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In Brief

On United Airlines Remand, FERC Disallows Income Tax Allowance for a Pipeline MLP and Issues a Revised Policy Statement on Treatment of Income Taxes

22 March 2018
Mayer Brown In Brief

As noted in our earlier In Brief, the United States Court of Appeals for the District of Columbia Circuit in United Airlines 1 held that the 2005 Policy Statement on Income Tax Allowances 2 of the Federal Energy Regulatory Commission (FERC) had not been adequately supported and was arbitrary and capricious. In late 2016, FERC issued a Notice of Inquiry 3 seeking comments on how to address any double recovery resulting from the 2005 Policy Statement.

On March 15, 2018, FERC issued an Order on Remand 4 in Docket Nos. IS08-390-008 and -009 re SFPP, L.P. effectively acknowledging that allowing both an income tax allowance (ITA) regarding ITAs and a return on equity (ROE) determined using a discounted cash flow (DCF) methodology could result in a double recovery, and as a result, FERC denied SFPP an ITA.

Also on March 15, 2018, FERC issued a revised Policy Statement on Treatment of Income Taxes 5 that requires all partnerships seeking an ITA to address the concern of double recovery and that FERC will do so at the appropriate time as such issues arise in subsequent proceedings.

For more information about the topics raised in this Legal Update, please contact Paul Forrester.

Learn more about our Energy practice.

Visit us at mayerbrown.com.

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1 United Airlines, Inc v. FERC, 827 F.3rd 122 (D.C. Cir. 2016).

2 Policy Statement on Income Tax Allowances, 111 FERC ¶ 61,139 (2005).

3 Inquiry Regarding the Commission’s Policy for Recovery Income Tax Costs, 157 FERC ¶61,210 (December 15, 2016).

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

5 Revised Policy Statement on Treatment of Income Tax Costs, 162 FERC ¶ 61,227 (March 15, 2018).

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