Inquiry Regarding the Commission's Policy for Recovery of Income Tax Costs, 12362-12370 [2018-05668]

Download as PDF 12362 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES plus all the other Federal funds you receive exceed $10,000,000. VI. Award Administration Information 1. Award Notices: If your application is successful, we notify your U.S. Representative and U.S. Senators and send you a Grant Award Notification (GAN); or we may send you an email containing a link to access an electronic version of your GAN. We may notify you informally, also. If your application is not evaluated or not selected for funding, we notify you. 2. Administrative and National Policy Requirements: We identify administrative and national policy requirements in the application package and reference these and other requirements in the Applicable Regulations section of this notice. 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You may also access documents of the Department published in the Federal Register by using the article search feature at: www.federalregister.gov. Specifically, through the advanced search feature at this site, you can limit your search to documents published by the Department. Dated: March 16, 2018. Margo Anderson, Acting Assistant Deputy Secretary for Innovation and Improvement. [FR Doc. 2018–05750 Filed 3–20–18; 8:45 am] BILLING CODE 4000–01–P DEPARTMENT OF ENERGY Federal Energy Regulatory Commission [Docket No. PL17–1–000] Inquiry Regarding the Commission’s Policy for Recovery of Income Tax Costs Federal Energy Regulatory Commission. ACTION: Revised policy statement. AGENCY: Following the decision of the U.S. Court of Appeals for the District of Columbia Circuit in United Airlines, Inc., et al. v. Federal Energy Regulatory Commission, the Commission issued a notice of inquiry (NOI) seeking comment regarding how to address any double recovery resulting from the Commission’s current income tax allowance and rate of return policies. The Commission finds that an impermissible double recovery results from granting a Master Limited Partnership (MLP) pipeline both an income tax allowance and a return on equity pursuant to the discounted cash flow methodology. Accordingly, the Commission revises its policy and will no longer permit an MLP to recover an income tax allowance in its cost of service. While all partnerships seeking to recover an income tax allowance will need to address the double-recovery concern, the Commission will address the application of United Airlines to SUMMARY: E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices non-MLP partnership forms as those issues arise in subsequent proceedings. DATES: This Revised Policy Statement will become applicable March 21, 2018. FOR FURTHER INFORMATION CONTACT: Glenna Riley (Legal Information), Office of the General Counsel, 888 First Street NE, Washington, DC 20426, (202) 502–8620, Glenna.Riley@ ferc.gov. Andrew Knudsen (Legal Information), Office of the General Counsel, 888 First Street NE, Washington, DC 20426, (202) 502–6527, Andrew.Knudsen@ferc.gov. James Sarikas (Technical Information), Office of Energy Markets Regulation, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502– 6831, James.Sarikas@ferc.gov. Scott Everngam (Technical Information), Office of Energy Markets Regulation, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502– 6614, Scott.Everngam@ferc.gov. SUPPLEMENTARY INFORMATION: Before Commissioners: Kevin J. McIntyre, Chairman; Cheryl A. LaFleur, Neil Chatterjee, Robert F. Powelson, and Richard Glick. 1. On December 15, 2016, the Commission issued a Notice of Inquiry (NOI) 1 following the decision of the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) in United Airlines.2 In that decision, the D.C. Circuit held that the Commission failed to demonstrate that there was no double recovery of income tax costs when permitting SFPP, L.P. (SFPP), a master limited partnership (MLP),3 to recover both an income tax allowance and a return on equity (ROE) determined pursuant to the discounted cash flow (DCF) methodology. The NOI sought comments regarding the doublerecovery concern. 2. As explained below, the Commission revises the 2005 Income Tax Policy Statement 4 and will no sradovich on DSK3GMQ082PROD with NOTICES 1 Inquiry Regarding the Commission’s Policy for Recovery of Income Tax Costs, 157 FERC ¶ 61,210 (2016), 81 FR 94366 (December 23, 2016) (NOI). 2 United Airlines, Inc., v. FERC, 827 F.3d 122, 134, 136 (D.C. Cir. 2016) (United Airlines). 3 An MLP is a publicly traded partnership under the Internal Revenue Code that receives at least 90 percent of its income from certain qualifying sources, including gas and oil transportation. See 26 U.S.C. 7704; NOI, 157 FERC ¶ 61,210 at PP 4–7. At the time of SFPP’s rate filing, Kinder Morgan Energy Partners (KMEP), an MLP, indirectly owned a 99 percent general partner interest in SFPP. SFPP, L.P., Opinion No. 511, 134 FERC ¶ 61,121, at P 74 (2011). 4 Policy Statement on Income Tax Allowances, 111 FERC ¶ 61,139 (2005), 70 FR 25818 (May 16, 2005) (2005 Income Tax Policy Statement). VerDate Sep<11>2014 18:34 Mar 20, 2018 Jkt 244001 longer permit MLPs to recover an income tax allowance in their cost of service. To the extent the comments in this proceeding raise arguments that an MLP pipeline should continue to receive an income tax allowance, those comments fail (a) to undermine the conclusion that a double recovery results from granting an MLP both an income tax allowance and a DCF ROE or (b) to justify preserving an income tax allowance notwithstanding such a double recovery. Consistent with this policy, the Commission is concurrently issuing a Remand Order 5 denying SFPP an income tax allowance in response to United Airlines. 3. In addition, this record does not provide a basis for addressing the United Airlines double-recovery issue for the innumerable partnership and other pass-through business forms that are not MLPs like SFPP. While all partnerships seeking to recover an income tax allowance will need to address the double-recovery concern, the Commission will address the application of United Airlines to nonMLP partnership or other pass-through business forms as those issues arise in subsequent proceedings. I. Background 4. Prior to United Airlines, the Commission’s 2005 Income Tax Policy Statement allowed all partnership entities (including MLPs, such as SFPP) to recover an income tax allowance for the partners’ tax costs much like a corporation receives an income tax allowance for its corporate income tax costs.6 The Commission explained that while a partnership itself does not pay taxes, the partners pay income taxes based upon the partnership income and these partner-level taxes could be imputed to the pipeline.7 5. Alongside this income tax policy, the Commission has used the DCF methodology to determine the rate of return regulated entities need to attract capital.8 Under the DCF methodology, 5 SFPP, L.P., Opinion No. 511–C, 162 FERC ¶ 61,228 (2018) (Remand Order). 6 2005 Income Tax Policy Statement, 111 FERC ¶ 61,139. The Commission’s policy permits an income tax allowance, provided that the owners can show an actual or potential income tax liability to be paid on income from the regulated assets. 7 Id. 8 United Airlines, 827 F.3d at 136; Coakley v. Bangor Hydro-Electric Co., Opinion No. 531, 147 FERC ¶ 61,234, at P 14 (2014). The Supreme Court has stated that ‘‘the return to the equity owner should be commensurate with the return on investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital.’’ FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944); Bluefield Water Works PO 00000 Frm 00031 Fmt 4703 Sfmt 4703 12363 the required rate of return is estimated to equal a corporate investor’s current dividend yield (dividends divided by share price) plus the projected future growth rate of dividends, such that k = D/P + g.9 Similarly, for an MLP, the Commission uses the same formula, substituting unitholder distributions for dividends, unit price for share price, and using a lower long-term growth rate.10 6. In addressing SFPP’s West Line rate case filed in 2008, the Commission applied its 2005 policy that allows a partnership to recover an income tax allowance.11 In United Airlines, the D.C. Circuit remanded the Commission’s application of this policy, holding that the Commission failed to adequately explain why a double recovery did not result from allowing SFPP to recover both an income tax allowance and a ROE determined by the Commission’s DCF methodology.12 Accordingly, the D.C. Circuit remanded the decisions to the Commission to consider ‘‘mechanisms for which the Commission can demonstrate that there is no double recovery.’’ 13 7. In response, the Commission issued the December 2016 NOI, soliciting comments on how to resolve any double recovery resulting from the 2005 Income Tax Policy Statement and rate of return policies. The Commission received 24 comments and 19 reply comments from customer, pipeline, and electric utility interests. & Improvement Co. v. Public Service Comm’n, 262 U.S. 679 (1923). 9 Where P is the price of the stock at the relevant time, D is the current dividend, k is the investors’ required rate of return, and g is the expected growth rate in dividends. When a regulated entity is a wholly owned subsidiary and not publicly-traded, the Commission applies the DCF formula to other publicly-traded entities in a proxy group, and, based typically upon the median of the range of returns in the proxy group, the Commission determines the regulated entity’s allowed ROE. 10 Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity, 123 FERC ¶ 61,048, at P 6 (2008) (Proxy Group Policy Statement). 11 Opinion No. 511, 134 FERC ¶ 61,121, order on reh’g, Opinion No. 511–A, 137 FERC ¶ 61,220 (2011), order on reh’g, Opinion No. 511–B, 150 FERC ¶ 61,096 (2015). 12 United Airlines marks the third time the D.C. Circuit has reviewed the Commission’s income tax allowance policy with respect to partnership entities. See BP West Coast Products, LLC v. FERC, 374 F.3d 1263 (D.C. Cir. 2004); ExxonMobil Oil Corp. v. FERC, 487 F.3d 945 (D.C. Cir. 2007). 13 United Airlines, 827 F.3d at 137. The D.C. Circuit did not restrict the Commission’s policy options, but, among other possibilities, it noted that the Commission could consider removing any duplicative tax recovery for partnerships directly from the DCF ROE, or eliminating all income tax allowances and setting rates based on pre-tax returns. Id. E:\FR\FM\21MRN1.SGM 21MRN1 12364 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices II. Discussion 8. This Revised Policy Statement explains the Commission’s conclusion following United Airlines that an impermissible double recovery results from granting an MLP pipeline both an income tax allowance and a DCF ROE. Accordingly, the Commission will no longer permit MLPs to recover an income tax allowance in their cost of service. Therefore, the Commission instructs oil pipelines organized as MLPs to reflect the Commission’s elimination of the MLP income tax allowance in their Form No. 6, page 700 reporting. Based upon this page 700 data, the Commission will incorporate the effects of this Revised Policy on industry-wide oil pipeline costs in the 2020 five-year review of the oil pipeline index level. The Commission is also concurrently issuing a Notice of Proposed Rulemaking that addresses the effects of this Revised Policy on the rates of interstate natural gas pipelines organized as MLPs.14 For those partnerships that are not MLPs, the Commission will address such matters in subsequent proceedings. sradovich on DSK3GMQ082PROD with NOTICES A. An Impermissible Double Recovery Results From Granting an MLP Pipeline Both an Income Tax Allowance and a DCF ROE 9. While some of the comments in this proceeding argue that no double recovery results from granting an income tax allowance to an MLP, none of these arguments are persuasive. As the Commission explains in the Remand Order, a double recovery results from granting an MLP an income tax allowance and a DCF ROE: • MLPs and similar pass-through entities do not incur income taxes at the entity level.15 Instead, the partners are individually responsible for paying taxes on their allocated share of the partnership’s taxable income.16 • The DCF methodology estimates the returns a regulated entity must provide to investors in order to attract capital.17 • To attract capital, entities in the market must provide investors a pre-tax 14 Interstate and Intrastate Natural Gas Pipelines; Rate Changes Relating to Federal Income Tax Rate, 162 FERC ¶ 61,226 (2018). 15 United Airlines, 827 F.3d at 136. 16 2005 Income Tax Policy Statement, 111 FERC ¶ 61,139 at P 33; see also ExxonMobil, 487 F.3d at 954 (noting that ‘‘investors in a limited partnership are required to pay tax on their distributive shares of the partnership income, even if they do not receive a cash distribution’’). In contrast, corporations pay entity-level income taxes, and corporate dividends are second tier income to a common stock investor, not analogous to partnership distributions. 17 See Coakley v. Bangor Hydro-Electric Co., Opinion No. 531, 147 FERC ¶ 61,234 at P 14. VerDate Sep<11>2014 18:34 Mar 20, 2018 Jkt 244001 return, i.e., a return that covers investorlevel taxes and leaves sufficient remaining income to earn investors’ required after-tax return.18 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. • The DCF methodology ‘‘determines the pre-tax investor return required to attract investment.’’ 19 Given that the DCF return is a ‘‘pretax return,’’ permitting an MLP to recover both an income tax allowance and a DCF ROE leads to a double recovery of the MLP’s income tax costs.20 10. This Revised Policy Statement addresses comments responding to the NOI asserting that (a) granting an MLP an income tax allowance does not cause a double recovery or (b) notwithstanding the existence of a double recovery, MLPs should continue to receive an income tax allowance. As discussed below, these arguments are unavailing. 1. A Double Recovery Results From Granting an MLP Both an Income Tax Allowance and a DCF ROE 11. The Commission rejects arguments from pipelines and pipeline groups that no double recovery results from granting an MLP both an income tax allowance and a DCF ROE. These include claims that (a) changes to the stock price eliminate the double recovery, (b) MLP partners’ taxes are ‘‘first tier’’ taxes that should be recoverable in an income tax allowance, (c) the return produced by the DCF analysis is never grossed-up (or adjusted) to include MLP partners’ tax costs, (d) the presence of an income tax allowance causes MLP investors to demand a lower return in the market place, (e) a life-cycle hypothetical shows that corporate and MLP tax costs and after-tax returns are similar when an income tax allowance is present, (f) the calculation of the growth rate in the DCF Formula for MLPs addresses the double-recovery issue, and (g) various empirical studies refute the doublerecovery finding in United Airlines. As discussed below none of these arguments resolves the double-recovery concern, and accordingly, the Commission will no longer permit MLPs 18 Kern River Transmission Co., Opinion No. 486– B, 126 FERC ¶ 61,034, at P 114 (2009) (‘‘investors invest on the basis of after-tax returns and price an instrument accordingly’’). 19 United Airlines, 827 F.3d at 136 (emphasis added). 20 Id. at 137. PO 00000 Frm 00032 Fmt 4703 Sfmt 4703 to recover an income tax allowance in cost-of-service rates. a. Changes to a Pipeline’s Unit Price Do Not Resolve the Double-Recovery Issue 12. Some commenters argue that there is no double recovery caused by an income tax allowance for MLPs because the income tax allowance merely increases the price of the MLP units.21 These commenters assert that as a result of the increased unit price, investors will receive the same rate of return whether or not the pipeline receives an income tax allowance, and, thus, there is no double recovery. 13. The Commission rejects such arguments as inapposite. As explained in the Remand Order, the doublerecovery issue is separate from the postrate case effects upon an MLP pipeline’s unit price. An MLP pipeline’s DCF ROE is typically based upon a proxy group of other MLPs,22 all of which must provide investors with sufficient pre-investor tax returns to attract capital. Permitting an MLP pipeline to recover both the DCF pre-investor tax return and an income tax allowance for the investor-level tax costs leads to a double recovery. Whether or not the double recovery leads to an increased unit price, the impermissible double recovery in the MLP’s cost of service remains.23 14. Moreover, while permitting such a double recovery may increase the unit price, these changes in the unit price do not resolve the double-recovery problem or change the DCF return from a preinvestor tax return to an after-investor tax return. Rather, if an MLP pipeline obtains a new revenue source that increases distributions to investors (such as an income tax allowance), the unit price will rise until, once again, the investor receives the cash flow necessary to cover the investor’s income 21 E.g., Association of Oil Pipe Lines (AOPL) Initial Comments at 24–27, Graham Declaration at 12–13; SFPP Initial Comments at 21–26, Vander Weide Declaration at PP 8, 19. These commenters argue that if an MLP is able to charge a higher tariff rate, the increased cash flow will lead to increased distributions to investors and MLP prices will rise to reflect the additional cash flow. Hence, the market will immediately react to eliminate any differences such that the after-tax returns of partnership and corporate investors are equalized. 22 The proxy group may include corporations as well. In that case, the ROE will reflect the dividend tax paid by corporate investors. 23 While an inflated cost of service will likely increase distributions to investors and cause a pipeline’s unit price to rise, such benefits to a pipeline’s unitholders do not render the double recovery permissible. Under this theory, the Commission could increase a pipeline’s cost of service by allowing the pipeline to incorporate duplicative costs, yet these commenters appear to claim that because its unit price would subsequently rise, the inclusion of duplicative costs in the pipeline’s cost of service is not unjust or unreasonable. This argument is without merit. E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices tax liabilities and to earn an after-tax return that is comparable to other investments of similar risk.24 Likewise, if the MLP’s cash flows are reduced (such as via the removal of the income tax allowance) and consequently distributions decline, the MLP unit price will drop until the returns once again both cover an investor’s tax costs and provide the sufficient after-tax returns. Whether or not a pipeline receives an income tax allowance, the MLP’s DCF return will always be a preinvestor tax return.25 sradovich on DSK3GMQ082PROD with NOTICES b. The Argument That MLPs Are Entitled To Recover ‘‘First Tier’’ Taxes Is Irrelevant 15. Some commenters contend that removing the income tax allowance is contrary to Commission and court findings that MLP pipelines may recover so-called ‘‘first tier’’ taxes for income generated by the regulated pipeline.26 The pipelines claim that because a partnership does not itself pay taxes, the taxes paid by the partners are the ‘‘first tier’’ tax, much like the corporate income tax is the ‘‘first tier’’ tax for the corporation. The pipelines contrast these ‘‘first tier’’ taxes with socalled ‘‘second tier’’ taxes (such as the dividend tax paid by corporate stockholders) which are not typically recovered by the income tax allowance. 16. The Commission is not persuaded by such arguments, which were already presented to the D.C. Circuit.27 The 24 United Airlines, 827 F.3d at 136. In finding that ‘‘the [DCF ROE] determines the pre-tax investor return required to attract investment, irrespective of whether the regulated entity is a partnership or a corporate pipeline,’’ the Court relied on Opinion No. 511, 134 FERC ¶ 61,121 at PP 243, 244, which included the following example: The investor desires a 6 percent after-tax return and has a 25 percent marginal tax rate. Thus, the security must have an ROE of 8 percent to achieve an after-tax yield of 6 percent. Assume that the distribution or dividend is $8. The investor will price the security at $100. Conversely, if the security price is $100 and the yield is $8, the Commission determines that the required return is 8 percent. If the dollar distribution increases to $10, the investor will price the security at $125 because $10 is 8 percent of $125. The Commission would note that the security price is $125 and that the yield is $10, or a return of 8 percent. If the distribution is $6, the security price will drop to $75, a return of 8 percent. The Commission would observe a $75 dollar security price, a $6 yield, and a return of 8 percent. In all cases the ROE is 8 percent and the after-tax return is 6 percent based on the market-established return. 25 This is true both for the entity whose rates are at issue in a cost-of-service rate case (such as SFPP in the Remand Order) and for the entities in the proxy group. 26 Interstate Natural Gas Association of America (INGAA) Initial Comments, Sullivan Affidavit at 12–14, 24–25, 27. 27 Federal Energy Regulatory Commission and United States of America, Brief for Respondents, Case No. 11–1479, at 26 (D.C. Cir., filed Feb. 5, 2016). VerDate Sep<11>2014 18:34 Mar 20, 2018 Jkt 244001 pipelines’ arguments do not address the D.C. Circuit’s finding that the DCF ROE itself enables the recovery of an MLP’s ‘‘first tier’’ tax costs, rendering an income tax allowance unnecessary. Whether or not a tax can be labeled a ‘‘first tier’’ tax is irrelevant to the double-recovery issue. No double recovery results when a corporate pipeline’s cost of service includes an income tax allowance because this socalled ‘‘first tier’’ corporate income tax is paid directly by the corporation, rather than by unitholders from the dividends used in the DCF methodology.28 In contrast, the MLP itself pays no taxes.29 Because the ‘‘first tier’’ MLP income taxes are paid directly by the unitholders,30 the D.C. Circuit explained that the pre-investor tax DCF return must be sufficient to recover an MLP investor’s tax costs in order to attract capital. While the D.C. Circuit reaffirmed that an MLP pipeline may recover such ‘‘first tier’’ investor income tax costs, the D.C. Circuit also held that an MLP pipeline may not double recover those costs via both an income tax allowance and the DCF return.31 c. The Argument That the Tax Allowance Reduces Investors’ Required Return Lacks Merit 17. SFPP argues that investors recognize that the income tax costs are recovered by the pipeline through the income tax allowance and therefore, elect not to demand a DCF return on their investment that would cover those income tax costs.32 Because under this theory the DCF return would not include investor tax costs, SFPP argues 28 Corporations first pay the corporate income tax from their earnings prior to any dividends to investors. Then, subsequently, investors pay taxes on dividends. While the pre-investor tax DCF return would reflect the dividend tax paid by investors, it does not reflect the corporate income tax. 29 United Airlines, 827 F.3d at 136 (explaining ‘‘unlike a corporate pipeline, a partnership pipeline incurs no taxes, except those imputed from its partners, at the entity level’’). 30 In the past, the Commission has stated that its income tax allowance policy ‘‘imputes’’ those investor-level taxes to the partnership entity. In using such phrasing, the Commission never denied that investors nonetheless pay the investor-level taxes. 31 In United Airlines, the D.C. Circuit acknowledged that in ExxonMobil it held that the Commission provided a reasoned basis for allowing an MLP pipeline to recover the ‘‘first tier’’ income tax costs paid by the MLP partners. However, the D.C. Circuit explained that in ExxonMobil, it had ‘‘reserved the issue of whether the combination of the [DCF ROE] and the tax allowance results in a double recovery of taxes for partnership pipelines.’’ United Airlines, 827 F.3d at 134; see also ExxonMobil, 487 F.3d 945. 32 SFPP Initial Comments at 17, Vander Weide Declaration at PP 12, 14, 18. SFPP claims that investors will not ‘‘gross-up’’ the required after-tax return to include tax costs. SFPP Initial Comments at 16; Vander Weide Declaration at PP 6, 18. PO 00000 Frm 00033 Fmt 4703 Sfmt 4703 12365 that there is no double recovery. In essence, SFPP contends that the pre-tax return produced by a DCF analysis of an MLP with a tax allowance is the equivalent of an after-tax return, since investors do not demand a pre-tax return. Similarly, SFPP argues that if MLPs lose the income tax allowance, then the MLP investors will demand a higher pre-tax return than under present policy. 18. The Commission rejects SFPP’s assertions. These arguments distort how the income tax allowance affects investor tax liability. MLP investors owe a tax on any increased income, whether or not that income results from an income tax allowance or another source.33 Accordingly, while as discussed above an MLP income tax allowance may increase the unit price, investors will continue to demand a pretax return even when a portion of a pipeline’s rate is attributable to an ‘‘income tax allowance.’’ 34 Notwithstanding the presence of an income tax allowance, the pre-investor tax ROE produced by the DCF analysis does not equal the investor’s after-tax return. Likewise, if an MLP pipeline’s loss of its income tax allowance reduces rates and investor income, the unit price will decline until the investor once again earns an adequate pre-tax return. 19. SFPP’s comments rely almost exclusively upon the incorrect assumption that for an MLP with an income tax allowance, an MLP investor’s pre-tax return equals its aftertax return.35 However, while SFPP relies heavily upon this assumption in this proceeding, SFPP elsewhere takes the opposite position—presenting hypotheticals showing that an investor will demand a pre-tax return whether or 33 The Internal Revenue Code does not exempt from taxation income that results from the increases to rates resulting from the cost-of-service income tax allowance. 34 Suppose an income tax allowance increases a pipeline’s rates, raising investor income from $10 to $12. Two things have occurred; first the investor’s pre-tax income increased from $10 to $12 and second the investor now owes taxes on $12 of income just as she owed taxes on the initial $10. The unit price will increase until the investor receives the same pre-tax return at $12 of income that it received at $10 of income. In other words, Commission policy does not shift the actual liability to pay income taxes from the MLP partners to the MLP itself. 35 E.g,. SFPP Initial Comments, Vander Weide Affidavit at 8 (Table 1, Lines 11–15, showing the before-tax DCF ROE equaling the investor’s after-tax return), 12 (Table 2, Lines 11–15, showing the before-tax DCF ROE and investor’s pre-tax return equaling the investor’s after-tax return), 16 (Table 3, lines 11–15 showing for a pipeline with an income tax allowance, the before-tax DCF ROE and investor’s pre-tax return equaling the investor’s after-tax return). E:\FR\FM\21MRN1.SGM 21MRN1 12366 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices not the pipeline receives an income tax allowance.36 d. The Cost-of-Service Gross-Up Theory Was Rejected by the D.C. Circuit 20. Some pipeline commenters also attempt to reframe the cost-of-service ‘‘gross-up’’ theory rejected by the D.C. Circuit. This argument, which the Commission also made on appeal in the United Airlines proceeding, asserts that the DCF return does not include investor tax costs because the Commission never adjusts, or ‘‘grossesup,’’ the return produced by the DCF analysis to recover such tax costs.37 In response to the NOI, pipeline commenters assert that the DCF ROE cannot include an MLP investor’s income tax costs because the income tax costs are not a separate line item in the DCF methodology.38 21. The Commission rejects this position. The Commission’s DCF methodology need not include a mathematical step to add income taxes. For the reasons described above, ‘‘the [DCF ROE] determines the pre-tax investor return’’ 39 that already reflects cash flow for both the (a) investor’s tax costs and (b) the investor’s post-tax return. sradovich on DSK3GMQ082PROD with NOTICES e. The Life-Cycle Hypothetical Does Not Refute the D.C. Circuit’s Holding 22. INGAA witness Merle Erickson presents a life-cycle model that compares the total tax expenses of a hypothetical MLP to a hypothetical corporation. Under the assumptions of 36 In its West Line rate case, SFPP filed postremand comments and supplemental comments following United Airlines. In those comments, SFPP presented a hypothetical showing that an MLP recovering both an income tax allowance (Table 1, Column C) and a DCF ROE earns the same 6.5 percent investor after-tax return as an MLP without an income tax allowance (Table 1, Column D). SFPP, L.P., Supplemental Reply Comments, Docket No. IS08–390, at 10 (November 30, 2016). While the table does not show the investors’ pre-tax returns, since both pipelines were subject to a 35 percent investor level tax, both must have recovered a 10 percent pre-tax investor return. Thus, in SFPP’s own example, the cost-of-service double-recovery of income tax costs of the pipeline in Column C inflated the unit price until it earned the same pretax return as the pipeline without an income tax allowance in Column D. 37 Federal Energy Regulatory Commission and United States of America, Brief for Respondents, Case No. 11–1479, at 28–29 (D.C. Cir., filed Feb. 5, 2016) (citations omitted) (‘‘In contrast to the way in which income taxes are grossed up outside the context of Commission regulation, the Commission does not gross up [i.e., increase] a jurisdictional entity’s operating revenues or return to cover the income taxes that must be paid to obtain its aftertax return.’’). 38 INGAA Initial Comments at 24, Sullivan Affidavit at 6, 17–18, 22, 25–27, 30. 39 United Airlines, 827 F.3d at 136 (citing Opinion No. 511, 134 FERC ¶ 61,121 at PP 243– 44). VerDate Sep<11>2014 18:34 Mar 20, 2018 Jkt 244001 the model, Erickson finds that MLPs’ and corporations’ aggregate tax burdens are comparable and that both earn similar returns if MLPs are permitted an income tax allowance.40 Pipeline commenters claim that the model globally demonstrates that the Commission’s current income tax policy provides parity in the returns to partnerships and corporations.41 23. We do not find this argument to be persuasive. Erickson’s life-cycle model does not undermine the fundamental premise of United Airlines that an income tax allowance for MLP pipelines leads to a double recovery. Whether or not the overall MLP and corporate tax burdens are equivalent or different, if the investor tax costs are incorporated into the DCF returns, then the income tax allowance for MLP pipelines leads to a double recovery.42 24. In addition, Erickson’s model does not necessarily establish that overall MLP tax levels are actually comparable to corporate tax levels or that an income tax allowance equalizes returns. Like similar hypothetical models, the results of Erickson’s proposal rely upon subjective assumptions.43 For example, as Thomas Horst explains, Erickson’s hypothetical would show that MLPs (with an income tax allowance) receive higher returns if Erickson had accounted for (a) the time value of money 44 and (b) certain tax issues 40 INGAA f. The Treatment of the Growth Rate in the DCF Does Not Resolve the Double Recovery Concern 25. Pipelines emphasize that in the DCF formula, the Commission projects that the long-term growth of MLP pipelines will be only half that of corporations.47 Therefore, they argue ‘‘to the extent the Commission concludes that there is a potential for double recovery of income tax costs through the MLP ROE, the Commission has already addressed that concern.’’ 48 26. The Commission concludes that the treatment in the DCF analysis of the long-term MLP growth projection does not resolve the double-recovery concern in United Airlines. When conducting a DCF analysis to determine investors’ required rate of return, the Commission halves the long-term growth rate for MLPs in the proxy group because MLPs are likely to have a lower long-term growth rate than corporations.49 The Initial Comments, Erickson Affidavit at 12. 41 INGAA Initial Comments at 4, 25. himself concedes that MLP unitholders must pay the entirety of the tax burden whereas corporate unitholders must only pay the dividend tax (not the corporate income tax). INGAA Initial Comments, Erickson Affidavit at 13. Accordingly, it follows that whereas the DCF return for an MLP pipeline must include the entire income tax costs, a corporate pipeline’s DCF return would not include the corporate income tax. 43 When attacking models proposed by shippers, AOPL witness John Graham states that for such hypotheticals, ‘‘There are too many variables to draw broad-based conclusions.’’ AOPL Initial Comments, Graham Affidavit at 8. This comment applies with equal force to Erickson’s model. Erickson’s assumptions include (1) a five-year investment horizon; (2) that the MLP distributes all available cash and the corporation has a 65 percent dividend pay-out ratio; (3) certain tax rates for corporate income, corporate dividends and capital gains, and ordinary MLP income; and (4) that the corporate investors are able to sell their stock for the value of their original investment plus accumulated retained earnings, while the MLP investors sell their units for the value of their original investment. The life-cycle model also assumes constant earnings before interest, taxes, depreciation and amortization and application of a fifteen-year Modified Accelerated Cost Recovery System. The life-cycle analysis does not take into account the time value of money in reporting the total after-tax cash flow to the MLP and corporate investors. 44 Thomas Horst Reply Comments at 2. An investor in a corporation usually must pay his dividend taxes immediately. In contrast, an MLP 42 Erickson PO 00000 related to the sale of MLP units.45 The Brattle report presented by shipper commenters similarly demonstrates how reasonable changes to Erickson’s assumptions change the model’s output.46 Thus, Erickson’s hypothetical does not undermine the fundamental conclusion of United Airlines that allowing MLP pipelines to include both an income tax allowance and a full DCF ROE in their cost of service leads to a double recovery. Frm 00034 Fmt 4703 Sfmt 4703 investor can use depreciation and other deductions to offset taxable income. As a result, an MLP investor may have no net taxable income in a given year. NOI, 157 FERC ¶ 61,210 at P 6. Even though the investor may ultimately be required to pay such taxes when the units are sold, the MLP investor benefits from the time value of money during the deferral period. 45 Id. Dr. Horst argues that when an MLP unit is sold, its basis increases—much like in the sale of any property or asset. This only further increases the depreciation deferrals that are available to the subsequent investor. 46 United Airlines Petitioners Reply Comments, Brattle Report at PP 73–74. 47 AOPL Initial Comments at 46. As noted above, the DCF relies upon the general formula k = D / P + g. The growth rate in this formula incorporates two components: A short term growth rate (calculated using security analysts’ five-year forecasts for each company in the proxy group as published by IBES) and a long-term growth rate (based upon forecasts for gross domestic product (GDP) growth). The short-term forecast receives a two-thirds weighting and the long-term forecast receives a one-third weighting in calculating the growth rate in the DCF model. Proxy Group Policy Statement, 123 FERC ¶ 61,048 at P 6. 48 AOPL Initial Comments at 46. 49 The Commission explained corporations ‘‘(1) have greater opportunities for diversification because their investment opportunities are not limited to those that meet the tax qualifying standards for an MLP and (2) are able to assume greater risk at the margin because of less pressure to maintain a high payout ratio.’’ Proxy Group Policy Statement, 123 FERC ¶ 61,048 at P 93. Accordingly, the Commission concluded that the E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices treatment of investor-level taxes presents an entirely separate issue. As discussed above, regardless of the projected growth rate used in the DCF analysis to determine the investors’ required rate of return, that required return must provide investors cash flows to both (a) recover investor level tax costs and (b) provide the investor with a sufficient after tax return. sradovich on DSK3GMQ082PROD with NOTICES g. Pipelines’ Empirical Studies Do Not Resolve the D.C. Circuit’s DoubleRecovery Concern 27. Pipeline commenters advance two empirical criticisms of the holdings in United Airlines. First, they criticize studies presented by shippers in the underlying SFPP proceeding showing that MLP pipeline DCF returns exceed corporate pipeline DCF returns, while shipper commenters argue that a modified version of these studies supports the opposite result. Second, the pipelines argue the relationship between MLP and corporate pipeline DCF returns does not show a systemic disparity consistent with the different tax levels, and, thus, they argue that this refutes the holding that there is no double recovery. As discussed below, these arguments lack merit. i. The Reasoning in United Airlines Holds, Whether or Not MLP DCF Returns Exceed Corporate DCF Returns 28. In order to counter the D.C. Circuit’s double-recovery finding, pipeline commenters attack studies presented by shippers in the underlying SFPP 2008 West Line rate case addressed on appeal in United Airlines.50 These studies purported to show that MLP pipeline DCF returns exceeded corporate pipeline DCF returns, which the shippers argued showed that the DCF returns reflected tax differences. Now, pipeline commenters argue that due to alleged flaws in these studies, the court in United Airlines erred by finding that the MLP pipeline DCF returns include investor-level tax costs. They assert that if their preferred sample of six pipelines (two corporations and four MLPs) is considered, corporate DCF returns may actually exceed MLP DCF returns.51 29. The criticisms of the underlying studies in SFPP’s 2008 West Line Rate case are irrelevant. In United Airlines, the D.C. Circuit did not rely upon these studies to find that the DCF returns ‘‘long term growth rate for MLPs will be less than that of schedule C corporations. . . .’’ Id. P 94. See also El Paso Natural Gas Co., Opinion No. 528–A, 154 FERC ¶ 61,120, at PP 271–275, 278–283 (2016). 50 INGAA Initial Comments, Sullivan Affidavit at 41–48. 51 Id. at 47–48. VerDate Sep<11>2014 18:34 Mar 20, 2018 Jkt 244001 12367 higher DCF returns, distribution yields, and growth rates than corporate pipelines. 32. In their first argument, pipelines argue that if the DCF returns include investor tax costs, then there should be a consistent differential between MLP pipeline and corporate pipeline DCF returns. For example, if MLP investorlevel taxes exceed corporate investorlevel taxes, then pipeline commenters state that MLP pipeline DCF returns should always exceed corporate pipeline DCF returns, or vice versa. To refute the holding in United Airlines, pipeline commenters present empirical analyses purporting to show that the DCF returns for MLP pipelines do not show a consistent differential.55 These studies consist of (1) a line graph showing DCF returns for 23 pipelines between August 2007 to January 2017 in which MLP pipelines’ DCF returns do not always exceed corporate pipelines’ returns,56 and (2) DCF returns over the January 2008 to January 2017 period comparing four pairs of MLP and corporate affiliates 57 in which the relationship between the corporate ii. The Pipeline Commenters’ Empirical affiliate and the MLP affiliate returns fluctuated significantly. Evidence Fails To Disprove the Double 33. These studies suffer from Recovery fundamental methodological flaws that 31. Pipelines make two broad undermine the pipelines’ conclusions. It arguments. First, pipeline commenters is true that the United Airlines doubleargue that if the DCF methodology recovery theory would predict that, includes investor-tax costs as assuming all other factors are exactly determined by the D.C. Circuit in United equal, investor-level tax differences Airlines, there should be a systematic would create a differential between MLP relationship between MLP pipeline and and corporate pipeline DCF returns.58 corporate pipeline DCF returns However, differences in risk and other reflecting these differences in investorfactors can subsume any effects of level taxes. Second, they argue that if taxation, and because the studies pipelines are double-recovering their inadequately control for varying risk costs, then MLP pipelines should report levels, the studies do not isolate the effect of the MLP and corporate 52 Before the Administrative Law Judge and the investor-level income taxes on the DCF Commission, shippers argued that this disparity returns. The first study, which demonstrated the inclusion in the DCF ROE of the MLP investors’ income tax costs, which they argued compared 23 MLP and corporate generally exceeded the dividend taxes paid by pipelines, completely ignores the corporate investors. entities’ differing risk levels 59 and 53 While historically a corporate investor’s merely shows a line graph of DCF dividend tax rate has typically been less than the returns for each pipeline without weighted average income tax rate for MLP investors (AOPL Initial Comments, Graham Affidavit at 5–6), presenting any related numerical include MLP investors’ income tax costs, and the shipper-petitioners did not cite these studies in their appeal.52 Any such reliance would have been unnecessary. As described above, the inclusion of MLP investor-level taxes in the DCF return necessarily follows from the basic application of DCF theory and the understanding that investors consider the tax consequences of their investments. 30. Furthermore, the studies are also inapposite. The holding in United Airlines would not change if the pipeline commenters were to conclusively establish that when controlling for all factors but investorlevel taxes, corporate pipeline DCF returns exceeded MLP pipeline DCF returns. This would merely demonstrate that the MLP investors’ tax burden was less than the corporate investors’ dividend tax burden.53 In order to attract capital, the investor-required MLP pipeline DCF return would still include the investor-level tax costs, and thus, a double recovery results from the additional recovery of an income tax allowance for MLPs.54 MLPs have various tax deferrals and other characteristics that may further narrow or eliminate this difference. Nonetheless, any such conclusion based upon the pipeline commenters’ data is dubious, as it is based upon a small sample size of only two corporations and four MLPs. INGAA Initial Comments, Sullivan Affidavit at 47–48. 54 Likewise, the December 22, 2017 Tax Cuts and Jobs Act does not alter the Commission’s analysis. Tax Cuts and Jobs Act, Public Law 115–97, 131 Stat. 2054 (2017). While the tax rates for both corporations and individuals have been reduced, the DCF ROE will continue to provide a preinvestor tax return. As discussed above, investors will continue to demand a return that both covers the investor level tax costs and leaves the investor a sufficient after tax return compared to other investments of comparable risk. PO 00000 Frm 00035 Fmt 4703 Sfmt 4703 55 See INGAA Initial Comments at 31–35, Sullivan Affidavit at 42–69; AOPL Initial Comments at 3, 24, 28–30; Master Limited Partnership Association (MLPA) Initial Comments at 9. 56 INGAA Initial Comments, Sullivan Affidavit at 48–49. INGAA witness Sullivan performed similar analysis for different components of the DCF, including both the dividend yield and the growth rate. Id. at 65–69. 57 Id. at 50–51. 58 In essence, investors would demand higher returns from the business form with the higher investor-level taxes. 59 INGAA witness Sullivan’s arguments involving distribution yields and growth rates are similarly flawed. E:\FR\FM\21MRN1.SGM 21MRN1 12368 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES analysis.60 While the pipeline commenters’ second study attempts to address varying risk levels by comparing four affiliated corporations and MLPs in their first study,61 the affiliated MLPs were only a fraction of the affiliated corporations’ larger business interests, which, as the pipeline commenters concede, contributed to significant fluctuations in the relationship between the two entities’ relative DCF returns.62 Moreover, this analysis based upon a mere four examples does not establish how investor level taxes (as opposed to other factors) affect either corporate or MLP investor returns. 34. Pipelines advance a second argument—that if MLPs are double recovering their costs, they should report higher returns than corporations. For example, INGAA witness Sullivan also argues that ‘‘[i]f MLPs double recovered income taxes through both an income tax allowance and a DCF return, I would expect the DCF ROEs and its components, the distribution yields and the IBES growth rates of MLPs to be systematically higher than corporations throughout the period 2008 to the present.’’ 63 Citing the same studies above, Sullivan argues that because the data does not show systematically higher returns, yields or growth rates for MLPs, there must be no double recovery. 35. The Commission finds this argument unpersuasive because it relies upon the same flawed studies discussed above. As noted above, the line graphs provide a flawed analysis that may obscure actual differences between MLPs and corporations and, more fundamentally, that fails to address the 60 For example, on page 49 of his affidavit, INGAA consultant Sullivan submitted a line-chart which purports to show that corporate and MLP DCF returns are not discernibly different. However, (a) the y-axis is drawn so as to compress most of the returns to a narrow band, and (b) meaningful statistical differences could be completely obscured by this poor graphical presentation. Similar criticisms apply to Sullivan’s comparison of MLP distributions to corporate dividends on page 65 of his affidavit and growth rates on page 68 of his affidavit. It is possible that a more precise numerical example could actually present facts undermining the pipelines’ favored result. 61 Id. at 52–62. Sullivan also adds a comparison between a completely unrelated MLP (Boardwalk Pipeline Partners) and a corporation (Kinder Morgan). Because these are completely different businesses, such a comparison is irrelevant for the purpose of identifying the effect of different tax levels on the DCF. 62 For each of the four pairs, the DCF return for the corporation at times exceeded the return for the MLP whereas on other occasions the return for the MLP exceeded the corporation. Id. Sullivan describes situations in which growth estimates or factors involving unrelated assets would affect the DCF return of the corporation but not the MLP. 63 Id. at 58. VerDate Sep<11>2014 18:34 Mar 20, 2018 Jkt 244001 multiple other risk and market factors that could affect any particular MLP and corporate pipeline’s DCF returns, distribution yields, and growth levels. Moreover, as discussed previously, to the extent an MLP pipeline doublerecovers its costs, the unit price will rise—obscuring the effects of the double recovery in the distribution yields, projected growth rates, and DCF returns.64 These studies do not undermine the double-recovery findings of United Airlines or the Remand Order. 2. Other Arguments for Preserving an Income Tax Allowance Lack Merit 36. Pipeline commenters also argue that even if a double recovery exists, the income tax allowance should nonetheless be preserved. These arguments rely upon (1) Congressional intent, (2) preserving parity between corporate and MLP pipelines, and (3) the effect of removing the income tax allowance upon the ability of pipelines to attract capital. As discussed below, these arguments were either explicitly rejected by the D.C. Circuit in United Airlines or are otherwise without merit. a. Congressional Intent Does Not Authorize a Double Recovery 37. Pipeline commenters argue that providing MLP pipelines an income tax allowance implements Congress’ intent to facilitate infrastructure investment.65 In 1987 Congress eliminated passthrough status for most publicly-traded partnerships, but explicitly granted an exception for certain energy-related MLPs in section 7704 of the Internal Revenue Code.66 Pipeline commenters present two specific arguments to support their Congressional intent claims, both of which are unavailing. First, they argue that because the Commission’s policy in 1987 allowed pass-through entities to recover the same income tax allowance as corporations, Congress understood and intended to continue that rate treatment in section 7704.67 Second, they present a letter that Senator Max Baucus submitted to the Commission in 1996,68 64 As explained in section II.A.1.a, whether or not a pipeline receives an income tax allowance, the DCF return will always be a pre-investor tax return. However, to the extent a pipeline is permitted to start double-recovering its costs, the unit price will rise until the DCF once again provides investors with a pre-tax return. 65 See INGAA Initial Comments at 12–13; MLPA Initial Comments at 3–4; AOPL Initial Comments at 7, 41–42; SFPP Initial Comments at 30; TransCanada Corporation Initial Comments at 2; Enbridge Initial Comments at 4; Meliora Capital, LLC Initial Comments. 66 26 U.S.C. 7704. 67 INGAA Initial Comments at 13–15. 68 INGAA Initial Comments at 14; MLPA Initial Comments at 3–4. PO 00000 Frm 00036 Fmt 4703 Sfmt 4703 expressing concern with the Commission’s decision to allow MLP pipelines only a partial income tax allowance in Lakehead.69 38. As discussed in the Remand Order, the D.C. Circuit has twice rejected the argument that Congress’ intent in section 7704 provides an independent basis for upholding a full income tax allowance for partnership pipelines.70 Consistent with these holdings, the court in United Airlines unequivocally instructed the Commission to consider ‘‘mechanisms for which the Commission can demonstrate that there is no double recovery.’’ 71 Accordingly, the pipeline commenters’ attempt to justify affording MLP pipelines an income tax allowance on the basis that the Commission is implementing Congress’ intent in section 7704 is contrary to United Airlines. 39. In addition, the pipeline commenters fail to demonstrate that Congress intended the Commission’s income tax allowance policy to provide a necessary component of the advantages conferred in section 7704. They provide no support for their argument that because the Commission afforded partnerships a tax allowance in 1987, Congress intended to continue that rate treatment in the 1987 legislation.72 69 Lakehead Pipe Line Co., L.P., 75 FERC ¶ 61,181 (1996). Senator Baucus participated in the writing of the 1987 legislation. The letter states that ‘‘placing this obstacle in the path of pipeline companies wishing to operate as [publicly-traded partnerships] directly contravenes the policy we adopted in that legislation of making the [publiclytraded partnership] structure freely available to the pipeline industry’’ and ‘‘[i]t was certainly not our intention for pipelines operating as [publicly-traded partnerships] to be singled out for negative treatment relative to other pipelines solely because of their partnership status.’’ Letter from U.S. Senator Max Baucus, FERC Docket No. IS92–27– 000 (Jan. 9, 1996). 70 BP West Coast, 374 F.3d at 1293 (‘‘[t]he mandate of Congress in the tax amendment was exhausted when the pipeline limited partnership was exempted from corporate taxation. It did not empower FERC to do anything. . . .’’); United Airlines, 827 F.3d at 136 (rejecting the Commission’s argument that ‘‘any disparate treatment between partners in partnership pipelines and shareholders in corporate pipelines is the result of the Internal Revenue Code, not FERC’s tax allowance policy’’). 71 United Airlines, 827 F.3d at 136. 72 As the Commission explains in the Remand Order, Congress did not provide explicit instructions to federal agencies regarding how to address section 7704’s tax treatment in setting regulated entity rates as, for instance, it did in the Revenue Act of 1964. See Alabama-Tennessee Natural Gas Co. v. FPC, 359 F.2d 318, 333 (5th Cir. 1966) (‘‘In the Revenue Acts of 1962 and 1964 Congress demonstrated that when it desires a tax statute to restrict the ratemaking authority of federal regulatory agencies it does so in precise language.’’). Courts are hesitant to find that Congress implicitly intended to restrict an agency’s discretion in E:\FR\FM\21MRN1.SGM 21MRN1 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES 40. Nor do the pipeline commenters present any legislative history to support their claim. Regarding the letter from Senator Baucus, evidence of legislative intent that occurs subsequent to, and in this case years after, the 1987 enactment of section 7704 is entitled to little, if any weight.73 The MLPA also points to other legislation by Congress in recent years to demonstrate ongoing support for the use of MLPs to raise capital in the energy sector. These statutes do not include any specific provisions related to MLP pipeline rate treatment.74 41. In conclusion, removing the income tax allowance will not eviscerate the preferential tax treatment that Congress gave entities engaged in natural resource activities 75 by permitting them to operate as publiclytraded partnerships with pass-through taxation, including the ability to reach a broader base of investors and defer carrying out its statutory obligations. See AlabamaTennessee Natural Gas Co. v. FPC, 359 F.2d at 335 (‘‘It is unlikely to suppose that Congress amended the Natural Gas Act by a reference in the Internal Revenue Code; it is unreasonable to read Section 167 [of the Code] as a mandate reducing the Commission’s responsibility to fix fair rates according to its usual ratemaking policies in favor of the consumer’’); see also Cheney R. Co. v. ICC, 902 F.2d 66, 69 (DC Cir. 1990) (‘‘in an administrative setting, . . . Congress is presumed to have left to reasonable agency discretion questions that it has not directly resolved’’). 73 See Thomas v. Network Solutions, Inc., 176 F. 3d 500, 507 n.10 (D.C. Cir. 1999) (referring to letters from members of Congress written after the legislation in question was passed and noting that ‘‘[s]uch isolated post-enactment statements, to the extent that they are legislative history, carry little weight’’); U.S. v. United Mine Workers of America, 330 U.S. 258, 282 (1947) (remarks of senators in 1943 were not an authoritative source of evidence of Congress’ legislative intent in enacting a 1932 statute); D.C. v. Heller, 554 U.S. 570, 605 (2008) (‘‘post-enactment legislative history . . . a deprecatory contradiction in terms, refers to statements of those who drafted or voted for the law that are made after its enactment and hence could have no effect on the congressional vote’’); Barber v. Thomas, 560 U.S. 474, 486 (2010) (‘‘whatever interpretive force one attaches to legislative history, the Court normally gives little weight to statements, such as those of the individual legislators, made after the bill in question has become a law’’); Friends of Earth, Inc. v. E.P.A., 446 F.3d 140, 147 (D.C. Cir. 2006) (‘‘‘[P]ost-enactment legislative history,’ after all, ‘is not only oxymoronic but inherently entitled to little weight’’’) (quoting Cobell v. Norton, 428 F.3d 1070, 1075 (D.C. Cir. 2005)). 74 See MLPA Initial Comments at 4 (citing the American Jobs Creation Act, Emergency Economic Stabilization Act of 2008, and the Tax Reform Act of 2014). 75 An MLP must receive at least 90 percent of its income from certain qualifying sources including ‘‘the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy, and timber), industrial source carbon dioxide, or the transportation or storage of [certain fuels].’’ 26 U.S.C. 7704. VerDate Sep<11>2014 18:34 Mar 20, 2018 Jkt 244001 certain tax obligations.76 Even in the absence of an income tax allowance, the energy sector will benefit from the MLP business form by enabling MLP-owned pipelines to provide lower tariff rates to shippers, including those engaged in production, marketing and refining. b. Preserving the Income Tax Allowance for MLP Pipelines Does Not Create Parity 42. Pipeline commenters claim that removing the income tax allowance would put MLP pipelines at a competitive disadvantage relative to corporate pipelines.77 43. The court in United Airlines reached the opposite conclusion. The court determined that granting MLP pipelines an income tax allowance results in inequitable returns for partners as compared to corporate shareholders because this policy allows partnership pipelines, unlike corporate pipelines, to recover their income tax costs twice.78 Therefore, removal of the income tax allowance for MLP pipelines restores parity between MLPs and corporations by ensuring that a pipeline recovers its income tax costs only once regardless of business form.79 c. Preserving the Income Tax Allowance Is Not Necessary for Pipelines To Attract Capital 44. Pipelines claim that removal of the income tax allowance for MLPs will deny pipelines adequate recovery under Hope and deter investment.80 This is not the case. Notwithstanding the absence of an income tax allowance, MLP pipelines will continue to recover their costs and a reasonable return for investors. United Airlines and the Remand Order merely deny MLP pipelines the double recovery of their income tax costs. 76 Pipeline commenters explain that the MLP structure permits risk sharing by combining passthrough taxation and publicly-traded units which allows MLPs to reach a broader base of investors and facilitates raising capital for infrastructure projects. AOPL Initial Comments at 6, 39, 13; MLPA Initial Comments at 2–3. 77 AOPL Initial Comments at 43; INGAA Initial Comments at 7, 15; MLPA Initial Comments at 15. 78 United Airlines, 827 F.3d at 136. 79 While comments have presented hypotheticals in an attempt to show that MLPs require such a double recovery, they suffer from the same defects as the pipelines’ other arguments. For instance, while SFPP attempts to include a hypothetical showing that an income tax allowance is necessary to equalize returns, this hypothetical depends upon the faulty investor gross-up theory discussed above. See SFPP Initial Comments, Vander Weide Affidavit at 12 (Table 2, Lines 11–15, showing the before-tax DCF ROE and investor’s pre-tax return equaling the investor’s after-tax return). 80 INGAA Initial Comments at 27–28; AOPL Initial Comments at 7, 35–37. PO 00000 Frm 00037 Fmt 4703 Sfmt 4703 12369 B. Conclusion 45. As discussed above, the Commission finds that granting an MLP an income tax allowance results in an impermissible double recovery. This Revised Policy Statement does not address other, non-MLP partnership or other pass-through business forms.81 While any such entity claiming an income tax allowance will need to address the concerns raised by the court in United Airlines, the Commission will address income tax allowance issues involving non-MLP partnership forms in subsequent proceedings. 46. This Revised Policy Statement will affect both oil and natural gas MLP pipelines on a going-forward basis. Some late-filed comments proposed that the Commission take immediate action to require natural gas and oil pipelines to reduce rates to reflect the Tax Cuts and Jobs Act. As noted above, the Commission is concurrently issuing a Notice of Proposed Rulemaking that addresses the effects upon interstate natural gas pipeline rates of the postUnited Airlines’ policy changes and the Tax Cuts and Jobs Act of 2017.82 While the Commission is not taking similar industry-wide action regarding oil pipeline rates, these issues will be addressed in due course. When oil pipelines file Form No. 6, page 700 on April 18, 2018, they must report an income tax allowance consistent with United Airlines and the Commission’s subsequent holdings denying an MLP an income tax allowance.83 Based upon page 700 data, the Commission will incorporate the effects of the postUnited Airlines’ policy changes (as well as the Tax Cuts and Jobs Act of 2017) 84 81 See, e.g., Initial Comments of the United Airlines Petitioners and Allied Shippers at 14 (‘‘A generic proceeding is not well-suited to addressing the wide array of possible organizational forms and their respective tax implications. The better approach would be to examine the appropriate tax allowance treatment on a case-by-case basis in adjudicatory proceedings in which various business structures and their consequences can be examined in detail on an individual, case-specific basis.’’); Liquids Shipper Group Initial Comments at 7 (‘‘To the extent there may be individual and complex pipeline ownership structures that include both partnerships and corporations, the application of the FERC’s policy can be determined on a case-bycase basis, addressing those unique circumstances.’’). 82 See Docket No. RM18–11–000. 83 Due to these findings that including an income tax allowance in the cost of service leads to a double-recovery, there is no basis for an MLP pipeline to claim an income tax allowance in the summary Form No. 6, page 700 cost of service for the 2016 or 2017 data listed in the April 18, 2018 filing. 84 The Tax Cuts and Jobs Act changed oil pipeline tax costs effective January 1, 2018, and the resulting reduction to tax costs should be reflected in the tax allowance (page 700, lines 8 and 8a) in the 2018 E:\FR\FM\21MRN1.SGM Continued 21MRN1 12370 Federal Register / Vol. 83, No. 55 / Wednesday, March 21, 2018 / Notices on industry-wide oil pipeline costs in the 2020 five-year review of the oil pipeline index level.85 In this way the Commission will ensure that the industry-wide reduced costs are incorporated on an industry-wide basis as part of the index review. To the extent the Commission issues subsequent orders affecting the income tax policy for other partnership or passthrough business forms, oil pipelines should similarly reflect those policy changes on Form No. 6, page 700. 47. In addition, the Commission emphasizes that the post-United Airlines’ policy changes (as well as the Tax Cuts and Jobs Act of 2017) will be reflected in initial oil and gas pipeline cost-of-service rates and cost-of-service rate changes on a going-forward basis under the Commission’s existing ratemaking policies,86 including cost-ofservice rate proceedings resulting from shipper-initiated complaints. III. Document Availability sradovich on DSK3GMQ082PROD with NOTICES 48. In addition to publishing the full text of this document in the Federal Register, the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the internet through FERC’s Home Page (https:// www.ferc.gov) and in FERC’s Public Reference Room during normal business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street NE, Room 2A, Washington, DC 20426. 49. From FERC’s Home Page on the internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field. data reported in Form No. 6, page 700, to be filed on April 18, 2019. 85 The overwhelming majority of oil pipelines set their rates using indexing, not cost-of-service ratemaking using an oil pipeline’s particular costs. Under indexing, oil pipelines may adjust their rates annually, so long as those rates remain at or below the applicable ceiling levels. The ceiling levels change every July 1 based on an index that tracks industry-wide cost changes. 18 CFR 342.3. Currently, the index level is based upon the Producer’s Price Index for Finished Goods plus 1.23. The index will be re-assessed in 2020 based upon industry-wide oil pipeline cost changes between 2014 and 2019. E.g. Five-Year Review of the Oil Pipeline Index, 153 FERC ¶ 61,312 (2015) aff’d, Assoc. of Oil Pipe Lines v. FERC, 876 F.3d 336 (D.C. Cir. 2017). The industry-wide data filed in the latter years of the 2014–2019 period should reflect the Commission’s post-United Airlines policy changes as well as the Tax Cuts and Jobs Act. 86 See, e.g., 18 CFR 154.312(m), 154.313(e)(13), 384.123; 342.2, 342.4(a); 18 CFR part 346. VerDate Sep<11>2014 18:34 Mar 20, 2018 Jkt 244001 50. User assistance is available for eLibrary and the FERC’s website during normal business hours from FERC Online Support at 202–502–6652 (toll free at 1–866–208–3676) or email at ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502– 8371, TTY (202) 502–8659. Email the Public Reference Room at public.referenceroom@ferc.gov. IV. Effective Date 51. This Revised Policy Statement will become applicable March 21, 2018. By the Commission. Issued: March 15, 2018. Nathaniel J. Davis, Sr., Deputy Secretary. [FR Doc. 2018–05668 Filed 3–20–18; 8:45 am] BILLING CODE 6717–01–P DEPARTMENT OF ENERGY Federal Energy Regulatory Commission [Docket No. ER18–1077–000] GASNA 36P, LLC ; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 Authorization This is a supplemental notice in the above-referenced proceeding of GASNA 36P, LLC‘s application for market-based rate authority, with an accompanying rate tariff, noting that such application includes a request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability. Any person desiring to intervene or to protest should file with the Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, in accordance with Rules 211 and 214 of the Commission’s Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant. Notice is hereby given that the deadline for filing protests with regard to the applicant’s request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability, is April 4, 2018. The Commission encourages electronic submission of protests and interventions in lieu of paper, using the FERC Online links at https:// www.ferc.gov. To facilitate electronic service, persons with internet access who will eFile a document and/or be listed as a contact for an intervenor must create and validate an PO 00000 Frm 00038 Fmt 4703 Sfmt 4703 eRegistration account using the eRegistration link. Select the eFiling link to log on and submit the intervention or protests. Persons unable to file electronically should submit an original and 5 copies of the intervention or protest to the Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426. The filings in the above-referenced proceeding are accessible in the Commission’s eLibrary system by clicking on the appropriate link in the above list. They are also available for electronic review in the Commission’s Public Reference Room in Washington, DC. There is an eSubscription link on the website that enables subscribers to receive email notification when a document is added to a subscribed docket(s). For assistance with any FERC Online service, please email FERCOnlineSupport@ferc.gov. or call (866) 208–3676 (toll free). For TTY, call (202) 502–8659. Dated: March 15, 2018. Nathaniel J. Davis, Sr., Deputy Secretary. [FR Doc. 2018–05677 Filed 3–20–18; 8:45 am] BILLING CODE 6717–01–P DEPARTMENT OF ENERGY Federal Energy Regulatory Commission [Docket No. RP18–441–000] Midwestern Gas Transmission Company; Notice of Initiation of Section 5 Proceeding On March 15, 2018, the Commission issued an order in Docket No. RP18– 441–000, pursuant to section 5 of the Natural Gas Act, 15 U.S.C. 717d (2012), instituting an investigation into the justness and reasonableness of Midwestern Gas Transmission Company’s (Midwestern) currently effective tariff rates. The Commission’s order directs Midwestern to file a full cost and revenue study within 75 days of the issuance of the order. Midwestern Gas Transmission Company, 162 FERC 61,219 (2018). Any interested person desiring to be heard in Docket No. RP18–441–000 must file a notice of intervention or motion to intervene, as appropriate, with the Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, in accordance with Rule 214 of the Commission’s Rules of Practice and Procedure, 18 CFR 385.214, within 30 days of the date of issuance of the order. E:\FR\FM\21MRN1.SGM 21MRN1

Agencies

[Federal Register Volume 83, Number 55 (Wednesday, March 21, 2018)]
[Notices]
[Pages 12362-12370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05668]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL17-1-000]


Inquiry Regarding the Commission's Policy for Recovery of Income 
Tax Costs

AGENCY: Federal Energy Regulatory Commission.

ACTION: Revised policy statement.

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SUMMARY: Following the decision of the U.S. Court of Appeals for the 
District of Columbia Circuit in United Airlines, Inc., et al. v. 
Federal Energy Regulatory Commission, the Commission issued a notice of 
inquiry (NOI) seeking comment regarding how to address any double 
recovery resulting from the Commission's current income tax allowance 
and rate of return policies. The Commission finds that an impermissible 
double recovery results from granting a Master Limited Partnership 
(MLP) pipeline both an income tax allowance and a return on equity 
pursuant to the discounted cash flow methodology. Accordingly, the 
Commission revises its policy and will no longer permit an MLP to 
recover an income tax allowance in its cost of service. While all 
partnerships seeking to recover an income tax allowance will need to 
address the double-recovery concern, the Commission will address the 
application of United Airlines to

[[Page 12363]]

non-MLP partnership forms as those issues arise in subsequent 
proceedings.

DATES: This Revised Policy Statement will become applicable March 21, 
2018.

FOR FURTHER INFORMATION CONTACT: 
Glenna Riley (Legal Information), Office of the General Counsel, 888 
First Street NE, Washington, DC 20426, (202) 502-8620, 
[email protected].
Andrew Knudsen (Legal Information), Office of the General Counsel, 888 
First Street NE, Washington, DC 20426, (202) 502-6527, 
[email protected].
James Sarikas (Technical Information), Office of Energy Markets 
Regulation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-6831, [email protected].
Scott Everngam (Technical Information), Office of Energy Markets 
Regulation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-6614, [email protected].

SUPPLEMENTARY INFORMATION: 
    Before Commissioners: Kevin J. McIntyre, Chairman; Cheryl A. 
LaFleur, Neil Chatterjee, Robert F. Powelson, and Richard Glick.
    1. On December 15, 2016, the Commission issued a Notice of Inquiry 
(NOI) \1\ following the decision of the United States Court of Appeals 
for the District of Columbia Circuit (D.C. Circuit) in United 
Airlines.\2\ In that decision, the D.C. Circuit held that the 
Commission failed to demonstrate that there was no double recovery of 
income tax costs when permitting SFPP, L.P. (SFPP), a master limited 
partnership (MLP),\3\ to recover both an income tax allowance and a 
return on equity (ROE) determined pursuant to the discounted cash flow 
(DCF) methodology. The NOI sought comments regarding the double-
recovery concern.
---------------------------------------------------------------------------

    \1\ Inquiry Regarding the Commission's Policy for Recovery of 
Income Tax Costs, 157 FERC ] 61,210 (2016), 81 FR 94366 (December 
23, 2016) (NOI).
    \2\ United Airlines, Inc., v. FERC, 827 F.3d 122, 134, 136 (D.C. 
Cir. 2016) (United Airlines).
    \3\ An MLP is a publicly traded partnership under the Internal 
Revenue Code that receives at least 90 percent of its income from 
certain qualifying sources, including gas and oil transportation. 
See 26 U.S.C. 7704; NOI, 157 FERC ] 61,210 at PP 4-7. At the time of 
SFPP's rate filing, Kinder Morgan Energy Partners (KMEP), an MLP, 
indirectly owned a 99 percent general partner interest in SFPP. 
SFPP, L.P., Opinion No. 511, 134 FERC ] 61,121, at P 74 (2011).
---------------------------------------------------------------------------

    2. As explained below, the Commission revises the 2005 Income Tax 
Policy Statement \4\ and will no longer permit MLPs to recover an 
income tax allowance in their cost of service. To the extent the 
comments in this proceeding raise arguments that an MLP pipeline should 
continue to receive an income tax allowance, those comments fail (a) to 
undermine the conclusion that a double recovery results from granting 
an MLP both an income tax allowance and a DCF ROE or (b) to justify 
preserving an income tax allowance notwithstanding such a double 
recovery. Consistent with this policy, the Commission is concurrently 
issuing a Remand Order \5\ denying SFPP an income tax allowance in 
response to United Airlines.
---------------------------------------------------------------------------

    \4\ Policy Statement on Income Tax Allowances, 111 FERC ] 61,139 
(2005), 70 FR 25818 (May 16, 2005) (2005 Income Tax Policy 
Statement).
    \5\ SFPP, L.P., Opinion No. 511-C, 162 FERC ] 61,228 (2018) 
(Remand Order).
---------------------------------------------------------------------------

    3. In addition, this record does not provide a basis for addressing 
the United Airlines double-recovery issue for the innumerable 
partnership and other pass-through business forms that are not MLPs 
like SFPP. While all partnerships seeking to recover an income tax 
allowance will need to address the double-recovery concern, the 
Commission will address the application of United Airlines to non-MLP 
partnership or other pass-through business forms as those issues arise 
in subsequent proceedings.

I. Background

    4. Prior to United Airlines, the Commission's 2005 Income Tax 
Policy Statement allowed all partnership entities (including MLPs, such 
as SFPP) to recover an income tax allowance for the partners' tax costs 
much like a corporation receives an income tax allowance for its 
corporate income tax costs.\6\ The Commission explained that while a 
partnership itself does not pay taxes, the partners pay income taxes 
based upon the partnership income and these partner-level taxes could 
be imputed to the pipeline.\7\
---------------------------------------------------------------------------

    \6\ 2005 Income Tax Policy Statement, 111 FERC ] 61,139. The 
Commission's policy permits an income tax allowance, provided that 
the owners can show an actual or potential income tax liability to 
be paid on income from the regulated assets.
    \7\ Id.
---------------------------------------------------------------------------

    5. Alongside this income tax policy, the Commission has used the 
DCF methodology to determine the rate of return regulated entities need 
to attract capital.\8\ Under the DCF methodology, the required rate of 
return is estimated to equal a corporate investor's current dividend 
yield (dividends divided by share price) plus the projected future 
growth rate of dividends, such that k = D/P + g.\9\ Similarly, for an 
MLP, the Commission uses the same formula, substituting unitholder 
distributions for dividends, unit price for share price, and using a 
lower long-term growth rate.\10\
---------------------------------------------------------------------------

    \8\ United Airlines, 827 F.3d at 136; Coakley v. Bangor Hydro-
Electric Co., Opinion No. 531, 147 FERC ] 61,234, at P 14 (2014). 
The Supreme Court has stated that ``the return to the equity owner 
should be commensurate with the return on investments in other 
enterprises having corresponding risks. That return, moreover, 
should be sufficient to assure confidence in the financial integrity 
of the enterprise, so as to maintain its credit and to attract 
capital.'' FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944); 
Bluefield Water Works & Improvement Co. v. Public Service Comm'n, 
262 U.S. 679 (1923).
    \9\ Where P is the price of the stock at the relevant time, D is 
the current dividend, k is the investors' required rate of return, 
and g is the expected growth rate in dividends. When a regulated 
entity is a wholly owned subsidiary and not publicly-traded, the 
Commission applies the DCF formula to other publicly-traded entities 
in a proxy group, and, based typically upon the median of the range 
of returns in the proxy group, the Commission determines the 
regulated entity's allowed ROE.
    \10\ Composition of Proxy Groups for Determining Gas and Oil 
Pipeline Return on Equity, 123 FERC ] 61,048, at P 6 (2008) (Proxy 
Group Policy Statement).
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    6. In addressing SFPP's West Line rate case filed in 2008, the 
Commission applied its 2005 policy that allows a partnership to recover 
an income tax allowance.\11\ In United Airlines, the D.C. Circuit 
remanded the Commission's application of this policy, holding that the 
Commission failed to adequately explain why a double recovery did not 
result from allowing SFPP to recover both an income tax allowance and a 
ROE determined by the Commission's DCF methodology.\12\ Accordingly, 
the D.C. Circuit remanded the decisions to the Commission to consider 
``mechanisms for which the Commission can demonstrate that there is no 
double recovery.'' \13\
---------------------------------------------------------------------------

    \11\ Opinion No. 511, 134 FERC ] 61,121, order on reh'g, Opinion 
No. 511-A, 137 FERC ] 61,220 (2011), order on reh'g, Opinion No. 
511-B, 150 FERC ] 61,096 (2015).
    \12\ United Airlines marks the third time the D.C. Circuit has 
reviewed the Commission's income tax allowance policy with respect 
to partnership entities. See BP West Coast Products, LLC v. FERC, 
374 F.3d 1263 (D.C. Cir. 2004); ExxonMobil Oil Corp. v. FERC, 487 
F.3d 945 (D.C. Cir. 2007).
    \13\ United Airlines, 827 F.3d at 137. The D.C. Circuit did not 
restrict the Commission's policy options, but, among other 
possibilities, it noted that the Commission could consider removing 
any duplicative tax recovery for partnerships directly from the DCF 
ROE, or eliminating all income tax allowances and setting rates 
based on pre-tax returns. Id.
---------------------------------------------------------------------------

    7. In response, the Commission issued the December 2016 NOI, 
soliciting comments on how to resolve any double recovery resulting 
from the 2005 Income Tax Policy Statement and rate of return policies. 
The Commission received 24 comments and 19 reply comments from 
customer, pipeline, and electric utility interests.

[[Page 12364]]

II. Discussion

    8. This Revised Policy Statement explains the Commission's 
conclusion following United Airlines that an impermissible double 
recovery results from granting an MLP pipeline both an income tax 
allowance and a DCF ROE. Accordingly, the Commission will no longer 
permit MLPs to recover an income tax allowance in their cost of 
service. Therefore, the Commission instructs oil pipelines organized as 
MLPs to reflect the Commission's elimination of the MLP income tax 
allowance in their Form No. 6, page 700 reporting. Based upon this page 
700 data, the Commission will incorporate the effects of this Revised 
Policy on industry-wide oil pipeline costs in the 2020 five-year review 
of the oil pipeline index level. The Commission is also concurrently 
issuing a Notice of Proposed Rulemaking that addresses the effects of 
this Revised Policy on the rates of interstate natural gas pipelines 
organized as MLPs.\14\ For those partnerships that are not MLPs, the 
Commission will address such matters in subsequent proceedings.
---------------------------------------------------------------------------

    \14\ Interstate and Intrastate Natural Gas Pipelines; Rate 
Changes Relating to Federal Income Tax Rate, 162 FERC ] 61,226 
(2018).
---------------------------------------------------------------------------

A. An Impermissible Double Recovery Results From Granting an MLP 
Pipeline Both an Income Tax Allowance and a DCF ROE

    9. While some of the comments in this proceeding argue that no 
double recovery results from granting an income tax allowance to an 
MLP, none of these arguments are persuasive. As the Commission explains 
in the Remand Order, a double recovery results from granting an MLP an 
income tax allowance and a DCF ROE:
     MLPs and similar pass-through entities do not incur income 
taxes at the entity level.\15\ Instead, the partners are individually 
responsible for paying taxes on their allocated share of the 
partnership's taxable income.\16\
---------------------------------------------------------------------------

    \15\ United Airlines, 827 F.3d at 136.
    \16\ 2005 Income Tax Policy Statement, 111 FERC ] 61,139 at P 
33; see also ExxonMobil, 487 F.3d at 954 (noting that ``investors in 
a limited partnership are required to pay tax on their distributive 
shares of the partnership income, even if they do not receive a cash 
distribution''). In contrast, corporations pay entity-level income 
taxes, and corporate dividends are second tier income to a common 
stock investor, not analogous to partnership distributions.
---------------------------------------------------------------------------

     The DCF methodology estimates the returns a regulated 
entity must provide to investors in order to attract capital.\17\
---------------------------------------------------------------------------

    \17\ See Coakley v. Bangor Hydro-Electric Co., Opinion No. 531, 
147 FERC ] 61,234 at P 14.
---------------------------------------------------------------------------

     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.\18\ 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.
---------------------------------------------------------------------------

    \18\ Kern River Transmission Co., Opinion No. 486-B, 126 FERC ] 
61,034, at P 114 (2009) (``investors invest on the basis of after-
tax returns and price an instrument accordingly'').
---------------------------------------------------------------------------

     The DCF methodology ``determines the pre-tax investor 
return required to attract investment.'' \19\
---------------------------------------------------------------------------

    \19\ United Airlines, 827 F.3d at 136 (emphasis added).
---------------------------------------------------------------------------

    Given that the DCF return is a ``pre-tax return,'' permitting an 
MLP to recover both an income tax allowance and a DCF ROE leads to a 
double recovery of the MLP's income tax costs.\20\
---------------------------------------------------------------------------

    \20\ Id. at 137.
---------------------------------------------------------------------------

    10. This Revised Policy Statement addresses comments responding to 
the NOI asserting that (a) granting an MLP an income tax allowance does 
not cause a double recovery or (b) notwithstanding the existence of a 
double recovery, MLPs should continue to receive an income tax 
allowance. As discussed below, these arguments are unavailing.
1. A Double Recovery Results From Granting an MLP Both an Income Tax 
Allowance and a DCF ROE
    11. The Commission rejects arguments from pipelines and pipeline 
groups that no double recovery results from granting an MLP both an 
income tax allowance and a DCF ROE. These include claims that (a) 
changes to the stock price eliminate the double recovery, (b) MLP 
partners' taxes are ``first tier'' taxes that should be recoverable in 
an income tax allowance, (c) the return produced by the DCF analysis is 
never grossed-up (or adjusted) to include MLP partners' tax costs, (d) 
the presence of an income tax allowance causes MLP investors to demand 
a lower return in the market place, (e) a life-cycle hypothetical shows 
that corporate and MLP tax costs and after-tax returns are similar when 
an income tax allowance is present, (f) the calculation of the growth 
rate in the DCF Formula for MLPs addresses the double-recovery issue, 
and (g) various empirical studies refute the double-recovery finding in 
United Airlines. As discussed below none of these arguments resolves 
the double-recovery concern, and accordingly, the Commission will no 
longer permit MLPs to recover an income tax allowance in cost-of-
service rates.
a. Changes to a Pipeline's Unit Price Do Not Resolve the Double-
Recovery Issue
    12. Some commenters argue that there is no double recovery caused 
by an income tax allowance for MLPs because the income tax allowance 
merely increases the price of the MLP units.\21\ These commenters 
assert that as a result of the increased unit price, investors will 
receive the same rate of return whether or not the pipeline receives an 
income tax allowance, and, thus, there is no double recovery.
---------------------------------------------------------------------------

    \21\ E.g., Association of Oil Pipe Lines (AOPL) Initial Comments 
at 24-27, Graham Declaration at 12-13; SFPP Initial Comments at 21-
26, Vander Weide Declaration at PP 8, 19. These commenters argue 
that if an MLP is able to charge a higher tariff rate, the increased 
cash flow will lead to increased distributions to investors and MLP 
prices will rise to reflect the additional cash flow. Hence, the 
market will immediately react to eliminate any differences such that 
the after-tax returns of partnership and corporate investors are 
equalized.
---------------------------------------------------------------------------

    13. The Commission rejects such arguments as inapposite. As 
explained in the Remand Order, the double-recovery issue is separate 
from the post-rate case effects upon an MLP pipeline's unit price. An 
MLP pipeline's DCF ROE is typically based upon a proxy group of other 
MLPs,\22\ all of which must provide investors with sufficient pre-
investor tax returns to attract capital. Permitting an MLP pipeline to 
recover both the DCF pre-investor tax return and an income tax 
allowance for the investor-level tax costs leads to a double recovery. 
Whether or not the double recovery leads to an increased unit price, 
the impermissible double recovery in the MLP's cost of service 
remains.\23\
---------------------------------------------------------------------------

    \22\ The proxy group may include corporations as well. In that 
case, the ROE will reflect the dividend tax paid by corporate 
investors.
    \23\ While an inflated cost of service will likely increase 
distributions to investors and cause a pipeline's unit price to 
rise, such benefits to a pipeline's unitholders do not render the 
double recovery permissible. Under this theory, the Commission could 
increase a pipeline's cost of service by allowing the pipeline to 
incorporate duplicative costs, yet these commenters appear to claim 
that because its unit price would subsequently rise, the inclusion 
of duplicative costs in the pipeline's cost of service is not unjust 
or unreasonable. This argument is without merit.
---------------------------------------------------------------------------

    14. Moreover, while permitting such a double recovery may increase 
the unit price, these changes in the unit price do not resolve the 
double-recovery problem or change the DCF return from a pre-investor 
tax return to an after-investor tax return. Rather, if an MLP pipeline 
obtains a new revenue source that increases distributions to investors 
(such as an income tax allowance), the unit price will rise until, once 
again, the investor receives the cash flow necessary to cover the 
investor's income

[[Page 12365]]

tax liabilities and to earn an after-tax return that is comparable to 
other investments of similar risk.\24\ Likewise, if the MLP's cash 
flows are reduced (such as via the removal of the income tax allowance) 
and consequently distributions decline, the MLP unit price will drop 
until the returns once again both cover an investor's tax costs and 
provide the sufficient after-tax returns. Whether or not a pipeline 
receives an income tax allowance, the MLP's DCF return will always be a 
pre-investor tax return.\25\
---------------------------------------------------------------------------

    \24\ United Airlines, 827 F.3d at 136. In finding that ``the 
[DCF ROE] determines the pre-tax investor return required to attract 
investment, irrespective of whether the regulated entity is a 
partnership or a corporate pipeline,'' the Court relied on Opinion 
No. 511, 134 FERC ] 61,121 at PP 243, 244, which included the 
following example:
    The investor desires a 6 percent after-tax return and has a 25 
percent marginal tax rate. Thus, the security must have an ROE of 8 
percent to achieve an after-tax yield of 6 percent. Assume that the 
distribution or dividend is $8. The investor will price the security 
at $100. Conversely, if the security price is $100 and the yield is 
$8, the Commission determines that the required return is 8 percent. 
If the dollar distribution increases to $10, the investor will price 
the security at $125 because $10 is 8 percent of $125. The 
Commission would note that the security price is $125 and that the 
yield is $10, or a return of 8 percent. If the distribution is $6, 
the security price will drop to $75, a return of 8 percent. The 
Commission would observe a $75 dollar security price, a $6 yield, 
and a return of 8 percent. In all cases the ROE is 8 percent and the 
after-tax return is 6 percent based on the market-established 
return.
    \25\ This is true both for the entity whose rates are at issue 
in a cost-of-service rate case (such as SFPP in the Remand Order) 
and for the entities in the proxy group.
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b. The Argument That MLPs Are Entitled To Recover ``First Tier'' Taxes 
Is Irrelevant
    15. Some commenters contend that removing the income tax allowance 
is contrary to Commission and court findings that MLP pipelines may 
recover so-called ``first tier'' taxes for income generated by the 
regulated pipeline.\26\ The pipelines claim that because a partnership 
does not itself pay taxes, the taxes paid by the partners are the 
``first tier'' tax, much like the corporate income tax is the ``first 
tier'' tax for the corporation. The pipelines contrast these ``first 
tier'' taxes with so-called ``second tier'' taxes (such as the dividend 
tax paid by corporate stockholders) which are not typically recovered 
by the income tax allowance.
---------------------------------------------------------------------------

    \26\ Interstate Natural Gas Association of America (INGAA) 
Initial Comments, Sullivan Affidavit at 12-14, 24-25, 27.
---------------------------------------------------------------------------

    16. The Commission is not persuaded by such arguments, which were 
already presented to the D.C. Circuit.\27\ The pipelines' arguments do 
not address the D.C. Circuit's finding that the DCF ROE itself enables 
the recovery of an MLP's ``first tier'' tax costs, rendering an income 
tax allowance unnecessary. Whether or not a tax can be labeled a 
``first tier'' tax is irrelevant to the double-recovery issue. No 
double recovery results when a corporate pipeline's cost of service 
includes an income tax allowance because this so-called ``first tier'' 
corporate income tax is paid directly by the corporation, rather than 
by unitholders from the dividends used in the DCF methodology.\28\ In 
contrast, the MLP itself pays no taxes.\29\ Because the ``first tier'' 
MLP income taxes are paid directly by the unitholders,\30\ the D.C. 
Circuit explained that the pre-investor tax DCF return must be 
sufficient to recover an MLP investor's tax costs in order to attract 
capital. While the D.C. Circuit reaffirmed that an MLP pipeline may 
recover such ``first tier'' investor income tax costs, the D.C. Circuit 
also held that an MLP pipeline may not double recover those costs via 
both an income tax allowance and the DCF return.\31\
---------------------------------------------------------------------------

    \27\ Federal Energy Regulatory Commission and United States of 
America, Brief for Respondents, Case No. 11-1479, at 26 (D.C. Cir., 
filed Feb. 5, 2016).
    \28\ Corporations first pay the corporate income tax from their 
earnings prior to any dividends to investors. Then, subsequently, 
investors pay taxes on dividends. While the pre-investor tax DCF 
return would reflect the dividend tax paid by investors, it does not 
reflect the corporate income tax.
    \29\ United Airlines, 827 F.3d at 136 (explaining ``unlike a 
corporate pipeline, a partnership pipeline incurs no taxes, except 
those imputed from its partners, at the entity level'').
    \30\ In the past, the Commission has stated that its income tax 
allowance policy ``imputes'' those investor-level taxes to the 
partnership entity. In using such phrasing, the Commission never 
denied that investors nonetheless pay the investor-level taxes.
    \31\ In United Airlines, the D.C. Circuit acknowledged that in 
ExxonMobil it held that the Commission provided a reasoned basis for 
allowing an MLP pipeline to recover the ``first tier'' income tax 
costs paid by the MLP partners. However, the D.C. Circuit explained 
that in ExxonMobil, it had ``reserved the issue of whether the 
combination of the [DCF ROE] and the tax allowance results in a 
double recovery of taxes for partnership pipelines.'' United 
Airlines, 827 F.3d at 134; see also ExxonMobil, 487 F.3d 945.
---------------------------------------------------------------------------

c. The Argument That the Tax Allowance Reduces Investors' Required 
Return Lacks Merit
    17. SFPP argues that investors recognize that the income tax costs 
are recovered by the pipeline through the income tax allowance and 
therefore, elect not to demand a DCF return on their investment that 
would cover those income tax costs.\32\ Because under this theory the 
DCF return would not include investor tax costs, SFPP argues that there 
is no double recovery. In essence, SFPP contends that the pre-tax 
return produced by a DCF analysis of an MLP with a tax allowance is the 
equivalent of an after-tax return, since investors do not demand a pre-
tax return. Similarly, SFPP argues that if MLPs lose the income tax 
allowance, then the MLP investors will demand a higher pre-tax return 
than under present policy.
---------------------------------------------------------------------------

    \32\ SFPP Initial Comments at 17, Vander Weide Declaration at PP 
12, 14, 18. SFPP claims that investors will not ``gross-up'' the 
required after-tax return to include tax costs. SFPP Initial 
Comments at 16; Vander Weide Declaration at PP 6, 18.
---------------------------------------------------------------------------

    18. The Commission rejects SFPP's assertions. These arguments 
distort how the income tax allowance affects investor tax liability. 
MLP investors owe a tax on any increased income, whether or not that 
income results from an income tax allowance or another source.\33\ 
Accordingly, while as discussed above an MLP income tax allowance may 
increase the unit price, investors will continue to demand a pre-tax 
return even when a portion of a pipeline's rate is attributable to an 
``income tax allowance.'' \34\ Notwithstanding the presence of an 
income tax allowance, the pre-investor tax ROE produced by the DCF 
analysis does not equal the investor's after-tax return. Likewise, if 
an MLP pipeline's loss of its income tax allowance reduces rates and 
investor income, the unit price will decline until the investor once 
again earns an adequate pre-tax return.
---------------------------------------------------------------------------

    \33\ The Internal Revenue Code does not exempt from taxation 
income that results from the increases to rates resulting from the 
cost-of-service income tax allowance.
    \34\ Suppose an income tax allowance increases a pipeline's 
rates, raising investor income from $10 to $12. Two things have 
occurred; first the investor's pre-tax income increased from $10 to 
$12 and second the investor now owes taxes on $12 of income just as 
she owed taxes on the initial $10. The unit price will increase 
until the investor receives the same pre-tax return at $12 of income 
that it received at $10 of income. In other words, Commission policy 
does not shift the actual liability to pay income taxes from the MLP 
partners to the MLP itself.
---------------------------------------------------------------------------

    19. SFPP's comments rely almost exclusively upon the incorrect 
assumption that for an MLP with an income tax allowance, an MLP 
investor's pre-tax return equals its after-tax return.\35\ However, 
while SFPP relies heavily upon this assumption in this proceeding, SFPP 
elsewhere takes the opposite position--presenting hypotheticals showing 
that an investor will demand a pre-tax return whether or

[[Page 12366]]

not the pipeline receives an income tax allowance.\36\
---------------------------------------------------------------------------

    \35\ E.g,. SFPP Initial Comments, Vander Weide Affidavit at 8 
(Table 1, Lines 11-15, showing the before-tax DCF ROE equaling the 
investor's after-tax return), 12 (Table 2, Lines 11-15, showing the 
before-tax DCF ROE and investor's pre-tax return equaling the 
investor's after-tax return), 16 (Table 3, lines 11-15 showing for a 
pipeline with an income tax allowance, the before-tax DCF ROE and 
investor's pre-tax return equaling the investor's after-tax return).
    \36\ In its West Line rate case, SFPP filed post-remand comments 
and supplemental comments following United Airlines. In those 
comments, SFPP presented a hypothetical showing that an MLP 
recovering both an income tax allowance (Table 1, Column C) and a 
DCF ROE earns the same 6.5 percent investor after-tax return as an 
MLP without an income tax allowance (Table 1, Column D). SFPP, L.P., 
Supplemental Reply Comments, Docket No. IS08-390, at 10 (November 
30, 2016). While the table does not show the investors' pre-tax 
returns, since both pipelines were subject to a 35 percent investor 
level tax, both must have recovered a 10 percent pre-tax investor 
return. Thus, in SFPP's own example, the cost-of-service double-
recovery of income tax costs of the pipeline in Column C inflated 
the unit price until it earned the same pre-tax return as the 
pipeline without an income tax allowance in Column D.
---------------------------------------------------------------------------

d. The Cost-of-Service Gross-Up Theory Was Rejected by the D.C. Circuit
    20. Some pipeline commenters also attempt to reframe the cost-of-
service ``gross-up'' theory rejected by the D.C. Circuit. This 
argument, which the Commission also made on appeal in the United 
Airlines proceeding, asserts that the DCF return does not include 
investor tax costs because the Commission never adjusts, or ``grosses-
up,'' the return produced by the DCF analysis to recover such tax 
costs.\37\ In response to the NOI, pipeline commenters assert that the 
DCF ROE cannot include an MLP investor's income tax costs because the 
income tax costs are not a separate line item in the DCF 
methodology.\38\
---------------------------------------------------------------------------

    \37\ Federal Energy Regulatory Commission and United States of 
America, Brief for Respondents, Case No. 11-1479, at 28-29 (D.C. 
Cir., filed Feb. 5, 2016) (citations omitted) (``In contrast to the 
way in which income taxes are grossed up outside the context of 
Commission regulation, the Commission does not gross up [i.e., 
increase] a jurisdictional entity's operating revenues or return to 
cover the income taxes that must be paid to obtain its after-tax 
return.'').
    \38\ INGAA Initial Comments at 24, Sullivan Affidavit at 6, 17-
18, 22, 25-27, 30.
---------------------------------------------------------------------------

    21. The Commission rejects this position. The Commission's DCF 
methodology need not include a mathematical step to add income taxes. 
For the reasons described above, ``the [DCF ROE] determines the pre-tax 
investor return'' \39\ that already reflects cash flow for both the (a) 
investor's tax costs and (b) the investor's post-tax return.
---------------------------------------------------------------------------

    \39\ United Airlines, 827 F.3d at 136 (citing Opinion No. 511, 
134 FERC ] 61,121 at PP 243-44).
---------------------------------------------------------------------------

e. The Life-Cycle Hypothetical Does Not Refute the D.C. Circuit's 
Holding
    22. INGAA witness Merle Erickson presents a life-cycle model that 
compares the total tax expenses of a hypothetical MLP to a hypothetical 
corporation. Under the assumptions of the model, Erickson finds that 
MLPs' and corporations' aggregate tax burdens are comparable and that 
both earn similar returns if MLPs are permitted an income tax 
allowance.\40\ Pipeline commenters claim that the model globally 
demonstrates that the Commission's current income tax policy provides 
parity in the returns to partnerships and corporations.\41\
---------------------------------------------------------------------------

    \40\ INGAA Initial Comments, Erickson Affidavit at 12.
    \41\ INGAA Initial Comments at 4, 25.
---------------------------------------------------------------------------

    23. We do not find this argument to be persuasive. Erickson's life-
cycle model does not undermine the fundamental premise of United 
Airlines that an income tax allowance for MLP pipelines leads to a 
double recovery. Whether or not the overall MLP and corporate tax 
burdens are equivalent or different, if the investor tax costs are 
incorporated into the DCF returns, then the income tax allowance for 
MLP pipelines leads to a double recovery.\42\
---------------------------------------------------------------------------

    \42\ Erickson himself concedes that MLP unitholders must pay the 
entirety of the tax burden whereas corporate unitholders must only 
pay the dividend tax (not the corporate income tax). INGAA Initial 
Comments, Erickson Affidavit at 13. Accordingly, it follows that 
whereas the DCF return for an MLP pipeline must include the entire 
income tax costs, a corporate pipeline's DCF return would not 
include the corporate income tax.
---------------------------------------------------------------------------

    24. In addition, Erickson's model does not necessarily establish 
that overall MLP tax levels are actually comparable to corporate tax 
levels or that an income tax allowance equalizes returns. Like similar 
hypothetical models, the results of Erickson's proposal rely upon 
subjective assumptions.\43\ For example, as Thomas Horst explains, 
Erickson's hypothetical would show that MLPs (with an income tax 
allowance) receive higher returns if Erickson had accounted for (a) the 
time value of money \44\ and (b) certain tax issues related to the sale 
of MLP units.\45\ The Brattle report presented by shipper commenters 
similarly demonstrates how reasonable changes to Erickson's assumptions 
change the model's output.\46\ Thus, Erickson's hypothetical does not 
undermine the fundamental conclusion of United Airlines that allowing 
MLP pipelines to include both an income tax allowance and a full DCF 
ROE in their cost of service leads to a double recovery.
---------------------------------------------------------------------------

    \43\ When attacking models proposed by shippers, AOPL witness 
John Graham states that for such hypotheticals, ``There are too many 
variables to draw broad-based conclusions.'' AOPL Initial Comments, 
Graham Affidavit at 8. This comment applies with equal force to 
Erickson's model. Erickson's assumptions include (1) a five-year 
investment horizon; (2) that the MLP distributes all available cash 
and the corporation has a 65 percent dividend pay-out ratio; (3) 
certain tax rates for corporate income, corporate dividends and 
capital gains, and ordinary MLP income; and (4) that the corporate 
investors are able to sell their stock for the value of their 
original investment plus accumulated retained earnings, while the 
MLP investors sell their units for the value of their original 
investment. The life-cycle model also assumes constant earnings 
before interest, taxes, depreciation and amortization and 
application of a fifteen-year Modified Accelerated Cost Recovery 
System. The life-cycle analysis does not take into account the time 
value of money in reporting the total after-tax cash flow to the MLP 
and corporate investors.
    \44\ Thomas Horst Reply Comments at 2. An investor in a 
corporation usually must pay his dividend taxes immediately. In 
contrast, an MLP investor can use depreciation and other deductions 
to offset taxable income. As a result, an MLP investor may have no 
net taxable income in a given year. NOI, 157 FERC ] 61,210 at P 6. 
Even though the investor may ultimately be required to pay such 
taxes when the units are sold, the MLP investor benefits from the 
time value of money during the deferral period.
    \45\ Id. Dr. Horst argues that when an MLP unit is sold, its 
basis increases--much like in the sale of any property or asset. 
This only further increases the depreciation deferrals that are 
available to the subsequent investor.
    \46\ United Airlines Petitioners Reply Comments, Brattle Report 
at PP 73-74.
---------------------------------------------------------------------------

f. The Treatment of the Growth Rate in the DCF Does Not Resolve the 
Double Recovery Concern
    25. Pipelines emphasize that in the DCF formula, the Commission 
projects that the long-term growth of MLP pipelines will be only half 
that of corporations.\47\ Therefore, they argue ``to the extent the 
Commission concludes that there is a potential for double recovery of 
income tax costs through the MLP ROE, the Commission has already 
addressed that concern.'' \48\
---------------------------------------------------------------------------

    \47\ AOPL Initial Comments at 46. As noted above, the DCF relies 
upon the general formula k = D / P + g. The growth rate in this 
formula incorporates two components: A short term growth rate 
(calculated using security analysts' five-year forecasts for each 
company in the proxy group as published by IBES) and a long-term 
growth rate (based upon forecasts for gross domestic product (GDP) 
growth). The short-term forecast receives a two-thirds weighting and 
the long-term forecast receives a one-third weighting in calculating 
the growth rate in the DCF model. Proxy Group Policy Statement, 123 
FERC ] 61,048 at P 6.
    \48\ AOPL Initial Comments at 46.
---------------------------------------------------------------------------

    26. The Commission concludes that the treatment in the DCF analysis 
of the long-term MLP growth projection does not resolve the double-
recovery concern in United Airlines. When conducting a DCF analysis to 
determine investors' required rate of return, the Commission halves the 
long-term growth rate for MLPs in the proxy group because MLPs are 
likely to have a lower long-term growth rate than corporations.\49\ The

[[Page 12367]]

treatment of investor-level taxes presents an entirely separate issue. 
As discussed above, regardless of the projected growth rate used in the 
DCF analysis to determine the investors' required rate of return, that 
required return must provide investors cash flows to both (a) recover 
investor level tax costs and (b) provide the investor with a sufficient 
after tax return.
---------------------------------------------------------------------------

    \49\ The Commission explained corporations ``(1) have greater 
opportunities for diversification because their investment 
opportunities are not limited to those that meet the tax qualifying 
standards for an MLP and (2) are able to assume greater risk at the 
margin because of less pressure to maintain a high payout ratio.'' 
Proxy Group Policy Statement, 123 FERC ] 61,048 at P 93. 
Accordingly, the Commission concluded that the ``long term growth 
rate for MLPs will be less than that of schedule C corporations. . . 
.'' Id. P 94. See also El Paso Natural Gas Co., Opinion No. 528-A, 
154 FERC ] 61,120, at PP 271-275, 278-283 (2016).
---------------------------------------------------------------------------

g. Pipelines' Empirical Studies Do Not Resolve the D.C. Circuit's 
Double-Recovery Concern
    27. Pipeline commenters advance two empirical criticisms of the 
holdings in United Airlines. First, they criticize studies presented by 
shippers in the underlying SFPP proceeding showing that MLP pipeline 
DCF returns exceed corporate pipeline DCF returns, while shipper 
commenters argue that a modified version of these studies supports the 
opposite result. Second, the pipelines argue the relationship between 
MLP and corporate pipeline DCF returns does not show a systemic 
disparity consistent with the different tax levels, and, thus, they 
argue that this refutes the holding that there is no double recovery. 
As discussed below, these arguments lack merit.
i. The Reasoning in United Airlines Holds, Whether or Not MLP DCF 
Returns Exceed Corporate DCF Returns
    28. In order to counter the D.C. Circuit's double-recovery finding, 
pipeline commenters attack studies presented by shippers in the 
underlying SFPP 2008 West Line rate case addressed on appeal in United 
Airlines.\50\ These studies purported to show that MLP pipeline DCF 
returns exceeded corporate pipeline DCF returns, which the shippers 
argued showed that the DCF returns reflected tax differences. Now, 
pipeline commenters argue that due to alleged flaws in these studies, 
the court in United Airlines erred by finding that the MLP pipeline DCF 
returns include investor-level tax costs. They assert that if their 
preferred sample of six pipelines (two corporations and four MLPs) is 
considered, corporate DCF returns may actually exceed MLP DCF 
returns.\51\
---------------------------------------------------------------------------

    \50\ INGAA Initial Comments, Sullivan Affidavit at 41-48.
    \51\ Id. at 47-48.
---------------------------------------------------------------------------

    29. The criticisms of the underlying studies in SFPP's 2008 West 
Line Rate case are irrelevant. In United Airlines, the D.C. Circuit did 
not rely upon these studies to find that the DCF returns include MLP 
investors' income tax costs, and the shipper-petitioners did not cite 
these studies in their appeal.\52\ Any such reliance would have been 
unnecessary. As described above, the inclusion of MLP investor-level 
taxes in the DCF return necessarily follows from the basic application 
of DCF theory and the understanding that investors consider the tax 
consequences of their investments.
---------------------------------------------------------------------------

    \52\ Before the Administrative Law Judge and the Commission, 
shippers argued that this disparity demonstrated the inclusion in 
the DCF ROE of the MLP investors' income tax costs, which they 
argued generally exceeded the dividend taxes paid by corporate 
investors.
---------------------------------------------------------------------------

    30. Furthermore, the studies are also inapposite. The holding in 
United Airlines would not change if the pipeline commenters were to 
conclusively establish that when controlling for all factors but 
investor-level taxes, corporate pipeline DCF returns exceeded MLP 
pipeline DCF returns. This would merely demonstrate that the MLP 
investors' tax burden was less than the corporate investors' dividend 
tax burden.\53\ In order to attract capital, the investor-required MLP 
pipeline DCF return would still include the investor-level tax costs, 
and thus, a double recovery results from the additional recovery of an 
income tax allowance for MLPs.\54\
---------------------------------------------------------------------------

    \53\ While historically a corporate investor's dividend tax rate 
has typically been less than the weighted average income tax rate 
for MLP investors (AOPL Initial Comments, Graham Affidavit at 5-6), 
MLPs have various tax deferrals and other characteristics that may 
further narrow or eliminate this difference. Nonetheless, any such 
conclusion based upon the pipeline commenters' data is dubious, as 
it is based upon a small sample size of only two corporations and 
four MLPs. INGAA Initial Comments, Sullivan Affidavit at 47-48.
    \54\ Likewise, the December 22, 2017 Tax Cuts and Jobs Act does 
not alter the Commission's analysis. Tax Cuts and Jobs Act, Public 
Law 115-97, 131 Stat. 2054 (2017). While the tax rates for both 
corporations and individuals have been reduced, the DCF ROE will 
continue to provide a pre-investor tax return. As discussed above, 
investors will continue to demand a return that both covers the 
investor level tax costs and leaves the investor a sufficient after 
tax return compared to other investments of comparable risk.
---------------------------------------------------------------------------

ii. The Pipeline Commenters' Empirical Evidence Fails To Disprove the 
Double Recovery
    31. Pipelines make two broad arguments. First, pipeline commenters 
argue that if the DCF methodology includes investor-tax costs as 
determined by the D.C. Circuit in United Airlines, there should be a 
systematic relationship between MLP pipeline and corporate pipeline DCF 
returns reflecting these differences in investor-level taxes. Second, 
they argue that if pipelines are double-recovering their costs, then 
MLP pipelines should report higher DCF returns, distribution yields, 
and growth rates than corporate pipelines.
    32. In their first argument, pipelines argue that if the DCF 
returns include investor tax costs, then there should be a consistent 
differential between MLP pipeline and corporate pipeline DCF returns. 
For example, if MLP investor-level taxes exceed corporate investor-
level taxes, then pipeline commenters state that MLP pipeline DCF 
returns should always exceed corporate pipeline DCF returns, or vice 
versa. To refute the holding in United Airlines, pipeline commenters 
present empirical analyses purporting to show that the DCF returns for 
MLP pipelines do not show a consistent differential.\55\ These studies 
consist of (1) a line graph showing DCF returns for 23 pipelines 
between August 2007 to January 2017 in which MLP pipelines' DCF returns 
do not always exceed corporate pipelines' returns,\56\ and (2) DCF 
returns over the January 2008 to January 2017 period comparing four 
pairs of MLP and corporate affiliates \57\ in which the relationship 
between the corporate affiliate and the MLP affiliate returns 
fluctuated significantly.
---------------------------------------------------------------------------

    \55\ See INGAA Initial Comments at 31-35, Sullivan Affidavit at 
42-69; AOPL Initial Comments at 3, 24, 28-30; Master Limited 
Partnership Association (MLPA) Initial Comments at 9.
    \56\ INGAA Initial Comments, Sullivan Affidavit at 48-49. INGAA 
witness Sullivan performed similar analysis for different components 
of the DCF, including both the dividend yield and the growth rate. 
Id. at 65-69.
    \57\ Id. at 50-51.
---------------------------------------------------------------------------

    33. These studies suffer from fundamental methodological flaws that 
undermine the pipelines' conclusions. It is true that the United 
Airlines double-recovery theory would predict that, assuming all other 
factors are exactly equal, investor-level tax differences would create 
a differential between MLP and corporate pipeline DCF returns.\58\ 
However, differences in risk and other factors can subsume any effects 
of taxation, and because the studies inadequately control for varying 
risk levels, the studies do not isolate the effect of the MLP and 
corporate investor-level income taxes on the DCF returns. The first 
study, which compared 23 MLP and corporate pipelines, completely 
ignores the entities' differing risk levels \59\ and merely shows a 
line graph of DCF returns for each pipeline without presenting any 
related numerical

[[Page 12368]]

analysis.\60\ While the pipeline commenters' second study attempts to 
address varying risk levels by comparing four affiliated corporations 
and MLPs in their first study,\61\ the affiliated MLPs were only a 
fraction of the affiliated corporations' larger business interests, 
which, as the pipeline commenters concede, contributed to significant 
fluctuations in the relationship between the two entities' relative DCF 
returns.\62\ Moreover, this analysis based upon a mere four examples 
does not establish how investor level taxes (as opposed to other 
factors) affect either corporate or MLP investor returns.
---------------------------------------------------------------------------

    \58\ In essence, investors would demand higher returns from the 
business form with the higher investor-level taxes.
    \59\ INGAA witness Sullivan's arguments involving distribution 
yields and growth rates are similarly flawed.
    \60\ For example, on page 49 of his affidavit, INGAA consultant 
Sullivan submitted a line-chart which purports to show that 
corporate and MLP DCF returns are not discernibly different. 
However, (a) the y-axis is drawn so as to compress most of the 
returns to a narrow band, and (b) meaningful statistical differences 
could be completely obscured by this poor graphical presentation. 
Similar criticisms apply to Sullivan's comparison of MLP 
distributions to corporate dividends on page 65 of his affidavit and 
growth rates on page 68 of his affidavit. It is possible that a more 
precise numerical example could actually present facts undermining 
the pipelines' favored result.
    \61\ Id. at 52-62. Sullivan also adds a comparison between a 
completely unrelated MLP (Boardwalk Pipeline Partners) and a 
corporation (Kinder Morgan). Because these are completely different 
businesses, such a comparison is irrelevant for the purpose of 
identifying the effect of different tax levels on the DCF.
    \62\ For each of the four pairs, the DCF return for the 
corporation at times exceeded the return for the MLP whereas on 
other occasions the return for the MLP exceeded the corporation. Id. 
Sullivan describes situations in which growth estimates or factors 
involving unrelated assets would affect the DCF return of the 
corporation but not the MLP.
---------------------------------------------------------------------------

    34. Pipelines advance a second argument--that if MLPs are double 
recovering their costs, they should report higher returns than 
corporations. For example, INGAA witness Sullivan also argues that 
``[i]f MLPs double recovered income taxes through both an income tax 
allowance and a DCF return, I would expect the DCF ROEs and its 
components, the distribution yields and the IBES growth rates of MLPs 
to be systematically higher than corporations throughout the period 
2008 to the present.'' \63\ Citing the same studies above, Sullivan 
argues that because the data does not show systematically higher 
returns, yields or growth rates for MLPs, there must be no double 
recovery.
---------------------------------------------------------------------------

    \63\ Id. at 58.
---------------------------------------------------------------------------

    35. The Commission finds this argument unpersuasive because it 
relies upon the same flawed studies discussed above. As noted above, 
the line graphs provide a flawed analysis that may obscure actual 
differences between MLPs and corporations and, more fundamentally, that 
fails to address the multiple other risk and market factors that could 
affect any particular MLP and corporate pipeline's DCF returns, 
distribution yields, and growth levels. Moreover, as discussed 
previously, to the extent an MLP pipeline double-recovers its costs, 
the unit price will rise--obscuring the effects of the double recovery 
in the distribution yields, projected growth rates, and DCF 
returns.\64\ These studies do not undermine the double-recovery 
findings of United Airlines or the Remand Order.
---------------------------------------------------------------------------

    \64\ As explained in section II.A.1.a, whether or not a pipeline 
receives an income tax allowance, the DCF return will always be a 
pre-investor tax return. However, to the extent a pipeline is 
permitted to start double-recovering its costs, the unit price will 
rise until the DCF once again provides investors with a pre-tax 
return.
---------------------------------------------------------------------------

2. Other Arguments for Preserving an Income Tax Allowance Lack Merit
    36. Pipeline commenters also argue that even if a double recovery 
exists, the income tax allowance should nonetheless be preserved. These 
arguments rely upon (1) Congressional intent, (2) preserving parity 
between corporate and MLP pipelines, and (3) the effect of removing the 
income tax allowance upon the ability of pipelines to attract capital. 
As discussed below, these arguments were either explicitly rejected by 
the D.C. Circuit in United Airlines or are otherwise without merit.
a. Congressional Intent Does Not Authorize a Double Recovery
    37. Pipeline commenters argue that providing MLP pipelines an 
income tax allowance implements Congress' intent to facilitate 
infrastructure investment.\65\ In 1987 Congress eliminated pass-through 
status for most publicly-traded partnerships, but explicitly granted an 
exception for certain energy-related MLPs in section 7704 of the 
Internal Revenue Code.\66\ Pipeline commenters present two specific 
arguments to support their Congressional intent claims, both of which 
are unavailing. First, they argue that because the Commission's policy 
in 1987 allowed pass-through entities to recover the same income tax 
allowance as corporations, Congress understood and intended to continue 
that rate treatment in section 7704.\67\ Second, they present a letter 
that Senator Max Baucus submitted to the Commission in 1996,\68\ 
expressing concern with the Commission's decision to allow MLP 
pipelines only a partial income tax allowance in Lakehead.\69\
---------------------------------------------------------------------------

    \65\ See INGAA Initial Comments at 12-13; MLPA Initial Comments 
at 3-4; AOPL Initial Comments at 7, 41-42; SFPP Initial Comments at 
30; TransCanada Corporation Initial Comments at 2; Enbridge Initial 
Comments at 4; Meliora Capital, LLC Initial Comments.
    \66\ 26 U.S.C. 7704.
    \67\ INGAA Initial Comments at 13-15.
    \68\ INGAA Initial Comments at 14; MLPA Initial Comments at 3-4.
    \69\ Lakehead Pipe Line Co., L.P., 75 FERC ] 61,181 (1996). 
Senator Baucus participated in the writing of the 1987 legislation. 
The letter states that ``placing this obstacle in the path of 
pipeline companies wishing to operate as [publicly-traded 
partnerships] directly contravenes the policy we adopted in that 
legislation of making the [publicly-traded partnership] structure 
freely available to the pipeline industry'' and ``[i]t was certainly 
not our intention for pipelines operating as [publicly-traded 
partnerships] to be singled out for negative treatment relative to 
other pipelines solely because of their partnership status.'' Letter 
from U.S. Senator Max Baucus, FERC Docket No. IS92-27-000 (Jan. 9, 
1996).
---------------------------------------------------------------------------

    38. As discussed in the Remand Order, the D.C. Circuit has twice 
rejected the argument that Congress' intent in section 7704 provides an 
independent basis for upholding a full income tax allowance for 
partnership pipelines.\70\ Consistent with these holdings, the court in 
United Airlines unequivocally instructed the Commission to consider 
``mechanisms for which the Commission can demonstrate that there is no 
double recovery.'' \71\ Accordingly, the pipeline commenters' attempt 
to justify affording MLP pipelines an income tax allowance on the basis 
that the Commission is implementing Congress' intent in section 7704 is 
contrary to United Airlines.
---------------------------------------------------------------------------

    \70\ BP West Coast, 374 F.3d at 1293 (``[t]he mandate of 
Congress in the tax amendment was exhausted when the pipeline 
limited partnership was exempted from corporate taxation. It did not 
empower FERC to do anything. . . .''); United Airlines, 827 F.3d at 
136 (rejecting the Commission's argument that ``any disparate 
treatment between partners in partnership pipelines and shareholders 
in corporate pipelines is the result of the Internal Revenue Code, 
not FERC's tax allowance policy'').
    \71\ United Airlines, 827 F.3d at 136.
---------------------------------------------------------------------------

    39. In addition, the pipeline commenters fail to demonstrate that 
Congress intended the Commission's income tax allowance policy to 
provide a necessary component of the advantages conferred in section 
7704. They provide no support for their argument that because the 
Commission afforded partnerships a tax allowance in 1987, Congress 
intended to continue that rate treatment in the 1987 legislation.\72\
---------------------------------------------------------------------------

    \72\ As the Commission explains in the Remand Order, Congress 
did not provide explicit instructions to federal agencies regarding 
how to address section 7704's tax treatment in setting regulated 
entity rates as, for instance, it did in the Revenue Act of 1964. 
See Alabama-Tennessee Natural Gas Co. v. FPC, 359 F.2d 318, 333 (5th 
Cir. 1966) (``In the Revenue Acts of 1962 and 1964 Congress 
demonstrated that when it desires a tax statute to restrict the 
ratemaking authority of federal regulatory agencies it does so in 
precise language.''). Courts are hesitant to find that Congress 
implicitly intended to restrict an agency's discretion in carrying 
out its statutory obligations. See Alabama-Tennessee Natural Gas Co. 
v. FPC, 359 F.2d at 335 (``It is unlikely to suppose that Congress 
amended the Natural Gas Act by a reference in the Internal Revenue 
Code; it is unreasonable to read Section 167 [of the Code] as a 
mandate reducing the Commission's responsibility to fix fair rates 
according to its usual ratemaking policies in favor of the 
consumer''); see also Cheney R. Co. v. ICC, 902 F.2d 66, 69 (DC Cir. 
1990) (``in an administrative setting, . . . Congress is presumed to 
have left to reasonable agency discretion questions that it has not 
directly resolved'').

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

[[Page 12369]]

    40. Nor do the pipeline commenters present any legislative history 
to support their claim. Regarding the letter from Senator Baucus, 
evidence of legislative intent that occurs subsequent to, and in this 
case years after, the 1987 enactment of section 7704 is entitled to 
little, if any weight.\73\ The MLPA also points to other legislation by 
Congress in recent years to demonstrate ongoing support for the use of 
MLPs to raise capital in the energy sector. These statutes do not 
include any specific provisions related to MLP pipeline rate 
treatment.\74\
---------------------------------------------------------------------------

    \73\ See Thomas v. Network Solutions, Inc., 176 F. 3d 500, 507 
n.10 (D.C. Cir. 1999) (referring to letters from members of Congress 
written after the legislation in question was passed and noting that 
``[s]uch isolated post-enactment statements, to the extent that they 
are legislative history, carry little weight''); U.S. v. United Mine 
Workers of America, 330 U.S. 258, 282 (1947) (remarks of senators in 
1943 were not an authoritative source of evidence of Congress' 
legislative intent in enacting a 1932 statute); D.C. v. Heller, 554 
U.S. 570, 605 (2008) (``post-enactment legislative history . . . a 
deprecatory contradiction in terms, refers to statements of those 
who drafted or voted for the law that are made after its enactment 
and hence could have no effect on the congressional vote''); Barber 
v. Thomas, 560 U.S. 474, 486 (2010) (``whatever interpretive force 
one attaches to legislative history, the Court normally gives little 
weight to statements, such as those of the individual legislators, 
made after the bill in question has become a law''); Friends of 
Earth, Inc. v. E.P.A., 446 F.3d 140, 147 (D.C. Cir. 2006) 
(```[P]ost-enactment legislative history,' after all, `is not only 
oxymoronic but inherently entitled to little weight''') (quoting 
Cobell v. Norton, 428 F.3d 1070, 1075 (D.C. Cir. 2005)).
    \74\ See MLPA Initial Comments at 4 (citing the American Jobs 
Creation Act, Emergency Economic Stabilization Act of 2008, and the 
Tax Reform Act of 2014).
---------------------------------------------------------------------------

    41. In conclusion, removing the income tax allowance will not 
eviscerate the preferential tax treatment that Congress gave entities 
engaged in natural resource activities \75\ by permitting them to 
operate as publicly-traded partnerships with pass-through taxation, 
including the ability to reach a broader base of investors and defer 
certain tax obligations.\76\ Even in the absence of an income tax 
allowance, the energy sector will benefit from the MLP business form by 
enabling MLP-owned pipelines to provide lower tariff rates to shippers, 
including those engaged in production, marketing and refining.
---------------------------------------------------------------------------

    \75\ An MLP must receive at least 90 percent of its income from 
certain qualifying sources including ``the exploration, development, 
mining or production, processing, refining, transportation 
(including pipelines transporting gas, oil, or products thereof), or 
the marketing of any mineral or natural resource (including 
fertilizer, geothermal energy, and timber), industrial source carbon 
dioxide, or the transportation or storage of [certain fuels].'' 26 
U.S.C. 7704.
    \76\ Pipeline commenters explain that the MLP structure permits 
risk sharing by combining pass-through taxation and publicly-traded 
units which allows MLPs to reach a broader base of investors and 
facilitates raising capital for infrastructure projects. AOPL 
Initial Comments at 6, 39, 13; MLPA Initial Comments at 2-3.
---------------------------------------------------------------------------

b. Preserving the Income Tax Allowance for MLP Pipelines Does Not 
Create Parity
    42. Pipeline commenters claim that removing the income tax 
allowance would put MLP pipelines at a competitive disadvantage 
relative to corporate pipelines.\77\
---------------------------------------------------------------------------

    \77\ AOPL Initial Comments at 43; INGAA Initial Comments at 7, 
15; MLPA Initial Comments at 15.
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    43. The court in United Airlines reached the opposite conclusion. 
The court determined that granting MLP pipelines an income tax 
allowance results in inequitable returns for partners as compared to 
corporate shareholders because this policy allows partnership 
pipelines, unlike corporate pipelines, to recover their income tax 
costs twice.\78\ Therefore, removal of the income tax allowance for MLP 
pipelines restores parity between MLPs and corporations by ensuring 
that a pipeline recovers its income tax costs only once regardless of 
business form.\79\
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    \78\ United Airlines, 827 F.3d at 136.
    \79\ While comments have presented hypotheticals in an attempt 
to show that MLPs require such a double recovery, they suffer from 
the same defects as the pipelines' other arguments. For instance, 
while SFPP attempts to include a hypothetical showing that an income 
tax allowance is necessary to equalize returns, this hypothetical 
depends upon the faulty investor gross-up theory discussed above. 
See SFPP Initial Comments, Vander Weide Affidavit at 12 (Table 2, 
Lines 11-15, showing the before-tax DCF ROE and investor's pre-tax 
return equaling the investor's after-tax return).
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c. Preserving the Income Tax Allowance Is Not Necessary for Pipelines 
To Attract Capital
    44. Pipelines claim that removal of the income tax allowance for 
MLPs will deny pipelines adequate recovery under Hope and deter 
investment.\80\ This is not the case. Notwithstanding the absence of an 
income tax allowance, MLP pipelines will continue to recover their 
costs and a reasonable return for investors. United Airlines and the 
Remand Order merely deny MLP pipelines the double recovery of their 
income tax costs.
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    \80\ INGAA Initial Comments at 27-28; AOPL Initial Comments at 
7, 35-37.
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B. Conclusion

    45. As discussed above, the Commission finds that granting an MLP 
an income tax allowance results in an impermissible double recovery. 
This Revised Policy Statement does not address other, non-MLP 
partnership or other pass-through business forms.\81\ While any such 
entity claiming an income tax allowance will need to address the 
concerns raised by the court in United Airlines, the Commission will 
address income tax allowance issues involving non-MLP partnership forms 
in subsequent proceedings.
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    \81\ See, e.g., Initial Comments of the United Airlines 
Petitioners and Allied Shippers at 14 (``A generic proceeding is not 
well-suited to addressing the wide array of possible organizational 
forms and their respective tax implications. The better approach 
would be to examine the appropriate tax allowance treatment on a 
case-by-case basis in adjudicatory proceedings in which various 
business structures and their consequences can be examined in detail 
on an individual, case-specific basis.''); Liquids Shipper Group 
Initial Comments at 7 (``To the extent there may be individual and 
complex pipeline ownership structures that include both partnerships 
and corporations, the application of the FERC's policy can be 
determined on a case-by-case basis, addressing those unique 
circumstances.'').
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    46. This Revised Policy Statement will affect both oil and natural 
gas MLP pipelines on a going-forward basis. Some late-filed comments 
proposed that the Commission take immediate action to require natural 
gas and oil pipelines to reduce rates to reflect the Tax Cuts and Jobs 
Act. As noted above, the Commission is concurrently issuing a Notice of 
Proposed Rulemaking that addresses the effects upon interstate natural 
gas pipeline rates of the post-United Airlines' policy changes and the 
Tax Cuts and Jobs Act of 2017.\82\ While the Commission is not taking 
similar industry-wide action regarding oil pipeline rates, these issues 
will be addressed in due course. When oil pipelines file Form No. 6, 
page 700 on April 18, 2018, they must report an income tax allowance 
consistent with United Airlines and the Commission's subsequent 
holdings denying an MLP an income tax allowance.\83\ Based upon page 
700 data, the Commission will incorporate the effects of the post-
United Airlines' policy changes (as well as the Tax Cuts and Jobs Act 
of 2017) \84\

[[Page 12370]]

on industry-wide oil pipeline costs in the 2020 five-year review of the 
oil pipeline index level.\85\ In this way the Commission will ensure 
that the industry-wide reduced costs are incorporated on an industry-
wide basis as part of the index review. To the extent the Commission 
issues subsequent orders affecting the income tax policy for other 
partnership or pass-through business forms, oil pipelines should 
similarly reflect those policy changes on Form No. 6, page 700.
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    \82\ See Docket No. RM18-11-000.
    \83\ Due to these findings that including an income tax 
allowance in the cost of service leads to a double-recovery, there 
is no basis for an MLP pipeline to claim an income tax allowance in 
the summary Form No. 6, page 700 cost of service for the 2016 or 
2017 data listed in the April 18, 2018 filing.
    \84\ The Tax Cuts and Jobs Act changed oil pipeline tax costs 
effective January 1, 2018, and the resulting reduction to tax costs 
should be reflected in the tax allowance (page 700, lines 8 and 8a) 
in the 2018 data reported in Form No. 6, page 700, to be filed on 
April 18, 2019.
    \85\ The overwhelming majority of oil pipelines set their rates 
using indexing, not cost-of-service ratemaking using an oil 
pipeline's particular costs. Under indexing, oil pipelines may 
adjust their rates annually, so long as those rates remain at or 
below the applicable ceiling levels. The ceiling levels change every 
July 1 based on an index that tracks industry-wide cost changes. 18 
CFR 342.3. Currently, the index level is based upon the Producer's 
Price Index for Finished Goods plus 1.23. The index will be re-
assessed in 2020 based upon industry-wide oil pipeline cost changes 
between 2014 and 2019. E.g. Five-Year Review of the Oil Pipeline 
Index, 153 FERC ] 61,312 (2015) aff'd, Assoc. of Oil Pipe Lines v. 
FERC, 876 F.3d 336 (D.C. Cir. 2017). The industry-wide data filed in 
the latter years of the 2014-2019 period should reflect the 
Commission's post-United Airlines policy changes as well as the Tax 
Cuts and Jobs Act.
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    47. In addition, the Commission emphasizes that the post-United 
Airlines' policy changes (as well as the Tax Cuts and Jobs Act of 2017) 
will be reflected in initial oil and gas pipeline cost-of-service rates 
and cost-of-service rate changes on a going-forward basis under the 
Commission's existing ratemaking policies,\86\ including cost-of-
service rate proceedings resulting from shipper-initiated complaints.
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    \86\ See, e.g., 18 CFR 154.312(m), 154.313(e)(13), 384.123; 
342.2, 342.4(a); 18 CFR part 346.
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III. Document Availability

    48. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
internet through FERC's Home Page (https://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m. to 5:00 
p.m. Eastern time) at 888 First Street NE, Room 2A, Washington, DC 
20426.
    49. From FERC's Home Page on the internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    50. User assistance is available for eLibrary and the FERC's 
website during normal business hours from FERC Online Support at 202-
502-6652 (toll free at 1-866-208-3676) or email at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
[email protected].

IV. Effective Date

    51. This Revised Policy Statement will become applicable March 21, 
2018.

    By the Commission.

    Issued: March 15, 2018.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2018-05668 Filed 3-20-18; 8:45 am]
 BILLING CODE 6717-01-P


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