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Green-Energy Preferences Via Partnership Status Stalls

Bipartisan U.S. legislation to allow renewable-energy companies to use a type of partnership structure popular with oil and gas drillers has been stalled by debate over a green-energy tax credit.

Master limited partnerships provide conventional energy companies with tax benefits and access to cheap capital. Houston-based oil and gas company Apache Petroleum Co., the first master limited partnership, was created by its parent company, the Houston-based Apache Corp. (APA), in 1981, according to a 1987 report by the Congress’ Joint Committee on Taxation.

Renewable energy projects, though, are ineligible to organize under the structure, Paul Gaynor, chief executive officer of Boston-based developer First Wind Holdings Inc., told Bloomberg BNA.

“I think it’s kind of an artifact of history,” Gaynor said. Still, “as the wind industry got bigger and bigger and was looking for ways of bringing down the cost of capital, they looked around for what other industries were using.”

To address that, Senator Chris Coons, a Delaware Democrat, introduced the Master Limited Partnerships Parity Act (S. 795), which would expand the types of projects allowed to organize as an master limited partnerships. The structure could be used by renewable energy projects mentioned in Sections 45 and 48 of the tax code, namely wind, solar, hydropower, fuel cells and biomass.

Production Credit

The bill has been held up by the debate over the production tax credit for clean-energy projects, a priority of the wind-energy industry, which is set to expire in coming months.

Coon’s bill appeals to low-tax proponents and green-energy crusaders alike because it would allow companies to avoid double taxation and gives them better access to capital markets while offering incentives to invest in clean energy.

The Senate bill’s co-sponsors include Alaska’s Lisa Murkowski, the ranking Republican on the Energy and Natural Resources Committee, Kansas Republican Jerry Moran and Michigan Democrat Debbie Stabenow.

Coons has said the Obama administration supports the legislation. The companion bill in the House (H.R. 1696) was introduced by Representative Ted Poe, a Texas Republican.

Goodwill for the proposal on both sides of the aisle -- as well as a campaign led by renewable energy companies to move the bill forward -- could falter unless the industry and key Republicans in Congress can hammer out a compromise on whether to preserve the coveted production tax credit or allow a company to claim it while also organizing as a master partnership.

Subsidy Issue

“Of the Republicans who support it, some of them only support it on the condition that the subsidies that are [currently] given would be repealed or set aside as part of the bill passing,” Pavel Molchanov, an alternative energy analyst with Raymond James, told BNA.

Lawmakers are focused on the federal renewable energy production tax credit, a per-kilowatt hour tax credit for electricity generated by renewable sources, Molchanov said. That isn’t something most in the renewable industry are willing to cede, Gaynor said.

“We view the MLP [bill] as complimentary to the PTC, not a trade,” he said.

The American Wind Energy Association, the industry’s main trade group, supports the master partnership bill, while saying in a June 11 letter to lawmakers that continuing the production tax credit is its top priority and that the group will “vigorously oppose” efforts to link passage of the partnership bill with ending the production tax credit or reducing its value.

Prior Effort

Legislation similar to the current partnership bills was introduced in the last Congress and failed to pass.

The production tax credit was extended at the beginning of 2013 under the American Taxpayer Relief Act (Pub. L. No. 112-240), but as part of discussions surrounding a potential tax overhaul, the Senate Finance Committee released a discussion draft exploring an option to replace the credit with increased expensing or accelerated depreciation (81 DTR G-9, 4/26/13).

Tough odds in Congress aren’t discouraging First Wind and other renewable energy companies from lobbying efforts to advance the partnership legislation. A group of renewable energy companies spearheaded by First Wind formed the 13-member Financing American Investment in Renewables (FAIR) coalition in May.

Parity Bill

“We’re meeting with staff members and people from the Senate Finance Committee and House Ways and Means Committee, and laying the groundwork for a discussion,” said Gaynor, who was last in Washington in July to pitch the partnership idea to lawmakers.

Gaynor said the FAIR Coalition was working with Coons on moving his bill, and arguing that renewables should get access to the same cheap capital that is financing the rapid growth in natural gas development.

The master partnership structure is often used in developing oil and gas pipeline projects, and increasingly they help finance projects in the rapidly expanding hydraulic fracturing, or fracking, field.

If renewables firms have access to that amount of capital and at that cost of capital, “we could be doing a lot more and it would be more cost effective to consumers,” said Gaynor.

To contact the reporter on this story: Casey Wooten in Washington at 703.341.3500 or cwooten@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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