Kinder Morgan CEO calls $4.5B from pipeline buyout ‘a great problem to have’

CALGARY — Financial analysts grilled Kinder Morgan Inc. executives on how the company would use the proceeds from its $4.5-billion sale of the Trans Mountain pipeline and expansion project to the federal government.

“This is a significant amount of money. It’s a great problem to have. We want to make sure that we handle that in the best way for our shareholders,” Kinder Morgan CEO Steve Kean said on an earnings call Wednesday. “It’s a big piece of this company, so we want to be thoughtful about it.”

The windfall comes after an intense two-month negotiation between the Houston-based pipeline giant and Finance Minister Bill Morneau, which culminated in Ottawa buying the Trans Mountain pipeline and troubled $7.4-billion expansion project between Alberta and B.C. on May 29. The deal is expected to close in the late summer or early fall, and the company has begun deliberating how it will use the cash.

Kean, CEO of both Kinder Morgan Inc. and its Calgary-based subsidiary Kinder Morgan Canada Ltd., explained that the parent company intended to use its share of the deal to pay down debt but hasn’t settled on what to do with the subsidiary’s portion.

“While all options are on the table, we generally don’t think it’s attractive to shareholders for us to sit on a pile of cash while management looks for a transaction to use it on,” he said, shooting down questions from analysts about whether Kinder Morgan Canada could acquire other assets.

The picture is much clearer for the Houston-based parent, which has been taking steps to reduce debt. The sale of Trans Mountain is expected to reduce indebtedness by another US$2 billion.

“We intend to use KMI’s share of the proceeds generated from the sale of the Trans Mountain pipeline for $4.5 billion Canadian to pay down debt,” Kinder Morgan founder and executive chairman Rich Kinder said, referring to the parent by its stock ticker, KMI.

Both Kinder and Keane said they were pleased with the deal and outlined various growth projects the company planned to undertake in Texas.

In the months leading up to the deal, Kean had repeatedly said Kinder Morgan needed assistance from the federal government for the expansion, given opposition from the NDP government in B.C., which had implemented additional regulations aimed at halting the expansion.

Since Ottawa purchased the project, lawyers for Trans Mountain have requested a larger injunction zone around its worksites and the company has announced construction would begin in Alberta in August and in B.C. in September.

The City of Burnaby handed a 72-hour eviction notice Wednesday to Trans Mountain protesters that have built an encampment called Camp Cloud near the gates of Kinder Morgan’s marine terminal, demanding that “all structures at Camp Cloud must be removed immediately, including buildings tents, enclosures, and tarps.”

In a regulatory filing last month, Kinder Morgan said it had been concerned that Burnaby was not ensuring the work sites were safe, as protesters frequently breached the injunctions to disrupt activity.

In financial disclosures Wednesday, the company announced it had now spent $1.3 billion on the expansion project. The company also cancelled the credit facilities it planned to tap to finance the remainder of the project.

The company also announced the Trans Mountain pipeline system had been over-subscribed each month in the second quarter of the year as Canadian oil production currently outstrips available pipeline capacity.

Kinder Morgan Canada reported net earnings of $13.7 million for the second quarter, a decline of 45 per cent from the $25.1 million in the same quarter a year earlier.

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‘He’s going to earn his pay’: New energy minister Sohi in line of fire amid Trans Mountain, Bill C-69 overhaul

OTTAWA — Amarjeet Sohi will take over the energy file just as Ottawa wraps up its purchase of Trans Mountain pipeline next month, a crucial juncture for the government as it also looks to carry out a dramatic overhaul of Canada’s review process for major projects.

Sohi, formerly the infrastructure minister, was named minister of natural resources in a cabinet shuffle Wednesday. His predecessor Jim Carr was moved to the international trade diversification file.

The member for parliament for Edmonton—Mill Woods will assume the position just as Ottawa prepares to buy the Trans Mountain pipeline and related assets from Kinder Morgan Inc. for $4.5 billion, apart from roughly $6 billion to build the expansion pipelines, which will likely require recruiting other investors.

The decision effectively nationalized the pipeline, placing Canada’s pipeline politics front and centre as the federal government aims to balance its ambitious environmental goals with Canada’s dependence on fossil fuels.

“It’s going to be a really challenging portfolio for him,” said Martha Hall Findlay, president and CEO of the Calgary-based Canada West Foundation.

“Minister Sohi now is facing not only the fact that resources are clearly hugely important in Canada, but it’s also intertwined with the environmental agenda of the government,” she said.

In an interview with reporters Wednesday, Sohi said he had “big shoes to fill” as energy minister and repeated Ottawa’s pledge to build the pipeline.

“That’s the commitment that we made to Canadians, and we’re going to make sure that we have markets expanded other than (to) non-U.S. markets.”

Frank McKenna, deputy chairman of Toronto-Dominion Bank and former New Brunswick premier, said he welcomed having another minister from the prairies take over the file, after Carr who represents Winnipeg South Centre.

“I think that’ll be well received in Alberta,” he said.

McKenna says Ottawa was slow to get behind the Trans Mountain project, and only intervened after Kinder Morgan threatened to halt all non-essential spending on the project in April.

“It was my sense there was no full commitment until the time the project started to go off the rails,” McKenna said.

The purchase of Trans Mountain comes as pipeline capacity constraints continue to weigh on oil producers.

In a report Tuesday, consultancy firm IHS Markit lowered its forecast for oilsands production compared to its 2017 estimate, largely due to delays in building pipelines. It said further delays could continue to tamp down output as major oilsands players defer project expansions.

“Should advancing pipeline projects face additional delay, the investment outlook and IHS expectations could be negatively impacted,” the report said.

Sohi’s appointment also comes as Ottawa’s environmental assessment legislation for major projects, Bill C-69, enters the senate.

Findlay and others have been critical of the bill, saying it gives the environment minster added discretionary power over whether a project goes ahead, and introduces uncertainty around major projects.

Some observers have said C-69 should have been more of an equal effort between several ministries, but was instead led by the Ministry of Environment and Climate Change and therefore imbued with a more environmentally-conscious bent. The bill was reviewed by the House environment committee rather than the energy committee, and only had minimal witness hearings from the energy department, Findlay said.

“Frankly, natural resources (ministry) wasn’t involved at all.”

Doug Black, an independent senator representing Alberta, who has been critical of Bill C-69, says the minster will likely receive a “daily barrage” of criticism due to the highly politicized nature of the file.

“I think that he’s going to earn his pay,” Black said.

Black said he approves of Sohi’s appointment as the natural resources minister, but noted that he thinks too much emphasis has been placed on the environmental rather than oil and gas interests.

“We have a government currently whose focus is on environmental issues, and business issues or prosperity issues come second, third, or fourth.”

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Rooftop solar saved at least $650 million in electricity purchases in California

When you install rooftop solar panels, the electricity you create cuts into the amount of electricity the utility must provide to meet your needs. Add up the reduced demand of all the homes with solar panels, and you’ve got a pretty sizable amount of electricity that’s no longer needed.

Researchers from Carnegie Mellon and the National Renewable Energy Laboratory (NREL) quantified that reduced demand and found that solar panels installed between 2013 and 2015 in California saved utilities from having to purchase between $650 million and $730 million worth of electricity. Those avoided purchases create slack in demand, pushing wholesale prices lower.

Lower wholesale prices “should ultimately reduce consumers’ costs through lower retail rates,” the researchers write (although whether and how those savings get passed on to retail customers is not discussed in the paper).

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Ontarians may see a $7 reduction in their monthly bills as gas utilities halt cap-and-trade

Ontario’s biggest natural gas distributors are halting activities related to the provincial carbon-pricing program dismantled by Premier Doug Ford, a move that could remove costs for both the companies and their customers.

The Ontario Energy Board, which regulates the province’s electricity and natural gas industries, issued an order on July 6 asking Enbridge Gas Distribution Inc., Union Gas Ltd. and Epcor Natural Gas Limited Partnership to send a letter by Friday “confirming that they have ceased cap and trade activities.”

Both Enbridge Gas Distribution and Union Gas are owned by Calgary-based Enbridge Inc.

The order from the OEB followed Ontario’s recently installed Progressive Conservative government announcing on July 3 that it had revoked the province’s cap-and-trade regulation and that it would begin “an orderly wind-down” of the variety of green programs funded by the carbon-pricing system.

Another regulation filed on the same day states that “no registered participant (of the cap-and-trade system) shall, on and after the day this regulation comes into force, purchase, sell, trade or otherwise deal with emission allowances and credits.”

The gas companies are registered participants in the cap-and-trade program.

“Union confirms that it has been in compliance with Ontario Regulation 386/18, prohibition against the purchase, sale and other dealings with emission allowances and credits, since it was issued on July 3, 2018,” said a July 12 letter from Union Gas to the OEB.

Epcor also confirmed it had ceased ceased cap and trade activities in compliance with the new regulations in a July 13 letter.

Also called off by the OEB was a nearly completed review of the utilities’ projected costs of complying with cap and trade in 2018.

“The OEB recognizes that the Climate Change Act currently remains in effect, and that elements of the government’s approach to winding down the cap and trade regime are not yet known,” said the July 6 procedural order. “However, given the revocation regulation the OEB considers it appropriate to suspend its review of the gas utilities’ 2018 cap and trade compliance plans.”

Ontario Premier Doug Ford.

Businesses have been seeking answers ever since the Ford government decided to toss out Ontario’s cap-and-trade system. Under cap and trade, the province’s largest producers of carbon emissions had to buy permits for those emissions.

“Cancelling the cap-and-trade carbon tax will result in lower prices at the gas pump, on your home heating bills and on virtually every other product that you buy,” trumpeted Ford in a press release.

Ontario had raised approximately $2.9 billion in proceeds from the cap-and-trade system’s allowance auctions before Ford’s election, although the carbon-pricing plan’s cancellation has put a number of related programs in jeopardy.

“The government made a clear election platform commitment to end the cap and trade program; the regulation effectively ends the program,” said the notice posted to Ontario’s environmental registry.

But the program is being ended after a lot of money was spent meeting its obligations, and it’s unclear how, or if, companies will be reimbursed for the incurred costs.

Natural gas is used for heat by approximately three-quarters of Ontario households, and gas companies in the province had been responsible for covering carbon emissions paid for by their customers.

The distributors, however, were allowed to recoup cap-and-trade-related costs through the rates they charged. A spokesperson for the OEB said those charges represented approximately $6 to $7 per month in costs for a typical residential customer, depending on the utility and the amount of gas used.

“The OEB is actively monitoring further developments from the government to inform next steps in relation to the gas utilities’ costs and cap-and-trade charges on utility bills,” the spokesperson said in an email.

Based on a carbon price of $18.99 per tonne, Union Gas projected total cap-and-trade obligation costs of $282.8 million for this year, according to its OEB application. In 2017, Union — now part of Enbridge after the Calgary-based company’s $37-billion merger with Houston-based Spectra Energy Corp. — said its total cap-and-trade obligations cost $275.3 million, a table in the application showed.

Enbridge Gas Distribution estimated in its application to the OEB that its customer-related carbon costs for 2018 would be approximately $377 million. The company also forecast $4.6-million in facility-related costs.

“The cap and trade charges approved by the OEB in respect of the gas utilities’ 2017 cap and trade compliance plans currently remain in effect, as the OEB denied the gas utilities’ requests to charge their higher proposed 2018 cap and trade charges on an interim basis effective January 1, 2018,” noted the OEB’s procedural order.

An experiment in people-moving: Transit agency buys electric double-decker bus

On Thursday, a Los Angeles county transit agency purchased the first all-electric double-decker bus in North America. The bus will be made with batteries from electric bus designer Proterra, and the carriage of the bus will be designed by Alexander Dennis, the company that supplies double-decker buses in London, Hong Kong, Auckland, Singapore, Toronto, Ottawa, Seattle, and Mexico City.

Buses are prime candidates for electrification: their diesel counterparts are considerably polluting, and buses travel extremely predictable routes at relatively low overall speeds, so range anxiety can be eliminated with route planning and heavier, more powerful batteries. Proterra has been making electric bus batteries for years, and the company recently broke a record for electric buses by traveling 1,101.2 miles on a single charge.

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US energy agency: Sorry coal, natural gas is having another record summer

Between 2018 and 2020, natural gas is expected to continue to eat away steadily at coal’s share of the US energy mix, barring any regulatory intervention from the federal government.

The competition between natural gas and coal is especially fierce this summer: the former could set a record in terms of its contribution to overall US energy generation.

Another interesting prediction about fossil fuels: in 2018, the average price of a gallon of gasoline has been significantly higher than the year before, but that may not be great news for the oil industry, because drivers are already responding to higher prices. The amount of gas drivers will purchase in 2018 is expected to fall year over year for the first time since 2012. The contraction amounts to 10,000 barrels of oil per day not sold—a small change for the US economy but potentially a harbinger of things to come.

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Chinese firm will build battery factory in Germany to supply BMW, Volkswagen

A Chinese battery company called Contemporary Amperex Technology Ltd (CATL) has chosen a site in eastern Germany to build a battery-cell factory that will help supply the country’s major automakers as they shift to building more and more electric vehicles.

Volkswagen Group, BMW, and Daimler have all set targets to make and sell more electric vehicles in the coming years, but making the economics work out on battery supply has often proven elusive.

According to Agence France Presse (AFP), German Chancellor Angela Merkel will meet with Chinese Prime Minister Li Keqiang today in Berlin. Reuters notes that the Chinese prime minister will participate in a signing ceremony related to the decision to build a CATL factory in Erfurt, a city in the German province of Thuringia.

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Monster energy project wants to use Loch Ness as a giant battery

A company called Intelligent Land Investments (ILI) is proposing a huge 2.4 gigawatt-hour pumped hydroelectric project right next to the shores of Loch Ness in Scotland. The project, called “Red John” after the Scottish name for a source pool in the area, could deliver up to 400 megawatts of power for six hours—a feat that Wired UK says could double Scotland’s already-considerable wind capacity.

Pumped hydro is an old concept, and such systems have been used to store energy long before utility-scale chemical batteries were economically feasible. Pumped hydro projects need a lower reservoir as well as a higher reservoir. When electricity is plentiful, pumps work to lift water from the lower reservoir to the higher reservoir; when electricity is scarce, operators use gravity to send water from the higher reservoir through a turbine and back down to the lower reservoir, generating greenhouse-gas-free electricity.

A diagram of the Red John project.

A diagram of the Red John project. (credit: Intelligent Land Investments)

The advantage of pumped hydro is that it’s disbatchable. While wind turbines and solar panels require the wind and sun to make electricity, energy from pumped hydro is ready whenever we want it. Scotland in particular has been aggressive about adding offshore wind to its energy mix, but you can only build out so many wind turbines before you need to add energy storage or develop massive transmission projects, because if the wind slacks in one region, power has to be added to the grid to maintain a constant frequency.

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