FERC has yet to exercise its increased penalty authority under the Energy Policy Act of 2005 (EPAct), but Columbia Gulf Transmission could be the first company — at least on the natural gas side — assessed the tougher penalties, the director of FERC’s Office of Enforcement indicated last Tuesday.

The Federal Energy Regulatory Commission issued a “very important decision” earlier this month directing the agency’s Office of Enforcement to determine whether Columbia Gulf should be assessed the stiffer EPAct penalties for failing to comply with repeated orders, which granted a request of Tennessee Gas Pipeline to build an interconnect on a pipeline that it jointly operates with Columbia Gulf on the Gulf Coast of Louisiana, said Enforcement Director Susan Court at the Natural Gas Roundtable in Washington, DC.

In the July 20 order, “the Commission…referred to the Office of Enforcement the issue of whether Columbia Gulf’s actions have violated and/or are continuing to violate prior Commission orders. My office is now charged with investigating Columbia Gulf’s noncompliance with the Commission order[s] — noncompliance that could be subject to EPAct penalties,” Court said.

The Tennessee-Columbia Gulf complaint order represents a “shift made possible by EPAct in the way the Commission views compliance after repeated direction to a company to comply,” she noted.

The latest order responds to a March 2004 complaint filed by El Paso Corp.’s Tennessee, accusing Columbia Gulf of engaging in a “pattern of anticompetitive conduct and practices” by denying its request to construct an interconnect from its Muskrat line to the Columbia Gulf-operated side of the Blue Water Pipeline at Egan, LA [RP06-297, RP04-215]. The two pipelines have coordinated operations and shared capacity on the offshore Blue Water system for more than 30 years, with Columbia Gulf operating the western shore line of the system that terminates at Egan, and Tennessee operating the eastern shore line of the pipe segment that extends to Cocodrie, LA. Tennessee sought the interconnect to improve the operational efficiencies of the entire Blue Water system.

Court made clear that the things gas pipelines got away with 20 years ago won’t be tolerated now at FERC. “When I had the privilege of overseeing the gas and oil legal staff from the mid-1980s until 1993, my colleagues and I were frequently stymied by pipeline companies which simply refused to comply with the Commission’s orders. They weren’t necessarily violating a regulation. Their conduct didn’t necessarily warrant an investigation that would lead to the disgorgement of profits. They simply didn’t comply, either by not making filings on time or making supposed filings that didn’t follow the direction in the Commission’s orders… But there was really little of anything that we could do about it,” she said.

“Fast forwarding to today — things are a lot different. EPAct changed the landscape significantly for the Commission’s enforcement authority under the Natural Gas Act and also under the NGPA [Natural Gas Policy Act],” Court noted. For the first time, FERC has the authority to assess civil penalties of $1 million per day for the duration of violations of the NGA, police manipulation in energy markets, order energy sellers to retain their records and has entered into a working relationship with the Commodities Future Trading Commission to increase the agency’s access to information.

The fact that the Commission has not used its increased penalty authority yet “indicates no lack of will on the part of the Commission or the staff,” said Court, adding that investigations were fact-intensive and time-consuming endeavors. “There can be no doubt in anyone’s mind, however, — and if there is, let me disabuse them — we are ready, willing and able to proceed under EPAct to ensure that companies are complying with the Natural Gas Act rules and regulations and Commission orders.”

FERC’s enforcement policy statement “provides good guidance for how to avoid an investigation in the first instance.” The Commission’s focus is on company compliance, rather than on punishing and disciplining companies, Court said.

“Without getting into the particulars of any ongoing investigation…I think it is fair to say that companies regulated by FERC are taking this guidance and axiomatically the million-dollar penalty authority and probably the ongoing criminal trial[s] very seriously,” she noted.

“I’ve observed awareness on the part of management of the importance of complying with the rules, which for years I only saw in the companies’ lawyers. It really has only been recently that I have met with so many senior managers of companies…In my view, they’re taking the penalty authority and they’re taking the Commission’s enforcement program very seriously.”

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