109. Several pipeline commenters argue that pipelines should be
permitted to use their capital structure as reported on the FERC Form
No. 2 or 2-A, even if that capital structure does not comply with the
Opinion No. 414, et al., policy.\127\ Boardwalk and INGAA argue that
using a hypothetical capital structure attempts to shift to the
pipeline the burden of justifying its own capital structure.\128\
Boardwalk argues that requiring different data on the FERC Form No.
501-G than on the FERC Form No. 2 ``impermissibly blurs the distinction
between NGA sections 4 and 5.'' \129\ They also argue that the
hypothetical capital structure that FERC Form No. 501-G requires when
neither the pipeline's nor its parent's capital structure satisfies
Commission policy is financially unrealistic, and that companies that
attempt to actually implement them would harm their credit rating and
financial viability. Enable Interstate Pipelines argue that the NOPR
proposes only three possible choices of capital structure, but that
ratemaking precedent allows other possibilities, such as using an
intermediate subsidiary's structure. Enable Interstate Pipelines also
argue that the FERC Form No. 501-G default 50/50 debt/equity ratio is
inconsistent with ratemaking precedent concerning hypothetical capital
structures, which they state uses the average capitalization of a proxy
group to develop a hypothetical capital structure.\130\
---------------------------------------------------------------------------

    \127\ Boardwalk Comments at 27-29; Enable Interstate Pipelines
Comments at 22; INGAA Comments at 36-38; Kinder Morgan Comments at
23-26.
    \128\ Boardwalk Comments at 28; INGAA Comments at 36.
    \129\ Boardwalk Comments at 29.
    \130\ Enable Interstate Pipelines Comments at 24.
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    110. Kinder Morgan notes that page 4 of the proposed FERC Form No.
501-G asks the respondent, ``does the Capital Structure and the Long-
Term Debt from the cited source meet the requirements of Opinion No.
414, et al.?'' Kinder Morgan argues that this question impermissibly
goes beyond a request for information, and instead would compel the
respondent to provide a legal opinion. Kinder Morgan argues sections
10(a) and 14(a) of the NGA do not permit the Commission to solicit
legal positions of a pipeline rather than information.\131\ Kinder
Morgan notes that the Commission has not asked this question or similar
questions in its recent NGA section 5 show cause orders. Kinder Morgan
argues that it is especially inconsistent to compel a respondent to
take a legal position given that page 4 of the proposed FERC Form No.
501-G also compels certain respondents to report a hypothetical 50/50
debt/equity capital structure rather than choosing other lawful
options, potentially prejudicing the pipeline in the limited section 4
filing under Option 1.
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    \131\ Kinder Morgan Comments at 24.
---------------------------------------------------------------------------

b. Discussion
    111. We generally adopt the NOPR proposal regarding how capital
structure must be reported on FERC Form No. 501-G, but make several
changes to address concerns raised by the commenters. As discussed
above, the One-time Report is an informational filing required pursuant
to NGA sections 10 and 14 that serves two purposes: (1) To help
determine whether to initiate NGA section 5 investigations of
interstate natural gas pipelines' rates and (2) as 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. When used for the first purpose, the FERC Form No. 501-G is
intended to provide a rough estimate of the pipeline's return on equity
before and after the Tax Cuts and Jobs Act or the United Airlines
Issuances. Such an estimate will be one factor the Commission will
refer to in deciding whether to exercise its discretion to initiate an
NGA section 5 rate investigation. For that purpose, the Commission
desires to design the form in a manner that will produce an estimated
return on equity that is as accurate as possible. Therefore, the
Commission seeks to use a capital structure that is consistent with
Commission policy. For that reason, the Commission finds it appropriate
for the FERC Form No. 501-G to use a different capital structure than
that used in the pipeline's FERC Form No. 2 or 2-A, when it appears
that the capital structure reported in the FERC Form No. 2 or 2-A does
not comply with Commission policy.\132\ Thus, as described below, the
form will ask a series of factual questions, designed to result in a
capital structure consistent with Commission policy. However, the form
will not be used to actually establish rates in any NGA section 5
investigation that the Commission may initiate. Rather, any rates
determined in a section 5 investigation, including the capital
structure, will be based on the record developed in the hearing.
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    \132\ INGAA argues that, in order to use a different capital
structure than that used in the FERC Form No. 2 or 2-A, ``the
Commission must first show that the pipeline's submitted data is not
just and reasonable.'' INGAA Comments at 28. However, data cannot be
just or unjust, which is why NGA section 10 instead speaks of
``specific answers,'' ``full information,'' and ``adequate
provision.'' The Commission is not modifying any rates pursuant to
NGA section 5 in the FERC Form No. 501-G, but simply seeking to
estimate the pipeline's current return on equity for purposes of
deciding whether to initiate a rate investigation pursuant to NGA
section 5.
---------------------------------------------------------------------------

    112. The Commission has used a similar approach to capital
structure in its analysis of FERC Form No. 2 or 2-A data in recent
years for purposes of deciding whether to initiate NGA section 5 rate
investigations. Thus, when a pipeline has reported a capital structure
in its FERC Form No. 2 or 2-A that appeared not to comply with the
Commission's capital structure policy, the Commission has used a
hypothetical capital structure to determine the return on equity shown
by the pipeline's FERC Form No. 2 or 2-A cost and revenue data. For
example, in its 2011 order establishing a hearing under NGA section 5
concerning the rates of Bear Creek Storage Company, L.L.C. (Bear
Creek), the Commission stated that, because Bear Creek had used a 100
percent equity capital structure in its FERC Form No. 2, the Commission
had used a hypothetical capital structure to estimate that Bear Creek's
return on equity using Bear Creek's FERC Form No. 2 cost and revenue
information was over 20 percent. However, the Commission was careful to
state in its hearing order that ``in this order, we make no finding as
to what should constitute a just and reasonable capital structure for
Bear Creek. That is among the issues set for hearing in this order and
should be decided consistent with the Commission capital structure
policies.'' \133\ The Commission intends to take a similar approach
with respect to any NGA section 5 rate investigations it initiates
based on the return on equity estimated in the FERC Form No. 501-G. The
hearing order will make no finding as to what would constitute a just
and reasonable capital structure for the pipeline in question,
regardless of what

type capital structure was required to be used in the FERC Form No.
501-G. The capital structure issue will be included in the hearing, and
the Commission will have the burden of persuasion under NGA section 5
to support any rate reduction, including any capital structure used to
support the rate reduction.
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    \133\ Bear Creek Storage Co., L.L.C., 137 FERC ] 61,134, at P 8
n.6 (2011). See also Dominion Energy Overthrust Pipeline, LLC, 162
FERC ] 61,218, at Appendix, n.1 & 2 (2018); Midwestern Gas
Transmission Co., 162 FERC ] 61,219, at Appendix, n.1 & 2 (2018);
Natural Gas Pipeline Co. of America LLC, 158 FERC ] 61,044, at
Appendix, n.1 & 2 (2017); Wyoming Interstate Co., L.L.C., 158 FERC ]
61,040, at Appendix, n.1 & 2 (2017); Tuscarora Gas Transmission Co.,
154 FERC ] 61,030, at Appendix, n.1 & 2 (2016); MIGC LLC, 137 FERC ]
61,135, at Appendix, n.3 (2011); ANR Storage Co., 137 FERC ] 61,136,
at Appendix, n.2 (2011).
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    113. The Commission recognizes that when the FERC Form No. 501-G is
used for its second purpose--as support for the percentage rate
reduction proposed in a pipeline's limited NGA section 4 rate case
filing--the FERC Form No. 501-G does serve a ratemaking purpose.
However, as discussed above, pipelines are permitted to submit an
Addendum to their FERC Form No. 501-G if they believe that the form
inaccurately represents their financial situation. A pipeline may
propose to use the percentage cost of service reduction calculated in
its Addendum in its limited NGA section 4 rate filing. Thus, a pipeline
may propose to use a capital structure other than that used in its FERC
Form No. 501-G in its limited NGA section 4 rate filing. For example,
Boardwalk provides comments on its specific financial situation;
although this information is not relevant to developing a form for the
entire natural gas pipeline industry, it may prove relevant in
evaluating whether further procedures will be necessary to address the
consequences of the Tax Cuts and Jobs Act for Boardwalk's pipelines,
and we encourage Boardwalk to include such information when it submits
its One-time Reports.
    114. The Commission is making two changes to the treatment of
capital structure in the FERC Form No. 501-G, as proposed in the NOPR.
First, the Commission has modified page 4 of the proposed FERC Form No.
501-G in response to Kinder Morgan's concerns that, as proposed, the
form requires the pipelines to state an opinion as to whether the
capital structure reported in their FERC Form No. 2 or 2-A complies
with the Commission's capital structure policies. Although the
Commission does not concede the point that it lacks the authority under
NGA section 10 or 14 to compel a pipeline to state whether it complies
with an established policy, we recognize that such a requirement is
unnecessary in order to achieve the goals of this rulemaking. Instead
of asking the respondent its position with regard to whether its
capital structure complies with Opinion No. 414-A, the form now
includes a statement explaining how the Commission will use the
respondent's data to perform our own Opinion No. 414-A analysis. Page 4
of the proposed FERC Form No. 501-G now asks respondents a series of
factual questions about its actual capital structure. The form will
automatically select from the data provided to show the Commission's
default presumed capital structure under its Opinion No. 414-A
analysis, but will not require the respondent to apply the Commission's
position as if it was the pipeline's.
    115. Second, as requested by Enable Interstate Pipelines, the
Commission will modify the hypothetical capital structure used in the
FERC Form No. 501-G, for those pipelines which the form considers
ineligible to use their own or their parent's capital structure. As
Enable Interstate Pipelines point out, in an NGA section 4 rate case in
HIOS the Commission adopted a policy of basing a hypothetical capital
structure on the average capital structure of the companies in the
proxy group used for purposes of determining ROE. The Commission
explained that ``this assures a match between the financial risk
inherent in the DCF analysis used to develop return on equity and the
hypothetical capital structure.'' \134\ The FERC Form No. 501-G uses
the 10.55 percent ROE determined in El Paso. The average capital
structure of the proxy group in that rate case was approximately 57
percent equity and 43 percent debt.\135\ Accordingly, the Commission is
revising the FERC Form No. 501-G to use a hypothetical capital
structure of 57 percent equity and 43 percent debt. This revision
should also help address Boardwalk's concern that the 50 percent
equity/50 percent debt capital structure in the proposed FERC Form No.
501-G is financially unrealistic in today's market conditions.
---------------------------------------------------------------------------

    \134\ High Island Offshore System, L.L.C., 110 FERC ] 61,043, at
P 147 (2005).
    \135\ The Commission notes that this capital structure is also
consistent with the capital structures the Commission typically
approves in litigated rate cases for pipelines that do issue their
own publically traded debt. Transok, Inc., 70 FERC ] 61,177, at
61,554 (1995) (58.49 percent equity ratio); Panhandle Eastern Pipe
Line Co., Opinion No. 395, 71 FERC ] 61,228, at 61,827 (1996) (61.79
percent equity ratio); Panhandle Eastern Pipe Line Co., Opinion No.
404, 74 FERC ] 61,109, at 61,359 (1996) (59.97 percent equity
ratio); Transcontinental Gas Pipe Line Corp., Opinion No. 414-A, 84
FERC ] 61,084, at 61,419 (1998) (57.58 percent equity ratio).
---------------------------------------------------------------------------

7. Accumulated Deferred Income Taxes
    116. 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.\136\ ADIT balances arise from differences between
the method of computing taxable income for reporting to the 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 most significant cause
for differences between regulatory accounting and tax income is the use
of straight-line depreciation rates for accounting and ratemaking
purposes and the use of accelerated depreciation rates for federal
income tax reporting purposes. As such, depreciation expense is higher
for tax reporting purposes than that calculated for accounting and
ratemaking purposes, resulting in higher taxes computed for accounting
and ratemaking purposes than the taxes actually owed to the IRS
authorities, in the early years of the property's service life. This
creates an ADIT liability. In later years, depreciation expense is
lower for tax reporting purposes than that calculated for accounting
and ratemaking purposes, resulting in lower taxes computed for
accounting and ratemaking purposes than the taxes actually owed to the
IRS and reductions to the ADIT liability. Ultimately, at the end of the
property's service life, the cumulative depreciation under either
method are equal and the ADIT liability will be reduced to zero.
---------------------------------------------------------------------------

    \136\ 18 CFR part 201.
---------------------------------------------------------------------------

    117. ADIT generally impacts 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
which 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. Notwithstanding potential future Commission
action in the ADIT NOI on how to treat excess ADIT or deficiency ADIT,
these balances and the associated amortization are essential in
appropriately computing a total cost of service.
    118. As discussed, the Commission is implementing in this Final
Rule FERC Form No. 501-G as a basis for determining whether a natural
gas pipeline may be over-recovering its cost of service, and thus
whether there should be further investigation pursuant to NGA section
5. FERC Form No. 501-G is designed to collect financial

information to evaluate the impact of the Tax Cuts and Jobs Act and the
United Airlines Issuances on the pipeline's cost of service, and to
inform stakeholders, the Commission, and all interested parties
regarding the continued justness and reasonableness of the pipeline's
rates after the income tax reduction and elimination of MLP pipeline
income tax allowances.\137\
---------------------------------------------------------------------------

    \137\ NOPR, FERC Stats. & Regs. ] 32,725 at P 26.
---------------------------------------------------------------------------

    119. As proposed, 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.\138\ The 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 the reduced income tax rates under the Tax Cuts
and Jobs Act.\139\
---------------------------------------------------------------------------

    \138\ See proposed FERC Form No. 501-G, page 2, lines 13-17. All
references to FERC Form No. 501-G line numbers in this Final Rule
are to the proposed form as contained in the NOPR. Certain line
numbers have been modified in the final version of the form as
discussed below.
    \139\ See proposed FERC Form No. 501-G, page 1, line 31.
---------------------------------------------------------------------------

a. Comments
    120. Several commenters filed similar comments on this issue.\140\
They are concerned that FERC Form No. 501-G's proposed treatment of
ADIT and related amortization of excess ADIT is inextricably linked
with the Commission's Notice of Inquiry on the effect of the Tax Cuts
and Jobs Act on Commission jurisdictional rates.\141\ These commenters
insist that resolution of the requested areas of comment in the ADIT
NOI on a number of issues regarding the details and effect of the
appropriate treatment of ADIT as a result of the lower tax rates in the
Tax Cuts and Jobs Act may impact the excess ADIT amounts that are
entered in FERC Form No. 501-G, which will be filed with the Commission
prior to any ADIT NOI resolution. According to these commenters, excess
ADIT amounts are entered on Lines 13-17 on Page 2 of FERC Form No. 501-
G for purposes of calculating rate base, and that results in the annual
amortization figure entered in Line 31 on page 1 of the Form for
purposes of calculating the tax allowance. These commenters note that
the ADIT NOI seeks comments concerning potential adjustments to
pipelines' rate base relating to, and amortization of, excess or
deficient ADIT; whether and how excess or deficient ADIT should be
reflected in pipelines' rates; and the treatment of excess ADIT
associated with assets that pipelines sell or retire after the
effective date of the Tax Cuts and Jobs Act. Without this guidance,
they argue, pipelines will likely make individual judgments about the
treatment of their ADIT balances, which will ultimately result in
different inputs into their FERC Form No. 501-G from the final
resolution. Thus, these commenters argue that the information would be
highly varied and not comparable, which would hinder the Commission in
evaluating pipelines' rates. With the lack of clarity for these
outstanding issues, these commenters contend that it will be nearly
impossible to choose from among the four options available. The
commenters are concerned that the proposed information in FERC Form No.
501-G and related amortization in the indicative rate reduction will
prejudge the outcome of the ADIT NOI rulemaking. These commenters
insist that, as required by the Administrative Procedure Act, these
issues should be addressed through adequate notice and comment
procedures. In addition to the uncertainty originating from the
resolution in the ADIT NOI, Berkshire Hathaway notes that the
Commission is not the only regulatory agency evaluating the impact of
the Tax Cuts and Jobs Act. Berkshire Hathaway further notes that both
the Securities Exchange Commission (SEC) and the Financial Accounting
Standards Board must set standards for financial reporting that address
the reduction in the federal corporate income tax rate. Thus, Berkshire
Hathaway states that although it has recorded the impacts of the Tax
Cuts and Jobs Act in its FERC Form No. 2, it considers the amounts
recorded, and the interpretations related to the financial reporting of
bonus depreciation and regulatory liability amortization, to be
provisional and subject to changes during the measurement period.
Therefore, the commenters urge that the Commission consider the final
resolution in the ADIT NOI proceeding before requiring the pipelines to
file their FERC Form No. 501-G.
---------------------------------------------------------------------------

    \140\ INGAA Comments at 22; Boardwalk Comments at 13-15; Spectra
Comments at 7, 22; Kinder Morgan Comments at 28; National Fuel
Comments at 4-6; Dominion Energy Comments at 3-4; EQT Midstream
Comments at 8; Tallgrass Pipelines Comments at 7-8; Williams
Comments at 9; Berkshire Hathaway Comments at 5; Southern Star
Comments at 9.
    \141\ ADIT NOI, 162 FERC ] 61,223.
---------------------------------------------------------------------------

    121. The Oklahoma AG believes that the NOPR does not include the
effects of excess ADIT on the revenue requirements of interstate
natural gas pipelines and does not agree with this approach. Instead,
the Oklahoma AG believes that the most effective and efficient means
for resolving excess ADIT for interstate natural gas pipelines would be
to include the amortization of excess ADIT in the FERC Form No. 501-G
rather than awaiting conclusion of the open-ended ADIT NOI process.
    122. Enable Interstate Pipelines, Spectra, and National Fuel argue
that establishing a generic policy regarding the treatment of ADIT
ignores the complexity of the issue. They argue that the level of ADIT
attributed to an entity depends on where (among other things) that
entity's assets are in their depreciable lives (for tax purposes and
for ratemaking purposes), what transactions the entity has engaged in
in the past, what assets have been fully depreciated, and differences
in timing between book depreciation and tax depreciation. National Fuel
notes that because its fiscal year is not on a calendar year basis, the
applicable federal tax rate for fiscal year 2018 will be a composite
tax rate, not the 21 percent specified in FERC Form No. 501-G. National
Fuel insists that requiring pipelines with non-calendar year bases to
utilize a 21 percent federal tax rate will yield incorrect and invalid
results. National Fuel notes that the Commission has approved differing
rate treatments in its rate cases. Because of expected differences from
the FERC Form No. 501-G assumptions, National Fuel requests that the
Commission modify the form to allow flexibility in regards to the
form's inputs in order to ensure a calculation of valid results.
    123. Spectra argues that FERC Form No. 501-G has erroneous built-in
features that reduce rate base by the total regulatory liability
reported on page 278 of the 2017 FERC Form No. 2. Spectra states that
for many pipelines, a substantial portion of that regulatory liability
is related to deferred income taxes. Also, Spectra states that FERC
Form No. 501-G requires a pipeline to reduce its cost of service by the
annual amortization of the excess ADIT regulatory liability. According
to Spectra, this reduces rates twice for the same regulatory liability.
    124. LDC Coalition notes that pipelines will have adjusted their
ADIT balances to reflect the change in the federal corporate income tax
rate by the time they make their FERC Form No. 501-G filing. LDC
Coalition speculates that pipelines may use several alternatives to
recalculate ADIT and then account for the excess ADIT. LDC Coalition
states that although the pipeline may simply be transferring a
previously booked item from its FERC Form No. 2 to the FERC Form No.
501-G, the Commission and customers reviewing the pipeline filing will
have

no transparency in how an adjustment potentially involving many
millions of dollars was calculated. To obtain better transparency, LDC
Coalition requests that the Commission require pipelines to file an
accompanying spreadsheet that provides how they recalculated ADIT and
excess ADIT balances. In addition, LDC Coalition requests that the
Commission include within the scope of hearing issues whether a
pipeline has properly calculated ADIT for purposes of its FERC Form No.
501-G and concurrent limited NGA section 4 rate reduction filing
pursuant to proposed Sec.  154.404. AGA and APGA also believe that
ratepayers should be allowed to comment on a pipeline's proposed
treatment of ADIT.
    125. Commenters also raise concerns regarding the uncertainty
surrounding the rate treatment of ADIT for those MLP pipelines or other
pass-through entities that eliminate an income tax allowance pursuant
to the United Airlines Issuances. For instance, Boardwalk argues that
the uncertainty surrounding how to handle ADIT is particularly
problematic for MLP pipelines that own pipelines that are no longer
permitted an income tax allowance in their rates under the Revised
Policy Statement but still have large ADIT balances on their FERC
books.\142\
---------------------------------------------------------------------------

    \142\ Boardwalk Comments at 14.
---------------------------------------------------------------------------

    126. Spectra further argues that the proposed FERC Form No. 501-G
treats certain entities as though they will not be permitted an income
tax allowance going forward, but requires those same entities to carry-
over historic ADIT-related balances and costs inputs. Spectra asserts
that if there is no income tax liability, there should be no ADIT and
associated adjustments. Accordingly, Spectra contends that FERC Form
No. 501-G inappropriately requires such entities to reduce rate base by
the amount of ADIT and reduce the total cost of service by the
amortization of the excess ADIT Regulatory Liability balance. Spectra
claims that, in the absence of an income tax allowance, ADIT is being
used to provide a refund and violates precedent against retroactive
ratemaking. Accordingly, Spectra argues that FERC Form No. 501-G data
entry for ADIT amortization should be zero for entities that are
disallowed an income tax allowance pursuant to the United Airlines
Issuances.
    127. In sum, commenters argue that the uncertainty regarding ADIT
may (1) result in misleading or inaccurate information provided in the
FERC Form No. 501-G filings, particularly the inputs related to ADIT;
\143\ (2) discourage pipelines from selecting the option to file a
limited section 4 rate case; \144\ and (3) reduce the likelihood
pipelines and shippers will enter into settlements.\145\ Commenters
urge that the Commission consider the final resolution of the issues in
the pending ADIT NOI proceeding before the issuance of the Final Rule
in this proceeding or at least before pipelines are required to file
their FERC Form No. 501-G.\146\
---------------------------------------------------------------------------

    \143\ INGAA Comments at 23; Boardwalk Comments at 14; Spectra
Comments at 7-8; Kinder Morgan Comments at 28; Williams Comments at
9; Millennium Comments at 10; Tallgrass Pipelines Comments at 6, 9,
12; EQT Midstream Comments at 5, 8; Dominion Energy Comments at 4-5;
National Fuel Comments at 5; Berkshire Hathaway Comments at 4-6;
Southern Star Comments at 9-10. Similarly, LDC Coalition argues that
the staggered timing of this proceeding and the ADIT NOI proceeding
may make it difficult to determine how pipelines have adjusted their
ADIT balances in calculating their costs in the FERC Form No. 501-G
filings. LDC Coalition Comments at 22.
    \144\ INGAA Comments at 23; Boardwalk Comments at 14; Spectra
Comments at 8; Williams Comments at 9; Millennium Comments at 10;
Tallgrass Pipelines Comments at 12; EQT Midstream Comments at 2, 8-
9; Dominion Energy Comments at 4.
    \145\ INGAA Comments at 23; Boardwalk Comments at 14; Williams
Comments at 9-10; Millennium Comments at 10; TransCanada Comments at
3-4; Tallgrass Pipelines Comments at 12; EQT Midstream Comments at
9; Dominion Energy Comments at 4; National Fuel Comments at 6;
Southern Star Comments at 3, 10.
    \146\ INGAA Comments at 4, 22-23; Boardwalk Comments at 5, 13-
15; Spectra Comments at 6-9; Kinder Morgan Comments at 28-29;
Williams Comments at 3, 9; Millennium Comments at 2, 9-10; Tallgrass
Pipelines Comments at 4-9, 11-12; EQT Midstream Comments at 2, 8-9;
Dominion Energy Comments at 2-5; National Fuel Comments at 4-6;
Berkshire Hathaway Comments at 3-6; Southern Star Comments at 3, 9-
10.
---------------------------------------------------------------------------

b. Discussion
    128. The majority of pipeline commenters recommend that the
Commission delay the requirement to file FERC Form No. 501-G until a
Final Rule is issued in the ADIT NOI proceeding. The Commission
concludes that such a delay is unnecessary in light of the steps we
take below.
    129. The Commission is setting forth its policy concerning the
treatment of ADIT when the tax allowances of pass-through pipelines
(including MLP pipelines) are eliminated, and the Commission modifies
the FERC Form No. 501-G to reflect that policy. The Commission declines
to make other changes from the NOPR proposal because, as explained
below, the Commission's existing ADIT policies provide sufficient
guidance for the purposes of this Final Rule.
i. Treatment of ADIT When a Pass-Through Pipeline's Income Tax
Allowance Is Eliminated
    130. In response to the concerns raised by Spectra, Boardwalk, and
others, the Commission takes two steps to address treatment of ADIT
when a pass-through entity eliminates its income tax allowance.
    131. First, in the rehearing of the Revised Policy Statement (which
is issuing concurrently with this Final Rule),\147\ the Commission
announces its intent to permit a pass-through pipeline to eliminate
ADIT from its cost of service if that pass-through pipeline eliminates
its income tax allowance pursuant to the United Airlines Issuances
policy. Thus, the Commission does not intend to require a pass-through
pipeline to return ADIT to its customers or to adjust its rate base by
any outstanding ADIT balance. Although non-binding, this guidance
should help pipelines more efficiently evaluate their options pursuant
to the Final Rule. This clarification may also facilitate potential
settlement negotiations between pipelines and customers.
---------------------------------------------------------------------------

    \147\ Inquiry Regarding the Commission's Policy for Recovery of
Income Tax Costs, Order on Rehearing, 164 FERC ] 61,030 (2018).
---------------------------------------------------------------------------

    132. Second, the Commission modifies the proposed Form No. 501-G so
that, if a pass-through entity states that it does not pay taxes, the
form will not only eliminate its income tax allowance, but will also
eliminate ADIT.\148\ Several reasons support this change. As an initial
matter, this modification will provide that the FERC Form No. 501-G
defaults to providing data consistent with the guidance the Commission
is concurrently providing on rehearing of the Revised Policy Statement.
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.\149\ ADIT is a regulatory

construct to ensure that regulated entities do not earn a return on
cost-free capital based upon timing differences between federal and
state tax liability and Commission ratemaking.\150\ 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.\151\
If there is no income tax allowance in Commission rates, there is no
basis for the ``matching'' function of normalization \152\ and no
liability for the deferred taxes reflected in ADIT. In the absence of
ADIT, there is no ADIT adjustment to rate base or amortization
allowance to be reflected in cost-of-service rates.
---------------------------------------------------------------------------

    \148\ This change will reduce to zero on the FERC Form No. 501-G
line items for Accumulated Deferred Income Taxes (Account 190),
Accumulated Deferred Income Taxes-Other Property (Account 282), and
Accumulated Deferred Income Taxes-Other (Account 283). See FERC Form
No. 501-G, page 2, lines 13-15. The pipeline should also remove any
sums related to ADIT from Other Regulatory Liabilities (Account 254)
and Other Regulatory Assets (Account 182.3). See FERC Form No. 501-
G, page 2, lines 16-17. The Implementation Guide includes more
specific instructions for the FERC Form No. 501-G.
    \149\ See 18 CFR 154.305(a) (``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). Algonquin Gas
Transmission Co., 76 FERC ] 61,075, at 61,449 (1996); see also 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.'').
    \150\ Arco Pipe Line Co., Opinion No. 351, 52 FERC ] 61,055, at
61,238 (1990).
    \151\ ``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.'' Regulations
Implementing 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 31,522 (1981), reh'g denied, Order No. 144-A, FERC
Stats. & Regs. ] 30,340 (1982), aff'd, Public Systems v. FERC, 709
F.2d 73 (D.C. Cir. 1983).
    \152\ See Public Utilities, 894 F.2d at 1382 (noting that
``[t]ax normalization sought to `match' the timing of a customer's
contribution toward a cost with enjoyment of any offsetting tax
benefit,'' but finding the passage of the NGPA which resulted in El
Paso no longer using cost-of-service rates ``mooted the whole
question to which normalization was the answer'').
---------------------------------------------------------------------------

    133. Moreover this modification to the FERC Form No. 501-G comports
with retroactive ratemaking principles. The rule against retroactive
ratemaking bars ``the Commission's retroactive substitution of an
unreasonably high or low rate with a just and reasonable rate.'' \153\
As relevant here, when a pass-through pipeline eliminates its income
tax allowance consistent with the United Airlines Issuances policy,
maintaining ADIT in cost of service would violate retroactive
ratemaking by requiring pipelines to refund to shippers tax costs the
pipeline collected in past rates for payment to the IRS pursuant to the
Commission's pre-United Airlines policy. This analysis is supported by
the D.C. Circuit's Public Utilities decision which held that requiring
a pipeline to credit ratepayers for earnings on an excess ADIT balance
or refund the balance to ratepayers violated retroactive ratemaking
where the pipeline switched to statutory proscribed rate ceilings from
cost-of-service rates, meaning that the rates no longer included a
cost-of-service normalization of income tax costs.\154\
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    \153\ City of Piqua v. FERC, 610 F.2d 950, 954 (D.C. Cir. 1979).
    \154\ Public Utilities Comm'n of State of Cal. v. FERC, 894 F.2d
1372 (D.C. Cir. 1990). Specifically, Public Utilities held that
requiring a pipeline to credit ratepayers for earnings on an excess
ADIT balance where the pipeline switched from cost-of-service rates
to ceiling prices violated the rule against retroactive ratemaking.
As the court found in Public Utilities, 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].'' Id. at 1383. The D.C. Circuit
explained that to the extent any basis for requiring the credit to
ratepayers 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 for earnings on previously
accumulated ADIT sums violated the rule against retroactive
ratemaking. Id. at 1380, 1382.
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    134. Finally, shippers have no equity interest in ADIT that
justifies maintaining ADIT in rates or alleviates the above retroactive
ratemaking concerns. The Commission and the D.C. Circuit have rejected
arguments based on the misconception that ADIT is a cash reserve over
which ratepayers have an ownership claim or equitable interest.\155\
Consistent with these holdings, the Commission has also explained that
ADIT is not a true-up or tracker of money owed to shippers.\156\
Rather, under the Commission's pre-United Airlines policies involving
tax allowances for pass-through entities, normalization in past rates
required ratepayers to pay their properly allocated share of the
pipeline's tax expenses as matched to the ratepayers' payment of
straight-line depreciation costs.\157\ ADIT is not money owed to past
or future ratepayers, but rather deferred taxes that are ultimately
owed to the government.\158\
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    \155\ Public Systems, 709 F.2d at 85 (rejecting the notion
``that ratepayers have an ownership claim'' to the ADIT balance);
Public Utilities, 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 and ownership or creditor's right.'').
    \156\ Lakehead Pipe Line Co. L.P., 75 FERC ] 61,181, at 61,594
(1996). Moreover, there would be practical problems with maintaining
such a tracker as many oil pipeline rates have never have been
subject to a cost-of-service rate proceeding. For these pipelines,
there is no cost-of-service income tax allowance which has been
established.
    \157\ 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. . . .'' Public Systems, 709 F2d at 80.
    \158\ For example, ADIT is eliminated (not returned to shippers)
when the pipeline must pay these deferred taxes to the federal
government as a result of a sale of the asset. Enbridge Pipelines
(KPC), 100 FERC ] 61,260, at PP 158-162 (2002).
---------------------------------------------------------------------------

    135. Accordingly, 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. Furthermore, although the Commission has made
this adjustment to the FERC Form No. 501-G, a pipeline may propose
alternative treatment of ADIT in the Addendum.\159\ Similarly, the
removal of ADIT on FERC Form No. 501-G (or any subsequent adjustments
in the Addendum) may be reflected in the optional limited section 4
rate filings. Given that these section 4 rate filings reduce the
pipeline's rates and are entirely at the pipeline's discretion, we do
not think this modification is inappropriate. The Commission also
emphasizes that this modification only applies to the FERC Form No.
501-G (and the optional limited section 4 filings pursuant to Sec.
154.404(a)). It does not establish a broader rule. Shippers and
pipelines may advocate for a different treatment of ADIT in any future
rate litigation.
---------------------------------------------------------------------------

    \159\ Of course, we anticipate that any pass-through entity
claiming an income tax allowance in the Addendum to Form No. 501-G
will include the previously accumulated sums in ADIT.
---------------------------------------------------------------------------

ii. Other ADIT Issues
    136. To the extent commenters request that the Commission delay
issuance of this Final Rule until other issues raised in the ADIT NOI
are resolved, the Commission believes that the commenters misconstrue
the ADIT NOI proceeding. The ADIT NOI is a notice of inquiry that does
not change or propose to change any existing ratemaking or accounting
regulations. As noted by the Oklahoma AG, the ADIT NOI has an open
ended process and may or may not result in any final rulemaking. The
Commission has asked

for comment from the public on numerous ADIT-related questions as they
relate to the proper implementation procedures on the various effects
on cost-of-service rates resulting from the Tax Cuts and Jobs Act and
the United Airlines Issuances. To the extent the Commission does change
its ratemaking and accounting regulations, the implementation of any
new instructions and policies will have only a prospective application.
In the meantime, natural gas pipelines must follow the Commission's
existing ratemaking and accounting regulations concerning ADIT
described below.
    137. Commenters argue that without the guidance resulting from the
ADIT NOI proceeding, individual natural gas companies may not populate
FERC Form No. 501-G in a consistent manner. However, we believe that
this is not the case, because all ADIT-related data elements are to be
taken directly from the natural gas companies' FERC Form Nos. 2 and 2-A
and their existing accounting records. The FERC Form Nos. 2 and 2-A
data largely originates from the Commission's Uniform System of
Accounts (USofA) instructions. As such, the Commission's existing
USofA, among other things, contains instructions on balance sheet and
statement of income accounts related to ADIT.\160\ Natural gas
companies report all ADIT balances on their FERC Form Nos. 2 and 2-A.
Thus, 2017 FERC Form Nos. 2 and 2-A prepared consistent with existing
guidance should provide the amounts of the excess or deficiency ADIT
balances as of December 31, 2017, after the enactment date of December
22, 2017 of the Tax Cuts and Jobs Act.
---------------------------------------------------------------------------

    \160\ See, e.g., Accounting For Income Taxes, Docket No. AI93-5-
000 (April 23, 1993), available at http://www.ferc.gov/enforcement/acct-matts/docs/AI93-5-000.asp (AI93-5-000 Guidance).
---------------------------------------------------------------------------

    138. Finally, the IRS has accepted two methods to flow back any
excess or deficiency ADIT since at least the Tax Reform Act of 1986.
The Commission, consistent with current guidance and the Tax Cuts and
Jobs Act directives,\161\ will continue to allow the use of either of
these two methods: (1) The Average Rate Assumption Method (ARAM), which
is the primary method, and (2) the Reverse South Georgia Method (RSGM),
which is permitted as an exception, if a rate regulated company does
not have vintage records for its plant assets to support the reversal
of book/tax differences.
---------------------------------------------------------------------------

    \161\ See Tax Cuts and Jobs Act 13001(d), 131 Stat. at 2099-
2100.
---------------------------------------------------------------------------

    139. When the Tax Cuts and Jobs Act passed on December 22, 2017,
the effect of the federal income tax reduction from 35 percent to 21
percent became known. Therefore, consistent with the Commission's
current accounting guidance in Docket No. AI93-5-000, natural gas
companies are required to adjust their ``deferred tax liabilities and
assets for the effect of the change in tax law or rates in the period
that the change is enacted.'' \162\ This guidance means that, as the
Tax Cuts and Jobs Act was enacted before the end of the 2017 calendar
year, all natural gas companies' 2017 FERC Form Nos. 2 and 2-A filed
April 2018 should have reflected recalculated deferred tax liabilities
and assets consistent with the Tax Cuts and Jobs Act, even though the
Tax Cuts and Jobs Act did not become effective until January 1, 2018.
Specifically, the Commission's AI93-5-000 Guidance at Question 8
provides the following:
---------------------------------------------------------------------------

    \162\ AI93-5-000 Guidance, Question 8: Changes In Tax Law Or
Rates (emphasis added).

    The adjustment shall be recorded in the proper deferred tax
balance sheet accounts (Accounts 190, 281, 282 and 283) based on the
nature of the temporary difference and the related classification
requirements of the accounts. If as a result of action by a
regulator, it is probable that the future increase or decrease in
taxes payable due to the change in tax law or rates will be
recovered from or returned to customers through future rates, an
asset or liability shall be recognized in Account 182.3, Other
Regulatory Assets, or Account 254, Other Regulatory Liabilities, as
appropriate, for that probable future revenue or reduction in future
revenue. That asset or liability is also a temporary difference for
which a deferred tax asset or liability shall be recognized in
Account 190, Accumulated Deferred Income Taxes or Account 283,
---------------------------------------------------------------------------
Accumulated Deferred Income Taxes Other, as appropriate.

    140. Moreover, it has been a long-standing policy for the
Commission to require natural gas companies to flow back the effects of
timing differences between the Commission approved income tax
allowances and the IRS tax liabilities.\163\ This Final Rule is also
premised on the Commission's concern that natural gas pipelines may be
collecting unjust and unreasonable rates in light of the recent
reduction in the federal corporate income tax rate in the Tax Cuts and
Jobs Act, and that it may be appropriate to direct natural gas
pipelines to reduce their rates to reflect the effects of the Tax Cuts
and Jobs Act, or to establish proceedings to determine whether natural
gas companies' existing rates are no longer just and reasonable and
establish new just and reasonable rates.\164\
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    \163\ 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 (1981) (cross-referenced at 15 FERC ] 61,133), order
denying reh'g, lifting stay and clarifying order, Order No. 144-A,
FERC Stats. & Regs. ] 30,340 (1982) (established 18 CFR 154.63a).
The content of Sec.  154.63a was later updated and moved to 18 CFR
154.305: Tax Normalization. Filing and Reporting Requirements for
Interstate Natural Gas Co. Rate Schedules and Tariffs, Order No.
582, FERC Stats. & Regs. ] 31,025 (1995) (cross-referenced at 72
FERC ] 61,300).
    \164\ NOPR, FERC Stats. & Regs. ] 32,725 at P 4.
---------------------------------------------------------------------------

    141. With the precondition satisfied, the Commission's guidance in
AI93-5-000 at Question 8 continues with regard to the recognition of
ADIT regulatory assets or liabilities:

. . . [A]n asset or liability shall be recognized in Account 182.3,
Other Regulatory Assets, or Account 254, Other Regulatory
Liabilities, as appropriate, for that probable future revenue or
reduction in future revenue. That asset or liability is also a
temporary difference for which a deferred tax asset or liability
shall be recognized in Account 190, Accumulated Deferred Income
Taxes or Account 283, Accumulated Deferred Income Taxes Other, as
appropriate.

    142. Further, the Commission's USofA instructions for each of the
referenced balance sheet accounts provide detailed guidance on how the
accounting journal entries for the regulatory asset, in the case of a
deficiency ADIT, or regulatory liability, in the case of excess ADIT,
should be established and amortized to account for the flow-back of the
deficiency or excess ADIT through the appropriate income statement
accounts based on current guidance.\165\
---------------------------------------------------------------------------

    \165\ 18 CFR part 201.
---------------------------------------------------------------------------

    143. With the amounts recorded in the appropriate accounts,
consistent with the Commission's existing instructions and guidance,
there should be only limited variation in the natural gas companies'
financial information reported in their FERC Form Nos. 2 and 2-A and
the proposed FERC Form No. 501-G. To the extent that further
explanations for the reported financial information are necessary,
natural gas companies are advised to provide such explanations in the
footnotes to their financial statements.\166\ Any explanations or
differences in reported financial information can also be provided in
the optional Addendum that pipelines are permitted to file along with
their FERC Form No. 501-G. As the Commission already has in place
sufficient guidance in regards to classification and recording of ADIT-
related amounts, the Commission does not expect any significant
variations in how natural gas companies account for such amounts.
Further, to the extent a natural gas pipeline did not prepare its 2017
FERC Form Nos. 2 and 2-A consistent with the prior Commission guidance
discussed above, the company

must make the appropriate corrections.\167\
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    \166\ Id. at General Instructions, No. VIII.
    \167\ See Entergy Services, Inc., Opinion No. 545, 153 FERC ]
61,303, at P 156 (2015); as clarified 156 FERC ] 61,196, at P 150
(2016) (Finding that past FERC Form No. 1s must be refiled to
correct an ADIT amortization period mistake.).
---------------------------------------------------------------------------

    144. FERC Form No. 501-G largely requires natural gas companies to
transfer financial data directly from their FERC Form Nos. 2 and 2-A
for purposes of examining their costs of service. FERC Form No. 501-G
calculates an indicated cost of service (page 1) and rate base (page
2). The ADIT amounts that natural gas companies enter on lines 13-17 of
page 2 for purposes of calculating their rate base must be transferred
directly from the companies' 2017 FERC Form Nos. 2 and 2-A. The 2017
FERC Form Nos. 2 and 2-A do not necessarily provide the figure for
Amortization of Excess/Deficiency ADIT that the FERC Form No. 501-G
requires natural gas companies to enter on page 1, line 31, for
purposes of calculating the tax allowance included in cost of service.
That is because this information will be reported in subsequent
periods. However, as explained above, natural gas companies should
already have this amount determined based on previous Commission and
IRS guidance. Specifically, under current guidance, the Commission
expects the flow-back of the excess regulatory liability or deficiency
regulatory asset to occur over the remaining book life of the
associated plant assets, because depreciation of plant assets is the
primary driver of timing differences in taxes as they relate to natural
gas companies. The Commission expects insignificant differences between
proposed amortization periods by the natural gas companies and approved
amortization periods by the Commission as they relate to items other
than plant assets. Whenever there is a need for noting potential
differences, natural gas companies may provide explanations in the
optional Addendum that pipelines are permitted to file along with their
FERC Form No. 501-G.
    145. Additionally, FERC Form No. 501-G appropriately considers the
amortization of excess ADIT balances as part of calculating the tax
allowance included in cost of service. This is a requirement codified
at Sec.  154.305(d) of the Commission's regulations.\168\ As described
above, FERC Form No. 501-G, page 1, requires Amortization of Excess
ADIT as part of the indicated cost of service. Further, FERC Form No.
501-G appropriately adjusts rate base for ADIT balances. This is
consistent with current guidance under Sec.  154.305(c) of the
Commission's regulations.\169\ On FERC Form No. 501-G, page 2, the rate
base calculation removes the excess ADIT balance and adds the
deficiency ADIT balance from/to rate base. As discussed above, Spectra
and Boardwalk expressed concern that proposed FERC Form No. 501-G
provides that entities not permitted an income tax allowance going
forward are still required to carry-over historic ADIT-related balances
and costs inputs. Consistent with the discussion above, the Commission
has modified FERC Form No. 501-G's treatment of ADIT balances and
amortization of excess or deficient ADIT. For pipelines that indicate
that they are not a separate income taxpaying entity on FERC Form No.
501-G, page 1, Line 4, page 2 eliminates the ADIT adjustment to rate
base and does not require the pipeline to estimate the amortization of
excess or deficient ADIT on page 1, Line 31.
---------------------------------------------------------------------------

    \168\ 18 CFR 154.305(d):
    (d) Special rules.
    (1) This paragraph applies: . . . . or (ii) If, as a result of
changes in tax rates, the accumulated provision for deferred taxes
becomes deficient in, or in excess of, amounts necessary to meet
future tax liabilities.
    (2) The interstate pipeline must compute the income tax
component in its cost-of-service by making provision for any excess
or deficiency in deferred taxes.
    \169\ 18 CFR 154.305(c):
    (c) Reduction of, and addition to, Rate Base.
    (1) The rate base of an interstate pipeline using tax
normalization under this section must be reduced by the balances
that are properly recordable in Account 281, ``Accumulated deferred
income taxes-accelerated amortization property''; Account 282,
``Accumulated deferred income taxes--other property'': and Account
283, ``Accumulated deferred income taxes--other.'' Balances that are
properly recordable in Account 190, ``Accumulated deferred income
taxes,'' must be treated as an addition to rate base. Include, as an
addition or reduction, as appropriate, amounts in Account 182.3,
Other regulatory assets, and Account 254, Other regulatory
liabilities, that result from a deficiency or excess in the deferred
tax accounts (see paragraph (d) of this section) and which have
been, or are soon expected to be, authorized for recovery or refund
through rates.
    (2) Such rate base reductions or additions must be limited to
deferred taxes related to rate base, construction, or other costs
and revenues affecting jurisdictional cost-of-service.
---------------------------------------------------------------------------

    146. In summary, the Commission has existing and currently
applicable regulations, instructions, and guidance necessary for
natural gas companies to account properly for the effects of the Tax
Cuts and Jobs Act. Further, Sec.  154.305 of the Commission's
regulations establishes the default treatment of ADIT balances and
amortization thereof in rate base and the cost of service. For all the
stated reasons discussed above, the Commission does not find persuasive
commenters' argument that there is a lack of guidance on how to account
for and flow-back ADIT balances.
    147. National Fuel advocates that the Commission should permit
pipelines flexibility in ADIT treatment in FERC Form No. 501-G.
National Fuel states that the Commission has permitted differing rate
treatment, including National Fuel's. However, National Fuel does not
provide any specific examples or citations. Therefore, it is not clear
as to the nature of flexibility National Fuel is advocating. Further,
as to National Fuel's own cost of service, the Commission notes that
National Fuel informed the Commission that the settlements underlying
its currently effective rates are ``black box'' settlements.\170\ As is
the case with most black box settlements, National Fuel's May 22, 2012
and September 29, 2015 Settlements did not contain cost-of-service work
papers. Therefore, it is not possible to confirm National Fuel's claim
that the Commission afforded differing treatment of ADIT in National
Fuel's currently effective rates.\171\ With regard to ADIT, the May 22,
2012 Settlement provides that the settlement rates are consistent with
IRS regulations with respect to normalization of any excess and/or
deficiency in deferred income taxes.\172\ Commission normalization
requirements are not inconsistent with the IRS normalization
regulations.\173\ Notwithstanding, natural gas pipelines may suggest
alternative ADIT treatment as part of an Addendum.
---------------------------------------------------------------------------

    \170\ National Fuel Gas Supply Corp., May 22, 2012 Settlement
filed in Docket No. RP12-88, Article I, approved National Fuel Gas
Supply Corp., 140 FERC ] 61,114 (2012). This provision of the May
22, 2012 Settlement remains unchanged and continues pursuant to
Article II of the September 29, 2015 Supplemental Stipulation and
Agreement filed in Docket No. RP15-1310-000, approved National Fuel
Gas Supply Corp., 153 FERC ] 61,170 (2015).
    \171\ Further, even if there had been such a provision or work
papers, it would have had no precedential value: ``The Commission's
order approving this Stipulation shall not constitute approval or
acceptance of any concept, theory, principle, or method underlying
any of the rates or charges or any other matter identified in this
Stipulation or in this proceeding.'' May 22, 2012 Settlement at
Article XIII.
    \172\ Id. at Article VII.
    \173\ See Koch Gateway Pipeline Co., 74 FERC ] 61,088, at 61,277
(1996) (``While the Commission is not bound to follow an IRS ruling
for ratemaking purposes, we are reluctant to take action which would
endanger a pipeline's right to favorable tax treatment from the
IRS.'').
---------------------------------------------------------------------------

    148. National Fuel notes that because its fiscal year is not on a
calendar year basis,\174\ the applicable federal tax rate for fiscal
year 2018 will be a composite tax rate, not the 21 percent specified in
FERC Form No. 501-G. National Fuel

believes that requiring pipelines with non-calendar year bases to
utilize a 21 percent federal tax rate will yield incorrect and invalid
results. The Commission disagrees. National Fuel's ADIT balances, as
reported in its 2017 FERC Form No. 2, should be recalculated to reflect
the known reduction in the level of federal income tax as the result of
the Tax Cuts and Jobs Act as of the enactment date of December 22, 2017
of the new law. Although National Fuel's recalculation of its excess or
deficiency ADIT may be more complex than that of other pipelines, if
the recalculation is done consistent with the Commission's USofA and
the AI93-5-000 Guidance, the FERC Form No. 2 data should be sufficient
to determine the needed adjustment to rate base. Further, with regard
to FERC Form No. 501-G, the Commission notes that the Commission has
assigned National Fuel to reporting Group III. That group is not
required to file their FERC Form No. 501-Gs until 84 days after the
effective date of this Final Rule. By that required reporting time,
National Fuel's fiscal year issue will be moot, and its FERC Form No.
501-G results will be valid.
---------------------------------------------------------------------------

    \174\ National Fuel reports its fiscal year is October 1 through
September 30. National Fuel's 2017 FERC Form No. 2, page 122.9
(filed April 16, 2018).
---------------------------------------------------------------------------

    149. Spectra notes that FERC Form No. 501-G reduces rate base by
the full ADIT balance existing at the end of calendar year 2017 without
any adjustment for the amortization of excess ADIT, but at the same
time the FERC Form No. 501-G reduces the tax allowance included in the
cost of service by an amount equaling the annual amortization of excess
ADIT. Spectra contends that such treatment reduces rates twice for the
same regulatory liability. Spectra is incorrect. The Commission's
rationale for subtracting accumulated deferred taxes from rate base was
discussed in Order No. 144-A:

The deduction of accumulated deferred taxes from rate base . . . is
intended to reflect the lower cost of service that a utility
achieves by its use of the cash flow from deferred taxes in place of
debt and equity capital.\175\
---------------------------------------------------------------------------

    \175\ Order No. 144-A, FERC Stats. & Regs. ] 30,340 at 30,128.

    150. The Commission is modifying FERC Form No. 501-G in response to
Spectra's argument that the amortization of excess ADIT balances in the
cost of service (in combination with a rate base adjustment reflecting
the full ADIT balance) reduces rates twice. As a pipeline amortizes its
excess ADIT (i.e., credits excess ADIT in determining the current
period's tax allowance), the ADIT balance subtracted from rate base
will decline, with the result that net rate base will be higher than it
would be absent the amortization of excess of ADIT. The Commission
acknowledges that the FERC Form No. 501-G in the NOPR was based upon an
historic test period with only a single static adjustment to cost of
service to account for the change in the income allowance as a result
of the Tax Cuts and Jobs Act. The effect of Spectra's request is to
make the adjustment dynamic by reflecting an initial amortization of
excess ADIT in rate base. The Commission is making a change to reflect
a reduction to Other Regulatory Liabilities for the Net Amortization of
Excess and/or Deficient ADIT in the FERC Form No. 501-G.
    151. LDC Coalition requests that the Commission require natural gas
companies to file an accompanying spreadsheet that provides how
companies recalculated ADIT and excess ADIT balances. In addition, LDC
Coalition and AGA request that the Commission discuss within the scope
of hearing issues whether a natural gas company has properly calculated
ADIT for purposes of its FERC Form No. 501-G and concurrent limited NGA
section 4 rate reduction filing pursuant to proposed Sec.  154.404. The
Commission declines to do so. The Commission has previously provided
guidance to natural gas companies on how to properly recalculate ADIT
balances and determine amortization amounts of excess or deficiency
ADIT balances. With regard to all the financial data reported in FERC
Form Nos. 2 and 2-A, natural gas companies are required to attest to
the conformity of that data, in all material respects, with the
Commission's applicable USofA and to have the submission signed by an
independent certified public accountant. FERC Form No. 501-G is not the
vehicle for parties to challenge the validity of FERC Form Nos. 2 and
2-A data. In addition, the data underlying the calculation of natural
gas companies' amortization of excess or deficiency ADIT balances can
be extensive, and the calculation itself requires iterative
calculations extending over the longer of the Commission's or the IRS'
depreciation schedules. Providing that data as part of the FERC Form
No. 501-G filing requirement would significantly increase the burden on
the natural gas companies for a form with the limited purpose of
assisting the Commission, the pipelines and the parties to screen which
pipelines deserve additional attention. Similarly, permitting parties
to challenge or protest recalculated ADIT balances and amortization
amounts on excess and deficient ADIT amounts in the section 1543.404
limited section 4 rate filings would undermine the objective of
expediting rate reductions.
    152. Enable Interstate Pipelines argue that, to the extent that
significant amounts of capital previously available to a natural gas
company by virtue of the ADIT balance are to be removed from rate base,
the result would be to render erroneous any FERC Form No. 501-G, page
4, estimate of debt cost based on access to the ADIT balance, given the
increasing financial risk and hence the cost of capital that would be
incident to the ADIT change. However, Enable Interstate Pipelines
appear to assume that the ADIT balances have been invested in
jurisdictional natural gas activities. If a natural gas company chose
to invest funds generated by deferred income tax, then its rate base
would have been increased by a like amount,\176\ and the effect of the
ADIT adjustment to rate base would be an offset. The Commission's
policy to adjust rate base stems from the fact that tax rules may, in
effect, defer payment for tax liabilities beyond the timing provided
for in rates. The pipeline collects the customers' payment while
obtaining the benefits of the tax deferral.\177\ To reflect the timing
difference, the Commission requires natural gas companies to deduct the
deferred tax from rate base, with the effect that the customers need
not pay in current rates the time value of the money previously
paid.\178\ FERC Form No. 501-G reflects Commission policy and the Sec.
154.305(c) requirement that rate base be adjusted for ADIT balances.
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    \176\ El Paso Natural Gas Co., L.L.C., 152 FERC ] 61,039, at P
88 (2015) (El Paso).
    \177\ See Distrigas Mass. Corp. v. FERC, 737 F.2d 1208, 1212
(1st Cir. 1984) (describing the tax deferral as ``highly
advantageous'' to regulated entities, noting that service providers
``obtain the use of the `saved tax' money until the time it falls
due''). See also United Gas Pipeline Co., Opinion No. 99, 13 FERC ]
61,044, at 61,096 (1980) (excluding undistributed subsidiary
earnings from equity because funds not available for investment in
jurisdictional activities).
    \178\ El Paso, 152 FERC ] 61,039 at P 89.
---------------------------------------------------------------------------

8. Who Must File
    153. In the NOPR, the Commission proposed that ``every natural gas
company that is required . . . to file a Form No. 2 or 2-A for 2017 and
has cost-based rates for service . . . must prepare and file with the
Commission a FERC Form No. 501-G.'' \179\ The Commission also proposed
to exempt pipelines that, as of the deadline for filing their FERC Form
No. 501-G, are the subject of an ongoing general rate case under
section 4 or rate

investigation under NGA section 5.\180\ In addition, the Commission
proposed that any pipeline that files an uncontested pre-packaged
settlement of its rates after the March 26, 2018 publication of the
NOPR in the Federal Register and before the deadline for their One-time
Report need not file that report.\181\
---------------------------------------------------------------------------

    \179\ NOPR, FERC Stats. & Regs. ] 32,725 at proposed 18 CFR
260.402(b)(1)(i); see id. P 26.
    \180\ Id. n.49, proposed 18 CFR 260.402(b)(1)(ii).
    \181\ Id. PP 4, 26, proposed 18 CFR 260.402(b)(1)(ii).
---------------------------------------------------------------------------

a. Comments
    154. Hampshire notes that it has a cost-of-service tariff that
provides for automatic adjustment for changes in income tax rates, and
requests that such pipelines be exempt from the One-time Report.\182\
---------------------------------------------------------------------------

    \182\ Hampshire Comments at 3.
---------------------------------------------------------------------------

    155. Numerous other commenters weigh in on whether, and under what
circumstances, filing an uncontested settlement should exempt the
pipeline from the One-time Report. Under the NOPR, the Commission would
exempt any pipeline that filed an uncontested rate settlement after the
March 26, 2018 date of the NOPR but before the deadline for its One-
time Report. CAPP supports the proposal as is. NGSA and Southern
Companies argue for a stricter proposal, under which the Commission
would require further information in order to ensure that any
settlements result in rates that are just and reasonable in light of
the effects of the Tax Cuts and Jobs Act. Similarly, APGA argues not
only that pipelines under settlement moratoria should be subject to the
One-time Report, but also that the Commission should be prepared to
commence investigations on such pipelines prior to the expiration of
the moratoria, given the inevitable delays under NGA section 5 in
proceeding from an investigation to a final rate.\183\ Indicated
Shippers request that the Commission clarify that any pipeline
precluded from making changes to its rates due to a settlement
moratorium would be required to comply with the FERC Form No. 501-G
filing requirement once the settlement moratorium has expired.\184\
---------------------------------------------------------------------------

    \183\ AGA Comments at 8.
    \184\ Indicated Shippers Comments at 14-15.
---------------------------------------------------------------------------

    156. Several other commenters present overlapping arguments for
expanding settlement-related exemptions. Commenters request exemptions
from the One-time Report for pipelines with rate settlements that pre-
date the NOPR, but also (1) contain a rate moratorium clause; \185\ (2)
post-date the Tax Cuts and Jobs Act; \186\ or (3) expressly contemplate
future changes to tax rates.\187\ Similarly, commenters request a FERC
Form No. 501-G exemption for pipelines that, whether voluntarily or due
to a settlement comeback clause, elect Option 2, that is, to file a new
general section 4 rate case or settlement shortly after the filing
deadline for the One-time Report.\188\
---------------------------------------------------------------------------

    \185\ Boardwalk Comments at 18; Dominion Energy Comments at 14;
Kinder Morgan Comments at 29; National Fuel Comments at 1-2; Spectra
Comments at 13; TransCanada Comments at 14; Williams Comments at 5.
    \186\ INGAA Comments at 28; Kinder Morgan Comments at 30-31.
    \187\ Cove Point Comments at 2; Dominion Energy Comments at 15;
Williams Comments at 5-6.
    \188\ Dominion Energy Comments at 14; INGAA Comments at 29;
Kinder Morgan Comments at 31; National Fuel Comments at 2; Tallgrass
Pipelines Comments at 15.
---------------------------------------------------------------------------

    157. For each of these four categories, commenters argue that
filing the One-time Report ``would serve no purpose . . . since the
rates would not be affected.'' \189\ Commenters argue that filing the
One-time Report would cut against the Commission's longstanding policy
of not disturbing accepted settlements.\190\ In particular, commenters
argue that filing the FERC Form No. 501-G would prejudice the pipeline
by presenting an incomplete or confusing picture of how the tax changes
affect the pipeline's rates.\191\
---------------------------------------------------------------------------

    \189\ See, e.g., Boardwalk Comments at 18.
    \190\ Id. at n.44:
    [T]he Commission ``recognize[s] the role of settlements in
providing rate certainty,'' and has stated that in deciding whether
to exercise its discretion to initiate a section 5 proceeding, it
would ``take into account the parties' interest in maintaining a
Settlement.'' (quoting Nat. Gas Pipeline Co. of Am. LLC, 162 FERC ]
61,009, at P 29 (2018)). The Commission has explained that, without
rate moratoria, ``the utility of settlements for resolving cases
would be severely jeopardized. No settlement could ever be truly
final, because the rates resulting from the settlement would always
be subject to reopening based on subsequent Commission or Court
decisions.'' See Iroquois Gas Transmission Sys. L.P., 69 FERC ]
61,165, at p. 61,631 (1994), reh'g denied, 70 FERC ] 61,181 (1995).
The Commission also noted that its decision not to order a
modification to a settlement was ``consistent with the principle
that approved settlements are binding on the parties and should not
be modified simply because it later appears that `the result is not
as good as it ought to have been.' '' Id. (quoting Tex. E.
Transmission Corp. v. FPC, 306 F.2d 345, 348 (5th Cir. 1962)).
    See also Kinder Morgan Comments at 30 & n.84.
    \191\ INGAA Comments at 29; Kinder Morgan Comments at 32.
---------------------------------------------------------------------------

b. Discussion
    158. The Commission clarifies that pipelines such as Hampshire that
have formula rates which provide for automatic rate adjustment to
account for changes in income tax rates are not covered by this
rulemaking. Accordingly, the Commission is revising proposed Sec. Sec.
154.404(b)(2) and 260.402(b)(1), to clarify that the authorization to
file a limited NGA section 4 filing and the requirement to file a FERC
Form No. 501-G only apply to natural gas pipelines that have cost-
based, stated rates.
    159. We decline to adopt commenters' other proposals to expand the
proposed exemptions from filing the FERC Form No. 501-G, and instead
adopt the proposal in the NOPR, providing an automatic exemption from
filing FERC Form No. 501-G only to (1) pipelines who file an
uncontested, prepackaged settlement of their rates between the March
26, 2018 date the NOPR was published in the Federal Register and the
date their FERC Form No. 501-G would otherwise be due and (2) pipelines
whose rates are being examined in a general rate case under NGA section
4 or a rate investigation under NGA section 5 as of the deadline for
filing their FERC Form No. 501-G. However, we clarify that pipelines
may, on a case-by-case basis, request waivers of the filing
requirement.
    160. With regard to settlements, the Commission finds it
appropriate to limit the exemption to settlements filed after the March
26, 2018 publication of the NOPR in the Federal Register. It is only in
that circumstance, that the Commission is willing to presume that all
the settling parties were aware of, and took into account, both the
NOPR and the United Airlines Issuances concerning MLP pipeline tax
allowances when they agreed to the settlement, and therefore no further
change in the pipeline's rates is needed. However, when a settlement
was filed before March 26, 2018, the Commission will not prejudge what
action to take with respect to the subject pipeline's rates until
interested persons have been provided a process in which to state their
views concerning how the settlement should affect the Commission's
decision. Based on those comments, the Commission can determine whether
no change in the pipeline's rates is justified at this time because (1)
the settlement reflects an agreement by the parties that the pipeline's
revised rates reasonably reflect the reduced income taxes provided by
the Tax Cuts and Jobs Act and the United Airlines Issuances and/or (2)
any rate moratorium in the settlement should be interpreted as
prohibiting changes to the settlement rates to reflect the Tax Cuts and
Jobs Act and the United Airlines Issuances during the term of the rate
moratorium.
    161. With regard to rate moratoria, as the Commission stated in the
NOPR, ``the Commission generally does not disturb a settlement during a
rate

moratorium.'' \192\ However, this policy only extends to rate changes
that would violate the terms of the rate moratorium in the settlement
at issue. Some settlement rate moratoria include exceptions for certain
types of rate changes, which might include rate changes resulting from
generic policy changes of the type at issue here. Accordingly, if a
pipeline contends that its rates are subject to a rate moratorium, the
Commission finds it reasonable to give other interested persons an
opportunity to state whether they agree that the rate moratorium is
applicable to the reduced tax costs at issue here.
---------------------------------------------------------------------------

    \192\ NOPR, FERC Stats. & Regs. ] 32,725 at P 49 (citing
Iroquois Gas Transmission System L.P., 69 FERC at 61,631; JMC Power
Projects v. Tennessee Gas Pipeline Co., 69 FERC ] 61,162, reh'g
denied, 70 FERC at 61,528, aff'd, Ocean States Power, 84 F.3d 1453).
See also Natural Gas Pipeline Co., 162 FERC ] 61,009, at P 29 (2018)
(stating that in deciding whether to initiate an NGA section 5 rate
investigation, ``the Commission would take into account the parties'
interest in maintaining a settlement.'').
---------------------------------------------------------------------------

    162. A pipeline's filing of the FERC Form No. 501-G, together with
any explanation it wishes to provide of why its rate settlement
justifies not adjusting its rates at this time, will give interested
persons the requisite opportunity to present their views on whether the
settlement has reasonably modified the pipeline's rates to reflect the
Tax Cuts and Jobs Act and/or the United Airlines Issuances and whether
any rate moratorium prohibits a rate change at this time. However, if
an individual pipeline believes that the issue of whether a pre-March
26, 2018 settlement justifies not adjusting its rates at this time can
be resolved without the need to file the FERC Form No. 501-G, it may
file a request for a waiver of the requirement to file the FERC Form
No. 501-G, with an explanation of why its pre-March 26, 2018 settlement
justifies no change in its rates to reflect the Tax Cuts and Jobs Act
and/or the United Airlines Issuances.\193\ The pipeline should file
such a request at least 30 days before the date its FERC Form No. 501-G
is due. Any such request will be noticed for interventions, protests,
and comments, and, based upon all the pleadings, the Commission will
determine whether to grant the waiver.
---------------------------------------------------------------------------

    \193\ For administrative efficiency, the Commission requires any
request for an exemption from filing the FERC Form No. 501-G to be
filed using the same Type of Filing Code as used by the FERC Form
No. 501-G: ToFC 1430.
---------------------------------------------------------------------------

    163. In the NOPR, the Commission proposed to exempt pipelines from
filing the FERC Form No. 501-G, if they file a general NGA section 4
rate case or a prepackaged rate settlement before the deadline for
filing their form.\194\ The Commission rejects the request that this
automatic exemption be expanded to include pipelines that commit to
file a general section 4 rate case or prepackaged settlement within
some period after the otherwise applicable deadline for filing the
form. Given the Commission's lack of refund authority under NGA section
5, the Commission is unwilling to automatically exempt pipelines from
filing the FERC Form No. 501-G based on commitments to file rate cases
or settlements at some time in the future. The Commission also rejects
contentions that providing the information required by the FERC Form
No. 501-G will prejudice settlement talks or unduly burden the
pipeline. As several commenters acknowledge, any pipeline hoping to
reach a future settlement would inevitably grant shippers access to
even more information than the FERC Form No. 501-G would collect.
However, on a case-by-case basis, individual pipelines may file
requests for waiver of filing the FERC Form No. 501-G if they are in
settlement negotiations. In deciding whether to grant such waivers, the
Commission will consider whether other interested parties support or do
not oppose the request. We encourage pipelines to file such requests
for waiver as soon as practicable to allow time for the Commission to
issue a decision on the request. We note that pipelines are obligated
to meet their FERC Form No. 501-G filing obligation by the deadline
outlined in the Implementation Guide unless the Commission has issued
an order affirmatively granting the requested waiver on or before that
deadline.
---------------------------------------------------------------------------

    \194\ Although the NOPR preamble clearly limited this exemption
to situations where pipelines had filed a general rate case or
prepackaged settlement ``before the deadline for their One-time
Report,'' (NOPR, FERC Stats. & Regs. ] 32,725 at P 26) the proposed
regulatory text in Sec.  260.402(b)(1)(ii) was less clear on this
point. Accordingly, we are revising that section to clearly limit
this exemption to situations where the relevant filing was made
before the deadline for the pipeline's FERC Form No. 501-G. Since
March 26, 2018, five pipelines have made such filings. On May 2,
2018, Granite State Gas Transmission, Inc. (Granite State) filed a
prepackaged uncontested settlement in Docket No. RP18-793-000
(approved at Granite State Gas Transmission, Inc., 163 FERC ] 61,224
(2018)). On May 31, 2018, MoGas Pipeline LLC (MoGas) filed a general
NGA section 4 rate case in Docket No. RP18-877-000. On June 29,
2018, Empire Pipeline, Inc. (Empire), Enable Mississippi River
Transmission, LLC (Enable), and Trailblazer Pipeline Co. LLC,
(Trailblazer) filed general section 4 rate cases in Docket Nos.
RP18-940-000, RP18-923-000, an RP18-922-000 respectively. As such,
Granite State, MoGas, Empire, Enable, and Trailblazer are not
required to file FERC Form No. 501-G.
    Additional pipelines may choose to file NGA section 4 rate
filings before this Final Rule is effective; those pipelines would
not be required to file the FERC Form No. 501-G. Because the numbers
are dynamic and may continue to change (reducing the number of
filers of the FERC Form No. 501-G), we are retaining a conservative
estimate of 129 pipelines who may be required to file the FERC Form
No. 501-G.
---------------------------------------------------------------------------

    164. Eastern Shore argues that it should be exempt from filing the
One-time Report because it has already filed to lower its rates, in
response to a settlement provision triggered by the Tax Cuts and Jobs
Act, and its filing was accepted on April 24, 2018.\195\ However,
Eastern Shore's referenced filing was a compliance filing made March 1,
2018,\196\ pursuant to a rate case settlement it filed on December 13,
2017 that the Commission approved on February 28, 2018.\197\ The
December 13, 2017 settlement was prior to the Commission's issuances of
the NOPR and United Airlines Issuances. Parties to the settlement could
not have been aware of these Commission orders. As discussed above, the
Commission will not presume what the parties' positions may be with
respect to settlements filed prior to March 26, 2018. The Commission
will not exempt Eastern Shore from filing a FERC Form No. 501-G in this
Final Rule. But, as discussed above, it may file a separate request for
a waiver of the FERC Form No. 501-G filing requirement which interested
persons may comment upon.
---------------------------------------------------------------------------

    \195\ Eastern Shore Comments at 4 (citing Eastern Shore Natural
Gas Co., 163 FERC ] 61,054 (2018)).
    \196\ Eastern Shore Natural Gas Co., 163 FERC ] 61,054 at P 1.
    \197\ Eastern Shore Natural Gas Co., 162 FERC ] 61,183 (2017).
---------------------------------------------------------------------------

    165. EQT Midstream and Tallgrass Pipelines request that the
Commission ``provide other pipelines with the ability to request a
waiver,'' or an extension of time, with both citing the example of a
publicly announced corporate restructuring.\198\ We clarify that
pipelines have the same right to request waiver or an extension of time
of the One-time Report for any reason as they do to request waiver or
an extension of time of any informational reporting requirement. We
caution, however, that the Commission bears no obligation to grant any
request that would have the effect of delaying rate relief, and as
stated above, pipelines must file the FERC Form No. 501-G by the
required deadline, unless the Commission has affirmatively granted a
requested waiver.
---------------------------------------------------------------------------

    \198\ EQT Midstream Comments at 13-14; Tallgrass Pipelines
Comments at 19-20.
---------------------------------------------------------------------------

9. Miscellaneous Changes to FERC Form No. 501-G
a. Comments and Discussion
    166. Boardwalk and INGAA state line 34 of page 1 of the proposed
FERC Form

No. 501-G is labeled the ``Indicated Rate Reduction'' and provides the
results from completing the form. Boardwalk and INGAA argue this label
is misleading, and if not modified, would create adverse consequences
for pipelines. Boardwalk claims line 34 shows only the potential
modification to a pipeline's cost of service due to tax policy changes,
without regard for changes that may occur to a pipeline's billing
determinants, discount adjustments, and other issues impacting recourse
rates. INGAA states that the FERC Form No. 501-G does not show what a
pipeline's rate reduction would be if the pipeline were to modify its
rates in response to the new policies on income tax and other factors
that would be considered in a full review of its costs and revenues in
an NGA sections 4 or 5 rate proceeding. To prevent line 34 from being
misleading, Boardwalk and INGAA propose that the Commission should
label it ``Indicated Cost of Service Reduction.'' \199\
---------------------------------------------------------------------------

    \199\ INGAA Comments at 39; Boardwalk Comments at 30.
---------------------------------------------------------------------------

    167. The Commission adopts Boardwalk's and INGAA's proposal to
change the label for page 1, line 34 to ``Indicated Cost of Service
Reduction'' in the FERC Form No. 501-G.
    168. Indicated Shippers request the following additions, in order
to ensure that the proposed FERC Form No. 501-G provides shippers and
the Commission with sufficient information to determine the level of
cost reductions due to the Tax Cuts and Jobs Act and Revised Policy
Statement:
    a. Page 1, Lines 6-10--The Commission should include a line for
storage gas losses recorded in Account No. 823, which are not
appropriately included in a pipeline's cost of service.
    b. Page 1, Lines 7-9 and 12-13--The Commission should provide
separate lines for gas fuel cost exclusions, electric power cost
exclusions, and miscellaneous fuel costs (such as fuel cost exclusions
for building heat).
    c. Page 1, Line 15 and Page 3, Lines 1-6--The Commission should
include a line item detailing ACA [Annual Charge Adjustments] costs, as
well as a line for exclusion of ACA revenues. These costs and revenues
are not typically included in pipeline costs of service for ratemaking
purposes, given that ACA costs are collected through a surcharge.
    d. Page 1, Line 17--The Commission should include a separate line
item for any negative salvage amounts, as well as any amortization of
asset retirement obligations.
    e. Page 2, Line 13--The Commission should add two separate lines to
reflect the effect on the ADIT balance due to changes in the tax rate.
One line would show the temporary differences between book and
accelerated depreciation rates, and the other line would show permanent
differences due to the change in the tax rates under the Tax Cuts and
Jobs Act.
    f. Page 2, Lines 13-15--The Commission should require pipelines to
submit footnotes that reflect FERC Form No. 2 footnote data referenced
on these lines.
    g. Page 2, Lines 16-17--The Commission should require pipelines to
specify whether the recourse rates are based upon a levelized rate
design versus a traditional rate design. This could be accomplished via
a separate line that displays the regulatory asset or liability
associated with the rate levelization, if applicable.
    h. Page 3, Lines 1-6--The Commission should include a line that
shows revenues reserved for refunds. Page 301 of FERC Form No. 2
requires gross revenues and reservations for refunds to be reported.
Reserved revenues have book/tax implications in the ADIT amounts.
    i. Page 3, Lines 7-8--The Commission should include an option for
the pipeline to state whether it recovers both fuel gas and electric
fuel costs through its fuel tracking and true-up mechanism.
    j. Page 4, Lines 8-10 and Lines 29-30--The Commission should
require the pipeline to provide the time period and SEC Form 10K
reference supporting the parent company capital structure claimed, in
addition to the Ticker and Company Name.
    k. Page 4, Line 13--The Commission should include a separate line
item specifying ``other interest,'' and the pipeline should list only
those items that are properly included in a cost of service.
    l. Page 5, Lines 11-24--The Commission should require the pipeline
to provide the year of the owner data provided. There is often a lag in
the data related to ownership percentages (for example, the 2017 data
would likely only include 2016 ownership percentages).\200\
---------------------------------------------------------------------------

    \200\ Indicated Shippers Comments at 15-17.
---------------------------------------------------------------------------

    169. The Commission declines Indicated Shippers' requests, except
for Items j and l noted above.
    170. Indicated Shippers' request in Item a asks the Commission to
include a line that shows storage gas losses recorded in Account No.
823, which are not included in a pipeline's cost of service. Account
No. 823 can be recorded differently by each pipeline and may be
included in a pipeline's cost of service. It is not possible to account
for all the differences between pipelines so the Commission declines to
include a separate line for Account No. 823.
    171. For Items b and d, Indicated Shippers request to disaggregate
the gas exclusions and negative salvage data provided on the FERC Form
No. 501-G. However, this request would not provide additional
information to evaluate the impact of the Tax Cuts and Jobs Act and the
United Airlines Issuances on a pipeline's cost of service. Therefore,
the Commission finds this request unnecessary and declines Indicated
Shippers' request.
    172. For Item c, Indicated Shippers state that ACA cost and revenue
are not typically included in a pipeline cost of service for ratemaking
purposes. Indicated Shippers conflate a cost-of-service item with cost
recovery. ACA costs are a recoverable cost-of-service item. FERC Form
No. 501-G is focused on costs, not on revenues. The Commission finds
that the ACA cost is appropriately included in the FERC Form No. 501-G
data and that there is no need to modify the form for ACA revenues.
Therefore, the Commission denies Indicated Shippers' request.
    173. For Item e, Indicated Shippers request that the Commission add
two lines to reflect changes to the ADIT balance due to changes in the
tax rate. The FERC Form No. 501-G already reflects changes in ADIT due
to the changed tax rate, as the data is brought over from the
pipeline's FERC Form Nos. 2 and 2-A. As is explained elsewhere in this
order,\201\ the 2017 FERC Form Nos. 2 and 2-A ADIT balances are
required to be recalculated reflecting the Tax Cuts and Jobs Act. There
is no need to show the level of the required adjustment. Indicated
Shippers' request is denied.
---------------------------------------------------------------------------

    \201\ See supra P 144.
---------------------------------------------------------------------------

    174. For Item f, Indicated Shippers request that the Commission
require pipelines to supply any associated footnotes that may have been
provided in FERC Form Nos. 2 and 2-A. The Commission finds that there
is no need to require pipelines to submit footnotes when they are
already provided in the pipeline's Form No. 2 or 2-A. Any interested
party may simply reference the pipeline's Form No. 2 or 2-A footnotes.
    175. For Item g, Indicated Shippers request to disaggregate the
data in the FERC Form No. 501-G by requiring pipelines to specify
whether the recourse rates are based upon a levelized rate design
versus a traditional rate design by adding a separate line to

display the regulatory asset balance attributable to the levelized rate
design. The FERC Form No. 501-G already carries over the FERC Form Nos.
2 and 2-A data that includes regulatory assets or liabilities
attributable to levelized rates. Indicated Shippers do not identify
what purpose would be served by the additional level of disaggregation.
The Commission finds Indicated Shippers' request unnecessary.
    176. Indicated Shippers request in Item h to add a line to show
revenues reserved for refunds. FERC Form No. 501-G focuses on a
pipeline's cost of service. Funds reserved for refunds are pipeline
revenues. FERC Form No. 501-G is focused on costs, and not on revenues.
The Commission rejects Indicated Shippers' proposed change.
    177. For Item i, Indicated Shippers request to include an option to
state whether a pipeline recovers both fuel gas and electric fuel costs
through its fuel tracking and true-up mechanism. The Commission is
aware that pipelines record gas and electric fuel, lost and accounted
for gas, and related gas sales and purchases, in a variety of accounts.
On page 3, Lines 2-4 capture the major accounts. Lines 7 and 8 request
information as to whether a pipeline has a true-up mechanism for fuel
or stated rates. The Commission acknowledges that the FERC Form No.
501-G adjustments for fuel and related costs will not be complete.
However, as the major accounts are accounted for, the end result should
not significantly impact the use of the form as a screening tool.
    178. For Item k, Indicated Shippers request to include a separate
page 4 line item specifying ``other interest'' and list only those
items that are properly included in a cost of service. The Commission
denies this request. This request would require a pipeline to make a
cost allocation determination, which would vary by pipeline. As
previously stated, the purpose of FERC Form No. 501-G is to create a
screen to determine whether additional procedures are required. The
form is not designed to duplicate each and every pipeline's cost-of-
service design.
    179. The Commission will incorporate Indicated Shippers' requests
for Items j and l, wherein they request the pipelines to provide
references to the data provided on FERC Form No. 501-G, page 4, capital
structure, and page 5, ownership data, respectively. For Item j,
instead of requiring pipelines to provide the time period of the SEC
Form 10K reference in addition to the ticker and company name, the
Commission will add a separate cell in the FERC Form No. 501-G where
pipelines can provide a hyperlink to the referenced SEC Form 10K. For
Item l, the Commission will add a separate cell to the FERC Form No.
501-G for pipelines to specify the year of the owner data provided.
    180. Berkshire Hathaway requests the Commission modify the FERC
Form No. 501-G, pages 1-3 to eliminate market-based costs and revenues.
Berkshire Hathaway claims during the course of traditional rate
proceeding, these revenues and costs would not be included as part of
the cost-of-service calculation, and therefore, should not be part of
the FERC Form No. 501-G reporting.\202\ TransCanada raises similar
concerns that the FERC Form No. 501-G should exclude all incremental
cost of service and revenue components from FERC Form No. 2 pages 217
and 217a.\203\
---------------------------------------------------------------------------

    \202\ Berkshire Hathaway Comments at Ex. A.
    \203\ TransCanada Comments at 16.
---------------------------------------------------------------------------

    181. The Commission rejects Berkshire Hathaway's and TransCanada's
proposal to exclude costs and revenues from the FERC Form Nos. 2 and 2-
A, pages 217 and 217a. Contrary to Berkshire Hathaway's claims that the
non-traditional cost and revenue would not be included in a cost-of-
service calculation, general rate case filings pursuant to Part 154 of
the Commission's regulations require pipelines to provide a complete
cost of service, including non-jurisdictional functions and costs
associated with service for which the pipeline does not propose to
change the rates.\204\ As the Commission has explained, a complete
cost-of-service filing is required to permit examination and allocation
of common costs.\205\ A complete cost of service would include market-
based rate and incremental services. Incomplete rate case filings may
be rejected.\206\ If, as a matter of functionalization, cost allocation
or rate design,\207\ a pipeline believes that the data in FERC Form No.
501-G should be adjusted, they may do so in an Addendum to the FERC
Form No. 501-G filing.
---------------------------------------------------------------------------

    \204\ 18 CFR 154.313.
    \205\ See, e.g., Equitrans, L.P., 109 FERC ] 61,214, at P 14
(2004).
    \206\ Id.; Williston Basin Interstate Pipeline Co., 55 FERC ]
61,340 (1991); National Fuel Gas Supply Corp., 69 FERC ] 61,253
(1994); CNG Transmission Corp., 80 FERC ] 61,137 (1997), reh'g
denied, 81 FERC ] 61,031 (1997).
    \207\ The five steps of rate design are (1) determining the
pipeline's cost of service, (2) functionalizing the pipeline's costs
among the pipeline's various operations, (3) classifying the
pipeline's fixed and variable costs to reservation and usage charges
of the pipeline's rates, (4) allocating the costs classified as
fixed or variable among the pipeline's various rate zones and
services, and (5) designing per unit rates for each service.
Pipeline Service Obligations & Revisions to Regulations Governing
Self-Implementing Transportation; & Regulation of Natural Gas
Pipelines After Partial Wellhead Decontrol, Order No. 636, FERC
Stats. & Regs. ] 30,939 at 30,431, order on reh'g, Order No. 636-A,
FERC Stats. & Regs. ] 30,950, order on reh'g, Order No. 636-B, 61
FERC ] 61,272 (1992), order on reh'g, 62 FERC ] 61,007 (1993), aff'd
in part and remanded in part sub nom. United Distribution Cos. v.
FERC, 88 F.3d 1105 (D.C. Cir. 1996), order on remand, Order No. 636-
C, 78 FERC ] 61,186 (1997).
---------------------------------------------------------------------------

    182. In addition, Berkshire Hathaway argues that on FERC Form No.
501-G's page 1, lines 7-9 and 12-13, and page 3, lines 2-5, all
revenues and expense should be included in the cost of service and
return on equity calculations; therefore, page 1, lines 7-9 and 12-13,
and page 3, lines 2-5 related to fuel and gas balances are not
necessary. Berkshire Hathaway explains pipelines without fuel,
unaccounted for gas, or other trackers could have potential gains or
losses associated with the fuel revenues collected and sales expenses
associated with such activity, which should flow through the cost of
service and return on equity calculations as part of the FERC Form No.
501-G calculation. Berkshire Hathaway states excluding these accounts
would fail to capture those gains and losses. Conversely, pipelines
with trackers should not have any gains or losses on fuel or sale
expense; therefore, including all of these accounts would ensure that
the net amount is zero. In either case, Berkshire Hathaway asserts no
adjustments are necessary.\208\
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    \208\ Berkshire Hathaway Comments at Ex. A.
---------------------------------------------------------------------------

    183. The Commission denies Berkshire Hathaway's request. FERC Form
No. 501-G is designed to create a non-gas cost of service. The form is
designed in this manner as most pipelines have some form of fuel
tracker that should result in cost and revenue neutrality. As noted
above in discussing Indicated Shippers' Item i, the Commission is aware
that the listed accounts will not capture all the accounts that may
include fuel and gas balance accounts. However, a form designed to be
used by approximately 130 pipelines cannot achieve the cost of service
and rate design granularity to accurately reflect every pipeline's
individual circumstance. The Commission is aware that pipelines with
stated fuel rates may not have cost and revenue neutrality. That is why
FERC Form No. 501-G, page 3, lines 7-8 request information as to
whether the pipeline's tariff provides for a fuel tracker or stated
fuel rates. For pipelines with a stated fuel rate, the form is
consistent in its treatment of that cost-of-service item as every other
cost-of-service item. Additionally, FERC Form No. 501-G, page 3, line 5
requests the removal of any other fuel related

revenues from any source that are not recognized as part of its non-
fuel cost of service.
    184. Millennium observes that page 1 of FERC Form No. 501-G
automatically assumes an income tax allowance of zero for any pass-
through entities' costs of service, while page 5 of FERC Form No. 501-G
reflects an income tax allowance for pass-through entities calculated
pursuant to the Commission's 2005 Policy Statement. Accordingly,
Millennium asserts that the form is internally inconsistent.
    185. The Commission clarifies that there is no inconsistency. The
information requested on page 5 provides the current income tax
allowance reflected in the current rates of the pipeline prior to the
Tax Cuts and Jobs Act and the United Airlines Issuances. By comparing a
cost of service containing the income tax allowance applicable to
current rates with a cost of service containing the reduced or
eliminated income tax allowance consistent with Sec.  154.404(a)(2),
FERC Form No. 501-G determines the Indicated Cost of Service Reduction
on line 34 of page 1.
    186. Furthermore, the Commission clarifies that any pipeline that
answers ``no'' to the question on line 4 of page 1 in the FERC Form No.
501-G, ``Is the Pipeline a separate income taxpaying entity?'' must
answer lines 13-26 of page 5 in the FERC Form No. 501-G and include the
most recent date the marginal taxes rates represent. This applies
whether or not the pipeline seeks the limited section 4 filing pursuant
to Sec.  154.404(a)(2). The Commission requests this information
because it is not available to the public and provides useful data for
assessing the effect of the tax policy changes on pipeline cost of
service. The Commission is adding this guidance to both the FERC Form
No. 501-G and to the FERC Form No. 501-G Implementation Guide.
    187. Spectra argues the proposed FERC Form No. 501-G is not
structured appropriately to account for joint venture ownership of
pipelines. Spectra explains that many of the fields in the form and the
hard-wired formulae and outputs from those fields simply do not apply
to joint ventures. For example, Spectra points to page 5 of the form
that provides a list breaking down equity owners but does not reference
joint ventures. Spectra also argues the FERC Form No. 501-G does not
address how to include an income tax allowance for pipelines owned in
part by corporations and in part by MLP pipelines. Spectra asserts the
form should be revised to clearly address joint venture pipelines and
allow for inclusion of an income tax allowance for these entities, or
to allow pipelines the opportunity to reflect such ownership and
appropriate cost-of-service components in the FERC Form No. 501-G.\209\
---------------------------------------------------------------------------

    \209\ Spectra Comments at 28.
---------------------------------------------------------------------------

    188. The Commission will accept in part and deny in part Spectra's
request to revise the FERC Form No. 501-G. To account for each
pipeline's unique situation is not feasible and may overly complicate
the FERC Form No. 501-G. Instead, pipelines may make adjustments to
individual line items in additional work sheets attached as an Addendum
to the FERC Form No. 501-G to properly reflect their situation.\210\ If
Spectra or any other pipeline proposes any adjustments, it must fully
explain and support the adjustments in the Addendum. All adjustments
should be provided in a manner similar to that required in adjustments
to base period numbers provided in statements and schedules required by
Sec.  Sec.  154.312 and 154.313 of the Commission's regulations.\211\
---------------------------------------------------------------------------

    \210\ NOPR, FERC Stats. & Regs. ] 32,725 at P 39.
    \211\ 18 CFR 154.312 and 154.313.
---------------------------------------------------------------------------

    189. TransCanada notes that as proposed, FERC Form No. 501-G
requires pipelines to input the cost of capital from FERC Form No. 2
page 218a to complete lines 3 through 5. TransCanada argues this data
is inappropriate to determine a pipeline's capital structure, as that
data is used for calculating AFUDC, and as a result, it includes prior
year-end balances.\212\ The Commission acknowledges that in certain
situations, this may result in slightly out-of-date capital structures.
This timing problem should be ameliorated by the revision of page 4 of
FERC Form No. 501-G to re-rank the capital structure analysis. In the
event that any responses on the One-time Report nevertheless reflect
inaccurate capital data, we encourage respondents to explain the
inaccuracy in an Addendum to their report.
---------------------------------------------------------------------------

    \212\ TransCanada Comments at 16-17.
---------------------------------------------------------------------------

C. Additional Filing Options for Natural Gas Companies

    190. In the NOPR, the Commission proposed that, upon filing of the
FERC Form No. 501-G, interstate natural gas pipelines would have four
options. The first two options--filing a limited NGA section 4 rate
filing or a general NGA section 4 rate case--would allow the pipelines
to voluntarily make a filing to address the effects of the Tax Cuts and
Jobs Act and the Revised Policy Statement. Under the third option,
pipelines could file an explanation why no rate change is necessary.
Finally, pipelines could file the FERC Form No. 501-G described above,
without taking any other action at this time. As discussed below, in
this Final Rule, the Commission adopts all four of these options, with
various clarifications.
1. Limited NGA Section 4 Filing (Option 1)
a. NOPR
    191. The Commission proposed that, together with its FERC Form No.
501-G, an interstate natural gas pipeline could file a limited NGA
section 4 filing to allow interstate pipelines to reduce their rates to
reflect the reduced income tax rates and elimination of the MLP
pipeline income tax allowance on a single-issue basis, without
consideration of any other cost or revenue changes. In other words, the
Commission proposed to allow interstate natural gas pipelines to file a
limited NGA section 4 filing, pursuant to proposed Sec.  154.404, to
reduce their reservation charges and any one-part rates that include
fixed costs by the percentage reduction in their costs of service
calculated in the FERC Form No. 501-G resulting from the reduced
corporate income tax rates provided by the Tax Cuts and Jobs Act and
the elimination of MLP tax allowances by the Revised Policy Statement.
The Commission proposed to require MLP pipelines to eliminate their
income tax allowances in any limited NGA section 4 filing, but
permitted other pass-through entities to either eliminate their income
tax allowances or justify why they should continue to receive an income
tax allowance and to reduce their rates to reflect the decrease in
federal income tax rates applicable to partners pursuant to the Tax
Cuts and Jobs Act. The Commission stated that interested parties may
protest the limited NGA section 4 filing, but that the Commission would
only consider arguments relating to matters within the scope of the
proceeding.\213\
---------------------------------------------------------------------------

    \213\ NOPR, FERC Stats. & Regs. ] 32,725 at P 42.
---------------------------------------------------------------------------

    192. The Commission noted that it generally does not permit
pipelines to change any single component of their cost of service
outside of a general NGA section 4 rate case but that the Commission
believes an exception to that policy is justified in this case in order
to permit interstate pipelines to voluntarily reduce their rates as
soon as possible to reflect a reduction in a single cost component--
their federal income tax costs--so as to flow through that benefit to
consumers. The Commission also noted that the proposed requirement that
all interstate pipelines

file the abbreviated cost and revenue study in FERC Form No. 501-G
would enable pipelines and all other interested parties to evaluate
whether there are significant changes in other cost components or
revenues that affect the need for a rate reduction with respect to
taxes.\214\
---------------------------------------------------------------------------

    \214\ Id. P 44.
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b. Comments
    193. Several commenters argue that the Commission should impose a
moratorium on NGA section 5 actions if a pipeline chooses to make the
limited NGA section 4 filing.\215\ INGAA argues that pipelines electing
to make the limited NGA section 4 filing will be implementing a rate
decrease sooner than would be required in a section 5 rate proceeding
and that pipelines will have no incentive to make the limited NGA
section 4 filing absent a firm assurance that it will not immediately
be subject to an additional NGA section 5 proceeding.\216\ Some
commenters suggest a moratorium of at least three years would be
appropriate.\217\
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    \215\ INGAA Comments at 29; Dominion Energy Comments at 11;
Williams Comments at 8; EQT Midstream Comments at 12-13; Kinder
Morgan Comments at 33.
    \216\ INGAA Comments at 29.
    \217\ Id.; Williams Comments at 8; EQT Midstream Comments at 12-
13; Kinder Morgan Comments at 33.
---------------------------------------------------------------------------

    194. INGAA and Kinder Morgan argue that a pipeline that elects to
file a limited section 4 rate case should not be required to complete
page 3 of FERC Form No. 501-G, which collects the data necessary to
calculate an estimated ROE.\218\ INGAA argues that the Commission
stated that it will only consider protests of the limited NGA section 4
filings that are directly related to the reduced income tax rates and
elimination of the MLP pipeline income tax allowances.\219\ INGAA
contends that this information serves no purpose, would not lead to
additional rate modifications under the limited NGA section 4 option,
and the information could be used as a basis for a complaint by
shippers seeking to initiate a section 5 proceeding.\220\
---------------------------------------------------------------------------

    \218\ INGAA Comments at 30; Kinder Morgan Comments at 33.
    \219\ INGAA Comments at 30 (citing NOPR, FERC Stats. & Regs. ]
32,725 at P 42).
    \220\ Id.
---------------------------------------------------------------------------

    195. Commenters ask for clarification regarding whether a pipeline
is limited to using the data provided in the FERC Form No. 501-G
without adjustment when reducing its rates under the limited NGA
section 4 option or whether a pipeline is permitted to incorporate into
its calculations the supported adjustments included in the Addendum
that are permitted under the NOPR.\221\
---------------------------------------------------------------------------

    \221\ EQT Midstream Comments at 18-19; Tallgrass Pipelines
Comments at 22.
---------------------------------------------------------------------------

    196. APGA contends that not all interstate natural gas pipelines
employ a straight fixed-variable rate design where all fixed costs are
collected through the reservation charge and that the Commission should
allow a pipeline to revise usage rates as well if there are fixed costs
collected in usage rates.\222\
---------------------------------------------------------------------------

    \222\ APGA Comments at 7 (noting that proposed Sec.  154.404(c)
permits the pipeline to reduce only its reservation rates).
---------------------------------------------------------------------------

    197. APGA asks the Commission to clarify that a limited NGA section
4 rate filing (to reduce a pipeline's reservation charges and any one-
part rates that include fixed costs by the percentage reduction in its
cost of service calculated in the FERC Form No. 501-G) may be made
prior to the due date for FERC Form No. 501-G.\223\
---------------------------------------------------------------------------

    \223\ APGA Comments at 4-5.
---------------------------------------------------------------------------

c. Discussion
    198. The Commission adopts proposed Sec.  154.404 authorizing
natural gas pipelines to submit limited NGA section 4 filings to reduce
their rates to reflect the Tax Cuts and Jobs Act and the United
Airlines Issuances, with three modifications. First, as already
discussed, the Commission is removing the requirement that MLP
pipelines eliminate their tax allowances in any limited NGA section 4
filing. Instead, like other pass-through entities, MLP pipelines may
either eliminate their tax allowances or reduce their rates to reflect
the reduced income tax expenses provided by the Tax Cuts and Jobs Act.
Second, as discussed below, we grant in part commenters' request for a
moratorium on NGA section 5 investigations in the event a pipeline
chooses the limited NGA section 4 option. Third, as discussed below,
the Commission is also revising proposed Sec.  154.404 to recognize
that pipelines that do not use a straight fixed-variable rate design
may include fixed costs in their usage charges and thus require that
such pipelines' limited NGA section 4 filings include a percentage
reduction of any usage charges including fixed costs.
    199. We grant, in part, commenters' request for a moratorium on NGA
section 5 investigations in the event a pipeline chooses to make a
limited NGA section 4 rate reduction filing. 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. Accordingly, it is reasonable to provide pipelines an
incentive to make such limited NGA section 4 rate reduction filings. On
the other hand, it is possible that a pipeline could make a limited NGA
section 4 rate reduction filing and yet still have a significantly
excessive ROE. In order to balance these concerns, the Commission has
determined that it will not initiate an NGA section 5 investigation
into the rates of a pipeline for three years from the effective date of
the rate reduction resulting from the pipeline's limited NGA section 4
filing if the pipeline's filing meets certain requirements. A pipeline
would qualify for the NGA section 5 investigation moratorium if (1) the
Commission accepts its limited NGA section 4 filing and (2) its 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.\224\ For
purposes of determining whether a pipeline qualifies for the NGA
section 5 investigation moratorium, the Commission will rely on data in
the FERC Form No. 501-G itself, without considering any adjustments the
pipeline may include in an Addendum, so as to minimize any disputes as
to whether the pipeline qualifies for the moratorium. However, as
discussed below, the pipeline is free to calculate the percentage rate
reduction proposed in its limited NGA section 4 filing using the
adjusted data in its Addendum to its FERC Form No. 501-G.
---------------------------------------------------------------------------

    \224\ FERC Form No. 501-G includes a new column titled ``Rate
Moratorium Option 12% ROE Test.'' In that column, the effect of a
limited section 4 rate reduction is measured by reducing a
pipeline's total adjusted revenues (adjusted for non-base rate and
non-jurisdictional activities) by the indicated cost-of-service
reduction. The Commission is aware this adjustment is a proxy for a
detailed revision to rates and does not reflect any discount
adjustment, negotiated rates or treatment of fixed and variable cost
components. With that caveat, the ROE calculation for the three-year
rate moratorium begins with the adjusted revenue and subtracts the
operating costs to obtain revised income before income taxes. That
amount is further reduced to reflect the new tax rates for a C Corp
or elimination thereof for a pass-through entity to calculate net
income. The net income is compared to the pipeline's rate base to
develop the test ROE to determine whether the pipeline qualifies for
the moratorium.
---------------------------------------------------------------------------

    200. The Commission uses its discretion when deciding whether to
initiate an NGA section 5 investigation.\225\ Using a 12 percent Total
Estimated ROE threshold to determine whether a pipeline qualifies for a
moratorium will allow for a more

efficient use of the Commission's resources and provide an additional
incentive for pipelines to choose the limited NGA section 4 filing
option so that customers will receive a rate reduction sooner than if
the Commission initiated an NGA section 5 investigation.
---------------------------------------------------------------------------

    \225\ 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).
---------------------------------------------------------------------------

    201. The Total Estimated ROE calculated in the FERC Form No. 501-G
need not be 12 percent or less for the Commission to accept a limited
NGA section 4 filing. Further, a FERC Form No. 501-G with a Total
Estimated ROE higher than 12 percent will not necessarily result in a
NGA section 5 rate investigation. For pipelines that are not covered by
the moratorium, the Commission will take many factors into
consideration when determining whether to exercise its discretion to
initiate a NGA section 5 investigation, including whether a pipeline
chooses the limited NGA section 4 option, any information the pipeline
provides in an Addendum to its FERC Form No. 501-G, or any other
explanation the pipeline may provide as to why the Commission should
not initiate a NGA section 5 rate investigation. Finally, we note that
the NGA section 5 investigation moratorium would not prevent customers
from filing an NGA section 5 complaint.
    202. We agree with APGA that not all interstate natural gas
pipelines employ a straight fixed-variable rate design where all fixed
costs are collected through the reservation charge and that a pipeline
should be able to revise usage rates using the limited NGA section 4
option if there are fixed costs collected in usage rates. Accordingly,
we have revised proposed Sec.  154.404 to require that the authorized
limited NGA section 4 filing include a percentage reduction of a usage
charge that includes fixed costs.
    203. We also affirm that pipelines must complete FERC Form No. 501-
G in its entirety, including page 3, even when choosing the limited NGA
section 4 filing option. Page 3 of the report requires the pipeline to
report its revenues from which the cost-of-service items, as detailed
on page 1, are subtracted. Thus, the information reported on page 3 of
the report is necessary to calculate the pipeline's ROE before and
after the reduction in income taxes provided by the Tax Cuts and Jobs
Act and the elimination of the MLP pipeline income tax allowance by the
United Airlines Issuances. Although such ROE information may not be
relevant to calculating the rate reduction included in a limited NGA
section 4 rate filing, it is relevant to determining whether the
Commission should initiate an investigation of the pipeline's rates
under NGA section 5 despite the pipeline's limited NGA section 4
filing, and that information is necessary for purposes of applying the
moratorium discussed above. Thus, the pipeline must complete the entire
FERC Form No. 501-G regardless of the subsequent filing option chosen
by the pipeline.
    204. In response to questions regarding whether a pipeline may
calculate the percentage reduction in its rates for the limited NGA
section 4 option using the adjustments in its Addendum to the FERC Form
No. 501-G, we clarify that such adjustments may be reflected in the
calculation of the limited NGA section 4 rate reduction, subject to the
following conditions. As stated in the NOPR, the limited NGA section 4
option is meant to ``allow interstate pipelines to reduce their rates
to reflect the reduced income tax rates and elimination of the MLP
pipeline income tax allowance on a single-issue basis, without
consideration of any other cost or revenue changes.'' \226\ Thus, the
pipeline may not offset the percentage reduction in its cost of service
resulting from the Tax Cuts and Jobs Act and the United Airlines
Issuances with unrelated increases in its cost of service. However, the
pipeline may take into account adjustments included in its Addendum to
the FERC Form No. 501-G for the purpose of accurately calculating the
percentage reduction in its cost of service caused by the Tax Cuts and
Jobs Act or the United Airlines Issuances. For this purpose, in
calculating the percentage reduction in its cost of service related to
the reduction or elimination of its tax allowance, the pipeline should
include the cost-of-service adjustments in its Addendum in its cost of
service for the periods both before and after the Tax Cuts and Jobs Act
and United Airlines Issuances. As noted above, for purposes of the NGA
section 5 investigation moratorium, the Commission will use the
pipeline's unaltered FERC Form No. 501-G to determine whether it
qualifies for the moratorium.
---------------------------------------------------------------------------

    \226\ See NOPR, FERC Stats. & Regs. ] 32,725 at P 42.
---------------------------------------------------------------------------

    205. In response to APGA's request, we clarify that a pipeline may
file its FERC Form No. 501-G and limited NGA section 4 filing in
advance of the due date of its FERC Form No. 501-G, and encourage
pipelines to do so. A pipeline cannot, however, make the limited NGA
section 4 filing described in this Final Rule without also filing the
FERC Form No. 501-G.
2. General NGA Section 4 Filing or Prepackaged Uncontested Settlement
(Option 2)
a. NOPR
    206. The Commission proposed in the NOPR that an interstate natural
gas pipeline could include with its FERC Form No. 501-G a commitment to
file either a prepackaged uncontested settlement or, if that is not
possible, a general NGA section 4 rate case to revise its rates based
upon current cost data.\227\ The Commission stated that a pipeline
choosing this option would also indicate an approximate time frame
regarding when it would file the settlement or the NGA section 4
filing. The Commission also proposed that if the pipeline commits to