FERC finalizes rule for pass-through of pipeline tax savings

Published on July 20, 2018 by Kevin Randolph

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The Federal Energy Regulatory Commission (FERC) finalized a rule Wednesday that determines how pipelines will pass savings from the Tax Cuts and Jobs Act through to customers.

The final rule modifies a proposal from March that would require interstate pipelines to file a one-time report that provides an estimate of a pipeline’s return on equity before and after the new tax law and changes to FERC income tax allowance policies.

The final rule preserves the requirement to file the form, called FERC 501-G, but makes changes to it, such as automatically eliminating the accumulated deferred income tax (ADIT) from a pipeline’s cost of service when the form enters a federal and state income tax of zero for pipelines that are non-tax paying entities. It also encourages pipelines to file an addendum to FERC 501-G to reflect their individual financial situation.

Under the final rule, pipelines have four options for addressing changes to the pipeline’s revenue requirements due to the tax reductions. Pipelines can make a limited section four filing to reduce its rates, commit to filing a prepackaged uncontested rate settlement or a general NGA section four rate case, explain why no rate change is needed or take no further action.

FERC may initiate a section five investigation of a pipeline’s rates if it believes that its rates may be unjust and unreasonable.

The rule also adopts, with clarifying modifications, the proposed procedures by which Natural Gas Policy Act section 311 and Hinshaw pipelines should reflect in their jurisdictional rates any rate reductions due to tax law and changes to the Commission’s income tax allowance policies.

It also modifies the proposed implementation schedule and combines the third and fourth groups of pipelines into a single group.