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November 30, 2017
Brattle Economists Contribute to DC Circuit Court Ruling Regarding Oil Pipeline Index Rate Formula

The DC Circuit Court of Appeals (Court) recently denied a petition for review of the Federal Energy Regulatory Commission’s (FERC) methodology for determining the oil pipeline index rate formula for 2016 to 2021. Specifically, the Court found that the FERC had adequately and reasonably explained: (i) its use of FERC Form 6 page 700 cost-of-service data instead of accounting values from other parts of the Form 6, and (ii) its use of the middle 50 percent of pipelines’ cost-change data while excluding use of the middle 80 percent of pipelines’ cost-change data.

Brattle Principal Matthew O’Loughlin filed affidavits in the underlying FERC proceeding on behalf of Airlines for America, the National Propane Gas Association, and Valero Marketing and Supply Company. In his affidavits, Mr. O’Loughlin explained why the use of FERC Form 6 page 700 cost-of-service data made economic sense, in that it provided a superior measure of interstate pipeline unit costs when compared to the combined intrastate/interstate accounting data and proxy ratios utilized by the FERC in prior index review proceedings. Mr. O’Loughlin also provided economic evidence as to why the sole use of the middle 50 percent of pipelines’ cost-change data – to the extent that the FERC intended to rely on a simple trimming method to eliminate anomalous data -- was appropriate. Mr. O’Loughlin documented the wide dispersion of the middle 80 percent of pipelines’ cost-change data that made it inappropriate for use in deriving an index representative of normal cost change experience. He also demonstrated that several of the cost-change figures in the middle 80 percent (but not the middle 50 percent) were the result of anomalous underlying data.

Brattle Principal Dan Arthur and Senior Associate Mike Tolleth assisted Mr. O’Loughlin with the cost analysis and preparation of affidavits. Brattle was retained by Richard E. Powers, Jr. and Steven A. Adducci of Venable LLP to provide economic analysis in both the original FERC proceeding and the Court of Appeals matter.