US tax ruling prompts pipeline MLP selloffs

FERC’s decision yesterday came in response to an earlier court ruling that found the agency’s longstanding tax policy could result in double recovery of costs for MLPs.

Because MLPs are pass-through entities that pay no federal taxes, investors in them can get a better after-tax return than by investing in conventional corporations.

The ruling could further the trend of MLPs converting into corporations, or simply selling interstate pipelines affected by this change in policy to existing corporations.

Energy Transfer Partners LP, an owner of FERC-regulated pipelines, fell as much as 15%; Dominion Energy Midstream Partners LP dropped as much as 11%, while Dominion Energy Inc. dropped as much as 3.5%.

Williams Companies stock fell as much as 12% and it was reported that the Alerian MLP Index (which tracks 40 partnerships) had its worst day in two years.