May 22, 2013

US Senate Bill Would Open MLP Business Structure to Renewable Energy

Legislation recently introduced in the US Senate seeks to level the energy playing field between fossil and renewable energy projects. The bill, titled the Master Limited Partnerships Parity Act, would allow investors in renewable energy projects access the corporate structure of master limited partnerships.

The business structure offers tax significant tax benefits to investors, this is now available to investors in fossil energy projects only.

The bipartisan bill was introduced by Senators. Chris Coons, D-Del.; Jerry Moran, R-Kan.; Debbie Stabenow, D-Mich.; and Lisa Murkowski, R-Alaska, on 24 April. The bill was referred to the Senate Committee on Finance

Information released by Sen. Coons’ office explains that a master limited partnership MLP is a business structure that is taxed as a partnership, but its ownership interests are traded like corporate stock on a market.

A primary reason MLPs are attractive to private investors is that income they generate is taxed only at the shareholder level, since it is treated as a partnership for tax purposes. The profits of C corporations are taxed at both the corporate and shareholder level.

US law has limited the availability of MLPs to investors in energy portfolios for oil, natural gas, coal extraction and pipeline projects. According to a statement published by Sen. Coons, these types of fossil-based energy projects are able to access capital at lower costs. In addition, they are more liquid that traditional financing approaches, which makes them effective at attracting private investment. A fact sheet released on the legislation stresses that the measure could unleash significant private capital into the energy market by simply adjusting the US tax code.

Information published by Sen. Coons’ office notes that MLPs must generate a minimum of 90% of its income from qualified sources.

These qualified sources currently include real estate or natural resources, such as Crude Oil, Nat Gas, Petroleum Products, Coal, Timber, and other minerals.

The MLP Parity Act would expand this definition to include technologies qualified under certain sections of the existing tax code, including closed and open loop biomass, renewable thermal, municipal solid waste, and biochemical production. The legislation would also allow biobased fuels, such as cellulosic biofuel, biodiesel and algae-based fuels to qualify under the definition.

“The bipartisan Master Limited Partnerships Parity Act levels the playing field to help clean and renewable energy projects compete fairly with traditional energy projects,” Coons said. “This market-driven solution supports the all-of-the-above energy strategy we need to power our country for generations to come. 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.”

The bill has been endorsed by a variety of trade associations, including the Advanced Biofuels Association, Advanced Ethanol Coalition, American Biogas Council, Biomass Power Association, and Growth Energy.

The Biotechnology Industry Organization issued a statement applauding the introduction of the bill.

“The US faces the challenge of reducing its costly dependence on foreign oil and competing in a $2.4-T worldwide clean energy market,” said Jim Greenwood, BIO president and CEO.

“This legislation will level the playing field between renewable fuels and fossil fuels in tax policy that shapes private investment decisions. We are especially pleased that this legislation includes renewable chemicals, for the first time establishing tax parity for this growing sector. This will clear a path for innovation that drives employment and economic growth and reduces dependence on foreign Crude Oil,” he said.

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