Without admitting any wrongdoing, Transcontinental Gas Pipe Line Corp. last week entered into a settlement at FERC to pay a civil penalty of $20 million — the largest in the agency’s history — for violating laws and agency regulations that bar interstate natural gas pipelines from giving preferential treatment to marketing affiliates and other sister companies.
The penalty eclipses the previous agency record of $11 million set in 1991 in a case that also involved Houston-based Transco, a 10,560-mile pipeline that supplies Gulf Coast gas to markets in the Southeast and Northeast. Transco’s parent, Tulsa, OK-based Williams Companies, said it recorded two additional after-tax charges totaling $18 million for fiscal 2002 due to its settlement with FERC involving Transco and an adjustment related to a petroleum pipeline investment.
The multi-million-dollar penalty was spelled out in a stipulation and consent agreement between FERC’s Division of Enforcement, Office of Market Oversight and Investigations (OMOI), Transco, Williams Energy Marketing & Trading Co. (WEM&T), and the Williams Companies. The money is to be paid in five installments over the next four years, with the first payment due in about three weeks [IN02-1, FA02-4]. The consent agreement, which FERC approved last Monday, followed an investigation and agency audit of Transco.
In addition to the penalty, Transco agreed under the settlement to terminate its firm sales merchant function by April 1, 2005, thus cutting off one of the means by which it provided its marketing affiliate, WEM&T, with a competitive edge over non-affiliated shippers on the pipeline.
The consent agreement identified a series of violations involving Transco and its marketing affiliate,WEM&T, that occurred since 1999. They included:
Also under the settlement with FERC, WEM&T and other marketing affiliates of Transco will not be able to enter into new transportation and storage contracts with Transco and certain other affiliated pipelines, or increase the transportation capacity held under existing contracts. Moreover, Transco, four affiliated pipelines and WEM&T will be subject to a FERC compliance plan for four years to ensure that marketing affiliates do not receive preferential access to computer information and comply with other agency regulations. The affiliated pipes are Northwest Pipeline, Texas Gas Transmission, Black Marlin Pipeline and Discovery Gas Transmission.
The compliance plan will include “detailed procedures” for Transco and affiliated pipes to restrict the access of their marketing affiliates to transportation information in their computer systems; to post on the Internet discount and transactional information; to develop and hold standards-of-conduct training; and to retain documents as required by FERC regulations.
Additionally, WEM&T was ordered to stop using by June 1 of this year its nomination optimization program or any related programs that link its computerized trading programs with programs or databases that contain information on Transco customers, according to the order. Parent company, Williams, was directed to secure the computer systems and databases of each of its affiliated pipelines.
Unless they receive prior approval from FERC, Williams and afffiliated companies are barred for four years from creating a marketing affiliate for Transco that would be subject to the agency’s standards of conduct rules.
“This settlement marks the beginning of a new era for the Commission and for the market it oversees. The Commission has the will and the means through our new office to deal quickly and effectively with behavior that undermines the integrity of energy markets,” said OMOI Director William Hederman.
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