165 FERC ¶ 61,111

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Neil Chatterjee, Chairman;

 Cheryl A. LaFleur and Richard Glick.

North Baja Pipeline, LLC Docket Nos. RP19-71-000

RP19-72-000

ORDER ON RATE REDUCTION FILING AND FERC FORM NO. 501-G

(Issued November 15, 2018)

On October 11, 2018, in Docket No. RP19-72-000, North Baja Pipeline, LLC 

(North Baja) filed a revised tariff record1 pursuant to section 4 of the Natural Gas Act 

(NGA) to implement a rate reduction consistent with section 154.404 of the 

Commission’s regulations.2

 The Commission accepts North Baja’s tariff record effective 

December 1, 2018, as proposed. 

 1 North Baja Pipeline, LLC, FERC NGA Gas Tariff, North Baja Tariffs, 4.1 -

Statement of Rates, FTS-1, ITS-1, PAL-1 Rates & ACA Surcharge, 4.0.0.

2 18 C.F.R. § 154.404(a) (2018), which provides:

Purpose. The limited rate filing permitted by this section is 

intended to permit:

(1) a natural gas company subject to the federal corporate 

income tax to reduce its maximum rates to reflect the 

decrease in the federal corporate income tax rate pursuant to 

the Tax Cuts and Jobs Act of 2017, and

(2) a natural gas company organized as a pass-through entity 

either (i) to eliminate any income tax allowance and 

accumulated deferred income taxes reflected in its current 

rates or (ii) to reduce its maximum rates to reflect the 

decrease in the federal income tax rates applicable to partners 

pursuant to the Tax Cuts and Jobs Act of 2017.
Docket Nos. RP19-71-000 and RP19-72-000 - 2 -

I. Background and Proposal 

On July 18, 2018, the Commission issued Order No. 849,

3 a final rule adopting 

procedures for determining which jurisdictional natural gas pipelines may be collecting 

unjust and unreasonable rates in light of: (1) the income tax reductions provided by the 

Tax Cuts and Jobs Act

4

; and (2) the Commission’s Revised Policy Statement5 and 

Opinion No. 511-C6 establishing a policy that master limited partnerships (MLPs) may 

not recover an income tax allowance in response to the decision of the United States 

Court of Appeals for the District of Columbia Circuit (D.C. Circuit) in United Airlines.

7

 

Order No. 849 required, 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 a FERC Form No. 501-G informational filing.8

 The FERC Form No. 

501-G is designed to collect financial information to evaluate the impact of the Tax Cuts 

and Jobs Act and United Airlines Issuances on interstate natural gas pipelines’ revenue 

requirements. Using the data in the pipelines’ 2017 FERC Form Nos. 2 and 2-A, the

form estimates: (1) the percentage reduction in the pipeline’s cost of service resulting 

from the Tax Cuts and Jobs Act and the Revised Policy Statement; and (2) the pipeline’s 

current ROEs before and after the reduction in corporate income taxes and the 

elimination of income tax allowances for MLP pipelines. 

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

Federal Income Tax Rate, Order No. 849, 83 Fed. Reg. 36,672 (July 30, 2018), FERC 

Stats. & Regs. ¶ 31,404 (2018) (cross-referenced at 164 FERC ¶ 61,031) (Order 

No. 849).

4 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).

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

Revised Policy Statement, 83 FR 12,362 (Mar. 21, 2018), FERC Stats & Regs. ¶ 35,060 

(2018), order on reh’g, 164 FERC ¶ 61,030 (2018). 

6 SFPP, L.P., Opinion No. 511-C, 162 FERC ¶ 61,228, at P 9 (2018).

7 United Airlines, Inc. v. FERC, 827 F.3d 122 (D.C. Cir. 2016). For purposes of 

this order, the Revised Policy Statement, United Airlines, and Opinion No. 511-C will 

collectively be referred to as “United Airlines Issuances.”

8 The One-time Report on Rate Effect of the Tax Cuts and Jobs Act is referred to 

interchangeably as “One-time Report” or “FERC Form No. 501-G.”
Docket Nos. RP19-71-000 and RP19-72-000 - 3 -

Order No. 849 also provided several options each interstate natural gas pipeline 

may choose from to address the changes to the pipeline’s revenue requirement as a result 

of the income tax reductions, including a limited NGA section 4 rate reduction filing. 

Order No. 849 adopted section 154.404 of the Commission’s regulations, authorizing 

natural gas pipelines to submit limited NGA section 4 filings to reduce their rates to 

reflect the Tax Cuts and Jobs Act and the United Airlines Issuances, without making any 

other rate changes. Section 154.404 permits pass-through pipelines, including MLPs, to 

either eliminate their tax allowances or reduce their rates to reflect the reduced income 

tax expenses provided by the Tax Cuts and Jobs Act. In order to provide an additional 

incentive for pipelines to make a limited NGA section 4 rate reduction filing, Order 

No. 849 included a guarantee that the Commission will not, for a three-year moratorium 

period, initiate an NGA section 5 rate investigation of a pipeline that makes such a filing, 

if that filing reduces the pipeline’s ROE to 12 percent or less.9

On October 11, 2018, in Docket No. RP19-71-000, North Baja filed FERC Form 

No. 501-G consistent with the reporting requirements of Order No. 849. North Baja’s 

FERC Form No. 501-G shows an indicated cost-of-service reduction of 5.1 percent, 

reflecting a reduction in its total cost of service of approximately $1.2 million, after 

adjustment to reflect the Tax Cuts and Jobs Act and United Airlines Issuances. The 

FERC Form No. 501-G also shows that North Baja’s Total Estimated ROE would be 

47.9 percent. Additionally, in Docket No. RP19-71-000, North Baja filed an Adjusted 

FERC Form No. 501-G in an Addendum. In the Addendum, North Baja adjusted its 

capital structure to reflect that it is adding debt to its existing capitalization and acquiring 

a credit rating, such that North Baja will meet the Commission’s criteria for utilizing its 

own capital structure. North Baja added $42,205,883 in long-term debt to its 

Addendum,

10 resulting in an adjusted total cost of service of $25,863,781. North Baja 

also adjusted its overall revenues, stating that approximately 80 percent of its revenues 

reflected in the 2017 FERC Form No. 2 are under negotiated rate contracts.11 North Baja 

states that its Addendum shows an indicated cost-of-service reduction of 10.8 percent and 

 9 Order No. 849, FERC Stats. & Regs. ¶ 31,404 at PP 199-200.

10 North Baja’s target capitalization upon adding the new debt will be 

approximately 35.0 percent debt and 65.0 percent equity, as shown on page 2, line 23, 

column (C) and line 25, column (C) of the Adjusted FERC Form No. 501-G.

11 The calculation of the adjustment is shown on Workpaper 2, and results in a 

reduction of $7,814,892 in total revenue. This reduction is reflected in the Total 

Adjusted Revenue on page 3, line 6, column (d) of the Adjusted FERC Form No. 501-G 

[$38,796,754 (Column C, line 6) - $7,814,892 = $30,981,862 (Column D, line 6)].
Docket Nos. RP19-71-000 and RP19-72-000 - 4 -

a Total Estimated ROE of 12.7 percent,

12 after adjustment to reflect the Tax Cuts and 

Jobs Act and United Airlines Issuances.

On October 11, 2018, in Docket No. RP19-72-000, North Baja filed a limited 

NGA section 4 rate reduction pursuant to section 154.404 of the Commission’s 

regulations. North Baja proposes to reduce its currently effective rates by the 

10.8 percent cost-of-service reduction shown in its Addendum, rather than the 5.1 percent 

cost-of-service reduction shown in its FERC Form No. 501-G. North Baja notes that it 

was 100 percent MLP-owned in 2017, and therefore, this limited NGA section 4 rate 

reduction filing eliminates its income tax allowance and associated accumulated deferred 

income taxes from North Baja’s rates and general ledger, consistent with Commission 

policy.13 North Baja proposes that its rate reduction be effective December 1, 2018. 

II. Notice of Filing, Interventions, and Protests

Public notice of North Baja’s FERC Form No. 501-G filing in Docket No. RP19-

71-000 was issued on October 15, 2018. Public notice of North Baja’s limited NGA 

section 4 filing in Docket No. RP19-72-000 was also issued on October 15, 2018. 

Interventions and protests were due as provided in section 154.210 of the Commission's 

regulations.14 Pursuant to Rule 214,15 all timely filed motions to intervene and any 

unopposed motions to intervene filed out-of-time before the issuance date of this order 

are granted. Granting late intervention at this stage of the proceeding will not disrupt this 

proceeding or place additional burdens on existing parties. No protests or adverse 

comments were filed.

III. Discussion

The Commission finds that North Baja’s proposal to implement a rate reduction 

of 10.8 percent based on its Adjusted FERC Form No. 501-G is consistent with 

section 154.404 of the Commission’s regulations and provides a net benefit to 

North Baja’s customers. Accordingly, the Commission accepts North Baja’s referenced 

tariff record to be effective December 1, 2018.

 12 The 12.7 percent ROE reflects the “Rate Moratorium Option 12 [Percent] ROE 

Test” as shown on page 3, line 26, column (E) of the Addendum.

13 Docket No. RP19-72-000 Transmittal at 2 & n.5.

14 18 C.F.R. § 154.210 (2018).

15 18 C.F.R. § 385.214.
Docket Nos. RP19-71-000 and RP19-72-000 - 5 -

The Commission notes that North Baja’s FERC Form No. 501-G reflects a Total 

Estimated ROE of 47.9 percent,16 after adjustment to reflect the Tax Cuts and Jobs Act 

and United Airlines Issuances. As such, North Baja is not eligible for the three-year 

moratorium period established in Order No. 849. Therefore, although the Commission is 

accepting North Baja’s rate reduction filing, the Commission is not precluded from 

establishing a hearing under NGA section 5 to investigate whether a further rate 

reduction is justified in Docket No. RP19-71-000.

The Commission orders:

North Baja’s tariff record as noted above is accepted, effective December 1, 2018.

By the Commission. Commissioner McIntyre is not voting on this order.

( S E A L )

Nathaniel J. Davis, Sr.,

Deputy Secretary.

 16 North Baja FERC Form No. 501-G, page 3, line 26, column (E).