May 02, 2013
On April 24, 2013, Senator Chris Coons (D-DE), and Senate co-sponsors Jerry Moran (R-KS), Debbie Stabenow (D-MI) and Lisa Murkowski (R-AK) re-introduced legislation that would modify the Internal Revenue Code (the “Code”) to permit renewable energy companies to establish publicly-traded master limited partnerships (“MLPs”). This legislation, the Master Limited Partnerships Parity Act (the “MLP Parity Act”), was also introduced on the same day in the House of Representatives by a bipartisan group of legislators, Representative Ted Poe (R-TX) and House co-sponsors Mike Thompson (D-CA), Peter Welch (D-VT), Chris Gibson (R-NY) and Cory Gardner (R-CO).
A partnership is generally taxed as a corporation (rather than a partnership) if its shares or equity interests are traded on a securities market or are readily tradable on a secondary market. An exception applies where at least 90 percent of the partnership’s income is derived from qualifying sources. Qualifying income for purposes of this test includes certain income derived from traditional fuel sources, including the oil, natural gas, coal, and pipeline industries. The MLP Parity Act would modify the definition of “qualifying income” under the Code so that partnerships that derive their income from clean and renewable energy resources could access the public securities markets for equity financing while continuing to be taxed as partnerships. Such market access could be particularly important to renewable energy companies as certain of the public stimulus programs established in the wake of the financial crisis expire. By providing investors the enhanced liquidity of the securities markets, this change is expected by the bills’ supporters to attract additional private investment, and job creation, in the renewables sector.
Income from the transportation and storage of renewable fuels (i.e. ethanol, biodiesel and certain liquified fuels) was deemed qualified as part of the Emergency Economic Stabilization Act of 2008. The MLP Parity Act would build on those changes (and the previous bill introduced in Congress in June 2012) by expanding qualified income to include clean energy resources that qualify for the production tax credit or the investment tax credit under Sections 45 and 48 of the Code, respectively. Such new sources include the following: (i) solar energy and equipment; (ii) wind energy and equipment; (iii) closed and open loop biomass; (iv) municipal solid waste; (v) hydropower; (vi) marine and hydrokinetic renewable energy; (vii) fuel cells; (viii) combined heat and power; (ix) certain biofuels; (x) energy-efficient buildings; (xi) electricity storage; (xii) carbon capture and storage; (xiii) renewable chemicals; and (xiv) waste-heat-to-power technologies.
Although the likelihood that the MLP Parity Act will pass this Congress is not yet clear, the legislation warrants close attention given that both the Senate (S. 795) and House (H.R. 1696) bills have bipartisan support and stimulating investment in clean energy remains one of President Obama’s principal priorities.