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By Avi Feinberg | 11-09-2010 10:47 AM

Boardwalk Pipeline: Electricity Generation Key Growth Area

Jamie Buskill, CFO of Boardwalk Pipeline Partners, explains how the move from coal powered to natural gas powered electricity generation will drive future gas volume growth.

Avi Feinberg: Hi. I am Avi Feinberg, Equity Analyst with Morningstar covering oil and gas pipeline companies, and I am pleased to be joined today by Jamie Buskill, Chief Financial Officer of Boardwalk Pipeline Partners.

Jamie, thanks for joining me.

Jamie Buskill: Glad to be here.

Feinberg: One thing we really like about Boardwalk is that you guys have very stable cash flows. You've been able to raise your distribution every quarter since your 2005 IPO. Can you talk a little bit about your contract mix and then how that factors into those cash flows?

Buskill: Sure. If you look at our business, we're in the business of transporting and storing other people's gas. Our contracts are made up primarily of firm contracts where people pay us rent for capacity on these pipeline systems or in storage.

If you look at the last 12 months, we made just under $1.1 billion in revenues, and 92% of those revenues are tied to those firm agreements with the majority of that being from the rent that we charge for that capacity. The other 8% is from the interruptible type markets, which is subject more to the day-to-day volatility of natural gas prices.

So, the reason we've been able to grow that is we've also during this timeframe since going public in 2005 embarked on a pretty ambitious growth project. The projects totaled just about $5 billion and we're wrapping that up and you're starting to see that benefit over the last two years run through the income statement.

Feinberg: And so natural gas prices seems like have pretty little impact on your cash flow, at least on a short-term basis. Maybe there is a little bit of impact long-term or what about that and what about also basis spreads between different hubs?

Buskill: You hit right on it. The bigger issue for us is not the price of the commodity, it's the basis spread. And when we talk about basis spreads, we're basically saying the difference in the price of gas where it enters our pipeline system versus the price of the gas where it exists our pipeline system.

If you go back prior to the expansion projects, we really saw that basis spreads at historic levels. It was really large and that was being brought about because of all the unconventional gas supply mainly shale gas that was being discovered and starting to be produced.

So we embarked on these projects to add the infrastructure that was needed and as that was done, the basis spreads came in. If you look at these projects today, even though gas prices are at fairly low levels compared to where they were a few years ago, we're seeing high utilization on those expansion projects generally running 80% to 100% utilization.

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