On January 3, APGA sent a letter to Chairman McIntyre of the Federal Energy Regulatory Commission (FERC), urging the Commission to act promptly to ensure that the recourse rates paid by customers of natural gas pipelines are reduced to reflect the lower corporate tax rate. The Tax Cuts and Jobs Act of 2017, which was signed into law last month, lowered the corporate tax rate from 35 percent to 21 percent. However, all pipeline rates continue to recover from ratepayers an income tax allowance assuming a 35 percent rate.
The reduction of the tax rate from 35 percent to 21 percent is significant for two reasons. First, estimates have been put together that indicate that the impact of lowering the income tax allowance alone would lower pipeline rates by approximately five to nine percent. Second, pipelines generally have accumulated deferred income tax (ADIT) accounts, which book the tax timing difference in play when pipelines collect the cost of tax today but pay that tax later. The tax has been collected from ratepayers at 35 percent but will be paid in the future at 21 percent. The difference should therefore be returned to ratepayers through further rate reductions. Under Section 5 of the Natural Gas Act, FERC can only change rates under the Natural Gas Act prospectively after making a finding that the rates are not just and reasonable. It cannot order refunds. This is why APGA is urging FERC to take action to ensure that customers do not continue to pay inflated rates based on the superseded tax rate.
In a press release that accompanied the letter, APGA’s President & CEO, Bert Kalisch, stated “Our members speak for most of the small towns in America that now are being overcharged. Smaller gas systems almost always pay the maximum ‘recourse’ pipeline rate that is premised on the old higher tax rate. Those rates are now unjust and unreasonable.” He also communicated that “We see state commissions moving to address this utility rate matter at the retail level” Now is the time for FERC to act at the wholesale level. FERC has several procedure paths that it can pursue, but what it may not do is dally. Ratepayers deserve relief immediately.”
A copy of the letter to Chairman McIntyre is available
here. For questions on this article, please contact Dave Schryver of APGA staff by phone at 202-464-2742 or by email at
dschryver@apga.org.