The reconciliation bill currently pending in Congress includes an increase in the top corporate tax rate from the current 21% to 26.5%.
Why does it matter?
A key component of a corporate-owned pipeline’s cost of service, which is used to determine its tariff rates, is an allowance for the income taxes owed on its revenue. However, a pipeline’s rates would not automatically increase if the tax rate increased.
What’s our view?
To determine whether a tax increase of the size being considered in the current reconciliation bill would cause a rush of rate cases, we looked at how much such an increase would add to the typical pipeline’s overall cost of service. A 5.5% tax increase only adds about 3% to a typical pipeline’s overall cost of service, which is probably not enough to cause a rush of new rate cases should the bill be enacted into law. However, on the margins, a 3% cost increase may be enough to convince a company that was otherwise on the fence about filing to accelerate its decision.