Companies form coalition to promote MLP expansion

Source: Nick Juliano, E&E reporter • Posted: Thursday, June 6, 2013

Several renewable energy developers and equipment manufacturers yesterday launched a new coalition to push legislation that would extend to their sectors the ability to establish partnerships that have long been prevalent among oil and gas companies as a way to avoid corporate taxes and more easily raise money from investors.

The Financing America’s Investment in Renewables (FAIR) Coalition plans to lobby Congress to allow wind, solar, efficiency and other clean energy firms to establish master limited partnerships (MLPs), pass-through entities that fossil fuel firms have used for decades.

Sen. Chris Coons (D-Del.) and Rep. Ted Poe (R-Texas) earlier this year introduced companion bills in the House and Senate to expand MLP eligibility, and the proposals have been picking up traction as lawmakers continue to mull a potential overhaul of the tax code (E&E Daily, April 22).

MLPs are taxed as partnerships — allowing them to avoid paying corporate taxes — but their shares can be traded like traditional stock. They have spurred a wave of investment in oil and natural gas companies, and renewable companies see them as a low-cost way to raise money from a wider pool of investors than they currently can access.

“It’s a pretty efficient, relatively quick model,” said Paul Gaynor, CEO of First Wind, one of the founding members of the coalition.

Wind and solar companies currently have to raise money from large private investors, a process Gaynor described as “a highly illiquid, very door-by-door kind of event trying to find new equity.”

But MLPs would open the door to public markets where individuals could buy and sell smaller shares in an MLP, unleashing a potential torrent of investment and allowing companies to raise the money they need in a matter of days, rather than months. The total market value for existing MLPs is about $400 billion.

As wind and solar developers work to bring down the costs of the energy they provide — which still typically exceeds the cost of electricity from natural gas — “lowering our cost of capital is a great way to do that,” Gaynor says.

Other companies in the 12-member FAIR Coalition include wind turbine manufacturers Vestas Wind Systems A/S and Gamesa Corp. and developers OwnEnergy, Everpower Wind Holdings Inc., Invenergy LLC, Geronimo Energy, Pattern Energy and Juwi Solar Inc. The law firm Covington & Burling LLP is coordinating the coalition activities.

The group has been informally advocating the MLP expansion for months, including advising Coons on his reintroduced bill and coordinating a letter from more than 220 companies voicing support for the proposal. This week, the coalition launched a website that includes white papers and other information supporting the effort.

Efforts to expand MLPs are seen as closely intertwined with the broader debate over tax reform taking place in Washington, with even some in the oil and gas industry arguing that renewable companies should reap the same benefits. It remains to be seen whether tax reform will happen anytime soon, but if it does, many observers see it as more likely that MLPs would be expanded to all energy companies rather than being eliminated for the fossil firms, as some have suggested.

For the wind companies in the coalition, there also is the question of the production tax credit, which was extended to projects that begin construction this year. Wind industry officials say that an MLP expansion should complement — not replace — the PTC, which they say should at least be extended a few more years, and the FAIR Coalition is making the same argument.

“It’s a question everybody’s asking,” Gaynor said. “And the answer so far, from my perspective … is they’re not linked.”