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Utilities assess impact of tax change
Enstar and CINGSA have both filed proposals for rate reductions in the wake of the revisions to the tax code enacted last year Alan Bailey Petroleum News
In the wake of a reduction in the federal corporate tax rate from 35 percent to 21 percent, as part of the changes to the federal tax system enacted by Congress at the end of last year, two Alaska utilities, Enstar Natural Gas Co. and Cook Inlet Natural Storage Alaska, or CINGSA, are proposing reductions in the rates that they charge their customers. Enstar’s rate reductions would apply to the fees it charges for shipping gas through its system, and not to the cost of the gas that it purchases from gas producers. Presumably CINGSA’s rates, charged to commercial customers who store gas in its facility, would ultimately impact the cost of gas and electricity for energy consumers.
Unlike other Alaska Railbelt utilities, which are either member owned cooperatives or are owned by municipalities, Enstar and CINGSA are for profit companies, both owned by AltaGas Ltd. and subject to corporate income tax on their profits. Not-for-profit, member owned cooperatives and municipal entities are not subject to corporate income tax.
Enstar reduced revenue requirement Enstar, in an April 26 filing, told the Regulatory Commission of Alaska that, while the full ramifications of the new tax code are complex, the utility has determined that the change in the tax rate results in a 5.7 percent reduction in Enstar’s non-gas revenue requirement. The revenue required to cover a utility’s costs and return on investment forms the basis of the rates that the entity charges its customers.
The commission has not yet ruled on how utilities should respond to the tax rate reduction. However, Enstar said that it has made its filing because it believes that its new revenue requirement calculation is “the most expeditious way for customers to realize savings on their monthly bills.” The utility told the commission that its customers of all categories should expect around a 1.3 percent reduction in their total bills as a consequence of the rate change.
Enstar told the commission that, in calculating its new revenue requirement, it had determined that the reduction in the tax rate will directly reduce the utility’s federal income tax bill by about $4.6 million. The tax change will trigger a reduction of $57,700 in Enstar’s capital requirements, a change that translates into a reduction of $4,959 in the utility’s required return on investment. The tax change will also reduce expenses relating to bad debt and lead to a decrease of $477,607 in state income tax expense.
Enstar has determined its revised rates by applying its adjusted revenue requirements to the same allocation methods and rate design as were used in the utility’s currently approved tariff, the utility told the commission.
CINGSA reduced base rates CINGSA told the commission that its rate reduction would apply to its base rates for firm and interruptible gas storage services. Rate reductions for services including storage reservation and interruptible storage would range from 14.3 percent to 17.2 percent. However, CINGSA proposes raising by 89.5 percent the fees it charges for injecting gas into its facility or withdrawing gas from storage.
In addition to the reduction in corporate income tax, the reduction of rates for the storage facility reflects a decrease in the company’s required return on equity, a change in the manner in which revenues from interruptible storage services are handled, the removal of some historically disallowed expenses from the revenue requirement, depreciation in the rate base, and a lower depreciation expense. The revised rate also reflects the commission’s standard use of a 13-month average rate base, CINGSA told the commission.
The revised rate of return on equity, a little below CINGSA’s desired rate of return, reflects the rate of return that the commission has mandated for Enstar. And changes to the handling of interruptible service revenues reflect the volatile nature of these revenues - CINGSA proposes a mechanism to share 50 percent of its interruptible service revenues with its firm service customers, CINGSA said.
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