The MLP Parity Act is Back! Fourth Time’s a Charm?

11/09/17 | Karyl Patredis

What is the MLP Parity Act and why does it matter?

In a volatile political world where it feels like no one can agree on anything, the MLP Parity Act is a bipartisan effort that most everyone can root for. The MLP Parity Act was recently reintroduced by Chris Coons (D) and Ted Poe (R). The bill opens up the MLP structure to include not only traditional (depletable) forms of energy, but also wind, solar, biomass and other renewables.

The MLP Parity Act is thought to be a win for both sides of the aisle because it kills two birds with one stone:

  1. It “levels the playing field” for clean energy. The thought is that if a solar energy company is afforded the same tax advantages as an oil pipeline transportation company, both businesses will have access to capital deployed by investors who favor the MLP structure. Democrats like this because it could further advancements in renewable energy technologies and address climate change concerns. Notably, the idea of traditional energy and renewable energy companies having a fair fight isn’t only on the left’s agenda. On the campaign trail, Trump was quoted as saying, “the government should not pick winners and losers” when it comes to renewable vs hydrocarbon energy.
  2. It makes it less likely that the MLP structure will cease to exist. In other words, if the MLP umbrella is expanding while simultaneously furthering the “American energy independence” program, then why would lawmakers do away with something so advantageous? MLP proponents like the idea of giving additional credence to a structure that has already proved to work in the midstream energy sector. With lots of investors biting their nails over tax reform and the potential for it to affect MLPs, the passing of this bill would send a clear message that the government knows the MLP structure is a net positive for the energy sector.

Now, before I leave you thinking the MLP Parity Act is all sunshine and rainbows and Democrats and Republicans will sing Kumbaya while holding hands on the Senate floor, I want to point out a few things that may have some people wondering “what’s the actual point of this bill?”

  1. The Renewable Electricity Production Tax Credit (PTC) already offers tax benefits to renewable energy companies. This program provides tax credits per kWh of electricity produced by various renewable sources. While becoming a partnership would mean a renewable company would pay no tax (obviously better than reduced taxes), the attractiveness would clearly depend on the earnings and tax obligation, both of which could be low for a renewable start-up company.
  2. YieldCos exist. There is already a structure designed to house companies that are consistently cash-flow-positive. Since the typical YieldCo already projects a low corporate tax burden in early years, it behaves very similarly to an MLP, giving investors simplified access to renewable energy businesses.
  3. The MLP structure isn’t magic. While forgoing a small amount of tax revenue has given the federal government the benefit of a robust energy infrastructure system built by the private sector, it’s not a magic bullet. Many Production & Mining MLPs (both oil and gas and coal) have suffered along with the rest of their respective industries despite having access to the structure.

This is the fourth time Senator Coons and Co. have introduced this bill (the first time was in June of 2012). At present, Govtrack (a website that predicts the likelihood of certain bills passing) only gives the bill a 1% chance of passing. However, greater odds are broken every day. For example, Sports Illustrated predicted the losing Houston Astros would win the 2017 World Series back in 2014. Most interpreted it as delusional, but here we are.

If you think the MLP Parity Act makes sense, you might want to contact your Senator and/or Congressman to voice your support. This bill could mean big things for your great-great grandchild’s investment in Wind and Sunshine Partners LP in the year 2200.