IDEA applauds introduction of MLP Parity Act

The International District Energy Association (http://www.districtenergy.org) commends U.S. legislators for re-introducing the bipartisan Master Limited Partnerships (MLP) Parity Act (S. 795), which aims to level the energy playing field by giving investors in renewable and clean energy projects access to a decades-old business structure that is taxed as a partnership but traded like corporate stock on a market and whose tax advantage is available now only to investors in fossil fuel-based energy projects. (see also”Senators introduce S.795 Master Limited Partnerships Parity Act.)

Rob Thornton

Rob Thornton

“Since district energy and combined heat and power systems are capital intensive investments, the Master Limited Partnership Parity Act offers significant potential to advance the growth of these highly efficient and resilient clean energy resources. By providing a new source of liquid private capital, the Act can play a vital role in strengthening the infrastructure of our nation’s cities, communities, institutions and military bases,” said IDEA President & CEO Robert P. Thornton.

“The Master Limited Partnerships Parity Act is a straightforward, powerful modification of the federal tax code that could unleash significant private capital by helping additional energy-generation and renewable fuels companies form master limited partnerships, which combine the funding advantages of corporations and the tax advantages of partnerships,” according to a statement by Senator Chris Coons.

The bill was originally introduced in 2012 and has since been expanded and improved, attracting additional bipartisan sponsorship in both the Senate and the House from Senators Chris Coons (D-Del.), Jerry Moran (R-Kan.), Debbie Stabenow (D-Mich.) and Lisa Murkowski (R-Alaska) and Representatives Ted Poe (R-TX-02), Mike Thompson (D-CA-05), Peter Welch (D-VT-AL) and Chris Gibson (R-NY-19).

About IDEA: Since its founding in Ohio back in June 1909, the Westborough, MA-based nonprofit 501(c)6 International District Energy Association (IDEA) has been informing, connecting and advancing the global district energy industry. Today, over 1700 IDEA members from 23 different countries demonstrate how district energy infrastructure delivers higher energy efficiency with greater reliability and lower CO2 emissions from clean, local energy resources. IDEA members worldwide are involved in the operation, design, construction, and optimization of district heating, district cooling, and combined heat and power (CHP) systems located in cities, communities and on campuses and owned and operated by public and private utilities, municipalities, hospitals, military bases and airports.

About IDEA Industry News

EDITOR: Leonard Phillips, IDEA Director of Business Development, International District Energy Association (IDEA), a nonprofit association founded in 1909. len.idea@districtenergy.org; +1 508-366-9339.
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One Response to IDEA applauds introduction of MLP Parity Act

  1. Submitted on 2013/05/16 at 11:29 am

    There is some confusion between the MLP Parity Act and the ability of a MLP to raise additional capital from individual taxpayers for renewable energy projects (wind, solar) and for privately held district energy projects.

    A MLP is a partnership whose partnership interests are publically traded. In the federal income tax code, a MLP is known as publicly traded partnership (PTP). Currently wind, solar and CHP projects are not allowed to be owned by a MLP while coal, oil and gas projects are.

    The MLP Parity Act adds wind and solar projects to the list of assets that a MLP can own. The Parity Act also adds CHP plants and their thermal energy distribution system. Because of the MACRS accelerated deprecation and the PTC (or ITC) that wind and solar energy projects have under the federal tax code, they are tax advantaged investments which require the owner to have a tax appetite to be able to use these tax incentives. Partnerships including MLP are flow-through entities from which the partners get all the income, losses and tax credits of the partnership property.

    An individual taxpayer, as opposed to a C corporation, is subject to the “At Risk” (tax code §465) and “Passive Activity Loss and Tax Credit” rules (tax code §469). Individual taxpayer MLP partners are not at risk and are passive owners of the MLP. If Google, a C corporation, buys part of a wind MLP after parity has been reached, the wind plant’s MACRS accelerated depreciation and the PTC (ITC) would flow through to Google. Google could use these tax incentives to reduce its taxable income or to offset its income tax liability. These tax incentives are in addition to the green kudos that Google would receive.

    The individual taxpayer who is a wind MLP partner also gets their flow through share of the wind plant’s MACRS accelerated deprecation and PTC (ITC), but they are not at risk and are passive MLP owners who can not use these tax incentives to reduce any taxable income or to offset any income tax liability except from the same MLP. This is the MLP tax bucket rule.

    When a wind MLP starts to have current year taxable income, the individual taxpayer can then start to reduce their current year MLP taxable income with the previous years’ MLP carry forward tax losses. When an individual taxpayer starts to have a tax liability from their MLP taxable income, the taxpayer can then start to use their MLP carry forward PTC (ITC) to reduce their tax liability. With MPL parity, a wind, solar or CHP MLP will be best able to raise capital from individual taxpayers when the project produces taxable income (and cash) as the “At Risk” and the “Passive Activity Loss” rules would then not be relevant. Individual taxpayers like “cash cows” even if they are taxable. Of course individual taxpayers also want green kudos just like Google.

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