UNITED STATES OF AMERICA BEFORE THE FEDERAL REGULATORY COMMISSION Seaway Crude Pipeline Company LLC ) Docket No. IS12-226-000 MOTION FOR LEAVE TO FILE AMICUS CURIAE BRIEF AND CONDITIONAL MOTION TO INTERVENE OUT-OF-TIME, AND BRIEF OF THE ASSOCIATION OF OIL PIPE LINES ON EXCEPTIONS TO INITIAL DECISION On September 13, 2013, an Initial Decision was issued in the above-captioned proceeding concerning the initial cost-of-service rates that may be charged by Seaway Crude Pipeline Company LLC ( Seaway ). Seaway Crude Pipeline Company LLC, 144 FERC 63,026 (2013) ( I.D. ). In light of an unanticipated and unprecedented recommendation by the Presiding Judge -- that the justness and reasonableness of the rates agreed to by shippers in committed rate agreements are at issue in this proceeding 1 - - the I.D. raises issues of industry-wide concern. Given the interests of its members in ensuring regulatory certainty to allow construction of much-needed pipeline infrastructure, and the unexpected broad significance of the I.D., pursuant to Rules 212, 214 and 711 of the Rules of Practice and Procedure of the Federal Energy Regulatory Commission ( Commission ), 18 C.F.R. 385.212, 214, and 711 (2013), the Association of Oil Pipe Lines ( AOPL ) requests that the Commission accept for filing the brief set forth below, for the limited purpose of addressing the Presiding Judge s recommendation on this one issue. AOPL respectfully requests that the Commission accept this submission as an amicus curiae brief to assist the Commission in its consideration of exceptions to the I.D. Should the Commission determine that party 1 2 I.D. at P 21-27. E.g., CenterPoint Energy Bakken Crude Services LLC, 144 FERC 61,130 (2013) ( CenterPoint );
status is required to accept this brief for filing, AOPL respectfully moves to intervene out-of-time in this proceeding. I. IDENTITY AND INTEREST OF AOPL AOPL is a national nonprofit trade association that represents the interests of common carrier oil pipelines. AOPL members transport more than 90% of the crude oil, natural gas liquids ( NGL ), and refined petroleum products shipped through pipelines in the U.S. AOPL s interest in this proceeding arises from the potential industry-wide significance of the recommendation in the I.D. and from the potential industry-wide impact of any order issued by the Commission that adopts that recommendation. As the Commission is aware from the numerous petitions for declaratory order filed by oil pipelines in recent years, the liquids pipeline industry has entered a period of expansion as new crude and NGL production areas emerge, and as crude, NGL and refined products transportation patterns shift. In particular, vast new infrastructure investments are required to ensure that rising production within the United States will reach refining, processing and consumption markets. AOPL estimates that its members are planning to spend approximately $38 billion or more on pipelines, tanks and related facilities currently being developed and planned for construction, expansion, and reengineering projects to meet the surging demand for pipeline capacity. Many, if not most, of the current liquids pipeline infrastructure projects are being constructed based on the financial strength and certainty provided by agreements between the pipelines and their committed shippers. These transportation service agreements, 2
which contain agreed upon committed rates, provide the critical foundation for the financing and risk management of pipeline projects. A number of these committed rates have been the subject of petitions for declaratory order. 2 Some pipelines, however, relying on Commission precedent, have entered into long-term committed rate agreements with their shippers in accordance with the Commission s standards enunciated in prior orders, but have not submitted their initial rates, rate structures, and terms and conditions of service to the Commission for review and approval under the declaratory order process. Although the I.D. represents only a recommended outcome to the Commission, if adopted, it raises troubling issues for the industry. Under longstanding Commission policy, as clearly reiterated earlier this year in response to a petition for declaratory order filed by Seaway, 3 contracts between oil pipelines and shippers are accorded binding status as between the parties during the terms of the agreements, provided that all interested shippers have had a fair opportunity to enter into such contracts. However, the I.D. recommends that the Commission completely disregard the existence of the agreedupon rates between Seaway and its committed shippers, and proposes instead to replace the voluntarily agreed-to pipeline-shipper contract rates with rates set on a cost-of-service basis. 2 3 E.g., CenterPoint Energy Bakken Crude Services LLC, 144 FERC 61,130 (2013) ( CenterPoint ); Enbridge Pipelines (Illinois) LLC, 144 FERC 61,085 (2013); Enterprise Liquids Pipeline LLC, 144 FERC 61,083 (2013); Kinder Morgan Cochin LLC, 141 FERC 61,056 (2012); Shell Pipeline Company LP, 141 FERC 61,017 (2012); Oxy Midstream Strategic Development, LLC, 141 FERC 61,005 (2012); Explorer Pipeline Co., 140 FERC 61,098 (2012); Sunoco Pipeline L.P., 139 FERC 61,259 (2012); Shell Pipeline Company LP, 139 FERC 61,228 (2012); Magellan Pipeline Company, L.P., 138 FERC 61,177 (2012); Skelly-Belvieu Pipeline Company, L.L.C., 138 FERC 61,153 (2012); Sunoco Pipeline Company, LLC, 137 FERC 61,107 (2011). Seaway Crude Pipeline Company LLC, 142 FERC 61, 201 (2013) ( PDO Order ). 3
Should the Commission accept the recommended approach in the I.D., the result would be harmful to all industry segments as well as undercut national energy policy. Reliance on contracts is not only of importance to pipelines that have planned or built facilities on the strength of shipper agreements, or that are contemplating such projects. The ability to rely on committed shipper contracts is also vital for shippers that drill wells, connect to gathering facilities, build processing plants or invest in terminals or refining facilities, based on such contract rates. Moreover, significant investment in pipeline infrastructure is essential to bring the benefits of the North American energy boom to the petroleum-consuming public. Without significant infrastructure expansion, the United States will not achieve the optimal benefits associated with the development of the new liquids production, thereby inhibiting, and potentially stopping, the nation s advance toward energy independence. As President Obama acknowledged in a March 2012 Presidential Memorandum, 4 it is undisputed that pipeline infrastructure is central to this goal. The March 2012 Presidential Memorandum specifically found that the need for infrastructure is particularly acute right now, and emphasized the need for supporting projects that can contribute to economic growth and a secure energy future. 5 In short, absent a Commission ruling that reverses the finding by the Presiding Judge, billions of dollars of investment in pipeline infrastructure by AOPL members will 4 5 Presidential Memorandum -- Expediting Review of Pipeline Projects from Cushing, Oklahoma, to Port Arthur, Texas, and Other Domestic Pipeline Infrastructure Projects, Mar. 22, 2012 available at http://www.whitehouse.gov/the-press-office/2012/03/22/presidential-memorandum-expeditingreview-pipeline-projects-cushing-okla. Indeed, the March 2012 Presidential Memorandum took notice of the need to address the existing bottleneck in Cushing, as well as other current and anticipated bottlenecks, and supported appropriate federal actions to permit the establishment of a more efficient domestic pipeline system for the transportation of crude oil, such as a pipeline from Cushing to Port Arthur. 4
be in jeopardy. Consequently, AOPL and its members have a significant and material interest in the Commission s ruling on the I.D. II. COMMUNICATIONS AOPL requests that the following be placed on the Commission s service list for this proceeding: Steven M. Kramer General Counsel-Secretary Association of Oil Pipe Lines 1808 Eye Street, NW, Suite 300 Washington, DC 20006 (202) 292-4502 skramer@aopl.org III. MOTION FOR LEAVE TO FILE AMICUS CURIAE BRIEF Because the I.D. has the potential to set a precedent that would broadly and negatively affect the oil pipeline industry, AOPL requests leave to file its brief below as an amicus curiae. AOPL s brief is focused on requesting that the Commission reaffirm its overarching policy of assuring the sanctity and enforceability of contracts agreed upon by pipelines and their shippers, in order to provide regulatory certainty for oil pipelines and other industry participants. AOPL does not seek to address any other issue in this proceeding or the merits of the specific rates proposed by Seaway. As discussed above, if the Commission were to adopt the finding in the I.D. that the rates agreed upon in committed shipper agreements are at issue in this proceeding, this would have a significant impact on AOPL members that have constructed, and are planning to construct, billions of dollars of pipeline infrastructure based on the assurance 5
that the rates in these agreements would be honored, and have a chilling effect on future investment in pipeline infrastructure. In previous cases, and under similar circumstances, where issues of broad importance have been raised, the Commission has accepted and considered amicus curiae briefs by industry trade associations and others. 6 AOPL respectfully submits that, given the potentially broad impact of the finding in the I.D., AOPL s significant interest in this proceeding, and the limited purpose of the brief, good cause exists to accept and consider the brief set forth below. IV. CONDITIONAL MOTION TO INTERVENE OUT-OF-TIME Should the Commission determine that party status is required to accept the brief below for filing, then AOPL respectfully moves to intervene out-of-time in this proceeding. AOPL conditionally requests leave to intervene solely to the extent necessary to submit the brief herein and ensure that a complete and accurate record is developed with respect to the potential industry-wide implications of the I.D. Pursuant to Rule 214(d), 18 C.F.R. 385.214(d), AOPL submits it has good cause for seeking leave to intervene out-of-time. Based on the scope of the filing submitted by Seaway, the order that set this matter for hearing, 7 and well-established Commission policy that the Commission will honor tariff rates agreed to in committed rate agreements, AOPL could not have known the industry-wide significance of this case 6 7 Florida Power & Light Co., 105 FERC 61,287 at P 12-13 (2003) (amicus curiae brief of industry trade association and utility cooperative accepted to address issue of industry importance); Midwest Independent System Transmission System Operator, Inc. et al., 104 FERC 61,105 at P 18 (2003) (finding that participation as amicus curiae and acceptance of brief after issuance of initial decision would contribute to Commission s consideration of the issues in the case); Texas Eastern Transmission Co., 88 FERC 61,167 at 61,559 (1999) (treating filings by industry trade associations and other parties as amicus curiae briefs because issue addressed was important to overall industry). Seaway Crude Pipeline Company LLC, 139 FERC 61,109 (2012) ( Hearing Order ). 6
prior to issuance of the I.D. Further, AOPL s intervention will not disrupt or delay the proceeding and will not cause any prejudice to, or additional burdens upon, the existing parties to the proceeding. AOPL accepts the record as it has been developed, its participation would not broaden the scope of the proceeding, and it is filing the brief below in accordance with the timeline established in Rule 711 for the submission of briefs on exceptions. Moreover, the interests of AOPL and its members are not adequately represented by any other party to this proceeding. AOPL represents the interests of pipelines that transport more than 90 percent of energy liquids transported by pipeline in the U.S., and trade associations have standing in proceedings that will have an impact on their members. 8 In this case, the interest of AOPL on behalf of its members is manifest: all oil pipelines that have financed projects with support of the tariff rates in committed rate agreements, and all pipelines considering expansions of capacity, or the establishment of new systems, would potentially be affected by a merits ruling in this proceeding, and it is appropriate for AOPL to appear in this docket to represent its interests as the national trade association. 9 V. BRIEF ON EXCEPTIONS A. Statement of the Case AOPL hereby adopts the Statement of the Case set forth in the brief on exceptions being submitted by Seaway, or, in the alternative, to the extent necessary respectfully 8 9 Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 343 (1977); see also Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167 (2000). See generally, Indiana Michigan Power Company and Ohio Power Company, 64 FERC 61,184 (1993) (granting an intervention in light of the potentially significant impact of the proceeding as precedent). Trade associations have routinely intervened in oil pipeline rate proceedings in which their members have an interest. E.g., Dixie Pipeline Co., 138 FERC 61,022 at P 6 (2012). 7
requests waiver of Rule 711(b)(2)(i). B. List of Exceptions The Presiding Judge erred in ruling that Seaway s committed rates are at issue in this docket. C. Policy Considerations Warranting Review The Presiding Judge based her decision on a blatant misreading of Commission policy as enunciated in prior Commission orders, including the PDO Order issued earlier this year that affirmed the Commission s policy of honoring the tariff rates agreed to by shippers who sign contracts in a valid open season. The Presiding Judge appears to have ruled that there is no established policy of honoring the rates agreed to by shippers in committed rate agreements despite clear Commission rulings to the contrary in the PDO Order and elsewhere. 10 As discussed above, if this finding is left to stand, it would undercut the very basis relied upon by the industry for financing much of the oil pipeline infrastructure constructed nationwide. Therefore, the I.D. raises significant policy issues that warrant review. D. The Presiding Judge Erred In Ruling That Seaway s Committed Shipper Rates Are At Issue In This Docket On March 22, 2013, in response to a petition filed by Seaway requesting the Commission to affirm its policy of honoring the tariff rates agreed to by shippers who sign contracts in a valid open season, the Commission issued the PDO Order. Seaway filed the petition due to the unexpected testimony of Commission Trial Staff, which asserted that the agreed-to rates in committed shipper contracts were at issue in this 10 See e.g. Kinder Morgan Pony Express Pipeline LLC and Hiland Crude, LLC, 141 FERC 61,180 at P 22 (2012) ( Kinder Morgan ); Mid-America Pipeline Company, LLC, 136 FERC 61,087 at P 9 (2011). 8
proceeding. AOPL filed a motion to intervene and comments in support of the petition. AOPL discussed the importance of the need for regulatory certainty and recognition of the sanctity and enforceability of contracts agreed upon by pipelines and their shippers. While the Commission denied the requested declaratory order on procedural grounds, it reaffirmed its policy of honoring tariff rates agreed to in committed shipper agreements. More specifically, after providing a detailed summary of pertinent regulations and previous determinations, the Commission reiterated its established policy that agreements executed by committed shippers (including the agreed-to tariff, rate, and priority service structure) would be upheld and applied during the established terms of the agreements between the pipeline and the shippers that made volume commitments during the open season. 11 Subsequent to the PDO Order, the Commission has continued to recognize this policy. Most recently, in response to a petition for declaratory order filed by CenterPoint Energy Bakken Crude Services, LLC, which requested, among other things, that the Commission confirm it will uphold the provisions of committed shippers transportation service agreements ( TSA ) during the term of their TSAs, the Commission confirmed that the provisions of the TSA will govern transportation services provided to committed shippers for the duration of the contract. 12 In doing so, the Commission cited to a series of orders in explaining that it has previously approved requests for this type of assurance, and stated that, in the PDO Order it specifically affirmed that the rate design embodied in the TSA to establish the rates for committed and uncommitted shippers would be upheld and applied during the established terms of the agreements between the pipeline 11 12 PDO Order at P 13. CenterPoint at P 17. 9
and the shippers that made volume commitments during the open season.... 13 In the I.D., despite the Commission s clear policy to the contrary, the Presiding Judge found that Seaway s committed shipper rates in TSAs entered into as part of an open season process should not be upheld and applied during the established terms of the agreements. In reaching this conclusion, the Presiding Judge employed a strained reading of Commission policy and the committed rate agreements at issue, effectively suggesting that the terms of voluntary agreements between sophisticated parties can be arbitrarily voided. While recognizing the Commission s statements in the PDO Order that contracts signed by committed shippers will be honored, the Presiding Judge stated that the Commission s policy applies to all provisions within the contract, and that the contracts signed by committed shippers contained a Government Modifications clause which recognizes that tariff rates are subject to approval of, and modification by, the Commission or other governmental authority. The Presiding Judge went on to say that the Commission s policy is to honor contracts, not refrain from modifying rates, and that fully honoring the contract somehow contemplates the Commission modifying rates at its discretion. Further, the Presiding Judge reasoned that the previous instances in which the Commission applied its policy of honoring contract rates where similar government modifications clauses applied was a matter of discretion rather than policy. 14 Finally, the Presiding Judge concluded that, the circumstances of this proceeding merit the Commission exercising its discretion to modify Seaway s 13 14 Id. at n. 6 (emphasis added). I.D. at P 23. 10
committed shipper rates. 15 First, with respect to the Government Modifications contract provision at hand, it should be recognized at the outset that similar type provisions are included as a standard matter in numerous committed rate contracts entered into by pipelines and shippers throughout the industry, and that these contracts are crucial to the continued financing and construction of liquids pipeline infrastructure. Further, the I.D. misreads the significance of these provisions. A government modifications contract clause is essentially a statement of the law as it applies to a regulated common carrier. In other words, it simply acknowledges the fact that the Commission has statutory authority to modify tariff rates, but in no manner does such a clause suggest that it is appropriate to break from longstanding Commission policy and do so, or that the parties intended that the committed shipper rates be subject to a cost-of-service review. 16 Committed rate contracts are binding agreements between the parties. Indeed, none of the committed rate shippers to this proceeding have suggested otherwise. Unless both shippers and carriers have confidence that the Commission will uphold such contracts, thus allowing oil pipelines to file and charge agreed-upon rates, the industry will be faced with a substantial loss of confidence in the regulatory status of investment in pipeline capacity. Second, the Presiding Judge failed to provide any support or rationale for dismissing past Commission pronouncements as establishing a policy to honor 15 16 Id. at P 24. Moreover, there is no reasoned basis for the Presiding Judge s finding that the Hearing Order required agreed-to committed shipper rates to be justified on a cost-of-service basis. Id. at P 25. In requiring Seaway to submit cost-of-service data, the Commission simply applied its regulations governing the threshold filing requirements for the establishment of initial rates, pursuant to which such data must be submitted if a single protest to an initial rate is filed. Hearing Order at P 21. As is evident from Commission precedent, including the PDO Order, however, this requirement did not apply to the committed shipper rates because that would be directly contrary to the Commission s consistent policy of honoring committed shipper rates during the established terms of the agreements. See note 13, supra. 11
contracts but not refrain from modifying rates. Using such circular logic to, in essence, abrogate a binding agreement, would vitiate the very purpose of the Commission s policy that tariff rates agreed upon in committed rate agreements will be honored. The Commission s policy reflects the fact that these contracts were negotiated by willing parties who recognized that, in order to allow for construction and financing of the facilities, the sanctity and enforceability of these binding rate commitments must continue throughout the terms of the agreements. While AOPL acknowledges, as reflected in pipeline-shipper TSAs, that the Commission has jurisdiction to regulate the rates, terms and conditions of services provided by interstate oil pipelines, the Commission s announced policy, as stated in the PDO Order and elsewhere, is, in fact, that the rates agreed to in TSAs between pipelines and shippers will be upheld and applied during the established terms of the agreements. Indeed, in the PDO Order and on several other occasions the Commission has specifically held that the committed rates would be set in accordance with the contracts, based on the agreement of the shippers and carriers. 17 In sum, AOPL respectfully requests that the Commission rule that the Presiding Judge erred in finding that Seaway s committed shipper rates are at issue in this docket. It is important that the Commission provide regulatory certainty that when shippers and pipelines enter into contracts following a fair and non-discriminatory contract offering, the agreed-upon rates will be upheld as filed and enforceable rates by the Commission. This is critical to provide regulatory assurance for the billions of dollars of investment made and planned in reliance on Commission policy, and to ensure the ongoing and 17 E.g., CenterPoint at P 17; Shell Pipeline Company LP, 141 FERC 61,017 at P 7, 14 (2012); Kinder Morgan at P 21. 12
future construction of much needed pipeline infrastructure. VI. CONCLUSION For the reasons set forth above, AOPL moves to file the brief set forth above as an amicus curiae to assist the Commission in its consideration of exceptions to the I.D. Alternatively, should the Commission determine that party status is required to accept AOPL s brief for filing, AOPL respectfully moves to intervene out-of-time in this proceeding. In addition, AOPL respectfully requests that the Commission reverse the I.D. s finding that Seaway s committed shipper rates are at issue in this docket, and reaffirm that when shippers and pipelines enter into agreements following a fair and nondiscriminatory contract offering, the agreed-upon rates will be upheld by the Commission throughout the terms of those agreements, rather than disregarded in favor of cost-ofservice rates as suggested in the I.D. Providing such reassurance is vital to ensure construction of needed pipeline infrastructure. Respectfully submitted, /s/ Steven M. Kramer General Counsel-Secretary Association of Oil Pipe Lines 1808 Eye Street, N.W., Suite 300 Washington, D.C. 20006 (202) 292-4502 Counsel for the Association of Oil Pipe Lines Dated: October 15, 2013 13
CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing document upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Washington, DC this 15th day of October, 2013. /s/ Steven M. Kramer