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Kinder Morgan Third-Quarter Profit Rises on Gas Pipelines

Kinder Morgan Energy Partners LP, the biggest U.S. pipeline operator, said third-quarter profit rose on increased natural gas transportation as utilities burned more of the fuel in power plants.

Net income increased 76 percent to $379 million from $215 million a year ago, Houston-based Kinder Morgan said in a statement today. After payments to Kinder Morgan Inc., its parent company, Kinder Morgan recorded a loss of 6 cents a unit, compared with a loss of 25 cents a unit a year earlier.

Sales increased 11 percent during the quarter to $2.34 billion from $2.11 billion, in part because of increased volumes at Kinder Morgan’s expanded gas pipeline unit. Gas-fired generation accounted for 32 percent of U.S. power supply in April, for the first time tying coal-fired output, according to the Energy Information Administration.

“There’s just been a lot of coal-to-gas conversions,” Bernard Colson, an analyst with Global Hunter Securities LLC in Kansas City, Missouri, said in an interview today. Utilities are converting some power plants to take advantage of fuel prices that reached a 10-year low in New York in April.

Higher demand from utilities served by the Tennessee Gas Pipeline helped increase Kinder’s gas unit profit to $383 million from $247 million a year earlier, according to the statement. Kinder Morgan Energy bought the Tennessee Gas Pipeline and half of the El Paso Natural Gas system from its parent during the quarter, after Kinder Morgan Inc. bought El Paso in May for $22.8 billion.

Recovering Prices

The rapid increase in gas-pipeline performance may slow, as recovering prices make the fuel less attractive for power generation, said Colson. Gas futures prices on the New York Mercantile Exchange have climbed 16 percent this year, settling today at $3.47 per million British thermal units.

Excluding one-time costs, the company earned 57 cents per partnership unit, a penny below the average of 13 analysts’ estimates compiled by Bloomberg.

Distributable cash flow, a measure of the company’s ability to make payments to its unitholders, rose to $455 million from $394.1 million a year ago. The company increased its distribution to unit holders by 9 percent to $1.26 a unit.

The earnings were released after the close of regular trading on U.S. markets. Kinder Morgan fell 14 cents to $85.85 at 6:40 p.m. in New York. The units have five buy and 15 hold recommendations from analysts.

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