FERC, CFTC, and State Energy Law Developments

The DC Circuit has found that the Federal Energy Regulatory Commission (FERC) adequately and reasonably explained its decision to adopt the index formula that governs pipeline rates for the 2016 to 2021 period. Oil pipeline rates are governed by an indexed ratemaking system, and each year FERC calculates the index used to set pipeline-specific rate ceilings by using a formula that captures the cost change in the oil pipeline industry. FERC reviews this formula every five years and adopted the most recent one on December 17, 2015 after a notice and comment rulemaking.

The Association of Oil Pipelines challenged the index formula for the 2016-2021 period on the grounds that FERC did not apply the same methodology used in prior index reviews. First, FERC relied solely on the middle 50% of pipeline cost-change data and did not incorporate the middle 80%. Second, FERC used Page 700 cost-of-service data to calculate the index level instead of the Form No. 6 accounting data it had used in the past.

FERC’s October 5 Order on Rehearing in Equitrans, L.P. provides a good reminder to market participants that the commitments made in a precedent agreement may subsequently be rejected by FERC when the negotiated rate transportation agreement is filed for Commission approval. Equitrans, L.P. (Equitrans) filed a non-conforming negotiated rate transportation agreement that it entered into with EQT Energy, LLC (EQT Energy) for new service on Equitrans’ Ohio Valley Connector Project. The agreement included the following three non-conforming provisions for service:

  1. A provision that gave EQT Energy the right to participate in any future open season for an expansion of the system with the benefits and designation of a Foundation Shipper (the Foundation Shipper provision);
  2. A provision that gave EQT Energy most-favored nation status, which would allow EQT Energy to match the decreased negotiated rate if Equitrans contracts for a lower negotiated rate with another shipper; and
  3. A provision that imposed stricter creditworthiness requirements for EQT Energy.

Although FERC remains hobbled by its continued lack of quorum since then-Commissioner Norman Bay’s departure earlier this year, recent ratemaking challenges remind the industry that the specter of FERC’s unresolved income tax allowance policy for pass-through entities (e.g., master limited partnership pipelines) remains an ever-present conundrum for the industry and the Commission. Two protests submitted earlier this week in response to Great Lakes Transmission, LP’s (Great Lakes’) rate case filed in March raised the issue of FERC’s unresolved income tax allowance policy. The challenges demonstrate that the income tax allowance policy for pass-through entities can, and in many cases, is likely to, be disputed by customers involved in proceedings seeking to amend the rate structures of pass-through entity pipelines.

The recent US presidential election results will bring new faces and policies to the energy world next year when the 115th Congress convenes and President-Elect Donald Trump and Vice President–Elect Mike Pence are sworn into office. Read more about the changes for the energy industry on our nuclear blog, Up & Atom.

An Interim Final Rule allows the Pipeline and Hazardous Materials Safety Administration (PHMSA) to respond immediately to unsafe conditions or practices that pose an imminent hazard to public health and safety or to the environment.

Read the full LawFlash.

On July 1, the US Court of Appeals for the District of Columbia Circuit issued an opinion invalidating an oil pipeline partnership’s tax allowance that the Federal Energy Regulatory Commission (FERC) had approved as consistent with established FERC policy.

In United Airlines v. FERC, the DC Circuit determined that FERC “failed to demonstrate that there is no double-recovery of taxes for partnership, as opposed to corporate, pipelines.” The court, in turn, ruled that FERC’s policy as applied in the case was arbitrary and capricious in violation of the Administrative Procedure Act. The court vacated that portion of the FERC decision and remanded for further proceedings.

The DC Circuit’s decision and its underlying analysis threaten to upset long-established FERC-permitted rate recovery of tax expense by pass-through entities and may create far-reaching rate implications for affected interstate pipelines and for electric transmission providers that have opted to be treated as partnerships for tax purposes.

FERC proposes to establish a framework that allows pipelines to use surcharge or tracker cost-recovery mechanisms to accelerate system improvements associated with new safety and environmental compliance regulations.

On November 20, the Federal Energy Regulatory Commission (FERC) issued a proposed policy statement setting forth guidance that, if adopted, would permit natural gas pipelines to use cost trackers or surcharges to recover certain costs that pipelines incur in connection with facility and infrastructure upgrades undertaken in response to regulatory requirements.[1] Comments will be due within 30 days of the date the notice is published in the Federal Register.

Please join us for a one-hour webinar to discuss proposed industry reforms designed to increase coordination of the gas and electric markets.

Electric generators have increasingly relied on natural gas in recent years, largely due to low gas prices and mounting concerns over the environmental impact of coal-fired generation. These changes have prompted market participants in the natural gas and electric industries to focus on the challenges associated with the growing interdependence of those industries. In response, the Federal Energy Regulatory Commission (FERC) conducted industry outreach and held multiple technical conferences on gas-electric coordination to address issues such as scheduling practices, market structures, information sharing, and reliability concerns. Earlier this year, FERC issued a set of three orders with proposals to improve the scheduling of natural gas pipeline capacity and its coordination with electricity markets.

Topics addressed in the webinar will include:

  • Revisions to the operating and scheduling processes of interstate natural gas pipelines and electric utilities
  • Increased flexibility for gas shippers to respond to variable electricity demand
  • Alignment of Independent System Operator and Regional Transmission Organization scheduling practices with FERC’s proposed revisions
  • FERC’s oversight role and the next steps for developing final rules


presenters

Mark R. Haskell
Floyd L. Norton IV
Brett A. Snyder
Stephen M. Spina


CLE credit

CLE credit in CA, FL, IL, NJ,
NY, PA, TX, and VA is currently pending approval.

For more information, please contact Mary Ann K. Huntington at +1.202.739.5622 or mhuntington@morganlewis.com.

In an order addressing Enbridge Energy, L.P.’s (Enbridge’s) nomination procedures, FERC held that it lacks authority to order an oil pipeline carrier to provide an interconnection with another carrier.[1] High Prairie Pipeline LLC (High Prairie) had protested Enbridge’s filing, arguing that the proposed language could allow Enbridge to deny new shippers access to transportation. High Prairie also asserted that while Enbridge has granted interconnections for its affiliates, Enbridge denied High Prairie’s request for a similar interconnection without providing a nondiscriminatory basis for the denial. High Prairie argued that under the Interstate Commerce Act (ICA), FERC can order a pipeline to grant an interconnection if the denial of the interconnection is unjust, unreasonable, or unduly discriminatory, regardless of whether FERC is notified By complaint or protest.