FERC Delays Oil Pipelines - Is EPIC Alone?
An otherwise routine process for a crude or other liquids pipeline -- seeking FERC approval of the rights granted to shippers on an expansion or new pipeline through a Petition for Declaratory Order (PDO) -- has apparently become not so routine in the last few months. This issue was highlighted by Epic Crude’s letter to the Commission on January 8. In that letter, Epic Crude noted that the perceived delay in the issuance of its order was placing the “project timeline in some jeopardy, and causing concern to our shippers” and requested a decision by January 15. As we sit here today, it is still waiting for that order.
But Epic Crude is not alone. In fact, there are 16 projects totaling over 2,500,000 barrels per day of new capacity waiting on a decision, including the Cactus II pipeline between the Permian and Corpus Christi, Magellan’s refined product line expansion between East Houston and El Paso, Targa’s NGL expansion between Oklahoma and Mt. Belvieu, and Enterprise Crude Pipeline’s expansion between New Mexico and Midland, Texas. Some in the industry believe that FERC has implemented an informal “moratorium” on ruling on PDOs. If you are a shipper awaiting new capacity, a liquids pipeline seeking to expand, or an investor waiting for the cash to begin flowing, you need to be aware something is apparently stopping this routine process.
What is a Petition for a Declaratory Order?
When an existing liquids pipeline seeks to expand or a new liquids pipeline is being built, they may need to provide certain benefits to the anchor shippers and will request that FERC confirm those benefits are appropriate under the Interstate Commerce Act. To do this, the pipeline will file a PDO application requesting approval of various terms offered to these shippers, such as capacity allocation, expansion rights, proration policy, service agreement provisions, and rate structure. PDO applications also offer details such as information regarding participants (sponsor, project name, and sometimes shippers), timing (approval and expected in-service date), and commercial details (open seasons, capacity, contract terms), that are publicly disclosed months before any earth is turned.
In Epic Crude’s case, it asked FERC to approve providing interim service using the Epic Y-grade line, along with a number of contract rights it granted to its “Committed Shippers” including favorable pro-rationing rights, contract extension rights, and most-favored nations rights.
Was Epic Crude Too Optimistic?
In its letter to the Commission, Epic Crude noted that it had filed its PDO on October 10, 2018, and, based on the experience of many previous petitioners, it asked the Commission to take formal action within approximately ninety days of the filing date, by January 4, 2019. As Epic Crude noted in its letter, it presumed that request was on solid ground. Looking back over the last four years, and excluding those PDOs that were likely delayed by FERC’s lack of a quorum, that certainly seems reasonable.
Duration of Petition Review by Application Date
In the two years preceding FERC’s loss of a quorum in early 2017, the average time from the petition being filed to the order approving it being issued was less than 80 days. For those PDO applications filed in 2018, the average time was almost exactly 90 days, at least for those that were approved.
Is Epic Crude’s PDO Controversial?
In its letter, Epic Crude noted that it plans to have its pipeline up and running by the third quarter of 2019. To meet that schedule, EPIC Crude carefully factored into its timing what it considered to be a reasonable amount of time to achieve each of its project milestones, including securing a favorable declaratory order from the Commission. And Epic Crude noted that, as it had anticipated, its PDO application was unopposed. Further, Epic Crude asserted it had worked diligently with counsel to ensure that all features of its project complied with Commission policy.
But the problem does not seem to be solely an issue with Epic Crude’s application, but rather an unknown issue within FERC. The last PDO FERC issued was on October 24, 2018, approving an unopposed application by Sunrise Pipeline. However, there are currently 16 PDO applications pending before FERC and 12 of them are beyond the usual 90-day period referenced by Epic Crude.
Because FERC must approve each PDO application by taking an affirmative vote, and because FERC will typically only communicate with an applicant via an order, we would suspect that all of these applicants are, like Epic Crude, in limbo and do not have a clear understanding of why they have yet to receive an order. In some cases, such as recent certificate proceeding orders, a commissioner will file a concurrence or dissent that parties in other cases will use to attempt to divine what may be holding up their own case. But in this situation, the last order issued by FERC was a unanimous order, so even that crumb of information is unavailable.
In the meantime, 16 projects that would provide an additional 2,719,500 barrels per day of capacity remain unapproved. Fifteen of these projects, like Epic Crude, had no opposition to their PDO application.
Insights Coming Soon
- LNG (Cameron/Sabine) phase/hurdle Analysis
- Rate case updates