Does Allowing Renewable Energy Companies to Become MLPs Level the Playing Field?

It is the rare bill in Congress that gets strong bipartisan support right out of the gate.

But two weeks ago, in a move that didn’t garner all that much national attention (probably because it had nothing to do with Guantanamo Bay, Obamacare, or a national tragedy), a bill was introduced in the House and Senate that has leaders on both sides of the aisle vociferously praising their support.

It’s called the Master Limited Partnership (MLP) Parity Act, and it has been championed by Democratic Senators Chris Coons of Delaware and Debbie Stabenow of Michigan, as well as Republican Senators Jerry Moran (Kansas) and Lisa Murkowski (Alaska). The bill also has bipartisan support in the House, with GOP Reps Ted Poe (Texas-02) and Chris Gibson (N.Y.-19), and Democratic Reps Peter Welch (Vt.) and Mike Thompson (Calif.-05) introducing the bill there on April 24 as well.

What the MLP Parity Act seeks to do is open up opportunities and “level the playing field” for renewable energy projects like solar and wind  by giving investors in renewable energy projects access to a decades-old corporate structure whose tax advantage is available now only to investors in fossil fuel-based energy projects.

In other words, instead of changing or stripping away the enormous tax breaks and investment structure that MLPs offer oil and gas companies, this new bill would extend those advantages to renewable energy projects as well.

“This market-driven solution supports the all-of-the-above energy strategy we need to power our country for generations to come,” Coons said. “Our legislation will unleash private capital, create jobs and modernize our tax code. That’s why it has earned broad support from Republicans and Democrats in Congress, as well as academics, outside experts, business leaders and investors.”

Under the proposed MLP Parity Act, renewable energy companies will get to be a lot more like oil and gas companies. Credit: Dailykos.com

Under the proposed MLP Parity Act, renewable energy companies will get to be a lot more like oil and gas companies. Credit: Dailykos.com

“The Master Limited Partnership structure has helped the oil and natural gas industry deliver the abundant and affordable energy that powers our economy today,” said Senator Murkowski, the ranking member of the Senate Energy and Natural Resources Committee. “Through a small change in the tax code, this legislation will provide renewables with the same opportunity.”

OK, at this point you may be wondering a few things, namely: What exactly is a Master Limited Partnership, and how has it been helping oil and gas companies all these years?

When a business starts, it can be organized in any number of corporate structures.  There are S-Corporations, C-Corporations, sole proprietorships, limited liability corporations, and countless other structures all have unique implications for how a company can raise money and how they’re taxed. A master limited partnership is a type of “publicly traded partnership,” which possesses three important qualities that separate it from others: it can raise money on public exchanges, is traded just like stocks, and it doesn’t pay corporate income taxes.

All of this generated income flows through to shareholders, who pay a personal income tax, so there’s no “double-taxation” as happens with other corporations.

So what’s the problem? The problem is that the law that created MLPs says that only certain types of companies can use this kind of structure. Renewable energy and energy efficiency are not eligible, so most MLPs in the energy industry are oil and gas pipeline companies. This MLP Parity Act  would simply add renewable energy and energy efficiency to the list of technologies that can be MLPs; that’s where the “leveling the playing field” would come in.

I spoke to Ian Koski, the communications director for Senator Coons, and he pointed out that trade organizations and energy companies like the Offshore Wind Development Coalition, the International District Energy Association, Renewable Biofuels Inc., Summit Power Group, and the Alliance for Industrial Efficiency have all voiced support for the MLP Parity Act.

Additionally, MLP Parity Act’s supporters have lined up testimonials from people like Dan Reicher, a Stanford University professor who worked in the Energy Department under President Bill Clinton. Reicher said that the democratization of energy sources would result from allowing MLPs in renewable energy.

“Today, all American taxpayers fund renewable energy subsidies, but only a deep-pocketed few can cash in on the tax benefits,” Reichert said. “Publicly traded master limited partnerships … would empower all Americans to invest and have a stake in the transition to cleaner energy.”

With so much bipartisan support, you might think the MLP Parity Act would sail through Congress. But Koski isn’t so sure.

“It’s hard to say (if it would pass),” Koski said. “it’s strongly supported by Chairman [Ron] Wyden and co-sponsored by Senator Murkowski, so we’re hopeful the bill will be considered there soon. Both the Senate Finance Committee and House Ways & Means Committee are working on comprehensive tax reform packages this year, and we’re working to make the MLP Parity Act a part of them.”

(A spokesman for the House Ways and Means Committee did not respond to my interview requests.)

Of course, not everyone is for this bill.  Meet Tom Tanton, a policy expert for the American Tradition Institute. ATI is described on its website as a “a public policy research and educational foundation — a “think tank” — founded in 2009 to help lead the national discussion about environmental issues, including air and water quality and regulation.”

Tanton is strongly against the MLP Parity Act, with a major reason being that he feels renewable companies get enough tax help already.

“I think it’s important to point out that renewable energy companies receive 30 to 40 times the subsidies other energy companies get,” Tanton said. “If they want to give up the subsidies they’ve been getting for years, then we could talk about leveling the playing field.”

Of course, Tanton is correct that renewables do get tax breaks, but what the Parity Act is targeting is more about investment opportunities for the public and allowing funding from other sources, to give renewables a chance to match the “war chest” oil and gas companies possess.

Tanton went on to say that he believes solar and wind companies are getting plenty of money on their own from private investors, and that there’s no need to pass the MLP Parity Act. ”It’s disingenuous for them to claim unequal treatment,” he said. “If anything, current laws are unequal in their favor.”

Koski told me that the only major objections he’s heard around Washington to the MLP Parity Act have come from those who would like to get rid of the MLP structure altogether, not expand it.

“Though that would effectively swipe at the oil and gas industry, it would also take a significant amount of private capital out of the energy market,” Koski said. “Talk about cutting off your nose to spite your face.”

There’s no telling if the MLP Parity Act will pass, but from this vantage point it certainly would make life a lot easier and smoother for wind and solar if they could procure other funding and breaks that oil companies get. For example, the annual “sweat it out” about the Wind Production Tax Credit (PTC) wouldn’t be nearly as treacherous for wind companies if the MLP Act were enacted.

 

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