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FERC Fines BP, Anadarko for Violating Capacity Release Policies
FERC late Thursday assessed civil penalties totaling $7.3 million in approving settlements of two separate enforcement matters involving BP Energy Co. and Anadarko Petroleum Corp. subsidiary MGTC Inc. The penalties against BP coincided with a sweeping action by the Environmental Protection Agency, the Commodity Futures Trading Commission and the Department of Justice, also on Thursday.
Both settlements involved self-reported violations of the Federal Energy Regulatory Commission’s capacity release policies. Different facts and circumstances, however, resulted in BP agreeing to settle with a payment of $7 million and MGTC settling for $300,000.
“FERC’s capacity release program is a core element of our natural gas regulatory program, and violation of the regulations and requirements governing capacity release warrants significant penalties,” Chairman Joseph T. Kelliher said. “Each company could have faced substantially higher penalties had it not self-reported its violations, and had it not also demonstrated exemplary cooperation with FERC’s enforcement staff during the investigation. What should be clear to the industry is that FERC places a high value on a company’s commitment to rectifying inappropriate conduct by self-reporting its violations and cooperating with staff’s investigation.”
BP will pay a civil penalty of $7 million and implement a compliance monitoring plan to resolve multiple self-reported violations of regulations for posting and bidding of released capacity, the shipper-must-have-title requirement, and the prohibition on buy-sell transactions. The violations involved thousands of individual transactions in 2005 and 2006 stemming from BP’s management of customers’ capacity rights on interstate natural gas pipeline and storage facilities.
FERC said the most serious of BP’s violations involves a practice known as “flipping,” which evidences a deliberate strategy for evading Commission regulations that require posting and competitive bidding for discounted long-term releases of capacity.
BP avoided the posting and bidding requirements by improperly arranging for serial short-term releases of discounted capacity to two BP-affiliated replacement shippers on an alternating monthly basis, an arrangement that continued for 22 months in one instance, according to FERC. It found that BP transported 24.9 Bcf of natural gas on capacity it acquired improperly through flipping transactions. The Commission noted that this practice is “particularly serious in nature” and “warrants a substantial civil penalty.”
In addition to the flipping violations, BP had several shipper-must-have-title violations and engaged in two prohibited buy-sell arrangements, FERC stated. In total, BP’s violations involved 49.3 Bcf of gas and occurred on 14 major pipeline systems. The Commission also noted that BP’s actions “directly affected the transparency of the secondary market for natural gas transportation” and “impaired the effectiveness of the Commission’s pipeline open-access policies.
In addition to the civil penalty, BP will implement a compliance monitoring plan for at least one year under the enforcement staff’s supervision.
MGTC agreed to pay a civil penalty of $300,000 and submit a compliance report to resolve its self-reported violations of the Commission’s shipper-must-have-title requirement regarding a contract for interruptible transportation on its affiliated interstate pipeline, MIGC Inc. FERC found that MGTC violated the shipper-must-have-title requirement and MIGC’s tariff, under which the title requirement applies to interruptible as well as firm transportation.
MGTC has transported about 17.2 Bcf of natural gas since 1998 in violation of the shipper-must-have-title requirement, according to FERC. The Commission noted that, in addition to occurring on an interruptible contract, MGTC’s violation did not result in unjust profits, and that there was no demonstrable harm to third parties caused by MGTC’s violations.
In addition to the civil penalty, MGTC will submit a compliance report verifying the steps it has taken with respect to all related aspects of the transportation transaction(s) to correct the violation.
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