[Federal Register Volume 84, Number 81 (Friday, April 26, 2019)]
[Rules and Regulations]
[Pages 17739-17750]
[FR Doc No: 2019-08241]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 154, 260, and 284

[Docket Nos. RM18-11-001, RP18-415-001; Order No. 849-A]

Interstate and Intrastate Natural Gas Pipelines; Rate Changes
Relating to Federal Income Tax Rate; American Forest & Paper
Association

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Final rule; order denying rehearing.

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SUMMARY: The Federal Energy Commission (Commission) denies rehearing
and reaffirms its determinations in Order No. 849. Order No. 849
adopted procedures for determining which jurisdictional natural gas
pipelines may be collecting unjust and unreasonable rates in light of
the income tax reductions provided by the Tax Cuts and Jobs Act and the
Commission's revised policy and precedent concerning tax allowances to
address the double recovery issue identified by United Airlines, Inc.
v. FERC. These procedures also allowed interstate natural gas pipelines
to voluntarily reduce their rates.

DATES: The order denying rehearing was approved by the Commission on
April 18, 2019.

FOR FURTHER INFORMATION CONTACT:  Adam Eldean (Legal Information),
Office of the General Counsel, 888 First Street NE, Washington, DC
20426,<PHONE_NUMBER>, [email protected].
    Seong-Kook Berry (Technical Information), Office of Energy Market
Regulation, 888 First Street NE, Washington, DC 20426,<PHONE_NUMBER>,
[email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

                                                              Paragraph
                                                                 Nos.

I. Introduction............................................            1
    A. Background..........................................            3
    B. Requests for Rehearing..............................            5
II. Discussion.............................................            6
    A. Legal Authority.....................................            6
        1. Final Rule......................................            6
        2. Request for Rehearing...........................            9
        3. Commission Determination........................           11
    B. ROE and Capital Structure Used In FERC Form No. 501-           25
     G.....................................................
        1. Final Rule......................................           25
        2. Request for Rehearing...........................           26
        3. Commission Determination........................           29
    C. Order No. 849 Rate Moratorium.......................           35
        1. Final Rule......................................           35
        2. Request for Rehearing...........................           36
        3. Commission Determination........................           37
    D. Accumulated Deferred Income Taxes...................           39
        1. Final Rule......................................           39
        2. Requests for Rehearing..........................           41
        3. Commission Determination........................           45
    E. Tax Allowance for Pass-Through Entities.............           53
        1. Final Rule......................................           53
        2. Requests for Rehearing..........................           54
        3. Commission Determination........................           56
III. Document Availability.................................           60

I. Introduction

    1. On July 18, 2018, the Commission issued a final rule \1\ (Order
No. 849) adopting procedures for determining which jurisdictional
natural gas pipelines may be collecting unjust and unreasonable rates
in light of the income tax reductions provided by the Tax Cuts and Jobs
Act \2\ and the Commission's Revised Policy Statement \3\ and precedent
\4\ concerning tax allowances to address the double recovery issue
identified by United Airlines, Inc. v. FERC.\5\ These procedures also
allow interstate natural gas pipelines to voluntarily reduce their
rates.
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    \1\ Interstate and Intrastate Natural Gas Pipelines; Rate
Changes Relating to Federal Income Tax Rate, Order No. 849, 83 FR
36672, 164 FERC ] 61,031 (2018).
    \2\ An Act to provide for reconciliation pursuant to titles II
and V of the concurrent resolution on the budget for fiscal year
2018, Public Law 115-97, 131 Stat. 2054 (2017) (Tax Cuts and Jobs
Act).
    \3\ Inquiry Regarding the Commission's Policy for Recovery of
Income Tax Costs, 162 FERC ] 61,227 (2018) (Revised Policy
Statement), order on reh'g, 164 FERC ] 61,030 (2018) (Revised Policy
Statement Rehearing).
    \4\ SFPP, L.P., Opinion No. 511-C, 162 FERC ] 61,228, at P 9
(2018).
    \5\ 827 F.3d 122 (D.C. Cir. 2016) (United Airlines). For
purposes of this order, the Revised Policy Statement, United
Airlines, and Opinion No. 511-C will collectively be referred to as
``United Airlines Issuances.''
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    2. As discussed below, we deny the requests for rehearing and
reaffirm the Commission's determinations in Order No. 849.

A. Background

    3. Order No. 849 established a requirement, pursuant to sections 10
and 14(a) of the Natural Gas Act (NGA),\6\ that all interstate natural
gas companies with cost-based stated rates that filed a 2017 FERC Form
No. 2 or 2-A must file the FERC Form No. 501-G informational filing for
the purpose of evaluating the impact of the Tax Cuts and Jobs Act and
the United Airlines Issuances on interstate natural gas pipelines'
revenue requirements. In addition to the FERC Form No. 501-G filing
requirement, the Commission provided four options for each interstate
natural gas pipeline to make a filing to address the changes to the
pipeline's recovery of tax costs or explain why no action is needed:
(1) A

limited NGA section 4 \7\ rate reduction filing (Option 1), (2) a
commitment to file a general section 4 rate case or prepackaged
settlement in the near future (Option 2), (3) an explanation why no
rate change is needed (Option 3), and (4) no action (Option 4). These
procedures were intended to encourage natural gas pipelines to
voluntarily reduce their rates to the extent the tax changes result in
their over-recovering their cost of service, while also providing the
Commission and stakeholders information necessary to take targeted
actions under NGA section 5 \8\ where necessary to achieve just and
reasonable rates.
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    \6\ 15 U.S.C. 717i(a), 717m(a) (2012).
    \7\ 15 U.S.C. 717c.
    \8\ 15 U.S.C. 717d.
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    4. In Order No. 849, the Commission identified 129 interstate
natural gas pipelines with cost-based rates that were required to file
the FERC Form No. 501-G. As of the date of this order, the Commission
has received 129 interstate natural gas pipeline filings. One pipeline
still has an extension of time and eight have been granted a waiver of
filing the FERC Form No. 501-G. Of the remaining 120 pipelines, nine
pipelines filed limited NGA section 4 rate reduction filings under
Option 1,\9\ 22 pipelines filed general NGA section 4 cases or
prepackaged settlements revising their rates under Option 2, 84
pipelines filed statements as to why no change in their rates is
necessary under Option 3, and five pipelines filed the FERC Form No.
501-G without taking any other action under Option 4. Additionally, the
Commission has initiated six NGA section 5 rate investigations.
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    \9\ Tuscarora Gas Transmission Company (Tuscarora) and Northern
Border Pipeline Company (Northern Border) filed under Option 1 and
Option 2. Here we have chosen to categorize Tuscarora's and Northern
Border's filings under Option 2.
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B. Requests for Rehearing

    5. The following entities filed timely requests for rehearing of
Order No. 849: Process Gas Consumers Group and American Forest and
Paper Association (Process Gas); Enable Mississippi River Transmission,
LLC and Enable Gas Transmission, LLC (together, Enable); and the Kinder
Morgan Entities,\10\ Spectra Energy Partners, LP, and Enable
(collectively, Pipeline Group). We deny rehearing, as discussed below.
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    \10\ For purposes of this pleading, the Kinder Morgan Entities
are Natural Gas Pipeline Company of America LLC; Tennessee Gas
Pipeline Company, L.L.C.; Southern Natural Gas Company, L.L.C.;
Colorado Interstate Gas Company, L.L.C.; Wyoming Interstate Company,
L.L.C.; El Paso Natural Gas Company, L.L.C.; Mojave Pipeline
Company, L.L.C.; Bear Creek Storage Company, L.L.C.; Cheyenne Plains
Gas Pipeline Company, L.L.C.; Elba Express Company, L.L.C.; Kinder
Morgan Louisiana Pipeline LLC; Southern LNG Company, L.L.C.;
TransColorado Gas Transmission Company LLC.
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II. Discussion

A. Legal Authority

1. Final Rule
    6. As stated above, the final rule established a requirement,
pursuant to sections 10 and 14(a) of the NGA, that all interstate
natural gas companies, with cost-based stated rates, that filed a 2017
FERC Form No. 2 or 2-A must file the FERC Form No. 501-G informational
filing for the purpose of evaluating the impact of the Tax Cuts and
Jobs Act and the United Airlines Issuances on interstate natural gas
pipelines' revenue requirements.\11\ Using the data in the pipelines'
2017 FERC Form Nos. 2 and 2-A, these studies estimate (1) the
percentage reduction in the pipeline's cost of service resulting from
the Tax Cuts and Jobs Act and the Revised Policy Statement, and (2) the
pipeline's current Returns on Equity (ROE) before and after the
reduction in corporate income taxes and the elimination of income tax
allowances for master limited partnership (MLP) pipelines. Recognizing
that the 2017 calendar year data reported in the pipeline's FERC Form
No. 2 or 2-A may not be fully representative of the pipeline's current
situation when it files the FERC Form No. 501-G, the Commission
provided pipelines the opportunity to file an Addendum to the FERC Form
No. 501-G.\12\ The Commission emphasized the informational nature of
the FERC Form No. 501-G filing and explained that ``the [f]inal [r]ule
contains no requirement that an interstate pipeline make any form of
rate filing.'' \13\ Regarding the Addendum to the FERC Form No. 501-G,
the Commission stated that the filing of such an Addendum is ``purely
voluntary.'' \14\
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    \11\ Order No. 849, 164 FERC ] 61,031 at P 30.
    \12\ Id. PP 73-74.
    \13\ Id. PP 69, 72.
    \14\ Id. P 73.
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    7. The final rule also permitted pipelines to use the indicated
cost of service reduction calculated in the FERC Form No. 501-G as the
basis for the limited NGA section 4 rate reduction filings, which the
final rule allowed pipelines to make to reduce their maximum rates to
reflect the reduced corporate income tax rates provided by the Tax Cuts
and Jobs Act or the elimination of MLP tax allowances by the Revised
Policy Statement. However, the final rule also clarified that a
pipeline could base the rate reduction on the reduction calculated in
its Addendum.\15\
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    \15\ Id. P 204.
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    8. The final rule found that NGA sections 10 and 14(a) provided the
Commission authority to require pipelines to file the FERC Form No.
501-G. The Commission stated that it routinely initiates NGA section 5
investigations ``based upon our review of publicly available
information on file with the Commission'' \16\ and that the primary
purpose of the FERC Form No. 501-G is to ``provide information relevant
to determining whether the Commission should exercise its discretion to
initiate an investigation under NGA section 5.'' \17\ The Commission
rejected the argument that the court's decision in Consumers Energy v.
FERC reversing a Commission order requiring Hinshaw pipelines to file a
petition for rate change prohibited the Commission from requiring
pipelines to file the FERC Form No. 501-G. The Commission found that,
to the contrary, Consumers Energy v. FERC condoned information
collection as long as the Commission acts `` `with clarity and
precision' so as to ensure that any directive for the pipeline to make
`informational filings' is just that, and not an NGA section 4 filing
to `justify its current rate.' '' \18\ The Commission also found in the
final rule that providing pipelines with the option to submit an
Addendum, which may require the pipeline to exercise some degree of
judgment, does not transform the proceeding into an NGA section 4 rate
filing or improperly shift to the pipeline the burden of justifying its
existing rates in violation of NGA section 5.\19\ The Commission
explained that the D.C. Circuit rejected a similar contention in INGAA
v. FERC and found that the Commission ``has authority . . . under [NGA
section] 10 and [NGA section] 14 to require pipelines to submit needed
information for making its [NGA section] 5 decisions.'' \20\
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    \16\ Id. P 69 (citing Natural Gas Pipeline Co. of America LLC,
158 FERC ] 61,044, at P 1 (2017); Wyoming Interstate Co., L.L.C.,
158 FERC ] 61,040, at P 1 (2017); Tuscarora Gas Transmission Co.,
154 FERC ] 61,030, at P 1, reh'g denied, 154 FERC ] 61,273 (2016)).
    \17\ Id. PP 69-70.
    \18\ Id. P 70 (citing Consumers Energy Co. v. FERC, 226 F.3d
777, 777 (6th Cir. 2000) (Consumers Energy v. FERC)).
    \19\ Id. P 74.
    \20\ Id. PP 74-75 (citing Interstate Nat. Gas Ass'n of Am. v.
FERC, 285 F.3d 18, 38 (D.C. Cir. 2002) (INGAA v. FERC)).
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2. Request for Rehearing
    9. Pipeline Group argues that the Commission exceeded its statutory

authority under NGA sections 10 and 14 and disregarded the requirements
of NGA sections 4 and 5 by requiring pipelines to complete and file the
FERC Form No. 501-G.\21\ Pipeline Group argues that the rate
assumptions pipelines are required to make in the FERC Form No. 501-G
are not merely informational and are in fact rate determinations that
produce a distorted view as to whether the pipelines' rates remain just
and reasonable and generate an indicated rate reduction, which the
Commission later referred to as an ``indicated cost of service
reduction'' in the final rule. Pipeline Group argues that the indicated
cost of service reduction generated by the FERC Form No. 501-G is an
implied rate and that only a pipeline is empowered to propose such a
change in its rates, under its own terms, pursuant to NGA section
4.\22\ Pipeline Group argues that the Commission may only propose such
a reduction in a pipeline's cost of service and resulting rates
pursuant to NGA section 5. Pipeline Group also argues that the
Commission is shifting the burden of proof by requiring pipelines to
file a form that compels a statement of an indicated rate reduction
that ``can be used as evidence to the exact same extent that any other
Commission form can be used as evidence.'' \23\ Pipeline Group contends
that the courts have been vigilant in maintaining the boundary between
NGA sections 4 and 5 \24\ and that, to comply with the NGA, the
Commission should abandon or substantially amend the FERC Form No. 501-
G requirement. Pipeline Group also points out that the Commission
already collects information through FERC Form Nos. 2 \25\ and 3-Q,\26\
which Pipeline Group argues is evidence that the FERC Form No. 501-G is
not merely an information collection requirement. Additionally,
Pipeline Group argues that the option of providing an addendum to the
FERC Form No. 501-G forces a pipeline to defend an existing just and
reasonable rate, which is a step reserved to pipelines in an NGA
section 4 or 5 proceeding.
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    \21\ Pipeline Group Request for Rehearing at 4-10.
    \22\ Id. at 3 (citing Consumers Energy v. FERC, 226 F.3d 777;
Pub. Serv. Comm'n of New York v. FERC, 866 F.2d 487 (D.C. Cir. 1989)
(New York PSC)).
    \23\ Id. (citing Order No. 849, 164 FERC ] 61,031 at P 78).
    \24\ Id. at 5-6 (citing United Gas Pipe Line Co. v. Mobile Gas
Serv. Corp., 350 U.S. 332, 343 (1956) (explaining that the
Commission's authority under NGA section 5(a) is ``to set aside and
modify any rate or contract which it determines, after a hearing, to
be `unjust and unreasonable, unduly discriminatory, or
preferential''' and that ``[t]his is neither a `rate-making' nor a
`rate-changing' procedure.''); Western Resources v. FERC, 9 F.3d
1568, 1578 (D.C. Cir. 1993) (``This court has consistently
disallowed attempts to blur the line between Sec. Sec.  4 and 5.'');
Sea Robin Pipeline Co. v. FERC, 795 F.2d 182, 183 (D.C. Cir. 1986)
(``The Commission is not free to blend, or pick and choose at will
between, its section 4 and 5 authority.'')).
    \25\ Annual report for Major natural gas companies. 18 CFR 206.1
(2018).
    \26\ Quarterly financial report of electric utilities,
licensees, and natural gas companies. 18 CFR 206.300.
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    10. Pipeline Group argues that the Commission's comparison of the
final rule to Order No. 637's requirements that pipelines provide
information concerning the operational feasibility of segmentation is
misplaced.\27\ Pipeline Group contends that the Order No. 637
informational requirement concerned pipeline operational matters, not
rate matters. Pipeline Group argues that the INGAA v. FERC \28\ court
agreed that the Commission has authority under NGA sections 10 and 14
to require a pipeline to submit needed information for making its NGA
section 5 decisions but that this agreement was limited to the specific
issues of Order No. 637. Pipeline Group also argues that the comparison
of the FERC Form No. 501-G to reporting requirements of Hinshaw
pipelines is inaccurate.\29\ Pipeline Group contends that, because the
FERC Form No. 501-G runs data through a formula that produces an
indicated cost of service reduction among other things, FERC Form No.
501-G is akin to the Commission's required petition for rate approval
for Hinshaw pipelines that was invalidated the Sixth Circuit in
Consumers Energy v. FERC.\30\
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    \27\ Pipeline Group Request for Rehearing at 8-9. See Regulation
of Short-Term Natural Gas Transportation Services and Regulation of
Interstate Natural Gas Transportation Services, Order No. 637, FERC
Stats. & Regs. ] 31,091, at 31,301-4 (cross-referenced at 90 FERC ]
61,109), order on reh'g, Order No. 637-A, FERC Stats. & Regs. ]
31,099, at 31,590-96 (cross-referenced at 91 FERC ] 61,169), order
denying reh'g, Order No. 637-B, 92 FERC ] 61,062 (2000).
    \28\ Pipeline Group Request for Rehearing at 8 (citing INGAA v.
FERC, 285 F.3d at 38-39).
    \29\ Id. at 9-10.
    \30\ Id. (citing Consumers Energy v. FERC, 226 F.3d at 781
(rejecting a requirement that a Hinshaw pipeline file periodic rate
petitions)).
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3. Commission Determination
    11. We disagree with Pipeline Group's characterization of the FERC
Form No. 501-G. We find that the requirement to file the FERC Form No.
501-G is a permissible collection of information pursuant to NGA
sections 10 and 14(a), rather than an impermissible requirement that
pipelines file a rate pursuant to NGA section 4, as argued by Pipeline
Group.
    12. As the Commission stated in the final rule, the FERC Form No.
501-G serves two purposes. The first purpose is to provide information
relevant to determining whether the Commission should exercise its
discretion to initiate an investigation under NGA section 5 as to
whether the subject interstate natural gas pipeline may be collecting
unjust and unreasonable rates in light of the recent reduction in the
corporate income tax rate and change in the Commission's income tax
allowance policies. The second purpose is to support any limited NGA
section 4 filings pipelines may choose to make to reduce their maximum
rates to reflect the Tax Cuts and Jobs Act or the United Airlines
Issuances. The Commission's authority to require information for both
these purposes is provided in NGA sections 10(a) and 14(a).\31\
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    \31\ 15 U.S.C. 717i(a) (``Every natural-gas company shall file
with the Commission such annual and other periodic or special
reports as the Commission may by rules and regulations or order
prescribe as necessary or appropriate to assist the Commission in
the proper administration of this act.''); 15 U.S.C. 717m(a) (``The
Commission may permit any person to file with it a statement in
writing . . . as it shall determine, as to any or all facts and
circumstances concerning a matter which may be the subject of
investigation.''). See also Tuscarora Gas Transmission Co., 154 FERC
] 61,273, at PP 4-14 (2016) (requiring a pipeline to submit a more
detailed cost and revenue study).
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    13. With regard to the first purpose, the D.C. Circuit expressly
held in INGAA v. FERC that ``[t]he Commission has authority under
[section] 5 of the NGA to order hearings to determine whether a given
pipeline is in compliance with FERC's rules, . . . and under [NGA
section] 10 and [section] 14 to require pipelines to submit needed
information for making its [section] 5 decisions.'' \32\ In INGAA v.
FERC, the court affirmed the Commission's exercise of this authority to
direct each pipeline to file pro forma tariff sheets showing how it
intended to comply with a regulation requiring pipelines to permit
segmentation \33\ or to explain why its system's configuration
justified not acting under NGA section 5 to require full segmentation
rights. In affirming this requirement, the court stated, ``As to the
Commission's determination to extract information from pipelines
relevant to the practical issues, we see no violation of the NGA.''
\34\
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    \32\ INGAA v. FERC, 285 F.3d at 38-39 (emphasis supplied).
    \33\ 18 CFR 284.7(d) (2018).
    \34\ INGAA v. FERC, 285 F.3d at 38.
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    14. The FERC Form No. 501-G requires pipelines to calculate their
``Total Estimated ROE (excluding fuel)'' before and after the reduction
in corporate income taxes and the elimination of income tax allowances
for MLP pipelines.\35\ The final rule

found that information concerning the pipeline's ROE was relevant to
the issue of whether the Commission should exercise its discretion to
initiate an investigation of the pipeline's rate pursuant to NGA
section 5, and therefore the court's decision in INGAA v. FERC
supported the Commission's authority to collect this information.
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    \35\ FERC Form No. 501-G, page 3, line 26.
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    15. Pipeline Group suggests that the court's holding in INGAA v.
FERC was limited to providing information on operational issues of the
type at issue in that case, rather than rate issues. We disagree. NGA
section 10 expressly provides that the Commission may require pipelines
to report information relevant to rates including ``among other things,
full information as to assets and liabilities, capitalization,
investment and reduction thereof, gross receipts, interest due and
paid, depreciation, amortization, and other reserves, cost of
facilities, cost of maintenance and operation of facilities for the [.
. .] transportation [. . .] of natural gas, cost of renewal and
replacement of such facilities, transportation, delivery, uses, and
sale of natural gas.'' This is exactly the type of cost and revenue
information the FERC Form No. 501-G collects in order to calculate the
pipeline's total estimated ROE for purposes of deciding whether to
initiate a NGA section 5 investigation.
    16. The FERC Form No. 501-G also calculates an ``Indicated Cost of
Service Reduction'' \36\ for use in conjunction with the limited NGA
section 4 rate reduction filings that pipelines can elect to file under
Option 1 of the final rule. Pipeline Group contends that the
requirement to calculate an Indicated Cost of Service Reduction
effectively requires the pipeline to make a NGA section 4 rate filing.
This contention is wrong. Although Pipeline Group is correct that the
form includes equations that calculate certain values, including the
indicated cost of service reduction, the inclusion of these equations
and calculated values does not transform the informational filing into
a NGA section 4 rate filing. The FERC Form No. 501-G is limited to
requesting cost and revenue information as permitted by NGA sections 10
and 14(a). It does not require pipelines to file any change in their
existing rate schedules as is contemplated by NGA section 4. It is true
that the final rule gives pipelines the option to submit a separate
limited NGA section 4 filing reducing their maximum rates based on the
indicated cost of service reduction calculated in the FERC Form No.
501-G. However, that is simply one option among the four options the
final rule provides pipelines, including the option to take no action
at all other than filing the FERC Form No. 501-G. There is no
requirement that pipelines make any such limited NGA section 4 rate
reduction filing, and if a pipeline does make such a filing it may base
the rate reduction on data in its Addendum rather than the indicated
cost of service reduction calculated in the FERC Form No. 501-G.\37\ In
fact, only 11 of the 129 pipelines subject to the requirement to file a
FERC Form No. 501-G have thus far chosen the option of filing a limited
NGA section 4 rate reduction pursuant to Sec.  154.404 adopted pursuant
to the final rule,\38\ thereby demonstrating the voluntary nature of
this option. This rulemaking proceeding is thus unlike New York
PSC,\39\ relied on by Pipeline Group, in which the Commission ordered a
pipeline to file an actual NGA section 4 rate case every three years,
with revised rate schedules setting forth proposed rates for each
customer class.
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    \36\ FERC Form No. 501-G, page 1, line 34.
    \37\ Order No. 849, 164 FERC ] 61,031 at P 204.
    \38\ East Tennessee Natural Gas, LLC in Docket No. RP19-64-000;
Millennium Pipeline Co., LLC in Docket No. RP19-66-000; North Baja
Pipeline, LLC in Docket No. RP19-72-000; Vector Pipeline L.P. in
Docket No. RP19-61-000; Central Kentucky Transmission Co. in Docket
No. RP19-156-000; Gulf Shore Energy Partners, LP in Docket No. RP19-
252-000; Southeast Supply Header, LLC in Docket No. RP19-267-000;
Great Lakes Gas Transmission Limited Partnership in Docket No. RP19-
409-000; Nautilus Pipeline Co., L.L.C. in Docket No. RP19-401-000;
Northern Border Pipeline Company in Docket No. RP19-414-000;
Tuscarora Gas Transmission Co. in Docket No. RP19-419-000.
    \39\ 866 F.2d at 489.
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    17. Additionally, the Commission's decision to allow pipelines to
include an addendum to their FERC Form No. 501-G does not transform the
proceeding into an NGA section 4 proceeding. The Commission understood
that the standardized FERC Form No. 501-G may not provide a complete
cost and revenue profile for each pipeline and provided an opportunity
for pipelines to voluntarily submit additional information to the
Commission. The Commission did not determine in the final rule that the
information provided in the FERC Form No. 501-G, with or without an
addendum, would constitute a rate filing.
    18. In both Consumers Energy v. FERC and INGAA v. FERC, the courts
considered the Commission's intent when deciding whether an information
collection requirement constituted an impermissible requirement for a
pipeline to justify its existing rates under NGA section 4, i.e., was
the Commission's intent (1) only to collect information for use in
satisfying its burdens under NGA section 5 or (2) instead to require
the pipeline to modify its rates under NGA section 4. Thus, in
Consumers Energy v. FERC, reversing a Commission information collection
requirement, the court stated, ``If all FERC had really wanted to do
was require Consumers to make periodic `informational filings,' then it
is difficult to understand why, for example, FERC's initial order
provides that . . . Consumers shall file `a petition for rate approval
to justify its current rate or to establish a new maximum rate.' ''
\40\ The court also pointed to the fact that the Commission did not use
the term ``informational filings'' nor any obvious synonym to describe
the petition in either of its orders.\41\ By contrast, in INGAA v.
FERC, the court affirmed an information collection requirement, finding
that ``the orders contain some express language supporting the position
of the Commission's counsel at oral argument that FERC will indeed
shoulder the burden under [section] 5 of the NGA to show the requisite
operational feasibility,'' \42\ and the court cited, among other
things, the Commission's statement in Order No. 637-B that the
Commission ``will be acting under section 5 to implement changes.''
\43\
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    \40\ Consumers Energy v. FERC, 226 F.3d at 781 (emphasis in
court decision).
    \41\ See id.
    \42\ INGAA v. FERC, 285 F.3d at 38.
    \43\ Id. (quoting Order No. 637-B, 92 FERC at 61,165).
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    19. Consistent with the Commission orders at issue in INGAA v.
FERC, and contrary to the orders at issue in Consumers Energy v. FERC,
the final rule consistently treats the FERC Form No. 501-G as simply an
informational filing, and the final rule recognizes that the Commission
must proceed under NGA section 5 in order to require any pipeline to
reduce its rates to reflect the income tax reduction in the Tax Cuts
and Jobs Act or the elimination of the MLP tax allowance in the Revised
Policy Statement. For example, the final rule states, ``The primary
purpose of the One-time Report . . . is to provide information relevant
to determining whether the Commission should exercise its discretion to
initiate an investigation under NGA section 5 as to whether the subject
interstate natural gas pipeline may be collecting unjust and
unreasonable rates in light of the recent reduction in the corporate
income tax rate and change in the Commission's income tax allowance
policies.'' \44\ The final rule also

expressly states that ``[i]f we decide based on the information in the
One-time Report to initiate a section 5 investigation, we will, as in
the Order No. 637 compliance filings addressed in INGAA, `shoulder the
burden under [section] 5 of the NGA.' '' \45\ Moreover, unlike the
Commission orders addressed in Consumers Energy v. FERC, the final rule
consistently described the FERC Form No. 501-G as an ``informational
filing.'' \46\
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    \44\ Order No. 849, 164 FERC ] 61,031 at P 69. See also id. P
104 (``[A]ny rates determined in an NGA section 5 investigation,
including ROE, will be based on the record developed in any hearing
established by the Commission, and in such a hearing the Commission
will have the burden of persuasion under NGA section 5 on all
issues, including ROE.'').
    \45\ Id. P 76.
    \46\ See, e.g., id. PP 2, 21, 30, 59, 103, and 111.
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    20. Pipeline Group points out that, on remand of the court's
decision in Consumers Energy v. FERC, the Commission established a
policy of requiring Hinshaw Pipelines to make periodic informational
filings in the form specified by Sec.  154.313 of the Commission's
regulations for minor rate changes, instead of requiring them to file a
petition for rate change.\47\ Pipeline Group asserts that, although NGA
sections 10 and 14(a) may permit the Commission to require pipelines to
file the information contained in Sec.  154.313, the FERC Form No. 501-
G is different from Sec.  154.313. Pipeline Group asserts that the FERC
Form No. 501-G does not simply require pipelines to file the data
listed in Sec.  154.313, but instead it runs the data through a formula
that produces an indicated cost of service reduction, among other
things. Therefore, Pipeline Group argues, the FERC Form No. 501-G is
akin to the impermissible requirement to file a petition for rate
change invalidated by Consumers Energy v. FERC, ``because it produces
an output, requiring the pipeline to justify whether its rates remain
just and unreasonable.'' \48\
---------------------------------------------------------------------------

    \47\ See Consumers Energy Co., 94 FERC ] 61,287 (2001).
    \48\ Pipeline Group Request for Rehearing at 10.
---------------------------------------------------------------------------

    21. We disagree. First, Pipeline Group's attempt to distinguish the
FERC Form No. 501-G from Sec.  154.313 is factually incorrect. For
example, Sec.  154.313(b) requires the pipeline to file the Statements
I-1 through I-4 and Statement J required by Sec.  154.312. Statement I-
1 through I-4 require the pipeline to functionalize, classify, and
allocate its cost of service and provide the formulae used in the
allocation of the cost of service. Schedule J requires the pipeline to
compare total revenue by rate schedule to the allocated cost of
service, and Schedule J-2 requires the pipeline to show the derivation
of each rate component of each rate schedule. Thus, Sec.  154.313,
similar to the FERC Form No. 501-G, requires the pipeline to run data
through formulas that produce ``an output.'' Moreover, in the case of
Sec.  154.313, the ``output'' is not simply an overall indicated
reduction in cost of service, but specific rates for each rate
schedule. Thus, Sec.  154.313 requires the pipeline to provide
substantially more detailed information concerning its costs, revenues,
and rates than the five-page FERC Form No. 501-G, which does not
require any allocation of costs among rate schedules or derivation of
rates for each service.
    22. In any event, as discussed above, the key question in
determining whether the FERC Form No. 501-G is a permissible
information collection requirement is whether the Commission intended
only to collect information for use in satisfying its burdens under NGA
section 5 or whether the FERC Form No. 501-G actually requires the
pipeline to modify its rates. As with our requirement for Hinshaw
pipelines to file a cost and revenue study consistent with Sec.
154.313, our intent in requiring the FERC Form No. 501-G is only to
collect information for use in satisfying our burdens under NGA section
5. Aside from the express language in Order No. 849 summarized above
stating this intent, the Commission has in fact used the FERC Form No.
501-G in precisely the manner it said it would--to determine whether to
exercise its discretion to initiate an NGA section 5 rate investigation
of each pipeline.
    23. A common outcome following the filing of the FERC Form No. 501-
G has been a Commission order explaining that the Commission has
determined not to exercise its discretion to initiate a NGA section 5
rate investigation and the closure of the docket without further
Commission action.\49\ In the cases in which the Commission has
initiated an NGA section 5 investigation and established a hearing, it
has done so based upon the FERC Form No. 501-G, comments to the form,
and publicly available information on file with the Commission,\50\ and
has expressly recognized that the pipeline does not have an NGA section
4 burden to justify its existing rates.\51\ Moreover, the Commission
has required the pipeline to submit a cost and revenue study based on
the latest 12-month period available, and authorized use of an
abbreviated six-month adjustment period following the 12-month base
period used in the cost and revenue study.\52\ Thus, any rate change
that may be required in the NGA section 5 proceeding is likely to be
based on cost and revenue data from 2018 and early 2019, rather than
the 2017 Form Nos. 2 and 2-A data reflected in the FERC Form No. 501-G
or the indicated cost of service reduction calculated based on that
data.
---------------------------------------------------------------------------

    \49\ See, e.g., ETC Tiger Pipeline, LLC, 166 FERC ] 61,028
(2019); American Midstream (AlaTenn), LLC, 166 FERC ] 61,118 (2019);
Cheniere Creole Trail Pipeline, L.P., 166 FERC ] 61,198 (2019);
Dominion Energy Transmission, Inc., 166 FERC ] 61,178 (2019); Enable
Gas Transmission, LLC, 166 FERC ] 61,176 (2019); High Point Gas
Transmission, LLC, 166 FERC ] 61,153 (2019); Kern River Gas
Transmission Co., 166 FERC ] 61,154 (2019); Southern Star Central
Gas Pipeline, Inc., 166 FERC ] 61,155 (2019); Trunkline Gas Co.,
LLC, 166 FERC ] 61,215 (2019).
    \50\ See East Tennessee Natural Gas, LLC, 165 FERC ] 61,198
(2018); Bear Creek, 166 FERC ] 61,034; Northern Natural Gas Co., 166
FERC ] 61,033 (2019); Panhandle Eastern Pipe Line Co., LP, 166 FERC
] 61,032 (2019); Southwest Gas Storage Co., 166 FERC ] 61,117;
Stagecoach Pipeline & Storage Co. LLC, 166 FERC ] 61,199 (2019).
    \51\ East Tennessee, 165 FERC ] 61,198 at P 27; Bear Creek, 166
FERC ] 61,034 at P 15; Northern Natural Gas Co., 166 FERC ] 61,033
at P 24; Panhandle Eastern, 166 FERC ] 61,032 at P 16; Southwest Gas
Storage, 166 FERC ] 61,117 at P 11; Stagecoach, 166 FERC ] 61,199 at
P 13.
    \52\ East Tennessee, 165 FERC ] 61,198 at PP 27-28; Bear Creek,
166 FERC ] 61,034 at PP 15-16; Northern Natural Gas Co., 166 FERC ]
61,033 at PP 24-25; Panhandle Eastern, 166 FERC ] 61,032 at PP 16-
17; Southwest Gas Storage, 166 FERC ] 61,117 at PP 11-12;
Stagecoach, 166 FERC ] 61,199 at PP 13-14.
---------------------------------------------------------------------------

    24. In summary, contrary to Pipeline Group's arguments, requiring
the informational FERC Form No. 501-G filing is squarely within the
Commission's authority and it has not served as a rate filing. Pipeline
Group suggests that the Commission may only propose a reduction in a
pipeline's cost of service and resulting rates pursuant to NGA section
5, and that is in fact what has occurred following the final rule. The
FERC Form No. 501-G is not an NGA section 4 filing and the pipeline is
not required to show that its rates are just and reasonable. The
pipeline need only provide accurate information in its FERC Form No.
501-G filing, as required by NGA section 10(a).\53\ Pipeline Group is
also incorrect in its assertion that, because the Commission already
collects information through FERC Form Nos. 2 and 3-Q, the FERC Form
No. 501-G is somehow more than an information collection requirement.
The FERC Form No. 501-G collects information that is not required in
FERC Form Nos. 2 and 3-Q, specifically the effect of the recent
reduction in the corporate income tax rate and change in the
Commission's income tax allowance policies on a pipeline's cost of
service. Pursuant to NGA sections 10(a) and 14(a), the Commission is
permitted to

collect information to assist in the proper administration of the NGA,
and the Commission is not limited to the information required in FERC
Form Nos. 2 and 3-Q.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 717i(a) (``Such reports shall be made under oath
unless the Commission otherwise specifies.'').
---------------------------------------------------------------------------

B. ROE and Capital Structure Used in FERC Form No. 501-G

1. Final Rule
    25. In the final rule, the Commission required that each pipeline's
FERC Form No. 501-G be completed using an indicative ROE of 10.55
percent, consistent with the ROE determined in El Paso,\54\ the last
rate case where that issue was fully litigated.\55\ The final rule also
revised the originally proposed FERC Form No. 501-G to ask respondents
a series of factual questions about their actual capital structure in
order to elicit the information necessary to apply the Commission's
capital structure policy set forth in Transcontinental Gas Pipe Line
Corp.\56\ Under that policy, a pipeline may use its own capital
structure, if its debt is issued in its own name and publicly traded,
the debt is rated by a rating agency, and the equity portion of the
capital structure is not excessive.\57\ If the pipeline's own debt does
not satisfy these standards, it can use its parent's capital structure,
if the parent satisfies the same standards. Otherwise, the pipeline
must use a hypothetical capital structure. Based on the FERC Form No.
501-G's questions as to whether the pipeline or its parent satisfies
these standards, the form automatically uses either the reported
capital structure of the pipeline or its parent or a hypothetical
capital structure.\58\ The final rule also held that, if a hypothetical
capital structure was used, it would be 57 percent equity and 43
percent debt, consistent with the average capital structures of the
proxy companies used to determine the 10.55 percent ROE in El Paso.\59\
---------------------------------------------------------------------------

    \54\ El Paso Natural Gas Co., Opinion No. 528, 145 FERC ]
61,040, at P 642 (2013), reh'g denied, Opinion No. 528-A, 154 FERC ]
61,120 (2016) (El Paso).
    \55\ Order No. 849, 164 FERC ] 61,031 at PP 103-106.
    \56\ Transcontinental Gas Pipe Line Corp., Opinion No. 414, 80
FERC ] 61,157 (1997), reh'g, Opinion No. 414-A, 84 FERC ] 61,084
(1998) (Transco).
    \57\ The FERC Form No. 501-G treats the equity portion of a
pipeline's capital structure as excessive if it is above 65 percent.
    \58\ Order No. 849, 164 FERC ] 61,031 at PP 111, 114.
    \59\ Id. P 115.
---------------------------------------------------------------------------

2. Request for Rehearing
    26. Pipeline Group argues that the inputs to the FERC Form No. 501-
G, such as the Indicative ROE and the Hypothetical Capital Structure,
are not supported by the record or justified, and are arbitrary and
capricious.\60\ Pipeline Group contends that the Commission did not
sufficiently respond to its comments to the Notice of Proposed
Rulemaking that the criteria pipelines are directed to utilize in the
FERC Form No. 501-G (such as the Indicative ROE of 10.55 percent and
the specified Hypothetical Capital Structure) are misplaced, unlawful,
and should be deleted from the form and left for each individual
pipeline to determine. Pipeline Group argues that the Commission made
no showing that the proxy group in the El Paso proceeding used to
calculate the 10.55 percent indicative ROE in the FERC Form No. 501-G
would produce the same ROE six years later. Pipeline Group argues that
the Commission did not make a showing pursuant to NGA section 5 that
such an ROE is appropriate for a different pipeline serving different
markets.
---------------------------------------------------------------------------

    \60\ Pipeline Group Request for Rehearing at 10-12.
---------------------------------------------------------------------------

    27. Pipeline Group also argues that the Commission departed from
prior practice in its review of pipeline Form Nos. 2 and 2-A reports
for purposes of deciding whether to initiate NGA section 5 rate
investigations when it required pipelines to propose a capital
structure and make a legal determination as to whether that proposed
structure and debt cost meets the requirements of Opinion No. 414.
Pipeline Group asserts that the Commission has not previously imposed
such a requirement on pipelines.\61\
---------------------------------------------------------------------------

    \61\ Id. at 11 (citing Natural Gas Pipeline Co. of America LLC,
129 FERC ] 61,158 (2009); Northern Natural Gas Co., 129 FERC ]
61,159 (2009); Great Lakes Gas Transmission Limited Partnership, 129
FERC ] 61,160 (2009); Kinder Morgan Interstate Gas Transmission LLC,
133 FERC ] 61,157 (2010); Ozark Gas Transmission, L.L.C., 133 FERC ]
61,158 (2010); Bear Creek Storage Co., 137 FERC ] 61,134 (2011);
MIGC LLC, 137 FERC ] 61,135 (2011); ANR Storage Co., 137 FERC ]
61,136 (2011); Wyoming Interstate Co., 141 FERC ] 61,117 (2012);
Viking Gas Transmission Co., 141 FERC ] 61,118 (2012); Tuscarora Gas
Transmission Co., 154 FERC ] 61,030; Empire Pipeline, Inc., 154 FERC
] 61,029 (2016); Iroquois Gas Transmission System, L.P., 154 FERC ]
61,028 (2016); Columbia Gulf Transmission, LLC, 154 FERC ] 61,027
(2016); Wyoming Interstate Co., 158 FERC ] 61,040; Natural Gas
Pipeline Co. of America LLC, 158 FERC ] 61,044; Dominion Energy
Overthrust Pipeline, LLC, 162 FERC ] 61,218 (2018); Midwestern Gas
Transmission Co., 162 FERC ] 61,219 (2018)).
---------------------------------------------------------------------------

    28. Additionally, Pipeline Group argues that pipelines' current
rates may be established pursuant to settlements of NGA section 4 or 5
proceedings on a ``black box'' basis without specifying individual
components used to calculate rates including ROE and capital structure.
Pipeline Group contends that, by requiring certain ROE and capital
structure inputs, the Commission is expanding the review of pipeline's
existing rates from reductions in light of the Tax Cuts and Jobs Act to
the overall costs and revenues of the pipeline akin to a traditional
NGA section 5 proceeding.
3. Commission Determination
    29. The Commission addressed many of the same arguments in the
final rule that Pipeline Group raises on rehearing. As explained in the
final rule, a cost and revenue study requires an indicative ROE and,
consistent with Commission practice in other contexts, the final rule
used the last litigated ROE determined by Commission. For example, the
Commission has used the last litigated ROE in developing initial rates
for existing facilities being acquired by a new pipeline.\62\ Here, the
last litigated ROE was in El Paso wherein the Commission adopted an ROE
of 10.55 percent.
---------------------------------------------------------------------------

    \62\ See, e.g., Southern Natural Gas Co. L.L.C., 139 FERC ]
61,237, at P 154 (2012); High Point Gas Transmission, LLC, 139 FERC
] 61,237 (2012); Northern Natural Gas Co., 119 FERC ] 61,035, at P
37 (2007).
---------------------------------------------------------------------------

    30. The Commission recognized that the 10.55 percent ROE determined
in El Paso was based on financial data from 2011. However, no commenter
provided any updated ROE analysis using current financial data that the
Commission could use in the FERC Form No. 501-G. The Commission
considered pipeline commenters' suggestion that they be permitted to
use their own ROEs or ROEs derived in a rate proceeding or established
pursuant to approved settlements, but the Commission determined that
the last rate cases of many pipelines occurred as long ago as, or even
before, the El Paso rate case. The Commission also determined that many
settlements are ``black box'' settlements that do not have an ROE and,
therefore, using the El Paso 10.55 percent ROE as the indicative ROE in
all pipelines' FERC Form No. 501-G is preferable to pipelines' using a
variety of ROEs, which in almost all cases were not fully
litigated.\63\
---------------------------------------------------------------------------

    \63\ Order No. 849, 164 FERC ] 61,031 at PP 103-106.
---------------------------------------------------------------------------

    31. The Commission also rejects Pipeline Group's contention that
the Commission failed to support the hypothetical capital structure
mandated by the FERC Form No. 501-G where the capital structure of the
pipeline or its parent is deemed unacceptable for ratemaking purposes.
Pipeline Group argues that the Commission has not previously in its NGA
section 5 rate investigations required a pipeline to propose a capital
structure and make a

legal determination as to whether that capital structure satisfies the
Transco requirements. As the final rule explained, the Commission
modified the FERC Form No. 501-G so that it would not require a
pipeline to make a legal determination as to whether its capital
structure is consistent with Commission policy or propose a capital
structure. Rather, the FERC Form No. 501-G requires the pipeline to
answer three questions concerning facts relevant to determining what
capital structure should be used to determine the pipeline's rates.\64\
Then, based on the pipeline's answers to these questions, the FERC Form
No. 501-G automatically chooses a capital structure consistent with the
pipeline's answers to the questions. Thus, the pipeline is not asked to
make any legal determination concerning what capital structure is
consistent with Commission policy.
---------------------------------------------------------------------------

    \64\ The questions are: ``(1) Is the debt issued in the entity's
name and traded? (2) Is the debt rated by a rating agency) (3) Is
the equity ratio less than 65%?''
---------------------------------------------------------------------------

    32. The use of an indicative ROE and stated capital structure in
FERC Form No. 501-G is necessary to estimate a pipeline's return on
equity and achieve the Commission's goal of developing a form that
serves two purposes: (1) To help determine whether to initiate NGA
section 5 investigations of interstate natural gas pipelines' rates and
(2) provide support for limited NGA section 4 filings pipelines may
choose to make to reduce their rates to reflect the Tax Cuts and Jobs
Act or the United Airlines Issuances. As stated in the final rule, for
purposes of helping determine whether to initiate NGA section 5
investigations of interstate natural gas pipelines' rates, the FERC
Form No. 501-G is only intended to produce a rough estimate of the
pipeline's ROE before and after the Tax Cuts and Jobs Act or the United
Airlines Issuances. Pipeline Group contends that the Commission has not
met its NGA section 5 burden to show that a pipeline's existing ROE is
unjust and unreasonable or that the El Paso 10.55 percent ROE or
hypothetical capital structure would be just and reasonable for a
different pipeline today. However, as explained in the final rule, the
Commission is not using the FERC Form No. 501-G, including its
indicative ROE and capital structure, to satisfy its burden under NGA
section 5 to show that any pipeline's existing rates are unjust and
unreasonable. Rather, the FERC Form No. 501-G is simply intended to
provide a rough estimate of the pipeline's current return on equity for
purposes of deciding whether the Commission should exercise its
discretion to initiate a rate investigation pursuant to NGA section 5.
The data in the FERC Form No. 501-G will not be used to actually
establish rates in any NGA section 5 investigation that the Commission
may initiate. If the Commission does initiate an investigation pursuant
to NGA section 5, any rates determined in that proceeding, including
the capital structure and ROE, will be based on the record developed in
the hearing, and in such a hearing, the Commission will have the burden
of persuasion under NGA section 5 on all issues, including ROE. Indeed,
in our orders establishing NGA rate investigations based on the
information in a pipeline's FERC Form No. 501-G, the Commission has
stated that it makes no finding as to what would constitute a just and
reasonable ROE for the company and, if the FERC Form No. 501-G required
a hypothetical capital structure, the Commission has also stated that
it makes no finding as to a just and reasonable capital structure.
Those are among the issues set for hearing.\65\
---------------------------------------------------------------------------

    \65\ East Tennessee, 165 FERC ] 61,198 at P 24 n 43; Bear Creek,
166 FERC ] 61,034 at P 14 n 22; Northern Natural Gas Co., 166 FERC ]
61,033 at P 20 n 41; Panhandle Eastern, 166 FERC ] 61,032 at P 15 n
16; Southwest Gas Storage, 166 FERC ] 61,117 at P 10 n 14;
Stagecoach, 166 FERC ] 61,199 at P 12 n 20.
---------------------------------------------------------------------------

    33. Regarding the second purpose of the FERC Form No. 501-G
(providing support for limited NGA section 4 filings pipelines may
choose to make to reduce their rates), the Commission explained that a
pipeline may submit an Addendum with its FERC Form No. 501-G setting
forth an alternative ROE, along with full support for its proposed ROE,
and use that ROE in calculating its proposed percentage rate reduction
in its limited NGA section 4 rate filing. Similarly, pipelines are
permitted to use a capital structure other than those used in its FERC
Form No. 501-G in its limited NGA section 4 rate filing by submitting
an Addendum to their FERC Form No. 501-G if they believe that the form
inaccurately represents their financial situation. But, as previously
stated, the limited NGA section 4 filing is voluntary and a pipeline is
not required to submit additional information regarding its capital
structure in an Addendum.
    34. Finally, Pipeline Group contends that by requiring an
indicative ROE and capital structure the Commission is expanding its
review of pipeline rates from reductions in light of the Tax Cuts and
Jobs Act to the overall costs and revenue of the pipeline--a review
traditionally done in an NGA section 5 proceeding. The Commission is
properly considering all the pipelines' cost and revenues in deciding
whether to initiate NGA section 5 rate investigations. As explained in
the final rule,\66\ despite the reduction in the corporate income tax
and the change in policy concerning MLP tax allowances, a rate
reduction may not be justified for a significant number of pipelines,
because the pipeline's existing rates may not fully recover its cost of
service. The Commission must consider all the pipeline's costs and
revenues to determine whether this is true. By the same token, the FERC
Form No. 501-G may suggest that a pipeline is over-recovering its cost
of service for reasons that go beyond the Tax Cuts and Jobs Act and the
revised MLP tax allowance policy. It is consistent with our
responsibilities under the NGA to investigate those possible cost over-
recoveries as well.
---------------------------------------------------------------------------

    \66\ Order No. 849, 164 FERC ] 61,031 at P 222.
---------------------------------------------------------------------------

C. Order No. 849 Rate Moratorium

1. Final Rule
    35. In the final rule, the Commission granted in part commenters'
request for a moratorium on NGA section 5 investigations in the event a
pipeline chooses the limited NGA section 4 option. The Commission
determined that it is ``reasonable to provide pipelines an incentive to
make [] limited NGA section 4 rate reduction filings'' in the form of a
three-year moratorium on NGA section 5 investigations, noting that such
a filing is an ``efficient and expeditious method of passing along to
ratepayers the benefit of the reduction in the corporate income tax
rate or the elimination of the MLP income tax allowance, without the
need for the costly and time-consuming litigation entailed in an NGA
section 5 rate investigation.'' \67\ Recognizing that a pipeline could
make a limited NGA section 4 rate reduction filing and yet still have a
significantly excessive ROE, the Commission outlined the following
requirements to qualify for the three-year moratorium on NGA section 5
rate investigations: (1) The Commission accepts the pipeline's limited
NGA section 4 filing and (2) the pipeline's Total Estimated ROE after
the filing, as calculated on page 3, line 26, column (E) of its FERC
Form No. 501-G, is 12 percent or less.\68\
---------------------------------------------------------------------------

    \67\ Id. P 199.
    \68\ Id.
---------------------------------------------------------------------------

2. Request for Rehearing
    36. Pipeline Group argues that the 12 percent ROE test to qualify
for the rate moratorium for limited NGA section 4

filings is not supported by the record or justified, and is arbitrary
and capricious.\69\ Pipeline Group states that it supports a rate
moratorium for pipelines voluntarily participating in the limited NGA
section 4 process but that establishing an arbitrary threshold to
qualify for such moratorium limits any incentive that the Commission
intended to provide pipelines and expands the terms of a limited NGA
section 4 proceeding that the Commission intended to be limited.
Pipeline Group argues the voluntary reduction alone should be
sufficient to entitle the pipeline to a moratorium. Pipeline Group
argues that the Commission did not provide the reasoned decision making
required to justify the Commission's 12 percent threshold policy.
Pipeline Group contends that the Commission has not attempted to tie
the 12 percent ROE threshold to evidence in the record or to show that
the threshold is representative of an appropriate ROE for pipelines
across the country that operate in different markets and face differing
risks. Pipeline Group claims that, over the last five years, the
average ROE estimated by the Commission when instituting NGA section 5
proceedings was 18.6 percent and the lowest ROE estimated by the
Commission was 15.7 percent. Pipeline Group argues that the Commission
``must supply a reasoned analysis indicating that prior policies
standards are being deliberately changed, not casually ignored'' when
it departs from an established policy, precedent, or standard.\70\
---------------------------------------------------------------------------

    \69\ Pipeline Group Request for Rehearing at 12-16.
    \70\ Id. at 16 (citing Greater Boston Television Corp. v. FCC,
444 F.2d 841, at 852 (D.C. Cir. 1970); West Deptford Energy, LLC v.
FERC, 766 F.3d 10, at 20 (D.C. Cir. 2014); Williams Gas Processing-
Gulf Coast Co., L.P. v. FERC, 475 F.3d 319, at 322 (D.C. Cir.
2006)).
---------------------------------------------------------------------------

3. Commission Determination
    37. We reject Pipeline Group's argument that the 12 percent ROE
test to qualify for the three-year rate moratorium for limited NGA
section 4 filings is not supported by the record or justified, and is
arbitrary and capricious. The terms the Commission established for
qualifying for the three-year moratorium on rate investigations are a
reasonable exercise of the Commission's discretion in deciding whether
to initiate an NGA section 5 investigation.\71\ Pipeline Group is
correct that the threshold to qualify for the moratorium limits the
incentive provided by the moratorium, but only for pipelines that still
may have a significantly excessive ROE even after choosing the limited
NGA section 4 filing option. Based on comments and other record
evidence, the Commission chose a threshold that would create an
appropriate balance between incentivizing the limited NGA section 4
filing and preventing a pipeline that may have a significantly
excessive ROE from shielding its rate from Commission scrutiny.
---------------------------------------------------------------------------

    \71\ See General Motors Corp v. FERC, 613 F.2d at 944 (``[A]n
administrative agency's decision to conduct or not to conduct an
investigation is committed to the agency's discretion'') (citations
omitted).
---------------------------------------------------------------------------

    38. While Pipeline Group points out that the Commission has not
initiated an NGA section 5 investigation against a pipeline with an
estimated ROE below 15.7 percent in the last five years, our discretion
to initiate such investigations is not restricted to pipelines with
ROEs that exceed any particular level of ROE. In any event, Pipeline
Group inappropriately conflates the Commission's past decisions
concerning when to exercise its discretion to initiate an NGA section 5
investigation with the final rule's moratorium incentive to make the
limited NGA section 4 filing. In establishing the 12 percent ROE
threshold for qualifying for the moratorium, the Commission has not
departed from an established policy as Pipeline Group claims. The final
rule addressed a new situation not previously faced by the Commission:
Whether and how to modify the stated rates of natural gas pipelines as
a result of the substantial reduction in the corporate income tax by
the Tax Cuts and Jobs Act and the elimination of MLP tax allowances by
the United Airlines Issuances. Among other things, the Commission
adopted a new rule permitting pipelines to reduce their rates to
reflect these actions in limited NGA section 4 rate filings as an
exception to the Commission's general policy prohibiting such limited
NGA section rate reductions. In conjunction with this action, the
Commission chose to agree to a three-year moratorium on rate
investigations if the pipeline's ROE as calculated in the FERC Form No.
501-G was reduced to 12 percent or less. The Commission has not
previously provided any such moratorium on NGA section 5 rate
investigations. Thus, the Commission was adopting a new policy to
address a new situation--there was no established policy from which to
depart. Instead, the moratorium described in the final rule is an
incentive created by the Commission to encourage pipelines to make a
limited NGA section 4 filing, and the moratorium incentive is specific
to that rulemaking.

D. Accumulated Deferred Income Taxes

1. Final Rule
    39. As the Commission explained in the final rule, Accumulated
Deferred Income Taxes (ADIT) balances are accumulated on the regulated
books and records of interstate natural gas pipelines based on the
requirements of the Commission's Uniform System of Accounts.\72\ ADIT
balances arise from differences between the method of computing taxable
income for reporting to the Internal Revenue Service (IRS) and the
method of computing income for regulatory accounting purposes. The
Commission's regulatory accounting requirements then serve to inform
the development of a natural gas pipeline's rates, including the
depreciation and ADIT ratemaking components. The Commission stated that
ADIT generally affects regulated natural gas pipelines' ratemaking
either by decreasing rate base, in the case of an ADIT liability, or
increasing rate base, in the case of an ADIT asset. As a result of the
reduction in the federal corporate income tax rate, taxes that have
been previously deferred and reflected in ADIT will be owed to the IRS
based on the 21 percent tax rate, rather than the 35 percent tax rate
used to recognize the ADIT initially. The difference between the
already recognized ADIT based on a 35 percent tax rate and the
recomputed deferred taxes, which will actually be owed to the IRS, at a
21 percent tax rate requires an adjustment to ADIT balances for the
excess or deficiency.\73\
---------------------------------------------------------------------------

    \72\ 18 CFR part 201 (2018).
    \73\ Order No. 849, 164 FERC ] 61,031 at PP 63-65.
---------------------------------------------------------------------------

    40. The Commission explained that the FERC Form No. 501-G would
require pipelines to use calendar year 2017 ADIT balances as reported
in their 2017 FERC Form Nos. 2 and 2-A in calculating rate base. The
Commission stated that FERC Form No. 501-G would also require the
pipelines to reduce their income tax allowance by an amount reflecting
the first year's amortization of excess ADIT resulting from the reduced
income tax rates under the Tax Cuts and Jobs Act. The Commission also
set forth a policy concerning the treatment of ADIT when the tax
allowances of pass-through pipelines (including MLP pipelines) are
eliminated. The Commission modified FERC Form No. 501-G so that, if a
pass-through entity states that it does not pay taxes, the form would
not only eliminate its income tax allowance, but would also eliminate
ADIT.\74\ The Commission noted that the modification only applies to
the FERC Form No. 501-G (and the

optional limited NGA section 4 filings pursuant to Sec.  154.404(a)) of
the Commission's regulations, and that it does not establish a broader
rule.\75\
---------------------------------------------------------------------------

    \74\ Id. PP 130-132.
    \75\ Id. P 136.
---------------------------------------------------------------------------

2. Requests for Rehearing
    41. Process Gas argues that the Commission erred by allowing the
elimination of ADIT balances for pass-through pipelines without a
reduction to the pipeline's rate base contrary to the Commission's
normalization policy.\76\ Process Gas contends that the Commission's
normalization policy, as affirmed by the D.C. Circuit,\77\ allows all
ratepayers who take service from a utility throughout its depreciable
life to receive the benefit of a tax deduction that the utility enjoys
in the early years of operation. Process Gas states that, as a result
of normalization, the pipeline's rates include a higher tax allowance
in the early years than what the utility actually pays and a lower tax
allowance in the later years than what it actually pays. Process Gas
argues that the Commission's elimination of ADIT for pass-through
pipelines that remove the allowance for income taxes from current rates
without adjusting rate base violated the principle that normalization
will not result in any permanent tax savings by the pipeline that are
not reversed in subsequent periods. Process Gas also argues that,
contrary to the D.C. Circuit's finding regarding Order No. 144,\78\ the
benefits of the deferred taxes will accrue to the utility's
stockholders because they will retain the benefits that ADIT represents
under normalization and will not be required to pass them on to future
ratepayers through lower rates.
---------------------------------------------------------------------------

    \76\ Process Gas Request for Rehearing at 4-9.
    \77\ Id. at 4 (citing Public Systems v. FERC, 709 F.2d 73 (D.C.
Cir. 1983) (Public Systems)).
    \78\ Id. at 7 (citing Tax Normalization for Certain Items
Reflecting Timing Differences in the Recognition of Expenses or
Revenues for Ratemaking and Income Tax Purposes, Order No. 144, FERC
Stats. & Regs. ] 30,254, at PP 86-89 (1981), order on reh'g, Order
No. 144-A, FERC Stats. & Regs. ] 30,340 (1982); Public Systems, 709
F.2d at 83 (``Fourth, the Commission found that the rate of return
earned on common equity is the same under either flow-through or
normalization. Deferred taxes do not accrue to the benefit of
utility stockholders.'')).
---------------------------------------------------------------------------

    42. Process Gas also argues that the Commission incorrectly relied
upon Public Utilities Commission of State of California v. FERC \79\
for the proposition that continuing to deduct ADIT from rate base would
constitute retroactive ratemaking.\80\ Process Gas contends that an
important aspect of the Court's reasoning that the Commission had no
legal right to adjust rates to reflect ADIT in CPUC was the removal of
transportation assets from the pass-through entity's rate base. Process
Gas argues that CPUC is inapposite because the Commission only asserts
that the pipeline's double recovery of tax costs associated with those
assets has been removed, not the actual transportation assets. Process
Gas also contends that the removal of the tax allowance from an MLP
pipeline's cost of service is not a change from cost-based rate
regulation to non-cost based rate regulation, as was the case in CPUC.
Additionally, Process Gas argues that, unlike CPUC, the pipeline assets
to which ADIT directly relates have not been removed from the
pipelines' jurisdictional rates.
---------------------------------------------------------------------------

    \79\ 894 F.2d 1372 (D.C. Cir. 1990) (CPUC).
    \80\ Process Gas Request for Rehearing at 7-9.
---------------------------------------------------------------------------

    43. Process Gas also contends that the Commission's failure to
apply ADIT as a credit retroactively increases the pipeline's returns
in violation of the rule against retroactive ratemaking.\81\ Process
Gas argues that, while the rule against retroactive ratemaking
prohibits the Commission from adjusting current rates to make up for a
utility's over-collection or under-collection in prior periods, the
rule does not apply when the parties are on notice that the rates may
be changed.\82\ Process Gas argues that, in allowing normalization, the
Commission placed parties on notice that any tax savings in the early
years of a pipeline's useful life would be offset by reductions to rate
base in subsequent years. Process Gas also argues that parties were on
notice that the account balances for the timing differences are
expected to offset costs reflected in rate charges to customers in
future periods and that the balance of the account is not to be
transferred to earnings. Process Gas notes that ADIT is booked under
the Commission's accounting regulations in Account Nos. 281 and 282,
which both indicate that ``[t]he utility is restricted in its use of
this account to the purposes set forth above. It shall not transfer the
balance in this account or any portion thereof to retained earnings or
make any use thereof except as provided in the text of this account
without the prior approval of the Commission.'' \83\ Process Gas also
argues that the Commission has previously found that disregarding prior
treatment of specific expenses over the life of the facilities is
unjust and unreasonable \84\ and that there are no retroactive
ratemaking concerns with requiring a pipeline to continue to account
for prepaid costs on a going forward basis.\85\
---------------------------------------------------------------------------

    \81\ Id. at 10-13.
    \82\ Id. at 10 (citing Towns of Concord v. FERC, 955 F.2d 67, 71
n.2 (D.C. Cir. 1992); Columbia Gas Transmission Corp. v. FERC, 895
F.2d 791, 797 (D.C. Cir. 1990)).
    \83\ Id. at 11 (citing USOA Accounts 281.D and 282.D, 18 CFR
part 101 (2018)).
    \84\ Id. (citing Williams Natural Gas Co., 60 FERC ] 61,140, at
61,506 (1992) (``[t]o disregard depreciation expenses already paid
by transportation customers with respect to service on particular
gathering facilities would mean that those transportation customers
would have to pay more over the life of the facilities than they
would have to pay if the reserve for depreciation appropriately
reflected the depreciation expenses already paid.'')).
    \85\ Id. at 11-12 (citing BP Pipelines Alaska Inc., 119 FERC ]
63,007, at P 168 (2007), aff'd, Opinion No. 502, 123 FERC ] 61,287,
at P 163 (2008)).
---------------------------------------------------------------------------

    44. Process Gas also argues that the Commission misconstrued prior
precedent regarding whether deferred taxes can be analogized to a
loan.\86\ Process Gas contends that the Commission held in Order No.
849 that deferred taxes are not loans from customers and, thus,
customers have no right to future rate reductions relying on its
determinations in Order No. 144. Process Gas argues that, in fact, the
Commission held in Order No. 144 that the loan analogy was illustrative
and rejected the proposition that today's customers pay tomorrow's
customer's tax costs under normalization. Process Gas argues that the
Commission made clear that each generation of customers pays its own
costs, and that the flow-through method gives current customers tax
benefits that belong to future customers. Therefore, Process Gas
argues, the Commission's determination in Order No. 849 takes away the
future tax benefits from future period customers and gives them to the
pipeline, which is inconsistent with Order No. 144 and its finding that
deferred taxes represent a benefit owed to future customers.
---------------------------------------------------------------------------

    \86\ Id. at 13-14.
---------------------------------------------------------------------------

3. Commission Determination
    45. We reject Process Gas' argument that Order No. 849 erred by
requiring that pass-through entities that eliminate the income tax
allowance also eliminate ADIT on the FERC Form No. 501-G. Rather, the
treatment of ADIT in Order No. 849 is consistent with both Commission
policy \87\ and relevant court precedent. While the Commission can make
changes to rates on a prospective basis, if an income tax allowance is
removed from cost of service, continuing to deduct ADIT from rate

base or crediting ratepayers the excess ADIT balance would constitute
impermissible retroactive ratemaking.\88\ We conclude that this
precedent compels the approach adopted by the Commission in Order No.
849.
---------------------------------------------------------------------------

    \87\ See Revised Policy Statement Rehearing, 164 FERC ] 61,030
(providing non-binding guidance that where an MLP or other pass-
through pipeline eliminates its income tax allowance from its cost
of service pursuant to the Commission's post-United Airlines policy,
the Commission anticipates that ADIT will similarly be removed from
cost of service); SFPP, L.P., Opinion No. 511-D, 166 FERC ] 61,142
(2019) (holding that an MLP oil pipeline appropriately eliminated
ADIT where its income tax allowance was eliminated from cost of
service).
    \88\ CPUC, 894 F.2d 1371; see also SFPP, L.P., Opinion No. 511-
D, 166 FERC ] 61,142 at PP 93-95.
---------------------------------------------------------------------------

    46. Contrary to Process Gas' arguments, the elimination of ADIT
does not violate the Commission's normalization policy.\89\ As the
Commission explained in Order No. 849, the Commission's normalization
policies only apply to entities with an income tax allowance component
in their regulated cost-of-service rates.\90\ In contrast, where a
pipeline's income tax allowance is eliminated on the FERC Form No. 501-
G under the Commission's post-United Airlines policy, there is no
rationale for requiring the pipeline to record current or deferred
income taxes. The Commission in Order No. 849 explained that the
purpose of normalization is matching the pipeline's cost-of-service
expenses in rates with the tax effects of those same cost-of-service
expenses.\91\ If there is no income tax allowance in Commission rates,
there is no basis for the matching function of normalization and no
liability for the deferred taxes reflected in ADIT.
---------------------------------------------------------------------------

    \89\ Process Gas Request for Rehearing at 3-7.
    \90\ Order No. 849, 164 FERC ] 61,031 at P 132. Commission and
IRS regulations regarding normalization (including ADIT) only apply
to entities with an income tax allowance component in their
regulated cost-of-service rates. See 18 CFR 154.305(a) (2018) (``An
interstate pipeline must compute the income tax component of its
cost-of-service by using tax normalization for all transactions'');
18 CFR 154.305(b)(1) (``Tax normalization means computing the income
tax component as if transactions recognized in each period for
ratemaking purposes are also recognized in the same amount and in
the same period for income tax purposes''); 18 CFR 154.305(b)(4)
(``Income tax component means that part of the cost-of-service that
covers income tax expenses allowable by the Commission''); 26 U.S.C.
168(i)(9)(A) (``the taxpayer must, in computing its tax expense for
purposes of establishing its cost of service for rate-making
purposes . . . use a method of depreciation with respect to such
property that is the same as, and a depreciation period for such
property that is no shorter than, the method and period used to
compute its depreciation expense for such purposes. . . . '')
(emphasis added). See also Algonquin Gas Transmission Co., 76 FERC ]
61,075, at 61,449 (1996); 18 CFR 154.305(c)(2) (``rate base
reductions or additions'' for ADIT ``must be limited to deferred
taxes related to rate base, construction, or other costs and
revenues affecting jurisdictional cost-of-service'') (emphasis
added); 18 CFR 154.305(d)(1) (requirements relating to excess or
deficient ADIT balances apply where the discrepancy is ``a result of
changes in tax rates'' or where ``the rate applicant has not
provided deferred taxes in the same amount that would have accrued
had tax normalization always been applied'').
    \91\ Order No. 849, 164 FERC ] 61,031 at P 132 (citing Order No.
144, FERC Stats. & Regs. ] 30,254 at 31,522 (``The primary rationale
for normalization is matching: the recognition in rates of the tax
effects of expenses and revenues with the expenses and revenues
themselves'')); see also Public Systems, 709 F.2d at 80 (The
Commission's primary justification for its decision to adopt tax
normalization was ``the matching principle: as a matter of fairness,
customers who pay an expense should get the tax benefit that
accompanies the expense . . . .'').
---------------------------------------------------------------------------

    47. We also reject Process Gas' argument that Order No. 849
deprives future customers of the benefit of deferred taxes that they
are owed. Process Gas concedes that under normalization ``each
generation of customers pays its own [income tax] costs.'' \92\ As
such, future customers have no equitable right to the sums accumulated
in ADIT that were paid by prior customers for prior period service.\93\
ADIT is not money owed to past or future ratepayers, but rather
deferred taxes that are ultimately owed to the government.\94\
Moreover, because future customers are not paying tax costs in rates
where a pass-through pipeline's income tax allowance has been
eliminated, such customers are not owed the associated ``benefits''
resulting from deferred taxes under the Commission's normalization
policy.
---------------------------------------------------------------------------

    \92\ Process Gas Request for Rehearing at 13.
    \93\ Judicial and Commission precedent establish that customers
have no equitable interest or ownership claim in ADIT. See Public
Systems, 709 F.2d at 85 (rejecting the notion ``that ratepayers have
an ownership claim'' to the ADIT balance); CPUC, 894 F.2d at 1381
(``The Commission and this Court have both rejected'' ``the notion
that under normalization accounting customers enjoy an equitable
interest in a utility's deferred tax account''); Order No. 144, FERC
Stats. & Regs. ] 30,254 at 31,539 (addressing the ``erroneous
premise that a loan is being made by ratepayers to utilities''
through the normalization process and stating that ratepayers do not
``have an ownership claim or equitable entitlement to the `loaned
monies'''); id. at 31,539 n.75 (``This is not to say that customers
do not pay rates that recover deferred taxes. They do. But paying
deferred taxes in rates does not convey an ownership or creditor's
right''); Opinion No. 511-D, 166 FERC ] 61,142 at P 92 (``ratepayers
have no equitable interest or ownership claim in ADIT''); id. P 100
(``the Commission and D.C. Circuit have consistently held that
shippers do not have an equitable interest in ADIT'').
    \94\ Opinion No. 511-D, 166 FERC ] 61,142 at P 100. The
Commission has also explained that ADIT is not a true-up or tracker
of money owed to shippers. Lakehead Pipe Line Co. L.P., Opinion No.
397-A, 75 FERC ] 61,181, at 61,594 (1996). In any case, as explained
elsewhere in this order, FERC Form No. 501-G is merely an
informational filing. Although FERC Form No. 501-G includes certain
assumptions based on Commission ratemaking policy in order to
produce a rough estimate of the pipeline's ROE before and after the
Tax Cuts and Jobs Act or the United Airlines Issuances for
informational purposes, the data in the FERC Form No. 501-G will not
be used to actually establish rates in any NGA section 5
investigation that the Commission may initiate.
---------------------------------------------------------------------------

    48. Similarly, contrary to Process Gas' arguments, we reaffirm that
it comports with retroactive ratemaking principles to require pipelines
that eliminate the income tax allowance on FERC Form No. 501-G to also
eliminate ADIT on the FERC Form No. 501-G.\95\ As Process Gas
recognizes, normalization merely requires customers to pay their
properly allocated share of the pipeline's tax expenses for the period
of their service.\96\
---------------------------------------------------------------------------

    \95\ Order No. 849, 164 FERC ] 61,031 at PP 133-134; see also
SFPP, L.P., Opinion No. 511-D, 166 FERC ] 61,142 at PP 93-95.
    \96\ Process Gas Request for Rehearing at 13 (stating that under
the Commission's income tax allowance policies, ``each generation
pays its own costs'').
---------------------------------------------------------------------------

    49. As the Commission explained in Order No. 849, requiring
pipelines to return ADIT amounts collected in prior rates for this
prior period service would constitute impermissible retroactive
ratemaking.\97\ Although Process Gas attempts to distinguish the CPUC
decision discussed in Order No. 849, in both CPUC and the scenario
addressed by Order No. 849 where a pipeline's income tax is eliminated
pursuant to the Commission's post-United Airlines policy, the income
tax allowance is removed from cost of service and, accordingly, the
basis for tax normalization in a pipeline's cost-of-service rates is no
longer applicable.\98\ Therefore, notwithstanding the various arguments
raised by Process Gas, we continue to find that the D.C. Circuit's
holding in CPUC is controlling here. As the D.C. Circuit stated, ADIT
``is composed entirely of rate revenue that [the pipeline] has already
collected. Refund of such property, or its earnings, would effectively
force [the pipeline] to return a portion of rates approved by FERC, and
collected by [the pipeline].'' \99\ The D.C. Circuit elaborated that,
to the extent any basis for requiring the pipeline to credit ratepayers
for earnings on previously accumulated ADIT sums rested on the view
that the pipeline's prior cost-of-

service rates were ``in retrospect too high'' or ``unjust and
unreasonable,'' then the credit violated the rule against retroactive
ratemaking.\100\ In sum, we find that Order No. 849 correctly applied
the D.C. Circuit's reasoning in CPUC in determining that requiring a
pass-through pipeline whose income tax allowance has been eliminated to
apply ADIT as a credit to rate base on the Form No. 501-G would be
inconsistent with the rule against retroactive ratemaking.\101\
---------------------------------------------------------------------------

    \97\ Order No. 849, 164 FERC ] 61,031 at P 133 (citing CPUC, 894
F.2d 1371).
    \98\ In CPUC the pipeline switched to statutory, proscribed rate
ceilings from cost-of-service rates. CPUC, 894 F.2d at 1379 (the
switch ``wiped out the premise of tax normalization'' and hence the
matching principle ``ceased to operate as an explicit guide''); id.
at 1382 (``Tax normalization sought to `match' the timing of a
customer's contribution toward a cost with enjoyment of any
offsetting tax benefit. . . . Enactment of the NGPA, however, mooted
the whole question to which normalization was an answer.''). This
contrasts to situations in which the income tax allowance and the
required normalization remains in cost of service. Public Systems,
709 F.2d at 80 (the Commission's primary justification for its
decision to adopt tax normalization was ``the matching principle: as
a matter of fairness, customers who pay an expense should get the
tax benefit that accompanies the expense. . . . To do otherwise
would subsidize present customers at the expense of future ones.'').
    \99\ CPUC, 894 F.2d at 1383; see also id. at 1382 (``[t]his kind
of post hoc tinkering would undermine the predictability which the
[retroactive ratemaking] doctrine seeks to protect.'').
    \100\ Id. at 1380, 1382.
    \101\ See also Opinion No. 511-D, 166 FERC ] 61,142 at PP 93-95,
101-105.
---------------------------------------------------------------------------

    50. We also reject Process Gas' argument that applying ADIT as a
credit to rate base on the FERC Form No. 501-G does not constitute
retroactive ratemaking because pipelines were on notice based on the
Commission's normalization regulations. As explained above, the
Commission's normalization policy does not apply in the context of a
complete elimination of a pipeline's income tax allowance from cost of
service.\102\
---------------------------------------------------------------------------

    \102\ Id. PP 97, 104-105. We are similarly unpersuaded by
Process Gas' argument that removing ADIT from the FERC Form No. 501-
G is itself retroactive ratemaking. Process Gas Request for
Rehearing at 12. As explained above, ADIT consists of the tax costs
collected by the pipeline from prior shippers' rates and paid for
the prior shippers' service.
---------------------------------------------------------------------------

    51. We also dismiss Process Gas' argument that this case is
analogous to BP Pipelines Alaska, where the Commission found that
requiring a pipeline to account for prepaid costs for Dismantlement
Removal and Restoration (DR&R) on a going-forward basis did not
constitute retroactive ratemaking.\103\ In that case, the DR&R
continued to be recoverable in rates, but had merely been over-
collected. In contrast, the adjustment to the FERC Form No. 501-G to
remove ADIT reflects a situation where a pass-through entity's income
tax allowance has been removed from cost of service, and there is thus
no justification for tax normalization in going-forward rates. In these
circumstances, the Commission has ``no legal right to reduce [the
pipeline's going forward] rates . . . below levels found to be just and
reasonable'' as this would constitute ``in substance a retroactive
adjustment of prior rates based on normalization.'' \104\
---------------------------------------------------------------------------

    \103\ Process Gas Request for Rehearing at 12 (citing BP
Pipelines Alaska Inc., 119 FERC ] 63,007 at P 168, aff'd, Opinion
No. 502, 123 FERC ] 61,287 at P 163).
    \104\ CPUC, 894 F.2d at 1383-1384.
---------------------------------------------------------------------------

    52. Finally, to the extent Process Gas or any other entity objects
to the treatment of ADIT for purposes of the FERC Form 501-G, as set
forth in Order No. 849, we reiterate that the treatment of a pass-
through entity's ADIT for purposes of the FERC Form No. 501-G does not
establish a broader rule, nor does Order No. 849 itself preclude
shippers and pipelines from advocating for a different treatment of
ADIT in any future rate litigation.\105\ Rather, as explained elsewhere
in this order, the FERC Form No. 501-G serves a limited informational
purpose to assist the Commission in determining whether to exercise its
discretion to initiate NGA section 5 investigations of interstate
natural gas pipelines' rates.\106\ In Order No. 849, the Commission
determined that the informational FERC Form No. 501-G is likely to be
the most useful if it removes ADIT whenever the income tax allowance is
eliminated.\107\ However, if Process Gas or another entity seeks to
take a different position in a litigated rate proceeding, Order No. 849
does not preclude them from doing so.
---------------------------------------------------------------------------

    \105\ Order No. 849, 164 FERC ] 61,031 at P 135.
    \106\ FERC Form No. 501-G's only other potential use was as part
of a pipeline's discretionary limited NGA section 4 filings pursuant
to Sec.  154.404(a). However, Order No. 849 permitted these limited
NGA section 4 filings to be based upon an Appendix to the FERC Form
No. 501-G. Thus, had Order No. 849 not permitted the removal of ADIT
on FERC Form No. 501-G itself, the pipeline could have nonetheless
removed ADIT in the Appendix to the FERC Form No. 501-G. In such a
scenario, the removal of ADIT would have been reflected in any
discretionary limited NGA section 4 rate reduction filed by the
pipeline.
    \107\ Order No. 849, 164 FERC ] 61,031 at P 135.
---------------------------------------------------------------------------

E. Tax Allowance for Pass-Through Entities

1. Final Rule
    53. For purposes of FERC Form No. 501-G, if a pipeline states that
it is not a taxpaying entity, the form will automatically enter a
federal and state income tax of zero.\108\ The Commission stated in the
final rule that a natural gas company organized as a pass-through
entity, all of whose income or losses are consolidated on the federal
income tax return of its corporate parent, is considered to be subject
to the federal corporate income tax, and is thus eligible for a tax
allowance for purposes of the final rule.\109\ The Commission reasoned
that an income tax allowance is appropriate in the cost of service of a
pass-through subsidiary of a corporation ``when such a subsidiary does
not itself incur a tax liability but generates one that might appear on
a consolidated return of the corporate group.'' \110\
---------------------------------------------------------------------------

    \108\ Id. P 3.
    \109\ Id.
    \110\ Id. P 56 (citing BP West Coast Products, LLC v. FERC, 374
F.3d 1263, at 1289 (D.C. Cir. 2004) (BP West Coast Products, LLC)).
---------------------------------------------------------------------------

2. Requests for Rehearing
    54. Process Gas contends that the Commission erred by assuming that
all subsidiaries of corporations that appear on the consolidated
parent's tax return are generating actual income taxes for the
corporation.\111\ Process Gas also contends that the Commission
eliminated the burden of proof for a pass-through entity claiming such
a tax allowance. Process Gas argues that the determination in Order No.
849 that a natural gas company organized as a pass-through entity whose
income or losses are consolidated on the federal income tax return of
its corporate parent is considered to be subject to federal income
taxes for the purpose of filing the limited NGA section 4 filing is not
supported by the precedent cited by the Commission.\112\ Process Gas
argues that the BP West Coast Products, LLC precedent can be
distinguished because the court appeared to require proof that a
subsidiary actually generated a tax liability for the parent
corporation to justify an allowance for income tax for a corporate
subsidiary. Process Gas contends that the Commission may be awarding an
income tax allowance based upon phantom taxes.
---------------------------------------------------------------------------

    \111\ Process Gas Request for Rehearing at 14-16.
    \112\ Id. at 14 (citing Order No. 849, 164 FERC ] 61,031 at P 57
(citing BP West Coast Products, LLC, 374 F.3d at 1289).
---------------------------------------------------------------------------

    55. Enable argues that the Commission erred in determining that a
pipeline with an MLP in its organizational structure that is owned in
part indirectly by corporate unitholders should not receive an income
tax allowance, yet a pass-through entity that is a wholly owned
subsidiary of a corporation should be eligible for an income tax
allowance.\113\ Enable contends that the Commission failed to explain
the purported distinction between the two pass-through structures and
that the distinction is not supported by precedent. Enable argues that
the Commission has inverted the logic of BP West Coast Products, LLC,
and asserts that the case actually criticizes the Commission for
limiting an income tax allowance to corporate unitholders (not just
those consolidating on a federal return the entirety of income from an
affiliate in which the corporation owed an interest). Enable also
argues that the Commission ignored the fact that United Airlines did
not validate a distinction between a pass-through entity wholly owned
by corporate unitholders and an MLP owned in part by corporate
unitholders for purposes of assessing income tax allowance eligibility.
---------------------------------------------------------------------------

    \113\ Enable Request for Rehearing at 4-8.

---------------------------------------------------------------------------

3. Commission Determination
    56. We deny both Process Gas' and Enable's rehearing requests.
Commission policy supports the position adopted by Order No. 849.
    57. Specifically, we reject Process Gas' argument that Order No.
849 incorrectly permitted the wholly owned subsidiary of a corporation
to claim an income tax allowance on FERC Form No. 501-G.\114\ Rather,
the Commission's standalone income tax policies have long permitted a
wholly owned pipeline subsidiary to recover the income tax costs of its
corporate parent that arise from jurisdictional service.\115\ Moreover,
under the stand-alone methodology, it is not relevant that the income
from the subsidiary allocated to the corporate parent may be offset by
other deductions or losses of the parent or affiliates.\116\ Rather, as
the D.C. Circuit has explained, under the stand-alone methodology,
``pipeline ratepayers may be assessed with a tax expense when the
consolidated company in fact pays no taxes.'' \117\
---------------------------------------------------------------------------

    \114\ Order No. 849, 164 FERC ] 61,031 at P 57 (citing BP West
Coast Products, LLC, 374 F.3d at 1289).
    \115\ Under the stand-alone policy, a regulated entity is
permitted an income tax allowance notwithstanding the fact that it
is the corporate parent that pays the income tax on behalf of the
regulated entity. City of Charlottesville v. FERC, 774 F.2d 1205,
1207-1208 (D.C. Cir. 1985). See also BP West Coast Products, LLC,
374 F.3d at 1289 (explaining that an income tax allowance is
appropriate in the cost of service of a pass-through subsidiary of a
corporation ``when such a subsidiary does not itself incur a tax
liability but generates one that might appear on a consolidated
return of the corporate group'').
    \116\ City of Charlottesville, 774 F.2d at 1215.
    \117\ Id. (emphasis original).
---------------------------------------------------------------------------

    58. Enable's arguments are also unpersuasive. The Commission
addressed similar arguments in its July 30, 2018 Enable MRT decision,
which addressed Enable's own NGA section 4 rate proceeding where Enable
argued that an income tax allowance should be permitted for the income
tax costs of its corporate MLP unitholders.\118\ In the Enable MRT
decision, the Commission explained that United Airlines' double-
recovery concern precludes an income tax allowance for the income tax
costs of corporate MLP unitholders as well as other MLP unitholders.
The Enable MRT decision emphasized the distinction between (a) a
pipeline organized as a pass-through entity that is owned by an MLP
that has corporate unitholders; and (b) a pipeline organized as a pass-
through entity that is a wholly owned subsidiary of a corporation. The
Commission explained that an MLP incurs no tax liability prior to
making the distribution to its unitholders that is reflected in the DCF
model's determination of the MLP's ROE.\119\ Thus, the MLP's
distribution includes funds that the corporate and individual
unitholders may use to pay taxes on their share of the MLP's
income.\120\ In contrast, a corporation that wholly owns a pass-through
pipeline pays the corporate income tax prior to the investor-level
dividend reflected in the DCF model's calculation of the pipeline's
ROE.\121\ Although a double-recovery results from granting a pipeline
an income tax allowance to reflect the tax liability of corporate or
other MLP unitholders, no double-recovery results from granting an
income tax allowance to the wholly owned subsidiary of a
corporation.\122\ Consistent with this logic, Order No. 849 permitted
an income tax allowance for the wholly owned subsidiary of a
corporation while denying an income tax allowance for the tax costs of
an MLP's corporate unitholders.
---------------------------------------------------------------------------

    \118\ Enable Mississippi River Transmission, LLC, 164 FERC ]
61,075, at PP 29-40 (2018) (Enable MRT). Enable MRT was a wholly
owned subsidiary of an MLP. Because 86 percent of the MLPs
unitholders were corporations, Enable MRT claimed that it should
receive an income tax allowance based upon the corporate income tax
rate as applied to this 86 percent corporate ownership share.
    \119\ Id. P 35.
    \120\ Id.
    \121\ Id.
    \122\ Id.
---------------------------------------------------------------------------

    59. In any case, in regard to both Enable's and Process Gas'
concerns, we reiterate that the FERC Form No. 501-G serves a limited
informational purpose involving the Commission's exercise of its
discretion to initiate NGA section 5 investigations of interstate
natural gas pipelines' rates \123\ and the holdings of Order No. 849 do
not establish a broader rule constraining pipelines or shippers from
adopting contrary positions in other proceedings.\124\
---------------------------------------------------------------------------

    \123\ As noted elsewhere in this order, the pipeline may also
use FERC Form No. 501-G and an Appendix to FERC Form No. 501-G in
any discretionary limited NGA section 4 rate reduction pursuant to
Order No. 849. See supra note 106. However, regardless of the tax
treatment of wholly owned corporate subsidiaries on the FERC Form
No. 501-G, the pipeline in the Appendix could claim that as a
subsidiary of a corporation it incurs a corporate income tax
allowance. This Appendix could then serve as the basis for any rate
adjustment pursuant to the limited NGA section 4 rate filings
permitted by Order No. 849.
    \124\ See Order No. 849, 164 FERC ] 61,031 at P 135. The
electronic version of FERC Form No. 501-G filed by a pipeline can
easily be modified by any shipper to change the taxpaying status of
the regulated entity and the shipper could attempt to use this as
the basis of its own NGA section 5 complaint (as opposed to relying
upon the Commission's discretionary unilateral action).
---------------------------------------------------------------------------

III. Document Availability

    60. 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 the Commission's Home Page www.ferc.gov and in the
Commission'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.
    61. From the Commission'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 in the docket number
field.
    62. User assistance is available for eLibrary and the Commission'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<PHONE_NUMBER>. Email the Public Reference Room at
[email protected].

    By the Commission. Commissioner McNamee is not participating.

    Issued: April 18, 2019.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2019-08241 Filed 4-25-19; 8:45 am]
BILLING CODE 6717-01-P