Bloomberg News:

Pipeline stocks plunged after federal regulators ruled that master-limited partnerships can no longer receive a credit for income taxes they don’t pay.

Williams Cos. was the biggest decliner in the S&P 500 Index, dropping as much as 12 percent, while the Alerian MLP Index, which tracks 40 partnerships, had its worst day in more than two years.

The Federal Energy Regulatory Commission decision on Thursday came in response to an earlier court ruling that found the agency’s longstanding tax policy could result in double recovery of costs for master-limited partnerships, or MLPs. Because MLPs are pass-through entities that pay no federal taxes, investors in them can get a better after-tax return than by investing in conventional corporations.

“The court did not mince its words,” FERC Chairman Kevin McIntyre said during a commission meeting. “Granting an income tax allowance to master-limited partnerships results in ‘inequitable returns.’ This very clear language amounts to very clear marching orders for us.”

Energy Transfer Partners LP, an owner of FERC-regulated pipelines, fell as much as 15 percent to $15.06, the lowest intraday price in more than seven years. The company did not immediately respond to a request for comment.

Dominion Energy Midstream Partners LP dropped as much as 11 percent to $22.70, the most in more than two years, while Dominion Energy Inc., parent of the publicly traded partnership, dropped as much as 3.5 percent. Company spokesman Ryan Frazier declined comment on the FERC announcement.

The policy change could go into effect for natural gas pipes by late summer, according to Bloomberg Intelligence analyst Brandon Barnes. Oil pipelines are off the hook until 2020, when the commission updates oil rates to reflect cost-of-service changes from 2014 to 2019.

The energy commission is 3-2 majority Republican and four of the members were nominated by President Donald Trump.

More: Pipeline Stocks Plunge After FERC Kills Key Income-Tax Allowance

