Regulatory Relief For MLPs

By Todd Shriber via

Earlier this year, master limited partnerships (MLPs) were drubbed after the Federal Energy Regulatory Commission (FERC) moved to prevent interstate oil and natural gas pipelines from recovering the income tax allowance on cost of service rates.

In March, FECR said it “acted in response both to the court remand and comments filed in response to an inquiry issued after the court ruling. FERC will now revise its 2005 Policy Statement for Recovery of Income Tax Costs so that it no longer will allow MLPs to recover an income tax allowance in the cost of service.”1

Investors’ initial reaction to that ruling was knee-jerk selling as both the Alerian MLP Infrastructure Index (AMZI) and the Alerian Midstream Energy Select Index (AMEI) tumbled in the wake of FERC’s March announcement.

Fast-forward to July and the regulatory environment for MLPs became more sanguine. Last month, FERC softened the March ruling, providing pipeline operators with four options to deal with changes to revenue requirements resulting from the tax reform legislation passed late last year.

“Although the final rule maintains the requirement to file the FERC 501-G, the final rule makes adjustments to the proposed form, including automatically eliminating the accumulated deferred income tax (ADIT) from a pipeline’s cost of service when the form enters a federal and state income tax of zero for pipelines that are non-tax paying entities,” said FERC in a July statement. “This adjustment is consistent with the Order on Rehearing of the Revised Policy Statement in Docket PL17-1-001 issued concurrently with the final rule. The final rule also encourages pipelines to file an addendum to the FERC 501-G to reflect their individual financial situation.”2

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