Bloomberg BNA

Expanding master limited partnerships has broad appeal, but still faces long odds

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Legislation allowing renewable energy companies to organize as master limited partnerships appears to have something a wide range of interests can support, but despite its bipartisan backing, it cannot seem to gain traction in Congress.

For years, MLPs have been popular in the energy industry for their tax benefits and access to cheap capital.

The nation's first MLP was Houston-based oil and gas company Apache Petroleum Co., created by its parent company, Apache Corp., in 1981, according to a 1987 Joint Committee on Taxation report.

Renewable energy assets, however, were excluded from eligibility at the time, Paul Gaynor, chief executive officer of Boston-based developer First Wind, told BNA.

“I think it's kind of an artifact of history,” Gaynor said. But “as the wind industry got bigger and bigger and was looking for ways of bringing down the cost of capital, they looked around for what other industries were using.”

To address that, Sen. Chris Coons (D-Del.) introduced the Master Limited Partnerships Parity Act (S. 795), which would expand the types of projects allowed to organize as an MLP. In addition to oil and gas companies, the structure could also be used by renewable energy projects mentioned in Sections 45 and 48 of the tax code, namely wind, solar, hydropower, fuel cells and biomass (80 DTR G-3, 4/25/13).

Political Appeal

The bill has appeal with low-tax proponents and green energy crusaders alike, allowing companies to avoid double taxation and giving them better access to capital markets while offering an incentive to invest in develop clean energy projects.

The Senate bill enjoys bipartisan co-sponsors, including Lisa Murkowski (R-Alaska), the ranking member of the Committee on Energy and Natural Resources, Sen. Jerry Moran (R-Kan.) and Sen. Debbie Stabenow (D-Mich.).

Sen. Coons has said the Obama administration supports the legislation as well and there is a companion bill in the House (H.R. 1696) introduced by Rep. Ted Poe (R-Texas).

But goodwill on both sides of the aisle--as well as a campaign led by renewable energy companies to move the bill forward--could amount to little unless the industry and key Republicans in Congress can hammer out a compromise on whether to preserve the coveted production tax credit.

“Of the Republicans who support it, some of them only support it on the condition that the subsidies that are [currently] given would be repealed or set aside as part of the bill passing,” Pavel Molchanov, an alternative energy analyst with Raymond James, told BNA.

PTC Impasse

Lawmakers are focused on the federal renewable energy production tax credit, a per-kilowatt hour tax credit for electricity generated by renewable sources, Molchanov said.

That is not something most in the renewable industry are willing to cede, Gaynor said.

“We view the MLP [bill] as complimentary to the PTC, not a trade,” he said.

The American Wind Energy Association, the industry's main trade group, supports the MLP bill, but says in a June 11 letter to lawmakers that continuing the PTC is its top priority and that the group will “vigorously oppose” efforts to link the passage of the MLP bill with a repeal of the PTC or a reduction in its value.

Legislation similar to the current MLP bills was introduced in the 112th Congress, but failed to advance.

Some trade-offs may be needed. The production tax credit was extended at the beginning of 2013 under the American Taxpayer Relief Act (Pub. L. No. 112-240), but as part of discussions surrounding a potential tax overhaul, the Senate Finance Committee released a discussion draft exploring an option to repeal the PTC and other credits and replace them with increased expensing or accelerated depreciation (81 DTR G-9, 4/26/13).

FAIR Coalition

Tough odds in Congress are not discouraging First Wind and other renewable energy companies from lobbying efforts to advance the legislation, however. A group of renewable energy companies spearheaded by First Wind formed the 13-member Financing American's Investment in Renewable (FAIR) Coalition in May.

“We're meeting with staff members and people from the Senate Finance Committee and House Ways and Means Committee, and laying the groundwork for a discussion,” said Gaynor, who was last in Washington in July to pitch the MLP idea to lawmakers.

Gaynor said the FAIR Coalition was working with Coons on moving S. 795 forward and argues that argues renewables should get access to the same cheap capital that is financing the rapid growth in natural gas development.

MLPs are often used in developing oil and gas pipeline projects, but increasingly they help finance projects in the rapidly expanding hydraulic fracturing, or fracking, space.

If renewables firms have access to that amount of capital and at that cost of capital, “we could be doing a lot more and it would be more cost effective to consumers,” said Gaynor.

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