Kinder Morgan Energy Partners, a large pipeline transmission company backed by Goldman Sachs Infrastructure Partners, has recognised a large mark-down in the value of one of its minority investments that could impact several other private equity and institutional investors.
The New York Stock Exchange-listed company said in its latest quarterly filing that it will mark down the carrying value of its 20 percent investment in Natural Gas Pipeline Company of America, or NGPL, by $430 million due to the result of a regulatory settlement.
The terms of the settlement, to be agreed to by the Federal Energy Regulatory Commission (FERC), remain confidential. But Kinder Morgan expects that a staged implementation of the resulting reductions in service changes would lower its previous cashflow expectations for NGPL by approximately $25 million per year. The impact would increase to $70 million per year upon full implementation.
As a result of this decrease, Kinder Morgan said that the fair value of its investment in NGPL was less than its carrying value. Accordingly, it will take a $430 million pre-tax, non-cash impairment charge on the value of its stake in the company.
NGPL and FERC are still in the process of finalising the agreement, which is anticipated to be filed in June.
“We look forward to completing the process and filing the written settlement with the FERC for final approval,” Kinder Morgan spokesperson Emily Thompson wrote in an email.
NGPL is one of the largest US natural gas pipeline and storage systems. Its network includes approximately 9,500 miles of gas transmission pipelines and more than 250 billion cubic feet of natural gas storage capacity.
Last year the Commission concluded that NGPL’s “level of earnings may substantially exceed its actual cost of service, including a reasonable return on equity,” according to a regulatory filing from the Commission. The Commission estimated that NGPL should be earning a return on equity of 12 percent but, upon examining its revenues, found that the company was actually earning a return on equity of 24.5 percent, net of income taxes.
The Commission said it would begin an investigation into NGPL’s rates to determine whether they were reasonable. The regulatory proceeding continued into 2010.
In late April, one of NGPL’s minority shareholders, Brookfield Infrastructure Partners, said in a press release that NGPL and the Commission had reached a settlement on the regulatory proceeding that was “supported or not opposed by all active participants in the proceeding”, though no details were provided.
Brookfield owns approximately an 11 percent interest in NGPL through its 40 percent ownership of Prime Infrastructure, the Sydney Stock Exchange-listed infrastructure fund formerly managed by Babcock & Brown.
Another former Babcock & Brown-managed fund, SteelRiver Infrastructure Partners, is also likely to be impacted by the regulatory proceeding. SteelRiver is an investor in Myria Holdings, a holding company which purchased 80 percent of NGPL from Kinder Morgan in February 2008. Prime’s interest in NGPL also flows through the Myria holing company.
Other Myria investors include Dutch pension fund Stichting Pensioenfonds Zorg en Welzijn and Canadian pension fund manager Public Sector Pension Investment Board, according to an NGPL press release.
The remaining 20 percent of NGPL is held by Kinder Morgan, which was taken-private by a group of private equity firms in a $15 billion buyout offer in 2006. The buyers included Goldman Sachs Capital Partners and Goldman Sachs Infrastructure Partners.
Kinder Morgan shares stood at $63.65 in early afternoon trading on the New York Stock Exchange, down 1.3 percent from their opening level.
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