Acting at the bureaucratic equivalent of warp speed, the Federal Energy Regulatory Commission today adopted a series of actions to apply the impacts of last year’s federal income tax cuts to its jurisdictional wholesale electric markets and oil and natural gas interstate pipelines. When Congress last made major federal income tax reductions in 1986, it took FERC 246 days to provide guidance on how to adjust rates to reflect the cuts (Order 475). Today’s actions came 84 days after Congress adopted and President Trump signed the Tax Cuts and Jobs Act of 2017.
FERC noted that the actions “recognize the specific regulatory and operating parameters that must be addressed differently for each of the industries it regulates.” The commission issued a notice of inquiry asking specifically whether and how it should address “accumulated deferred income taxes and bonus depreciation” for electric companies and oil and gas pipelines.
The new tax law cuts corporate rates from a maximum of 35% to a flat 21%.
Most electric transmission companies have transmission rates that automatically adjust to tax rate changes. But FERC issued two orders to 48 companies with transmission tariffs that specifically reference the 35% rate. Those companies must propose tariff revisions or show cause why they should not. The commission also issued waivers to Public Service of Colorado and some transmission owners in the Midcontinent Independent System Operator market to allow for mid-year adjustments to reflect the new taxes.
FERC also issued a notice of proposed rulemaking allowing the commission to determine which gas pipelines under its jurisdiction may be collecting unjust and unreasonable rates, under the guidance of the D.C. Circuit Court of Appeals in a 2016 rate-related case (United Airlines, Inc. v. FERC, 827 F.3d 122). The appeals court rejected a FERC finding that the commission’s conclusion that it was not allowing double recovery of costs for a master limited partnership. MLP’s generally don’t pay income taxes, while the partners do.
Todays proposed rule requires the gas pipelines to file a one-time report on the rate effect of the new tax law. Also, the commission started two investigations under the Natural Gas Act looking specifically at rates charged by Dominion Energy Overthrust PipelineLLC and Midwestern Gas Transmission Co.
FERC also directly responded to the appeals court’s remand in the United Airlines case, stating that “it no longer will allow master limited partnership interstate gas and oil pipelines to recover tax allowance in cost of service rates.” In its revised policy statement, FERC said that “while all partnerships seeking to recover an income tax allowance will need to address the double-recovery concern, the application of the United Airlines court case to non-MLP partnerships will be addressed as those issues arise in subsequent proceedings.”
— Kennedy Maize