{"id":19849,"date":"2018-03-17T11:56:16","date_gmt":"2018-03-17T15:56:16","guid":{"rendered":"http:\/\/www.l-a-k-e.org\/blog\/?p=19849"},"modified":"2018-03-18T17:04:58","modified_gmt":"2018-03-18T21:04:58","slug":"et-tu-ferc-no-tax-writeoffs-for-mlps-pipeline-stocks-plummet-2018-03-15","status":"publish","type":"post","link":"http:\/\/www.l-a-k-e.org\/blog\/2018\/03\/et-tu-ferc-no-tax-writeoffs-for-mlps-pipeline-stocks-plummet-2018-03-15.html","title":{"rendered":"Et tu, FERC? No tax writeoffs for MLPs; pipeline stocks plummet 2018-03-15"},"content":{"rendered":"

\r\nOn the Ides of March,\r\nFERC, apparently forgetting its the companies it supposedly regulates<\/a> that pay its salaries,\r\nknocked pipeline company stocks down by disallowing a tax writeoff.\r\nThis was one month after\r\n\r\nFERC inadvertently cleared a path for renewable sun and wind power through batteries<\/a>.\r\nLook who got whacked the most,\r\nand not even\r\n\r\nFERC’s Sabal Trail rubberstamp permit reinstatement could save it<\/a>:\r\n

\r\n\r\n\"Pipeline<\/a>\r\n
\r\nStock price comparison, Wednesday, Thursday, Friday, 14, 15, 16 March 2018.\r\nThe colorful candle canyon is for Spectra Energy Partners LP (SEP), which was by far the worst affected of those shown.\r\n<\/p>\r\n

\r\nYou may wonder as I do: what is FERC doing\r\n\r\n making tax policy?\r\nBut at least, although only due to a court order, FERC just pulled the\r\nrug out from under its patrons, including Spectra Energy (now owned by Enbridge),\r\nand Williams Company,\r\nof the Transco Hillabee Expansion project, Sabal Trail’s gas supplier in the Southeast Markets Pipeline Project.\r\n

\r\n\r\nPipeline Stocks Plunge After FERC Kills Key Income-Tax Allowance<\/a>,\r\n

\r\n

\r\nPipeline stocks plunged after federal regulators ruled that\r\nmaster-limited partnerships can no longer receive a credit for\r\nincome taxes they don’t pay.\r\n<\/p>\r\n

\r\nWilliams Cos. was the biggest decliner in the S&P 500 Index,\r\ndropping as much as 12 percent, while the Alerian MLP Index, which\r\ntracks 40 partnerships, had its worst day in more than two years.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nSpectra Energy Partners LP (SEP) isn’t in the S&P 500,\r\nand it fell more than 15%.\r\nEven worse for poor pipeline pusher Spectra, it didn’t recover,\r\nending up Friday still 11% below Wednesday.\r\n

\r\nWilliams Companies Inc. (WMB),\r\nWilliams Partners LP (WPZ),\r\n and\r\nEnergy Transfer Partners LP (ETP),\r\nto whom Williams tried to sell itself a couple years ago to offload its debt,\r\nrecovered somewhat, although they were still about 3-4% down on Friday.\r\n

\r\nAlmost unaffected were the two utilities shown: Duke and Southern Company.\r\nThey’re not MLPs, and they’re not tied to the moribund pipeline business.\r\n

\r\nThe winner last week in that rising line at the top of the chart was….\r\nNextEra Energy Partners LP (NEP).\r\nWhy? Because even though NEP is a partner in Sabal Trail and NEP’s subsidiary\r\nFlorida Power and Light (FPL) is nicking its customers to pay that $3 billion\r\nbill for that pipeline boondoggle,\r\nNEP mentioned Sabal Trail only once in its\r\n\r\nQ4 2017 Earnings Call<\/a> while bragging about leading Florida and the world\r\nin renewable sun and wind power.\r\nFlorida has a very low bar because FPL has been dragging its feet there for years,\r\nbut NEP has meanwhile been deploying solar power many other places,\r\nas has Duke Energy and even Southern Company.\r\n

\r\nSo who were the winners of FERC’s court-forced decision?\r\nNot the pipeline companies, that’s for sure.\r\nAny company that’s getting on with renewable solar and wind power.\r\n

\r\nFERC News Release, 15 March 2018,\r\nDocket Nos. PL17-1-000, IS08-390-008, IS08-390-009, and IS09-437-008, et al.,\r\n\r\nFERC Revises Polices, Will Disallow Income Tax Allowance Cost Recovery in MLP Pipeline Rates<\/a>,\r\n

\r\n

\r\nThe Federal Energy Regulatory Commission (FERC) today responded to a\r\nfederal court remand by stating it no longer will allow master\r\nlimited partnership (MLP) interstate natural gas and oil pipelines\r\nto recover an income tax allowance in cost of service rates.\r\n<\/p>\r\n

\r\nThe U.S. Court of Appeals for the District of Columbia Circuit in\r\nUnited Airlines, Inc. v. FERC<\/em>, (827 F.3d 122 (D.C. Cir. 2016) held\r\nthat FERC failed to demonstrate there was no double recovery of\r\nincome tax costs when permitting SFPP, L.P., an MLP, to recover both\r\nan income tax allowance and a return on equity determined by the\r\ndiscounted cash flow methodology.\r\n<\/p>\r\n

\r\nThe Commission today acted in response both to the court remand and\r\ncomments filed in response to an inquiry issued after the court\r\nruling. FERC will now revise its 2005 Policy Statement for Recovery\r\nof Income Tax Costs so that it no longer will allow MLPs to recover\r\nan income tax allowance in the cost of service.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nYou know what investors hate even more than that decision?\r\nThis, because it introduces the dreaded uncertainty:\r\n

\r\n

\r\nThe revised policy statement explains that, while all partnerships\r\nseeking to recover an income tax allowance will need to address the\r\ndouble-recovery concern, the application of the United Airlines\r\ncourt case to non-MLP partnerships will be addressed as those issues\r\narise in subsequent proceedings.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nFor sure, state PSC profit margin guarantees and federal loan guarantees fluff up utilities.\r\nAnd in the case of Sabal Trail, the Florida PSC let FPL apply such rents to a pipeline.\r\n

\r\nNonetheless, pipeline companies finance through debt, now more than previously.\r\nInvestopedia, unknown date,\r\n\r\nWhat debt to equity ratio is common for a oil and gas company?<\/a>\r\n

\r\n

\r\nMany oil companies shrank their D\/E ratios during the mid-2000s on\r\nthe back of ever-rising oil prices. Higher profit margins allowed\r\ncompanies to pay off debt and rely less heavily on debt for future\r\nfinancing. Starting around 2008-2009, oil prices dropped\r\ndramatically. There were three main reasons: fracking allowed\r\ncompanies to reach new oil reserves in an economical way; oil and\r\ngas shale production exploded, particularly in North America; and a\r\nglobal recession put downward pressure on commodity prices.\r\n<\/p>\r\n

\r\n“Profit margins and cash flow fell for many oil and gas producers.\r\nMany turned to debt financing as a stop-gap; the idea was to keep\r\nproduction flowing through low-interest debt until prices rebounded.\r\nThis, in turn, pushed up D\/E ratios across the industry. Before the\r\nfinancial crisis of 2008, common D\/E ratios among oil and gas\r\ncompanies fell in the 0.2 to 0.6 range. As of 2014, the range\r\nclusters within 0.4 and 0.8.”\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nThat’s mostly about actual oil and gas drillers, but pipeline companies\r\nare similar in their debt schemes.\r\nThat’s why Spectra Energy sold itself to Enbridge: to shuffle its debt\r\nover there.\r\nBut that left Spectra Energy Partners LP (SEP) still trading separately,\r\nand we just saw the result.\r\n

\r\nSure, vested executives may try to drive their companies over the cliff\r\nso they can cash out with their golden parachutes.\r\n

\r\nBut if this kind of stock price divergence keeps up between failing pipeline\r\nstocks and thriving solar and wind stocks, \r\nand it will<\/a>,\r\ninvestors will flee fossil fuels even faster than they already are.\r\n

\r\nThen all those pipelines will be stranded assets.\r\nThat day will come when the stodgiest investors such as college savings fund VA529 realize\r\ninvesting in pipeline companies is too risky<\/a>.\r\nAnd that day will come soon.\r\n

\r\nThe Ides of March (March 15th) was an ancient Roman deadline for settling debts. On the Ides of March, 44 B.C., Julius Caesar, previously promoted to dictator by the Roman Senate, came to be considered too tyrannical by some of those same Senators, including his long-time friend Marcus Junius Brutus.\r\nWilliam Shakespeare rendered Caesar’s response as the Roman patriots took him down: \r\n

\r\n

Et tu, Brute?<\/em> Then fall, Cæsar!\r\n<\/blockquote>\r\n

We all let fossil fuels get their clammy hands on our economic and political systems, and that grip has long since become tyrannical.\r\nIt may have been fossil fuel friend FERC that, on the Ides of March, 2018, finally took down the fossil fuel tyrant, by pulling the debt rug out from under them.\r\n

\r\nEt tu, FERC?<\/em> Then fall fossil fuels!\r\n

\r\n -jsq\r\n<\/p>\r\n

Investigative reporting costs money, for open records requests, copying, web hosting, gasoline, and cameras, and with sufficient funds we can pay students to do further research. You can donate to LAKE today<\/a>!<\/p>","protected":false},"excerpt":{"rendered":"On the Ides of March, FERC, apparently forgetting its the companies it supposedly regulates that pay its salaries, knocked pipeline company stocks down by disallowing a tax writeoff. This was one month after FERC inadvertently cleared a path for renewable sun and wind power through batteries. Look who got whacked the most, and not even […]","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_links_to":"","_links_to_target":""},"categories":[14,19,6124,6687],"tags":[10214,10213,10212,8704,8063,786,785,8701,7690,8709,9835,8702,12,7,10209,10208,2524,9385,6076,7063,10211,10210,9384,7540,7128,9516,6,9837,7689],"class_list":["post-19849","post","type-post","status-publish","format-standard","hentry","category-economy","category-history","category-natural-gas-2","category-pipeline-2","tag-brutus","tag-college-savings","tag-duke-energy-corp","tag-economy","tag-energy-transfer-partners","tag-federal-energy-regulatory-commission","tag-ferc","tag-georgia","tag-hillabee-expansion-project","tag-history","tag-julius-caesar","tag-lake","tag-lowndes-area-knowledge-exchange","tag-lowndes-county","tag-master-limited-partnerships","tag-mlp","tag-mutual-fund","tag-nextera-energy-partners","tag-pipeline","tag-sabal-trail","tag-smpp","tag-southeast-markets-pipeline-project","tag-spectra-energy-partners","tag-stranded-assets","tag-transco","tag-va529","tag-valdosta","tag-william-shakespeare","tag-williams-company"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p585fK-5a9","jetpack_sharing_enabled":true,"jetpack-related-posts":[],"_links":{"self":[{"href":"http:\/\/www.l-a-k-e.org\/blog\/wp-json\/wp\/v2\/posts\/19849","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.l-a-k-e.org\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.l-a-k-e.org\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.l-a-k-e.org\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"http:\/\/www.l-a-k-e.org\/blog\/wp-json\/wp\/v2\/comments?post=19849"}],"version-history":[{"count":5,"href":"http:\/\/www.l-a-k-e.org\/blog\/wp-json\/wp\/v2\/posts\/19849\/revisions"}],"predecessor-version":[{"id":19856,"href":"http:\/\/www.l-a-k-e.org\/blog\/wp-json\/wp\/v2\/posts\/19849\/revisions\/19856"}],"wp:attachment":[{"href":"http:\/\/www.l-a-k-e.org\/blog\/wp-json\/wp\/v2\/media?parent=19849"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.l-a-k-e.org\/blog\/wp-json\/wp\/v2\/categories?post=19849"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.l-a-k-e.org\/blog\/wp-json\/wp\/v2\/tags?post=19849"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}