Quiero saber acerca de...

9450

Federal Register / Vol. 86, No. 29 / Tuesday, February 16, 2021 / Rules and Regulations
Corporations during the review period.24
14. Shippers oppose Pipelines proposed adjustments and argue that the Commission should incorporate the effects of the Income Tax Policy Change in the index calculation. Shippers contend that the index is meant to reflect changes to recoverable pipeline costs as determined under the Commissions Opinion No. 154B costof-service methodology.25 Because the Income Tax Policy Change prohibits MLP pipelines from recovering an income tax allowance under that methodology, Shippers assert that the index should reflect this reduction in recoverable costs.26
15. Furthermore, Shippers claim that adopting Pipelines proposals would contravene the Commissions commitment in the 2018 Income Tax Policy Statement to incorporate the effects of the policy change on industry-wide oil pipeline costs and ensure that the industry-wide reduced costs are incorporated on an industrywide basis as part of the 2020 five-year review.27 Shippers argue that the Commission opted to incorporate these effects in the index in lieu of directing pipelines to submit rate filings or initiating rate investigations to eliminate the income tax double recovery from MLP oil pipeline rates, as the Commission did for MLP natural gas pipelines. Thus, Shippers contend that the Commission must reflect the elimination of the income tax allowance and associated ADIT balances from MLP
oil pipelines page 700 costs of service in order to bring those pipelines rates in line with their recoverable costs.28

khammond on DSKJM1Z7X2PROD with RULES

2. Commission Determination 16. Whether the index should reflect the effects of cost-of-service policy changes is an issue of first impression.29
24 Designated Carriers Initial Comments at 21
citing Webb Initial Affidavit at P 24.
25 Joint Commenters Reply Comments at 1314
quoting 2015 Index Review, 153 FERC 61,312 at P 13 citing AOPL III, 876 F.3d at 34546; Liquids Shippers Reply Comments at 6 quoting AOPL III, 876 F.3d at 345; 2015 Index Review, 153 FERC
61,312 at P 13.
26 Joint Commenters Initial Comments at 1215;
Joint Commenters Reply Comments at 1315;
Liquids Shippers Initial Comments at 3342;
Liquids Shippers Reply Comments at 67.
27 Joint Commenters Reply Comments at 1617
quoting 2018 Income Tax Policy Statement, 162
FERC 61,227 at P 46; Liquids Shippers Initial Comments at 3435 same.
28 Liquids Shippers Initial Comments at 3435, 40; see also Joint Commenters Reply Comments at 1617 citing 2018 Income Tax Policy Statement, 162 FERC 61,227 at P 46.
29 This issue did not arise prior to the 2015 Index Review because the Commission measured industry-wide cost changes in the Order No. 561
Rulemaking and the 2000, 2005, and 2010 index
VerDate Sep<11>2014

15:57 Feb 12, 2021

Jkt 253001

For the reasons discussed below, we adopt Designated Carriers proposal to adjust the page 700 data set to remove the effects of the Income Tax Policy Change from the index calculation. As a result, for all pipelines that were MLPs in 2014, we reduce the 2014 income tax allowance to zero and revise the 2014
return on rate base to reflect the removal of ADIT. We find that this adjustment is necessary to accurately calculate the index.
17. First, the purpose of indexing is to allow the indexed rate to keep pace with industry-wide cost changes,30 not to reflect alterations to the Commissions Opinion No. 154B cost-of-service methodology.31 Although the Commission uses the Opinion No. 154
B methodology cost data on page 700 for purposes of the five-year review, changes to the Opinion No. 154B
methodology itself are distinct from the annual changes to the pipeline costs that are input into the Opinion No. 154
B methodology. Where the Commission modifies an Opinion No. 154B cost-ofservice policy used to measure recoverable costs midway through the five-year review period, the Opinion No.
154B cost of service reported on page 700 for the first and last years of the period will reflect different sets of policies. Just as a business must account for changes to its accounting policies when comparing its costs over two different periods, we must make a similar adjustment to the reported page 700 data here to derive an apples-toapples comparison of pipeline cost changes. By contrast, comparing data reported under different sets of policies reviews using Form No. 6 accounting data, rather than the summary cost-of-service data reported on page 700. Because the Commission did not adopt any significant cost-of-service policy changes during the 20092014 review period, the Commission likewise did not have occasion to address this issue in the 2015 Index Review.
30 Order No. 561, FERC Stats. & Regs. 30,985 at 30,948, 30,950. Capital costs such as income taxes are among the industry-wide costs that the index is designed to measure. E.g., 2015 Index Review, 153
FERC 61,312 at P 17.
31 In 2015, the Commission adopted page 700
because it included actual total cost-of-service data reflecting the costs recoverable under the Opinion No. 154B methodology. 2015 Index Review, 153
FERC 61,312 at P 13. We reaffirm that using page 700 data remains a superior means of measuring those recoverable costs as compared to the prior methodology from which the Commission departed in the 2015 Index Review. Id. PP 1216. For example, the Opinion No. 154B methodology reflected on page 700 more appropriately addresses capital costs. Id. PP 1415 & nn.2930. However, the purpose of the index is to address changes to those recoverable costs, not changes to what the Commission deems recoverable, such as the complete elimination of a particular cost category such as the MLP income tax allowance.

PO 00000

Frm 00018

Fmt 4700

Sfmt 4700

will produce a less accurate measure of normal industry-wide cost changes.
18. Second, although we recognize that in the 2018 Income Tax Policy Statement the Commission stated that it would incorporate the effects of the post-United Airlines policy changes on industry-wide oil pipeline costs in the 2020 five-year review of the oil pipeline index level, 32 we conclude that the index is not an appropriate mechanism for incorporating the post-United Airlines policy changes. The index allows for incremental rate adjustments to enable pipelines to recover normal cost changes in future years. It is not a true-up designed to remedy prior overor under-recoveries in pre-existing rates resulting from cost-of-service policy changes during the prior five-year period. Accordingly, we find that it would be improper to address any double recovery via the index.
19. Third, it is not clear that the double recovery of MLP pipelines income tax costs was ever incorporated into the index. Before the Commission updated its calculation of the index in the 2015 Index Review to use page 700
data, the Kahn Methodology used net carrier property as a proxy for capital costs and income taxes.33 This proxy did not reflect changes in the Commissions Opinion No. 154B
methodology, including changes to the Commissions income tax policy.34 As a result, the Commissions prior policies permitting MLP pipelines to recover a partial 35 or full 36 income tax allowance were never directly incorporated into 32 2018 Income Tax Policy Statement, 162 FERC
61,227 at P 46.
33 2015 Index Review, 153 FERC 61,312 at P 14
citing Order No. 561A, FERC Stats & Regs.
31,000 at 31,096, 31,098.
34 Net carrier property measures changes to the book value of the pipelines asset base but does not incorporate changes to the costs of financing the asset base, such as ROE. As the Commission explained in the 2015 Index Review, the relationship between net carrier property and income tax costs is attenuated because income taxes are dependent upon the pipelines ROE, not merely the size of the pipelines asset base. 2015 Index Review, 153 FERC 61,312 at P 14.
35 Under the Commissions Lakehead policy from 1995 to 2005, partnership entities like MLP
pipelines could recover an income tax allowance for income attributable to corporate partners, but not for income attributable to individuals or other non-corporate partners. See Lakehead Pipe Line Co., L.P., Opinion No. 397, 71 FERC 61,338 1995, rehg denied, Opinion No. 397A, 75 FERC
61,181, at 61,59499 1996.
36 In 2005, the Commission departed from the Lakehead policy and issued a policy statement announcing that it would permit partnership entities to recover an income tax allowance for income attributable to all partners regardless of the partners corporate form, to the extent that the partner had an actual or potential income tax liability on that income. Inquiry Regarding Income Tax Allowances, 111 FERC 61,139, at P 32 2005.

E:FRFM16FER1.SGM

16FER1