Proposed Rulemaking on Oil Index Rate Changes Yesterday, the FERC issued an advance notice of proposed rulemaking that seeks to increase transparency in oil pipeline index rates and ensure that rate increases are more reflective of cost changes. Overall, we think the proposal could weigh on oil pipeline tariff increases looking forward, which we view as a minor headwind for our long-haul crude names. Specifically, the new policy seeks comments on two items: Policy to not allow rate increases if: 1) the pipeline’s revenues exceed its costs by 15% in both the previous two years or 2) the increases exceed 5% of the cost changes (as reported on Pg. 700 of the FERC Form 6) Proposal for operators to file supplemental Pg. 700 forms to distinguish between different pipes (e.g. crude vs. products) and revenue types (e.g. indexing vs. market-based rates) No Connection to United Case It’s important to note that the proposed rule is not connected to the United vs. FERC court case from July 2016 that called into question the FERC’s income tax allowance policy in its cost-of-service methodology. However, the two do share similarities in trying to ensure that rates are just and reasonable. Why Are Shippers Pushing This? The proposal is an “outgrowth” of a petition originally filed in April 2015 by a shipper consortium that sought to require operators to file separate supplemental Pg. 700 forms for each rate design segment to order to ensure that rates are reasonable and make a determination if rates should be challenged. While the FERC denied this specific request (many pipeline systems don’t maintain their records on a segmented basis), it did proceed with new measures that would protect shippers from excessive rate increases while maintaining a simplified methodology. Next Steps The initial public comment period will last 45 days (12/5/16) after which stakeholders will have another 45 days to file reply comments (1/19/17). With only three Commissioners on board (two vacant seats), it’s unclear when the FERC will come out with their next response. We note that it took nearly 10 months following the last comments on the petition for the FERC to come out with the proposal. Assuming that more comments will be filed this time around, this suggests to us that this issue could go on well into late next year. Read-Through to the Space While the proposed rules are still subject to change, we view the proposal as a slight negative for the space as there’s likely additional costs associated with the extra reporting requirement and the potential cap on index rate increases. Names most affected would be long-haul, interstate crude oil pipeline operators.  Kristina Kazarian