FERC Initiates Sweeping Reform of Ratemaking Treatment for Income Taxes -

On March 15, 2018, the Federal Energy Regulatory Commission (FERC) released a series of issuances intended to address the need to reflect the lower maximum corporate income tax rate adopted under the Tax Cuts and Jobs Act of 2017 in the regulated cost-based or indexed rates of interstate natural gas pipelines, oil pipelines and electric utilities. At the same time, FERC acted, in response to a Court of Appeals remand order, to deny an oil pipeline then owned by a master limited partnership (MLP) the opportunity to include an allowance for income taxes paid by the MLP’s investor owners in calculating the pipeline’s jurisdictional rates. FERC proposed to modify its policy permitting such income tax allowances for all FERC-regulated entities owned by MLPs and suggested that this new policy is likely to extend to “pass-through” entities other than MLPs (such as limited liability companies). FERC noted that implementation of the policy changes proposed or announced in these issuances will ultimately lower energy bills paid by consumers.

Late last year Congress passed the Tax Cuts and Jobs Act of 2017 (Act), which the President signed into law on December 22, 2017. A central feature of the Act is to reduce the maximum corporate income tax rate from 35% to a flat 21% effective January 1, 2018. FERC came under pressure from pipeline and utility customer groups and state officials to reduce interstate natural gas pipeline, oil pipeline and FERC-jurisdictional electric rates to reflect the new, lower tax rate...