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FERC To Address Tax Reform Effect On Oil, Gas, Utilities

Pipeline

The Federal Energy Regulatory Commission has outlined the steps it would take to make sure that the clients of utilities and oil and gas pipeline operators don’t bear any financial burden from the sweeping tax reform that President Trump signed into law in December.

The reform, among other things, envisaged a cut of the maximum federal corporate tax from 35 percent to a flat rate of 21 percent. Platts explains that the income tax allowance in the cost-of-service rates charged by power utilities and oil and gas pipeline operators was cut as part of the reform. This prompted states and other stakeholders to approach FERC, which regulates these utilities, in a bid to prevent users of these services from having to pay more for them.

For starters, FERC will seek comments from the utilities and pipeline operators regarding the effects of the tax reform on their rates. Among the top priority topics for FERC are accumulated deferred income taxes and bonus depreciation – a tax incentive aimed at encouraging companies to invest more.

In addition to the comments, the watchdog has asked 48 power utilities to suggest revisions to their rate formation mechanism following the tax reform, or come up with reasons why they don’t need to revise them. These are utilities that set their rates using a 35-percent value for the federal income tax component.

Interstate gas pipeline operators will need to submit to FERC a one-time informational filing to help the regulator in its review of rates and whether any of them are unjust and unreasonable, Platts notes.

Related: 44 Things You Didn’t Know About Oil

Separately, FERC revised its policy on the recovery of tax allowance costs. Under the revised policy, oil and gas pipeline operators incorporated as master limited partnerships will no longer have the right to recover income tax allowances in cost-of-service rates.

For oil pipeline operators, FERC will continue to use the index rate-setting methodology it has used so far in adjusting their rates in accordance with the new tax regime.

By Irina Slav for Oilprice.com

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