FERC Establishes New Oil Pipeline Index Level for 2026 to 2031

The Federal Energy Regulatory Commission (FERC) on April 24, 2026, issued a final rule establishing a new oil pipeline index level of Producer Price Index for Finished Goods (PPI-FG) minus 0.55 percent for the five-year period from July 1, 2026, through June 30, 2031. This index determines the annual ceiling rate adjustments for interstate oil pipeline transportation rates set under FERC's indexing methodology. The order represents a significant departure from both the prior index level of PPI-FG plus 0.78 percent (effective 2021 to 2026) and FERC's own November 2025 Notice of Proposed Rulemaking (NPRM), which had proposed a lower index of PPI-FG minus 1.42 percent. The order was adopted on a 4-1 vote, with Commissioner Judy Chang dissenting.

Commissioner Chang's Dissent

Commissioner Chang noted in her dissent that she would have set the index at PPI-FG minus 1.68 percent. She argued that applying a uniform Capital Asset Pricing Model (CAPM)-derived return on equity (ROE) across the entire industry is conceptually flawed, conflicts with FERC's own ROE precedent – including its 2020 rejection of a similar proposal from shippers – and is contradicted by the wide variation in pipelines' self-reported ROEs. She also argued that the middle 50 percent is better supported by precedent and less susceptible to upward bias from the data set's right-skewed distribution.

Multiple Concurrences

In addition to Commissioner Chang's dissent, four other FERC commissioners each penned a brief concurrence in support of the final rule. Chair Laura Swett emphasized the "largely technical and data-driven" character of FERC's index setting process, which seeks to maintain an appropriate balance between protecting shippers from excessive rates and ensuring that pipelines receive fair returns. Though he may have preferred different decisions on some index inputs, Commissioner David Rosner nonetheless concurred with the order, expressing a preference for a unanimous outcome and noting the changes from the NPRM carry a cumulative impact of approximately $4.5 billion over the five-year period, representing roughly 2.5 percent of estimated industry-wide revenue. Commissioner Lindsay See, meanwhile, underscored that variations across index cycles "can be a feature, not a bug" when it comes to FERC's indexation decisions. Finally, Commissioner David LaCerte defended FERC's indexation method as reasonably balancing precision and simplicity while reducing administrative burdens and concluded that "inexactness is an inherent feature of the index, not a flaw."

Key Decisions

ROE Policy Change Adjustment

The most significant departure from the NPRM was FERC's decision to adjust pipelines' 2019 cost data to account for its 2020 change in ROE policy, which shifted from a Discounted Cash Flow (DCF)-only methodology to an averaged DCF/CAPM approach. FERC adopted the Liquid Energy Pipeline Association's proposal to average each pipeline's originally filed 2019 DCF-based ROE with a uniform CAPM return of 8.3 percent, along with corresponding adjustments to income tax allowances and total cost of service. Pipelines that reported identical ROEs throughout the 2019 to 2024 period were excluded from the adjustment.

This ROE adjustment was the primary driver of the increase from the NPRM's proposed index to the final level adopted.

Data Trimming to the Middle 80 Percent

FERC reaffirmed its proposal to trim the data set to the middle 80 percent of pipeline cost changes, consistent with its 2020 index review. FERC found that this broader sample, which captured 155 pipelines and approximately 94 percent of industry barrel-miles, provided a more robust and representative measure of industry cost experience than the middle 50 percent favored by shippers and used in the 2010 and 2015 reviews.

Rejection of Resubmitted 2019 Data

FERC declined to incorporate resubmitted 2019 cost data filed by 61 pipelines in 2025, five years after the data was originally due. FERC cited the filings' untimeliness, lack of supporting documentation and unexplained changes to cost components beyond ROE.

Key Takeaways

• Pipeline ceiling rates will be adjusted annually at PPI-FG minus 0.55 percentage points through June 30, 2031. Though ceiling rates will still increase with inflation, they will do so at a rate slightly below PPI-FG.
• Appellate review is anticipated as the contested analytical issues, particularly the unprecedented ROE adjustment and choice of data trimming, present substantial questions for judicial review before the U.S. Court of Appeals for the District of Columbia Circuit.
• Pipelines experiencing costs that substantially diverge from the index retain the option to pursue cost-of-service rate filings or other alternative ratemaking methodologies.

For more information on this matter, please contact the authors.

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