Skip to main content

The Globe and Mail

Enbridge, TransCanada shares flat after steep dive amid U.S. tax ruling

Oil storage tanks stand at an Enbridge storage terminal in Cushing, Okla., in March, 2015.

Daniel Acker/Bloomberg

Shares in Canadian pipeline companies Enbridge Inc. and TransCanada Corp. failed to recover fully on Friday from a steep sell-off on Thursday after the United States said it would eliminate a tax break for owners of certain interstate pipelines.

Both Calgary-based companies hold such pipelines in the United States through master limited partnerships, or MLPs.

The decision by the U.S. Federal Energy Regulatory Commission (FERC) to no longer allow MLPs to recover an income-tax allowance from cost of service tariffs came in response to a 2016 court ruling that found its long-standing tax policy could result in double recovery of costs.

Story continues below advertisement

Enbridge shares fell by 4.2 per cent to $41.06 on Thursday, but recovered to close at $41.28 on Friday, up 22 cents, after it issued a statement that says it is not expecting a "material change" to its financial guidance over the next three years because of the FERC ruling.

TransCanada shares dropped 2.1 per cent to $55.89 on Thursday. On Friday, they rebounded to reach an interday high of $56.45 but closed two cents lower.

The company had no immediate comment.

FirstEnergy Capital said in a report TransCanada will be less affected than Enbridge because its main exposure is through its interest in TC PipeLines.

Enbridge has two MLPs, Enbridge Energy Partners and Spectra Energy Partners.

It said in its statement the former is expected to experience an $80-million decrease in annual distributable cash flow because of the FERC decision, but that will be somewhat offset by a revenue increase on the Canadian Mainline system held by Enbridge Income Fund Holdings Inc.

About 60 per cent of Spectra's gas pipeline revenue comes from negotiated or market-based tariffs and are not directly affected by the FERC policy revisions but the remainder is from cost of service-based tariffs which "could be subject to tax recovery disallowance," it said. Spectra pipelines that move oil and other petroleum liquids are not expected to be affected.

Story continues below advertisement

CIBC estimated the FERC ruling would knock about $3 a share from of its valuation of Enbridge and $1 a share for TransCanada.

"We cannot help but wonder about the long-term viability of MLPs," it said in a report.

The report says the implications of the FERC decision are difficult to quantify given the strategies companies may employ to deal with it and the mix of existing rate structures and rate settlement terms, but the impact should decline over time as newer pipelines tend to employ negotiated rates, not cost of service tariffs.

Report an error
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments are closed

We have closed comments on this story for legal reasons or for abuse. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.