KINDER MORGAN WATCH

DaytonDailyNews

http://www.daytondailynews.com/n/content/oh/story/news/local/2008/09/14/...

By Tom Beyerlein

Staff Writer

Sunday, September 14, 2008

Elizabeth II, queen of England, was the guest of honor in May 2007 at the White House State Dining Room. The host, President George W. Bush, was resplendent in white tie and tails. The menu included spring pea soup with fernleaf lavender, Dover sole almondine with roasted artichokes and saddle of spring lamb with fricassee of baby vegetables. After-dinner entertainment was provided by master violinist Itzhak Perlman.

The state dinner was, first lady Laura Bush told Fox News, "the most elegant and most formal that we'll host."

The 137 guests included Vice President Dick Cheney, Nancy Reagan, Henry Kissinger, Cabinet secretaries, leaders of the House and Senate — and the man who is building an interstate natural gas pipeline soon to cut through Ohio.

Richard D. Kinder of Houston, a former Enron Corp. president who built a pipeline empire as Enron collapsed in scandal, had reason to feel like celebrating. Less than three weeks earlier, the presidentially appointed Federal Energy Regulatory Commission, or FERC, had approved the western half of his Rockies Express, one of the largest natural gas pipelines in U.S. history. And his companies were proceeding on the assumption that FERC would OK the second half, called REX East, which will bisect southern Ohio. That approval came this May 30, just as the REX West project went into service from Colorado to Missouri.

Rockies Express Pipeline LLC expects the pipeline to be operational to its Lebanon hub in Monroe by year's end, and complete to Clarington by the third quarter of 2009. Kinder's company eventually wants to extend it to New Jersey.

Many in the energy industry view the 1,679-mile REX pipeline as an important new piece of the nation's infrastructure that will benefit western natural gas producers and Midwest consumers. When it's finished, REX will have a capacity of 1.8 billion cubic feet of gas per day that will be tapped along its route by gas distribution companies, including Vectren Energy Delivery, one of the two major distributors in southwest Ohio.

"What the REX pipeline will do is fundamentally change how natural gas moves across the United States," said Thomas E. Stewart, executive director of the Ohio Oil and Gas Association, a producers' group.

But some opponents in Ohio see REX as an unstoppable juggernaut that won federal approval over the objections of state and local governments, property owners, businesses and environmentalists. FERC's approval came even though the Ohio Power Siting Board and the Ohio Department of Natural Resources opposed REX's plans to lay pipe through Caesar Creek State Park and under the Big Darby Creek and Little Miami River. The siting board has asked FERC to reconsider.

The $5.6 billion project is privately financed by Rich Kinder's Kinder Morgan Energy Partners and its partners: ConocoPhillips, the oil giant, and Sempra Pipelines & Storage. But FERC's approval allows these corporations to use government powers of eminent domain to forcibly acquire permanent rights of way and temporary work space on private property for those segments of the project that don't follow existing pipeline corridors. REX has since sued dozens of Ohio landowners in federal court. A hearing is set for Oct. 2 to determine whether REX can take immediate possession of the land and work out compensation later.

REX officials say they'll pay landowners a fair price for the rights of way and restore their property as closely as possible to its original condition after the pipe is buried. But some landowners fear the 42-inch, high-pressure gas pipeline will put them in danger of explosions and lower their property values. Some business owners say it will disrupt their operations. Central Indiana officials worry REX will contaminate a sole-source drinking water aquifer serving 37,000 homes and businesses. And Ohio state officials and environmentalists point out that the Big Darby and Little Miami are federally designated scenic waterways.

"For all the permanent impacts this project is causing, it makes you seriously question its overall usefulness," said Nolan Moser, law fellow with the Ohio Environmental Council. "Is this worth it?"

White House ties

Some accuse FERC of rubber-stamping the project because of Kinder's close ties to the Bush-Cheney administration. They resent the granting of federal eminent domain powers to a for-profit business benefiting Kinder as well as energy companies working in Cheney's home state of Wyoming, including Cheney's former employer, Halliburton.

"We thought FERC was acting as a regulator, not as a collaborator with the energy company," said University of Dayton biology professor John Rowe, whose Clinton County horse farm sits on the pipeline's path. "Boy, were we wrong."

"Kinder is one of the richest men in America, so there was a lot of clout behind this," Rowe said. "Not just a little — a lot. It came straight from the White House. We were told that by FERC: 'This is not something you can fight. It's going to happen.' "

Dean Mowrey of Warren County, one of the defendants in REX's eminent domain case, said FERC has operated "with total disregard for anything but the wishes of Rockies Express, and I suspect that goes all the way to the basement of the White House with Dick Cheney. It's all the oil cronies. Every time you look closer, it just gets darker."

A FERC spokeswoman denied that Kinder's political connections helped him get approval for the REX project, though FERC Chairman Joseph Kelliher did say in correspondence with REX that his staff "made extraordinary efforts to expedite the review" process, leading to approval of REX East in May.

The 62-year-old Kinder, through a spokesman, declined to be interviewed. REX spokesman Allen Fore said Kinder's influence didn't sway FERC's judgment.

"It's easy to say that Kinder got it because he has influence," said Robert Bryce, author of the Enron post-mortem "Pipe Dreams" and an extensive biographical essay called "King Kinder." "It's easy to say, but harder to prove."

It started at Enron

George W. Bush and Rich Kinder go back a long way — to 1993, when Bush asked the then-president of Enron to be the Houston finance chairman of Bush's 1994 Texas gubernatorial campaign. Kinder accepted and helped to raise a record $16 million.

"Of course Bush did his best to reward his energy cronies when he was governor," Bryce wrote in his 2004 book "Cronies: Oil, the Bushes, and the Rise of Texas, America's Superstate." "In 1995, he tried to rewrite the state's tax code — a move that would have dramatically reduced the tax burden on capital-intensive industries like pipeline companies, refiners and oil producers. One of the key people who worked on that tax overhaul package (which ultimately failed to pass) was Enron's Rich Kinder."

Kinder continued to support Bush in the 2000 and 2004 presidential campaigns. His wife Nancy, Lay's former executive assistant, was a Bush-Cheney "Pioneer" in 2000, agreeing to raise $100,000 for the campaign, and a "Ranger" in 2004, agreeing to raise $200,000. She chaired the finance committee for Bush's 2005 inaugural and personally gave the maximum $250,000 toward the event.

Bryce says he admires Kinder. "If Rich Kinder had stayed at Enron, Enron would never have failed," Bryce said. "(Chairman and Chief Executive) Ken Lay's smartest move was hiring Rich Kinder; his dumbest move was letting him walk out the door."

Kinder quit Enron in late 1996 after Lay broke a promise to hand him the CEO mantle. While Enron embraced the complex trading that would lead to its ruin, Kinder and another college friend, Bill Morgan, formed Kinder Morgan, bought one of Enron's pipeline businesses and began to build an energy industry leviathan which today includes more than 37,000 miles of oil, natural gas and gasoline pipelines. Bryce said Kinder's worth was $30 million in 1996; in September 2007, Forbes magazine listed him as the 130th richest American, worth $2.9 billion.

Forbes ranks Knight Inc., which owns Kinder Morgan's general partner, among America's most admired companies (and the most admired pipeline company), based on polling of executives, directors and analysts. Ratings agency Standard & Poor's gives Kinder Morgan Energy Partners its highest recommendation.

"He did it the old-fashioned way — by using hard assets and big steel," Bryce said of Kinder.

But critics say Kinder also benefited from his extensive connections with power brokers. The connections go beyond the White House to the immense global investment firms The Carlyle Group and Goldman Sachs Group Inc., companies that also have ties to President Bush. Carlyle and Goldman Sachs helped Kinder go private with Knight Inc.

"There's no secret that Bush as governor received much of his financial backing from the oil and gas industry and at every turn he did the bidding of that industry," said Craig McDonald, executive director of Texans for Public Justice, which has tracked Bush's campaign contributions since his gubernatorial days. "That didn't change. It's no secret that the industry has gotten favorable treatment since Mr. Bush has been in the White House. They've been good to each other."

Kinder Morgan announced plans for REX in 2005 amidst a boom in natural gas drilling in the Rocky Mountain states, especially Wyoming. The region has the largest untapped reserves of gas in the continental U.S., but it has been trapped in the area because of inadequate pipeline infrastructure. The situation caused Rockies gas prices to be depressed while natural gas prices overall have more than doubled since the 1990s.

"We're a resource-rich part of the country that lacks access to the people who want the product," said Brian Jeffries, executive director of the Wyoming Pipeline Authority. "You can't grow production unless you have a way to get it to market."

The National Petroleum Council, an advisory committee to the energy secretary, in 1999 and 2003 recommended easing lease restrictions on federal lands in the Rockies states to make them available for oil and natural gas exploration. In 1999, Cheney, then CEO of Halliburton, was a council member, as were the CEOs of Conoco and Sempra; Kinder was a vice chairman of the council's gas committee in 2003 and remains a member. According to the Center for Public Integrity, the 1999 recommendations became a "blueprint" for the new Bush administration's energy policy.

Another blueprint was the 2001 work of Cheney's energy task force. Cheney successfully fought to keep the attendees' list secret, but the Washington Post reported in 2005 that the list included representatives of Conoco and the law firm Van Ness Feldman, which now represents REX. Joseph Kelliher, who worked with the task force as a senior Energy Department official, now heads FERC, which granted REX its eminent domain powers.

"People say this is a case of the fox guarding the henhouse," said Joseph Rust of Greensburg, Ind., an outspoken REX opponent who has earned the nickname Pipeline Joe. "I say, no, this is a case of the fox designing the henhouse."

Since the task force's May 2001 report, the Interior Department's Bureau of Land Management has loosened or eliminated leasing restrictions on federal lands in Wyoming, triggering the natural gas drilling bonanza.

David Alberswerth, a senior policy adviser for the Wilderness Society in Washington, D.C., said the Bush administration's "disastrous" policies have led to such environmental consequences as unprecedented air quality alerts near the gas well fields of southeast Wyoming.

"Under federal law, the interior department is not an agency of the oil and gas industry," Alberswerth said. "That in effect is what's happened in the Bush-Cheney administration."

No price break for Ohio customers?

REX's western half is already starting to make money for its owners. Kinder Morgan announced July 16 that its natural gas pipeline business had second-quarter earnings of $182.6 million, up $38 million from the same period last year. Even though REX West was in full service to Missouri only in late May — two-thirds of the way through the quarter — it accounted for almost 75 percent of the increase, or about $28.5 million.

Construction on REX East is proceeding on a piecemeal basis. Full-scale construction hasn't yet begun in Ohio.

Some REX supporters say the pipeline will feed a growing demand for natural gas in the Midwest and northeastern states, and that the new supply should bring down prices. But nobody knows how much demand may grow, and experts disagree about whether prices will dip.

"Initially, probably to a fairly large extent it will displace gas (already on the market)," said REX LLC President Douglas Walker. "It takes a long time for the demand side to grow and absorb those incremental supplies."

According to Energy Department statistics, U.S. natural gas consumption has been flat since 2002, and consumption declined in all the states served by REX East. But the department also predicts growth in consumption through 2030, as utilities shift from coal to cleaner-burning gas to generate electricity.

Energy analyst Porter Bennett, who has studied the REX pipeline's impact on the market, said it could bring down natural gas prices in Ohio while increasing costs to Rockies consumers. Because it provides a new source of gas, it could also protect the Midwest and East against shortages and price spikes like those that accompanied Hurricane Katrina, which disrupted production in the gulf states.

"REX will probably force prices in the Ohio market down considerably," Bennett said. "It diversifies your supply so you're not dependent on the gulf. The whole story is, it's a very good thing for Ohio."

But Vectren spokeswoman Chase Kelley, who has been warning Ohioans that higher gas prices are likely this winter, said REX won't necessarily moderate prices.

"Even if you throw Rockies gas into the mix, the price of gas could still go higher," she said. "It's not going to get better — electricity demand continues to go up. The bottom line is, we're in an energy crisis. From natural gas to coal to gasoline, the customer is absorbing higher prices."

REX President Walker agreed that "in the short run, you may not see an impact on pricing" in the Midwest. "It's hard to say pricing will go down, but if you don't have access to (resources) like the Rockies, the price may go up."

The impact on natural gas prices in Wyoming is already beginning: The Wyoming Public Service Commission warned the state's consumers last month they could be paying 30 percent to 70 percent more for the commodity this winter.

And driving up the price of Rockies gas, Rust contends, is the real purpose of the Rockies Express Pipeline.

"Make no bones about it, this is a regional issue that's basically designed to increase the price of natural gas (from) the state of Wyoming," he said. "It's a ploy for Kinder Morgan and Conoco to make money on natural gas they can't sell in the West."