Committed Shipper Rates the Subject of Further Questioning in Seaway Remand

March 31, 2014

The Seaway Crude Pipeline Company LLC (Seaway) remand proceeding in FERC Docket No. IS12-226-000 moved one small step closer to resolution on March 28, 2014.  The Presiding Administrative Law Judge (ALJ) issued an “Order to Brief Issues on Remand” (Order).  The Order seeks additional briefing on four topics, including committed shipper rates and their impact on the rate design of Seaway’s uncommitted shipper rates. 

The ALJ’s initial treatment of Seaway’s committed shipper rates was the target of rebuke by FERC in its February 28, 2014 order (Remand Order) reversing and remanding the ALJ’s September 2013 Initial Decision (ID).  FERC was critical of the ID for ignoring FERC’s policy on oil pipeline contract rates, which honors the rates if the contracts underlying them were entered into using a fair and open process.  The ID had misapplied this policy and went behind the contracts to hold that Seaway’s committed shipper rates were unjust and unreasonable and should be modified on a cost basis without any finding that the underlying process was unfair.  FERC found this error to be central to the entire ID and it reversed and remanded it in whole.  On remand, the ALJ was directed to issue a new decision limited to the scope set forth in FERC’s May 11, 2012 hearing order without reopening the record.  The new ID could review the justness and reasonableness of the uncommitted shipper rates and the overall rate design, but no further. 

The Order asks participants to brief six questions on the committed shipper rates, purportedly to assess their impact on uncommitted shipper rates and overall rate design.  These include whether Seaway’s proposed uncommitted shipper rates are “indexed” to the committed shipper rates, whether any participant to the proceeding has designed an uncommitted rate that is entirely independent of the committed shipper rates, and what methods have been proposed to keep Seaway’s generated revenues in line with its overall cost of service.  Two of the more curious questions concern natural gas pipeline precedent. While there are overlapping elements, FERC policy on natural gas and oil pipeline rates is distinct.  Participants are directed to compare/contrast FERC policy governing oil and gas pipeline negotiated rates with an emphasis on “adhering to a pipeline’s overall revenue requirement through a true-up mechanism in the design of committed and uncommitted shipper rates as combined services provided by the pipeline.”  The ALJ also asks for any oil or natural gas pipeline cases where negotiated rate agreements generate revenues in excess of the pipeline’s overall cost-of-service.  

The Order also seeks briefing on three additional issues that the ID had asked FERC for further guidance.  These are acquisition adjustment recovery in Seaway’s rate base, the level of Seaway’s ad valorem tax recovery, and the appropriate average remaining life for depreciation purposes.  The ultimate findings on these latter issues could cut across the oil and natural gas pipeline sectors.

Van Ness Feldman is continuing to follow all of the issues in this docket.  For additional information, please contact Brian O’Neill or Emily Pitlick.