Master Limited Partnerships for Renewable Energy: A Point/Counterpoint

In Midwest Energy News John Ferrell comments on the potential expansion of Master Limited Partnerships (MLPs) to cover wind and solar energy providers. Ferrell asserts that including wind and solar companies in MLPs and thus allowing them to avoid paying corporate income tax would simply provide another tax loophole to big business rather than evening the playing field between renewable and conventional energy sources. In the counterpoint below Attorney Michael Allen of Energy Law Wisconsin identifies three primary reasons why the extension of MLPs to include wind and solar business will encourage more investment dollars to come into the renewables marketplace.
I write in response to
John Farrell’s recent commentary on Master Limited Partnerships (MLPs)
in Midwest Energy News.  Bottom Line: I don’t entirely agree with Mr.
Farrell’s pessimistic point of view. Here are a few areas where I
respectfully disagree.

first is while it is technically correct for Farrell to say that MLPs
don’t pay corporate income tax, this statement is somewhat misleading,
as it suggests that  that the income generated by Master Limited
Partnerships avoids taxation.  It does not.  MLPs, just like the LLCs
who comprise many of the members of the Midwest Renewable Energy
Association, do not escape income taxation on the money they earn. 
Rather, their income flows through to their owners who pay the tax on
this income at their own tax rates.  Renewable Energy MLPs would offer
an advantage to persons who wanted to raise large amounts of money for
renewable energy because the entities would get the best of both the
partnership and corporate forms of doing business.  Like corporations
they are publicly-traded, so many people, even small investors, would be
able to invest and with a broader potential owner base they should be
able to raise funds at more favorable rates.   In addition, they get the
same favorable pass through tax treatment as an LLC because, unlike
publicly traded corporations, their profits would not be taxed twice —
first at the corporate level and again when dividends or profits are
distributed to the shareholders. 

may have a valid criticism of the FERC regulation of Master Limited
Partnerships in the oil and gas industry in that FERC may be allowing
them overly generous rate recovery –treating them as if they were
subject to “double taxation” of profits and dividends when they are
not.  However, if true, this is a criticism of FERC regulation that
should be corrected at the FERC and avoided if Renewable Energy MLPs
become a reality.  It is not an inherent defect with the MLP form of
doing business.  It is unclear to me to what extent this would be an
issue for renewable energy MLPs.  FERC regulation would apply if they
were selling electricity in interstate commerce.  However one can
imagine an MLP that would not be regulated by FERC because it focused on
developing PV systems or micro grids serving business parks or
subdivisions within states.

raises two other concerns with MLPs.  First, he claims they will enable
large regulated utilities to get to the tax-saving “trough”. Second, he
believes MLPs will reinforce centralized control of the energy system,
and counter the trend of distributed local generation on rooftops,
thereby taking ownership of the renewable energy system away from the
“little guy”, who is unlikely to be an investor in a renewable energy

I think Mr. Farrell’s view that these features make MLPs lousy policy for renewables is debatable.

plenty of “little guys” hold shares in regulated utilities, so I don’t
know what would prevent them from being investors in renewable energy
MLPs should they be utilized by utilities (For example — my 84 year old
mother holds units in Cedar Fair, the amusement park MLP).  Locally if
you go to an MGE annual meeting you will see thousands of small
investors.  In addition, if individual investors want to buy stock
cheaply, they can do so in just about any utility and many other
publicly-traded corporations and existing MLPs through low cost services
that allow shareholders to buy as little as one share and reinvest
their dividends or make additional modest investments through Dividend
Reinvestment Plans and Direct Investment Plans.  Renewable Energy MLPs
actually have the potential to open up ownership of renewables to people
who, like the small investors who have flocked to Solar Mosaic, can’t
afford to put a PV system on their own home and don’t have sufficient
taxable income to be a major investor in a renewable energy project to
get the tax credits, but can afford to invest a $1,000 or less in a
renewable energy project.

if utilities or other big industry players really want to get into
renewables in a big way, they already can – they don’t need the MLP. 
Look at Warren Buffett, or Duke Energy or MEMC, which purchased Sun
Edison and just adopted its name.  They just need to find the right
renewable investments in the right markets.  I think it is unlikely that
it is the lack of the MLP form of doing business that is holding them

it is not cheap to set up an MLP and utilities can already raise money
through their existing corporate structure (assuming the local state
regulatory commission lets them do so).  I don’t think it is a certainty
that they will be the ones to jump into the MLP game.  If you want to
anticipate which financial heavyweights might use the MLP renewables
structure, my sense it would be more likely to be the major oil
companies (as Farrell notes) or the investment banks, who underwrote the
fossil fuel and pipeline MLPs.

I think Mr. Farrell is making an argument that renewables are done best
with local control and not by large centralized owners.  There are
certainly benefits to the local approach, including increased
responsiveness to local community concerns and perhaps, in some
circumstances, even local grid security.  However, there are drawbacks
too, including loss of potential economies of scale making renewables
development more expensive than it needs to be and risk of inadequate
depth of expertise to serve the needs of customers.  In addition, as
noted above, one could even argue that MLPs, by offering an opportunity
for small investors to invest in renewables via MLP unit ownership, may
have a democratizing effect on renewables by opening up greater
opportunity of ownership to small investors, even if ownership of
renewable energy assets are concentrated in larger companies. 

is black and white, but I come down on the side of favoring MLPs,
because I believe they will encourage more investment dollars to come
into the renewables marketplace. And the clinching consideration that
sways me in this direction is that if the Earth’s atmosphere obtains
relief from GHG emissions due to increased development of renewables, I
think the atmosphere doesn’t care much whether these renewables are
locally or centrally owned. 


Michael J. Allen

Energy Law Wisconsin
1500 West Main Street, Suite 300
P.O. Box 27
Sun Prairie, WI 53590


Minnesota’s new solar law: Looking beyond percentages

Great news out of Minnesota. To read more about the Solar Energy Jobs Act, see the full legislation or read Dan Haugen’s article at Midwest Energy News.

by Dan Haugen 

Minnesota Gov. Mark Dayton on Thursday signed into law an energy bill that’s projected to give the state a more than thirtyfold increase in solar generation by the end of the decade. 

The Solar Energy Jobs Act was rolled into a larger, omnibus economic development bill and approved by the state’s legislature last week. 

The section that’s drawn the most attention is a 1.5 percent by 2020 solar electricity standard for large utilities that is on top of the state’s existing 25 percent by 2025 renewable mandate.


Wisconsin should embrace wind energy

Mark Redstein’s new opinion piece in the Milwaukee Journal Sentinel makes a strong case for clean energy in the state.

Over the past few years, Wisconsin’s wind industry has faced an unreasonable number of obstacles, more than any other form of energy production, nearly grinding the job- and energy-creating potential of this critical sector to a halt. If Wisconsin is going to move its economy forward, it needs to stop pushing back and open the door to clean, renewable wind energy.  

Fortunately, the door has started to creak open.  

On April 29, the Brown County Circuit Court dismissed a lawsuit filed by the Wisconsin Realtors Association that claimed the state’s wind siting rule, PSC 128, was improperly enacted. The judge disagreed and ruled that the Public Service Commission lawfully enacted a balanced and comprehensive wind siting rule. …


MidAmerican’s wind energy project is $1.9 billion windfall for Iowa

More good news out of Iowa. MidAmerican’s energy project will be the single biggest economic investment in the state’s history, according to the governor.

Article from Des Moines Register is below:

MidAmerican Energy Co.’s $1.9 billion investment in wind energy in Iowa will help hold down customers’ electric bills, make the state more attractive to companies looking for greener energy, and create good jobs, state and utility leaders said Wednesday.


Stimulus Program in Wisconsin Creates Renewable Energy Jobs

Impact of 1603 Treasury Grant Stimulus
Number of Wisconsin
renewable energy projects: 180
11 Biogas
3 Geothermal
28 Small Wind
1 Large Wind
13 Solar Thermal
124 Solar
Federal grants to
projects: $38 million
Estimated total
project costs: $127 million [1]
Economic Impact
from projects in Wisconsin [2]
jobs: 1,000-1,500
earning: $60 -90 million
impact: $170-280 million
Operation and
Maintenance jobs: 40
Operation and
Maintenance earning: $2.1-2.5 million
Operation and
Maintenance economic impact: $10.1-10.6 million

[1] Assumes
30% of total project costs from 1603 Treasury grant
[2] Extrapolated from national modeling: NREL, “Preliminary Impact of the Jobs and
Economic Impact of Renewable Energy Projects Supported by the 1603 Treasury
Grant Program (April 2012)”.