Kinder Morgan

backgrounder

Company Profile

Kinder Morgan, Inc. is an US energy transport company, headquartered in Houston, Texas. It describes itself as operating “like a giant toll road” for energy products. Kinder Morgan was formed in 1997 when former Enron executives Richard Kinder and William Morgan bought Enron’s liquid pipeline assets, Enron Liquids Pipeline, L.P. The company now employs many former Enron employees, including former Enron whistleblower Jordan Mintz.

Kinder Morgan’s core business model is moving fossil fuels such as coal, oil, and natural gas from mines and wellheads to utilities, refineries, and manufacturers. It owns or operates approximately 128,748 kilometres of pipelines, and about 170 terminals that store and handle products such as gasoline, coal, and petroleum coke. The company transports more than one million barrels of fuel per day. Through partnerships and acquisitions, Kinder Morgan has grown into the largest pipeline and bulk port operator in the US, and one of the largest in the world.

Kinder Morgan consists of three major arms: Kinder Morgan, Inc., the parent company; Kinder Morgan Energy Partners, L.P., the owner and operator of almost all the assets and a publicly traded pipeline and terminal limited partnership; Kinder Morgan Management, and El Paso Pipeline Partners. Kinder Morgan also owns a labyrinthine array of subsidiary and partner companies. Kinder Morgan has an enterprise value of roughly $100 billion.

Corporate Structure

Kinder Morgan has developed a clever corporate structure that enables them to pay very little taxes.


Kinder Morgan is structured as a master limited partnership (MLP). MLPs do not pay corporate income taxes. Instead, they distribute almost all their free cash flow to their investors, who then pay income taxes at their individual tax rate, generally below the 35% corporate rate. Since early 1997, Kinder's MLP has returned 40% a year, on average, compared with 6% for the S&P 500.

Enron

In late 1996, Richard Kinder was due to take over as CEO of Enron. Kenneth Lay was the Chairman and Kinder was President, and Lay was to hand over his CEO title and the job of running the company's day-to-day operations to Kinder. This, of course, never happened. Some believe Lay changed his mind about giving up the CEO seat, and spoke ill of Kinder to the board of directors to win a new five-year contract. Others believe that his being passed over relates to Kinder's romantic relationship with Lay's personal assistant.


Kinder resigned his job and was approached by William Morgan, another VP at Enron, who was vying to buy pipeline assets Enron wanted to unload: a couple of natural-gas and carbon-dioxide pipelines and a rail-to-barge coal transfer terminal in Illinois. He asked Kinder to join him. They got control of the assets of Enron Liquid Pipelines LLP for $40 million, which became Kinder Morgan.


It is notable that Richard Kinder's successor at Enron, Jeff Skilling, is currently serving a 24-year jail sentence.


New Trans Mountain Pipeline

The Trans Mountain pipeline was originally built in 1952 to ship Alberta light crude oil to refineries in the Vancouver area and Washington state. The project was designed to meet the Pacific Northwest’s energy needs. Until 2005, Trans Mountain was owned by the BC Gas Company and it transported natural gas, jet fuel and oil. In 2005 Kinder Morgan purchased the public BC Gas Company and converted the pipeline to include bitumen shipments from Alberta’s oil sands, in addition to other oil products.


Kinder Morgan Canada is proposing a new Trans Mountain pipeline system along the existing Trans Mountain pipeline between Edmonton, Alberta and Burnaby British Columbia. The $4.1 billion project would increase the capacity of the system from 300,000 barrels per day to up to 890,000 barrels per day. The project would necessitate 900 km of new pipeline with the existing line for refined products, synthetic crude oils, light crude oils, and the proposed new line for heavier oils. The project would also create new pump stations and the expansion of existing stations along the route with 13 new/co-located stations, additional storage capacity at existing storage terminals in Burnaby, Edmonton, and Sumas, and the expansion of Westridge Marine Terminal in Burnaby. Kinder Morgan Canada will file an application to the National Energy Board (target date: late 2013) to initiate regulatory review of the proposed project.

Spill Record

Kinder Morgan purchased the Trans Mountain pipeline in 2005, and has been responsible for four major spills in that time:

  • In 2005, a ruptured pipeline dumped 210,000 litres of crude oil into the Abbotsford area and Kilgard Creek. A 2007 report from the Transportation Safety Board of Canada criticizes KM for a delay in response time. Troublingly, the line between the Sumas tank farm and the Sumas pump station was not part of a leak detection system.
  • In 2007, 250,000 litres of crude oil spilled into Burrard Inlet Bay via the Burnaby storm sewer system. Eleven houses were sprayed with crude oil, many other residential properties required restoration and approximately 250 residents voluntarily left their homes. Cleanup took over a year. The Transportation Safety Board ruled the accident was the fault of the company, given that it was its responsibility to ensure the excavation crew knew the location of the pipeline before it started to dig.
  • In 2009, 200,000 litres leaked into a tank farm in Burnaby.
  • In 2012, 110,000 litres leaked from a holding tank at KM’s Sumas Mountain terminal site, caused by pressure on a gasket caused by freezing water. The NEB investigation found that “the leak was detected later than it should have been,” the company's management of procedures was “inadequate” and that the operator “failed to recognize the leak situation” on two occasions. It took three alarms and a shift change before a terminal operator was sent out to investigate.



US Safety Violations

  • The National Response Center, the the sole federal point of contact for reporting oil and chemical spills in the U.S. and its territorial waters, has found Kinder Morgan responsible for 1,848 violations since it was incorporated in 1997, nearly 500 of which are pipeline incidents.
  • In addition to pipeline spills, the US Department of Transportation Pipeline and Hazardous Materials Safety Administration has cited and fined Kinder Morgan for numerous safety violations in Texas. In 2010, Kinder Morgan Energy Partners paid a $65,000 fine for failing to identify and repair a damaged pipeline within 60 days, as required by U.S. federal law. It took Kinder Morgan 454 days to respond to the problem.
  • Other safety violations include: failure to revise maps and records since 2003, with many field personnel using 1998 data. In Montana, KM has failed to inspect and test overpressure safety devices, and to have adequate firefighting equipment and distribution of tactical firefighting pre-plans for pipe stations to local firefighting organizations.
  • Kinder Morgan has a lengthy record of Occupational Health and Safety Administration (OSHA) violations (see: http://bit.ly/KMsafety). According to documents obtained by NaturalGasWatch.org, Kinder Morgan and its subsidiaries have been cited for 45 violations of workplace safety regulations since 2006, including 35 “serious” violations, which OSHA characterizes as a violation that is “likely to cause death or serious harm” to the employee. Kinder Morgan and its subsidiaries have paid nearly $55,000 in fines in connection with these violations.


  • In 2004 in California, a pipeline struck by a municipal utility backhoe burst into flames, killing five workers and injuring four others. Investigators found that Kinder Morgan Energy Partners made an error in staking out the pipeline location. Kinder Morgan was fined by the state fire marshall, pled no contest to six felony charges and paid over $89 million in penalties and victim compensation.
  • A lawsuit launched by a Nevada mother in 2009 alleges that Kinder Morgan failed to adequately monitor and repair a pipeline that was leaking jet fuel into the ground beneath a school playground. The lawsuit alleges that this leak contributed to a number of childhood cancer cases, including the death of her 10 year-old son Ryan Brune.

Other U.S. Violations

An April 2012 report by the environmental think tank Sightline Institute lists a series of legal violations and pollution incidents at various Kinder Morgan terminals (see the report here: http://bit.ly/KinderMorgan). The report notes:


  • In Louisiana, Kinder Morgan’s coal export facilities are so dirty that satellite photos clearly show coal dust pollution spewing into the Mississippi River.
  • In South Carolina, coal dust from Kinder Morgan’s terminal contaminates oysters, pilings, and boats. Locals have even caught the company on video washing coal directly into sensitive waterways.
  • In Virginia, Kinder Morgan’s coal export terminal is an open sore on the neighbourhood, coating nearby homes in dust so frequently that even the mayor is speaking out about the problem.
  • In 2003 in Portland, Kinder Morgan officials bribed a ship captain to illegally dump contaminated material at sea, and their operations have repeatedly polluted the Willamette River. Nearly five years later, Kinder Morgan finally pled guilty to violating the Ocean Dumping Act and settled with the US Attorney’s Office, agreeing to pay $240,000.
  • Kinder Morgan has been fined by the US government for stealing coal from customer’s stockpiles, lying to air pollution regulators, illegally mixing hazardous waste into gasoline, and many other crimes. Investigators established that Kinder Morgan took and resold nearly 259,000 tons of coal. In 2007, the US Attorney’s Office reached a $25 million civil settlement with Kinder Morgan.

Key Players at Kinder Morgan Canada

Ian Anderson, President Kinder Morgan Canada

Ian Anderson is the friendly Canadian face of a Houston-based Kinder Morgan. He has worked in the past with Terasen Gas and other oil and gas producers. He is the Executive Chairman of Canadian Energy Pipeline Association and as a member of the Association of Oil Pipe Lines. He is a registered lobbyist in Alberta and BC. He has been lobbying the federal government for an "effective environmental assessment regime" to streamline/speed pipeline development, promotion of international oil tanker shipping, and work on climate change.


Greg Toth, Project Director TMX Project

Toth is the Director for the TMX project. He will be at many of the community sessions on the pipeline.


Andrew Galarnyk, External Relations at KM Canada

Galarnyk is responsible for leading liaison on stakeholder consultation for TMX, managing the company's government relations efforts at a fed/prov level; overseeing stakeholder and Aboriginal engagement programs, managing external comms and messaging/media relations.


Lexa Hobenshield, External Relations Manager at KM Canada/Trans Mountain Pipelines

Hobenshield formerly worked with BC hydro. She is also a registered lobbyist.


Mike Davies, Director of Engineering and Marine Development

Face of the company, spokesperson, spoke at Board of Change, attends public meetings (see http://bit.ly/boardofchange)

Liability

International law states that every vessel be registered in a country, called its flag state. A ship's flag state exercises regulatory control over the vessel and is required to inspect it regularly, certify the ship's equipment and crew, and issue safety and pollution prevention documents. It has become common practice to register oil tankers in foreign countries where regulations are not as stringent, a practice called flags of convenience. As a result, ship owners register their ships in countries that allow them to set up almost invisible companies. These are numbered companies with a secret board of directors. When the ship experiences a big spill, the company can fold.

Researchers at the University of Victoria found that Canadian law is inadequate in protecting Canadians in the event of a catastrophic oil spill at sea. Once the bitumen or other oil product has been loaded onto a tanker, Kinder Morgan is no longer liable for any leaks or spills that may occur and the liability is transferred over to shipowners. In reality, most of these vessels are not Canadian companies with known reputations, the likelihood of recovering full or minimal clean up costs from these companies is far from guaranteed.

The Civil Liability Convention states that a ship owner’s liability will not be limited (capped) if it can be proved that the pollution damage resulted from “his personal act or omission, committed with the intent to cause such damage, or recklessly and with knowledge that such damage would probably result”.

The Administrator of the Ship-Source Oil Pollution Fund has stated that this test makes it practically impossible to break the ship owner’s right to limit liability, and means that the brunt of the dramatic costs often associated with tanker spills will be paid by BC taxpayers.

In the unlikely event that the shipowner's liability limit could be broken, there may be little or no additional compensation available because the success of recovering amounts in excess of the ship owner's insurance limits is dependent upon that person or corporation's assets. In some instances the only asset the ship owner will have will be the ship. These independent tank owners or “one-ship” companies are now common practice in the shipping industry.

Finally, Kinder Morgan’s TMX is legally structured as a limited liability partnership (LLP). This in of itself isn’t unusual. Since the Exxon Valdez spill, most oil companies have structured themselves in this way. But LLP structures mean that oil companies can simply fold in the likelihood of a major spill without damaging the parent company. This shows that there are real uncertainties about whether Kinder Morgan would continue to clean up a spill if a claim exceeded their insurance. As it stands, KM has roughly $1.3 billion in insurance.

Further Reading on Liability
For an excellent background on liability, see the report from the Living Oceans Society notes that with KM’s Trans Mountain pipeline, BC residents are on the hook for 90% of the costs of a spill. The report examines that insurance structure set up by the International Maritime Organization after the Exxon Valdez disaster, which limit the liability of oil shippers and sets up funds that can be drawn on in the event of a major oil spill. Canada is signatory to all of these agreements. Together, all four of the funds that respond to major oil spills would provide only $1.34 billion, or about 1/10th of the estimated cost of a major spill.

Lobbying

Lobbying in Canada

According to the Office of the Commissioner of Lobbying, Kinder Morgan is currently employing two firms to lobby on its behalf, Fleishman-Hillard Canada Inc., and Osler, Hoskin and Harcourt LLP. In addition, it has in-house lobbyists. It finds 73 lobbying records dating back to 2006.


Current lobbyists include

Fleishman Hillard:

  • Kevin MacIntosh the senior vice-president at Fleishman-Hillard, and a veteran former Hill staffer and long-time Conservative.
  • Brian Klunder, VP at Fleishman Hillard
  • Greg MacNeil
  • Michael von Herff
  • Ruth York
  • Bryan Thomas
  • Sara Neamtz
  • Morten Paulsen
  • Terrance Oakey


Osler, Hoskin and Harcourt LLP

  • Gordon Nettleton, who specializes in energy regulatory, environmental and business law matters and has significant experience in the regulation of oil and gas pipeline and electricity industries. His experience also includes secondments as counsel to the National Energy Board.
  • Colleen Mason


Kinder Morgan

  • Ian Anderson


Lobbying in BC

Kinder Morgan is also lobbying the BC Government about the TMX project, both through lobby firm Fleishman Hillard and with in-house lobbyists. In-house lobbyists include:

  • Ian Anderson
  • Michael Davies
  • Peter Forrester
  • Andrew Galarnyk
  • Lexa Hobenshield
  • Michelle Novak
  • Norm Rinne
  • Regan Schlecker
  • Scott Stoness
  • Greg Toth


Fleishman Hillard lobbyists include:

  • Don Stickney
  • Mark Reder


Lobbying in the US

Kinder Morgan spent $1.5 million dollars since 2003 lobbying. OpenSecrets notes a "revolving door" between Kinder Morgan lobbyists-- 80% have formerly held public office.

Election Spending

Kinder Morgan claims that it does not make any political contributions (see http://bit.ly/kinderm). Despite this:

  • Kinder Morgan has donated over $16,000 to the BC Liberal Party, and none to the BC NDP since 2006.
  • According to the Centre for Responsive Politics in the United States, Kinder Morgan donated nearly $100,000 to Republican candidates, the RNC and Republican National Senatorial Committee between 2011 and 2012.
  • In 2012, Kinder Morgan donated $153,000 to PACs, parties, and candidates, the vast majority to Republican candidates.