Robyn Allan: Kinder Morgan Inc

On November 26, 2014 Kinder Morgan Inc., a company traded on the New York Stock Exchange under the ticker symbol KMI took 100% control of all the Canadian assets previously owned by Kinder Morgan Energy Partners LP—a Master Limited Partnership traded on the NYSE under the ticker symbol KMP. As part of the terms of the $76 billion purchase, KMI has delisted KMP.

KMI is now the 100% owner of Trans Mountain Pipeline ULC (the company applying to the Board for approval of Trans Mountain’s expansion), Trans Mountain Pipeline LP (the Trans Mountain pipeline assets) and Kinder Morgan Cochin ULC—the owner operator of the Cochin pipeline importing condensate for use as diluent to facilitate the export of bitumen. Cochin is also regulated by the NEB. Kinder Morgan Cochin owns 99.99% of the partnership units in Trans Mountain Pipeline LP.

Kinder Morgan should have applied for leave from the Board under section 74 of the NEB Act, but failed to do so. Kinder Morgan was in violation of the NEB Act when it undertook exploratory drilling on Burnaby Mountain.

The NEB should compel Kinder Morgan to immediately file an application for leave to transfer the ownership of Trans Mountain and Cochin including an examination of all the issues related to the public interest affected by this deal. This application should be conducted under a public review process and all work cease on the Part III Hearing until such a review is undertaken.

There are a number of public interest concerns related to the KMI acquisition. The $76 billion deal included cross-guarantees of debt which puts new interlocking commitments in place between the Kinder Morgan entities and substantially increases the energy giant’s exposure. The credit rating agencies have determined the creditworthiness of KMI is below that granted KMP before the deal took place. The Board has no knowledge as to how those cross guarantees might affect regulated assets, today or into the future.

The KMI deal appreciates the value of all the assets acquired by KMI and thus, has potential implications for toll rates charged on the existing system, the expanded system, as well as Trans Mountain’s and Cochin’s tax obligations. We already know Trans Mountain’s cash tax obligations are almost non-existent, but it is important to know how the KMI transaction may lead to an even lessened corporate tax contribution to the Canadian treasury now, and if the Trans Mountain expansion is approved.

When significant purchases such as this are made they are often accompanied by changes in partnership agreements, shareholder agreements, operating agreements, etc. that can have serious implications for liability, insurance, and access to funds, particularly in the even of a spill. The NEB has been kept in the dark by Kinder Morgan regarding important liability and related oil spill issues.

The Board is required to respond to the Notice of Motion. Kinder Morgan has ten days after the motion was filed to prepare a response. I have 5 days to prepare a reply and then the Board can rule. Other Intervenors in the process can register their concerns and comments with the Board and support my motion if they so desire.

There are also actions that can be taken outside the Hearing process for those that have not been granted standing. The NEB Chair, Peter Watson, should be called upon to account for why, when the NEB was formally made aware on November 24, 2014 that the ownership of Trans Mountain ULC and Kinder Morgan Cochin ULC would be changing hands on November 26, 2014, that his office took no action to protect the Canadian public interest by holding Kinder Morgan to account.

There are a lot of unanswered questions that the NEB—directly through the Hearing Process, and indirectly through NEB Chair Peter Watson—need to address. It is important they do so.

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