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Why Interstate Pipeline Operators Led the MLP Rally Last Week

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Interstate pipeline operators

Interstate pipeline operators Dominion Midstream Energy Partners (DM), TC Pipelines (TCP), and Williams Partners (WPZ) were among the top MLP gainers last week, rallying 15.3%, 14.0%, and 5.5%, respectively.

Shares of interstate pipeline operators saw a massive rally on July 19 after the FERC (Federal Energy Regulatory Commission) announced the finalization of its policy rule related to the treatment of income tax under the cost-of-service contracts used by these MLPs. The final rule eliminates the need to account for the accumulated deferred income tax in the rate base.

The FERC has provided four options to interstate pipeline operators “to address changes to the pipeline’s revenue requirements as a result of the tax reductions”:

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  • File adjusted rates to reflect the tax cuts (21%–35%). In case of compliance issues, the FERC would not initiate a rate case on a pipeline for three years if a pipeline’s ROE (return on equity) were 12% or less.
  • Commit to file a “prepackaged uncontested rate settlement or a general NGA [Natural Gas Act] section 4 rate case.”
  • Explain if no rate change is required.
  • Take no further action.

The MLP structure came under threat after the revised FERC ruling was announced in March. The final rule is expected to provide some relief to these companies, especially those with C corporation GPs, such as TC Pipelines and Dominion Midstream Energy Partners.

American Midstream Partners

American Midstream Partners (AMID), a midstream MLP involved in crude oil gathering, processing, and compression, was the third-highest MLP gainer last week. It rose 7.2%. AMID, which has been oversold, recovered amid strong sector gains. Overall, AMID has fallen 16.1% since the start of this year.

Other MLP best performers

Alliance Resource Partners (ARLP), Hess Midstream Partners (HESM), Antero Midstream Partners (AM), SunCoke Energy Partners (SXCP), CSI Compressco (CCLP), and Crestwood Equity Partners (CEQP) were among the top ten MLP gainers last week.

In the next article, we’ll look at last week’s worst-performing MLPs.

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