The way FERC figures pass-through of costs in oil pipeline ratecases could hamper future use of converted lines, according toCommissioner Vicky A. Bailey, who issued dissenting opinions in twooil pipeline cases involving Rio Grande and Longhorn PartnersPipelines [OR97-1-001 and OR95-7]. In both cases the Commissionruled that the companies would not be allowed to pass through thefull purchase price of the pipelines, only the depreciated originalcost of the line. “In an area where Congress has asked us toexercise regulatory restraint we turn around and apply textbookprinciples in a manner that may discourage future conversions ofoil pipelines to new uses,” Bailey said. The orders examine thecorporate relationships between the companies to arrive at theconclusion that the companies are selling assets to themselves. ButBailey believes arguments about corporate ties in these cases don’tapply. She was joined by Commissioner Curt Hebert.

One of the lines in question was converted to natural gasliquids (NGLs). But in other cases (like the Pony Express line) oldoil pipelines have been converted to transport natural gas. Thequestion deals with the issue of the true market price offacilities. “The oil industry generally has heavily depreciatedassets,” said Chairman James J. Hoecker, who was reluctant to doanything that would result in spiraling costs. He added, though,that other considerations might be brought to bear in the future.

Sarah McKinley

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