167 FERC ¶ 61,051

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

18 CFR Parts 154, 260, & 284

[Docket Nos. RM18-11-001, RP18-415-001; Order No. 849-A]

Interstate and Intrastate Natural Gas Pipelines; Rate Changes Relating to Federal Income 

Tax Rate

American Forest & Paper Association

(Issued April 18, 2019)

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule; order denying rehearing.

SUMMARY: The Federal Energy Commission (Commission) denies rehearing and 

reaffirms its determinations in Order No. 849. Order No. 849 adopted 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 allowed interstate natural gas pipelines to voluntarily reduce their rates.
Docket No. RM18

-11-001 ii

FOR FURTHER INFORMATION CONTACT:

Adam Eldean (Legal Information)

Office of the General Counsel

888 First Street, NE

Washington, DC 20426

(202) 502-8047

Adam.Eldean@ferc.gov

Seong-Kook Berry (Technical Information)

Office of Energy Market Regulation

888 First Street, NE

Washington, DC 20426

(202) 502-6544

Seong-Kook.Berry@ferc.gov

SUPPLEMENTARY INFORMATION
167 FERC ¶ 61,051

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Neil Chatterjee, Chairman;

 Cheryl A. LaFleur and Richard Glick.

 

Interstate and Intrastate Natural Gas Pipelines; Rate 

Changes Relating to Federal Income Tax Rate

American Forest & Paper Association

 Docket Nos. RM18-11-001

RP18-415-001

ORDER NO. 849-A

ORDER DENYING REHEARING

(Issued April 18, 2019)

TABLE OF CONTENTS

Paragraph Numbers

I. Introduction ..................................................................................................................... 1.

A. Background ............................................................................................................... 3.

B. Requests for Rehearing.............................................................................................. 5.

II. Discussion ...................................................................................................................... 6.

A. Legal Authority ......................................................................................................... 6.

1. Final Rule............................................................................................................... 6.

2. Request for Rehearing ........................................................................................... 9.

3. Commission Determination................................................................................. 11.

B. ROE and Capital Structure Used In FERC Form No. 501-G.................................. 25.

1. Final Rule............................................................................................................. 25.

2. Request for Rehearing ......................................................................................... 26.

3. Commission Determination................................................................................. 29.

C. Order No. 849 Rate Moratorium ............................................................................. 35.

1. Final Rule............................................................................................................. 35.

2. Request for Rehearing ......................................................................................... 36.

3. Commission Determination................................................................................. 37.

D. Accumulated Deferred Income Taxes..................................................................... 39.

1. Final Rule............................................................................................................. 39.

2. Requests for Rehearing........................................................................................ 41.
Docket Nos. RM18-11-001 and RP18-415-001 - 2 -

3. Commission Determination................................................................................. 45.

E. Tax Allowance for Pass-Through Entities............................................................... 53.

1. Final Rule............................................................................................................. 53.

2. Requests for Rehearing........................................................................................ 54.

3. Commission Determination................................................................................. 56.

III. Document Availability ............................................................................................... 60.

I. Introduction

On July 18, 2018, the Commission issued a final rule1 (Order No. 849) 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 Act2 and the Commission’s Revised Policy Statement3 and precedent4

concerning tax allowances to address the double recovery issue identified by United 

 1 Interstate and Intrastate Natural Gas Pipelines; Rate Changes Relating to 

Federal Income Tax Rate, Order No. 849, 83 FR 36,672, 164 FERC ¶ 61,031 (2018).

2 An Act to provide for reconciliation pursuant to titles II and V of the concurrent 

resolution on the budget for fiscal year 2018, Pub. L. No. 115-97, 131 Stat. 2054 (2017) 

(Tax Cuts and Jobs Act).

3 Inquiry Regarding the Commission’s Policy for Recovery of Income Tax Costs, 

162 FERC ¶ 61,227 (2018) (Revised Policy Statement), order on reh’g, 164 FERC 

¶ 61,030 (2018) (Revised Policy Statement Rehearing).

4 SFPP, L.P., Opinion No. 511-C, 162 FERC ¶ 61,228, at P 9 (2018).
Docket Nos. RM18-11-001 and RP18-415-001 - 3 -

Airlines, Inc. v. FERC.

5

 These procedures also allow interstate natural gas pipelines to 

voluntarily reduce their rates. 

As discussed below, we deny the requests for rehearing and reaffirm the 

Commission’s determinations in Order No. 849.

A. Background

Order No. 849 established a requirement, pursuant to sections 10 and 14(a) of the 

Natural Gas Act (NGA),

6 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. In addition to the FERC Form No. 501-G filing requirement, the 

Commission provided 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 47 rate reduction filing (Option 1), (2) a 

commitment to file a general section 4 rate case or prepackaged settlement in the near 

future (Option 2), (3) an explanation why no rate change is needed (Option 3), and (4) no 

 5 827 F.3d 122 (D.C. Cir. 2016) (United Airlines). 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.”

6 15 U.S.C. 717i(a), 717m(a) (2012).

7 15 U.S.C. 717c.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 4 -

action (Option 4). These procedures were 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 58 where necessary to achieve just 

and reasonable rates.

In Order No. 849, the Commission identified 129 interstate natural gas pipelines 

with cost-based rates that were required to file the FERC Form No. 501-G. As of the 

date of this order, the Commission has received 129 interstate natural gas pipeline filings. 

One pipeline still has an extension of time and eight have been granted a waiver of filing 

the FERC Form No. 501-G. Of the remaining 120 pipelines, nine pipelines filed limited 

NGA section 4 rate reduction filings under Option 1,9 22 pipelines filed general NGA 

section 4 cases or prepackaged settlements revising their rates under Option 2, 

84 pipelines filed statements as to why no change in their rates is necessary under 

Option 3, and five pipelines filed the FERC Form No. 501-G without taking any other 

action under Option 4. Additionally, the Commission has initiated six NGA section 5 

rate investigations.

 8 15 U.S.C. 717d.

9 Tuscarora Gas Transmission Company (Tuscarora) and Northern Border Pipeline 

Company (Northern Border) filed under Option 1 and Option 2. Here we have chosen to 

categorize Tuscarora’s and Northern Border’s filings under Option 2.
Docket Nos. RM18-11-001 and RP18-415-001 - 5 -

B. Requests for Rehearing

The following entities filed timely requests for rehearing of Order No. 849: 

Process Gas Consumers Group and American Forest and Paper Association (Process 

Gas); Enable Mississippi River Transmission, LLC and Enable Gas Transmission, LLC 

(together, Enable); and the Kinder Morgan Entities,10 Spectra Energy Partners, LP, and 

Enable (collectively, Pipeline Group). We deny rehearing, as discussed below.

II. Discussion

A. Legal Authority

1. Final Rule

As stated above, the final rule established 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.11 Using the data in the pipelines’ 2017 FERC Form Nos. 2 and 2-A, these 

 10 For purposes of this pleading, the Kinder Morgan Entities are Natural Gas 

Pipeline Company of 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.; TransColorado Gas Transmission Company 

LLC.

11 Order No. 849, 164 FERC ¶ 61,031 at P 30.
Docket Nos. RM18-11-001 and RP18-415-001 - 6 -

studies 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 Returns on Equity (ROE) before and after the reduction in corporate income taxes 

and the elimination of income tax allowances for master limited partnership (MLP)

pipelines. Recognizing 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, the Commission provided pipelines the 

opportunity to file an Addendum to the FERC Form No. 501-G.12 The Commission 

emphasized the informational nature of the FERC Form No. 501-G filing and explained 

that “the [f]inal [r]ule contains no requirement that an interstate pipeline make any form 

of rate filing.”13 Regarding the Addendum to the FERC Form No. 501-G, the 

Commission stated that the filing of such an Addendum is “purely voluntary.”14

The final rule also permitted pipelines to use the indicated cost of service 

reduction calculated in the FERC Form No. 501-G as the basis for the limited NGA 

section 4 rate reduction filings, which the final rule allowed pipelines to make to reduce 

their maximum rates to reflect the reduced corporate income tax rates provided by the 

Tax Cuts and Jobs Act or the elimination of MLP tax allowances by the Revised Policy 

 12 Id. PP 73-74.

13 Id. PP 69, 72.

14 Id. P 73.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 7 -

Statement. However, the final rule also clarified that a pipeline could base the rate 

reduction on the reduction calculated in its Addendum.15

The final rule found that NGA sections 10 and 14(a) provided the Commission 

authority to require pipelines to file the FERC Form No. 501-G. The Commission stated 

that it routinely initiates NGA section 5 investigations “based upon our review of 

publicly available information on file with the Commission”16 and that the primary 

purpose of the FERC Form No. 501-G is to “provide information relevant to determining 

whether the Commission should exercise its discretion to initiate an investigation under 

NGA section 5.”17 The Commission rejected the argument that the court’s decision in 

Consumers Energy v. FERC reversing a Commission order requiring Hinshaw pipelines 

to file a petition for rate change prohibited the Commission from requiring pipelines to 

file the FERC Form No. 501-G. The Commission found that, to the contrary, Consumers 

Energy v. FERC condoned information collection as long as the Commission acts “‘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 

 15 Id. P 204.

16 Id. P 69 (citing Natural Gas Pipeline Co. of America LLC, 158 FERC ¶ 61,044, 

at P 1 (2017); Wyoming Interstate Co., L.L.C., 158 FERC ¶ 61,040, at P 1 (2017); 

Tuscarora Gas Transmission Co., 154 FERC ¶ 61,030, at P 1, reh’g denied, 154 FERC 

¶ 61,273 (2016)).

17 Id. PP 69-70.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 8 -

rate.’”18 The Commission also found in the final rule that providing pipelines with the 

option to submit an Addendum, which may require the pipeline to exercise some degree 

of judgment, does not transform the proceeding into an NGA section 4 rate filing or 

improperly shift to the pipeline the burden of justifying its existing rates in violation of 

NGA section 5.19 The Commission explained that the D.C. Circuit rejected a similar 

contention in INGAA v. FERC and found that the Commission “has authority . . . under 

[NGA section] 10 and [NGA section] 14 to require pipelines to submit needed 

information for making its [NGA section] 5 decisions.”20

2. Request for Rehearing

Pipeline Group argues that the Commission exceeded its statutory authority under 

NGA sections 10 and 14 and disregarded the requirements of NGA sections 4 and 5 by 

requiring pipelines to complete and file the FERC Form No. 501-G.21 Pipeline Group 

argues that the rate assumptions pipelines are required to make in the FERC Form 

No. 501-G are not merely informational and are in fact rate determinations that produce a 

distorted view as to whether the pipelines’ rates remain just and reasonable and generate

 18 Id. P 70 (citing Consumers Energy Co. v. FERC, 226 F.3d 777, 777 

(6th Cir. 2000) (Consumers Energy v. FERC)).

19 Id. P 74.

20 Id. PP 74-75 (citing Interstate Nat. Gas Ass'n of Am. v. FERC, 285 F.3d 18, 38 

(D.C. Cir. 2002) (INGAA v. FERC)).

21 Pipeline Group Request for Rehearing at 4-10.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 9 -

an indicated rate reduction, which the Commission later referred to as an “indicated cost 

of service reduction” in the final rule. Pipeline Group argues that the indicated cost of 

service reduction generated by the FERC Form No. 501-G is an implied rate and that 

only a pipeline is empowered to propose such a change in its rates, under its own terms,

pursuant to NGA section 4.22 Pipeline Group argues that the Commission may only 

propose such a reduction in a pipeline’s cost of service and resulting rates pursuant to 

NGA section 5. Pipeline Group also argues that the Commission is shifting the burden of 

proof by requiring pipelines to file a form that compels a statement of an indicated rate 

reduction that “can be used as evidence to the exact same extent that any other 

Commission form can be used as evidence.”23 Pipeline Group contends that the courts 

have been vigilant in maintaining the boundary between NGA sections 4 and 524 and that, 

to comply with the NGA, the Commission should abandon or substantially amend the 

FERC Form No. 501-G requirement. Pipeline Group also points out that the Commission 

 22 Id. at 3 (citing Consumers Energy v. FERC, 226 F.3d 777; Pub. Serv. Comm’n 

of New York v. FERC, 866 F.2d 487 (D.C. Cir. 1989) (New York PSC)).

23 Id. (citing Order No. 849, 164 FERC ¶ 61,031 at P 78).

24 Id. at 5-6 (citing United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 

332, 343 (1956) (explaining that the Commission’s authority under NGA section 5(a) is 

“to set aside and modify any rate or contract which it determines, after a hearing, to be 

‘unjust and unreasonable, unduly discriminatory, or preferential’” and that “[t]his is 

neither a ‘rate-making’ nor a ‘rate-changing’ procedure.”); Western Resources v. FERC, 

9 F.3d 1568, 1578 (D.C. Cir. 1993) (“This court has consistently disallowed attempts to 

blur the line between §§ 4 and 5.”); Sea Robin Pipeline Co. v. FERC, 795 F.2d 182, 

183 (D.C. Cir. 1986) (“The Commission is not free to blend, or pick and choose at will 

between, its section 4 and 5 authority.”)).

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 10 -

already collects information through FERC Form Nos. 225 and 3-Q,26 which Pipeline 

Group argues is evidence that the FERC Form No. 501-G is not merely an information 

collection requirement. Additionally, Pipeline Group argues that the option of providing 

an addendum to the FERC Form No. 501-G forces a pipeline to defend an existing just 

and reasonable rate, which is a step reserved to pipelines in an NGA section 4 or 5 

proceeding.

Pipeline Group argues that the Commission’s comparison of the final rule to Order 

No. 637’s requirements that pipelines provide information concerning the operational 

feasibility of segmentation is misplaced.27 Pipeline Group contends that the Order 

No. 637 informational requirement concerned pipeline operational matters, not rate 

matters. Pipeline Group argues that the INGAA v. FERC28 court agreed that the 

Commission has authority under NGA sections 10 and 14 to require a pipeline to submit 

needed information for making its NGA section 5 decisions but that this agreement was 

 25 Annual report for Major natural gas companies. 18 CFR 206.1 (2018).

26 Quarterly financial report of electric utilities, licensees, and natural gas 

companies. 18 CFR 206.300.

27 Pipeline Group Request for Rehearing at 8-9. See Regulation of Short-Term 

Natural Gas Transportation Services and Regulation of Interstate Natural Gas 

Transportation Services, Order No. 637, FERC Stats. & Regs. ¶ 31,091, at 31,301-4

(cross-referenced at 90 FERC ¶ 61,109), order on reh’g, Order No. 637-A, FERC Stats. 

& Regs. ¶ 31,099, at 31,590-96 (cross-referenced at 91 FERC ¶ 61,169), order denying 

reh’g, Order No. 637-B, 92 FERC ¶ 61,062 (2000).

28 Pipeline Group Request for Rehearing at 8 (citing INGAA v. FERC, 285 F.3d at

38-39).

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 11 -

limited to the specific issues of Order No. 637. Pipeline Group also argues that the 

comparison of the FERC Form No. 501-G to reporting requirements of Hinshaw 

pipelines is inaccurate.29 Pipeline Group contends that, because the FERC Form 

No. 501-G runs data through a formula that produces an indicated cost of service 

reduction among other things, FERC Form No. 501-G is akin to the Commission’s

required petition for rate approval for Hinshaw pipelines that was invalidated 

the Sixth Circuit in Consumers Energy v. FERC.

30

3. Commission Determination

We disagree with Pipeline Group’s characterization of the FERC Form No. 501-G. 

We find that the requirement to file the FERC Form No. 501-G is a permissible collection 

of information pursuant to NGA sections 10 and 14(a), rather than an impermissible 

requirement that pipelines file a rate pursuant to NGA section 4, as argued by Pipeline 

Group. 

As the Commission stated in the final rule, the FERC Form No. 501-G serves 

two purposes. The first purpose 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 

 29 Id. at 9-10.

30 Id. (citing Consumers Energy v. FERC, 226 F.3d at 781 (rejecting a requirement 

that a Hinshaw pipeline file periodic rate petitions)).
Docket Nos. RM18-11-001 and RP18-415-001 - 12 -

rate and change in the Commission’s income tax allowance policies. The second purpose 

is to support any limited NGA section 4 filings pipelines may choose to make to reduce 

their maximum rates to reflect the Tax Cuts and Jobs Act or the United Airlines 

Issuances. The Commission’s authority to require information for both these purposes is 

provided in NGA sections 10(a) and 14(a).

31

With regard to the first purpose, the D.C. Circuit expressly held in INGAA 

v. FERC that “[t]he Commission has authority under [section] 5 of the NGA to order 

hearings to determine whether a given pipeline is in compliance with FERC’s rules, ... 

and under [NGA section] 10 and [section] 14 to require pipelines to submit needed 

information for making its [section] 5 decisions.”32 In INGAA v. FERC, the court 

affirmed the Commission’s exercise of this authority to direct each pipeline to file 

pro forma tariff sheets showing how it intended to comply with a regulation requiring 

pipelines to permit segmentation33 or to explain why its system’s configuration justified 

 31 15 U.S.C. 717i(a) (“Every natural-gas company shall file with the Commission 

such annual and other periodic or special reports as the Commission may by rules and 

regulations or order prescribe as necessary or appropriate to assist the Commission in the 

proper administration of this act.”); 15 U.S.C. 717m(a) (“The Commission may permit 

any person to file with it a statement in writing ... as it shall determine, as to any or all 

facts and circumstances concerning a matter which may be the subject of investigation.”). 

See also 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).

32 INGAA v. FERC, 285 F.3d at 38-39 (emphasis supplied).

33 18 CFR 284.7(d) (2018).

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 13 -

not acting under NGA section 5 to require full segmentation rights. In affirming this 

requirement, the court stated, “As to the Commission’s determination to extract 

information from pipelines relevant to the practical issues, we see no violation of the 

NGA.”34 

The FERC Form No. 501-G requires pipelines to calculate their “Total Estimated 

ROE (excluding fuel)” before and after the reduction in corporate income taxes and the 

elimination of income tax allowances for MLP pipelines.35 The final rule found that 

information concerning the pipeline’s ROE was relevant to the issue of whether the 

Commission should exercise its discretion to initiate an investigation of the pipeline’s 

rate pursuant to NGA section 5, and therefore the court’s decision in INGAA v. FERC

supported the Commission’s authority to collect this information. 

Pipeline Group suggests that the court’s holding in INGAA v. FERC was limited to 

providing information on operational issues of the type at issue in that case, rather than 

rate issues. We disagree. NGA section 10 expressly provides that the Commission may 

require pipelines to report information relevant to rates including “among other things, 

full information as to assets and liabilities, capitalization, investment and reduction 

thereof, gross receipts, interest due and paid, depreciation, amortization, and other 

reserves, cost of facilities, cost of maintenance and operation of facilities for the [...]

 34 INGAA v. FERC, 285 F.3d at 38.

35 FERC Form No. 501-G, page 3, line 26.
Docket Nos. RM18-11-001 and RP18-415-001 - 14 -

transportation [...] of natural gas, cost of renewal and replacement of such facilities, 

transportation, delivery, uses, and sale of natural gas.” This is exactly the type of cost 

and revenue information the FERC Form No. 501-G collects in order to calculate the 

pipeline’s total estimated ROE for purposes of deciding whether to initiate a NGA 

section 5 investigation.

The FERC Form No. 501-G also calculates an “Indicated Cost of Service 

Reduction”36 for use in conjunction with the limited NGA section 4 rate reduction filings

that pipelines can elect to file under Option 1 of the final rule. Pipeline Group contends 

that the requirement to calculate an Indicated Cost of Service Reduction effectively 

requires the pipeline to make a NGA section 4 rate filing. This contention is wrong. 

Although Pipeline Group is correct that the form includes equations that calculate certain 

values, including the indicated cost of service reduction, the inclusion of these equations 

and calculated values does not transform the informational filing into a NGA section 4 

rate filing. The FERC Form No. 501-G is limited to requesting cost and revenue 

information as permitted by NGA sections 10 and 14(a). It does not require pipelines to 

file any change in their existing rate schedules as is contemplated by NGA section 4. It is 

true that the final rule gives pipelines the option to submit a separate limited NGA 

section 4 filing reducing their maximum rates based on the indicated cost of service 

reduction calculated in the FERC Form No. 501-G. However, that is simply one option 

 36 FERC Form No. 501-G, page 1, line 34.
Docket Nos. RM18-11-001 and RP18-415-001 - 15 -

among the four options the final rule provides pipelines, including the option to take no 

action at all other than filing the FERC Form No. 501-G. There is no requirement that 

pipelines make any such limited NGA section 4 rate reduction filing, and if a pipeline

does make such a filing it may base the rate reduction on data in its Addendum rather 

than the indicated cost of service reduction calculated in the FERC Form No. 501-G.

37 

In fact, only 11 of the 129 pipelines subject to the requirement to file a FERC Form 

No. 501-G have thus far chosen the option of filing a limited NGA section 4 rate 

reduction pursuant to § 154.404 adopted pursuant to the final rule,

38 thereby

demonstrating the voluntary nature of this option. This rulemaking proceeding is thus 

unlike New York PSC,

39 relied on by Pipeline Group, in which the Commission ordered a 

pipeline to file an actual NGA section 4 rate case every three years, with revised rate 

schedules setting forth proposed rates for each customer class. 

 37 Order No. 849, 164 FERC ¶ 61,031 at P 204.

38 East Tennessee Natural Gas, LLC in Docket No. RP19-64-000; Millennium 

Pipeline Co., LLC in Docket No. RP19-66-000; North Baja Pipeline, LLC in Docket 

No. RP19-72-000; Vector Pipeline L.P. in Docket No. RP19-61-000; Central Kentucky 

Transmission Co. in Docket No. RP19-156-000; Gulf Shore Energy Partners, LP in 

Docket No. RP19-252-000; Southeast Supply Header, LLC in Docket No. RP19-267-

000; Great Lakes Gas Transmission Limited Partnership in Docket No. RP19-409-000;

Nautilus Pipeline Co., L.L.C. in Docket No. RP19-401-000; Northern Border Pipeline 

Company in Docket No. RP19-414-000; Tuscarora Gas Transmission Co. in Docket 

No. RP19-419-000.

39 866 F.2d at 489.
Docket Nos. RM18-11-001 and RP18-415-001 - 16 -

Additionally, the Commission’s decision to allow pipelines to include an 

addendum to their FERC Form No. 501-G does not transform the proceeding into an 

NGA section 4 proceeding. The Commission understood that the standardized FERC 

Form No. 501-G may not provide a complete cost and revenue profile for each pipeline

and provided an opportunity for pipelines to voluntarily submit additional information to 

the Commission. The Commission did not determine in the final rule that the 

information provided in the FERC Form No. 501-G, with or without an addendum, would 

constitute a rate filing. 

In both Consumers Energy v. FERC and INGAA v. FERC, the courts considered 

the Commission’s intent when deciding whether an information collection requirement

constituted an impermissible requirement for a pipeline to justify its existing rates under 

NGA section 4, i.e., was the Commission’s intent (1) only to collect information for use 

in satisfying its burdens under NGA section 5 or (2) instead to require the pipeline to 

modify its rates under NGA section 4. Thus, in Consumers Energy v. FERC, reversing a 

Commission information collection requirement, the court stated, “If all FERC had really 

wanted to do was require Consumers to make periodic ‘informational filings,’ then it is 

difficult to understand why, for example, FERC’s initial order provides that ...

Consumers shall file ‘a petition for rate approval to justify its current rate or to establish 

a new maximum rate.’”40 The court also pointed to the fact that the Commission did not 

 40 Consumers Energy v. FERC, 226 F.3d at 781 (emphasis in court decision).

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 17 -

use the term “informational filings” nor any obvious synonym to describe the petition in 

either of its orders.

41 By contrast, in INGAA v. FERC, the court affirmed an information 

collection requirement, finding that “the orders contain some express language 

supporting the position of the Commission’s counsel at oral argument that FERC will 

indeed shoulder the burden under [section] 5 of the NGA to show the requisite 

operational feasibility,”42 and the court cited, among other things, the Commission’s 

statement in Order No. 637-B that the Commission “will be acting under section 5 to 

implement changes.”43

Consistent with the Commission orders at issue in INGAA v. FERC, and contrary 

to the orders at issue in Consumers Energy v. FERC, the final rule consistently treats the 

FERC Form No. 501-G as simply an informational filing, and the final rule recognizes

that the Commission must proceed under NGA section 5 in order to require any pipeline 

to reduce its rates to reflect the income tax reduction in the Tax Cuts and Jobs Act or the 

elimination of the MLP tax allowance in the Revised Policy Statement. For example, the 

final rule states, “The primary purpose of the One-time Report ... 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 

 41 See id.

42 INGAA v. FERC, 285 F.3d at 38.

43 Id. (quoting Order No. 637-B, 92 FERC at 61,165).

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 18 -

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.”44 The final rule also expressly states that “[i]f 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.’”45 Moreover, unlike the Commission orders 

addressed in Consumers Energy v. FERC, the final rule consistently described the FERC 

Form No. 501-G as an “informational filing.”46

Pipeline Group points out that, on remand of the court’s decision in Consumers 

Energy v. FERC, the Commission established a policy of requiring Hinshaw Pipelines to 

make periodic informational filings in the form specified by § 154.313 of the 

Commission’s regulations for minor rate changes, instead of requiring them to file a 

petition for rate change.47 Pipeline Group asserts that, although NGA sections 10 and 

14(a) may permit the Commission to require pipelines to file the information contained in 

§ 154.313, the FERC Form No. 501-G is different from § 154.313. Pipeline Group 

 44 Order No. 849, 164 FERC ¶ 61,031 at P 69. See also id. P 104 (“[A]ny 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.”).

45 Id. P 76.

46 See, e.g., id. PP 2, 21, 30, 59, 103, and 111.

47 See Consumers Energy Co., 94 FERC ¶ 61,287 (2001).
Docket Nos. RM18-11-001 and RP18-415-001 - 19 -

asserts that the FERC Form No. 501-G does not simply require pipelines to file the data 

listed in § 154.313, but instead it runs the data through a formula that produces an 

indicated cost of service reduction, among other things. Therefore, Pipeline Group 

argues, the FERC Form No. 501-G is akin to the impermissible requirement to file a 

petition for rate change invalidated by Consumers Energy v. FERC, “because it produces 

an output, requiring the pipeline to justify whether its rates remain just and 

unreasonable.”48 

We disagree. First, Pipeline Group’s attempt to distinguish the FERC Form 

No. 501-G from § 154.313 is factually incorrect. For example, § 154.313(b) requires the 

pipeline to file the Statements I-1 through I-4 and Statement J required by § 154.312. 

Statement I-1 through I-4 require the pipeline to functionalize, classify, and allocate its 

cost of service and provide the formulae used in the allocation of the cost of service. 

Schedule J requires the pipeline to compare total revenue by rate schedule to the allocated 

cost of service, and Schedule J-2 requires the pipeline to show the derivation of each rate 

component of each rate schedule. Thus, § 154.313, similar to the FERC Form No. 501-

G, requires the pipeline to run data through formulas that produce “an output.” 

Moreover, in the case of § 154.313, the “output” is not simply an overall indicated 

reduction in cost of service, but specific rates for each rate schedule. Thus, § 154.313 

requires the pipeline to provide substantially more detailed information concerning its 

 48 Pipeline Group Request for Rehearing at 10.
Docket Nos. RM18-11-001 and RP18-415-001 - 20 -

costs, revenues, and rates than the five-page FERC Form No. 501-G, which does not 

require any allocation of costs among rate schedules or derivation of rates for each 

service.

In any event, as discussed above, the key question in determining whether the 

FERC Form No. 501-G is a permissible information collection requirement is whether 

the Commission intended only to collect information for use in satisfying its burdens 

under NGA section 5 or whether the FERC Form No. 501-G actually requires the 

pipeline to modify its rates. As with our requirement for Hinshaw pipelines to file a cost 

and revenue study consistent with § 154.313, our intent in requiring the FERC Form 

No. 501-G is only to collect information for use in satisfying our burdens under NGA 

section 5. Aside from the express language in Order No. 849 summarized above stating 

this intent, the Commission has in fact used the FERC Form No. 501-G in precisely the 

manner it said it would – to determine whether to exercise its discretion to initiate an 

NGA section 5 rate investigation of each pipeline.

A common outcome following the filing of the FERC Form No. 501-G has been a 

Commission order explaining that the Commission has determined not to exercise its 

discretion to initiate a NGA section 5 rate investigation and the closure of the docket 

without further Commission action.49 In the cases in which the Commission has initiated 

 49 See, e.g., ETC Tiger Pipeline, LLC, 166 FERC ¶ 61,028 (2019); American 

Midstream (AlaTenn), LLC, 166 FERC ¶ 61,118 (2019); Cheniere Creole Trail Pipeline, 

L.P., 166 FERC ¶ 61,198 (2019); Dominion Energy Transmission, Inc., 166 FERC 

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 21 -

an NGA section 5 investigation and established a hearing, it has done so based upon the 

FERC Form No. 501-G, comments to the form, and publicly available information on file 

with the Commission,

50 and has expressly recognized that the pipeline does not have an 

NGA section 4 burden to justify its existing rates.51 Moreover, the Commission has 

required the pipeline to submit a cost and revenue study based on the latest 12-month 

period available, and authorized use of an abbreviated six-month adjustment period 

following the 12-month base period used in the cost and revenue study.52 Thus, any rate 

change that may be required in the NGA section 5 proceeding is likely to be based on 

cost and revenue data from 2018 and early 2019, rather than the 2017 Form Nos. 2 

 

¶ 61,178 (2019); Enable Gas Transmission, LLC, 166 FERC ¶ 61,176 (2019); High Point 

Gas Transmission, LLC, 166 FERC ¶ 61,153 (2019); Kern River Gas Transmission Co., 

166 FERC ¶ 61,154 (2019); Southern Star Central Gas Pipeline, Inc., 166 FERC ¶ 

61,155 (2019); Trunkline Gas Co., LLC, 166 FERC ¶ 61,215 (2019).

50 See East Tennessee Natural Gas, LLC, 165 FERC ¶ 61,198 (2018); Bear Creek, 

166 FERC ¶ 61,034; Northern Natural Gas Co., 166 FERC ¶ 61,033 (2019); Panhandle 

Eastern Pipe Line Co., LP, 166 FERC ¶ 61,032 (2019); Southwest Gas Storage Co., 

166 FERC ¶ 61,117; Stagecoach Pipeline & Storage Co. LLC, 166 FERC ¶ 61,199 

(2019).

51 East Tennessee, 165 FERC ¶ 61,198 at P 27; Bear Creek, 166 FERC ¶ 61,034

at P 15; Northern Natural Gas Co., 166 FERC ¶ 61,033 at P 24; Panhandle Eastern, 

166 FERC ¶ 61,032 at P 16; Southwest Gas Storage, 166 FERC ¶ 61,117 at P 11;

Stagecoach, 166 FERC ¶ 61,199 at P 13. 

52 East Tennessee, 165 FERC ¶ 61,198 at PP 27-28; Bear Creek, 166 FERC 

¶ 61,034 at PP 15-16; Northern Natural Gas Co., 166 FERC ¶ 61,033 at PP 24-25; 

Panhandle Eastern, 166 FERC ¶ 61,032 at PP 16-17; Southwest Gas Storage, 166 FERC 

¶ 61,117 at PP 11-12; Stagecoach, 166 FERC ¶ 61,199 at PP 13-14. 

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 22 -

and 2-A data reflected in the FERC Form No. 501-G or the indicated cost of service 

reduction calculated based on that data. 

In summary, contrary to Pipeline Group’s arguments, requiring the informational 

FERC Form No. 501-G filing is squarely within the Commission’s authority and it has 

not served as a rate filing. Pipeline Group suggests that the Commission may only 

propose a reduction in a pipeline’s cost of service and resulting rates pursuant to NGA 

section 5, and that is in fact what has occurred following the final rule. The FERC Form 

No. 501-G is not an NGA section 4 filing and the pipeline is not required to show that its 

rates are just and reasonable. The pipeline need only provide accurate information in its 

FERC Form No. 501-G filing, as required by NGA section 10(a).53 Pipeline Group is 

also incorrect in its assertion that, because the Commission already collects information 

through FERC Form Nos. 2 and 3-Q, the FERC Form No. 501-G is somehow more than 

an information collection requirement. The FERC Form No. 501-G collects information 

that is not required in FERC Form Nos. 2 and 3-Q, specifically the effect of the recent 

reduction in the corporate income tax rate and change in the Commission’s income tax 

allowance policies on a pipeline’s cost of service. Pursuant to NGA sections 10(a) and 

14(a), the Commission is permitted to collect information to assist in the proper 

 53 15 U.S.C. 717i(a) (“Such reports shall be made under oath unless the 

Commission otherwise specifies.”).
Docket Nos. RM18-11-001 and RP18-415-001 - 23 -

administration of the NGA, and the Commission is not limited to the information 

required in FERC Form Nos. 2 and 3-Q.

B. ROE and Capital Structure Used In FERC Form No. 501-G

1. Final Rule

In the final rule, the Commission required 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,

54 the last rate case where that issue was fully litigated.55 

The final rule also revised the originally proposed FERC Form No. 501-G to ask 

respondents a series of factual questions about their actual capital structure in order to 

elicit the information necessary to apply the Commission’s capital structure policy set 

forth in Transcontinental Gas Pipe Line Corp.

56 Under that policy, a pipeline may use its 

own capital structure, if its debt is issued in its own name and publicly traded, the debt is 

rated by a rating agency, and the equity portion of the capital structure is not excessive.57 

If the pipeline’s own debt does not satisfy these standards, it can use its parent’s capital 

structure, if the parent satisfies the same standards. Otherwise, the pipeline must use a 

 54 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).

55 Order No. 849, 164 FERC ¶ 61,031 at PP 103-106.

56 Transcontinental Gas Pipe Line Corp., Opinion No. 414, 80 FERC ¶ 61,157 

(1997), reh’g, Opinion No. 414-A, 84 FERC ¶ 61,084 (1998) (Transco).

57 The FERC Form No. 501-G treats the equity portion of a pipeline’s capital 

structure as excessive if it is above 65 percent.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 24 -

hypothetical capital structure. Based on the FERC Form No. 501-G’s questions as to 

whether the pipeline or its parent satisfies these standards, the form automatically uses 

either the reported capital structure of the pipeline or its parent or a hypothetical capital 

structure.58 The final rule also held that, if a hypothetical capital structure was used, it 

would be 57 percent equity and 43 percent debt, consistent with the average capital 

structures of the proxy companies used to determine the 10.55 percent ROE in El Paso.

59

2. Request for Rehearing

Pipeline Group argues that the inputs to the FERC Form No. 501-G, such as the 

Indicative ROE and the Hypothetical Capital Structure, are not supported by the record or 

justified, and are arbitrary and capricious.60 Pipeline Group contends that the 

Commission did not sufficiently respond to its comments to the Notice of Proposed 

Rulemaking that the criteria pipelines are directed to utilize in the FERC Form No. 501-G 

(such as the Indicative ROE of 10.55 percent and the specified Hypothetical Capital 

Structure) are misplaced, unlawful, and should be deleted from the form and left for each 

individual pipeline to determine. Pipeline Group argues that the Commission made no 

showing that the proxy group in the El Paso proceeding used to calculate the 

10.55 percent indicative ROE in the FERC Form No. 501-G would produce the same 

ROE six years later. Pipeline Group argues that the Commission did not make a showing 

 58 Order No. 849, 164 FERC ¶ 61,031 at PP 111, 114.

59 Id. P 115. 

60 Pipeline Group Request for Rehearing at 10-12.
Docket Nos. RM18-11-001 and RP18-415-001 - 25 -

pursuant to NGA section 5 that such an ROE is appropriate for a different pipeline 

serving different markets. 

Pipeline Group also argues that the Commission departed from prior practice in its 

review of pipeline Form Nos. 2 and 2-A reports for purposes of deciding whether to 

initiate NGA section 5 rate investigations when it required pipelines to propose a capital 

structure and make a legal determination as to whether that proposed structure and debt 

cost meets the requirements of Opinion No. 414. Pipeline Group asserts that the 

Commission has not previously imposed such a requirement on pipelines.61 

Additionally, Pipeline Group argues that pipelines’ current rates may be 

established pursuant to settlements of NGA section 4 or 5 proceedings on a “black box” 

basis without specifying individual components used to calculate rates including ROE 

and capital structure. Pipeline Group contends that, by requiring certain ROE and capital 

structure inputs, the Commission is expanding the review of pipeline’s existing rates 

 61 Id. at 11 (citing Natural Gas Pipeline Co. of America LLC, 129 FERC ¶ 61,158 

(2009); Northern Natural Gas Co., 129 FERC ¶ 61,159 (2009); Great Lakes Gas 

Transmission Limited Partnership, 129 FERC ¶ 61,160 (2009); Kinder Morgan Interstate 

Gas Transmission LLC, 133 FERC ¶ 61,157 (2010); Ozark Gas Transmission, L.L.C., 

133 FERC ¶ 61,158 (2010); Bear Creek Storage Co., 137 FERC ¶ 61,134 (2011); MIGC 

LLC, 137 FERC ¶ 61,135 (2011); ANR Storage Co., 137 FERC ¶ 61,136 (2011); 

Wyoming Interstate Co., 141 FERC ¶ 61,117 (2012); Viking Gas Transmission Co., 

141 FERC ¶ 61,118 (2012); Tuscarora Gas Transmission Co., 154 FERC ¶ 61,030; 

Empire Pipeline, Inc., 154 FERC ¶ 61,029 (2016); Iroquois Gas Transmission System, 

L.P., 154 FERC ¶ 61,028 (2016); Columbia Gulf Transmission, LLC, 154 FERC ¶ 61,027 

(2016); Wyoming Interstate Co., 158 FERC ¶ 61,040; Natural Gas Pipeline Co. of 

America LLC, 158 FERC ¶ 61,044; Dominion Energy Overthrust Pipeline, LLC, 162 

FERC ¶ 61,218 (2018); Midwestern Gas Transmission Co., 162 FERC ¶ 61,219 (2018)).
Docket Nos. RM18-11-001 and RP18-415-001 - 26 -

from reductions in light of the Tax Cuts and Jobs Act to the overall costs and revenues of 

the pipeline akin to a traditional NGA section 5 proceeding.

3. Commission Determination

The Commission addressed many of the same arguments in the final rule that 

Pipeline Group raises on rehearing. As explained in the final rule, a cost and revenue 

study requires an indicative ROE and, consistent with Commission practice in other 

contexts, the final rule used the last litigated ROE determined by Commission. For 

example, the Commission has used the last litigated ROE in developing initial rates for 

existing facilities being acquired by a new pipeline.

62 Here, the last litigated ROE was in 

El Paso wherein the Commission adopted an ROE of 10.55 percent. 

The Commission recognized that the 10.55 percent ROE determined in El Paso

was based on financial data from 2011. However, no commenter provided any updated 

ROE analysis using current financial data that the Commission could use in the FERC 

Form No. 501-G. The Commission considered pipeline commenters’ suggestion that 

they be permitted to use their own ROEs or ROEs derived in a rate proceeding or 

established pursuant to approved settlements, but the Commission determined that the 

last rate cases of many pipelines occurred as long ago as, or even before, the El Paso rate 

case. The Commission also determined that many settlements are “black box” 

 62 See, e.g., Southern Natural Gas Co. L.L.C., 139 FERC ¶ 61,237, at P 154 

(2012); High Point Gas Transmission, LLC, 139 FERC ¶ 61,237 (2012); Northern 

Natural Gas Co., 119 FERC ¶ 61,035, at P 37 (2007).

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 27 -

settlements that do not have an ROE and, therefore, 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 in almost all cases were not fully litigated.63

The Commission also rejects Pipeline Group’s contention that the Commission 

failed to support the hypothetical capital structure mandated by the FERC Form No. 501-

G where the capital structure of the pipeline or its parent is deemed unacceptable for 

ratemaking purposes. Pipeline Group argues that the Commission has not previously in 

its NGA section 5 rate investigations required a pipeline to propose a capital structure and 

make a legal determination as to whether that capital structure satisfies the Transco

requirements. As the final rule explained, the Commission modified the FERC Form 

No. 501-G so that it would not require a pipeline to make a legal determination as to 

whether its capital structure is consistent with Commission policy or propose a capital 

structure. Rather, the FERC Form No. 501-G requires the pipeline to answer 

three questions concerning facts relevant to determining what capital structure should be 

used to determine the pipeline’s rates.64 Then, based on the pipeline’s answers to these 

questions, the FERC Form No. 501-G automatically chooses a capital structure consistent 

with the pipeline’s answers to the questions. Thus, the pipeline is not asked to make any 

 63 Order No. 849, 164 FERC ¶ 61,031 at PP 103-106. 

64 The questions are: “1) Is the debt issued in the entity’s name and traded? 2) Is 

the debt rated by a rating agency) 3) Is the equity ratio less than 65%?”
Docket Nos. RM18-11-001 and RP18-415-001 - 28 -

legal determination concerning what capital structure is consistent with Commission 

policy.

The use of an indicative ROE and stated capital structure in FERC Form 

No. 501-G is necessary to estimate a pipeline’s return on equity and achieve the 

Commission’s goal of developing a form that serves two purposes: (1) to help determine 

whether to initiate NGA section 5 investigations of interstate natural gas pipelines’ rates 

and (2) provide 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. 

As stated in the final rule, for purposes of helping determine whether to initiate NGA 

section 5 investigations of interstate natural gas pipelines’ rates, the FERC Form 

No. 501-G is only intended to produce a rough estimate of the pipeline’s ROE before and 

after the Tax Cuts and Jobs Act or the United Airlines Issuances. Pipeline Group 

contends that the Commission has not met its NGA section 5 burden to show that a 

pipeline’s existing ROE is unjust and unreasonable or that the El Paso 10.55 percent 

ROE or hypothetical capital structure would be just and reasonable for a different 

pipeline today. However, as explained in the final rule, the Commission is not using the 

FERC Form No. 501-G, including its indicative ROE and capital structure, to satisfy its 

burden under NGA section 5 to show that any pipeline’s existing rates are unjust and 

unreasonable. Rather, the FERC Form No. 501-G is simply intended to provide a rough

estimate of the pipeline’s current return on equity for purposes of deciding whether the 

Commission should exercise its discretion to initiate a rate investigation pursuant to NGA 
Docket Nos. RM18-11-001 and RP18-415-001 - 29 -

section 5. The data in the FERC Form No. 501-G will not be used to actually establish 

rates in any NGA section 5 investigation that the Commission may initiate. If the 

Commission does initiate an investigation pursuant to NGA section 5, any rates 

determined in that proceeding, including the capital structure and ROE, will be based on 

the record developed in the hearing, and in such a hearing, the Commission will have the 

burden of persuasion under NGA section 5 on all issues, including ROE. Indeed, in our 

orders establishing NGA rate investigations based on the information in a pipeline’s 

FERC Form No. 501-G, the Commission has stated that it makes no finding as to what 

would constitute a just and reasonable ROE for the company and, if the FERC Form 

No. 501-G required a hypothetical capital structure, the Commission has also stated that 

it makes no finding as to a just and reasonable capital structure. Those are among the 

issues set for hearing.65

Regarding the second purpose of the FERC Form No. 501-G (providing support 

for limited NGA section 4 filings pipelines may choose to make to reduce their rates), the 

Commission explained that a pipeline may submit an Addendum with its FERC Form 

No. 501-G setting forth an alternative ROE, along with full support for its proposed ROE, 

and use that ROE in calculating its proposed percentage rate reduction in its limited NGA 

section 4 rate filing. Similarly, pipelines are permitted to use a capital structure other 

 65 East Tennessee, 165 FERC ¶ 61,198 at P 24 n 43; Bear Creek, 166 FERC 

¶ 61,034 at P 14 n 22; Northern Natural Gas Co., 166 FERC ¶ 61,033 at P 20 n 41; 

Panhandle Eastern, 166 FERC ¶ 61,032 at P 15 n 16; Southwest Gas Storage, 166 FERC 

¶ 61,117 at P 10 n 14; Stagecoach, 166 FERC ¶ 61,199 at P 12 n 20. 
Docket Nos. RM18-11-001 and RP18-415-001 - 30 -

than those used in its FERC Form No. 501-G in its limited NGA section 4 rate filing by 

submitting an Addendum to their FERC Form No. 501-G if they believe that the form 

inaccurately represents their financial situation. But, as previously stated, the limited 

NGA section 4 filing is voluntary and a pipeline is not required to submit additional 

information regarding its capital structure in an Addendum.

Finally, Pipeline Group contends that by requiring an indicative ROE and capital 

structure the Commission is expanding its review of pipeline rates from reductions in 

light of the Tax Cuts and Jobs Act to the overall costs and revenue of the pipeline – a 

review traditionally done in an NGA section 5 proceeding. The Commission is properly 

considering all the pipelines’ cost and revenues in deciding whether to initiate NGA 

section 5 rate investigations. As explained in the final rule,66 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, because the 

pipeline’s existing rates may not fully recover its cost of service. The Commission must 

consider all the pipeline’s costs and revenues to determine whether this is true. By the 

same token, the FERC Form No. 501-G may suggest that a pipeline is over-recovering its 

cost of service for reasons that go beyond the Tax Cuts and Jobs Act and the revised 

MLP tax allowance policy. It is consistent with our responsibilities under the NGA to 

investigate those possible cost over-recoveries as well.

 66 Order No. 849, 164 FERC ¶ 61,031 at P 222.
Docket Nos. RM18-11-001 and RP18-415-001 - 31 -

C. Order No. 849 Rate Moratorium

1. Final Rule

In the final rule, the Commission granted in part commenters’ request for a 

moratorium on NGA section 5 investigations in the event a pipeline chooses the limited 

NGA section 4 option. The Commission determined that it is “reasonable to provide 

pipelines an incentive to make [] limited NGA section 4 rate reduction filings” in the 

form of a three-year moratorium on NGA section 5 investigations, noting that 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.”67 Recognizing that a pipeline could make a limited 

NGA section 4 rate reduction filing and yet still have a significantly excessive ROE, the 

Commission outlined the following requirements to qualify for the three-year moratorium 

on NGA section 5 rate investigations: (1) the Commission accepts the pipeline’s limited 

NGA section 4 filing and (2) the pipeline’s 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.68

 67 Id. P 199.

68 Id.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 32 -

2. Request for Rehearing

Pipeline Group argues that the 12 percent ROE test to qualify for the rate 

moratorium for limited NGA section 4 filings is not supported by the record or justified, 

and is arbitrary and capricious.69 Pipeline Group states that it supports a rate moratorium 

for pipelines voluntarily participating in the limited NGA section 4 process but that 

establishing an arbitrary threshold to qualify for such moratorium limits any incentive 

that the Commission intended to provide pipelines and expands the terms of a limited 

NGA section 4 proceeding that the Commission intended to be limited. Pipeline Group

argues the voluntary reduction alone should be sufficient to entitle the pipeline to a 

moratorium. Pipeline Group argues that the Commission did not provide the reasoned 

decision making required to justify the Commission’s 12 percent threshold policy. 

Pipeline Group contends that the Commission has not attempted to tie the 12 percent

ROE threshold to evidence in the record or to show that the threshold is representative of 

an appropriate ROE for pipelines across the country that operate in different markets and 

face differing risks. Pipeline Group claims that, over the last five years, the average ROE 

estimated by the Commission when instituting NGA section 5 proceedings was 

18.6 percent and the lowest ROE estimated by the Commission was 15.7 percent. 

Pipeline Group argues that the Commission “must supply a reasoned analysis indicating 

 69 Pipeline Group Request for Rehearing at 12-16.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 33 -

that prior policies standards are being deliberately changed, not casually ignored” when it 

departs from an established policy, precedent, or standard.70 

3. Commission Determination

We reject Pipeline Group’s argument that the 12 percent ROE test to qualify for 

the three-year rate moratorium for limited NGA section 4 filings is not supported by the 

record or justified, and is arbitrary and capricious. The terms the Commission 

established for qualifying for the three-year moratorium on rate investigations are a 

reasonable exercise of the Commission’s discretion in deciding whether to initiate an 

NGA section 5 investigation.71 Pipeline Group is correct that the threshold to qualify for 

the moratorium limits the incentive provided by the moratorium, but only for pipelines 

that still may have a significantly excessive ROE even after choosing the limited NGA 

section 4 filing option. Based on comments and other record evidence, the Commission 

chose a threshold that would create an appropriate balance between incentivizing the 

limited NGA section 4 filing and preventing a pipeline that may have a significantly 

excessive ROE from shielding its rate from Commission scrutiny. 

 70 Id. at 16 (citing Greater Boston Television Corp. v. FCC, 444 F.2d 841, at 852 

(D.C. Cir. 1970); West Deptford Energy, LLC v. FERC, 766 F.3d 10, at 20 (D.C. Cir. 

2014); Williams Gas Processing-Gulf Coast Co., L.P. v. FERC, 475 F.3d 319, at 322 

(D.C. Cir. 2006)).

71 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).
Docket Nos. RM18-11-001 and RP18-415-001 - 34 -

While Pipeline Group points out that the Commission has not initiated an NGA 

section 5 investigation against a pipeline with an estimated ROE below 15.7 percent in 

the last five years, our discretion to initiate such investigations is not restricted to 

pipelines with ROEs that exceed any particular level of ROE. In any event, Pipeline 

Group inappropriately conflates the Commission’s past decisions concerning when to 

exercise its discretion to initiate an NGA section 5 investigation with the final rule’s 

moratorium incentive to make the limited NGA section 4 filing. In establishing the 

12 percent ROE threshold for qualifying for the moratorium, the Commission has not 

departed from an established policy as Pipeline Group claims. The final rule addressed a 

new situation not previously faced by the Commission: whether and how to modify the 

stated rates of natural gas pipelines as a result of the substantial reduction in the corporate 

income tax by the Tax Cuts and Jobs Act and the elimination of MLP tax allowances by 

the United Airlines Issuances. Among other things, the Commission adopted a new rule 

permitting pipelines to reduce their rates to reflect these actions in limited NGA section 4 

rate filings as an exception to the Commission’s general policy prohibiting such limited 

NGA section rate reductions. In conjunction with this action, the Commission chose to 

agree to a three-year moratorium on rate investigations if the pipeline’s ROE as 

calculated in the FERC Form No. 501-G was reduced to 12 percent or less. The 

Commission has not previously provided any such moratorium on NGA section 5 rate 

investigations. Thus, the Commission was adopting a new policy to address a new 

situation — there was no established policy from which to depart. Instead, the 

moratorium described in the final rule is an incentive created by the Commission to 
Docket Nos. RM18-11-001 and RP18-415-001 - 35 -

encourage pipelines to make a limited NGA section 4 filing, and the moratorium 

incentive is specific to that rulemaking. 

D. Accumulated Deferred Income Taxes

1. Final Rule

As the Commission explained in the final rule, 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.72 ADIT balances arise from differences between the method of computing 

taxable income for reporting to the Internal Revenue Service (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 Commission 

stated that ADIT generally affects 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 that 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 

 72 18 CFR pt. 201 (2018).

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 36 -

IRS, at a 21 percent tax rate requires an adjustment to ADIT balances for the excess or 

deficiency.73

The Commission explained that 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. The Commission stated that 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 from the reduced 

income tax rates under the Tax Cuts and Jobs Act. The Commission also set forth a 

policy concerning the treatment of ADIT when the tax allowances of pass-through 

pipelines (including MLP pipelines) are eliminated. The Commission modified FERC 

Form No. 501-G so that, if a pass-through entity states that it does not pay taxes, the form 

would not only eliminate its income tax allowance, but would also eliminate ADIT.74 

The Commission noted that the modification only applies to the FERC Form No. 501-G 

(and the optional limited NGA section 4 filings pursuant to § 154.404(a)) of the 

Commission’s regulations, and that it does not establish a broader rule.75

 73 Order No. 849, 164 FERC ¶ 61,031 at PP 63-65. 

74 Id. PP 130-132.

75 Id. P 136.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 37 -

2. Requests for Rehearing

Process Gas argues that the Commission erred by allowing the elimination of 

ADIT balances for pass-through pipelines without a reduction to the pipeline’s rate base 

contrary to the Commission’s normalization policy.76 Process Gas contends that the 

Commission’s normalization policy, as affirmed by the D.C. Circuit,77 allows all 

ratepayers who take service from a utility throughout its depreciable life to receive the 

benefit of a tax deduction that the utility enjoys in the early years of operation. Process 

Gas states that, as a result of normalization, the pipeline’s rates include a higher tax 

allowance in the early years than what the utility actually pays and a lower tax allowance 

in the later years than what it actually pays. Process Gas argues that the Commission’s 

elimination of ADIT for pass-through pipelines that remove the allowance for income 

taxes from current rates without adjusting rate base violated the principle that 

normalization will not result in any permanent tax savings by the pipeline that are not 

reversed in subsequent periods. Process Gas also argues that, contrary to the D.C. 

Circuit’s finding regarding Order No. 144,78 the benefits of the deferred taxes will accrue 

 76 Process Gas Request for Rehearing at 4-9.

77 Id. at 4 (citing Public Systems v. FERC, 709 F.2d 73 (D.C. Cir. 1983) (Public 

Systems)).

78 Id. at 7 (citing 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 PP 86-89 (1981), order on 

reh’g, Order No. 144-A, FERC Stats. & Regs. ¶ 30,340 (1982); Public Systems, 709 F.2d 

at 83 (“Fourth, the Commission found that the rate of return earned on common equity is 

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 38 -

to the utility’s stockholders because they will retain the benefits that ADIT represents 

under normalization and will not be required to pass them on to future ratepayers through 

lower rates.

Process Gas also argues that the Commission incorrectly relied upon Public 

Utilities Commission of State of California v. FERC79 for the proposition that continuing 

to deduct ADIT from rate base would constitute retroactive ratemaking.80 Process Gas 

contends that an important aspect of the Court’s reasoning that the Commission had no 

legal right to adjust rates to reflect ADIT in CPUC was the removal of transportation 

assets from the pass-through entity’s rate base. Process Gas argues that CPUC is 

inapposite because the Commission only asserts that the pipeline’s double recovery of tax 

costs associated with those assets has been removed, not the actual transportation assets. 

Process Gas also contends that the removal of the tax allowance from an MLP pipeline’s 

cost of service is not a change from cost-based rate regulation to non-cost based rate 

regulation, as was the case in CPUC. Additionally, Process Gas argues that, unlike 

CPUC, the pipeline assets to which ADIT directly relates have not been removed from 

the pipelines’ jurisdictional rates.

 

the same under either flow-through or normalization. Deferred taxes do not accrue to the 

benefit of utility stockholders.”)).

79 894 F.2d 1372 (D.C. Cir. 1990) (CPUC).

80 Process Gas Request for Rehearing at 7-9.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 39 -

Process Gas also contends that the Commission’s failure to apply ADIT as a credit 

retroactively increases the pipeline’s returns in violation of the rule against retroactive 

ratemaking.

81 Process Gas argues that, while the rule against retroactive ratemaking 

prohibits the Commission from adjusting current rates to make up for a utility’s overcollection or under-collection in prior periods, the rule does not apply when the parties 

are on notice that the rates may be changed.82 Process Gas argues that, in allowing 

normalization, the Commission placed parties on notice that any tax savings in the early 

years of a pipeline’s useful life would be offset by reductions to rate base in subsequent 

years. Process Gas also argues that parties were on notice that the account balances for 

the timing differences are expected to offset costs reflected in rate charges to customers 

in future periods and that the balance of the account is not to be transferred to earnings. 

Process Gas notes that ADIT is booked under the Commission’s accounting regulations 

in Account Nos. 281 and 282, which both indicate that “[t]he utility is restricted in its use 

of this account to the purposes set forth above. It shall not transfer the balance in this 

account or any portion thereof to retained earnings or make any use thereof except as 

provided in the text of this account without the prior approval of the Commission.”83 

Process Gas also argues that the Commission has previously found that disregarding prior 

 81 Id. at 10-13.

82 Id. at 10 (citing Towns of Concord v. FERC, 955 F.2d 67, 71 n.2 (D.C. Cir. 

1992); Columbia Gas Transmission Corp. v. FERC, 895 F.2d 791, 797 (D.C. Cir. 1990)).

83 Id. at 11 (citing USOA Accounts 281.D and 282.D, 18 C.F.R. pt. 101 (2018)).

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 40 -

treatment of specific expenses over the life of the facilities is unjust and unreasonable84

and that there are no retroactive ratemaking concerns with requiring a pipeline to 

continue to account for prepaid costs on a going forward basis.85

Process Gas also argues that the Commission misconstrued prior precedent 

regarding whether deferred taxes can be analogized to a loan.86 Process Gas contends 

that the Commission held in Order No. 849 that deferred taxes are not loans from 

customers and, thus, customers have no right to future rate reductions relying on its 

determinations in Order No. 144. Process Gas argues that, in fact, the Commission held 

in Order No. 144 that the loan analogy was illustrative and rejected the proposition that 

today’s customers pay tomorrow’s customer’s tax costs under normalization. Process 

Gas argues that the Commission made clear that each generation of customers pays its 

own costs, and that the flow-through method gives current customers tax benefits that 

belong to future customers. Therefore, Process Gas argues, the Commission’s 

determination in Order No. 849 takes away the future tax benefits from future period 

 84 Id. (citing Williams Natural Gas Co., 60 FERC ¶ 61,140, at 61,506 (1992) (“[t]o 

disregard depreciation expenses already paid by transportation customers with respect to 

service on particular gathering facilities would mean that those transportation customers 

would have to pay more over the life of the facilities than they would have to pay if the 

reserve for depreciation appropriately reflected the depreciation expenses already 

paid.”)).

85 Id. at 11-12 (citing BP Pipelines Alaska Inc., 119 FERC ¶ 63,007, at P 168 

(2007), aff’d, Opinion No. 502, 123 FERC ¶ 61,287, at P 163 (2008)).

86 Id. at 13-14.

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Docket Nos. RM18-11-001 and RP18-415-001 - 41 -

customers and gives them to the pipeline, which is inconsistent with Order No. 144 and 

its finding that deferred taxes represent a benefit owed to future customers.

3. Commission Determination

We reject Process Gas’ argument that Order No. 849 erred by requiring that passthrough entities that eliminate the income tax allowance also eliminate ADIT on the 

FERC Form No. 501-G. Rather, the treatment of ADIT in Order No. 849 is consistent 

with both Commission policy87 and relevant court precedent. While the Commission can 

make changes to rates on a prospective basis, if an income tax allowance is removed from 

cost of service, continuing to deduct ADIT from rate base or crediting ratepayers the 

excess ADIT balance would constitute impermissible retroactive ratemaking.88 We 

conclude that this precedent compels the approach adopted by the Commission in Order 

No. 849. 

 87 See Revised Policy Statement Rehearing, 164 FERC ¶ 61,030 (providing nonbinding guidance that where an MLP or other pass-through pipeline eliminates its income 

tax allowance from its cost of service pursuant to the Commission’s post-United Airlines 

policy, the Commission anticipates that ADIT will similarly be removed from cost of 

service); SFPP, L.P., Opinion No. 511-D, 166 FERC ¶ 61,142 (2019) (holding that an 

MLP oil pipeline appropriately eliminated ADIT where its income tax allowance was 

eliminated from cost of service).

88 CPUC, 894 F.2d 1371; see also SFPP, L.P., Opinion No. 511-D, 166 FERC 

¶ 61,142 at PP 93-95.

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Docket Nos. RM18-11-001 and RP18-415-001 - 42 -

Contrary to Process Gas’ arguments, the elimination of ADIT does not violate the

Commission’s normalization policy.89 As the Commission explained in Order No. 849, 

the Commission’s normalization policies only apply to entities with an income tax 

allowance component in their regulated cost-of-service rates.90 In contrast, where a 

pipeline’s income tax allowance is eliminated on the FERC Form No. 501-G under the 

Commission’s post-United Airlines policy, there is no rationale for requiring the pipeline 

to record current or deferred income taxes. The Commission in Order No. 849 explained 

that the purpose of normalization is matching the pipeline’s cost-of-service expenses in 

 89 Process Gas Request for Rehearing at 3-7.

90 Order No. 849, 164 FERC ¶ 61,031 at P 132. 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. See 18 CFR 154.305(a)

(2018) (“An interstate pipeline must compute the income tax component of its cost-ofservice 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). See also Algonquin 

Gas Transmission Co., 76 FERC ¶ 61,075, at 61,449 (1996); 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”).

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 43 -

rates with the tax effects of those same cost-of-service expenses.91 If there is no income 

tax allowance in Commission rates, there is no basis for the matching function of 

normalization and no liability for the deferred taxes reflected in ADIT.

We also reject Process Gas’ argument that Order No. 849 deprives future 

customers of the benefit of deferred taxes that they are owed. Process Gas concedes that 

under normalization “each generation of customers pays its own [income tax] costs.”92 

As such, future customers have no equitable right to the sums accumulated in ADIT that 

were paid by prior customers for prior period service.93 ADIT is not money owed to past 

 91 Order No. 849, 164 FERC ¶ 61,031 at P 132 (citing Order No. 144, FERC Stats. 

& Regs. ¶ 30,254 at 31,522 (“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”)); see also Public Systems, 709 F.2d at 80 (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 ....”).

92 Process Gas Request for Rehearing at 13.

93 Judicial and Commission precedent establish that customers have no equitable 

interest or ownership claim in ADIT. See Public Systems, 709 F.2d at 85 (rejecting the 

notion “that ratepayers have an ownership claim” to the ADIT balance); CPUC, 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 an ownership or creditor’s right”); Opinion No. 511-D, 166 

FERC ¶ 61,142 at P 92 (“ratepayers have no equitable interest or ownership claim in 

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 44 -

or future ratepayers, but rather deferred taxes that are ultimately owed to the 

government.94 Moreover, because future customers are not paying tax costs in rates 

where a pass-through pipeline’s income tax allowance has been eliminated, such 

customers are not owed the associated “benefits” resulting from deferred taxes under the 

Commission’s normalization policy.

Similarly, contrary to Process Gas’ arguments, we reaffirm that it comports 

with retroactive ratemaking principles to require pipelines that eliminate the income tax 

allowance on FERC Form No. 501-G to also eliminate ADIT on the FERC Form 

No. 501-G.95 As Process Gas recognizes, normalization merely requires customers to 

 

ADIT”); id. P 100 (“the Commission and D.C. Circuit have consistently held that 

shippers do not have an equitable interest in ADIT”). 

94 Opinion No. 511-D, 166 FERC ¶ 61,142 at P 100. The Commission has also 

explained that ADIT is not a true-up or tracker of money owed to shippers. Lakehead 

Pipe Line Co. L.P., Opinion No. 397-A, 75 FERC ¶ 61,181, at 61,594 (1996). In any 

case, as explained elsewhere in this order, FERC Form No. 501-G is merely an 

informational filing. Although FERC Form No. 501-G includes certain assumptions 

based on Commission ratemaking policy in order to produce a rough estimate of the 

pipeline’s ROE before and after the Tax Cuts and Jobs Act or the United Airlines 

Issuances for informational purposes, the data in the FERC Form No. 501-G will not be 

used to actually establish rates in any NGA section 5 investigation that the Commission 

may initiate.

95 Order No. 849, 164 FERC ¶ 61,031 at PP 133-134; see also SFPP, L.P., 

Opinion No. 511-D, 166 FERC ¶ 61,142 at PP 93-95.
Docket Nos. RM18-11-001 and RP18-415-001 - 45 -

pay their properly allocated share of the pipeline’s tax expenses for the period of their 

service.96 

As the Commission explained in Order No. 849, requiring pipelines to return 

ADIT amounts collected in prior rates for this prior period service would constitute 

impermissible retroactive ratemaking.97 Although Process Gas attempts to distinguish 

the CPUC decision discussed in Order No. 849, in both CPUC and the scenario 

addressed by Order No. 849 where a pipeline’s income tax is eliminated pursuant to the 

Commission’s post-United Airlines policy, the income tax allowance is removed from 

cost of service and, accordingly, the basis for tax normalization in a pipeline’s cost-ofservice rates is no longer applicable.98 Therefore, notwithstanding the various arguments 

raised by Process Gas, we continue to find that the D.C. Circuit’s holding in CPUC is 

 96 Process Gas Request for Rehearing at 13 (stating that under the Commission’s 

income tax allowance policies, “each generation pays its own costs”).

97 Order No. 849, 164 FERC ¶ 61,031 at P 133 (citing CPUC, 894 F.2d 1371).

98 In CPUC the pipeline switched to statutory, proscribed rate ceilings from costof-service rates. CPUC, 894 F.2d at 1379 (the switch “wiped out the premise of tax 

normalization” and hence the matching principle “ceased to operate as an explicit 

guide”); id. at 1382 (“Tax normalization sought to ‘match’ the timing of a customer’s 

contribution toward a cost with enjoyment of any offsetting tax benefit. ... Enactment of 

the NGPA, however, mooted the whole question to which normalization was an 

answer.”). This contrasts to situations in which the income tax allowance and the 

required normalization remains in cost of service. Public Systems, 709 F.2d at 80 (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.... To do otherwise would subsidize present 

customers at the expense of future ones.”).

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 46 -

controlling here. As the D.C. Circuit stated, 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].”99 The D.C. Circuit elaborated that, to the extent any basis 

for requiring the pipeline to credit ratepayers for earnings on previously accumulated 

ADIT sums 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 violated the rule against 

retroactive ratemaking.100 In sum, we find that Order No. 849 correctly applied the D.C. 

Circuit’s reasoning in CPUC in determining that requiring a pass-through pipeline whose 

income tax allowance has been eliminated to apply ADIT as a credit to rate base on the 

Form No. 501-G would be inconsistent with the rule against retroactive ratemaking.101

We also reject Process Gas’ argument that applying ADIT as a credit to rate base 

on the FERC Form No. 501-G does not constitute retroactive ratemaking because 

pipelines were on notice based on the Commission’s normalization regulations. As 

 99 CPUC, 894 F.2d at 1383; see also id. at 1382 (“[t]his kind of post hoc tinkering 

would undermine the predictability which the [retroactive ratemaking] doctrine seeks to 

protect.”).

100 Id. at 1380, 1382.

101 See also Opinion No. 511-D, 166 FERC ¶ 61,142 at PP 93-95, 101-105.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 47 -

explained above, the Commission’s normalization policy does not apply in the context of 

a complete elimination of a pipeline’s income tax allowance from cost of service.102

We also dismiss Process Gas’ argument that this case is analogous to BP Pipelines 

Alaska, where the Commission found that requiring a pipeline to account for prepaid 

costs for Dismantlement Removal and Restoration (DR&R) on a going-forward basis did 

not constitute retroactive ratemaking.

103 In that case, the DR&R continued to be 

recoverable in rates, but had merely been over-collected. In contrast, the adjustment to 

the FERC Form No. 501-G to remove ADIT reflects a situation where a pass-through 

entity’s income tax allowance has been removed from cost of service, and there is thus no 

justification for tax normalization in going-forward rates. In these circumstances, the 

Commission has “no legal right to reduce [the pipeline’s going forward] rates ... below 

levels found to be just and reasonable” as this would constitute “in substance a retroactive 

adjustment of prior rates based on normalization.”104

 102 Id. PP 97, 104-105. We are similarly unpersuaded by Process Gas’ argument 

that removing ADIT from the FERC Form No. 501-G is itself retroactive ratemaking. 

Process Gas Request for Rehearing at 12. As explained above, ADIT consists of the tax 

costs collected by the pipeline from prior shippers’ rates and paid for the prior shippers’ 

service.

103 Process Gas Request for Rehearing at 12 (citing BP Pipelines Alaska Inc., 

119 FERC ¶ 63,007 at P 168, aff’d, Opinion No. 502, 123 FERC ¶ 61,287 at P 163).

104 CPUC, 894 F.2d at 1383-1384.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 48 -

Finally, to the extent Process Gas or any other entity objects to the treatment of 

ADIT for purposes of the FERC Form 501-G, as set forth in Order No. 849, we reiterate 

that the treatment of a pass-through entity’s ADIT for purposes of the FERC Form 

No. 501-G does not establish a broader rule, nor does Order No. 849 itself preclude

shippers and pipelines from advocating for a different treatment of ADIT in any future 

rate litigation.105 Rather, as explained elsewhere in this order, the FERC Form No. 501-

G serves a limited informational purpose to assist the Commission in determining 

whether to exercise its discretion to initiate NGA section 5 investigations of interstate 

natural gas pipelines’ rates.

106 In Order No. 849, the Commission determined that 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.

107 However, if Process Gas or another 

entity seeks to take a different position in a litigated rate proceeding, Order No. 849 does 

not preclude them from doing so.

 105 Order No. 849, 164 FERC ¶ 61,031 at P 135. 

106 FERC Form No. 501-G’s only other potential use was as part of a pipeline’s 

discretionary limited NGA section 4 filings pursuant to § 154.404(a). However, Order 

No. 849 permitted these limited NGA section 4 filings to be based upon an Appendix to 

the FERC Form No. 501-G. Thus, had Order No. 849 not permitted the removal of ADIT 

on FERC Form No. 501-G itself, the pipeline could have nonetheless removed ADIT in 

the Appendix to the FERC Form No. 501-G. In such a scenario, the removal of ADIT 

would have been reflected in any discretionary limited NGA section 4 rate reduction filed 

by the pipeline. 

107 Order No. 849, 164 FERC ¶ 61,031 at P 135.

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Docket Nos. RM18-11-001 and RP18-415-001 - 49 -

E. Tax Allowance for Pass-Through Entities

1. Final Rule

For purposes of FERC Form No. 501-G, if a pipeline states that it is not a 

taxpaying entity, the form will automatically enter a federal and state income tax of 

zero.

108 The Commission stated in the final rule 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 for purposes of the final 

rule.109 The Commission reasoned 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.”110

2. Requests for Rehearing

Process Gas contends that the Commission erred by assuming that all subsidiaries 

of corporations that appear on the consolidated parent’s tax return are generating actual 

income taxes for the corporation.111 Process Gas also contends that the Commission 

 108 Id. P 3.

109 Id.

110 Id. P 56 (citing BP West Coast Products, LLC v. FERC, 374 F.3d 1263, at 1289 

(D.C. Cir. 2004) (BP West Coast Products, LLC)).

111 Process Gas Request for Rehearing at 14-16.
Docket Nos. RM18-11-001 and RP18-415-001 - 50 -

eliminated the burden of proof for a pass-through entity claiming such a tax allowance. 

Process Gas argues that the determination in Order No. 849 that a natural gas company 

organized as a pass-through entity whose income or losses are consolidated on the federal 

income tax return of its corporate parent is considered to be subject to federal income 

taxes for the purpose of filing the limited NGA section 4 filing is not supported by the 

precedent cited by the Commission.

112 Process Gas argues that the BP West Coast 

Products, LLC precedent can be distinguished because the court appeared to require 

proof that a subsidiary actually generated a tax liability for the parent corporation to 

justify an allowance for income tax for a corporate subsidiary. Process Gas contends that 

the Commission may be awarding an income tax allowance based upon phantom taxes. 

Enable argues that the Commission erred in determining that a pipeline with an 

MLP in its organizational structure that is owned in part indirectly by corporate 

unitholders should not receive an income tax allowance, yet a pass-through entity that is a 

wholly owned subsidiary of a corporation should be eligible for an income tax 

allowance.

113 Enable contends that the Commission failed to explain the purported 

distinction between the two pass-through structures and that the distinction is not 

supported by precedent. Enable argues that the Commission has inverted the logic of BP 

West Coast Products, LLC, and asserts that the case actually criticizes the Commission 

 112 Id. at 14 (citing Order No. 849, 164 FERC ¶ 61,031 at P 57 (citing BP West 

Coast Products, LLC, 374 F.3d at 1289).

113 Enable Request for Rehearing at 4-8.
Docket Nos. RM18-11-001 and RP18-415-001 - 51 -

for limiting an income tax allowance to corporate unitholders (not just those 

consolidating on a federal return the entirety of income from an affiliate in which the 

corporation owed an interest). Enable also argues that the Commission ignored the fact

that United Airlines did not validate a distinction between a pass-through entity wholly 

owned by corporate unitholders and an MLP owned in part by corporate unitholders for 

purposes of assessing income tax allowance eligibility.

3. Commission Determination

We deny both Process Gas’ and Enable’s rehearing requests. Commission policy 

supports the position adopted by Order No. 849.

Specifically, we reject Process Gas’ argument that Order No. 849 incorrectly 

permitted the wholly owned subsidiary of a corporation to claim an income tax allowance 

on FERC Form No. 501-G.114 Rather, the Commission’s standalone income tax policies 

have long permitted a wholly owned pipeline subsidiary to recover the income tax costs 

of its corporate parent that arise from jurisdictional service.

115 Moreover, under the 

 114 Order No. 849, 164 FERC ¶ 61,031 at P 57 (citing BP West Coast Products, 

LLC, 374 F.3d at 1289).

115 Under the stand-alone policy, a regulated entity is permitted an income tax 

allowance notwithstanding the fact that it is the corporate parent that pays the income tax 

on behalf of the regulated entity. City of Charlottesville v. FERC, 774 F.2d 1205, 1207-

1208 (D.C. Cir. 1985). See also BP West Coast Products, LLC, 374 F.3d at 1289 

(explaining that an income tax allowance is appropriate in the cost of service of a passthrough 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”). 

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 52 -

stand-alone methodology, it is not relevant that the income from the subsidiary allocated 

to the corporate parent may be offset by other deductions or losses of the parent or 

affiliates.116 Rather, as the D.C. Circuit has explained, under the stand-alone 

methodology, “pipeline ratepayers may be assessed with a tax expense when the 

consolidated company in fact pays no taxes.”117

Enable’s arguments are also unpersuasive. The Commission addressed similar 

arguments in its July 30, 2018 Enable MRT decision, which addressed Enable’s own 

NGA section 4 rate proceeding where Enable argued that an income tax allowance should 

be permitted for the income tax costs of its corporate MLP unitholders.118 In the Enable 

MRT decision, the Commission explained that United Airlines’ double-recovery concern 

precludes an income tax allowance for the income tax costs of corporate MLP unitholders 

as well as other MLP unitholders. The Enable MRT decision emphasized the distinction 

between (a) a pipeline organized as a pass-through entity that is owned by an MLP that 

has corporate unitholders; and (b) a pipeline organized as a pass-through entity that is a 

wholly owned subsidiary of a corporation. The Commission explained that an MLP 

 116 City of Charlottesville, 774 F.2d at 1215.

117 Id. (emphasis original).

118 Enable Mississippi River Transmission, LLC, 164 FERC ¶ 61,075, at PP 29-40 

(2018) (Enable MRT). Enable MRT was a wholly owned subsidiary of an MLP. 

Because 86 percent of the MLPs unitholders were corporations, Enable MRT claimed 

that it should receive an income tax allowance based upon the corporate income tax rate 

as applied to this 86 percent corporate ownership share.

(continued ...)
Docket Nos. RM18-11-001 and RP18-415-001 - 53 -

incurs no tax liability prior to making the distribution to its unitholders that is reflected in 

the DCF model’s determination of the MLP’s ROE.119 Thus, the MLP’s distribution 

includes funds that the corporate and individual unitholders may use to pay taxes on their 

share of the MLP’s income.120 In contrast, a corporation that wholly owns a pass-through 

pipeline pays the corporate income tax prior to the investor-level dividend reflected in the 

DCF model’s calculation of the pipeline’s ROE.121 Although a double-recovery results 

from granting a pipeline an income tax allowance to reflect the tax liability of corporate 

or other MLP unitholders, no double-recovery results from granting an income tax 

allowance to the wholly owned subsidiary of a corporation.122 Consistent with this logic, 

Order No. 849 permitted an income tax allowance for the wholly owned subsidiary of a 

corporation while denying an income tax allowance for the tax costs of an MLP’s 

corporate unitholders. 

In any case, in regard to both Enable’s and Process Gas’ concerns, we reiterate 

that the FERC Form No. 501-G serves a limited informational purpose involving the 

Commission’s exercise of its discretion to initiate NGA section 5 investigations of 

 119 Id. P 35.

120 Id.

121 Id.

122 Id.
Docket Nos. RM18-11-001 and RP18-415-001 - 54 -

interstate natural gas pipelines’ rates123 and the holdings of Order No. 849 do not 

establish a broader rule constraining pipelines or shippers from adopting contrary 

positions in other proceedings.124 

III. Document Availability

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.

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 

 123 As noted elsewhere in this order, the pipeline may also use FERC Form 

No. 501-G and an Appendix to FERC Form No. 501-G in any discretionary limited NGA 

section 4 rate reduction pursuant to Order No. 849. See supra note 106. However, 

regardless of the tax treatment of wholly owned corporate subsidiaries on the FERC 

Form No. 501-G, the pipeline in the Appendix could claim that as a subsidiary of a 

corporation it incurs a corporate income tax allowance. This Appendix could then serve 

as the basis for any rate adjustment pursuant to the limited NGA section 4 rate filings 

permitted by Order No. 849. 

124 See Order No. 849, 164 FERC ¶ 61,031 at P 135. The electronic version of 

FERC Form No. 501-G filed by a pipeline can easily be modified by any shipper to 

change the taxpaying status of the regulated entity and the shipper could attempt to use 

this as the basis of its own NGA section 5 complaint (as opposed to relying upon the 

Commission’s discretionary unilateral action). 
Docket Nos. RM18-11-001 and RP18-415-001 - 55 -

document in eLibrary, type the docket number excluding the last three digits in the 

docket number field.

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 ferconlinesupport@ferc.gov, or the Public Reference Room at 

(202) 502-8371, TTY (202) 502-8659. E-mail the Public Reference Room at 

public.referenceroom@ferc.gov.

By the Commission. Commissioner McNamee is not participating.

( S E A L )

Nathaniel J. Davis, Sr.,

Deputy Secretary.