Master limited partnerships are currently the policy du jour in Washington. And unlike the hollow "momentum" earlier this year for a carbon tax, MLPs actually have bipartisan support and legislative potential.

Last week, Senators Chris Coons (D-DE) and Lisa Murkowski (R-AK) introduced the Master Limited Partnerships Parity Act with a bipartisan group of co-sponsors that would enable renewable energy and efficiency companies to take advantage of the same tax benefits on projects that fossil fuel companies have historically enjoyed.

MLPs are publicly traded partnerships that don't pay corporate income taxes. They raise capital through the public markets and all income is passed onto shareholders who pay personal income taxes, thus avoiding double taxation. This structure increases liquidity and lowers the cost of capital for companies building energy projects (mostly pipelines), while giving them the benefits of acting like a traditional corporation. Coons' 600-word bill would allow clean energy companies to take advantage of this structure, which had previously applied only to oil and gas companies.

MLPs have provided a rallying point for clean energy advocates in Washington who see it as one of the few (if only) positive legislative developments coming out of the capital this year. But behind the scenes, some in the wind industry worry that the policy could be a way for Congress to kill the production tax credit (PTC) once and for all.

"Some definitely worry that this is a Trojan horse for getting rid of the PTC. But any hint of trading would be a mistake," said Richard Caperton, director of clean energy investment at the Center for American Progress. "This legislation moves the ball forward, but MLPs are not as powerful as the PTC or ITC."

Congressman Mike Pompeo (R-KS), one of the most outspoken opponents of the PTC, said he would likely not support the legislation without letting the wind tax credit expire at the end of this year. Other leading conservatives -- including the influential political organization Americans for Prosperity -- have also indicated they will support expanding MLPs to renewables only after ending industry-specific tax credits. Senator Coons said that his legislation is not intended to replace the production or investment tax credits.

Those worried about a potential tradeoff are hesitant to go public with their concerns. Two wind industry lobbyists who would talk only on background with Greentech Media said that they are working with lawmakers in Congress to separate the two issues. 

"Advocates of the MLP bill should make it clear to Hill offices that MLPs and the PTC are different finance mechanisms," said one lobbyist, who declined to be named due to being "perched between clients" on the issue.

The impact of MLPs on the wind industry would be uneven. Companies with a high cost of capital would see far more benefits than those with a low cost of capital. And the structure would likely boost the secondary market for wind projects after they no longer qualify for the 10-year PTC, not necessarily spur a lot of new development.

"We are definitely very concerned about this being a potential trap," said another lobbyist, who declined to be named due to ongoing negotiations around the PTC. "There are some in Congress who explicitly or implicitly say if MLPs become law, the PTC should expire. We don't want this to be a bargaining chip."

If last year's battle around the PTC is any indication, lawmakers in both the House and Senate will likely attempt to put such a bargaining chip on the table. The PTC expires at the end of 2013 and many opponents say it's time for the credit to end permanently. After using up a lot of political energy clamoring for a last-minute extension in 2012, the wind industry will have an even tougher time convincing lawmakers for another extension this year.

Meanwhile, the MLP Parity Act still doesn't have a clear legislative path forward. The bill will likely only succeed as part of a broader tax package later this year -- potentially bringing with it new calls for eliminating the PTC through tax reform. 

Tags: master limited partnerships, politics, production tax credit, subsidies, washington, wind projects