 United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT



Argued April 3, 2020                  Decided July 31, 2020

                        No. 19-1067

                        SFPP, L.P.,
                        PETITIONER

                             v.

 FEDERAL ENERGY REGULATORY COMMISSION AND UNITED
                STATES OF AMERICA ,
                   RESPONDENTS

          ASSOCIATION OF O IL PIPE LINES, ET AL.,
                     INTERVENORS


  Consolidated with 19-1077, 19-1078, 19-1081, 19-1082,
               19-1084, 19-1086, 19-1090


            On Petitions for Review of Orders of
        the Federal Energy Regulatory Commission


    Charles F. Caldwell argued the cause for petitioner SFPP,
L.P. With him on the briefs were Michelle T. Boudreaux,
Sabina D. Walia, Daniel W. Sanborn, and Susan B. Kittey.

     Steven M. Kramer and Daniel J. Poynor were on the briefs
for intervenor Association of Oil Pipe Lines in support of
                              2
petitioner SFPP, L.P. Steven H. Brose and Steven G. Reed
entered an appearance.

     Gregory S. Wagner argued the cause for Shipper
petitioners. With him on the joint briefs were Steven A.
Adducci, Matthew D. Field, Richard E. Powers Jr., Melvin
Goldstein, Thomas J. Eastment, and Frederick G. Jauss, IV.

     Scott Ray Ediger, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondents. With him on
the brief were Michael F. Murray, Deputy Assistant Attorney
General, Robert J. Wiggers and Robert B. Nicholson,
Attorneys, U.S. Department of Justice, James P. Danly,
General Counsel, Federal Energy Regulatory Commission,
Robert H. Solomon, Solicitor, and Elizabeth E. Rylander,
Attorney.

    Charles F. Caldwell, Sabina D. Walia, Daniel J. Poynor,
Daniel W. Sanborn, Susan B. Kittey, and Steven M. Kramer
were on the joint brief for intervenors SFPP, L.P. and
Association of Oil Pipe Lines in support of respondents.

     Steven A. Adducci, Matthew D. Field, Gregory S. Wagner,
Richard E. Powers Jr., Melvin Goldstein, Thomas J. Eastment,
and Frederick G. Jauss, IV were on the joint brief for Shipper
intervenors in support of respondents.

    Before: SRINIVASAN , Chief Judge, ROGERS and WILKINS,
Circuit Judges.

    Opinion for the Court filed PER CURIAM.

     PER CURIAM: SFPP, L.P., is a common-carrier oil pipeline
that transports petroleum products through Arizona, California,
Nevada, New Mexico, Oregon, and Texas. SFPP, along with
                               3
several shippers that transport petroleum products over SFPP’s
pipelines, challenge two Federal Energy Regulatory
Commission orders concerning SFPP’s tariffs.

     SFPP first filed the tariff increases at issue in 2008. FERC
initially addressed those tariffs in a series of three orders.
SFPP, L.P., Opinion 511, 134 FERC ¶ 61,121 (Feb. 17, 2011);
SFPP, L.P., Opinion 511-A, 137 FERC ¶ 61,220 (Dec. 16,
2011); SFPP, L.P., Opinion 511-B, 150 FERC ¶ 61,096 (Feb.
19, 2015). We granted petitions for review and vacated those
orders in part in United Airlines, Inc. v. FERC, 827 F.3d 122,
137 (D.C. Cir. 2016). FERC issued two further orders on
remand. SFPP, L.P., Opinion 511-C, 162 FERC ¶ 61,228
(Mar. 15, 2018); SFPP, L.P., Opinion 511-D, 166 FERC
¶ 61,142 (Feb. 21, 2019).

    SFPP and Shippers petition for review of these two orders
on remand from United Airlines. SFPP challenges FERC’s
decisions to deny SFPP an income tax allowance, to decline to
reopen the record on that issue, and to deny SFPP’s retroactive
adjustment to its index rates. Shippers challenge FERC’s
disposition of SFPP’s accumulated deferred income taxes
(“ADIT”) and its temporal allocation of litigation costs.

     We deny the petitions for review. With respect to SFPP’s
challenges, we hold that FERC’s denial of an income tax
allowance to SFPP was both consistent with our precedent and
well-reasoned and that FERC did not abuse its discretion or act
arbitrarily in declining to reopen the record on that issue. We
further hold that FERC reasonably rejected retroactive
adjustment to SFPP’s index rates. With respect to Shippers’
challenges, we hold that FERC correctly found that the rule
against retroactive ratemaking prohibited it from refunding or
continuing to exclude from rate base SFPP’s ADIT balance,
and that FERC reasonably allocated litigation costs.
                               4

                  I. Income Tax Allowance

    The first issue in these petitions for review is whether
FERC’s denial of an income tax allowance in SFPP’s cost of
service was lawful. In Opinion 511-C, FERC concluded that
granting both an income tax allowance and a discounted cash
flow return on equity resulted in double recovery of income tax
costs. Opinion 511-C ¶¶ 21–22. To prevent that double
recovery, FERC denied SFPP an income tax allowance. Id. at
¶ 21. FERC then denied rehearing on the issue. See Opinion
511-D ¶ 10.

     SFPP contends that FERC’s orders are both contrary to our
decision in ExxonMobil Oil Corp. v. FERC, 487 F.3d 945 (D.C.
Cir. 2007), and arbitrary and capricious in their treatment of
United Airlines, 827 F.3d 122, in connection with their
conclusion that the discounted cash flow return on equity
produces a pre-tax return, and in their purported lack of
consideration for the income tax liability of SFPP’s corporate
parent. We disagree. FERC’s denial of an income tax
allowance in SFPP’s cost of service was fully consistent with
our precedent and well-reasoned.

                       A. Background

     Rates for pipelines subject to FERC’s jurisdiction must be
“just and reasonable.” BP W. Coast Prods., LLC v. FERC, 374
F.3d 1263, 1286 (D.C. Cir. 2004). Just and reasonable rates
“yield[] 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). “There is no question that as a general
proposition a pipeline that pays income taxes is entitled to
recover the costs of the taxes paid from its ratepayers.” BP W.
                                5
Coast, 374 F.3d at 1286. Master limited partnerships
(“MLPs”) like SFPP was at relevant times, however, incur no
income tax liability at the entity level. Id. (citing 26 U.S.C.
§ 7704(d)(1)(E)). In this case, we once again address FERC’s
income tax allowance policy for such partnership pipelines.

    FERC’s policy on this issue has a “tortuous history.”
ExxonMobil, 487 F.3d at 948. As we outline below, this Court
has vacated two of FERC’s previous policies. The third time
turns out to be the charm: we now uphold FERC’s third policy.

     FERC’s first policy afforded partnership pipelines an
income tax allowance for income taxes that were attributable
to corporate but not individual unitholders. Lakehead Pipe
Line Co., L.P., 71 FERC ¶ 61,338, at ¶ 62,314–15 (June 15,
1995). Pursuant to its Lakehead policy, FERC granted SFPP
an income tax allowance for the portion of its income attributed
to its corporate unitholders in SFPP’s rate filings. See SFPP,
L.P., Opinion No. 435, 86 FERC ¶ 61,022, at ¶ 61,102–04 (Jan.
13, 1999), reh’g denied in relevant part, Opinion No. 435-A,
91 FERC ¶ 61,135, at ¶ 61,508–09 (May 17, 2000).

     This Court vacated those orders in relevant part. BP W.
Coast, 374 F.3d at 1285. We concluded that the Lakehead
policy lacked a reasoned basis to afford “corporate tax
allowances for corporate unit holders, but [not] individual tax
allowances reflecting the liability of individual unit holders.”
Id. at 1290. FERC sought to justify that distinction on the
ground that individuals who invest in corporations that in turn
invest in pipelines face an additional layer of taxation not faced
by investors who invest directly in pipelines. Id. at 1288. We
rejected that ground as “a product of the corporate form, not of
the regulated or unregulated nature of the pipeline or any
comparable investment or of the risks involved therein.” Id. at
1291. We further concluded that, when the regulated entity
                               6
generates no tax, “the regulator cannot create a phantom tax in
order to create an allowance to pass through to the rate payer.”
Id. We reasoned that investor-level income tax costs are no
different than any other investor-level cost, such as
bookkeeping expenses, for which investors receive no separate
allowance. Id. We thus concluded that SFPP was “entitled to
no allowance for the phantom income taxes it did not pay.” Id.
at 1288.

     In response to BP West Coast, FERC adopted its second
policy. That policy in a sense leveled up rather than down,
affording partnership pipelines an income tax allowance “on all
partnership interests . . . if the owner of that interest has an
actual or potential income tax liability on the public utility
income earned through the interest.” Policy Statement on
Income Tax Allowances, 111 FERC ¶ 61,139, at ¶ 61,736 (May
4, 2005). Pursuant to that policy, FERC granted SFPP an
income tax allowance on remand from BP West Coast to
provide for the taxes paid on partnership income for both its
individual and corporate partners. SFPP, L.P., 111 FERC
¶ 61,334, at ¶ 62,455–56 (June 1, 2005) (SFPP 2005 ITA
Order).

     This Court denied, in relevant part, petitions for review of
FERC’s order on remand. ExxonMobil, 487 F.3d at 955. We
concluded that FERC had “resolved the principal defect of the
Lakehead policy, which was the inadequately explained
differential treatment of the tax liability of individual and
corporate partners.” Id. at 951. We also held that FERC had
adequately explained why granting an income tax allowance
did not create a phantom tax liability. Id. at 954–55. In
particular, because income taxes on each partner’s distributive
share of the pipeline’s income must be paid regardless of
whether the partner actually receives a distribution, we held
that FERC reasonably attributed such taxes to the regulated
                               7
entity. Id. at 952. In closing, we noted that “a fair return on
equity might have been afforded if FERC had . . . comput[ed]
return on pretax income and provid[ed] no tax allowance at
all,” but we left that “policy decision” to FERC. Id. at 955.

    SFPP filed to increase its tariffs again in 2008, and FERC
again granted SFPP a full income tax allowance. See Opinion
511 ¶ 61,546, reh’g denied in relevant part, Opinion 511-A
¶ 62,353.

     Shippers petitioned for review of those orders. They
contended that granting an income tax allowance in addition to
a return on equity calculated via FERC’s discounted cash flow
methodology results in a double recovery of tax costs. United
Airlines, 827 F.3d at 134. We granted those petitions in United
Airlines, concluding that FERC had failed to demonstrate
otherwise, rendering its orders arbitrary or capricious. Id. We
reasoned that FERC’s discounted cash flow methodology
“determines the pre-tax investor return required to attract
investment, irrespective of whether the regulated entity is a
partnership or a corporate pipeline.” Id. at 136. Moreover,
unlike corporate pipelines, partnership pipelines incur no
income taxes at the entity level. Id. Therefore, granting an
income tax allowance would account only for taxes already
provided for in the discounted cash flow return on equity. See
id. We then vacated and remanded to FERC to consider
“mechanisms for which the Commission can demonstrate that
there is no double recovery,” such as “remov[ing] any
duplicative tax recovery for partnership pipelines directly from
the discounted cash flow return on equity,” or “eliminating all
income tax allowances and setting rates based on pre-tax
returns.” Id. at 137.

     In response to United Airlines, FERC adopted its third
policy. Under that policy, FERC would “no longer permit
                              8
MLPs to recover an income tax allowance in their cost of
service.” Inquiry Regarding the Commission’s Policy for
Recovery of Income Tax Costs, 162 FERC ¶ 61,227, at ¶ 8
(Mar. 15, 2018). The same day it adopted that policy, FERC
denied SFPP an income tax allowance on the basis that granting
an income tax allowance in addition to a discounted cash flow
return on equity would result in double recovery of income tax
costs. Opinion 511-C ¶¶ 21–22. FERC denied rehearing on
the issue. See Opinion 511-D at ¶ 10. SFPP now petitions for
review.

                    B. Double Recovery

     We review FERC orders under the Administrative
Procedure Act (“APA”), which empowers the Court to reverse
“any agency action that is arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” Hoopa
Valley Tribe v. FERC, 913 F.3d 1099, 1102 (D.C. Cir. 2019)
(citation and internal quotation marks omitted); see 5 U.S.C.
§ 706(2)(A). Under the arbitrary and capricious standard,
“FERC’s decisions will be upheld as long as the Commission
has examined the relevant data and articulated a rational
connection between the facts found and the choice made.”
ExxonMobil, 487 F.3d at 951. “In reviewing FERC’s orders,
we are ‘particularly deferential to the Commission’s expertise’
with respect to ratemaking issues.” Id. (quoting Ass’n of Oil
Pipe Lines v. FERC, 83 F.3d 1424, 1431 (D.C. Cir. 1996)). But
the Court gives no deference to an agency’s interpretation of
judicial precedent. New York New York, LLC v. NRLB, 313
F.3d 585, 590 (D.C. Cir. 2002).

    FERC’s orders adopt and apply a policy that is consistent
with this Court’s precedents in BP West Coast, ExxonMobil,
and United Airlines, and is reasonably explained. Accordingly,
we deny the petition for review on the double-recovery issue.
                                9

     First, FERC’s policy is consistent with this Court’s
precedents. While we upheld an income tax allowance for
SFPP in ExxonMobil, 487 F.3d at 955, we clarified in United
Airlines that ExxonMobil did not foreclose “the possibility of
eliminating all income tax allowances and setting rates based
on pre-tax returns,” 827 F.3d at 137. Indeed, we noted in
ExxonMobil that “a fair return on equity might have been
afforded if FERC had . . . comput[ed] return on pretax income
and provid[ed] no tax allowance at all for the pipeline owners.”
487 F.3d at 955. ExxonMobil held only that FERC had
adequately justified its “policy decision” to provide an income
tax allowance in that case. Id.

     That case, though, implicitly reserved the double-recovery
issue because FERC represented that it was addressing it in a
separate proceeding. United Airlines, 827 F.3d at 135. And in
United Airlines, we concluded that FERC had failed to engage
in reasoned decision-making on the double-recovery issue. Id.
at 134. We charged FERC on remand with considering
“mechanisms for . . . demonstrat[ing] that there is no double
recovery,” including potentially “eliminating all income tax
allowances and setting rates based on pre-tax returns.” Id. at
137. FERC’s orders do exactly that.

     Of course, while an “agency is free to adopt a new policy
on remand” following vacatur of its prior policy for lack of
reasoned decision-making, the agency still must provide a
reasoned basis for that new policy. ExxonMobil, 487 F.3d at
954. FERC did so here. FERC concluded that granting both
an income tax allowance and a discounted cash flow return on
equity results in double recovery of tax costs, and, to avoid that
problem, denied SFPP an income tax allowance. Opinion
511-C ¶¶ 21–22.
                              10
     SFPP no longer challenges FERC’s solution to the double-
recovery problem, but only the problem’s existence in the first
place. On that score, FERC’s double-recovery finding tracked
this Court’s analysis in United Airlines. FERC reasoned from
two core premises. First, SFPP does not incur entity-level
income taxes. Opinion 511-C ¶ 22. Second, the discounted
cash flow methodology determines “a return that covers
investor-level taxes and leaves sufficient remaining income to
earn investors’ required after-tax return.” Id. From those two
premises, it follows that granting SFPP an income tax
allowance for its investor-level income taxes and a discounted
cash flow return on equity results in a double recovery of
income tax costs. Id.

     SFPP challenges only the second premise, contending that
the discounted cash flow methodology does not determine a
pre-tax return. SFPP contends that, because investors knew,
under FERC’s previous policy approved in ExxonMobil, that
they would recover income tax costs via an income tax
allowance, they would not require a return on equity that covers
those same income taxes. We cannot conclude that FERC’s
contrary conclusion was unreasonable.

     Under FERC’s discounted cash flow methodology, a
pipeline’s return on equity is based on the yields of a proxy
group of publicly traded securities with comparable risks.
United Airlines, 827 F.3d at 128. FERC calculates those yields
as the present value of expected dividends or distributions
divided by the stock or unit price. Id. Investors must pay
income taxes on their distributive share of the pipeline’s
income, regardless of whether the source of that income is an
income tax allowance or any other cost-of-service line item.
See ExxonMobil, 487 F.3d at 952 (citing United States v. Basye,
410 U.S. 441, 453 (1973)). Consequently, an investor’s
distributive share of the pipeline’s income must provide for
                               11
both the investor’s income tax liability on that income and the
investor’s after-tax required return, regardless of whether the
pipeline is afforded an income tax allowance. See Opinion
511-C ¶ 22.

    FERC explained this phenomenon as follows:

       If an MLP Pipeline obtains a new revenue
       source that increases distributions to investors
       (such as an income tax allowance), the unit
       price will rise until, once again, the investor
       receives the cash flow necessary to cover the
       investor’s income tax liabilities and to earn an
       after-tax return that is comparable to other
       investments of similar risk. Likewise, if the
       MLP’s cash flows are reduced (such as via the
       removal of the income tax allowance) and
       consequently distributions decline, the MLP
       unit price will drop until the returns once again
       both cover investors’ tax costs and provide
       sufficient after-tax returns. Whether or not an
       MLP Pipeline receives an income tax
       allowance, the MLP’s [discounted cash flow]
       return will always be a pre-investor tax return.

Opinion 511-D ¶ 14 (citations omitted). Thus, FERC explained
that granting an income tax allowance for investor-level taxes
does not alter the investor’s discounted cash flow rate of return.
It only inflates the pipeline’s cost of service with tax costs
already covered by that return.

    SFPP provides no coherent basis to question that analysis.
SFPP suggests that if an MLP pipeline obtains an income tax
allowance, the unit price will rise, which will lower the
discounted cash flow rate of return. But SFPP neglects that the
                                   12
unit price rises because expected distributions rise, thus
producing no change in the rate of return, as FERC explained.
Id.

     SFPP alternatively contends that that analysis fails to
account for the tax liability of SFPP’s corporate parent. That
is incorrect. As FERC explained, “investor-level costs . . . are
not included in a line item in the cost of service” because they
are “adequately addressed by the [discounted cash flow return
on equity].” Opinion 511-C ¶ 29 n.67. Investors, including
corporations, will not invest “unless the returns are sufficient
to (a) cover the investor’s costs and (b) allow the investor to
retain a sufficient return notwithstanding those costs.” Id. And
as we explained previously, investor-level income tax costs are
“no different” than any other investor-level cost, like
bookkeeping expenses. BP W. Coast, 374 F.3d at 1291.

     In sum, consistent with our precedents, FERC reasonably
identified a double-recovery problem, and reasonably chose to
solve that problem by removing the income tax allowance for
partnership pipelines. Accordingly, we deny the petition for
review of this issue.

                     II. Reopening the Record

     The second issue in these petitions for review is whether
FERC’s denial of SFPP’s request to reopen the record was
lawful. SFPP contends that FERC abused its discretion and
arbitrarily treated SFPP differently from similarly situated
pipelines.* We hold that FERC neither abused its discretion
nor acted arbitrarily.

*
  SFPP expressly frames its contentions for the wrongfulness of FERC’s
refusal to reopen the record as “arbitrary and capricious”
arguments. SFPP’s Opening Br. 25; see generally id. at 25–32. While we
have occasionally iterated the standard of review applied to such a refusal
                                    13

       FERC “may” reopen the record if FERC “has reason to
believe that [doing so] is warranted by any changes in
conditions of fact or of law.” 18 C.F.R. § 385.716(c). Changes
always occur after closing the record, so such discretion “is
reserved for extraordinary circumstances.” Cities of Campbell
v. FERC, 770 F.2d 1180, 1191 (D.C. Cir. 1985). FERC need
not “hold[] an evidentiary hearing open indefinitely,” waiting
for a party to “figur[e] out what its story really is.” Id. at 1191–
92. We are similarly reluctant to remand for further
proceedings absent a change “that is not merely ‘material’ but
. . . goes to the very heart of the case.” Greater Bos. Television
Corp. v. FCC, 463 F.2d 268, 283 (D.C. Cir. 1971).

     After the issuance of Opinion 511-C, SFPP filed a motion
to reopen the record, proposing to introduce four new exhibits
on double recovery. Opinion 511-D ¶ 19. FERC denied
SFPP’s motion, concluding that SFPP’s proffers provided “no
basis to warrant reopening the record at this late stage in the
proceeding that outweighs the need for finality in the
administrative process.” Id. at ¶ 27. FERC noted that SFPP
had “fully litigated” this issue “through briefing and expert
testimony in the Commission proceeding prior to United
Airlines, briefing before the D.C. Circuit, its comments and
supplemental comments following the United Airlines remand,
and its request for rehearing of Opinion No. 511-C.” Id.
(citations omitted).

as “abuse of discretion,” see, e.g., Minisink Residents for Envtl. Pres. &
Safety v. FERC, 762 F.3d 97, 115 (D.C. Cir. 2014) (citation omitted), we
have also recognized that “arbitrary, capricious, or an abuse of discretion”
review under 5 U.S.C. § 706(2)(A) “is now routinely applied by the courts
as one standard under the heading of ‘arbitrary and capricious review,’”
Eagle Broad. Grp., Ltd. v. FCC, 563 F.3d 543, 551 (D.C. Cir. 2009); accord
HARRY T. EDWARDS & LINDA A. ELLIOTT, FEDERAL STANDARDS OF
REVIEW 278 (3d ed. 2018). We disambiguate SFPP’s lines of argument for
the sake of analytical clarity.
                               14

    FERC did not abuse its discretion in so concluding. SFPP
contends that the market response to Opinion 511-C warranted
reopening the record. But a market response, while relevant, is
a kind of change that often occurs following issuance of a
FERC opinion. And FERC itself concluded that the response
here, namely significant drops in MLP prices, “do[es] not
undercut the holdings of Opinion No. 511-C.” Id. at ¶ 34.
SFPP further contends that consideration of the income taxes
for SFPP’s corporate parent warranted reopening the record.
But, as FERC explained, any argument for an income tax
allowance solely for SFPP’s corporate parent was both
procedurally untimely because SFPP failed to raise the issue to
FERC prior to its request for rehearing, id. at ¶ 41, and
substantively dubious given this Court’s vacatur of the
Lakehead policy in BP West Coast, see id. at ¶¶ 41–45.

     Nor did FERC treat SFPP differently from similarly
situated pipelines. To be sure, in denying rehearing of its
revised policy, FERC indicated that parties “will not be
precluded in a future proceeding from arguing and providing
evidentiary support . . . and demonstrating that [their] recovery
of an income tax allowance does not result in a double-recovery
of investors’ income tax costs.” Inquiry Regarding the
Commission’s Policy for Recovery of Income Tax Costs,
164 FERC ¶ 61,030, at ¶ 8 (July 18, 2018). FERC did also
order further proceedings in SFPP’s rate case after issuance of
the 2005 Policy Statement on remand from BP West Coast.
SFPP 2005 ITA Order ¶¶ 66–77. But here, SFPP had ample
chance to present its case on the double-recovery issue both
leading up to and on remand from United Airlines. Opinion
511-D ¶ 27. It was not arbitrary for FERC to deny SFPP “yet
another bite at the apple” while leaving the door open for other
pipelines to argue the double-recovery issue on the facts of
their cases. Id.
                                15

                        III. Index Rates

     The third issue in these petitions for review is whether
FERC unlawfully directed SFPP to use its originally filed index
rates in its compliance filing. SFPP contends that FERC’s
decision conflicted with BP West Coast and was arbitrary. We
disagree on both counts.

     In setting prospective rates, “it is ordinarily impossible for
a pipeline to know at the time of filing what its actual costs will
be during the effective period of the filed rates.” BP W. Coast,
374 F.3d at 1307. Consequently, SFPP uses a test year to
calculate its cost of service. Id. SFPP then designs a rate to
reflect that cost of service, and multiplies that rate by an index
to calculate the rate each year during the effective period for
those rates. See id. at 1302. In BP West Coast, we approved
use of the same indexing methodology used to calculate
prospective rates to also calculate retrospective reparations in
rate cases. Id. at 1307.

     In its original filing, SFPP proposed index rates for 2012
and 2013 of 5.4% and 7.77%, respectively. Opinion 511-C
¶ 55. But SFPP’s compliance filing to Opinion 511-B, which
calculated certain refunds, used index rates of 5.52% and 8.5%
for those years. Id. In Opinion 511-C, FERC ordered SFPP to
recalculate its refunds and going-forward rates based on its
originally filed index rates. Id. at ¶ 57. FERC explained that it
would not permit refunds following a rate case that are based
on index rates different from those previously filed by the
pipeline and accepted by FERC. Id.

    That decision does not conflict with BP West Coast. In BP
West Coast, we upheld the use of indexes for retrospective
reparations calculations, 374 F.3d at 1307, but we had no
                                16
occasion to consider the issue here: “the permissibility of
retroactive indexing increases that had not previously been
sought by the pipeline,” Opinion 511-C ¶ 57.

     FERC’s decision was also well-reasoned. FERC justified
its position in Opinion 522-B on SFPP’s East Line Rates. Id.
(citing SFPP, L.P., Opinion 522-B, 162 FERC ¶ 61,229 (Mar.
15, 2018)). In Opinion 522-B, FERC provided five reasons for
holding SFPP to its originally filed index rates. Opinion 522-
B ¶¶ 16–21.

       First, SFPP’s cost-of-service litigation “neither altered the
industry-wide annual inflationary changes justifying the . . .
annual index changes nor addressed the annual cost changes
SFPP itself experienced.” Id. at ¶ 16. And the fact that FERC
reduced SFPP’s rates in its rate case “does not justify allowing
SFPP now to revisit its . . . indexing filings that involve
unrelated cost changes.” Id. Second, allowing SFPP’s
retroactive adjustment would inoculate SFPP from the risk of
its chosen ratemaking strategy. Id. at ¶ 17. Third, it would
“undermine the simplified and streamlined procedures
indexing was intended to achieve.” Id. at ¶ 18. Shippers would
need to litigate index increases when SFPP initially proposed
them and again when SFPP newly proposed them at the
compliance stage, and potentially again should SFPP propose
still different index increases following further compliance
filings. Id. Fourth, SFPP’s adjustment would disregard
regulations providing for 30-days’ notice of rate changes. Id.
at ¶ 19. Fifth and finally, SFPP’s retroactive changes would
“undermine predictability and rate certainty for shippers.” Id.
at ¶ 20. While shippers had the opportunity to consider SFPP’s
rates and any aspects subject to ongoing litigation when
deciding to use SFPP’s services, shippers had “no notice of the
. . . index increases SFPP now seeks to retroactively impose”
on shippers’ “prior movements.” Id.
                              17

     SFPP provides no substantial basis to question that well-
reasoned decision. We accordingly deny the petition for
review as to this issue.

                   IV. Shippers’ Petition

     For their part, Shippers petition for review of FERC’s
orders on two bases: first, FERC’s treatment of the ADIT
balance that accumulated between 1992 and 2008; and second,
FERC’s decision that SFPP could recover its litigation
expenses over a three-year period. We find that FERC’s
decisions on these points were reasonable, reasonably
explained, and not otherwise arbitrary or capricious. We
therefore deny Shippers’ petition for review.

    Again, FERC orders are reviewed under the APA’s
arbitrary and capricious standard. Hoopa Valley Tribe, 913
F.3d at 1102; 5 U.S.C. § 706(2)(A). So long as the
Commission “has examined the relevant data and articulated a
rational connection between the facts found and the choice
made,” we will uphold its decisions. ExxonMobil, 487 F.3d at
951. And we are “‘particularly deferential to the Commission’s
expertise’ with respect to ratemaking issues.” Id. (quoting
Ass’n of Oil Pipe Lines, 83 F.3d at 1431).

                       A. Background

    A “depreciation deduction” is a tax deduction whereby “a
property owner can deduct the cost of its property over the
property’s useful life.” Telecom*USA, Inc. v. United States,
192 F.3d 1068, 1069 (D.C. Cir. 1999). The most basic method
of depreciation is “straight-line” depreciation, which allows a
property owner to spread the depreciation of an asset evenly
across the years of its useful life. See id. at 1069–70 (“[F]or
                              18
example, an asset with an initial cost of $1,000,000, a salvage
value of $50,000, and a useful life of 10 years would generate
annual deductions of $95,000.”). Pertinent here, the IRS also
allows for “accelerated” depreciation, whereby a “company
pays less tax than it would under straight-line depreciation in
the early years of the life of the equipment, and more tax than
it would under straight-line depreciation in the later years of
the life of the equipment.” Town of Norwood v. FERC, 53 F.3d
377, 382 (D.C. Cir. 1995) (emphases omitted); accord, e.g.,
Opinion 435 ¶ 61,092 (Jan. 13, 1999). In other words, under
the IRS’s accelerated-depreciation scheme, a company may
frontload its tax write-offs for the depreciation of an asset.

      FERC’s ratemaking principles employ straight-line
depreciation. See Opinion 511-D ¶ 62. But FERC permits a
utility to shield its ratepayers from sudden rate increases
resulting from accelerated depreciation by using an accounting
method called “tax normalization.” Town of Norwood, 53 F.3d
at 382. Under tax normalization, the utility creates a deferred
tax account, called an ADIT account:

       The company charges the ratepayers the tax that
       they would be responsible for under straight-
       line depreciation throughout the life of the
       equipment. Thus, in the early years, the
       company collects more in rates than it pays in
       taxes to the IRS; in the later years, it collects
       less in rates than it pays in taxes. The company
       holds onto the surplus from the early years in a
       deferred tax account, and uses this surplus to
       make up for the deficit in the later years.

Id. (emphases omitted); see also Opinion 511-D ¶ 91 (“The
purpose of normalization is matching the pipeline’s cost-of-
                               19
service expenses in rates with the tax effects of those same cost-
of-service expenses.”). Additionally, a pipeline

       must reflect ADIT balances in its rate base.
       This ensures that regulated entities do not earn
       a return on cost-free capital based upon the
       timing differences between (a) when pipelines
       recover the normalized tax costs in rates using
       straight-line depreciation; and (b) when taxes
       are actually paid to the IRS using accelerated
       depreciation. These timing differences create
       “cost-free” capital because the pipeline may use
       these funds without paying either a return to
       equity investors or interest on debt. In a cost-
       of-service proceeding, the Commission requires
       the pipeline to deduct the sums in the ADIT
       liability accounts from rate base so the pipeline
       does not improperly earn a return on amounts
       funded by cost-free capital. Reflecting ADIT in
       rate base generally lowers rates because the
       pipeline does not earn a return on the deferred
       taxes.

Opinion 511-D ¶ 63. FERC’s calculations to determine a cost-
based rate base use the trended original cost (“TOC”) method,
which “requires the determination of a nominal (inflation-
included) rate of return on equity that reflects the pipeline’s
risks and its corresponding cost of capital.” Williams Pipe Line
Co., 31 FERC ¶ 61,377, at ¶ 61,834 (June 28, 1985).

     In Opinion 511-C, having found that SFPP was not entitled
to include an income tax allowance in its rates, see Opinion
522-B ¶¶ 15–22, FERC directed SFPP to make a compliance
filing recalculating its rates and the refunds due to shippers.
Opinion 511-C ¶¶ 57–58. SFPP then made a compliance filing,
                                20
J.A. 934–68, wherein it removed the ADIT balance from its
cost of service (“i.e., eliminate[d] the deduction from rate base
of ADIT liability accounts,” Opinion 511-D ¶ 64, and
“eliminated the recognition of ADIT balances of
approximately $28,021,359,” id. at ¶ 89). SFPP’s compliance
filing also included, in the rates effective from August 2008
through July 2011, a litigation surcharge, whereby it proposed
to recover in its rates the $8 million-plus it incurred over the
course of its litigation of this case, id. at ¶¶ 109, 111, 118; see
Opinion 511 ¶ 37 (adopting three-year surcharge); Opinion
511-A ¶ 42 (on rehearing, affirming adoption of three-year
surcharge).

     Shippers filed comments opposing both of these aspects of
SFPP’s compliance filing. See, e.g., J.A. 971; see generally id.
at 969–95. In particular, Shippers argued “that as a result of
the elimination of SFPP’s income tax allowance, the entire
ADIT balance [wa]s overfunded and should be amortized to
shippers,” Opinion 511-D ¶ 65; see also id. at ¶¶ 66–67, and
that “the litigation expenses should be recovered over the entire
litigation and refund period, rather than an arbitrary three-year
period,” because the litigation lowered rates during the entire
period, benefitting all the shippers, id. at ¶ 111. FERC rejected
Shippers’ arguments on these scores in Opinion 511-D. Id. at
¶¶ 61–108 (ADIT); id. at ¶ 118 (litigation surcharge).

                            B. ADIT

     FERC’s explanation for its decision to permit SFPP to
eliminate the ADIT balance, and not to require amortization of
the sum that was previously ADIT back to Shippers through
prospective rates, rested on three pillars. First, FERC reasoned
that the elimination of the ADIT balance was appropriate in
light of the removal from SFPP’s cost of service of an income
tax allowance. Opinion 511-D ¶¶ 90–91 (“As SFPP is not
                              21
permitted to recover an income tax allowance in its rates, there
is no rationale for requiring SFPP to record current or deferred
income taxes on its books.”). FERC further explained that
“ratepayers have no equitable interest or ownership claim in
ADIT.” Id. at ¶ 92; see also id. at ¶ 94 (“Rates designed
pursuant to the normalization principles . . . do not ‘over-
collect’ the pipeline’s tax expenses in the early years. Rather,
such rates require shippers receiving service in the early years
to pay their properly allocated share of the pipeline’s tax
expenses for the period of their service.”) (citation omitted).
Finally, FERC explained that requiring SFPP to return ADIT
to ratepayers would violate the rule against retroactive
ratemaking. Id. at ¶¶ 93–98, 100–03, 105.

     Shippers contend that FERC committed an unexplained
departure from its precedent and policies in permitting SFPP to
eliminate the ADIT balance rather than amortizing it. Shippers
also dispute FERC’s characterization of their proposed solution
of amortization as retroactive ratemaking, and further assert
that, in allowing SFPP to simply eliminate the ADIT balance,
FERC has in fact engaged in retroactive ratemaking.

     We are not persuaded. We agree with FERC that
refunding ADIT to ratepayers or continuing to remove it from
rate base would constitute impermissible retroactive
ratemaking, and accordingly we have no need to address
Shippers’ other contentions. Shippers’ twin arguments on the
retroactive-ratemaking issue—that amortizing the ADIT sum
back to ratepayers would not have been retroactive ratemaking,
and that failing to do so was—are non-starters, as FERC
correctly concluded that refunding ADIT, or continuing to
remove it from rate base, would violate the rule against
retroactive ratemaking.
                                 22
       “[T]he rule against retroactive ratemaking ‘prohibits the
Commission from adjusting current rates to make up for a
utility’s over- or under-collection in prior periods.’” Old
Dominion Elec. Coop. v. FERC, 892 F.3d 1223, 1227 (D.C.
Cir. 2018) (quoting Towns of Concord, Norwood, & Wellesley
v. FERC, 955 F.2d 67, 71 n.2 (D.C. Cir. 1992)). The question
of whether a particular method of ratemaking is retroactive, and
thus impermissible, is a question of law rooted in the Interstate
Commerce Act (“ICA”), 49 U.S.C. app. § 1 et seq. (1988), the
statute that governs FERC’s regulation of oil pipelines.
Frontier Pipeline Co. v. FERC, 452 F.3d 774, 776 (D.C. Cir.
2006). The rule against retroactive ratemaking is a “corollary”
of the filed rate doctrine, NSTAR Elec. & Gas Corp. v. FERC,
481 F.3d 794, 800 (D.C. Cir. 2007), under which “a regulated
entity may not charge, or be forced by the Commission to
charge, a rate different from the one on file with the
Commission for a particular good or service.” Assoc. Gas
Distribs. v. FERC, 898 F.2d 809, 810 (D.C. Cir. 1990) (mem.)
(per curiam) (Williams, J., concurring). The filed rate doctrine
is rooted in Section 6(7) of the ICA, 49 U.S.C. app. § 6(7)
(1988). Frontier Pipeline Co., 452 F.3d at 776 (“[Section] 6(7)
. . . . establishes the familiar filed rate doctrine.”); see Ark. La.
Gas Co. v. Hall, 453 U.S. 571, 577 (1981) (“The filed rate
doctrine has its origins in [the Supreme] Court’s cases
interpreting the Interstate Commerce Act.”). “The retroactive
ratemaking doctrine is . . . a logical outgrowth of the filed rate
doctrine, prohibiting the Commission from doing indirectly
what it cannot do directly.” Assoc. Gas Distribs., 898 F.2d at
810 (Williams, J. concurring).

    We review de novo the question of whether amortizing the
ADIT balance would have constituted retroactive ratemaking.
Opinion 511-D’s disposition of this issue “purport[s] to rest on
[FERC’s] interpretation of [D.C. Circuit] opinions. As such,
                              23
[FERC’s] judgment is not entitled to judicial deference.” New
York New York, LLC, 313 F.3d at 590.

     FERC explained in Opinion 511-D its view that the
retroactive ratemaking doctrine prohibits the amortization of
the sum that was once ADIT back to shippers in prospective
rates:

       Under the Interstate Commerce Act (ICA), the
       Commission only has the authority to address
       over-recovery by prospectively changing a
       pipeline’s rate, and may not retroactively refund
       over-collected amounts.        Requiring SFPP,
       whose tax allowance is eliminated, to amortize
       to ratepayers ADIT that was lawfully collected
       under previously filed and approved rates
       would infringe on the rule against retroactive
       ratemaking. To do so would, effectively,
       retroactively apply the holding in Opinion No.
       511-C by requiring SFPP to refund either the
       income tax allowance expenses or deferred tax
       reserves recovered under past rates for service
       prior to the commencement of this proceeding.
       Any attempt to refund such amounts to shippers
       would be impermissible, as it would rest on a
       post hoc finding that SFPP’s past rates were not
       just and reasonable.

Opinion 511-D ¶ 93 (citing City of Piqua v. FERC, 610 F.2d
950, 954 (D.C. Cir. 1979); OXY USA, Inc. v. FERC, 64 F.3d
679, 698–700 (D.C. Cir. 2006); Public Utilities Comm’n, 894
F.2d 1372, 1382–84 (D.C. Cir. 1990); Assoc. Gas Distribs.,
898 F.2d at 810 (Williams, J., concurring)). FERC also
distinguished between the instant situation, where a pipeline’s
income tax allowance has been completely eliminated, and
                                24
circumstances in which ADIT becomes overfunded but an
income tax allowance remains:

        Where an income tax allowance remains in the
        cost of service and there is excess ADIT
        resulting from a reduction in tax rates, it is
        appropriate to credit the cost of service to reflect
        that the pipeline currently needs to collect a
        lower level of tax expenses in rates to cover the
        tax liability for that year. Rather than returning
        the excess amounts to shippers related to past
        service, the pipeline’s cost of service is adjusted
        on a going forward basis to reflect the fact that
        it now needs to collect less than what it
        anticipated to cover its future tax liabilities. In
        contrast, where there is no income tax
        allowance in Commission rates, there is no
        basis for the “matching” function of
        normalization and no liability for the deferred
        taxes reflected in ADIT.

Id. at ¶ 97 (citations omitted). In FERC’s view, “SFPP’s ADIT
balance prior to the commencement of this proceeding was
lawfully collected for the tax costs associated with prior-period
service,” and “[t]he shippers’ proposal to amortize the
previously-accumulated ADIT balance in SFPP’s prospective
rates rests on an impermissible finding that SFPP’s past rates
were ‘in retrospect too high’ or ‘unjust and unreasonable.’” Id.
at ¶ 103 (quoting Public Utilities Comm’n, 894 F.2d at 1382)).

     We concur with FERC’s analysis, and, like FERC, we
consider Public Utilities Commission instructive, as it
addressed this precise issue in detail. In that case, a natural-gas
company had $100 million in ADIT when it switched from
cost-of-service pricing to pricing based on statutory ceilings.
                                25
894 F.2d at 1379. Consequently, as here, “the ‘turnaround’
anticipated under tax normalization,” whereby ADIT would be
drawn down to cover future tax liability, would “never come to
pass.” Id. at 1375. The Commission allowed the company to
retain the ADIT balance, but continued to remove it from the
rate base. Id. at 1379. This Court held that approach barred by
the rule against retroactivity, as it “effectively force[s the
company] to return a portion of rates approved by FERC.” Id.
at 1384. We opined that the rule against retroactive ratemaking
“seeks to protect” “predictability,” id. at 1383, and that
ratemaking decisions “violate[] the rule against retroactive
ratemaking” if they “rest[] on a Commission view that the
[prior] rates . . . were in retrospect too high,” id. at 1380. Here,
too, any decision by FERC to return ADIT to Shippers would
have as a necessary predicate a conclusion that ADIT should
not have been collected in the first place. The rule against
retroactive ratemaking therefore prohibits this course of action.

     Shippers contend that Public Utilities Commission should
not control because there the ADIT became overfunded when
FERC lost jurisdiction of the ADIT-generating assets, whereas
here FERC had disallowed an income tax allowance. We fail
to see why the reason ADIT became overfunded is relevant to
retroactivity concerns or demands a different result. Shippers
also argue that Public Utilities Commission was dictum on the
retroactive-ratemaking issue, such that FERC erred by relying
on it. As noted, we owe no deference to an agency’s
interpretation of our precedent, New York New York, LLC, 313
F.3d at 590, but neither do we perceive any need to parse Public
Utilities Commission to determine whether its discussion of
retroactive ratemaking was dictum or holding, because our
review of the legal question presented leads us to concur with
FERC’s resolution of the issue.
                              26
     Because FERC could neither refund the ADIT nor
continue to remove it from rate base without violating the rule
against retroactivity, we cannot say that FERC acted contrary
to law or arbitrarily and capriciously in permitting SFPP to
remove ADIT from its cost of service. We therefore deny
Shippers’ petition as to the issue of FERC’s treatment of ADIT
in Opinion 511-D.

                   C. Litigation Expenses

       In Opinion 511, FERC held that SFPP could “recover its
regulatory litigation expenses attributable to this proceeding
through a three-year surcharge” and allowed SFPP “to develop
the surcharge to reflect the costs incurring in this proceeding
. . . during the hearing, rehearing and compliance phases.”
Opinion 511 ¶ 35; accord Opinion 511-A ¶ 42 (affirming
adoption of a three-year period, rather than a five-year period,
“because the costs have been incurred over approximately three
years of litigation”). SFPP’s 511-C compliance filing reflected
an updated calculation of that approved surcharge “to account
for additional litigation costs incurred since the Opinion 511-B
Compliance Filing.” Opinion 511-D ¶ 109. Shippers protested
to FERC, and now contend to us, that the surcharge (totaling
some $8,587,491) should not be “levied over a three-year
period,” but should instead “be recovered over the entire
litigation and refund period,” because “the litigation has
extended well beyond three years” and, “although all shippers
will benefit from the lower rates, only the August 2008 through
July 2011 shippers will pay the expenses SFPP has incurred in
litigating this case.” Id. at ¶ 111; accord J.A. 991–93
(Shippers’ protest); see also Shippers’ Opening Br. at 34–36
(arguing that FERC offered no “reasoned basis” for its
decision); Shippers’ Reply Br. at 18–20 (same).

    In Opinion 511-D, FERC rejected Shippers’ proposal:
                              27
       The three-year period for recovering the
       litigation expenses was approved in Opinion
       No. 511 and affirmed in Opinion No. 511-A.
       The shippers provide no support for their
       proposal to recover the expenses over the entire
       litigation and refund period, whereas using a
       shorter period is consistent with both
       Commission and court precedent. The use of a
       three-year surcharge remains appropriate
       because, although the litigation remains
       ongoing, the majority of the litigation expenses
       (85.9 percent) were incurred in the earlier stages
       prior to August 2011. Thus, the three-year
       recovery period from August 1, 2008 through
       July 31, 2011 reflects the costliest phase of the
       litigation.

Opinion 511-D ¶ 118; see also id. at n.249 (citing Opinion 435-
A ¶ 61,512 (approving five-year surcharge to recover litigation
expenses incurred over a longer period)).

     Contrary to Shippers’ contentions, we find that FERC
adequately explained its decision to apply the litigation
surcharge over the three-year period spanning August 2008 and
July 2011, rather than spreading those costs over the eleven-
plus years of the litigation. Even absent FERC’s reference to
precedent, this decision is reasonable, as FERC’s
explanation—that 85.9 percent of the expenses were incurred
over the three-year period to which the surcharge would
apply—supplies sufficient support for FERC’s election of the
three-year surcharge rather than Shippers’ preferred route of an
eleven-year surcharge.
                          28
                     V. Conclusion

     For the foregoing reasons, SFPP’s and the Shippers’
petitions for review are denied.

                                             So ordered.
