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.