Shares of U.S. energy MLPs dropped by almost 10% on March 15 after the federal energy regulator responded to a court remand by stating the agency will no longer allow MLPs to recover an income tax allowance in cost of service rates.
The U.S. Federal Energy Regulatory Commission (FERC) said its decision was in response to a 2016 court ruling found the FERC was allowing both an income tax allowance and a pretax investor return.
The move is a reversal of current policy, analysts at B. Riley FBR, a U.S. investment bank, said in a note.
The case, United Airlines Inc. vs. FERC, was decided by the U.S. Court of Appeals for the District of Columbia Circuit.
The Alerian MLP index, which tracks a number of pipeline firms including Magellan Midstream Partners LP (NYSE: MMP), Energy Transfer Partners LP (NYSE: ETP) and Plains All American Pipeline LP (NYSE: PAA), fell as much as 9.4% on March 15, its lowest since February 2016.
Kinder Morgan Inc. (NYSE: KMI), which has been a C-corp since 2014 said in a statement that “We believe any action by FERC should not affect negotiated rate contracts and will not significantly impact assets that are current cash taxpayers. For those reasons, the ultimate timing and impact of any future rate adjustments, should they occur, are not expected to be material to KMI’s distributable cash flow.”
DCP Midstream LP (NYSE: DCP) also released a statement confirming that “no significant impacts to the company’s financials are expected.” Enterprise Products Partners LP (NYSE: EPD) echoed that in its own statement.
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