In a March 15 decision, the Federal Energy Regulatory Commission (FERC) disallowed certain tax benefits for master limited partnerships (MLPs), the predominant corporate structure for several energy companies.
Specifically, FERC voted to reverse a policy that allowed interstate natural gas and oil pipelines set up as pass-through companies to collect corporate income-tax expenses from customers. According to previous litigation, critics claimed that this resulted in the double recovery of costs for master limited partnerships.
It is unclear how these companies will adapt to the new ruling. Immediately after FERC’s decision, pipeline stocks plummeted. As master limited partnerships consider their options, the decision may push these entities to convert to corporations.