FERC’s Office of Enforcement has entered into a stipulation and consent agreement requiring Noble Energy Inc. to pay nearly $4.2 million in civil penalties and disgorged profits to settle violations of the agency’s shipper-must-have-title (SMHT) requirements, buy-sell arrangements and competitive bidding rules for long-term, discounted rate capacity releases.
The settlement requires Houston-based Noble Energy, parent of Noble Energy Marketing Inc. (NEMI) and Noble Gas Pipeline Inc. (Noble Gas), to pay a civil penalty of $4 million to the U.S. Treasury within 10 days, and to disgorge $160,486 in unjust profits, plus interest, to energy assistance programs around the nation.
The agreement now awaits action by the Federal Energy Regulatory Commission (FERC). “Unless the Commission issues an order approving the agreement in its entirety and without material modification, the agreement shall be null and void and of no effect whatsoever,” the consent agreement said [IN10-1].
Between Aug. 1, 2005 and Oct. 31, 2007, NEMI and Noble Gas, as affiliated replacement shippers, released and/or acquired through “flipping” a total of 33.35 Bcf of transportation capacity on various pipelines and used this capacity to transport 20.79 Bcf on those pipelines in violation of FERC capacity-release requirements, the agreement said.
“Flipping” involves a series of repeated short-term releases of discounted rate capacity to two or more affiliated replacement shippers on an alternating monthly basis, which bypass the competitive bidding requirement for discounted long-term capacity releases. The effect of flipping can be to create long-term, noncompetitive discounted rate releases, according to FERC.
With respect to violating the SMHT requirement, Noble Energy voluntarily reported that between September 2005 and September 2007 Noble Gas shipped 9.5 Bcf of natural gas that was titled to NEMI on transportation capacity held by Noble Gas. FERC rules require shippers to have title to gas at the time the gas is tendered to the pipeline or storage transporter and while it is being transported or being held in storage.
NEMI also voluntarily reported that in April 2006 it engaged in prohibitive buy/sell transactions involving the transportation of 0.6 Bcf of gas. A buy/sell transaction is a commercial arrangement where a shipper holding interstate pipe capacity buys gas at the direction of, on behalf of, or directly from another entity (end-user, for example), ships that gas through its pipe system, and then resells an equivalent amount of gas to the downstream entity at the delivery point.
FERC established the prohibition to prevent circumvention of its open-access transportation policy and regulations that require released capacity to be posted and bid on a nondiscriminatory basis, according to the consent agreement.
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