Crude Summit: Pipelines chafe at FERC index

OREANDA-NEWS. January 26, 2016. US liquids pipeline operators are still working through their options in the wake of their defeat over the five-year oil pipeline index at the Federal Energy Regulatory Commission (FERC) last month, Magellan Midstream Partners chief executive Mike Mears said today.

Mears, speaking on the sidelines of the Argus Americas Crude Summit, said he was disappointed that FERC set the index at the Producer Price for Finished Goods (PPI-FG) plus 1.23pc, which was less than the PPI-FG plus 2.47pc sought by pipeline industry group the Association of Oil Pipelines (AOPL). The current index that expires on 1 July is PPI-FG plus 2.65pc..

Mears said the industry was disappointed that commissioners made a key change to the historical methodology used to determine the index by switching to a new pipeline cost dataset on the annual Form 6 that pipelines file each year.

"Short of getting FERC to reconsider, it is safe to say we do not agree with the changes they made to the methodology," Mears said, adding that while the company's crude pipelines are linked to the index, most of its massive refined products system is not.

The new index combined with a year-to-year drop in PPI-FG from 2014 to 2015 should result in a nearly 2pc drop in indexed tariffs in July. The government's inflation figures become official this spring.