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Integrys, Enbridge Fined for Capacity-Release Violations

October 27, 2008
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For running afoul of capacity-release regulations, FERC Friday ordered Wisconsin-based marketer Integrys Energy Services Inc.(Integrys ESI) to pay a civil penalty of $800,000 and disgorge unjust profits of $194,505, and fined Enbridge Marketing (US) LP $500,000 to be paid within 10 days to the federal government.

Investigations by the Federal Energy Regulatory Commission's (FERC) Office of Enforcement and Integrys ESI found that the De Pere, WI-based gas and power marketer -- more specifically its predecessors in interest, WPS Energy Services Inc. (WPS ESI) and affiliate WPS ESI Gas Storage LLC -- engaged in a practice known as "flipping." This involves a series of repeated short-term releases of discounted rate capacity to two or more affiliated replacement shippers on an alternating monthly basis, with the intent of circumventing FERC's competitive bidding requirement for discounted long-term capacity releases.

In February 2007, Green Bay, WI-based WPS Resources Corp. and Chicago-based Peoples Energy Corp. merged to form Integrys Energy Group Inc., parent of Integrys ESI (see NGI, Feb. 26, 2007).

"The flipping transactions denied other market participants an opportunity to bid for discounted, long-term releases of capacity that may not have otherwise been available from the pipeline or other releasing shippers. In addition, as a result of the flipping arrangement, Integrys ESI obtained pipeline capacity at favorable rates and in a manner that adversely affected the transparency of the secondary market for natural gas transportation and storage served by ANR [Pipeline's] LINK system," the order said [IN09-2].

"While it does not appear that the ANR LINK system was constrained, the flipping transactions were used on 277 days to transport 5,808,437 Dth of gas" between January 2004 and April 2006, the order noted.

The investigation also determined that Integrys ESI violated the shipper-must-have-title (SMHT) rule between April 2004 and April 2007 by improperly transporting up to 6.7 Bcf of natural gas owned by Integrys ESI on capacity held by others but delivered to third parties. FERC's SMHT rule requires that shippers must have title to the gas at the time the gas is turned over to the pipeline or storage transporter and while is is being transported or held in storage by the transporter.

Integrys said it launched an inquiry after an employee raised the SMHT issue with respect to a transaction involving transportation capacity on Northern Natural Gas. It self-reported both the SMHT and flipping violations to the Commission.

In entering into a stipulation and consent agreement, which FERC approved Friday, Integrys ESI has agreed to pay the civil penalties and disgorged profits to the U.S. Treasury within 10 days; update and expand its training program on the Commission's SMHT and capacity-release requirements; and submit semi-annual reports to the enforcement staff for one year from the effective date of the agreement. The disgorged profits of $194.5 million will go to fund energy assistance programs, the order said.

In a separate yet related investigation, Houston-based Enbridge Marketing (US) LP was found to have violated the SMHT requirement between August 2004 and May 2007 by transporting approximately 30 Bcf of natural gas owned by Enbridge on capacity held by others to third parties. Enbridge has agreed to pay $500,000 civil penalty to the U.S. Treasury within 10 days, and submit semi-annual compliance monitoring reports to FERC's enforcement staff for one year.

"In determining {Enbridge's] civil penalty we took into account that [it] discovered the SMHT violations through an internal investigation and acted promptly to investigate, report and correct the SMHT violations if found. The Commission also considered the fact that [the company] voluntarily improved its compliance practices by adopting contract review guidelines to address Commission requirements. Further there was no demonstrated harm to market participants as a result of the SMHT violations and no unjust profits to disgorge," the order said [IN09-1].

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