Overview
FERC Will Disallow Income Tax Allowance Cost Recovery in MLP Pipeline Rates: Today the Federal Energy Regulatory Commission (FERC) announced that it would no longer allow master limited partnership (MLP) interstate natural gas and oil pipelines to recover an income tax allowance in cost of service rates. The U.S. Court of Appeals for the District of Columbia Circuit in United Airlines, Inc. v. FERC, 827 F.3d 122 (DC Cir. 2016) held that FERC failed to demonstrate there was no double recovery of income tax costs when permitting an MLP to recover both an income tax allowance and a return on equity determined by the discounted cash flow methodology. FERC will now revise its 2005 Policy Statement for Recovery of Income Tax Costs so that it no longer will allow MLPs to recover an income tax allowance in the cost of service.
FERC Also Addresses Tax Law Changes for Electricity, Natural Gas, Oil Companies: Today FERC addressed changes in the income tax rates for the electric transmission and natural gas and oil pipeline companies that it regulates, stemming from the passage of tax reform, P.L. 115-97. With respect to electric transmission companies, FERC issued two Federal Power Act show-cause orders involving 48 companies whose transmission tariffs specifically reference tax rates of 35 percent, directing the companies to propose revisions to their transmission rates or show why they should not do so. FERC also issued two waivers that allow Public Service Company of Colorado and certain transmission owners within the MISO (Midcontinent Independent System Operator) to allow for mid-year rate adjustments to reflect the law. With respect to natural gas companies, FERC issued a Notice of Proposed Rulemaking that would allow FERC to determine which pipelines under the Natural Gas Act may be collecting unjust and unreasonable rates in light of the corporate tax reduction and changes to FERC’s income tax allowance policies following the United Airlines decision. FERC said that it will address tax changes for the oil pipelines it regulates in the 2020 five-year review of the oil pipeline index level.
MEPs Approve New EU Corporate Tax Plan Embracing 'Digital Presence': Members of the European Parliament (MEPs) have approved two measures that are aimed at plugging the gaps which have allowed some digital and global companies to reduce drastically their tax bills or avoid paying taxes where they create profits. The measures provide for proposed benchmarks which would identify whether a firm has a “digital presence” within an EU member state and is therefore liable for tax.
Miscellaneous Guidance: Notice 2018-22 provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under section 417(e)(3), and the 24-month average segment rates under section 430(h)(2) of the Internal Revenue Code. In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under section 431(c)(6)(E)(ii)(I).