[Federal Register Volume 87, Number 19 (Friday, January 28, 2022)]
[Rules and Regulations]
[Pages 4476-4498]
[FR Doc No: 2022-01544]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 342

[Docket No. RM20-14-001]

Five-Year Review of the Oil Pipeline Index

AGENCY: Federal Energy Regulatory Commission.

ACTION: Order on rehearing.

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SUMMARY: The Federal Energy Regulatory Commission (Commission)
addresses arguments raised on rehearing of the December 17, 2020 Order
Establishing Index Level concluding the Commission's five-year review
of the index level used to determine annual changes to oil pipeline
rate ceilings (December 2020 Order). The December 2020 Order
established an index level of Producer Price Index for Finished Goods
plus 0.78% (PPI-FG+0.78%) for the five-year period commencing July 1,
2021. In this order, the Commission grants rehearing of the December
2020 Order, in part, denies rehearing, in part, and establishes an
index level of PPI-FG-0.21%.

DATES: This order is applicable beginning January 20, 2022.

FOR FURTHER INFORMATION CONTACT:

Evan Steiner (Legal Information), Office of the General Counsel, 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>

SUPPLEMENTARY INFORMATION:

Order on Rehearing

(Issued January 20, 2022)

    1. On December 17, 2020, the Commission issued an order
establishing an oil pipeline index level of Producer Price Index for
Finished Goods plus 0.78% (PPI-FG+0.78%) for the five-year period
beginning July 1, 2021.\1\ On January 19, 2021, Joint Commenters,\2\
Liquids Shippers Group (Liquids Shippers),\3\ the Canadian Association
of Petroleum Producers (CAPP) (together with Joint Commenters and
Liquids Shippers, Shippers), the Association of Oil Pipe Lines (AOPL),
and Designated Carriers \4\ (together with AOPL, Pipelines) requested
rehearing or clarification of the December 2020 Order.
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    \1\ Five-Year Rev. of the Oil Pipeline Index, 86 FR 9448 (Feb.
16, 2021), 173 FERC ] 61,245 (2020) (December 2020 Order).
    \2\ Joint Commenters include: The Airlines for America; Chevron
Products Company; the National Propane Gas Association; and Valero
Marketing and Supply Company.
    \3\ Liquids Shippers include: Apache Corporation; Cenovus Energy
Marketing Services Ltd.; ConocoPhillips Company; Devon Gas Services,
L.P.; Equinor Marketing & Trading US Inc.; Fieldwood Energy LLC;
Marathon Oil Company; Murphy Exploration and Production Company--
USA; Ovintiv Marketing, Inc.; and Pioneer Natural Resources USA,
Inc.
    \4\ Designated Carriers include: Buckeye Partners, L.P.;
Colonial Pipeline Company; Energy Transfer LP; Enterprise Products
Partners L.P.; and Plains All American Pipeline, L.P.
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    2. As discussed below, we grant the requests for rehearing, in
part, and deny the requests for rehearing, in part. As a result, we
adopt an index level of PPI-FG-0.21%. This departure from the December
2020 Order results from: (a) Trimming the data set to the middle 50% of
cost changes, as opposed to the middle 80%; (b) incorporating the
effects of the Commission's 2018 policy change requiring Master Limited
Partnership (MLP)-owned pipelines to eliminate the income tax allowance
and previously accrued Accumulated Deferred Income Taxes (ADIT)
balances from their page 700 summary costs of service (Income Tax
Policy Change); \5\ and (c) correcting the index calculation to rely
upon updated page 700 cost data for 2014.
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    \5\ Inquiry Regarding the Commission's Policy for Recovery of
Income Tax Costs, 162 FERC ] 61,227, at P 8 (2018 Income Tax Policy
Statement), reh'g denied, 164 FERC ] 61,030, at P 13 (2018), request
for clarification dismissed, 168 FERC ] 61,136 (2019), petitions for
review dismissed sub nom. Enable Miss. River Transmission, LLC v.
FERC, 820 F. App'x 8 (2020).
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    3. In addition, as discussed below, we direct oil pipelines to
recompute their ceiling levels for July 1, 2021 through June 30, 2022,
based upon an index level of PPI-FG-0.21%. Consistent with Sec.
342.3(e) of the Commission's regulations,\6\ any oil pipeline with a
filed rate that exceeds its recomputed ceiling level for July 1, 2021
through June 30, 2022 must file to reduce that rate to bring it into
compliance with the pipeline's recomputed ceiling level. We direct such
pipelines to submit these filings to be effective March 1, 2022.
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    \6\ 18 CFR 342.3(e).
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I. Background

A. The Kahn Methodology

    4. The Commission reviews the oil pipeline index level \7\ every
five years.\8\ Beginning in Order No. 561 and in each ensuing five-year
review, the Commission has adjusted the index level using the Kahn
Methodology, which calculates each pipeline's cost change on a per
barrel-mile basis over the prior five-year period (e.g., 2014-2019 in
this proceeding) based upon FERC Form No. 6, page 700 summary cost-of-
service data. In order to remove statistical outliers and spurious
data, the Kahn Methodology trims the data set by removing an equal
number of pipelines at the top and bottom of the data set.\9\ The Kahn
Methodology then averages three measures of the trimmed data sample's
central tendency (the median, mean, and weighted mean) to determine a
composite central tendency and compares this average to the changing
value of PPI-FG over the same five-year period. The index level is set
at PPI-FG plus (or minus) this differential. Historically, the index
has ranged from PPI-FG-1% to PPI-FG+2.65%, and in 2015, the Commission
set the index level at PPI-FG+1.23%.
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    \7\ Pursuant to the indexing methodology, pipelines may increase
their 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). The Commission
publishes an annual index figure every May in a notice issued in
Docket No. RM93-11-000.
    \8\ Revisions to Oil Pipeline Regulations Pursuant to Energy
Policy Act of 1992, Order No. 561, FERC Stats. & Regs. ] 30,985, at
30,941 (1993) (cross-referenced at 65 FERC ] 61,109), order on
reh'g, Order No. 561-A, FERC Stats. & Regs. ] 31,000 (1994) (cross-
referenced at 68 FERC ] 61,138), aff'd sub nom. Ass'n of Oil Pipe
Lines v. FERC, 83 F.3d 1424 (D.C. Cir. 1996) (AOPL I).
    \9\ In Order No. 561 and the 2015 and 2010 five-year reviews,
the Commission relied solely upon the middle 50% of the data set.
Five-Year Rev. of the Oil Pipeline Index, 153 FERC ] 61,312, at PP
42-44 (2015) (2015 Index Review), aff'd sub nom. Ass'n of Oil Pipe
Lines v. FERC, 876 F.3d 336 (D.C. Cir. 2017) (AOPL III); Five-Year
Rev. of the Oil Pipeline Pricing Index, 133 FERC ] 61,228, at P 60
(2010) (2010 Index Review), reh'g denied, 135 FERC ] 61,172 (2011)
(2010 Index Rehearing Order); Order No. 561-A, FERC Stats. & Regs. ]
31,000 at 31,096-097. In the 2005 and 2000 five-year reviews, the
Commission averaged the middle 50% with the middle 80% but did not
justify or address its consideration of the middle 80%. 2010 Index
Review, 133 FERC ] 61,228 at P 60. In addition, in the 2000 review,
considering the middle 80% did not alter the index calculation. Id.
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B. Notice of Inquiry and Comments

    5. On June 18, 2020, the Commission issued a Notice of Inquiry
(NOI) proposing to adopt an index level of

PPI-FG+0.09%.\10\ The NOI proposed to calculate the index level by (1)
trimming the data set to the middle 50% and (2) incorporating the
effects of the Income Tax Policy Change upon pipeline cost changes over
the 2014-2019 period.\11\ The Commission explained that commenters
could address issues including, but not limited to, different data
trimming methodologies and whether, and if so how, the Commission
should reflect the effects of cost-of-service policy changes in the
index calculation.\12\
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    \10\ Five-Year Rev. of the Oil Pipeline Index, 171 FERC ] 61,239
(2020) (NOI).
    \11\ Id. PP 9-10.
    \12\ Id.
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    6. Ten commenters filed comments in response to the NOI.\13\
Pipelines urged the Commission to use the middle 80%, as opposed to the
middle 50%, and proposed to adjust the reported page 700 data for 2014
to eliminate the effects of the Income Tax Policy Change. Shippers, by
contrast, argued that the Commission should continue using the middle
50% and reject Pipelines' proposed adjustments to the data set. In
addition, Liquids Shippers proposed to replace the weighted mean in the
Kahn Methodology's calculation of central tendency with the weighted
median and to replace the returns on equity (ROE) reported on page 700
for 2014 and 2019 with standardized, industry-wide ROEs for both years.
CAPP argued that negotiated rate contracts have served to reduce
pipelines' risks and urged the Commission to require pipelines to
provide their page 700 workpapers to investigate whether the reported
page 700 ROEs reflect these effects.
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    \13\ Comments were filed by AOPL, Designated Carriers, Kinder
Morgan, Inc., Colonial, Joint Commenters, Liquids Shippers, CAPP,
the Energy Infrastructure Council, the Pipeline Safety Trust, and
the Pipeline and Hazardous Materials Safety Administration (PHMSA).
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C. December 2020 Order and Requests for Rehearing

    7. The December 2020 Order established an index level of PPI-
FG+0.78%.\14\ The Commission adopted Pipelines' proposed adjustments to
remove the effects of the Income Tax Policy Change from the index
calculation \15\ and to use the middle 80%,\16\ and declined to adopt
Liquids Shippers' and CAPP's proposals.\17\ On January 19, 2021,
Shippers filed requests for rehearing challenging these determinations
and Pipelines requested rehearing or clarification to correct minor
errors in the workpapers underlying the December 2020 Order.
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    \14\ December 2020 Order, 173 FERC ] 61,245 at P 2.
    \15\ Id. PP 16-20.
    \16\ Id. PP 25-32.
    \17\ Id. PP 36-40, 45-50, 52-53.
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II. Discussion

A. 2018 MLP Income Tax Policy Change

1. December 2020 Order
    8. Prior to the December 2020 Order, the Commission committed in
the 2018 Income Tax Policy Statement to ``incorporate the effects of
[the Income Tax Policy Change] on industry-wide oil pipeline costs in
the 2020 five-year review . . . .'' \18\ Through the Income Tax Policy
Change, the Commission altered its policies so that natural gas and oil
pipelines organized as MLPs could not recover the same tax costs twice
in their rates.\19\ Although the Commission acted immediately to
address this double recovery in natural gas pipeline rates,\20\ the
Commission deferred action regarding oil pipeline rates and emphasized
that oil pipeline rates ``will be addressed in due course'' during the
2020 five-year index review.\21\ The Commission explained that by
acting in the 2020 five-year review, the Commission would ``ensure that
the industry-wide reduced costs are incorporated on an industry-wide
basis. . . .'' \22\
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    \18\ Income Tax Policy Statement, 162 FERC ] 61,227 at P 8.
    \19\ From 2005 to 2018, the Commission allowed MLP pipelines to
claim a full income tax allowance in their costs of service. Inquiry
Regarding Income Tax Allowances, 111 FERC ] 61,139, at P 32 (2005)
(2005 Income Tax Policy Statement). In a series of orders beginning
in 2016, the Commission and the U.S. Court of Appeals for the
District of Columbia Circuit (D.C. Circuit) found that allowing MLP
pipelines to recover both an income tax allowance and an ROE
determined using the Discounted Cash Flow (DCF) model results in an
impermissible double recovery of tax costs. The Commission rectified
the double recovery through the Income Tax Policy Change in 2018,
finding that MLP pipelines could no longer recover an income tax
allowance and could eliminate previously accumulated ADIT balances
from their costs of service. The D.C. Circuit affirmed the
Commission's decisions in 2020. See United Airlines, Inc. v. FERC,
827 F.3d 122 (D.C. Cir. 2016) (United Airlines), order on remand,
SFPP, L.P., Opinion No. 511-C, 162 FERC ] 61,228, at P 22 (2018),
(remanding the Commission's application of the 2005 policy), reh'g
denied, Opinion No. 511-D, 166 FERC ] 61,142, at PP 90-95 (2019),
aff'd, SFPP, L.P. v. FERC, 967 F.3d 788, 793-97, 801-03 (D.C. Cir.
2020) (SFPP); see also Income Tax Policy Statement, 162 FERC ]
61,227, reh'g denied, 164 FERC ] 61,030, request for clarification
dismissed, 168 FERC ] 61,136; petitions review dismissed sub nom.
Enable Miss. River Transmission, LLC v. FERC, 820 F. App'x 8.
    \20\ Interstate & Intrastate Nat. Gas Pipelines, Order No. 849,
164 FERC ] 61,031, at P 30 (2018), reh'g denied, Order No. 849-A,
167 FERC ] 61,051 (2019).
    \21\ Income Tax Policy Statement, 162 FERC ] 61,227 at P 46.
    \22\ Id. P 8.
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    9. However, when the 2020 five-year review arrived, the Commission
reversed course. In the December 2020 Order, the Commission declined to
incorporate the effects of the Income Tax Policy Change into the 2020
five-year review index calculation. Accordingly, the December 2020
Order adopted Designated Carriers' proposal to eliminate the effects of
the Income Tax Policy Change from the index calculation by adjusting
the reported page 700 data for all pipelines that were MLPs in 2014 to
reduce the 2014 income tax allowance to zero and to revise the 2014
return on rate base to reflect the removal of ADIT.\23\
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    \23\ December 2020 Order, 173 FERC ] 61,245 at P 16. Because the
2014 page 700 data reflected the old policy whereas the 2019 data
reflected the new policy, a straightforward application of the
longstanding Kahn Methodology would have incorporated the cost
reductions caused by the Income Tax Policy Change. AOPL's and
Designated Carriers' proposals for eliminating the effects of the
Income Tax Policy Change differed. AOPL proposed to (1) eliminate
the 2014 income tax allowance for all pipelines that reduced their
income tax allowance from a positive number to zero in response to
the 2018 Income Tax Policy Statement and continued reporting zero
income tax allowance for the remainder of the 2014-2019 period, and
(2) adjust these pipelines' 2014 return on rate base to reflect the
elimination of their ADIT balances. Designated Carriers supported
AOPL's adjustments and proposed to extend them to all pipelines that
were owned by MLPs in 2014, including those that later converted to
business forms eligible to recover an income tax allowance. No
entity challenges on rehearing the Commission's decision not to
adopt AOPL's proposal.
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    10. The Commission determined that although the index aims to
reflect changes in recoverable costs, alterations to the Opinion No.
154-B methodology \24\ are distinct from the annual changes to pipeline
costs that are input into that methodology.\25\ The Commission stated
that the index is not a true-up designed to remedy over- or under-
recoveries resulting from past cost-of-service policy changes, but
instead simply allows for incremental rate adjustments to enable
recovery of future cost changes.\26\ The Commission also determined
that it was not clear that the double recovery of MLP pipelines' income
tax costs was ever incorporated into the index or that MLP

pipelines benefitted from the Commission's prior policy permitting them
to recover an income tax allowance.\27\
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    \24\ The Opinion No. 154-B methodology is the cost-of-service
ratemaking methodology that the Commission uses for oil pipelines.
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). The Opinion
No. 154-B methodology is based upon trended original costs, whereby
the inflationary component of the nominal return is placed in
deferred earnings and recovered as a part of rate base in future
years. E.g., BP W. Coast Prods., LLC v. FERC, 374 F.3d 1263, 1282-83
(D.C. Cir. 2004).
    \25\ December 2020 Order, 173 FERC ] 61,245 at P 17 (stating
that ``the purpose of indexing is to allow the indexed rate to keep
pace with industry-wide cost changes, not to reflect alterations to
the Commission's Opinion No. 154-B cost-of-service methodology'').
    \26\ Id. P 18.
    \27\ Id. P 19 & n.37.
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2. Rehearing Requests
    11. Shippers argue that the Commission's decision to adjust
reported page 700 data to remove the effects of the Income Tax Policy
Change contravenes established precedent and rests upon flawed
reasoning. First, Shippers contend that both the D.C. Circuit and the
Commission have found that the index aims to track changes in
recoverable pipeline costs consistent with the Opinion No. 154-B
methodology.\28\ Shippers argue that the Income Tax Policy Change
changed pipelines' recoverable costs by requiring MLP pipelines to
remove the income tax allowance and ADIT balances from their costs of
service. Thus, Shippers contend that the index should reflect this
policy change.\29\
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    \28\ Joint Commenters Request for Rehearing at 43-45 (quoting
2015 Index Review, 153 FERC ] 61,312 at P 13) (citing AOPL III, 876
F.3d at 345-46); Liquids Shippers Request for Rehearing at 17
(quoting AOPL III, 876 F.3d at 345; 2015 Index Review, 153 FERC ]
61,312 at P 13).
    \29\ Joint Commenters Request for Rehearing at 42-46; Liquids
Shippers Request for Rehearing at 16-19.
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    12. Second, Shippers state that the December 2020 Order contradicts
the Commission's statement in the 2018 Income Tax Policy Statement that
it would ``incorporate the effects'' of the Income Tax Policy Change in
this five-year review.\30\ Shippers assert that they relied upon this
statement and, as a result, lost their ability to seek rehearing or
judicial review of the 2018 Income Tax Policy Statement and forewent
opportunities to challenge oil pipeline rates.\31\ Shippers further
claim that the Commission's continued inaction on eliminating the MLP
income tax double recovery from oil pipeline rates, as contrasted with
its actions to eliminate that double recovery from natural gas pipeline
rates, raises due process concerns for oil pipeline shippers.\32\ In
addition, Shippers disagree with the December 2020 Order's conclusion
that reflecting the Income Tax Policy Change would convert the index
into a true-up designed to remedy a prior over-recovery.\33\
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    \30\ 2018 Income Tax Policy Statement, 162 FERC ] 61,227 at P
46; Joint Commenters Request for Rehearing at 41-42, 56; Liquids
Shippers Request for Rehearing at 15.
    \31\ Joint Commenters Request for Rehearing at 57; CAPP Request
for Rehearing at 11-13; see also Liquids Shippers Request for
Rehearing at 15-16.
    \32\ Joint Commenters Request for Rehearing at 59-60.
    \33\ Id. at 46-47.
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    13. Third, Shippers maintain that adjusting reported page 700 data
is unprecedented and departs from the Commission's consistent practice
of calculating the index level using unadjusted data.\34\ Shippers
state that the Commission has previously rejected proposals to make
targeted adjustments to the data set by removing pipelines with cost
changes resulting from specific factors because such proposals failed
to identify other factors that could render a pipeline's data non-
comparable.\35\ Shippers contend that the Commission should likewise
reject Pipelines' adjustments because they fail to consider other
factors or policy changes.\36\
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    \34\ Id. at 46.
    \35\ Id. at 51 (quoting 2015 Index Review, 153 FERC ] 61,312 at
P 34).
    \36\ Id.
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    14. Fourth, Shippers state that regardless of whether prior index
calculations directly incorporated the Commission's prior policies
allowing MLP pipelines to recover an income tax allowance, the MLP
income tax allowance became integrated into the industry's recoverable
costs and thus came to be reflected in the index.\37\ Shippers also
argue that MLP pipelines did, in fact, benefit from these policies
because they allowed MLPs to report higher costs on their page 700s,
which helped to insulate their annual index rate increase filings from
challenge under the Commission's Percentage Comparison Test.\38\
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    \37\ Id. at 53.
    \38\ Id. at 53-55. Under the Percentage Comparison Test, the
Commission will investigate a protested index rate increase filing
if the pipeline's page 700 revenues exceed its costs and there is a
more than a 10 percentage-point differential between the index rate
increase and the change in the prior two years' total cost-of-
service data reported on page 700, line 9. E.g., HollyFrontier
Refin. & Mktg. LLC v. SFPP, L.P., 170 FERC ] 61,133, at P 5 (2020).
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    15. Fifth, Liquids Shippers argue that the December 2020 Order
further distorts the index calculation by adjusting the page 700 data
of pipelines that were MLPs in 2014 and converted to C-Corporations
after the 2018 Income Tax Policy Change. Liquids Shippers contend that
because these pipelines were eligible as C-Corporations to report a
positive income tax allowance on page 700 for 2019, reducing their 2014
income tax allowance to zero fabricates an erroneous cost increase
between 2014 and 2019.\39\
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    \39\ Liquids Shippers Request for Rehearing at 18-19.
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3. Commission Determination
    16. We grant rehearing of the December 2020 Order to calculate the
index level using unadjusted page 700 data that reflects the effects of
the Income Tax Policy Change upon recoverable pipeline costs.
a. The Income Tax Policy Change Should be Incorporated Into the Index
Calculation
    17. The index must reflect the Income Tax Policy Change in order to
produce just and reasonable oil pipeline rates. Prior to the 2018
Income Tax Policy Change, MLP pipelines' rates could recover the same
investor-level tax costs twice, once in an income tax allowance and
again in an ROE.\40\ The D.C. Circuit and the Commission both concluded
that this led to an impermissible double recovery of investor-level tax
costs and produced unjust and unreasonable rates.\41\ The Income Tax
Policy Change eliminated this double recovery by prohibiting MLP
pipelines from recovering an income tax allowance. However, oil
pipeline rates have yet to incorporate this policy change.\42\ Thus,
the impermissible double-recovery has not been eliminated from oil
pipeline rates. Because indexing is the Commission's primary oil
pipeline ratemaking methodology and because indexed oil pipeline rates
must be just and reasonable, we conclude that the index calculation
must now address the Income Tax Policy Change.
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    \40\ 2005 Income Tax Policy Statement, 111 FERC ] 61,139 at P
32.
    \41\ SFPP, 967 F.3d at 795-97; United Airlines, 827 F.3d at 136;
Income Tax Policy Statement, 162 FERC ] 61,227 at PP 8, 45. MLP
pipelines do not incur income taxes at the entity level, but the
Commission justified permitting them to recover an income tax
allowance on the basis that their investors pay taxes on their
allocated share of the MLP's taxable income. Because the D.C.
Circuit and the Commission concluded that the MLP pipeline's DCF ROE
already included investor-level income tax costs, a double recovery
resulted from permitting an income tax allowance that recovered
those same tax costs. Opinion No. 511-C, 162 FERC ] 61,228 at P 22.
    \42\ Pipelines identify only one MLP oil pipeline, SFPP, L.P.
(the pipeline whose rates were the subject of United Airlines), that
has adjusted its rates in response to the Income Tax Policy Change.
AOPL Initial Comments at 27-28; Designated Carriers Initial Comments
at 11, 14.
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    18. The index was always intended to reflect changes to Opinion No.
154-B costs such as the elimination of the double recovery via the
Income Tax Policy Change. The Opinion No. 154-B methodology defines the
costs that oil pipelines can recover in rates and the index is the
primary means for recovering those costs.\43\ Accordingly, the
Commission and the D.C. Circuit have long recognized that the index
should reflect changes in costs recoverable under the Opinion No. 154-

B methodology,\44\ and the Commission uses the Opinion No. 154-B
methodology cost data reported on page 700 to calculate the index
level.\45\ Here, the adoption of the Income Tax Policy Change altered
those costs by barring MLP pipelines from recovering in 2019 income tax
costs that they were permitted to recover in 2014. By comparing the
2014 data reported on page 700 under the Commission's previous policy
with the 2019 data reported under its revised policy, this index
calculation will accurately capture the effects of the Income Tax
Policy Change on costs recoverable under Opinion No. 154-B.\46\
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    \43\ As explained above, the Opinion 154-B methodology is the
Commission's cost-of-service ratemaking methodology for oil
pipelines. See supra note 24.
    \44\ AOPL III, 876 F.3d at 345 (finding that the Commission
``has consistently treated the index as a measure of normal
industry-wide cost-of-service changes''); 2015 Index Review, 153
FERC ] 61,312 at P 13, aff'd, AOPL III, 876 F.3d at 345-46 (``[T]he
index is meant to reflect changes to recoverable pipeline costs,
and, thus, the calculation of the index should use data that is
consistent with the Commission's [Opinion No. 154-B] cost-of-service
methodology.''); see also Order No. 561-A, FERC Stats. & Regs. ]
31,000 at 31,096 (lamenting that the then-existing Form No. 6
provided a ``highly unsatisfactory'' measure of capital cost changes
because it did ``not contain the information necessary to compute a
trended original cost (TOC) rate base or a starting rate base''
under the Opinion No. 154-B methodology).
    \45\ 2015 Index Review, 153 FERC ] 61,312 at PP 12-13 (adopting
use of page 700 data to measure oil pipeline cost changes because,
among other reasons, page 700 data is consistent with the Opinion
No. 154-B methodology).
    \46\ In contrast, adjusting the data set to remove the effects
of this policy change would maintain a divergence between indexed
rates and Opinion No. 154-B recoverable costs.
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    19. We also find that adjusting page 700 data to remove the Income
Tax Policy Change's effects conflicts with the Commission's historical
practice. The Commission has not previously adjusted the reported data
used to derive the index level. Order Nos. 561 and 561-A ``opted for a
purely historical analysis'' \47\ for measuring pipeline cost changes
based upon documented cost experience, and in each subsequent index
review the Commission has calculated the index level using reported
Form No. 6 data without adjustment.\48\ Thus, modifying MLP pipelines'
reported income tax allowances and returns on rate base would depart
from the purely historical analysis on which the Commission has
consistently relied since establishing the indexing regime.
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    \47\ Ass'n of Oil Pipe Lines v. FERC, 281 F.3d 239, 247 (D.C.
Cir. 2002) (AOPL II) (citing Five-Year Rev. of Oil Pipeline Pricing
Index, 93 FERC ] 61,266, at 61,855 (2000) (2000 Index Review), aff'd
in part and remanded, AOPL II, 281 F.3d 239, order on remand, 102
FERC ] 61,195 (2003); Order No. 561, FERC Stats. & Regs. ] 30,985 at
30,951).
    \48\ Although the Commission has curtailed the amount of data it
considers in calculating the index level via statistical data
trimming to the middle 50%, it has never modified the specific
inputs that pipelines have recorded in their Form No. 6 filings.
Similarly, while the Commission adjusts the data set to account for
pipeline mergers and divestitures that occurred during the five-year
review period, these steps are distinguishable from the adjustments
to omit the effects of the Income Tax Policy Change adopted in the
December 2020 Order based upon Pipelines' proposals. Where pipelines
filed separate page 700 data for the first year of the review period
(e.g., 2014) and merged later in the review period, the Commission
adds the separate costs that the pipelines reported for the first
year and compares this sum to the newly combined company's page 700
costs reported for the last year of the data set (e.g., 2019). 2015
Index Review, 153 FERC ] 61,312 at P 38. Conversely, in the case of
divestitures, the Commission adds the separate costs the pipelines
reported for the last year of the data set and compares this sum to
the formerly combined company's page 700 costs reported for the
first year. Unlike Pipelines' proposed adjustments, which alter a
specific cost item that pipelines reported on page 700, this step
simply combines the total costs that the pipelines reported as
separate entities at one endpoint of the review period to mirror
their status as a combined entity at the other endpoint.
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    20. In addition, incorporating the Income Tax Policy Change into
the index complies with the Energy Policy Act of 1992's (EPAct 1992)
dual mandate for just and reasonable rates and for simplified and
streamlined ratemaking.\49\ As stated above, the D.C. Circuit and the
Commission have previously held that an impermissible double recovery
results from granting MLP pipelines an income tax allowance.\50\ Thus,
as the Commission's Opinion No. 154-B methodology evolves, oil pipeline
rates adjusted via indexing must reflect those changes in order to
remain just and reasonable. If the Commission omits the effects of the
Income Tax Policy Change from the index calculation, the only
alternative method of reflecting the elimination of the MLP income tax
double recovery in rates would be through cost-of-service rate
litigation.\51\ We find that implementing cost-of-service policy
changes in this fashion would hinder the statutory goals of efficient
and simplified ratemaking embodied in EPAct 1992.\52\
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    \49\ Public Law 102-486, 1801(a), 106 Stat. 2776, 3010 (1992)
(codified at 42 U.S.C. 712 note).
    \50\ See supra note 19.
    \51\ Importantly, this proceeding presents the sole opportunity
for addressing the MLP income tax double recovery in indexed rates
via the simplified and streamlined five-year review process. As
discussed above, the Kahn Methodology calculates the index level
based upon the change in industry-wide page 700 costs from the first
year of the review period to the last year. Accordingly, it is only
possible to reflect the Income Tax Policy Change in the instant
index calculation, which measures cost changes from 2014 (when MLP
pipelines reported a positive income tax allowance) to 2019 (when
MLP pipelines reported zero income tax allowance). Capturing this
decrease in recoverable income tax costs from 2014 to 2019 will
reduce the index level to incorporate the elimination of the MLP
income tax double recovery. In contrast, the 2025 five-year review
will reflect no change in MLP income tax costs because MLP pipelines
will report zero income tax allowance for both the first and last
years of the 2019-2024 period.
    \52\ See AOPL II, 281 F.3d at 244 (holding that an oil pipeline
ratemaking regime based in large part upon cost-of-service rate
proceedings ``would be inconsistent with Congress's mandate under
the EPAct for FERC to establish `a simplified and generally
applicable ratemaking methodology.' '' (quoting EPAct 1992, at
1801(a))).
---------------------------------------------------------------------------

    21. Finally, our holding on rehearing honors the Commission's
assurances in the 2018 Income Tax Policy Statement. There, the
Commission committed to ``incorporate the effects of [the Income Tax
Policy Change] . . . in the 2020 five-year review'' so that oil
pipeline rates would reflect these reduced costs.\53\ Whereas the
Commission acted immediately to eliminate the MLP income tax double
recovery from natural gas pipeline rates,\54\ the Commission deferred
adjusting oil pipeline rates until the 2020 five-year index review.
Failure to act here would leave oil pipeline rates unaddressed
indefinitely. While Pipelines urge the Commission to disregard our
assurances from the 2018 Income Tax Policy Statement, they offer no
alternative remedy.\55\ Moreover, we recognize that
---------------------------------------------------------------------------

    \53\ Income Tax Policy Statement, 162 FERC ] 61,227 at P 8; see
also Inquiry Regarding the Effect of the Tax Cuts and Jobs Act on
Commission-Jurisdictional Rates, 162 FERC ] 61,223, at P 4 (2018)
(``The Commission must ensure that the rates, terms, and conditions
of jurisdictional services under the Federal Power Act (FPA), the
Natural Gas Act (NGA), and the Interstate Commerce Act are just,
reasonable, and not unduly discriminatory or preferential.''); id. P
8 (directing oil pipelines to report on page 700 an income tax
allowance consistent with the Income Tax Policy Change and the Tax
Cuts and Jobs Act. As opposed to initiating cost-of-service
complaints against oil pipelines, deferring action until the 2020
five-year index review best fulfilled EPAct 1992's dual mandate for
simplified oil pipeline ratemaking and just and reasonable rates.
See supra P 20 & note 51.
    \54\ Specifically, the Commission required natural gas pipelines
to submit a one-time filing for the purpose of evaluating the impact
of the Income Tax Policy Change and the Tax Cuts and Jobs Act upon
the pipeline's revenue requirement. Order No. 849, 164 FERC ] 61,031
at P 30. This process allowed for MLP natural gas pipelines to
voluntarily reduce their rates in response to the Income Tax Policy
Change and for the Commission to initiate rate investigations
pursuant to section 5 of the Natural Gas Act where the pipeline
appeared to be over-recovering its cost of service as a result of
the policy change. E.g., Stagecoach Pipeline & Storage Co., 166 FERC
] 61,199 (2019); N. Nat. Gas Co., 166 FERC ] 61,033 (2019). In
contrast to MLP natural gas pipelines, Pipelines identify only one
MLP oil pipeline, SFPP, L.P. (the pipeline whose rates were the
subject of United Airlines), that has adjusted its rates in response
to the Income Tax Policy Change. See supra note 42.
    \55\ We recognize that the 2018 Income Tax Policy Statement
provided non-binding guidance regarding the Commission's future
intentions. Accordingly, in the NOI initiating this proceeding, the
Commission invited the commenters to address this issue. NOI, 171
FERC ] 61,239 at P 10. Our determination here is based upon the full
consideration of the extensive record developed in this proceeding.

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

shippers relied upon our assurances in considering whether to bring
challenges to oil pipeline rates following the Income Tax Policy
Change.\56\
---------------------------------------------------------------------------

    \56\ Joint Commenters Request for Rehearing at 57; CAPP Request
for Rehearing at 11-13; see also Liquids Shippers Request for
Rehearing at 15-16.
---------------------------------------------------------------------------

b. Reconsidering the December 2020 Order
    22. As discussed below, we reject the reasons provided by the
December 2020 Order for excluding the Income Tax Policy Change from the
index calculation.
    23. First, there is no meaningful distinction between changes to
the Opinion No. 154-B methodology and changes to the costs that
pipelines input into that methodology.\57\ Rather, changes to the
Opinion No. 154-B methodology produce corresponding changes to the
costs that pipelines can recover. Thus, for purposes of determining the
index, any meaningful measure of changes to recoverable costs between
2014 and 2019 must reflect the Income Tax Policy Change. The December
2020 Order's adjustments to the page 700 data omit the effects of the
Income Tax Policy Change--as though MLP pipelines did not receive an
income tax allowance in 2014.\58\ Given the purpose of the indexing
regime to adjust rates for changes to Opinion No. 154-B recoverable
costs, a true ``apples-to-apples'' comparison involves comparing the
recoverable costs in 2014 with the recoverable costs in 2019--if
companies received an income tax allowance in 2014 but did not in 2019,
the index must reflect that reality.
---------------------------------------------------------------------------

    \57\ December 2020 Order, 173 FERC ] 61,245 at P 17 (stating
that ``the purpose of indexing is to allow the indexed rate to keep
pace with industry-wide cost changes, not to reflect alterations to
the Commission's Opinion No. 154-B cost-of-service methodology'').
    \58\ In the December 2020 Order, the Commission stated that
``[j]ust as a business must account for changes to its accounting
policies when comparing costs over two different periods, we must
make a similar adjustment to the reported page 700 data here to
derive an `apples-to-apples' comparison of pipeline cost changes.''
Id. This analogy to accounting methods is misplaced. Whereas an
accounting methodology simply involves the method of recording
costs, as explained above, the Income Tax Policy Change directly
affected the costs that MLP pipelines can recover under the Opinion
No. 154-B methodology.
---------------------------------------------------------------------------

    24. Second, contrary to the statements in the December 2020 Order,
we find that reflecting the Income Tax Policy Change does not
effectuate a true-up for prior-period over-recoveries.\59\ Consistent
with the purposes of the five-year review, incorporating the effects of
the Income Tax Policy Change in the index calculation will align
pipelines' future rates with their future costs recoverable under
Opinion No. 154-B. By failing to reflect the Income Tax Policy Change
in the calculation of the prospective index, the approach adopted in
the December 2020 Order would cause future indexed rates to become
estranged from future recoverable costs.
---------------------------------------------------------------------------

    \59\ Id. P 18.
---------------------------------------------------------------------------

    25. Third, we disagree with the December 2020 Order's reasoning
that ``[b]ecause no prior index calculation incorporated the [2005
policy] allowing MLP pipelines to recover an income tax allowance, it
is not necessary to reflect the policy change denying those pipelines
an income tax allowance in the calculation here.'' \60\ This statement
disregards indexing's purpose and oversimplifies the Commission's
historical practice. Indexed rates have always served as a means for
recovering pipeline income tax costs. Accordingly, the five-year review
index calculation was always intended to incorporate changes in
pipeline income tax costs, even if the Commission previously measured
those costs using an imperfect estimate.\61\ Now, the Commission uses
page 700 data that directly measures income tax costs. The Commission
should not disregard this data when calculating the index level.
---------------------------------------------------------------------------

    \60\ Id. P 19.
    \61\ Before the 2015 Index Review when the Commission began
using page 700 data, the Commission estimated pipeline cost changes
using a rough proxy based upon Form No. 6 accounting data. This
accounting data did not directly measure changes in the income tax
costs recoverable under Opinion No. 154-B. December 2020 Order, 173
FERC ] 61,245 at P 19; see also 2015 Index Review, 153 FERC ] 61,312
at PP 14-15 (describing this proxy and its deficiencies). The
Commission relied upon this proxy because direct measures of capital
costs and income tax costs were not available when the index was
first established. 2015 Index Review, 153 FERC ] 61,312 at P 14.
Before page 700 was created, the Commission lamented that ``the
measure of the capital cost component of the cost of service is
highly unsatisfactory'' because Form No. 6 did ``not contain the
information necessary to compute a trended original cost . . . rate
base or a starting rate base as allowed for in Order No. 154-B.''
Order No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,096.
---------------------------------------------------------------------------

    26. Moreover, the facts here undercut Pipelines' claim that MLP
income taxes have not been incorporated into pipeline rates.\62\ Prior
to the 2005 income tax policy change, MLP pipelines were eligible to
include at least a partial income tax allowance in their costs of
service.\63\ To the extent that prior index calculations did not
incorporate the 2005 income tax policy directly, pipeline rates did
substantially come to reflect that policy over time.\64\ To explain
further, as the number of pipelines in the Commission's data set
expanded,\65\ all initial rates and non-indexing rate changes would
have reflected MLPs pipelines' ability to recover a full income tax
allowance under the previous 2005 policy. Although we recognize that
prior index reviews imperfectly captured the 2005 income tax policy
change, we know that the 2005 policy change plainly affected oil
pipeline rates over the last 15 years.\66\ Furthermore, Pipelines'
argument ignores how MLP pipelines' ability to claim an income tax
allowance under the previous 2005 policy shielded those pipelines'
rates from challenge.\67\ Therefore, we are not persuaded by arguments
based upon the 2005 policy change that the Commission must remove the
2018 Income Tax Policy Change from this index calculation.
---------------------------------------------------------------------------

    \62\ Designated Carriers Initial Comments at 17-20; see also
December Order, 173 FERC ] 61,245 at P 19.
    \63\ Lakehead Pipe Line Co., L.P., Opinion No. 397, 71 FERC ]
61,338, at 62,314-15 (1995), reh'g denied, Opinion No. 397-A, 75
FERC ] 61,181 (1996) (permitting partnership entities like MLP
pipelines to recover an income tax allowance for income attributable
for corporate partners, but not for income attributable to
individuals or other non-corporate partners); see also Riverside
Pipeline Co., L.P., 48 FERC ] 61,309, at 62,018 (1989) (applying
pre-Lakehead policy permitting partnership pipelines to recover a
full income tax allowance as if they were corporations).
    \64\ Consistent with EPAct 1992's mandate for a simplified and
streamlined ratemaking regime, the Commission does not scrutinize
the costs underlying each individual pipeline's rates when
developing the industry-wide index. Rather, the Commission reaches
its determinations based upon what is appropriate on balance for the
industry as a whole.
    \65\ Notably, 164 of the 277 total oil pipelines in the
Commission's data set, or 59%, have been added since the 2005 five-
year review.
    \66\ In urging the Commission to adopt the adjustment to the
reported page 700 data to eliminate the effects of the Income Tax
Policy Change, neither AOPL nor Designated Carriers account for the
extent to which the Commission's prior income tax policies
permitting MLPs to recover an income tax allowance were incorporated
into pipelines' existing rates.
    \67\ Specifically, the Commission evaluates cost-of-service
complaints and challenges to annual index rate increases based upon
the differential between costs and revenues on page 700. To the
extent that an MLP pipeline's page 700 revenues exceeded its costs,
the ability to report an income tax allowance as a cost on page 700
would have reduced the gap between revenues and costs. This lower
cost-revenue differential would have reduced the pipeline's exposure
to cost-of-service rate complaints and challenges to index rate
changes.
---------------------------------------------------------------------------

    27. Fourth, the adjustments adopted in the December 2020 Order lead
to incongruous and unreasonable results because they enable pipelines,
including those with an existing double recovery, to increase their
rates above the levels that would have resulted absent the D.C.
Circuit's and the Commission's double-recovery findings. The Commission
adopted the Income Tax Policy Change in response to findings by the
D.C. Circuit and the Commission that MLP pipeline rates

were double recovering those pipelines' income tax costs.\68\ Absent
the D.C. Circuit's and the Commission's holdings prohibiting MLP
pipelines from recovering an income tax allowance in their costs of
service, MLP pipelines, like corporate pipelines, would have reported a
reduction in their income tax allowances as a result of the Tax Cuts
and Jobs Act. However, by treating MLP pipelines' income tax liability
as zero for both 2014 and 2019, Pipelines' adjustments eliminate the
downward effect the Tax Cuts and Jobs Act would have exerted upon MLP
pipelines' recoverable income tax costs during the 2014-2019
period.\69\ Thus, not only do Pipelines' adjustments eliminate the
reduction in industry-wide recoverable costs resulting from the Income
Tax Policy Change, but they also diminish the separate reduction in MLP
pipelines' recoverable costs that would have resulted from the Tax Cuts
and Jobs Act had that policy change not occurred. As a result,
incorporating Pipelines' adjustments in the cost-change analysis would
produce a higher index level than what would have resulted absent the
Income Tax Policy Change eliminating the MLP income tax double
recovery. Therefore, we decline to adopt Pipelines' adjustments given
this incongruous and unreasonable result and instead calculate the
index level using unadjusted page 700 data.
---------------------------------------------------------------------------

    \68\ 2018 Income Tax Policy Statement, 162 FERC ] 61,227 at P 8.
    \69\ All commenters agree that the index should reflect the
decrease resulting from the Tax Cuts and Jobs Act to the income tax
allowance recoverable by pipelines organized as corporations.
December 2020 Order, 173 FERC ] 61,245 at P 10 n.20.
---------------------------------------------------------------------------

c. Pipelines' Remaining Arguments Are Unpersuasive
    28. We are unpersuaded by Pipelines' remaining arguments for
removing the effects of the Income Tax Policy Change from the index
calculation. Regarding their claim that the policy change should be
excluded because it did not affect pipelines' actual income tax
costs,\70\ we find that this argument misconstrues the cost changes
that the index is designed to measure. As discussed above, ``the index
is meant to reflect changes to recoverable pipeline costs'' measured
under the Opinion No. 154-B methodology.\71\ Thus, the index is
designed to track changes in the income tax costs that pipelines can
recover under the Commission's cost-of-service ratemaking methodology.
In arguing that the Income Tax Policy Change only modified the
ratemaking treatment of MLP income tax costs without affecting actual
costs,\72\ Pipelines overlook that changes in ratemaking treatment
produce the very Opinion No. 154-B cost-of-service changes that the
index calculation seeks to measure.\73\
---------------------------------------------------------------------------

    \70\ E.g., AOPL Initial Comments at 29-31; AOPL Reply Comments
at 11; Designated Carriers Initial Comments at 7, 9-12; see also
Kinder Morgan Initial Comments at 3-4.
    \71\ 2015 Index Review, 153 FERC ] 61,312 at P 13 (citing Order
No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,096). In fact, the
Commission updated its calculation of the index level to rely upon
page 700 because it includes actual total cost-of-service data
consistent with Opinion No. 154-B. Id. PP 13-14.
    \72\ AOPL Initial Comments at 30 (quoting Shehadeh Initial Decl.
at 14); Designated Carriers Initial Comments at 3, 7-8, 10-11.
    \73\ AOPL III, 876 F.3d at 345 (``[N]either Order No. 561 nor
the subsequent index review orders indicate that the index was
intended to measure something distinct from the costs measured under
its cost-of-service methodology. Rather, the Commission has
consistently treated the index as a measure of normal industry-wide
cost-of-service changes . . . .'').
---------------------------------------------------------------------------

    29. Moreover, the income tax costs that pipelines can recover under
Opinion No. 154-B are distinct from the actual tax costs that pipelines
have paid to the taxing authority. Instead, as the D.C. Circuit has
recognized, income tax costs recoverable under the Commission's cost-
of-service methodology are not equivalent to ``actual taxes paid.''
\74\ Accordingly, because recoverable income tax costs do not
correspond to taxes paid, we reject Pipelines' claim that the index
should only reflect changes in actual income tax costs.
---------------------------------------------------------------------------

    \74\ City of Charlottesville v. FERC, 774 F.2d 1205, 1213-15
(D.C. Cir. 1985) (Scalia, J.). As then-Judge Scalia explained:
    [T]he imprecision of the ``actual taxes paid'' formulation is
exceeded only by the name of the Holy Roman Empire: two out of the
three words are wrong. Taxes, yes. But not necessarily actual taxes,
since inexact estimations are often allowed, e.g., a nationwide tax
allowance applied to all individual utilities . . . . And not
necessarily taxes paid, since tax liability incurred by current
activities but in fact not paid currently can be charged to present
ratepayers, e.g., taxes deferred by reason of accelerated
depreciation but passed on to current ratepayers through
normalization. So the principle should be expressed `actual or
estimated taxes paid or incurred'--whereupon it ceases to constrain
the Commission with regard to taxes any more than the Commission is
constrained with regard to its treatment of other expenses. Which is
as it should be.
    Id. at 1215 (emphasis in original) (citing Pub. Sys. v. FERC,
709 F.2d 73, 81-82 (D.C. Cir. 1983); Tenneco Oil Co. v. FERC, 571
F.2d 834, 844 (5th Cir. 1978)).
---------------------------------------------------------------------------

    30. We also reject AOPL's assertion that the Income Tax Policy
Change should be excluded because it represents an extraordinary, one-
time event that is not representative of likely future cost
experience.\75\ As discussed above, the Kahn Methodology calculates the
index level based upon historical cost changes, and does not address
speculative assertions about future developments.\76\ Consistent with
this approach, the Commission has previously rejected similar requests
to adjust the data set for one-time cost changes resulting from events
that were unlikely to reoccur in the future. For example, in the 2000
Index Review, the Commission rejected a proposed adjustment to address
one-time cost savings resulting from the establishment of the indexing
methodology and its associated cost efficiency incentives.\77\ The D.C.
Circuit affirmed this decision, finding that the Commission reasonably
adhered to its purely historical analysis and ``declined to embroil
itself in the complexity and iffiness of'' a forward-looking
methodology.\78\ Similarly, in the 2010 Index Review, the Commission
rejected shipper proposals to manually trim the data set to remove
pipelines that reported one-time cost increases attributable to
expansions or major rate base changes.\79\ Just as the Commission
declined to adjust the data sets in those proceedings to eliminate the
effects of one-time events, we likewise decline to adjust the data set
here to eliminate the effects of the Income Tax Policy Change.\80\
---------------------------------------------------------------------------

    \75\ AOPL Reply Comments at 13-14.
    \76\ See 2000 Index Review, 93 FERC at 61,855 (``The purpose of
our indexing methodology is to permit adjustment to ceiling rates
based on historical not anticipated cost changes over some future
period.'').
    \77\ Id.; see also id. (rejecting proposed adjustment based upon
anticipated future cost increases due to increased environmental and
safety regulations).
    \78\ AOPL II, 281 F.3d at 247.
    \79\ 2010 Index Review, 133 FERC ] 61,228 at PP 48-55.
    \80\ Furthermore, we find that AOPL's arguments are internally
inconsistent. AOPL's reasoning for excluding the Income Tax Policy
Change because it is an extraordinary, one-time policy change would
apply equally to the Tax Cuts and Jobs Act, yet AOPL does not oppose
reflecting the Tax Cuts and Jobs Act's effects in the index
calculation. AOPL Initial Comments at 25-26; AOPL Reply Comments at
10.
---------------------------------------------------------------------------

    31. We disagree with AOPL's contention that the Income Tax Policy
Change renders the page 700 data not ``consistent enough,'' and,
therefore, that the page 700 data must be adjusted to remove the
effects of the Income Tax Policy Change.\81\ This argument relies upon
a passage in AOPL III stating that the Commission, in adopting the use
of page 700 data to measure pipeline cost changes, determined in the
2015 Index Review that ``the assumptions [required by page 700] should
reflect established ratemaking practices and
---------------------------------------------------------------------------

    \81\ AOPL Reply Comments at 13-14.
---------------------------------------------------------------------------

    thus should be consistent enough to accurately calculate the
index.'' \82\ The D.C. Circuit's use of ``consistent'' refers to
pipelines' consistent compliance with

the Commission's prevailing policies in their page 700 filings, not, as
AOPL argues, that the index level cannot reflect policy changes that
occur during the five-year review period.\83\ Moreover, as discussed
above, the index should reflect industry-wide changes to recoverable
costs such as those caused by the Income Tax Policy Change--thus, it is
appropriate for the 2014 page 700 data to include income tax allowances
for MLPs while the 2019 page 700 data does not.
---------------------------------------------------------------------------

    \82\ AOPL III, 876 F.3d at 345 (citing 2015 Index Review, 153
FERC ] 61,312 at P 18).
    \83\ AOPL III, 876 F.3d 345; see also 2015 Index Review, 153
FERC ] 61,312 at P 18 (``The allocation methodologies used by
pipelines on page 700 should reflect established ratemaking
practices, and thus these allocation methodologies should be
sufficiently robust to calculate the index. . . . [T]o the extent a
pipeline's page 700 ratemaking assumptions change over a period of
time, pipelines are obligated to note them on their page 700.'').
Pipelines that were MLPs consistently claimed an income tax
allowance in 2014 and consistently did not claim an income tax
allowance in 2019.
---------------------------------------------------------------------------

    32. Finally, we reject Designated Carriers' remaining claims as
irrelevant, unsupported, or without merit. Designated Carriers
incorrectly claim that income tax allowance costs should be removed
from the 2014 page 700 data for MLP pipelines because the Commission
has previously found that partnership investors' income tax costs are
not properly considered costs in a partnership pipeline's regulated
cost of service.\84\ To the contrary, the Commission and the D.C.
Circuit have concluded that MLP pipelines incur investor-level income
tax costs that are already reflected in the pipeline's DCF ROE, such
that including an income tax allowance in the pipeline's cost of
service alongside the ROE results in an impermissible double
recovery.\85\ Accordingly, the issue in this proceeding is whether the
index level and the resulting pipeline rates should reflect the
elimination of that double recovery. As discussed above, we find that
by adjusting the data set to eliminate MLP pipelines' 2014 income tax
allowances, Designated Carriers' proposal would allow the income tax
double recovery to persist in pipeline rates.
---------------------------------------------------------------------------

    \84\ Designated Carriers Initial Comments at 10-11 (citing
Opinion No. 511-C, 162 FERC ] 61,228 at P 28; Webb Initial Aff. P
8).
    \85\ Opinion No. 511-C, 162 FERC ] 61,228 at P 22, aff'd, SFPP,
967 F.3d at 795-97; see also United Airlines, 827 F.3d at 136.
Moreover, Designated Carriers misconstrue the applicable law.
Neither the D.C. Circuit nor the Commission have held that these
costs are not properly included in a partnership pipeline's cost of
service. Rather, both United Airlines and the 2018 Income Tax Policy
Statement concluded that partnership investors' income tax costs are
already recovered by the ROE and that allowing partnership pipelines
to recover an income tax allowance in addition to that ROE would
impermissibly double recover those costs. United Airlines, 827 F.3d
at 135-37; 2018 Income Tax Policy Statement, 162 FERC ] 61,227 at PP
8-9, 45.
---------------------------------------------------------------------------

    33. Designated Carriers misconstrue Commission precedent in arguing
that Pipelines' proposed adjustments accord with the Commission's
actions applying the Income Tax Policy Change retroactively in the 2018
Income Tax Policy Statement and in Docket Nos. IS08-390 and IS09-
437.\86\ In the 2018 Income Tax Policy Statement, issued on March 15,
2018, the Commission applied the policy change prospectively by
directing pipelines to report their income tax costs in accordance with
its revised policy in their upcoming Form No. 6 filings due for
submission on April 18, 2018, which would include cost-of-service data
for 2017 and 2016.\87\ The Commission did not apply the new policy
retroactively to periods before the years encompassed by those
impending filings. In Docket Nos. IS08-390 and IS09-437, the Commission
applied its revised income tax allowance policy in pending cost-of-
service rate proceedings to the time periods at issue,\88\ which
predated the 2018 Income Tax Policy Change.\89\ Contrary to Designated
Carriers' claim, applying the Commission's new policy to a pipeline
whose rates were the subject of pending proceedings involving earlier
time periods does not support applying that policy retroactively to
revise the reported cost-of-service data of pipelines whose rates were
not the subject of ongoing litigation.
---------------------------------------------------------------------------

    \86\ Designated Carriers Initial Comments at 9, 11-12, 14-15
(citing SFPP, L.P., 162 FERC ] 61,229, at P 8 (2018); Opinion No.
511-C, 162 FERC ] 61,228 at PP 28, 54-57; 2018 Income Tax Policy
Statement, 162 FERC ] 61,227 at PP 8, 46, n.83; Webb Initial Aff. PP
9, 11). AOPL echoes this argument in its reply comments. AOPL Reply
Comments at 18-19.
    \87\ 2018 Income Tax Policy Statement, 162 FERC ] 61,227 at P 46
n.83.
    \88\ See SFPP, L.P., Opinion No. 435, 86 FERC ] 61,022, at
61,093-94 (1999) (``Commission practice is to base its decision on
the policy in effect in the year a regulatory decision is made, and
then apply that decision to the time frame to which the case
applies.''); see also Consol. Edison Co. of N.Y. v. FERC, 315 F.3d
316, 323-24 (D.C. Cir. 2003) (explaining that an agency may apply a
new substantive rule to decide a pending proceeding).
    \89\ The Docket No. IS08-390 proceeding addressed SFPP's West
Line rates to be effective August 1, 2008. Opinion No. 511-C, 162
FERC ] 61,228 at P 4. The Docket No. IS09-437 proceeding addressed
SFPP's East Line rates to be effective January 1, 2010. SFPP, L.P.,
Opinion No. 522-B, 162 FERC ] 61,229 at P 8.
---------------------------------------------------------------------------

    34. Designated Carriers' claim that reflecting the Income Tax
Policy Change in the index calculation would constitute retroactive
ratemaking likewise lacks merit.\90\ The rule against retroactive
ratemaking ``prohibits the Commission from adjusting current rates to
make up for a utility's over- or under-collection in prior periods.''
\91\ By contrast, the five-year review uses past cost changes to
calculate the index adjustment that pipelines can use to adjust their
future rates. Accounting for reduced recoverable costs in calculating
the prospective index adjustment does not modify current rates to
account for prior period over- or under-recoveries and therefore does
not contravene the bar against retroactive ratemaking.
---------------------------------------------------------------------------

    \90\ Designated Carriers Initial Comments at 16.
    \91\ SFPP, 967 F.3d at 801 (quoting Old Dominion Elec. Coop. v.
FERC, 892 F.3d 1223, 1227 (D.C. Cir. 2018)).
---------------------------------------------------------------------------

    35. Designated Carriers also do not provide support for their
contention that incorporating the Income Tax Policy Change in the index
would negatively impact MLP pipelines twice, such as SFPP, whose cost-
of-service rates have already been revised to remove the income tax
allowance and ADIT balances.\92\ As discussed above, Designated
Carriers have only identified one pipeline (out of 240 pipelines filing
page 700 with the Commission) whose rates have been lowered to reflect
the Income Tax Policy Change and thus have not shown that this alleged
harm would affect any pipeline besides SFPP.\93\ More generally, the
Commission calculates the index level based upon normal industry-wide
cost changes, without regard to the particular experiences of
individual pipelines. To do otherwise would produce nonsensical
results, as indexing would cease to function as a generally applicable
ratemaking methodology if the index was adjusted to account for

the particular cost changes of each individual pipeline.
---------------------------------------------------------------------------

    \92\ Designated Carriers Initial Comments at 15 (citing Webb.
Aff. P 14).
    \93\ Moreover, even as to SFPP, it is unclear that incorporating
the Income Tax Policy Change in the index calculation would produce
the adverse effects that Designated Carriers describe. First, after
the Commission adopted the Income Tax Policy Change, SFPP converted
to a Schedule-C Corporation eligible to recover an income tax
allowance and defended their rates on that basis in their East Line
rate case in Docket No. OR16-6-000. Second, SFPP's implementation of
the Income Tax Policy Change (before its conversion to a C-
Corporation) actually produced an increase to its rates on its West
Line system. In response to Opinion No. 511-C, SFPP removed the
income tax allowance and previously accumulated ADIT balances from
its West Line cost-of-service rates. Opinion No. 511-D, 166 FERC ]
61,142 at P 59. As a result, SFPP's West Line rates increased to
levels above the rates established following Opinion No. 511-B,
which included an income tax allowance and ADIT balances. Compare
SFPP, Compliance Filing, Docket No. IS08-390-011, Tab A, COS Summary
at 2 (filed May 14, 2018) (rates filed in response to Opinion No.
511-C), with SFPP, Compliance Filing, Docket No. IS08-390-008, Tab
A, COS Summary at 2 (filed Apr. 6, 2015) (rates filed in response to
Opinion No. 511-B). Because reflecting the Income Tax Policy Change
in SFPP's West Line rates resulted in a rate increase, we are
unconvinced that incorporating this policy change in the index
calculation would somehow adversely impact SFPP for a second time as
Designated Carriers allege.
---------------------------------------------------------------------------

    36. Finally, to the extent that Designated Carriers argue that the
Commission should have ``trued up'' prior index levels in the 2015
Index Review to account for the impact of the 2005 income tax policy
change upon recoverable costs, this argument is unsupported.\94\
Designated Carriers do not specify the type of analysis they believe
the Commission should have performed in the 2015 Index Review \95\ and
fail to quantify the impact of this analysis upon pipelines'
recoverable costs. Furthermore, any arguments concerning the
Commission's actions in previous index reviews are outside the scope of
this proceeding.
---------------------------------------------------------------------------

    \94\ Designated Carriers Initial Comments at 17-20 (citing Webb
Aff. PP 19-22).
    \95\ To the extent that Designated Carriers argue the Commission
should have retroactively revised previously established index
levels to allow pipelines to recover for prior under collections in
excess of their then-effective rates, this would conflict with both
indexing's purpose and the filed rate doctrine. E.g., Ark. La. Gas
Co. v. Hall, 453 U.S. 571, 577 (1981) (explaining that the filed
rate doctrine ``forbids a regulated entity to charge rates for its
services other than those properly filed with the appropriate
federal regulatory authority'' (citation omitted)). Alternatively,
if they argue that the Commission should adjust the going-forward
index level upward because prior index calculations did not
incorporate the 2005 policy change, they have not demonstrated that
the multiple income tax policy changes the Commission has adopted
since it established the indexing regime, including Lakehead and the
2005 policy change, caused pipelines to under-recover their costs on
a systematic basis.
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B. Statistical Data Trimming

1. December 2020 Order
    37. In the December 2020 Order, the Commission departed from its
prior practice established in the 2010 and 2015 Index Reviews of using
the middle 50%.\96\ Instead, for the first time, the Commission relied
solely upon the middle 80%. The Commission decided that it would
consider more data in measuring industry-wide cost changes because
using a broader sample should enhance the Commission's calculation of
the central tendency of industry cost experience.\97\ The Commission
further stated that ``normal'' cost changes are best defined by using
the inclusive data sample embodied in the middle 80% in order to
accurately identify the central tendency of industry-wide cost
changes.\98\
---------------------------------------------------------------------------

    \96\ See supra note 9.
    \97\ December Order, 173 FERC ] 61,245 at P 26.
    \98\ Id. P 27.
---------------------------------------------------------------------------

    38. Additionally, the Commission held that ``mere generalized
concerns'' about outlying data do not justify excluding the experiences
of pipelines included in the middle 80% but not the middle 50% (i.e.,
the incremental 30%) from the Commission's review of industry cost
changes.\99\ The Commission stated that unlike in prior index reviews,
the record here does not contain ``detailed analyses'' showing that
pipelines in the incremental 30% experienced anomalous cost changes
that would skew the index.\100\
---------------------------------------------------------------------------

    \99\ Id. P 28.
    \100\ Id.
---------------------------------------------------------------------------

2. Rehearing Requests
    39. Shippers argue that the December 2020 Order conflicts with
precedent and fails to justify departing from the Commission's
established practice of trimming the data set to the middle 50%. They
first contend that using the middle 80% contravenes the Commission's
findings in the 2015 and 2010 Index Reviews that the index aims to
reflect normal cost changes and that the middle 50% more effectively
excludes anomalous cost data than the middle 80%, which includes
pipelines further removed from the median whose cost changes may result
from idiosyncratic circumstances rather than ordinary pipeline
operations.\101\ According to Shippers, the December 2020 Order fails
to distinguish those findings and instead attempts to redefine
``normal'' cost changes to encompass the widest possible range of data,
regardless of whether that data reflects typical experience. Shippers
argue that the middle 80% in this proceeding includes pipelines with
anomalous cost changes and that the central tendency of a data sample
that includes such unrepresentative data fails to reflect normal
industry-wide cost changes.\102\ In addition, Shippers dispute the
December 2020 Order's conclusion that the presence of anomalous data in
the middle 50% in prior reviews supports using the middle 80% in this
proceeding. Shippers argue that the December 2020 Order does not
demonstrate that the middle 50% includes unrepresentative data and,
even if it did, this would not justify using a larger sample that
likely includes more idiosyncratic data.\103\
---------------------------------------------------------------------------

    \101\ Joint Commenters Request for Rehearing at 23-26 (citing
2015 Index Review, 153 FERC ] 61,312 at PP 23, 42-44; 2010 Index
Review, 133 FERC ] 61,228 at P 61); Liquids Shippers Request for
Rehearing at 37-38 (citing 2015 Index Review, 153 FERC ] 61,312 at
PP 42-44; 2010 Index Review, 133 FERC ] 61,228 at PP 60-63 & n.36).
    \102\ Joint Commenters Request for Rehearing at 26-27; Liquids
Shippers Request for Rehearing at 44-45.
    \103\ Joint Commenters Request for Rehearing at 32.
---------------------------------------------------------------------------

    40. Similarly, Shippers state that the December 2020 Order ignores
the Commission's findings in 2015 and 2010 that trimming to the middle
50% provides a simplified and objective method for removing
unrepresentative data that minimizes the need to scrutinize individual
pipeline data or engage in manual data trimming.\104\ Shippers assert
that expanding the data sample to the middle 80% discards this
simplified and effective tool for removing outliers without an adequate
replacement.\105\
---------------------------------------------------------------------------

    \104\ Id. at 34 (citing 2015 Index Review, 153 FERC ] 61,312 at
P 42). In both the 2015 and 2010 Index Reviews, shipper commenters
proposed manual data trimming methodologies in which they carefully
reviewed the costs for each of the 150-200 pipelines in the data set
to remove those pipelines with cost changes resulting from specific
factors not broadly shared across the industry, such as large rate
base expansions. See 2015 Index Review, 153 FERC ] 61,312 at PP 19-
21 (describing manual data trimming proposals); 2010 Index Review,
133 FERC ] 61,228 at PP 34-47 (same).
    \105\ Joint Commenters Request for Rehearing at 33 (citing AOPL
II, 281 F.3d at 245 (vacating and remanding the Commission's
determination in the 2000 Index Review to decline to engage in
statistical data trimming as unjustified departure from prior
practice of trimming to the middle 50%)).
---------------------------------------------------------------------------

    41. Shippers next argue that the record in this proceeding does not
support this departure from established practice and in fact provides a
stronger basis for using the middle 50% than in prior index reviews. In
particular, Shippers state that the middle 50% represents a greater
percentage of barrel-miles subject to the index (82.2% in the NOI data
set) than in 2015 (56%) or 2010 (76%),\106\ whereas the middle 80% is
more widely dispersed than in 2015 or 2010 and includes outlying cost
increases that are not offset by comparable cost decreases.\107\
Moreover, Shippers assert that the December 2020 Order acknowledged
that ``the record contains no evidence addressing whether the more
dispersed cost changes in the incremental 30% resulted from pipeline-
specific factors rather than from broadly shared circumstances
representative of ordinary pipeline operations.'' \108\ Given the
Commission's previous findings that the middle 80% more likely includes
pipelines with idiosyncratic and outlying data, Shippers argue that
this lack of evidence supports continued use of the middle 50%.\109\
---------------------------------------------------------------------------

    \106\ Id. at 30; Liquids Shippers Request for Rehearing at 41-
42.
    \107\ Joint Commenters Request for Rehearing at 30; Liquids
Shippers Request for Rehearing at 43, 46-47.
    \108\ Joint Commenters Request for Rehearing at 38 (quoting
December 2020 Order, 173 FERC ] 61,245 at P 29).
    \109\ Id. at 38-39.
---------------------------------------------------------------------------

    42. Shippers further contend that the December 2020 Order
erroneously places the burden upon shipper commenters to justify
continued use of the middle 50% by faulting them for

failing to present detailed analyses of the incremental 30%.\110\
Shippers state that the Commission discouraged commenters from
submitting such evidence by declining to consider similar analyses in
the 2015 and 2010 Index Reviews.\111\ Moreover, Shippers assert that it
is not incumbent upon commenters to justify continued application of
the Commission's existing policy. Rather, they argue that the agency
attempting to depart from a well-established practice bears the burden
of explaining why the reasoning underlying that practice should no
longer control.\112\ Similarly, Shippers claim that it was incumbent
upon Pipelines, as the proponents of a change in Commission policy, to
justify the change by demonstrating that the incremental 30% does not
contain outlying data. Shippers argue that Pipelines failed to make
this showing and that the limited evidence in the record analyzing the
incremental 30% indicates that it contains anomalous data that skews
the index calculation.\113\ According to Shippers, this evidence was
sufficient to justify using the middle 50% consistent with established
practice.\114\
---------------------------------------------------------------------------

    \110\ Id. at 35-39; Liquids Shippers Request for Rehearing at
51-52.
    \111\ Joint Commenters Request for Rehearing at 35, 37. Liquids
Shippers observe, moreover, that the Commission did not rely upon
such analyses when it declined to use the middle 80% in the 2015 and
2010 Index Reviews. Liquids Shippers Request for Rehearing at 51
(citing 2015 Index Review, 153 FERC ] 61,312 at P 43; 2010 Index
Review, 133 FERC ] 61,228 at P 61).
    \112\ Joint Commenters Request for Rehearing at 35-36 (citing
Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2126 (2016); FCC
v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009); Balt.
Gas & Elec. Co. v. FERC, 954 F.3d 279, 286 (D.C. Cir. 2020); Air
All. Houston v. EPA, 906 F.3d 1049, 1066 (D.C. Cir. 2018)); Liquids
Shippers Request for Rehearing at 52 (citing FCC v. Fox Television
Stations, Inc., 556 U.S. at 515-16).
    \113\ Joint Commenters Request for Rehearing at 38; Liquids
Shippers Request for Rehearing at 45-51.
    \114\ Joint Commenters Request for Rehearing at 38; Liquids
Shippers Request for Rehearing at 52-53.
---------------------------------------------------------------------------

3. Commission Determination
    43. We are persuaded by Shippers' arguments on rehearing and grant
rehearing of the December 2020 Order to calculate the index level based
upon the middle 50%, consistent with the Commission's practice in the
2015 and 2010 Index Reviews.\115\ We conclude that the record in this
proceeding does not justify departing from the Commission's established
practice of calculating the index level based solely upon the middle
50%.
---------------------------------------------------------------------------

    \115\ 2015 Index Review, 153 FERC ] 61,312 at PP 42-44, aff'd,
AOPL III, 876 F.3d at 342-44; 2010 Index Review, 133 FERC ] 61,228
at PP 60-63. Although the Commission averaged the middle 50% with
the middle 80% in the 2000 and 2005 five-year reviews, it did not
justify or address its consideration of the middle 80%. 2010 Index
Review, 133 FERC ] 61,228 at P 60. Moreover, the Commission has
never relied upon the middle 80% alone and provided a detailed
explanation in the 2015 and 2010 Index Reviews why it would not
consider the middle 80%. As the D.C. Circuit explained, ``[n]othing
in any of the Commission's past index review orders bound the agency
to use the middle 80% of pipelines' cost-change data in any later
proceeding.'' AOPL III, 876 F.3d at 353.
---------------------------------------------------------------------------

a. The Record in This Proceeding Supports Using the Middle 50% To
Calculate the Index Level
    44. As an initial matter, the objective of the index is to reflect
the cost experience of a typical pipeline during ordinary pipeline
operations.\116\ The index is not designed to recover extraordinary
cost changes, including those resulting from atypical or idiosyncratic
circumstances.\117\ These extraordinary cost changes are recovered
using the Commission's alternate ratemaking methodologies rather than
through indexing.\118\ In addition, the presence of such extraordinary
cost changes in the data set can inflate the index level.\119\
---------------------------------------------------------------------------

    \116\ E.g., 2010 Index Review, 133 FERC ] 61,228 at P 61; Order
No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,097 (``The role of an
index is to accommodate normal cost changes.'').
    \117\ The Commission has held, and the D.C. Circuit has
affirmed, that use of an index sufficiently high to encompass
extraordinary costs ``would provide windfalls to many oil pipelines
by allowing rate changes substantially above cost changes'' and
``effectively abdicate [the Commission's] responsibilities for rate
regulation under the ICA.'' Order No. 561-A, FERC Stats. & Regs. ]
31,000 at 31,097, aff'd, AOPL I, 83 F.3d at 1434; see also 2010
Index Review, 133 FERC ] 61,228 at P 54 (interpreting the use of
``extraordinary'' in Order Nos. 561 and 561-A as referring to
``pipelines experiencing changed per barrel-mile costs that were
greater than the changing costs experienced by other pipelines
regardless of the causes underlying any particular pipeline's cost
changes.'').
    \118\ Order No. 561-A, FERC Stats. & Regs. ] 31,000 at 31,097
(``Extraordinary costs can be recovered through either of the
alternate rate change means--cost of service or settlement rates--as
provided in [Order No. 561].'').
    \119\ Such cost changes would impact the composite central
tendency of the data sample through the weighted mean and unweighted
mean, which, unlike the median, reflect the cost experiences of all
pipelines in the sample, including those at the upper and lower
bounds.
---------------------------------------------------------------------------

    45. To avoid inflating the index, the Commission excludes pipelines
with extraordinary or idiosyncratic cost changes from the analysis.
Along these lines, in the 2010 and 2015 Index Reviews, the Commission
found that the middle 50% more appropriately adjusts the index level
for normal cost changes than the middle 80%, which, by definition,
includes pipelines relatively far removed from the median.\120\ The
Commission also concluded that pipelines in the incremental 30% are
more likely to have cost changes resulting from idiosyncratic factors,
such as a rate base expansion, plant retirement, or localized changes
in supply and demand, that do not reflect normal industry-wide
experience.\121\ Thus, the Commission found that the middle 50%, more
effectively than the middle 80%, trims pipelines with anomalous cost
changes from the data set while avoiding the complexities and
distorting effects of laborious and subjective manual data trimming
methodologies.\122\ Following the 2015 Index Review, the D.C. Circuit
affirmed the Commission's decision to trim the data set to the middle
50% instead of the middle 80%.\123\
---------------------------------------------------------------------------

    \120\ 2010 Index Review, 133 FERC ] 61,228 at P 61; 2015 Index
Review, 153 FERC ] 61,312 at P 43 (``[B]y definition, costs at the
top (or bottom) of the middle 80 percent deviate significantly from
the cost experience of other pipelines''); id. P 44 (``Pipelines in
the middle 80 percent, as opposed to the middle 50 percent, are more
likely to have outlying cost changes which could result from
idiosyncratic factors particular to that pipeline.'').
    \121\ 2010 Index Review, 133 FERC ] 61,228 at P 61.
    \122\ 2015 Index Review, 153 FERC ] 61,312 at P 42 (citing 2010
Index Review, 133 FERC ] 61,228 at PP 60-63).
    \123\ AOPL III, 876 F.3d at 342 (explaining that the court had
``little difficulty in finding that the Commission adequately and
reasonably justified its decision not to consider the middle 80
percent of pipelines' cost-change data'' in that proceeding).
---------------------------------------------------------------------------

    46. Upon reconsideration of the December 2020 Order, we find that
the record in the instant proceeding does not justify a different
result. The scatter plot below \124\ demonstrates that the middle 80%
in this data set includes several pipelines near its upper bound that
are considerably removed from the other pipelines in the sample.
---------------------------------------------------------------------------

    \124\ This scatter plot modifies a similar chart submitted by
Joint Commenters. Joint Commenters Reply Comments, Brattle Group
Report at 19, Figure 3 (scatter plot illustrating dispersion of the
middle 50% and middle 80% in the unadjusted 2020 data set). The
modifications reflect the adjustments adopted herein to the page 700
data set.

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

[GRAPHIC] [TIFF OMITTED] TR28JA22.000

    47. Furthermore, the pipelines at the upper bound of the middle 80%
exert an outsized influence that inflates the index calculation.\125\
The difference between the middle 50% and the middle 80% results
primarily from 8 pipelines at the upper bound of the middle 80%.
Namely, expanding the data sample from the middle 50% to the middle
70%, which omits the top and bottom 8 pipelines in the middle 80%, only
increases the composite central tendency by 3 basis points, from -0.21%
to -0.18%.\126\ By contrast, expanding the sample to include these 16
pipelines increases the composite central tendency by an additional 29
basis points, from -0.18% to 0.11%.\127\ In contrast to their outsized
effect on the index, the 8 pipelines at the upper bound of the middle
80% account for only 2.10% of total barrel-miles.
---------------------------------------------------------------------------

    \125\ AOPL's calculations demonstrate that using the middle 80%
would increase the cost change calculation by 41 basis points while
only expanding the number of barrel-miles in the analysis by
approximately 14%. Shehadeh Initial Decl., Exhibit A11 (calculating
that the composite central tendency of the cost change data, when
incorporating AOPL's proposed adjustments to remove the effects of
the Income Tax Policy Change, increases from 0.90% to 1.31% when
expanding from the middle 50% to the middle 80%); Shehadeh Initial
Decl., Exhibit A12 (stating that the middle 50% and middle 80%
contain 81.9% and 95.8%, respectively, of total barrel-miles in 2014
subject to the index).
    \126\ As discussed above, the Kahn Methodology calculates a
composite central tendency by averaging the data sample's median,
weighted mean, and unweighted mean. See supra P 4.
    \127\ Attach. A, Exhibit 14. The outsized impact these pipelines
exert upon the index calculation undermines the conclusion in the
December 2020 Order that the dispersion of the middle 80% is not
relevant because it results from ``just a few pipelines at the top
of the middle 80%.'' December 2020 Order, 173 FERC ] 61,245 at P 29.
Furthermore, this analysis rebuts the statement in the December 2020
Order that the record did not contain a ``detailed showing'' that
using the additional data in the middle 80% would distort the index
calculation. Id.
---------------------------------------------------------------------------

    Not only does the middle 80% include pipelines at its upper bound
that diverge considerably from the other pipelines in the sample, but
the record further establishes that the middle 80% as a whole is even
more dispersed than in 2015 or 2010,\128\ as illustrated in the bar
chart below.\129\
---------------------------------------------------------------------------

    \128\ When the data sample is highly dispersed, data at the
outer bounds of the middle 80% are further removed from the
remaining data and thus can have an outsized and distorting effect
if used to measure the central tendency.
    \129\ The bar chart modifies a similar chart submitted by Joint
Commenters. Joint Commenters Reply Comments, Brattle Group Report at
18, Figure 2 (bar chart illustrating dispersion of middle 50% and
middle 80% in 2010, 2015, and the unadjusted 2020 data sets). The
modifications reflect the adjustments adopted herein to the page 700
data set.
[GRAPHIC] [TIFF OMITTED] TR28JA22.001

    48. Additionally, AOPL has presented no evidence that the middle
80% in this proceeding lacks the type of atypical and idiosyncratic
cost changes observed in the middle 80% in the 2015 and 2010 Index
Reviews.\130\ To the contrary, the record demonstrates that the
additional data included in the incremental 30% contains pipelines with
idiosyncratic cost changes resulting from circumstances that are not
broadly shared across the industry. For example, Joint Commenters
identify 7 pipelines in the incremental 30% whose reported cost changes
resulted from irregular circumstances or specific factors not broadly
shared across the industry, such as temporary shutdowns or pipeline
ruptures.\131\
---------------------------------------------------------------------------

    \130\ AOPL, the proponent of changing the Commission's policy to
use the middle 80% instead of the middle 50%, had the opportunity to
provide such evidence in its initial comments and reply comments.
See 5 U.S.C. 556(d) (``Except as otherwise provided by statute, the
proponent of a rule or order has the burden of proof.''); P.R. v.
Fed. Mar. Comm'n, 468 F.2d 872, 881 (D.C. Cir. 1972) (``Ultimately,
the rule requiring the proponent of an order to sustain the burden
of its justification rests on the policy of requiring a person
seeking a change from the status quo to take on the burden of
justifying the change.''); see also S. Ga. Nat. Gas Co., 73 FERC ]
61,354, at 62,106 (1995) (``[W]here there is a `settled practice,'
the proponent of a change to that practice has the burden of
proof.'').
    \131\ Joint Commenters Reply Comments, Brattle Group Report at
13-17. For example, PMI Services North America, Inc., reported an
inflated 2019 cost of service per barrel-mile due to a temporary
shutdown of one of its pipeline segments and Mobil Pipe Line Company
experienced a pipeline rupture in 2013 that distorted its 2014 cost-
of-service data. Id. at 15-17.
---------------------------------------------------------------------------

    49. In sum, the record demonstrates that the middle 80% in this
proceeding includes pipelines with extraordinary cost changes that are
not reflective of ordinary pipeline operations. Accordingly, we find
that for purposes of calculating the index level in this proceeding,
using the more tailored data sample embodied by the middle 50% produces
a more accurate measure of ``normal'' cost changes and minimizes the
risk that the index will be distorted by pipelines with
unrepresentative cost experiences. Pipelines have not demonstrated why
the instant record is distinguishable from the 2015 and 2010 Index
Reviews such that the Commission should depart from the data trimming
methodology it employed in those proceedings.
b. Reconsidering the December 2020 Order
    50. We believe the reasons given in the December 2020 Order for
using the middle 80% in this proceeding to be in error.
    51. First, the mere fact that the middle 80% includes additional
data does not support departing from the middle 50%.\132\ The middle
50% already includes 81% of industry-wide oil pipeline barrel-
miles,\133\ which is significantly more than the barrel-miles used in
prior index reviews.\134\ Moreover, the middle 80% only incorporates an
additional 15% more of the industry's barrel-miles. Thus, although
using the middle 50% excludes 48 pipelines from the cost-change
analysis,\135\ omitting these pipelines does not deprive the Commission
of a robust data sample. Moreover, any benefits of considering the
larger data sample do not outweigh the risk, discussed above, that this
additional data will distort the measurement of normal cost changes.
---------------------------------------------------------------------------

    \132\ See AOPL III, 876 F.3d at 343 (noting the Commission has
``rejected the precise principle'' that the middle 80% is preferable
because it includes a larger number of pipelines) (citing 2010 Index
Review, 133 FERC ] 61,228 at PP 57, 61); 2015 Index Review, 153 FERC
] 61,312 at P 44 (rejecting argument that ``the middle 80 percent
should be used merely because it contains more barrel-miles'').
    \133\ Attach. A, Exhibit 1.
    \134\ In the 2015 and 2010 Index Reviews, the Commission
concluded that it was ``unnecessary to include the middle 80 percent
to obtain a representative sample of the data'' where the middle 50%
included 56% and 76%, respectively, of total barrel-miles subject to
the index. 2010 Index Review, 133 FERC ] 61,228 at P 63; see also
2015 Index Review, 153 FERC ] 61,312 at P 44 n.85 (concluding that
the fact that the middle 50% included a lower percentage of barrel-
miles than in 2010 ``is not a sufficient basis to risk including
more outlying data''), aff'd, AOPL III, 876 F.3d at 344.
    \135\ December Order, 173 FERC ] 61,245 at P 26.
---------------------------------------------------------------------------

    52. Second, we disagree with the December 2020 Order and find that
for purposes of this proceeding, ``normal'' cost changes are best
measured using a more tailored data sample that excludes the anomalous
and idiosyncratic data in the middle 80%.\136\ For the reasons
discussed above,\137\ this record demonstrates that ``including data
from the middle 80% distorts our measurement of the industry-wide
central tendency [used to calculate the index level].'' \138\ Rather,
using the middle 50% is more consistent with the index's purpose of
allowing recovery for normal cost changes, not extraordinary costs.
---------------------------------------------------------------------------

    \136\ We disagree with the statement in the December 2020 Order
that using the middle 80% is appropriate because the index average
will be significantly below the relatively high cost changes at the
upper bound. Id. PP 27, 32. Even if the index average is not set at
the upper bound of the data sample, including the upper bound of the
middle 80% nonetheless produces an index average inflated by
anomalous cost experience. See 2010 Index Review, 133 FERC ] 61,228
at P 61 (``Using the middle 50[%] ensures that pipelines with
relatively large cost increases or decreases do not distort the
index.'').
    \137\ See supra PP 46-50.
    \138\ December 2020 Order, 173 FERC ] 61,245 at P 27. The
December 2020 Order erroneously implied that entities supporting
continued use of the middle 50% must provide a ``compelling
showing'' that using the middle 80% would distort the calculation of
the index level. Id. Although the record here provides such a
compelling showing, we clarify that entities advocating for a
departure from the Commission's practice of using the middle 50%
bear the burden of justifying that change. See supra note 129.
---------------------------------------------------------------------------

    53. Third, in the December 2020 Order, the Commission sought to
distinguish the 2010 and 2015 Index Reviews on the basis that, unlike
in the instant review, commenters in those proceedings ``presented
detailed analyses demonstrating that the incremental 30% contained
anomalous cost changes . . . .'' \139\ However, we no longer find this
reasoning persuasive because, as in prior reviews, the present record
demonstrates the middle 80% includes outlying cost increases, reflects
significant dispersion, and includes pipelines with idiosyncratic cost
changes. Although shippers submitted more detailed analyses in 2010 and
2015, they presented this evidence to support manual data trimming
proposals that required a labor-intensive pipeline-by-pipeline analysis
of page 700 data. Finding manual data trimming to be highly subjective,
the Commission rejected this approach because ``[a]ny potential
improvement from manual data trimming is outweighed by the increase in
the potential for error or manipulation.'' \140\ Rather, the Commission
concluded that, instead of manual data trimming, using the middle 50%
more effectively addressed those same issues in a manner that was more
consistent with simplified and streamlined ratemaking.\141\ We conclude
that it would be incongruous to reject such manual data trimming while
at the same time requiring commenters to present similar analyses to
justify continued use of the middle 50%.\142\
---------------------------------------------------------------------------

    \139\ December 2020 Order, 173 FERC ] 61,245 at P 28.
    \140\ 2015 Index Review, 153 FERC ] 61,312 at P 34; see also id.
PP 36, 42; 2010 Index Review, 133 FERC ] 61,228 at P 62.
    \141\ 2015 Index Review, 153 FERC ] 61,312 at PP 36, 42; 2010
Index Review, 133 FERC ] 61,228 at P 62.
    \142\ In any case, the December 2020 Order overstates the
absence of evidence regarding anomalous data among the 48 pipelines
in the incremental 30%. Acknowledging that Shippers identified 7
pipelines, the December 2020 Order stated that for the remaining 41
there is no evidence of anomalous data. December 2020 Order, 173
FERC ] 61,245 at P 28. However, this ignores the chart above that
examined the entire middle 80% and showed how those pipelines at the
top of the middle 80% were inflating the index level.
---------------------------------------------------------------------------

c. AOPL's Remaining Arguments Are Not Persuasive
    54. We reject AOPL's remaining arguments in support of using the

middle 80% as unpersuasive. First, AOPL erroneously claims that the
Commission should use the middle 80% based upon its previous
recognition that ``it is preferable to apply the larger data set when
the additional data is available using the Kahn Methodology.'' \143\
However, the D.C. Circuit rejected this exact argument following the
2015 Index Review, finding that the quoted language ``addressed FERC's
approach to selecting the pool of pipelines whose costs should be
measured at all--not the portion of the resulting data to trim before
calculating the normal industry change in costs.'' \144\ Further, the
court explained that the Commission had in fact rejected the argument
that it is preferable to use a larger data sample merely because
additional data is available. Instead, the Commission concluded that
the middle 50% more appropriately adjusts the index level for normal
cost changes, notwithstanding the fact that it contains less data than
the middle 80%.\145\ We reject AOPL's argument for the same reasons
here.
---------------------------------------------------------------------------

    \143\ AOPL Initial Comments at 19-20 (quoting 2010 Index
Rehearing Order, 135 FERC ] 61,172 at P 41).
    \144\ AOPL III, 876 F.3d at 343 (citing 2010 Index Rehearing
Order, 135 FERC ] 61,172 at P 41 & n.38).
    \145\ Id. (citing 2010 Index Review, 133 FERC ] 61,228 at PP 57,
61).
---------------------------------------------------------------------------

    55. Second, we dismiss AOPL's claim that the middle 80% provides a
more accurate measure of industry cost changes merely because it
resembles a lognormal distribution.\146\ As the Commission found in the
2015 Index Review and as the D.C. Circuit affirmed, to the extent that
the middle 80% data conforms to a lognormal distribution, outlying cost
increases per barrel-mile will not be offset by similarly outlying cost
decreases.\147\ This concern is illustrated in the instant record,
where the middle 80% includes multiple pipelines with cost increases
above 100% and no pipelines with cost decreases of negative 100%.\148\
Thus, using the middle 80% would skew the index upward based upon these
outlying cost increases, which is contrary to the index's objective of
reflecting normal cost changes.\149\
---------------------------------------------------------------------------

    \146\ AOPL Initial Comments at 20-21; AOPL Reply Comments at 8-9
(citing Shehadeh Initial Decl. at 24). A lognormal distribution is a
continuous probability distribution of a random variable whose
logarithm is normally distributed.
    \147\ 2015 Index Review, 153 FERC ] 61,312 at P 43 (``using the
middle 80 percent would skew the index upward based upon these
outlying cost increases, which is contrary to the objective of the
index to reflect normal industry-wide cost changes''), aff'd, AOPL
III, 876 F.3d at 344.
    \148\ See Liquids Shippers Reply Comments at 24 (citing Crowe
Reply Aff. at 4-5).
    \149\ We also question the mathematical reasoning underlying
AOPL's argument. Specifically, a lognormal distribution occurs when
performing a natural logarithm transformation of a data set produces
a normal distribution. However, it is not possible to take the
natural logarithm of negative numbers. Id. at 24-25. Because the
data set here contains negative numbers, it cannot be lognormally
distributed.
---------------------------------------------------------------------------

    56. Third, AOPL misconstrues Commission precedent in claiming that
reliance on the middle 50% is only appropriate where there are concerns
of erroneous data.\150\ Although use of the middle 50% in Order No. 561
was based in part upon concerns about erroneous data, the Commission
has relied upon the middle 50% to exclude not only inaccurate data, but
also extraordinary data that is unrepresentative of normal cost
experience.\151\ As the D.C. Circuit explained when upholding the
Commission's continued use of the middle 50% in the 2015 Index Review,
the Commission provided extensive justification for its ongoing
reliance on the middle 50% in both the 2010 and 2015 Index
Reviews.\152\ Thus, even where the reported page 700 data is accurate,
it remains necessary to use the middle 50% to avoid including outlying
data that exerts a disproportionate impact on the index calculation.
---------------------------------------------------------------------------

    \150\ AOPL Initial Comments at 21-22 (citing Shehadeh Initial
Decl. at 21-22).
    \151\ See 2010 Index Review, 133 FERC ] 61,228 at P 61 (``Even
when accurate data is reported, pipelines in the middle 80, as
opposed to the middle 50, are more likely to have cost changes
resulting from factors particular to that pipeline, such as a rate
base expansion, plant retirement, or localized changes in supply and
demand.'').
    \152\ See AOPL III, 876 F.3d at 343 (rejecting AOPL's argument
that the Commission was precluded from excluding the middle 80% when
``that data is available and accurate''); id. at 339 (``[C]ontrary
to AOPL's assertion, nothing in any of FERC's past index review
orders bound the agency to use the middle 80 percent of pipelines'
cost-change data.'').
---------------------------------------------------------------------------

    57. In sum, we conclude that the evidence does not support
departing from the Commission's established practice of trimming the
data set to the middle 50%. Pipelines have presented the same arguments
that the Commission rejected in the 2010 Index Review and that the
Commission and the D.C. Circuit rejected in the 2015 Index Review.
Pipelines also presented no evidence demonstrating that the middle 80%
contains fewer pipelines with idiosyncratic cost changes than in 2010
and 2015. Moreover, as articulated above, the record in this proceeding
provides less support for using the middle 80% than in 2015 or 2010
because the middle 50% includes a considerably higher percentage of
industry-wide barrel-miles (81% in 2020 versus 76% in 2010 and 56% in
2015) and the middle 80% of this data set is more dispersed. We
therefore grant Shippers' requests for rehearing to calculate the index
level using the middle 50%.\153\
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    \153\ Consistent with the Commission's historical practice,
nothing in this order precludes commenters from proposing
modifications to the Kahn Methodology, including different data
trimming methodologies, in future five-year reviews based upon the
records in those proceedings. See NOI, 171 FERC ] 61,239 at P 8
(``We invite interested persons to submit comments regarding . . .
any alternative methodologies for calculating the index level for
the five-year period commencing July 1, 2021. Commenters may address
issues that include, but are not limited to, different data trimming
methodologies . . . .'').
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C. Liquids Shippers' Proposal To Calculate the Composite Measure of
Central Tendency Using the Weighted Median

    58. Liquids Shippers argued in their comments that the weighted
mean of the data set in this proceeding accords undue weight to two
pipelines, Colonial and Enbridge Energy, L.P. (Enbridge). Liquids
Shippers asserted that these pipelines are substantial outliers in
terms of barrel-miles and cost changes \154\ and that both reported
inaccurate page 700 data for 2014 and 2019.\155\ Because the weighted
mean affords these pipelines significant weight, Liquids Shippers
argued that using it to calculate the composite measure of central
tendency will skew the index upwards and fail to track normal industry-
wide cost changes.\156\ To remedy this issue, Liquids Shippers proposed
to replace the weighted mean in the index calculation with the median
of the barrel-mile weighted cost changes in the middle 50% (weighted
median), as calculated by their witness Elizabeth H. Crowe.
Alternatively, if the Commission decides not to replace the weighted
mean with the weighted median, Liquids Shippers proposed reducing the
weighting afforded to the weighted mean in the Kahn Methodology from
33.3% to 20% or 10%.\157\
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    \154\ Liquids Shippers Initial Comments at 13-15.
    \155\ Id. at 17-19.
    \156\ Id. at 16-19.
    \157\ Id. at 20 n.45; Crowe Initial Aff. at 8-9.
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1. December 2020 Order
    59. The December 2020 Order declined to adopt Liquids Shippers'
proposals. First, the Commission found that removing the weighted mean
from the index calculation would conflict with longstanding Commission
precedent relying upon the weighted mean and with Dr. Kahn's testimony
in the Order No. 561 rulemaking proceeding endorsing its use.\158\
Second, the Commission explained that the index aims to track cost
changes among

pipelines of all sizes and that discarding the weighted mean or
reducing the weighting it receives in the analysis would upset the
balance between large and small pipelines that the Kahn Methodology
achieves.\159\ Third, the Commission determined that Liquids Shippers'
calculation of the weighted median was methodologically flawed and did
not provide a useful measure of central tendency for purposes of
calculating the index.\160\ Fourth, the Commission concluded that
Liquids Shippers' challenges to Colonial's and Enbridge's page 700 data
are misplaced and unavailing on the merits.\161\
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    \158\ December 2020 Order, 173 FERC ] 61,245 at P 36.
    \159\ Id. P 37.
    \160\ Id. PP 38-39.
    \161\ Id. P 40.
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2. Rehearing Request
    60. Liquids Shippers renew their arguments that Colonial and
Enbridge are outliers in terms of cost changes \162\ and barrel-miles
\163\ and that these pipelines reported inaccurate page 700 data for
2014 and 2019.\164\ As a result, Liquids Shippers argue that using the
weighted mean in this proceeding skews the index level upwards, fails
to reflect industry-wide cost changes, and increases the likelihood
that inaccurate or erroneous page 700 data will distort the index
calculation.\165\ Liquids Shippers argue that the December 2020 Order
failed to address their evidence that Colonial and Enbridge are
outliers in terms of barrel-miles or acknowledge the errors in those
pipelines' page 700 data. Although the Commission has previously
declined to consider challenges to individual pipelines' page 700
inputs, Liquids Shippers state that this proceeding is distinct because
of the substantial weight the weighted mean accords to Colonial and
Enbridge.\166\
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    \162\ Liquids Shippers Request for Rehearing at 56-57. Liquids
Shippers assert that Enbridge and Colonial reported annual cost
changes of 3.1% and 4.3%, respectively, both of which exceed the
median of the data set (0.05%), the unweighted mean of the middle
80% (1.45%), and the unweighted mean of the middle 50% (0.29%). Id.
(citing December 2020 Order, 173 FERC ] 61,245 at Workpapers,
Exhibit 5 Tab, Column P, Lines 21 and 35; id. at Workpapers, Exhibit
1 Tab, Column F, Lines 11-12; id. at Workpapers, Exhibit 5 Tab,
Column Q, Line 184).
    \163\ Specifically, Liquids Shippers state that Colonial and
Enbridge represent 40% of the total barrel-miles in the untrimmed
data set of 160 pipelines and 48% of the total barrel-miles in the
middle 50% sample used in the NOI. Liquids Shippers Request for
Rehearing at 54-55.
    \164\ Id. at 65-66.
    \165\ Id. at 58, 65-67. Liquids Shippers state that removing
Enbridge and Colonial from the data set would cause the index level
proposed in the NOI to decrease from PPI-FG+0.09% to PPI-FG-0.34%.
Id. at 57 (citing Liquids Shippers Initial Comments at 15-16; Crowe
Initial Aff. at 6-7). Given this effect, Liquids Shippers argue that
affording these pipelines significant weight will skew the index
upward. Id. at 58.
    \166\ Id. at 67.
---------------------------------------------------------------------------

    61. Liquids Shippers further argue that the December 2020 Order
erred in relying upon earlier index proceedings to justify using the
weighted mean in this case. Liquids Shippers contend that this
proceeding is distinguishable from prior five-year reviews because the
weighted mean is heavily influenced by just two pipelines and a
commenter has demonstrated that two outlying pipelines skew the
weighted mean.\167\ Furthermore, Liquids Shippers state that there is
limited judicial and Commission precedent addressing use of the
weighted mean and that existing precedent supports only the use of some
weighted measure of central tendency.\168\ Liquids Shippers maintain
that they do not object to the Commission taking pipeline size into
account or according additional weight to larger pipelines when
calculating the index level, so long as two pipelines like Colonial and
Enbridge are not permitted to skew the result.\169\
---------------------------------------------------------------------------

    \167\ Id. at 64, 67.
    \168\ Id. at 62-63 (quoting AOPL II, 281 F.3d at 241).
    \169\ Id. at 63.
---------------------------------------------------------------------------

    62. In addition, Liquids Shippers object to the December 2020
Order's suggestion that shippers should challenge the inputs in a
particular pipeline's page 700 by filing a complaint.\170\ Liquids
Shippers state that a cost-of-service complaint against a pipeline's
base rates is unlikely to result in changes to its page 700 and that
there would be no commercial benefit for a shipper to file a complaint
for the sole purpose of challenging the pipeline's page 700
inputs.\171\ Liquids Shippers argue that by requiring shippers to
challenge page 700 inputs in a complaint or litigated rate proceeding,
the Commission is insulating pipelines' page 700 data from meaningful
review.\172\
---------------------------------------------------------------------------

    \170\ Id. at 68 (citing December 2020 Order, 173 FERC ] 61,245
at P 40 n.87).
    \171\ Id. at 68-69.
    \172\ Id. at 69.
---------------------------------------------------------------------------

3. Commission Determination
    63. We are unpersuaded by Liquids Shippers' arguments and deny
rehearing. As the December 2020 Order explains, replacing the weighted
mean in the calculation of the composite central tendency would
contravene longstanding Commission practice dating to the rulemaking
proceeding that established the indexing regime.\173\ As discussed
below, although no commenter has previously challenged the use of the
weighted mean in the Kahn Methodology, we find that Liquids Shippers
have not justified departing from the Commission's well-established
policy.\174\
---------------------------------------------------------------------------

    \173\ December 2020 Order, 173 FERC ] 61,245 at P 36.
    \174\ See supra note 129.
---------------------------------------------------------------------------

    64. As an initial matter, Liquids Shippers acknowledge that the
Kahn Methodology appropriately relies upon a weighted measure of
central tendency \175\ but fail to propose a credible alternative to
the weighted mean. As discussed above, the December 2020 Order rejected
Liquids Shippers' proposed weighted median calculation as
methodologically flawed. The Commission explained that the established
statistically appropriate method for calculating the weighted median,
as applied to pipeline cost changes, is to order the pipelines by cost-
change percentage, compute each pipeline's share of total barrel-miles,
and identify the pipeline whose share of total barrel-miles causes the
cumulative share to reach 50%.\176\ However, rather than identify the
pipeline that causes the cumulative share of total barrel-miles
represented in the sample to reach 50%, Ms. Crowe derives the median
value of the weighted cost-change percentages for 2019 without regard
to the barrel-miles represented above and below that cost change.\177\
Unlike the correct calculation of the weighted median, Ms. Crowe does
not order pipelines by cost changes, and instead orders them by cost
change times barrel-miles.\178\ The Commission found that under this
approach, it is unclear whether the median pipeline of a given sample
reported (a) relatively high cost changes and low barrel-miles or (b)
relatively low cost changes and high barrel-miles.\179\ The Commission
also observed that a small shift in the data sample's median would
produce significant and multidirectional changes in the calculation's
result.\180\ Thus, the

Commission determined that this calculation produces ``haphazard
results'' that ``do not reflect a convergence towards a central
tendency of industry-wide cost changes.'' \181\ The Commission further
explained that Ms. Crowe's methodology would ``nullify the influence of
larger pipelines upon the index calculation and thereby defeat the
purpose of relying upon a weighted measure of central tendency.'' \182\
On rehearing, Liquids Shippers do not address these findings or attempt
to rectify the identified flaws in Ms. Crowe's weighted median
calculation. Thus, even if we were inclined to replace the weighted
mean with a different weighted measure of central tendency, Liquids
Shippers present no credible alternative.
---------------------------------------------------------------------------

    \175\ Liquids Shippers Request for Rehearing at 63.
    \176\ December 2020 Order, 173 FERC ] 61,245 at P 38 (citing
Shehadeh Reply Decl. at 11 & App. B, Ex. 1). In fact, as explained
in the December 2020 Order, the pipeline reflecting the weighted
median using such a calculation would be Enbridge (which as
discussed below, Liquids Shippers allege should be removed as an
outlier from the data set). Id. P 40.
    \177\ Id. P 39.
    \178\ Id.
    \179\ Id. n.84.
    \180\ For example, a median reflecting the pipeline with the
next lowest weighted percentage change (Wildcat Liquids Caddo LLC)
would reduce Ms. Crowe's result from 0.57% to -1.74% (a decrease of
over 200%), whereas a median reflecting the next highest weighted
percentage change (reported by Wesco Pipeline, LLC) would reduce the
result by an even greater amount, from -0.57% to -2.28% (a decrease
of 400%). Id. n.85.
    \181\ Id.
    \182\ Id. n.86 (citing AOPL II, 281 F.3d at 241). Specifically,
the Commission explained that because Ms. Crowe orders the pipelines
by barrel-mile cost change times barrel-miles, a pipeline with high
barrel-miles would likely only lie near the median of the data
sample if it reported extremely low cost changes. Id.
---------------------------------------------------------------------------

    65. In addition, we remain unpersuaded by Liquids Shippers' claims
that the weighted mean needs to be modified or replaced because two
large pipelines, Colonial and Enbridge, allegedly skew the index
calculation. First, the December 2020 Order found that the record
indicates that neither Colonial nor Enbridge reported outlying cost
changes,\183\ and Liquids Shippers do not refute these findings on
rehearing.\184\ Although both Colonial and Enbridge reported barrel-
mile cost changes above the median in the middle 50%, this does not
make them outliers in terms of cost changes.\185\ Second, the fact that
the weighted mean in this proceeding ascribes additional weight to two
pipelines with high barrel-miles does not support removing this measure
of central tendency or reducing its weighting in the Kahn Methodology.
Rather, the Kahn Methodology includes the weighted mean in the
calculation of central tendency specifically to provide appropriate
weight to large pipelines like Colonial and Enbridge whose cost changes
are highly reflective of industry cost experience.\186\ This additional
weighting is necessary to ensure that ``minor firms do not skew the
result.'' \187\ Because unweighted measures of central tendency weight
all cost changes equally without regard to pipeline size, failing to
incorporate a weighted measure would allow the cost experiences of
small pipelines to obscure the experiences of pipelines that represent
a much larger share of the industry's barrel-miles. In this proceeding,
for instance, three small pipelines representing 0.00073% of the
barrel-miles in the middle 50% influence the sample's unweighted mean
by the same degree as Colonial and Enbridge, which represent 50.04% of
the barrel-miles in the middle 50%.\188\ Thus, the fact that the
weighted mean accords significant weight to Colonial and Enbridge is
fully consistent with its role in the index calculation and does not
skew the index calculation as Liquids Shippers allege.\189\ To the
extent that Liquids Shippers oppose use of the weighted mean in this
proceeding because it provides significant weighting to the two largest
pipelines,\190\ we find that this concern does not justify eliminating
the weighted mean from the index calculation in the absence of a
credible alternative.\191\
---------------------------------------------------------------------------

    \183\ The Commission observed that both Colonial and Enbridge
are included in the middle 50% of cost changes, which indicates that
their cost experiences did not diverge significantly from industry
norms. December 2020 Order, 173 FERC ] 61,245 at P 40.
    \184\ See Liquids Shippers Request for Rehearing at 65-66
(acknowledging the Commission's findings but arguing that they do
``not respond to [Liquids Shippers'] evidence or [their] concerns
that Enbridge Energy and Colonial skew the index due to being
extreme outliers in terms of barrel-miles . . . .'').
    \185\ The 2014-2019 cost changes in the middle 50% ranged from -
32.23% to 28.97%. Colonial's cost change of 23.72% lies well within
the middle 50%'s upper bound, while Enbridge's cost change of 3.43%
lies close to the median of the sample.
    \186\ December 2020 Order, 173 FERC ] 61,245 at P 37.
    \187\ AOPL II, 281 F.3d at 241.
    \188\ Whereas removing the cost changes of Colonial and Enbridge
would reduce the unweighted mean by 7 basis points (from -0.20% to -
0.27%), removing the cost changes of Wesco Pipeline LLC, Hilcorp
Pipeline Company, LLC, and Black Bear Liquids LLC increases the
unweighted mean by the same magnitude of 7 basis points (from -0.20%
to -0.13%). Attach. A, Exhibit 13.
    \189\ December 2020 Order, 173 FERC ] 61,245 at P 37.
    \190\ Liquids Shippers Request for Rehearing at 63, 65-66.
    \191\ As discussed above, although Liquids Shippers contend that
another approach to weighting pipeline cost changes may achieve a
better balance between large and small pipelines, they have not
justified an alternative to the weighted mean.
---------------------------------------------------------------------------

    66. Moreover, we continue to find that Liquids Shippers' challenges
to the reported page 700 data of Colonial and Enbridge are outside the
scope of this proceeding. As the December 2020 Order explains, indexing
proceedings are not an appropriate forum for challenging specific
pipelines' page 700 inputs.\192\ In the five-year review, the
Commission must review pipeline cost changes on an industry-wide basis
to establish the generic index that pipelines may use to adjust their
rates going forward. Allowing commenters to litigate individual
pipelines' page 700 inputs would risk expanding this review into a
wide-ranging rate proceeding involving complex cost-of-service issues
that would require significant time to resolve. Given that the
Commission must consider industry-wide cost changes based upon data for
over 160 pipelines and must complete each five-year review in order to
establish the index level for use in index filings to be effective on
July 1 of the following year,\193\ it would be unworkable to permit
challenges to individual pipeline page 700 inputs in this proceeding.
---------------------------------------------------------------------------

    \192\ December 2020 Order, 173 FERC ] 61,245 at P 40; see also
AOPL I, 83 F.3d at 1437 (holding that the Commission did not err in
Order No. 561 by declining to periodically review individual
pipeline costs and instead requiring shippers to challenge
individual pipeline rates via protests or complaints); Calnev Pipe
Line L.L.C., 127 FERC ] 61,304, at P 5 (2009) (``[T]he Commission
has made quite clear that it will not review allegations regarding
the appropriateness of a pipeline's cost of service or the accuracy
of its accounting in an index proceeding. Such allegations must be
included in a complaint once the index-based filing becomes
effective.'' (citing SFPP, L.P., 123 FERC ] 61,317 (2008); BP W.
Coast Prods. LLC v. SFPP, L.P., 121 FERC ] 61,243 (2007))).
    \193\ NOI, 171 FERC ] 61,239 at P 11.
---------------------------------------------------------------------------

    67. Furthermore, we are not persuaded by Liquids Shippers' claim
that reporting errors by Colonial and Enbridge are skewing the index
level upwards by 43 basis points.\194\ Regarding Enbridge, this
argument is particularly unpersuasive. First, removing Enbridge from
the middle 50%, while retaining Colonial in that sample, actually
increases the index level rather than decreasing it as Liquids Shippers
imply.\195\ Second, correcting Enbridge's alleged reporting errors only
marginally influences the index calculation. Liquids Shippers claim
that the 12.71% ROE that Enbridge reported on page 700 for 2019 exceeds
both the 9.84% ROE that it reported for 2014 and the 10.85% ROE that
many pipelines reported on page 700 for 2019. However, adjusting
Enbridge's 2019 page 700 ROE from 12.71% to 9.84% or 10.85% would only
impact the index level by 2 basis points.\196\
---------------------------------------------------------------------------

    \194\ Liquids Shippers allege that when using the data set
underlying the NOI proposal, removing Enbridge and Colonial from the
middle 50% reduces the index level by 43 basis points (from PPI-
FG+0.09% to PPI-FG-0.34%). Liquids Shippers Request for Rehearing at
57 (citing Liquids Shippers Initial Comments; Crowe Initial Aff. at
6-7). Similarly, removing those pipelines from the middle 50% of the
data set adopted in the instant order would reduce the index level
by 44 basis points, from PPI-FG-0.21% to PPI-FG-0.65%. Attach. A,
Exhibit 8.
    \195\ Removing Enbridge from the middle 50% but not Colonial,
increases the index level from PPI-FG-0.21% to PPI-FG-0.14%. Attach.
A, Exhibit 9.
    \196\ Lowering Enbridge's page 700 ROE from 12.71% to either
9.84% or 10.85% would reduce the index level from PPI-FG-0.21% to
PPI-FG-0.23%. Attach. A, Exhibit 10.

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

    68. Similarly, although Colonial accounts for most of the 44 basis-
point shift in the index calculation that results from removing
Colonial and Enbridge from the middle 50%, correcting Colonial's
alleged reporting errors produces only a de minimis change in the index
level. Liquids Shippers argue that Colonial reported in its 2014 and
2019 page 700 filings that it is 92% financed by equity, but reported
on its balance sheet and in an ongoing rate proceeding that it is 100%
financed by debt.\197\ However, adjusting Colonial's capital structure
to 50% equity and 50% debt produces a mere one-basis-point change to
the index level.\198\ Accordingly, given these relatively minor
effects, we are unpersuaded by Liquids Shippers' claim that using the
weighted mean in this proceeding increases the likelihood that page 700
reporting errors will skew the index calculation.
---------------------------------------------------------------------------

    \197\ Liquids Shippers Request for Rehearing at 59-60 (citing
Crowe Initial Aff. at 5-6).
    \198\ Using the data set adopted in this proceeding, adjusting
Colonial's capital structure to 50% equity and 50% debt while
preserving the composition of the middle 50% increases the index
level by one basis point, from PPI-FG-0.21% to PPI-FG-0.20%. Attach.
A, Exhibit 11.
---------------------------------------------------------------------------

    69. Furthermore, we find that requiring shippers to challenge page
700 inputs outside of the five-year review process does not present an
infeasible approach. First, Liquids Shippers' argument that a cost-of-
service complaint is unlikely to result in a change to the pipeline's
page 700 reporting is without merit. For example, if the Commission
determines in a cost-of-service rate proceeding that a pipeline set its
rates based upon an inaccurate capital structure, the pipeline would be
required to implement this determination in its subsequent page 700
reporting.\199\ Second, we are unpersuaded by Liquids Shippers' claim
that a complaint challenging a pipeline's page 700 inputs would bring
shippers ``no commercial benefits.'' \200\ Where a shipper believes
that a pipeline may have reported inaccurate or erroneous information
on its page 700, initiating a complaint proceeding provides the parties
and the Commission with a full opportunity to develop an evidentiary