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On April 24, 2026, the Federal Energy Regulatory Commission (FERC) issued its Final Rule in the Five-Year Review of the Oil Pipeline Index,1 establishing the Oil Pipeline Index level for the five-year period beginning July 1, 2026. FERC set the index at Producer Price Index for Finished Goods minus 0.55% (PPI-FG - 0.55%), a notable departure from the initially proposed PPI-FG - 1.42% in the November 20, 2025 Notice of Proposed Rulemaking (NOPR).
This order, which governs rate-ceiling adjustments for approximately 86% of interstate oil pipeline rates for a period that extends through June 30, 2031, carries significant financial implications—potentially shifting billions of dollars between pipelines and shippers over the index’s duration. At a time when the oil pipeline industry is looking to FERC for certainty, the decision was not unified. In addition to the Final Rule, Chairman Swett, and Commissioners Rosner, See and LaCerte, each issued their own separate concurrences explaining their individual justifications for the end result. Commissioner Chang dissented, arguing in favor of a five-year index of PPI-FG - 1.68%.
Background
Under the Energy Policy Act of 1992 (EPAct 1992), FERC is required to establish a “simplified and generally applicable” ratemaking methodology for interstate oil pipelines subject to Interstate Commerce Act (ICA) regulation, as well as pipelines subject to the same regulatory scheme, which include pipelines transporting natural gas liquids (e.g., propane and butane) and refined petroleum products (e.g., jet fuel and gasoline). In 1993, FERC enacted Order No. 561 to implement EPAct 1992, and created an indexing methodology to simplify rate-making. The so-called Oil Pipeline Index allows pipelines to adjust their rates annually subject to their applicable ceiling levels, rather than through individual cost-of-service proceedings. FERC reviews the index every five years using the Kahn Methodology, which compares pipeline cost changes against inflation (as measured by PPI-FG) over the preceding five-year period. It is not just FERC-regulated pipelines that rely on the Oil Pipeline Index. Many intrastate pipelines, terminal operators and other users of the oil pipeline value chain have embedded the FERC methodology into their commercial contracts to account for inflation.
Since Order No. 561 was issued, the Oil Pipeline Index became the predominant way in which pipelines that are subject to ICA regulation set and revised their rates. There are alternative rate-setting methodologies. However, to change rates using a cost-of-service methodology, which is required for rate changes in other FERC-regulated industries, an oil pipeline first must demonstrate that it is experiencing costs that are substantially diverse from the index. Otherwise, a pipeline may use market-based rates if FERC has made a determination, following an evidentiary showing, that it lacks sufficient market power and market concentration to engage in monopolistic behavior. A pipeline can also charge a settlement rate if all of its system shippers agree to the charge.
The new PPI-FG – 0.55% index relied on cost data from 2019-2024, a time period marked by significant regulatory turbulence. In 2020, the Commission issued a policy statement changing how pipelines calculate their allowed return on equity (ROE), requiring a blend of the traditional Discounted Cash Flow (DCF) methodology with the Capital Asset Pricing Model (CAPM). The prior index cycle’s rehearing order also was vacated by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) in 2024 in Liquid Energy Pipeline Association v. FERC (LEPA v. FERC) which Akin discussed in a prior post, creating uncertainty that FERC sought to resolve in this proceeding.
The Commission’s Decision
The Final Rule addresses three contested issues that shaped the index calculation:
1) ROE Policy Change Adjustment.
FERC adopted the Liquid Energy Pipeline Association’s (LEPA) proposal to adjust 2019 cost data to account for the 2020 ROE Policy Change. Because pipelines filed their 2019 data before the policy shift and their 2024 data after, the reported figures reflected different methodologies. The Commission concluded that using a uniform 8.30% CAPM return (averaged with each pipeline’s originally filed DCF return) would enable an “apples-to-apples” comparison of costs across the review period. The Commission found this approach consistent with its 2020 Index Review treatment of the Income Tax Policy Change.
2) Resubmitted 2019 Cost Data.
FERC declined to incorporate resubmitted 2019 cost data filed by 61 pipelines in April-June 2025—five years after the original filing deadline. This was a modification to the index calculation supported by several pipeline interests, but opposed by the shipper community intervening in the docket. FERC stated that these late submissions lacked adequate supporting calculations, included unexplained changes to non-ROE cost components, and could introduce bias since only some pipelines chose to refile.
3) Data Trimming to Middle 80%.
FERC adopted the NOPR’s proposal to trim the data set to the middle 80% of cost changes, rather than the middle 50%. This is consistent with the methodology adopted by FERC in the 2020 index, but a departure from the methodology used in the 2010 and 2015 reviews, which were both set using the middle 50%. FERC reasoned that a larger sample provides a more representative picture of industry-wide cost experience, capturing 94% of industry barrel-miles compared to 84% under the narrower approach. The shipper community had supported use of the middle 50%, which could have resulted in a lower index.
The Final Rule’s ultimate outcome, which resulted in the PPI-FG – 0.55% Oil Pipeline Index, was not supported by any of the commenters in the docket. Rather, shipper interests filed comments that supported index levels that were far lower than the NOPR’s, ranging from PPI-FG – 1.64% to PPI-FG – 2.06%. In contrast, pipeline-aligned interests filed comments in support of far higher index levels, ranging from PPI-FG – 0.04% to PPI-FG + 0.83%.
Key Implications for Oil Pipelines and Shippers
Effective July 1, 2026, pipelines using the indexing methodology may adjust their rate ceilings annually by multiplying the prior year’s ceiling by PPI-FG - 0.55%. For context, if inflation runs at 3%, pipelines could increase ceilings by approximately 2.45% that year. This represents a more favorable outcome for pipelines than the NOPR’s proposed PPI-FG - 1.42%. However, the new index may result in a rate reduction for pipelines with rates that bumped up against the ceiling of the existing five-year index expiring on June 30, 2026, which is PPI-FG + 0.78%. In her concurrence, Chairman Swett defended the outcome, which, while a rate reduction from the current index is still higher than the NOPR proposal, as “no windfall for the pipelines.” Seemingly to dispute this statement, Commissioner Rosner issued a separate concurrence that noted that by raising the index from the NOPR’s proposed PPI-FG – 1.42% to PPI-FG – 0.55%, pipeline cumulative authorized revenues would increase approximately $4.5 billion over the five-year period.
The ubiquity of the Oil Pipeline Index means that rate impacts will be widespread. Also, given the breadth of stakeholders in this proceeding, and the fact that none of them filed comments in support of the outcome set forth in the Final Rule, appeals filed by multiple interests are likely. Litigants may challenge the uniform ROE modification, the data trimming methodology and the adjustments for FERC’s ROE policy changes, among other issues.
Opportunities for appeal, however, may be more limited than with prior indexes due to timing constraints. With prior Oil Pipeline Indices, FERC issued a notice of proposed rulemaking at least one year prior to the July 1 effective date of a new index, and a final rule at least six months in advance, allowing for time to seek rehearing, and then petition for review in federal court, usually the D.C. Circuit. In this instance, the NOPR was issued at the end of November 2025, and the Final Rule issued on the last possible date before the Final Rule’s effective date of July 1, 2026 when taking into account the week typically needed for publication in the Federal Register (from April 24, 2026 to May 1, 2026) and a 60-day notice period. This means that litigants may need to formulate appellate strategies quickly, and may forgo rehearing at the agency level, which is not required by the ICA, and appeal directly to the D.C. Circuit. In LEPA v. FERC, the D.C. Circuit explained that once the Oil Pipeline Index becomes sufficiently final, i.e., when it takes legal effect on July 1, 2026, any amendment to the Oil Pipeline Index must undergo notice-and-comment procedures consistent with the Administrative Procedure Act. Hence, even if FERC were moved to revise the Final Rule’s index upwards or downwards based on arguments raised before it on rehearing, it could be constrained from doing so without initiating a new notice-and-comment process should it be unable to issue a rehearing order before July 1, 2026. Given that the Commissioners were unable to reach unanimity in the Final Rule, it is unlikely that they could act in a unified way to revise the Oil Pipeline Index before July 1.
Footnote
1. 195 FERC; 61,062 (2025).
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