[Federal Register Volume 81, Number 212 (Wednesday, November 2, 2016)]
[Proposed Rules]
[Pages 76315-76323]
[FR Doc No: 2016-26227]

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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 81, No. 212 / Wednesday, November 2, 2016 /
Proposed Rules

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 342, 343, and 357

[Docket No. RM17-1-000]

Revisions to Indexing Policies and Page 700 of FERC Form No. 6

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Commission seeks comment regarding potential modifications
to its policies for evaluating oil pipeline indexed rate changes. The
Commission also seeks comment regarding potential changes to FERC Form
No. 6, page 700. The Commission invites all interested persons to
submit comments in response to the proposals.

DATES: Initial Comments are due December 19, 2016, and Reply Comments
are due January 31, 2017.

ADDRESSES: Comments, identified by docket number, may be filed in the
following ways:
     Electronic Filing through http://www.ferc.gov. Documents
created electronically using word processing software should be filed
in native applications or print-to-PDF format and not in a scanned
format.
     Mail/Hand Delivery: Those unable to file electronically
may mail or hand-deliver comments to: Federal Energy Regulatory
Commission, Secretary of the Commission, 888 First Street NE.,
Washington, DC 20426.
    Instructions: For detailed instructions on submitting comments and
additional information on the rulemaking process, see the Comment
Procedures section of this document.

FOR FURTHER INFORMATION CONTACT:
Adrianne Cook (Technical Information), Office of Energy Market
Regulation, 888 First Street NE., Washington, DC 20426,<PHONE_NUMBER>
Monil Patel (Technical Information), Office of Energy Market
Regulation, 888 First Street NE., Washington, DC 20426,<PHONE_NUMBER>
Andrew Knudsen (Legal Information), Office of the General Counsel, 888
First Street NE., Washington, DC 20426,<PHONE_NUMBER>

SUPPLEMENTARY INFORMATION:

                                                              Paragraph
                     Table of Contents                         numbers

I. Background..............................................            4
II. Indexing Policies......................................            7
III. Modifications to Page 700.............................           13
    A. Background..........................................           14
    B. Supplemental Page 700s..............................           16
    C. Additional Reporting Requirements on Page 700.......           22
IV. Burden.................................................           31
V. Comment Procedures......................................           31
VI. Document Availability..................................           32

    1. The Federal Energy Regulatory Commission (Commission) is
considering modifications to its policies for evaluating oil pipeline
index rate changes and to the data reporting requirements reflected in
page 700 of Form No. 6. As discussed below, the Commission's index
ratemaking methodology has become the predominant mechanism for
adjusting oil pipeline rates under the Interstate Commerce Act (ICA).
Therefore, ensuring that index rate increases do not cause pipeline
revenues to unreasonably depart from oil pipeline costs, and that both
the Commission and oil pipeline shippers have sufficient information to
assess the relationship between oil pipeline rates and costs, is
essential to the Commission's implementation of its statutory
obligations under the ICA. In this Advance Notice of Proposed
Rulemaking (ANOPR), the Commission is considering a series of reforms
to improve the Commission's and shippers' ability to ensure that oil
pipeline rates are just and reasonable.
    2. This ANOPR is the result of the Commission's ongoing monitoring
and evaluation of the relationship between oil pipeline costs and
rates. In 2015, the Liquids Shippers Group,\1\ Airlines for America,\2\
and the National Propane Gas Association \3\ (collectively, Joint
Shippers) filed a petition for rulemaking seeking additional cost
information on Form No. 6, page 700.\4\ In July 2015, the Commission
held a technical conference discussing this proposal, including the
Joint Shippers' asserted need for greater insight into oil pipelines'
costs and revenues to enable shippers to challenge oil pipeline rates
that may be unjust and unreasonable.
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    \1\ Liquids Shippers Group consists of the following crude oil
or natural gas liquids producers: Anadarko Energy Services Company,
Apache Corporation, Cenovus Energy Marketing Services Ltd.,
ConocoPhillips Company, Devon Gas Services LP, Encana Marketing
(USA) Inc., Marathon Oil Company, Murphy Exploration and Production
Company USA, Noble Energy Inc., Pioneer Natural Resources USA Inc.,
and Statoil Marketing and Trading (US) Inc.
    \2\ Airlines for America is a trade association representing
cargo and passenger airlines, including Alaska Airlines, Inc.,
American Airlines Group (American Airlines and US Airways), Atlas
Air, Inc., Delta Air Lines, Inc., Federal Express Corporation,
Hawaiian Airlines, JetBlue Airways Corp., Southwest Airlines Co.,
United Continental Holdings, Inc., and United Parcel Service Co.
    \3\ The National Propane Gas Association is a national trade
association of the propane industry with a membership of
approximately 3,000 companies, including 38 affiliated state and
regional associations representing members in all 50 states.
    \4\ Petition for Rulemaking, Docket No. RM15-19-000 (filed April
20, 2015) (Petition).
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    3. In addition, the Commission recently completed the 2015 Five-
Year Indexing Review proceeding, which involved an assessment of the
relationship between the oil pipeline

index and industry costs.\5\ Although the five-year review process
addressed the calculation of the index-level on an industry-wide basis,
it did not address how individual oil pipelines may adjust their rates
based on the approved index.
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    \5\ Five Year Review of the Oil Pipeline Index, 153 FERC ]
61,312 (2015).
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    4. However, through the Commission's ongoing monitoring of how the
index affects pipeline rates, the Commission has observed that some
pipelines continue to obtain additional index rate increases despite
reporting on Form No. 6, page 700 revenues that significantly exceed
costs. The Commission's experience with index proceedings has also
indicated that our standards for evaluating shipper objections to index
filings could be strengthened and clarified, to both protect against
excessive rate increases and, consistent with the streamlined and
simplified methodology required by Congress,\6\ minimize costly and
time-consuming litigation regarding pipeline rates.
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    \6\ See infra P 8.
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    5. Accordingly, in this ANOPR, the Commission proposes reforms to
its review of oil pipeline index rate filings and the reporting
requirements for Form No. 6, page 700 to better fulfill its statutory
obligations under the ICA. First, the Commission is considering a new
policy that would deny proposed index increases if (a) a pipeline's
Form No. 6, page 700 revenues exceed the page 700 total cost-of-service
by 15 percent for both of the prior two years or (b) the proposed index
increases exceed by 5 percent the annual cost changes reported on the
pipeline's most recently filed page 700.
    6. Second, in response to the Joint Shippers' Petition, the
Commission is also considering applying these new reforms to costs more
closely associated with the proposed indexed rate than the total
company-wide costs and revenues presently reported by oil pipelines on
page 700. Accordingly, the Commission is considering requiring
pipelines to file supplemental page 700s for (a) crude pipelines and
product pipelines, (b) non-contiguous systems, and (c) major pipeline
systems. The Commission also seeks comments regarding a proposed
requirement that pipelines report (a) information regarding the
allocations used to prepare the supplemental page 700s, and (b)
separate revenues for cost-based rates (e.g. indexing), non-cost-based
rates (e.g. market-based rates or settlement rates), and other
jurisdictional revenues (such as penalties).

I. Background

    7. The Commission regulates the rates, terms, and conditions that
oil pipelines charge under the Interstate Commerce Act (ICA).\7\ The
ICA prohibits oil pipelines from charging rates that are ``unjust and
unreasonable'' and permits shippers and the Commission to challenge
both pre-existing and newly filed rates.\8\
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    \7\ 49 App. U.S.C. 1 et seq. (1988).
    \8\ 49 App. U.S.C. 13(1), 15(1), and 15(7).
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    8. In the Energy Policy Act of 1992 (EPAct 1992), Congress mandated
that the Commission establish a simplified and generally applicable
ratemaking methodology for oil pipelines and streamline procedures in
oil pipeline rate proceedings.\9\ In response to EPAct 1992's mandate,
the Commission issued Order No. 561 creating the indexing
methodology,\10\ which allows oil pipelines to change their rates
subject to certain ceiling levels as opposed to making cost-of-service
filings to change those rates. These ceiling levels change every July 1
with an index based upon industry-wide cost changes.\11\ Indexing
serves as the Commission's primary oil pipeline ratemaking methodology.
However, the Commission also permits oil pipelines to change their
rates via (a) a traditional cost-of-service filing based upon a showing
that a substantial divergence exists between the pipeline's indexed
rates and the pipeline's costs, (b) market-based rates if the pipeline
can demonstrate it lacks market power, and (c) settlement rates.\12\
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    \9\ Energy Policy Act of 1992, Public Law 102-486 Sec. 1803(b),
106 Stat. 3010 (Oct. 24, 1992).
    \10\ Revisions to Oil Pipeline Regulations pursuant to Energy
Policy Act of 1992, Order No. 561, FERC Stats. & Regs, ] 30,985, at
30,940 (1993), order on reh'g and clarification, Order No. 561-A,
FERC Stats. & Regs., ] 31,000 (1994), aff'd sub nom. Ass'n of Oil
Pipe Lines v. FERC, 83 F.3d 1424 (D.C. Cir. 1996) (AOPL).
    \11\ Pursuant to the Commission's indexing methodology, oil
pipelines change their rate ceiling levels effective every July 1 by
``multiplying the previous index year's ceiling level by the most
recent index published by the Commission.'' 18 CFR 342.3(d)(1)
(2016). Currently, the index level is based upon the Producer's
Price Index for Finished Goods plus 1.23, which was based upon the
relationship between PPI-FG and oil pipeline cost changes during the
2009-2014 period. The index level is reviewed every five-years. See
Five-Year Review of the Oil Pipeline Index, 153 FERC ] 61,312
(2015).
    \12\ 18 CFR 342.4 (2016).
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    9. At the same time it created the indexing methodology, the
Commission added page 700 to Form No. 6 to serve as a preliminary
screening tool to evaluate indexed rates.\13\ Page 700 provides a
simplified presentation of an oil pipeline's jurisdictional cost-of-
service and revenues. In its present form, page 700 reflects only total
company data and does not provide separate costs-of-service for
different parts of a pipeline system.
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    \13\ Cost-of-Service Reporting and Filing Requirements for Oil
Pipelines, Order No. 571, FERC Stats. & Regs., ] 31,006 (1994),
order on reh'g and clarification, Order No. 571-A, FERC Stats. &
Regs., ] 31,012 (1994), aff'd sub nom. All jurisdictional pipelines
are required to file page 700, including pipelines exempt from
filing the full Form 6. 18 CFR 357.2(a)(2) and (a)(3) (2016).
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    10. Page 700 serves as the means for the Commission's initial
evaluation of protests and complaints alleging that a pipeline's
indexed rate change is ``substantially in excess'' of the pipeline's
cost changes.\14\ When a shipper files a protest against an oil
pipeline's indexed rate change, the percentage comparison test has been
used by the Commission to determine whether to investigate the indexed
filing. The percentage comparison test compares (a) the change in the
prior two years' total cost-of-service data reported on page 700 with
(b) the proposed indexed rate change.\15\ If the percentage comparison
test differential is greater than 10 percent, the Commission has
historically investigated the protested index filing via subsequent
administrative law judge hearing procedures, and, depending upon the
outcome of that investigation, may modify or reject the index rate
change. If the differential is less than 10 percent, the Commission has
generally exercised its discretion to accept the rate filing without an
investigation.\16\
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    \14\ 18 CFR 343.2(c) (2016).
    \15\ Calnev Pipe Line L.L.C., 130 FERC ] 61,082, at PP 10-11
(2010) (Calnev).
    \16\ SFPP, L.P., 143 FERC ] 61,141, at P 6 (2013).
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    11. The Commission also relies upon page 700 as a preliminary
screen to evaluate complaints against an indexed rate change. Whereas
the percentage comparison test has served as the means for evaluating a
protest to an index rate change, the Commission applies a wider range
of factors to evaluate complaints.\17\ These factors include the
substantially exacerbate test that directs further investigation if (a)
a pipeline is already ``substantially over-recovering'' and (b) the
pipeline has filed an index increase that would ``substantially
exacerbate'' that over-recovery. If a shipper provides reasonable
grounds that a pipeline's index increase will substantially exacerbate
an existing over-recovery, the Commission will set

the matter for hearing before an administrative law judge.\18\
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    \17\ Calnev, 130 FERC ] 61,082 at P 11. The Commission has
explained that it will consider additional factors in a complaint
because it has more time to evaluate complaints and the complainant
must carry the burden of proof. BP West Coast Products LLC v. SFPP,
L.P., 122 FERC ] 61,141, at PP 6-7 (2007).
    \18\ BP West Coast Products LLC v. SFPP, L.P., 122 FERC ] 61,129
(2008).
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II. Indexing Policies

    12. The Commission is contemplating changes to indexing policies
for evaluating annual oil pipeline indexed filings. These changes would
modify both the existing percentage comparison test and the
substantially exacerbate test. Through these modifications, the
Commission seeks to ensure that oil pipeline rates under the ICA are
just and reasonable by reducing the likelihood that an oil pipeline's
rates substantially deviate from its costs through the application of
indexed rate increases. The Commission also is exploring whether and
how such changes would further streamline and simplify its regulations
consistent with the objectives of EPAct 1992.
    13. Accordingly, the Commission is considering a two-part
evaluation of index filings.\19\ The Commission would use these tests
to strengthen and clarify its evaluation of all indexed filings upon
the filing of a protest or complaint or upon the Commission's own
initiative.\20\ The first part of the evaluation, the new
``exacerbate'' test, would deny any ceiling level increase or indexed
rate increases for pipelines in which a pipeline's page 700 revenues
exceed page 700 total costs by 15 percent for both of the prior two
years. The second part of the evaluation, the new percentage comparison
test, would deny a proposed increase to a pipeline's rate or ceiling
level greater than 5 percent of the barrel-mile cost changes reported
on page 700.\21\ These tests would be used by the Commission to accept
or reject oil pipeline indexed filings without, at least in most cases,
establishing hearing procedures.\22\
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    \19\ The Commission does not propose to change its policies for
evaluating index rate decreases. If the index causes a pipeline's
rate ceiling to decline, then the pipeline must adjust its rates so
that they remain at or below the reduced rate ceiling. 18 CFR
342.3(e) (2016).
    \20\ Consistent with the policy articulated in Order No. 561,
the Commission anticipates continued reliance upon affected shippers
to bring challenges that apply the standards contemplated by this
ANOPR to indexed rate changes. Order No. 561, FERC Stats. & Regs., ]
30,985 at 30,967. However, the Commission retains the authority to
investigate on its own initiative oil pipeline rates, including
indexed rates, under sections 13 and 15 of the ICA.
    \21\ The Commission currently uses costs, not costs per barrel-
mile, when applying the percentage comparison test to oil pipeline
cost changes. However, total cost levels can fluctuate due to
changing throughput even if the expenses of moving a particular
barrel remain the same. The Commission has concluded that cost per
barrel-mile (Line 9/Line 12) may provide a more accurate measure of
a pipeline's cost changes.
    \22\ In other words, if a pipeline's index filing satisfied both
tests, it would generally be accepted. Likewise, if the index filing
failed either the exacerbate test or the percentage comparison test,
it would generally be rejected.
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    14. The Commission anticipates that the new exacerbate test, which
considers the relationship between an oil pipeline's revenues and its
costs, will have several benefits. Under indexing, individual oil
pipelines may change their rates based upon industry-wide cost
changes.\23\ When an oil pipeline's revenues significantly exceed
costs, the pipeline still may seek and receive an additional rate
increase that may further increase this gap. This is because,
currently, the Commission does not typically consider the relationship
between an oil pipeline's revenues and its costs when evaluating an
indexed rate change. The exception, the existing substantially
exacerbate test, only applies after the proposed rate increase becomes
effective and a shipper files a complaint.
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    \23\ Using an industry-wide index both simplifies the ratemaking
procedures by avoiding consideration of a particular pipeline's
costs and rewards efficient companies that control costs. ``Indexing
fosters efficiency by severing the linkage under traditional cost-
of-service ratemaking between . . . rate changes and . . . costs.
This provides the pipeline with the incentive to cut costs
aggressively, since . . . it may retain a portion of the savings it
generates.'' See Order No. 561, FERC Stats. & Regs., ] 30,985 at
30,948 n.37.
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    15. Through the new exacerbate test, shippers could raise
objections to proposed rate increases when pipeline revenues already
appreciably exceed costs. The contemplated 15 percent threshold is
intended to preserve an indexing regime based upon industry-wide cost
changes while also ensuring that the index does not cause a particular
oil pipeline's rates to unreasonably depart from its costs. For
example, an oil pipeline with costs corresponding to industry-wide
averages and with revenues 115 percent of costs would earn a real
return on equity (ROE) \24\ that is appreciably higher than the real
ROE the pipeline itself has identified on page 700.\25\ Under these
circumstances, it may be reasonable to deny additional index rate
increases. However, to avoid distortions caused by one-year
fluctuations in costs and revenue, the Commission only anticipates
denying an index increase if the 15 percent threshold is exceeded for
two consecutive years.
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    \24\ The real ROE is the nominal or total ROE less the
inflationary component of ROE.
    \25\ When a pipeline reports revenues that are 115 percent of
page 700 total cost-of-service, approximately one-third of these
additional revenues represent income tax liabilities and the
remaining two-thirds are additional equity earnings for the
pipeline. Accordingly, for a hypothetical pipeline reporting the
industry-wide average page 700 return on equity (page 700, line 7b)
of approximately 18.3 percent of its total costs (page 700, line 9),
the additional revenues would translate to an increase in equity
return of 55 percent (i.e. \2/3\ * 15 percent/18.3 percent). If the
pipeline incorporated the industry-wide average ROE of 10.4 percent
in its page 700 cost-of-service (page 700, line 6d), such a pipeline
would actually be recovering a 16.1 percent real ROE (10.4 percent +
10.4 percent * 55 percent). The Commission calculated the industry-
wide averages in this footnote based upon the publicly available
page 700 data filed by oil pipelines.
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    16. Similarly, the Commission also anticipates that the new
percentage comparison test will help ensure that rates better reflect
costs. By reducing the gap between an annual rate increase and a
pipeline's cost changes from 10 to 5 percent, the Commission constrains
the difference that can emerge in a one-year period between a
pipeline's costs and its revenues.\26\ However, as is the case with the
existing percentage comparison test, if a pipeline's page 700 reported
costs exceed its revenues, the Commission would permit the pipeline to
take the full index increase because the pipeline is not recovering its
costs.
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    \26\ Using the 10 percent threshold, a pipeline with costs
annually declining by 5 percent and 4.9 percent of annual indexed
rate increases could have revenues that exceed costs by roughly 20
percent after two years and 30 percent after three years. Applying
that same hypothetical but using the 5 percent threshold, the
revenues would only exceed costs by 10 percent after two years and
around 15 percent after three years.
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    17. The Commission is also considering requiring pipelines, whether
or not they modify their indexed rates, to make an annual filing
showing changes in their ceiling levels.\27\ These ceiling levels would
also be subject to challenge using the new exacerbate and percentage
comparison tests. Applying these processes to the pipeline's rate
ceilings, not just the rates, would limit the emergence of pipeline
over-recoveries. Under the new exacerbate test, a pipeline's ceiling
levels would not increase when its revenues exceed 115 percent of
costs, ensuring that the pipeline would not be able to significantly
raise its rates (and thus revenues) immediately after page 700 revenues
fall below 115 percent of page 700 costs.\28\ Likewise, by applying

the new percentage comparison test to a pipeline's ceiling level
changes (as well as to its indexed rate changes), the Commission also
would limit the ability of a pipeline to carry-forward the full indexed
increase to a future period when that increase significantly exceeds
(i.e. more than 5 percent) the pipeline's cost changes.\29\
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    \27\ As explained, supra P 8, indexing allows oil pipelines to
change their rates subject to certain ceiling levels. These ceiling
levels change every July 1 with an index based upon industry-wide
cost changes. When a pipeline's ceiling levels change, the pipeline
is not currently obligated to make a filing with the Commission.
Pipelines are currently only obligated to make a filing with the
Commission if they change their rates pursuant to the changing
ceiling levels.
    \28\ In other words, the change in the ceiling increase would be
limited to a 5 percent difference from the pipeline's cost change.
For example, if the index for 2018 is 3 percent, and the pipeline's
cost change is -3 percent, the pipeline's ceiling level could not
increase by 3 percent because this would fail the percentage
comparison test because 6 [3-(-3)] is more than 5. Rather, in this
hypothetical example, the ceiling level could only change by 2
percent [2-(-3) = 5]. This 2 percent increase to the ceiling level
would carry forward whether or not the pipeline raised its rates up
to the ceiling.
    \29\ Currently, Commission policy allows a pipeline to file a
partial index rate increase leading to a percentage comparison test
of 9.9 percent while the pipeline's ceiling rate still increases by
the full index. The pipeline can make a filing with the Commission
to increase its rates up to the ceiling level in a subsequent year.
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    18. The Commission anticipates these tests can be used to simplify
and streamline oil pipeline ratemaking procedures. While page 700 has
been used as a ``preliminary screen,'' under the tests proposed here,
the pipeline's own reported cost data on page 700 would serve as a
sufficient basis for a decision to deny a challenged index rate filing.
In such circumstances, a full hearing before an administrative law
judge would not be necessary. By relying more upon the pipeline's self-
reported page 700 data, the Commission could simplify and streamline
the process for evaluating indexed rate changes. To the extent that
commenters believe there may be circumstances in which the new
exacerbate test and the revised percentage comparison tests when
applied to page 700 (or the supplemental page 700s described below)
would not provide a reasonable basis for accepting or rejecting an
indexed filing, commenters should (a) identify those circumstances and
(b) specifically discuss how those circumstances could be addressed for
evaluating indexed rate changes in a simplified and streamlined
ratemaking process.
    19. Along similar lines, the Commission anticipates that these
modifications would streamline and simplify Commission policies by
establishing clearer standards. For example, under the new exacerbate
test, the Commission would be identifying the specific threshold for
what constitutes a ``substantial over-recovery.'' Further, when the
Commission sets an indexed rate filing for hearing based upon either
the percentage comparison test or the substantially exacerbate test,
there is limited precedent providing guidance regarding the parameters
and scope of such a hearing subject to a simplified ratemaking
methodology.\30\ This lack of clarity creates complexity and
uncertainty for both shippers and pipelines. By accepting and rejecting
indexed filings based upon the proposed new exacerbate and percentage
comparison tests, the Commission seeks to establish a clearer policy
consistent with the objective of a simplified and streamlined
ratemaking process.
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    \30\ Consistent with the intent of indexing to create a
simplified ratemaking methodology, the investigation into an indexed
rate increase should not require the parties to fully litigate a
cost-of-service rate case.
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    20. Whether relying upon the existing page 700 or the supplemental
page 700s, the Commission expects that these new tests would serve as
the primary mechanism for evaluating oil pipeline indexed rate
changes.\31\ The Commission anticipates that these new policies for
evaluating indexed filings would both (a) ensure that index rate
increases do not cause pipeline revenues to substantially deviate from
costs and (b) streamline and simplify the Commission's ratemaking
methodologies.
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    \31\ Because page 700 is critical to the Commission's ability to
monitor oil pipeline rates, the Commission emphasizes that pipelines
must comply with the current requirement to file the Form No. 6,
including the page 700, by April 18 of each year. Although waivers
may still be granted in limited circumstances, the Commission must
be able to evaluate the indexed rates before they become effective
on July 1 of each year. Failure to timely file the Form No. 6 could
delay the effective date of a pipeline's proposed indexed increase
or, potentially, lead to the outright rejection of the requested
increase.
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III. Modifications to Page 700

    21. The Commission has preliminarily concluded that additional
reporting requirements may enhance the ability of shippers and the
Commission to monitor oil pipeline rates. First, the Commission is
considering a requirement that pipelines file supplemental page 700s
for (a) crude pipelines and product pipeline systems, (b) non-
contiguous systems, and (c) certain major pipeline systems. These
changes would complement the proposed new exacerbate and percentage
comparison tests. Using the supplemental page 700s, the Commission
could evaluate indexed rate changes based upon costs and revenues more
closely related (and thus more relevant) to the proposed indexed rate
change.\32\
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    \32\ Shippers could also use the supplemental page 700 as the
basis for initiating a cost-of-service complaint against a
pipeline's rates. Consistent with the mandate for a simplified
ratemaking methodology in EPAct 1992, the Commission created
indexing to avoid cost-of-service litigation. However, shippers may
still pursue cost-of-service claims if a pipeline's indexed rates
substantially diverged from a pipeline's costs. Arco v. Calnev Pipe
Line, L.L.C., 97 FERC ] 61,057, at 61,311 (2001) (citing Order No.
561, FERC Stats. & Regs., ] 30,985 at 30,955).
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    22. Second, the Commission is considering requiring pipelines on
page 700 and the supplemental page 700s to report additional
information regarding (a) cost allocations used on the supplemental
page 700s and (b) separate revenues for cost-based rates (e.g.,
indexing), non-cost-based rates (e.g., market-based rates), and other
jurisdictional revenues (such as penalties).

A. Background

    The Commission's reevaluation of page 700 originated with the Joint
Shippers' petition for rulemaking. In the petition, the Joint Shippers
requested that the Commission require pipelines to disaggregate the
total company data reported on page 700 and to file supplemental page
700s with summary costs-of-service for (a) crude and product systems
and (b) for each ``rate design'' segment. The Joint Shippers' proposal
also requested that all interested parties be given access to the work
papers used to prepare page 700. A technical conference held July 30,
2015, discussed the Joint Shippers' petition. The Commission provided
the opportunity for initial comments due September 25, 2015 and reply
comments due October 30, 2015. At the technical conference and in
subsequent comments, the Association of Oil Pipelines (AOPL) opposed
the proposal as unduly burdensome and inconsistent with the
Commission's indexing ratemaking regime. In addition to the comments
from AOPL the Commission also received nine separate initial comments
from pipeline entities opposing the petition.\33\ The Joint
Commenters,\34\ Liquids Shippers Group, the Canadian Association of
Petroleum Producers,\35\ and Tesoro Refining and Marketing LLC filed
initial comments supporting the proposal. On October 30,

2015, AOPL and SFPP, L.P., filed reply comments expressing continued
opposition to the petition and the Joint Commenters and the Liquids
Shippers Group filed reply comments in further support of the petition.
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    \33\ The Commission received comments from Explorer Pipeline
Company, Magellan Midstream Partners, L.P., Marathon Pipe Line LLC,
Shell Pipeline Company LP, Plains Pipeline, L.P., SFPP, L.P.,
Buckeye Pipe Line Company, L.P., jointly NuStar Logistics, L.P. and
NuStar Pipeline Operating Partnership, L.P., and, jointly,
Enterprise Products Partners L.P. and its operating subsidiaries
Enterprise TE Products Pipeline Company LLC and Mid-America Pipeline
Company, LLC.
    \34\ Joint Commenters include Airlines for America, National
Propane Gas Association, and Valero Marketing and Supply Company.
    \35\ The Canadian Association of Petroleum Producers represents
companies that develop and produce natural gas and crude oil
throughout Canada.
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    23. In its reply comments, AOPL advanced a limited alternative
proposal to the petition that would require pipelines to report carrier
property data shown on Form No. 6, pages 212-213 and accrued
depreciation data shown on Form No. 6, page 216 separately for crude
oil and products.\36\ Using this data, AOPL stated shippers could
estimate costs by crude and products pipeline systems. In the
supplemental reply comments filed November 23, 2015, Joint Commenters
argued AOPL's counterproposal did not provide adequate information for
shippers to meaningfully evaluate the reasonableness of rates.\37\ On
December 8, 2015, AOPL filed a response to the Joint Commenters
Supplemental Reply Comments.
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    \36\ AOPL Reply Comments, Docket No. RM15-19-000, at 60.
    \37\ Joint Commenters Supplemental Reply Comments, Docket No.
RM15-19-000, at 18.
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B. Supplemental Page 700s

1. Commission Proposal
    24. The Commission's preliminary assessment indicates that
providing supplemental page 700s for different parts of a pipeline
system may enhance the Commission's and shippers' ability to evaluate a
pipeline's indexed rates.
    25. For some pipelines, the total company data on page 700
consolidates costs and revenues from several different assets,
including (a) pipeline systems that move crude oil as opposed to
petroleum products, (b) non-contiguous systems that use geographically
separate assets, and (c) major pipeline systems that extend at least
250 miles and serve fundamentally different markets. The costs
associated with providing service on one of these systems may be
fundamentally different from the costs associated with providing
service on other parts of the total company pipeline system.
Accordingly, these supplemental page 700s would be useful both in the
evaluation of index filings (as discussed above) and for cost-of-
service challenges to oil pipeline rates. When a pipeline seeks an
indexed increase to a particular rate, shippers and the Commission
could use the supplemental page 700s to compare the rate change with
costs that are more closely associated with that particular rate.
    26. Accordingly, as discussed below, the Commission is considering
requiring pipelines to file supplemental page 700s for crude oil
systems (labeled 700c) and petroleum product systems (labeled 700p).
Within each of these crude and product systems, the Commission is
considering a further requirement that pipelines provide a supplemental
page 700 for (a) non-contiguous (geographically separate) pipeline
systems \38\ and (b) major pipeline systems. Major pipeline systems
would consist of large pipeline systems (at least over 250 miles) that
serve markets (either origin or destination) different from the
remainder of the pipeline's system.\39\ Major pipeline systems would
also include separate pipeline systems (even those below the 250-mile
threshold) established by a final Commission order in a litigated rate
case. The supplemental page 700s for non-contiguous and major pipeline
systems would be labeled 700c1, 700c2, etc., for crude systems, and
700p1, 700p2, etc., for product systems.\40\
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    \38\ For example, if one pipeline system goes from California to
Nevada and another pipeline system goes from Texas to Arizona.
    \39\ A major pipeline system would include one branch of a ``V''
where different parts of the total company system share a similar
origin but where one 250-mile system serves destinations to the
northwest and another part travels to destinations to the northeast.
Laterals, different divisions of an integrated and interconnected
reticulated pipeline, different divisions of a straight-line
pipeline, and granular rate segments are not intended to be a major
pipeline system within the Commission's contemplated definition.
    \40\ By definition, if a pipeline has one major pipeline system
labeled 700c1 which extends over 250 miles, it must also file a
supplemental page 700c2 for the remainder of its crude system.
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    27. The Commission anticipates that these supplemental page 700s
would allow index rate changes to be evaluated using data that is more
relevant to a particular shipper's rates than the currently reported
company-wide data. These criteria identify pipeline systems associated
with (a) separate transportation movements and (b) costs due to the use
of different assets.
    28. The Commission expects that the benefits described above will
outweigh the accounting burden for disaggregating the cost data on
these supplemental page 700s. For crude and product systems, pipelines
are already required to disaggregate significant data on the Form No.
6. For non-contiguous pipelines, geographically separate systems are
also more likely to be recorded separately on a company's books and
records.\41\ Similarly, 250-mile major pipeline systems are likely to
be of sufficient significance that the pipeline separately tracks the
costs and revenues associated with such a large part of its business.
Nonetheless, to the extent that a pipeline's existing books and records
do not allow for the pipeline to directly assign certain costs that
would be required to be reported on the supplemental page 700s, the
Commission, as discussed below, is considering allowing for certain
reasonable allocations and estimates using the available data.
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    \41\ Pipelines typically record their costs using cost centers
and location codes. It seems reasonable that in most cases these
data should be sufficiently precise to associate particular costs
with the major pipeline system identified above.
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    29. The Commission does not presently intend to pursue additional
segmentation of page 700, such as the ``rate design'' segments proposed
in the Joint Shippers' petition. Indexing does not require an exact
correlation between a pipeline's costs and rates,\42\ and, given that
regulatory scheme, we believe that the changes proposed above will
provide sufficient transparency to allow the Commission and shippers to
monitor pipelines' costs and revenues. The Commission has previously
relied upon the total company costs reported on page 700, and we
believe the more specific supplemental page 700s identified above will
be appropriate to be used in future applications of the index.
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    \42\ As the United States Court of Appeals for the District of
Columbia Circuit has explained, requiring an individualized cost-of-
service evaluation for each pipeline would be inconsistent with the
simplification mandated by EPAct 1992. AOPL v. FERC, 281 F.3d 239,
244 (D.C. Cir. 2002). Indexing achieves simplification by using an
industry-wide index as opposed to relying upon a detailed
examination of each pipeline's particular costs. The Commission only
considers a pipeline's particular cost changes if the index rate
change is in ``substantial excess'' of the pipeline's costs or there
is a substantial divergence between a pipeline's rates and the costs
associated with those rates.
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    30. Moreover, the Commission is concerned about the application of
the Joint Shippers' proposal on an industry-wide basis. Most pipelines
have never made a filing with the Commission identifying their rate
design segments, and Commission precedent provides limited guidance for
identifying rate design segments.\43\ Rate design segmentation of page
700 would likely insert into the Commission's ``simplified'' indexing
methodology complex, fact-specific disputes regarding the appropriate
rate design

segmentation.\44\ Further, the Joint Shippers' alternate proposal to
define rate design segments using definition 32(a) from the Uniform
System of Accounts provides little clarity because this definition has
historically served a separate accounting purpose and has never
previously been applied to identify rate design segments.\45\
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    \43\ A pipeline would only need to identify its rate design
segments if it litigated a cost-of-service rate case. Because
pipelines primarily use indexing to change their rates, such cost-
of-service cases are rare. The Commission has only required one
pipeline, SFPP, to use segmented data in a cost-of-service case.
SFPP, LP, 86 FERC ] 61,022, at 61,080 (1999). There, the Commission
made a series of fact-specific holdings to conclude that SFPP's
south system consisted of two rate design segments, one travelling
from Texas to Phoenix, Arizona, and another from California to
Phoenix, Arizona.
    \44\ How a pipeline defines its segments could fundamentally
affect which rates are eligible for an indexed increase based upon
the supplemental page 700s.
    \45\ Rather, this definition applies to the accounting rules for
treatment of the purchase and sale of an asset. Specifically, based
upon definition 32(a), the sale or disposal of a ``segment of a
business'' must be accounted for as part of ``discontinued
operations'' and not included among the gains and losses associated
with pipeline's continuing operations. See 18 CFR pt. 352,
Instruction 1-6(c) and Account No. 676 (2016) (``Gain (loss) on
disposal of discontinued segments''). The Commission's
considerations when applying this accounting definition may differ
significantly from considerations used to identify separate segments
in a rate case.
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    31. The comments filed in Docket No. RM15-19-000 demonstrate our
concerns. As an initial matter, different shipper comments supporting
the segmentation proposal identify conflicting lists of pipelines that
``could'' have different rate design segments.\46\ Moreover, to
identify these segments, the Joint Shippers used potentially
inapplicable criteria such as ``undivided joint interest'' \47\ and
separate ``tariff listings'' \48\ that, in addition to being
potentially over-inclusive, failed to identify SFPP, L.P., a non-
contiguous pipeline that has repeatedly been treated as operating
separate segments in Commission rate cases.\49\ In addition, the rate
design segments identified by shippers include relatively insignificant
assets, such as small laterals.\50\ The burden associated with
segmentation is not a one-time burden, as pipeline systems change over
time and pipelines will need to re-evaluate their rate design segments
in future years. Recent litigation before the Commission further
demonstrates the burdens imposed by a fact-specific inquiry into a
pipeline's segmentation.\51\ Given the Commission's indexing ratemaking
regime and our determination that alternative reforms to page 700 will
provide sufficient transparency to assist the Commission and shippers,
the Commission currently does not intend to pursue the Joint Shippers'
proposed reporting requirement.
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    \46\ Compare Tesoro Refining and Marketing LLC Initial Comment,
Docket No. RM15-19-000, Appendix with Joint Shippers Initial
Comment, Docket No. RM15-19-000, at 38-39; Attachment 2, Affidavit
of Michael R. Tolleth, Docket No. RM15-19-000, at 9 & Liquid
Shippers Group Initial Comments, Docket No. RM15-19-000, at 30.
    \47\ The Joint Shippers state that undivided joint interests
pipelines indicate the existence of separate rate design segments
because these systems ``generally have tariffs for each of the
owners and may be geographically disconnected from other segments.''
Joint Shippers Initial Comment, Attachment 2, Affidavit of Michael
R. Tolleth, Docket No. RM15-19-000, at 12. However, because
pipelines can structure their own tariffs, it is not clear whether
merely having a separate tariff justifies a separate rate design
system. Moreover, it is not clear that undivided joint systems are
necessarily geographically separate. For example, the ``Maumee
System'' is a crude oil pipeline that runs from Lima, OH, and to
Samaria, MI. Mid-Valley Pipeline Company (Mid-Valley) and Hardin
Street Holdings (Hardin) jointly own the ``Maumee System.''
Including Maumee, Mid-Valley's System extends continuously from
northeast Texas to Samaria, Michigan, with receipts a several points
on the southern portion of its system and delivery points all along
its system, including four points on the Maumee System. In any
event, to the extent an undivided joint interest pipeline is
geographically separate, it would be addressed by the Commission's
definition above.
    \48\ Oil pipelines have discretion with the structuring of their
tariff, and how the tariff is structured does not necessarily
establish whether or not separate rate design segments exist.
    \49\ See Affidavit of Michael R. Tolleth, Figure 1, Docket No.
RM15-19-000, page 9.
    \50\ The shippers' proposal exempts pipelines that report total
company revenues less than $10 million for each of the three
previous years. However, it does not address small segments within
larger total systems. For instance, the shippers' filings identify a
12-mile lateral on the Seminole pipeline as potentially requiring a
separate page 700. Compare AOPL Reply Comments, Docket No. RM15-19-
000, at 26-27 with Joint Shippers Supplemental Reply Comments,
Docket No. RM15-19-000, at 8-9.
    \51\ These disputes have involved issues very specific to the
operations of a particular pipeline system, such as (a) whether a
pipeline, which was effectively a single pipe moving from the Gulf
of Mexico to the northeastern United States, should be divided into
two separate rate design systems (Joint Shippers Initial Comment,
Attachment 1, Affidavit of Daniel S. Arthur, Docket No. RM15-19-000,
at 28 and Appendix O) (discussing TE Enterprise Products, Docket No.
IS12-203-000); (b) whether a pipeline's extension into Long Island,
NY, should be treated separately from its much larger Eastern System
on the basis of the different product moved, different pipeline
vintages, different operational requirements and other factors
(Joint Shippers Initial Comment, Attachment 1, Affidavit of Daniel
S. Arthur, Docket No. RM15-19-000, Appendix E at 2) (discussing
Buckeye Pipeline, Docket No. OR12-28-000); and (c) although not
objecting to the segmentation in that particular case, questioning
whether one of a pipeline's three systems should be divided further
to account for different lines that move different products and
serve different shippers (National Propane Group, et al, Initial
Brief, Docket Nos. IS05-216-000, et al., at 13-14 (filed February 7,
2008) (discussing Mid-America Pipeline Company, LLC's Northern
System). The oil pipeline cost-of-service cases involving rate
design segmentation disputes have generally settled before the
Commission issues a precedential order. However, they illustrate the
burden that would be imposed by requiring every pipeline that files
a page 700 to assess its system in this manner.
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C. Additional Reporting Requirements on Page 700

    32. The Commission is also considering requiring pipelines to
report additional data on the page 700 and supplemental page 700s.
First, in order to facilitate the creation of the supplemental page
700s above, the Commission is considering requiring pipelines to
explain the allocation of costs between the different supplemental page
700s. Second, the Commission is considering requiring all pipelines to
report separate revenues and throughput for cost-based transportation
rates (resulting from indexing and cost-of-service), non-cost-based
transportation rates (resulting from settlement rates and market-based
rates), and other jurisdictional revenues (such as penalties).
1. Cost Allocation Data
    33. The Commission is contemplating reporting requirements
involving the cost allocation methodologies used to derive the system-
specific data reported on the supplemental page 700s. As discussed
below, the Commission recognizes pipeline arguments that it may be
difficult or costly for pipelines to directly assign certain costs to
the system-specific supplemental page 700s. Thus, the Commission is
considering whether to permit pipelines to use reasonable methodologies
for allocating those costs. However, to ensure transparency, the
Commission is considering also requiring pipelines to provide
information regarding these allocations on page 700. This information
would allow the Commission and other interested parties to observe (a)
how these allocations are affecting the supplemental page 700s' costs-
of-service and (b) any changes in direct assignment or allocation
practices between annual page 700 filings.\52\
---------------------------------------------------------------------------

    \52\ As provided by the current instructions on page 700, a
pipeline must explain any change in its application of the Opinion
No. 154-B cost-of-service methodology from the prior year.
---------------------------------------------------------------------------

    34. Page 700 includes ratemaking information that, unlike typical
accounting data, pipelines may not be able to cost-effectively
determine on a segmented basis. For example, the Opinion No. 154-B
trended original cost rate base \53\ (page 700, line 5d) includes (a)
the original cost of the rate base (page 700, line 5a), (b) a Starting
Rate Base Write-Up developed in 1983 to transition from a prior
ratemaking methodology to trended original cost ratemaking (page 700,
line 5b), and (c) Net Deferred Earnings, which consists of

the accumulations since 1983 of the inflationary component of a
pipeline's annual return (page 700, line 5c).\54\ Unlike typical
accounting data, absent a cost-of-service rate case (which most oil
pipelines have not experienced since 1983), a pipeline may have had no
reason to maintain or calculate this data other than on the company-
wide basis for page 700. Given that an exact accounting of the Starting
Rate Base Write-Up and Deferred Earnings would require data from 1983
to the present,\55\ obtaining this data may be impracticable.
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    \53\ The Commission's cost-of-service methodology was
established in Opinion No. 154-B. Williams Pipe Line Co., Opinion
No. 154-B, 31 FERC ] 61,377, order on reh'g, Opinion No. 154-C, 33
FERC ] 61,327 (1985). When the Commission established indexing and
page 700, the Commission determined that it would continue to use
the Opinion No. 154-B methodology to measure pipeline costs for
evaluating whether a pipeline's indexed rate changes were in
substantial excess of the pipeline's rate changes.
    \54\ Under the Opinion No. 154-B trended original cost
ratemaking, the inflationary component of the nominal return is
placed in deferred earnings and recovered as a part of rate base in
future years. See Opinion No. 154-B, 31 FERC ] 61,377. See, e.g., BP
West Coast Prods., LLC v. FERC, 374 F.3d 1263, 1282-83 (D.C. Cir.
2004).
    \55\ To properly allocate Starting Rate Base Write-Up, data may
be needed dating back to the initial service date of the asset in
question.
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    35. Accordingly, to the extent the Opinion No. 154-B rate base
information is not available in company records, the Commission would
permit pipelines to perform a one-time allocation of these costs for
preparing the supplemental page 700s. Reasonable allocations of this
data should not significantly reduce the usefulness of the supplemental
page 700 data. The Deferred Earnings and Starting Rate Base Write-Up
are a relatively small part of an overall cost-of-service,\56\ and thus
reasonable allocations should not undermine the overall accuracy of the
total cost-of-service that is used for evaluating indexed rates.
Moreover, once this one-time allocation of these Opinion No. 154-B rate
base costs establishes a base-line, future allocations should be
limited.\57\
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    \56\ The Commission evaluated the role of deferred earnings as a
percentage of the cost of service for each pipeline filing a 2015
page 700. The Commission calculated the percentage of deferred
earnings of the total cost-of-service as follows:
    Deferred Earnings = Accumulated Net Deferred Earnings, line 5c *
Real Cost of Stockholders' Equity, line 6d
    Taxes on Deferred Earnings = Accumulated Net Deferred Earnings,
line 5c * Adjusted Capital Structure Ratio for Stockholders' Equity,
line 6b * Real Cost of
    Stockholders' Equity, line 6d * (Composite Tax Rate, line 8a/(1-
Composite Tax Rate, line 8a))
    Deferred Earnings as a Percent of Cost of Service = (Deferred
Earnings + Taxes on Deferred Earnings)/Total Cost of Service, line
9.
    Using this formula, deferred earnings accounted for 6.71 percent
of the median pipeline's cost of service, 3.29 percent for the
pipeline at the 25th percentile and 9.44 percent for the pipeline at
the 75th percentile. The industry-wide mean was 6.71 percent.
Because the starting rate base write-up (line 5b) has been
depreciated since 1984, it is either fully depreciated or quite
small on most pipelines.
    \57\ In other words, once a pipeline establishes the base-line
net deferred earnings for each of its supplemental page 700s, the
pipeline can in subsequent years (a) amortize the base-line level
established for each supplemental page 700 and (b) add future
deferred earnings to the appropriate supplemental page 700. There
may, however, be some further adjustments needed if a pipeline
subsequently sells or acquires pre-existing assets which have
accrued deferred earnings.
---------------------------------------------------------------------------

    36. The Commission would also permit other allocations where
appropriate. Currently, when the pipeline's business records do not
allow direct cost assignment, pipelines filing page 700s use
Commission-approved cost allocation methodologies for (a) allocating
parent company overhead to the pipeline filing page 700 and (b)
identifying the jurisdictional costs reported on page 700 as opposed to
the non-jurisdictional costs. To the extent necessary, the pipelines
may use reasonable methodologies for allocating costs \58\ between the
various systems reported on the proposed supplemental page 700s. The
Commission anticipates that these methodologies will generally stay
consistent over time. However, the Commission recognizes that, in some
circumstances, it may be appropriate for a pipeline to further refine
its allocation methodologies. The Commission also does not expect
pipelines to make major or high cost modifications to accounting
systems or business processes solely for the purpose of filing the
supplemental page 700s.
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    \58\ These allocated costs could include items such as shared
assets, shared services, and overhead costs where direct assignment
may sometimes be very difficult.
---------------------------------------------------------------------------

    37. The Commission, however, also seeks to ensure transparency
regarding the costs allocated among the supplemental page 700s. The
choice and application of cost allocation methodologies involves
judgment that, to some degree, may be subjective.\59\ The Commission
and the public would also benefit from information regarding the amount
of costs that pipelines are allocating as opposed to directly
assigning. In order to ensure transparency and to monitor pipeline's
allocation decisions, the Commission is considering requiring
additional information on page 700 in order to differentiate between
directly assigned and allocated costs and to briefly describe the
allocation methodology.
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    \59\ The Commission has established allocation methodologies
that are used for ratemaking purposes. These include the
Massachusetts Formula, the Kansas-Nebraska methodology, and
volumetric allocations.
---------------------------------------------------------------------------

    38. Thus, for certain line items on page 700 oil pipelines would be
required to report (a) directly assigned costs and (b) allocated
costs.\60\ The directly assigned costs would be those costs that have
been assigned to a specific system based upon cost centers and location
codes. For the allocated costs, the pipeline would include a footnote
explaining the methodology used to allocate those costs, including (a)
Kansas-Nebraska methodology, (b) volumetric method, (c) gross plant, or
(d) other methodologies.\61\
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    \60\ The requirement to break-out directly assigned and
allocated costs would be added to line 1 (Operating and Maintenance
Expenses), line 2 (Depreciation Expense), line 3 (AFUDC
Depreciation), line 4 (Amortization of Deferred Earnings), and
proposed lines 5a1-5a4 (Trended Original Cost Rate Base). This
requirement would apply to all supplemental page 700s.
    \61\ For example, on page 700c for crude pipeline systems, below
line 1 ``Operating and Maintenance Expenses,'' this proposal would
add Line 1a ``Directly Assigned O&M Expenses,'' and line 1b
``Allocated O&M Expenses.'' In a footnote, the pipeline could
explain, ``These costs were allocated using the KN Method.''
---------------------------------------------------------------------------

    39. Second, in order to facilitate understanding of these
allocations, on both page 700 and the supplemental page 700s, the
Commission is considering requiring additional data involving rate
base.\62\ Specifically, this approach would add to line 5a, Rate Base--
original cost; line 5a1--Total Carrier Property In Service (Gross
Plant); line 5a2--Net Carrier Property In Service (Net Plant); line
5a3--ADIT; and line 5a4--Total Working Capital. Gross and net plant
could be important for understanding how costs are being allocated. For
example, this data may provide a means for allocating the Opinion No.
154-B cost data.
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    \62\ This information would be used primarily to understand the
cost allocations to the different systems as reported on the
supplemental page 700s. Although the Commission does not anticipate
that all pipelines would be required to file the supplemental page
700s, the Commission is considering requiring all pipelines to
report this information on page 700. The data would help the
Commission understand a pipeline's capital costs, and this company-
wide data should already be contained within the work papers used to
prepare the page 700.
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    40. By permitting oil pipelines to use estimates and cost
allocations for certain costs, the Commission would seek to reduce the
compliance costs associated with the supplemental page 700s. However,
the use of allocations would be balanced by the additional reporting
requirements that would enable the Commission and shippers to monitor
both the level of allocated costs and, in general terms, how those
costs were allocated.
2. Revenue, Barrel and Barrel Mile Data
    41. The Commission is also considering requiring pipelines to
disaggregate page 700 revenue, barrel, and barrel-mile data associated
with (a) cost-based rates (resulting from indexing and cost-of-
service), (b) non-cost-based rates (resulting from settlement rates

and market-based rates), and (c) other jurisdictional revenues (such as
penalties).
    42. When page 700 was created following EPAct 1992, most oil
pipeline revenues resulted from rates subject to cost-based regulation.
Therefore, comparing total revenue to total costs served as an
effective preliminary means to determine whether to challenge a
pipeline's cost-based rates. However, in recent years, an increasing
percentage of pipelines are using settlement rates (including
negotiated rates associated with new construction). Also, at the same
time the Commission created page 700, the Commission formalized its
market-based rates policy in Order No. 572.\63\ The revenue derived
from these non-cost-based rates may substantially deviate from a
pipeline's cost-of-service, but still be just and reasonable.\64\
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    \63\ Prior to Order No. 572, the Commission allowed market-based
rates on an experimental basis. See Buckeye Pipe Line Co., 53 FERC ]
61,473 (1990), order on reh'g, 55 FERC ] 61,084 (1991).
    \64\ Seaway Crude Pipeline Company LLC, Opinion No. 546, 154
FERC ] 61,070, at P 47 (2016). ``(T)here is extensive precedent that
supports the Commission's policy that negotiated rates need not be
cost-based, and that a pipeline's entire portfolio of rates can
produce revenues that exceed its overall cost-of-service.''
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    43. Separating the cost-based and non-cost-based revenue could help
the Commission and pipeline shippers to assess, on a preliminary basis,
whether a gap between total company costs and revenues likely results
from cost-based rates (which could be challenged on a cost-of-service
basis) or from non-cost-based rates (which could not be challenged on a
cost basis). Also, because a pipeline must know the rate to charge a
shipper seeking service, this revenue data should be relatively simple
for the pipeline to identify and to track.
    44. Certain limitations apply to this data. Different revenue
sources may apply to different parts of the pipeline with different
costs.\65\ As a result of this mismatch, the Commission does not intend
to use the disaggregated cost-based revenues in the indexing screens
described above. However, this additional information would nonetheless
enable the Commission and the industry to evaluate the relative effect
of the Commission's different ratemaking methodologies. It could also
provide an initial assessment for shippers contemplating a cost-of-
service complaint against a pipeline's rates.\66\
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    \65\ For example, a negotiated rate could apply to the newer
part of the pipeline system for which the rate base has not
depreciated. In contrast, the cost-based rates may apply to older,
legacy parts of the system in which the rate base has depreciated.
    \66\ As an example, consider a pipeline that ships 100,000
barrels system-wide, where 50,000 barrels are shipped under an
indexed rate of $1.00 ($50,000), 25,000 barrels are shipped under a
negotiated discount rate of $0.90 (for revenues of $22,500), and
25,000 are shipped at a market-based rate of $2.00 ($50,000). Also
assume a total cost-of-service of $100,000. Under the existing
requirements of page 700, the pipeline would list total revenues of
$122,500 (50,000 + 22,500 + 50,000), producing a deviation between
cost and revenue of $22,500 or 22.5 percent. If this pipeline
instead reported segmented revenue, it would report $50,000 in cost-
based revenue and $72,500 in non-cost-based rate revenue. The
pipeline would also report throughput of 50,000 cost-based barrels,
and 50,000 non-cost-based barrels. Comparing cost-based revenue to
cost-based throughput, there would be no deviation between cost-
based costs ($50,000) and cost-based revenues ($50,000).
---------------------------------------------------------------------------

3. Work Papers
    45. Based on our consideration of the record in Docket No. RM15-19,
and our proposed revisions to page 700 included in this ANOPR, we do
not propose requiring pipelines to make the work papers used to prepare
page 700 available to all interested parties as requested by the Joint
Shippers' petition.
    46. As described earlier in the ANOPR, the Commission is proposing
to significantly revise pipeline reporting requirements for page 700.
Page 700 data filed by the pipelines is under oath and subject to
Commission audit. The current data on page 700 allows a shipper to
compare (a) a pipeline's revenues to its total cost-of-service and (b)
changes to a pipeline's total cost-of-service. Under both the
Commission's current policy and the policy changes proposed above, this
is the data directly used to evaluate challenged index filings. Page
700 also provides significant context for these total costs, including
several major cost-of-service subcomponents. By requiring additional
information on page 700 and the supplemental page 700s regarding (a)
rate base (proposed lines 5a1-5a4), (b) the cost allocations, and (c)
revenues, the Commission is providing additional context for the data
on page 700.\67\ We believe that this additional information provides
sufficient information to allow the Commission and shippers to evaluate
index findings and conduct a preliminary evaluation of a pipeline's
rates prior to bringing a cost-of-service challenge. However, we invite
comments on the sufficiency of this additional information in
evaluating index filings and conducting preliminary evaluations of a
pipeline's rates prior to bringing a cost-of-service challenge.
---------------------------------------------------------------------------

    \67\ These additions comport to Dr. Arthur's statements in his
testimony pointing out that ``two additional significant areas where
page 700 work papers provide relevant information not reported
elsewhere in the Form 6 are the allocation factors used to derive
the cost-of-service and the treatment of other non-trunkline
revenue, both of which can have significant influence on a resulting
cost-of-service and revenues.'' See Joint Shippers Initial Comments,
Arthur Affidavit, Docket No. RM15-19-000, at PP 6-7.
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    47. In support of their proposal, the Joint Shippers emphasize that
the Commission currently has access to pipeline work papers. While
true, we believe that, on balance, mandating disclosure of work papers
is not necessary to provide shippers with sufficient information when
considering challenges to pipelines' proposed or existing rates. In
particular, we note that the dissemination of this data to shippers
raises potential confidentiality concerns that do not exist when the
Commission reviews the work papers. These issues include (a) shipper
information protected by section 15(13) of the ICA, which prohibits
disclosure of an individual shipper's movements and (b) the pipeline's
competitive business information. On balance, we find that the general
disclosure of this information, even subject to confidentiality
agreements, is not appropriate at this time.

IV. Burden

    48. The Commission invites commenters to also address the potential
cost of the proposals being considered in this ANOPR. Comments could
include an estimate of both the one-time implementation costs and the
ongoing compliance costs. The Commission will provide a burden estimate
in any future notice of proposed rulemaking.

V. Comment Procedures

    49. The Commission invites interested persons to submit comments on
the matters and issues presented in this notice to be adopted. Initial
comments are due December 19, 2016 and reply comments are due January
31, 2017. Comments must refer to Docket No. RM17-1-000, and must
include the commenter's name, the organization they represent, if
applicable, and their address in their comments.
    50. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's Web site at http://www.ferc.gov. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software should be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
    51. Commenters that are not able to file comments electronically
must send an original of their comments to: Federal Energy Regulatory
Commission,

Secretary of the Commission, 888 First Street NE., Washington, DC
20426.
    52. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters on this proposal are
not required to serve copies of their comments on other commenters.

VI. Document Availability

    53. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through the Commission's Home Page (http://www.ferc.gov) and
in the Commission's Public Reference Room during normal business hours
(8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street NE., Room 2A,
Washington, DC 20426.
    54. From the Commission's Home Page on the Internet, this
information is available on eLibrary. The full text of this document is
available on eLibrary in PDF and Microsoft Word format for viewing,
printing, and/or downloading. To access this document in eLibrary, type
the docket number excluding the last three digits of this document in
the docket number field.
    55. User assistance is available for eLibrary and the Commission's
Web site during normal business hours from the Commission's Online
Support at<PHONE_NUMBER> (toll free at 1-866-208-3676) or email at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. Email the Public Reference Room at
<EMAIL_ADDRESS>
    By direction of the Commission.

    Issued: October 20, 2016.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2016-26227 Filed 11-1-16; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register Volume 85, Number 10 (Wednesday, January 15, 2020)]
[Proposed Rules]
[Pages 2327-2328]
[FR Doc No: 2020-00404]

========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

========================================================================

Federal Register / Vol. 85, No. 10 / Wednesday, January 15, 2020 /
Proposed Rules

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Docket No. FAA-2019-0887; Airspace Docket No. 19-ANM-32]
RIN 2120-AA66

Proposed Amendment of Class E Airspace; Bend, OR

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

-----------------------------------------------------------------------

SUMMARY: This action proposes to amend the Class E airspace by
establishing a designated surface area at the Bend Municipal Airport,
Bend, OR. This airspace area is designed to enhance safety at the
airport by providing controlled airspace to the surface.
    This action also proposes to establish an airspace area designated
as an extension to a Class D or Class E surface area. This area is
designed to contain aircraft on instrument approaches when they descend
below 1,000 feet above the surface.
    Additionally, this action proposes to amend the airspace area
extending upward from 700 feet or more above the surface. Amendments to
this airspace area are designed to properly contain arriving and
departing IFR aircraft. This action would ensure the safety and
management of IFR operations at the airport.

DATES: Comments must be received on or before March 2, 2020.

ADDRESSES: Send comments on this proposal to the U.S. Department of
Transportation, Docket Operations, 1200 New Jersey Avenue SE, West
Building Ground Floor, Room W12-140, Washington, DC 20590-0001;
telephone: 1(800) 647-5527, or<PHONE_NUMBER>. You must identify FAA
Docket No. FAA-2019-0887 and Airspace Docket No. 19-ANM-32, at the
beginning of your comments. You may also submit comments through the
internet at https://www.regulations.gov.
    FAA Order 7400.11D, Airspace Designations and Reporting Points, and
subsequent amendments can be viewed online at https://www.faa.gov/air_traffic/publications/. For further information, you can contact the
Airspace Policy Group, Federal Aviation Administration, 800
Independence Avenue SW, Washington, DC 20591; telephone: (202) 267-
8783. The Order is also available for inspection at the National
Archives and Records Administration (NARA). For information on the
availability of FAA Order 7400.11D at NARA, email<EMAIL_ADDRESS>or go to https://www.archives.gov/federal-register/cfr/ibr-locations.html.

FOR FURTHER INFORMATION CONTACT: Matthew Van Der Wal, Federal Aviation
Administration, Western Service Center, Operations Support Group, 2200
S 216th Street, Des Moines, WA 98198; telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Authority for This Rulemaking

    The FAA's authority to issue rules regarding aviation safety is
found in Title 49 of the United States Code. Subtitle I, Section 106
describes the authority of the FAA Administrator. Subtitle VII,
Aviation Programs, describes in more detail the scope of the agency's
authority. This rulemaking is promulgated under the authority described
in Subtitle VII, Part A, Subpart I, Section 40103. Under that section,
the FAA is charged with prescribing regulations to assign the use of
airspace necessary to ensure the safety of aircraft and the efficient
use of airspace. This regulation is within the scope of that authority,
as it would establish Class E airspace at Bend Municipal Airport, Bend,
OR to support instrument flight rules (IFR) operations at the airport.

Comments Invited

    Interested parties are invited to participate in this proposed
rulemaking by submitting such written data, views, or arguments as they
may desire. Comments that provide the factual basis supporting the
views and suggestions presented are particularly helpful in developing
reasoned regulatory decisions on the proposal. Comments are
specifically invited on the overall regulatory, aeronautical, economic,
environmental, and energy-related aspects of the proposal.
Communications should identify both docket numbers (FAA Docket No. FAA-
2019-0887 and Airspace Docket No. 19-ANM-32) and be submitted in
triplicate to DOT Docket Operations (see ADDRESSES section for address
and phone number). You may also submit comments through the internet at
https://www.regulations.gov. Persons wishing the FAA to acknowledge
receipt of their comments on this notice must submit with those
comments a self-addressed, stamped postcard on which the following
statement is made: ``Comments to Docket No. FAA-2019-0887; Airspace
Docket No. 19-ANM-32.'' The postcard will be date/time stamped and
returned to the commenter.
    All communications received before the specified closing date for
comments will be considered before taking action on the proposed rule.
The proposal contained in this notice may be changed in light of the
comments received. A report summarizing each substantive public contact
with FAA personnel concerned with this rulemaking will be filed in the
docket.

Availability of NPRMs

    An electronic copy of this document may be downloaded through the
internet at https://www.regulations.gov. Recently published rulemaking
documents can also be accessed through the FAA's web page at https://www.faa.gov//air_traffic/publications/airspace_amendments/.
    You may review the public docket containing the proposal, any
comments received, and any final disposition in person in the Dockets
Office (see the ADDRESSES section for the address and phone number)
between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal
holidays. An informal docket may also be examined during normal
business hours, except federal holidays, at the Northwest Mountain
Regional Office of the Federal Aviation Administration, Air Traffic
Organization, Western Service Center, Operations Support Group, 2200 S
216th Street, Des Moines, WA 98198.

Availability and Summary of Documents for Incorporation by Reference

    This document proposes to amend FAA Order 7400.11D, Airspace
Designations and Reporting Points, dated August 8, 2019, and effective
September 15, 2019. FAA Order 7400.11D is publicly available as listed
in the ADDRESSES section of this document. FAA Order 7400.11D lists
Class A, B, C, D, and E airspace areas, air traffic service routes, and
reporting points.

The Proposal

    The FAA is proposing an amendment to Title 14 Code of Federal
Regulations (14 CFR) Part 71 by amending Class E airspace at Bend
Municipal Airport, Bend, OR. The proposal adds a designated surface
airspace area, which is designed to protect IFR arrivals descending
below 1,000 feet above the surface and IFR departures until reaching
700 feet above the surface. The airspace area is defined as that
airspace extending upward from the surface within a 3.9-mile radius of
the Bend Municipal Airport, excluding that airspace within 1 mile of a
point in space located at latitude 44[deg]02'51'' N longitude
121[deg]16'301'' W. The exclusion allows the Pilot Butte airport to
remain outside of the controlled airspace extending upward from the
surface.
    This action also proposes to add a Class E airspace area designated
as an extension to a Class D or Class E surface area. This area is
defined as that airspace extending upward from the surface within 1
mile each side of the 167[deg] bearing, extending from the 3.9-mile
radius to 6.8 miles south of the Bend Municipal Airport.
    Additionally, the action proposes to amend the Class E airspace
extending upward from 700 feet above the surface to properly contain
IFR aircraft on instrument approach when descending below 1,500 feet
above the surface. The area is also designed to contain IFR departures
until reaching 1,200 feet above the surface. The proposal would amend
the Class E airspace area extending upward from 700 feet above the
surface to within a 6.4-mile radius of the airport and within 1.1 miles
each side of the 167[deg] bearing, extending from the 6.4-mile radius
to 8.8 miles south of the airport. This area also includes that
airspace within 3.8 miles each side of the 338[deg] bearing, extending
from the 6.8-mile radius to 8.4 miles north of the Bend Municipal
Airport.
    Class E2, E4 and E5 airspace designations are published in
paragraph 6002, 6002 and 6005, respectively, of FAA Order 7400.11D,
dated August 8, 2019, and effective September 15, 2019, which is
incorporated by reference in 14 CFR 71.1. The Class E airspace
designations listed in this document will be published subsequently in
the Order.
    FAA Order 7400.11, Airspace Designations and Reporting Points, is
published yearly and effective on September 15.

Regulatory Notices and Analyses

    The FAA has determined that this proposed regulation only involves
an established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current, is
non-controversial and unlikely to result in adverse or negative
comments. It, therefore: (1) Is not a ``significant regulatory action''
under Executive Order 12866; (2) is not a ``significant rule'' under
DOT Regulatory Policies and Procedures (44 FR 11034; February 26,
1979); and (3) does not warrant preparation of a regulatory evaluation
as the anticipated impact is so minimal. Given this is a routine matter
that will only affect air traffic procedures and air navigation, it is
certified that this rule, when promulgated, would not have a
significant economic impact on a substantial number of small entities
under the criteria of the Regulatory Flexibility Act.

Environmental Review

    This proposal will be subject to an environmental analysis in
accordance with FAA Order 1050.1F, ``Environmental Impacts: Policies
and Procedures'' prior to any FAA final regulatory action.

List of Subjects in 14 CFR Part 71

    Airspace, Incorporation by reference, Navigation (air).

The Proposed Amendment

    Accordingly, pursuant to the authority delegated to me, the Federal
Aviation Administration proposes to amend 14 CFR part 71 as follows:

PART 71--DESIGNATION OF CLASS A, B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND REPORTING POINTS

0
1. The authority citation for 14 CFR part 71 continues to read as
follows:

    Authority:  49 U.S.C. 106(f), 106(g), 40103, 40113, 40120; E.O.
10854, 24 FR 9565, 3 CFR, 1959-1963 Comp., p. 389.

Sec.  71.1   [Amended]

0
2. The incorporation by reference in 14 CFR 71.1 of FAA Order 7400.11D,
Airspace Designations and Reporting Points, dated August 8, 2019, and
effective September 15, 2019, is amended as follows:

Paragraph 6002 Class E Airspace Areas Designated as a Surface Area.

* * * * *

ANM OR E2 Bend, OR (NEW)

Bend Municipal Airport, OR
    (Lat. 44[deg]05'40'' N, long. 121[deg]12'01'' W)

    That airspace extending upward from the surface within a 3.9-
mile radius of the Bend Municipal Airport, excluding that airspace
within 1 mile of a point in space at lat. 44[deg]02'51'' N, Long.
121[deg]16'30'' W.

Paragraph 6004 Class E Airspace Areas Designated as an Extension to
a Class D or Class E Surface Area.

* * * * *

ANM OR E4 Bend, OR (NEW)

Bend Municipal Airport, OR
    (Lat. 44[deg]05'40'' N, long. 121[deg]12'01'' W)

    That airspace extending upward from the surface within 1 mile
each side of the 167[deg] bearing, extending from the 3.9-mile
radius to 6.8 miles south of the Bend Municipal Airport.

Paragraph 6005 Class E Airspace Areas Extending Upward From 700
Feet or More Above the Surface of the Earth.

* * * * *

ANM OR E5 Bend, OR (AMENDED)

Bend Municipal Airport, OR
    (Lat. 44[deg]05'40'' N, long. 121[deg]12'01'' W)

    That airspace extending upward from 700 feet above the surface
within a 6.4-mile radius of the airport, and within 1.1 miles each
side of the 167[deg] bearing, extending from 6.4-mile radius to 8.8
miles south of the airport, and within 3.8 miles each side of the
338[deg] bearing extending from the 6.4-mile radius to 8.4 miles
north of the Bend Municipal Airport.

    Issued in Seattle, Washington, on January 8, 2020.
Byron Chew,
Group Manager, Operations Support Group, Western Service Center.
[FR Doc. 2020-00404 Filed 1-14-20; 8:45 am]
 BILLING CODE 4910-13-P