Kinder Morgan Interstate Gas Transmission LLC yesterday agreedto pay a whopping civil penalty of nearly $5.1 million as part of astipulation and consent agreement that it signed with the FederalEnergy Regulatory Commission.

The stipulation and agreement applies to the entire family ofKinder Morgan companies, including Kinder Morgan Interstate(formerly KN Interstate Gas Transmission, KNI), KN WattenbergTransmission LLC, Natural Gas Pipeline Company of America (NGPL),Kinder Morgan Inc., Kinder Morgan Energy Partners L.P., and KNWesTex Gas Services Co., as well as their subsidiaries andaffiliates.

The agreement ends an investigation and audit conducted by theCommission’s Enforcement staff and Office of Finance, Accountingand Operations, respectively, into the pipeline’s “apparent”violations of the marketing-affiliate standards under Order 497.Kinder Morgan Interstate neither admitted nor denied theviolations.

Also as part of the agreement, Kinder Morgan will be required tomake refunds of $674,428 to a number of customers, includingAquila Energy Marketing, Arizona Public Service, Chevron, El PasoNatural Gas, Enron and Texaco Natural Gas.

Moreover, Kinder Morgan has agreed to implement a complianceplan, which will remain in effect for two years. The plan, amongother things, calls for the company to update its organizationalchart within 10 days, develop and maintain employee jobdescriptions, and prohibits the sharing of board members, topofficials and employees with any marketing affiliates. KinderMorgan will provide FERC with updates twice a year on how it iscomplying with the plan, according to the stipulation andagreement.

For the next two years, Kinder Morgan is barred from enteringinto any new contracts for transportation, storage or natural gaswith existing or new marketing affiliates, or amending existingcontracts to increase the transportation capacity for a marketingaffiliate.

During the next three years, Kinder Morgan further has agreed tonotify Enforcement within 30 days before creating or acquiring anynew affiliate to transport or market natural gas or transportationcapacity on its systems.

Lastly, FERC said it wouldn’t assess a suspended $4.42 millioncivil penalty against a Kinder Morgan Interstate affiliate, NGPL.FERC slapped Natural with the fine after Amoco Production accusedthe pipeline of favoring a marketing affiliate over non-affiliatedshippers when allocating capacity. Amoco filed the complaint in1998.

Kinder Morgan Interstate inherited the marketing-affiliateproblems from KNI when it acquired its parent, KN Energy, lastyear. In 1996, the Commission ordered KNI to restructure itsoperations upon learning that employees worked interchangeably forthe pipeline and its marketing affiliates in violation of Order497.

In a December 1996 order, FERC found that KNI had violatedseveral of the standards of conduct in Order 497, including 1)routinely “cycling” employees between pipelines and marketingaffiliates; 2) disclosing to marketing affiliates information onnon-affiliated shippers; and 3) failing to share information thatit provided to its marketing affiliates with other shippers on itssystem [MG96-13]. At the time, the Commission directed KNI toquickly cease the violations and comply with themarketing-affiliate rule’s conduct standards.

A year later, FERC accepted KNI’s revised standards of conductas “acceptable,” pending an audit by the Commission staff. Theaudit was conducted in 1998.

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