trending Market Intelligence /marketintelligence/en/news-insights/trending/obyw-jzwias1o-jqwdujlg2 content esgSubNav
In This List

FERC rule would ensure pipeline rates adjust to new tax law

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


FERC rule would ensure pipeline rates adjust to new tax law

A new rule proposed by the Federal Energy Regulatory Commission would put in place a process that would allow the commission to determine which interstate natural gas pipelines might be collecting "unjust and unreasonable rates" after changes in FERC's income tax allowance policies and a recent reduction in the corporate income tax rate.

Under the proposed rule, pipelines would be required to file a one-time report, called a FERC Form No. 501-G. The report would detail effects on pipeline revenue requirements from the new federal tax law, which was enacted by President Donald Trump in December 2017, and its reduction of the corporate income tax rate from 35% to 21% beginning in 2018. The report would also be part of a FERC effort to prevent double recovery of tax costs in pipeline rates charged to customers. The commission announced the proposal along with orders on tax changes for electric utilities during its March 15 monthly meeting.

FERC staff said if the rule is passed, the cost of service for wholesale customers would decrease, because tax expenses, which are recovered in a cost-of-service rate, would also go down.

"I think the actions we take here today will ensure that the benefits of [the tax act will] flow to ratepayers," Commissioner Neil Chatterjee said. "Put simply, that means lower electric and natural gas bills."

Each pipeline would have four options: reduce rates by a FERC-determined percentage reduction in its cost of service; if it believes the first option would not result in a just and reasonable rate, commit to file before Dec. 31 either an uncontested rate settlement or a general Natural Gas Act Section 4 rate case; if it does not believe it has to change its rates, file a statement explaining such reasoning; or file the new form without taking any other action.

The commission will consider whether to pursue a Natural Gas Act Section 5 investigation against any pipeline that has not submitted a rate reduction filing or committed to filing a Section 4 rate settlement case. Under Section 5, FERC has the authority to require changes in pipeline rates if it proves the rates are unjust and unreasonable.

Staff said the commission is also seeking additional information from interested parties on whether the action is needed, specifically with regard to accumulated deferred income taxes, which is money that pipelines collect from customers in anticipation of paying the U.S. Internal Revenue Service. The tax law will result in a reduction in accumulated deferred income taxes on pipeline companies' books. (FERC docket RM18-11)

The commission also opened two investigations under Section 5 on March 15. It is looking into whether the rates charged by Dominion Energy Inc.'s Dominion Energy Overthrust Pipeline LLC and Midwestern Gas Transmission Co. are just and reasonable.