Recently, the Federal Energy Regulatory Commission posted a revised policy statement that retreated its 2005 income tax policy that allowed master limited partnership interstate natural gas and oil pipelines to recover an income tax allowance in service cost rates.
Williams Partners primary regulated interstate pipelines include Northwest Pipeline, Transcontinental Gas Pipe Line Company and a 50% stake in Gulfstream Natural Gas System. It should be noted that Williams Companies Inc (NYSE:WMB) owns around 74% of Williams Partners, and marks as an income tax paying enterprise. In 2017, around a third of company’ gross margin was recorded from these regulated pipelines.
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The FERC’s changed policy will just impact cost of service rate computations on a prospective basis. Transco will carry out its initial submission for its next rate case in this year. However, negotiated prices will make up around 50% of Transco’s revenue by end of year and would not be affected by this verdict. Northwest Pipeline closed its rate case with shippers last year, with new rates effective from this year. Finally, Gulfstream Natural rates with its clients, which are all negotiated prices, would not be affected by this ruling.
Alan Armstrong, the CEO and President of Williams, expressed that provided the relatively small fraction of their revenues that are impacted by this decision, they don’t anticipate this decision to impact their earlier guidance for WPZ and WMB distributions and cash dividends and related growth rates. In addition, as they have often discussed, they are well-positioned to implement on corporate structure revisions, which would reinstate the income tax allowance to the cost of service rates.
Williams is a major provider of large-scale setup connecting U.S. natural gas and its products to increasing demand for feedstocks and cleaner fuel. Based in Tulsa, Okla., the company owns around 74% of Williams Partners L.P. Williams Partners marks as an industry-leading, large-cap MLP with businesses across the natural gas value chain counting processing, gathering and interstate transportation of natural gas and NGLs.
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