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Anadarko, LG&E Fined for 'Flipping' Violations

April 27, 2009
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FERC last week approved separate stipulation and consent agreements requiring Anadarko Petroleum Corp. to pay $1.33 million and Louisville Gas and Electric Co. (LG&E) to pay $350,000 for violating the agency's posting and bidding requirements of its capacity-release policies.

Anadarko Petroleum is required to pay a $1.1 million civil penalty to the U.S. Treasury within 10 days and to disgorge $232,423 to certain federally run energy assistance programs [IN09-16]. Louisville, KY-based LG&E also is required to pay its civil penalty to the U.S. Treasury within 10 days of the order [IN09-15].

Both affiliates of Anadarko Petroleum and LG&E engaged in a practice called "flipping," the Federal Energy Regulatory Commission's (FERC) Office of Enforcement said. Flipping involves a series of repeated short-term releases of discounted rate capacity to two or more affiliated replacement shippers on an alternating monthly basis, which avoids the competitive bidding requirement for discounted long-term capacity releases. The effect of flipping can be to create long-term, noncompetitive discounted rate releases, according to FERC.

"Anadarko's affiliates both improperly released and acquired discounted rate capacity through flipping transactions, the result of which was that Anadarko's affiliates avoided the requirement to post or obtain such capacity through competitive bidding," the FERC order said.

"Enforcement [also] concluded that LG&E, as a releasing shipper, engaged in 'flipping' on Texas Gas [Transmission], that is, that LG&E released discounted capacity to three sets of affiliated replacement shippers on an alternating monthly basis between August 2005 and June 2006 without complying with the posting and competitive bidding requirements," the agency said.

Both Anadarko and LG&E are required to submit annual monitoring reports to FERC's enforcement staff for a period of one year, with an option of a second year if enforcement chooses.

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