A class action lawsuit seeking treble damages totaling $5.2 billion has been filed by several small gas marketing companies against NiSource subsidiary Columbia Gas Transmission and two affiliates for antitrust violations starting in February 1996 and continuing today involving an alleged gas storage scheme in the Northeast.

The lawsuit was filed in the U.S. District Court for the District of Columbia by plaintiffs Triad Energy Resources Corp., Cameron Gas Co., Nicole Gas Marketing Inc., Energy Marketing Services Inc. and AGF Inc. The plaintiffs claim that they were forced out of the secondary market for gas storage in the Northeast when the pipeline and two affiliates, Columbia Gulf Transmission and Cove Point LNG, gave preferential treatment to select shippers to illegally store gas through imbalances on their systems while denying legal requests for storage from others.

Plaintiffs say there were nine select shippers who received preferential treatment on Columbia in exchange for payments. The special treatment violated numerous FERC rules and regulations, they said. The pipelines also reported false data regarding available storage and transportation capacity and transactional data via telephone and electronically and provided illegal time exchanges to the select shippers, allowing them to borrow gas during peak demand/high price periods and pay it back during low demand/price periods, according to the suit.

The small marketing companies say the defendants made in excess of $60 million between 1996 and 1998 through the scheme and some companies were put out of business because they no longer could participate in the secondary storage market. The Federal Energy Regulatory Commission already has ordered Columbia Gas to reimburse the marketing companies $27.5 million for the illegal storage scheme. However, the plaintiffs say the Commission didn’t go nearly far enough in its ruling. In fact, they allege that schemes involving parking and lending services on Columbia Gas (CGT) are continuing.

“At the time CGT promised to discontinue the scheme, it had already devised and put in place a means of continuing the illegal gas scheme using its PAL [parking and lending] service to balance the select shippers’ negative imbalances,” the plaintiffs said.

“CGT’s greed for additional revenues causes it to honor the lowest and most inferior rate schedule in its [tariff] and [compromise] higher priority agreements for firm transportation…,” they explained. “CGT has in effect used the PAL service to launder firm storage services to select PAL shippers when CGT’s excess capacity should have first gone to meet higher priority agreements.”

They claim that CGT has permitted the select shippers to draw negative on their interruptible parking pools only to later balance the pool accounts or create positive imbalances by crediting the pools with PAL storage on maximum demand withdrawal quantity days (MDWQ). “This procedure creates the appearance that the PAL service is interrupted in favor of higher priority firm agreements when in fact the select shippers are permitted to go negative on their pool accounts only to have those accounts balance from their PAL storage on MDWQ days.”

The plaintiffs charge that by utilizing the PAL service in this way, CGT provides PAL shippers with guaranteed deliveries of illegal “off-tariff” capacity even in periods of interruption. In exchange, the PAL shippers “continue to pay CGT a percentage of the profits derived from the sale of the illegal capacity.”

When non-select shippers requested the PAL service in November and December 1998, CGT said it had no PAL capacity. “In fact, pursuant to a secret agreement between CGT and the select shippers, the select shippers consumed all the PAL capacity and held it in PAL storage for subsequent replenishment of the pooling accounts that they took negative. The result was risk-free firm even in times of interruption,” the plaintiffs said.

They said some of the original nine select shippers are now out of the trading business because they have been purchased by other companies or reverted back to core regulated functions. The select shippers were not named, and FERC denied a Freedom of Information Act request by the plaintiffs to release their names. Some of the shippers are still receiving these illegal benefits from CGT, the plaintiffs said.

The illegal activity was supposed to have ceased in February 1999. Since that time, Columbia has made in excess of $60 million a year on the scheme, the plaintiffs allege, and in the meantime, the plaintiffs have been unable to compete against local distribution companies in the deregulated marketplace.

“Negotiated rates will prevent the FERC from having a review of CGT’s books and records, and therefore, FERC will have no knowledge of the ongoing activity,” they said. “CGT will not be prevented from continuing year after year with the illegal activity of compromising the firm rate schedules in favor of the PAL activities. CGT will therefore get to pocket the ongoing profits of the PAL service and discriminate against every firm contract holder who is not an LDC.”

A Columbia spokesman said the company has received the lawsuit but has no comment on it.

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