Win: FERC Five-Year Index Rehearing

A recent decision by the Federal Energy Regulatory Commission (FERC) supporting NPGA’s petition, reduces the Producer Price Index for Finished Goods even further. As of March 1, 2022, the Producer Price Index Finished Goods is plus 0.21%, and the new five-year index – adjusted based on the methodology in our petition – is effective through June 30, 2026. FERC estimates an overall cost savings for consumers of $3.7 billion over the next five years.  While we are still calculating savings for the propane industry, we expect the 2022-2026 rate to translate to significant savings passed through to marketers.

After being stalled by party politics, FERC recently voted in support of NPGA’s rehearing petition, solidifying a fair method to calculate the rate index that is ultimately born by propane marketers receiving product through pipelines.  FERC’s ruling is an outstanding victory for the propane industry.  It returns to the methodology utilized in 2015 for the years 2016-2021, using the middle 50% of pipeline costs to calculate the index.

In December 2020, FERC ruled that the index would be Producer Price Index Finished Goods plus 0.78%; however, FERC used a methodology that would, if left in place, lead to higher liquids pipeline rates after the end of the upcoming index period.  FERC used a methodology that looked at the middle 80% of pipelines’ costs rather than the middle 50%, and hence included more outliers. NPGA with Airlines for America, Valero, and Chevron filed for a rehearing to challenge this shift in methodology. If this FERC decision is challenged in court, NPGA anticipates fighting it with our coalition partners.

FERC regulates the rates of liquids pipelines, including those that ship propane.  FERC uses an index updated every five years that pipelines can utilize in increases to their rates.  On the whole, the propane industry prefers lower pipeline rates, and hence a lower index, as these costs are typically passed through to marketers.

In 2015, the FERC-determined index was Producer Price Index for Finished Goods plus 1.23%.  That FERC decision, advocated for by NPGA, is estimated to have resulted in rates that are in the aggregate $2 billion less than the original FERC proposal (for the years 2016-2021) for all liquids and $300 million less for propane.  NPGA is analyzing the impact of the final price index and methodology to calculate the savings to the propane industry.  Championing for NPGA’s success on this matter was led by Jeff Petrash, who recently retired from NPGA. Please direct any questions to Sarah Reboli, Senior Director, Regulatory & Industry Affairs.