Congress took notice. Concerned about losing tax revenue as corporations turned into MLPs, lawmakers restricted them in 1987, leaving an exception for businesses based on natural resources.
Renewable Energy
The exemption will deprive the tax collector of about $6.7 billion in the five years ending in 2017, Congress’ Joint Committee on Taxation estimated last year. A proposal in Congress would expand MLPs to cover renewable energy.
MLPs that borrow money and sell additional shares to grow, as opposed to those that simply distribute income from existing infrastructure, were first created in 1997, when Richard Kinder left his job as second-in-command at Enron Corp. and took the company’s pipeline business with him, according to Kinder Morgan Inc.’s website.
Today, Kinder Morgan Energy Partners LP and related companies have a combined market value of more than $80 billion. Kinder Morgan Energy’s shares have increased in value more than 10-fold since 1997, four times the rise of the S&P 500. Richard Kinder’s wealth is valued at $8.8 billion, making him the 50th- richest American, according to the Bloomberg Billionaires Index.
Class Action
Investors accuse the Kinder Morgan management company of taking an unfair share of MLP income for itself. A class-action lawsuit, filed Feb. 5 in Delaware Chancery Court, alleges that Kinder Morgan’s management borrowed money, issued shares and diverted maintenance spending to inflate its payout.
Kinder Morgan asked a judge to dismiss the lawsuit. The Houston-based company said it spends enough to maintain its assets and its safety record beats industry averages. “Given our access to capital and tremendous asset footprint, we are extremely well-positioned to take advantage of changes in the energy landscape,” the company said in a statement responding to questions from Bloomberg News.
The lawsuit turns on how Kinder Morgan accounted for upkeep on its 80,000-mile pipeline network. According to formulas used by Kinder Morgan and other MLPs, maintenance work is subtracted from income and leaves less for quarterly payments to investors; money spent on expansion by building or acquiring new pipes doesn’t.
In Kinder Morgan’s case, according to the 39-page complaint, maintenance costs were misclassified as growth spending, allowing the company to keep investor payments at unsustainable levels and increasing the amounts management could pay itself.