Rates & Charges

How are rates for oil and oil pipelines established?

Rates are established in these four ways:

• Indexing. An oil pipeline determines an annual ceiling level which caps (places a maximum number the rate can be) the rate an oil pipeline may charge. This ceiling level is adjusted annually based upon changes in the Producer Price Index minus one.
• Cost-of-service. A pipeline must show that there is a substantial difference between the actual costs experienced by the pipeline and the rate resulting from application of the index such that the rate at the ceiling level would precluded the carrier from being able to charge a just and reasonable rate within the meaning of the ICA.
• Settlement rate. A pipeline secures the agreement of all its existing customers to its proposed rate change.
• Market-based rates. A pipeline must show that it does not have significant market power in the markets it is applying for market-based rates.

Establishment of Initial Rates

There are two methods to establish initial rates:

• Cost-of-service A pipeline must submit the applicable cost, revenue, and data supporting such a rate as required by the Commission's regulations. At that time the Commission will review the rate and decide whether it is appropriate to set the price at that rate.
• Sworn affidavit A pipeline must submit a sworn affidavit that the initial rate was agreed to by at least one non-affiliated person who intends to use service. If application is protested, the pipeline must submit cost-of-service data to support the initial rate.

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