Originally published for customers June 3, 2022.
What’s the issue?
FERC regulates the rates that can be charged by both gas and oil (or liquids) pipelines, but under very different regulatory structures.
Why does it matter?
Under both regulatory structures however, a key component for calculating an appropriate tariff rate is fixing the return on equity (ROE) that the pipeline can earn on its rate base.
What’s our view?
Since passage of the Tax Cuts and Jobs Act of 2017 in late December of 2017, the ROEs reported by oil pipelines have risen substantially, whereas the ROEs asserted by gas pipelines in rate cases have not. Yet, oil pipelines have consistently claimed ROEs that are lower than those asserted by the gas pipelines. With the oil index set to rise by almost ten percent this year, the higher ROEs asserted by gas pipelines would help shelter additional revenue increases by the oil pipelines, if such higher returns could be justified.
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