FERC Reaffirms Its Final Rule on Rate Changes Relating to Federal Income Tax Rates for Natural Gas Pipelines

Mark R. Haskell, Brett A. Snyder, George D. Billinson, and Lamiya N. Rahman

The Commission’s recent order upholds the Form No. 501-G filing requirement, which was designed to determine whether pipelines are over-recovering on their cost of service in light of recent federal income tax rate and policy changes. Thus far, the Commission has initiated investigations into the rates of six pipelines pursuant to its authority under section 5 of the Natural Gas Act. These proceedings are ongoing.

On April 18, 2019, the Federal Energy Regulatory Commission (“FERC” or “the Commission”) issued an order (“Order No. 849-A”)1 denying requests for rehearing of its final rule on federal income tax rates for jurisdictional natural gas pipelines (“Order No. 849”).2 Order No. 849 adopted procedures for determining whether pipelines may be collecting unjust and unreasonable rates in light of income tax reductions established by the Tax Cuts and Jobs Act and the Commission’s revised tax allowance policy following the United Airlines, Inc. v. FERC decision.3 These procedures included a requirement that certain interstate natural gas pipelines file a FERC Form No. 501-G to estimate cost of service reductions and changes in returns on equity (“ROE”) resulting from the income tax changes.

Parties requested rehearing of several aspects of Order No. 849, including the ROE and capital structure used in the FERC Form No. 501-G, the rate moratorium for pipelines electing to make a voluntary limited rate reduction, the treatment of Accumulated Deferred Income Taxes (“ADIT”), and the tax allowance for pass-through entities.4 The Commission’s determinations on rehearing are analyzed below.

Background

Order No. 849 implemented a reporting requirement directing all interstate natural gas companies with cost-based stated rates that filed a 2017 FERC Form No. 2 or 2-A to file a Form No. 501-G informational filing. The Form No. 501-G is intended to provide information, in light of the recent tax rate and policy changes: (1) as to whether the Commission should initiate an investigation pursuant to section 5 of the Natural Gas Act (“NGA”) into a pipeline’s rates; and (2) to support any limited NGA section 4 filing a pipeline may make to voluntarily reduce its maximum tariff rates.

The Form No. 501-G uses data from each pipeline’s 2017 Form Nos. 2/2-A to approximate the percentage reduction in the pipeline’s cost of service and the pipeline’s current ROE before and after the reduction in corporate income taxes and the elimination of income tax allowances for master limited partnership (“MLP”) pipelines. Order No. 849 additionally permitted each pipeline to file an addendum to make adjustments to the Form No. 501-G to the extent the pipeline believed the 2017 Form No. 2/2-A data was not fully representative of its current situation.

The Commission notes that of the 129 interstate natural gas pipelines identified as required to fulfil the reporting requirement, 120 pipelines filed the Form No. 501-G, one pipeline continues to have an extension of time, and eight have been granted a waiver from the filing requirement. Of the 120 pipelines that have made the filing, nine have made limited section 4 rate reduction filings; 22 have filed general rate cases or prepackaged settlements to revise their rates; 84 provided explanations as to why no changes in rates were necessary, and five pipelines decided to take no action. The Form No. 501-G reports resulted in six NGA section 5 investigations.5

Legal Authority

As a preliminary matter, the Commission dismissed challenges alleging that it exceeded its statutory authority under the NGA in requiring pipelines to file the Form No. 501-G. The Commission noted that the Form No. 501-G itself does not require a pipeline to modify its rates, reiterating the voluntary nature of any limited section 4 rate reduction filing a pipeline may choose to make, and the Commission’s own use of the form to determine whether to exercise its discretion to open an NGA section 5 investigation.

Please click here for the full client alert. 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s