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Should proxy groups determining pipelines' return on equity include MLPs?

Jan. 23, 2008: A technical conference solely focusing on the issue of master limited partnership growth rates at the Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC.

Why it matters: FERC issued a proposed policy statement concerning composition of proxy groups determining oil and gas pipelines' return on equity under the discounted cash flow method in July, and received comments on it in August and September. After reviewing the comments, the commission determined that there was adequate information to address most issues, including whether MLPs should be included in the proxy group for both gas and oil pipelines, the proposed earning cap on MLPs' distributions, and whether FERC should explore other means of determining the equity cost of capital at this time.

However, the commission also concluded that the current record is not adequate for deciding how an MLP's growth should be projected for purposes of the DCF analysis. It currently does this by averaging short and long-term growth projections, giving two-thirds weight to the short-term forecast and one-third weight to the long-term forecast. Commenters generally agreed that MLPs will have less growth potential than corporations because of their distributions in excess of earnings. FERC decided that the existing record does not sufficiently determine whether its current growth projection method adequately reflects that lower growth potential, particularly in the long term, and what alternative method should be used in case it doesn't.

FERC received comments through Dec. 21 on this question and rescheduled the technical conference from Jan. 8 to Jan. 23. It also extended the deadline for filing post-conference comments to Feb. 11. For additional information, contact John Robinson by e-mail at john.robinson@ferc.gov or by telephone at (202) 502-6808.


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