Report of the Natural Gas Committee

Energy Law Journal, July 1, 2019 | Go to article overview

Report of the Natural Gas Committee


This report summarizes policy developments and legal decisions that occurred at the Federal Energy Regulatory Commission (FÉRC or the Commission), the Pipeline and Hazardous Materials Safety Administration (PHMSA), and the United States Courts of Appeals in the area of natural gas regulation between July 1, 2018, and June 30, 2019.·

I. Rulemaking Actions

A.FERC Order No. 849: Final Rule on Interstate and Intrastate Natural Gas Pipelines; Rate Changes Relating to the Federal Income Tax Rate

On July 18, 2018, the Commission issued Order No. 849, finalizing its procedures and regulations regarding the effect of reduced corporate income taxes under the 2018 Tax Cuts and Jobs Act (TCJA) on certain natural gas pipelines and their effective rates at the Commission.1 Order No. 849 requires interstate natural gas pipelines to submit Form No. 501-G, an abbreviated cost and revenue study designed to illustrate the effect of reduced corporate tax rates, which the FERC may then use to determine whether the pipeline's rates may be unjust and unreasonable under the Natural Gas Act (NGA).2 Exemptions to make the requisite Form 501-G filings are provided for pipelines in NGA section 4 or section 5 proceedings as of the Form 501-G filing deadline, and pipelines that file uncontested rate settlements between March 26, 2018, and their respective Form 501-G filing deadline.3

Previously, on March 15, 2018, the Commission issued a Notice of Proposed Rulemaking (NOPR) proposing to require interstate natural gas pipelines to file the new Form No. 501-G.4 In addition, the Commission proposed four options to natural gas pipelines to account for reduced corporate income taxes:

1) Simultaneous with the Form 501-G filing, make a limited NGA section 4 filing to reduce rates that reflect the pipeline's Form No. 501-G;

2) Commit to file either an uncontested rate settlement or a general NGA section 4 rate case before December 31, 2018 (if such a commitment is made, the Commission will not initiate an NGA section 5 investigation of its rates prior to that date);

3) File a statement explaining why no adjustment to rates is needed; or

4) Take no further action.5

In Order No. 849, the Commission made four adjustments to its original proposals in the NOPR. First, regarding the limited NGA section 4 filing, the Commission clarified that Form No. 501-G will "automatically enter a federal and state income tax of zero" for all tax pass-through entities, consistent with its revised policy statement on allowed income taxes.6 However, the Commission noted that a pipeline claiming a tax allowance may submit an addendum to the FERC Form No. 501-G justifying why an income tax allowance should be included.7 Second, a Master Limited Partnership (MLP) pipeline choosing to make a limited section 4 rate filing (under option 1 above) is permitted to reflect only the income tax reductions from the TCJA (i.e. may, but is not required, to eliminate its tax allowance in compliance).8 Third, for pipelines choosing to make the limited section 4 rate filing, the Commission guarantees a three-year moratorium from NGA section 5 rate investigations if the pipeline's FERC Form 501-G shows the pipeline's estimated return on equity is 12% or less.9 Fourth, a natural gas company that is organized as a pass-through entity whose entire income or losses are consolidated on the federal income tax return of its corporate parent is subject to the federal corporate income tax and is eligible for a tax allowance.10

The Commission explained in Order No. 849 that each Form 501-G filing will be docketed separately, allowing interested parties to intervene, protest, and comment within twelve days of the filing.11 Under Order No. 849, the Commission would then either choose to institute an NGA section 5 rate investigation or issue a notice accepting the filing.12 Order No. 849 became effective September 13, 2018, forty-five days after date of publication in the Federal Register. …

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