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NorthWestern Ordered to Pay $450,000 for Shipper-Title Breach

FERC has approved a stipulation and consent agreement requiring NorthWestern Corp. and its subsidiary NorthWestern Services LLC (NWS) to pay a civil penalty of $450,000 for self-reported violations of the shipper-must-have-title (SMHT) requirement and to submit semiannual compliance monitoring reports for one year.

The consent agreement also resolved a violation involving Nekota Resources Inc., formerly a wholly owned pipeline subsidiary of NWS, for failing to obtain a certificate of public convenience and necessity under the Natural Gas Act (NGA).

NWS discovered two series of SMHT violations in November 2006 and subsequently reported them to the Federal Energy Regulatory Commission (FERC) in March 2007. The Commission enforcement staff confirmed the SMHT violations, which occurred on two interstate pipelines (Northern Border Pipeline and Northern Natural Gas), and involved the transportation of approximately 39.4 Bcf of natural gas between October 1998 and April 2007, the agency order said [IN09-4].

FERC's capacity-release program requires that all shippers must have title to the gas at the time the gas is tendered to the pipeline or storage transporter and while it is being transported or held in storage by the transporter. It makes clear that the shipper of record and the owner of the gas must be one and the same throughout the course of the transportation or the duration of storage on any pipeline.

From October 1998 through October 2005, SMHT violations resulted when NWS used NorthWestern's rights on Northern Natural to deliver NWS-owned gas to NWS customers served off Northern Natural, including five ethanol facilities, the consent agreement said. Sioux Falls, SD-based NorthWestern, a supplier of gas and electricity, did not release this capacity to NWS using the pipeline's capacity-release mechanism. During this seven-year period NorthWestern shipped a total of 28.7 Bcf of NWS-owned gas on capacity rights held by NorthWestern, it noted.

Further SMHT violations occurred after NWS transferred its supply agreements with six ethanol producers to third-party marketers, yet allowed these same customers to ship their gas on the pipeline capacity still held by NWS. Between November 2005 and April 2007 NWS shipped a total of 10.7 Bcf of customer-owned gas on capacity rights held by NWS, according to the consent agreement.

FERC's enforcement staff also determined that because the Nekota pipeline facilities were neither owned by the owners of the plants that they served nor regulated by the state of South Dakota, the company was required to obtain a certificate of public convenience and necessity under the NGA. Effective February 2007, however, Nekota was merged into the local distribution system of NorthWestern, and thus the facilities are now subject to the jurisdiction of the South Dakota Public Utilities Commission.

Nekota's facilities consist of four separate pipeline segments totaling 88 miles that connect the interstate pipeline systems of Northern Border and Northern Natural to retail customers of NWS. NorthWestern and NWS did not self-report the transportation by Nekota as a violation, but they cooperated fully with staff's investigation of Nekota, the consent agreement said.

FERC also had approved a stipulation and consent agreement that requires Nebraska-based Cornerstone Energy to pay a civil penalty of $325,000 for violations of the agency's SMHT requirement and to disgorge $121,825, plus interest, in unjust profits (see NGI, Dec. 1). Cornerstone Energy is a marketing company that provides natural gas commodity and energy-related services to commercial and industrial end-users throughout the Midwest. The violations were discovered and self-reported when Cornerstone Energy was acquired by Constellation NewEnergy-Gas Division, a subsidiary of Constellation Energy Inc.

In its annual enforcement report issued in early November, the Commission said the majority of self-reports by regulated companies this year were for violations of the agency's natural gas capacity-release rules, primarily its SMHT requirement (see NGI, Nov. 10).

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