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Federal Register / Vol. 86, No. 29 / Tuesday, February 16, 2021 / Rules and Regulations review to establish the index level for the July 1, 2021 to June 30, 2026 period.
The NOI proposed an index level of PPIFG+0.09% and requested comment on this proposal and any alternative methodologies for calculating the index level.15 The Commission explained that commenters could address issues including, but not limited to, different data trimming methodologies and whether, and if so how, the Commission should reflect the effects of cost-ofservice policy changes in the index calculation.16
II. Comments 7. Initial comments filed in response to the NOI were due on August 17, 2020, and reply comments were due on September 11, 2020. Comments were filed by the Association of Oil Pipe Lines AOPL together with Designated Carriers, Pipelines, Designated Carriers, Kinder Morgan, Inc., Colonial Pipeline Company, Joint Commenters,17 the Liquids Shippers Group Liquids Shippers,18 the Canadian Association of Petroleum Producers CAPP
together with Joint Commenters and Liquids Shippers, Shippers, the Energy Infrastructure Council EIC, the Pipeline Safety Trust, and the Pipeline and Hazardous Materials Safety Administration PHMSA.
8. The commenters discuss numerous issues related to the proposed index level, including statistical data trimming and whether the index should incorporate the effects of the Commissions 2018 policy change requiring MLP-owned pipelines to eliminate the income tax allowance and previously accrued Accumulated Deferred Income Taxes ADIT balances from their page 700 summary costs of service Income Tax Policy Change.19
In addition, Liquids Shippers propose to replace the weighted mean in the Kahn Methodologys calculation of central tendency with the weighted median and to replace the returns on equity ROE
reported on page 700 for 2014 and 2019
with standardized, industry-wide ROEs 15 NOI,
171 FERC 61,239 at PP 78.
P 8.
17 Joint Commenters include: The Airlines for America; Chevron Products Company; the National Propane Gas Association; and Valero Marketing and Supply Company.
18 For purposes of this proceeding, Liquids Shippers include: Apache Corporation; Cenovus Energy Marketing Services Ltd.; ConocoPhillips Company; Devon Gas Services, L.P.; Equinor Marketing & Trading US Inc.; Fieldwood Energy LLC; Marathon Oil Company; Murphy Exploration and Production CompanyUSA; Ovintiv Marketing Inc.; and Pioneer Natural Resources USA, Inc.
19 Inquiry Regarding the Commissions Policy for Recovery of Income Tax Costs, 162 FERC 61,227, at P 8 2018 Income Tax Policy Statement, rehg denied, 164 FERC 61,030, at P 13 2018.

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for both years. The commenters propose varying index levels, including AOPLs proposal to adopt an index level of at least PPIFG+0.79%, Designated Carriers proposals of PPIFG+1.27%
using the middle 80% of cost changes or PPIFG+0.82% using the middle 50%, Joint Commenters proposal of PPIFG0.19%, and Liquids Shippers proposal of PPIFG1.58%.
III. Discussion 9. We adopt an index level of PPI
FG+0.78% for the five-year period beginning July 1, 2021. We adopt Designated Carriers proposed adjustment to remove the effects of the Income Tax Policy Change from the page 700 data used to derive the index and we adopt Pipelines proposal to calculate the index level using the middle 80% of cost changes. We also reject Liquids Shippers proposals to: a Calculate the composite measure of the data sets central tendency using the median of the barrel-mile weighted unit cost change; and b replace the reported page 700 ROEs for 2014 and 2019 with standardized ROEs. We also address arguments regarding negotiated rate contracts as raised by CAPP, pipeline costs resulting from integrity management regulations, and the treatment of mergers and acquisitions in the data set.
A. 2018 MLP Income Tax Policy Change 1. Comments 10. Commenters disagree about whether the Commission should incorporate the effects of the Income Tax Policy Change in the index calculation.20 Pipelines argue that the Income Tax Policy Change should not be incorporated and present proposals for adjusting the page 700 data to remove its effects from the calculation.
Shippers oppose Pipelines adjustments and contend that the policy changes effects are appropriately reflected in the index.
11. AOPL argues that its proposed adjustment to eliminate the effects of the Income Tax Policy Change is necessary to calculate an index that accurately measures cost changes incurred during the 20142019 period and predicts the likely rate of future cost 20 Commenters either agree or do not dispute that the effects of the Tax Cuts and Jobs Act of 2017
TCJA are appropriately reflected in the data set;
and no adjustment is necessary to reflect the Commissions May 21, 2020 policy statement revising its ROE policy for natural gas and oil pipelines because that policy change occurred after the conclusion of the 20142019 period. Inquiry Regarding the Commissions Policy for Determining Return on Equity, 171 FERC 61,155 2020 ROE
Policy Statement.

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changes. According to AOPL, eliminating the income tax allowance from page 700 did not affect costs because MLP pipelines income tax costs were the same before and after the policy change. Thus, AOPL asserts that the Commission should remove the policy changes effects to ensure that the page 700 data reflects consistent policies.
12. To remove the policy changes effects from the data set, AOPLs witness Dr. Shehadeh proposes to adjust the reported page 700 data for pipelines that were MLPs throughout the 2014
2019 period based upon the following steps. First, Dr. Shehadeh eliminates the 2014 income tax allowance for all pipelines that reduced their page 700
income tax allowance for 2016 from a positive number to zero following the Income Tax Policy Change.21 Second, Dr. Shehadeh adjusts these pipelines 2014 page 700 return on rate base to reflect the elimination of their previously accumulated ADIT
balances.22 This adjustment involves, for each pipeline: a Taking the difference between the 2016 rate base reported in the pipelines April 18, 2017
page 700 filing with ADIT balances included and the higher 2016 rate base reported in its April 18, 2018 filing with ADIT balances removed; b adding this amount to the 2014 rate base; and c calculating the return on the higher 2014 rate base by multiplying the higher rate base by the 2014
weighted average cost of capital.23
13. Designated Carriers support AOPLs position and propose to extend AOPLs proposed adjustments to all pipelines that were owned by MLPs in 2014 and later converted to CCorporations, not just those pipelines that were MLPs throughout the 2014
2019 data period. Designated Carriers contend that this approach is necessary to avoid treating one class of MLPs those that were MLPs in 2014 and remained MLPs in 2019 differently from another class those that were MLPs in 2014 and converted to C21 2016 is the only year for which pipelines filed page 700 data reflecting both the 2018 Income Tax Policy Change and the Commissions prior income tax allowance policy. Oil pipelines filed page 700
data for 2016 on two occasions: As current-year data in the Form No. 6 filings due for submission on April 18, 2017, before the Income Tax Policy Change; and as prior-year data in Form No. 6 filings due for submission on April 18, 2018, after the Income Tax Policy Change. See 2018 Income Tax Policy Statement, 162 FERC 61,227 at P 46 & n.83
directing MLP pipelines to eliminate the income tax allowance in the 2016 and 2017 data reported in their April 18, 2018 Form No. 6, page 700
filings.
22 AOPL Initial Comments at 2829 citing Shehadeh Initial Decl. at 1415.
23 Id.; Shehadeh Initial Decl. at 16.

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