Trumps tax cuts trouble natural gas pipelines

President Trump’s corporate tax cuts are causing trouble for the natural gas pipeline industry. Don Santa, president of the Interstate Natural Gas Association of America Jan. 30 sent a letter to Federal Energy Regulatory Commission Chairman Kevin McIntyre, released on Monday, calling on the regulators to resist petitions from some gas utility interests, state utility regulators and consumer advocates to reduce pipeline rates to reflect the Trump tax cuts.

In the letter, Santa points to petitions to FERC in January from the American Public Gas Association, the Natural Gas Supply Association, the Process Gas Consumers Group, and various state groups calling on FERC to cut pipeline rates to reflect tax cuts din the Tax Cuts and Jobs Act of 2017. The APGA, which represents municipal natural gas distribution utilities, says, “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.”

NGSA calls on FERC to “initiate show cause proceedings directed to each interstate natural gas pipeline and storage company … and require each to submit a cost and revenue study demonstrating that its existing rates continue to be just and reasonable, in spite of the changes to taxation implemented under the Tax Act.”

INGAA’s Don Santa

INGAA’s letter argues that “application of the changes resulting from the TCIA to the rates of interstate natural gas pipelines will not be as straightforward as APGA and others suggest.” Santa, a former FERC commissioner, says, “As the commission knows, whether a rate is just and reasonable is determined by the end result, that is, the overall rate and not any individual component of that rate.”

Interstate gas pipelines, Santa added, are in competitive markets “that may not be faced by regulated utilities with franchised service territories. Pipelines often must meet competition by providing transportation and/or storage services to customers at discounted or below maximum negotiated rates.”

The customer groups, Santa said, “are requsting inappropriately that the commission compel rates to be adjusted to reflect the reduction in income taxes without consideration of pipelines’ other costs of service components.”

APGA called on FERC to “take immediate action” to lower pipeline rates. The group says rates could be lowered by five to nine percent. The filing also calls on FERC to support changes in the Natural Gas Act that would give the federal regulators authority to order refunds in pipeline proceedings, as it does for electricity.

Santa said FERC should follow its normal process in examining the impact of income tax cuts on pipelines. “Full rate case proceedings are the preferred method for revising rates”, he said, “because ‘all components of the cost of service may be considered and any decreases in an individual cost component can be offset against increases in other cost components.’”

Santa said, “Section 5 of the NGA provides a mechanism for APGA and others to challenge whether the rates of an individual pipeline are just and reasonable. A full section 5 proceeding will examine the effect of the tax rate in the context of a pipeline’s overall business.”

— Kennedy Maize

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