The Federal Energy Regulatory Commission’s revised tax ruling was a major setback for MLPs in H1 2018, particularly interstate pipeline operators. Goldman Sachs Asset Management expects the move to impact the top 15 Alerian MLP Index constituents’ EBITDA by an average of 2.4% this year.
Enbridge Energy Partners (EEP) and Williams Partners (WPZ) acknowledged the possible impact of the revised ruling and announced they were simplifying their corporate structure. We could see more simplification among players with significant cost-of-service contracts, such as TC PipeLines (TCP) and Dominion Midstream Energy Partners (DM).
Move to a taxable entity
Legacy Reserves (LGCY), Viper Energy Partners (VNOM), and Tallgrass Energy Partners voluntarily announced their move from a pass-through MLP structure to a taxable C corporation structure to increase their liquidity, lower their cost of equity capital, and take advantage of US tax cuts.
Trade tensions kept global markets on edge during the first half of 2018, and they have continued to do so. MLPs also reacted to China’s threat of tariffs on crude oil imports from the United States and tariffs on steel imports. However, these tensions should not have much impact on MLPs in the near term, as most midstream MLPs have imported steel for ongoing projects.
Regulatory hurdles, once MLPs’ biggest risk factors, became things of the past under the new federal government. However, they seemed to be creeping back again, with Energy Transfer Partners’ (ETP) Mariner East 2 pipeline and EQT Midstream Partners’ (EQM) Mountain Valley pipeline encountering hurdles.