[Federal Register Volume 78, Number 142 (Wednesday, July 24, 2013)]
[Rules and Regulations]
[Pages 44424-44432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-17729]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 357

[Docket No. RM12-18-000; Order No. 783]


Revisions to Page 700 of FERC Form No. 6

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
modifying Page 700 of FERC Form No. 6 (Form 6) to facilitate the 
calculation of an oil pipeline's actual return on equity for 
preliminary screening purposes. The Commission will expand the 
information provided regarding Rate Base (line 5), Rate of Return (line 
6), Return on Rate Base (line 7), and Income Tax Allowance (line 8).

DATES: Effective Date: This rule will become effective September 23, 
2013.

FOR FURTHER INFORMATION CONTACT:
James Sarikas (Technical Information), Office of Energy Market 
Regulation, 888 First Street NE., Washington, DC 20426, (202) 502-6831, 
[email protected].
Brian Holmes (Technical Information), Office of Enforcement, 888 First 
Street NE., Washington, DC 20426, (202) 502-6008, 
[email protected].
Andrew Knudsen (Legal Information), Office of the General Counsel, 888 
First Street NE., Washington, DC 20426, (202) 502-6527, 
[email protected].

SUPPLEMENTARY INFORMATION:

144 FERC ] 61,049

Final Rule

Table of Contents

 
                                                               Paragraph
                                                                 Nos.
 
I. Introduction.............................................           1
II. Background..............................................           2
III. NOPR Comments..........................................           6
IV. Discussion..............................................           7
    A. Rate Base............................................           9

[[Page 44425]]

 
        1. NOPR.............................................           9
        2. Comments.........................................          10
        3. Commission Determination.........................          11
    B. Rate of Return.......................................          12
        1. NOPR.............................................          12
        2. Comments.........................................          13
        3. Commission Determination.........................          15
    C. Return on Rate Base..................................          19
        1. NOPR.............................................          19
        2. Comments.........................................          20
        3. Commission Determination.........................          21
    D. Composite Income Tax Rate............................          22
        1. NOPR.............................................          22
        2. Comments.........................................          24
        3. Commission Determination.........................          26
    E. Calculation of Actual Rate of Return on Equity.......          29
        1. NOPR.............................................          29
        2. Comments.........................................          31
        3. Commission Determination.........................          36
    F. Miscellaneous Recommendations........................          41
        1. Comments.........................................          41
        2. Commission Determination.........................          45
    G. Conclusion...........................................          46
    H. Effective Date.......................................          47
V. Information Collection Statement.........................          48
    A. The NOPR.............................................          48
    B. Comments.............................................          50
    C. Commission Determination.............................          51
VI. Environmental Analysis..................................          52
VII. Regulatory Flexibility Act.............................          53
VIII. Document Availability.................................          55
IX. Effective Date and Congressional Notification...........          58
 

144 FERC ] 61,049

Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller, 
John R. Norris, Cheryl A. LaFleur, and Tony Clark.

Final Rule

(Issued July 18, 2013)

I. Introduction

    1. The Federal Energy Regulatory Commission (Commission) is issuing 
this Final Rule to modify the reporting requirements on Page 700, 
Annual Cost of Service Based Analysis Schedule, of FERC Form No. 6, 
Annual Report of Oil Pipeline Companies (Form 6), to facilitate the 
calculation of an oil pipeline's actual rate of return on equity based 
upon Page 700 data for preliminary screening purposes. The 
modifications to Page 700 include requiring additional information 
regarding rate base, rate of return, return on rate base, and income 
taxes.

II. Background

    2. The Commission is responsible for regulating the rates, terms 
and conditions that oil pipelines charge for transportation under the 
Interstate Commerce Act (ICA).\1\ The ICA prohibits oil pipelines from 
charging rates that are unjust and unreasonable and permits shippers 
and the Commission to challenge both pre-existing and newly filed 
rates.\2\
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    \1\ 49 App. U.S.C. 1-85 (2000).
    \2\ 49 U.S.C. 13(1), 15(1), (7). Just and reasonable rate are 
``rates yielding sufficient revenue to cover all proper costs, 
including federal income taxes, plus a specified return on invested 
capital.'' City of Charlottesville v. FERC, 774 F.2d 1205, 1207 
(D.C. Cir. 1985).
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    3. To assist the Commission in the administration of its 
jurisdictional responsibilities, the ICA authorizes the Commission to 
prescribe annual or other periodic reports.\3\ Through Form 6, the 
Commission collects annual financial information from crude and refined 
product pipelines \4\ subject to the Commission's jurisdiction, as 
prescribed in section 357.2 of the Commission's regulations.\5\
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    \3\ 49 App. U.S.C. 1-85 (2000).
    \4\ Hereafter, the term oil pipeline shall include both crude 
and refined product oil pipelines.
    \5\ 18 CFR 357.2 (2012).
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    4. Page 700 of Form 6 provides a simplified presentation of an oil 
pipeline's jurisdictional cost-of-service. Page 700 serves as a 
preliminary screening tool to evaluate oil pipeline rates.\6\ However, 
``Page 700 information alone is not intended to show what a just and 
reasonable rate should be.'' \7\ Currently, oil pipelines are required 
to provide the following on Page 700: Operating and Maintenance 
Expenses (line 1), Depreciation Expense (line 2), AFUDC Depreciation 
(line 3), Amortization of Deferred Earnings (line 4), Rate Base (line 
5), Rate of Return (line 6), Return on Rate Base (line 7), Income Tax 
Allowance (line 8), Total Cost of Service (line 9), Total Interstate 
Operating Revenues (line 10), Total Interstate Throughput in Barrels 
(line 11), and Total Interstate Throughput in Barrel-Miles (line 12).
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    \6\ All jurisdictional oil pipelines, except the Trans-Alaskan 
oil pipeline System (TAPS) oil pipelines, are required to file Page 
700, including oil pipelines exempt from filing the full Form 6. 18 
CFR 357.2(a)(2) and (a)(3) (2012). Section 1804(2)(B) of the Energy 
Policy Act of 1992 excludes from the provisions of the Act, for 
ratemaking purposes, TAPS and any oil pipeline delivering oil 
directly or indirectly to TAPS. Therefore, the Commission exempted 
the TAPS entities from having to submit the information required on 
Page 700. Cost of Service Requirements and Filing Requirements for 
Oil Pipelines, Order No. 571, FERC Stats. & Regs. ] 31,006, at 
31,175 (1995), on reh'g, Order No. 571-A, FERC Stats. & Regs. ] 
31,012 (1994). 
    \7\ Order No. 571-A, FERC Stats. & Regs. ] 31,012 at 31,254.
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    5. On September 20, 2012, consistent with its obligation to ensure 
oil pipeline rates are just and reasonable, the Commission issued a 
Notice of Proposed Rulemaking (NOPR) proposing to modify the reporting 
requirements on Page 700 of Form 6 to allow shippers and interested 
entities to more easily calculate an oil pipeline's actual rate of 
return on equity for

[[Page 44426]]

preliminary screening purposes.\8\ The NOPR reasoned the actual rate of 
return on equity is particularly useful information when using Page 700 
to make a preliminary evaluation of an oil pipeline's rates consistent 
with the Commission's mandate under the ICA. To this end, the NOPR 
proposed to make changes to Page 700 to include additional supporting 
information the Commission anticipates is already developed in the 
preparation of the rate base, rate of return, return on rate base, and 
income taxes reported on Page 700.
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    \8\ Revisions to Page 700 of FERC Form No. 6, 77 FR 59343 (Sept. 
9, 2012), FERC Stats. & Regs. ] 32,692 (2012) (NOPR).
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III. NOPR Comments

    6. The Association of Oil Pipelines (AOPL),\9\ the Kansas 
Corporation Commission (KCC), R. Gordon Gooch (Mr. Gooch), Airlines for 
America (A4A) \10\ and the National Propane Gas Association (NPGA),\11\ 
the Canadian Association of Petroleum Producers (CAPP), Suncor Energy 
Marketing Inc. (Suncor), ConocoPhillips Co. (ConocoPhillips), BP West 
Coast Products, LLC and Western Refining Company, L.P. (collectively, 
BP), and Valero Marketing and Supply Company (Valero) filed comments in 
response to the Commission's NOPR. Suncor and AOPL filed reply 
comments. The comments are addressed below.
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    \9\ AOPL is a trade association that represents the interests of 
common carrier oil pipelines. AOPL's members transport almost 85 
percent of the crude oil and refined petroleum products shipped 
through oil pipelines in the U.S.
    \10\ A4A is an airline trade association whose members account 
for more than 90 percent of the passenger and cargo traffic carried 
by U.S. airlines.
    \11\ NPGA is a trade association of the U.S. propane industry 
with a membership of about 3,000 companies, including 38 affiliated 
state and regional associations representing members in all 50 
states.
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IV. Discussion

    7. The majority of commenters support the NOPR. In contrast, the 
Association of Oil Pipelines (AOPL) believes the proposed modifications 
are unnecessary. We address AOPL's arguments below.
    8. As discussed below, the Commission adopts, with minor 
modifications to the labeling of the additional lines on Page 700, the 
NOPR's proposal to enhance the information provided on Page 700 related 
to rate base, rate of return, return on rate base, and income tax 
allowance.

A. Rate Base

1. NOPR
    9. The NOPR observed that ``[c]omponents of an oil pipeline's rate 
base are governed by the trended original cost methodology adopted in 
Opinion No. 154-B.'' \12\ Under this methodology, an oil pipeline's 
rate base consists of: (1) The depreciated original cost rate base, (2) 
any unamortized amounts from the oil pipeline's starting rate base 
write-up (SRB), and (3) accumulated net deferred earnings. Consistent 
with Opinion No. 154-B,\13\ the NOPR proposed to enhance the reporting 
of the total trended original cost (TOC) rate base information provided 
on line 5 of page 700 by requiring the reporting of the three subparts 
of the TOC rate base: (1) Rate Base--Original Cost (proposed line 5a); 
(2) Rate Base--Unamortized Starting Rate Base Write-Up (proposed line 
5b); and (3) Rate Base--Accumulated Net Deferred Earnings (proposed 
line 5c). Thus, the NOPR explained the sum of proposed lines 5a, 5b, 
and 5c comprise the oil pipeline's TOC Rate Base. Consequently, the 
NOPR proposed to move the TOC rate base from line 5 to line 5d and to 
label line 5d as Total Rate Base--Trended Original Cost--(line 5a + 
line 5b + line 5c).
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    \12\ NOPR, FERC Stats. & Regs. ] 32,692 at P 9.
    \13\ Williams Pipe Line Co., Opinion No. 154-B, 31 FERC ] 61,377 
(1985).
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2. Comments
    10. AOPL requests clarification as to proposed line 5a. AOPL seeks 
clarification that line 5a is intended to reflect the respondent's 
depreciated original cost rate base, consistent with the methodology 
contained in Opinion No. 154-B, et al.\14\
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    \14\ AOPL Comments at 21 (citing Opinion No. 154-B, 31 FERC ] 
61,377).
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3. Commission Determination
    11. The Commission adopts the NOPR proposal to enhance the rate 
base information provided on Page 700 by adding lines 5a, 5b, and 5c to 
Page 700 to provide the three subparts of the TOC rate base. The new 
line 5 series will reflect the following additions as proposed in the 
NOPR: (1) Rate Base--Depreciated Original Cost (line 5a); (2) Rate 
Base--Unamortized Starting Rate Base Write-up (line 5b); and (3) Rate 
Base--Accumulated Net Deferred Earnings (line 5c). The sum of lines 5a, 
5b, and 5c comprise the oil pipeline's TOC rate base, which is 
currently reported on line 5 and which will now move to line 5d and be 
entitled Total Rate Base--Trended Original Cost--(line 5a + line 5b + 
line 5c). As requested by AOPL, the Commission affirms new line 5a is 
intended to reflect the respondent's depreciated original cost rate 
base consistent with Opinion No. 154-B and it will be titled to reflect 
such intent. The depreciated original cost rate base will be added to 
the other two subparts, which will comprise the oil pipeline's total 
TOC rate base.

B. Rate of Return

1. NOPR
    12. The NOPR proposed to require oil pipelines to report the cost 
of equity, cost of debt, and the capital structure supporting the 
overall weighted cost of capital currently reported as Rate of Return 
on line 6, Page 700. Specifically, the NOPR proposed to include 
additional information related to debt and equity capital structure 
ratios, i.e. (1) Rate of Return--Adjusted Capital Structure Ratio for 
Long Term Debt (proposed line 6a), (2) Rate of Return--Adjusted Capital 
Structure Ratio for Proprietary Capital (proposed line 6b).\15\ The 
NOPR further proposed to add information related to the cost of debt 
and the cost of equity, specifically: (1) Rate of Return--Cost of Long 
Term Debt Capital (proposed line 6c) and (2) Rate of Return--Real Cost 
of Proprietary Capital (proposed line 6d). This additional information 
forms the basis for the Rate of Return--Weighted Average Cost of 
Capital (the sum of the product of line 6a x line 6c added to the 
product of line 6b x line 6d), which is now reported as Rate of Return 
on line 6 on Page 700 and which the NOPR proposed to move to line 6e.
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    \15\ NOPR, FERC Stats. & Regs. ] 32,692 at P 9 n.13 (citing ARCO 
Pipe Line Co., Opinion No. 351-A, 53 FERC ] 61,398 at 62,388-89 
(1990)).
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2. Comments
    13. AOPL seeks clarification as to proposed lines 6b and 6d. AOPL 
notes that the term Proprietary Capital is not defined and does not 
appear in any Commission regulations governing oil pipelines.\16\ 
Therefore, to the extent the Commission determines it is appropriate to 
provide additional information regarding the weighted average cost of 
capital, AOPL requests that the Commission ``clarify line 6b is to 
provide the adjusted equity capital ratio computed in a manner 
consistent with the Commission's prior findings in Opinion No. 351-A, 
and that line 6d is to provide the allowed real return on equity 
referenced in the Commission's policy statement regarding the 
determination of oil pipeline equity returns.'' \17\
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    \16\ AOPL Comments at 21.
    \17\ Id. at 22 (citing Opinion No. 351-A, 53 FERC at 62,388-89; 
Composition of Proxy Groups for Determining Gas and Oil Pipeline 
Return on Equity, 123 FERC ] 61,048, at P 62 (2008)).
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    14. In contrast, A4A and the NPGA submitted comments agreeing that 
the proposed information is necessary to

[[Page 44427]]

understand both the return on rate base composition and an oil 
pipeline's actual rate of return on equity.\18\ However, A4A and NPGA 
propose that the Commission revise its Rate of Return--Real Cost of 
Propriety Capital of 14.25 percent that appears in proposed line 6d, 
``because the figure seems anomalously large as a real rate of return 
on equity.'' \19\
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    \18\ A4A and NPGA Comments at 8.
    \19\ Id.
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3. Commission Determination
    15. The Commission adopts the NOPR proposal to enhance the rate of 
return information on Page 700 by adding to line 6 of Page 700, as 
modified below. The NOPR's use of the term Proprietary Capital was not 
meant to create a new ratemaking concept. The Commission borrowed the 
term Proprietary Capital from the listing of balance sheet chart of 
accounts in the Uniform System of Accounts (USofA) for the natural gas 
and electric industries.\20\ The corresponding title for the oil 
industry as shown in account 797, Form of Balance Sheet Statement is 
Stockholder's Equity.\21\
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    \20\ 18 CFR Part 201 and 18 CFR Part 101 (2012), respectively.
    \21\ 18 CFR Part 352, Account 797--Form of Balance Sheet 
Statement--Stockholder's Equity (2012).
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    16. To be consistent with the language of the USofA for the oil 
pipeline industry, the Commission will change the term Proprietary 
Capital in the line 6 series to Stockholder's Equity. The Commission 
also grants AOPL's clarification that the adjusted equity capital ratio 
should be calculated in a manner consistent with the Commission's prior 
findings in Opinion No. 351-A. Likewise, the Commission notes that AOPL 
is correct that line 6d is intended to provide the allowed real return 
on equity referenced in the Commission's Return on Equity Policy 
Statement.
    17. The Commission adopts the NOPR proposal to enhance the rate of 
return information on Page 700 by adding data to line 6 of Page 700. 
The new line 6 series will reflect a wording change as clarified above 
and will include additional information related to debt and equity 
capital structure ratios in the following manner: (1) Rate of Return--
Adjusted Capital Structure Ratio for Long Term Debt (line 6a), (2) Rate 
of Return--Adjusted Capital Structure Ratio for Stockholder's Equity 
(line 6b). The Commission further adds information related to the cost 
of debt and the cost of equity, specifically: (1) Rate of Return--Cost 
of Long Term Debt Capital (line 6c), (2) Rate of Return--Real Cost of 
Stockholder's Equity (line 6d). This additional information forms the 
basis for the Rate of Return--Weighted Average Cost of Capital (the sum 
of the product line 6a and line 6c added to the product of line 6b and 
6d), which is now reported as Rate of Return on line 6 on Page 700 and 
which the Commission proposes to move to line 6e, and label Rate of 
Return--Weighted Average Cost of Capital--(line 6a x line 6c + line 6b 
x line 6d).
    18. The Commission denies A4A's and NPGA's request to change the 
14.25 percent figure in Appendix B. The inputs contained in Appendix B 
were solely used for illustrative purposes and should not be viewed as 
having any precedential value.

C. Return on Rate Base

1. NOPR
    19. The NOPR proposed to require oil pipelines to report additional 
information related to the Return on Rate Base in line 7.\22\ The 
Return on Rate Base currently reported on line 7 combines the oil 
pipeline's real return on equity and the portion of the oil pipeline's 
return allocated to paying its cost of debt. The NOPR proposed to 
require the oil pipeline to include on Page 700 the Return on Rate 
Base--Debt Component (proposed line 7a) \23\ and to require the oil 
pipeline to report its weighted average cost of capital consisting of 
debt and equity to one rate base. The real cost of capital excludes the 
inflationary component of the nominal return that is added to the Net 
Deferred Earnings and subsequently amortized pursuant to the TOC 
methodology. Proposed line 7b is the Return on Rate Base--Equity 
Component. The NOPR proposed that oil pipelines report on proposed line 
7c, the Total Return on Rate Base--(line 7a + line 7b), which is the 
same information currently reported on line 7.
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    \22\ NOPR, FERC Stats. & Regs. ] 32,692 at P 10.
    \23\ Return on Rate Base--Debt Component will be the equivalent 
of the weighted average cost of debt (product of proposed lines 6a 
and 6c) multiplied by the Trended Original Cost Rate Base (proposed 
line 5d).
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2. Comments
    20. A4A and NPGA request that instructions to Page 700 recognize 
that the Return on Rate Base--Debt Component (line 7a) will equal the 
product of the Trended Original Cost Rate Base (proposed line 5d) and 
the weighted average cost of debt (itself the product of proposed lines 
6a and 6c), while the Return on Rate Base--Equity Component (line 7b) 
will equal the product of the Trended Original Cost Rate Base (proposed 
line 5d) and the weighted average cost of equity (product of proposed 
lines 6b and 6d).
3. Commission Determination
    21. The Commission adopts the NOPR proposal and grants the 
requested clarifications. The Commission will change the proposed 
wording for lines 7a and 7b to include a parenthetical formula as 
described by A4A and NPGA. The title for the new line 7a will read 
``Return on Rate Base--Debt Component--(line 5d x line 6a x line 6c).'' 
The title for new line 7b will read ``Return on Rate Base--Equity 
Component--(line 5d x line 6b x line 6d).''

D. Composite Income Tax Rate

1. NOPR
    22. The NOPR proposed to modify Page 700 to include the Composite 
Tax Rate used to determine the Income Tax Allowance.\24\ (Line 8 of 
Page 700 currently requires each oil pipeline to report the total 
dollar amount attributable to the Income Tax Allowance in its cost-of-
service.). The NOPR proposed to add a new line 8a which will require an 
oil pipeline to report its Composite Tax Rate Percentage.\25\ The NOPR 
defined the Composite Tax Rate Percentage as the sum, adjusted 
consistent with Commission policy, of (a) the applicable state income 
tax rate and (b) a federal income tax rate. As filed on Page 700, the 
NOPR stated the Composite Tax Rate Percentage should reflect the income 
tax rate used pursuant to Commission policy to determine the Income Tax 
Allowance reported on line 8.
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    \24\ NOPR, FERC Stats. & Regs. ] 32,692 at P 11. See also 
Inquiry Regarding Income Tax Allowances, 111 FERC ] 61,139, at P 32 
(2005) (The Commission's income tax policy permits ``an income tax 
allowance for all entities or individuals owning public utility 
assets, provided that entity or individual has an actual or 
potential income tax liability to be paid on that income from those 
assets.'').
    \25\ NOPR, FERC Stats. & Regs. ] 32,692 at P 11.
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    23. The NOPR surmised ``[t]he Composite Tax Rate Percentage will 
create a better understanding of the differential between an oil 
pipeline's Total Interstate Operating Revenues (line 10) and the oil 
pipeline's Total Cost of Service (line 9).'' \26\ Specifically, the 
NOPR predicted the Composite Tax Rate Percentage may be used to 
determine the portion of this differential that is attributable to 
income taxes under Commission policy, and the

[[Page 44428]]

portion that may be treated as part of an oil pipeline's actual return 
on equity.
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    \26\ Id. P 13.
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2. Comments
    24. Several entities filed comments. AOPL requests the Commission 
clarify what is represented by the Composite Tax Rate to be included in 
proposed line 8a (combined federal and state tax rate or something 
different). ConocoPhillips requests the Commission clarify how the 
income tax allowance reported on line 8 of the illustrative Page 700 
provided as Appendix B to the NOPR was calculated.
    25. A4A and NPGA request that the Commission provide guidance in 
its order that will ensure oil pipelines include a reasonably 
calculated income tax allowance on Page 700. A4A and NPGA note that the 
Commission may want to consider requiring the oil pipeline to report 
the income taxes associated with the collection of equity allowance for 
funds used during construction (AFUDC) depreciation as a separate row 
to allow parties to be able to more easily gauge the reasonableness of 
the Income Tax Allowance calculation, or alternatively, shippers can 
use 50 percent of the Adjusted Capital Structure ratio for Proprietary 
Capital (row 6b) as an imperfect proxy for the equity portion or share 
of the AFUDC depreciation reported in Line 3. A4A and NPGA also request 
that the Commission clarify how comparable rate of return comparisons 
should be performed.
3. Commission Determination
    26. The Commission adopts the NOPR's proposal with AOPL's requested 
clarification. The Commission clarifies that what is represented by the 
Composite Tax Rate to be included in line 8a is the combined federal 
and state tax rate as adjusted consistent with Commission policy. The 
Commission simply seeks the tax rate that represents the amount of 
additional taxes the oil pipeline would be required to pay if it earned 
its exact weighted average cost of capital as reported on line 6e and 
it collected an additional dollar of revenue.
    27. As to ConocoPhillips' request to show how the income tax 
allowance depicted on line 8 of the illustrative Page 700 provided in 
Appendix B was calculated, the Commission declines to do so. As 
ConocoPhillips' acknowledges, Appendix B was included merely for 
illustrative purposes and is not precedential.
    28. Lastly, the Commission declines to require oil pipelines to 
report on a separate row the income taxes associated with the 
collection of equity AFUDC depreciation. There has been no showing the 
separate identification of this subcomponent of the total income tax 
allowance will enhance the usefulness of Page 700 in the preliminary 
screening process. Review of an oil pipeline's calculation of an income 
tax allowance is done in a ratemaking proceeding, and the additional 
data provided by the Final Rule is sufficient for a shipper or 
interested entity to use Page 700 as a preliminary screening tool.

E. Calculation of Actual Rate of Return on Equity

1. NOPR
    29. The NOPR proposed modifications to Page 700 that will provide 
information that may be used to calculate an oil pipeline's actual rate 
of return on equity. The NOPR detailed that, for Page 700 purposes, the 
actual rate of return on equity is determined by dividing (a) the 
actual return on equity by (b) the equity portion of Trended Original 
Cost Rate Base reported on line 5d. The NOPR further pointed out for 
Page 700 purposes, the actual return on equity is the sum of three 
components that can be derived using the proposed modifications to Page 
700: (a) the return on equity embedded in an oil pipeline's Page 700 
Total Cost of Service (line 7b); (b) the difference, adjusted for 
taxes, between an oil pipeline's Total Interstate Operating Revenues 
(line 10) and an oil pipeline's Total Cost of Service (line 9); \27\ 
and (c) the current year's inflation related earnings that are deferred 
for subsequent collection, e.g., the contribution to Net Deferred 
Earnings, which is calculated by multiplying the equity portion of the 
Trended Original Cost Rate Base (line 5d) by the current year's 
Department of Labor's consumer price index for all urban areas (CPI-U).
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    \27\ NOPR, FERC Stats. & Regs. ] 32,692 at P 14 and n.19.
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    30. Once the actual return on equity has been derived, the NOPR 
suggested that for Page 700 purposes, it may be divided by the equity 
portion of TOC rate base. Finally, the NOPR stated the equity portion 
of the TOC rate base consists of the TOC rate base (proposed line 5d) 
multiplied by the equity component of capital structure (proposed line 
6b).
2. Comments
    31. AOPL requests that the Commission clarify that the methodology 
set forth in the NOPR for calculating the actual rate of return on 
equity will have no precedential effect, and that the proposed 
calculation is not intended to demonstrate whether oil pipeline rates 
are just and reasonable on the merits within the meaning of the ICA. 
AOPL points out, ``the Commission has consistently emphasized the 
original, limited purpose of Page 700'' in that Page 700 is only a 
``preliminary screening tool and is not to be used to demonstrate the 
justness and reasonableness of oil pipeline rates.'' \28\ AOPL also 
observes the Commission has stated Form 6 ``provide[s] sufficient 
information to allow shippers to file a complaint requesting a 
determination of the justness and reasonableness of an oil pipeline's 
rates.'' \29\ Therefore, AOPL contends that shippers already have 
enough information with what is already available on Page 700.
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    \28\ AOPL Comments at 4 and 12-13.
    \29\ AOPL Comments at 7 (citing Review of FERC Form Nos. 6 and 
6-Q, Notice Terminating Proceeding, FERC Stats. & Regs. ] 35,561, at 
P 9 (2008)).
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    32. AOPL argues Form 6 includes historic accounting data that (1) 
does not contain the forward-looking adjustments made during 
ratemaking; (2) may include non-recurring items that should be excluded 
for ratemaking purposes; and (3) might not properly reflect the 
allocation of overhead costs from parent to affiliated companies.\30\
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    \30\ Id. at 12.
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    33. AOPL further states it is concerned that the ratemaking formula 
discussed in the NOPR does not reflect Commission precedent and 
established ratemaking principles for oil pipelines.\31\ For example, 
AOPL claims that in Opinion No. 351, the Commission found that the 
regulatory method for determining a company's return allowance is based 
on a weighted cost of capital applied to a single rate base, yet the 
NOPR purportedly references a separate debt and equity rate base 
component for purposes of computing an actual return on equity, which 
it claims is inconsistent with prior Commission findings. Likewise, 
AOPL disagrees with the statement that ``the current year's 
contribution to Net Deferred Earnings represents equity return the 
carrier has collected in its current rates.'' \32\ To this end, AOPL 
suggests that under the TOC methodology the current year's contribution 
to deferred earnings is not collected in the current period, but is 
instead accrued in rate base and amortized over the remaining life of 
the asset.
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    \31\ Id. at 18-20 (citing NOPR, FERC Stats. & Regs. ] 32,692 at 
PP 14-15).
    \32\ Id. at 19-20.
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    34. AOPL asserts that the additional information is not necessary 
or

[[Page 44429]]

appropriate for ensuring that Page 700 can be used for its intended 
purpose of allowing a shipper to make a threshold determination as to 
whether to challenge an oil pipeline's rates. AOPL states that the 
proposed additional line items do not further the Commission's 
objective of ensuring that page 700 is a useful preliminary screening 
tool.
    35. Mr. Gooch states that the NOPR's calculation of the actual 
return on equity allows for an income tax allowance prior to the 
calculation of a profit, to which Mr. Gooch strongly objects. Mr. Gooch 
states that consumers would essentially be paying the income taxes that 
might be incurred on unlawful and prohibited revenues, violating the 
ICA.
3. Commission Determination
    36. The Commission will adopt the NOPR's use of a calculation of an 
actual rate of return on equity. As the NOPR reasoned, the actual rate 
of return on equity is particularly useful information when using Page 
700 as a preliminary screen to evaluate whether additional proceedings 
may be necessary to challenge rates consistent with the Commission's 
mandate under the ICA.
    37. The proposed formula for calculating the actual return on 
equity in the NOPR does not have precedential effect for ratemaking 
purposes nor does it demonstrate alone whether a pipeline's rates are 
just and reasonable. Consistent with the historic purpose of Page 700 
as a preliminary screening tool, the Commission affirms the NOPR's 
method for calculating the actual rate of return on equity is for 
preliminary screening purposes only. The proposal does not establish a 
formula for setting oil pipeline rates in a particular rate case.
    38. Accordingly, the calculation of the actual rate of return 
formula on Page 700 does not change the Commission's ratemaking 
policies. The Commission agrees with AOPL that Opinion No. 351 outlined 
how the total return on equity should be calculated for the purpose of 
setting oil pipeline rates.\33\ Here, in contrast, the proposed 
calculation is for the calculation of an actual return on equity only. 
The Commission's actions in this Final Rule do not change the 
Commission's ratemaking policies in Opinion No. 351. Nor does the 
formula, which is for preliminary screening purposes only, alter the 
Commission's ratemaking policies regarding test period adjustments, net 
deferred earnings,\34\ or the calculation of an oil pipeline's return. 
Nor do the changes to Page 700 alter the standards and burdens of proof 
applied by the Commission when it rules on complaints, petitions, or 
other requests for relief based on a full record and substantial 
evidence. Finally, the Commission emphasizes that the additions to Page 
700 neither affect existing rates nor change any rate on file. Rather, 
the requested data provide the Commission and interested entities with 
information that will help them make a reasonable assessment of an oil 
pipeline's actual rate of return on equity for preliminary screening 
purposes at any particular time.
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    \33\ Opinion No. 351-A, 53 FERC at 62,388-89. The Commission 
clarified the Opinion No. 154-B methodology for calculating a total 
return for oil pipeline ratemaking purposes in Opinion No. 351.
    \34\ In a rate proceeding to set oil pipeline rates, the 
Commission recognizes that the inflation related return is earned in 
the current period but the collection thereof is deferred to later 
periods through an amortization process over the remaining life of 
an oil pipeline. This is similar to the calculation of a regulatory 
asset, which may be recognized for financial purposes in the current 
period but included in rate base and collected over the life of the 
asset for ratemaking purposes.
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    39. The Commission rejects Mr. Gooch's contention that the NOPR's 
calculation of the actual return on equity inappropriately adjusts for 
income taxes. The difference between an oil pipeline's Total Interstate 
Operating Revenues (line 10) and an oil pipeline's Total Cost of 
Service (line 9) may be subject to income taxes. Any portion of this 
differential attributable to income taxes is an expense and is not part 
of the return to the oil pipeline's owners. Thus, the NOPR correctly 
removed the portion attributable to income taxes from the calculation 
of the oil pipeline's actual return on equity.
    40. In discussing the NOPR's estimate of an actual return on 
equity, AOPL states that Page 700 may not properly reflect the 
allocation of overhead costs from parent and affiliated companies.\35\ 
The instructions to Page 700 state that reported information ``shall be 
computed consistent with the Commission's Opinion No. 154-B et al. 
methodology.'' The Commission expects Form 6 respondents to properly 
populate each entry to reflect Commission precedent.
---------------------------------------------------------------------------

    \35\ AOPL Comments at 13-15.
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F. Miscellaneous Recommendations

1. Comments
    41. Commenters raised a number of additional issues. Mr. Gooch 
advocates compelling oil pipelines to report excess profits in 
footnotes to Page 700. Mr. Gooch also advocates that the oil pipelines 
be required to state, under oath, that all of their rates are just and 
reasonable under the Commission's definition.
    42. All the commenters except AOPL advocate for companies that file 
Form 6 for multiple oil pipeline systems to file separate Page 700s for 
each segment, service, or rate schedule.\36\ Similarly, several 
commenters advocate for the Commission to require oil pipelines to file 
or make available workpapers.\37\ CAPP also asked the Commission to 
clarify the relationship between the entity that files Page 700 and the 
oil pipeline services for which a return on equity is intended to be 
generated. A4A and NPGA also request that the Commission require oil 
pipelines to file Form 6 before they can file for an index rate 
increase.\38\ Valero requests that Page 700 be amended to include 
Jurisdictional Allowance Oil Revenue, storage, demurrage revenue, 
rental revenue, and incidental revenue. Valero also requests that an 
oil pipeline identify and justify the exclusion of any such revenue as 
non-jurisdictional.\39\
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    \36\ CAPP Comments at 4; A4A and NPGA Comments at 15-23; Valero 
Comments at 21-24; ConocoPhillips Comments at 3-4; Suncor Comments 
at 2-3; and BP Comments at 2-3.
    \37\ A4A and NPGA Comments at 24; and ConocoPhillips Comments at 
4.
    \38\ A4A and NPGA Comments at 25.
    \39\ Valero Comments at 11-16. In its reply comments, Suncor 
requests that the Commission amend line 10 of Page 700 as Valero 
suggests. Suncor Reply Comments at 3.
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    43. Parties also raised issues not involving Form 6. For example, 
Mr. Gooch raises issues related to alleged over-recoveries by certain 
oil pipelines.\40\ A4A and NPGA as noted above request that the 
Commission require oil pipelines to file Form 6 before they can file 
for an index rate increase; they also ask that the interest rate 
applicable to refunds and reparations reflect the oil pipeline's rate 
of return as reported on page 700.\41\
---------------------------------------------------------------------------

    \40\ Mr. Gooch Comments at 1-8.
    \41\ A4A and NPGA Comments at 23-26.
---------------------------------------------------------------------------

    44. In its reply comments, AOPL objects that many of the comments 
are beyond the scope of the NOPR. AOPL adds that many of the proposed 
revisions have been raised in other proceedings such as (1) proposals 
to segregate Form 6 and Page 700 data by oil pipeline system and (2) 
proposals to require oil pipelines to file their Page 700 workpapers 
with Form 6, and the Commission has rejected them.\42\ As to the 
proposals to add workpapers, AOPL further suggests that the commenters 
have not raised any new arguments and the Commission should again 
reject the proposals.\43\ Finally, AOPL asks the

[[Page 44430]]

Commission to reject Valero's proposed changes because Valero is 
attempting to relitigate the outcomes of previous index rate 
proceedings.\44\
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    \42\ AOPL Reply Comments at 8-22.
    \43\ Id. at 24-26.
    \44\ Id. at 24.
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2. Commission Determination
    45. In this Final Rule, the Commission modifies Page 700 to require 
entities to provide additional information regarding rate base, rate of 
return, return on rate base, and income tax allowance on Page 700. 
These revisions provide increased transparency and information to 
assist the Commission and the public in calculating an oil pipeline's 
return on equity for preliminary screening purposes. Given the limited 
nature of the NOPR, the Commission is not adopting additional changes 
to Form 6, such as the segregation of data or changing Commission 
policy to make available oil pipeline cost-of-service workpapers. Other 
issues, such as the Commission's indexing policies, may be addressed as 
they arise in actual proceedings.

G. Conclusion

    46. As discussed herein, the proposed modifications will facilitate 
the calculation of the actual rate of return on equity based upon Page 
700 data. The actual rate of return on equity is particularly useful 
information when using Page 700 to conduct a preliminary evaluation of 
an oil pipeline's rates. The additional information proposed to be 
reported will impose almost no additional burden on oil pipelines 
because oil pipelines already must develop cost of service supporting 
the information reported on Page 700.

H. Effective Date

    47. The changes to Form 6 are to be effective for reporting in the 
2013 Form 6. The 2013 Form 6 must be filed on or before April 18, 
2014.\45\ The new schedule appearing on Page 700 therefore will be 
required for Form 6 filings as of April 18, 2014, for the reporting 
year ending December 31, 2013.
---------------------------------------------------------------------------

    \45\ 18 CFR 357.1.
---------------------------------------------------------------------------

V. Information Collection Statement

A. The NOPR

    48. In the NOPR, in accordance with the Paperwork Reduction Act and 
the requirements of the Office of Management and Budget (OMB), the 
Commission solicited comment on the Commission's need for this 
information, whether the information will have practical utility, the 
accuracy of provided burden estimates, ways to enhance the quality, 
utility, and clarity of the information to be collected, and any 
suggested methods for minimizing the respondent's burden, including the 
use of automated information techniques.\46\ The Commission also 
informed respondents that they will not be penalized for failing to 
respond to this collection of information unless the collection 
displays a valid OMB control number.
---------------------------------------------------------------------------

    \46\ NOPR, FERC Stats. & Regs. ] 32,692 at P 20.
---------------------------------------------------------------------------

    49. The Commission estimated the additional average annual Public 
Reporting cost imposed on oil pipelines providing interstate services 
related to this Final Rule to be $3,037.\47\ The Commission estimated 
the additional Public Reporting Burden related to this Final Rule for 
the recurring effort involved in filing the data on proposed lines 5a-
5c, 6a-6e, 7a-7c, and 8a of Page 700 for 2013 and future years, to be 
0.5 hours per year per respondent. The Commission estimated there are 
153 filers that will be affected each year by the change in filing 
requirements.\48\ The number of filers is reduced from 166 to 153 
through 2012 filers and exclusion of TAPS oil pipelines.
---------------------------------------------------------------------------

    \47\ Id.
    \48\ The TAPS oil pipelines are exempt from filing Page 700. 
Section 1804(2)(B) of the Energy Policy Act of 1992 excludes from 
the provisions of the Act, for ratemaking purposes, TAPS and any oil 
pipeline delivering oil directly or indirectly to TAPS. Therefore, 
the Commission exempted the TAPS entities from having to submit the 
information required on Page 700. Order No. 571, FERC Stats. & Regs. 
] 31,006 at 31,175.
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B. Comments

    50. No entity directly commented on the Commission's initial burden 
estimates that were included in the NOPR.

C. Commission Determination

    51. The Commission has reviewed the burdens imposed by this Final 
Rule. The Commission did not impose any additional filing requirements 
as proposed by various commenters to require the oil pipelines to file 
additional information beyond that included in the NOPR. The additional 
lines included in the NOPR and Final Rule are needed steps to calculate 
information already reported in the Form 6. Therefore, there is no 
additional Public Reporting Burden associated with the Final Rule. The 
Commission's estimate of the Public Reporting Burden imposed on oil 
pipelines by this Final Rule is the same as shown in the NOPR and 
copied in the table below.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Estimated          Total          Estimated          Total
                                                                      Annual  number     additional       estimated        additional       estimated
                      RM12-18-000, FERC Form 6                          of  filers       burden per       additional     cost per filer     additional
                                                                                        filer (hr.)      burden (hr.)       ($) \49\         cost ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Filing new proposed lines on page 700..............................             153              0.5               77           $34.51        $2,657.88
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Title: FERC Form 6, Annual Report of Oil Pipeline Companies.
---------------------------------------------------------------------------

    \49\ Based on an estimated average cost per employee for 2012 
(including salary plus benefits) of $143,540, the estimated average 
hourly cost per employee is $69.01. The average work year is 2,080 
hours.
---------------------------------------------------------------------------

    Action: Revisions to the FERC Form 6.
    OMB Control No: 1902-0022.
    Respondents: Oil pipelines.
    Frequency of Responses: Annual.
    Necessity of the Information: This action ensures the availability 
of data consistent with the Commission's obligation to regulate 
interstate oil and petroleum product oil pipeline rates and the intent 
of Page 700, to enable the Commission and shippers to monitor and 
analyze interstate oil pipeline costs.
    Internal Review: The Commission has reviewed the changes and has 
determined that the changes are necessary. These requirements conform 
to the Commission's need for efficient and sufficient information 
collection, communication, and management with regard to the oil 
pipeline sector of the energy industry. The Commission has, by means of 
internal review, assured itself that there is specific, objective 
support for the burden estimates associated with the information 
collection requirements.
    Interested persons may obtain information on the reporting 
requirements by contacting: Federal Energy Regulatory Commission, 888 
First Street NE., Washington, DC 20426 [Attention: Ellen Brown, Office 
of the Executive Director, email: [email protected], Phone: (202) 
502-8663, fax: (202) 273-0873]. Comments on the requirements of this

[[Page 44431]]

rule may also be sent to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Washington, DC 20503 
[Attention: Desk Officer for the Federal Energy Regulatory Commission]. 
For security reasons, comments should be sent by email to OMB at [email protected]. Please reference OMB Control No. 1902-0022, 
FERC-6 and the docket number of this rulemaking in your submission.

VI. Environmental Analysis

    52. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment. The actions 
taken here fall within categorical exclusions in the Commission's 
regulations for information gathering, analysis, and dissemination.\50\ 
Therefore, an environmental assessment is unnecessary and has not been 
prepared in this rulemaking.
---------------------------------------------------------------------------

    \50\ 18 CFR 380.4(a)(5).
---------------------------------------------------------------------------

VII. Regulatory Flexibility Act

    53. The Regulatory Flexibility Act of 1980 (RFA) generally requires 
agencies to prepare certain statements, descriptions, and analyses of 
proposed rules that will have a significant economic impact on a 
substantial number of small business entities.\51\ Agencies are not 
required to make such an analysis if a rule would not have such an 
effect.
---------------------------------------------------------------------------

    \51\ 5 U.S.C. 601-12.
---------------------------------------------------------------------------

    54. The Commission does not believe that this Final Rule will have 
an adverse impact on small entities, nor will it impose upon them any 
significant costs of compliance. The Commission identified 29 small 
entities as respondents to the requirements in the Final Rule.\52\ As 
explained above, the Commission estimates that the change to Page 700 
will increase the paperwork burden of preparing Page 700 by 
approximately $34.51 per respondent. The Commission does not estimate 
that there are any other regulatory burdens associated with this rule. 
Therefore the Commission certifies that the proposed rule will not have 
a significant impact on a substantial number of small entities. 
Accordingly, no regulatory flexibility analysis is required.
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    \52\ The RFA definition of small entity refers to the definition 
provided in the Small Business Act, which defines a small business 
concern as a business that is independently owned and operated and 
that is not dominant in its field of operation. 15 U.S.C. 632. The 
Small Business Size Standards component of the North American 
Industry Classification System defines a small oil pipeline company 
as one with less than 1,500 employees. See 13 CFR 121.201.
---------------------------------------------------------------------------

VIII. Document Availability

    55. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m. to 5:00 
p.m. Eastern time) at 888 First Street NE., Room 2A, Washington DC 
20426.
    56. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    57. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at (202) 
502-6652 (toll free at 1-866-208-3676) or email at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
[email protected].

IX. Effective Date and Congressional Notification

    58. In the NOPR the Commission proposed that the changes to Form 6 
to be effective for reporting in the 2013 FERC Form No. 6. The 2013 
Form 6 must be filed on or before April 18, 2014.\53\ The new schedule 
appearing on Page 700 therefore would not be required for Form 6 
filings until April 18, 2014, for the reporting year ending December 
31, 2013. The Final Rule is effective sixty (60) days after the rule is 
published in the Federal Register.
---------------------------------------------------------------------------

    \53\ 18 CFR 357.2(b)(2).
---------------------------------------------------------------------------

    59. The Commission has determined, with the concurrence of the 
Administrator of the Office of Information and Regulatory Affairs of 
OMB that this rule is not a major rule as defined in section 351 of the 
Small Business Regulatory Enforcement Fairness Act of 1996.

    By the Commission.
Kimberly D. Bose,
Secretary.

    Note: Appendix A will not be published in the Code of Federal 
Regulations.

Appendix A--Summary of Proposed Changes to FERC Form 6, Page 700

    Line 5a is added to read as follows:
Rate Base--Original Cost

    Line 5b is added to read as follows:
Rate Base--Unamortized Starting Rate Base Write-Up

    Line 5c is added to read as follows:
Rate Base--Accumulated Net Deferred Earnings

    Line 5d is added to read as follows:
Total Rate Base--Trended Original Cost--(line 5a + line 5b + line 
5c)

    Line 6a is added to read as follows:
Rate of Return--Adjusted Capital Structure Ratio for Long Term Debt

    Line 6b is added to read as follows:
Rate of Return--Adjusted Capital Structure Ratio for Stockholders' 
Equity

    Line 6c is added to read as follows:
Rate of Return--Cost of Long Term Debt Capital

    Line 6d is added to read as follows:
Rate of Return--Real Cost of Stockholders' Equity

    Line 6e is added to read as follows:
Rate of Return--Weighted Average Cost of Capital--(line 6a x line 6c 
+ line 6b x line 6d)

    Line 7 is edited to read as follows:
Return on Trended Original Cost Rate Base

    Line 7a is added to read as follows:
Return on Rate Base--Debt Component--(line 5d x line 6a x line 6c)

    Line 7b is added to read as follows:
Return on Rate Base--Equity Component--(line 5d x line 6b x line 6d)

    Line 7c is added to read as follows:
Total Return on Rate Base--(line 7a + line 7b)

    Line 8a is added to read as follows:
Composite Tax Rate % (37.50%-37.50)

    Note: Appendix B will not be published in the Code of Federal 
Regulations.

Appendix B: Revised Page 700 to Form 6

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[[Page 44432]]

[GRAPHIC] [TIFF OMITTED] TR24JY13.029

[FR Doc. 2013-17729 Filed 7-23-13; 8:45 am]
BILLING CODE 6717-01-C