Seminole Energy Services LLC and Natural Fuel Marketing Co. LLC (NFM) and their affiliates face fines of more than $861,000 for violations associated with the bidding for capacity on Cheyenne Plains Gas Pipeline during a March 2007 open season.
Tulsa, OK-based Seminole Energy, which markets natural gas in 13 states, was ordered to pay a $300,000 civil penalty and to disgorge $271,315 plus interest for using its four affiliates to gain more capacity on Cheyenne Plains than it could have acquired by itself, and violating the Federal Energy Regulatory Commission's (FERC) prohibition against buy/sell transactions.
NFM and its three affiliates worked out an agreement with the Office of Enforcement resolving allegations that the Denver-based company also used its affiliates to obtain a larger allocation of capacity on Cheyenne Plains than it could have acquired by itself, and that it violated the Commission's shipper-must-have-title (SMHT) requirement. NFM has agreed to pay a penalty of $290,000 and to make semi-annual complaint monitoring reports to FERC.
In separate show cause orders issued in January 2009, FERC ordered Seminole Energy Services and NFM and their affiliates to show why they should not be found to have perpetrated a fraud in connection with their bidding for, and use of, interstate transportation capacity on Cheyenne, and why they should not pay a civil penalty and be subject to disgorgement of unjust profits (see NGI, Jan. 19, 2009).
At the same time FERC issued the show cause orders, it approved four stipulation and consent agreements requiring marketers and other energy firms to pay more than $8 million in civil penalties and disgorge approximately $4 million in unjust profits for allegedly engaging in fraudulent open season bidding for natural gas transportation capacity on the Cheyenne Plains pipeline.
The settlements resolved investigations by FERC's enforcement staff into whether bidding by Tenaska Marketing Ventures LLC (TMV) and its affiliates, Oneok Energy Services Co. and its affiliates, Klabzuba Oil & Gas Inc., Jefferson Energy Trading Co. LLC, Wizco Inc. and Golden Stone Resources LLC violated FERC's anti-manipulation regulations in Cheyenne's March 2007 open season. The TMV settlement also resolved allegedly fraudulent bidding by Tenaska on two other pipelines, Colorado Interstate Gas Co. (CIG) and Northern Natural Gas Co.
Immediately following the Cheyenne Plains open season, FERC's enforcement hotline received calls from Cheyenne Plains open season participants claiming that some marketers submitted bids on behalf of multiple affiliates in order to "game" the pro rata allocation method relied upon by Cheyenne. The hotline calls triggered a FERC investigation of bidder conduct during the Cheyenne open season and similar open seasons held on Colorado Interstate Gas and Northern Natural Gas.
"The facts uncovered during the investigation led [FERC's] enforcement staff to conclude that some entities bid multiple affiliates with the intent to defeat Cheyenne Plains' pro rata allocation mechanism in violation" of Commission regulations, said the order approving the stipulation and consent agreement between Seminole Energy and FERC's Office of Enforcement [IN09-9].
Between April and October 2007, Seminole and affiliates used their Cheyenne Plains capacity to transport up to 7,520 MMBtu/d and sold a total of 917,440 MMBtu of natural gas under these transactions, according to the order. Seminole Energy earned profits of $271,315 on these transactions, it said.
Seminole also engaged in prohibited buy/sell transactions, which "circumvent and therefore frustrate the Commission's open-access transportation policies requiring releases of capacity from one shipper to another."
Under the buy/sell arrangement Seminole Energy purchased gas in the market and sold pro rata shares to its four affiliates: Seminole Gas Co. LLC, Seminole High Plains LLC, Lakeshore Energy Services LLC and Vanguard Energy Services LLC. The five Seminole companies then transported the gas using the capacity each had acquired from Cheyenne Plains and, at the Cheyenne Plains delivery point, Seminole Gas, Lakeshore and Vanguard sold their gas to High Plains, which in turn sold the gas back to Seminole Energy. Seminole Energy then sold all of the gas into the market, the order said.
In violation of the SMHT rule, "National Fuel's three affiliates used their Cheyenne Plains capacity allocations to ship gas titled to National Fuel," according to the stipulation and consent agreement filed at FERC [IN09-10]. The SMHT rule requires that the owner of the gas and the shipper of the gas be one and the same.
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