The calls for FERC to make changes to Order 497’s pipelineaffiliate abuse regulations got louder late last week, as Dynegyand Amoco filed some suggested remedies in response to the resultsof an April technical conference on four negotiated parking andlending (PAL) agreements between Koch Gateway and its affiliateKoch Energy Trading (KET).
The filing came only a day after a speech on the same subject byMark R. Haskell, co-managing partner of Brunenkant & Haskell LLP,which represents producers and independent marketers (see Daily GPI,May 8). Haskell told the annual meetingof the Energy Bar Association in Washington, D.C. last week thatFERC’s marketing affiliate rules, which hinge on the hope thatpipeline owners will police themselves, has been about as effective asa wolf guarding the hen house.
In Koch’s case, Dynegy and Amoco claim, the wolf has had morethan its fill of hens. While data provided at the technicalconference was insufficient to completely document the abuse,Dynegy and Amoco claim there is sufficient information to show thatKoch’s contracts should be disallowed and that changes are requiredin the Commission’s standards of conduct and in the penalties forsuch abuse.
The changes range from the radical to the minimal but aredesigned to prevent abuses in the future and to simplify (oreliminate) monitoring of reported data for violations byaffiliates, the companies said. The Commission should do thefollowing:
In March, FERC accepted and suspended the four Koch PAL agreementssubject to refund and the outcome of the technical conference (seeDaily GPI, March 7). The Commissionscheduled the conference to explore what it called “serious concerns”raised by Dynegy, Amoco and Marathon Oil (see Daily GPI, Feb. 18 and 25). The marketers charged that KETreceived a clear preference over non-affiliated shippers whennegotiating and entering PAL deals, which operate like short-termstorage where the marketer pays an option fee to use the service andagrees to a percentage of the profits if the services is utilized.
As evidence, they note that while Amoco and Dynegy did use thePAL service, accounting for 34 (3.3%) and 46 (4.5%) PAL contracts,respectively, since the service was offered (out of a total of1,024 contracts), the gas quantities associated with Amoco’s andDynegy’s contracts amount to less than 1% each of the quantity oftotal PAL service. KET, however, performed 317 (31%) of the PALtransactions, but accounted for a “staggering 61%” of the quantityof total PAL service.
“To Dynegy’s and Amoco’s knowledge, no marketer has held apercentage of service on a major pipeline close to that level.Further, Dynegy’s and Amoco’s combined PAL quantities for thereported period were 4.6 Bcf; KET’s PAL quantities for the sameperiod exceeded 176 Bcf. KET’s average contract quantity exceeded550,000 MMBtu. By contrast, Dynegy’s averaged 64,000 MMBtu. Onceagain, these statistics are evidence of affiliate abuse andpreference and should be explored further by the Commission.
“…[H]ow can an affiliate hold 60% of any service on its homepipeline without triggering an inquiry by the Commission?” theprotesters asked.
They also claim that Koch deliberately did not providesufficient notice of its PAL agreements with its affiliate, whichviolates Commission rules. Furthermore, they argue that it does notmatter what premium KET pays because it always results in a profitfor the parent company of the pipeline and its marketing affiliate.
“A non-affiliate will never be similarly situated with anaffiliate on a home pipeline. The gas business is long overdue fora remedy to rectify this inequity. Dynegy and Amoco request thatthe Commission review its current Standards of Conduct to closethis loophole so future affiliate preference is not able tocontinue unfettered. At a minimum, the Commission should adoptmeasures to prevent this type of conduct on the Koch system.”
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