FERC’s revised pipeline price index a ‘massive win for propane’

February 16, 2022 By    

The National Propane Gas Association (NPGA) is calling it a “massive win for propane.”

Supporting an NPGA rehearing petition, the Federal Energy Regulatory Commission (FERC), which regulates the rates of liquid pipelines, revised downward the five-year index level used to determine annual changes to interstate oil pipeline rate ceilings.

FERC established a producer price index for finished goods minus 0.21 percent for orders placed retroactively after July 1, 2021, through June 30, 2026.

Having lower rates, NPGA says, helps to control propane marketer costs at the terminal when pipeline costs rise.

The revised index rate translates to a savings of 3.23 cents per gallon of propane sold for the new five-year period against the prior five years, based on estimates by outside experts, NPGA adds.

FERC estimates an overall cost savings for consumers of $3.7 billion over the next five years.

The revised index level is a departure from December 2020 when the commission set the producer price index for finished goods plus 0.78 percent.

NPGA had disagreed with FERC’s methodology that calculated the index level based upon the middle 80 percent of pipeline cost changes over a per-barrel-mile basis for the five-year period 2014-19. If left in place, the methodology would have led to higher liquid pipeline rates, according to the association.

NPGA, with Airlines for America, Valero and Chevron, filed for a rehearing to challenge a shift in FERC methodology.

FERC says it found persuasive arguments to return to its policy of calculating the index level based on the middle 50 percent of pipeline cost changes. It ruled that the middle 50 percent calculation is consistent with its practice in its 2015 and 2010 index reviews and will reflect rates that are just and reasonable.

All oil pipelines must recompute their ceiling levels based on the new index level, the commission adds.

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About the Author:

Brian Richesson is the editor in chief of LP Gas Magazine. Contact him at brichesson@northcoastmedia.net or 216-706-3748.

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