- The Energy Mix - https://theenergymix.com -

NEB Rebuffs Kinder Morgan Bid to Put Pipeline Spill Risk on ‘Corporate Credit Card’

Enron Complex: Alex/wikimedia commons

Canada’s National Energy Board (NEB) is forcing Kinder Morgan Canada to maintain a C$500-million standing loan with its Houston-based parent company to cover the short-term costs of containing and cleaning up a future oil spill, throwing a wrench in the U.S. company’s determined efforts to avoid any financial responsibility for the project.

The parent company, Kinder Morgan Inc., “had been working for years to build a financial firewall around its Canadian subsidiary and the risky and controversial Trans Mountain pipeline, pledging to investors that it would not use its own capital to build the pipeline,” Sightline Institute Energy Finance Director Clark Williams-Derry explains in a blog post this week. In its 2017 annual report, Kinder Morgan Inc. said it expected Kinder Morgan Canada to be a self-funding entity and does not anticipate making contributions to fund its growth” or cover the cost of the pipeline.

Like this story? Subscribe to The Energy Mix and never miss an edition of our free e-digest.

In other words—the parent company was trying to give its investors all the benefits of a pipeline project with predictable, locked-in profit, with none of the environmental or economic risks.

The NEB set the requirement for the $500-million line of credit in early 2017, Williams-Derry writes. “Kinder Morgan had petitioned to replace this cash guarantee with a “credit facility [2]”—akin to a corporate credit card—that it had arranged with a consortium of Canadian banks. If the NEB had agreed to this request, the pipeline’s corporate parent would no longer have to keep a half-billion dollars of ready cash on hand to deal with spills.”

The Board denied that request, just days after Kinder Morgan’s April 8 ultimatum [3] to the federal, Alberta, and B.C. governments to give it the “clarity” it needs to carry on with the project.

“The NEB ruled that Kinder Morgan’s effort to shift responsibility for cleanup off their books simply did not meet the Board’s legal requirements,” Williams-Derry states. “Because the board deemed the proposed credit facility inadequate, it ordered the company to keep its original line of credit in place—meaning that Kinder Morgan, Inc. must continue to keep at least a half a billion dollars available to be spent on a moment’s notice to deal with a Trans Mountain oil spill. For Kinder Morgan, this move has a deep—and disturbing—financial impact,” either saddling the company with extra debt or tying up money it would want to use for just about any other purpose.

A key concern for the parent company is a provision in the 2016 Pipeline Safety Act that a company accept unlimited liability for a major oil spill in which it’s deemed at fault or negligent. “Under this law, a major oil spill could trigger a financial crisis for Kinder Morgan, Inc.,” Williams-Derry writes.

“To guard against this, the company has attempted to use subsidiaries and shell corporations to wall off the Trans Mountain project, and its Canadian subsidiary as a whole, from the rest of the company’s assets. But the NEB’s requirement that the parent company keep a half-billion in cash on hand may signal the potential for Kinder Morgan, Inc. to remain on the hook for full cleanup costs—raising serious concerns for the parent firm’s finances in the event of a catastrophic spill.

For a company with its own “tarnished” safety record, he adds, the requirement “may prove to be one of the deciding factors that sours Kinder Morgan on the long-term prospects for the pipeline.

7 Comments (Open | Close)

7 Comments To "NEB Rebuffs Kinder Morgan Bid to Put Pipeline Spill Risk on ‘Corporate Credit Card’"

#1 Comment By Judy Lewis On May 2, 2018 @ 9:57 AM

Glad to learn that the NEB is protective of Canada! But what if Kinder Morgan is not be able to pay for clean-ups even with this new provision? And what if the damage done is irreparable?

#2 Comment By Alain On May 3, 2018 @ 9:43 AM

They need more like 100 billions if s*it hit the fan….

#3 Comment By Robert dingle On May 5, 2018 @ 11:41 AM

Ask KM to pony up and they bail! Sure Canada takes on all the liability& KM takes all the profit south! Nationalize their existing pipe & kick them out of Canada!

#4 Comment By Lars Friis On May 6, 2018 @ 1:40 PM

With the extreme Pro-Oil & Corporate bias of nearly everything coming out of Ottawa (since forever), I trust neither our own governments, nor their agencies(NEB), nor ESPECIALLY any part of K-M with regard to this proposed pipeline. The idiocy of proposing to make the Port of Vancouver an international Oil Port (1.1 ships/day for K-M alone) is so far beyond LUDICROUS, that words fail me, as does the stupidity of any government that would consider IT.

#5 Comment By Ann Parker On May 7, 2018 @ 9:52 PM

Exxon Valdez oil spill (1989) clean-up costs exceeded $7 billion (according to the International Tanker Owners Pollution Federation Limited) and despite application of the most advanced technology available, only approximately 8% of the oil was recovered. There is still over 100 tonnes of oil remaining in the area.
To date the spill caused more than $300 million of economic harm to more than 32,000 people whose livelihoods depended on commercial and recreational fishing and tourism. Two years following the spill, the economic losses to recreational fishing were estimated to be $31 million.
25 years after the spill Exxon is still fighting the claims.
The death toll of wildlife is estimated at hundreds of thousands seabirds, sea and river otters, harbor seals, and bald eagles; population of killer whales that swam through the affected parts of the Prince William Sound suffered losses of 40 percent in the year after this disaster (22 Orcas died immediately after the spill), plus billions of salmon and herring eggs were destroyed according to the National Oceanic and Atmospheric Administration (NOAA).

#6 Comment By Lionel A Lewis On May 8, 2018 @ 3:01 PM

Dilbit (diluted bitumen) is impossible to clean up. The dilutent is a carcinogenic liquid which will leach out into sea water leaving the bitumen (cheap and dirty) to fall to the seabed. The Exxon Valdez spill happened in 1989 and has still not been cleaned up and probably never will be; and that was with a higher quality oil.

#7 Pingback By NEB Rebuffs Kinder Morgan Bid to Put Pipeline Spill Risk on ‘Corporate Credit Card’ | FINANCIAL 365 On May 30, 2018 @ 8:07 AM

[…] NEB Rebuffs Kinder Morgan Bid to Put Pipeline Spill Risk on ‘Corporate Credit Card’ […]