FERC Proposes Guidance on Oil Pipeline Carrier Contracts with Affiliates

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On October 15, 2020, FERC issued a notice of proposed policy statement (“Proposed Policy Statement”) with proposed guidance for oil pipeline carriers to demonstrate through tariff filings or declaratory order petitions that the rates and terms in long-term contracts with affiliate shippers (“Affiliate Contracts”) are just, reasonable, and not unduly discriminatory under the Interstate Commerce Act (“ICA”).

Under the ICA, oil pipeline carriers are required to offer oil pipeline transportation to shippers pursuant to just and reasonable rates and practices. Oil pipeline carriers that desire to enter into long-term contracts with shippers for transportation must offer any interested shipper the ability to enter into such contracts in a fair and public process, also referred to as an open season process.  However, FERC acknowledged in the Proposed Policy Statement that the Commission has not provided significant guidance on what standards are required of oil pipeline carriers entering into potentially unfair Affiliate Contracts. To provide greater clarity into the Commission’s review process, FERC issued the Proposed Policy Statement, outlining proposed guidelines for carriers to follow with respect to Affiliate Contracts.

FERC first proposed to define an affiliate for a carrier as “any entity that, directly or indirectly, controls, is controlled by or is under common control with, the carrier.” FERC requested comments on how to define “control” and what thresholds should exist for establishing a rebuttable presumption of control or lack thereof.

FERC’s remaining proposed guidance in the Proposed Policy Statement was otherwise broken into four categories. First, FERC proposed that carriers disclose whether or not the contract rates or terms in a tariff filing or petition for declaratory order are pursuant to an Affiliate Contract. Second, FERC outlined potential relevant information for evaluating whether a carrier’s open season process was just and reasonable and not unduly discriminatory, such as how the open season was advertised, whether the timing of the open season provided an undue preference to an affiliate of the carrier, or specifics involved in discussions that took place between an affiliate shipper and the carrier during the process. Third, FERC proposed guidance on information that a carrier could provide to show that that it did not offer uneconomic terms in its Affiliate Contract to favor affiliates, including provisions involving a minimum volume commitment, uneconomic rates, unfair penalties or deficiencies, or clauses requiring a shipper to waive its statutory rights with respect to past rates. Finally, FERC proposed that carriers explain how they have ensured that they have reserved sufficient access to their pipeline for other shippers.

FERC is seeking comments on the Proposed Policy Statement by December 14, 2020, with reply comments to be due by January 28, 2020.

A copy of the Proposed Policy Statement is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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