Nearly four months since issuing a preliminary decision on income tax allowance for natural gas cost of service pipelines which has led to the expected demise of several Master Limited Partnerships, the Federal Energy Regulatory Commission, walked back some of the damage inflicted by issuing a final ruling which allows interstate gas pipelines to delay and reduce the impact from income tax exclusions in rate setting.  As a result, several MLP's also reversed their losses, which may allow them to remain viable financing vehicles for their sponsor.   It appears that the revolving door of FERC Directors (4 of the 5 Commissioners started their term in late 2017) did not fully conisder the consequences of their initial ruling, which could have included these provisions and lessened the pain suffered by unitholders.  Here are excerpts from the release issued on July 19th, 2018:

Today’s final rule modifies the proposal from March, which sought to require interstate pipelines to file a one-time report, called FERC Form No. 501-G, to provide a rough estimate of a pipeline’s return on equity before and after the new tax law and changes to the Commission’s income tax allowance policies. 

In addition to filing the one-time report, the final rule provides interstate natural gas pipelines four options to address changes to the pipeline’s revenue requirements as a result of the tax reductions: 
 

1.  Make a limited section 4 filing to reduce its rates to reflect the reduced tax rates. For any pipeline doing so, FERC guarantees a three year moratorium on NGA section 5 rate investigations if the pipeline’s FERC Form 501-G shows the pipeline’s estimated ROE as 12 percent or less.

2.  Commit to file either a prepackaged uncontested rate settlement or a general NGA section 4 rate case. If the pipeline commits to do this by December 31, 2018, FERC will not initiate a section 5 investigation of its rates before that date.

3.  Explain why no rate change is needed.

4. Take no further action.

In summary, the four options reduce the income tax exposure for interstate pipeline cost of service revenues from 35% to 21%, rather than zero, and delays any rate change for at least three years for MLPs which have an ROE of 12% or less after the rate change reduction.  C-Corps will also benefit as they will be allowed to take an income tax allowance which otherwise was eliminated in the draft ruling.

MLP Watch List

The following is a list of Sponsors/MLP's which have recently completed a transaction, intend to complete a transaction, or at risk of announcing a transaction to eliminate their MLP.

Loews completed their $12.06  cash acquisition of Boardwalk Partners this past week, spending $1.5B to roll up their MLP, which had been in trouble ever since they cut their distribution by 80% in late 2013.

NuStar and NuStar GP Holdings announced the completion of their merger, effective July 20th. where NSH unitholders receive .55 units of NuStar Energy LP.

EQT Midstream and Rice Midstream Partners approved their Merger on Friday where RMP unitholders will receive 0.3319 units of EQM in exchange for their RMP units, effective Monday, July 23rd

Antero Midstream - 2/26/18 - Announced formation of special committees to explore, review and evaluate potential measures related to its valuation may include transactions involving Antero Midstream.

TC Pipelines - 5/2/18 - Commented in their Q1 Results that they " no longer view the Partnership as a viable financing alternative at this time".

Williams Partners  - 5/17/18 - Sponsor Williams announces offer to purchase all outstanding units in exchange for 1.494 shares of Williams (WMB).  Approval Vote scheduled for August 9th.

Spectra Energy Partners - 5/18/18 - Sponsor Enbridge announced offer to purchase all outstanding units in exchange for 1.0123 shares of Enbridge (ENB)

Enbridge Energy Partners - 5/18/18 - Sponsor Enbridge  announced offer to purchase all outstanding units in exchange for .3083 shares of Enbridge (ENB)

TransMontaigne Partners - 7/11/18 - Received buyout offer from ArcLight Energy Partners for $38.00 cash

Q2 Distribution Announcements

The below list of units have announced an increase in their Q2 distribution.  This past week, Blueknight Energy announced a 44% reduction in their distribution.

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