The way FERC figures pass-through of costs in oil pipeline ratecases could hamper future use of converted lines, according toCommissioner Linda T. Key Breathitt, who issued dissenting opinionsin two oil pipeline cases involving Rio Grande and LonghornPartners Pipelines [OR97-1-001 and OR95-7]. In both cases theCommission ruled that the companies would not be allowed to passthrough the full purchase price of the pipelines, only thedepreciated original cost of the line. “In an area where Congresshas asked us to exercise regulatory restraint we turn around andapply textbook principles in a manner that may discourage futureconversions of oil pipelines to new uses,” Breathitt said. Theorders examine the corporate relationships between the companies toarrive at the conclusion that the companies are selling assets tothemselves. But Breathitt believes arguments about corporate tiesin these cases don’t apply. She was joined by Commissioner CurtHebert.
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 future.
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