BCUC approves Kinder Morgan takeover of Terasen

KMI - Terasen Acquisition Decision
BC Utilities Commission, 10-Nov-2005
KMI - Terasen Acquisition Application
Document Registry at BC Utilities Commission
Terasen sale to Texas firm wins okay
Scott Simpson, Vancouver Sun, 11-Nov-2005

BC Utilities Commission
10-Nov-2005

NOW THEREFORE the Commission, for the reasons stated in the Decision, orders that the Application is approved subject to the conditions contained in the Decision accompanying this Order.

DATED at the City of Vancouver, in the Province of British Columbia, this 10th day of November 2005.

BY ORDER
Original signed by:
Robert H. Hobbs
Chair

KMI - Terasen Acquisition Decision

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By Scott Simpson
Vancouver Sun
11-Nov-2005

The $6.9-billion sale of Terasen Inc. to a Texas energy firm can proceed, albeit with conditions that protect the interest of the Vancouver-based utility company's 875,000 customers, the British Columbia Utilities Commission ruled on Thursday.

The BCUC, in a 51-page ruling, said Kinder Morgan Inc.'s experience at operating natural gas systems, coupled with Terasen's management record and the continuing scrutiny of the utilities commission, assures that the public's interest will be served by the transaction.

The commission said it received more than 8,000 letters of comment on the sale, from "individuals, businesses, communities, community organizations, and associations," including about 650 form letters.

Last month, the BCUC described the volume of correspondence it had received on the sale as a "record" for any proceeding.

"Virtually all of the letters of comment oppose the transaction," with the "vast majority" expressing concern about foreign ownership of Terasen.

Terasen is a Toronto Stock Exchange-listed company whose shareholders voted 96 per cent in October to sell their shares to Kinder Morgan at an attractive premium to their recent trading value.

Other public objections included "general anger," the lack of oral public hearings on the transaction, "a perceived loss of control/sovereignty over resources (energy security)," a presumed reduction in quality of service, Kinder Morgan's spotty environmental record in the U.S., and general distrust of the United States.

However, the commission says, most of the objections are based on misunderstanding of Terasen's status as a publicly-traded private-sector company, and the presumed jurisdiction of the BCUC.

For example, the BCUC notes, concerns about foreign ownership are the responsibility of Industry Canada, a federal agency, and can only be reviewed through the Investment Canada Act.

Industry Canada has not yet rendered a verdict on the sale.

"The Commission Panel appreciates the input of so many citizens and has carefully reviewed and considered the concerns raised by the public," says the decision, which is signed by BCUC chair and CEO Robert Hobbs, commissioner Lori Boychuk, and commissioner Robert Whitehead.

"The Commission Panel is cognizant of the strong public opposition towards this Transaction, as exhibited by the number and tone of letters received. However, the Commission is also mindful that it must consider and adjudicate this application within its statutory mandate and the relevant provisions of the [Utilities Commission Act].

"The Commission Panel notes that much of the opposition to this transaction appears to be based on misunderstandings about the existing ownership and structure of Terasen, the structure of the natural gas market in B.C., and the authority of this Commission over public utilities operating in B.C."

The decision notes that there were restrictions on foreign ownership of Terasen shares when the company, formerly known as B.C. Gas, was created in the late 1980s out of an amalgam of private and public assets.

"The government of B.C. removed these restrictions in 2003," the ruling notes.

The BCUC put a number of restrictions on the sale and notes that the commission will continue to have jurisdiction over Kinder Morgan -- including regulating gas rates charged to customers and quality of service.

Restrictions include forbidding Kinder Morgan to transfer its Terasen customer and billing information out of British Columbia, and requiring that the company not strip away revenue that should be dedicated to maintaining Terasen's existing quality of service.

Kinder Morgan has already announced that it will keep the Terasen Gas name, as well as all of the company's employees except for some senior managers. The company has also said that, over the longer term, it expects to add more employees in B.C. and invest in new pipeline infrastructure in Western Canada.

B.C. Energy Minister Richard Neufeld said in an interview that the BCUC's requirement that Terasen and Kinder Morgan maintain "totally separate" finances "makes good sense" because it will protect the B.C. operation's ability to borrow money.

Neufeld described the New Democratic Party's anti-sale campaign as "pure politics" because Kinder Morgan won't own B.C. natural gas resources -- just the pipelines that deliver them.

"They will still be regulated by the B.C. Utilities Commission for what they pay for the services that are delivered to them by pipes. The cost of natural gas is priced on the North American market. That's just a pass-through on the costs -- although those pass-through costs are still reviewed by the B.C. Utilities Commission. They were before this deal and they will continue to be."

Terasen president and CEO John Reid said in a prepared statement that the company is "pleased with the Commission's decision and we remain confident that combining the assets, skills and people of Terasen with Kinder Morgan will provide long-term value and economic benefits to Canadians.

"There will be no change of service levels for Terasen Gas customers as a result of this acquisition. Natural gas consumers in BC will continue to be served by a first-class utility committed to public and employees safety and meeting the energy needs of its customers," Reid added.

Kinder Morgan chairman and CEO Richard Kinder echoed Reid's comments.

"We are pleased with the Commission's order and look forward to providing the same safe, reliable services to which Terasen's customers have become accustomed," Kinder said in a prepared statement.

"When the transaction is completed, the transition for Terasen's approximately 875,000 natural gas distribution customers in British Columbia should be seamless. The Terasen Gas name will remain the same, its headquarters will continue to be in Greater Vancouver (Surrey) and the BCUC will still maintain regulatory supervision and oversight of the company. Additionally, we intend to retain virtually all of the Terasen Gas employees, policies and procedures."

ssimpson@png.canwest.com
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TAKEOVER TIMELINE:

Aug. 1: Kinder Morgan announces $6.9-billion bid to buy Terasen Inc.

Oct. 14: B.C. Utilities Commission reports record amount of correspondence about the sale, most object.

Oct. 19: Terasen shareholders vote 96% in favour of deal.

Oct. 24: BCUC rules out holding oral public hearing on sale, stays exclusively with written hearing.

Nov. 10: BCUC approves sale.

What's next: Industry Canada to render verdict on sale under Investment Canada Act.

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