Can a marketing affiliate of an oil pipeline purchase transportation at the filed tariff rate and then re-sell this capacity at a lower, non-public rate without running afoul of the Interstate Commerce Act’s prohibition on rebates? On Nov. 22, the Federal Energy Regulatory Commission (FERC) issued an order that addressed this very issue.

One year ago, Magellan Midstream Partners LP filed a petition for declaratory order at FERC seeking FERC’s opinion on several structures involving a to-be-created marketing affiliate. This marketing affiliate would facilitate movements on Magellan’s system by purchasing capacity on Magellan’s system and transporting product (including third-party product) at price differentials between origin and destination markets that may be different from Magellan’s filed tariff rates.

FERC generally denied the petition, but at the outset it confirmed that an oil pipeline may create a marketing affiliate without FERC authorization, that a marketing affiliate may ship on the affiliated pipeline, and that FERC’s ICA jurisdiction does not extend to the sales of petroleum products. However, FERC found that Magellan’s proposed transactions would run afoul of the ICA’s prohibition on giving special rates or rebates to any particular shipper.