Anyone wondering about the risks -- and rewards -- of investing in merchant energy partnerships might do well to take a look at

Kinder Morgan

.

Kinder Morgan Energy Partners

(KMP)

, easily the largest master limited partnernship around, has almost single-handedly redefined the entire industry. But at the same time, critics wonder how long the company can maintain its prodigious growth.

Kurt Wulff, a veteran energy analyst, has issued a strong sell recommendation for all Kinder Morgan securities despite their impressive returns.

"One can point to the trend in stock price and imagine a steep continuation," Wulff said. "Unfortunately, the more overpriced a stock becomes, the harder and faster may be its eventual fall."

Co-founded in 1996 by former

Enron

executive Richard Kinder, the voracious MLP has gobbled up billions of dollars worth of energy assets that have generated unprecedented returns for its investors.

In 2001, an otherwise pathetic stock market year, the Houston-based MLP used its aggressive acquisition strategy to boost revenue by 350% and expand its already generous dividend payment by another 16%.

Kinder Morgan

(KMI) - Get Report

, the general partner of that MLP, has also profited handsomely. As a reward for growing its MLP, Kinder Morgan is now entitled to 50% of all free cash generated by most of the MLP's assets -- up from 2% originally.

That fee structure worries some investors who believe it could influence the general partner's decision-making, pushing it to make costly acquisitions for the sake of boosting growth.

"It's a lucrative incentive," admitted President Mike Morgan. "But I don't think our (MLP) shareholders, who've earned a 550% return, are worried about it."

Critics predict an eventual backlash, however. They say both Kinder Morgan and its MLP are dependent on a buying frenzy that's essential to strong growth but destined to hit a roadblock. In the meantime, they expect to see Kinder Morgan arrange increasingly expensive acquisitions for less valuable assets.

"To Kinder Morgan, the income stream from its MLP means everything," one short-seller said. "It's going to make acquisitions whether they make sense or not."

That critique fits in with the

complaints some observers have about these partnerships in general. "These MLPs were a good deal when they first started," one critic said. "But they're just like every other good deal that Wall Street beats into the ground until it becomes a bad deal."

Kinder Morgan's star may already be fading. The company's latest securities offering, targeting institutional investors, proved sorely disappointing. The new securities promised a higher yield at a lower share price than a similar offering held one year earlier. Even so, the latest sale raised only one-third the amount generated when Kinder Morgan first turned to institutional investors the previous summer.

Critics predict that individual investors, the primary buyers of MLP securities, will eventually lose their appetite for the investment vehicles as well. If that happens, they say, both the MLP and its general partner -- which depends on its MLP for growth -- will take a massive hit.

"If the financing goes away, the growth story goes away," one short-seller said. "Kinder Morgan has got to keep acquiring stuff -- until the market shuts down.

"And then the music stops."