FERC said it plans to begin audits of three additionalinterstate pipelines next month as part of its stepped-up effort tocrack down on abuses involving marketing affiliates. The on-siteaudits of Columbia Gas Transmission, Great Lakes Gas TransmissionL.P. and CNG Transmission are expected to get underway around May18, according to a spokeswoman.

This marks the second wave of pipeline audits. The first wavegot underway in late November when FERC announced that it intendedto audit about 8-10 pipelines in 1998 to determine whether theywere complying with the standards of conduct that restrict theextent of their dealings with marketing affiliates. The Commissionkicked off its effort with audits of KN Interstate GasTransmission, Williston Basin Interstate and KN WattenbergTransmission.

The audits, which are being conducted by FERC’s Office of ChiefAccountant (OCA), are focusing on transactions between pipelinesand their marketing affiliates that took place between January 1996and the present. The mere fact that a pipeline has been selectedfor an audit does not mean that reports of affiliate abuses havebeen made, or that FERC suspects abuses. In addition to ferretingout problems, the OCA said its goal is to report back to theCommission the positive things that pipelines are doing.

The Commission undertook the auditing program after its staffsubstantiated allegations made by Amoco Production that Natural GasPipeline Company of America (NGPL) showed preference to itsmarketing affiliate, MidCon Gas Services Corp., over non-affiliateswhen awarding firm capacity on its system. In late January, FERCimposed a $8.84 million civil penalty on Natural – half of whichwas suspended – for the violations.

In a related matter, a major pipeline group on Monday said itwas concerned that a March order, which dealt with the NGPL-Amococomplaint on rehearing, may have “unintentionally” broadened thescope of certain marketing-affiliate rules to apply tonon-operating employees of pipeline companies and their parentcompanies as well as to operating employees. This interpretation”would prevent non-operating employees from performing their jobsand, therefore, would effectively require the complete separationof pipelines and marketing affiliates” via divorcement ordivestiture, the Interstate Natural Gas Association of America(INGAA) warned FERC [IN98-1-002].

Operating employees, which are involved in the day-to-dayoperations of pipelines, are considered “shared” employees betweenpipelines and affiliates, and, therefore, are subject to themarketing-affiliate rules, such as Standards E and F, whichpreclude pipelines from unduly preferring their marketingaffiliates, and from disclosing to their marketing affiliatescertain information obtained from non-affiliated shippers.Non-operating employees, on the other hand, haven’t been consideredby FERC in the past to be “shared” employees, INGAA noted, addingthat this view should continue.

Operating personnel include 1) personnel who perform anadministrative corporate function for the corporation and itsaffiliates; and 2) senior executives, including officers anddirectors, who have supervisory responsibility for the managementof the corporation and its affiliates. A “broad reading” of theMarch order suggests that “pipelines may be ‘deemed’ to haveviolated the Commission’s [marketing-affiliate] regulations simplybecause the corporation’s senior executives and administrativesupport personnel have access to certain information needed toperform their corporate functions,” INGAA told FERC.

It urged the Commission to “clarify that it continues torecognize the critical distinction between operating andnon-operating employees in the context of Standards E and F, andallow senior executives to perform their management oversight roleson behalf of both companies,” pipelines and marketing affiliates.In addition, the pipeline group asked FERC to “clarify that mereaccess to information covered by Standards E and F by non-operatingemployees does not trigger those standards,” even if such employeesare found to be shared.

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