Ratemaking for Energy Pipelines

Fact Sheet February 29, 2012

Pipelines that transport or distribute natural gas, petroleum, and other hazardous liquids are closely regulated in the United States. Pipeline companies commonly have market power or operate as monopolies because it may not be cost-effective to have more than one pipeline delivery system in the ground to serve a market or community. As a result, pipeline operators are subject to comprehensive regulatory oversight by federal and state regulatory agencies, as well as local community-based councils and boards.

Ratemaking is the process by which a pipeline operator, its customers, and the operator’s regulatory body determine a fair price for the pipeline’s services. A well designed rate reflects the input of all stakeholders, the importance of many factors such as expanded safety programs, infrastructure repair and replacement, and the recognition of changing methods of cost recovery and other factors.

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