On July 1, 2016, the D.C. Circuit held that the Federal Energy Regulatory Commission (FERC) had not adequately supported it decision to include an income tax allowance in the transportation rates of an oil pipeline organized as a limited partnership. Finding that FERC “failed to demonstrate that there is no double-recovery of taxes for partnership, as opposed to corporate pipelines,” the court vacated FERC’s orders and remanded the case to the agency for further proceedings. The court made clear that, on remand, FERC is free to continue to provide partnership pipelines with an income tax allowance if it either (1) provides a sufficient explanation that its current policy does not result in double-recovery of taxes for such pipelines, or (2) takes another approach to assure there is no double-recovery. Depending on how FERC rules on remand, its decision could have a significant impact on the rates of interstate oil and gas pipelines that are organized as limited partnerships.
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