In March 2018, FERC issued a Revised Policy Statement and Opinion No. 511-C, the remand order pursuant to United Airlines (a DC Court of Appeals decision addressing income taxes for master limited partnerships (MLP)). These FERC decisions explained that United Airlines’ income tax double-recovery concern precludes an MLP pipeline from claiming an income tax allowance in its cost of service based upon two findings:
On February 21, 2019, FERC issued an Order (Docket No. RP18-922) preliminarily finding that Trailblazer Pipeline’s rates should not include an income tax allowance on that part of investor supplied capital that is from certain Private Owners as the Private Owners incur only one level of taxation, specifically a personal income tax, and the DCF ROE incorporates investor-level taxes. Thus, because the Private Owners incur only one level of taxes on Trailblazer’s income and the DCF ROE already includes a level of taxation, providing the Private Owners an income tax allowance in the Trailblazer cost of service would compensate the Private Owners twice for their single level of taxation. FERC also preliminarily found that it is proper to include an income tax allowance in Trailblazer’s rates for the part of investor supplied capital coming from its parent corporation, which does pay corporate taxes. In summary, FERC found that:
FERC emphasized that these findings, which address complex factual and policy matters, are preliminary and may change based upon subsequent evidence and argument from the ongoing administrative law judge hearing where these issues are to be fully litigated.
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Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.