Welcome to the Monday Mailbag! Every week we receive dozens of questions from investors looking to better understand MLPs and energy infrastructure. We hope to address some of the most interesting, thought-provoking, or common questions here in our Monday Mailbag series.
Feel free to contact us and we’ll answer your inquiries to the best of our ability. Who knows, you may even be the next lucky son of a gun to get your question featured here!
Q: How much did tariffs increase on interstate liquids pipelines beginning July 1, 2014?
A: The Federal Energy Regulatory Commission (FERC) regulations include a standard methodology for interstate liquids pipelines to increase their tariffs each year on July 1. Interstate means across states. Liquid means crude oil, refined products like diesel or jet fuel, and natural gas liquids. The FERC tariff increase does not apply to natural gas pipelines or intrastate (within one state) pipelines.
From July 1, 2011 through July 1, 2016, that methodology has been the Producer Price Index (PPI) + 2.65%. PPI for finished goods is used as the inflation portion of methodology, which is intended to set a ceiling for rates. PPI is calculated for the previous calendar year (i.e. January to December).
The tariff increase for July 1, 2014 is 3.88%, which represents a 1.23% value for PPI in calendar year 2013, plus 2.65%.
Historical tariff increase amounts are available on the FERC website.
Q: When is the next time the PPI escalator calculation will be reviewed?
A: Every five years, the oil pricing index factor (colloquially referred to as the “PPI plus” escalator) is reviewed by the FERC. The last review was conducted in 2010 for the five-year period applicable to tariffs from July 1, 2011 to July 1, 2016.
The timing of events in 2010 occurred as follows:
- July 15, 2010: FERC issues Notice of Inquiry, inviting comments
- August 20, 2010: Comments due to FERC
- September 20, 2010: FERC’s reply comments due
- December 16, 2010: FERC announces PPI + 2.65%
Five months has got to be the shortest turnaround time we’ve seen for a governmental agency. Assuming the next review will follow suit, it may be reasonable to conclude that the new PPI plus escalator for July 1, 2016 to July 1, 2020 will be announced in mid-December 2015.
