Title : RBN Energy Takes A Look At FERC Ruling On MLPs -- March 19, 2018
link : RBN Energy Takes A Look At FERC Ruling On MLPs -- March 19, 2018
RBN Energy Takes A Look At FERC Ruling On MLPs -- March 19, 2018
Active rigs:| $62.31↑ | 3/19/2018 | 03/19/2017 | 03/19/2016 | 03/19/2015 | 03/19/2014 |
|---|---|---|---|---|---|
| Active Rigs | 58 | 47 | 32 | 107 | 195 |
RBN Energy: FERC's move on MLPs and cost-of-service rates puts Wall Street in a tizzy.
The aftershocks are still being felt from last Thursday’s decision by the Federal Energy Regulatory Commission (FERC) that interstate gas and liquids pipelines’ cost-based tariff rates can’t include anything for income taxes if the pipelines are owned by master limited partnerships (MLPs) — and most are. Many investors did freak out — no other phrase sums it up better — when they heard that news. Share prices for midstream companies plummeted in midday trading, and we imagine that many angry calls were made by investors to their financial advisers. “Why didn’t we know about this?!” In fact, FERC’s action was harsher than expected by most experts. But the impact of the change is likely to be less far-reaching than the Wall Street frenzy would have you believe, at least for most MLPs. And, by the way, the issue at hand — whether and how to factor in taxes in calculating MLPs’ cost-of-service-based rates for interstate pipelines –– has been around for decades. Today, we discuss FERC’s new policy statement on the treatment of income taxes and what it means for natural gas, crude oil, natural gas liquid (NGL) and refined product pipeline rates; and for investors in MLPs that own and operate the systems.
It’s worth noting that Thursday was what the ancient Romans called the ides of March. That was a real bad day for Julius Caesar (“Beware the ides of March … You too, Brutus?”) For some pipelines and their investors, FERC’s abrupt chopping out of a big chunk of pipeline cost of service probably felt pretty similar to Caesar’s surgery. FERC had been working for a year and a half to respond to a July 2016 federal appellate court ruling saying that collecting income taxes in pipeline tariff rates — on top of how the return on equity investment is calculated for an MLP’s pipeline rates — amounts to a double recovery of cost. So FERC took a lot of comments, struggled with it, and ultimately on Thursday said, “Yep, it sure is.”
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