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D.C. Circuit Reopens Controversy Concerning Regulated Master Limited Partnership Taxation

On Friday, July 1, 2016, a panel of the United States Court of Appeals for the District of Columbia Circuit reopened the issue of whether pipelines organized as partnerships can claim a tax allowance for ratemaking purposes in United Airlines Inc., et al. v. FERC, et al., No. 11-1479.  This decision is the third chapter in litigation arising out of challenges to the rates of SFPP, L.P., a common carrier pipeline regulated by FERC under the Interstate Commerce Act; however, the decision has potentially broader applicability to any FERC regulated utility partnership operating under cost-based rates.

In 2004, a panel of the D.C. Circuit held that FERC had failed adequately to explain its rationale for permitting pipeline partnerships to recover an income tax allowance and remanded the issue to FERC for further review.  BP West Coast Products, LLC v. FERC, 374 F.3d 1263 (D.C. Cir).  Following proceedings on remand, FERC permitted pipeline partnerships to recover a tax allowance based on taxes paid by partner-investors that were attributable to partnership earnings.  The D.C. Circuit subsequently affirmed FERC’s decision.  ExxonMobil Corp. v. FERC, 487 F.3d 945 (D.C. Cir. 2007). 

In United Airlines, the panel held that, in its ExxonMobil decision, it had implicitly reserved the question of whether the interaction of FERC’s use of (1) a discounted cash flow methodology that ensured pipelines an adequate after-tax return to attract investment, and (2) an income tax allowance, resulted in a “double-recovery” of income taxes.  The panel found that FERC had not adequately justified its policy and remanded for further procedures in order for FERC to demonstrate no such double recovery .

© Copyright 2021 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume VI, Number 188



About this Author

Mark Haskell, Cadwallader Law Firm, Energy and Commodities Attorney

Mark R. Haskell advises clients on matters related to the U.S. Federal Energy Regulatory Commission (FERC), including FERC investigations, litigation and related court appeals, and Commodity Futures Trading Commission (CFTC) investigations affecting the energy industry. Mark represents natural gas and power marketers, local distribution companies, end users, producers, industrial consumers, and liquefied natural gas (LNG) and shale gas developers in energy regulatory matters.

As a natural gas litigator, Mark handles...

Thomas Reid Millar, Cadwalader, regulatory proceedings Attorney, FERC electric matters lawyer

Tom Millar focuses his practice on representing energy and commodity companies and financial institutions in a variety of investigatory, transactional and regulatory matters. He regularly assists clients in regulatory proceedings before FERC on electric matters, including general rulemakings, ISO/RTO proceedings, and Federal Power Act Section 203 and 205 proceedings.

Tom’s energy and commodity clients value the insight his litigation background offers in regulatory and investigatory matters. Among his most significant and high-profile...

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Brett Snyder, Cadwalader, Project certification lawyer, gas infrastructure attorney
Special Counsel

Brett A. Snyder focuses his practice on the U.S. federal regulation of the natural gas, oil, and natural gas liquids industries and the negotiation of related commercial agreements. He advises clients regarding the certification of new natural gas infrastructure projects. Brett regularly represents energy industry clients in complex administrative and rate litigation and in agency investigations before the Federal Energy Regulatory Commission (FERC), Department of Energy, the Commodity Futures Trading Commission (CFTC), Federal Communications Commission (FCC) and in U.S...

202 862 2252