Register Today for Courses in Cost of Service and Rate Design for Natural Gas Interstate Pipeline Companies (January 26th-27th)
Brown, Williams, Moorhead & Quinn, Inc.

Many aspects of ratemaking for oil and natural gas pipeline systems are identical or nearly so, but crude and refined products pipelines do provide challenges specific to them. The so-called Starting Rate Base and Deferred Return stem from FERC’s Order 154B methodology, while grandfathered rates and indexed rates follow upon Congressional instructions. Brown Williams’ oil pipeline expertise is brought to bear on these and other issues in various federal and state proceedings that have utilized the full spectrum of ratemaking services offered including state and federal regulatory policy issues, all cost of service issues, ad valorem tax issues, and prudency issues related to large-scale project costs and project implementation problems. Brown Williams provides strong litigation support to clients, from the discovery phase, through written and oral testimony at the trial phase, to assisting in the briefing phases.

154B Methodology

The interstate regulation of crude oil pipelines and refined products pipelines is governed by several unique cost-of-service and rate design concepts and methodologies. Its trended original cost (TOC) rate base, starting rate base adders, and deferred return on equity present a challenging cost of service model from the outset. The equity rate base incorporates the equity portion of the original cost plus a "starting rate base" adder and an inflation-based "accumulated deferred return" adder. Thus the equity rate base includes original cost plus layer upon layer of inflation of that equity portion, hence the term 'trended original cost'. Brown Williams is adept at the nuances of the oil pipeline cost of service model and can assess the rate base for fairness and correct compilation.

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Annual Indexing

The Energy Policy Act of 1992 ordered the Commission to devise simpler filing methods for oil pipeline rate changes and ushered in annual "indexed rate" filings to adjust rates. The streamlined procedures created difficult hurdles to challenging pipeline rates and protected final, non-appealable rates from routine challenges by shippers. Shippers must demonstrate reasonable grounds that a "substantial divergence" has grown between the indexed tariff rate and the actual underlying cost of service, in order to challenge the validity of the indexed rate. The evolved definition of these terms has created a complex, dimly understood gauntlet for pipeline customers. Brown Williams’ staff can help clients navigate these complex but critical terms-of-art that establish the threshold for acceptance of a filing at the Commission.

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Cost of Service

Brown Williams’ experts take on all aspects of cost of service ratemaking in various oil pipeline rate proceedings, assisting clients in preparations for filings, creating and responding to discovery, participation in settlement discussions, and drafting written testimony. As outlined in the cost of service discussion page in the main menu, Brown Williams can assist clients in all matters relating to the cost of service, including rate base, operating expenses, rate design, cost of capital, and accounting issues.

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Oil Ratemaking Methodologies

In addition to the annual indexing of rates, the Commission recognizes four additional oil ratemaking methodologies; 1) Initial rates; 2) Cost of Service rates; 3) Market- based rates; and 4) Settlement rates. Brown Williams' team has ample experience in all facets of oil pipeline ratemaking methodologies and stands ready to assist clients in developing the models and strategies needed to navigate the complex world facing oil pipelines and their shippers.

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