Commissioner Cheryl A. LaFleur
July 18, 2018
Docket Nos. RM18-11-000, RP18-415-000 & PL17-1-001
“In companion orders issued today, the Commission (1) affirms the Revised Policy Statement on Treatment of Income Taxes (Revised Policy Statement) issued in response to the decision of the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) in United Airlines; 1 (2) provides guidance regarding the treatment of Accumulated Deferred Income Taxes (ADIT) where the income tax allowance is eliminated from cost-of-service rates under the Commission’s post-United Airlines policy; and (3) issues a Final Rule that establishes procedures for the Commission to determine 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.
These are significant orders, and we write separately to provide some additional thoughts regarding these decisions.
“First, with respect to the ADIT guidance issued today, we confess to some frustration that the rate benefits that customers and shippers would otherwise receive from the Revised Policy Statement may be significantly reduced by the treatment of ADIT announced in today’s orders. As a matter of equity, we believe that the arguments for applying previously-accrued ADIT balances to reduce future rate base where a tax allowance is eliminated are compelling. However, based on the arguments presented in this docket regarding the Commission’s authority to mandate those reductions on a generic basis, it appears that such a directive would run afoul of the rule against retroactive ratemaking, as interpreted by the D.C. Circuit in Public Utilities Commission of State of California v. FERC. 2
Nonetheless, we note that today’s order is simply guidance, and to the extent that customers or shippers in individual proceedings argue that such a reduction is legal in specific cases, we will consider those arguments on the appropriate record.
“Second, we believe that today’s Final Rule sharply highlights the need for a legislative fix to the lack of refund authority in Section 5 of the Natural Gas Act (NGA). 3
Under current law, the Commission’s ability to protect natural gas customers against unjust and unreasonable rates is compromised by its inability to set a refund date.
We believe that current law provides a perverse incentive for protracted litigation and creates an asymmetry of leverage between pipelines seeking a rate increase under Section 4 of the NGA and complainants or the Commission under Section 5.
“With respect to the Final Rule, we believe that our lack of refund authority affected the balance the Commission was able to strike in today’s order. It is a clear tenet of cost-of-service ratemaking that tax savings should flow through to ratepayers, and the Commission is rightly pursuing that goal in the Final Rule.
However, because our Section 5 “stick” under the NGA cannot effectively deliver timely relief to customers, the Final Rule proffers a series of “carrots” in the hope that pipelines will exercise their Section 4 filing rights to quickly flow those tax benefits back to their customers. While we think the balance struck in the Final Rule is reasonable in light of our limited refund authority, we believe that the Commission would be better equipped to protect customers if the law were amended.
“Accordingly, we respectfully concur.”