金德摩根 (KMI) 2008 Q1 法說會逐字稿

Welcome. I would like to thank you all for standing by and inform you that you are in a listen-only mode during today's conference until the question-and-answer session. This call is also being recorded and if you have any objections, you may disconnect at this time. I'd like to turn the call to Rich Kinder. Sir, you may begin.

Okay. Thank you, Ed and welcome to the Kinder Morgan Energy Partners first quarter analyst call. As usual, we'll be making statements within the meaning of Securities Act of 1933 and the Securities Exchange Act of 1934. Also, as usual, I'll give an overview, an update of the first quarter and talk about strategic developments during the quarter. Then Park Shaper, our President, will go through the financial results in detail. And then, in a bit of departure from what we normally do, Steve Kean, our Executive Vice President and Chief Operating Officer, is going to give you an update on how we're managing our rather large portfolio of expansion projects.

Let me just start out by talking about the quarter itself. We had an exceptionally strong first quarter. In fact, I guess in terms of financial performance, it's the best quarter we've ever had. We announced today an increase in our quarterly distribution per unit to $0.96. That's up from --- or $3.84 annualized, which is up from $0.92 in the prior quarter. Compared to the first quarter of 2007, that's a 16% increase.

Cash flow before certain items was a little over $280 million. That's up 49% from last year. Probably the most meaningful number is that the distributable cash flow per unit was $1.12. That's 37% above the $0.82 per unit for the comparable period of last year. So, we earned $1.12 per unit. We're distributing $0.96 per unit for the first quarter.

Our segment earnings before DD&A which certainly drive the whole bus, recent all-time quarterly high of $685 million. That's up $182 million or 36% over the results from the first quarter of 2007.

Now the drivers of this performance were our CO2, natural gas pipeline and terminals business segments. I think it's fair to say that in the first quarter, we began to derive some significant benefit from some of the more than $7 billion in CapEx projects that we have undertaken, most importantly the Rockies Express Project. We continue to make pretty good progress on those projects that will drive growth, certainly not just in 2008 but 2009 and beyond.

There's no denying that this is a challenging environment. Construction and material costs have increased, but I think we get pretty good marks for managing the process. For example, we went through the details of our capital expenditure budget with you at the Analyst Conference in January and since that time, we've continued to constantly update the numbers in our estimates. We're only up a little over 2% from the estimated expenditures detailed at that January investor conference.

Equally importantly probably, we believe we continue to remain on track to bring virtually all of those projects into service pretty close to on schedule. Now, Steve Kean is going to talk in more detail about how we're managing this process, because I think it's a legitimate question as to how any MLP today that's growing is managing its estimating and cost side of its construction projects. We're going to spend a little time with you on that.

Now, let me sort of go through the first quarter on a segment-by-segment basis. Our Products Pipeline group had first quarter earnings of $141 million. That's earnings before DD&A of course. That's a little less than last year, but that's due to the sale of the North System which closed in October of 2007. If you exclude the North System, the Products Pipelines group was up 5.5% compared in the first quarter of 2007. I had good growth in the Pacific Operations, Southeast Terminals and Central Florida Pipeline.

On the negative side, our Cochin Pipeline underperformed our expectations during the quarter and that was due to low propane volumes. We think we've resolved that moving forward because we've implemented a new shipper provided line-fill program, but it was below our expectation in the first quarter.

If you look at the overall volumes on the Refined Products Pipeline, while the revenues were up 3.5%, volumes across the whole system were actually down 5.4%. If you exclude Plantation, which we usually do because there's a lot of moving parts there involving competition and re-constituted different specs on some of the gasoline being shipped into the Southeast, if you exclude that, probably a more realistic number is that the products volumes were down 1.9% for the quarter.

Now to put some perspective on that, the EIA current estimate for the first quarter nationwide is a negative 0.7%. However, EIA has already revised January downward and has indicated that they will likely have a downward revision in February. So I expect that the EIA number will end up somewhat worse or less throughput than the present number of negative 0.7%, but that's the number we have right now.

As I said, revenues held up well. Even on Plantation while the volumes were down, revenues were up almost 3.5% compared to the first quarter of 2007.

Moving to the Natural Gas Pipelines business, they had earnings before DD&A of $188 million, up 39% from the first quarter of 2007. Once again, our Texas Intrastate pipelines were the major contributors to that growth, up handsomely from 2007 and well above their plan for 2008. We also, of course, had contributions from RexWest and strong performance from TransColorado. The drivers within the Texas Intrastates were increased transportation revenue from long-term contracts. We're getting a lot of value out of our large storage facilities and we got improved processing volumes and margins.

Now while we benefited from RexWest, we didn't get the full benefit that we would have hoped for in the quarter because as you'll recall, we brought most of RexWest on on January 12, but we're just now this month bringing on the last part of RexWest which will take the capacity up modestly from 1.4 Bcf to 1.5 Bcf. The reason for the delay is we've experienced what's almost a Noah's flood type wet fall and winter in that portion of the Upper Midwest, but we are bringing that online within this month, within the next few days. But it did have a slight negative on RexWest's contribution, although it was still a very nice uptick from a year ago, obviously.

Transport volumes in our Natural Gas segment were up about 22% compared to the first quarter of '07. That is primarily as a result of the startup of RexWest. We're now moving about a little over 1.2 billion cubic feet a day on that RexWest system. So we are moving a lot of gas physically since we started up earlier this quarter.

Now moving to our CO2 business, this was a real star this time. Delivered earnings of right at $200 million up from about $125 million a year ago. The real drivers there were stronger than expected oil production at the Yates field, production in line with our budgeted SACROC, higher hedge prices on crude production. Then in addition, we had CO2 delivery volumes that were up around 9% due to the January startup of our new source field at what we call Doe Canyon in southwest Colorado.

Let me give you some of the production numbers, because I think they are important and we watch them very carefully, obviously. Starting with Yates, the average oil production at Yates increased to 28,600 barrels per day. That's a record since we invested in Yates and it's up 9% compared to the first quarter of 2007.

At SACROC for the quarter, our average oil production was 27,300 barrels per day. While the volumes were down from the first quarter a year ago, they were up 8% over the fourth quarter of 2007. Several of the NGL sales volumes driven largely by our activity at SACROC declined by 3% versus the first quarter of '07, but were up 5% over the fourth quarter. I think the message here is that the SACROC volumes sequentially have moved upward fairly nicely. That comes from what we mentioned in the last call that we were getting back on track in the fourth quarter to start adding a target of five patterns per month. We have now been making that target for the last four or five months, and that is having results in our production at SACROC.

The other thing I would add is that when we talk about price help, the biggest help of course is the higher hedge prices as we had old lower priced hedges rolling off, new higher price hedges coming on. But also, we have a number of our CO2 sales contracts that have minimums but also have upside from higher oil prices, and we did benefit from that in the first quarter also.

Moving to our fourth business segment, which is our Terminals business, we had a nice first quarter there. Earnings before DD&A were about $126 million, up 27% from a year ago. The growth was almost equally split between organic increases and acquisitions, and that's because as you may recall, we had a number of internal expansions that were completed in the first quarter.

We've detailed a lot of these projects in our written release. I won't go through all off them, but we also had acquisitions such as Vancouver Wharves in May of 2007 and our Marine Terminals acquisition in September of 2007. We added about seven million additional barrels. If you compare 2008 first quarter and the first quarter of '07, we have seven million additional barrels of liquids tankage capacity available than we did last year. That drove a lot higher liquids throughput through the system. If you compare the two quarters, our liquids throughput -- that's gasoline, jet fuel and diesel and associated products -- was up 17.2% versus the first quarter a year ago. Particularly noteworthy for the increases, our petroleum products rose by 31% and the volumes of ethanol we handled rose by 32%. So we had nice growth in our Terminals segment.

Our fifth and by far the smallest segment of our business operations is the TransMountain Pipeline, which KMP acquired in a dropdown on April 30 of last year. We had first quarter segment earnings there before DD&A of just a little over $30 million, somewhat below our budget primarily due to foreign exchange rate and higher income taxes. Those income taxes to a large extent will come back to us later in the year.

So that's sort of a segment-by-segment viewpoint. To sort of drop back and look at the forest instead of the trees for a minute, we previously announced that we expected to declare cash distributions of $4.02 per unit for 2008. Given the strength of our first quarter, we now expect to meet or exceed that target for 2008.

Now before I turn it over to Park, let me bring you up-to-date on a few of our most significant capital projects which are helping drive our strong growth, both now and in the future. And a number of other projects, beyond what I will talk about, are also detailed in our written release. Let me start, again, go through the segments.

In our Products Pipeline segment, we continue to advance our ethanol handling capacity. We've added and brought online capacity at both our Tampa and Orlando, Florida terminals. We've begun preparatory work to start making the modifications to actually batch ethanol in our pipeline that runs between Tampa and Orlando, and we hope to do that later this year. We've added ethanol facilities in five terminals in our Southeast Terminals group, and in two projects in our Products Pipeline group, in the state of Oregon.

We continue to progress on our major CALNEV expansion during the quarter. We had three public hearings on the environmental permitting of this project. We continue to move forward with the project that we expect to cost in the neighborhood of $425 million. We would expect that expansion to come online sometime in early 2011.

Another project that we have not announced until today, we have within the last few days reached an agreement with the Defense Energy Support Center, regarding nearly $50 million of capital expenditures or capital projects in California. These will involve the construction and operation of pipeline, storage and filtration facilities, both at our Carson Terminal in the Los Angeles area and also at the Travis Air Force Base in Northern California. Those are the major expansion projects that are underway at our Products Pipeline group.

The bulk of this $7 billion plus of expenditures or projects actually reside in our Natural Gas Pipeline group. The biggest by far is the Rex Project. I talked about RexWest earlier and that we began interim service there on January 12. Turning to RexEast, which is the section of the pipeline that runs from the terminus of RexWest in eastern Missouri, Audrain County, Missouri, to the Ohio/Pennsylvania border, we had an important development there last week when the FERC issued its final environmental approval for the project, RexEast. So we expect to begin construction in June. We have a completion date of that pipeline by year-end. We'll still be adding some compression early next year, so that the pipeline with its ultimate capacity of 1.8 billion cubic feet a day should be fully operational by June of 2009. Again, as we've said on many occasions, we have binding firm commitments from creditworthy shippers for all of that 1.8 Bcf a day.

On a project that's related to Rex and has gotten quite a bit of play, I guess, in some of the trade press, so I'll just mention it here. That's our Northeast Express Project. That's a project that's essentially an extension of Rex. We would actually increase the capacity by compression from Lebanon, Ohio on to Clarington, the present end point of Rex. Then we would extend the pipeline to Princeton, New Jersey and then on up to Linden, just across from New York City, Linden, New Jersey.

It's a major project that we're working on. We had a very promising, non-binding open season. We're now working with a number of shippers to see if we get sufficient binding commitments to justify the project. Obviously, we'll also need the appropriate regulatory approvals. Assuming we get those, this is a $2 plus billion project that could begin service in late 2010.

But I want to emphasize as you know, our strategy is not to undertake these projects unless we have firm commitments from shippers. So far, it looks promising but there are no guarantees until you've actually signed the shippers up, and we won't do it unless we get commitments.

Another major natural gas project we have is the Mid-Continent Express Pipeline. That's a $1.3 billion project which is drawing production out of the Barnett Shale. It actually starts in southeast Oklahoma, crosses northeast Texas, northern Louisiana, and central Mississippi, ending up at the Transco Pipeline near Butler, Louisiana. Again, it's a $1.3 billion project. It has initial capacity of 1.4 billion cubic feet per day. I'm glad to report that we now have over 1.3 billion cubic feet of that fully subscribed under long-term binding commitments from creditworthy shippers. We expect to fill the rest of that 1.4 Bcf within the next couple of weeks. We're hopeful that we will be able to expand that project on a going-forward basis. Construction on the project which is a 50/50 joint venture between ourselves and Energy Transfer Partners is expected to begin this summer.

The final large project we have in our Natural Gas Pipeline group is our Kinder Morgan Louisiana Pipeline. That's a roughly $500 million project that runs about 130 miles of 42-inch pipe from the Cheniere Sabine Pass LNG terminal in Louisiana. Total capacity of 3.2 Bcf a day, all subscribed by Chevron and Total. We expect that to be operational no later than January 1, 2009, about three months sooner than initially projected and that project is obviously already under construction.

Turning to the Terminals group, we had a number of significant projects completed during the first quarter and actually within the last couple of weeks. Construction was completed on our big North 40 terminal near Edmonton, Alberta. We began service in the first week of April. That was a project that cost a little over $150 million Canadian.

It consists of nine storage tanks with capacity of about 2,150,000 barrels, all of which is subscribed by shippers under long-term contracts. Then we also completed an additional 350 million in terminal projects during the last six months. I kind of referred to that earlier when I talked about how much more capacity we have. But just in these six months, we added 650,000 barrels of storage capacity at our Galena Park facility here on the Houston ship channel, 1.4 million barrels of new capacity at Perth Amboy in New York Harbor, and then 95,000 barrels of ethanol storage at Argo, Illinois, together with numerous other smaller projects. So we materially added to our handling capacity in our Terminals operation.

Then finally, our other major construction project in our TransMountain Pipeline project, construction continues on the approximately $485 million Anchor Loop Project. That will increase capacity on TransMountain from about 260,000 barrels a day to 300,000 barrels a day. The Jasper Spread, which will add 25,000 barrels per day, is now completed. It received its certificate either yesterday or today to be in service on May 1. The Mount Robson Spread, the last part of the project, is still expected to be completed by the end of November.

So that's where we stand. We've got a lot of projects. We're moving along. We had a very strong first quarter, but given all of these projects and intrinsic growth, we expect the rest of the year to be very strong for us. With that, I'll turn it over to Park Shaper.

Right. Thanks, Rich. I'm going to go through the financial pages that are attached to the press release. Starting with the first financial page, and again should --- hopefully all of you have it in front of you. It's behind the text in the press release. It's at the base of the income statement, and really I'm just going to focus on the bottom line here which shows the declared distribution, as Rich mentioned, the $0.96 versus $0.83 a year ago. That's an increase of 16% from where we were a year ago, and actually, just slightly ahead of where we thought we would be in order to hit our budgeted distribution for the year which is $4.02.

With that, let's turn to the second financial page and talk about the cash that we generated to support that $0.96 distribution.

Now starting in the middle of the page, right above the weighted average units outstanding, you'll see Bcf per unit before certain items, $1.12 up from $0.815 a year ago, up about $0.30 a unit or 37% growth. Of course, we've issued a number of units in the last year, including in the last quarter. That's in the face of increased units outstanding which you can see right below that, about 20 million additional average units outstanding, just demonstrating that we're funding our investments conservatively with equity. That will show up on the balance sheet as well, but they are earning well in excess of our cost of capital which is generating tremendous growth. Again, [DCF] per unit is up to $1.12, up 37% from where it was a year ago. $1.12 clearly covers the $0.96 per unit distribution. In fact, clears it with a tremendous amount of excess cash. That excess for the quarter is about $40 million.

Some of you may remember from January when we went through the budget, our budget called for excess for the year of about $10 million. We are well above that in the first quarter and we expect that we'll actually end the year well above that excess cash flow of $10 million. We expect we'll have greater excess cash flow than that number. Again truthfully, that's similar to what we discussed in January. It's similar to what we've seen in prior years, that we have exceeded our budget on that excess cash number.

Now that being said and we talked about this a year ago as well, when we look forward to the quarters, we do have some seasonality in our business. Generally the first and fourth quarters are stronger than the second and third quarters. It could be that, and truthfully, when we look at the second quarter right now, we don't quite cover our distribution for the quarter. Now, we certainly do cumulatively, so if you look for the first half, we more than cover our distribution for the first half.

I just want to give you a heads up, it may turn out that way. Now truthfully, we said the exact same thing if you go back a year ago. We ended up covering the distribution in the second quarter and the third quarter. We'll see how it plays out, but we're just telling you, giving you warning as we look at it today, that we may not have coverage for the second quarter distribution, although we will clearly cover it on a cumulative basis for the first half of the year.

Looking at where we're generating that DCF per unit of $1.12, clearly most of it is coming from earnings before DD&A, so coming from the actual earnings that we're generating. But let me talk about two other pieces of it first. Just moving up from that $1.12, you'll see DCF before certain items of $280.5 million, up from about $189 million --- about $92 million increase in terms of distributable cash flow or about 49% growth year-over-year. It is tremendous growth in the quarter.

Above that, sustaining capital expenditures were about $30 million in the quarter, up from about $27 million in the quarter a year ago. Now the $30 million is actually a little bit below our budget, where we expected to be in the first quarter of 2008, but we do think that our full-year sustaining CapEx will be on our budget of about $196 million. We still think we'll come in at about that level for the year.

Book cash taxes, again this is the difference between book taxes and cash taxes, you can see we're at a negative for the quarter of almost $17 million. A year ago they were a positive, meaning cash taxes were less than book taxes of about $5.5 million. This is actually a hurt, relative to our budget. We did expect that cash taxes would exceed book taxes in the first quarter of 2008 by about $5.5 million. Clearly, we've gone over that by over $11 million.

It's largely a timing issue related to some dock premiums on the TransMountain system. We pay taxes on those dock premiums, but in essence we get those cash taxes back, although we don't expect that we'll get them back until 2009. We think that this incremental cash tax relative to our budget will persist this year, but then return, flow back to us in 2009.

Now overall, you may recall, if you look back to the January conference materials, we expected that our cash taxes would be less than our book taxes by a modest amount, about $4 million. We now project that to be a little bit less than that, and in truth, what we project is that cash taxes are going to be just a little bit higher than book taxes for the year.

So again, those are two other components that go into this DCF. Relative to budget, we got a little bit of pick-up on sustaining CapEx and a little bit of hurt on the book cash taxes but again, most of the growth in DCF is coming from the segments. Now Rich touched on these, but if we go up to the top, you'll see Product Pipelines as Rich mentioned, $141 million of earnings before DD&A, a little bit below where we were last year. But if you adjust for [NOR] system which was in there last year, it's not in there this year, then we are ahead of where we were last year by almost 5.5%.

Now it was a little bit below our budget, driven by the impacts of Cochin and a little bit at Pacific. We do expect products will come in a little bit under its budget for the year, largely because those Cochin volumes and revenues won't be recovered this year. We do believe the line fill program will have a significant impact on next winter season, although we'll feel most of that in the first quarter of 2009.

Natural Gas Pipeline, again as Rich mentioned, just a tremendous quarter, up $52.5 million from where they were a year ago. A little bit ahead of our plan, driven by the Texas Intrastate which were up $30 million from where they were a year ago and a little bit ahead of plan, and Rockies Express which is up $17 million from where it was a year ago, although it's a little bit under as planned. Again, as Rich mentioned, we didn't have it in service for as much of the quarter, we didn't have it fully in service for any of the quarter. We had expected that it would be fully in service for some of the quarter in our budget.

CO2, $200 million of earnings before DD&A for the quarter, up almost $75 million from where it was a year ago. Again, volumes at SACROC, right on our plan. Volumes at Yates, above our plan and very strong there. Then we got some help from price. Now, some of that we expected. We had factored in the increase in our hedges, but the unhedged price was even higher than what we had in our budget. That helps us on unhedged crude oil. It helps us on our NGLs. It helps on our CO2 prices.

On the terminal side, $126 million, up from about $99 million a year ago, so very nice growth at $27 million for the quarter. A little bit under plan on the terminal side. Now we're getting nice growth from both acquisitions, and the main acquisitions of the Marine Terminals acquisition, which was completed in September of last year, and the Vancouver Wharves acquisition, which was completed in May of last year. Then as Rich went through a whole slew of expansion capital projects that have come online, especially on the liquids terminal side, but also on the coal handling side, that have driven that tremendous growth. Terminals, we think, will be very close to its budget, maybe slightly under it for the year.

TransMountain, you'll see an increase of $30 million versus last year. That's because KMP did not own TransMountain in the first quarter of last year. The acquisition was effective at the end of April. Now there are some accounting complications to that, which we talked about last year and I'll remind you of in a minute.

But first, TransMountain was a little bit under its plan, driven again by the two items that Rich mentioned. Foreign exchange went against us a little bit and then taxes were a little bit higher which we believe will be a timing issue.

Now our total segment earnings before DD&A, $685 million, up from $503 million a year ago. Basically on plan, dead on its plan for the quarter, although we expect for the year that our segment will generate greater than planned earnings before DD&A.

With that, let me drop down and you can see the changes in DD&A there. Then you can see the segment earnings contributions which are after DD&A, we don't believe it's meaningful as the numbers before DD&A. I'm going to drop all the way down to the General and Administrative cost. You'll see $75 million up from about $62 million. That's about a $13.5 million increase. It's a little bit unfavorable to plan. First relative to plan, legal was a little bit over, payroll taxes were over but that's largely timing. TransMountain was a little bit over. Some of that is just increased insurance costs which we're going to see all year, and then some other timing on capitalized overhead. Versus last year, we were up $13.5 million. A huge portion of that is TransMountain. About $8 million of that is TransMountain and that's because we did not own it in the first quarter last year. Then you have benefits costs which were up, some of which will be timing, some of which is a function of higher headcount.

Interest, you see at $97 million versus (technical difficulty). It's is up about $7 million. The increase is driven by a higher balance. We'll talk about, well, at least the investments that we made in the last quarter shortly. Of course then, all of the investments that we made in the last three quarters of 2007 would also drive that balance up from where it averaged in the first quarter of 2007.

Now rate is significantly lower than last year, and lower than our budget. What that means is that interest expense is actually favorable to our plan by about $10 million. Relative to budget, we're getting a nice pick up in interest expense. Certain items are really meaningless in the first quarter of 2008, but there is significant items in there for the first quarter of 2007. Let me just identify the big ones for you.

If you'll recall, because TransMountain was dropped down from KMI to KMP with the new accounting rules, we had to treat TransMountain as if KMP had owned it ever since KMI controlled it. Even though KMP did not economically benefit from TransMountain until that transaction closed at the end of April, so this was just an accounting issue. For that reason, for the last three quarters of 2007, we pulled out the portion of TransMountain that occurred before KMP purchased it. That's what you see on the first two lines of the certain items. TransMountain before drop down, those are the earnings from TransMountain in the first quarter of 2007. Then the goodwill impairment, did the goodwill impairment that KMI took in the first quarter of 2007.

But again, according to GAAP, we have to reflect that on KMP's books now. We're pulling it out as a certain item because it did not impact KMP.

The rest of the items are relatively small and relatively consistent between the two years. But again, that takes you down to your net income before certain items of $249 million, up from $219 million. Again, I think that's more meaningful to look at that before DD&A. You'll see the DD&A line down below there. That's the earnings.

The first page of the income statement is not overly meaningful, largely because of the certain items that are incorporated into 2007. Again, we went over those ad nauseam last year. I just touched on them briefly again this year. I don't think there's any reason to continue discussing them.

So with that, I'm going to go to the balance sheet. That's the last financial page accompanying the press release.

Cash and cash equivalents are basically unchanged. Other current assets, you'll see up about $250 million. Restricted deposits are up. Accounts receivable are up. Gas and storage is up, largely a function of an increase in gas prices. PP&E is up by about $450 million, largely a function of capital expenditures offset by depreciation. I'll talk a little bit more about the capital expenditures in a minute. Investments are up because of contribution to Rockies Express. I'll talk about that also in a minute when we reconcile the debt. Deferred charges and other assets are up about $118 million. That's mark-to-market of the hedges that go through the balance sheet.

Total assets about $16.3 billion, up about $1.1 billion from where we were at the beginning of the year. That's a function of the expansion CapEx plus the investment in Rockies Express.

Notes payable and current maturities of long-term debt, I'll talk about in a minute when we talk about the total debt. Your other current liabilities is up about $150 million. The mark-to-market, the hedges, the current portion flows through there. Accounts payable increased some. Then accrued interest came down a fair amount, just a function of timing on our interest payments. Long-term debt is up. Again, I'll talk about that in terms of total debt in a minute. Value of interest rate swaps goes up and that's just a function of the forward curve for interest rates. Hedges and other liabilities are up. That again, is a mark-to-market of the hedges. Minority interest, basically unchanged. Accumulated other comprehensive loss, again that is the mark-to-market of the hedges, causing that change. Other partners capital, you'll see is up almost $400 million, largely a function of equity offerings that happened during the quarter. I'll talk about that in a little bit more in a minute as well.

Then it takes you down, looking at total debt, $7.6 billion, up almost $600 million from where we were at the beginning of the year. Then again, I'll talk about that increase of $600 million in a second.

First, let's look at the strength of the balance sheet. You'll see that results in a debt to EBITDA ratio of about 3.4 times. That's a very strong balance sheet, considering this stability and the cash generation capability of our assets. But one other thing I'll point out, and I've talked about this in the past, this debt to EBITDA number is conservative because we use trailing 12-months EBITDA. We have a number of projects and acquisitions that have come on during the last 12 months. The debt associated with those expansion projects and those acquisitions is incorporated in this debt number. But clearly, if they've come on in the last 12 months, we don't have a full 12 months of EBITDA for them in this calculation. We've not pro formaed for those partial years.

So again, as we were just to stop right now and go forward a year or some period of time to pick up all of those events, you'd see an even stronger debt to EBITDA ratio than we show here.

With that, let me talk about the change in debt. Again, the change in debt for the quarter is about $582 million. Our expansion CapEx during the quarter totaled about $623 million. Then we had a contribution to Rockies Express of about $306 million, so we invested about $930 million during the quarter. Now that being said, we got back from MEP, Mid-Continent Express, a little over $60 million during the quarter. That's because we put a facility in place at that joint venture which --- and then borrowed under the facility which allowed us to recoup cash and allowed our partner to recoup cash that had been invested in that entity, so in [that] is a source of cash of about $60 million. We issued equity which generated about $384 million in cash during the quarter.

KMR distributions are an effective equity issuance as well, and so they generated cash of about $67 million during the quarter. Now we had an increase in margin deposits of about $99 million, so that's a use of cash of about $100 million. Then for working capital and other items, we had a use of cash of about $68 million.

Just to touch on that $68 million real quick, AR&AP was a use of cash of about $55 million. Other current assets and current liabilities largely accrued interest, I talked about that a minute ago, about the use of cash of about $100 million. Then we had some other offsets to that of about $80 million, just largely related to timing associated with CapEx and other cash items that came back the other way. Those netted again to about a $68 million use of cash for working capital and other items.

Now, I talked about $620 million of expansion CapEx. Let me give you some highlights on what that was. Products was about $39 million, finishing up the EPX Project and a couple of other projects. Natural Gas was about $180 million, most of that was at Kinder Morgan Louisiana Line, the new pipeline that's under construction. CO2 was about $142 million. That's continued expansion at SACROC, although a little bit at Southwest Colorado and at Yates as well. Terminals was about $118 million. The North 40 was a chunk of that. Then additional tanks here in Houston, in the ship channel at our Galena Park and Pasadena Terminals. Then TransMountain was about $145 million and most of that is the Anchor Loop Project.

The last thing I want to touch on is financing. We did have a very active quarter. We're quite pleased with this, because it was not an attractive quarter as far as the financial markets go. But the financial markets were absolutely open to us. I think we demonstrated once again that one, we're committed to financing these projects conservatively in any market and we are able to finance these projects conservatively in any market.

So let's go back over what we accomplished from a financing perspective in the quarter. As I said before, we issued $384 million of equity. There were two offerings in the quarter. One was a private placement of about $60 million, and the second was an offering of about $324 million. Now of course, that was on the heels of another equity issuance that we did in November in a very similar market at the tail end of November, where we raised $300 million. If you look back over the last six months, it's almost $700 million of equity that we've raised in the capital markets.

Also, during February, we termed up $900 million of debt. We were able to go out and do a long-term issuance of debt, and term up $900 million. We also put in place, as I mentioned before, the bank facility at NEP. That's a $1.4 billion facility that really will be in place during construction, just like we did on the Rockies Express joint venture. We expect that we will primarily debt finance during the construction phase and then that debt will be taken out with equity contributions from the partners and long-term debt, once the project is in service in 2009.

So again, it's not a very attractive bank market during the first quarter of 2008, but we were able to get the NEP facility in place on very attractive terms.

So again, we're emphasizing those points to show you our belief that even in unattractive capital markets, we can continue to access capital to finance our projects. That's largely because our projects are low risk. We have committed commercial contracts from creditworthy counterparties that support the investments that we're making. That makes those projects financeable.

With that, actually, I'm going to turn it over to Steve for an update on the major projects.

Okay. I'm going to cover two things pretty quickly. One is to update progress on our major projects, the numbers we showed you in January. Then second, take you through the process that we go through to manage that expansion program.

First, recall that in the January conference, we provided you I think a pretty detailed update on the $7 billion at that time forecasted spent, and the set of projects associated with that, both in the overview presentation as well as in the individual business unit segments. That information is still on our website.

So we've gone through this before. We've updated you I think pretty thoroughly, and I think that's a good starting point for the discussion now.

So, updating those numbers for our most current estimate, we're seeing both capital expenditures that are about another 2.2 % higher than what we showed you in January. That's on an apples-to-apples basis, so we're comparing the current estimates to the January estimates on the same set of projects. What that set of projects really includes is what we call our major expansion projects. That's projects that are $10 million or above. It's also projects that were coming in or came on in 2007, or were underway at the time.

So we're not counting stuff that we've added since then. In those estimates again, we're about 2.2% on the total capital spend higher than what we're talking about there. In addition, that project group that we were talking about in January is now about 40% in service on a share of total spend base, and that includes RexWest. In January, it was about a third complete.

Again, a substantial part of this project that was in service, and it's already contributing to the result as Rich had mentioned. On those projects in service, we had an over run, to get the smaller over run though than what's in our forecast of the work that remains to be done.

The reason that that's important is that we're not somehow at this level of [estimate of this] current forecast, that I assume we'll do dramatically better on the project or the work that's yet to come than we did on the work that's already done. We're making progress. Our forecasted costs are up a bit, but we're making good progress.

Here is how we make that progress. The process we go through is as follows. We review each of these projects in a monthly major projects review with each business unit. We update their project status, the cost schedule, how the contract is performing, et cetera. We include in those updates the people who are the heads of project management for the different businesses. We're getting pretty close to what's really going on on the front line. We also get updates on the projects in our quarterly business reviews. We get updates on key items in the Monday meetings.

In short, we're managing this really pretty much the same way we try to manage everything to support around here. We want to know early about what the problems are. We want to hear about what the opportunities are. We want get updated frequently so we can resolve problems and capture the opportunities. Now that's what happens at a very senior level, but also there's a lot more going on at the business unit level, and in the project management organizations themselves.

First, our business units and the project management teams are experienced. They've got good expansion project track records. The business units have set up separate organizations that are dedicated to managing the major projects. We have outsourced everything that we do [via] the contractors. They've also tried to lock in costs early when they can. I think they've responsibly allocated risk between ourselves, our customers and the contractors and suppliers.

No process is perfect, but I think this is a pretty good process. It [won't] overcome every challenge and this is certainly a challenging environment, but I think we've bargained for good returns. Our business units have done a good job getting the contracts to underpin the projects. They've bargaining for returns. They compensate us for the risk that we assume and we've done a pretty good job managing those risks.

Now part of the reason that we track these projects so closely is because these numbers do change, as it is, and you all know, a very difficult and challenging cost environment. These numbers that we're updating on today are going to change again. There's no guarantee that they're going to be limited to our current estimate. In fact, we would expect, more likely than not, that there will be further increases from where we are today.

We also hope to see some additional increases in EBITDA on some of those projects as we fold them into the rest of the network and we get some additional benefit from them. This should give you some idea of the order of magnitude [in] the increases and how closely we're tracking them. In other words, we're not just sort of drifting along for six months building this stuff and not checking in and seeing how we're doing. We'll have our share of surprises. We have already, but we've tried hard to corner and bracket what the risks are. I think we're doing pretty well so far.

Okay. Thanks, Steve. With that, Ed, we'll turn it back to you to take any questions we may have.

Thank you very much. (OPERATOR INSTRUCTIONS) First question comes from Ross Payne. Your line is open. Please state your affiliation, sir.

Ross Payne with Wachovia.

Hi, Ross. How are you doing?

Nice quarter, guys.

Thank you.

Just a quick question on Plantation. Just can you tell us from 20,000 feet, what's going on there? I guess where you guys are connected to certain refineries is, is impacting some of your volumes there. But if you can talk about that and what the year-over-year volume change was there.

Yes, a couple of things. Let's see. Tom is not here, but let me --. What's really driving this is that the quality or specs for gasoline in the Southeast are varying. Of course, our largest single customer is the Exxon Baton Rouge refinery. They're making more [ore bob] right now which is moving over Colonial. That is driving lower volumes on Plantation.

There's some other tos and fros. As a matter of fact, we have seen a pick up in April from the March numbers, because we've had one customer switch back to Plantation. But there's a lot of moving parts in serving the Atlanta market and other parts of the Southeast between which kind of gasoline gets handled. We only handle certain kinds, obviously. The ore bob is moving across Colonial, and that is hurting us substantially in terms of buys.

Now, we do have our tariff structure and our PPI escalator combined to get us, as I said, we're up about in revenues about 3.5% from a year ago, in terms of comparison to plan for the first quarter, Ross, which had a lot bigger volume number obviously for Plantation, we're actually within $300,000 or $400,000 of our plan for the quarters, almost on plan. But we are suffering from volumes and I think we'll continue to see that volatility.

The reason we exclude that is from the percentages, I know that a lot of people as we're one of the early reporters, a lot of people look at our volumes and our product segment and say, "Well this is an indication of where the national trend line is going with regard to products volumes across America." I just --- we don't want to give you the impression that Plantation is keyed off of that, so I think it kind of skews the results.

We always give it to you both ways. We give you with Plantation and then without it,. As I said without it, it's about 1.9% but that's what's happening.

We have some things in the works that, like I say, will improve it somewhat in the coming months. But I think we'll continue to experience this volatility and probably continue to experience a little lower volumes than we would like to see, because of --- largely because of this gasoline spec issue.

Park or Steve, did you want to add anything?

The only other thing I'd say with respect to Plantation volumes and why we give it to you also without it, is even reporting it with it distorts the Kinder Morgan impact some, because we only own 50% of Plantation. When we give you the volumes including Plantation, that's including 100% of the impact of Plantation, again, that volume impact on us is only 50%. Similarly, the increase in revenue impact on us is only 50%.

Okay. Also on Plantation just real quick, what is it about the pipe that keeps you from carrying some of these different grades?

Yes. It's not really the pipe. It's both the markets and the source. It's where they're coming from. For this particular customer, they have other refineries that are generating other types of grade and where they're going, what markets they're delivering that gasoline into.

Okay. That makes it much more clear to me. One final question. Park, if you could tell us what the off balance sheet debt is at Rockies Express and Midcontinent?

I don't have those numbers in front of me. Tim, I don't know if you know.

(inaudible)

NEPs relatively small, and then Rockies Express was a $1.4 billion. Yes, and that's 100%. So that's the total project debt.

Okay, divided by two, okay.

Yes.

Thanks, guys.

Okay. Next question?

Next question comes from Mark Reichman. Your line is open. State your affiliation, please.

Good afternoon, Mark Reichman, Sanders Morris Harris. I wanted to ask if Steve could just touch on the $10 billion of projects that were summarized on page 21 of the January presentation, just to include timing, how the expenses break out and whether there have been any updates to that slide?

Well, yes. I can start and [you'd join] in. But I think there -- some of the projects that were on there like potential for additional work off Rex, those projects were covered by Rich and they're really still --- we're very much in the hunt on those. I think the one thing that's probably, I don't want to say fallen off, but it's less likely is there was the Chinook Project, which is a major oil pipeline expansion from the --- oil sands all the way down to the Gulf Coast. That one, I think we would probably gauge as less likely now than maybe we would have at the time.

But I think the opportunities really across the network are still very robust as they were in January. Of course, in January, all we were doing was trying to be select, come up with a selective set of projects, not necessarily to say that these are the ones and the only ones, or that these are the ones and these are the ones that are going to get done. I think that there's still good prospects across the network.

I think that's right. For example, the Northeast Express was on there. I think the Chicago Express was on there, a potential expansion of MEP and those all still look very realistic. But I think the real point was there's a lot of other things out there we're constantly looking at. Some of them are going to go. I think we all made the point in January, we were not using that slide to say, "Hey, here is another $10 billion, just like we have $7 billion our share today."

I think another maybe indicator of that, Steve would have these exact numbers in front of him I'm sure. But I think just since the January conference we have added in terms of new projects that Steve took out to get apples-to-apples, we've added about $350 million Is that right?

Yes, $300 million not counting today.

Right. $300 million and then our Board approved about another over $100 million today. We're --- we have approved since January in excess of $400 million of new projects that were not in that $7 billion number that we talked about in January. I think you'll continue to see that.

Now sometimes, you'll have big pigs going through the boa constrictor. Like if we get Northeast Express, that's a big pig. Sometimes, you'll have mice and rats in terms of an individual terminal, but we do have a lot of things going on. Again, I've said this so many times, but the --- really, the real advantage of our size and our huge footprint across North America is it just gives us the opportunity to expand, extend, make acquisitions that are folded into our operations. I think it gives us a big head start, so we've got a lot of other things going. We certainly won't get every project. I wouldn't guarantee we'll get Northeast Express, but we're certainly in the hunt for projects like that.

That was helpful. Thank you very much.

Okay.

Next question comes from Dan Jenkins. Your line is open. Please state your affiliation.

Hi. Dan Jenkins, State of Wisconsin Investment Board.

Hi, Dan.

Congratulations on a good quarter.

Thank you.

I had a couple questions related to the RexWest. I know you said it under-performed in the quarter versus your budget. I was wondering how much that was and given that it's still to come on in later in April, do you expect it to under-perform in the second quarter as well?

We would not expect it to under-perform in the second quarter because, again, we expect it to be fully online. Most of the benefit of RexWest we've already gotten by virtue of getting to the ANR interconnect in eastern Kansas. As I said earlier, that gets us about 1.3 Bcf a day of capacity when we --. 1.4, excuse me. When we go to all the way to Mexico, Audrain County Missouri, that gets us to 1.5, plus we get a little higher tariff on that additional couple hundred miles. But we expect that to go in service within the next few days. That's what we expected for the rest of the year. So we would expect RexWest to be on plan or maybe even slightly above it for the rest of the year. Now, with regard to the first quarter, Park?

It was $5 million was the impact, the variance of Rex versus the plan, so not overly significant.

Okay. Then similarly on the CO2, I was wondering if you could give me a sense of the field there in Colorado, the Doe Canyon deep unit?

Yes. We had not drilled that before. We knew the reserves were there, but we drilled --- we thought it would take six wells. What we wanted to do was get sustained production of an additional 100 million cubic feet a day of CO2 out of the Doe Canyon field which we own about almost 90% of, so we [are] -- and operate of course. We did that, and actually we're moving about 100 million cubic feet a day out of that already. We're only using two wells, that's how prolific they are. The wells have turned out to be very good. I think that's going to be a very promising field for us now in all likelihood.

I don't want to mislead you. It doesn't have the size of reserves that McElmo Dome has, but at McElmo Dome we own substantially less of it ourselves. It's very significant in terms of Kinder Morgan CO2. I think there's certainly potential in the future that as we continue to want to take more CO2 out of southwest Colorado, we now have another formation at Doe or another field at Doe, in addition to McElmo Dome. If you look at it right now, we're increasing both of course and we're also upsizing the Cortez pipeline. We're adding 200 million a day of capacity on the Cortez pipeline that goes down to the Permian Basin. We're adding 100 million of throughput or production at Doe, and 200 million at McElmo Dome. So we're adding 300, but only increasing the capacity of the takeaway pipeline by 200. The additional 100 million we're selling under a contract with a producer in southern Utah.

So we have market for all of this. We're so far very pleased with the progress in the Doe Canyon area. Did that answer your question?

Yes. Thank you.

Good.

Next question comes from Gabe Moreen. Your line is open. Please state your affiliation.

Good afternoon, Merrill Lynch. Staying on CO2 for one sec. Rich, you had mentioned the price escalators in some of your sales and transportation contracts. I'm just trying to get a sense of what the magnitude of the benefits as you realize and just how many of your contracts have that language written into them?

Well again, it's a good question, Gabe. The contracts --- we have a number of different contracts with the third party customers that we've supplied. Most of them today that have been renegotiated within the last --- really about three or four years ago, we started putting in these escalator clauses. Most of our contracts today have those. I couldn't break it out exactly, but certainly well over half have those provisions. The way --- and now the details of those provisions, Gabe, vary, But the way they usually work is something like this.

You have a set number per Mcf which is a floor, so we're not willing to take downside risk because we have certain costs involved in southwest Colorado production, and in the pipelines to get it down to the Permian Basin and then distribute it throughout the Permian Basin. We insist on a floor, but the way we sell this to our customers and it's to both benefits, look guys, if you're going to have $100 oil, this CO2 that you're using to flood to produce additional barrels is worth a whale of a lot more than if you have $50 oil. We want part of that and you keep the great majority of it. That's the way it works. The individual contracts vary. Generally as prices have gotten higher, obviously, there's more of a kicker. That's the way it works, but of the price improvement year-to-year, about a third of the price improvement that we got came from those contract. It is significant.

Is it pretty much a linear relationship at these levels? If crude goes up 20%, you're getting a 20% higher tariff on those contracts?

I wouldn't say it's linear because there's so many varied contracts, Gabe. It does --- some of them have various step downs, lesser or greater percentage as the price varies, so it's kind of a basket of contracts.

Gabe, if you're just looking for sensitivity to crude prices that in our January conference materials. I'd need to confirm, but I'm virtually positive that that sensitivity included the impact of CO2 and NGLs. It wasn't just the impact of unhedged crude volumes. I can't remember the number off the top of my head but again, it's in the $6 million for every dollar change in crude prices.

So that includes the shales and transportation stuff?

Yes.

Okay. Great. Thanks for the color.

Our next question comes from John Edwards. Your line is open and state your affiliation please.

Good afternoon, everybody. John Edwards with Morgan Keegan. Nice quarter.

Thanks, John.

Rich, can you just comment --- the improved processing volumes in margins or maybe Park, you have it? How much did that contribute to in the natural gas segment? How much of that contributed to the upside?

It's relatively small. The biggest source and of course that would be in the Texas Intrastate, although we have a little bit of processing in the Rocky Mountains as well. Although they were actually down versus budget. But in the Texas Intrastate, the largest source of growth was from a new contract that we signed with our largest customer last year and from which we felt the largest impact in the first quarter of this year.

Okay. Great. Then Rich, could you expand a little bit on the ethanol pipeline that you've been working on and you talked about at the analyst meeting? There's been a fair amount of publicity on it. How do things stand now with that?

Sure. What we have --- we are very consistent with what we said in January. We have now authorized the funds. We've started the engineering work to make some retro-fits, and the changes in that pipeline that runs from Tampa to Orlando to handle ethanol in batched quantities. Then we will run a test of that probably in the August time frame, some time in the third quarter. Assuming that's successful and our operations people believe it will be, then we will start offering that service to our customers in the fourth quarter of 2008. The reason of course that it's gotten widespread publicity at least in the trade rights, is that I think that a lot of people think that this is the precursor to doing this over longer lines. I think everybody knows that probably there's a lot of issues with ethanol, but certainly one of the biggest problems is how do you get ethanol from the rather concentrated areas of production in the Upper Midwest to the the place where it's highest and best use is, namely on both coasts. I think we're particularly on point in Florida, because huge demand for ethanol.

A lot of people want to move ethanol into Florida and indeed the whole Southeast. The caveat I would add is that it's one thing to move ethanol in batch system on a 160-mile system, It's something different to move it on a 1500-mile system across the country. It's a long way from moving it on Central Florida pipelines to moving it on SFPP or Plantation or Colonial or Explorer or some of the other major pipelines. Certainly, it will be a very good test. Our customers are enthusiastic about it. It will be assuming it works a nice return item for us on the expenditures that we will make, and then we'll just see how it goes and whether we want to apply it elsewhere. If you could ever get to the point of moving more ethanol by pipeline, whether the dedicated pipeline or batch, batching it in a products line, it would obviously have enormous positive impact on the overall cost of of ethanol distribution.

Certainly, we got to walk before we run. It's all on schedule right now and as matter of fact, the larger expenditure thus far in Florida was the facilities that we have put in at both Tampa and Orlando. Those are now essentially complete. We actually received cargos both from the Caribbean and barges from internal ethanol within the last few days at our Tampa off-loading facility. We now have the, not only the storage capability, but we have ethanol blending facilities so we can blend it at the racks in both Tampa and Orlando. Right now, that blend, the ethanol that goes to Orlando is being trucked over there by our customers who economically and for whatever reasons want to blend it. We hope that by the end of the year we'll actually be moving it in the pipeline in a batch way which obviously is much cheaper than moving it by truck for our customers.

Okay. Great. Then on the CapEx, the 2.2% higher CapEx, that's on top of the budget from the January analyst meeting , is

That's in addition to the numbers we showed you at the January meeting. That's correct.

Okay. Then last detail, what was the unit count as of the end of the quarter now?

The average unit is 250 million. I think the unit count is 255. Right around there?

Yes.

Okay, great. Thanks a lot. Great quarter.

Thank you.

Next question will come from Emily Wang. Your line is open. State your affiliation, please.

Hi, this is Emily Wand from Raymond James. Congratulations on a great quarter.

Thank you.

My questions are more focused on the increases in the construction costs. Could you guys clarify which particular projects you're seeing have higher costs versus the other projects? Also the extent that the cost is more from labor versus just pure raw material price increases from steel?

Let me attack the second part of it, and then I'll turn it over to Steve for the first part, but and we said a lot of this in January. On most of these major projects, we have locked in the materials. For example, Rex before we ever broke ground, we had locked in our pipe costs and our compression costs, and the costs of the compression, and these thousands of miles or hundreds of miles of pipe. That leaves the great denominator overwhelmingly as the labor cost. As you know doubt heard from others, what's happened in this environment is that you are moving from fixed cost contracts where all of the risk of over-runs or profit from under-runs was on the contractor. The contractors are simply unwilling to do that today on large projects. Some of the smaller projects, you can still get that but on large, for instance Rex or MEP where you have 42-inch pipe or relatively small universe of people who can install that pipe, you're forced to go by the market to time and materials contracts. There what you usually do is set a target price.

If the price goes higher, then you agree on that with the contractor. If the price goes higher, you have some kind of sharing on that,. The contractor eats part of it, we eat part if it. If it's lower, there's some kind of sharing. They get part of the lowered cost, we get part of it, but it's not nearly as certain. Generally, it leads to higher costs in the T& M contract than in a fixed cost. Most of the risk is on the labor side. I don't mean it's all just hourly pass-through. Diesel fuel has gone up dramatically for example. That's a cost in a time and materials contract that hits the overall toward the target price. We bear part of that risk. If you have rainy weather and have to put mats down because you can't work on the right-of-way in the mud with your heavy equipment. You have to spend money to have mats hauled in for working platform, that's an add-on cost. Those are the kind of things that all together go to makeup the risk profile, and other things. It's almost all in the construction side, not in the ordering of the equipment itself. Steve, do you want to add that or talk about where?

Yes. In carrying on with that theme really, so where we're seeing the share of the increases from what we saw in January. In talks about it in January, really on the pipeline so that includes pipeline and the CO2 segment. It includes --- as was mentioned earlier, we have the benefit of having higher CO2 revenues so a lot of that, there's an offset, probably more than an offset on the revenue side associated with that. It's the CO2 pipeline, TransMountain has an increase and the gas pipeline projects have increased. Less so, or smaller shares really in terms of terminals and the CO2 investments in the field, that's sort of production investments. The biggest share is coming from the pipeline side for the reasons that we just talked about.

So would you say a lot of the pipe costs for let's say mid-continent or CALNEV or the Louisiana line are pretty much locked in? The greatest variability is still just labor?

Absolutely. I can't speak for CALNEV yet, because we're still early in the permitting process there, but Scott Parker's sitting here. All of the costs on MEP, Kinder Morgan. All of the pipe on Kinder Morgan, Louisiana, MEP, and Rex have been ordered, committed, and so we have a fixed price on those.

Okay. Thanks.

Okay?

Ms. Wang, does that conclude your questions?

Oh, yes. Thank you.

Next question comes from Yves Siegel. Your line is open. State your affiliation.

Yves, how are you doing?

I'm doing well, Rich. How are you?

Okay.

Rich, I have three quick questions for you. The first is can you talk about potential for acquisitions, especially given the success you've had in accessing the capital markets, number one? Number two in terms of Midcontinent Express, could you talk about potentially what the nature of the expansion could be? Would it be adding compression or would it actually be looping? How large an expansion could that possibly be? Then thirdly, are you considering moving gas northwest out of the Rockies? A project that might be able to do that?

Okay, let me start with the potential acquisitions. We do continue to look at acquisitions. In fact, our Board approved three small acquisitions today. We continue to look at acquisitions. Most are relatively small tuck-ins. A couple that we're looking at are much larger, but I certainly wouldn't predict that those are going to work out. We're just looking.

It's a function of what we're willing to pay versus what somebody else is willing to pay. I think at least in large scale acquisitions, companies like Kinder Morgan maybe --- advantage of it because we do still as an investment grade company have access to capital markets. Some smaller companies don't, but that said, there's a lot of companies out there that have access to the capital market. We'll just have to see on the acquisitions. We've never pinned anything on acquisitions. For example, we always make it very clear that our forecasts and our budget numbers do not include any acquisitions. Those would be in addition to our our present budget. I'll ask Scott Parker who is here, who runs our natural gas pipeline here, to talk about the expansion on MEP.

MEP, we have a 1.4 Bcf project today, as Rich described, getting very close to sold out. We have very economic compression expansions that would range anywhere from a total of 1.8 to a little over two Bcf. Clearly, those are right in front of us, things we could do quickly, and very economic and beneficial to Kinder Morgan and our partners. Beyond that level of capacity increase, we would look at looping. Like we do on all of our existing assets, you start looping downstream to your compression. Really both those available to us, but at typical we would do the compression expansions first. On MEP, we continue to look at extending the pipeline too, as we expressed in the conference. We're seeing a little more interest, there again one of those project s that are out there in front of us in the future that we'll compete for. On the Northeast question, or Northwest question, we really don't have a footprint in the gas side in the Northwest. We don't compete well there. We are not looking at movement from the Rockies to the Northwest, but we are looking aggressively at an additional assets out of the Rockies towards the East.

Just to clarify what Scott was saying is, he didn't mean to expand, he meant expanding to 1.8 Bcf or slightly over two Bcf through compression. A net expansion of 400 million a day to 600 million a day.

Right. How much would --- any thoughts on how much that would cost to add compression?

Well it's certainly --- I don't know we want to get into the detail of the costs of it, but it's certainly is much more economic than a new build is. It would be a good project for us, and a good project for our shippers. Of course what's really happening there is, as you know, there's a competitive line here that's being built also. I think when we started out, I think some people had the question mark as to whether our line was going to be filled. Now, it clearly i. It's really a mark, I'd like to say, of good management here, and hopefully that's part of it. But it's also a mark of just the exponentially almost, expansion of production in the Barnett Shale. Then of course, some of the Fayetteville trend has the ability to hook into parts of this if they want to go this way. It's a real opportunity for us. I think there's a good likelihood there that we will be able to do some size of future expansion, and maybe even as Scott said, an extension on it, given that the demand for natural gas. We kind of blow that off sometimes. We hear every day in the papers and even on television now about carbon caps and trades, and what's going to happen. Of course, coal getting beaten up with a big stick at every turn by every politician. Of course a natural beneficiary of all of that is natural gas.

If you are not going to build as many coal plants as you thought, and I think that's pretty clear now that that's the case. And you're not going to get nuclear built in the short-term, get it permitted and built. Although I want to say, I think we need a broad basket of alternatives and I think nuclear plays a role in that, but my guess is you're talking ten years or so before you'd actually get nucs on board. You've got to do something to supply the increased need for electric generation capacity in this country. If your economy continues to even grow modestly. That leads you to natural gas as probably the most likely alternative. I think you're going to see a lot of growth in need for natural gas and electric generation. Where that's helpful to us is that that drives the need for new infrastructure capacity to get that gas from producing bases, some of which are also relatively new like the Barnett Shale, across to wherever the need for that natural gas is. That's what's tremendously beneficial, whether it's projects coming out of the Rockies, projects moving, re-gasified LNG, or projects coming out of the Barnett Shale or the Fayetteville.

Rich, you sort of opened up the door to another question. That is, that competing pipeline, I think still has unsettled capacity of I think it's around 300 million cubic feet a day. Could you envision actually being able to sign up more capacity even given that that other pipeline still has more capacity?

Well, I never worry about competitors. We have enough to worry about just managing our own business. I'm not sure where the competing pipeline is, but obviously one advantage is Scott and his team have is, we've got a tremendous footprint with our partner, Energy Transfer and ourselves, upstream of the start of this pipeline. Of course, we connect into others of our pipelines along the way, including NGPL and including our Texas Intrastate. There's a lot of things I think we bring to the party, but again, we'll just have to see. I want to emphasize, we're not going to do an expansion unless we have throughput agreements signed, and just like we do on all of our pipelines.

Thank you.

Yes.

Next question comes from Dan Jenkins. Your line is open again, and state your affiliation.

Hi, still with State of Wisconsin.

Haven't moved in the last ten minutes, huh?

I had one more I forgot to ask on the TransMountain pipeline. You indicate that that Jasper Spread will be going in service in May. I was curious, will you need to come with new debt or units at that time to finance that or how will the financing of that budget progress? Yes. We have our financing requirements covered in our budget that we went through in January. We're on track to meet that and we'll continue to finance things as we need to. Okay, thanks.

Our next question comes from John Edwards. Your line is open.

Hi, John.

Yes, I'm still with Morgan Keegan. I forgot to ask, on your variable rate debt, what are you seeing now as far as your interest rate?

Well clearly on commercial paper and truthfully our swaps as well, it's a spread off of LIBOR. Now your swaps depend upon your swaps in terms of when they were struck, what fixed rates you were swapping to that. You can't narrow that down to a single rate. What I can tell you is our budget incorporated LIBOR at 4.75%. I think all of you all know where LIBOR is now, but it's less than 3%. We're getting a nice pick up from that. Clearly the spread doesn't necessarily move, I mean the commercial paper spread can move around, but it has not changed significantly. The spread on swaps are fixed.

Okay. Then Yves' question made me think of another item. With a lot of the publicity with these announcements from the Marcellus Shale and Painsville, I thought maybe if you could care to comment how you think that might play into future opportunities for Kinder Morgan?

Well there's nothing we like more than a new producing area that is projected to incur big time increases in production, because invariably they don't have the pipeline take-away capacity. We are looking at both of those areas, nothing definitive at this point, but looking at both those areas, how we could provide capacity there, how we could tie into it. In both cases, we know those producers, we have relationships with them. We'll just continue to look at those opportunities. Again, as I've said so many times, I think we've had a real renaissance of natural gas drilling activity lead by a lot of the large independents around the country. That's lead to some very nice increases, and which will probably lead to less demand for LNG and more production in the lower 48. I think we're as well-positioned as anybody to take advantage of expanding, extending, building the additional infrastructure that needs to be done to accommodate this.

We're still seeing very nice growth in the Rockies. Scott made the point earlier today that we have these other pipelines coming out of the Rockies aside from Rex . Here Rex is taking in the month of March on average, I think slightly over 1.2 Bcf a day of real physical gas out of the area. Yet, we saw no meaningful declines on our other pipelines coming out of the Rockies. Now, can't vouch for everybody, but I expect that's pretty much the case which says that all Rex did was take up a lot of pent-up demand. If you extend the kind of production increases that that indicates, out over the next two or three years and the kind of drilling programs that a lot of companies have, and $10 gas, that's a pretty strong combination. I think that's why you're seeing so many players wanting to build new capacity. I think they will probably be something built West and something built East within the next few years to accommodate still additional growth in the Rockies production.

You could say the same thing in the Barnett Shale, the Fayetteville, and now probably the Marcellus. I mean just a lot of opportunities for infrastructure expansion. Now you got to make sure in our judgment that you have the right contracts, you have the right shippers, if they're credit worthy and that you have good contracts with them, but there's enormous opportunities if you take advantage

Okay, thanks.

The next question comes from [Brian Zeran]. Your line is open. State your affiliation.

Lehman Brothers.

Hi, Brian.

Hello. Congratulations on the quarter.

Thank you.

Regarding acquisitions, are you seeing multiples come down and if you are, is it a significant amount?

I don't think that we've seen any notable change in acquisition multiples. I mean David, I don't know if you have anything?

No, I don't think meaningful. Obviously, we've sold some things up at Knight, and have continued to be able to do that at the end of the day, so I don't think anything meaningful.

Okay. Given the back drop of challenging capital markets, would you expect some consolidation in the MLP space?

I don't know, that's a --- you keep hearing rumors about that. Obviously, it depends on a lot of factors I think. I don't think I'd have any better indication that you guys would or anybody else. We're not aware of anything going on right now. Tomorrow somebody could announce something that we're not aware of, but I just don't know.

I think what we can say is if it were a transaction that we were involved in, it would clearly be an assumption of the quality of the assets that we were buying, and the price that we're paying. Okay, thank you.

Okay. Thank you.

At this time, I show we have no further questions.

Okay, well very good. Thank you all for listening in. As always, if you have further questions, feel free to call Kim Dang and she will answer them for you, much better than we could probably. Thank you.

At this time, that will conclude today's conference. You may disconnect. Thank you for your attendance.