[Federal Register Volume 69, Number 238 (Monday, December 13, 2004)]
[Notices]
[Page 72188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-27375]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL05-5-000]


Inquiry Regarding Income Tax Allowances; Request for Comments

December 2, 2004.
    1. On July 20, 2004, the Court of Appeals for the District of 
Columbia Circuit issued an opinion in BP West Coast Producers, LLC v. 
FERC.\1\ In reviewing a series of orders involving SFPP, L.P.,\2\ the 
court held, among other things, that the Commission had not adequately 
justified its policy of providing an oil pipeline limited partnership 
with an income tax allowance equal to the proportion of its limited 
partnership interests owned by corporate partners. In that case, SFPP, 
Inc., the corporate partner owned some 42.7 percent of SFPP, L.P.'s 
limited partnership interests. Thus, under the Commission's ruling in 
the Opinion No. 435 orders, SFPP, L.P. was permitted an income tax 
allowance for 42.7 percent of the net operating (pre-tax) income 
expected from operations. Pursuant to the so-called Lakehead income tax 
allowance doctrine,\3\ SFPP, L.P. was denied an income tax allowance 
equal to the 57.3 percent of its limited partnership interests that 
were held by non-corporate partners. The rationales for this doctrine 
the court rejected include: (1) The double taxation of corporate 
earnings, (2) the equalization of returns between different types of 
publicly held interests,\4\ and (3) encouraging capital formation and 
investment.
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    \1\ BP West Coast Producers, LLC v. FERC, 374 F.3d 1263 (BP West 
Coast), reh'g denied, 2004 U.S. App. LEXIS 20976-98 (2004).
    \2\ Opinion No. 435 (86 FERC ] 61,022 (1999)), Opinion No. 435-A 
(91 FERC ] 61,135 (2000)), Opinion No. 435-B (96 FERC ] 61,281 
(2000)), and an Order on Clarification and Rehearing (97 FERC ] 
61,138 (2001)) (collectively the Opinion No. 435 orders.)
    \3\ Lakehead Pipe Line Company, L.P., 71 FERC ] 61,388 (1995), 
reh'g denied, 75 FERC ] 61,181 (1998) (Lakehead).
    \4\ These were the stock of the corporate partner (which 
involves two layers of taxation of SFPP, L.P. earnings) and the 
limited partnership interests (which involve only one).
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    2. The Commission is seeking comments on whether the court's ruling 
applies only to the specific facts of the SFPP, L.P. proceeding,\5\ or 
also extends to other capital structures involving partnership and 
other forms of ownerships. For example, should the court's reasoning 
apply to partnerships in which: (1) All the partnership interests are 
owned by investors without intermediary levels of ownership; (2) the 
only intermediary ownership is a general partnership; (3) all the 
partnership interests are owned by corporations; and (4) the corporate 
ownership of the partnership interests is minimal, such as a 1 percent 
general partnership interest of a master limited partnership? If the 
court's decision precludes an income tax allowance for a partnership or 
other ownership interests under any of these situations, will this 
result in insufficient incentives for investment in energy 
infrastructure? Or will generally the same amount of investment occur 
through other ownership arrangements? Are there other methods of 
providing an opportunity to earn an adequate return that are not 
dependent on the tax implications of a particular capital structure?
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    \5\ Now pending before the Commission on remand and rehearing in 
Docket Nos. OR92-8-000, et al., and OR96-2-000, et al., 
respectively.
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    3. The Commission invites interested persons to submit comments on 
the issues and specific questions identified in this notice. Comments 
are due by December 22, 2004. Comments must refer to Docket No. PL05-5-
000.

    By direction of the Commission.
Magalie R. Salas,
Secretary.
[FR Doc. 04-27375 Filed 12-10-04; 8:45 am]
BILLING CODE 6717-01-P