In the second largest energy transaction in U.S. history, Texas-based energy giant Kinder Morgan, Inc. (KMI) just closed its acquisition of outstanding equity securities of Kinder Morgan Energy Partners, L.P. (KMP), Kinder Morgan Management, LLC (KMR) and El Paso Pipeline Partners, L.P. (EPB).
With this enormous $76 billion transaction, the Trans Mountain pipeline -- stretching from Edmonton, Alberta, to Burnaby -- is now 100 per cent under KMI's control. Kinder Morgan Canada was part of Kinder Morgan Energy Partners.
In a news statement, Kinder Morgan CEO Rich Kinder said he was "delighted" by the merger, which "paves the way for superior growth at KMI for years to come."
But economist and former ICBC CEO Robyn Allan warns Kinder Morgan may have broken Canadian law by not getting permission from the NEB before it completed its sale, which will have major implications for its proposed pipeline expansion.
"The NEB Act, section 74, requires that Kinder Morgan obtain permission from the NEB for the sale of Kinder Morgan Energy Partners LP—the 100 per cent owner of Trans Mountain—to Kinder Morgan Inc," Allan said.
She said as of Monday, Kinder Morgan had failed to apply for leave from the Canadian regulator for the deal, which was first announced to investors in August.
Deal not in Canada's public interest: economist
Allan has submitted a Notice of Motion to the NEB requesting that the hearing be stayed until Kinder Morgan files its application, and the Board considers whether the (now-completed) sale is in Canada's public interest.
"There are many reasons why the transaction is not in the public interest," Allan said.
"Change in ownership will impact Kinder Morgan’s liability, including the availability of insurance in case of a spill. We don't know anything about that, because Kinder Morgan has not told the NEB as it's required to under the Act."
What will happen to Kinder Morgan's Canadian taxes?
She said it also means assets were "inflated" to reflect the premium price KMI is paying for KMP assets, including Trans Mountain, and worries that it will further decrease the amount of taxes Kinder Morgan is meant to be paying in Canada. In a previous essay, Allan highlighted that Kinder Morgan appeared to grossly exaggerate the tax revenues that the Trans Mountain expansion would bring to Canada. In its application, Kinder Morgan claimed it would bring $355 million in tax revenues to the province over six years of construction and 30 years of operation. According to her research, Kinder Morgan has only paid an average of $1.5 million in Canada over the last five years.
"By increasing the value of the assets, they get to deduct a greater amount of depreciation and reduce their taxable income. So they will face an even lower tax burden than the meagre $1.5 million a year on average they face now," she said.
"If KMI directly owns and controls the regulated pipeline facilities, which are supposed to be for the benefit of Canadians, the unsavoury corporate culture of KMI will completely control Kinder Morgan’s activities in Canada," she said.
"The purchase of KMP by KMI provides a greater opportunity for Kinder Morgan to siphon vast resources from the Canadian economy to its US shareholders—even more so than the average $172 million a year they do now."
National Energy Board spokesperson Sarah Kiley said the Board is aware of Allan's motion.
"We’ll be looking at this motion and will respond in due course," she said.