Congress May Expand MLPs to Include Alternative Fuels

Sometimes the third time is the charm. Other times, it’s just repetition.

U.S. Sen. Chris Coons, a Democrat from Delaware, filed the Master Limited Partnerships Parity Act June 7, so-called because it would open the tax-advantaged structure to businesses beyond fossil fuels.

“The federal government should not be in the business of picking winners and losers in the energy market, but for nearly 30 years, that’s exactly what it has been doing with a provision in the tax code that authorizes the formation of master limited partnerships,” Coons said in a statement. “At a time when the United States needs to increase domestic energy production and leaders of both political parties say they support an ‘all of the above’ energy strategy, Congress should level the playing field and give all sources of domestic energy – renewable and non-renewable alike – a fair shot in the marketplace.

The latest iteration of the bill focuses on enabling renewable energy sources such as wind, hydropower, biodiesel and others to leverage the MLP structure’s benefits.

With each legislative filing, Coon has been joined by a number of bi-partisan co-sponsors. This time, six members of both houses of Congress are on-board.

Still, with a heated election just 18 months out, expecting Congress to do anything meaningful with taxes might be a stretch, MLP analysts told Rigzone.

“I think the answer is it’s not going anywhere soon because tax reform of any kind is probably dead in the water until the next election is over,” said Ethan Bellamy, managing director at Robert W. Baird & Co.

However, Bellamy said that when the time comes, he doesn’t expect the fossil fuel lobby to be directly in opposition to this sort of change to MLPs.

“Frankly, that would be hypocritical for another part of the energy sector to have the ability to use the structure, but [create hurdles] for others,” he said.

However, finding support among existing MLPs is unlikely, Bellamy said, because “first and foremost, they’re not in the business of increasing competition.”

Kenny Feng, president and CEO of the Alerian Index, which tracks MLP performance, told Rigzone that current MLP investors probably interpret Congress’ interest in expanding the structure to mean they’re not planning to take it away – a positive for existing MLPs.

However, he said, “You might make the case that if alternatives are able to market themselves under the same ideas [long-term contracts, distribution stability and growth, barriers to entry, etc.], then they’re competing for the same investment dollars. That may happen someday, but I think the alternative space is too small to warrant that degree of concern for at least the near and medium term.”