Court Orders FERC to Revisit Pipeline Charges

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Publication August 11, 2016

Gas-fired power plants that buy gas at the field and then pay a pipeline to transport it may get a break on transportation charges, at least by pipelines that are owned by partnerships.

United, Delta, Southwest, US Airways and several refineries sued the Federal Energy Regulatory Commission challenging a decision by FERC to let SFPP, L.P., a partnership that owns gas pipelines that carry refined petroleum products in the western United States, charge rates for transportation that include an income tax allowance even though, as a partnership, the company is not subject to income taxes. Any taxes on its income would be paid by the partners directly.

A US appeals court directed FERC to take another look at the matter. The case is United Airlines v. FERC. The court released its decision on July 1.

The airlines argued that the pipeline is getting an unnecessary additional recovery because the rate-of-return approach that FERC uses to set rates already calculates what pipeline investors need to earn on a pre-tax basis to make the investment.

Most oil and gas pipelines are owned by partnerships. Thomas Hirsch, a regulatory lawyer with Chadbourne in Washington, said FERC could start a rulemaking or policy statement proceeding and ask all industry participants for comments, or it could choose to deal with the issue on a case-by-case basis. He said he expects FERC to issue an order this fall indicating how it plans to proceed. Pipeline customers are expected to use the court’s opinion to argue for lower maximum cost-of-service rates for the pipelines.


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