tariffs containing all the rates, charges and other terms for services performed. The ICA requires that tariffs
apply to the interstate movement of NGLs, as is the case with the Black Lake and Wattenberg pipelines.
Pursuant to the ICA, rates can be challenged at FERC either by protest when they are initially filed or increased
or by complaint at any time they remain on file with FERC.
In October 1992, Congress passed the Energy Policy Act of 1992, or EPACT, which among other things,
required FERC to issue rules establishing a simplified and generally applicable ratemaking methodology for
pipelines regulated by FERC pursuant to the ICA. FERC responded to this mandate by issuing several orders,
including Order No. 561. Beginning January 1, 1995, Order No. 561 enables petroleum pipelines to change
their rates within prescribed ceiling levels that are tied to an inflation index. Specifically, the indexing
methodology allows a pipeline to increase its rates annually by a percentage equal to the change in the producer
price index for finished goods, PPI-FG, plus 2.65% to the new ceiling level. Rate increases made pursuant to
the indexing methodology are subject to protest, but such protests must show that the portion of the rate
increase resulting from application of the index is substantially in excess of the pipeline’s increase in costs. If
the PPI-FG falls and the indexing methodology results in a reduced ceiling level that is lower than a pipeline’s
filed rate, Order No. 561 requires the pipeline to reduce its rate to comply with the lower ceiling unless doing so
would reduce a rate “grandfathered” by EPACT (see below) below the grandfathered level. A pipeline must, as
a general rule, utilize the indexing methodology to change its rates. FERC, however, retained cost-of-service
ratemaking, market-based rates, and settlement as alternatives to the indexing approach, which alternatives may
be used in certain specified circumstances. FERC’s indexing methodology is subject to review every five years;
the current methodology remains in place through June 30, 2016.
EPACT deemed petroleum pipeline rates in effect for the 365-day period ending on the date of enactment
of EPACT that had not been subject to complaint, protest or investigation during that 365-day period to be just
and reasonable under the ICA. Generally, complaints against such “grandfathered” rates may only be pursued if
the complainant can show that a substantial change has occurred since the enactment of EPACT in either the
economic circumstances of the petroleum pipeline, or in the nature of the services provided, that were a basis
for the rate. EPACT places no such limit on challenges to a provision of a petroleum pipeline tariff as unduly
discriminatory or preferential.
Intrastate NGL Pipeline Regulation
Intrastate NGL and other petroleum pipelines are not generally subject to rate regulation by FERC, but
they are subject to regulation by various agencies in the respective states where they are located. While the
regulatory regime varies from state to state, state agencies typically require intrastate petroleum pipelines to file
their rates with the agencies and permit shippers to challenge existing rates or proposed rate increases.
Environmental Matters
General
Our operation of pipelines, plants and other facilities for gathering, transporting, processing or storing
natural gas, propane, NGLs and other products is subject to stringent and complex federal, state and local laws
and regulations governing the discharge of materials into the environment or otherwise relating to the
protection of the environment.
As an owner or operator of these facilities, we must comply with these laws and regulations at the federal,
state and local levels. These laws and regulations can restrict or impact our business activities in many ways,
such as:
• requiring the acquisition of permits to conduct regulated activities;
• restricting the way we can handle or dispose of our wastes;
• limiting or prohibiting construction activities in sensitive areas such as wetlands, coastal regions or
areas inhabited by endangered species;
• requiring remedial action to mitigate pollution conditions caused by our operations or attributable to
former operations;
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