An independent producer has accused Natural Gas Pipeline Companyof America (NGPL) and a number of now-former affiliate companies ofconcocting and carrying out an elaborate scheme that enabled thepipeline to collect fees for gathering that were above the rateallowed by its tariff.

In a Section 5 complaint filed at FERC this week, ChesapeakePanhandle L.P. alleged NGPL and its then-affiliates devisedunlawful arrangements so NGPL could “achieve indirectly what [it]could not achieve directly — the collection of a ‘gathering fee’that often exceeded the maximum gathering rate NGPL was authorizedto charge,” as well as the “collection of a fuel rate forNGPL-provided gathering services that was not authorized in theNGPL tariff.”

The Oklahoma City, OK-based producer said it was adverselyaffected by the arrangements between NGPL and its then-affiliatesbetween March 1998 and December 1999. During that time, it producedand sold gas to certain affiliates from wells located in Moore andCarson Counties in Texas.

In addition to NGPL, others cited in the complaint includedaffiliates MidCon Gas Products Corp. and MidCon Gas Services Corp.,which are now owned by ONEOK Inc., as well as former parent, KNEnergy, and current parent, Kinder Morgan Inc. (KMI). KMI acquiredKN Energy last October.

“This case offers a textbook example of an abuse of interstatepipeline affiliate relationships,” Chesapeake Panhandle officialstold the Commission [RP00-275]. In a nutshell, “NGPL and itsaffiliates negotiated various contractual arrangements amongthemselves that permitted one non-regulated member of NGPL’scorporate family to charge and collect from another [affiliate]rates for gathering services that were, in fact, furnished by NGPLin connection with [its] jurisdictional transportation service. Inso doing, the NGPL [affiliates] contractually provided for thecollection of charges for gathering services provided by NGPL whichNGPL itself could not lawfully collect.”

NGPL and the affiliates “abused their affiliate relationships inorder to circumvent the Commission’s jurisdictional authority toregulate gathering rates charged in connection with jurisdictionaltransportation,” Chesapeake Panhandle officials said.

To the best of its knowledge, “no other entity other than NGPLhas ever performed any substantial physical activities associatedwith the gathering services for which Chesapeake Panhandle has beencharged by NGPL affiliates,” it noted. MidCon Gas Services chargedChesapeake Panhandle a monthly “gathering fee” of $345,000 plus a$0.07/MMBtu variable charge to “offset” charges NGPL imposed on itsaffiliates for gathering services.

“The combination of this fixed charge and variablecharge…..often exceeded the maximum NGPL gathering rate” allowedfor NGPL to gather gas from the “West Panhandle Wells” in Moore andCarson Counties, TX, where Chesapeake Panhandle produced gas.

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