Legislation has been introduced in the U.S. House of Representatives and Senate to expand the eligibility of master limited partnerships (MLPs) to include renewable energy projects. Listed on a national securities exchange, an MLP is a publicly traded partnership that is largely measured by the predictability and sustainability of its cash flow. As a partnership, the MLP is not subject to taxation at the MLP or corporate level, but instead is taxed as a pass-through entity. As such, MLP cash flows are enhanced, and tax savings from this single level of taxation contribute to a cost of capital advantage over competitors organized or taxed as a corporation. In the late 1980’s, legislation was passed restricting the use of MLPs to the energy and natural resource industry, excluding renewable sources of energy. As a result, MLPs have been largely limited to the ownership and operation of midstream oil and gas assets such as pipelines and storage terminals, and more recently the exploration and production of oil, gas and coal.
The House and Senate bills have received strong, bipartisan support in Congress and have gotten positive reception from the White House and the renewable energy community. There will be several opportunities for Congress to consider this legislation as the House Ways & Means and Senate Finance Committees are considering comprehensive tax reform this year. Additional opportunities could be legislation that extends expiring energy tax provisions and, potentially, efforts in the Senate to package numerous bipartisan energy bills (such as energy efficiency legislation) together into a larger energy bill that could pass both houses of Congress.