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

Pratt’s Energy Law Report

The Federal Energy Regulatory 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. The authors of this article analyze the issue.

The Federal Energy Regulatory Commission (“FERC” or “the Commission”) issued an order (“Order No. 849-A”) denying requests for rehearing of its final rule on federal income tax rates for jurisdictional natural gas pipelines (“Order No. 849”). 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. 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.

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“FERC Reaffirms Its Final Rule on Rate Changes Relating to Federal Income Tax Rates for Natural Gas Pipelines,” by Mark R. Haskell, Brett A. Snyder, George D. Billinson, Lamiya N. Rahman, and Jane Thomas was published in the July–August 2019 edition of Pratt’s Energy Law Report (Vol. 19, No. 7), an A.S. Pratt Publication, LexisNexis. Reprinted with permission.

This article was first published in April 2019 as a Blank Rome Energy Advisory.