Interstate and Intrastate Natural Gas Pipelines; Rate Changes Relating to Federal Income Tax Rate; American Forest & Paper Association, 36672-36717 [2018-15786]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 83, Number 146 (Monday, July 30, 2018)]
[Rules and Regulations]
[Pages 36672-36717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15786]



[[Page 36671]]

Vol. 83

Monday,

No. 146

July 30, 2018

Part II





Department of Energy





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Federal Energy Regulatory Commission





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18 CFR Parts 154, 260, and 284





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

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

[[Page 36672]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 154, 260, and 284

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


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

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Final rule.

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

DATES: This rule is effective September 13, 2018.

FOR FURTHER INFORMATION CONTACT: 
Adam Eldean (Legal Information), Office of the General Counsel, 888 
First Street NE, Washington, DC 20426, (202) 502-8047, 
[email protected]

Seong-Kook Berry (Technical Information), Office of Energy Market 
Regulation, 888 First Street NE, Washington, DC 20426, (202) 502-6544, 
[email protected]

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

Table of Contents

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

[[Page 36673]]

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

I. Introduction

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

[[Page 36674]]

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

II. Background

A. Tax Cuts and Jobs Act

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

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

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

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

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

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[[Page 36675]]

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

[[Page 36676]]

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

D. Request for Commission Action

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

E. Notice of Proposed Rulemaking

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

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

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

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

F. Comments on Notice of Proposed Rulemaking

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

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

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

[[Page 36677]]

III. Overview of Final Rule

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

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

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

[[Page 36678]]

IV. Discussion

A. Treatment of Pass-Through Entities

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 36679]]

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

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

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

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

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

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

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

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

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

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

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

[[Page 36680]]

[GRAPHIC] [TIFF OMITTED] TR30JY18.000

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

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

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

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

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

[[Page 36681]]

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

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

    57. In addition, the Commission eliminates any requirement as a 
part of the limited NGA section 4 filing for a pass-through entity to 
satisfy a burden of showing that it is entitled to receive any income 
tax allowance. The Commission recognizes that it will have the burden, 
in any proceeding it initiates under NGA section 5 to support complete 
elimination of the existing tax allowance. Moreover, as discussed 
below, any pass-through entity reporting an income tax allowance in an 
optional Addendum to FERC Form No. 501-G may provide such explanation.
b. FERC Form No. 501-G and Addendum
    58. Although the Commission will permit all pass-through entities 
to make limited NGA section 4 filings which only reduce their rates to 
reflect the reduced income tax rates in the Tax Cuts and Jobs Act, the 
Commission is continuing to design the FERC Form No. 501-G so that it 
will automatically enter a federal and state income tax of zero for all 
respondents that state they are not tax paying entities.\74\ However, 
we clarify that a pass-through entity claiming a tax allowance may 
submit an Addendum to the FERC Form No. 501-G that includes an income 
tax allowance. Moreover, consistent with the discussion above, to the 
extent a pipeline elects to make the optional limited NGA section 4 
filing, the pipeline may use either (a) the FERC Form No. 501-G if it 
proposes to eliminate its tax allowance or (b) the Addendum to the FERC 
Form No. 501-G if it claims a tax allowance.\75\
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    \74\ However, as discussed below, consistent with the language 
the Commission is adding to 154.404(b)(1), a natural gas company 
organized as a pass-through entity all of whose income or losses are 
consolidated on the federal income tax return of its corporate 
parent is considered to be subject to the federal corporate income 
tax for purposes of the FERC Form No. 501-G, and therefore the form 
will not automatically enter a federal and state income tax of zero 
for such a natural gas company. BP West Coast Products, LLC v. FERC, 
374 F.3d 1263, at 1289 (D.C. Cir. 2004).
    \75\ As explained below, whether or not the pipeline uses FERC 
Form No. 501-G or the optional Addendum, the limited NGA section 4 
rate filing should only reflect the percent change to the pipeline's 
cost of service resulting from the reduction in the pipeline's 
income tax allowance and any corresponding adjustment to ADIT. In 
the limited NGA section 4 filing, the pipeline cannot treat other 
cost changes as offsetting the reduction to the income tax 
allowance.
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    59. The FERC Form No. 501-G will continue to require pass-through 
entities to report an income tax allowance of zero, because this 
informational filing is intended to aid the Commission's further 
evaluation of a pipeline's cost of service given the double-recovery 
concerns raised by United Airlines \76\ and Opinion No. 511-C.\77\ This 
precedent provides that an MLP cannot claim an income tax allowance if 
a double-recovery results from the inclusion of both (a) a DCF ROE and 
(b) an income tax allowance. Although the Commission is not adopting 
the NOPR proposal to require MLP pipelines to eliminate their tax 
allowances in any limited NGA section 4 filing, Opinion No. 511-C 
remains binding Commission precedent. Accordingly, if a pass-through 
entity files a limited NGA section 4 filing reducing its rates to 
reflect the Tax Cuts and Jobs Act without proposing to eliminate its 
tax allowance, the Commission will consider whether to initiate an NGA 
section 5 investigation to further reduce the pipeline's rates by 
eliminating its tax allowance consistent with Opinion No. 511-C and 
United Airlines, subject to the moratoria provisions regarding 
Commission-initiated section 5 proceedings discussed below. In 
addition, shippers have the option of bringing a complaint under NGA 
section 5 and raising arguments based upon the United Airlines 
Issuances. The elimination of the income tax allowance in the FERC Form 
No. 501-G will help the Commission and pipeline customers assess the 
potential effects of the removal of any income tax allowance as a 
consequence of United Airlines' double-recovery concerns.
---------------------------------------------------------------------------

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

    60. However, in an Addendum to FERC Form No. 501-G that pipelines 
may choose to file along with their FERC Form No. 501-G, the Commission 
will permit pass-through entities to report an income tax allowance 
alongside the other adjustments to FERC Form No. 501-G. Any income tax 
allowance reported in the Addendum should reflect the relevant tax 
reductions resulting from the Tax Cuts and Jobs Act.\78\ We encourage 
any pass-through entity reporting an income tax allowance in an 
Addendum to FERC Form No. 501-G to support its calculation of that 
income tax allowance, including showing where and how the income tax 
liability is incurred.\79\ Some commenters argue that pass-through 
entities have complex ownership forms which may be relevant to 
assessing whether there is a double recovery of tax costs when 
affording any such entity an income tax allowance in addition to a DCF 
ROE.\80\ Although not required, in preparing any Addendum to FERC Form 
No. 501-G, we encourage pass-through entities to provide any 
information regarding their particular circumstances or ownership 
structures that they consider relevant in assessing any potential 
United Airlines double-recovery issue.
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    \78\ The income tax allowance attributable to individual unit 
holders should reflect the reduction in the tax rate applicable to 
the taxpayer(s) and include any adjustment for the deduction for 
section 199A ``qualified business income of pass-thru entities'' 
pursuant to the Tax Cuts and Jobs Act. See Tax Cuts and Jobs Act 
11011, 131 Stat. at 2063.
    \79\ See, e.g., IRS Form 851: Affiliations Schedule; IRS Form 
1122: Authorization and Consent of Subsidiary Corporation To Be 
Included in a Consolidated Income Tax Return.
    \80\ See, e.g., Millennium Comments at 5-6; AGA Comments at 5-6.
---------------------------------------------------------------------------

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

[[Page 36682]]

of the FERC Form No. 501-G or the optional Addendum), the Commission 
will have the burden under NGA section 5 to justify any changes to the 
pipeline's rates.\81\
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    \81\ Interstate Natural Gas Ass'n of America v. FERC, 285 F.3d 
18, 38 (2002) (INGAA) (observed that the Commission would ``shoulder 
the burden under [section] 5 of the NGA'' with respect to any rate 
change and found ``no violation of the NGA'' with respect to ``the 
Commission's determination to extract information from pipelines 
relevant to the practical issues'').
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c. Other Issues
    62. In response to the comments, we decline to clarify further our 
income tax allowance policies for MLP pipelines or other pass-through 
entities. As modified above, the rule does not require pass-through 
entities to eliminate the income tax allowance in limited section 4 
filings pursuant to Sec.  154.404 or in any subsequent rate proceeding. 
As for the commenters' request to clarify whether pass-through entities 
will be granted an income tax allowance in future rate proceedings, the 
Commission will not speculate now on future potential actions. We 
recognize that the Revised Policy Statement itself is guidance, not 
binding precedent, but any participant in a subsequent rate proceeding 
must be prepared to address the Opinion No. 511-C and United Airlines 
precedent. Moreover, this binding precedent, as well as the 
Commission's Revised Policy Statement, will be considered in any 
subsequent section 5 action, whether initiated by the Commission or by 
any shipper.

B. One-time Report

    63. In the NOPR, the Commission proposed to exercise its authority 
under NGA sections 10(a) and 14(a) \82\ to require all interstate 
natural gas pipelines that file a 2017 FERC Form No. 2 or 2-A to submit 
an abbreviated cost and revenue study in a format similar to the cost 
and revenue studies the Commission has attached to its orders 
initiating NGA section 5 rate investigations in recent years.\83\ Using 
the data in the pipelines' 2017 FERC Form Nos. 2 and 2-A, these studies 
would estimate (1) the percentage reduction in the pipeline's cost of 
service resulting from the Tax Cuts and Jobs Act and the Revised Policy 
Statement, and (2) the pipeline's current ROEs before and after the 
reduction in corporate income taxes and the elimination of income tax 
allowances for MLP pipelines. The proposed One-time Report is an Excel 
spreadsheet with formulas.
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    \82\ See Tuscarora Gas Transmission Co., 154 FERC ] 61,273, at 
PP 4-14 (2016) (requiring a pipeline to submit a more detailed cost 
and revenue study than that which the Commission is proposing here).
    \83\ The Commission proposed to exempt from this requirement (1) 
interstate natural gas pipelines whose rates are being examined in a 
general NGA section 4 rate case or an NGA section 5 investigation 
and (2) pipelines that file a pre-packaged uncontested rate 
settlement before the deadline for their One-time Report.
---------------------------------------------------------------------------

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

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

    66. The NOPR also proposed an Implementation Guide for One-time 
Report on Rate Effect of the Tax Cuts and Jobs Act (Implementation 
Guide), providing additional guidance to parties as to the expected 
data entries, including the proposed staggered compliance dates and the 
list of companies for each of the four compliance periods.
1. Legal Authority
a. Comments
    67. Southern Star, TransCanada, and Enable Interstate Pipelines 
question the Commission's legal authority to require the One-time 
Report.\85\ They each raise the same argument: compelling a pipeline to 
file the One-time Report is equivalent to compelling the pipeline to 
initiate an NGA section 4 rate proceeding, which the Consumers court 
case prohibits.\86\ Enable Interstate Pipelines note that the 
``pipeline filing the form is not making a proposal to change rates 
under NGA Section 4, justify its rates, or take any position regarding 
its current or future rates.'' \87\ Enable Interstate Pipelines argue 
that because the Commission has ``stated that it will `consider whether 
to initiate an investigation under NGA Section 5 based upon the 
`statement filed with the form,''' and because intervenors can ``make 
any further comments that intervenors want,'' the effect is to 
``require[] pipelines to justify their current rates through 
statements.'' \88\
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    \85\ Enable Interstate Pipelines Comments at 13-17; Southern 
Star Comments at 3-5; TransCanada Comments at 4-7.
    \86\ Consumers Energy Co. v. FERC, 226 F.3d 777 (6th Cir. 2000) 
(Consumers).
    \87\ Enable Interstate Pipelines Comments at 14.
    \88\ Enable Interstate Pipelines Comments at 15.
---------------------------------------------------------------------------

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

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

b. Discussion
    69. These comments misapprehend both the nature of the One-time 
Report and the holding in Consumers. The primary purpose of the One-
time Report, together with any comments and protests to it, is to 
provide information relevant to determining whether the Commission 
should exercise its discretion to initiate an investigation under NGA 
section 5 as to whether the subject interstate natural gas pipeline may 
be collecting unjust and unreasonable rates in light of the recent 
reduction in the corporate income tax rate and change in the 
Commission's income tax allowance policies.\90\
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    \90\ General Motors Corp v. FERC, 613 F.2d 939, 944 (D.C. Cir. 
1979); Southern Union Gas Co., 840 F.2d 964, 968 (D.C. Cir. 1988); 
see also Iroquois Gas Transmission System, L.P., 69 FERC ] 61,165, 
at 61,631 (1994); JMC Power Projects v. Tennessee Gas Pipeline, Co., 
69 FERC ] 61,162 (1994), reh'g denied, 70 FERC ] 61,168, at 61,528 
(1995), affirmed, Ocean States Power v. FERC, 84 F.3d 1453 (D.C. 
Cir. 1996) (unpublished opinion).

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[[Page 36683]]

    70. The Commission routinely initiates NGA section 5 investigations 
``based upon our review of publicly available information on file with 
the Commission.'' \91\ The court in Consumers did not prohibit such 
information collection; to the contrary, it condoned information 
collection.\92\ The limitation that Consumers placed is that the 
Commission must act ``with clarity and precision'' so as to ensure that 
any directive for the pipeline to make ``informational filings'' is 
just that, and not an NGA section 4 filing to ``justify its current 
rate.'' \93\
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    \91\ See, e.g., Natural Gas Pipeline Co. of America LLC, 158 
FERC ] 61,044 at P 1; Wyoming Interstate Co., L.L.C., 158 FERC ] 
61,040 at P 1; Tuscarora Gas Transmission Co., 154 FERC ] 61,030 at 
P 1, reh'g denied, 154 FERC ] 61,273.
    \92\ Consumers, 226 F.3d at 777 (``Should FERC wish [the 
pipeline] to make periodic informational filings, it may of course 
so require pursuant to [section] 10a of the NGA.'').
    \93\ Id. at 781.
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    71. Indeed, this Final Rule is patterned on the Commission's 
successful method of collecting information from the Hinshaw pipelines 
that were specifically at issue in Consumers. For the past decade, 
instead of requiring Hinshaw pipelines to periodically file to justify 
their current rates, the Commission now requires Hinshaw pipelines to 
periodically ``file with the Commission an informational filing with 
cost, throughput, revenue and other data, in the form specified in 
Sec.  154.313 of the Commission's regulations.'' \94\ These five-year 
review filings are docketed and noticed, and parties may intervene, 
comment, and protest.\95\ The Commission expressly warns Hinshaw 
pipelines that the Commission will use that informational filing ``to 
determine whether any change in [the pipeline's] interstate 
transportation or storage rates should be ordered pursuant to section 5 
of the Natural Gas Act.'' \96\ This two-step process allows the 
Commission to collect cost-of-service data consistent with NGA section 
10(a), which the Commission may rely upon in deciding whether to 
exercise its discretion to initiate an investigation of the Hinshaw 
pipeline's rates pursuant to NGA section 5. The Hinshaw pipeline is 
free, if it so chooses, to propose to modify its rates under NGA 
section 4, based on the cost and revenue information in the study 
submitted to the Commission. Absent such a voluntary section 4 filing, 
no change in the Hinshaw pipeline's rates will occur, without the 
Commission satisfying its burden of persuasion under NGA section 5.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

[[Page 36684]]

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

    \102\ Id. (emphasis added).

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

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

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

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

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

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

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

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

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

[[Page 36685]]

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

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

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

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

    86. The commenters also argue that the proposed notice and 
opportunity for others to comment on the FERC Form No. 501-G filings is 
without precedent, and converts the filing of a financial report into a 
de facto NGA section 4 or 5 proceeding.
    87. The proposed FERC Form No. 501-G, together with any comments 
and protests, is intended to assist the Commission in determining 
whether to initiate an investigation under NGA section 5 as to whether 
the subject jurisdictional natural gas pipeline may be collecting 
unjust and unreasonable rates in light of the recent reduction in the 
corporate income tax rate and change in the Commission's income tax 
allowance policies. Thus, the filing of the FERC Form No. 501-G does 
not itself initiate an NGA section 5 investigation, but rather gives 
all parties an opportunity to advise the Commission on whether it 
should initiate such an investigation.
    88. The pipeline's filing of the FERC Form No. 501-G, together with 
any Addendum proposing adjustments to reflect updated information, 
gives the pipeline an opportunity to explain why no further 
investigation is needed. Noticing the pipeline's filing for comment and 
protest allows other interested parties to state their views as to 
whether an investigation is needed. As the commenters have noted, the 
Commission cannot simply require a pipeline to reduce its rates 
consistent with a known reduction in a single cost component of a cost-
based rate. The Commission must look at other factors, including 
whether the pipeline is over recovering its overall cost of service and 
the applicability of any settlement rate moratorium. These other 
factors are not limited to those of interest to pipelines. Shippers and 
customers pay these cost-based rates and, for some pipelines, are 
parties to rate settlements. These parties also have an interest in 
whether the currently effective rates are no longer just and 
reasonable. The Commission believes allowing the parties to file 
comments will create a more complete record. That record will permit 
the Commission to better evaluate the pipelines' FERC Form No. 501-G 
filings and any additional statements or material that pipelines may 
file in determining whether to exercise its discretion to initiate an 
investigation of the pipeline's rates under NGA section 5.
    89. If the Commission does decide to initiate an NGA section 5 
investigation, it will issue an order establishing a proceeding for 
that purpose, similar to prior orders establishing NGA section 5 
investigations of natural gas pipeline rates.\111\ Thus, the Commission 
will require the pipeline to submit a cost and revenue study based on 
cost and revenue information for the latest 12-month period available. 
That cost and revenue study, not the FERC Form No. 501-G based on 2017 
FERC Form No. 2 or 2-A data, will provide the evidentiary starting 
point for the actual NGA section 5 rate investigation. In short, the 
FERC Form No. 501-G, together with comments and protests thereto, will 
assist the Commission in evaluating whether to initiate a section 5 
investigation, but will not be the record basis for any actual order 
requiring the pipeline to modify its rates pursuant to NGA section 5. A 
subsequent hearing ordered by the Commission will be necessary to 
develop the record on which any NGA section 5 action would be taken. 
The Commission agrees with the parties that such determinations must be 
performed on a pipeline-by-pipeline basis.
---------------------------------------------------------------------------

    \111\ See cases cited supra note 22.
---------------------------------------------------------------------------

    90. The second purpose of the FERC Form No. 501-G, together with 
any adjustments the pipeline may propose, is to serve as the 
evidentiary support for any limited NGA section 4 filing the pipeline 
may propose pursuant to this rule to reduce its rates to reflect the 
reduced income taxes under the Tax Cuts and Jobs Act and/or the United 
Airlines Issuances. As proposed by the NOPR, the Commission will assign 
a separate docket number to any such limited NGA section 4 filing,\112\ 
and thus the limited NGA section 4 filing, and any protests thereto, 
will be considered in a separate proceeding from the docket established 
for the FERC Form No. 501-G itself.
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    \112\ See NOPR, FERC Stats. & Regs. ] 32,725 at P 64 
(establishing an eTariff ToFC 1440 for the limited NGA section 4 
filings, separate from the ToFC for the FERC Form No. 501-G 
filings). These different filing codes will produce separate root 
docket numbers for the two types of filing.
---------------------------------------------------------------------------

    91. Therefore, the proposed process adopted here, contrary to the 
concerns of these commenters, is not a requirement for the pipelines to 
file an NGA section 4 rate case, nor are the results from FERC Form No. 
501-G a finding that the current rate is not just and reasonable or the 
specification of a new just and reasonable rate pursuant to NGA section 
5. However, the process the Commission is adopting is intended to help 
identify which pipelines deserve closer attention.
    92. Some commenters believe that permitting parties to comment on

[[Page 36686]]

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

    The Commission will assign each pipeline's filing of the FERC 
Form No. 501-G an RP docket number and notice the filing providing 
for interventions and protests. Based on the information in that 
form, together with any statement filed with the form and comments 
by intervenors, the Commission will consider whether to initiate an 
investigation under NGA section 5 of those pipelines that have not 
filed a limited NGA section 4 rate reduction filing or committed to 
file a general NGA section 4 rate case.\113\
---------------------------------------------------------------------------

    \113\ NOPR, FERC Stats. & Regs. ] 32,725 at P 29.
---------------------------------------------------------------------------

a. Comments
    94. In addition to the comments discussed above, LDC Coalition 
raises several questions about the role of parties intervening in One-
time Report dockets. In particular, in the event that a party has 
questions or concerns about a given One-time Report, LDC Coalition 
asks:

    Will Commission Staff have access to the deficiency notice 
process?
    Does the Commission contemplate setting One-time Report 
proceedings for technical conference, hearing, and/or settlement 
judge proceedings?
    Will parties have the ability to seek discovery from the 
pipeline on its FERC Form No. 501-G inputs and calculations even 
before the Commission sets a One-time Report for technical 
conference, hearing, or settlement judge procedures?
    Will the Commission issue an Order in response to each FERC Form 
No. 501-G filing either closing out the proceeding or continuing the 
review in that or another docket?
    If the Commission intends to issue an order in each docket, will 
it state an expected timeline for doing so to provide customers 
certainty about the process?
    What actions will the Commission take if a pipeline does not 
submit an NGA section 4 filing or pre-filing settlement by the 
proposed deadline of December 31, 2018?
    What options do the Commission and pipeline customers have if a 
pipeline fails to timely submit a FERC Form No. 501-G or does not 
strictly follow Commission guidance in completing a submitted form? 
\114\
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    \114\ LDC Coalition Comments at 12.
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b. Discussion
    95. We clarify that Subpart B of the Commission's Rules of Practice 
and Procedure \115\ does not apply to the various reports required by 
Part 260 of the Commission's regulations. Rule 201 provides that 
Subpart B of the Rules of Practice and Procedure apply ``to any 
pleading, tariff or rate filing, notice of tariff or rate examination, 
order to show cause, intervention, or summary disposition;'' \116\ Part 
260 reports fall into none of those categories. Therefore, the 
Commission clarifies the procedures to be used in noticing pipelines' 
filings of the FERC Form No. 501-G for intervention, protest, and 
comment, as well as addressing LDC Coalition's other procedural 
questions.
---------------------------------------------------------------------------

    \115\ 18 CFR part 385.
    \116\ 18 CFR 385.201.
---------------------------------------------------------------------------

    96. First, the Commission is revising the Implementation Guide for 
the FERC Form No. 501-G to provide that the Secretary will issue a 
notice of each pipeline's filing of its FERC Form No. 501-G, consistent 
with Sec.  385.210 of the Commission's Rules of Practice and 
Procedure.\117\ Unless the notice provides otherwise, interventions, 
protests, and comments will be due not later than 12 days after the 
filing of the subject FERC Form No. 501-G. This will mean that such 
interventions, protests, and comments will be due on the same day as 
interventions, protests, and comments are due on any limited NGA 
section 4 filing accompanying the FERC Form No. 501-G, as provided by 
Sec.  154.210 of the Commission's Rules of Practice and Procedure. As 
revised, the Implementation Guide also states that interventions will 
be governed by Sec.  385.214 of the Commission's Rules of Practice and 
Procedure,\118\ and protests will be governed by Sec.  385.211.\119\
---------------------------------------------------------------------------

    \117\ 18 CFR 385.210.
    \118\ 18 CFR 385.214.
    \119\ 18 CFR 385.211.
---------------------------------------------------------------------------

    97. Proceeding to LDC Coalition's list of questions, we clarify 
that Commission staff may issue data requests to pipelines if it 
identifies problems with their FERC Form No. 501-G.\120\ However, the 
Commission will not set One-time Report proceedings for technical 
conference, hearing, and/or settlement judge proceedings, nor will it 
allow discovery; such actions would only be appropriate in the context 
of an NGA section 4 or 5 rate proceeding. The purpose of publicly 
docketing the One-time Reports is not to conduct a rate proceeding, but 
rather to allow for public discussion of whether the Commission should 
exercise its discretion to initiate an NGA section 5 investigation of 
the subject pipeline's existing rates because of the Tax Cuts and Jobs 
Act's reduction in income taxes or the United Airlines Issuances.
---------------------------------------------------------------------------

    \120\ See 18 CFR 375.307(b)(3)(ii) (delegating to the Office of 
Energy Market Regulation the authority to ``Issue and sign requests 
for additional information regarding applications, filings, reports 
and data processed by the Office of Energy Market Regulation.'').
---------------------------------------------------------------------------

    98. If the Commission decides to initiate a section 5 
investigation, it will, as described above, issue an order establishing 
a hearing under NGA section 5. If the Commission determines that the 
information in a pipeline's FERC Form No. 501-G does not justify 
initiating such an NGA section 5 proceeding, the Commission will issue 
a notice accepting the pipeline's One-time Report. That notice shall 
close the One-time Report proceeding. But the act of acceptance shall 
only constitute assurance that the Commission accepts the report, and 
does not constitute a statement or action on the pipeline's rates, nor 
does it foreclose the Commission from initiating a future NGA section 5 
investigation based upon new information such as the pipeline's future 
FERC Form No. 2 or 2-A reports or for other reasons. The Commission 
will not establish a formal deadline for acting on each One-time 
Report, but will act as promptly as possible on all filings in order to 
promote rate certainty for pipelines and customers.
    99. If a pipeline refuses to promptly submit a One-time Report, or 
to correct a patently erroneous or incomplete One-time Report, the 
Commission could consider the pipeline to be in violation of its 
reporting obligation.\121\ Likewise, if a pipeline commits to submit an 
NGA section 4 filing or pre-filing settlement by the proposed deadline 
of December 31, 2018, but fails to do so, the Commission could consider 
the pipeline to be in violation of its reporting obligation.
---------------------------------------------------------------------------

    \121\ 15 U.S.C. 717t.
---------------------------------------------------------------------------

5. Use of 10.55 Percent Indicative Return on Equity
    100. A cost and revenue study requires an indicative return on 
equity (ROE). In the proposed FERC Form No. 501-G, the Commission used, 
consistent with Commission practice, the last litigated ROE applicable 
to situations involving existing plant.\122\ The last litigated ROE was 
in El Paso, wherein the Commission adopted a ROE of 10.55 percent.\123\
---------------------------------------------------------------------------

    \122\ See, e.g., Southern Natural Gas Co. L.L.C., 139 FERC ] 
61,237, at P 154 (2012); Alliance Pipeline L.P., 140 FERC ] 61,212, 
at P 20 (2012); Northern Natural Gas Co., 119 FERC ] 61,035, at P 37 
(2007).
    \123\ El Paso Natural Gas Co., Opinion No. 528, 145 FERC ] 
61,040, at P 642 (2013), reh'g denied, Opinion No. 528-A, 154 FERC ] 
61,120 (2016) (El Paso).

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[[Page 36687]]

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

    \124\ INGAA, Southern Star, Boardwalk, Dominion Energy, 
Williams, Tallgrass Pipelines, TransCanada, Enable Interstate 
Pipelines, Kinder Morgan, and Spectra.
---------------------------------------------------------------------------

    102. Enable Interstate Pipelines argue that the Commission should 
permit ROEs derived during a rate proceeding or established pursuant to 
approved settlements that were used to set their current rates, or rely 
upon the methodology used to set such ROEs. Enable Interstate Pipelines 
also argue that if pass-through entities are not permitted to report an 
income tax allowance on the FERC Form No. 501-G, the Commission must 
increase the allowable ROE for such pipelines to allow them to report a 
higher ROE than corporate pipelines on the form. Alternatively, Enable 
Interstate Pipelines argue that the Commission should adjust the ROE 
upwards by eliminating the reduction in long-term growth rates for MLP 
pipelines.
b. Discussion
    103. The Commission adopts the NOPR's proposal to require that each 
pipeline's FERC Form No. 501-G be completed using an indicative ROE of 
10.55 percent, consistent with the ROE determined in El Paso, the last 
rate case where that issue was fully litigated. The One-time Report is 
an informational filing required pursuant to NGA sections 10 and 14 
that serves two purposes: (1) To help determine whether to initiate NGA 
section 5 investigations of interstate natural gas pipelines' rates and 
(2) to support any limited NGA section 4 filings pipelines may choose 
to make to reduce their rates to reflect the Tax Cuts and Jobs Act or 
the United Airlines Issuances.
    104. When used for the first purpose, the FERC Form No. 501-G is 
intended to provide a rough estimate of the pipeline's return on equity 
before and after the Tax Cuts and Jobs Act or the United Airlines 
Issuances. The data in the FERC Form No. 501-G, including the 
indicative ROE, will not be used to actually establish rates in any NGA 
section 5 investigation that the Commission may initiate. Rather, any 
rates determined in an NGA section 5 investigation, including ROE, will 
be based on the record developed in any hearing established by the 
Commission, and in such a hearing, the Commission will have the burden 
of persuasion under NGA section 5 on all issues, including ROE.
    105. In addition, although the Commission recognizes that the 10.55 
percent ROE determined in El Paso was based on financial data from 
2011, no commenter has provided any updated ROE analysis using current 
financial data that the Commission could use in the FERC Form No. 501-G 
in place of the El Paso ROE. There is thus nothing in the comments to 
show that an updated ROE analysis would produce a significantly 
different ROE than that approved in El Paso. Instead, pipeline 
commenters request that they be permitted to use their own ROEs or ROEs 
derived in a rate proceeding or established pursuant to approved 
settlements. However, the last rate cases of many pipelines occurred as 
long ago as, or even before, the El Paso rate case. Moreover, many 
settlements are ``black box'' settlements that do not have a ROE. In 
these circumstances, the Commission finds that using the El Paso 10.55 
percent ROE as the indicative ROE in all pipelines' FERC Form No. 501-G 
is preferable to pipelines using a variety of ROEs, which they claim 
represent their currently approved ROEs, but which in almost all cases 
were not fully litigated, in contrast to the El Paso ROE, and may be as 
old or older than the 10.55 percent El Paso ROE. However, if a pipeline 
believes that the 10.55 percent El Paso ROE does not represent a 
reasonable ROE for its system in light of its current circumstances, 
the pipeline may file an alternative ROE, together with support for 
that ROE as described below, as part of its Addendum to the required 
FERC Form No. 501-G.
    106. The FERC Form No. 501-G does serve a ratemaking purpose in the 
narrow situation when it is used as support for the limited NGA section 
4 filing this Final Rule authorizes a pipeline to voluntarily make to 
reduce its rates to reflect the Tax Cuts and Jobs Act or the United 
Airlines Issuances. Our requirement that pipelines use the El Paso 
10.55 percent ROE in filling out the FERC Form No. 501-G does not mean 
that they must use that ROE in a limited section 4 filing. As just 
described, the pipeline may submit an Addendum with its FERC Form No. 
501-G setting forth an alternative ROE and use that ROE in calculating 
its proposed percentage rate reduction in its limited NGA section 4 
rate filing. When a pipeline proposes such an alternative ROE in a 
limited section 4 rate filing, the Commission would expect the pipeline 
to provide full support for its proposed ROE, including a Discounted 
Cash Flow (DCF) analysis of a proxy group consistent with Commission 
policy. Such support is not necessary if the pipeline proposes to 
reduce its rates by a percentage calculated consistent with the FERC 
Form No. 501-G, without any Addendum.
6. Use of Stated Capital Structure
    107. In the NOPR, the Commission stated that the established policy 
in rate cases is that a company may use its actual capital structure 
only if it ``(1) issues its own debt without guarantees, (2) has its 
own bond rating, and (3) has a capital structure within the range of 
capital structures approved by the Commission.'' \125\ Where these 
requirements are not met, the Commission will use the consolidated 
capital structure of the parent company or a hypothetical capital 
structure. The NOPR proposed that the One-time Report would follow this 
policy:
---------------------------------------------------------------------------

    \125\ NOPR, FERC Stats. & Regs. ] 32,725 at P 35 (citing 
Transcontinental Gas Pipe Line Corp., Opinion No. 414-A, 84 FERC ] 
61,084, at 61,413-61,415, reh'g denied, Opinion No. 414-B, 85 FERC ] 
61,323 (1998), petition for review denied sub nom. N.C. Utils. 
Comm'n v. FERC, D.C. Cir. Case No. 99-1037 (Feb. 7, 2000) (per 
curiam)).

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

    \126\ Id. P 35.

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

[[Page 36688]]

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

    \127\ Boardwalk Comments at 27-29; Enable Interstate Pipelines 
Comments at 22; INGAA Comments at 36-38; Kinder Morgan Comments at 
23-26.
    \128\ Boardwalk Comments at 28; INGAA Comments at 36.
    \129\ Boardwalk Comments at 29.
    \130\ Enable Interstate Pipelines Comments at 24.
---------------------------------------------------------------------------

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

    \131\ Kinder Morgan Comments at 24.
---------------------------------------------------------------------------

b. Discussion
    111. We generally adopt the NOPR proposal regarding how capital 
structure must be reported on FERC Form No. 501-G, but make several 
changes to address concerns raised by the commenters. As discussed 
above, the One-time Report is an informational filing required pursuant 
to NGA sections 10 and 14 that serves two purposes: (1) To help 
determine whether to initiate NGA section 5 investigations of 
interstate natural gas pipelines' rates and (2) as support for limited 
NGA section 4 filings pipelines may choose to make to reduce their 
rates to reflect the Tax Cuts and Jobs Act or the United Airlines 
Issuances. When used for the first purpose, the FERC Form No. 501-G is 
intended to provide a rough estimate of the pipeline's return on equity 
before and after the Tax Cuts and Jobs Act or the United Airlines 
Issuances. Such an estimate will be one factor the Commission will 
refer to in deciding whether to exercise its discretion to initiate an 
NGA section 5 rate investigation. For that purpose, the Commission 
desires to design the form in a manner that will produce an estimated 
return on equity that is as accurate as possible. Therefore, the 
Commission seeks to use a capital structure that is consistent with 
Commission policy. For that reason, the Commission finds it appropriate 
for the FERC Form No. 501-G to use a different capital structure than 
that used in the pipeline's FERC Form No. 2 or 2-A, when it appears 
that the capital structure reported in the FERC Form No. 2 or 2-A does 
not comply with Commission policy.\132\ Thus, as described below, the 
form will ask a series of factual questions, designed to result in a 
capital structure consistent with Commission policy. However, the form 
will not be used to actually establish rates in any NGA section 5 
investigation that the Commission may initiate. Rather, any rates 
determined in a section 5 investigation, including the capital 
structure, will be based on the record developed in the hearing.
---------------------------------------------------------------------------

    \132\ INGAA argues that, in order to use a different capital 
structure than that used in the FERC Form No. 2 or 2-A, ``the 
Commission must first show that the pipeline's submitted data is not 
just and reasonable.'' INGAA Comments at 28. However, data cannot be 
just or unjust, which is why NGA section 10 instead speaks of 
``specific answers,'' ``full information,'' and ``adequate 
provision.'' The Commission is not modifying any rates pursuant to 
NGA section 5 in the FERC Form No. 501-G, but simply seeking to 
estimate the pipeline's current return on equity for purposes of 
deciding whether to initiate a rate investigation pursuant to NGA 
section 5.
---------------------------------------------------------------------------

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

[[Page 36689]]

type capital structure was required to be used in the FERC Form No. 
501-G. The capital structure issue will be included in the hearing, and 
the Commission will have the burden of persuasion under NGA section 5 
to support any rate reduction, including any capital structure used to 
support the rate reduction.
---------------------------------------------------------------------------

    \133\ Bear Creek Storage Co., L.L.C., 137 FERC ] 61,134, at P 8 
n.6 (2011). See also Dominion Energy Overthrust Pipeline, LLC, 162 
FERC ] 61,218, at Appendix, n.1 & 2 (2018); Midwestern Gas 
Transmission Co., 162 FERC ] 61,219, at Appendix, n.1 & 2 (2018); 
Natural Gas Pipeline Co. of America LLC, 158 FERC ] 61,044, at 
Appendix, n.1 & 2 (2017); Wyoming Interstate Co., L.L.C., 158 FERC ] 
61,040, at Appendix, n.1 & 2 (2017); Tuscarora Gas Transmission Co., 
154 FERC ] 61,030, at Appendix, n.1 & 2 (2016); MIGC LLC, 137 FERC ] 
61,135, at Appendix, n.3 (2011); ANR Storage Co., 137 FERC ] 61,136, 
at Appendix, n.2 (2011).
---------------------------------------------------------------------------

    113. The Commission recognizes that when the FERC Form No. 501-G is 
used for its second purpose--as support for the percentage rate 
reduction proposed in a pipeline's limited NGA section 4 rate case 
filing--the FERC Form No. 501-G does serve a ratemaking purpose. 
However, as discussed above, pipelines are permitted to submit an 
Addendum to their FERC Form No. 501-G if they believe that the form 
inaccurately represents their financial situation. A pipeline may 
propose to use the percentage cost of service reduction calculated in 
its Addendum in its limited NGA section 4 rate filing. Thus, a pipeline 
may propose to use a capital structure other than that used in its FERC 
Form No. 501-G in its limited NGA section 4 rate filing. For example, 
Boardwalk provides comments on its specific financial situation; 
although this information is not relevant to developing a form for the 
entire natural gas pipeline industry, it may prove relevant in 
evaluating whether further procedures will be necessary to address the 
consequences of the Tax Cuts and Jobs Act for Boardwalk's pipelines, 
and we encourage Boardwalk to include such information when it submits 
its One-time Reports.
    114. The Commission is making two changes to the treatment of 
capital structure in the FERC Form No. 501-G, as proposed in the NOPR. 
First, the Commission has modified page 4 of the proposed FERC Form No. 
501-G in response to Kinder Morgan's concerns that, as proposed, the 
form requires the pipelines to state an opinion as to whether the 
capital structure reported in their FERC Form No. 2 or 2-A complies 
with the Commission's capital structure policies. Although the 
Commission does not concede the point that it lacks the authority under 
NGA section 10 or 14 to compel a pipeline to state whether it complies 
with an established policy, we recognize that such a requirement is 
unnecessary in order to achieve the goals of this rulemaking. Instead 
of asking the respondent its position with regard to whether its 
capital structure complies with Opinion No. 414-A, the form now 
includes a statement explaining how the Commission will use the 
respondent's data to perform our own Opinion No. 414-A analysis. Page 4 
of the proposed FERC Form No. 501-G now asks respondents a series of 
factual questions about its actual capital structure. The form will 
automatically select from the data provided to show the Commission's 
default presumed capital structure under its Opinion No. 414-A 
analysis, but will not require the respondent to apply the Commission's 
position as if it was the pipeline's.
    115. Second, as requested by Enable Interstate Pipelines, the 
Commission will modify the hypothetical capital structure used in the 
FERC Form No. 501-G, for those pipelines which the form considers 
ineligible to use their own or their parent's capital structure. As 
Enable Interstate Pipelines point out, in an NGA section 4 rate case in 
HIOS the Commission adopted a policy of basing a hypothetical capital 
structure on the average capital structure of the companies in the 
proxy group used for purposes of determining ROE. The Commission 
explained that ``this assures a match between the financial risk 
inherent in the DCF analysis used to develop return on equity and the 
hypothetical capital structure.'' \134\ The FERC Form No. 501-G uses 
the 10.55 percent ROE determined in El Paso. The average capital 
structure of the proxy group in that rate case was approximately 57 
percent equity and 43 percent debt.\135\ Accordingly, the Commission is 
revising the FERC Form No. 501-G to use a hypothetical capital 
structure of 57 percent equity and 43 percent debt. This revision 
should also help address Boardwalk's concern that the 50 percent 
equity/50 percent debt capital structure in the proposed FERC Form No. 
501-G is financially unrealistic in today's market conditions.
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    \134\ High Island Offshore System, L.L.C., 110 FERC ] 61,043, at 
P 147 (2005).
    \135\ The Commission notes that this capital structure is also 
consistent with the capital structures the Commission typically 
approves in litigated rate cases for pipelines that do issue their 
own publically traded debt. Transok, Inc., 70 FERC ] 61,177, at 
61,554 (1995) (58.49 percent equity ratio); Panhandle Eastern Pipe 
Line Co., Opinion No. 395, 71 FERC ] 61,228, at 61,827 (1996) (61.79 
percent equity ratio); Panhandle Eastern Pipe Line Co., Opinion No. 
404, 74 FERC ] 61,109, at 61,359 (1996) (59.97 percent equity 
ratio); Transcontinental Gas Pipe Line Corp., Opinion No. 414-A, 84 
FERC ] 61,084, at 61,419 (1998) (57.58 percent equity ratio).
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7. Accumulated Deferred Income Taxes
    116. Accumulated Deferred Income Taxes (ADIT) balances are 
accumulated on the regulated books and records of interstate natural 
gas pipelines based on the requirements of the Commission's Uniform 
System of Accounts.\136\ ADIT balances arise from differences between 
the method of computing taxable income for reporting to the IRS and the 
method of computing income for regulatory accounting purposes. The 
Commission's regulatory accounting requirements then serve to inform 
the development of a natural gas pipeline's rates, including the 
depreciation and ADIT ratemaking components. The most significant cause 
for differences between regulatory accounting and tax income is the use 
of straight-line depreciation rates for accounting and ratemaking 
purposes and the use of accelerated depreciation rates for federal 
income tax reporting purposes. As such, depreciation expense is higher 
for tax reporting purposes than that calculated for accounting and 
ratemaking purposes, resulting in higher taxes computed for accounting 
and ratemaking purposes than the taxes actually owed to the IRS 
authorities, in the early years of the property's service life. This 
creates an ADIT liability. In later years, depreciation expense is 
lower for tax reporting purposes than that calculated for accounting 
and ratemaking purposes, resulting in lower taxes computed for 
accounting and ratemaking purposes than the taxes actually owed to the 
IRS and reductions to the ADIT liability. Ultimately, at the end of the 
property's service life, the cumulative depreciation under either 
method are equal and the ADIT liability will be reduced to zero.
---------------------------------------------------------------------------

    \136\ 18 CFR part 201.
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    117. ADIT generally impacts regulated natural gas pipelines' 
ratemaking either by decreasing rate base, in the case of an ADIT 
liability, or increasing rate base, in the case of an ADIT asset. As a 
result of the reduction in the federal corporate income tax rate, taxes 
which have been previously deferred and reflected in ADIT will be owed 
to the IRS based on the 21 percent tax rate, rather than the 35 percent 
tax rate used to recognize the ADIT initially. The difference between 
the already recognized ADIT based on a 35 percent tax rate and the 
recomputed deferred taxes, which will actually be owed to the IRS, at a 
21 percent tax rate requires an adjustment to ADIT balances for the 
excess or deficiency. Notwithstanding potential future Commission 
action in the ADIT NOI on how to treat excess ADIT or deficiency ADIT, 
these balances and the associated amortization are essential in 
appropriately computing a total cost of service.
    118. As discussed, the Commission is implementing in this Final 
Rule FERC Form No. 501-G as a basis for determining whether a natural 
gas pipeline may be over-recovering its cost of service, and thus 
whether there should be further investigation pursuant to NGA section 
5. FERC Form No. 501-G is designed to collect financial

[[Page 36690]]

information to evaluate the impact of the Tax Cuts and Jobs Act and the 
United Airlines Issuances on the pipeline's cost of service, and to 
inform stakeholders, the Commission, and all interested parties 
regarding the continued justness and reasonableness of the pipeline's 
rates after the income tax reduction and elimination of MLP pipeline 
income tax allowances.\137\
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    \137\ NOPR, FERC Stats. & Regs. ] 32,725 at P 26.
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    119. As proposed, the FERC Form No. 501-G would require pipelines 
to use calendar year 2017 ADIT balances as reported in their 2017 FERC 
Form Nos. 2 and 2-A in calculating rate base.\138\ The FERC Form No. 
501-G would also require the pipelines to reduce their income tax 
allowance by an amount reflecting the first year's amortization of 
excess ADIT resulting the reduced income tax rates under the Tax Cuts 
and Jobs Act.\139\
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    \138\ See proposed FERC Form No. 501-G, page 2, lines 13-17. All 
references to FERC Form No. 501-G line numbers in this Final Rule 
are to the proposed form as contained in the NOPR. Certain line 
numbers have been modified in the final version of the form as 
discussed below.
    \139\ See proposed FERC Form No. 501-G, page 1, line 31.
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a. Comments
    120. Several commenters filed similar comments on this issue.\140\ 
They are concerned that FERC Form No. 501-G's proposed treatment of 
ADIT and related amortization of excess ADIT is inextricably linked 
with the Commission's Notice of Inquiry on the effect of the Tax Cuts 
and Jobs Act on Commission jurisdictional rates.\141\ These commenters 
insist that resolution of the requested areas of comment in the ADIT 
NOI on a number of issues regarding the details and effect of the 
appropriate treatment of ADIT as a result of the lower tax rates in the 
Tax Cuts and Jobs Act may impact the excess ADIT amounts that are 
entered in FERC Form No. 501-G, which will be filed with the Commission 
prior to any ADIT NOI resolution. According to these commenters, excess 
ADIT amounts are entered on Lines 13-17 on Page 2 of FERC Form No. 501-
G for purposes of calculating rate base, and that results in the annual 
amortization figure entered in Line 31 on page 1 of the Form for 
purposes of calculating the tax allowance. These commenters note that 
the ADIT NOI seeks comments concerning potential adjustments to 
pipelines' rate base relating to, and amortization of, excess or 
deficient ADIT; whether and how excess or deficient ADIT should be 
reflected in pipelines' rates; and the treatment of excess ADIT 
associated with assets that pipelines sell or retire after the 
effective date of the Tax Cuts and Jobs Act. Without this guidance, 
they argue, pipelines will likely make individual judgments about the 
treatment of their ADIT balances, which will ultimately result in 
different inputs into their FERC Form No. 501-G from the final 
resolution. Thus, these commenters argue that the information would be 
highly varied and not comparable, which would hinder the Commission in 
evaluating pipelines' rates. With the lack of clarity for these 
outstanding issues, these commenters contend that it will be nearly 
impossible to choose from among the four options available. The 
commenters are concerned that the proposed information in FERC Form No. 
501-G and related amortization in the indicative rate reduction will 
prejudge the outcome of the ADIT NOI rulemaking. These commenters 
insist that, as required by the Administrative Procedure Act, these 
issues should be addressed through adequate notice and comment 
procedures. In addition to the uncertainty originating from the 
resolution in the ADIT NOI, Berkshire Hathaway notes that the 
Commission is not the only regulatory agency evaluating the impact of 
the Tax Cuts and Jobs Act. Berkshire Hathaway further notes that both 
the Securities Exchange Commission (SEC) and the Financial Accounting 
Standards Board must set standards for financial reporting that address 
the reduction in the federal corporate income tax rate. Thus, Berkshire 
Hathaway states that although it has recorded the impacts of the Tax 
Cuts and Jobs Act in its FERC Form No. 2, it considers the amounts 
recorded, and the interpretations related to the financial reporting of 
bonus depreciation and regulatory liability amortization, to be 
provisional and subject to changes during the measurement period. 
Therefore, the commenters urge that the Commission consider the final 
resolution in the ADIT NOI proceeding before requiring the pipelines to 
file their FERC Form No. 501-G.
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    \140\ INGAA Comments at 22; Boardwalk Comments at 13-15; Spectra 
Comments at 7, 22; Kinder Morgan Comments at 28; National Fuel 
Comments at 4-6; Dominion Energy Comments at 3-4; EQT Midstream 
Comments at 8; Tallgrass Pipelines Comments at 7-8; Williams 
Comments at 9; Berkshire Hathaway Comments at 5; Southern Star 
Comments at 9.
    \141\ ADIT NOI, 162 FERC ] 61,223.
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    121. The Oklahoma AG believes that the NOPR does not include the 
effects of excess ADIT on the revenue requirements of interstate 
natural gas pipelines and does not agree with this approach. Instead, 
the Oklahoma AG believes that the most effective and efficient means 
for resolving excess ADIT for interstate natural gas pipelines would be 
to include the amortization of excess ADIT in the FERC Form No. 501-G 
rather than awaiting conclusion of the open-ended ADIT NOI process.
    122. Enable Interstate Pipelines, Spectra, and National Fuel argue 
that establishing a generic policy regarding the treatment of ADIT 
ignores the complexity of the issue. They argue that the level of ADIT 
attributed to an entity depends on where (among other things) that 
entity's assets are in their depreciable lives (for tax purposes and 
for ratemaking purposes), what transactions the entity has engaged in 
in the past, what assets have been fully depreciated, and differences 
in timing between book depreciation and tax depreciation. National Fuel 
notes that because its fiscal year is not on a calendar year basis, the 
applicable federal tax rate for fiscal year 2018 will be a composite 
tax rate, not the 21 percent specified in FERC Form No. 501-G. National 
Fuel insists that requiring pipelines with non-calendar year bases to 
utilize a 21 percent federal tax rate will yield incorrect and invalid 
results. National Fuel notes that the Commission has approved differing 
rate treatments in its rate cases. Because of expected differences from 
the FERC Form No. 501-G assumptions, National Fuel requests that the 
Commission modify the form to allow flexibility in regards to the 
form's inputs in order to ensure a calculation of valid results.
    123. Spectra argues that FERC Form No. 501-G has erroneous built-in 
features that reduce rate base by the total regulatory liability 
reported on page 278 of the 2017 FERC Form No. 2. Spectra states that 
for many pipelines, a substantial portion of that regulatory liability 
is related to deferred income taxes. Also, Spectra states that FERC 
Form No. 501-G requires a pipeline to reduce its cost of service by the 
annual amortization of the excess ADIT regulatory liability. According 
to Spectra, this reduces rates twice for the same regulatory liability.
    124. LDC Coalition notes that pipelines will have adjusted their 
ADIT balances to reflect the change in the federal corporate income tax 
rate by the time they make their FERC Form No. 501-G filing. LDC 
Coalition speculates that pipelines may use several alternatives to 
recalculate ADIT and then account for the excess ADIT. LDC Coalition 
states that although the pipeline may simply be transferring a 
previously booked item from its FERC Form No. 2 to the FERC Form No. 
501-G, the Commission and customers reviewing the pipeline filing will 
have

[[Page 36691]]

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

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

    126. Spectra further argues that the proposed FERC Form No. 501-G 
treats certain entities as though they will not be permitted an income 
tax allowance going forward, but requires those same entities to carry-
over historic ADIT-related balances and costs inputs. Spectra asserts 
that if there is no income tax liability, there should be no ADIT and 
associated adjustments. Accordingly, Spectra contends that FERC Form 
No. 501-G inappropriately requires such entities to reduce rate base by 
the amount of ADIT and reduce the total cost of service by the 
amortization of the excess ADIT Regulatory Liability balance. Spectra 
claims that, in the absence of an income tax allowance, ADIT is being 
used to provide a refund and violates precedent against retroactive 
ratemaking. Accordingly, Spectra argues that FERC Form No. 501-G data 
entry for ADIT amortization should be zero for entities that are 
disallowed an income tax allowance pursuant to the United Airlines 
Issuances.
    127. In sum, commenters argue that the uncertainty regarding ADIT 
may (1) result in misleading or inaccurate information provided in the 
FERC Form No. 501-G filings, particularly the inputs related to ADIT; 
\143\ (2) discourage pipelines from selecting the option to file a 
limited section 4 rate case; \144\ and (3) reduce the likelihood 
pipelines and shippers will enter into settlements.\145\ Commenters 
urge that the Commission consider the final resolution of the issues in 
the pending ADIT NOI proceeding before the issuance of the Final Rule 
in this proceeding or at least before pipelines are required to file 
their FERC Form No. 501-G.\146\
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    \143\ INGAA Comments at 23; Boardwalk Comments at 14; Spectra 
Comments at 7-8; Kinder Morgan Comments at 28; Williams Comments at 
9; Millennium Comments at 10; Tallgrass Pipelines Comments at 6, 9, 
12; EQT Midstream Comments at 5, 8; Dominion Energy Comments at 4-5; 
National Fuel Comments at 5; Berkshire Hathaway Comments at 4-6; 
Southern Star Comments at 9-10. Similarly, LDC Coalition argues that 
the staggered timing of this proceeding and the ADIT NOI proceeding 
may make it difficult to determine how pipelines have adjusted their 
ADIT balances in calculating their costs in the FERC Form No. 501-G 
filings. LDC Coalition Comments at 22.
    \144\ INGAA Comments at 23; Boardwalk Comments at 14; Spectra 
Comments at 8; Williams Comments at 9; Millennium Comments at 10; 
Tallgrass Pipelines Comments at 12; EQT Midstream Comments at 2, 8-
9; Dominion Energy Comments at 4.
    \145\ INGAA Comments at 23; Boardwalk Comments at 14; Williams 
Comments at 9-10; Millennium Comments at 10; TransCanada Comments at 
3-4; Tallgrass Pipelines Comments at 12; EQT Midstream Comments at 
9; Dominion Energy Comments at 4; National Fuel Comments at 6; 
Southern Star Comments at 3, 10.
    \146\ INGAA Comments at 4, 22-23; Boardwalk Comments at 5, 13-
15; Spectra Comments at 6-9; Kinder Morgan Comments at 28-29; 
Williams Comments at 3, 9; Millennium Comments at 2, 9-10; Tallgrass 
Pipelines Comments at 4-9, 11-12; EQT Midstream Comments at 2, 8-9; 
Dominion Energy Comments at 2-5; National Fuel Comments at 4-6; 
Berkshire Hathaway Comments at 3-6; Southern Star Comments at 3, 9-
10.
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b. Discussion
    128. The majority of pipeline commenters recommend that the 
Commission delay the requirement to file FERC Form No. 501-G until a 
Final Rule is issued in the ADIT NOI proceeding. The Commission 
concludes that such a delay is unnecessary in light of the steps we 
take below.
    129. The Commission is setting forth its policy concerning the 
treatment of ADIT when the tax allowances of pass-through pipelines 
(including MLP pipelines) are eliminated, and the Commission modifies 
the FERC Form No. 501-G to reflect that policy. The Commission declines 
to make other changes from the NOPR proposal because, as explained 
below, the Commission's existing ADIT policies provide sufficient 
guidance for the purposes of this Final Rule.
i. Treatment of ADIT When a Pass-Through Pipeline's Income Tax 
Allowance Is Eliminated
    130. In response to the concerns raised by Spectra, Boardwalk, and 
others, the Commission takes two steps to address treatment of ADIT 
when a pass-through entity eliminates its income tax allowance.
    131. First, in the rehearing of the Revised Policy Statement (which 
is issuing concurrently with this Final Rule),\147\ the Commission 
announces its intent to permit a pass-through pipeline to eliminate 
ADIT from its cost of service if that pass-through pipeline eliminates 
its income tax allowance pursuant to the United Airlines Issuances 
policy. Thus, the Commission does not intend to require a pass-through 
pipeline to return ADIT to its customers or to adjust its rate base by 
any outstanding ADIT balance. Although non-binding, this guidance 
should help pipelines more efficiently evaluate their options pursuant 
to the Final Rule. This clarification may also facilitate potential 
settlement negotiations between pipelines and customers.
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    \147\ Inquiry Regarding the Commission's Policy for Recovery of 
Income Tax Costs, Order on Rehearing, 164 FERC ] 61,030 (2018).
---------------------------------------------------------------------------

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

[[Page 36692]]

construct to ensure that regulated entities do not earn a return on 
cost-free capital based upon timing differences between federal and 
state tax liability and Commission ratemaking.\150\ The purpose of 
normalization is matching the pipeline's cost-of-service expenses in 
rates with the tax effects of those same cost-of-service expenses.\151\ 
If there is no income tax allowance in Commission rates, there is no 
basis for the ``matching'' function of normalization \152\ and no 
liability for the deferred taxes reflected in ADIT. In the absence of 
ADIT, there is no ADIT adjustment to rate base or amortization 
allowance to be reflected in cost-of-service rates.
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    \148\ This change will reduce to zero on the FERC Form No. 501-G 
line items for Accumulated Deferred Income Taxes (Account 190), 
Accumulated Deferred Income Taxes-Other Property (Account 282), and 
Accumulated Deferred Income Taxes-Other (Account 283). See FERC Form 
No. 501-G, page 2, lines 13-15. The pipeline should also remove any 
sums related to ADIT from Other Regulatory Liabilities (Account 254) 
and Other Regulatory Assets (Account 182.3). See FERC Form No. 501-
G, page 2, lines 16-17. The Implementation Guide includes more 
specific instructions for the FERC Form No. 501-G.
    \149\ See 18 CFR 154.305(a) (``An interstate pipeline must 
compute the income tax component of its cost-of-service by using tax 
normalization for all transactions.''); 18 CFR 154.305(b)(1) (``Tax 
normalization means computing the income tax component as if 
transactions recognized in each period for ratemaking purposes are 
also recognized in the same amount and in the same period for income 
tax purposes.''); 18 CFR 154.305(b)(4) (``Income tax component means 
that part of the cost-of-service that covers income tax expenses 
allowable by the Commission.''); 26 U.S.C. 168(i)(9)(A) (``the 
taxpayer must, in computing its tax expense for purposes of 
establishing its cost of service for rate-making purposes . . . use 
a method of depreciation with respect to such property that is the 
same as, and a depreciation period for such property that is no 
shorter than, the method and period used to compute its depreciation 
expense for such purposes. . . .'') (emphasis added). Algonquin Gas 
Transmission Co., 76 FERC ] 61,075, at 61,449 (1996); see also 18 
CFR 154.305(c)(2) (``rate base reductions or additions'' for ADIT 
``must be limited to deferred taxes related to rate base, 
construction, or other costs and revenues affecting jurisdictional 
cost-of-service'') (emphasis added); 18 CFR 154.305(d)(1) 
(requirements relating to excess or deficient ADIT balances apply 
where the discrepancy is ``a result of changes in tax rates'' or 
where ``the rate applicant has not provided deferred taxes in the 
same amount that would have accrued had tax normalization always 
been applied.'').
    \150\ Arco Pipe Line Co., Opinion No. 351, 52 FERC ] 61,055, at 
61,238 (1990).
    \151\ ``The primary rationale for normalization is matching: The 
recognition in rates of the tax effects of expenses and revenues 
with the expenses and revenues themselves.'' Regulations 
Implementing Tax Normalization for Certain Items Reflecting Timing 
Differences in the Recognition of Expenses or Revenues for 
Ratemaking and Income Tax Purposes, Order No. 144, FERC Stats. & 
Regs. ] 30,254 at 31,522 (1981), reh'g denied, Order No. 144-A, FERC 
Stats. & Regs. ] 30,340 (1982), aff'd, Public Systems v. FERC, 709 
F.2d 73 (D.C. Cir. 1983).
    \152\ See Public Utilities, 894 F.2d at 1382 (noting that 
``[t]ax normalization sought to `match' the timing of a customer's 
contribution toward a cost with enjoyment of any offsetting tax 
benefit,'' but finding the passage of the NGPA which resulted in El 
Paso no longer using cost-of-service rates ``mooted the whole 
question to which normalization was the answer'').
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    133. Moreover this modification to the FERC Form No. 501-G comports 
with retroactive ratemaking principles. The rule against retroactive 
ratemaking bars ``the Commission's retroactive substitution of an 
unreasonably high or low rate with a just and reasonable rate.'' \153\ 
As relevant here, when a pass-through pipeline eliminates its income 
tax allowance consistent with the United Airlines Issuances policy, 
maintaining ADIT in cost of service would violate retroactive 
ratemaking by requiring pipelines to refund to shippers tax costs the 
pipeline collected in past rates for payment to the IRS pursuant to the 
Commission's pre-United Airlines policy. This analysis is supported by 
the D.C. Circuit's Public Utilities decision which held that requiring 
a pipeline to credit ratepayers for earnings on an excess ADIT balance 
or refund the balance to ratepayers violated retroactive ratemaking 
where the pipeline switched to statutory proscribed rate ceilings from 
cost-of-service rates, meaning that the rates no longer included a 
cost-of-service normalization of income tax costs.\154\
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    \153\ City of Piqua v. FERC, 610 F.2d 950, 954 (D.C. Cir. 1979).
    \154\ Public Utilities Comm'n of State of Cal. v. FERC, 894 F.2d 
1372 (D.C. Cir. 1990). Specifically, Public Utilities held that 
requiring a pipeline to credit ratepayers for earnings on an excess 
ADIT balance where the pipeline switched from cost-of-service rates 
to ceiling prices violated the rule against retroactive ratemaking. 
As the court found in Public Utilities, ADIT ``is composed entirely 
of rate revenue that [the pipeline] has already collected. Refund of 
such property, or its earnings, would effectively force [the 
pipeline] to return a portion of rates approved by FERC, and 
collected by [the pipeline].'' Id. at 1383. The D.C. Circuit 
explained that to the extent any basis for requiring the credit to 
ratepayers rested on the view that the pipeline's prior cost-of-
service rates were ``in retrospect too high'' or ``unjust and 
unreasonable'' then the credit for earnings on previously 
accumulated ADIT sums violated the rule against retroactive 
ratemaking. Id. at 1380, 1382.
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    134. Finally, shippers have no equity interest in ADIT that 
justifies maintaining ADIT in rates or alleviates the above retroactive 
ratemaking concerns. The Commission and the D.C. Circuit have rejected 
arguments based on the misconception that ADIT is a cash reserve over 
which ratepayers have an ownership claim or equitable interest.\155\ 
Consistent with these holdings, the Commission has also explained that 
ADIT is not a true-up or tracker of money owed to shippers.\156\ 
Rather, under the Commission's pre-United Airlines policies involving 
tax allowances for pass-through entities, normalization in past rates 
required ratepayers to pay their properly allocated share of the 
pipeline's tax expenses as matched to the ratepayers' payment of 
straight-line depreciation costs.\157\ ADIT is not money owed to past 
or future ratepayers, but rather deferred taxes that are ultimately 
owed to the government.\158\
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    \155\ Public Systems, 709 F.2d at 85 (rejecting the notion 
``that ratepayers have an ownership claim'' to the ADIT balance); 
Public Utilities, 894 F.2d at 1381 (``The Commission and this Court 
have both rejected'' ``the notion that under normalization 
accounting customers enjoy an equitable interest in a utility's 
deferred tax account.''); Order No. 144, FERC Stats. & Regs. ] 
30,254 at 31,539 (addressing the ``erroneous premise that a loan is 
being made by ratepayers to utilities'' through the normalization 
process'' and stating that ratepayers do not ``have an ownership 
claim or equitable entitlement to the `loaned monies'''); id. at 
31,539 n.75 (``This is not to say that customers do not pay rates 
that recover deferred taxes. They do. But paying deferred taxes in 
rates does not convey and ownership or creditor's right.'').
    \156\ Lakehead Pipe Line Co. L.P., 75 FERC ] 61,181, at 61,594 
(1996). Moreover, there would be practical problems with maintaining 
such a tracker as many oil pipeline rates have never have been 
subject to a cost-of-service rate proceeding. For these pipelines, 
there is no cost-of-service income tax allowance which has been 
established.
    \157\ The Commission's primary justification for its decision to 
adopt tax normalization was ``the matching principle: as a matter of 
fairness, customers who pay an expense should get the tax benefit 
that accompanies the expense. . . .'' Public Systems, 709 F2d at 80.
    \158\ For example, ADIT is eliminated (not returned to shippers) 
when the pipeline must pay these deferred taxes to the federal 
government as a result of a sale of the asset. Enbridge Pipelines 
(KPC), 100 FERC ] 61,260, at PP 158-162 (2002).
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    135. Accordingly, the informational FERC Form No. 501-G is likely 
to be the most useful if it removes ADIT whenever the income tax 
allowance is eliminated. Furthermore, although the Commission has made 
this adjustment to the FERC Form No. 501-G, a pipeline may propose 
alternative treatment of ADIT in the Addendum.\159\ Similarly, the 
removal of ADIT on FERC Form No. 501-G (or any subsequent adjustments 
in the Addendum) may be reflected in the optional limited section 4 
rate filings. Given that these section 4 rate filings reduce the 
pipeline's rates and are entirely at the pipeline's discretion, we do 
not think this modification is inappropriate. The Commission also 
emphasizes that this modification only applies to the FERC Form No. 
501-G (and the optional limited section 4 filings pursuant to Sec.  
154.404(a)). It does not establish a broader rule. Shippers and 
pipelines may advocate for a different treatment of ADIT in any future 
rate litigation.
---------------------------------------------------------------------------

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

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

[[Page 36693]]

for comment from the public on numerous ADIT-related questions as they 
relate to the proper implementation procedures on the various effects 
on cost-of-service rates resulting from the Tax Cuts and Jobs Act and 
the United Airlines Issuances. To the extent the Commission does change 
its ratemaking and accounting regulations, the implementation of any 
new instructions and policies will have only a prospective application. 
In the meantime, natural gas pipelines must follow the Commission's 
existing ratemaking and accounting regulations concerning ADIT 
described below.
    137. Commenters argue that without the guidance resulting from the 
ADIT NOI proceeding, individual natural gas companies may not populate 
FERC Form No. 501-G in a consistent manner. However, we believe that 
this is not the case, because all ADIT-related data elements are to be 
taken directly from the natural gas companies' FERC Form Nos. 2 and 2-A 
and their existing accounting records. The FERC Form Nos. 2 and 2-A 
data largely originates from the Commission's Uniform System of 
Accounts (USofA) instructions. As such, the Commission's existing 
USofA, among other things, contains instructions on balance sheet and 
statement of income accounts related to ADIT.\160\ Natural gas 
companies report all ADIT balances on their FERC Form Nos. 2 and 2-A. 
Thus, 2017 FERC Form Nos. 2 and 2-A prepared consistent with existing 
guidance should provide the amounts of the excess or deficiency ADIT 
balances as of December 31, 2017, after the enactment date of December 
22, 2017 of the Tax Cuts and Jobs Act.
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    \160\ See, e.g., Accounting For Income Taxes, Docket No. AI93-5-
000 (April 23, 1993), available at https://www.ferc.gov/enforcement/acct-matts/docs/AI93-5-000.asp (AI93-5-000 Guidance).
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    138. Finally, the IRS has accepted two methods to flow back any 
excess or deficiency ADIT since at least the Tax Reform Act of 1986. 
The Commission, consistent with current guidance and the Tax Cuts and 
Jobs Act directives,\161\ will continue to allow the use of either of 
these two methods: (1) The Average Rate Assumption Method (ARAM), which 
is the primary method, and (2) the Reverse South Georgia Method (RSGM), 
which is permitted as an exception, if a rate regulated company does 
not have vintage records for its plant assets to support the reversal 
of book/tax differences.
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    \161\ See Tax Cuts and Jobs Act 13001(d), 131 Stat. at 2099-
2100.
---------------------------------------------------------------------------

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

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

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

    140. Moreover, it has been a long-standing policy for the 
Commission to require natural gas companies to flow back the effects of 
timing differences between the Commission approved income tax 
allowances and the IRS tax liabilities.\163\ This Final Rule is also 
premised on the Commission's concern that natural gas pipelines may be 
collecting unjust and unreasonable rates in light of the recent 
reduction in the federal corporate income tax rate in the Tax Cuts and 
Jobs Act, and that it may be appropriate to direct natural gas 
pipelines to reduce their rates to reflect the effects of the Tax Cuts 
and Jobs Act, or to establish proceedings to determine whether natural 
gas companies' existing rates are no longer just and reasonable and 
establish new just and reasonable rates.\164\
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    \163\ Tax Normalization for Certain Items Reflecting Timing 
Differences in the Recognition of Expenses or Revenues for 
Ratemaking and Income Tax Purposes, Order No. 144, FERC Stats. & 
Regs. ] 30,254 (1981) (cross-referenced at 15 FERC ] 61,133), order 
denying reh'g, lifting stay and clarifying order, Order No. 144-A, 
FERC Stats. & Regs. ] 30,340 (1982) (established 18 CFR 154.63a). 
The content of Sec.  154.63a was later updated and moved to 18 CFR 
154.305: Tax Normalization. Filing and Reporting Requirements for 
Interstate Natural Gas Co. Rate Schedules and Tariffs, Order No. 
582, FERC Stats. & Regs. ] 31,025 (1995) (cross-referenced at 72 
FERC ] 61,300).
    \164\ NOPR, FERC Stats. & Regs. ] 32,725 at P 4.
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    141. With the precondition satisfied, the Commission's guidance in 
AI93-5-000 at Question 8 continues with regard to the recognition of 
ADIT regulatory assets or liabilities:

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

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

    \165\ 18 CFR part 201.
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    143. With the amounts recorded in the appropriate accounts, 
consistent with the Commission's existing instructions and guidance, 
there should be only limited variation in the natural gas companies' 
financial information reported in their FERC Form Nos. 2 and 2-A and 
the proposed FERC Form No. 501-G. To the extent that further 
explanations for the reported financial information are necessary, 
natural gas companies are advised to provide such explanations in the 
footnotes to their financial statements.\166\ Any explanations or 
differences in reported financial information can also be provided in 
the optional Addendum that pipelines are permitted to file along with 
their FERC Form No. 501-G. As the Commission already has in place 
sufficient guidance in regards to classification and recording of ADIT-
related amounts, the Commission does not expect any significant 
variations in how natural gas companies account for such amounts. 
Further, to the extent a natural gas pipeline did not prepare its 2017 
FERC Form Nos. 2 and 2-A consistent with the prior Commission guidance 
discussed above, the company

[[Page 36694]]

must make the appropriate corrections.\167\
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    \166\ Id. at General Instructions, No. VIII.
    \167\ See Entergy Services, Inc., Opinion No. 545, 153 FERC ] 
61,303, at P 156 (2015); as clarified 156 FERC ] 61,196, at P 150 
(2016) (Finding that past FERC Form No. 1s must be refiled to 
correct an ADIT amortization period mistake.).
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    144. FERC Form No. 501-G largely requires natural gas companies to 
transfer financial data directly from their FERC Form Nos. 2 and 2-A 
for purposes of examining their costs of service. FERC Form No. 501-G 
calculates an indicated cost of service (page 1) and rate base (page 
2). The ADIT amounts that natural gas companies enter on lines 13-17 of 
page 2 for purposes of calculating their rate base must be transferred 
directly from the companies' 2017 FERC Form Nos. 2 and 2-A. The 2017 
FERC Form Nos. 2 and 2-A do not necessarily provide the figure for 
Amortization of Excess/Deficiency ADIT that the FERC Form No. 501-G 
requires natural gas companies to enter on page 1, line 31, for 
purposes of calculating the tax allowance included in cost of service. 
That is because this information will be reported in subsequent 
periods. However, as explained above, natural gas companies should 
already have this amount determined based on previous Commission and 
IRS guidance. Specifically, under current guidance, the Commission 
expects the flow-back of the excess regulatory liability or deficiency 
regulatory asset to occur over the remaining book life of the 
associated plant assets, because depreciation of plant assets is the 
primary driver of timing differences in taxes as they relate to natural 
gas companies. The Commission expects insignificant differences between 
proposed amortization periods by the natural gas companies and approved 
amortization periods by the Commission as they relate to items other 
than plant assets. Whenever there is a need for noting potential 
differences, natural gas companies may provide explanations in the 
optional Addendum that pipelines are permitted to file along with their 
FERC Form No. 501-G.
    145. Additionally, FERC Form No. 501-G appropriately considers the 
amortization of excess ADIT balances as part of calculating the tax 
allowance included in cost of service. This is a requirement codified 
at Sec.  154.305(d) of the Commission's regulations.\168\ As described 
above, FERC Form No. 501-G, page 1, requires Amortization of Excess 
ADIT as part of the indicated cost of service. Further, FERC Form No. 
501-G appropriately adjusts rate base for ADIT balances. This is 
consistent with current guidance under Sec.  154.305(c) of the 
Commission's regulations.\169\ On FERC Form No. 501-G, page 2, the rate 
base calculation removes the excess ADIT balance and adds the 
deficiency ADIT balance from/to rate base. As discussed above, Spectra 
and Boardwalk expressed concern that proposed FERC Form No. 501-G 
provides that entities not permitted an income tax allowance going 
forward are still required to carry-over historic ADIT-related balances 
and costs inputs. Consistent with the discussion above, the Commission 
has modified FERC Form No. 501-G's treatment of ADIT balances and 
amortization of excess or deficient ADIT. For pipelines that indicate 
that they are not a separate income taxpaying entity on FERC Form No. 
501-G, page 1, Line 4, page 2 eliminates the ADIT adjustment to rate 
base and does not require the pipeline to estimate the amortization of 
excess or deficient ADIT on page 1, Line 31.
---------------------------------------------------------------------------

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

    146. In summary, the Commission has existing and currently 
applicable regulations, instructions, and guidance necessary for 
natural gas companies to account properly for the effects of the Tax 
Cuts and Jobs Act. Further, Sec.  154.305 of the Commission's 
regulations establishes the default treatment of ADIT balances and 
amortization thereof in rate base and the cost of service. For all the 
stated reasons discussed above, the Commission does not find persuasive 
commenters' argument that there is a lack of guidance on how to account 
for and flow-back ADIT balances.
    147. National Fuel advocates that the Commission should permit 
pipelines flexibility in ADIT treatment in FERC Form No. 501-G. 
National Fuel states that the Commission has permitted differing rate 
treatment, including National Fuel's. However, National Fuel does not 
provide any specific examples or citations. Therefore, it is not clear 
as to the nature of flexibility National Fuel is advocating. Further, 
as to National Fuel's own cost of service, the Commission notes that 
National Fuel informed the Commission that the settlements underlying 
its currently effective rates are ``black box'' settlements.\170\ As is 
the case with most black box settlements, National Fuel's May 22, 2012 
and September 29, 2015 Settlements did not contain cost-of-service work 
papers. Therefore, it is not possible to confirm National Fuel's claim 
that the Commission afforded differing treatment of ADIT in National 
Fuel's currently effective rates.\171\ With regard to ADIT, the May 22, 
2012 Settlement provides that the settlement rates are consistent with 
IRS regulations with respect to normalization of any excess and/or 
deficiency in deferred income taxes.\172\ Commission normalization 
requirements are not inconsistent with the IRS normalization 
regulations.\173\ Notwithstanding, natural gas pipelines may suggest 
alternative ADIT treatment as part of an Addendum.
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    \170\ National Fuel Gas Supply Corp., May 22, 2012 Settlement 
filed in Docket No. RP12-88, Article I, approved National Fuel Gas 
Supply Corp., 140 FERC ] 61,114 (2012). This provision of the May 
22, 2012 Settlement remains unchanged and continues pursuant to 
Article II of the September 29, 2015 Supplemental Stipulation and 
Agreement filed in Docket No. RP15-1310-000, approved National Fuel 
Gas Supply Corp., 153 FERC ] 61,170 (2015).
    \171\ Further, even if there had been such a provision or work 
papers, it would have had no precedential value: ``The Commission's 
order approving this Stipulation shall not constitute approval or 
acceptance of any concept, theory, principle, or method underlying 
any of the rates or charges or any other matter identified in this 
Stipulation or in this proceeding.'' May 22, 2012 Settlement at 
Article XIII.
    \172\ Id. at Article VII.
    \173\ See Koch Gateway Pipeline Co., 74 FERC ] 61,088, at 61,277 
(1996) (``While the Commission is not bound to follow an IRS ruling 
for ratemaking purposes, we are reluctant to take action which would 
endanger a pipeline's right to favorable tax treatment from the 
IRS.'').
---------------------------------------------------------------------------

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

[[Page 36695]]

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

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

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

The deduction of accumulated deferred taxes from rate base . . . is 
intended to reflect the lower cost of service that a utility 
achieves by its use of the cash flow from deferred taxes in place of 
debt and equity capital.\175\
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    \175\ Order No. 144-A, FERC Stats. & Regs. ] 30,340 at 30,128.

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

    \176\ El Paso Natural Gas Co., L.L.C., 152 FERC ] 61,039, at P 
88 (2015) (El Paso).
    \177\ See Distrigas Mass. Corp. v. FERC, 737 F.2d 1208, 1212 
(1st Cir. 1984) (describing the tax deferral as ``highly 
advantageous'' to regulated entities, noting that service providers 
``obtain the use of the `saved tax' money until the time it falls 
due''). See also United Gas Pipeline Co., Opinion No. 99, 13 FERC ] 
61,044, at 61,096 (1980) (excluding undistributed subsidiary 
earnings from equity because funds not available for investment in 
jurisdictional activities).
    \178\ El Paso, 152 FERC ] 61,039 at P 89.
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8. Who Must File
    153. In the NOPR, the Commission proposed that ``every natural gas 
company that is required . . . to file a Form No. 2 or 2-A for 2017 and 
has cost-based rates for service . . . must prepare and file with the 
Commission a FERC Form No. 501-G.'' \179\ The Commission also proposed 
to exempt pipelines that, as of the deadline for filing their FERC Form 
No. 501-G, are the subject of an ongoing general rate case under 
section 4 or rate

[[Page 36696]]

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

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

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

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

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

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

    156. Several other commenters present overlapping arguments for 
expanding settlement-related exemptions. Commenters request exemptions 
from the One-time Report for pipelines with rate settlements that pre-
date the NOPR, but also (1) contain a rate moratorium clause; \185\ (2) 
post-date the Tax Cuts and Jobs Act; \186\ or (3) expressly contemplate 
future changes to tax rates.\187\ Similarly, commenters request a FERC 
Form No. 501-G exemption for pipelines that, whether voluntarily or due 
to a settlement comeback clause, elect Option 2, that is, to file a new 
general section 4 rate case or settlement shortly after the filing 
deadline for the One-time Report.\188\
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    \185\ Boardwalk Comments at 18; Dominion Energy Comments at 14; 
Kinder Morgan Comments at 29; National Fuel Comments at 1-2; Spectra 
Comments at 13; TransCanada Comments at 14; Williams Comments at 5.
    \186\ INGAA Comments at 28; Kinder Morgan Comments at 30-31.
    \187\ Cove Point Comments at 2; Dominion Energy Comments at 15; 
Williams Comments at 5-6.
    \188\ Dominion Energy Comments at 14; INGAA Comments at 29; 
Kinder Morgan Comments at 31; National Fuel Comments at 2; Tallgrass 
Pipelines Comments at 15.
---------------------------------------------------------------------------

    157. For each of these four categories, commenters argue that 
filing the One-time Report ``would serve no purpose . . . since the 
rates would not be affected.'' \189\ Commenters argue that filing the 
One-time Report would cut against the Commission's longstanding policy 
of not disturbing accepted settlements.\190\ In particular, commenters 
argue that filing the FERC Form No. 501-G would prejudice the pipeline 
by presenting an incomplete or confusing picture of how the tax changes 
affect the pipeline's rates.\191\
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    \189\ See, e.g., Boardwalk Comments at 18.
    \190\ Id. at n.44:
    [T]he Commission ``recognize[s] the role of settlements in 
providing rate certainty,'' and has stated that in deciding whether 
to exercise its discretion to initiate a section 5 proceeding, it 
would ``take into account the parties' interest in maintaining a 
Settlement.'' (quoting Nat. Gas Pipeline Co. of Am. LLC, 162 FERC ] 
61,009, at P 29 (2018)). The Commission has explained that, without 
rate moratoria, ``the utility of settlements for resolving cases 
would be severely jeopardized. No settlement could ever be truly 
final, because the rates resulting from the settlement would always 
be subject to reopening based on subsequent Commission or Court 
decisions.'' See Iroquois Gas Transmission Sys. L.P., 69 FERC ] 
61,165, at p. 61,631 (1994), reh'g denied, 70 FERC ] 61,181 (1995). 
The Commission also noted that its decision not to order a 
modification to a settlement was ``consistent with the principle 
that approved settlements are binding on the parties and should not 
be modified simply because it later appears that `the result is not 
as good as it ought to have been.' '' Id. (quoting Tex. E. 
Transmission Corp. v. FPC, 306 F.2d 345, 348 (5th Cir. 1962)).
    See also Kinder Morgan Comments at 30 & n.84.
    \191\ INGAA Comments at 29; Kinder Morgan Comments at 32.
---------------------------------------------------------------------------

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

[[Page 36697]]

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

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

    162. A pipeline's filing of the FERC Form No. 501-G, together with 
any explanation it wishes to provide of why its rate settlement 
justifies not adjusting its rates at this time, will give interested 
persons the requisite opportunity to present their views on whether the 
settlement has reasonably modified the pipeline's rates to reflect the 
Tax Cuts and Jobs Act and/or the United Airlines Issuances and whether 
any rate moratorium prohibits a rate change at this time. However, if 
an individual pipeline believes that the issue of whether a pre-March 
26, 2018 settlement justifies not adjusting its rates at this time can 
be resolved without the need to file the FERC Form No. 501-G, it may 
file a request for a waiver of the requirement to file the FERC Form 
No. 501-G, with an explanation of why its pre-March 26, 2018 settlement 
justifies no change in its rates to reflect the Tax Cuts and Jobs Act 
and/or the United Airlines Issuances.\193\ The pipeline should file 
such a request at least 30 days before the date its FERC Form No. 501-G 
is due. Any such request will be noticed for interventions, protests, 
and comments, and, based upon all the pleadings, the Commission will 
determine whether to grant the waiver.
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    \193\ For administrative efficiency, the Commission requires any 
request for an exemption from filing the FERC Form No. 501-G to be 
filed using the same Type of Filing Code as used by the FERC Form 
No. 501-G: ToFC 1430.
---------------------------------------------------------------------------

    163. In the NOPR, the Commission proposed to exempt pipelines from 
filing the FERC Form No. 501-G, if they file a general NGA section 4 
rate case or a prepackaged rate settlement before the deadline for 
filing their form.\194\ The Commission rejects the request that this 
automatic exemption be expanded to include pipelines that commit to 
file a general section 4 rate case or prepackaged settlement within 
some period after the otherwise applicable deadline for filing the 
form. Given the Commission's lack of refund authority under NGA section 
5, the Commission is unwilling to automatically exempt pipelines from 
filing the FERC Form No. 501-G based on commitments to file rate cases 
or settlements at some time in the future. The Commission also rejects 
contentions that providing the information required by the FERC Form 
No. 501-G will prejudice settlement talks or unduly burden the 
pipeline. As several commenters acknowledge, any pipeline hoping to 
reach a future settlement would inevitably grant shippers access to 
even more information than the FERC Form No. 501-G would collect. 
However, on a case-by-case basis, individual pipelines may file 
requests for waiver of filing the FERC Form No. 501-G if they are in 
settlement negotiations. In deciding whether to grant such waivers, the 
Commission will consider whether other interested parties support or do 
not oppose the request. We encourage pipelines to file such requests 
for waiver as soon as practicable to allow time for the Commission to 
issue a decision on the request. We note that pipelines are obligated 
to meet their FERC Form No. 501-G filing obligation by the deadline 
outlined in the Implementation Guide unless the Commission has issued 
an order affirmatively granting the requested waiver on or before that 
deadline.
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    \194\ Although the NOPR preamble clearly limited this exemption 
to situations where pipelines had filed a general rate case or 
prepackaged settlement ``before the deadline for their One-time 
Report,'' (NOPR, FERC Stats. & Regs. ] 32,725 at P 26) the proposed 
regulatory text in Sec.  260.402(b)(1)(ii) was less clear on this 
point. Accordingly, we are revising that section to clearly limit 
this exemption to situations where the relevant filing was made 
before the deadline for the pipeline's FERC Form No. 501-G. Since 
March 26, 2018, five pipelines have made such filings. On May 2, 
2018, Granite State Gas Transmission, Inc. (Granite State) filed a 
prepackaged uncontested settlement in Docket No. RP18-793-000 
(approved at Granite State Gas Transmission, Inc., 163 FERC ] 61,224 
(2018)). On May 31, 2018, MoGas Pipeline LLC (MoGas) filed a general 
NGA section 4 rate case in Docket No. RP18-877-000. On June 29, 
2018, Empire Pipeline, Inc. (Empire), Enable Mississippi River 
Transmission, LLC (Enable), and Trailblazer Pipeline Co. LLC, 
(Trailblazer) filed general section 4 rate cases in Docket Nos. 
RP18-940-000, RP18-923-000, an RP18-922-000 respectively. As such, 
Granite State, MoGas, Empire, Enable, and Trailblazer are not 
required to file FERC Form No. 501-G.
    Additional pipelines may choose to file NGA section 4 rate 
filings before this Final Rule is effective; those pipelines would 
not be required to file the FERC Form No. 501-G. Because the numbers 
are dynamic and may continue to change (reducing the number of 
filers of the FERC Form No. 501-G), we are retaining a conservative 
estimate of 129 pipelines who may be required to file the FERC Form 
No. 501-G.
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    164. Eastern Shore argues that it should be exempt from filing the 
One-time Report because it has already filed to lower its rates, in 
response to a settlement provision triggered by the Tax Cuts and Jobs 
Act, and its filing was accepted on April 24, 2018.\195\ However, 
Eastern Shore's referenced filing was a compliance filing made March 1, 
2018,\196\ pursuant to a rate case settlement it filed on December 13, 
2017 that the Commission approved on February 28, 2018.\197\ The 
December 13, 2017 settlement was prior to the Commission's issuances of 
the NOPR and United Airlines Issuances. Parties to the settlement could 
not have been aware of these Commission orders. As discussed above, the 
Commission will not presume what the parties' positions may be with 
respect to settlements filed prior to March 26, 2018. The Commission 
will not exempt Eastern Shore from filing a FERC Form No. 501-G in this 
Final Rule. But, as discussed above, it may file a separate request for 
a waiver of the FERC Form No. 501-G filing requirement which interested 
persons may comment upon.
---------------------------------------------------------------------------

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

    165. EQT Midstream and Tallgrass Pipelines request that the 
Commission ``provide other pipelines with the ability to request a 
waiver,'' or an extension of time, with both citing the example of a 
publicly announced corporate restructuring.\198\ We clarify that 
pipelines have the same right to request waiver or an extension of time 
of the One-time Report for any reason as they do to request waiver or 
an extension of time of any informational reporting requirement. We 
caution, however, that the Commission bears no obligation to grant any 
request that would have the effect of delaying rate relief, and as 
stated above, pipelines must file the FERC Form No. 501-G by the 
required deadline, unless the Commission has affirmatively granted a 
requested waiver.
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    \198\ EQT Midstream Comments at 13-14; Tallgrass Pipelines 
Comments at 19-20.
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9. Miscellaneous Changes to FERC Form No. 501-G
a. Comments and Discussion
    166. Boardwalk and INGAA state line 34 of page 1 of the proposed 
FERC Form

[[Page 36698]]

No. 501-G is labeled the ``Indicated Rate Reduction'' and provides the 
results from completing the form. Boardwalk and INGAA argue this label 
is misleading, and if not modified, would create adverse consequences 
for pipelines. Boardwalk claims line 34 shows only the potential 
modification to a pipeline's cost of service due to tax policy changes, 
without regard for changes that may occur to a pipeline's billing 
determinants, discount adjustments, and other issues impacting recourse 
rates. INGAA states that the FERC Form No. 501-G does not show what a 
pipeline's rate reduction would be if the pipeline were to modify its 
rates in response to the new policies on income tax and other factors 
that would be considered in a full review of its costs and revenues in 
an NGA sections 4 or 5 rate proceeding. To prevent line 34 from being 
misleading, Boardwalk and INGAA propose that the Commission should 
label it ``Indicated Cost of Service Reduction.'' \199\
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    \199\ INGAA Comments at 39; Boardwalk Comments at 30.
---------------------------------------------------------------------------

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

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

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

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

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

[[Page 36699]]

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

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

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

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

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

    \208\ Berkshire Hathaway Comments at Ex. A.
---------------------------------------------------------------------------

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

[[Page 36700]]

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

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

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

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

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

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

C. Additional Filing Options for Natural Gas Companies

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

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

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

[[Page 36701]]

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

    \214\ Id. P 44.
---------------------------------------------------------------------------

b. Comments
    193. Several commenters argue that the Commission should impose a 
moratorium on NGA section 5 actions if a pipeline chooses to make the 
limited NGA section 4 filing.\215\ INGAA argues that pipelines electing 
to make the limited NGA section 4 filing will be implementing a rate 
decrease sooner than would be required in a section 5 rate proceeding 
and that pipelines will have no incentive to make the limited NGA 
section 4 filing absent a firm assurance that it will not immediately 
be subject to an additional NGA section 5 proceeding.\216\ Some 
commenters suggest a moratorium of at least three years would be 
appropriate.\217\
---------------------------------------------------------------------------

    \215\ INGAA Comments at 29; Dominion Energy Comments at 11; 
Williams Comments at 8; EQT Midstream Comments at 12-13; Kinder 
Morgan Comments at 33.
    \216\ INGAA Comments at 29.
    \217\ Id.; Williams Comments at 8; EQT Midstream Comments at 12-
13; Kinder Morgan Comments at 33.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

c. Discussion
    198. The Commission adopts proposed Sec.  154.404 authorizing 
natural gas pipelines to submit limited NGA section 4 filings to reduce 
their rates to reflect the Tax Cuts and Jobs Act and the United 
Airlines Issuances, with three modifications. First, as already 
discussed, the Commission is removing the requirement that MLP 
pipelines eliminate their tax allowances in any limited NGA section 4 
filing. Instead, like other pass-through entities, MLP pipelines may 
either eliminate their tax allowances or reduce their rates to reflect 
the reduced income tax expenses provided by the Tax Cuts and Jobs Act. 
Second, as discussed below, we grant in part commenters' request for a 
moratorium on NGA section 5 investigations in the event a pipeline 
chooses the limited NGA section 4 option. Third, as discussed below, 
the Commission is also revising proposed Sec.  154.404 to recognize 
that pipelines that do not use a straight fixed-variable rate design 
may include fixed costs in their usage charges and thus require that 
such pipelines' limited NGA section 4 filings include a percentage 
reduction of any usage charges including fixed costs.
    199. We grant, in part, commenters' request for a moratorium on NGA 
section 5 investigations in the event a pipeline chooses to make a 
limited NGA section 4 rate reduction filing. Such a filing is an 
efficient and expeditious method of passing along to ratepayers the 
benefit of the reduction in the corporate income tax rate or the 
elimination of the MLP income tax allowance, without the need for the 
costly and time-consuming litigation entailed in an NGA section 5 rate 
investigation. Accordingly, it is reasonable to provide pipelines an 
incentive to make such limited NGA section 4 rate reduction filings. On 
the other hand, it is possible that a pipeline could make a limited NGA 
section 4 rate reduction filing and yet still have a significantly 
excessive ROE. In order to balance these concerns, the Commission has 
determined that it will not initiate an NGA section 5 investigation 
into the rates of a pipeline for three years from the effective date of 
the rate reduction resulting from the pipeline's limited NGA section 4 
filing if the pipeline's filing meets certain requirements. A pipeline 
would qualify for the NGA section 5 investigation moratorium if (1) the 
Commission accepts its limited NGA section 4 filing and (2) its Total 
Estimated ROE after the filing, as calculated on page 3, line 26, 
column (E) of its FERC Form No. 501-G, is 12 percent or less.\224\ For 
purposes of determining whether a pipeline qualifies for the NGA 
section 5 investigation moratorium, the Commission will rely on data in 
the FERC Form No. 501-G itself, without considering any adjustments the 
pipeline may include in an Addendum, so as to minimize any disputes as 
to whether the pipeline qualifies for the moratorium. However, as 
discussed below, the pipeline is free to calculate the percentage rate 
reduction proposed in its limited NGA section 4 filing using the 
adjusted data in its Addendum to its FERC Form No. 501-G.
---------------------------------------------------------------------------

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

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

[[Page 36702]]

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

    \225\ See General Motors Corp v. FERC, 613 F.2d at 944 (``[A]n 
administrative agency's decision to conduct or not to conduct an 
investigation is committed to the agency's discretion.'') (citations 
omitted).
---------------------------------------------------------------------------

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

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

    205. In response to APGA's request, we clarify that a pipeline may 
file its FERC Form No. 501-G and limited NGA section 4 filing in 
advance of the due date of its FERC Form No. 501-G, and encourage 
pipelines to do so. A pipeline cannot, however, make the limited NGA 
section 4 filing described in this Final Rule without also filing the 
FERC Form No. 501-G.
2. General NGA Section 4 Filing or Prepackaged Uncontested Settlement 
(Option 2)
a. NOPR
    206. The Commission proposed in the NOPR that an interstate natural 
gas pipeline could include with its FERC Form No. 501-G a commitment to 
file either a prepackaged uncontested settlement or, if that is not 
possible, a general NGA section 4 rate case to revise its rates based 
upon current cost data.\227\ The Commission stated that a pipeline 
choosing this option would also indicate an approximate time frame 
regarding when it would file the settlement or the NGA section 4 
filing. The Commission also proposed that if the pipeline commits to 
make such a filing by December 31, 2018, the Commission would not 
initiate an NGA section 5 investigation of its rates prior to that 
date.\228\
---------------------------------------------------------------------------

    \227\ Id. P 47.
    \228\ Id.
---------------------------------------------------------------------------

b. Comments
    207. Several commenters argue that pipelines that elect to file a 
pre-packaged settlement or general NGA section 4 rate case should be 
granted additional time to make such a filing.\229\ INGAA argues that 
the proposed deadline of December 31, 2018 does not give pipelines 
sufficient time after the filing of FERC Form No. 501-G to negotiate 
uncontested rate settlements, and, if such negotiations do not succeed, 
to prepare a general NGA section 4 rate case. Tallgrass Pipelines 
contend that the December 31, 2018 deadline is unduly burdensome, 
especially for companies that own and operate multiple jurisdictional 
natural gas pipelines and shippers that ship on multiple 
pipelines.\230\ EQT Midstream contends that a pipeline's deadline to 
submit its FERC Form No. 501-G is directly tied to the date when a 
Final Rule is issued and that a pipeline may only have a matter of 
months to file an uncontested settlement agreement or a general NGA 
section 4 rate case with the proposed static deadline of December 31, 
2018.\231\ INGAA argues that the proposed deadline discourages 
uncontested settlements because a pipeline may not want to allocate its 
limited resources to negotiations and instead use those resources to 
prepare a

[[Page 36703]]

general NGA section 4 rate case.\232\ Dominion Energy argues that 
shippers are unlikely to be ready to negotiate until a pipeline's FERC 
Form No. 501-G has been submitted.\233\ Commenters argue that, instead 
of imposing a fixed December 31, 2018 filing deadline upon all 
pipelines that elect option 2, the Commission should allow pipelines to 
file pre-packaged uncontested settlements or general NGA section 4 rate 
cases up to 180 days following their deadline for filing FERC Form No. 
501-G, and that the Commission should also permit parties to request 
waivers or extensions of the filing deadline for pre-packaged 
uncontested settlements or rate cases if publically-announced 
settlement discussions are underway but parties have not yet resolved 
all issues.\234\ EQT Midstream argues that the Commission should 
provide pipelines additional time to commit to filing a general NGA 
section 4 rate case if pipelines choose to engage in publicly-noticed 
prefiling settlement negotiations with shippers but fail to reach an 
agreement by December 31, 2018.\235\
---------------------------------------------------------------------------

    \229\ INGAA Comments at 23-25; Dominion Comments at 12-14; 
Southern Star Comments at 10; EQT Midstream Comments at 9-12; 
Tallgrass Pipelines Comments at 13-15; Kinder Morgan Comments at 34-
35; Spectra Comments at 9.
    \230\ Tallgrass Pipelines Comments at 15.
    \231\ EQT Midstream Comments at 10.
    \232\ INGAA Comments at 23-25.
    \233\ Dominion Energy Comments at 13.
    \234\ INGAA Comments at 25; Dominion Energy Comments at 13; EQT 
Midstream Comments at 11-12; Tallgrass Pipelines Comments at 14; 
Kinder Morgan Comments at 34-35.
    \235\ EQT Midstream Comments at 11.
---------------------------------------------------------------------------

    208. Spectra asks for clarification regarding the December 31, 2018 
deadline and whether that is the date pipelines should notify the 
Commission whether they will file a pre-packaged settlement/general NGA 
section 4 rate case or whether that is the date pipelines must make 
those filings.\236\
---------------------------------------------------------------------------

    \236\ Spectra Comments at 9.
---------------------------------------------------------------------------

    209. Several commenters argue that the Commission should not 
require prepackaged settlements to be uncontested.\237\ EQT Midstream 
and Tallgrass Pipelines contend that prepackaged settlements submitted 
pursuant to option 2 should be reviewed under the Commission's normal 
standard for reviewing contested settlement filings and that 
prepackaged settlements should not be automatically rejected because 
they are not uncontested at the time the agreement is filed with the 
Commission.\238\ Dominion Energy argues that requiring prepackaged 
settlements to be completely uncontested is too high a bar and will 
likely cause few pipelines and customers to attempt that option.\239\
---------------------------------------------------------------------------

    \237\ EQT Midstream Comments at 19; Dominion Energy Comments at 
11-12; Tallgrass Pipelines Comments at 22-23.
    \238\ EQT Midstream Comments at 19; Tallgrass Pipelines Comments 
at 22-23.
    \239\ Dominion Energy Comments at 12.
---------------------------------------------------------------------------

    210. Commenters also argue that the Commission should not allow 
shippers with negotiated rates to withhold consent from an otherwise 
uncontested prepackaged settlement.\240\ EQT Midstream argues that, 
given that negotiated rate shippers are not impacted by a reduction to 
a pipeline's recourse rate through an NGA section 4 or 5 filing,\241\ 
the Commission should clarify that shippers do not have the ability to 
veto an otherwise unopposed settlement.\242\
---------------------------------------------------------------------------

    \240\ EQT Midstream Comments at 19; Tallgrass Pipelines Comments 
at 23.
    \241\ EQT Midstream Comments at 19 (citing NOPR, FERC Stats. & 
Regs. ] 32,725 at P 15).
    \242\ Id.
---------------------------------------------------------------------------

c. Discussion
    211. In the NOPR, the Commission stated that, if a pipeline commits 
to file an uncontested prepackaged settlement or a general NGA section 
4 rate case on or before December 31, 2018, the Commission would not 
initiate an NGA section 5 rate investigation before that date. In other 
words, the Commission proposed to grant all pipelines who make the 
above described commitment a guaranteed safe harbor from an NGA section 
5 rate investigation until December 31, 2018. A number of pipeline 
commenters request that the Commission extend this guaranteed safe 
harbor from the initiation of an NGA section 5 rate investigation until 
a later date in order to give them more time to negotiate settlements 
with their customers and others.
    212. We deny this request. We recognize that pipelines must expend 
time and resources to reach a settlement or prepare an NGA section 4 
rate case, but it is important to implement rate reductions as a result 
of the Tax Cuts and Jobs Act and the United Airlines Issuances. The 
proposed December 31, 2018 end of the guaranteed safe harbor is already 
one year after the effective date of the Tax Cuts and Jobs Act. We also 
note that pipelines need not wait until the FERC Form No. 501-G 
deadline to begin discussions with customers or to begin preparing a 
general NGA section 4 rate case. Indeed, the Commission encourages 
pipelines to begin discussions with their customers immediately, if 
those discussions have not already begun.
    213. However, we clarify that, if a pipeline is engaged in 
productive settlement negotiations as the December 31, 2018 end of the 
safe harbor period approaches, it may file a request for an extension 
of the safe harbor period. The filing of such requests will give other 
interested parties an opportunity to state whether they agree that 
productive settlement negotiations are underway. In determining whether 
to grant an extension, the Commission will consider whether other 
interested parties support the request.
    214. Commenters argue that the Commission should not require 
prepackaged settlements to be uncontested. The Commission notes that 
prepackaged rate change filings typically do not contain all the 
supporting documents as required by Sec.  154.312 of the Commission's 
regulations. As such, there is likely no record evidence upon which the 
Commission can approve a prepackaged settlement over the objections of 
a protesting party. Although prepackaged tariff filings are not 
technically settlements filed pursuant to Sec.  385.602 of the 
Commission's regulations, the Commission typically applies Rule 602 
standards in evaluating these filings. Under Rule 602 the Commission 
``may decide the merits of the contested settlement issues, if the 
record contains substantial evidence upon which to base a reasoned 
decision. . . .'' \243\ Without substantial evidence upon which to base 
a reasoned decision, and without additional procedures, the Commission 
could not approve a protested prepackaged filing.
---------------------------------------------------------------------------

    \243\ 18 CFR 385.602(h)(1)(i); see also Mobil Oil Corp. v. FPC, 
417 U.S. 283, 314 (1974).
---------------------------------------------------------------------------

    215. In regards to arguments that the Commission should not allow 
shippers with negotiated rates to withhold consent from an otherwise 
uncontested prepackaged settlement, we determine that the effect of 
opposition by a negotiated rate customer can be considered on a case-
by-case basis.
3. Statement That No Adjustment in Rates Needed (Option 3)
a. NOPR
    216. In the NOPR, the Commission proposed that a pipeline could 
include with its FERC Form No. 501-G a statement explaining why no 
adjustment in its rates is needed. The Commission recognized that a 
rate reduction may not be justified for a significant number of 
pipelines for a number of reasons. For example, a number of pipelines 
may currently have rates that do not fully recover their overall cost 
of service. Therefore, a reduction in those pipelines' tax costs may 
not cause their rates to be excessive. The Commission stated that the 
proposed FERC Form No. 501-G would provide information as to whether an 
interstate pipeline may fall into this category. The Commission stated 
that the pipeline could provide a

[[Page 36704]]

full explanation of why, after accounting for its reduction in tax 
costs, its rates do not over recover its overall cost of service and 
therefore no rate reduction is justified. The pipeline would provide 
this statement along with any additional supporting information it 
deems necessary.
    217. The Commission also stated that an interstate pipeline might 
explain that an existing rate settlement provides for a moratorium on 
rate changes that applies to any rate changes that might result from 
the Tax Cuts and Jobs Act or the United Airlines Issuances. The 
Commission stated that interested parties would have an opportunity to 
comment on any assertion by a pipeline that no adjustment to its rates 
is needed, and the Commission would then determine whether further 
action is needed with respect to that pipeline.\244\
---------------------------------------------------------------------------

    \244\ NOPR, FERC Stats. & Regs. ] 32,725 at PP] 49-50.
---------------------------------------------------------------------------

b. Comments
    218. Indicated Shippers argue that the Commission should thoroughly 
examine any assertion by a pipeline that its rate case settlement 
includes a rate moratorium preventing any rate change to reflect the 
reduction in its tax expenses. Indicated Shippers assert that some 
settlements state that the rate moratorium does not apply to industry-
wide Commission mandated changes to rates to account for tax cost 
savings, and the Commission should require those pipelines to implement 
rate changes to take into account the effects of the tax changes.\245\
---------------------------------------------------------------------------

    \245\ Indicated Shippers Comments at 14-15.
---------------------------------------------------------------------------

    219. Indicated Shippers also request that the Commission clarify 
that any pipeline that is precluded from making rate changes due to a 
settlement moratorium will be required to comply with the FERC Form No. 
501-G filing requirement once the moratorium has expired. LDC Coalition 
similarly argues that the Commission should clarify how it will 
encourage pipelines with rate case filing moratoria but no requirement 
to file a new rate case after the moratorium expires to reflect the 
impact of the Tax Cuts and Jobs Act and the Revised Policy Statement on 
its rates.\246\
---------------------------------------------------------------------------

    \246\ LDC Coalition Comments at 19-21.
---------------------------------------------------------------------------

    220. LDC Coalition asks the Commission to specify how soon a 
pipeline must file a general NGA section 4 rate case in the context of 
pipelines filing an explanatory statement using a comeback provision as 
justification for why an adjustment to its rates is not needed.\247\
---------------------------------------------------------------------------

    \247\ Id. at 21.
---------------------------------------------------------------------------

    221. Direct Energy and Range argue that the Commission should 
establish a process for requiring immediate rate reductions to reflect 
the reduction in the corporate tax rate or tax allowance pursuant to 
NGA section 5.\248\ Direct Energy argues that the Commission should 
order an immediate proportional rate reduction under NGA section 5 for 
pipelines with revenues so far in excess of their actual cost of 
service that the rates are presumptively unjust and unreasonable under 
NGA section 5 based on a review of the information provided in the FERC 
Form No. 501-G.\249\
---------------------------------------------------------------------------

    \248\ Direct Energy Comments at 4-5, 8; Range Comments at 11-13.
    \249\ Direct Energy Comments at 8.
---------------------------------------------------------------------------

c. Discussion
    222. As explained in the NOPR, despite the reduction in the 
corporate income tax and the change in policy concerning MLP tax 
allowances, a rate reduction may not be justified for a significant 
number of pipelines. For example, the pipeline's existing rates may not 
fully recover its cost of service or a rate moratorium may prohibit 
rate changes at this time. Pipelines may include with their filing of 
the FERC Form No. 501-G a statement explaining why these or other 
reasons justify their not changing their rates at this time.
    223. As discussed previously, the Commission will notice the filing 
of each pipeline's FERC Form No. 501-G and permit interested persons to 
file interventions, protests, and comments. If any person disagrees 
with a pipeline's explanation of why it believes no rate change is 
justified at this time, that person may intervene and protest the 
pipeline's filing. For example, if a party that believes that a rate 
case moratorium relied on by the pipeline should be interpreted as 
permitting rate changes related to the Tax Cuts and Jobs Act and the 
change in policy concerning MLP tax allowances, that party may provide 
a full explanation of why it interprets the settlement as it does, and 
the Commission will consider the views of both the pipeline and other 
intervening parties in deciding what action to take with respect to 
that pipeline.
    224. Indicated Shippers request that the Commission clarify that 
any pipeline precluded from making changes to its rates by a settlement 
moratorium will be required to file a FERC Form No. 501-G after the 
settlement moratorium. LDC Coalition also suggests that the Commission 
might continue the FERC Form No. 501-G process beyond the one-time 
aspect of the proposed requirement for any pipeline with a settlement 
rate moratorium that extends past the compliance filing dates. The 
Commission rejects these requests. The Commission is adopting the FERC 
Form No. 501-G process as a one-time filing requirement enabling the 
Commission to consider what actions to take to address the rate effects 
of the Tax Cuts and Jobs Act. All pipelines with cost-based, stated 
rates are required to make their filings by the deadlines established 
in the Implementation Guide. Pipelines with rate moratoria currently in 
effect must comply with their applicable deadline and may include an 
explanation of why their settlement moratorium prevents a rate change 
at this time. If the Commission agrees that a rate moratorium prevents 
a rate change at this time, there is no need to require the subject 
pipeline to file another FERC Form No. 501-G at such time as the rate 
moratorium expires. The Commission intends to continue its existing 
practice of reviewing pipeline FERC Form No. 2 and 2-A filings every 
year to determine whether to initiate rate investigations under NGA 
section 5. Therefore, when a pipeline's rate moratorium expires, the 
Commission will examine that pipeline's most recent FERC Form No. 2 and 
2-A filings as of that date and all other relevant factors in order to 
determine whether an NGA section 5 investigation of that pipeline's 
rates is justified.
    225. In response to arguments by commenters that the Commission 
should immediately reduce pipelines' rates pursuant to NGA section 5, 
as explained in the NOPR, the Commission recognizes that some pipelines 
need not change their rates at this time \250\ and, therefore, an 
immediate reduction in all pipeline rates pursuant to NGA section 5 
would not be appropriate. We also reject the request to immediately 
reduce rates based on a review of the information provided in the FERC 
Form No. 501-G. The FERC Form No. 501-G is only designed to estimate 
the percentage reduction in the pipeline's cost of service resulting 
from the Tax Cuts and Jobs Act and the United Airlines Issuances and 
the pipeline's current ROEs before and after the reduction in corporate 
income taxes and, if applicable, income tax allowance.\251\ However, as 
discussed above, FERC Form No. 501-G cannot capture all the intricacies 
of a fully developed cost of service, allocation and rate design for 
all pipelines. The FERC Form No. 501-G does not provide enough 
information by itself for the Commission to determine the just and

[[Page 36705]]

reasonable rate pursuant to NGA section 5.
---------------------------------------------------------------------------

    \250\ See NOPR, FERC Stats. & Regs. ] 32,725 at P 28.
    \251\ Id. P 32.
---------------------------------------------------------------------------

4. Take No Action (Option 4)
a. NOPR
    226. Upon filing FERC Form No. 501-G, a pipeline may choose to take 
no action other than submitting FERC Form No. 501-G (Option 4).
b. Comments
    227. Some entities commented on this option,\252\ generally stating 
that the Commission should require pipelines choosing this option to 
include at least a statement of the basis for that decision.\253\ 
Indicated Shippers similarly comment that the Commission should combine 
Option 4 with Option 3 and clarify that a pipeline electing the take no 
action option must submit a notice that it will not be adjusting rates 
with its FERC Form No. 501-G filing, including an explanation for why 
the pipeline is doing nothing.\254\ NGSA suggests that the Commission 
eliminate Option 4 altogether, stating that it provides pipelines with 
an incentive to delay the process of providing rate relief to customers 
and consumers.\255\
---------------------------------------------------------------------------

    \252\ Indicated Shipper Comments at 13; NGSA Comments at 6; 
Southern Companies Comments at 5; Direct Energy Comments at 8-9.
    \253\ Southern Companies Comments at 5.
    \254\ Indicated Shippers Comments at 13.
    \255\ NGSA Comments at 6.
---------------------------------------------------------------------------

c. Discussion
    228. The Commission declines to provide the requested clarification 
or to require statements of explanation as suggested by the commenters. 
As stated in the NOPR, the ``no action'' option is consistent with the 
fact that the Commission lacks authority to order an interstate 
pipeline to file a rate change under NGA section 4.\256\ Although the 
Commission is permitting interstate pipelines to voluntarily file a 
limited NGA section 4 filing or commit to make a general NGA section 4 
filing to modify their rates to reflect the reduction in the income tax 
rates or elimination of the MLP pipeline income tax allowance, the 
Commission is not requiring interstate pipelines to make such filings. 
As the Commission also stated, however, based on the information 
contained in the individual pipeline's FERC Form No. 501-G, and 
comments by interested parties on that information, the Commission will 
consider initiating an NGA section 5 investigation of a particular 
pipeline's rates if it appears those rates may be unjust and 
unreasonable.
---------------------------------------------------------------------------

    \256\ NOPR, FERC Stats. & Regs. ] 32,725 at P 51 & n.71 (citing 
Pub. Serv. Comm. of New York v. FERC, 866 F.2d 487, 492 (D.C. Cir. 
1989)).
---------------------------------------------------------------------------

D. Negotiated Rates

    229. In the NOPR, the Commission stated that it has granted most 
interstate natural gas pipelines authority to negotiate rates with 
individual customers that are not bound by the maximum and minimum 
rates in the pipeline's tariff. The Commission noted that before it 
permits a pipeline to implement a negotiated rate a pipeline must have 
a cost-based recourse rate on file with the Commission, so that a 
customer always has the option of entering into a contract at the cost-
based recourse rate rather than a negotiated rate if it chooses.\257\
---------------------------------------------------------------------------

    \257\ NOPR, FERC Stats. & Regs. ] 32,725 at P 14 (citing 
Negotiated Rate Policy Statement, 104 FERC ] 61,134, order on reh'g 
and clarification, 114 FERC ] 61,042, dismissing reh'g and denying 
clarification, 114 FERC ] 61,304).
---------------------------------------------------------------------------

    230. The Commission stated that changes to a pipeline's recourse 
rates occurring under NGA sections 4 and 5 would not affect a 
customer's negotiated rate because that rate is negotiated as an 
alternative to the customer taking service under the recourse 
rate.\258\ By allowing the pipeline to negotiate individualized rates, 
the Commission permitted pipelines, as a means of providing rate 
certainty, to negotiate a fixed rate or rate formula that would 
continue in effect regardless of changes in the pipeline's maximum 
recourse rate.\259\ Therefore, the Commission found that, ``unless a 
negotiated rate agreement expressly provides otherwise, the rates in 
such agreements will be unaffected by any reduction in the pipeline's 
maximum rate . . . resulting from the policies adopted in the 
rulemaking proceeding, whether in a limited or general NGA section 4 
rate proceeding or a subsequent NGA section 5 investigation.'' \260\
---------------------------------------------------------------------------

    \258\ Id. P 15.
    \259\ Id. P 45 (citing Columbia Gulf Transmission Co., 109 FERC 
] 61,152, at P 13, reh'g denied, 111 FERC ] 61,338 (2005)). See also 
Iberdrola Renewables, Inc. v. FERC, 597 F.3d 1299, 1305 (D.C. Cir. 
2010).
    \260\ NOPR, FERC Stats. & Regs. ] 32,725 at P 45.
---------------------------------------------------------------------------

1. Comments
    231. Boardwalk argues that the Commission has specifically 
recognized the role of negotiated rate agreements in providing rate 
certainty to pipelines and their shippers,\261\ and maintains that the 
Commission should not reduce any negotiated rates due to recent tax 
policy changes (unless the agreement specifically requires such a 
reduction).
---------------------------------------------------------------------------

    \261\ Boardwalk Comments at 17 (citing Columbia Gulf 
Transmission Co., 109 FERC ] 61,152 at P 13 (``To the extent a 
pipeline and its shipper want to obtain rate certainty by agreeing 
to a rate that will remain in effect throughout the term of the 
service agreement, the Commission provides them an opportunity to do 
so by entering into a negotiated rate agreement.''), reh'g denied, 
111 FERC ] 61,338, aff'd, Columbia Gulf Transmission Co. v. FERC, 
477 F.3d 739 (D.C. Cir. 2007)).
---------------------------------------------------------------------------

    232. Boardwalk argues that this position is consistent with the 
Mobile-Sierra doctrine,\262\ because the courts require that in order 
to modify such contracts, the Commission must satisfy the Mobile-Sierra 
standard, under which the Commission must ``presume that the rate set 
out in a freely negotiated contract meets the just and reasonable 
requirement imposed by law.'' \263\ Boardwalk asserts that the 
Commission may only modify a contract under Mobile-Sierra if it 
demonstrates ``that the contract seriously harms the public interest,'' 
which generally requires ``a finding that the existing rate might 
impair the financial ability of [the pipeline] to continue its service, 
or that the rate would cast upon other consumers an excessive burden, 
or be unduly discriminatory, or that there are other circumstances of 
unequivocal public necessity.'' \264\ Boardwalk maintains that a change 
in the corporate tax rate or Commission policy cannot satisfy this high 
threshold.
---------------------------------------------------------------------------

    \262\ Boardwalk Comments at 16 (citing Dominion Transmission v. 
FERC, 533 F.3d 845, 852-53 (D.C. Cir. 2008) (citing United Gas Pipe 
Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332 (1956); FPC v. 
Sierra Pac. Power Co., 350 U.S. 348 (1956) (Mobile-Sierra))).
    \263\ Id. (citing Dominion Transmission, 533 F.3d at 853 
(internal punctuation and citations omitted)).
    \264\ Id.
---------------------------------------------------------------------------

    233. Indicated Shippers argue that the Commission has the authority 
to revise negotiated rate contracts under the Mobile-Sierra doctrine to 
revise any contract if the public interest requires a modification 
\265\ and therefore, the Commission should ensure that each negotiated 
rate contract is examined. They assert that given the change in 
circumstances related to reductions in income tax rates, as well as the 
need to remove any unjust and unreasonable windfall for the natural gas 
pipeline companies, the Commission could find that the public interest 
requires such a finding.
---------------------------------------------------------------------------

    \265\ Indicated Shippers Comments at 6 (citing Mobile, 350 U.S. 
332; Sierra, 350 U.S. 348).
---------------------------------------------------------------------------

    234. However, Indicated Shippers maintain that because many 
pipelines have a Memphis clause \266\ in their

[[Page 36706]]

service agreements and individual negotiated rate agreements, the 
Commission would only need to make a ``just and reasonable'' 
determination to revise negotiated rates.\267\ Indicated Shippers 
maintain that the Commission should establish a process to review each 
negotiated rate contract and examine the language set forth in each 
negotiated rate agreement to determine whether that agreement contains 
an explicit prohibition on rate reductions.
---------------------------------------------------------------------------

    \266\ Indicated Shippers Comments at 7 (citing United Gas Pipe 
Line Co. v. Memphis Light, Gas, & Water Division, 358 U.S.103 (1958) 
(Memphis)). In Williston Basin Pipeline Co. v. FERC, the Court 
stated:
    The label ``Memphis clause'' derives from the Supreme Court's 
decision in United Gas Pipe Line Co. v. Memphis Light, Gas & Water 
Division, holding that a contract provision allowing a party to seek 
a rate adjustment under a suitable provision of the Natural Gas Act 
([section] 4 for the utility, [section] 5 for the customer) obviates 
the need to apply Mobile-Sierra's ``public interest'' criterion. The 
Memphis Court could see ``no tenable basis of distinction between 
the filing of [a new rate under section 4 of the NGA] in the absence 
of a contract and a similar filing under an agreement which 
explicitly permits it.'' Thus, a Memphis clause simply entitles a 
party to file for changes under an applicable provision of the NGA.
    519 F.3d 497, 499 (2008) (internal citations omitted).
    \267\ Indicated Shippers maintain that the Commission has a long 
court and Commission precedent to follow to allow for negotiated 
rate contracts to benefit from rate reduction through the 
application of the Memphis clause, unless there is a specific 
provision that explicitly prohibits changes to the negotiated rate 
or the applicability of the Memphis clause. Indicated Shippers 
Comments at 8 (citing Union Pac. Fuels v. FERC, 129 F.3d 157, 161 
(D.C. Cir. 1997); Papago Tribal Util. Auth. v. FERC, 723 F.2d 950, 
953 (D.C. Cir. 1983); Cost Recovery Mechanisms for Modernization of 
Natural Gas Facilities, 151 FERC ] 61,047, at P 84 (2015) 
(Modernization Policy Statement); Sea Robin Pipeline Co., LLC, 
Opinion No. 516-A, 143 FERC ] 61,129, at PP 85-213 (2013)).
---------------------------------------------------------------------------

    235. Indicated Shippers assert that one way for the Commission to 
allow negotiated rate contracts to share in the subject cost reductions 
would be to implement a negative surcharge, applicable to all volumes 
on a particular system. Indicated Shippers assert that the Commission 
has implemented positive surcharges in certain instances \268\ and many 
pipelines already have mechanisms in place for the return of over-
collected amounts via a negative surcharge.
---------------------------------------------------------------------------

    \268\ Indicated Shippers assert that the Commission utilized 
such a methodology for Account No. 858 costs, Natural Gas Pipeline 
Co. of America, 70 FERC ] 61,317, at 61,967-61,968 (1995); and 
hurricane-related costs, Sea Robin Pipeline Co., 128 FERC ] 61,286, 
at PP 38-42 (2009), order on reh'g, 130 FERC ] 61,191, at PP 11-13 
(2010), Sea Robin Pipeline Co., LLC, Opinion No. 516, 137 FERC ] 
61,201 (2011), order on reh'g, Opinion No. 516-A, 143 FERC ] 61,129 
at PP 146-151; High Island Offshore System, LLC, 145 FERC ] 61,155, 
at PP 16-20 (2013).
---------------------------------------------------------------------------

    236. Range requests that the Commission find, under the Mobile-
Sierra doctrine, that existing jurisdictional contracts between 
interstate pipelines and shippers including negotiated rate contracts 
which do not reflect the subject reduction in the corporate tax rate, 
are unjust and unreasonable under the NGA. Range states that the 
dramatic reduction in pipeline tax rates provides one of the few 
instances where the public interest requires the Commission to modify 
the rates under all shipper/pipeline transportation contracts.
    237. If the Commission declines to make such a Mobile-Sierra 
finding, Range argues that the Commission has not provided a valid 
basis for excluding negotiated rate contracts from the Tax Cuts and 
Jobs Act rate reduction. Range asserts that the Commission's reliance 
on the Negotiated Rate Policy Statement to exclude negotiated rate 
contracts from sharing in the Income Tax Reduction is misplaced. Range 
states that although the Commission allowed pipelines to negotiate 
individualized rates as a means of allowing the pipeline to provide 
rate certainty by the negotiation of a fixed rate or rate formula that 
would continue in effect regardless of changes in the pipeline's 
maximum recourse rate, such permission does not support the 
Commission's finding that a negotiated rate agreement will be 
unaffected by any reduction in the pipeline's maximum rate reductions 
resulting from the policies adopted in the instant rulemaking unless 
the negotiated rate contract provides otherwise.'' \269\
---------------------------------------------------------------------------

    \269\ Range Comments at 10 (citing NOPR, FERC Stats. & Regs. ] 
32,725 at P 45).
---------------------------------------------------------------------------

    238. Range states that the courts allow the Commission to exercise 
``light-handed'' regulation, but asserts that such regulation still is 
tied to the NGA and the ``just and reasonable'' standard. Range asserts 
that in INGAA, the court held that the ``overarching criterion'' was 
that such regulation based on other than only cost should be justified 
by ``a showing that . . . the goals and purposes of the statute will be 
accomplished,'' and to satisfy that standard, the court ``demanded that 
the resulting rates be expected to fall within a `zone of 
reasonableness, where [they] are neither less than compensatory nor 
excessive.' '' \270\ Range states that INGAA also held that ``[w]hile 
the expected rates' proximity to cost was a starting point for this 
inquiry into reasonableness . . . `non-cost factors may legitimate a 
departure from a rigid cost-based approach,' '' and that ``we said that 
FERC must retain some general oversight over the system, to see if 
competition in fact drives rates into the zone of reasonableness `or to 
check rates if it does not.' '' \271\ Moreover, Range states that the 
courts have held that competition normally provides a reasonable 
assurance that rates will approximate cost, at least over the long 
run.\272\ Range reasons that because the Commission assumes the 
negotiated rates approximate competitive rates, it follows that such 
rates must also approximate cost-based rates. Range alleges that the 
Commission has failed to apply these principles in excluding negotiated 
rate contracts from the tax reduction. Range asserts that this result 
is discriminatory, arbitrary and capricious, and not based on 
substantial evidence or reasoned decision-making.
---------------------------------------------------------------------------

    \270\ Id. (citing INGAA, 285 F.3d at 31 (quoting Farmers Union 
Cent. Exch. v. FERC, 734 F.2d 1486, 1502 (D.C. Cir. 1984), cert. 
denied, 469 U.S. 1034 (1984))).
    \271\ Id.
    \272\ Id. (citing Elizabeth Gas Co. v. FERC, 10 F.3d 866, 870 
(D.C. Cir. 1993)).
---------------------------------------------------------------------------

    239. IOGA asserts that the Commission must review the language in 
individual contracts and aggressively use its NGA section 5 power to 
ensure that negotiated rates are just and reasonable. IOGA argues that 
the Commission's suggestion in the NOPR that negotiated rate agreements 
would be unaffected in an NGA section 5 investigation \273\ is 
inconsistent with precedent and the presumption set out by the Mobile-
Sierra doctrine that such contracts are just and reasonable.\274\ IOGA 
states that such a presumption can be overcome with a public interest 
showing in an NGA section 5 proceeding. IOGA asserts that although the 
public interest standard may pose a high bar, the Commission should 
make clear in the Final Rule that it did not intend to suggest in the 
NOPR that NGA section 5 relief was unavailable to negotiated rate 
shippers.
---------------------------------------------------------------------------

    \273\ IOGA Comments at 7 (citing Dominion Transmission, Inc., 
135 FERC ] 61,239, at P 30 (2011)).
    \274\ Id. (citing Mobile, 350 U.S. 332; Sierra, 350 U.S. 348; 
Morgan Stanley Capital Group, Inc. v. Public Utility District No. 1 
of Snohomish County, Wash., 554 U.S. 527, 530 (FERC ``must presume 
that the rate set out in a freely negotiated wholesale-energy 
contract meets the `just and reasonable' requirement imposed by law. 
The presumption may be overcome only if FERC concludes that the 
contract seriously harms the public interest.''); Iberdrola 
Renewables, Inc. v. FERC, 597 F.3d at 1301 (``[N]egotiated rate 
customers are not left without redress if they think the rate has 
become unjust and unreasonable over time. They can always challenge 
the established rate under [S]ection 5. . . .'')).
---------------------------------------------------------------------------

    240. IOGA asserts that because not all shippers have equal 
bargaining leverage and often there is no firm capacity available at 
the recourse rate, the Commission should consider the context of the 
negotiated rate bargain in determining whether above maximum negotiated 
rates should be reduced like recourse rates. IOGA argues that although 
the parties may have bargained for a fixed negotiated rate the pipeline 
bargained for a rate that recovers its

[[Page 36707]]

federal income taxes and other costs that it recovers in the maximum 
recourse rate, not a rate that over-recovers its costs. IOGA maintains 
that it is neither just nor reasonable nor in the public interest for 
the Commission to permit such over-collection. IOGA concludes that the 
Commission should require any pipeline that declines to adjust 
negotiated rates to explain why an adjustment is not needed.
    241. NGSA also argues that negotiated rate contract holders should 
not be excluded from this tax reduction process because this would run 
contrary to Commission policy that allows the application of surcharges 
for extraordinary circumstances. NGSA argues that negotiated contracts 
often contain language with surcharge provisions to capture unforeseen 
items or special circumstances that are not part of the standard 
ratemaking process.\275\ NGSA maintains that if shippers with 
negotiated rate contracts are expected to share in costs incurred by 
pipelines for special situations, such as hurricanes or modernizations, 
then the Commission should also require that shippers share in cost 
reductions received by pipelines in special situations.
---------------------------------------------------------------------------

    \275\ NGSA Comments at 8 (citing Sea Robin Pipeline Company, 
LLC, 130 FERC ] 61,261 (2010); High Island Offshore Sys., L.L.C., 
138 FERC ] 61,114 (2012) as relying on the contracts containing a 
Memphis clause to permit the pipelines to impose a surcharge on 
fixed, negotiated rate contracts).
---------------------------------------------------------------------------

    242. NGSA requests that the Commission implement a negative 
surcharge mechanism, as warranted, for shippers with negotiated rate 
contracts. NGSA claims that this will ensure that all parties are 
afforded the opportunity to appropriately share in the benefits of the 
Tax Cuts and Jobs Act and Revised Policy Statement, and that pipeline 
rates are just and reasonable.
    243. AGA requests that the Commission confirm that where the 
pipeline required that the rate for capacity awarded under a negotiated 
rate agreement be no less than the pipeline's otherwise applicable 
tariff rate, such that the negotiated rate is now equal to the 
otherwise applicable tariff rate, and the tariff rate is reduced 
pursuant to proceedings related to the Tax Cuts and Jobs Act, any such 
negotiated rate be similarly reduced.
    244. CAPP argues that the use of negotiated rates does not warrant 
the continuation of excessive recourse rates. CAPP argues that the 
rationale for this rate review extends to all pipelines, irrespective 
of the prevalence of negotiated rates on the pipeline. CAPP asserts 
that the fundamental purposes for which recourse rates are maintained 
is to provide an alternative to negotiated rates and a check on the 
exercise of market power. Therefore, CAPP argues that if a pipeline 
experiences a decline in income tax expense that warrants a reduction 
in its tariff rates, the use of negotiated rates and the impact of such 
contracting practices on its revenues has no impact on the 
justification for re-computing maximum tariff rates.
2. Discussion
    245. The Commission declines to establish a process under which it 
would review every currently effective negotiated rate contract in 
order to determine whether that contract can and should be modified to 
reflect the pipeline's reduced tax costs as a result of the Tax Cuts 
and Jobs Act or the elimination of MLP tax allowances. For the reasons 
discussed below, the Commission believes that, as a general matter, 
such contracts should be allowed to remain in effect without change. 
However, an individual shipper under such a contract is free to file a 
complaint pursuant to NGA section 5 presenting evidence as to why its 
negotiated contract is unjust and unreasonable or contrary to the 
public interest and must be modified. Alternatively, if a shipper 
believes that the terms of its negotiated contract provide for a 
reduction in the negotiated rate to reflect the pipeline's reduced tax 
costs and the pipeline has failed to comply with the contract, the 
shipper may file a complaint or seek to enforce the contract in a 
court.
    246. As the Commission has explained, the negotiated rate program 
allows ``pipelines to negotiate individualized rates that [are] not 
constrained by the maximum and minimum rates in the pipeline's tariff. 
. . . Additionally, it permit[s] pipelines as a means of providing rate 
certainty, to negotiate a fixed rate that would continue in effect 
regardless of changes in the pipeline's maximum rate.'' \276\ In the 
Negotiated Rate Policy Statement establishing the negotiated rate 
program, the Commission explained that the program ``would dispense 
with cost of service regulation for an individual shipper when mutually 
agreed upon by the pipeline and its shipper,'' and ``a recourse service 
found in the pipeline's tariff would be available for those shippers 
preferring traditional cost of service rates.'' \277\ Indeed, as the 
court found in Iberdrola, the:
---------------------------------------------------------------------------

    \276\ Northern Natural Gas Co., 105 FERC ] 61,299 at PP 15-16. 
See also Columbia Gulf Transmission Co., 109 FERC ] 61,152, at P 13, 
reh'g denied, 111 FERC ] 61,338, emphasizing that:
    To the extent a pipeline and its shipper want to obtain rate 
certainty by agreeing to a rate that will remain in effect 
throughout the term of the service agreement, the Commission 
provides them an opportunity to do so by entering into a negotiated 
rate agreement.

    \277\ Alternatives to Traditional Cost-of-Service Ratemaking for 
Natural Gas Pipelines and Regulation of Negotiated Transportation 
Services of Natural Gas Pipelines; Statement of Policy and Request 
for Comments, 74 FERC ] 61,076, at 61,225-226 (1996), order on 
clarification, 74 FERC ] 61,194 (1996), order on reh'g, 75 FERC ] 
61,024, reh'g denied, 75 FERC ] 61,066, reh'g dismissed, 75 FERC ] 
61,291 (1996), petition denied sub nom. Burlington Res. Oil & Gas 
Co. v. FERC, 172 F.3d 918 (D.C. Cir 1998).
---------------------------------------------------------------------------

premise of the negotiated rate regime is that FERC will not review 
freely negotiated rates, which are presumed to be reasonable when a 
recourse rate is also offered.\278\

    \278\ Iberdrola Renewables, Inc. v. FERC, 597 F.3d at 1304.
---------------------------------------------------------------------------

    247. Thus, when a shipper enters into a negotiated rate agreement, 
it should be aware that it is agreeing to a rate that is not based on 
traditional cost of service regulation and will not be reduced simply 
because the pipeline's maximum recourse rate may, at some future date, 
be lower than the negotiated rate. Because the shipper's negotiated 
rate is not based on cost of service regulation, there is no reason why 
a reduction in the pipeline costs, including a reduction in its tax 
costs, should necessarily lead to a reduction in the negotiated rate. 
Indeed, the Commission's consistent practice in pipeline rate 
proceedings, whether conducted under NGA section 4 or 5, has been to 
address only the pipeline's recourse rates and not make any 
modifications in any shipper's negotiated rate. In these circumstances, 
the Commission finds it reasonable to presume that a shipper's freely 
negotiated rate contract continues to meet the just and reasonable 
requirement in the NGA, regardless of a reduction in the pipeline's tax 
costs, absent a particular shipper filing a complaint that presents 
compelling reasons to initiate an NGA section 5 investigation.\279\
---------------------------------------------------------------------------

    \279\ Dominion Transmission, Inc. v. FERC, 533 F.3d 845, 852-53 
(D.C. Cir. 2008) (noting that FERC must ``presume that the rate set 
out in a freely negotiated . . . contract meets the `just and 
reasonable' requirement imposed by law.'' See also Marathon Oil Co. 
v. Trailblazer Pipeline Co., 111 FERC ] 61,236, at P 64 (2005) 
(``Absent a compelling reason, the Commission does not believe it 
should second-guess the business and economic decisions between 
knowledgeable business entities when they enter into negotiated rate 
contracts.'').
---------------------------------------------------------------------------

    248. Commenters take various positions on whether, if a complaint 
is filed, the Mobile-Sierra ``public interest'' presumption would apply 
to the negotiated rate agreement. Indicated Shippers assert that 
because many pipelines have Memphis clauses in their

[[Page 36708]]

service agreements and individual negotiated rate agreements, the 
Commission would only need to make a ``just and reasonable'' 
determination to revise negotiated rates for such negotiated rates. 
IOGA and other shippers state that the Mobile-Sierra public interest 
standard would apply, but suggest that the public interest standard may 
be satisfied in the context of changes in law such as the Tax Cuts and 
Jobs Act.
    249. The Commission need not resolve these issues in this Final 
Rule. Rather, the Commission will address these issues, as relevant, in 
the context of an individual complaint that may be filed.

E. Miscellaneous Clarifications

    250. Boardwalk comments that the Commission should recognize the 
effects of competition on the natural gas industry and the Commission's 
rate making policies. Boardwalk asserts that pipelines have had no 
choice but to discount their transportation service rates to attract 
retail shippers in the face of competition. Thus, in Boardwalk's view, 
such pipelines are already in a state of cost under-recovery. Boardwalk 
states that the NOPR and its contemplated approach of having 
transportation rates set arithmetically based on the content of FERC 
Form No. 501-G have exacerbated this problem and affected the 
pipelines' ability to attract capital.\280\ It also claims that 
although customers receive the benefit of competition in discounted 
rates, the pipelines, under the referenced NOPR approach, do not 
receive a commensurate benefit when the market propels rates upward. 
Boardwalk claims that this imbalance between pipelines and their 
investors and customers and consumers is ``out of step'' with the 
competitive market intended by the Commission's policies, and that the 
NOPR worsens this imbalance by favoring one set of affected parties. It 
also claims that the processes contemplated by the NOPR are 
inconsistent with the Commission's prohibition on single issue 
ratemaking. Accordingly, Boardwalk states that the Commission should 
expressly state that the ``same processes offered here to adjust rates 
in light of the [Tax Cuts and Jobs Act] and revised Policy Statement 
will also be available to pipelines should there be a change to future 
tax policy, or any other policy affecting a key component of 
ratemaking.'' \281\
---------------------------------------------------------------------------

    \280\ Boardwalk Comments at 10-13.
    \281\ Id. at 13.
---------------------------------------------------------------------------

    251. The Commission declines to speculate on future potential 
actions, or what measures it may take should there be a future increase 
in the federal corporate tax rate. However, the Commission recognizes 
the importance of market issues and the potential for under-
recoveries.\282\ The Commission takes the financial impact of its 
policies very seriously. The Commission will continue to consider the 
issues raised by Boardwalk as such issues arise in specific proceedings 
and as part of the Commission's ongoing reevaluation of its policies.
---------------------------------------------------------------------------

    \282\ See Composition of Proxy Groups for Determining Gas and 
Oil Pipeline Return on Equity, 123 FERC ] 61,048, at PP 3, 47 (2008) 
(citing Fed. Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591 
(1944)); see also Williston Basin Interstate Pipeline Co., 110 FERC 
] 61,210 (2000) (balancing the Commission's pro-competitive policies 
with the pipeline's ability to focus discounts on less utilized 
parts of the system), and El Paso Natural Gas Co., 163 FERC ] 
61,078, at PP 128-137 (2018) (Order No. 538-B) (rejecting request to 
design pipeline's rates so as to require it to share in the costs of 
its discounting).
---------------------------------------------------------------------------

    252. Further, regarding this Final Rule, the Commission recognizes 
that it cannot simply require a pipeline to reduce its rates consistent 
with a known reduction in a single cost component of a cost-based rate, 
but rather must consider other factors, including whether the pipeline 
is over-recovering its cost of service on an overall basis. The 
Commission, in deciding whether to exercise its discretion to initiate 
an NGA section 5 action, will take into account whether a rate 
reduction may not be justified because a pipeline's rates do not over-
recover its cost of service on an overall basis.
    253. Southern Star comments that the Commission should allow 
pipelines to reinvest any monetary savings resulting from the Tax Cuts 
and Jobs Act into their respective systems and infrastructure instead 
of flowing through the benefits to customers and consumers.\283\ 
Southern Star claims that rate reductions provided to ultimate 
consumers as a result of the tax reduction will be nominal, and that it 
would be a better use of those savings to permit pipelines to invest 
those dollars in infrastructure improvements that would benefit 
customers and ratepayers, and would obviate the need for the FERC Form 
No. 501-G filings. Southern Star asserts that such reinvestment would 
be consistent with the underlying purpose of the Tax Cuts and Jobs Act, 
namely to make more products in the United States and to ``bring back 
our companies.''
---------------------------------------------------------------------------

    \283\ Southern Star Comments at 11-12.
---------------------------------------------------------------------------

    254. The Commission rejects Southern Star's proposal. As noted, the 
purpose of the Final Rule is to provide a process for considering 
whether to initiate NGA section 5 investigations of the cost-based 
recourse rates of interstate natural gas pipelines that do not 
voluntarily reduce those rates to reflect the reduction in the federal 
corporate tax rate or elimination of MLP tax allowances, in accordance 
with our obligation under the NGA to ensure that natural gas pipeline 
rates are just and reasonable. Contrary to Southern Star's suggestion 
that it would be more efficient to reinvest these dollars in pipeline 
infrastructure than to return them to customers and consumers, a just 
and reasonable cost-based rate must be designed to provide the pipeline 
an opportunity to recover its cost of service, including a reasonable 
return on equity.\284\ The Commission lacks the authority to approve 
recourse rates that would allow pipelines to over-recover their cost of 
service. Pipelines are, of course, free to invest in additional 
pipeline facilities. If they do so, they may propose to adjust their 
rates to recover the costs of the new investment as part of their NGA 
section 7 initial rate proposal or in an NGA section 4 filing, and that 
rate adjustment could offset a rate reduction related to the pipeline's 
reduced tax costs under the Tax Cuts and Jobs Act.
---------------------------------------------------------------------------

    \284\ Alabama Elec. Coop v. FERC, 684 F2d 20, 27 (D.C. Cir. 
1982) (``[R]ates should be based on the costs of providing service 
to the utility's customers, plus a just and fair return on 
equity.'').
---------------------------------------------------------------------------

    255. AGA and LDC Coalition comment that the Commission should 
clarify that the FERC Form No. 501-G filing, or any other limited NGA 
section 4 actions by a pipeline pursuant to the Final Rule, does not 
constitute a ``recent rate review'' sufficient for the purposes of the 
Commission's Modernization Policy Statement on cost recovery mechanisms 
for modernization of natural gas facilities.\285\ The commenters state 
that the Modernization Policy Statement requires a pipeline seeking a 
modernization cost tracker to demonstrate that its current base rates 
are just and reasonable and reflect the pipeline's current costs and 
revenues. LDC Coalition notes that the Modernization Policy Statement 
provides that the rate review condition may be satisfied in different 
ways--an NGA section 4 rate case or a collaborative effort between a 
pipeline and its customers. They also comment that the Commission left 
open the possibility that pipelines could justify their existing rates 
through ``alternative

[[Page 36709]]

approaches.'' \286\ Thus, they seek clarification that a pipeline's 
FERC Form No. 501-G filing would not be considered among the 
alternative approaches that the Commission would consider sufficient 
for a pipeline to justify its existing rates for purposes of the 
Modernization Policy Statement. Commenters argue that the information 
to be included in the FERC Form No. 501-G filings is abbreviated cost 
and revenue information that would not allow for the ``full exchange of 
information'' regarding existing rates between the pipeline and its 
customers required for a modernization cost surcharge.
---------------------------------------------------------------------------

    \285\ AGA Comments at 2 (citing Modernization Policy Statement, 
151 FERC ] 61,047 (Modernization Policy Statement)); LDC Coalition 
Comments at 13.
    \286\ AGA Comments at 7.
---------------------------------------------------------------------------

    256. The Commission provides the following clarification. Above, 
the Commission, in response to several pipeline comments, clarified 
that FERC Form No. 501-G is not an NGA section 4 filing and that the 
indicated cost of service and estimated ROE are not NGA section 5 
findings. The Commission has noted the statutory limits upon which the 
data collection is based, and acknowledges the limitations inherent in 
a form designed to collect data from a large number of pipelines with 
many unique cost of service, allocation and rate design factors 
underlying their currently effective rates. Thus, by the same token, 
these same limitations will hinder a pipeline from using its FERC Form 
No. 501-G filing, designed to look at a pipeline's overall non-gas cost 
of service, to demonstrate that its modernization surcharges are just 
and reasonable. We also clarify that a limited NGA section 4 filing 
made pursuant to the Final Rule does not constitute a ``recent rate 
review'' sufficient for the purposes of the Commission's Modernization 
Policy Statement on cost recovery mechanisms for modernization of 
natural gas facilities. The Modernization Policy Statement established 
certain standards a pipeline would have to satisfy for the Commission 
to approve a proposed modernization cost tracker or surcharge including 
a requirement for ``a review of the pipeline's existing base rates by 
means of an NGA general section 4 rate proceeding, a cost and revenue 
study, or through a collaborative effort between the pipeline and its 
customers.'' \287\ As described in the NOPR and the Final Rule, the 
limited NGA section 4 filing option is intended to allow interstate 
pipelines to reduce their rates to reflect the reduced income tax rates 
and elimination of the MLP pipeline income tax allowance on a single-
issue basis, without consideration of any other cost or revenue 
changes. Due to the limited nature of this single-issue rate filing, it 
does not meet the rate review requirement described in the 
Modernization Policy Statement.
---------------------------------------------------------------------------

    \287\ Modernization Policy Statement, 151 FERC ] 61,047 at P 31.
---------------------------------------------------------------------------

    257. LDC Coalition also seeks clarification that processes proposed 
in the NOPR do not obviate a pipeline's settlement obligation to file 
an NGA general section 4 rate case.\288\ Specifically, they argue that 
any Final Rule should make clear that a pipeline cannot use the FERC 
Form No. 501-G filing, coupled with a limited NGA section 4 rate 
reduction filing, to satisfy a come-back obligation under a Commission-
approved settlement. LDC Coalition asserts that the limited cost and 
revenue information in FERC Form No. 501-G, and the limited NGA section 
4 process, are not valid substitutes for a general NGA section 4 rate 
case filing, which provides parties the opportunity to review all the 
components of the pipeline's cost of service. LDC Coalition comments 
further that such ``come-back'' provisions are ``often hard-fought 
settlement components critical to garnering support from customer 
parties.'' \289\ Thus, it requests that the Commission clarify that a 
pipeline that ``has committed to file a general NGA section 4 rate case 
as a negotiated component of a Commission-approved settlement must 
fulfill that settlement commitment.'' \290\
---------------------------------------------------------------------------

    \288\ LDC Coalition Comments at 15-16.
    \289\ Id. at 16.
    \290\ Id.
---------------------------------------------------------------------------

    258. The Commission declines to make the broad clarification sought 
by LDC Coalition. As LDC Coalition points out, the terms and details 
regarding a pipeline's obligation to make future filings are likely 
provisions negotiated between the parties to the settlement, and as 
such are governed by the settlement itself. Thus, we will not make a 
general clarification that may inhibit or impinge on negotiated 
provisions of Commission approved settlements.
    259. LDC Coalition also states that the Commission should 
incorporate the FERC Form No. 501-G Implementation Guide into the Final 
Rule and into proposed regulation Sec.  260.402.\291\ It asserts that 
such inclusion is necessary to ensure that Commission staff and 
interested parties are able to access the information necessary to 
adequately assess the pipeline's report. LDC Coalition asserts that 
incorporation of the Implementation Guide into the Final Rule and 
Regulation, rather than just a reference to it in the proposed 
regulations, ``would make clear that the Commission intends for 
customers and interested stakeholders to have access to the [report], 
and would help ensure compliance with the Commission's desired filing 
processes.'' \292\
---------------------------------------------------------------------------

    \291\ Id.
    \292\ Id. at 18.
---------------------------------------------------------------------------

    260. The Commission will not incorporate the FERC Form No. 501-G 
Implementation Guide into the Final Rule or into the proposed 
regulation or regulatory text. As LDC Coalition points out, the 
Commission included a Microsoft Excel version of the FERC Form No. 501-
G and a proposed Implementation Guide as attachments to the NOPR, and 
thus made those files available in elibrary. The Commission intends to 
do the same for the Final Rule, and finds that the processes set forth 
in the guide, and data to be provided in the reports, will be 
adequately accessible to any interested parties in that manner.

F. Implementation Schedule for Informational Filings

1. NOPR
    261. In the NOPR, the Commission proposed a staggered filing 
schedule. The Commission identified 133 interstate natural gas 
pipelines with cost-based rates that would be required to file the FERC 
Form No. 501-G, and divided them into four groups. The Commission 
proposed that the due date for the first group be 28 days from the 
effective date of any Final Rule in this proceeding, and the due date 
for each subsequent group be 28 days from the previous group's due 
date. The NOPR stated that pipelines may file their FERC Form No. 501-G 
earlier than the proposed dates and respondents may include with this 
filing, as appropriate, an Addendum explaining why no adjustment in 
their rates is needed, or their commitment to make a general NGA 
section 4 rate case filing in lieu of a limited NGA section 4 filing as 
permitted by Sec.  154.404.\293\
---------------------------------------------------------------------------

    \293\ NOPR, FERC Stats. & Regs. ] 32,725 at P 62.
---------------------------------------------------------------------------

2. Comments
    262. Some commenters advocate for a delayed schedule. EQT Midstream 
urges the Commission to delay the FERC Form No. 501-G filing deadline 
for the first group of pipelines. EQT Midstream argues that the NOPR 
and Revised Policy Statement have made it unclear how to apply several 
ratemaking principles. EQT Midstream also argues that the 28 day 
deadline is not conducive to promoting settlements, as some parties may 
be wary to settle ``knowing that a Commission order addressing ADIT and 
the Revised Policy

[[Page 36710]]

Statement may subsequently be issued and may upset any agreed-to 
terms.'' \294\
---------------------------------------------------------------------------

    \294\ EQT Midstream Comments at 5.
---------------------------------------------------------------------------

    263. Other commenters advocate for an accelerated schedule. The 
Oklahoma AG requests that the Commission reduce the time period between 
FERC Form No. 501-G filings, then moving forward the final due date for 
filing rate cases.\295\ Process Gas requests that the Commission 
require all pipelines to file FERC Form No. 501-G within 28 days of the 
effective date of the Final Rule, rather than using a staggered 
schedule. Similarly, Range requests that the Commission require all 
pipelines to file FERC Form No. 501-G within 30 days of the effective 
date of the Final Rule, rather than using a staggered schedule.
---------------------------------------------------------------------------

    \295\ Oklahoma AG Comments at 5.
---------------------------------------------------------------------------

    264. Process Gas states that it is not aware of any reason why any 
pipeline would need more than the 28 days allowed for the first group 
of pipelines to complete the form, especially since the 2017 FERC Form 
No. 2 data was due to be filed April 18, 2018. Range notes that 
pipelines have been planning for their filings ever since the issuance 
of the NOPR. Process Gas and Range concede that Commission staff may 
need time to process all of the filings, but argue that the solution is 
to stagger the issuance of the final orders, not the receipt of the 
filings. They argue all parties would benefit from having the FERC Form 
No. 501-G posted promptly. For those pipelines planning to voluntarily 
reduce their rates, Process Gas and Range argue, an earlier filing date 
would provide their customers with the benefit of lower rates as soon 
as possible. For those pipelines planning not to voluntarily reduce 
their rates, Process Gas argues, an earlier filing date would provide 
earlier insight into the pipeline's rationale, allowing customers and 
Commission Staff more time to evaluate the filing and prepare an 
appropriate response.\296\
---------------------------------------------------------------------------

    \296\ Process Gas Comments at 7; Range Comments at 14.
---------------------------------------------------------------------------

3. Discussion
    265. The Commission adopts the implementation schedule proposed in 
the NOPR, with one modification. The Commission has determined to 
combine the third and fourth groups of pipelines into a single group 
and require all those pipelines to file their FERC Form No. 501-Gs 
within 28 days after the deadline for the second group of pipelines. 
This will allow the filing of all the FERC Form No. 501-Gs to be 
completed by early December of this year, rather than having the filing 
process extend into next year. We see no compelling reason to make any 
other changes in the implementation schedule. The Final Rule does not 
take effect instantly, but rather after a delay of 45 days after 
publication in the Federal Register, and the first set of pipeline 
filings is not due until 28 days after that. As a practical matter, 
then, pipelines in the initial filing group have over two months from 
the Commission's approval of the Final Rule to prepare.
    266. We also decline to accelerate the filing schedule for the 
three pipeline groups. Commenters raise valid points in favor of 
requiring all pipelines to file simultaneously and instead staggering 
the target dates for final orders. We find, however, that the modified 
staggered schedule described above will allow the Commission to process 
the filings in a more efficient and orderly manner. We note that 
pipelines may file their FERC Form No. 501-G earlier than the proposed 
dates, and we especially encourage them to do so in instances where an 
early filing would ease the process of reaching a rate settlement with 
their customers.

G. NGPA Section 311 and Hinshaw Pipelines

1. NOPR
    267. In the NOPR, the Commission found that its existing 
regulations and policy concerning the rates charged by NGPA section 311 
and Hinshaw pipelines are generally sufficient to provide shippers 
reasonable rate reductions with respect to the Tax Cuts and Jobs Act 
and the Revised Policy Statement. Accordingly, the Commission did not 
propose requiring NGPA section 311 and Hinshaw pipelines to file the 
FERC Form No. 501-G or make any other immediate filing. Instead, the 
Commission proposed a separate method for updating NGPA section 311 and 
Hinshaw pipelines' rates, in keeping with their history of light-handed 
regulation.
    268. Under pre-existing policy, the Commission reviews the rates of 
each NGPA section 311 and Hinshaw pipeline every five years.\297\ The 
Commission proposed using this five-year rate review process as the 
primary mechanism to consider changes to reflect the Tax Cuts and Jobs 
Act.
---------------------------------------------------------------------------

    \297\ Order No. 735, FERC Stats. & Regs. ] 31,310 at P 96. 
Pipelines using state-approved rates pursuant to Sec.  284.123(b)(1) 
may certify that those rates continue to meet the requirements of 
Sec.  284.123(b)(1) on the same basis on which they were approved.
---------------------------------------------------------------------------

    269. The Commission proposed to act ahead of this five-year 
schedule only when a state regulatory agency requires any of these 
pipelines to reduce their intrastate rates to reflect the decreased 
income tax. Under pre-existing policy, any pipeline that elected to use 
state-derived rates pursuant to Sec.  284.123(b)(1) is already required 
to file with the Commission a new rate election 30 days after a state 
regulatory agency adjusts its intrastate rates.\298\ In the NOPR, the 
Commission proposed, for the purposes of the Tax Cuts and Jobs Act 
only, to expand this requirement to include intrastate pipelines that 
use Commission-established cost-based rates pursuant to Sec.  
284.123(b)(2), as well as pipelines that use state-derived rates 
pursuant to Sec.  284.123(b)(1). Accordingly, the Commission proposed a 
new Sec.  284.123(i) requiring that, if an intrastate pipeline's rates 
on file with a state regulatory agency are reduced to reflect the 
reduced income tax rates adopted in the Tax Cuts and Jobs Act, the 
intrastate pipeline must file a new rate election within 30 days after 
the reduced intrastate rate becomes effective. The Commission reasoned 
that this requirement would give the same rate reduction benefit to any 
interstate shippers on those pipelines as the intrastate shippers 
receive, thereby ensuring that the two groups of shippers are treated 
similarly.
---------------------------------------------------------------------------

    \298\ 18 CFR 284.123(g)(9)(iii). See also Lobo Pipeline Co. 
L.P., 145 FERC ] 61,168, at P 5 (2013) and Atmos Pipeline--Texas, 
156 FERC ] 61,094, at P 8 (2016).
---------------------------------------------------------------------------

2. Comments
    270. The Texas Railroad Commission, NiSource LDCs, and AGA 
commented on the portion of the NOPR affecting NGPA section 311 and 
Hinshaw pipelines. The Texas Railroad Commission, which is the state 
regulatory agency in Texas having jurisdiction over intrastate pipeline 
rates, supports this portion of the NOPR. The Texas Railroad Commission 
states that its experience with NGPA section 311 and Hinshaw rates ``is 
substantially the same as the Commission's experience described in the 
. . . [NOPR].'' \299\ The Texas Railroad Commission notes that almost 
all intrastate contracts under Texas Railroad Commission jurisdiction 
are based on market conditions, and result in rates substantially lower 
than the maximum lawful rate. The Texas Railroad Commission states that 
it has already begun adjusting intrastate rates on local distribution 
systems. For transportation pipelines, the Texas Railroad Commission 
states that it intends to follow a process similar to

[[Page 36711]]

that described in the NOPR, revising existing rates as they are 
reviewed in the ordinary course of business.
---------------------------------------------------------------------------

    \299\ Texas Railroad Commission Comments at 2 (citing NOPR, FERC 
Stats. & Regs. ] 32,725 at PP 58, 61).
---------------------------------------------------------------------------

    271. NiSource LDCs state that two of its affiliates are Hinshaw 
pipelines providing interstate transportation service under limited 
jurisdiction certificates issued by the Commission under Sec.  284.224 
of its regulations. NiSource LDCs agrees with the assessment in the 
NOPR that decisions on whether to reduce those rates to reflect the 
effects of the Tax Cuts and Jobs Act are ``in the hands of the state 
regulatory agency.'' \300\ NiSource LDCs states that, if a state 
commission requires a reduction in such intrastate rates to reflect the 
impact of the Tax Cuts and Jobs Act, Sec.  284.123(b) requires the 
company to make a corresponding rate filing with FERC within 30 days 
after the reduced intrastate rate becomes effective, and notes that it 
has already made one such filing with the Commission.\301\ NiSource 
``urge[s] the Commission to adopt this procedure with respect to 
companies holding limited jurisdiction certificates that have elected 
to charge state-approved transportation rates.'' \302\
---------------------------------------------------------------------------

    \300\ NiSource LDCs Comments at 5 (quoting NOPR, FERC Stats. & 
Regs. ] 32,725 at P 57).
    \301\ Columbia Gas of Maryland, Inc., Docket No. PR18-40-000 
(filed April 3, 2018).
    \302\ NiSource LDCs Comments at 5.
---------------------------------------------------------------------------

    272. AGA, whose members own or operate numerous Hinshaw pipelines, 
requests clarification of several points in the NOPR. AGA states that 
it ``supports the efforts in the NOPR to obtain the information 
necessary'' to ensure that interstate pipeline rates are just and 
reasonable,\303\ but argues that ``any final rule should be consistent 
with the Commission's focus on reducing regulatory burdens on [Hinshaw 
pipelines] not subject to full Commission-jurisdiction.'' \304\ AGA 
argues that Hinshaw services are generally very small in relation to 
interstate services, and that the Final Rule should, correspondingly, 
impose lesser requirements on Hinshaw services than on interstate 
services.
---------------------------------------------------------------------------

    \303\ AGA Comments at 4.
    \304\ Id. at 11.
---------------------------------------------------------------------------

    273. AGA requests clarification of what action by a state 
commission triggers the obligation for an intrastate pipeline to file a 
new rate election under proposed Sec.  284.123(i). AGA asks whether a 
pipeline must file with the Commission if the adjusted state-approved 
rate is not comparable, or if the applicable state-approved rate 
references the Commission-established rate. AGA also notes that 
proposed new Sec.  284.123(i) refers to ``intrastate'' pipelines, and 
asks whether ``the proposed text of paragraph (i) could be read to 
exclude Sec.  284.224 certificate holders--Hinshaw pipelines and other 
local distribution companies--although it appears in the NOPR that the 
Commission intends to apply its requirements to intrastate pipelines 
and Hinshaw pipelines.'' \305\ AGA also asks that the Commission limit 
new Sec.  284.123(i) to only apply to pipelines with Sec.  
284.123(b)(2) Commission-established cost-based rates, reasoning that 
pipelines with Sec.  284.123(b)(1) rates already must file within 30 
days after a change in state rates.
---------------------------------------------------------------------------

    \305\ Id. at 13.
---------------------------------------------------------------------------

    274. AGA also raises several timing issues. AGA notes that proposed 
new Sec.  284.123(i) would require entities to file a new rate election 
with the Commission ``not later than 30 days after the reduced 
intrastate rate becomes effective.'' AGA notes that this may cause 
confusion for any intrastate pipelines whose reduced rates at the state 
level become effective before the Commission issues a Final Rule. AGA 
also argues that local distribution companies are likely to need more 
time to prepare and file the new rate election with the Commission, and 
therefore proposes that the deadline in new Sec.  284.123(i) instead 
read: ``not less than ninety (90) days after the latter of: the 
effective date of the final rule; or the effective date of the reduced 
intrastate rate (if effective after the effective date of a final 
rule).'' \306\ AGA also requests that any LDC that is subject to 
multiple state jurisdictions be permitted to wait until all 
jurisdictions have reviewed its rates before filing with the 
Commission. Finally, AGA states that the NOPR does not provide clear 
guidance to intrastate pipelines who have had rates approved in 2017 or 
2018, who have currently pending proceedings, or who are due to make 
five-year rate review filings in the near future before the Final Rule 
takes effect.
---------------------------------------------------------------------------

    \306\ Id. at 14.
---------------------------------------------------------------------------

    275. Similarly, AGA notes that the NOPR does not address whether 
filings to address the Tax Cuts and Jobs Act will re-set the five-year 
review period. AGA requests that the Commission confirm in any Final 
Rule that the filing of a rate election filing under Sec.  284.123(i) 
would re-set the currently applicable five-year review.
    276. Finally, AGA notes that the NOPR is unclear in terms of 
whether the Commission expects Hinshaw pipelines to file a fully 
updated cost and revenue study. AGA argues that unless it is made in 
the context of a regular five-year review, Hinshaw pipelines should 
have the option to simply re-file their rates on the limited issue of 
the Tax Cuts and Jobs Act impact. AGA also proposes that the Commission 
waive the filing fee for such filings.
3. Discussion
    277. Noting the support for the NOPR as it applies to NGPA section 
311 and Hinshaw pipelines, we generally adopt the NOPR's proposal 
concerning those pipelines in this Final Rule, but also provide 
additional guidance on the points raised by AGA.
    278. First, new Sec.  284.123(i) applies to Sec.  284.224 
certificate holders. As Sec.  284.224(a)(3) states, Hinshaw pipelines 
and other local distribution companies, by accepting a certificate, are 
regulated ``to the same extent that and in the same manner that 
intrastate pipelines are. . . .'' \307\ Therefore, the reference in new 
Sec.  284.123(i) to ``intrastate pipelines'' in no way excludes Hinshaw 
pipelines and other local distribution companies that hold Sec.  
284.224 certificates. Moreover, the use of ``intrastate pipelines'' in 
Sec.  284.123(i) is consistent with the remainder of Sec.  284.123, 
which refers to ``intrastate pipelines'' throughout.
---------------------------------------------------------------------------

    \307\ 18 CFR 284.224(a)(3).
---------------------------------------------------------------------------

    279. Second, we decline to revise new Sec.  284.123(i) to exclude 
Sec.  284.123(b)(1) state-derived rates. Although it is current 
Commission policy to include in orders approving an intrastate 
pipeline's state-derived rates a requirement that the pipeline must 
file a new rate election whenever the state-approved rate used in the 
rate election is changed, the Commission may not have included such a 
requirement in every such currently approved state-derived rate. 
Accordingly, we find that Sec.  284.123(i) should apply to both Sec.  
284.123(b)(1) state-derived rates and Sec.  284.123(b)(2) Commission-
established cost-based rates so as to ensure that, if the intrastate 
pipeline's rates on file with the state regulatory agency are reduced 
to reflect the reduced income tax rates adopted in the Tax Cuts and 
Jobs Act, the intrastate pipeline will file a new rate election for its 
interstate rates. However, we are revising proposed Sec.  284.123(i) in 
several respects in order to clarify how Sec.  284.123(i) applies to 
these two different types of intrastate rates for interstate service.
    280. AGA requests that we clarify what type of rate change by a 
state regulatory agency triggers the Sec.  284.123(i) filing 
requirement. Under current Commission policy, an intrastate pipeline 
using state-derived rates under Sec.  284.123(b)(1) must file a new 
rate election whenever the state-approved rate used for its election is

[[Page 36712]]

changed. Consistent with that policy, we clarify that Sec.  284.123(i) 
only requires such pipelines to make a new rate election when the state 
regulatory agency reduces the state-approved rate used for its rate 
election to reflect the reduced income taxes adopted in the Tax Cuts 
and Jobs Act. However, we find that a change by a state regulatory 
agency to the rate for any intrastate service due to the Tax Cuts and 
Jobs Act will trigger the Sec.  284.123(i) filing requirement for 
intrastate pipelines whose existing interstate rates are Commission-
established cost-based rates pursuant to Sec.  284.123(b)(2). 
Interstate rates approved under Sec.  284.123(b)(2) are not based on 
any particular state-approved rate. In these circumstances, we find it 
reasonable for intrastate pipelines with Sec.  284.123(b)(2) interstate 
rates to reduce those rates if the state regulatory agency reduces 
their rates for any intrastate service to reflect the reduced income 
taxes resulting from the Tax Cuts and Jobs Act. This ensures that 
interstate shippers receive a similar rate reduction as those 
intrastate customers whose rates are reduced and avoids the need to 
consider whether the intrastate rates reduced by the state regulatory 
agency are for an intrastate service comparable to the interstate 
service of the intrastate pipeline.
    281. AGA asks whether new Sec.  284.123(i) applies to any 
intrastate pipeline whose reduced intrastate rates ``become effective 
before the Commission issues a final rule.'' \308\ This is indeed the 
case. However, the Commission cannot impose a rule that has not yet 
gone into effect. Accordingly, in this Final Rule we modify proposed 
Sec.  284.123(i) to clarify that the deadline for the required rate 
reduction filings will be 30 days after the later of (1) the effective 
date of the new Sec.  284.123(i) or (2) the effective date of the 
reduction in the pipeline's intrastate rates.
---------------------------------------------------------------------------

    \308\ AGA Comments at 13.
---------------------------------------------------------------------------

    282. AGA proposes that NGPA section 311 and Hinshaw pipelines 
should have 90 days from the effective date of the reduced intrastate 
rate to file with the Commission instead of 30 days. AGA also proposes 
that any local distribution companies subject to multiple state 
jurisdictions be permitted to wait until the last state government 
finishes its rate review before filing. We reject these proposals. 
Although individual pipelines are free to seek waiver if good cause 
exists, AGA's proposals would only serve to delay the implementation of 
fair and equitable NGPA section 311 and Hinshaw rates. A 90-day filing 
requirement in new Sec.  284.123(i) would also create an unjustifiable 
difference in how the Commission treats pipelines with Sec.  
284.123(b)(2) rates versus pipelines with Sec.  284.123(b)(1) rates, 
the latter of which already must file within 30 days after a change in 
state rates.
    283. AGA states that the NOPR does not provide clear guidance to 
parties who have had rates approved in 2017 or 2018, who have currently 
pending rate proceedings, or who are due to make five-year rate review 
filings in the near future before the Final Rule takes effect. 
Consistent with our policy that an intrastate pipeline whose existing 
interstate rates are based on Sec.  284.123(b)(1) must file a new rate 
election whenever the state-approved rate used for the election is 
changed, those interstate pipelines will have to file a new rate 
election if their state regulatory agency reduces the state-approved 
rate used for their rate election, regardless of the pendency of, or 
Commission approval of, any prior rate filing by that intrastate 
pipeline. However, the Commission is revising proposed Sec.  284.123(i) 
to provide that the requirement to file a new rate election in that 
section does not apply to intrastate pipelines using Commission-
established cost-based rates under Sec.  284.123(b)(2), if the 
Commission has approved revised rates for that pipeline after December 
22, 2017 or that pipeline already has a rate case pending before the 
Commission as of the date reduced intrastate rates become effective. 
Since the enactment of the Tax Cuts and Jobs Act on December 22, 2017, 
the Commission has not approved revised interstate rates for any 
intrastate pipeline under Sec.  284.123(b)(2) without ensuring that the 
revised rates reflect the reduced income taxes adopted in the Tax Cuts 
and Jobs Act, and the Commission will continue to do so in all pending 
and future rate filings by such pipelines. Accordingly, there is no 
need for intrastate pipelines whose interstate rates are based on Sec.  
284.123(b)(2) to file a new rate election in these circumstances.
    284. AGA also notes that the NOPR does not address whether filings 
to address the Tax Cuts and Jobs Act will re-set the five-year review 
period. The Commission intends for new Sec.  284.123(i) and the 
traditional five-year review policy to work in tandem. Accordingly, an 
accepted filing under Sec.  284.123(i) will reset the clock on the 
pipeline's next five-year filing. Finally, AGA requests clarification 
regarding the filing fees, and content, of any filings addressing the 
Tax Cuts and Jobs Act. We clarify that the Commission has not changed 
its rules regarding filing fees, nor has the Commission changed its 
rules regarding the content of five-year review filings. Finally, we 
reject AGA's proposal to permit anyone filing under Sec.  284.123(i) to 
submit a single-issue filing on the limited issue of the Tax Cuts and 
Jobs Act impact. Although we are permitting interstate natural gas 
pipelines regulated under the NGA to make such limited section 4 
filings, as described above the interstate pipeline limited section 4 
filings are based on financial information in the FERC Form No. 501-G, 
which is largely derived from FERC Form Nos. 2 and 2-A. Intrastate 
pipelines do not file such reports. Moreover, intrastate pipelines with 
cost-based interstate rates established by the Commission pursuant to 
Sec.  284.123(b)(2) generally resolve their rate proceedings through 
black box settlements. As a result, it would be difficult, if not 
impossible, to determine how to adjust those rates solely to reflect 
reduced income taxes under the Tax Cuts and Jobs Act. State-derived 
rates adopted pursuant to Sec.  284.123(b)(1) would be changed 
consistent with whatever changes the state regulatory agency requires 
to reflect the income tax reductions in the Tax Cuts and Jobs Act. 
Accordingly, if the state regulatory agency approves a change in the 
relevant intrastate rate that is limited to reflecting the income tax 
reduction in the Tax Cuts and Jobs Act, the intrastate pipeline may 
make a similar rate reduction in its Sec.  284.123(b)(1) interstate 
rate. However, if the state regulatory agency revises the relevant 
intrastate rates based on a full review of all the intrastate pipelines 
costs and revenues, the interstate pipeline would have to make a 
similar change in its Sec.  284.123(b)(1) interstate rate.

H. Request for Commission Action

    285. We dismiss the Petitioners' request for Commission action in 
Docket No. RP18-415-000 in light of the Commission's actions in this 
rulemaking proceeding.

V. Regulatory Requirements

A. Information Collection Statement

    286. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain reporting, record keeping, and public 
disclosure requirements (information collection) imposed by an 
agency.\309\ Upon approval of a collection of information, OMB will 
assign an OMB control number and an expiration date. Respondents 
subject to the filing requirements of a rule will not be

[[Page 36713]]

penalized for failing to respond to the collection of information 
unless the collection of information displays a valid OMB control 
number.
---------------------------------------------------------------------------

    \309\ 5 CFR 1320.11.
---------------------------------------------------------------------------

    287. The Commission is submitting these reporting and recordkeeping 
requirements to OMB for its review and approval under section 3507(d) 
of the Paperwork Reduction Act (PRA). Comments are solicited on the 
Commission's need for this information, whether the information will 
have practical utility, the accuracy of the provided burden estimate, 
ways to enhance the quality, utility, and clarity of the information to 
be collected, and any suggested methods for minimizing the respondent's 
burden, including the use of automated information techniques.
    288. Public Reporting Burden: The Commission initially identified 
133 interstate natural gas pipelines with cost-based rates that will be 
required to file the adopted FERC Form No. 501-G. That figure was based 
upon a review of the pipeline tariffs on file with the Commission. 
However, the number has been reduced to 129 interstate natural gas 
pipelines, as the Commission removed Hampshire Gas Company as discussed 
above, Questar Southern Trails Pipeline Company, whom the Commission 
permitted to abandon its certificate to operate as a pipeline,\310\ 
MoGas, who filed a general NGA section 4 rate case, and Granite State, 
who filed a prepackage uncontested settlement.\311\ Interstate natural 
gas pipelines have four options as to how to address the results of the 
formula contained in FERC Form No. 501-G. Each option has a different 
burden profile and a different cost per response. Companies will make 
their own business decisions as to which option they will select, thus 
the estimate for the number of respondents for each option as shown in 
the table below is just an estimate.
---------------------------------------------------------------------------

    \310\ Questar Southern Trails Pipeline Co., 163 FERC ] 62,086 
(2018).
    \311\ Additional pipelines have chosen to file NGA section 4 
rate filings before this Final Rule is effective; those pipelines 
will not be required to file the FERC Form No. 501-G. Because the 
number of pipelines choosing to make NGA section 4 filings may 
continue to change (correspondingly reducing the number of filers of 
the FERC Form No. 501-G), we are retaining a conservative estimate 
of 129 pipelines who may be required to file the FERC Form No. 501-
G.
---------------------------------------------------------------------------

    289. The number of NGPA section 311 and Hinshaw pipelines that will 
be required to file a rate case pursuant to proposed Sec.  284.123(i) 
is a function of state actions outside of the control of the 
Commission. Thus, the estimate for the number of respondents for NGPA 
section 311 and Hinshaw pipelines filing a rate case in compliance with 
adopted Sec.  284.123(i) as shown in the table below is an estimate.
    290. Based on these assumptions, we estimate the one-time burden 
and cost \312\ for the information collection requirements as follows.
---------------------------------------------------------------------------

    \312\ The estimated average hourly cost of $83.97 (rounded) 
assumes equal time is spent by an accountant, management, lawyer, 
and office and administrative support. The average hourly cost 
(salary plus benefits) is: $56.59 For accountants (occupation code 
13-2011), $94.28 for management (occupation code 11-0000), $143.68 
for lawyers (occupation code 23-0000), and $41.34 for office and 
administrative support (occupation code 43-0000). (The wage figures 
are taken from the Bureau of Labor Statistics [BLS], for May 2017, 
figures at https://www.bls.gov/oes/current/naics3_221000.htm. BLS 
information on benefits for December 2017 was issued on March 20, 
2018, at https://www.bls.gov/news.release/ecec.nr0.htm.)

                                                                        FERC-501G
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Responses                   Average      Average
                                                            Respondents      per         Total      burden hour    cost per   Total burden   Total cost
                                                                          respondent   responses   per response    response       hours          ($)
                                                                    (1)          (2)  (1) * (2) =           (4)          (5)   (3) * (4) =   (3) * (5) =
                                                                                              (3)                                      (6)           (7)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Interstate Natural Gas Pipelines With Cost-Based Rates
--------------------------------------------------------------------------------------------------------------------------------------------------------
FERC Form No. 501-G, One-time Report \313\...............           129            1          129             9         $756         1,161       $97,524
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Optional Response
--------------------------------------------------------------------------------------------------------------------------------------------------------
No Response..............................................            51            0            0             0            0             0             0
Case for no change.......................................            62            1           62             5          420           310        26,040
Limited Sec 4 filing \314\...............................            15            1           15             6          504            90         7,560
General Sec. 4 filing \315\..............................             1            1            1     \316\ 512       42,968           512        42,968
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              NGPA section 311 and Hinshaw Pipelines With Cost-Based Rates
--------------------------------------------------------------------------------------------------------------------------------------------------------
NGPA rate filing \317\...................................      \318\ 15            1           15            24        2,015           360        30,225
--------------------------------------------------------------------------------------------------------------------------------------------------------
    TOTAL................................................     \319\ 144  ...........          222  ............  ...........         2,433       204,317
--------------------------------------------------------------------------------------------------------------------------------------------------------

    291. The Report and any tariff filing option that an NGA natural 
gas company may choose or an NGPA pipeline company may be required to 
file must be filed using the Commission's eTariff filing format. This 
format requires the use of software that all respondents currently have 
or purchase on a per-use basis. For companies that do not have their 
own software and must contract for the service, the Commission 
estimates a cost of $300 per filing. We estimate approximately 40 of 
the NGA and NGPA pipeline company respondents will contract for eTariff 
filing services at an estimated total cost of $12,000. Therefore the 
total cost of the Final Rule is $216,317.
---------------------------------------------------------------------------

    \313\ 18 CFR 260.402 (as revised).
    \314\ 18 CFR 154.404 (as revised).
    \315\ 18 CFR 154.312.
    \316\ The estimate for hours is based on the estimated average 
hours per response for the FERC-545 (OMB Control No. 1902-0154), 
with general NGA section 4, 18 CFR 154.312 filings weighted at a 
ratio of 20 to one.
    \317\ 18 CFR 284.123(i) (as revised).
    \318\ Estimate of number of respondents assumes that states will 
act within one year to reduce NGPA section 311 and Hinshaw pipeline 
rates to reflect the Tax Cuts and Jobs Act.
    \319\ Number of unique respondents = (One-time Report) + (NGPA 
rate filing).
---------------------------------------------------------------------------

    292. The Commission does not expect any mandatory or voluntary 
reporting requirements other than those listed above.
    Action: Proposed information collection, FERC-501G (Rate Changes 
Relating to Federal Corporate Income Tax Rate for Interstate Natural 
Gas Pipelines).
    OMB Control No.: 1902-0302.
    Respondents: Interstate natural gas pipelines with cost-based 
rates, and

[[Page 36714]]

certain NGPA section 311 and Hinshaw pipelines.
    Frequency of Information: One-time, for each indicated reporting 
requirement.
    Necessity of Information: The Commission requires information in 
order to determine the effect of the Tax Cuts and Jobs Act on the rates 
of natural gas pipelines to ensure those rates continue to be just and 
reasonable.
    Internal Review: The Commission has reviewed the adopted 
information collection requirements and has determined that they are 
necessary. These requirements conform to the Commission's need for 
efficient information collection, communication, and management within 
the energy industry. The Commission has specific, objective support for 
the burden estimates associated with the information collection 
requirements.
    Interested persons may obtain information on the reporting 
requirements or submit comments by contacting the Federal Energy 
Regulatory Commission, 888 First Street NE, Washington, DC 20426 
(Attention: Ellen Brown, Office of the Executive Director, (202) 502-
8663, or email [email protected]). Comments may also be sent to 
the Office of Management and Budget (Attention: Desk Officer for the 
Federal Energy Regulatory Commission), by email at 
[email protected].

B. Environmental Analysis

    293. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\320\ The 
actions taken here fall within categorical exclusions in the 
Commission's regulations for rules regarding information gathering, 
analysis, and dissemination, and for rules regarding sales, exchange, 
and transportation of natural gas that require no construction of 
facilities.\321\ Therefore, an environmental review is unnecessary and 
has not been prepared in this rulemaking.
---------------------------------------------------------------------------

    \320\ Regulations Implementing the National Environmental Policy 
Act, Order No. 486, FERC Stats. & Regs. ] 30,783 (1987) (cross-
referenced at 41 FERC ] 61,284.
    \321\ See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5) and 380.4(a)(27).
---------------------------------------------------------------------------

C. Regulatory Flexibility Act

    294. The Regulatory Flexibility Act of 1980 (RFA) \322\ generally 
requires a description and analysis of Final Rules that will have 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \322\ 5 U.S.C. 601-612.
---------------------------------------------------------------------------

    295. As noted in the above Information Collection Statement, 
approximately 129 interstate natural gas pipelines, both large and 
small, are respondents subject to the requirements adopted by this 
rule. In addition, the Commission estimates that another 59 NGPA 
natural gas pipelines may be required to file restated rates pursuant 
to proposed Sec.  284.123(i). However, the actual number of NGPA 
section 311 and Hinshaw pipelines that will be required to file is a 
function of actions taken at the state level. The Commission estimates 
that only 15 of the 59 NGPA natural gas pipelines will file a rate case 
pursuant to proposed Sec.  284.123(i).
    296. Most of the natural gas pipelines regulated by the Commission 
do not fall within the RFA's definition of a small entity,\323\ which 
is currently defined for natural gas pipelines as a company that, in 
combination with its affiliates, has total annual receipts of $27.5 
million or less.\324\ For the year 2016 (the most recent year for which 
information is available), only five of the 129 interstate natural gas 
pipeline respondents had annual revenues in combination with their 
affiliates of $27.5 million or less and therefore could be considered a 
small entity under the RFA. This represents 3.9 percent of the total 
universe of potential NGA respondents that may have a significant 
burden imposed on them. For NGPA section 311 and Hinshaw pipelines, 
three of the 59 potential respondents could be considered a small 
entity, or 5.1 percent. However, it is not possible to predict whether 
any of these small companies may be required to make a rate filing. The 
estimated cost for respondents is expected to vary from $756 to 
$42,968.\325\ In view of these considerations, the Commission certifies 
that this final rule's amendments to the regulations will not have a 
significant impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \323\ See 5 U.S.C. 601(3) (citing section 3 of the Small 
Business Act, 15 U.S.C. 623). Section 3 of the SBA defines a ``small 
business concern'' as a business which is independently owned and 
operated and which is not dominant in its field of operation.
    \324\ 13 CFR 121.201 (Subsector 486--Pipeline Transportation; 
North American Industry Classification System code 486210; Pipeline 
Transportation of Natural Gas) (2017). ``Annual Receipts'' are total 
income plus cost of goods sold.
    \325\ The estimated $756 is for respondents who file the One-
time Report and choose to take no optional response. Only one 
respondent who files the One-time Report and then chooses to make a 
general NGA section 4 filing is estimated to have a one-time cost of 
$42,968. These figures do not include the estimated cost of $300 per 
filing for approximately 40 filers for the use of software to make 
these filing in the eTariff format.
---------------------------------------------------------------------------

D. Document Availability

    297. 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 the Commission's Home Page www.ferc.gov and in the 
Commission'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.
    298. From the Commission'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 in the docket number 
field.
    299. User assistance is available for eLibrary and the Commission'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].

E. Effective Date and Congressional Notification

    300. These regulations are effective September 13, 2018. The 
Commission has determined, with the concurrence of the Administrator of 
the Office of Information and Regulatory Affairs of OMB, that this rule 
is not a ``major rule'' as defined in section 351 of the Small Business 
Regulatory Enforcement Fairness Act of 1996.

List of Subjects

Part 154

    Natural gas, Pipelines, Reporting and recordkeeping requirements.

Part 260

    Natural gas, Reporting and recordkeeping requirements,

Part 284

    Continental shelf, Natural gas, Reporting and recordkeeping 
requirements.

    By the Commission. Commissioners LaFleur and Glick are 
concurring with a separate statement attached.


[[Page 36715]]


    Issued: July 18, 2018.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

    In consideration of the foregoing, the Commission amends parts 154, 
260, and 284, Chapter I, Title 18, Code of Federal Regulations, as 
follows:

PART 154--RATE SCHEDULES AND TARIFFS

0
1. The authority citation for part 154 continues to read as follows:

     Authority:  15 U.S.C. 717-717w; 31 U.S.C. 9701; 42 U.S.C. 7102-
7352.


0
2. Add Sec.  154.404 to subpart E to read as follows:


Sec.  154.404  Tax Cuts and Jobs Act rate reduction.

    (a) Purpose. The limited rate filing permitted by this section is 
intended to permit:
    (1) A natural gas company subject to the Federal corporate income 
tax to reduce its maximum rates to reflect the decrease in the federal 
corporate income tax rate pursuant to the Tax Cuts and Jobs Act of 
2017; and
    (2) A natural gas company organized as a pass-through entity 
either:
    (i) To eliminate any income tax allowance and accumulated deferred 
income taxes reflected in its current rates; or
    (ii) To reduce its maximum rates to reflect the decrease in the 
Federal income tax rates applicable to partners pursuant to the Tax 
Cuts and Jobs Act of 2017.
    (b) Applicability. (1) For purposes of paragraph (a)(1) of this 
section, a natural gas company organized as a pass-through entity all 
of whose income or losses are consolidated on the Federal income tax 
return of its corporate parent is considered to be subject to the 
Federal corporate income tax.
    (2) Except as provided in paragraph (b)(3) of this section, any 
natural gas company with cost-based, stated rates may submit the 
limited rate filing permitted by this section.
    (3) If a natural gas company has a rate case currently pending 
before the Commission in which the change in the Federal corporate 
income tax rate can be reflected, the public utility may not use this 
section to adjust its rates.
    (c) Determination of rate reduction. A natural gas company 
submitting a filing pursuant to this section shall reduce:
    (1) Its maximum reservation rates for firm service, and
    (2) Its usage charge that includes fixed costs, and
    (3) Its one-part rates that include fixed costs, by
    (4) The percentage calculated consistent with the instructions to 
FERC Form No. 501-G prescribed by Sec.  260.402 of this chapter.
    (d) Timing. Any natural gas company filing to reduce its rates 
pursuant to this section must do so no later than the date that it 
files its FERC Form No. 501-G pursuant to Sec.  260.402 of this 
chapter.
    (e) Hearing issues. (1) The only issues that may be raised by 
Commission staff or any intervenor under the procedures established in 
this section are:
    (i) Whether or not the natural gas company may file under this 
section,
    (ii) Whether or not the percentage reduction permitted in paragraph 
(c)(4) has been properly applied, and
    (iii) Whether or not the correct information was used in that 
calculation.
    (2) Any other issue raised will be severed from the proceeding and 
dismissed without prejudice.

PART 260--STATEMENTS AND REPORTS (SCHEDULES)

0
3. The authority citation for part 260 continues to read as follows:

    Authority:  15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352.


0
4. Add Sec.  260.402 to read as follows:


Sec.  60.402  FERC Form No. 501-G. One-time Report on Rate Effect of 
the Tax Cuts and Jobs Act.

    (a) Prescription. The form for the One-time Report on Rate Effect 
of the Tax Cuts and Jobs Act of 2017, designated herein as FERC Form 
No. 501-G is prescribed.
    (b) Filing requirement--(1) Who must file. (i) Except as provided 
in paragraph (b)(1)(ii) of this section, every natural gas company that 
is required under this part to file a Form No. 2 or 2-A for 2017 and 
has cost-based, stated rates for service under any rate schedule that 
was filed electronically pursuant to part 154 of this chapter, must 
prepare and file with the Commission a FERC Form No. 501-G pursuant to 
the definitions and instructions set forth in that form and the 
Implementation Guide.
    (ii) A natural gas company whose rates are being examined in a 
general rate case under section 4 of the Natural Gas Act or in an 
investigation under section 5 of the Natural Gas Act as of the deadline 
for it to file the FERC Form No. 501-G need not file FERC Form No. 501-
G. In addition, a natural gas company that files an uncontested 
settlement of its rates pursuant to Sec.  385.207(a)(5) of this chapter 
after March 26, 2018, and before the deadline for it file the FERC Form 
No. 501-G need not file FERC Form No. 501-G.
    (2) FERC Form No. 501-G must be filed as prescribed in Sec.  
385.2011 of this chapter as indicated in the instructions set out in 
the form and Implementation Guide, and must be properly completed and 
verified. Each natural gas company must file FERC Form No. 501-G 
according to the schedule set forth in the Implementation Guide set out 
in that form. Each report must be prepared in conformance with the 
Commission's form and guidance posted and available for downloading 
from the FERC website (https://www.ferc.gov). One copy of the report 
must be retained by the respondent in its files.

PART 284--CERTAIN SALES AND TRANSPORTATION OF NATURAL GAS UNDER THE 
NATURAL GAS POLICY ACT OF 1978 AND RELATED AUTHORITIES

0
5. The authority citation for part 284 continues to read as follows:

    Authority:  15 U.S.C. 717-717z, 3301-3432; 42 U.S.C. 7101-7352; 
43 U.S.C. 1331-1356.


0
6. In Sec.  284.123, add paragraph (i) to read as follows:


Sec.  284.123  Rates and charges.

* * * * *
    (i) If an intrastate pipeline's rates on file with the appropriate 
state regulatory agency are reduced to reflect the reduced income tax 
rates adopted in the Tax Cuts and Jobs Act of 2017, the intrastate 
pipeline must file a new rate election pursuant to paragraph (b) of 
this section in the following circumstances:
    (1) If the intrastate pipeline's existing rates for interstate 
service are based on paragraph (b)(1) of this section, the intrastate 
pipeline must file a new rate election, if the state-approved rate used 
for its current rate election is changed to reflect the reduced income 
tax rates adopted in the Tax Cuts and Jobs Act.
    (2) If the intrastate pipeline's existing rates for interstate 
service are based on paragraph (b)(2) of this section, the intrastate 
pipeline must file a new rate election, if any of its rates on file 
with the appropriate state regulatory agency are reduced to reflect the 
reduced income tax rates adopted in the Tax Cuts and Jobs Act, unless 
the Commission has approved revised interstate rates for that pipeline 
after December 22, 2017, or it has filed revised interstate rates that 
are pending before the Commission on the effective date of the reduced 
intrastate rates.
    (3) Any rate election required by this paragraph must be filed on 
or before the later of October 15, 2018 or 30 days after

[[Page 36716]]

the reduced intrastate rate becomes effective.

    Note:  The following attachments and appendix will not be 
published in the Code of Federal Regulations:

Attachments

    The Attachments (FERC Form No. 501-G and the Implementation Guide) 
will not be published in the Federal Register or the Code of Federal 
Regulations. The Attachments will be available in the Commission's 
eLibrary and website.
    The following appendix will not appear in the Code of Federal 
Regulations.

Appendix A

------------------------------------------------------------------------
            Commenter                           Short name
------------------------------------------------------------------------
American Gas Association........  AGA.
American Public Gas Association.  APGA.
Berkshire Hathaway Energy         Berkshire Hathaway.
 Pipeline Group; Northern
 Natural Gas Company and Kern
 River Gas Transmission Company.
Boardwalk Pipeline Partners, LP.  Boardwalk.
Canadian Association of           CAPP.
 Petroleum Producers.
Dominion Energy Cove Point LNG,   Cove Point.
 LP.
Direct Energy Business            Direct Energy.
 Marketing, LLC and Interstate
 Gas Supply, Inc.
Dominion Energy Transmission,     Dominion Energy.
 Inc.; Dominion Energy Carolina
 Gas Transmission, LLC; Dominion
 Energy Questar Pipeline, LLC;
 Dominion Energy Overthrust
 Pipeline, LLC; and Questar
 Southern Trails Pipeline
 Company.
Eastern Shore Natural Gas         Eastern Shore.
 Company.
Enable Mississippi River          Enable Interstate Pipelines
 Transmission, LLC and Enable
 Gas Transmission, LLC..
EQT Midstream Partners, LP......  EQT Midstream.
Hampshire Gas Company...........  Hampshire.
Hess Corporation................  Hess.
Industrial Energy Consumers of    IECA.
 America.
Aera Energy, LLC, Anadarko        Indicated Shippers.
 Energy Services Company; Apache
 Corporation; BP Energy Company;
 ConocoPhillips Company;
 Occidental Energy Marketing,
 Inc.; Petrohawk Energy
 Corporation; and XTO Energy,
 Inc.
Interstate Natural Gas            INGAA.
 Association of America.
Independent Oil & Gas             IOGA.
 Association of West Virginia,
 Inc..
Natural Gas Pipeline Company of   Kinder Morgan.
 America LLC; Tennessee Gas
 Pipeline Company, L.L.C.;
 Southern Natural Gas Company,
 L.L.C.; Colorado Interstate Gas
 Company, L.L.C.; Wyoming
 Interstate Company, L.L.C.; El
 Paso Natural Gas Company,
 L.L.C.; Mojave Pipeline
 Company, L.L.C.; Bear Creek
 Storage Company, L.L.C.;
 Cheyenne Plains Gas Pipeline
 Company, L.L.C.; Elba Express
 Company, L.L.C.; Kinder Morgan
 Louisiana Pipeline LLC;
 Southern LNG Company, L.L.C.;
 and TransColorado Gas
 Transmission Company LLC.
New York State Electric & Gas     NYSEG.
 Corporation and Rochester Gas
 and Electric Corporation.
Millennium Pipeline Company,      Millennium.
 L.L.C.
National Fuel Gas Supply          National Fuel.
 Corporation and Empire
 Pipeline, Inc.
Natural Gas Supply Association..  NGSA.
Bay State Gas Company d/b/a       NiSource LDCs.
 Columbia Gas of Massachusetts;
 Columbia Gas of Kentucky, Inc.;
 Columbia Gas of Maryland, Inc.;
 Columbia Gas of Ohio, Inc.;
 Columbia Gas of Pennsylvania,
 Inc.; Columbia Gas of Virginia,
 Inc.; and Northern Indiana
 Public Service Company LLC.
Mike Hunter, Oklahoma Attorney    Oklahoma AG.
 General.
Process Gas Consumers Group and   Process Gas.
 American Forest and Paper
 Association.
Railroad Commission of Texas....  Texas Railroad Commission.
Range Resources-Appalachia, LLC.  Range.
Southern Company Services, Inc.;  Southern Companies.
 Alabama Power Company; Georgia
 Power Company; Gulf Power
 Company; Mississippi Power
 Company and Southern Power
 Company.
Southern Star Central Gas         Southern Star.
 Pipeline, Inc.
Spectra Energy Partners, LP       Spectra.
 (SEP), Algonquin Gas
 Transmission, LLC; Big Sandy
 Pipeline, LLC; East Tennessee
 Natural Gas, LLC; Market Hub
 Partners Holding, LLC; Ozark
 Gas Transmission, L.L.C.;
 Saltville Gas Storage Company
 L.L.C.; and Texas Eastern
 Transmission, LP. SEP also has
 ownership interests in
 Gulfstream Natural Gas System,
 L.L.C.; Maritimes & Northeast
 Pipeline, L.L.C.; Sabal Trail
 Transmission, LLC; and
 Southeast Supply Header, LLC.
Trailblazer Pipeline Company,     Tallgrass Pipelines.
 LLC; Tallgrass Interstate Gas
 Transmission, LLC; and Rockies
 Express Pipeline LLC.
TransCanada Corporation.........  TransCanada.
The Williams Companies, Inc.....  Williams.
Xcel Energy Services Inc.;        LDC Coalition.
 Northern States Power Company,
 a Minnesota corporation;
 Northern States Power Company,
 a Wisconsin corporation; Public
 Service Company of Colorado;
 and Southwestern Public Service
 Company. Also Alliant Energy
 Corporate Services; Wisconsin
 Power and Light Company and
 Interstate Power and Light
 Company.
------------------------------------------------------------------------

Concurring Statement

LaFLEUR, Commissioner, and GLICK, Commissioner, concurring:

    In companion orders issued today, the Commission (1) affirms the 
Revised Policy Statement on Treatment of Income Taxes (Revised 
Policy Statement) issued in response to the decision of the United 
States Court of Appeals for the District of Columbia Circuit (D.C. 
Circuit) in United Airlines; \1\ (2) provides guidance regarding the 
treatment of Accumulated Deferred Income Taxes (ADIT) where the 
income tax allowance is eliminated from cost-of-service rates under 
the Commission's post-United Airlines policy; and (3) issues a Final 
Rule that establishes procedures for the Commission to determine 
which jurisdictional natural gas pipelines may be collecting unjust 
and unreasonable rates in light of the income tax reductions 
provided by the Tax Cuts and Jobs Act and the Commission's revised 
policy and precedent concerning tax allowances to

[[Page 36717]]

address the double recovery issue identified by United Airlines. 
These are significant orders, and we write separately to provide 
some additional thoughts regarding these decisions.
---------------------------------------------------------------------------

    \1\ United Airlines, Inc. v. FERC, 827 F.3d 122 (D.C. Cir. 
2016).
---------------------------------------------------------------------------

    First, with respect to the ADIT guidance issued today, we 
confess to some frustration that the rate benefits that customers 
and shippers would otherwise receive from the Revised Policy 
Statement may be significantly reduced by the treatment of ADIT 
announced in today's orders. As a matter of equity, we believe that 
the arguments for applying previously-accrued ADIT balances to 
reduce future rate base where a tax allowance is eliminated are 
compelling. However, based on the arguments presented in this docket 
regarding the Commission's authority to mandate those reductions on 
a generic basis, it appears that such a directive would run afoul of 
the rule against retroactive ratemaking, as interpreted by the D.C. 
Circuit in Public Utilities Commission of State of California v. 
FERC.\2\ Nonetheless, we note that today's order is simply guidance, 
and to the extent that customers or shippers in individual 
proceedings argue that such a reduction is legal in specific cases, 
we will consider those arguments on the appropriate record.
---------------------------------------------------------------------------

    \2\ 894 F.2d 1372 (DC Cir. 1990).
---------------------------------------------------------------------------

    Second, we believe that today's Final Rule sharply highlights 
the need for a legislative fix to the lack of refund authority in 
Section 5 of the Natural Gas Act (NGA).\3\ Under current law, the 
Commission's ability to protect natural gas customers against unjust 
and unreasonable rates is compromised by its inability to set a 
refund date. We believe that current law provides a perverse 
incentive for protracted litigation and creates an asymmetry of 
leverage between pipelines seeking a rate increase under Section 4 
of the NGA and complainants or the Commission under Section 5.
---------------------------------------------------------------------------

    \3\ Commissioner LaFleur has been on record in support of 
Section 5 reform for several years. Northern Natural Gas Co., 133 
FERC ] 61,111 (2010) (LaFleur, Comm'r, dissenting).
---------------------------------------------------------------------------

    With respect to the Final Rule, we believe that our lack of 
refund authority affected the balance the Commission was able to 
strike in today's order. It is a clear tenet of cost-of-service 
ratemaking that tax savings should flow through to ratepayers, and 
the Commission is rightly pursuing that goal in the Final Rule. 
However, because our Section 5 ``stick'' under the NGA cannot 
effectively deliver timely relief to customers, the Final Rule 
proffers a series of ``carrots'' in the hope that pipelines will 
exercise their Section 4 filing rights to quickly flow those tax 
benefits back to their customers. While we think the balance struck 
in the Final Rule is reasonable in light of our limited refund 
authority, we believe that the Commission would be better equipped 
to protect customers if the law were amended.
    Accordingly, we respectfully concur.

Cheryl A. LaFleur,
Commissioner.

Richard Glick,
Commissioner.

[FR Doc. 2018-15786 Filed 7-27-18; 8:45 am]
 BILLING CODE 6717-01-P