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Federal Register / Vol. 86, No. 29 / Tuesday, February 16, 2021 / Rules and Regulations
2. Commission Determination 45. We decline to adopt Liquids Shippers proposal to replace the reported page 700 ROE data for 2014
and 2019 with standardized ROEs. We conclude that Liquids Shippers have not adequately demonstrated that the reported page 700 ROEs are unreliable or inconsistent with Commission policy.
46. Contrary to Liquids Shippers contention, the fact that page 700 ROEs are self-reported does not demonstrate that this data is unreliable or fails to capture the returns that investors would demand in the market. Rather, one of the primary reasons the Commission updated the index calculation to use page 700 data is that this data is based upon established ratemaking techniques. 102 During the 20142019
period, these techniques included determining ROE using the DCF model, which is designed to reflect investors required returns. The instructions on page 700 required pipelines to determine their ROE as well as other page 700 inputs consistent with this methodology and pipelines submitted page 700 under oath and subject to sanction if there were purposeful errors in their reported data.103 In addition, if a pipeline makes any major changes to its application of the Opinion No. 154
B methodology in preparing page 700, it must describe such changes in a footnote on page 700. Given these facts, we find that Liquids Shippers have not adequately demonstrated that the reported page 700 ROE data is unreliable merely because pipelines self-reported.104
102 2015

Index Review, 153 FERC 61,312 at P

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103 See BP W. Coast Prods. LLC v. SFPP, L.P., 121
FERC 61,243, at P 9 observing that pipelines submit their FERC Form No. 6 under oath and exposes the pipeline and its employees to civil and criminal sanctions if there are purposeful errors in applying the Commissions existing cost-of-service methodology to develop the underlying cost inputs. Furthermore, the Commission calculates the index level based upon changes in cost over the applicable review period, rather than total costs in a given year. Because the last year of any particular review period e.g., 20142019 is the first year of the next review period e.g., 20192024, any attempt by pipelines to distort the index calculation by reporting inflated cost data in the last year of one period would harm their interests by establishing a higher cost baseline in the first year of the next period.
104 If a shipper determines that a pipeline has reported inaccurate data on its page 700, the shipper may file a complaint alleging that the pipeline did not properly apply the Opinion No.
154B methodology in developing its page 700 cost inputs. See BP W. Coast Prods. LLC v. SFPP, L.P., 121 FERC 61,243 at P 9 explaining that shippers may file a complaint that provides reasonable grounds to conclude that the pipeline did not properly apply its existing cost-of-service methodology to develop the underlying cost inputs used to develop the Page 700 in its annual FERC

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47. Similarly, variation among page 700 ROEs does not indicate that the reported ROE data is unreliable. To the contrary, multiple factors can cause the DCF model to yield different results for different pipelines. For example, even when analyzing data from the same time period, the appropriate proxy group may vary from pipeline to pipeline depending upon differences in risk.
Liquids Shippers themselves acknowledge 105 that although the Commission typically sets the real ROE
for oil pipelines at the median of the proxy group results, it may set the ROE
above or below the median where the record demonstrates that the pipeline faces anomalously high or low risks.106
Accordingly, the fact that pipelines reported different ROEs for the same years does not demonstrate that this data is inaccurate or inconsistent with Commission policy. Moreover, the Commission explained in the 2015
Index Review that to the extent a particular pipelines per barrel-mile equity cost changes departed substantially from industry norms, that pipeline would not be among the middle 50% used to calculate the index level.107 Similarly, such pipelines would not be among the middle 80%
used to calculate the index level in this proceeding. Liquids Shippers provide no basis for altering this conclusion.
49. We conclude, moreover, that Liquids Shippers have not supported their proposed standardized ROEs. For 2014, Liquids Shippers seek to replace all pipelines reported ROEs with an ROE figure that only 29% of pipelines reported for that year.108 However, Liquids Shippers do not demonstrate that this figure accurately measures the investor-required cost of equity for all pipelines in the data set. Similarly, Liquids Shippers do not justify why the Commission should adopt, as the 2019
ROE for all pipelines in the data set, a figure that a participant has proposed in Form No. 6, or the inputs were improperly entered into its accounts or the calculation..
105 See Liquids Shippers Initial Comments at 22
23 quoting El Paso Nat. Gas Co., Opinion No. 528, 145 FERC 61,040, at P 592 2013.
106 E.g., BP Pipelines Alaska Inc., Opinion No.
502, 123 FERC 61,287, at P 195 2008 citing Transcon. Gas Pipe Line Corp., Opinion No. 414
A, 84 FERC 61,084, at 61,42324 1998, order on rehg and compliance, 125 FERC 61,215 2008, rehg denied, 127 FERC 61,317 2009, affd sub nom. Flint Hills Res. Alaska, LLC v. FERC, 726 F.3d 881 D.C. Cir. 2010.
107 2015 Index Review, 153 FERC 61,312 at P
17.
108 Whereas Liquids Shippers state that 45 of 158
pipelines filing page 700 for 2014 reported an ROE
of 10.29%, the Commissions review of Form No.
6 data indicates that 54 of 184 filing pipelines reported that particular ROE for 2014. Compare Liquids Shippers Initial Comments at 31 with Attachment A, Ex. 7.

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an ongoing hearing on which neither the Presiding Judge nor the Commission have opined.109 Given that oil pipelines have diverse business models and different risk levels, we cannot simply assume that any single ROE could reflect the investor-required return for all pipelines in the data set.
50. Finally, we find that adopting Liquids Shippers proposal would undermine indexings purpose as a simplified and streamlined ratemaking regime. Whereas the Kahn Methodology promotes simplification by relying upon reported page 700 data, Liquids Shippers proposal would require the Commission, in this proceeding and in future five-year reviews, to undertake separate analyses to determine just and reasonable industry-wide ROEs for the first and last years of the five-year review period. Determining a just and reasonable ROE, particularly on an industry-wide basis, would be a complex and fact-intensive inquiry that could require considerable time and resources to resolve. The Commission explained in the NOI that addressing such complex cost-of-service issues would improperly complicate and prolong the five-year review process in violation of EPAct 1992s mandate for simplified and streamlined ratemaking,110 and Liquids Shippers have not refuted these concerns.
E. CAPPs Argument Regarding Negotiated Rate Contracts 1. Comments 51. CAPP argues that the Commission should quantify the effects of negotiated rate contracts upon oil pipelines reported costs of equity. CAPP states that these contracts typically contain provisions such as shipper volume commitments that serve to transfer risk from the pipeline to its shippers and that failing to reflect pipelines reduced risks in the page 700 data could improperly inflate the index calculation.111 CAPP notes that the Commission found in the 2015 Index Review that the page 700 total cost-ofservice would reflect any reduction in the pipelines risk, but argues that the page 700 data in this proceeding does not indicate whether this occurred over the 20142019 period.112 To provide 109 According to the most recent procedural schedule adopted in Docket Nos. OR187002 et al., the initial decision in that proceeding is currently scheduled for issuance on May 28, 2021.
Epsilon Trading, LLC v. Colonial Pipeline Co., Docket No. OR187002, at Attachment A June 23, 2020.
110 NOI, 171 FERC 61,239 at P 11.
111 CAPP Initial Comments at 25.
112 Id. at 4 quoting 2015 Index Review, 153 FERC
61,312 at P 28.

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