83 FR 12362 - Inquiry Regarding the Commission's Policy for Recovery of Income Tax Costs
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission Federal Register Volume 83, Issue 55 (March 21, 2018)
Federal Energy Regulatory Commission
Federal Register Volume 83, Issue 55 (March 21, 2018)
| Page Range | 12362-12370 | |
| FR Document | 2018-05668 |
[Federal Register Volume 83, Number 55 (Wednesday, March 21, 2018)] [Notices] [Pages 12362-12370] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-05668] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF ENERGY Federal Energy Regulatory Commission [Docket No. PL17-1-000] Inquiry Regarding the Commission's Policy for Recovery of Income Tax Costs AGENCY: Federal Energy Regulatory Commission. ACTION: Revised policy statement. ----------------------------------------------------------------------- SUMMARY: Following the decision of the U.S. Court of Appeals for the District of Columbia Circuit in United Airlines, Inc., et al. v. Federal Energy Regulatory Commission, the Commission issued a notice of inquiry (NOI) seeking comment regarding how to address any double recovery resulting from the Commission's current income tax allowance and rate of return policies. The Commission finds that an impermissible double recovery results from granting a Master Limited Partnership (MLP) pipeline both an income tax allowance and a return on equity pursuant to the discounted cash flow methodology. Accordingly, the Commission revises its policy and will no longer permit an MLP to recover an income tax allowance in its cost of service. While all partnerships seeking to recover an income tax allowance will need to address the double-recovery concern, the Commission will address the application of United Airlines to [[Page 12363]] non-MLP partnership forms as those issues arise in subsequent proceedings. DATES: This Revised Policy Statement will become applicable March 21, 2018. FOR FURTHER INFORMATION CONTACT: Glenna Riley (Legal Information), Office of the General Counsel, 888 First Street NE, Washington, DC 20426, (202) 502-8620, [email protected]. Andrew Knudsen (Legal Information), Office of the General Counsel, 888 First Street NE, Washington, DC 20426, (202) 502-6527, [email protected]. James Sarikas (Technical Information), Office of Energy Markets Regulation, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502-6831, [email protected]. Scott Everngam (Technical Information), Office of Energy Markets Regulation, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502-6614, [email protected]. SUPPLEMENTARY INFORMATION: Before Commissioners: Kevin J. McIntyre, Chairman; Cheryl A. LaFleur, Neil Chatterjee, Robert F. Powelson, and Richard Glick. 1. On December 15, 2016, the Commission issued a Notice of Inquiry (NOI) \1\ following the decision of the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) in United Airlines.\2\ In that decision, the D.C. Circuit held that the Commission failed to demonstrate that there was no double recovery of income tax costs when permitting SFPP, L.P. (SFPP), a master limited partnership (MLP),\3\ to recover both an income tax allowance and a return on equity (ROE) determined pursuant to the discounted cash flow (DCF) methodology. The NOI sought comments regarding the double- recovery concern. --------------------------------------------------------------------------- \1\ Inquiry Regarding the Commission's Policy for Recovery of Income Tax Costs, 157 FERC ] 61,210 (2016), 81 FR 94366 (December 23, 2016) (NOI). \2\ United Airlines, Inc., v. FERC, 827 F.3d 122, 134, 136 (D.C. Cir. 2016) (United Airlines). \3\ An MLP is a publicly traded partnership under the Internal Revenue Code that receives at least 90 percent of its income from certain qualifying sources, including gas and oil transportation. See 26 U.S.C. 7704; NOI, 157 FERC ] 61,210 at PP 4-7. At the time of SFPP's rate filing, Kinder Morgan Energy Partners (KMEP), an MLP, indirectly owned a 99 percent general partner interest in SFPP. SFPP, L.P., Opinion No. 511, 134 FERC ] 61,121, at P 74 (2011). --------------------------------------------------------------------------- 2. As explained below, the Commission revises the 2005 Income Tax Policy Statement \4\ and will no longer permit MLPs to recover an income tax allowance in their cost of service. To the extent the comments in this proceeding raise arguments that an MLP pipeline should continue to receive an income tax allowance, those comments fail (a) to undermine the conclusion that a double recovery results from granting an MLP both an income tax allowance and a DCF ROE or (b) to justify preserving an income tax allowance notwithstanding such a double recovery. Consistent with this policy, the Commission is concurrently issuing a Remand Order \5\ denying SFPP an income tax allowance in response to United Airlines. --------------------------------------------------------------------------- \4\ Policy Statement on Income Tax Allowances, 111 FERC ] 61,139 (2005), 70 FR 25818 (May 16, 2005) (2005 Income Tax Policy Statement). \5\ SFPP, L.P., Opinion No. 511-C, 162 FERC ] 61,228 (2018) (Remand Order). --------------------------------------------------------------------------- 3. In addition, this record does not provide a basis for addressing the United Airlines double-recovery issue for the innumerable partnership and other pass-through business forms that are not MLPs like SFPP. While all partnerships seeking to recover an income tax allowance will need to address the double-recovery concern, the Commission will address the application of United Airlines to non-MLP partnership or other pass-through business forms as those issues arise in subsequent proceedings. I. Background 4. Prior to United Airlines, the Commission's 2005 Income Tax Policy Statement allowed all partnership entities (including MLPs, such as SFPP) to recover an income tax allowance for the partners' tax costs much like a corporation receives an income tax allowance for its corporate income tax costs.\6\ The Commission explained that while a partnership itself does not pay taxes, the partners pay income taxes based upon the partnership income and these partner-level taxes could be imputed to the pipeline.\7\ --------------------------------------------------------------------------- \6\ 2005 Income Tax Policy Statement, 111 FERC ] 61,139. The Commission's policy permits an income tax allowance, provided that the owners can show an actual or potential income tax liability to be paid on income from the regulated assets. \7\ Id. --------------------------------------------------------------------------- 5. Alongside this income tax policy, the Commission has used the DCF methodology to determine the rate of return regulated entities need to attract capital.\8\ Under the DCF methodology, the required rate of return is estimated to equal a corporate investor's current dividend yield (dividends divided by share price) plus the projected future growth rate of dividends, such that k = D/P + g.\9\ Similarly, for an MLP, the Commission uses the same formula, substituting unitholder distributions for dividends, unit price for share price, and using a lower long-term growth rate.\10\ --------------------------------------------------------------------------- \8\ United Airlines, 827 F.3d at 136; Coakley v. Bangor Hydro- Electric Co., Opinion No. 531, 147 FERC ] 61,234, at P 14 (2014). The Supreme Court has stated that ``the return to the equity owner should be commensurate with the return on investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital.'' FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944); Bluefield Water Works & Improvement Co. v. Public Service Comm'n, 262 U.S. 679 (1923). \9\ Where P is the price of the stock at the relevant time, D is the current dividend, k is the investors' required rate of return, and g is the expected growth rate in dividends. When a regulated entity is a wholly owned subsidiary and not publicly-traded, the Commission applies the DCF formula to other publicly-traded entities in a proxy group, and, based typically upon the median of the range of returns in the proxy group, the Commission determines the regulated entity's allowed ROE. \10\ Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity, 123 FERC ] 61,048, at P 6 (2008) (Proxy Group Policy Statement). --------------------------------------------------------------------------- 6. In addressing SFPP's West Line rate case filed in 2008, the Commission applied its 2005 policy that allows a partnership to recover an income tax allowance.\11\ In United Airlines, the D.C. Circuit remanded the Commission's application of this policy, holding that the Commission failed to adequately explain why a double recovery did not result from allowing SFPP to recover both an income tax allowance and a ROE determined by the Commission's DCF methodology.\12\ Accordingly, the D.C. Circuit remanded the decisions to the Commission to consider ``mechanisms for which the Commission can demonstrate that there is no double recovery.'' \13\ --------------------------------------------------------------------------- \11\ Opinion No. 511, 134 FERC ] 61,121, order on reh'g, Opinion No. 511-A, 137 FERC ] 61,220 (2011), order on reh'g, Opinion No. 511-B, 150 FERC ] 61,096 (2015). \12\ United Airlines marks the third time the D.C. Circuit has reviewed the Commission's income tax allowance policy with respect to partnership entities. See BP West Coast Products, LLC v. FERC, 374 F.3d 1263 (D.C. Cir. 2004); ExxonMobil Oil Corp. v. FERC, 487 F.3d 945 (D.C. Cir. 2007). \13\ United Airlines, 827 F.3d at 137. The D.C. Circuit did not restrict the Commission's policy options, but, among other possibilities, it noted that the Commission could consider removing any duplicative tax recovery for partnerships directly from the DCF ROE, or eliminating all income tax allowances and setting rates based on pre-tax returns. Id. --------------------------------------------------------------------------- 7. In response, the Commission issued the December 2016 NOI, soliciting comments on how to resolve any double recovery resulting from the 2005 Income Tax Policy Statement and rate of return policies. The Commission received 24 comments and 19 reply comments from customer, pipeline, and electric utility interests. [[Page 12364]] II. Discussion 8. This Revised Policy Statement explains the Commission's conclusion following United Airlines that an impermissible double recovery results from granting an MLP pipeline both an income tax allowance and a DCF ROE. Accordingly, the Commission will no longer permit MLPs to recover an income tax allowance in their cost of service. Therefore, the Commission instructs oil pipelines organized as MLPs to reflect the Commission's elimination of the MLP income tax allowance in their Form No. 6, page 700 reporting. Based upon this page 700 data, the Commission will incorporate the effects of this Revised Policy on industry-wide oil pipeline costs in the 2020 five-year review of the oil pipeline index level. The Commission is also concurrently issuing a Notice of Proposed Rulemaking that addresses the effects of this Revised Policy on the rates of interstate natural gas pipelines organized as MLPs.\14\ For those partnerships that are not MLPs, the Commission will address such matters in subsequent proceedings. --------------------------------------------------------------------------- \14\ Interstate and Intrastate Natural Gas Pipelines; Rate Changes Relating to Federal Income Tax Rate, 162 FERC ] 61,226 (2018). --------------------------------------------------------------------------- A. An Impermissible Double Recovery Results From Granting an MLP Pipeline Both an Income Tax Allowance and a DCF ROE 9. While some of the comments in this proceeding argue that no double recovery results from granting an income tax allowance to an MLP, none of these arguments are persuasive. As the Commission explains in the Remand Order, a double recovery results from granting an MLP an income tax allowance and a DCF ROE:MLPs and similar pass-through entities do not incur income taxes at the entity level.\15\ Instead, the partners are individually responsible for paying taxes on their allocated share of the partnership's taxable income.\16\ --------------------------------------------------------------------------- \15\ United Airlines, 827 F.3d at 136. \16\ 2005 Income Tax Policy Statement, 111 FERC ] 61,139 at P 33; see also ExxonMobil, 487 F.3d at 954 (noting that ``investors in a limited partnership are required to pay tax on their distributive shares of the partnership income, even if they do not receive a cash distribution''). In contrast, corporations pay entity-level income taxes, and corporate dividends are second tier income to a common stock investor, not analogous to partnership distributions. --------------------------------------------------------------------------- The DCF methodology estimates the returns a regulated entity must provide to investors in order to attract capital.\17\ --------------------------------------------------------------------------- \17\ See Coakley v. Bangor Hydro-Electric Co., Opinion No. 531, 147 FERC ] 61,234 at P 14. --------------------------------------------------------------------------- To attract capital, entities in the market must provide investors a pre-tax return, i.e., a return that covers investor-level taxes and leaves sufficient remaining income to earn investors' required after-tax return.\18\ In other words, because investors must pay taxes from any earnings received from the partnership, the DCF return must be sufficient both to cover the investor's tax costs and to provide the investor a sufficient after-tax ROE. --------------------------------------------------------------------------- \18\ Kern River Transmission Co., Opinion No. 486-B, 126 FERC ] 61,034, at P 114 (2009) (``investors invest on the basis of after- tax returns and price an instrument accordingly''). --------------------------------------------------------------------------- The DCF methodology ``determines the pre-tax investor return required to attract investment.'' \19\ --------------------------------------------------------------------------- \19\ United Airlines, 827 F.3d at 136 (emphasis added). --------------------------------------------------------------------------- Given that the DCF return is a ``pre-tax return,'' permitting an MLP to recover both an income tax allowance and a DCF ROE leads to a double recovery of the MLP's income tax costs.\20\ --------------------------------------------------------------------------- \20\ Id. at 137. --------------------------------------------------------------------------- 10. This Revised Policy Statement addresses comments responding to the NOI asserting that (a) granting an MLP an income tax allowance does not cause a double recovery or (b) notwithstanding the existence of a double recovery, MLPs should continue to receive an income tax allowance. As discussed below, these arguments are unavailing. 1. A Double Recovery Results From Granting an MLP Both an Income Tax Allowance and a DCF ROE 11. The Commission rejects arguments from pipelines and pipeline groups that no double recovery results from granting an MLP both an income tax allowance and a DCF ROE. These include claims that (a) changes to the stock price eliminate the double recovery, (b) MLP partners' taxes are ``first tier'' taxes that should be recoverable in an income tax allowance, (c) the return produced by the DCF analysis is never grossed-up (or adjusted) to include MLP partners' tax costs, (d) the presence of an income tax allowance causes MLP investors to demand a lower return in the market place, (e) a life-cycle hypothetical shows that corporate and MLP tax costs and after-tax returns are similar when an income tax allowance is present, (f) the calculation of the growth rate in the DCF Formula for MLPs addresses the double-recovery issue, and (g) various empirical studies refute the double-recovery finding in United Airlines. As discussed below none of these arguments resolves the double-recovery concern, and accordingly, the Commission will no longer permit MLPs to recover an income tax allowance in cost-of- service rates. a. Changes to a Pipeline's Unit Price Do Not Resolve the Double- Recovery Issue 12. Some commenters argue that there is no double recovery caused by an income tax allowance for MLPs because the income tax allowance merely increases the price of the MLP units.\21\ These commenters assert that as a result of the increased unit price, investors will receive the same rate of return whether or not the pipeline receives an income tax allowance, and, thus, there is no double recovery. --------------------------------------------------------------------------- \21\ E.g., Association of Oil Pipe Lines (AOPL) Initial Comments at 24-27, Graham Declaration at 12-13; SFPP Initial Comments at 21- 26, Vander Weide Declaration at PP 8, 19. These commenters argue that if an MLP is able to charge a higher tariff rate, the increased cash flow will lead to increased distributions to investors and MLP prices will rise to reflect the additional cash flow. Hence, the market will immediately react to eliminate any differences such that the after-tax returns of partnership and corporate investors are equalized. --------------------------------------------------------------------------- 13. The Commission rejects such arguments as inapposite. As explained in the Remand Order, the double-recovery issue is separate from the post-rate case effects upon an MLP pipeline's unit price. An MLP pipeline's DCF ROE is typically based upon a proxy group of other MLPs,\22\ all of which must provide investors with sufficient pre- investor tax returns to attract capital. Permitting an MLP pipeline to recover both the DCF pre-investor tax return and an income tax allowance for the investor-level tax costs leads to a double recovery. Whether or not the double recovery leads to an increased unit price, the impermissible double recovery in the MLP's cost of service remains.\23\ --------------------------------------------------------------------------- \22\ The proxy group may include corporations as well. In that case, the ROE will reflect the dividend tax paid by corporate investors. \23\ While an inflated cost of service will likely increase distributions to investors and cause a pipeline's unit price to rise, such benefits to a pipeline's unitholders do not render the double recovery permissible. Under this theory, the Commission could increase a pipeline's cost of service by allowing the pipeline to incorporate duplicative costs, yet these commenters appear to claim that because its unit price would subsequently rise, the inclusion of duplicative costs in the pipeline's cost of service is not unjust or unreasonable. This argument is without merit. --------------------------------------------------------------------------- 14. Moreover, while permitting such a double recovery may increase the unit price, these changes in the unit price do not resolve the double-recovery problem or change the DCF return from a pre-investor tax return to an after-investor tax return. Rather, if an MLP pipeline obtains a new revenue source that increases distributions to investors (such as an income tax allowance), the unit price will rise until, once again, the investor receives the cash flow necessary to cover the investor's income [[Page 12365]] tax liabilities and to earn an after-tax return that is comparable to other investments of similar risk.\24\ Likewise, if the MLP's cash flows are reduced (such as via the removal of the income tax allowance) and consequently distributions decline, the MLP unit price will drop until the returns once again both cover an investor's tax costs and provide the sufficient after-tax returns. Whether or not a pipeline receives an income tax allowance, the MLP's DCF return will always be a pre-investor tax return.\25\ --------------------------------------------------------------------------- \24\ United Airlines, 827 F.3d at 136. In finding that ``the [DCF ROE] determines the pre-tax investor return required to attract investment, irrespective of whether the regulated entity is a partnership or a corporate pipeline,'' the Court relied on Opinion No. 511, 134 FERC ] 61,121 at PP 243, 244, which included the following example: The investor desires a 6 percent after-tax return and has a 25 percent marginal tax rate. Thus, the security must have an ROE of 8 percent to achieve an after-tax yield of 6 percent. Assume that the distribution or dividend is $8. The investor will price the security at $100. Conversely, if the security price is $100 and the yield is $8, the Commission determines that the required return is 8 percent. If the dollar distribution increases to $10, the investor will price the security at $125 because $10 is 8 percent of $125. The Commission would note that the security price is $125 and that the yield is $10, or a return of 8 percent. If the distribution is $6, the security price will drop to $75, a return of 8 percent. The Commission would observe a $75 dollar security price, a $6 yield, and a return of 8 percent. In all cases the ROE is 8 percent and the after-tax return is 6 percent based on the market-established return. \25\ This is true both for the entity whose rates are at issue in a cost-of-service rate case (such as SFPP in the Remand Order) and for the entities in the proxy group. --------------------------------------------------------------------------- b. The Argument That MLPs Are Entitled To Recover ``First Tier'' Taxes Is Irrelevant 15. Some commenters contend that removing the income tax allowance is contrary to Commission and court findings that MLP pipelines may recover so-called ``first tier'' taxes for income generated by the regulated pipeline.\26\ The pipelines claim that because a partnership does not itself pay taxes, the taxes paid by the partners are the ``first tier'' tax, much like the corporate income tax is the ``first tier'' tax for the corporation. The pipelines contrast these ``first tier'' taxes with so-called ``second tier'' taxes (such as the dividend tax paid by corporate stockholders) which are not typically recovered by the income tax allowance. --------------------------------------------------------------------------- \26\ Interstate Natural Gas Association of America (INGAA) Initial Comments, Sullivan Affidavit at 12-14, 24-25, 27. --------------------------------------------------------------------------- 16. The Commission is not persuaded by such arguments, which were already presented to the D.C. Circuit.\27\ The pipelines' arguments do not address the D.C. Circuit's finding that the DCF ROE itself enables the recovery of an MLP's ``first tier'' tax costs, rendering an income tax allowance unnecessary. Whether or not a tax can be labeled a ``first tier'' tax is irrelevant to the double-recovery issue. No double recovery results when a corporate pipeline's cost of service includes an income tax allowance because this so-called ``first tier'' corporate income tax is paid directly by the corporation, rather than by unitholders from the dividends used in the DCF methodology.\28\ In contrast, the MLP itself pays no taxes.\29\ Because the ``first tier'' MLP income taxes are paid directly by the unitholders,\30\ the D.C. Circuit explained that the pre-investor tax DCF return must be sufficient to recover an MLP investor's tax costs in order to attract capital. While the D.C. Circuit reaffirmed that an MLP pipeline may recover such ``first tier'' investor income tax costs, the D.C. Circuit also held that an MLP pipeline may not double recover those costs via both an income tax allowance and the DCF return.\31\ --------------------------------------------------------------------------- \27\ Federal Energy Regulatory Commission and United States of America, Brief for Respondents, Case No. 11-1479, at 26 (D.C. Cir., filed Feb. 5, 2016). \28\ Corporations first pay the corporate income tax from their earnings prior to any dividends to investors. Then, subsequently, investors pay taxes on dividends. While the pre-investor tax DCF return would reflect the dividend tax paid by investors, it does not reflect the corporate income tax. \29\ United Airlines, 827 F.3d at 136 (explaining ``unlike a corporate pipeline, a partnership pipeline incurs no taxes, except those imputed from its partners, at the entity level''). \30\ In the past, the Commission has stated that its income tax allowance policy ``imputes'' those investor-level taxes to the partnership entity. In using such phrasing, the Commission never denied that investors nonetheless pay the investor-level taxes. \31\ In United Airlines, the D.C. Circuit acknowledged that in ExxonMobil it held that the Commission provided a reasoned basis for allowing an MLP pipeline to recover the ``first tier'' income tax costs paid by the MLP partners. However, the D.C. Circuit explained that in ExxonMobil, it had ``reserved the issue of whether the combination of the [DCF ROE] and the tax allowance results in a double recovery of taxes for partnership pipelines.'' United Airlines, 827 F.3d at 134; see also ExxonMobil, 487 F.3d 945. --------------------------------------------------------------------------- c. The Argument That the Tax Allowance Reduces Investors' Required Return Lacks Merit 17. SFPP argues that investors recognize that the income tax costs are recovered by the pipeline through the income tax allowance and therefore, elect not to demand a DCF return on their investment that would cover those income tax costs.\32\ Because under this theory the DCF return would not include investor tax costs, SFPP argues that there is no double recovery. In essence, SFPP contends that the pre-tax return produced by a DCF analysis of an MLP with a tax allowance is the equivalent of an after-tax return, since investors do not demand a pre- tax return. Similarly, SFPP argues that if MLPs lose the income tax allowance, then the MLP investors will demand a higher pre-tax return than under present policy. --------------------------------------------------------------------------- \32\ SFPP Initial Comments at 17, Vander Weide Declaration at PP 12, 14, 18. SFPP claims that investors will not ``gross-up'' the required after-tax return to include tax costs. SFPP Initial Comments at 16; Vander Weide Declaration at PP 6, 18. --------------------------------------------------------------------------- 18. The Commission rejects SFPP's assertions. These arguments distort how the income tax allowance affects investor tax liability. MLP investors owe a tax on any increased income, whether or not that income results from an income tax allowance or another source.\33\ Accordingly, while as discussed above an MLP income tax allowance may increase the unit price, investors will continue to demand a pre-tax return even when a portion of a pipeline's rate is attributable to an ``income tax allowance.'' \34\ Notwithstanding the presence of an income tax allowance, the pre-investor tax ROE produced by the DCF analysis does not equal the investor's after-tax return. Likewise, if an MLP pipeline's loss of its income tax allowance reduces rates and investor income, the unit price will decline until the investor once again earns an adequate pre-tax return. --------------------------------------------------------------------------- \33\ The Internal Revenue Code does not exempt from taxation income that results from the increases to rates resulting from the cost-of-service income tax allowance. \34\ Suppose an income tax allowance increases a pipeline's rates, raising investor income from $10 to $12. Two things have occurred; first the investor's pre-tax income increased from $10 to $12 and second the investor now owes taxes on $12 of income just as she owed taxes on the initial $10. The unit price will increase until the investor receives the same pre-tax return at $12 of income that it received at $10 of income. In other words, Commission policy does not shift the actual liability to pay income taxes from the MLP partners to the MLP itself. --------------------------------------------------------------------------- 19. SFPP's comments rely almost exclusively upon the incorrect assumption that for an MLP with an income tax allowance, an MLP investor's pre-tax return equals its after-tax return.\35\ However, while SFPP relies heavily upon this assumption in this proceeding, SFPP elsewhere takes the opposite position--presenting hypotheticals showing that an investor will demand a pre-tax return whether or [[Page 12366]] not the pipeline receives an income tax allowance.\36\ --------------------------------------------------------------------------- \35\ E.g,. SFPP Initial Comments, Vander Weide Affidavit at 8 (Table 1, Lines 11-15, showing the before-tax DCF ROE equaling the investor's after-tax return), 12 (Table 2, Lines 11-15, showing the before-tax DCF ROE and investor's pre-tax return equaling the investor's after-tax return), 16 (Table 3, lines 11-15 showing for a pipeline with an income tax allowance, the before-tax DCF ROE and investor's pre-tax return equaling the investor's after-tax return). \36\ In its West Line rate case, SFPP filed post-remand comments and supplemental comments following United Airlines. In those comments, SFPP presented a hypothetical showing that an MLP recovering both an income tax allowance (Table 1, Column C) and a DCF ROE earns the same 6.5 percent investor after-tax return as an MLP without an income tax allowance (Table 1, Column D). SFPP, L.P., Supplemental Reply Comments, Docket No. IS08-390, at 10 (November 30, 2016). While the table does not show the investors' pre-tax returns, since both pipelines were subject to a 35 percent investor level tax, both must have recovered a 10 percent pre-tax investor return. Thus, in SFPP's own example, the cost-of-service double- recovery of income tax costs of the pipeline in Column C inflated the unit price until it earned the same pre-tax return as the pipeline without an income tax allowance in Column D. --------------------------------------------------------------------------- d. The Cost-of-Service Gross-Up Theory Was Rejected by the D.C. Circuit 20. Some pipeline commenters also attempt to reframe the cost-of- service ``gross-up'' theory rejected by the D.C. Circuit. This argument, which the Commission also made on appeal in the United Airlines proceeding, asserts that the DCF return does not include investor tax costs because the Commission never adjusts, or ``grosses- up,'' the return produced by the DCF analysis to recover such tax costs.\37\ In response to the NOI, pipeline commenters assert that the DCF ROE cannot include an MLP investor's income tax costs because the income tax costs are not a separate line item in the DCF methodology.\38\ --------------------------------------------------------------------------- \37\ Federal Energy Regulatory Commission and United States of America, Brief for Respondents, Case No. 11-1479, at 28-29 (D.C. Cir., filed Feb. 5, 2016) (citations omitted) (``In contrast to the way in which income taxes are grossed up outside the context of Commission regulation, the Commission does not gross up [i.e., increase] a jurisdictional entity's operating revenues or return to cover the income taxes that must be paid to obtain its after-tax return.''). \38\ INGAA Initial Comments at 24, Sullivan Affidavit at 6, 17- 18, 22, 25-27, 30. --------------------------------------------------------------------------- 21. The Commission rejects this position. The Commission's DCF methodology need not include a mathematical step to add income taxes. For the reasons described above, ``the [DCF ROE] determines the pre-tax investor return'' \39\ that already reflects cash flow for both the (a) investor's tax costs and (b) the investor's post-tax return. --------------------------------------------------------------------------- \39\ United Airlines, 827 F.3d at 136 (citing Opinion No. 511, 134 FERC ] 61,121 at PP 243-44). --------------------------------------------------------------------------- e. The Life-Cycle Hypothetical Does Not Refute the D.C. Circuit's Holding 22. INGAA witness Merle Erickson presents a life-cycle model that compares the total tax expenses of a hypothetical MLP to a hypothetical corporation. Under the assumptions of the model, Erickson finds that MLPs' and corporations' aggregate tax burdens are comparable and that both earn similar returns if MLPs are permitted an income tax allowance.\40\ Pipeline commenters claim that the model globally demonstrates that the Commission's current income tax policy provides parity in the returns to partnerships and corporations.\41\ --------------------------------------------------------------------------- \40\ INGAA Initial Comments, Erickson Affidavit at 12. \41\ INGAA Initial Comments at 4, 25. --------------------------------------------------------------------------- 23. We do not find this argument to be persuasive. Erickson's life- cycle model does not undermine the fundamental premise of United Airlines that an income tax allowance for MLP pipelines leads to a double recovery. Whether or not the overall MLP and corporate tax burdens are equivalent or different, if the investor tax costs are incorporated into the DCF returns, then the income tax allowance for MLP pipelines leads to a double recovery.\42\ --------------------------------------------------------------------------- \42\ Erickson himself concedes that MLP unitholders must pay the entirety of the tax burden whereas corporate unitholders must only pay the dividend tax (not the corporate income tax). INGAA Initial Comments, Erickson Affidavit at 13. Accordingly, it follows that whereas the DCF return for an MLP pipeline must include the entire income tax costs, a corporate pipeline's DCF return would not include the corporate income tax. --------------------------------------------------------------------------- 24. In addition, Erickson's model does not necessarily establish that overall MLP tax levels are actually comparable to corporate tax levels or that an income tax allowance equalizes returns. Like similar hypothetical models, the results of Erickson's proposal rely upon subjective assumptions.\43\ For example, as Thomas Horst explains, Erickson's hypothetical would show that MLPs (with an income tax allowance) receive higher returns if Erickson had accounted for (a) the time value of money \44\ and (b) certain tax issues related to the sale of MLP units.\45\ The Brattle report presented by shipper commenters similarly demonstrates how reasonable changes to Erickson's assumptions change the model's output.\46\ Thus, Erickson's hypothetical does not undermine the fundamental conclusion of United Airlines that allowing MLP pipelines to include both an income tax allowance and a full DCF ROE in their cost of service leads to a double recovery. --------------------------------------------------------------------------- \43\ When attacking models proposed by shippers, AOPL witness John Graham states that for such hypotheticals, ``There are too many variables to draw broad-based conclusions.'' AOPL Initial Comments, Graham Affidavit at 8. This comment applies with equal force to Erickson's model. Erickson's assumptions include (1) a five-year investment horizon; (2) that the MLP distributes all available cash and the corporation has a 65 percent dividend pay-out ratio; (3) certain tax rates for corporate income, corporate dividends and capital gains, and ordinary MLP income; and (4) that the corporate investors are able to sell their stock for the value of their original investment plus accumulated retained earnings, while the MLP investors sell their units for the value of their original investment. The life-cycle model also assumes constant earnings before interest, taxes, depreciation and amortization and application of a fifteen-year Modified Accelerated Cost Recovery System. The life-cycle analysis does not take into account the time value of money in reporting the total after-tax cash flow to the MLP and corporate investors. \44\ Thomas Horst Reply Comments at 2. An investor in a corporation usually must pay his dividend taxes immediately. In contrast, an MLP investor can use depreciation and other deductions to offset taxable income. As a result, an MLP investor may have no net taxable income in a given year. NOI, 157 FERC ] 61,210 at P 6. Even though the investor may ultimately be required to pay such taxes when the units are sold, the MLP investor benefits from the time value of money during the deferral period. \45\ Id. Dr. Horst argues that when an MLP unit is sold, its basis increases--much like in the sale of any property or asset. This only further increases the depreciation deferrals that are available to the subsequent investor. \46\ United Airlines Petitioners Reply Comments, Brattle Report at PP 73-74. --------------------------------------------------------------------------- f. The Treatment of the Growth Rate in the DCF Does Not Resolve the Double Recovery Concern 25. Pipelines emphasize that in the DCF formula, the Commission projects that the long-term growth of MLP pipelines will be only half that of corporations.\47\ Therefore, they argue ``to the extent the Commission concludes that there is a potential for double recovery of income tax costs through the MLP ROE, the Commission has already addressed that concern.'' \48\ --------------------------------------------------------------------------- \47\ AOPL Initial Comments at 46. As noted above, the DCF relies upon the general formula k = D / P + g. The growth rate in this formula incorporates two components: A short term growth rate (calculated using security analysts' five-year forecasts for each company in the proxy group as published by IBES) and a long-term growth rate (based upon forecasts for gross domestic product (GDP) growth). The short-term forecast receives a two-thirds weighting and the long-term forecast receives a one-third weighting in calculating the growth rate in the DCF model. Proxy Group Policy Statement, 123 FERC ] 61,048 at P 6. \48\ AOPL Initial Comments at 46. --------------------------------------------------------------------------- 26. The Commission concludes that the treatment in the DCF analysis of the long-term MLP growth projection does not resolve the double- recovery concern in United Airlines. When conducting a DCF analysis to determine investors' required rate of return, the Commission halves the long-term growth rate for MLPs in the proxy group because MLPs are likely to have a lower long-term growth rate than corporations.\49\ The [[Page 12367]] treatment of investor-level taxes presents an entirely separate issue. As discussed above, regardless of the projected growth rate used in the DCF analysis to determine the investors' required rate of return, that required return must provide investors cash flows to both (a) recover investor level tax costs and (b) provide the investor with a sufficient after tax return. --------------------------------------------------------------------------- \49\ The Commission explained corporations ``(1) have greater opportunities for diversification because their investment opportunities are not limited to those that meet the tax qualifying standards for an MLP and (2) are able to assume greater risk at the margin because of less pressure to maintain a high payout ratio.'' Proxy Group Policy Statement, 123 FERC ] 61,048 at P 93. Accordingly, the Commission concluded that the ``long term growth rate for MLPs will be less than that of schedule C corporations. . . .'' Id. P 94. See also El Paso Natural Gas Co., Opinion No. 528-A, 154 FERC ] 61,120, at PP 271-275, 278-283 (2016). --------------------------------------------------------------------------- g. Pipelines' Empirical Studies Do Not Resolve the D.C. Circuit's Double-Recovery Concern 27. Pipeline commenters advance two empirical criticisms of the holdings in United Airlines. First, they criticize studies presented by shippers in the underlying SFPP proceeding showing that MLP pipeline DCF returns exceed corporate pipeline DCF returns, while shipper commenters argue that a modified version of these studies supports the opposite result. Second, the pipelines argue the relationship between MLP and corporate pipeline DCF returns does not show a systemic disparity consistent with the different tax levels, and, thus, they argue that this refutes the holding that there is no double recovery. As discussed below, these arguments lack merit. i. The Reasoning in United Airlines Holds, Whether or Not MLP DCF Returns Exceed Corporate DCF Returns 28. In order to counter the D.C. Circuit's double-recovery finding, pipeline commenters attack studies presented by shippers in the underlying SFPP 2008 West Line rate case addressed on appeal in United Airlines.\50\ These studies purported to show that MLP pipeline DCF returns exceeded corporate pipeline DCF returns, which the shippers argued showed that the DCF returns reflected tax differences. Now, pipeline commenters argue that due to alleged flaws in these studies, the court in United Airlines erred by finding that the MLP pipeline DCF returns include investor-level tax costs. They assert that if their preferred sample of six pipelines (two corporations and four MLPs) is considered, corporate DCF returns may actually exceed MLP DCF returns.\51\ --------------------------------------------------------------------------- \50\ INGAA Initial Comments, Sullivan Affidavit at 41-48. \51\ Id. at 47-48. --------------------------------------------------------------------------- 29. The criticisms of the underlying studies in SFPP's 2008 West Line Rate case are irrelevant. In United Airlines, the D.C. Circuit did not rely upon these studies to find that the DCF returns include MLP investors' income tax costs, and the shipper-petitioners did not cite these studies in their appeal.\52\ Any such reliance would have been unnecessary. As described above, the inclusion of MLP investor-level taxes in the DCF return necessarily follows from the basic application of DCF theory and the understanding that investors consider the tax consequences of their investments. --------------------------------------------------------------------------- \52\ Before the Administrative Law Judge and the Commission, shippers argued that this disparity demonstrated the inclusion in the DCF ROE of the MLP investors' income tax costs, which they argued generally exceeded the dividend taxes paid by corporate investors. --------------------------------------------------------------------------- 30. Furthermore, the studies are also inapposite. The holding in United Airlines would not change if the pipeline commenters were to conclusively establish that when controlling for all factors but investor-level taxes, corporate pipeline DCF returns exceeded MLP pipeline DCF returns. This would merely demonstrate that the MLP investors' tax burden was less than the corporate investors' dividend tax burden.\53\ In order to attract capital, the investor-required MLP pipeline DCF return would still include the investor-level tax costs, and thus, a double recovery results from the additional recovery of an income tax allowance for MLPs.\54\ --------------------------------------------------------------------------- \53\ While historically a corporate investor's dividend tax rate has typically been less than the weighted average income tax rate for MLP investors (AOPL Initial Comments, Graham Affidavit at 5-6), MLPs have various tax deferrals and other characteristics that may further narrow or eliminate this difference. Nonetheless, any such conclusion based upon the pipeline commenters' data is dubious, as it is based upon a small sample size of only two corporations and four MLPs. INGAA Initial Comments, Sullivan Affidavit at 47-48. \54\ Likewise, the December 22, 2017 Tax Cuts and Jobs Act does not alter the Commission's analysis. Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 2054 (2017). While the tax rates for both corporations and individuals have been reduced, the DCF ROE will continue to provide a pre-investor tax return. As discussed above, investors will continue to demand a return that both covers the investor level tax costs and leaves the investor a sufficient after tax return compared to other investments of comparable risk. --------------------------------------------------------------------------- ii. The Pipeline Commenters' Empirical Evidence Fails To Disprove the Double Recovery 31. Pipelines make two broad arguments. First, pipeline commenters argue that if the DCF methodology includes investor-tax costs as determined by the D.C. Circuit in United Airlines, there should be a systematic relationship between MLP pipeline and corporate pipeline DCF returns reflecting these differences in investor-level taxes. Second, they argue that if pipelines are double-recovering their costs, then MLP pipelines should report higher DCF returns, distribution yields, and growth rates than corporate pipelines. 32. In their first argument, pipelines argue that if the DCF returns include investor tax costs, then there should be a consistent differential between MLP pipeline and corporate pipeline DCF returns. For example, if MLP investor-level taxes exceed corporate investor- level taxes, then pipeline commenters state that MLP pipeline DCF returns should always exceed corporate pipeline DCF returns, or vice versa. To refute the holding in United Airlines, pipeline commenters present empirical analyses purporting to show that the DCF returns for MLP pipelines do not show a consistent differential.\55\ These studies consist of (1) a line graph showing DCF returns for 23 pipelines between August 2007 to January 2017 in which MLP pipelines' DCF returns do not always exceed corporate pipelines' returns,\56\ and (2) DCF returns over the January 2008 to January 2017 period comparing four pairs of MLP and corporate affiliates \57\ in which the relationship between the corporate affiliate and the MLP affiliate returns fluctuated significantly. --------------------------------------------------------------------------- \55\ See INGAA Initial Comments at 31-35, Sullivan Affidavit at 42-69; AOPL Initial Comments at 3, 24, 28-30; Master Limited Partnership Association (MLPA) Initial Comments at 9. \56\ INGAA Initial Comments, Sullivan Affidavit at 48-49. INGAA witness Sullivan performed similar analysis for different components of the DCF, including both the dividend yield and the growth rate. Id. at 65-69. \57\ Id. at 50-51. --------------------------------------------------------------------------- 33. These studies suffer from fundamental methodological flaws that undermine the pipelines' conclusions. It is true that the United Airlines double-recovery theory would predict that, assuming all other factors are exactly equal, investor-level tax differences would create a differential between MLP and corporate pipeline DCF returns.\58\ However, differences in risk and other factors can subsume any effects of taxation, and because the studies inadequately control for varying risk levels, the studies do not isolate the effect of the MLP and corporate investor-level income taxes on the DCF returns. The first study, which compared 23 MLP and corporate pipelines, completely ignores the entities' differing risk levels \59\ and merely shows a line graph of DCF returns for each pipeline without presenting any related numerical [[Page 12368]] analysis.\60\ While the pipeline commenters' second study attempts to address varying risk levels by comparing four affiliated corporations and MLPs in their first study,\61\ the affiliated MLPs were only a fraction of the affiliated corporations' larger business interests, which, as the pipeline commenters concede, contributed to significant fluctuations in the relationship between the two entities' relative DCF returns.\62\ Moreover, this analysis based upon a mere four examples does not establish how investor level taxes (as opposed to other factors) affect either corporate or MLP investor returns. --------------------------------------------------------------------------- \58\ In essence, investors would demand higher returns from the business form with the higher investor-level taxes. \59\ INGAA witness Sullivan's arguments involving distribution yields and growth rates are similarly flawed. \60\ For example, on page 49 of his affidavit, INGAA consultant Sullivan submitted a line-chart which purports to show that corporate and MLP DCF returns are not discernibly different. However, (a) the y-axis is drawn so as to compress most of the returns to a narrow band, and (b) meaningful statistical differences could be completely obscured by this poor graphical presentation. Similar criticisms apply to Sullivan's comparison of MLP distributions to corporate dividends on page 65 of his affidavit and growth rates on page 68 of his affidavit. It is possible that a more precise numerical example could actually present facts undermining the pipelines' favored result. \61\ Id. at 52-62. Sullivan also adds a comparison between a completely unrelated MLP (Boardwalk Pipeline Partners) and a corporation (Kinder Morgan). Because these are completely different businesses, such a comparison is irrelevant for the purpose of identifying the effect of different tax levels on the DCF. \62\ For each of the four pairs, the DCF return for the corporation at times exceeded the return for the MLP whereas on other occasions the return for the MLP exceeded the corporation. Id. Sullivan describes situations in which growth estimates or factors involving unrelated assets would affect the DCF return of the corporation but not the MLP. --------------------------------------------------------------------------- 34. Pipelines advance a second argument--that if MLPs are double recovering their costs, they should report higher returns than corporations. For example, INGAA witness Sullivan also argues that ``[i]f MLPs double recovered income taxes through both an income tax allowance and a DCF return, I would expect the DCF ROEs and its components, the distribution yields and the IBES growth rates of MLPs to be systematically higher than corporations throughout the period 2008 to the present.'' \63\ Citing the same studies above, Sullivan argues that because the data does not show systematically higher returns, yields or growth rates for MLPs, there must be no double recovery. --------------------------------------------------------------------------- \63\ Id. at 58. --------------------------------------------------------------------------- 35. The Commission finds this argument unpersuasive because it relies upon the same flawed studies discussed above. As noted above, the line graphs provide a flawed analysis that may obscure actual differences between MLPs and corporations and, more fundamentally, that fails to address the multiple other risk and market factors that could affect any particular MLP and corporate pipeline's DCF returns, distribution yields, and growth levels. Moreover, as discussed previously, to the extent an MLP pipeline double-recovers its costs, the unit price will rise--obscuring the effects of the double recovery in the distribution yields, projected growth rates, and DCF returns.\64\ These studies do not undermine the double-recovery findings of United Airlines or the Remand Order. --------------------------------------------------------------------------- \64\ As explained in section II.A.1.a, whether or not a pipeline receives an income tax allowance, the DCF return will always be a pre-investor tax return. However, to the extent a pipeline is permitted to start double-recovering its costs, the unit price will rise until the DCF once again provides investors with a pre-tax return. --------------------------------------------------------------------------- 2. Other Arguments for Preserving an Income Tax Allowance Lack Merit 36. Pipeline commenters also argue that even if a double recovery exists, the income tax allowance should nonetheless be preserved. These arguments rely upon (1) Congressional intent, (2) preserving parity between corporate and MLP pipelines, and (3) the effect of removing the income tax allowance upon the ability of pipelines to attract capital. As discussed below, these arguments were either explicitly rejected by the D.C. Circuit in United Airlines or are otherwise without merit. a. Congressional Intent Does Not Authorize a Double Recovery 37. Pipeline commenters argue that providing MLP pipelines an income tax allowance implements Congress' intent to facilitate infrastructure investment.\65\ In 1987 Congress eliminated pass-through status for most publicly-traded partnerships, but explicitly granted an exception for certain energy-related MLPs in section 7704 of the Internal Revenue Code.\66\ Pipeline commenters present two specific arguments to support their Congressional intent claims, both of which are unavailing. First, they argue that because the Commission's policy in 1987 allowed pass-through entities to recover the same income tax allowance as corporations, Congress understood and intended to continue that rate treatment in section 7704.\67\ Second, they present a letter that Senator Max Baucus submitted to the Commission in 1996,\68\ expressing concern with the Commission's decision to allow MLP pipelines only a partial income tax allowance in Lakehead.\69\ --------------------------------------------------------------------------- \65\ See INGAA Initial Comments at 12-13; MLPA Initial Comments at 3-4; AOPL Initial Comments at 7, 41-42; SFPP Initial Comments at 30; TransCanada Corporation Initial Comments at 2; Enbridge Initial Comments at 4; Meliora Capital, LLC Initial Comments. \66\ 26 U.S.C. 7704. \67\ INGAA Initial Comments at 13-15. \68\ INGAA Initial Comments at 14; MLPA Initial Comments at 3-4. \69\ Lakehead Pipe Line Co., L.P., 75 FERC ] 61,181 (1996). Senator Baucus participated in the writing of the 1987 legislation. The letter states that ``placing this obstacle in the path of pipeline companies wishing to operate as [publicly-traded partnerships] directly contravenes the policy we adopted in that legislation of making the [publicly-traded partnership] structure freely available to the pipeline industry'' and ``[i]t was certainly not our intention for pipelines operating as [publicly-traded partnerships] to be singled out for negative treatment relative to other pipelines solely because of their partnership status.'' Letter from U.S. Senator Max Baucus, FERC Docket No. IS92-27-000 (Jan. 9, 1996). --------------------------------------------------------------------------- 38. As discussed in the Remand Order, the D.C. Circuit has twice rejected the argument that Congress' intent in section 7704 provides an independent basis for upholding a full income tax allowance for partnership pipelines.\70\ Consistent with these holdings, the court in United Airlines unequivocally instructed the Commission to consider ``mechanisms for which the Commission can demonstrate that there is no double recovery.'' \71\ Accordingly, the pipeline commenters' attempt to justify affording MLP pipelines an income tax allowance on the basis that the Commission is implementing Congress' intent in section 7704 is contrary to United Airlines. --------------------------------------------------------------------------- \70\ BP West Coast, 374 F.3d at 1293 (``[t]he mandate of Congress in the tax amendment was exhausted when the pipeline limited partnership was exempted from corporate taxation. It did not empower FERC to do anything. . . .''); United Airlines, 827 F.3d at 136 (rejecting the Commission's argument that ``any disparate treatment between partners in partnership pipelines and shareholders in corporate pipelines is the result of the Internal Revenue Code, not FERC's tax allowance policy''). \71\ United Airlines, 827 F.3d at 136. --------------------------------------------------------------------------- 39. In addition, the pipeline commenters fail to demonstrate that Congress intended the Commission's income tax allowance policy to provide a necessary component of the advantages conferred in section 7704. They provide no support for their argument that because the Commission afforded partnerships a tax allowance in 1987, Congress intended to continue that rate treatment in the 1987 legislation.\72\ --------------------------------------------------------------------------- \72\ As the Commission explains in the Remand Order, Congress did not provide explicit instructions to federal agencies regarding how to address section 7704's tax treatment in setting regulated entity rates as, for instance, it did in the Revenue Act of 1964. See Alabama-Tennessee Natural Gas Co. v. FPC, 359 F.2d 318, 333 (5th Cir. 1966) (``In the Revenue Acts of 1962 and 1964 Congress demonstrated that when it desires a tax statute to restrict the ratemaking authority of federal regulatory agencies it does so in precise language.''). Courts are hesitant to find that Congress implicitly intended to restrict an agency's discretion in carrying out its statutory obligations. See Alabama-Tennessee Natural Gas Co. v. FPC, 359 F.2d at 335 (``It is unlikely to suppose that Congress amended the Natural Gas Act by a reference in the Internal Revenue Code; it is unreasonable to read Section 167 [of the Code] as a mandate reducing the Commission's responsibility to fix fair rates according to its usual ratemaking policies in favor of the consumer''); see also Cheney R. Co. v. ICC, 902 F.2d 66, 69 (DC Cir. 1990) (``in an administrative setting, . . . Congress is presumed to have left to reasonable agency discretion questions that it has not directly resolved''). --------------------------------------------------------------------------- [[Page 12369]] 40. Nor do the pipeline commenters present any legislative history to support their claim. Regarding the letter from Senator Baucus, evidence of legislative intent that occurs subsequent to, and in this case years after, the 1987 enactment of section 7704 is entitled to little, if any weight.\73\ The MLPA also points to other legislation by Congress in recent years to demonstrate ongoing support for the use of MLPs to raise capital in the energy sector. These statutes do not include any specific provisions related to MLP pipeline rate treatment.\74\ --------------------------------------------------------------------------- \73\ See Thomas v. Network Solutions, Inc., 176 F. 3d 500, 507 n.10 (D.C. Cir. 1999) (referring to letters from members of Congress written after the legislation in question was passed and noting that ``[s]uch isolated post-enactment statements, to the extent that they are legislative history, carry little weight''); U.S. v. United Mine Workers of America, 330 U.S. 258, 282 (1947) (remarks of senators in 1943 were not an authoritative source of evidence of Congress' legislative intent in enacting a 1932 statute); D.C. v. Heller, 554 U.S. 570, 605 (2008) (``post-enactment legislative history . . . a deprecatory contradiction in terms, refers to statements of those who drafted or voted for the law that are made after its enactment and hence could have no effect on the congressional vote''); Barber v. Thomas, 560 U.S. 474, 486 (2010) (``whatever interpretive force one attaches to legislative history, the Court normally gives little weight to statements, such as those of the individual legislators, made after the bill in question has become a law''); Friends of Earth, Inc. v. E.P.A., 446 F.3d 140, 147 (D.C. Cir. 2006) (```[P]ost-enactment legislative history,' after all, `is not only oxymoronic but inherently entitled to little weight''') (quoting Cobell v. Norton, 428 F.3d 1070, 1075 (D.C. Cir. 2005)). \74\ See MLPA Initial Comments at 4 (citing the American Jobs Creation Act, Emergency Economic Stabilization Act of 2008, and the Tax Reform Act of 2014). --------------------------------------------------------------------------- 41. In conclusion, removing the income tax allowance will not eviscerate the preferential tax treatment that Congress gave entities engaged in natural resource activities \75\ by permitting them to operate as publicly-traded partnerships with pass-through taxation, including the ability to reach a broader base of investors and defer certain tax obligations.\76\ Even in the absence of an income tax allowance, the energy sector will benefit from the MLP business form by enabling MLP-owned pipelines to provide lower tariff rates to shippers, including those engaged in production, marketing and refining. --------------------------------------------------------------------------- \75\ An MLP must receive at least 90 percent of its income from certain qualifying sources including ``the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy, and timber), industrial source carbon dioxide, or the transportation or storage of [certain fuels].'' 26 U.S.C. 7704. \76\ Pipeline commenters explain that the MLP structure permits risk sharing by combining pass-through taxation and publicly-traded units which allows MLPs to reach a broader base of investors and facilitates raising capital for infrastructure projects. AOPL Initial Comments at 6, 39, 13; MLPA Initial Comments at 2-3. --------------------------------------------------------------------------- b. Preserving the Income Tax Allowance for MLP Pipelines Does Not Create Parity 42. Pipeline commenters claim that removing the income tax allowance would put MLP pipelines at a competitive disadvantage relative to corporate pipelines.\77\ --------------------------------------------------------------------------- \77\ AOPL Initial Comments at 43; INGAA Initial Comments at 7, 15; MLPA Initial Comments at 15. --------------------------------------------------------------------------- 43. The court in United Airlines reached the opposite conclusion. The court determined that granting MLP pipelines an income tax allowance results in inequitable returns for partners as compared to corporate shareholders because this policy allows partnership pipelines, unlike corporate pipelines, to recover their income tax costs twice.\78\ Therefore, removal of the income tax allowance for MLP pipelines restores parity between MLPs and corporations by ensuring that a pipeline recovers its income tax costs only once regardless of business form.\79\ --------------------------------------------------------------------------- \78\ United Airlines, 827 F.3d at 136. \79\ While comments have presented hypotheticals in an attempt to show that MLPs require such a double recovery, they suffer from the same defects as the pipelines' other arguments. For instance, while SFPP attempts to include a hypothetical showing that an income tax allowance is necessary to equalize returns, this hypothetical depends upon the faulty investor gross-up theory discussed above. See SFPP Initial Comments, Vander Weide Affidavit at 12 (Table 2, Lines 11-15, showing the before-tax DCF ROE and investor's pre-tax return equaling the investor's after-tax return). --------------------------------------------------------------------------- c. Preserving the Income Tax Allowance Is Not Necessary for Pipelines To Attract Capital 44. Pipelines claim that removal of the income tax allowance for MLPs will deny pipelines adequate recovery under Hope and deter investment.\80\ This is not the case. Notwithstanding the absence of an income tax allowance, MLP pipelines will continue to recover their costs and a reasonable return for investors. United Airlines and the Remand Order merely deny MLP pipelines the double recovery of their income tax costs. --------------------------------------------------------------------------- \80\ INGAA Initial Comments at 27-28; AOPL Initial Comments at 7, 35-37. --------------------------------------------------------------------------- B. Conclusion 45. As discussed above, the Commission finds that granting an MLP an income tax allowance results in an impermissible double recovery. This Revised Policy Statement does not address other, non-MLP partnership or other pass-through business forms.\81\ While any such entity claiming an income tax allowance will need to address the concerns raised by the court in United Airlines, the Commission will address income tax allowance issues involving non-MLP partnership forms in subsequent proceedings. --------------------------------------------------------------------------- \81\ See, e.g., Initial Comments of the United Airlines Petitioners and Allied Shippers at 14 (``A generic proceeding is not well-suited to addressing the wide array of possible organizational forms and their respective tax implications. The better approach would be to examine the appropriate tax allowance treatment on a case-by-case basis in adjudicatory proceedings in which various business structures and their consequences can be examined in detail on an individual, case-specific basis.''); Liquids Shipper Group Initial Comments at 7 (``To the extent there may be individual and complex pipeline ownership structures that include both partnerships and corporations, the application of the FERC's policy can be determined on a case-by-case basis, addressing those unique circumstances.''). --------------------------------------------------------------------------- 46. This Revised Policy Statement will affect both oil and natural gas MLP pipelines on a going-forward basis. Some late-filed comments proposed that the Commission take immediate action to require natural gas and oil pipelines to reduce rates to reflect the Tax Cuts and Jobs Act. As noted above, the Commission is concurrently issuing a Notice of Proposed Rulemaking that addresses the effects upon interstate natural gas pipeline rates of the post-United Airlines' policy changes and the Tax Cuts and Jobs Act of 2017.\82\ While the Commission is not taking similar industry-wide action regarding oil pipeline rates, these issues will be addressed in due course. When oil pipelines file Form No. 6, page 700 on April 18, 2018, they must report an income tax allowance consistent with United Airlines and the Commission's subsequent holdings denying an MLP an income tax allowance.\83\ Based upon page 700 data, the Commission will incorporate the effects of the post- United Airlines' policy changes (as well as the Tax Cuts and Jobs Act of 2017) \84\ [[Page 12370]] on industry-wide oil pipeline costs in the 2020 five-year review of the oil pipeline index level.\85\ In this way the Commission will ensure that the industry-wide reduced costs are incorporated on an industry- wide basis as part of the index review. To the extent the Commission issues subsequent orders affecting the income tax policy for other partnership or pass-through business forms, oil pipelines should similarly reflect those policy changes on Form No. 6, page 700. --------------------------------------------------------------------------- \82\ See Docket No. RM18-11-000. \83\ Due to these findings that including an income tax allowance in the cost of service leads to a double-recovery, there is no basis for an MLP pipeline to claim an income tax allowance in the summary Form No. 6, page 700 cost of service for the 2016 or 2017 data listed in the April 18, 2018 filing. \84\ The Tax Cuts and Jobs Act changed oil pipeline tax costs effective January 1, 2018, and the resulting reduction to tax costs should be reflected in the tax allowance (page 700, lines 8 and 8a) in the 2018 data reported in Form No. 6, page 700, to be filed on April 18, 2019. \85\ The overwhelming majority of oil pipelines set their rates using indexing, not cost-of-service ratemaking using an oil pipeline's particular costs. Under indexing, oil pipelines may adjust their rates annually, so long as those rates remain at or below the applicable ceiling levels. The ceiling levels change every July 1 based on an index that tracks industry-wide cost changes. 18 CFR 342.3. Currently, the index level is based upon the Producer's Price Index for Finished Goods plus 1.23. The index will be re- assessed in 2020 based upon industry-wide oil pipeline cost changes between 2014 and 2019. E.g. Five-Year Review of the Oil Pipeline Index, 153 FERC ] 61,312 (2015) aff'd, Assoc. of Oil Pipe Lines v. FERC, 876 F.3d 336 (D.C. Cir. 2017). The industry-wide data filed in the latter years of the 2014-2019 period should reflect the Commission's post-United Airlines policy changes as well as the Tax Cuts and Jobs Act. --------------------------------------------------------------------------- 47. In addition, the Commission emphasizes that the post-United Airlines' policy changes (as well as the Tax Cuts and Jobs Act of 2017) will be reflected in initial oil and gas pipeline cost-of-service rates and cost-of-service rate changes on a going-forward basis under the Commission's existing ratemaking policies,\86\ including cost-of- service rate proceedings resulting from shipper-initiated complaints. --------------------------------------------------------------------------- \86\ See, e.g., 18 CFR 154.312(m), 154.313(e)(13), 384.123; 342.2, 342.4(a); 18 CFR part 346. --------------------------------------------------------------------------- III. Document Availability 48. In addition to publishing the full text of this document in the Federal Register, the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the internet through FERC's Home Page (http://www.ferc.gov) and in FERC's Public Reference Room during normal business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street NE, Room 2A, Washington, DC 20426. 49. From FERC's Home Page on the internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field. 50. User assistance is available for eLibrary and the FERC's website during normal business hours from FERC Online Support at 202- 502-6652 (toll free at 1-866-208-3676) or email at [email protected], or the Public Reference Room at (202) 502- 8371, TTY (202) 502-8659. Email the Public Reference Room at [email protected]. IV. Effective Date 51. This Revised Policy Statement will become applicable March 21, 2018. By the Commission. Issued: March 15, 2018. Nathaniel J. Davis, Sr., Deputy Secretary. [FR Doc. 2018-05668 Filed 3-20-18; 8:45 am] BILLING CODE 6717-01-P
![12362 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices
plus all the other Federal funds you fund/grant/apply/appforms/ the document published in the Federal
receive exceed $10,000,000. appforms.html. Register. You may access the official
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VI. Award Administration Information Secretary may provide a grantee with Code of Federal Regulations via the
1. Award Notices: If your application additional funding for data collection Federal Digital System at: www.gpo.gov/
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Representative and U.S. Senators and Secretary establishes a data collection document, as well as all other
send you a Grant Award Notification period. documents of this Department
(GAN); or we may send you an email 5. Performance Measures: The overall published in the Federal Register, in
containing a link to access an electronic purpose of the SEED program is to text or Portable Document Format
version of your GAN. We may notify increase the number of highly effective (PDF). To use PDF you must have
you informally, also. educators by supporting Evidence-Based Adobe Acrobat Reader, which is
If your application is not evaluated or projects that prepare or provide available free at the site.
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2. Administrative and National Policy enhancement activities for teachers, Department published in the Federal
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requirements in the application package performance measures for the SEED Specifically, through the advanced
and reference these and other program: (a) The percentage of teacher, search feature at this site, you can limit
requirements in the Applicable principal, or other School Leader your search to documents published by
Regulations section of this notice. participants who serve concentrations of the Department.
We reference the regulations outlining high-need students; (b) the percentage of
the terms and conditions of an award in teacher and principal participants who Dated: March 16, 2018.
the Applicable Regulations section of serve concentrations of high-need Margo Anderson,
this notice and include these and other students and are highly effective; (c) the Acting Assistant Deputy Secretary for
specific conditions in the GAN. The percentage of teacher and principal Innovation and Improvement.
GAN also incorporates your approved participants who serve concentrations of [FR Doc. 2018–05750 Filed 3–20–18; 8:45 am]
application as part of your binding high-need students, are highly effective, BILLING CODE 4000–01–P
commitments under the grant. and serve for at least two years; (d) the
3. Open Licensing Requirements: cost per such participant; and (e) the
Unless an exception applies, if you are number of grantees with evaluations DEPARTMENT OF ENERGY
awarded a grant under this competition, that meet the WWC standards with
you will be required to openly license reservations. Grantees will report Federal Energy Regulatory
to the public grant deliverables created annually on each measure. Commission
in whole, or in part, with Department 6. Continuation Awards: In making a [Docket No. PL17–1–000]
grant funds. When the deliverable continuation award under 34 CFR
consists of modifications to pre-existing 75.253, the Secretary considers, among Inquiry Regarding the Commission’s
works, the license extends only to those other things: Whether a grantee has Policy for Recovery of Income Tax
modifications that can be separately made substantial progress in achieving Costs
identified and only to the extent that the goals and objectives of the project;
open licensing is permitted under the whether the grantee has expended funds AGENCY: Federal Energy Regulatory
terms of any licenses or other legal in a manner that is consistent with its Commission.
restrictions on the use of pre-existing approved application and budget; and, ACTION: Revised policy statement.
works. For additional information on if the Secretary has established
the open licensing requirements please performance measurement SUMMARY: Following the decision of the
refer to 2 CFR 3474.20(c). requirements, the performance targets in U.S. Court of Appeals for the District of
4. Reporting: (a) If you apply for a the grantee’s approved application. Columbia Circuit in United Airlines,
grant under this competition, you must In making a continuation award, the Inc., et al. v. Federal Energy Regulatory
ensure that you have in place the Secretary also considers whether the Commission, the Commission issued a
necessary processes and systems to grantee is operating in compliance with notice of inquiry (NOI) seeking
comply with the reporting requirements the assurances in its approved comment regarding how to address any
in 2 CFR part 170 should you receive application, including those applicable double recovery resulting from the
funding under the competition. This to Federal civil rights laws that prohibit Commission’s current income tax
does not apply if you have an exception discrimination in programs or activities allowance and rate of return policies.
under 2 CFR 170.110(b). receiving Federal financial assistance The Commission finds that an
(b) At the end of your project period, from the Department (34 CFR 100.4, impermissible double recovery results
you must submit a final performance 104.5, 106.4, 108.8, and 110.23). from granting a Master Limited
report, including financial information, Partnership (MLP) pipeline both an
as directed by the Secretary. If you VII. Other Information income tax allowance and a return on
receive a multiyear award, you must Accessible Format: Individuals with equity pursuant to the discounted cash
submit an annual performance report disabilities can obtain this document flow methodology. Accordingly, the
that provides the most current Commission revises its policy and will
sradovich on DSK3GMQ082PROD with NOTICES
and a copy of the application package in
performance and financial expenditure an accessible format (e.g., braille, large no longer permit an MLP to recover an
information as directed by the Secretary print, audiotape, or compact disc) on income tax allowance in its cost of
under 34 CFR 75.118. The Secretary request to the program contact person service. While all partnerships seeking
may also require more frequent listed under FOR FURTHER INFORMATION to recover an income tax allowance will
performance reports under 34 CFR CONTACT. need to address the double-recovery
75.720(c). For specific requirements on Electronic Access to This Document: concern, the Commission will address
reporting, please go to www.ed.gov/ The official version of this document is the application of United Airlines to
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![Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices 12365
tax liabilities and to earn an after-tax pipelines’ arguments do not address the that there is no double recovery. In
return that is comparable to other D.C. Circuit’s finding that the DCF ROE essence, SFPP contends that the pre-tax
investments of similar risk.24 Likewise, itself enables the recovery of an MLP’s return produced by a DCF analysis of an
if the MLP’s cash flows are reduced ‘‘first tier’’ tax costs, rendering an MLP with a tax allowance is the
(such as via the removal of the income income tax allowance unnecessary. equivalent of an after-tax return, since
tax allowance) and consequently Whether or not a tax can be labeled a investors do not demand a pre-tax
distributions decline, the MLP unit ‘‘first tier’’ tax is irrelevant to the return. Similarly, SFPP argues that if
price will drop until the returns once double-recovery issue. No double MLPs lose the income tax allowance,
again both cover an investor’s tax costs recovery results when a corporate then the MLP investors will demand a
and provide the sufficient after-tax pipeline’s cost of service includes an higher pre-tax return than under present
returns. Whether or not a pipeline income tax allowance because this so- policy.
receives an income tax allowance, the called ‘‘first tier’’ corporate income tax
18. The Commission rejects SFPP’s
MLP’s DCF return will always be a pre- is paid directly by the corporation,
investor tax return.25 rather than by unitholders from the assertions. These arguments distort how
dividends used in the DCF the income tax allowance affects
b. The Argument That MLPs Are investor tax liability. MLP investors owe
methodology.28 In contrast, the MLP
Entitled To Recover ‘‘First Tier’’ Taxes a tax on any increased income, whether
itself pays no taxes.29 Because the ‘‘first
Is Irrelevant or not that income results from an
tier’’ MLP income taxes are paid directly
15. Some commenters contend that by the unitholders,30 the D.C. Circuit income tax allowance or another
removing the income tax allowance is explained that the pre-investor tax DCF source.33 Accordingly, while as
contrary to Commission and court return must be sufficient to recover an discussed above an MLP income tax
findings that MLP pipelines may MLP investor’s tax costs in order to allowance may increase the unit price,
recover so-called ‘‘first tier’’ taxes for attract capital. While the D.C. Circuit investors will continue to demand a pre-
income generated by the regulated reaffirmed that an MLP pipeline may tax return even when a portion of a
pipeline.26 The pipelines claim that recover such ‘‘first tier’’ investor income pipeline’s rate is attributable to an
because a partnership does not itself pay tax costs, the D.C. Circuit also held that ‘‘income tax allowance.’’ 34
taxes, the taxes paid by the partners are an MLP pipeline may not double Notwithstanding the presence of an
the ‘‘first tier’’ tax, much like the recover those costs via both an income income tax allowance, the pre-investor
corporate income tax is the ‘‘first tier’’ tax allowance and the DCF return.31 tax ROE produced by the DCF analysis
tax for the corporation. The pipelines does not equal the investor’s after-tax
contrast these ‘‘first tier’’ taxes with so- c. The Argument That the Tax return. Likewise, if an MLP pipeline’s
called ‘‘second tier’’ taxes (such as the Allowance Reduces Investors’ Required loss of its income tax allowance reduces
dividend tax paid by corporate Return Lacks Merit rates and investor income, the unit price
stockholders) which are not typically 17. SFPP argues that investors will decline until the investor once
recovered by the income tax allowance. recognize that the income tax costs are again earns an adequate pre-tax return.
16. The Commission is not persuaded recovered by the pipeline through the 19. SFPP’s comments rely almost
by such arguments, which were already income tax allowance and therefore, exclusively upon the incorrect
presented to the D.C. Circuit.27 The elect not to demand a DCF return on assumption that for an MLP with an
their investment that would cover those income tax allowance, an MLP
24 United Airlines, 827 F.3d at 136. In finding that
income tax costs.32 Because under this
‘‘the [DCF ROE] determines the pre-tax investor investor’s pre-tax return equals its after-
theory the DCF return would not
return required to attract investment, irrespective of tax return.35 However, while SFPP relies
whether the regulated entity is a partnership or a include investor tax costs, SFPP argues
heavily upon this assumption in this
corporate pipeline,’’ the Court relied on Opinion
No. 511, 134 FERC ¶ 61,121 at PP 243, 244, which 28 Corporations first pay the corporate income tax
proceeding, SFPP elsewhere takes the
included the following example: from their earnings prior to any dividends to opposite position—presenting
The investor desires a 6 percent after-tax return investors. Then, subsequently, investors pay taxes hypotheticals showing that an investor
and has a 25 percent marginal tax rate. Thus, the on dividends. While the pre-investor tax DCF return will demand a pre-tax return whether or
security must have an ROE of 8 percent to achieve would reflect the dividend tax paid by investors, it
an after-tax yield of 6 percent. Assume that the does not reflect the corporate income tax.
33 The Internal Revenue Code does not exempt
distribution or dividend is $8. The investor will 29 United Airlines, 827 F.3d at 136 (explaining
price the security at $100. Conversely, if the ‘‘unlike a corporate pipeline, a partnership pipeline from taxation income that results from the increases
security price is $100 and the yield is $8, the incurs no taxes, except those imputed from its to rates resulting from the cost-of-service income
Commission determines that the required return is partners, at the entity level’’). tax allowance.
8 percent. If the dollar distribution increases to $10, 30 In the past, the Commission has stated that its 34 Suppose an income tax allowance increases a
the investor will price the security at $125 because income tax allowance policy ‘‘imputes’’ those pipeline’s rates, raising investor income from $10
$10 is 8 percent of $125. The Commission would investor-level taxes to the partnership entity. In to $12. Two things have occurred; first the
note that the security price is $125 and that the using such phrasing, the Commission never denied investor’s pre-tax income increased from $10 to $12
yield is $10, or a return of 8 percent. If the that investors nonetheless pay the investor-level and second the investor now owes taxes on $12 of
distribution is $6, the security price will drop to taxes. income just as she owed taxes on the initial $10.
$75, a return of 8 percent. The Commission would 31 In United Airlines, the D.C. Circuit The unit price will increase until the investor
observe a $75 dollar security price, a $6 yield, and acknowledged that in ExxonMobil it held that the receives the same pre-tax return at $12 of income
a return of 8 percent. In all cases the ROE is 8 Commission provided a reasoned basis for allowing that it received at $10 of income. In other words,
percent and the after-tax return is 6 percent based an MLP pipeline to recover the ‘‘first tier’’ income Commission policy does not shift the actual
on the market-established return. tax costs paid by the MLP partners. However, the liability to pay income taxes from the MLP partners
25 This is true both for the entity whose rates are to the MLP itself.
D.C. Circuit explained that in ExxonMobil, it had
at issue in a cost-of-service rate case (such as SFPP ‘‘reserved the issue of whether the combination of 35 E.g,. SFPP Initial Comments, Vander Weide
sradovich on DSK3GMQ082PROD with NOTICES
in the Remand Order) and for the entities in the the [DCF ROE] and the tax allowance results in a Affidavit at 8 (Table 1, Lines 11–15, showing the
proxy group. double recovery of taxes for partnership pipelines.’’ before-tax DCF ROE equaling the investor’s after-tax
26 Interstate Natural Gas Association of America United Airlines, 827 F.3d at 134; see also return), 12 (Table 2, Lines 11–15, showing the
(INGAA) Initial Comments, Sullivan Affidavit at ExxonMobil, 487 F.3d 945. before-tax DCF ROE and investor’s pre-tax return
12–14, 24–25, 27. 32 SFPP Initial Comments at 17, Vander Weide equaling the investor’s after-tax return), 16 (Table
27 Federal Energy Regulatory Commission and Declaration at PP 12, 14, 18. SFPP claims that 3, lines 11–15 showing for a pipeline with an
United States of America, Brief for Respondents, investors will not ‘‘gross-up’’ the required after-tax income tax allowance, the before-tax DCF ROE and
Case No. 11–1479, at 26 (D.C. Cir., filed Feb. 5, return to include tax costs. SFPP Initial Comments investor’s pre-tax return equaling the investor’s
2016). at 16; Vander Weide Declaration at PP 6, 18. after-tax return).
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not the pipeline receives an income tax the model, Erickson finds that MLPs’ related to the sale of MLP units.45 The
allowance.36 and corporations’ aggregate tax burdens Brattle report presented by shipper
are comparable and that both earn commenters similarly demonstrates how
d. The Cost-of-Service Gross-Up Theory
similar returns if MLPs are permitted an reasonable changes to Erickson’s
Was Rejected by the D.C. Circuit
income tax allowance.40 Pipeline assumptions change the model’s
20. Some pipeline commenters also commenters claim that the model output.46 Thus, Erickson’s hypothetical
attempt to reframe the cost-of-service globally demonstrates that the does not undermine the fundamental
‘‘gross-up’’ theory rejected by the D.C. Commission’s current income tax policy conclusion of United Airlines that
Circuit. This argument, which the provides parity in the returns to allowing MLP pipelines to include both
Commission also made on appeal in the partnerships and corporations.41 an income tax allowance and a full DCF
United Airlines proceeding, asserts that 23. We do not find this argument to ROE in their cost of service leads to a
the DCF return does not include be persuasive. Erickson’s life-cycle double recovery.
investor tax costs because the model does not undermine the
Commission never adjusts, or ‘‘grosses- fundamental premise of United Airlines f. The Treatment of the Growth Rate in
that an income tax allowance for MLP the DCF Does Not Resolve the Double
up,’’ the return produced by the DCF
pipelines leads to a double recovery. Recovery Concern
analysis to recover such tax costs.37 In
response to the NOI, pipeline Whether or not the overall MLP and 25. Pipelines emphasize that in the
commenters assert that the DCF ROE corporate tax burdens are equivalent or DCF formula, the Commission projects
cannot include an MLP investor’s different, if the investor tax costs are that the long-term growth of MLP
income tax costs because the income tax incorporated into the DCF returns, then pipelines will be only half that of
costs are not a separate line item in the the income tax allowance for MLP corporations.47 Therefore, they argue
DCF methodology.38 pipelines leads to a double recovery.42 ‘‘to the extent the Commission
21. The Commission rejects this 24. In addition, Erickson’s model does concludes that there is a potential for
position. The Commission’s DCF not necessarily establish that overall double recovery of income tax costs
methodology need not include a MLP tax levels are actually comparable through the MLP ROE, the Commission
mathematical step to add income taxes. to corporate tax levels or that an income has already addressed that concern.’’ 48
For the reasons described above, ‘‘the tax allowance equalizes returns. Like 26. The Commission concludes that
[DCF ROE] determines the pre-tax similar hypothetical models, the results the treatment in the DCF analysis of the
investor return’’ 39 that already reflects of Erickson’s proposal rely upon long-term MLP growth projection does
cash flow for both the (a) investor’s tax subjective assumptions.43 For example, not resolve the double-recovery concern
costs and (b) the investor’s post-tax as Thomas Horst explains, Erickson’s in United Airlines. When conducting a
return. hypothetical would show that MLPs DCF analysis to determine investors’
(with an income tax allowance) receive required rate of return, the Commission
e. The Life-Cycle Hypothetical Does Not higher returns if Erickson had halves the long-term growth rate for
Refute the D.C. Circuit’s Holding accounted for (a) the time value of MLPs in the proxy group because MLPs
22. INGAA witness Merle Erickson money 44 and (b) certain tax issues are likely to have a lower long-term
presents a life-cycle model that growth rate than corporations.49 The
compares the total tax expenses of a 40 INGAA Initial Comments, Erickson Affidavit at
hypothetical MLP to a hypothetical 12. investor can use depreciation and other deductions
41 INGAA Initial Comments at 4, 25. to offset taxable income. As a result, an MLP
corporation. Under the assumptions of 42 Erickson investor may have no net taxable income in a given
himself concedes that MLP
unitholders must pay the entirety of the tax burden year. NOI, 157 FERC ¶ 61,210 at P 6. Even though
36 In its West Line rate case, SFPP filed post- the investor may ultimately be required to pay such
whereas corporate unitholders must only pay the
remand comments and supplemental comments dividend tax (not the corporate income tax). INGAA taxes when the units are sold, the MLP investor
following United Airlines. In those comments, SFPP Initial Comments, Erickson Affidavit at 13. benefits from the time value of money during the
presented a hypothetical showing that an MLP Accordingly, it follows that whereas the DCF return deferral period.
recovering both an income tax allowance (Table 1, for an MLP pipeline must include the entire income 45 Id. Dr. Horst argues that when an MLP unit is
Column C) and a DCF ROE earns the same 6.5 tax costs, a corporate pipeline’s DCF return would sold, its basis increases—much like in the sale of
percent investor after-tax return as an MLP without not include the corporate income tax. any property or asset. This only further increases
an income tax allowance (Table 1, Column D). 43 When attacking models proposed by shippers, the depreciation deferrals that are available to the
SFPP, L.P., Supplemental Reply Comments, Docket AOPL witness John Graham states that for such subsequent investor.
No. IS08–390, at 10 (November 30, 2016). While the hypotheticals, ‘‘There are too many variables to 46 United Airlines Petitioners Reply Comments,
table does not show the investors’ pre-tax returns, draw broad-based conclusions.’’ AOPL Initial Brattle Report at PP 73–74.
since both pipelines were subject to a 35 percent Comments, Graham Affidavit at 8. This comment 47 AOPL Initial Comments at 46. As noted above,
investor level tax, both must have recovered a 10 applies with equal force to Erickson’s model. the DCF relies upon the general formula k = D / P
percent pre-tax investor return. Thus, in SFPP’s Erickson’s assumptions include (1) a five-year + g. The growth rate in this formula incorporates
own example, the cost-of-service double-recovery of investment horizon; (2) that the MLP distributes all two components: A short term growth rate
income tax costs of the pipeline in Column C available cash and the corporation has a 65 percent (calculated using security analysts’ five-year
inflated the unit price until it earned the same pre- dividend pay-out ratio; (3) certain tax rates for forecasts for each company in the proxy group as
tax return as the pipeline without an income tax corporate income, corporate dividends and capital published by IBES) and a long-term growth rate
allowance in Column D. gains, and ordinary MLP income; and (4) that the (based upon forecasts for gross domestic product
37 Federal Energy Regulatory Commission and (GDP) growth). The short-term forecast receives a
corporate investors are able to sell their stock for
United States of America, Brief for Respondents, the value of their original investment plus two-thirds weighting and the long-term forecast
Case No. 11–1479, at 28–29 (D.C. Cir., filed Feb. 5, accumulated retained earnings, while the MLP receives a one-third weighting in calculating the
2016) (citations omitted) (‘‘In contrast to the way in investors sell their units for the value of their growth rate in the DCF model. Proxy Group Policy
which income taxes are grossed up outside the original investment. The life-cycle model also Statement, 123 FERC ¶ 61,048 at P 6.
context of Commission regulation, the Commission assumes constant earnings before interest, taxes, 48 AOPL Initial Comments at 46.
sradovich on DSK3GMQ082PROD with NOTICES
does not gross up [i.e., increase] a jurisdictional depreciation and amortization and application of a 49 The Commission explained corporations ‘‘(1)
entity’s operating revenues or return to cover the fifteen-year Modified Accelerated Cost Recovery have greater opportunities for diversification
income taxes that must be paid to obtain its after- System. The life-cycle analysis does not take into because their investment opportunities are not
tax return.’’). account the time value of money in reporting the limited to those that meet the tax qualifying
38 INGAA Initial Comments at 24, Sullivan total after-tax cash flow to the MLP and corporate standards for an MLP and (2) are able to assume
Affidavit at 6, 17–18, 22, 25–27, 30. investors. greater risk at the margin because of less pressure
39 United Airlines, 827 F.3d at 136 (citing 44 Thomas Horst Reply Comments at 2. An to maintain a high payout ratio.’’ Proxy Group
Opinion No. 511, 134 FERC ¶ 61,121 at PP 243– investor in a corporation usually must pay his Policy Statement, 123 FERC ¶ 61,048 at P 93.
44). dividend taxes immediately. In contrast, an MLP Accordingly, the Commission concluded that the
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![12368 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices
analysis.60 While the pipeline multiple other risk and market factors expressing concern with the
commenters’ second study attempts to that could affect any particular MLP and Commission’s decision to allow MLP
address varying risk levels by corporate pipeline’s DCF returns, pipelines only a partial income tax
comparing four affiliated corporations distribution yields, and growth levels. allowance in Lakehead.69
and MLPs in their first study,61 the Moreover, as discussed previously, to 38. As discussed in the Remand
affiliated MLPs were only a fraction of the extent an MLP pipeline double- Order, the D.C. Circuit has twice
the affiliated corporations’ larger recovers its costs, the unit price will rejected the argument that Congress’
business interests, which, as the rise—obscuring the effects of the double intent in section 7704 provides an
pipeline commenters concede, recovery in the distribution yields, independent basis for upholding a full
contributed to significant fluctuations in projected growth rates, and DCF income tax allowance for partnership
the relationship between the two returns.64 These studies do not pipelines.70 Consistent with these
entities’ relative DCF returns.62 undermine the double-recovery findings holdings, the court in United Airlines
Moreover, this analysis based upon a of United Airlines or the Remand Order. unequivocally instructed the
mere four examples does not establish Commission to consider ‘‘mechanisms
2. Other Arguments for Preserving an
how investor level taxes (as opposed to for which the Commission can
Income Tax Allowance Lack Merit
other factors) affect either corporate or demonstrate that there is no double
MLP investor returns. 36. Pipeline commenters also argue recovery.’’ 71 Accordingly, the pipeline
34. Pipelines advance a second that even if a double recovery exists, the commenters’ attempt to justify affording
argument—that if MLPs are double income tax allowance should MLP pipelines an income tax allowance
recovering their costs, they should nonetheless be preserved. These on the basis that the Commission is
report higher returns than corporations. arguments rely upon (1) Congressional implementing Congress’ intent in
For example, INGAA witness Sullivan intent, (2) preserving parity between section 7704 is contrary to United
also argues that ‘‘[i]f MLPs double corporate and MLP pipelines, and (3) Airlines.
recovered income taxes through both an the effect of removing the income tax 39. In addition, the pipeline
income tax allowance and a DCF return, allowance upon the ability of pipelines commenters fail to demonstrate that
I would expect the DCF ROEs and its to attract capital. As discussed below, Congress intended the Commission’s
components, the distribution yields and these arguments were either explicitly income tax allowance policy to provide
the IBES growth rates of MLPs to be rejected by the D.C. Circuit in United a necessary component of the
systematically higher than corporations Airlines or are otherwise without merit. advantages conferred in section 7704.
throughout the period 2008 to the a. Congressional Intent Does Not They provide no support for their
present.’’ 63 Citing the same studies Authorize a Double Recovery argument that because the Commission
above, Sullivan argues that because the afforded partnerships a tax allowance in
data does not show systematically 37. Pipeline commenters argue that
1987, Congress intended to continue
higher returns, yields or growth rates for providing MLP pipelines an income tax
that rate treatment in the 1987
MLPs, there must be no double allowance implements Congress’ intent
legislation.72
recovery. to facilitate infrastructure investment.65
35. The Commission finds this In 1987 Congress eliminated pass- 69 Lakehead Pipe Line Co., L.P., 75 FERC ¶ 61,181
argument unpersuasive because it relies through status for most publicly-traded (1996). Senator Baucus participated in the writing
upon the same flawed studies discussed partnerships, but explicitly granted an of the 1987 legislation. The letter states that
exception for certain energy-related ‘‘placing this obstacle in the path of pipeline
above. As noted above, the line graphs companies wishing to operate as [publicly-traded
provide a flawed analysis that may MLPs in section 7704 of the Internal partnerships] directly contravenes the policy we
obscure actual differences between Revenue Code.66 Pipeline commenters adopted in that legislation of making the [publicly-
MLPs and corporations and, more present two specific arguments to traded partnership] structure freely available to the
fundamentally, that fails to address the support their Congressional intent pipeline industry’’ and ‘‘[i]t was certainly not our
claims, both of which are unavailing. intention for pipelines operating as [publicly-traded
partnerships] to be singled out for negative
60 For example, on page 49 of his affidavit, First, they argue that because the treatment relative to other pipelines solely because
INGAA consultant Sullivan submitted a line-chart Commission’s policy in 1987 allowed of their partnership status.’’ Letter from U.S.
which purports to show that corporate and MLP pass-through entities to recover the Senator Max Baucus, FERC Docket No. IS92–27–
DCF returns are not discernibly different. However, same income tax allowance as 000 (Jan. 9, 1996).
(a) the y-axis is drawn so as to compress most of 70 BP West Coast, 374 F.3d at 1293 (‘‘[t]he
the returns to a narrow band, and (b) meaningful corporations, Congress understood and mandate of Congress in the tax amendment was
statistical differences could be completely obscured intended to continue that rate treatment exhausted when the pipeline limited partnership
by this poor graphical presentation. Similar in section 7704.67 Second, they present was exempted from corporate taxation. It did not
criticisms apply to Sullivan’s comparison of MLP a letter that Senator Max Baucus empower FERC to do anything. . . .’’); United
distributions to corporate dividends on page 65 of Airlines, 827 F.3d at 136 (rejecting the
his affidavit and growth rates on page 68 of his
submitted to the Commission in 1996,68
Commission’s argument that ‘‘any disparate
affidavit. It is possible that a more precise treatment between partners in partnership pipelines
numerical example could actually present facts 64 As explained in section II.A.1.a, whether or not
and shareholders in corporate pipelines is the result
undermining the pipelines’ favored result. a pipeline receives an income tax allowance, the of the Internal Revenue Code, not FERC’s tax
61 Id. at 52–62. Sullivan also adds a comparison DCF return will always be a pre-investor tax return. allowance policy’’).
between a completely unrelated MLP (Boardwalk However, to the extent a pipeline is permitted to 71 United Airlines, 827 F.3d at 136.
Pipeline Partners) and a corporation (Kinder start double-recovering its costs, the unit price will 72 As the Commission explains in the Remand
Morgan). Because these are completely different rise until the DCF once again provides investors
Order, Congress did not provide explicit
businesses, such a comparison is irrelevant for the with a pre-tax return.
65 See INGAA Initial Comments at 12–13; MLPA
instructions to federal agencies regarding how to
purpose of identifying the effect of different tax address section 7704’s tax treatment in setting
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levels on the DCF. Initial Comments at 3–4; AOPL Initial Comments at regulated entity rates as, for instance, it did in the
62 For each of the four pairs, the DCF return for 7, 41–42; SFPP Initial Comments at 30; Revenue Act of 1964. See Alabama-Tennessee
the corporation at times exceeded the return for the TransCanada Corporation Initial Comments at 2; Natural Gas Co. v. FPC, 359 F.2d 318, 333 (5th Cir.
MLP whereas on other occasions the return for the Enbridge Initial Comments at 4; Meliora Capital, 1966) (‘‘In the Revenue Acts of 1962 and 1964
MLP exceeded the corporation. Id. Sullivan LLC Initial Comments. Congress demonstrated that when it desires a tax
66 26 U.S.C. 7704.
describes situations in which growth estimates or statute to restrict the ratemaking authority of federal
factors involving unrelated assets would affect the 67 INGAA Initial Comments at 13–15.
regulatory agencies it does so in precise language.’’).
DCF return of the corporation but not the MLP. 68 INGAA Initial Comments at 14; MLPA Initial Courts are hesitant to find that Congress implicitly
63 Id. at 58. Comments at 3–4. intended to restrict an agency’s discretion in
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![Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices 12369
40. Nor do the pipeline commenters certain tax obligations.76 Even in the B. Conclusion
present any legislative history to absence of an income tax allowance, the 45. As discussed above, the
support their claim. Regarding the letter energy sector will benefit from the MLP Commission finds that granting an MLP
from Senator Baucus, evidence of business form by enabling MLP-owned an income tax allowance results in an
legislative intent that occurs subsequent pipelines to provide lower tariff rates to impermissible double recovery. This
to, and in this case years after, the 1987 shippers, including those engaged in Revised Policy Statement does not
enactment of section 7704 is entitled to production, marketing and refining. address other, non-MLP partnership or
little, if any weight.73 The MLPA also other pass-through business forms.81
points to other legislation by Congress b. Preserving the Income Tax Allowance
for MLP Pipelines Does Not Create While any such entity claiming an
in recent years to demonstrate ongoing income tax allowance will need to
support for the use of MLPs to raise Parity
address the concerns raised by the court
capital in the energy sector. These 42. Pipeline commenters claim that in United Airlines, the Commission will
statutes do not include any specific removing the income tax allowance address income tax allowance issues
provisions related to MLP pipeline rate would put MLP pipelines at a involving non-MLP partnership forms in
treatment.74 competitive disadvantage relative to subsequent proceedings.
41. In conclusion, removing the corporate pipelines.77 46. This Revised Policy Statement
income tax allowance will not will affect both oil and natural gas MLP
43. The court in United Airlines
eviscerate the preferential tax treatment pipelines on a going-forward basis.
reached the opposite conclusion. The
that Congress gave entities engaged in Some late-filed comments proposed that
court determined that granting MLP
natural resource activities 75 by the Commission take immediate action
pipelines an income tax allowance
permitting them to operate as publicly- to require natural gas and oil pipelines
results in inequitable returns for
traded partnerships with pass-through to reduce rates to reflect the Tax Cuts
partners as compared to corporate
taxation, including the ability to reach and Jobs Act. As noted above, the
shareholders because this policy allows
a broader base of investors and defer Commission is concurrently issuing a
partnership pipelines, unlike corporate
pipelines, to recover their income tax Notice of Proposed Rulemaking that
carrying out its statutory obligations. See Alabama-
Tennessee Natural Gas Co. v. FPC, 359 F.2d at 335 costs twice.78 Therefore, removal of the addresses the effects upon interstate
(‘‘It is unlikely to suppose that Congress amended income tax allowance for MLP pipelines natural gas pipeline rates of the post-
the Natural Gas Act by a reference in the Internal restores parity between MLPs and United Airlines’ policy changes and the
Revenue Code; it is unreasonable to read Section Tax Cuts and Jobs Act of 2017.82 While
167 [of the Code] as a mandate reducing the
corporations by ensuring that a pipeline
Commission’s responsibility to fix fair rates recovers its income tax costs only once the Commission is not taking similar
according to its usual ratemaking policies in favor regardless of business form.79 industry-wide action regarding oil
of the consumer’’); see also Cheney R. Co. v. ICC, pipeline rates, these issues will be
902 F.2d 66, 69 (DC Cir. 1990) (‘‘in an c. Preserving the Income Tax Allowance addressed in due course. When oil
administrative setting, . . . Congress is presumed to Is Not Necessary for Pipelines To Attract
have left to reasonable agency discretion questions
pipelines file Form No. 6, page 700 on
that it has not directly resolved’’).
Capital April 18, 2018, they must report an
73 See Thomas v. Network Solutions, Inc., 176 F.
44. Pipelines claim that removal of income tax allowance consistent with
3d 500, 507 n.10 (D.C. Cir. 1999) (referring to letters
the income tax allowance for MLPs will United Airlines and the Commission’s
from members of Congress written after the subsequent holdings denying an MLP an
legislation in question was passed and noting that deny pipelines adequate recovery under
‘‘[s]uch isolated post-enactment statements, to the Hope and deter investment.80 This is income tax allowance.83 Based upon
extent that they are legislative history, carry little not the case. Notwithstanding the page 700 data, the Commission will
weight’’); U.S. v. United Mine Workers of America,
absence of an income tax allowance, incorporate the effects of the post-
330 U.S. 258, 282 (1947) (remarks of senators in United Airlines’ policy changes (as well
1943 were not an authoritative source of evidence MLP pipelines will continue to recover
as the Tax Cuts and Jobs Act of 2017) 84
of Congress’ legislative intent in enacting a 1932 their costs and a reasonable return for
statute); D.C. v. Heller, 554 U.S. 570, 605 (2008) investors. United Airlines and the
(‘‘post-enactment legislative history . . . a 81 See, e.g., Initial Comments of the United
deprecatory contradiction in terms, refers to Remand Order merely deny MLP Airlines Petitioners and Allied Shippers at 14 (‘‘A
statements of those who drafted or voted for the law pipelines the double recovery of their generic proceeding is not well-suited to addressing
that are made after its enactment and hence could income tax costs. the wide array of possible organizational forms and
have no effect on the congressional vote’’); Barber their respective tax implications. The better
v. Thomas, 560 U.S. 474, 486 (2010) (‘‘whatever approach would be to examine the appropriate tax
76 Pipeline commenters explain that the MLP
interpretive force one attaches to legislative history, allowance treatment on a case-by-case basis in
the Court normally gives little weight to statements, structure permits risk sharing by combining pass- adjudicatory proceedings in which various business
such as those of the individual legislators, made through taxation and publicly-traded units which structures and their consequences can be examined
after the bill in question has become a law’’); allows MLPs to reach a broader base of investors in detail on an individual, case-specific basis.’’);
Friends of Earth, Inc. v. E.P.A., 446 F.3d 140, 147 and facilitates raising capital for infrastructure Liquids Shipper Group Initial Comments at 7 (‘‘To
(D.C. Cir. 2006) (‘‘‘[P]ost-enactment legislative projects. AOPL Initial Comments at 6, 39, 13; MLPA the extent there may be individual and complex
history,’ after all, ‘is not only oxymoronic but Initial Comments at 2–3. pipeline ownership structures that include both
77 AOPL Initial Comments at 43; INGAA Initial partnerships and corporations, the application of
inherently entitled to little weight’’’) (quoting
Cobell v. Norton, 428 F.3d 1070, 1075 (D.C. Cir. Comments at 7, 15; MLPA Initial Comments at 15. the FERC’s policy can be determined on a case-by-
2005)). 78 United Airlines, 827 F.3d at 136. case basis, addressing those unique
74 See MLPA Initial Comments at 4 (citing the 79 While comments have presented hypotheticals circumstances.’’).
82 See Docket No. RM18–11–000.
American Jobs Creation Act, Emergency Economic in an attempt to show that MLPs require such a
Stabilization Act of 2008, and the Tax Reform Act double recovery, they suffer from the same defects 83 Due to these findings that including an income
of 2014). as the pipelines’ other arguments. For instance, tax allowance in the cost of service leads to a
75 An MLP must receive at least 90 percent of its while SFPP attempts to include a hypothetical double-recovery, there is no basis for an MLP
sradovich on DSK3GMQ082PROD with NOTICES
income from certain qualifying sources including showing that an income tax allowance is necessary pipeline to claim an income tax allowance in the
‘‘the exploration, development, mining or to equalize returns, this hypothetical depends upon summary Form No. 6, page 700 cost of service for
production, processing, refining, transportation the faulty investor gross-up theory discussed above. the 2016 or 2017 data listed in the April 18, 2018
(including pipelines transporting gas, oil, or See SFPP Initial Comments, Vander Weide filing.
products thereof), or the marketing of any mineral Affidavit at 12 (Table 2, Lines 11–15, showing the 84 The Tax Cuts and Jobs Act changed oil pipeline
or natural resource (including fertilizer, geothermal before-tax DCF ROE and investor’s pre-tax return tax costs effective January 1, 2018, and the resulting
energy, and timber), industrial source carbon equaling the investor’s after-tax return). reduction to tax costs should be reflected in the tax
dioxide, or the transportation or storage of [certain 80 INGAA Initial Comments at 27–28; AOPL allowance (page 700, lines 8 and 8a) in the 2018
fuels].’’ 26 U.S.C. 7704. Initial Comments at 7, 35–37. Continued
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![12370 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices
on industry-wide oil pipeline costs in 50. User assistance is available for eRegistration account using the
the 2020 five-year review of the oil eLibrary and the FERC’s website during eRegistration link. Select the eFiling
pipeline index level.85 In this way the normal business hours from FERC link to log on and submit the
Commission will ensure that the Online Support at 202–502–6652 (toll intervention or protests.
industry-wide reduced costs are free at 1–866–208–3676) or email at Persons unable to file electronically
incorporated on an industry-wide basis ferconlinesupport@ferc.gov, or the should submit an original and 5 copies
as part of the index review. To the Public Reference Room at (202) 502– of the intervention or protest to the
extent the Commission issues 8371, TTY (202) 502–8659. Email the Federal Energy Regulatory Commission,
subsequent orders affecting the income Public Reference Room at 888 First Street NE, Washington, DC
tax policy for other partnership or pass- public.referenceroom@ferc.gov. 20426.
through business forms, oil pipelines The filings in the above-referenced
IV. Effective Date
should similarly reflect those policy proceeding are accessible in the
changes on Form No. 6, page 700. 51. This Revised Policy Statement Commission’s eLibrary system by
47. In addition, the Commission will become applicable March 21, 2018. clicking on the appropriate link in the
emphasizes that the post-United By the Commission. above list. They are also available for
Airlines’ policy changes (as well as the Issued: March 15, 2018. electronic review in the Commission’s
Tax Cuts and Jobs Act of 2017) will be Nathaniel J. Davis, Sr.,
Public Reference Room in Washington,
reflected in initial oil and gas pipeline DC. There is an eSubscription link on
Deputy Secretary.
cost-of-service rates and cost-of-service the website that enables subscribers to
[FR Doc. 2018–05668 Filed 3–20–18; 8:45 am]
rate changes on a going-forward basis receive email notification when a
BILLING CODE 6717–01–P document is added to a subscribed
under the Commission’s existing
ratemaking policies,86 including cost-of- docket(s). For assistance with any FERC
service rate proceedings resulting from Online service, please email
DEPARTMENT OF ENERGY
shipper-initiated complaints. FERCOnlineSupport@ferc.gov. or call
Federal Energy Regulatory (866) 208–3676 (toll free). For TTY, call
III. Document Availability (202) 502–8659.
Commission
48. In addition to publishing the full Dated: March 15, 2018.
text of this document in the Federal [Docket No. ER18–1077–000]
Nathaniel J. Davis, Sr.,
Register, the Commission provides all GASNA 36P, LLC ; Supplemental Deputy Secretary.
interested persons an opportunity to Notice That Initial Market-Based Rate [FR Doc. 2018–05677 Filed 3–20–18; 8:45 am]
view and/or print the contents of this Filing Includes Request for Blanket BILLING CODE 6717–01–P
document via the internet through Section 204 Authorization
FERC’s Home Page (http://
www.ferc.gov) and in FERC’s Public This is a supplemental notice in the DEPARTMENT OF ENERGY
Reference Room during normal business above-referenced proceeding of GASNA
hours (8:30 a.m. to 5:00 p.m. Eastern 36P, LLC‘s application for market-based Federal Energy Regulatory
time) at 888 First Street NE, Room 2A, rate authority, with an accompanying Commission
Washington, DC 20426. rate tariff, noting that such application
includes a request for blanket [Docket No. RP18–441–000]
49. From FERC’s Home Page on the
internet, this information is available on authorization, under 18 CFR part 34, of Midwestern Gas Transmission
eLibrary. The full text of this document future issuances of securities and Company; Notice of Initiation of
is available on eLibrary in PDF and assumptions of liability. Section 5 Proceeding
Microsoft Word format for viewing, Any person desiring to intervene or to
printing, and/or downloading. To access protest should file with the Federal On March 15, 2018, the Commission
this document in eLibrary, type the Energy Regulatory Commission, 888 issued an order in Docket No. RP18–
docket number excluding the last three First Street NE, Washington, DC 20426, 441–000, pursuant to section 5 of the
digits of this document in the docket in accordance with Rules 211 and 214 Natural Gas Act, 15 U.S.C. 717d (2012),
number field. of the Commission’s Rules of Practice instituting an investigation into the
and Procedure (18 CFR 385.211 and justness and reasonableness of
data reported in Form No. 6, page 700, to be filed 385.214). Anyone filing a motion to Midwestern Gas Transmission
on April 18, 2019. intervene or protest must serve a copy Company’s (Midwestern) currently
85 The overwhelming majority of oil pipelines set
of that document on the Applicant. effective tariff rates. The Commission’s
their rates using indexing, not cost-of-service Notice is hereby given that the order directs Midwestern to file a full
ratemaking using an oil pipeline’s particular costs.
Under indexing, oil pipelines may adjust their rates deadline for filing protests with regard cost and revenue study within 75 days
annually, so long as those rates remain at or below to the applicant’s request for blanket of the issuance of the order. Midwestern
the applicable ceiling levels. The ceiling levels authorization, under 18 CFR part 34, of Gas Transmission Company, 162 FERC
change every July 1 based on an index that tracks future issuances of securities and 61,219 (2018).
industry-wide cost changes. 18 CFR 342.3.
Currently, the index level is based upon the assumptions of liability, is April 4, Any interested person desiring to be
Producer’s Price Index for Finished Goods plus 2018. heard in Docket No. RP18–441–000
1.23. The index will be re-assessed in 2020 based The Commission encourages must file a notice of intervention or
upon industry-wide oil pipeline cost changes electronic submission of protests and motion to intervene, as appropriate,
sradovich on DSK3GMQ082PROD with NOTICES
between 2014 and 2019. E.g. Five-Year Review of
the Oil Pipeline Index, 153 FERC ¶ 61,312 (2015) interventions in lieu of paper, using the with the Federal Energy Regulatory
aff’d, Assoc. of Oil Pipe Lines v. FERC, 876 F.3d 336 FERC Online links at http:// Commission, 888 First Street NE,
(D.C. Cir. 2017). The industry-wide data filed in the www.ferc.gov. To facilitate electronic Washington, DC 20426, in accordance
latter years of the 2014–2019 period should reflect service, persons with internet access with Rule 214 of the Commission’s
the Commission’s post-United Airlines policy
changes as well as the Tax Cuts and Jobs Act. who will eFile a document and/or be Rules of Practice and Procedure, 18 CFR
86 See, e.g., 18 CFR 154.312(m), 154.313(e)(13), listed as a contact for an intervenor 385.214, within 30 days of the date of
384.123; 342.2, 342.4(a); 18 CFR part 346. must create and validate an issuance of the order.
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Document Created: 2018-03-21 00:45:31
Document Modified: 2018-03-21 00:45:31
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| Action | Revised policy statement. | |
| Dates | This Revised Policy Statement will become applicable March 21, 2018. | |
| Contact | Glenna Riley (Legal Information), Office of the General Counsel, 888 First Street NE, Washington, DC 20426, (202) 502-8620, [email protected] Andrew Knudsen (Legal Information), Office of the General Counsel, 888 First Street NE, Washington, DC 20426, (202) 502-6527, [email protected] James Sarikas (Technical Information), Office of Energy Markets Regulation, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502-6831, [email protected] Scott Everngam (Technical Information), Office of Energy Markets Regulation, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502-6614, [email protected] | |
| FR Citation | 83 FR 12362 |
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