Although it’ll be poorer by a couple of million dollars, KinderMorgan Inc. says it’s glad to have finally reached a settlementwith FERC resolving many of the marketing-affiliate issues thathave dogged its pipeline companies for years.

Both Kinder Morgan and FERC’s Office of General Counsel signedoff on a stipulation and consent agreement earlier this week thatcalls for the company to pay a civil penalty of $5.1 million andmake refunds to non-affiliated customers. It also imposesrestrictions on contracts between Kinder Morgan pipelines andmarketing affiliates, and requires Kinder Morgan to implement atwo-year compliance program that’s designed to keep pipeline andmarketing operations independent of each other.

Kinder Morgan was “pleased” with the settlement because it”resolve[d] another outstanding issue that existed prior to ourmerger with KN Energy,” said Kinder Morgan Chairman Richard D.Kinder. Moreover, he stressed the settlement, which “reinforces our’back-to-basics’ strategy,” will have “no substantial effectfinancially on our business, as [Kinder Morgan] has accruedsufficient reserves to cover the matter.”

The agreement ends a nearly two-year investigation and auditconducted by the Commission’s Enforcement staff and Office ofFinance, Accounting and Operations, respectively, into predecessorKN Energy’s (KNE) “apparent” violations of marketing-affiliatestandards under Order 497, which bars pipes from showing preferenceto their marketing affiliates and from disclosing to marketingaffiliates information obtained from non-affiliated shippers.Kinder Morgan inherited the marketing-affiliate problems last yearwhen it acquired KN Energy (KNE), parent of KN Interstate GasTransmission (KNI) and Natural Gas Pipeline Company of America(NGPL).

Kinder Morgan neither admitted nor denied the violations, but itentered into the agreement nevertheless to avoid any “extended[civil] litigation” or “prolonged regulatory proceedings” at FERC.The company must pay the civil penalty within 30 days, and none ofit will be recoverable through rates..

The full impact of the penalty was mitigated somewhat by theCommission agreeing in the consent order not to assess a suspended$4.42 million civil penalty against Kinder Morgan affiliate, NGPL.FERC slapped NGPL with an $8.8 million fine in early 1998 after aninvestigation substantiated allegations by Amoco Production thatthe pipeline showed preferential treatment to a marketingaffiliate, MidCon Gas Services, over non-affiliated shippers whenallocating capacity. At the time, FERC chose to suspend half of thepenalty on the condition that NGPL remained free ofmarketing-affiliate improprieties for two years. Non-affiliatedshippers of NGPL decried the reprimand as being far too light.

In addition to the penalty, Kinder Morgan will be required tomake refunds of $674,428 (including $92,749 in interest) within thenext 60 days to 23 non-affiliated customers as part of the consentagreement. The refunds also will not be recoverable through rates.

The stipulation and consent agreement applies to the entirefamily of Kinder Morgan companies, including Kinder MorganInterstate Gas Transmission (formerly KNI), KN WattenbergTransmission LLC, NGPL, Kinder Morgan Inc., Kinder Morgan EnergyPartners L.P., and KN WesTex Gas Services, as well as theirsubsidiaries and affiliates.

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