⦿ Talking Point #1: It’s been a little over a year since FERC shocked the MLP industry with its decision to disallow a significant tax-related item in cost-of-service rates for interstate pipelines. That ruling, coupled with the big drop in oil prices last fall sent the industry benchmark Alerian MLP Index tumbling to its lowest levels in a decade. Is the MLP industry dead? What are your thoughts on the general outlook for MLPs and their investment prospects over the next few years?
Roger Conrad (RC): The short answer is the demise of MLPs has been greatly exaggerated. I’ll never forget the gloom at the MLPA conference last year in the wake of that FERC decision. It wasn’t so much that some pipeline companies were going to have to cut rates. In fact, as you and I pointed out at the time, the actual decision really didn’t affect more than a tiny handful of MLPs that operated interstate pipelines at cost of service rates.
Of those, Dominion Midstream Partners is now part of Dominion Energy (NYSE: D). Spectra Energy Partners is part of Enbridge Inc (TSX: ENB, NYSE: ENB). TC Pipelines (NYSE: TCP) is back on track after immediately cutting its payout by 35 percent. As for the rest of the 76 names in our MLP Midstream coverage universe, I just finished going through first quarter results for all of them and more than a year later there’s been no real revenue impact on any of them.
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Elliott and Roger on Jul. 1, 2019
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