Sunday, October 9, 2016

Master Limited Partnerships Parity Act might pass in compromise, says energy expert

The Master Limited Partnerships Parity Act (MLPPA), which would put some renewable energy investments on the same tax footing as is now enjoyed by their fossil-fuel counterparts, may be passed in a compromise that would see the end of tax incentive programs that are essential to the functioning of today’s renewable energy financing system.

According to energy expert Robert Rapier, writing here on July 21, 2015:

“The Senate version of the MLPPA has been referred to that chamber’s Committee on Finance, while the House version was referred to the House Committee on Ways and Means. Allowing the current tax credits to expire at the end of 2016 while providing MLP status for renewable energy projects might be a compromise reluctant Republicans could stomach. If so, then the third time may be the charm for the MLPPA.”

The “current tax credits” referred to by Rapier are the Investment Tax Credit (ITC) and the Production Tax Credit (PTC), both of which currently play important roles in making renewable energy projects economically- and financially-viable.

Those now benefiting from such programs and those hoping to benefit from them in the future might be expected to oppose their phasing-out at the end of 2016 under this hypothetical compromise.

Under the terms of the MLPPA, revenues derived from renewable sources would become “qualifying income” under the terms of the Internal Revenue Code.  This would allow renewables-based Master Limited Partnerships to float IPOs and pass on their profits to investors without first paying federal corporate income tax. 

For more about the MLPPA, you can read “The Master Limited Partnerships Parity Act:  Friend or Foe?”, by Sonia J. Toson at Kennesaw State University, here.

For even more about what “qualifying income” is, look at this article penned by three attorneys at the international law firm Norton Rose Fulbright, here.

The House version of the pending MLPPA is H.R. 2883. It currently resides in the Tax Policy Subcommittee of the House Ways & Means Committee, which is chaired by Representative Charles W. Boustany, Jr., MD.  The Senate version is S. 1656.

Some of the same benefits available from Master Limited Partnerships are already accruing to renewables investors through the use of the “yield co.”  This financial construct, should it grow in popularity, could conceivably obviate the need for the MLPPA entirely, allowing the ITC and PTC to remain in place, if Congress can be persuaded to extend them past the end of this year.

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