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FERC's Pipeline Income Tax Rate NOPR Draws Flood of Industry Comments

Dozens of eleventh-hour comments from industry groups, utilities and other stakeholders were posted last week in the docket of FERC's proposed changes in income tax rates for natural gas pipeline companies, electric transmission and master limited partnerships (MLP).

In the closing days of the comment period, less than a dozen filings had been posted in the docket, all of them seeking clarification or rehearing of the proposed changes [RM18-11]. But more than 30 filings were posted last Wednesday, some of them calling on the Federal Energy Regulatory Commission to make significant changes to its notice of proposed rulemaking (NOPR).

The Interstate Natural Gas Association of America (INGAA), for example, said the NOPR "must be significantly modified to allow pipelines a full and fair opportunity to recover their full revenue requirement."

FERC issued the NOPR to allow it to determine which pipelines under the Natural Gas Act (NGA) may be collecting unjust and unreasonable rates in light of the corporate tax reduction and changes to FERC's income tax allowance policies following the United Airlines v. FERC (827 F.3d 122 [D.C. Cir. 2016]) case.

The NOPR would require interstate gas pipelines to file a one-time report, FERC Form 501-G, on the rate of the new tax law and changes to FERC's income tax allowance policies. In addition, pipelines would have four options:

  • Make a limited NGA Section 4 filing to reduce rates by the percentage reduction in cost of service shown in FERC Form 501-G;
  • Commit to file either a prepackaged, uncontested rate settlement or a general NGA Section 4 rate case, if using the limited Section 4 option would not result in a just and reasonable rate;
  • If it does not think it has to change its rates, file a statement explaining why; or
  • File the new form without taking any other action.

In a separate but interrelated action, FERC said it would no longer allow MLP interstate natural gas and oil pipelines to recover income tax allowances in cost of service rates.

But, according to INGAA, FERC should remove requirements that some pipelines eliminate a tax allowance when submitting Form 501-G, and eliminate the tax allowance when filing the limited Section 4 rate proceedings authorized by the NOPR.

"The Commission should instead clarify that all pipelines, including MLP pipelines, will be allowed to propose and present evidence of an income tax allowance in future rate proceedings," INGAA said in its filing. "Removing the income tax allowance issues from the proposed rule will reduce the uncertainty associated with the proposed rule and help allow pipelines and their customers to focus on the potential rate reductions resulting from the reduction of the corporate income tax rate” found in the Tax Cuts and Jobs Act (TCJA).

A group of shippers -- including BP Energy Co., ConocoPhillips Co. and XTO Energy -- said FERC should allow negotiated rate contracts to share in rate reductions attributable to the TCJA and revised policy statement, saying as many pipeline customers as possible should be included in the benefits of rate reductions. The shippers also said FERC should require companies that take the “no action” option to explain why they would do so.

The Natural Gas Supply Association, on the other hand, asked FERC to remove the "take no action" option and consider allowing negotiated rate contract holders to be eligible for a negative surcharge mechanism.

The American Gas Association (AGA) requested the Commission provide clarification concerning the proper reporting of income tax expenses when the upstream ownership of interstate pipelines includes MLPs. AGA also requested further clarification with respect to negotiated rate agreements based on interstate pipeline tariff rates, and the interaction of NOPR compliance filings and the 2015 Policy Statement on Modernization Trackers.

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