Oil Pipeline Regulation

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Oil Pipeline Regulation

• Michael P. Lacy
• Group Manager Office of Markets, Tariffs, and
  Rates
• Division of Tariffs and Market
• Development - Central

September 21-22, 2004
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Discussion Topics

• What FERC regulates
• Brief history of oil pipeline regulation
• The Interstate Commerce Act (ICA)
• Energy Policy Act of 1992
• Oil pipeline ratemaking 1992 forward
• Whats not regulated under the ICA

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What FERC Regulates

• Transportation of oil and oil products in
  interstate or foreign commerce
• From one state to any other state
• From a foreign country to any place in the U.S.,
  or to a foreign country from any place in the
  U.S.

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Brief History of Oil Pipeline Regulation

• Hepburn Act of 1906
• Common Carriage
• Rate regulation
• Department of Energy Organization Act of 1977
• Jurisdiction transferred from ICC to DOE to FERC
• Interstate Commerce Act frozen in time as of
  10/1/77 (49 App. U.S.C. 1 et seq. (1988))

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Interstate Commerce Act (ICA)

• Just and reasonable rates ICA Section 1(5)(a)
• Tariffs filed with the Commission ICA Section
  6(1)
• Changes upon 30-days notice ICA Section 6(3)
• Suspension up to 7 months ICA Section 15(7)
• Legal v. lawful rates reparations ICA Sections
  15(1) and 16(1)

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Interstate Commerce Act

• Transportation upon reasonable request ICA
  Section 1(4) common carrier obligation
• Undue discrimination prohibited ICA Section 2
• Undue preferences or advantages prohibited ICA
  Section 3

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Energy Policy Act of 1992

• Deemed oil pipelines existing rates to be just
  and reasonable as of date of enactment, October
  24, 1992
• Mandated a simplified and generally applicable
  ratemaking methodology
• Mandated streamlined Commission procedures to
  avoid unnecessary regulatory costs and delays

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Ratemaking Under the Energy Policy Act of 1992

• Indexing or price cap methodology Section 342.3
  of Commissions regulations Order No. 561
• Cost-of-service rates Section 342.4(a) Order
  No. 571
• Market-based rates Section 342.4(b) Order No.
  572
• Settlement rates Section 342.4(c)

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What is Not Regulated Under the ICA

• Construction of oil pipelines
• Authority rests with states and local
  jurisdictions
• No responsibility under NEPA
• Abandonment of service
• Mergers and acquisitions
• Safety authority rests with U.S. Department of
  Transportation, Office of Pipeline Safety

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Questions
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