Dominion Energy filed what is likely to be the first of many requests asking FERC to either reverse, revise or clarify FERC's new Master Limited Partnership (MLP) tax allowance policy. One of Dominion's key substantive arguments, which FERC may choose to reconsider, relates to how FERC's new policy will apply to pipelines that are held by an MLP, but owned, directly or indirectly, by a C corporation. Many of Dominion's other arguments were previously considered by FERC on March 15, when it issued the new policy, or are procedural in nature, and appear to have a lower likelihood of reconsideration.
Dominion primarily seeks clarity about how the policy applies to an MLP that it describes as "a subsidiary of a C-corporation." Under our analysis of the new policy statement, we indicated that FERC did not address questions like the one posed by Dominion, but left such issues for determination in subsequent proceedings, namely rate cases under Section 4 or 5 of the Natural Gas Act.
Dominion's interest in this issue is understandable because, in addition to announcing the policy change on March 15, FERC also launched a Section 5 rate investigation against Dominion Energy Overthrust Pipeline (Overthrust). According to Dominion, as a result of FERC's March 15 actions, Dominion lost nearly $3.7 billion of market capitalization, and the MLP that owns Overthrust, Dominion Energy Midstream Partners, L.P., (Dominion Midstream), for which Dominion acts as the general partner, lost over $700 million of market capitalization, or 40 percent.
When FERC launched the Section 5 rate investigation against Overthrust, it calculated Overthrust's Return on Equity both with, and without, a tax allowance, apparently based on its view that Overthrust was an MLP-owned pipeline. However, we expect that Dominion will assert in that proceeding that the new policy should not apply to Overthrust because it is, in fact, a "subsidiary" of a C corporation, Dominion Energy.
If FERC has not previously answered the question posed by Dominion, it may prefer to address it in the Overthrust case, rather than upfront, because, as demonstrated in the ownership chart from Dominion Midstream's 10K (available here on pg. 7), the ownership structures of these entities are often not straightforward. If FERC addresses this matter as part of the Section 5 rate investigation against Overthrust, it may not do so until staff files briefs leading up to the hearing in January 2019, based on the March 23 Order on Pre-hearing Conference.
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