Add
EPB to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| EPB > SEC Filings for EPB > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
The information contained in Item 2 updates, and should be read in conjunction with, information disclosed in our 2008 Annual Report on Form 10-K, and our financial statements and notes presented in Item 1 of this Quarterly Report on Form 10-Q.
On July 24, 2009 and September 30, 2008, we acquired additional 18 percent and 30 percent general partner interests in CIG, respectively, from El Paso. Subsequent to the acquisition of the 18 percent interest, we own a 58 percent general partner interest in CIG and have the ability to control its operating and financial decisions and policies. Accordingly, we have consolidated CIG and have retrospectively adjusted our historical financial statements in all periods to reflect the change in reporting entity. We have reflected El Paso's 42 percent interest in CIG as a noncontrolling interest in our financial statements for all periods presented. The transaction was accounted for as a reorganization of entities under common control.
Effective September 30, 2008, we acquired from El Paso an additional 15 percent interest in SNG. We accounted for the acquisition of our additional equity interest in SNG prospectively beginning on September 30, 2008. For a further discussion of our acquisitions, see Item 1, Financial Statements, Note 2.
As of September 30, 2009, we own 100 percent of WIC, a 58 percent general partner interest in CIG and a 25 percent general partner interest in SNG. El Paso owns the remainder of CIG and SNG. We intend to grow our business through organic expansion opportunities and through strategic asset acquisitions from third parties, El Paso or both. As of September 30, 2009, each of WIC, CIG and SNG have significant expansion projects in progress as further discussed in our 2008 Annual Report on Form 10-K and updated below:
WIC. In July 2009 and November 2009, WIC filed applications with the FERC for certificate authorization to construct the WIC Expansion project. In September 2009, WIC placed the Piceance Lateral expansion project in service.
CIG. During the first quarter of 2009, CIG agreed with its customers to defer the targeted in-service date for the Raton 2010 project from June 2010 to December 2010. In September 2009, CIG filed an application for certificate authorization with the FERC for this project. In June 2009, CIG placed the Totem Gas Storage project in service.
SNG. During the second quarter of 2009, BG LNG Services (BG) informed SNG of their intent not to exercise their option to have SNG construct the Cypress Phase III expansion. However, BG has made alternative commitments to subscribe to certain other firm capacity on another of El Paso's pipeline systems and to provide certain rate considerations on its existing transportation contract for Cypress Phases I and II. These alternative arrangements are pending FERC approval. In August 2009, we received certificates of authorization from the FERC on the South System III and the Southeast Supply Header Phase II projects.
In addition to our backlog of contracted organic growth projects, we have other projects that are in various phases of commercial development. Many of the potential projects involve expansion capacity to serve increased natural gas-fired generation loads.
CIG. Along the Front Range of CIG's system, utilities have various projects under development that involve constructing new natural gas-fired generation in part to provide backup capacity required when renewable generation is not available during certain daily or seasonal periods.
SNG. In early 2009, SNG executed a non-binding letter of intent (LOI) with Florida Power & Light Company (FPL) to expand SNG's pipeline system by approximately 600 MMcf/d by constructing approximately 375 miles of 36-inch pipeline from western Alabama to northern Florida. This expansion project was subject to the Florida Public Service Commission's (PSC) approval for FPL to build an intrastate pipeline which would connect to our SNG system. The PSC rejected FPL's proposal and SNG's LOI with FPL has expired. The future of this project is uncertain.
Most of these potential expansion projects would have in-service dates for 2014 and beyond. If we are eventually successful in contracting for these new loads, the capital requirements could be substantial and would be incremental to our backlog of contracted organic growth projects. Although we pursue the development of these potential projects from time to time, there can be no assurance that we will be successful in negotiating the definitive binding contracts necessary for such projects to be included in our backlog of contracted organic growth projects.
For a further discussion of the capital requirements of us and our unconsolidated affiliates, see Liquidity and Capital Resources.
Our management uses earnings before interest expense and income taxes (EBIT) as a measure to assess the operating results and effectiveness of our businesses, which consists of consolidated operations as well as investments in unconsolidated affiliates. We believe EBIT is useful to our investors to provide them with the same measure used by El Paso to evaluate our performance. We define EBIT as net income adjusted for items such as (i) interest and debt expense, net, (ii) affiliated interest income, net (iii) income taxes and (iv) net income attributable to noncontrolling interests so that investors may evaluate our operating results without regard to our financing methods or capital structure. EBIT may not be comparable to measures used by other companies. Additionally, EBIT should be considered in conjunction with net income, income before income taxes and other performance measures such as operating income or operating cash flows. Below is a reconciliation of our EBIT to net income, our throughput volumes and an analysis and discussion of our results for the quarters and nine months ended September 30, 2009 compared to the same periods in 2008.
Quarters Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(In millions, except for volumes)
Operating revenues $ 128.8 $ 103.3 $ 386.5 $ 331.7
Operating expenses (61.8 ) (60.0 ) (182.2 ) (174.3 )
Operating income 67.0 43.3 204.3 157.4
Earnings from unconsolidated affiliates 11.9 4.8 37.0 20.0
Other income, net 0.4 3.4 4.7 6.6
EBIT before adjustment for
noncontrolling interests. 79.3 51.5 246.0 184.0
Net income attributable to
noncontrolling interests (13.7 ) (10.7 ) (44.7 ) (42.5 )
EBIT 65.6 40.8 201.3 141.5
Interest and debt expense, net (19.4 ) (12.1 ) (53.9 ) (41.9 )
Affiliated interest income, net 0.4 4.5 1.5 20.5
Net income attributable to El Paso
Pipeline Partners, L.P. 46.6 33.2 148.9 120.1
Net income attributable to
noncontrolling interests 13.7 10.7 44.7 42.5
Net income $ 60.3 $ 43.9 $ 193.6 $ 162.6
Throughput volumes (BBtu/d) 4,610 4,542 4,824 4,466
Quarters Ended Nine Months Ended
September 30, 2009 September 30, 2008
EBIT EBIT
Revenue Expense Other Impact Revenue Expense Other Impact
Favorable/(Unfavorable)
(In millions)
Expansions $ 26.4 $ (5.0 ) $ (0.9 ) $ 20.5 $ 64.5 $ (14.6 ) $ (0.6 ) $ 49.3
Operational gas,
revaluations and
processing
revenues 2.0 (2.7 ) - (0.7 ) (8.3 ) 6.5 - (1.8 )
Operating and
general and
administrative
expenses - 5.4 - 5.4 - 3.0 - 3.0
Equity earnings
from SNG - - 6.7 6.7 - - 16.6 16.6
Net income
attributable to
noncontrolling
interests - - (3.0 ) (3.0 ) - - (2.2 ) (2.2 )
Other(1) (2.9 ) 0.5 (1.7 ) (4.1 ) (1.4 ) (2.8 ) (0.9 ) (5.1 )
Total impact on
EBIT $ 25.5 $ (1.8 ) $ 1.1 $ 24.8 $ 54.8 $ (7.9 ) $ 12.9 $ 59.8
____________
|
Expansions. We benefited from increased EBIT from our expansion projects during the quarter and nine months ended September 30, 2009 when compared to the same periods in 2008 as follows:
Quarters Ended Nine Months Ended
September 30, 2009 September 30, 2009
(In millions)
CIG
High Plains pipeline $ 7.5 $ 22.8
Totem Gas Storage 6.4 9.3
Other 1.7 4.4
WIC
Medicine Bow lateral 2.6 7.1
Piceance lateral 1.7 4.7
Other 0.6 1.0
Total impact on EBIT $ 20.5 $ 49.3
|
Operational Gas, Revaluations and Processing Revenues. Our EBIT for operational gas, revaluations, and processing revenues was lower during the quarter and nine months ended September 30, 2009 compared with the same periods in 2008. Processing revenues were $2.0 million higher for the quarter ended September 30, 2009 compared with the same period in 2008 primarily due to higher volumes of natural gas liquids processed. Processing revenues were $8.3 million lower for the nine months ended September 30, 2009, compared with the same period in 2008, primarily due to an unfavorable price variance for natural gas liquids. This impact, however, was largely offset by favorable prices for gas consumed in processing these liquids compared with the same periods in 2008.
During the first quarter of 2008, the FERC issued an order approving a fuel and related gas cost recovery mechanism for CIG which was designed to recover all cost impacts, or flow through to shippers any revenue impacts, of all fuel imbalance revaluations and related gas balance items. For the quarter and nine months ended September 2008, we recorded cost and revenue tracker adjustments resulting from this order and a similar order received in September 2008. Effective April 2008, WIC implemented a similar fuel and related gas cost recovery mechanism, subject to the outcome of a FERC proceeding. The implementation of these mechanisms was protested by a limited number of shippers. On July 31, 2009 and October 1, 2009, the FERC issued orders to CIG and WIC, respectively, directing us to remove the cost and revenue components from our fuel recovery mechanisms. Due to these orders, our future earnings may be impacted by both positive and negative fluctuations in gas prices related to fuel imbalance revaluations, their settlement, and other gas balance related items. We continue to explore options to minimize the price volatility associated with these operational activities. For a further discussion of CIG and WIC fuel recovery mechanisms, see Item 1, Financial Statements, Note 7.
Operating and General and Administrative Expenses During the quarter and nine months ended September 30, 2009, our operating and general and administrative expenses decreased primarily as a result of lower repair and maintenance expenses.
Equity earnings from SNG. We recorded equity earnings from SNG of $11.2 million and $4.5 million for the quarters ended September 30, 2009 and 2008 and $35.7 million and $19.1 million for the nine months ended September 30, 2009 and 2008. Our equity earnings increased primarily due to the acquisition of an additional 15 percent general partner interest in SNG from El Paso on September 30, 2008, partially offset by proceeds received by SNG from the Calpine bankruptcy settlement in 2008.
In March 2009, SNG filed a rate case with the FERC as permitted under the settlement of its previous rate case. The filing proposed an increase in SNG's base tariff rates. In April 2009, the FERC issued an order accepting the proposed rates effective September 1, 2009, subject to refund and the outcome of a hearing. On October 5, 2009, SNG filed with the FERC a settlement of the rate case. The settlement resolved all issues set for hearing and was supported by the FERC Staff and not opposed by the participants associated with the rate case. On October 20, 2009, the Administrative Law Judge assigned to the case certified that the settlement was uncontested. Under the terms of the settlement, SNG (i) increased its base tariff rates, (ii) implemented a volume tracker for gas used in operations, (iii) agreed to file its next general rate case to be effective no earlier than September 1, 2012 and no later than September 1, 2013, and (iv) the vast majority of SNG's firm transportation contracts expiring prior to September 1, 2013 will be extended until August 31, 2013. SNG expects the FERC to approve the settlement early in 2010.
Net Income Attributable to Noncontrolling Interests. We have reflected El Paso's 42 percent interest in CIG as noncontrolling interest in our financial statements in all periods presented. During the quarter and nine months ended September 30, 2009, our net income attributable to noncontrolling interests increased as compared to the same period in 2008 due to an increase in net income primarily related to additional revenue generated by CIG from its High Plains pipeline and Totem Gas Storage expansion projects.
Interest and Debt Expense
Interest and debt expense for the quarter and nine months ended September 30, 2009, was $7.3 million and $12.0 million higher than the same periods in 2008 primarily due to the issuance of $185.0 million of debt to partially fund the acquisition of additional interests in CIG and SNG in September 2008, an increase in average balances outstanding under our credit facility, and the financing obligation to WYCO (see Item 1, Financial Statements, Note 5). These increases were partially offset by lower average interest rates on our credit facility borrowings and by CIG's repurchase of $100 million of their senior notes in June 2008. The following table shows the average balance outstanding and the average interest rates under our credit facility for the quarters and nine months ended September 30:
Quarters Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(In millions, except for rates)
Average credit facility balance
outstanding $ 557 $ 510 $ 571 $ 494
Average interest rate on credit facility
borrowings 0.7 % 3.0 % 0.8 % 3.6 %
|
Affiliated Interest Income, Net
Affiliated interest income, net for the quarter and nine months ended September
30, 2009, was $4.1 million and $19.0 million lower than the same periods in 2008
primarily due to lower balances on CIG's demand note receivable from El Paso and
lower average short-term interest rates. The following table shows the average
demand note receivable due from El Paso and the average short-term interest
rates for the quarters and nine months ended September 30:
Quarters Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(In millions, except for rates)
Average demand note receivable due from
El Paso $ 147 $ 502 $ 148 $ 624
Average short-term interest rate 1.6 % 3.7 % 1.8 % 4.5 %
|
We use the non-GAAP financial measure "Distributable Cash Flow" as it provides important information relating our financial operating performance to our cash distribution capability. Additionally, we use Distributable Cash Flow in setting forward expectations and in communications with the board of directors of our general partner. We define Distributable Cash Flow as Adjusted EBITDA less cash interest expense, maintenance capital expenditures, and other income and expenses, net, which primarily includes a non-cash allowance for equity funds used during construction ("AFUDC equity") and other non-cash items. Adjusted EBITDA, which is also a non-GAAP financial measure, is defined as net income plus, (i) depreciation and amortization expense, (ii) interest and debt expense, net of interest income, (iii) the partnership's share of distributions declared by unconsolidated affiliates for the applicable period and (iv) net income attributable to noncontrolling interests, less (i) affiliated interest income, net of affiliated interest expense, (ii) earnings from unconsolidated affiliates, and (iii) CIG's declared distributions to El Paso.
We believe that the non-GAAP financial measures described above are useful to investors because these measures are used by many companies in the industry as measures of operating and financial performance and are commonly employed by financial analysts and others to evaluate the operating and financial performance of the partnership and to compare it with the performance of other publicly traded partnerships within the industry.
Neither Distributable Cash Flow nor Adjusted EBITDA should be considered an alternative to net income, earnings per unit, operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with GAAP. These non-GAAP measures both exclude some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, Distributable Cash Flow and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, these non-GAAP measures should not be viewed as indicative of the actual amount of cash that we have available for distributions or that we plan to distribute for a given period, nor do they equate to Available Cash as defined in our partnership agreement.
Our distributable cash flow was $170.8 million and $107.6 million for the nine months ended September 30, 2009 and 2008. The increase in distributable cash flow in 2009 was due primarily to our increased ownership interest in CIG and SNG as well as higher expansion revenues. The tables below provide our reconciliations of Distributable Cash Flow and Adjusted EBITDA for the nine months ended September 30, 2009 compared with the same period in 2008:
Reconciliation of Distributable Cash Flow to Net Income.
2009 2008
(In millions)
Net income $ 193.6 $ 162.6
Net income attributable to noncontrolling interests (44.7 ) (42.5 )
Net income attributable to El Paso Pipeline Partners, L.P. 148.9 120.1
Add: Interest and debt expense, net 53.9 41.9
Less: Affiliated interest income, net (1.5 ) (20.5 )
EBIT (1) 201.3 141.5
Add:
Depreciation and amortization 49.8 43.7
Distributions declared by unconsolidated affiliates 37.2 24.1
Net income attributable to noncontrolling interests 44.7 42.5
Less:
Earnings from unconsolidated affiliates (37.0 ) (20.0 )
CIG declared distributions to El Paso (2) (49.6 ) (75.5 )
Adjusted EBITDA 246.4 156.3
Less:
Cash interest expense, net (52.0 ) (21.1 )
Maintenance capital expenditures (16.7 ) (19.0 )
Other, net (3) (6.9 ) (8.6 )
Distributable Cash Flow $ 170.8 $ 107.6
____________________
|
Reconciliation of Distributable Cash Flow to Net Cash Provided by Operating
Activities.
2009 2008
(In millions)
Net cash provided by operating activities $ 258.3 $ 173.6
Interest and debt expense, net 53.9 41.9
Affiliated interest income, net (1.5 ) (20.5 )
CIG declared distributions to El Paso (1) (49.6 ) (75.5 )
Changes in working capital and other (2) (14.7 ) 36.8
Adjusted EBITDA 246.4 156.3
Less:
Cash interest expense, net (52.0 ) (21.1 )
Maintenance capital expenditures (16.7 ) (19.0 )
Other, net (2) (6.9 ) (8.6 )
Distributable Cash Flow $ 170.8 $ 107.6
____________________
|
(2) Includes certain non-cash items such as AFUDC equity and other items.
Our ability to finance our operations, including our ability to make cash distributions, fund capital expenditures, make acquisitions and satisfy any indebtedness obligations, will depend on our ability to generate cash in the future. Our ability to generate cash is subject to a number of factors, some of which are beyond our control as discussed below.
Our sources of liquidity include cash generated from our operations, quarterly cash distributions received from SNG, notes receivable from El Paso and available borrowing capacity under our $750 million revolving credit facility. This facility is expandable to $1.25 billion for certain expansion projects and acquisitions and is further described in our 2008 Annual Report on Form 10-K. As of September 30, 2009, our remaining availability under the credit facility is approximately $200 million. We may also generate additional sources of cash through future issuances of partnership units and/or future debt offerings. At September 30, 2009, we had notes receivable from El Paso of approximately $111.5 million of which $90.7 million was classified as current based on the net amount we anticipate using in the next twelve months considering available cash sources and needs.
Volatility in the financial markets, the energy industry and the global economy will likely continue through the remainder of 2009 and beyond. Although recent financial market conditions have shown signs of improvement, continued volatility in the financial markets could impact our longer-term access to capital for future growth projects as well as the cost of such capital. Prolonged restricted access to the financial markets could impact our ability to grow our distributable cash flow through acquisitions. However, we believe that cash flows from operating activities, including the cash distributions received from SNG, availability under our credit facility and our note receivables from El Paso will be adequate to meet our operating needs, our anticipated cash distributions to our partners and our planned expansion opportunities for the foreseeable future. For a more detailed discussion of the liquidity sources and capital needs of our unconsolidated affiliates, see Unconsolidated Affiliates below. For a more detailed discussion of risk factors related to our operations and our ability to access the financial markets, refer to our 2008 Annual Report on Form 10-K.
Overview of Cash Flow Activities. Our cash flows for the nine months ended September 30, 2009 are summarized as follows:
2009
(In millions)
Cash Flow from Operations
Net income $ 193.6
Non-cash income adjustments 39.8
Change in other assets and liabilities 24.9
Total cash flow from operations $ 258.3
Other Cash Inflows
Investing activities
Net change in notes receivable from affiliates $ 87.5
Other 2.7
Financing activities
Net proceeds from issuance of common and general partner units 216.4
Total other cash inflows $ 306.6
Cash Outflows
Investing activities
. . .
|
|
|