Thursday, February 6, 2014

Gas Pipelines and Fees. Both are on their way.

Gas Pipeline Flange
From Wikipedia
The gravy train slows down

Vermont Yankee will close late this year, but the region still needs energy. Other plants are also closing, due to the low natural gas prices: Brayton Point, Salem Harbor and more.  As AP's Stephen Singer wrote: New England power plant closings pinching supply. As Susan Smallheer wrote in the Rutland Herald: New England electricity glut a thing of the past.  Meanwhile, as Jim Conca (and others) reported, the gas pipelines couldn't carry enough gas to New England during the cold weather, and energy costs soared.

But heavens!  Let's not talk about energy!  Let's talk about some real problems, such as the state's current problems funding the Clean Energy Development Fund (CEDF). By law,  Vermont Yankee was forced to contribute tens of millions of dollars to CEDF. But Vermont Yankee is going away. In a recent agreement with the state, Vermont Yankee agreed  to put a final five million dollar payment into CEDF. But that will be the end of the Vermont Yankee contributions.

Vermont Fights for the Clean Energy Fund

Losing Vermont Yankee means losing the Clean Energy Development Fund, unless something is done
Building a pipeline
From Wikipedia
about the situation. In Vermont, something will always be done if favorite government subsidies look like they might run out of money.  At least, that is my opinion.

Vermont will soon no longer have Vermont Yankee, but what do we have?  Well, we have gas pipelines, and we have schools. As a matter of fact, a new gas pipeline is being built in western Vermont, though many (but not all) local people oppose it.

So the latest proposal to raise money for the CEDF is a combination of taxing gas pipelines, and diverting some school tax money to the fund.  Vermont Digger reports on the most recent bill to raise money: Shift in Pipeline Taxes Proposed to  Fund Clean Energy Projects.

This Vermont Senate bill has various sections, including:

  • Diverting the part of the pipeline property taxes that now go to the education funds to the Clean Energy Development Fund. (The portion of the property tax that goes to town services would continue to go to the towns.)  
  • Writing the pipeline tax assessment so that it never can depreciate to zero, but only to 30% of the original installed cost. Therefore, the pipeline will always have a residual value that can be taxed. (Changing the depreciation rules could raise the price of gas, though proponents of the plan dismiss that idea. Their argument seems to be that many things affect the price of gas. So what's one little tax more or less?)

Regulated utilities are different from you and me

Regulated utilities are different from you and me.  Regulated utilities always make money. (The few exceptions to this rule generally make the headlines in the newspapers.)

Vermont Gas Systems, a division of Gaz Metro, is a regulated utility.  From the state's point of view,  taxing Gaz Metro's gas pipelines has many advantages over taxing Entergy's Vermont Yankee.  Vermont Yankee had to pay its taxes from the money it could generate as a merchant plant.  Vermont Yankee could not raise its prices just because its tax burden had risen.  So if the taxes rise too high, the plant would lose money and go out of business.

Not so with a regulated gas pipeline. They can raise quite a bit of money.  If taxes or depreciation rules increase the cost of running the pipeline, or if the price of natural gas itself goes up, the regulated utility does not suffer.  It does not go out of business.  It just asks the Public Service Board for a ruling to increase the rate that it charges to customers.  When the utility shows a cost increase to the Board,  a rate-increase ruling is practically guaranteed.

This makes taxing a gas pipeline a very good choice for raising revenues for the state. It helps the Clean Energy Fund, it doesn't hurt Gaz Metro, so it's a good thing all around.

Well, it's a good thing most of the way around, perhaps. Pass-through taxes might hurt the Vermont citizens who have to pay those increased rates.  That might be something to think about.

Anybody thinking?


There are other pipeline taxes under consideration, but those will be a subject of another blog post.

1 comment:

Travelogue for the Universe said...

Wow...more to gas pipeline taxation than meets the eye.