Green-Energy Preferences Via Partnership Status Stalls

September 3, 2013 by  
Filed under Green Energy News

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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