FERC Friday approved a stipulation and consent agreement levying nearly $12 million in penalties on Dallas-based Atmos Energy Corp. for capacity flipping and shipper-must-have-tile (SMHT) violations.
Under the consent agreement, which was negotiated with the Federal Energy Regulatory Commission’s (FERC) Office of Enforcement, Atmos Energy, the nation’s largest natural gas-only distributor and parent of Atmos Energy Marketing Inc. (AEM) and Trans Louisiana Gas Pipeline Inc., has agreed to pay a civil penalty of $6.4 million and to disgorge $5.6 million, plus interest, within 10 days to the federal government [IN112-1].
Enforcement staff began its investigation into potential flipping violations in February 2008 and later expanded the probe to include allegations that AEM engaged in SMHT violations. The investigation took place between August 2005 and April 2008, according to the agency.
“Enforcement staff concluded that a) the terms of the releases of capacity by AEM and Trans Louisiana, including rates and volumes, were of sufficient similarity to characterize the transactions as flipping; and b) the subject releases of short-term discounted rate capacity were flipping transactions that improperly avoided the requirement that discounted rate capacity be posted for competitive bidding prior to acquisition,” the consent agreement said.
“The flips, using the affiliates or defunct companies as replacement shippers, were executed for the purpose of avoiding the Commission’s capacity release regulations pertaining to posting and competitive bidding” so that AEM and Trans Louisiana could acquire the capacity, it said. The enforcement staff estimated that the total contractual capacity either released or acquired by AEM and Trans Louisiana through illegally flipping was 26.2 Bcf.
Enforcement staff further found that AEM, as asset manager, violated SMHT requirement by shipping 297.8 Bcf of natural gas titled in its name using the capacity rights of other parties, including affiliated utilities. The Commission’s SMHT rule requires that a shipper must hold title to the gas that it is shipping, as well as the capacity rights on a pipeline.
“Enforcement staff concluded that AEM high-level personnel were aware as far back as 2004 of shipper-must-have-title problems on some of the pipelines on which AEM managed capacity; still, AEM failed to resolve the problems until enforcement staff in 2008 advised Atmos that it was being investigated for shipper-must-have-title violations,” the consent agreement said.
“The civil penalty assessment reflects the nature and extent of high-level personnel involvement at both AEM and Trans Louisiana who knew or had access to information that [Woodward Marketing Inc. (WMI) and LGS Natural Gas Co. (LGSN)] were not Atmos companies and should not have been used by schedulers in flipping transactions,” FERC said.
In carrying out their flipping operations, AEM and Trans Louisiana used the names of WMI and LGSN, two companies that were unaffiliated with the Atmos subsidiaries and which have since been dissolved, according to the consent agreement.
Because Atmos Energy did not self-report either the flipping or SMHT violations, it “is not entitled to have an offset or credit for having self-reported. However Atmos’ cooperation was excellent and it is entitled [a] credit for its cooperation.”
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