C$6.9B Terasen utility takeover gets OK

British Columbia regulator downplays opposition to Kinder Morgan gas utility deal, but takes steps to protect gas consumers

Gary Park

Petroleum News Canadian Contributing Writer

Fending off a record level of opposition, British Columbia’s energy regulator cleared a path for Texas-based Kinder Morgan to complete its takeover of Terasen, the province’s dominant gas utility.

In a 51-page ruling, the British Columbia Utilities Commission said the C$6.9 billion sale poses no threat to the public interest of 880,000 customers, representing more than 95 percent of British Columbia’s gas users.

But the regulator set up some barriers to prevent Kinder Morgan from transferring its Terasen customer and billing information outside of British Columbia and from stripping away any revenue that should be dedicated to maintaining Terasen’s quality of service.

Kinder Morgan has earlier pledged to keep the Terasen Gas name along with all of the company’s employees, except for some senior managers.

B.C. Energy Minister Richard Neufeld said the conditions to separate Terasen and Kinder Morgan finances “makes good sense,” by protecting the B.C. division’s ability to borrow money.

Commission says public good protected

Completion of the deal still requires approval by Industry Canada, which is mandated under the federal Investment Canada Act to review any foreign takeover exceeding C$250 million.

The volume of opposition to Kinder Morgan was unprecedented for the B.C. regulator, which received more than 8,000 letters from individuals, businesses, communities, community organizations and associations, with “virtually all” objecting to the transaction.

Objections included concerns about the “perceived loss of control/sovereignty over resources (energy security),” assumptions about a reduction in the quality of service and Kinder Morgan’s blemished environmental record in the United States.

But the commission noted that concerns raised about foreign ownership could only be handled by Industry Canada.

It said much of the opposition was based on a misunderstanding about the existing ownership and structure of Terasen, the structure of the gas market in British Columbia and the commission’s own authority over public utilities.

Neufeld added his voice to that message, saying a campaign mounted by the opposition New Democratic Party failed to acknowledge that Kinder Morgan will only own Terasen’s gas pipelines, not the B.C. gas resources.

He said the costs of gas will still be reviewed by the commission as “they were before this deal.”

Terasen Chief Executive Officer John Reid said his company is confident that combining the assets, skills and people of Terasen and Kinder Morgan “will provide long-term value and economic benefits to Canadians.”

He has been adamant that the financial strength of Kinder Morgan is essential if Terasen is to move ahead with ambitious plans to move oil sands production out of Alberta to the U.S. and Asia.

The B.C. regulator’s review process will ensure “system safety, reliability, financial viability and the management and technical capabilities of the proposed operator,” he said.