|ENTERPRISE PRODUCTS PARTNERS L P filed this Form 10-K on 02/28/2018|
Our intrastate NGL and natural gas pipelines are subject to regulation in many states, including Colorado, Kansas, Louisiana, New Mexico, Texas and Wyoming. To the extent our intrastate natural gas pipelines engage in interstate transportation, they are also subject to regulation by the FERC pursuant to Section 311 of the NGPA. We also have natural gas underground storage facilities in Louisiana and Texas. Although state regulation is typically less comprehensive in scope than regulation by the FERC, our services are typically required to be provided on a nondiscriminatory basis and are also subject to challenge by protest and complaint.
Although our natural gas gathering systems are generally exempt from FERC regulation under the NGA, our natural gas gathering operations could be adversely affected should they become subject to federal regulation of rates and services, or, if the states in which we operate adopt policies imposing more onerous regulation on gas gathering operations. Additional rules and legislation pertaining to these matters are considered and adopted from time to time at both state and federal levels. We cannot predict what effect, if any, such regulatory changes and legislation might have on our operations, but we could be required to incur additional capital expenditures.
For a general overview of federal, state and local regulation applicable to our assets, see “Regulatory Matters” included within Part I, Item 1 and 2 of this annual report. This regulatory oversight can affect certain aspects of our business and the market for our products and could have a material adverse effect on our financial position, results of operations and cash flows.
The rates of our regulated assets are subject to review and possible adjustment by federal and state regulators, which could adversely affect our revenues.
The FERC, pursuant to the ICA (as amended), the Energy Policy Act and rules and orders promulgated thereunder, regulates the tariff rates for our interstate common carrier liquids pipeline operations. To be lawful under the ICA, interstate tariff rates, terms and conditions of service must be just and reasonable and not unduly discriminatory, and must be on file with the FERC. In addition, pipelines may not confer any undue preference upon any shipper. Shippers may protest (and the FERC may investigate) the lawfulness of new or changed tariff rates. The FERC can suspend those tariff rates for up to seven months. It can also require refunds of amounts collected pursuant to rates that are ultimately found to be unlawful and prescribe new rates prospectively. The FERC and interested parties can also challenge tariff rates that have become final and effective. The FERC can also order new rates to take effect prospectively and order reparations for past rates that exceed the just and reasonable level up to two years prior to the date of a complaint. Due to the complexity of rate making, the lawfulness of any rate is never assured. A successful challenge of our rates could adversely affect our revenues.
The FERC uses prescribed rate methodologies for approving regulated tariff rate changes for interstate liquids pipelines. The FERC’s indexing methodology currently allows a pipeline to increase its rates by a percentage linked to the PPI. However, in any year in which the index is negative, a pipeline must file to lower its rates if its rates would be above the indexed rate ceiling. As an alternative to this indexing methodology, we may also choose to support our rates based on a cost-of-service methodology, or by obtaining advance approval to charge “market-based rates,” or by charging “settlement rates” agreed to by all affected shippers. These methodologies may limit our ability to set rates based on our actual costs or may delay the use of rates reflecting increased costs.
The FERC issued an advance notice of proposed rulemaking seeking comment regarding potential modifications to its policies for evaluating oil pipeline indexed rate changes and to the reporting requirements. The FERC observed that some pipelines continue to obtain additional index rate increases despite reporting on Form No. 6 that their revenues exceed their costs. The FERC is proposing a new policy that would deny proposed index increases if a pipeline’s Form No. 6 reflects revenues exceeding total cost of service by 15% for both of the prior two years or the proposed index increases exceed by 5% the annual cost changes reported by the pipeline. In addition, the FERC issued an NOI, to develop a mechanism to demonstrate there is no double recovery of partnership income tax costs. Changes in the FERC’s approved methodology for approving rates, or challenges to our application of that methodology, could adversely affect us. Adverse decisions by the FERC in approving our regulated rates could adversely affect our cash flow.