At the recent Renewable Energy Finance Forum in New York, Laura Lovelace, a panelist and founder of Lovelace Energy Partners, explained that the Master Limited Partnership Parity Act, which was re-introduced this year, has stalled. The Master Limited Partnership Parity Act would allow renewable energy companies to structure themselves as MLPs, which would allow them to raise money on exchanges without paying corporate income tax. Such treatment would lower the high cost of capital for renewable energy companies, one of the biggest challenges facing the industry.
According to Lovelace, however, the MLP Parity Act, while it’s considered a “bright spot,” is likely to be folded into comprehensive tax reform. One of the main challenges with the bill being lumped into tax reform legislation is the uphill battle such legislation faces generally. Republicans in the U.S. House of Representatives want to cut taxes at the same time Democrats in the U.S. Senate want to raise revenues, said Lovelace.
“That we know to be a complex process,” she said.
The second reason the MLP bill has languished is the fact that it carries a high price tag, which makes anything more difficult to pass legislatively. However, the fact that the bill has been included in more comprehensive reform means that it will be easier to find ways to offset the costs, said Lovelace. Plus, she noted that there’s a lot of agitation in Congress to successfully tackle tax reform, and the goal is for House of Representatives to put forth a bill out of the Ways and Means Committee to the full floor of the House this fall.
Indeed, support for MLPs has been strong and is growing stronger.
A recent American Council on Renewable Energy (ACORE) report, “Strategies to Scale-Up U.S. Renewable Energy Investment,” stated that the availability of MLP status to renewable energy companies would not only support, but accelerate growth in renewables by reducing the cost of financing projects. MLPs have traditionally been able to withstand various market conditions and provide reliable cash flow, the report states.
“MLPs would provide a new way for utilities to invest in renewable energy projects that would produce a higher rate of return than holding the renewable energy asset within the utility entity,” the report reads.
Yet not everyone is bullish on the prospect of MLPs in the clean tech sector. John Farrell, a senior researcher at the Institute for Local Self-Reliance who specializes in energy policy developments said one of the huge drawbacks of MLP expansion is that it perpetuates a policy that ultimately could hurt ratepayers. In the early 2000s, Farrell explained, federally regulated pipeline companies began using MLPs to charge rates as if they paid corporate income tax, when they didn’t actually pay the tax. Through the use of MLPs, the rates pipeline companies charge are 40 percent higher than they would be if they paid taxes.
“One of the things that you’re going to have happen if MLPs are expanded in terms of what technologies are eligible is you’ll have other regulated companies reform, or their subsidiaries will reform, under MLP statutes,” said Farrell. “That, I think, summarizes one of the very large drawbacks to MLPs.”
For example, investor-owned utilities, whose rates are set at the state level, now pay corporate income tax, said Farrell. If they reformed under MLPs, they likely wouldn’t, if the current policy sets a precedent. He said MLPs could open a “Pandora’s box” to other regulated industries taking advantage of terrible policy that would be awful for ratepayers.
For further reading, check out our previous story on comments made by Senator Murkowski (R-Alaska) and Jack Gerard, CEO of the American Petroleum Institute, at the New Energy Finance Summit. Both speakers supported leveling the legislative playing field in order to allow clean energy firms to compete with the oil and gas industry.
Ultimately, the next chapter in the push for MLPs will to be continued in the fall.