[Federal Register Volume 83, Number 146 (Monday, July 30, 2018)]
[Rules and Regulations]
[Pages 36672-36717]
[FR Doc No: 2018-15786]

Vol. 83

Monday,

No. 146

July 30, 2018

Part II

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Parts 154, 260, and 284

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

Federal Register / Vol. 83 , No. 146 / Monday, July 30, 2018 / Rules
and Regulations

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 154, 260, and 284

[Docket Nos. RM18-11-000, RP18-415-000; Order No. 849]

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

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Final rule.

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SUMMARY: The Commission is adopting procedures for determining which
jurisdictional natural gas pipelines may be collecting unjust and
unreasonable rates in light of the income tax reductions provided by
the Tax Cuts and Jobs Act and the Commission's revised policy and
precedent concerning tax allowances to address the double recovery
issue identified by United Airlines, Inc. v. FERC. These procedures
also allow interstate natural gas pipelines to voluntarily reduce their
rates.

DATES: This rule is effective September 13, 2018.

FOR FURTHER INFORMATION CONTACT:
Adam Eldean (Legal Information), Office of the General Counsel, 888
First Street NE, Washington, DC 20426,<PHONE_NUMBER>,
[email protected]

Seong-Kook Berry (Technical Information), Office of Energy Market
Regulation, 888 First Street NE, Washington, DC 20426,<PHONE_NUMBER>,
[email protected]

SUPPLEMENTARY INFORMATION:
Before Commissioners: Kevin J. McIntyre, Chairman; Cheryl A. LaFleur,
Neil Chatterjee, Robert F. Powelson, and Richard Glick.

Table of Contents

                                                         Paragraph Nos.

I. Introduction......................................                  1
II. Background.......................................                  5
    A. Tax Cuts and Jobs Act.........................                  5
    B. United Airlines Issuances.....................                  6
    C. Overview of Natural Gas Rates.................                 10
        1. The Natural Gas Act.......................                 10
        2. The Natural Gas Policy Act of 1978........                 16
    D. Request for Commission Action.................                 19
    E. Notice of Proposed Rulemaking.................                 21
    F. Comments on Notice of Proposed Rulemaking.....                 23
III. Overview of Final Rule..........................                 29
IV. Discussion.......................................                 37
    A. Treatment of Pass-through Entities............                 37
        1. NOPR......................................                 37
        2. Comments..................................                 39
            a. Challenges to the Commission's                         41
             response to United Airlines.............
            b. Arguments Regarding the Implementation                 44
        3. Discussion................................                 49
            a. Limited Section 4 Filings.............                 51
            b. FERC Form No. 501-G and Addendum......                 58
            c. Other Issues..........................                 62
    B. One-time Report...............................                 63
        1. Legal Authority...........................                 67
            a. Comments..............................                 67
            b. Discussion............................                 69
        2. Burden of Proof...........................                 77
            a. Comments..............................                 77
            b. Discussion............................                 78
        3. Docketing and Comments....................                 80
            a. Comments..............................                 81
            b. Discussion............................                 84
        4. Rights of Intervenors.....................                 93
            a. Comments..............................                 94
            b. Discussion............................                 95
        5. Use of 10.55 Percent Indicative Return on                 100
         Equity......................................
            a. Comments..............................                101
            b. Discussion............................                103
        6. Use of Stated Capital Structure...........                107
            a. Comments..............................                109
            b. Discussion............................                111
        7. Accumulated Deferred Income Taxes.........                116
            a. Comments..............................                120
            b. Discussion............................                128
        8. Who Must File.............................                153
            a. Comments..............................                154
            b. Discussion............................                158
        9. Miscellaneous Changes to FERC Form No. 501-               166
         G...........................................
            a. Comments and Discussion...............                166
    C. Additional Filing Options for Natural Gas                     190
     Companies.......................................
        1. Limited NGA Section 4 Filing (Option 1)...                191
            a. NOPR..................................                191
            b. Comments..............................                193
            c. Discussion............................                198

        2. General NGA Section 4 Filing or                           206
         Prepackaged Uncontested Settlement (Option
         2)..........................................
            a. NOPR..................................                206
            b. Comments..............................                207
            c. Discussion............................                211
        3. Statement That No Adjustment in Rates                     216
         Needed (Option 3)...........................
            a. NOPR..................................                216
            b. Comments..............................                218
            c. Discussion............................                222
        4. Take No Action (Option 4).................                226
            a. NOPR..................................                226
            b. Comments..............................                227
            c. Discussion............................                228
    D. Negotiated Rates..............................                229
        1. Comments..................................                231
        2. Discussion................................                245
    E. Miscellaneous Clarifications..................                250
    F. Implementation Schedule for Informational                     261
     Filings.........................................
        1. NOPR......................................                261
        2. Comments..................................                262
        3. Discussion................................                265
    G. NGPA section 311 and Hinshaw Pipelines........                267
        1. NOPR......................................                267
        2. Comments..................................                270
        3. Discussion................................                277
    H. Request for Commission Action.................                285
V. Regulatory Requirements...........................                286
    A. Information Collection Statement..............                286
    B. Environmental Analysis........................                293
    C. Regulatory Flexibility Act....................                294
    D. Document Availability.........................                297
    E. Effective Date and Congressional Notification.                300

I. Introduction

    1. In this Final Rule, the Commission adopts procedures for
determining which jurisdictional natural gas pipelines may be
collecting unjust and unreasonable rates in light of (1) the income tax
reductions provided by the Tax Cuts and Jobs Act \1\ and (2) the
Commission's Revised Policy Statement \2\ and Opinion No. 511-C \3\
concerning income tax allowances following the decision of the United
States Court of Appeals for the District of Columbia Circuit (D.C.
Circuit) in United Airlines.\4\ These procedures also allow interstate
natural gas pipelines to voluntarily reduce their rates to reflect the
income tax reductions and United Airlines Issuances.
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    \1\ An Act to provide for reconciliation pursuant to titles II
and V of the concurrent resolution on the budget for fiscal year
2018, Public Law 115-97, 131 Stat. 2054 (2017) (Tax Cuts and Jobs
Act).
    \2\ Inquiry Regarding the Commission's Policy for Recovery of
Income Tax Costs, Revised Policy Statement, 83 FR 12,362 (Mar. 21,
2018), FERC Stats & Regs. ] 35,060 (2018), order on reh'g, 164 FERC
] 61,030 (2018).
    \3\ SFPP, L.P., Opinion No. 511-C, 162 FERC ] 61,228, at P 9
(2018).
    \4\ United Airlines, Inc. v. FERC, 827 F.3d 122 (D.C. Cir.
2016). For purposes of this order, the Revised Policy Statement,
United Airlines, and Opinion No. 511-C will collectively be referred
to as ``United Airlines Issuances.''
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    2. The procedures adopted in this Final Rule are generally the same
as the Commission proposed in its March 15, 2018 Notice of Proposed
Rulemaking (NOPR or proposed rule) in this proceeding.\5\ The
Commission is thus adopting, with clarifications, the proposed FERC
Form No. 501-G informational filing for evaluating the impact of the
Tax Cuts and Jobs Act and United Airlines Issuances on interstate
natural gas pipelines' revenue requirements. The Commission is also
providing four options each interstate natural gas pipeline may choose
from to address the changes to the pipeline's revenue requirement as a
result of the income tax reductions: (1) A limited Natural Gas Act
(NGA) section 4 \6\ rate reduction filing, (2) a commitment to file a
general section 4 rate case in the near future, (3) an explanation why
no rate change is needed, and (4) no action (other than filing a
report).
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    \5\ Interstate and Intrastate Natural Gas Pipelines; Rate
Changes Relating to Federal Income Tax Rate, 83 FR 12,888 (Mar. 26,
2018), FERC Stats. & Regs. ] 32,725 (2018) (NOPR).
    \6\ 15 U.S.C. 717c (2012).
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    3. However, as discussed further below, the Final Rule modifies the
NOPR's proposed treatment of master limited partnership (MLP) pipelines
\7\ and other pass-through entities in several respects. First, the
Commission has modified the FERC Form No. 501-G so that, if a pipeline
states that it is not a tax paying entity, the form will not only
automatically enter a federal and state income tax of zero, but also
eliminate Accumulated Deferred Income Taxes (ADIT) from the pipeline's
cost of service. Second, if an MLP pipeline chooses Option 1 (limited
section 4 rate filing), this Final Rule permits the pipeline to reflect
only the tax reductions in the Tax Cuts and Jobs Act. Although the
Commission determined in the Revised Policy Statement that permitting
MLP pipelines to include a tax allowance in their cost of service
results in a double recovery of the MLP pipeline's tax costs, this
Final Rule does not require MLP pipelines to eliminate their tax
allowances at this time in compliance with this rulemaking. Third, the
Final Rule clarifies that a natural gas company organized as a pass-
through entity all of whose income or losses are consolidated on the
federal income tax return of its corporate parent is considered to be
subject to the federal corporate income tax, and is thus eligible for a
tax allowance.
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    \7\ Throughout this order, as in prior Commission orders, we use
the phrase ``MLP pipeline.'' For the purposes of this proceeding,
MLP pipeline includes a pipeline, such as SFPP, L.P., that does not
pay taxes itself and is a wholly-owned subsidiary of an MLP. See
Opinion No. 511-C, 162 FERC ] 61,228 at P 9.
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    4. The Final Rule also makes certain changes to the proposed FERC
Form No.

501-G, including modifying the hypothetical capital structure to be
used by pipelines who cannot use their own or their parent's capital
structure. In addition, the Final Rule provides a guarantee that the
Commission will not initiate a NGA section 5 rate investigation for a
three-year moratorium period of an interstate pipeline that makes a
limited NGA section 4 rate reduction filing that reduces its ROE to 12
percent or less.

II. Background

A. Tax Cuts and Jobs Act

    5. On December 22, 2017, the President signed into law the Tax Cuts
and Jobs Act. The Tax Cuts and Jobs Act, among other things, reduces
the federal corporate income tax rate from 35 percent to 21 percent,
effective January 1, 2018. This means that, beginning January 1, 2018,
companies subject to the Commission's jurisdiction will compute income
taxes owed to the Internal Revenue Service (IRS) based on a 21 percent
tax rate. The tax rate reduction will result in less corporate income
tax expense going forward.\8\ Further, with respect to income derived
from pass-through entities, the Tax Cuts and Jobs Act generally reduced
the income tax liability for individuals, and permitted up to a 20
percent deduction of pass-through income.\9\ The combination of these
two changes for individuals holding units of pass-through entities
means that the effective tax level applicable to individuals with pass-
through derived income may be slightly less than the corporate income
tax.
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    \8\ See Tax Cuts and Jobs Act 13001, 131 Stat. at 2096.
    \9\ See id. 11011, 131 Stat. at 2063.
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B. United Airlines Issuances

    6. In United Airlines, the D.C. Circuit held that the Commission
failed to demonstrate that allowing SFPP, L.P. (SFPP), an MLP pipeline,
to recover both an income tax allowance and the discounted cash flow
(DCF) methodology rate of return does not result in a double recovery
of investors' tax costs. Accordingly, the D.C. Circuit remanded the
underlying rate proceeding to the Commission for further consideration.
Although the D.C. Circuit's decision directly addressed the rate case
filed by SFPP, the United Airlines double-recovery analysis referred to
partnerships generally. Recognizing the potentially industry-wide
ramifications, the Commission issued a Notice of Inquiry in Docket No.
PL17-1-000, soliciting comments on how to resolve any double recovery
resulting from the rate of return policies and the policy permitting an
income tax allowance for partnership entities.\10\
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    \10\ Inquiry Regarding the Commission's Policy for Recovery of
Income Tax Costs, Notice of Inquiry, FERC Stats & Regs. ] 35,581
(2016).
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    7. Concurrently with the issuance of the NOPR in this proceeding,
the Commission issued an Order on Remand in Opinion No. 511-C \11\ in
response to United Airlines. Consistent with the United Airlines
remand, Opinion No. 511-C concluded that granting SFPP an income tax
allowance in addition to its return on equity (ROE) determined by the
DCF methodology resulted in a double-recovery. The Commission
explained:
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    \11\ Opinion No. 511-C, 162 FERC ] 61,228.

    [MLP pipelines (such as SFPP)] and similar pass-through entities
do not incur income taxes at the entity level. Instead, the partners
are individually responsible for paying taxes on their allocated
share of the partnership's taxable income.
    The DCF methodology estimates the returns a regulated entity
must provide to investors in order to attract capital.
    To attract capital, entities in the market must provide
investors a pre-tax return, i.e., a return that covers investor-
level taxes and leaves sufficient remaining income to earn
investors' required after-tax return. In other words, because
investors must pay taxes from any earnings received from the
partnership, the DCF return must be sufficient both to cover the
investor's tax costs and to provide the investor a sufficient after-
tax ROE.\12\
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    \12\ Id. P 22.

    8. Accordingly, the Commission ordered removal of the additional
income tax allowance from SFPP's cost of service. The Commission
explained that such action (a) remedies the double recovery identified
by the court in its United Airlines remand, (b) restores parity between
SFPP (an MLP pipeline) and corporate investment forms, (c) is
consistent with Congressional intent, and (d) provides SFPP with a
sufficient return via the DCF ROE.\13\
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    \13\ Id. P 21.
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    9. Simultaneously, the Commission also issued the Revised Policy
Statement \14\ that superseded the Commission's prior guidance in the
2005 Income Tax Policy Statement \15\ and established new guidance
following United Airlines. Like Opinion No. 511-C, the Revised Policy
Statement explained that a double recovery results from granting an MLP
pipeline an income tax allowance and a DCF ROE, and accordingly
provided guidance that the Commission will no longer permit MLP
pipelines to recover an income tax allowance in their cost of service.
The Revised Policy Statement also explained that although all
partnerships seeking to recover an income tax allowance in a cost-of-
service rate case will need to address the United Airlines double-
recovery concern, the Commission will address the application of United
Airlines to these non-MLP partnership forms as those issues arise in
subsequent proceedings.\16\ The Commission received requests for
rehearing of Opinion No. 511-C and the Revised Policy Statement.
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    \14\ Revised Policy Statement, FERC Stats. & Regs. ] 35,060.
    \15\ Policy Statement on Income Tax Allowances, 111 FERC ]
61,139 (2005).
    \16\ Revised Policy Statement, FERC Stats. ] Regs. 35,060 at P
3.
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C. Overview of Natural Gas Rates

1. The Natural Gas Act
    10. As required by Sec.  284.10 of the Commission's
regulations,\17\ interstate natural gas pipelines generally have stated
rates for their services, which are approved in a rate proceeding under
NGA sections 4 or 5 and remain in effect until changed in a subsequent
NGA section 4 or 5 proceeding. The stated rates are designed to provide
the pipeline the opportunity to recover all components of the
pipeline's cost of service, including the pipeline's federal income
taxes.\18\ When pipelines file under NGA section 4 to change their
rates, the Commission requires the pipeline to provide detailed support
for all the components of its cost of service, including federal income
taxes.\19\
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    \17\ 18 CFR 284.10 (2017).
    \18\ Most pipeline tariffs include tracking mechanisms for the
recovery of fuel and lost and unaccounted for gas, but generally
pipelines do not separately track any other cost.
    \19\ 18 CFR 154.312 and 154.313. The pipeline must show the
computation of its allowance for federal income taxes in Statement
H-3.
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    11. The Commission generally does not permit pipelines to change
any single component of their cost of service outside of a general NGA
section 4 rate case.\20\ A primary reason for this policy is that,
while one component of the cost of service may have increased, others
may have declined. In a general NGA section 4 rate case, all components
of the cost of service may be considered and any decreases in an
individual component can be offset against increases in other cost
components.\21\ For the same reasons, the Commission reviews all of a
pipeline's costs and revenues when it investigates whether a pipeline's
existing rates are unjust and unreasonable under NGA section 5.\22\
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    \20\ See, e.g., Trunkline Gas Co., 142 FERC ] 61,133, at P 24
n.28 (2013).
    \21\ ANR Pipeline Co., 110 FERC ] 61,069, at P 18 (2005).
    \22\ Midwestern Gas Transmission Co., 162 FERC ] 61,219 (2018);
Dominion Energy Overthrust Pipeline, LLC, 162 FERC ] 61,218 (2018);
Natural Gas Pipeline Co. of America LLC, 158 FERC ] 61,044 (2017);
Wyoming Interstate Co., L.L.C., 158 FERC ] 61,040 (2017); Tuscarora
Gas Transmission Co., 154 FERC ] 61,030 (2016); Iroquois Gas
Transmission System, L.P., 154 FERC ] 61,028 (2016); Empire
Pipeline, Inc., 154 FERC ] 61,029 (2016); Columbia Gulf
Transmission, LLC, 154 FERC ] 61,027 (2016); Wyoming Interstate Co.,
L.L.C., 141 FERC ] 61,117 (2012); Viking Gas Transmission Co., 141
FERC ] 61,118 (2012); Bear Creek Storage Co., L.L.C., 137 FERC ]
61,134 (2011); MIGC LLC, 137 FERC ] 61,135 (2011); ANR Storage Co.,
137 FERC ] 61,136 (2011); Ozark Gas Transmission, L.L.C., 133 FERC ]
61,158 (2010); Kinder Morgan Interstate Gas Transmission LLC, 133
FERC ] 61,157 (2010); Northern Natural Gas Co., 129 FERC ] 61,159
(2009); Great Lakes Gas Transmission Ltd. P'ship, 129 FERC ] 61,160
(2009); Natural Gas Pipeline Co. of America LLC, 129 FERC ] 61,158
(2009).

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    12. NGA sections 4 and 5 proceedings are routinely resolved through
settlement agreements between the pipeline and its customers. Most of
the agreements are ``black box'' settlements that do not provide
detailed cost-of-service information. In addition, in lieu of
submitting a general NGA section 4 rate case, a pipeline may submit a
pre-packaged settlement to the Commission. When pipelines file pre-
packaged settlements, they generally do not include detailed cost and
revenue information in the filing. The Commission will approve an
uncontested settlement offer upon finding that ``the settlement appears
to be fair and reasonable and in the public interest.'' \23\ Many rate
case settlement agreements include moratorium provisions that limit the
ability of the pipeline to file to revise its rates, or for the
shippers to file an NGA section 5 complaint, for a particular time
period. In addition, many settlement agreements include ``come-back
provisions,'' which require a pipeline to file an NGA section 4 filing
no later than a particular date.
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    \23\ 18 CFR 385.602(g)(3).
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    13. The Commission has granted most interstate natural gas
pipelines authority to negotiate rates with individual customers.\24\
Such rates are not bound by the maximum and minimum recourse rates in
the pipeline's tariff.\25\ In order to be granted negotiated rate
authority, a pipeline must have a cost-based recourse rate on file with
the Commission, so a customer always has the option of entering into a
contract at the cost-based recourse rate rather than a negotiated rate
if it chooses. The pipeline must file each negotiated rate agreement
with the Commission. In addition, pipelines are also permitted to
selectively discount their rates. Although negotiated rates may be
above the maximum recourse rate, discounted rates must remain below the
maximum rate. The maximum recourse rate is the ceiling rate for all
long-term capacity releases, including capacity releases to replacement
shippers by firm customers with negotiated rates.
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    \24\ See Natural Gas Pipeline Negotiated Rate Policies and
Practices; Modification of Negotiated Rate Policy, 104 FERC ] 61,134
(2003), order on reh'g and clarification, 114 FERC ] 61,042,
dismissing reh'g and denying clarification, 114 FERC ] 61,304 (2006)
(Negotiated Rate Policy Statement).
    \25\ Northern Natural Gas Co., 105 FERC ] 61,299, at PP 15-16
(2003).
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    14. Changes to a pipeline's recourse rates occurring under NGA
sections 4 and 5 do not affect a customer's negotiated rate, because
that rate is negotiated as an alternative to the customer taking
service under the recourse rate. However, a shipper receiving a
discounted rate may experience a reduction as a result of the outcome
of a rate proceeding if the recourse rate is reduced below the
discounted rate. The prevalence of negotiated and discounted rates
varies among pipelines, depending upon the competitive situation.
    15. The Commission also grants interstate natural gas pipelines
market-based rate authority when the pipeline can show it lacks market
power for the specific services or when the applicant or the Commission
can mitigate the market power with specific conditions.\26\ A pipeline
that has been granted market-based rate authority will have an approved
tariff on file with the Commission but will not have a Commission
approved rate. Rather, all rates for services are negotiated by the
pipeline and its customers. Currently, 29 interstate natural gas
pipelines have market-based rate authority for storage and
interruptible hub services (such as wheeling and park and loan
services), and one pipeline (Rendezvous Pipeline Company, LLC) has
market-based rate authority for transportation services.
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    \26\ Alternatives to Traditional Cost of Service Ratemaking for
Natural Gas Pipelines and Regulation of Negotiated Transportation
Services of Natural Gas Pipelines, 74 FERC ] 61,076 (1996)
(Negotiated Rate Policy Statement); see also Rate Regulation of
Certain Natural Gas Storage Facilities, Order No. 678, FERC Stats. &
Regs. ] 31,220 (2006) (cross-referenced at 115 FERC ] 61,343), reh'g
denied, Order No. 678-A, 117 FERC ] 61,190 (2006).
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2. The Natural Gas Policy Act of 1978
    16. Section 311 of the Natural Gas Policy Act of 1978 (NGPA)
authorizes the Commission to allow intrastate pipelines to transport
natural gas ``on behalf of'' interstate pipelines or local distribution
companies served by interstate pipelines.\27\ NGPA section 311(a)(2)(B)
provides that the rates for interstate transportation provided by
intrastate pipelines shall be ``fair and equitable and may not exceed
an amount which is reasonably comparable to the rates and charges which
interstate pipelines would be permitted to charge for providing similar
transportation service.'' \28\ In addition, NGPA section 311(c)
provides that any authorization by the Commission for an intrastate
pipeline to provide interstate service ``shall be under such terms and
conditions as the Commission may prescribe.'' \29\ Section 284.224 of
the Commission's regulations provides for the issuance of blanket
certificates under section 7 of the NGA to Hinshaw pipelines \30\ to
provide open access transportation service ``to the same extent that
and in the same manner'' as intrastate pipelines are authorized to
perform such service.\31\ The Commission regulates the rates for
interstate service provided by Hinshaw pipelines under NGA sections 4
and 5.
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    \27\ 15 U.S.C. 3371.
    \28\ 15 U.S.C. 3371(a)(2)(B).
    \29\ 15 U.S.C. 3371(c).
    \30\ Section 1(c) of the NGA, 15 U.S.C. 717(c), exempts from the
Commission's NGA jurisdiction those pipelines which transport gas in
interstate commerce if (1) they receive natural gas at or within the
boundary of a state, (2) all the gas is consumed within that state,
and (3) the pipeline is regulated by a state Commission. This is
known as the Hinshaw exemption.
    \31\ See 18 CFR 284.224.
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    17. Section 284.123 of the Commission's regulations provides
procedures for NGPA section 311 and Hinshaw pipelines to establish fair
and equitable rates for their interstate services.\32\ Section
284.123(b) allows intrastate pipelines an election of two different
methodologies upon which to base their rates for interstate
services.\33\ First, Sec.  284.123(b)(1) permits an intrastate pipeline
to elect to base its rates on the methodology or rate(s) approved by a
state regulatory agency included in an effective firm rate for city-
gate service. Second, Sec.  284.123(b)(2) provides that the pipeline
may petition for approval of rates and charges using its own data to
show its proposed rates are fair and equitable. The Commission has
established a policy of reviewing the rates of NGPA section 311 and
Hinshaw pipelines every five years.\34\ Section 311 pipelines not using
state-approved rates must file a new rate case every five years, and
Hinshaw pipelines must at a minimum file a cost and revenue study every
five years. Intrastate pipelines

using state-approved rates that have not changed since the previous
five-year filing are only required to make a filing certifying that
those rates continue to meet the requirements of Sec.  284.123(b)(1) on
the same basis on which they were approved. Conversely, if the state-
approved rate used for the election is changed at any time, the NGPA
section 311 or Hinshaw pipeline must file a new rate election pursuant
to Sec.  284.123(b) for its interstate rates no later than 30 days
after the changed rate becomes effective.
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    \32\ 18 CFR 284.123.
    \33\ 18 CFR 284.123(b).
    \34\ Contract Reporting Requirements of Intrastate Natural Gas
Companies, Order No. 735, FERC Stats. & Regs. ] 31,310, at P 92,
order on reh'g, Order No. 735-A, FERC Stats. & Regs. ] 31,318
(2010); see also Hattiesburg Industrial Gas Sales, L.L.C., 134 FERC
] 61,236 (2011) (imposing a five-year rate review requirement on
Hattiesburg Industrial Gas Sales, L.L.C.).
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    18. An intrastate pipeline may file to request authorization to
charge market-based rates under subpart M of Part 284 of the
Commission's regulations. The same requirements for showing a lack of
market power apply to intrastate pipelines as for interstate pipelines.
The Commission has granted market-based rate authority for storage and
hub services to 19 of the 112 intrastate pipelines with subpart C of
Part 284 tariffs.

D. Request for Commission Action

    19. On January 31, 2018, in Docket No. RP18-415-000, several trade
associations and companies representing a coalition of the natural gas
industry that are dependent upon services provided by interstate
natural gas pipeline and storage companies (Petitioners) \35\ filed a
petition requesting that the Commission take immediate action under
sections 5(a), 10(a), and 14(a) and (c) of the NGA to initiate show
cause proceedings against all interstate natural gas pipeline companies
(with certain exceptions) and require each pipeline to submit a cost
and revenue study to demonstrate that its existing jurisdictional rates
continue to be just and reasonable following the passage of the Tax
Cuts and Jobs Act.
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    \35\ Petitioners include the following trade associations:
American Forest and Paper Association, American Public Gas
Association, Independent Petroleum Association of America, Natural
Gas Supply Association, and Process Gas Consumers Group. Petitioners
also include the following companies: Aera Energy LLC, Anadarko
Energy Services Company, Chevron U.S.A. Inc., ConocoPhillips
Company, Hess Corporation, Petrohawk Energy Corporation, WPX Energy
Marketing, LLC, and XTO Energy Inc.
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    20. Petitioners requested that the Commission require an immediate
rate reduction, if a filed cost and revenue study demonstrates that the
interstate natural gas pipeline is over-recovering its costs following
the adjustments to account for changes to the tax laws implemented
under the Tax Cuts and Jobs Act. Petitioners contended that, if a
pipeline believed that a Commission-approved settlement exempted it
from such a rate analysis, the Commission should require such company
to provide evidence to that effect.

E. Notice of Proposed Rulemaking

    21. In response to the Tax Cuts and Jobs Act and United Airlines
Issuances, on March 15, 2018, the Commission issued a NOPR proposing to
require interstate natural gas pipelines to file an informational
filing with the Commission pursuant to sections 10(a) and 14(a) of the
NGA \36\ (One-time Report on Rate Effect of the Tax Cuts and Jobs Act,
FERC Form No. 501-G).\37\ The One-time Report was designed to collect
financial information to evaluate the impact of the Tax Cuts and Jobs
Act and United Airlines Issuances on interstate natural gas pipelines'
revenue requirements. In addition to the One-time Report, the
Commission proposed to provide four options for each interstate natural
gas pipeline to choose from, including to voluntarily make a filing to
address the changes to the pipeline's recovery of tax costs, or explain
why no action is needed. The four options are: (1) File a limited NGA
section 4 filing to reduce the pipeline's rates to reflect the decrease
in the federal corporate income tax rate pursuant to the Tax Cuts and
Jobs Act and the elimination of the income tax allowance for MLP
pipelines consistent with the Revised Policy Statement, (2) make a
commitment to file a general NGA section 4 rate case in the near
future, (3) file a statement explaining why an adjustment to its rates
is not needed, or (4) take no action other than filing the One-time
Report. If an interstate natural gas pipeline does not choose either of
the first two options, the Commission would consider, based on the
information in the One-time Report and comments by interested parties,
whether to issue an order to show cause under NGA section 5 requiring
the pipeline either to reduce its rates to reflect the income tax
reduction or explain why it should not be required to do so.\38\
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 717i(a), 717m(a).
    \37\ NOPR, FERC Stats. & Regs. ] 32,725 at P 32. The One-time
Report on Rate Effect of the Tax Cuts and Jobs Act is referred to
interchangeably as ``One-time Report'' or ``FERC Form No. 501-G'' in
this Final Rule.
    \38\ NOPR, FERC Stats. & Regs. ] 32,725 at PP 41-51.
---------------------------------------------------------------------------

    22. The Commission proposed to establish a staggered schedule for
interstate natural gas pipelines to file the One-time Report and choose
one of the four options described above. The Commission stated in the
NOPR that interstate natural gas pipelines that file general NGA
section 4 rate cases or pre-packaged uncontested rate settlements
before the deadline for their One-time Report will be exempted from
making the One-time Report. In addition, the Commission stated that
interstate natural gas pipelines whose rates are being investigated
under NGA section 5 need not file the One-time Report.\39\
---------------------------------------------------------------------------

    \39\ Id. PP 4, 40 & n.8.
---------------------------------------------------------------------------

F. Comments on Notice of Proposed Rulemaking

    23. The Commission received 33 comments and ten answers and reply
comments in response to its NOPR.\40\ In general, commenters support
the Commission taking action in regard to the recent tax changes
although commenters disagree about various aspects of the Commission's
proposed procedures. These comments have informed our determinations in
this Final Rule.
---------------------------------------------------------------------------

    \40\ The list of commenters and the abbreviation used for each
in this order are shown on Appendix A.
---------------------------------------------------------------------------

    24. Several commenters take issue with the NOPR's implementation of
the Revised Policy Statement and the proposal that, if an MLP pipeline
chooses the option of making a limited NGA section 4 filing, that
filing must reduce its maximum rates to reflect the elimination of any
tax allowance included in its current rates consistent with the Revised
Policy Statement.
    25. In regard to the proposed FERC Form No. 501-G, among other
things, commenters challenge the Commission's authority to require such
a filing, seek clarification regarding inputs to the form including the
use of an indicative ROE of 10.55 percent, and suggest changes to the
form.
    26. Commenters also seek clarification and suggest changes to the
four options for an interstate natural gas pipeline to make a filing to
address the changes to the pipeline's recovery of tax costs or explain
why no action is needed. Commenters suggest alternative timelines or
request additional time to make such filings. Commenters also seek
clarification regarding the deadline to make such filings. Some
commenters suggest that the Commission eliminate or alter some of the
proposed filing options.
    27. The Commission also received several comments regarding
negotiated rate agreements and whether those agreements can or should
be altered by the Final Rule.
    28. Commenters generally support the Commission's proposed
procedures for NGPA section 311 and Hinshaw pipelines with some
suggested modifications.

III. Overview of Final Rule

    29. In this Final Rule, the Commission adopts procedures for
determining which jurisdictional natural gas pipelines may be
collecting unjust and unreasonable rates in light of (1) the income tax
reductions provided by the Tax Cuts and Jobs Act and (2) the United
Airlines Issuances. These procedures also allow interstate natural gas
pipelines to voluntarily reduce their rates to reflect the income tax
reductions and change in tax allowance resulting from the United
Airlines Issuances.
    30. The Commission adopts, with modifications, the procedures
proposed in the NOPR. The Final Rule establishes a requirement,
pursuant to sections 10 and 14(a) of the NGA, that all interstate
natural gas companies, with cost-based stated rates, that filed a 2017
FERC Form No. 2 or 2-A must file the FERC Form No. 501-G informational
filing for the purpose of evaluating the impact of the Tax Cuts and
Jobs Act and the United Airlines Issuances on interstate natural gas
pipelines' revenue requirements. The Final Rule makes certain
adjustments to the FERC Form No. 501-G. For example, if a pipeline
states that it is not a tax paying entity, the revised form will not
only automatically enter a federal and state income tax of zero, but
also eliminate ADIT from the pipeline's cost of service. This change is
consistent with the policy announced in our contemporaneous order on
rehearing of the Revised Policy Statement,\41\ that when a pass-through
entity's tax allowance is eliminated, it is appropriate to also
eliminate ADIT. The Final Rule also modifies the FERC Form No. 501-G's
treatment of capital structure, so that, among other things, if a
pipeline must report a hypothetical capital structure, that capital
structure will be 57 percent equity, instead of 50 percent equity.
---------------------------------------------------------------------------

    \41\ Inquiry Regarding the Commission's Policy for Recovery of
Income Tax Costs, Order on Rehearing, 164 FERC ] 61,030 (2018).
---------------------------------------------------------------------------

    31. In addition to the FERC Form No. 501-G filing requirement, the
Commission provides four options for each interstate natural gas
pipeline to make a filing to address the changes to the pipeline's
recovery of tax costs or explain why no action is needed: (1) A limited
NGA section 4 rate reduction filing (Option 1), (2) a commitment to
file a general section 4 rate case in the near future (Option 2), (3)
an explanation why no rate change is needed (Option 3), and (4) no
action (Option 4). These procedures are intended to encourage natural
gas pipelines to voluntarily reduce their rates to the extent the tax
changes result in their over-recovering their cost of service, while
also providing the Commission and stakeholders information necessary to
take targeted actions under NGA section 5 where necessary to achieve
just and reasonable rates.
    32. We modify the NOPR proposal so as to permit MLP pipelines to,
under Option 1, propose in their limited section 4 filings to either
(1) eliminate their tax allowance, along with their ADIT, or (2)
reflect only the tax reductions in the Tax Cuts and Jobs Act. Although
the Commission determined in the Revised Policy Statement that
permitting MLP pipelines to include a tax allowance in their cost of
service results in a double recovery of the MLP pipeline's tax costs,
the Commission will not require MLP pipelines to eliminate their tax
allowances in this rulemaking proceeding. The Final Rule also clarifies
that a natural gas company organized as a pass-through entity is
considered subject to the federal corporate income tax, if all of its
income or losses are consolidated on the federal income tax return of
its corporate parent. Thus, such a pass-through entity is eligible for
a tax allowance.
    33. The Commission reiterates the voluntary nature of the three
filing options and the option to take no action available to pipelines
once the pipeline files the required FERC Form No. 501-G. While the
Commission is permitting interstate natural gas pipelines to
voluntarily file a limited NGA section 4 filing or commit to make a
general NGA section 4 rate case filing to modify their rates to reflect
the impact of the Tax Cuts and Jobs Act and United Airlines Issuances,
the Commission is not ordering interstate natural gas pipelines to make
such filings. The limited NGA section 4 filing option (Option 1) is
beneficial to both pipelines and their customers because it allows
interstate pipelines to voluntarily reduce their rates to reflect a
reduction in a single cost component--their federal income tax costs--
so as to flow through that benefit to consumers as soon as possible. In
order to provide an additional incentive for pipelines to make a
limited NGA section 4 rate reduction filing, the Final Rule includes a
guarantee that the Commission will not, for a three-year moratorium
period, initiate a NGA section 5 rate investigation of a pipeline that
makes such a filing, if that filing reduces the pipeline's ROE to 12
percent or less.
    34. The commitment to file a general NGA section 4 rate case in the
near future option (Option 2) provides an opportunity for pipelines to
reflect the impact of the Tax Cuts and Jobs Act and United Airlines
Issuances if the limited NGA section 4 filing option would not be
appropriate. Although the Commission prefers for pipelines to reflect
the impact of the Tax Cuts and Jobs Act and United Airlines Issuances
on their own accord, the Commission will consider whether to initiate
an investigation to determine if the pipeline's rates may be unjust and
unreasonable under NGA section 5 if a pipeline that chooses Option 3
(provide an explanation why no rate change is needed) fails to convince
the Commission, or the pipeline chooses Option 4 (take no action).
    35. The Commission also modifies the implementation schedule
proposed in the NOPR by combining the third and fourth groups of
pipelines into a single group. The deadline for the first group of
pipelines to file their FERC Form No. 501-Gs will be 28 days after the
effective date of the Final Rule and the deadlines for the second and
third groups will each be 28 days after the previous group's deadline.
Combining the third and fourth groups into a single group will allow
the filing of the FERC Form No. 501-Gs to be completed by early
December of this year.
    36. Additionally, the Commission adopts, with clarifying
modifications, the procedures proposed in the NOPR for NGPA section 311
and Hinshaw pipelines to reflect in their jurisdictional rates any rate
reductions from the Tax Cuts and Jobs Act and the United Airlines
Issuances directed by a state agency. Pursuant to this Final Rule, NGPA
section 311 and Hinshaw pipelines are not required to file the FERC
Form No. 501-G or make any other immediate filing. Instead, the
Commission will rely on its five-year rate review process as the
primary mechanism to consider changes to reflect the Tax Cuts and Jobs
Act, and the Commission adopts the NOPR's proposed Sec.  284.123(i) in
this Final Rule. Under pre-existing policy, any pipeline that elected
to use state-derived rates pursuant to Sec.  284.123(b)(1) is already
required to file with the Commission a new rate election 30 days after
a state regulatory agency adjusts its intrastate rates, and new Sec.
284.123(i) expands that requirement to include intrastate pipelines
that use Commission-established cost-based rates pursuant to Sec.
284.123(b)(2), as well as pipelines that use state derived rates
pursuant to Sec.  284.123(b)(1).

IV. Discussion

A. Treatment of Pass-Through Entities

1. NOPR
    37. The NOPR addressed the treatment of pass-through entities in
two ways. First, the proposed One-time Report, FERC Form No. 501-G,
assumed a federal and state income tax allowance of zero for all pass-
through entities in order to address the double-recovery issues
discussed in the United Airlines Issuances.
    38. Second, the implementation of Option 1, described above,
provided different treatment for MLP pipelines as compared to other
entities, as set forth in proposed Sec.  154.404 of the
regulations.\42\ Specifically, proposed Sec.  154.404 distinguishes
between the types of rate reductions pipelines could include in these
limited NGA section 4 filings, depending upon whether the pipeline
should be treated as a corporation, an MLP pipeline, or a non-MLP
partnership. Thus, proposed Sec.  154.404(a)(1) permits a pipeline
subject to the federal corporate income tax to make a limited NGA
section 4 filing reducing its maximum rates to reflect the decrease in
the federal corporate income tax rate pursuant to the Tax Cuts and Jobs
Act. However, proposed Sec.  154.404(a)(2) only permits an MLP pipeline
to file a limited NGA section 4 filing reducing its maximum rates to
reflect the elimination of any tax allowance included in its current
rates consistent with the United Airlines Issuances. In contrast,
proposed Sec.  154.404(a)(3) provides that if a partnership not
organized as an MLP pipeline believes that a federal or state income
tax allowance is permissible notwithstanding United Airlines, it may
justify why its pipeline should continue to receive an income tax
allowance and reduce its maximum rates to reflect the decrease in the
federal income tax rates applicable to partners pursuant to the Tax
Cuts and Jobs Act.\43\
---------------------------------------------------------------------------

    \42\ NOPR, FERC Stats. & Regs. ] 32,725 at P 42.
    \43\ Id. P 36.
---------------------------------------------------------------------------

2. Comments
    39. Some commenters support the implementation of the Revised
Policy Statement in the proposed rule, including NGSA,\44\ APGA,\45\
CAPP,\46\ and Direct Energy.\47\ CAPP supports the proposal that pass-
through entities report a federal and state income tax expense of zero
on the proposed FERC Form No. 501-G, unless a non-MLP partnership can
justify why it should continue to receive an income tax allowance while
reducing its maximum rates to reflect the decrease in the federal
income tax rates resulting from the Tax Cuts and Jobs Act. CAPP asserts
that such information will enable shippers and the Commission to
properly evaluate submissions by pipelines as to whether adjustments to
rates are appropriate in light of the tax changes and, in the absence
of any pipeline commitments to changing rates, whether an NGA section 5
review of rates is warranted.\48\ APGA asserts that the proposed rule
is an appropriate response to pipelines that seek clarification of the
Revised Policy Statement because pipelines can demonstrate the
applicability of the Commission's revised policy to their own
situations.
---------------------------------------------------------------------------

    \44\ NGSA Comments at 3, 5.
    \45\ APGA Comments at 5-7.
    \46\ CAPP Comments at 3-4, 7.
    \47\ Direct Energy Comments at 7.
    \48\ CAPP Comments at 7.
---------------------------------------------------------------------------

    40. Several commenters representing pipeline interests oppose the
implementation of the Revised Policy Statement in the proposed rule,
including INGAA, Enable Interstate Pipelines, Boardwalk, Spectra,
Kinder Morgan, Williams, Millennium, and Dominion Energy. These
commenters request that the Commission remove the requirements that MLP
pipelines and other pass-through pipelines (1) report an income tax
expense of zero in the FERC Form No. 501-G and (2) eliminate a tax
allowance in making a limited section 4 rate reduction filing.\49\
These commenters also request that the Commission clarify that pass-
through pipelines, including MLP pipelines, will be allowed to propose
and present evidence supporting an income tax allowance in future rate
proceedings.\50\ To support these positions, the pipelines (a) raise
various challenges to the Commission's response to United Airlines and
(b) identify various concerns with the implementation of those policies
in the NOPR. These arguments, and various requests for clarification,
are discussed below.
---------------------------------------------------------------------------

    \49\ INGAA Comments at 3, 11, 15, 17-18; Boardwalk Comments at
2; Spectra Comments at 16-17, 28; Kinder Morgan Comments at 21-23;
Williams Comments at 4, 14; Millennium Comments at 1-2; Dominion
Energy Comments at 2, 9; Enable Interstate Pipelines Comments at 28-
31.
    \50\ INGAA Comments at 3, 11, 18-19; Boardwalk Comments at 2, 5;
Spectra Comments at 4-5; Williams Comments at 14; Millennium
Comments at 1-2.
---------------------------------------------------------------------------

a. Challenges to the Commission's Response to United Airlines
    41. Pipeline commenters argue that the Revised Policy Statement is
not a binding rule with the force of law.\51\ They assert that under
the Administrative Procedure Act, the Commission must support the
policy with substantial evidence as if it had never been issued in
order to apply the policy as a substantive rule in this proceeding and
the Commission has not done so.\52\
---------------------------------------------------------------------------

    \51\ INGAA Comments at 2-3; Boardwalk Comments at 2; Williams
Comments at 4, 12; Millennium Comments at 1; Tallgrass Pipelines
Comments at 10; Dominion Energy Comments at 5-7.
    \52\ INGAA Comments at 16-18; Williams Comments at 4, 14-15;
Millennium Comments at 1.
---------------------------------------------------------------------------

    42. In addition, several pipeline commenters challenge the
Commission's Revised Policy Statement and Opinion No. 511-C, including
INGAA, Enable Interstate Pipelines, Boardwalk, Spectra, Kinder Morgan,
Williams, Tallgrass Pipelines, EQT Midstream, and Dominion Energy.\53\
These commenters assert that the Revised Policy Statement was not the
product of reasoned decision-making.\54\ Other commenters request that
the Commission resolve similar issues raised in requests for rehearing
of the Revised Policy Statement before natural gas pipelines are
required to file any information regarding the effects upon the
pipeline's cost of service.\55\
---------------------------------------------------------------------------

    \53\ INGAA, Enable, Spectra, Kinder Morgan, Tallgrass Pipelines,
EQT Midstream, and Dominion Energy filed requests for rehearing of
the Revised Policy Statement in Docket No. PL17-1.
    \54\ Dominion Energy Comments at 3; INGAA Comments at 2.
    \55\ Tallgrass Pipelines Comments at 4-9; EQT Midstream Comments
at 2, 6-8.
---------------------------------------------------------------------------

    43. Pipeline commenters argue that implementing the Revised Policy
Statement in this rulemaking proceeding will introduce uncertainty that
will delay resolution of the action to address the rate impact from the
Tax Cuts and Jobs Act. They state that removing the MLP pipeline and
pass-through income tax allowance issues from the proposed rule will
reduce the uncertainty associated with the proposed rule and allow
pipelines and their customers to focus on the potential rate reductions
resulting from the Tax Cuts and Jobs Act.\56\
---------------------------------------------------------------------------

    \56\ INGAA Comments at 3; Boardwalk Comments at 2; Tallgrass
Pipelines Comments at 4-9; EQT Midstream Comments at 2, 6-8.
---------------------------------------------------------------------------

b. Arguments Regarding the Implementation
    44. Commenters also raise concerns and request clarification
regarding the NOPR's proposed implementation of the Revised Policy
Statement.
    45. First, pipeline commenters argue that the proposed rule
improperly places the burden under NGA section 5

onto pass-through entities to justify a tax allowance.\57\
---------------------------------------------------------------------------

    \57\ INGAA Comments at 19-22; Enable Interstate Pipelines
Comments at 25-26; Kinder Morgan Comments at 19; Williams Comments
at 11; Millennium Comments at 7-8; TransCanada Comments at 9.
---------------------------------------------------------------------------

    46. Second, while generally supporting the proposal, APGA also
claims that proposed Sec.  154.404(a)(3) should be amended to replace
``partnership'' with ``partnership or other pass-through entity.'' APGA
argues that the proposed NOPR recognizes that partnerships or other
pass-through entities such as limited liability corporations must
address the double-recovery concern raised by United Airlines.\58\ APGA
also proposes that the Commission clarify that if a pass-through entity
files a written justification to preserve its tax allowance under the
limited section 4 option (Option 1), staff and intervenors may comment
or seek a hearing on that issue. APGA proposes to add a new subpart
(iv) to Sec.  154.404(e) that states ``Whether any justification
submitted pursuant to paragraph (a)(3)(ii) of this section is
consistent with Commission policy and the public interest.'' \59\
---------------------------------------------------------------------------

    \58\ APGA Comments at 6.
    \59\ Id.
---------------------------------------------------------------------------

    47. Finally, several pipeline commenters challenge the FERC Form
No. 501-G's assumption that a non-MLP pass-through pipeline's federal
and state tax allowance is zero.\60\ They request that the Commission
clarify that non-MLP pass-through entities, in particular those that
are owned, in whole or in part, by tax-paying corporate partners, may
continue to recover an income tax allowance.\61\ These commenters argue
that the assumed tax allowance of zero for pass-through entities is
unwarranted given that the Revised Policy Statement and Sec.
154.404(a)(3) of the proposed rule explicitly permit a non-MLP pass-
through entity to justify why it should continue to receive an income
tax allowance.\62\ They further claim that assuming a tax allowance of
zero for all pass-through pipelines will result in inaccuracies and
distortions of such pipeline's reported cost of service on the FERC
Form No. 501-G. They allege that such distortions could discourage
pipelines from making the limited section 4 filings,\63\ lead customers
to mistakenly conclude that these pipelines are over-earning,\64\ and
hinder settlement negotiations between pipelines and shippers.\65\
---------------------------------------------------------------------------

    \60\ INGAA Comments at 21; Enable Interstate Pipelines Comments
at 25-26; Spectra Comments at 5, 12, 18-20; Kinder Morgan Comments
at 14-23; Williams Comments at 4, 11; Millennium Comments at 7-9;
TransCanada Comments at 8-10; Tallgrass Pipelines Comments at 10-11;
EQT Midstream Comments at 6-7; Dominion Energy Comments at 5-6.
    \61\ INGAA Comments at 19-21; Enable Interstate Pipelines
Comments at 33; Kinder Morgan Comments at 17-18, 21-23; Millennium
Comments at 5-6.
    \62\ INGAA Comments at 19-21; Enable Interstate Pipelines
Comments at 25-26, 33; Spectra Comments at 12; Kinder Morgan
Comments at 2, 17-23; Williams Comments at 11; Millennium Comments
at 5-7, 9; TransCanada Comments at 3, 8-9; Tallgrass Pipelines
Comments at 10-11; EQT Midstream Comments at 6-7.
    \63\ INGAA Comments at 21; Millennium Comments at 6-7.
    \64\ INGAA Comments at 21; Spectra Comments at 18-19; Millennium
Comments at 9; Tallgrass Pipelines Comments at 10-11; Kinder Morgan
Comments at 15.
    \65\ Kinder Morgan Comments at 15.
---------------------------------------------------------------------------

    48. Regarding non-MLP pass-through entities, commenters support
these concerns with specific arguments and requests for clarification.
For instance, arguing that there is no double-recovery when a pass-
through entity is owned by a corporation, Millennium requests that a
partnership be permitted to include an income tax allowance on the FERC
Form No. 501-G and in the limited section 4 filings if such entity is
owned by corporations that incur an income tax liability before issuing
dividends to their shareholders.\66\ AGA requests that the Commission
clarify the proper reporting on FERC Form No. 501-G for a non-MLP pass-
through pipeline that is partly owned by at least one MLP and partly
owned by one or more corporations.\67\ Similarly, Spectra requests that
the Commission revise the FERC Form No. 501-G to allow joint venture
pipelines to include an income tax allowance or to reflect such
pipeline's ownership in the cost-of-service components.\68\
---------------------------------------------------------------------------

    \66\ Millennium Comments at 5-6.
    \67\ AGA Comments at 5-6.
    \68\ Spectra Comments at 28-29.
---------------------------------------------------------------------------

3. Discussion
    49. As discussed below, the Commission is revising proposed Sec.
154.404 so that MLP pipelines, like other pass-through entities,\69\
that choose Option 1 (limited section 4 rate filing) may reduce their
rates solely to reflect the Tax Cuts and Jobs Act without further
reducing rates for the elimination of the income tax allowance. The
Commission also provides clarification regarding the completion of FERC
Form No. 501-G and the permissible adjustments.
---------------------------------------------------------------------------

    \69\ A pass-through entity or pipeline refers to an entity that
does not pay taxes itself. As discussed below, in the Final Rule we
are revising Sec.  154.404 to provide that a natural gas company
organized as a pass-through entity whose income or losses are
included in the consolidated federal income tax return of its
corporate parent is considered to be subject to the federal
corporate income tax.
---------------------------------------------------------------------------

    50. Given these modifications, the Commission is not, in this
rulemaking proceeding, addressing the merits of either (1) the
Commission's holding in Opinion No. 511-C that an impermissible double
recovery results from granting an MLP pipeline both an income tax
allowance and a DCF ROE or (2) the similar policy the Commission
announced in the Revised Policy Statement. However, the binding
precedent of United Airlines and Opinion No. 511-C may be considered by
the Commission or any shipper when initiating any subsequent section 5
action, and we encourage pipelines to consider the guidance provided by
the Revised Policy Statement.
a. Limited Section 4 Filings
    51. In the Final Rule, the Commission modifies the proposed Sec.
154.404(a) permitting limited section 4 rate filings as follows
[deletions in italics, additions in underline]:

[GRAPHIC] [TIFF OMITTED] TR30JY18.000

    52. Pursuant to these revisions to Sec.  154.404(a), MLP pipelines
will have the same options as other pass-through entities in a limited
section 4 rate filing: Either to reduce their rates to reflect complete
elimination of the tax allowance or to reduce their rates only for the
Tax Cuts and Jobs Act without further reducing rates for the
elimination of their income tax allowance. Likewise, consistent with
the discussion in section IV.B.7, the Commission is also modifying the
proposed Sec.  154.404 so that a pipeline's limited NGA section 4
filing can reflect the elimination of ADIT as a result of the
elimination of an income tax allowance.
    53. The Commission expects that modifying proposed Sec.  154.404(a)
in this manner will help achieve Commission objectives. The Commission
seeks to encourage MLP pipelines (like all other pipeline entities) to
quickly reduce rates and to pass on the benefits of reduced tax costs
to customers without the need for a full examination of costs and
revenues. Allowing MLP pipelines the option to make a rate reduction
reflecting reduced tax rates under the Tax Cuts and Jobs Act while
still asserting eligibility for a tax allowance will incentivize more
pipelines to file the limited section 4 rate cases. Additionally, MLP
pipelines and other pass-through entities making the limited section 4
filing would be eligible for the moratoria on NGA section 5 rate
investigations discussed below. Although in a subsequent proceeding the
Commission (subject to the moratoria) or any shipper may take action
under NGA section 5 to further reduce an MLP pipeline's rates, we
believe providing pipelines flexibility in the limited NGA section 4
filing option will increase the probability that customers benefit from
an immediate rate reduction.\70\
---------------------------------------------------------------------------

    \70\ As discussed below, the Commission acknowledges that the
Revised Policy Statement's elimination of an income tax allowance
for MLP pipelines is not a binding rule, but an expression of policy
intent following the United Airlines decision. Pacific Gas &
Electric Co. v. FPC, 506 F.2d 33, 38 (D.C. Cir. 1974).
---------------------------------------------------------------------------

    54. Furthermore, we seek to avoid complicating the optional,
limited NGA section 4 proceedings. We recognize that the Revised Policy
Statement itself is guidance, not binding precedent. Although United
Airlines and Opinion No. 511-C are binding precedent,\71\ SFPP has
sought rehearing of that order, and other pipelines have raised issues
involving the Commission's income tax policies for pass-through
entities in comments in response to the NOPR. We decline to address
such matters in this rulemaking proceeding, particularly when the
Commission will be able to address these United Airlines issues, as
appropriate, when we address the pending request for rehearing of
Opinion No. 511-C and in any ensuing NGA section 5 investigation after
pipelines file their FERC Form No. 501-Gs as discussed below.
---------------------------------------------------------------------------

    \71\ In Pacific Gas & Electric Co., 506 F.2d at 33, 38, the D.C.
Circuit stated that the Commission may ``establish binding policy .
. . through adjudications which constitute binding precedent.'' See
Algonquin Gas Transmission, LLC, 153 FERC ] 61,038, at PP 29-37
(2015), and cases cited. Although Opinion No. 511-C is pending
rehearing, it remains binding precedent.
---------------------------------------------------------------------------

    55. Consistent with the modifications discussed above, we clarify
that an MLP pipeline or other pass-through entity's decision to submit
an optional limited NGA section 4 rate filing to reduce rates for the
Tax Cuts and Jobs Act, as opposed to eliminating its income tax
allowance, is not an issue that is within the scope of the limited NGA
section 4 proceeding. Permitting parties to challenge a pass-through
entity's choice to not eliminate its income tax allowance through its
limited NGA section 4 rate filing would undermine the Commission's
objectives in affording pass-through entities both options in the first
place, namely to encourage more entities to file limited NGA section 4
rate cases and expedite rate reductions. If an MLP pipeline or other
pass-through entity chooses to make the more limited rate reduction
reflecting reduced tax rates under the Tax Cuts and Jobs Act, the issue
of whether a further rate reduction is just and reasonable because the
entity should not recover any income tax allowance may arise in a
subsequent NGA section 5 proceeding, subject to the moratoria
provisions regarding Commission-initiated section

5 proceedings discussed below. Nonetheless, the Commission encourages
MLP pipelines to consider the guidance provided in the Revised Policy
Statement as well as the precedents of United Airlines and Opinion No.
511-C in evaluating the options available in Sec.  154.404.
    56. In response to the comments, the Commission also provides other
clarifications regarding the limited NGA section 4 filings. In response
to comments from APGA, we clarify that Sec.  154.404 applies to all
pass-through entities (such as limited liability corporations), not
merely partnerships, and we have modified Sec.  154.404 to replace the
reference to ``partnership'' with ``pass-through entity.'' We also add
language in Sec.  154.404(b) to clarify that, for purposes of making a
limited NGA section 4 filing under Sec.  154.404(a), a natural gas
company organized as a pass-through entity all of whose income or
losses are consolidated on the federal income tax return of its
corporate parent is considered to be subject to the federal corporate
income tax.\72\ Thus, such a natural gas company may make its limited
NGA section 4 filing pursuant to Sec.  154.404(a)(1), which is
applicable to natural gas companies subject to the federal corporate
income tax, rather than under Sec.  154.404(a)(2), which is applicable
to pass-through entities.\73\
---------------------------------------------------------------------------

    \72\ BP West Coast Products, LLC v. FERC, 374 F.3d 1263, at 1289
(D.C. Cir. 2004) (explaining that an income tax allowance is
appropriate in the cost of service of a pass-through subsidiary of a
corporation ``when such a subsidiary does not itself incur a tax
liability but generates one that might appear on a consolidated
return of the corporate group.'').
    \73\ Similarly, when filling out the FERC Form No. 501-G, such a
natural gas company may state that it is a tax paying entity, and
thus, as discussed below, the form will not automatically enter a
federal and state income tax of zero.
---------------------------------------------------------------------------

    57. In addition, the Commission eliminates any requirement as a
part of the limited NGA section 4 filing for a pass-through entity to
satisfy a burden of showing that it is entitled to receive any income
tax allowance. The Commission recognizes that it will have the burden,
in any proceeding it initiates under NGA section 5 to support complete
elimination of the existing tax allowance. Moreover, as discussed
below, any pass-through entity reporting an income tax allowance in an
optional Addendum to FERC Form No. 501-G may provide such explanation.
b. FERC Form No. 501-G and Addendum
    58. Although the Commission will permit all pass-through entities
to make limited NGA section 4 filings which only reduce their rates to
reflect the reduced income tax rates in the Tax Cuts and Jobs Act, the
Commission is continuing to design the FERC Form No. 501-G so that it
will automatically enter a federal and state income tax of zero for all
respondents that state they are not tax paying entities.\74\ However,
we clarify that a pass-through entity claiming a tax allowance may
submit an Addendum to the FERC Form No. 501-G that includes an income
tax allowance. Moreover, consistent with the discussion above, to the
extent a pipeline elects to make the optional limited NGA section 4
filing, the pipeline may use either (a) the FERC Form No. 501-G if it
proposes to eliminate its tax allowance or (b) the Addendum to the FERC
Form No. 501-G if it claims a tax allowance.\75\
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    \74\ However, as discussed below, consistent with the language
the Commission is adding to 154.404(b)(1), a natural gas company
organized as a pass-through entity all of whose income or losses are
consolidated on the federal income tax return of its corporate
parent is considered to be subject to the federal corporate income
tax for purposes of the FERC Form No. 501-G, and therefore the form
will not automatically enter a federal and state income tax of zero
for such a natural gas company. BP West Coast Products, LLC v. FERC,
374 F.3d 1263, at 1289 (D.C. Cir. 2004).
    \75\ As explained below, whether or not the pipeline uses FERC
Form No. 501-G or the optional Addendum, the limited NGA section 4
rate filing should only reflect the percent change to the pipeline's
cost of service resulting from the reduction in the pipeline's
income tax allowance and any corresponding adjustment to ADIT. In
the limited NGA section 4 filing, the pipeline cannot treat other
cost changes as offsetting the reduction to the income tax
allowance.
---------------------------------------------------------------------------

    59. The FERC Form No. 501-G will continue to require pass-through
entities to report an income tax allowance of zero, because this
informational filing is intended to aid the Commission's further
evaluation of a pipeline's cost of service given the double-recovery
concerns raised by United Airlines \76\ and Opinion No. 511-C.\77\ This
precedent provides that an MLP cannot claim an income tax allowance if
a double-recovery results from the inclusion of both (a) a DCF ROE and
(b) an income tax allowance. Although the Commission is not adopting
the NOPR proposal to require MLP pipelines to eliminate their tax
allowances in any limited NGA section 4 filing, Opinion No. 511-C
remains binding Commission precedent. Accordingly, if a pass-through
entity files a limited NGA section 4 filing reducing its rates to
reflect the Tax Cuts and Jobs Act without proposing to eliminate its
tax allowance, the Commission will consider whether to initiate an NGA
section 5 investigation to further reduce the pipeline's rates by
eliminating its tax allowance consistent with Opinion No. 511-C and
United Airlines, subject to the moratoria provisions regarding
Commission-initiated section 5 proceedings discussed below. In
addition, shippers have the option of bringing a complaint under NGA
section 5 and raising arguments based upon the United Airlines
Issuances. The elimination of the income tax allowance in the FERC Form
No. 501-G will help the Commission and pipeline customers assess the
potential effects of the removal of any income tax allowance as a
consequence of United Airlines' double-recovery concerns.
---------------------------------------------------------------------------

    \76\ United Airlines, 827 F.3d 122 at 134, 136.
    \77\ Opinion No. 511-C, 162 FERC ] 61,228.
---------------------------------------------------------------------------

    60. However, in an Addendum to FERC Form No. 501-G that pipelines
may choose to file along with their FERC Form No. 501-G, the Commission
will permit pass-through entities to report an income tax allowance
alongside the other adjustments to FERC Form No. 501-G. Any income tax
allowance reported in the Addendum should reflect the relevant tax
reductions resulting from the Tax Cuts and Jobs Act.\78\ We encourage
any pass-through entity reporting an income tax allowance in an
Addendum to FERC Form No. 501-G to support its calculation of that
income tax allowance, including showing where and how the income tax
liability is incurred.\79\ Some commenters argue that pass-through
entities have complex ownership forms which may be relevant to
assessing whether there is a double recovery of tax costs when
affording any such entity an income tax allowance in addition to a DCF
ROE.\80\ Although not required, in preparing any Addendum to FERC Form
No. 501-G, we encourage pass-through entities to provide any
information regarding their particular circumstances or ownership
structures that they consider relevant in assessing any potential
United Airlines double-recovery issue.
---------------------------------------------------------------------------

    \78\ The income tax allowance attributable to individual unit
holders should reflect the reduction in the tax rate applicable to
the taxpayer(s) and include any adjustment for the deduction for
section 199A ``qualified business income of pass-thru entities''
pursuant to the Tax Cuts and Jobs Act. See Tax Cuts and Jobs Act
11011, 131 Stat. at 2063.
    \79\ See, e.g., IRS Form 851: Affiliations Schedule; IRS Form
1122: Authorization and Consent of Subsidiary Corporation To Be
Included in a Consolidated Income Tax Return.
    \80\ See, e.g., Millennium Comments at 5-6; AGA Comments at 5-6.
---------------------------------------------------------------------------

    61. We emphasize that this one-time filing of FERC Form No. 501-G
and the Addendum are for informational purposes pursuant to NGA
sections 10 and 14. As discussed below, we also emphasize that in any
subsequent NGA section 5 proceeding initiated by the Commission
(regardless of the contents

of the FERC Form No. 501-G or the optional Addendum), the Commission
will have the burden under NGA section 5 to justify any changes to the
pipeline's rates.\81\
---------------------------------------------------------------------------

    \81\ Interstate Natural Gas Ass'n of America v. FERC, 285 F.3d
18, 38 (2002) (INGAA) (observed that the Commission would ``shoulder
the burden under [section] 5 of the NGA'' with respect to any rate
change and found ``no violation of the NGA'' with respect to ``the
Commission's determination to extract information from pipelines
relevant to the practical issues'').
---------------------------------------------------------------------------

c. Other Issues
    62. In response to the comments, we decline to clarify further our
income tax allowance policies for MLP pipelines or other pass-through
entities. As modified above, the rule does not require pass-through
entities to eliminate the income tax allowance in limited section 4
filings pursuant to Sec.  154.404 or in any subsequent rate proceeding.
As for the commenters' request to clarify whether pass-through entities
will be granted an income tax allowance in future rate proceedings, the
Commission will not speculate now on future potential actions. We
recognize that the Revised Policy Statement itself is guidance, not
binding precedent, but any participant in a subsequent rate proceeding
must be prepared to address the Opinion No. 511-C and United Airlines
precedent. Moreover, this binding precedent, as well as the
Commission's Revised Policy Statement, will be considered in any
subsequent section 5 action, whether initiated by the Commission or by
any shipper.

B. One-time Report

    63. In the NOPR, the Commission proposed to exercise its authority
under NGA sections 10(a) and 14(a) \82\ to require all interstate
natural gas pipelines that file a 2017 FERC Form No. 2 or 2-A to submit
an abbreviated cost and revenue study in a format similar to the cost
and revenue studies the Commission has attached to its orders
initiating NGA section 5 rate investigations in recent years.\83\ Using
the data in the pipelines' 2017 FERC Form Nos. 2 and 2-A, these studies
would estimate (1) the percentage reduction in the pipeline's cost of
service resulting from the Tax Cuts and Jobs Act and the Revised Policy
Statement, and (2) the pipeline's current ROEs before and after the
reduction in corporate income taxes and the elimination of income tax
allowances for MLP pipelines. The proposed One-time Report is an Excel
spreadsheet with formulas.
---------------------------------------------------------------------------

    \82\ See Tuscarora Gas Transmission Co., 154 FERC ] 61,273, at
PP 4-14 (2016) (requiring a pipeline to submit a more detailed cost
and revenue study than that which the Commission is proposing here).
    \83\ The Commission proposed to exempt from this requirement (1)
interstate natural gas pipelines whose rates are being examined in a
general NGA section 4 rate case or an NGA section 5 investigation
and (2) pipelines that file a pre-packaged uncontested rate
settlement before the deadline for their One-time Report.
---------------------------------------------------------------------------

    64. The Commission stated that the Commission and interested
parties could use this information in the One-time Report in
considering whether to initiate NGA section 5 rate investigations of
pipelines which do not opt to file a limited NGA section 4 to reduce
their rates or commit to make a general NGA section 4 filing by
December 31, 2018, and the order in which to initiate any such
investigations so as to make the most efficient use of the Commission's
and interested parties' resources to provide consumer benefits.
    65. The cost and revenue study required by the One-time Report
incorporates all the major cost components of a jurisdictional cost of
service, including: Administrative and General, Operation and
Maintenance, other taxes, depreciation and amortization expense, and
the return related components of ROE, interest expenses and income
taxes. Most of the required data is to be taken directly from the
respondent's 2017 FERC Form No. 2 or 2-A \84\ without modification.
However, the NOPR stated that, if a pipeline believes that this data
does not reflect its current situation, the pipeline may make
adjustments to individual line items in additional work sheets,
referred to below as an Addendum to the FERC Form No. 501-G. The NOPR
stated that all adjustments should be shown in a manner similar to that
required for adjustments to base period numbers provided in statements
and schedules required by sections 154.312 and 154.313 of the
Commission's regulations.
---------------------------------------------------------------------------

    \84\ FERC Form Nos. 2s (Annual report for Major natural gas
companies) and 2-As (Annual report for Nonmajor natural gas
companies) for calendar year 2017 were due April 18, 2018. 18 CFR
260.1(b)(2) & 260.2(b)(2).
---------------------------------------------------------------------------

    66. The NOPR also proposed an Implementation Guide for One-time
Report on Rate Effect of the Tax Cuts and Jobs Act (Implementation
Guide), providing additional guidance to parties as to the expected
data entries, including the proposed staggered compliance dates and the
list of companies for each of the four compliance periods.
1. Legal Authority
a. Comments
    67. Southern Star, TransCanada, and Enable Interstate Pipelines
question the Commission's legal authority to require the One-time
Report.\85\ They each raise the same argument: compelling a pipeline to
file the One-time Report is equivalent to compelling the pipeline to
initiate an NGA section 4 rate proceeding, which the Consumers court
case prohibits.\86\ Enable Interstate Pipelines note that the
``pipeline filing the form is not making a proposal to change rates
under NGA Section 4, justify its rates, or take any position regarding
its current or future rates.'' \87\ Enable Interstate Pipelines argue
that because the Commission has ``stated that it will `consider whether
to initiate an investigation under NGA Section 5 based upon the
`statement filed with the form,''' and because intervenors can ``make
any further comments that intervenors want,'' the effect is to
``require[] pipelines to justify their current rates through
statements.'' \88\
---------------------------------------------------------------------------

    \85\ Enable Interstate Pipelines Comments at 13-17; Southern
Star Comments at 3-5; TransCanada Comments at 4-7.
    \86\ Consumers Energy Co. v. FERC, 226 F.3d 777 (6th Cir. 2000)
(Consumers).
    \87\ Enable Interstate Pipelines Comments at 14.
    \88\ Enable Interstate Pipelines Comments at 15.
---------------------------------------------------------------------------

    68. Southern Star contends that, by permitting pipelines to make
adjustments to individual line items in the FERC Form No. 501-G on
additional worksheets and support those adjustments in a separate
document, the Commission is requiring pipelines to justify their
existing rates under the guise of an informational filing. Southern
Star states that making any such adjustments based on more recent data
would require the pipeline to make judgement calls with respect to data
sources and reliability of the type it makes in an NGA section 4 rate
filing.\89\
---------------------------------------------------------------------------

    \89\ Southern Star Comments at 3-4.
---------------------------------------------------------------------------

b. Discussion
    69. These comments misapprehend both the nature of the One-time
Report and the holding in Consumers. The primary purpose of the One-
time Report, together with any comments and protests to it, is to
provide information relevant to determining whether the Commission
should exercise its discretion to initiate an investigation under NGA
section 5 as to whether the subject interstate natural gas pipeline may
be collecting unjust and unreasonable rates in light of the recent
reduction in the corporate income tax rate and change in the
Commission's income tax allowance policies.\90\
---------------------------------------------------------------------------

    \90\ General Motors Corp v. FERC, 613 F.2d 939, 944 (D.C. Cir.
1979); Southern Union Gas Co., 840 F.2d 964, 968 (D.C. Cir. 1988);
see also Iroquois Gas Transmission System, L.P., 69 FERC ] 61,165,
at 61,631 (1994); JMC Power Projects v. Tennessee Gas Pipeline, Co.,
69 FERC ] 61,162 (1994), reh'g denied, 70 FERC ] 61,168, at 61,528
(1995), affirmed, Ocean States Power v. FERC, 84 F.3d 1453 (D.C.
Cir. 1996) (unpublished opinion).

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

    70. The Commission routinely initiates NGA section 5 investigations
``based upon our review of publicly available information on file with
the Commission.'' \91\ The court in Consumers did not prohibit such
information collection; to the contrary, it condoned information
collection.\92\ The limitation that Consumers placed is that the
Commission must act ``with clarity and precision'' so as to ensure that
any directive for the pipeline to make ``informational filings'' is
just that, and not an NGA section 4 filing to ``justify its current
rate.'' \93\
---------------------------------------------------------------------------

    \91\ See, e.g., Natural Gas Pipeline Co. of America LLC, 158
FERC ] 61,044 at P 1; Wyoming Interstate Co., L.L.C., 158 FERC ]
61,040 at P 1; Tuscarora Gas Transmission Co., 154 FERC ] 61,030 at
P 1, reh'g denied, 154 FERC ] 61,273.
    \92\ Consumers, 226 F.3d at 777 (``Should FERC wish [the
pipeline] to make periodic informational filings, it may of course
so require pursuant to [section] 10a of the NGA.'').
    \93\ Id. at 781.
---------------------------------------------------------------------------

    71. Indeed, this Final Rule is patterned on the Commission's
successful method of collecting information from the Hinshaw pipelines
that were specifically at issue in Consumers. For the past decade,
instead of requiring Hinshaw pipelines to periodically file to justify
their current rates, the Commission now requires Hinshaw pipelines to
periodically ``file with the Commission an informational filing with
cost, throughput, revenue and other data, in the form specified in
Sec.  154.313 of the Commission's regulations.'' \94\ These five-year
review filings are docketed and noticed, and parties may intervene,
comment, and protest.\95\ The Commission expressly warns Hinshaw
pipelines that the Commission will use that informational filing ``to
determine whether any change in [the pipeline's] interstate
transportation or storage rates should be ordered pursuant to section 5
of the Natural Gas Act.'' \96\ This two-step process allows the
Commission to collect cost-of-service data consistent with NGA section
10(a), which the Commission may rely upon in deciding whether to
exercise its discretion to initiate an investigation of the Hinshaw
pipeline's rates pursuant to NGA section 5. The Hinshaw pipeline is
free, if it so chooses, to propose to modify its rates under NGA
section 4, based on the cost and revenue information in the study
submitted to the Commission. Absent such a voluntary section 4 filing,
no change in the Hinshaw pipeline's rates will occur, without the
Commission satisfying its burden of persuasion under NGA section 5.
---------------------------------------------------------------------------

    \94\ See, e.g., Hattiesburg Industrial Gas Sales, L.L.C., 134
FERC ] 61,236 at P 13 (imposing a five-year rate review requirement
on Hattiesburg Industrial Gas Sales, L.L.C.).
    \95\ Narragansett Electric Co., 155 FERC ] 61,159, at P 2 & n.15
(2016).
    \96\ Id.
---------------------------------------------------------------------------

    72. The One-time Report, adopted in this Final Rule, will operate
in a similar fashion. The Final Rule permits an interstate natural gas
pipeline, if it so chooses, to submit a limited NGA section 4 filing
reducing its rates to reflect the income tax reductions in the Tax Cuts
and Jobs Act or following the United Airlines Issuances, using the
information in the One-time Report.\97\ However, the Final Rule
contains no requirement that an interstate pipeline make any form of
rate filing. Indeed, as discussed further below, the Final Rule
expressly permits interstate pipelines to take no action other than
submitting the required One-time Report in order to avoid any
implication that the Commission is requiring interstate pipelines to
make an NGA section 4 rate change filing, contrary to the decision of
the United States Court of Appeals for the D.C. Circuit in Public
Service Commission of New York v. FERC \98\ that the Commission may not
require pipelines to file rate cases under NGA section 4.
---------------------------------------------------------------------------

    \97\ An interstate pipeline may also file a general NGA section
4 rate case. However, such a filing would not use the information in
the One-time Report. Rather, a pipeline submitting a general section
4 rate case would be required to submit the statements and schedules
set forth in 18 CFR 154.312 or 313.
    \98\ 866 F.2d 487 (D.C. Cir. 1989).
---------------------------------------------------------------------------

    73. The Commission rejects Southern Star's contention that the
Commission is requiring pipelines to justify their existing rates under
the guise of an informational filing by permitting pipelines to make
adjustments to individual line items in the FERC Form No. 501-G on
additional worksheets. The FERC Form No. 501-G requires interstate
natural gas pipelines to develop a cost and revenue study in which most
of the data is taken directly from the pipeline's FERC Form No. 2 or 2-
A without modification. Using formulas that are incorporated into the
form that may not be changed by the pipeline, the FERC Form No. 501-G
produces a cost and revenue study in a format similar to the cost and
revenue studies the Commission has used in recent years to determine
whether to initiate NGA section 5 rate investigations of individual
pipelines. As Southern Star and other pipelines recognize, pipelines
have little discretion in how they fill out the FERC Form No. 501-
G.\99\ However, the Commission recognizes that the 2017 calendar year
data reported in the pipeline's FERC Form No. 2 or 2-A may not be fully
representative of the pipeline's current situation when it files the
FERC Form No. 501-G in the fall of 2018. For example, shippers may have
left the system after their contracts expired, the pipeline may have
been unsuccessful in remarketing its capacity, or the pipeline may have
restructured. Accordingly, the Commission is providing pipelines the
opportunity to inform both it and other parties of significant changes
in their situation by filing an Addendum to the FERC Form No. 501-G.
The filing of such an Addendum is purely voluntary, but the information
in such an Addendum should assist the Commission in determining what
further steps to take with respect to the pipeline in question.
---------------------------------------------------------------------------

    \99\ See Southern Star Comments at 7.
---------------------------------------------------------------------------

    74. The Commission recognizes that deciding what information, if
any, to include in an Addendum to the FERC Form No. 501-G may require
the pipeline to exercise some degree of judgment. However, that fact
does not require the pipeline to make the equivalent of an NGA section
4 rate filing or improperly shift to the pipeline the burden of
justifying its existing rates in violation of NGA section 5. In INGAA,
the D.C. Circuit rejected a contention similar to the one made here by
Southern Star. The Commission in Order No. 637 had directed each
pipeline to file pro forma tariff sheets showing how it intended to
comply with a regulation requiring pipelines to permit segmentation
\100\ or to explain why its system's configuration justified curtailing
segmentation rights. As in this rulemaking proceeding, the pipelines in
the Order No. 637 proceeding contended that requiring them to submit
these filings impermissibly shifted the burden of proof, and the
Commission had in essence required pipelines to make NGA section 4
filings to defend their current rates. The court rejected this
argument, finding that the Commission had stated that it ``will indeed
shoulder the burden under [section] 5 of the NGA.'' \101\ As pertinent
here, the court expressly stated that:
---------------------------------------------------------------------------

    \100\ 18 CFR 284.7(d) (2011).
    \101\ INGAA, 285 F.3d at 38.

    As to the Commission's determination to extract information from
pipelines relevant to the practical issues, we see no violation of
the NGA. The Commission has authority under [section] 5 to order
hearings to determine whether a given pipeline is in compliance with
FERC's rules, 15 U.S.C. [ ] 717d(a), and under [section] 10 and
[section]

14 to require pipelines to submit needed information for making its
[section] 5 decisions, 15 U.S.C. [ ] 717i & 717m(c).\102\
---------------------------------------------------------------------------

    \102\ Id. (emphasis added).

    75. The Commission's decision in this Final Rule to authorize
pipelines to submit an Addendum with their FERC Form No. 501-G fits
even more easily with our NGA sections 10 and 14 information collection
authority than Order No. 637's directive, affirmed in INGAA, that
pipelines file pro forma tariff sheets showing how they intended to
comply with the new segmentation regulation or explain why they should
be exempted from that requirement. A pipeline's filing of an Addendum
to the FERC Form No. 501-G is voluntary, unlike Order No. 637's
mandatory requirement for each pipeline to state in its compliance
proceeding how it believed shippers on its system should be permitted
to segment their capacity in light of the operational requirements of
their systems and to propose specific tariff language implementing the
pipeline's proposed segmentation plan.\103\
---------------------------------------------------------------------------

    \103\ See, e.g., Columbia Gas Transmission Corp., 100 FERC ]
61,084, at PP 12-14 (2002), in which the pipeline described how its
segmentation proposal complied with Order No. 637 in light of the
operational characteristics of its system.
---------------------------------------------------------------------------

    76. Moreover, in this Final Rule, unlike in Order No. 637, we have
not yet initiated any investigation of a pipeline's rates under NGA
section 5. The Commission will review each pipeline's FERC Form No.
501-G and Addendum not to set rates (absent a voluntary limited NGA
section 4 filing), but to determine whether to exercise our discretion
to initiate a rate investigation under NGA section 5. If we decide
based on the information in the One-time Report to initiate a section 5
investigation, we will, as in the Order No. 637 compliance filings
addressed in INGAA, ``shoulder the burden under [section] 5 of the
NGA.'' We discuss further details of the procedures to be used in
addressing the pipeline One-time Reports below.
2. Burden of Proof
a. Comments
    77. Several commenters request confirmation that filing the FERC
Form No. 501-G will not affect the burden of proof in future NGA
section 4 or 5 rate proceedings, be used as evidence against or a
concession by the pipeline, limit the pipeline's ability to take
contrary positions in the future, or otherwise constitute
estoppel.\104\ Commenters note that the Commission is collecting this
information under its NGA sections 10 and 14 authority, not its NGA
section 4 or 5 authority. Commenters also argue that, because the FERC
Form No. 501-G ``hard-wires'' certain components of a pipeline's actual
cost of service, such information would be inaccurate if used in a
general ratemaking proceeding.\105\
---------------------------------------------------------------------------

    \104\ EQT Midstream Comments at 20; Spectra Comments at 11-12;
Tallgrass Pipelines Comments at 23-24; TransCanada Comments at 16.
    \105\ Spectra Comments at 12.
---------------------------------------------------------------------------

b. Discussion
    78. We clarify that statements in a FERC Form No. 501-G will
constitute a valid form of evidence, as noted below, but will not
otherwise bind or estop a pipeline in future proceedings. Most
obviously, if a pipeline elects Option 1, the special limited NGA
section 4 rate proceeding based upon the FERC Form No. 501-G, the One-
time Report, including any adjustments the pipeline proposes, will
constitute a major part of its case in chief.\106\ We also clarify that
the FERC Form No. 501-G can be used as evidence to the exact same
extent that any other Commission form can be used as evidence. A
pipeline will be responsible for the truthfulness of statements it
makes in the One-time Report, but those statements must be evaluated in
context, representing a necessarily incomplete picture of the company,
under the constraints that are inherent in any one-size-fits-all form.
---------------------------------------------------------------------------

    \106\ See NOPR, FERC Stats. & Regs. ] 32,725 at PP 43-44.
---------------------------------------------------------------------------

    79. Although the Commission and other stakeholders will use
information in the FERC Form No. 501-G, together with any other
information provided by the pipelines and commenters, in deciding
whether to initiate a section 5 proceeding to further investigate the
justness and reasonableness of the pipeline's rates, the Commission or
complainant will still bear the burden of proof in section 5
proceedings. Furthermore, the pipeline will be free to argue that the
information it provided in the FERC Form No. 501-G is unrepresentative
of its true cost of service; those statements will not otherwise limit
or estop the pipeline in future proceedings.
3. Docketing and Comments
    80. The Commission proposed to assign each pipeline's FERC Form No.
501-G filing an RP docket number and to notice the filing providing for
interventions and protests. Based on the information in that form,
together with any statement filed with the form and comments by
intervenors, the Commission stated that it will consider whether to
initiate an investigation under NGA section 5 of those pipelines that
have not filed a limited NGA section 4 rate reduction filing or
committed to file a general NGA section 4 rate case.\107\ The
Commission also stated that, if the pipeline makes a limited NGA
section 4 filing to reduce its rates to reflect the reduced income
taxes in the Tax Cuts and Jobs Act, the Commission would assign the
limited section 4 filing a separate docket number.\108\
---------------------------------------------------------------------------

    \107\ Id. P 29.
    \108\ Id. P 64.
---------------------------------------------------------------------------

a. Comments
    81. INGAA, Boardwalk, Williams, Spectra, Southern Star, and EQT
Midstream argue that the Commission should eliminate the NOPR's
proposal to assign each pipeline's FERC Form No. 501-G filing an RP
docket number. The Commission, they continue, does not assign docket
numbers to FERC Form No. 2 and other similar informational filings, nor
does it subject these filings to intervention and protest. They further
argue that the NOPR provides no basis for modifying this practice
solely for the FERC Form No. 501-G reports, and there is no statutory
authorization for treating a FERC Form No. 501-G submission as a rate
filing pursuant to NGA sections 4 or 5.
    82. These commenters also object to the Commission's proposal to
formally notice and permit shippers to intervene and protest the
filings. Boardwalk believes that the NOPR offered no basis for allowing
protests to FERC Form No. 501-G filings. INGAA, Boardwalk, and Spectra
state that this proposal ignores that the submission of FERC Form No.
501-G is not a voluntary rate filing by the pipeline subject to the
Commission's approval pursuant to NGA section 4, nor is the FERC Form
No. 501-G submission a response to Commission action under NGA section
5. They argue that the NOPR's proposal to allow protests to the FERC
Form No. 501-G risks upsetting these fundamental requirements of the
NGA, because the NOPR appears to contemplate that the dockets created
for the informational FERC Form No. 501-G submission could be turned
into rate proceedings without meeting the statutory standards of NGA
sections 4 or 5. Thus, INGAA and Southern Star continue, pipelines will
necessarily respond to any protest, converting an informational filing
into a de facto rate filing. Southern Star concludes by stating that
the Commission should treat the FERC Form No. 501-G filing similar to a
FERC Form No. 2 filing and not permit intervention and comments.
    83. These parties also assert that the proposal to allow
interventions and

protests of FERC Form No. 501-G filings is unnecessary and duplicative.
INGAA, Boardwalk, and EQT Midstream argue that shippers can use FERC
Form No. 501-G as a tool to assist their determination of whether to
initiate NGA section 5 rate cases requesting reductions in pipelines'
rates, in a separate proceeding. INGAA and Spectra also speculate that
the Commission may be inviting duplicative and confusing efforts if
pipelines subsequently file an actual rate proceeding. Similarly,
Williams urges the Commission to not allow interventions and protests
to the pipeline's filing of the report itself. Williams argues that
foreclosing comments to the FERC Form No. 501-G would not leave
shippers without a forum for stating their views on a pipeline's FERC
Form No. 501-G filings.
b. Discussion
    84. The Commission adopts the NOPR proposal to require pipelines to
file FERC Form No. 501-G through eTariff,\109\ assign each filing a
separate RP root docket number, and notice the filing for
interventions, comments, and protests. This method of processing the
FERC Form No. 501-G does not convert the form into an NGA section 4
filing, nor do the results of FERC Form No. 501-G constitute a finding
that the filer's rates are no longer just and reasonable or establish
new just and reasonable rates pursuant to NGA section 5.
---------------------------------------------------------------------------

    \109\ The Commission established eTariff Type of Filing Code
(ToFC) 1430 for FERC Form No. 501-G filings.
---------------------------------------------------------------------------

    85. Contrary to some commenters' concerns, there is no NGA-required
relationship between the assignment of a particular docket prefix and a
particular provision of the statute. Docketing is a Commission
administrative tool used to control workflow. Under NGA section 16, the
Commission has the general statutory authority ``to perform any and all
acts, and to prescribe, issue, make, amend and rescind such orders,
rules and regulations as it may find necessary or appropriate to carry
out the provisions of this act.'' \110\ Docketing FERC Form No. 501-G
filings is an administrative function which creates no presumption that
the filing is pursuant to NGA sections 4 or 5.
---------------------------------------------------------------------------

    \110\ Such broad grants of authority have been held ``not
restricted to procedural minutiae, and [to] . . . authorize means of
regulation not spelled out in detail, provided the agency's action
conforms with the purposes and policies of Congress and does not
contravene any terms of the Act.'' Mesa Petroleum Co. v. F.P.C., 441
F.2d 182, 187 (5th Cir. 1971) (citing Niagara Mohawk Power Corp. v.
F.P.C., 379 F.2d 158). See also Public Service Comm'n of State of
N.Y. v. F.P.C., 327 F.2d 893, 897 (D.C. Cir. 1964). (NGA Section 16
provides a basis for the Commission to cope with unforeseen
problems, and is not confined to procedural regulations, but is a
broad grant of authority).
---------------------------------------------------------------------------

    86. The commenters also argue that the proposed notice and
opportunity for others to comment on the FERC Form No. 501-G filings is
without precedent, and converts the filing of a financial report into a
de facto NGA section 4 or 5 proceeding.
    87. The proposed FERC Form No. 501-G, together with any comments
and protests, is intended to assist the Commission in determining
whether to initiate an investigation under NGA section 5 as to whether
the subject jurisdictional natural gas pipeline may be collecting
unjust and unreasonable rates in light of the recent reduction in the
corporate income tax rate and change in the Commission's income tax
allowance policies. Thus, the filing of the FERC Form No. 501-G does
not itself initiate an NGA section 5 investigation, but rather gives
all parties an opportunity to advise the Commission on whether it
should initiate such an investigation.
    88. The pipeline's filing of the FERC Form No. 501-G, together with
any Addendum proposing adjustments to reflect updated information,
gives the pipeline an opportunity to explain why no further
investigation is needed. Noticing the pipeline's filing for comment and
protest allows other interested parties to state their views as to
whether an investigation is needed. As the commenters have noted, the
Commission cannot simply require a pipeline to reduce its rates
consistent with a known reduction in a single cost component of a cost-
based rate. The Commission must look at other factors, including
whether the pipeline is over recovering its overall cost of service and
the applicability of any settlement rate moratorium. These other
factors are not limited to those of interest to pipelines. Shippers and
customers pay these cost-based rates and, for some pipelines, are
parties to rate settlements. These parties also have an interest in
whether the currently effective rates are no longer just and
reasonable. The Commission believes allowing the parties to file
comments will create a more complete record. That record will permit
the Commission to better evaluate the pipelines' FERC Form No. 501-G
filings and any additional statements or material that pipelines may
file in determining whether to exercise its discretion to initiate an
investigation of the pipeline's rates under NGA section 5.
    89. If the Commission does decide to initiate an NGA section 5
investigation, it will issue an order establishing a proceeding for
that purpose, similar to prior orders establishing NGA section 5
investigations of natural gas pipeline rates.\111\ Thus, the Commission
will require the pipeline to submit a cost and revenue study based on
cost and revenue information for the latest 12-month period available.
That cost and revenue study, not the FERC Form No. 501-G based on 2017
FERC Form No. 2 or 2-A data, will provide the evidentiary starting
point for the actual NGA section 5 rate investigation. In short, the
FERC Form No. 501-G, together with comments and protests thereto, will
assist the Commission in evaluating whether to initiate a section 5
investigation, but will not be the record basis for any actual order
requiring the pipeline to modify its rates pursuant to NGA section 5. A
subsequent hearing ordered by the Commission will be necessary to
develop the record on which any NGA section 5 action would be taken.
The Commission agrees with the parties that such determinations must be
performed on a pipeline-by-pipeline basis.
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    \111\ See cases cited supra note 22.
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    90. The second purpose of the FERC Form No. 501-G, together with
any adjustments the pipeline may propose, is to serve as the
evidentiary support for any limited NGA section 4 filing the pipeline
may propose pursuant to this rule to reduce its rates to reflect the
reduced income taxes under the Tax Cuts and Jobs Act and/or the United
Airlines Issuances. As proposed by the NOPR, the Commission will assign
a separate docket number to any such limited NGA section 4 filing,\112\
and thus the limited NGA section 4 filing, and any protests thereto,
will be considered in a separate proceeding from the docket established
for the FERC Form No. 501-G itself.
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    \112\ See NOPR, FERC Stats. & Regs. ] 32,725 at P 64
(establishing an eTariff ToFC 1440 for the limited NGA section 4
filings, separate from the ToFC for the FERC Form No. 501-G
filings). These different filing codes will produce separate root
docket numbers for the two types of filing.
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    91. Therefore, the proposed process adopted here, contrary to the
concerns of these commenters, is not a requirement for the pipelines to
file an NGA section 4 rate case, nor are the results from FERC Form No.
501-G a finding that the current rate is not just and reasonable or the
specification of a new just and reasonable rate pursuant to NGA section
5. However, the process the Commission is adopting is intended to help
identify which pipelines deserve closer attention.
    92. Some commenters believe that permitting parties to comment on

pipelines' FERC Form No. 501-G reports may be duplicative.
Notwithstanding this possibility, we believe there is value in
providing interested parties an opportunity to comment on a pipeline's
FERC Form No. 501-G report, even if they might raise similar arguments
later, should the Commission decide to initiate additional proceedings.
4. Rights of Intervenors
    93. In the NOPR, the Commission stated:

    The Commission will assign each pipeline's filing of the FERC
Form No. 501-G an RP docket number and notice the filing providing
for interventions and protests. Based on the information in that
form, together with any statement filed with the form and comments
by intervenors, the Commission will consider whether to initiate an
investigation under NGA section 5 of those pipelines that have not
filed a limited NGA section 4 rate reduction filing or committed to
file a general NGA section 4 rate case.\113\
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    \113\ NOPR, FERC Stats. & Regs. ] 32,725 at P 29.
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a. Comments
    94. In addition to the comments discussed above, LDC Coalition
raises several questions about the role of parties intervening in One-
time Report dockets. In particular, in the event that a party has
questions or concerns about a given One-time Report, LDC Coalition
asks:

    Will Commission Staff have access to the deficiency notice
process?
    Does the Commission contemplate setting One-time Report
proceedings for technical conference, hearing, and/or settlement
judge proceedings?
    Will parties have the ability to seek discovery from the
pipeline on its FERC Form No. 501-G inputs and calculations even
before the Commission sets a One-time Report for technical
conference, hearing, or settlement judge procedures?
    Will the Commission issue an Order in response to each FERC Form
No. 501-G filing either closing out the proceeding or continuing the
review in that or another docket?
    If the Commission intends to issue an order in each docket, will
it state an expected timeline for doing so to provide customers
certainty about the process?
    What actions will the Commission take if a pipeline does not
submit an NGA section 4 filing or pre-filing settlement by the
proposed deadline of December 31, 2018?
    What options do the Commission and pipeline customers have if a
pipeline fails to timely submit a FERC Form No. 501-G or does not
strictly follow Commission guidance in completing a submitted form?
\114\
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    \114\ LDC Coalition Comments at 12.
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b. Discussion
    95. We clarify that Subpart B of the Commission's Rules of Practice
and Procedure \115\ does not apply to the various reports required by
Part 260 of the Commission's regulations. Rule 201 provides that
Subpart B of the Rules of Practice and Procedure apply ``to any
pleading, tariff or rate filing, notice of tariff or rate examination,
order to show cause, intervention, or summary disposition;'' \116\ Part
260 reports fall into none of those categories. Therefore, the
Commission clarifies the procedures to be used in noticing pipelines'
filings of the FERC Form No. 501-G for intervention, protest, and
comment, as well as addressing LDC Coalition's other procedural
questions.
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    \115\ 18 CFR part 385.
    \116\ 18 CFR 385.201.
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    96. First, the Commission is revising the Implementation Guide for
the FERC Form No. 501-G to provide that the Secretary will issue a
notice of each pipeline's filing of its FERC Form No. 501-G, consistent
with Sec.  385.210 of the Commission's Rules of Practice and
Procedure.\117\ Unless the notice provides otherwise, interventions,
protests, and comments will be due not later than 12 days after the
filing of the subject FERC Form No. 501-G. This will mean that such
interventions, protests, and comments will be due on the same day as
interventions, protests, and comments are due on any limited NGA
section 4 filing accompanying the FERC Form No. 501-G, as provided by
Sec.  154.210 of the Commission's Rules of Practice and Procedure. As
revised, the Implementation Guide also states that interventions will
be governed by Sec.  385.214 of the Commission's Rules of Practice and
Procedure,\118\ and protests will be governed by Sec.  385.211.\119\
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    \117\ 18 CFR 385.210.
    \118\ 18 CFR 385.214.
    \119\ 18 CFR 385.211.
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    97. Proceeding to LDC Coalition's list of questions, we clarify
that Commission staff may issue data requests to pipelines if it
identifies problems with their FERC Form No. 501-G.\120\ However, the
Commission will not set One-time Report proceedings for technical
conference, hearing, and/or settlement judge proceedings, nor will it
allow discovery; such actions would only be appropriate in the context
of an NGA section 4 or 5 rate proceeding. The purpose of publicly
docketing the One-time Reports is not to conduct a rate proceeding, but
rather to allow for public discussion of whether the Commission should
exercise its discretion to initiate an NGA section 5 investigation of
the subject pipeline's existing rates because of the Tax Cuts and Jobs
Act's reduction in income taxes or the United Airlines Issuances.
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    \120\ See 18 CFR 375.307(b)(3)(ii) (delegating to the Office of
Energy Market Regulation the authority to ``Issue and sign requests
for additional information regarding applications, filings, reports
and data processed by the Office of Energy Market Regulation.'').
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    98. If the Commission decides to initiate a section 5
investigation, it will, as described above, issue an order establishing
a hearing under NGA section 5. If the Commission determines that the
information in a pipeline's FERC Form No. 501-G does not justify
initiating such an NGA section 5 proceeding, the Commission will issue
a notice accepting the pipeline's One-time Report. That notice shall
close the One-time Report proceeding. But the act of acceptance shall
only constitute assurance that the Commission accepts the report, and
does not constitute a statement or action on the pipeline's rates, nor
does it foreclose the Commission from initiating a future NGA section 5
investigation based upon new information such as the pipeline's future
FERC Form No. 2 or 2-A reports or for other reasons. The Commission
will not establish a formal deadline for acting on each One-time
Report, but will act as promptly as possible on all filings in order to
promote rate certainty for pipelines and customers.
    99. If a pipeline refuses to promptly submit a One-time Report, or
to correct a patently erroneous or incomplete One-time Report, the
Commission could consider the pipeline to be in violation of its
reporting obligation.\121\ Likewise, if a pipeline commits to submit an
NGA section 4 filing or pre-filing settlement by the proposed deadline
of December 31, 2018, but fails to do so, the Commission could consider
the pipeline to be in violation of its reporting obligation.
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    \121\ 15 U.S.C. 717t.
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5. Use of 10.55 Percent Indicative Return on Equity
    100. A cost and revenue study requires an indicative return on
equity (ROE). In the proposed FERC Form No. 501-G, the Commission used,
consistent with Commission practice, the last litigated ROE applicable
to situations involving existing plant.\122\ The last litigated ROE was
in El Paso, wherein the Commission adopted a ROE of 10.55 percent.\123\
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    \122\ See, e.g., Southern Natural Gas Co. L.L.C., 139 FERC ]
61,237, at P 154 (2012); Alliance Pipeline L.P., 140 FERC ] 61,212,
at P 20 (2012); Northern Natural Gas Co., 119 FERC ] 61,035, at P 37
(2007).
    \123\ El Paso Natural Gas Co., Opinion No. 528, 145 FERC ]
61,040, at P 642 (2013), reh'g denied, Opinion No. 528-A, 154 FERC ]
61,120 (2016) (El Paso).

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a. Comments
    101. The Pipeline Commenters\124\ argue that use of an indicative
ROE of 10.55 percent in the FERC Form No. 501-G is arbitrary and
capricious. They note that the El Paso ROE is based on test period data
that is now about seven years old, that the Commission has not shown
that the financial data underlying that proceeding is currently
representative for any pipeline, let alone for all pipelines, and the
indicative ROE is artificially low. Further, they contend that El Paso
is not final as it has not been reviewed by the Court of Appeals.
Citing previous Commission NGA section 5 show cause proceedings, Kinder
Morgan argues that the Commission has not previously required pipelines
to propose a ROE. The Pipeline Commenters request that the Commission
clarify that the 10.55 percent ROE is to be used only for the purposes
of completing FERC Form No. 501-G, and is not an indicative ROE or
reflective of the ROE that would be determined in a general rate case
proceeding. Dominion Energy, Spectra and Tallgrass request that
pipelines be permitted to use their own ROEs.
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    \124\ INGAA, Southern Star, Boardwalk, Dominion Energy,
Williams, Tallgrass Pipelines, TransCanada, Enable Interstate
Pipelines, Kinder Morgan, and Spectra.
---------------------------------------------------------------------------

    102. Enable Interstate Pipelines argue that the Commission should
permit ROEs derived during a rate proceeding or established pursuant to
approved settlements that were used to set their current rates, or rely
upon the methodology used to set such ROEs. Enable Interstate Pipelines
also argue that if pass-through entities are not permitted to report an
income tax allowance on the FERC Form No. 501-G, the Commission must
increase the allowable ROE for such pipelines to allow them to report a
higher ROE than corporate pipelines on the form. Alternatively, Enable
Interstate Pipelines argue that the Commission should adjust the ROE
upwards by eliminating the reduction in long-term growth rates for MLP
pipelines.
b. Discussion
    103. The Commission adopts the NOPR's proposal to require that each
pipeline's FERC Form No. 501-G be completed using an indicative ROE of
10.55 percent, consistent with the ROE determined in El Paso, the last
rate case where that issue was fully litigated. 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) to support any 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.
    104. 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. The data in the FERC Form No. 501-G, including the
indicative ROE, will not be used to actually establish rates in any NGA
section 5 investigation that the Commission may initiate. Rather, any
rates determined in an NGA section 5 investigation, including ROE, will
be based on the record developed in any hearing established by the
Commission, and in such a hearing, the Commission will have the burden
of persuasion under NGA section 5 on all issues, including ROE.
    105. In addition, although the Commission recognizes that the 10.55
percent ROE determined in El Paso was based on financial data from
2011, no commenter has provided any updated ROE analysis using current
financial data that the Commission could use in the FERC Form No. 501-G
in place of the El Paso ROE. There is thus nothing in the comments to
show that an updated ROE analysis would produce a significantly
different ROE than that approved in El Paso. Instead, pipeline
commenters request that they be permitted to use their own ROEs or ROEs
derived in a rate proceeding or established pursuant to approved
settlements. However, the last rate cases of many pipelines occurred as
long ago as, or even before, the El Paso rate case. Moreover, many
settlements are ``black box'' settlements that do not have a ROE. In
these circumstances, the Commission finds that using the El Paso 10.55
percent ROE as the indicative ROE in all pipelines' FERC Form No. 501-G
is preferable to pipelines using a variety of ROEs, which they claim
represent their currently approved ROEs, but which in almost all cases
were not fully litigated, in contrast to the El Paso ROE, and may be as
old or older than the 10.55 percent El Paso ROE. However, if a pipeline
believes that the 10.55 percent El Paso ROE does not represent a
reasonable ROE for its system in light of its current circumstances,
the pipeline may file an alternative ROE, together with support for
that ROE as described below, as part of its Addendum to the required
FERC Form No. 501-G.
    106. The FERC Form No. 501-G does serve a ratemaking purpose in the
narrow situation when it is used as support for the limited NGA section
4 filing this Final Rule authorizes a pipeline to voluntarily make to
reduce its rates to reflect the Tax Cuts and Jobs Act or the United
Airlines Issuances. Our requirement that pipelines use the El Paso
10.55 percent ROE in filling out the FERC Form No. 501-G does not mean
that they must use that ROE in a limited section 4 filing. As just
described, the pipeline may submit an Addendum with its FERC Form No.
501-G setting forth an alternative ROE and use that ROE in calculating
its proposed percentage rate reduction in its limited NGA section 4
rate filing. When a pipeline proposes such an alternative ROE in a
limited section 4 rate filing, the Commission would expect the pipeline
to provide full support for its proposed ROE, including a Discounted
Cash Flow (DCF) analysis of a proxy group consistent with Commission
policy. Such support is not necessary if the pipeline proposes to
reduce its rates by a percentage calculated consistent with the FERC
Form No. 501-G, without any Addendum.
6. Use of Stated Capital Structure
    107. In the NOPR, the Commission stated that the established policy
in rate cases is that a company may use its actual capital structure
only if it ``(1) issues its own debt without guarantees, (2) has its
own bond rating, and (3) has a capital structure within the range of
capital structures approved by the Commission.'' \125\ Where these
requirements are not met, the Commission will use the consolidated
capital structure of the parent company or a hypothetical capital
structure. The NOPR proposed that the One-time Report would follow this
policy:
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    \125\ NOPR, FERC Stats. & Regs. ] 32,725 at P 35 (citing
Transcontinental Gas Pipe Line Corp., Opinion No. 414-A, 84 FERC ]
61,084, at 61,413-61,415, reh'g denied, Opinion No. 414-B, 85 FERC ]
61,323 (1998), petition for review denied sub nom. N.C. Utils.
Comm'n v. FERC, D.C. Cir. Case No. 99-1037 (Feb. 7, 2000) (per
curiam)).

    The proposed form requests the respondent's FERC Form Nos. 2 or
2-A equity related balance sheet items. However, if that data does
not satisfy the three-part test of Opinion No. 414, et al., the form
provides alternative data entries to reflect parent or hypothetical
capital structures consistent with Opinion No. 414, et al.\126\
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    \126\ Id. P 35.

    108. If neither the pipeline's own capital structure nor its
parent's capital structure satisfies the Commission's policy, the
proposed FERC Form No.

501-G requires use of a 50 percent equity, 50 percent debt capital
structure, with an implied debt rate of five percent.
a. Comments