FERC Wednesday approved a stipulation and consent agreement that fined ConocoPhillips $545,000 and required it to disgorge about $3.2 million in unjust profits for alleged violations of the agency’s capacity release regulations.

The agreement was negotiated between the Federal Energy Regulatory Commission’s Office of Enforcement (OE) and ConocoPhillips, and it covered the producer’s alleged violations involving flipping, shipper-must-have-title (SMHT) rule and prohibition on buy/sell transactions between Jan. 1, 2004 and May 30, 2007 [IN12-5].

The Commission’s OE concluded that ConocoPhillips earned $322,742 in unjust profits from flipping violations. Flipping is typically a series of short-term releases of discounted rate capacity to two or more affiliates’ replacement shippers (affiliate Brandywine Industrial Gas Inc. in ConocoPhillips’ case) on an alternating monthly basis, without complying with the posting and bidding requirements, which creates a long-term, noncompetitive discounted rate release.

OE estimated that ConocoPhillips used the capacity alternately released to it and its affiliates (Brandywine) to ship a volume of 16.9 Bcf.

Enforcement further said the Houston-based producer shipped 73.6 Bcf of gas in violation of the SMHT rule, which requires a shipper to have title to the gas at the time the gas is tendered to a pipeline of storage transporter and while it is being transported. ConocoPhillips received $2,582,158 in unjust profits associated with with SMHT violations, according to FERC.

ConocoPhillips also engaged in a prohibited buy/sell transaction that involved 1.3 Bcf of gas that did not generate unjust profits. A prohibited buy/sell transaction is a commercial arrangement where a shipper holding interstate pipeline capacity buys gas at the direction of, on behalf of, or directly from another entity (end-user), ships that gas through its interstate pipeline capacity and then resells an equivalent quantity of gas to the downstream entity at the delivery point.

“ConocoPhillips violated the prohibition on buy/sell transaction for a period of one month while a request to assign capacity to an affiliated company was pending approval from the pipeline. Because the affiliated company did not have use of the capacity for the purpose of shipping gas it owned to its own facility, ConocoPhillips purchased the affiliate’s gas, shipped it on ConocoPhillips’ capacity and sold the gas back to the affiliate at the delivery point,” said the order approving the stipulation and consent agreement.

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