On January 20, 2026, reply comments were filed in response to The Federal Energy Regulatory Commission (FERC) notice of proposed rulemaking (NOPR) proposing an index level of Producer Price Index for Finished Goods minus 1.42% (PPI-FG-1.42%) for the five-year period commencing July 1, 2026.

The NOPR was issued the same day FERC finally resolved the highly contested, currently effective, oil pipeline index level ending on June 30, 2026. The index level is used to determine annual changes to oil pipeline rate ceilings for the five-year period. In light of the arguments advocating for adjustments to the proposed index, it is likely that there will be another lengthy period of litigation before the proposed index is resolved.

A large percentage of oil pipelines subject to Interstate Commerce Act rate regulation use indexing as their rate setting methodology. Thus, there will be considerable uncertainty for the upcoming index period.

Background

The Energy Policy Act of 1992 required FERC to establish a “simplified and generally applicable ratemaking methodology for oil pipelines” consistent with the just and reasonable standard of the ICA.[1] Pursuant to this authority, FERC established an oil pipeline indexing methodology that allows pipelines to change their rates based upon an annual index as opposed to making cost-of-service filings.[2] Pipelines adjust their rate ceilings effective July 1 each year using an index multiplier that FERC publishes in May based on recent changes in the PPI-FG and the current index level.[3] FERC reviews and resets the index level every five years to ensure rates are just and reasonable.[4]

On December 17, 2020, FERC issued an order adopting an index level of PPI-FG+0.78% for the current five-year period running from July 1, 2021, to June 30, 2026 (the “Initial Index”).[5] On rehearing after the Initial Index had taken effect, FERC adopted a lower index level of PPI-FG-0.21% (the “Rehearing Index”) and directed pipelines to reduce their rates to reflect the Rehearing Index, effective March 1, 2022.[6]

After the United States Court of Appeals for the D.C. Circuit held on appeal that FERC violated the Administrative Procedure Act by issuing the Rehearing Order after the Initial Index had become effective without affording notice-and-comment procedures,[7] FERC reinstated the Initial Index consistent with the court’s ruling.^[8]

On November 20, 2025, FERC denied rehearing of the Reinstatement Order and held that pipelines that charged the maximum rates permitted pursuant to the Rehearing Index during the period it was in effect (from March 1, 2022 to September 17, 2024) may recover up to the full amounts that would have been chargeable under the Initial Index during the same period.[9] Also on November 20, 2025, FERC withdrew a supplemental notice of proposed rulemaking proposing to amend the index level prospectively back to the lower Rehearing Index for the remainder of the current five-year period.[10] FERC concluded that the best course of action was to allow the higher Initial Index to remain effective for the remainder of the current five-year period in order to end ongoing regulatory uncertainty regarding the index level, especially given that the benefits of any index change would be limited because pipelines had already made the last annual indexed rate filing of the five-year period in June 2025.[11] That same day FERC issued the NOPR.

The NOPR

Despite allowing the higher Initial Index of PPI-FG+0.78% to remain in effect for the remainder of the current five-year period in the NOPR FERC proposed to use a much lower PPI-FG-1.42% as the index level for the next five-year period commencing July 1, 2026.

In Order No. 561 and each five-year index review since, FERC has calculated the index level based upon a methodology originally developed by Dr. Alfred E. Kahn and modified by FERC. The Kahn Methodology uses pipeline data from Form No. 6, page 700 from the prior five-year period to determine the adjustments to be applied to the PPI-FG. Each pipeline’s cost change on a per barrel-mile basis over the prior five-year period is calculated and, in order to remove statistical outliers, an equal number of pipelines are trimmed from the top and bottom of the data set. Then three measures of central tendency for the trimmed data sample are calculated: the median, the mean, and a weighted mean. A composite is calculated by averaging the three measures of central tendency and the difference between the composite and the PPI-FG over the prior five-year period is measured. The index level is then set at PPI-FG plus (or minus) this differential.[12]

In the NOPR, FERC calculated its proposed index of PPI-FG-1.42% using the Kahn Methodology as applied to Form No. 6, page 700 data from 2019 through 2024.[13] Specifically, FERC trimmed the data set to the middle 80% of all oil pipelines. While consistent with the approach FERC took in the Initial Order in the 2020 index review, resulting in the higher Initial Index, the use of the middle 80% is a departure from other prior index reviews in which FERC used the middle 50% of the data set.[14] FERC concluded that the middle 80% is the appropriate data set to use in part because “it is appropriate to consider more data in measuring industry-wide cost changes rather than less” and that “‘normal’ cost changes” are best defined using the more inclusive data sample embodied by the middle 80%.[15] Additionally, FERC calculated the index level without making any adjustment to the data in light of FERC’s 2020 policy change revising its methodology for determining return on equity (“ROE”) for oil pipelines[16] and by using pipelines’ originally filed FERC Form No. 6, page 700 data for 2019 rather than the revised page 700 data for 2019 resubmitted by 61 pipelines since April 2025 to reflect changes in the calculation of the ROE as well as other modifications.[17] Both of those determinations are consistent with FERC’s practice in prior index reviews.[18]

FERC is seeking comments on all issues relating to the index level calculation, including, but not limited to: 

(i) different data trimming methodologies; (ii) whether, and if so how, FERC should adjust the data set to address the effects of the change in Commission policy regarding [ROE]; and (iii) whether, and if so how, FERC’s calculation of the index level should incorporate recently resubmitted page 700 data for 2019.[19] 

Various oil pipeline shippers and shipping industry entities submitted initial comments arguing, inter alia: (i) that FERC should return to its long-standing practice of using the middle 50% of the data set for purposes of deriving the index level because the middle 50% contains 82% of industry-wide oil pipeline barrel-miles, which is a sufficiently large sample size, and using the proposed middle 80% distorts the index level by capturing abnormally high cost changes, overestimates typical cost growth, and fails to properly exclude outliers that distort the index level;[20] (ii) supporting FERC’s use of unadjusted ROE data because it aligns with long-standing precedent and because adjusting the data would introduce unnecessary complexity into a simplified process;[21] (iii) supporting FERC’s use of unadjusted Form 6, Page 700 data because the adjusted Page 700 data has not been properly substantiated, would undermine the integrity of the data, and would improperly inflate the index level;[22] and (iv) proposing alternative considerations such as a “periodic cost-of-service rebasing of rates” and/or the adoption of “guardrails like earnings sharing mechanisms” to ensure just and reasonable rates.[23] Various shipper-related commenters proposed indexes ranging from PPI-FG-1.64% to PPI-FG-2.06%,[24] all lower than the PPI-FG-1.42% proposed by FERC in the NOPR.

On the other hand, various oil pipelines and pipeline industry entities argued that FERC should make certain adjustments to the Page 700 data due to the change in FERC’s ROE policy that occurred in May 2020, which resulted in the ROEs reported in the 2019 Pages 700 being calculated differently than those reported in the 2024 Pages 700.[25] Some of these parties argued that: (i) to ensure a proper comparison of costs between 2019 and 2024, FERC should make certain normalizing adjustments to the Page 700 data to reflect a consistent ROE reporting policy, resulting in an index of at least PPI-FG-0.10% for the next index period, which is higher than the PPI-FG-1.42% proposed by FERC in the NOPR; (ii) their proposed ROE adjustments to the Page 700 data remove any concern regarding the use of the resubmitted Page 700 data, thus, such resubmitted data should be used; and (iii) FERC’s proposed use of the middle 80% of the data set is correct because it relies on a more inclusive data sample and provides a reliable measure of industry-wide cost changes.[26] However, while agreeing with the proposed normalizing adjustments to the Page 700 data, certain pipelines also proposed the adoption of a recognized statistical test called the Ferguson Test to identify and eliminate true statistical outliers in the data set, rather than employing a simplistic data trimming methodology such as using the middle 80% of the data set, which would result in an index of PPI-FG+0.70% for the upcoming index period.[27] 

Finally, while not taking a position on the specific index level that should be adopted, the U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration and a non-profit organization concerned with oil pipeline safety urged FERC to advance policies that will encourage prudent investments in oil pipeline infrastructure and maintenance, including not creating economic disincentives for pipeline operators to invest in the safety and integrity of their systems.[28]

In reply comments, shipper and shipping industry commenters advocated for using the middle 50% of the data set, unadjusted ROE data, and unadjusted Page 700 data to result in an index level no higher than PPI-FG-1.64%.[29] The Liquid Energy Pipeline Association (“LEPA”) advocated for using the middle 80% of the data set, various adjustments to the ROE data, and adjusted Page 700 data to result in an index of at least PPI-FG -0.04%, and argued that the alternate proposals for periodic cost-of-service rebasing and guardrails are beyond the scope of the NOPR proceeding.[30] The pipelines that originally argued for the adoption of the Ferguson Test continued to support its adoption but, due to certain revisions made to LEPA’s adjusted data, recommended that FERC adopt an index level of PPI-FG + 0.83%.[31]

Conclusion

The NOPR’s proposed PPI-FG-1.42% index for FERC’s “simplified and generally applicable ratemaking methodology for oil pipelines” was not supported by any party. Thus, there is likely to be another lengthy period of uncertainty until the index is not only established but no longer subject to judicial review. For additional details or questions, contact us.

[1] Pub. L. No. 102-486, § 1801(a), 106 Stat. 3010 (1992).

[2] Revisions to Oil Pipeline Regulations Pursuant to Energy Policy Act of 1992, Order No. 561, 58 Fed. Reg. 58753 (Nov. 4, 1993), FERC Stats. & Regs. ¶ 30,985 (1993) (“Order No. 561”). 

[3] 18 C.F.R. § 342.3(d)(1), (2) (2025).

[4] Order No. 561, FERC Stats. & Regs. ¶ 30,985 at 30,941.

[5] Five-Year Rev. of the Oil Pipeline Index, 173 FERC ¶ 61,245, at P 2 (2020) (“Initial Order”).

[6] Five-Year Rev. of the Oil Pipeline Index, 178 FERC ¶ 61,023, at PP 2-3 (2022) (“Rehearing Order”).

[7] Liquid Energy Pipeline Ass’n v. FERC, 109 F.4th 543, 549 (D.C. Cir. 2024).

[8] Revisions to Oil Pipeline Reguls. Pursuant to the Energy Pol’y Act of 1992, 188 FERC ¶ 61,173 (2024) (“Reinstatement Order”).

[9] Revisions to Oil Pipeline Reguls. Pursuant to the Energy Pol’y Act of 1992, 193 FERC ¶ 61,137, at P 2, 23 (2025).

[10] Supplemental Review of the Oil Pipeline Index Level, 193 FERC ¶ 61,136 (2025). 

[11] Id. at P 20.

[12] NOPR at P 5 (citations omitted).

[13] NOPR at P 6.

[14] NOPR at P 8 n.23.

[15] NOPR at PP 9-10.

[16] NOPR at PP 12-14.

[17] NOPR at PP 15-16.

[18] NOPR at PP 13, 16.

[19] NOPR at P 7.

[20] See, e.g., Five-Year Review of the Oil Pipeline Index, Initial Comments on the Five-Year Review of the Oil Pipeline Index of Shell Trading (US) Company, Docket No. RM26-6, at 4-9 (filed Dec. 29, 2025) (“Shell Comments”); Five-Year Review of the Oil Pipeline Index, Initial Comments of the Canadian Association of Petroleum Producers, Docket No. RM26-6, at 2-4 (filed Dec. 29, 2025) (“CAPP Comments”); Five-Year Review of the Oil Pipeline Index, Comments of the EPR Shippers, Docket No. RM26-6, at 1, 6-13 (filed Dec. 29, 2025) (“EPR Shippers Comments”); Five-Year Review of the Oil Pipeline Index, Initial Comments of the Liquids Shippers Group, Docket No. RM26-6, at 1-2, 7-12 (filed Dec. 29, 2025) (“Liquids Shippers Group Comments”).

[21] See, e.g., Shell Comments at 9-10; CAPP Comments at 2, 4; EPR Shippers Comments at 13-15.

[22] See, e.g., Shell Comments at 11-12; CAPP Comments at 2, 4; EPR Shippers Comments at 15-17; Liquids Shippers Group Comments at 12-17.

[23] CAPP Comments at 2, 5.

[24] Five-Year Review of the Oil Pipeline Index, Initial Comments of Airlines for America, Chevron Products Company, National Propane Gas Association, and Valero Marketing and Supply Company, Docket No. RM26-6, at 1-2, 21 (filed Dec. 29, 2025) (recommending an index level of PPI-FG-1.64%); CAPP Comments at 4 (recommending an index level of PPI-FG-2.06%); EPR Shippers Comments at 1 (recommending an index level of PPI-FG-1.93%).

[25] See, e.g., Five-Year Review of the Oil Pipeline Index, Initial Comments of the Liquid Energy Pipeline Association, Docket No. RM26-6, at 1-2, 12-20 (filed Dec. 29, 2025) (“LEPA Comments”); Five-Year Review of the Oil Pipeline Index, Initial Comments of Kinder Morgan, Inc., Docket No. RM26-6, at 1-3 (filed Dec. 29, 2025) (“Kinder Morgan Comments”); Five-Year Review of the Oil Pipeline Index, Comments of the Energy Infrastructure Council, Docket No. RM26-6, at 2 (filed Dec. 29, 2025) (“EIC Comments”); Five-Year Review of the Oil Pipeline Index, Initial Comments of Designated Carriers to Notice of Proposed Rulemaking Regarding Five-Year Review of Oil Pipeline Index, Docket No. RM26-6, at 6-7 (filed Dec. 29, 2025) (“Designated Carriers Comments”). 

[26] LEPA Comments at 2-4, 12-22; Kinder Morgan Comments at 1-3; EIC Comments at 2, 18-20.

[27] Designated Carriers Comments at 17-29.

[28] Five-Year Review of the Oil Pipeline Index, Reply Comments of the Pipeline Safety Trust, Docket No. RM26-6, at 1 (filed Jan. 14, 2026); Five-Year Review of the Oil Pipeline Index, Comments of the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration, Docket No. RM26-6, at 1 (filed Dec. 29, 2025).

[29] Five-Year Review of the Oil Pipeline Index, Reply Comments of the Liquids Shippers Group, Docket No. RM26-6, at 1-2, n.5 (filed Jan. 20, 2026); Five-Year Review of the Oil Pipeline Index, Reply Comments on the Five-Year Review of the Oil Pipeline Index of Shell Trading (US) Company, Docket No. RM26-6, at 1-2 (filed Jan. 20, 2026); Five-Year Review of the Oil Pipeline Index, Reply Comments of the Canadian Association of Petroleum Producers, Docket No. RM26-6, at 1-2 (filed Jan. 20, 2026); Five-Year Review of the Oil Pipeline Index, Reply Comments of Airlines for America, Chevron Products Company, National Propane Gas Association, and Valero Marketing and Supply Company, Docket No. RM26-6, at 1-2 (filed Jan. 20, 2026); Five-Year Review of the Oil Pipeline Index, Reply Comments of the EPR Shippers, Docket No. RM26-6, at 1-2 (filed Jan. 20, 2026).

[30] Five-Year Review of the Oil Pipeline Index, Reply Comments of the Liquid Energy Pipeline Association, Docket No. RM26-6, at 1-4, 32-34 (filed Jan. 20, 2026).

[31] Five-Year Review of the Oil Pipeline Index, Reply Comments of Designated Carriers to Notice of Proposed Rulemaking Regarding Five-Year Review of Oil Pipeline Index, Docket No. RM26-6, at 3, 15-16 (filed Jan. 20, 2026).