Petition for Rulemaking Requests Standards of Conduct for Oil Pipelines

by Jackson Walker

Jackson Walker

Airlines for America and the National Propane Gas Association (“Petitioners”) filed a Petition for Rulemaking on February 1, 2018, asking the Federal Energy Regulatory Commission (“FERC”) to extend its affiliate Standards of Conduct to crude oil, natural gas liquids, and petroleum products pipelines regulated under the Interstate Commerce Act (“ICA”).

This rulemaking petition posits that despite the ICA’s anti-discrimination provisions, pipelines have an incentive to share information with marketing affiliates or structure deals to provide rebates to shippers. As a result, Petitioners argue that crude oil, natural gas liquids, and petroleum products pipelines are improperly sharing information with their marketing affiliates or allowing their marketing affiliates to charge less than tariff rates. This petition for rulemaking comes on the heels of FERC’s denial of the petition for declaratory order filed by Magellan Midstream Partners, L.P., in which Magellan asked FERC to allow it to establish a marketing affiliate which would not be subject to the anti-discrimination requirements under the ICA.

Transportation of natural gas on interstate pipelines is regulated under the Natural Gas Act and the Natural Gas Policy Act. FERC has issued standards of conduct in 18 CFR 358 that govern how a natural gas pipeline company may conduct business with its affiliates which include the following general principles: (1) pipeline companies must treat all customers, affiliated and non-affiliated alike, on a non-discriminatory basis; (2) employees involved in pipeline operations must be functionally separated from marketing function employees; and (3) employees of marketing affiliates cannot have access to nonpublic information about an affiliated pipeline’s customers or its transmission system.[1]

FERC has not established any similar standards for ICA-regulated pipelines. The ICA contains certain anti-discrimination provisions, which:

  1. prohibit different rates for “like and contemporaneous service” under “substantially similar circumstance and conditions”;[2] and
  2. prohibit carriers from granting or shipper from receiving “any undue or unreasonable preference or advantage to any particular person…in any respect whatsoever.”[3]

Petitioners suggest that the nature of affiliate transactions make enforcement of the ICA’s anti-discrimination requirements all but impossible, and that integrated pipeline companies are realizing financial gain by providing preferential treatment to their affiliates. Petitioners argue FERC should implement a new set of regulations for ICA-regulated pipelines limiting the type information and how it is shared between pipelines and their marketing affiliates.

In short, Petitioners request that FERC adopts regulations for ICA-regulated pipelines that mirror the Standards of Conduct found in 18 CFR 358. The Petitioners proposed rule language that includes an independent functioning requirement for the separation by function of transmission and marketing affiliate employees. The proposed rules also include a “no conduit rule,” whereby pipelines would be prohibited from using a conduit for the disclosure of non-public transmission function information to its marketing function employees. The proposed rules contain requirements relating to additional transparency, employee training, and recordkeeping. Finally, the proposed rules would require compliance with the Standards of Conduct prior to commencing any transactions with a marketing affiliate.

FERC will either dismiss the petition or move forward with a formal notice and comment rulemaking.

[1] 18 C.F.R. §358.2(a)-(d).
[2] Interstate Commerce Act § 2.
[3] Id. § (3)(1).

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