substantial change in the economic circumstances of the oil pipeline that were "a basis" for the rate.4 Then, if that threshold were met, the shipper had to show that the rates were not "just and reasonable," under ICA standards, before any relief could be granted.

In Opinion No. 435, involving earlier complaints filed by shippers against SFPP's rates, the Commission set the evidentiary standards for measuring substantially changed circumstances under EPAct, including setting a threshold of something greater than 10% for proving that a change was substantial.5 The Commission further held that a substantial change could be shown by "one or a number of rate elements" and that "the rate elements that significantly affect the economic basis for most rates" are "volumes, asset base, operating, and perhaps, capital costs." To show substantial change under EPAct, "a complainant must establish substantial change to one of these more important elements that are the basis for the rate and explain why this change is likely to have rendered the existing rate unjust and unreasonable."6 Additionally, the Commission suggested that a complainant could establish substantially changed circumstances under EPAct by showing how the change in the income tax allowance resulting from application of the Commission's Lakehead decision "affects the economic basis for the rates that are challenged . . . ."7

Docket No. OR96-2 involves a second series of complaints against SFPP's rates filed beginning in 1995. The Commission directed that these complaints be taken up seriatim such that if the first complaint failed the "substantially changed circumstances" test, the judge would move on to the next complaint. After months of discovery and five months of hearing, judge Zimmet issued his Initial Decision Phase One on June 24, 2003.8

2. Initial Decision

In his Initial Decision, Judge Zimmet applied section 1803(b) of EPAct and the standards set by the Commission's Decision in Opinion No. 435 to the series of complaints at issue in Docket No. OR96-2.9

For purposes of the analysis, to measure change, the letters "A", "B", and "C" were used as shorthand to denote different points in time. "'A' represented] the 'basis' economic circumstances when the rate in question was allowed to commence"; "B" represented the 12-month period ending October 24, 1992, the enactment date of EPAct; and "C" represented the "realized" economic circumstances after the enactment date, ending no later than the date when a complaint was filed. …

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