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FERC: Pipes Risk Penalties if Fail to File Contract Deviations

October 27, 2008
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FERC last Wednesday warned interstate natural gas pipelines that they face the risk of stiff penalties if they fail to comply with the agency's requirement to report transportation contracts containing deviations from their pro forma open-access tariffs.

The warning came as the Federal Energy Regulatory Commission (FERC) approved an audit report that found Southern Star Central Gas Pipeline Co. had failed to file at least 29 contracts with material deviations from its pro forma tariff. The report, which was prepared by the Office of Enforcement's Division of Audits, reviewed the pipeline's compliance record from Jan. 1, 2006 through May 30 of this year.

"This was a close call as the level of noncompliance and the seriousness of some of the violations was such that we seriously considered pursuing the imposition of penalties for the violations. [But] after reviewing Southern Star's willingness to take corrective action, taking into account exemplary cooperation during the audit and considering the fact that Southern Star's predecessor [Williams Gas Pipeline Co.] was responsible for most of the serious violations...we decided to forego that remedy and instead address the company's violations in a Commission order to provide guidance to other companies similarly situated to Southern Star," the FERC order said [PA08-1]. In September 2002, Williams sold its pipeline assets to Southern Star (see NGI, Sept. 23, 2002).

"We want to point out to Southern Star and all other pipelines within our jurisdiction that we will not be inclined to be so lenient if we discover similar violations in the future."

The Southern Star audit is the first time since the Energy Policy Act of 2005 was enacted that FERC staff has identified material deviations in contracts that weren't filed with the Commission.

The order requires Southern Start to submit within 120 days a master list of all currently effective agreements, indicating whether each agreement contains material nonconforming terms and conditions; submit within 120 days a matrix of unfiled agreements that contain material nonconforming terms and conditions in effect on the issuance date of the audit report; submit within 150 days all unfiled agreements that contain material nonconforming terms and conditions; and file within 120 days a statement signed by a member of Southern Star's senior management attesting to the accuracy of all information contained in the master list of effective agreements and the matrix listing all unfiled agreements that contain material nonconforming terms and conditions.

FERC further directed Southern Star to make quarterly filings of its progress in implementing corrective actions.

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