Corporate Tax Rate Increase Could Lead Some Pipelines to Raise Their Rates

Originally published Oct. 20

 

What’s the issue?

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.

 



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